Thank you for standing by, and welcome to the McMillan Shakespeare Limited Half Year Results FY 2023 Call. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Rob De Luca, MD and CEO. Please go ahead, sir.
Thank you, Carl. Good morning. Thank you for joining us for the MMS half-year results presentation for the 2023 financial year. My name is Rob De Luca, and I'm the Chief Executive Officer of MMS. I'm joined today by Ashley Conn, our Chief Financial Officer and Company Secretary. I would like to start by acknowledging the traditional custodians of the lands on which we meet and pay my respect to their elders, past and present. This morning's presentation will largely be focused across five areas. I will firstly talk to our market position and operating and financial performance highlights across the half, whilst providing an overview of some of the key themes and issues that drove these outcomes and which more broadly inform our strategic focus.
Secondly, with a somewhat longer-term lens, I will take the opportunity to share with you our clear strategic priorities focused on MMS delivering sustainable growth. Ashley will take a deeper dive into the financials, which will then be followed by me talking to our respective segment performance. I will conclude with an overview on our outlook and strategic priorities. As we move through the presentation, we will be referring to the slides that were released with our results this morning, and both Ashley and I will be happy to take questions at the conclusion of the presentation. Turning to slide two. In the H1 of FY 2023, the group experienced strong ongoing momentum in customer activity, leading to growth in our key operating metrics while we continued to navigate complex market conditions.
The period reinforced that our businesses are well regarded as trusted partners to governments, businesses, and individuals holding strong market positions. Our focus on the customer, which has underpinned recent client wins, together with an increase in customer demand, saw growth across novated lease orders of 9.4%, salary packaging customers up 6.1%, and Plan and Support Services customers increased 27.6%. We achieved underlying growth in our financial performance with normalized EBITDA, NPATA, EPS, and ROCE all up on a prior comparative period basis. I take the opportunity to remind you that we are using the term called normalized, which refers to adjustments made for the negative earnings transition period of the funding warehouse Onboard Finance.
Our disciplined approach to capital management and commitment to improving returns to our shareholders saw the group deliver a 100% payout ratio of normalized NPATA, declaring a fully franked interim dividend of AUD 0.58 per share. We also successfully completed our 10% off-market share buyback during the period. As I mentioned at the outset and combined with recent decisions to simplify the group, we have spent time in recent months to clearly define our strategic priorities. Our strategy specifically focuses on our position as a trusted partner in helping our customers to make their complex matters simple through the solutions we provide. To best enable this focus, we have aligned our strategic priorities across the group, namely, firstly, excelling in customer experience. Secondly, driving technology-enabled productivity. Thirdly, delivering competency-led solutions to deliver sustainable growth.
We are excited by the opportunities enabled by these priorities. I'll touch further on these in a few moments. Slide three details our key financial metrics for the half and the uplift achieved off the back of growth in our core operating performance. Group normalized EBITDA of AUD 67.2 million increased 5.7%, while normalized NPATA of AUD 40.4 million increased by 0.3% with improvements in Group Remuneration Services, Plan and Support Services, and Asset Management ANZ business, offset by decline in the Asset Management U.K. business. To this point, if we exclude the U.K., where we have previously communicated exit options are being considered, normalized NPATA for the half increased by 8.5% on a PCP basis.
Our interim dividend was 100% of normalized NPATA, as I've mentioned, whilst our normalized EPS grew by 4.1% and return on capital employed increased to 38.7%, a 4.5 percentage point uplift for the half. Turning to slide four, I will now spend some time talking to our strategic focus to deliver sustainable growth. In considering the opportunities for growth, it's important to recognize that we are starting with a strong and unique platform. Our business model comprises 3 business segments, namely Group Remuneration Services, which we refer to as GRS, Plan Support Services, which we know as PSS, and Asset Management Services, known as AMS. Each of which are well-regarded as trusted partners to governments, businesses, and individuals, providing solutions in making complex matters simple.
These trusted positions are underpinned by our common core competencies of managing enterprise to business to consumer relationships in broad ecosystems, navigating complexity in regulated and government environments, claiming and payment processing at scale, leveraging technical systems and data, and managing a broad range of benefits arrangements. Over time, each of our core businesses have continued to deliver high levels of customer satisfaction, hold strong positions in a number of key markets we operate within, and combined have favorable financial characteristics, namely attractive margins, strong cash generation, and high returns.
Moving to slide five. Having a strong platform, there are a number of key macro thematics which are shaping the MMS Group and have guided our strategic focus. These include increasing government spending in areas like health and aged care, is driving an increase in related employment where our businesses are already well-positioned and exposed.
Ongoing growth in the NDIS with an increasing shift towards plan management as a preferred model by participants and a way to support the Government's financial sustainability and integrity objectives. Increasing momentum towards decarbonization with emerging policy settings and targets to favorably support Australia's transition to low and zero emissions vehicles. Organizations continuing to consider an increased focus on their own core competencies and how they best achieve operational efficiencies.
Managing and benefiting from the complexities of economic conditions like higher interest rates and inflation in a tight labor market. The increased digitization and use of insights to create enhanced customer experiences and revenue opportunities from the personalization of services. The emergence of new vehicle distribution models which provide opportunities to leverage our competencies in relationships and collaborate to play an important roles along the value chain, opening new avenues of growth.
An accelerated use of technology, AI, robotics, and data analytics to drive greater efficiencies and standardization across our operations. Overall, we are well and uniquely positioned to take advantage of these opportunities for our businesses. Now turning to slide six. Recognizing our purpose and harnessing the strength of our unique platform and core competencies, our vision is to be the trusted partner providing solutions in making complex matters simple. In order to do this, and to take advantage of the attractive opportunities presented, we are focusing our efforts across three strategic priorities, as mentioned earlier.
Namely, firstly, excelling in digital and insights-led customer experiences to enhance our market position. Secondly, driving simplicity and technology enablement to increase productivity. And thirdly, leveraging our culture and competency-led solutions to extend and enhance value. This strategic ambition has clear intent to deliver increased productivity whilst continuing to earn customer advocacy through strong NPS.
Further elevate the group as an employer of choice whilst generating high return on capital employed and earnings per share growth. As a group, we are excited about executing on our strategy to deliver sustainable growth and look forward to providing further detail as we progress. Ashley Conn, our CFO, will now go through our financial performance in more detail.
Thank you, Rob. Good morning, everyone. Turning to slide eight, first of all. Once again, this half year, we've included a group UNPATA bridge, which highlights a 1% improvement on normalized revenue to AUD 314.8 million, normalized EBITDA up 5.7% to AUD 67.2 million, normalized UNPATA increasing by 0.3% to AUD 40.4 million, and normalized earnings per share of AUD 0.542 per share, up 4.1%. As Rob has mentioned, our financial results are presented on a normalized basis. Normalized refers to adjustments made to the negative earnings across the transition period for the implementation of our funding warehouse Onboard Finance.
It normalizes for the warehouse's in-year operating and establishment expenses and provides an adjustment for commissions that would have otherwise been received in period, had the sales been financed through a principal and agency funder rather than through the warehouse. For clarity, the H1 normalizations to NPATA were AUD 3.3 million and AUD 4.7 million to EBIT. A reconciliation of NPAT to NPATA and normalized NPATA is included in the appendix of the presentation. Moving to slide 9 and our balance sheet. Our balance sheet remains in good shape with a net cash position, excluding fleet-funded debt, of AUD 43.7 million.
Total net debt to EBITDA now stands at 1.1x , reflecting the additional $60 million corporate debt facility that was announced with our FY 2022 financial results and taken on to support working capital requirements post the successful completion of the off-market share buyback. Our interest coverage is at 39.1x . All of these have significant headroom to our covenants. In Asset Management, total debt is at $164 million, resulting in a gearing ratio of 68% of the written-down value of the fleet assets, materially below our 80% bank covenant. Turning to the cash flow slide on slide 10, which highlights our ongoing cash conversion and ongoing return of surplus cash to shareholders. The group generated free cash flow before fleet funding of $48 million, which was 129% of NPATA cash conversion.
This cash conversion continues to benefit from the tax instant asset write-off, which will unwind in future years. As Rob announced, the interim fully franked dividend of AUD 0.58 per share, reflecting a dividend payout ratio of 100% of normalized NPATA. This is consistent with the capital allocation and dividend policy that was announced with our FY 2022 results, which stated a targeted dividend payout ratio of 70%-100% of NPATA. Including the interim dividend and the off-market share buyback completed during the half, $130.6 million of capital will have been returned to shareholders over the half. The full details of our cash flow are included in the appendix, which show group cash now sits at $114 million. I'll now hand it back to Rob.
Thanks, Ashley. I will now take a look at the operating segments. Firstly, our largest segment, GRS, on slide 12. Total normalized revenue for the half for the segment grew by 9.9% on the previous period to AUD 110.4 million. GRS revenue growth was driven by an 11% increase in novated lease sales compared with one half FY 2022, an additional 22,149 salary packages by period end, representing a 6.1% increase and an uplift in interest received. Novated lease sales momentum benefited from ongoing customer and client focus and recent new client wins, with total novated lease units rising by 3.3% to a record 74,090. The uplift in salary packages was attributable to both the transitioning in the period of recent client wins achieved in FY 2022 and growth through the increased penetration of existing clients.
Normalized EBITDA increased by 7.2% to AUD 40.4 million, which reflects a 3.4% reduced average yield from the increasing proportion of re-lease sales as customers continued to wait for vehicle deliveries. Expenses were higher to support the successful transitioning of new clients, as well as increased and unfulfilled order levels, resulting in elevated carryover during to ongoing extended wait times for customers on new vehicles. Additionally, the segment continued to invest in digital and data analytics to enhance the customer experience and support future productivity improvements. Moving to slide 13, at the end of the half, I'm pleased to report that novated lease activity levels were strong across the period, with novated lease leads up 13% and orders up 9%, with an increasing use of digital sales channels.
In terms of new vehicle availability, while some stabilization in vehicle supply occurred, ongoing constraints resulted in a continued growth of novated lease orders carried over beyond one half FY 2023, albeit at a lessening pace, with total carryover revenue to benefit future periods as at 31 December 2022 was AUD 27.4 million, up 7% as at 30 June 2022. Now moving to slide 14 and our warehouse facility Onboard Finance. We have made progress with our ramp-up of novated lease volumes in the H1 . The warehouse has now funded AUD 22.6 million of leases up to 31 December, and remains on target to achieve the financing of 20% of our novated lease volume by the end of two half FY 2023. Onboard Finance secures and diversifies our funding mix.
It creates a new annuity style income source, where we will be able to capture more value from each transaction that uses this financing facility. The financial impact of Onboard Finance is now expected to be approximately AUD 10 million NPATA. The slight difference reflects experience to date across a number of factors, including refinement of our processes and the timing of GRS clients approvals of Onboard as a financier. Turning to slide 15. In our AMS segment, whilst our Australian and New Zealand operations benefited from elevated used vehicle pricing, with revenues up 16.3% to AUD 107.5 million, and NPATA up 5.6% to AUD 10.3 million, in the U.K. challenging conditions impacted activity and overall segment performance.
This resulted in total segment revenues being down 6.2% to AUD 179.7 million, and segment NPATA down 13.7% to AUD 14.8 million. Asset Management, ANZ, benefit from the profits on expiration of larger customer contracts and new client wins, and it experienced the stabilization of remarketing yields whilst they remain elevated. In the U.K., NAF grew against an environment of rising interest rates and challenging economic conditions affecting business confidence. Remarketing yields remained at elevated levels while the continuing runoff of the Maxxia portfolio and associated on-balance sheet assets resulted in reduced sales opportunities as expected.
These factors, together with the previous corresponding period, having the benefit of a non-recurring AUD 2.4 million taxation credit, saw a decline in the segment's U.K. revenue and operating profit, with revenue down 28.7% to GBP 52.8 million and NPATA down 52.7% to GBP 2.5 million. As stated in our FY 2022 results, we continue to consider exit options for our U.K. operations. Our aggregation business benefit from an expanded lending panel and achieved increased commercial volumes, driving an 11% increase in NAF to AUD 654 million at period end, with total revenues up from AUD 18.6 million to AUD 19.4 million.
Turning to slide 16, we have sought to provide some insights around the new vehicle market and related supply in the Australian market, together with what we are seeing post the passage in December last year of the EV Fringe Benefits Tax Exemption bill. During the half, total new car sales in the Australian domestic market returned to pre-pandemic levels, albeit with a greater skew towards private buyers rather than fleet. Settlement delivery times also stabilized. Such stabilization isn't consistent across all makes and models. We also witnessed during the half the stabilization of used car pricing. Prices remain at elevated levels compared with their pre-COVID equivalents. In relation to EVs, during the half, the federal government legislated an exemption from Fringe Benefits Tax for eligible low and zero emissions vehicles.
The new law helps to address the higher cost of EVs and fuel efficient cars, which has acted as one of the key barriers for Australians when considering making the switch to an EV or more fuel efficient car. Under this legislation, organizations will have greater financial incentives to transition their fleets to EVs in line with their sustainability commitments. Similarly for novated lease holders, they will now be able to own and operate an eligible EV at a cost which is in line or potentially more favorable for comparable traditional internal combustion vehicle. This represents a significant change in the Australian EV landscape.
While the EV legislation only became law on 12 December 2022 and is retrospectively applied from 1 July 2022, the group saw strong uplift in EV inquiries, with close to threefold increase in the percentage of novated lease EV orders from customers in six months to December 2022 compared with the PCP. While supply limitations extended to EVs, and currently they have a limited model range, although quickly improving, MMS remains well positioned to capitalize on these changes.
We look forward to playing a key role in helping our clients to meet their sustainability commitments and assisting our customers transition into low and zero emissions vehicles. In relation to MMS' own sustainability commitments, I'm pleased to report that the group achieved an uplift in its Morgan Stanley Capital International ESG rating from BBB to an A rating, as announced by MSCI on 7 February 2023.
Turning to slide 17. During the half, PSS continued to invest in delivering a scalable platform for future growth, whilst being well-placed to assist the government optimize outcomes for both individuals living with disability and the broader National Disability Insurance Scheme. Importantly, we note the growing take-up of plan management as a percentage of all plans being supported by the scheme, now at 58%, up from 53% on PCP, reflecting the ongoing and increasing recognition of its value in helping participants to manage their payments and navigation of the NDIS. PSS segment revenue was up 19.9% to AUD 23.4 million, with EBITDA and NPATA up 9.1% and 8.6% respectively.
Revenue uplift was primarily attributed to strong customer growth, with a 27.6% uplift in plan management and support coordination customers, and a 45.1% increase in support coordination billable hours. Margins in the segment were impacted by change to NDIS client renewal policies and support pricing, which saw no annual fee increases, together with ongoing investment by PSS in technology and digital tools to enhance the customer experience and deliver a scalable platform for future growth. Migration to a common technology platform across the Plan Tracker business was completed, assisting with the segment in the delivery of future efficiencies. Before Ashley and I answer any questions you may have, I would like to spend a few moments looking at the outlook for MMS and our strategic priorities as outlined on slide 19.
Whilst we have commenced the H2 of FY 2023 with approximately AUD 27 million in novated lease carryover revenue from the previous period, we expect that many of the trading environment experiences for the H1 of FY 2023 to remain similar for the remainder of FY 2023, including environmental factors of rising interest rates, competitive labor market conditions, and inflationary pressures. In terms of vehicle supply, whilst we have witnessed signs of stabilization, we think it is unlikely that we will experience any significant change for the remainder of the FY 2023 period. Business momentum is expected to further benefit from our ongoing customer focus. Growth in our GRS segment through the transitioning in of recent client wins will provide further momentum whilst we continue to focus on upcoming client renewals and ongoing tenders.
Our AMS segment will continue to benefit from elevated remarketing yields while constrained supply continues to impact fleet renewal. For our U.K. operations, the exploration of suitable exit options will remain a key focus as we simplify our group. Across both the GRS and AMS segments, we will focus on the increasing opportunities and customer demand for transitioning to EVs and how we best support them as part of our commitment to a low carbon future. We are aware that this is a critical part of the automotive and wider mobility sector, and we'll seek to play our key role as it evolves at pace. Within the PSS segment, we will continue to drive organic growth considering non-organic growth opportunities and focus on the completion of the Plan Tracker integration to drive future efficiency benefits.
We will also continue to invest in technology, data, and digital tools to improve the customer experience and aid growth while contributing to the efficacy and longer-term sustainability of the NDIS. In relation to our funding warehouse Onboard Finance, we will continue to progress its ramp up as we work towards our target to achieving financing 20% of our novated lease volume by the end of H2 FY 2023.
Finally, but not least, our focus will be on executing on our three key strategic priorities to drive sustainable growth, which to reiterate are, firstly, excelling in customer experience, second, driving technology-enabled productivity, and thirdly, delivering competency-led solutions. In closing, I want to reiterate the strength of the underlying performance of the business across the H1 , and I remain excited by the opportunities which lie ahead as we pursue our strategic priorities to deliver sustainable growth.
I also wanna thank our loyal clients and customers, the dedication of our people, and our committed shareholders for their support. Ashley and I will be happy to answer any questions you may have. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. The first question comes from Phil Chippindale of Ord Minnett. Please go ahead.
Hi, good morning, Rob and Ashley. Thanks for your time. A couple of questions from me. Firstly, just this change to the warehouse funding, impact to FY 2023. I think, Rob, in your commentary, you said that, you referred to your experience to date. Potentially it's a little bit slower in terms of the rollout, but you mentioned some timing around the onboarding of a financier. I don't quite understand what you're referring to there. Could you just unpack that for us?
Thanks, Phil, and good morning. Thanks for your question. Yeah. Our experience to date, obviously, a new platform, and a new operation for us, and you go through the usual processes, experiences of, you know, how it works. With respect to the onboarding of clients, with many of our clients, particularly our larger clients, governments and larger organizations, there's a process for them to have approved the financiers on their panel for their employees. Obviously, it's a new offering to our clients, and so we need to go through processes to get that approved on their panel to have Onboard Finance as a financier option for their employees.
Okay. Understood. Thank you. Just turning to the novated lease business. It's obviously performed pretty well over the last six months. Just that balance of 74,000, that's a growth of just over 3,000 in six months. Can you just tell us what the amount is relating to the Victorian contract that you'd won earlier in the year? Just trying to understand what the organic change was there.
Yeah. I think when we put out the release around the Department of Education and Training, I think we stated it was around 9,000 employees had salary packages and around 4,000 employees had novated leases. The numbers that transitioned was slightly less than that. In terms of the net increase, obviously DT is the largest proportion of that increase, and there's a little bit of increase through organic and some other clients, but DT would be the largest proportion of that. Obviously, when it transitions across, we take on the administration of it. We don't get the financing of the net amount finance until there's a new lease.
Okay. Thanks. Last question from me. Just on this U.K. business, you know, you've been considering these exit options for some time. Is there a timeframe that you've got in mind here for when we could potentially hear the outcomes for that? You know, is it fair to assume perhaps that's this half sort of timeframe?
Yes. Thanks, Phil. Yeah. Obviously, when we announced this in August, there's been substantial change in the U.K. environment, post-announcement in August last year, obviously, which we didn't foreshadow and foresee, but we're still working through it. The conditions late last year were challenging. We kinda held off late last year. What we're hearing from our advisors and people on the ground is that the market's stabilizing a bit more now in the U.K., so we'll continue to pursue it. Exact timing, it's a bit hard to tell at this stage. It will depend on, you know, the outcomes in terms of the approach we take with the two assets there and the market. You know, it's a key focus for us during this period.
Okay. Thanks. I'll jump back in the queue.
Thanks, Phil.
Your next question comes from Scott Hudson of MST. Please go ahead.
Good morning, Rob and Ashley. Just a couple of questions from me. Firstly, could you maybe put a color on the margin volatility in the GRS business? It's kind of gone from 37% to 42.5% in the H2 of 2022, and then I guess back down now to somewhere in the 30s. I maybe understand what are the pluses and minuses impacting that margin profile over the last three years.
Morning, Scott. Certainly, as you can see in our results, our revenue's gone up, but our EBITDA margin hasn't increased at the same level. A number of factors for that. I think one, which we've previously called out, is the cost you incur as you bring on orders, in terms of novated leases but actually can't fulfill those, our carryovers increase. There's a cost pre actually getting the revenue. That's continued, but not at the same level that it was in previous periods. I think the second is, we outlined this in our FY 2022 results, obviously, with the transitioning of some large clients, we've taken on additional resources and costs for that transition period, that impacted margin.
Third factor is, we've gone through a remuneration review period with the Fair Work Commission, which went effective July 1, which was a 4.6% increase plus the super of 0.5.1% uplift. That's attributable to, across MMS, about 88% of our workforce and very large proportion in GRS and similar in our PSS segment. Those factors have had an impact on margins. Over and above that, we've continued to invest in digital and data analytics, which we expect will start to pay some dividends in future periods.
Thanks. Is that, those additional resources for the transitioning, is that now done? Does that come out the cost base or-
There's probably two parts to it, Scott. There's one which is contractors, yeah, which are short-term in nature, for onboarding and getting all that information into our systems, and welcoming customers on board, as well as getting out and on the ground costs associated with getting in front of the people in the schools and government. The second part is obviously there's always a little bit of variable cost that goes with as your book grows. Obviously large proportion, it would be short-term in terms of contractors during that period.
Okay, thanks. In terms of the, I guess, the strategy that you have announced today, could you just sort of maybe give us a little bit more color on, I guess, how you deliver on those three objectives that you've highlighted?
Yeah. Sure. Thanks, Scott. Outlined in the strategy, obviously three key areas. For us, we see the first one really about, you know, investments in building excellence in digital and data to improve advocacy for our customers and look for greater opportunities to do more business with our clients. In terms of outcomes, obviously advocacy means improvements in retention of clients and customers as well as more opportunities with them. The second part and the second strategic priority around increasing productivity, obviously through investments in technology and simplifying the business. We certainly see improvements over time across a number of productivity metrics, but in particular our margins, which you've alluded to.
In terms of competency set-led solutions, obviously leveraging our capabilities and competencies that we have, the relationships we have in the ecosystems to grow our business more broadly, and hopefully deliver ongoing EPS growth. We've also outlined in the calendar that we're gonna do an investor day in May, which will allow us to give greater detail.
Is there a, I guess, a timeframe when you should expect to start seeing some of these benefits start to hit the bottom line?
Yeah, I think, you know, progressively, Scott, in terms of different metrics will, you know, change over time at different levels. In the outcomes, you know, we've obviously got already a very high return on capital employed. In terms of delta, we would see over, you know, the coming years increased productivity and improvements in margins, to help support our ongoing EPS growth.
Okay. Lastly from me, just in terms of, I guess, the broader portfolio, are you not considering any other portfolio changes outside of the U.K. exit?
Look, at this stage, you know, we've stated that we wanna simplify our group. Obviously, the U.K. is our key focus. In terms of our portfolio, our focus is, you know, continuing to explore what the opportunities are in the markets we operate to deliver on the outcomes. If for whatever reason we determine that there are better paths for them, we'll consider that, but our focus at the moment is, you know, delivering on the strategy.
I'll jump back in the queue. Thanks.
Thanks, Scott.
Your next question comes from Richard Amland of CLSA. Please go ahead.
Hi, good morning, gents. A couple of quick questions on the financials. Interest income, that went up quite a bit. Can you just walk us through what's driving that? Is this the run rate that we should expect going forward?
Hi, it's Ashley here. I'll take that. interest revenue, particularly in GRS, where I'd focus on in the appendix, we break out what the extra contribution is from our interest income, which is about AUD 4.1 million for the half, which I think was, is up about AUD 3.3 million-AUD 3.4 million. That's a pre-tax number. You know, it's fair to say that if you compare it with PCP, over the last 12 months, we've had the equivalent of 12-25 basis point movements by the RBA. We've obviously seen benefits from that in terms of the interest that we receive on the cash from our float.
That rising rate environment has helped the contribution, particularly in GRS. You know, there are lots of variables that go into that number, including, you know, any arrangements that we have with our customers. It includes also, you know, how much is passed on to us. You know, it's something that we do try to actively manage as best we can with the constraints of what we can do with the cash.
I mean, should we anticipate that continuing to go forward in the current rate environment? We're not going backwards in rates anytime soon, it would appear.
It will be a benefit for us if rates continue to increase in interest revenue as is, you know, market expectations. So yes, and we'll obviously going forward, we'll have the benefit of the rate, the full period benefit of the rate increases that have already happened as well.
Okay. Thanks, Ashley. Next question. Just on the new claims, net claims incurred line that's gone to zero. Is that what we should be looking at going forward? Has there been a change? Is that driven by insurance, you know, premiums coming down? Or what, can you talk through that?
That I'll take that one. That's basically the divestment of the warranty business as you compare it against PCP. The warranty, or we used to refer to it sometimes, the retail business. That's that line. That's that line coming out.
Okay. Very good. Let me see. The U.K. tax credit, GBP 2.4 million, how was that accounted for? Is that included in the asset management U.K. EBITDA? Does that impact somewhere else?
Not in EBITDA. It's in the U.K. Asset Management in the U.K. business, it's obviously, it's in the tax line, so it impacts UNPATA rather than EBITDA. Sorry, just to be clear, that was.
Um-
That was in the PCP, right? The prior period.
Okay. The on-balance sheet, our financing rollout, how's that impacted by the rising rate environment? Is there an impact or is the move been, you know, the cost just been, you know, brought back in the context of a slow rollout?
So, two pieces. Well, particularly from the Asset Management point of view, you know, we have facilities in place. As they roll off, they will be repriced. You know, it's fair to say that when we're pricing with our customers at the moment, you know, we already take into account where the rate environment is. Capturing what is gonna be, you know, an increasing rate environment going, you know, going forward. That's just the commercial situation for our Asset Management businesses. It'll be based when the maturities roll off.
Okay. Well, the rising rate environment doesn't make a change to the cost that you're incurring through the build-out of the book. Is that correct?
Okay.
Is that incorrect?
I'll talk about the novated lease, the novated lease piece. That is obviously the warehouse that we've set up. We have debt facilities that we'll be drawing down as the book grows. We obviously change pricing based on where interest rates are that we reflect with the customer. Once any leases are locked in, we also enter into interest rate hedges to be able to protect our position as well. There's a matching of, you know, rising rates and what happens with pricing, we protect ourselves on the cost side as well.
Okay. The net-net should be no real change. Okay.
Yeah, correct.
Then the last question from me, in the PSS business, since the last earnings result, there were two acquisitions done by competitors, IFM and nib. Can you just comment on what sort of what the shape of that space is that you're seeing and, you know, your appetite for the acquisitions going yourselves?
Yes. As we've, I think previously outlined, we certainly see consolidation happening in this space, over time, with I think there's now over 1,500 plan managers to support, you know, almost 330,000 participants. We'll continue to assess opportunities as they arise from a non-organic perspective, but, you know, make sure that they align from a strategic fit, cultural, and risk appetite perspective. We'll continue to look at those. We obviously evaluate opportunities as they arise and monitor those and still believe that, you know, we'll participate in non-organic, when the right acquisition becomes available.
All right. Thank you. That's all from me. Thank you.
Thanks, Richard.
Your next question comes from Chenny Wang of Morgan Stanley. Please go ahead.
Yeah. Hi. Morning, guys. Thanks for taking my questions. Maybe I can just start off on the PSS business, and I was interested in getting a bit more color on the incremental costs there. Like, where is that cost going into, and can you kind of help us understand some of the buckets? You know, whether it's, let's say, marketing, and brand building, you know, maybe you're investing ahead on, you know, technology or employee resources, versus maybe, you know, the overall ad intensity, whether that's kind of increased and yeah, you guys just need to add in more cost to support that intensity increase. Some color there would be great.
Morning, Chenny. I mean, the first thing I think to understand is that there was impact in the revenue line, which there were no annual fee increases, as well as participants are continuing to increase the duration of their plans. Previously, plans were largely one year, and you would get a renewal fee every year.
Plan durations have been moving out. You're not getting that renewal fee every year now as plans are two or three year in terms of tenure. That's, I think, the first thing to understand. I think the second is in terms of from a cost perspective, we're taking a medium to long-term view of the growth of the scheme, in terms of continuing to invest in it. In terms of the buckets, first is, you know, obviously continuing to put some people on the ground to grow, acquisition opportunities from an organic perspective and relationship perspective. The second is in-investment in the integration of Plan Tracker into Plan Partners. We made a good progress during the period, and moved our Plan Tracker onto our common technology stack.
Obviously prior to that, we were operating two platforms, so there's costs associated with that. The third is continuing to invest in our data and our technology, and in raising the bar in terms of how we manage cyber in this space, and fraud to support the scheme. Fourthly, I think obviously as this big business grows in terms of its relativity to the group, there's also increasing costs associated with the group recharges within the group. I think all of those factors played a part in terms of costs. Similar to our GRS business, obviously, we had remuneration increases from 1 July with the Fair Work Commission, which applied to a large portion of this business.
Got it. No, that's super helpful. Maybe I can kinda lump GRS and PSS together on this. You just mentioned for PSS in terms of the integration of Plan Tracker, and you're making progress on that. You know, to me that sounds like short-term costs. Early on the call, you also mentioned some of those short-term resources in GRS as well, with respect to the DT transition. Just kind of help us understand if these are indeed short-term costs, are you able to quantify some of that for us or help us understand ballpark where the quantum of those, of those resources?
Not in terms of specific quantification, but to your point, there is some short-term cost incurred across both of those businesses, as well as ongoing costs, right, in terms of labor cost increases and ongoing investment in technology and cyber, which is just part of the business going forward. We certainly would say in line with our strategy that, you know, these two businesses, you know, over coming periods should start to benefit from a productivity perspective, and see that in our margin improvement.
Got it. Just a last one from me, hopefully it's quick. Just in terms of seasonality in the PSS business, just remind us, is there seasonality in this business?
Not like the GRS business. It would just be obviously day count differences between the halves. The way we generate income in the PSS business is the fees associated with the customers that we manage, irrespective of the size of their plan. The only seasonality aspect will just depend on when renewals end up. It's greater in certain periods, depending on when we've had growth and when those renewals come through from the government.
Perfect. Thanks, guys.
Your next question comes from Jack Dunn of Citi. Please go ahead. Mr. Dunn, your line is open. Please go ahead. Pardon me, Mr. Jack Dunn, your line may be muted. Please go ahead.
Hi. Sorry, guys, can you hear me okay now?
We can. Thanks, Jack.
Perfect. Sorry. Apologies there. Just a quick one on in the AMS business. Can you give us a sort of indication on the exit rate for remarketing yields? Did it sort of come off from the 273% you sort of showing at the in the package there?
The X rate. Sorry, Jack.
The exit rate from remarketing yields. Is it in line with what you were calling out at 273% above, H1 2020, or had it fallen a bit towards the end of the year?
Right. I think in terms of period on period, I mean, the H1 of 2023 is certainly up on what it was for the H1 of 2022. That's the average over the period. In terms of differences between months, you know, don't actually have that at hand. That is the average in terms of relative to pre-COVID, and we've certainly seen an increase in a relative sense to the prior comparative period.
All right. Perfect. Then that's sort of holding in the first seven weeks of this calendar year as well around those same levels?
I would say in line with, you know, comments made earlier that everything's kind of stabilizing in this space at the moment, certainly in the first couple of months of this calendar year.
All right. Perfect. Thanks. That's all for me. Appreciate it.
Thanks, Jack.
Your next question comes from Paul Buys of Credit Suisse. Please go ahead.
Morning, Rob and Ashley. First one from me, please. Just a question on the Val-Alisa. You gave us color on the order book, and we can see net that it's growing. I was just interested to know if there's been any drop-off on orders, obviously from a consumer's perspective with those settlement delays and ongoing interest rate hikes. How sticky has that order book been? Has it been in line with historic levels, or have you seen any attrition there?
No, in terms of what we've experienced to date, Paul, broadly in line. Whilst interest rates have certainly moved over the period, as we all know, and we know that every time the RBA makes those announcements, there's, you know, increasing inquiries from, you know, people in the pipeline as well as customers in terms of the impact. To date, it's holding up well, and we've seen that, you know, over the recent period. Obviously orders have benefited both from, you know, existing clients and penetration from our book as well as new clients that come on board.
Okay. Thank you. Just want to reconcile the kind of your sort of auto operating environment outlook with, I guess, your H2 expectations for novated lease. You're talking to, you know, Newcastle, obviously back to pre-pandemic levels. Stabilization in settlement deliveries. Just, you know, want to. I mean, that sounds like a little bit of an improvement. Just wanted to reconcile that to your outlook for kind of more of the same into the H2, and why there wouldn't be at least some kind of modest improvements in terms of novated lease deliveries and perhaps starting to run down that excess carryover. Just want to reconcile kind of your outlook with the macro.
Yeah. No, thanks, Paul. I mean certainly our view at the moment on everything we're seeing and hearing is that this H2 conditions are similar to those in the H1 . You know, in terms of delivery times and forward expected delivery times, they've certainly stabilized, which is encouraging. In terms of the carryover, as outlined, obviously the growth in that's at a lesser rate than it was the prior period on the year before. We're certainly seeing that starting to slow down in terms of growth. Exactly whether that comes off a little bit or grows moderately up, it's probably a bit early to tell. In the first, you know, couple of months so far, this calendar year are broadly in line with what we saw towards the latter part of last calendar year.
Okay. Thank you. Last one from me, just if you've got any kind of color you can share in terms of your contract renewal pipeline, any kind of specific ones to call out in coming months and thoughts, I guess, on that pipeline.
Yeah, I think as we have stated before, we're in that tender process with both our two largest contracts, Queensland Government novated lease and South Australian Government. We've submitted our tenders and, you know, there's not much more we can comment at this stage. Obviously, we expect them to be competitive as they always would be. In terms of largest ones, they're the key ones, and we've communicated obviously previously on DT and got renewed as a novated lease on the panel for New South Wales Health.
Rob, any view on the timing? Is that kind of coming months? Any view on the timing of those ones that you've put the tender in for?
We expect them this half. Exactly when we wait and see. I mean, they're obviously both 30 June contracts, so we expect that in the coming months.
Got you. Okay. Thank you. That's all for me.
Thanks, Paul.
There are no further questions at this time. I'll now hand back to Mr. De Luca for closing remarks.
Thanks, Carl. I appreciate it. Thanks everyone for joining us this morning. I'll now conclude the call.
That does conclude our conference for today. Thank you for participating. You may now disconnect.