AP EAGERS has shocked the industry with a downgraded profit outlook blamed on “an unprecedented” level of review and interference by ASIC and the ACCC.

In his chairman’s address to shareholders on May 24, AP Eagers chairman, Tim Crommelin, said this interference “created great uncertainty for us, our suppliers, our staff, our customers and our shareholders”.

“It appears unreasonable when all these reviews happen at once, particularly as these same regulators have overseen the industry for decades,” he said.

Mr Crommelin said that during 2016, authorities governing the automotive industry initiated a number of reviews including:

• ASIC’s review into flex commissions payable by financiers to car retailers;
• ASIC’s review of add-on insurance products available to consumers;
• ACCC’s review of insurance companies’ responses to ASIC;
• Increased scrutiny and enforcement of current rules around “responsible lending” by financiers; and,
• ACCC’s new car retailing industry market study.

“There is little doubt that some of these factors have contributed to a small reduction in national new-car sales, exacerbated in Queensland by local economic conditions, and all of them have created a shift in sentiment towards our industry which we believe has been reflected in our share price,” Mr Crommelin said.

AP Eagers share price immediately dropped 50c a share upon the announcement to $7.40, near its historic year low of $7.27, before closing the day at $7.60.

In the report, AP Eagers posted a net profit before tax of $141.4 million for the 2016 calendar year and a full-year dividend of 35 cents a share. Both are record results.
However, in reiterating Mr Crommelin’s comments about the 2016 year, the company’s managing director, Martin Ward, said “it was a year of uncertainty and incredible distractions”.

Mr Ward predicted that the first half of this calendar year will report a decline in net profit before tax of between seven and nine per cent “compared to our all-time record first half result last year”.

In his market outlook, Mr Ward noted that the Queensland automotive market fell 5.9 per cent in the January-April period making it the second worst performing state after Western Australia. In the same period, national sales fell 2.8 per cent.

“The industry expectations for the first four months of the year were for an equal or better market than last year’s, so the whole industry has been caught by this unexpected decline in private, business and government purchases off 3.6 per cent, 2.0 per cent and 8.1 per cent respectively,” he said.

“With AP Eagers’ Queensland operations representing 45 per cent of our trading result we have not been immune to a decline in profit.”

But Mr Ward said that despite the profit downgrade, AP Eagers’ cashflow position remains strong and “slightly ahead of last year”.

“On this basis we would expect to at least maintain the half-yearly dividend consistent with last year,” he said.

Mr Ward also indicated that AP Eagers would be in a position within the next three months to announce an acquisition of a business that “meets our operational and strategic criteria”.

By Neil Dowling