Profit drop for 2 Cheap
2 Cheap Cars has reported net profit after tax (NPAT) of $1.67 million for the half-year ending on September 30, down from $3.2m in the same period of last year.
For the reporting period, revenue and income was steady at $41.98m while gross margin was down to $9.06m from $10.3m.
Underlying EBITDA, including finance income, was $3.8m for a decrease from $5.7m, underlying NPAT was $1.67m, underlying earnings per share were 3.7 cents versus 6.9c and vehicle sales totalled 4,119 units for a nine per cent rise.
These results, although in line with guidance, highlight the prolonged economic downturn and consequent challenges faced by the automotive retail market, says chairman Michael Stiassny, pictured.
While revenue and income remained steady, there was a general decline in consumer spending and intensified competition in the used-vehicle sector, which has “put pressure on margins and impacted profitability”.
“Shifting customer demographics and preferences have also affected finance and insurance penetration rates.
“While sales volumes have increased compared to the same period last year, it’s important to note the previous period was affected by shipping bottlenecks that were resolved in the first quarter of financial year 2024.
“The group’s cost management and operational efficiency improvements, including insourcing initiatives, have helped ease some margin pressure.
“The group ended the half-year with $2.54m in cash and stable debt. Inventory was well-managed to match supply with shifting market demand, reducing excess costs.
“However, continued profitability pressures and fluctuations in vehicle sales underscore the challenging market conditions.”
A substantial part of 2 Cheap Cars’ business has historically been linked to immigration, driving the company’s strong 2023/24 performance. However, current low immigration levels and the severe economic downturn are negatively impacting its business and the broader automotive market.
To address these ongoing challenges, the company says it’s focused on actions to ensure it remains competitive. This strategy will likely involve maintaining lower margins for an extended period to achieve greater market penetration and boost profitability.
Chief executive officer, David Sena says: “Since founding this business in 2011, I have never witnessed market conditions as volatile as those we currently face. The rapid shifts and unpredictability are truly unprecedented in our company’s history.
“While we have successfully maintained financial stability, our focus on operational discipline and cost management is stronger than ever.”
The board has declared a half-year interim dividend of 3.06 cents per share gross, representing 60 per cent of underlying NPAT for the period. The record date for the dividend is November 22 with payment scheduled for December 6.
“This decision reflects the group’s commitment to delivering shareholder value while maintaining prudent financial management.”
The sustained economic downturn, subdued trading results in October and persistent market volatility has heightened uncertainty around 2 Cheap Cars’ second-half performance.
It is adopting a conservative outlook with the objective of maintaining profitability levels achieved in the first half while “continually striving” for further growth.
Stiassny says while the business has been performing well in the circumstances, a cautious approach is warranted given ongoing market unpredictability.
“The business is tightly managed and efforts to optimise operations and strengthen our balance sheet provide a resilient foundation,” he adds.
“However, we remain realistic about the hurdles ahead as economic conditions continue to impact consumer sentiment and behaviour.” The figures included in this report are unaudited.
