MotorCycle Holdings Limited (MTO) Earnings Call Transcript & Summary

Good day, and welcome to the MotorCycle Holdings FY '26 Full Year Results Briefing. My name is [ Resi ], and I'll be your Evercall coordinator. The format of the call includes prepared remarks from the company followed by a question-and-answer session, at which point, attendees will have an opportunity to ask questions live. [Operator Instructions] At this time, I'll turn the call over to Matthew Wiesner, Chief Executive Officer of MotorCycle Holdings. You may now begin.

Thank you. Good afternoon, ladies and gentlemen. I'm Matthew Wiesner, and thanks for joining us. And as Chief Executive Officer of Motorcycle Holdings, I'd like to welcome you all to the FY '26 full year results briefing. I'm joined today by our Chief Operating Officer, Michael Poynton; and Chief Financial Officer, John Wadley. A copy of the presentation together with our results announcements and the FY '26 annual report was lodged with the ASX earlier today. I'll begin with a few words about the progress of the company and take you through the financial results summary. John will then take you through the financial statements. Mike will cover off on our operational performance for the year, and I'll return to speak to some points and outlook for FY '27. And following that, we'll open up for a couple of questions. So go -- for those who the deck in front of you, go straight to Slide 3. But -- so before I turn to the numbers, I want to say something about what this company now is. MotorCycle Holdings is building the largest wholesale and retail multi-vehicle multi-category platform in Australia and New Zealand. That is a deliberate statement of ambition and it describes a business that has changed materially over the last couple of years. This year also brought greater clarity in how the Board and management view the business. Put simply, we are a wholesale distributor with significant retail operations, presenting wholesale and retail separately for the first time, gives shareholders a clearer view of the performance, the economics, and the priorities of each. Our distribution platform anchored by Mojo, Cassons, and Forbes and Davies in New Zealand sits at the center of the company strategy. It provides scale, margin and a channel to market that extends well be on our own dealerships and is the principal reason we are able to expand into adjacent vehicle and accessory categories without a proportionate increase in retail capital, working hand-in-hand with a now national retail footprint. The company is progressively becoming a multi-vehicle multi-category business. We see this as a natural evolution of the platform we've built and shareholders will hear more about this over the year -- over the coming months and year. Slide 4. We are the market leader in our category, and the foundation behind that position strengthened again during the year. We hold the #1 position in the new motorcycle ORV industry with nearly 20% of new sales. Almost 1 in every 5 new motorcycle and off-road vehicles sold in our industry in this country now comes from our group. And we also remain the largest used motorcycle retailer with over 12,000 units sold. We're the leading retailer at Harley-Davidson, representing more than half of that iconic brands retail volume in the Australian market. And we are the exclusive distributor of CFMOTO, the market-leading off-road vehicle brand in Australia. Our footprint now extends to 59 retail and wholesale operations across Australia and New Zealand. And our balance sheet is solid, supported by a strong capital base which positions us well for further growth. Let's jump along to Slide 6, please. The group delivered record sales revenue of $788.7 million, an increase of 21.3% on the prior year. That growth came from both sides of the business with acquisition growth from Peter Stevens and Harley-Heaven contributing 16.3% and organic growth of 5.1%. Underlying net profit after tax increased 42.6% to $25.7 million. That list was driven by revenue growth, the contribution from Peter Stevens and Harley-Heaven, and improved performance from our vehicle distribution business and a materially stronger results from our Harley-Davidson retail operations generally. Underlying EBITDA increased 27.9% to $65.1 million, assisted by an improvement in gross margin from 25.1% to 26.8%. We growing earnings faster than revenue is the outcome we've been working towards, and it reflects both a better mix of business performance, efficiency, and discipline. Slide 7. Inventory finished the year at $163.8 million. Of that, $30.7 million came across with the Peter Stevens and Harley-Heaven dealerships. Excluding those businesses, inventory reduced to $133.1 million from $148.7 million. During the year, we took further decisive action to clear aged stock and accelerate stock turns. That decision cost us some margin across volume brands in the short term, but it leaves the group with a much cleaner balance sheet and a stronger base for 2027 or FY '27. Our strong cash generation enabled us to move from a net debt position of $9 million at the end of FY '25 to a net cash position of $13 million at the end of FY '26. We achieved that while acquiring the Peter Stevens and Harley-Heaven an asset from funds on hand, repaying $10 million of bank loans and increasing the dividend. It demonstrates the cash generating capability of the business model and a disciplined approach to capital allocation. Net balance sheet strength also allowed us to absorb the cost of 2 historical issues identified during the year, the underpayment of vehicle registration duty in relation to certain optional equipment fit to vehicles and the underpayment of entitlements for some employees under the modern awards. Provisions of $5 million and $2.95 million, respectively, have been recognized, and John will speak to the accounting treatment shortly. Whilst the findings were very disappointing and fell short of the standards we now expect of ourselves, we acted properly to correct the relevant systems and processes, commenced remediation and made voluntary disclosures to the Fair Work Ombudsman and the relevant state and territory revenue authorities. We're committed to resolving both matters transparently and fairly and to embedding the lessons in stronger controls across the group. The Board has declared a fully franked final dividend of $0.07 per ordinary share, bringing the full year dividend to $0.165 fully franked. That is an increase of $0.035 or 27% on the prior year and reflects our commitment to delivering returns to shareholders while maintaining the financial flexibility to pursue strategic growth opportunities. Underlying earnings per share increased in line with the profit uplift from $0.24 to $0.348 per ordinary share. On Slide 8 now. Stepping back from a single year, this is the fifth consecutive year of revenue growth, a compound annual growth rate of 14.6% since FY '22. Retail revenue grew 23.2%, including the acquisition of Peter Stevens and Harley-Heaven. Motorcycle and accessory wholesale revenue grew 16.9% and bolstered by a strong growth from Mojo Motorcycles. E-commerce grew 44% through our strategic digital execution, the relaunch of MCAS, and the addition of the new TeamMoto and Morgan & Wacker e-commerce capabilities. My closing remarks before handing over concern our people. I thank Matt and John for -- and the executive leadership team and our employees across Australia and New Zealand for their dedication through what has been a demanding year of change. And I also extend my appreciation to the Board for their guidance and support during a period of significant achievement. Finally, thank you to all our shareholders for your ongoing support and MotorCycle Holdings is a stronger, clear, and better position business than it was 12 months ago. And we look forward to continuing to demonstrate that in the years ahead. I now hand over to our CFO, John Wadley.

Thank you, Matthew, and good afternoon, everyone. Let's take a look at the financial statements in a little bit more detail, starting with the consolidated profit and loss on Slide 10. Statutory net profit after tax was $24.2 million. We've made adjustments totaling $2.2 million before tax to arrive at an underlying result of $25.7 million. Those adjustments are the acquisition costs related to the Peter Stevens and Harley-Heaven businesses of $1.4 million, together with the current year impact of the stamp duty and payroll remediation issues that Matthew referred to, of $150,000 and $650,000, respectively. Gross profit grew 29.7% to $211.2 million, with the margin improving from 21.5% to 26.8%. Two factors drove that improvement, favorable currency movements and better margins in our vehicle distribution business. The strengthening of Australian dollar lifted the gross profit margin across the combined wholesale segment from 25% to 29% and that flowed through to an increase in the wholesale profit before tax. Operating costs increased, reflecting the addition of the Peter Steven and Harley-Heaven cost base as well as further investment in corporate services across HR, finance, and IT. Prices on the additional right-of-use assets attracting -- attaching to the new properties. Finance costs were steady with reduced external interest costs, offset by higher notional interest charges related to those right-of-use assets. The net result is underlying EBIT of $42.4 million, up 36.8%, and underlying net profit before tax of $36.5 million. On the 2 remediation matters, the vehicle registration duty, an amount of $5 million has been provided on the balance sheet, being $3.5 million in duty and $1.5 million in related interest, representing management's best estimate of the liability. The majority of the amount relates to transactions prior to the current financial year, $4.85 million of the provision has been recognized at the first of July 2024. And with the accompanying deferred tax asset of $1.45 million the net position of $3.4 million has been reflected in opening retained earnings at that date. The payroll remediation, the total provided to-date is $2.95 million. Since our announcement on the 17th of July, a further $1.85 million has been provided, of which $250,000 relates to and has been booked in FY '26 with the balance adjusted through opening retained earnings on the same basis. Our detailed review continues as a priority. It involves complex matters of modern award interpretation and specialized analysis of large volumes of data, and we will keep the market informed as that work progresses. Moving on to Slide 11 and the balance sheet. Total assets grew to $465 million and net assets to $215.4 million, increase largely reflecting the acquisition of the assets of Peter Stevens and Harley-Heaven in July 2025. Cash of $43 million and receivables of $19 million, both reflect a strong final quarter of trading. Inventories, as Matthew noted, are lower excluding the acquired businesses. That is the direct result of the operational efficiency strategy to accelerate stock turnaround. Right-of-use assets and the corresponding lease liabilities are higher, reflecting the additional properties that came with the acquisition. Provisions are inclusive of the $5 million stamp duty and $2.95 million payroll remediation amounts just mentioned borrowing is $10 million lower at $30 million following the strategic debt reduction we undertook during the year. That completes the financial statements for you. I will now hand to Michael to speak to our operational performance.

Thank you, John, and thank you, Matt, and good afternoon, everyone. In this operational summary, I wanted to make a few call-outs. Firstly is vehicle distribution. This segment continues to go from strength to strength in both Australia and New Zealand. Wholesale units increased 15% to a record 2,127 units across the 2 markets. CFMOTO regained further market share across both the off-road vehicle and motorcycle segment and remains the key brand of the wholesale side of the group. Combined with the margin improvement, Matt described, the wholesale profit before tax increased 34%. Harley-Davidson, our Harley-Davidson retail business for the standout. We now span 12 dealerships following 4 added throughout the year during the acquisition with Peter Stevens and Harley-Heaven and held a 50% share of the market in the second half, making us the clear national leader with this iconic global brand. The discipline we have applied the inventory, used vehicle, sorting, and finance and insurance penetration has translated directly into stronger unit sales and stronger profitability. Peter Stevens and Harley-Heaven, both have integrated well and are now stabilized within the group. They have added meaningful retail scale, extended our footprint into SA and also WA, and brought with them strong brands, digital assets and importantly, experienced people. Records in retail vehicle sales. Both new and used unit sales were records for the group, delivering a record 19.6% share of the new vehicle market over the financial year. MCAS, we reset the strategy during FY '26. We relaunched the brand, opened new stores, improve the retail experience and point-of-sale systems, strengthened inventory management and expanded the product range. Record e-commerce revenue was a result of that work, reflecting continued growth in digital enhancement across the retail network. And finally, we continue to invest in corporate systems and in optimizing our property network, exiting underperforming volume brand locations and consolidating a number of operations into larger, more efficient sites. That work is not finished, but it has already improved how efficiently the business runs. Turning on to Slide 14, new vehicle sales. New vehicle unit sales grew 20.7% to a record 18,875 units with both halves ahead of the previous corresponding period and the Peter statements in Harley-Heaven been contributing from 31st of July. Our share of the new vehicle market rose from 16.6% to 19.6%. For context, that share was 12% in FY '22. In a market that has been broadly flat over that period, we have added more than 7 points of share in 4 years, which speaks to our continued ability to outperform the market. Slide 15, used vehicle sales. Used vehicles also set a new record with 12,192 units sold, up 15.4% on the previous year. Two other measures matter as much as volumes here. Stock turns on used vehicles improved from 6.5x to 6.9x and gross margin improved from 14.3% to 14.6%. Used vehicles remain an area where management sees further opportunity in sourcing, in turn, and in gross profit per unit. Slide 16, our divisional contribution. Every division grew both revenue and gross profit during the year. New vehicles delivered revenue of $40.3 million up 21.5%, split between $257 million in retail and $173.3 million in wholesale with gross profit of $74 million, up 41.1%. Gross profit growing at close to twice the rate of revenue is the wholesale margin improvement coming through. Used vehicles grew revenue 21.2% to $155.4 million with gross profit up 24.3% to $22.7 million. Price and accessories grew revenue 18.4% to $162.9 million and gross profit, 21.1% to $67.5 million, second only to new vehicles as a contributor of gross profit to the group. And Finance and Insurance grew 18.2% and gross profit, 18.3% to $19.3 million. That spread of contribution across categories and across both wholesale and retail is what a genuinely diversified model is meant to deliver. That completes the operational review. I will now hand back to Matt to speak to the year ahead. Thank you.

Thanks, Mike. Okay. Let me turn to the year ahead. We're approaching FY '27 with both realism and some ambition, of course. Realism first. We're on Slide 18, by the way. Realism first. We remain cautious on the near-term outlook for discretionary spending and consumer demand with ongoing interest rate and macroeconomic pressures continuing. Against that backdrop, we cautiously expect continued growth across our Australian, New Zealand distribution businesses. That business enters the year on a strong foundation, and we will add to it with the introduction of GOES, of the new GOES brand, the new ATV brand that's wholly owned by CFMOTO. The Peter Stevens and Harley-Heaven. Peter Stevens and Harley-Heaven have now stabilized post-acquisition. Our plans for the year are about further developing the Harley-Davidson retail business by including all our Harley-Davidson dealerships as 1 business unit to drive consistent focus on the brand, whilst allowing even more focus on our 2 volume business units and brands Peter Stevens in Southern Australia and TeamMoto across Queensland and New South Wales. Following the MCAS reset in FY '26, we expect further growth this year, supported additional new store openings and driving e-commerce and improving the customer experience. We'll continue to execute on retail consolidation including the optimization of retail locations to drive stronger operating margin in that segment, and we'll maintain our investment in business transformation, including people, systems, property, network optimization to deliver more efficient and scalable operating -- a more efficient and scalable operating model. The Board has approved our future transformation strategy directed at technology data, people, and property. It's an investment in the efficiency and durability of this business, and we'll report on that and its progress over the next months and year ahead. Slide 19. We now have 59 retail wholesale operations across Australia and New Zealand, 4 more than at the end of FY '25. On the wholesale and distribution side, that is Mojo, Forbes and Davies in New Zealand, and Cassons. On the retail side, TeamMoto, Peter Stevens, Harley-Heaven, Morgan & Wacker, and MCAS are those core retail brands. This is a house of brands, and each 1 has a distinct role and a distinct customer. What has changed is that we are increasingly managing them as 1 platform rather than a collection of separate silo businesses. Slide 20. That brings me to how we intend to run the company from here: 1 company, 1 platform, 4 pillars. The first is an omnichannel experience which is a connected customer journey across showrooms, service, digital, and partner channels, so that customer experience 1 MTO or 1 NCH wherever they choose to engage with us. The objective is simple and it is that MCH is easy to do business with. The second is data foundations, a trusted, accessible data-enabled by platforms of power decisions, customer engagement, and AI use cases across our brands, giving our teams real-time insight for timely decision-making. Third is our people, supporting them with strong leadership capability, uplift through training, and building a performance culture that drives growth across the motorcycle world business and adjacent categories that we are moving into. And the fourth is property. A disciplined property strategy that maximizes returns per square meter across our distribution and dealership network in the right format in the right locations that deliver operationally efficient sites with a better physical experience for customers and staff. Underpinning all 4 is very much a customer-first approach, working across the group, simplifying the business, and unlocking the benefits of scale that we have built and are building. And in closing, the fundamentals of this business are strong but there is still much work to do. Our distribution platform is growing. We are the Australian leader in Harley-Davidson retail. Our balance sheet is stronger and we are aggressively simplifying and improving the performance of our broader retail business. At the same time, our opportunity extends well beyond the traditional motorcycles. We are building a broader platform spanning motorcycles, all-terrain vehicles, watercraft, and other mobility categories, supported by new and used vehicles, parts and accessories, apparel, service, finance, and insurance. Our wholesale and distribution capability gives us a powerful platform from which to pursue that growth. We enter FY '27 as a much larger business with a clearer identity, stronger foundations and a sharper focus on where we can win. To our customers, dealers, and brand partners, we thank you for your continued support. To our people across Australia and New Zealand, thank you for your commitment during a period of significant change. Performing whilst transforming is not easy and your contribution has been absolutely critical in that context. I also thank the Board for their continued support and our shareholders for their confidence in the company. So that concludes the briefing, and I hand you back for questions.

Thank you. [Operator Instructions] Our first question comes from Jared at Morgan Financial.

Great result. Just interested on how you exited FY '26 and any early observations you have on how FY '27 has commenced from a sales and revenue growth perspective?

We had a very strong finish to the year, which was pleasing to say the least. And we've -- I think we've kicked off FY '27 in quite a positive way. July was quite reasonable. So -- which was pleasing to see. So, yes, happy so far, I guess, given its August.

Perfect. And just a couple more. Just interested on the gross margin outcome, like it was a really strong second half, 27.7%, well above FY '25. That just probably interested in the composition of that, how much FX and favorable freight rates played a factor. And I guess, the sustainability of that full year margin outcome you achieved into '27 and '28.

I think there's a number of factors there, Jared. There's a combination. Certainly, we gained some windfall out of -- from currency. And that also was because of our focus on -- being much tougher on what we're holding from an inventory point of view, which allowed -- especially on the motor side because they were running a much tighter inventory, it allows them to take more advantage of those spot rates. So being really hard on stock. Pushing right down on stock allowed us to take full advantage of that at the right time. So that was well done by the business overall. Certainly across the rest of the business we have pushed down, as you saw from the stock turns. We've been -- we've had a positive impact from an improvement in stock turns across the new and used retail business. And all of those compounding effects and a very strong -- just generally, a very strong second half of the year from the distribution business, which obviously has higher margins. So, yes, a compounding impact across probably 4 or 5 different aspects.

So do you think you can -- sorry, just to clarify, do you think you can grow gross margins percentages next year?

We'll see how we go. I mean we're going to keep -- we'll keep focusing on those key areas, as I've spoken about a number of times in the past. And I think because of those things that we constantly focus on it, it allows us to take advantage of any opportunities that pop up, the 1 that certainly has been -- that we have taken advantage, obviously, has been the positive currency outcomes that have allowed us to enhance that. But also as we improve how we do what we do across the journey, Jared, we're seeing better performance and efficiencies when we look at, say, revenue and growth per head count and other things, too. So we'll continue to drive what we can impact and then whatever happens outside that, hopefully, it works in our favor.

Sure. And sorry, last one, I don't think I've ever seen the balance sheet of MPO being this strong shape in quite a while. They're just interested in the plans for capital allocation here? Are you thinking about maybe buying back stock or maybe looking to strategically acquire back some property across the dealership footprint. Just interested on how you sort of use that balance sheet capacity now?

A couple of things. Certainly, as we've said, we're a growth business. We're looking for opportunities, the right opportunities for us moving forward. So we want to be ready for those. We were prepared for the Peter Stevens and Harley-Heaven an opportunity. And as we funded that out of cash, that was fantastic. We want to be -- we want to continue to be able to do that. And secondly, as I stated earlier regarding our strategic direction and transformation, we've also got to be ensure we're prepared to manage that process over the coming 24, 36 months. That's very important. And also given, obviously, we're dealing with our historical challenges with stamp duty and some of the awards entitlements for some employees that we're obviously mindful of, too. So we've got a few things there that we're managing through. Hence, we're very focused on the balance sheet.

Thank you. Our next question comes from Sarah of Moelis Australia.

I wish to ask question on Peter Stevens. It looks like it kind of softened a little bit in the second half and profitability deteriorated. Can you give us a bit of an understanding around what kind of the drivers were behind that?