Thank you for standing by, and welcome to the Adairs Limited First Half FY 2021 Results Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question- and- answer session. If you wish to ask a question, you will need to press *1 on your telephone keypad. I would now like to hand the conference over to Mr. Mark Ronan, Managing Director and CEO. Please go ahead. Good morning, everyone, and welcome to the Adairs 2021 First Half Results Call. Joining me this morning on the call is Ashley Gardner, our CFO, and Jamie Adamson, our Head of Investor Relations. The first half of 2021 has been an exceptional period for the group. The results achieved by Adairs and Mocka through this period highlight the strength of our brands and the hard work of our teams to continue to adapt to the ongoing COVID-19 challenges, whilst delivering fantastic product and great customer experiences. The group achieved total sales growth of +34.8%, with like-for-like sales of +32.4%, and an increasing gross margin rate of 545 basis points to 66.1%. Over the half, Adairs achieved sales growth of 20.9%. Adairs stores delivered 4.6% sales growth, despite 43 greater Melbourne stores being closed for 82 trading days over the half. After adjusting for the closure of these stores, Adairs achieved store like-for-like sales growth of +14.4%. This was well supported by a terrific online result, which grew at 95% for the half. The sales result was supported by a strong 690 basis points improvement in final gross margin rate for Adairs, taking the gross margin to 67.8% for the half. This culminated in the Adairs business delivering a record underlying EBIT of AUD 53.2 million. Mocka also had a strong half with the business continuing to outperform initial expectations. Mocka sales were up 44.4% on the prior year, despite the business trading on reduced inventory levels as a result of ongoing challenges with our supply chain caused by COVID-19. This strong sales result was enhanced by the improved gross margin rate, up 230 basis points on the prior year to 53.4%. This saw Mocka deliver a record underlying EBIT of AUD 7 million for the half. As a group, our omni-channel strategy continues to deliver with online sales now representing 37% of total sales or on an annualized basis, more than AUD 180 million in revenue. The exceptional results across Adairs and Mocka delivered strong operating leverage, allowing the group to achieve a record profit result with underlying EBIT of AUD 60.2 million, up 166% on the prior year. This record result, together with the group's strong balance sheet, has allowed us to declare an interim fully franked dividend of AUD 0.13 per share. The results outlined today do not include the net benefit of the JobKeeper wage subsidy received during the half, as the board's determined that based on the performance of the company, it is appropriate to return the JobKeeper benefit to the Australian government. JobKeeper has been an excellent policy, enabling Adairs and many other businesses to confidently support their team members through this period, whilst delivering significant stimulus to the economy in these uncertain times. I will now hand over to Ashley to walk through the financials in more detail before I provide some more information on the strategies that will continue to drive the ongoing growth of the group. Thanks, Mark. Good morning, everyone. As Mark said, the results for the half were outstanding. It is an absolute credit to our teams. The group delivered an underlying EBIT of AUD 60.2 million, up 166% on last year. As we've done in prior years, our results are presented excluding AASB 16 and one-off costs related to the acquisition of Mocka and our DC project, as well as the exclusion of the JobKeeper wage subsidy benefit, which as Mark mentioned, will be repaid to the Australian government. Adairs achieved total sales growth of 20.9%, with online sales up 95% and store like-for-like sales up 14.4%. Mocka delivered sales growth of 44% on a comparable 26 weeks basis, noting that we only owned Mocka for five weeks in the first half last year. Total group like-for-like sales were up 32.4%, and as Mark mentioned, group online sales now represent 37% of total sales. Both businesses continue the progress that has been made in FY 2020 with further margin growth. Adairs gross margin in FY 2021 improved by 690 basis points to 67.8%, with great quality ranges that resonated well with our Linen Lovers and 29 fewer broad-based promotion days in the half, which saw our average selling price improve significantly. Mocka improved gross margin by 230 basis points to 53.4%, following a review of product pricing and continued focus on understanding which promotions work best to drive strong sales and margin growth. The margin outcomes for both businesses were against a backdrop of lower than ideal stock levels. It was pleasing to see both teams approach their promotional activity with a very clear focus on maximizing gross margin on limited stock and making that limited stock go further. Whilst Adairs is now in a better stock position, Mocka continues to build its inventory. Of our total stock balance of AUD 67 million at the end of December, some AUD 20 million of this is on the water. That's AUD 12 million higher than it was in June. Operating leverage was a feature for the half. With strong like-for-like sales growth across all channels in both businesses, cost ratios were all favorable and EBIT margins expanded materially. Our Adairs store contribution margin improved by more than 10% to 36.1%, and the Adairs online contribution margin grew to 44.1%. Mocka also improved its contribution margin of 38.5%, with improved gross margins and a low fixed cost base, driving material operating leverage in this online-only business. Cost control continued to be a focus, with significant improvements in pick and pack efficiency across our distribution centers, providing better customer experience outcomes and at a lower cost. We continue to see high labor productivity in our stores. Our rental cost for the period includes the full rental cost for the Victorian stores closed during the lockdown, with discussions ongoing with our landlords. Whilst rebates from the first wave of the FY 2020 COVID-19 lockdown of AUD 2.2 million were booked in the half. Increased investment in digital marketing supported our online sales growth and the growth of our Linen Lovers program. Adairs achieved an underlying EBIT of AUD 53.2 million, up AUD 30.8 million on last year, delivering an EBIT margin of 24.7%, well up on the 12.6% for the prior year. Mocka's profit also doubled in the half to AUD 7 million, at a 25.2% EBIT margin. The results from Mocka continue to track ahead of our initial expectations when the business was acquired just in December of 2019, just over 12 months ago. The strong operating result translated into cash flow, with operating cash flows up 90%. Inventory is well up on last year as a result of the high stock in transit I mentioned earlier. Our inventory is clean, and we are well-placed for the upcoming season. We know that additional stock will support our sales growth in both businesses throughout the second half, and will help us to manage the instability that we're currently experiencing in our offshore supply chains. We closed the half with AUD 22.1 million of cash on hand and no bank debt. As Mark mentioned, the board have approved a fully franked interim dividend of AUD 0.13 per share that'll be payable on the 25th of March. I'm going to hand back to Mark. Thanks, Ashley. As we've outlined for a number of years now, the business continues to perform well due to our focus on delivering on our underlying strategies. In the presentation today, we have highlighted five key drivers of our future growth that I'll briefly talk to now. If I start with our proven and resilient business model. The strong brands that we own, our vertical supply chain philosophy, and our direct-to-consumer store and digital channels allow us to develop and control the expansion of our product offering and customer base. This enables us to be more agile and responsive to changing customer needs through the delivery of exclusive on-trend product at higher margins. Our strong brands, combined with our large and loyal customer base, delivers a lower cost of customer acquisition and provides significant opportunity to enhance and build upon our relationships with our customers. We see the combination of omnichannel retail with loyalty as a key growth driver. Adairs is focused on continuing to grow its market share, and the best way to do this is to grow our customer base while also increasing our share of spend from our existing customers. Linen Lovers is the program through which we provide value to our members, allowing us to achieve this. The Linen Lovers program today accounts for more than 75% of Adairs' sales. Through the program, we have seen 50% of new customers acquired during the Q4 of FY 2020 shop again over the first half of FY 2021, providing us with confidence that our growing Linen Lovers program will support our ongoing sales growth. We will increase our investment in customer data analytics capability over the coming years to further enhance the value of this program for our customers and deliver ongoing returns for Adairs. Our focus on becoming an omnichannel leader is supported by our digital transformation strategy. We are investing in enhancing our digital platform and team to deliver an improved customer experience, driving customer acquisition and increased customer conversion. We are starting from a strong position and have seen significant growth over the half from customers that shop both online and in-store, or what we call omnichannel customers, delivering 60% sales growth. We continue to think about how we deliver customers a superior and more flexible shopping experience and will actively explore and trial new technologies, including in-store devices to showcase range; customer traffic measurement and analytics, both in-store and online; online chat; call and collect and call and same-day delivery services; and augmented reality. We will continue to trial these different technologies to ensure that any significant investment truly delivers an enhanced customer experience. The combination of Adairs and Mocka allows us to capitalize on two great brands with well-developed digital platforms. With strong online sales growth achieved by both brands and 37% of total group sales now coming from online, we are well-positioned to win share as traditional store customers transition to becoming omnichannel shoppers. The addition of Mocka to the group increases our exposure to the fast-growing online segment of the market, with the significant benefits of vertical integration. Based on Mocka achieving the same penetration in Australia as it has in New Zealand, there is the potential for Mocka Australia to exceed AUD 100 million in sales revenue, simply based on population size. Mocka provides the group with greater exposure to the furniture segment and provides the opportunity to reach a different customer through design-led, value-for-money, differentiated product. With a significant market to grow into, we continue to invest in product category expansion. Whilst this has been more challenging due to travel restrictions, the team have adapted to these restrictions and continue to work on enhancing our width and depth of offer at Mocka. This will enable us to provide customers with a more compelling offer, and in time, allow customers to fit out their entire home with Mocka product. As a result, we have fast-tracked our investment in the Australian warehouse facilities to support this accelerating product growth. We are also investing in additional talent to supplement the Mocka management team, allowing us to build our brand awareness and deliver ongoing profitable growth. If I think about our digital channels, they are enhanced by our store network. The home category, as I've said before, is better with stores, as they provide our customers with the ability to engage with the product and the team in an environment that allows them to be inspired to create a look that is right for them. While online should provide you with the ability to easily find what you want, it is harder to recreate the experience of discovery that exists as you walk through a physical store interacting with the product. Our in-store team further enhance this experience through their product knowledge and ability to help customers achieve their vision, providing the opportunity for improved customer conversion, cross-selling, and building loyalty to the brand. All of our stores are profitable, and our store formats deliver strong contribution margins. Larger stores are more profitable. There is a strong pipeline of new store and upsize store opportunities for us to capitalize on in the coming periods. Larger stores provide us with that opportunity to showcase more products and categories and generally deliver a higher contribution margin. We have highlighted here on slide nine the improved store contribution margin achieved in stores we have upsized over the past few years. This, combined with the sales increase, has seen us average a 60% increase in store contribution AUD from the stores we have upsized. This highlights both the opportunity and the customer engagement that comes from within our store network. With a highly profitable store portfolio, we remain focused on deliberately creating flexibility within our store leases, with over 70% of leases expiring within the next three years. This allows us to strategically manage our store portfolio through opening new stores, upsizing existing stores, obtaining more favorable terms on renewals, or closing stores that simply do not meet our return hurdles. If we move to our omnichannel business model and the need for it to be supported by an omni supply chain. Our partnership with DHL provides us access to a global leader in the design, implementation, and operation of flexible warehousing and distribution solutions to support our omnichannel approach. Construction of the National Distribution Centre in Melbourne is well underway and remains on track to be operational in Q1 of FY 2022. The project has experienced some delays due to Victorian building restrictions in August and September 2020 and delays in receiving key components from overseas, both as a result of COVID-19 restrictions. Whilst these delays may impact the savings realized in FY 2022, this important initiative will still deliver annualized savings of AUD 3.5 million once fully operational. Consolidating multiple distribution center operations into a single national facility will improve our stock flow and online fulfillment, increase stock availability, and improve service level for both our customers and stores during peak trading periods at a lower cost. The NDC is the foundation for Adairs' integrated omni supply chain strategy to better enable customers to shop Adairs how, where, and when they choose, and has the capacity and flexibility to support business growth well into the future across all channels. We look forward to the completion and transition to our new National Distribution Centre in Q1 of FY 2022. If I move now to our trading update and outlook. In the first seven weeks of the second half of FY 2021, it continues to be a very positive story. Adairs online is up 65.9%, while store sales are up 12.4% on a like-for-like basis after adjusting for the various store closures throughout this period. Mocka has also continued to grow strongly, being up 48.6% over the same period last year. Our gross margins have remained elevated over this period, and our focus remains on maximizing gross margin dollars. We expect to open one to two net new stores, upsize a further three to four stores, and refurbish a further two to three stores over the balance of FY 2021. This will be supported by ongoing investment in our digital capabilities. The second half of FY 2021 sees us cycle against a period of nationwide store closures last year and a strong finish to the year. As COVID-19 continues to impact our lifestyles, we see customers continuing to spend more on their homes over the coming half. Whilst this current trading remains strong, due to the ongoing uncertainty created by COVID-19, the board do not consider it appropriate to provide full year guidance at this time. Before I finish, I would just like to thank the Adairs and Mocka teams. Our teams are passionate about our businesses, and this continues to shine through in the way they go about delivering for our customers, despite ongoing challenges and changes as a result of COVID-19. In particular, the way the Melbourne-based team handled the lockdown period of the first half is testament to the culture of our organization. I would like to thank all the team members across Australia and New Zealand again for their hard work and dedication. With this team, I am confident that we are well-placed to manage and capitalize on the new and evolving retail environment, delivering shareholders ongoing profitable growth. With that, I'll now hand over for questions. Thank you. Our first question comes from Josephine Little of Morgans. Please go ahead. Morning, Mark, Ashley, and Jamie. Thanks for your time this morning. Just the first question, just on that significant gross margin uplift, sounds like that's continued into the second half of various reasons. I guess the key question from that is how much you think you can maintain when we are in a more normal environment. You do have a differentiated product to protect you there, but just interested in any comments, please. Yeah. Thanks, Jo. I think one of the focuses of the business is how we continue to maintain those strong gross margins. Now, whilst we acknowledge that some of the gross margin uplift over the first half and even today has been brought about by the lesser inventory levels and us really managing those promotions tightly. I think you rightly point out one of the things that we want to make sure of is as we continue to design and develop product, we maximize the margin on that product by not, in my words, giving it away too cheap by running promotions that are category-wide or store-wide. Our focus continues on how we tighten up those promotions and still offer what our customers want, whilst maintaining a strong growth margin within the business. I think we can do that through the differentiated product. We've learned a lot over the first half around categories, where the right level of promotion needs to be, and how we start to manage that a bit better to make sure that we can maintain the reduction in depth of discount and storewide discount days that we've managed to achieve over the last 12 to 18 months. As well as ongoing work within the sourcing of product, to make sure that we manage that well at the same time. We'd like to think that we can hold onto a fair chunk of it. We understand that it's probably a bit of a unique period, and we won't truly know until we come out of that. I think one of the things we've made sure of is that we have worked hard at trying to reconfigure our customers to their expectations on discounts, and we certainly won't rush back to the levels that we were perhaps operating at prior to this period. Okay, great. Thank you. Just looking at the cost base, I guess if you exclude JobKeeper, obviously cost base, I think went up about 5% in Adairs. Feels like you probably used that period to invest a bit harder. Can you maybe quantify that investment you made, I guess it's in people talent capability? Yeah, I think if we think about what we've invested, there's a couple of investments in there that are ongoing, and I think you can think about that as sort of AUD 0.5 million- AUD 0.75 million. There's probably AUD 0.5 million That we see as more one-off type costs that we can use in the business over that sort of period to set us up for future as opposed to necessarily talent. More making sure that we set up the strategies that we then execute over the next few years, and we've added a bit of bench strength to firstly develop those strategies, and then that AUD 0.5 million- AUD 0.75 million Is all about how we execute some of those underlying strategies. That's been a big part of that increased cost base within there. There's probably significant incentives within that cost base, given the performance of the business, to both the store team and broader across the management team as well. Okay, great. If we look at second half of last year and add back JobKeeper, we can expect a similar amount of inflation perhaps in the second half. Yeah, that's probably not a bad assessment at this point in time. Yeah, great. Thank you. Ashley, just on the inventory, so it sounds like a lot of that stock is still on the water at balance date. Would it be fair to say the trading update was still impacted by stock shortages, I guess mostly in Mocka? Would that be fair? The other thing just on the trading update, what did online represent of those total sales? Yeah, in terms of the stock flow, it's really coming good, particularly for Adairs, it's come good over the last couple of weeks. Most of that trading update period was affected, particularly the January sale period. Mocka in New Zealand continues to be affected, Australia is in better shape. Most of that benefit for that in-stock position for Australia was there through the trading period. I don't have at hand that answer to that second question in relation to the online percentage of sales for the seven weeks, we'll get it. Yeah. Okay, great. Thank you. I guess if we're just talking about kind of fixed versus variable costs, just should demand conditions normalize in future periods, how you're planning to manage that cost base if indeed, you did get negative comps into FY 2022. It's all guesswork I imagine. I'm assuming you can manage store labor costs relatively commensurate with sales, but just the other cost items, please. Some of them will be there throughout FY 2022 to make sure we capitalize on the strategies that we are looking to execute. That's where we've used this period in particular to think about how we build the actual base of those strategies which won't need to be ongoing costs. I think we've got an element of that cost base that we can withdraw or not have in FY 2022. Equally, we can think about the variable cost will obviously move around with sales. There's a chunk of that that's sort of one-off spend that we think is in FY 2021 that at this stage we'd only invest again in FY 2022 should the sales and profitability be there. Yeah, great guys. Thank you. Just lastly, sorry, on the balance sheet, I'm assuming that net cash balance was before you're paying back JobKeeper post-balance date, I assume. CapEx profile is a bit more elevated. Would we assume that that continues for at least the next couple of years and then just balancing dividends, Mocka earn-out, higher CapEx, et cetera? Yeah, probably, I think sort of the AUD 13-AUD 15 is probably where it will settle. I mean, we've got a couple of one-off projects this year around, particularly around the DC, which won't recur, but I think that'll probably get replaced by our ongoing investment in digital initiatives, the data strategy that Mark talked to earlier, our own emphasis on customer analytics. Then obviously we've got opportunities from store refurbishment perspectives and upsize, which we know pays back. Yeah, AUD 13-AUD 15 is probably the right level for the next couple of years. Yeah, JobKeeper is post-balance date, that repayment? Yeah. Thanks. The answer to your question is 35% of our sales in the first seven weeks that are online across Mocka and Adairs. Perfect. Thanks, guys. Appreciate it. No worries, Josephine. Our next question is from Aryan Norozi of UBS. Please go ahead. Hi, guys. Just in terms of thinking out in FY 2022 onwards, has COVID changed the way you're thinking about your cost base structurally? In other words, should we expect a different cost-driven business margin pre versus post-COVID? I know it's sort of the follow-on to Josephine's question, but have you rethought how you allocate staff hours or rents, et cetera? I think in terms of managing our variable costs, COVID has taught us a lot about how to manage it and manage it quickly. Those variable costs across our online platform, so our DCs, the pick, pack, and fulfillment activities. Obviously our store replenishment activities at the DC, we vary, and they move very much in line with how we see demand. Our store teams, there is a level of minimum wage that needs to sit in our stores in order for them to operate. We've learned different ways in which to manage that at different times. Obviously, with stores being substantially closed, we ran Victorian stores on call and collect for a period of time, which had lots of different options around how we rostered our teams. We are continuing to invest in better rostering, labor scheduling, projects, activities, so that we can continue to make sure we've got the right levels of service in our stores when customers are there. I think COVID has made us a bit more agile. We understand our variable costs, and we're able to quicker respond as things change. As time goes, we'll see what we're required to shift, and we know which channels are the ones that we can move quickly and we'll make the changes that we need to when it's required. The only other thing I'd add to that, Aryan, is that we've got to remember we're a service business. We don't look at labor in store as a cost. We look at labor in store as a customer service piece, and how do we make sure we maintain that customer service. I think it's critical for businesses that are retail businesses, and if you think that's part of your DNA, which we clearly do, that we continue to invest in that because it gives customers a reason to get up off their couch, leave the iPad, and come into store and get the true experience, and allows us then to work with that customer and obviously create the look that they want and really enhance the customer experience through both obviously digital and that in-store experience. Whilst we've looked at our cost bases and we've learnt a lot, I don't want anyone sitting there thinking, well, one of the things we've learnt is we could take labor out of store and these sorts of elements, because that's not something that we would rush to do. We would make sure that we maintain it. To Ashley's point, it's about optimizing that and making sure we've got the right level of service in store at the right times as opposed to thinking there's a cost base there that we would take out. Perfect. That makes sense. Just in capital management, in terms of the payout ratio, it's obviously a bit below or materially below what you've historically paid out. Should we read into that as your confidence level in terms of the earnings outlook for the next six to 12 months? Is that just you being conservative and not knowing what the future holds? I think it is still an uncertain world out there. Historically we've looked to pay out roughly half of what we expect to pay out in a year. Our payout ratio, we've got a pretty wide range to work within. Our expectation is we'll land the full year inside the normal payout ratio of 60%-85%. Perfect. Just following on, sorry if I'm going to get this asked 100x. On the gross margins, if I look at the last 12 months, it was up six percentage points. Can you just tell us how to think about what portion of that is you discounting less, taking out 28, 29 days of discounts versus other movements, whether it be FX or mix, so we just get an idea about how we factor that moving forward? A fair portion of that, I would say, is increase in average selling price. It's complemented by the work that we did earlier in 2018, 2019 in reducing cost prices of product and working with our suppliers to make sure that we balanced the cost price and the sourcing initiatives that we put in place. Equally, there is an element of mix shift, which interestingly enough, over the last 12 months has been a mix shift more towards some of our core categories, which due to the volume that we operate in, operate at higher margins. You think about something like bed linen. Bed linen, we've done a great job on sourcing, which has helped lift the margin, sorry, as well as we've done a good job on reducing the depth of promo across our bed linen category, which has seen us maximize the margin on that sort of category. Equally, we've probably seen a bit of a mix shift back towards some of those core categories whilst people have been stuck in homes and thinking about upgrading that sort of product over that period of time. I think when you think about it, we believe that we will just work on how we maintain that increase in ASP, which we come back to that concept of making sure our product's differentiated, making sure we reward ourselves for the effort that goes in from our teams around putting that together. We continue to see strong response from our customers as we deliver that product that is truly differentiated from what else is out there in the market. More importantly than that, we maintain a high level of quality in our core products that enables customers to feel really confident that the reason they pay a slightly higher price at Adairs is because they're getting a high-quality product. A lot of it is ASP, but it is complemented, I think, by mix shift and that sourcing work that we've done. Obviously, as we head into FY 2022, there will be a slight tailwind in relation to FX and hedging as we currently see it today, where it's at AUD 0.74 versus perhaps AUD 0.70 in the past. Perfect. Just final one from me. Just in terms of margin, you've obviously mentioned in the past you'll be accelerating reinvestment once inventory gets back to normal and that'll impact EBIT margins. How do we think about the sales over the next sort of two, three, four years? Or sorry, maybe put it another way. Is the reinvestment you're doing enough to maintain this current growth rate you're experiencing at margin with 40% or 50% growth rate? Yeah, we think so. We think so. You've got to add these resources in gradually over time, and we think we can continue to add over time rather than think we need to do a big chunk now and then gain an EBIT margin uplift over years. Effectively, if we can continue to grow the sales at even 30%-40%, we almost can't reinvest costs back into the business faster than that will deliver on EBIT margin. We think, that EBIT margin and perhaps as we've learned more over the last 12 months and seen the opportunity that is there, which is truly exciting. We think we can continue to grow that business at 30%-40% per annum. The investment that we'll need to do that is not as significant as perhaps we once thought, and it's why we've done things like fast-track the Australian warehouse facility to make sure that as we expand that product range, we don't run into difficulties with warehousing it and distributing it and impacting on our customer service experience. We think that EBIT margin probably remains elevated over the longer period, which is a slightly different story to what we initially thought as we acquired the business just over 12 months ago. That's perfect. Thanks, Team. Thanks, Aryan. Thank you. At this time, if you'd like to ask a question, please press *1. Our next question is from Mark Wade of CLSA. Please go ahead. Good morning, team. A question on the customer attitudes and the health, and what do you think is going on in their mindset at the moment, Mark? Are they really itching to get out and travel or do you think there's still a real propensity to bunker down at home? Look, I honestly think there's a bit of propensity to bunker down at home. I don't think it's helped at the moment by the fact that, I call it border roulette. As if you go and visit stores at the moment, you hope you can make it back home, and don't have to do a 14-day quarantine when you get there. I certainly think the environment in Australia at the moment makes it very difficult for people to think that there's interstate travel is easy to do and not without risk, and maybe that's perhaps tainted a bit by being Victorian. As we tend to be the state that is quick to be shut out from other states at the moment. I think there's definitely an element of that, and I think I see that even as I talk to the team around the country, Mark, as much as customers, that even our team are quite comfortable being at home and I think that everyday Australian is taking this opportunity to maybe slow down a little, not try and squeeze as much into weeks. Equally think of it as a time that they can spend that time around home and I think that's continuing to drive investment. I think we haven't got to the end of what do people do in terms of working from home on the other side of COVID-19. Particularly not in Victoria. Maybe there seems to be a slightly different attitude as you get into places like Queensland and even W.A., who have probably experienced a slightly different COVID-19 last 12 months to Victoria and even New South Wales. I still think the consumer is generally highly focused on their home and their immediate environment. I'm sure there's plenty busting for a holiday and the like, but equally, I think, the uncertainty created by border opening and closures is certainly making that more challenging for the consumer to think that that's something that they can do with confidence at this stage. Perhaps that's leading to them thinking it's better to just bunker down and wait for a more certain period and potentially, post-vaccine and the like that might be a period where we see some change in the consumer behavior, which is probably not till the second half of this calendar year is where I sort of sit today. Well, it's a good backdrop for you guys. I mean, you've executed well. You've got good products. I think you're in a good spot. Just lastly, just trying to understand. If you get to, I don't know, FY 2022, whenever, when things inevitably do settle down, what gives you the confidence that you've got a better business then than you do today? Or pre-COVID actually? Because I mean, a lot of investors look and they think, "Oh, earnings are going back to FY 2019," and just think this whole sector's kind of uninvestable. What gives you that kind of confidence that you've actually built a better business as a team? Yeah. It's a good question. I think a couple of things spring to mind immediately. I think the agility of the business has fundamentally improved over the last 12 months. With that, we've learnt more. I think one of the things we've learnt a lot about is depth of promo, how that works, a little more on elasticity of our products. That gives us greater confidence, I think, as a team to try some new things and evolve the business further. I think we've seen the great uplift in online over that period, and that continues to be a key focus of ours and not one that we all of a sudden got onto during COVID. We were well invested in that space beforehand, and we see a great opportunity there, which continues the opportunity that we've been taking advantage of for a number of years, that as customers select to do some of their purchasing online versus potentially all of their purchasing in-store in the past, we're well-placed to capture a great part of that share shift as they move to the online channel and support through our stores and online. And on top of that, we just keep focusing on our Linen Lovers, how we grow that customer database. I think that's the big piece. If we can push that above a million, that's our next target. How do we get a million Linen Lovers, and how do we make sure we continue to grow that customer base? That has been the way that we believe we underpin both the growth that we've achieved to date and sales growth ongoing is continuing to build the relationship with our Linen Lovers and becoming an important part of their thoughts when they think about how they do up their home and what their next purchase in their home is. Between Linen Lovers, as well as the stuff that we've learnt whilst we've been in COVID, I think we come out of this a better business. Excitingly for us, I think those two pieces together start to really drive the future of the business as to how do we think more and more about stores and online really complementing each other and working well together to deliver great success going forward. I think the team have really built that over the last 12 months. Excitingly, the National Distribution Centre coming online next year gives us great opportunity to do more in that space. We're investing in our platform in relation to our website, which will enable us to do more in that space. I think the beauty of this period is we haven't taken this period and just banked the profits. We've actually been already investing in the future of what retail looks like going forward, and I'm excited by the fact that we're going to be well-positioned on the other side of this to have a really good platform for us to capture the changes in customer sentiment and customer shopping habits going forward. There's a lot in there to unpack, so I appreciate those insights. Thanks, guys. All the best. Thanks, Mark. Our next question is from Ashish Sharma of Goldman Sachs. Please go ahead. Good morning. Just one sort of top-down question from me. Retailers are currently printing some phenomenal kind of EBIT margins as a result of all the changes that you've run through quite clearly on the call. When you think 3 years out, is this representing a structural shift in the way profit pools and margins are distributed across your segment? Or should we expect that you will need to reinvest to remain a leading player in your space? I guess you've gone from EBIT margins of 12% to 25%, and the question is just what do you think on a sort of 3-year view is sustainable? Yeah, it's a good question. Hard to answer, to be honest with you, Ashish. I think 25% is clearly not something that I think is highly sustainable over a long period of time. I think it is a unique period in that regard. The fact that the gross margin was there, it's well-supported by probably a slightly lighter in-store team on the floor, because we've seen this increase come through perhaps less traffic, but a higher propensity to shop. Our conversion in-store has meant that we haven't needed necessarily to put a whole bunch of extra team on to drive these sales because conversion has lifted as well as part of that place. I think that potentially does continue. That's one thing I think that does perhaps support our EBIT margins going forward. To think that as a retailer that you sit at 26% EBIT margin over the longer period of time, I think that's probably a little bit unrealistic. Equally, we've always talked to 15-16, but I think we have thought about this over that time, and you can see the contribution margin from online is clearly really strong, and that's a great opportunity for us to build the EBIT margin over time as that becomes a bigger proportion of sales. Mocka as well delivers a higher EBIT margin. There's a world where that 20-22 is something that we start to target over the longer term, and we'll learn more as we go along. It's really hard to think three years out. I always challenge even myself. You start to write a three-year plan, and you think about all the changes that have happened in retail over the last three years. It's going to be pretty interesting to see how that goes. I think the other piece that plays into that is upsizing our stores and that slide in the deck that we talk about how that improves our contribution margin from those stores, and that naturally falls down through to our EBIT margin. That's an exciting part of the puzzle for us as well as we look to build our store portfolio, and we've been quite clear in this over the last few years that larger stores are where we go after and larger stores are what we want, and they naturally deliver that higher contribution margin just due to the metrics operating within that store. I think there is room for growth. I don't think we revert necessarily straight back to what we were doing before this, and I think that's part of the joy of seeing the business adapt and become more agile through this period that enables us to not only take advantage of the opportunities that we saw during the period, but then work out how we build them into the business model going forward. Got it. Could I ask, with the Linen Lovers sort of new additions that you've made in the period, is there any underlying trend there on the kind of incremental customer acquisition cost that you would call out? Like it's costing more and more for each incremental loyalty member to sign up or less? Or maybe it's costing more, but you're seeing that repeat usage come through faster, which is something you alluded to in your earlier comments. Yeah, anything around that would be helpful. Yeah. No, it's not really costing us any more. I think there is an element, there's a slight increase in cost over that half, but a big part of that is the big store closures. Our store teams, it's a much more effective channel of signing up Linen Lovers. When you take 43 stores out for 80-odd days, that definitely impacted our ability to sign up Linen Lovers over that period. Our store teams, our online sales are slightly lesser as a percentage to Linen Lovers than in our store environment. I think a lot of that is we spend a lot of time staring at the online side and how many barriers to checkout do you put in place, and how do you get the balance right between making sure they understand the benefits of Linen Lovers, but don't then get so distracted by that that they don't get through the funnel and actually check out the sale. There's a real balancing act. Whereas in store, Linen Lovers are far more a customer conversion and our team are selling it to the customer when they're on the shop floor and working that into the conversation. I think we have seen a slight increase, but I think that starts to normalize back to standard levels as we move forward, simply due to the fact that we get our store portfolio back open and we add new stores. Excitingly, we've opened a couple of stores in some new areas over the last 12 months or over the last six months, sorry, and seen a really high take-up in those stores of Linen Lovers and some really big numbers come through. I think there's still really good opportunity and ultimately, whilst there's been a slight increase over that time, we haven't seen that really impact the business. I think back then, the second part of your question there, when we start to think about that going forward, that's one of the things where we think an investment in customer analytics capability within the business is well probably overdue, to be honest, and something that we're looking at now to make sure that we really capitalize on our Linen Lovers program and we're able to do more for those Linen Lovers with a real focus on how we enhance the program for them, which will obviously make it more valuable to the business over the longer term. Got it. Just one last question, if I could. As your online sales have been so strong across your portfolio, has there been any obvious change in consumer behavior with respect to these buy now, pay later payment services? No, not really. Nothing I'd call out. We haven't seen that become any bigger part of the percentage of payment types. I think we continue to see good strength when those guys run promotions and the like through their platforms, and that drives good outcomes for the business. Equally, we've probably participated in a much lesser way over the last six months in terms of discount and the like that might be offered to some of those in some of those programs, simply due to where we were on inventory levels. Yeah, no, nothing specific to call out that they've significantly grown or declined over the period. Thank you. Actually, I'll sneak in one more. Just on that inventory front, sorry, is there any sort of time period over which you think this will normalize in the conversations you're having with suppliers? Is this a sort of March, April, May type timeframe for normalization, or could this run a bit longer? I think there are two issues in play. One with suppliers. Generally we're tracking okay with suppliers. There are sporadic delays due to some material issues that they're having, but it's not that significant in the factory. The real issues come in trying to get it out of the factory into a container and then getting it on the water. Then we're also now having challenges actually getting it off boats. Exactly how long the shipping side of things is going to continue for is anyone's guess, and a lot of other businesses have been talking about similar issues. Part of our high levels of stock in transit is getting it moving. Obviously, we had Chinese New Year, which contributed to it, which is not unusual. We did double down on getting stock on the move to make sure that once it's on a boat, it will eventually get off, and we'll get it into our stores. I think it's going to continue. We'll try and get ahead of it, and I think by March, we expect to see Adairs in pretty good stock position and Mocka New Zealand, there or thereabout. Theirs is good now, but it improves as we move through March and head towards high winter. I think from our point of view, Ashish, one of the things we're doing there is thinking about how we add 7-14 days to our supply chain, which just allows us to ensure we execute really well across both businesses to manage what seems to be an ongoing challenge. We can then wind that back as we start to see things normalize in that shipping and supply chain-type space. Got it. Thank you, gentlemen. A reminder to ask a question, please press *1. Our next question is from Claude Walker of A Rich Life. Please go ahead. Hi there. You've just partially answered my question with your details about Linen Lovers, but I just had one thing I'd like to check in on, which is I imagine you track the health of the Linen Lovers' engagement partly through spending, but partly through open rates, click rates, and maybe other metrics. I was just wondering if you can tell us, as the list has grown, is it still looking equally healthy on all of those metrics, or are some of them perhaps starting to come down, or what are you seeing there? No, excitingly, they all remain really healthy. If anything, the last six months has probably seen a greater engagement with some of our EDM-type approach. We run a program in-store to receive customer feedback on the shopping experience in-store, and that has seen an uptick as well with both their response to the survey and equally the responses we've got from the survey. Yeah, I think that it's an important part of when we think about growing the Linen Lovers database, and one of the things for us obviously is, as a paid-for program, we want to make sure that our customers are getting value for it and they feel like that the investment they've made in joining the program is returned to them over the two-year life of that membership. We don't think about our loyalty database as how big do we grow it. We think about how do we make sure we have a highly engaged loyalty database. I'd prefer to have 800,000 active members and rather than 1.6 million and three-quarters of them don't open an email. We really try and make sure that we manage that piece as well. As I said, excitingly over the period, we haven't seen those metrics slip, and in some instances, we've probably seen them step up, which is great. Great. Thank you very much. Our next question is from Jack [guess]. Please go ahead. I just wanted to ask about the new customers or the new Linen Lovers, and how many do you think are existing Adairs customers, and how many are first-time Adairs customers? Of the new Linen Lovers, the way we run that, we have seen a significant number of customers re-engage. Over the years, we've been running Linen Lovers for a long period of time. Of the new Linen Lovers we've acquired in that time, and you think about that means they've now re-paid their membership and re-joined or joined the program for the first time. 30% of those have probably re-engaged with the brand. They were customers previously that have now joined the program and re-joined the business and become a member again, versus 70% of them being new customers. I think the other thing, we still have a relatively high, and something we continue to focus on, churn rate of our customers. Whilst we talk about, if you think about often we've been talking about customers being greater than 800,000 and now greater than 900,000. That probably means over that six months, we signed up or renewed 300,000 customers. If you think about that sort of number, 30% of them are re-engaging with the brand, probably 30% are renewing, and 40% are new. It's a big piece to keep building that database and something that we think is obviously how we think about the health of the business going forward is building that Linen Lovers database. Of those 100-odd thousand, do you know where they come from? If it's from above you from the David Jones or more from the Kmart area? No, not specifically. I wouldn't be able to give a lot of feedback in where they might have shopped previously. We don't track their customer history to that sort of level. You don't target, say, the lower end or the higher end in your new products that you develop to try and win new customers, or do you just focus on what you do in the middle market and then get people to come over if they want? Correct. Sorry, I'm hoping I'm clear. Yeah, no, I understand the question, and that's far more what we do. We focus on how we develop product that's on-trend and at a price point that we think the middle market, and really the middle market is where we play. We think about that price point is to make sure that we are delivering customers what they perceive to be value, great product, well designed at a good value price point, not cheap. We let Kmart definitely own that lower price EDLP space. Equally, there's a bunch of boutiques and David Jones that we are quite happy to let them own the top end. We really aim to exist that if you want to move up into that slightly better or that better quality product and still get a good price, then that's the Kmart customer who's happy to move up. Once upon a time, I think that Kmart customer would have seen the natural next step out of, I want to step up slightly, would be to Myer, and we definitely see that we act as a brand in there that instead of once upon a time going from Kmart to Myer, you now go to Kmart to Adairs. Equally at the top end, we think about how they might move back down. We don't specifically go out and focus on how we acquire customers in that space. We really think about how do we make sure our product is on trend, put in front of all customers, and then letting them choose, if that's the right customer segment for them and that's the right product for them, then naturally they'll come to us. Okay, great. One last question is, you're obviously net cash positive. Is that a reflection of the earn-out of Mocka? Going forward, I know a lot might change in this area, but going forward, do you envision carrying that AUD 25 million of debt and not being cash positive? The Mocka earn-out's still to come. Or the first earn-out payment is due in September of this year. I think the cash position and the cash flow is largely a result of the operating performance of both businesses. I think as we look ahead, we've got access to credit, we've got cash on hand, and we'll continue to invest that cash where we think we can deliver a good return for shareholders. We'll see what that plays out over time. We certainly know that we've got a secure and strong balance sheet, and that's a position that we'll hold onto for now. Okay. Thanks, guys. Thank you. Mr. Ronan, there are no further questions at this time. Would you like to make some closing comments? Thank you everyone for joining us today. We look forward to the half ahead as we continue to delight our customers in an ever-changing environment and look forward to delivering another great half for Adairs and Mocka. As I said, making sure that our customers enjoy the experience of shopping with our brands. Thanks. Thank you. That concludes today's call. Thank you for joining us. You may now disconnect.