MotorCycle Holdings Limited (MTO) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is David Foster, I'm the Chair of MotorCycle Holdings Limited, and I will chair today's Annual General Meeting. On behalf of the Board and the executive team, I'd like to welcome and thank everyone for attending today's meeting. Today's meeting is held online via the Lumi platform. This allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxies can ask questions and submit votes in real time. Questions can be submitted at any time during the meeting. [Operator Instructions] For those shareholders who wish to ask a verbal question, an audio facility will be available during this meeting. [Operator Instructions] Your questions will be moderated by our Company Secretary, Nicole Spink, who will read out the question. While you can submit questions any time from now, I will address your questions at a relevant time in the meeting. If we do receive multiple questions under one topic, these questions will be amalgamated together. Finally, we will endeavor to answer all your questions. However, if, due to time constraints, we are unable to address your question in the meeting, we will contact you after the meeting. Voting today will be conducted by way of a poll on all items of business. To provide you with enough time to vote, I will shortly open voting for all resolutions, and voting will remain open throughout the meeting. If you are eligible to vote at this meeting, a polling icon will soon be visible on your screen. Selecting this icon will bring up a list of today's resolutions and present you with voting options. To cast your vote, simply select one of the options: for, against or abstain. There is no need to hit a submit or an enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed. Should there be a break in our technology, we will work to come back online within 15 minutes. However, if this is not successful, we will defer this meeting to another date and time to be advised. This meeting has been called under the Notice of Meeting dating 29 October 2021, the details of which were sent to all shareholders. So if there's no objection, I propose to take the notice as read. A copy of the notice can be found on the meeting homepage. It is now 10:03 a.m. in Queensland time, and I've been informed by our share registry, Computershare, that a quorum is present. So I formally declare the meeting open. Are there any shareholders that wish to have an apology recorded in the minutes of the meeting? If so, please submit the member's name as a question, and this will be recorded by the company secretary. I'll just give you a moment to do that. I now declare voting open on all items of business. The polling icon will soon appear on your screens. Please submit your votes at any time. I will give you a warning before I move to close the voting. In addition to those present today, valid proxies has been received from 71 shareholders that represent 39.46% of the vote. Firstly, this morning, I'd like to introduce the Board of MotorCycle Holdings and the senior executive team of the company: firstly, David Ahmet, the Founder, Managing Director and CEO of MotorCycle Holdings; Warren Bee, who's been a Director of MotorCycle Holdings since 2011 and is currently Chair of the Nomination and Remuneration Committee; Rick Dennis, who joined the Board in 2016 and who also chairs the Audit and Risk Committee; Peter Henley, who has been a Director since March 2017 and has also been appointed a member of the Audit and Risk Committee and Nomination and Remuneration Committee and is the company's representative on the Board of MotorCycle Finance Joint Venture; Rob Cassen, who was appointed to the Board in October 2017 and has also been appointed a member of the Audit and Risk and Nomination Committees; Bob Donovan, our Chief Financial Officer; and Nicole Spink, our Company Secretary. I'd also like to welcome Simon Crane, the audit partner of KPMG, the company's auditors; Stephanie Daveson, partner of Clayton Utz, the company's lawyers; and Jessie Yerma, a representative from our share registry, Computershare. Today's meeting will proceed in 4 parts. Firstly, I'll provide you an overview of how the business has successfully delivered on its strategy through a review of the key highlights and achievements for the past financial year as well as an overview of our strategic outlook. Secondly, Managing Director, David Ahmet, will review the operational performance and financial results of the company for the past year, discuss current activities and outline our plans and focus for the coming year. Following this, you'll be able to ask questions about the company's financial results, operations and market outlook or any other matters relating to my address or David's presentation. This will be followed by the formal business of the meeting, at which time I will take your questions specifically regarding each of the proposed resolutions. So it gives me great pleasure to address you today and outline the progress of your company. With consistently strong trading conditions during the year, the company delivered a record financial and operational performance, and we continue to outperform the market and grow our market share. The revenue and profit increases across the business were driven by improved margins on new and used motorcycles, ongoing sales demand momentum, restricted supply chains and strong contributions from recent acquisitions and added product ranges. After several years of challenging trading conditions, the company continued to capitalize on the heightened market demand for recreation and leisure products that we've seen emerge from COVID-19, and our strategic focus on retaining margins while supply was restricted contributed strongly to the performance. MotorCycle Holdings has continued this year with its track record of strong growth and performance. We've worked diligently over the past few years to manage challenging trading conditions and ensure the business would be in a strong position to capitalize on improved conditions when they returned. Now they have improved, our diversified revenue streams, vertical integration and a comprehensive geographical footprint provide us with an excellent platform to take advantage of the trading conditions and deliver this record result. Although there were no acquisitions during the year, we continued to grow revenue and profit across all of our divisions, which now span across the motorcycle and accessory supply chain from wholesale, retail, service and repair, finance and insurance. The company's performance in the last financial year exceeded expectations, and we have continued to develop our position as the largest motorcycle dealership and accessories group in Australia. It's very pleasing that all divisions of the business improved performance and contributed strongly to this year's record results. Company's revenue increased 19% to $433.9 million with solid contributions across each business division. Gross profit, excluding JobKeeper payments, increased 26% to $128.5 million with a gross profit margin of 29.6%. Underlying EBITDA increased 61% to $44.5 million, and net profit after tax increased 86% to $28.3 million, up from $15.2 million before impairment for the previous year. Due to consistently strong trading conditions, the company continued its return to paying dividends with directors declaring a final dividend of $0.10 per share, fully franked, amounting to $6.2 million payable on the 29th of September 2021 with a record date of 8th September 2021. This brings the full year dividend to $0.20 per share, fully franked. Your directors remain optimistic about the forthcoming year due to the ongoing sales demand momentum and the strong results of the business, evidenced by this year's record results. The company's focus on this forthcoming year will be, firstly, to continue to capitalize on ongoing sales demand for recreation and leisure products and pent-up demand following lockdowns and stores returning to full trading without restrictions. We will be seeking to expand our geographical footprint through acquisition of well-established businesses with strong turnover, which will be supported by our strong balance sheet. We'll also continue to focus on diversifying our product mix by continuing to expand and broaden our product offering in both our retail and wholesale network. In addition, there will be ongoing upgrades and improvement to dealerships and showrooms and further development of our online sales platform. We expect the sales demand momentum, restricted supply chains and higher sale prices will continue and the financial strength of the company, driven by diversified revenue streams, puts us in a strong position to both manage future volatility and to take advantage of growth opportunities. As previously advised, we returned our dividend policy to 50% to 70% of NPAT. I would like to sincerely thank the management -- the company's management team for their ongoing dedication and contribution. It's very pleasing to see the management team's growth strategy come to fruition and continue to deliver sustainable growth and profit. I would like to express the Board's appreciation to the company's more than 800 staff nationally who've been instrumental in delivering the strong performance, particularly as we continue to navigate the uncertainty and ongoing lockdowns required by COVID-19. With ongoing lockdowns and COVID-19 restrictions, it was a challenging year from a retail point of view, and our staff demonstrated resilience and an ongoing commitment to a high level of quality customer service. I also want to acknowledge and thank my fellow directors for their contributions during the year, Warren Bee, Rick Dennis, Peter Henley, Rob Cassen, and our Managing Director, David Ahmet. The Board continue to enjoy seeing the growth of the company and providing value to shareholders, and we're looking forward to continuing to implement the growth -- company's growth strategy in coming years. And finally, to you, our shareholders, thank you for your ongoing support. You've been integral in growing the business into what it is today, and we very much appreciate and value your loyalty and trust. I'd now like to invite David Ahmet to provide an update on the operational developments and financial results of the company for the past year as well as the outlook for the future for the company.

Thank you, David. Good morning, shareholders, and welcome to MotorCycle Holdings AGM. This morning, I'd like to talk to you about our operational performance and our financial results for the company for the past year. I'd like to discuss current activities and outline our plans and products for the coming year. Firstly, today, I'd like to highlight and reinforce how MotorCycle Holdings has consistently delivered value for you, our shareholders, and, importantly, how the business is positioned to continue that growth in coming years. Our track record since first listing in 2016 is one of consistent growth in our revenue, profit and market share of the Australian motorcycle retailing and wholesale market. The corporate strategy that we've implemented has proved successful, delivered annual growth and, importantly, helped us to navigate through the past several years, which have included its fair share of challenges and tough conditions. Today, we have a strong balance sheet with strong earnings and a capacity to invest in growth opportunities, and we also continue to have attractive market ratios, the earnings per share growth and a dividend yield of 7.2% at the end of the financial year. As we look forward, we don't see any indications of this growth declining and expect to continue growing our position as the national market leader with scope for further industry consolidation through acquisition. In my view, there is clear evidence of the ongoing and enduring strength of the motorcycle industry. This provides us with the confidence that there is momentum in the industry that will drive profit growth for MotorCycle Holdings in the foreseeable future. In 2021, MotorCycle Holdings achieved a record financial and operational performance. While there were certainly ongoing challenges with COVID-19 lockdowns, we continued to outperform the market, and this was largely due to new product additions, improved margins and strong dealership performance. Whilst the company continued to benefit from heightened demand from recreation and leisure products, the primary contributor to this year's strong performance was a strategic focus on retaining margins while supply was restricted, maintaining tight cost and overhead control and delivering strong contributions from recent acquisitions and additional product ranges. The company grew its market share by securing approximately 11.9% of the national new motorcycle market compared to 11.1% in the prior year, maintaining our position as the national market leader. It was particularly encouraging to see improved performance and contributions to overall gross profit result from all divisions. Harley-Davidson dealerships continued to provide strong profit results, and the Indian Motorcycles and Polaris products added to existing stores, contributed strongly with increased sales and ongoing margin growth. We also saw record-high used motorcycle margins, which contributed strongly to the underlying profit for the financial year. This chart shows our consistent revenue growth over the past 6 years. Since 2016, we recorded revenue of $2,009. We've achieved a compound annual growth rate of 15.74%. For the 2021 financial year, we increased our revenue 19% to $433.9 million. We achieved record growth in net profit after tax for the year with total NPAT of $28.3 million, it's up 86% from $15.2 million the previous year. You can see our NPAT was consistent from '16 to '19. And in the past 2 years, it has grown significantly with our NPAT this year around 3x what we were achieving in the earlier period. This chart shows our annual growth in gross profit over the past 6 years. For the 2021 financial year, we increased our gross profit 26% to $128.5 million. Our share price increased 56% during the financial year, rising to $2.77 on the 30th of June this year, up from $1.78 at the same time last year. The share price has continued to improve in the first half since July this year, recording a high of $3.36 on the 9th of November 2021. As our Chair, David Foster, mentioned earlier, we paid a total of $0.20 per share fully franked dividend for the year. This represents a dividend yield of 7.2%, up from 2.8% the prior year. Our earnings per share increased 87% to just under $0.46 per share. In our view, these are all positive indications that MotorCycle Holdings is highly attractive from a market value perspective. We will continue working towards moving the share price to where it more accurately reflects the company's value and improve our market value ratios to provide increased value for our shareholders. Through the year, we saw market demand stabilize at an elevated level. This has provided optimism across the motorcycle retail industry and is a good indication that these improved trading conditions will continue and are sustainable for the medium term rather than being a short-term byproduct of the COVID-19 pandemic. We've continued to outperform the market with new motorcycle unit sales growth of 20% for the year compared to 12% for the industry. This is due to new product additions and strong dealership performance. Used motorcycles gross profit increased 27% to $18.2 million, even though unit sales decreased by 7% to 9,430 units. Restricted supply of used bikes in the market has helped us to achieve these higher margins. Used motorcycle margins are the highest they've ever been. And in the second half of the year, our strategy of acquiring additional used stock resulted in a strong contribution to our underlying profit for the division. This slide shows the revenue increases over the past 6 years with an 8% increase to $102 million for 2021. Our diversified revenue streams and vertical integration enabled us to capitalize on the improved trading conditions. This graph shows the revenue and profit drivers of the business and where we saw the biggest gains during 2021. All divisions had considerable increases in gross profit with the largest increases coming from new motorcycles where gross profit was up 69% and retail parts and accessories, which increased by 50%. Used motorcycles and wholesale accessories also rose significantly, and all other areas posted gains. As I mentioned, a large driver of our successful performance this year was due to strong dealership performance. The 2 acquisitions we made in 2019, TeamMoto Canberra and Morgan & Wacker Motorcycles Melbourne, provided their first full year contribution to the results. Harley-Davidson dealerships continued to produce strong results, and the Indian Motorcycles and Polaris products, added to existing stores, contributed strongly with increased sales and ongoing margin growth. Overall, it was a strong performance from our dealerships despite ongoing lockdowns and trading restrictions during the year. The expansion of our product offering now includes more than 20 of the top-selling motorcycle brands, which helped to generate increased sales. Our expanded range of entry-level bikes generated new business and additional customers, which we expect will contribute to sales opportunities in future years. We have diversified our product offering to now include a comprehensive range of mowers, chainsaws and power equipment. This enables us to generate new business and further diversify our income. Looking at growth in our wholesale accessories division, Cassons' external sales revenue increased 16% to $40.4 million, while internal sales revenue increased 32% to $25 million. Gross profit in wholesale increased 30% to $24.1 million. We continue to proactively expand the product range where we identify good brands and products. Despite the fact that we are impacted by the same global supply chain challenges being faced by many other Australian businesses, our wholesale division continues to grow and perform strongly. I'm very pleased to confirm that we have completed the acquisition of Forbes and Davies, one of New Zealand's leading importer and wholesaler of motorcycle tires, all-terrain vehicle tires, riding apparel, helmets, accessories and aftermarket parts. This is a significant milestone for our business as we expand our operations across the Tasman into New Zealand for the first time. Forbes and Davies is a well-established business with a strong reputation in New Zealand. They supply directly to more than 450 motorcycle and power sport retailers in the New Zealand market. The business has an annual turnover of approximately NZD 6 million in 2021 and currently employs 15 staff. We plan to grow sales aggressively by introducing Cassons products to their product range. This acquisition is expected to be earnings accretive this financial year. And in further acquisition news, we have now signed a contract to purchase Wide Bay Motorcycles located in Gympie here in Queensland. Wide Bay Motorcycles is an excellent, well-run business that retails a large range of motorcycles, all-terrain vehicles and mowers. Top brands include Honda, Suzuki, KTM, Polaris and Indian Motorcycles and Toro, Ferris, Victor and Masport mowers. They carry a huge range of accessories and spare parts in their motorcycle accessory superstore. They also have a fully equipped workshop on site to service all makes and models. They had an annual turnover of $10 million in 2021 and employ 14 staff. Completion of the acquisition is expected in early 2022, subject to manufacturer and bailment approvals and due diligence. Now I'd like to provide -- I'd like to conclude my address by providing an overview of where our focus will be for the next 12 months as well as our outlook for both business and the industry broadly, and provide more of an update on our current trading. In the immediate term, our focus will be on servicing the pent-up demand and managing the ongoing supply chain challenges. The company's solid balance sheet provides us with an ability to make strategic acquisitions should opportunities present themselves. And our intention is to continue to expand both our geographical footprint and our diverse product range across all areas of the business. We will also focus on continuing to improve the operational performance of our dealerships and our online sales platform. We'll continue to expand and diversify our product range in 2022. The expansion of our product range for 2022 includes adding Honda and Husqvarna Motorcycles to our Caringbah dealership in New South Wales; adding Husqvarna mowers, power equipment and Toro mowers to our Enoggera dealership in Brisbane; and adding STIHL chainsaws, Husqvarna mowers and Toro mowers to our Springwood dealership in Queensland. Cassons will establish new brands and offer an expanded product range, including Ixon clothing from France and the CycleBoard electric scooter due to be released in the next week or so. Ixon just released in September 2 months ago. And we'll continue to develop the business for STACYC electric bikes released in June 2021. All 3 will deliver substantial income growth. I'll touch on current trading. Despite the lockdowns in New South Wales and Victoria, the group has performed better than expected so far this financial year. As expected, current trading has rebounded strongly post lockdowns. We expect to have a strong finish to the first half, strong increases in retail sales, accessories particularly, since the end of lockdown. New and used motorcycle sales volumes and demand remain strong. Industry-wide new motorcycle unit sales increased another 14% in the first quarter. Current trading is still impacted by supply chain challenges. However, we continue to grow sales and increase volumes. I'd like to conclude my address today by saying I have a very positive outlook for MotorCycle Holdings and the motorcycle industry. Demand remains strong, and sales are still growing worldwide. At this stage, we expect first half underlying EBITDA to be between $16 million and $18 million. We will maintain our acquisition program and seek opportunities for future growth. In closing, I'd like to say we have every confidence that the company's growth strategy implemented over the past 3 years is delivering and the desired results for shareholders will continue to do so. We are in an excellent position to take advantage of both the current improved trading conditions as well as opportunities for future growth as they arrive. Thank you, and now I'll hand you back to our Chair, David Foster.

Thank you, David, for the comprehensive presentation on the operation and financial growth of the company and outlook for the future. I'd now like to invite any questions from shareholders of David or myself about the company.

We don't have any questions at this time.

Thank you. There's no questions at this time, but there'll be other opportunities throughout. So before moving on with the formal business of the meeting, I will go over today's voting procedures. On the poll, each member voting through the portal in person or their proxy, attorney or corporate representative have 1 vote for each security held. Only 1 vote is allowed per joint holding. If more than 1 joint holding tenders a vote, the vote of the member named first in the register will be accepted to the exclusion of the others. If a proxy has been directed to vote in a particular manner, if the proxy is entitled to vote, he or she must vote in accordance with the direction. For some items of business, certain votes will be disregarded as explained in the voting exclusion statements in the Notice of Meeting. I propose to take each resolution in the sequence that is listed in the Notice of Meeting that's been taken as read at the beginning of today's meeting. As confirmed in the Notice of Meeting, as Chair of this meeting, I intend to vote on each resolution I am entitled to, consistent with the recommendations of the Board, which are in favor of all resolutions. And where, as Chair, I've been appointed as a proxy that is undirected, I will be voting undirected proxies in favor of resolutions consistent with the Board's recommendations. You may submit your votes at any time, and I'll give you a warning before I move to close voting. I will now move on to the formal business of the meeting as set out in the Notice of Meeting. First item of business is to consider the financial report, the directors' report and the auditor's report. These reports are contained in the 2021 annual report. The Corporation Act requires that these reports be laid before the meeting and are available to view on the meeting homepage. There is no requirement that shareholders vote on, approve or adopt the financial reports. However, the Board takes the view that shareholders should be afforded an opportunity to put questions regarding the financial reports or other matters relevant to the performance of the company. Shareholders are entitled to direct audit-related questions to the auditor. Simon Crane from KPMG is here and present. I note that no written questions to the auditor were submitted prior to the meeting. I now invite questions from shareholders in relation to the financial reports or the audit.

Chair, no questions.

As consideration of the financial reports has been completed, I will move on to the formal resolutions to be considered by the meeting. The resolution 1. The first resolution to be considered is present shareholders with the opportunity to participate in a nonbinding advisory vote for the adoption of the remuneration report for the 2021 financial report. The remuneration report is part of the director's report, which is contained in the 2021 annual report. The Corporation Act requires a remuneration report to be submitted to shareholders for consideration. The company's remuneration policy and practices are designed to attract, motivate and retain highly quality people. They are built around the principle of being competitive in the markets in which the company operates. The directors unanimously support the adoption of the report. Are there any questions on the remuneration report?

No. We haven't received any questions.

The screen shows details of the proxies received on this resolution. As there is no further discussion, I will now move on to the next item of business. The second item of business is the reelection of Warren Bee to the Board of Directors. Warren has been a Director of MotorCycle Holdings since 2011 and chaired the company's advisory Board from 2007 to 2011. Warren was last elected by shareholders at the 2018 Annual General Meeting. In accordance with the company's constitution, Warren retires at the end of the Annual General Meeting and, being eligible, presents himself for election by shareholders. Are there any questions in relation to the reelection of Warren as a Director?

No. We haven't received any questions.

The screen shows details of the proxies received on this resolution. As there is no further discussion, I'll now hand over to Rick Dennis for the next item of business.

Good morning. The third item of business is the reelection of David Foster to the Board of Directors. David was appointed as a Director by the Board in March 2016 and was last elected by shareholders at the 2018 Annual General Meeting. In accordance with the company's constitution, David retires at the end of the Annual General Meeting, and, being eligible, presents himself for reelection by shareholders. Are there any questions in relation to the reelection of David as a Director?

No. We haven't received any questions.

Thank you. The screen shows the details of the proxies received on this resolution, and as there's no further discussion, I now hand the meeting back to the Chair, David Foster.

Thanks, Rick. I'll move on to item 4. The fourth item of business is the approval of participation of David Ahmet in the company's long-term incentive plan. The long-term incentive plan was approved by shareholders at the company's 2020 Annual General Meeting. The Board recognizes the need to adequately incentivize and remunerate staff and believes that an appropriately designed long-term incentive plan aligns employees' interest with that of shareholders. Are there any questions in relation to the approval of and participation of David Ahmet in the long-term incentive plan?

No. We haven't received any questions.

The screen shows details of the proxies received on this resolution, and as there is no further discussion, I will now move on to the next item of business. The next item of business is the approval of the exercise of option and renewal of leases between the group and Ahmet Affiliates as set out in the Notice of Meeting sent to shareholders on 29 October 2021. Are there any questions in relation to the approval of exercise of option and renewal of leases between the group and Ahmet Affiliates?

No. No questions.

The screen shows details of the proxies received on this resolution. As there is no further discussion, I'll now move on to the next item. The sixth item of business is the approval, exercise of option and renewal of lease between a group company and an entity acting in concert with Mr. Robert Cassen, Cassons Warehouse, as set out in the Notice of Meeting sent to shareholders on 29 October 2021. Are there any questions in relation to this resolution?

No. There's been no questions received.

Just moving on to the results of this resolution. There are a couple of corrections to the screen. So I'll hand over to our company secretary just to clarify the changes.

Yes. So the proxy results received today are: for, 36,480,764 votes; against, 24,291 votes; open-usable votes is 13,600; we have 105,805 votes that have abstained; and we've got 6,645,014 votes excluded. I'll hand back to you, Mr. Chair.

Thanks, Nicole. I'll now move on to resolution 7. This item is for the approval of exercise of options to renew leases between the group company and entity acting in concert with Mr. Robert Cassen, Caringbah Lease and Penrith Lease, as set out in the Notice of Meeting sent to shareholders on 29 October 2021. Are there any questions relating to this resolution?

No. We haven't received any questions.

The screen shows details of the proxies received on this resolution. As there is no further discussion, I'll now move on to the next item of business. That concludes the formal part of the meeting. I would now like to invite any further questions of directors from our shareholders.

No further questions.

As there are no further questions, that concludes our discussion on today's items of business. In a short while, I will close the voting system. So please ensure that you have cast your vote on all resolutions, and I'll now pause for roughly 30 seconds to allow you time to finalize these votes. [Voting]

Thank you, ladies and gentlemen. The voting system is now closed. The results of today's meeting will be released to the ASX shortly. On behalf of the Board, I thank you for your attendance today and for your continuing interest in the company. Thank you.