Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Ahmet, Managing Director. Please go ahead.
Thanks very much, Leanne. Good morning, everybody. My name is David Ahmet, and I'm the Managing Director and CEO, MotorCycle Holdings. This morning, I'd like to bring you our half year results and our investor presentation. A brief overview of the agenda. I'll touch on a summary of our highlights for the half. We'll have a look at the financial results. We'll drill down into the operational performance, and then we'll have a look at how we see the rest of 2023 going. Highlights. The financial highlights first. Statutory revenue rose 17% to $277 million. That's mainly as a result of the acquisitions that we executed during the half. On a like-for-like basis, we had a 1% increase in revenue to $237 million.
Overall, we've got a gross profit increase of 13% to AUD 75.2 million and a gross profit margin of 27%. The underlying EBITDA declined 9% to AUD 18 million, and I'll go into that further, explain that a little bit further on. We're happy at this stage to declare a dividend of AUD 0.08 per share for the half, fully franked, of course. Operational highlights. Strong top-line growth has been buoyed by recent acquisitions, in particular the CFMOTO or Mojo Motorcycles acquisition, which was completed on the 1st of November. It's produced that additional income.
Increased national market share of new motorcycles to 13.9%, which is, we've seen the new motorcycle industry decline 25% for the half, but we've been able to increase our market share, and obviously we didn't drop as much as the market did. During the half, we've continued our investment in enhancing the customer engagement and our digital capabilities. This is an ongoing thing to improve our digital experience, the customer's experience, both business-to-business and e-commerce. We've achieved this result against a backdrop of rising interest costs and in cost of living pressures. It has been a tougher market without a doubt, and we have seen a decline particularly in the second quarter.
The acquisitions that we've made strategically have been very important for us and they will help us deal with the challenging environment, in particular the Mojo Motorcycles, where it focuses more on agricultural product and not discretionary spend product. It's somewhat immune from the decline that we're seeing in general business. We'll move on to the financial results. With total income of AUD 277 .5 million. Cost of sales up 19% against an increase in revenue of 17%. Gross profit AUD 75.2 million, was up 13% for the half. The margin down slightly from 28% to 27%. We've got employee expenses were up AUD 5 million, and that's the biggest increase that we've seen. Rents were up slightly. Other expenses include foreign exchange, acquisition incentives...
Acquisition expenses. Bailment interest we've seen increase, and that's due to the normalization of our stock holding of new bikes. We're at a stage now where we virtually are back to a normal stock holding of new motorcycles. The supply chain has improved somewhat over the half. And that gives us a total of operating expenses up 22%, to $57.1 million. Underlying EBITDA of $18.1 million, with a gives us a margin of 6.5% due to those increased overheads. We've got acquisition expenses in there of $1 million for the half. Depreciation down slightly
Bank interest is up slightly, up AUD 600,000 - AUD 700,000 for the half to give us a total net profit before tax of AUD 14.9 million, which is down 16%. Net profit for the half was AUD 10.5 million, down 17%. On a like-for-like basis, which excludes four businesses. It excludes the two that we bought during the half and two that we bought previously. Total income AUD 237.9 million, virtually line ball with the previous year. The cost of sales about the same as well. Gross profit just down 1% to AUD 66.2 million. Gross margin was the same as the previous year at 28%. The overheads is where the difference is for the business.
Employee expenses are up 11%, so that's wages of course. We think we can do something about that in this half. Rent's about the same. Other expenses up slightly. That will be freight, which we saw increase during the half, hopefully coming off now that we've had the cost of containers come back considerably and other operational expenses. Bailment interest again is up slightly there. We've got another AUD 200,000 in that. Operating expenses for the group, like-for-like, we're up 12%. That's basically the difference in the earnings for the group. That'll be a focus of ours going forward. We think there are areas that we can trim that operating expense.
There was a lot of expense in acquiring Mojo Motorcycles, a lot of staff needed for that, and of course distraction as well from what we normally do. A very busy period for the group. Underlying EBITDA of AUD 13.7 was down 30%, and the margin's down to 5.8%. We look at the bank interest there, AUD 600,000. Net profit before tax on a like-to-like basis, AUD 11.6 and down 35%. Obviously, having the new motorcycle industry decline so much has had some impact. We saw that happen in the second half, the second quarter of the half. If we have a look at our balance sheet, you can see that the inventories and the goodwill have increased, obviously, as a result of the acquisitions that we made.
Total assets now AUD 402 million, up considerably, up 44% from AUD 279 million. Total liabilities also up 69%, which includes drawing down the AUD 50 million from the bank debt. Full provisions there, AUD 17 million. Tax liabilities of AUD 6.6 million. Net assets of AUD 191.1 million. Total equity, for shareholders, is now AUD 191 million, up from AUD 155 million. A 23% increase. If we look at the market value of the company, it's cheap, isn't it? Net profit after tax is AUD 10.4 million. Share price as of 31st of December was AUD 2.39. It's more like AUD 2.20 today. There are now 73 million shares on offer.
Dividends per share was AUD 0.20 for the year, for the last 12 months. The basic earnings for the last 12 months per share was AUD 0.33, and a price-to-earnings ratio of about 7.2. Dividend yield, 8.4% at the 31st of December, closer to 9% now. Of course, the shares are fully franked. The dividends are fully franked. Revenue growth. We look at where our revenue is. It's come very much from the acquisitions. We've held our own as far as the like-for-like basis, which is, not a bad performance considering that, you know, the market was down so much. We're now 278, which is, you know, twice what we were, say, five years ago. We're showing a steady signs of growth each year.
We're able to keep increasing the size of the business. Underlying EBITDA. We have a underlying EBITDA decrease of 9% for the half. Again, a lot of one-off or additional expenses in there which we don't expect to see this half. Predominantly, we've got the acquisition expenses of about AUD 1 million. There's foreign exchange costs in there of about AUD 1 million. That takes a fierce swipe off it. If we look at the previous couple of years of where we were, 2021, which is the peak of our earnings, we had AUD 12 million worth of JobKeeper assistance in that year. That made a significant difference to that year. If we took that out of the equation, we're performing about the same level.
Last year, 2022, we had considerable training assistance as well, subsidies, about AUD 1 million for the half, less this year than we had last year. Net profit results, 10.5 for the half. A similar thing, obviously, the previous couple of years had extra subsidies and assistance. We're performing about the same as we were, say, two years ago. Our earnings, we have a variety of areas where we create the profit, quite diversified. If we look at the various segments there, new motorcycles gross profit was actually up 4%, even though as a group, we were down 8% in motorcycle sales against the market of 25%.
We've outperformed the market there, predominantly because we deal mainly in the road bike market, which wasn't down. It was only down 10%. You can see that we're still able to maintain our margins. Even with a decline of 8% in volume, we've got an increase there of 4% in gross profit. Margins haven't deteriorated yet as sales have dropped off. We've been able to maintain strong margins. New vehicle wholesale is the Mojo Motorcycles business that's contributed AUD 5.2 million to the half. In fact, it's only two months, we'd expect to see that to be, you know, much larger in the second half, of course.
With the May-June being the strongest two months of the year for that business, we expect it to be a fairly robust result in the second half of, for Mojo. Used motorcycles, again, slight increase there on gross profit of 5%. Margins have been maintained there. At this stage, we haven't seen them come back yet, but I think that will change in the second half. I think we're seeing some change in the used market now with values starting to come off a touch. I wouldn't be surprised to see that drop slightly in the next half. Parts/accessories had a reasonably solid six months, up 9% in gross profit. That's traveling quite well. At a wholesale level, we're 5% up for the half.
Expenses are hurting that business a bit. Service department, good result, 9% increase, which is what we would expect. What's pleasing is the finance and insurance result. 11% increase in income there against a decline in volume of new bikes, used bikes. Good to see that we've been able to improve our penetration rate there and improve our income. That's something that we've been trying to do for a while, and we're certainly tracking the right direction on that one. Our other area there, which is down AUD 1 million, that's mainly training subsidy from last year for putting on additional apprentices. There are government incentives in place which we took advantage of in the previous year. That income came down about AUD 1 million.
The equity from accounted investees, that's our MCF or our finance company. That's down 16%. Down to AUD 526 for the half. The volumes were okay, but that's mainly because the margin has been squeezed somewhat. So far, bad debts or delinquencies are still within the bounds of our budget, so that seems to be okay. That's more of an interest rate result. If I drill a bit further down into the operational performance, there's a graph there for new motorcycle sales, and you can see that there's been a significant decline from this half compared to last half, you know, to the tune of 25%. Most of that is in off-road motorcycles and the agricultural product used by farmers.
Like I said, road bikes were down 10%, so not as bad. That's, you know, the reason why our gross profit has held up. Our mix of sales is different to the broader market. Still, you know, you can see we're back to, you know, below two years ago, the industry is back to, you know, 51,000 units. Not much more in front of 2020 results there. MotorCycle Holdings is a slightly different story, of course. We've pretty much got growth in new motorcycle sales every year, slightly down for the 2023 first half, but against a 25% drop in the market, not too bad. Importantly, margins are holding up nicely. I think I expect them to continue to hold up fairly well.
Used motorcycles is always an important part of our business. We've increased the unit sales by 2%, so we've been managed to get that growth. The only year where we didn't was two years ago in 2021 when there's COVID-induced shortage of used motorcycles Australia-wide. That improved during the course of 2022, and we've been able to get a little bit more growth there in volume at 2% and gross at 5%. Again, I think the second half of this year will prove to be more challenging. We expect that there'll be a reevaluation of used values. We can see that values are starting to drop now. We'll be very quick to revalue our stock and make sure that we keep it at correct wholesale going forward.
I'm not sure if we'll be able to increase the gross there this half. I think that'll be one of the challenges we face due to the current economic climate, the softening of demand, and the more availability of used stocks. The retail part of the business, overall, quite a solid performance given the economic conditions. We certainly have seen things moderate in the second quarter. Demand has softened somewhat. The first quarter was certainly stronger than the second quarter. Overall, you know, things are still holding up quite well there. We've still got, you know, improvements in just about every department there. Not too bad at this stage. Acquisitions are where it's at.
We made a very strategic decision to diversify the business and move away from just completely discretionary spend into more of a commercial basis. That is the agricultural market with the 4-wheelers and ATVs. That's been a particularly good move for us. It's been particularly successful. We've executed the acquisition. We've finished the integration to a large degree of Mojo Motorcycles. We've also settled on another business in Townsville, which is a dealership in Townsville. In that, we're finding that Mojo is performing ahead of our expectations. A very pleasing result with that business. It's performing at least, if not better than what we expected, and that looks like it's going to continue into the second half.
So far, there's no signs of it dropping off at all. That part of the market, not so dependent on discretionary spend, obviously. Farmers generally are performing quite well. We've got a great product there, with CFMOTO, and KYMCO and some of the other brands. They're very much suited to the farmer's need. We've got a stock availability, and we're finding that the other manufacturers have increased their availability of stock as well, but we're still performing to the same sort of level. Very happy with that. I think that's been a really successful acquisition and great for the business going forward. It'll certainly make a difference in the second half of this year, much more so than the first half.
We've also got some increased contributions from two other acquisitions that we made earlier in the first full year. We had Forbes and Davies, which is the accessories company we bought in New Zealand. Again, that's performing at least as good as we'd hoped, if it's not slightly better. Good result out of Forbes and Davies. Wide Bay Motorcycles, we purchased in Gympie earlier in the year. That's performing as we'd hoped. Overall, four acquisitions there in just under 12 months, and three of them contributing well and truly. Townsville is break even for the half. It was a fairly rundown business when we bought that. Didn't pay much for it, of course, but it'll take some time before it generates, you know, meaningful income for us.
That's something for down the track, you know, to improve our results next year. Wholesale, this is excluding Mojo, of course. This is wholesale accessories. Trading softened during the second quarter is where we saw things moderate a bit. Supply and chain issues have moderated to a large degree, and our inventory level is right back up to where it has been previously, if not slightly higher. We're mindful of that, and we'll probably aim to reduce our stock holding there slightly over the coming months. The supply chain, by and large, has been fixed, and now we're seeing a reduction in the cost of containers. Our freight expenses are due to drop there as well.
They have been exceptionally high in the past. We've got the stock now. Our focus now will be on managing our costs, making sure that they're right, and looking for sales efficiencies. We believe that we can focus more on the sales and generate more business through that department. Our focus over the last six months to 12 months has really been logistics, in warehousing and getting the products, you know, into Australia. We've seen that those freight expenses particularly have normalized and gone right back to pre-pandemic levels, but that's only happened in the last two months. We think there's opportunity there for us to continue to add product to the Cassons wholesale business, we're looking to improve on our results there.
The finance JV, volumes again were very good, consistent with the previous year, the profit was down 16%, to AUD 526,000. The main reason for that is the increased cost of borrowing. The margin has been squeezed somewhat by the increase in interest rates that we haven't quite passed on. Importantly, the bad debt or delinquent accounts is looking good. There's no alarms being raised there at this stage. We'll see how the second half goes, so far we're happy with our debt control, with debt collection. Margins we'll aim to try and pass on some of these increases, I think, going forward to maintain our margin. By and large, very happy with the finance joint venture.
Performing pretty much as we would hope. If we look at the outlook for the rest of the year, rising interest rates are going to play a role without a doubt. You know, there's a lot of money being taken out of the economy and discretionary spend is one of the first areas that will receive a, you know, a lessening of demand. Having said that, you know, we're looking for efficiencies in the business. We've got some dealerships that we believe can perform better. There is scope there to grow profits in some of our dealerships. Overall, we think a pretty tough market. We're, we're in line for, certainly, you know, more likely a tougher market than what we've seen. We want to offset that with, you know, our acquisitions, and reducing our expenses.
We're looking to reduce particularly our wages, across the board wherever possible. We think there's some scope there. You know, the wage increases are have been a part of the business in the last six months. Hopefully, that will moderate from this point on. You know, we did spend more money on acquiring these businesses, particularly Mojo, which took a lot of man-hours. We've had a lot of focus on Mojo and less focus on the dealerships. Now we'll change that focus back to improving the dealership performance, and I believe that there's some headroom there to really get a better result. We'll continue to pursue acquisition opportunities, particularly with the Mojo business. That's opened up a whole scope of new avenues for us.
We've got manufacturers worldwide wanting to talk to us about distributing their product. We think that in the future, we'll be adding product to that Mojo business and we'll distribute other brands as well. In the short term, there's lots of room for growth in the New Zealand. We operate Mojo in New Zealand as well. Most of the income is predominantly Australia and we've got to develop that business further in New Zealand, but certainly the opportunity is there just as we've seen with the Forbes and Davies business, the accessories business. We think a consolidation of the two in New Zealand makes a lot of sense. We've currently got a management team there. We've currently got warehouses there, which we don't have with Mojo.
We're using third-party logistics in New Zealand for warehousing, which is expensive and not terribly efficient. We've got a business there that can handle that logistics. In the not-too-distant future, we'll put both those businesses under one roof in Auckland. We think that we'll be able to really use that as a platform to grow the Mojo business where there's very low market share and considerable room to increase the market share. We see that as a real growth area for the business overall, is that New Zealand market. The accessory business is going particularly well.
When we bought the business, back in December last year, we've been over time, adding new product to that business from Cassons, that Cassons had or our own brands in particular. That's really generating further growth and an increase in gross profit. That business is going well and growing out of its warehouse. It needs a bigger warehouse in any case. We'll get a warehouse that can cater for the Mojo business and potentially some other product that we're hoping to bring on board in the not-too-distant future. For the rest of the business, it's focused on the expenses. Let's pull those expenses back wherever we can, and more, more importantly, efficiency. There's businesses there that didn't perform to their best last year or in the last half.
I think that we, it's a management issue there that we'll be focusing on going forward. A lot of the attention in the last six months, as I said, went to acquisitions, and now we can turn some of that attention back onto operating the existing businesses more efficiently. We do expect, you know, the higher cost of business to remain a feature in the second half. Nothing is going down at this stage in price except the used bike values. We've got a close eye on that. We'll be doing whatever we can to reduce those operating expenses that we can get a better result at the end of the year.
What will help us enormously will be a full half-year contribution from the likes of Mojo, which is a terrific business and performing very well. As I said, better than what we had expected, and with its best month probably yet to come in the next half. We'll see a much bigger contribution than what we saw in the last half with only two months. We'll see Townsville start to come on, and we'll pull the overheads back in the rest of the group. We think that we can get a much better result in the second half compared to the first half. Of course, we won't have the additional expenses that we had of the acquisition expenses, just on AUD 1 million of foreign exchange, which was over AUD 1 million.
We got caught there with the dollar at AUD 0.64 cents. We hedged some money at that, at AUD 0.64 cents with the US dollar. A lot of our purchases are in US dollars, particularly with Mojo, but also Cassons. Unfortunately, we've had to take some losses there. We've got a plan going forward to try and minimize any foreign exchange losses. They were the two big expenses that we're hoping will be abnormal and certainly not repeated again. That's pretty much what I have for you today. I'm happy to take any questions if you'd like some more detail.
Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be 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 Jared Gelsomino of Morgans. Please proceed with your question.
Morning, guys. Just a couple of quick ones from me. Obviously a strong early result from Mojo and GP margins are quite strong relative to the 2022 numbers that were announced at the time of the acquisition. I guess, is that a sustainable gross margin result? Can you sort of unpack what's driving that uplift?
For the whole business, you mean?
Yeah.
Yeah. Yeah, sure.
For the Mojo business specifically.
For the Mojo. Yeah, I think they are. I don't see any reason why they're not. In fact, it's been hurt, you know, somewhat by foreign exchange. No, the margins are They are good margins. I don't see any reason why they would change. No, I think they're maintainable.
That's great. I guess, just in the underlying ex-Mojo business then, can you give a bit of color on how that finished the half? I know you've called out a moderation in demand for resale on new and used in the second quarter. I guess, can you give an idea on what the second quarter did against the PCP last year and if that's carried through to the start of the year, in calendar year 2023?
It certainly has. The toughening market we've seen in that second quarter has carried into January and February. There's no doubt about that. What the actual difference was, I don't know off the top of my head. Would you know, Bob? No, you might be on mute.
Oh, not quickly.
No.
Yeah, no.
To be fair, the first quarter is always our best quarter of the year. That September quarter is always the strongest. We noticed that the second quarter is usually not far behind it, there was certainly a difference in that second quarter of new and used bikes. In particular, used bikes is where we noticed the biggest decline. We had, we were probably 10% up in volume for used bikes at September, and ended up at 2% up by the end of December. That second quarter really softened somewhat. We held on to margins. We're kinda slow to give them away. We're holding on to margins nicely.
I think, you know, realistically, if the market continues to soften, we'll have to, you know, reduce those margins slightly to move the stock, I think. Very important for us just to keep shifting those used aged bikes. That's the challenge of this half. If I look at the whole business, I think where's the biggest challenge for us, that'll be in used bikes, where we've always done particularly well, we're going very well up until, say, September. I'm very mindful of the fact that we're back to full inventory there, which is just over 2,000 units, 2,100 units, which is over AUD 20 million worth of used bikes. It's important that we keep that stock very liquid.
That means if the values have dropped on, some of our existing stock, it's important that we get out of that stock very quickly. That's what we've embarked on now. I think that will reduce our margins somewhat for a month or two. How much impact it has over the half, I don't know if it'll be... It won't be material, but, it certainly, I wouldn't expect to see those margins increase again. If anything, I'd expect them to decrease slightly. That's just prudent management of used bikes, and that's what happens when values change. They go up and go down. That's probably, I think, the biggest challenge for the, for the half. If we can, keep that valued correctly. The rest of the business is fairly consistent.
If we look at, you know, the finance and workshops and accessories, that's all still performing quite okay. New bikes, the big decline has come in that agricultural part of the market, which of course we're in with CFMOTO, but CFMOTO's not seeing a decline there. It's going really well in that part of the market. You have to remember that CFMOTO doesn't report to the FCAI. When we say the market's down 25%, that doesn't include our product at all. That's the rest of the market. That's taken quite a hit. Although I see in January it was up 81%, the, that ag market. Quite a big uplift in January, obviously against a pretty low January last year. The market is bouncing around a bit.
We did see road bikes increase in January as well. It seems though that we've kinda taken a bit of a hit and it's stopped at that level, but a little bit early to say. We'll see how the rest of the year pans out. January, February, it doesn't look like it's continuing to fall. It looks like it's bounced back up slightly. Operating expenses are the key, I think, to getting the like-for-like result better. Operating expenses and some dealerships are underperforming that we don't need to reinvent the wheel, we just need to apply our management principles to get a better result. I'm hoping for a bit of both there. Re-reduction in the wages particularly and increase in performance.
Great. Thanks, Dave. Maybe just quickly one last one on the cost base. I guess, looking at a like-to-like basis cost control, how do you sort of see that playing out in the second half? You sort of mentioned wages and efficient wages a few times, like where else are the efficiencies, easy wins, where could it come from?
Yeah. Look, the freight is another one that was substantial. Other than that, there's not much really. I mean, there are some abnormal expenses in there, like travel was well up because we sent a team to Melbourne, you know, who were there for a week, and accommodation and flights and what have you. We've got some bits and pieces there that as a result of Mojo acquisition, which aren't included when I say additional acquisition expenses. They're just the professional fees, the solicitors and the accountants and what have you. There's the internal expenses which we haven't called out, but there'll be some in that. You know, it's wages predominantly. Rents have gone up with CPI. There's not much we can do about that. I think they're likely to stay.
Other than, say, a bit of travel, a bit of, freight, you know, they'll normalize a little bit, but, we're not talking millions of dollars there.
All right. That's great. I'll jump back in the queue. Thanks, Dave.
Thanks.
One moment for our next question. Our next question comes from the line of James Ferrier of Wilsons. Please proceed with your question.
Morning, Dave and Bob. Thanks very much for your time. Can I just sort of build on that last question around Mojo and the CFMOTO product in particular? You talked about the agri market being down quite significantly in that period, not so CFMOTO. Where do you think that market is? Obviously, CFMOTO's got a good product range, a very relevant range. Some of its peers exited the quad bike market, and I think, Dave, in your prepared remarks, you mentioned that there were some competitors adding more product back in. There seems to be a lot of moving parts there. Can you just try and sort of.
Yeah.
Add a bit more color and fill in the gaps there?
Yeah, sorry. I should explain that a bit better. No, the competitors haven't added new products back in. They've still got but they've got availability of their existing product, so they've been short supply. In January, we had quite a lot of supply from the likes of Polaris and Yamaha and Honda. They had stock availability like they hadn't seen in the previous six months. Hence the market jumped considerably in January. It's not new product, but that didn't affect our sales at Mojo at all. I should add that we also sell KYMCO, which is a brand out of Taiwan, which also has ag products. It's not all CFMOTO by any means. It's also a Taiwanese product called KYMCO, and we detail other brands too.
CFMOTO also sells motorcycles, and there's SHERCO which is an off-road brand, Landboss which is another agricultural product. We've got three brands there that really do that ag product. Yeah, certainly the increase in the others, the other suppliers or manufacturers didn't affect Mojo's performance in January.
Yeah.
I think they were just fulfilling back orders, basically, the bikes that they had already sold some time ago.
Yeah. Okay.
kept that along, suppliers were probably kept that, the market overall figures look down so much for the first half. Because we had supply, you know, our figures weren't down, but we've had supply the whole time.
Okay. Got it. That's, that's helpful. I mean, looking forward, you obviously got a bigger exposure in this part of the market now with Mojo. You have had a presence in that space in the past, thinking about where that demand comes from in that rural regional area, particularly the farmers themselves from a business consumer perspective or a business customer perspective.
Yeah.
They're all pretty well off at the moment. They've had good crops, good seasons, high livestock prices. That's been happening for a couple of years now. One factor that is probably still coming to an end is the instant asset write-off scheme.
Yeah. Mm-hmm.
There seems to have been a fair bit of buying activity across certain assets and this type of product probably fits nicely in there. What are you seeing or what are you hearing from your distributors around the impact that might have, the cessation of that arrangement might have on demand?
Well, look, it's fair to say that it helps, doesn't it? They can write them off 100%, which is still in place for this year, I understand. They're not a major purchase for a farmer. Like, you know, a lot of these vehicles are under AUD 20,000, but every farmer uses them. I don't think there'd be a farm in Australia that doesn't have a quad bike or a side-by-side on it. So it's an essential part of their business tool. So I don't know. I wouldn't be able to quantify what I thought what difference that would make. I mean, they still get to depreciate it, obviously, but not as fast.
What probably is a little different is our range and pricing is far more competitive than what the others have in the marketplace. We've got a distinct market advantage there. You know, the farmers have had a lot of exposure to our products over the last few years, and they like it. I think if cost starts to become an issue for the farmer, then we're in a good position to capitalize on that. I think, look, it's hard to say exactly, James, how much that would make a difference to it. I guess it makes some difference for sure, it really is essential for a farmer to have this product and they wear them out. There's no two ways about that. They destroy the things pretty quickly.
They don't spend a lot of money on maintenance. We don't get them back a heck of a lot for servicing. They tend to run them into the ground and buy a new one. I don't think that tax break would stop them from buying a new one, you know, not having that, the full depreciation. I think they've gotta have them. It's not a harvester for AUD 0.5 a million or something like that. It's, you know, something you can buy the quad bikes for AUD 10,000 or less, and you can certainly buy the side-by-sides at AUD 15-AUD 20,000. I think it.
Yeah.
Will continue to go okay there, I believe.
Yeah. Okay. No. That's very helpful, describing it like that. Just around the secondly, and finally from me that the sort of the slowdown you described in the second quarter, it seemed more pronounced in the used bikes than anywhere else really, but, not necessarily
Well, not really. The used bike sales were up actually, so I might have... It was still up 2% in volume and up 5% in gross, whereas the new bikes were down. It probably the difference from the first quarter to the second was a little more significant because we were 10% up in the first quarter. Yeah, I.
Yeah.
What you're saying. Yep. I'm with you.
Yeah. Yeah. Okay, good. I guess where I'm going with that, David, is we're not necessarily seeing as significant a decline when we look more broadly across the consumer discretionary landscape. There's obviously plenty of conjecture about when and if there might be a material slowdown, but certainly looking backward through that December quarter, there wasn't really any material evidence of it. Just curious as to your thoughts around why there might be more evidence of it in this product profile versus the broader landscape.
Yeah. That's a good question. If we look at where the market dropped the most according to the SAO figures, it was the agricultural product who had had boom years the previous two years. They were up 80%, 60%. You know, they were flying the previous couple of years, where there was a buy-up to some degree of the quad bikes which were being legislated against. They were coming from very high levels, the record levels, the highest anyone's ever seen. I guess there's only one way to go from there, and that was probably down. That was a big part of the decline in the market. The next biggest part was off-road bikes, which are very recreational use. They're very much not a means of transport.
Very much, something to do with the kids during COVID. Dirt bikes sold particularly well, and again, had a massive increase during COVID, much more so than, say, road bikes. They went up to very lofty heights, and they had, you know, a fair way to fall too. As things get tougher, it's very much a recreational use, not something that you have to have. It makes sense that they would come off probably more. They went up more than anything as well. I guess it's a more volatile product in the marketplace if you compare it to TVs or refrigerators. You know, the growth there was spectacular. You know, I think we were seeing 50%, 60%, 70%, 80% increases during COVID in off-road bikes.
Tightening of the belt means that comes off first. Interestingly, road bikes, which didn't have the big increase, it didn't have anywhere near the massive increase of the other two sectors, you know, it was more modest and it's been more modest on its way down. Hence we're only down 8% for the half, so 10% for road bikes nationally. In fact, January, we saw a slight increase in road bike sales, both with our business and nationally. I think road bikes will be a lot more stable, is what I'm trying to say, in that that volatility is not necessarily that important for us at this stage 'cause CFMOTO to a large degree immune from that massive drop and road bike's more stable.
But other than that, it, the off-road bikes are very much a toy or recreational use. Nobody has to buy one. They buy them for fun, and they are a lot of fun. That's where we're seeing the decline.
Yeah. Thanks, David. That's helpful to disaggregate it like that.
Yeah.
Thanks very much for your time.
No worries.
One moment for our next question. Our next question comes from the line of Daniel Seneey of Q Value. Please proceed with your question.
Yeah. Good day, guys. I was just wondering if you could help quantify what the opportunity might be in the cost of doing business expense. It's increased by about AUD 10 million versus PCP. It sounds like it's gonna remain elevated through the second half. Looking into next year, how much do you think you could reduce that in absolute terms, based on your commentary that some of that employee cost is one-off in nature related to the acquisitions and integrations?
The integration was just over AUD 1 million, and foreign exchange has cost us over AUD 1 million for the half. I'd like to say that they won't be repeated. With the wages, there is pressure, upward pressure on them. We'll be trying to contain them. There isn't much other than that that I think we can save a heck of a lot on expense. There's certainly, you know, we can trim something. I'm reluctant to put a figure on it at this stage, 'cause there's only four months left of this half, there's not a lot of time to make a big dent in it. We...
If I look at the business as a whole, I can see that our dealership wages, our frontline wages are actually quite stable. They're not growing. Where we've had additional expense is at a head office level or group level, and that is for the execution of acquisitions and the likes of that and providing, you know, doing the stock taking and doing the integration. Whether we can pull that back or not, but you know, I wouldn't like to go putting a figure on it at this stage because I think whatever I said would be wrong. Certainly there's the approach of reducing that wherever possible and reducing the headcount wherever possible, and that process has started.
We're starting to see that wages are not growing anymore. We'll be aiming to at least maintain them, if possible, reduce them. There's not many other areas there that I think we can make a great. If we wanna continue doing the same business that is. Obviously, if we're selling less, well, then we would reduce it accordingly. At this stage, we're kind of maintaining sales of the previous year. I think there's still profit increase available by running some of these businesses better. I think there's more to be gained there than there is through cost reduction. It's a balancing act between both, between trying to generate more profit and reduce those expenses.
It's a bit of a balance between those two, to be honest. Other than acquisition expenses, and they were significant, and foreign exchange, which was significant, you know, there's not much I don't think we can do beyond that.
Okay. Thank you. Just on competitive behavior in new bikes in particular, one of the features over the last couple of years has been relatively strong gross margins because, you know, the sales prices have held up very well. How should we think about the potential margin downside in used bikes? You've mentioned and put some commentary around used bikes.
Yeah.
Do you think that margins should hold up in new bikes, or are we starting to see some sort of breakdown in that sort of rational, competitive behavior that you've seen in the market over the last couple of years?
Yeah. Okay. That's a good question. It's hard to say. I mean, if we look at the last half, obviously new bike sales were well down and we increased our gross. That might be the mix of what we're selling to some degree as well. Fewer off-road bikes, you know, more road bikes. Road bikes tend to gross, have better margins. The mix of what we sell is important there. To date, we're not seeing those margins decline. If we look at used, we've seen them increase during the half. You know, we'll be aiming to hold onto those margins as best we can. I haven't seen any sign of new bike margins coming off particularly, certainly not through December 31. A little bit early for me to make a call on this half, but so far so good.
As I've highlighted, used is where I think there will be margins will come off. I do expect that as we're carrying so much used inventory, that it takes us a certain amount of time to get out of that and rebuy at what I think is correct wholesale. I do think, you know, 10% coming off margins in used is not unrealistic. I think that's probably likely. New, we're not seeing that so much at this stage.
Okay. Thanks very much.
No worries.
As a reminder, to ask a question, you will need to press star one one on your telephone. One moment, please. Our next question comes from the line of Sarah Mann of Moelis. Please proceed with your question.
Morning, guys.
Hi, Sarah.
First question. Hey, just on F&I penetration.
Mm-hmm.
The penetration increased there. Can you give us any detail around what drove that? Like, is it mix or internal things that you're doing?
Yeah. No, no, it's to do with, we've increased the wages, the resources in that area. That's one of the reasons why our wages were up for the half. We brought in expertise, from the car industry, some experienced players who knew what they were doing, specifically for this role of increasing our penetration, and it cost us a bit more too. Overall we're in front, so it's the right thing to do. Yeah, we've, improved our penetration and, that's cost us a little bit more. That wage won't disappear. That wage increase there is here to stay, and it's well worth it. You know, it's, our total volume of bikes, is down if you take the new and used together.
The penetration has have to improve to get an increase in income. It's not so much the mix, it's just penetration is up a few percentage points than where it was.
Got it. Is there more do you think to go from that?
I'd, yeah, I'd like to think so.
Are you at the target penetration?
No, I don't. No, we're not at the target yet. You know, we've still got considerable room before we reach the target that we wanna reach. You know, we know it's achievable 'cause we've achieved it before in the past. No, we're looking to continue that trend. We think we can keep improving on it.
Got it. Is any of the softer demand that you're seeing driven by your financiers kind of tightening credit conditions at all and, like, deals not closing?
Yeah, that's a good question. I'm not hearing that, Sarah. That's not a complaint that I'm getting from the dealerships and, you know, if they think that's the case, they're usually pretty vocal about it. No, I think if I look at our application to approval to settlement ratio through MCF, it's the same if not better than it was a year ago. We're not seeing that yet. If the, if the consumer can afford it, you know, they'll get the loan. I guess at some stage it's gonna have to make a difference, we haven't really noticed that yet.
Okay, cool.
May be also going down the track, but not yet.
Sure. All right. In terms of retail accessories, like normally that moves with new and used bike sales.
Yeah.
Just trying to understand why that held up.
Yeah.
Well. Again, is that any initiatives on your end?
No. Well, yes, I'd like to take credit for it. I think that's mainly as a result of the first quarter last year, we were in lockdown and that affected our accessory sales quite negatively. The second quarter we opened up and we had a boom time over the last year. We had a half of two very different performances last year and that whilst we're in lockdown, that knocked the figures down. This time we were open for the full half, and whilst our second quarter wasn't quite as strong, our first quarter was certainly much better than last year, so we've ended up with a better result overall. You know, it's always ongoing management there.
Our online sales are increasing, but, you know, I think it's predominantly to do with the fact we're in lockdown last year.
Got it. Okay. Mojo, like that looks like it's run rating pretty significantly ahead of expectations, definitely ahead of where it was in FY 2022.
Mm-hmm.
You've kinda touched on this before, but like is there any seasonality in the business leading into the second half? Is it fair to-
Yes, there is.
You know, run rate, the company, yeah.
Yeah. Usually January is a fairly quiet month for that brand or product. We had a very good January. December's usually not spectacular either. People aren't thinking about buying them or farmers aren't at that time of year. Again, a very good result. We've achieved some very good results there in what is probably not their stronger months. The stronger months being very much May and June. Sales go through the roof in May and June every year for this type of product. The strongest part of the year is yet to come. That'll be the last quarter of the year.
We're in probably what would normally be considered, you know, the more subdued part of the year and getting great results, which is a sign of the company, I think, and the product.
Yeah, definitely. You flagged kind of potential cost savings as well in New Zealand for Mojo and Forbes and Davies. Could you give us any estimate around timeline and maybe some quantification around what kind of synergies that could produce?
Yeah. I can't give you any figures on that, but time-wise we're looking for warehouses now. Our Forbes and Davies business needs more warehouse space. It's desperately out of room now, and that's stopping it from growing. Its sales are well up this year in New Zealand, which is a fairly soft market for motorcycle sales in the last six months or so. We've had tremendous growth there, and that's the addition of our new product. We can't get more product into that warehouse. It's to capacity. We're looking for warehouse space for that. Mojo currently is using third party logistics over there, which is expensive and clumsy. We know that we can do a better job if we warehouse it ourselves.
We'll get a larger warehouse that will do both, allow for Forbes to keep growing and allow for a reduction in cost for Mojo. We'll also distribute our parts and accessories for Mojo, which obviously has its own genuine parts business. That comes out of Melbourne now, which is slow and that's not ideal. To really support a brand properly, we have to have parts distribution in New Zealand. Forbes and Davies ideally situated to handle that distribution for Mojo. That'll be a real efficiency and I think will give the brand a lot of confidence in New Zealand.
Once we've got our own warehouse with stock, once we've got we're distributing our own parts out in New Zealand, I think that gives us a real platform for launching an attack on that agricultural market in New Zealand, which is really significant. I mean, they sell quite well over there. It's a very agricultural market and again, they all buy these 4-wheelers. We've got very low market penetration there at this stage, so we see that as a, as a growth sector. I haven't got figures for you today, I'm afraid, but the integration we're starting now. As soon as we can find a warehouse, you know, which we're looking for currently. Bar the flooding in Auckland at the moment, but we will, you know, we're looking at options.
I'd like to think we've got a warehouse, you know, either leased or purchased before the end of the financial year. Hopefully start receiving those benefits and launching a real attack on New Zealand next financial year.
All right. That's all for me. Thanks, Dave.
No worries.
Thank you. At this time, I would now like to turn it back to David for closing remarks.
Okay. I'd like to thank everybody for their time today. I hope you found that information useful. Of course, we'll see some of you on the roadshow in the next few days. Thanks very much.
This concludes today's conference call. Thank you for participating. You may now disconnect.