REG - Vertu Motors PLC - Trading Update
02/03/2023 07:01
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RNS Number : 5910R Vertu Motors PLC 02 March 2023
2 March 2023
Vertu Motors plc ("Vertu Motors" or the "Group")
Trading Update: Group trading in line, Helston integration on track, cash
generation better than expected
Vertu Motors, a leading UK automotive retailer with a network of 191 sales and
aftersales outlets is pleased to announce the following update with regards to
the five-month period to 31 January 2023 (the "Period") ahead of its
preliminary results for the year ended 28 February 2023 to be announced on 10
May 2023. The Group continues to trade in line with management expectations.
HIGHLIGHTS
· Group trading in line with management expectations
· Year-end net debt now expected to be £80-85m (versus previous
guidance of £100-110m) on strong operating cashflow and working capital
management
· Core Group service gross profit grew +5.2% vs. prior year as recent
increase in technicians drove market share gain
· Helston integration on track, with confirmation of £3.2m annual
synergy target to be achieved by FY2025
· 37 sales outlets added to Group portfolio since 1 December 2021,
including 27 from Helston and 2 from BMW Motorrad acquisitions underpinning
scale benefit opportunities
· Signs of new car supply improving after extended period of disruption
with significant supply constraints in used cars remaining
· Used car gross margin normalising back to historical rates in line
with expectations. Used car pricing remains firm overall
· Commercial vehicle division growth ahead of the market, with
Vansdirect making a significant contribution
· Interest rate cap implemented on £50m of mortgage debt and an
interest rate swap arrangement is in the process of being implemented in
respect of £30m of borrowing under the revolving credit facility (RCF), to
mitigate interest rate risk
Robert Forrester, Chief Executive of Vertu Motors said:
"I am pleased to report that trading remains in line with expectations against
a complex macro backdrop. The entire Vertu team has put in hard work and
dedication once again, and I would like to thank them all. Used car margins
have normalised back towards historical levels as we had expected and there
are tentative signs of improving new car supply. The performance of our
service and repair business has been strong.
We have been working at pace to integrate the recently acquired Helston Motors
business and this is progressing well. We are excited about the
opportunities our enlarged portfolio will create for Vertu Motors."
5-month period ended 31 January 2023 Var to 2022
Like-for-like SMMT UK registrations
Group Revenues 9.4%
Service Revenues(2) 7.6%
Volumes:
Used Retail Vehicles (4.4%)
New Retail Vehicles (5.4%) (1.5%)
Motability Vehicles 59.7% 44.1%
New Fleet Cars(3) 13.2% 33.4%
New Commercial Vehicles 7.0% (8.5%)
(2) includes internal and external revenues
(3) includes agency volumes
TRADING UPDATE for the 5-month Period ended 31 January 2023
All commentary below reflects the 5-month Period ended 31 January 2023
compared to the 5-month Period ended 31 January 2022 unless stated.
Used vehicle sales
Reduced new vehicle sales in recent years continue to impact the used vehicle
market (as they will for the foreseeable future) restricting fresh supplies of
used vehicles. This constrained supply aided price stability in the average
price of a used car in the UK over the Period and such stability is expected
to continue. Within this overall benign picture, however, there has been
recent much publicised weakness in the price of used electric vehicles in the
UK, which saw average values decline by 17.0% on average over the Period.
The Group's like-for-like volume of used vehicles sold in the Period fell by
4.4% when compared to the same period last year. Gross margin percentages
normalised to 7.0% from 9.4% and average selling prices were stable at high
levels. The Core Group's gross profit per unit reduced to £1,400 from the
record levels seen in FY22, a decline of £455 per unit. Whilst used
electric vehicles currently represent a small proportion of Group sales,
dilution of margins due to pricing pressure on used electric cars was visible.
Ongoing restricted supply of cars less than three years old led to the Group
retailing older vehicles. As anticipated, Core Group gross profit generated
from used vehicle sales in the Period was £16.9m lower than the record levels
of profitability achieved in FY22.
New retail car and Motability sales
The UK new vehicle market recorded 1.61 million registrations in the 12 months
to 31 December 2022 (SMMT), a 1.5% decline on the low level of registrations
seen in 2021. Supply-side issues, driven by component shortages, remain the
primary reason for the continued subdued new vehicle market though prices also
remain high which will be impacting demand levels.
SMMT data showed a 1.5% decline in UK private registrations in the Period.
The Group's like-for-like volumes of new retail vehicles fell by 5.4%
against a strong market outperformance in the comparative Period as the Group
emerged from lockdowns quicker than the sector in general. The Core Group
took 4.0% (2022: 4.0%) of the UK new retail market in the Period.
Group Motability volumes grew significantly by 59.7% in the Period on a
like-for-like basis, a strong outperformance compared to a rise in UK
registrations in this channel of 44.1%. 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 6.0% in the Period (2022: 5.2%). The
Group is responsible for the largest fleet of Motability vehicles in the UK,
and this makes a significant contribution to Group aftersales revenues.
In the Period, Group gross profit per unit on the sale of new retail and
Motability units improved to £2,344, a 3.6% increase on the comparative
period. Like-for-like gross profits from the sale of new retail and
Motability vehicles therefore grew £5.1m compared to the same Period last
year on the back of the stronger margins.
In January 2023, the first major franchise, Mercedes-Benz, commenced the
agency model for the retailing of new retail vehicles.
Fleet & Commercial vehicle sales
The Group's like-for-like sales of new commercial vehicles grew 7.0% in the
Period, with the SMMT reporting a decline of 8.5% in UK registrations. This
significant market outperformance shows that the Group has been successful in
improving market share in commercial vehicles with the performance aided by
the Group's online commercial vehicle sales operation, Vansdirect. The Group
took 5.9% of the new commercial market in the Period (compared to 4.9% last
year).
The Group's like-for-like volumes in the fleet car channel grew by 13.2%,
against a 33.4% growth in the UK fleet market. The Group saw strong fleet
car sales in the comparative period due to emerging from lockdowns quicker
than the competition.
Importantly, despite strong volume growth, the Group grew like-for-like gross
profit per unit in the Fleet and Commercial channels and consequently Core
Group gross profit generation rose £2.2m in the Period.
Aftersales
Aftersales is a vital contributor to overall Group profitability and delivered
the following like-for-like trends in the Period, compared to FY22:
Service Accident & Smart Repair Total
Parts Forecourt
£m £m £m £m £m
Revenue(4) 66.3 79.4 8.5 6.2 160.4
Revenue(4) change 4.7 7.8 1.5 2.5 16.5
Revenue(4) change (%) 7.6 10.9 20.7 69.2 11.5
Gross profit change 2.4 1.7 0.7 0.1 4.9
Gross margin(5) FY23 (%) 72.5 22.9 54.3 7.0 44.4
Gross margin(5) FY22 (%) 74.1 23.0 56.1 7.2 46.1
(4) includes internal and external revenue
(5) margins in aftersales expressed on internal and external revenue
· Service
Core Group service revenue in the Period was £4.7m above FY22 levels, with
increases in revenue from all key channels, retail, warranty and internal.
An improvement in warranty revenue is a reversal from recent trends for
reduced Manufacturer warranty revenue, that resulted from reduced mileages
driven during lockdown and the reduction in UK new vehicle registrations.
The Group's performance in warranty sales has been aided by some significant
vehicle recalls in the Period in several franchises.
The Group has proactively improved its service capacity by reducing technician
vacancy levels. The Group continues to ensure that pay levels for technicians
are competitive with further pay rises implemented on 1 March 2023.
Like-for-like service gross margins have reduced from 74.1% in FY22 to 72.5%
in the Period reflecting these higher payroll costs.
· Parts
The Group successfully grew like-for-like revenue and gross profits from the
sale of parts in the Period compared to FY22. The Group has very successful
scaled parts operations operating under the traditional and agency models and
the Group continues to take market share. Gross margins in parts were stable
at 22.9% resulting in an increase in core gross profit of £1.7m.
· Accident and Smart Repair
The Group's Smart Repair operations continued to expand in the Period and now
operates a total of 106 vans. The Group's accident repair centres continue to
benefit from improved operational excellence resulting from having dedicated
specialist management in place. Overall, the Core Group saw improved revenue
and gross profit from the accident and Smart repair channel in the Period.
Overall, core Group aftersales margins were 44.4% (FY22: 46.1%) with core
gross profit generation up £4.9m in the Period on improved volume. Margins
were diluted by sales mix as lower margin parts and accident repair areas grew
faster than the higher margin service channel.
Operating expenses
Group expenses increased by £11.9m in the Period compared to FY22.
Like-for-like Core Group expenses grew by 4.9% (£7.3m) over Period, with
dealership acquisitions accounting for the balance.
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 £3.9m increase in core employment expenses arose in the Period
compared to FY22. Alongside salary increases, to ensure colleague retention
levels were increased and recruitment targets achieved, the Group has invested
in additional headcount in the Group's service departments with a major
apprentice recruitment drive as well as expansion of the Gateshead based
customer experience centres, software development, cyber security, and digital
marketing functions.
Energy has been a cost headwind for the Group. While the Group benefitted
from below market rate fixed contracts on electricity up to September 2022,
contract expiry led to £2.7m of additional costs for the Group in the
Period. The Group is highly focused on reducing energy usage, achieving a
3.9% reduction in like-for-like electricity usage during the Period.
Furthermore, the Group is deploying its previously announced energy purchase
strategy and installing solar panels. The Group has to date installed solar
panels at 7 of 46 planned installations which when complete in December 2023
should generate 10% of the Group's electricity load with an expected total
capital expenditure of £2.7m.
Interest Costs
With an easing of supply of new vehicles in some franchises, together with
increased costs of borrowing, the Group saw new vehicle stocking charges
increase by £1.3m compared to the very low levels in the prior Period.
In addition, the increased level of debt in the Group following the
acquisition of Helston Garages, as expected, increased interest costs.
PORTFOLIO CHANGES
On 17 December 2022 the Group completed the acquisition of Helston Garages
Group Limited ('Helston') adding 28 predominantly premium franchised sales
outlets. This acquisition radically enhanced the Group's scale and reach
into the South West of England. The integration of these acquired
dealerships onto the Group's systems and processes is on track, with only the
acquired BMW & MINI businesses still to be rebranded and transitioned in
the coming weeks. The Group disposed of a small acquired Peugeot outlet in
Honiton in January to the Snows group in order to optimise representation. The
Group represents Peugeot in nearby Exeter and Peugeot related operations
ceased at Honiton on transfer.
On 31 October 2022 the Group acquired the business and assets of two BMW
Motorrad outlets in Shipley, near Bradford, and Rotherham from Saltaire Motor
Company Limited. These Businesses have been rebranded to trade under the
Vertu brand and have been fully integrated into the Group.
The Group remains committed to its strategy to multi-franchise certain of its
locations where this generates enhanced returns. The Period saw the Group
execute on this strategy in several locations as set out below:
· On 21 October the Group continued with its expansion with Toyota in the
West of Scotland opening its second site for the brand in Hamilton, in
existing premises alongside the Mazda franchise.
· Work was finalised on the introduction of sales outlets for Vauxhall
and Citroen alongside the Group's Peugeot operation in Harlow. The outlets
opened in November 2022 following the move of the aftersales operation off
site to a new larger dedicated aftersales operation.
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. The Group has recently
announced that its BMW/Mini outlet in Malton, Yorkshire will close at the end
of March. Operations will consolidate at the Group's operation in nearby
York and the Malton property lease will cease in October 2023. This action
will reduce operating expenses whilst the Group seeks to retain customers in
its York and Stockton BMW/Mini dealerships.
Net Debt
To fund the acquisition of Helston Garages Group in December 2022 the Group
increased its debt funding though renegotiated and new debt facilities.
Vertu's existing lending banks were joined by a third lending bank to extend
the Group's Revolving Credit Facility ('RCF') out to November 2025, with the
option to further extend until November 2027 and increasing the overall
facility limit to £93m from £62m. In addition, the Group agreed a new
20-year mortgage facility of £74.8m provided by BMW Financial Services ('BMW
FS') and increased stock lending facilities to £70m from £35m.
An interest rate cap contract has been completed by the Group. This limits
the underlying Sonia rate on £50m of mortgage borrowings to a maximum of 4.5%
(BMWFS base rate risk premium and the applicable margin of 2.8% will apply in
excess of this maximum). To further limit the Group's exposure to future
interest rate fluctuations on its RCF borrowings, the existing £22m current
interest rate swap which expired in January 2023, will be replaced with a new
fixed rate swap on £30m of the drawn RCF.
The Group expects net debt at year-end 28 February 2023 to be £80-85m (versus
the £100-110m previous guidance), reflecting strong operational cashflow and
working capital management.
OUTLOOK
The Board considers that scale is a key success factor in the UK automotive
retail sector given the need for strong brands and investment in physical and
digital capabilities and it continues to have ambitious growth aspirations for
the Group as recently demonstrated with the acquisition of Helston Group.
Our strong balance sheet and the ongoing support from lenders, our experienced
leadership team and robust systems capabilities will ensure the Group
continues to capitalise on the significant growth opportunities that exist in
the sector.
As expected, trading conditions are normalising after a period of exceptional
financial performance across the sector. New car supply is improving and
should mean year-on-year volume growth of new and used car sales for the
market in 2023. Used car supply remains tight given the lack of new car
sales in recent years and this is likely to underpin pricing in the year
ahead. Clearly consumer confidence is volatile and higher interest rates and
high vehicle prices may influence demand patterns. The Group will remain
agile and dynamic in adapting to this environment.
The Group focus remains on those areas under its control: Cost will be managed
tightly, while investing in growth opportunities; Helston integration will be
completed into the Group and synergies delivered; aftersales market share
gains remain a focus as we benefit from reduced technician vacancies and
implement conquest and retention improvement strategies.
The Group will announce its preliminary results for the year ended 28 February
2022 on 10 May 2023.
For further information please contact:
Vertu Motors plc
Robert Forrester, CEO Tel: 0191 491 2121
Karen Anderson, CFO Tel: 0191 491 2121
Phil Clark, Investor relations PClark@vertumotors.com
Zeus Capital Limited
Jamie Peel Tel: 020 3829 5000
Andrew Jones
Dominic King
Camarco
Billy Clegg Tel: 020 3757 4983
Tom Huddart
Notes to Editors
Vertu Motors is the fourth largest automotive retailer in the UK with a
network of 191 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 187 franchised sales outlets and 4
non-franchised sales operations from 142 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/
(https://investors.vertumotors.com/) /www.vertucareers.com
(http://www.vertucareers.com)
Vertu brand websites - www.vertumotors.com (http://www.vertumotors.com) /
www.bristolstreet.co.uk (http://www.bristolstreet.co.uk) / www.vertuhonda.com
(http://www.vertuhonda.com) / www.vertutoyota.com (http://www.vertutoyota.com)
/ www.macklinmotors.co.uk (http://www.macklinmotors.co.uk) /
www.vertumotorcyles.com (http://www.vertumotorcyles.com)
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