John McConnell

AUSTRALIA’S biggest vehicle retailer, Automotive Holdings Group Ltd (AHG), has followed the gloomy outlook posted by rival AP Eagers Ltd with a downgrade of its profit outlook for 2017.

It points to tightening credit conditions in the automotive market and a continuing decline of the automotive market in WA.

AHG has also indicated it would shutter some “non-performing” divisions.

It said that after a review of its recent trading results and outlook, it expects to deliver a full year 2017 operating profit after tax in the range of $87 million to $89 million.

“Following a strategic review and in response to the proposed ASIC changes to automotive finance and insurance regulations, the company has undertaken a cost reduction program and will close a number of non‐performing businesses.”

“These actions are expected to deliver pre‐tax savings of circa-$10 million per annum and result in restructuring costs of circa $35 million.

“The majority of these costs are non‐cash and will be classified as unusual in nature and will therefore impact our statutory net profit after tax for the financial year of 2017.”

AHG said the Western Australian new vehicle sales market has further declined and is now down 10 per cent year-to-date in calendar 2017.

“Although AHG has grown market share in Western Australia over the current year the market contraction has led to lower than expected sales revenue and earnings from the automotive business,” it said.

“Tightening consumer credit conditions in the automotive financing market have contributed to lower margins across the industry.

“This has been particularly evident in AHG’s online 360 Finance business and more broadly across the company’s automotive dealerships.

“The weakening east coast auto market (new vehicle sales down about three per cent against the previous corresponding period for the first four months of calendar 2017) combined with the tighter credit conditions has also reduced the capacity of east coast earnings to provide cover for WA.”

AHG said it had a transformation program underway in the refrigerated logistics business which was continuing to deliver improvement in earnings.

“The second half earnings in the financial year of 2017 are expected to be significantly higher than the corresponding period in the 2016 year, however the timing of the full year benefits from the transformation program are slightly behind initial expectations which has been reflected in this trading update,” it said in the ASX statement.

AHG managing director John McConnell said the tightening conditions in the automotive market have been an increasing challenge in the half. Refrigerated Logistics results were trending in the right direction, and the investment made in the transformation program was beginning to deliver the expected performance improvements.

“Our focus at the moment is on making structural changes to meet the changing market conditions, and cost reduction will be a strong focus over the near term,” said Mr McConnell.

“We continue to see the benefits of holding a diversified automotive portfolio both in terms of brands and geography across Australia and New Zealand and remain well positioned in the industry.”

By Neil Dowling