Automotive Holdings’ Stock Skyrocketed By 8% On Publishing H1 FY2019 Results

Australia’s one of the largest motoring groups, Automotive Holdings Group Limited (ASX:AHG) has released its H1 FY2019 results ending 31 December 2018.

AHG is number one player in Franchised Automotive Retail sector, and it has 179 franchises at 114 dealership locations and 6.7% market share in Australia and ~3% in New Zealand. It is the broadest manufacturer portfolio. Mr Tony Cramb was appointed as its COO (ex-Toyota Australia Exec. Director of Sales and Marketing).

On 15 February 2019, AHG notified that it had recognised a non-cash impairment of circa $226 million for its six-months results.

Dividend

The Board did not declare a dividend for six months to 31 December 2018 to allow the Company to reinvest in the balance sheet and build long term shareholder value.

Dividend policy linked to gearing

There was temporary suspension of existing dividend policy of 65% to 75% of operating profit after tax while the company move towards its targeted gearing range of 1.5 times to 1.75 times. Board remains focused and vigilant around cash management and reducing the Company’s gearing position to allow flexibility in the current conditions.

Cash Management

As of 31 December 2018, the Company’s net debt position (excluding floorplan) was $284.7 million. Several significant working capital movements impacted net debt for both reporting periods, and on a normalised basis, approximately $35 million of debt was paid down for the six months ending 31 December 2018. There was a strong Operating Cashflow of $27.0m (Outflow $9.9m PCP), the Capex was in line with $30m full?year guidance.

The half?year Result reflects the Operating NPAT of $24.2m, down 42.5% on PCP, which was in line with the recent trading update. The other results are as follows:

• Group revenue of $3.22 billion ($3.17b pcp)
• Statutory NPAT of ($225.6 million) ($40.7m pcp)
• Statutory EPS (68.0 cents) (12.3 cents pcp)
• Operating EBITDA of $93.4 million ($111.4m pcp)
• Operating EBITDA margin 2.9% (3.5% pcp)
• Operating NPAT of $24.2 million ($42.1m pcp)
• Interim dividend suspended to preserve balance sheet capacity for strategic opportunities
• Strategic review of Refrigerated Logistics announced
• Non?cash impairment of $226 million
• AHG remains the largest automotive retailer in Australasia
• AHG RL largest scale player in Australia
• AHG continues investment in easyauto123

 Financial performance:

• Revenue up YoY.
• Margins impacted by challenging market conditions in Automotive and Logistics.
• Unusual items and non?cash impairment totalling $249.8m.
• Includes ongoing investment in easyauto123.
• Refrigerated Logistics division increased PBT.

Business Performance

AHG remained in compliance with all its banking covenants and is currently in advanced discussions with its banks to refinance components of its debt facility that mature in April 2020. The Company has taken the decision to close several underperforming businesses, which is reflected in the unusual items for the period. The Company has a near?term target of a further $23 million in recurring cost reductions for FY2020.

Finance and Insurance Impacts

FY2017: Restricted lending impacted H2.

FY2018: $29m impact in FA from reduced add?on insurance commissions and responsible lending restrictions, Consumer sentiment down on Banking Royal Commission, Finance penetration down to 34% and Turnover in F&I Business Managers as remuneration models changed.

FY2019: Stabilised Business Manager churn, better adapted to new F&I, Opportunity to improve penetration rates, Introduction of new F&I products (GFV only available through dealerships) and No impact expected in FY2019 from FSRC recommendations.

Group outlook

Consistent with the decline in the Automotive market, AHG advises its forecast for full?year Operating NPAT to be now in the range of $52?million to $56?million (previously $56 million to $59 million).

The stock of the company closed the trading session at A$1.895 on 22 February 2019, up by 7.977% from its previous close.

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