REG - Vertu Motors PLC - Trading Update
02/03/2022 07:00
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RNS Number : 2823D Vertu Motors PLC 02 March 2022
2 March 2022
Vertu Motors plc ("Vertu Motors" or the "Group")
Trading Update: Further Upgrade of Expected Trading Performance for FY22
Vertu Motors, the UK automotive retailer with a network of 159 sales and
aftersales outlets, announces the following update with regards to the
five-month period to 31 January 2022 (the "Period") ahead of its preliminary
results for the year ended 28 February 2022 to be announced on 11 May 2022.
Robert Forrester, Chief Executive of Vertu Motors said:
"I am pleased to report that the Board now expects the trading result for the
year ended 28 February 2022, at an adjusted(1) profit before tax level, to be
not less than £75m. This further upgrade would not have been delivered
without a significant team effort and I would like to thank every single one
of my colleagues for their hard work and dedication.
The trading results have been aided by sector tailwinds and limited vehicle
supply leading to augmented margins. In addition, recent acquisitions have
contributed at a higher level than initially envisaged due in part to a swift
and successful integration process."
HIGHLIGHTS
· Board expects the Group's trading performance for the year ended 28
February 2022 to be not less than £75m (previously £70m) at the adjusted(1)
profit before tax level (28 February 2021: £24.6m)
· 29 sales outlets added to the portfolio since 1 December 2020
· New share back programme of £3m announced
· Delivered significant growth in like-for-like vehicle sales margins
and gross profit generation in all channels compared to the previous two
financial years
· Core Group aftersales revenue growth delivered in the Period,
compared to FY20, with stability of overall margins
· £1.3m reduction in year-on-year net finance costs in the Period due
to reduced new vehicle inventory funding costs
· Significant expansion of relationship with Toyota being executed
· Colleague reward review implemented to aid retention and recruitment
(1) Adjusted to remove share-based payments charge and amortisation of
intangible assets
5-month period ended 31 January
2022 % Var to 2021 2022 % Var to 2020
Total Like-for-like SMMT UK registrations Total Like-for-like SMMT UK registrations
Group Revenues 18.1% 9.4% 23.0% 6.2%
Service Revenues(2) 8.6% 2.7% 14.8% 0.5%
Volumes:
Used Retail Vehicles 8.9% 4.6% (1.1%) (11.9%)
New Retail Vehicles 17.8% 7.2% 2.7% 13.3% (8.2%) (11.0%)
Motability Vehicles (30.7%) (32.1%) (37.8%) (21.3%) (29.8%) (36.3%)
New Fleet Cars(3) 0.7% (7.6%) (34.3%) (22.2%) (35.7%) (32.4%)
New Commercial Vehicles (19.2%) (19.8%) (14.6%) 9.3% 8.5% (4.6%)
(2) includes internal and external revenues
(3) includes agency volumes
TRADING UPDATE for the 5-month Period ended 31 January 2022
Used vehicle sales
In the Period, new vehicle supply constraints restricted fresh supplies of
used vehicles into the market. This constrained supply drove the average
price of a used car in the UK up approximately 25% year-on-year and by
approximately 8% over the Period.
Overall, the Group sold 32,658 retail used vehicles to consumers in the
Period. The Group's like-for-like volume of used vehicles sold fell by 11.9%
when compared to pre-pandemic levels, namely the same period within the
financial year ended 29 February 2020 (FY20). This decline reflected market
trends of reduced supply, particularly in the nearly new segment. Pure
on-line sales volumes rose in the Period and were aided by investment in
marketing campaigns promoting the Group's "Click2Drive" digital technology
platforms. Gross profit per unit grew 52.5% to record levels of £1,846 from
£1,210. Gross margin percentages rose from 8.4% to 9.4% despite
significantly increased sales prices. Core Group gross profit generated from
used vehicle sales in the Period grew by £13.9m compared to FY20 and this
growth was the key driver of enhanced Group overall profitability.
New retail car and Motability sales
The UK new vehicle market recorded 1.65 million registrations in the 12 months
to 31 December 2021 (SMMT), a decline of 28.7% on pre-pandemic levels and only
a 1% increase on Pandemic impacted 2020. Supply-side issues, driven by
component shortages and Covid related factory capacity constraints were the
primary reason for the continued subdued new vehicle market, rather than a
lack of demand. Indeed, high used vehicle prices and the introduction of
enhanced range electric vehicles has led to an ongoing switch in demand from
used to new. The Group has record new vehicle order banks as a result of
this high demand and elongated lead times.
SMMT data showed an 11.0% decline in UK private registrations in the Period
compared to pre-pandemic levels. The Group's like-for-like volumes of new
retail vehicles fell by 8.2% representing an outperformance as the Group
benefited from its mix of Manufacturers having better supply than the market
as a whole. The Group took 4.0% of the UK new retail market in the Period
and this is increasing as more sales outlets are added by the Group.
Group Motability volumes declined 29.8% in the Period from FY20 on a
like-for-like basis, compared to a decline in UK registrations in this channel
of 36.3%. The Group has always had a strong focus on Motability sales and
again its portfolio of Manufacturer partners enhanced the Group's market share
to 5.2% in the Period. The Group is responsible for the largest fleet of
Motability vehicles in Great Britain, and this makes a significant
contribution to Group aftersales revenues.
In the Period, Group margins on the sale of new retail and Motability units
improved with gross profit per unit increasing by 41.6%. Like-for-like gross
profits from the sale of new retail and Motability vehicles grew £6.8m
compared to the same Period in FY20 despite volume shortfalls.
Fleet & Commercial vehicle sales
The Group's like-for-like sales of new commercial vehicles grew 8.5% in the
Period compared to the pre-Pandemic period of FY20, with the SMMT reporting a
decline of 4.6% in UK registrations. The Group has been successful in
improving market share in commercial vehicles with the performance also aided
by the Group's highly successful online commercial vehicle sales operation,
Vansdirect. The Group took 4.9% of the new commercial market in the
Period. The Group grew a significant share of the market in the previous
Pandemic hit year as it took advantage of stock availability and its
competitors being slower to re-open post lockdown.
The Group's like-for-like volumes in the fleet car channel fell by 35.7%,
against a 32.4% fall in the UK fleet market. Sales in this channel are
highly correlated to Manufacturer appetite to support this low margin
channel. Manufacturers have reduced support and volumes in many fleet
channels due to the prioritisation of more profitable channels such as
retail. The Group continues to invest resources in fleet opportunities
including the recent development of a public sector focused fleet team.
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 £3.1m in the Period compared to FY20.
Aftersales
Aftersales is a vital contributor to overall Group profitability and delivered
the following like-for-like trends in the Period, compared to FY20 prior to
the Pandemic:
5-month period ended 31 January 2022
Service Accident & Smart Repair Total
Parts
£'000 £'000 £'000 £'000
Revenue(4) 53,273 61,644 9,974 124,891
Revenue(4) change 267 859 2,226 3,352
Revenue(4) change (%) 0.5% 1.4% 28.7% 2.7%
Gross profit change (627) 1,116 751 1,240
Gross margin(5) FY22 (%) 74.7% 23.2% 38.4% 46.4%
Gross margin(5) FY20 (%) 76.2% 21.7% 39.7% 46.6%
(4) includes internal and external revenues
(5) margins in aftersales expressed on internal and external revenues
· Service
Core Group service revenues in the Period were in line with FY20 levels, with
an increase in revenues from retail service customers in the Period offset by
a decline in warranty sales and internal revenues in preparing vehicles for
sale. The trend for reduced Manufacturer warranty revenues has been seen for
some months and is the result of reduced mileages driven during lockdown and a
reduction in UK new vehicle registrations seen over the past two years. The
three-year vehicle parc for cars in the UK (typically mirroring Manufacturer
warranty periods) is estimated to have declined by approximately 33%(6)
between 2019 and 2022. The Group has seen significant capacity constraints
both due to Covid related absences and technician vacancy levels in the
Period. As previously announced, a full review of technician pay was
undertaken and pay rises implemented on 1 November 2021. Like-for-like
service gross margins have reduced from 76.2% in FY20 to 74.7% in the Period
reflecting these higher payroll costs.
(6) Source: Autotrader
· Parts
The Group successfully grew like-for-like revenues and gross profits from the
sale of parts in the Period compared to FY20 levels despite the previously
flagged exit from trade parts operations in the Group's Vauxhall Franchise.
Gross margins in parts rose from 21.7% to 23.2% as the Group continued to
benefit from reducing competition, the delivery of excellent customer
experience service and strong pricing disciplines.
· Accident and Smart Repair
During the current financial year, responsibility for the Group's accident
repair centres has moved into a new standalone division, concentrating solely
on the management of this channel. The Group's Smart Repair operations
continued to expand in the Period with additional services, such as windscreen
repair. Overall, the Core Group saw significantly improved revenues and
gross profit from the growing accident and Smart repair channel in the Period.
Overall, core Group aftersales margins were broadly stable at 46.4% (FY20:
46.6%) over the Period with core gross profit generation up £1.2m.
Operating expenses
Group expenses increased by £26.3m in the Period when compared to the
pre-Pandemic FY20. Underlying Core Group expenses grew by 5.2% (£6.4m) over
the two year Period, with dealership acquisitions representing the remainder
of the increase in cost base.
To aid the retention and recruitment of colleagues, the Group announced a
groupwide review of colleague rewards and relevant actions were taken between
October and December 2021. These salary reviews increased operating expenses
by £1.6m in the Period. Investment in headcount in the Group's Gateshead
based customer experience centres, software development and digital marketing
functions has also taken place in the last two years, reflecting investment in
an increasingly omnichannel and digital operating model. This investment
increased operating expenses in the Period by £0.7m on FY20. Finally,
enhanced trading performance resulted in higher amounts of commission and
bonus earnings being payable, increasing operating expenses by £1.9m in the
Period.
The Group invested an additional £1.1m in marketing in the Period as the
Group sought to increase brand awareness, launch the "Click2Drive" digital
sales brand and take advantage of strong post lockdown consumer demand in
sales and service. The Group also invested an additional £1.3m in its
Information Technology platforms including telephony in the Period, to further
enhance its delivery of omnichannel retailing (through its Click2Drive
platform) and to build increased resilience and security into the Group's
digital infrastructure.
Cost savings arose compared to FY20 in a number of areas, particularly
business rates reliefs and reduced vehicle costs as demonstrator fleet sizes
reduced.
Interest costs
Net finance costs fell £1.3m in the Period compared to FY20, due to reduced
new vehicle manufacturer stocking charges as inventory levels fell due to
supply constraints.
PORTFOLIO CHANGES
On 10 December 2021 the Group acquired the entire issued share capital of
Farmer & Carlisle Holdings Limited, which operated two Toyota franchise
freehold dealerships located in Loughborough and Leicester. The share
capital was acquired for cash consideration of £9.2m (including £0.9m net
cash acquired and subject to finalising completion accounts). Consideration
included a payment in respect of goodwill of £2.35m. The businesses have
been fully integrated in terms of the Group's systems and processes.
The Group will further expand with Toyota as Macklin Motors, the Group's brand
in Scotland has been awarded the franchise in the West of Scotland from 1
April 2022. The Group intends to develop four dealerships in the coming
periods to cover this extensive territory. The first dealership will open in
Darnley, South Glasgow on the 1 April 2022, in the freehold premises acquired
in early 2021 and replaces the current used car operation. The additional
three new dealerships will be at new locations. These developments will
augment the Group's existing three Toyota dealerships located in the East
Midlands operating under the Group's Vertu brand.
The Group has had for a number of years a strategy to multi-franchise certain
of its locations where this generates enhanced returns. The Period saw the
Group execute on this strategy in a number of locations as set out below:
· On 1 January 2022, added the Peugeot franchise to the Group's
Sunderland Vauxhall dealership, which brings the number of Peugeot outlets
operated by the Group to 8.
· As part of the planned re-franchising activity at the Group's
premises in Dunfermline, Fife, the Renault and Dacia franchise has been added
to the dealership to operate alongside Vauxhall which opened in July. A
further additional franchise outlet for Hyundai will be added in the coming
days so completing the development. The latter results in the Group
operating 12 Hyundai outlets including the adjacent Edinburgh territory.
· In January 2022 a newly built freehold dealership opened in
Newbridge, Edinburgh representing Kia and Peugeot. These franchises
relocated from leasehold premises on the expiration of the lease. The MG
franchise was also included in the new development with the business having
been acquired in December 2021.
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.
Net Cash
Increasing levels and prices of used vehicle inventory held by the Group have
led to a working capital outflow in the Period as the Group successfully
secured used vehicle supply albeit at higher prices. The average cost of
used vehicles held by the Group has risen since 1 March 2021, with this
increase reflecting wider trends in the UK vehicle market. In addition to
the impact of rising values, anticipated new vehicle supply constraints have
led the Group not to reduce inventory levels in advance of the March plate
change by as much as normal as lower levels of part exchange vehicles are
expected to be generated to replenish used car inventories in March.
The Group has seen success in disposing of surplus property assets held for
resale, with the sale of two such empty properties completed in the Period.
These disposals yielded gross cash proceeds equal to the net book value of the
properties of £1m.
The Group completed its latest announced share buyback programme, with the
purchase since 26 August 2021 of 9,751,009 shares representing 2.5% of shares
in issue. This buyback exercise has utilised a total of £6.0m of cash over
the financial year with shares purchased at an average price of 61.5p per
share. The Board considers share buy-backs to be an important part of the
Group's capital allocation strategy and has today announced a further £3
million buyback programme.
FUTURE PROSPECTS
The strong balance sheet, experienced leadership team and strong systems
capability of the Group ensures it is well placed to capitalise on the
significant opportunities for growth that exist within the UK automotive
retail sector. The Board considers that scale is a vital success factor in
the sector given the need for strong brands and investment in digital
developments and continues to have ambitious growth aspirations for the Group
in the next few years.
Without doubt, FY22 has seen extraordinary trading conditions which have
driven the exceptional financial performance. Whilst the outlook remains
uncertain for FY23, it is clear that these highly favourable trading
conditions are unlikely to recur. The FY23 financial outcome is likely to be
some way below FY22, although we certainly expect performance to be well ahead
of periods prior to FY22. As the year progresses, we will update the market
accordingly. Significant increases in operating expenses such as payroll,
energy and investment in digitalisation and related marketing are evident.
In addition, rates and vehicle expenses are expected to normalise. The
enhanced vehicle sales margins seen in FY22 are anticipated to continue but at
a reduced augmented rate as supply in new and used cars normalises in the year
ahead. Considerable uncertainties remain over new vehicle supply and the
timing of market normalisation. In addition, consumer confidence will be
critical in the months ahead as cost-of-living inflationary rises become
apparent and geopolitical uncertainty arises. These matters could impact
vehicle sales.
The Group is now in a better position to maximise aftersales revenues due to
higher resource levels following pay reviews and a recruitment drive.
Aftersales margins are likely to reduce, as seen in the latest Period, with a
potential offset with revenue growth. The last two-year decline in new
vehicle sales will lead to a softening in the market for service and repair
work in the UK for vehicles under three years old, the traditional core market
for franchised retailers servicing. Increasing market share in the older
vehicle service and repair market will be a critical objective to seek to
offset this softness.
The Group will announce its preliminary results for the year ended 28 February
2022 on 11 May 2022.
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the Company's obligations under Article 17 of MAR
For further information please contact:
Vertu Motors plc Tel: 0191 491 2121
Robert Forrester, CEO
Karen Anderson, CFO
Zeus Capital Limited Tel: 020 3829 5000
Jamie Peel
Andrew Jones
Dominic King
Camarco Tel: 020 3757 4983
Billy Clegg
Tom Huddart
Notes to Editors
Vertu Motors is the fifth largest automotive retailer in the UK with a network
of 159 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 155 franchised sales outlets and 4
non-franchised sales operations from 120 locations across the UK.
Vertu's Mission Statement is to "deliver an outstanding customer motoring
experience through honesty and trust".
Vertu Motors Group websites - investors.vertumotors.com / www.vertucareers.com
Vertu brand websites - www.vertumotors.com / www.bristolstreet.co.uk /
www.macklinmotors.co.uk / www.vertumotorcycles.com
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