Eagers Automotive Limited (APE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Eagers Automotive Full Year 2020 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Martin Ward, Managing Director and Chief Financial -- Executive Officer. Please go ahead.

Thank you for joining us to discuss the Eagers Automotive full year results for the period ended 31st December 2020. With me today is Sophie Moore, our Chief Financial Officer; and Keith Thornton, who will be taking the reins as Chief Executive Officer from today on. We've launched a stand-alone announcement regarding the leadership succession this morning, and I will discuss in more detail shortly. Our results pack, including the slides for the presentation has also been lodged with the ASX and should be visible via the webcast. Keith, Sophie and I will provide an overview of the results, update you on our strategic progress, the company's outlook and then open the lineup for questions. It is my firm view that now is the perfect time from a company, industry and personal perspective to hand over to Keith. As CEO and leader of the executive team, of which Keith has been a critical member, we've completed our transformative acquisition of AHG and fully integrated the business. We have simplified and materially derisked the business through the divestment of Refrigerated Logistics and our Daimler truck retailing business, enabling us to focus on our core automotive retail operations. And while some uncertainty remains in the external environment, we believe that we have now navigated the worst of the global pandemic in Australia. This is not a decision that has been made overnight. It's been in the works for many years, underscoring the importance placed on an orderly succession by the Board and I. Keith is the ideal person to lead Eagers Automotive through its next phase of growth. He's been with the company for 18 years including as Chief Operating Officer since 2017 and brings unparalleled operational and industry experience. He, together with our long-standing and, in my view, industry-leading team, have been fundamental to developing and executing our Next100 strategy, which I stress will not change as a result of today's leadership change. For my part, I will transition to a new role as adviser to the Board and CEO, helping ensure a smooth handover to Keith whilst taking responsibility for our property portfolio, including both our owned and leased real estate assets as well as our strategic property investments, such as the Brisbane Airport Auto Mall. I'm excited about the future in which Keith's all the best, the company is in safe -- the company is in a safe pair of hands. Moving to the financial highlights. Sophie will take you through the numbers in detail later, but allow me to address the highlights, recognizing that these results reflect our first full 12-month reporting period following our acquisition of AHG in October 2019. These results also reflect our response to COVID-19, which resulted in significant impacts to our business over the majority of the 12-month period. We took early decisive steps to rightsize our operation while also accelerating our planned restructuring, rationalization and simplification plans which led to significant reductions in our cost base, whilst also preserving cash and increasing our liquidity position. We will talk to this in more detail shortly, but we're proud of how the company and all of our people have responded and what we've been able to achieve in a very challenging market. We've seen unprecedented fluctuations in new vehicle sales in the period. The severe declines in April and May were some of the worst market conditions on record. This was followed by a rebound in the last quarter, finally breaking the trend of 31 consecutive months of decline in new vehicle sales. Our underlying profit before tax from continuing operations was $209.4 million. This position reflects the trading profit for the period, excluding one-off items such as government wage subsidy and asset impairments. We've reported a statutory profit after tax, inclusive of discontinued operations of $156.2 million. Our statutory line was impacted by a net $90.7 million noncash impairment to assets from continuing operations. This is mostly associated with the impact of the Holden exit, restructuring activities and the revaluation of property assets. Despite the considerable disruption due to the pandemic, we remain focused on our core business activities. I'm pleased to report we outperformed the new vehicle market and increased market share during this period. Our consolidated revenue from continuing operations was $8.7 billion for the full year, demonstrating our scale postmerger. Our balance sheet is strong. We've ended the period with a significantly lower corporate debt position of $129.3 million net of cash and available liquidity of $683.2 million including cash and undrawn commitments. Net cash flow from operations was $527.9 million. Moving on to the strategic highlights. Despite the market conditions and business disruption caused by COVID-19, we made significant progress with our strategic priorities. Our Next100 strategy, which is centered on providing an enhanced customer experience from a lower cost base is even more relevant as we emerge from the crisis. We're executing our strategy diligently, and Keith will discuss this in more detail later in the presentation. In addition to the synergies achieved following the acquisition of AHG, we were also able to achieve permanent reductions to our cost base with $100 million in annualized cost savings delivered this year. As noted earlier, we made strong progress with the simplification of our business. Following the completion of the sale of the AHG Refrigerated Logistics business in the first half, we also agreed the divestment of our Daimler Truck operations with VVG, allowing us to focus entirely on our core automotive retailing business. We also continued to rebalance our property portfolio, acquiring several of our strategically located lease sites, taking the value of our owned real estate to $356 million at the year-end and completion of already-agreed properties in early '21 to the end of January, now sitting at $469 million of owned property. These acquisitions are a key step in affording us greater flexibility to more actively manage our automotive retail footprint. Finally, our fixed price pre-owned vehicle business is on a strong trajectory, benefiting from the scale of the merger, the full integration into the wider business, investment in online offerings and a disciplined approach to cost management. Coupled with strong market conditions, we achieved 7 consecutive months of profitable trading and delivered improvement in all key metrics to round out 2020 in the fixed price pre-owned vehicle business. Turning to the market context and the extremely challenging conditions the industry has faced over the last 12 months. The global pandemic compounded the external structural and cyclical headwinds already facing the industry. It has driven significant fluctuations in market conditions with historical trading lows for our company in April and May, representing the peak of the COVID-19 trading restrictions mandated by government. The challenging market conditions continued through to quarter 3 2020 with the impact of a sustained period of lockdown in Victoria suppressing the market. The impact of government stimulus, the easing of restrictions and the rebound in economic conditions resulted in November being the first month of new vehicle sales growth in 31 months, dating all the way back to April 2018. Improved market conditions in the final quarter of 2020 have continued into 2021. We, at Eagers, are focused on satisfying our stakeholders, and therefore, in the context of COVID-19 and the 2020 calendar year. The right-hand side of Slide 7 is really important to digest. Eagers restructured immediately as COVID-19 hit. We were forced to roster our workforce and navigate through government-mandated closures, which resulted in the worst monthly declines in our history. The facts show that Eagers dropped only 10.5% in new car volume during 2020 when the overall industry dropped 13.7%. Given our breadth of luxury, prestige and mainstream brands across the entire country, this demonstrates how we outperform the industry and ultimately how we satisfied one of our key stakeholders, our OEM partners. Slide 8 simply demonstrates that in the 2 largest markets of New South Wales and Victoria, which make up circa 58% of the national market, our current market share is 9.9% and 5.2%, respectively, presenting opportunity to grow our market share both organically and via acquisitions. With an eye to the future, I will now pass over to Keith as I think it's more appropriate for him to take us through the progress we are making in executing our Next100 strategy.

Thank you, Martin, and good morning, everyone. Before I update you all on the specifics of our strategic progress, let me start by saying it's a great privilege to be appointed CEO of Eagers Automotive. I'm excited to take on this role and have the opportunity to work alongside what I firmly believe is the best team in the industry. Today's results are testament to the team's focus on executing our Next100 strategy despite all the disruption and challenges of 2020. By now, many of you will be familiar with the strategy, as you see it on your screen. It remains consistent from pre -- our merger with AHG. We'll continue to hold ourselves accountable to this strategy by regularly reporting on our progress against it and how we're delivering short and long-term value for our shareholders. We are confident in our vision and strategy for the future. It continues to provide a road map for our response to the evolving automotive retail landscape, which in many ways has been accelerated and further validated by the impacts of COVID-19. We've made substantial progress in a number of key areas which I'll take you through in a moment. But before we do that, let me address the impact of COVID-19 on the market dynamics, specifically in the automotive retail sector. The rapid onset of the pandemic saw a substantive shift in the demand and supply environment within the Australian market. At an OEM manufacturer level, offshore production was impacted by a combination of intended production cuts, both temporary and permanent closure of factories, and unintended impacts brought on by the disruption to global automotive supply chains. These reduced production levels caused our market to experience a sustained reduction in supply and inventory levels. In parallel, government-imposed lockdowns and restrictions on trading caused an immediate and severe reduction in demand and was not until the introduction of government stimulus measures, following the lifting of lockdown restrictions that we saw consumer demand return. I'll briefly touch on the impact of stimulus now. Firstly, some context. Prior to the announcement of any broad-based government stimulus, the company had experienced 23 consecutive months of year-on-year new car sales decline, the longest period of decline for the industry on record. In February 2020, we also have been advised that General Motors were retiring the Holden brand and exiting the market effective June. So it was within this environment, the industry, pre-COVID-19, collectively had been in regular dialogue with the federal government requesting specific stimulus measures to both support automotive retailers directly while also providing market-based incentives to stimulate activity. Now while there are a number of highly successful measures implemented by the government to support businesses across all industries throughout the mandated lockdown and stimulate the recovery after, it was the instant asset write-off and JobKeeper that were the 2 initiatives most impactful in our sector. The automotive retail industry is one of the largest employers in Australia. Eagers is the largest in the sector by an estimated factor of 5. So after the onset of COVID and the full extent of the pandemic was realized, but prior to the announcement of JobKeeper, we implemented a very difficult but necessary restructuring program, permanently letting go over to 1,200 employees from the business. On the announcement of the JobKeeper program, we applied on the basis it would keep more of our people in a job and prevent any further group-wide restructuring. Now we only did this after making a decision that for us to survive, then emerge post the pandemic, we needed to share the burden across all stakeholders. This started with the Board, suspending all director fees followed by the CEO and senior executives taking immediate pay cuts during the pandemic. We cut our previously announced final 2019 dividend in half, conscious that many shareholders relied on that income, and we're facing their own challenges at that time. And we spoke with all our business partners about temporary concessional arrangements. JobKeeper specifically was designed as a stimulus package, and the government were very clear regarding its objectives, which were: keep people in work and connected to their employer and ultimately, off JobSeeker; help businesses to survive the government for shutdowns, all the while providing much needed economic stimulus by passing these payments directly through to employees to boost consumption. Now as I noted, we are a large Australian employer with over 8,000 employees and an annual 2020 payroll of more than $900 million. We were grateful to be a recipient of JobKeeper and pass on this benefit directly to our employees, ensuring no further structural redundancies where necessary. JobKeeper represented just 14% or the equivalent of 6 weeks of our payroll at the time, aligning with the period of the first government-mandated lockdown. It's also worth noting, year-on-year sales declined in our industry for a further 8, 4 months after the onset of COVID-19. As we've said previously, we estimate JobKeeper saved around 2,000 jobs at Eagers. It enabled us to eliminate the need for further company-wide restructuring, kept employees connected to our business and off JobSeeker, which then facilitated a faster rebound as the broader economy recovered. Finally, we feel it's helped fortify the company, like many others, so that in the face of any similar magnitude shock to the economy in the short term, we'll be able to withstand it, support our -- and support our employees without government support. Leading to the catalyst for change in our business. The global impacts of COVID-19 and the associated government stimulus packages resulted in a significant shift in market conditions both temporary and structural, which helped enable the acceleration of our Next100 strategy. These external factors impacted 3 key areas of our business: increased demand, increased income and a restructure of our cost base. Consumer demand for motor vehicles has changed as the broader social and economic impacts of COVID-19 unfolded over the past 12 months. Restrictions on international travel has resulted in a reallocation of consumer spending, while changes in personal attitudes to public transport have also driven high demand for vehicles. Reduction in OEM global capacity and disruptions to the supply chain have reduced inventory levels. So in the context of increased demand across the market, we have seen a contribution to higher -- to driving stronger gross margins across our franchise automated business with a flow on impact to the pre-owned vehicle market with low availability of traded in stock driving high gross margins. Despite the increase in demand, we've been disciplined with our cost with a focus on increasing productivity, showroom transformation and doing more with less to adapt to the increased levels of demand. So turning now to the specific components of our Next100 strategy. We start with our omnichannel strategy. Engaging our customers everywhere is our response to existing and expected changes to customer demands with a more tailored, flexible and convenient experience on a reduced and more efficient physical footprint. Maintaining appropriate balance of owned and leased properties with a focus on ownership in key strategic locations provides us greater flexibility and the opportunity to implement our omnichannel retail approach. With the support of our OEM finances, we acquired 8 strategically located sites which we previously leased, taking the value of our own portfolio from $253 million at the end of 2019 to $356 million at the end of 2020. As Martin mentioned earlier, a further 4 acquisitions have completed post 31st December, lifting the current value of the portfolio to $469 million. In November, we announced the acquisition of a 43,000 square meter site in Castle Hill in Sydney, which is a great example of this strategy at work. While not only eliminating lease expenses to the site, we can now reconfigure it to further optimize our dealership footprint while also relocating the Sydney-based operations of easyauto123 from Seven Hills and Carlins to the site. It's a sort of opportunity we can replicate in other geographies and is a byproduct of our scale and the flexibility that our property portfolio provides with specific projects of a similar nature being worked on in Brisbane, Melbourne and Perth currently. Our AutoMall projects in Brisbane are progressing well with the company executing an agreement with AMP Capital for the AutoMall West to be situated inside Indooroopilly shopping center, demonstrating how we continue to evolve to fit our customers' lifestyles, their circumstances, wants and their needs. For the next component, redefining our workforce. A key component of our Next100 strategy is to redefine our workforce to provide a superior customer experience in a more economically sustainable model. Unlike the traditional dealership model, our buy, fund, sell, protect, retain philosophy has been designed to align our roles and responsibility around a superior customer experience and as a response to the evolving path to purchase for our customers. This philosophy is underpinned by our omnichannel approach with technology improvements not only enhancing the customer experience but also enabling productivity gains and hence, lowering our cost base. 2020 saw material improvements in productivity across the business post-COVID-19 -- sorry, post the COVID-19 impact, reflecting the changing dynamics of the marketplace, but pleasingly, also improvements arising from changes in our showroom practices. During the year, we continued the execution of our strategic plans to leverage our unique scale to deliver optimized finance solutions within our businesses. Our plan to do so is an example of how each part of our Next100 strategy enables another part of the strategy. The first and most critical aspect to delivering optimized finance solutions involves transforming the showroom process to adapt to changing consumer trends, starting with increasing the finance engagement with our customers earlier in the sales funnel. As referred to in the previous slide, we continued our rollout of the buy, fund, sell, protect, retain philosophy with a focus on facilitating financing or the fund component in a more customer-centric way and responding to changing market dynamics. To support this definition of the sales process, we continue the rollout of the unique Eagers toolkit, including our full panel of existing traditional lenders to the legacy AHG dealerships, our JV finance company partnership with Taurus, and we accelerated the implementation of digital credit scoring, website showroom tools and online credit approval for our customers. Unfortunately, the effects of COVID created material headwinds to execution in the industry in general in 2020. We faced increased mortgage redraw activity, unprecedented cash within the economy facilitated by superannuation withdrawals, extremely tight credit conditions, resource limitations and long lead times on new car orders, disrupting our normal point-of-sale advantage. Despite these challenges, we remain confident and committed to our strategic plans and continue to execute relentlessly against it. It was pleasing that by the end of the year, our overall performance in terms of penetration have returned to pre-COVID-19 levels. Further, we expect a number of these environmental headwinds to fall away in 2021, with an expected specific tailwind from the anticipated relaxation of lending laws in the current quarter expected to translate to improved penetration levels. Finally, in the fourth quarter of 2020, we launched our Simplr subscription model pilot through our easyauto123 business, targeting credit challenged circumstances and are very pleased with the initial results. Moving to innovation. Innovation remains a major focus, and we made considerable progress across a number of areas of the business, particularly with our well-documented plans to grow our fixed price pre-owned car business, easyauto123, supported by our national auction business, Carlins. As we outlined in our pre-owned business update in November, we've accelerated our investment in technology solutions to support easyauto123 platform to enhance the customer experience and drive, importantly, productivity. This includes the launch of a new website supporting online transactions with market-leading 360-degree imaging and improved analytics software to drive more personalization for our consumers and increase conversion. We saw strong results in the second half with key metrics, including organic website-lead volume contribution, website-attributed deliveries and click and collect, all showing encouraging growth. We have a clear road map to further enhance our digital offering in both pre-owned and finance to build on our category-leading position. Finally, reinvesting with discipline. Our reinvestment with disciplined strategic pillar is fundamental to our long-term growth outlook. It encompasses leveraging our scale through deliberate rationalization and simplification, portfolio optimization and disciplined acquisitions that support the strategic mandate. By exceeding our postmerger synergy savings, generating returns on the divestment of noncore assets and optimizing our dealership portfolio, we have a strong foundation to fund these plans. I'll now pass over to Sophie to take us through the financial results in more detail.

Thank you, Keith, and good morning, everyone. If we just focus on Slide 20 and 21, Martin has been through the highlights and some of the one-off items in our statutory results. I will discuss this statutory result and correlate back to the underlying profit from our continued operations, which is the critical performance measure of our business. The 2020 result we presented today is the first 12-month period of postmerger consolidated results with AHG. However, the 2019 figures are only reflective of a 4-month contribution from AHG. On a statutory basis, including discontinued operations, the company recorded a net profit after tax of $156.2 million. This is up from a net loss after tax of $139.6 million in 2019, a result which was impacted by impairments to goodwill and assets as a result of the AHG merger acquisition accounting. The 2020 statutory result does include significant items totaling $70.7 million net income before tax, which is shown in the slide on table -- in the table on Slide 21. The key components of the significant items include the COVID-19 government wage subsidies of $133.8 million on a pretax basis, which was provided to approximately 7,000 eligible employees across Australia and New Zealand. A further $31.8 million benefit was in the form of brand restructuring compensation primarily associated with the Holden exit from Australia, and these 2 items were offset by a $90.7 million noncash impairment of assets. And I will talk to this in more detail shortly. Removing the impact of the discontinued operations from our statutory results, our statutory net profit after tax from continuing operations list to $191.5 million. If we remove the items I just highlighted being the COVID-19 subsidies, noncash impairments and other one-off items, we reported an underlying operating profit before tax from continuing operations of $209.4 million. This compares to $100.4 million for the prior year, which I said earlier reflected only a 4-month contribution from AHG. It's important to note that these figures also remove the impact of AASB 16 lease accounting to be consistent with previous years. As highlighted by Keith and Martin earlier, the underlying performance was driven by the combination of the merged businesses together with the rebound in new vehicle volumes from the peak COVID-19 restrictions in April and May, together with our significant cost reduction, stronger gross margins associated with the higher demand and supply constraints across the industry. The result was further supported by the stronger truck retailing and the improved performance from our pre-owned vehicle business. Now moving on to Slide 22, which is our segment result. We will focus again on the underlying contribution from continuing operations. In the car retail segment, underlying operating profit before tax was $199.4 million, reflecting the full -- first full year of AHG again, but also stronger trading performance for the second half of 2020, which benefited from favorable supply chain dynamics and the significant cost permanent reductions that we took out of the business. The increases reflected across all regions in Australia and New Zealand, except for Victoria, which was impacted by an additional 3 month lockdown. In the National Truck business, underlying operating profit before tax was $19.8 million compared to $7.8 million in 2019, reflecting both strong demand and the impacts of the government stimulus programs. In the Property segment, underlying operating profit before tax was $4 million, down from $8.9 million in 2019, which was driven by a reduction on internal rental income from a number of properties, which we divested in 2019. Corporate costs increased following the addition of AHG corporate function. However, in 2020, we are yet to see the full annualized benefits of the synergies achieved in this area. These will flow through to that corporate costs in 2021. On Slide 23, we have summarized the key noncash impairment charges for the year, totaling $90.7 million. Impairment charges of $80.7 million, predominantly related to the General Motors planned exit from Holden vehicle sales in Australia and New Zealand in 2020 and primarily, the new car showroom leased assets associated with these dealership operations, which were written down. The $10 million revaluation decrement also is attributable to the 3 strategically vacated noncore properties in South Australia and 2 in Queensland. The strong balance sheet and our balance sheet, which we show on Slide 24, remains robust with a substantial property portfolio and asset base, underpinning the company's strong financial position. Corporate debt, net of cash, decreased to $129 million, which is substantially lower than the $315.8 million at December 2019. It's also important to note that this does include the debt drawn to fund the property purchases, which were completed prior to year-end. The company maintains a strong cash position of $209 million at the 31st of December 2020, which was driven by robust net operating cash flows of $527.9 million for the financial year. With strong operating cash flows, reduced cost base and inventory levels and the available liquidity from undrawn debt and working capital facilities, we have $683 million of available liquidity at December 2020. This certainly provides us with a significant liquidity buffer to ensure we are well positioned to withstand any short term and isolated challenges associated with COVID-19 while providing the flexibility to invest in growth opportunities and continue to accelerate our Next100 strategy. The flexibility in our property portfolio is a key enabler for our execution of our Next100 strategy. We have taken action to rebalance our portfolio following the acquisition of AHG, increasing the utilization of owned property through the acquisition, as Keith and Martin highlighted earlier, of key strategic sites. The value of owned property was $356 million at December '20. And following the completion of further acquisitions totaling $130 million in January 2021, the value of owned property currently sits at $469 million. During the period, we vacated or exited a total of 36 leases, through a combination of restructuring activities, portfolio management, and this does exclude those acquisitions at sites that we did acquire. The acquisitions will deliver immediate accretive returns relative to maintaining existing lease terms. I'll now hand back to Keith to take us through the outlook for 2021. Over to you, Keith.

Thanks, Sophie. Let me finally discuss our outlook before I pass it back to Martin, and we open up for questions. It's worth reinforcing Eagers Automotive has a scale, brand and geographic diversity to ensure it is well positioned to withstand any short term and isolated challenges associated with COVID-19. A further simplification of our business to focus on our core automotive retail operations also positions us strongly to capitalize on favorable market dynamics without distraction. Our strong balance sheet and fortified liquidity position provides an optimal platform to further pursue opportunities as we accelerate our disciplined execution of our Next100 strategy. In the short to medium term, we are focused on delivering improved operational performance and EPS growth through a combination of the following: one, continuing to rebalance our property portfolio through the increased utilization of owned property relative to lease properties, enabling the delivery of our omnichannel experience on a substantially lower cost base; secondly, delivering optimized vehicle finance solutions through our unique and industry-leading financial services toolkit, which will enable the company to capitalize on expected tailwinds in 2021; driving growth in our fixed price pre-owned model, easyauto123; and finally continuing to drive operational efficiencies across all aspects of our business through the delivery of our Next100 strategy. In short, we have a historically strong financial position, favorable market dynamics, the right well-progressed strategy in place and early momentum in 2021. As always, we will focus on long-term organic growth opportunities, and we'll maintain our discipline by pursuing complementary reinvestment opportunities. As I hand back to Martin, I'd like to acknowledge his leadership over the last 16 years, which has culminated in the results of 2020 and position the company to be as well placed as any time in its history to capitalize on the opportunities that are available to us. Thank you, Martin.

Thanks, Keith. On a personal note, I very much enjoyed engaging with our shareholders and investors over many years as CEO, and I look forward to continuing to unlock value for our shareholders, especially within the Eagers property portfolio and assisting Keith and the Board on strategic opportunities. With that, I'd like to thank you for your interest and open up for questions.

[Operator Instructions] Your first question comes from Tom Godfrey with UBS.

Can you hear me okay?

Yes, we can.

Martin, just wanted to start off by saying congratulations on your tenure at APE, and thank you for all the time and help you've given me more recently. First question I wanted to ask was just around the pricing environment. I'm just sort of keen to get your best guess in terms of when you do start to think that, that will normalize and start to see the discounting activity accelerate? And maybe just a follow on from that, what you're sort of hearing from your key OEM partners around how they're thinking about supply into the Australian market more medium term?

Fantastic. Really good question. It's fundamental to where we talk about the strong dynamics that we're in at the moment. There was a lot of thought even in 2020 when we didn't really understand the full scale of this impact that supply would normalize sooner rather than later. The longer we've gone through this, the more it's become apparent to us that it's likely that this is going to be a reasonably extended period of time. So there's 3 things that are affecting the supply chain at the moment. There is the reduction in excess capacity. These global OEMs took the opportunity of COVID to start to rationalize their operations no different to any other company in the world, except they had significant scale they need to rationalize, and a number of them had uneconomic factories around the world that they've taken the opportunity to either temporarily shut down or permanently close. They've also used that opportunity to take out some of the investment or the losses that they're investing in keeping these factories open and redivert it into R&D on electric vehicles and autonomy, et cetera. So that's the first thing that's happened. The second thing, as we pointed out is that automotive supply chains have been disrupted all over the world. There's a litany of stories about passage you wouldn't even believe. There's one particular detailed story at the moment about this microprocessor that's been used in vehicles, and the factories that supply to the automotive industry are now diverting production to PlayStations, yes, to personal consoles because there's more money for them to do that so that's putting -- that's a small granular example, but a global example of how supply chains are being impacted. The final and the third thing that is starting to -- or is becoming apparent is that as supply starts to normalize and as global production starts to go back to whatever the new normal is, and it will be less than the old normal, the OEMs are deciding where best to send their production. Now that doesn't necessarily mean a right-hand drive market like Australia, which is obviously right-hand drives in the minority globally will get -- will be the first cab off the rank to get production sent to it. So they'll take into account a whole heap of factors around where is the greatest demand, where is the greatest opportunity, where have they got favorable currency conditions? Effectively, where can they most profitably push their production in the future? So what that all means is going forward, we think -- and there's a number of reports out there that where there might be sort of 20 million units per annum taken out of the global production number, which we think may well exist for certainly this year. But whether it's 2 years, 3 years, we don't know. Whether it's a permanent new normal, we're not sure either.

Tom, let me just add as well. You can see that November, December and January, we're still 12% up on the previous months after these 31 months in decline. So it's not so short that we can't supply customers. It's just that customer orders are greater than deliveries. And as long as that continues, then we will continue to be in great shape, and we cannot see the date yet where that will change.

Absolutely.

Got it. Appreciate all the detail. Maybe just following on from your sort of last comments there, Martin, just around the outlook for demand, and I'm just keen to understand the trend you're seeing on your order book. They're still strong, but there is some cautious sort of language in your outlook statement around the macro. Have you started to see your order book growth moderate?

Tom, the -- I'll answer that for Martin because I'll be responsible for it going forward. But it's certainly a case of our orders and demands are strong today. We're actually quite excited by where they sit today. We are always cautious as a company about the outlook because we're in such a fragile environment, lockdowns, COVID, vaccine rollouts, all these things are playing on our mind at the moment. So our cautious language is around external factories -- factors. It's not necessarily reflective of any moderating on the demand or the order book just at this stage.

Got it. And maybe last one for me. Just around the easyauto123 business, you've obviously got some great disclosures back in November. I think you guys are at about $2 million of PBT to October. I'm just wondering how that business has performed over the last sort of 3, 4 months and just any update you can give us there?

Tom, it's continued on the same trajectory. So the profitability, as Martin, I think, Martin, in his speaker notes talked about 7 profitable months of trading. It's continued at that -- at those profit levels. Every metric in that business is trending up, bar one, and that is -- our volume is being moderated. Our volume growth is moderated by access to inventory in used cars. So that's something being totally transparent. We are working on and will solve. But literally, every other metric in that business is in fantastic shape and trending up. So the trend that we gave at November has continued right through into '21. And if we can get more inventory, we will materially move that business forward.

Thanks for comments as well personally, Tom.

Your next question comes from Russell Gill with JPMorgan.

Martin, congratulations on the quasi-retirement from the role. I do apologize if you did cover some of these questions. I was on another call to begin with. But I'll just rip straight into it. Keith or Martin, just talking about the gearing or the capital in your business going forward. You've obviously had a huge cash inflow year this year and you plowed some of it already back into property. Property, you can obviously gear quite highly. How should we think about the optimal level of gearing? Obviously, there's movements around what the OEMs are providing in financing, right? But how should we think from a corporate perspective, the gearing in your business going forward and the mix, I guess, on the capital structure around owned property?

So look, certainly, as Martin and Keith highlighted, Russell, there is -- if there are more strategic sites that we will look to acquire, and moving forward, that will be a combination potentially of debt and cash funded. As you said, we do have significant liquidity in the business at the moment. Our debt at the end of -- total debt at the end of December was $340-odd million. Based on the property purchases, that will probably increase to $400 million over the next year based on what we've identified. But certainly, with the sale of trucks and some other noncore property sales, we'll continue to assess as together with -- as Keith highlighted, if there's any other sort of reinvestment or acquisition opportunities, we'll look to move forward on that basis.

But our current net debt is, at the moment, not likely to be bigger than the portfolio of property alone.

Yes.

So there's not likely to be any -- other than floor plan debt, there's not likely to be any debt that's greater than the level of the current property or whatever property we own. So it then just depends on what acquisitions may or may not be chosen by the management team moving forward. So it's in the best position, Russell, it's been in for -- in the entire 16 years.

Probably just to round that out, Russell, the key point to this is we're not going to buy every property that becomes available to us. It is about finding strategic properties that enable our business. The other point to that is that the funding for this property in 2020 was largely through OEM and captive finances who are extremely supportive of this strategy, and we're handing a lot of in terms of funding it and are keen to continue with that. But it won't be by every property that comes across our table. This is very selective, and it will only be if it's going to create greater profits and shareholder value going forward and within a really conservative debt profile in the company.

I guess you touch on my point there, Martin, like the balance sheet is in an unbelievable good position. And I guess my question is, is the cash burning a hole in your pocket right now? Or can you deploy some of this cash back into fixing that one metric required in easyauto in the next little while? Or is it one of -- do you suppose to see how the next 6 to 12 months trade before we do anything rush-type dynamic?

No, Russell, you're spot on. You're exactly right. There is no doubt that given the capitalization of the company at the moment, the biggest challenge we've got -- and I'm sorry, the capitalization of the company and the market momentum we have behind us, the biggest challenge we've got is to deploy capital in the most effective areas. Now that's going to be twofold. It's going to be driving organic growth in the first instance. And you just highlighted a point, you picked up on the comment I made. You could have been sitting inside a meeting that we are going to invest in cracking that inventory piece to drive easyauto as a priority for the company. And we will also look at selected acquisitions, but we need to be very careful at the moment. Pricing might be something that's not attractive for us to go out there and acquire something unless it was very compelling, unless it was very strategic. But you're right, Russell, in your comments.

Plus there's so much opportunity to deliver organic growth with the current circumstances that we're in, but there's no current plans to go and chase any kind of acquisition for the sake of it. So don't expect that anytime in the near term.

I guess a general question on market structure as well. I mean, COVID-19 appeared to, certainly from outside looking in, accelerate your people and property strategy by a number of years. The one that didn't occur is that similarly the competitor set that probably could have gone under didn't because they were saved by the federal government. Can you just talk through the market structure of what you see going on relative to your competitors? And obviously, you haven't put much cost back into your business where some of your competitors actually have. Where do you see the market structure from a competitive standpoint today relative to 12 months ago?

Nothing's changed in terms of the long-term strategy that we've been communicating for at least the last 5 years, and that is that there will be a significant change in the large number of glass boxes around Australia. There is considerable changes that are available to run this business on a lower cost. And there were some people that will not be involved in that moving forward because they're not making any changes in their business. And Eagers is working with each of its OEM partners to be able to deliver an optimal outcome for each of them.

Yes. The other point to that is, within this current environment, you made the comment that a lot of the other people in the industry have put cost back in. We are cautious. And some of the language you'll see is being cautious about what we see in the future. One of the reasons we're not going to rush out with that money burning a hole in our pocket is because we're not out of the woods yet. There is still a fragile environment. We've had lockdowns just recently. We just want to be cautious to make sure that we see our way through this. We want to provide secure employment for our employees, and we don't -- we know that we can't go back and put our hand out to the government again in the future. So one of the things is to make sure that we're very secure so that we can capitalize and grow this company and grow our employees at the right in time, not just suddenly bounce back because we had a couple of good months. So it's just a cautious outlook at the moment.

I think finally, and we should finish this bit off. Finally, our OEM partners are supportive of the strategy that we've been working on for the last 5 or 6 years, and we've got more manufacturers that want to be at the airport. We've got more manufacturers that want to be in our Auto Mall in the shopping mall. And so we've got enough evidence inside the company that our strategy is supported by our partners, and that's all we need for now.

And just as we think through to the remainder of this year and into FY '22, a lot of the uplift for the industry, not just you guys, but the industry has obviously come from the margin on the gross selling price because of the supply chain challenges. Not much would have come back from the OEMs on gross sales because -- but now you're starting to see gross sales come back from the OEMs in the last 3 months, up double digit. Margins are remaining high. Can you just talk through your thought process? You've obviously indicated that you expect gross margins remain relatively good for a while because it's lengthening that supply chain issue. But just to talk around those OEM rebates and what the discussions are the OEMs when it comes to those rebates, given you guys and your competitors are making a lot of money at the moment on the margin standpoint?

Russell, you just said that you were on a call. We just kind of really answered that question with the last call. And so can -- do you mind if we take that call up with you privately when we talk to you? So that -- we do have another range of questions coming from some other people. And we kind of just answered that with the supply issues. So do you mind, Russell, we'll catch up with you later?

It's all right.

I'm not trying to avoid it. Thank you. Thank you for that, Russell.