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Colonial faces earnings drop

Company says clean car discount’s axeing has had negative impact on its dealerships.
Posted on 19 January, 2024
Colonial faces earnings drop

Colonial Motor Company is bracing for a 30 per cent drop in its half-year earnings to the end of December last year, with the demise of the clean car discount (CCD) a key factor behind the decrease.

Ashley Waugh, chairman, has confirmed Colonial’s earnings for the 12 months to June 2024 are also unlikely to match the record returns of the previous two financial years as a result.

In an update to the NZX, he notes the company signalled at its annual general meeting in November last year that earnings for the current financial year were likely to drop.

Waugh, pictured, explains Colonial also forewarned the government’s axeing of the CCD would negatively impact sales of internal combustion engine (ICE) vehicles, in particular up to December 31, and “this has proved to be the case”.

“The anticipated consumer delay in purchasing our light commercial range and SUV products and the weaker demand environment became evident through November and then materially worsened in December,” he continues. 

“For context, light commercial vehicle registrations across New Zealand were down nearly 50 per cent for the December quarter, driven by December itself being the lowest non-Covid month for registrations in this segment since January 1999.

“This impacted our car dealerships in two ways – the deferral of vehicle sales to post January 1, 2024, and the cost of holding inventory for an extended period in a high-interest-rate environment.”

He says the combination of these effects suggests the company’s half-year earnings to December 31, 2023, will be about 30 per cent lower than in the same period in 2022.

About half of this decrease occurred in December, but Waugh notes this needs to be taken against the previous two comparative half-year periods in 2021 and 2022 being record results.

“On the positive side, orders that had been taken, but their delivery deferred to post-December, are flowing through the system now and will continue to do so during the current quarter,” he adds. 

“Heavy truck sales are anticipated to remain robust in the second half.”

Waugh says in the January 18 guidance update that it will take until well into the current quarter before the company knows how significant any turnaround in the overall vehicle market will be. 

The company’s results for the half-year to December 2023 will be published by the end of February.