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Autosports Group Limited

A.C.N. 614 505 261

All Correspondence

P.O Box 635

Five Dock NSW 2046

Website: autosportsgroup.com.au

30 November 2021

ASX announcement

2021 Annual General Meeting Chairman and CEO's Address

CHAIRMAN'S ADDRESS

Welcome

Good morning, ladies and gentlemen. My name is Tom Pockett and I am the Chairman of Autosports Group Limited. I am pleased to welcome you to the 2021 Annual General Meeting of Autosports Group Limited.

Acknowledgement of Country

I would like to acknowledge the Traditional Custodians of the land on which we meet today, the Gadigal and Wangal people of the Eora Nation. We pay our respect to their elders past, present and emerging and extend that respect to all Aboriginal and Torres Strait Islander peoples today.

Quorum

As it is now 11:00am and our Company Secretary has informed me that a quorum is present, I formally declare the Annual General Meeting open.

Introduction

I would like to start by introducing the Board of Directors present at the meeting today.

  • Mr Robert Quant - Non-Executive Director, Chair of the Audit & Risk Committee and member of the People & Remuneration Committee
  • Ms Marina Go - Non-Executive Director, Chair of the People & Remuneration Committee and member of the Audit & Risk Committee
  • Mr James Evans - Non-Executive Director, recently appointed on 5 August 2021
  • Mr Ian Pagent - Executive Director; and
  • Mr Nick Pagent - Chief Executive Officer and Managing Director

Also here today is our:

  • Chief Financial Officer, Mr Aaron Murray; and
  • Company Secretary and General Counsel, Ms Caroline Raw.

We also welcome Autosports Group's auditors, Mr David Haynes and Ms Savannah Yan from Deloitte.

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FY2021 Recap

2021 was another challenging year as the impact of COVID-19 continued to send our states into intermittent lockdowns, with Victoria being one of the most locked down cities in the world. The impact on businesses, and our everyday lives is profound, and I commend Autosports Group for working quickly against these challenges to keep our people and customers safe, keep our businesses operating in a COVID-safe manner, and securing as many jobs as possible.

I would also like to thank the team at Autosports for their outstanding commitment in what was another difficult and challenging year primarily due to COVID.

As we did last year, the team continued to respond quickly to the challenges with a clear and focused strategy and took advantage of the opportunities they were presented with.

The group delivered on its growth strategy once again with the acquisition of Brighton Jaguar Land Rover in Victoria and Alexandria Mazda in New South Wales. Our property portfolio has also increased to approximately $76 million with the acquisition of the underlying Brighton Jaguar Land Rover property and the Bundoora BMW property which settled a couple of weeks ago.

The health, safety and wellbeing of our employees is a priority especially in times of uncertainty. We have implemented a National Safety Council to embed a safety culture and share learnings across the states we operate in. We helped our people connect by introducing Workplace which is an online communication tool where our people can share their achievements.

Year on year Autosports Group has continued to build and mature its governance framework. Cybersecurity and privacy continue to be important focus areas as we prepare to invest in security uplift programs and partner with our suppliers to achieve better security outcomes for our customers.

The management team and our dedicated staff have delivered a strong financial result for FY2021 - it is an effort they should be proud of. Nick Pagent will talk to this in more detail shortly.

As foreshadowed in an earlier company announcement, I will be retiring as Chairman at the conclusion of this meeting. It has been a privilege to serve the shareholders of this company and to work with my fellow directors and management team.

This morning we will be asking shareholders to vote on the election of James Evans as a director of Autosports Group. My fellow directors and I fully support the election of James Evans to the Board, and I am pleased to hand over the Chairmanship to James at the conclusion of this meeting. I have no doubt that James' leadership and breadth of experience will help the team deliver the company's growth strategy and future success.

I will now hand over to Nick Pagent to discuss the financial performance of the business.

CEO'S ADDRESS

Thank you, Tom, and good morning, ladies and gentlemen.

Thank you for your attendance and participation today, at our 2021 Annual General Meeting.

I would like to begin by thanking the Autosports Group management team, Board and employees for their support through another year where we experienced ongoing circumstances that greatly impacted our business and how we operate. Thank you, to our Board for once again guiding us safely through lockdowns and the ongoing COVID-19 pandemic, as well as all staff who displayed great resilience and excellence

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throughout the financial year. To our OEM brand partners and financiers, thank you for your ongoing support and trust throughout the last 12 months.

Tom Pockett's retirement as Chairman

I also extend a special thanks to our Chairman. As previously announced to the market, Tom Pockett, Independent Non-Executive Director and Chair of Autosports Group since August 2016, will retire from the Board today.

Tom has played an integral part of Autosports Group since listing. Tom has led the establishment of our corporate governance framework and his leadership and guidance was instrumental in helping us navigate safely through COVID-19 and multiple business acquisitions over the last five years.

On behalf of my fellow directors and Autosports Group, I would like to take this opportunity to thank Tom for his leadership and valuable contribution to the Company and wish him well for the future.

Thank you, Tom.

2021FY Financial Performance

No-one could have anticipated what the 2021 financial year would look like. There was a combination of ups and downs all of which were handled diligently by our senior leadership team and dedicated staff.

Our year started strongly in July 2020 where we could see some light after the first COVID-19 wave that hit us earlier in the year. There was also an upward trajectory in new car sales as Vfacts data showed the beginnings of a recovery from the consecutive decline in the FY19 and FY20.

Between August and November our Victorian business was heavily impacted by COVID-19 related lockdowns in Victoria. These lockdowns impacted all of our Victorian showrooms and reduced our service facilities to essential work only.

I would like to take the time again have to commend our Victorian team for their perseverance and resilience during this period. Their efforts prepared Autosports to better mitigate the impacts of lockdown. These learnings helped drive our performance during the NSW and Victorian lockdowns in H1 2022FY.

A combination of factors including closed international borders; consumers preferring to drive instead of taking public transport, Government stimulus packages and supply constraints contributed to strong demand for new and used vehicles in Australia.

Within this framework Autosports Group's financial results in FY2021 were very pleasing.

Statutory revenue grew 16% to $1.98b for the year which was attributable to:

  1. Organic growth of $211m driven by strong demand particularly in new vehicle revenue which grew by 28.8% across the whole business.
  2. Acquisition-ledgrowth of $116m primarily attributable to the strategically aligned acquisition of the Trivett Alexandria business which brought the brands of Jaguar, Land Rover, Aston Martin, Rolls- Royce and McLaren to the Group, and expanded our representation with Bentley. Autosports Group also completed the acquisition of our second Jaguar Land Rover facility in Brighton in February 2021.
  3. Gross profit grew 27.5% to $338.3m. This growth was underpinned by gross margin growth in every revenue stream in the business.
  4. Well controlled operating expenses grew 11% during the year with $14m coming from acquired businesses and just $9m from organic growth.

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By 30 June 2021, Autosports Group had a strong closing cash balance of $96.8m providing resilience from any further COVID-19 related impacts but also positioning the Company for further growth. The cash surplus has also supported the payment of a final dividend to shareholders of 7 cents per share.

On a normalised basis, adjusting for the impacts of AASB16, acquisition amortisation and one-off costs relating to acquisitions and closures of businesses, the impact of growing gross margins (17.1%) and reduced operating expense ratio (12.4%) drove significant operating leverage and demonstrated the scalability of the business. Net profit margin grew to 3.8% and delivered a net profit before tax (NPBT) of $75.2m and an EBITDA of $93.1m.

Strategic Update

Since listing in November 2016 Autosports Group has pursued a simple but focussed growth strategy based around:

  1. Consolidating the fragmented franchised automotive dealership market via acquisition of strategically aligned brands in geographic locations where Autosports Group can unlock margin improvements.
  2. Adding organic growth through a mix of a base growing market, greenfields expansion sites in adjoining locations, improving the revenue mix of our business towards high margin products and expanding our net margins through operating leverage.

Since 2016 Autosports Group has faced some challenges to this strategy:

  1. Significant regulatory change in relation to the provision of finance and insurance products.
  2. Changes to worldwide vehicle emission testing procedures leading to stock shortages especially from European brands (WLTP).
  3. Changes to quarantine procedures leading to shipping delays.
  4. Difficult underlying new vehicle market conditions resulting in 30 months of decline in the new vehicle market in Australia.
  5. COVID-19lockdowns and restrictions.

Despite these headwinds Autosports Group's strategy has succeeded.

Since listing:

  1. Earnings per share (EPS) has grown by a CAGR of 15.6% placing its growth in the top quartile of listed companies.
  2. Revenue has grown 62% to $1.98b.
  3. Normalised* NPBT Margin has grown 74% to 3.8%.
  4. Normalised* NPBT has grown 182% to $75.2m.
  5. In addition Autosports Group has added $76m in real property assets.

Continuing this growth in 2021FY we acquired another Jaguar Land Rover dealership in Brighton Victoria as well as the underlying property. We announced the purchase of the John Newell Mazda (now Alexandria Mazda) business in Alexandria adding a second Mazda dealership to our portfolio. This business settled successfully in July and is trading in line with our expectations. In August 2021 we announced the purchase the underlying property of our Bundoora BMW site which has settled earlier this month as expected.

These developments demonstrate a continuing commitment to our strategy as we endeavour to grow our assets organically, via targeted acquisitions and the purchase of underlying property assets of acquired dealerships, where a compelling commercial case arises.

  • Normalised NPBT excludes AASB 16 adjustments (H1 2021FY $1.9m), acquisition and restructure costs (H1 2021FY $1m) and acquisition amortisation (H1 2021FY $2.7m)

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2022FY H1 Trading Update

The start to the 2022FY has been characterised by strong underlying demand for Autosports Group's vehicle sales and back-end service and parts divisions.

This underlying demand has not been fully utilised during H1 2022FY as Autosports Group's capacity to satisfy this underlying demand has been hampered by two main factors:

  1. COVID-19related lockdowns in NSW and Victoria affected 70% of Autosports Group's showrooms limiting these sites to click and collect transactions (including the collection of pre-ordered vehicles) without the ability to visit our showrooms or test drive new or used vehicles.
  2. On a market wide basis, Autosports Group's new vehicle supply lines have been impacted by an international shortage of semi-conductors which is impacting our Original Equipment Manufactuers' (OEM) capacity to increase vehicle production to meet elevated demand.

In spite of these significant headwinds Autosports Group is pleased to report strong earnings growth during the period which, providing current COVID-19 and trading conditions remain in place, will see Autosports Group deliver a normalised* NPBT for H1 2022FY in the range of $36-37m (H1 2021FY normalised* NPBT of $29.0m).

This result is being driven by:

  1. Flat new and used vehicle revenue driven by tight supply lines and COVID-19 lockdowns limiting new vehicle deliveries and used vehicle test drives.
  2. Improved revenue mix resulting from high single digit growth in back-end service and parts revenue streams. These improvements should gain pace as COVID-19 related restrictions in NSW and Victoria ease.
  3. Further improvements to gross margin in all revenue streams as new vehicle orderbanks continue to grow and higher margin back-end revenue streams recover.
  4. Tight operational expense controls continue to unlock operating leverage within the business.
  5. The addition of the Alexandria Mazda business which is trading in line with expectations post the impact of the NSW lockdown.

Outlook

As we move forward to the end of the calendar year the COVID-19 outlook makes the environment too uncertain to give forward market guidance.

What we can expect is for the underlying market demand to continue to be strong as our OEM partners work to increase vehicle supply to the Australian market and unwind the international impact of semi-conductor supply constraints.

Pleasingly, all of Autosports Group's OEM partners are forecasting supply improvements through the 2022CY after a tight arrivals period in January and February 2022. These supply improvements will support organic revenue growth opportunities as the calendar year progresses.

These OEM supply forecasts for 2022 however, are unlikely to match demand or unwind vehicle sales orderbanks. Some of Autosports Group's Super Luxury brands remain already fully sold out for the entire 2022 year. As a consequence, new vehicle margins are likely to remain stable for some time.

In used vehicles, demand is expected to remain high particularly during the semi-conductor shortage. In 2022 Autosports Group will look to unlock growth by expanding its Prestige Auto Traders Used Car Hub model.

  • Normalised NPBT excludes AASB 16 adjustments (H1 2021FY $1.9m), acquisition and restructure costs (H1 2021FY $1m) and acquisition amortisation (H1 2021FY $2.7m)

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Autosports Group Ltd. published this content on 29 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 November 2021 23:20:06 UTC.