Coleshill insurance company Accident Exchange sees profits crash
Profits have crashed at Accident Exchange, the West Midlands company that supplies hire cars to drivers who have been in accidents.
Results for the six months to October 31 will show earnings “significantly below management expectations”, the Coleshill-based company said in a trading update yesterday. Full-year results up to April 30, 2009 will also be affected.
It blamed, among other factors, the economic downturn and the fact that more and more motorists are cutting costs by travelling by public transport.
That is leading to fewer accidents, which in turn means that garages are getting repairs done faster leading to reduced replacement vehicle hire periods.
“The increasing probability of an economic recession has clearly impacted customer confidence and commercial morale amongst our predominantly automotive referral base,” the statement said.
Accident Exchange said referral levels from insurers at the start of the second half of its financial year had “broadly returned” to those seen at the same time last year although rental periods are shorter.
The company went on to tell the stock market: “As a consequence of the slowdown in referrals and shorter rental periods experienced in the second quarter, profitability for the six months ended October 31 will be significantly below management expectations.
“As we are only two weeks into the seasonally busier second half it is too early to assess whether the reduced rental days experienced in the first half of the year will continue in the second half of the year.”
Accident Exchange said it was managing the downturn in business by cutting costs, including a £7 million reduction in fleet costs.
It had also reduced its vehicle purchase commitments by about £34.7 million.
On the plus side, the amount of cash the company clawed back from insurers following a legal wrangle rose by 41 per cent to £80.9 million.
With car sales slumping, the used car trade’s appetite for Accident Exchange’s vehicles has diminished. However, the company is offsetting this by selling its cars via a trade auction website (www.aecarauction.com). Since it was set up in January this year, the site has enabled the company raise £16.1 million through the sale of more than 1,000 vehicles.
Accident Exchange also said it was writing down the carrying value of its fleet to reflect falling residuals, particularly among 4x4s, by some ten per cent, or £12.5 million.
It said it had working capital headroom of £22.6 million and was complying fully with its banking covenants.