In the webcast, Mr Thornton, CFO said that during the past 12 months, analysts had concentrated on the merger between APE and Automotive Holdings, but APE wanted to highlight its pre-owned (used) car strategy.
Mr Martin Ward, CEO said that prior to the merger, there was much 'noise' in both businesses with Automotive Holdings for instance having 100 per cent of its properties as leasehold.
easyauto123 will become the sole used car brand for APE, but Carlins Motor Auctions will (sort of) link in.
Business simplification will continue.
Mr Thornton said in 'new' versus 'used', in the USA markets it's disaggregated, unlike APE that has 12 per cent of the Oz new car market.
'Used cars' present as an opportunity as the new car market in Oz in total should be 900,000 individual sales, and as far as APE can estimate, the used car market in 2020 should be 3.9 million individual units sold. In NZ the used car market may be even more important.
APE is trying to emulate the Carmax model in the USA, a company that was established in the USA in 1993 but even with US$20 billion in annual turnover, it has less than five per cent market share. Fragmented.
'Category killers' in Australia is a 'well worn path' such as Bunnings and OfficeWorks. The latter is a facsimile of Staples in the USA. McDonalds is the one that created a memorable brand, customer benefits and scalable customer experience, allowing market domination that in time creates market barriers to entry for others.
Innovation in information technology is important.
'Brand, benefit and experience' are the three pillars APE seeks.
If APE can get it correct in its used car strategy, it can control its margins. This is not as easy in the new car market.
Used cars have the difficulty of no 'madated' supply chain: they are not coming out of a factory. The business is capital intensive, and also needs access to human capital (expertise plus new thinking).
There is customer dissatisfaction with current used car sales arrangements as evidenced in the Roy Morgan image survey of various professions.
easyauto123 will be a 'no haggle' business, but needs scale.
Mr Craig Bigley, EGM easyauto123 says that APE wants to change the used car experience, including repeat patronage.
Customers want 'experience' , a seven day moneyback guarantee, the biggest range and opening on Sundays and public holidays. Price should not be the issue: no 'five rounds of negotiation'.
easyauto123 has five superstores opened between 2015 and 2018.
Mr Thornton said that the largest issue is the ability to source high volume, reasonably priced inventory either by buying directly, via a trade network, buy from a third party or also offer 'patner cars' on a deferred payment model.
Reconditioning expertise is important: being consistent with warranties but not 'over reconditioning'.
A 'one brand experience' and finance are important. Financing has been a headwind for APE easyauto123 during COVID19.
'You car bought your way' is a theme APE wants to stress to patrons.
Data analytics will be used.
Value added upsell and finance are about penetration in the market.
In calendar 2018, easyauto123 + Carlins lost A$11 million. Since the merger (4Q 2019-20), but the full year (I think calendar 2019), it lost A$5.6 million. But this was a c.50 per cent improvement, so was the improvement sustainable? To October 2020, the business in calendar 2020 has made A$2.2 million despite a $3 million loss during COVID-19 and the Brooklyn, Melbourne major site being closed for much of the year. So it's now profitable.
Between July and October, the $2 million profit compares to the same period in 2019 of a $2 million loss. This is viewed by APE as a 'business improvement' not just something related to coronavirus.
Mr Bigley says in gross margins and volume have improved but four key expenses have reduced, such as rent per car sold down 34 per cent, floorplan cost down 62 per cent as stock turn has improved, while staff and marketing costs (the latter down 32 per cent) have improved. Analytics are being used to decide how to advertise stock and for how long.
Sales productivity per staff member has improved 44 per cent year-on-year.
Mr Thornton says that Deloittes provide an industry benchmark of about 12 sales per consultant per month, but at easyauto123 it's now 33 sales at topping out (consistently over 25) per staff member. This is really important. Profits are growing.
Mr Bigley said that two further sites have been added: one in Adelaide, and another in Auckland NZ. The Seven Hills NSW site has been relocated in the last week to Castle Hill NSW, not far away.
'The best digital experience' is a key aim. They have introduced 360 degree imaging so customers can 'shop from their sofa'. In the next six weeks, customers will be able to apply for pre-approval for finance. 'Omni-channel experience' is another aim.
The website now represents 15 per cent of all leads generated versus just five per cent in January 2020.
Online reservation has reached a new high of 16 per cent of total sales. They are choosing this experience, but can still shop in person.
APE is working on providing further online detail to customers on online trade ins, finance and buying the replacement car: more complex than it might seem.
easyauto123 and franchised automotive sales plus Carlins can be linked, such as in supply partnerships with fleet management organisations. APE is the preferred retailer for a number of these FMOs. APE believes it has 'taken down the wall' between these internal businesses.
APE can drive further volume in used cars given it has 10 per cent of the new car market. APE is not 'obsessed' with high margins as it wants supply (which has been a significant headwind for easyauto123 in the last six months).
APE says its reliance on external advertising (a cost) will decrease as the 'flywheel effect' takes effect. (I didn't quite understand this).
Mr Thornton said that in Sydney, APE had an expensive lease in Seven Hills, but moved easyauto123 and Carlins onto the Castle Hill property. Traditionally on this 43000 square metre site, there were three new car brands of the franchised automotive business: it may now have five to six.
This consolidation is also to occur in Melbourne and Perth. Accelerate the strategy!
Apologies if any of this is Doublle Dutch as I don't own a car (but I have APE shares).
APE Price at posting:
$13.38 Sentiment: Hold Disclosure: Held
(20min delay)