Colonial Motor Co cautiously optimistic about 2018

Colonial Motor Co, which listed on the NZ stock exchange in 1962, is cautious about forecasting in the year ahead despite its strong returns in 2017 and continued demand for new vehicles.

At the motor vehicle distributor's 99th annual meeting in Wellington this afternoon, chair Jim Gibbons said it was difficult to give accurate forecasts from month to month, let alone six months ahead, but noted the first quarter to Sept. 30 had improved on last year and produced an excellent result.

New car sales have been breaking new records in recent years as an expanding population, robust employment growth and strong tourism stoke demand for vehicles, while at the same time cheap credit and a strong exchange rate makes it easier to buy imported automobiles. Numbers released by the Motor Industry Association today showed new vehicle sales rose 5.6 percent in October, hitting a new record for the month and keeping sales on track to hit their highest ever level this year.

However, Gibbons warned it "does not take much to deflate optimism", and total registration numbers weren't the full story, as there is no way to separate registrations measuring customer demand from registrations representing franchisors getting rid of old inventory: "One is profitable, and one is not."

In the year to June 30, Colonial Motor Co lifted annual profit 4.2 percent to $22.2 million. Revenue fell 1.4 percent to $854.8 million due to the sale of a short-lived franchise agreement, but sales volumes were up 14 percent, underpinning the company's improved profitability.

Gibbons said the development of electric vehicles was a risk, but the company was prepared for it. He said new electric vehicles cost twice as much as conventional cars with similar specifications, and so weren't a mass-market prospect at this point.

Ford and Mazda have both indicated they will begin selling all-electric vehicles by 2019/2020, and Colonial Motor Co would expect to have electric vehicles from 2020 given lead time, chief executive Graeme Gibbons said.

"The issue is how will they be sold - will the franchise model, which has been part of this company for over a century, continue to be a successful arrangement?" Jim Gibbons said. "The company has had to adapt to changes in the past, and it is up to the company to ensure it can provide more than the franchisor can itself. Financially we are well placed to adapt to changes."

The chair said the company's preference to own key operating properties was an element of its financial planning for the threat.

"When faced with once in a decade major upheavals, direct ownership has allowed the company to adapt," Gibbons said. "In the 1990s the company had to shrink as the new vehicle market went through 10 years of decline. In the 1980s most of our dealerships had to exit the tractor business. The current environment is one of growth."

Directors Stuart Gibbons and Denis Woods were re-elected to the board unanimously. At the end of the meeting, one shareholder asked that the board consider appointing a female director when a director next retires - "it has been 100 years almost, and I think it's high time."

The company's shares last traded at $7.62, up 8.9 percent this year.

(BusinessDesk)