Yesterday’s trading update was all a bit ‘after the event’ from Automotive Holdings (AHG) now that it has fallen on its knees and accepted the paper offer from its biggest shareholder AP Eagers (which owns 28.8%).
AHG now says the company expects a profit of around $50 million which compares to AHG’s previous guidance of between $52 – $56 million provided in February 2019. That compares to $74.6 million for 2017-18.
But the new estimate of $50 million is up in the air given what the company has said about the review in the refrigerated logistics business.
This estimate, of course, excludes the $226 million first-half loss that was struck after writing down its franchised and refrigerated logistics businesses by $223 million.
AHG told the ASX that based on trading performance for the 10 months to the end of April 2019 and current market conditions, it expects to deliver an operating net after-tax profit for the year to June of approximately $50 million.
At the same time, the company has called in the beancounters to check the value of receivables in its refrigerated logistics business, which is always a precursor to bad news, write-downs, losses, and sometimes more.
These reviews do not generate higher revenues or profits or good news and in this case, AHG says it could see possible write-downs extend to prior years.
“The revised outlook reflects the challenging conditions in franchised automotive retail volumes and margins, as well as weaker than expected April performance in AHG’s Refrigerated Logistics division on the back of subdued Easter trading,” the company told the ASX yesterday.
“May and June are typically higher profitability months in the automotive retail sector and will have a significant bearing on AHG’s FY2019 financial performance.
“The actual result for FY2019 may be impacted by a range of factors, including the evolving market conditions (particularly in automotive retail), consumer behaviour around the upcoming Australian Federal Election and any negative impact resulting from the below review.
AHG said it does not believe there would be a material impact on its balance sheet or future cash flows from any additional write-downs, and they would not affect the AP Eagers bid.
The two companies last week entered into an implementation deed after AP Eagers raised its all-scrip offer to one share for every 3.6 AHG shares, instead of one for 3.8.
On review of its refrigerated logistics business, AHG said “Following extensive upgrades to the Refrigerated Logistics division’s financial reporting systems, AHG (with the assistance of external advisers) is undertaking a review of the carrying value of receivables generated across prior years and FY2019.
“While this review is ongoing and the extent of its financial impact on the AHG Group is not yet certain, it may result in some write-down of the division’s receivables generated across one or more periods.
“The current expectation is that any potential impact would not be material to AHG’s balance sheet or future cash flows beyond FY2019, but it could ultimately have a bearing on AHG’s earnings outlook for FY2019 (as mentioned above).
“AHG would not expect any of the above to impact the takeover bid from AP Eagers,” the company added.
This looks very much like AHG is getting another round of bad news out before the merger happens. But you do have to ask if AP Eagers would have been interested in a deal if this instability had been reported earlier. Could the takeover have happened at a lower price?
The shares lost 1.6% to $2.34 but with the APE bid winning, that is meaningless.