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STRATTON Finance Group is to halve its profit contribution to majority shareholder Carsales in the current financial year as legislative changes to car financing, introduced by the corporate watchdog in November last year, bite into the finance industry.

Carsales said it expects Strattons to show a net profit on its books of around $1 million, down from $2 million last financial year. It also expects a $48 million impairment to its investment in Stratton, slicing into Carsales’ profit as an adjustment in the 2018-19 financial year.

The downgrading of the valuation of its 50.1 per cent stake in Stratton was caused by “certain external factors” including the tight credit market conditions and the changes made to the F&I industry by the Australian Securities and Investments Commission (ASIC) that became effective from November 1 last year.

In a statement to the Australian Securities Exchange, Carsales said: “The identified external factors have impacted Statton since the 2018 financial year financial report along with the realisation of some delays in operational benefits which had been expected to offset yield reductions, resulting in the anticipated impairment.”

However, Carsales said that the Strattons business is increasing.

“Strattons total finance contract volumes have been higher for the five months to November 2018 when compared with the prior corresponding period despite the current finance conditions,” Carsales stated.

The company said the non-cash impairment charge will be shown as an “adjusting” item to net profit “and will have no impact on Carsales’ funding covenants or the assessment of Carsales’ interim or final dividend for the 2019 financial year”.

“Carsales anticipates its share of net profit from Stratton will be circa $1.0 million in the 2019 financial year ($2.0 million in 2018 financial year).”

By Neil Dowling

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