Chapter 8

Figures converted from Indonesian rupiah at historical FX rates — see data/company.json.fx_rates for the rate table. Ratios, margins, multiples, days-on-hand and percentages are unitless and unchanged.

Inventory Quality

Inventory is the group's largest asset — $686 million net at 30 June 2026, roughly 40% of the balance sheet — and the collateral under every bank line. It turns in about 50 days, realised write-downs run below 0.06% of the cost of goods sold, and it is now insured close to its carrying value: an asset that, on the numbers, does not threaten the balance sheet. The caveat is a judgment one. The obsolescence reserve was cut to 2.77% of gross inventory in the year the stock jumped 61%, and the provision charge is now rising as the mix tilts toward slower-moving lifestyle goods.

This chapter takes the working-capital build that the growth story turns on and looks at it from the asset side: what the inventory is, how fast it moves, what it is reserved and insured against, and where a skeptic would press.

The largest asset, and it is phones

At 31 December 2025 the group held $719 million of inventory at cost, against which it carried a $19.9 million obsolescence allowance, leaving $699 million net [1]. By 30 June 2026 the gross figure had grown again to $707 million, $686 million net [2], Note 7 Inventories — p.81"). That is comfortably the biggest line on the asset side — larger than the tax-refund block (Tax Refund Block), larger than receivables, and several times the cash balance.

Source: Note 7, H1 2026 interim report [3].

The composition matters more than the total. Cellular phones and tablets were $489 million of the $707 million gross balance at 30 June 2026 — about 69% — with accessories and others the next $179 million [4]. Phones have sat between 64% and 76% of the stock at every year-end since 2022 [5][6]. That is the asset-quality tension in one figure: the bulk of the balance sheet is handsets, the fastest-obsolescing product the group sells and, at an 8.8% segment gross margin, the thinnest-cushioned against a markdown (Tailwinds and Margin).

Where the FY2025 cash went

The FY2025 inventory build was almost entirely phones. Gross inventory rose $273 million during the year, of which cellular phones and tablets accounted for $245 million — nine-tenths of the increase, and roughly three and a half times the $71.8 million of profit attributable to owners the group reported for the same year [7]. This is the asset the reported profit was converted into rather than cash, and it was funded on short-term bank lines (Funding and Covenants).

Source: Note 7 across the FY2023 and FY2025 annual reports and the H1 2026 interim report [8][9][10].

The first half of 2026 is the useful counter-evidence. Phone inventory barely moved — $488 million to $489 million — while accessories and others jumped $57 million to $179 million [11]. The FY2025 handset build sold through rather than ageing on the shelf, consistent with the operating cash the half generated (Financials and Estimates). What replaced it is different stock: the lifestyle and accessories pool that carries the group's higher margins but also its slower turns and its genuine fashion-obsolescence risk.

Turnover and realised losses are reassuring

Measured against the cost of goods sold, the inventory moves quickly and has cost the group almost nothing in write-downs. On average balances, days-inventory-on-hand has held near 50 days for three years; the year-end 2025 snapshot looks heavier at about 62 days only because the build landed in the fourth quarter and unwound in early 2026.

Source: derived from reported net inventory in Note 7 [12][13] and cost of goods sold implied by reported revenue and the disclosed gross-margin band; margins per the financials chapter.

The write-down history is the stronger reassurance. The obsolescence charge taken through profit was $5.5 million in FY2023, a $1.0 million recovery in FY2024, and $2.2 million in FY2025 [14][15]. Even the heaviest of those years is 0.16% of the cost of goods sold; FY2025 is 0.05%. Whatever else is true of a phone distributor, this book has not, historically, had to be marked down in size — the fast turns keep the stock fresh enough that realised obsolescence is a rounding error against the flow of goods through it.

The reserve was thinned in the build year

The judgment call sits in the allowance. As gross inventory grew 61% in FY2025, the obsolescence reserve grew only 13% — $18.3 million to $19.9 million — so coverage fell from 3.97% of gross stock at end-2024, its highest in the series, to 2.77% at end-2025 [16]. The reserve rate was cut by roughly a third in the same year the book swung most heavily toward phones.

Source: Note 7 across the FY2023 and FY2025 annual reports and the H1 2026 interim report [17][18][19].

The sensitivity is modest but real. Had the group held its end-2024 reserve rate of 3.97% onto the larger end-2025 book, the allowance would have been about $29 million rather than $20 million — a $9 million pre-tax difference, roughly 12% of the $71.8 million owners' profit for the year, or about 9% after tax. That is illustrative, not a claim that the reserve is wrong: management argues the coverage tracks physical condition and net realisable value, and freshly-landed launch stock genuinely warrants less provision than ageing inventory [20]. The point is that the reported FY2025 profit already carries a reserve assumption that was loosened, not tightened, into the build.

The direction of travel now runs the other way. The half-year charge to 30 June 2026 was $2.3 million — already more than the whole of FY2025 — against $1.8 million in the first half of 2025 [21]. The provision is accelerating just as the mix shifts toward the accessories and lifestyle stock that is harder to clear than a current-model phone. A rising obsolescence charge on a book that is turning fine is not alarming on its own; it is worth watching precisely because it coincides with the slower-turning inventory taking a larger share.

Collateral and insurance

The whole of this asset sits behind the bank facilities. Note 7 records that certain of the borrowers' inventories are pledged as collateral for the bank loans, cross-referenced to the funding note [22]. Inventory plus trade receivables is the borrowing base the maintenance covenants are tested against, and that ratio was comfortably covered at every measurement date (Funding and Covenants). The filings do not quantify how much of the stock is specifically pledged — the language is "certain of the Debitors' inventories" — so the reader is left with a security interest of undisclosed extent over the group's largest asset.

Insurance coverage has caught up to the book only recently. The blanket policy covered $352 million of inventory at end-2024 — about 80% of the net balance — rising to $641 million at end-2025 and $678 million at 30 June 2026, by which point cover finally sat close to carrying value [23][24], Note 7 Inventories — p.81"). For a business whose value is concentrated in physical stock held across warehouses and 2,300-plus outlets, the gap between insured value and book value that ran through 2024 and 2025 is a detail a bankruptcy-averse owner would have wanted closed sooner than it was.

What would change the read

The asset-quality picture is favourable on the evidence that matters most — turns and realised losses — with a reserve judgment that has been loosened rather than tightened. Two things would move it:

• A step-up in the obsolescence charge. The first-half 2026 run-rate already annualises to roughly double FY2025. If the full-year FY2026 charge lands materially above that, the fast-turn reassurance weakens and the thinned reserve looks less like fresh stock and more like under-provisioning.
• Phone inventory rising while sell-through slows. The comfort rests on handsets clearing quickly. Phone inventory climbing at year-end 2026 against flat or falling unit shipments — rather than the clean H1 2026 pattern of flat phone stock and strong cash — would point to channel-loading or stale premium stock after a launch, the one way a phone book turns genuinely bad.

Neither is visible in the record to 30 June 2026. On the numbers to hand, the group's largest asset is high-quality, fast-moving, fully pledged and now adequately insured — a reassurance for the near-zero-bankruptcy lens, tempered by a reserve that flatters the reported profit at the margin and an obsolescence trend that has just turned up.