Today Automotive Holdings Group Ltd (ASX: AHG) released their half-year results to the market for the period ending 31 December 2018 showing a net loss of $225.6 million.
Automotive Holdings Group is an automotive and logistics group with operations in Australia and New Zealand. It has 105 dealerships in Australia making it the largest in the country and has 9 dealerships in New Zealand.
Non-cash Impairment
On 14 February 2019 AHG flagged to the market that it would impair the company’s Franchised Automotive business by $147 million and its Refrigerated Logistics business unit by $79 million, due to soft market conditions.
Managing Director John McConnel attributed the soft market conditions to, “the combined effects of regulatory changes to automotive finance and insurance, the negative wealth sentiment in property prices, particularly in Sydney and Melbourne, and the increased and wider tightening of lending practices…”
Key Results
Here are Automotive Holdings Group’s key results:
- Revenue up 1.6% to $3.22 billion
- Operating EBITDA down 16.2% to $93.4 million (See video: What is EBITDA?)
- Net loss of $225.6 million compared to a prior period net profit of $40.7 million
- No interim dividend declared to boost their balance sheet.
AHG also said their underlying net profit after tax was down 42.5% to $24.2 million with the exclusion of unusual expenses amounting to $38 million from the restructuring or closing of several sites.
Management Commentary
“Automotive retail across the country is tough and that is reflected in the half-year earnings result,” John McConnel said. “That has obviously impacted the share price and while we are not happy with that, the market conditions also presented an opportunity to take some tough decisions and clean up the Company’s balance sheet.”
“That process and the consequential accounting adjustments are very deliberate and focused on simplifying AHG’s operations so we are ready to capitalise on opportunities.”
More Pain To Come
AHG announced a temporary suspension of their dividend policy until their targeted gearing range of 1.5-1.75x was reached. However, they didn’t provide any indication as to when it may resume.
Nonetheless, AHG guided for another $23 million in restructuring costs in FY2020 as they close under-performing businesses.
Rask Perspective
The market has priced AHG shares for weak consumer confidence and spending in the near future and it is hard to disagree with that. However, due to the inability of this business to grow without additional cash it is not a business I am interested in adding to my share portfolio.
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