AMA Group has concluded its price negotiations with Suncorp. This has resulted in an arrangement that more Capital S.M.A.R.T sites can undertake work outside of the purely driveable scope to cut down on car movements and that the network can use more non-OEM parts to keep costs down. The Group will also be receiving transitional financial support from Suncorp as it undertakes these operational changes.
Capital S.M.A.R.T will see a goodwill impairment of $58 million, which will leave the unamortised portion of the MRSA contract held on the Capital S.M.A.R.T. balance sheet at a value of approximately $166 million (AMA Group purchased Capital S.M.A.R.T for $400 million in 2019). AMA Collision is likely to see an impairment of goodwill of approximately $50 million. AMA Group provided revised FY24 guidance of between $86 and $96 million normalised, post-AASB 16 EBITDA.
The company says that while the details of the new pricing and surrounding terms are commercially sensitive, it can disclose the following key features of the agreement:
- The new pricing will apply to all repairs booked from 1 July 2023 and returns the arrangement to annual pricing reviews with a clear re-pricing mechanism.
- The annual re-pricing mechanism provides for price to be adjusted with reference to industry specific inflationary measures with additional mechanisms to capture material changes in severity, up to agreed tolerances.
- An additional mechanism allows for price renegotiations for significant external events where inflationary measurers exceed agreed tolerances. The arrangements include transitional support while AMA Group implements several operational initiatives throughout FY24, which are planned to improve efficiency and profitability of Capital S.M.A.R.T.
- A program for converting a majority of Capital S.M.A.R.T sites to undertake a broader range of severity repairs and thereby reducing vehicle movement between sites.
- Increased use of non-OEM parts to reduce costs.
- Adjusting business processes and further employee training to realise operational efficiencies.
As a result of the revised pricing agreement, AMA Group expects Capital S.M.A.R.T. to contribute to AMA Group EBITDA in the range of $32 – 36 million on a post-AASB 16 basis/ $16 – 20 million on a pre-AASB16 basis (excluding approximately $7 million of rebate benefits captured within Group results) in FY24.
Having concluded the Capital S.M.A.R.T. re-pricing negotiations, AMA Group provides revised FY24 guidance of between $86 and $96 million normalised, post-AASB 16 EBITDA.
This guidance reflects:
- A more modest outcome for Capital S.M.A.R.T. pricing compared to original forecast.
- A more conservative outlook for AMA Collision based on the observed run rate performance and margins in 2H23, which is also likely to lead to impairment of goodwill of approximately $50 million for that business in the FY23 accounts.
- A slower than previously forecast ramp up in ACM Parts (which adversely impacts annual guidance by $4 – 5 million compared to year end run rate).