Good afternoon, and welcome to the MotorCycle Holdings Investor Update. After the presentation, there will be a Q&A session where participants will be able to queue for a question by pressing star one on their telephone keypad. I'd now like to hand over to CEO David Ahmet and CFO Bob Gilligan to start the call. David and Bob will take your questions at the end of the presentation.
Good afternoon, everybody. David Ahmet here from MotorCycle Holdings. This afternoon, I'd like to run through an investor presentation that we've released to the market this morning. Before I get started, I'd just like to apologize for the confusion this morning around the 11 o'clock, 10 o'clock release. I can assure you it's nothing to do with the information from MotorCycle Holdings or our presentation. It was purely a technical problem from our supplier today. Hopefully, we can leave that behind us now and move on. Today I'm announcing that MotorCycle Holdings has entered into a sale agreement to purchase the shares of the Mojo Group. Mojo Motorcycles consists of three companies, Mojo Motorcycles Proprietary Limited, Mojo Electric Vehicles, and Mojo Motorcycles New Zealand.
Combined or consolidated, these companies have an annual turnover of AUD 124 million last year and a net profit before tax of AUD 14.5 million. The investment diversifies MotorCycle Holdings into a market that it's not particularly participating in, and that is motorcycle importing and distribution. It gives it increased exposure to the scooter, all-terrain vehicle, and electric motorcycle segments. The combination will lift FY 2022 MotorCycle Holdings revenue by more than 27%, approximately AUD 580 million. Net profit before tax increases by 41% to AUD 46 million on a pro forma consolidated basis. The acquisition price of up to AUD 60 million on a cash-free debt-free basis represents an earnings multiple of 4.1x Mojo's FY 2022 consolidated pro forma basis. It results in an increase in NTO for FY 2022 earnings per share by 18%.
That's before any synergies, integration costs, purchase price allocation, and related amortization. It does provide an attractive earnings growth of combined group expected to be enhanced by synergy and revenue opportunities across each organization's distribution network. Mojo CEO, Michael Poynton, will join MotorCycle Holdings' board, and the shareholders of Mojo will take 16% shareholding of MotorCycle Holdings. That will represent approximately 50% of the sale consideration. A bit of an outline of the transaction now. For the acquisition of Mojo, we've entered a binding conditional agreement to acquire Mojo for up to AUD 60 million, applying a 4.1x multiple of FY 2022 net profit before tax. Mojo is a wholesaler and importer of motorcycles, scooters, all-terrain vehicles, and electric motorcycles, as well as genuine spare parts and accessories. Terms of the acquisition. We're acquiring 100% of the shares in the companies.
Purchase price of up to AUD 60 million will be funded 33% by cash, AUD 20 million, and 60% by issuing 11.5 million shares in MotorCycle Holdings. At AUD 2.60, that equals AUD 30 million. These shares will be escrowed for two years, and there will be a further AUD 10 million payout amount depending on performance of the first 12 months following completion of the acquisition. The cash portion will be funded by increased debt facility of AUD 30 million, bringing the total facility for MotorCycle Holdings to AUD 50 million. Mojo principals, Michael Poynton and Joshua Carter, will take up senior executive roles at MotorCycle Holdings, and Michael Poynton will also become a MotorCycle Holdings director.
Conditions for completion include shareholder approval for the issue of MotorCycle Holdings shares to the sellers, MotorCycle Holdings securing sufficient debt funding, credit approved term sheet is in place, and material contract with third party consents. Now, the expected financial impact is based on the pro forma FY 2022 consolidated basis. The acquisition will lift earnings per share by 18% before any synergies or integration costs. Net debt for FY 2022 will be 0.6x EBITDA. This preserves our balance sheet strength and gives us the capacity to pursue further growth opportunities. A working capital adjustment will be determined at completion. If actual working capital is more than target working capital, MotorCycle Holdings will pay the difference as an incremental increase to the purchase price. This potential payment will be funded from debt facilities.
Mojo has enjoyed significant growth over the last two years, and it is showing signs of continued in FY 2023. The current Mojo is taking advantage of market conditions, including competitors in the ATV market withdrawing their products and, of course, it's looking for new models and very strong supply. Just an overview of the Mojo Group now. Mojo commenced business in 2006 and imports and distributes motorcycles, scooters, all-terrain vehicles, and electric motorcycles. As well as genuine spare parts and accessories. They operate two warehouses in Australia, one in Victoria, one in Queensland. They represent six retail brands in Australia and New Zealand. Those brands are Kymco, which comes from Taiwan, Sherco, which is a premium French off-road motorcycle. CFMOTO, which comes from China. Italjet from Italy. Linhai, which comes from China, and Lambretta from Italy.
Mojo has currently 35 employees. The deal delivers increased scale and diversification to MotorCycle Holdings. Revenue increased from AUD 467 million to AUD 580 million. EBITDA increased from AUD 49 million to AUD 64 million. Mojo is a national wholesaler and distributor, both national and international in New Zealand. It does provide diversification to MotorCycle Holdings as we move into motorcycle importation. Greater opportunities as electric vehicles come to market. It also increases our exposure to the agricultural and scooter markets. Potentially, it'll give us a more resilient business mix, where only 28% of net profit after tax will come from importing motorcycles. Synergies. The opportunities to source new products to distribute through Mojo due to its scale and access to capital in MotorCycle Holdings.
There's an opportunity to retail electric motorcycles to MotorCycle Holdings network as they are brought to market. Illustration of the financial impacts now. Again, based on financial year 2022. MotorCycle Holdings figures audited, Mojo unaudited at this stage. Consolidated revenue moves up from AUD 457 million to AUD 580 million. Earnings per share from 37.5 cents per share to 44.4 cents per share. EBITDA, as I've mentioned, goes from AUD 48.8 million to AUD 64.2 million. The gearing moves from 0.4x to 0.2x EBITDA. It's well below the company's covenants for debt. Provide growth opportunities for both brands. We hope to bring additional further brands and suppliers to the wholesale distribution network in the future of Mojo Motorcycles.
There are other motorcycle brands that potentially could be brought in. Potential to retail Mojo products through MotorCycle Holdings dealerships. Currently, we have three dealerships at the moment representing Mojo products, and we can see capacity is there to increase the number of outlets going forward. There's the opportunity to use shared warehousing between the two groups both in New South Wales, Victoria, and Queensland. It's presented new opportunities for us to share warehousing in New Zealand and Western Australia in the future. Get some operational improvements just through warehousing and logistics management. Pro forma historical earnings summary. We can see that the total revenue from AUD 457 million will increase or would have increased for financial 22 by 27%. The deal would increase gross profit by 15% to AUD 146 million.
EBITDA would go to AUD 64.2 million, which is an increase of 31%. Profit before tax has an increase of 41% to AUD 46.2 million. Net profit, the same increase, 41% to AUD 32.6 million. Currently, there's 61.7 million shares with MotorCycle Holdings. This will move to 73.2 million shares after the deal. As I mentioned, its earnings per share accrete of 37.5-44.4. Balance sheet wise, our inventories will increase by 13% to AUD 121 million. Total assets will increase by 24% to AUD 346 million. Total liabilities will increase by 30% to AUD 162.8 million. Our net assets increase by 19% to AUD 184 million.
Some of the key terms of the sale deed include conditions to completion, conditions precedent, raising sufficient funds through debt financing, as and when a credit-approved term sheet is in place. Change of control consents for leases and key contracts. That's to do with leases and suppliers, overseas suppliers. Shareholder approval for the issue of shares to the sellers. Approximately 11.5 million shares need to be issued. Restructure of Mojo's existing bailment finance and associated security arrangements needs to be put in place. Assignment of IP to Mojo intellectual property that's in place. On the key terms, MotorCycle Holdings shares issued to the sellers will be escrowed for two years. The normal representations and warranties customary for transaction of this nature have all been provided. Michael Poynton and Joshua Carter guaranteed sellers' obligations under the sale agreement.
Michael Poynton and Josh Carter have agreed to both to five years' restraint of trade period. Like any business, there are risks that need to be considered. There are some new risks that have been introduced with the importing of motorcycles. Key risks that we've identified, supply constraints risk. That is, you know, not being able to get the vehicles out of China or other countries due to COVID or other challenges. Raw material supply capacity potentially. Key supplier risk. There are some suppliers that are very important for this business. Whilst they've been proven to be very reliable and able to supply product where others haven't been able to, it's always a risk that's worthy of considering in the future. Supporting growth.
Mojo has experienced significant growth and is reliant on cash to support that growth. If future cash flow is not sufficient to support continued growth, financial performance could be impaired. We, you know, I believe that we can cater for that without too many problems. There's an increased regulatory risk that goes with importing motorcycles. Importing makes the importer the manufacturer. There's increased product liability risk, which of course is insured, but it changes the nature of what we do. It's a different risk to what MotorCycle Holdings has had in the past as a retailer. We will establish a franchising dealer network across the network across Australia, which we're working on now. Key employee risk. Both MotorCycle Holdings and Mojo are dependent on significant employees.
They play an important role with management. That's always a risk for any business. Foreign exchange risk. Obviously we're buying things from overseas, mainly in U.S. dollars, but not only. Certainly, euro and yen and other currencies are used on a regular basis. Integration risk. I personally don't think there's much integration risk between the two companies. We'll continue to run them as separate entities. It'll be a total separate trading business as far as we're concerned. I don't see any significant integration problems. We're reliant on the information provided to complete this sale.
Obviously, it might be possible that some of the information is not correct or not complete, obviously with any transaction, but I can assure you we've done very thorough due diligence, and we've spent a lot of time getting to know this business and getting to know the people involved. There's always that risk. There's a risk of perhaps material issues that have not been identified during the due diligence process. I can tell you that, there's nothing of any nature that's given us any reason for concern with that. It's possible of course. Acquisition liability risk. That's the risk that I referred to with the importing of motorcycles and taking the responsibility of the manufacturer. Acquisition accounting risk. Of course, MotorCycle Holdings accounts are fully audited twice a year.
We're getting Mojo's accounts audited as we speak. To June 30, they are unaudited. Of course, the general retail environment, economic conditions present a risk. However, much of the product that Mojo introduces to Australia and imports is more of a discretionary retail spend. It's much of it is of an agricultural commercial basis. The same exposure to discretionary spend is not the same. That helps to provide, you know, diversification for our income. We're dealing with a different segment of the market, very much so, farmers, government agencies, mining companies, places like that. Any contractual relationships with manufacturers. Obviously we need the consent from the suppliers for the change of control.
We don't believe there'll be any problems with that, but we are dealing with companies in foreign countries, and these things can provide challenges. At this stage, we haven't identified any. We can't see any significant risk there for the time being. Yeah, we are dealing with Chinese companies and Taiwanese companies, so that does bring a certain amount of risk I'd imagine. That concludes the presentation, the investment business presentation today. I'm more than happy to take any questions about the proposed deal.
We'd now like to commence our Q&A session. Just a reminder, if you'd like to ask a question, please press star one on your telephone keypad to enter the queue. Our first question is coming from Jarrod Del Sprmino. Jarrod, please go ahead. Your line's been unmuted.
Hi there, and congratulations on getting this one away. It looks like a exciting opportunity. Just a couple of quick ones from me. Obviously, Mojo seems to bring a lot of new capabilities to the business, specifically in the ATV off-road segment with all sort of key brands and players like CFMOTO and Kymco. I guess now post the safety legislation coming on board, can you talk about the size of the opportunity in this market and where Mojo currently sits and where you think the business can get to?
Oh, look, it's fair to say that Mojo operates in a number of different parts of the market and is enjoying growth right across the board there. They've got a really great agricultural product base. They have a quad bike product with the rollover protection where most of the major manufacturers have pulled out of that market. That's given them a really competitive position with quad bikes in Australia. We see significant growth, you know, this year, next year with that product. It's got a great range of side-by-side off-road vehicles as well. It's currently number one in Australia for market share. The Kymco scooters are well established in Australia and have been providing new models all the time and moving into more electric models going forward. CFMOTO's the same.
They have a range of road motorcycles, which is coming from a very low base, but in recent years have developed their model range to include very popular sizes and model types. They're appealing more to the Australian motorcycle market. We see significant growth in the road bike motorcycles. We see significant growth in New Zealand. We've only had CFMOTO in New Zealand for just two years, so it's relatively, you know, new to that market. Was, you know, a previous operator. It's relatively new for Mojo in New Zealand. We see great potential there to increase sales of the CFMOTO product. The New Zealand market is heavily reliant on the ATV vehicles. There's good potential there. The French brand Sherco, relatively new to Australia.
By that, I mean five or six years or so. The guys have increased volume significantly there. We've seen very strong growth through 2021, 2022, and that's continued into 2023. We're very confident that the business will continue to grow significantly. It's, you know, well above certainly the market. It's operating in a different sphere to the rest of the motorcycle market. Lots of different avenues there. Lots of areas for MotorCycle Holdings to get involved with the promotion and retail of the various brands, whether it be in a provincial town or a country town, you know, establishing dealerships there to sell the product or the smaller places like Sydney, Melbourne, Brisbane, where we've got the scooter range and an enhanced range of products.
Yeah, very confident that the sales, the significant growth will continue.
That's great. Thanks, David. I guess just getting a sense of the so-so growth in 2023. Just trying to get a sense of the likelihood of the earn out to get to AUD 10 million. Can you talk to sort of order book visibility and maybe like a brief sort of trading update. I know you just mentioned growth for 2023, but the sort of order book for the brands under the CFMOTO, under the Mojo stable, I guess, how does that play into the growth for 2023.
Part of the success of Mojo Motorcycles is being able to secure very good supply, particularly this time of the year. All manufacturers have had supply problems in recent times, and particularly with all-terrain vehicles. Mojo have capitalized on the short supply by other brands and they've, you know, put the stock in place. They've been supplying strongly, and that seems to be improving. The reputation of the product has improved outside in recent years, too. I think there's a lot of credibility and confidence that goes with the brand. Currently have as strong order book as they've ever seen, and delivering more units than they've ever delivered. The growth for last year was substantial and it looks even better so far this calendar, this financial year.
Read between the lines there, but the earn-out I don't think is going to be much of a challenge. It's AUD 14.5 million at the EBITDA level. You know, based on how they're traveling so far this financial year, I don't think that will be a challenge. It's looking very strong. The growth seems to continue.
Great. Thanks through in the queue.
Thank you, Jarrod. Our next question comes from Sarah Mann of Moelis Australia. Please go ahead, Sarah.
Hi, guys. Can you hear me okay?
Yeah, sure.
Great. Look, just after a little bit more color around, I guess some of the growth that Mojo's seen maybe over the past three years. I mean, clearly you flag that it's been very strong. I guess trying to understand, I guess any additional color you can give around, you know, what it looked like, say, three years ago when the market was at a cyclical low vs where it's kind of come up to now. Then maybe even during prior booms and busts as well, because it's been around for a while.
Well, Mojo had, say, CFMOTO for I think it's about eight years now. There's a 10-year agreement in place, which is four years into a 10-year agreement. If we look at last year and the year before, across all of the products, all of the brands, the growth is, you know, something like 80% last year, quite significant the year before. Those sort of growth rates are continuing. Very strong and continuing at that sort of rate.
The margin profile as well, like I presume you've also benefited from margin expansion as, you know, the market, the demand's been strong.
Yeah, absolutely. The margin has expanded to a very healthy gross and net profit margin. Slight deterioration in financial year 2022, driven by foreign exchange, but still a very strong margin with allowance. Very strong.
Cool. In terms of, like I understand there's some, I guess non-cyclical component to what's happening in the ATV market with the roll cage rules that you kind of talked about before. Just interested in how you think about the ag sector being really strong at the moment and how you expect Mojo to kind of perform in a market that at some point is probably gonna turn.
To normalize? Yeah.
Yeah.
There's a few different components to that. First you've got the quad bike market where you've had so many of the major suppliers withdraw from the Australian market. That leaves us in a great position to grow that part of the business regardless of what's going on. You've got the new models that have been released by not just CFMOTO, but Kymco who also does all-terrain vehicles as well. They're producing very good products that are loaded with features. At very competitive prices. While we may have had some advantage supply-wise, or stock availability-wise, we've also got a product that's really well accepted in the Australian market. A product that can stand on its own and compete with those other brands regardless of whether they're available or not.
Having said that, my investigations into when we would expect, you know, supply to normalize from the other manufacturers, particularly in that side-by-side utility vehicle area, which has by the way had more growth for CFMOTO than it has in the quad bike market. That would, you know, it's still probably at least six months, but more likely 12-18 months before anyone expects that part of the market to normalize and fulfill the pre-order situation. Still, you know, fairly significant delays in supplying what's needed to the market. Everyone's holding fairly large pre-order sales across the board, but we're very confident that the product that CFMOTO is making is really competitively priced and has the features to compete with any brand.
You know, long term, we still believe it will take a lot of market share in the next year or so. We believe once we've got a lot of customers on those business vehicles, we'll continue to do so.
Okay. More broadly on CFMOTO, it's not just sold in Australia, it's sold offshore as well. Can you give us any detail around kind of their market position in Europe and the U.S. or any other markets that it's sold in?
Sure. Yeah. Look, it's an international company. It's a large modern factory in China that has been around for a number of years and has a very big investment in manufacturing. In Europe it's the largest supplier of all-terrain vehicles. It's not the largest in the U.S., but it's certainly very significant. It is taking the number one position in Australia as the largest supplier of all-terrain vehicles. It's in Australia it does very well on a global basis as well. It's number three in the world for CFMOTO, for example, for the agri work. Strong position. Yeah, worldwide, massive.
Europe is obviously large sales, goes into all of Europe, and it's been the number one brand there for a few years now. Internationally, very well accepted. You know, they're reinvesting in the company and reinvesting in the product. I think that's got a huge future.
Great. Excellent. Thank you very much. That's all for me.
You're welcome.
Thank you, Sarah. Just a reminder, if you would like to ask a question, please press star one on your keypad to ask it. Our next question comes from Bruce McLeary from Burrell Stockbroking & Wealth Management. Please go ahead, Bruce.
Thanks. David, Bob, thanks for your time this afternoon. Just a couple of questions. In the announcement, it's put down that Mojo Group distributes to a 150-strong dealer network. How many of that network is gonna be new to MotorCycle Holdings or how many are existing buyers of your gear? Because you've got a wholesale side of things as well.
Oh, look, a large percentage of them would be dealing with us already through Cassons, through our wholesale accessories business. We're not selling anybody motorcycles at this stage. Yeah, most of them will be known to us or will already have an account with us. The dealer network has grown quite substantially in the last 12 months as dealers have asked for a supply of these quad bikes. They've been growing that dealer network quite rapidly. Of course, we've got a big range of products, you know, from four-wheelers to we've got electric motorcycles coming in. Obviously, I can't talk too much about what model specific there is, but it's not just CFMOTO, it's Kymco as well. Sherco, we already sell. Obviously, Kymco already sell electric e-bikes.
Yeah, certainly the dealer network is well known to us.
Okay. The other one I was gonna ask that 50% is of the consideration is shares. How is that 11.5 split? Is it between two people, three people? Just trying to get an allocation in regards to percentage-wise.
Two people. Yeah, no 50/50. The two founders of the business, they own half each, so that's the shares will be split 50/50 to their entities, whether they're the company entities or them personally.
They'll end up with around about 8% of the enlarged group at the end of the day?
I think it's more than 8%. It's 11.5 million shares. Whatever 11.5 million is of 71 million.
Okay.
It's over 10%, isn't it? It's close to 16%.
Yeah, I thought that the number was the same. It was about 16% of the enlarged MTO group.
That's right.
that would be about 8% each.
Oh, sorry, yes. Yes. Sorry, you're right. Absolutely.
Okay. No, that's all. Thanks very much.
Thanks, Bruce.
Thank you, Bruce. Our next question comes from Peter Drew of Canaccord Genuity Securities. Please go ahead, Peter.
Oh, hi, David and Bob. Just one more question, just in terms of that retail network. I guess, how many dealerships are you selling their product through currently, and what do you think the opportunity is? Then I guess more broadly, of that 150 you know network, where do you think that will grow to, over the next few years?
Well, I didn't quite understand the first part of the question. How many of our dealerships are retailing their products or how many of
Yeah. Yeah. No, how many of yours?
Oh, okay. Yeah, sure. We have just put it into the third dealership, which was the acquisition that we made in Townsville a little while ago. Prior to that, we had it in two locations. That's where we, you know, learned that the product was a good product that was selling particularly well, and that really sparked our interest in it with the company. At this stage we've got three products and it's a few brands in three dealerships. We can see the potential there for, you know, at least another three or four, you know, over the coming period. Particularly as we grow, we'll be looking to put them into additional dealerships. There's certainly scope there for us to add a few, a number of dealerships in the short term.
Yeah, right. I mean, on an underlying basis, what do you think, you know, the sales are kind of growing at? I mean, if we assume a relatively kind of flat market, you know, in terms of market share growth, what do you think
Outperforming the market by a significant amount. I don't really want to go into the exact numbers today. You know, it's exploding in every field. Their road bike range, their agricultural range, their French, European specialist off-road range. You know, there are various these guys are involved in that are high growth, and we think that potential is likely to continue. Everything that we've seen so far up until now indicates that it's going to continue. I think there will be 150-odd here. Now, there'll be more, I think, in the next five months, but certainly be adding dealers fairly regularly. Certainly on a monthly basis this calendar year. You know, beyond 200, you know, probably growing market would take much more than 200.
It has a low market share in New Zealand because they're new to New Zealand. There's significant upside in the New Zealand ag market because the product is not as well known over there. You know that is a very strong ag market, too, in New Zealand. We see that as big potential. We see the road bikes area as big potential. They're already doing a great job with the you know ag vehicles in Australia.
Yeah, right.
Dealer-wise, maybe 200, certainly some more will be added. Probably the nature of the dealers will, kind of, change to some degree over time. We'll leave that to Michael and Josh, who are going to run the business. They've been running it for a long time. They're experts in that field and they're good at what they do, so they will continue to run it as they see fit. Having said that, the nature of their business has changed significantly over the last four or five years. They've got a position where they can represent a level of importance to a dealer, much more so than in the past. They've got volume and margin with their product a lot of dealers want to be part of.
Some of the dealers in the past are an entry-level kind that were much smaller and might not be in the position to have the capital or be able to represent it. At this stage, we have no plans on making any changes to their dealer network. We're happy for it to remain as Michael and Josh see it, but it certainly has become a more significant player in the market. I think that it will continue to grow.
Yeah, right. Thanks very much, Dave.
No worries.
Thank you. As there are no further questions, I'd like to give Nova and Dave and Bob closing remarks.
Okay. So that's all we can tell you now. We're set down for completion for October the thirty-first. We don't believe there will be any great challenges in meeting the conditions of precedence. We think that should go according to plan. Obviously there will be a shareholder vote at our AGM at the end of October. All going well, we would then look to complete the deal October the thirty-first and take over trading the very next day. So that's all I've got for you today. Thank you very much for your time.
Thank you, David and Bob. That concludes the MotorCycle Holdings Investor Update. You may now disconnect.