Foreign business and strong local markets steer Carsales.com to record half-year results

carsales.com ASX profit increase revenue South Korea
Carsales.com boosted its net after tax profit by 22% to $71 million for H1 FY 2020.

International markets and a resilient domestic business have driven a record half-year result for Melbourne-based Carsales.com (ASX: CAR).

While the new car market in Australia remained subdued, good levels of demand in the used car sector steered continued growth for the company for the period ending December 2019.

Solid traffic growth on website carsales.com.au throughout the half was a key factor in the increase in used car lead volumes by dealer and private customers.

The site has grown to become the largest online automotive, motorcycle and marine classifieds business in the country, and is believed to attract more Australian customers than any other online classified group.

The October launch of fuel partnerships with Viva Energy and Shell Coles Express was also a highlight of the period, reflecting the use of innovation to deliver value and drive engagement with Carsales members.

Revenue growth

Carsales’ revenue for the six months to December 2019 grew by 5% to $214 million, and was attributed to strong growth in the group’s domestic dealer and private business, along with continued growth in the international markets.

South Korea’s SK Encar website – in which Carsales has an equity share – delivered a “standout performance”, with underlying local currency revenue growth of 13%.

The group’s adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) figure was up 6% to $107 million and its EBITDA margin expanded from 49% to 50% as a result of margin expansion in the core Australian and Korean businesses.

It was partly offset by continued investment in early stage businesses currently operating at lower margins.

The group also delivered a 7% increase in adjusted net profit aided by a strong profit performance from Brazilian business webmotors, in which carsales.com also has an equity share.

Reported profit was up 22% reflecting the benefit of various non-cash gains from asset and option revaluations.

Diversification

Carsales chief executive officer Cameron McIntyre was pleased with the results despite the impact of Australia’s challenging new car market.

“Our performance demonstrates the benefit of the diversification we have in our Australian business and the growing significance of our international portfolio,” he said.

“Revenue growth, earnings growth and margin expansion point to good progress and momentum in the business and the resilience of our business model.”

Dealer performance

Carsales continued to be the key source of used car leads for dealers, with positive growth in enquiry volumes during the period.

“While the Carsales business is significantly weighted towards the used car market, we have been focused on driving opportunities for our dealer partners to support their new car offering,” Mr McIntyre said.

“We hosted our inaugural new car sale event in November which helped stimulate demand in an otherwise subdued market.”

From a finance perspective, the company had developed a product which enables dealers to advertise consumer finance offerings as an integrated option with their listings.

“This product has excellent potential to increase overall finance penetration rates, as it will enable dealers to raise awareness of their native finance offering earlier in the sale process,” Mr McIntyre said.

Private business

Carsales also continued to execute its goal of “facilitating a frictionless buying, selling and ownership experience” for private customers during the period.

Enhancements made to the group’s “Instant Offer” product – which allows private customers to sell their cars in a convenient and transparent manner – were reported to have improved customer experience and sales conversion.

The group rolled out a fuel partnership initiative Viva Energy and Shell Coles Express in October designed to build and enhance engagement with its membership base via a fuel discount.

“During the period, the initiative resulted in a significant uplift in the size and engagement of carsales members,” Mr McIntyre said.

“[We believe it] will allow us to provide more personalised and contextual offers for members across the car ownership lifecycle.”

International markets

Mr McInytre said Carsales has an “attractive portfolio” of international assets led by SK Encar and its premium Guarantee vehicle inspection service which continue to be a key differentiator and competitive advantage.

Increasing penetration of this product was the key driver of revenue growth in the half with significant scope for continued expansion.

Brazil’s webmotors delivered an EBITDA up 29% and 36% compared with H1 FY19.

Finance revenue is now a material contributor to the business comprising approximately 15% of revenue and growing rapidly.

Dealer numbers grew 14% and leads grew 44% as the business continued to build scale. “Brazil’s success continues to provide the strategic roadmap for our earlier stage Latin American businesses in Mexico, Argentina and Chile and reinforces the significant long-term upside potential from our investment in these attractive markets,” Mr McIntyre said.

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