Investor Presentation. May 16, 2017

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Augustine Spencer
5 years ago
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1 Investor Presentation May 16, 2017

2 FORWARD-LOOKING STATEMENTS 2 Certain information contained in this presentation looks forward in time and deals with other than historical or current facts for AutoCanada Inc. ( AutoCanada or the Company ). The use of any of the words could, expect, believe, will, projected, estimated and similar expressions and statements relating to matters that are not historical facts are intended to identify forward-looking information and are based on the Company s current belief or assumptions as to the outcome and timing of such future events. In particular, forward-looking statements in this presentation include, but are not limited to, references to: the Company s general strategic plans and growth strategies; future sales and revenue; future dealership acquisitions and open point dealerships; the Company s targets relating to return on investment and financial ratios; dividend payout policies; future intentions relating to financial leverage; and the retail automotive industry. Although the Company believes that the expectations reflected by the forward-looking statements presented in this presentation are reasonable, these statements have been based on assumptions and factors concerning future events that may prove to be inaccurate. Actual future results may differ materially. The Company s annual information form for the year ended December 31, 2016 and other documents filed with securities regulatory authorities (accessible through the SEDAR website describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference. The Company disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise. 2

3 AUTOCANADA OWNS SOME OF THE TOP PERFORMING DEALERSHIPS 3 Prince George Grande Prairie Victoria / Duncan Ponoka Maple Ridge/ Abbotsford Kelowna Edmonton North Prince Albert Battleford Calgary Dealerships FCA 17 General Motors 9 Hyundai 9 Nissan 5 Volkswagen 7 Mitsubishi 2 Subaru 1 Kia 1 Total 51 Saskatoon Winnipeg Luxury Dealerships Toronto (GTA) Infiniti 2 Cadillac 2 Audi 1 BMW / MINI 2 Mercedes-Benz 1 Total 8 Laval Ottawa Moncton Montreal Dartmouth Dealership Locations & Brands Dealerships 57 OEMs 10 Brands Total Revenue $2.9 B New Vehicles Sold 40,032 Used Vehicles Sold 19,561

4 Platform Brand Mix- New Retail Sales 4 Sales Platform Mix European Import 16.6% Asian Import 24.3% General Motors 19.5% FCA 39.6% FOCUS ON IMPROVING BALANCE

O u r F o c u s 5 Strategic Levers OPERATIONAL EXCELLENCE ACQUISITION & GROWTH STRATEGY COST CONTROL & BALANCE SHEET Dealership Performance Same Store Metrics Improved Margins New

5 O u r F o c u s 5 Strategic Levers OPERATIONAL EXCELLENCE ACQUISITION & GROWTH STRATEGY COST CONTROL & BALANCE SHEET Dealership Performance Same Store Metrics Improved Margins New Technologies Diversification Across Canada Brand Portfolio Balance Accretion Dealer Clusters in Key Markets Variable Expenses as % of Gross Profit Interest Expense Manage Debt & Capital Expenditures

6 CANADIAN AUTO DEALER MARKET 6 Key Themes Improving Vehicle Sales in Canada Auto Retail Sector is a Key Part of the Economy Market Highly Fragmented but Continuing to Consolidate Succession Planning Opportunity Leading to Significant Ownership Turnover Public Ownership Evolving in Canada Auto retail sector performed well in 2016; new vehicle sales increased by 2.7%, surpassing the all-time record In March 2017, Canadian light vehicle sales increase 7.1% Y/Y to 187,540 units Advances in technology, styling and safety expected to drive long-term new vehicle sales gains Annual spending of $143 billion in 2016 up 9.3% compared to 2014 Greater than any other Canadian retail segment Canadian dealer market is fragmented with approximately 3,300 dealerships with approximately 2,000 owners Industry shifting from mom & pop dealerships to larger dealer groups AutoCanada is well positioned to capitalize on this industry consolidation A significant proportion of dealers will be retiring in the next five years creating a succession planning opportunity Over 70% of dealers want to be semi-retired or completely out of the business in five years and fully retired within 10 years (1) Dealership owners are facing increasing facility capital requirements for OEM branding programs OEM acceptance of publicly-listed companies is growing in Canada As evidenced by AutoCanada s acquisition of Mercedes-Benz Rive-Sud in May 2017 (1) Source: PricewaterhouseCooper s Automotive Trendsetter Report 2012

7 DIVERSIFIED REVENUE SUPPORTS STRONG BUSINESS MODEL 7 The auto dealer business model is resilient in adverse market conditions 2016 Revenue 2016 Gross Profit Well-established and accepted dealership model has existed for 50+ years in the Canadian marketplace 13.2% 4.5% 24.6% 24.3% OEMs committed to dealership success and profitability Four business segments provide diversified and stable revenue 25.1% 57.2% 41.4% 9.7% Dealerships have a variable cost structure, with the parts & service business covering most of the fixed costs of the entire dealership Parts & service business is a counter-cyclical and stable recurring revenue stream New Vehicle Sales Used Vehicle Sales Parts, Services & Collison Repair Finance and Insurance

8 ACQUISITION PLAN IN ACTION 8 8 Wellington Motors The transaction closed October 1, 2016 Expands AutoCanada s Ontario platform Annual revenue of $46 million

9 ACQUISITION PLAN IN ACTION 9 9 Guelph Hyundai The transaction closed December 19, 2016 Expands AutoCanada s Ontario platform Annual revenue of $31 million

10 GROWTH PLAN IN ACTION Sherwood Park Volkswagen Opened February 1, 2017

11 ACQUISITION PLAN IN ACTION Mercedes-Benz Rive-Sud The transaction closed May 1, 2017 Expands AutoCanada s brand offering to annual revenue of $90 million

12 GROWTH PLAN IN ACTION Audi Winnipeg Construction in progress expected completion Q or early 2018

13 2016 Snap Shot 13 As at December 31, % Change New vehicles (units) 42,457 40, % Used vehicles (units) 20,342 19, % Parts, service, and collision repair $194M $201M 3.6% Adjusted net income $39.9M $40.3M 1.0% Gross profit % 16.8% 16.8% 0% Basic adjusted earnings per share $1.64 $ % Adjusted free cash flow $38.8M $68.6M 76.8%

14 Q Snap Shot 14 As at March 31, % Change New vehicles (units) 8,933 8,502 8, % Used vehicles (units) 7,393 4,799 4, % Parts, Service & Collison Repair $43.9M $47.7M $47.3M -0.8% Adjusted net income $5.6M $6.3M $4.6M -26.4% Gross profit % 16.6% 16.8% 17.5% 4.2% Basic adjusted earnings per share $0.20 $0.23 $ % Adjusted Free Cash Flow -$7.4M $6.0M $15.2M 152%

15 RETAIL AUTOMOTIVE GROSS PROFIT 15 Q1 RESULTS Total Same Store As at March 31, Q Q Q Q New vehicles 7.5% 4.2% 7.5% 7.4% Used vehicles 5.8% 7.2% 5.8% 7.2% Parts, Service & Collison Repair 50.3% 52.1% 50.7% 55.6% Finance & Insurance 91.3% 91.4% 91.4% 90.9%

16 Q Snap Shot 16 Q vs. Q Gross Profit by Department $60,000 $50,000 $47,669 $47,284 $40,000 $30,000 $27,267 $25,590 $26,353 $26,813 $20,000 $10,000 $10,420 $11,940 $0 New Vehicles Used Vehicles Parts & Services Finance & Insurance Q Q1 2017

17 17 NEW VEHICLE SALES Revenue % Gross Profit % Revenue & Units Sold Gross Profit & Gross Margin Q % 7.4% $140 15% % 7.2% New vehicle sales drive high-margin related transactions, including resale of trade-ins, sale of third-party financing, service or insurance products and recurring service and repair business AutoCanada sold 40,032 new vehicles in 2016 (1) Sales (C$M) $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $641 $ $ $1, $1, $1,653 $1, New Vehicles Sold (000's) Gross Profit (C$M) $120 $100 $80 $60 $40 $20 $48 7.5% $76 $58 8.5% 8.6% $ % $ % $118 $ % 7.1% 14% 13% 12% 11% 10% 9% 8% 7% Gross Margin (%) $ LTM 0 $ LTM 6% Sales (C$M) New Vehicles Sold (000's) Gross Profit (C$M) Gross Margin (%) Note: (1) 83% of new vehicle sales were made to retail customers, and the balance to lower margin fleet business

18 18 USED VEHICLE SALES Revenue % Gross Profit % REVENUE & UNITS SOLD GROSS PROFIT & GROSS MARGIN Q % 7.2% % 6.5% Used vehicle sales also drive related highermargin transactions, including service contracts, reconditioning opportunities for parts and service, recurring parts and service business and financing commissions Trade-ins also help support new vehicle sales by reducing the consumers net cash cost of the new vehicle The sale of used vehicles are not tightly controlled by the OEM s, allowing AutoCanada to take trade-ins and resell any vehicle brand Sales (C$M) $800 $700 $600 $500 $400 $300 $200 $100 $0 $725 $711 $705 $ $301 $ $ LTM Sales (C$M) Used Vehicles Sold (000's) Used Vehicles Sold (000's) Gross Profit (C$M) $60 $50 $40 $30 $20 $10 $0 $17 8.4% $16 $20 6.7% 6.7% $30 6.0% $41 5.8% $47 6.5% $49 6.9% LTM Gross Profit (C$M) Gross Margin (%) 15% 13% 11% 9% 7% 5% Gross Margin (%)

19 PARTS, SERVICE & COLLISION REPAIR 19 % Revenue Gross Profit % Q % 55.6% % 52.6% Absorption rate of 87% in 2016(1) In 2016, AutoCanada completed 863,970 service orders on 928 service bays (year end) Parts & service activity is generally considered counter-cyclical Vehicle service under the manufacturer warranty must be completed at a franchised dealer providing a large captive market Independent repair shops are closing as highly specialized, capital intensive equipment and skilled labour is required to service increasingly complex vehicles Sales (C$M) REVENUE & SERVICE ORDERS $420 $360 $300 $240 $180 $120 $60 $0 $110 $ $ $ $388 $383 $ LTM Sales (C$M) Service Orders (000's) Service Orders (000's) Gross Profit (C$M) GROSS PROFIT & GROSS MARGIN 52.2% 52.4% $58 $60 Gross Margin (%) Note: (1) Absorption rate is the extent to which the gross profit of the parts & service segment covers its own operations plus the fixed costs of operating the dealerships (fixed salaries and benefits, administration costs, occupancy costs, insurance expense, utilities expense and non-floorplan interest expense; 19 excludes all costs pertaining to head office) $220 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 51.8% $74 $ % $ % $201 $ % 53.0% LTM Gross Profit (C$M) 60% 55% 50% 45% 40% Gross Margin (%)

20 20 FINANCE & INSURANCE Revenue % Gross Profit % Q % 90.9% REVENUE & TOTAL VEHICLES SOLD GROSS PROFIT & GROSS MARGIN % 91.5% Every vehicle sale presents AutoCanada with an opportunity to increase profits through the sale of additional products such as third party financing or lease arrangements, extended warranties, service contracts and insurance products Sales (C$M) $175 $150 $125 $100 $75 $50 $ $ $ $ $ $130 $ Total Vehicles Sold (000's) Gross Profit (C$M) $140 $115 $90 $65 $40 $ % $ % $ % $ % $ % $119 $ % 91.6% 100% 96% 92% Gross Margin (%) AutoCanada is paid a commission on the transaction and retains no financing risk $25 $ LTM $15 ($10) LTM 88% 84% High margin and excellent growth Sales (C$M) Total Vehicles Sold (000's) Gross Profit (C$M) Gross Margin (%) Represented 91.5% gross margin in 2016

FORWARD-LOOKING STATEMENTS

Q2, 2017 FORWARD-LOOKING STATEMENTS 2 Certain information contained in this presentation looks forward in time and deals with other than historical or current facts for AutoCanada Inc. ( AutoCanada or