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

Thank you for standing by, and welcome to the Peter Warren Automotive Holdings Limited H1 '25 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Doyle, CEO. Please go ahead.

Thank you, Kaley. Well, good morning, everyone, and thank you for joining us to discuss Peter Warren Automotive Holdings 2025 interim financial results. My name is Andrew Doyle, your Chief Executive Officer, and I'm pleased to be here to deliver my first results and also to look forward to seeing many of you over the coming days. And joining me today is our Chief Financial Officer, Victor Cuthell, who will assist me in presenting our results. Good morning, Victor. This presentation, along with the financial statements have been lodged with the ASX for your information and can be found on our corporate website. On Slide 2 of today's presentation you're going to find our agenda. I will start with a summary of our results, my personal review of the business since joining, actions that are already underway and some very clear views of the key focus areas we have and the opportunity that I see for the period ahead. Victor will then provide further details on our activities during the year before taking you through our financial performance. I will then wrap up with some comments on outlook. We will of course be delighted to take any questions you may have at the conclusion of our presentation today. Let's move then to the H1 financial year 2025 results highlights. On Slide 4 here we can see that the underlying PBT was delivered in line with guidance of $6 million to $8 million. We start the slide with our total revenue in the top left of the slide, which came in at $1.2 billion for the half, up over 2% on the prior year. Now this reflects the organic growth we drove in almost all parts of our business and the benefit of acquisitions we made in the previous financial year. Moving to the right, and as mentioned, we delivered underlying profit before tax of $7.1 million. This lower result was almost solely driven by new car oversupply, affecting margins across the automotive market, which we'll cover in more detail. Meanwhile, over the half, we were laser-focused on those items that we can't more directly control, including the high-margin aftersales business, where we saw very strong growth of 10.2% in service revenue and 4.3% in parts revenue. Moving then to the bottom left of the page and a key part of minimizing both our stock holding costs and minimizing new car margin losses in the current market is our disciplined inventory management program, which is cascaded throughout the organization. We intensified this existing program to significantly lower our inventory levels by more than $16 million over the period with both a disciplined reduction of the oversupplied stock and importantly, the intake of the right volume and mix of new car stock matching customer demand. We maintain a strong property backing with $225 million in property assets, representing a net debt-to-property ratio of 37%. And finally, the Board declared an interim dividend for H1 of $0.016 per share. I'll turn now to Slide 5, which lays out our underlying profit before tax bridge. As mentioned earlier, by far, the most significant impact to the PBT was the market pressure on new car margins due to vehicle oversupply, reducing our PBT by nearly $30 million. The impact of lower new car margins was partially mitigated by our cost-saving measures and a clear focus on organic growth, including maximizing the more controllable opportunities we identified in other service lines. These opportunities saw a $4.5 million gross margin benefit in addition to an $11.5 million benefit from prior acquisitions. Our net OpEx increase was due to $4 million of inflation, which was more than offset by a $5.2 million benefit from our targeted cost-out programs, which are ongoing. Finally, interest increased by $4.8 million, and Victor will dissect that in a few minutes. Now having been in the CEO role for just on 4 months, I'm even more motivated and determined to implement positive change at Peter Warren Automotive. And in this session, I will provide my early overview of the company and the clear actions that are already in place. If we turn to Slide 7 in the next section, I will cover 4 key areas: the industry trends that are shaping our environment and how we are positioned for success, the Peter Warren performance and plans in place to further drive this performance, my first impressions of the business and the clear opportunities we've identified, and finally, the initiatives we have already implemented in line with the growth and performance-orientated company. Now firstly, Slide 8 provides an overview of the recent developments in our industry. Now as we've all been reading about, it's going through the largest structural shift in more than 50 years. Some say the industry has never seen change like this before. Yet with change, I firmly believe comes opportunity for those that are prepared. We have been seeing a major movement of many OEMs towards electrification, a trend that is now stalling and causing significant investment pressure for those OEMs with legacy product portfolios and structures. Then there is the changing regional dynamic with massive investment from new Chinese entrants and their aggressive pursuit of market share. To add to this, we've seen a broader macro market forces, thanks to the global dynamic of a shift towards protectionism in North America and to a lesser extent, the EU, leaving Australia as one of the few markets with open access. Importantly, while this pressure is presenting a number of challenges in the industry, at Peter Warren Group, we see opportunities to capitalize on. As you'll see from the chart on the top right, we have seen significant growth in a number of OEMs, which has dramatically risen in recent years. And for a market of circa 1.2 million vehicles, we have almost 70 brands or we will have almost 70 brands in Australia by the end of 2026 and around 20 of these will be Chinese, and that's from just around about 6 today. Following the post-COVID chronic undersupply of vehicle production, OEMs have created increased market pressure with now oversupplied production and increased compliance costs due to regulations across the world, such as we have here with NVES, all within a market in Australia expected to be flat. In some brands, an older model lineup and lower customer demand translates to significantly lower new car margins versus other brands. Now whilst this picture is not particularly pleasing, at Peter Warren Group, we see the opportunity for the right retailers with the right mindset and professional management strength. And in particular, we see opportunities to drive a high-performance culture in the brands we represent and the businesses we operate, reducing the performance dispersion and solidifying our position as the OEM trusted performance retailer of choice. We see opportunity to partner with the right new entrants in a careful approach. We see opportunity to grow the business across our diverse revenue streams further being service, parts, used cars and finance and insurance, ensuring we have a healthier balance to help future-proof the business. And we see opportunity to pursue strategically attractive and accretive consolidation opportunities, including individual dealers and businesses that may not be geared up to or may not have the appetite to adapt to the changing environment. And to round that out, we will leverage our size, our scale and efficiency, along with our management expertise to capitalize on these opportunities. If we turn now to Slide 9, here we're trying to illustrate to you management's disciplined approach on the controllable aspects of our business. We have a disciplined cost-out project in play. But on the revenue side, you can see here that across our operations there are multiple revenue streams that we work on across the customer ownership cycle to help mitigate the impact of lower new car margins. For example, despite a new vehicle revenue decline of 9.1% due to market oversupply, which we have minimized where possible through prudent trading and management focus. And during this first half, the Peter Warren team has, on a like-for-like basis, working, if you like, anti-clockwise around this chart, reduced stock by $16.5 million in the 6 months from a June 2024 level, increased our used vehicle revenue by 7.5%, increased our parts and accessories revenue by 4.3%, our high-margin service business by just over 10%, and finally, increased our finance and insurance business by 1.8%, all within a flat market. This was a great effort, and my thanks go to our teams for their disciplined approach to controlling the controllables here and in delivering these outcomes. On Slide 10, I will talk to my first impression since joining Peter Warren Group and expand on some of the opportunities that I see. As an overriding comment, first of all, I'm very impressed with the caliber of the company and its people. I have personally visited every one of our 80-plus sites on multiple occasions and have had the pleasure of meeting most of the dedicated loyal employees that make up this great team. With over 65 years of track record and experience, our company has excellent brand partnerships, a strong and positive culture, a management team with extensive experience in managing dealerships through multiple previous cycles and very strong foundations. We have, I'm lucky to say, a highly experienced and active founder with a substantial shareholding, so is firmly aligned with shareholders' interests. We have a strong brand portfolio mix, acknowledging that some certain brands in particular sites are the main cause of the margin pressure we are facing, but I'll talk more to that in our reviewing our brand mix shortly. We have a very strong balance sheet with substantial property backing, which gives us good optionality to pursue our strategic goals. And we have a proven history of growth and acquisitions with 3x revenue growth achieved in just 7 years. And we are increasingly seeing vendors prepared to engage given prevailing pressures. I firmly believe all of this presents strong opportunities, which position us well to offset the cyclical new car margin pressure. At the macro level, despite an election in the first half of this year, we view interest rate relief, although modest for now, creating a more positive buyer sentiment, and there are already signals of this improved activity. Our cost-out models have already delivered savings. We will increase this with a focused sweating of our assets across our 80 sites, deeper scrutiny of our key suppliers and expense lines and further utilizing the latest digital technology where we can to drive workplace efficiencies. I will personally be driving an even stronger performance focus across our brands, which will further narrow the dispersion of the results across our sites. We also see scope to further optimize our brand portfolio in certain locations. And we do this by intensifying our performance with our long-term legacy brand partnerships while seizing in a measured approach opportunities with new entrants. I also mentioned pursuing growth opportunities in our other automotive revenue streams, which will be enhanced by mining our extensive Peter Warren database and further focusing on increasing our loyalty metrics. And finally, I see opportunity to extend our growth as the market dynamics stimulate further potential M&A in a fragmented market. And finally, in my opening presentation, turning to Slide 11, I'll talk to what this really looks like in practice. Specifically, what initiatives are already underway to actively manage through the cycle and to deliver improved profitability going forward. And I've broken this into 4 key areas of action: people, brand partners, operational excellence and inorganic growth. All of these are underpinned by our most important asset of all, our customers, which are, as I see it, at the center of everything we do. They have the strongest seat in our business, and our goal is always to deliver benchmark customer delight. So firstly, with people, we set a strong target-driven culture. In this structure, the teams have clearly aligned to targets that are regularly communicated and transparent. They know their objectives and they are incentivized accordingly. We have incredible loyalty in the Peter Warren Group, and my role is to continue to build our company as an employer of choice by helping our people grow careers at all levels of our organization, including via apprentice and management development programs. Secondly, with over 65 years in the industry, Peter Warren has built a reputation for our brand and OEM partnerships. And crucially, these relationships are close and trusted. We build on that trust with strong retail performance, best-in-class customer care and performance orientation and consistently driving our relative brand performance as a dealer into the top scorecard quartiles of those brands to remain the trusted partner of choice. At the same time, while the dynamics of the market play out, we are strategically yet carefully managing our portfolio of brands to maximize our profit in our legacy brands and potentially divest of poorly performing brands or sites. Thirdly, we see operational excellence as the key to driving success in the business. We focus on all the noncustomer impacting cost-out opportunities. We reduced our various dealerships dispersion performance, and we build on the strong inventory management programs. We grow our high-margin service lines, and we utilize smart technology to replace redundant tasks. And lastly, we will always be thoughtful and deliberate in how we approach our inorganic growth through accretive M&A, including strategically adding new brands to our portfolio. Our back-office efficiency, size, scale and market concentration make us an ideal partner, which we continue to leverage. And all of this is backed up by a strong balance sheet. We'll now move to the half year 2025 financial summary, and I'll ask Victor to go into more detail on our financial performance. Victor?

Thank you, Andrew, and good morning, everyone. I'll start with an overview of the first half of the year. On Slide 13 you can see our revenue has grown by 2.2% to $1.23 billion. That reflected growth in used cars, service, parts, finance, and also included the benefit of an acquisition. Excluding the acquisition, our revenue reduced as a result of lower demand for new cars. The graph on the bottom left of the page shows we sold fewer new cars than in the same period last year, a period which benefited from the fulfillment of large order banks. Our PBT reduced to $7.1 million, which was within the guidance that we issued of $6 million to $8 million. The largest factor causing that was the drop in margin, which I'll dissect in a moment. Turning to Page 14, we have our P&L. Our gross margins reduced by $13.3 million. That included a $29.3 million reduction in the new car department, excluding acquisitions. That $29.3 million included 2 main elements. Firstly, there was a reduction in the volume of new vehicles sold. And secondly, there was a reduction in the GP percentage on each vehicle. The second element was by far the biggest factor. The gross margin reduction was mitigated by the organic growth achieved in used cars, in service, in parts and in finance and insurance sales. Our OpEx increased by $6.9 million and included the effect of dealerships acquired since last year. We have achieved cost savings, and we plan to achieve more, and I'll cover that in a bit more detail in a moment. Our floor plan interest costs are up on the previous period on an ex acquisitions basis by $2.1 million. That's mainly because our stocks were very low in the prior period in July, August, September of 2023. Our run rate interest costs are now reducing as a result of our inventory management program. Slide 15 shows movements in our gross profit percentage, which, as Andrew has outlined, was primarily impacted by increased vehicle supply and lower new car margins. That factor reduced our margin by 1.8 percentage points on the prior corresponding period. Our margins remain attractive in other parts of our business, including service, parts, used cars and finance. The growth in these areas continues to support our overall gross profit with our margin accretion programs being an ongoing focus. The bottom graph shows our margin reducing over time as new car supply has increased. The most recent change in margin has been from 16.3% in the June 2024 half year to 16.1% in the December 2024 half year. Turning to Page 16, our operating expenses are one of our controllables and an area that continues to be a big focus for us. Our OpEx bridge shows that our acquisitions added $8.1 million of OpEx. Our cost reduction programs generated savings of $5.2 million, which offset the effects of inflation. We see ongoing opportunities to reduce costs in our business. As gross margins reduce across the industry, we continue to apply the spotlight to our costs. Our current programs include the items shown here on Slide 16, low-return locations, productivity, supplier costs, people costs and technology costs. Our OpEx as a percentage of revenue was 12% for the December 2024 half. That number has gone up as our like-for-like revenue has reduced. Our cost reductions have been okay, but they haven't kept up with our revenue reductions. The bottom graph also shows that our first half OpEx percentage is usually a higher percentage than the second half. We would expect to see that OpEx percentage reduce in the second half of the year. We also expect our floor plan costs to reduce a little in the second half of the year given our lower inventory levels and lower interest rates now being experienced. Page 17 shows our cash flow statement with operating cash flow of $29.2 million after floor plan interest. Our cash outflows reflect items that are expected to improve significantly in the second half. In the first half, we had a seasonal working capital movement of $5.3 million. In the first half, our CapEx of $6.8 million was higher than usual due to the expansion of 2 dealerships, and we expect a lower CapEx in the second half of the year. And our net tax payments in the second half of the year will be much lower following a refund received in January. The directors have declared an interim dividend of $0.016 per share fully franked. The payment date is on 26 March. I'll now hand back to Andrew to draw some conclusions and talk about the outlook.

Thank you, Victor. And so to conclude, we now move to the conclusions and outlook. And on the left is really just a reminder of the key takeaways for the first half, which I have talked to earlier. Clearly, market conditions have been tough, but we feel positive about all the things my team are doing that are within our control. While we don't see any near-term significant improvements to market conditions in the second half, it is worth noting the more moderate decline in gross margins versus the second half of '24 as we expect any further deterioration in new car margins to be offset by the clear management actions we have taken and will continue to take. This is consistent with what we said in December. As outlined, there are a number of areas where we can really drive tangible performance improvements, and these are priority #1 for me and for the team. Along with further cost-out initiatives we are focused on, these actions will see us emerge through the cycle in much stronger shape. In the meantime, we continue to assess expansion opportunities, both in the form of greenfield sites and acquisitions, but only where that strategic fit and returns are compelling. I look forward to updating you on our progress at the full year results in August. And now I'll hand back to the operator, Kaley, for questions.

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

Firstly, just on inventory levels. Clearly you brought those down noticeably in the first half. Can you just sort of give us a sense of maybe the quantum of production you're aiming for in the second half and how you're going to achieve that, please?

I'll go first and maybe Victor can add into it as well. I guess that the balance is probably the right answer to put. As I mentioned in my presentation, what we are aiming at is a clear movement of aged stock or stock that is not appropriate for the market right now. But more importantly, we're focusing on that, which is coming in, in our production planning. And we're being much more collaborative, if you like, with the OEMs in terms of ensuring that we are getting the right mix of stock coming through. So that is improving both our stock level, as mentioned, we reduced by $16 million, more than $16 million over the period, but also improving the health of the mix of the stock is our objective over this period of time.

Okay. Just touching on the OpEx line. You've guided in the second half that, that percentage of revenue should go down from the 12%. But you do have a helpful slide in there that shows that there's a seasonal aspect to this. Are you making moves in addition to that to lower the OpEx? That's my first question. And the second one is, what have you sort of assumed from an inflation standpoint in OpEx in the second half? Should we -- that $4 million run rate increase in the first half, is that sort of a similar level we should assume going forward?

So to tackle the first question, yes, we have additional cost-out projects continuing in our business. And so we do look to achieve some results from that going into the second half of the year. Secondly, we are working on the assumption that inflation will be broadly similar to its current run rate. Yes, it might tickle down 20 or 30 bps, but we're working on the assumption it will be broadly similar.

Okay. Just on Slide 9, you've broken down sort of the like-for-like moves in your revenue. The main one sort of stands out to me there is just the F&I number that was only up sort of 2%. If we compare it to the used vehicle number, it was significantly higher and service obviously was really strong. Can you just talk to the F&I component and perhaps what drove that more modest increase?

Yes. The driver of that is the lower number of new vehicles sold on a like-for-like basis. And so whilst used went up, as we've said here, new like-for-like went down. Our actual finance revenue per unit sold is actually cumulative.

Okay. Just finally, maybe you can make a comment on sort of the performance of the business over the last 7 weeks since 1 January. Clearly, we can see the [ VFS ] data, but probably more a comment around that margin side of things is what I'm after there, please.

Yes. Maybe I can take that. The [ VFS ] study, as you say, showed about a 3% reduction, I think, in January. Order intake anecdotally has been more activity, I would say, over the last weeks, but it's a mixed bag. I would say the margin activity has been consistent with where we've been as we continue to work through our stock levels. But more importantly, the activity has been a little more favorable than it has been over the last 6 months. And the rate of decline, I think you can see in our order intake that might have incurred in the second half is also slowing. So actually, I would say it's generally in a more positive phase over these last weeks, but it's still early days in this half.

Your next question is from Elizabeth Miliatis with Jarden.

Just the first one around your comments saying there's a number of cost initiatives offsetting any continued margin pressures. And then in addition to that, sort of the work you've done around inventory should help and obviously rates coming off. In the second half versus the first half, should we assume sort of the PBT margins in aggregate then are sort of holding steady given all those comments?

Yes. I think the steady hold in PBT margins is the right ballpark to be in. We've said in our ASX announcement that at an overall level we would expect the management initiatives to offset any further declines in margins and a consistent PBT percentage is probably consistent with that. If it were to move, it would be very, very marginal. As in single bps.

Yes, yes, indeed. And then just perhaps just on the acquisition side of things. Obviously it's a very challenged market and still very fragmented. And so I imagine it's really hard to sort of withstand some of these pressures if you're a small player. Do you see that there's more opportunity coming to you in this environment and particularly at hopefully a lower multiple and potentially something which can fuel earnings in the near term? Or is that not a key focus currently?

It's always on our agenda in terms of what opportunities might be at play. As I said earlier, for us, it's very much about a measured and careful approach to make sure we do look at the right level of acquisition. But I do think that the industry is changing, as I mentioned in my introduction earlier. So I think as a fragmented market that you mentioned, it does give potentially some operators the time to think that maybe now is not the time to remain in the industry long term. That doesn't mean there's activity on the go, but I think that is certainly a general comment across the marketplace.

Okay. And just if I can sneak in one final one. Just on particular brands, you've made a few comments through your presentation about certain brands being more [ inferred ] than others, and there will be potentially increased scrutiny across your suppliers. Are you seeing any particular areas of weakness that you think you might reassess? Yes, any color there would be helpful.

So I think Peter Warren Group has more than 65 years of heritage. Back in 1990, 2000, 2010 and 2020, the Peter Warren Group adjusts for what the market requires in terms of customer demand. So if there is both an underperforming business or indeed a business that is not meeting the customer demand, I believe we should look at it. But I really want to emphasize that, that's a measured approach. We have some incredibly strong and outstanding performing businesses and brands, and they are our partners for long term and will be our partners for long term, and that's what I talked about OEM relationships. But like any good business, we have to look at those businesses that are perhaps not sweating our investment as best they could. And so in those areas, we will look for some measured change.

Your next question comes from John Campbell with Jefferies.

Just back to GP margins. And when we look at the U.S. market, and they give much better granularity, it looks like GP profit or gross profit per new and used vehicle has been coming down substantially over the last sort of 1.5 years. And from what I can see, it looks like used -- the profitability per vehicle of used is back to sort of pre-COVID averages. Whereas new, even though it's come off a long way, new is still quite a way ahead of pre-COVID. And I guess the question would be, what's your sense? Is that reflected in Australia as well? Are you seeing sort of profitability around used is sort of back, you might say, is sort of historic levels and new is still elevated? Just any comments on that, that would be great.

So maybe I'll just give a couple of opening comments and maybe Victor can give you more granularity. But in terms of supply in the used car market, that is still relatively tight. So that is assisting with margins. And of course, we are coming off quite a high level of margin in new car business despite the competitiveness of late. So my view is used cars will remain quite a positive margin movement. And new cars, I think, will equalize a little over time. But Victor, maybe you want to add a bit more.

Yes. I'll add. So I echo those comments on used and that it's a positive environment. I'll just build on new cars. You mentioned new in the U.S. being still elevated prior to -- in relation to pre-COVID. That's not what we're seeing in Australia. In Australia, there is a significant oversupply in the market and a highly competitive market that Andrew has touched upon. And so the GPUs being achieved in Australia and the GP percentages being achieved in Australia are not in line with that elevation in the U.S., and they are much closer to pre-COVID levels.

That's very helpful. Just one other question, and apologies, I sort of came in a little bit late and you may have spoken about this, Victor, in the preso. But just in terms of sort of net interest expense, which was up, obviously, for the reasons you explained. In terms of the second half, with base rates coming off, but still, I guess, elevated versus PCP. I mean, would it be right -- would we be right in thinking we could just maybe annualize that first half figure plus a bit, plus a bit on top and then beyond that, presumably start to see benefit of lower rates?

I'm going to get myself in trouble here. I'm hoping to achieve a number that's no worse than the first half because the inventory levels are coming down. Yes, the interest rate is -- it only applies to 4 months of the half, and it's only 25 bps, but our inventory is the fact -- yes, I exclude from that AASB 16 interest, but all other interest we're targeting for it not to go up.

Your next question comes from Chenny Wang with Morgan Stanley.

Maybe just first one on the inventory dynamics over the first half because it wasn't too long ago that you guys called that being too high to oversupply. And now I guess, like-for-like, it's down versus 30th of June 2024. So I guess, how did you manage that down so quickly? And did you have to discount deeper to reduce some of that aged stock, reduce some of that, I guess, unfavorable mix that you talked about earlier?

Chenny, thanks for the question. As I mentioned in my presentation, quite a disciplined approach that was cascaded through the organization. So every single one of our operators received effectively targets to reduce their stock accordingly in a fairly disciplined approach. You're seeing the impact of some of that on the gross margin, and that has been something that we've had to process through the business. But I think it's the right measure to bring it back to where it is so that we can enjoy a better mix of stock and also a better floor plan cost overall.

Got it. So I mean, I guess with that kind of context because on your gross margins, that decline that you guys were experiencing in prior halves. Looks like it was really arrest in this half, right? Like versus the second half of '24, gross margins only declined something like 20 basis points. So like given that kind of dynamic around managing some of that inventory in the first half and that having an impact on gross margin, were there any kind of one-offs in that first half GM that we should be thinking about going forward? Because it does kind of feel like you guys have found a base. And I know you guys have, I guess, talked to some of that in your presentation. But yes, just kind of interested if there were any other one-offs that we should factor in going forward for your gross margins?

Yes. Yes. I clearly understand the question being, have you had a hit in H1 margins as you cleared stock? And what is bearing on the outlook. As a headline, yes, we did get a good exercise on clearing out stock. It was a measured sensible exercise, but we did a good exercise to do that. And we continue to highly focus on stock and stock aging. I wouldn't say there was a huge impact in the first half in terms of GP margin from cleaning out that stock. And I would say also that we do see ongoing pressure in the new car margin area. So as I know you like to do, when looking at the outlook for it, I would not factor in that H1 had a significant GP percentage hit from that exercise. The other thing to mention is that the H1 FY '25 GP percentage of 16.1% that is shown on Page 15, had a little bit of benefit in there from revenue mix. And by that, I mean an increasing proportion of revenue from high-margin areas like service and parts and a lower proportion of revenue from new vehicles. So the 16.1% has benefited a little bit of that, which is why we still talk about ongoing pressure when there has been a bit of slowing in the rate of GP percentage decline. The converse for the future obviously applies, which is as new car revenues go up, there will be a little bit of revenue mix impact as well, just a little.

Got it. No, that's super helpful. And then just maybe one last one for me. And sorry to kind of harp on the new side. But I guess just in terms of supply more broadly, you guys are kind of still talking about elevated supply out there. But I guess, as you kind of speak to your OEM partners, maybe even some of your counterparts, how do you think your brand partners are looking to balance market share, supply and profitability going forward? Obviously, there's a bunch of fluid dynamics, but the last 6 months, maybe the last 12 months is probably a taste of more of what's normal than the post-COVID uplift in profitability for the entire industry. So as we kind of get into that new normal and some of that has started to flow through, not just dealer results, but also OEM results, like how have those conversations with your OEM partners changed? How is their attitude towards market share supply and profitability here in Australia changed? Yes. Any color there would be super helpful.

I can probably take that one. I think it comes back to what I mentioned earlier in terms of one of the strengths of Peter Warren Group and I'm sure also many of our colleagues in the industry. We have very good relationships with OEMs. We have very direct conversations with our OEM partners about the situation, and we're very transparent in open book. So when we look at our performance and we look at the impact of what we've had to do with oversupply, bearing in mind that a lot of our suppliers have a long lead time in production to arrival, that is being corrected as best as it can be by OEMs. Obviously, they've got pressure as well from their head offices in terms of production. But we all have to make sure that we have the right balance of supply and demand. And I think what is coming through is new product that is fresh and appropriate for the demand mix, if you like. But that takes time. And so that's why we're cautious in our sort of outlook in terms of how quickly that will improve, but it's very much an open topic with us and the OEMs going forward. Victor, do you want to?

Just, yes, let me just add to that is like many dealers, we have a good relationship with providing feedback to the OEM, and they adjust their production orders based on what we can tell about customer demand. The amazing thing in the Australian industry at the moment is the changing nature of consumer demand. You can see one of the slides shows the graph of hybrid demand increasing. And so they see that happen and they look to modify their production. And you know what, in 12 months' time, it will probably change again. So it's a tricky industry at the moment, but we work closely.

[Operator Instructions] Your next question comes from Sarah Mann with MA Moelis Australia.

First question for me is just, I guess, on the GP margin comment about potential for new car margins to kind of remain under pressure in the second half. Just wondering if you can give us any color around what some of kind of the management initiatives you're undertaking or have undertaken already in the first half that could kind of offset that in the second half?

Yes, I'll talk about a few, and then Andrew will probably pitch in with his commentary as well. So first of all, inventory management is very high on our list in managing the margins. And that involves first of all, careful ordering of vehicles coming in, making sure we're not oversupplied on particular models, which are softer in demand and also not oversupplied in particular brands. So that's a big item. Swapping cars with other dealers, clearing cars doing marketing campaigns that are funded by OEMs and fully participating in those and really setting our business up for success in this area with having targets for our teams and performance managing on a side-by-side basis. That's the new car area. In terms of overall margin, obviously we're pushing the higher-margin revenue streams and having some success in service, parts, finance, et cetera. And as I touched on earlier, ensuring that we get a high, what we call whole of growth across the sale of the car. That is the gross profit from the aftermarket, from the financing and potentially even from the used car trading as well. So we've had quite a bit of success, as we've talked about, in driving those like-for-like revenue streams. You've seen one of our slides on that. And we are really making good inroads on our inventory management. Andrew, anything else you want to add?

Not too much. No, I think you -- I was going to mention exactly that swapping. With a number of our brands, we have locations across the country. So we have the benefit of looking at our pool of stock as well apart from swapping with other dealers. We also have the efficiency of swapping with our own partner, our own brother and sister businesses across the country to match stock to customer demand. And then really, I think as I mentioned a little bit earlier as well, but it's about sort of active forward planning. So what's coming through the pipeline, what have we got in terms of our ordering profile and matrix going forward? And how does that match to our loyalty metrics in terms of actively mining our database to ensure we can proactively approach customers.

Makes sense. And then the other question is a broader one, but you've kind of alluded to how the market conditions are really evolving at the moment with new Chinese OEMs coming into the market. How do you think about your portfolio mix in this regard? And I guess the follow-up question to that as well is, are the economics of a Chinese brand franchise much different from the incumbent brands that you already work with?

So I mentioned it earlier in terms of -- this is very much a measured approach. So when we talk about potentially underperforming sites or even brands and new entrants, we have a legacy of a number of brands that we are enjoying a very, very long and will enjoy a very, very long relationship with. So here we're talking about some minor adjustments where it might make sense. And really then it's about consistently offering the right sort of mix of product to the Australian consumer because it doesn't really matter about what we want or what will respect the OEMs want, it's what the customer wants. And so there is very much an appetite there for us to look at that, and there are obviously discussions happening around that, but it is a measured approach. So that's the first thing. So we will do that in a very careful way and do it in the right way. And importantly, when we do that, we are utilizing existing assets. So existing showrooms or existing sites with a low capital investment required. So actually, it's a very efficient start-up operation. In terms of the metrics or the trading terms, they I would describe as being rather traditional, in fact, in terms of a margin model. And therefore, I think could offer good financial benefit going forward with the right price and the right level of margin as long as we get what we believe would be the right level of turnover.

Excellent. That's really helpful. And then last one for me, and sorry if this has already been asked, but just M&A outlook, given more challenging market conditions, does that throw up more better priced acquisitions? And if so, I guess, how are you thinking about that in the current market?

Yes. No, I mentioned before, Sarah, but for us, it's never off the agenda, and I think it's always about having a measured sort of view to what comes across our table. And I think without saying there's anything on the table at all right now, there would be many partners in what is still quite a fragmented marketplace, thinking about the market. And that's where I believe Peter Warren Group has a very, very strong competitive advantage in terms of our size, scale and opportunity.

Your next question comes from Greg Hoffman with Hoffman Capital.

My question has already been answered.

There are no further questions at this time. I'll now hand back to Mr. Doyle.

Well, thank you very much, Kaley, for that and for organizing today. And thank you, everyone, for your time for dialing in and to listen to our plans and our results. Thank you very much to the Peter Warren team and to my management team for their very, very strong efforts over the last 6 months, especially. Thank you also to our OEM partners and friends and for everything they've done for us over this period. And of course, thank you very much to our ongoing shareholders for your support and ongoing support. We appreciate it. And we look forward to continuing to drive the performance of the business and coming back to report in the coming months on that performance. Thank you very much for your time, and have a great weekend ahead.

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