REG - Vertu Motors PLC - Trading Update

Vertu MotorsAnnouncement

04/03/2024 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240304:nRSD3417Fa&default-theme=true

RNS Number : 3417F  Vertu Motors PLC  04 March 2024

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 adjusted(1) profit before tax expected to be broadly
in-line with current consensus.

·    Year-end net debt(2) 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 Revenues(3)      5.3%

 Volumes:
 Used Retail Vehicles     0.8%
 New Retail Vehicles(4)   (5.1%)                     (3.8%)
 Motability Vehicles      73.1%                      77.9%
 New Fleet Cars(4)        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          Accident & Smart Repair                  Total

                                    Parts                                Forecourt
                           £m       £m      £m                           £m          £m
 Revenue(5)                69.4     88.5    9.8                          4.9         172.6
 Revenue(5) change         3.5      7.6     1.5                          (1.2)       11.4
 Revenue(5) 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 margin(6) FY24 (%)  72.2%    21.9%   58.5%                        7.6%        43.8%
 Gross margin(6) 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 adjusted(7) 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              Tel: 0191 491 2121

 Phil Clark, Investor relations   PClark@vertumotors.com
 Stifel
 Matthew Blawat                   Tel: 0207 710 7688

 Nick Harland

 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 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/
(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)

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct 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 (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  TSTJBMRTMTMMBPI