FleetPartners Group Limited (FPR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the FleetPartners Group Limited 2025 Half Year Results. [Operator Instructions] I would now like to hand the conference over to Mr. Damien Berrell, CEO. Please go ahead.

Good morning, everyone, and thank you for joining FleetPartners' 2025 first half results presentation. I'm pleased to be here today with our Chief Financial Officer, James Owens. Before we begin, I would like to acknowledge the Traditional Custodians of the lands and waterways across Australia and pay my respects to Elders, past and present. As we close 1H '25 and announce the successful completion of Project Accelerate, the most ambitious transformation program in the group's history, there's a lot to talk about. Before we get to that, however, I want to turn to Slide 6 and reaffirm why FleetPartners remains such a compelling investment opportunity. FleetPartners business case is defined by clear growth opportunities, predictability, defensiveness and strong cash flows. There is much to like about the opportunity in FleetPartners, but allow me to nominate 5 key areas. First, we have invested for growth in large underpenetrated addressable markets that offer attractive returns and feature high barriers to entry. I will touch on this in more detail later. Second, our confidence in growing and penetrating our TAM is underpinned by the compelling nature of our product proposition. We are market leaders in reducing the cost of vehicle ownership and are a business-critical supplier for our customers, which span virtually all industry sectors. Third, our product proposition is supplemented by market-leading capabilities built over 4 decades of expertise. We are best-in-class at funding, credit, vehicle maintenance and residual value underwriting. Fourth, our business model delivers stable, predictable and recurring earnings. 95% of NOI pre-EOL provisions is annuity-like in nature embedded in every lease for an average term of 3.9 years. In addition, approximately 80% of leases remain on book from the start to the end of the year, with those rolling off being replaced with new leases 90% of the time. And finally, we generate high positive cash flows, delivering $116 million of organic cash generation over the past 12 months. It is these 5 fundamentals that ensure the group delivers a consistent operating performance over time, which brings us to Slide 7. Slide 7 illustrates the strength and resilience of the FleetPartners operating performance over several years. We have significant scale with $2.3 billion of AUMOF, which we have grown consistently at an average CAGR of 7% since FY '23. AUMOF is a key driver for revenue as seen in NOI pre-EOL and provisions increasing at a CAGR of 6%. This was achieved despite the headwinds from the post-COVID normalization of elevated income. This is a clear demonstration of the defensive nature of our business model. Moreover, in this same period of AUMOF and NOI growth, our cost as a percentage of AUMOF declined despite a high inflationary environment. This performance showcases the operational leverage within our business model. Since May 2021, our share buyback program has returned $255 million to shareholders, reflecting the strong cash generation of our business. These above performances have combined to deliver a double-digit increase in EPS normalized for EOL of 13% since FY '23. And finally, the successful completion of the Accelerate program positions FleetPartners to further strengthen its market leadership and maximize the profitability of future growth opportunities. That's a great segue to Slide 8 about the benefits of the Accelerate program. Today, I am proud to confirm the successful completion of the Accelerate program. This transformation has delivered a stronger, more agile business with significantly enhanced operational leverage and scalability. We have simplified our technology stack, unlocked efficiencies and created a uniformed platform that enables us to drive growth and capture new opportunities faster and more confidently than ever before. Our simplified single platform technology stack enables greater digital innovation for customers and automation benefits for our teams. Standardized operating processes drive further economies of scale and support our ambition to lead the industry in customer service. A single unified brand brings greater visibility and brand clarity, allowing us to stretch our marketing investment further. I'd like to acknowledge and sincerely thank the entire FleetPartners team working on this ambitious project. Their dedication and commitment over the past 2.5 years made this transformational program such a success. While the program has been delivered successfully, like with any major transformation, it is not without an element of disruption. This disruption, however, is only temporary, and I will speak to it in more detail shortly. That said, I'm excited to say FleetPartners' operating position is as strong as ever. The program will deliver $6 million of annualized cost savings. It will position the group more competitively, and it will enable service excellence across the entire customer journey. Turning now to Slide 9 to discuss our 1H '25 performance highlights. Several important messages emerged from this result. First, despite temporary disruption from the Accelerate system cutover, AUMOF growth continued, underscoring the defensive characteristics of our business. Second, we continue to build a high-quality portfolio characterized by stable annuity-like recurring revenue and strong end-of-lease income. Third, we delivered strong shareholder returns. And finally, and importantly, we see no direct impacts from the new U.S. tariff regime. AUMOF grew by 6% compared to the prior corresponding period, a great result, particularly given a 17% decline in new business writings. Growth in new business writings was impacted by its strong performance last year, which was driven by the unwind of record pipeline levels and disruption from the Accelerate system cutover. I will talk shortly about the disruption from Accelerate, but note, by excluding the impacts of the pipeline unwind last year, new business writings was down 11%. NOI pre-EOL provisions grew in line with average AUMOF at 8%. EOL per unit remained strong at $6,062 and is now expected to remain elevated for longer than previously anticipated. And cash conversion remains robust at 112%. James will go into greater detail about these 3 metrics shortly. NPATA was $39 million, supported by AUMOF growth, strong cost discipline and high end of lease income. This, in turn, delivered double-digit EPS growth of 13%. Our strong cash generation enabled the Board to declare a $25 million share buyback for 2H '25 at the top end of our capital payout range. The strength of the FleetPartners business being resilient AUMOF growth and sustainable earnings remains clear. Let's turn to Slide 10. As mentioned, the Accelerate system cutover resulted in temporary disruption to the business. We are confident, however, that this impact is only temporary, and we have already started to see normalization in April. New business writings was down 17% on PCP. As mentioned, a component of the decline was due to the impact of the pipeline unwind last year. Excluding this, new business writings was down 11%. This was driven by the Accelerate system cutover, which required a planned 2-week blackout period for data migration to be completed. Activity gradually ramped back up after go-live in mid-February '25. And as of today, the business has returned to typical service levels. We expect the variance to PCP to improve over the remaining of FY '25. Net debt is elevated on a temporary basis due to the internal cash to fund $41 million of leases awaiting funding. This has resulted in a net debt position of $17 million at the end of 1H '25. Excluding the temporary impacts of the Accelerate system cutover, the group would have maintained a net cash position of $24 million. As these leases are sold into the warehouse or refinanced with P&A funding, the group's net debt position will recover. Finally, provisions was higher due to higher arrears from temporary administrative delays associated with the change of the system and processes. Importantly, all these system cutover impacts are nonstructural and have already shown progress towards resolution. Turning to Slide 11. Since FY '23, normalized EPS has grown at a CAGR of 13%, reaching $0.259 or $0.365, including all end of lease income. Our EPS growth strategy is clear and involves gaining market share in high-returning underpenetrated segments of corporate, small fleets and novated, maintaining strict cost discipline and leveraging scale efficiencies post Accelerate and continuing to execute our on-market share buyback program. As illustrated in the chart on the right, since May 2021, after including the most recent buyback announcement today, the group will have bought back and canceled $281 million of shares. This represents 35% of shares on issue. Turning to Slide 12 to highlight our ESG commitments. FleetPartners remains deeply committed to our ESG responsibilities. We continue to help our customers reduce their impact on the environment, along with demonstrating leadership in this space, as evidenced by 62% of novated leases written in 1H '25 being electric vehicles. 98% of our own fleet having now converted to electric vehicles and our team having conducted 105 customer sustainability reviews since FY '24. We also advanced our social impact through our Innovate RAP framework, continued our dedicated focus to remove our gender pay gap and strengthened partnerships with the Cerebral Palsy Alliance and Visionwest. I will now pass to James to walk through the financial results.

Thank you, Damien, and good morning, everyone. Turning to Slide 14. New business writings reduced by 17% in 1H '25, slightly ahead of the 20% expectation we set out with the March '25 trading update. This new business writings reduction was partially a result of the strong performance in the comparative period 1H '24, which benefited from an unwind of the elevated order pipeline that built up post COVID. Excluding pipeline unwind, 1H '25 new business writings was down 11%, primarily driven by the Accelerate system cutover, which resulted in a planned 2-week blackout period while final date migration took place. During that time, vehicles couldn't be delivered and new orders couldn't be processed. Activity levels then gradually ramped back up after the system went live. While good progress was made in March, the backlog of delivery this created could not be cleared by the end of the half. As we continue to work through the backlog, we expect the variance to PCP through the remainder of FY '25. Moving to AUMOF on Slide 15. AUMOF grew by 6% compared to PCP, primarily driven by the strong new business writings performance in 2H '24. Lower new business writings in 1H '25 saw AUMOF broadly in line with September '24 levels at March '25, with growth expected to resume in the second half as new business writings picks up. In line with our strategy, more new business writings has been directed into the warehouse and away from P&A. Balance sheet funded AUMOF is up 14%. Now that Accelerate is complete, a higher proportion of Fleet Australia new business writings and virtually all novated new business writings will be balance sheet funded going forward. This means we will earn lower upfront funding commissions from P&A financiers, but this will be more than replaced with the net interest margin earned over the term of balance sheet funded leases, which have a higher yield. Let's take a look at NOI pre-EOL and provisions margin on Slide 16. Given the mix impact, we've broken margins out to show the underlying performance of each segment. As we've highlighted previously, margins have been higher than normal due to a number of COVID tailwinds that we expected to dissipate over time. The last remaining of these margin tailwinds is the elevated management fee income we're earning on leases in extension, which continue to represent a higher proportion of Fleet Australia AUMOF than they did pre-COVID. Extension leases decreased in 1H '25 with a corresponding decrease in margin for Fleet Australia, but there's further to go as extension levels continue to normalize. For Fleet New Zealand, COVID impacts have already dissipated. Margin increased by 6 basis points compared to FY '24 as a result of improved NIM. For novated, margin was up 25 basis points as the transition to balance sheet funding takes effect. As a result, group margin has remained broadly in line with FY '24 at 7.38%. Moving to our income statement on Slide 17. NOI pre-EOL and provisions was $82.1 million, up 8%, driven by a 9% increase in average AUMOF. EOL remained strong at $29.5 million. Profit per unit was $6,062, 4% down on PCP, but 1% up on 2H '24 as used car pricing has remained stable. However, the number of vehicles disposed was 15% lower due to the lower level of new business writings and the impact of the Accelerate system cutover. This lower volume had around a $5 million impact on EOL in 1H '25. Provisions increased due to the growth in balance sheet funded novated leases and an increase in arrears as a result of a number of temporary administrative impacts related to the Accelerate system cutover. Overall, NOI was $106.7 million, 3% lower than PCP. OpEx was $45.2 million, up 3%, reflecting continued cost discipline and some early benefits of Accelerate achieved during 1H '25. Putting all those components together, EBITDA was $61.4 million, down 7%. NPATA was $38.9 million, also down 7%. Excluding EOL, NPATA was up 10%, reflecting the strong underlying performance of the business. Turning to Slide 18 and end of lease performance. Used car pricing remains above pre-COVID levels, but has stabilized over the last 6 months. As a result, EOL income per unit for 1H '25 remains broadly in line with 2H '24 levels. Strong EOL per unit was offset by a decrease in the number of units sold, which were down 15% on PCP, as I just discussed. This saw overall EOL income down 18% compared to PCP. If the stability we're seeing in used car pricing continues, we expect EOL profit per unit to remain around current levels over the medium term. We still expect to return to pre-COVID levels over the longer term, but this is now expected to be driven by new leases written to reflect current used car pricing with those new leases not expected to reach the end of their term until around 4 years' time. Importantly, the longer time frame over which EOL is now expected to normalize provides an opportunity for FleetPartners to continue growing AUMOF and therefore, NOI pre-EOL and provisions to offset the longer-term normalization of EOL. Let's take a look at arrears on Page 19. We provide business-critical revenue-generating assets for our corporate customers. For our novated customers, lease payments are made directly by the employer. This drives strong credit performance even through tougher economic cycles, as shown in the credit write-off chart at the bottom left of the slide. At March, 90-day arrears were temporarily impacted by the administrative impacts of the Accelerate system cutover increasing to 70 basis points. We expect this position to reduce over the remainder of FY '25 back towards longer-term average levels as the new system and processes are bedded in. The higher arrears together with growth in our balance sheet funded portfolio has resulted in a higher credit provision expense. Despite the high level of arrears and provisioning, actual credit write-offs remain in line with historical levels at $0.8 million for the half. Putting all these factors together, whilst the March arrears position was elevated due to temporary administrative factors linked to the new system, we remain pleased with the composition of the portfolio and its continuing strong underlying performance. Moving to funding and liquidity on Slide 20. Our long-standing and diversified funding platform remains a key differentiator and ensures that exposure to interest rate movements across our portfolio is limited. For P&A funded leases, we have no interest rate exposure. For warehouse and ABS funded leases, we hedge base rates at lease inception. For ABS, funding margins are locked in for the life of a deal, whereas for our warehouses, funding margins are reset annually. Following the warehouse extensions in September '24, our funding margins are now set until the next extension in September '25. As a result, changes in interest rates don't impact the back book and new business is priced to reflect current swap rates and funding margins. In terms of other interest rate exposures, $45 million of our corporate debt is exposed to variable rates, but our typical cash balance of around $230 million to $250 million also earned interest at a variable rate, offsetting this. In terms of liquidity, we successfully executed a $300 million New Zealand ABS deal in November '24, and we will continue to access ABS markets opportunistically where beneficial to cost of funds. Moving to cash generation on Slide 21. FleetPartners has a consistent track record of delivering strong organic cash generation. This has been further supported by elevated EOL and the benefit of the cash tax shield in Australia from the temporary full expensing legislation. In 1H '25, the group generated organic cash of $46 million, which represents a cash conversion ratio of 112%. After factoring in CapEx and the buyback, this results in a net cash flow of $7 million. In addition, there were temporary impacts from the Accelerate system cutover, primarily relating to $41 million of short-term cash funding of leases yet to be sold into the warehouse and ex P&A leases yet to be refinanced with a funder. This was partially offset by an additional $15 million of corporate debt drawn, resulting in a net impact to cash flow of $26 million. Including this, net cash outflow for the half was $19 million. Slide 22 shows how this affected net debt. Excluding the temporary impacts of the Accelerate system cutover, the September '24 net cash position of $31 million reduced to a net cash position of $24 million at March '25. In addition, there were the temporary impacts from the Accelerate system cutover that I just discussed, primarily relating to short-term cash funding of leases. This was funded with unrestricted cash of $26 million and additional corporate borrowings of $15 million. The net debt position is expected to normalize over the remainder of FY '25 as leases are sold into the warehouse or refinanced with P&A funders, returning cash to the business. At March '25, there was $74 million of undrawn corporate debt, providing sufficient headroom to refinance the $30 million of corporate debt maturing in July '25. So wrapping up the financials, FleetPartners has achieved a strong set of underlying results in 1H '25 despite the temporary impacts of the Accelerate system cutover, which are expected to dissipate over the remainder of FY '25. With completion of the Accelerate program, the business is very well positioned for the future. I'll now hand back to Damien to take you through our growth opportunities and outlook.

Thanks, James. Before we move to Q&A, let me briefly touch on the operating environment and our growth outlook. The operating environment remains stable. We do not expect to see direct impacts from the new U.S. tariff regime. Used car prices have stabilized, which supports elevated EOL profit per vehicle for longer. The transition to low and zero emission fleets continues to present a significant opportunity for the industry. Corporate fleet demand remains resilient, underpinned by the ongoing importance of fleet productivity and safety. And finally, strong demand for Novated continues, boosted by the Electric Car Discount Bill. Turning to the next slide to reaffirm our FY '25 expectations. As always, we do not provide specific NOI guidance. However, NOI pre-EOL and provisions is expected to grow in 2H '25, driven by continued growth in AUMOF. This will be partially offset by the normalization of management fees and reduced funding commissions as we direct more funding to the balance sheet. Insurance commissions from the annual policy renewal process will have a positive impact on NOI in the second half of FY '25. EOL income per vehicle remains elevated, supported by stabilized used car prices. EOL will also be enhanced by vehicle disposal volumes, which are expected to improve. With respect to provisions, they are expected to align with the growth of our balance sheet funded portfolio. We reconfirm our OpEx expectations and note a small uplift in corporate debt interest costs due to the temporary net debt position, which James spoke about earlier. All other line items are unchanged. Turning to Slide 26 to discuss growth opportunities. FleetPartners is positioned to capture significant growth across 3 high-returning underpenetrated markets. Corporate. Australia and New Zealand remains materially underpenetrated relative to global markets. Outsourcing trends are expected to strengthen, driven by cost management needs, complexity of EV adoption and rising fleet admin burdens. Small fleets, a 2.2 million vehicle opportunity, historically underserved, represents a highly attractive growth market. Our digital-first distribution strategy is unlocking access to this large market. And finally, novated. Strong tailwinds continue with employer adoption increasing as employee awareness grows. Our corporate relationships and frictionless technology offering positions FleetPartners to lead here. Moving to Slide 27 to wrap up today's presentation and then take Q&A. To close, I'd like to emphasize there is a lot to be excited about when it comes to FleetPartners today. The operating environment is stable and FleetPartners is not directly impacted by tariffs. Our consistent performance continues to demonstrate the resilience and defensiveness of our model. Today's results have once again demonstrated good growth, including areas such as AUMOF and EPS. The Accelerate program is complete. The group is now strategically positioned to drive the next phase of its growth. And finally, our focus is now squarely on the execution of our strategy and delivering further value for our shareholders. It goes without saying that today marks the beginning of an exciting new era for FleetPartners. I will now hand back to the operator to open the line for questions.

[Operator Instructions] Your first question today comes from Tim Lawson from Macquarie.

Just first maybe on competition, you've commented pretty positively about the outlook for residual values. Just what you're seeing coming through on pricing, if at all?

Tim, thanks for your question. Yes, look, I think as we look at the used vehicle pricing trends at the moment, when you look back over the last 6 months, it definitely looks like those have stabilized. We referenced the pre-COVID forecast that [ Damien ] prepared, and we're definitely tracking in line with that, albeit a little bit higher as that structural inflation has played through the used market. So I think the rhetoric from this result is that we definitely expect our end of lease results to be stronger for longer. As a result of that, we'll obviously review our RVs as we do periodically flowing that information through. And as we get confidence that those used prices have stabilized, will obviously meet the market over time. But what that means is that for all the leases in the back book at the moment that were written at old RVs, they'll continue to generate outsized profits. And those new leases that may be written to reflect current used market pricing, they won't mature for 3, 4, 5 years. And so as those start coming through, we'll start to see end of lease tapering off. But obviously, that's a few years away from where we are now. So we'll see that stability in end of lease profits for the next few years, we expect.

Have you seen anything on pricing of new tenders in terms of the underlying assumptions of what RVs are?

Yes. It's probably too early in terms of like current tenders, Tim. But like once we sort of run the elevated used car prices or current used prices through the model, over time, that will gradually sort of impact where we sort of set those residual values and then to your point, we will have a knock-on effect in terms of the lease rentals that we put in front of customers.

Yes. Okay. Just maybe another question just on yield. Can you call out anything that's sort of impacting the numbers at the moment in terms of management fees or anything like that's rolling over and then sort of the outlook for yields, thinking about sort of second half seasonality?

Yes, sure. Thanks, Tim. So as you would have seen in these results, we've actually seen a good degree of margin stability at the group level. We always look at it on a rolling 12-month basis, just given the seasonality of a couple of aspects of the margin there, but we're at 7.38%, so only 3 basis points lower than FY '24. Pretty much all of the COVID impacts that we've seen play through margin have dissipated. So Fleet NZ and Novated are very much business as usual. For Fleet AU, we still have a degree of elevated extensions in there generating overthrust in terms of the management fees. That's taking a little bit longer to play through. It's been a bit stickier than we thought. So there's still a little bit further for that to go that we'd expect to run off over the next kind of 12, 24 months. But at the Fleet AU level, we're probably talking about 30 basis points of margin there, which when you blend up to the group level is probably about 15% at that level. So we're definitely kind of entering a period of a bit more stability in those margins, and then we'll start to see some organic improvements as we move forward.

Just a question on impairments. So are you anticipating a sort of reversal in the second half? I mean the commentary on your sort of FY '25 outlook expectations is that obviously off a base of 2.8% for last year, you've got provision expected to increase in line with balance sheet funded portfolio growth, which obviously was that low teen number in the first half, that 14%. So you're thinking something closer to 3% is normal, but you're obviously larger than that in the first half?

Yes. So I guess it's important with that growth to look at just the novated portion of the balance sheet funded book, which I think was up 30% year-on-year. So pretty robust growth there. Look, I wouldn't be guiding to a reversal in the second half. But yes, certainly not the extent of provisioning that we took up in the first half. In the second half, we'd expect that to ease off a fair bit as those arrears come back to normal levels.

Yes. Just a couple of quick questions. Just maybe you called out SME as a growth opportunity. What are you seeing in Australia in terms of growth in that SME book?

Yes. So from our perspective, Tim, we're really happy with our digital platform there. So we just went live during the half with an online calculator, which allows sort of anyone out there to sort of log in and quote it up. We already had it in market a tool for dealers. And so our focus in that area is just really expanding that distribution channel so that we can sort of widen the funnel to take in more. It's still very heavily focused on awareness. But if we look overseas, that sort of product is a lot more widely adopted. So that gives us confidence that we'll be able to sort of increase our market share in that space.

Yes. And just 2 further quick questions. Just in terms of the drag from the shift to or the reduced third-party funding at the moment, what you're sort of having to take on and obviously earn as that book seasons?

Yes. So in terms of novated, for the first half '25, almost 100% of new business writings was balance sheet funded for novated. So we're well progressed with that. From a Fleet AU perspective following go-live, we're now able to fund more customers in that part of the business on balance sheet. As we've discussed previously, we wouldn't be looking to do that 100%. There's good rationale for continuing to fund large customers across P&A and warehouse to manage concentration limits. And often for large customers where they have a relationship bank, they'll get pretty attractive pricing under P&A through 1 of the big 4 banks anyway. Just to call out, so in the first half, we only had $1.3 million of funding commissions in the P&L. So not too much of a headwind there in terms of reduced funding commissions going forward anyway. On the novated side, we're pretty progressed with that transition. You can see the 25 basis point improvement in the margin 1H '25 demonstrates that coming through and us seeing the benefits of that.

And just last question for me, just on the CapEx outlook given the completion of the Accelerate program.

Yes. So I think as we spoke before, Accelerate has been the key focus for the organization over the last couple of years. So it has meant that we've had to park some other CapEx initiatives. So there will be a little bit of a catch-up over the next couple of years as we work through that and our strategy moving forward across a number of fronts. So we'd expect it to be on an annual basis, probably around about $6 million for the next couple of years as we just work through that and then probably reducing more to sort of the $4 million to $5 million level in line with the long term that we've been shooting for.

Your next question comes from Paul Buys from Canaccord Genuity.

First one, just on the new business impact. I understand in terms of the first half impact, and you said that you expect the variance on PCP to, I guess, normalize over the course of the rest of the year. I just want to clarify on that. If we were to look at second half '25 on second half '24, presumably, we won't see any accelerated impact. I understand -- I'm just clarifying if you're kind of calling out that it's a full year impact because you already got that first half in the base or if it's not actually completely normalized yet, which I guess I wouldn't have thought so, given it was only that 2-week interruption.

Yes. So I guess, Paul, overall, we were down 17%. What we sort of called out is a large part of that was just driven by the fact that this time last year, we had a big unwind of the pipeline. When you adjust for that, we're down 11% and a big part of that was Accelerate. And so with respect to Accelerate, we were -- we had a planned 2-week period where we were unable to write new business writings, take orders and a whole bunch of other things within operations. And then post that, it took a while just for our teams to increase their proficiency in using the new systems, and that's what sort of drove that impact. What we're sort of saying is if you look at that 17% variance in the first half, we think by the end of the year, that we will certainly close the gap on that. I don't think we'll close at all, but certainly, we think that we should be sort of low double digits in terms of that variance by the end of the year.

And then just on kind of sort of following up, I guess, from Tim's question earlier. Just to understand -- so you're clear that there's still management fee income. That's a little bit of a, I guess, a headwind as it normalizes. Just to understand post that period, I think you call it sort of 1.5 to 2 years. Is it fair to say that you'd expect NOI pre-provisions and EOL, presumably growth in NOI will match AUMOF growth once that's normalized. Is that your expectation going forward or perhaps even exceeded a bit as some of the balance sheet funding normalizes?

Yes, that's exactly right, Paul, that we should see a much closer linkage between that asset growth and the revenue growth of it. And as you said, now we're out of Accelerate. We're in a much better position to sort of organic initiatives to enhance that margin over time. So yes, absolutely, that's what we're shooting for is that stability and then hopefully improvement over time.

Yes. So Paul, just to take that to the next step as well. So that's right. Revenue growth to match AUMOF growth. And then now that Accelerate is done and us benefiting from operational leverage, OpEx will grow at a lot lower rate than what revenue will grow. So that will sort of obviously drive margin enhancement.

Got it. Okay. And just last one from me. Yes, so your commentary on novated at least seems pretty positive, which is good. And I think you mentioned in the presentation, demand going slightly higher levels than FY '24. My question just is now post the plug-in hybrid exemption expiry, just interested in kind of any color on how it's tracking right now and how you had any impact of that, if any?

Yes. So we've got to sort of buried in the pack on Page 30. And so if you look at the plug-in hybrid demand, outside of the last quarter where I think the whole industry saw a spike leading up to the deadline. Before that, plug-in hybrids represented around 19% of our new business writings in any given sort of quarter. What we've seen in April now is that 19% has fallen to 6%. So -- and that's -- you'd expect that to be the lowest because that's the month immediately after the deadline. And so it's still fairly decent sort of underlying demand there for those plug-in hybrids. It is early days though. It would appear that some of that plug-in hybrid demand has moved into battery electric in April, but it is only 1 month, so it's sort of hard to get a decent trend from just 1 month's worth of data.

Okay. Would you say that your corporate customer base overall has, I guess -- are you getting the benefit from an overall higher awareness of novated leasing given the FBT exemption and I guess, all the publicity and news flow, are you actually seeing that tangibly flow through to orders and activity in your customer base?

Yes. Without a doubt, I think for over a year now, when you look at the entire landscape, if you look at sort of the government sector or not-for-profits that those employees have always had a high awareness of salary packaging and novated. Corporate has always been a lagger in that sort of respect. But what we have seen since the introduction of this FBT benefit is the awareness amongst employees has certainly increased and driven more employers to offer the novated product. And off the back of that, over the last 12 months, we've seen a lot more new employers come to market, more tenders and it's flowed through to our portfolio, which you've seen.

Your next question comes from Phil Chippindale from Ord Minnett.

First question, just on Slide 22, just those temporary impacts on the cash flow from the Accelerate program. Just so I understand that, so you're expecting no sort of negative impact like that going forward. Will there actually be a full unwind of that? Should we expect in the second half? Can you just walk us through that, please?

Yes, that's right, Phil. So yes, it's very much just a timing impact there of leases that we've written, but just due to the administrative steps that we have to do to be able to sell them into the warehouse, there wasn't time for the end of the period to fund those. So very much post 31 March, we're working through funding those into the warehouse. And then there's also a portion ex P&A leases where we need to refinance those with the P&A funder, and we're just working through that as well. So we're absolutely expecting for that cash flow to reverse and for us to get that cash back into the organization.

Okay. Just on the novated following on from Paul's question around the impact post 1 April. You sort of made a comment, I think, Damien, on sort of only 1 month of sort of sales data, so limited ability to sort of extrapolate from there. Just thinking about lead indicators, what are you seeing at the moment in terms of the pipeline, et cetera, and how you think that net impact of the PHEVs coming off is going to have on overall novated volumes?

Yes. Again, to answer your second question first, in terms of the impact of PHEV coming off, it's hard to tell. It's a bit crystal balling. If we look at orders in April, we're pretty happy with that for novated. Now April was disrupted by the [ impact day ] Easter sort of period. But even having considered that, the orders in novated were still pretty good. So that at least gives us some confidence that the demand we saw, I guess, prior to the March deadline for PHEVs should continue overall for electric vehicles.

Okay. And then just last one, you've obviously appointed a new CSO. And just thinking about sort of the impact from that appointment, can you sort of talk to your appetite for considering further acquisitions versus your focus on organic growth, please?

Yes, absolutely. Like I said in the call earlier, like it is an exciting new era for us at FleetPartners. When you look at the Accelerate project, it has been all consuming and it has been taking a lot of our focus internally to get that across the line. And that's done now. So for us, that frees up a lot of capacity to chase both organic and inorganic really aggressively. And I think we've always said that M&A is a lever that we've got in terms of our strategy in terms of growing the business and driving EPS growth. In the past, we had limited capacity, I would say. Now we've got a huge amount of capacity to sort of chase both inorganic and organic. And James' role, a big part of that is to drive a whole bunch of initiatives we've got organically, but also to drive M&A as well.

Your next question comes from Chenny Wang from Morgan Stanley.

Just first one, a clarification on the low double-digit variance on MBW. Because if you kind of hit that for FY '25, then I guess on my numbers, it kind of implies the second half of '25 to be down low mid-single digits versus the second half of '24. So I just want to clarify whether that's the right way to think about new business writings in the second half?

Yes, Chenny, that's right. So for us to close that gap, we'll need to see a significant improvement in the second half. Obviously, absent that impact of Accelerate and having kind of 6 clean months in the second half with minimal disruption from holiday periods and things like that. That's what we're targeting. So to get down to low double digits in terms of overall full year new business writings outcome, that's what we're shooting for.

Got it. And then the second bit on just clarifying again, when you compare to the second half of '24, can I just clarify that you're talking about second half '24 at a headline level. So basically, you're comparing it to the [ $476 million ] that you guys did second half of last year and not any adjusted number for backlog tailwinds or anything like that?

Yes, that's right. We're just talking the headline numbers, so the same basis that we talk about the 17% for the first half, and that's what we're talking about for the full year. Yes, so your number there, the $476 million for the second half is what we'll be measuring against.

Got it. And then just lastly, any color on splits between, I guess, your 3 segments, Fleet AU, Fleet New Zealand and Novated?

Yes. I think just generally speaking, obviously, growth across all 3 of them. Corporate Australia, that demand has always been very robust. And so we expect that to continue. New Zealand, I think we're past the worst of it. And so our expectation is for the second half to be an improvement on the first half. And then for Novated, we're still sort of trying to get their heads around the impact from the PHEV benefits rolling off. But as I said, what we saw in April in terms of orders, it wasn't that bad. And then small fleets, as I said earlier, we're pretty bullish in terms of the growth we can get out there. The numbers are still pretty immaterial, I guess, overall, but we are pushing pretty hard to get good growth in that area as well.

Your next question comes from Scott Hudson from MST.

Just a couple of follow-up questions. James, just on the group margin commentary, I think you were sort of saying that there's maybe 15 basis point headwind in the Aussie Fleet business. Is that being offset by balance sheet funded in New Zealand and Novated business?

You're talking about going forward, Scott?

Yes, going forward, yes.

Yes, yes. So we'll have that -- that's probably going to take 12 to 24 months to play through just given how sticky we've seen those extensions. So that 30 basis point in Fleet AU will take a bit of time, and we will see a bit of funding transition there, probably offset that a little bit. And then yes, as you said, we'll have that kind of organic improvement and the funding rotation in Novated that's pretty well progressed now. So that -- yes, that's why at a headline level, I do think we'll start to see that kind of stability in the margins. It will come down a little bit from that 7.38%, but it feels like we're kind of getting close to the bottom on that.

Okay. Great. And then in terms of the -- just in terms of the OpEx basis, were there any accelerate benefits in first half '25?

Yes. Look, there would have been some bits in there. Various things that kind of happened at different points in the year depending on the activities that's related to. Clearly, the point at which we switched off the 2 old systems at the end of January was a key milestone. So there would have been some tech costs that came out from that point. And there's been various impacts to headcount through the process and continuing to happen. So yes, it's kind of been spread through the period. But yes, we did get a bit of benefit in there. And we kind of reiterate the guidance for the full year in the $91 million to $92 million range.

Okay. So the -- I guess, the annualized run rate of savings has kind of already started to some extent through that back end of the first half.

Yes, that's right. And there's also probably been a few other kind of impacts playing through. Obviously, you've got kind of the background inflation. We've also probably got just a bit of the phasing of the spend through the year in terms of some discretionary spend in the second half and a couple of vacant roles through the first half. But as Damien said, we've obviously now appointed the CSO role, but there's been a few other strategic appointments in the recent months and a couple of planned ones going forward that will help drive the growth of the business going forward that just kind of affects the phasing when you look at the halves.

And then lastly, just on the, I guess, the outlook for end of lease income. I mean it sounds like the first half, the disposal units were probably negatively impacted by the new business writings impact. So I guess, going forward, I mean, I think it sounded like your comments were that end of lease income would be fairly stable until you started to see that change the residual values kind of flowing through the front end of the book. So I mean, is it -- are you sort of saying that sort of an annualized end of lease income around $60 million is probably what the outcome will be for the next 2 to 3 years?

Yes, Look, Scott, it feels like that. If the pricing holds up where it is currently, we get a few more units coming back through and the pricing kind of stays where it is currently. I would say when you look at that split of end of lease profit, you can see that our end of lease charges per unit are a little bit high in 1H '25. So that will probably come back a little bit closer to the normal levels. But the profit per unit, the teal bar feels like that's pretty stable for now. So yes, when you run that through the numbers that you mentioned there, don't seem unreasonable.

Yes, as James said, provided used car prices stay where they are now.

There are no further questions at this time. I'll now hand back to Mr. Berrell for any closing remarks.

Great. Thanks, Darcy. Appreciate that. Thanks, everybody, for joining today. We look forward to catching up with everyone over the coming days.

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