Eagers Automotive Limited (APE) Earnings Call Transcript & Summary

[Audio Gap] the Eagers Automotive results for the half year ended 30 June 2022. With me today is Sophie Moore, our Chief Financial Officer. Our results pack, including the slides for the presentation have been lodged with the ASX and should be visible via the webcast. Sophie and I will provide an overview of the results, update you on both our operational focus and strategic progress as well as the company's outlook and then open up the line for questions. Let's now turn to an overview of the first half 2022 highlights. Eagers Automotive has continued to deliver consistent, strong financial performance, underpinned by buoyant demand, continued margin strength, disciplined cost-out and the continued execution of our Next100 strategy. Our results for the first half of 2022 were delivered despite the headwinds of the ongoing COVID-related new car supply constraints and labor and logistics interruptions. The company recorded a statutory profit before tax of $246.5 million and an underlying operating profit before tax of $195.1 million for the half year. Our balance sheet is stronger than ever. We have a substantial asset base, including $444.2 million of property, $842.8 million of available liquidity and only $12.6 million net debt as at 30 June 2022. The outlook remains positive. Strong demand continues to outstrip supply. With our record order bank continuing to grow month on month providing the company with a confident outlook beyond -- sorry, through the remainder of 2022 and beyond. Our strategy remains both consistent and clearly articulated, and we continue to be relentless and disciplined in our execution against it. Eagers Automotive is uniquely positioned. We are confident the company will continue to play a leading role in the transformation and consolidation of the automotive retail industry, benefiting from organic growth, complementary consolidation as well as likely rationalization. In parallel, the industry will continue to evolve with new entrants and business models providing opportunity for growth in both the franchised automotive and independent preowned market segments. Now for those of you following via phone only, we have just reached Slide 3, which sets out the agenda for today's update. I'm going to hand over to Sophie now to take us through the financials in more detail.

Thanks, Keith. For the half year ended 30 June 2022, the group has delivered on a statutory basis net profit before tax from continuing operations of $246.5 million. Underlying operating profit for the period was $195.1 million. Underlying return on sales decreased marginally to 4.6% in the first half of '22 compared to 4.7% in the first half of 2021 as the continue -- company continues to benefit from ongoing productivity and cost-out programs. Despite a reduction in turnover linked to the ongoing supply constraints and COVID-related disruptions to logistics and labor, the underlying performance of the business remains strong, benefiting from a buoyant market where the demand for new vehicles continues to materially exceed supply. This has resulted in an increase in the company's record order book of more than 32% on a like-for-like basis since December 2021. As Keith mentioned, our balance sheet is stronger than ever. We ended the period with corporate debt of $12.6 million net of cash on hand. The Board has approved a payment of a record ordinary interim dividend of $0.22 per share fully franked for the half year, up 10% on the first half '21 ordinary interim dividend. This record interim dividend underscores the Board's confidence in the strength of Eagers Automotive business and our future strategy while providing capacity and flexibility to continue to invest in restructuring and growth initiatives. Now I'll just refer to Slide 6. Revenue on a reported basis declined by 10.3% to $4.2 billion, with the first half revenue impacted by a combination of the Daimler Trucks divestment in 2021, along with continued supply constraints on new vehicle deliveries and COVID-related disruptions to labor and logistics. Underlying operating profit before tax was $195.1 million. Slide 31 in the appendix includes a reconciliation of the statutory results to the underlying EBITDA and PBT. On a statutory basis, the company recorded a net profit before tax of $246.5 million. The statutory result includes significant items totaling $51.4 million net income before tax. This predominantly relates to the gain on sale of the Bill Buckle Auto Group, totaling $47.7 million. Slide 7. Eagers Automotive is in a very strong financial position, underpinned by a substantial property portfolio and asset base, together with $842.8 million of available liquidity at 30 June 2022, a record level. This liquidity position includes available cash and undrawn commitments under corporate debt facilities. The company's significant liquidity buffer provides the flexibility and capacity to invest in organic growth, technology enablers, restructuring and acquisition opportunities. Furthermore, the recent announcements to commence on on-market share buyback of up to 10% of issued capital reflects the Board's focus on active capital management and is a testament to the company's strong balance sheet and record available liquidity. Let me hand back to Keith to provide an operational update, including the current market dynamics and the focus on the execution of our strategy, which has underpinned our results. Thanks, Keith.

Great. Thank you, Sophie. Before I take you through some of the strategic highlights of the first half, I wanted to provide some context on the external environment and how Eagers Automotive occupies a unique position in the market, not only due to our scale in the new car segment, but also the scale and opportunity that exists across all parts of our business. Let's look at the new vehicle market to start with. The Australian market was down 5.2% for the first half 2022 as reported by VFACTS, which continues to be defined as a report on vehicle deliveries rather than underlying demand. Now this is historically atypical, and it does not represent the continued delta existing between supply and demand. Within the Australian new vehicle market, it is important to note that Eagers Automotive has traditionally overindexed in representation of the top 10 brands by volume, which has, on a consolidated and relative basis, been most impacted by recent supply challenges. This has granted an opportunity. The opportunity is for us to grow in new and emerging brands in which Eagers Automotive has either no or underweight representation. And it's something the company has been focused on through both greenfield markets and acquisitive growth, and it will see Eagers further expand and balance our new car franchise portfolio. Now the new vehicle market is a key part of our business. However, it is important to highlight there are other parts of our business which materially contribute to our overall economic model. On the right-hand side of this slide, you will notice the considerable scale of the addressable and highly fragmented markets we've participated in beyond just new vehicle sales. While we have consistently highlighted the opportunity within the preowned market being a factor of 3x the new car market, the size of the other components of the total addressable markets are also significant. The finance and insurance market provides approximately $25 billion of dealer retail finance per annum. The service market supports an Australian car park of approximately 20.1 million vehicles. And the past market continues to grow with total forecast revenue of $5.9 billion in 2022. These markets highlight the resilience and the opportunity within our economic model, able to withstand singular changes in new car demand while also demonstrating the opportunities that exist inside our core business as automotive retail continues to evolve. Turning back to the new car market. As alluded to already, demand for new vehicles, as reflected by our monthly order rate rather than reported new vehicle deliveries, continues to run materially above supply. During 2021 and into the first half of 2022, we have grown our order bank by approximately 330% on a baseline of December 2020. This dynamic is expected to continue into the second half of 2022, providing a confident outlook that margins will remain consistent. While the materiality of the existing order book, combined with its further growth, will provide a midterm hedge at an absolute minimum against any cooling in macroeconomic conditions. On the next slide. Our strategy continues to deliver incremental performance irrespective of external market conditions, something Eagers has long been focused on. The current gross profit margin percentage, while strong, does not exceed previous levels achieved. This indicates the strength of the business, but equally, that is not perhaps utopia, with the environment still adversely impacted by COVID disruptions. Most pleasingly, our cost base is at a record low as a percentage of sales. The biggest influence on this cost base is the deliberate action taken by the company in line with our Next100 strategy that saw a step change in 2021 versus pre-COVID levels, with additional improvements achieved yet again in the first half of 2022. Further and ongoing cost base improvements are expected over the midterm as we leverage our scale and utilize property and the tech-enabled redesign of our operations to drive sustainable, higher productivity. Finally, we again highlight the fact that regardless of the external environment and the headwinds or tailwinds that exist at any point in the cycle, the automotive retail business model is resilient with multiple moving parts. These moving parts go much further than simply how many new vehicles are delivered and how strong is the new car margin. They include multiple income and expense levers that can be utilized to fuel growth or act as a hedge in times of changing market dynamics. Effective and deliberate management of these levers provide a platform for growth and helps to see us steer strategic decisions, including around acquisition and rationalization opportunities. Now let's move to an update on our progress against the company's Next100 strategy. On Slide 14, you'll see a quote. It is quite unusual for the company to reference a specific external piece of commentary, but we have done so to provide third-party context to our own well-communicated and well-progressed company strategy. The quote on the slide that you'll see in front of you is -- that we want to refer to is from the U.S. Auto Equity Research desk of JPMorgan North America and was part of a report issued on the 19th of July 2022, following analysis of the listed auto retail sector company updates for the first 2 quarters of 2022 in the U.S. It reads, "We continue to believe the ultimate impact on profitability of large dealerships as a result of the potential disruption associated with electric vehicles and direct-to-customer models is likely to be minimal. This is due to the opportunity from omnichannel initiatives, consolidation, limitless used car market penetration, captive finance operations, productivity gains/leaner workforce." Now bearing that quote in mind, it's worth comparing it to Eagers Automotive Next100 strategy. Many of you will be well familiar with it by now. What is most interesting is how closely our strategy, which was publicly articulated in 2019, but in place internally for much longer, is aligned to the summary of the previous quote, omnichannel initiatives, consolidation, limitless used car market opportunity, finance performance, productivity gain through a redesigned and leaner workforce. What should be most encouraging for shareholders is that Eagers Automotive have been working on these strategic initiatives for an extended period, not simply as a response to COVID, with the benefits becoming more evident every year across our organic growth, greenfield opportunities and targeted acquisitions. Let's start with property. We continue to use property to deliver both innovation and consolidation of our retail footprint, focusing on a more customer-centric experience on a sustainably lower cost base. In the first half 2022, we opened our much anticipated AutoMall West at Indooroopilly Shopping Centre in Brisbane, and I'll specifically talk to this shortly. Property portfolio management continued to feature as a core element of our strategy, with property sales of $44.3 million, delivering $17 million in profit in our first half in our statutory profit number. In addition, we acquired 2 more strategic properties for $21 million during the period. We continue to rebalance our portfolio of owned versus leased property with a total of 11 leases exited during the period, through a combination of footprint consolidation and business divestments. We progressed the fit-out of our dedicated reconditioning predelivery and storage facility by all our place at the Brisbane Airport Precinct to support our continued easyauto123 growth plans. And finally, we expect to settle on the acquisition of 11 further properties, totaling approximately $120 million in the second half of 2022. Moving on to technology. Technology remained a fundamental enabler for reaping higher and better productivity performance within the business over the long term. In the first half of 2022, we moved from development to test and learn and now rollout of 4 key proven proprietary technology initiatives. These initiatives cover multiple parts of the business, including sales, operations, service, administration and developing a better omnichannel customer experience. Highlighted on the slide for your reference is a number of key statistics that provide real evidence of progress and demonstrate the materiality of the benefits these initiatives will provide. We'll continue to roll out these proprietary technology initiatives across our business, driving productivity improvements and an enhanced customer experience. Moving on to Financial Services. The first half for Financial Services was characterized by continued strong operating performance across all regions relative to our very challenging environment for finance. Long lead times continue to be a material headwind to our penetration ambitions. Despite this, we managed to maintain our financial elements, significantly outperforming the broader market and increasing gross profit per retail unit delivered, something we're very proud of. Our relentless focus on maximizing the customer finance and insurance experience has seen our share of ancillary products increased to new highs. We have also seen our proprietary businesses, including our Taurus Finance Company joint venture; and Simplr, our subscription business deliver record results. In addition, we have leveraged a competitive marketplace characterized by a number of aggressive new dealer auto finance companies focused on utilizing the dealer channel to grow their respective books and gain market share. The finance and insurance segment of our business continues to be a key strategic pillar for further margin growth and is a driver for accretive earnings. Turning to greenfield growth. In the first half of 2022, the company has made considerable progress in greenfield opportunities by new market representations with existing partners, accretive and material partnerships with new entrants into the Australian market and innovative new retail formats that provide accretive earning opportunities. Eagers continues to strive to be a partner of choice for all OEMs we represent, and our property strategy provides a unique opportunity to deliver accretive partnerships for key OEMs in markets they are not currently represented. You will see some of the leading brands I referred to on the left-hand section of the slide covering some of the best-known, fastest-growing aspirational brands. Moving to new entrants. The Australian market continues to attract new entrants. And Eagers Automotive, given our unique scale and geographic reach, has been well positioned to partner with some of these exciting new marketplaces through innovative and significant partnerships. And finally, our AutoMall West initiative has been a prime example of innovation in retail that provides a unique customer experience and accretive growth for the company. Our AutoMall West initiative has been a key pillar in our internal Auto Mall strategy, aimed at leading transformation evolution of automotive retail, focused on better customer experiences at a lower sustainable cost base. Now the initial response from key stakeholders, including our customers and OEM partners, has far exceeded expectations. The average daily unique footfall visiting the store in Indooroopilly Shopping Centre exceeds 2,000 people, with the average dwell time, the amount of time spent in store in excess of 15 minutes. The Level 6 rooftop multi-branded service factory has quickly grown to more than 60% capacity while orders written on new vehicles have eclipsed traditional format sales achieved in the area on a like-for-like and prior period basis. In addition, we have also achieved material incremental sales from new brands that were previously not represented within the area. And we are currently expanding our footprint with an additional 4 brands already confirmed and discussion with others. Finally and most importantly, customers have told us the format works. Our customer satisfaction for the OEMs represented is, on a consolidated basis, a benchmark for our group. Turning now to acquisitions. It's important to again remind our shareholders that the company remains very deliberate in our decisions to acquire businesses. We are not looking to simply buy earnings in the sector. Our investment mandate must be complementary to our Next100 strategy and deliver earnings, accretive growth above and beyond the initial purchase metrics. In late 2021, we completed the acquisition of the Kelly Trotter and Heritage Motor Group in Cardiff and Maitland in New South Wales. This acquisition included options to acquire more than 25,000 square meters of key strategic property across both locations. These properties will be instrumental in the future consolidation of the total businesses, which we already ran in both these markets. Independently of this future property rationalization benefit, we have materially transformed the businesses since acquisition, utilizing our existing scale, structure and internal performance metrics. This includes a 14.4% increase in revenue on an annualized run rate basis, a 48.5% increase in sales per employee and a lift in the return on sales of 3.1% return on sales over and above what we bought the business at. It's a fantastic result. Turning to our M&A pipeline for the second half of 2022. On the 15th of July 2022, we received 97.9% shareholder approval for the acquisition of the group of dealerships controlled by the Nick Politis-owned WFM Group in the ACT. This is a compelling opportunity for the company. It provides immediate scale of approximately 30% of the new cars sold in the ACT, a market Eagers Automotive had no current representation in. It includes 9 key OEM partners as well as approximately 56,800 square meters of land and buildings that will be acquired as a part of the transaction. With opportunities for immediate incremental growth already in place, we expect this acquisition to generate immediate shareholder value. In addition, we are pleased to now announce the recent acquisition of the New Spot Group in South Australia. New Spot is a business representing a fast-growing portfolio of leading brands, including 2 MG dealerships, Kia, Jeep, Suzuki, LDV, RAM and SsangYong. In addition, the acquisition includes a key strategic property to provide flexibility as we integrate the New Spot business into our substantial existing South Australian footprint. This business is subject to a number of customary conditions, including final OEM approval, and is expected to complete on the 30th of September 2022. The combined turnover from these 2 acquisitions will be in the order of $550 million for the full year 2023. The company remains very active in reviewing further complementary acquisitions that meet our strict investment mandate. The final strategic item for today is an update on our easyauto123 and Carlins independent preowned vehicle business, which operates nationally and also in New Zealand. This strategic pillar remains both a material incremental growth opportunity as well as a significant hedge during times of evolution and transition in the franchised automotive sector. Our focus for our independent preowned business in 2022 has been driving sustainable scaling of the business through disciplined investment. The business has grown by 50.7% in total revenue and 57.4% in volume from January 2021 to June 2022. We have continued our footprint rollout into key identified markets with 3 new locations opening in 2022, while carefully investing in the infrastructure to provide sustainable scaling of the business. This infrastructure includes dedicated reconditioning, standardized buying teams and the rollout of our proprietary technology to support our omnichannel model and productivity ambitions. We will continue to grow easyauto123 business by sustainably leveraging the unique advantage available through our unrivaled new car franchise network and better integration of the Carlins national auction business. Turning finally to our outlook. Eagers Automotive, a unique place to play a leading role in the transformation and consolidation of the automotive retail industry. We have a clear strategy and a track record of disciplined execution. We've never had a stronger or more flexible balance sheet to invest in transformation, organic growth, technology enablers and M&A as we accelerate execution of our company strategy. In the second half of 2022 specifically, we will focus on maintaining and optimizing operational performance, continuing the rollout of our tech-enabled productivity and omnichannel initiatives, integrating our franchised automotive acquisitions in the ACT and South Australia, delivering on sustainable growth in our independent preowned business, delivering sustainable and material earnings from our significant greenfield opportunities and maintaining disciplined review of strategic and accretive acquisition opportunities. Whilst we remain cautious around continued COVID-related supply constraints, an interference to general operations, as well as a changing macroeconomic environment, we are very confident that Eagers Automotive is extremely well positioned to grow our business over the medium and long term. On behalf of the entire team at Eagers Automotive, I would like to take this opportunity to thank you for your interest in today's financial and strategic update and would now like to open up for questions.

[Operator Instructions] And our first question comes from the line of Tom Godfrey from MST.

Maybe if I can just start with one on the demand environment you're seeing in July and August. Just given the macro backdrop, how should we be thinking about your order rate growth versus PCP? And as a second part, have you started to see any pockets of weakness emerging in terms of the order bank and in terms of customers actually taking deliveries? Or is that still a bit early?

Tom, it's a great question. There's going to be a lot of interest around this and us trying to give a guide on it. The short answer is absolutely not. Now I will put a caveat on that in that we are cycling a period this time last year where there was some lockdown interference, particularly in LGAs in Sydney and Melbourne. As we sit here today, we have an order rate up north of 25% on this time last year. The demand is, in a word, unrelenting at moment, it is very strong. So we are not seeing any weakness. And the delta between demand and supply has actually increased compared to this time last year. So I say those things, Tom, they are factual. They are what we're seeing. It doesn't mean that we're not totally conscious of all the potential issues and macroeconomic conditions out there. But at the moment, the demand continues to be very strong.

Got it. No, that's helpful. Thanks for sharing that stat. Maybe just next one, just in terms of the New Spot acquisition. How should we be thinking about that business' return on sales profile versus your base business? And just if there's any sort of commentary you can give us around multiples or valuation.

Still to settle, Tom, so probably unfair to talk around multiples of valuation at this stage. We're happy to disclose a little bit more once we settle post 30 September. We think this is a great acquisition. It's a business that is a very fast-growing business, a really good dealer in South Australia who's well known to our business and had a long-term relationship with our business. Our team down in South Australia, our team has grown this business very successfully from a very small business to quite a substantial business over the last few years. The business, the New Spot business, has got a great portfolio of brands. It's benefited on the rapid growth of brands like Kia and MG. It is operating from a very attractive low cost base. It is certainly not performing at a level below our group-wide return on sales.

Got it. That's helpful. And then maybe just the last one for me. I'm just interested in terms of what you're seeing from your key OEM groups in terms of price, just given some of the cost inflation they're seeing across their businesses and because that sort of have the potential to change your gross margin profile in the next 12 months?

Price won't change our gross margin profile, to be frank, at this stage. It's price increases or any future price increases may have an impact on demand. At the moment, they're certainly not. We don't expect price increases to be so material that they suddenly stop people wanting or needing to buy a car. So remember, people want or need to buy a car. If the price of their preferred model goes up, they don't suddenly stop the want or need to buy a car. They buy a different car. And because Eagers represent every brand and we represent cars from $500 to $500,000, it just means the transaction moves to a different part of our portfolio. That's the first thing. If prices go up, our margin is a percentage of list price or retail price in most cases. So theoretically, there's an opportunity for slightly more margin. I wouldn't be modeling that in. From a finance point of view, if the prices of cars move up, as they have in used cars materially over the last couple of years, the amount of net amount financed through our finance business increases, and we have a return which is based on a percentage of net amount finance. So that can increase as well. So generally speaking, increases in price through the vehicle space, we're pretty well positioned that people -- it's becoming more and more evident that people are going to continue to want or need to buy cars. The census data that just came out for 2021 has been quite staggering in terms of Australian demand for cars and their love affair with cars. So we're well positioned that people just move around that price spectrum up and down, and they can move from new to used. And over the whole Eagers portfolio, we don't -- we think we're fairly well insulated from it.

Our next question comes from the line of Scott Murdoch with Morgans.

Didn't hear my name called out. Just interested in a bit of detail around, I guess, your views on EV. Obviously, that's garnering a bit more focus with some labor policies likely to be introduced. I guess a couple of parts to this, interested in an update on the BYD demand and delivery profile. Just how you're positioned. You called out a few other brands there, but I see the likes of sort of MG increasing sales rates. And any just insight into that -- your experience in New Zealand with the incentives and disincentives that are in place?

Thanks, Scott. A couple of questions in there, so I'll try and cover them all. I guess first comments around the transition to more low-emission-type vehicles. And I'll probably try and capture all low-emission-type vehicles because that certainly -- that's going to fuel a number of transactions over not just the next 6 to 12 months, but over the coming 5 years. And it's something that I think everyone is probably underestimating at the moment that there is going to be additional fuel to the new car market in Australia because of this transition to lower-emission vehicles, which will be supported by the current government. So the reality is that there's a lot of focus around EVs. I think we, as Eagers, are probably best positioned to ensure that we participate in any EV take-up. Certainly, the BYD position us the national retail partner. You called out MG. MG also got a really significant position in affordable EVs. And you can see we've taken some deliberate actions through our acquisitions and some greenfield opportunities with MG. But it's not just EV, I think, Scott, I think what will happen is that, as much as everyone -- EV gets all the focus, the reality is there was going to be a push to low-emission vehicles. but it has to be done in a way that's affordable so it doesn't leave the population behind. It has to provide enough choice. The reality is a lot of Australians drive midsized utilities, and there's not a midsized utility that's available in EV or a midsize for all-drive as in a larger all-drive. So it's got to have a choice and availability of models that the Australians will want to buy. And then finally, we need the infrastructure in place. So there is no doubt there's a while to go on this, but the transition to a low emissions future is -- has already begun, and that is a great catalyst for people to transact. And Eagers is a business that benefits out of transactions, not necessarily picking one car over another. So we're actually quite excited about what that means for our business over the next 3 to 10 years, and that's quite a broad period of time, but that's how long this will take. This is not an overnight transition. There's 20 million cars on the road in Australia. So there's a long way to go on this, but it's an exciting time, and I think we're well positioned. The New Zealand example is hard to pick. The way New Zealand went about it was incentives on the EV side and almost 50% is on the ICE side. Again, in isolation, that's challenging because it's not like customers have availability. And I'll use that huge example. If you're a tradesman and you need to use, and the legislation or the incentives or the lack of infrastructure is in place, but you cannot buy a car fit for purpose that meets those incentives or the infrastructure or that legislation, it's -- you're not going to be able to respond to it. So it can have disincentives and it can slightly dislocate the market for a period of time and make it look a little bit bumpy, but at the end of the day, I think my comments around us being incredibly well positioned no matter which direction this takes is the most relevant one.

Just interested in some further commentary on easyauto123, if we can. You've given some numbers there versus January '21, but just interested in more, I guess, what happened over the half in terms of like-for-like growth, just some insight into the profitability and your confidence to be able to expand the rollout and any intentions past '22 to really accelerate the rollout?

Yes, Scott. We -- if you look at the half-on-half, so we gave some numbers in there, which I referenced, which was gross since January 2021. If you looked at just period-on-period, we grew volumes by circa 33% half-on-half, revenue to more like 43% up half-on-half. So we have continued to scale this business. There is -- it is a challenging environment at the moment because of the continued new car supply constraints and the excessive lead times between order and delivery in the new car market. There is no doubt that the number of trades coming through the normal new car franchise network system are less than normal. What that means is it's not just easyauto, but a large majority of dealers are trying to buy cars in the same private market or auction channels, et cetera. So the competition for used car stock at the moment outside of your trade channels is actually quite high, and that's put a little bit of pressure on our margins in the first half. So our margins have come back a little bit in the first half, not dramatically, but enough to slow down some of the profitability growth. And at the same time, we deliberately have invested in the first half. So we've added costs -- we've added costs to our reconditioning facilities, our buying teams, our tech rollout. Now they are investments in scaling the business. They're very deliberate, and they're not we've lost control of our cost base. They are deliberate investments to sustain the growth. So your final question is, how confident are we to continue to roll it out into the second half and beyond? Very confident. easyauto, having an independent used car business linked to our national auction being Carlins in both Australia and New Zealand, is a fundamental pillar of our strategy going forward. We're really confident that we can grow this business considerably. And what we won't do is some challenging results in used car space overseas in some of these independent used car businesses, we won't try and scale at the expense of sustainable profit going forward.

And our next question comes from the line of Russell Gill with JPMorgan.

Keith, just a question coming back to the earlier discussion around which obviously is a big focus in the moment is consumer demand. I was wondering if you can give any further insights in what you're seeing in the order rate in the last couple of months in maybe price point of vehicle, branded vehicle, but also in your secondhand market, but also around financing and access to financing. I know the U.S. consumer is different, but they're seeing significant deterioration in sort of the sub-20,000 secondhand vehicle category. Do you have any insights you're seeing regarding those, I guess, demographic trends in Australia?

Russell, that's -- it's a really good question. It's probably a little bit more granular than I can give you a specific data on today, starting with the first part of your question. So general order rate, as I mentioned earlier, I think, to Tom, is still very strong. And the gap, as I keep saying, the gap between our demand and supply, being the orders written and the vehicle delivered is wider now than it was this time last year. So the order bank is just continuing to grow month on month. That's the overall. But the question you've asked is a lot more specific, and I'll talk to the finance piece. We're really proud, and I called out in the presentation, that our performance is circa 10% to 12% above where the industry sits at the moment in both new and used. Now it's still only sitting at sort of mid-30s in both categories. But to hold it there, while the industry has come back to probably, call it, mid-20s is a really, really good result. Because you've rightly pointed out that a lot of people have made a lot of overseas retailers and the comment you made about people are seeing these headwinds to financing. So for us to hold mid-30s has been one of the things we're most proud of as a company. What we're seeing, though, is that it's a mixed bag in the lead time. So if you've ordered a car a long time ago and you're now about to take delivery, the challenge is you might have been quoted 3, 6, 12 months ago on your indicative rate, and we're requoting that now at the point of delivery. The challenge there is that customers are going, "Oh, well, that rate has moved since you've first spoken to me. I might want to go shopping." Equally, if you're ordering a car today for delivery in 3, 6 or 12 months, it's hard to lock in a rate or pin down the finance at the moment of order. What we are finding, though, is 2 really positive things. One, we are still selling a number of cars where we order and deliver inside 60 days. Our penetration in that short window is as good as it's ever been. We are really, really having a lot of great results out of that short window between order and delivery. What we're also learning as this ongoing long lead time environment goes is we're learning the lessons. And what we've been -- and this is some data that we've picked up from our major finance partners is that there is a sweet spot on when you requote to a customer leading up to delivery of the car. There's a stat going around of just approximately 60 days out from delivery is the sweet spot to go and reengage with the customer and requote on their finance to take them out of the market and confirm that finance penetration. So it's a mixed bag. It's a really -- it is -- there's no doubt it's a challenging environment. It's why we called out our results. And I think it's -- I think, generally speaking, we'll continue to put a lot of focus on maintaining where we are and growing going forward.

Just 2 more questions. Just can you give, I guess, maybe some insights on your expectations on the cadence of new vehicle deliveries? Toyota came, I guess, came in with a bit more of a rush in the last couple of months than probably was expected. But I guess, no just the absolute timing for your new vehicle deliveries, but more how you play your easyauto123 business and I guess the risk around secondhand vehicle pricing, given that cadence of new vehicles coming to Australia and how you think strategically about, I guess, inventory in that business as that dynamic progresses?

Yes. It's because easyauto, Russell, is running at -- let's say, circa 20,000 units a year, how much stock or how little stock we had is not influenced by the overall new car market deliveries, and us trying to manage our stock up or down based on new car deliveries into the marketplace would be too scientific to actually translate into a genuinely good outcome. We've got, as we said in here, sort of such massive opportunity to grow easyauto irrespective of what the new car market is. We're not trying to link our easyauto inventory levels around new cars coming. From a pricing point of view, we're not concerned either, We buy and sell used cars inside 60 days in the business. And inside those 60 days, prices are not collapsing or not rising so dramatically. So we're buying cars and selling cars in the same environment, and that's a discipline we're absolutely focused on. Just coming back to new car supply and just a comment around that. It wasn't specifically your question, but it's interesting. The -- everything we're seeing is that, structurally, we still don't see supply materially improving over the next couple of years. One of the leading Korean brands, one of the leading Japanese brands, both reconfirmed to their network the other day that this is going to continue for another couple of years, tight supply base. On a more cyclical basis, we're fairly encouraged. Our pipeline reports at the moment is showing that between now and the next quarter -- sorry, over the next quarter and through even until the end of the year, we're seeing some green shoots in terms of supply, particularly compared to 2021 levels. So it's going to be a period where it's going to sort of have strong periods by brand, by model, going to have weaker periods by brand, by model. It's incredibly hard to forecast.

And just a final question. Just focused on your back end. You called out 6 months ago a struggle for labor and access to labor. And I think you were off trying to bring some workers in from overseas to manage that. Your back end, I guess, has declined further than what your new vehicle sales rate has. The question is, what's your outlook for that business? Obviously, it's impacted by the timing deliveries as well. But as the attachment rate, is the dynamic of a pent-up demand because of COVID lockdowns, but also the attachment rate may deteriorate because of the lack of labor supply and lack of new vehicles? Can you just possibly talk through how you're thinking about the back end over the next 6 to 12 months?

Yes. It might have been one of the other listed that's looking for staff overseas, Russell. We haven't particularly gone overseas looking for staff. There's no doubt that there is a challenge to get skilled labor, but the bigger issue for us has been more absenteeism around COVID. So if we've got -- as we constantly say, our workshops run at pretty much -- we booked it to more than capacity every single day, and there's generally a lead time. So what that means is, every single day, every single workshop is generally run to capacity. The profitability is then linked to how well you run your business to capacity and how efficient it is. What has been a bigger issue in the first half has been anywhere from 5% to 12% at different times in different areas absentees of labor with technicians off with COVID. And that has been a bigger issue. So our first half is more around that missing or absent labor because of COVID, which just means you cannot fill that labor. The biggest component of our workshop is labor sale. And when you don't have the labor to sell, you can't sell it. So you're actually operating that workshop at a reduced capacity. We don't believe that's an attachment level. There is a risk -- you rightly point out a risk that, theoretically, people might become less attached because of issues. But what generally happens is the cars arrive, and they may -- in the worst case, we don't like to say this, there might be a slightly longer lead time where it might take a little bit longer to get the car turned around, people don't necessarily just go and leave the business or lead our -- the brand because of that. But there's no doubt, it has impacted the first half. You're right in pointing that out. Half much less so.

Yes. Sorry, maybe I ask the question, I'd frame it a little bit better maybe. What's the, I guess, the order weight or what's the waiting time to book a car? And how does that compare today relative to maybe 6 months ago?

Russell, it varies so much by brand, by location. It could be anything -- I mean, literally some brands we could -- we can probably squeeze you in today. Others might be 5, 7, 10 days. And we don't try and roll it up and get a consolidated number because it actually doesn't add any value. So I'm sorry, I don't know that number. It's just -- it's so variable.

And our next question comes from the line of Phil Chippindale with Ord Minnett.

I just want to follow up on that order book question earlier. Keith, you're referencing PCP numbers in your commentary earlier. I just want to understand that gap between demand and supply perhaps over the last couple of months versus the June half. Has that gap sort of been maintained in the last couple of months? Is that a fair comment, do you think?

It's absolutely maintained. It might have a bigger -- have -- Sophie is nodding. It has got bigger.

Okay. Great. Just want to turn quickly to easyauto123. I'm just wondering about how we should think about this business in the event that there is a bit of a downturn perhaps into next year and beyond. I guess, how are you going to maintain profitability in that business? Clearly, you've spoken about the volume challenges at the moment in used cars, which is fair enough. But clearly, margins can be pretty reasonable during this period. So in a downturn, do we see perhaps a crimping of margin, but is the offsetting factor there that your volumes pick up?

It's an interesting way to look at it. The one thing I will constantly repeat is that we have not our positive profit results and even any headwinds to our profit results in easyauto are not prefaced on rising used car prices. Because when we buy cars and sell cars in a 60-day cycle, you're buying inside the same price band. So if the market is strong, you have to pay more to get the car and then you sell it at a high price. Equally, if all the prices move down, you can buy a car or acquire a car cheaper and sell it at a cheaper price. It's that differential between acquisition cost and sale price. So we don't actually look at this business as a business that can make more or less in a rising used car environment or a decreasing used car environment. What we look at is scaling the lowest-cost national single-branded independent used car business. What we want to provide is a great experience with a really big range of cars, and we want to drive massive productivity so it is the lowest-cost operator. The cost to sell a used car of a franchised used car lot is considerably more expensive than doing it on a scale basis. That's what underwrites the profit of this business going forward. So it's the reason that we constantly focus on scaling the business rather than sitting here and saying the business is going very well because the environment is good and the margins are strong. You'll find most of the commentary that Eagers ever gives is focused on what we control rather than the margin environment that exists. We can call it out and we can leverage that margin environment if it's strong. But at the end of the day, we have to do things that survive a positive or negative environment out there. So the short answer to your question is that we believe we can scale easyauto irrespective by focused on getting higher and higher volumes out of our existing footprint, higher and higher productivity out of our existing headcount and a better and more convenient experience for customers.

Just following up on that. Clearly, the finance attachment is also a part of that as well, and you would expect that, that would improve once you can supply and supply more generally comes back to more normal levels. But you referenced on Slide 18 an ongoing showroom F&I transformation. Can you just unpack that for what you're referring to there?

So basically, what we -- there's a couple of components to that. There is -- the less sophisticated piece, which is actually integrating the selling of finance into the redesign of people's roles. So basically, there's also -- you can't do these in isolation. If you look at the technology slide as well, there's a reference in there to a 10-minute sales app. A 10-minute sales app is something is a technology enabler that allows one of our employees to sell a car, which is sell the car -- sell the used car -- or sorry, trade in their old car, sell accessories, sell finance, sell insurance inside 10 minutes on an app, and it's basically followed the bouncing ball, for want of a better word. Now what that means is that if we are able to train and utilize that technology, we can suddenly have 1 individual doing all those tasks that traditionally might involve 4 or 5 different individuals. If we support that individual with the right level of expertise to handle a lot more transactions in the background and by that, I mean, business managers that are focused on providing credit expertise and putting up applications and [indiscernible] deals in the background rather than the customer-facing selling roles, we fundamentally shift the productivity of our workforce. The issue with automotive retail is that we have got too many people to sell a car, trade in an old car, sell finance and sell accessories and car care. The whole plan that we have around higher productivity is to use technology to provide a better customer experience, but to have one person as best as possible handle all those parts of the transaction. Now what we've done is we have tested this for 18 months now. This has been developed, refined, tested. We've learned from it, we've involved because the last thing you want to do is to change and redesign our workforce and get higher productivity with much lower margin. And what we're finding is we're maintaining margin and we're getting higher productivity. So that's what we're referring to. That's the best example when you talk about redesigning our workforce and redesigning our showroom process around finance. It's not just our [indiscernible] finance.

And our next question comes from the line of James Ferrier with Wilsons Advisory.

First question, just on supply. One of your peers recently talked about a view that maybe in the year ahead the European OEMs, we're likely to see a bit stronger supply coming online, coming to market relative to the Asian OEMs, they're probably going to see tighter supply. What's your view on that observation?

James, I honestly don't know. It is -- I think it's fraught with danger trying to pick supply at the moment because no one has got it right since COVID hit. We've been constantly talking about supply is going to bounce back, it's a rubber band, et cetera, et cetera. And the sheer complexity of the supply chain network in parts, logistics, freight, COVID labor involvement, it's just incredibly hard to tell. Anecdotally, we are hearing mixed reports. One of the things that is going to be -- I'll answer this in a different way because the short answer is I wouldn't really pick Europeans are going to be better than Asian or Korean or Japanese product. I can't see that. I don't say it's wrong, but I can't see it. I don't have that good a crystal ball. What I do see or what we see is a bit more of a longer-term challenge in terms of the type of products that are actually able to be brought to Australia. Now Australia -- and the reason I point this out is Australia is a right-hand drive market. Australia has an appetite for different types of products compared to the vast majority of the rest of the world. I talked about utilities, midsized forward drives, et cetera. And this transition -- and this is a once in the industry's time, it may happen again in the future some time, another 100 years -- but this transition from almost a static state where there was an ICE, it could be petrol, it could be diesel to this lower emissions future, is going to mean that all our OEM partners are going to make very deliberate and very strategic decisions around what sort of products they develop. Because they've got to do this on a global scale. They've got emission challenges globally. And what sort of products they're going to develop and spend money developing from an R&D basis, what products they're going to produce in a right-hand drive way and then where are they going to import them once they get pre-availability. So if you think about all those dynamics and you think about the challenges that OEMs have in terms of investing at this time, it is not simply just refining or updating a model that's been in the market for 20 years every 3 years with a new spec. They are absolutely transforming their businesses, and they're investing money in R&D. Toyota flagged $15 billion on battery investment between now and 2030. It talks of vertical integration. There is so much going on at the moment that I think you will see Australia will be a reasonably tight supply market for quite a while. That's what we're expecting. And at the moment, the gap between demand and supply is so material that there is -- so far the supply would have to move up and so far, the demand have to pull down before you reach parity. We may have just this longer-term imbalance as a more fundamental part of the Australian market. It's just a thought. And certainly, it's what we're seeing. It doesn't necessarily answer your question, but it's probably a bigger and longer-term theme that we think may occur.

That's good, Keith. That's a very interesting observation. Just to finish off to, for Sophie, if I may. The first is the gain on asset sales. In the presentation, Slide 31, it says the PBT impact was $50 million or a bit over. The segment notes in the account say $54 million. Can you explain the difference there?

I'd have to -- let me have a look at that, James.