John McConnell

AUSTRALIA’S biggest vehicle retailer and the barometer for the health of the industry’s retail sector,  Automotive Holdings Group Ltd (AHG), today announced record revenue of $6.47 billion for the 2018 financial year but tempered that with a 14.4 per cent fall in net profit.

It said the year had been “challenging” and managing director John McConnell said the company “remained cautious” about the short-term outlook.

He said the impact of falling house prices on consumer demand, further potential impact from flex commission changes and the erosion of margins caused by discounting to maintain “some manufacturers’ targets” were affecting the outlook.

In a statement, Mr McConnell  said: “We expect the effect of these short-term pressures on our underlying operating net profit after tax ($74.8 million, down 14.4 per cent) will be largely mitigated by some opportunities, the closure of underlying businesses, further cost reduction initiatives and improvements in Refrigerated Logistics, Other Logistics and (warehouse used-car outlets) easyauto123.”

The opportunities are seen in increased finance penetration, the development of retail hubs to reduce costs by sharing services, improved returns from easyauto123 and the recovery of private buyer demand in its major market of WA.

AHG also sees a goal of improving performance in its Refrigerated Logistics division, now back in its hands after suitor HNA pulled out of the deal in the last month of the 2018 financial year.

This division posted revenue of $598.3 million, up from the previous year’s $595.1 million, but operating profit before tax fell to a $2 million loss (previously a $2.8 million profit) “primarily due to higher depreciation”.

Revenue from the Automotive division was up 7.2 per cent at $5.61 billion and AHG now has a market share in the new-car business of 6.7 per cent in Australia and three per cent in New Zealand.

Easyauto123

Mr McConnell said this left room for further expansion in both markets as value-driven opportunities – including acquisitions – were presented. He also said the used-car revenue grew strongly through the year.

The operating profit before tax was $116.7 million, down six per cent on the previous year and attributed to the change in finance and insurance commissions, and “margin compression driven by manufacturers”.

“Notably, both the Australian and New Zealand new-vehicle markets remain close to record levels despite the recent softening of consumer demand in the new-car market in Australia,” AHG said.

“During the year the franchised automotive division suffered a $29 million reduction to F&I commissions.

“While not unexpected, this was a very significant hit to earnings, offset to an extent by cost reduction initiatives and a one-off insurance income of $12 million.”

Aside from the $29 million hit, AHG said the F&I sector had experienced poor consumer sentiment in light of the Royal Banking Commission with finance penetration down to 34 per cent and noting a more than 50 per cent turnover in finance managers as “remuneration models changed”.

AHG referred to the Deloitte report “Mid-Year Market Snapshot” of August 10 this year, saying it showed the company continued to outperform the franchised dealer market in Australia in areas including return on sales, total gross margin and F&I per retail unit.

During the year the automotive division integrated the acquisitions of five new dealerships in the Hunter Motor Group in NSW; two dealerships in Essendon Fields in Melbourne; two in Manukau in NZ; and opened the greenfields Jaguar Land Rover dealership at Essendon Fields.

“We have continued to invest in the easyauto123 business, which opened new fixed-price used-car warehouses at Brooklyn in Melbourne and Hendra in Brisbane. Revenue for this business grew to $262 million compared with $51 million in the previous year, incurring a loss of $7.4 million as we established the (now five) operating locations,” AHG said.

“We remain excited by the opportunity in the heavily-fragmented used-car market to create a national brand, both physically and digitally, and drive returns.”

In other divisions, the KTM and Husqvarna earnings were impacted by currency changes though both motorcycles grew market share in Australia.

By Neil Dowling