Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Peter Warren Automotive Holdings Ltd (ASX:PWR) reported a 2.2% increase in total revenue to $1.23 billion, driven by growth in used cars, service, parts, and finance.
• The company successfully reduced inventory levels by more than $16 million, improving stock health and reducing holding costs.
• Strong growth was observed in high-margin after-sales services, with service revenue up by 10.2% and parts revenue up by 4.3%.
• The company declared an interim dividend of $0.06 per share, reflecting confidence in its financial stability.
• Peter Warren Automotive Holdings Ltd (ASX:PWR) maintains a strong property backing with $225 million in property assets, representing a net debt to property ratio of 37%.

Negative Points

• The underlying profit before tax (PBT) was impacted by a $30 million reduction due to new car oversupply, affecting margins.
• Gross margins decreased by $13.3 million, primarily due to a $29.3 million reduction in the new car department.
• Operating expenses increased by $6.9 million, partly due to inflation and acquisitions.
• Interest expenses rose by $4.8 million, attributed to higher inventory levels and increased interest rates.
• The market remains challenging with ongoing pressure on new car margins due to oversupply and competitive dynamics.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with ASX:PWR.

Q: Can you provide insights into your inventory management strategy for the second half of the year? A: Andrew Doyle, CEO: We are focusing on moving aged stock and ensuring the right mix of new stock aligns with market demand. We've reduced inventory by over $16 million and aim to maintain a healthy stock mix through collaborative planning with OEMs.

Q: Are there additional measures being taken to reduce operating expenses (OpEx) in the second half? A: Victor Cel, CFO: Yes, we have ongoing cost reduction projects and expect inflation to remain at current levels. We aim to achieve further cost savings in the second half.

Q: The finance and insurance (F&I) revenue growth was modest compared to other segments. Can you explain why? A: Victor Cel, CFO: The modest increase in F&I revenue is due to a lower number of new vehicles sold. However, our finance sale revenue per unit remains strong.

Q: How has the business performed since January, particularly in terms of margins? A: Andrew Doyle, CEO: While the VA data showed a 3% reduction in January, we've seen more activity recently. Margins have been consistent, and the rate of decline in order intake is slowing, indicating a more positive phase.

Q: With the market being fragmented, do you see more acquisition opportunities at lower multiples? A: Andrew Doyle, CEO: We are always open to strategic acquisitions, especially in a fragmented market. We approach opportunities carefully to ensure they align with our strategic goals.

Q: Are there any specific brands or suppliers under scrutiny for potential reassessment? A: Andrew Doyle, CEO: We continuously evaluate our brand portfolio to ensure alignment with customer demand. While we have strong partnerships, we will consider changes where necessary to optimize performance.

Q: How do you view the profitability of new versus used vehicles in the current market? A: Victor Cel, CFO: Used car margins remain positive due to tight supply. New car margins are under pressure due to oversupply, but we expect them to stabilize over time.

Q: What management initiatives are in place to offset potential new car margin pressures in the second half? A: Victor Cel, CFO: We focus on inventory management, careful vehicle ordering, and maximizing high-margin revenue streams like service and parts. We also emphasize performance management across our teams.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.