AMA Update: Revised Capital S.M.A.R.T Pricing For Suncorp Confirmed

AMA Group has reached an agreement with its largest customer, Suncorp, regarding the pricing of services provided by Capital S.M.A.R.T to the insurer for the period 1 October 2022 to 30 June 2023.

“The interim pricing package reflects cost inflation being experienced by motor repairers and provides incentives for AMA Group to expand capacity within Capital S.M.A.R.T to accept more drivable repairs from Suncorp,” said AMA. “The interim pricing arrangements continue to reflect a volume-based discount to current market pricing.”

The revised pricing for Suncorp was announced soon after AMA Group had informed investors of its quarterly cashflow and activities report for the quarter ended 30 September 2022 (Q1 2022-2023, unaudited), which shows an increasingly bright outlook thanks to positive cash flows, increased pricing, and cost reduction through site optimisation.

The report reveals AMA ended the quarter with a cash balance of approximately $44.4 million, and unused available finance facilities of approximately $1.8 million. Net cash generated from operating activities was approximately $1.1 million, including a $15.3 million corporate tax refund resulting from a recovery of tax carry back losses.

Operating cash flows improved throughout Q1 2022-2023 with September delivering a positive underlying cash flow (including the principal element of leases and excluding the corporate tax refund).

Total cash flow for the quarter included further investment of approximately $3.5 million in inventory build, as the business continues to progress its Supply strategy through ACM Parts (which had strong volume improvement, including record daily parallel import sales in September), and $4.4 million of interest payments (excluding AASB-16 accounting items).

The company said network optimisation activities are largely concluded, with skilled labour resources redeployed. Fourteen sites were hibernated, one site was merged, three sites were exited, and three were converted to Capital S.M.A.R.T, leaving 129 vehicle collision sites in operation.

“As we’ve reduced the number of operating facilities and concentrated our labour force in more fully manned sites, we are positioned for enhanced process productivity and capacity utilisation,” said Carl Bizon, AMA Group CEO.

The Bundle, Queensland corporate office was also closed, with a $0.3 million ongoing annual cost saving by using existing office capacity in the transition to the Melbourne corporate office. Effective 31 October 2022, AMA Group’s principal place of business changed to Level 13, 484 St Kilda Road in Melbourne.

Beginning May 2022, the company approached all insurance partners with updated pricing, including labour rates, average cost models, and additional charges across the Non-Drive and Drive networks, to address the “significant inflation being experienced across all elements of the operating cost base”. The initial discussions were completed in the early stages of Q1 2022-2023, with agreed new pricing going live across the network throughout the quarter.

“These pricing negotiations were generally constructive and positive, and resulted in an ongoing commitment between AMA Group and the insurer partners to regularly engage in price discussions through these times of heightened cost inflation,” said AMA. “At this stage there is no change to guidance as a result of these discussions.

“AMA Group chose to exit some contracts where a mutually satisfactory pricing agreement could not be reached. Removing this unprofitable volume has enabled realignment of our current workforce through the network and the hibernation of several sites. We anticipate that these changes will result in improved site level operating profitability in the coming quarters.”

Quarter repair volumes were similar to Q4 2021-2022. Early in the quarter, repair volumes were impacted during pricing negotiations, and further impacted by the unplanned national day of mourning on 22 September. Volume demand remained strong across the Capital S.M.A.R.T network throughout the period. The greatest constraint was the availability of labour to complete the current work volume.

All Capital S.M.A.R.T valet locations now offer private work to insured customers, enabling repairs that are not consistent with the accident claim to be contemporaneously repaired and billed separately, “improving the customer experience and providing incremental profit opportunity”.

AMA Group reaffirmed its FY2022-2023 guidance of $70 million to $90 million post AASB-16 EBITDA, and FY2023-2024 guidance of $120 million to $140 million post AASB-16 EBITDA.