Autosports Group Limited (ASG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Autosports Group Limited H1 2023 FY results. [Operator Instructions] I would now like to hand the conference over to Mr. Nick Pagent, Managing Director and CEO. Please go ahead.

Thank you, everyone, and good morning. Welcome to the investor presentation of the financial results for Autosports Group for the first half of the financial year 2023. My name is Nick Pagent. I'm the CEO of Autosports Group and joining me on the call today is Aaron Murray, the CFO , Autosports Group. This morning, we'll start with a short presentation on Autosports covering the first half of the 2023 financial year, an update on Autosports Group's growth strategy and the market conditions. A summary of the half 1, 2023 financial year trading results, and then Aaron will review the financial metrics of the business. Following the presentation, we'll open up the call for any questions that you may have. Of course, as always, as we move through the presentation, which was launched this morning with the ASX and indeed, also on Autosports investor [ side ]. I will when possible call out the relevant slide number. So starting with Slide #3 in the presentation. I'm pleased to report that Autosports Group has delivered a strong financial, strategic and operational results over the first half of the 2023 financial year. The result has been driven equally by a strong operating performance driven by demand, demand level and growth and the impact of strategically aligned acquisitions. During the course of the first half of the 2023 financial year, our statutory net profit before tax was up 70.8% to $35.1 million. Total revenue was up with 6% to [ $1.062 billion ]. Normalized net profit before tax grew 32% to $52 million. Operating cash flows were up 62.4% to $59.4 million. Gross profit generation inside the business was up 26.4% to $220 million. And the combination of growing operating profits, strong and strong cash flows as [ Autosports ] Group to raise its interim dividend to shareholders by 28.6% to $0.09 per share. We move to Slide #4 to look at the strategic highlights from the first 6 months. Of course, Autosports Group continues to deliver consistently on its strategic objectives. It is the consistent application of our strategy through our operations, our capital management and our operations on a day-to-day basis that underpins our growth. In the first half of the 2023 financial year, it was no different in this regard. EPS accretive acquisitions, unlocking organic growth, improving shareholder returns and where possible, targeted acquisitions of strategically important properties. In the first half of 2023 financial year, Autosports group made acquisitions to drive EPS accretive growth. In August 2022, we completed the purchase of Auckland City BMW Group, which added 2 BMW, 2 MINI and a Rolls-Royce dealership to the network. In December, we announced the acquisition of the Motorline and Gold Coast BMW and many businesses. This business settled on the 1st of February of this year and added a further 2 BMW, 2 MINI and 2 specialists BMW [ panel ] businesses for the network. The combination of these acquisitions add approximately AUD 400 million in annualized revenue to the Autosports Group from acquisition related growth. Strong underlying demand has continued to accelerate our organic growth. New vehicle revenue adjusted for the impact of the agency, delivered underlying growth of 14.7% in the 6-month period. Service and parts divisions grew on a like-for-like basis by 21.1%. And used vehicle orders continuing to outpace customer deliveries with our order bank growing at 14% over the last 6 months, net of any cancellations. Shareholder returns continued to grow during the period. Our capacity to generate strong growth and improved shareholder returns is driven by strong operating cash flows, which were up 62%. The interim dividend, as I mentioned, up 28%, which gives us an annualized dividend per share compound annual growth rate of 28.3% since we listed in 2016. In property acquisitions, in August of 2022, we announced that we have entered a contract to purchase our important [indiscernible] value site. This property is due to settle in June of 2023, and we will on completion, bring Autosports property portfolio to just under $200 million, which brings me to Slide #5, the outlook for the 2023 term to 2024 financial year. The full year cycling of our acquisitions will continue to drive growth well into the 2024 financial year. Our growing order banks and resilient luxury demand is expected to exceed our vehicle supply [ line ] through, if the second half of FY '23 and into FY '24. Servicing parts should have maintained an underlying like-for-like organic growth rate of just under 10% per annum. We will open the greenfield [indiscernible] BMW and BMW Motorrad site at Ringwood, which will supplement our organic growth. The site opens in March of this year and will be a strong contributor in FY '23. Despite inflationary pressures, our revenue growth should maintain the group's operating leverage during the period. If I move now to Slide #7 to talk about our growth strategy, starting first with our strategy to grow by our acquisition. Autosports growth strategy continues to be underpinned by acquisitions. The automotive market remains fragmented, consolidation continues to gather pace in the industry. Within this framework, Autosports Group's scale, strong cash flows and deep OEM relationships gives us the opportunity to continue to grow by acquisition. Our record here is good. Since listing, we've made 12 acquisitions in 6 years. And we continue to look for future-ready brands in high potential -- high-volume potential locations, businesses with high margin potential businesses that are capable of improvement and businesses that can unlock synergies within the group, our acquisitions in FY '23 quality assets on strategy and immediately EPS accretive to the shareholders. On Slide 8, we have a summary of the additions of the Auckland City BW Group and the Motorline and Gold Coast BMW groups. Simply, they bring luxury brands to our portfolio and give us major city representation in Auckland, Gold Coast and South Brisbane. [ They enhance ] our dominant position within the luxury market. They are EPS accretive. They've got strong margin profile and they add significantly to the scale of Autosports Group. They demonstrate orders parts ability to execute its consolidation strategy and form the first part of our consistent growth strategy. I'll move to Slide #9 to look at our organic growth strategy. Unlocking organic growth forms the second part of our operational strategy. We do this evenly across all revenue drivers. First, with the new vehicles, [ the prestige ] and luxury segments are supported by a large order base, tight supply and resilient consumers. In FY -- in the first half of FY '23, Autosports new vehicle revenue grew by 11.8%. As with each of the main revenue drivers, growth was driven both by acquisition and organic growth. Organically, the underlying growth was 14.7%. Our order bank grew 14%. Our margins remained stable. This demand, importantly, continues into January and the start of February. In January, we saw our order right grow by 17% versus the PCP, 13% of PAT was like-for-like growth. New vehicle revenue growth through FY '23 and FY '24 will of course further be supplemented by the acquisition of the Motorline and Gold Coast businesses, which settled in February and the organic growth that will come from our brand-new greenfields. Ringwood BMW and Motorrad [ dealership ], which as I said, opens next month. I'll move to Slide #10 to look at used vehicles. Used vehicle revenue grew for the group at 19.8% in the first half of the 2023 financial year, driven evenly between organic and [ acquisition ] growth. Organic growth of 11.1% was in line with our forecast -- of 6% to 9% growth, and we continue to play to our natural competitive advantages in used vehicles, principally, sourcing the vehicles with the highest margins by trade-ins, maturity finance contracts and OEM fleet sales. Doing this allows us to maintain maximum margins and not to get caught in any [ falls ] in the used car market. Our inventory is tight, -- our stock turns has improved in the last 6 months and [ stockage ] is very tightly managed. We expect the used car revenue to track our organic [ used car ] revenue growth into the future. Moving to Slide #11 to talk about organic growth in our service and parts divisions. Back-end service and pass revenue grew strongly in the first half of 2023 financial year, again, on the combination of acquired growth and organic growth. Organic growth of 21.1% as well ahead of our forecast of 6% to 9%, while some of [ this rate was came ] from the cycling of the quarter 1, 2022 lockdowns in New South Wales and Victoria, most of it was driven by strong underlying demand. As the course of the first half of -- through 2022 financial year and the first half of '23, Autosports Group invested heavily in service capacity to unlock this growth. We invested heavily in our BMW Melbourne facility, our Alexandria facility in our super luxury brands and our Ducati business. We unlocked a further 29 active service force during that time. Why did we do that? Well, quite simply, it makes financial sense. It's a stable revenue stream, it's defensive in downturns. It's growing in 1 year behind the growing new car market. So it will grow into the future. It does have materially higher margins and a strong payback in the investment. And we [indiscernible] more of this to unlock further organic growth through the balance of the '23 financial year and into '24 financial year. BMW Ringwood, as we said, we'll add another further 28 service hoist from March of this year. And indeed, we continue to invest heavily in our electric vehicle capacity and that investment will be ongoing. Moving now to Slide #12 to talk briefly about our property strategy. Autosports Group's property strategy is set to support and enable our dealership growth strategy. As such, it sets forth in our priorities for capital allocation behind dealership acquisitions, organic growth and delivering strong shareholder returns. In FY '23, in August, we announced the purchase of our important [indiscernible]. That site is important to us because it controls one of our most important retail sites, our biggest lease the purpose-built facilities with facilities which have capacity to add additional luxury brands, facilities, which allowed us to eliminate the external rents moving our [indiscernible] site into that [ quarter to value side ] and on completion in June will save us at a minimum $6.7 million in rent, assuming there is no CPI growth in the period. I move now to a quick summary of the results before I hand on to Aaron. Slide #14, on a financial summary. Revenue up 16.6%. Or the bank in the business is strong, growing and resilient. Net profit before tax, up 32.6% during the period, 1% improved operating leverage for the business, which has now grown to 6.3% margin at EBITDA despite the impacts of inflation, despite the impacts of agency. What it shows is our scale of [indiscernible] operation is improving in opportunity and improving in operating leverage as we grow the business. The cash flow and cash conversion of the business remains high, which allows us to pursue all 3 of our priorities in terms of growth. The normalized financial results on Page #15 shows revenue for the business, up $152 million and shows nicely that even [ swap ] between organic and acquisition growth. Acquisition growth of $72.3 million in Auckland and $79 million in like-for-like. Gross margins grew as we said they would do in our outlook statements in FY '22 to 20.8%. They grew on stable vehicle margins, improving service and parts revenue and the impact of the accounting treatment of the agency system. OpEx was well controlled in an inflationary environment. Organic OpEx was in line with the second half of FY '22, plus the acquired OpEx of $8.1 million from Auckland BMW. I move to Slide #16 to touch on the statutory results. The statutory result was pre – statutory result was in line with the normalized results. The net profit before tax was $51.3 million, plus 63%. Net profit after tax was $35.1 million, up 70%. The EBITDA [ graph] reflecting the impact of AASB 16 was $89.8 million, up $66.4 million. Earnings per share were up 71.8% during the period, and dividend per share, as I have mentioned, was 28.6%. It is a nice clean result with very, very few normalizations running through it. I now like to ask Aaron to share some detail on our H1 2023 financial metrics, including our revenue and margin drivers, operating leverage improvements, cash flow and balance sheet. Aaron?

Thanks, Nick, and good morning to everybody on the call. If we turn to Slide 18, revenue drivers. Historically, ASG has achieved consistent revenue growth through a mix of organic and acquired revenue. In the first half of FY '23, ASG achieved revenue growth of $151 million on PCP, with the growth things work almost evenly between organic and acquired revenue. Pleasingly, a significant increase in organic new vehicle revenue will continue to assist revenue flow through to the high-margin service and parts departments in the years to come as clients return to service their vehicles. Organic revenue in new vehicles was up $82.8 million on PCP, prior to an adjustment of approximately $60 million due to the impact of the Mercedes Benz agency sales. New vehicle growth supported the used vehicle department with additional trade opportunities resulting in organic used vehicle revenue improving by $23.1 million on PCP. With organic revenue in our high margin service and parts department increased by $25 million on PCP. On top of the organic revenue growth, our first half acquisitions contributed an additional $72 million of revenue in the first half. ASG's second half 2023 revenue drivers will be supported by the strong underlying new vehicle order bank cycling of Auckland City BMW and Motorline BMW acquisitions and the opening of the Ringwood BMW greenfield [indiscernible]. We turn to Slide 19, gross profit margin overview. ASG's gross margin continues to improve. Gross margin has been supported by historical and continued acquisitions of assets that present high-margin opportunities, increased revenue through high-margin service and parts departments and favorable new and used vehicle market conditions. Margin has improved from FY '16 of 14.5% to 20.8% in the first half FY '23. The depth and quality of our new vehicle order bank will continue to prolong current margin conditions. If we move to Slide 20, operating leverage. Total operating expenses for the first half FY '23 are $153.7 million against a PCP of $125.9 million acquired expenses make up $8.1 million of this increase on PCP. Given the first half of FY '22 was impacted by lockdown and operating on a subdued expense base, we've included a more accurate comparison of our like-for-like growth in operating expense by comparing the movement to the second half of FY 2022. Given the current inflationary environment, ASG has managed to maintain its like-for-like operating expenses at 7% higher than the second half FY 2022. Included in this is an increase of 8% in employee costs, 13% in occupancy costs and 2% in other expenses. Changes in [indiscernible] operating model have resulted in both higher gross profit and operating expense margin percentages, but this has limited impact on overall operating leverage. Historically, ASG has implemented disciplined expense reduction strategies through focused site rationalization by property acquisition and dealership consolidation to reduce occupancy costs. This discipline will continue across our recent acquisitions and where possible with further property acquisitions. If you move to Slide 21, margin overview. Historical EBITDA and PBT margins have been impacted by acquisitions that were running with higher OpEx margins than the wider groups. The OpEx improvements in acquired sites and the strategies implemented in improving our OpEx has driven improvements in the group's EBITDA and PBT margins. In the first half of FY '23, EBITDA margin has improved to 6.3% and PBT margin has been maintained at 4.9%. Margins have been impacted positively by favorite market conditions, improved site utilization, improved property portfolio, lowering occupancy costs and strong capital management, minimizing the impact of recent interest rate rises. Let's turn to Slide 22, cash flow. ASG is a capital-light business that generated strong operating cash of $59.4 million. The strength of the cash generation in the business allows ASG to follow its capital management plan by growing through acquisition, investing in facility improvements and expansion to capitalize on organic growth and to deliver strong shareholder returns and a strategic investment in property. In the first half of FY '23, ASG spent $51 million acquiring the Auckland City BMW site business. We applied almost $16 million to support organic growth across multiple locations within the group and have declared a fully franked interim dividend to be paid at $0.09 per share, which is 28.6% up on PCP. Already completed for the second half of FY '23 is $36 million for the settlement of Motorline BMW, and we've allocated $20 million for the June settlement of the Fortitude Valley property that houses Audi, Lamborghini, Bentley and [indiscernible] franchise in Brisbane -- moving forward, ASG investors can expect to see ASG apply the same capital management strategy. Turn to Slide 23, the balance sheet. ASG's net debt, excluding floor plan finance closed at $71.3 million with a total corporate debt of $118.3 million with $40.4 million relating to goodwill, PPE and insurance premium funding and the remaining $77.9 million relating to $98.2 million of real estate at written down value. ASG's inventory increased by $69.5 million on June '22 with the increase coming through $22.5 million from acquisitions, $56 million in like-for-like new vehicle inventory and were down $9.8 million in like-for-like used vehicle inventory. ASG continues to have supportive OEM financiers with 98% of ASG's corporate debt and 100% of Balance [ finance ] funded by our OEM financers. And with that, I'd like to hand back to Nick.

Thanks, Aaron. Just a quick recap from me before I drove the line open to questions. In the first half of 2023 financial year, we saw revenue growth on the back of organic and acquisitions. The order bank and new vehicles continue to be strong and grow [ 14% ]. It's a resilient order bank and the luxury consumer continues to be resilient. Gross profit grew strongly during the period to $220 million. We improved our operating leverage by 1% in the group as sale improvements [ or work ] through the system. We improved our shareholder returns, and we continue to invest strongly in acquisition-led growth. The outlook for the business, therefore, is also good. We have full year cycling of the acquisitions that we've already made, continuing through the FY '23 and FY '24. We have organic growth coming through in our new car sales department with supply returning to the market. We have underlying growth in the service and parts, which should continue around that 6% to 9%. We've got quality greenfield sites coming through with our Ringwood BMW dealership and [indiscernible]. And we should be able to continue to maintain our operating leverage as our [ revenue rise ] during this period. Again, those strategic priorities that Aaron mentioned will continue into the period, growth by acquisition, continued investment in our organic growth, [ quality ] shareholder returns. And if we can, and if it's [indiscernible] our property portfolio. I'd now like to open the line up for any questions that anyone may have.

[Operator Instructions] Your first question comes from Tim Piper with UBS.

Really strong result, particularly operating result. Can you just maybe give us a sense on what you're expecting on H2H in terms of seasonality? I think late last year, you were expecting a stronger second half. Is that still the expectation?

Yes. Tim, on an organic basis, we continue to believe the second half is in that range of 52% to 55% of the full year. Traditionally, it's fallen within that range. And the -- but we will also have the momentum which sits behind the acquisitions sitting there in the second half as well, particularly the February acquisition of the Motorline business, which wasn't reflected in the first half. So yes, normal seasonalization Tim, on an organic basis and then plus the acquisition of the Motorline business.

Organic. Second question, just on the January trading update on new vehicles, like-for-like a 14.7% acquisition led growth 7.7%. Within the like-for-like number, the Mercedes has been normalized completely? Or is there sort of a $10 million difference we need to account or in the [indiscernible] $60 million versus $50 million.

No, it's been totally normalized because the PCP that I'm comparing with is the second half of FY '22. And there was no agency in place at that stage. So it's completely normalized out through this period. There might be 1 million or 2 million that's gone through in old-fashioned dealership sales during this period.

Okay. Got it. And the acquisition-led growth is 7.7%. That's just 1 month to [indiscernible] that wasn't there in the PCP [indiscernible].

On the January order like, if you're referring to the January order [ right too ], January order right was up 17% and 13% of it was like-for-like, so 4% of that was driven -- 4% of the increase was driven by Auckland.

Right. So the first bullet point there, is that revenue?

Which bullet point here [indiscernible].

Under the January update on Slide 9.

So a -- that's an overall number, I believe, from the previous period. So it probably shouldn't be in that line.

So it's revenue, [ side ]?

We can circle back on that. That's okay.

Circle back on it, no, the first point is a first half number, not a January number [ we have ].

And then for the acquisition-led growth, 7.7%. That's just -- so acquisitions so far in the second half, there's only one month in Auckland [indiscernible].

So that point does relate [ to revenue ] at the top point.

Okay. Got it. Just a question on inventory. Just looking at the inventory as at December, the turns probably slowed a little bit if we compare it to COGS or revenue. And I think you said used revenue --new inventory sort of done suggests that new vehicle inventories lifted a fair bit. Can you maybe comment on what the churn sort of looks like? And then maybe we can relate that into sort of the step-up in bailment financing costs, how much effective interest sort of has flowed through from rate rises so far in that first half result in the December half, sorry?

Sure. Overall, our stock went up by $60 million during the period, and our revenue went up $150 million during the period. So what we continue to see the through the period will be actually stable stock terms. It has drifted a little bit towards new vehicle stock, partly that is because we've kept a very, very close eye on our used vehicle stock. Secondly, that is because we've been able to replace some demonstrators because we've had a little bit more in terms of available stock coming through. We help them with used cars in the previous period and recycling them back into demonstrators right now in -- so overall, I expect our stock turn based on our revenue to continue to be about the same. But we will continue to go up in new car stock as our revenue [ grows ].

Okay. That's understood. Helpful. That's helpful. Just one last one before I jump back in the queue. Maybe just some comments around your expectations on OEM supply heading into this calendar year. I mean it's been different OEMs, it's been quite choppy month-to-month [indiscernible] some like BMW -- maybe can you just give us a quick rundown [ and the key ] brands, what your kind of expectations are to supply in the next 6 to 12 months?

Yes. Tim, firstly, if I took the line through the market, I'd say that most brands are looking for about 10% growth through this year. However, given the problems running in transport for the first 2 months, I think they're all running behind that already. So we're looking for, in my view, low single budget growth overall in the market. It will be up and down during the period. But we're looking for that sort of growth. I think from what I'm seeing, I'll get improved supply from my most undersupplied brands last year, which included Audi, included Land Rover, included Volkswagen [indiscernible] get sold supply through in [indiscernible] and that at the bulk of my body and my profit generation. So those brands will have supply absolutely.

Your next question comes from James Ferrier with Wilsons.

If I would ask you, first of all, just around the inventory levels just going on Tim's earlier question. The [indiscernible] drawdown, there's an increase of $60 million there. How much of that was in relation to the Auckland acquisition versus the drawdown for the like-for-like business?

Yes, it's about $55 million -- sorry, not $55 million, about $25 million relates to Auckland. And we did draw down some used car values because we had equity in use inventory when we settled Auckland [ rather than ] borrowing for goodwill because the rate is significantly cheaper.

Got it. Okay. Yes. So the balance sort of $35 million is essentially a like-for-like increase in [indiscernible]?

Yes, that's fair, James.

Yes. Okay. Terrific. Just on the gross margin result, I mean, outstanding result there. The comment on Page 15 in the presentation refers to that gross margin refers to stable vehicle margins in the period.

Yes.

I don't want to get too granular, but just interested just given it's such a strong result. But does that reference -- is that a like-for-like reference -- because obviously, Auckland would have lifted your vehicle margin. So is that referenced to stable margins or like-for-like? Or does that mean Auckland bumped up and the like-for-like went backwards?

That's getting pretty -- that's getting very granular there, James. The orphan vehicle margins are a lot higher than we achieved in Australia. It's just the Auckland net margins are higher than we achieved in Australia if their operating expenses are lower. On the first point. The second point is new vehicle margins have been very, very stable during the period. We have had a slight [ paling ] back of used car margins, mostly that's in relation to a recalibration of used car values over the last 6 months. I think that is no surprise to anybody. The point -- the point that I'm trying to get out in this area is that we've got stable vehicle margins. We get -- as we improve our mix, that continues to grow. But on a structural basis, new margins at the gross level will continue to be higher than they were pre agency because of the impact of the agency accounting treatment, and that will indeed flow through on the other side to a higher OpEx ratio because we don't have that revenue on the other side. So structurally, when you put together your models, going forward into the future, we'll have structurally higher gross margins and a slightly higher structural OpEx as a consequence of the agency again driven.

Yes. That's very helpful detail Nick. And I think the outcome you've achieved on used cars in that period is a pretty robust outcome relative to the market would expect. So well done on that front. The last question I had was in relation to OpEx, and it was sort of helpful that detail on Slide 20 -- there I'm just trying to better understand in that red box where you've shown the like-for-like increase in OpEx first half '23 versus second half '22. Employee costs up 8% sort of half-on-half. So effectively, that's annualizing at sort of 16% in occupancy at 13% or annualizing at 26%. That seems sort of surprisingly high for what looks like pretty stable like-for-like costs? Or am I misinterpreting that?

The employee costs have been basically driven by inflationary and salary adjustments and also higher commissions that are attached to the higher gross profit margin we're achieving. I see the gross profit margin also went up significantly. And our occupancy costs relate to a turn of leases and rental increases that have been written into the lease agreements.

James, you're misunderstanding that those growth products are growth rates that you can expect on an annualized basis.

Your next question comes from Matt Johnston with Jarden.

Maybe just a quick one from me, just on Mercedes. Obviously, you've given us the revenue impact. But can you comment on just how volumes are tracking? And I guess maybe a secondary question, customer experience under that new model.

Well, firstly, companies are buying under the new model. That is clear. The Mercedes-Benz volumes for last year [ tracked the broader ] luxury market. So in terms of pushback from the consumer app is not -- there's not tons of pushback from the consumer on the new model. I will say, however, that in the changeover of any new model, there is [ teaming ] problems on the way through. It's a huge amount of volume of work that Mercedes-Benz has taken on in taking all the transactions in-house. And at different times, individual experiences may be clunky on the way through [ that ]. But I know they'll work on that, and you couldn't actually expect them to get that perfect in the first 12 months of a new operating system. So from a consumer side, it is working okay, in line with our expectations. There are the glitches that we thought we would have during the period. But you know what, on the dealer side, we don't always get everything right from our side as well. So overall, there's work to do here, but we're on the right track.

Yes. And so I might just have another follow-up question there. Just around, I guess, I guess the sale staff, how that go, have you recalibrated some of the sales staff into other brands?

We haven't recalibrated very much at this stage. In this stage, that remains a task for us over the next 12 to 24 months. The fact of the matter is we have been -- we have felt it was better on a consumer basis to maintain all our staff levels to maintain the way we pay our staff on the way through maintain the Mercedes-Benz brand knowledge within the network during the changeover and also to make sure we looked after our staff because they looked at for us incredibly well during COVID. So we haven't made many changes on that front. Those operating changes remain tough for us over the next 2 years.

Okay. Great. And then maybe now moving to the acquisition. So with the Motorline BMW, you have got a new debt facility? And can you clarify how much debt was taken on that transaction?

Yes. Absolutely. Firstly, we had that very clearly out in our settlement note to the market at the start of February. The acquisition was approximately $66 million to settle everything. We took a $30 million debt facility in rate-related to that and the rest of it we settled in cash. So yes, that's an additional debt facility inside the business.

Okay. And then obviously, for the Fortitude Valley property side, is it [ why ] that you'll need more debt financing for that?

Yes, again, exactly the way that we announced it in August, we going to take about 80% debt on the -- on that property. It's [ approved ] it's already been approved with Volkswagen Financial Services on the [indiscernible] in finance. Our view with property is the best way that we can unlock value for our shareholders is to use OEM debt on property, have it as capital neutral or is cash flow neutral as possible. That's why we're noting a substantial rent that we are eliminating when we take on that property and some will take about [indiscernible].

Okay. And then just a follow-up there, just in terms of just the net gain versus the $6.7 million of rent savings you called out versus the interest you provide any detail there?

Yes. So we put that detail in the fact of the matter is, Matt, was more concern looking over the next couple of years on the CPI impact than it was on interest rate impact. So I think it was -- it's a property which was generating, as you can see, just on about a 7% yield. So it's a strong financial metrics behind it for the shareholder.

Your next question comes from Brendan Carrig with Macquarie.

Just a couple of more questions from me. Just on the order book, obviously, a strong outcome with it continuing to grow at that 14% number. But can you just talk to the profile of that order book growth? Has that been pretty stable through the half? Or is that sort of more skewed to the beginning of the half and then the rate of the growth in the order book has started to slow as the period progressed.

Yes. Brendan, it's certainly not slowing. It's the impact through January and the start of February, the different stream order banks and deliveries has increased. Partly, of course, I think this is the fact that the luxury segment has probably been more undersupplied than the rest of the market. We saw that in the [indiscernible] numbers through the course of last year that it grew at a lower rate than the rest of the rest of the market. And that was probably mostly supply-driven rather than order rate driven -- so what we see is that growth rate maintaining or even increasing at the moment. We're seeing our top end consumers, particularly the people buying $100,000 plus sales be incredibly resilient, and we're seeing our inquiry levels coming through prior to the orders growing as well as during January and February. So we feel pretty positive about the underlying consumer right at the moment in the luxury segment.

Okay. That's clear. And then I guess maybe then that follows into sort of cancellation rates. So you did say that the order book is net of cancellation rates. So has that been pretty stable? Or has that started to tick up a little bit? And has anyone been starting sort of interest rate pressures or anything like that as the reason? Or how is that performing relative to your expectations?

Yes, not yet pushing the interest rate question on the way through. But what we're seeing is that normal fallover rate around 4%. Mostly, we're seeing people when they cancel, not canceling a car totally, but moving their car to a car, which might be able to be delivered slightly earlier. So in that regard, we see movement within our order bank rather than cancellations of the orders. So it's pretty resilient on the way. I thought it was important to go and [indiscernible] that the growth was net of cancellations because we watch that very closely. And when we give you the data, it's[ a live ] growth.

Okay. That's clear. And then the last one, just a follow-up from Matt's question or a bit more detail. Just on the agency side of things. So obviously, the revenue numbers are there. It sounds like you didn't pull any levers on costs at this point in time, but maybe that's a project for the next year or 2. So are you able to give any more detail on what the impact from the shift to agency had on the profit line? And then I guess, have you then started to think about how you can -- if there was a negative impact on profit, what you can do to get that to be a more neutral impact over the next 1 or 2 years?

Yes. I'll answer this in 2 ways. Firstly, I'd say I'm not going to give really granular detail on any individual franchise and the profit within any individual franchise. But I would say over the last 6 months, our operating leverage grew by 1%. So it's going quite well in terms of margin and expenses on the way through. The second thing I would say is there is no doubt that we, on a granular basis inside the Mercedes-Benz business have worked particularly on 2 elements. We can work on being more efficient in the way that we sell cars. So with Mercedes Benz, as I noted, we can work on the system there, the efficiency of the system and how that works through the consumer, that will help us increase the sales rate within that level, which is the biggest driver, of course, of operating leverage. The second thing we can do is work on that expense line and the efficiency of our people. We can work on that in conjunction with Mercedes-Benz as we get to learn the system a little bit better. So we've got opportunities on both sides within the Mercedes-Benz business. But overall, within our portfolio of brands, what we're seeing is our scale continuing to unlock operating leverage within the business.

Your next question comes from Sarah Mann with Moelis Australia.

Sorry to keep asking questions on the order right. But just the 13% like-for-like quarter improvement in January is obviously pretty good, but just wondering if that's related to, I guess, January last year kind of being weak. And therefore, if you could maybe give us any color around like what order it looks like relative to, say, kind of October, November, December, in January.

It's really difficult to do that effectively because of seasonalization January is a short retail month because we start a little bit later from when people come back from work. So I think January and January the right comparison, you're right, January last year was a weaker month because we were affected by Omicron in January. So I'll take your point. But the best thing that I can say is that it was our biggest January order right ever. I get that [indiscernible] we've cycled over acquisitions over the years, but it's our biggest January order right ever. And February has started at a bigger organic order growth than January did last month.

All right. And then just in terms of F&I, I mean, you kind of touched on the question before about cancellation rates. But like have you seen any signs of your finances kind of, I don't know, tightening credit conditions and therefore, that impacting some of your customers' ability to kind of get financed either on or [indiscernible] used.

Sarah, there's no doubt that they are doing that. There's no doubt that, that is -- that will impact on the car market. My view is that it's a far lower potential impact in the luxury market where headrooms are bigger and the [ lateral ] consumer is more resilient. I also think this is a very, very strong area of our business because of our association with the OEM financiers. The OEM financiers are likely to be the slowest to raise interest rates because they're also trying to maintain vehicle volumes as well. So through this period, being 100% with OEM finance is very strong and the in the luxury segment is an advantage for us.

So effectively, you're saying there's been no impact on to credit conditions so far on being able to kind of [ sell ] cars essentially...

Yes, -- not on our consumer at the moment.

Yes. Got it. Okay. Great. And then the other question is just on property. So clearly, you've got the big Fortitude Valley acquisitions coming up, are there other properties that you're currently leasing that would make sense for you to acquire? And how do you think about which ones would be the right ones to acquire and when you might do that?

The short answer is yes. There is some -- there is quality properties that we lease at the moment that would be effective for the shareholders to -- the way we would look at it, particularly at the moment, is it would need to be a property that we lease on a pretty sizable yield for it to be cash flow as close as we can get to cash flow neutral to figure up. property growth part that we've got here, the property growth strategy that we've got. Clearly, in our priority [indiscernible] so we don't want property growth to take cash away from us to buy car dealerships. We don't want to take cash away from investing in the organic growth, and we don't want to take the cash away from our ability to give strong shareholder returns on the way through. So it is the fourth priority. There is plenty of us to do there, but what we'll be prioritizing in that area if we have the [indiscernible]cash available, we'll take high yield [ ride ] showrooms that are not -- that are properties that we believe are very important for us into the future.

All right. Well, then last question for me, just on the topic of dealership M&A. Can you give us a bit of a description of what the activity or what activity level is at the moment out there in terms of potential acquisitions and also under expectations [indiscernible]good value.

Yes. So we haven't noticed a sizable uptick or downtick in M&A activity or the availability of it. It still continues to -- there still continues to be more available than we can ever execute on at the moment. We think that if we look at core current vendor expectations, they have on what -- where we've transacted at a reasonable level, a level that we think is reasonable. We think that they have to be at that reasonable level. And if they really want to transact if they're just maintain an ambit claim, they'll put a multiple [ on our ] business, which [indiscernible]. The second thing I'd like to say in this area, Sarah, is the scale of our business has changed so fundamentally since we listed at the type of acquisition that we can now look at are totally different to the[indiscernible] that we were limited to in 2016. We're limited to smaller acquisitions. And now we can start to look at acquisitions with north of $250 million in revenue, and we can execute them based on the cash flows of the underlying business. That brings us into a slightly different territory, and we think the further up that territory go, sometimes the better value you can unlock.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Pagent for any closing remarks.

Thank you, everybody, for joining us today on the investor call. Just before I finish, I'd just like to, as always, I will give huge thanks to the Autosports Group staff to delivered this outstanding result to thank our OEM partners for their support during the period and indeed thank our shareholders for their support during the period. Thank you for listening, and I look forward to any other questions over the next couple of days on the Autosports Group result. Thank you very much.

That does conclude our conference for today. Thank you for participating. You may now disconnect.