‘Difficult’ year for 2 Cheap’s owner
The owner of 2 Cheap Cars has reported a drop in revenue and profits after a “difficult” year to the end of March 2022, but it says sales and foot traffic at its dealerships have improved at the start of the current financial term.
NZ Automotive Investments (NZAI) announced its audited financial results to the NZX on May 30, which reveal revenue and income of $66 million for FY22, which was down $100,000 from the previous year.
Actual net profit after tax (NPAT) fell $600,000 over the same period to $2.6m, and underlying net profit after tax came in at $1.7m compared with $3.8m a year earlier.
Other key figures in its full-year results include net operating cashflow – excluding loan book lending – decreasing by $6.8m, underlying earnings of four cents per share.
David Page, chief executive, says: “The last financial year has been a difficult one for the business with the Covid-19 restrictions having a greater impact than in FY21, with our dealership network being restricted from fully operating for a total of 108 days.
“The reduced ability to trade during the lockdowns and pandemic-related uncertainty impacted buyer behaviour, while the omicron outbreak in January and February meant more stringent self-isolation with the business not experiencing the same level of bounce back in sales previously experienced after the first lockdown in the prior financial year.”
Page, pictured, adds that the lockdown in August last year provided an opportunity for the vehicle processing hub to review stock and process vehicles freeing up future capacity.
“While the decision to bring this initiative forward was made to improve future processing capacity and to help enable a stock clearance strategy ahead of the move to new premises, it did absorb more time and incurred more cost to resolve than had been anticipated.”
The lower volume of vehicle sales and the new Credit Contracts and Consumer Finance Act lending standards meant 2 Cheap Cars’ finance and insurance income was impacted in the second half of the year.
“The changes to lending standards made it more difficult for some customers to access consumer finance, and also increased the time for our third-party providers to process applications,” says Page.
He notes the second half of the year was also impacted by an unexpected strengthening of the New Zealand dollar against the Japanese yen. This affected the company’s foreign exchange hedge position with respect to committed inventory purchases across the FY22 balance date, resulting in an adverse impact on net profit after tax.
Adding detail to the final figures from the past financial year, NZAI highlights the rearrangement of the company’s leases associated with the shift of the vehicle processing hub from Mt Wellington to Onehunga realised a one-off, non-recurring gain of $900,000. This resulted in NPAT of $2.6m and underlying NPAT was therefore $1.7m.
The company says net operating cashflow, excluding NZ Motor Finance lending decreased by $6.8m due to the timing of inventory purchases, in particular a prepaid shipment of $3.2m at the end of March 2022.
Page adds NZAI’s balance sheet remains solid, with $3.8m in cash and net debt of $8m as of March 31.
The board has approved a final gross dividend for the financial year of 0.88 cents per share to be paid on June 24, which takes the total gross dividend to 3.1 cents per share for FY22.
Automotive retail
The Covid-19 restrictions meant 2 Cheap Cars was restricted from fully operating for 108 days, or 30 per cent of the year, with 63 of the impacted days falling in the second half of the financial year.
Revenue fell by 2.1 per cent to $63.4m and the business sold 7,882 vehicles, a drop of 325 units from the previous year.
“The reduction in the number of vehicles sold was primarily offset by the ability to raise selling prices,” explains Page.
“In the first half of the year the business purchased a greater number of vehicles than in the prior comparative period as part of a plan to build stock ahead of shipping and logistics challenges and potential stock shortages.
“The purchase price of these vehicles increased on average by almost 15 per cent – a reflection of macroeconomic factors including a reduced supply of new vehicles globally and a resultant increase in global demand for used vehicles, and regulatory changes in New Zealand requiring better quality and therefore higher priced used vehicles.”
Sales of electric and hybrid electric vehicles almost doubled to 27 per cent of all sales in FY22.
Digital marketing
A click-and-collect option was added to the company’s website during FY22, which was developed on the back of the 2020 Covid lockdowns, says Page.
“This innovation resulted in 39 per cent of all vehicle sales during the lockdown period being completed through the click-and-collect channel, and 16 per cent of all vehicle sales over the whole financial year were completed this way.”
Automotive finance
The NZ Motor Finance loan book grew from $3.8m to $6.8m, an increase of 79 per cent, and it had 889 loans in place at the end of March.
Outlook
“In the early days of the new financial year, the retail automotive division is seeing an improvement in sales and foot traffic, although there remains some economic uncertainty, with rising interest rates, inflationary pressures in an economy emerging from the current Covid pandemic,” says Page.
“By achieving greater efficiencies in the relocated vehicle processing hub and executing on a carefully targeted plan to increase the dealership footprint and a significant uplift in sales and marketing investment, the company is well positioned for growth and development.”
