Though recent acquisitions and business strategies are bearing fruit, commercial truck and trailer parts company MaxiPARTS (ASX: MXI) has struggled with flattened revenue. That’s because of a slowdown in transport activity on the East Coast in March and April, combined with increased pricing pressure and ongoing cost inflation.
Due to the slowdown, its underlying sales in H2 FY24 are expected to be in line with H2 FY23’s $91 million. Market competitors’ pricing behaviour is becoming more inconsistent, putting pressure on volume and margins.
Moreover, cost inflation remains a challenge. The labour market for experienced staff remains very competitive, putting pressure on salary and wage rates in the short term. Overall, the ongoing inflationary pressure combined with short-term increased costs associated with integration activities is impacting H2 FY24 results.
On a relatively brighter side, MaxiPARTS is seeing positive outcomes being delivered from its strategic product programs and its national expansion. For example, its Japanese parts program has continued to grow throughout the financial year, with sales for January to April 2024 being more than 35% higher than the prior comparative period.
During the period, it undertook a few strategic geographic moves. The Company completed the relocation of the Port Hedland branch, consolidated the Perth retail businesses, combined the traditional MaxiPARTS Western Australia sites with the acquired Independent parts business onto a common ERP system, and is on track with the rebranding activity.
Now, it is working through the acquisition accounting entries as part of the full-year reporting and audit process. MaxiPARTS anticipates allocating about $3.5m of the intangible assets acquired in the Independent Parts (IP) acquisition to key customer relations, which will see an annual non-cash amortisation charge of $0.35m incurred moving forward, with a pro-rated impact in FY24 of approximately $200k.
Finally, the Forch Brisbane operations have been integrated into Forch Australia. In May last year, MaxiPARTS acquired 80% of Forch Australia, a distributor of workshop consumable parts. In November, the Company made two other major acquisitions: IP, a leading Western Australian distributor of truck and trailer parts and Förch Brisbane.
The Forch business is growing at a rate greater than 20%, in line with its previously communicated expectations. The profitability of the segment and accelerated growth rate are currently being impacted by the new employee establishment cycle and the revenue lag impact of new site setups, as customers generally draw down their existing stock levels in the first few months.
For the final FY24 results, the Company anticipates sales in the range of $239m to $244m, EBITDA between $22.5m and $23.1m, and NPBT between $9.6m and $10.1m.
The business will continue to review and implement initiatives focused on supplier cost synergies, cost base reduction opportunities and working capital improvement where possible. It will also continue to focus on key customer acquisitions in both MaxiPARTS and Forch.
The short-term reduction in activity was unexpected. Typically, the commercial parts market is resilient through macroeconomic cycles. Given the variability of trading over recent months, MaxiPARTS has emphasised the need for more time to understand the renewed market sentiment.
Alinda is a Business Reporter for The Sentiment
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1 Comment
Shraddha13
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