JB Hi-Fi Limited (JBH) Earnings Call Transcript & Summary

Good morning, and welcome to the JB Hi-Fi 2023 Annual General Meeting. My name is Stephen Goddard. I'm Chairman of the JB Hi-Fi Group, and I'm your Chair for today's meeting. We have a quorum, and I'm pleased to declare the meeting open. This year sees our second hybrid AGM, and I'm delighted to be able to extend a warm welcome to our shareholders, proxies and guests who are attending either in person or through our online meeting platform. Our meeting is being held on the lands of the Wurundjeri people of the Kulin Nation. I wish to acknowledge them as the traditional custodians. I would also like to pay my respects to their elders, past and present. I'd like to introduce my fellow directors: Beth Laughton; Christy Boyce; Mark Powell; Geoff Roberts; Melanie Wilson; Richard Uechtritz; and our Executive Directors, Terry Smart and Nick Wells. Our Company Secretary, Doug Smith, is also in attendance, as is Travis Simkin of our auditors, Deloitte Touche Tohmatsu. Travis has audited our business for 5 years. And as such is rotating off after this year. And Travis, I'd like to thank you for your efforts over the course of the -- that period and your contribution to the company. So thank you. Obviously, if some attendees are attending online, there may be a risk of technical difficulties. If that happens, it will be my discretion whether we continue the meeting or postpone or adjourn the meeting. The agenda for today's meeting is as follows: procedural issues; summary of items of business and voting opens; Chairman's address; Group CEO's address; further information on each item of business, including hearing from the directors standing for election or reelection; and disclosure of proxy votes already received on each item; questions; voting closes; and then close the meeting. The Notice of Meeting dated 15 September, 2023 has been made available to all shareholders, and I'll take it as read. I'll start by briefly setting out how the meeting will work. All shareholders and proxies attending the meeting, whether in person or online, have the ability to ask questions and submit votes. Noting that questions may be submitted at different times by online participants in person, we will answer questions on all items of the business later in the meeting. For those attending the meeting online, who wish to submit a written question, you may do so at any time during the meeting via the Q&A icon on your screen. [Operator Instructions] If you're attending in person or attending online but wish to ask a question verbally, please wait until that time to ask your question. Voting today will be conducted by way of a poll on all items of business, and Computershare will act as the independent returning officer. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. For those attending the meeting online and who are eligible to vote, when the poll opens, a voting icon will be available on your screen. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit submit as the vote is automatically recorded. Please ensure you cast the vote for all resolutions. You will receive a vote confirmation notification on your screen. To change or cancel your vote, click the link, click here to change your vote at any time until the poll is closed. Votes may be changed up to that time, and then I'll declare the meeting is closed. For shareholders, proxies and corporate representatives attending in person, you vote via scanning the QR code that you received upon admission and following the instructions or by completing the yellow voting card that was provided to you on admission. White cards are for visitors only. You cannot ask questions or vote today. Shareholders with a green card are not entitled to vote on the items of business. You can vote at any time after voting opens, and I'll warn you before I close voting at the end of the meeting. Results of voting will be released to the ASX after the meeting. If you have any difficulties voting or submitting questions, please consult the online meeting guide, which can be accessed within the online platform or on the JB Hi-Fi Investors website if you're attending online or raise your hand if you're attending in person. The items for the business for the meeting are set out in the notice of meeting and are as follows: number one, to receive and consider the financial and other reports for the financial year ended 30 June 2023; number two, to vote on the election and reelection of the directors; number three, to adopt the remuneration report; number four, to approve the allocation of restricted shares to each of the executive directors. I'll provide more detail on each of these items later in the meeting. I now declare voting open on all items of business. The voting tab will soon appear. Please submit your votes at any time. And as I said, I'll give you a warning before I close voting. We now move to my Chairman's address. The financial year ended 30 June 2023 was another strong year for JB Hi-Fi Limited and its subsidiaries, with the group reporting record sales and earnings per share. In a challenging retail environment, we remain top of mind for shoppers and grew our market share by continuing to drive our value offering, leveraging the strength of our multichannel offer and maintaining our high levels of customer service. We are thankful to our over 14,500 team members across Australia and New Zealand, whose continued focus on delivering value and maintaining our high levels of customer service will ensure the long-term success of our business. Our motivated, passionate, knowledgeable and highly trained staff continue to be our most important asset. We believe the group is an employer of choice with an inclusive, busy, enjoyable and most importantly, safe working environment helps us to continue to attract and retain high-caliber people. In August 2023, we announced the appointment of Christy Boyce as a Nonexecutive Director with effect from 16 September, 2023. Christy has over 25 years' advisory experience in Australia and the United States with extensive involvement in retail, including pricing, online strategy, loyalty programs and sales and marketing. We're delighted to welcome Christy to the Board. She brings great strategic expertise and significant experience in working with retail companies, which will add value to our Board, and we look forward very much to working together. Turning to the group's operating model. The group comprises 2 leading retail brands, JB Hi-Fi with a focus on technology and consumer electronics and The Good Guys with a focus on home appliances and consumer electronics. The value proposition for each brand centers around ranging the best brands at low prices, supported by exceptional customer service across our store network, our online and phone channels through our commercial business. The dual-branded retail approach is underpinned by 4 key competitive advantages: being scale, a low-cost operating model, multichannel capability and people and culture. An integral part of the group's ongoing strategy is to encourage innovation and diversification of our product range, merchandising formats, advertising, supply chain, property locations and our online offer in a controlled and responsible manner to ensure we remain current and relevant to our customers. We have a culture of embracing change, which is seen as a natural part of our business. And this approach provides opportunities to increase revenue, margin and productivity. The group's FY '23 sustainability report, which can be found on the group's investor website, outlines our commitment to having a positive impact on our people, our community and our environment. As set out in the report, we are committed to supporting our people and ensuring a safe, inclusive and respectful workforce -- workplace, whilst also looking for ways to provide them with flexibility and opportunities to grow and develop, making a positive impact in the communities in which our team members live and work, and working with our supply partners to protect and further human rights, and minimizing the impact that our operations may have on the natural environment and proactively reducing our waste, energy consumption and emissions. In closing, the Board remains focused on building long-term shareholder value. Since JB Hi-Fi listed in October 2003, the JB Hi-Fi share price compound annual growth rate of 17.6% to 25 October, 2023 compared to 3.7% on the ASX 200 Index over the same period. The earnings per share compound annual growth rate is 20.8%, and the dividend per share fully franked compound annual growth rate is 21.9%. More recently, in the 4 years since 2019, the JB Hi-Fi share price compound annual growth rate is 4.3% to 25 October 2023 compared to 0.4% on the ASX 200 Index over the same period. The earnings per share compound annual growth rate is 21.9%, and the dividend per share fully franked compound annual growth rate is 21.7%. I'd like to take this opportunity to thank my fellow directors, the executive team and our store warehouse and support teams for their unwavering commitment to the ongoing prosperity of your company and its shareholders. I now invite Terry to address the meeting on the group's operations.

Thank you, Stephen, and good morning, ladies and gentlemen. Retailing is a dynamic and exciting industry, and JB Hi-Fi and The Good Guys are market leaders in their respective sectors. The core of our proposition has always been and will always remain our unwavering focus on our customers who continue to turn to us for their technology and home appliance needs and our over 14,500 dedicated knowledgeable team members across Australia and New Zealand continue to respond and adapt in an amazing manner to make sure we meet these needs. As Stephen has highlighted, we are committed to having a positive impact on our people, our community and our environment. In our FY '23 sustainability report, we outlined the progress made in our key areas of focus, including continued improvement in gender diversity across the group with an increase in the number of women in leadership positions; ongoing focus on safety, including mental health and well-being training programs; workplace giving donations totaling $3.9 million in FY '23 and $35.7 million since inception; ongoing focus on privacy, cybersecurity and payment card industry data security standards; a 9.6% reduction in Scope 1 and 2 emissions supported by the installation of solar panel generation in 9 stores in FY '23, bringing the total number of stores to 24 as the group works towards net zero direct carbon emissions by 2030; and finally, a 12% decrease in plastic bag usage with plastic bags to be phased out nationally and replaced with 100% recycled paper bags. We are pleased with the progress we are making on our sustainability plan and commitments and importantly, are receiving an overwhelmingly positive response from our team members. Turning to our FY '23 results. FY '23 was another strong year for the group with record sales and earnings per share. Group sales were $9.63 billion, up 4.3% on the prior year and when compared to pre-COVID FY '19, up 35.7%. EBIT while down 3.2% on last year to $769 million remained strong compared to pre-COVID FY '19, up 106.3%. Earnings per share was up 0.1% to 479.9 cents per share and up 120.7% on pre-COVID FY '19. Total dividends for FY '23 were 312 cents per share, representing 65% of NPAT, while down $0.04 per share or 1.3% on the prior year. When compared to pre-COVID FY '19, total dividends was up 170 cents per share or 119.7%. The group's balance sheet continues to be strong with low financial and operating leverage and closing net cash of $127.5 million at 30 June 2023. The group will continue to regularly review all aspects of its capital structure with a focus on maximizing returns to shareholders whilst maintaining balance sheet strength and flexibility. As we move into FY '24, the group has 5 key focus areas. Firstly, retail execution. In a tougher retail environment, a strong retail execution is vital. We will focus on growing our market share by attracting new customers to the brands and stay focused on delivering improving value to our customers by creating best-in-market offers and promotions. At the same time, we will leverage the efficiency of our operating model with our flexible business model and low-cost culture key to responding to changes in the environment. Secondly, multichannel. We will continue to expand our reach and attract more shoppers to the brands by providing easy and convenient access, whether via in-store or online. We will continue to evolve our categories and store layouts to further drive in-store experience and engagement. We will continue to improve our customer experience online and leverage our significant web traffic to provide additional sales opportunities. We will deepen our connection with our customers through our JB Hi-Fi Perks and The Good Guys gold service extra membership program -- programs and continue to find new ways to engage and deal with our customers. Thirdly, New Zealand. We know we are underrepresented in New Zealand and believe there is a good opportunity to grow and expand the JB Hi-Fi business there. 7 existing store relays were completed in FY '23. To date, in FY '24, our Queen Street and Hamilton stores have been relocated. We have opened 2 duty-free airport stores in Auckland and Christchurch International Airports and expect to open 2 new standard format JB Hi-Fi stores before Christmas. We continue to actively identify potential new opportunities to expand our reach, targeting 3 to 5 new stores per year over the next 3 years. Our work on re-platforming the JB Hi-Fi New Zealand website is progressing well, and our new website is expected to launch before the important Black Friday trading period. Fourthly, commercial. We continue to develop our commercial business for future growth, targeting the small to medium-sized business sectors. We have a national proposition in a fragmented market and have refined our branding and go-to-market strategies. Our value proposition leverages the group's retail proposition of big brands, big range and low prices as well as the group's store network, supply chain and marketing capabilities and is augmented by access to extended business ranges, value-added services, expert teams to support business and education at providers. Fifthly, our supply chain. We will continue to invest in a fit-for-purpose supply chain network that supports in-store and online fulfillment and delivers better customer offers and experience -- experiences. Examples of recent initiatives include improved delivery options launched for The Good Guys customers, focusing on increased certainty, transparency and choice. And the JB Hi-Fi Australia on-demand delivery service in partnership with Uber has successfully achieved an average delivery times of under 60 minutes. Turning to our recent trading. The group has today provided sales update for the period 1st July 2023 to 30 September 2023. Total sales growth for JB Hi-Fi Australia was negative 0.1%, with comparable sales growth of negative 1.4%. As compared with pre-COVID FY '19, total sales growth was 40.5%. Total sales growth for JB Hi-Fi New Zealand was 1%, with comparable sales growth of negative 1%. As compared to pre-COVID FY '19, total sales growth was 22.2%. And total sales growth for The Good Guys was negative 12.2% with comparable sales growth of the same. As compared to pre-COVID FY '19, total sales growth was 21.1%. Q1 FY '24 sales are in line with the group's expectations, cycling elevated period from last year. While total sales continued to be well above pre-COVID Q1 FY '19, the group continues to see variability in category performance. In closing, with the heightened uncertainty in the retail environment, our brands remain well positioned to leverage their low-price market position as shoppers look to maximize value for their purchases. As we have continued to demonstrate, we'll adapt and respond to changing retail conditions to ensure we remain the #1 destination for shoppers and grow our market share. I look forward to another exciting and successful year in FY '24. Thank you.

Thanks, Terry. Turning back to the items of business. Item 1 relates to the receipt and consideration of the financial and other reports for the financial year ended 30 June 2023. The company's annual report, which includes the financial report, directors' report and auditor's report as well as the company's corporate governance statement, has been made available to shareholders. No formal resolution will be put to the meeting on this item, and I'll take the reports as read. Shareholders and proxies may ask questions in relation to the reports later in the meeting. Item 2 on the agenda relates to the reelection of me, Melanie Wilson as directors and the election of Christy Boyce as a Director. As I am one of the directors standing, I'll hand over to the Chair to my colleague, Beth Laughton, at this point.

Thank you, Stephen. Item 2(a) relates to the reelection of Stephen Goddard. Stephen was appointed to the Board in August 2016 and became Chairman on the 1st of July 2020. Stephen is also the Chair of the company's Remuneration and Nominations Committee and was a member of the Audit and Risk Management Committee until the 30th of June 2020. Stephen has more than 30 years' retail experience, having held senior executive positions with some of Australia's best-known retailers. These include as Finance Director and Operations Director for David Jones, Founding Managing Director of Officeworks and various senior management roles with Myer. Stephen is currently a Nonexecutive Director and Chair of the Audit and Risk Management Committees of Accent Group and Nick Scali Limited and was previously a Nonexecutive Director and Chair of the Audit and Risk Management Committee of GWA Group Limited. The Board considers that Stephen is an Independent Director. I'll now ask Stephen to say a few words.

Thanks, Beth. Look, I've worked in many different areas and a number of retail businesses over that 30 years, I think, which has given me a good sense of the competitive environment in which we operate and what a retail business needs to do well to be successful. I was on the Board of David Jones for nearly 10 years as Finance Director and along with my other public company Board experience, I feel this equips me well in my role as Chair of the company. I have great respect for the business and its achievements over a long period of time and the high quality of the management team, led by Terry and Nick and a number of others throughout the group. So I look forward to supporting the company as it grows and prospers.

Thank you, Stephen. The proxy votes received in advance of the meeting on this resolution are as follows on the screen. And I'll now hand the Chair back to Stephen.

Thanks, Beth. Item 2(b) relates to the reelection of Melanie Wilson. Melanie was appointed to the Board in June 2020 and is a member of the Audit and Risk Management Committee. Melanie gained extensive experience in senior management roles across global retail brands, including Woolworths as the Head of Online, BIG W and Manager Strategy Group; Limited Brands, including Victoria's Secret, Bath & Body Works New York, and Diva/Lovisa. Her retail experience includes online, e-commerce, store operations, merchandise systems, marketing, brand development and logistics fulfillment. Melanie has also held roles with Bain & Company and Goldman Sachs in Hong Kong and Sydney and completed an MBA at the Harvard Business School. Melanie is currently a Nonexecutive Director and Chair of Baby Bunting Group Limited and member of its Remuneration and Nominations and Audit and Risk Committees. She's also a Nonexecutive Director of PropertyGuru Group, Singapore, and Melanie was previously a Nonexecutive Director of Shaver Shop Group and EML Payments Limited. and a Nonexecutive Director and Chair of the Audit and Risk Committee of iSelect Limited. The Board considers Melanie to be an Independent Director. I'll hand over to Melanie to say a few words.

Thank you, Chair. Good morning, ladies and gentlemen. It's been an incredible honor and privilege to serve on the Board of JB Hi-Fi and to represent shareholders over the past 3 years. I believe that my contribution to the Board are grounded on my extensive experience within the retail sector. As a former executive and now a Nonexecutive Director in numerous specialty retail and consumer businesses, I've gained invaluable insights. My unwavering focus and passion lies in e-commerce and multichannel retailing with the focus of enhancing the customer experience. In addition to my role on the Board, I serve as a member of the Audit and Risk Committee. One of our core responsibilities is our dedication to sustainability. I'm delighted with the progress that JB Hi-Fi has made in this arena over the past 3 years and the positive impact it's creating on our people, our community and our environment. Having been a full-time Director for nearly 8 years, I can confidently affirm my capacity to fulfill my commitments and duties required for this role. It fills me with immense pride to represent the shareholders of JB Hi-Fi and to continue collaborating with the Board and management to deliver a best-in-class customer experience, care for our team members and generating growth for you, our valued shareholders. With your ongoing support, I look forward to the opportunity to be elected for another term. Thank you.

Thanks, Mel. The proxy votes received in advance of the meeting on this resolution are as follows. Okay. Item 2(c) relates to the election of Christy Boyce. Christy was appointed to the Board with effect from 16 September 2023 and also joined the company's Audit and Risk Management Committee at that time. Christy has over 25 years' advisory experience in Australia and the United States with extensive involvement in retail, including pricing, online strategy, loyalty programs and sales and marketing. Christy was a Director and Senior Partner of Port Jackson Partners. And prior to this, she was a partner at McKinsey & Co working in the firm's Sydney, New York and Chicago offices and was co-leader of its retail and consumer goods practice. Christy is currently a Nonexecutive Director of CSR Limited, BAI Communications Australia, EMM Consulting and the SCEGGS Darlinghurst Trust. Her previous experience includes acting as a Nonexecutive Director of ASX-listed companies, Greencross Limited, Monash IVF Group Limited and OneView Healthcare Plc. Prior to her appointment, the company conducted appropriate checks into Christy's background and experience, and those checks revealed no information of concern. The Board considers Christy to be an Independent Director, and I'll hand over to Christy to say a few words.

Thank you, Stephen. Good morning, ladies and gentlemen. I'm delighted to join you today and put myself forward for election to the Board of JB Hi-Fi. JB Hi-Fi has a strong customer focus and a history of delivering great value and a distinctive customer experience, which it continues to evolve and enhance. Retail has been a major focus throughout my 25 years as a strategy adviser. I have worked intensively in retail across a range of topics, including pricing, channel strategy, loyalty and sales and marketing. This background, plus my experience serving on the boards of a range of ASX-listed companies, positions me well to contribute to the JB Hi-Fi Board. I feel privileged to have joined the Board of JB Hi-Fi and value the opportunity to work with the management team to continue to build and shape the organization. Thank you.

Thanks, Christy. The proxy votes received in advance of the meeting on this resolution are as follows. Item 3 relates to the adoption of the remuneration report, which is contained within the company's annual report. Further information, including information regarding voting on this resolution and the 2 strikes rule, is set out in the notice of AGM. Please note that a vote on this resolution is advisory only and doesn't bind the directors or the company. Again, I'll take the report as read. Shareholders and proxies may ask questions in relation to the reports later in the meeting and can vote at any time before I declare voting closed. The proxy votes received in advance of the meeting on this resolution are as follows. Items 4(a) and 4(b) relate to the allocation of restricted shares to the Executive Directors, Terry Smart and Nick Wells. Further information, including the terms of the allocation and the associated KPIs, are set out in the explanatory notes included in the notice of AGM, and I'll take that information as read. Shareholders and proxies may ask questions in relation to these items later in the meeting and can vote at any time before I declare voting closed. The proxy votes received in advance of the meeting on Item 4(a) are as follows and the proxy votes received in advance of the meeting on Item 4(b) are as follows. Okay. We'll now take questions from shareholders. Questions submitted online in writing will be read out by Doug Smith, our Company Secretary. [Operator Instructions] Our Company Secretary will say your name and then direct you to ask the question. If you have questions from the floor, please raise your hand and wait for the microphone to arrive before stating your name or organization and asking your question. Questions will be answered by the relevant director or executive or by Travis Simkin from our auditors. While time constraints may prevent us from answering all questions, we'll do our best to address all the questions that you have during the meeting. And after questions, I will close voting.

So questions from the floor first. Steve?

Thank you, Mr. Chairman. My name is Steven Emmerich I represent the Australian Shareholders' Association. We represent retail shareholders. We hold proxies for 119 people worth about $70 million. I've got four questions. I guess I'll just go one at a time. First question, we noticed in the annual report that the cost of business is rising and it seems likely cost pressures will continue. Can you explain how you balance the short-term needs to keep the costs under control with the longer-term desire to grow the business?

I think our desire is to have prosperity over the longer term. So we take initiatives and decisions now with an eye to this year's earnings, but also success over the longer term. But I'll just turn to Terry maybe to give a little bit of color on some of the things you're seeing day to day and dealing with Terry.

You're right. Costs are -- definitely are rising in the business, and that's all about looking for productivity gains that we need to achieve within the business, just being more productive in stores and to keep our costs in check. I think one thing that this business is good at is cost and cost management is just in its DNA. I mean that is one thing that we do well. We just eliminate waste out of the business. At the end of the day, the costs are going to be the cost. We've just got to grow the sales and really grow the rest of the business to offset that. But we work hard every day just to keep costs as low as possible.

Thanks, Steve.

Yes. Last year, I asked about cybersecurity for customer data. I think there've been a lot of hacks before that a lot of customer data gone missing, thankfully nothing from JB. You seem confident you're doing everything possible. Subsequently, there was a hack into Latitude Financial, which was a financial service provider to JB customers. And through that JB customers data was stolen. Can you tell us how you engage with third parties such as Latitude Financial who can hold JB customers' data?

Yes. Look, it's a complex area, and we feel we're making really good progress on that. I mean, for a start, JB does not really hold personal information that's sensitive, a very small amount. So we have names and addresses, that's important to our customers. And of course, therefore, we take all the steps that we need to -- we -- look, we follow the compliance model, which comes from the Australian Directorate. So our team have been well resourced. And in fact, we've increased the investment to build a stronger and more capable cyber prevention environment within our business. So as you say, we've not had hacks. We would hope that, that continues to be the case. As you say, Latitude is a separate company. It does provide services to JB Hi-Fi. But we're in contact with all our service providers to ensure that, firstly, they're taking the steps they need to, to protect themselves. But secondly, if they have any data from our customers as a result of their relationship with us, they follow the rules in terms of managing that data, deleting it when it's out of date and making sure that, therefore, that data is protected as well as possible.

Next, just in terms of remuneration for key management, incentive payments at JB are more, I guess, based on 1 year's results rather than -- many companies have a long-term factor as well. We saw there was about a 20% vote against there. Can you explain why you don't have an LTI and what led to that 20% against vote.

Sure, sure. So look, in 2019, we introduced our VRP, Variable Remuneration Plan. And we're of the view that our business focuses on the year ahead. We take a long-term view, as Terry talked to in terms of how we think about our business. But we think about the next year, we've incentivized our management team to deliver the results that they can control over the course of that period. And if they perform well, then they're rewarded in terms of both shares and cash. Now in order to aid retention, those shares are delivered 25% in years 2, 3 and 4. So whilst it incentivizes our team to deliver the results for the year that we're in, it also aids the retention and the incentives as shareholders to improve the business long term. So these guys own a considerable number of shares through their work and through their performance, and we think that aligns with shareholders. It's not the classic think of where you need to be in 3 years' time. But to be honest, in the retail space, it's so dynamic. It's quite hard to set targets. I mean you're talking about over the COVID period, if we'd set targets back in 2019 and 2020, it wouldn't have been challenging enough for these guys because of the performance of the business over that time. So we think it's fit for purpose. Look, it doesn't tick the box of an STI and an LTI. So that is complex for some people to come to deal with perhaps even your organization, Steve. So whilst it's recognized as being a good plan for JB Hi-Fi, there's some organizations, some proxies who say, we still don't tick the box of an STI and an LTI. And look, I guess, if you look at how people have voted, our remuneration report has got 97% support from our shareholders, and all of the proxies said, yes, the way you're remunerating people is fine. When it comes to the allocation of shares, 1 proxy house has said, it doesn't tick our box. So we're actually going to suggest that you vote against now. We've still got an 80% support from our shareholders in that respect. I think your report also said that you don't support it because it doesn't tick that box. Clearly, you're entitled to that view. We've, I think, been very open and transparent about why we think it's a good plan. It supports the incentive for people to do a good job, but also retains a strong management team. So that's the context of those results. And we intend to continue with that program going forward.

Yes. I understand the arguments on both sides, I guess. Last question. I noticed that Melanie Wilson had a 9.4% vote against, whereas the other directors were pretty well close to unanimous. Just wondering why that was? And was it related to when Ms. Wilson was the Chairman of the Risk and Audit Committee at iSelect when they were fined $8.5 million for misleading customers about electricity company comparisons.

Look, the -- one of the proxy houses formed a view that because Melanie and others, I might add, were on the EML Payments Board, which had some issues with that company, some challenges that they faced. They made a policy decision that any director involved in that they would recommend the shareholders vote against. Now that's 1 proxy house out of number, actually the 2, Ownership Matters and Axi out of the group of proxies. Now look, we've got a really clear view on this. Melanie is a terrific director and has great retail experience and is highly valued within the boardroom and by the management team for her contribution to the company. So we're very clear that a vote against Mel would have been to the detriment of the company. We've put that view to our shareholders. We've discussed that with them. We've made that clear in our response to the proxy report. So they were kind enough to put our version of our position into their report and 90% of shareholders agree with us. So all I can say is, as a director, sometimes you go through circumstances that are challenging and it makes you a better director. And Melanie is a very good director and 90% of our shareholders agree. So that's why we have her. Any other questions from the floor at this point? Back just over here.

Thank you, Mr. Chairman, Peter Richardson. Just a question, both to you and Terry who have made some referrals back to FY '19 as a base. I'm just wondering why you're still doing that 4 or 5 years on?

Look, Thanks, Peter. Look, it is interesting, isn't it? FY '19 was really the last year before COVID had an influence on our trading patterns in our business. If you go back to 2019, our profit was $249 million. Last year was $525 million. So the impact of COVID has been quite significant across that period with a whole lot of changing dynamics, including work from home, people needing technology, people spending more time in their home and therefore, concentrating on appliances and small appliances and the like. So look, one of the challenges that we've had is within a volatile trading environment, we've had to think about our business and how it's improved over time. And referring back to 2019 says, well, that's what it was like pre-COVID. We've probably had some inflated results over the course of that period, which, to the credit of the management team, we were able to take the opportunity that the market provided, and I think the results of the last few years have been outstanding. But we just link it back to say, well, in 2019, that was what we think of as the last COVID-free trading period. Perhaps this is the first COVID-free trading period in FY '24. And it will be interesting to see where the business lands versus what it was like. So it's to try and get some context over the volatility over that period.

Okay. I get that. My next question, in FY '19, your gross margins were higher. So your JB Hi-Fi Business was around 8.5%, and your Good Guys was 7% -- sorry, other way around, it was about 6% in FY '19 for JB Hi-Fi and [Audio Gap] for The Good Guys. Nowadays, it's a lot higher at 8.4% for JB and 7% for Good Guys. Is that sustainable? I mean we spoke -- the Australian shareholders spoke about cost increases and Terry said we were trying to adjust prices. Do you see those margins staying at those higher levels? Or do you think they'll revert to FY '19 levels?

Well, I think we've got to see how this year plays out. I mean there's no question that there are challenging economic times, and that's impacting on retail sales, both for us and for other companies. There's no question that we're facing cost increases, and Terry has talked about some of those. But we feel that the business has developed since 2019. We are a better business, particularly with the Good Guys business, which we only acquired in 2017. So there was significant improvement in that business over the first couple of years when Terry took over running that business. And I think that will continue into the future as well. Whether we can attain those margins in the next year? Well, time will tell. But I think the business has evolved and improved. I mean if we go back to 2019, I think we were getting questions about whether our online business was going to be substantial enough to be able to meet the demands of the company. And before you knew it, we were doing well over $1 billion in sales in our online business. So I think the company is able to deliver what our customers want and get the results that we want. But it's challenging trading. You've seen our trading update that's been put out. I mean, JB roughly flat and Good Guys down 12% for the quarter on a pretty high base last year. But we just got to trade through it. And of course, the next couple of months with the promotional period and then Christmas and Boxing Day is very important to us.

More just on the trading update. So do you normally release just sales now? Or do you talk about margins at all and your trading updates normally or...

Typically, at the quarterly results. So this is for Q1 and then for Q3, we just give sales data. We may make some comment, but it's a pretty volatile period. So we're just giving the eventual sales data, as we always do in the quarter.

In last year's annual report, you spoke a little bit about New Zealand. Basically, you've done a strategic review. You saw great opportunities for turnaround, store refreshes, new stores, customer focus. And I think you said in 3 years, you see a great business. 1 year into that 3 years. The profit has gone backwards. I wonder whether it's worth persisting with New Zealand because those numbers aren't good, and that doesn't include a lot of costs ahead of us, I'm sure. So...

Yes. Look, I think we said last year that we were committed to making it happen, and we want to invest, and we're going to take the way forward. I'll ask Terry to just give you a little bit of color because I think it's quite interesting what's going on in New Zealand with our business. But we feel really confident. We've got a very strong management team led by Tim Edwards, who's a terrific operator. And we're making some real headway. So Terry, do you want to just give some color?

Yes, look putting aside how challenging the New Zealand market is at the moment, if you're seeing results from other companies, it's very challenging. And actually, when you look at JB over there from a sales perspective, it's gaining some share. And what our plan was, and we were right up front, was we expected we would continue to lose some money in that business, especially over the next -- at that time, we were saying 1 to 2 years as we rebuild it. So it's all about rebuilding the sales. If you have -- you need sales. If you haven't got sales, you haven't got anything. So we have to be rebuild the sales in that business, and that's what we're delivering. And that -- if we can do that, then that gives you that buying power, that gives you that scale that you need to be able to get your gross margins up. That's going to be the future now is going to be working on continuing to grow sales, but continuing now to work on the gross margin in that business. So we are actually happy with where the business is today.

Obviously, you're happy because you're JB Hi-Fi and you got a big tick for his New Zealand performance, which was contrary to the financial performance. But yes -- from a shareholders' perspective, I'm trying to align those 2. It is a little bit hard sometimes.

Yes. Look, again, it's -- what he was asked to deliver, he's delivering in spades. So he's doing a great job over there. And this is a long-term play. And look, this is a very measured investment in New Zealand. So it's very measured, and we have absolute confidence that the longer term will be good.

So your 3-year plan is on track?

Yes. I mean stores are a little bit slower to open, and that's just property -- that's just finding property. We know where we want to be. We're a little bit behind in the store openings, but that's nobody's fault. That's not a business issue. That's just an access to the property that we need issue because we've got to get the right property. We're not -- if it's not right, we're not going to do it. So if that means going a bit slower, that's absolutely what we'll do, but the longer term is still as we say it.

And maybe just on stores. I had the impression that there was a bit of a strategic growth initiative around more stores and potentially different model stores, smaller stores, perhaps in regional shopping centers and so on. Total stores haven't really changed. I think they went up by 3 during the year. Is that store growth a growth strategy for you? Or am I reading too much into that?

Look, we're experimenting with the smaller format stores. So we're still doing that at the moment. We will continue to see -- you'll see sort of that 3, 4 stores open. Yes, that's what you're going to be seeing over the coming years. We do think there is some opportunity in regional areas. We know that. But again, that's just going to be limited by the number of regional areas that you can open up and then the small format stores, which we still want to prove up first. Again, we've just got to prove that they are the absolute right thing to do for the business.

Thanks, Peter. I think -- sorry, down here.

Richard I'm part of the team invest group of investors. And by the way, my team is now working, so I thank you. Three questions, if I may. One is that Terry Smart said something about towards finished that reported on what had happened, and then he said I'm looking forward to another successful year. And I thought, wait a minute we've been rather flat for some time and the sales are down a bit at the moment of the first quarter. What does Terry understand by successful?

Well, maybe I should answer that. I mean, look, we recognize that conditions are challenging at the moment, as I said before. We want to maximize the opportunity the customers will give us over the course of this year. We measure that in terms of what we expect from customers, how our competitors are doing and what we can deliver. So we're out to get the most we possibly can to deliver for our shareholders. Now as I said before, through the period of some inflated results over the course of the COVID bubble, if you want to call it that, our profit was more than double what it was in 2019. Now success. How do you measure that? I think in a year's time, we'll be sitting here responding to the question we had a little while ago about how do you compare back with 2019? Has the business genuinely improved over that period? Or did you just take the extra volume? We think the business has genuinely improved, and that's really what we're talking about.

And that hopefully will be emerged during the course of this year next year?

And we'll come out stronger. Yes, that's right.

The second one, if I may. Could you give us a bit more color to what commercial means? Because we've always -- I've always thought of JB Hi-Fi as a retail store. And now you're talking about commercial. And I think you said small business or something like that. So could you just give us a bit more understanding what do you have in mind there?

Yes. So we have a commercial business and have for a long time, but we do see it as a great growth opportunity. So commercially selling into small businesses. So in other words, they're not a retail customer. They may be a business with 1,500, 2,000 people in there. So it's an opportunity to sell into them. That might be computer sales into there. It could be mobile phones, mobile phone plans into them. They're schools. So as you know, just about every child now has a computer, and that's often done through and organized through the school. And all...

So that would be a small business.

That -- well, that's -- so there is what we call JB business, which is all the small businesses, small to medium business. Then there's JB Education, which then looks after schools that may be universities, et cetera, and it's a way for parents to access technology through the school through JB Hi-Fi.

The final one is more -- perhaps an open-ended one. Tony is planning on new industrial relations law. Will that affect JB Hi-Fi very much?

No, look, I don't think so. We pay our people according to the award. So we don't have enterprise bargaining other than one isolated time. So I think if you're paying according to the award, that really means that there's going to be limited impact on us.