McMillan Shakespeare Limited (MMS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the McMillan Shakespeare Limited Half Year Results FY '24. [Operator Instructions]. I would now like to hand the conference over to Mr. Rob De Luca, MD and CEO. Please go ahead, sir.

Thank you, [indiscernible]. Good morning, and thank you for joining us for MMS's half year results presentation for the 2024 financial year. My name is Rob De Luca, and I'm the Chief Executive Officer of MMS. I'm joined today by Ashley Conn, our Chief Financial Officer and Company Secretary. I would like to start by acknowledging the traditional custodians of the lands on which we meet today and pay my respect to their elders, past and present. This morning's presentation will be broken into four areas. I will commence with an overview of the period, including group, financial and segment highlights and an update on our Simply Stronger Program. Ashley will then provide a more in-depth analysis of the group's financials, after which I will talk to the performance of our segments in greater detail. The presentation will then conclude with an overview of our outlook and strategic priorities. This morning's presentation will refer to the slides that were released with our results earlier today. And at the conclusion, both Ashley and I will be happy to take any of your questions. As you'll note throughout today's presentation, during the first half of FY '24, we performed well across both financial and operating metrics during economic climate, punctuated by increased cost of living pressures and the growing demand for zero emission and more fuel-efficient vehicles. Turning to Slide 2, which provides a summary of some of the key highlights of the period. Firstly, we saw strong growth in financial performance during the first half of the year across our continuing operations. Normalized revenue increased by 8.1% to $261.1 million. Normalized EBITDA grew by 42.9% to $86.9 million and normalized UNPATA was up 48.2% to $53.2 million. We also achieved margin expansion with our normalized EBITDA margin growing 8.1 percentage points to 33.3%. In novated leasing, we achieved strong growth in sales, which increased by 25.7%. We saw a strong demand for EVs with which -- coupled with their increasing availability contributed to the strong growth in novated lease sales. EVs accounted for 36.9% of new novated lease sales during the period. We are pleased to play our role in facilitating Australia's transition to a low-carbon future. Our strong performance for the first half of FY '24 was also supported by higher novated lease yields which were up 14.9% on the previous comparative period. Our Simply Stronger Program, which we launched in the second half of FY '23 is on track. I'll expand on the program shortly. However, we are pleased with its progress in delivering enhanced digital experience and solutions, technology-enabled productivity and sustainable growth. During the period, we delivered increased returns to our shareholders and continue to take a disciplined approach to capital management. We achieved growth in normalized return on capital employed which rose by 7.5 percentage points to 46.2% and normalized EPS, which increased 59% to $0.764. We are also pleased to announce an interim dividend of $0.76 per share, up 31%. Please note that the financial information referenced during this presentation refers to continuing operations, unless stated or noted. Discontinued operations refers to the U.K. and aggregation businesses which were disposed of during the period. Slide 3 provides an overview of our financial performance, which saw a robust growth across all key metrics for our continuing operations, including statutory impact which was up 37.7% to $43.8 million. Moving to Slide 4, which provides a summary of our segment performance. Group Remuneration Services, or GRS, is our largest business, comprising 74% of our normalized UNPATA. GRS Normalized revenue, EBITDA and UNPATA, all increased by some 29.2%, 58.8% and 71.5%, respectively. We achieved strong customer growth during the period, reflecting our ongoing commitment to excelling customer experience as evidenced by our Net Promoter Score of plus 48, and the strength of our offering which is serving to help our customers maximize their take-home salary at a time when they need it the most. Some key outcomes within GRS include uplifts of 4.8% in total salary packages and 3.6% in total novated leases which are now at approximately 404,800 and 76,800, respectively. We achieved 25.7% growth in total novated lease sales while new novated lease sales increased by 43.1%, more than doubling the broader Australian market. Asset Management Services or AMS contributes 19% to group normalized UNPATA. During the first half of FY '24, the segment saw contractions to revenue, EBITDA and UNPATA of 15.4%, 3.6% and 4%, respectively. I would like to note that during the first half of FY '23, EBITDA was benefited by $1.6 million due to an expiration of larger customer contracts. If we exclude this one-off benefit, EBITDA for the first half of FY '24 increased by 7.3%. The AMS segment saw a rise in net amount financed up 10.5% to $79.8 million. Asset written down value of $339 million which includes fleet assets funded utilizing principal and agency arrangements was up 9.4%, reflecting new business and improvements in vehicle supply. Our Plan and Support Services or PSS segment performed well. Revenue grew by 11.9% to $26.2 million, reflecting a 16.1% growth in customers. Our commitment to excelling in customer experience and supporting participants of the National Disability Insurance Scheme to achieve their goals is reflected in our strong Net Promoter Score of plus 53. Our investment in building a scalable platform with digital tools to enhance the customer experience has resulted in margin growth with EBITDA of $6.8 million, up 37.6% and UNPATA of $4.4 million, up 40.1%. There were no structural adjustments to the NDIS pricing arrangements for plan management supports during the period. We move now to Slide 5 with an update on our Simply Stronger Program. Our Simply Stronger Program aims to enable us to deliver on our vision of being the trusted partner providing solutions in making complex matters simple. During the period, we progressed on our Simply Stronger Program with the clear intent to increase productivity while continuing to drive customer advocacy through strong Net Promoter Scores, whilst also generating high return on capital employed and EPS growth. The Simply Stronger Program is built upon three pillars: the first, excelling in customer experience, looks at enhancing our digital proposition. During the period, we progressed this with the launch of digital signatures and Employer Connect in GRS. The latter is an interactive self-serve platform that enhances the client experience and reporting, which has resulted in a reduction of inbound inquiries. We have now successfully migrated 95% of our clients to Employer Connect. The second pillar of the program is driving technology-enabled productivity through the utilization of automation and scalable platforms and by modernizing our infrastructure. To this end, during the period, we successfully migrated to our new telephony platforms in GRS and PSS that will enable greater capability and channel integration. We also progressed both the automation of our PSS invoice processing and our digital enablement layer. Our third pillar of the Simply Stronger Program aims to deliver competency-led solutions to our customers, broadening our market offering by leveraging and extending our deep ecosystem of relationships and core capabilities. EVs comprise a big component of this pillar and throughout the first half of FY '24, we have broadened our EV offering, providing our customers with a greater choice of home charging solutions and models to suit their needs and lifestyle across both our GRS and AMS segments. We have also continued to expand our key relationships and improve processes and system integration with our partners. We have made good progress on our Simply Stronger Program and are on track to deliver on our clear strategy to excel in customer experience, drive technology-enabled productivity and competency-led solutions to deliver sustainable growth. I will now pass over to Ashley Conn, who will deliver a summary of our financial performance for the first half of FY '24.

Thank you, Rob. On Slide 7, we provide the UNPATA bridge, which highlights the 48.2% improvement in normalized UNPATA at $53.2 million and normalized earnings per share, up 59% to $0.764. As we have previously announced, the financial results are on a normalized basis. Normalized refers to adjustments made for the negative earnings transition period for the implementation of the funding warehouse onboard finance. It normalizes for the warehouse's in-year operating and establishment expenses and adjustments for commissions that would have otherwise been received in period had the sales been financed through a principal and agency funder rather than through the warehouse. We expect the normalized financials to be stated up to and including FY '25. The normalization to UNPATA for the period was $9.3 million. The completion of the divestment of our U.K. and aggregation businesses during the period resulted in an impairment charge of $6.2 million. As Rob mentioned, the U.K. and aggregation businesses are accounted for as discontinued operations. Our statutory NPAT for the period, inclusive of this amount, was $37.6 million. Now moving to the balance sheet on Slide 8. Our financial position as at the 31st of December 2023 is strong. Across all reasonable measures, MMS is positioned for sustainable growth. Net debt to EBITDA stands at 0.8x, and our interest cover stands at 9.2x. Our balance sheet has an overall net cash position of $79.4 million with total cash of $145.6 million. On Slide 9, we can provide an overview of cash flow and capital allocation. The period saw cash conversion of 113% of UNPATA which was positively benefited primarily by $16 million in working capital benefits, which are expected to revert in the second half of the financial year. This robust cash conversion, coupled with the strength of our balance sheet means that we have declared a dividend of $0.76 per share for the period. In line with our previously stated statement regarding capital allocation, this represents a 100% payout ratio of normalized UNPATA. I'll now pass it back to Rob.

Thank you, Ashley. We now move to the review of our segment performance starting on Slide 11. As previously mentioned, GRS had a strong first half to FY '24 with normalized revenue growth 29.2% to $142.7 million. GRS's strong performance for the period was supported by better novated lease yields stemming from the margin expansion associated with EVs, which were up 14.9% on the previous corresponding period. Salary packages grew by 4.8% and novated leases grew by 3.6%. During the period, we saw some stabilization in novated lease carryover revenue at $34.9 million, which will benefit future periods. This is consistent with an auto supply market that saw some improvement, particularly with delivery of EVs. Looking now at novated leasing in more detail on Slide 12. We can see the impact that continued growth in EV demand is having. We know that the higher price of EVs when compared to their internal combustion engine equivalents has long acted as a barrier to entry for many. The electric car discount bill, which was legislated in late 2022, removed that barrier and changed the landscape, resulting in increased demand and contributing to the results announced today. Novated lease orders for the period were up 15.5% on the previous corresponding period, with EVs making up 41.5% of new novated lease orders. This same time last financial year, EVs comprised just 9.2% of new novated lease orders, highlighting the strong growth trajectory we're seeing. The strength of the novated leasing value proposition is evident when we compare our new Novated lease sales to the Australian market. While national new car sales are up 18.7% on the first half of FY '24, our novated new sales have increased by 43.1%. If we look at the proposition of those sales that are EVs, the novated lease value proposition becomes more apparent, whereas EVs as a percentage of Australian new car sales increased from 6.8% to 11.1% between 1 half FY '23 and 1 half FY '24. They rose from 5.4% to 36.9% of our new novated lease sales. We are pleased to be playing our part in helping more Australians save money, minimize pollution in communities and reduce Australia's carbon emissions by making the transition to an EV. Finally, the higher price of EVs led to an increase of 17.8% in net amount financed compared to the previous corresponding period. Now moving to Slide 13. You'll see that during the first half of FY '24, we continue to progress the implementation of onboard finance, our warehouse funding initiative launched in FY '22. As previously stated, we are targeting to fund approximately 20% of our novated lease volume through onboard finance, which was achieved during the period. We have now funded $224.2 million worth of leases. One half FY '24 normalized UNPATA adjustment was $9.3 million, and our estimate for full year FY '24 remains at approximately $15 million of normalized UNPATA. Onboard finance remains a key element of our strategy. It secures and diversifies our funding source, increases annuity-based income and delivers the greater value of every transaction we complete. We will continue to exclude the onboard impact on a normalized basis up to and including FY '25. On Slide 14, we move to our AMS segment. AMS EBITDA of $15.1 million was down 3.6%, noting that as previously mentioned, the first half of FY '23 included a $1.6 million EBITDA one-off benefit from the expiration of larger customer contracts. The period saw more new cars being released by OEMs to the business buyers as post-COVID supply continued to improve. By the end of the period, supply for business buyers was in line with 2019. This improvement in vehicle supply, combined with new business contributed to an increase of 10.5% in net amount financed to $79.8 million and an increase of 9.4% in written down value to $338.6 million. AMS remarketing yields were up 5.5% during the period whilst unit sales declined. While EV demand is not yet as strong in the business market as in the consumer in novated market, AMS or petrol hybrids and pure battery vehicle deliveries as a percentage of all deliveries increased from 1.8% in 1 half FY '23 to 5.7% in 1 half FY '24. In line with our strategic objective of streamlining our business portfolio, we completed two important divestments during this period. On the 31st of July 2023, the group completed the sale of our Australian asset finance aggregation business. On the 30th of November 2023, the group also completed the sale of its Asset Management Services U.K. business. As a result of these sales, the aggregation and U.K. businesses are reported as discontinued operations, no longer presented in the AMS segment. Moving now to our PSS segment on Slide 15. PSS achieved an 11.9% increase in revenue which rose to $26.2 million. This was driven by a 16.1% increase in customers with PSS now assisting 33,684 NDIS participants nationally. This customer growth exceeded NDIS participant growth for the period. We continued our investment in a scalable technology platform and during the period, improved our integration with the NDIA via APIs which streamlines access to participant information and payment details resulted in operational efficiencies. As a result of this scalability, we improved EBITDA margins from 21% in the first half of FY '23 to 25.8% in this period. PSS is committed to ensuring the integrity and sustainability of the NDIS. Our investment in integrity checks is supporting the National Disability Insurance agencies focus on fraud prevention and delivering value for money. During the period, our robust integrity checks detected $21 million of invoices that were deemed fraudulent and as such, were not paid. Additionally, we help customers access better value for their services with $43.4 million in scheme savings achieved by PSS customers paying under the price guide limit. Now turning to Slide 16. During the period, the NDIS independent review report was handed to minister Shorten for review and consultation within government. The report made 26 recommendations with 139 supporting actions for the government to consider. Of these recommended actions, three have potential implications, being 4.1, 10.3 and 10.5. Recommendations are being considered by government with outcomes suggested to be implemented over a 5-year transition period, some of which will require legislative change. MMS will continue to engage closely with the National Disability Insurance Agency, government and the sector regarding the recommendations and outcomes while supporting the scheme objectives. We now progress to the final component of today's presentation, outlook and priorities. Turning to Slide 18. The automotive supply dynamics experienced during the first half are expected to continue through the second half of this financial year. Elevated demand for EVs is to be supported by several new brands and models expected to become available to the Australian market as well as increasing awareness of the benefits of the EV FBT exemption. MMS commences the second half of FY '24 with $34.9 million of carryover revenue to benefit future periods. Other market conditions experienced during the first half are expected to continue into the second half with wage and cost of living pressures. From a regulatory perspective, a key focus for the group will be on the continued engagement with the National Disability Insurance Agency, government in the sector regarding the NDIS independent review recommendations. We will also continue working to support the sustainability and integrity of the scheme while leveraging our scalable platform as the NDIS grows. In December 2023, Treasury issued a second consultation paper relevant to the proposed payment system modernization reforms. These reforms will introduce a licensing framework for payment service providers, which, if implemented, without changes may include salary packaging. MMS will continue to actively engage with treasury in relation to the proposed reforms. The Commonwealth government announced its preferred settings for a fuel efficiency standard in February 2024 which is designed to materially widen the range, type and affordability of EVs, which are made available for the Australian market. From an operations and business priorities perspective, the business will continue to drive organic growth and capitalize on the current EV market opportunity whilst taking appropriate actions to minimize the impact of future earnings of the South Australian government contract loss. GRS will maintain its target of 20% novated leases funded through onboard finance with an estimated full year FY '24 UNPATA normalization adjustment of approximately $15 million. We will continue to progress on a group-wide Simply Stronger Program with a focus on delivering enhanced digital experience and solutions, technology-enabled productivity and sustainable growth. We expect to invest approximately $23 million capital expenditure towards the program over the course of the financial year. Finally, as we enter the second half of FY '24, we do so as a trusted partner with an established position in large and growing markets. We remain focused on pursuing our strategic priorities to deliver sustainable growth. I'd like to thank our people for their dedication to supporting our customers and embodying our purpose of making a difference to people's lives. We also thank our clients, customers and shareholders for their ongoing support. Ashley and I would be pleased to answer any questions you may have. Thank you for your time.

[Operator Instructions] Your first question comes from Phil Chippindale with Ord Minnett.

First question, just on the Novated leasing yield. You said it's up 14.9% versus PCP. I'm assuming that's for total volumes and not just new vehicles. But can you just unpack what's driving that really strong increase, please?

Thanks, Phil. And yes, your assumption is correct. It's the total. Look, largely, that's driven by, obviously, greater proportion of new vehicles during the period, which is underpinned by increasing demand of EVs at a higher price point. Compared to ICEs, there are some nuances between different aspects of the yields, and they're very obviously depending on cars and making some arrangements we have in place. But fundamentally, it's driven by a higher proportion of new cars during the period, and that newer car proportion is driven by higher increase of EVs.

Just looking at the growth in -- the proportion of EVs, the percentage of new orders. The first half was around 37% back in the trading update you gave us back in -- I think it was October, September quarter was around 36%. So it sort of implies the December quarter was sitting around the 38% mark. Are you at the peak yet, do you think? And I suppose a follow-on point is, how have things trended for the first sort of 6 to 7 weeks of the year since 1 January?

Yes. Look, it's a difficult one to have a view on at this stage in terms of kind of when it's going to plateau or peak in terms of what you've asked. I think certainly, what we're seeing is demand has continued to increase, probably higher than what we would have expected 12 months ago. In the first weeks of this calendar year, we're still seeing strong demand from an EV perspective. It does differ month to month in terms of orders and sales, depending on delivery. As you know, that there were some challenges with delivery of Tesla, late in the calendar year. That had a little bit of an impact in terms of sales numbers. But from an order perspective, we're still pleased with the demand we're seeing at this stage. I think it's a little difficult for us to project exactly when do we see a flattening out of that or at what point in time does it change Immaterially?

Your next question comes from Paul Buys with Canaccord Genuity.

Rob, Ashley. Just first question on the Novated lease carryover book excess orders. Just -- I mean, obviously, you recorded further growth, which is to the benefit of future periods, as you mentioned, just keen to understand the drivers for that growth, and I guess how that plays into current auto supply dynamics?

Yes. Paul. Yes, I mean, as you can see in the numbers, obviously, there's good growth from the comparative period, relative to the second half of FY '23, that growth slowed down. We're seeing a little bit of a dynamic in obviously, delivery of EVs being achieved at a faster rate than ICE vehicles. So there's a little bit of a impact from a mix perspective from an auto supply perspective when compare -- comparative periods, EVs improved during the period and ICE has remained relatively flat in terms of delivery times. And so in terms of the dynamic playing out from a carryover perspective, that kind of uptake of EVs is probably offsetting the impact of yields. So a bit of a slowdown in terms of unit numbers in the carryover versus higher yield as a result of the proportion being EVs in there.

And then just you called out, I think, as part of the outlook, that you intend to take appropriate actions to minimize the impact of the South Australian government contract loss? Obviously, pleasing that you intend to do so and presumably somewhat of a challenge given that a lot of that revenue always flows to the bottom line, depending whether it's a win or loss, just keen to understand what you can talk about anything specifically about the kind of actions you're looking to take to offset that loss?

Yes. No. Thanks, Paul. I mean, as you alluded to, it's always difficult to address a material contract like that in a quick period of time. When we think about the impact from that, obviously, we've got a bit of a notice period to start to plan out some areas that we think we can drive some cost efficiencies, which are more directly associated with servicing the SA government that would be required post 30 June. In terms of the remaining gap for us, I think it's going to be a combination of accelerating other revenue opportunities that we're progressing as well as, obviously, are there on the productivity efficiencies we can continue to progress as part of our Simply Stronger Program. When you lose a contract of that size, difficult to replace the size of salary packages that quickly. So that's going to be difficult, but we're really pleased with the momentum in our novated lease portfolio to at least bridge that -- big part of that gap in the novated lease part of the SA government contract.

Your next question comes from Jack Dunn with Citi.

Rob Ashley. First one, I was wondering in the GRS and novated volume, could you maybe provide a like-for-like growth of that Department of Department of Education Victoria for the period?

In terms of comparison, obviously, we brought on DET in the second half of FY '23. So in the comparative period. In terms of contribution to our sales, it's pretty similar to SA government contract in terms of novated lease sales. So kind of that 5% to 6% of our sales for the period.

Maybe just last one, just sort of maybe a comparison of first half '24 volume and yield growth versus second half '23. Just trying to get an indication of sort of the momentum.

Sorry, can you just repeat that question, Jack?

Sorry, I just want to understand the volume and yield growth in the first half '24 versus second half '23, so sort of a half-on-half comparison if you have that?

So in terms of 1 half FY '24 to 2 half '23?

Yes.

From an NL perspective, our growth was about 10.9%, I think, relative to the second half of 23%.

So just a couple of quick more ones. In terms of the EVs, it's very strong volume growth, and you mentioned the Tesla impact in that fourth quarter. So I'm wondering, you're just starting to see maybe broadening of the EV models in your book? And maybe what are some of those more meaningful models that you're starting to get demand for?

I think in a relative sense, I mean Tesla still obviously are our largest. But in the more recent period, BYD is certainly getting a reasonable portion of our novated lease sales. MGs continue to be a good performer. But I think who's at a reasonable level so far, it's probably BYD that wasn't there 12 months ago.

And just last one. On that carryover revenue, so very strong that it keeps growing, given the demand you're seeing. But what I'm trying to understand is like the potential timing of the unwind and say just trying to understand what sort of the duration of the vehicles in the pipeline? If let's say 50% of the auto pipeline like a Toyota Camry or RAV4 Hybrid which can have up to 2-year wait times? Or are there more shorter duration delivery times for those vehicles?

Yes. Good question, Jack, and we'll continue to try and work through that as well in terms of when that will come through. At this stage, I think, as I commented on, obviously, we're seeing delivery times for EVs at a much shorter time frame than our ICE. And ICE has held pretty consistent over the last 12 months. So as part of that portfolio, I mean, it's fairly reflective of our order book. But you're seeing churn or movement through that portfolio at EVs at a faster rate. But in terms of the mix, I mean, obviously, that changes -- continues to change over time depending on kind of the orders that are coming through. But we're still seeing, in terms of our top 5, Tesla, Mazda, Mitsubishi, BYD, MG and then Toyota is probably our sixth.

Your next question comes from Richard Amland at CLSA.

Just a couple of quick questions. Clearly, the EV dynamic is having a significant impact on the business. Can you refresh our memories around the status of the legislation? I believe it continues out to 30 June 2025. But has there been any discussion from the government or industry around what it looks like if that starts to unwind or if the EV benefits under the legislation, so to start to get tapered back?

Thanks, Richard. Look, we continue to engage with government at this stage, what we've certainly taken out from our discussions that they're pleased with the early momentum that the legislation is having on take-up of EVs and demand for EVs. In terms of their position and likely position at a point in time when the period comes up towards the latter part, I think it's too early to tell. They want more time to see how it progresses. And also in terms of data, we've started to provide them a little bit more insights in terms of what we're seeing across the sector. I think as they learn more about that, then we might hear more about what their intentions are over time. Example of that is, is there as much take-up in regional areas as there are in metropolitan areas where maybe the infrastructure isn't as progressed. So some of those things, I think the government is trying to assess, determine what actions they need to take. But at this stage, from our conversations, that we're very pleased with the progress so far.

On Slide 16, the action point that you referred to as Action plan 10.5, government should develop and implement a clear transition plan for existing plan managers. What do you mean by that? There's been some speculation in the market that the government may try to in-house the management of the plans. And so can you just give a comment on what a transition path means and what you're expecting in that segment?

I think, look, certainly, that's the Independent Review's wording in terms of the recommendation. There's not a lot of detail in the overall report of what that means. So I think the overarching element, which is trying to drive the scheme to have much more of a digital infrastructure to it in terms of how they process invoices and payments is obviously the overarching intent of what recommendation tends about. At this stage, we, as a business are well progressed on that journey. As I alluded to in the presentation, we've now passed the hurdles with the NDAA to have access to their APIs, enables us to claim in a more real-time sense and be able to process payments from a digital perspective across our channels. That's not something that all plan managers are able to do only a very small number of them. So I think one of the areas of focus for the NDAA and government is how do they lift the bar across the sector for payer management to be much more digital in the way that they process invoice. That's kind of part of the intent of this. Also within their recommendations, they talk about, obviously, plan managers transitioning to take up a much more active role around fraud management, as I alluded to in this morning's presentation, that's something that we've been progressing on as well. So that's probably as much as we know at this stage, Richard. The government, the federal government, with states and territory government is considering the recommendations. We expect to have a position in terms of where they stand on the recommendations by April, this calendar year. And then in the background, obviously, working with the agency as we continue to progress on kind of our platform and capability to support the overall scheme objectives.

Is there any feeling that the government has pivoted on in terms of external plan managers versus internal plan managers and their preferences upon that? Or that -- what are your observations on that?

Yes. I'm not sure I can comment on kind of the government's position on that. I mean the quarterly report each quarter comes out and shows the continued move towards plan management versus agency managed. So that would be the reference you're alluding to, which is internal. And so I mean that's a positive in terms of what customers and participants within the scheme are choosing. They'd prefer plan management over agency manage. In terms of government's posture on how this all looks over the next 5 years, I think we'll know more over the coming months, hopefully, around that. But it's quite a big transition if it was to remove plan management completely from the scheme that have to change the legislation and then obviously, need to build the capability to process all of those invoices coming through across the sector more broadly.

Your next question comes from Phil Chippindale, Ord Minnett.

Just one follow-up from me. Just -- you mentioned earlier that the AMS segment, it's -- the EV percentages grew from 1.8% to 5.7% in the first half FY '24. First of all, just was this on -- I assume that was on the sales rather than orders, but can you just confirm that? And then secondly, obviously, this is a potential significant growth area for you. What are you sort of doing in order to maximize that opportunity? And how would you describe the lay of the land at the moment in terms of the customer base?

Yes. Firstly, Phil, that's a percentage of deliveries. So vehicles that were delivered during the period, so that's correct. You're referring sales as we refer to them as deliveries. The second part, I think our business has been working for a period of time now with clients to help them think a little bit about their carbon footprint and how they take advantage of the opportunity around electric vehicles. So firstly, in terms of the fleet of vehicles that they'd be looking at and how that works for their business. Second of all, the infrastructure that they may need, whether it be at their offices or for their employee drivers in their homes as well and how to source those, install those and finance those. So we've been working in a partnership sense with our clients around that journey for a period of time, starting to see some of that come through at this stage, still early days. But I think that's an exciting part of our business strategy for our AMS business.

Our next question comes from Jack Dunn with Citi.

Just a couple more. Just wondering in the GRS business, there's obviously some strong margin improvement. I'm wondering if you can maybe touch on sort of the head count increase you put in during the half and then sort of how you're thinking about future increases to head count to sort of support that novated growth? And then finally, maybe how you're looking at the margins of that GRS business in the future?

Yes. Thanks, Jack. I think we've stated previously, our approach to all our business is to try and continually think about productivity improvements and a big part of our Simply Stronger Program is around that. When it comes to growth, particularly in our GRS business, there is cost associated with orders. So this is from a novated lease perspective or transitioning a new client. So generally, there's a cost associated with bringing clients on board or the cost associated with the orders. In terms of the overall portfolio, then we look at, obviously, the productivity of our people and to determine at what point in time we need to add additional resources based on volume. So over the period, we had some growth in costs, but not to the same level as our cost in, from a revenue perspective, in part because, obviously, our sales figures were higher than our order growth rates, notwithstanding the absolute numbers of orders were higher than sales. But in terms of our salary packages, we generally look at productivity levels and look at how many packages per FTE we need at any point in time. So it's not completely linear. Obviously, in the period, our margins increased quite substantial in our GRS business part that's volume, but in part, that's obviously just a high yield off the back of higher [ NAPs ], which kind of generally drops to the bottom line. In terms of future, I think we've always alluded to this business having a 40% plus EBITDA margin in GRS, obviously, at 45% during the period. That's really healthy for us, but our view is this is a business of 40% plus should be or things being equal.

And just last one. In the AMS business, I was a little surprised by the fall in unit sales given the increase of fleet share of new cars towards the latter half of last year, maybe I'm misreading the numbers a bit. But are you starting to see an increased product maybe in the first 6 weeks of this year in terms of supply? And just maybe touch on what sort of drove that decrease in unit sales? Was it the tough supply? Or maybe was there some churn in customers?

Yes. I think the key difference, Jack, alluded to my comment about the previous comparative period having kind of one of a large contract termination. So if you wind back to 1 half FY '23 units for that half were up 58%. So it was more of that actually the first half of FY '23 was abnormally higher than 1 half FY '24 was low. When we look at 1 half FY '24 compared to second half '23, it's actually up about 20% plus. So pleased with kind of the unit sales coming through which is probably disproportionate in the comparative period.

Your next question comes from Paul Buys with Canaccord Genuity.

A very quick one. Just any comments on remarketing profits in AMS. You touched on some of the dynamics there, but just want to get an idea of sort of how significant that is and presumably, with the used car normalization is kind of well on track, but a little way to go. Just want to get a view on how you see that part into kind of the next 6 to 12 months?

Yes. Thanks, Paul. I mean, look, we're pleased with the remarketing yields that we achieved during the period, notwithstanding, obviously, what we're seeing, a little bit of decline at different times in the secondhand market for used cars vehicles. For our business, I think as we've alluded to previously, it depends in terms of what assets are sold during the period. So there are -- see, not all cars within that portfolio. But generally, where we're seeing things at the moment has stabilized on a remarketing perspective at some point in time over the next period of time. We'd expect that to come off a bit. How much, I think, is still early to tell. It depends a little bit, as I said, on the assets that are sold during the period. But they remain at elevated levels compared to obviously pre-COVID periods. Whether they get back to those levels or not, I think it's too early to tell and some would say depending on the mix of assets and EV, I think there's a lot more we can still learn over the coming periods.

There are no further questions at this time. I will now hand back to Mr. Rob De Luca for closing remarks.

Thank you, everyone. Given there are no further questions, thanks, everyone, for making time and joining us this morning. We'll now complete the call. Thank you.

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