ADESA Inc. plans to use $150 million in cash on hand to acquire vehicle auction sites and invest in Internet projects this year.
Those moves should enable ADESA to grow and raise its share price, CEO David Gartzke said. The Carmel, Ind., company went public last June.
Gartzke told industry analysts in a Feb. 11 conference call that ADESA ended 2004 with $150 million in cash. It is prepared to spend $10 million to $40 million apiece to acquire several wholesale and salvage auctions this year, he said.
Independent owners operate about 30 percent of the nation's 280 wholesale auctions and 350 salvage auctions, Gartzke said. Some of those owners are likely to put their sites up for sale this year, he said.
ADESA expects to spend $15 million to $20 million this year on Internet technology projects, Gartzke said.
ADESA was spun off last year from ALLETE Inc. of Duluth, Minn. ALLETE, a public company, owns water and electric utilities. ADESA contributed two-thirds of ALLETE's income. But investors' expectations of cash dividends from ALLETE limited ADESA's capacity to invest in itself and grow, executives said.
ADESA reported net income of $105.3 million on revenues of $931.6 million in 2004. That compared with net income of $115.1 million on revenues of $911.9 million in 2003, when it was still ALLETE's subsidiary.
ADESA sold 1,959,000 vehicles for its customers in 2004, down from 2,001,000 in 2003.
An industrywide decline last year in the number of off-lease vehicles available for sale as used cars depressed business.
But growth in dealer consignment business offset some of that decline, ADESA CFO Cameron Hitchcock told the analysts. He predicted ADESA's auction sales will grow in 2005 by 1 percent to 3 percent. Its revenue per vehicle sold is expected to grow 1 percent to 2 percent this year.
Hitchcock said he expects the number of off-lease volumes to drop again in 2005. But he predicted the decline will not be as steep as last year's.
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