NZ Automotive interim results for Half Year 2023

Wednesday 30th November 2022

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Integrated automotive group, NZ Automotive Investments Limited (NZAI) (NZX: NZA ) has today reported

revenue and income of $40.2m, an increase of 29 percent, for the half year to 30 September 2022 (HY23).

Summary of key results

(Figures quoted are in NZ dollars. Comparisons are made against HY22.)

 Revenue and income: $40.2m, increased 29%1.

 Vehicle sales: Up 11% to 4,281.

 Underlying EBITDA2 including finance income: $2.9m, down $0.3m.

 Net profit after tax (NPAT): $0.6m, down $0.8m (including $0.7m of restructuring costs)

 Underlying NPAT: $1.0m, a decrease of $0.4m.

 Underlying earnings per share (EPS): 2.3 cents per share (cps) against 3.1cps for HY22.

Against a backdrop of the tightening economic environment, inflationary pressure, and rising interest

rates, the overall New Zealand used car market has dropped 7.5% in the six months to 30 September

20223. NZAI vehicle sales are up 11% when compared with HY22, which was impacted by Covid-19

The Group’s half year revenue and income increase of 29% to $40.2m was driven by a boost in sales

volumes against the same period last year, combined with inflationary uplift in the prices of vehicles sold.

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 lending regulations. Overall the

contribution margin is up 7.5% to $7.4m.

Operating costs (excluding non-recurring costs) have risen 9.3% to $4.5m, in large part due to investment

in marketing which had been curtailed during the peak years of the pandemic.

Underlying EBITDA including finance income decreased from $3.2m in HY22 to $2.9m in HY23.

Higher vehicle sales volumes, offset by the reduced performance of the finance and insurance side of the

business and investment in marketing have been primarily responsible for the drop in underlying EBITDA

including finance income.

1 Includes interest income derived from the finance company.

2 Excludes restructuring costs associated with Board changes and other non-recurring consulting costs. Underlying

EBITDA and underlying NPAT are non IFRS measures.

3 Source – NZ Customs and NZTA data.

The impact of the Covid-19 Omicron outbreak in the first quarter and non-recurring costs of $0.7m

associated with significant changes at board and management level has seen unaudited NPAT fall to

$0.6m from $1.4m in the previous corresponding period.

Underlying NPAT reduced from $1.4m in HY22 to $1.0m in HY23.

Total net operating cash flow has improved to $4.6m, up from $1.2m for the same period last year. This

is largely due to reduced inventory levels (and associated prepaid inventory) as well as a decrease in the

loan book.

As at 30 September 2022, the Company is in compliance with all banking covenants and has cash of

$6.2m, net debt of $4.4m and total equity of $15.4m.

Automotive Retail – 2 Cheap Cars

The Automotive Retail business has sold 4,281 vehicles in HY23 which is an 11% increase on the same

period last year. This increase, together with inflationary factors, has seen unaudited revenue from vehicle

sales increase by 30% to $39.7 million.

The government’s new Clean Car Discount scheme introduced in April has influenced vehicle sales

across the industry. 2 Cheap Cars continues to be well positioned to meet the increasing demand for

electric and hybrid vehicles (EV/HEVs). In HY23, the number of EV/HEVs sold as a proportion of total

vehicle sales increased to 40%, up from 21% in the same period last year.

In another significant movement, online vehicle sales accounted for 23% of total sales, more than

doubling from 9% in HY22.

2 Cheap Cars has an estimated market share for the 6 months of 6.5%4, up from 6.4% in the same period

last year, but slightly down from the first quarter as the sales and marketing team was re-established and

enlarged following management changes.

The number of vehicles sold with finance was down 10% to 1,128. This reflects a penetration rate of 26%,

compared to 32% in HY22. Factors impacting this result included the ongoing challenges resulting from

CCCFA changes making it more difficult for some customers to access consumer finance, rising interest

rates in an inflationary environment, and consequent general tightening of household budgets.

2 Cheap Cars has grown its dealership network by renewing the lease on an expanded Wairau Valley

site on Auckland’s North Shore, enabling 25% more vehicles to be accommodated.

Finance Company - NZ Motor Finance

The Board had been considering the 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 31 March 2022 to $5.6m at 30 September 2022. The Board is continuing to review options.

Dividend

No interim dividend is to be declared and underlying EPS is 2.3 cents per share.

Focus for FY23

The Board remains focused on stabilising and reinvigorating the retail business 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)

And, while the Board has retained the existing strategy for now, it is in the process of reviewing this and

will advise the market in due course.

In January 2023, the Government will introduce a new Clean Car Import Standard scheme to encourage

vehicle importers to target lower emission 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.

Interim CEO, Gordon Shaw said that while it had been a challenging period, more recently 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. 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,” Shaw said.

4 Source: NZTA - based on 2 Cheap Cars’ vehicle sales as a proportion of used cars registered in New Zealand for

the first-time between 1 April 2022 and 30 September 2022.

The numbers included in this announcement are unaudited.

Ends

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