Hello, and thank you for standing by. Welcome to Eagers Automotive Half Year 2023 Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask the question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I would now like to hand the conference over to Keith Thornton. Sir, you may begin.
Thank you for joining us today to discuss the Eagers Automotive results for the half year ending 30 June 2023. With me today is Sophie Moore, our Chief Financial Officer. Our results pack, including the slides for the presentation, has been lodged with the ASX and should be visible via the webcast. As outlined on slide two of the presentation, Sophie and I will provide an overview of the result, update you on key operational metrics, and then detail progress against our Next 100 strategy. We'll also provide the company's outlook before opening up for questions. Let's now turn to our first half numbers. In the first half of 2023, total reported revenue grew by 14.3% on the prior period to a record half year turnover of AUD 4.8 billion.
This puts the company on track, and in fact ahead, of our forecast AUD 1 billion increase in full year 2023 revenue growth. This strong revenue result translated into an underlying net profit before tax of AUD 207.4 million, an increase of AUD 12.3 million or 6.3% on the first half last year. The underlying profit result reflects continued strong return on sales, net profit margin of 4.3%. Again, as we forecast in our outlook at the end of 2022. Notably, and as we communicated at our AGM, the margin performance was dampened somewhat in the first quarter of 2023 by port congestion and biosecurity issues that negatively impacted new vehicle deliveries within the Eagers portfolio.
In addition to this, our New Zealand operations were disrupted by two extreme weather events during the same period. If we were to normalize for these events, our margin would be in line with the record levels of 2022. Now, this is noteworthy given the high inflationary environment we're all operating in, and we'll discuss this in more detail during our operational update. Our balance sheet is exceptionally strong, with AUD 758 million of available liquidity, which included a record cash position of AUD 353 million and a property portfolio of AUD 559.4 million as at June 30.
This strong first half result, combined with the strength of our balance sheet and our confidence in the outlook for the remainder of 2023 and beyond, underpins a record ordinary interim dividend of AUD 0.24 per share, which is a 9.1% lift on 2022. Before we get into the financial results in more detail, I wanted to touch on our progress against our 2023 outlook, which we provided in February. It's our half year report card, if you like. Coming into 2023, we set two clear goals: execute on the initiatives we put in place during 2022 to deliver material top-line revenue growth, while continuing to maintain our strong return on sales net profit margin. I'm pleased to report today that our first half results show the company is firmly on track in delivering against this outlook.
Our 2022 growth initiatives included organic growth, greenfield investments and acquisitions, which in combination have delivered top-line revenue growth of more than AUD 600 million in the first half alone. We are on track to exceed our full year 2023 expectations of more than AUD 1 billion in revenue growth. Of particular note is that only AUD 69 million of the total AUD 600 million in growth came from like-for-like performance. In other words, our revenue growth has not been driven by a higher new vehicle market in the first half. In fact, our like-for-like deliveries are very marginally down. Margins have remained strong across all our business, and we've been relentless in our cost management focus. We've delivered significant improvement in the profitability of our independent pre-owned business, easyauto123, which is now back in line with historic record profit levels.
We continue to leverage and grow strategic partnerships with a view to creating distinct and very difficult-to-replicate market advantages. And of course, we continue to review accretive acquisition opportunities consistent with our Next 100 strategy. So with that scorecard update, I'm going to hand over to Sophie to let her take us through the financials in some more detail.
Thanks, Keith. For the half year ended 30 June 2022-2023, the group has delivered on a statutory basis, net profit before tax from continuing operations of AUD 216.1 million. Underlying operating profit for the period was AUD 207.4 million, an increase of AUD 12.3 million, or 6.3% on the first half last year. Revenue on a reported basis increased by 14.3% to a record AUD 4.8 billion, reflecting the top-line growth contributions from our organic, greenfield and acquisition initiatives, including the South Australian and ACT acquisitions completed in the second half of 2022. Underlying return on sales reduced marginally to 4.3%, impacted by the first quarter disruption that Keith touched on earlier.
The strong margin reflects continued favorable market dynamics, margin growth in new cars, finance and insurance, and car care, and the benefit of ongoing tech-enable, tech-enabled productivity gains and cost out programs. Slide 31 in the appendix includes the reconciliation of statutory to underlying earnings before interest, tax, depreciation, amortization, impairment, and profit before tax. The total new car order bank remains very strong, marginally reducing on prior record levels, primarily due to the record new vehicle deliveries in June 2022, 2023. But still providing a very strong foundation for the remainder of 2023, and well into 2024. As Keith mentioned, Eagers is in a very strong financial position, underpinned by a substantial property portfolio and asset base. Together with AUD 758.1 million of available liquidity at 30 June 2023.
This liquidity position includes a record available cash position of AUD 353 million, and undrawn commitments under the corporate debt facilities. We ended the period with corporate debt of AUD 118 million, net of cash on hand, down from AUD 253.5 million at 31 December 2022. This significant liquidity buffer provides the flexibility and capacity to invest in organic growth, technology enablers, restructuring, and acquisition opportunities. As we've already highlighted, in the first half of 2023, we delivered a record interim dividend of AUD 0.24 per share for our shareholders, increasing 9.1% on the prior year. Importantly, this highlights our long-term consistent track record of growing returns for our shareholders.
Over the past 10 years, we've delivered more than 13% compound annual growth in dividends, and demonstrated our ability to grow the business by delivering a similar annual growth in our underlying earnings per share. We have delivered this growth in a disciplined manner, establishing a fortified balance sheet, which has provided the opportunity to execute on capital management initiatives.
The company remains well placed to fund growth with significant gearing capacity, enabling the ability to deploy available liquidity in a disciplined and strategic manner. This focus on rewarding shareholders, while remaining well positioned to capitalize on growth opportunities consistent with our strategy, is fundamental to our company's long-term philosophy of growing value for shareholders. I will now hand back to Keith to take us through the operational highlights for the first half.
Great. Thank you, Sophie. Now, let's look at the key operational metrics in a bit more detail, and let's start with the new car market. Improving new vehicle supply conditions experienced over the course of the first half of 2023, demonstrate the strong operating leverage that exists within the Eagers business model.
At our AGM earlier this year, we talked to the fact that the new vehicle market was up 2.2% as at April year to date, while our underlying profit result for the same period was broadly in line with the prior year, reflecting the supply impacts evident within our portfolio mix. Throughout May and June, supply conditions materially improved, with June 2023 being a record delivery month for the industry. This culminated in the new vehicle market for the first half, finishing up 8.2%.
It's also worth highlighting that excluding Tesla, the market was up 6.8%. If you move to the graph on the right of this slide, it demonstrates how the operating leverage within our business was able to capitalize on this improved new vehicle supply. Delivering underlying profit results for May and June, up 10.8% in May, and 15.7% in June on previous corresponding periods. Leading to an overall result for the first half, which is 6.3% up on last year. Now, I'll touch on the key drivers for our operating leverage shortly, but it's important to understand two issues. Firstly, our profit is not directly linear with new vehicle deliveries.
In fact, once fixed costs are covered, the large variable component of our expense base allows the opportunity for outperformance, with incremental contributions to the bottom line as deliveries increase. Secondly, despite record vehicle deliveries in June, our confidence in the outlook remains very positive due to the significant order bank, with strong embedded growth and expectations of a very strong second half delivery environment, specifically from some of our largest OEM partners. Moving on to our order bank. The market dynamics experienced over the last few years, whereby pent-up demand and supply chain disruption has created an imbalance, resulted in a shift in industry dynamics, whereby order banks have become the new industry norm.
Even with the record deliveries in June, the graph on the left demonstrates that demand for new cars across our consolidated portfolio remains robust, and continue to exceed supply across every month in the first half, except for June. In fact, over the first half of the year, the delta between orders written, which is demand, and vehicles delivered, which is supply, was 14.3%, a very healthy number... Our order bank at June 30 was marginally below the record levels at December 2022, but it must be highlighted that this is a net order bank, taking into account any cancellations or orders cycled for immediately available vehicles. As stock availability is approved across several OEMs, we have noticed some churn out of long-term orders and into immediate deliveries. Anecdotally, flat-out care, cancellations with no replacement at all remains largely immaterial.
Looking forward into the second half of 2023, demand is expected to remain resilient, albeit with moderation from recent record levels. Despite the strong and in some cases, very strong supply committed from a number of our OEM partners throughout the remainder of the year, we still expect that through a combination of changing customer preferences, external demand drivers, ongoing logistics challenges, particularly at the ports in Australia, and very deliberate OEM action, that the order bank dynamic will continue to exist in the industry through the short and midterm. In turn, we expect the industry will see an ongoing margin benefit, albeit to an undetermined magnitude, particularly compared to pre-COVID dynamics.
To further illustrate our view that there is no demand cliff looming, it's important to understand supply and demand levels relative to historic averages, and why the new vehicle market cannot be viewed in the same light as general consumer discretionary products. The new vehicle market since 2020 remains significantly below the average market from 2012 to 2019. Despite the recent improvement in vehicle supply and even taking into account a possible record high market in 2023 of 1.2 million vehicles to be delivered, the four-year, 2020 to 2023 average vehicle deliveries would still only be 1,062 per annum, which is some 75,000 units per year below the 2012 to 2019 average.
What this means is there will remain a 300,000 new car hole in Australia over the last four years relative to recent historic averages. Now, this hole exists in a static environment and ignores the likely demand generated from net migration, driving population growth, greater mandated demand for fleets to green their portfolios, and government incentives compelling retail customers to adopt a new lower emission vehicles, particularly in the affordable space below the LCT threshold. These factors, combined with the hole to be filled, should underwrite consistent and resilient demand, and at a minimum, act as a hedge against general economic headwinds. Supporting our view that Eagers Automotive is well positioned to operate in a sustainably stronger return on sales environment compared to pre-COVID, is the scale the company now benefits from across all parts of our business.
We have the largest new car footprint, covering more than 10% of all new vehicles sold in Australia across an extensive volume, niche, and premium brand portfolio. We have unrivaled geographic coverage in every major market. We are the leading franchise EV retailer by a considerable margin. Year to date, more than 10% of our new vehicles delivered were pure battery electric vehicles. Now, this compares to an overall market running at 3% when you take out Tesla, which runs a direct-to-consumer model. We have the leading position in the light truck market, representing six of the 10 top-selling brands and approximately 8% of the total truck market, probably considerably bigger in the light-duty market alone, with partnerships in play to also lead the market in providing EV solutions for fleet operators in the last mile logistics segment.
We have Australia's largest and only national fixed-price pre-owned business, supported by a full-service national auction, JV Carlins. Our scale advantages across new and used passenger, car, and truck markets are supplemented by leading positions we also hold across finance and insurance, aftersales, and ancillary products like car care and tires. This market-leading position across the entire automotive retail value chain provides stability through vehicle demand cycles, but more importantly, provides an opportunity to invest in, add value to, and accelerate growth via strategic enablers in adjacent industries such as the fleet and novated leasing space. Despite our existing scale, we continue to accelerate our growth plans. Excuse me. In 2022, we invested in organic, greenfield, and acquisition initiatives. These initiatives were expected to underwrite more than AUD 1 billion in revenue growth in 2023 compared to the 2022 full year.
As mentioned earlier, the record half-year revenue of almost AUD 4.8 billion is up more than AUD 600 million on last year, which has put us in a position where it's possible to exceed our forecast revenue growth for the full year, and probably highly likely. As you can see on this slide, the growth has been split 10% across organic initiatives, 50% across greenfield, and 40% via acquisitions.... And importantly, we are actively engaged at looking to replicate this sort of growth again in 2024. But growing our top line, our top line will not create shareholder value unless we manage our return on sales or net profit margin. We remain relentless in our focus on daily cost control, while structurally redesigning our cost base via execution against our strategy.
Despite an environment of extraordinary cost pressure, we are pleased to have managed our like-for-like cost base to be only 4.9% on the first half of 2022, which is a period, as we all know, that was much less impacted by the current external inflationary factors. This figure reduces down to 2.5% if interest costs are excluded. Even more pleasingly, we've reduced our like-for-like cost base in the first half of 2023 compared to the second half of 2022, which is a period which was subject to some of the external pressures we see now, by more than AUD 20 million per annum or AUD 2 million per month.
This single metric is one we are probably the most proud to report today, as it is real evidence that our strategy is sound and our ability to execute on things that we can control remain a core Eagers differentiator. Discipline and strategic cost control, combined with strong margins across all parts of our business, have underwritten a sustained return on sales or net profit before tax margin of 4.3%, with expectations of an improvement over the second half of the year. Okay, let's move to our strategic priorities and provide more specific updates against the key components of the company strategy. On the slide in front of you, you'll see our Next 100 strategy. A lot of people on the call will be familiar with that, and we hope you are.
We're very proud that we have a clear and well-communicated strategy. It doesn't change annually, and we hold ourselves accountable to progress against it every time we report. Let's start with our property strategy and specifically an update on our Auto Mall concept. With recent changes announced to the Brisbane Airport plan and the strategic divestment of the Castle Hill property and business in Metro Sydney, it's important that we reaffirm that our Auto Mall strategy remains central to our success over the next decade and beyond. We are committed to innovation in automotive retail to position the company as a key partner for our OEMs and a preferred business for our customers and the communities we operate in.
The Auto Mall strategy is already and will continue to deliver on these aims through multi-branded consolidation in customer-centric automotive precincts, rolling out innovative new retail formats, the development of larger scale service factories responsive to future EV demands, consolidating pre-owned operations into a scale, low-cost national offering through easyauto123 , and of course, linking the customer experience and business process with proprietary technology and omni-channel retail solutions. As part of this journey, we continue to consolidate our property footprint, doing more with less, but without compromising our OEM representation or the customer experience. Since 2020, we have exited 133 external leases and invested in almost AUD 300 million in property as part of this strategy. This has helped to rebalance our owned to lease property ratio.
It's removed inflationary costs, pressures evident in external leases on the properties we've purchased, and it's ensured that capital investments in our Auto Mall developments are to the long-term benefit of Eagers shareholders rather than external landlords. Of note on this slide is that our average weighted cost of capital across corporate syndicate debt and captive property loans is 4%. While our average tenor on our property debt, which is 75% of our total debt, is fixed for 6.4 years. These both represent a very fortunate position to be in. The evolution of our Auto Mall strategy is evident in recent progress across several key projects. Already launched is the Auto Mall West business in Indooroopilly Shopping Centre, which continues to exceed expectations and acts as a template for multiple future variations of the Auto Mall concept.
The redevelopment of our Osborne Park operations in Perth are underway, with one site recently completed, which has a Porsche facility, a Bentley facility, and a Volkswagen facility. The slide that you're looking at now, you'll see the Porsche facility on that site in the bottom left-hand corner. We have another development well underway in Osborne Park. Through these two large property acquisitions and redevelopments, we will exit a total of six leases and consolidate 10 brands, eight existing and two new, across two owned sites, and in the process, transform the customer experience and the economics of this large-scale business hub. The annualized savings on the exited leases alone is AUD 6.5 million. We are actively assessing future Auto Mall concepts with a view to continuing to deliver innovation and consolidation through the execution of our property strategy.
Through recent partnerships with new market entrants, we have capitalized on the opportunity to reimagine the AutoMall network strategy in response to the evolving wants and needs of our customers. Partnering with new-to-market OEMs has allowed us to start with a blank canvas and deliver a multi-formatted network strategy that links both the physical network and digital capabilities to deliver a true omni-channel retail experience. This unique approach enables the business to operate on a lower long-term cost base and leverage technology to drive higher productivity. In turn, delivering a sustainable, stronger return on sales outcome. On the screen, you see some examples, where showrooms have been evolved to transactional experience centers and are supported by large-scale pre-delivery and fulfillment centers.
Moving on to innovation, proprietary technology is a key enabler, differentiator, and accelerator of Eagers transformation to a more customer-centric and higher productivity business. The development of proprietary technology is only of value where it meets specific needs or criteria of the customer and the business. Since 2020, we have focused on identifying key customer, staff, and economic pain points in our business. Developed technology solutions for pilot sites for proof of concept, and then applied proven tech to operations across the wider business to extract the benefits identified. In 2023, we are executing on the rollout of a number of proprietary initiatives developed and tested in previous years. In addition, we continue to challenge ourselves to identify new opportunities to develop, test, and learn. In 2023, there are several new proprietary initiatives underway.
Highlighted on the slide, you'll see our easy Quote, which is our AI and machine learning-enabled real-time vehicle valuations. Our Talk to Text initiative, to eliminate handwritten repair orders, which significantly drives up productivity. And Scanify, which is our proprietary inventory and pre-delivery management tool, again, aim to drive significant improvements in both productivity, productivity and efficiency. Highlighted on the right-hand side of this slide, for your reference, are several key statistics that provide real evidence of progress and help demonstrate the materiality of the benefits these initiatives will provide. As the rollout programs gather momentum, we will build scale in the utilization of the technology across our business. And it's important that we hold ourselves accountable to ensure the technology is delivering the expected productivity and customer experience outcomes. So two key measures of success are like-for-like headcount and revenue per employee.
Pleasingly, both metrics are showing favorable movements, with like-for-like headcount in the first half of 2023 compared to 2022, down 3.6% or 266 less people year on year. While at the same time, our productivity, which is sales per employee, has increased by 9.8%. This provides tangible evidence of the economic benefits of our technology initiatives. But let's stop for a moment and just consider that as an outcome. So all things being equal, if we can do the same amount of business, possibly even more, with a workforce of 266 less people, and remember, Eagers is a business that now has circa 8,000 people in its workforce, it results in AUD 25 million-AUD 30 million straight to the bottom line.
Now, link that number to our comments that we've made about believing we will run a sustainably stronger long-term return on sales business. Well, when you add AUD 30 million to our bottom line, and you compare it to our turnover, it increases our return on sale margin by 0.3%. 0.3% on sales. Now, that is material in a business that makes about AUD 10 billion in sales every year. So our proprietary tech investment and our continued focus is something we are very excited about. Financial services continues to perform well, despite the ongoing challenges associated with long lead times in the new car division. We've previously highlighted our new and used car performance share, which continues to outperform relative to industry benchmarks.
Eagers top 30% dealership quartile delivered approximately a 20.7%--20.7 penetration point improvement compared to the industry. While our used cars or Easy Auto used car division was 14.5% higher than top quartile industry benchmarks. Despite a small decrease in new car finance share overall, our new and used car finance share has increased on a like-for-like basis compared to the first half of 2022. Operations continue to execute the ancillary strategy very successfully, resulting in the total profit per retail growing by 7.6%. The income growth, the income growth was underwritten by excellent margin control, higher average net amount finance per contract, and disciplined sales processes of motor vehicle insurance and mechanical protection plans.
Our proprietary financial services business, Taurus, continued to perform well, with our finance joint venture portfolio growing to AUD 330 million. The finance joint venture plays an instrumental role inside the group's independent used car business by offering industry-leading customer technology and a paperless end-to-end process.... The car care division continued to deliver exceptional results, producing another record result for the first half, and resulting in a increase in profit of 48.5% since we merged with AHG. Further evidence of how scale can drive over performance. All proprietary businesses across our car care business, Perfexion, our finance company, JV, our non-conforming loan business, Lender Advantage, and our car subscription business, Simplr, were profitable in their own right and continue to provide Eagers an extensive and integrated offering, unrivaled in the industry.
Moving on to the EV story, and Eagers Automotive are uniquely positioned to lead the new energy vehicle transition, with more than 10% of our total sales this year already all battery electric vehicles. The rapid take-up of plug-in and battery electric vehicles, classified as new energy vehicles, continued to gather pace in Australia in the first half of 2023, also in New Zealand. Eagers has moved early and deliberately to be the leader in this transition, a transition that should deliver considerable shareholder value in a decade-long period. And it's a transition that is really only just starting and will only continue to gather momentum. We believe this considerable opportunity will present itself for those with dominant market position, and as such, we continue to identify opportunities in this evolving market, and we're moving fast to capitalize on these opportunities.
One example is the last mile logistics and light-duty truck market. One, we are already a market leader in, and where we are actively positioning ourselves to capitalize on significant pent-up and pending demand for full BEV offerings. In addition, and as previously highlighted, enabling an adjacent industry, such as the fleet management and novated lease segments, provide an opportunity for Eagers to be strategically positioned for mutual success with key partners. Finally, we turn to our national independent pre-owned business, easyauto123, which is supported by our JV in Carlins auction. Our independent pre-owned strategy remains a key growth pillar for the company. Now, back in 2022, we looked to scale this business in a highly competitive market for inventory and at a time that new entrants looked to establish themselves in this fixed price, pre-owned market space.
This proved challenging for all players in this space. In late 2022 and into 2023, we have pivoted to focus on a restructure and integration plans for our independent and franchise used car used car businesses, to return profit and establish a more stable platform for growth. Pleasingly, we can report that our independent used segment is trading back at record profit levels, where we've made significant progress on the inventory sourcing, valuation, and technology changes necessary to establish a platform that will enable us to scale the business in a profitable and sustainable manner. In our end state, 65% of our 130 franchised used car dealership points across our portfolio will partner with easyauto123 to supply inventory in either an exclusive or majority manner.
Now, this transition is well underway and will be largely complete by the end of 2024 because in some cases it is linked to property redevelopment. Access to a high volume of intra- inventory at the right price is the critical success factor for scaling a national independent used car brand. Eagers have a unique competitive advantage through the scale of our operations. Only our business can access more than 600,000 in-market trade opportunities, without acquisition cost, to leverage this inventory model. We are very confident that the unique economics of the business, which operates on a materially lower cost base and higher productivity with better finance and better ancillary sales results, is stable, it's sustainable, and ultimately, it'll be scalable. Okay, turning finally now to our outlook. As a company, we are continually focusing on new opportunities which are emerging in an evolving automotive retail industry.
Let's start by looking beyond 2023, where we are focused on four key growth opportunities. To begin with, we will continue expansion of our Australia and New Zealand operations, driven by further consolidation and rationalization of the industry, execution of our innovation in retail formats, and continually striving to be a preferred partner for both our existing and new OEM interests. Secondly, we will continue to play the leading role in the transition to new energy vehicles, both in passenger cars and in the light-duty truck segments. Thirdly, we'll look to be investing in preferred partnership arrangements to create a competitive advantage in adjacent markets, excuse me, such as novated leasing and fleet management, that act as enablers to our mutual growth ambitions.
And finally, we'll be exploring the opportunity to enter new geographic markets as global M&A in automotive retail starts to become more prevalent, and as preferred partner OEM opportunities develop and become more global in their execution. Looking more closely and short term, and into the second half of 2023 specifically. We remain focused on our strategy, and we are confident in the outlook for the second half of 2023 and beyond. As a result of the building blocks established during 2022 and the first half of 2023, we're on track to exceed our full year revenue growth expectations. Our disciplined cost management, strong margins, and tech-enabled productivity gains will enable us to deliver this growth with sustained strong return on sales and profit performance, which is underpinned by our material order bank.
We will continue to review accretive opportunities that meet our strategic mandate, and that create further shareholder value, and we expect to be active in this space in the second half of 2023. As always, we will continue to balance delivering results for our stakeholders in the short term, with investment in delivering long-term sustainable growth. To this end, we view the future with great optimism, with a plan to be able to deliver consistent revenue growth at a sustainable, strong return on sales, which will be underpinned by genuine business transformation and an obsession with productivity. On behalf of Eagers Automotive, I would like to take this opportunity to thank you all for your interest in today's financial and strategic update. We'd now like to open up for questions. Thank you very much.
Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star one one on your telephone, and then wait to hear your name announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of James Farrier with Wilsons. The line is open.
Morning, Keith and Sophie. Thanks very much for your time today. Could I ask you a couple of questions, first of all, on slide 14? The 19.1% gross margin you refer to there, that the like for like, that seems a bit higher than the, I guess, the statutory gross margin that's referenced in the, in the P&L, in the accounts. What's the difference between those two numbers?
Thanks, James, for the question. Sophie's having a look now. I don't know. 19.1 is our underlying business, so that is reflective of how the business is performing.
Gross margin is AUD 18.6 million. So on a like-for-like basis, that would exclude the ACT and also BYD.
Sorry, I-
Yeah.
So, like, it's the number we're missing there, it's like for like. So 19.1 is the improvement in our like-for-like business. What we've actually seen in our acquisitions this year, in the first half of the business, is that the acquisitions we made have actually performed below the long-term Eagers average. We expected that in the ACT, it's at a low 3% return on sales, so there's significant upside there. The issues in ACT are that in the first half of the year, Toyota supply was materially impacted, so that's already starting to right itself as supply starts to come back in the ACT. The ACT has also historically been a lower margin environment because it has a lower finance penetration with a large government demographic down there.
BYD has been strong, but we are cycling against the divestment of Bill Buckle, which last year, in the first half, as we reconciled that business before we sold it, it actually returned us a return on sales of 6.6% in the first half of last year. So summary there is like-for-like businesses are up by 0.3-19.1, and the overall statutory number, which includes the acquisitions, is marginally down because those acquisitions have been slightly underperformed in the first half, but in line with our expectation.
Got it. Okay. Now, that, that's very helpful. And then, Keith, your comment in your prepared remarks there, staying on the same slide, but looking to the left, that AUD 20 million of annualized cost reduction. Does that include all the costs below GP, including interest, or does that exclude interest?
That's everything. So what we've done there is because we've grown the business significantly, we are talking on things that matter so that we can not mislead the market. Things like cost base, things like order bank, we are... This is just a general comment, by the way. We are stripping down like to like to give you a fair, like-for-like comparison. So that is cost base, like for like. That's the first comment. It is a total cost of the business in the second half of 2022, including interest on inventory and the first half of 2023. And the reduction is, in that like-for-like business, has gone from AUD 102 million per month down to AUD 100 million a month. So it's actually running at AUD 24 million on a pro rata basis, like for like, including all costs.
Primarily-
Right.
Yeah. Yeah, it's a, it's a number. As I said, James, that's a. We think that's a really, really credible result, so we're pretty excited by that number.
Well, I was going to say, I mean, your interest bill would be up substantially, so your other costs must be down even more.
Yeah, well, that number, and I did go out of my way to stress that the reduction of 266 people, like for like, in the same business, that's significant. And I mean, again, I'm talking on behalf of the business here, so please, if I'm talking, it sounds like I'm skying. I think our, Eagers' obsession with productivity, we talk about it all the time. We talk about costs. They're the things that we can control. Inside Eagers, we have this saying, "We're not weather, we're not the weatherman. We're not here to report the weather, the cycles." They change. We really are obsessed with the things we can control. The tech piece, the property piece, removing headcount. Our marketing is down when the industry's marketing costs are going up.
Our inventory control has been super tight in the first half this year. So we're certainly, yeah, very, very focused to the extent I'd say that we're obsessed with it. Because we know that that is the thing that will underwrite the overall net profit margin going forward.
Yep. Okay. Now, that's, that's very helpful. Thanks for your time.
Thank you.
Thank you.
Please stand by for our next question. Our next question comes from the line of Russell Gill with JP Morgan. Your line is open.
Hi, Keith. A couple of questions. Just want to get a good understanding of where you see the outlook for gross on new order rights. So we appreciate the back book unwinding. There's no discounting going on in the marketplace, obviously, but OEMs, you know, new model ranges will see pretty large price inflation. Just want to get a feel for your view on what gross, or the negotiation of the OEMs, that gross is on offer, you know, in the future relative to the past on new models, and hence what the order right may look like when it comes through in delivery in, you know, 18 months or 24 months time.
Yeah, it's a good question, Russell. We can't be definitive, obviously, but what we're seeing is there's no change to margins in general. I think that's fair to say. I've actually got Edward, our CIO, with us. I'm just sense checking with him, but there's been no change that we're aware of, of the margins available on vehicles. In terms of the margins we're actually making and booking, there's probably still... You know, we're probably running at the moment where 50% of the orders we write are forward orders, as in cars that are going into the order bank, and they've got very close to full margin. And we're - 50% we're selling out of stock, which has obviously, usually got, unless it's an agency, some level of discounting involved in it. Now, that's not a bad place to be.
In fact, it's probably a really good long-term position to be in. It's where we think the market has slightly evolved to. That is, taking a larger percentage of people who are happy to get the car they want rather than get it as quickly as possible, which means we have a sustainable order bank. I made a very specific comment, Russell, around deliberate OEM actions. The vast majority of our major OEM partners are not looking to come back to an oversupply environment. They are saying it, they're being very explicit about it, because the reality is they know that if they oversupply the market, it costs them money as well. The final piece to your question, I think, is you talked about actually what is the available market? This is an interesting comment.
I'm gonna sort of divert towards agency here, but what we've found is that, A, there's been largely no change to available margins. We, our KPI income has gone up a fraction, which probably reflects more cars being sold from stock and some OEMs needing to push stock that they've got available. But interestingly enough, a couple of OEMs that have had an agency element inside their brand, where they've had maybe EVs come to market under an agency model, are now pivoting back towards a normal dealer model. And that's basically because what they're finding is, you know, maybe after a short period where they had more demand than supply and the agency worked, they now need to push sales, and the dealer model is the way that will occur.
They're moving back from an agency to a dealer model, and the margins are actually going up correspondingly with that.
Great. Second question, apologies if you did reference this in the pack, I missed it all just for this Q&A, is just the capital allocation of the business going forward. Gearing's come down a lot, and in the next 18 months, it's gonna come down a significant amount in your business. You've gone on, you know, bought a lot of property over the last couple of years. Just how does the business think about capital deployment with rates where they are, where they're going, you know, the offset, you know, regarding your lease, the owned property, and just how you're thinking about that capital deployment over the next 18 months as the balance sheet, I guess, improves quite materially?
I'll let Sophie make a couple of comments first, Russell, and then I'll add to it.
Thanks, Russell. As you can see, we continue to maintain significant liquidity buffer, and that includes, you know, from a cash and undrawn perspective. In terms of deployment of capital, I guess it's balancing between, you know, deploying that into growth opportunities from an acquisition perspective, and also, you know, I guess, the property strategy in terms of acquiring the right properties that will drive our Next 100 strategy. In saying that, you know, we've got available capacity in our syndicate, but we've also got capacity from our capital, captive financiers, and certainly, we're always in ongoing discussion with them in terms of any properties that we may see that would fit in our portfolio. And again, certainly rewarding shareholders with strong dividends as part of that strategy as well.
I guess, Russell, a less detailed or less technical way to answer it is that, you know, we've very deliberately provided a strong dividend, which means that we're feeling confident about the outlook, but we've also very deliberately made comments around fairly, fairly bullish growth plans at the same time. So, in terms of our capital management, in terms of how we fund those without stressing gearing, or anything else, we're feeling pretty comfortable that we've got multiple levers that we can pull to grow the business in line with our expectations, and continue to reward shareholders the way we have been. So we're feeling reasonably comfortable at the moment, and I said, as Sophie sort of pointed out, there's multiple levers we can pull.
We haven't issued a lot of equity in the past in terms of acquisitions. We've been doing the opposite, buying back shares. So, as I said, I think we're well positioned to be able to to manage the growth over the foreseeable future.
And just on that, I mean, when you say M&A, I mean, in the last couple of years, you've, you've certainly, certainly backed away from just buying, you know, competitors for comp-- for buying competitors sake, basically. If you're seeing the competitor set and the expectations on valuations and multiples and things like that, everybody's sitting on this, I guess, large gross profit, order bank that will come through and convert into cash, but at the same time, obviously seeing interest rates going up quite quickly. How are you seeing, I guess, multiples or, or the expectations of, of multiples in the market from a, you know, a competitor standpoint?
Well, it's such a hard question to answer because multiples haven't really changed. It's more about, you know, looking at the business and saying: Is the profit sustainable at its current level, or is it overearning? And, or, and this is more the Eagers view, can we add to that profit? And therefore, if the normalized profit inside Eagers, because it's strategic, because we're gonna bring-- we're gonna add multiple franchises to it, we're gonna consolidate profit, we're gonna improve F&I, we're gonna add technology that will take out 10% of the headcount. Suddenly, we're looking at a different P&L than they're providing. So the actual multiple hasn't really changed. It varies between, you know, 3x, slightly under 3x, up to 5x-6x, you know, any, you know, but 5x or 6x would be for a very unique, high-quality business.
Really, the number at the moment that's more relevant is about what is the sustainable profit? Because that's what really matters.
Sure, I just got - I guess the question is, there's also got to be a willingness to sell as well. Has that changed in the last little while from businesses that you do talk to and look at, or conversations you had with OEMs about their franchise networks?
Yeah, there's no shortage of opportunities, Russell, and the only thing we won't do is pay silly amounts for the sake of just saying we bought a dealership, or bought a group, or we're buying growth. It has very much got to be strategic. There's probably as many dealers that are saying this. It's more the catalyst around EV, agency, changes to the industry, all of those. It's the changing, shifting sands inside the industry. It's incumbent OEMs and who are gonna be the net winners over the next decade, and depending, you know, if brand X is seen to be a net winner or a net, possibly, loser in market share over the next decade, that might be a catalyst for someone to sell.
It's not linear, linear because of the multi-franchise environment, and everyone's looking at their own circumstances. Have they got succession? Is the property they sit, sitting on, you know, rezoned for a 20-story redevelopment? There are a million different reasons to drive the catalyst for people to sell, and then you've got the overlay of OEMs looking at how do they wanna go to market over the next decade. And there is no doubt that the OEMs are saying, "You know, our legacy model is great, and it's a, it's high value," but equally, they need to respond to what the world's gonna look like in the next 10 years. And there needs to be change.
So even the brands are saying, "We are not changing our economic model," they are saying, "But don't read that, that we won't change our business going forward." That could be consolidation, rationalization, fewer business partners with higher throughput, an evolved network strategy, et cetera, et cetera. So there's a lot of play there. It's hard to give a, a singular answer that sort of responds to your question.
Sure. And just finally, you did open the door by mentioning the word agency. I think the market expectations were an announcement from the federal court, I guess, a month ago. Have you got any view on when there could be a, you know, the decision pending from the federal court on the Mercedes case?
I don't really know, Russell, but I think it's pending. It's fairly close.
Okay. Great. Thanks, guys.
Fantastic. Thank you.
Thank you. Please stand by for our next question. As a reminder, ladies and gentlemen, we ask that you limit yourself to one question. Our next question comes from the line of Sarah Mann with Moelis Australia. Your line is open.
Hi, guys. Just a question firstly on, I guess, your strategy around building out, like, the hubs. So clearly you've exited the Brisbane Auto Mall and you've divested the Castle Hill Hub that you had, property that you had as well. Given your balance sheet position, can you maybe talk us through your strategy around, you know, reducing costs by consolidating in strategic locations?
Yeah, thanks, Sarah. So I mean, one, the interesting example I would say is probably Brisbane Airport Mall. The Brisbane Airport development, which we've, you know, we've communicated to the market, isn't proceeding in the format that we've been talking about. It doesn't mean that the way we will go to market in Newstead, which is in the city of Brisbane, it's the Brisbane CBD, CBD PMI, will look the same as it does today over the next five to six years. One of the things that has occurred even in the last three to five years is what we are learning and seeing, and I guess, I'll say the boundaries we're pushing or, you know, all the new rules that we're able to engage with our OEMs by doing things like Indooroopilly Shopping Centre.
So the learnings out of Indooroopilly Shopping Centre are being received well by our OEM partners, but they're also starting to be a template for how we can go to market in the future. We've got a couple of concepts that we're looking at the moment, where the best way to describe it would be an Indooroopilly Shopping Centre execution on steroids. Multi-branded, single site, single roof development with a supporting service factory, which is again, multi-branded, all brands separate. So every brand, it's got totally distinct go-to-market representation inside this, but a single showroom, single service facility, type execution, type execution with Easy Auto linked to it. Now, that fundamentally changes the cost base of the property that you go to market with.
The best example, and we do call it out there, everyone knows that we've got a joint venture with BYD. Now, that was a clean sheet of paper. The images in the deck on Slide 19 are indicative of how you can go to market with this Auto Mall strategy with a clean sheet of paper. Two of the showrooms at the top, where it says Lighthouse Retail, one of those is an ex-Porter Davis site in Brisbane, in Fortitude Valley, which will be a five or six-car showroom. The other one is an ex-office block, our ex-head office over in WA, which will be five or six cars. Linked below that in the fulfillment centers is large-scale pre-delivery and delivery centers. Now, they change the business process.
You place the order in the showroom, which is smaller, might be AUD 3,000 a square meter to fit out, but it's smaller. It displays the brand, it's immersive, it's experience center, but the high cost footprint of where you have to store cars, pre-deliver cars, and deliver cars from, can be in a different way, which is this fulfillment center concept that we've got at the back.
So the best way to think about how the Auto Mall concept will come to life, is probably to look at that slide. Now, the challenge with our existing partnerships is that there's legacy networks in some cases, but we'll obviously work hand-in-hand with our OEMs, and if they are receptive to it, and they're certainly receptive to innovation in automotive retail, we'll be able to roll these out. But it is a decade-long journey. But that's good because that'll probably work out to be in line with our lease sales in many cases.
Great, thank you. And then just the other question on EVs, and you flagged clearly, you know, you've got good supply there in terms of your brand partners. You also flagged, you know, the potential for strong growth in the affordable space, particularly with novated leasing. Just interested, how you think about how, I guess, increased adoption of novated leases is gonna impact margins, as historically, I guess, for dealers, right, you don't get the F&I or the.
Okay, Sarah, I don't know whether you dropped out then or you finished your question. It's. Your line's a little bit hard for us to hear, but I've got the gist of the question. So certainly, the novated lease market is going to be a key enabler for the adoption of affordable EVs. Obviously, we've got a unique position with some partners in Australia, and we're certainly looking to expand our unique partnership with a number of others as well, including in the light truck market. The way we believe this works in the future is to be strategic about it. We've been quite deliberate. We've gone out and talked to some investments we've made recently in this space. We want to work with partners to enable affordable EV adoption.
Now, one of the key things with affordable EV, as opposed to perhaps early adopters who bought Teslas, is that you're dealing with people that are much more value and price conscious. They wanna know what the residual is, they wanna know how home charging works, they want to be educated, and they absolutely wanna have a test drive experience. Now, all of those things fall very firmly inside the remit of the dealer and very firmly inside the remit of Eagers, who also has these unique partnerships.
Now, the economics between, the, you know, whether it's a, a FBT exemption or a state government incentive, and the finance that's attached to it, and the home charging kit that's attached to it, and the margin on the car, there is certainly enough margin for two partners to facilitate a growing pie and still get a fair share of it. So this is all about. We're being very deliberate in our EV transition, Sarah. We're not sitting back in the dealership and hoping customers walk in and want to buy an EV. We, we are absolutely taking EVs to the market in an affordable way, and we're looking to accelerate that take-up.
Okay, thank you. And then just last question, the comment about potentially going into new geographies. Can you expand on what exactly you mean there a little bit, please?
Yeah, absolutely. So there's, there's no doubt that the global M&A space is becoming more active. And in key markets around the world, there is opportunities, and, and there's certainly, well, we've actually got an opportunity, overseas at the moment, with one of our partners, and we are engaged in taking that in a small way to, to a market at the moment. This concept of either global M&A, where you go and buy established dealerships and use that as a beachhead to grow in a market, or you partner with preferred, OEMs in markets globally, is not new. Global partnerships and, and these preferred OEM partnerships exist already. Mercedes, BMW, Toyota, have, have relationships with global distributors and retailers that operate in multiple markets around the world already.
Certainly, we feel that opportunity is going to exist in this changing automotive retail landscape. So quite simply, the opportunity for us, and there's other groups in other markets around the world that have already done this very successfully, moving into key strategic global marketplaces with key OEM partners of theirs, that they have long-term relationships with, is an absolute opportunity we're now exploring. So it's something that we'll be looking to work on over the coming period. As I said, there's a small opportunity that we're already working through as we speak, and we'll see where it goes from there.
Great, thanks very much.
Thanks, Sarah.
Thank you. Please stand by for our next question. Our next question comes from Scott Murdoch with Morgan s Financial Limited.
Thank you. Morning, Keith and Sophie. Just my first question around your comments around the order bank and the churn of some of the order bank into an available car. Just now interested in your thoughts of, I guess, the unwind of that order bank, and those customers coming out and into an available car. You know, is there any sort of margin differential? Are you able to ensure you can keep that customer that wants more urgency, and it's coming out of your own order bank?
Yeah, sure, Scott. Now, first comment is, part of that, unwind was that there was, motivation to actually take delivery of cars before June 30 for the instant asset write-off. So one of the reasons why it actually occurred in the first half of this year was some people were saying they had a car on order, they were hoping to have delivered while there was instant asset write-off. The vehicle wasn't available, so they needed to cycle into something that was, to get that instant asset write-off benefit. So that's the first point to make. That's now largely gone. The order book is very robust. A number of key OEMs have actually been contacting customers directly, themselves, to try and cleanse the order book, to make sure that it is robust.
They are dealing with real customers who actually want the car, because obviously they're ordering, and they're committing production overseas based on that order book. So the order book is super robust the way it is at the moment, and that's why even though the delta demand has been 14.3% above supply for Eagers for the first six months, even though that's occurred, you'll see that the order book's still sitting broadly in line with December 2022, because of that cleansing and because of that cycling. Otherwise, it would have grown even more. Now, the margin in that order book continues to deliver. The first question we received today was that you like the like, margin across your whole business is up by 19.1%, or is, is at 19.1%.
Our new car margins are up again this year on last year. So the order book continues to deliver higher margin. One of the reasons it's delivering higher margins, because some people would say, "How is that possible if you're a full gross margin last year and full gross this year, how's it going up?" There is a small increase in inflation in the price of cars. So obviously, as the price of the car goes up and your percentage margin follows that, there's more quantum to deliver. The final point I'll make, Scott, is that the simple math of our order bank.
Where it sits at the moment, we have done the exercise that if demand drops to 900,000 units a year, which is lower than the worst of the last 15 years, and volume sits at 1.2 million, so the differential is 1.2 million supply and 900,000 demand, our order book would decrease by 2,500 or 2,600 units a month, and you can do your back calculation, and it'd take you somewhere between 22 and 24 months for the order book to unwind.
Thanks for helping me out. I'll be testing this. Okay, thank you. And just my second question, thanks, Keith. Sorry, if this has been covered. We've talked about demand a bit. You said it's robust, we can see it in the result, but interested just in, you know, really current dynamics, maybe post-June, what you're seeing around the composition of demand. Is retail foot traffic holding up? You know, obviously, fleet and novated intuitively should be pretty strong, and then used car has been a bit volatile over the last 6-12 months. Just quick comments around the segments of the demand profile.
Well, you've pretty much summed it up. So they're certainly strong in fleet and novated. Retail is still robust in certain brands, and there's other brands that are probably now, because they've got a more free supply environment, it probably doesn't feel as strong as it, it did before, because you were filling an order book rather than delivering from, from stock. But certainly, fleet and novated is strong. In general, though, we've done the counts, we think that this year, demand will sit at 1.2, and we actually think deliveries will sit at 1.2 for the year, over the course of the year. And that's based on order rate, sorry, order rate up till yesterday.
So that's where and that will be skewed towards a very strong start of the year, moderating somewhat through the middle, and we think there'll be a slight kick-up at the end, but still, even if it doesn't kick at the end, it's still gonna be about 1.2 versus 1.2. So again, that is historically strong demand, and that's a record-ever supply. Now, there is the chance, and probably something that might have been missed in looking at our slides.
If you look to slide 10, and you simply look at that supply result for the first half, which is the dark red line through to June, and you extrapolate that out or model that out over the second half of the year with the very strong supply that we expect, particularly in some of the big brands that Eagers represent, there is going to be a significantly strong second half based on deliveries. And we've already seen it in our July result, and we've already seen it in what will be our August result as well.
Okay, thank you. Just one last one for me. The cost base, management's obviously been exceptional. Just, just interested in your thoughts. You've obviously had to absorb the underlying cost inflationary pressures that you've talked to. Just, I guess, besides your structural cost out, what's your outlook for the inflationary pressures on the core? I know you're combating them, but are we now largely through that pain? And intertwined with that, just the inventory position, is it you've worked hard on it, does it actually stabilize here, or does it need to normalize up or down?
... Supply is interesting. I'll start with supply and inventory position, if you like. Scott, that is one that there will be pressure if OEMs obviously change their production, there'll be pressure from them for us to take more inventory. So it's something that we can control but not totally eliminate. So there is a risk in greater inventory. It is still so currently, our inventory is running at 7.6 turns a year, new car inventory. It was six turns pre-COVID. So you can back calculate on day supplies there, but 7.6 at the moment. That's up from the end of last year, which was 7.4. So our supply across our whole business is actually tighter today.
Our inventory holding is tighter today on a turn basis than it was at the end of last year, and it's significantly better than pre-COVID. I don't think we're going back to 6 turns a year. We'll sit somewhere maybe between 7.6 and 6, and probably closer to north of 7, which means it'll be a tighter supply environment going forward. In terms of the total inflationary environment and the, and the cost-based picture, really hard to know. There was a whole heap of impacts to our people cost last year, which we could control, which were award increases, super guarantee increases. There was a Queensland payroll tax hit to us. So there was a number of external costs, which we've obviously offset by productivity and headcount. So inventory, people, our property costs are up 0.6 of 1% year-on-year.
And again, if you think about CPI increases and everything else that's hitting occupancy costs, that's a remarkable result. Our marketing is down, but there's no doubt there are other pressures on us. Our IT costs are up by 16% year-on-year, which is not a material number in the overall scheme of things, but it's mainly vendor-based cost increases. So there's things like that that we have to combat as well. Generally speaking, though, are we at the top of the cycle? I don't know. I mean, that's a question for those looking at the whole economy. Well, as I said, Scott, on the call, we'll keep focusing on the things that we can control.
Okay. Thanks, Keith. Thanks, Sophie.
Cheers, Scott.
Thanks, Scott.
Thank you. Please stand by, still by for our next question. Our final question comes from the line of Phil Chippindale with Ord Minnett . Your line is open.
Hi, Keith and Sophie, most of mine have been asked, just have one final one. The reduction in headcount by about 266 FTE, what does this look like over the next six months? Do you think you're at the right level now for a business that's, you know, looking to do revenue above the top end of guidance? Thanks.
It's a good question, Phil, and the great thing about our business is that this isn't really—we're not at a level that we're happy with. We can do more with less, but we can only do it if we keep rolling out the technology to enable it. So quite simply, we're not at a static state. That's it. No more people coming out. Those headcount numbers on a like-for-like basis will continue to reduce as we roll out tech. But the tech has got to enable a better customer experience. We can't do it at the expense of our customers. We can't do it at the expense of our gross profit opportunities, our income opportunities, but it will continue to decrease.
That 266 reduction, broadly speaking, is across about eight different tech initiatives that range from 10% executed up to 100% executed. So we haven't even executed fully on the 8 tech initiatives across the whole business. So we will continue, in a growing business, we will continue on a like-to-like basis to reduce headcount. The other thing I'll, I'll make as a comment, though, because there might be, Eagers staff listening. It's really important. We are not doing this through any redundancy or reduction, reduction of people. It's happened through churn. And our whole aim for this, for our staff, is actually to make the jobs easier to do because it's enabled by tech to be more productive, so they can do more. And the vast majority of our staff are paid on commission based on productivity.
So it actually gives us competitive advantage to pay our people more based on productivity. So I wanna be really clear on that because companies talking about how they're just gonna reduce headcount in isolation without that full context can probably have a negative sentiment around it.
Okay, thanks. That's all from me.
Thanks, Phil.
Thanks, Phil.
Thank you. I would now like to turn the call back over to Keith for closing remarks.
Well, thank you very much, and thanks to everyone who's listened today. I think the summary is that we're very confident around the second half of this year. We do know that based on our pipeline of deliveries going through the third quarter and fourth quarter, that we will significantly over-index in the second half compared to the first, which gives us a great platform going into 2024. And delivering AUD 1 billion worth of revenue growth this year, with plans in place to try and replicate that, expected replication of that over 2024 and beyond, I think we're well positioned. Obviously, the fact that we've got a great and very strong balance sheet supporting that, and that we're rewarding shareholders with a record interim dividend, is indicative of that confidence.
So we're feeling very positive, but as always, we'll act with a lot of discipline, and we'll make sure that everything we do is about long-term sustainability. Thank you for your time today, and we'll be in touch.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.