AMA Group has reported a net loss of $148 million for financial year 2021-2022 (FY22) after revenue fell by eight per cent to $845 million. It is a deeper loss compared to the previous year, where the company posted a net loss of $99.1 million.
Earnings before interest, tax, depreciation and amortisation (EBITDA; normalised, post-AASB 16) was $21.8 million with cash on hand of $52 million, both of which exceeded guidance provided at the May investor day.
According to AMA, a significant part of the loss was made up of a one-off $80.7 million impairment of goodwill related to Capital S.M.A.R.T and other ‘Drive’ sites, along with a $24.8 million impairment for sites closed or planned to close. The result was also affected by a 14 per cent reduction in car repair volume, increased cost of raw materials and consumables, issues with parts availability, and lengthened repair lead times. The company suffered a trend towards lower levels of low impact collisions due to advancements in vehicle technology, resulting in longer than average repair days.
Another factor was a substantial labour shortage and absenteeism driven by COVID-19 infections, close contact rules and other illnesses which reduced the labour available to deliver volume.
Despite ongoing challenging operating conditions, AMA said it maintains a strong financial position with sufficient cash reserves to manage through near-term challenges associated with labour and parts currently affecting volumes and margins.
In a joint letter to investors, AMA Chair Anthony Day and CEO Carl Bizon said FY22 was not the year they had hoped for or expected. “Like many of our stakeholders, we are frustrated by the impacts that the external environment has had on the company operations. However, we have a clear pathway focused on prioritising delivering margin expansion, rather than absolute site numbers, repair volumes and revenue,” they said.
“The first half of the year was characterised by ongoing COVID-19 pandemic-related lockdowns, which resulted in low traffic levels and therefore, low repair volume. This was particularly noticeable in Melbourne and Sydney, the Group’s largest network areas.
“Board and management had expected to see more “normal” operating conditions in the second half of the year. However, the early months of 2H22 saw continuing COVID-19 related low traffic volumes, as its lingering effects, including self-isolation to avoid contracting COVID-19, materialised. This quickly evolved from a scarcity of volume to a scarcity of labour. Although repair volumes began to return, COVID-19 infections and associated isolation requirements combined with the flu season and skilled labour force shortage led to reduced repair volume throughput. This impacted the Group’s ability to absorb overheads, therefore affecting margins.”
FY22 was also impacted by significant inflationary pressures due to the global environment, the increasing complexity and cost of repairs, and historic fixed price models, affecting margins.
Commencing May 2022, all insurer partners were approached and advised of updated labour rates, average cost models, and additional charges across the Non-Drive and Drive networks, excluding Capital S.M.A.R.T. AMA reported broad recognition by insurers of the need to realign pricing to reflect the current environment, but chose to exit some contracts – representing less than 10 per cent of revenues – where insurers were unwilling to adjust pricing adequately to “reflect the current inflationary environment”.
“AMA Group is no longer willing to accept profitless repair volume and revenue at any cost to build scale – this change of philosophy has resulted in the loss of some repair volume,” the company said. “As a result, network optimisation activities in FY22 saw the rationalisation of several sites.”
According to AMA, the ongoing viability of average pricing models continues to be evaluated given the refusal of some insurers to “adequately consider” inflationary environment in pricing discussions.