McMillan Shakespeare Limited (MMS) Earnings Call Transcript & Summary

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

Good morning and thank you for joining us for the MMS full year results presentation for the 2024 financial year. My name is Rob De Luca, and I'm the Managing Director and Chief Executive Officer of MMS. I'm joined this morning 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 and pay my respects to the elders, past and present. The presentation will commence with an overview of group performance during FY '24, including the progress we've made on our strategy and simply stronger program. We will then provide more detail on the performance of each of our segments before expanding on our cash flow and balance sheet. We will conclude with our outlook and focus for FY '25. 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 questions you have. Moving to Slide 2 and our key messages. I'd like to touch on 4 highlights that stand out. Supported by organic growth across all 3 of our segments. Secondly, our group remuneration services segment performed well during the period, with novated lease sales growing by 23%. We saw improvements in vehicle supply, continued strong demand for electric vehicles, as more Australians look to capitalize on the government's electric vehicle discount bill and transition to 0 and low-emission vehicles. The increasing availability of EV's in the market and the rising demand was reflected in EV comprising 43% of new novated orders for the period. Thirdly, we made strong progress during the period on its strategy and simply stronger program. Our strategic vision aims to position the group as a trusted partner, providing solutions in making complex matters simple, with a clear focus on our 3 strategic priorities: excelling in customer experience, driving technology-enabled productivity, and broadening our competency-led solutions. Finally, we delivered returns for shareholders through an increased dividend and higher normalized return on capital employed referred to as ROCE. We now move to Slide 3, highlighting the outcome from executing on our strategy that delivered strong growth and returns for our shareholders in FY '24. Between FY '22 and FY '24, we have delivered a compound annual growth rate of 19.4% for normalized EPS, increased normalized rates ROCE by 23.5 percentage points, and expanded normalized EBITDA margin by 11.4 percentage points. During the same period, we have delivered returns to shareholders with dividends paid out of normalized UNPATA, reflecting the commitment to ensuring shareholders are not negatively impacted during the warehouse transition period. Moving now to Slide 4 and our financial performance in FY '24. As mentioned, it has been a strong year for MMS, and we are pleased to report growth across key metrics. In our continuing operations, we saw 11.5% uplift in normalized revenue to $525.8 million, with normalized EBITDA increasing by 34.8% to $177 million and normalized UNPATA of $107.6 million, representing a 38.2% increase. We are pleased to announce a fully franked full year dividend of $1.54 per share, representing a 100% payout ratio of normalized UNPATA. Moving now to Slide 5 and some of the key highlights across our 3 segments. Group Remuneration Services referred to as GRS, Asset Management Services referred to as AMS, and Plan and Support Services referred to as PSS. All 3 segments achieved organic growth-driven period. GRS normalized UNPATA was up 53.7%, AMS up 2%, and PSS up 6.4%. And pleasingly, customer numbers were up across all 3 segments. Our commitment to excelling in customer experience is reflected in the consistently high Net Promoter Scores across all segments. These results affirm that we are progressing on our vision of being a trusted partner who provides solutions in making complex matters simple. I'll delve into each segment in more depth later in this presentation. Slide 6 highlights some of the progress made by implementing our Simply Stronger Program during the period across the 3 pillars. The third pillar of Simply Stronger is focused on excelling in customer experience. We know our customers are looking for more control over their interactions with our businesses, and we are investing in digital capabilities to create a more seamless experience and enable greater self-service capability. In our GRS segment, we launched our Employer Connect portal. This digital platform enables clients to easily track requests and securely access reporting, greatly simplifying what used to be a time-consuming process. At the end of FY '24, 96% of our clients are utilizing our Employer Connect platform. We also implemented a digital signature solution called Acrobat Sign, which reduces paperwork and have simplified and sped up the novated lease sales and settlement process. The second pillar of Simply Stronger is to drive technology-enabled productivity through modernizing our IT infrastructure and implementing automation where suitable. During FY '25, we completed Phase 1 automating the invoicing process for our PSS segment, which has resulted in a 26% increase in efficiency since implementation. The migration of PSS onto a common telephony platform also improves efficiencies and enables us to better monitor and manage performance. The third Simply Stronger pillar is to broaden our competency-led solutions. On this front, we are pleased to introduce a new green funding product to 0 and low-emissions vehicles by AMS to support the uptake of EVs amongst business buyers. We also soft launched a new brand, Oly, which we're very excited about and which I'll speak to on the next slide. Now moving to Slide 7. In May of this year, we soft-launched our Oly brand. Oly is a simple and digitized novated leasing solution that makes the benefits of a novated lease available to employees from small- and medium-sized businesses. These businesses are the backbone in Australia's economy and their employees make up approximately 67% of Australian workforce. To date, there has been no easy mechanism for these millions of working Australians to access and have added lease. We calculate the size of this to-date unaddressed serviceable market to be approximately $160 million. Our focus of Oly's brand proposition is to also make the EV discount accessible to a broader audience. We know the EV market has grown in around 40% of battery electric vehicles, plug-in hybrids are financed by an innovated lease. Given this, the size of the small- to medium-sized business market, and the number of new brands and EV models due to hit Australian market in the months ahead, we are very excited to bring this innovative offering to market. Since soft launching Oly in May, we have had over 100,000 visitors to the brand's website. This is encouraging given we are still to roll out full marketing campaign for Oly. Of the novated lease orders placed through Oly since launch, approximately 68% with EVs. We are pleased to be assisting Australia's transition to a low-carbon future through this new solution. We'll be rolling Oly fully and promoting it throughout FY '25. Supporting our customers transition to a low-carbon future and making a social impact essential to the AMS business as Slide 8 highlights. We are committed to a low-carbon future and are working towards reducing the carbon footprint of our own operations and educating and supporting our GRS and AMS customers in reducing theirs through the adoption of low and 0-emissions vehicles. We are pleased to report that we are having an impact on both of those fronts and can now further assist Australia's small- and medium-sized businesses reduce their emissions. The average tailpipe emissions of our novated lease customers reduced by 10% over the period, while our fleet customers reduced their tailpipe emissions by 5%, thanks to the uptake of EVs and more efficient vehicles. We also reduced our group renewable electricity. On the social impact front, an area of focus is on enhancing accessibility and inclusion of people living with disabilities. We are now in the second year of our partnership with Jigsaw Australia and non-for-profit social enterprise that trains and transitions people living with disability into mainstream employment. We also supported our PSS customers to build their independence, economic participation, and social inclusion. Key objectives of the NDIS, facilitating some 62,000 hours of paid support coordination. The third pillar of our sustainability agenda is focused on our business practices. We are pleased to have upgraded -- been upgraded in Morgan Stanley Capital Index ESG rating from A to AA in November 2023, reflecting our sustained commitment to and progress being made as the responsible business. We now move to the performance of our segments. We start with group remuneration services on Slide 10, which encompasses salary packaging and novate leasing. We know that making -- working Australians are currently facing cost of living charges. Our service offering has therefore taken on increased relevance for our customers as they look to meaningful ways to manage the cost of car ownership and increase their take-home-pay. This is evidenced by the strong growth in our GRS segment with normalized revenue increasing by 25.7% to $292.5 million, which translated into normalized EBITDA growth of 46.2% and normalized UNPATA growth of 53.7% to $80.7 million. Growth in GRS revenue was supported by a 10% increase in novated lease yield and the benefit of elevated interest rates on salary packaging flow. The periods or improvements to vehicle supply following several periods of constraint. This, combined with strong novated lease sales saw total novated leases increased by 7.9% to 79,200. The improvement in vehicle supply and delivery times resulted in a reduction in carryover, which was $24.8 million as of 30 June 2024, down from $32.3 million at the end of FY '23. As announced during the period, Maxxia was unsuccessful in renewing its contract with the South Australian government. While we are disappointed with this outcome, we maintain a broad client base and continue to take a number of appropriate actions to minimize the impact on future earnings. During the period, we were pleased to review our long-standing Queensland Government Novated Lease Services Contract. Slide 11 provides an overview of the growth we have achieved in our novated portfolio and the continued interest we're seeing in EVs. The value proposition offered by novated leasing, particularly during this period of high cost of living is clearly resonating with our customers. We saw a 7.6% increase in novated orders compared to FY '23. We have previously spoken about the opportunity EVs present for the group, particularly following the introduction of the government's electric vehicle discount billing. FY '24 saw demand for EVs continue to rise with EVs accounting for 43.2% of our total new vehicle novated lease orders, which is more than double the percentage of the previous period. EVs as a percentage of new novated sales was 41% in the period, outperforming the 11.8% seen in the broader Australian passenger and SUV new sales market. The higher average cost of EVs over their internal combustion engine equivalent contributed to an increase in novated net amount financed, which was up 13.5% on FY '23. Capitalizing on the EV opportunity remains a key focus for the group. With the introduction of our holding proposition and new brands and EV models expected to be introduced to the Australian market, we are well positioned to play a pivotal role in facilitating Australia's uptake of 0 and low emissions vehicles. Moving to Slide 12, which shows the progress on the implementation of our Warehouse Funding initiative Onboard Finance. We launched Onboard Finance in FY '22 with a clear objective of securing and diversifying our funding source, increasing annuity-based income, and capturing a greater share of the value of every transaction we complete. In FY '24, we achieved our target of 20% of monthly novated lease volumes financed through Onboard Finance. Supported by growth in novated sales and yields, it finished the period with receivables of $325.6 million, a significant increase on the $97.6 million at the end of FY '23. The normalized UNPATA impact in FY '24 was $17.2 million, which was higher than the estimated $15 million based primarily on high novated volumes and yields. FY '25 will be the last year of normalization with an increased UNPATA impact of approximately $9 million, which is subject to market conditions. Slide 13 shows the highlights from our Asset Management Services segment. Reflecting a 5.1% decline compared to the previous period. Despite the contraction in revenue in FY '24, the segment demonstrated its efficiency with EBITDA increasing by 2.7%, noting that FY '23 included approximately $1.6 million EBITDA from one-off financial benefit from the exploration of larger customer contracts. Excluding this impact, EBITDA growth in FY '24 would have been 8.8%. The AMS segment benefited from the improved auto supply with delivery of vehicles for the business buyer return to pre-pandemic levels. This, combined with new business contributed to a 16.2% increase in the net amount financed, which rose to $168.1 million, a 4.9% growth in managed assets. Additionally, asset written down value increased by 13.2% to $363.2 million. Remarketing yields saw some contraction, however, remained at elevated levels as the market continue to demand high-quality used vehicles. Now moving to Slide 14. Our PSS segment, which provides quality plan management and support coordination services to participants of the NDIS performed well during the period. A 4.3% improvement in PSS revenue was supported by organic customer growth with planned management and support coordination customers increasing by 10.3% to 35,030. This growth faced some headwinds from the rollout of the NDIS new pace system, which affected the volume of plan assessments and reviews. Our continued investment in technology and creating a scalable platform enabled the segment to deliver a 6.7% increase in EBITDA to $13.1 million FY '24. We continue to support the integrity and sustainability of the scheme with a focus on preventing fraud and conflicts of interest and ensuring the NDIS delivers value for money. In FY '24, PSS helped deliver $88.9 million in scheme savings with services received by PSS customers being under the price guide limit. Additionally, through PSS integrity, payment checks, $53.3 billion of invoices where we've held for further investigation. We note that the National Disability Insurance Scheme amendment, getting the NDIS back on track build 2024 passed parliament on the 22nd of August 2024 and is due to gaining loyal assent in September 2024. This is the first tranche of reforms that the Commonwealth government is proposing and aims to clarify existing legislation to improve the delivery of the scheme. It introduces a new planning framework on how the NDIS operate, including the list of what are included and excluded in the scheme. It also makes changes to how people can access the NDIS, how their needs are assessed, and introduces flexible budgets. While there are currently no specific impacts to PSS from these changes, we will continue to engage with government and the NDIS. I will now pass to Ashley, who will provide an update on our cash flow and balance sheet.

Thank you, Rob. Turning to Slide 16 provides a detailed summary of our cash flow. During the year, our cash conversion stood at 136% of group UNPATA. We are pleased with this strong cash flow, which was bolstered by capital release from our renegotiation and our terms with capital providers in the funding warehouse with our equity holding moving from approximately 5% to approximately 2%. Effective working capital management, benefits of timing tax benefits associated with the accelerated asset write-off, and net proceeds from the sale of our U.K. and aggregation businesses. These transactions have now fully closed. In keeping with our capital allocation model, this surplus cash flow has meant that we are able to pay a fully franked dividend based on a payout ratio of 100% of normalized UNPATA. Dividends are paid out of normalized UNPATA, reflecting the commitment to reinsuring shareholders are not negatively impacted by the Warehouse during the transition period. Turning to our balance sheet on Slide 17. The strong cash flow generation is also reflected in the strength of our balance sheet. Total cash is at $153 million with net cash of $86.7 million. Debt to EBITDA stands at 0.5x, and our interest coverage stands at 11.7x. All of these metrics are well positioned against our covenant levels. I will now hand back to Rob. However, we'll be happy to take any questions relating to our financials at the conclusion of today's presentation.

Thank you, Ashley. Now moving to Slide 19. We expect many of the market conditions experienced in FY '24 to carry into FY '25, including inflation and cost of living pressures. Whilst we note that the FBT benefit on plunking hybrids is scheduled to expire on 1 April 2025, the FBT discount on battery electric vehicles continues with the government committed to review by mid-2027. We expect an increase in brands and EV models across wider price points to enter the Australian market in FY '25, as well as continued increases in auto supply and increased price competition. We expect updates from the government on the implementation of the National Disability Insurance Scheme amendment, getting the NDIS back on track build 2024 as it is implemented. We will continue to engage with the NDIS, government, and the sector on this manner whilst continuing to support our customers to achieve their planned goals while also supporting the integrity and sustainability of the scheme. We will pursue organic growth across all segments with the full rollout and promotion of Oly, also helping us broaden our novated lease market and partnership reach. Our Warehouse Onboard Finance will continue to target approximately 20% of our novated lease volume, excluding Oly through FY '25 with an expected normalization adjustment of $9 million subject to market conditions. FY '25 will be the last year of a normalization adjustment with the warehouse that contributed incremental earnings post the normalization period. We will focus on completing our FY '25 Simply Stronger Program deliverables with approximately $11 million in capital expenditure allocated over the course of the financial year. The program will deliver new digital solutions for our customers, providing superior experience and great self-service capability. We will also progress the modernization of our technology with the implementation of a digital enablement layer, improving consistency of experience across channels. Finally, we will continue to invest in and focus on our strategic priorities of excelling in customer experience, driving technology-enabled productivity, and broadening our competency-led solutions. I would like to thank our people for their dedication in supporting our customers and embodying our purpose of making a difference to people's lives. I'd also like to thank our clients, customers and shareholders for their ongoing support. I would like to take the opportunity to thank Ashley for his service to MMS over the past 4 years and look forward to introducing Paul Varro to you when he joins. Ashley and I would now be pleased to answer any questions you may have. And I will now hand back to Sagar to convene questions.

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

First question, Rob, maybe you can just make a comment as to sort of the first 7 or 8 weeks of the year. How is business performing, especially in the novated segment, just noting that in your outlook commentary, you've referred to sort of the macro challenges of the consumer, et cetera.

Yes. Phil, thanks for that. Yes. Look, I think at the start of the new financial year has been pretty consistent with what we saw in June. So as alluded to, obviously, we think the economic conditions, macro conditions remain similar. We certainly saw during the period towards the latter part of the financial year, more pricing competition for cars with reduction in some of the pricing of -- we saw Tesla reduced their price, the market has seen, obviously, in May and June, and then we also saw some heightened competition across a number of OEMs and dealers from a vehicle perspective. So in part that supports consumers on one hand, but on the flip side, obviously reduces our net amount financed. So that's something we just continue to monitor.

Just in terms of the transition for the South Australian contract, can you just talk us through the details of that and how that sort of expected to play out over the first quarter or so?

Yes. That transition is completed. So an effective date for us was set June. So from 1 July, we're no longer the provider. And in terms of the transition, obviously, a very large client, which is always challenging for all parties involved. We continue to obviously focus our business on our existing clients and new opportunities.

Last question for me. Just on the new Oly brand. What does the full rollout look like for that business? And just given the smaller client size, do you need to increase your head count for your business? And what does that sort of look like from a contribution or what impacts to FY '25, please?

Yes. So we're really excited about Oly. We're able to get that to market in May, which is a great achievement in a fairly short period of time. Our full rollout, we obviously wanted to see how that tested first in the market, get some of the feedback and experience so that we continue to enhance the offering from a digital experience. So it's great to be able to get feedback real time from customers around that. The rollout in terms of a complete rollout is a couple of our elements to it. Firstly, is there is more work to be done to continue to enhance the digital solution and experience, not different to any other platform. So it doesn't kind of stop and forget, you continue to evolve that based on feedback from both the employers and the employees. The second is ramping up our marketing and social marketing for much more of a retail proposition than our historical Maxxia and RemServ brand businesses. And then thirdly, as we work through the process with employers, this is a different integration to their platform systems. We will continue to work with other intermediary platforms, accounting software, HR software solutions as well. So we'll continue to work and work through that to make that as efficient as possible for employees of SMEs. From a workforce perspective, the beauty of this solution being digital is it's much more of a self-service solution for customers. We will continue to invest in more salespeople to help originate new opportunities across the platform, and that may be in terms of how that integrates with other platforms in the marketplace and partnerships, but from an operations perspective of digital solution. So we shouldn't be adding any head count from an operations perspective.

Your next question comes from Jack Dunn from Citi.

First one, just on the order growth in the second half, it does look to have slowed a bit. Could you give us a sense of what were your orders in the second half versus first half? And then are you seeing a slowing demand from any of your industries in particular?

Yes. I mean, certainly, you can see when you look at our results of 7.6% for the full year when we announced our first half results, the first half was 15.5%, the second half was 4.3%. So that has been a slowdown in the second half, as I alluded to. In part, that reflects the second half of FY '23 also being a very strong period. I think when I presented results in May and June were record months back then. And versus the first half of '24 versus the first half of '23 of February, the first half of '23 wasn't as strong. So, in part, it reflects, I think, the growth that we saw in the latter part of '23 and the first half of '24. So continuing that high growth on top of strong growth is probably the reflection in the second half results. So to the question, our month of July has been pretty consistent with June, May was a much higher month. So it just does depend on day counts in the months in different periods of the year. But that's just a reflection of where we're seeing the market at the moment.

Maybe just a quick follow-up there. So would you have growth in the second half in orders versus the first half?

Yes. Our second half was up on our first half.

And then just on the yields. I know you commented about Tesla reducing prices and also competition in the industry. But was there any impact from the order bank unwind in there? Given they're probably a lower price point versus some of your EVs?

So, you can certainly see the carryover value reduced during the period and that's a reflection of improved delivery times that we saw in the market. So in terms of the second half, the average delivery times for us was 69 days versus the first half of 85 days. We've continued to see that reduction in the period in the month of July, which is a bit lower than that as well. So in part, the reduction in the carryover is a reflection of the carryover and the reflection of the delivery days reducing and also the order growth being a little bit lower than it was in the first half.

And just last one for me. Just on the SA government contract. I know you called out the FY '23 contribution. But what would be the '24 contribution to GRS revenue and EBITDA?

They're pretty similar to '23 in terms of contribution at a revenue line and units flying.

Your next question comes from Paul Buys from Canaccord Genuity.

First question, just around GRS margins, which obviously improved a lot over FY '24. My question is just on how you're seeing FY '25 in terms of margins? Obviously, you've got the South Australian government contract coming out of the business. You did mention some appropriate actions to mitigate the impact, presumably obviously a net negative overall. The Oly rollout as well. And then you've also got the Simply Stronger Program completing. So you kind of got negatives and positives in terms of margin impact. I guess I just wanted to hear your view on how you see those playing out and if you think you can hold GRS margins on the current levels or not?

Yes. Thanks, Paul. I mean, a couple of things probably just worth noting when you think about the revenue performance and the profit performance of FY '24. I think the first one is as reflected in the slides; yields were up 10% during the period of '24 to '23. So that has a really strong positive contribution straight to the bottom line. But when you look at -- if you're thinking about forward-looking, the second half of '24 yields were down 3.7% versus the first half up 14.9%. So we saw the impact of firstly, more competition of price points of the vehicles and the reduction in those vehicles on our map playing straight through the yield as we saw the flip side in the prior period going upwards. And the second part is a slight change in releases versus new in the second half versus the first half, we've had a little bit of an impact as well on the yield. So moving from 21% to 23%. So there's a little bit of a change there. Both of those have a bit of an impact on yield. I think the second thing to note is that we're in interest on our salary packaging float. And so, during the period back in November, there was a rate rise. There was about a 50% increase in what we generated on our interest income in FY '24 versus '23. At the moment, we're taking a view that rates are holding in FY '24 at some point in time, probably going to come back a bit. So the yield and interest benefit in '24 of that growth that we saw versus '23 is unlikely to come through in '25 given what we currently see. The rest of the performance in the business was very much driven by volume growth that came at -- driven through novated lease performance. And then as you alluded to, some pluses and minuses as we think about 25% over and above that. So, we'll complete the deliverables for Simply Stronger. The benefits of that really don't hit until right at the end of '25, more at '26 year. But obviously, we have the reduction in volume from SA government in '24. With Oly, we're really excited about it. Outlined in the presentation, we see the market size opportunity being about a 30% increase on the current novated lease serviceable market that we compete in. But it will take time to obviously get that growth happening to the level that's a significant contribution to our business because, obviously, when you're winning employees of small- and medium-size businesses you're winning a small number at the time versus the big B2B client contract. Hopefully, that helps your question, Paul?

Yes. And then just a kind of a quick follow-up on the yields. So I understood the impact of pricing competition, et cetera. Has the diversity of EV brands and models on offering? Has that helped any other ancillary revenue streams because I know when kind of Tesla really dominated that, that was a bit higher in terms of some of those sort of other ancillary revenue streams? Has that still helped at all or more much a difference?

Not material, no. I mean, obviously, each OEM, each dealer that we deal with is slightly different in terms of the car. I think certainly, 1 clock back 12 months, 18 months ago, we talked a lot about Tesla being the main vehicle with a little bit of energy. Now we've got obviously BYD probably at the same levels for us as Tesla, more cars coming into the market with battery electric and plug-in hybrids. Obviously, the Outlander of Mitsubishi has had some really good take-up in a short period of time. So each of these different types of vehicles will have different opportunities from an ancillary like insurance and other add-ons, but in terms of material difference to our eyesore, Tesla itself, not.

And last one from me. Just on AMS. Obviously, performance where you've got EBITDA up despite revenue down, as you alluded to. I guess my question is, how do you see the outlook for that division into FY '25 and noting that used car prices are high, but still probably in the process of normalizing? Just wanted to kind of get your thought on those various drivers.

Yes. I think there's a couple of things I'd say. We're really pleased with the underlying business growth in this segment under this business and reflected both in our new client wins, our growth in net amount financed and written down value, and getting more units out to our customers, expecting that to continue as the supplier of auto continues to increase and therefore, access to the business biomarker, which historically the last 18 months prior to this was much more to the consumer segment given where the profit was saved. So, we think the ability to actually have access to more cars are positive for this business. We think the take-up of electric vehicles in this business would take a longer time to work through. We're seeing a bit of growth. We're certainly up from around 3% to grade near to close to 6% this year. So that will take longer, but obviously, more opportunities in hybrids in this business. From a secondhand price point and remarketing yields, it held well during the year. Again, I think I've been here a couple of times now saying better than we probably expected. We do expect pressure on that over time. But at the moment, it's holding well.

Your next question comes from Scott Hudson from MST.

Sorry, I may have missed this earlier. But Rob, could you just expand on, I guess, efforts you're taking to mitigate the cost impact from the South Australian government?

Yes. Sure, Scott. Look, I think as shared previously, there are some actions that we've been able to take, which are around direct costs. So example of that is direct workforce in the Adelaide office that only supported the SA government that we no longer needed. We have retained some of our workforce in the Otway office to be able to support other clients across the country, so that we've got the knowledge and training, and understanding of our system, so we don't need to recruit additional people. So there's been some opportunity to drive some efficiencies from a people perspective and head count perspective and our footprint in Adelaide from a property perspective. Outside of that, there have been some other areas that we've looked at some efficiency opportunities. Flip side of it is obviously the launch of our Oly brand looking at trying to pick up share in the novated lease spacing market to address some of the reduction in novated volumes.

And I guess just in relation to Oly, how does the, I guess, yield or margin from an Oly sale compared to a traditional GRS sale?

Yes. So the way we've certainly looked at this and experienced so far is there is slightly high proportion to electric vehicles in a higher proportion to new. So in terms of our relative portfolio compared to our Maxxia or RemServ, you've got a high SKU towards EVs and high SKU towards new. So that's a more favorable yield impact for us. Flip side is depending on our distribution points and relationships. There is some outflow to our partners who get converted revenue opportunities from sales. So net-net, the overall margin yield should be higher in this business relative to Maxxia and RemServ from a yield perspective, but obviously, it's a very small number to start with.

In relation to the, I guess, the strong growth in EV sales, are you able to share sort of what proportion of that would be plug-in hybrid?

Yes. I mean, plug-in hybrid for us, as we think about the proportion of EVs in sales during the year, battery electric in the second half was just shy of 40% and plug-in hybrids was around 7%. So plug-in hybrid a little bit higher in the second half versus the first half. And in the first half, I think the plug-in hybrid was about 6% and battery electric was about 31%. So a slight increase in plug-in hybrids during the second half versus the first half. But largely, that came in the last couple of months of the financial year. That's continued in the month of July, Scott. So a bit like what the VFX data as shown, our plug-in hybrids in the month of July, again were higher than where they were in June. BYD and Mitsubishi played a part of that with their offerings.

Have you had any more -- you have any move by government to extend the plug-in hybrid exemptions on the EV?

Look, at this stage, we're working on the basis that is scheduled to conclude 1 April 2027 through NALSPA and our industry association continued to have conversations with all parties of government around that. So if that changes, obviously, the market will become aware of it. But at the moment, it concludes 1 April of 2025.

Your next question comes from Richard Amland from CLSA.

A couple of just detailed questions. Discontinued business adjustments. Are we done with those? Should we expect any more next year?

It's actually here. They set those businesses that now completed and being sold. So there will be no discontinued operations in FY '25.

Looking at Slide 10, where you've got the SA numbers included in your salary packaging and avail lease numbers for fiscal year '24. Just not trying to get the absolute numbers, but I mean, the FY '23 numbers that are presented there, those also include the SA contracts? We should be normalizing out for both periods, just to -- and that will show organic growth. Is that correct?

Yes, yes. The '23 and '24 both include the SA government numbers as the contract concluded on the 30th of June 2024. You can refer to our ASX announcement of the '23 numbers, but broadly, the percentages is pretty similar across revenue-selling packages and novated leases.

And just tidying up on the previous question regarding the hybrid -- the plug-in hybrids. So when that -- based upon the VFX numbers and what you've just said, it sounds that the roll-off will not be particularly material to the volumes going through the GRS business in terms of new novated leasing.

No. In terms of our current numbers, in total numbers in novated lease in plugin hybrid is still a very small proportion. Obviously, as we've seen in the last couple of months, that growth is increased. We would expect though a leading up to the end of the FBT benefits through to 31 March next year, good demand for that so people take advantage of it. And certainly, our business has continued to educate our clients about that opportunity while it exists. And then we'll wait to see in terms of the follow-on impact that people continue to take on hybrids without that benefit when they start to shift behavior towards battery electric vehicles.

And one last question, moving over to PSS. So our understanding is that as a plan manager, you guys get -- basically make a fixed fee per client on an annual basis and then there's an upfront upon a new sign-up, but that you're not exposed to overall payment volumes going through any particular account or through the system. Is that accurate? Or is there a variable component?

No. So basically, the fee structure is you get a broadly $200 for a setup. So when a client has their plan approved and chooses us as our plan manager. We set that up and we get approximately $200. We then generate on average about $100 per month. It varies between metro and regional and remote areas, but broadly about $100 a month per customer, irrespective of the value of what is in the plan and how much is utilized in the plan.

So, that's very helpful clarity. And I guess the conclusion that we draw from that is regardless of what happened -- I guess, not regardless, but the fact that there may be changes to NDIS and the services covered and all the rest of it, the likelihood of the plan being withdrawn is effectively 0. So you guys should be relatively ambivalent to changes to service payments or anything like that as long as the customers themselves stay in the system. Is that a conclusion?

It's a broad set of comments there, Richard. I think look, on the current legislation that was passed in Parliament last week and the intent of the legislation, which is to try and provide the agency with some greater control over what services and supports are included in plans or they call the black and white list, firstly, and then the size of the packages that are provided to eligible participants based on their impairments. No changes to our plan managers earn their fees and income. So on the current legislation as it's been approved, now there are expected to be 2 more reforms part of the legislation. We haven't seen those yet or can't comment on whether that has any implications on early stages of that were really significant from no data lease impact. So overall, broadly, not too different from '23.

So just to be super clear, broadly, not too different in terms of last 7%?

That's correct.

Your next question comes from Jack Dunn from Citi.

A couple of follow-ups. Just on the PSS and the regulatory change. You mentioned there's still 2 more reforms to come in. But have you heard anything more on the industry's outlook for the role of the plan manager and the impacts from the new role, the navigator?

No. So at this stage, Jack, the government is being silent on the independent review recommendations, and what we've been hearing and you're obviously seeing is that they're just pushing forward obviously with reform. Many of were incorporated within the review recommendations. So one of those is the foundational support that they're rolling out. In terms of specifics around navigator, nothing is yet to be shared with the community in terms of the specifics. There is an ongoing consultation around that. And with specifics to plan manager, no, at this stage, the focus very much is with the upcoming reforms, firstly, increasing regulation requirements so that all support coordinators, plan managers, navigators, if they come into play will be registered. Second of all, obviously, within that trying to increase the focus on fraud and the role that plan managers play within that. So within the current reform, what they refer to as auto top-ups, removing those. So some customers and plan managers will just try to utilize the full amount of plan, where it's the objective scheme is using what's necessary to achieve the dollars and outcomes, and therefore, are not necessarily worth 100% of the dollars. So the way we've been continuing to progress our businesses on the basis that there isn't a material change at the moment, obviously lifting the bar from a compliance perspective, which is positive, lifting the bar in terms of registration of players in the market, which I think will then start to remove some participants in the market and then continue to force processing and digital payments on a timely basis to provide us get that from a cash flow perspective.

And just last one. Just on the novated lease volumes outlook, are you still confident you can offset the volume loss from the SA government contract from the growing market and Oly?

Look, Jack, at this stage, I mean, we don't obviously provide guidance in terms of volumes. As I alluded to, our July numbers are pretty consistent with our June numbers. And as I mentioned earlier, obviously, the FY '24 second half was slower than the first half, reflective over the strong period of late '23 and early '24. So our goal is to continue to grow and where possible has alluded to earlier, use Oly as lever for us to broaden the market opportunity and pick up some of the lost volume that we get from loss of South Australian government. So that's certainly our intent focus. I can't comment on what the market outlook looks like in the second half of FY '25 in terms of the economy day.

Your next question comes from Hayden Nicholson from Bell Potter.

Just 2 quick questions for me. Firstly, is Oly included in that CapEx guidance for FY '25? Or is that more sort of just incremental OpEx?

No, no, it is. We certainly do have some OpEx for the business and running the business, but the development cost certainly are included in the $19 million that we spent in FY '24 and the $11 million expected to spend in FY '25.

And then just secondly, to close up, spoken a lot about EVs and just looking at the market and some of your comments around macro being a little bit soft. What are you seeing in terms of combustion engines, maybe Petrol, if we could split out some of the growth that you've been seeing in the book compared to the plug-ins and electric vehicles? Is that being cannibalized? Or are you still seeing growth there?

Yes. I mean, certainly, when we've been looking at the overall portfolio in our business, slightly different to the market. Obviously, the last 18 months for us has been really strong novated performance growth, which we think really reflects that actually the pipes grown off the back of the legislation. And we've seen in part more customers and clients attracted to know that at least that we previously didn't have, and that's reflected certainly in our private and corporate growth. So that growth was about 12% in novated for private over the last 12 months. And that portfolio really demonstrates that more people who previously were thinking about selling packages and taking it up. When we look at our ICE, it's down marginally on where it was the previous year. So there's been a little bit of movement and shift from ICE into electric vehicles, but we also think that the total pipe is growing.

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

Thanks, Sagar. Thanks, everyone, for joining us today. Appreciate your time. Have a great day.

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