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Burnt rubber

In May, the Ferrari importer loses the distribution rights that contributed 45 pct to revenues of the group last year

Luxury automotive distributor and investment holding company Auto Italia could lose up to 45 per cent of its consolidated revenue this year following the termination of its agreement with Ferrari to import and distribute the luxury automobiles in the Macau, Hong Kong and China regions, according to the group’s annual report.
As previously reported by Business Daily, the company’s agreement will terminate with effect from May 27 of this year, having received ‘an advice’ from the car manufacturer to end its import and distribution rights on November 29 of last year.
The group’s annual results, published recently and submitted to the Hong Kong Stock Exchange, appear to contradict previous statements made by the company in response to Business Daily enquiries, given that on November 30 the company told the newspaper that: ‘The Board considers that the cessation of Ferrari business will have no material adverse impact on the profitability of the Group.’
However, in the group’s annual report, it points out that ‘The sale of new “Ferrari” cars contributed to approximately 45 per cent and 36 per cent of the Group’s consolidated revenue for the years ended 31 December 2016 and 2015, respectively.’
In addition, the group has signed a non-legally binding Term Sheet, including details of the ‘transfer of the assets relevant to the “Ferrari” brand, including property, plant and equipment,’ according to the filing.
However, notes the group, if Auto Italia is ‘unable to reach agreement with Ferrari S.p.A. and conclude a formal agreement to transfer the property, plant and equipment’ in line with the previous terms then ‘the recoverable amounts of the relevant property, plant and equipment may be lower than their carrying values, which may lead to impairment of relevant property, plant and equipment.’
The filing notes that at the end of last year ‘the carrying amount of goodwill and property, plant and equipment amount were HK$2,480,000 [US$310,000] and HK$53,852,000, respectively.’
The same statement issued to Business Daily notes that ‘For the time being, we have no further comment on this subject’. Subsequent enquiries over the past four months have not been responded to.

Another challenging year
The group’s Executive Chairman and CEO, Mr. Benny Chong Tin Lung, expects the coming year to be a “challenging year, especially after a series of ‘black swans’ in 2016 . . . we expect to see a more perplexing business environment in the sale of luxury cars in the Hong Kong market.”
In addition, despite its previous confidence that the company would be unaffected by the Ferrari contract termination, the CEO now notes that “while we remain confident that our car business operation will continue to be profitable for our shareholders, its long-term financial performance may likely be limited due to the fact that we now only operate Maserati dealership businesses in Hong Kong.”
In an attempt to ensure that the recoverable amounts come in line with expectations, the CEO notes that “we are in sincere communication and co-operation with Ferrari in order to smoothly hand over the business, safeguard both customers’ and the company’s interests.”
The company ended 2016 with a loss of HK12.38 million vis-a-vis a profit of HK$27.76 million last year. The group’s revenue shrank 23.7 per cent to HK$742.5 million.
The group will continue to hold the import and distribution rights for Maserati, noting that its plans for the year are ‘aggressive sales and marketing strategies, improvement of operational efficiency and maintaining high levels of financial discipline.’