Eagers Automotive Limited (APE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Tim Crommelin, and I chair the Eagers Automotive Limited Board. I'd like to welcome you to the company's 67th Annual General Meeting since Eagers listed on the Australian Stock Exchange in 1957. It is 10:00 here in Brisbane, and the company's Secretary, Denis Stark, has advised that a quorum is present. And I, therefore, declare this meeting open. This meeting is being held as a hybrid meeting, with shareholders attending in person and online. My fellow directors here with me in Brisbane today are Nick Politis; Dan Ryan; Marcus Birrell; Michelle Prater; Greg Duncan joins us from Sydney; Sophie Moore, our Finance Director and Chief Financial Officer, is here in Brisbane. It's also Sophie's birthday today, so happy birthday, Sophie. And Katie McNamara, a special welcome to Katie, she's along my left there. Katie was recently appointed as an Independent Director, and this is her first AGM with us. Our Chief Executive Officer, Keith Thornton, is here with us in Brisbane. And as always, it's pleasing to see senior management well represented by Denis Stark, our Company Secretary; Edward Geschke, our Chief Operating Officer; Alison Reynolds, Executive General Manager, People and Safety; Paul Wolverton, Executive General Manager of Financial Services; Luc Derix is our Chief Information Officer; Amanda Ellison, our General Counsel; and James Couper, our Chief Commercial Officer. Welcome also to a couple of former directors. I see, at the back there, Tony Love, shareholder and former Director, hello, Tony, and welcome; and Martin Ward, former Managing Director and shareholders. I'd also like to acknowledge Dr. [ Allan Porter ], who's in the front row here, a large shareholder and certainly, a very long time supporter of Eagers. Welcome to you all. David Rogers and [ Marina Schuman ] representing our auditor, Deloitte, join us. David joins us online from Hong Kong. So hello, David, a bit earlier in the morning for you; while [ Marina ] is here in Brisbane. David and [ Marina ] will be available later in the meeting to answer any questions on audit matters. The Secretary has advised that [ Robin Parker ] is an apology. Are there any other apologies that anyone would like to note? Okay. Shareholders, as this is a hybrid meeting, I need to run through a few procedural matters, so please bear with me. Only shareholders and their representatives and attorneys and proxy holders attending in person and holding a blue admission card and those attending online are entitled to ask questions and vote today. For all attendees here in person, to ask a question, you need to raise your hand when I invite questions, wait for the microphone, state your name before asking your question. Online attendees can submit questions at any time by selecting the Q&A icon on your device, select the relevant topic from the drop-down list, then type your question and press the send button. Online attendees can also ask verbal questions by following the instructions below the broadcast window. Although online questions can be submitted at any time, I will address them at the relevant time during the meeting. If similar questions are received, we will try to group them together. I will ask James Couper, our Chief Commercial Officer, to introduce the online questions at an appropriate time. All voting today will be conducted by a poll, and I will open voting shortly. For attendees present in person, your blue admission card is your voting card. You will need to follow the instructions on the card, mark the appropriate boxes and lodge the card in the ballot box before voting closes. Proxy holders who lodged voting cards will be deemed to have voted in accordance with the instructions attached to their card. Proxy holders entitled to cast open votes will need to mark a box beside the relevant motion to indicate how they wish to vote. For all attendees online, a voting icon will appear at the top of your screen when voting opens. Click on the icon and it will present your voting options for each motion. Simply select one of the options and follow the instructions to cast your vote. You may change your vote at any time until I declare voting has closed. All attendees, whether online or in person, may submit votes at any time from when voting opens until I declare has closed. Finally, I appoint Lewis Brimelow of Computershare Investor Services, and they will conduct the poll and be the returning officer. I now declare voting open on all items of business. Voting is now open. Before we proceed with today's formal business, I will present my report on 2023, and Keith will present his report, including comments, on the current year. I now move to my report. Welcome, once again, to all shareholders. 2023 was another strong year for Eagers Automotive, with the company's financial performance reaching record levels across a number of key metrics while continuing to execute on our Next100 strategy. The company delivered against its growth ambitions with a record full year revenue of $9.9 billion, representing significant revenue growth of 15.3%, that is $1.3 billion above the year 2022. This revenue growth was achieved through a balanced contribution from organic growth, establishing greenfield businesses and integrating scale acquisitions whilst maintaining strong sales margins through disciplined cost management and genuine business transformation since pre-COVID period. Eagers Automotive delivered a statutory profit before tax of $427.3 million and a record underlying operating profit before tax of $433.3 million, an increase of 6.9% on the previous year. As a result of the strong returns, the Board approved a record full year dividend of $0.74 versus $0.71 per share for the year ending 2022. Sustainability and ESG. In 2023, we continued to make progress on sustainability, or environmental, social and governance initiatives, ESG. Our sustainability strategy acknowledges that we cannot thrive without focusing on people, our environmental footprint and a resilient business model. In 2023, we moved forward in cementing awareness of our strategy across the group and identifying the actions needed to progress at sustainability goals. As this is a long-term trajectory, we have, therefore, established a Sustainability Steering Committee to oversee our progress. Before I hand over to Keith, let me give you a sense of our start to the new year. We are a consumer-facing business, and therefore, we're not immune from the well-documented economic conditions, including inflation, interest rates and cost of living pressures, which impact consumer spending. We also continue to deal with government's zero emissions policies, which have implications for many businesses across many industries. While the Board and management remain conscious of the macro environment, it is vital that we continue to focus on what is within our control so that we are able to deliver a sustainable business into the next decade and beyond. The strength of our balance sheet and our financial position, including a significant property holdings, form a strong platform for further disciplined investment in accordance with our Next100 strategy. The company remains well positioned to take advantage of industry opportunities as they present. Eagers Automotive's track record of delivering consistently strong results does not happen by chance. The financial performance achieved in 2023 is a testament to the people who make Eagers a unique and industry-leading company. I'd like to take this opportunity to thank the entire Eagers team, the executive team led by Keith Thornton, and all of our people for their dedication and unwavering commitment to the ongoing prosperity of Eagers Automotive and its shareholders. Thank you to my fellow directors for your ongoing support and counsel and finally, to our shareholders. Thank you for your continued support. We will continue to focus on delivering for all shareholders. I now invite Keith Thornton, our Chief Executive Officer, to provide his report. And following Keith's address, we'll move on to the formal business of the meeting.

Well, thank you, Chairman, and good morning, all shareholders and guests, and thank you for your interest in today's Annual General Meeting for Eagers Automotive. And I do note, I think it's our first full house, so we really do appreciate your interest today. . Today, I'm going to provide a brief review of Eagers' 2023 results, recap our outlook for 2024, and then provide an update on the trading conditions that we've seen through to April year-to-date this year. Before I do that today, you'll notice a slide that is a little bit different to what we usually start our meeting with. Now this slide may well be familiar to a lot of you, which appeared in our annual report since 2020, but it's not something we've spoken to in this forum before. You'll see on it our values and our vision on where we would like to take Eagers over the next decade and beyond. Our ambition is to be the most admired automotive retailer group by optimizing outcomes for all our stakeholders over the long term. Now you'll notice we don't talk about wanting to be the biggest or the best, whatever that means, because neither of those are ambitions of ours. However, we do believe that being the most admired, that is always operating in an admirable way, whether that's with our business partners, our customers, our staff, the communities in which we operate, or with the more than 11,000 shareholders that invest in our company, will ensure that we are the preferred company for these same stakeholders to grow with over the long term. To some, aspiring to be the most admired may not be ambitious enough. But we think the power of constantly asking the business, "Was that the most admirable way we could have done things," no matter what we're referring to, is very powerful and it reinforces behaviors and underpins how we would like people to talk about Eagers from the outside looking in, that is, a company of good people doing good things. The values we highlight on the slide of agility, inclusiveness, owner's mindset and integrity are not new at Eagers. In fact, these are the values that we chose to articulate after looking inside the company to see what matters most to our people and to see what had underpinned the culture of Eagers over the last century. These 4 values are fundamental to how we go about our business. We hold our company accountable against them, and they will be the foundation to becoming the most admired automotive retail company. They're certainly more than just placeholders in an annual report. And for this reason, I thought it was worth outlining at the start of today's meeting. Okay, moving on to 2023 results. As our Chairman mentioned, we're proud to say that 2023 was another strong year for Eagers Automotive. At the beginning of the year, we set a clear goal to deliver more than $1 billion in revenue growth while maintaining our strong return on sales margin. Simply put, if we grow the turnover of the business while maintaining our underlying net profit margin, we'll produce higher profits and we'll be able to grow rewards for shareholders. It's really simple. And I'm pleased to report that in 2023, we delivered on those goals. You'll see on the screen the goals we set for the business in 2023, and they were highlighted by the significant revenue growth to be delivered on the foundations that we'd laid in 2022. At year-end, our ambition to deliver $1 billion worth of revenue growth was actually exceeded, with us finalizing the year with $1.3 billion of revenue growth, which was a 15.3% increase on the prior year. Now as Tim said, this growth was achieved through a balanced contribution from organic growth, setting up greenfields with both new and existing OEM partners, and integrating the scale acquisitions that we made in the ACT and also in South Australia. Now the mix of this growth is interesting to note, 30% of it came from organic growth, 40% from greenfield and 30% via acquisitions. So the reason this is worth highlighting is it represents a well-balanced and healthy growth profile for any company and it outlines the many options that are available to Eagers to grow in the future. 2023 also marked a year of record profit from our independent used car business, which consists of easyauto123 and our Carlins auction JV, while our retail joint venture, which is our BYD retail operations, produced a strong full year performance. Overall, in 2023, we delivered on our ambition to maintain a strong return on sales margin, which is the key margin metric in the automotive retail industry. For the full year, on an underlying basis, that return on sales was 4.4%, which is materially higher than the pre-pandemic average for the company. Now this strong margin outcome was certainly benefited by the favorable environment that automotive retail operated in. But much more importantly to us, it was materially supported by the transformation of our cost base resulting from the execution of our Next100 strategy over multiple years. Now this strategy leverages proprietary technology and property consolidation to drive productivity efficiencies across the business. Continued execution in the years to come will generate an economic return for our business that is both industry-leading and difficult to replicate. There's a lot of information on that slide you see there. But what it actually represents is the real transformation that has occurred since 2019 through to 2023 on a like-for-like basis. So in a true like-for-like comparison of the businesses from '19 to 2023, we are operating with an 18% lower head count, which is driving a 25% improvement in productivity and on a property footprint that has 86 less leases. Now this is real business transformation in a period of strong trading, which is the elusive good habits being developed in good times. And we think this is something that will set us apart from the industry as we move forward. But the story won't end in 2023. The continued evolution of our Auto Mall property strategy and our proprietary technology rollout will continue to incrementally improve our operations every year, all things being equal. The disciplined execution of these operational and strategic initiatives in 2023 underwrote a number of records in our financial performance. The company delivered a record revenue result. The company delivered a record underlying operating profit before tax. The company delivered record underlying earnings per share. And ultimately, we were able to record a record full year dividend, all while maintaining a very strong balance sheet. Now that's certainly a sentence I'd like to be able to repeat at every AGM. Turning now to our outlook for 2024. Eagers is well positioned with unrivaled scale and valuable opportunities to grow. We continue to strive to deliver our performance relative to the market by focusing on what we can control and strategically moving the business to where opportunities present themselves in our marketplace. Earlier this year, we again outlined a goal to deliver another $1 billion in revenue growth in 2024, which would represent an increase of more than 10% on the $9.9 billion of turnover we achieved last year. Now whilst we're only 4 months into this year, so 1/3 of the way there, revenue is already up by 18.3%, and we're well on track to deliver more than $11 billion in total revenue for 2024. This growth will be driven by several factors. It'll be driven by the organic growth resulting from the greenfield operations we set up, which was new OEM partnerships and our retail joint venture as they mature through 2024. It will grow by leveraging the very strong market conditions. At the moment, the new car market in Australia is up by 14.4% year-on-year. It's running at unprecedented levels, actually. In the last 12 months, 10 months have been record monthly sales or deliveries in Australia for new vehicles. And it will be driven by the contribution from the key acquisitions that have settled earlier this year, which was the large-scale, multi-franchise business we acquired out of Victoria as well as Alice Springs Toyota. Now these acquisitions and these greenfields will improve as we integrate into our business and they're able to leverage our scale, our product and our proprietary technology, which will drive industry-leading productivity out of those businesses. In addition, we continue to explore multiple growth opportunities across the franchise automotive retail market as well as in adjacent segments that we can use to accelerate or support our core automotive business. Finally, before we move on to an update on our year-to-date trading, we must also highlight the continued work we're doing in our owned to leased property portfolio. So since 2019, we have invested over $590 million into owning more property; $590 million, a significant investment. And it lifted our owned to leased ratio from a low point post the merger with AHG of 10% up to 25% of the total portfolio today. In 2024, so far this year, we've settled on another $115 million worth of property. And our total holding now stands at $716 million, as you can see up there, which is the highest it's ever been in the company's history, and we continue to be active in this space. This high-value property portfolio is a valuable part of the Eagers business model. It provides security to our business and our OEM partners. It gives us greater flexibility to evolve our physical retail footprint. It gives us optionality in funding and capital management. And ultimately, it will deliver long-term rewards to shareholders as it has done over the last century. So turning now to an update on the 2024 year-to-date trading. As a company, Eagers Automotive continues to be focused on what we can control, that's what I wanted to say, rather than obsessing over external economic or market conditions. As a 110-year-old company, we are acutely aware we'll experience economic cycles, both good and challenging, but we must not be distracted by near-term conditions, and we must continue to focus on the execution of operational excellence and the rollout of our strategic priorities. As Tim pointed out, despite this, we are not immune from what is going on in the macro environment, which is currently characterized by several key themes. Cost of living pressure is moderating retail consumer spending across multiple categories. Inflationary conditions is driving up the cost to do business in the whole economy, including Eagers. There is a current expectation that we are top cycle in the interest rate environment. And it is becoming an increasingly competitive marketplace as supply normalizes in automotive retail and free inventory returns for numerous OEMs in the marketplace. These external factors have combined with some short-term internal business challenges in the first half. We've experienced some geographic weakness, particularly in New Zealand, which is still down 10.4% and even with the end of the clean car scheme over there. In addition, Sydney and Newcastle particularly are cycling at a softer rate than they were last year, perhaps responsive to mortgage pressure in Sydney. We've had to deal with an excess inventory clearance at our retail joint venture that materially reduced profits relative to the prior year, and we are cycling a high-cost first half this year compared to the first half of last year, which primarily relates to interest rates, which hadn't started to rise until the second half of last year, so we've got a low interest rate in the early part of last year compared to a higher one now, and higher inventory. What is very pleasing to note is that our first half cost base on a monthly basis is actually down fractionally on the second half of '23 on a like-for-like basis, which shows that we are maintaining our discipline in cost control and our business transformation is sustainable. The combination of macro conditions and the business issues, which have characterized the first half, have resulted in the following trading outcomes. Firstly, overall, as I've mentioned, revenue growth is strong, up 18.3% year-to-date April. Like-for-like performance from our franchised automotive business has remained resilient, which has been assisted greatly by the quality of our brand portfolio. We've had limited contribution in the first 2 months of our recent acquisitions, which is not unusual in the early stages of integration. But I would note, we've had the turnover with limited profit contribution, which particularly for the analysts in the room will understand what that means. We have had a material reduction in the returns from our retail joint venture for the first half of this year and we've cleared that excess inventory, but we do expect that we will recover strongly in the second half. And we've had exceptionally strong performance, as we foreshadowed in our outlook, from our independent used car business, which is up 93% on this time last year. While we're also seeing green shoots, again, as we foreshadowed in our finance and insurance penetration results after a number of challenging years. Given the current market and business dynamics, with the cautious lens on consumer sentiment and also noting that May and June last year were exceptionally strong months for the year, we expect that the half year will see a result approximately 85% of what we achieved in 2023. We remain disciplined in our focus across operations, and we're optimistic regarding the outlook for the remainder of 2024 despite any existing or emerging macro headwinds. It is important to note the new car market remains on track for a record year this year, and it may be a considerable record. And our order bank, which is still material, continues to be delivered, supporting both our revenue and our margins. In addition to this, the underlying order right remains solid. In addition, the recently announced extension to the instant asset write-off in the '24 budget and the implementation of the new vehicle emission standards, which comes into effect from the 3rd January 2025 may provide further catalyst to second half trading. So we remain on track to exceed our revenue growth guidance for 2024, and we will be relentless in the execution of our business transformation strategy, while continuing to use discipline on reviewing increasing opportunities for accretive M&A businesses. So in closing, I would like to finish with a thank you to all our stakeholders, which you can see up on the slide. First and foremost, to our customers, many of whom are also loyal shareholders. It's a privilege to be able to provide products and services to each and every customer we serve. Your ongoing support is greatly appreciated, and we never take your customer for granted. To our great team members across Australia and New Zealand, and I know a number of them dial into this AGM every year, thank you for your relentless commitment and focus that allowed us to deliver a record again in 2023. Your commitment to our customers and our OEM partners inspire the leaders of Eagers to work harder to support you every day. To every one of our OEM partners, we're proud to represent your brand. Our position as your retail partner is both a privilege and a responsibility we take very seriously. We continue to focus on being a preferred and trusted partner for your business, acting in the most admirable way and delivering great outcomes for the customers we share. To all our other business partners, including finances, landlords and suppliers, your ongoing support and partnership are fundamental to our business. Finally, thanks to each of our shareholders, large and small, for your ongoing support, confidence and commitment to Eagers Automotive. I can ensure you all are ably represented by a Board of Directors at Eagers Automotive that engage with the company daily, by providing great advice, direction and oversight for the benefit of all shareholders. Personally, I'm very fortunate to have the Board we have and to be able to access the collective knowledge, experience and deep industry connections, which I'll note, is something that is materially and uniquely more valuable in our industry than others. And I think it's something that's a defining part of the company's consistent history of performance. So thank you to all our directors, thank you to our Chairman. Welcome, Katie. Looking forward to working with you in the future. In closing, as always, we remain very positive about what the future holds for your company. Thank you again for your interest today.

Thank you, Keith. And shareholders, we now move to today's formal business. Shareholders, details of all proxy and direct votes received prior to this meeting on each item of business should now be showing up on the screen. Our 2023 annual report and Notice of Annual General Meeting were made available to all shareholders on the 19th of April 2024 and will be taken as read. I remind shareholders that questions on agenda items will be addressed during discussion on the relevant item of business and before voting closes. General questions will be addressed later in the meeting. The first item of business is to receive our financial reports for 2023, which were included in the annual report, starting on Page 61. The Corporations Act requires the financial report to be put to the meeting each year. If there are any questions on the financial reports, we will address them now. Now it's also the time for our auditor to answer any questions on the audit, the auditor's report our accounting policies and auditor independence. I ask shareholders present here and in person, if you have any questions. [Operator Instructions] There are no questions in relation to the first item of business, on receiving the financial report. So I therefore ask James, is there any questions online on this side in that business.

We have one question, Chair, from Mr. Stephen Mayne. His question is, well done on putting together a property portfolio worth $580 million. How often do we get the individual properties independently valued? And are we at risk of facing increases in rates and land tax charges given the valuation of the property portfolio has increased? Have we considered doing a sale and leaseback transaction that could free up capital or return to shareholders, special dividends or buybacks that could utilize some of the fracking credit available?

A lot of questions in that question from Stephen. I might address a couple of them. Yes, we do face rates and land taxes, everyone else has, and that is severely impacted on costs for all businesses. How often do we get some value? I think the portfolio gets valued, Sophie?

Normally, every 3 years, but we do review the entire portfolio each reporting period.

Yes, and auditors review the portfolio, okay? Sale and leaseback are often talked about, but if you sell your properties, you're then dealing with a landlord, and they're pretty good, from past experience, in putting up the rent. And that's always a challenge. And I think there's been a long history of Eagers, taking a view that if we can own properties, we have more control over them. Keith may talk about that particularly, in moving particular brands in or out.

Well, I think it's worth noting that I made the comment in our speech, 25% of our property portfolio, and when I say property portfolio, the total land and buildings that the company use, 25% we own. That means 75% is subject to, in most cases, a CPI increase in rent every year. CPI was fairly large last year, for instance. That means 75% of our leased property is subject to CPI increases, which more than offset any increases in land tax or other costs of holding property. In addition to that, we're very fortunate, Martin, in his role as consulting to the business, led to some fantastic negotiations with our captive financiers. We have the funding for that property on 10-year money, probably 65% of our properties are on 10-year money, on very low fixed interest rates. This is a significantly valuable outcome for the company. So I think it's compelling. And the last comment I'll add to Tim's comment there for Mr. Mayne is that owning such a valuable asset that is growing in value over time does give us capacity. I made the comment it gives us funding and capital management optionality by owning this property. So sale and leasebacks is not something that's on the table at the moment. But should that become compelling for shareholders we can always look at it.

Okay. There are no further questions then online or written. I'll then move to the next item of business, which is agenda item 2, to the reelection of Nick Politis as a Director. Nick was last reelected to the Board at our AGM 3 years ago. He is the company's largest shareholder. Nick enjoys a successful and distinguished career in the retail automotive and property industries with vast experience in Australia and overseas. Further information on Nick can be found in the Notice of Meeting and on your screens now. His fellow directors and their company derive enormous benefit from Nick's experience and expertise. In accordance with our constitution, Nick retires by rotation of this meeting and, being eligible, offers himself for reelection. Our directors fully support and recommend Nick's reelection today. Details of the votes received prior to the meeting should now be showing on your screen, 97.44% in favor. I invite questions on Nick's reelection from shareholders here in person. If you have a question, please raise your hand. No questions here. Are there any questions James, anything online on this item of business?

One question online, Chair, from Stephen Mayne. In the past 3 years, there have been a number of related party transactions with [indiscernible] in the ACT at Melbourne, totaling around $450 million. Any more related party transaction proposals under consideration?

Thank you, Stephen. The so-called related party transactions, as you refer to them, have been very positive acquisitions for Eagers and their company. And the short answer is there are none planned at this point in time.

No further questions, Chair.

No further questions, thank you. With that then, we will move to item 3, which is Katie McNamara's election as a Director. Katie was appointed to the Board as an independent Non-Executive Director on the 21st of March this year. Katie brings more than 25 years' experience in strategy, marketing and technology, having previously held senior positions at Super Retail Group, IBM, Fosters and Treasury Wine Estates. She also worked in strategy and marketing at McKinsey & Company. Katie is a Non-Executive Director of Motorcycle Holdings Limited and is the Managing Director of Mighty Craft Limited, having been appointed on a part-time basis to lead a strategic review. Further information can be found in the Notice of Meeting and on your screens. Katie, being eligible, offers herself for election today in accordance with their constitution and their directors recommend that shareholders support her election. Details of the votes received prior to the meeting should now be showing on your screens. I invite questions on Katie's election from shareholders here in person. Anyone in the room got a question? If not, James, any online questions or written questions?

One question, Chair, from Stephen Mayne. Could the Chair or Katie McNamara please comment on the recruitment process that led to her appointment to the Board? Was a headhunter involved? Did the Board full-bore interview Katie? and did they interview any other candidates? And did Katie know any of our directors before engaging in the recruitment process?

Okay. Thank you, Stephen. You're very thorough today. We do have a Rem Committee and a Nominations Committee at Eagers. We did not engage a headhunter. Did we speak to anyone else? We spoke to a lot of people about the opportunity as to who may join the Board of Eagers and we took advice in all sorts of areas, from people in the professions to new certain people who knew Katie or whatever, all of which was positive. Did we speak to anyone else? Over the last couple of years, yes, we have spoken to a couple of people who may or may not have been available to join the Board of Eagers. And I guess, constantly with Board renewal, that's the sort of thing that you would undertake. I think part of the question was did Katie meet all directors. Yes, and had, had thorough interviews and meetings with all directors prior to her appointment. She even traveled to various points in the state where our directors come from to meet with them. So is that pretty much it? And Katie, is there anything you wanted to add?

Just going to say that I didn't know any of the directors.

Didn't know any one of the directors. Well, I'm happy to answer that here. We've got a very good reference from our former Managing Director, Martin Ward as to Katie's ability, and we certainly got the opportunity to meet Katie by, firstly, Martin Ward's suggestion and introduction. If there's nothing further, then the questions on that item, we'll move to item 4. Item 4 seeks shareholder approval of our remuneration report, and that's set out in the annual report, starting on Page 42. Although this vote is advisory only, this is an important agenda item, and the Board is always keen for shareholder support in this area. Support has been very positive, as you can see from the votes lodged, and that is now on your screens, 98.58%. And I should point out, as many of you would know, that none of those are votes by directors or key management. No director or key management personnel are allowed to vote on that matter. So I invite any questions on this agenda item for any shareholder in the room. Nothing, thank you. James, any online, written or verbal questions?

No questions on this agenda item, Chair.

Thank you. As there are no further questions, I'll close voting on all items of business shortly. But first, I'll briefly pause the meeting to allow shareholders a final opportunity to submit your votes if you haven't already done so. At this point, Lewis, is that when we collect?

Yes.

All right. We'll be collecting votes in the room here. Shareholders who are external, please, we have a minute for you to finalize your voting. Thank you. I'll come back to you in a minute. [Voting]

Thank you, ladies and gentlemen. All voting is now closed. Votes will be tallied and released to the stock exchange as soon as possible after the meeting. Ladies and gentlemen, that concludes today's formal business. However, before we close the meeting, I invite any general questions from shareholders. Are there any questions from shareholders who are attending here in person?

We'll get a microphone to you, [ George ].

Thank you, Mr. Chairman, [ George Warnberg ], shareholder for [ Faircase ], shareholder. I was just wondering what development process is going on around the Brisbane Airport and the project that you envisaged that was going there, how that was progressing and how it's been progressing.

I might just let Keith quickly answer that.

Thank you for the question, [ George ]. We did actually -- I can't remember the exact date. When was it, James?

July last year.

July last year. We did inform the market that due to circumstances outside our control, basically relating to Brisbane Airport Council, or BAC, who controls the property out there, they weren't going ahead with their development. So the Brisbane Airport development, the Auto Mall at the Brisbane Airport was actually communicated to the market that it wouldn't be proceeding back in July last year. So there's no progress and there's no time frame. So that is a project that is not continuing.

[ Was that within the hands of the Airport Council ]?

No. But we do consider that.

And a number of conditions led to that in terms of COVID. Not from our point of view, but from the airport corporation's point of view, their costs had blown out through the roof, and we had a fixed price deal with them. There were going to be complications. They also had to deliver the site by a certain date that we're going to be unable to achieve that date. And there was no logic in proceeding on that basis.

Did you get any compensation from them?

I would say everything is subject to confidentiality.

But it was satisfactory to Eagers.

Correct. If we had any concern or any impairment, it would have been disclosed in the reports, and there's nothing disclosed.

Any other questions?

[ Greg Olsen ], a proxy holder. The entity I represent is a relatively new shareholder, so I don't have an extensive background in the industry. But just in doing research on the company, and to pick up on the theme from earlier, it is a very admirable track record that the company has over a long period of time. And as we look forward, in particular with greenfield sites and acquisitions, what are the hurdles to basically the future being similar to the past in terms of maybe OEM restrictions or competition concerns in terms of further acquisitions? What are the hurdles that you'd like shareholders to be aware of?

Over to you. Very good question.

It's a fantastic question, I tell you. We're a 110-year-old company, as you would know. And as we often quite talk about, over that time, the company has grown fairly consistently. But probably since 2005, we've considerably grown. We were, prior to the merger, about 2% to 3% of the market. We're about 10% or 11% of the market now. All things being equal, there was a perception that our ability to grow beyond maybe 10%, 15% of the market might have been more constrained but things aren't equal anymore in the motor industry. All OEMs are going through significant challenges in terms of how they respond to this lower emission challenge of the future. Whether it's all EV, whether it's going to be hydrogen, hybrid is the emerging tech at the moment, a move away from ICE technology. If you think about it, when I'm talking to OEM partners, the hardest job almost in the world at the moment were to be a CEO of an OEM and decide where to lay your bets. Do I still keep spending money on combustion engine technology? Do I bet on hydrogen? Do I go hybrid? Or do I bet the house on EV? And a number of them bet the house on EV. And there's a move a little bit back from this sort of perception that it was going to be a totally electric future sooner rather than later. Now the reason I say all that is that those challenges are driving the way OEMs are doing business and there's implications for us because we're part of their model. They do R&D, they manufacture, they then export from their local markets. They import it through their companies generally or through a distributor, and then we retail. So there is no doubt that the challenges they have around technology development; R&D; manufacturing capability; all of the geopolitical issues, we're probably seeing more protection because of what we're talking about now, Biden just announced 100% tariff in the U.S. on Chinese product, and I think he probably said he'd make it 200%, so you've got geopolitical issues that are starting to become more prevalent. All of this uncertainty and these challenges mean that OEMs, in general, are moving towards bigger, stronger, more relevant partners. So the model of 100 years ago, which was to keep it highly fragmented, and they probably preferred having 100 different dealers, 100 different people, fighting each other, making it ultra competitive, leaving the dealers do their discounting for them, is moving towards a much more consolidated bigger partner future. So where we sit at the moment, 2 weeks ago, I was in Seoul with one of the Korean brands. They only took 4 dealers from Australia. The theme of the meeting was bigger, better, stronger. So it's grown with those partnerships. There's been a number of new entrants into the market in Australia over the last couple of years that hadn't been sold here before. And on a clean sheet of paper approach, they don't go and say, "We need to have 100 deals with 100 different dealer partners," and then set up a head office to manage that. They want to deal with much more B2B, sophisticated partners who have the wherewithal to invest in both facilities but also in technology. So we think there's a great opportunity going forward. And again, we've talked a lot about revenue. And we understand as a company, and it's been beaten to me through my whole career, revenue doesn't pay the bills. However, your question is one of the reasons why we continually talk about us as a growing company because there is a real opportunity for organic growth, doing what we do better through greenfields, new partners, new partners to the country or consolidation with existing partners, and also investment in adjacent. So we generally have taken the view that Eagers want to be famous for one thing, not selling cars. But there are adjacent industries. Last year, we made a material investment in McMillan Shakespeare. That's an adjacent business that is actually an enabler and accelerator, if done properly, for our business. So the biggest issue we've got at the moment is going through the list of opportunities and working out what's the most accretive, what's the priority, where should we spend shareholders' money. So we're not too concerned about growth opportunities at the moment, we're worried about navigating it in the best possible way.

[ David Garland ], Chair, a shareholder. I'll just have one comment and one question. The comment is just we thank Mr. Politis for your service as a shareholder for the last 24 years, and director where we're lucky to have you as a shareholder director, so thank you.

Thank you.

A quick question for Keith, just to provide an update on BYD, please.

No problem, David. And I do point out that we represent 50 brands. We represent them equally, and we really do. BYD is such a prominent brand globally in terms of what they've done in China particularly, but also taking the EV fight, if you like, to Tesla globally. So there's a lot of focus on BYD. So I've got to be careful that they are just one of 50 brands that we represent. I did talk about our joint venture partnership. We have had a challenge in this first half where effectively we haven't had an economic return at all from our BYD operations. But that is a point in time. We were dealing with a specific issue where there was too much stock ordered by the importer, and we've effectively had to clear that. Edward's done all the heavy lifting there and he deserves a round of applause, but don't do that. Edward, I think we're down to our last 400 or 500 of that particular model that was overstocked. Once we are through that, we are very, very positive about what the second half holds to that particular part of our business, very positive. We will literally go from a no return to springing back to better returns than last year. And last year, it was a material return. The way BYD is tracking inside our business this year, we'll deliver about $1 billion of our turnover. And certainly, the models they've released recently, they are a genuine and credible competitor of us to the rest of our portfolio. And we always talk about it at Eagers that we'd like to partner with the major players. We talk about our quality portfolio, and we think they already will be a big part of that quality portfolio. So it hasn't been great for the last 6 months. It was a really, really strong '23. But the second half of this year, we expect to see quite a bounce.

We're at [ about 500 ] in the context of the second half, so that's not a problem.

So that's a good point the Chairman just pointed out. There's 400 cars that we talk about being the last 400 that we have to deal with. We have to work through more than 5,000 cars. And if those cars are effectively being sold at heavily discounted prices, I won't go into the details of why, it's quite a complex sort of arrangement in terms of how they're discounting, but we award those discounts. And it was a challenging period. So we ended up with the last 400 out of 5,000 cars, I'll call it, in an excess inventory position. So 400 should be gone inside of 30 days.

I have a question, Chair. I'm a shareholder. Can I ask a question on the consignment agency model adopted by Honda and Mercedes. I understand it's been negative for both those OEMs. Is there any chance they might reverse that? Or worse, is there any likelihood that other OEMs might adopt it?

It's a good question. I think this also covers a question we had online from Stephen as well. It has been a challenge. The agency model hasn't been something that has been rolled out. And as you rightly point out, the agency is being run in Australia at the moment via Honda and Mercedes-Benz. We are a big agent partner for both those brands. Just to be clear, I think Stephen in his comments said that Tesla is also an agency. It's not. Tesla is direct to consumer. So Tesla sells the cars. An agent model has still got what was traditionally us dealers as agents. It's a different way of changing the economics without going into it. We have seen the trend. There was a general theme that the trend would be towards agency maybe 2 years ago. A number of brands had flagged that they were considering agency. They were looking at it. Now it coincided with the time during the pandemic when supply dropped materially, demand went up, and some of these OEMs we're seeing, they're saying we can sell cars quite easily and the value the dealers have provided for 100 years starts to diminish. Those dynamics have changed. Supply has moved up globally. Semiconductors are no longer short in supply and in some markets, demand is less than supply. Suddenly, the value of dealers is very, very acute again. So what we're seeing is there's a number of brands that actually were operating as agencies. Interestingly, Polestar, which was a direct-to-consumer, they replicated Tesla, have just said they're going to a full dealer model. They're not even going to an agent model, they're going to a dealer model. We've had some brands who brought specific models in under an agency. Hyundai, as one of them, have said no more agency, we're going back to dealer model. So the trend is very much towards the dealer model, which makes sense because, at the moment, the way this plays out as an agency is that high supply and low demand globally, if that was the dynamic that's applied, those OEMs, rather than selling every car the moment it comes off a factory floor, which is the dealer model, they literally produce it and they send it somewhere. And they get paid and able to profit. As it sits at the moment, they produce it and they send it off to whatever country. And it sits on their account, causing them interest, and then they have to work out how to discount the car and get rid of it. So we're not really concerned about the agency and momentum towards agency. It's back the other way. Whether Honda and Mercedes-Benz would change their model, who knows?

And Volvo.

Volvo is part of Geely Group.

Do we have another question?

Just one last question. [indiscernible] Second question. But keeping the presentation, you made a good point that return on sales for 2023 was 4.4%, which is above the 10-year average of 3%. Then obviously, for the first 6 months of this calendar year, revenue is up 18%, but profit is down 15%, which implies obviously return sales have come down. But sort of more -- I know you got an Investor Day coming up in June, so I don't want to repeat that. But just for the medium and long term shall like ourselves just 6 months of sort of a blip, but just focus on to the men to long-term difficulty return sales going forward being elevated compared to COVID on a go-forward basis?

Absolutely. We do think that there is a -- over time, there has been both the industry and what we're doing structurally. So there's always a cycle that we're going to be -- we're not immune. We can't defy gravity. There's a cycle. We will be subject to the cycle. What we have to do is transform the business structurally, so we have got a step better than everyone. Now we think the cycle is certainly -- we're probably going to a more challenging cycle. We still think the industry is going to perform. All this is -- forget it, the industry will be better than what it was pre '19. You add on that the increment that Eagers is able to do by leveraging our scale and our technology, we do see that. This first half and the guidance that we communicated in my speech, it's very eager guidance. it's conservative. We don't give guidance and miss it. So I do want to say that we've got a blip at the moment. We had it dealt with BYD for 6 months that is produced nothing but will contribute the best part of $500 million worth of turnover in 6 months. We've just come off in April that was very challenging. So we're probably a little bit scared on a very tough month, but May has already become a little bit better. But we want to be cautious. And May and June last year were exceptional. We made $96 million -- $95 million in May and June last year. So again, we're saying for us to cycle year-on-year at the same rate, we've got to repeat that. So again, we're being cautious. We don't want -- we want to give complete disclosure at a point in time. So David, the short answer is we do believe the long-term return on sales will be better than what it was previously. And to be quite frank, we should be able to produce that given our scale now compared to what we were before. I'll just add one comment, Martin, at the back of the room. Martin and I obviously worked together for a very long time. And when we used to buy dealerships in the past, we talk about do we add genuine scale economies of scale when we bought a dealership. If you thought about it, we were big in Queensland. We don't buy dealership in Adelaide or Melbourne. It was a stand-alone dealership, other than maybe some better buying power, there wasn't that much we could add to it because we weren't plugging it into an existing business. We were fortunate to acquire the Victorian business off Nick earlier this year. That's a business with $1 billion in turnover. We already had $1.3 billion in turnover. So suddenly, we've got this business that's got turnover in Victoria, the size of the Warrens Group. And we plug it into the infrastructure that we've already got, and that's when you start to drive real genuine economies of scale before you start overlaying our technology benefits, et cetera. So yes, we're pretty confident over the long term. It's always interesting one, David, if you ask us how confident we are in the next 3 years, I'm supremely confident. How confident with the next 3 months, I don't know.

[indiscernible] on the technology before we plan it in our technology, right. Could you just talk a little bit more about it?

Yes. Well, it's a very, very long answer. And we are -- so we're holding an Investor Day on the 11th of June in Sydney. And the reason for that is there's a couple of analysts in the room that cover us and cover us for a long time and know our business well. But when you ask that question, usually, we give a 2-minute answer or a 5-minute answer if I be [ awful]. But you need an hour to explain it. We've got tech now. We've got look DereksIOs behind us. So we've built proprietary tech, we built. I'll give you an example, a 10-minute sales app. So I'll just give you this one example, but there's others. When the Looks team came, he said, okay, all of them are from outside the motor industry, and they came and said, let's have a look at the business as a clean set of eyes and look at the customer pain points and the business pain points. For the customer pain points, it takes 2 hours of buy car, it's too long. Too many people involved. All of the business pain points. Well, it's disjointed, there's lots of people. The motor industry has never had a gross profit issue. It may have a productivity issue over time if you don't start to get high productivity because when you buy a car, you might meet 5 or 6 people in the journey from walking in to walking out. You can't do that. You should not have to do that. We can't afford it going forward. So a 10-minute sales app was developed by Luke and his team where they came in and said, "We want a customer to walk in, get a value on their trade in, pick a new car out of stock, put accessories on it, put car care on it, apply online for finance, get approved online for finance, get money transferred into our bank account, sign on glass and get the invoice sent on the app". 10 minutes, top to bottom, using AI, using machine learning on valuations. We want to be able to train someone who's never sold a car to use that app in 10 minutes. Now that is -- that's revolutionary for the motor of the industry. No one does that, it's developed. We use that in easy auto. We've rolled it out across our BYD operations because we had a clean sheet of paper. It's a little bit hard to retrofit because we run all of our businesses as silos with each franchise. Each franchise has requirements on how they want us to do business. But over time, that's the type of tech we will roll out. We've also got Sam, which is our service automated management system, which is basically all the service transactions happening online. We've got Darcy. All I take is, as a name Darcy, which Darcy again. -- sorry, that's how accounts payable and the wholesale deal processing, which creates massive economies. So this is effectively using how many robots have we got now working for us. 37 robots. They work 24/7. They never make a mistake, and I don't see...

Internally generated software.

100% proprietary. 100% proprietary, yes. It is really something -- it's why we're having a dedicated Investor Day. We'll do videos to show how it works. The investment community, it's impossible to try and show how this works in a sound bite or a quick answer at any Analyst Day. So we need to actually show people how this works. But it's also not as easy as because a lot of people say, well, you've got this tech rolled out this year. It's not that easy because you've got OEMs, we have 50 brands we work with, and they say, hang on , we want to use this system. We've got an API. We don't want your tech plugged into our API. So we've got to go on a journey with our partners.

Any further questions from the room. Thank you. And James, any questions online?

We have a number of online questions here. The first question is from the side of Dr. Porter. The New Zealand business insurance interim information is not shared the same scale benefits that Eagers has been able to establish in the Australian market. The new car market in New Zealand has been very challenging in recent times. And some tailwinds the rollback of Gold Clean Car scheme. I suspect the performance of the New Zealand business is lower than the rest of the Eagers Group. Given the success Eagers has demonstrated in building scale to drive higher returns, have you considered consolidation opportunities with other New Zealand businesses to create a larger scale operation and drive higher returns in the New Zealand market.

Thanks, James. Thank you, Dr. Porter. It's a really good question as I -- the foreside to ask that question, considering I highlighted that New Zealand has been challenging for us. The New Zealand market is down 10.4% even this year. But thinking behind that question around building scale is consistent with the way we look at the business. But just to give you some context, we weren't in New Zealand until we did the merger with AHG in 2019. The first impressions when we went over to New Zealand and looked at the business we bought were very positive. We had this great portfolio of brands in Ford and Mazda, they're very strong brands over there, particularly. We had -- we like the geography. It was focused on Auckland, and we like the fact that it was just in one city, so we weren't spread all across the North and South Island. We like the fact that even with gray imports over in New Zealand, the used car market and the F&I market, are good. So they were important. And of course, we picked up a business over there was full of great people. So we were really positive when we first went to New Zealand, we thought -- and you're right to point out, even though the returns of that business were below Australia, we were very confident we're going to lift it to Australia to start with. And if we can get those returns in line with Australia, then we'd look to build scale on top of it. Now early 2020, just after we took over COVID hit and Auckland is I think it was one of the top 3 most locked-down cities for the next 2 years globally. So that seriously distorted our view on our business over there because COVID materially altered our operations. As COVID started to lift and allowed to trade more freely, the Clean Car scheme came into place, which totally distorted sales in New Zealand. For those that don't know, effectively, the way the government in New Zealand implemented the clean car scheme was they taxed high-emitting vehicles up to $8,000 to $9,000, and they use that tax to subsidize EVs. And we had effectively no EVs in our portfolio to respond to. So our brands, which were strong mutes like Ford, Rangers, et cetera, the Mazda brands weren't responsive to this cleaner car, just got decimated. So to be fair, the last few years, we looked at the business and said, COVID, Clean Car scheme. The whole New Zealand business hasn't really had a break. So we haven't had a chance to look and see whether it's a good business or not. We did expect January 1 this year when that Clean Car scheme came off. We thought the ice product, the brands that we had would bounce on January 1 that haven't. We think that's more to do with some fragility in the New Zealand economy more than anything. So as we sit here today, you're exactly right. We wish that business over there was 3% return on sales to our 4.4%, it's almost a breakeven business at the moment. Now what Eagers won't do is try and buy our way out of trouble. We won't merge in a business that's not performing to try and fix it. Or in a market that we're not one totally convinced is going to produce the right returns. At the moment, we're pretty convinced New Zealand is a good market to be in. We've got to fix our business and then we've got to build scale. The last comment I'll say is New Zealand, just for context is 2/3 the size of Queensland in terms of scale in the new car market. So it's a pretty small market. Having said that, we make $100 million in Queensland last year. So there's still opportunity in New Zealand done right. The way that question was asked and the thinking behind it is our thinking, but we've got to get our business onto a stable platform first.

Just going to say those businesses were actually, we inherit those from holders within...

That's right.

And secondly, there is a saying the car in[indiscernible] dropped the subsidies on the electric car. In fact, that for a [indiscernible] So it's very late in [indiscernible] So we're hoping that I'll go back to point this year.

Mark, the other thing we note also pulled in Australia and New Zealand in March 2020, and that business in New Zealand was quite heavy on General Motors. So the business start pretty meagerly in March of COVID when General Motors called out as well. It had absolutely nothing for going because of things like that.

The one thing it has had positive is it still has a great team over there to working hard. It's been tough for them, and I do feel for our New Zealand team. So our New Zealand team, we do appreciate how tough it is of any of them listening, but the thinking around getting it right in New Zealand, as Nick said, the economy is right. We get the business right, then there's an opportunity to grow Absolutely. The...

I [indiscernible] and took away BMW.

Absolutely. I do, It's a real car culture over there. You're right.

Questions...

Keep going James.

I have two more on one question, Chair, both [indiscernible]. The first question is, could the Chair please comment on why the CFO Sophie Moore is on the board, where the CEO, Keith Thornton, is not does. Does this extra responsibility that of influence how much you have paid? And will you put Sophie up for election next year so that shareholders can endorse that approach to governance.

Okay.

Thank you, Stephen. Pleased to all consistent. I think you may well have asked this question in previous AGMs. Can I just make the point that Sophie's contribution to the company is obvious and it's extensive. Her contribution at Board level is very significant. I think it should be understood that Sophie joined the Board at before Keith even though Keith has been made a long time and with Eagers some 20...

22 years.

22 years and made an amazing contribution. Sophie's appointment to the Board came at a time when Martin Ward was the Managing Director. And before Keith was appointed the Chief Executive Officer. So I think -- the other part of -- there was another part of the question, as for the remuneration now, not that I'm aware of anyway, that -- and -- so a problem. So I think you could take that as an answer. There's no extra pay for the hard work on the Board and nor does it impact on what she has paid on an annual basis, which obviously our Rem Committee and the Board look at market-related remuneration packages. There was another point of, from recollection, I think, Sophie, you were up for reelection at last year's, yes. And that is for a 3-year term. If my memory serves me correctly, it was very soundly supported by fund managers, shareholders and all the shareholders of size. So the answer to that is, I think you were up for reelection again in 2026, and that would be, I'm sure, the Board's first time that there would be any consideration of that. So answer, Stephen is no. It won't be put up next year. And could I just make one other point, too. We are constantly under the pump as a Board, fund managers, proxy houses, they all want the perfect model. And one of the areas that they spend an awful amount of time giving Board members grief. It's around independence. And what they really like is the maximum independence that you can get on the board, even at times if it comes to impacting on confidence, I choose confidence every time for a Head of independence. But given independencies something that fund managers and proxy houses look at and it's a serious issue. We'd love to add Keith to the Board tomorrow. And I think he should be a director of the company. We all do, but we don't necessarily need a larger board. But secondly, it would impact severely on our independence. We would then have to explain to all the fund managers and the proxy houses as to why we're not delivering maximum independence in accordance with their rules. So that's a bit of a punishment of panel that for poor old pool Keith at the moment. But I'm sure like everything, time will sort all that out. But thanks for your question, Stephen.

Would also kick up our gender diversity goals as well.

Yes. We're very conscious of that. Thank you.

The final question from Steven Main, the market reaction to the earnings update this morning for the first half has been a little unexpected. Can you please explain the systems and processes around continuous disclosure obligation to ensure that the market was appropriately updated at a right point in time.

Well, I think whilst we commented on guidance, I think it's fair and Keith said a number of times, we're 4 months into what is the 12-month year for Eagers. And I know we report every half year. So we're 4 months into the first 6 months. And Keith outlined a number of issues that economic issues, as I did in my address, I commented on them. And -- and I think Keith also said April was a pretty dodging month. And I think if you look across a large number of companies, the super retailers of the world, the JB High fives, many of them have commented that there was a difficult month in April, spending and other reasons. And we're 4 months into the 6 months. I guess, caution about what will the next 2 months spring, as Keith pointed out, 2 months last year, May and June were very strong, either May and June going to be as equally strong this year. I guess we don't know. There's a fair chance given you pick up any newspaper, and all they talk about is interest rates or cost of living or consumer spending or whatever, they may not be. So as Keith said, we've been, I believe, appropriately cautious. The Board took a view that, that was the correct approach. And whilst we haven't settled on a number and we won't be settling on the number till the end of June, it may well be, if trends continue as they are, we'll be in that range comfortably that Keith referred to. Anything else in the question that I missed? But I think you mentioned process or whatever the Board considered the comments that Keith was to make and I was to make a Board meeting as to be entirely appropriate and appropriate with proper governance. Denis, you might have some view of that. None?

Solely considered by the Board, makes it today.

Okay.

I would just add that only approximately 2 months ago that Sophie and I were reporting to all the investment community in fundamental and large shareholders, sophisticated shareholders on our 2023 results and our outlook for 2024. So we're a company that has a lot of interest in us now, a lot of interest. We are covered by an extraordinarily large number of stock brokers. And we are talking to the market consistently. So our disclosure, Sophie and I are very careful disclosure. It's consistent. It's fairly transparent. We learned that from our previous CEO. But it is something that we take very seriously, and we're talking to the market consistently. But equally, we're always cautious, and we've given the cautious guidance to that.

Thank you, last chance for questions from the room and or online.

Okay. We have one further question online from Phill Chisholm, Phil's question is, is there a comment from any of the directors on the Board as to why the market has responded in the way, it has this one?

I haven't seen how the markets responded. But I can take that, that it's probably responded negatively, which might create an opportunity for all of us shareholders. There's no further questions. I'd like to thank all shareholders for your participation and particularly sort of under.

[indiscernible]

Really? We should -- we should announce that. I'm pleased to see Nick you've brought on all that online very good. On for you, maybe the market might take some notice of that, too. Thanks very much, Nick, and thank you very much.