AHG flags profit downgrade, write-downs

Perth-based Automotive Holdings Group will incur a $35 million write-down hit from the closure of some of its underperforming businesses, in response to the weak market for car retailers combined with recent regulatory changes by the corporate watchdog.

AHG said it expected to save about $10 million a year from the closure of a number of its non-performing businesses, but will record a one-off $35 million restructuring cost in its FY17 results.

‘‘In Western Australia, the new vehicle sales market has further declined and is now down 10 per cent (for the) year to date in CY2017,” AHG said.

“Although AHG has grown market share in Western Australia over the current year, the market contraction has led to lower-than-expected sales revenue and earnings from the automotive business.”

AHG said tighter consumer credit conditions in the automotive financing market undertaken by the Australian Securities and Investments Commission also contributed to lower margins during the financial year.

“The weakening east coast auto market, combined with the tighter credit conditions, has also reduced the capacity of east coast earnings to provide cover for WA,” it said.

The car retailer now expects to report an operating profit of between $87 million and $89 million for FY17.

That’s down from a $90 million target set in AHG’s half-year results in February.

AHG managing director John McConnell said the tightening conditions in the automotive market had been an increasing challenge in the half year.

“Our focus at the moment is on making structural changes to meet the changing market conditions, and cost reduction will be a strong focus over the near term,” he said.

“We continue to see the benefits of holding a diversified automotive portfolio both in terms of brands and geography across Australia and New Zealand and remain well positioned in the industry.” 

AHG said the restructuring program in its refrigerated logistics division was delivering improved earnings, and as a result it expected to see higher earnings in the second half of FY17 compared to the previous corresponding period.

AHG shares were 9.1 per cent lower to $3.07 each at 1pm.