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Edited Transcript of AHG.AX earnings conference call or presentation 23-Aug-19 1:00am GMT

Full Year 2019 Automotive Holdings Group Ltd Earnings Call

Aug 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Automotive Holdings Group Ltd earnings conference call or presentation Friday, August 23, 2019 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Adam Irving

Automotive Holdings Group Limited - CFO

* John McConnell

Automotive Holdings Group Limited - CEO, MD & Director

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Conference Call Participants

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* Anna Guan

Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst

* Paul Buys

Crédit Suisse AG, Research Division - Head of Research and Director

* Sarah Mann

Moelis Australia Securities Pty Ltd, Research Division - Analyst

* Shaun Weick

Macquarie Research - Analyst

* Eli Greenblatt;The Australian

* Sean Smith;The West Australian

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the AHG 2019 Full Year Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Mr. John McConnell, Managing Director of AHG. Thank you, sir. Please go ahead.

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [2]

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Good morning, everyone.

Joining me on the call today is our CFO, Adam Irving. We will make some opening remarks, and then we'll open the call to your questions.

For those of you that follow our stock, you'll be aware of the results announced to the market this morning, and you will have seen the presentation slides that were released at the same time. For anyone who may not have yet had the chance to view the slides, let me take you to the update.

Firstly, on the takeover merger offer from AP Eagers, which was on our Slide 3. As you know, the ACCC's merger authorization became effective last Friday, at which time AP Eagers declared their offer unconditional. As at last night, AP Eagers had a relevant interest in more than 69% of AHG's shares. And just to recap, our Board unanimously recommends that AHG shareholders now accept the offer in the absence of any superior proposal.

Slide 4 deals with the strategic review of the Refrigerated Logistics business for which a formal sale process has now commenced. And it is fair to say, as is noted on the slide, that we're encouraged by the level of inquiry expressed into that business to date.

Moving to the full year result on Slide 5. We've made it very clear that in preparing these results, AHG has accounted for the Refrigerated Logistics segment as a discontinued operation for the reporting period that ended 30th of June '19, with the Automotive Retail, Trucks, Other Logistics and Property segments accounted for as continuing operations.

The company reported operating NPAT for the full year to 30th of June of $58.7 million from continuing operations. And had logistics -- Refrigerated Logistics, rather, been included in the continuing operations, then the operating NPAT would have been $48.6 million using the same methodology that we'd used previously giving guidance to the market on the 14th of May in which we outlined an operating NPAT result of approximately $50 million. So for absolute clarity, the result is in line with the guidance we gave to the market in May of this year.

To recap some of the key numbers, and I won't bore you with the exhaustive list. Our statutory result -- the statutory IFRS loss after-tax was $233 million. From continuing operations, the group revenue was broadly flat at $5.9 billion. Our operating EBITDA margin was 2.8% compared to 2.9% in the previous year, and our operating NPAT was $58.7 million compared to $75.2 million in the previous year.

On Slide 6, most of you will also be aware that the result included a restatement of the company's FY '18 results following a review of the receivables in Refrigerated Logistics. The review showed a material overstatement of the division's revenues in FY '18, the quantum of which is approximately $18 million pretax, and the impact of the misstatement is included in the notes in form 4E and consolidated financial statements for FY '19. And Adam will take you through some of the detail behind this shortly.

As a result of the restatement, the company has further written down the carrying value of the Refrigerated Logistics division by circa $24 million.

So looking at our consolidated financial performance on Slide 7. Revenue was slightly ahead of the prior year, but there were challenging market conditions for our franchise dealership operations. We continued to invest in the easyauto123 brand. We had another strong performance from the Trucks division, such that the Trucks operation is now a separate reporting segment.

Interest costs were significantly higher than the previous year, principally due to increased floor plan costs and bank facility costs.

And before we turn to the various business units, I'd now ask Adam to take you through balance sheet and cash flow.

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Adam Irving, Automotive Holdings Group Limited - CFO [3]

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Thanks, John.

I will start with our capital management progress for the full year, which is summarized on Slide 8 of our results presentation.

Operating cash flow for the full year was $108.5 million. It was behind FY '18 at $147 million, but ultimately, a reflection of our lower earnings and a more disciplined opening working capital position than we've had in the prior year. We're comfortable with that result, and it's allowed us to continue to reduce our ex floorplan borrowings.

Over the full year, our net debt, excluding floorplan, has come down by a little over $54 million, and our capacity to reduce debt over the year was aided by the decision at the half year to suspend our dividend and our ongoing disciplined approach to CapEx.

John's taken you through the group headlines and provided some market context for the year that was. My focus here will be to step through a couple of key areas to help decipher some of the complexity in the 4E resulting from the reclassification of our RL business.

So our -- look, I'm covering some more ground with John, but for context, I'll restate it here.

Our headline operating NPAT for continuing operations, so excluding RL, was $58.7 million. However, the guidance we provided during the past was on the basis of RL being classified as continuing. On a like-for-like basis with the guidance we provided, we hit $48.7 million, so marginally behind the approximately $50 million guidance we issued in May.

Statutory NPAT for continuing operations was a loss of $125.7 million, and that's down on the prior year's statutory NPAT loss of $63.9 million on the same basis.

There's a large gap between stat and operating earnings, which is a carryover from the half year, primarily. However, as we flagged last week, we called out a further write-down in the RL business, which was largely a result of the issues we had with FY '18 receivables.

Slide 9, I think it's important to step through. That's the -- effectively, the reconciliation between the gap between stat and operating, and I'll take you through the key points there. We've grouped these unusual items into 4 categories, and I'll cover each in turn.

So the impairment of noncurrent assets, $139.7 million, is largely a carryover from the half year. There's not much to add there. We did a wrap-up of some KTM impairments following the sale. That was about $2.1 million. Otherwise, there's nothing further that we've added from -- in H2.

The second key category is costs relating to restructure of operations, and again, largely an extension of the decisions we took at the half year. The $32.2 million is just the full year run rate of what we identified at the half year, plus a limited number of additions that we've added to unusual items as we focus on our underperforming operations across the group. The timing of the execution of these restructures has been impacted by the APE merger proposal in April, but they do remain active and ongoing.

The third key category is the impairment of current and other noncurrent assets, $13.8 million. Again, most of this was flagged at the half year. The only thing we added there was some impairment of PP&E relating to the Melbourne City Mazda operations, which we're moving over the road to where Melbourne City Hall used to be located. And the other net cost items of $1.3 million is just a net of the properties we sold in the first half and some costs associated with the merger proposal and the sale of RL.

The other key impairment item relates to the RL business. In total, for FY '19, we took a post-tax charge of $96 million against goodwill and IT assets. $78.8 million was taken in the half year and a further $17.5 million post-tax was added in H2. This is against the balance of our IT assets, largely driven by the receivables write-off in FY '18. The lower earnings in FY '18 required us to revisit the carrying value of certain items on the RL balance sheet.

The final 2 key points to address in the 4E relate to the reclassification of the RL business as an asset held for sale and the restatement of the FY '18 results following the investigations of the RL receivables for that year.

With regards to the classification held for sale, the strategic review process we have undertaken with our RL business has been well documented and further clarified last week when we confirmed that the business was formally going to market. The outcome of this process has led to the classification of the RL business as being held for sale. I think that's obvious and a natural consequence of where we've been over the past few months.

I'll get on to the receivables review now. That's obviously very disappointing for the group and has clearly had a material impact on the half -- FY '18 results of the RL operations. It is a complex matter. And at the risk of over-simplifying how it occurred, I'll attempt to explain the 2 principal factors that led to the error.

In any normal month, the RL business has a number of unpriced and uninvoiced transport orders relating to work done in that month. Over a number of years, we have applied an estimated rate to the unpriced and uninvoiced orders. When the number of unpriced and uninvoiced orders was low in the context of the monthly activities of the RL business, the risk of material error was low. However, with the issues caused by the implementation of the new CAPcargo transport management system in May 2018, we ended up with having a much higher-than-normal number of unpriced and uninvoiced transport orders at year-end.

Through the investigation of this process, we have learned that the estimated rate applied to the unpriced and uninvoiced transport orders was too high. Applying this incorrect rate to a much greater number of unpriced and uninvoiced work ultimately led to the overstatement of revenues in FY 2018.

I do stress that this is a complex issue that I won't be able to do justice on this call, but a lot of work has been done to avoid a repeat of this at 30 June '19.

That's it for me, and I'll hand it back over to John.

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [4]

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Thanks, Adam.

Turning to Automotive. It's worth reflecting on the national markets and new vehicle sales. The industry reported declining monthly sales numbers throughout the entire financial year, with the total new vehicle market down around 8%. There have been patches of growth, but for the most part, market dynamics have been bearish, largely reflecting weak consumer sentiment. Having said that, the industry is still on track to reach more than 1 million new vehicle sales in calendar year '19.

Slide 12 shows the operating performance for the Automotive businesses, excluding AHG, Trucks and easyauto123. And our volume performance was relatively strong against the comparatively weak new vehicle market. The regulatory changes to F&I continue to impact dealership operations. However, the introduction of new finance products should result in improved penetration rates over time. Our private buyer sales declined about 5% in the year, and F&I income per unit was down circa $100 a vehicle, which -- the impact of which obviously reduced our overall F&I income.

During the year, we also undertook a significant restructure of our Victorian operations to address some localized underperformance.

The easyauto business continues to build momentum through FY '19 with improved sales volumes and financial performance, as illustrated on Slide 14, despite the impact of tighter credit availability. And cumulative sales numbers there show that the 5 warehouse locations moved 5,700-odd cars in '19 compared with 5,400 the previous year.

Our Trucks business again performed strongly, delivering increased revenue and improved margins. And it's got a strong brand portfolio and enduring long-term relationships with major customers for sales, service and parts.

The Refrigerated Logistics business recorded an EBIT loss of $7.8 million compared with an EBIT loss of $9.4 million for FY '18. And the result reflected the challenges associated, amongst other things, with the implementation of the new computer systems that Adam referred to for transport management, the disruption caused by the aborted HNA sale process and weaker-than-expected trading conditions across the reporting period.

And finally, to our Other Logistics division, which will essentially be the AMCAP business moving forward, following the sale of KTM and Husqvarna motorcycle operations. AMCAP's performance was solid, whilst KTM in the year was impacted by adverse FX and the fall in motorcycle sales nationally.

Given the situation that AHG is in vis-à-vis the AP Eagers merger, it's not appropriate for us to offer an outlook for AHG at this time.

So I think, look, Adam and I will be happy to take any questions now that you might have.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Your first question today comes from the line of Shaun Weick from Macquarie.

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Shaun Weick, Macquarie Research - Analyst [2]

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Just a couple of quick ones. Just on the flow of credit into the auto sector in recent months, if you could just give a sense of what you're seeing there and if you're seeing any signs of improvement.

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [3]

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Okay. If I'd do one at a time, Shaun. Look, I think there's no doubt credit availability still is pretty tough. There's a large number of deals that we are struggling to get placed on a month-to-month basis. I think the banks are still being extremely cautious around lending, and it's taking much longer to actually get people set. And that, in turn, is obviously impacting not only sales, but it's also impacting F&I penetration.

So I think -- I don't think we've seen any substantive change. I think things are still very, very cautious on the lending front. Our penetration has been pretty solid and pretty steady, but it's still tough to get deals done. That's the brutal reality of the market at the moment.

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Shaun Weick, Macquarie Research - Analyst [4]

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Yes, I know. That's helpful. I mean, what's your feel for general sentiment across the auto landscape at the moment? Like, how are you thinking about future consolidation of that industry, just in general, if you've got any thoughts there?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [5]

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Look, I think if you reflect on the AP Eagers merger, Shaun, I think the reality is there's no doubt that whilst we had a stronger second half than we did in the first, conditions generally are still pretty tough in the industry. And I think the offer from AP is reflective of the fact that combining 2 big businesses into a larger-scale operation that enable businesses to take out costs creates a better competitive platform with which to move forward.

So in reality, what you're seeing at the moment in -- playing out with APE and AHG is symptomatic of the need for businesses to become more robust, more reset -- more robust and reset in what is still a relatively challenging landscape from a consumer sentiment perspective.

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Shaun Weick, Macquarie Research - Analyst [6]

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Okay. And just -- there's been some talk, I guess, across the industry that I guess short term, there's been commission subsidy deals offered from the OEMs to improve profitability of dealers. Are you able to give us a sense at all of I guess the quantum of that and kind of what the expectations would be going forward?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [7]

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I wish there was a universal panacea, Shaun. I'm not sure that's necessarily true. Look, I think there are pockets of some manufacturers that are maybe pushing harder than others, adjusting to overstock positions in the market, which is normal for the automotive industry. Therefore, there is an attempt to clear certain overhangs of stock with certain brands because you've still got a market that's down 8%. So there are some OEMs that will [proportionately] be providing a bit more support. There are others that don't need to whose positions are in reasonable shape.

I think if you look at margins, first half, second half, we haven't noticed a discernible difference in metal margins that accrue across first and second half. So I don't think it has materially changed, quite frankly.

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Shaun Weick, Macquarie Research - Analyst [8]

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Okay. That's great. And maybe just one final one. Just in terms of further cost-out opportunities in the auto network. I mean, you'd flagged in the IER that you thought there was $12 million incremental into FY '20. Is that still the current thinking?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [9]

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Thanks, Shaun. I think as we said at the beginning, the outlook is not a discussion I think it's appropriate for. I think if you look at AHG and APE moving forward, the reality is that -- assuming that one gets to 90% at some point of time, then there'll be a rebasing of the business both in the target statement and the bidder statement, and that we'll see both businesses look at what opportunities there are for synergy moving forward. It would be inappropriate for me to offer a view on that now.

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Operator [10]

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Your next question comes from the line of Anna Guan from Wilsons.

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Anna Guan, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [11]

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A couple of questions from me. Maybe just a follow-up on Shaun's question earlier around F&I. I guess just thinking about -- I guess the market's going to start cycling the new -- or the ban on [sales] commissions pretty soon. Do you think the F&I condition will sort of continue to degrade? Or do you think it will sort of stay flat for a little bit? Or I guess, the PCP is getting slightly easier to cycle over?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [12]

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Look, I think year-on-year, Anna, as I said earlier, we're probably down about $100 year-on-year. So I think we've seen a fairly stable level. The penetration of new remains -- bounces around, of course, month-to-month. So we could be between 36%, 38% on new cars. Used car penetration varies as well, but 25%, 28%, 29%.

I think arguably easier lending conditions from banks might actually enable some of those penetration rates to move up over time. The introduction of new GF -- or guaranteed future value products also should lend itself towards an opportunity to drive more product relevance in the market, which should also enable an increase in penetration over time.

So I think we've historically seen the adjustments and changes on add-on insurance, changes to flex, et cetera, that's baked into, I think, our current levels of income. And I think there is an opportunity over time to see the market move up.

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Anna Guan, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [13]

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Yes, yes. Okay. Understood. And then my second question is on easyauto123. Just on a quarterly basis, I guess, what sort of trajectory at PBT line that, that business is doing? Are we still sort of targeting -- or has it achieved, I guess, breakeven yet?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [14]

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I think we -- if you look at Slide 14 in the investor pack, we give you the month-to-month trajectory of how that business is going.

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Anna Guan, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [15]

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Oh, yes, sorry.

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [16]

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No, that's okay. But more broadly, I think there is no doubt that the momentum is building in that business, and we are driving towards 700-plus cars a month, which is what we need to deliver in that business to actually get to what we've talked about before, which is a breakeven position.

So I'm happy that under Craig Bigley, we've got that business beginning to build momentum. As I said earlier, it's particularly difficult for him at the moment as well, where his whole business is based on used cars, where we've talked about availability of credit. That is actually pretty tough at the moment for him, not only for getting F&I income but in actually getting deals set at the moment. So in what is a fairly tough environment, I think we're pleased with the trajectory that we've got in that business.

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Anna Guan, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [17]

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Yes, yes. Okay. That's very helpful. And then my last question on auto is around service. You mentioned service NPAT is doing pretty well, and then I think that's reasonably consistent with what the aftermarket guys are seeing at the moment as well. Do you see that as a market or consumer sentiment pickup broadly? Or do you think it's, I guess, partly recovery from the pause we saw earlier in the year?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [18]

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Are you talking specifically about parts and service or (inaudible)?

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Anna Guan, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [19]

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Yes, exactly.

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [20]

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Look, I think if you look at parts and service, what drives parts and service? Fundamentally, it is number of kilometers traveled by drivers that actually dictates work. And if you think about the retention for customers, we, as a franchise dealer network, typically will have very high retention rates for cars that are sold in 0 to 3 -- some 0 to 4 years because consumers who bought new cars will typically come back and have their cars serviced at the franchise dealer. And that's fairly typical for the industry. And we do a good job, I think, of pushing hard on parts and service.

So I think it's difficult to actually drive incremental business there. You can always work harder on retention strategies, which is what we do, but I think it's more a function of the cars that have been sold in the last 3 or 4 years in the market that are coming back into your stores for business. That's what fundamentally drives your service business. It isn't the market that responds to an advertising campaign. It's about doing a good job for customers on a day-to-day basis and having them come back to have their work performed when the kilometers demand it.

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Anna Guan, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [21]

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Yes, yes. Okay, that makes sense. And then my last question is on the impact of AASB 15, especially on I guess that $13 million hit to depreciation. Is that mainly or entirely in RL? Or does auto share a bit of that as well?

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Adam Irving, Automotive Holdings Group Limited - CFO [22]

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You're talking AASB 15, Anna?

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Anna Guan, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [23]

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Yes, yes.

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Adam Irving, Automotive Holdings Group Limited - CFO [24]

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No, that's in Automotive. AASB 15?

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Anna Guan, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [25]

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15, yes.

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Adam Irving, Automotive Holdings Group Limited - CFO [26]

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Yes. No, it's Automotive relating to the buyback programs that we've got going on. So it's just effectively amortizing the income that you get from the buyback program over the period of the buybacks as opposed to recognizing the sale at the point of sale.

So I think we -- I think our note's reasonably good at explaining that. But it's not an RL issue, it's an Automotive issue.

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Anna Guan, Wilsons Advisory and Stockbroking Limited, Research Division - Equity Analyst [27]

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Is that mainly in Trucks? Or does the actual car dealership get a bit of share of that as well?

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Adam Irving, Automotive Holdings Group Limited - CFO [28]

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Both.

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Operator [29]

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Your next question comes from the line of Paul Buys from Crédit Suisse.

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Paul Buys, Crédit Suisse AG, Research Division - Head of Research and Director [30]

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A quick first one for me. Just on your state-by-state performance. Just interested to know if there's anything to call out there, I guess, in your performance compared to what we see in the trajectory of overall national new car sales, if you guys are sort of tracking in line or if there's some differences. I know you touched on your Victorian operations, but just can you give an overall flavor?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [31]

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Yes. Look, I think it depends on -- each state depends on both not only the state of the market, but also your brand portfolio that exists in the market as well, Paul. But if I generalized across the board, I'd say there's -- with the exception of Victoria, where I think we probably slightly underperformed on where we should have been, the reality is I think we've delivered pretty solid performances in New South -- in Sydney, in Newcastle certainly, Queensland has been pretty solid as well for us. And WA, which I know we've talked about ad nauseam in terms of the weakness of the new car market in WA, which to date has not shown any signs of recovery whatsoever. And it's probably been one of the, if not the longest protracted period of downturn for WA. We've seen the average age of cars blow out here.

So the reality is we haven't seen any bounce in WA, but notwithstanding that, I think the guys here do a very good job in terms of outperforming what is a pretty tough market.

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Paul Buys, Crédit Suisse AG, Research Division - Head of Research and Director [32]

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And just from that, I guess, on to Trucks. It seems both public and private competitors are also doing relatively well on the truck side. Just keen to, I guess, get your view there on the drivers and the sustainability of that kind of earnings growth. Do you think you've kind of got to a near-term peak in that regard or in terms of the conditions and drivers for earnings?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [33]

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Well, look, I think we've got some good opportunities. I think we've got some fantastic operators in those businesses. I think we have very strong customer relationships. I think things like chain of responsibility, which impact the truck market particularly, and making sure the roadworthiness and servicing is at the highest level possible will probably continue to play into our hands to take opportunities for growing service parts.

So I think we have a good brand portfolio and we have some great relationships. So I'm quite positive about that business. Obviously, it's a function of being business confidence [leader] as well because that's the primary market we're playing in. But at the end of the day, I think that business has a lot of roadway, quite frankly.

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Paul Buys, Crédit Suisse AG, Research Division - Head of Research and Director [34]

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Okay. And the last one, just on RL. Just wanted to confirm that the -- obviously, as you guys talked about with the merger in play, with the offer -- initial offer close date sort of mid-September, but just to clarify, understanding here that the sale process is being run as of right now, notwithstanding any sort of ultimate merger outcome.

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [35]

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No, absolutely, because at the end of the day, we're perfectly aligned. And we've had discussions with Martin in relation to that as well because as stated in the business statement, the reality is they want to sell that business moving forward as well. So we're perfectly aligned on the outcome, so there's no issue at all there.

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Paul Buys, Crédit Suisse AG, Research Division - Head of Research and Director [36]

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Right. And then, John, I mean, following up on that, then. I mean do you see issues now on the back of receivables and I guess, the performance of the division vis-à-vis the sale price, obviously stating all this could have an impact on the sale price itself? But I mean, have those kinds of issues -- do you see a potential material impact on the overall sale process?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [37]

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Look, I think there's no doubt it's unhelpful, Paul. To say otherwise would be disingenuous. So I think the reality is it's not helpful. But remember, what are we selling? We're selling a core strategic asset of the largest national integrated cold chain operator in the country. We have an ability to leverage that moving forward with the systems implementations that we've done. It's been painful. And we've been through a massive transformation journey in the last few years.

It is unfortunate that we've had to go back and restate revenue. It's unfortunate that the HNA process disrupted that business. But this is selling the potential for what is the largest player and opportunity in the country. And that's exactly what we're doing.

We have better data visibility moving forward by virtue of what we've done to drive performance in that business. The stability now, post the implementation of the transport management system, gives you a better, more solid foundation of transport and revenues moving forward. And our challenge is to grow the business in terms of new customers, and that's what we're doing. But the foundations are now laid, and it is about realizing the future value in that business. It's not -- it's less about looking in the rearview mirror than it is about looking at what the potential is of that business. And that's what we're selling.

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Operator [38]

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The next question comes from the line of Sarah Mann from Moelis Australia.

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Sarah Mann, Moelis Australia Securities Pty Ltd, Research Division - Analyst [39]

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Just on the auto conditions. It looks like -- obviously, I mean, you mentioned clearly conditions are still tough. But just interested in terms of what the OEM's, I guess, target incentive kind of imply in terms of their outlook for the rest of the year.

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [40]

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Again, Sarah, that's all varied by manufacturers. Some have taken conscious decisions at the beginning of the year to reduce their expectations by circa 10% in the market. Others have been perhaps -- maybe I can say it, maybe a bit more pressured from overseas parents to take more targets into the country. Some of them will have a few more cars on the ground than they would probably like. Therefore, there's likely to be some incentives to help move some of that stock. Others are tighter in terms of their overall total supply chains in market, and there'll be less incentives that will run around for those manufacturers. So it'll vary by manufacturer.

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Sarah Mann, Moelis Australia Securities Pty Ltd, Research Division - Analyst [41]

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Okay. But it's not like -- it sounds like, clearly, it depends on individual conditions and things like that, but do you think they're getting more reasonable?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [42]

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Look, I think ultimately, when the -- if the market stops falling and we actually normalize, and supply and demand gets back into better balance, that's a better outcome for the industry where there's less push, and therefore, less stress on pushing cars into a market that isn't there. So if the market stabilizes, then that is a much better position.

But remember, our margins at a private buyer level actually have been pretty consistent over the last year. They haven't changed dramatically, notwithstanding the market coming down. We probably had a bit more pressure on fleet margins. We were actually down a bit on fleet as we -- again, we try and push margins to achieve targets by virtue of fleet channel. But an overall stabilization of the market, where it's stopped comping negatively, would be a much better position to be in, without doubt.

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Sarah Mann, Moelis Australia Securities Pty Ltd, Research Division - Analyst [43]

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Okay, great. So then just on Refrigerated Logistics. Sorry to, I guess, keep asking about it. But obviously, it's still kind of loss-making in the first half. And then looking at -- sorry, in the full year. And then looking at also the first half accounts, it looks like you're kind of in a net liability position of $130 million. So just trying to understand, I mean, like are you still comfortable that you should be able to get the sale across? But also in that, like is there any risk that you might have to pay something out to actually get rid of the business?

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Adam Irving, Automotive Holdings Group Limited - CFO [44]

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Sure. I'll take that one, Sarah. So the way it's presented in the accounts is -- includes, in our segment note, our intercompany loans, which we've done over a number of years. So it's not something I particularly like, but it's something I inherited. So rather than changing it and flagging it up year-on-year, we've left it consistent.

So the net asset position of that business fluctuates depending on where working capital moves month-to-month, and it is quite seasonal from a working capital perspective. So it can swing around a bit in any month up to $20 million. But it has a net asset position at 30 June of a little over $100 million. That can swing from one -- low 100s to mid-120s.

But in that context, you can think of that business having a net asset position in low 100s to 120s. The segment note includes an intercompany loan, which is effectively our equity investment in that business, which is just classified as a loan in the segment note. I understand it's a little confusing in there. It's just -- it's comped out that way over a number of years, so I haven't changed it.

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Operator [45]

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The next question comes from the line of Eli Greenblatt from News Corporation.

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Eli Greenblatt;The Australian, [46]

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That's Eli Greenblatt from The Australian. Just a quick few questions, just on the way customers are shopping and spending the money at your car yards. You mentioned in your release that the Royal Commission, falling housing markets all having an effect. So can you just give me a bit more color on the way these factors are affecting your consumers as they kind of walk on to your car yards and the way that they choose or not choose a car to buy?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [47]

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Look, I think I'll go up a level, Eli. And if we look at our total results in FY '19, we saw private buyer retail drop by 5.4% in volume terms. Our used car sales over a period which was pretty tough in new actually went up by 3.6%. So you're seeing, at a consumer level, some substitution between buyers that would otherwise have been looking for new cars into used. And I think that is, first and foremost, a behavior that consumers are exhibiting today, which is are they going as strongly for new cars as they were previously? No, they're not. And there is more pickup and attraction in used cars at the moment.

I think in terms of behavior, I think over time, there's been fewer and fewer visits to dealerships. Consumers come to dealerships with much better preparation. The use of the Internet, the use of various search tools gives them an ability to actually come to a dealership in a well-informed position. So you have less numbers of visits to dealerships than you would have had maybe 10 years ago.

So people are coming into the business in a much better and informed position. That in turn enables us to actually look to higher levels of conversion on the basis that those people are not doing early stage -- it's a generalization. There's less early-stage stuff. They're coming in with a better informed position. Therefore, you're probably seeing lower levels of foot traffic, but you're getting a better quality of foot traffic in terms of preparedness to actually move to a sale process. So I think, if you like, those are the -- maybe the macros that are at play, if that helps.

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Eli Greenblatt;The Australian, [48]

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Yes. And so when they do make that decision, let's say, to walk away from new cars and go to second hand, within that, are you seeing a movement towards certain brands? Like are there certain car brands that they're trusting in the secondary market that maybe they hadn't before? Or are there certain brands, car types within new cars that they're opting for that they didn't before that then produced this result?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [49]

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I think that rather than brands, there's an SUV move in the marketplace. If you look at the trends over time in Australia, you've seen moves away from small passenger cars and there's a love affair still a la the U.S. market with SUVs.

So I think in terms of shopping for and enjoying space, access and ability, there is still a desire for Australian consumers to enjoy SUVs. And that trend, I think, has been pretty solid. And I think we've still got -- or we've got today a situation in which SUVs will do better than passenger cars in the Aussie marketplace. So I think there's probably -- that's the general drift.

Within the market, you will always have different attractiveness of product at any given point of time in a cycle which will drive consumer behavior for something that is hot or not. And again, depending on price point of where particularly new vehicles are pitched, you can see shifts in what's happening. But that's more product and price-specific than anything else.

So I think the generalization is SUV trend. Question mark over time, Eli, as well. I think we've talked previously about the electric cars, et cetera. That will be a lag into the Australian market, depending on availability of infrastructure. But we will inevitably, by virtue of what's coming off production lines from manufacturers around the world, over time, you will see an increase in penetration of electric vehicles into this market, albeit with a size of country that, that is always going to be probably problematic given the distances that are required to have the adequate support of infrastructure.

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Eli Greenblatt;The Australian, [50]

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And just my last question here, and sorry to get really granular on the detail. But for our readers that would think it's always about a Holden versus a Toyota or a Mitsubishi, is that becoming less of an issue and it's more, as you said, just SUVs and people going for different types of cars? Or what's happening with those well-known brands that our readers would know quite well?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [51]

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Look, I think, again, it depends on the -- it's not about -- it's a bit about the brand, but it is more about the product within the brand. And if you've got product relevance, there's no doubt that Holden and Ford's history is a strong and rich heritage in this country, and similarly, Toyota and others.

But yes, people and consumers will shop. They will not cross off a brand per se. They will look at the relevance of the product, the price point of the product that is being introduced. You'll always have the diehards of brands, but people will shop, and they will interchange more and more these days rather than necessarily being a given brand customer necessarily for life. I think there is perhaps more changeability, a bit less loyalty than there once was maybe 20 years ago. But it is the reflection of the range of good-quality product that most manufacturers have.

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Operator [52]

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The next question comes from the line of Sean Smith from The West Australian.

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Sean Smith;The West Australian, [53]

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I note the commentary of the complete absence of a recovery in the new car sales market in WA. I was under the impression, I don't have my data in front of me, but there was a pickup last month. Do your comments suggest that you're not participating in that pickup, short though it may be?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [54]

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There was. WA did have a rebound in July. But if you look at the July market in total for WA, the private buyer market in WA was down 9.2% in the month of July -- well, sorry, was up 1.8% in the month of July. You had a market that was up 5%. But year-to-date in WA, the market's down 5.2%. We're talking about -- you're talking about 1 month, you're right, which was up 5%. But the year-to-date position in WA is 5.2% at the end of July. And obviously, our results relate to 30th of June. They don't relate to July.

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Sean Smith;The West Australian, [55]

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Did you get improved sales last month?

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [56]

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Yes. But if you look at sales, what was that driven by? It was driven by a strong sales event in June, which is typical for end of year. You've got -- and that's across Australia generally as well. We had a pretty strong sales performance in the month of June where consumers are used to coming to car yards for end-of-year clearance sales and the like. Where you've built an order bank in the month of June, you'll subsequently deliver some of those cars into July, where you'll take the order in June and deliver in July.

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Operator [57]

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(Operator Instructions)

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John McConnell, Automotive Holdings Group Limited - CEO, MD & Director [58]

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I think if -- that's it, I think. If there are no further questions that we can see, thank you, everyone, for your participation in the call this morning. Thank you.

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Operator [59]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.