The extent of the impact that the Holden fallout is having on Eagers Automotive’s bottom line is some indicator to the amount of pain that General Motors’ withdrawal of the Holden brand is having across car retailing in Australia.
In releasing its financials for the first six months of 2020, Eagers Automotive – previously AP Eagers Ltd – said the $34 million in charges relates to new-car showroom leased assets associated with Holden dealership operations.
It also said COVID-19 took its toll on the accounts with the company’s operating performance in the first quarter “tracking above last year” and that “all of the decline was experienced during April and May – the peak impact of COVID-19 restrictions up to this point.”
“Importantly, those challenging months were followed by a rebound in June supported by an opening of the economy and confidence in the government stimulus measures,” said Eagers’ managing director Martin Ward in his statement to the Australian Securities Exchange (ASX).
In his forward planning, Mr Ward said one goal was to leverage its finance solutions to increase finance and insurance penetration rates.
He said he planned these rates to move towards those in the US and UK markets and said there was an expectation of an acceleration in demand “as restrictive bank lending eases post COVID-19”.
Eagers after-tax profit for the six months was $11.8 million, down 72.2 per cent on the corresponding period in 2019, on revenue of $4.155 billion.
The revenue figure was a substantial 101.8 per cent increase on the same period in 2019 despite new car sales that fell by 20.2 per cent in the six months and, particularly, down 48.5 per cent and 35.3 per cent in the peak COVID-19 months of April and May respectively.
Mr Ward said the downturn was across all states – the exception was the Australian Capital Territory – and all buyer groups from private through to rental.
Martin Ward
The government JobKeeper was responsible for a $64 million statutory profit before tax in Eagers’ car retail division, a large increase on the $48.5 million recorded in the first six months of 2019.
JobKeeper totalled $61.9 million that was delivered to employ about 7000 employees. This was offset by the $34 million in charges relating to closing the Holden retail businesses.
Eagers said it would continue to operate service outlets “to support existing Holden customers with warranty claims, spare parts, servicing and recalls for five years.”
Mr Ward said EasyAuto123 used-car warehouses – which were part of AHG Ltd until bought by AP Eagers last year – recorded an improved performance driven by higher volumes and a more efficient cost base.
He said car retailing revenue was $3.7 billion during the period, up 126.7 per cent “due to AHG’s contribution”.
The national truck division had a profit before tax of $8.1 million ($5.1 million in the 2019 period) helped by $2.8 million in JobKeeper subsidies.
The company’s property portfolio fell to $260 million, down from $267 million as at December 31, 2019, because of a revaluation attributed to vacated, non-core property.
Mr Ward said the company was in a very strong financial position because of its property base and liquidity of $633.9 million.
He said these combined to give Eagers a “significant liquidity buffer to withstand any long-term impacts of COVID-19 and flexibility to pursue new opportunities in accelerating Next100 strategy.”
The Next100 strategy revolves around growth opportunities.
For the future, Mr Ward said the near term was focused on advancing its property portfolio through buying strategically-located sites that are currently leased.
It also planned to accelerate its fixed-price used-car businesses through increasing volume, reducing cost and continuing to develop its omni-channel product to maximise customer benefits.
In the short to medium term, it aimed to prioritise improving efficiencies; increase F&I penetration; and chase opportunities through restructuring, rationalisation and consolidation.
By Neil Dowling
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