Eagers Automotive Limited (APE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the 63rd Annual General Meeting of A.P. Eagers Limited. It's a listed ASX company. My name is Tim Crommelin, and I'm Chairman of your company. It's just past 9:00 here in Brisbane. And the Company Secretary, Denis Stark, has advised that a quorum is present. I, therefore, declare this meeting open. I would like firstly to introduce my fellow directors, all of whom are in attendance today. Marcus Birrell and David Blackhall join us from Melbourne. Nick Politis, our major shareholder; Dan Ryan; and Greg Duncan are in Sydney. Michelle Prater joins us from Perth. With me here in Brisbane are Martin Ward, Chief Executive Officer and Managing Director; Sophie Moore; and our Company Secretary, Denis Stark. David Cowper, a Director of A.P. Eagers, who chairs our Audit and Risk Committee joins also here from Brisbane. I'd like also to introduce Stephen Tarling. Stephen's in attendance here at this meeting in Brisbane, and Stephen will be available later in the meeting to answer any questions on audit matters. The Secretary has advised -- Denis, there are no apologies?

No.

No. Thank you. Today's meeting, and you will see from Slide 3, is being held online via the Lumi platform. This allows shareholders, proxy holders and guests to attend the meeting virtually. Before we review the business of the meeting, can you bear with me to run through some process, which may make it a little easy for all shareholders joining online. All attendees can listen to this live webcast and watch our presentation. Shareholders and proxy holders can also ask questions, make comments and submit votes all online. [Operator Instructions] Although you can submit questions from now on, I will not address them until the relevant time during the meeting. If we receive multiple questions on one topic, we may consolidate or group them together. Our Chief Operating Officer, Keith Thornton, is on hand to assist. Voting. Voting today will be conducted by way of a poll on all items of business. I will open voting for all resolutions shortly. Voting on all items will remain open until the conclusion of the formal business later in the meeting. If you are eligible to vote, a new polling icon will appear on your device when voting opens. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, you simply select one of the options. There is no need to hit the submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote. At any time, you can change your vote up until I declare voting closed. I will now declare voting open on all items of business, and the polling icon will soon -- apologies. I now declare voting open on all items of business. The polling icon will soon appear on your devices. Please submit your votes at any time, and I will notify you before I move to close the voting. Just on that again, obviously, for voting. The polling icon will appear on your device, voting is now open. And if you select that icon, it will bring up the list of resolutions and present you with your options. Before we proceed to the formal business of this meeting, I'll present my report on 2019, after which Martin, our Managing Director, will provide his operational report and comment on the current year. I'd now like to move to my address. Shareholders, first of all, my thank you for your patience with what has been an unusual AGM process. Our merger with Automotive Holdings Group was completed in October 2019, and our AGM would normally have been held in May 2020, at which time we would review the 2019 financial year, which ended 31st of December 2019. The world is at a challenging juncture. There is no part of our lives or businesses that hasn't been touched by this COVID-19 pandemic, and the delayed timing and online format of this AGM is certainly no exception. I will make some brief comments regarding the 2019 year. Then our Chief Executive Officer and Managing Director, Martin Ward, will provide an overview of the operating performance of the financial year for 2019. We do recognize a significant period of time has passed since our statutory results were announced in February 2020, and Martin, therefore, will further comment on the way forward. For the year ended 31st of December 2019, the group recorded a statutory loss after tax of $80.5 million. As a consequence of our transformational merger with Automotive Holdings Group, our statutory loss included a noncash impairment to goodwill and assets of approximately $245 million after tax, the result of acquisition accounting as well as one-off transaction costs and the impact of restructuring activities. Underlying operating profit before tax was $100.4 million, a credible performance in challenging market conditions. That the integration of A.P. Eagers and AHG has taken place so seamlessly, especially in an environment as strained as the current one, is a credit to both our management team and wider workforce. Subject to shareholder approval today, we will change our name to Eagers Automotive Limited, a new badge for a company with a proud history looking boldly towards the future. Whilst the Board and management are always thinking of the long term, we have been intensely focused in recent months on the now in response to the immense challenges presented by COVID-19. Consistent with our cautious approach, in March, we took the prudent step of halving the financial dividend and an across-the-board reduction in remuneration for both directors and senior executives. Your nonexecutive directors agreed to forgo their full Board fees, and Martin Ward halved his own remuneration package to assist the company preserve liquidity. In this period of uncertainty, the Board and senior management of A.P. Eagers believe the most prudent course of action is to preserve cash until there is greater clarity around the broader economic outlook. As at the 30th of June 2020, June just passed, our balance sheet is in good shape, and we've been able to reduce our borrowings with the banks by approximately $100 million. Martin will comment on our liquidity position further in his address. I'd like to take this opportunity to acknowledge the support throughout this challenging time of all our stakeholders but most especially our people who allow A.P. Eagers to function at the high level it does. Often hardship can bring out the best in people, and I'm proud to say the challenges we faced this year as a company have not only revealed our people to be of the finest caliber, but they've also galvanized as a unit to tackle whatever the remainder of the year has in store and equip us to pursue our Next100 years strategy. At the end of the day, the company is only as good as its people, and I want to take this opportunity to acknowledge the leadership of the CEO, Martin Ward, his executive team, a number of whom are here with us today and, indeed, our entire workforce, all 8,200 of whom come to work each day and strive to make the business better and the customer experience superior. I'd also like to thank my fellow directors for their continued dedication and contributions. Their experience, guidance and invaluable industry knowledge has served all shareholders well, especially during the difficult time. Finally, a vote of thanks to you, the shareholders, for all your continued support and investment in our company. With that, I'd now like to hand over to Martin. Thanks, Martin.

Thank you, Chairman. Good morning, shareholders, and thank you for your interest in A.P. Eagers Annual General Meeting, our first AGM since the completion of our merger with Automotive Holdings and our first virtual AGM in the company's long history. It's certainly a new experience for all of us and, much like the last 6 months, it reflects the unusual times we find ourselves in. I will briefly address the financial year 2019, which ended in December 2019, as that is the formal reason for the AGM. I would then like to update you on the company's ongoing response to the COVID-19 pandemic, and I will conclude with some commentary on our future focus and outlook, noting that our numbers for the first half of financial year 2020 are currently undergoing audit review and will be presented to the market on the 26th of August. So beginning with the 2019 financial performance. And while I appreciate that it feels like a distant memory, particularly in the context of COVID-19, it was a truly transformational year for A.P. Eagers. The major strategic initiatives we embarked upon last financial year have provided us with a much stronger foundation to withstand not only the immediate challenges of the unseen pandemic but also the significant structural and cyclical challenges that we did see coming. The landmark event of 2019 was the successful completion of our merger with AHG to create a leading, national automotive group with a foothold in New Zealand. Our rationale for bringing these 2 businesses together was clear: the industry is undergoing significant structural change and a national business of scale will be better placed to compete and invest as the market continues to rationalize. While the statutory financial outcomes for the full year 2019 painted a complex picture, reflecting one-off transaction costs, restructuring activities and the accounting treatment of our all-scrip takeover of AHG, the overall financial health of the business remains strong. On an annualized basis, consolidated revenue from continuing operations was $9.2 billion, demonstrating our enhanced scale post acquisition. Despite challenging market conditions with the overall national new vehicle market declining by 7.8%, the group was able to deliver a resilient performance to record underlying operating profit before tax of $100.4 million, a decrease of 3% on the prior year. Importantly, the integration of the AHG business and associated synergy targets has run smoothly with the merged group united behind the strategy and vision. Given almost 7 months have passed since the financial year 2019 ended, I don't intend to cover the performance in any further detail. However, I will be more than happy to take questions at the conclusion. Instead, I suspect shareholders are more interested in understanding how the business has responded to the unprecedented health and economic crisis we have all endured in 2020, which is what I'd like to now focus on. Like many sectors, the impact of COVID-19 pandemic has been significant on the automotive retail industry. However, your Board and management team have responded quickly and, in many circumstances, preemptively to rightsize our operations, preserve cash and optimize liquidity in order to ensure we can navigate its duration. The Board and leadership team recognize that the success of our organization greatly depends on our people who have met the challenges of this crisis head-on, ensuring our dealerships remained operational so that we could continue to support our customers whilst keeping everybody safe. In response to the sudden impact of the crisis and escalation of government restrictions in March, we made the necessary but very difficult decision to reduce our headcount which, in turn, reduced our fixed monthly cost base by approximately $6 million. Through access to the federal government's JobKeeper program and a temporary rostering arrangement, which was adapted regularly to reflect activity levels across our dealerships, the company has been able to retain as much of its workforce as possible through the crisis. Whilst there have been challenges, we commend the federal government on the JobKeeper initiative, which has provided much needed support to our workforce, saved many jobs and has kept us connected with our employees, helping to support a faster recovery. Additionally, through the JobKeeper program, the company has been able to rehire 165 employees who left the company during the initial phase. We thank the state and territory governments for the support they have provided to businesses, including A.P. Eagers, over the past few months. We have also asked a lot of our external stakeholder partners during the crisis, and their willingness to support has been extremely gratifying. The implementation of a number of operational initiatives and other cash management strategies have helped to fortify liquidity and further strengthen the group's balance sheet, ensuring the company can navigate through the current crisis and is well placed to manage the impacts of localized or regional outbreaks or the reescalation in government restrictions. Despite the highly volatile economic environment, we were able to complete the sale of AHG's Refrigerated Logistics business to Anchorage Capital Partners on June 30. This is consistent with our objective of divesting RL as soon as commercially possible at a reasonable price and enables the group to focus on its core automotive retail business. Moving on to strategy and outlook. Notwithstanding the external environment, the group remains firmly focused on our Next100 strategy, which is aimed at delivering a superior customer experience from a more sustainable and productive cost base. In fact, the optimization of our existing business has accelerated out of necessity due to the impacts of COVID-19, with the team working hard to deliver a significant permanent cost reduction of approximately $78 million per year, all achieved within the last 3 months. Our first half results for the period ending June 30, 2020, will be formally released after the audit review on the 26th of August. Considering the challenging economic conditions, it is difficult to give a simple statement at today's AGM on our half year results. The Board, however, is confident that our underlying profit from continuing operations, whilst still subject to audit review, is unlikely to change. We expect an underlying operating profit from continuing operations of $40.3 million, which represents a 23.6% decline from the prior corresponding period. The Board believes this to be a resilient operating performance, particularly as the first quarter was tracking above last year and all of the decline was experienced during April and May, the peak impact of COVID-19 restrictions up to this point. Importantly, those challenging months were followed by a rebound in June, supported by an opening of the economy and confidence in the government's stimulus measures. A.P. Eagers is now in a very strong financial position with a substantial property portfolio and asset base underpinning the company's financial position, together with $633.9 million of available liquidity at 30 June 2020. This liquidity position includes available cash, undrawn commitments under our corporate debt facilities and captive financier working capital support. Corporate debt, net of cash, decreased to $7.6 million at 30 June, down from $315.8 million at the 31st of December 2019. I'm just going to repeat that, corporate debt, net of cash, decreased to $7.6 million at the 30th of June, down from $315.8 million at the 31st of December 2019. This strong financial position provides us with a significant liquidity buffer to withstand any long-term impacts of COVID-19 and also provides us with the flexibility to pursue new opportunities that we expect to arise in a challenging market. In this vein, we remain focused on leveraging the current market conditions, which are a catalyst to accelerate our Next100 strategy. Central to the strategy is the proactive restructure of our operations to focus on our core business, driving our performance specifically in both used cars and finance whilst redesigning our cost base to be more productive, highly customer focused and ensuring our relevance for the long term. A prime physical example of the Next100 strategy in execution is our omnichannel strategy in Brisbane that includes our cornerstone position in the globally unique Auto Mall at Brisbane Airport, the multi-branded service center at the ex-Bunnings site in Albion and the first dedicated permanent Auto Mall, including service, in a major shopping center. All projects continued during COVID-19 and are well advanced. We look forward to sharing more detail with shareholders as the projects develop further. In closing, I'd like to extend my sincere thanks to the Board for their valuable guidance, counsel and support; our entire management team for their leadership and commitment; and to all of our employees for their hard work and dedication during the year. Finally, a big thank you to all our shareholders for your ongoing support, understanding and patience as we navigate these difficult times but move closer to emerging on the other side in a strong position. Thank you.

Thanks, Martin. Shareholders, we now move to the formal business of today's meeting. Our 2020 annual report and notice of Annual General Meeting were made available to all shareholders on the 28th of April and 26th of June, respectively, and will be taken as read. Before each motion detailed in the notice of meeting is put, I will address any questions or comments from shareholders on that particular motion. General questions and comments will be addressed later in the meeting. The first item in the notice of meeting is to receive and consider our financial reports for 2019. The Corporations Act requires these to be laid before the meeting each year, and they are included in the annual report. If there are any questions or comments from shareholders on the financial reports, I will address them now. Now it's also the appropriate time for our auditor, Stephen Tarling, to address any questions regarding our audit, the auditor's report, our accounting policies and auditor independence. I just would like to ask Keith, our moderator, if there are any questions.

No questions, Mr. Chairman.

Thank you, Keith. As there are no questions, we now move on to the next item of business, that is the reelection of Directors. I think that's Slide 13 for all shareholders. Is it? Item 2a of today's agenda is for the reelection of Marcus Birrell as a Director. In accordance with our constitution, Marcus retires by rotation at this meeting and, being eligible, offers himself for reelection. Further information about Marcus can be found in the notice of meeting and on your screens now. Your directors recommend the reelection of Marcus Birrell. Keith, are there any questions regarding Marcus' reelection?

None, Mr. Chairman.

Thank you, Keith. As there are no questions, I note that the number of proxy and direct votes received on this motion prior to the meeting should now be showing on your screen. It would be Slide 14 for all shareholders. Is it? As I mentioned earlier, voting on all items today is being conducted by way of a poll, and you are now able to cast your votes on all items. I will now move to the next item on the agenda. As I am up for reelection and, therefore, have a personal interest in this item, I'd like to pass control of the meeting to David Cowper, the Chairman of our Audit and Risk Committee and ask that he officiate on this item. David, do you want to...

Thank you, Tim. It is my pleasure to put this motion to the meeting. In accordance with our constitution, Tim retires by rotation at this meeting and, being eligible, offers himself for reelection. Further information in relation to Tim can be found in the notice of meeting and also on your screens. Your directors recommend the reelection of Mr. Crommelin. I'd ask if there are any questions on the reelection of Mr. Crommelin.

There's no questions, David.

Thank you. As there are no questions, the number of proxy and direct votes received should now be showing on your screens. I now hand the meeting back to Mr. Crommelin.

Thank you, David. We now move to the next item on the agenda. Item 2c is for the reelection of Sophie Moore as a director. Sophie retires by rotation at this meeting and, being eligible, offers herself for reelection in accordance with our constitution. Information about Sophie is on your notice of meeting and on your screen #17 now. Your directors recommend the reelection of Sophie Moore. Are there any questions in relation to the reelection of Sophie?

No questions, Mr. Chairman.

Thank you, Keith. As there are no questions, the number of proxy and direct votes received on this motion should now be showing on your screen #18. Thank you. I now move to the next item on today's agenda. It is Item 3a. It's the election of David Blackhall as a Director of the company. David was appointed as a Nonexecutive Director in December 2019. Today, he retires in accordance with our constitution and offers himself for election. Further information about David can be found in the notice of meeting and on your screen. Your directors recommend the election of David Blackhall. I'd ask Keith if there are any questions in relation to the election of David.

No questions, Mr. Chairman.

Thank you, Keith. As there are no questions, please note the number of proxy and direct votes received on this motion is showing on your screen, screen #20. Without any questions -- further questions, I now move to the next item on the agenda. It is Item 3b. And today, it is for the election of Greg Duncan as a Director. Greg was appointed as a Nonexecutive Director in December 2019. Today, he retires from the Board in accordance with our constitution and offers himself for election. The notice of meeting includes further information on Greg, and I refer you to the information on your screen, screen #21. Your directors recommend the election of Greg Duncan. And I would ask if there are any questions. Keith, do we have any?

No questions, Mr. Chairman.

No question? As there are no questions, the number of proxy and direct votes received on this motion is now showing on your screen #22. I would now move to the next item on the agenda. It's the election of Michelle Prater, Item 3c, and for the election of Michelle Prater as a director. Michelle was appointed as a Nonexecutive Director in February 2020. Today, she retires from the Board in accordance with our constitution and offers herself for election. In addition to the information about Michelle on your screen now, I should mention that Michelle lives in Western Australia, where some 20% of A.P. Eagers business is in Western Australia. Your directors recommend the election of Michelle Prater. If there are any questions regarding the election, please forward them to Keith.

No questions so far, Mr. Chairman.

There are no questions. As there are no questions, the number of proxy and direct votes received are now showing on screen #24. We now move to the next item on the agenda. It is nonexecutive directors' fee cap, Item 4, and it calls for shareholders to support an increase in the maximum aggregate amount that may be paid in fees to nonexecutive directors from $750,000 to $1 million each year. The current fee cap was approved by shareholders 5 years ago in 2015. The reasons for shareholders being asked for the proposed increase is set out in the notice of meeting and is set out in some detail and summarized on your screen #25. I'd ask are there any questions on this motion, Keith?

No questions, Mr. Chairman.

There are no questions. The number of proxy and direct votes received should now be showing on your screen #26. I would note that these votes do not include any votes by directors as they -- and all senior executives -- no just directors in that. No votes from directors as they are not permitted to vote on this item. We now move to the next item, the remuneration report. Item 5, it seeks shareholder approval for our 2019 remuneration report. Although the vote on this motion is advisory only and is nonbinding, the Board is looking for shareholder support for our policy on remuneration matters. The remuneration report is set out in our annual report. And I'd ask are there any questions in relation to this report?

No questions.

Thank you, Keith. There are no questions, and the number of proxy and direct votes received is now showing on the screen. These votes do not include any votes by directors and/or key management personnel of A.P. Eagers during the financial year as neither directors or key management personnel are permitted to vote on this item. As there are no questions, we now move to the next item of business. It is Item #6, the change of company name to Eagers Automotive Limited. Item 6 on today's agenda seeks shareholder approval to change the name of your company. Following our merger with Automotive Holdings Group last year and in accordance with our bidder's statement, it's now proposed that the company change its name to Eagers Automotive Limited. This new name will better describe our core business and position in the automotive industry while, at the same time, reflecting the combined heritage of both A.P. Eagers and Automotive Holdings. The name change will require a special resolution of shareholders, needing the support of at least 75% of votes cast. Your directors unanimously recommend that shareholders approve the change of name and vote in favor of this resolution. You can see on Slide 29 -- can we just go back to 29? That's the new company name and logo. Any comment, Martin, that you want to make on that?

Only that we love it.

Sounds good. As I said, directors and everyone seems to think it's a good idea. I'd ask are there any questions on that resolution?