Company Overview and 2012 First Quarter Highlights June 21 ... · •Corporate head office team...
Transcript of Company Overview and 2012 First Quarter Highlights June 21 ... · •Corporate head office team...
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Company Overview and 2012 First Quarter Highlights June 21, 2012
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Senior Management Team
J.J.S. (Jeff) Christie Vice President, Finance
S.R.E. (Steve) Rose Executive Vice President, Corporate Services
T.L. (Tom) Orysiuk President
P.J. (Pat) Priestner Chief Executive Officer
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1 INDUSTRY OVERVIEW
BUSINESS OVERVIEW
FINANCIAL REVIEW
STRATEGY
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Presentation Agenda
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Certain of the information presented today looks forward in time and deals with other than historical or current facts for the AutoCanada Inc. (the “Company”). Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations, including, but not limited to, the risks associated with: the retail automotive industry; our business; our acquisition strategy; our dependence on automobile manufacturers; and our structure. For additional information with respect to these factors, please refer to the prospectus and other information filed by the Company with Canadian provincial securities commissions.
The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-Looking Statements
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(Information as at June 15, 2012)
Closing Share Price $11.50
Market Capitalization $228,600,000
Dividend (annualized) $0.60
Yield 5.2%
P/E Ratio 11.3
Average Volume 37,100
AutoCanada Inc. (ACQ)
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Analyst Coverage
Clarus Securities Inc.
Kelvin Cheung, CFA – (416) 343-2773
Latest Report: May 22, 2012
Stock Rating: BUY
12 – Month Target: $15.10
Canaccord Genuity
Derek Dley, CFA – (604) 694-6967
Latest Report: May 9, 2012
Stock Rating: BUY
12 – Month Target: $15.00
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Annual consumer spending more than any other Canadian retail segment
Franchised Auto Dealerships Operate Four Complementary Business Segments
Used vehicle sales
Finance and insurance
Parts, service and
repair
New vehicle sales
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Dealership Business Model
Automobile dealerships generate relatively stable cash flows
• Historically stable and profitable business (profitable during wars, recessions, etc.)
• Variable cost structure – most of fixed costs offset by parts and service business
• New and used vehicle sales counter-cyclical and drive higher margin business such as finance and insurance and parts and service
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Earnings Stability
Source: DesRosiers Automotive Consultants/CAW 9
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Exclusive
Sales
Territories
Brand Marketing
Warranty
Repair
Work
No Cost Consumer
Sales
Incentives
Substantial Value Attributed to Franchise Rights
Benefits of Dealership Franchise Agreements
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• Economies of scale
• Geographic and brand diversification
• Ability to attract management talent and advancement opportunities within group
• Best practice sales, parts and service process training and implementation
• Expert marketing and online marketing team
• Centralized administrative and strategic functions
Benefits of Multi-Location Dealership Model
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Industry Succession
There are currently 3,464 auto dealerships in Canada
Results of 2011 PwC Trendsetter Survey:
• PwC identifies a succession crisis amongst Canadian auto retailers
• 22% of dealers would like to exit in one year
• 58% of dealers would like to exit in five years
• 100% of independent dealers would like to exit in within the next 10 years
Industry succession issues present an
opportunity for dealer groups
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• 26 franchised dealerships
• Approximately 28,000 new and used vehicles sold in 2011
• Approximately 1 in every 82 new vehicles sold in Canada in 2011 from an AutoCanada dealership
• More than 300,000 service and collision orders completed at 333 service bays in 2011
Our Business
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Experienced and Aligned Management Team
• Experienced and incentivized dealer principals and general managers
• Members of senior management own 42.8% of AutoCanada shares
• Corporate head office team provides management, marketing, financial and operational expertise
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26 Dealerships in 6 Provinces
B.C.
Alberta
Saskatchewan
Manitoba Ontario
Quebec
Newfoundland
N.B.
Nova Scotia
P.E.I.
GRANDE PRAIRIE
PLATFORM
Grande Prairie Chrysler Jeep Dodge Ram
Grande Prairie Hyundai
Grande Prairie Mitsubishi
Grande Prairie Nissan
Grande Prairie Subaru
PRINCE GEORGE
PLATFORM
Northland Chrysler Jeep
Dodge Ram
Northland Hyundai
Northland Nissan
MAPLE RIDGE
PLATFORM
Maple Ridge Chrysler Jeep
Dodge Ram FIAT
Maple Ridge Volkswagen
Abbotsford Volkswagen
Chilliwack Volkswagen
VICTORIA
Victoria Hyundai
EDMONTON PLATFORM
Crosstown Chrysler Jeep Dodge Ram FIAT
Capital Chrysler Jeep Dodge Ram FIAT
Sherwood Park Hyundai
Nicholson Chevrolet
Petersen Buick GMC
KELOWNA
Okanagan Chrysler Jeep
Dodge Ram
PONOKA
Ponoka Chrysler Jeep
Dodge Ram
THOMPSON
Thompson Chrysler Jeep
Dodge Ram
GTA PLATFORM
401 Dixie Hyundai
Cambridge Hyundai
Newmarket Infiniti Nissan
DARTMOUTH
Dartmouth Chrysler Jeep
Dodge Ram
MONCTON
Moncton Chrysler Jeep
Dodge Ram
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64%
20%
11% 5%
2011 Revenue ($ millions)
New Vehicle Used Vehicle Parts, Service & Collision Repair FI & Other
Revenue & Gross Profit
2011 Annual Results
28%
10%
34%
28%
2011 Gross Profit ($ millions)
$1,008.9 $169.1
Note: Results for the Company for the year ended December 31, 2011 16
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• Resale of trade-ins
• Sale of third-party financing, service or insurance products
• Recurring service and repair business
New Vehicle Sales
Drives high-margin related transactions
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Total Canadian New Vehicle Sales 1960 – 2012F
Source: Scotia Economics - Global Auto Report, May 30, 2012
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012F
To
tal
Ve
hic
le S
ale
s (
Th
ou
sa
nd
s)
Calendar Year
Trendline
Actual
Advances in technology expected to drive new vehicle sales gains over long term
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• Service contracts
• Reconditioning opportunities for parts and service
• Recurring parts and service business
• Financing commissions
Used Vehicle Sales
Drives high-margin related transactions
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Parts, Service and Collision Repair
• High Margins and Excellent Growth
– Increasingly complex vehicles cost more to maintain
– Highly specialized equipment and skilled labour required
– Independent repair shops closing
– Number of vehicles on the road is growing, creating more demand for available service bays
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“Absorption Rate”
• Percentage of dealership’s fixed expenses covered by gross profit generated by parts and service segment
• AutoCanada’s 2011 absorption rate = 88%
Parts, Service and Collision Repair
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Finance, Insurance & Other
• High Margins and Excellent Growth
– Represents 5% of total revenue and 28% of gross profit
– New vehicle sales increases a driver of growth in the finance and insurance department
– Relatively low cost operation
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10.8
13.7 13.8 13.4
15.5
19.3
0
5
10
15
20
25
2006 2007 2008 2009 2010 2011
Units 000’s
New Vehicle Sales
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8.5
9.6 9.9 9.7
8.8 8.7
0
2
4
6
8
10
12
2006 2007 2008 2009 2010 2011
Units 000’s
Used Vehicle Sales
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Revenue By Business Operation
0
200
400
600
800
1,000
2006 2007 2008 2009 2010 2011
$ millions
New Vehicle Used Vehicle Parts, Service & Collision Repair FI & Other 25
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Gross Profit by Business Operation
0
20
40
60
80
100
120
140
160
2006 2007 2008 2009 2010 2011
$ millions
New Vehicle Used Vehicle Parts, Service & Collision Repair FI & Other 26
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Adjusted EBITDA
21.0
25.1 24.5
18.4 16.7
29.1
0
5
10
15
20
25
30
35
2006 2007 2008 2009 2010 2011
$ millions
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2011 Annual Results
Revenue $ 1,008.9 16.0%
Gross Profit $ 169.1 12.7%
EBITDA* $ 29.1 74.0%
Adjusted EPS** $ 0.89 107.0%
Adjusted Free Cash Flow $ 27.7 97.9%
$ millions (except EPS)
* EBITDA does not include interest on floorplan financing
**Adjusted EPS is calculated using net earnings before other items (reversal of
impairment of intangible assets and its related tax effect).
Record performance in 2011
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2012 Q1 Results
Revenue $ 248.4 17.8%
Gross Profit $ 48.8 17.6%
EBITDA* $ 6.8 68.2%
EPS $ 0.21 107.0%
Adjusted Free Cash Flow $ 4.2 13.5%
$ millions (except EPS)
* EBITDA does not include interest on floorplan financing
Record performance in Q1 2012
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Strong Balance Sheet As at March 31, 2012
Current Assets $261.9
Current Liabilities $222.8
Net Working Capital $ 39.1
Long-term Debt $ 20.1
$ millions
New and Used Vehicle Inventory Turned 6.0 Times in Fiscal 2011
Floorplan debt of $178.1 million included in current liabilities and
netted against inventory which is included in current assets
Very liquid inventory
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Dividend Growth
Increase to Dividend in Five Consecutive Quarters
-
0.10
0.20
0.30
0.40
0.50
0.60
0.70
Q1 -2010
Q2 -2010
Q3 -2010
Q4 -2010
Q1 -2011
Q2 -2011
Q3 -2011
Q4 -2011
Q1 -2012
Q2 -2012
Annualized Dividend Rate per Share (in dollars)
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Dividend
Policy
Organic
Growth
Acquisition
Policy
Sustainable
Returns
Contributes to
Enhanced Shareholder Value
Strategy
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Factors contributing to change in strategy:
• OEM resistance to public ownership model
• Limited growth opportunities
• Low trading multiple compared to US peers
New Strategy Announced June 22, 2011
Strategy
• Focus on same store growth
• Target dividend between 70% and 80% of fully diluted EPS
• Pursue accretive acquisitions
• Allow private purchases to build relationships with new manufacturers
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ACQ Share Performance Since June 22, 2011:
Strategy
• Improvement in share price of 180%
• Average daily trading volume of approximately 31,000 since strategy change versus 12,000 over same period prior to change
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Impact of business landscape on strategy:
• Potential to add more dealerships
• Improvement in trading multiple allows for accretive acquisition opportunities
• Continued improvement in liquidity of shares
Management update since June 22, 2011:
Strategy
• Same store earnings significantly increased
• Management remains committed to a high payout dividend policy
• Two new OEM approvals
• KIA open point announced April 20, 2012
• Investment in two GM dealerships in May and June of 2012
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Investment Highlights
Auto Dealership Business Historically Stable and Profitable
Industry Succession Issue and Recent OEM Approvals to Provide Growth Opportunities
AutoCanada Posts Record Annual Results in 2011 and Record First Quarter Results in 2012
Income Oriented Investment Vehicle with Opportunity for Growth
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Question and Answer
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