McMillan Shakespeare Stock

Thank you for standing by, and welcome to the McMillan Shakespeare Limited FY '26 Full Year Results Briefing. [Operator Instructions]

I would now like to hand the conference over to Rob De Luca, Managing Director and CEO. Please go ahead.

Thanks, Travis. Good morning, and thank you for joining us for the McMillan Shakespeare Full Year Results Presentation for the 2026 financial year. My name is Rob De Luca, and I'm the Managing Director and Chief Executive Officer of MMS. Today, I am joined by our Chief Financial Officer, Paul Varro. I'd like to start by acknowledging the traditional owners of the lands on which we joined this meeting today and pay my respect to their elders, past and present.

The presentation will commence with our FY '26 highlights, move through segment and financial performance, provide a strategy update and close with our outlook for FY '27. This morning's presentation will refer to the slides that were released with our results. At the conclusion of the presentation, both Paul and I will be happy to take any questions you have.

Moving to Slide 4. FY '26 was a year of strong organic growth, strategic execution and a relentless focus of delivering excellent experiences for our customers as their trusted partner. We are pleased to deliver a record profit in FY '26 with UNPATA and underlying EPS up 13.8%. GRS was a standout segment with UNPATA up 24.9%.

MMS performance was underpinned by customer growth across all segments, where we continue to see strong digital engagement and satisfaction. We made strong progress in executing on our strategy delivering superior customer experiences, enhanced distribution and improved our operating margin, which was up 250 basis points, reflecting the operating leverage in our platform. We delivered attractive returns for shareholders with ROCE of 62.1% and an annual fully franked dividend of $1.32 per share and a dividend yield of 6.6%.

Now moving to Slide 5 and looking at some of the financial highlights for the period, where we saw strong performance across all key group metrics. Revenue for the year was $602.1 million, up 6.8%. Operating income grew 7.2% to $435.2 million. Operating expenses were up just 2.8%, which saw EBITDA grow by 14.1% to $180.7 million. As previously mentioned, UNPATA, our measure of underlying profitability grew 13.8% to $107.9 million, while statutory NPAT grew 11.4% to $106.7 million. We continue to deliver strong returns for shareholders with ROCE of 62.1%, underlying EPS of $1.55, up 13.8% and an annual fully franked dividend of $1.32 per share, comprising of a $0.62 per share interim dividend and a $0.70 per share final dividend.

The results presented today are no longer normalized as we foreshadowed at the half year, having successfully transitioned and scaled onboard financed within the time frame set.

Moving now to our customer highlights on Slide 6. We achieved customer growth across all segments while continuing to lift digital engagement and satisfaction. In Group Remuneration Services, Salary packages grew 7.1% to 402,000 and Novated leases grew 13.5% to a record 90,000 with an NPS of plus 50, while 94% of claims are now digitally processed. These outcomes reflect the investments we've made in automation and AI-enabled processing which is translating directly into a faster, simpler experience for our customers who continue to rate our app strongly at 4.6 stars.

In Asset Management Services, fleet units grew 3.3% to approximately 16,000 with an NPS of plus 53. Our poor booking platform is enabling more customers to digitally self-serve their vehicle bookings, which was up 308%. And in Plan and Support Services, customers grew 3% to 44,000 with an NPS of plus 45, while our digital payments platform increased the invoices processed by 45 percentage points. These highlight the commitment to delivering market-leading customer experience.

Moving to Slide 7 and highlighting how our investments and strategy execution are delivering superior customer experiences, enhancing our distribution and resulting in productivity gains reflected in a 250 basis point improvement in our operating margin. Our first strategic priority is to excel in customer and partner experience. In the period, we continue to strengthen and grow our ecosystem as strategic partnerships with leading global automotive brands. Our investment in a superior and more integrated digital platform for dealers representing OEMs is making the vehicle ownership process easier and faster for customers while more efficient for dealers.

In the period, we saw a 42% increase in the number of dealers using our platform, and we're able to reduce the time from lead inquiries of settlement for customers by approximately 5 days.

Our second strategic priority is to deliver simplified and scalable solutions, which we set out to achieve for Oly, our SME Novated offering. In the period, we continue to significantly expand distribution including partnerships who have strong access to SME clients like [ NAB ]. We also continue to simplify the employer onboarding experience, a key enabler for their employees to access the benefits of Novated leasing. In the period, these initiatives contributed to a 185% increase in Oly registered SME employers and a 23 percentage point improvement in employee to lease conversion.

And our third strategic priority is to drive technology and capability enablement, where in the period we progress deploying AI and data capabilities with real-time agent monitoring which is flowing through directly to improved service and productivity outcomes. These enhanced capabilities allow our agents to have access to real-time dynamic information and tools which are helping customer inquiries be resolved faster, reflecting in a 13% reduction in average handling time in the period as well as less after core work, which was down 18%.

Now moving to Slide 8, our FY '26 sustainability strategy highlights. We're proud of the progress we continue to make in how we run the business responsibly. We were upgraded to our Morgan Stanley Capital International ESG rating of AAA in March, achieved 105.6% gender pay equity in like-for-like roles and have again been certified as a great place to work. We supported Bravery Trust, mentored young people with disabilities through the Australian Disability Network and commenced our RAP Innovate program in September last year. 100% of MMS sites now run on green power or renewable electricity, 42% of our internal [ Cathleen ] are [ BEVs ] and we funded $12.6 million of fleet EVs through green finance during the year.

I will now take you through the performance of each of our segments in more detail, starting with GRS. On Slide 10, our largest segment and a leading provider in salary packaging and Novated leasing delivered a strong result. Revenue grew 11.2% to $351 million, operating income was up 10.3% to $320.8 million, and EBITDA had a growth of 24.8% to $137.2 million taking the operating margin to 42.8%, a 498 basis points on PCP. This strong performance highlights the scalability of the GRS platform.

This financial performance was supported by strong customer growth and operating performance. Salary packages were up 7.1% in the period, supported by 14 net new client wins in the year. Novated leases were up 13.5%, underpinned by Novated sales growth of 8.4% for the full year. Pleasingly, that performance accelerated through the second half, up 19.5% half-on-half. Our Onboard Finance receivables book grew 16.6% to $587 million. While focus on productivity contributed to customers for FTE improving 17.5%, a clear sign of the investment we made in growing Novated sales capability through the year is paying off in both volume and efficiency.

Oly Novated sales growth was 77%, which validates our SME distribution strategy. Novated lease yield was down 3% on PCP, reflecting prior year plug-in hybrid surge and competitive value proposition enhancements made to support growth.

Now turning to Slide 11. Asset Management Services, which reflects our Specialist Fleet Management business. Revenue was up 1.3% to $188.4 million with fleet units up 3.3% to approximately 16,000. This was underpinned by 20 net new client wins in the period, which saw a 30% growth in managed only units. As customers continue to hold vehicles for longer and fleet replacement cycles slowed, written down value was down 1%, contributing to a 1.7% lower operating income. These dynamics also impacted end of contract unit sales, which were down 9%, while high yields benefited from a greater proportion of early terminations attracting higher exit fees.

Productivity continued to be a focus throughout the year with the leased assets per FTE up 17.2% on PCP. The business incurred one-off costs during the year to implement business process outsourcing and transition to a single retail yard. This one-off cost contributed to EBITDA being down 4.8% to $27.7 million on PCP, while operating margin remained strong at 53.6%.

Now turning to Plan and Support Services on Slide 12. PSS now manages the plans of 44,000 participants, making PSS the second largest NDIS plan measure. Revenue grew 5.9% to $59.8 million, more than offsetting the removal of NDIS setup fees from 1 July 2025, and represented a 7.9% headwind of FY '25 revenue. NDIA and NDIS quality and safeguards commission continue to strengthen compliance and payment integrity requirements across the sector, supporting improved outcomes for participants and scheme sustainability. Industry-wide compliance requirements from the NDIA resulted in 88% increase in claims subject to review during the year. Operating expenses during the period reflected the acquisition of My Plan Support May 2025, higher scene compliance costs and investments to support enhanced payment integrity technology.

These costs, combined with removal of setup fees by the NDIA, contributed to an EBITDA of $15.1 million. Our investments in automation continue to deliver productivity benefits with customers to [ FDA ] improving 14.5% on PCP. These investments also strengthened fraud detection capability to support our customers and our competitive position as a leading plan manager.

I will now hand over to Paul Varro, our CFO, who will take you through the group's financials for FY '26.

Thanks, Rob, and good morning, everyone. If you turn to Page 14, what we thought we'd do is lay out some of the key financial outcomes for FY '26 in more detail. As noted by Rob earlier, our results are no longer reported on a normalized basis. Comparatives are presented on a non-normalized basis, for consistency with the current year results.

On the left-hand side of Page 14, you'll see the P&L. As you can see versus FY '25 revenue grew year-on-year by $38 million or 6.8%, with revenue growth across all business segments, and in particular, GRS which grew revenue 11%, supported by excellent growth in Novated leasing, up 8.4% and onboard finance interest.

Onboard Finance continues to perform in line with our expectations, with receivables up 16.6% year-on-year. Onboard results are reported in the GRS business segment. Cost of sales were higher by $8.8 million, reflecting higher business activity levels, including AMS remarketing values and continued growth in Onboard Finance, as noted previously. There is a table at the bottom left of Page 14 with the cost of sales breakdown for your information. Revenue and cost of sales combined to deliver operating income growth of [ $29.5 million ] or 7.2%. Operating expenses increased by just 2.8%, reflecting strong cost management and productivity gains across the business. Our focus on productivity along with our income growth has delivered positive operating leverage for MMS in FY '26 with EBIT are up 14.1% and operating margin up 250 basis points to [ 51.5% ] 41.5%, highlighting the scalability and efficiency of the MMS platform.

Depreciation and amortization increased $3.3 million reflecting the successful completion of the Simply stronger program in FY '25. The outcome of our strong performance across a number of key P&L lines resulted in a record UNPATA of $107.9 million, up 13.8%.

On the right-hand side of Page 14, we have our operating expense profile, walking you from FY '25 to FY '26. As you move from left to right, the first bar shows our cost increases due to wage and vendor inflation of $7.1 million, offset by savings from nonrecurring costs of $6.1 million primarily due to the successful conclusion of the simply stronger program in FY '25. We continue to invest in growth in particular, with investments in Oly, up $5.9 million, which delivered a 77% growth in Oly Novated sales. In addition, we invested in sales and distribution capacity and following the acquisition of My Plan Support in May 25 included their operating costs of $2.5 billion. Our investments in productivity initiatives delivered net savings of $7.5 million across all business segments.

During the year, we also commenced a business process outsourcing initiative designed to further enhance efficiency and scalability. Implementation costs of $1.4 million were incurred in FY '26 with further benefits on top of those delivered in FY '26 expected to be realized in future periods. All up operating costs grew just 2.8%, a testament to our focused cost management.

Turning to Page 15. The balance sheet remains strong with net assets growing to $126.4 million. Our key covenant metrics on the top right-hand side all remain comfortably inside threshold levels. allowing us flexibility moving forward. On the bottom right, following the successful extension of the Onboard Finance and AMS funding facilities, we have no maturities due over the next 12 months and a well-balanced maturity profile out to 2030.

Lastly, turning to Page 16. Our cash generation remains strong with an underlying cash conversion of 111%, noting the elevated tax installment paid in FY '26 as the benefits of the temporary full expensing program partially reverted in the period. Our strong and flexible balance sheet positions us well to manage our capital efficiently and to ensure long-term growth while balancing returns to shareholders.

In this half, the Board has declared a fully franked dividend of $0.70 per share, representing 85% of UNPATA, the midpoint of our payout range of 70% to 100%. This distribution when coupled with the first half '26 dividend, takes our annual dividend to [ $0.132 ] and a dividend yield at an attractive 6.6%. Overall, it's been a strong performance for FY '26 with all businesses growing revenue, positive operating leverage, a record UNPATA and a balance sheet that is well positioned to enter FY '27 with plenty of flexibility to grow.

With that, I'll hand it back to Rob who will take you through our strategy and outlook.

Thank you, Paul. Now moving to Slide 18. As a trusted partner, we remain committed to providing solutions that make matters simple for our customers. We deliver on that through our 3 strategic priorities excelling customer and partner experience to grow trusted relationships, deliver simplified and scalable solutions to meet evolving customer needs and drive technology and capability enablement, to serve our customers more productively.

Underpinning this is our core competencies, managing B2B2C relationships, delivering simplified solutions, financing and conditional payments, leveraging pattern technology and harnessing our ecosystem partnerships. Together, they drive outcomes we've talked through today, high NPS, strong margin, high ROCE, EPS growth and being recognized as an employer of choice.

As you can see on Slide 19, we are a trusted partner with attractive financial characteristics, delivering long-term growth for shareholders. As a leading and scale provider in our markets, we have 402,000 salary packages, 106,000 mobility solutions under management, which includes 90,000 Novated leases and 16,000 fleet units and support 44,000 PSS customers. We have a reach of 2.6 million consumers and over 53,000 businesses, which gives us significant opportunities for growth.

We have built sustained relationships over time to become a trusted partner for our customers. Maxxia and Remserv carry a Net Promoter Score of plus 50, inter-leasing sits at plus 53 NPS, and PSS has a strong NPS of plus 45. While over the last 12 months, we have retained 100% of our GRS and AMS top 20 clients.

We run on a scalable technology-enabled platform, which manages approximately $8 billion in payments, $1.7 billion in finance assets and delivered 14.1% improvement in customers per FTE productivity in the period. The financial characteristics that come with all of that are attractive by any measure, a 41.5% operating margin, 62.1% ROCE, 50% recurring revenue and underlying cash conversion of 111%.

Let me now move to Slide 20 and reflect on our proven record in consistently delivering strong financial outcomes and attractive returns for shareholders since setting our strategy in 2023. Revenue has grown at 9.1% CAGR over this period, while UNPATA has grown at 17.6% CAGR over the same period, reflecting the scalable platform we've built. Our disciplined approach to delivering strong returns is reflected in ROCE, which has expanded from 35.7% to 62.1%, up 26.4 percentage points. While over the same period, our underlying EPS has grown from $0.92 to $1.55 and 18.9% CAGR.

Now turning to Slide 21 and our outlook for FY '27. As a market leader, MMS enters FY '27 from a position of strength. We expect FY '27 to be a supportive environment for business growth. Certainty of the [ EV FBT ] exemption and preferences for fuel-efficient vehicles is expected to support growth in Novated leasing and fleet management. Demand for salary packaging is expected to continue to benefit from ongoing cost of living and inflationary pressures. The current dynamics of elevated demand for EVs and softer demand for ICE used vehicles are expected to be reflected in remarketing income.

As the second largest planned management provider, we are well positioned and will continue our engagement with the government and industry on the emerging NDIS reforms. We will maintain a disciplined approach to delivering productivity gains which will support selective reinvestment in broadening our sales capability while continuing to deliver an enhanced value to customers in a competitive market. Finally, we will continue to execute on our strategic priorities: one, excelling customer and partner experience; two, deliver simplified and scalable solutions; three, drive technology and capability enablement.

Thank you for your time this morning and continued support. Paul and I would now welcome any questions you may have. I will now pass to Travis to moderate questions.

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

First question, just on Novated volumes. Rob, earlier, you mentioned that second half volume growth was around 19.5%. But clearly, over the 6 months, there was a significant variance in volume growth over the period. You then give us an update in July the volumes that month were up around 8%. Do you view that 8% number as sort of being a more normalized outcome? In other words, are we sort of through a lot of the Iran related disruptions and sort of those spikes in activity?

Yes. Look, great question, Phil, and always challenging to have a view of kind of outlook on any kind of measure or metric. Certainly, we saw a bit of volatility in terms of the last 12 months in the second half. Firstly, I think we've the market just unsure around what the government's position was going to be on the SVT exemption for EVs. And then secondly, obviously, the fuel crisis of the war.

We've certainly seen things come back to a little bit more what I would call expectations of what we probably had for the period. Obviously, July 8% sales growth is good, orders are still strong. The month of July, I think is up 18% in orders. So there's still certainly good demand there at the moment in the market. How long that lasts, what that looks like over what period of time always difficult to say where our own analysis has shown historically, the long-term growth Novated sales in our business has been about 6% CAGR over a very long period of time. That's obviously fluctuated over different periods. But certainly, where we're seeing things at the moment, it feels like it's getting back to a level we probably expected 6 months ago. But again, obviously, different external factors drive that.

Yes, I understand. Just pivoting to the yield then. You've mentioned that the yields will be used down 3%. But I think the first half was up around 1.6%. So it sort of implies the second half is down 4% or 5%. In your commentary, you did mention that you're cycling the fab numbers in the PCP. Is that a make reference there? Is it effectively you're talking about the lower average vehicle value in this period?

And then just a related sort of follow-up, what are you seeing in terms of new vehicles as a proportion of Novated sales over the last 6 months? Is that presumably, that has increased?

Yes. So look, obviously, from a yield perspective, some of the elements played out for us over the last period. I think the first is, yes, the plug-in hybrid in FY '25, the second half on the first half in '25, our yield was up 5% that reflected largely high-valued plugging hybrids at the time like the [ Shacks ] and others. So they are generally at a higher price point than what we're seeing today in our BEVs.

So that's kind of the first thing. So we like that in the second half, which we don't expect to happen in FY '27.

The second, in terms of EVs, yes, I mean our proportion of EVs in the second half was about 70% versus the first half being about 49%. And what we're seeing is the value coming down on average as new makes and models coming to the market. So our [ BV ] under 75,000 went from 80% to 84%. So we're seeing a shift of higher proportion of those BEVs, which we're financing at lower price points. So that's having a bit of an impact, and we've always expected that to happen. We think that will continue to play through in terms of FY '27.

And just to give you a bit of a sense, the year before that was 72% were less than 75%. So it's moved quite a lot in terms of the last 12, 18 months in terms of the number of Chinese make some models that have come into this marketplace at lower price points. I think for us, the third thing that had a bit of an impact in our yield on the second half was we reviewed some of our insurance products with our insurer, made some changes there to enhance customer value. So the second half on first half, that was down about 7% in terms of its impact on yield.

Overall, our second half on first half yield total was down 4% that you alluded to. It's still up about 7% on FY '23 before, obviously, the big take-up of EVs when the legislation came out and we had Tesla as the main price points. So overall, we still feel yields good but there are some pressures of moving it downward.

Okay. And then just last question for me. Just on Oly what proportion of your leases are now from that business? I think 6 months ago, you mentioned a number of around 5% of volume. Just wondering where that's up to now. Clearly, you spoke to the 77% growth, et cetera, but just maybe as a proportion of the total.

Yes, it's just around 6%. So it's up a little bit more. Obviously, we had such a strong performance across all of our brands in the second half. but really pleased with the performance of Oly. Our mixture is changing quite a lot in that so half of that is only coming through partnerships and the other half now is coming through SME relationships, which is really good. So we're starting to build a really good SME client base in that platform as well.

The next question comes from Tim Lawson from Macquarie.

Just a couple. In terms of the NDIA segment, can you talk just the growth in client numbers and whether you see there's an opportunity there to accelerate that without buying things that is organic growth and getting some operating leverage. Obviously, the policy settings are still moving around?

Yes. Thanks, Tim. Look, it's interesting, our growth was about 3% for the year. A little bit lower than what we've historically delivered. We are seeing though that the agencies removing participants from the scheme at a higher rate than they historically have. So almost 70% of our customers that we didn't have in '26 versus '25 was because their plans with [indiscernible] are no longer eligible. So it's certainly slowing down in customer growth from a participant perspective. That's kind of one factor.

I think the second is obviously a little bit of high compliance that the agency and the quality of Safeguard is imposing now. We're expecting a number of plant managers to probably exit the scheme. So there will be opportunities to pick up share as some players exit the market from the higher compliance costs.

And then thirdly is obviously with some of the reforms that are going to happen and move to a panel of high-quality plant managers, we see some opportunities. They're probably just starting to emerge in terms of opportunities, Tim, and we'll assess those on its merits, generally try and pick these up without having to pay anything from this people. [indiscernible] but there is a little bit of volatility in the market in terms of just obviously what's happening in terms of how the agency is managing it and some of the reforms.

So I didn't get you when that compliance hurdles increase? When was that happening?

It's been progressively increasing. So various factors, they brought in some back in late FY '25, early '26 with some of the black and white rules. And then as I mentioned in my early remarks, they're challenging and testing a lot more payments now of plan managers as well. So they're going through and verifying those a lot more, and that's putting a lot more scrutiny and compliance cost to operators.

Yes. Yes. Okay. Very clear. And just on the outlook comment around the remarketing yields or the EV versus the ICE. You're trying to flag -- you've cut out obviously unit decline versus the exit fees and yields, but you're trying to sort of flag that there's a little bit of a reduced remarketing yield because I don't expect there's a lot of EVs in the book and obviously will be [indiscernible] dominated?

Yes. So exactly right. Like our remarketing results in the second half were very different to the first half. First half was pretty good. We also had some benefits in our yield that I mentioned in terms of some early terminations that helped accelerate some of the income in the yield. But in terms of units, certainly down, we're down 9% for the year. We're down actually 20% for the second half on the first half. And the revenue that we kind of generated from those proceeds was down 17% second half on the first half. So we expect that to play out a little bit more in the first half of '27.

To your point in terms of EVs in our fleet business, we funded about 7.5% of our units in 26 work EVs, up from 2.9 in '25 and the month of July is about almost just shy of 10%. So we're starting to see now our fleet clients make the transition more hybrids than pure battery electric vehicles. So we start -- we'll hopefully see a bit of replacement happening, which will hopefully stimulate some growth for us in terms of units. But at the moment, they've been holding on to their cars a bit longer. That's been a cycle we've seen now for a couple of periods. And I think that combined with probably the cost of replacement has been a little bit higher than what they would have seen a few years back. That's probably just holding them back on the replacements as well.

Yes. Okay. And so in terms of sort of contribution from the AMS segment, that's sort of second half, I think it's like almost $13 million. Are you feeling that sort of a comfortable go forward? Do you still think there's sort of more normalization of that remarketing yield to come out of that number?

Yes. Look, it's a hard one, Tim, as we've spoken plenty of times. We've always had a view that we expected the elevated remarketing values to come down over time. We've seen that probably in the last 6 months more so than we've seen in the prior period. I think part of that stimulated by external factors and some of that, obviously, by how businesses are feeling.

In terms of where that is, pre-COVID, this business was kind of generating about $14 million UNPATA. So we obviously had elevated post that for a few years we probably see -- we see a little bit more downside probably on the remarketing values in the first half of '27 a bit hard to tell how long that lasts for, but they are still delivering us good profits and higher than where they were free COVID, but I certainly have come back a bit.

Yes. And can I just pick up on your comment around the 6% CAGR sort of long-term growth that gets to do with Novated -- just how you sort of feel -- obviously, you see a bit of a fuel boost. The policy certainty helps. You've talked about the sort of 84% of vehicles BEVs now coming sort of below that 70,000 hurdle that obviously is important in the policy going forward from sort of next year. Can you just talk how comfortable you are that, that sort of the right number even with these sort of policy settings moving things and fuel sort of moving things around a bit.

Yes, I'm not saying that 6% is the number to take is a forward estimate. I'm just saying our long-term average across this business has had 6% as a CAGR. Some periods higher than others, obviously, much lower during COVID period, a bit of a boom straight afterwards. We'd say at the moment, there are favorable characteristics in settings for positive growth in Novated leasing. The legislation is one of those things, the greater awareness of Novated leasing and the benefits it provides, obviously, our Oly platform and entering a new market.

So I think all of those things are positive for us in terms of we feel good about the outlook in terms of sales growth. And I just pointed out that July was 8%. It feels more like kind of where we expected things to be before the fuel crisis.

Yes, yes. Okay. And just last question for me. Just more sort of corporate structure question. With the activity we're seeing with fleet partners and with the sort of structural change in NDIS. Are you still feeling that the sort of 3 segments sort of all go-forward segments of the group?

Look, I mean, we obviously don't comment on corporate M&A activity. But we're pleased with the various contributions of each of the businesses, obviously different factors affecting each of them, as I've outlined today. At this stage, we feel comfortable about the business kind of settings, how we kind of think about the future and segmentation and how we think about the business. Obviously, we'll let the market know if we make any changes to it.

PSS as we've outlined, got some elements of reforms that it's kind of faced now over the last couple of years, and we just continue to assess those on its merits to make decisions about what that means for the business. And at this stage, we don't have enough certainty of what the panel would look like and the economics of it. Obviously, the Asset Management business have always called out that we were very cautious in terms of the elevated remarketing position of that business, and therefore, doing any M&A activity when that [indiscernible] inflate rates wouldn't be the best use of shareholder capital. We're starting to see that kind of logic play out why we've kind of made that decision. How that plays out in the future, though, we still see some really good synergies between our asset management and our GRS business in terms of procurement benefits and joint client opportunities.

The next question comes from Andrew Hodge from Canaccord Genuity.

My questions have been asked and answered. Thank you.

Thanks, Andrew.

The next question comes from Chenny Wang from Morgan Stanley.

Firstly, maybe just in terms of warehouse impact first half versus second half. Obviously, the second half you guys saw a pretty substantial tailwind on the [ Nevada ] side. So you would have obscure on the first half, second half. But I just wanted to see if there's any more color you guys can give us of that dynamic, noting, I think FY '25, first half, '26, you guys talked to the first half being lower, second half being higher on that front. So I just wanted to see whether that has played out.

Yes. Chenny, great question. And pleasing to say, yes, that has turned out that way. So first half marginally below by a couple of hundred thousand versus contribution versus the second half, it was a plus [ 1.6 ] positive contribution from the warehouse or [ OBS ]. So that was pretty much exactly in line with where we predicted it to be. Obviously, we had a good surge in our sales in the second half. So where we can, we try and keep that ratio relatively proportionate where we can, but sometimes it can get slightly out of whack when there's a number of units coming through quickly.

Got it. And then just -- I mean, in the past, you guys talked about FY '27 seeing a tailwind from the warehouse. Again, probably be harder to discern given broader tailwinds, but like that trajectory is still on track, I guess, I suppose.

Yes, still on track. I mean, if you take a step back, the contribution from onboard will start to slower than receivables growth slows. So to give you a sense of it in the first couple of years, FY '24 to '25 receivables grew 54%. This year, you saw in the financials it's 16%. Going forward, it will be high single-digit, low double-digit growth for receivables in the outlook. So therefore, that contribution or the speed of the contribution will moderate somewhat, but we still expect it to be accretive in the outer years relative to the P&A model. Obviously, it also provides a good annuity and recurring revenue for us as well.

Got it. And then I may have missed this, so my apologies, but did you guys carry a backlog exiting FY '26 on the GRS side?

Yes, yes. We did Chenny, we didn't kind of talk to it because obviously, as we kind of ended '25 when in '26 kind of the delivery times of vehicles are all within kind of the month. Delivery times, as you would know, picked up a bit in the second half off the back of the supply chain challenges. We're seeing at the moment that our order book is more like delivery times of about just over a month where previously it was about 20 days. So there's a little bit of order book in our portfolio at the moment, but it'd be kind of less than about a month's worth.

Got it. And then just in terms of GRS margins for the second half. I guess when I kind of look at margins there half-on-half over the past few years. It has kind of trended both up and down. But second half saw about 300 basis points lift half-on-half like that 44%, if I got my math correct, I may not have. But that 44%, like is that a good level going forward, especially given some of the one-off costs, so to speak, have now come out of the business?

Yes. I mean we always have a much stronger second half than first half in terms of our seasonality across our business. So MMS level, just think about it, obviously, we take wage increases from 1 July. A large proportion of our GRS and PSS business have got exposure to fair work commission that's up 4.75% for FY '27. So we start with a higher cost base and then we kind of generally deliver benefits in productivity over time.

We also have in the second half generally a little bit more positively in terms of 30 June sales innovated, [ FPT N31 ] March if those things always help our second half. So If you look over history, we kind of generally have a really good second half comes back a bit in the first half then builds up again into the second half. I've always sort of said this business is a 40% plus margin business, and that's what we try to continue to deliver on each half. Sometimes it's a little bit up or down around that depending on different factors.

Got it. And then just one last one. Any large renewals or tenders for you guys over the next year that we should be aware of?

Not in terms of major existing client renewals. I think all our largest ones we've kind of been through a bit of a cycle. So I think the next short period in FY '27, not so much. We've got quite a few opportunities we're constantly tendering for over the next period. And hopefully, we'll see some success out of those in FY '27.

[Operator Instructions] The next question comes from Hayden Nicholson from Bell Potter.

Just had one question going off on Chenny's. Just wanted to come to the operating expense walk on Slide 14. Mentioned it there, Rob, the second half implied up 4.7%. So some of those things, I guess, are offsetting the deck talks around your productivity and improvements that you're making, but it's getting offset, particularly in the second half. Like what deliverables do you have coming into FY '27. And then how do we actually get to in the outlook statement, you're talking to productivity gains? Because I kind of feel like you did good volumes in GRS and that's just waterfall down to the EBITDA line to give you a good number.

Yes. Thanks, Hayden. Look, we always got initiatives across the business on our strategy to drive productivity benefits. And I think our last few years, 3, 4 years has been proven that in terms of our results. You can see there in the productivity bar that's obviously alluded to [ 7.5 ]. The first half of that was [ 2.7 ] the second half of [ 4.8 ]. So we always get a bit more momentum in the second half as we deliver on some of the outcomes from the various initiatives.

As Paul alluded to, we implemented some changes around BPO in the period, which we expect to get some annualized benefits in FY '27, we continue to digitize all of our platforms from a payments perspective in PSS and in terms of how we manage claims in GRS, which I alluded to in my strategy update this morning, and they come through. And then obviously, as we continue to enhance the digital experience for our customers and using our these service increases, the use of AI is reducing core volumes into our team and reducing average handling times. So we've got a number of initiatives that we think that will continue to deliver ongoing productivity gains in the business.

As I mentioned, to Chenny's question, though, we always have a bit of a difference between the second half and the first half. So if you look at our last year in FY '25, we kind of finished the year in second half of '25 and then came into '26, and our underlying profit for the group was down 6%, the first half off the back of the strong second half the year before. That's not -- that's a fairly normal kind of experience for us in terms of seasonality, but we're always looking at opportunities to drive productivity benefits and deliver really good outcomes for customers.

Got it. Just as a quick follow-up, that sales bucket. I think is a new individual call out versus the first half of '26. I'm just interested is that adding heads for investment? Or is that to go along with the sales? Like does a run rate from here? I guess what I'm getting at?

Yes. I mean on that walk, you can see there, there's a $4 million increase in investment in sales capability in the organization. A large portion of that is the second half. So that will carry forward into certainly an annualized impact of that largely in the first half. That's innovated salespeople, it's industry experts and specialists investments in people supporting our broad distribution partnerships.

At this time, we're showing no further questions. That does conclude our conference for today. Thank you for participating. You may now disconnect.

Thank you for standing by, and welcome to the McMillan Shakespeare Limited Half Year Results FY '26. [Operator Instructions]

I would now like to hand the conference over to Mr. Rob De Luca, MD and CEO. Please go ahead.

Thank you, Alison. Good morning, everyone, and thank you for joining us today for the McMillan Shakespeare FY '26 First Half Results Presentation. My name is Rob De Luca, and I'm the Chief Executive Officer and Managing Director of MMS. I'm joined today by our Chief Financial Officer, Paul Varro. At the conclusion of the presentation, both Paul and I will be happy to take any questions you may have.

I would like to start by acknowledging the traditional owners of the lands on which we meet today and pay our respects to elders past and present.

As we move through our presentation, we will be referring to the slides that were released with our results this morning. We will commence this morning's presentation with an overview of some highlights from the period before we move to a more in-depth summary of each of our segments.

Turning now to Slide 5, which provides an overview of our 1 half FY '26 highlights. Importantly, I'd like to note that our 1 half FY '26 results are no longer normalized following the successful transition period and scaling of onboard finance. For ease in this half, we will compare 1 half FY '26 results to previously reported normalized financials. This will be the last period we will compare results to previously reported normalized results.

Starting with our financials, we delivered growth across key performance metrics in the period. Revenue increased 11.2% to $297.4 million. Operating income was up 4.4% to $210.1 million after accounting for cost of sales. EBITDA increased 4.8% to $84.7 million and UNPATA grew 1.4% to $50.3 million.

Growth in financial performance was supported by an increase across all key customer metrics. Salary packages increased to 387,500. Novated leases grew 7% to 82,100. Fleet units increased 4.4% to 15,400 and PSS customers grew to 43,000, up 16.1% on the prior period. We are seeing clear benefits from the strategic investments we've made over recent years.

Oly continues to scale, comprising 5.2% of group novated lease sales, which is up 220 basis points. The launch of our new GRS apps has increased customer digital engagement to 83% of service interactions, improving the customer experience and in turn, reducing cost to serve. Customers per FTE increased by 14.1%, reflecting productivity gains flowing through the business.

Against this backdrop, we continue to deliver attractive returns for shareholders. Earnings per share increased 1.4% to $0.723. ROCE remained strong at 62.8%, up 110 basis points, and we declared a fully franked interim dividend of $0.62, equating to a dividend yield of approximately 7.2%.

We have also announced an on-market share buyback of up to $10 million over the next 12 months. This, combined with the first half dividend reflects total capital returns of up to $53.2 million, up 7.6% on 1 half FY '25.

Overall, our first half demonstrates the progress we are making on our strategy to deliver growth, productivity and returns to shareholders.

Turning to Slide 6 to provide more detail on our financial performance. For ease of comparison, we have included both 1 half FY '25 and 1 half FY '25 normalized results. As mentioned, I will compare 1 half FY '26 results to previously reported 1 half '25 normalized results.

Starting with revenue and operating income, we saw growth across all segments. Revenue was up 11.2% in the period to $297.4 million. Cost of sales increased in line with business growth and the inclusion of Onboard Finance, which saw operating income up 4.4% to $210.1 million.

Turning to operating expenses. Productivity gains offset inflationary pressures with cost-to-income ratio improving. Operating expenses increased by 4.1%. Once accounting for $3.4 million in Onboard Finance costs not included in 1 half FY '25 normalized results, operating expenses were up just 1.3%, reflecting disciplined cost management and the productivity benefits of investments in technology, automation and process simplification.

EBITDA increased 4.8% to $84.7 million, with operating margins maintained at approximately 40%, slightly up from the normalized prior period. UNPATA increased 1.4% to $50.3 million after allowing for expected increases in amortization, which was up $3 million following the conclusion of Simply Stronger investments in 2 half FY '25 and the inclusion of Onboard Finance, while statutory NPAT grew 9.7% to $49.6 million.

Turning to Slide 7 and the progress we're making in delivering on our strategic investments. During the half, we continued to execute on our 3 strategic priorities: excelling in customer experience; driving simplicity and technology enablement; and delivering valued solutions for our customers and partners to deliver on our vision of being the trusted partner providing solutions made simple.

As part of our agenda, our strategic investments are delivering measurable outcomes across the business. Starting with our new superior GRS digital apps, which have resulted in improved customer self-service with 510 basis point improvement to 83% of service interactions completed digitally. AI is being utilized to improve customer experience and operational efficiency.

An example of this is in our GRS customer care area, where combining AI capability with our telephony platform enables ingestion and analysis of approximately 40,000 inbound customer calls a month, assisting our agents in real time with their customer conversations and efficiently wrapping up calls with automating call reasoning and customer notes. This capability has reduced our after-call work time by 16%.

Similarly, our use of AI and automation are continuing to streamline our processes and strengthen fraud detection in PSS with 57 percentage point increase in the number of invoices processed digitally. In AMS, our digitized trade-in process with access to multiple data sources to improve valuation for our GRS novated customers has seen a 23% increase in sales.

And finally, as part of our ongoing partner and market expansion focus, we have continued to enhance our Oly platform, which has seen SME clients increase to 1,038, up 233% on the prior year. These investments have translated into positive outcomes for shareholders: strong Net Promoter Scores across all segments; a high ROCE of 62.8%; strong operating margin of 40.3%; EPS growth of 1.4%; and continued recognition that MMS is an employer of choice from Great Place to Work.

Now turning to Slide 8 and our digital investments within GRS. During the period, we continued to see an increased uptake of our superior digital apps designed to simplify salary packaging and empower customers with real-time information and greater control. Salary packaging has generally been perceived as complex. New and enhanced features to our apps are changing that perception with a simpler experience, enabling customers to manage their benefits more confidently through improved budget and cap management, seamless invoice claiming, integrated digital wallet functionality and enhanced security.

Customer response has been positive, reflected in strong app ratings and NPS outcomes. Just as importantly, these enhancements are delivering productivity benefits with increased customer digital interactions and continuing growth in customers per FTE. This is a clear example of how our technology investments are improving both customer experience and operational efficiency.

I will now step through the performance of each of our segments. We begin with our Group Remuneration Services segment on Slide 10. GRS delivered strong performance in the first half with financial uplift driven by customer growth, productivity improvements and the inclusion of Onboard Finance.

Revenue increased 16.6% on a normalized basis to $167.6 million, underpinned by customer growth and inclusion of Onboard Finance lease interest income. Operating income after factoring in Onboard Finance cost of funds of $15.9 million increased 5.5% on a PCP basis.

Operating costs were managed well in the period, up 1%. When accounting for $3.4 million of Onboard Finance operating costs in 1 half FY '25 not included in the normalized results, operating costs were actually down 2.8% on a like-for-like basis.

As a result, EBITDA saw strong growth of 12.8% to $62.5 million. UNPATA increased 7.7% to $36.9 million after allowing for the inclusion of Onboard Finance and the expected increase in amortization, up $3.2 million following the conclusion of Simply Stronger investments in 2 half FY '25. Customer metrics performed well with salary packages growing to 387,500.

Novated leasing customers increased 7% to 82,100 and Onboard Finance receivables scaled to $539 million. Novated leases sales grew in both terms of units, up 0.4% and yield up 1.6%. Performance reflected a continued shift to new customers and longer term leases, seeing lower residual leases and new cars, including EVs price points.

In respect to strategic investments in the segment, $4.4 million of prior year Simply Stronger non-recurring costs were removed. Additionally, prior year investments yielded productivity improvements of $2.9 million in cost reduction. We invested further in scaling Oly with $2.7 million in sales and marketing to support future growth as we enhance our position in the SME market. Overall, productivity continued to improve and reflects prior investments in the Simply Stronger program with customers per FTE increasing 17.8% to $694.

Now turning to Slide 11 and our novated leasing performance. Novated continues to benefit from a strong value proposition, new customers and an expanding market opportunity. Our serviceable addressable market comprises approximately 7.9 million employees with the emerging opportunity of 3.8 million SME employees and 2 million corporate employees. Over the period, we have continued to expand our actual employee reach within this corporate and SME market.

We now have access to approximately 546,100 potential employees, which has grown by 15.9% on a CAGR basis since 1 half FY '23 and now represents approximately 9% of the corporate and SME market. This strategic focus is reflected in our sales mix. Corporate and SME novated sales now accounts for 30% of total sales, up from 21% in 1 half FY '23, effectively diversifying our customer base while growing our reach and portfolio.

We continue to outperform the broader new car sales market. In 1 half FY '26, GRS new novated sales increased 3.7%, ahead of the new car sales market growth of 2.7%. As previously stated, our novated leasing customers increased 7% to 82,100. This growth is underpinned by 3 key levers: improved retention of customers at end of lease entering another lease, up 120 basis points; new novated customers up 430 basis points and increasing penetration, which is now at 21% of our total salary packaging base.

Looking ahead, our foundations for growth and momentum are supported by new client wins in the period and the prior period yet to commence, ongoing expansion of our Oly SME brand and a network of growing partnerships creating referral opportunities.

Turning to Slide 12 and the performance of our Asset Management Services segment. As a specialist fleet provider, AMS grew revenue by 6.9% to $98.6 million. Operating income was up 4.3% after factoring cost of sales of $71.4 million, which increased $5.2 million.

UNPATA was up 3.2% to $9.9 million. Written down value increased 5.7% to $389.4 million, underpinned by unit growth. Overall fleet units increased 4.4% to 15,400, driven by both growth in financed and managed-only units. Managed-only units grew faster at approximately 21%, reflecting growth from new client wins over recent periods.

In terms of remarketing profits, improved yields were supported by a higher mix of early terminations, which attracted higher margins from exit fees. Remarketing units were down in the half as clients continued to retain assets for longer.

AMS continued its productivity focus, investing $500,000 in the period to establish a business process outsourcing arrangement for some back-office functions to drive future efficiencies and create capacities for the team to remain customer and business development focused. We secured 20 net new clients this half, benefiting from recent investments made in business development, which will benefit future periods.

Another key highlight for the period was our AutoGuru partnership, which is now delivering digitized vehicle maintenance solutions to our Interleasing clients for a better client experience and creating operational efficiency opportunities.

Turning now to Slide 13 and our Plan and Support Services segment. PSS delivered top line growth during the half, supported by continued organic customer growth and the inclusion of My Plan Support. Revenue increased 5.4% to $29.3 million. Total customers increased 16.1% to 43,000, with 3,800 from the MPS acquisition and 2,100 from organic growth.

As expected, profitability was impacted during the period by the removal of setup fees by the NDIA, as previously announced. This represented approximately $2.3 million impacting EBITDA, which was down $1.7 million to $6.4 million. The segment is well positioned to support future growth and enhanced NDIS regulation.

Whilst the government targets lower scheme cost growth to ensure a sustainable NDIS, participant numbers have continued to grow, up 9.9% on PCP. Participants to continue to prefer plan managers as a method to managing plans, which is up 300 basis points to 68%.

The acquisition of My Plan Support contributed $1.8 million of costs in the 1 half FY '26 segment results, which is inclusive of corporate allocations now that the business is integrated into MMS Enterprise Systems. PSS continued to focus on supporting the sustainability and integrity of the scheme, investing $600,000 in enhanced fraud detection and verification capabilities.

While these investments impacted margins in the period, they are essential to support payment integrity and the role PSS plays as a leading plan manager. Notwithstanding these investments, AI and automation remains a focus with the segment assessing and processing approximately 2 million invoices in the period. This focus is reflected in the ongoing productivity improvements with customers per FTE increasing 25.3% to 277.

I will now pass to Paul Varro, who will cover the financial section of today's presentation.

Thanks, Rob. If you turn to Page 15, what we thought we'd do is lay out some of the financial outcomes for the first half of FY '26 in more detail. As noted by Rob earlier, our results are no longer reported on a normalized basis.

Onboard Finance continues to perform in line with expectations with its results reported in the GRS business segment. Comparatives in this half will be based on 1 half FY '25 normalized results as these were the previously reported numbers. This will be the last period in which we compare to normalized results.

On the left-hand side of Page 15, you'll see the P&L. For ease, we've included the results compared to both the non-normalized and normalized comparatives. As you can see, versus first half FY '25 normalized, revenue grew year-on-year by $30 million or 11.2% for the half, with growth across all business segments and the introduction of Onboard Finance lease interest. Cost of sales grew $21.2 million due to AMS remarketing sales at higher written down values and the introduction of Onboard Finance cost of funds contributing $15.9 million.

There is a table at the bottom left of Page 15 with the cost of sales breakdown. Operating income after factoring in the Onboard results was up $8.9 million or 4.4%. Operating expenses grew 4.1%, noting the inclusion of Onboard costs of $3.4 million. On a like-for-like basis, our expenses grew just 1.3%, highlighting our focus on cost containment and productivity.

Depreciation and amortization increased $3 million as Simply Stronger program concluded in 2025. UNPATA for the half finished at $50.3 million, up on both the normalized view by 1.4% and a like-for-like basis by 11%.

On the right-hand side of the page, we have our operating expense summary. The first bar shows 1 half FY '25 normalized costs, then the inclusion of Onboard Financeoperating expenses to establish a like-for-like comparative of $123.8 million.

As you move from left to right, the first bar shows our cost increases due to wage and vendor inflation of $3.6 million, offset by savings from non-recurring costs of $4.4 million, primarily due to the conclusion of Simply Stronger investments in FY '25.

We continue to invest in growth, in particular, with investments in Oly, up $2.7 million and of course, the inclusion of My Plan Support costs of $1.6 million. These are partially offset by our productivity initiatives across all businesses, which have delivered net savings of $2.7 million.

During the year, we embarked on a business process outsourcing initiative, as Rob mentioned earlier. This had implementation costs of $800,000 for the half. All up, like-for-like operating expenses grew just 1.3% for the half, a testament to our focused and disciplined cost management.

Turning to Page 16. The balance sheet remained strong with net assets consistent in the half. Our key covenant metrics on the top right-hand side all remain below threshold levels, allowing us flexibility to move forward. On the bottom right, following the successful extension of Onboard Finance warehouse in August '25, we have no maturities due over the next 12 months.

If we turn to Page 17, our strong and flexible balance sheet positions us well to manage our capital efficiently and to ensure long-term growth while maintaining a prudent balance sheet and balancing returns for our shareholders.

On the left-hand side, as a reminder, our net cash, covenant headroom and strong underlying cash generation remain, and we continue to return fully franked dividends to shareholders in accordance with our payout ratio of 70% to 100% of UNPATA. Following the conclusion of normalization at the end of FY '25, we've taken the opportunity to optimize the mix of distributions to shareholders.

In this half, the Board has declared a fully franked dividend at 85% of UNPATA or $0.62 per share, the midpoint of our payout range, along with announcing an on-market buyback of up to $10 million over the next 12 months.

In aggregate, these announced capital returns to shareholders totaled $53.2 million declared in the half, up 7.6% versus last half. These distributions balance returns to shareholders with a dividend yield at an attractive 7.2%, along with the buyback creating the opportunity for EPS accretion.

Our capital returns also allow us to invest in the business and manage capital in accordance with our framework, which is noted on the right-hand side of Page 17.

Moving now to Page 18. Our cash generation remained strong with underlying cash conversion of 88%, noting the elevated tax installment paid in the half as the benefits of the temporary full expensing program partially reverted in the period. Overall, it's been a strong performance in the half with all businesses growing revenue, disciplined cost control and a strong balance sheet position to enter second half FY '26 with plenty of flexibility to grow.

With that, I'll hand it back to Rob, who will take you through our outlook.

Thank you, Paul. Now turning to Slide 20 and our second half FY '26 outlook. Looking ahead, we expect UNPATA in the second half to benefit from continued customer growth across all segments from business momentum, increased Onboard Finance receivables and the ongoing realization of efficiency benefits from our prior strategic investments.

There are also several external developments that we continue to monitor closely. The federal government's review of the Electric Car Discount scheme is underway, while within PSS, we expect further clarity from the annual NDIS price review. Today, we have also announced an on-market share buyback of up to $10 million to be executed over the next 12 months.

Finally, across the group, we will continue to take a disciplined approach to investing in and executing on our strategic priorities, excelling in customer experience, driving simplicity and technology enablement and delivering valued solutions to our customers and partners.

In closing, MMS remains well positioned to deliver long-term sustainable growth, supported by a large and diversified customer base, strong and flexible balance sheet and disciplined approach to capital allocation. We take this opportunity to thank our people for their commitment, our customers for their trust and our shareholders for their ongoing support.

Thank you for your time this morning. Paul and I will now be happy to answer questions you may have. I will now pass back to Alison to facilitate questions.

[Operator Instructions] Your first question comes from Tim Lawson of Macquarie.

Just in terms of the result, you obviously talk a lot about productivity throughout the pack. But obviously, there's been like a small improvement in margins or cost-to-income ratio in reverse. Can you just sort of talk through maybe the impact of the price increase on margins versus what you've been able to do organically throughout the other divisions?

Yes. Look, thanks, Tim. Yes, I mean, obviously, a big focus of our strategy over a number of years has been productivity. We've continued to look at how we can simplify our processes, use technology and automation to enable that. In the period, if you look at, obviously, each of our businesses, GRS benefited from some margin uplift probably contributed by both factors. One, we had some yield improvement in our novated sales. And then the second was obviously through the benefits coming through from our previous investments in Simply Stronger, both in terms of customer self-service and the use of AI and automation in our call center. So reducing the number of people we need in terms of supporting customer calls coming through. You can see in terms of our cost walk, which is on...

Page 15.

Page 15 at the FTE numbers obviously represent that reduction over the periods. So in terms of 1 half FY '26 versus second half '25, we're down 75 FTE. That's largely in our GRS business. PSS, if you think about the business, we acquired My Plan Support, brought on about 30 resources through productivity benefits across the group, we were able to reduce that down by 26. So we had a net increase of only 4 after buying My Plan Support.

So we saw good productivity improvement in PSS as well, notwithstanding it was offset by the setup fee reduction, and we also continue to invest in the platform, improving our fraud detection and verification processes with technology. So I think what we've seen really has been a combination of some yield improvement and largely margin improvement driven by productivity benefits. Paul, is there anything else you want to add?

Yes. I might add a bit more to that. So if you look at the margin relative, obviously, to the normalized result, last year, say operating margin goes 40.1% to 40.3%. Cost-to-income 59.9%, down to 59.7%. Really what's driving that to be relatively flat, just a slight improvement is obviously the inclusion of Onboard costs.

If you look at it from a like-for-like basis, which really shows how we're managing sort of year-to-year and half-to-half, you can see there 1 half '25 non-normalized operating margin improving 37.8% to 43% and cost-of-income reducing 62.6% to 59.7%. So it's just sometimes when you're comparing as we exit these normalized results that it looks relatively flat, but the underlying business, I think, the initiatives are proving out.

Yes. Can I -- just a second question in terms of the My Plan Support versus a setup fee reduction. Can you talk more about that? Because obviously, the setup fee reduction happens sort of instantaneously, but you've obviously called out the fact that in that previous answer that headcount only went up by sort of a net 4. What's the sort of exit rate sort of, if I think about it that way for PSS?

Yes. I mean, obviously, as you can see in the walk there, the $2.3 million reduction in setup fees, like if you added that back in terms of where the EBITDA was, EBITDA at $6.4 million, you added the $2.3 million, you'd be at $8.7 million, we would have been actually up about 6% or $600,000 odd in terms of EBITDA.

As we finished the second half of -- sorry, the first half of '26, obviously, we started to see the reduction in the FTE. That should play benefit in terms of the second half margins. So we'll have a better margin in the second half versus the first half. It takes time, obviously, to catch that huge reduction in terms of revenue.

The second factor, though, is we have invested in technology and fraud detection improvements and verification. So they should start to see some improvements also in terms of the second half. So we have a better kind of exit run in terms of FTE numbers and obviously, margin than we would have at the start of the year. It will just depend a little bit on kind of where the government ends up getting and the agency gets up on kind of the annual price review.

Yes. Okay. And just a couple of other quick questions. So the client trust funds were up like about 20%. Like just what's happened there?

Yes. That was just a little bit of timing on one of our big client partners. Essentially, they remitted funds into our trust account just pre-Christmas, and they were paid out just after Christmas. So it's just a little bit of timing. It's not as dramatic. If you look at, say, January, it's back to sort of $457 million. So it's just a bit of timing, Tim.

Yes. And a few other sort of housekeeping. Just you're calling out GRS novated trades in -- within the AMS segment. Why are you doing that?

They are customers that we have within our GRS business that are referred to our Interleasing business and AMS business to then take those cars and sell them through our Just Honk platform. So the income ends up sitting in our AMS business versus our GRS business.

Is that particularly -- in terms of materiality, it's not, I imagine, particularly large?

In terms of magnitude from an AMS, no, but it is increasing a very small base in the last couple of years. It's not included in our remarketing yields that you have there on the slide. So it's incremental to that, but starting to become a nice bit of income earner for us in our AMS business.

Okay. So the revenue growth in that AMS segment is more organic than from that factor?

Yes. I mean if you think about the total revenue in AMS, a large portion of that is obviously the yield improvement on the remarketing, which excludes the trade-in. But the trade-in off a very small base is now starting to become meaningful.

Yes. Okay. So then just on that -- if that yield improvements on the trade-in is around that sort of $6-odd million, just why is it not getting through the EBITDA line?

So firstly, I think there's a bit of mixture of what happened during the period. So we get the early termination fees, which comes through in the remarketing yield. We lose a bit of income, though, if that customer base would have otherwise been there with the book in terms of our principal and interest, then there is cost associated with selling those units that comes through in our cost base.

Our next question will come from Phil Chippindale of Ord Minnett.

Firstly, just on Oly, it's obviously continuing to grow. I think you said it's over 5% novated sales in the first half. Clearly, new client wins is probably a big driver of this improvement. But can you just talk to us about penetration? I know it's relatively early days, but what are you seeing from a penetration perspective into that SME on a per customer basis?

Yes. So look, obviously, the -- in the period, Oly continued to grow in line with what we expected, which is great to see. In terms of penetration within the customer base, so our Oly customer base is largely what we call small to medium. It's not at the larger end of the SME market. We have about 70% of our clients sitting there somewhere between 500 and 200 employees.

We're still seeing quite a large of get one customer first and then focus on starting to get cross-sell within that client base. That takes a little bit longer. It's a little bit different to our core business where you integrate initially with the client, when the client win and then you market to all the employees, it takes a bit longer.

We've got now just shy of 15% within that customer base, have got multiple employees now with Oly. That's off a base of which was 100% only single customers 12 months ago. So we're starting to see a bit of uptake in improving penetration with that employee base, but it takes a little bit longer in our experience so far versus our core business.

I understand. Just touching on the OpEx, you called out the $3.4 million of Onboard Finance one-offs in the prior period. So what does this look like in terms of the second half for us?

Yes. So it's kind of not one-offs. The $3.4 million was previously removed by normalization. So as we completed normalization, Onboard comes in. There will be a modest increase in those costs. I think that the operating expense base that we have for Onboard now in the numbers is there or thereabouts. But obviously, there will be a little -- certain amount of that cost is variable cost that grows with the receivable size, the amount of originations we've got and obviously, the number of active customers.

Okay. And then just the last one for me. You've referenced this $800,000 of incremental cost in the period for -- I think it was an outsourcing program. Can you just talk to, again, will that be a net drag in the second half as well of a similar quantum? Or I guess, perhaps you'll start to see some benefits and perhaps that net cost comes down?

Yes. Fundamentally, it's been a net drag in this half because we've invested in BPO in the half. We've had some dual running costs, for example, in AMS, which answers Tim's question as well. In the second half, we expect to yield some of those benefits. So we don't expect it to be a net cost in the second half of this year.

The next question will come from Chenny Wang of Morgan Stanley.

Maybe just first one, honing in on GRS and the $151.7 million operating income. I know you guys aren't giving normalized numbers anymore, but I was kind of interested in what that would have looked like in the first half of '26, just because I think it's pretty clear for first half of '25 and also second half of '25 that with the funding warehouse that it was operating income drags. I think on my calc, minus $1.6 million in the first half of '25 and minus $0.8 million. So just curious what that actually looked like for the first half of '26?

Yes. So we're not going to disclose normalization adjustments in this half. But Chenny, what we've tried to do on Page 24, 25 and 26 is actually give you much more information on the normalization adjustments previously. If you look at the overall increase in GRS from a normalized perspective, it's up -- we've got here -- it's up $24-odd million. And on Page 27, we've laid it out in a little bit more detail for you. So overall, the core growth for GRS is up $14 million at a revenue level.

That's predominantly Onboard Finance growing, but there's also income growth there from the traditional P&A model plus commission. When you're looking at it versus normalized though, you have to remember that in '25, we also had a $9.8 million normalization adjustment, which obviously then gets you to $23.9 million variance that you see year-on-year. Then you've got your cost of funds coming in.

And so obviously, $15.9 million comes in versus normalized, but if you had assumed that it wasn't normalized, that growth would have been $5 million. That again is on Page 24 and 25 to help you out a little bit. But we're not going to disclose normalized results in this half, given we want to move away from them going forward.

Got it. And then maybe just to keep it super simple then and just kind of talk directionally. Obviously, Onboard Finance was an EBITDA drag in previous halves. Was that still an EBITDA drag in the first half of '26? I appreciate you won't give numbers, but just directionally, just to help us out to understand, I guess, some of the underlying results?

Yes, great question. It was a fairly marginal drag. And as we've disclosed before, we expect it to be neutral across the course of this year. That's why we're removing normalization.

Got it. Okay. So just with the last comment, just to be super clear, so you're still expecting all else equal, that to be, yes, neutral over the year. If that is the case, that obviously implies that the second half, again, all else equal, should be higher than the first half. Can we think about then the second half base into -- sorry, the second half as a base into FY '27? So again, all else equal, can we just multiply the second half by 2 and that's kind of our base to work from into FY '27?

Yes, you wouldn't be that far off. But by doing that, as we've disclosed before, we expect as Onboard grows and gets to scale, it starts to be slightly accretive in the outer years, obviously, subject to the amount that we're originating through that portfolio.

[Operator Instructions] Our next question will come from Richard Amland of CLSA.

Just a couple of questions, mostly numerical. I think there was an amortization of expenses that were associated with the Simply Stronger of $3.8 million. Can you confirm that? Have I got that right? Or is that incorrect?

I think the net amortization increase is $3 million, Richard, which predominantly is essentially Simply Stronger finishing or capitalizing in FY '25 and a small contribution. Again, as we remove normalization, Onboard has a small amount of amortization coming in as well from the initial build costs. So again, in the detailed P&Ls in the appendix, you can see the amortization versus normalized is up $3 million on Page 25.

Okay. That's probably where I was sourcing it from. My eyes are already glazing over. How long will that $3 millio4n stay in, in terms of how long is the amortization term on that?

Yes. So on average, sort of with software assets, it's anywhere from 2 to 5 years. So we wouldn't expect D&A to start coming down anytime soon. It will be relatively flat. Obviously, if we embark on new software investments and they add to capitalization, that will increase D&A. I would say, though, looking forward, as we build more software assets on SaaS-based data or tech platforms, we'll have more OpEx as a proportion of our investment relative to CapEx going forward.

Okay. But we should probably run that half year D&A forward at that pace for the next couple of periods at least?

Correct. Yes.

Second, going through the disclosure, it looks like Onboard Finance, the interest costs associated with that were about $20.6 million. Is that correct?

The interest cost, if you -- easiest one to go through is back to Page 25. And you can see the GRS and didn't have any cost of funds in it in the prior period. So that $15.9 million that comes in for this half is 100% Onboard cost of funds.

So on the 4D, we've got a finance cost of $23.2 million.

Yes.

Here, we've got an interest cost of $22.6 million. I'm trying to reconcile the 2.

Yes. Remember, we've also got cost of funds in AMS as well, because that's group. We're looking you're looking at a group number in the 4D. I'm just referring to GRS.

Okay. So the $15.9 million is the cost of funds for the Onboard Finance?

Yes. And then you can see the $21 million for the variance there for the group on [ '25 ].

Okay. Then again, trying to reconcile to the balance sheet, it looks like the current and non-current finance lease receivables are pretty close to the Onboard Finance book in terms of numbers. So are those aligned? Is it that easy? Or is there other stuff?

Yes. No, there's other stuff in there. So the vast majority of that is novated and finance lease receivables. But in there, there's also AMS on balance sheet funded assets and a little bit of inventory in there as well. But essentially, the biggest driver period-to-period is in novated and finance leases.

And essentially, Richard, actually, this might help you. We've disclosed what Onboard Finance receivables are in the investor presentation, as we've said before, $539 million. That gives you a sense of the $777 million, roughly, not exactly that because there's other finance leases that we've got to the tune of about $9 million, the finance and novated leases. But that then gives you a sense of what that $77 million (sic) [ $77 million ], how much of that is Onboard.

The direction of the question is trying to reconcile what part of the on balance sheet book relates to Onboard and then what the cost of -- the debt cost associated with that is? But okay, that's fine.

Final question is just around dividends. So you've called out that dividend payment ratios pulled back to 85%, 86%. Is that a go forward? You've been paying 100% for a couple of years. So should we be winding up our expectations back on dividends to 85%, 86% going forward?

Yes. Obviously, we'll make that decision with the facts and circumstances of the next half. We thought this was a really good opportunity in this half post normalization to optimize the mix of our distributions back to shareholders. And for us, it makes sense to keep the divvy, obviously, it's still really strong at 85% and a 7.2% yield. But clearly, we also see value in a buyback of up to $10 million as well, given the potential accretive benefits for EPS and obviously, our confidence that we've got relative to where we see our share price.

This will conclude the question-and-answer session and concludes our conference for today. Thank you for participating in today's conference, and you may now disconnect.