4 March 2024
Vertu Motors plc ("Vertu Motors" or the
"Group")
Trading Update: Used car prices
stabilised; new vehicle market uncertain; aftersales robust.
Strong year-end cash position
Vertu Motors, a leading UK automotive retailer
with a network of 188 sales and aftersales outlets, is pleased to
announce the following update with regards to the five-month period
to 31 January 2024 (the "Period") ahead of its preliminary results
for the year ended 29 February 2024 to be announced on 15 May
2024.
HIGHLIGHTS
· In
line with expectations, UK used vehicle values have stabilised in
recent weeks following post-October wholesale pricing
correction.
·
Group successfully increased used vehicle stock-turn and
significantly reduced inventory levels to adjust to the changing
market dynamics.
·
Group delivered substantial £5.2m growth (28%) in core gross
profits from fleet and commercial vehicle sales.
· New
vehicle UK retail market is down year on year; Manufacturers
discounting and enhancing offers to stimulate demand.
·
Group aftersales operations delivered a robust performance
with higher technician numbers, despite some parts supply
challenges, with revenue and gross profit growth
achieved.
·
Operating expenses fell as a % of revenue to 9.8% (FY23:
9.9%).
·
Full year FY24 adjusted1 profit before tax expected to be broadly
in-line with current consensus.
·
Year-end net debt2
expected to be reduced ahead of market expectations to
between £60m-£65m, reflecting strong working capital management and
robust free cash flow generation.
·
Over £10m of cash receipts from surplus property disposals
anticipated in the next 12 months with proceeds above net book
value.
1 Adjusted for exceptional items, share based payments charges
and amortisation.
2 Excluding lease
obligations
Robert
Forrester, Chief Executive of Vertu Motors said:
''I am
pleased with the team's performance against a fast-changing market
backdrop with used vehicle prices now stabilised at lower levels
and consumer uncertainty impacting retail demand for new
cars. Our resilient aftersales business continues to thrive
aided by higher technician numbers. The work that has gone into
cost control and optimising stock levels has contributed to an
excellent cash performance.
Despite the
impact of the complex market dynamics on the short-term performance
of the business, the current market presents opportunities for
Vertu with our strong balance sheet providing; financial
flexibility, portfolio of strong brands, robust and scalable
systems, and a great team."
|
5-month period ended 31 January 2024
Var to 2023
|
|
Like-for-like
|
SMMT UK
registrations
|
|
|
|
Group Revenues
|
7.8%
|
|
Service
Revenues3
|
5.3%
|
|
|
|
|
Volumes:
|
|
|
Used Retail Vehicles
|
0.8%
|
|
New Retail
Vehicles4
|
(5.1%)
|
(3.8%)
|
Motability Vehicles
|
73.1%
|
77.9%
|
New Fleet
Cars4
|
14.8%
|
18.5%
|
New Commercial Vehicles
|
(8.9%)
|
21.2%
|
3 includes internal and external revenues
4 includes agency volumes
TRADING
UPDATE for the 5-month period ended 31 January
2024
All commentary below reflects the 5-month
period ended 31 January 2024 (''the Period'') compared to the
5-month period ended 31 January 2023 unless stated.
Used vehicle
sales
As outlined in the December trading update,
there was a significant shift in UK used vehicle market dynamics,
marked by a notable decline in wholesale prices which fell by 10.3%
between October and December (Source: CAPHPI). This decline was
primarily driven by an influx of supply into wholesale markets,
compounded by subdued retail demand stemming from the dual impact
of rising interest rates and high vehicle prices, thereby affecting
affordability. Moreover, fleet companies benefitted from
lower-than-market residual values on their de-fleet vehicles
re-entering the market, with wholesale sellers willing to accept
lower prices to liquidate inventory, further contributing to the
overall price reduction. Premium vehicle values at the higher
end of the market faced relatively greater weakness.
The Group has proactively adapted to these
changing market dynamics, increasing stock-turn and delivering a
substantial reduction in Group used inventory levels of over £40m
over the Period, which has significantly reduced the Group net debt
position. The Group effectively applied its Vertu Insights
real time pricing algorithm to drive pricing updates, reacting
quickly to the fast-moving market conditions to optimise volume and
margin mix. This strategy was enhanced by the Group's strong
marketing and digital capability. Group like-for-like used vehicle
volumes grew 0.8% in the Period, a significant improvement on the
5.7% reduction in the first half of the financial year.
Gross profit generation from used car sales
declined significantly compared to previous levels, as noted in the
December trading update due to the market dynamics. The Core
Group's gross profit per unit reduced to £1,241 in the Period
delivering a gross margin of 6.3% (FY23 comparative period: £1,402
per unit, 7.0% margin). Core Group gross profit generated
from the sale of used vehicles in the Period was consequently £4.7m
lower than the level achieved in FY23.
Since January, margins have started to recover
as stockturn increased and fresh stock came into play. Margins
recovered first in the volume franchises and the Group is now
seeing a return to more normal levels in the premium
franchises.
New retail car
and Motability sales
The UK new vehicle market saw its strongest
performance since the onset of the pandemic, with 1.9 million
vehicles registered in the 12 months to 31 December 2023 (Source:
SMMT). This marked a substantial 17.9% increase compared to 2022.
Nevertheless, despite this growth, the overall new car market
remains 17.7% below pre-pandemic levels. The surge in registrations
was predominantly driven by fleet volume, as supply constraints
from the previous year dissipated, consequently satisfying pent-up
demand from large fleet operators, particularly Motability.
In contrast, UK private registrations were affected by
cost-of-living pressures, elevated interest rates and the increased
prices of new cars.
SMMT data showed a 3.8% decline in UK private
registrations in the Period. The Group's like-for-like
volumes of new retail vehicles fell by 5.1% with Core Group market
share of the new retail UK market stable at around 4.0%.
Group Motability volumes grew significantly by
73.1% in the Period on a like-for-like basis, compared to a rise in
UK registrations in this channel of 77.9%. The Group has
always had a strong focus on Motability sales and remains
responsible for the largest fleet of Motability vehicles in the UK,
and this makes a significant contribution to Group aftersales
revenues. The Group will benefit from this growth in sales in the
service departments in the years ahead.
Manufacturers are facing a challenging
combination of slow retail sales, complex new regulatory targets
related to the share of electric vehicles (BEV), and increased
competition from new entrants. As a result, significant discounting
and finance offers are increasingly apparent to stimulate consumer
demand particularly for electric models. The Group is seeing a
dampening effect on new vehicle margins as competition to drive the
market increases at the expense of margins and as the Motability
channel increases as a proportion of the new car market.
In the Period, Core Group gross profit per unit
on the sale of new retail and Motability was £2,010, a 13.1%
reduction on the comparative period (FY23: £2,312 per unit).
Like-for-like gross profits from the sale of new retail and
Motability vehicles grew £0.7m compared to the same Period last
year on increased volumes. This growth is lower than anticipated
due to weaker margins noted above.
Fleet &
Commercial vehicle sales
As set out above, the growth in UK vehicle
registrations in 2023 was predominantly driven by fleet volume,
particularly as large fleet companies were able to secure supply to
satisfy pent-up demand to renew their fleets. The SMMT
reported an 18.5% increase in fleet car volume in the Period and
commercial vehicles registrations up 21.2%. A good proportion
of these increased registrations arose in the daily rental
market. The Group's like-for-like volumes in the fleet car
channel grew by 14.8% in the Period. The Group's
like-for-like sales of new commercial vehicles fell 8.9% in the
Period. The Group's fleet and commercial activity does not include
significant volume through the low margin daily rental
channel.
Importantly, the Group grew like-for-like gross
profit per unit in the Fleet and Commercial channels and
consequently Core Group gross profit generation rose £5.2m in the
Period.
Aftersales
Aftersales is a vital contributor to overall
Group profitability and delivered the following robust
like-for-like trends in the Period, compared to FY23:
|
Service
|
Parts
|
Accident & Smart
Repair
|
Forecourt
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
Revenue5
|
69.4
|
88.5
|
9.8
|
4.9
|
172.6
|
Revenue5
change
|
3.5
|
7.6
|
1.5
|
(1.2)
|
11.4
|
Revenue5 change
(%)
|
5.3%
|
9.4%
|
18.1%
|
(20.2%)
|
7.1%
|
Gross profit change
|
2.3
|
0.8
|
1.3
|
(0.1)
|
4.3
|
Gross margin6 FY24
(%)
|
72.2%
|
21.9%
|
58.5%
|
7.6%
|
43.8%
|
Gross margin6 FY23
(%)
|
72.6%
|
23.0%
|
53.8%
|
7.0%
|
44.2%
|
5 includes internal and external revenue
6 margins in aftersales expressed on internal and external
revenue
·
Service
Core Group service revenue in the Period was
£3.5m above FY23 levels, with increases in revenue from all key
channels; retail, warranty and internal.
Aftersales demand remained strong and higher
technician resource levels helped to drive increased revenues and
an overall increase in core aftersales gross profit in the Period
compared to the previous year. This improved resource level
has aided performance in the Group's vehicle health check process,
which has led to higher average invoice levels for service
work. Service performance and delivery of outstanding
customer experiences was, however, held back in the Period by the
impact of dislocation in parts supply in respect of certain of the
Group's Manufacturer partners. This led to significantly
longer repair lead times for customers and reduced the efficiency
of the Group's service operations.
Like-for-like service gross margins have
reduced from 72.6% in FY23 to 72.2% in the Period reflecting the
efficiency impact described above and higher levels of technicians
pay.
·
Parts
The Group successfully grew like-for-like
revenue and gross profits from the sale of parts in the Period
compared to FY23. Two operational enhancements have helped
overall performance. First, improvements in the
Group's vehicle health check process drove an increase in parts
revenues per labour hour sold through the Group's workshops.
Second, all the Group's dealerships are now serviced by a central
parts sales hub which handles inbound parts sales calls in respect
of retail parts sales, improving retail sales
period-on-period. The Group also operates
successful scaled parts operations operating under the traditional
and agency models and continues to take market share.
Parts margins reduced slightly to 21.9% in the Period
reflecting reduced bonuses from Manufacturers.
·
Accident and Smart
Repair
The Group's Smart Repair operations run over
100 vans, mainly servicing the Group's dealerships' demand for
internal repairs to used cars. The Group's accident repair centres
continue to perform well. Overall, the Core Group saw improved
revenue and gross profit from the accident and Smart repair channel
in the Period, with strengthening margins.
A new retail focused smart repair operation has
been created as a new business unit to serve the Group's two
million customers. Six vans will initially operate with a view to
increase capacity substantially over the next 18 months as a high
margin revenue stream.
Overall, Core Group aftersales margins were
43.8% (FY23: 44.2%) with core gross profit generation up £4.3m in
the Period. Margins were diluted by sales mix as lower margin
parts and accident repair areas grew faster than the higher margin
service channel.
Operating
expenses
Costs remain well controlled, with operating
expenses as a percentage of revenue declining to 9.8% (FY23: 9.9%)
in the Period.
Like-for-like Core Group expenses grew by 5.9%
(£9.3m) over the Period. The biggest movements within this arose in
salary, vehicle costs and energy.
The Group has continued to invest in driving
growth and ensuring it has the right resource levels to serve its
customers and deliver an outstanding service. A £4.0m (4.6%)
increase in core employment expenses arose in the Period compared
to FY23, largely due to the success of the Group in filling vacant
positions together with pay actions.
The cost of the Core Group's demonstrator
vehicle and courtesy fleet increased by £3.4m compared to the prior
year Period. The Group not only saw higher levels of
demonstrators mandated by Manufacturers as supply eased and product
ranges expanded, but also increased vehicle depreciation rates,
reflecting the price correction seen in the used wholesale market,
and to ensure that vehicle carrying values on de-fleet will be
appropriate.
Energy was a significant cost headwind for the
Group in the first half of the financial year. Successful
execution of the Group's energy strategy along with market falls in
energy prices led to a reduction in energy cost in the Core Group
in the Period of £1.4m compared to the prior year.
Interest
Costs
With an easing of supply of new vehicles,
together with increased costs of borrowing, the Group saw new
vehicle stocking charges increase by £2.3m compared to the prior
year period.
In addition, the increased level of debt in the
Group following the acquisition of Helston Garages, as expected,
increased interest costs.
PORTFOLIO
MANAGEMENT
On 31 October 2023 the Group completed the
acquisition of Rowes Garage Limited ("Rowes"). This added 4
sales outlets in South-West of England and further strengthened the
Groups' position in the region. These dealerships were
rebranded to Bristol Street Motors or Vertu Motors and were fully
integrated onto Group systems and processes upon acquisition.
The outlets represent the Honda franchise in Plymouth and Truro and
a used car sales outlet in Plymouth. In February 2024 the
Honda outlet acquired in Plymstock was closed with the business
being consolidated into the central Plymouth site. The now
empty Plymstock dealership will be refranchised in due course as
will the Plymouth used cars outlet with three franchises to be
introduced to the city in the coming months. In addition, a
surplus freehold property acquired located in Hayle was sold In
January 2024, generating cash proceeds of £1.35m.
The Group continued to actively manage its
dealership portfolio in the Period:
· On
12 September 2023, the MG franchise opened in Chesterfield,
alongside the Group's existing Vauxhall dealership. This
marked the fourth sales outlet for the MG brand (owned by SAIC of
China) operated by the Group.
· In
October 2023 the Group opened a relocated Vauxhall sales outlet in
Newcastle upon Tyne in newly leased premises in the city. The
substantial freehold dealership vacated by Vauxhall opened as a
Ford car and commercial vehicle operation on 1 December 2023.
This followed the award by Ford of Newcastle as a new area of
operation for the Group. This additional significant Ford
operation augments the existing representation of the brand by the
Group in nearby Morpeth, Durham, and Hartlepool.
· On
28 November 2023, Bristol Street Motornation Stockton was
re-franchised to Nissan, providing a substantial dealership for
this brand in Teesside and augmenting the existing representation
of the brand by the Group in nearby Darlington.
· The
Group continued its pruning activities, closing its SEAT Cupra
operation in Birmingham in January 2024 and relinquishing the
Renault/Dacia franchises in Mansfield and the Hyundai Franchise in
Morpeth. No material costs were incurred in these
actions.
· The
Board continues to actively manage the Group's portfolio of
dealerships and assess further growth opportunities, utilising
strict investment return metrics to ensure discipline in capital
allocation. Strong cash receipts in the next 12 months of
over £10m are anticipated from surplus property disposals.
Proceeds are anticipated to be above net book value.
Net
Debt
Year-end net debt (excluding lease obligations)
is expected to be reduced on market expectations to £60m-£65m
(FY23: £75.4m). This performance reflects strong working
capital management, including a significant reduction in used
vehicle stock in the second half. At the year end date, the Group
had no utilisation of used vehicle stocking loans.
OUTLOOK
Full year FY24 adjusted7 profit
before tax expected to be broadly in-line with current
consensus.
The significant used vehicle pricing correction
which impacted performance in the Period has now largely stabilised
with the latest valuation movements more in line with seasonal
norms (Source: CAPHPI). The Group has worked hard and
proactively to increase used vehicle stock turn and reduce overall
inventory levels. Consequently, in recent weeks, improved
used vehicle gross profit per unit has been generated by the
Group.
Manufacturers of new vehicles selling in the UK
face a daunting task to manage volumes and mix of Internal
Combustion Engine (ICE) and Battery Electric vehicles (BEV) in the
light of the new VETS legislation introduced by the UK Government
to reduce emissions on new vehicles. Manufacturers will be seeking
to avoid heavy fines due to non-compliance and this may lead to
significant supply and pricing disruption as they balance
manufacturing and supply into the UK. High new vehicle prices,
particularly of battery electric vehicles, has impacted retail
demand. Customers may choose to purchase a used vehicle rather than
a new one, particularly as prices of used vehicles are more
attractive following the market pricing correction. The
Group's new vehicle order-take for the important plate change month
of March is currently tracking at levels below prior year level as
order banks have been satisfied and the UK moves to a supply push
market. These trends have the potential to impact margin and
volumes and leads to an uncertainty for the new retail
market.
The Group's current focus is on continuing to
successfully manage this period of adjustment in the market, where
the consumer is impacted by high interest rates and the sector
trends above. Recent pressures on short-term profitability
have impacted the sector, but they do not change the longer-term
fundamentals of our business. We are delivering on our stated
strategy and are well-positioned to take advantage of opportunities
that arise when the market is in an adjustment period, given the
Group's track record of execution and strong financial
position.
The Group will announce its preliminary results
for the year ended 29 February 2024 on 15 May 2024.
7 Adjusted for exceptional items, share based payments charges
and amortisation.
For further
information please contact:
Vertu Motors plc
|
|
Robert Forrester, CEO
|
Tel: 0191 491 2121
|
Karen Anderson, CFO
Phil Clark, Investor
relations
|
Tel: 0191 491 2121
PClark@vertumotors.com
|
Stifel
|
|
Matthew Blawat
Nick Harland
|
Tel: 0207 710 7688
|
Camarco
|
|
Billy Clegg
Tom Huddart
|
Tel: 020 3757 4983
|
Notes to
Editors
Vertu Motors is the fourth largest automotive
retailer in the UK with a network of 188 sales outlets across the
UK. Its dealerships operate predominantly under the Bristol Street
Motors, Vertu 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 184 franchised
sales outlets and 4 non-franchised sales operations from 143
locations across the UK.
Vertu's Mission Statement is to "deliver an
outstanding customer motoring experience through honesty and
trust".
Vertu Motors Group websites -
https://investors.vertumotors.com/
/www.vertucareers.com
Vertu brand websites - www.vertumotors.com
/ www.bristolstreet.co.uk
/ www.vertuhonda.com
/ www.vertutoyota.com
/ www.macklinmotors.co.uk
/ www.vertumotorcyles.com