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Edited Transcript of MMS.AX earnings conference call or presentation 28-Aug-22 11:00pm GMT

·33 min read

Full Year 2022 Mcmillan Shakespeare Ltd Earnings Presentation Melbourne Sep 8, 2022 (Thomson StreetEvents) -- Edited Transcript of Mcmillan Shakespeare Ltd earnings conference call or presentation Sunday, August 28, 2022 at 11:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Ashley Conn McMillan Shakespeare Limited - CFO & Company Secretary * Rob De Luca McMillan Shakespeare Limited - MD & CEO ================================================================================ Conference Call Participants ================================================================================ * Chenny Wang Morgan Stanley, Research Division - Equity Analyst * Paul Buys Crédit Suisse AG, Research Division - Head of Research and Director * Phillip Chippindale Ord Minnett Limited, Research Division - Senior Research Analyst * Scott Lyndon Hudson MST Marquee - Emerging Companies Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the McMillan Shakespeare Limited Full Year Results FY '22 Conference Call. (Operator Instructions) I would now like to hand the conference over to Mr. Rob De Luca, Managing Director and CEO. Please go ahead. -------------------------------------------------------------------------------- Rob De Luca, McMillan Shakespeare Limited - MD & CEO [2] -------------------------------------------------------------------------------- Thank you, Surrey, and good morning, everyone. Welcome to our FY '22 full year results presentation. My name is Rob De Luca, and I'm the CEO and Managing Director of the McMillan Shakespeare Group. I'm joined here today by our Chief Financial Officer, Ashley Conn. I would like to start by acknowledging the traditional custodians of the lands on which we meet and pay my respect to their elders past and present. I wanted to commence by saying that it's an exciting time to join McMillan Shakespeare. Firstly, the current labor market dynamics are highlighting the importance and need of a strong employee value proposition by employers to their employees through means like salary packaging, particularly in light of the rising cost of living. Secondly, the increasing value seen in plan management by participants in the National Disability Insurance Scheme being reflected in the increasing uptake as the scheme continues to expand. And thirdly, the increasing interest from our customers in reducing their transport-related emissions through transition to electric vehicles and how we best help them on this journey, particularly in light of the government's Electric Vehicle Discount Bill. As we move through the presentation, we will be referring to the slides that we released with our results this morning. The financial information is unaudited and remains subject to change. We will be happy to take questions at the conclusion of the presentation. Moving to Slide 2. I'd like to commence by touching on what I see as key highlights. Firstly, we were able to deliver strong financial performance for FY '22 with increased revenue and profit underpinned by growth across many key metrics, which we will talk to this morning. Importantly, our performance was achieved in an operating environment impacted by the ongoing global motor vehicle supply constraints. Secondly, a focus on client engagement and the customer experience is driving increased business activity and momentum. Thirdly, we are taking action to simplify our business, including having exited our Davantage warranty business and CLM fleet management business. Fourthly, we have moved our FY '22 dividend payout ratio to 100%, which is fully franked and in line with our revised dividend payout ratio of 70% to 100% of UNPATA. And finally, we have announced an up to 10% off-market share buyback. We move to Slide 3. Before I touch on the financial performance, I'd like to point out that we are using a term called normalized, which excludes the impact of our new warehouse funding facility Onboard Finance and excludes JobKeeper in the prior period being FY '21. Ashley will cover this in more detail later. In FY '22, normalized revenue increased by 9.2% to $594.3 million and normalized UNPATA was up 16.5% to $83.8 million for the period. Statutory net PAT increased 15.2% to $70.3 million for the period. Our return on capital employed increased to 38.6%, while normalized EPS grew by 16.5%. Our final dividend was $0.74 per share, bringing our total full year dividend to $1.08 per share. Slide 4. This slide highlights the outcomes of our customer focus and how this has translated into underlying growth across business segments and underpinned our Net Promoter Scores ranging between 51 and 53. Within our Group Remuneration Services segment, we had significant client wins, including the Victorian Department of Education and Training. During the period, we continued to invest in digital capabilities with attention to meeting the ever-increasing needs of our customers to improve how they engage with us and increasing distribution access. Our digital initiatives during FY '22 included the introduction of new Maxxia and RemServ chat bots and a live chat experience as well as enhancing our Digital Estimate platform. We also successfully launched our funding warehouse, Onboard Finance, which Ashley will talk to in further detail. In our Plan and Support Services segment, we successfully completed the acquisition of Plan Tracker in July 2021. In FY '22, we invested in our digital capabilities to provide our customers with tools to help navigate the NDIS as well as making enhancements to our customer dashboards to encourage greater self-service. Our Asset Management Services segment performed well across all 3 businesses, namely Australia, New Zealand, the United Kingdom and aggregation with the net amount financed across the segment, up 13.9% year-on-year. In our Australian and New Zealand asset management business, we simplified our branding across Australia and New Zealand, aimed at enhancing brand recognition and experience to businesses operating across both geographies. The period also saw the business take significant steps to educate and assist our customers reduce their carbon footprint. As EVs become an increasingly important option for our customers over time, we will continue to enhance our capability, products and services to support their transition. If we move to Slide 5, I mentioned in my introduction about a number of key focus areas of the year, including simplifying our business and enhancing shareholder returns. I want to spend a moment touching on these as they are important in how we think about the business moving forward. Firstly, during the year, we created 3 segments to better reflect the Group's capabilities, products and markets in which they operate. These are GRS, PSS and AMS. As previously mentioned, we divested the Davantage Warranty business in September 2021 and the CLM fleet management business in May 2022. We will continue this process by exploring exit options for our remaining U.K. businesses in FY '23. Secondly, we have announced a 100% dividend payout of normalized UNPATA for FY '22 with a new and revised dividend payout policy of 70% to 100% of UNPATA. And lastly, we have announced this morning an up to 10% off-market share buyback. Ashley, will talk further to these capital management initiatives in a moment. On Slide 6, I'd like to talk about the progress that we've made in implementing our sustainability strategy. MMS developed our first Group-level sustainability strategy in FY '21 to guide our actions on how we make a positive impact on the environment and the communities in which we operate. FY '22 was the first year of implementing this strategy, where we are focused on laying important foundations to implement impactful sustainability initiatives for the future. In FY '21, we established a net zero carbon emissions target by 2030 for our direct operations. In pursuing this target, we have now converted all of our controllable sites in Australia to 100% green power contracts. We also began switching our company car fleet to electric vehicles with 18% of the Australian fleet now transitioned to EVs. These initiatives contributed to a Group achieving a 24% reduction in our greenhouse gas emissions compared to the previous financial year. Our brands, Maxxia, RemServ and Interleasing took significant steps to support and educate our customers in their transition to a low-carbon future through the adoption of low and zero emissions vehicles. This has included customer education and promotion of electric vehicles through our marketing channels and undertaking EV trials with customers. During the year, we launched our Reflect Reconciliation Action Plan, which focus on creating better opportunities for First Nations Australians. Additionally, we introduced our Accessibility and Inclusion Plan to make a further difference for our people and customers living with disability. The health and well-being of our people remained a key priority for the Group during the period as our staff adapted well to hybrid working arrangements. We invested in supporting the mental health of our people and reignited our internal leadership programs that enabled our leaders to reconnect and collaborate in person. We also achieved a sustainable engagement score of 83% through our last survey. Now on to Slide 7. We welcome the federal government's Electric Vehicle Discount Bill introduced into the Parliament on the 27th of July 2022 to exempt non-luxury 0 and low emissions vehicles from fringe benefits tax. Under this proposed legislation, government has stated that for a vehicle of around $50,000, it will save the employer up to $9,000 a year and for individuals using a salary sacrifice arrangement to pay for the same model, their saving would be up to $4,700 a year. Across our GRS business, we are well positioned to assist our novated customers transition into EVs under this policy, whilst our Interleasing business looks forward to supporting organizations who will have greater financial incentive to transition their fleet to EVs in line with their sustainability commitments. I'll now pass to Ashley. -------------------------------------------------------------------------------- Ashley Conn, McMillan Shakespeare Limited - CFO & Company Secretary [3] -------------------------------------------------------------------------------- Thanks, Rob, and good morning to everyone. Once again, this year, we've included a Group UNPATA bridge that highlights a 9.2% improvement on normalized revenue at $594.3 million. Normalized EBITDA up 7.2% to $132.7 million. Normalized UNPATA also increased by 16.5% to $83.8 million and normalized earnings per share of $1.083 per share was up 16.5% as well. As Rob mentioned earlier, the financial results are on a normalized basis. Normalized refers to adjustments made for the negative earnings transition period for the implementation of the funding warehouse, Onboard Finance. It normalizes for the warehouse's in-year operating and establishment costs and for an adjustment for commissions that would have otherwise been received in period had the sales being financed through a principal and agency funder rather than through the warehouse. Normalized financials are stated for FY '22 and FY '21 for comparative purposes and are currently expected to be stated up to and including FY '25. For FY '21, normalizations only include an adjustment to remove the impact of JobKeeper. For clarity, for FY '22, normalizations to UNPATA was $1.7 million and for EBIT, $2.4 million. A reconciliation of NPAT to UNPATA and to normalized UNPATA is included in the appendix of this presentation. Moving to Slide 10 and our balance sheet. Our balance sheet remains in good shape with a net cash position, excluding fleet funded debt of $151 million. The total debt to EBITDA dropped to 0.4x compared to 0.5x this time last year. Gearing, Group gearing decreased to 17% and our interest coverage of 34.8x. All of these have significant headroom to our covenants. In Asset Management, debt is now $177 million, resulting in a gearing ratio of 66% of written down value of the fleet assets below our 80% bank covenant. Importantly, in August, McMillan entered into an agreement to obtain new 5-year debt facilities totaling $60 million to support working capital requirements. Moving on to Slide 11 and cash flow. Cash flow here is split into our 3 segments plus corporate and unallocated. The Group generated free cash flow before fleet funding of $127.6 million, a 155% UNPATA cash conversion. Impacting cash flow, it is important to note that during the period, we benefited from the tax instant asset write-off and also achieved -- also received a cash payment in relation to a one-off transaction relating to revenue payable in the future that will be recognized in the future. Both of these positive impacts on cash flow will unwind in the future. Other elements of the cash flow include the capital expenditure of $9.3 million. And as flagged at the half, we transferred with the sale of the retail business in September 2021, and combined with cash transferred under the CLM sale totaled $22.4 million. Consequently, as a result of these sources and applications of funds during the period, Group cash on hand now sits at $161 million. Moving to Slide 12. An important milestone was achieved this year with the launch of our funding warehouse, Onboard Finance. We established Onboard Finance to diversify funding sources and create an annuity income stream with a higher NPV per transaction. We commenced funding novated leases with Onboard in the fourth quarter of the year. And in FY '22, it funded $1.5 million of leases. As mentioned, we are aiming to fund approximately 20% of our novated leases through on board, and we expect to achieve this run rate during FY '23. It's important to note that in terms of the financial impact of the warehouse facility, it had a negative impact, as mentioned, of $1.7 million on UNPATA in FY '22. And this is expected to increase to approximately $11 million in FY '23. Moving to Slide 13. MMS considers its use of capital going forward and we have decided that we will prioritize our cash flow as following. We will invest in the business through operating and capital expenditure for sustainable growth to fund strategic acquisitions for deleveraging when required, then returns to shareholders, primarily its franked -- fully-franked dividends, and then where surplus capital remains consider share repurchases. In relation to the Group's dividends, we've committed to a dividend payout policy that will return between 70% to 100% of UNPATA to shareholders via dividends. During the warehouse transition period, as mentioned earlier, currently expected to be FY '22 to FY '25, the UNPATA used for the dividend policy will exclude the impact of the warehouse, so normalized UNPATA will be used. Accordingly, our end-of-year dividend is $0.74 per share, which brings the full year dividend to $1.08 per share, which is a 100% payout ratio of normalized EPS. Please note that the final dividend will be payable post the completion of the off-market buyback, which I will now discuss. So turning to Slide 14. Today, we have announced an off-market share buyback of up to 10% of our shares that will include a significant franked component. I would like to direct you to a separate announcement that has been made with the full details of the off-market buyback. And I would encourage shareholders to read carefully this document when considering if to participate. The benefits of the buyback include returning surplus capital to shareholders, including a significant franked component subject to ATO finalization, McMillan purchasing its shares back at a discount, improvements to EPS and return on equity and the utilization of excess franking credits. There are a few highlights that I would like to outline, including that we are targeting up to 10% of our shares on issue at a discount of between 10% to 14% to the buyback price as it will be established in October. Subject to ATO confirmation, the buyback consideration is expected to be $0.99 per share of capital component with the remainder to be a frank dividend. Key dates include 2 September being the last day that shares can be acquired to be eligible to participate, 21 October being the date the tender closes, the 24th of October, an announcement of the buyback price and scale backs, the 30th of October being the date the buyback will be completed, the 1st of November being buyback proceeds will be dispatched to the successful participants. Importantly, the record date for the final dividend will be the 27th of October, and it will be paid on the 10th of November. I'd now like to hand back to Rob to discuss our segment operating performance. -------------------------------------------------------------------------------- Rob De Luca, McMillan Shakespeare Limited - MD & CEO [4] -------------------------------------------------------------------------------- Thank you, Ashley. Now turning to Slide 16 of the presentation and our GRS segment being our salary packaging and novated lease business. Total normalized revenue for FY '22 for this segment grew by 2% on the previous period to $206.6 million. Revenue performance was a reflection of increasing customer demand and activity with novated lease orders up 3%, salary package is up 3.8% and elevated yields. However, ongoing vehicle supply constraints resulted in lower ability to fulfill orders to sales during the financial year, resulting in a 90% increase in carryover on the prior period. Normalized UNPATA decreased by 2.1% to $48.4 million, which was a reflection of, firstly, the cost incurred for increased activity and engagement with customers caused by vehicle supply constraints. And secondly, the cost of increased orders largely incurred in FY '22 period, with the associated revenue being approximately $26 million to benefit future periods. On Slide 17, our ongoing customer focus through investing in digital capabilities saw a 10% increase in novated lease sales leads by digital channels for the period. Whilst recognizing the ongoing vehicle supply constraints, we were able to deliver novated lease new sales performance, which was ahead of that achieved in the passenger and SUV domestic new car sales market. Now moving to Slide 18. Our newly created Plan and Support Services segment grew during FY '22 with planned management and support coordination customer numbers up by 64% on FY '21 to 25,876, outstripping the NDIS planned managed customer growth of 31%, occurring across the scheme. This growth, in combination with our 20% increase in the hours of support coordination provided to participants over the period, helped to produce a 57.3% lift in segment revenue to $41.3 million. As the NDIS continues to expand, we have continued to invest in the business in the areas of brand to continue to build awareness in targeted channels and support retention following the acquisition of Plan Tracker, business relationship managers to strengthen our industry relationships in an expanding market, systems to support a growing business and greater interface with the NDIA (sic) [NDIS] and quality assurance to strengthen controls as the scheme continues to evolve. FY '22 UNPATA was up 21.4% on the prior period to $6.6 million. The next 3 slides look at our Australian, New Zealand and U.K. asset management business and our retail financial services business being our aggregation business. On Slide 19, our AMS ANZ segment recorded an 11.1% lift in revenue and delivered normalized UNPATA growth of 19.6% to $18 million. Through FY '22, new business volumes continued to be negatively affected by delays in new vehicle supply, an increase in demand for quality used vehicles resulted in high yields through our wholesale and retail remarketing channels. The ongoing contraction of new vehicle supply also contributed to an increase in contract extensions, which increased the average duration and age of the fleet as well as seeing our order book increase on the prior period. There was a 2.2% increase in written down value of assets under management. Now on to Slide 20. You can see our U.K. asset management business achieved revenue growth of 28.4%, UNPATA was $8.5 million, which was up from $1.4 million in FY '21. The limited supply of new vehicles impacting our ANZ business also was experienced in the U.K. with demand for used vehicles and in turn, elevated used car prices and remarketing yields, increasing markedly over the period. Off-balance sheet originations increased over the period with net amount financed of $841 million, representing a 7.8% increase on FY '21 and owing in part to the expansion of our sales network and the lifting of COVID-19 restrictions, together with the gradual improvement in business confidence. Through FY '22, we continue to run down the existing on-balance sheet lease portfolio, which has seen the written down value reduce from $51.9 million to $23.3 million over the period. This portfolio is expected to continue to run down during the FY '23 period. Now on to Slide 21. Our aggregation business performed well with net amount financed increasing by 15.9% on FY '21 to $1.168 billion, and together with the higher asset prices helped to deliver normalized UNPATA of $4 million, up 10% on the prior period. This result occurred against a backdrop of competitive market conditions and a shift in our business mix away from consumer to commercial lending. The strength of our lender panel has been a key contributor to the aggregation business success. And this past year, we've made further additions. We now have almost twice as many as were available 2 years ago. I'd like to now turn to Slide 23 to talk about our outlook. It is expected that FY '23 is likely to see continuation of the current market conditions around vehicle supply, together with inflationary wage pressures and rising interest rates. Novated lease yields and end-of-lease income yields are anticipated to remain around current levels, while the business will maintain and benefit from its higher FY '22 carryover revenue of approximately $26 million. We also look forward to the federal government gaining passage through the Parliament, Electric Vehicle Discount Bill. We believe this will provide well-needed support to Australia's future adoption of low and zero-emission vehicles. Business momentum is expected to benefit from our ongoing focus on the customer experience through investments in digital and data analytics to support productivity gains in the future. Growth in our GRS segment through the onboarding of recent client wins achieved in FY '22 are anticipated to provide further momentum into FY '23, whilst we focus on upcoming tenders and ongoing client renewals. The new warehouse, Onboard Finance will continue to be ramped up with the UNPATA impacted estimated to be approximately $11 million for FY '23. As mentioned, we will explore exit options for our remaining U.K. businesses, whilst we also fully integrate the Plan Tracker business during the period and where appropriate, explore similar other M&A opportunities in PSS. And finally, we will proceed with our disciplined approach to capital management and improving returns to our shareholders by the initiatives as outlined this morning. In closing, I want to reiterate the strength of the underlying performance of the business across FY '22, and remain excited by the opportunity which lies ahead as we pursue long-term sustainable growth for the business. Finally, I want to thank our loyal customers, the dedication of our people and our committed shareholders for their support. Ash and I will now be happy to answer any questions you may have. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you. (Operator Instructions) Your first question comes from Paul Buys from Credit Suisse. -------------------------------------------------------------------------------- Paul Buys, Crédit Suisse AG, Research Division - Head of Research and Director [2] -------------------------------------------------------------------------------- Rob, Ashley, just first one for me, please. Just in terms of, I guess, your novated lease orders. Just curious to know if you've seen any impact in the current environment from consumer reaction to higher interest rates and the like? And whether or not -- I mean that order book has always been very sticky, whether or not that remains the case or if there's been some attrition in the order book? -------------------------------------------------------------------------------- Rob De Luca, McMillan Shakespeare Limited - MD & CEO [3] -------------------------------------------------------------------------------- Thanks, Paul. Look, to date, we haven't seen any material impact of rising interest rates on our novated lease business. It's difficult to say what that may look like in the future. But I think in part, it probably reflects the mix of our business. When you think about our business, about 26% of our novated lease book is government and 58% related to health. So, between these 2 big client bases, obviously, from an employer perspective, remained big areas of employment and greater certainty in the current environment. So, we think that, to a degree, has helped, obviously, the position we've been seeing. Obviously, as interest rates continue to change in this dynamic market, we'll continue to monitor it. But to date, very little impact. -------------------------------------------------------------------------------- Paul Buys, Crédit Suisse AG, Research Division - Head of Research and Director [4] -------------------------------------------------------------------------------- And then in terms of the outlook, I guess you were clear there on your expectation for novated yields as well as end of lease yields, but you called out the $26 million in carryover. So, just to understand that, so you expect to get some benefit from that carryover. I guess it's part 1 to the question. And then part 2, I know it's a little bit of a crystal ball question. But I mean as things currently stand, do you think that, that order book holds now or it starts to come down a bit or indeed still grows from here? Just want to get an idea of how you see that playing out over the next 12 months? -------------------------------------------------------------------------------- Rob De Luca, McMillan Shakespeare Limited - MD & CEO [5] -------------------------------------------------------------------------------- Yes. Thanks, Paul. The last couple of months, we're seeing continuity of what we've seen in the prior months in terms of yields and order rates. So, to what we can see at this stage, that's continuing. In terms of that carryover, obviously, the -- 12 months ago, people would have had a certain view in terms of supply constraints and how that would have played out. At this stage, we're seeing that's obviously increased by 90% on where it was 12 months ago. We expect that to benefit our business in the future periods, exactly when and how much, I think, is yet to be seen. -------------------------------------------------------------------------------- Paul Buys, Crédit Suisse AG, Research Division - Head of Research and Director [6] -------------------------------------------------------------------------------- And then just on the warehouse, that was very useful clarity in terms of your expectations for the year ahead and calling out the separate impact. You mentioned that's going to be effectively you'd be calling stuff out for FY all the way through that FY '25 period. So just given that, I just want to understand if you can give any more color on kind of the dynamics. Would you expect the FY '23 impact to be the maximum impact? And then as you start getting some return on those leases you've written coming forward, that impact is flat into, say, '24 and then starts swinging the other way into '25? I just wanted to get a little bit more -- a bit more color if you can on kind of the shape of that trajectory over that '22 to '25 period? -------------------------------------------------------------------------------- Ashley Conn, McMillan Shakespeare Limited - CFO & Company Secretary [7] -------------------------------------------------------------------------------- Paul, it's Ashley here. Yes, you're correct. I'd point to Slide 12, where we've tried to give you some shape and profile of what we see the warehouse impact been to UNPATA. So, to answer your question directly, FY '23 will be the largest impact and then we anticipate -- because we anticipate in FY '23 to getting to our full run rate of 20% of our novated volume. So, then going forward, there will obviously be a contribution that will come through from those leases that we've written and we expect the impact to be smaller in '25, the smallest and then from '26 onwards, we're back to where it's a matter of fact, a positive contribution from the warehouse versus P&A. So -- and then going forward, we'll continue to grow and be positive. So, biggest impact in FY '23, Paul. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Your next question comes from Phillip Chippindale from Ord Minnett. -------------------------------------------------------------------------------- Phillip Chippindale, Ord Minnett Limited, Research Division - Senior Research Analyst [9] -------------------------------------------------------------------------------- Just firstly on this warehouse facility, that $11 million that's the UNPATA line, just from an EBITDA perspective, do we just gross that up by the full tax rate? Is there any sort of nuance around that? Maybe it's a question for Ashley. And then secondly, that 20% comment figure for -- sorry, for FY '23, when do you expect that, that will be achieved during the year? Is that the end of the year? Will it be done relatively soon, perhaps in the first half? -------------------------------------------------------------------------------- Ashley Conn, McMillan Shakespeare Limited - CFO & Company Secretary [10] -------------------------------------------------------------------------------- Yes. So, we haven't given specifically EBITDA outlook, but what you've said is a fair assumption. What I -- and then in terms of the run rate, we expect to hit that in FY '23. We -- it is ramping up, so the impact will be second half weighted is the way I describe it. And it depends on how the rest of the year pans out in terms of vehicle supply as well. So, we haven't broken it down between the halves, but it's fair to say it will be second half weighted. -------------------------------------------------------------------------------- Phillip Chippindale, Ord Minnett Limited, Research Division - Senior Research Analyst [11] -------------------------------------------------------------------------------- Just turning to the U.K. You've mentioned you're exploring various exit options there. Over the last few years, you've had a couple different reviews of that segment and considered various options. I guess what is it at this time that we should maybe expect perhaps a different outcome here? Is it because the business is perhaps doing a little bit better in recent times? Just love a bit of color around that? -------------------------------------------------------------------------------- Ashley Conn, McMillan Shakespeare Limited - CFO & Company Secretary [12] -------------------------------------------------------------------------------- Sure. No problem, Phil. It's Ashley here again. Why don't I take that. So, just in relation to previously before COVID, there was announced that there was a process underway for the U.K. business that was paused obviously through COVID to be able to manage the businesses. And the business is in particularly good shape. So, given where the business is trading at the moment and the environment we're through the COVID heavy periods, we believe that the business is in good footing and it's now time to recommence and thinking what our strategic -- what our exit options might be there. So, we'll go through that process and look for the best option for those businesses. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Your next question comes from Scott Hudson from MST. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Emerging Companies Analyst [14] -------------------------------------------------------------------------------- Just a couple of quick questions. Firstly, on the $11 million NPATA impact, does that, I guess, incorporate the current supply conditions? -------------------------------------------------------------------------------- Ashley Conn, McMillan Shakespeare Limited - CFO & Company Secretary [15] -------------------------------------------------------------------------------- Yes. Yes, Scott, it's Ashley here. Our working assumption through FY '23 is that there's just a continuation of the existing supply arrangements. We view vehicle suppliers continuing to be constrained all the way through FY '23. So yes, there is an embedded assumption sort of -- there's embedded assumption of the current state in there. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Emerging Companies Analyst [16] -------------------------------------------------------------------------------- Can I understand, I think your previous guidance was sort of a [$4 million to $5 million] NPATA impact on net -- on a first half basis. Can I just understand what's driving, I guess, the marginal uptick in that NPATA impact? -------------------------------------------------------------------------------- Ashley Conn, McMillan Shakespeare Limited - CFO & Company Secretary [17] -------------------------------------------------------------------------------- So we had some guidance out for FY '22. And we updated that outlook at the half. And it was a decrease back to $2 million to $3 million. It's ended up being $1.7 million. Look, the key driver of that was really, first of all, the time it took for the asset license approval to come through. That was just a function of time. There were no issues per se. There were no issues with the application, but we didn't want to commence writing until we had that in hand. And then that's the real principal driver of the difference. Vehicle suppliers hasn't -- definitely hasn't helped. But I'd say the key timing issue has been around receiving that license, which, as we said, we got in the last quarter of the year. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Emerging Companies Analyst [18] -------------------------------------------------------------------------------- And then I guess just in terms of -- sorry, you might have answered this before. In terms of the order pipeline, have you seen any change to customer inquiry levels or orders post recent interest rate increases? -------------------------------------------------------------------------------- Rob De Luca, McMillan Shakespeare Limited - MD & CEO [19] -------------------------------------------------------------------------------- It's Rob here again. No, as I mentioned earlier, not over the last couple of months, something we monitor quite closely. The last few months have been fairly consistent with the last month of the last financial year. I think from our business mix in terms of largely skewed towards government and health in terms from an employee perspective, we feel there are areas that are obviously fairly well in demand at the moment. And so that plays to our favor a little bit. But obviously, as interest rate market remains dynamic, we'll continue to monitor it as we go forward. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Emerging Companies Analyst [20] -------------------------------------------------------------------------------- So, I guess in terms of customer orders through FY '23, do you expect that to change relative to '22? -------------------------------------------------------------------------------- Rob De Luca, McMillan Shakespeare Limited - MD & CEO [21] -------------------------------------------------------------------------------- I think as outlined in the presentation, we've seen a 3% increase last financial year, about few months of the start of the financial year. We continue to see that type of momentum, so in line with what we've seen. So, that's kind of where we're at, at the moment. I think it's very difficult to forward look too far given the dynamics of the vehicle supply constraint market we've been operating within. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Emerging Companies Analyst [22] -------------------------------------------------------------------------------- And then lastly, the margin drop-through on that $26 million carryover revenue, is that -- I guess, do we assume that that's effectively 100% EBITDA margin? -------------------------------------------------------------------------------- Ashley Conn, McMillan Shakespeare Limited - CFO & Company Secretary [23] -------------------------------------------------------------------------------- Yes. Scott, it's Ashley here. Yes, the cost of originating those orders were obviously incurred in period and they now sit in the order book as sales and when they drop, there's very, very marginal, marginal costs -- very small marginal cost pretty much drops through. You'd obviously have to tax effective to get to UNPATA. But in terms of EBITDA, it should drop through. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Emerging Companies Analyst [24] -------------------------------------------------------------------------------- And then just last one, Rob, in terms of the, I guess, non-organic growth opportunities across PSS, how are you thinking about that landscape through FY '23. -------------------------------------------------------------------------------- Rob De Luca, McMillan Shakespeare Limited - MD & CEO [25] -------------------------------------------------------------------------------- Yes. Scott, as I mentioned earlier, it's certainly an area that we will continue to monitor and prepare to participate in for the right assets, strategic fit, culture fit. In the market, we'd expect over time as the NDIS starts to mature to see further consolidation. And obviously, we've been pleased with the acquisition of Plan Tracker and the performance of that business. And as we integrate that into on our common platform, then we feel we've got a really great platform for further growth, both organic and non-organic. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Your next question comes from Chenny Wang from Morgan Stanley. -------------------------------------------------------------------------------- Chenny Wang, Morgan Stanley, Research Division - Equity Analyst [27] -------------------------------------------------------------------------------- Maybe the first one, just to clarify the warehouse impact into next year, that $11 million, should we be thinking about that as an incremental to that $1.7 million you quote out in FY '22? Or is the number thinking into next year really an increment of 90 -- sorry, an increment of 9.3 million, so the difference between the $11 million and $1.7 million. Can I just clarify that to start off? -------------------------------------------------------------------------------- Ashley Conn, McMillan Shakespeare Limited - CFO & Company Secretary [28] -------------------------------------------------------------------------------- Chenny, Ashley here. It's a fair question. It's not -- it's just $11 million is the impact in FY '23. You don't add it or subtract it from the $1.7 million. It's just, FY '22 is $1.7 million. FY '23, we're saying is going to be $11 million. Hopefully, that's clear. -------------------------------------------------------------------------------- Chenny Wang, Morgan Stanley, Research Division - Equity Analyst [29] -------------------------------------------------------------------------------- Got it. And then just in terms of that $26 million novated backlog, I'm just, I guess, wanting to get a sense of what the funding for that is? Like should we be thinking about any warehouse mix in that? Or has there been a warehouse mix already assumed in it? -------------------------------------------------------------------------------- Ashley Conn, McMillan Shakespeare Limited - CFO & Company Secretary [30] -------------------------------------------------------------------------------- Well, given that there's only very minimal warehouse volume that's been done so far, we've said that we've written -- it's early days, right? And we're continuing to ramp up. So we've only done $1.5 million of volume through the warehouse. And as I said, we're doing -- our aim is to ramp up to 20%. So overall, it's very small that's embedded within that $26 million. -------------------------------------------------------------------------------- Chenny Wang, Morgan Stanley, Research Division - Equity Analyst [31] -------------------------------------------------------------------------------- Got it. And then just one last one for me on the yields. I think in the presentation today, you called out yields being 1.7% above FY '19 levels. But I think first half '22, you guys were about 5% ahead on those yields. Firstly, is that right? And then secondly, if so, can you just sort of help us understand the moving parts there? -------------------------------------------------------------------------------- Ashley Conn, McMillan Shakespeare Limited - CFO & Company Secretary [32] -------------------------------------------------------------------------------- So yes, Chenny, why don't I take that on. So yes, it's indexed back to FY '19 in that chart. But overall, the difference is pretty much what has happened in year. I think what we're saying across the first and second half, yields have grown and there's been good strength and good growth in the yield. So look, I think that's pretty -- we don't -- and we don't have any other sort of information that we give around the halves, but it's been a good result across both halves. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- (Operator Instructions) There are no further questions at this time. I'll now hand back to Mr. De Luca for closing remarks. -------------------------------------------------------------------------------- Rob De Luca, McMillan Shakespeare Limited - MD & CEO [34] -------------------------------------------------------------------------------- Thanks, Surrey, and thank you, everyone, for attending. In closing, I wanted to reiterate the strength of the underlying performance of the business across FY '22, and I remain excited by the opportunity which lies ahead as we pursue long-term sustainable growth for the business. This closes our FY '22 earnings call. Thank you. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- That does conclude our conference for today. Thank you for participating. You may now disconnect.