MotorCycle Holdings Limited (MTO) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the MotorCycle Holdings Half Year 2023 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Ahmet, Managing Director. Please go ahead.

Thanks very much, Leanne. Good morning, everybody. My name is David Ahmet, and I'm the Managing Director and CEO of MotorCycle Holdings. This morning, I'd like to bring you our half year results and our investor presentation. A brief overview of the agenda. I'll touch on a summary of our highlights for the half. We'll have a look at the financial results. We'll drill down into the operational performance, and then we'll have a look at how we see the rest of '23 going. So highlights, the financial highlights first. So statutory revenue rose 17% to $277 million. That's mainly as a result of the acquisitions that we executed during the half. On a like-for-like basis, we had a 1% increase in revenues to $237 million. So overall, we've got a gross profit increase of 13% to $75.2 million and a gross profit margin of 27%. The underlying EBITDA declined 9% to $18 million. And I'll go into that further, explain that a little bit further on. But we're happy at this stage to declare a dividend of $0.08 per share for the half, fully franked, of course. Operational highlights. Strong top line growth has been buoyed by recent acquisitions. In particular, the CFMOTO or Mojo Motorcycles acquisition, which was completed on the 1st of November, has produced that additional income. Increased national market share of new motorcycles to 13.9%, which is -- we've seen the new motorcycle industry declined 25% for the half, but we've been able to increase our market share. And obviously, we didn't drop as much as the market did. During the half, we've continued our investment in enhancing the customer engagement and our digital capabilities. This is an ongoing thing to improve our digital experience, the customers' experience, both business-to-business and e-commerce. We've achieved this result against a backdrop of rising interest costs and in cost of living pressures. So it has been a tougher market without a doubt, and we have seen a decline, particularly in the second quarter. However, the acquisitions that we've made strategically have been very important for us, and that will help us deal with the challenging environment, in particular, the Mojo Motorcycles, where it focuses more on agricultural product and not discretionary spend product. So it's somewhat immune from the decline that we're seeing in general business. I'll move on to the financial results. With total income of $277.5 million, cost of sales up 19% against an increase in revenue of 17%. Gross profit $75.2 million, was up 13% for the half. The margin down slightly from 28% to 27%. And then we've got employee expenses were up $5 million, and that's the biggest increase that we've seen. Rents were up slightly. Other expenses include foreign exchange, acquisition expenses. Bailment interest, we've seen increase, and that's due to the normalization of our stock holding with new bikes. We're at a stage now where we virtually are back to a normal stockholding of new motorcycles. So the supply chain has improved somewhat over the half. And that gives us a total operating expenses up 22% to $57.1 million, underlying EBITDA of $18.1 million with -- it gives us a margin of 6.5% due to those increased overheads. We've got acquisition expenses in there of $1 million for the half. Depreciation down slightly. Bank interest is up slightly, up $600,000 to $700,000 for the half to give us a total net profit before tax of $14.9 million, which is down 16%. Net profit for the half was $10.5 million, down 17%. On a like-for-like basis, which excludes 4 businesses that excludes the 2 that we bought during the half and 2 that we bought previously. Total income, $237.9 million, virtually line ball with the previous year. The cost of sales about the same as well. So gross profit is down 1% to $66.2 million. Gross margin was the same as the previous year at 28%, but the overheads is where the difference is for the business. Employee expenses are up 11% so that's wages, of course. And we think we can do something about that in this half. Rent is about the same. Other expenses up slightly. That will be freight, which we saw increased during the half, hopefully coming off now that we've had the cost of containers come back considerably and other operational expenses. Bailment interest, again, is up slightly there. We've got another $200,000 in that. So operating expenses for the group like-for-like were up 12%, and that's basically the difference in the earnings for the group. So that will be a focus of ours going forward. We think the areas that we can trim that operating expense. There was a lot of expense in acquiring Mojo Motorcycles, a lot of staff needed to that and of course, distraction as well from what we normally do. So a very busy period for the group. Underlying EBITDA of $13.7 million, was down 30%, and the margin down to 5.8%. We look at the bank interest there, $600,000. So net profit before tax on a like-for-like basis, $11.6 million and down 35%. Obviously, having the new motorcycle industry declined so much, has had some impact. We saw that happen in the second half -- or the second quarter of the half. We have a look at our balance sheet. You can see that inventories and the goodwill have increased, obviously, as a result of the acquisitions that we made. Total assets now $402 million, up -- considerably up 44% from $279 million. Total liabilities also up 69%, which includes drawing down the $50 million with -- from the bank debt. For provisions there, $17 million, tax liabilities of $6.6 million, net assets of $191.1 million. So total equity for shareholders is now $191 million, up from $155 million, so 23% increase. If we look at the market value of the company, it's cheaper, isn't it. Net profit after tax is $10.4 million. Share price as of 31st of December was $2.39. It's more like a [ $2.20 ] today. There are now 73 million shares on offer. Dividends per share was $0.20 for the year -- for the last 12 months. The basic earnings for the last 12 months per share was $0.33 and a price to earnings ratio of about 7.2. Dividend yield 8.4% at the 31st of December, closer to 9% now. And of course, the shares are fully franked -- fully dividend for fully franked. Revenue growth. So we look at where our revenue is, it comes very much from the acquisitions. We've held our own as far as a like-for-like basis, which is not a bad performance considering that the market was down so much. So we're now at $278 million, which is twice what we were, say, 5 years ago. And we're showing the steady signs of growth each year. We're able to keep increasing the size of the business. Underlying EBITDA. So we have an underlying EBITDA decreased of 9% for the half. Again, a lot of one-off or additional expenses in there, which we don't expect to see this half. Predominantly, we've got the acquisition expenses of about $1 million. There's foreign exchange costs in there of about $1 million. So that takes a fair swipe of it. If we look at the previous couple of years of where we were 2021, which is the peak of our earnings, we had $12 million worth of JobKeeper assistance in that year. So that made a significant difference to that year. So if we took that out of the equation, we're performing about the same level. Last year, 2022, we had considerable training and assistance as, well, subsidies, about $1 million for the half, less this year than we had last year. Net profit results $10.5 million for the half and the similar thing. Obviously, the previous couple of years had extra subsidies and assistance. So we're performing about the same as we were, say, 2 years ago. Our earnings, we have a variety of areas where we create the profit quite diversified. So if you look at the various segments there, new motorcycles gross profit was actually up 4%, even though as a group we were down 8% in motorcycle sales against the market of 25%. So we've outperformed the market there predominantly because we deal mainly in the road bike market, which wasn't down -- it was only down 10%. But you can see that we're still able to maintain our margins. So even with the decline of 8% in volume, we've got an increase there of 4% gross profit. So margins haven't deteriorated yet as sales have dropped off. We've been able to maintain strong margins. New vehicle wholesale is the Mojo Motorcycles business, that's contributed $5.2 million for the half. Well, in fact, there's only 2 months. So we'd expect to see that to be much larger in the second half, of course with May, June being the strongest 2 months of the year for that business. So we expect it to be a fairly robust result in the second half for Mojo. Used motorcycles, again, slight increase there in gross profit of 5%. So margins have been maintained there. At this stage, we haven't seen them come back yet, but I think that will change in the second half. I think we're seeing some change in the used market now with values starting to come off a touch. So I wouldn't be surprised to see that drop slightly in the next half. Parts accessories had a reasonably solid 6 months, up 9% in gross profit. So that's traveling quite well. At a wholesale level, we're 5% up for the half. Expenses that are hurting that business a bit. Service department, good result, a 9% increase, which is what we would expect. What's pleasing is the finance and insurance result, 11% increase in income there against a decline in volume of new bikes, used bikes. So good to see that we've been able to improve our penetration rate there and improve our income. That's something that we've been trying to do for a while, and we're certainly tracking the right direction on that one. And our other area there, which is down $1 million, that's mainly training subsidy from last year for putting on additional apprentices that government incentives in place, which we took advantage of in the previous year. That income came down about $1 million. And the equity from accounted investees, that's our MCF or our finance company. It's down 16% down to $526,000 for the half. That's mainly -- the volumes were okay. That's mainly because the margin has been squeezed somewhat. But so far, bad debts or delinquencies are still within the balance of budget. So that seems to be okay, but that's more of an interest rate result. If I drill a bit further down into the operational performance, there's a graph there for new motorcycle sales, and you can see that there's been a significant decline this half compared to last half to the turn of 25%. Most of that is in the off-road motorcycles and the agricultural product used by farmers. And like I said, road bikes were down 10%, so not as bad. And that's the reason why our gross profit has held up. Our mix of sales is different to the broader market. But still, you can see we're back to below 2 years ago, the industry is back to 51,000 units. So not much more in front of 2020 results there. MotorCycle Holdings is a slightly different story, of course. We've pretty much got growth in new motorcycle sales every year, slightly down for the '23 first half, but against the 25% drop in the market, not too bad. But importantly, margins are holding up nicely. And I think we expect them to continue to hold up fairly well. Used motorcycles is always an important part of our business. We increased the unit sales by 2%. So we've managed to get that growth. The only year where we didn't was 2 years ago in '21 when there's cover induced shortage of used motorcycles Australia-wide. But that improved during the course of '22, and we've been able to get a little bit more growth there in volume at 2% and growth at 5%. Again, I think the second half of this year will prove to be more challenging. We expect that there will be a reevaluation of used values. We can see that values are starting to drop now. So we'll be very quick to revalue our stock and make sure that we keep it at correct wholesale going forward, but I'm not sure if we'll be able to increase the growth there this half. I think that will be one of the challenges we face due to the current economic climate, the softening of demand and the more availability of used stocks. The retail part of the business, overall, quite a solid performance given the economic conditions. We certainly have seen things moderate in the second quarter. Demand has softened somewhat. The first quarter was certainly stronger than the second quarter. But overall, things are still holding up quite well there. We've still got improvements in just about every department there, so not too bad at this stage. Acquisitions where it's at, we made a very strategic decision to diversify the business and move away from just completely discretionary spend into more of a commercial basis. And that is the agricultural market with the 4-wheelers and ATVs. And that's been a particularly good move for us. It's been particularly successful. We've executed the acquisition. We've finished the integration to a large degree of Mojo Motorcycles. We've also had to -- we've settled on another business in Townsville, which is a dealership in Townsville and that we're finding that Mojo is performing ahead of our expectations, so a very pleasing result with that business. It's performing at least, if not better than what we expected. And that looks like it's going to continue into the second half. So far, there's no signs of it dropping off at all. That part of the market, not so dependent on discretionary spend, obviously, farmers generally are performing quite well. We've got a great product there with CFMOTO and Kymco and some of the other brands. They're very much suited to the farmers' needs. We've got a stock availability. And we're finding that the other manufacturers have increased their availability of stock as well, but we're still performing to the same sort of level. So we're very happy with that. And I think that has been a really successful acquisition and great for the business going forward. It will certainly make a difference in the second half of this year, much more so than the first half. We've also got some increased contributions from 2 other acquisitions that we made earlier, the first full year. So we had Forbes and Davies, which is the accessories company we bought in New Zealand. Again, that's performing at least as good as we'd hoped, if not, the slightly better. So good results out of Forbes and Davies. And Wide Bay Motorcycles, we purchased in Gympie earlier in the year, that's performing as we'd hoped. So overall, 4 acquisitions there in just under 12 months and 3 of them contributing well and truly. Townsville is breakeven for the half. It was a fairly rundown business when we bought that. Didn't pay much for it, of course, but it will take some time before it generates meaningful income for us, but that's something for down the track to improve our results next year. Wholesale, this is excluding Mojo. Of course, this is wholesale accessories. So trading softened during the latter part of the first half. Again, the second quarter is where we saw things moderate a bit. Supply chain issues have moderated to a large degree and our inventory level is right back up to where it has been previously, if not slightly higher. So we're mindful of that, and we'll probably aim to reduce our stockholding there slightly over the coming months. But the supply chain, by and large, has been fixed. And now we're seeing a reduction in the cost of containers. So our freight expenses are due to drop there as well. They have been exceptionally high in the past. But we've got the stock now. So our focus now will be on managing our costs, making sure that they're right. And looking for sales efficiencies, we believe that we can generate -- focus more on the sales and generate more business through that department. Our focus over the last 6 months and 12 months has really been logistics and warehousing and getting the products into Australia. So yes, we've seen that those freight expenses, particularly have normalized and gone right back to pre-pandemic levels, but that's only happened in the last couple of months. We think there's opportunity there for us to continue to add product to the whole -- as wholesale business. So we're looking to improve on our results there. The finance JV. Volumes, again, were very good, consistent with the previous year, but the profit was down 16% to $526,000. The main reason for that is the increased cost of borrowing. The margin has been squeezed somewhat by the increase in interest rates that we haven't quite passed on. But importantly, the bad debt or delinquent accounts is looking good. There's no alarms being raised there at this stage. We'll see how the second half goes. But so far, we're happy with our debt control -- with debt collection. Then margins, we'll aim to try and pass on some of these increases, I think, going forward to maintain our margin. But by and large, very happy with the finance joint venture performing pretty much as we would hope. If we look at the outlook for the rest of the year, rising interest rates are going to play a role without a doubt. There's a lot of money being taken out of the economy and discretionary spend is one of the first areas that will receive lessening of demand. Having said that, we're looking for efficiencies in the business. We've got some dealerships that we believe can perform better. There is scope there to grow profits in some of our dealerships, but overall, we think a pretty tough market. We're in line for certainly more likely a tougher market than what we've seen. But we want to offset that with our acquisitions and reducing our expenses. So we're looking to reduce particularly our wages across the board wherever possible. We think there's some scope there, but the wage increases have been a part of the business in the last 6 months. Hopefully, that will moderate from this point on. But we did spend more money on acquiring these businesses, particularly Mojo, which took a lot of man hours. So we've had a lot of focus on Mojo and less focus on the dealerships. So now we'll change that focus back to improving the dealership performance. And I believe that there's some headroom there to really get a better result. We'll continue to pursue acquisition opportunities, particularly with the Mojo business, that's opened up a whole scope of new avenues for us. We've got manufacturers worldwide wanting to talk to us about distributing their product. So we think that in the future, we'll be adding product to that Mojo business, and we'll distribute other brands as well. But in the short term, there's lots of room for growth in the New Zealand. We operate Mojo in New Zealand as well, but most of the income is predominantly Australia. And we've got to develop that business further in New Zealand, but certainly, the opportunity is there, just as we've seen with the Forbes and Davies business, the accessories business. So we think the consolidation of the 2, New Zealand makes a lot of sense. We've currently got a management team there. We've currently got warehouses there, which we don't have with Mojo. So we're using third-party logistics in New Zealand for warehousing, which is expensive and not terribly efficient. So we've got a business there that can handle that logistics. So in the not-too-distant future, we'll put that -- both of those businesses under 1 roof in Auckland. And we think that we'll be able to really use that as a platform to grow the Mojo business where there's -- we've got very low market share and considerable room to increase the market share. So we see that as a real growth area for the business overall in that New Zealand market. And the accessory business was -- is going particularly well. When we bought the business back in December last year, we've been, over time, adding new products to that business from [indiscernible] our own brands in particular. And that's really generating further growth and increase in gross profit. So that business is going well and growing out of its warehouse. So it needs a bigger warehouse in any case. So we'll get a warehouse that can cater for the Mojo business and potentially some other product that we're hoping to bring on board in the not-too-distant future. For the rest of the business, it's focused on the expenses. Let's put those expenses back wherever we can and more importantly, efficiency. There's businesses there that didn't perform to their best last year or in the last half. And I think that we -- it's a management issue there that we'll be focusing on going forward. So a lot of the attention in the last 6 months, as I said, went to acquisitions. And now we can turn some of that attention back on to operating the existing businesses more efficiently. We do expect the higher cost of business to remain a feature in the second half. Nothing is going down at this stage in price except that as used bike values. But we've got a close eye on that. We'll be doing whatever we can to reduce those operating expenses so that we can get a better result at the end of the year. What will help us enormously will be a full half year contribution from the likes of Mojo, which is a terrific business and performing very well, as I said, better than what we had expected and with its best month probably yet to come in the next half. So we'll see a much bigger contribution than what we saw in the last half with only 2 months. We'll have -- we'll see Townsville will start to come on, and we'll pull over heads back in the rest of the group. So we think that we can get a much better result in the second half compared to the first half. And of course, we won't have the additional expenses that we had of the acquisition expenses, just on $1 million of foreign exchange, which was over $1 million. So we've got caught there with the dollar at $0.64. We hedged some money at $0.64 with the U.S. dollar. A lot of our purchases are in U.S. dollars, particularly with Mojo, but also Cassons. So unfortunately, we had to take some losses there but we have got a plan going forward to try and minimize any foreign exchange losses. But those were the 2 big expenses that we're hoping will be abnormal and certainly not repeated again. So that's pretty much what I have for you today. I'm happy to take any questions, if you'd like some more detail.

[Operator Instructions] Our first question comes from the line of Jared Gelsomino of Morgans.

Just a couple of quick ones from me. Obviously, a strong early result from Mojo and GP margins quite strong relative to the [ '20 ] numbers that were announced at the time of the acquisition. I guess is that a sustainable gross margin result? And can you sort of unpack what's driving that uplift?

For the whole business, you mean?

Yes. For the Mojo business specifically.

For the Mojo -- Yes, I think they are. I don't see any reason why they're not. In fact, it's been hit somewhat by foreign exchange, but now the margins are -- they are good margins. I don't see any reason why they would change. I think they're maintainable.

That's great. And I guess just in the underlying ex-Mojo business then, can you give a bit of color on how that finished the half? I know you've called out a moderation in demand for retail and new annuities in the second quarter. Can you give an idea on what the second quarter did against the PCP last year and if that's carried through to the start of the year in calendar year 2023?

It certainly has. The toughening market we've seen in that second quarter has carried into January and February. There's no doubt about that. What the actual difference was, I don't know off the top of my head. Would you know, Bob?

No.

Yes. No, not certainly the first part. To be fair, the first quarter is always our best quarter of the year. That September quarter is always the strongest. But we noticed that the second quarter is usually not far behind it, but there was certainly a difference in that second quarter of new and used bikes; in particular, used bikes is where we noticed the biggest decline. So we had -- we were probably 10% up in volume for used bikes at September and ended up at 2% up by the end of December. So that second quarter really softened somewhat. We held on to margins. We're kind of slow to give them away. We're holding on to margins nicely, but I think realistically, if the market continues to soften, we'll have to reduce those margins slightly to move the stock, I think, very important for us to keep shifting those used age bikes. So that's the challenge of this half. If I look at the whole business, I think where is the biggest challenge for us and that will be in used bikes, where we've always done particularly well, and we were going very well up until, say, September. So I'm very mindful of the fact that we're back to full inventory there, which is just over 2,000 units, 2,100 units, which is over $20 million worth of used bikes. So it's important that we keep that stock very liquid. And that means if the values have dropped on some of our existing stock, it's important that we get out of that stock very quickly. And so that's what we've embarked on now. So I think that will reduce our margin somewhat for a month or 2. How much impact it has over the half? I don't know if -- it won't be material, but it certainly -- I wouldn't expect to see those margins increase again; if anything, I'd expect them to decrease slightly. But that's just prudent management of used bikes, and that's what happens when values change. They go up and go down. So that's probably, I think, the biggest challenge for the half, if we can keep that value correctly. The rest of the business is fairly consistent. If we look at the finance and workshops and accessories, that's all still performing quite okay. New bikes, the big decline has come in that agricultural part of the market, which, of course, we're in with CFMOTO, but CFMOTO has not seen a decline there. It's going really well in that part of the market. So you have to remember that CFMOTO doesn't report to the [indiscernible] So when we say the market is down 25%, that doesn't include our product at all. So that's the rest of the market. So that's taken quite a bit. Although I see in January, it was up 81% of that ag market, so quite the uplift in January, obviously, against a pretty low generally last year. So the market is bouncing around a bit. We did see road bikes increase in January as well. So it seems though that we've kind of taken a bit of a hit, and it stopped at that level. But a little bit early to say. We'll see how the rest of the year pans out. But January, February doesn't look like it's continuing to fall. It looks like it's bounced back up slightly. But operating expenses are the key, I think, to get in the like-for-like results better. Operating expenses and some dealerships are underperforming that we don't need to reinvent the wheel. We just need to apply our management principles to get a better result. So I'm hoping for a bit of both there, reduction in the wages, particularly and increase in performance.

Great. And maybe just quick one last one on the cost base. I guess looking on a like-for-like basis, cost control, how do you sort of see a plan in second half? And you sort of mentioned wages and efficiency wages a few times, like where the efficiencies easy wins likely to come from?

Yes. Look the freight is another one that was substantial. But other than that, there's not much really. I mean there are some abnormal expenses in there like travel as well because we sent a team to Melbourne, who were there for a week in accommodation and flights and what have you. So we've got some bits and pieces there that as a result of Mojo acquisition, which aren't included. When I say additional acquisition expenses, they're just the professional fees, the solicitors and the accountants and what have you. There's the internal expenses, which we haven't called out, but there will be some in that, but It's wages predominantly. Rents have gone up with CPI. There's not much we can do about that. And I think they're likely to stay, but other than to say a bit of travel, a bit of freight, that will normalize a little bit, but we're not talking millions of dollars there.

Our next question comes from the line of James Ferrier of Wilsons.

Can I just sort of build on that last question around Mojo and the CFMOTO product in particular. So you talked about the agri market being down quite significantly in that period, not so CFMOTO. Where do you think that market is? Obviously, CFMOTO has got a good product range, in a very relevant range, some of its peers exited the quad bike market. And I think, Dave, in your prepared remarks, you mentioned that there were some competitors adding more product back in. So the -- there seems to be a lot of moving parts there. Can you just try and sort of a bit more color on filling the gaps there? .

Yes. Sorry, I should explain that a bit better. The competitors haven't added new products back in, but still they've got availability of their existing product, so they've been short supply. But in January, we had quite a lot of supply from the likes of Polaris, Yamaha and Honda. So they had stock availability like they hadn't seen in the previous 6 months and hence, the market jumped considerably in January. So it's not new product, but that didn't affect our sales that Mojo at all. I should add that we also sell KYMCO, which is a brand out of Taiwan, which also has ag products. It's not all CFMOTO by any means. It's also Taiwanese product called KYMCO. And we'd do so a lot of brands to CFMOTO, who also sells motorcycles. And there's Sherco, which is an off-road brand, Landboss, which is another agricultural product. So we've got 3 brands there that really do that ag product. But yes, certainly, the increase in the others -- the other suppliers or manufacturers didn't affect Mojo's performance in January. So the -- I think that was just fulfilling backorders basically the bites that had already sold some time ago. So that along -- supplies we probably kept the market overall figures look down so much for the first half. But because we had supply, our figures went down but with supply the whole time.

Okay. Got it. That's helpful. And then, I mean, looking forward, you obviously got a bigger exposure in this part of the market now with Mojo, but you have had a presence in that space in the past and thinking about where that demand comes from in that rural regional area and particularly the farmers themselves from a business consumer perspective or a business customer perspective. They're all pretty well off at the moment. They've had good crops, good seasons, high livestock prices that's been happening for a couple of years now. One factor that is probably still coming to an end is the instant asset write-off scheme. And there seems to have been a fair bit of buying activity across certain assets and this type of product probably fits nicely in there. What are you seeing? What are you hearing from your distributors around the impact that might have the cessation of that arrangement might have on demand?

Well, look, it's fair to say that it helps, doesn't -- they can with 100%, which is still in place for this year, I understand. They're not a major purchase for a farmer. Like a lot of these vehicles are under $20,000, but every farmer uses them. I don't think there'd be a farm in Australia that doesn't have a quad bike or a side-by-side on it. So it's an essential part of their business tool. So I don't know, I haven't -- I wouldn't be able to quantify what I thought what difference that would make. I mean they still get to depreciate it, obviously, but not as fast. But what probably is a little different is our range and pricing is far more competitive than what the others have in the marketplace. So we've got a distinct market advantage there. And the farmers had a lot of exposure to our products over the last few years, and they like it. So I think if cost starts to become an issue for the farmer, then we're in a good position to capitalize on that. So I think -- look, it's hard to say exactly, James, how much that would make a difference. I guess it makes some difference for sure, but it really is essential for a farmer to have this product. And they wear them out. There's no 2 ways about that. They destroy the things pretty quickly. So they don't spend a lot of money on maintenance. We don't get them back a heck of lot of servicing. They tend to run them into the ground and buy a new one. And I don't think that tax break will stop them from buying a new one, not having the full depreciation. I think they've got to have them. It's not a harvester for $0.5 million or something like that. It's something you can buy the quad bikes at $10,000 or less. And you can certainly buy the side-by-side for $15,000, $20,000. I think it's -- we'll continue to go okay there, I believe.

Yes. Okay. That's very helpful. I'm describing it like that. And just around the secondly and finally for me, the sort of the slowdown you described in the second quarter, it seemed more pronounced in the used bikes than anywhere else really. But...

Not really, we're up actually. We're still up 2% in volume and up 5% in growth, whereas the new bikes were down. So probably the difference from the first quarter to the second was a little more significant because we were 10% up in the first quarter. So yes, I understand the same. Yes, I'm with you.

Yes. Yes. Okay. Good. So that's -- and I guess where I'm going with that, Dave, is we're not necessarily seeing a significant decline. When we look more broadly across the consumer discretionary landscape, there's obviously plenty of conjecture about when and if there might be a material slowdown, but certainly looking backwards through that December quarter, there wasn't really any material evidence of it. So just curious as to your thoughts around why there might be more evidence of it in this product profile versus a broad landscape?

Yes, that's a good question. Well, if we look at where the market dropped the most according to the [indiscernible] figures, it was the agricultural product who had boom years the previous 2 years. They were up 80%, 60%. They were flying in the previous couple of years where there was a buy up to some degree of the quad bikes, which we being legislated against. So they went -- coming from very high levels, the record levels, the highest anyone's ever seen. So I guess there's only one way to go from there, and that was probably down. So that was a big part of the decline in the market. The next biggest part was off-road bikes, which are very recreational use. They're very much -- not means of transport, very much something to do with the kids during COVID. And so dirt bikes sold particularly well. And again, they had a massive increase during COVID, much more so than the same road bikes. So they went up to very lofty heights and they had a fair way to fall too. So as things get tougher, it's very much a recreational use, not something that you have to have. So it makes sense that they would come off probably more. They went up more than anything as well. So I guess it's a more volatile product in the marketplace if you compare it to TVs or refrigerators. But the growth there was spectacular. I think we were seeing 50%, 60%, 70%, 80% increases during COVID in off-road bikes so it tightening of the belt means that comes off first. But interestingly, road bikes, which didn't have the big increase. It didn't have anywhere near the massive increase of the other 2 sectors, is more modest -- and it's been more modest on its way down. And hence, we're only down 8% for the half, so 10% for road bikes nationally. In fact, January, we saw a slight increase in road bike sales, both with our business and nationally. So I think the road bikes will be a lot more stable is what I'm trying to say, and that volatility is not necessarily that important for us at this stage because CFMOTO to a large degree immune from that massive drop and road bikes is more stable. So -- but other than that, the off-road bikes are very much a toy or recreational use. Nobody has to buy one and buy it for fun, and they are a lot of fun. But -- so that's where we're seeing the decline.

Our next question comes from the line of [indiscernible].

I was just wondering if you could help quantify what the opportunity might be in the cost of doing business expense? It's increased by about $10 million versus PCP, and that sounds like it's going to remain elevated through the second half. But looking into next year, how much do you think you could reduce that in absolute terms based on your commentary that some of that employee cost is one-off in nature related to the acquisitions and integrations?

Yes. So the integration was just over $1 million and foreign exchange cost is over $1 million for the half. So I'd like to see that -- let's say they won't be repeated. With the wages, there is pressure -- upward pressure on them. So we'll be trying to contain them. There isn't much other than that, that I think we can save a heck of a lot on expense, but there's certainly -- we can trim something. I would -- I'm reluctant to put a figure on it at this stage because there's only 4 months left of this half. So there's not a lot of time to make a big dent in it. But we -- if I look at the business as a whole, I can see that our dealership wages, our frontline wages are actually quite stable. They're not growing, where we've had additional expenses at a head office level or group level, and that is for the execution of acquisitions and the likes of that and providing -- doing the stock taking and doing the integration. So whether we can pull that back on -- but I wouldn't like to go putting a figure on it at this stage because I think whatever I said would be wrong. But certainly, there's the approach of reducing that wherever possible and reducing the headcount wherever possible, and that process has started. And so we're starting to see that wages are not growing anymore. So we'll be aiming to at least maintain them, if possible, reduce them, but there's not many other areas there that I think we can make it great. If we want to continue doing the same business that is, obviously, if we're selling less, well, then we would reduce it accordingly. But at this stage, we're kind of maintaining sales of the previous year. So -- and I think there's still profit increase available by running some of these businesses better. So I think there's more to be gained there than there is to cost reduction, but it's a balancing act between both -- between trying to generate more profit and reduce those expenses. So it's a bit of a balance between those 2, to be honest. So other than acquisition expenses and they were significant and foreign exchange, which was significant, there's not much I don't think we can do beyond that.

Okay. And just on competitor behavior in new bikes in particular, one of the features over the last couple of years has been relatively strong gross margins because the sales prices have held up very well. How should we think about the potential margin downside in new bikes? You mentioned in commentary around news bikes, but do you think that margins should hold up in new bikes? Or are we starting to see some sort of breakdown in that sort of rational competitive behavior that you've seen in the market over the last couple of years? .

Yes. Okay. That's a good question. It's hard to say. I mean if we look at the last half, obviously, new bike sales were well down, and we increased our gross. So that might be the mix of what we're selling to some degree as well, fewer off-road bikes, more road bikes. Road bikes tend to grow, have better margins. So the mix of what we sell is important there. But to date, we're not seeing those margins decline. If we look at used, we've seen them increase during the half. So we'll be aiming to hold on to those margins as best we can. I haven't seen any sign of new bike margins coming off particularly, certainly not until December 31. A little bit early for me to make a call on this half. But so far, so good. As I've highlighted, used is where I think there will be -- the margins will come off. I do expect that as we're carrying so much used inventory that it takes us a certain amount of time to get out of that and rebuy at what I think is correct wholesale. So I do think 10% is coming off and margins and used is not unrealistic. I think that's probably likely, but new, we're not seeing that so much at this stage.

[Operator Instructions] Our next question comes from the line of Sarah Mann of Moelis.

First question just on F&I penetration. So it was like to be penetrated the increase there. Can you give us any detail around what drove that? Like is it mix or internal things that you're doing?

No, no. It's to do with -- we've increased the wages, the resources in that area. So that's one of the reasons why our wages were up to the half. We brought in expertise from the car industry, some experienced players who knew what they were doing, specifically for this role of increasing our penetration and it cost us a bit more too. Overall, we're in front. So it's the right thing to do. But yes, we've improved our penetration and that's cost us a little bit more. So that wage won't disappear. So that wage increase there is here to stay and it's well worth it. It's a -- total volume of bikes is down, if you take the new and used together so that penetration has had to improve to get an increase in income. So it's not so much the mix. It's -- just penetration is up a few percentage points than where it was.

Got it. So is there more do you think to go from...

No, I don't know. We're not at the target yet. We still got considerable room before we reach the target that we want to reach. We know it's achievable because we've achieved it before in the past. So no, we're looking to continue that trend. We think we can keep improving on it.

Got it. And is any of the stocker demand that you're seeing? Is any of that driven by your finance kind of tightening credit conditions at all and like deals not closing?

Yes, that's a good question. I'm not hearing that, Sarah. That's not a complaint that I'm getting from the dealerships. And if they think that's the case, that's usually pretty vocal about it. No, I think if I look at our application to approval, to settlement ratio through MCF, it's the same, if not better, than it was a year ago. So we're not seeing that yet. If the consumer can afford it, they'll get the loan. I guess at some stage, it's going to have to make a difference, but we haven't really noticed that yet. Maybe also going down the track, but not yet. .

Sure. All right. And then in terms of retail accessories, like normally, that moves with new and new bike sales. So just trying to understand why that held up so well? Again, is there any initiatives on your end?

No. Well, yes, I'd like to take credit for it. I think that's mainly as a result of the first quarter last year, we were in lockdown, and that affected our accessory sales quite negatively. The second quarter, we opened up and we had a boom time of the last year. So we had a half of 2 very different performances last year. And that whilst we're in lockdown that not the figure is down, so this time, we are open for the full half. And whilst our second quarter wasn't quite as strong, our first quarter was certainly much better than last year. So we've ended up with a better result overall. So there's always ongoing management there. Our online sales are increasing, but I think it's predominantly to do with the fact we're in lockdown last year.

Got it. Okay. And then Mojo, like -- that looks like it's run rating pretty significantly ahead of expectations, definitely ahead of where it was in F '22. You kind of touched on this before, but like is there any seasonality in the business leading into the second half? Or is it fair to run rate to ...

Usually, January is a fairly quiet month for that brand or product, but we had a very good January. The same is usually not spectacular either. People aren't thinking about buying them or farmers aren't at that time of the year, but again, a very good result. So we've achieved some very good results there in what is probably not their stronger months. The stronger month has been very much May and June, sales go through the roof in May and June every year for this type of product. So the strongest part of the year is yet to come and that will be the last quarter of the year. So we're in probably what would normally be considered the more subdued part of the year so -- and getting great results so -- which is a sign of the company, I think, in the product.

Yes, definitely. And then you flagged kind of potential cost savings as well in new Zealand for Mojo and Forbes and Davies. Can you give us any estimate around time line and maybe some quantification around what kind of synergies that could produce?

Yes. So I can't give you any figures on that, but time wise, we're looking for warehouses now. So our Forbes and Davies business needs more warehouse space. It's desperately out of room now. And that's stopping it from growing. Its sales are well up this year in New Zealand, which is a fairly soft market for motorcycle sales in the last 6 months or so. But we've had tremendous growth there. And that's the addition of our new product. So we can't get more product into that warehouse, it's to capacity. So we're looking for warehouse space for that. And Mojo currently is using third-party logistics over there, which is expensive and clumsy. So we know that we can do a better job if we warehouse it ourselves. So we'll get a larger warehouse that we'll do both, allow for Forbes to keep growing and allow for a reduction in the cost for Mojo. And we'll also distribute our parts and accessories for Mojo, which obviously has its own genuine parts business. That comes out of Melbourne now, which is slow, and that's not ideal. So it's to really support a brand properly. We have to have parts distribution in New Zealand. So Forbes and Davies ideally situated to handle that distribution for Mojo. So that will be a real efficiency. And I think we'll give the brand a lot of confidence in New Zealand. Once we've got our own warehouse, the stock once we got -- we're distributing our own parts out in New Zealand, I think that gives us a real platform for launching an attack on that agricultural market in New Zealand, which is really significant. I mean, they sell quite well over there. It's a very agricultural market. And again, they all buy these 4-wheelers. So we've got very low market penetration there at this stage. So we see that as a growth sector. I haven't got figures at least today, I'm afraid. But the integration, we're starting now as soon as we can find a warehouse, we're looking for currently, the flooding in Auckland at the moment. But we will -- we're looking at options. I'd like to think we've got a warehouse either leased or purchased before the end of the financial year and hopefully start receiving those benefits and launching a real attack on New Zealand next financial year.

At this time, I would now like to turn it back to David for closing remarks.

Okay. I'd like to thank everybody for their time today. I hope you found that information useful. And of course, we'll see some of you on the roadshow in the next few days. Thanks very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.