Peter Warren Automotive Holdings Limited (PWR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Peter Warren Automotive Holdings Limited FY '24 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Paul Warren, Interim CEO. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss Peter Warren Automotive Holdings 2024 financial result. My name is Paul Warren, your Interim Chief Executive Officer, and joining me today is our Chief Financial Officer, Victor Cuthell, who will assist me in presenting our results. This presentation, along with the financial statements have been lodged with the ASX for your information and can be found on our website at www.pwah.com.au. On Slide 2 of today's pack, you will find our agenda. I will start with a summary of our results and put some views of the period ahead. We will then go into a more detailed review of our key areas of focus during the year and our progress against our long-term strategy. Victor will then provide further details on our activities during the year before taking you through our financial performance, including our cash flow before we conclude with an update on our outlook. We will be delighted to take any questions you may have at the conclusion of our presentation today. Let's move then to the results highlights. On Slide 4, we start with our total revenue, which came in at a record $2.5 billion for the year. This number equates to a 19.4% growth on the prior period, reflecting the organic growth we drove in most parts of our business. It also includes the added revenues from acquisitions, the Macarthur acquisition in the second half of the year and the Toyota acquisition at the start of the year. Across the automotive industry, increases in vehicle supply have led to higher inventory holdings and lower new car margins. We strengthened our inventory management program, which we'll talk about later and succeeded in holding new car stock steady relative to levels at December 31st last year, excluding acquisitions. We also continued our cost control programs and leveraged our fixed cost base as revenues grew. As a result, you can see our profit before tax or PBT was $56.8 million. This was within the range of our guidance, which we provided you in May. We continue to see good cash generation this year with $112.6 million in cash from our operations, reflecting strong cash conversion. The group is in a heavy -- sorry, is in a healthy financial position with low net debt and strong property assets underpinning our balance sheet. Property holdings on the balance sheet are now valued at $226 million, and our debt LTV is 27%. The Board considers that these assets represent significant value and provide good funding optionality for the business. Lastly, the directors have declared a final dividend of 6.0 cents per share fully franked. This brings the full year dividend to 14.5 cents per share and is in line with our target payout ratio. I'll now turn to Slide 5, which lays out averages for both our revenue and our underlying profit before tax. Firstly, on our revenue growth, moving left to right, you can see the positive contribution from our acquisitions. The $271 million increase includes our Macarthur acquisition in the second half of the year and Toyota and Volkswagen business purchase at the beginning of the FY '24 financial year. Importantly, we also achieved good organic growth in our existing businesses with revenue increases in new cars, used cars, service, parts and aftermarket products. Moving to the PBT bridge, you can see the 16.3% EBITDA increase from those acquisitions. However, we also experienced a gross profit reduction in our existing business. This reduction was largely caused by falling new car margins where increases in supply and inventory created more competition and discounting by dealers. We will discuss that gross profit reduction in a few minutes. Our OpEx increase was $8.9 million, and we'll talk about our cost control programs later as well. Lastly, you can see the impact of our interest on our business were rising interest rates and rising inventories have added $10 million to our interest costs. Acquisition-related interest costs were $5.9 million. Overall, you can see that the gross profit reduction and interest costs have impacted our results. That said, we are very focused on our cost control and our inventory control during the year and are pleased to have achieved a PBT of $56.8 million. On slide 6, I'll cover the key highlights for the year and talk briefly to our outlook. Overall, the strong revenue performance was very pleasing and offset some of the major pressures I've mentioned. As the year developed, we're really focused on the managing of these 3 key areas. Firstly, we implemented our margin initiatives to reduce the impact of those new car margin pressures. Secondly, we strengthened our inventory control and held new car inventory steady at December levels, excluding acquisitions. Thirdly, we were very active in making OpEx savings and took $9 million or 3% out of our cost base. Between Victor and I, we'll talk a lot more about these 3 areas where we have been and where we are focusing our energy on. Our recent acquisitions of our 4 dealerships in the car for New South Wales has now been completed and integrated into our business. These Western Sydney dealerships are highly complementary to our existing footprint and bring a number of opportunities. Moving on to the right-hand side with our outlook. We expect that revenue will continue to grow across a number of our revenue streams, new car margins to be under pressure, but we have good margins in service parts, aftermarket and finance, and we expect those to continue. To alleviate the new car margin pressure, we will continue to focus on those 3 things I mentioned, our inventory management, our margin initiatives and our cost control. These remain potential for expansion. There is a compelling proposition. This could be greenfield sites at low cost or an acquisition if we see excellent shareholder value. Finally, our new CEO, Andrew Doyle, will commence on the 1st of October, and we look forward to welcoming Andrew to our business. Slide 7, let's move now to review the business and to slide 8, which shows the main areas we will cover. In this review in slide 8 of our business, we will take a few minutes to talk about each of the following: one, growing revenues, our brilliant basics in our operations, our 3 focus areas of margins, costs and inventory, the change to electric vehicles in our industry; and finally, our expansion strategy. Firstly, slide 9 shows what's happening with revenues. The chart at the top shows national new vehicle deliveries, and you can see that has increased from very low levels during the pandemic. The shaded area shows the drop in vehicle size. The square box shows the vehicles that are 1 to 4 years old that were sold in the period mid-2020 to mid-2023, and we call that our service car parc. That is the vehicles that are most likely to be serviced with us. As you can see, the number of vehicles inside that service car parc will be increasing for the next 3 years. This means our service and parts revenue will continue to rise over the next 3 years. The bottom left chart shows our order rate or order growth rate and delivery rate. You can see that our orders used to be above our deliveries, and that is now no longer the case. On the bottom right chart is our order-bank, which you can see is reducing. This shows our order-bank has reduced by this day referred from previous years. It is still a good size, although I know that the age profile in the order-bank is getting shorter. We expect the order-bank will continue to reduce in the months ahead and continue to underpin strong revenue in the short term. I'll now hand over to Victor Cuthell, who will talk us through Slide 10 and lead us into the financial results. Thanks, Victor.

Thanks, Paul, and good morning, everyone. So on Page 10, we will talk about brilliant basics in our operations. Starting on our core business organic growth is a key focus and is an area where we use our size and scale advantage to achieve more for our shareholders and customers. To highlight a few examples, we have national support functions in areas like finance, administration, HR, WHS, where we use our scale to achieve efficiencies. We have the CapEx to improve our business and to roll out website improvements and other items that improve our customer journey. We are large enough to attract, to retain senior operational leaders who can see their career goal and who can flourish with us. We can use our buying power to secure favorable supplier terms. We have succeeded in delivering organic growth across most service lines. In new cars, we achieved 6.5% like-for-like growth, and we see good volumes continuing. In used cars, we are getting more trade-ins from our customers, and we are seeing some increase in used car sales as a result. It was great to see 18.9% like-for-like revenue growth in service and 9.8% in parts. This is underpinned by the factors mentioned on the previous slide, and we expect certain parts revenues to continue to grow. This is especially attractive given these are higher margin service lines. Our finance and insurance income has been lower, and I think increasing interest rates have made customers more inclined to shop around and less inclined to buy on the day in the dealership when making their financing decisions. As customers get used to higher interest rates and as delivery lead times are now a lot shorter than they were, we see clear opportunity here. All of this is underpinned by a level of diversity in our income streams and in our business. We operate across 3 states with more than 30 brands and in all vehicle segments from the volume segment through to premium, luxury and super luxury vehicles. Turning to Slide 11. I wanted to focus in on the biggest factor currently affecting our industry. Inventory increases have caused overstocking in some brands, leading to dealer discounting and lower margins. This slide talks to the actions we've implemented to tackle this area. Firstly, we enhanced our inventory management program. This involves a lot more tracking reporting, managing the inflow of vehicles, working with the OEMs in problem areas, moving vehicles between sites and a whole range of activities. In some cases, we implement hard limits on inventory levels and create a project to address a particular location. We strengthened our inventory management during the second half of the year as are increasing -- as our inventory was increasing. We were very pleased with our results and we are getting our inventory at the end of the 6-month period back down to the level it was at 31 December. Inventory levels have an impact on our margins and on our holding costs. So it's an important area for us to continue in FY '25. In addition to inventory, we also implemented other margin initiatives. You can see that we had a range of initiatives to drive our margin. Some that I would call out are reviewing our labor productivity, especially in the service area, managing our overtime and our labor costs more generally, revisiting our remuneration schemes to ensure our whole team are focused on margin, implementing cost recovery actions to ensure all of the costs embedded in gross profit are being recovered. Our focus on margin improvement initiatives will also continue into FY '25. Next year, we'll also see a lot happening in the electric vehicle space. So we'll turn now to Slide 12, which talks to that area. Starting on the top left, you can see what is currently happening with sales of new energy vehicles. As you can see, hybrid vehicles have seen their market share grow from 6.6% to 12.9%. This is being caused by a range of factors, including we suspect a cohort of customers who would like a lower emission vehicle, but they still have some reservations about moving to electric vehicles. Some of them might be concerned about range or resale value or infrastructure or maybe some of the overseas reports. This is being reflected in sales of battery electric vehicles, where their market share was crept up from 7.4% to 7.9%. Looking to the next few years, we will see the Australian government's new vehicle efficiency standards commenced from 1 January 2025 and then take full financial effect from 1 July 2025. Over time, we would expect high emission vehicles to become more expensive and in shorter supply. We suspect there will be strong competition in the new energy vehicle category, but a lot depends on the OEMs and their approach to the new vehicle efficiency standard. We think that will become more clear in the next 12 months. Whilst this is a difficult area to predict, our job is to meet our customer needs and help them choose a vehicle that suits their own particular requirements, whether that is electric, hybrid, plug-in hybrid or a traditional ICE vehicle. We're ready now, we have a range of models at different budgets with trained technicians, on-site charging and knowledgeable staff. We'll continue to invest and develop in this area in FY '25 and in later years as well. I'll turn now to our expansion strategy. On Slide 13, you can see that our business has grown threefold in the last 7 years. As you can see from the chart on the left, acquisitions have been a key contributor to our growth, and we have a strong track record. We carefully consider prospects based on EPS accretion, maintainable earnings, brand representation and of course, strong operations and teams that fit with the Peter Warren culture. The opportunity for synergies is a key element to the success of the strategy, including factors such as geographic location and operational alignment. There is still opportunity for us to expand. We operate in a very fragmented market with all of the infrastructure in our business to add new businesses. We have the expertise, the leadership, the funding and really all that is required for our expansion strategy. Having said that, the market is changing. Profits are reducing, new entrants are joining the market, regulations are changing, and I'm sure there will be some changes in market share. So as the market changes, we should modify our approach. The case is that we have to expand and add businesses over the longer term, but the current conditions mean that we have to be a little more capable in with what we bought. We need to make sure that the earnings are maintainable, we need to see excellent value for our shareholders, and we want the purchase to be compelling. So our plans are to continue our expansion strategy, but as the market is changing, we are changing our approach too. The market currently has businesses for sale, and we continue to appraise each opportunity against our criteria. We have completed a couple of very small acquisitions over the last 2 months where our criteria were met. That completes our business review, so I will now turn to Page 15 and our financial review. You can see here on Page 15 that we have consistently achieved strong growth in revenues over the year. Our FY '24 revenue increased to $2.47 billion and was up 19.4%. That organic growth occurred across all of our new cars, used cars, service, parts and aftermarket products. Total industry new car volumes grew as vehicle supply increased, and we delivered a record 32,429 new vehicles in FY '24. However, our underlying PBT reduced to $56.8 million, mainly due to 2 factors: the new car margins that we talked about earlier and the increasing interest costs. We'll dissect these factors over the next few slides, starting with the P&L on Page 16. Starting with revenue growth. Our 90% growth splits into 2 parts: 13.1 percentage points came from our acquisitions and 6.3 percentage points was driven organically. Our gross profit percentage reduced from 18.9% in FY '23 to 16.9% in FY '24. This reflects the reduction in new car margins that the industry has experienced since FY '22, and I'll talk about this on our next slide in a moment. Our operating expenses have been a very big focus this year, and we are pleased to see that this has reduced from 12.2% of revenue to 11.5% of revenue. This reflects both our strong cost control and our leveraging of fixed costs as we grew volumes and revenues. I'll dig further into our OpEx in a separate slide shortly. We've also called out 3 areas of one-off expense, acquisition expenses, legal costs and restructuring costs. We're not immune to rising interest rates and with the higher interest costs of $15.8 million being incurred in comparison to last year. $5.7 million related to higher interest rates and $4.5 million to increased inventory and $5.9 million from acquisitions. Our inventory balance is the most controllable of those areas, and that's an area we are heavily focused on. Our bottom line underlying PBT reduced from $81.9 million to $56.8 million and was within the range of guidance that we provided during May. Looking forward, we expect a continuation of some factors here: continued revenue growth, a lot of cost control and leveraging of fixed costs as volumes increase. Turning to Slide 17. We'll dissect our gross profit percentage movement on this page. Starting at the top, you can see that our gross margins have reduced since those peaks in FY '22 of 20%. The reduction in margins follows the increase in vehicle supply shown in the black dotted line. Global vehicle production has increased post COVID and this has fed into higher dealer inventories and increased discounting by dealers. Our gross profit margins have reduced from 18.9% last year to 16.9% this year. The bottom chart breaks down to 2% movement in margin and shows a 1.2 percentage points of that came from new car margins. 0.7 percentage points came from our acquisition of Toyota dealerships, which have the lower GP percentage, but still a very strong PBT percentage. Our margins were stable in most of our service lines, parts, service, finance, aftermarket and used cars. This reduction in margin is significant and is the reason why we have put so much efforts into our programs this year. Our inventory reduction program, our margin improvement initiatives and our cost control program. Slide 18 covers our cost control, and we were very pleased to see our OpEx reduce from 12.2% of revenue to 11.5%. Our cost control program saved $9 million per annum, incurring $1.3 million in one-off costs. We took actions on cost recovery, we reviewed our pricing schedules and the areas where we did not fully recover our costs were also tackled. We also took steps to hold firm on some of our costs as revenues increased. That made more of the benefits from the increased revenues slowed down to the bottom line. We did have some costs go up during the period, obviously, our acquisitions added costs, and we also had insurance costs go up by $2.8 million. Once we've taken out a lot of costs, we'll be continuing this program into FY '25. There are still opportunities around, and I'm shining my spotlight on some of the areas noted here on the page: labor productivity, more supply tenders, changing our processes. There's always opportunity on costs, and we'll continue our focus on this important area. Turning to Page 19, we show our cash flow statement with operating cash flow conversion of 85.6%. This is based on operating cash flow as per floorplan interest. The strong cash generation enabled us to invest in dealership CapEx. This included some EV readiness spend, but also the refurbishment of some of our dealerships. We also took steps to manage our interest costs by paying down borrowings and by funding some of our acquisitions from cash. Moving on to Slide 20, our last financial slide shows our net debt and property position. The key takeaway here is the low net debt that we have in our business. We have 27% LTV and a net debt-to-EBITDA ratio of 0.6x. This creates headroom for acquisitions, but we will, as we say, be very focused on getting excellent shareholder value in making any acquisitions. On dividends, the directors have declared a final dividend of 6.0 cents per share, fully franked with the record date for determining the entitlement being 4th September 2024. The dividend will be paid on the 2nd of October 2024. That completes the financial review. I shall now go to Page 21 to cover a few points on the outlook for our business. Firstly, we expect our revenues will continue to grow, especially in parts and service. We expect margins to continue to be favorable in service, parts, aftermarket and finance. However, new car margins continue to be under pressure. As a result, our big 3 focus areas for FY '24 will continue into FY '25. Our work on managing our inventory, our margin improvement initiatives and our cost reduction programs. On the energy transition, our focus will be on providing a range of fuel options to our customers so they can choose the options that best suit them. We're fully ready now we have more than 70 new energy models available, and we support the transition to cleaner fuels. Potential expansion remains the key part of our focus, but we will modify our approach to reflect the changing business environment. We're looking forward to seeing Andrew Doyle on 1 October when he will join our business as CEO and bring his experience and his talents to our people. That concludes the presentation part of today's call. As a reminder, there is more material in the appendices to this presentation deck, including our balance sheet and a number of P&L reconciliations. Both Paul and I would like to take the opportunity to thank the team for their hard work over the year, and we'd also like to thank you, our investors, for [ usual ] and your interest in our business for spending your time with us today. We know there's a lot on this week. Paul and I would be delighted now to take any questions that you have.

[Operator Instructions] Our first question is from the line of Phil Chippindale with Ord Minnett.

First question is just on the inventory management, just on Slide 11, you gave 8 sort of sub bullet points there about how you achieved really strong outcome in terms of the inventory management over 2024. Can you just talk to perhaps 1 or 2 of the key drivers of that performance? And then secondly, just given the strength of that achievement in the last 6 months, does that not make it a little bit harder in the next sort of 6 to 12 months to maintain a similar sort of level?

I'll have that, I'll kick this off, Phil. Obviously, there's a number of measures you can do on inventory control. You can go on manual release, which is holding the stock back from it coming in. You move stock around our dealerships in terms of where there's -- one product is heavier you move it to another dealership, you incentivize your DPs and managers. So they're just one of the few that we've implemented to make sure that we've put targets on them to get back to the levels in December for them by June. So there's a number of things that we put in place to make sure that the DP, the deal principle and all these managers and sales managers were all aligned to achieving those goals. Victor, is there anything you'd like to add on that?

Yes. I think Phil you just clearly asked about our ability to continue that into the next 12 months. And we do expect to continue to achieve results in relation to inventory. Yes, it's always -- the first couple of runs are all serious, but we do see more opportunity in this area, and we are going to be focused on that in the next 6 months.

Okay. Just touching on the OpEx reduction, and you've reduced that sort of OpEx as a percent of revenue down to 11.5%. You've spoken about your FY '25 efforts and you're going to continue to focus on sort of optimizing there. Do you think that, that percentage can continue to trend downwards over FY '25? Or do you feel like a flat performance there would be a pretty reasonable outcome?

My experience of this area is there's always more. And it's my job to make sure that we continue to go around different parts of the organization to pursue that. So I do think that we will continue to achieve a bit more cost reduction, and we would look to see that 11.5% to come down. We don't give forward guidance, so I wouldn't say what we'll get it to. I don't think it will come down by another 0.7 percentage points, but we do hope to see that number improve over the next 6 months.

Okay. And just on Slide 10, you've made a comment on the maintenance and insurance, sort of performance. And that revenue is sort of -- if we look at those comparisons, it has languished a little bit. You've pointed to growth drivers being the shorter delivery lead times. Can you just unpack the dynamic there over the last 6 months? Obviously, lead times are coming down already. So I just wondered if there's a little bit of a delay in terms of actually seeing that M&I performance improve. Is that a fair statement?

Phil, definitely you're seeing improvements because, again, in some lead times, we're at 6 and 7 months or 8 months, right? And people have got more time to shop around, look at the alternatives, et cetera But when now you're sitting there and you say to a customer, guess what, you can take the car into the week or 4 days, 5 days, that availability of being able to put the customer in the car, get the trade-in in as quickly as you can rather than being able to shop around or think about or listening to other people. It's definitely an advantage, and we're seeing that helping us -- our situation at the moment.

The next question is from the line of Elizabeth Miliatis with Jarden.

Maybe just briefly on the inventory levels to go back to the earlier question. You made a comment that you'll be trying to bring down the inventory levels back to sort of the December levels last year. Like how long do you think it will take for you guys to get back to those levels?

No, no. I said in my -- so we said in the statement that basically, like-for-like, we got our June inventory back to the levels we had in December 31, right? So we've achieved that. We achieved that at the end of June, and I see that being maintained and if not improving in terms of what we choose. So our June result in terms of inventory, like-for-like was the same as December 31, 2023. So I don't know if I put that across clearly. But definitely, the June inventory figure was exactly the same as December 31st, when you can compare like-for-like. And I think that's a good situation to be in and a good way to move forward as we go into this financial year.

Yes. Sure. Sorry, it was probably my apologies for that. And then perhaps just on the margin, the gross margin, are you able to give us a bit of a steer in terms of how much sort of margin compression we should anticipate broadly for the new car margins coming through? Or are you not happy to give further color on that?

Elizabeth, I'll just kick it off, but I think you just hit the nail on the head. I think the only thing we should be talking about is new car margin compression and talk about that, I think part service, F&I is continuing to remain strong in used car is great. So I'll hand it over to Victor to talk about new car margin and where he sees it, I might add a bit in the end as well.

Yes. So I think new car margins will continue to remain under pressure. And so with possibly a further deterioration in new car margins of a little. In terms of mathematical terms, what do we expect into -- over the FY '25 year? Again, we don't give forward guidance, but what I would flag is that and you would be able to derive from our numbers that are second half margin for the FY '24 year was 16.3%. And so that's an indicator of the kind of run rate that we're at. So that's not -- so I don't expect a lot of deterioration from that point but I think the FY '25 [ to your number ] will obviously be more in line with run rate than with the full year FY '24.

Elizabeth, if I could just add to that. The other impact is that the last -- sorry, the last 6 months of the financial year, we've seen record high inventory levels, not only in our group, but throughout the industry, OEM levels and all that. I expect that pressure to change in terms of everybody having what I call it, the [ hit in your head ] situation and getting back to sort of managing their stock a whole lot better, which I see personally that the compression on margins in new cars won't be as significant in terms of that downward spiral as it was in the last 6 months of the financial year. So summary, I see OEMs and dealership groups going well, we're up there, we had all this inventory and we've discounted, I don't see that pressure as much because I think we've got our house in order a whole lot better than where we were. And I think OEMs have sort of said well, what have we done here and how is that the profitability of our dealerships. So hopefully, that adds a bit as well.

Yes, it's fantastic. And if I can sneak one more in as well. Obviously, given the sort of challenges across the market, from an inventory level or margin level, perhaps some of the smaller dealers will be under pressure but it sounds like you're a little hesitant to go make acquisitions. Do you feel like it's a good opportunity to go in and buy a few things that you can then roll up into your group and extract some costs or you're just being very focused on your business and maybe doing a little less acquisitions versus maybe the [ last few deals ]?

I'll just add a little bit. Victor and I were on an industry conference call the other day with countries around the world. And they talked about M&A at the moment as onesie-twosies, right? And I go what's onesie-twosies, right? And they go, "Oh, well, all the bigger groups are sort of probably sitting back a little bit waiting for that". The onesie-twosies, the people with smaller operations are putting their hands up and saying, I've had enough of this, I am out. So pretty much in line with your comment, I see probably the smaller people thinking about what do I want to keep going ahead with this? Or [indiscernible] more time? It isn't going to get back to where it was in 2021. So around the world, they're calling it the onesie-twosies where the little guys are saying, "I've had enough of this I am out" and that wouldn't surprise me if that's what happens over the next year or so in Australia.

Yes. So we will make acquisitions if we feel that they're [indiscernible] right business for us, but we've got to make sure [indiscernible] properly and make sure the earnings are maintainable and we're getting good value for our shareholders.

The next question is from the line of Jack Dunn with Citi.

Thanks for taking my questions here. I know it's been done to death a little bit on inventory but I'm just trying to get an understanding here of when you see sort of the oversupply to Australia could sort of go back to normalized supply levels? And I understand most of this is driven by the NSCs, so is an expectation that you've ordered already, so calendar year '24, they can't do much about it, but calendar year '25, they can right size it?

Yes. So I think the color I would provide is that a number of the OEMs who found that their stock levels were getting high, took action to address that and communicated that to us a number of months ago. And so some actually just before the December period, but more in the January, February, March period, so their inventory level is going up. So in our industry, if they're placing production orders during the month of February, it's a few months at least 2 months before that vehicle is arriving here more like 3 months typically until it arrives here and then they'll take a little bit of time to get on to the [indiscernible]. So we think that a number of OEMs have already pulled the levers to tackle this area. It's not universal. Of course, there's -- every OEM is different but we do think that progress is being made in the industry in this space.

Jack, I will add on, it's Paul here. I'll just only add one thing. The [ MVS ] system that comes in effect, it comes in from January 1, but really doesn't take effect till from July 1st. So what we've got to understand is what OEMs stock they're going to bring in between January and June. And I don't know that and nobody knows that. But some of them might choose to bring in less, some might even choose to bring in more because once it's landed in Australia between January and June, it doesn't apply. It's from July onwards. So at the moment, nobody is declaring that because it's all product-driven and strategy driven. But I think that's something that we as a group, we've got to really be mindful of and what who's doing what and what -- how they're doing and what products. Hopefully, that adds a bit as well.

No, that's great. And just on the -- you mentioned a couple of OEMs who've gone with manual release. Are you looking at removing the manual release anytime soon or those OEMs …

I don't want to get specific, Jack. In some cases, we have removed those. And that's honoring, I guess, the relationships we have with OEM. We don't go on to manual release easily. We talk to the OEM, talk about what product they're coming, we try and move out their products around within their group. So they know we try to do that. And as soon as it's right in terms of getting off the manual release we do so. As I've said, we've come off for a number of them or a couple of them, and everybody or all the OEMs know what we're endeavoring to do and where we are on that. I think it just enhances our relationship with them.

Yes. Perfect. And gross margin, I know you talked of it just before, but trying to get an understanding of how many gross margins on new car compares to pre-COVID? And if you look at 2019 and '27 as comparison points, where are you today versus those sort of levels?

So again, we don't disclose hard numbers, but directionally, our gross margins are sort of currently higher than they were in the period immediately post COVID, so immediately prior to COVID when there was -- when there were some circumstances where all parts of the industry in almost all brands were absolutely stacked -- full of vehicles. And I think I would describe that as our margins are a bit above those margins.

But it varies by brand as well. We are again getting it specific on brands, some of the brands haven't come back as much. Some of them come back roughly the same, but it varies by brand.

Okay. Perfect. I'll just ask one more, and then I'll jump back in the queue.

Apologies to interrupt you there. If you could please jump back into the queue. Thank you. The next question comes from the line of Sarah Mann with MA Moelis Australia.

Just a question on, I guess, kind of the order book. So obviously, if you look at that slide that you put up, you can see that the order rate has broadly matched deliveries, yet the order book is down. So just wondering if that implies that you're seeing an increase in cancellation rates and so maybe where the cancellation rates are sitting versus historical levels? And any color around the drivers there?

Sarah, just before Victor answers this, I should talk that, that relates -- the order book relates only to new cars. We're finding new car order book, order rate remain the same, if not higher. So Victor I'll let you to talk about new cars please.

Yes. Great question, Sarah. The -- a couple of [indiscernible] is quite possible. So the solid lines on the left-hand side to the graph are like order take and the order bank on the right hand side of the tool [ for our purpose ] is not like-for-like. And so one of the items to flag is that our acquisitions which we [indiscernible] first of the year and one in March, are an area where we have seen our order bank reduced. In particular, we purchased 2 Toyota business and at the start of FY '24, and we made some inroads into the order bank in that brand, and that is a component of the answer, if you like, where if the order bank is reducing, but the order take and the deliveries are aligned. And the second thing is as -- exactly as you said, there is a cancellation aspect that we have experienced, and we had back in the heights of COVID, there were some individuals who placed orders with more than 1 dealer in fact. And so we have experienced -- it depends on cancellation [indiscernible] order bank is higher than what would have been the case in normal trading conditions a year ago. And so those 2 factors combined are the cause of the order bank reducing at a time when like-for-like orders are close to delivery levels.

Sarah, the other thing just adding to what Victor said is that the order bank decrease also varies by some brand as well, in terms of them repositioning themselves, in terms of price points and products. So it does vary by OEM brands a little bit as well.

Great. That makes sense. And sorry, this is just another question on, I guess, kind of inventory. But you have kind of mentioned that some of your OEMs recognize that stock levels are kind of too high and have been working with you, but we're also moving into a market where there's going to be increased competition from new entrants, which you guys also flagged. Just interested in -- I guess, firstly, what some of your OEM partners are doing to try and help incentivize you guys to move the excess stock? And then secondly, how they're thinking about market share move in light of new competition coming in potentially at a time when the market demand could weaken?

So yes. So first of all, what are OEMs doing to incentivize the reduction of inventories. And so I think the single biggest thing they're doing, of course, is getting back on TV and doing more campaigns. And so if you just need to switch the TV or the radio on to see that there is a return to the level of -- sorry, not to the full levels of marketing that used to exist, but at least some level of marking going on. That means considerably from OEM to OEM. And that's the largest driver in terms of incentivizing or changing the demand for vehicles. But probably the area where they're most active is in changing the orders that they are placing and the flow of vehicles into Australia. And so we have dealer [indiscernible] where we engage with OEMs, and we speak to them one-to-one or in a group and they advise us that they have reduced the number of vehicles that they placed for the forthcoming production orders.

And Sarah, I'll just add a couple of little things to that as well. I probably haven't seen more transparency now from OEMs than I've seen before, where they're sitting down with dealers and saying, because we're all high on inventory and they're taking us through what's going to hit us in the next few months and helping us plan our inventory a whole lot better. I haven't seen this for a long time where they've actually sat down in front of us and said, okay, this particular model is there, this is what's going to happen over the next 3 or 4 months, this is what we're bringing into Australia. And being a whole lot more transparent with us as dealers so that you can sort of understand what you've got in front of you and how you plan your sales force, how you're plan your marketing a few months out. That did used to happen a lot, but they're endeavoring to try and help us manage our inventory because our problem is their problem as well. And the only other thing I would add is that what also has happened is if you went back some months or 6 months, you had a problem with our ports in terms of ships coming in and whatever. The biggest problem in Australia at the moment is where they're storing the vehicles and the cost. It is a huge problem that the OEMs have -- the cost that they're incurring. And so it's in their advantage as well because they're finding it hard to keep cars on -- to put cars on land, and it's costing them the whole lot of fortune. So it's -- there's a number of areas that are impacting as well.

Final question from me. So just looking at your portfolio, with the new vehicle efficiency standards commencing from next year, like how comfortable are you that your existing brand portfolio can supply sufficient vehicles to comply with the standard? And then on top of that, like are there any other new brands that you'd like to add to your portfolio that would, I guess, kind of help you meet that transition?

Okay. So how about if I kick this off. I think Sarah you would acknowledge that we've got a very, what I call, breadth of brands, the right up super luxury, down to the lower volume. So we've got a breadth of brands where we can sort of -- as we've indicated earlier, put on the, what I call, on the shelves, take somebody off there, put that there in terms of our [ auto models ] strategy. So we're very much attuned to that. I think none of us at the moment in the deal will really understand who OEMs, what they're going to do under the new system by July next year. Remembering, they're out there working out their strategy, what brands, what models they're going to bring in and what pricing and whatever. And honestly, at the moment, we don't know as dealers, right? We know that there's some that have an advantage over others, but we're not fully exposed to what their strategy is on models, pricing and whatever. So at the moment, we've got to be -- I think we're in a great position with our breadth of brands, with our OEM relationships, but at the moment, it is really fair to say that we don't know who's going to do what, on exactly what product and exactly what pricing. We know that the Chinese -- there's going to be more entrants. And I would say as a group, we're being quite conservative and careful on that, and I think we should remain careful and conservative of that and just not take every opportunity to consider the value equation for the company. Victor, is there anything you want to add to that?

I agree with all that Paul.

The next question is from the line of Kieran Harris with E&P.

Just in terms of where you came in relative to guidance sort of towards the top end there, I mean, it sort of implies that the end of financial year sales were quite strong. So is it fair to assume that they came in a bit ahead of expectations? And could you give a comment perhaps on how sales momentum has persisted post end of financial year?

Sure. So we did come in further up the range. And I think there was a few things going on. We did see OEMs more active with campaigns in the June period and that helped. And we also had quite a bit of push in our business to make sure that we having issued guidance that we've got a decent result. In relation to the volume business, you would have seen on the graph that Sarah mentioned a few moments ago, where we had order take shown on the left-hand side and you would have seen on that, that there was a bit of an uptick during the month of June. And we don't -- we see that as seasonal, we consider that part of the end of financial year things that's coming back into the Australian automotive space. In the periods post 30th of June, we've seen our order take broadly consistent with what it's been in the period leading up to June over the last 2 to 3 quarters. So we haven't seen -- I know there are a lot of retailers reporting at the moment. We would not call out that there has been a step up or a turnaround or a change in the volume of retail business that the Australian customers are putting to retailers at the moment. We would see that do not take a simply normal seasonality, and we would want to see a number of more data points before we call the turning point.

Great. And just want to pick up on a comment you made at the May update, where you said that margins and performance are expected to remain above the levels seen pre-COVID. So I noticed you haven't repeated that particular statement. Could you just confirm whether that guidance still kind of stands? And just give a bit of context whether that's referring to growth or underlying ROS?

Yes. So I think first of all, it was not a deliberate intention that we will mix that statement that we made previously, and we do expect gross margins to remain a bit about what we were in the year prior to COVID. And in relation [ that ] goes through to PBT percentages as well. We are a little bit above where we were prior to COVID, and we would expect to remain a bit above prior to COVID PBT margin.

Great. And just one last one. You've mentioned again, M&A being a focus. Could you just kind of talk to where you can, I guess, what is realistic with the balance sheet and the current facility being more or less maxed out at this point?

Yes. So our view would be that our facilities are quite big, quite substantial. And we -- I'm sorry, let me rephrase that. Our funding capacity, we consider to be very high. We have a very low LTV at 0.6x EBITDA. What we've actually got in terms of facilities available to us, we tend to put a facility in place, use it and then pay it down. And we have the ability with some of our finance partners to go to them and input a new facility in place and increase it and have it there within a very short space of time in a week or 2 because some of the OEM financing partnerships we have are pretty much strong. So our view is [indiscernible] our view is that we have lots of debt capacity on our balance sheet. And if the right acquisitions become available to us and we expect them and the criteria that we talked about, then we would proceed to buy.

The next question is from the line of Jack Dunn with Citi.

Just last question. On the revenue growth you're expecting FY '25. I'd just want to understand what your thoughts are on the new car side of things and how you're seeing demand for the new car market? I know there are about a 1.26% mark in FY '25. But what are your thoughts going into FY '26 in the total cars in Australia?

Yes, great question. So you've seen in our graph that we deliberately called out that we're at a pretty high level at 1, 2, 6, 7 in terms of the number of vehicles sold till 30th June. And so that's a big number but we do expect volumes to continue to be strong. And I guess the reason for that is that if you look at the -- some of the data is available, the age of the totality of all of the vehicles on the road has been getting higher over the last couple of years. That's because there are many, you've seen on one of our graphs, there are many people who have not yet renewed their vehicle. And so where people have not yet renewed their vehicle, we -- that is something like 300,000 or 400,000 missing vehicle sales, I think it's a phrase the industry uses. And of that 300,000 or 400,000 we had probably only seen maybe 70,000 or 80,000 of those vehicles purchased in the FY '24 year. There's still missing vehicles, if that makes sense. And that becomes a problem in the age of the overall doing car parc. And that car parc was -- that car parc age was very, very stable and solid for many years, but has picked up quite a bit in the last few years. So we think that the people who have the 5-year-old car, the 5 and 1/2-year-old car, are still going to be interested in replacing it at some point. And we can -- we would expect the total industry volumes would remain high. I'm not going to call out 1240, 1260 or 1280, but we don't really see it going to 1150 or 1100 or anything like that.

Okay. Perfect. With any of your thoughts on the new car demand be around current interest rates, if they stay higher [indiscernible] that change your expectations?

No. I think we've got what we've got at the moment. Obviously, the cost of living pressures and all those sorts of things impact our retail deliveries. Fleets, jack fleets quite strong, we've quite a big fleet flat. So fleet and government remain very buoyant. If you -- our biggest problem is actually getting the equipment to the truck and all that sort of thing out the door. I hate to tell you how many orders we've got sitting there. But -- so I see fleet and government, which were quite strong and remaining very strong, I see used cars remaining strong, obviously, parts service [ or what ]. New cars, we're not seeing a big drop and we've seen a little drop in the order intake but nothing of the falling off a cliff or anything.

Thank you so much for taking my questions.

Thank you. Ladies and gentlemen, due to time constraint, we conclude the question-and-answer session. I now hand the conference over to Paul Warren for his closing comments.

First of all, thank you very much. And again, as Victor said before, thank you very much to our team that in difficult times to really put in a fantastic effort, lots of long-term employees, lots of people that have joined our business recently that our team is fantastic, and I just want to say thanks to that. To our investors that keep sort of supporting us and being with us and listening to us from Victor and I thank you very much. And again, thank you for this special very stressed period of time for you guys. Thanks for giving us that out today, I appreciate it. Thank you -- good morning.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect your lines.