Stealth Group Holdings Ltd (SGI) Earnings Call Transcript & Summary

Okay. Good morning, and welcome to Stealth Global Holdings, the 2023 Full Year Results Briefing Presentation. So with me is John Boland, CFO, and we'll take you through the presentation now. We welcome everybody that's joined us today. And it's good to see that our agenda is online is bigger than we've had previously. And that obviously is a testament to the number of shareholders that we have on our books, which has increased by about 25% over the last 12 months. So I'll take you through the presentation, I'll then hand it over to John from a finance perspective, and then I'll come back and I'll give you a strategic review and also an outlook. This presentation will be put up on the ASX directly after this session. And there will be some supplementary information that's obviously going to be provided that we won't take it through in the presentation but will be available for you. So in terms of opening remarks, just to summarize, our company today is 99.7 million shares, still $0.13 was about a week ago. That's sitting about $0.125 today. So market cap is hovering between $12.5 million and $13 million, with the PE ratio at the end of 30 June of 13.8x and that's down from 17.4x. We had a record year in terms of revenue of $111 million. We're still maintaining our target 2025 $200 million and 8% EBITDA. There has been no changes to the Board over the last 12 months, and everybody is well engaged in terms of the strategy and also our development and growth. Just picturing our business all as one. So from a commitment point of view, our businesses, this message has been clear, sustainable, long-term growth and delivering shareholder value and our operating model has evolved. Today, it's industrial products and solutions for every workplace. And that operates through 2 specific models from a business point of view and also from a retail perspective. Our goal is to take a leadership position and be Australia's company of choice. And in doing that, we believe that we've developed a framework in the last 12 months has also helped consolidate and expand in a number of different areas, and we'll continue to do that in the foreseeable future. There are some favorable characteristics that sit behind our business, 95% of the products that we sell are non-discretionary item. So in an economic environment -- inflationary economic environment, we're pretty resilient and we're robust. So we're still a growth company, and we will maintain that approach. The tailwinds that support that, not headwinds for our business because it is an everyday commodity, it is a need. We work in a large and attractive fragmented market. And to do that, we're growing market share. So our strategic progress, but not only in just the last 12 months, but particularly since our listing some 5 years ago. So we maintained a long-term view. And our management protocols sit behind that thesis. We -- rightsizing is really important. We have completed 8 acquisitions in our time over the last 6 years. And in doing that, particularly in the last 12 months, boosting efficiency. Also, we've lowered our cost structure as a percentage to sales. Profitable growth is always one that has been top of mind. So in the first 4.5 years of our journeying from listing, it's been focused on scale. We're building scale, building revenue, building capability and the network, and we've invested every dollar back into the company. We've started to receive the fruits of that in the second half of 2023, with better cash flow management, in fact, a record cash -- operating cash inflow and also free flow cash. Our growth strategies that we've maintained have been consistent for the last 5 years, but particularly in the last 2 or 3, we've made sure that all our metrics have been met. And every element I'll take it through shortly, has provided growth in their own particular areas. We've really focused on the customer experience and our service levels have continued to evolve and improve, and that's demonstrated by the number of contracts that we've recently won, particularly in the last 6 months, and we previously announced that. But also, we're becoming more sticky with our customers, and that's providing more opportunity itself. But the second aspect, I guess, is our people, and that's a really important element of our organization. We have a HR team now in place, and that's developed over the last 12 months. With the HR manager that is really focused on the strategic side and ensuring that the culture, the engagement with our employees and enriching their experience is absolute, followed by technology plans, and we continue to invest in technology, and it's a key element of, not only our data and our analytics and being across real-time of what happens within our business, but it's also about the user experience, both internally for our people and also for the customer. From the supplier consolidation perspective, we announced the central buying office, which has occurred over the last 7 or 8 months, and that is to bring our Tier 1 suppliers into one consolidated area that we'll manage and lead the progress of those arrangements for those brands across our whole portfolio and also develop consistency in the master arrangements. That's helping volume pricing rebates. It's also help the product selection and the expansion of that. And also, we're really pushing hard about bringing efficiency in the supply chain, which will also improve our cost structure. So we're really well positioned. We've developed into a large market player. We've got a quality business portfolio that's well positioned for growth. We see that there will be growth continuing in all sectors in all markets, but we've also been winning market share. And we're investing in what we call the innovation pipeline. I'll take you through that shortly. And our business has continued to evolve and mature. And in doing that, we're actually positioning ourselves as an industry-leading business. We've also -- whilst we talk about growth, we haven't been shy in making sure that we rightsize our business. We divested ourselves from 8 on-site store customer or unprofitable customer contracts, and also, we closed 2 branch locations, that we felt we weren't getting the right return on our investment. So it was about $6.5 million annual revenue dollars that was associated to that. So we grew actually about 17.5%, if you remove those. So these are not customers that we've lost. These are customers we decided that we could not get -- after a good discussion, we could not get the right return on our investment. So we're not here to do business for free. And we obviously have a really strong internal rate of return targets, and we're going to maintain that approach. I guess, underpinning all this is the diversity that we've added, not only in our product portfolio, but expanding our services and all of that continues to adapt to the evolving needs of our customers. So summarizing our 5-year journey. If you look at the column next to the arrows in the center of the screen, 2018, there were our approximate metrics from our revenue, our acquisitions, employees, the stock we hold, right through to customer accounts and suppliers. It's been a material shift and change, in fact, the $24 million that was there in 2018, $23 million of that was involved in Africa distribution in which we exited that in 2020 and '21. Again, low-margin contracts. And we've decided that based on the requirements of that particular customer, we walked away from the arrangement. We've completed 7 acquisitions since then. We have 200,000-odd products in stock. That was 270,000 12 months ago. So we really rationalized where our stockholding is and that's demonstrated by the return as a percentage of sales of our inventory holding. Clearly, going from 1 store to 70 has been a monumental effort, and there's still so much upside and opportunity with that as there is for the customer accounts and individual consumers. And I don't need to apologize, I've just pick up one area in the slide. We don't have 12,500 suppliers. We have 2,500. So our target is still 200,000 -- sorry, $200 million. And we feel really confident about how we're going to get there. That's a combination of existing customers and grow the new customers and grow the new business model and acquisitions, which we're still actively reviewing and pursuing. So if I can take you through the highlights of FY '23 collectively, and it was a record performance where we -- obviously in an inflationary environment, it's brought about a number of challenges through supply chain and this also brought about a number of challenges through managing costs through inflation. But in terms of key messages, if I can talk about the financial side, to start with, really strong growth in sales, profitability and cash and the way that John and his team managed and maintained capital discipline has been exemplary. Our second half 2023 outperformed the first half and it normally does, but it's also our largest 6-month period, and we've outperformed all other prior periods. We successfully managed inflation and the recovery of that after maintaining our price points for the first 6 months of '23. In the second 6 months, about month 2, month 3, we started putting price increases through and pricing resets across the business, and that's still maintaining their approach today. And I mentioned from a capital deployment point of view, we've managed that strongly, and we've invested in areas that we felt were going to allow to take us forward and grow. From a rightsizing point of view, we have improved our cost structure and those specific numbers we'll take you through shortly. I've mentioned the store consolidation, but also one of the things that we worked really hard from a technology point of view is to bring in automation, improve the efficiency in everything we do, both from our operational, financial and corporate perspective. So today, the benefits of scale has allowed us to receive more favorable supply terms and engage with suppliers that previously weren't as engaging with us. And there's a number of large opportunities have now been presented that we'll set our organizational pathway or road map over the next 1, 2, 3 years. We've deepened the customer relationships, as I mentioned, and that's being driven by alignment to customers, both from an account management perspective and operations, and we're winning market share. That's the most important thing is we're growing in all sectors. And underpinning all that, I guess, looking ahead, we've now got a large distribution network that's Australia-wide that we have opportunity to leverage. The innovation piece in terms of new services is unique and differentiated in the market, and some of that is in infancy stage, some of it's half mature, some of it is very mature. But the collaboration with the suppliers or the key brands and large multinational market-leading brands is something that we're advancing with. We are investing in faster profitable growth, and we'll continue to rightsize the customer profile in terms of their buying behavior right across in-store, online, by phone, by e-mail, and also with our sales reps in the field has been fairly equal. So what that demonstrates is, it's not one pathway or another. We actually have a really nice blend of catering for all our customer needs and the strength of our portfolio actually encompasses on omnichannel model. And to bring all that together, it clearly is demonstrated by the upside that we've received within our financials. So the financials in terms of our group performance summary. So the revenue with -- excluding U.K. discontinued operations is up 11.4% or $12 million, reiterating that 17.4% if we remove the unprofitable customers that we exited those contracts. $5.3 million in terms -- $5.3 million in our EBITDA, which is a 32% increase. EBIT at 71% increase. And our net profit is a 50% increase, similarly with our EPS, and even pleasingly, our return on capital employed, which is an internal measure that we have was 9.9%, which is up from 6%. So, I guess, in terms of all those growth metrics across our financial trading has been really positive. And obviously, there's still a way to go. We're still on track, but we're really pleased in terms of where our jump has been particularly in the environment that has increased in wages, has increase in rental, has increased in insurances across the board. And you've seen that obviously in the grocery supermarket sector and every other sector is that the management of the cost, which was unforeseen when we started our plan 12 months ago for FY '23, but we've managed that really, really well. Probably most pleasing is operating cash flow. That's increased to $6.8 million for the year, up from $0.9 million, so a massive increase. Our net capital expenditure was fairly consistent, but our free cash flows has increased by $6 million, so it's $5.6 million of a negative $0.4 million in the prior year. So cash realization of 130%, which is a remarkable obviously outcome and a credit to John and also his team in doing that. Net financial debt, we continue to pay that down. We'll explain that a little bit further as we go through, but there's 29% reduction in our debt facilities, which now brings us into about a 1.4x range of debt over EBITDA. Debt over EBITDA in comparison with our peers is consistent and within a far acceptable threshold. Equally, our reporting now and the size of our business has required us to continue to put forward metrics on gender balance. And we're pleased to say that we still continue in what's traditionally been a male-dominated environment or industry, that 39% of our staff are female employees and it's something that we'll continue to push and promote based on merit and based on best person for the job. So fairly solid numbers and something that we're pleased with. But clearly, our ambition is still to push hard on our earnings growth and our cash management. Operational highlights. I won't go through all this in detail, but this is something for your reading when this goes up on the portfolio -- on the ASX portfolio. The unification of banners. So that's essentially the rightsizing element. We continue to merge, consolidate and bring Heatleys and Skipper Parts, United Tools, Industrial Supply Group, as well as the development of the Heatleys business. We're looking to rightsize and we're going to consolidate our brands. So in doing that, that actually has helped provide a stronger offering and a more competitive price point across the board. We've had a 21% reduction in our headcount through natural attrition, where we haven't replaced and what that's done is thought about efficiency. And we've also reduced the number of lines that we're holding the stock by 16%. So that's clearly demonstrated by the improvement in cash, but also the efficiency in terms of our in time and in full delivery process. The Central Purchasing Office, in fact, recently, we've just increased 84 suppliers. We're now into the 90s, but all brands now are sold across all our operating banners. There is improved margins. Now that we've been able to consolidate into single trading terms across all the portfolio and the benefits of having technology and integration is providing real data, real-time that allows us to be more predictive in our demand planning for our products. And also our push for a total workplace strategy, which is about providing solutions and products for every workplace is something that is going to, not only be differentiated, but also drive market share. And in doing that, our go-to-market model really now sits in 2 areas. Business Solutions, which caters to large, midsized customers, professionals, government organizations who typically have complex requirements. And we have a compelling offer for value-added products services. We are involved in tailored supply chain solutions and how that's brought together in terms of our connection is through our sales force, our branches, by phone, by e-mail or digital channels. It represents today 84% of our FY '23 sales. On the right-hand side is our Retail Solutions. So typically, that's individual consumers, they have very basic requirements, they'll we walk into a store, they will buy online or they do the click and collect. It's a traditional store retail, online retail model, and that's 16% of our sales. And we didn't have that within the organization 2.5 years ago. All that encompassed, we operate in a $52 billion addressable market, and we're obviously a big break of that. So our model is to cater for individual customer requirements and the varied needs based on those 2 operating models. So this is the way of our future, really dedicated to business, really dedicated to the individual consumers. We've got different competitors in each space. I bet there's not one company that's doing a go-to-market strategy like this. So, with that said, I'm going to pass this over to you, John, and you can take us through the financial performance in detail of income, as well as balance sheet, cash flow, debt structure, and obviously inventory.

Thanks, Mike. Welcome to everybody today. So, yes, I'm John Boland, Group CFO; and I'll present the FY '23 financial results and performance for Stealth. And so FY '23 has been another year of double-digit growth and increasing sort of profitability for the group and sort of expands and builds on the sort of scale. And that's true to strength this year's balance sheet improving, as well as cash flows and adding to shareholder value. Before we get into some of the specifics, a couple of key ones. As you see, on the income statement, double-digit growth in revenue. Let's just move down to the profit line, we're seeing increasing growth in EBITDA, EBIT and the profit before tax percentage improvement. So, again, that's the group that's building its scale, we're seeing both benefits drop to the bottom line, and seen compound growth rates of 29% to 38% across all those key metrics. In terms of shareholder value, high-level, we're in record EPS. We had a record market capitalization at 30 June. Our price-earnings ratios are the lowest that have been. And, again, just continue to have that value and upside for shareholders. High level from a balance sheet, we've built up, our cash reserves were disciplined, they're around our working capital management. We reduced our net debt by 29%. We continue to invest in business and grow our net tangible assets per shares. And then finally, which we go through the operating cash flow and we've got $6.8 million in operating cash flows, $5.6 million on the free cash flow. And again, refer either to our FY '23 annual report, particularly there are [indiscernible] report. And in terms of more comprehensive details sort of on it. And just back on to the income statement and go through some of the numbers, so 11.4% of revenue, at $111 million and well from $99.6 million. I think as I said, the comparators are excluding our discontinued and divested U.K. operations in FY '22 and no impact on FY '23. So, again, we're seeing that sales, we're seeing the increase in daily rates, and we're seeing the record gross profit of 32.6%. And as Mike has talked about, we've seen gross margin in the second half of the year at 29.6%. The group's now demonstrated 5 half year periods in a row where we've consistently hit that 29% to 30% in our margin. For the group that's continuing to hold those levels and up to relevant sort of help from there. EBITDA $5.3 million, where we look at the key performance of a margin of 4.8%, so 80 basis points and the 4% last year. So the key one from our finance side is that, cost to doing business in between. So again, as a group, we dropped that to 24.5% this year, down from 26.2%. Look in an inflationary environment, and pressures we've had been having, again, like all businesses across Australia and getting that growth to showing as we grow those scale benefits are dropping to the bottom line. Depreciation and amortization of 11%, again, as we continue to invest sort of in the business. Finance costs were $1.1 million for the year. And just really as a context, each 25 basis point increase from the RBA is about 25 grant net of tax impact to the bottom line. So hoping now with the interest rates to peak, they're close to the peak, those pressures and impacts are also are going to diminish and lessen heading into sort of FY '24. And then finally, yes, net profit after tax of $0.9 million, given us a record EPS of 0.91 cents, up 51.7% on last year sort of in terms of the shareholder value. And if we go to the cash flow. Again, key call outs in the year, $6.8 million operating cash flow after all the interest transaction taxes. This increased to $6.9 million when we put a conversion rate on our EBITDA. And again, we can see that 130% is just significantly up on last year. Gross capital expenditure, we continue to invest in the business to $1.3 million spent on year-on-year and a few small asset sales during the year and give us a free cash flow of $5.6 million. So significant $6 million compared to the $0.4 million outflow that we had last year. Gross acquisition, $0.5 million of expenditure came out of the acquisitions in FY '22 [ prepared ] payments there. Again, that will drop further to $0.3 million for the year ahead. And again, within the repayments of liabilities, a large portion of that is repayment of our acquisition debt on the C&L and the Skipper businesses. And if we called out, which we'll touch on the net debt is that, in December '23, our C&L acquisition debt will be 100% repaid having been acquired in December '20. Ultimate from there, net cash increased to $3 million for the year, and closing cash on hand $7.7 million, but strong results in this -- in the current business climate. Going on to balance sheet, and probably there's 2 key call outs in this area. One is around cash with working capital management. Again, we've increased, as we touched on the cash flow, our cash is up $3 million. But importantly, our net working capital as a percentage of revenue fell to 9.6% compared to 11.5%. So as we grow, we've been disciplined in terms of what and how we've invested in the gross receivables, inventory and through our payables. And even more inventory has fallen 90 basis points as a percentage of revenue. Again, reducing the product lines as Mike sort of alluded to, is an automation analysis and just being that smarter and care about how we hold and manage our inventory. And again, we're seeing those sort of benefits. And the second key call out, second point, net debt cut of 29.4%, so down to $7.2 million. It was $10.2 million last year. Again, we reduced our acquisition there to continue to manage our working capital so tightly. We're seeing here at 30 June with $2 million outstanding acquisition debt. And then in table on the bottom corner, our net capital, our return on capital employed up to 9.9%. So that's a strong growth there. And finally, leverage ratio dropped at almost 10 basis points to 31.1%. So again, important as we're growing around net debt, around managing and tightly, we have increased our facilities with CBA by another $3 million during the year. And at 30 June, we had $11.8 million capacity between the facilities plus our cash on hand. Moving over to increase, again, we've touched on how we've been improving our inventory as a percentage of revenue. So key ones there, we had 16.1% 2 years ago, down to 13.3%, that sort of equated a $3 million reduction in inventory, actually the FY '21 has been applied this year, which for our group [indiscernible] is a significant amount of investment and cash flow that's been freed up. And again, the bottom point, we're looking to improve our in-store retail, we're looking to improve our brand strategies and we've been looking to improve and be smart about the inventory as we move forward. And last one from a financial management perspective will be the net debt. Again, just we got a waterfall step through where we were in FY '22, we're $10.2 million, some payments for acquisitions, which also include some PPA there. CapEx is sort of a gross amount and working capital management is sort of $3.4 million of funds. Again, repayments of $1.8 million combination of acquisition debt and finance leases as well. So in terms of the $7.2 million debt facility at the end of the year, $2 million is our fixed debt acquisition facilities and we'll continue to pay down during FY '24 and the balance of $5.2 million is our revolving working capital, which again investment in business and we'll continue as the business outlook to grow, but in a disciplined manner. [ That ] for me concludes the financial performance. Now, I'll hand it back to Mike.

Good job, John. And the reason why we are just bringing the net debt and create more visibility with that is to ensure that, not only are we explaining how we're reducing our net debt, but there will be nothing there from a fixed point next year or the end of this year. We're paying $400,000 for the quarter. But the revolving working capital facility is essentially a day-to-day trading requirement based on our debtors and based on our suppliers, making the most also of early settlement discounts and general working capital for buying stock that might have longer lead times or payments with large contracts that have not extended 30-day terms. So I see that as every business needs to operate that type of facility and it's not uncommon by [ industry ]. Okay. From an outlook perspective, look, we're sitting in a good spot. So leading on from what John just said from a financial point of view, I guess, if we solidify our position, we've had a 29% CAGR over the last 3 years. We have enhanced our profitability and our cash flows. We've got a large business now across a large portfolio that we're looking to double the number of stores in the next couple of years. Our investment in technology over the last 3 years, and that's been on average around about [ $902 million ] every year. That has allowed us to win business, be integrated with customers, but also the user experience as being significantly better and we'll also continue to automate. And the rise of AI and the benefits that brings is obviously something that we're looking to advance quite considerably. So we are a large industry player now. We recognized we're getting the attention of a lot of different people in a lot of different areas, particularly in our suppliers and our customers. We've got record tenders that we've been invited to, we've won. We've got record tender bids that are still outstanding that we've never been involved in previously, and that just ultimately, not only supports the strength of our business model, but also obviously, our positioning has been very deliberate in bringing the organization together. So what's our edge? Try to workplace strategy. That's ultimately what our push is, is to provide products and services for every workplace. The customer intimacy side is really important experience. And we're going to be working really hard over the coming future to continue to evolve that we think our service levels in some areas are excellent in some areas, clearly, through automation will improve. But the breadth of what we offer will provide us with an industry leadership position. We continue to take market share. We are highly differentiated and obviously our track record, everything we simply do in principle, we've delivered. So our focus is on expanding operating margins, continue with a robust cash flow management program, as well as our allocation of capital and our 2025 targets of $200 million and 8% EBITDA are unchanged. What's ahead in terms of specific detail? Our business solutions area, we have scaled, we are going to consolidate more banners. We have 6 operating banners today. We're looking to bring that down to predominantly 2, but there will be a third one. So, over the course of the next 30 days there will be a further announcement of why. We think that's more powerful in terms of brand investment. The cost of obviously programming those brands, but also positioning the business differently. And what I mean by that is, Heatleys Safety & Industrial will also have the automotive part attached. We will remove the Skipper Transport Parts brand from the portfolio. It will convert those 6 stores into Heatleys stores as well, and that will allow us to be the largest player within the Western Australian market. From a differentiation point of view, clearly, there's still a lot of leverage there, both from a customer perspective and also with the supplier. We -- as I mentioned earlier, getting the recognition of that. There's a number of new products and new brands that we're in discussions with, that we're looking to take to market. The reason why we put the business channel and the retail channel together is to allow different products for different purposes and make sure that they're tailored to [ see ]. And that brings along imminent opportunities to drive growth there. And clearly, earnings uplift, as well as cash generation is really top of mind from focus. Our capital discipline. So on the left-hand side, we mentioned where would we invest this year, and clearly, being more efficient, rightsizing, more merchandising, the way that we present ourselves in terms of store branding and professionals in the layout and the look to make it a destination for customers to go to both online and off-line. And our EBITDA, we're looking -- sorry, debt over EBITDA, we're looking to maintain at least at a 1.4x from a long-term perspective, but clearly, that will come down over the next 12 months. So with all those organic priorities, we are looking at $1.2 million to $2 million that we'll invest organically. That's been fairly consistent over the last 3 years. We are targeting $2 million to pay off the fixed debt. So the facility will be finalized and paid out in full by 30 June next year. From a dividends perspective, we have announced that there will be renewable dividend provided to our shareholders based on the FY '24 period. And we've obviously done a fairly big review of that and also looked at what our peers are doing, and we're really confident about that coming to fruition, and we'll provide more information on that in our Annual General Meeting, which will be coming up in November. But that's something that for those shareholders have been really supportive for us to get a return on their investment. Equally, it also will reset our company as a company that pays dividends and attract new investor types, which is really important to push that out in the market. From an acquisition point of view, we're still going to continue along the path of value-accretive acquisitions in the price tag of somewhere between $4 million and $12 million. Our pipeline is active. There are lots of opportunities and the market is consolidating. So we see that further consolidating over the course of the next 2 years. From an outlook perspective, in summary, we believe that our financial program is positive, we expect strong results going forward. Now, despite what's happening from an economic point of view, there is strong demand in all our sectors. So just taking you back the products that we sell are non-discretionary item. So areas like transportation, as well as mining, resources and contractors and tradespeople and so on. And even in the DIY market, which we have engine is all still play demand. Now, when you're coming from a low basis, we have as a business, everything is upside. If we are a long-term mature organization and clearly, that's harder, but we are a challenger in the market to take a leadership position. So we see long-term resilience in that. The consolidation of our banners is going to be really important. There will be more information that will flow on from here, but we believe that we're outperforming the wider industrial sector, and we'll continue to do that for the foreseeable future anywhere up to the next 5 years. So from a numbers point of view, we're not giving out any specifics just yet, but we will in the very near future. So clearly, double-digit growth is our plan on revenue, on margin and also on our earnings and to maintain, obviously, a strong cash flow -- the free cash flow, operating cash flow program is top of mind. So in summary, the last slide, we're building Australia's company of choice for industrial suppliers and solutions. That's been a great 12-month period. I'd like to thank all our staff for their contribution, which has been absolutely amazing in the environment that's been pretty tough inflationary-wise and to manage costs, almost retaining daily and also to my fellow directors who have been outstanding in terms of their support for the organization. And obviously, their guidance and their continued experience and counsel for all our people across the business. We're really excited about where we're heading. We maintain our strong view of, not only 2025, but we're actually looking 3 years ahead of that now. We've got some exciting new innovations that are going to be coming to market and announced in the near future. We are -- we spoke about relevance last year, 12 months ago, and we're absolutely getting attention that we haven't previously. So that's an exciting journey. We continue to reset ourselves and make sure that everything we do adds value, not only for shareholders, but also for the customer experience and the products we have and how we represent ourselves and the quality of our portfolio. So that's where we're going to continue maintaining our investment. So thank you. And anything else you'd like to say?

You've covered it well.

Okay. We've covered it. So, Steve, we might go to any questions that anybody has. If you would like to do that?

We do have a few minutes for questions. If you'd like to ask a question of Mike or John, just please type into the question in the question box on your screen, on your GoTo Webinar screen. While we wait for a couple of questions, we might pause for the moment, and be back with you in about a minute or so. So, yes, please type your questions in. Great. We have had some questions come through. So our first question is from [ Daniel Gray ]. Just a couple of questions from Daniel. If we zoom out, why do you think our NPAT is still below Directors' forecasts in the original prospectus?

Original prospectus, it was a long time ago. There's a lot that's changed since then. I guess, if I take you to this slide, our business has significantly evolved, the 7 acquisitions in that time, of which, obviously, it was part of our strategy, divesting out of the U.K., that was not part of our strategy, also getting involved in independents and building the network that we have. So, I guess, every dollar that we've had, we've invested, we've built technology. We've built the operating platform that now have 70 stores. We've consolidated our operations. We've opened up operations. We've actually got a far stronger business that we could ever believe that we would have today in comparison to where we looked at our prospectus, which was risen back in 2018. So best laid our plans. We also didn't expect an inflationary environment that is unforeseen. We didn't expect COVID come through for a 2-year period, which locked and closed borders and held supply chains really, really [indiscernible] which was unavailable to get product or delays in its products. So there has been such a significant lift to the movement from a macroeconomic point of view, as well as the way that our business has been that could never have been forecast from anybody. If you look at all our peers, we've actually outperformed all our peers in every metric over the last 5 years, every metric. So if we go back and I haven't even looked at the prospectus since then, but I can say we're outperforming our competitors or our peers if we're gaining market share. If we build the business one of the largest in Australia now, that combines company in independent operations. That is an excellent outcome. And to do that, you don't build the company from almost startup to the size that we have today with our investment. So I've made sure that we brought the best people on to rollout this growth in a seamless, organized and orderly manner. People like John came out of an organization that is -- he was #3 in finance for a $6.5 billion business. We've headhunted a number of people that were in leading positions in sales and development areas and technology areas that have come on to allow us to grow our business. So the fruits of profitability, clearly, as the largest shareholder is top of mind, but we have been consistent in our message for the last 5 years about revenue growth, scale growth building that. We only flip that message to our focus on profitability during FY '23. So I'm really comfortable that we're on the right track here.

Great. Our second question from Daniel is, can you comment on your competitive pressures for the respective business segments?

Competitive pressures? Well, clearly, I think everybody is dealing with wages or the impact of wages, impact of rental, and the impact of price points and supply chains. So all companies, I think, are facing the same competitive issues. Our pricing, we're not looking for the lowest price, we don't sell at the lowest price. Clearly, that's what we -- that's why we closed down branches, and we've made sure -- and on-site operations and unprofitable customers to ensure that our pricing levels are correct. Our pressures from our competitive space, they have enough focused within. There is a number of our competitors are on the market for sale, and that's been listed in press, but also there's a number of businesses that were going through massive transformation in terms of consolidation. So we're probably one of the few that is growing and winning market share because of the investments that we've put in place in the last 3 years. So outside wages, cost of goods, cost of fuel, cost of freight, cost of rental, cost of insurances, anything else I've forgotten, cost of allowance, I've made the point earlier about we've managed -- we successfully manage our inflationary pressures well, and I think our competitors have done that as well. But I think we're facing all the same thing.

Great. Thanks for your questions, Daniel. Our next question has come from Peter Langford. So we'll start with congratulations, Mike. What is service revenue that doubled from $5 million to $10 million in FY '23? And what is the likely future trajectory for this revenue stream?

Yes. Thanks, Peter, has been really good support that business for a period now for about 3 years and also is one of our largest shareholder. So thank you, Peter. Segment reporting, so previously segment reporting for us was Australia and international. Clearly, with an Australia operation, we needed to change our segment reporting services and distribution. Services is essentially the United Tools business and the Industrial Supply Group business to the buying groups and it's revenue that comes through that is not traditional in terms of its buying a product and selling a product to an end consumer. That model will change. And essentially, at the moment, as those suppliers have relationships with 52 independents, those relationships will alter to have one relationship, which will be with the Stealth organization. So it will be a master supplier, master Stealth agreement. And then those products will be sold down into each member. So there's technology efficiency and that rationalization of the supply chain improvements in terms of cash management. It's also helping out the independents that can be more efficient. So I've mentioned before that the group spent about $260 million of purchasing. So, I guess, in simple terms, we expect that $10 million to potentially grow pretty quickly to $100 million based on less than 10 suppliers transition to that single point that I just mentioned.

Great. Second question from Peter. If not commercially sensitive to give a sense of resilience in the face of inflation, what proportion of customer contracts are fixed price? And what is the typical duration of a fixed price contract?

Good question. The contracts that we've signed in the last 12 months are typically 2 to 3 years. They all have clauses in there for holding our price points fixed for a 12-month period. However, the trigger is, if there's any cost movement by more than 3%, we have the right, based on that particular product line or category, to readjust our pricing. And we have a really solid pricing strategy that we put in place. With the technology piece that gives us visibility of seeing what prices have moved so that we can move it real-time and adjust it real-time. So recently we just put a 1.8% increase across all our main product lines, and we can do that with quite easy. We're resuming the [ funding ] by making sure that we've got the data and the adjustment, so there's no lag, which we say that was the case in the first 6 months of the year. And on the other side, we've been smarter about our contracts. If there is any movement, we're making sure that we have a trigger clause that allows us to either provide an alternative product or have a price increase. The -- we haven't had any pushback on price increases since we started that program heavily in February. And that's clearly demonstrated by the improvement in our gross margin, where we were at 29.6% in the second half, and that was up from 29.3% for the full year. Yes. So it's definitely something that we have on watch. And now, I guess, if I have to speak about 3 key risks in our business, cybersecurity, we're right over that. And we have a really smart technology team and the platform we've got to cover it to pricing and the cost of inflation and making sure that we pass that on to our customer. And 3, making sure that our supply chain is resilient, and our stock on hand and the availability of our stock is there to be able to fulfill our orders from customers.

Our next question is from [ Andy Cole ]. Great results and congratulations on the progress to date. Going forward, how are you planning to take on future acquisitions using debt like previous ones? Or is equity preferred now that interest rates are more significant?

Hopefully, I don't sound like a politician here by avoiding this question. But our biggest focus is organic because we see that as being upside. And we've obviously demonstrated the way that we manage our working capital for that. And we're going to continue on that from an acquisition point of view. The reason why we didn't raise capital previously and we went into debt. Our first debt profile came in place about 2020, I think. So we were 0 debt up until that point. It was just cheap, it was about 0.5 point interest rate. Total with line fees was about 1%. And it was definitely a better option than going to market and doing a capital raising when we are sitting about $0.07, $0.08, $0.09. In terms of new acquisitions, we're looking at some that obviously are sizable, which require -- which would require a capital raising. Ultimately, we also have significant headroom within our facilities now down to 1.4% in debt. So support from the Commonwealth Bank is there. So we have institutions and individuals that are also willing to support us, but we'll only do that if it's fair and equitable and available to all shareholders, not preference over one or the other. But it will be horses for courses, ultimately. Anything that we do, we really focused on the fact that shareholder value and making it accretive, not decrease. So that's really our focus. So I'm not quite sure that I can give specific numbers per se. But, I guess, the framework in anything is a combination of potentially debt, potentially capital raising, we like no debt. Clearly, at $1.1 million in finance costs, we'd like to -- that to be falling to the bottom line. But we're also conscious of $0.125, $0.13 that if we did do a capital raising that we did for the right reasons and would add significant value to shareholders.

Great. A follow-up question from Andy. Is the proposed dividend a one-off payment? Or are you expecting it to be an annual event?

Annual event. We can't stop-start. There's some peer groups that we look at overseas, and they got histories of 51 years in a row, 37 years in a row of dividend payments. So my plan is coming out with this program. Then we will be consistent in our dividend. So it's not a stop-start process. It's been 5 years, I guess, in the making was always one of our initial ambitions. We've been gearing up for this internally for quite a while. And we only announced that, obviously, we are coming out with dividends recently. And it's just part of our evolution and maturities of the organization. And also, we need to be [ sparking ] the interest of other shareholders and other people who are interested in putting their money into our company. And if they have the opportunity to receive dividends from company A or ourselves, then at least that puts us in a position where we consider. Today, we're not considered and that probably limits us in some ways.

Great. Thanks, Mike, and thank you, Andy, for your questions. They're all the questions we have in the queue. I'll hand back to Mike just to wrap up.

Great. Okay. Well, I guess, we've covered most of it as per the presentation. I guess, what's happening now over the next 90 days that in terms of future communications: one, we've got our AGM, that is in November; two, we will be coming out in October and providing further strategic guidance on our next 5 years, but we're still focused on 2025, but we were now looking at a number 3 years past that. So we will have strategy days that will be held in every state. We won't be doing it by webinar, even though, it will be reported. But we're actually going to Sydney, we'll be in Melbourne, we'll be in Perth and Brisbane. We will hold specific areas for shareholders to come to, both existing analyst or potential investors. And we will outline our strategy going forward. And clearly, our positioning statement and so on. We're cautious about how we come out or when we come out with our strategy and the information that sits behind that. We want to make sure we're ready to go. So we're not talking about what's going to come. So we don't give competitors an advantage or a leg-up. We want to make sure that we're hitting the ground running and the wheels are well in motion as we are talking about that. Top of mind clearly is about improved earnings profile. If we improve our profitability, we'll return our inventory becomes tighter and a better terms, our collections, payments, our better terms with our suppliers, clearly, if all that improves and also how we guide that allocating our capital investment towards those things that have material impact. And probably, as we mentioned, the biggest spend is [ referred ], as well as e-commerce and the technology that sits behind that, particularly as AI comes through. However, in saying that, automation will bring about so much efficiency within our business as well, which brings a lower cost to serve model that we focus on. So, with that said, I really appreciate everybody's attendance today. We've got an exciting future. Again, every year, I say that, but every year, we get more excited about what we're doing. When we get to this point, it's a nice opportunity for us even to look back at the achievements that we've made. The contribution by the team has just been absolutely incredible. And also, our opportunity for the future which is really exciting about what's possible and clearly, there's imminent growth within our business moving forward. So thank you, everybody. I appreciate your attendance.