2 Cheap’s revenue climbs
NZ Automotive Investments (NZAI) has reported revenue and income of $40.2 million for the half year to September 30, an increase of 29 per cent compared with the same period a year ago.
The parent company of 2 Cheap Cars adds that vehicle sales over the same timeframe were up 11 per cent to 4,281 units.
Underlying earnings before interest, taxes, depreciation and amortisation (EBITDA), including finance income, fell $300,000 to $2.9m.
Net profit after tax (NPAT) came in at $600,000 compared with $1.4m a year earlier, underlying NPAT slipped $400,000 to $1m, a decrease of $400,000, and underlying earnings were 2.3 cents per share against 3.1cps.
In a statement to the NZX on November 29, the company says the overall New Zealand used car market has dropped 7.5 per cent in the six months to September 30. It notes this fall came against a backdrop of a tightening economic environment, inflationary pressure and rising interest rates
NZAI says its vehicle sales in the half year, which jumped substantially from the Covid-19 affected period a year earlier, and an “inflationary uplift in the prices of vehicles sold” drove its increase in revenue and income.
“While vehicle margins have remained stable, the business itself has seen some margin erosion due to lower finance penetration rates since the introduction of CCCFA [Credit Contracts and Consumer Finance Act] lending regulations,” it adds. “Overall the contribution margin is up 7.5 per cent to $7.4m.”
NZAI also notes operating costs, excluding non-recurring costs, have risen 9.3 per cent to $4.5m, “in large part due to investment in marketing which had been curtailed during the peak years of the pandemic”.
The half-year report also highlights that the impact of the omicron outbreak in the first quarter and non-recurring costs of $700,000 associated with significant changes at board and management level this year led to the drop in unaudited NPAT.
At the same time, total net operating cash flow has improved to $4.6m, up from $1.2m for the same period last year mostly because of reduced inventory levels and a decrease in its loan book.
As of September 30, NZAI says it is in compliance with all banking covenants and has cash of $6.2m, net debt of $4.4m and total equity of $15.4m.
Gordon Shaw, interim chief executive officer, says while it had been a challenging period for the company, steady progress had been made in stabilising the retail business.
“We have appointed a new general manager sales, a marketing manager and digital marketing team to further drive sales,” he explains.
“We expect to make an announcement regarding the appointment of a new CEO prior to Christmas and are also in the process of appointing a new auditor.
“Discussions continue with alternate lenders regarding replacement of our finance facilities.”
Auto retail
The automotive retail business 2 Cheap Cars sold 4,281 vehicles in the half year to September 30. This increase, together with inflationary factors, lifted unaudited revenue from vehicle sales by 30 per cent to $39.7m.
“The government’s new clean car discount scheme introduced in April has influenced vehicle sales across the industry,” says NZAI in its report to the NZX. “2 Cheap Cars continues to be well positioned to meet the increasing demand for electric and hybrid vehicles.
“In HY23, the number of EV/HEVs sold as a proportion of total vehicle sales increased to 40 per cent, up from 21 per cent in the same period last year.
“In another significant movement, online vehicle sales accounted for 23 per cent of total sales, more than doubling from nine per cent in HY22.”
NZAI adds that 2 Cheap Cars has an estimated market share for the six months of 6.5 per cent, up from 6.4 per cent in the same period last year, but slightly down from the first quarter as the sales and marketing team was re-established and enlarged. The number of vehicles sold with finance was down 10 per cent to 1,128 units.
The 2 Cheap Cars operation has also grown its dealership network by renewing the lease on an expanded Wairau Valley site on Auckland’s North Shore, enabling 25 per cent more vehicles to be accommodated.
Finance company
The board says it has been considering NZ Motor Finance’s strategy, and whether that remained the most appropriate use of capital.
As a result, lending was paused in June, with the loan book reducing from $6.8m at March 31 to $5.6m at September 30. The board is continuing to review options.
Focus for full year
The NZAI board adds that it remains focused on “stabilising and reinvigorating” the retail business. It aims to do this through:
• The targeted expansion of the dealership distribution network
• Investing in brand marketing and digital engagement campaigns
• Improving third-party finance and insurance penetration rates
• Improving core supply chain capabilities – vehicle purchasing and in-sourcing of services
The Board says it has retained the existing strategy for now but is in the process of reviewing it.
“In January 2023, the government will introduce a new clean car import standard scheme to encourage vehicle importers to target lower-emissions vehicles.
“Initial modelling under this credit-based scheme, indicate that 2 Cheap Cars will be in a credit position for FY23 and FY24. Further opportunities to leverage this scheme are also anticipated, including through the trade of credits.”
