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McConechy's profits down as margins dip

INDEPENDENT tyre and exhaust business McConechy Holdings has reported a 42% dip in profit as its margins were hit by rising commodity prices.

HOPEFUL: Managing director Donald Carmichael is cautiously optimistic about the future of McConechy's, and is pleased that the company's debt has been reduced.
HOPEFUL: Managing director Donald Carmichael is cautiously optimistic about the future of McConechy's, and is pleased that the company's debt has been reduced.

The Ayr business, which has more than 50 branches in Scotland and Yorkshire, booked a 3.6% rise in turnover from £41.9 million to £43.4m in the 12 months to April 30 this year.

Accounts filed at Companies House show the increase in income did not result in a greater level of pre-tax profit and it dropped from £986,603 to £571,777.

During the year McConechy's received a £173,417 gain on the sale of fixed property assets, which was down on the £452,971 recorded in the previous period.

After stripping out the difference in asset gains, managing director Donald Carmichael told The Herald the decline in profit was a result of pressure on margins mainly due to higher rubber costs sending tyre prices up.

He said: "We are finding we are affected by the general economic environment.

"The price of fuel and the number of miles driven is falling and that has an effect on our business.

"Commodity prices have increased, which has had a knock-on effect on the price of tyres. As a result we have found margins have been under pressure.

"However we are quietly comfortable with the result for the year."

McConechy's intends to keep chipping away at its net debt after paying back almost £410,000 during the year to leave the figure at £12.7m.

Mr Carmichael confirmed the company has no specific acquisition plans at the moment but believes a stronger balance sheet will allow it to move quickly if an interesting proposition comes up.

He said: "Our net level of debt has fallen and has fallen a bit more in [the first quarter of the current financial year].

"That will have an impact on our interest and servicing costs.

"It gives us a bit more flexibility and if there are opportunities in the future, say across the next 18 months or so, then we are well placed.

"There is nothing concrete on the horizon but that is not to say we wouldn't expand if the correct opportunity arose. But there are a number of factors that need to come into play there – location, size and price, obviously."

During the financial year McConechy's spent in excess of £1m replacing its fleet of more than 30 breakdown vehicles which serve commercial truck customers suffering punctures.

Average monthly staff numbers fell from 394 to 375, with staff costs almost flat at £8.84m against £8.85m the previous year. Directors' emoluments went from £320,874 to £323,427, with the highest paid receiving an increase from £187,280 to £196,182.

Mr Carmichael said the company was "cautiously optimistic" and hopes tyre labelling legislation introduced at the start of the month – which means all car, van and 4x4 tyres must display information on fuel efficiency, wet braking performance and exterior noise emissions – will have a positive impact.

The company installed computer screens in its branches to give customers better access to the new information.

Mr Carmichael added: "We are not necessarily seeing huge effects at the moment but we think it will help to educate motorists on the retail car side on the benefits of different types of tyre.

"It helps individuals make a tyre choice which suits their driving style and their car.

"Hopefully that will then give them a lower cost per mile to run if they have the right product fitted."

McConechy's was founded in Ayr in 1956 by Hector McConechy and is now chaired by his son Derek.

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