AP Eagers : Half Yearly Report and Accounts

23 August 2017‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌

Company Announcements Office ASX Limited‌‌

• Record Half Year Net Profit Before Tax of $68.1 million (2016HY: $67.9 million) up 0.3%.
• Record Underlying Profit Before Tax(1) of $68.3 million (2016HY: $66.6 million) up 2.6%.
• Record Statutory Profit After Tax of $49.3 million (2016HY: $49.1 million) up 0.4%.
• Half Year Earnings per Share (basic) of 25.4 cents (2016HY: 26.2 cents) down 3.0%.
• Record EBITDA of $88.8 million (2016HY: $86.7 million) up 2.5%.
• Record Interim Dividend of 13.5 cents per share (2016HY: 13.0 cents) up 3.8%.

The following documents for our half year ended 30 June 2017 are attached:

1. Half Year Report - Appendix 4D and commentary‌

2. Directors' Report

3. Interim Financial Report

4. Auditor's Report and Declaration of Independence‌

These are given to the ASX under listing rule 4.2A and are to be read in conjunction with our most recent annual financial report.

Yours faithfully‌‌‌

The Directors of A.P. Eagers Limited (ASX: APE) are pleased to report a 2017 half year Net Profit Before Tax of

$68.1 million. This compares to a half year Net Profit Before Tax of $67.9 million in 2016, an increase of 0.3% on the previous corresponding period (pcp). Net Profit After Tax for the 2017 half year was $49.3 million as compared to $49.1 million, an increase of 0.4% on the pcp. Earnings per share (basic) for the 2017 half year is 25.4 cents compared to 26.2 cents on the pcp.

Our Victorian and Tasmanian operations produced strong results, while our New South Wales and South Australian operations have continued to perform well. Our National Truck division produced consistently strong results throughout the half year and continues to improve profitability.

Challenging market conditions in the first four months of the year in our largest geographic market segment of Queensland impacted trading performance versus the pcp, although buoyant trading in May and June partially clawed back the decline for the half year. The increase in profitability in May and June was also due to increased dividend income from our strategic investment in Automotive Holdings Group Ltd (AHG) and increased gains on sale of investments and property of $2.1 million year on year.

A fully franked interim dividend of 13.5 cents per share (2016: 13.0 cents) has been approved for payment on 6 October 2017 to shareholders who are registered on 15 September 2017 (Record Date). The Company's dividend reinvestment plan (DRP) will not apply.

(1) Underlying adjustments include property revaluations $0.2 million and benefit from tax refunds associated with previous years' GST payments $0.01 million.

According to Federal Chamber of Automotive Industry statistics, Australia's new motor vehicle sales increased by 0.2% in the half year to 30 June 2017 as compared to the pcp. New vehicle sales in Western Australia, Queensland and Australian Capital Territory decreased on the pcp by -7.1%, -1.5% and -1.1%, respectively. New South Wales and Northern Territory experienced minor decreases on the pcp by -0.1% and -0.2%, respectively. Strong growth was experienced in Victoria (+4.4%) with relatively minor growth in Tasmania (+1.4%) and South Australia (+0.4%).

Private sales decreased by -2.3%, partly offset by a 2.1% increase in business sales. Luxury vehicle segment contracted from 11.7% to 11.1% of total market share, with record sales from brands such as Mercedes-Benz, Jaguar, Mini, Porsche, Infiniti and Maserati, being offset by declines in BMW, Volvo, Land Rover, and Audi.

Australian manufactured vehicles represented only 4.7% (2016: 6.8%) of new cars sold in the national market in the first half of 2017.

Nationally, the Heavy Commercial segment recorded a 7.1% increase with significant increases in light duty trucks and heavy/medium duty sales, +4.0% and +15.0% respectively.

Our Birrell Group acquisition in Victoria/ Tasmania performed strongly in the first half of 2017 benefiting from full integration into the A.P. Eagers operating structure, strong market conditions in Victoria and an improved truck division performance in Tasmania. Encouragingly, these results have been achieved despite a material decline in Holden operations in Tasmania.

The Crampton and Ireland Group acquisitions, while trading below expectations, have now been fully integrated into the A.P. Eagers operating structure and we have started to see improved trading which is expected to continue in the second half of 2017.

Carzoos, while still in its early stages, continues to grow and impress customers with our entirely new way to buy and sell a used car. The key metrics for any start up around rapid growth in awareness, leads and engagement have been supported by exceptionally strong advocacy from our rapidly growing customer base. We are now targeting transactional volume as we switch our investment focus from technology and process testing to more traditional marketing activity aimed at building awareness in a business model we are extremely confident in. We will continue to refine and evolve the Carzoos offering to ensure scalability benefits can be realised and maximised in the mid-term.

We are also pleased to communicate that our Carzoos business has received recent independent, critical acclaim via the International Business Awards, more commonly known as the Stevies. Carzoos has been awarded a Gold Stevie Award in the Most Innovative Company of the Year (up to100 employees) Category from a global panel of judges. This follows Carzoos receiving the award for 'Innovation and Tech Excellence' at the inaugural CXO Leaders Awards in Sydney.

Our strategic 23.00% shareholding in AHG as at 30 June was valued at $255.5 million based on their closing share price of $3.35 per share. While not included in our Statutory Profit after Tax, a before tax unrealised loss of $44.9 million has been recognised in the Statement of Comprehensive Income for the first half of 2017.

Consolidated results

Total revenue increased by 10.6% to $2.034 billion in the 2017 half year, with all business units reflecting increases in vehicle sales. The additional contribution from business acquisitions in 2016 and strong trading in the New South Wales and South Australia car divisions also combined to boost total revenue. On a like-for-like basis, revenue decreased by -1.2% compared to the pcp, impacted by challenging trading conditions in Queensland.

EBITDA increased by 2.5% to $88.8 million in the 2017 half year (2016 half year: $86.7 million). Profit margins declined slightly as indicated by the EBITDA/Revenue ratio of 4.4% (2016 half year: 4.7%) and the NPBT/Sales ratio also declined slightly to 3.3% from 3.7% (2016 half year), again impacted by challenging trading conditions in Queensland.

Borrowing costs were consistent at $12.4 million for the 2017 half year (2016 half year: $12.4 million), with higher average debt (including additional bailment finance for the 2016 acquired businesses) being offset by lower interest rates and hedging costs. The increase in depreciation and amortisation costs of 29.7% to $8.3 million (2016 half year: $6.4 million) reflects the additional depreciation contributed by the businesses and properties acquired in 2016 and the redevelopment of the Jaguar Land Rover building completed in March 2017.

Profit before tax included a half year dividend from AHG of $7.2 million, compared to $5.8 million in the pcp. Segments (2)

Profit before tax from our Car Retail segment for the half year was $45.3 million, a decrease from $50.7 million for the period ended 30 June 2016. Revenue increased by 12.1%, with the increase primarily attributable to the strong trading in New South Wales and South Australia and an additional 3 months' trading from the Birrell Group and additional 6 months' trading from the Crampton and Ireland Groups, offset by lower like-for-like results in Queensland. The strong trading was also reflected in the parts and service businesses with improvements across the Group.