TIDMVTU
RNS Number : 5191R
Vertu Motors PLC
01 March 2019
1 March 2019
Vertu Motors plc ("Vertu Motors" or the "Group")
Trading Update
Vertu Motors, the automotive retailer with a network of 125
sales and aftersales outlets across the UK, announces the following
update ahead of its preliminary results for the year ended 28
February 2019.
Robert Forrester, Chief Executive of Vertu Motors said:
"The Board expects the trading performance for the year ended 28
February 2019 to be in line with current market expectations.
Whilst the outlook remains uncertain, the Group continues to be
very well positioned to take full advantage of tougher markets
which will, as has been the case in previous sector downturns,
provide opportunities. We have a strong balance sheet, underpinned
by a property-rich asset base with low levels of debt, a clear
focus upon capital allocation and we have an outstanding and stable
team."
Overview
-- The Board expects the Group's underlying trading performance
for the year ended 28 February 2019 to be in line with current
market expectations.
-- In the five months ended 31 January 2019 (the "Period") the
Group saw the following trends in its key channels:
Increase (decrease) period-on-period
Total Like-for-like SMMT UK
Registrations
Group
Revenues +5.2% +1.4% -
Service
Revenues +14.2% +7.4% -
Volumes:
Used retail
vehicles +6.2% +4.8% -
New retail
vehicles (4.8%) (6.8%) (9.8%)
New
Motability
vehicles (10.8%) (12.2%) (4.5%)
New fleet
cars (29.1%) (29.9%) (10.9%)
New
commercial
vehicles +0.9% +0.1% +1.2%
-- The high quality, high margin aftersales business saw another
significant year on year increase in gross profit generation.
-- Like-for-like service revenues grew by 7.4% and overall aftersales margins were stable.
-- Used vehicle volumes grew by 4.8% on a like-for-like basis in
a market where volumes are expected to have declined due to supply
constraints and a more subdued consumer environment. The Group
adopted more aggressive pricing strategies, gaining share at the
expense of margin.
-- New retail vehicle volumes continued to soften in the period,
as anticipated. Gross profit per unit grew slightly reflecting
pricing discipline and achievement of manufacturer targets.
Like-for-like gross margin percentage declined to 7.7% (2018: 8.0%)
due to higher prices and a shift in mix towards premium brands.
-- Motability sales and new fleet cars saw volume reductions as
certain volume Manufacturers reduced their exposure to lower margin
channels. In addition, the Fleet car market continued to see an
impact of WLTP related supply constraints and deferral of demand by
major leasing companies.
-- Overall like-for-like margins reduced slightly due to lower
used and new car margins. Selling prices of vehicles continue to
rise on average.
-- Strong, property-rich balance sheet with low levels of debt.
-- Vans Direct acquisition settling in well and contributed to Group profits post-acquisition.
-- Share buy-back programme: during the Period the Group has
purchased 2.7 million shares (0.7% of the issued capital) for
GBP1.0m under the renewed buy-back programme announced on 10
October 2018.
Trading Commentary for the five months ended 31 January 2019
("the Period")
Aftersales
The Group has continued to drive the performance of its high
quality, consistently high margin, aftersales business during the
Period. By focusing on retention initiatives and customer service,
the Group is consistently maximising the proportion of new and used
vehicle customers who return to the Group's dealerships for vehicle
servicing. The sale of service plans, the performance of rigorous
technical vehicle health checks, and the increasing use of video
technology to communicate with customers, have all contributed to a
7.4% growth in like-for-like service revenues and a 7.5% growth in
like-for-like service gross profit during the Period.
The Group grew its like-for-like parts revenues by 4.0% during
the Period achieving a 3.4% increase in gross profit. Overall
like-for-like aftersales margins were stable during the Period due
to the higher growth rates of the Group's high margin service
operations. Aftersales contributed 41.8% (2018: 39.2%) of the
Group's like-for-like gross profits.
Used Vehicles
The used car market has recorded slight declines during 2018
reflecting two main factors: a softening consumer environment and
increasing supply constraints reflecting a weaker new car market in
the UK. The Group continued the growth momentum established in the
first half of the year, achieving like-for-like sales volume growth
of 4.8%. Like-for-like average selling prices grew by 6.0%, however
the gross profit per unit was 8.7% lower as the Group adopted more
aggressive pricing strategies during the Period to drive volumes
and gain market share. Overall gross profit reduced in the Period
year on year.
New Cars
The UK new vehicle market recorded 2.37 million registrations in
the 12 months to 31 December 2018 (SMMT), a decline of 6.8% on 2017
and the second year of decline from the 2016 peak of 2.69m. These
market reductions are driven primarily by supply-side
considerations, including in particular the impact of currency on
the profitability of Manufacturers importing vehicles into the UK
and the introduction of WLTP. Price rises and transfer of supply to
other markets continued throughout 2018. In recent months declining
demand from other markets (China in particular) has caused certain
Manufacturers to take further steps to protect their profitability,
in a period of unprecedented investment in Research and Development
associated with new powertrains and notably electrification, to
respond to a new regulatory environment. During the Period several
of the Group's Manufacturer Partners reduced their exposure to
lower margin channels, including fleet and Motability. This was
particularly evident with a number of volume Manufacturers, with
whom the Group is heavily represented. As a consequence, a number
of major Manufacturers have seen significant double-digit declines
in their 2018 UK fleet and new retail private and Motability
registrations.
The Group's like-for-like new retail vehicle volumes declined by
6.8% during the Period, outperforming the market and gaining market
share, whereas the SMMT data showed an overall fall of 9.8% in UK
private registrations. Like-for-like gross profit per unit
increased by 3.4%, from GBP1,449 to GBP1,499, and like-for-like
gross margins fell slightly due to continued increases in
like-for-like selling prices, which rose by 6.3%. Higher selling
prices reflect the pressure of currency on pricing given the high
level of cars sold in the UK imported from the EU together with the
increasing premium franchise mix of the Group.
Fleet & Commercial
The Group's fleet car business declined during the Period in
line with the changes in market positioning of the Group's volume
Manufacturer Partners who pulled back from these lower margin car
channels, and increased prices. As the mix shifted towards the
Group's premium Manufacturer Partners and vans, the Group saw
higher like-for-like average selling prices up 5.1% to GBP20,080
per unit, and an 18.7% increase in like-for-like gross profit per
unit to GBP707 (FY 2018: GBP595) with like-for-like margin up to
3.6% (FY 2018: 3.3%). The light commercial vehicle market remains
robust reflecting underlying economic strength in the UK.
Operating Expenses
Underlying cost pressures continue to impact the Group's trading
performance as witnessed in the wider retail market. For the five
months to 31 January 2019 the Group's operating expenses as a
percentage of revenues increased only marginally from 9.9% to 10.0%
reflecting management continuing to focus on costs throughout the
business.
VAT Repayment
During the Period the Group received VAT repayment of GBP3.1m
resulting from a retrospective claim following HMRC's clarification
of the VAT treatment of dealer deposit contributions. This will be
excluded from underlying profits in the Group's results for the
year ended 28 February 2019.
Portfolio changes
On 4 January 2019 the Group acquired Vans Direct, a
well-established on-line commercial vehicle retailer, for an
estimated consideration of GBP7.5m. This acquisition is settling in
well, and is being integrated, where appropriate, with the Group's
light commercial vehicle franchised activities.
With a continued focus upon capital allocation, the Group
realised a further GBP0.6m of cash from the sale of surplus
property assets during the Period.
Balance Sheet
The Group has a strong balance sheet with a significant freehold
property portfolio, a used car inventory largely unencumbered and
very low levels of debt, providing considerable resilience and
firepower for future growth. The Board continues to assess further
acquisition opportunities, utilising strict investment return
metrics to ensure discipline in capital allocation.
Future Prospects
While positive on the anticipated performance of aftersales and
used cars, the Board remains cautious on the overall outlook for
the next financial year. The UK's exit from the EU is creating some
uncertainty for the Group's private and business customers. In
addition, unpredictability over tariffs and Sterling levels create
an unprecedented level of uncertainty for Manufacturers and
Retailers alike on the future levels and profitability of new
vehicle supply into the UK from the EU. Notwithstanding this, the
Board is implementing plans to deliver the inherent opportunities
for improvement of operational performance and profitability that
exist within the current dealership portfolio.
The Group's interim results announcement highlighted that
several of the Group's Manufacturer Partners were considering, and
in some cases implementing, changes to the way in which parts are
distributed to their retailers and the independent aftermarket.
Ford has now commenced a reorganisation with the transfer of trade
operations to new parts hubs operated by retailers on an agency
basis, where stock and debtor risk transfers to the Manufacturer
and the Group receives a handling fee. The Group is therefore in a
transition from the traditional parts supply model to this agency
model. As a consequence, three parts hub contracts are now in
operation by the Group and a further three will be commenced by
February 2020. Consequently, parts revenues and costs will be
reduced as this progresses and GBP3.9m of working capital is
expected to be released over the transition period. We estimate
GBP3.0m of working capital will have been released in the period to
28(th) February 2019. These changes are also anticipated to reduce
the Group's ongoing profitability by GBP0.8m. Discussions with
other Manufacturer Partners are ongoing with no major impact in the
year ending 29 February 2020 envisaged.
The Group's very strong balance sheet and financial position
enables the Board to have confidence that it can take advantage of
opportunities as they present themselves.
The Group will announce its preliminary results for the year
ended 28 February 2019 on 8 May 2019.
This announcement contains inside information.
For further information please contact:
Vertu Motors plc Tel: 0191 491 2111
Robert Forrester, CEO Tel: 0191 491 2103
Karen Anderson, CFO
Zeus Capital Limited Tel: 020 3829 5000
Nicholas How
Andrew Jones
Dominic King
Camarco Tel: 020 3757 4983
Billy Clegg
Tom Huddart
Notes to Editors
Vertu Motors, the UK automotive retailer with a proven growth
strategy, is the sixth largest automotive retailer in the UK with a
network of 125 sales outlets across the UK. Its dealerships operate
predominantly under the Bristol Street Motors, Vertu, Farnell and
Macklin Motors brand names.
Vertu Motors was established in November 2006 with the strategy
to consolidate the UK motor retail sector. It is intended that the
Group will continue to acquire motor retail operations to grow a
scaled dealership group. The Group's acquisition strategy is
supplemented by a focused organic growth strategy to drive
operational efficiencies through its national dealership network.
The Group currently operates 122 franchised sales outlets and 3
non-franchised sales operations from 106 locations across the
UK.
Vertu Motors Group websites - www.vertumotors.com /
www.vertucareers.com
Vertu brand websites - www.bristolstreet.co.uk /
www.vertuhonda.com / www.vertutoyota.com / www.macklinmotors.co.uk
/ www.farnelllandrover.com / www.farnelljaguar.com /
www.vertuvolkswagen.com / www.vertumercedes-benz.com
Forward-looking statements
This document may contain certain 'forward-looking' statements.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Actual outcomes and results may differ materially from any outcomes
or results expressed or implied by such forward-looking
statements.
Any forward-looking statements made by, or on behalf of, Vertu
Motors plc speak only as of the date they are made and no
representation or warranty is given in relation to them, including
as to their completeness or accuracy or the basis on which they
were prepared. Vertu Motors plc does not undertake to update
forward-looking statements to reflect any changes in its
expectations with regard thereto or any changes in events,
conditions or circumstances on which any such statement is
based.
This information is provided by RNS, the news service of the
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Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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