Brisbane-based AP Eagers may have won the battle for its main listed rival, Automotive Holdings (AHG) but that doesn’t mean it has been immune from the impact of the deepening slow down in the car sector.
AHG told investors on Tuesday that it is now looking for a smaller profit before one-off items) for the year to June of around $50 million – yesterday AP Eagers (which owns 28.8% of AHG) admitted that its first-half earnings would be lower.
Speaking at the company’s annual meeting, CEO Martin Ward described the car sector as “challenging with the overall new vehicle sales market declining 8.1% to the end of April 2019.”
“AP Eagers is not immune to the prevailing market conditions and as a result, expects first-half operating profit before tax to be between 7 – 10% lower than the previous half year period,” he told shareholders.
“The company’s balance sheet remains strong and the management team remains focused on executing our Next100 growth strategy and managing our cost base effectively in the context of structural changes facing the market.
“AP Eagers is confident of being able to continue to deliver strong returns for shareholders through the cycle while taking of advantage of the opportunities it presents.
Later this year APE will complete the takeover of AHG and will then have to consolidate both companies at a time it is already cutting costs (by selling off land and other assets under its Next100 strategy).
That will see some big asset sales and cost cuts and write-downs (already signaled to some degree by AHG on Tuesday on top of the $223 million of impairments taken in its first half).
But Mr. Ward told shareholders at yesterday’s meeting that APE’s board is looking forward to working with AHG directors to complete the deal by obtaining the necessary approvals.
“I would like to take this opportunity to encourage any AHG shareholders who are yet to accept to do so, in order for the full benefits of the merger to be realised, particularly the synergies,” Mr. Ward said (’Synergies’, by the way, means cost and job cuts).
“We are convinced that combination of these two highly complementary businesses with a diversified portfolio of motor vehicle dealerships and greater financial scale will be better placed to respond to the rapidly evolving motor vehicle retailing market and pursue future growth opportunities through the cycles,” Mr. Ward told the meeting.