McMillan Shakespeare Limited (MMS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. And welcome to the McMillan Shakespeare Limited FY '20 Half Year Results Presentation. [Operator Instructions] Joining us on today's conference, we have Mike Salisbury, Managing Director and CEO; and Mark Blackburn, CFO. [Operator Instructions] Please be advised that this conference is being recorded. I would now like to hand the conference over to your first speaker, Mike Salisbury. Thank you. Please go ahead.

Thanks very much, Eva. And good morning, everyone, and welcome to our half year results presentation for the financial year '20. My name's Mike Salisbury, and I'm joined today by our Chief Financial Officer, Mark Blackburn. We've again provided significant detail within our presentation, which Mark and I will speak to this morning, but for those with time challenges, let me begin with a brief summary of the first half performance. We're pleased to deliver consistent profitable growth and maintain margins in our core salary packaging business, GRS. Salary packages grew by 5.6%, and novated leases increased by 9.6% (sic) [ 9.7% ] versus the prior comparable period. And with positive momentum in Plan Partners and ongoing efficiencies from the Beyond 2020 program, these results demonstrate our ability to perform well despite challenging industry conditions. However, our other businesses have not proved as resilient and have delivered reduced profit results in the half. We're evaluating our strategic footprint and the opportunity to simplify MMS to focus on core growth. Our U.K. business is under review with a clear strategic outcome expected this half. As you know, in the period, we successfully completed the $80 million share buyback as a key initiative of our capital management strategy. And FY '20 UNPATA guidance of $83 million to $87 million remains unchanged. However, risks remain around lender appetite and new car sales. Looking at some of the key financial metrics for the half on Slide 3, and we've again included an UNPATA bridge to show the current performance of each of the segments compared to the prior comparable period. Revenue at $270.4 million was down 1% on first half '19, and a number of factors have contributed to this result which we'll speak to throughout the presentation. Expenses for the group have been well managed, up just 2.6% year-on-year. And the interim dividend of $0.34 per share fully franked represents a payout ratio of around 69% of underlying NPAT and reflects the Board's desire to maintain dividend levels despite the reduced profitability for the period. Our underlying NPAT result of $37.8 million is down 10.3%, and we've included the bridge to show the current performance of each of the segments. In GRS, our largest business, profits are up 4.7%, a reasonable result given the continued weakness in new car sales, and yield pressure from a tightening credit environment and softer insurance market as well as a further reduction in interest earnings on the float, down $1.2 million for the half, notwithstanding an increased balance in packaging funds. Growth in new customers, productivity improvements, driven through the Beyond 2020 program and an improved performance by Plan Partners has had a positive impact on profit. In Asset Management, Australia and New Zealand, the result is down $1.6 million. The results can largely be attributed to the general market conditions that have seen a reduction in our overall fleet size, resulting in less full-service leasing income. In the U.K., general business conditions were softer in the half, with businesses delaying purchase decisions following the announcement of the U.K. federal election held on the 12th of December, resulting in a $1.3 million fall in operating profits. In addition to the operating performance, the adoption of new accounting standards in the U.K. has had a $1 million adverse impact on profits compared to the prior period. In RFS, the variance of $1.6 million reflects equal contributions from both businesses with a softer performance from aggregation, where the total finance originations were 3.6% lower, again, reflecting the softer car market and the increase in claims cost associated with our dealer warranty product. Moving to the key operational dashboard, and I'm now on Slide 4. You can see that the business has delivered a mixed performance across the half, with continued growth in customers and assets across GRS and Plan Partners, whilst our asset finance and broker businesses have been impacted by the further fall in business and consumer confidence. Growth rates in salary packaging and novated leasing were up 5.6% and 9.7%, respectively, whilst Plan Partners has more than doubled in size over the past year, administering more than $417 million in customer funding. In Asset Management, we've seen a reduction in the overall fleet by 2.8%, approximately 1,200 assets. This fall has been predominantly in the Australian market but also reflects a small reduction in the U.K. The written-down value of those assets, down 4.3% to $514 million, is a combination of the lower assets but also the lower average asset value as businesses continue to offer lease extensions over replacement assets. Our overall finance originations for the period was marginally down 2% to around $1.4 billion. The remaining measures of future growth involve our people and the commitment to our customers. Throughout the year, the number of our people has grown to accommodate our customer growth, with our investment in Plan Partners contributing a significant proportion of the increase. And of course, our focus on service delivery is always a priority. And our key measure of how we've performed has been very strong, with an average NPS of 53.5, well above the benchmark established for world-class service delivery. We've introduced a new slide in the presentation at Slide 5, which summarizes the activity which has had both positive and negative impacts on the first half results. Of particular note is the 4% reduction in novated yield due to a combination of both the changes in funding mix as a consequence of moving credit appetite and the lower insurance penetrations. We've also identified potential tailwinds and headwinds to provide some insights into the outlook for the second half. All of these will be spoken to in some detail as we move through the segment reports. Before I pass over to Mark to talk in detail of the consolidated financial metrics, I'll spend a few minutes talking to the key strategic imperatives for the group. And starting with GRS on Slide 6, we have updated the 2 graphs, which we introduced last reporting period. On the left, you can see the new car sales reported since July 2016, and on the right, the comparisons to our novated lease sales over the same period. The current year-on-year fall in retail sales is 7.2%, whilst at the same time, we've grown our novated originations by a little over 2%, continuing the increase of our overall share of the total market sales. On Slide 7, our Beyond 2020 project -- program. We have just passed the halfway mark and have made some very pleasing progress in that time. As you know, together with an enhanced customer experience, the program is aimed at improving productivity across our GRS business and improving novated sales conversions. At the same time, we're also updating our core operating platforms and transitioning into the cloud. As we've done in the past, we've included a table that shows our spend in the period against the budget, and we are largely on track. There was a need to redeploy our IT resource in the first half away from the infrastructure program. However, we don't expect that to extend the overall project time line. During the year, the program started to deliver efficiencies with regard to segment operating costs while delivering increased efficiency to enhance digital capabilities. This was reflected in further increases to the take-up of online claims, up 3 percentage points to 88% across both businesses. We continue to invest in robotic process automation with additional functionality introduced in the half, removing a further 7,000 hours of manual processing out of the business. Annualized, the RPA processes implemented to date equates to around $1.5 million in recurring savings. We also enhanced our mobile applications, adding additional functionality and self-service capability, which is being embraced by our customers more and more as education and awareness improves. In all, the investments we've made over the past 18 months has improved our productivity and is delivering improved margins. We also launched our new CRM platform for novated sales in late August, which is now delivering us greater functionality and increased capability. Given the existing market challenges in delivering top line growth, our investments in technology in order to reduce cost and increase efficiencies is even more critically important to the way we operate. Turning now to Slide 8. Following its initial profit contribution in second half '19, Plan Partners has continued to perform extremely well, with significant customer growth and, importantly, improved margins. This margin growth is being delivered through our investments in technology that not only significantly improves the level of customer experience, but also creates a more efficient experience for our service providers and drives operational efficiencies in our business. As you can see, client funds under administration at $417 million has increased by 55% in the past 6 months and is considerably more than double the value when comparing to pcp. The graph included on this slide is from the December 2019 Quarterly COAG Disability Reform Council Report (sic) [ COAG Disability Reform Council Quarterly Annual Report ] and shows the improvement in plan management allocation as the NDIS scheme matures. In the December quarter, 42% of plans issued in that period were issued with outsourced plan management, and this figure has grown from 16% just 2 years ago. For the remainder of the year, we expect to see: continued strong customer growth as we leverage the strong partnerships developed within the disability community; continued margin improvements as the business becomes more efficient with the introduction of new technologies; and opportunities to accelerate customer growth through market consolidation. On Slide 9 and as I spoke to earlier, we're evaluating our strategic footprint and the opportunity to simplify MMS to focus on core growth. As we flagged to the market in August last year, our U.K. business is under review with a clear strategic outcome expected this half. In the interim, we've initiated a cost reduction program which will see a lower cost base in the second half. I'll now pass to Mark to talk to our latest strategic priority in capital management, and to present more broadly on the company's financial performance.

Thanks, Mike. As you said, UNPATA, underlying net profit after tax and amortization, was a 10.3% decrease versus pcp, with GRS the only segment to achieve an increase. Mike will speak in greater detail on the individual segments, so I'll focus on the consolidated profit, balance sheet, cash flow, existing funding and our warehouse funding initiative for novated leases. I'm starting on Page 12. Statutory net profit after tax at $33.9 million was flat compared to the same time last year. To arrive at our underlying results, UNPATA, we add back amortization of intangibles from acquisitions of $1.7 million; we deduct $1.4 million of provisions for deferred consideration in relation to Anglo Scottish, which has been reversed as it's deemed not payable due to the business being unlikely to achieve the required performance hurdles to qualify. The largest add-back of $3.1 million relates to costs incurred by our subsidiary Davantage in relation to defending class action. Whilst we have advisers confirm that our insurance policy should respond, we have taken a conservative approach to expense these costs at this time. Should any of these costs be recovered in future periods, that will be excluded from UNPATA. Other small add-backs related to the costs associated with the recent $80 million off-market share buyback of $300,000 and $100,000 incurred with the U.K. strategic review. The full reconciliation is provided on Page 32 in the appendices to this presentation. Statutory EBITDA has fallen by 11.8% this year. This fall was a result of a challenging market condition experienced in all segments, as Mike said previously, with GRS the only segment reporting increased EBITDA on pcp. The result was favorably impacted by the introduction of the new accounting standard, AASB 16 for -- accounting for leases. The impact in the profit and loss of this new standard was to take rent expense of $3 million out of EBITDA and increase depreciation and amortization by $2.5 million and corporate interest by $500,000. The summary is included on Page 33 in the appendices and provides a like-for-like comparison against pcp. As at July 1, 2019, the new standard required the following entries to be recognized in the balance sheet: a non-tangible right-of-use asset of $19.3 million; recognition of lease liabilities of $30 million; unearned property incentives reduced by $8.6 million; and a charge against retained earnings of $2.3 million. Another accounting change -- standard change during this period resulted in an impairment of the funds advanced to our U.K. joint venture with the consequential effect of not having to equity account the JV loss. This adds an additional charge against the operating results of $1 million after tax in the first half. In pcp, this impact was an additional $400,000 after tax charges, which were included in the result restated to provide a like-for-like comparison. Basic earnings per share was $0.421 and underlying earnings per share was $0.468. The interim dividend of $0.34 per share fully franked represents 69.7% of underlying net profit after tax. The free cash flow for the half was strong at $34.2 million or 91% of UNPATA, and I'll discuss that in more detail in a few moments. Group return on equity was steady at 22.5%, whilst return on capital employed was 18.6% versus 19.4% in the previous corresponding period. On Slide 13, our balance sheet, provides a breakdown of the split between Asset Management and -- in Australia, New Zealand and the U.K. and the aggregated position of our other businesses: GRS, RFS and corporate. We believe this presentation format highlights the strength of the balance sheet. The other business category has debt related to the RFS acquisition of $16.5 million but the group holds cash of $50.9 million, and therefore, had net cash available of $34.4 million. Asset Management gearing of 72% of the written-down value of fleet assets on book is well below our bank covenant of 80%. I regularly point out that this segment reporting of Asset Management in Australia excludes the novated leases this business originates from its customer base as these are reported in the GRS segment. With the combination of Asset Management and GRS purchasing power, we're able to ensure our customers receive lower vehicle acquisition pricing and finally, priced vehicle running costs. The group's overall gearing increased to 51% from 41% with net debt, debt less cash, increasing by $49.8 million to $306.6 million. $26.6 million of the increase is attributable to the new leasing standard that I discussed earlier. Equity decreased by $72.3 million to $299.1 million over the 6-month period. This originated from $1 million worth of retained earnings, being our statutory net profit of 34.3 less dividends paid of 33.3; a reduction of $80 million from the off-market share buyback; an opening adjustment to retained earnings that I mentioned before of $2.3 million for the new lease accounting standard; executive options exercise of $5.5 million and executive option expense of $400,000; and $4 million favorable movement in foreign currency translation reserve. The U.K. currency is managed by ensuring that the U.K. lease assets are funded with U.K.-denominated debt. U.K. acquisitions have also been funded with local currency and MMS is only exposed to movements in the exchange rate line, equity and its reported profits. The group's interest cover is 11.2x versus the bank covenant of 3. I'll now speak to 2 slides. In the first instance is the group's funding overview, which we've included in the appendices on Slide 30 of this presentation. We've provided the table of the various loans, their purpose, size, drawn and undrawn amounts as well as their duration. 3 of the big 4 Australian banks participated in our asset funding facility. As you can see, we have headroom in all our Asset Management funding facilities and we have committed revolving facilities of $391.8 million and amortizing facilities of just $27.7 million. Cash at bank, as I said before, was $50.9 million. Since establishing our first Australian principal and agency facility in July 2016 to fund operating leases, we've expanded the facility up to a level of $145 million. Under this facility, the funder retains the credit risk and Interleasing retains the residual value risk. Interleasing receives a finance origination commission for assets financed under this facility. And as at the end of the period, we've utilized $75.2 million of this facility. We're at the final stage of establishing another P&A facility, enabling us to achieve our target of funding $100 million of operating leases off-balance sheet before the end of this financial year. These facilities provide greater diversity and efficiency of funding and are advantageous when competing for business of customers with strong credit ratings, where the pricing is likely to be very competitive. The second slide I would like to discuss is back on Page 10 and provides the details of our new funding initiative that has recently been resourced and has commenced. We will establish a revolving warehouse as an additional source of funding for our GRS originated novated leases. We consider this to be an essential source of funding for customers with an excellent credit profile or credit history but due to the new lending criteria by GRS' existing funders might experience some difficulty or time delays in obtaining finance. In these circumstances, it would be extremely advantageous if these customers could be extended credit through an MMS warehouse for their novated vehicle, including adding any add-on insurance products that they have elected to purchase. I'll provide further details at the full year presentation. Whilst strategically important for GRS to have diversity of funding sources for novated leases, it will necessitate a change in revenue recognition for any leases ultimately funded by the warehouse structure. The net interest margin or revenue for such leases will be recognized over the life of the lease rather than the upfront commission which is currently the case for our external funders. Turning now to the cash flow slide on Page 14, which is split into our 3 segments plus corporate and unallocated. The group generated free cash flow before fleet funding of $34.2 million compared to statutory net profit after tax of $33.9 million. Capital expenditures totaled $9.2 million. And as disclosed previously, we expect the full year capital spend to be in the region of $17 million again this year. Tax payments were less than tax expense by $1.9 million due to the settlement of a matter with the ATO, resulting in a refund on tax paid of $8.3 million. This was previously identified in the full year FY '19 presentation in our cash flow bridge. Depreciation and other noncash items amounted to $10.8 million for the period. The working capital outflow of $4.3 million in Asset Management, again, relates to the U.K. where VAT was remitted this half that related to assets that were sold and taken off balance sheet at the end of the prior period. Free cash flow before fleet increase for first half was $34.2 million or 91% of UNPATA. The exercise of employee options added $5.5 million. Fleet assets on our balance sheet grew by $4.4 million, $2.1 million of additional funds were advanced to the U.K. JV. Borrowings decreased by $2.8 million. $80.5 million was used for the off-market share buyback. $33.3 million were paid as the final dividend for FY '19. And lease payments of $3.6 million were made and categorized as a financing arrangement in accordance with the new accounting standard. Consequently, as a result of these sources and applications of funds during the period, group cash on hand decreased by $86.9 million to $50.9 million. I'll now hand back over to Mike.

Thanks, Mark. And if we now turn to the individual segment performance and starting with Group Remuneration Services. I'm on Slide 17. You can see segment revenue for the full year was $108.8 million, up 2.6%. This increase has been driven by growth in both salary packages and novated sales together with an improved contribution from Plan Partners. At the same time, average packaging fees are marginally lower due to the number of Tier 1 contracts renewed in the past 12 months. Interest earnings have continued to fall, down $1.2 million for the half, despite the increase in the float. And novated lease yields have been impacted by the softer insurance sales and a shift in financing mix due to changing credit appetites. Looking at our cost base, you can see employee costs are up. The increase can largely be attributed to the growth in Plan Partners, ending the year with 78 staff. Property and other expenses, which are significantly down, are offset by a corresponding increase in the depreciation line, as Mark mentioned, due to the change in accounting standards. On a like-for-like basis, excluding accounting changes and the contribution from Plan Partners, our EBITDA margin has improved despite the softer revenues, which reinforces the investment in our 2020 program. UNPATA of $31.1 million is up 4.7%, which is a solid performance given the current market challenges. Turning to the key revenue drivers. Firstly, the salary packaging growth on Slide 18. A strong new business performance has contributed to an increase of almost 19,000 new customers, bringing our total customer numbers to 358,000. And our novated business also performed well with the fleet now more than 71,500, up 9.7% on pcp, with customer transitions on 2 large new health clients contributing to that growth. As we've shown in the past, the graphs on Slide 19 reflect our performance against our stated objectives of delivering world-class service for our customers and driving improvements in productivity that ultimately reduces our cost to serve. Pleasingly, all key performance measures are in line with or ahead of expectations. Turning now to the Asset Management business here in Australia and New Zealand, and I'm covering Slides 20 and 21. The off balance sheet funding increased during the period to $75 million, our aim being to convert around $100 million by the end of this financial year, and we're on track to do that. Segment UNPATA reduced to $5.9 million, a reduction of $600,000 on the second half of '19 and reflects the ongoing competitive marketplace and the softer vehicle market more broadly. Our overall asset pool has reduced by 5% to around 20,000 vehicles as a consequence of clients reducing their overall fleet sizes. This reduction allows an increase in remarketing sales for the half, with average yields in keeping with expectations. In the U.K., amidst the current economic and market conditions, we managed to grow our finance originations by 3% to $0.5 billion and largely maintain the size of our fleet at approximately 23,500. As a result, revenue for the half was up 4.1% to $32.2 million. As we discussed at the full year, external factors have placed pressure on margins, resulting in an operational profit after tax of $300,000 and an underlying net loss result of $700,000 following adjustments for changes in the accounting standards. Consistent with our growth capital management strategy, we continue to successfully sell down the portfolio, reducing on balance sheet funding by a further 16%. As we spoke to earlier, the strategic review nears completion, and we will provide details on the outcome of that review shortly. In the interim, the current trading performance, business structure and cost base is not sustainable, and a cost reduction program is now underway. Now on Slides 24 and 25, I'll provide some commentary around the performance of the Retail Financial Services segment. Overall UNPATA, which excludes the costs associated with the class action, declined to $2.2 million for the half, a reduction on second half '19 of a further $400,000. The performance of our aggregation business was again solid, largely able to maintain the net amounts finance volumes despite the further reductions in the car sales. Revenue generated through the aggregation business is consistent with the previous period. However, the level of market competition has made a greater proportion of these revenues required to be distributed across our broker network. Over recent years, we have made considerable strides in ensuring our retail products are market-leading and provide real value to our customers. Over that time, we have seen these changes reflected in an increase of our cost base through a higher level of claims payments. This now appears to be normalizing. We have also initiated significant change in the way our products are distributed. As a consequence, we experienced a sizable loss of sales through dealers switching to competitors. These decisions are clearly reflected in the profit contribution in our retail business over that time. Pleasingly, the first half results have started tracking in the right direction. And without any further distractions, the business will deliver a stronger second half, again, forecasting a return to profitability. That concludes our presentation this morning. I'll now hand back to Eva for any questions.

[Operator Instructions] Your first question comes from the line of Simon Fitzgerald from Evans & Partners.

The first question I have relates to the Asset Management business in Australia and New Zealand. I was hoping to get a little bit more clarity as to the drivers of the increased lease and vehicle management expenses. They increased $3.4 million or a little over 9% there. I'm just trying to reconcile that with the leasing units which obviously decreased over the period. So maybe if you could just help us with that to start with.

Yes, Simon, it's Mark. You'll find that those increases in expenses has to do with, I think Mike mentioned it in his presentation, the additional vehicles that were sold. So when we sell additional vehicles, you've got the revenue there. We've actually got -- that number there isn't as high as the expenses because we had a falling revenue, as Mike explained. So it's really to do with a number of assets that were returned and sold. It's the thing that's pushed those numbers up.

Okay. That's clear. And the second question is if there's any implications with the Holden Leasing brand, just given the Holden brand will soon cease in Australia.

No, it's only been a couple of days since the announcement, Simon, as you know. So we tried -- Interleasing has the Holden Leasing brand as part of our portfolio. And we have some clients that are dedicated Holden Leasing clients. Holden makes out a small proportion of the total amount of vehicle sales as you would be aware in Australia today. And similarly, they make up a relatively small proportion of our book. It doesn't impact on our ability to trade under that name, so we will continue to do that at least for the time being and determine whether or not that makes sense moving forward. But as far as looking after our customers, no change for our business. The watch out, I guess, is to understand the remarketing value of those assets in our book as those assets run off over the next 3 or 4 years and managing the residual values on those appropriately.

Okay. That all makes sense. And just a final question related to the U.K. I appreciate there's a process that you need to go through with this, but you have engaged some external consultants. And I was just sort of trying to get a sense of how much you're willing to spend there just given -- I would have thought the most appropriate sort of course of action for the U.K. operation is to wind them down and shut the brand. But maybe you could sort of enlighten us in terms of what other strategic initiatives you might think of there.

Well, as we flagged in the presentation and we said last August, the strategic review started with potentially 3 options. One was to hold and reduce costs. One was, if there's distressed assets in the market and the review identified that there's potential for the market to turn around in the near term, then perhaps we would look at injecting more capital. Or alternatively, the third option was that we didn't see a long-term future for the U.K. as part of the group, and we would look at divesting those assets. I can tell you that we are not investing more capital in the U.K. So that decision has been made. There are not distressed assets. And we're certainly, in the first half, not seeing any improvement in the marketplace. So what has delayed the review, Simon, is really that the market went into a hiatus post the announcement of the federal election on the 12th of December. And people have been waiting to see whether there's any bounce in the market post, one, the outcome in the election; and second, the hard Brexit.

Your next question comes from the line of Paul Buys from Crédit Suisse.

First question, if I may, just around your comments on lender appetite and obviously calling that as a headwind to date and potential risk into the second half. Kind of 2 questions. Firstly, just interested into your insights as to what's driving some of that reduced lender appetite. I know there's a lot of regulatory impacts still out there and a lot is still happening, but it feels fairly late in the cycle for what are relatively high-quality assets coming through employed customers, et cetera. That's my first question. The second question is just in terms of your planned warehouse for novated leases. How do you see the timing around that? How quickly can that come onboard and kind of offset some of that reduced lender appetite if it stays that way?

Answering your second question first. We won't be funding any assets through our warehouse in the second half, so there won't be any changes to revenue recognition in that period. It will take some time for the project team to complete and for us to be in a position to start lending. In regards to your first question, Paul, it does surprise us with the history of the novated leasing book, very, very, very low loss ratios on those books, that we are facing the challenges that we are. There's certainly been a deterioration in the approval rates over the past 6 months, particularly. And I think whilst it is later in the cycle, it's completely to do with the outcomes of the regulatory reviews in the marketplace.

Okay. A quick one on novated lease volumes. I guess just a little bit of a kind of -- to the extent that you can, kind of current second half to date update and maybe a little bit of insight into how it tracked over the first half period, assuming you obviously had a strong start and finished well, but presumably a little bit slower into the back end. Just wanted to get an idea of that trajectory.

Yes. I mean we were 2% up on pcp, which was marginally down on where we had thought it was going to be. You might recall -- I'm sure everyone looks at the VFACTS data like we do every month. In July, VFACTS -- the current numbers were only down around 2%. And that was where our thinking was in regards to the market for FY '20. That's obviously deteriorated further with drops of 8% to 9%, particularly around the end of the first half, overall 7.5% down for the period. We've been able to maintain growth ahead of last year, which, I think, is a credit to the new customer growth that we've had in the activity system within the group. January was down even further from the VFACTS data at 12%, which we are very keen to see what's happening in the marketplace in February and whether that's a rightsizing of numbers within VFACTS or -- and an anomaly or whether -- and the reason we call out the risks associated with the guidance around new car sales is if new car sales have reached a new level at 12% and we wouldn't expect to see growth in novated in the second half as strong as we did in the first.

Okay. And then the last one from me, just on the -- again, like a kind of novated lease yields and the various sort of earners for that category. Just looking at the insurance side, obviously, we saw Smartgroup, late last year, talk about some pressures from their side on insurance. You guys have had a bit of an impact from the deferred sales model. I guess just keen to understand as you're looking at your insurance product set now, if you can see areas where there could be some further fee and/or pricing pressure on a 6- to 12-month view or if you think your insurance product earnings have largely stabilized.

The revenue is not being impacted by pricing or margin. Those products will reset at cap commissions over the last 2 years or more, Paul. So this is really a drop in volume of insurance products. Some of that is in the warranty product with the -- and the broader manufacturers all now at 5 years and over. And we're seeing that reducing over the last few years. And so there's just been a continuation of lesser volume of warranty sales. But it's really -- there's the treasury review and deferred sales. Deferred sales haven't impacted our business to date. That's a type of treasury is released for comments to the broader market only at the beginning of this calendar year. It's likely to be proposed for legislation and -- by the end of this financial year, with a start date to commence sometime after that. We don't see deferred sales as it's proposed having any impact on the group. So this is really just a drop in volumes because of the amount of noise in the marketplace around insurance products at the moment.

[Operator Instructions] Your next question comes from the line of Phillip Chippindale from Ord Minnett.