Eagers Automotive Limited (APE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Eagers Automotive Full Year 2023 Results Briefing. [Operator Instructions]. I'll now hand the call over to Eagers Automotive CEO, Keith Thornton, to commence the presentation. Please go ahead.

Well, thank you for joining us today to discuss the Eagers Automotive results for the year ending 31 December 2023. With me today is Sophie Moore, our Chief Financial Officer; and Edward Geschke, our Chief Operating Officer. Our results pack, including the slides of the presentation have been lodged with the ASX and should be visible via the webcast. As outlined on Slide 2 of the presentation, Sophie and I will provide an overview of the results, update you on key operational metrics, and then provide progress against our strategic priorities. We'll also provide the company's outlook for 2024 before opening up for questions. Let's now turn to our financials for the 2023 year. Gives me great pleasure to be able to report the results achieved by our company and the team of Eagers Automotive in 2023. The company has produced record results across a number of key financial metrics. These results were delivered by the execution of specific actions, which we identified in our outlook at the start of last year and reflecting an underlying operating model that grows stronger each and every year, but more on this a little later. Total reported revenue grew by 15.3% or $1.3 billion on the prior period to a record full-year turnover of $9.9 billion. This strong revenue result, combined with our return on sales margin of 4.4%, produced a record underlying net profit before tax of $433.3 million, an increase of $28.1 million or 6.9% on the prior year. This record underlying profit result translated to a record underlying earnings per share as the company continues to be relentless in its focus on delivering for shareholders. Our balance sheet is exceptionally strong with $620 million of available liquidity, which included a cash position of $222 million and a property portfolio of just under $600 million by the end of the year. Based on this record profit result, the strength of our balance sheet, and the positive outlook the company continues to hold, we're pleased to announce a record final dividend of $0.50 per share. taking our full-year dividend to $0.74 per share, the highest in the company's history. Now this time last year, we communicated 2 clear goals for 2023. Execute on the initiatives we put in place during '22 to deliver on more than $1 billion in top-line revenue growth while continuing to manage and maintain our strong return on sales margin. I'm pleased to report today that our full-year results show the company delivered on both these goals. In 2022, we set the platform for top-line growth in 2023 via our balanced growth plan split between driving organic growth, establishing greenfield investments, and integrating scale acquisitions. Through these initiatives, we delivered top-line revenue growth of $1.3 billion or 15.3%. Pleasingly, through this period of top-line growth, margins have remained strong across our business, and we've been relentless in our cost management while remaining focused on establishing new industry benchmarks for productivity. While the industry as a whole has benefited from favorable margin dynamic on new vehicles in recent years, we spent this time obsessed with business transformation to underpin sustainable strong margins throughout industry and economic cycles, both good and bad. As a company and within our industry, I truly believe this is what sets us apart and will underwrite outperformance over the next decade and beyond. And I'll touch on this a little bit more later in the presentation. I'll now hand over to Sophie to take us through the '23 financials in more detail.

Thanks, Keith. For the year ended 31st of December 2023, the Group has delivered a statutory net profit before tax from continuing operations of $427.3 million. As Keith highlighted, revenue on a reported basis increased by 15.3% to a record $9.9 billion. Underlying operating profit for the period was $433.3 million, a record result and an increase of $28.1 million or 6.9% on the prior year. Underlying return on sales reduced marginally to 4.4%. But certainly, there's the opportunity for upside in 2024 as we continue to integrate and optimize the ACT and South Australian acquisitions completed in the second half of 2022. The strong margin reflects continued favorable market dynamics, margin growth in new cars, finance and insurance, and car care, but also the benefit from the ongoing tech-enabled productivity gains and cost-out programs. Slide 34 in the appendix includes a reconciliation of statutory to underlying EBITDA, including impairment and profit before tax. Eagers Automotive is in a very strong financial position, underpinned by a substantial property portfolio and asset base together with $620 million of available liquidity at the 31st of December 2023. This liquidity position includes available cash of $222 million and undrawn commitments under corporate debt facilities. We ended the period with corporate debt of $262.7 million net of cash on hand. This significant liquidity buffer provides the flexibility and capacity to invest in organic growth, technology enablers, restructuring, and acquisition opportunities. Slide 8 highlights the company's strong history in delivering growth in underlying and statutory performance. Over an 18-year period since 2006, during which we have experienced a number of macroeconomic cycles, the company has been able to deliver consecutive double-digit profit growth for each 3-year cycle. The results for the period 2021 to 2023 highlight the significant growth we have experienced since the merger with AHG in 2019 and the result of our disciplined execution of business transformation initiatives, which are aligned with our next 100 strategy over this time. So noting the last 3-year profit period reflects a doubling in size since 2019, but with net profit before tax increasing by 185%, reflecting scale benefits and a cost reset base while leveraging strong market conditions. This is a different, larger, and materially more robust business now than it was prior to 2019 and the profit performance reflects this transformation of the company. Keith will touch on these business transformation initiatives a little later in the presentation. As we have already highlighted, the company declared a record final dividend of $0.50 per share, taking the full-year dividend to a record $0.74 per share, increasing 4.2% on the prior period. This record dividend is reflective of a record underlying earnings per share for the period of $1.124 increasing 6.9% in the prior year. Importantly, this highlights our long-term consistent track record of growing returns for our shareholders. Over the past 10 years, we have delivered returns for our shareholders through 3 main focus areas. First, by optimizing our business to deliver strong sustainable return on sales margins, and only when our existing businesses are optimized, do we earn the right to grow through disciplined organic greenfield and accretive M&A activities. To enable us to reward shareholders, we must manage equity and capital by evaluating investment opportunities against other capital management initiatives. Once we have done this, we are in a position to reward our shareholders with dividends and strong total shareholder returns. The company remains well placed to fund growth with significant gearing capacity, enabling the ability to deploy this available liquidity in a disciplined and strategic manner. I will now hand back to Keith to take us through some operational highlights. Thanks for that, Sophie. But before we go on, I just wanted to add a comment to this slide. This focus on rewarding shareholders is something we take very seriously at Eager's Automotive. In 2023, we turned 110 years old as a company. We've been listed since 1957, and we have paid a dividend every single year that we've been listed. Now it's worth reminding people of this fact occasionally. It may not be totally unique over the same period, but it's certainly something that is rare and something we are very proud of at Eager's Automotive. This focus on execution and delivering for our shareholders and our stakeholders in general, is part of our DNA, and we'll continue to protect this proud track record. Let's turn now to some key operational metrics for 2023 and start with the new car market. Improving new vehicle supply conditions and strong order banks across the industry produced a record new vehicle market in 2023. The total market was up 12.5%. It's worth noting that a strong new vehicle market creates multiple benefits beyond just the new card partner. EDAX is a catalyst for used cars with reduced delivery times being a key driver of trains. It drives an increased car park for service and parts business, noting cars sold to do their first service usually 12 months after delivery. And as normalized supply returns, so does our significant point-of-sale advantage to finance, insurance, and car care, of which we're already seeing very positive green shoots. All of these components of our business have been subject to headwinds in the tight supply environment since 2020. This industry dynamic provides a hedge against any softening in new car performance and demonstrates the resilience of the automotive retail business model. So turning back to the outlook for new vehicle sales, and we've shown the graph on the right of this slide before, it highlights supply and demand levels relative to so averages. The new vehicle market over the last 3 years remain significantly below the average for the 8 years through 2012 to 2019. Even with a record-high market in 2023 of more than 1.2 million new cars delivered, the full year 2020 to 2023 average is still only 1,066,000 units per annum, some 71,000 units per annum below the prior 8-year average. So based on this, there remains a 285,000 car hole in Newcastle into Australia over the past 4 years compared to historic averages. This shortfall, even before factoring in net migration to Australia, real wage growth, strong employment levels, a buoyant property market, plus the multiple mandates, incentives, and proposed emission standards compelling the transition of private buyers and fleets to new cleaner, and greener vehicles. These factors combined should underwrite consistent new vehicle demand and continue at a minimum to act as a hedge against general economic conditions. As you'll see on this next slide, the large imbalance between orders and deliveries moderated over the second half of 2023. It's important to note, however, that demand remains resilient, running in line with the record delivery rate evidence in the industry reporting and we continue to see orders higher than deliveries in our business even early in 2024. There does continue to be a cycling from long-term order banks, however, reflected as cancellations into vehicles that are available for immediate delivery from some manufacturers that have improved or even normalized supply. It's important to note that supply is not normalized equally across the industry. It varies by OEM. And even within any specific OEM, their product portfolio varies. Any general industry-wide assumptions on demand and supply will lead to a misread of the dynamics at play in our industry. Eager's Automotive continued to have a net order bank of more than 40,000 units at the end of 2023, even with the record deliveries in the second half of the year and the net effect of cancellations. Remember, this is a factor of 6x as large as any period prior to 2020. At the current rate, this order bank provides a runoff well into 2025. Finally, the gross profit in this order bank remains at historically high levels. Must always be remember that the addressable market for eagers and the industry as a whole does not start and end with new vehicle sales alone. The Eagers business is multifaceted with large opportunities in used cars, which is a market 3x the size of new cars, industry-leading parts, both wholesale and retail, and a service business that does more than 1.5 million repair orders per annum. In addition, we have a finance and insurance business that writes more than $2 billion in net amount financed each year. We have an unrivaled geographic and brand portfolio position, which supports these segments and creates greater opportunity and a stronger hedge against changes in industry dynamics. Now despite these market-leading positions, we still have considerable opportunities for growth geographically, where we're less than 8% of New South Wales, and we were less than 4% of the Victorian market, the 2 largest markets in Australia. We also have growth within segments such as premium luxury OEM brand representation. We have growth with new market entrants and adjacent markets. Eagers is very well placed in terms of both the opportunity and the hedge, irrespective of the cycle in the industry. And while the dynamics driving the economics in automotive retail will shift in the current cycle, we're very confident in our ability to profitably and sustainably grow through it. Now this next slide is a very important slide. It outlines the confidence we have in our transform business and the confidence we have in the outlook. The groundwork for this confidence has been laid with genuine business transformation of our operating model through the key components of our Next100 strategy. Internally, we have made sure that any positive economic or industry tailwinds have been used to accelerate the rate of transformation. We certainly haven't been passengers to good conditions. The big on this slide represents real evidence of how this has occurred. On a true like-for-like deal of the dealer comparison to our pre-pandemic business, you can see how margin growth has been complemented by equally meaningful cost out and productivity gains, all driven by sustainable, structural, and tech-enabled changes to our business processes. In a true like-for-like sense, we're operating with 1,188 less people, a lower-cost property footprint, and a 25% increase in productivity per person. This is true business transformation. And on an EBITDA margin basis, which excludes the impact of interest rates and better reflects the underlying health of the business, we have lifted margins from 2.8% to 5.5% over this period. Now the key industry margin metric is return on sales percent. And on the next slide, we see how the existing businesses performed despite material inflationary cost headwinds, while also highlighting the upside inherent in our recent acquisitions and greenfield investments. Firstly, looking at the slide on the left, you'll notice that on a like-for-like basis and even accounting for material cost pressures such as interest rate rises and higher inventory levels, our business operated at broadly the same return on sales margin at 2022, 4.85% return on sales versus 4.9% even absorbing all those costs. This is a noteworthy result in the context of the industry performance and the material inflationary pressures the economy has faced. We're very proud of it. You'll also see the recent acquisitions [indiscernible]. Hello, everyone. I'm not sure whether we've still got people on the line. I hope we do because I was just about to talk to some very exciting news. We're on Slide 15, talking about our return on sales margin in our like-for-like business compared to acquisitions and Greek mill investments. So I have no idea when I dropped off the line to those listening, but it's a very important slide. You'll see that our like-for-like return on sales was broadly in line with last year, 4.85% versus 4.9%. But equally, you see the upside available in the acquisitions we've made, which are running at 2.9%, and the greenfield investments. So looking at this slide, and I hope everyone can hear me firstly, and secondly, they can see the slide. On the right-hand side, you will note that there is more than $30 million of net profit per annum available as we mature greenfield investments and as we integrate acquisition. We believe this dynamic will continue with future growth as we buy businesses operating at low productivity. Without our scale and with a lower finance and insurance performance in the underlying Eagers operating model. This is a genuine and unique competitive advantage and will help drive our growth in coming years. Okay. Let's move on to our strategic priorities. As part of our strategic update today, we'll touch on a number of examples of how the execution of our next 100 strategy over a sustained period has optimized the Eagers business model. In addition to improving the health of the underlying business, we have a clear strategy for growth, focusing on 4 key pillars: One, the continued expansion of Australia and New Zealand operations. 2, organic and greenfield growth by playing the leading role in the transition to new energy vehicles. 3, investing in preferred part arrangements and 4, exploring the opportunity to enter new geographic markets as partnership with key OEMs consolidate globally. Let's start with how we've optimized our business via our property, people, and technology initiatives, which are all key to operating with materially higher productivity than historic industry norms. You'll hear me talk a lot today about productivity. Let's start with property. We continue to use our retail footprint across both sales and service delivered for both innovation and consolidation, focusing on a more customer-centric experience on a sustainably lower cost base. Since 2019, on a reported basis, so this is the total company since 2019. We've exited 144 external leases. Now that includes business divestments, but it also includes acquisitions. I'm sorry, that includes all, sorry, divestments and leases exit, Apologies. While we've also invested $300 million into own property as part of this strategy. Now this has helped to rebalance our own property ratio. It's removed inflationary cost pressures evident in external leases and ensured any capital investments we make into new retail developments are to the long-term benefit of eager shareholders rather than external landlords. The optimization of our property is supported by the development of proprietary technology, which responds to customers' wants and needs and support process efficiencies in our business. Over the past 4 years, we've developed and rolled out a number of proprietary initiatives that provide an enhanced customer experience, whilst leveraging technology to improve our employee experience, allowing them to do more in their role by streamlining and automating tasks were fossil. The property and technology initiatives have generated significant productivity gains across our workforce. Bioproductivity, while delivering a better customer outcome is a measurable and highly valuable competitive advantage. Our progress in these areas is evidenced by 2 key measures: headcount and revenue per employee. Since 2019, on a reported basis, we have reduced total headcount by more than 35%. And during the same period, increased sales per employee by 39%. As a company, our internal ambition is to achieve 1.5 million sales per person and have a property portfolio with a cost base, no more than 6% of the gross profit generated by the business. These metrics are both materially below industry benchmarks and will set our operating model further apart from the industry averages. Our journey of business transformation and relentless execution of our strategy will provide further business optimization opportunities in '24 and beyond. Moving on to Financial Services, which will represent a key margin driver in 2024. The last 3 years have been a period of considerable headwinds to finance penetration, which in finance penetration is a surrogate for volume caused by long lead times associated with pipe supply, which in turn, diminished our point-of-sale advantages. It also saw low-rate finance campaigns from the captive finance companies, largely absent in the market. Despite this, Eagers are proud of our relative performance, which you'll see on the graphs on the slide in front of you, relative to the industry as we continued our company-wide focus on finance, insurance, and Car care, which is another example of where we execute regardless of external influence. Our relative performance to the industry penetration rates is as good as it has ever been. In 2024, we've already seen the point-of-sale advantage return and the reintroduction of some lower-rate campaigns. This has translated into an immediate increase in penetration rates in these examples to levels not seen since well before the pandemic. We will continue to focus on our relative outperformance of the market, our industry-leading margin performance, and continued growth of ancillary products to leverage the expected tailwinds to come. This access both a hedge and an opportunity in 2024 as the industry dynamics continue to evolve. Another key opportunity in 2024 will be used cars, and we're excited to be entering a period of considerable tailwinds with a record 23 behind us. The graph on the right demonstrates our easyauto123 business continued to improve quarter-on-quarter throughout 2023, with continued improvement in net operating profit per unit. Our independent news car results consisting of the integrated easyauto123 and Carlins auction businesses. On a net profit per unit basis now compares with the global leader in this space, CarMax, as you will see in this slide. The results achieved by Easyauto last year occurred at a time when many other start-ups closed and exited this space in the industry entirely. As inventory is largely normalized, we are seeing the trade ratio materially improve and allow our dealerships and independent used operations, access to better quality stock at better pricing for our business. Scaling the volume while maintaining the economics we have built over a number of years and various iterations will be fundamental to what is still an enormous opportunity for value creation in Eagers Automotive. I would remind you that we are leaders in this space. the only truly national fixed price used car category participant with economics that match the global leader CarMax in a market in Australia that is 3x the size of the new car market. All of this support of [indiscernible] new largest new car [indiscernible]. Moving on to strategic partnerships. A key pillar of our growth strategy is investing in preferred partnership arrangements to create a competitive advantage in adjacent markets that we believe will act as enablers for mutual growth ambition. Key market drivers, including evolving customer preferences, incentives, and mandates for lower-emission vehicles and normalization of new vehicle supply creates a compelling opportunity for Eagers to invest in the adjacent market of no-value leasing and asset management. To capitalize on these market conditions, Eagers and McMillan Shakespeare have entered into a strategic partnership under which we will provide complementary services on a nonexclusive basis across various business units, including new vehicle supply, but with a specific focus on EVs. The material equity investment in McMillan Shakespeare taken by Eagers in 2023 reflects the materiality of the opportunity and the strategic alignment between stakeholders. Eagers continues to proactively position the company to be a clear and dominant leader in the transition to lower-emission vehicles. Within the Australian market context, Eagers leads NEV sales with approximately 10% of our total deliveries already full battery electric vehicles. And with the introduction of more affordable NAV options across our partner portfolio expected in 2024. Now this 10% compares to the dealer industry average, which excludes Tesla because of their direct-to-consumer model, which sits at circa 3.5%. We believe considerable opportunities will present forecast due to our unique national market position. And as such, we continue to win opportunities in both the passenger and light-duty commercial segment and are moving rapidly to capitalize on this. In addition, and as previously highlighted, enabling an adjacent industries such as the fleet management and Northlakes segments, provide an opportunity for Eagers strategically positioned for mutual success with key parts. We continue our disciplined approach to growth by our acquisition. As announced to the market in October of last year, we were acquiring a large-scale multi-brand dealership group within our Victorian business, a key market that we've previously identified as an opportunity for growth. This acquisition includes high-quality, well-balanced portfolio of 12 leading premium and volume brands situated in key locations across Melbourne and the Mornington region of Victoria. The inclusion of 3 strategic properties representing 53,500 square meters in high-profile sites in Bridon and Mulgrave will provide the footprint to continue progress against key property components of our strategy. The acquisition is expected to add more than $900 million in additional turnover on an annualized basis. In addition to the Victorian acquisition, we're pleased to announce that we are expanding our large and highly valued partnership through the acquisition of Al Springs Toyota from the Peter Kittle Motor Group. The business has an annual turnover of approximately $60 million and operates across 3 properties, which will be acquired by Eagers as part of the transaction. The business is a long-standing iconic dealership representing Toyota, who is a dominant OEM in the Northern Territory market with a share of more than 35% of the market. When linked to our Bridge Toyota business in Darwin, we expect to be able to leverage considerable scale benefits in a territory where Toile has a long-held history of clear market leadership. Finally, turning to our outlook. The last 3 years have seen consistent performance culminating in a record second half of 2023 with $226 million underlying net profit before tax at a 4.5% return on sales margin. This consistent performance is something we can gain confidence in as it's been achieved in a period of unprecedented external disruptions from the pandemic and global conflict leading to material supply issues, which have affected different brands at different times, labor shortages, natural disasters, significant port congestions, biosecurity issues and most recently at Cyber-attacks. It goes to demonstrate that Eagers is uniquely positioned to withstand and try regardless of market conditions by focusing on what we can control and strategically moving to where the market will be. It also demonstrates the resilience of the automotive industry where different levers can be used to respond to different market conditions. On the slide in front of you, we'll see in the industry and eager specific dynamics that outline where we see the offsets in 2024, 20 potential headwinds in new vehicle deliveries or margins. Our record 2023 market and normalized supply will be a tailwind to used car supply, clients, and insurance penetration, service, and parts. These specific industry tailwinds, combined with our productivity benefits, our material order bank, and expected revenue growth in 2024, all underpin our positive outlook. Now talking of revenue growth, and as we did at this time last year, we expect to add another $1 billion in revenue growth in 2024. This will take growth in turnover of the company in the 2 years since 2022 to circa $2.3 billion or almost 30% growth. We expect this growth will incorporate a healthy mix of organic, greenfield, and acquisitions. So in summary, we expect a consistent new car market, characterized by a continued shift in demand for lower emission product and with a view to business and fleet management pipelines. We do expect industry dynamics to shift, which will support our independent use operation, EZ123, support materially higher finance penetration and grow our fixed operations. We expect our results will be supported by our industry-leading productivity and our recent operating cost base. We will continue to be uniquely placed to leverage our geographic and portfolio advantages, plus the partnerships set up over the last 2 years, which anticipated the industry dynamic we are now entering. And finally, we will optimize the value from the work done in 2023 to deliver another expected $1 billion in revenue growth in 2024. So on behalf of Eager's Automotive, I would apologize for that flip in the middle where we lost a connection. And I'd also like to thank you for your interest in today's financial and strategic update, and we're happy to now open for questions. Thank you.

[Operator Instructions] Your first question comes from Russell Gill with JPMorgan.

A couple of questions. Just first one on the balance sheet. The inventory balance went up a lot at the end of the period. Is that just a hand-up relating to the cyber instance and deliveries? Or is there, I guess, a higher level of inventory that you're now carrying across the network going forward?

Russell, thanks for the question. That's a total I think that inventory addition to things. It represents where the industry is at. So there is materially more inventory in the business. It also represents a growing business. It also represents that in our retail JV, we hold all the stock for one of the OEMs that are in our retail JV with. If you take out that our on a like-for-like basis, there was a 24% increase in inventory at the end of the year compared to December '22. So it's a little bit disported by the structure of our inventory wholly on one particular brand. But certainly, there is more inventory in the industry. Well, I'll just open that so we're running with 63 days stock at the moment, but it is not linear. We've got key brands that are sub-30 and others that are over 100.

And just so we can unpack your $1 billion sales uplift. It looks like based on the acquisitions, you're getting close to that $1 billion uplift just on those acquisitions alone. You're calling out, I guess, a flattish outlook in volume terms. I guess 2 questions around that. What are you seeing, I guess, from an AP Eagers delivery dynamics because you skewed to Toyota and Toyota was pretty soft. In 2023, how that delivery dynamic rolls through '24? And then maybe a better way of asking it could be around your order bank expectations. So you think it's coming down. What do rating the differential in '24 will be between order right and actually delivery?

Good question, and there's a number of parts that Russell at the moment, and I think everyone would be surprised, but over the second half, I'll start with the second half of '23, which might then point to what's happening this year. First off, order right was literally 246 units less than deliveries over the second half for Eagers. Now that's over 60-odd thousand cars and orders and deliveries. There was a cancellation in the cycling of the order bank, however, that's where you see the reduction in our order bank. As we've started this year, we are taking more orders than we're delivering and feedbacks were strong in January. So generally speaking, we see the market is a hard one to call in '24 because there was a number of dynamics at play. We don't see it materially falling away from what it did in 2023. So we think the market is going to be a very hard call to call between -- north of $1.1 million. We're fairly confident that's where we'll be. And it could actually be anything depending on some external influences that are being banded around at the moment. So we don't really know what the 23 market. Yes. That's the second time drop there. I have no idea what's going on. Apologies to everyone listening. So I got you up to saying that you're expecting 1.1 in delivery -- 1 million deliveries maybe a little bit more based on different dynamics in the industry? So then going to your question about our $1 billion turnover increase expected for next year. Certainly, a large portion of that could be underwritten or expected to be underwritten by the acquisitions that we've outlined. But in addition to that, a number of the greenfield investments from last year will become organic growth this year. So last year, our retail JV and a number of new brands that we picked up, we'll see organic growth as a mature this year. And we've got greenfield investments. We've got a number of, to be honest, more less material and smaller partnerships that we picked up that are totally new partnerships for us across light-duty trucks and even in passenger cars that will add some turnover as well. So it will still be balanced across those 3 categories. There will be some significant organic growth just in our portfolio, and there will be -- that the large portion will be underwritten by those acquisitions.

So I mean just to clarify, your -- when you're thinking through 2024, you're not necessarily thinking that you'll be drawing down that order bank much and you expect the order right will be running similar to what the deliveries will be across your portfolio?

I think the older bank will diminish over the course of the year, Russell, but not based on demand falling away relative to deliveries. The reduction in our order back has been through cancellations, not through the order right and delivery dynamic.

And then just a final question on the -- because I don't mention the pack around the government's fuel efficiency standard. On the current proposal and the timing for the industry is pretty quick for the OEMs from early next year. What do you see as a potential repercussion for order right at the back end of this year if the current proposal goes forward? And potentially, there's changes to new local pricing around high-emission vehicles. What your expectations are a potential order right and how you geared up for that at the back end of this calendar year?

Well, we're not gearing up for it yet, Russell, because it's so fresh. I mean we started the discussion on this in detail this week. It's been fairly all-encompassing and it's obviously a massive change to OEMs product portfolios, which will then flow on to dealers around Australia. At the moment, to be fair, we are still actively and we're playing a fairly active role in engaging with government on how this fuel efficiency standard is best rolled out. We're very supportive of fuel emission standards in general. But we're also very supportive of any changes being done in a way that doesn't have a net negative impact on the economy, on the industry or on consumers. Having said all that, the way it stands at the moment, there may be a distortion in this year's number. So the market, that's why I'm saying it's hard to say what the market would be this year compared to the following year. But as I said, that's as it stands at the moment. We're hopeful to engage with the government and play our role in that to make sure that whatever is eventually brought to market is something that's manageable. We don't really want to distorted market where it's strong for one period and week for another or the opposite. So I'll probably leave it at that, Russell at this stage in order to see how it plays out. It's a little bit early all speculative at the moment.

The next question comes from Scott Murdoch with Morgans.

Just a quick question on BYD expectations, if you can. I think you delivered roughly 12,000 vehicles from one model last year. Just interested in, I guess, embedded in your $1 billion turnover uplift, what the expectations for BYD and intertwined with that?

Scott. It's Keith. We're back again. Apologies for the third time. Your question, I got a little bit.

Simply about BYD, just expectations embedded with guidance and investment and ROS outcomes for that particular JV?

We think that, in general, this year, there will be a continued uplift in all EV that we sell across multiple brands that we represent. BYD's one of those brands. I mean, BYD as -- or directors the distributor have expectations to bring in 2 new malls this year, our actual 3 new malls this year, 2 SUVs through the middle of the year, and they're still expected to have a drill cab UTE in due course later in the year. I think, again, we've had their volume expectations communicated to us to be north of 20,000 units. And across the IB dealerships that we represent in Australia, we'll continue to invest. I would say there was a reasonable degree of investment last year as we ramped up and as we fill out the network, but there shouldn't be excessive CapEx required for the business this year. The ROS is already seen -- we've called out exactly what it was in our JV partnerships on one of the slides here today. So we expect it to be broadly in line with that going forward.

And just, I guess, a little bit more color on the margin outcome forward looking. You've obviously given the moving parts on the outlook slide that the main one being new car down the rest up. Just interested in the balance of that offset. Obviously, new car is a higher skew of the sales. We also got the acquisition coming in. You called out F&I pretty strongly as a lever on balance, do you think you can sort of hold that GP percentage in the year forward?

The best way to look at it is we think the GB hedge will come out of -- or the total margin let's talk to return on sales because that's what matters. That's the bottom line margin. it will be driven largely. The biggest lever that we called this year will be a used car performance in F&I performance. I can't give you an exact number. But ultimately, our return on sales is driven by our productivity in our cost base. Our focus has been for 3 years and we've spent a lot of time, particularly today calling out the transformation that's occurred over the last 3 years. When we went into 2020 in a tight supply environment and new cars became and new car margins were stronger than historic levels. We immediately pivoted to -- we're not sure how long this particular period will be, but we want to transform the business, reset the cost base so that we are going to be stronger for longer when we come out of this cycle. So to be honest, Scott, most of our focus will be on productivity in people, property, keeping costs down, and making sure the return on sales margin is managed. But the biggest lever on the gross profit part of that equation will be financed.

[Operator Instructions] The next question comes from Sarah Mann with Moelis.

First question for me is just on the new vehicle efficiency note. Obviously, cognizant that it hasn't kind of been fully signed off on a final. But just interested, given that you've got a reasonably large or sizable New Zealand business and they've had kind of a similar scheme implemented. Just wondering if you could give us any color around, I guess, what you saw then in terms of, I guess, the lead up to the clean car tax getting implemented? And then how, I guess, like the model line-ups shift in the year was implemented and how that will kind of flow through to GP.

It's really going to be -- there are so many moving parts to the industry here in Australia and the New Zealand experience. The only thing I would say that the New Zealand experience is relevant to the Australian is that when the standard or emission standard comes in like this on a short time frame, which -- and at the moment, the talk is that it's a January 1, 2025, implementation, OEMs cannot move quickly to change their product portfolio, their emissions, their pricing or anything between now and January 1, 2025. So any emission standard needs to be carefully considered because it can distort the market. It will move consumers. It doesn't move OEMs because EMs cannot move that quickly. Consumers do, they move around to where the economics push them with one provisor there needs to be a product that's fiscal purpose for them to go to. And that is probably the challenge in the NBS in Australia in general, is that Australians do have a unique appetite for cars and the cars of Australian by ride-and-drive in a fairly small market, and they're very specific dual cabs and SUVs. So as it stands, again, I think there is hopefully some great opportunity to engage with government and discuss with them how this emission standard, how the targets can be supported, but in a way that doesn't distort the market. But to actually talk about how it's going to play out will be probably futile just at the moment, Sarah.

Understood. Thanks for that. And then the other thing you called out in your presentation was just an opportunity around kind of the light commercial vehicle market with EV. Is there any -- can you provide any more color on what you're seeing there?

The simple issue there is the dynamic at play is that there's probably no part of our portfolio of whether it's cars or trucks or buyer segments, but there is a greater demand in a greater lack of supply. And by that, I mean that there is the fleets who run light-duty last-mile logistics are desperate for fit-for-purpose low-emission product. At the moment, it's coming, but there is still -- and this is -- goes back to a similar sort of challenge around the new vehicle emission standards. It's coming, but it's a little way away. What we are doing is position ourselves with a number of existing partners and also taking some material representation, partnerships with some brands that may well be able to perhaps get a jump on that segment and deliver product in an affordable way, that's fit for purpose. It's got the right range. It's got the right low capacity, et cetera. So this is a really, really material smallest part of our total portfolio, but it's one that we've moved to aggressively because we can see the demand, and we know that if we can get the jump on representation and make sure that we've got a more material and an overweight representation of the products that respond to that demand, we're going to be well positioned.

And then last one, just any commentary on supply. You mentioned it's kind of a little bit mixed depending on brand by brand or model by model. Just thinking as well about like the Red Sea kind of disruptions, -- has that had any change to what you think from a supply perspective?

No, Sarah. To be fair, it hasn't really had a big impact, and it's not being reported as having a huge impact. As I said, I think Russell asked a similar question, we're sitting at 63 days stock at the moment. That's across all our portfolio across the whole business. That's not excessive. It's certainly up on where it's been, where we've been sitting at more like mid-40s. But it varies from literally one of our larger brands at 25 days to 150 in one brand. So that's the variation across brands. It's highly variable, and it really does. And even then inside a brand, you might have free and available stock in perhaps some of the models that are harder to sell, and it's tight and is a long order bank on product. So it's nothing clear at the moment. If I look out 60 days, it's got our portfolio dropping to under 50 days' supply based on arrivals and cars on order. So I think it's going to be a little bit bumpy over the course of the year, but the general trend will be back towards normal supply, and that normal supply were around 60 days' supply. I would work on that. If you ask me what sort of supply are we going to have over the portfolio for 2024, I'd be saying we'll be running the 60-day supply.

Our Next question comes from Phillip Chippindale with Ord Minnett.

Just on the strategic partnership with MFS. You mentioned it's not exclusive. But I just wonder if we can just unpack that a little bit more. You said that obviously focused on EVs. But can you talk to -- does it involve preferential volumes? Can you give us a little bit of meat around the bone please?

I won't be able to unpack it in any way that's reaching any agreements we've got in the background to keep it confidential. But in general, what it is, is to work as preferred partners with each other where there's opportunities to mutually grow our business. It's as simple as that. And if you think about the dynamics of what a novated lease company is where they largely respond to inbound inquiries as opposed to a dealer who largely also respond to inbound queries but in a different way, where we provide test drives, where we've got people walking in who are maybe naive to the novated lease opportunity who may or may not be a customer of not lease company A or B, where there's a real opportunity to drive further volume. But the whole intent of the partnership is not to move existing volume around at McMillan Jasper's level is about to grow more novated leases for them. and to sell more EV for us. It's also the opportunity to integrate things like easyauto, which provides remarketing and new cars, novated leases on a national basis. So there are actually multiple passes. But there is not -- the preferred basis is if we can work together, all things being equal to grow your book and grow our volume, let's do that. What do the economics look like will they need to work for both pays.

Just a second and final one for me. Just on the headcount reduction. I think over the course of the year, it was 2.7%. I think the year prior was sort of 3% to 4%. Just thinking about the next sort of 12, 18 months, you've been in a business that's really been focused on efficiency. I imagine that further headcount reductions would be natural to assume. But are you getting to a point where there's sort of a natural -- a natural sort of leveling off?

We will eventually, but it's a long way away, Bill. And the reason for that is there is 2 things that drive it. One is a tech rollout and our tech is not rolled out across our company. In some cases, it's 60%, some take of 30%. This varies by different tech I mean. So our new and used vehicle wholesale deal pricing, which is a proprietary tech, we've got called Darcy, I mean that is running at maybe 40% of our business. So over this year and over next year, we'll roll over ground across the other 60%. Our automated accounts payable, which is the system we call Sam. 60% of the total invoices in the company were last year processed Sam. There's another 40% to go. I can give multiple examples where the tech has not been rolled out across the whole company. So there's quite a runway yet to get efficiencies and further productivity. The other thing that drives productivity is property consolidation. So that's a decade long. That's an ongoing journey. And the best example is, again, I'll talk to Osborne Park over in Perth, where you're going from 7 leases on to 124,000 square meter site, bring 7 brands onto one site, taking used cars off that site and putting it into easyauto, running on service factory, and you get structural change and headcount efficiencies through property transformation as well. So you need to link both. But eventually, there will be a tailing off, but it's a long our way. I'll be quite frank this year, we will accelerate our productivity. We had the team in here yesterday working on dealership of the future, which is basically what our existing tech in -- if we were at a clean sheet of paper and we rolled out our tech across every single part of our business on day what would the productivity look like? What would the design look like? What would the roles look like? What would the outcomes per employee look like, what would be roles we need and what are the roles we don't need? And also, how can we reward best staff so that we actually reward the best in the industry. Now that is a really powerful thing, and we're very close to having that finalized, and that will be a template that we will use. Now doing that 3 years ago, even for Eagers would have been an exercise in theory. This is now an exercise in practice and reality and events. Let's roll out this across the board. So we've got a pretty exciting runway when it comes to that. The other thing that we're really pleased in is this doesn't involve redundancies or targeting people. What we do is we roll out the tech and as there is attrition in our business, we resize our business. And I want to be really clear, we have an internal ambition. This is not about a headcount reduction, it's about a productivity improvement. And what goes with higher productivity, we better pay and reward start.

Your next question comes from Jack Dunn with Citigroup.

Just firstly, I was hoping to just unpack that revenue guidance a bit more. I know you're saying $1 billion, but if I look at acquisitions to be close to $800 million, $900 million for the year, and you mentioned Beat 20,000 units, which is 6% growth. And then you had organic growth of the business. It seems to be -- it would imply a lot higher than $1 billion. So I wonder the other segments of your business, which you think are going to face a tougher operating environment?

Jack, it's a really good call out, and I'm glad you asked the question in the way that you did. Where is a conservative company? Billion should be fairly achievable. We'd like to overachieve what we did last year again.

And then just on your expectations for, call it, underlying like-for-like PBT margins, do you think sort of the productivity initiatives can sort of help offset that falling new car GPU and rising bailment costs? Or how are you thinking about your like-for-like underlying return on sales?

So it will -- this is the most interesting thing to be like because we think the revenue is conservative $1 billion next year. So if people were looking at our turnover at the end of 2024, we were going to be circa $11 billion, hopefully more. So that's less at risk, if you like. The margin, we're really pleased that we went from 4.4% in the first half -- sorry, we wet the 4.4 reported basis up to 4.5% in the second half. So second half actually improved. On a like-for-like basis, our cost base actually reduced in the second half last year. So we were seeing benefits flow through. The other thing that we really wanted to call out is that upside in the acquisitions in the greenfields. Our like-for-like business in this last year at 4.85% return on sales. If you took out the impact of interest, it was $5.1 billion. So the underlying business where we are rolling out the tech initiatives, the property consolidation and our F&I performance our ancillary products, I mean, Car Care, we're running at over $520 or $530 per new car in Car Care. That's industry-leading. We've got regions that are over $700 a car. So we're driving growth well. We're quite happy with that. But we've always focused more on cost out because that's much more controllable with the exception of finance penetration. So where I'm leading all the 2 areas that going into '24, we see that, that underlying business was 4.5% and probably interest rates have peaked and there may be some moderation over the second half of the year. And then you've got upside as we had a record year out of the ACT acquisition. The return on sales we achieved out of that business was higher than the independent expert report and what we bought it on. So we've already seen some improvements, and we expect further improvements out of that business. Greenfield were a loss last year, now moving to a profit this year. Our retail JV should be broadly the same, but with upside risk. So if you consolidate all those together, we're still confident that return on sales in '24 shouldn't materially fall away. We actually are quite confident. A big part will be how quickly the finance performance lift. But to that end, we've already seen some really positive green shoots early this year. A couple of our key partners have come back to the market. We finance campaigns. One particular campaign, we saw 100% penetration. Another one, we saw a north of 80% penetration. Now that is a massive margin hedge against any change in Eager performance over the course of the year. The other thing is that we still have this north of 40,000 or order bank to deliver. So that will support margins as well. So very hard to call out, Jack, what the year will look like, but we're reasonably confident. Of course, we're proceeding with caution. I guess I would say that compared to the industry, if you look at our return on sale return on sales, we're pretty proud. It shows that our cost is holding it up and our relative performance in these sorts of non-new car growth areas are also holding it up above the rest of the industry.

Just last one on the F&I penetration on that chart that just goes to 2021. Would it be fair to say that the EU's top 30% would be reflective of where the business was pre-COVID?

It's actually close. That's actually not a bad call out. So the industry benchmark, just to be clear, is the average is top 30%. Eager's average of the top 30% is into the 40s closer to the mid-40s and it is almost double what the industry is at. Now that -- first off, that delta between us and the industry, we've never had that bigger delta compared to the industry, and that's like a into the sort of low to mid-40s, certainly, our benchmark dealers pre-COVID benchmark deals. We're well above that, but our average was probably getting close to the 40s.

Your next question comes from John Campbell with Jefferies.

Just I know it's been going on a while less call. So just a couple of quick ones. Just on the easyauto 123, Keith, the numbers you put up comparing with CarMax and CarMax has obviously been out a lot longer than easyauto. Do you sort of still -- and given that your net operating profit per retail unit, it's lower than CarMax, but it's in the ballpark. Do you sort of still see a lot of upside in easyauto in terms of that growth per retail unit or is it more going to be a volume story going forward?

Well, John, I think just looking at that slide, just a bit clear, our net operating profit per retail unit in easyauto and Carlin last year was $911 and CarMax was actually $798. So yes. But the issue is, so what we're calling out there.

That's U.S. dollars. So is it Keith. That's U.S. dollars.

Yes. But we haven't a -- for U.S. versus AED -- but either way, the $911 shows that we've always had an internal ambition of being $1,000 per car. That is a really strong result at a profit per unit basis. The difference has can been around, as you rightly point out, John, for a decade, they're dominant in the U.S., and they're selling -- I don't even know their volume, but it's sort of 1 million plus units. The biggest challenge is to scale these businesses and retain that return on sales per vehicle. So that's all that's our net profit per vehicle sold. In the past, as you try to scale these businesses, sometimes the profit falls away. What the key will be, and we've talked about this for a number of years is that as the industry evolves, and I talk now about over the next decade, as brands come to Australia and our retail JV with BYD is an example. So in that business, there are no used cars in the BYD business. They all go to easyauto. There is another large EV player that we provide inventory portal expertise for and get a number of their used cars. And other brands have come to Australia, they're less focused on a used car business in the traditional way. As we restructure property, that Osborne Park example I spoke to before, as we put 6 franchises together, we don't have used cars attached to those each individual dealership anymore. All of those trade-ins go to easy auto. So as the industry evolves, more and more, we will have used cars sold through our national fixed price model, which is easy auto. That is what we'll scale it. You can scale profitably if you trade or buy the cars at the right price. It is as simple as that, no more, no less. The challenge is if you try and scale and you don't have cars coming in, usually through the trade channel, if you need to go and buy cars from auctions, you are going to pay too much. There are multiple margins being made on that car. So we are uniquely positioned to be able to scale it. I think easyauto is one of those businesses that if we try and aggressively double the volume this year, we will impair that profit per unit quite badly. But over time, this is going to continue to grow profitably. And there's a couple of things that we're working around in the background on how we can perhaps create a step change in as well, but they're the things we're looking at.

Just the last question. Just in terms of the Victorian acquisitions, that 2.9% return on sales versus Eagers 4.8%. That's a big gap. And it's sort of a bit a little bit surprising. I mean, obviously, the Victorian businesses were very well-run businesses. I'm sure everyone would agree with that. So where is the upside in -- or what is really the sort of gap? What is explaining that big gap and why you can close it so easily?

So that actually represents 3 key businesses that represent the ACT business. So that was actually the AMP last year. That was bought and even in the independent expert report we bought that we called out, that was running at low 3% return on sales. Now that's indicative of the ACT market, where there's a lot of government buyers, and it is generally a slightly lower return on sales business. We've improved that business. We also bought a business in South Australia called New spot. That is, to be fair, that was a business that had grown exceptionally rapidly by the previous one. They've done a fantastic job of growing that business, but it got a little bit unruly. In the first 12 months, we bought that business. We bought it on a very reasonable multiple. But the first 12 months have been investment in tiding that. That business has been significantly below 3%, probably likely to be 2% last year. And the third business was cans, which had some impact around natural disasters late in the year. So the reality is cans will be fine, new spots will improve this year considerably because it was a very disappointing first year with investments entirely up and picking up and in the right structure in place. And ACT will be a slower ACT went off down to those levels we achieve everywhere else and the dynamics in the market in ACT might mean that it's always slightly below the rest of the business, but there is significant upside in those 3 businesses. We're absolutely up.

Yes. Okay. So sorry, that chart on 15, that excludes Victoria.

Yes, Victoria settles at the end of this week sorry. At the end of this month.

There are no further questions at this time. I'll now hand back to Mr. Thornton for closing remarks.

Fantastic. Thank you, everyone. We apologize for the disrupted call today. Technology got the better of us. We appreciate your interest. I'd also like to say to any Eagers employees that may have dialed in, thank you for your fantastic efforts each and every day. You're responsible for this result that I'm very likely to be able to report on your behalf. Thank you for your efforts. Thanks, everyone. We'll talk louder.

That does conclude our conference for today. Thank you for participating. You may now disconnect.