TIDMVTU
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 GBP80-85m (versus
previous guidance of GBP100-110m) 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 GBP3.2m
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 GBP50m of mortgage debt and
an interest rate swap arrangement is in the process of being
implemented in respect of GBP30m 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
SMMT UK
Like-for-like 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 GBP1,400 from the record levels seen in
FY22, a decline of GBP455 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
GBP16.9m 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 GBP2,344, a 3.6% increase
on the comparative period. Like-for-like gross profits from the
sale of new retail and Motability vehicles therefore grew GBP5.1m
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
GBP2.2m 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:
Accident
Parts & Smart Forecourt
Service Repair Total
GBPm GBPm GBPm GBPm GBPm
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 GBP4.7m 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 GBP1.7m.
-- 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 GBP4.9m 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 GBP11.9m in the Period compared to
FY22. Like-for-like Core Group expenses grew by 4.9% (GBP7.3m) 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 GBP3.9m 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 GBP2.7m 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 GBP2.7m.
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 GBP1.3m 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 GBP93m from GBP62m. In addition, the Group agreed a new
20-year mortgage facility of GBP74.8m provided by BMW Financial
Services ('BMW FS') and increased stock lending facilities to
GBP70m from GBP35m.
An interest rate cap contract has been completed by the Group.
This limits the underlying Sonia rate on GBP50m 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 GBP22m
current interest rate swap which expired in January 2023, will be
replaced with a new fixed rate swap on GBP30m of the drawn RCF.
The Group expects net debt at year-end 28 February 2023 to be
GBP80-85m (versus the GBP100-110m 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/
/ 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
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END
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