Eagers Automotive Limited (APE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Eagers Automotive FY '24 Results Briefing. [Operator Instructions]. I would now like to hand the conference over to Mr. Keith Thornton, CEO. Please go ahead.

Well, thank you for joining us today to discuss the Eagers Automotive results for the 2024 financial year-ending 31 December. Sophie Moore, our CFO, joins me this morning, and together, we have the privilege of presenting the 2024 full year results. Our results pack, including the slides for the presentation have been lodged with the ASX, and hopefully, they are visible via the webcast. As outlined on Slide 2, the presentation today will provide our financial results followed by operational and strategic updates. We'll also provide the company's outlook for 2025 and beyond before opening for questions. But before I start, I have to say I'm excited to talk through Eagers Automotive 2024 performance. For a while the 2024 full year results were below our record 2023, rarely does one reporting period better demonstrate how our business has been materially transformed into a stronger, more resilient business relative to both the industry and our peers. A key message that we'll communicate is that Eagers Automotive has and continues to build an enduring and growing competitive advantage. But to begin, let's look at our financial results. The company delivered an underlying operating profit of $371.2 million for 2024, comprised of $182.5 million for the first half, increasing in the second half to $188.7 million. This pleasing result was achieved on record turnover of more than $11.2 billion, up $1.3 billion on 2023 with an overall underlying net profit margin of 3.3%. Now when removing the impact of interest rates and depreciation on the results, underlying EBITDA before impairment was $550.4 million, which is a new high for the company. We continue to be a very secure company, well positioned for future growth with $773.9 million of liquidity and a significant increase in our property assets, which are now valued at more than $885 million. This is an increase of $618 million since the merger with AHG in 2019. And in fact, property assets have increased by $287 million in the last 12 months alone. Based on these results, we are pleased to announce a final dividend of $0.50 per share, taking the full year to $0.74 per share, in line with the 2023 record payout. This continued strong dividend payout demonstrates the company's ongoing focus on rewarding shareholders, the material funding optionality we have and the Board and management's continued confidence in our outlook and the specific plans we have for 2025 and beyond. As I mentioned earlier, a key takeaway from the 2024 results is the evidence of the enduring and growing competitive advantage that we continue to build within the Eagers Automotive business model. Looking to Slide 4, you'll see the market for new cars remained resilient across the board, producing a record result for the year. Within this strong marketplace, Eagers has grown our market share to now 11.5%. What will surprise many is that the orders we took outstripped deliveries during the second half of 2024 by 10% across our portfolio, with this dynamic continuing into early 2025. In total, we delivered more than 147,000 new vehicles, while our order bank grew in the final quarter of 2024 to remain a factor of 5x pre-COVID levels. In terms of revenue, balanced growth across organic acquisitions and greenfield opportunities delivered more than $1.3 billion in turnover growth in 2024, exceeding the $1 billion that we foreshadowed this time last year. Within this strong revenue environment, we have continued disciplined execution on our long-term next 100 strategy, which now clearly demonstrates the stable net margin performance we expect even in periods of industry or economic headwinds. This net margin is underwritten by the highest ever productivity levels per employee and enabled by consistent investment in our proprietary technology. We now represent 49 OEM partners with more than 400 dealer points across Australia and New Zealand, with these operations underpinned by a property portfolio that is rapidly approaching $1 billion. Our multiyear business transformation, combined with material growth and a resilient market in which we achieved market share gains demonstrates our growing competitive advantage and how it delivers at a net margin level, which is now running at a factor of more than 2.5x higher than the industry based on the second half of 2024 averages. This is the largest delta we've ever recorded. It's worth highlighting that the return on sales net margin from the core business in isolation, which is 70% of our total turnover, on a like-for-like basis is stronger again at 4.2% return on sales, which was actually up on the half year, which was 4.1% versus the industry average of 1.2%. It's a massive difference. We see this competitive margin advantage as maintainable with further structural improvements in the future on which we'll provide more detail during today's presentation. But this outperformance has been years of relentless execution in the making. Moving to Slide 5. You'll see that what underpins our confidence in the future is the way the company has been relentless in transforming the business model as we continue to exploit our growing scale and geographic and portfolio advantages. This has been a multiyear transformation and is clearly demonstrated in our 2024 results. Looking at some key highlights here on this slide. Like-for-like and relative to 2019, we have increased our owned property portfolio by 231%, while at the same time exiting 98 external leases. On a like-for-like basis, we've reduced our head count by 20% while growing our productivity by 49%. And we have grown the profit from our independent used business, easyauto123, by 488% over this period. Across property, people, finance and proprietary technology, we've seen our return on sales net margin become much more resilient and defensive compared to industry performance. Finally, this transformation is far from finished. And in fact, it gains momentum as we grow with greater scale providing greater leverage. At the Investor Day, the company held last year, we outlined a further 1.9% return on sales benefit, which is incremental to the current performance of the company, already outperforming the industry. This slide demonstrates how Eagers Automotive has used the margin tailwinds during 2021 to 2023 to accelerate productivity initiatives to the extent that the delta between Eagers and the industry will continue as we further establish an enduring and growing competitive advantage. I'll now pass over to Sophie Moore, our Chief Financial Officer, to speak in more detail about our financials.

Thanks, Keith. I won't repeat all the headline numbers that Keith has already gone through today, but instead, we'll focus on some key insights into the financials. In a company that has expanded by approximately 30% or over $2.5 billion turnover in a 2-year period, it is incredibly important that we provide enough detail and commentary around the moving parts so that an accurate assessment of the business performance can be ascertained. Eagers delivered a record revenue for the full year 2024, up 13.6% to $11.2 billion, 30% higher than the $1 billion we foreshadowed this time last year. Our underlying EBITDA before impairment reached a record $550.4 million for the full year with an EBITDA margin before impairment of 4.9% compared to 5.5% in 2023, but still well above the long-term average of 4.1%. A key highlight of the 2024 result is the underlying cost before interest and depreciation as a percentage of turnover is the lowest we've ever recorded. This reflects the benefits of scale, an optimized operating model and the sustained focus on productivity and cost efficiency. For the full year 2024, the underlying like-for-like cost base, excluding finance and depreciation costs rose by $36.9 million, up 2.9%. It's important to note that these figures reflect the expanded cost base driven by our rapidly growing retail joint venture, including the strategic investments in this retail network, workforce and strong organic growth turnover. However, excluding costs from this fast-growing retail joint venture and excluding finance and depreciation, the like-for-like cost increase was minimal, just $900,000 or 0.1% across an annual cost base of approximately $1.2 billion, an achievement we are very proud of in this recently inflationary environment. Slide 34 in the appendix includes a reconciliation of statutory to underlying EBITDA before impairment and profit before tax. Historically, over the last 5-year period, our statutory profit before tax totaled $1.94 billion compared to $1.8 billion in underlying PBT, reflecting a ratio of 107% statutory to underlying PBT. In the 2024 financial year, statutory PBT was $335.6 million, lower than the underlying PBT of $371.2 million. To ensure full transparency consistent with our prior year disclosures, the $35 million difference is primarily driven by items beyond our core underlying operations. These include a $21.2 million impairment of our New Zealand operations, not unexpected given the last 2 years of economic challenges and associated business performance and $9.4 million in business acquisition and integration costs associated with the significant acquisitions that we have completed this year. Total inventory was $1.87 billion as at the 31 of December 2024, an increase of $258 million from $1.62 billion at 31 of December 2023. $218 million or 85% of this increase was driven by business acquisitions in 2024, while the other 15% relates to the expansion of our parts business. Importantly, though, the critical measure that we always focus on is days supply. At year-end, Eagers held 54 days supply, even better than our expected maintainable 60 days supply. This is a reduction from 64 days at 30 June 2024, reflecting very strong inventory management and well ahead of our industry performance. Looking ahead with the lowest interest rate environment in 2025 and beyond, we see significant opportunities for cost savings as we continue this optimized inventory management. As inventory stabilizes around 60 days and interest rates begin to moderate, the positive impact on our PBT will be clear. Every 25 basis point rate cuts translates to an annual interest rate saving of $3.8 million on floor plan or $6.3 million across all our debt categories. Turning to Slide 9. Eagers has a proven long-term track record of executing a balanced capital management strategy. Our capital framework is built on 4 key pillars: investing in our business through capital expenditure, growing our people, proprietary technology advancements to drive organic growth, disciplined acquisitions, continuing to maintain a rigorous approach to identifying and executing these strategic opportunities and property-backed balance sheet, supporting our transformation strategy with a strong asset-backed financial flexibility. This approach reflects our commitment to sustainable growth to ensure that we deliver the final pillar, rewarding our shareholders with strong returns. Over the last 3 years, Eagers has made a balanced deployment of $1.5 billion of capital across these pillars. Over the past 11 years, we've consistently delivered more than 11% compound annual growth in dividends, demonstrating our strong track record of business growth together with shareholder returns. Taking an even longer-term view, since 2000, we have delivered a 16.9% compound annual growth in the Eagers share price. This commitment to rewarding shareholders while maintaining the flexibility to capitalize on strategic growth opportunities is fundamental to our company's long-term approach and philosophy of growing this value. Turning to Slide 10. As we continue to execute this balanced capital management strategy, Eagers remains in a strong financial position underpinned by the substantial property portfolio, which Keith spoke about earlier and our overall asset base. We are well positioned to fund future growth, supported by strong gearing capacity and a disciplined approach to capital deployment across multiple funding sources, including debt, equity and divestment of noncore assets or property. The group's total liquidity capacity is backed by $1.5 billion in committed core debt facilities from both our syndicate and captive partners with maturities extending from 2028 to 2044. The successful securing of additional liquidity in the second half of '24 underscores the strong confidence of our finance partners in the long-term execution of our Next100 strategy and our ability to navigate evolving economic cycles with resilience. As expected, we ended the 2024 financial year with corporate debt of $813 million net of cash, up from $495 million at June 2024. This increase in total debt, including both syndicate and captive fininanciing aligns with our strategic growth initiatives and investments. This includes $200 million in large-scale M&A transactions, which have significant upside potential, $241 million in property acquisitions, accelerating our transformation strategy, $65 million associated with the expansion of our parts business and the continued ongoing investment in capital expenditure and technology to drive organic growth. Our long-term debt provided by Captive Financiers supports the $885 million property portfolio, which certainly anchors our presence in key strategic locations. As at the 31 of December '24, we held equity in our property portfolio of $285 million and $368 million of equity in inventory, further reinforcing the strength and resilience of our asset base. I will now hand back to Keith to take us through the operational highlights.

Thanks, Sophie. Okay. Let's move to the operational update, starting with the demand environment for new cars. 2024 new car market was a record for Australia with stable demand across our portfolio throughout the second half of the year, which has continued into 2025. Notably, and as I already mentioned, our orders written compared to vehicles delivered were 10% higher in the second half, highlighting the quality and the unique nature of our OEM partner portfolio, combined with disciplined inventory management. This, in turn, grew our order bank through the final quarter and again into January 2025. And as of today, it's sitting at over 30,000 units again. While we're still only in the early stages of the year, the current order rate indicates a positive year-on-year trend, and we expect a number of macro tailwinds over the course of 2025 that will further support stable demand across the new car market. Moving to supply and the industry dynamics we're seeing at the moment. The challenging market conditions reported by many in our industry during the second half of 2024 was not related to weak demand. In most cases, it was franchise-specific demand supply imbalances related to excessive and aggressive inventory positions taken by individual OEMs that then created short to midterm margin and cost pressure. Now in Eagers Automotive case, while not immune from franchise-specific impacts nor geographic areas of weakness, our scale, our discipline and our unrivaled quality of our brand portfolio and our partnerships allowed us to maintain our strong performance through a period of industry reset. It's worth noting that we are proudly the largest partner to 13 of the top 20 selling OEMs in Australia. And it's the quality of your partners that shines through during a period of industry challenge. On this slide, we again highlight our inventory position, demonstrating 54 days supply at the year-end, made up of 40 days unsold and 40 days sold pending delivery. Now we've foreshadowed in the past, and we continue to foreshadow that 60 days supply is the normalized inventory period going forward. Finished 2024 with 54 days supply is an exceptional result, particularly relative to the oversupply many others in the industry have reported. Across the industry, there are a number of dynamics at play that are creating an environment that will reward high-quality dealer operators with high-quality dealership assets. Ultimately, dealer assets are hard to establish or replicate quickly. What this means is there is growing competition for high-quality operators who have high-quality purpose-built facilities that are already established in high-traffic shopping precincts. These dealer operators will ultimately choose to partner with OEMs that provide the most sustainable and profitable economic models for their franchise networks. The OEMs with the best economic models for dealers attract the best dealers, which, by the way, has always been the case. Finally, as we always point out, these dynamics are generally new car specific. The resilience of our model and the industry is supported by the material used finance, insurance and aftersales businesses that we run as part of the consolidated franchise model. On Slide 14, we look at these parts of the automotive retail business and how they've performed relative to the outlook we provided. And as you can see, it was a largely positive performance across these segments. Overall, and reflecting a challenging and competitive new car margin environment in some OEM brands, our gross profit percentage reduced compared to 2023. The key takeaway of this slide, however, is that even though gross profit margins reduced to long-term averages, our EBITDA margin significantly outperformed, and the results are now well above the long-term average and with upside still to come. And this is what underpinned a record EBITDA result for the company. Now the next slide, Slide 15, will help explain how. Eagers' automotive cost base as a percentage of turnover is the lowest we have ever recorded. As pointed out earlier in the presentation, the evolution of our business model has been a multiyear journey with business process redesign enabled by proprietary technology. It is the enduring and growing competitive advantage that we refer to. One specific metric to highlight is that our like-for-like underlying business when you remove the fast-growing BYD retail joint venture, our cost base, excluding interest and depreciation, increased by only 0.1% in 2024, a year characterized by inflation. Focusing on cost management and the things that we can control is part of the Eagers DNA. So putting this all together, let's now look at our net margin, obviously, the combination of our gross less our cost, which is referred to as our return on sales. And let's look at it at a consolidated and a business unit basis. The consolidated net margin was 3.3%, which pleasingly remains above our long-term average of 3% despite the challenged new car margins for a number of brands in the industry. Let's look at this by business unit. So referring to the top left graph on Slide 16, starting with our core underlying franchise business, representing 70% of our total turnover. Our net margin remains at a very strong 4.2% for the full year. It actually increased in the second half to 4.3% after finishing the first half at 4.1%. Acquisitions are the next bar along, and they represent the businesses that we've acquired in the last 3 years, which is about 15% of our total turnover. Now these businesses are a mix of high and low-performing franchises. They run across mixed geographic regions. And some of these businesses have been well integrated into Eagers operating model, while others haven't meaningfully been integrated at all. The net margin achieved from this business unit was 1.5% and represents significant upside potential in 2025 and beyond. In fact, the upside in acquisitions alone just by meeting Eagers' core return on sales is $44 million PBT per annum. The final business to call out is our retail joint venture for BYD, which currently trades at 2.5% and represents material upside, which will be driven by a combination of strong revenue growth, along with better margin evolution as the high margins from service and parts grow over time. Now the upside here is $38 million in PBT per annum based on our '25 forecast and returning to Eagers' core margins. And I stress this is not necessarily a forecast for 2025. It is the upside that we will achieve over the coming years. This slide demonstrates clearly our resilience and competitive advantage relative to the industry. The industry dropped to 1.2% net margin in the second half of 2024, down from 2.3% in the first half, while we at Eagers maintained our net performance at 3.3% half-on-half. This slide is critical to understand as it represents 3 key takeaways. Eagers is a resilient business. Eagers has a clear and growing competitive advantage and Eagers has considerable upside in the order of $100 million per annum simply through optimizing our existing businesses. Let's now turn to strategic updates to provide better detail on both our optimization, which is our margin-enhancing activities and the material growth we expect in the next 12 months and beyond. So moving on to our strategy. This next slide summarizes our long-term next 100 strategy. the upside still identified across property, people and finance pillars and finally, that return on sales performance of the specific business units to help understand the drivers and the future profit potential. So let's start with the core business. Across property, people and finance, we continue to optimize our business. Own property is now approaching the $1 billion target we have communicated since the merger. We've increased productivity per person by 7% compared to last year through proprietary technology that continues to be developed and rolled out across the broader business. While our obsession with finance, insurance and ancillary incomes continues to be a key lever that enables both a material gross profit upside and hedge to new car margin pressures as it's not subject to external influence. It's another one of the controllables that we've been relentless on improving. On a per vehicle retail basis, we are 56% higher than the industry in new cars and double the industry on income per used car retail. And this is a key part of the Eagers operating model to understand. And while it's not unique, when executed at our scale, allows great profit resilience, sorry, to cyclical pressures. And it's worth highlighting again that we will originate in the order of $2.3 billion in finance in 2025. Moving on to acquisitions. Since our half year update to the market, we have completed another significant acquisition, which is the Norris Motor Group in Brisbane. The Norris Motor Group is an iconic and high-performing group based in inner and Northern Brisbane and founded by Paul Norris. Total turnover is approximately $550 million per annum. It has 11 leading brands, including 6 of the top 10 selling brands in Australia. Key to this acquisition is that Paul Norris will continue to oversee the business for the next 12 months as part of the earn-out conditions. As part of this transaction, we acquired more than 37,000 square meters of prime strategic property in the fast-growing inner city suburbs of Windsor, Kedron and Naanda. We're very excited about this acquisition as it represents a material accretive business that will be a positive contributor over the long term, while giving us even stronger optionality and representation in our home market of Brisbane. In total, we settled businesses in 2024 with turnover in excess of $1.5 billion.Finally, and as we've pointed out, there is significant upside as we integrate these acquisitions, highlighted on the slide with $44 million in incremental profit before tax per annum available. Slide 21 talks to our retail joint venture and the rapid growth of our retail joint venture representing BYD continued in the second half of 2024. And after navigating through the excess inventory challenges highlighted earlier in the year, the business recovered to produce a record profit result for the full year. Now this is despite deliveries for the eagerly anticipated Shark utility not starting until 2025. A key advantage of the business continues to be the brand's new energy vehicle product range, offering affordable battery electric products while also capitalizing on the high-growth volume opportunities in the plug-in hybrid segment. The introduction of plug-in hybrid models in key market segments has produced another step change in demand with 74% of the current order right representing plug-in hybrid models and a total order right in February, as we sit here today, running at 185% above the prior year. BYD continues to pursue their ambitious growth plans across the Australian market with the national footprint continuing to expand in the first half of 2025. In addition, an aggressive expansion of the model range is planned across 2025 and 2026 with new model introductions incorporating both hybrid and EV powertrain technologies where available. Moving on to Australia's leading independent pre-owned brand, easyauto123. We've included several slides in our results presentation as this is effectively a company inside the company and is a key value creator for shareholders in the future. These slides provide the key financials behind our record ever 2024 result, and they provide better insights into the lead indicators and our unique operating model. Slide 22 shows growth in all key financial indicators in 2024, culminating in a net profit per used vehicle sold in easyauto 57.9% higher than CarMax, which has been the long-term global benchmark. Slide 23 provides key lead indicators across sourcing, brand awareness and customer employee experience, measures that are the foundation of the business and when linked with the outlook for 2025 will be the platform for material growth, which is outlined on Slide 24. Finally, on Slide 25 and as communicated at last year's Investor Day, our unique sourcing advantage from our new car franchise business provides unique -- sorry, plus unique and emerging inventory and marketplace partnerships provides a pathway of incremental organic and capital-light growth in a marketplace that we remind everyone is 3x the size of the new car market. Finally, in addition to this unique sourcing advantage, we continue to explore exciting partnerships that will be the catalyst to turbocharge easyauto123 in the short to midterm. Okay. Finally, turning to our outlook. And on Slide 27, I'll simply read the headlines. Execution of our Next100 strategy delivers outperformance and resilience with further upside to come. In 2025, we expect to continue to improve the Eagers Automotive business. We have built an enduring and growing competitive advantage that has allowed Eagers Automotive to materially outperform the industry and reset the business model with a more resilient and sustainable net margin floor. And importantly, further net margin improvements are far from over with more than 1.9% in margin improvements incremental to current levels identified and with a clear plan for these to be delivered in the coming years. In addition to building a better core business, we will continue our track record of consistent and robust growth. There is no shortage of growth opportunities for Eagers to pursue. In fact, it is no exaggeration to say that the opportunities being presented to Eagers across multiple streams, both in Australia and overseas, is unprecedented. But this should not come as a surprise. The industry is evolving and consolidating at a rate not seen previously. Go-to-market strategies for both new and existing OEMs are being reconsidered. With the scale Eagers provides, there is no doubt we are uniquely positioned to add value to business partners, both existing and new, local and abroad. Now this obviously creates opportunity for us to create value for Eagers shareholders. On the slide, you'll see the areas we are exploring with progress varying from well progressed to early-stage discussion of potential opportunities. Of course, it will be incumbent on the business to pursue the highest value opportunities from the many on offer. Finally, our outlook for 2025 specifically. Now as a 112-year-old company with a very long-term Board and management team, we continue to run the business with this same long-term view. Having said that, we do -- we are aware that many are interested in our view for the short term. On this final slide for today, you'll see our expectations for the industry dynamics, our revenue, margins and our business units for the year ahead. With regards to the industry, generally speaking, we see conditions to have troughed in the second half of 2024 with these dynamics to stabilize through the first half of 2025 and provide positive year-on-year outcomes flowing through in the second half of the year. This will be assisted by the emergence of some macro tailwinds, including the recent RBA rate cut. Into these industry dynamics, we expect to deliver another $1 billion in revenue growth in 2025, taking turnover to approximately $12.2 billion, which will have grown the company by 43% since 2022. Finally, over the course of 2025, we expect consolidated net profit margin performance to be consistent with 2024 with improvements in acquisition results, benefiting from deeper integration into the core. In addition, we anticipate strong upside in our retail joint venture and independent used businesses, both providing upside risk and a downside hedge against any general market margin pressures. So before we open for questions, and as always, I would like to recommend -- sorry, recognize the tremendous efforts of the entire Eagers Automotive team, and I know a number of listening today. It's a privilege to work alongside you all and to be able to report your great results to the market. On behalf of Eagers Automotive, I would like to take this opportunity to thank you all for your interest in today's update and would now like to open for questions. Thank you.

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

Just a couple of questions. Firstly, just wanted to test, I guess, your view on the volume just for calendar 2025. There's a lot of moving parts, federal election, the emission standards coming in, the FBT exemption rolling off and the like. Just your view, and I guess it's based on the fourth quarter demand and the January demand you're seeing coming through. Just testing that thesis around where you're seeing the volume outlook for 2025.

Russell, you're exactly right. It's very hard to predict what's going to happen over the course of 2025, but we're feeling reasonably comfortable and reasonably confident. But now some of our confidence is around Eagers position in that marketplace. So a couple of things to point out. First off, our scale, I made the comment that we are the #1 partner of 13 of the top 20 brands. And when you are the largest partner with quality partners, you're able to ride out any of the bumps around RBA changes, change in FBT legislation, et cetera, pretty well. The other thing is the unique partnerships we have in our business. And I'll just point to quarter 4 and this year order right, which probably will surprise you. But since October last year, so quarter 4 through to the end of January, we've taken 22.6% more orders than we've delivered cars. 22.6% more orders. Now if you exclude our retail joint venture, we are still in this year up on last year, like-for-like, excluding all acquisitions. So the demand environment is not something that we are overly concerned about. You're right, it might be bumpy through the course of the year with the FBT exemption coming off at the end of March, with the federal election to be dealt with. And federal elections usually create a slowdown into the election and then a speed up post the election, and it's entirely related to the uncertainty before and the certainty after. It's not necessarily linked to which government is in power. It's going to be a bumpy ride, but the numbers as we see them and the data we've got and some of it is unique to Eagers are pretty positive.

Two more questions. And just, I guess, to test that, I guess, the new car GPU assumptions going forward. Obviously, you would have been exposed to some of the OEMs that had those challenges. It's just obviously a much smaller part of your portfolio. Do you see in the conversation with those OEMs that, that, I guess, inventory imbalance has been corrected now? Or is it something that will continue on for a little bit? And I guess, how are those OEMs positioned into the back end of the year, which naturally pressures all GPUs across the market?

It does. But usually -- and it really is that it's not that there's not some level of contagion if an OEM, if they're a major OEM and they get their supply and demand balance out of whack. It's not that it doesn't have some impact outside the franchise, but it is generally contained in the franchise. It is the franchise that suffers and the OEM economic model is the one that is stressed. You're exactly right. These issues are generally short to midterm in nature because the issue is that when an OEM gets supply and demand out of WAC, they get a lot of pressure from their network to fix it. And it is generally a case of getting the supply-demand balance back in order. The other thing that's occurred over the last, I guess, 6 to 8 months as this industry reset has occurred is that there has been some reorganization of some networks. There has been some brands where dealers have either relinquished or sold or closed some dealer points, which obviously then increases the throughput at the remaining dealer points in that OEM. So it's a combination of the OEM getting supply right, the network working on getting the throughput per site right. And the final comment I'll make, and it was part of what I talked to is that at the moment, we're seeing this. There is -- it's not that it's finite, but it's very difficult to establish a purpose-built, correctly zoned SSS, which is sales, service and spare parts facility fit for purpose quickly. So with competition, there is no doubt that there is pressure on all OEMs at the moment to make sure that their economic models are profitable because that is what underwrites their long-term success, and that's what underwrites their representation. So there's no doubt that there's pressure at every level to get the economics right, and it's not necessarily linked to the overall number of cars sold.

And then just a final question, just thinking, I guess, more strategically how Eagers plays 2025. There's a lot more property on the balance sheet and the gearing has gone up a little bit. But I guess there's new OEMs coming into the market through 2025. and potentially some that you may not necessarily want to partner with. But a lot of your competitors have got significant pain out there and the rate cut might only have helped a little bit. How are you thinking about the opportunity set for you guys this year and how you deploy capital? And will be more, I guess, property location led rather than necessarily OEM brand led?

Well, the thing that I would say, Russell, is that we always keep talking about our Next100 strategy. And if you go back to that strategy, the first circle on the 5 circles of that strategy as we represent it to the market is about engage our customers everywhere. Now what that actually is, is a property strategy. And we've been working on a multiyear transformation of our business probably with the view that the environment that we're seeing now, which is a crowded marketplace with lots of representation opportunities would emerge and that the go-to-market strategies at a retail level would also evolve. So we're actually well advanced on getting to a position where the footprint, the capital -- sorry, the property that we own is able to be strategically redeveloped because we own it, and we're happy to spend money on land we own in a way that responds to this new world environment where it's perhaps more auto mall style rather than stand-alone facilities with one single brand. Now that doesn't mean we won't have those. And when an economic -- when the economics of an OEM stacks up for a stand-alone business, that is exactly what we provide. But we've been working towards this for a while now. I don't know whether Sophie wants to add some commentary around the capital management for the year ahead.

Yes, Russell, certainly, as I spoke to earlier, we have deployed a lot of capital around these strategic growth investments. We do have -- still have significant gearing capacity. We're probably at a peak at the moment. Obviously, we will get some benefit as we get an improved contribution from those acquisitions into 2025. And certainly, from a gearing perspective, as I said, there's plenty of capacity from -- even from an EBITDA could come down 25%, and we'd still be under 2x. And likewise, even just -- we've obviously got listed share investments, that would bring down gearing as well. So again, we look to deploy it across those 4 key pillars. But where we sit here today, we're comfortable that where we sit and where we'll look to at the end of '25.

Sorry, just to clarify. So should we view 2025 as a big year of capital deployment because there's lots of opportunities out there or the bigger opportunity is actually just continuing to, I guess, run the underlying business better and the upside of that $100 million of PBT through those 3 different pillars is really the push or 2025 could be a good year of seeking opportunities because the rest of the industry is in pain.

I think that last comment is probably the appropriate one. It won't be a year of massive capital deployment. And I think the second last slide, Russell, where we talk about the way we see growth going forward is not necessarily the way we've obviously grown in the past. So it will be a combination of those 2 comments. The fact that the industry is going through -- the 3 words we use, rationalization, consolidation and evolution. They're actually the most appropriate words. If you think about it, there will be rationalization. I made the comment that there are dealers handing back some franchises as that -- as certain franchises or OEMs rationalize to get their throughput right and have a strong, maintainable, sustainable business. There's consolidation. We've obviously been a big consolidator. That's continuing. And the catalyst to consolidate is there at the moment. And the final piece is this evolution piece. There is no doubt retail distribution of brands into marketplaces all around the world are responding to this once in a generation, once in a 100-year low-emission powertrain transition that is totally changing the way people think about how their brands are taken to market. And the end result of that is that given that we're the best part of 12% of the market, we're just uniquely placed to be able to participate in those 3 areas. And I make the comment all the time, Russell, that they're inbound. It's not us going out there knocking on doors saying, can we buy your business? People are now knocking on our doors, and feels like there's a queue of them to say we want it, we need to partner with you in this way or that way as the world changes.

[Operator Instructions]. Your next question comes from Peter Marks from Barrenjoey.

Just -- my question is just on the margin front. The recent acquisitions you've done look like they've done 1.5% margin in calendar year '24. How are you thinking about how long it might take you to bring them up to the group level? I think you previously said you might be able to get them to 75% of that group level by the end of 2025. Is that -- do you think that's still achievable? Or is it a bit tougher out there, particularly in those markets?

The reality is we operate in the marketplace like everyone else. So we're not immune to the margin pressures that are going on, which we've pointed out through our results in 2024 and this year. The acquisitions -- the integration and the acquisitions are about cost base, productivity, integrating the business, getting scale benefits in the background. We usually say that, that takes the best part of 3 years to fully integrate a business. And then there's no excuse, we can't say that, that acquisition is underperforming. We own it. We -- it's now our culture, our leadership, and we've got all the benefits that should be in the business. Now most of those, as I said, they're around people and property productivity. So it's all around cost base. The other thing we add to them is we generally significantly improve their finance and ancillary income performance, which is gross profit margin. And then the final thing we do is we leverage them for our easyauto used car business, which is accretive. So when we look at those acquisitions, they add to the core. They make the core stronger through fractionalizing our cost base at the core. They add to easyauto because they become a key sourcing partner to easyauto and grow easyauto. How quickly they can go from 1.5 up to the core margin it's very hard to say, well, 75% of it will happen by the end of the year. I think that's just plucking a number or a time out of -- it's a journey that we're on. It should improve every day.

Great. That's helpful. And then a similar question just on the retail joint venture side, the margins in the half, I think 2.5% for the year. I think that implies about 3% in the second half. It just sounded like it might have been a bit stronger than that based on your August commentary. So I'm just wondering if anything slowed down there on the margin improvement you're seeing there and how you're thinking about the level into calendar year '25 with all the orders you're writing in the shark.

It's really important for people to understand how that net margin is made up. It's made up -- so -- and again, I'm sorry to do this, but it's the only way to explain it. That net margin in our business is made up of the margins you make on new cars, the margins you make on used cars, let's call them just breathe, let's say that's 10% on both of those. Margins you make out of finance and insurance, let's call that 75% or 80%. The margins you make out of service, call that 70% and the margins you make out of parts, which is about 25%. And you add all those blended together to give you -- they're all gross profit margins. Now in the case of our retail joint venture, because it is relatively new, it's got very little service and parts contribution, both very high margins. It's got a 40% novated lease take-up, which is much lower finance income, and there's no used cars attached to it. So when you look at that margin profile, you need to understand that the margins on the new car are very strong, but the business has to evolve and grow. It's the same scenario that occurs in a greenfield business. They don't have that back end, that other high grossing part of the business to drive that net margin to be in line with the core. So it's a little bit misleading or it's a little bit -- it probably looks negative to our overall return profile. But the only way I can answer that is actually explain how it's all built up.

And if we exclude those sort of costs that we had to in terms of clearing the stock earlier in the year, that net margin would have been a touch over 3% for the full year.

Our expectations in that business is that we will -- in the first quarter, we will be more -- we will have produced more than at least what we made in the second half of 2024 in the first 3 months.

Your next question comes from Scott Murdoch from Morgans Financial.

Just a simple question, I guess, on the $1 billion revenue uplift expected in the year ahead. Can you just maybe give us a bit of an idea of the bridge to get there? Obviously, you've got some expectations around BYD or retail JV and acquisitions, which would be fairly cemented in the forecast. Just a bit of an idea of how we see the step-ups per business unit.

Okay. Thanks, Scott. Nice to hear from you. That growth is, I would say, as we sit here today, ultra conservative. Effectively, there's going to be the best part of $0.5 billion in acquisition out of the Norris Motor Group relative to the previous year. And effectively, if you just look at that, let's, call it, $400 million to $500 million we're expecting somewhere around $100 million minimum conservative growth out of our easyauto business. That leaves only a $400 million bridge in our retail joint venture. As we sit here today, that is incredibly conservative.

Yes. No, that's all good. Just, I guess, a pretty high-level question, maybe reasonably hard to answer, but just the other opportunities that are emerging from industry change. Obviously, you've called that out, including maybe changes in go-to-market models for certain OEMs. Just, I guess, holistically interested in sort of how advanced some of these opportunities are. Is that more a long-term statement? Or should we -- or could we see some of these changes coming through near term? And just maybe some insight into how you expect the industry to change over the next couple of years?

Depends on your definition of near term, Scott, versus long term. But these are conversations we're having now. So whether there -- whether it's -- and this is not all brands in the same way in all markets. But there is no doubt that whether you're an existing brand, you're a long-term established legacy brand that's been around for a long time or you're a new and emerging brand. The way you go to market, that last step, either being distributed into a country or into a marketplace and then how you go to retail is something that is under review. This is where we talk about go-to-market strategies are being reconsidered by existing and new entrants. Now new entrants are probably valuing speed to market. They want to work out how quickly they can get into a marketplace. Established OEMs are looking at how do we make sure that we have an efficient distribution model so that we can compete against new competitors. So without going into too much detail, it's not hard to see that, that distribution and how distribution occurs in Australia and other markets may be evolved and may be possibly consolidated in different ways in different markets. So some of the conversations we are having are outside of Australia at the moment, and they're obviously not with -- well, sorry, not obviously, but they're not Eagers going out there and saying we're going to start up overseas by ourselves with a new model. We are talking with some significant partners who have come to us and talked and basically asked us to be -- to consider partnering with them on exploring some of these models. So near term, I would expect that we would certainly communicate some progress on this front during 2024. Sorry, 2025 from a [indiscernible].

Your next question comes from Tim Piper from UBS.

Cracking result, lots of positives to ask about. But just to start with BYD, it looks like the cost base kind of roughly doubled on an OpEx call it, basis from '23 to '24. Do we sort of expect that again? What are we thinking in terms of network expansion in terms of retail locations for you guys over this calendar year? And then how much of the market do you think you'll be taking in terms of new locations?

Yes. Tim, thanks for the question. Without getting lost in the OpEx percentage because it's always dangerous when you've got a fast-growing part of your business, we're focused on the net return out of it at this stage and making sure that any investment we do is going to be sustainable for the long term. Certainly, this business is performing well. It's growing rapidly over the course of the first half of this year. So by the start of the second half of 2025, there will be 100 locations around Australia. It's highly likely that we will own and operate about 65% to 70% of those. Again, it is not exceptionally capital intensive. We are utilizing a lot of the property footprint that we already have, a lot of the property footprint that we've bought over the last couple of years so that we can strategically redesign it and use it in a way that is able to basically get the maximum result from that property investment. So we see 100 stores by effectively by July and us operating about 65% to 70% of them.

Wonderful. And then your comment around the fourth quarter seeing 22%. I think you said from October through to January, 22% more orders than cars delivered. Just trying to understand that. I mean, that's a very strong figure. I understand that on an underlying basis, I think you've taken 6,000 orders in the Shark, probably on a quarterly new car sales run rate of 36,000, 37,000 and then the Prado has launched as well. Were those 2 order intakes versus deliveries explain a lot or most of that sort of 22%?

One thing, Tim, that unfortunately, we never do is talk about specific brands or models. All the partners that we represent, we represent equally. But there's no doubt that there's -- I've made comments around the quality of our OEM partnerships and the unique nature of them. So without saying a lot, there's no doubt that a couple of models such as the ones you talked about have been very strong contributors. Just in that 4-month period, what that actually represents is just under 11,000 more orders than deliveries. So it's quite a staggering performance over a period that the industry is obviously reporting incredibly tough times generally. So that is going to -- that's grown our order bank. As I said, as we sit here right now, it's back over 30,000. And that puts us in a really strong position going into 2025. Again, it just talks to the unique nature of our business because obviously, this is not consistent with what others are reporting.

Your next question comes from Sarah Mann from MA Australia.

Just want to ask a question on demand. So clearly, you guys are talking to a pretty robust outlook, which is a little bit odd with what we're kind of hearing across the industry. How much of that do you think comes from having the right portfolio mix with products that the consumer actually wants? And also, I guess, as the industry evolves rapidly, how do you think about further optimizing your portfolio mix?

Yes, Sarah, thanks for the question. And I do think it's sort of a theme that we've been talking about here. A big part of what we all need to do in an industry that is changing is try and look a couple of years out as to where the industry is likely to be. In terms of what we can control, we can control growing our revenue. We can control our cost base. We can control adding finance to it. We can control used cars. In terms of margins across individual specific brands, that's much harder for us to control. So across those areas that we've talked about, we have been consistently growing the business to give us scale because we know scale gives us leverage. We know scale drives our productivity story. In terms of portfolio, we've been really active in this space. We're fortunate. Again, this is not -- a lot of this is the -- I guess, the luck of being a 112-year-old business that has got some significant scale. We're fortunate that we've had a lot of inbound people saying we'd like to partner with you. Now that's 112 years of hard work, but we've had the opportunity and we get to assess that opportunity. So I think your question is right, making sure you have a product portfolio that's responsive to where the consumer is going is critical. Even in the last 12 months, what we've seen is that EVs have flatlined in Australia. Fewer EVs have gone from 7.2% of the market, if you include those that don't report through VFAs to 7.4%. But the big step-up has been in hybrid. It's absolutely the sweet spot at the moment. And fortunately, we've got a really, really good portfolio mix that responds to that. So I think you're right. It's always been the case. And I think Sarah we've said in the past that during the unusual, the distorted nature of the pandemic period where a lot of challenger brands actually produced really high results because they were able to supply in a very short supply market. That wasn't something that we saw as sustainable. So we've always been focused on the long game and long-term partnerships with quality. And at the moment, it's also making sure you pick the right unique partners that are going to respond to where customers are going to go. And the last comment I'll say on that, Sarah, is it's where customers want to go organically, not where they're forced to go via incentives or mandates. And that's an interesting dynamic at the moment as you see EVs start to just flatline a little bit, which may just be a pause in their growth. But yes, certainly having a great hybrid portfolio is important at the moment.

Makes sense. I'm just curious, any color or comments you can share around some of the offshore opportunities that you've called out?

Sarah, we're probably not in a position to really go into any detail, particularly on this call around that. Yes, I think that's probably more in due course once we've got more to share. I won't go into it at this stage. But the message I would always say is that Eagers will proceed with caution. We're certainly pretty active, and we're having a lot of conversations, and we're looking at multiple opportunities. So we're not passive and we're not slow moving, but we'll be fairly disciplined in what we do. And I made a comment, it was a very deliberate comment that it's incumbent on us to pick the best out of many opportunities, not just the next opportunity. So when Eagers go offshore beyond New Zealand, where we already are, I think you'll see that it's been well considered quite a bit of due diligence behind it. And whoever we end up partnering with, you'll know that it's -- we're picking the best partners.

Your next question comes from John Campbell from Jefferies.

Yes, look, obviously, we're past the time, so I'll try and make it quick. But Keith, just sort of rounding out that all the interesting discussion around the changing go-to-market strategies of the OEMs. Is it fair to say that from how you're seeing it now that the pure agency model and maybe direct-to-consumer that they've sort of been kicked into touch and now we're talking about better ways to utilize the existing auto dealership networks, but not sort of those alternative approaches that there was a lot of discussion about a couple of years ago.

Yes. Thank you for the question. Yes, it's -- I think the direct-to-consumer models, they're very much in the minority. They were seen as a hot way and an emerging trend back when Tesla first sort of started to spring to life and started to get some momentum behind their sales. And a lot of the OEMs sort of said, we need to go all EV and we need to go direct-to-consumer. They were the 2 things that differentiated Tesla really beyond the tech, et cetera, from the rest. So every OEM decided -- and I'm being a little bit extreme in that sort of comment, but there was a number of OEMs saw direct-to-consumer and EV as 2 things they needed to participate in. That hasn't eventuated as or hasn't proven to be the ultimate winning strategy. And I think there's no doubt that on both fronts, everyone is walking back a little bit from seeing those as the only way to win in the future. The go-to-market strategies I need to be clear, there is a huge number of major brands that are very, very well entrenched and have great strong economic models for their franchise networks, and they're not considering and they have no need to change their current model. It doesn't mean they're not looking at it to make it better, but they're certainly not looking at fundamental change. The go-to-market strategies that are being considered are probably through some of the challenger brands, maybe some of the smaller market share brands that are already established here and working out how do they maintain a network and how do they maintain a strong, sustainable long-term presence here. And of course, it's also with Australia being a fairly attractive market for new entrants. So really, it's in that cohort of OEMs that the go-to-market strategies are being looked at. And you're right, they are seeing -- the one thing in the -- we always talk about being relevant somewhere from the factory floor where an OEM produces a car to the customer's hands when they put it on the steering wheel and drive out of a dealership, and we need to play a role in there. And if you look from the factory to the customer, everyone would be looking at different pieces on that distribution chain and working out how to do it more efficiently and more effectively. What people have seen, and it's probably why the motor industry or the automotive retail industry hasn't changed a lot in 100 years, there's a bit of a moat around us at the final piece where we actually do that delivery, where we handle the trade-in, where we write the finance contract, we provide the insurance. It's a complex transaction. It's not a transaction that can be easily displaced. It's not something can easily go online. So that gives us a strength because we are seen as an intricate part of that supply chain. So there's opportunities around that, and I could talk for hours on this, but hopefully, that gives some sort of color.

That's very helpful, Keith. And look, last quick question. Can you just remind us about the remaining duration of the retail joint venture in terms of the legal JV documents because I think there was a sort of an expiry date. And if that's still the case, whether there's been any discussions to extend the term?

In every -- we've got 400 -- more than 400 different deal agreements in our business. Every single one of them has an end date that varies between 3 to 4 or 5 years, including our retail joint venture. We've got -- we'll have 65 BYD stores, and we're investing in more. And we're doing that, obviously, as a very prudent and disciplined company. So without talking about any legal -- specific legal agreements, hopefully, that gives a very clear picture on our level of confidence going forward in our arrangements there.

The fact that you're investing indicates that your confidence in the extended duration of that joint venture.

We certainly wouldn't be investing if we were nervous.

Unfortunately, that does conclude our time for questions. And I'll now hand back to Mr. Thornton for closing remarks.

Thank you very much. And just to finish up today, I think, hopefully, the message has come across that globally, the automotive industry is seriously going through an interesting time of evolution and change. We feel at Eagers that we are actually at the step change in our evolution after 112 years, funnily enough. And it's interesting that inside Eagers, we quite often talk about trying to think and act like a 112-year-old start-up. But we often say, imagine being a start-up with 112 years of experience, almost $1 billion worth of property, 12% market share, deep long-term relationships with basically every OEM in the world. To be able to think and act like that as the industry at a global basis changes is pretty exciting. So hopefully, that message has come across. And thank you for everyone's interest today, and we'll talk to a lot of you one-on-one over the coming days. Thank you.

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