Vulcan Steel Limited (VSL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Vulcan Steel Limited FY '23 Results Conference Call. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Rhys Jones, Managing Director and Chief Executive Officer, to begin the conference. Rhys, over to you.

Thank you, and welcome, everybody to the FY '23 results presentation for Vulcan Steel. And if you can just go to the next slide, please. And the next one, please. Yes. So this year has been a challenging year with the economic headwinds or tailwinds turning to headwinds quite rapidly. We also had the challenge of integrating a large acquisition in terms of Ullrich Aluminium. Overall, we felt the year went particularly well. Despite all those challenges, the company has come forward very well with a solid result. But more importantly, we've positioned a platform where we can really grow strongly from here with this aluminum acquisition. Next page, please. And next page. Next page, please. Our performance highlights. I think the key element to focus here on is revenue grew by 28% to $1.245 billion. Adjusted EBITDA, inclusive of the $10 million that we had as integration costs at Ullrich Aluminium resulted $219 million, $95 million profit after tax. The key highlights for us were the operating cash flow of $145 million. This is mainly due to inventory reduction. As the supply chain came back online, you've got a spurt of extra product that's then being dissipated as well as the slower economic demand plus we had aluminum, which is well and truly over stock. So a number of factors there, but the overall operating cash flow of $145 million was very solid. Reduced our debt, which was roughly $400 million when we acquired Ullrich, down to $340 million and we're progressively lowering our debt as we speak. A key element, too, I want to focus on is that our return on capital employed for this year, pre-IFRS was 32% and post-IFRS was 21%. Again, solid numbers given the circumstance of acquiring a business that needed a lot of surgery and the distractions of a tough economic environment. Next slide, please. Just a quick summary of the Vulcan business. We're a value-added distributor and mineral processor. You can see we're in 2 key divisions, steel and metals. Steel composes steel distribution, plate processing and coil processing. What we like to do is progressively go down the value chain and further process materials. Similarly, with metals, we've got stainless steel, engineering steels and now, aluminum. Again, further processing of stainless and aluminum and engineering steel is one of our core elements. I'd like to highlight the fact that our geographic split is basically 2 to 1 Australia to New Zealand and we widely distributed right across all elements or all geographies within Australasia. In terms of market segments, we've got very strong access, for example, mining through engineering steels in Australia, through the sheet metal and coil processing or engineering with the steel distribution, fabrication through steel manufacturing. And we also have food and agriculture very strongly in stainless steel. So transport industry is plate cutting. So you've got all these different market segments we're exposed to by division by different ratios, but what we've got is great diversity between geography and market segment split. In terms of customer buying power over us, we've got 13% of our clients -- sorry, top 20 clients represent 13% of our total sales. This graphic does not include aluminum. So I think it will be dissipated further. Aluminum is characterized by a large number of smaller clients. We have very few very large clients. So again, the overall dynamic here is favorable to the business's performance going forward. Next slide, please. And just to recap our growth strategy and update. Brownfields expansion, it's all about growing the existing client base or selling multiple products to existing customers. It's an ongoing focus across 70-odd sites across Australasia and that's a metric we track on a weekly basis. Entry into new geographies, we've expanded significantly overtime into all parts of Australia and New Zealand. That program will continue and we've identified a number of new opportunities to expand further in Australia. Expansion of products and/or service offerings. Very specifically, we've added the aluminum product range in FY '23. Massive number of opportunities here to expand that further, particularly combining with stainless steel. We had made 11 successful mergers since 1995. Ullrich Aluminium is one of the larger ones. We believe it's been a very successful acquisition to date and we're making solid progress in consolidating into our business and developing the bulk of business model for this new unit. In terms of business improvement, 14 of the 17 growth initiatives we previously identified now have revenue generation. We believe that will progressively grow and contribute further in coming quarters. And next slide, please. As you can see from this slide, there's a huge number of branches right across Australasia. I'd just like to point out that we've got now 1,360 employees over 72 sites. We're developing a number of these sites to become hybrid sites where they sell 2 products, for example, aluminum and stainless. I also like to highlight to you that there's 12,000 active customers but that doesn't include our Aluminum Australian business. We only went live on IT in May, therefore, we don't have the customer number accuracy of 6 months. In the February update, we'll provide that. But we believe it will be in excess of 20,000 clients by that date when that's included. Our next slide, please. In terms of the Vulcan Aluminum integration program, key point there was getting the culture right. Aluminum will become part of our Metals division. We've got the key operational teams in place. We've made a number of management changes within that business. That's now settled down. People are very motivated. They understand exactly what's expected and that's going well. The business rebranding will progress over time, particularly in Australia, we will move away from the Ullrich name. In New Zealand, that will be a slower process. But we'll -- over that time, we'll be more advanced towards Vulcan metals branding nomenclature. In terms of aluminum procurement, we've combined the aluminum procurement process for Australia and New Zealand. That has been hugely beneficial to the business and tidied up all elements of procurement. So stock availability has improved significantly across Australasia. A key highlight in the last 11 months has been the IT system. We've moved across to the existing Vulcan IT system. Remember, November, December last year, we put New Zealand on. We used that as a trough for Australia, which is a much larger unit. Australia went live in May. So we completed by June 30, all of Ullrich on our IT system, that's now settled down and we're making progress and enables us to develop the business to a greater degree. We've also exited the fabrication business in Ullrich Aluminium. This fabrication business effectively competed with a number of our clients and we're focusing principally on distribution. Initiatives planned in FY '24, we're really trying to build the Vulcan culture and also teaching the Ullrich Aluminium team, the key basics of the Vulcan business model and service mindset. We're making good progress in this area and we believe that will grow progressively and generate significant benefits; greater stock availability, improved [indiscernible], far more customer orientation, visiting more clients, basically ensuring that every element of services to a new high standard. In turn that will over time with better market selection, better value-added product offerings will provide better margins. This will be an ongoing slow process, which we think will -- which we believe will progressively increase earnings over the next 2 years. We want to really grow the customer base in aluminum. We believe there's a lot of opportunity to do that. Now, I want to also emphasize that a number of hybrid sites are starting up where we offer -- will offer aluminum and stainless. This is principally in Australia. And we're also doing a hub-and-spoke freight logistics review both in Australia and New Zealand, but the primary benefits are in Australia. This will reduce damage, improve stock availability and reduce logistics costs and we'll run our own trucking fleet to achieve this. Next page, please. Okay. From a health and safety viewpoint, serious harm injuries have continued to drop to a negligible number, but health and safety incidents still remain too high. Key point to note here is we've had to integrate a number of sites from aluminum and develop the standard processing operating procedures around health and safety for them. We've also got 6 sites out of 72, which account for 70% of harm injuries. We're going to focus on those 6 sites to ensure that, that number comes down. We're very confident that this will -- you'll see that trend strongly in the next 12 months has already become evident to us in the last few months. In terms of our environmental activity, we've reduced greenhouse gases by 8% over the last 12 months. We're particularly focused on use of solar in Australia, where electricity is generated by coal-fired power stations and shifting to hybrid cars and looking at any opportunity to use biofuels or other improvements and reduction of greenhouse gases. In terms of our community input, we sponsor a number of charities, for example, the Halberg Youth Council and the Art Center in Melbourne. But we also made direct donations to employees of businesses affected in the Cyclone Gabrielle in New Zealand in February '23 and we have work in wellness programs across many sites in Vulcan, including the opening of 2 new gymnasiums in the last 12 months. I'd now like to talk about the operating backdrop. That's the next slide, please. The Australian and New Zealand economic background is fairly similar, but we would say the New Zealand scenario is worse than Australia. So it's basically, we'd emphasize that. High interest rates, the record rate of increase in interest rates and the sudden pullback from the COVID-19 stimulus programs have really reduced the demand for product. Destocking activity across the market was quite evident in the first half of the year as international supply chains freed up, extra stock came in ahead of schedule and led to overstocking just as the demand started to decline. This led to significant reductions in margins for a large segments of the market. It also enabled businesses in New Zealand and Australia despite a slower and tougher market. Despite that, the outlook in New Zealand and Australia has remained relatively stable for the first 6 months of the year, then it started to decline quite solidly in the second 6 months. We've seen inflationary pressures on operating costs, but overall, we see Australia as being relatively stable, but New Zealand further decline. The Australian and New Zealand dollars were weakened by approximately 10% against the U.S. dollar during '23 compared to the average across FY '22. And in terms of global and local steel and metal prices, global steel price in Australia and New Zealand dollar terms weakened by 25% compared to '22, stainless steel, 13% and aluminum by 11%. The next page is group financial performance. I'd like to hand over to Kar Yeo.

Thank you, Rhys. Good morning, everyone. So overall performance, as Rhys mentioned, we think, relatively robust in the context of the operating environment that Rhys has just given you an update on. At a volume level, overall volume fell by 4.5% in financial year 2023 to 251,000 tonnes from previously 263,000 tonnes in financial year 2022. Australia performed better in this respect from a volume perspective than New Zealand, down marginally at about 1% compared with New Zealand at about 10% year-on-year basis. On a gross profit dollar per tonne basis, there was the reverse New Zealand margin per tonne overall fell -- actually performed better compared with Australia. So the consequence of the change in our product mix following the acquisition of our aluminum business, our overall gross profit dollar per tonne was up close on 20% year-on-year compared with this time last year. The compression in terms of percentage margin -- gross margin percentage basis actually compressed because of higher selling price and also higher replacement costs that came through during the financial year. The net outcome from an adjusted EBITDA perspective was down 10%. Part of it was the contribution from aluminium offsetting some of the pressure that we saw in our preexisting business. The most encouraging aspect of our business was really in terms of cash generated from our operations up at $145 million compared with $12 million this time last year. Turning over to the next slide, just to give you an indication of how we got to where we are at the EBITDA level. What we had was the end of financial year 2022, the position that we had was $243 million EBITDA. The movement during the year was driven by volume where EBITDA was down by $17 million, including, obviously, the contribution from aluminum. Gross margin changes, again, to do with the mix of the aluminum acquisition, led to a $72 million increase in terms of total contribution to the EBITDA bridge. And the final component, of course, the increase in cost to serve customer post the acquisition of aluminum effectively led to an overall decline of $24 million to $219 million before the impact of -- impact of about $10 million in relation to integration costs, which therefore led to a $209 million reported EBITDA number. Turning to -- on a by segment basis, on the next slide. Steel segment volume was down by 15% year-on-year in financial year 2023. Majority of this is actually to do with our core business. The other component that led to a 33% decline in EBITDA is our gross profit dollar per tonne overall that fell by 9% year-on-year across Australia and New Zealand. Turning to our Metals segment. As we mentioned, earlier on contribution from aluminum, first-time contribution from aluminum effectively led to an 87% increase in revenue. If you break down the impact of the contribution from aluminum, including the contribution from aluminum rather, EBITDA improved 37% year-on-year. And for the preexisting business, certainly, yes, a bit declined somewhat, but it was certainly more robust compared with our steel business. Finally, in regards to our operational update on OpEx, vast majority increase of that 54% relates to the impact of acquisition from aluminum in terms of cost to serve the market. What is not included in this table that you've got in front of you on this slide on Slide 18 is the $10.2 million impact from business integration costs following the acquisition of aluminum. Turning to our cash flow and working capital movement in the following slide. As we mentioned, $145 million cash generated from our operations compared with $12 million last year. This, in fact, is probably the mirror-image of what we saw in financial year 2022, where we actually generated $142 million of net profit after tax, but only $12 million worth of operating cash flow. We do -- obviously, our goal is to continue to maintain and manage our working capital requirement carefully going into the next 12 months, which Rhys will touch on shortly in terms of our outlook for 12 months. The final point on this slide I'd like to highlight is our capital expenditure expectation for financial 2023 -- 2024. That should fall in the range of $25 million to $30 million. Most -- more than half of it relates to growth as well as cost reduction initiatives that we've got planned. Finally, before I turn it back over to Rhys, in terms of balance sheet metric and dividend, we -- our Board, I'm pleased to say have declared a dividend of $0.305 for final dividend, bringing our total dividend to $0.55. And in terms of franking credit, it will be fully franked and 44% computed. Our net debt position, as Rhys mentioned earlier on, is at $340 million at 30th June of 2023. As we indicated in our media release, we're pleased to advise the market that net debt has since fallen again to $328 million at the end of July relative to our banking facility, the trajectory that we've seen over the last 6 months and also into July, we're very comfortable with our balance sheet position. With that, I'd like to turn it back over to you, Rhys.

Thank you, Kar Yeo. In terms of the ongoing economic uncertainty, look, what we are seeing is mandatory pricing policy settings in Australia and New Zealand are going to remain restrictive. We believe particularly the downturn in New Zealand over the last 4 to 6 months will continue in the near term. We're unsuited when that's going to abate. In Australia, it's a slightly more positive story, but we still have no real certainty as to when that will improve. The New Zealand political uncertainty is certainly affecting their customers and their decision-making about buying and investing. So we believe until there's a certain outcome for our New Zealand election, that will slow investment. Demand for steel globally in 2023 is expected to increase compared to '22, but this does hinge on the economic recovery of China, which is still uncertain. This should become clearer in the coming months. The strong ongoing inflationary pressure on our cost base, that does seem to be abating somewhat, but we still think that's got a number of months to go before we finally see inflation come down to the right levels. And lastly, rent adjustments have the potential to place upward pressure on costs, commercial renting to have really lifted right across the market, and we are exposed in some sites to that impact. In terms of the business improvement program, notwithstanding the environment, our focus is on growing our customer base and integrating aluminum strongly into our business to really capitalize on a huge uplift once the cycle improves. The effort invested in customer engagement is paying off. Our ATA growth in numbers in our preexisting business grew by 3%, May to July '23 compared to the same period '22. Despite the slow economy, our ATA numbers have been maintained or improved. The benefits from aluminum integration program are expected to progressively come through. Obviously, we spend a lot of money, time and effort straightening up aluminum. We're not 100% the way there, but we believe we've made some good progress, and we believe that we get some significant benefits over the coming 12 months, but they will not be fully realized for another 12 months or more. Also, within the element in context, we've grown and spending a lot of money and further development of hybrid sites, which will be principally in Australia and we've allocated CapEx for that period. Productivity and cost efficiency across the whole company remain a major focus to contain the increase in operating costs. We have a deliberate program site by site to minimize costs wherever we can. As we've indicated in July '23, very hard to give a constructive view of the outlook given the complete uncertainty we currently have. So we hope by November '23, our Annual General Meeting to give an update with more knowledge about how China is going, how the New Zealand, the political environment is going and how the overall economy in Australasia is performing, and it will give us more opportunity to speak more specifically about the outlook for F '24. Thank you and I'd invite any questions now.

[Operator Instructions] And your first question comes from the line Rohan Koreman-Smit from Forsyth Barr.

Congratulations on getting a challenging year out of the way. First question for me, just on Ullrich, I noticed in the accounts when -- in the acquisition note, the second half impact contribution looks pretty light. Can you just step us through or provide a bit more color on, I guess, how that traded for the second half, just so we can kind of do a bit of a better job of splitting Ullrich from the Metals division?

Sure. I'll take that question, Rohan. So the $23 million that you're referring to is obviously at a profit before tax level. And that incorporates the integration costs that we had called out for the current financial year. That then gets you obviously closer to the $3 million mark. To that, which you, I think, I believe previously, we've sort of talked about in other forums, what the costs associated at the -- in relation to the impact of goodwill amortization -- sorry, amortization of capitalized lease obligations, both in terms of the principal payment and interest payment, you should be able to work your way back up through to P&L at the EBITDA level.

Rohan, if I was just making a general comment, we bought the business in August. We basically focused on getting the IT system sorted out in New Zealand in October, November, December. So we started serious restructuring New Zealand post that and in Australia slightly [ later ]. So the second half of the year had a lot more restructuring and change than the first half year.

And then just on the leases that you talked to for your sheds. Can you give us some idea of, I guess, when you'll run into market rent reviews and kind of how that plays out over the lease book over the next couple of years?

I'll give a crack and then I'll get Kar Yeo to comment as well. We have a number with the ratchet clauses, which basically mean that [indiscernible] effectively. Then we have some that are open and they have different terms of expiry. So most of the Ullrich ones, we have no issue with would be fair comment. But we don't even issue with any of them. Then New Zealand [Technical difficulty] in the vicinity of 20% to 30%. So it gives you a sense of it. In the South Island [indiscernible], there has been some increase, but we don't believe it's significant. But we're obviously worried about the impact on Melbourne and Sydney, we've got some very large sites. One has been set recently with the ratchet clause and other one is [ due ]. So it probably got maybe 4 to 5 that could be exposed. Is that fair comment?

Yes. It is largely location-by-location basis. But certainly, in New Zealand, we've observed a certain amount of rent inflation pressure in some locations. Other locations in Australia again, I would say that it feels less pressure, but the pressure is still there.

And maybe one more, if I could, just quickly -- we've -- you've previously talked to having a bit higher than normal volumes, particularly in steel, just those late deliveries, but also in Ullrich in terms of the amount of inventory you acquired on acquisition. Can you, I guess, talk to both sides of the existing business and the Ullrich business where you are at inventory destocking cycle?

So inventory across the board, but in steel -- in preexisting business other than one, which is engineering steels, which is a little bit slow because it's got very long lead times, it's got up to 9-month lead times from product. We believe virtually all 100% or very close to it exactly the right inventory level. So one is just slightly over. And if there are a bit of tidying up, it's within the next 3 months, Rohan. So you can basically say preexisting business be conservative by Christmas, 100%. Aluminum, you probably recall, we said that we bought like a year's stock of billet. That's when we had the delayed payment on, you remember that comment a while ago, and they had a vast majority of inventory that was all over the place, some absolutely excessive. We're probably 9 months away from fully sorting that out.

Your next question comes from the line of Lee Power from UBS.

Is it possible to give just a little bit more color on kind of what you're seeing in end markets year-to-date? So like, have you seen further destocking of markets continue to decline? Or is that rate of decline slowed as we've kind of progressed into '24 and then maybe the differences in Australia versus New Zealand?

Okay. I'll give you my best crack at that and then I'll get Kar Yeo to comment. Aluminum, I'd say, relatively stable. In terms of New Zealand versus Australia, Australia is relatively stable, if anything, even be a slight uptick, but relatively stable. I'm talking July-August versus the last quarter of last year, so like last 5 months. In New Zealand, last few months, 2, 3 months, a big slowdown and we're hearing a lot of projects being put on hold and subject to election. So we believe that there's a definite pause in New Zealand through the election and we've also had the impact in the last 2 weeks of the dairy announcement, which means dairy payout is going to be much lower than people thought and that's deeply affecting distant decisions in demand in rural parts of New Zealand. So, I have to say New Zealand is definitely looking quite worrying with all aspects of the economy not performing well and people are really quite worried about the outlook. So I don't really know what will happen post the election. Maybe some of these projects come forward depending on the election result. But the dairy outlook is definitely going to weigh on rural demand. On a positive note, stainless steel, which is related to water infrastructure, dairy core investment and wine, that is holding. It's showing slight signs of weakness as well in New Zealand and Australia is going fine. Now, we've got 2 different stories with New Zealand definitely the worst of the 2.

And then just on the OpEx front, like I know you've obviously talked to rent increases. OpEx per tonne obviously jumped pretty significantly in the year. Like do you have a view on where that should sit on a more normalized basis?

Okay. I'll have a crack at it generally. What we do is it by unit. So what we've got like you're getting the generalized number, we're doing the write-down by unit. So we're focused on units that are outliers. Now the key issue is if you've got a very productive unit and the volume drops off, you'd automatically [indiscernible], we can take your OpEx down, well, not necessarily because somebody is buying 6 items rather than 8 items, your volume is down, but the business is doing the same number of transactions and work, they can't necessarily reduce headcount. And your truck goes out, it's 2/3 not full. So therefore, you're -- still your costs are hard to recover. So from our viewpoint, it's definitely, there's a little bit of a link to volume and is a limit to what you can go down to. In terms of our culture, we don't force people out the door. What we typically do, use sinking let policies and other innovative programs, whether there's changing ship patterns, trends being people would have been in between divisions or any other way, shape or form to get costs down. That's what we're currently doing. But it is definitely a challenge. I think if the market came back and has a bit of volume, your operating cost per tonne would even be lower than what it was potentially or sit at a similar level. Do you hear where I'm coming from.

Yes, I do. I was just interesting on the employee front because I know that like it's staff employees have jumped from, I think, 1,350 when you gave your update in July, and it's now up at 1,360, I thought maybe that might have continued the other way?

Well, to be specific, there's 1,360 at the end of June, and we made a lot of changes and there are people still on the payroll but didn't work for us. Because remember, we only did the computer changeover in Australia in May. So we were focused on that and we've made some quite significant changes May, June, July and Australia. So the headcount now is lower than that.

[Operator Instructions] Your next question comes from the line of Luan Nguyen from Jarden.

First question for me is, do you expect that you can maintain or even grow gross profit per tonne into FY '24 and beyond?

Look, there's a couple of points on that. Gross profit per tonne is an average across all those different products. So it depends on the mix of the product. But if you go down by individual division, we certainly have big opportunities in some divisions, in other divisions, not so many opportunities. But our goal would be to maintain or improve it. And I think particularly in some divisions, we've got a significant upside. Do you want to comment, Kar Yeo?

Sure. It comes down to Rhys's point -- Luan, it comes down to the product mix. We obviously acquired our [indiscernible] view of growing the business. And as you can see, we called out the increase in gross profit dollar per tonne this year to tune about 20% year-on-year because of the product mix. Obviously, with the higher gross profit dollar per tonne out of aluminum comes a higher cost to serve as well on a per tonne basis. So just bear in mind, the overall blended number, if you're trying to understand the dynamics on what it therefore means at the EBITDA level, I would say, metals in general, as you've no doubt followed us long enough to understand that metals in general does provide us with a higher margin in terms of gross profit dollar per tonne.

Could you make some commentary on your current market share for FY '23 versus FY '22? Have you gained some market share versus your competitors?

It's hard to tell. But look, if I broke it down, you need to look at it by area, by segment. So we tend to look at -- if there's 100 clients, we don't want all the 100, we might want the right 30 out of 100. So particularly in, say, New Zealand, where it's been quite a competitive environment, there's been a lot of price cutting. So we're actually quite pleased with our gross profit per tonne where we think it's been well managed given the behavior of some of our competitors. We think we've maintained share and we've deliberately highlighted to you the ATA growth. So we've had 3% growth in ATAs in our preexisting business. That indicates you're holding your share or improving it. Key point to note in a tough environment is, a client, for example, might have 4 employees, sitting in a workshop, they keep their job, it's all short notice. They want the steel straight away. They're actually prepared to pay a premium they want to work with somebody that actually can deliver being on time and that's us. So we typically, actually do pretty well with short urgent orders in a tough market. And where there's a big order where it's price competitive, there's lots of opportunity to deliver on a schedule of weeks, we'll just get our share and that's all just pricing behavior. It's not to deliver service. So I actually think we're probably -- well, I think we've at least maintained our share, the ATA data will probably be a lead indicator you probably improved it.

Yes. Just a final question for me. So do you expect any one-offs OpEx for Ullrich in FY '24, given you expect at the beginning of the year, you expected $5 million and then that's another $5 million unexpected costs coming in. So just wondering if there's some more costs coming?

Okay. Well, again, 2 comments on that. In the Ullrich $5 million extra, there was a tax error we made, which was $2.5 million and 2, we found more opportunity to improve the business, which cost us more -- a bit more. So we -- obviously, that was -- those estimates are hard to make at the beginning of a period. I think there's a lot of change still to go. So there will be at least a few million dollars of one-off costs in all likelihood. I want to make it pretty plain too. The $10 million on a very specific redundancy costs and tax costs, we absorbed a lot of other costs in that period, which were just in operating costs, but moving sites, facilitating meetings, training for IT, there's all sorts of costs we absorbed that weren't expensed. So we'll still have those sorts of costs carrying on. And I think abnormal costs, there could be a few million. And I think by the end of this year, this current financial year, the aluminum will be really cranking. We think it's going to be like 70% to 80% of the way there by 1st of January, and it's all about fine-tuning and introducing our business model and that takes time to learn it. So it's just an amount of communication and focus and slow improvement, which will take in several years.

There are no further questions at this time. I would like to turn the call back over to Rhys for closing remarks.

I believe that's one more follow-up call.

We have a follow-up from Rohan Koreman-Smit.

I just had a question on integration accounting or acquisition accounting of Ullrich. When you brought on the trade receivables, I just noticed you put through a $1.3 million kind of doubtful debt provision. I was just wondering how collection is going on that against expectations? And also, there was a $14 million inventory provision as well, obviously against the Ullrich inventory. Again, can you just talk us through that? And I guess, the reasons for it and how it could unwind?

The overall doubtful debt is actually blended across all the preexisting business as well as Ullrich. I wouldn't necessarily attribute that to only the Ullrich. But in terms of collection level, based on what we can see in terms of trend, we remain relatively comfortable with the trajectory of our collection rate, monthly collection rate. We track that very closely as you expect in terms of what we collect at the -- during the month or any prior month balances.

Can I just make a comment. I think we are going to see more bad debts because they're starting to emerge, we're fully insured in Australia. And in New Zealand, we've got very good insights and we deliberately stay away. There's already been a few big bad debts in New Zealand. We weren't exposed to them. We're very, very focused on identifying who has risk. And if they do have risk, we want to talk to them and look at their balance sheet. And if they don't have full access to that, we don't trade. So -- but I've got no doubt there will be some bad debt. But we're well and truly provisioned there, Rohan.

What was the other part of the question?

The stock provision for obsolete stock.

Sorry, could you repeat that part of...

$12 million of obsolete stock provision.

There the fair value of inventory that came on for Ullrich, there's a $141 million gross value versus $127 million, I guess, fair value. I just want to...

So that was the assessment that we had to make in terms of the combination of obsolescence and mark-to-market valuation.

Can I just make a quick comment, Rohan. What we've bought, with a number of the items, there's literally, I think we highlighted when we bought the business, there was about 20,000 items or different SKUs. And reality is you probably need 1,800 to 2,000. So we're deleting a large number of line items. So the provisions are basically a [ C-step ] fair value calculation to assist against problem products we know we have, which will basically deleted over time, that's where it comes on. Okay. Thanks, everybody. Thank you for your time and looking forward to any further questions at a future date. Thank you.

This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.