AP Eagers profit hit by falling car sales

Tough car trading conditions have forced AP Eagers to issue a profit warning, and taking over a rival hasn’t helped.

AP Eagers Martin Ward. Picture: Mark Cranitch.

Some of the toughest car trading conditions in years have forced market leader AP Eagers to warn of declining profits, and mean its recent $2.3 billion takeover of rival Automotive Holdings will also dent earnings.

In a trading update, AP Eagers said external trading conditions in the national automotive retail sector remained challenging, with the overall market for new vehicle sales in decline for 19 consecutive months, representing a decrease of 126,000 units sold over the same period.

For the 10 months ended October 31, 2019, national new vehicle sales were down 8 per cent on the prior corresponding period.

As a consequence, AP Eagers said underlying operating profit before tax for the 10 months ended October 31, 2019 was down 6 per cent.

Eagers CEO Martin Ward said: “AP Eagers is not immune to the external trading environment which remains challenging.

“The AHG business has been a wholly owned subsidiary of AP Eagers for only 60 days and, while its operating profit contribution since July is disappointing, it is not unexpected.

“It remains our firm belief that combining these two businesses to build a truly national footprint will place us in the strongest possible position to thrive as the industry continues to evolve and change.”

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Gains on the sale of non-core operations and property during the period as well as one-off costs related to the merger have been excluded and will be detailed in the company’s year end accounts.

In relation to the recent takeover of Automotive Holdings, AP Eagers said its management took operational control in mid-September and in October announced the executive management and operational leadership structure for the merged group.

But there were divisions in the AHG business that were struggling in the midst of tough trading conditions in the car sales sector and related auto sales industries.

Having reviewed trading since July, the core AHG business comprising Franchised Automotive, Trucks, Amcap and EasyAuto123, had contributed an underlying operating profit before tax of $4.8 million, AP Eagers said.

“Whilst the core AHG business has been impacted by the external conditions across the board, one region is significantly underperforming and EasyAuto123 contributed a loss of $2.5 million despite its performance improving over the four-month period against the previous corresponding period.

“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.”

The integration of Automotive Holdings is progressing to plan, it said.

AP Eagers is on track to deliver the full $30 million synergy savings target, comprising an initial $13.5 million (annualised) by December 2019 and the balance within 12 months, the company confirmed.