MotorCycle Holdings Limited (MTO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. And welcome to the MotorCycle Holdings Half Year Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Mr. David Ahmet, Chief Executive Officer of MotorCycle Holdings. Thank you, sir. Please go ahead.

Thank you, Christian. Good morning, everybody. David Ahmet here, MotorCycle Holdings' CEO. It's my pleasure to run through our half year results from July to December 2019. So today, what I'd like to cover is our results. Obviously, I'll do an overview of the financial performance. I'll talk a little bit about trading conditions and what the market's been like, drill down into operational review, and we'll talk about what we've been doing and areas that we've been working on. And then, finally, I'll finish on financial year 2020 and where we're focused for the rest of the year, and the key areas that I think we'll need to focus on. So if I go to our results, first of all. Sales revenue was up 3.1% to $178.2 million. It's up slightly on last year. Our like-for-like sales -- as we did add 2 dealerships towards the end of the half, our like-for-like sales were up just 0.4%, overall. Underlying EBITDA decreased by 4.8% to $9.9 million, and our margin is slightly down from 6% to 5.6%. The first half of the previous year was certainly a fairly strong half by comparison to the second half. The second half of last year, the market came off quite a lot. So I'm not too disappointed with the fact that we didn't exceed last year's performance because that was the better half of the year. But I'll explain a little bit more as we go along as to why I'm cautiously optimistic about these results and actually reasonably happy with where we're sitting at the moment. But I'll explain more about that soon. Our expenses overall increased for the business, but the dealerships, which I flagged back in the end of last financial year, I flagged that I would decrease the wages there, which we were able to do. So the wages came back by $800,000 in the dealerships. That was offset by 2 new dealerships established in November and an increase in salespeople for the MCA stores and an increased investment in 7 different areas of the Cassons business. So for new bikes. New bikes, 5,206 for the half, up 1%. Used bikes, a little better for us. We were up 6.2%. So the mix is still almost 50-50. But certainly, we're going a little bit better with used than new, and that's quite a deliberate action. That's where we've been focused. New bike market share increased to 11.1% of the Australian market, up from 10.9%. A couple of new dealerships. One of them, Canberra Motorcycle Centre, sells a lot of new bikes and that contributed, but only in the last few weeks, really. I think we were 6 or 7 weeks of the half we had that business. The other one being the Harley-Davidson business in Melbourne. Interesting, Cassons sales were up 4.3%. That's an important thing to keep in mind, and I'll explain more later as to why that's critical, up 4.3% in the margin. Pressure -- there was margin pressure that impacted the gross profit. So the margins did come off, and that has affected the performance of the business. But there's more to that. Motorcycle. Harley-Davidson unit sales were up 15.2%. You might remember that in the previous half and previous years, Harley-Davidson had come off quite a bit and probably for the most -- for most motorcycle manufacturers. Pleasing to see the bounce back up, 15.2% for us, 11.2% on a like-for-like basis, reflecting one of the purchase dealerships with Harley-Davidson in Brunswick. But that's a really pleasing thing, and that does have a significant benefit to our [ brand ]. We decided not to declare a dividend at this point. We want to keep the money for further investments, and we've got things cooking away in the background that could lead to a need for some cash. I would like to drill down into exactly what's going on inside the business and what areas were working for us and what areas weren't and what that means for the overall performance of the business. So if we look at new motorcycles, they were up 1% in volume; revenue, that was 4% up. But really important part here is the gross profit was up 27%. So that's a significant lift. So they're driven by Harley-Davidson. Used bikes, a similar sort of story. The volume was 6% up but revenue is 7%, but the gross profit up 14%. So clearly, what we're doing is we're increasing our average margin in the used bikes, and we're increasing the volume at the same time. That's been a big focus for us in the last 6 months. That's where we are trying to combat the decline in new motorcycle sales. The one area where we think we can manufacture a result as opposed to just suffer whatever the market is dishing up to a large degree. The used market was relatively flat in Australia, but we're taking extra steps to increase that part of the business. Much harder to do that with new bikes. Retail accessories. Now this is the one part of the business that is, I think, not performing as well as I would like. We're making progress in every other department. But our revenue was down 1%; the gross profit down 7%. So accessories -- and that's mainly accessories not parts. Accessories are suffering. Generally, they go hand-in-hand with how new bikes are traveling. So the new bike market was down again. And it's probably at its lowest ebb for many years, I would think. So it's only natural that accessory sales will go that direction. So our own retail sales down 1% in volume, but down 7% in gross. The service departments, where we repair and service the motorcycles. Revenue was down 6%, but their gross profit was up 4%, which means we just get a little bit better at doing the job, a little bit more efficient in the workshops. So it's still hard to get revenue growth when your new bike sales aren't there. The workshops do directly benefit increasing bike sales. So difficult to get much growth there if the market is not growing a heck of a lot. But we can't still run it efficiently. Finance and insurance. This has been a problem area for us, I suppose, over the last couple of years. And I'm looking at the trend now, and it looks like our worst results are behind us there, and we're up 5% for the half. And I look at each month, and we're gradually improving our results. We measure profit per unit sold, and that is gradually increasing. So we've taken a lot of pain in that area in the past, but it is starting to come back online and it is starting to deliver an increase in income. So it's steady as she goes, but the trend is very much still in the right direction. And then wholesale accessories, and that is our Cassons business. External revenue for Cassons business was up 3%, but importantly, the gross profit was down 6%. So you can see that the retail accessories and the wholesale accessories is a part of the business that's suffering the most. And clearly, the dealerships are the areas that we've made big improvements. And those were the areas that needed big improvements too, I might add. But we're set about doing that, and we were able to. I'm happy with the progress that we've made with the dealerships. Having said that, there's still plenty of scope there to get a better result. There's still dealerships that are underperforming. The market was still down for that half, but at least it wasn't falling by the double-digit figures that we've seen in the previous half and the previous 2 years. So there's some steadying of the market, whether it's dropped -- finished dropping and reached the bottom or not, I'm not sure, but it feels like it. It looks like it. We're starting to see some growth in Harley-Davidson and things like that, but still volatile. It was up and down the whole half. So what I'd like to say it's the bottom of the market and still cautious about that. It could get worse obviously this year. I'd like to talk about our performance now and financially, the profit and loss. And as I explained, the sales were up 3%. Gross profit margin was 28.8%, down slightly from 29.3%. So we ended up with an underlying EBITDA of $9.9 million, down $500,000 from the previous half. Not overly disappointed with that. Could have easily been a bit better as the dealerships did deliver a heck of a lot more profit than they had in the previous half. But it came off obviously in other areas, for example, Cassons. And our net operating cash flow decreased. There's some revenue growth, partially or quite a bit of it was due to new dealerships, Canberra Motorcycle Centre and Brunswick Harley-Davidson. We increased their used bike volume and stock a little, and Cassons stock increased. More of a timing issue with that business rather than an intention to increase stock. Aged stock with the Cassons business did fall over the half, and it's still reducing. And there's some changes to the AASB 16. I'll go into that in a second. I'd like to talk about the expenses because that's an area that I highlighted previously. It's an area that needed to be focused on. And so if we have a look at that graph there, so overall, $40.3 million. So the dealerships reduced their wages by $800,000 for the half, which is good. So if we can do that again, we're looking at about $1.6 million for the year. I thought it would be somewhere around $1.5 million, whether it's as much in the second half as the first, remains to be seen. It might not be. But certainly, we're well on -- truly on our way to getting over $1 million in savings, just in the dealerships. Two new dealerships, quite large dealership in Canberra. Both we took over in November. So the cost of doing business there or the overhead is about $800,000, but we have 2 more dealerships now operating at the same expense level as the previous half. And then we've got little bits and pieces here with the Keilor, which was rent-free this period last year. We're paying rent there now. So there's a couple of hundred thousand dollars there. Expenses that go with selling used bikes are now embedded in the MCA stores, so we've got salespeople and the sales manager. We've got finance and insurance people in those sites now, so they're loaded up with that expense. And they're outperforming, but we'd like to see a bit more in accessory departments. But that's why the expenses are up at MCA. And then we've got Cassons expenses, which is up $800,000 for the half, and that's an important one, and one that I'll discuss a little bit more very soon. Balance sheet-wise, the biggest influence here is the -- is how our leases are treated and how we've changed the way they're treated on our balance sheet. It's a real pain. I'm not quite sure why we had to do that, but Bob tells me we do. But other than that, yes, we've got $9.6 million in cash in the bank. We've just renewed our facility with the Commonwealth Bank for another 3 years, pretty much the same conditions. The bank's very comfortable. They're happy with where we're at. We're maintaining all the existing covenants. Increase in trade and other payables due to new dealerships. As we take them on, we get a whole bunch of new accounts so that would always go up. And an increase in the inventory, about $7.5 million, mainly due to new bikes or the new dealerships and used bikes. Again, no dividend. I don't know if we need to talk about the leases there, Bob? I think everybody probably understands how that's affecting balance sheet at the moment.

Yes. I think there's another page where we could bring more clarity to that.

Okay. So revenue and net profit after tax. You can see that we're growing it slightly, 3%. It's still a very tough market. We had drought conditions. We had fires. There was not a lot to give us confidence but at least, we got to a point where the market was holding its own for the half. So we're getting a better result there. Like -- as the market drops, your profit seems to drop further. As the market creeps up, your profit seems to go up a lot further. So it's working in the opposite direction for us. The net profit down 5%, you can see. But if you look at that 2019 second half, you can see that the second half really was a pretty tough result there. So we're behind last year's first half, but I'm very confident that we'll exceed the second half result. There were some very ordinary performance figures in that second half last year, particularly in the dealerships. So I'd see that as a -- there are 4 months there that will be, I think, quite easy for us to exceed the net profit there. The key is making sure we get Cassons and MCA are performing to where they were a year ago. So these are the AASB 16 leases and modified retrospective approach that we're using. It appears that it doesn't make a lot of difference to our EBITDA for the year. I think it's within $100-odd-thousand, isn't it, Bob, for the half or full year?

Yes. It was $98,000 difference it made to the profit, though. So...

For the half year, yes. Okay. So really, that's just how we're treating the leases and the lease expenses and interest costs and the leases and asset. So that bores me to death, to be honest, but I'll leave that one. Trading conditions. So let's talk about the market a little bit more in depth. So over the last 1, 2, 3 years, we've had a steady decline in new motorcycle sales, which has finally seemed to have slowed up now. The market was only down 0.8% for the half. So compared to where we've been, that's a great result. Whilst we outperformed the market, it wasn't by a heck of a lot. There's a lot fewer sales out there to get, so it's not easy to keep that volume growing all the time when it's just a smaller pie. Our sales were up 1%; like-for-like, 0.4%. So still ahead of the market and still pushes us to just over 11% of the total market. But importantly, we were able to improve the gross profit there. So difficult to get more volume, I think, for new bikes in the short term. Again, this half last year was really tough -- sorry, the second half last year was really tough. So I think we'll cycle through that better. So we'll probably beat the second half new bike sales, I think, as an industry. And if you look at our figures there, so we're slightly in front for the half going from new bikes. And again, I think we'll beat that second half figure. The market will, I think, and we will. Used bikes. This is always -- this has been our strategy in the dealerships to kind of add defense against this new bike market that had come off so much. We knew we had to find a way to generate profit in the area that we could see that most likely to happen, and the area that we're best at is used bikes. So naturally, we focused on that. And that's about buying the right bikes, paying the right money for them, retailing them right, reconditioning, presenting them right. So with MCA stores coming more online with used bikes, it gets more opportunities to retail them. We've got more dealerships selling more used bikes than ever. And the trend is just keep steadily going up. So with about another 300 units for the half going in the right direction. And again, the trend is going the way we want. So unit sales up 6.2%, but gross was up, I think, 13% or 14%. So a critical part and a critical success factor for us in my opinion. We'll talk about the operations of the business now and what we've been focused on over the half, and what's going well for us and what's not. We completed 2 acquisitions in the 6 months. One of them was Canberra Motorcycle Centre, which is a large dealership, with 9 franchises under the roof and a huge accessory retail business there. So we'll be very good for the likes of Cassons long term once we cycle out of the stock that it's selling now with their own brands and we fill it up with Cassons stock. So very little benefit in that half from Cassons from this business, it is just too early for it. It was a complicated deal but a very good deal. Both of these businesses have been tremendous businesses in my opinion. They've exceeded my expectations already as to how I had thought they would perform. They were profitable from day 1. And we bought them at the right price in both cases. It'd been 18 months, I think, since I purchased a dealership, so I took my time. I had a look at a lot of dealerships and picked the very best 2 that I could find, and that's what both of these are. So I expect that these will contribute in the second half, certainly. And then next year, more so. So -- and both of them long term, consistent, and I expect to be quite substantial. The Harley-Davidson business in Melbourne, the Brunswick Harley, we'll relocate that to a new premises, and we've found a building, and we're just preparing it now. So we'll probably relocate that one in May-June. But already, it's gone from the bottom Harley-Davidson dealership in Melbourne to second top and knocking on the door for the long-term established Harley dealerships there, and much better premises. So we're finding that the Melbourne market is offering opportunity for us with market share, with volume, staff. So again, as I've said in the past, we like that Melbourne market. I mean its future dealership growth is more likely to be down that way, I would think. One thing is for sure, I'll be looking for the standout opportunities like these to lots of dealerships that have been offered to me. I've looked at a lot of them. I always go through the motions and ascertain how much value that could be to us. But these, without a doubt, were the very best 2 that I've seen in 18 months. And hence, it's so much easier to make money, and they were straight away. So we've bedded those 2 in. There's a little bit of --- there's a bit of work to do around the Harley one, obviously, relocating the dealership, training the new staff to do things our way. So that's been our focus for the half, really. The Canberra dealership had 9 franchises. So I mean that's 9 different manufacturers to deal with the massive accessory stock that had to be stock-picked. It was a complicated deal that was not without its problems, that's for sure, but well worth it nonetheless. And of course, there is an earnout that goes with that one if the dealership can hit a target for the owner. He still runs the business at the moment. He runs it for 12 months. And so he's chasing a $400,000 earnout. And I'll have to say at this stage, it looks like he's going to get it. So that means the business is performing better than I thought, if that's the case. We're going to keep focusing on these used bikes across the group. So not only do we need them for MCA stores, we'll also need them for Brunswick Harley. We'll also need them for Canberra Motorcycle Centre which, by the way, doesn't sell a lot of used bikes. Your traditional dealership can be 80% new and 20% used, so maybe 85% to 15%. So we think if you can sell that many new bikes, you can sell a few more used bikes. So we need to put -- and we have been putting used bikes into both of those new dealerships, topping up the MCA dealership. And of course, all the rest of the dealer network still wants more used bikes to grow as well, so we've got up to 10 or 11 people buying used motorcycles for the group. On any given day, we're buying from every state in Australia. We've put a lot of effort into it from every avenue that we can think of. And it's difficult to ramp that up overnight. That's done incrementally by buying another 50 each month than just get -- because they're not all available for sale at the onetime in any 130-day period. So it's a matter of just gradually keep buying more and making sure they're the right bikes and not paying too much for them, obviously. That's the critical success factor. We focus very much on used Harley-Davidsons. It's the only brand where we sell a lot more used than new. Every other brand, we would sell more new than used, but again, not by accident. We specifically go chasing that brand because we know that they've got superior margins and better finance opportunities for us. So we've achieved it. I've explained where we got that used bikes volume. Accessory, retail accessories and the consequences to Cassons. Retail accessories is going through a similar sort of market to new bikes. It's tough, it's competitive. The customers, when they buy a bike, they're not spending as much as they were on accessories. And with our MCA stores, we've been targeted by a competitor, which makes perfect sense. We had large retail outlets. So we had a competitor set up next door in a number of locations. And clearly, it's had an effect on our accessory business. But overall, the market was like that anyway. The drought conditions and the fires in the last 6 months had certainly had an effect in Sydney, particularly, more so than Melbourne. Melbourne, the retail accessories have held up better, but we've had less competition there as well. So Sydney is the most competitive market around for bike sales and accessory sales, I think. So we're feeling that in Sydney. However, we've got a plan there, nonetheless, and that is to transition the MCA stores towards being a traditional dealership with other profit centers more than just accessories. Having said that, we certainly don't want to back off at accessory sales at all, we want to keep going. We want to sell as many accessories as we can, both at a retail and wholesale level. So there's no intention of changing the nature of the MCA component. What we just wanted is use the volume of customers going through there, use the large retail premises that we're already paying rent on and add additional products that we don't have that we can make a profit figure out of this minimal overhead. And hence, that's why the used bikes and finances are happening there now. And now I've decided to go with new bikes, and I'll explain a little bit about the new bikes that we've put in, in a minute. The dealership cost savings has been implemented. I explained last year that we should have hit July with all those cost savings made. And I did that in the previous half because it is such an ordinary half I felt that I had to do it. But we were able to pull $800,000 out, which is good. Let's continue to do that. So wholesale. Cassons business was up 4.3% in turnover, which is interesting when you consider that our retail accessories were down 6% or 7% or certainly down in revenue, maybe the gross is down 6% or 7%. So Cassons is able to grow sales even though 50% of its customers being us, being the team made earlier and MCA stores were purchasing less. So what that means is clearly that we've been able to sell more to the rest of the market. So not to ourselves, but more to the rest of the market, which is also down in a similar way to our retail outlets. So we've got 42 on-site retailing accessories across Australia. So we've got a fairly good litmus test of what the industry is doing there. And by and large, the industry is down, both at a retail and a wholesale level. Cassons has bucked the trend there, and there's a reason for that. And generally speaking, I've made it clear that I wanted to go after the business and keep a bigger footprint. We could see what was happening. Obviously, we had 2, 3 years of this market coming off. I was very mindful of leasing customers, and Cassons is shrinking in volume. I wanted to make sure we can protect the relationships with our manufacturers and vendors. And I wanted to gain more customers. So it was quite a deliberate move to reduce the margin and become more aggressive in the market. When I say reduce margin, we didn't just go in and cut all the margins. What we did is we did deals. We basically gave them volume rebates so people can spend a lot. We gave them a discount if they bought 50 or 100 tires at a time. We basically got more negotiable with the people that gave us the most business. And instead of having sales fall off something like 5% or 10%, we were able to lift sales at Cassons. But it came at a price. It came at a cost. And there's 2 ways that, that impacted us, but mainly through gross margin reduction, only a couple of percent in that external win, but a couple of percent is pretty significant at the end of the day. And we were clearing aged stock, too. So we've reduced the aged stock. That is trending in the right direction, slightly but surely coming off. But we're keeping -- we're trying to get the stock levels up, the good stock levels up, so we can capture more sales and keep the growth happening at Cassons. So landed some good accounts, which is important. There were some customers there that weren't dealing with Cassons previously and I went after them. And we were able to get those accounts, but it did come at a cost without a doubt. We invested a lot more money in marketing for Cassons. We subsidized the freight to be competitive because our competitors were all subsidizing freight to their customers. So we had to do that. So there was a cost that came with that. And we increased the human resource at Cassons. We've put a stock planner in place. We've put -- it's increasing reps. We had to increase warehouse staff to deal with the increase in goods going in and out. So basically, we're trying to build a stronger, better business for the future. And in the short term, there is some pain. There's no doubt that I could have not taken some of the steps that I've done in the last 6 months, but I think it was the right thing to do to build a long-term business. So there's -- I'm not a short-term thing. I'm not trying to get the very best results for the next 6 months and worry about next year later. I've never run the business like that, I'm not going to start now. I always run the business as if I'm going to own it for the next 10 years and run it for the next 10 years. And I'm looking at the -- to try and achieve the best result over the long term, not up and down necessarily, not the best in the next 6 months and then off next year and up next year. So there are some decisions made in the last 6 months or so in the Cassons business to maintain volume, to gain more customers, to get a bigger footprint and invest the money into that business to improve its processes, improve the efficiencies and make it a better, stronger business long term. It did cost more than I expected. It came off quite a bit because as much as the dealerships came up, Cassons came off. So the good thing about this problem, I would call it, is that it's completely man-made. And it's -- the influencing factors are completely within our control. They're not necessarily just market-driven. If we look at what -- the reduction in margin was a deliberate decision. So that's something that we can change. We've got control over that. And increased investment in marketing. Again, we did that, and we can adjust that up or down as we see fit. And same as the freight, and same as putting more people into the dealership. So all of these factors, I have to take the blame for but they were deliberate, and they can be altered at any time. Much harder if you don't have the customers in the first place. Much harder if your sales are down. Much harder to get the gross or the EBITDA if you don't have the volume then. So whilst I'm slightly disappointed with the first half results, there's no doubt about that, I was expecting a better result overall if the dealerships were performing so much better. The fact is that what cost us in Cassons I think is -- was more of an investment in building a better long-term business, and that was the thought process that I'd go on through with that. We had to improve our stock planning. We had to improve our warehouse management. We had to get more efficiencies. So they're all things that had to be addressed, and I didn't see any point in delaying that. In fact, the sooner they were fixed, the better. We had to move out of that aged stock. There was too much there, and we've been taking our medicine on that for a while now. But it gives -- makes us a linear business, that the works are smoother, more target-oriented yet going forward. So I believe it's the right thing to do. So next part is the JV for the MotorCycle Finance. It's very much on track. Still, it's at breakeven point. Small profit forecast for this year. Volumes of a touch. Margins are good. Rates are good. Losses have been very close to the market average, just crept up a little, but very much where we would expect that business to be. So that one gets a bit more interesting next year and the year after, but not much to report there, certainly not costing us anything. So our focus or our outlook going forward, what do we want to do for the rest of this year. Clearly, the -- improving the dealer network that, that's been working. So the cost out has been working, getting the dealerships more profitable. Two new dealerships there to grow and make the most of those opportunities, relocate one, keep the focus on the used bikes. That's working for us, so we'll keep that up. We should be able to get revenue growth in the next half. I think, as I said, it was a particularly poor half and improve the margins in Cassons. So whilst I'll try and trim the overheads a little, I think most of the overheads that went into Cassons are necessary and needed, but we can pick up the margin there. But there, we've been quite so aggressive on some of that stock. There will be -- exciting part is we have more customers. We've got a bigger customer base. So we model -- we should be able to do that, just the Australian dollar to the U.S. dollar is a challenge for us still. What else? We want to grow this -- didn't find new sites for MCA. That's being held up a little by a deal that I've done with Indian Motorcycles, but there is potential there for us to open another one. It's really just a matter of what's the most important thing to do. Last half, it was by Canberra Motorcycle Centre and the Harley-Davidson dealership. So I pushed that, but the greenfield MCA into this half, it's probably going to get hijacked again by better opportunity being introduction of Indian Motorcycles. But that doesn't mean it won't happen, it should happen, and it will. We want to increase our bike sales through the existing MCA stores. It's still very early days there. We're only just finding our feet. So we have new store managers, new salespeople that have only been selling bikes for 5 minutes there. So I think it would be right to assume that given the stock and a bit more training and experience that we should be able to increase our bike sales. And then, we'll be adding new bikes to the mix there in some of them. Potential dealership acquisition opportunities, they come across my desk every week, some of them better than others. I am looking at some now with varying degrees of interest. I'm more discerning now than ever. They've got to be the right business. I know what the key ingredients need to be for me to get excited about it. So I won't be buying any dealerships that are particularly difficult or massive turnaround cases. I'll be looking for the ones who've got the fundamentals right and, I think, ones that can deliver like the last 2 did from the very first month. And of course, we -- the finance -- MotorCycle Finance company, that business will continue to grow. The books again took quite a reasonable size now, so the income is exceeding the outgoing now. So next year should be exciting. So I've just completed the deal with Indian Motorcycles, which is -- I'm pretty excited about. What particularly I like about this deal is they're closing their 3 company-owned sites in Brisbane, Sydney, Melbourne. There are no other dealers in those markets. And they're appointing us into those markets. I'm not opening a new dealership. I'm putting the product into existing sites. And MCA will be some of those sites. So they're going to go into the urban dealership on Parramatta Road, which is just down the road from the company-owned Indian dealership, just a couple of kilometers of that. We're going to put them into Penrith, which we think is a strong area for retailing motorcycles. So a long way from our urban dealership. So there'll be 2 in Sydney, in Melbourne, and we'll put 1 into Keilor and 1 into Dandenong. So those 2 will be our first 2, and we'll be doing that in April. So the brand will go in there. Indian, for those who don't know, is Australia's -- America's first motorcycle company and a fairly strong brand in the motorcycle world. It's had a few reincarnations over the years, but it has been around since I think 1986, or something like that. We've been appointed as their -- I won't say exclusive, but we're the only dealers that they have at Brisbane, Gold Coast, Sydney and Melbourne. That's a massive advantage for us retailing motorcycles to have no competitors in those markets. So quite true, we'll represent over 70% of the Australian market. Indian Motorcycles are very similar to Harley-Davidson. They're large capacity. They're relatively premium end. They have large margins in them but certainly don't sell as well as Harley-Davidson. But it's -- everything is relative. Basically, they should have a very good margin that will have a high finance opportunity. There should be a higher attachment of accessories just like a Harley. It is the same demographic. So we will put -- we've already got used Harleys in our MCA sites. We're already dragging through the doors, the demographic that buys a used Harley. The MCA stores have a really wide demographic for people that would buy accessories from them. So we've got lots of motorcycles coming through the door. We're pulling in Harley customers and putting an Indian franchise there. It's a perfect opportunity for us to have launch that brand. So I won't make any promises, but I got to hand this -- I'll let the results do the talking. But I believe Indian has the potential to be really good for our business. That will take us a little while to execute. So we've got 2 in April, probably 2 in June and the last 2 in July. So relatively quickly to set up 6 showrooms and set up staff to sell the bikes. Now I have no intention at this stage of increasing the staff level either. So the rent will be 0, and the staff should be 0, except for Keilor, which doesn't have used bikes now, but it will have its own sales staff anyway. So there will be no increase to sell -- to put Indians in there. The urban and the Penrith and the others have got sufficient staff to fill the volume of Indians that I'm talking about. So whatever gross income we can get from Indian and the add-on profit centers, we'll be able to keep a large percentage of them. We will have to commit money to marketing. Being their only dealer in those key markets, there'll be a lot of responsibility for us to promote the product, which we'll be more than happy to do. But we'll be the ones that benefit for any marketing that we do. There won't be a huge interest cost. We're not talking big volumes of motorcycles for this floor plan facility. I'm buying a lot of the fit-out for the new stores from their existing sites at very low prices, written down at all lower values. So picking up lots of workshop equipment and display for $0.10 on the $1, that sort of thing. So the CapEx to put the brand in is really quite minimal. Almost laughable, it's so low. The stock-wise, in new bikes, we don't pay for, they go on the floor plan. That got -- these bikes here, which I'm happy to buy, we're chasing the used bikes. So we'll pick up 50 or 60 used bikes in one hit as we go. And we know how to sell that type of product. We've been -- we're the biggest Harley retailer in Australia. We know exactly what the process should be. So pretty excited about that one. We won't see how we go, but how close their stores are factored on doing the same volume as they did last year. So even though they only had 3, we'll have 6. My calculations behind the scenes, we're working on doing the same volume as they did in 2019. And interestingly, for the calendar year, Indian were only down a couple of percent for the whole year. So as opposed to every other brand that was down quite a bit for the full calendar year, Indian only down the handful of units. So they're coming from a low base, of course, but still only something like 15 dealers Australia-wide. We will be 6, plus we have Indian in Canberra, which would be 7. But of course, Brisbane, Sydney, Melbourne is where the volume is at for that brand. That -- not having other dealers on their doorstep should protect the margins. So they do have new models coming. So they're expecting to double their sales over the next 3 or 4 years in Australia. I don't know whether that will happen or not. But like I said, I was just working on existing volumes and maintaining that and getting the right margin, with virtually no CapEx and very little expense. If I look at external factors, I'd be remiss not to talk about coronavirus. To date, it doesn't seem to have affected our business at all. Things like the fires did much more so and drought certainly did. But we do buy a lot of our products out of China. There are 2 ways about that. So the area that's most affected, we have very little products coming from, but it's affecting the whole country, of course. So we don't know exactly how that's going to affect us going forward. At this stage, we've had -- we've got sufficient stock. There's no major problems. Maybe we'll have to expect some delay with some products. But yes, a fair percentage of our stuff comes out there, but not everything. We've got product coming from Europe, from Pakistan and China and Cambodia and U.S. and U.K., so we do have stock coming from a broad area, but China makes so much. So we'll see. But we're expecting some delays towards the end of the half, but very hard for us to say at this stage, but no impact so far. The other challenge that we have, and this has affected Cassons, particularly in the margin area, is the exchange rate that's really come off quite a lot over the last 12 months. And it's taken more of a hit recently. Again, over half of our purchases are done in U.S. dollar. So every time the U.S. -- Australian dollar falls against the U.S. dollar, it hits Cassons. And we've hedged money going out for up to 6 months, half of our purchases for up to 6 months. So it has affected us in the last half because the rate pattern certainly hasn't been as good as it was a year ago. But we have got some protection in there, and we've got some protection going forward. But nonetheless, it's a negative influence. It's not a positive one. And if it keeps getting south, then it's just going to put those margins under more pressure. So the remedy is that, obviously, to put a price increase in, which I believe we'll be doing very soon. So we'll put a maybe a 5% increase across the board on Cassons accessories. I think it's going to be needed, and we might as well do that sooner rather than later and people will understand it now, I think. Okay. I think that's everything I had for you today. So I'm happy to answer any questions if we have any.

[Operator Instructions] Your first question today comes from the line of Anna Guan from Wilsons.

Thanks for taking my questions and also providing complementary briefing today, particularly around Cassons. So just a follow -- just a few follow-up from me. Firstly, if we start with Cassons, obviously, for interims, you guys started to disclose EBITDA for the segment. But just thinking of the impact at both GP margin line and OpEx, which one has a higher impact in terms of dollar value?

Right. Margin?

Okay.

Yes. The gross margin will have the biggest effect.

Sorry. Yes, the gross margin.

Yes. Yes.

Okay. Cool. And then if we think about the outlook for Cassons on both lines, with GP margin, should we continue to assume -- I guess, it remains relatively low as you remain aggressive on going after some of the accounts you talked about.

Yes. I think I'd like to see our margin come back up a bit now. I think we've been pretty aggressive, and we've got more customers. We've shifted some aged stock. I mean we've got to remain competitive going forward, but I think we probably could back it off a little now. So even if it -- if sales moderated a little, I'd be happier to see a lift in gross margin. So I think you will see that before the end of the financial year, before June 30 for this half and, hopefully, more so next year.

Is that including the benefits of pricing, the 5% pricing increase that you talked about earlier?

Yes, sure, that would be including that. Yes.

Yes. Okay. And then in terms of the outlook for OpEx, given you talked about reinvestments in people, et cetera. So I'd imagine that will continue for a little while before we [ annualize ].

Yes. Yes, that's a fair assumption. I mean we've put those people in those places for obvious reasons. We felt that we needed them. We did it to create a better long-term business. It would be silly to now just come, pull them out again. That would defeat the logic of it, so no. I expected though the heads will remain there, but they won't -- I'll try and trim whatever I can there, but I'm not expecting any great reduction. Certainly, nothing like I've got out of the dealerships last year.

Yes, sure. Well, that's certainly a good result from the dealerships from -- I guess, from first half. Okay. And then if we move on to the GP margin drag from MCA and Cassons. So I think in the presentation, you had a chart on -- a waterfall chart on the OpEx impact. But if we chart the same -- or similar chart on OpEx -- on GP margin, sorry, which one would have a greater impact?

Cassons. Cassons' GP. So that would have the greater impact there. MCA. MCA's overheads were up. The gross margin was okay. Well, I was happy with the margin on the accessories and the bikes. It's the sales volume that was off, and that's due to market and, specifically, increased competition. So the margin was okay. At a retail and of the whole business, the margin was maintained. But the Cassons margins was the one where we got aggressive.

Yes. Okay. That makes sense. Okay. And then in terms of earnout, I think the number you mentioned earlier was $400,000 for our Canberra one you acquired.

That's right, yes.

What about the Melbourne one? Is there any residual payments there?

No, no, no. That's done and dusted and cleaned up. So that was a very straightforward purchase, so no, no, nothing there. No earnout there.

Okay. Cool. And then just lastly, wondering if you can give some color around the Harley-Davidson incentives you've achieved in the first half and also where the tally is at in terms of second half?

For incentive money or bonus money, do you mean?

Yes. Yes.

Yes. Yes, sure. So when you can exceed their sales by 11% on the previous year, and the broader Harley market wasn't up that much, but it was up. I think it might have been 7% or 8% off the top of my head. Obviously, we were achieving maximum target. So at 110% of your target, you've got maximum bonus, and that's what we did for the half. So we were able to trigger our maximum efficiency there, maximum bonus money, and that does add up quite a bit. So that part of that income stream for the overall business was well up for the half, driven by not just Harley-Davidson, some other brands there, we're offering more of that, too. And we were triggering a bit more from the likes of Yamaha and Honda, but Harley was a standout.

Yes. Great. That's awesome. And then in terms of the second half, has the OEM adjusted their target at all? Or what are they looking for?

We -- well, they will work calendar year, so yes, new targets as of January this year. But we exceeded it again in January, so they're not unrealistic. They're -- no one's -- you got to remember, the market was still down for the last half. So whilst we're getting excited about the market, it only fell a little bit. But -- so the market was still coming off, and there's some mixed results in there for the various manufacturers. So there's been no increase in targets like -- no one's calling a bottom of the market or great recovery just yet. It's a little bit early for that. But we do know that the second half, the one we're in now, was particularly poor last year. That was the really tough time. And I feel like there's certainly more momentum and more confidence in our dealerships now than there was this time last year. And I look towards how we finished the half, the last 3 months, the last quarter and how we're going into this quarter, certainly, there's quite a reasonable outperformance in the dealerships. We're beating last year's performance by a considerable margin. So I would expect that to continue for the rest of the year. I don't see any reason why it won't. There's got to be -- I guess this coronavirus is one reason why it won't, but it won't be drought at least. We can't use that excuse anymore, so that's good. But nonetheless, the differences to the business, the ones that we've made internally, you incent more used bikes and getting more growth out of them, improving our workshop performance, improving our F&I performance. Then none of those things were market-driven. They were driven by internal factors. And as so was Cassons results, too. So whilst we certainly made the overall business better in one regard, it cost us some profit in another. So that all of them driven by theirselves, not market. So we can control that to a large degree. The retail accessories are more market-driven. That was more a result of an overall depressed market. But we didn't do anything to influence that result, particularly, other than just run the business in normal course. But the dealerships and the Cassons were where we were pulling the levers and making a difference to the business in a positive way or negative way, depending on how you wanted to look at it, I suppose. But certainly, I go into this half feeling far more confident than I did this time last year, where we were going into a market that was falling off a cliff, and we didn't know how far it was going to fall, and profit was coming off at a rapid rate. This year, profit is not coming off. It's maintaining in at least last year's sort of figures. And I feel cautiously optimistic, with some fine-tuning, we'll be able to get it to increase, and hence, the likes of the forecast that I've seen for ourselves, I think are realistic. I don't think they're pie in the sky.