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Lockdown blow for 2 Cheap sales

Profits warning issued, but business expected to “bounce back” when Auckland’s alert level drops.
Posted on 15 September, 2021
Lockdown blow for 2 Cheap sales

NZ Automotive Investments (NZAI) has warned its half-year profits will drop in the wake of Auckland continuing to be in Covid-19 lockdown.

The company, which owns 2 Cheap Cars, now expects underlying net profit after tax for the six months to September 30 to be between $1.4 million and $1.6m – down from $1.87m in the prior comparative period.

With Auckland remaining at alert level four until at least 11.59pm on September 21, its business continues to be affected by a reduction in car sales, vehicle processing and associated revenue reductions.

David Page, chief executive officer, says the company remains in compliance with all bank covenants and, as of September 14, was in a solid financial position with cash balances of $5.4m and net debt of $3.7m.

Since the Covid-19 restrictions have been in place, 2 Cheap Cars was able to trade at its six dealerships outside Auckland at alert level three through its digital online click-and-collect capability, and closer to a full extent at level two.

However, the company’s performance has been affected by the continued level-four closure of its six dealerships and its vehicle-processing hub in the country’s biggest city.

“Once Auckland moves down alert levels, management expects the business to bounce back in the second half of the financial year as it did last year after the April-May lockdowns,” says Page, pictured.

“Based on last year’s performance at level two, vehicle sales in affected dealerships are expected to resume back close to full levels. 

“From alert level three, the Auckland vehicle-processing hub can also resume processing cars for supply to dealerships. 

“However, any prolonged extension of level four or three restrictions would have a further material impact on financial performance over the rest of the financial year, depending on the duration and geographic scale of the restrictions.

“As announced at the recent annual shareholders’ meeting, prior to lockdown the business was performing well-ahead of the same Covid-19 affected period last year.”

The company had already announced it has secured a lease of new premises in Onehunga for its vehicle-processing hub, with the move away from the current site in Mount Wellington expected to be completed by February 2022. 

Page adds: “Among other things, it is expected the new premises will improve efficiencies and provide expanded capacity to process cars ready for sale.

“As a consequence of the move and rearrangement of its leases, NZAI is expected to benefit from a one-off, non-recurring gain of approximately $0.8m before tax in the second half of the current financial year. 

“The net benefit will be used to invest in the business as part of the company’s strategy for growth. 

“The ongoing lease and related premises costs from the move to the Onehunga site are not expected to be materially different from the current lease arrangements.”

The company expects to release its half-year results at the end of November.