AUSTRALIA’S biggest car retailer, AP Eagers Limited, has announced a six per cent fall in operating profit in the 10 months to the end of October as national vehicle sales fell for the 19th consecutive month.

AP Eagers CEO Martin Ward said the resulting fall in profit was to be expected, but remained “disappointing”.

The period included five weeks of ownership of Automotive Holdings Group (AHG) Limited.

Though AP Eagers said AHG has already contributed an operating profit of $4.8 million in the current financial year, it is concerned about some losses that include the used-car warehouse Easyauto123.

It said Easyauto123, noted for its yellow warehouses, had improved its performance over the past four-month period, but in a statement to the Australian Securities Exchange the company said: “Action to improve trading results is being implemented as a matter of urgency to drive sustainable operating returns consistent with other areas of the business.”

Key to improving returns is a plan by AP Eagers to save $30 million over a year through “synergy savings”.

It plans on reducing costs by $13.5 million by December 31 this year, and the balance within 12 months.

One of the savings will be realised by the sale of AHG’s Refrigerated Logistics business, itself previously the subject of reorganisation and, in 2017, a failed sale to China-based HNA.

AP Eagers said the business unit “has entered the due diligence stage following the submission of indicative bids”.

The Australian Financial Review stated that a KPMG report valued Refrigerated Logistics – which operates under names including Scott’s Refrigerated Freightways, JAT, Harrison and Rand Transport – at between $195 million and $245 million.

HNA was to buy the unit for $400 million.

Bids are being collated by Luminis Partners and UBS. Buyers have been told the business unit can return $600 million in revenue in the current financial year and earnings (EBITDA) of about $40 million.

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AP Eagers this week presented a report to the UBS Australasia Conference that included how the auto industry was accelerating its business planning by:

• Departure of loss-making brands (APE has ended franchises recently including Infiniti, Fiat and Alfa Romeo).
• Rationalising dealer locations and owners (APE, under an agreement with the ACCC, sold off some major NSW dealerships).
• Consolidation of owners.
• Adoption of non-traditional omni-channel retail networks (APE has used-car networks Zooper, Carzoos and has inherited AHG’s Easyauto123).

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As part of its view of the changes ahead for the industry, Eagers’ UBS report also included the need for OEMs to “realise the physical retail network cost base must be reduced”, potentially showing the future benefits of APE’s exposure to the Brisbane Auto Mall where traditional dealerships can be contained within auto precincts to provide a greater number of convenient shops that will give operators a lower cost base.

Ahead also for the industry was “investing in alternative fuels (EV, hydrogen, etc) and alternate blue-sky investment”.

Mr Ward said the current trading environment for the automotive industry was “challenging” and said combining AHG and APE to build a national footprint “will place us in the strongest possible position to thrive as the industry continues to evolve and change”.

“With the right strategy in place, a strong financial position, a focus on innovation, an appetite for investment and a keen management eye on efficiency, we are well placed to bring these two businesses together in a way that delivers value to our customers, our partners and ultimately our shareholders,” he said.

AP Eagers said it would provide further details of the integration of the two companies when it reports its full-year 2019 results in February 2020.

By Neil Dowling