GWA Group Limited (GWA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the GWA Group Limited FY '23 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Urs Meyerhans, CEO. Please go ahead.

Thank you very much. Good morning, everyone. Thank you for joining us on the webcast or conference call for GWA's results for the year ended 30th of June 2023. My name is Urs Meyerhans, GWA's Managing Director, and I'm pleased to present the results today. Joining me on the call this morning are Calin Scott, our Group CFO; and Craig Norwell, Group Executive for Sales. We look forward to talking further with many of you over the coming days and weeks. For today's presentation, I will first provide an overview of our group performance and key themes that will include a summary of our continued commitment to safety. Calin will discuss the group financial results for the year, including P&L, balance sheet and cash flow. Craig will then provide an overview of our performance in our key end markets and some more details specifically for Australia, our largest market. I will conclude today's presentation with an update on our strategy and provide a summary and outlook for the year ahead financial year '24. We will be happy to answer your question at the conclusion of the presentation. Moving to Slide 5. Let me first provide you with key highlights for the past year. Financial year '23 was a year of 2 halves. As you might recall from the half-year results, we started the year strongly with a solid Q1 sales performance. Unfortunately, we saw a negative shift in market sentiment from October, which was most pronounced in the residential renovation and replacement segment that resulted in a declining sales to our merchant partners. This was intensified by destocking by 1 specific merchant and also from higher Australian customer freight costs, you remember fuel related surcharges and higher warehouse costs in New Zealand. [ All that ] resulted in a normalized EBIT being down 4% in the first half. We responded quickly to these challenges. Our focus on operational discipline and cost management, together with adjusting our operating model to align to market conditions resulted in improved earnings and margins in the second half compared to the first half. Second half EBIT was up 6.5% with EBIT margins up 120 basis points on the first half. We continued to proactively manage inventory levels in line with the external market environment, which resulted in a significant reduction in working capital compared to financial year '22. As a result, fully operating cash flow was more than doubled on the prior year. This led to a 15% reduction in net debt compared to financial year '22. And that enabled us to declare a final dividend of AUD 0.07 per share, bringing the full year dividend to AUD 0.13 per share fully financed. As we go through today's presentation, I also will provide an update on our progress across several of our key strategic deliverables. Moving to Slide 6. Safety remains our #1 priority and commitment. As we detailed in the first half, we incurred 2 minor injuries in our New Zealand business. This led to a disappointing increase in the total injury frequency rate. We are continuing to focus on enhancing our safety performance measurements with a shift in entities towards measuring the leading indicators of safety such as worker insights. We have seen a measurable improvement in this area as you can see on the chart. In the last 12 months we more than doubled worker insights, which is measured as insights per million hour work. I will now hand over to Calin to go through the group financial results.

Thanks, Urs. Slide 8 presents our results first on a normalized basis, which excludes significant items, and then on a statutory basis which includes significant items. Significant items for FY '23 were a total of AUD 1 million after tax and related to costs associated with rightsizing the organization in the second half as we responded to the market conditions. Prior year significant items were AUD 12.1 million after tax, including costs associated with the implementation of the ERP/CRM system and closure of the China sales function. On a normalized basis, full year EBIT is down 6% to AUD 70.4 million. That reflects the volume impacts Urs mentioned earlier, particularly in the residential R&R segment and higher domestic freight costs commencing in the first half, with these costs being somewhat offset by lower ocean freight rates in the second half. Pleasing, as a result of our agile response to these challenges, we saw an improvement in EBIT and margin in the second half, which I will discuss in a subsequent slide. On a reported basis, EBIT is up 16% with net profit after tax up 23%, reflecting a much lower significant item than F '23 compared to the prior year. Moving to Slide 9. This slide contains an [ overall ] chart we typically present to set up the key drivers of earnings over the year. This is presented on a normalized basis. With regards to volume, the decline here is a reflection of lower activities in the residential R&R sector as well as the first half destocking by 1 major merchant partner. In relation to price mix, we implemented an initial price increase of 5% across Australia, New Zealand in July 2022 and 5% in the UK in November 2022, primarily related to cost increases. That was followed by further price increase of 4% implemented in Australia in April '23 and 5% implemented in New Zealand in March '23. These are in response to increased customer freight costs. Turning now to freight. There are 2 components to freight. I'll start with outbound freight. As we detailed at the half year, we incurred freight charges related to higher diesel costs in Australia and New Zealand, which impacted our domestic outbound freight cost to customers. Inbound freight as we also detailed at the half that we expected to see the benefits of declining sea freight charges in the second half of FY '23, and we expect to see this benefit continue into FY '24. The higher warehouse costs related to the first half of FY '23 where we held higher levels of inventory in anticipation of an extended Chinese New Year due to space limitations at our own warehouse facility, we held this stock offsite, including additional storage charges. In relation to foreign exchange, our average Australian dollar, US dollar exchange rate for a year was AUD 0.79, which compared to AUD 0.72 for the prior year. We had some favorable balance sheet revaluations which were partially offset by unfavorable AUD versus USD on purchases. And as for FY '24, we are currently 50% hedged at USD 0.68. For A&P despite challenging market, we continued to invest in our brand realignment strategy. In relation to net cost changes, I have already mentioned our disciplined execution in response to market which delivered additional savings in the second half, contributing to the improved second half EBIT and margin performance. Turning to Slide 10. As I had mentioned at the start of the presentation, FY '23 was a year of 2 halves and you can see that reflected in the tables on this slide. While revenue was down 2% for the year, we saw an increase -- we saw an improvement in Australia and the United Kingdom on a constant currency basis in the second half. This was offset by New Zealand, which is in recession. I will discuss the revenue performance by market in more detail in this section. And while EBIT was down 6% for the year, we saw an improvement in earnings of 6.5% in the second half and a lift in margin by 120 basis points. That reflects the price increases we implemented in Australia in April and in New Zealand in March to address the increased customer freight costs, our cost management initiative and lower ocean freight costs. Our response to changing market conditions included adjusting our operating model and Craig will provide some more context of this section, cost-saving initiatives, including rightsizing our business, and disciplined market execution, including proactively managing inventory levels to market demand. Turning now to Slide 11. This is a strong result. We continued to proactively manage inventory levels while maintaining the quality of stockholding to support product availability for our customers. And you may recall at the end of FY '22 our debt balance was higher than usual due to the timing of sales which were impacted by the implementation of our new ERP system in April 2022. The combination of these resulted in a significant reduction in working capital compared to the prior year. As a result, cash flow from operations in FY '22 doubled on the prior year to AUD 99.6 million. Cash conversion remained strong with cash conversion ratio of 112%. Capital expenditure and other investment activities was AUD 2.2 million for the year, which was steady on the prior year. And our CapEx program remains focused on growth initiatives to drive revenue growth opportunities and cost efficiencies. Cash restructuring and other costs of AUD 2.3 million related primarily to the ERP/CRM system and restructure costs. Turning to Slide 12. GWA remains focused on providing strong returns to shareholders, and the dividend policy is to pay 65% to 85% of NPAT dividend. As Urs mentioned earlier, our continued robust balance sheet enabled a AUD 0.07 final dividend fully franked. As you can see here, the final dividend is similar to that in the previous corresponding period. Our dividends remain fully franked. Turning to Slide 13. I will finish my section of this slide. GWA remains in a solid financial position. Net debt at 30th of June was AUD 117 million, which is 15% lower than 30th June 2022 and reflected the reduction in working capital and improved operating cash flow I discussed earlier. Our credit metrics approved on the prior year and remained solid with a gearing ratio of 23%, which compares to 26.2% for the prior year and leveraged down to 1.5x, which compares to 1.7x in the prior year. We have total facilities of AUD 220 million, including a 3-year multi-currency revolving facility of AUD 180 million and a separate AUD 40 million 1 year multicurrency revolving bilateral facility. This facility expires in October and we expect to extend prior to this date. I will now hand over to Craig Norwell to discuss our performance by market.

Thanks Calin, and good morning, everyone. In my section today I will provide some further context to our revenue by market and for Australia more granularity by state. Turning to Slide 15. This is the usual slide we present to show our revenue for each of our key end markets. I'll start with Australia, our largest market, which represents 82% of group revenue. We had a strong first quarter with sales up 7%. However, as Urs referenced earlier, we then saw a decline in residential renovation volumes over the second quarter and into the second half. While full year revenue was down 1%, we did see an improvement in revenue in the fourth quarter, reflecting the 4% price increase effective from April, implemented largely in response to the increase in customer freight and sales initiatives executed in response to the changing market conditions. These resulted in a modest increase in sales for the second half over the first half. One important initiative to call out is that we have recently realigned our Australian sales organization to a state-based structure as opposed to a segment structure. As you'll see on the next slide, each state has its own dynamic and the new structure ensures we are able to respond more quickly to local customer needs and sales opportunities with localized solutions led with local accountability. A quick win already resulting from this change is the introduction of entry level tap and shower ranges, a direct result of customer collaborations with the goal to respond to the changing market conditions together. In New Zealand we saw a deterioration in revenue, which reflects the local economy moving into recession. We implemented a 5% price increase in March and pleasingly we saw revenue in local currency up 2% in the fourth quarter compared to quarter 3. UK sales were up in both the half year and for the full year on a constant currency basis. Turning to Slide 16. This slide details Australian sales for the year by states. In New South Wales, we had double-digit growth in the first quarter from strong commercial and residential renovation demand. However, as we've already called out, we saw demand declining for residential renovation from the second quarter and into the second half, which also caused some stock rebalancing from merchants. As a result of the challenging economic conditions, we've also seen some delays for key commercial projects in the second half. In Victoria, you'll have seen the news of some plumbing groups and new home builders being impacted by the challenging market conditions. As a result, we had inconsistent sales across our customer base for the period. Queensland delivered a stronger result compared to a disappointing FY '22 with growth through the commercial segment, and the pipeline in commercial remained strong. In Western Australia, we had growth in both commercial and residential renovation with some softness in residential detached new build. And in South Australia, sales were resilient in renovation and replacement while sales in the commercial and detached segments were in line with a strong FY '22. Turning to Slide 17. While the last slide demonstrated sales by market, this slide illustrates sales through our main customers in Australia. Also, earlier I talked to half 2 relative to half 1 with pleasing improvement in half 2 this year. This chart compares each half to the corresponding half the prior year. [Technical Difficulty]

Pardon me, this is the conference operator. We have temporarily lost connection with the speaker line. Please continue to hold and the conference will recommend shortly.

Good morning. It's Craig Norwell. Our humble apologies. We had some technical issues here at our office, which meant we went offline. And we're back online now with a Plan B. What I'll do is, I believe I was probably on Slide 16, when I was talking about the state performance across Australia. So I'll be on the side of caution and start there. For Slide 16, this slide details Australian sales for the year by state. In New South Wales, we had double digit growth in the first quarter from strong commercial and residential renovation demand. However, as we've already called out, we saw demand declining for residential renovation from the second quarter and into the second half, which also caused some stock rebalancing from merchants. As a result of the challenging economic conditions, we've also seen some delays for key commercial projects in the second half. In Victoria, you'll have seen news of some plumbing groups and new home builders being impacted by the challenging market condition. As a result, we had inconsistent sales across our customer base for the period. Queensland delivered a strong result compared to a disappointing FY '22 with growth through the commercial segment, and the pipeline in commercial remained strong. In Western Australia, we had growth in both commercial and residential renovation, with some softness in residential detached new build. South Australia sales were resilient in renovation and replacement, while sales in the commercial and detached segments were in line with a strong FY '22. Turning to Slide 17. While the last slide demonstrated sales by market, this slide illustrates sales through our main customers in Australia. Also, earlier I talked to half 2 relative to half 1, with pleasing improvement in half 2 this year. This chart compares each half to the corresponding half the prior year. You can see the impact of economic conditions with overall customer sales reflecting the end market dynamics where we are seeing positive results in commercially focused merchants, while sales are being impacted by merchants who are more exposed to the residential renovation and replacement segment. That impact has also been reflected in some destocking with a changed focus to cash flow by some merchants. It's also important to bear in mind that we usually execute a price rise on the 1st of July. However, this year we did not, which resulted in no pre-price rise buying at the end of the year relative to last year when there was a significant pre-price rise buying. A clear positive is that we are seeing some early signs of traction from our Win the Plumber strategy with our significantly expanded customer base of more than 20,000 construction and maintenance plumbers. We have a defined range of products meeting the specific needs of maintenance plumbers that we actively sell to plumbers and our merchant partners. And in [ Merchant A ], this bundle of products achieved 15% growth in half 2. With construction plumbing, our focus on increased customer coverage and category penetration achieved 6% growth in sales to these customers in half 2 despite the market conditions. I'll now hand you back to Urs.

Thanks, Craig. We continued to focus on new product launches during the year to build our presence in core segments. We launched new products including entry level tapware, showers and accessories to increase our share in builders and affordable housing markets and the continued expansion of our independent living range Livewell in the aged care sector. The launch of the entry level product is in direct response to the changing market conditions. With the cost of living increasing, customers often seek out lower cost products and our aim is to provide solutions across the different value propositions from entry level to good, better and best. This way, we are using our extensive expertise to deliver products and solutions for each products and segments. We also introduced a colored sink range to refresh our kitchen product offer and added commercial tapware product to capture growing demand in the education and public amenities sector. I will make a few comments about the continual advancement of our strategy. Moving to Slide 21. We continued to make excellent progress in core areas of our strategy, which is highlighted on this slide. The table on the left shows our targets by financial year '25. On the right, we provide an update based on the end of financial year '23. Win the Plumber, as you will recall, plumbers are the single biggest opportunity for GWA to grow volume and share in Australia and New Zealand. Over financial '23, we extended our reach with Australian and New Zealand plumbers to over 20,000, which is nearly double from our total at half year. We now have a clear understanding of the needs of the different plumbing segments, and as we move into financial year '24, we have initiatives in place to commercialize on this increased platform. We launched a successful trial of a new technical support service in the first half, and we are now engaged with 6,700 plumbers in providing technical services. These services include a dedicated technical outline to provide direct support to the plumber to ensure any issues raised can be proactively addressed. We also launched the Caroma Plumbers' Hub, an app available on smartphones which provides plumbers with the knowledge, tools and support to select, install, maintain and repair GWA products correctly and efficiently. It also provides the plumbers with direct visibility of available stock. This provides the plumbers with enhanced efficiency in the selection, procurement, installation and maintenance of Caroma products. Innovation through design and partnership, a key focus of our growth strategy remains on product innovation. We have an established 5-year NPD roadmap to support our go-to-market product strategy. At our Strategy Day last September, we outlined a vitality index tracking of plus 10%, which is the percentage of sales from new products as a percentage of total sales. As I just mentioned on the previous slide, we continued the rollout of new products during the year, and traction from these products means we are currently tracking ahead of our 10% vitality Index target. For customer service or experience, we continued to develop solutions to enhance our customer experience and make it easier for customers to do business with us. The new ERP we launched across Australia, New Zealand allows for consistent and improved reporting. Our service levels continued to improve with DIFOT in Australia and New Zealand increasing to 78%. In addition, we are able to consistently measure the transactional NPS from our merchant partners. As part of our customer-first priority, which I will discuss shortly, we have identified key initiatives to further improve on these important measures. On capital management, as discussed earlier by Calin, we have made good progress except for EPS. This measure was impacted by the rapidly changing market conditions. We expect our strategic and operational initiatives to have a positive impact on our performance going forward. Let me move to the summary and outlook on Slide 23. Let me summarize the key points from today's presentation before concluding with the outlook for financial year '24. As we mentioned, financial year '23 was a year of 2 halves. Following a strong first quarter, the market declined from October and into the second half, primarily in the key residential renovation and replacement segment. We initiated a rapid and agile response to these conditions. Our focus on operational discipline and cost management resulted in improved second half performance compared to the first half. This resulted in increased earnings and margins with significantly improved operating cash flow in the second half of the year. Our strategic updates demonstrate the excellent progress and momentum on key initiatives. As we head into financial year '24 we have within the strategic framework identified 2 key priorities being customer first and profitable volume growth. The financial year '24 priorities are clear and we will execute on them with an organizational discipline. Moving to Slide 24. Turning to the outlook for financial year '24. We expect increased demand for commercial in new builds, in health and aged care, and repair and renovation. Meanwhile, we expect the existing pipeline in residential detached housing should provide solid demand in the segment into the first half of financial year '24. We also expect increased activity in multi-residential, social and affordable housing and build to rent category. However, demand activity in residential renovation and replacement is expected to remain subdued. Within that operating environment, we will continue our disciplined execution with a strong focus on customer first and profitable volume growth. We continue to target investment in entry level products, increasing our share of wallets with plumbers, and customer experience centers across Australia and New Zealand. We are well prepared for financial year '24. We have the right organization structure and clearly articulated priorities. Ladies and gentlemen, that concludes the presentation. Calin, Craig and I are happy to take your questions.

[Operator Instructions] Your first question comes from Shaurya Visen from Bank of America.

I had the 3 questions if I could just ask. So starting with New Zealand, right. You've called out that market, right? Obviously a weak market. Can you give us a sense of the end market breakdown for that one? So split between repair and remodel and new construction? Or is that very similar to Australia? And I also noticed that you sort of called out Q4 as being quite solid. So is it fair to say that that market has perhaps turned the corner? I'll stop there in New Zealand and have a couple of quick ones after that.

To answer the first part of the question, just in terms of the market dynamic and breakdown, we find the New Zealand market is quite similar to Australia in terms of breakdown by segment. And then on the second one, in terms of the increase in the New Zealand in quarter 4, that's largely driven out of a number of the sales initiatives that we spoke to earlier. We think the market is probably going to stay fairly subdued in New Zealand.

Right. That's helpful. Just as a quick follow up. [indiscernible] within New Zealand, right? What are you seeing in the new construction and repair model. How do they look to you, say, in the first quarter of this year, or both markets look, as you say, equally weak?

So from a New Zealand new construction market, so their approvals sort of start dropping a little bit before Australia. So we see completions for newbuilds in the New Zealand market probably being a bit softer in quarter 1 of FY '24 than what we see in Australia, where we've got a stronger sort of pipeline leading into H1 of FY '24.

That's very helpful. And so just move to the next one. You had a comment destocking by a key channel partner. Could you just give us some more color around that statement, please?

I can take that one. So we certainly thought probably similar theme power too hard. So when the renovation softness in residential sort of started to appear through October, November, we saw 1 merchant in particular, merchants sort of be, in our summary, reduce stock on hand in the most obvious way. We also saw other merchants start to prioritize cash over stock on hand. So that was true of some of the tail end of half 1. Through half 2 we haven't seen any major shift in stock on hand from the levels that they hit at Christmas time. The decline has mainly been sales out into renovations in residential.

Okay. That's super helpful. And last one and then I can queue up back in. Urs, perhaps for you, so Slide 21, right, you have the slide on capital management. You sort of called out EPS, right, as sort of tracking below expectations. So from where we stand right now, that number of 5% to 10% EPS CAGR for '23, '25, what are your current expectations? Do you think the upper end is still possible or we should be more thinking towards the lower end?

Thanks. We usually don't provide a guidance in regards to financials. If I tell you which one I'm targeting, I give you a financial forecast, which I'm not really happy to do so. But as I said in the presentation, I do think we have the right measures in place with restructuring organization, we have the right organization model and we do whatever we can to improve the performance going forward.

Your next question comes from Peter Steyn from Macquarie.

Just a quick question on your entry level product strategy. Urs, could you step us through some of the unit economics there? One would assume that it's a lower dollar margin unless you've got a materially better GP. So how do you think about the introduction of this product? What impact is that having on your vitality index as things stand right now? And what is the economic outlook for that product entry?

Let me give you some [ channel ] comments and then I ask Craig to be more specific. So the entry level product, if you follow the company, this probably -- the company decided probably about 5, 6 years ago to get out of the entry level products. As we sort of moved into the realignment of the sales organization, we clearly saw a lack of our product offering in that builder range. In regard to the margins, you're right, margin percentage is lower than some of the Caroma products, but as I often in turn say, you can't take margins to the bank, you can take dollars to the bank. And as we sell through more, it will have a positive impact on EBIT. Clearly also, with the introduction of these products, it will improve our vitality index. Do you want to go specifically?

Yes. Peter it's really come from the customer collaborations I referenced around 2 things. One to Urs's point, we'd actively become not involved in the -- any entry level price corridor. So we focus purely on good, better, best. We've got a number of customers that our sanitary offers had met their needs but tap and shower hadn't, and there was a desire for us to be a full-service provider. Certainly the market economic conditions we've seen too is seeing people start to down trade in different types of sort of work and different -- to different degrees around Australia. So there's been, I suppose, an enhanced demand for it. The benefit for us that we're seeing so far is, yes, not a lot to see in percentage margin, but bankable margin slightly lower. But the advantage is we go from winning 3 of the 7 categories we play in to 5 or 6 of those categories. And we've also seen a different type of support from those customers with a lot of the Caroma tap and shower collections through our Luna, Urbane and Liano ranges as well. So it's not purely confined to this entry price point offer, but I suppose our offers through entry, good, better, best.

Your next question comes from Lisa Huynh from JPMorgan.

I guess just to continue on from the entry level product strategy, I guess how much has that impacted the mix in the second half? I mean, there were 2 rounds of price rises and you've alluded to it in the comments, but it's been negated by a negative mix shift what sanitary wear? I just wanted to understand the timing of that new product.

[indiscernible] financial year '23, so that wouldn't have had any impact on any of the margins in financial year '23. We will see some of the benefits flowing in '24.

Yes. So what's happening with that mix shift, the comment then towards sanitary ware?

Within financial year '23?

Yes, that's right.

I think when you take a line through the shift in half 2 and some of the stocking levels, we certainly saw sales out in tap and shower more impacted and stock levels of tap and shower more impacted, so we proportionally sold more sanitary throughout the course of FY '23, hence the comment on shift towards that category.

In addition to what [indiscernible] destocking, that merchant mainly focuses on present channels. So the impact stays stronger in this category.

Yes. Okay. That's great. I guess in response to one of Peter's question, you kind of talked about just the types of projects coming online in the next 12 months. People are starting to down trade. Are there any particular types of trends that you're seeing, what they're kind of pivoting towards?

I think we mentioned in the presentation, the trend you're going to see is social and affordable housing and then clearly a new sort of category for service built to rent and the indication from some of our construction partners, clearly that has to be a different price point to what we offered in the past.

Yes. So I guess to the extent that you're introducing new sales initiatives, to what extent can the strategy and internal initiatives like Win the Plumber just offset some of those potential volume and margin headwinds in the next 12 months?

The way we sort of structured the business and I mentioned our 2 priorities are customer first and probably the volume growth. Our target is clearly, as I said, with some of the entry level products #1, but also with some of the specific offering for the plumbers, we should see probably the volume growth. And I think you mentioned in previous calls we often talk about the plumbers. This industry doesn't move that quickly. So while we have the 20,000 plumbers on the books, we will see some more traction in regards to commercializing on this increased customer base going into '24.

The next question comes from Daniel Kang from CLSA.

Probably a question for Craig. With regards to your point on new local state-based sales structure, what sort of impact do you expect from this? Do you see some cost savings as a result of the moves?

Simple answer to that is no. In terms of why that's not been the motivation for it's been to use the resources we've got across all parts of Australia, New Zealand, in a more formidable way. But the upside for us, Daniel, is really there's a lot of peculiarity state by state in terms of customer need, but also the competitors we sort of battle against. And as I said in the presentation, it's really been about having a laser sharp focus on local needs and being able to turn those opportunities into execution faster linked to Urs's point on customer first and profitable volume growth, but in a way where we've got single point accountability through a market leader in each state of Australia and then in the New Zealand market.

Craig, and just sticking with you in terms of the decision not to raise prices in 1st of July. Just interested in the reasoning behind this.

I suppose, Daniel, it is as simple as we'd taken price early in the year and then we took price in April in Australia and we took price in March in New Zealand. So we didn't see, I suppose, the need in such close proximity to take price again.

And just to add to that, we've also seen throughout '23 in the second half, we've seen some improvements in the international trades into Australia. So our decision was, let's see how this plays out. We clearly monitored very closely. If required, we will consider price increase, but we didn't find it appropriate at the end of the year.

So the price rises have been received quite well so far as. Is that a fair statement? And just an extension of that, do you see further price increases into FY '24?

[ Only ] price increases have been accepted. I'm not sure if I would say they've been well received, but in fact they got accepted. If we would have raised the price increases too early, there probably would have been a question on our customers in regard to the cost basis as the international trade is coming down in regards to cost and we just want to first see how that sort of flows through. But we're not ruling it you.

Your next question comes from Keith Chau from MST Marquee.

The first one -- maybe 1 for Urs. Just trying to understand how GWA's volume performance in FY '23 compared to the previous BIS Oxford forecast of down 4%. Just wondering if you can give us a sense of how FY '23 performed against that, including and excluding destocking. And furthermore, for FY '24 do you think you will outperform or underperform the BIS Oxford forecast of down 8% for the Australian market, please?

Yes, look, if you look at '23 and you look at BIS, I think they had sort of suggested that there was somewhere between 4% and 5% volume decline. Our decline was slightly higher than that across our categories, as I say, particularly impacted by one of the destocking. It's hard to calculate precisely what the destocking initiatives has translated into percentage terms. And Craig also mentioned that while we didn't see a massive destocking across other merchants, we clearly noticed in the second half there was a stronger focus on cash flow and therefore they were far slower in finishing their own stock level. In regard to '24, we do believe that with our initiatives in place and again the entry level products continuing to commercialize, in the plumber we would expect to outperform the market outlook.

Excellent. That's really good color. The second one maybe to Craig on mix. I just want to approach mix from a different angle because I think there have been some changes in disclosure in the presentation, but it seems to me that mix potentially was already an impact in FY '23 and part of that might have been due to customer trading down without even the introduction of new products. So Craig, can you just give us a sense of what the mix impact was in FY '23? Given these new initiatives, do you expect mix to be negative again in FY '24?

There's probably 2 parts to it, Keith. I think, as I said, we didn't see a pronounced down trade from those price corridors through the course of F '23, but we certainly had customer feedback requesting us to be more, I suppose, complete in our offer through that. But the mix change in '23 was largely around the way that tap and shower volumes, especially in merchant B, were represented in stock on hand shifts and to a lesser degree the renovation softness. But that's what drove the buy towards sanitary. If I think about F '24 as Urs talked about, so our big drivers of profitable volume growth are obviously Win the Plumber, which is a complete sort of category play to meet their needs. But you certainly see these new maintenance plumbers we're now engaging with a technical partner far more frequently replacing taps and showers than anything else. But outside that through the shift in residential so, social housing, affordable living and built to rent, that's a total category play and not a major driver of a mix shift. And the other big bucket for us is health care pipeline, which again is complete category but comes with higher price point, higher margin product as well. So hard for me to say what that'll all net out to at the end of June next year. But there's no obvious reason there for there to be a shift based on where we're focusing on volume growth.

Okay. Understood. Maybe if I turn to Calin, I think there was a comment in the presentation talking about how GWA is matching cost to revenue. Typically there'd be an assumption on what costs need to go into the business or what could potentially come out, but I didn't see anything in that respect, Calin. So apologies if I've missed it, but can you give us a sense of what cost out targets you have in place for FY '24? We don't necessarily need to go into the work streams, but if we just understand, given the forecast volumes to be lower, how much costs we're expected to cut out of the business?

There's probably 2 main cost buckets where we see how we are going into '24. One is obviously salaries and wages. As I mentioned, we rightsized the organization through the second half of '23. So we'll get a salaries and wages benefit coming through in '24. And in the second one I mentioned, we would see some uplift or some cost relief from ocean freight continuing into '24. So those are probably the 2 major drivers where we'll see some cost benefit coming through.

So potentially given all of the assumptions above, and I'll take that last comment, no particular cost target outside of freight, but given the assumptions to the discussions that we've had across this call, is it a bit, I guess, optimistic for me to think that margins can hold this year or even improve?

Probably the 1 piece that we haven't spoken about, Keith, is just the negative impact from foreign exchange. You'll see, on the assumption slide, we call it out, we had an average rate of AUD 0.71 through FY '23. At the moment, we're hedged 50% at AUD 0.68, keeping in mind that every cent cost us anywhere between AUD 1 million and AUD 1.5 million in EBIT line. So in terms of your question to margins holding to some extent, we are at the mercy of foreign exchange a little bit, but if we assume everything holds from a foreign exchange perspective, then, yes, it's accurate to assume that margins could hold [ where we are ].

Okay. That's very helpful. Can I squeeze in 1 last one just quickly? Customer A seems to be performing reasonably well, which on the face of it, maybe we'd interpret that as GWA doing quite well with that customer over time. But given what's happened with destocking over the years, there's a nagging part of me which wants to try and understand whether there are risks of customer A actually potentially destocking going forward if it's proven that their purchases from GWA are too high. Can you give us a sense of what your views are with customer A and also broader destocking going forward, please?

Yes. Look, customer A, it probably shows and I think Craig mentioned customer A is quite heavily involved with the plumber industry. So I would say that's a good benchmark for us that plumber is actually taking traction. As Craig mentioned in his presentation, we've seen over the last 5 or 6 months, we've seen sort of focus on all our key merchants that is a shift to holding to cash flow maximizing. We haven't seen any major destocking. I would suggest with what we hear is going into financial year '24, there's no major risk in regard to destocking as we go into this new financial year.

The next question comes from Peter Steyn from Macquarie.

Apologies, I somehow thought that we got lost again. Just very quickly. Probably 1 for Craig. Just in terms of your strategy scorecard, the Net Promoter Score on yellow there, could you just step us through what you need to do to get yourself happy with your outcomes on Net Promoter Score?

Peter, so I think reflecting on FY '23, the reason we put it as amber is we've seen improvement on the measures we've taken from Net Promoter Score across all customer types. One of the key drivers that Urs talked about the 2 business priorities we've rallied around for FY '24 around customer first and profitable volume growth is really a greater, I suppose, bias and focus towards our key merchant partners, really, around sort of how we embed a lot of the ERP changes we've had in terms of clarity of information and flowing of communication around, I suppose, availability and deliveries and our responsiveness as an organization. As we're conscious that as the market tightens and stays tight, the way we delight, merchant partners in particular will allow us to meet not only their needs, but the needs of the raft of plumbers we're going after and other customer types. So really the focus on merchants and a focus around customer first is what we'd expect that to do successfully to get from amber to green at the end of FY '24.

Got you. Craig, and then just a quick one. Calin, from your perspective, just in terms of your debt packages, how are you thinking about fixed and variable rates from here? What would you be contemplating in terms of structures going forward?

[indiscernible] in terms of interest rate, we have a number of interest rate swaps in place that actually cover about 90% of net debt at the moment and about [ 110% ] gross debt and those mature between now and 2026. So they stopped rolling off from 2024 to 2026. We have actually been able to blend and extend a number of those. So I think in terms of the impact from rising interest rates on our business, we don't necessarily see a significant change in our interest profile. You'll also note that we've managed to delever the balance sheet with the results of our working capital unlock and I just support our interest charges down into '24.

There are no further questions at this time. I will now hand back the call to Mr. Meyerhans for closing remarks.

Thank you very much once again. Thank you for joining us. And once again, our apologies for [indiscernible]. Technology is great when it works, not so great when it stops. And we're looking forward to catching up with many of you over the next few days and weeks. Have a good week. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.