8:22 am, September 6, 2022
Vertu Motors today said it had performed strongly during the first half of its financial year but uncertainty over vehicle supply and consumer spending means profitability for the year will be more weighted to those initial six months.
Issuing an update on current trading ahead of announcing its results for the six months ending August 31, Vertu said a dislocated global supply chain, especially centring on semiconductors, which in turn had affected vehicle production levels had continued to restrict new vehicle supply.
UK market and group vehicle volumes in the new retail and fleet channels have suffered year-on-year declines as a result.
Order bank levels for new vehicles across the group are high, it said, with nearly 13,000 new retail orders currently awaiting delivery ,and strong fleet and commercial order banks also in place.
Gross profit generation from the sale of new vehicles is ahead of last year, despite the decline in volumes, due to stronger margins.
Vertu, which will be releasing its interim results on October 5, said that as well as vehicle supply uncertainty, consumers were likely to be affected by rising energy costs and inflation generally.
As such, the board said it currently anticipates that trading performance for the full financial year will be in line with current market expectations.
The used car sector has also suffered supply constraints, which, following the post-lockdown pent-up demand, had led to a decline in like-for-like used car volumes.
Used vehicle wholesale prices have stabilised after a period of significant growth, though, so although gross profits per unit have stayed above normal levels, they are down on the very high levels seen in the financial year ending February 28, 2022.
Its high-margin aftersales departments have delivered revenues ahead of previous years on a like-for-like basis.
Retail revenue grew in the service department as customer retention improved and the older car servicing market was penetrated more effectively.
Internal preparation of used cars also saw more income in the service departments, thanks to higher charge-out rates and the effect of more preparation being needed as older cars were sold.
Warranty activity, however, remained subdued because of the decline in the 0-to-three-year vehicle parc.
Service margins were down, as expected, because of higher technician costs.
Parts, smart repair and accident repair centres enjoyed ‘continued significant performance improvements’ in revenue and gross profit.
Operating expenses have increased year-on-year because of rising costs and the removal of government support for business rates, which had cut costs in H1 2021 by £5.2m.
Costs are, however, in line with planned levels as a percentage of revenue.
Vertu added that it was currently benefiting from below-market-rate electricity costs under a fixed contract expiring at the end of September.
As such, its energy cost will rise in the second half of the financial year.
An energy-purchasing strategy has been developed that includes finding off-grid energy services to manage its exposure to energy market price volatility risks.
Vertu, which boasts a network of 160 sales and aftersales outlets, said it was continuing to evaluate and carry out acquisition opportunities.
Although it has more franchise relationships than any other UK group, it is holding discussions with franchises it doesn’t currently represent and which may lead to further growth.
Reacting to the update, independent investment bank Liberum said: ‘We maintain our view that supply/demand dynamics are likely to remain favourable even as macro pressures build.’
It has made a cautious estimate of £3.952bn of sales, returning £35.4m pre-tax profit, for the full year, adding that shares in Vertu ‘represent deep value’.
