The AMA Journey part three - Australasian Paint & Panel

Welcome to the final instalment of our look back at the AMA journey, grab a brew as this is a lengthy read.

The AMA Group's upward trajectory starts to slow in 2020.

While the AMA juggernaut had been steaming into the profitable heavy vehicle repair sphere buying a number of businesses around the country, the next largest group Royans decided to take them on. The third generation company, founded in 1944, stuck a deal with The Growth Fund and now had the means to grow its network by acquisition - another industry duopoly loomed.

In February 2020 the group’s current CEO Carl Bizon is appointed to the AMA board as an independent non-executive director. In the press release it was announced that: “Bizon has held senior executive roles with world leading manufacturing and distribution businesses in various sectors of the automotive industry. He most recently served as president and CEO of Horizon Global and prior to that was CEO of Jayco Corporation and president and managing director of TriMas Corporation’s Cequent subsidiaries in Asia Pacific, Europe and Africa.’

In February AMA published its first financial report with a loss for the last half of 2019 and for the first time in many years there was no shareholder dividend paid and the share price dropped to 53c against a 12 month high of $1.51. There was an overall loss of $11,602,000 and a drop in operating profit from $18.8m to $2.6m. The acquisition costs of buying SMART and ACM were referenced as causes, as well as reduced volume because of the dry weather, static pricing of repair and rising costs associated with parts and new vehicle technologies (ADAS) and the reduction of new car sales. The number of shops at 31 December was reported to be 188 - 137 shops in the existing panel division and 51 from the SMART network.

Here the juggernaut admits to facing a serious road block. The ‘factory style’ repair model which had served the group so well had been disrupted by ADAS technologies and this was only going to increase as the repair landscape began to quickly swell with ADAS equipped mass market cars. In addition, the lack of profit was clearly down to not charging enough for repairs - there were clearly serious flaws in the 'fixed price' repair model in a market of technology-laden cars. This was addressed with an announcement that the group had revised pricing with Suncorp. Revisions were no doubt also negotiated with other work providers.

Meanwhile ousted Joe Walsh understood the ADAS issue very well and went into partnership with Adrian Parkes to grow ADAS Solutions Australia and began working with a group of repairers in Queensland.

All of this is against a backdrop of a looming lockdown as COVID-19 infections continue to rise. Once lockdown hit and the ASX took an instant hit, AMA shares were trading at a low of 15c. Fast forward to August and the full annual report and AMA reports substantial further losses. While operating revenue increased 46.5% from $606.7m for FY19 to $889m for FY20 the operating profit decreased from $34m profit to $46.9m loss. Net profit was down by 426%, even after receiving $21m in JobKeeper. The report said that COVID-19, dry weather and buying SMART and adopting a new accounting system meant that ‘the statutory results for FY20 are not directly comparable to FY19.’ There was, again, no shareholder dividend paid.

Capital SMART, which AMA paid $400m for had added $234,545M to revenue and reported a FY20 $73,556 loss. SMART has also changed its paint supplier from PPG to Glasurit which cost AMA a smidge under $10m to pay out PPG.

On the subject of paint suppliers: ‘The Group received a further tranche of the market incentive instalment from its paint supplier in the amount of $59.5 million (inclusive of GST). This was used to fund the acquisition of Capital SMART.’

The report said that the acquisition for the year had added 61 sites although the number of group sites that have been closed in the financial year are not included and the total number of sites was not reported for the first time.

There has been a great deal of speculation over how many shops were closed during the lockdowns and in fact how many shops were closed in general that had been bought.

In November 2020 AMA sells the ACAD business for $70m (apart from ACM Parts and Fluiddrive) to GUD to retire debt. The ACAD business is the aftermarket arm of AMA and includes East Coast Bullbars, CSM Service Bodies, Automotive Electrical & 4WD Accessories, Uneek 4x4/Barden Fabrications and NZ aftermarket accessories maker Fully Equipped). The share price is up at around the high 70c.

2021 Andy Hopkins departs

At the beginning of February the current legal saga between Andy Hopkins and the AMA board kicks off with accusations flying from both sides. A company whistleblower had prompted an independent forensic investigation by McGrath Nicol. AMA is suing Hopkins : 'for the recovery of amounts in excess of $2.4 million relating to (i) unauthorised expenses incurred by or on behalf of Mr Hopkins as CEO of the Company (c$1 million) and (ii) the repayment of an outstanding loan which is now due and payable (c$1.4 million).’

Hopkins resigns from the company and sells all of his shares for around $24m and Carl Bizon, who has been on the board for a year, takes the CEO position.

When I talked to Hopkins recently he maintains that he has done nothing wrong and that in fact AMA owes him money and not the other way around. He says he wants nothing to do with the company and is selling all of the buildings that he owned that were connected with it.

Since Hopkins left there has been a mass exodus of the senior management team - Steve Bubulj CEO panel division, Peter Bubeck chief commercial officer, Dave Calder the chief operating officer, IT Director Shane Hunter, Dave Fantom group commercial officer and Chief financial officer Stephen Harding-Smith as well as Darren Maloney the acquisitions director and a significant chunk of the HR department. As you can see from the image below (excuse the design, it's not my forte) there is little of the senior management team left.

Hopkins said that he had a succession plan in place before the disagreement with the board. “I had set up a succession plan because it was time for people to grow in their roles - Steve Bubulj would have got my job, the whole business would have shuffled around. We had a lot of acquisitions lined up for this year and a lot of organic growth with insurers. They will never be able to buy panel shops at 2.5-3 times profit like I did,” Hopkins said.

“There’s never been another AMA in this country and there never will be again. In the UK there are 10 consolidators and in the US there are 5 or 6 large consolidators. There was only one in Australia because all the talent was in one company, all of the expertise to run a large MSO panel business. Now that whole team has left and they are in the market so there will be a lot more consolidators in the future, more start ups - which will give the insurers more options,” Hopkins said.

“The bodyshop managers are the kings of the business and many of them have left. When it comes to senior managers how are they going to replace them? It took me 12 years to assemble that team and I know the industry inside out.”

While Repairhub and Motorone have grown their national footprints, the MSO model has not been lost on the independent repair players with a definite trend to owning more shops. Insurers have been known to encourage business owners with whom they like working with to set up other branches. There are other groups currently being formed which will be announced later in the year. Then there’s the franchise model of Fix Auto which is gaining traction and the growth of the networking and buying group Car Craft.

Size does surely matter in this industry and if there’s too small is there too big? Hopkins did manage, briefly, to grow AMA to a billion dollar business - but is it a sustainable model? Over in the UK the largest consolidator Nationwide, who bought the original Gemini shops from the Hopkins brothers back in 2005 went into administration in September last year. The majority of Nationwide’s assets were sold to RunMyCar limited reportedly saving almost 2,350 jobs across 80 sites. The sale included 77 repair sites and three office locations however 540 roles were made redundant and 30 sites were closed down.

Although economic fall out from the pandemic was cited for the business failure the group had not been without its troubles over the years issuing profit warnings and shutting down sites since 2011 saying that they had been impacted by “the decline of claims for smaller repairs of lower revenue but higher margin, which has been faster than that of more extensive repairs with higher sales value but lower margin.”

The group also reported declining profits in 2012. Nationwide was bought by global alternative asset manager Carlyle Group in 2015 for around $78.5m and then went on to make more acquisitions including Just Car Clinics in 2015 taking its national footprint to 98. By July 2020 Carlyle was looking to sell the business which had 115 sites and carried out 300,000 repairs a year according to Sky News. Interestingly Tim Hopkins started up Gemini ARC again in the UK after the five year non-compete expired and it now has 30 sites.

Chris McKie, co-founder and managing director of Vizion Network, the largest repair network since Nationwide's demise, said in a recent interview with the UK’s Bodyshop Magazine: “There is definitely going to be a growth in groups, but we've seen it before plenty of times. Groups expand and then somebody comes in and buys them and everybody thinks it's going to rule the world but in the main these things fail and the whole process starts over again. Belron tried it and that didn't work out, Nationwide gave it a go and obviously didn't succeed and we had Carlisle Group try it and it didn't work. You have to be careful - I believe there's only a certain size of entity that the UK repair industry can sustain or more so accept, because big monsters scare people. Also when you take the entrepreneurs from the equation running these acquisitions you are in a great danger of losing the skill and experience that keeps them agile and efficient.”

In our interview with Carl Bizon he stated that he only wanted to talk about the direction in which the industry is heading but he did want to make a statement about staff, I assume to counteract the industry tom tom drums which say that it isn’t just senior management that was leaving the company.

On the topic of recruitment, he said that AMA Group employs around 3,850 staff across 181 sites. The current vacancies account for about half a full time employee for each site so it was more than manageable, he said. He did note there was a culture of poaching in the industry and that, as the largest player with a skilled workforce, new entities in the market look to AMA to poach. He said that the skills shortage was an issue for everyone, and that AMA was also impacted as it had previously been able to supplement its workforce with 457-Visa workers, and this currently isn’t an option. “We have approximately 300 apprentices inside the business, but the industry is suffering from an extensive period of under investment in attracting apprentices, like many other trades vocations.

“We have a turnover of around $900 million, and we’re profitable,” he said. “We’re the largest entity in the industry, and have a highly skilled workforce.”

Commenting on how the industry might look in five years time he said: “The industry is going to be more dependent on technology with the proliferation of ADAS and other vehicle technologies. It will potentially require substantial investment in equipment, and that sort of capital expenditure may be too daunting for independent businesses who don’t have the economies of scale that we do.

“We currently perform over 400,000 repairs a year, we don’t hesitate at the investment in equipment and in ensuring our employees are skilled and well trained, using the best tools and equipment. Our systems can also produce the data that insurers want to optimise their claims costs.

“There might be smaller businesses who ultimately don’t want to make this investment and who decide to exit the industry.”

Bizon describes his role as establishing the correct corporate leadership and management structure, attracting great talent, and interacting with the shareholders and the board. The centre managers are responsible for each site and they ensure that these run smoothly.

“We will continue to grow, and the industry is likely to face further consolidation. With further improvements in our production techniques across our various businesses, we will strive to become more profitable. We are also able to leverage every dimension of scale our business provides.

“We want to be seen as a natural acquirer for someone who wants to leave the business. We will preserve their legacy, look after their staff and deal with trust and integrity.”

Bizon said that he had simplified the structure of AMA so that it now operates as one business, while still structured as three divisions.

He also reported said that Campbell Jones, the CEO of the Automotive Parts and Accessories group has been overseeing Steve Bubulj’s role and: “has been doing a great job”.

Meanwhile Craig Carey who joined the group with his business Micra Accident Repair Centre in Tasmania in 2016 has been appointed as national head of operations for the Panel division. “We have also appointed chief financial officer and a new general manager of human resources for that division”. Bizon says they are currently interviewing candidates to replace Bubulj: “The senior leadership team of the panel division is being rebuilt, and will set them up for the future” he said. Andrew Mair a former Suncorp executive has become Chief Commercial Officer.

Regarding the statement “We want to be seen as a natural acquirer for someone who wants to leave the business. We will preserve their legacy, look after their staff and deal with trust and integrity.” That will be something AMA has to work on. Looking at just some of the family businesses AMA has bought over the years it’s difficult to see how the legacy was preserved.

Second generation Steve Lozenkovski sold the NSW-based Bears Group to AMA in 2018 which he had built to six sites. Only one remains open. Ray Iversen sold Highlands Smash and Trend Smash Repairs in Brisbane in 2017 both are closed. The Woods Group and SmashCare group are also diminished.

On the subject of closures according to Hopkins the number of AMA shops open is around 140: “There were at one time 200 stores and I would reckon there’s at least 50 closed. At June 30 last year there were 186 sites and of those I had 22 in hibernation which didn’t get opened and another 18 that got mothballed so I’d say there are around 135-140 stores that are open.”

It’s possible that the AMA website might need updating as it lists 4000 workers, 1 billion in revenue and 200 locations.

Whatever happens with AMA Group going forward it has changed the Australian collision repair landscape permanently. In preparing this article I realise just how many articles I have written about the major players here and how widely they were read. When there’s a shift at AMA the ripple effects are far reaching.

I asked Hopkins if he would think about starting out again in the industry: “I love the industry, I love the people,” he said. “I don’t know - let’s see what the future holds, never say never.”

We’ll continue to keep you posted.

Below is a Capital SMART timeline which you can also download.