REG - Vertu Motors PLC - Trading Update

Vertu MotorsAnnouncement

07/12/2023 07:00

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RNS Number : 9516V  Vertu Motors PLC  07 December 2023

7 December 2023

Vertu Motors plc ("Vertu Motors" or "Company")

Trading Update

 

Vertu Motors, the UK automotive retailer with a network of 195 sales and
aftersales outlets across the UK provides the following trading update for the
three months ended 30 November 2023 ("the Period"), outlining the impact of a
number of negative external market factors resulting in profitability for FY24
now expected to be lower than current market expectations.

The Period has witnessed a material change in the used vehicle market with UK
wholesale values experiencing a significant reduction in October and November.
This arose due to higher supply into the wholesale markets, in conjunction
with retail demand being affected by the combination of higher interest rates
and high vehicle prices impacting affordability.  At the start of the Period,
used car values in the UK were approximately 20% higher than in January 2021
and had been resilient since the Pandemic. CAP(1) have reported that values
have fallen on average 4.2% in both October and November, representing record
levels of monthly decline.  There has been greater weakness in higher-end
premium product values, which the Group started to experience in September.
CAP(1) reports that the largest drops of 7% -11% per month arose in the
premium brand segment.

The Group adapted to these changing market dynamics, applying its Vertu
Insights pricing algorithm to ensure vehicles were priced effectively, to
ensure increased stock turn and thus a reduction in Group inventory levels.
Group like-for-like used vehicle volumes fell 2.0% in the Period, an
improvement on the 5.7% reduction in the first half of the financial year.
Gross profit generation from used car sales were, however, below those
anticipated.

The Board consider that UK used vehicle values are likely to continue to
weaken above historic norms in the near term. Once the current pricing
correction has eased, used car prices in the UK will be more affordable to the
consumer and margins should stabilise. Reducing interest rates in the
medium-term would also aid affordability and provide a further stimulus to a
market benefitting from increased supply.

New vehicle supply to the UK continues to increase as production constraints
diminish and lead times reduce.  The calendar year to November 2023 has seen
UK car registrations increase 18.6%, due to significant product flow into the
fleet market, whereas new car retail volumes have only marginally increased.
Retail demand has become increasingly muted in recent months, and this is
particularly the case for Battery Electric Vehicles.  The Group has seen
like-for-like new retail and Motability volumes broadly in line with the UK
market growth during the Period.   New vehicle margins have continued to
reduce towards more normalised levels due to increased supply, with the Group
delivering higher overall core gross profit generation from the sale of new
vehicles year-on-year.

Fleet and commercial volumes and gross profit generation rose in the Period
year-on-year.

Overall, new vehicle supply has started to exceed natural demand levels,
leading to an increased pipeline of new vehicle inventory, which when combined
with higher interest rates, has increased manufacturer stocking interest
charges significantly above expected levels.

Aftersales demand remained strong and higher technician resource levels are
helping 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 should help underpin future aftersales performance.  Service
performance and delivery of outstanding customer experiences has been held
back by the impact of dislocation in parts supply in respect of certain of the
Group's Manufacturer partners.  This is likely to continue for a number of
months and may well be exacerbated by tightening sanctions on Russia,
impacting on the availability of parts manufactured in Eastern Europe.

Control of operating expenses remains a major focus and costs in the Period
were well-controlled. The Board note the recently announced, above
expectation, increase of 9.8% in the level of the National Living Wage from
April 2024.  This increase represents a low single digit million £
additional cost in FY25 to the Group, both in terms of our own colleagues and
certain of the Group's suppliers, particularly in the areas of vehicle and
premises cleaning.  The Group will continue to pursue areas of efficiency and
improved productivity from use of technology to offset these cost headwinds.

(1) CAP-HPI Used car market report December 2023.

Outlook

The current consumer environment remains volatile, and the Board remain
cautious.  In the light of the external negative market factors highlighted
above, the Board anticipate that profits for the financial year ending 29
February 2024 will be below current market expectations.

The recent pressures on short-term profitability of the sector in general do
not change the longer-term underlying attraction of the business and do not
have a significant negative impact on its intrinsic value.  The Board remain
convinced that the Group is very well positioned to deliver its stated
strategy over the medium-term and to take advantage of the increasing
opportunities in the UK sector.

Robert Forrester, Chief Executive Officer of Vertu, said:

"The current consumer environment remains volatile and recent trends of
sluggish new car retail demand and weakness in used car pricing are likely to
persist for some months.  Vertu remains very focused on delivering
outstanding customer experience, tightly controlling inventory and being
diligent on costs.  The Group has a strong balance sheet and long track
record of operational excellence and financial discipline.  These attributes
mean we remain very confident in our ability to take advantage of these
challenging market conditions and the resulting increased opportunities in the
sector."

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.

                                                      Tel: +44 (0) 191 491 2121

 Vertu Motors plc
 Robert Forrester, CEO
 Karen Anderson, CFO
 Phil Clark, Investor Relations                       P.Clark@vertumotors.com

                                                      Tel: +44 (0) 203 829 5000

 Zeus (Nominated Adviser and Broker)
 Jamie Peel
 Andrew Jones
 Dominic King

 Camarco                                              Tel: +44 (0) 203 757 4983
 Billy Clegg
 Tom Huddart

 Notes to Editors
 Vertu Motors is the fourth largest automotive retailer in the UK with a
 network of 195 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 191 franchised sales outlets and 4
 non-franchised sales operations from 145 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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