Sorry, I didn't have the power on. Welcome, and good morning, and welcome to the 2024 Annual General Meeting of Peter Warren Automotive Holdings Limited. I am John Ingram. I'm the Chairman, the Chair of your company. I'd like to thank you all for attending in person today. I also would like to welcome those listening to the audio webcast. Could you please all turn your mobile phones off to, of course, any conveniences? In the spirit of reconciliation, Peter Warren Automotive acknowledges the Gadigal people of Eora Nation, the traditional owners of this land, and I pay my respects to the elders, both past and present, and extend that respect to Aboriginal and Torres Strait Islander peoples joining the meeting today. It's now toward ten o'clock, the nominated time for the meeting. I confirm there is a quorum present, and I'm pleased to declare the meeting open.
Joining me for the AGM are our non-executive directors, John Eismann, Niran Peiris, and Catherine West, our executive director, Paul Warren. We also have with us today our new CEO, Andrew Doyle, and our company secretary and CFO, Victor Cuthell. Cameron Roan from our auditor, KPMG, is also present, and our auditors will be available to answer questions about the financial statements and conduct and how the conduct of the audit occurred later in the meeting. Thank you for your presence. The prepared addresses for the meeting from myself, the executive director, and the CEO, have been released to the stock exchange this morning. I'll now make some brief comments about the company's performance before handing over to Paul Warren, our executive director, who will give you a comment on the fiscal 2024 year.
Finally, our new CEO, Andrew Doyle, will provide an introduction and make comments on his first few weeks at Peter Warren. Shareholders will be given the opportunity to ask questions in relation to the company's business and management at the appropriate time. Ladies and gentlemen, fiscal year twenty-four was a year which saw a change in market conditions across the industry, with increased supply of new vehicles and higher inventory levels at most dealers, which led to greater competition and lower new car margins. We responded by strengthening our inventory management programs, by implementing a series of margin initiatives, and by controlling our costs. We are pleased that we achieved an underlying profit before tax of AUD 56.8 million, which was well within the guidance range that was published.
During the year, we completed the acquisition of four New South Wales dealerships in Macarthur, Macarthur Mazda, MG, Nissan, and LD, and the LDV range. We have also completed other acquisitions in New South Wales and Queensland and built on our relationships with our key OEMs. The Macarthur acquisition extended our well-established footprint in Western Sydney and provided further diversification of our business across all segments of the automotive market. These acquisitions added people to our hardworking team, and I'd like to take this opportunity to thank all our people for their dedication and commitment to the company. Our heritage as a family-owned and operated business continues to provide a strong cultural foundation, and we remain committed to the safety and well-being of all our people and customers.
I'd also like to thank my fellow directors for their oversight and contribution over the year, and I welcome John Eisman, who recently joined the board of directors. John has come to us with over 30 years of experience in the motor industry, and including a number of years as CEO of a large automotive retailer. I am delighted to introduce Andrew Doyle to us, who is sitting on my right, our newly appointed Chief Executive Officer. Andrew has also spent more than 30 years in the automotive industry here in Australia and overseas. He's a trusted, respected, and experienced automotive chief executive. The board is confident in his leadership of our people, and we look forward to working with him. Andrew formally commenced with the company on the first of October, and in a few minutes, I'll ask him to address the shareholders.
Finally, I would like to thank all our shareholders for your continued support in our business. For the fiscal year 2024, we were pleased to pay our shareholders a total dividend of AUD 0.145 a share, fully franked. We look forward to your ongoing involvement in our business and to our continuing work to maximize shareholder value. I turn now to a review of fiscal 2024. Prior to Andrew Doyle joining our business, the board was pleased to have Paul Warren in the role of Interim Chief Executive Officer. The board wishes to thank Paul for his contribution and for stepping into the role. I now will ask Paul to address the meeting and provide an overview of the company's operations for fiscal 2024. Thanks, Paul.
Thank you, John. I would like to add my welcome to this year's Annual General Meeting. As many of you would be aware, Peter Warren has been operating in Australia for over six decades. We have expanded our network to 80 locations, and built a reputation with our customers and our OEMs as a trusted dealership group. FY 2024 financial highlights. As outlined in the company's full year results announcement on the 21st of August, we've delivered a result that was within the guidance provided in May, but down on the previous year. Our underlying profit before tax was AUD 56.8 million. During the year, our industry saw increases in vehicle supply, higher inventory holdings, higher interest costs, and lower new car margins as dealers' competition increased.
At Peter Warren, we were successful in controlling our inventory levels, and related interest costs, as we held our June new car inventory to broadly consistent with December 2023 levels, excluding acquisitions. We delivered a record total revenue for 2024 of AUD 2.5 billion, up 19.4% on FY 2023. Of this growth, 13.1% came from acquisitions, and 6.3% came from organic growth. Our balance sheet is strong, in a strong position. Our debt is AUD 61 million, and our property is valued at AUD 226 million, providing funding opportunity for the future. FY 2024 highlights and FY 2025 outlook. The FY 2024 year saw three other areas to highlight. Firstly, we implemented a number of margins initiatives to reduce the impact on new car margin pressure. These included reviewing labor productivity, managing overtime, and reviewing pricing in some areas.
We also successfully grew some of our high-margin areas with like-for-like growth in service of 18.9%, parts up 9.8%, and aftermarket up 2.5%. Secondly, we focused heavily on our costs. We made savings of AUD 9 million per annum, and we also leveraged our fixed cost base by increasing revenues with limited OpEx increases. We achieved a reduction in our operating expenses from 12.2% of revenue to 11.5%. Thirdly, we successfully completed and integrated the acquisition of four dealerships in the Macarthur region in New South Wales. The acquisition of these dealerships is highly complementary to our existing businesses in Western Sydney, and provides significant opportunities. Along with other acquisitions during the year, we welcomed 110 people to the Peter Warren team.
As we turn to the outlook for FY 2025, we will continue to focus on the key areas: inventory control, margin initiatives, and cost control are the key items that are central to our work in FY 2025, as new car margins remain under pressure. We expect good margins to continue to be achieved in other areas, including service parts, aftermarket, and finance. Our approach to expansion remains disciplined, and we will ensure that any acquisitions represents excellent shareholder value. FY 2025 will also see the introduction of the New Vehicle Efficiency Standard, and we are working with our OEM partners. Peter Warren supports the transition to lower emission vehicles, and is ready now with knowledgeable staff, trained technicians, and many models and fuel options available across our wide range of brands. The new financial year has also seen the commencement of our new Chief Executive, Andrew Doyle.
I'd like to extend my welcome to him. I believe we're in very capable hands, and I look forward to the years ahead. I'd like to thank our team for their hard work and determination in always delivering excellent customer service, and I'd also like to thank our business partners and investors for their continued support. In closing, I'm confident that Peter Warren is in a good financial position, with considerable property assets, low net debt, and a culture of controlling our costs. I'm excited about the many opportunities that exist for our business, our partners, our people, and our customers. John, thank you, and I'll hand back to you now.
Thank you very much, Paul. Again, on my behalf. I'll now ask our new CEO, Andrew Doyle, to say a few words. Andrew?
Thank you, John. Good morning, everyone, from my side also. I've been in the business exactly three weeks today, and I'm very excited to be here today with you, and truly now in the business after a little bit of a wait. My priority, first of all, has been to go and meet the team, so I've already been out and visited most of our sites up and down the East Coast already. Met people at all levels of our great brands, and as expected, it's a really, really professional team. People are very much at the heart of everything we do. The Peter Warren business has always been built on people and family values, and that's what makes the company so special to what I've discovered is an extremely loyal team, and our loyal customers.
Now, I'm certainly looking to not only continue that, but build on that as well. As some shareholders may know, I am an Australian. I've just returned from the last seven and a half years in the U.K. automotive market to take on this fantastic position. I've spent 30 years in this industry. I've been in different brands, in different businesses, and in different countries globally. But I'm absolutely thrilled and honored to be offered this opportunity by the board, and as your CEO, I am determined to bring my skills and experience to the business, to lead a very high-performance team and build on what is a fantastic Peter Warren story. I've actually admired this business for many years, and watched it grow from the outside.
As I say, it's only been three weeks, so I've now been on the inside, but I've already developed some first impressions. And firstly, as I've already mentioned to you, I believe we've got extremely good fundamentals in terms of our people, our product portfolio, and our locations and products generally. And secondly, I would say despite 30 years in the industry, I've learned over my time in that industry that there is always, always opportunity to do better and learn from best practices, first of all, across our scale businesses, but also from other experiences in the industry globally. We have six departments in our business. We have new cars, used cars, service, parts, finance, and aftermarket. These businesses operate in 80 locations, and there's always room to do better, I believe, to deliver a financial upside.
I think, like most businesses, the key to that financial upside is, first and foremost, providing an absolute benchmark experience for our customers, to be the very best representation we can be of the brands that we have the privilege to offer through our OEM partners. So implementing those commercial opportunities and building on that customer experience will be very much a major focus for me, and my leadership team. On the personal side, I want you to know that I'm here for the long term, and I'm really looking forward to leading the Peter Warren team and building on those fundamentals that I've mentioned that have been built, over the last 60+ years. It really is a very, very exciting time, in the industry. There's lots of challenges and lots of change happening.
But with that comes lots of opportunity, for those who I believe are really ready for it. So I plan to drive this company to capture these opportunities and very much look forward to reporting back to you over this time. Thank you very much. Back to you, John.
Thank you very much, Andrew. Ladies and gentlemen, we now move to the formal part of the meeting. Thank you. The notice of meeting dated the 19th of September 2024 was circulated to members, and I will take that notice of meeting as read. Before moving to the various resolutions to be considered today, I will now briefly outline the meeting and the voting procedures for today. When you registered your attendance this morning, you will have been issued with an attendance card. Only those with a yellow card can vote at this meeting. All resolutions will be determined by poll, and I appoint Link Market Services to act as the returning officer for the purpose of the vote today.
I'll put each resolution to the meeting and turn to the shareholders and proxy holders, who will be given the opportunity to ask questions, to make any comments in relation to the resolution. After that, I will put the resolution to poll, and at the end of all resolutions, Link will collect the poll cards from you. As Chairman of the meeting, I intend to vote all available proxies given to me in favor of each resolution. The first item of formal business is to receive and consider the financial statements, the directors' report, and the independent auditors' report for the year ending the 30th of June 2024. Copies of these reports were made available on the company's website, the ASX platform, and they will be sent to those shareholders that request them. No vote is required on this item.
However, we'll be pleased to deal with any questions or comments you may have on these reports, whether to, for the board or for our auditor. Are there any questions on the financial statements and the reports? If there are no further questions, we will now move to the next item of business. Resolution one, the election of John Eisman, which is the election of John Eisman as a director and is set out in the screen. Are there any questions on this resolution? If there are no further questions, I now put the meeting resolution one. Please complete your voting card. As the next item concerns my re-election, I want to hand the chair to Niran Peiris, our lead director, to explain the resolution to you.
Thank you, John. Resolution two is for the re-election of John Ingram as a director and is set out on the screen. Are there any questions on this item? Thank you. If there are no questions, then let's please complete your voting cards. Thank you, and then I'll hand back to John Ingram.
Thank you, Niran. Resolution three is the remuneration report. We will now move to resolution three, which is the non-binding and advisory vote on the company's remuneration report for the year ending the 30th of June 2024, and is set out on the screen above. Are there any questions on the remuneration report? No questions. Here are the proxies. Thank you. Please now complete your voting card. As that is the last, the final resolution to be considered at the meeting, I would ask you to hand your voting cards in to Link, the Link representative. Thank you.
Thank you.
We will now move to general questions from the floor. Shareholders have been given the opportunity to register questions in advance, and we have received five questions in this matter. I will first ask those questions to be addressed by Paul Warren and Andrew Doyle, and then I'll ask the floor if there's any questions from the floor.
Thank you, John. I will read out the question that has been asked, followed by my answer. First question: What course of actions are being explored to reverse the trends of reducing new car margins, increasing interest costs, and the resulting decrease in net profit after tax? Have you considered the cost of capital versus the cost of borrowing? Would a capital raising provide additional lower cost funds? Thanks for the question.
The main actions being taken to address the new car margins and interest costs are: we are managing our inventory levels, we are growing higher margin departments, such as service parts and F&I, and we are managing our labor costs. On the cost of borrowing, we regularly look at this, and our view is that the cost of equity is higher than the cost of borrowing. We do not currently have any plans to raise capital, but would not rule it out in the future if there was a good enough case for doing so. Second question: New vehicle gross margin was 16.9% for the full year 2024, but were reduced to 16.2% in H2 to FY 2024, and has been steadily deteriorating. Has this stabilized? What do you consider to be a sustainable gross margin target?
The answer, sixteen point nine and sixteen point two were the margins for second half of 2024, respectively, but those are the margins for the whole of our business, rather than for the new car department. We don't disclose the margins on the different departments of the dealership, but we can say that the margins on new cars remains under pressure in FY 2025. We don't issue formal guidance, but directionally, I would say that margins may remain under pressure for a certain period. In terms of a target gross margin, we have not announced a target gross margin, but directionally we'd like to be at or above FY 2024 levels. The goal is difficult to achieve when there is an oversupply of inventory, but we're working hard to maximize gross margins.
The third question: Can you comment on the performance of the acquisitions that have been made, particularly the large acquisitions in 2021 and earlier this year? Have they met your expectations? In answer, in 2021, we purchased the Penfold business in Melbourne. In FY 2024, we bought two Toyota dealerships at the start of the year, and then later, we bought four dealerships in Macarthur. On the whole, our acquisitions have met or exceeded our expectations. When we buy businesses, we look for strong operations, brands that will fit well into our portfolio, a good geographical location, and excellent shareholder value. Andrew is going to address the next two questions. Andrew, over to you.
Thank you, Paul. The fourth question was: To what extent do you see the reported influx of Chinese brands and models as a threat or an opportunity, and are you concerned that these new entrants may act irrationally with pricing and supply? Our answer to that question would be that this influx is something that is occurring globally, and the dynamics we're seeing here in Australia are very much similar. I think, actually, therefore, we can see this as both a threat and an opportunity. But at the end of the day, like most businesses, as always, the customer will be the one that decides the success or otherwise of a new brand. And clearly, those new brands that have good quality products, good technology, and that customer focus, will be successful, and therefore, I think on balance, it's gonna be a real positive.
Now, in regards to the second part of that question, new market entrants may come in wishing to gain market share, and in some cases, that may result in some pricing or supply irregularities. However, I do believe that will be short-term only. Again, I come back to the point that our job is to provide a great experience for our customers and to be the best representation we can possibly be for any brand that we represent, be that Chinese brands or any of the existing brands or Chinese brands we represent, or indeed, any existing brands that we represent as well. And then the fifth question was: Are you seeing a moderation in inflation pressures in the business? And, the answer to that is yes, actually. We're quite pleased that the impact of inflation has eased over the last six to 12 months.
As an example, we could look at rent, which had been linked or tied to CPI in the past, and therefore has reduced as a result. And we also have labor costs that have seen less inflationary pressure over this time now as the tightness in that labor market has eased to what had previously existed. So of course, we're hoping to see further easing of this over the coming period, which will be very much welcomed by the business. So I think that answers all of the questions, John, that we had, the five questions in advance, so I'll hand back to you for questions from the room.
Thank you, Andrew. Now we will turn to any questions from the room. Are there any questions? Down there. Just give your name.
Sorry, was that.. Victor Belkov, shareholder. Just had a question on the finance and insurance side of things. Now that we're out of COVID, are you seeing sort of that. There was a perception that the finance conversion rates might increase again, 'cause you're getting that customer contact. Are you starting to see a trend in that again or? 'Cause I don't think it was clearly evident. Wasn't as pronounced as people were thinking, so. And if you're not seeing it, why do you think you're not seeing it?
I'll hand that to you, Paul.
Thanks, John. Can you hear me? Sorry, just wanted to make sure. So, I think our F&I is showing a trend upwards. Our penetration levels is definitely better. Also, it depends on the brands. We're seeing it a bit brand-related. I won't go into those brands, but definitely we've had some of our businesses now trending up over 40%, and we're. You know, that's good. Not everyone is, but also gets back to people. Getting the right people in the right brand, but I'm quite confident about what we're seeing versus what's been in the past.
Thanks, Paul. Yeah.
So, can I ask a question about the capital management side of things? I mean, have you considered a buyback?
Yes, we look at buyback regularly, like we look at all capital management matters. At this stage, we don't think it's wise to do it. Clearly, some of the price expectations of the acquisitions is high at present, so we won't be buying those type of companies. We still think there's opportunities within our range to use our capital, and so we look at our forward cash flows, and continue to test that against buyback, yeah. But we have no plans at this point in time to initiate a buyback.
Just one last one. With the dividend payout ratio, is that still as per the prospectus sort of range you're gonna work for?
Yeah. With payout ratio, naturally, we look at the, our forward cash flow on our balance sheet and the strength of our balance sheet every time we decide on dividends. And we've followed our policy to date. One can't predict where you're gonna be in 12 months' time, but nevertheless, we've continued to pay out the ratio that we've talked about for the last three or four years.
Great, thanks.
The gentleman there.
Hello, Greg Hoffman. I thought I was a proxy holder, but there's been an admin oversight, so I'm technically not. Just to follow on from Victor's question, though, around capital management buybacks, how do you weigh up buybacks versus the dividend policy? You know, you've got a certain amount of capital you're gonna distribute to shareholders. How does the board think about that balance?
In our forward planning capital, CapEx and acquisitions, you can't budget or plan for acquisitions. We have a testing, and we do our research on each and every one acquisition that comes across us. We have some thresholds there, of value and return. We want the IRR we want in the business, and what benefits it brings to the business. As Paul mentioned, our portfolio of brands is important to us and their geography. So, you know, that's part of the normal process of running the business.
Capital management is an issue, but given that, you know, we want a strong balance sheet, so we can continue o ur strategy is to consolidate around where we can get benefit and get value for the shareholders. So, it's that particular lever will only be pulled if we believed our share price got so low that we're buying back shares rather than purchasing businesses.
Yeah, I understand the hierarchy between the acquisitions internal. The point, but once you get down to that final line of we've got a certain amount that can be distributed to shareholders, this year AUD 0.14 share in dividends, that amount could have been a different choice could have been made. So the same amount of money goes out of the business, but instead of going in dividends, some of it could have gone in buybacks. Well, how is that? T hat's the particular part that I'm- You have to- that I'm asking about, not the whole hierarchy. I understand that, but?
While we have a policy of about 60%-70% payout ratio, but it's not, it's not set in concrete. You have to judge where you see your demands for the coming 12 months and when you're setting your dividend policy, and your cash flows, and your CapEx, and your acquisitions. So it really depends on the opportunities you see in the medium and short term in front of you. And, I think we're ensuring that, we've talked about buybacks, yes. But at this point in time, we believe we've got better opportunities in the market. If that changed, clearly that'd be an option, a lever we could pull.
Okay. Just one for Andrew. In terms of, I mean, I know you're only new to the business, but, as you look out for the next few years for the business, the top sort of risks and opportunities that are front of your mind?
Yeah, I think one of the questions was on Chinese brands. I think we've got a lot of brands in this country already, so there's gonna be some disruption there, I think, over the coming years as these brands come in. So I think there will be some consolidation of brands and consolidation of businesses over the next five to 10 years. And that's why I think I took this position, 'cause I think there's a great opportunity, actually, for us to use our scale and use our size to be in the right position for those opportunities.
And risks?
They come with risks at the same time, so that would be our choice to minimize those risks through our portfolio and the breadth of brands we've got, and the geography we've got. So I think we can minimize through that means.
But can you just elaborate on what the risks are?
For example, I can see in other markets, you know, NVES will cause OEMs to do, you know, certain things because it'll be financially a penalty for them to miss those targets. So that might cause some changes in supply, or indeed in terms of what they push. So that- I saw that in the market I came from, so that is something I think we need to be well prepared for and we're already talking about. And I think then in terms of changing sales models, I think there's been some movement there over the last few years, but if anything, it's proven what I think most OEMs and retailers knew, is that, you know, let's stick to your knitting and stick to what you know best.
Actually, we have not just the Peter Warren Group, but great retailers in this country and other countries around the world that do a great job for customers. So I think that will settle down actually.
Thank you.
Thanks, Andrew.
Any other questions?
I've got one more, but if anyone else wants to ask anything? Just for you, Paul, you talked about the Macarthur acquisitions and the opportunities that they might provide. Can you just elaborate on that a little bit?
Yeah, sure. Sorry. It's Greg, is it Greg?
Yeah.
Yeah. Sorry, Greg, thank you. First of all, why I like Macarthur is growth. You know, Andrew and we've talked about geographical position. One of the fastest growing regions in Australia is South West Queensland... Sorry, South West Sydney , right? And what that's adjoining is Badgerys Creek, which I'm sure you've all heard about. So we've got now a whole lot of brands around from Warwick Farm down to the Macarthur region, and then we've got Badgerys Creek about to open up, right? So I see not only the opportunity of growth within those belts, Macarthur and South West Sydney , but I also see the opportunity it's gonna give us in greenfield sites down the track as Badgerys Creek come on. And the other thing that will happen is we'll get more economies of scale.
We haven't got there yet, but the parts van delivering what's going out of Warwick Farm, you know, that, that just doesn't happen tomorrow. So you've got to change that so that the parts van that turns up, you know, in a month's time, has got all the Peter Warren brands on it. And so they're all things that, that take a little bit of time to get there, to get those economies of scale and get that profitability. We're on our way, but we're not there yet. Does that answer your question, Greg?
Okay.
Thank you. Yes, Olivier?
It sounds like you've got to pursue a more. You're gonna be a consolidator in the industry. And what you talked about, expectations out there are still too high. Can you just talk about where you see that going, and are you waiting for it to improve as new car margins come down a bit more and people realize, you know, the. You know, is that, is there a timeframe there? Do you see yourself maybe making another acquisition this year, or is it more a three-year sort of plan?
Well, I-
Difficult question to answer, I guess, but-
Yeah
... more trends and-
Yeah, yeah
Just because I know that there's a lot of activity out there. Sorry.
If you take a global view of the brands, the introduction of electric cars, new electric cars, part of the existing brand structure, we're reviewing that continually. All our brands have ups and downs. Yeah, sometimes Toyota's king, and sometimes Mazda's king, and you're managing through that. And our OEMs are having problems themselves. You know, some of them reverse their policies and change their direction. So we have, as mentioned, the industry is in a state of change. The EVs have come in. We have the environmental problems as regulations, which is, yeah, testing the OEMs as to whether they want to stay in Australia or want to move out of Australia. So that's all been assessed continually.
We can only react to what happens there, and we've got our eyes continue to watching those risks.
John, could I just add a little bit to that?
Sure.
Just in relation to that, to your question, what I'm seeing more particularly now is OEMs helping consolidation. Right? So in other words, the OEM going: "Who are our long-term partners? What, what access to the capital they have? Where are they doing? What is their culture?" Whatever. So not only have you got the vendor and then what's his price expectations, but you've got your OEM over there that's sort of nudging and pushing a little bit. And I can tell you, I'm very confident that when the Peter Warren team walk into a room with an OEM, we get helped a little bit with some nudges.
So I see that very much playing into our hand as consolidation opportunities happen, and I see the areas we're in being also a great opportunity. Just to add what John said.
Any other questions? As there's no further questions, we will now move to the formal part of the meeting to an end. I now declare the meeting closed. Thank you.