For the man charged with balancing the books of the various divisions of CEM Day, the challenges and risks of a diversified business are well worth the rewards.
Stuart Smith, finance director, said: “We are not a normal motor dealer in the same mould as many in the AM100. As well as our own finance, leasing and contract hire divisions we work with Ford, Peugeot, Fiat, Iveco, Ford Commercial and we have Nissan aftersales too.
“Diversity is one of our key strengths, but our real strength comes from a good, experienced board and a very good, clear vision for the direction of the group.”
He said it proved a formula that helped mitigate the effects of shrinking volumes, lower margins and expensive lending during the financial crisis and has since seen the group soar to top or near-top placings in the AM100 listings for return on sales (RoS), profit before interest and tax per site and profit per employee.
Smith is happy to be part of a business with an entrepreneurial spirit: “We live in uncertain times, but this is an entrepreneurial business and we thrive in periods of change.”
Its finance, contract hire and leasing divisions helped CEM Day to return growth in turnover through 2008 and 2009, and a 47% fall in profit before tax in 2008 (against the AM100 average fall of 139%).
Smith said: “The finance company basically services our used vehicle operation. With new cars, many of the vehicles go straight to the manufacturer’s finance operation, but with used, of course, we have the opportunity to do business and that really did help us when things went bad.
“During the crisis, we had to take advantage of the opportunities in our contract hire division. Funders were withdrawing from the market or becoming too expensive. Our relationships with our existing lenders were becoming strained, so we increased our facility and brought other lenders on board.”
Since then, however, CEM Day has been able to increase its contract hire and rental business by 80%.
“Our balance sheet is very strong now. We have expanded in both areas in terms of numbers of vehicles and deals and have moved very much into the public sector,” said Smith.
“Now there is the opportunity for us to increase our used car sales, aftersales and fleet operation further and, as we move into a period that seems to be defined by uncertainty, that should stand us in good stead.”
“We are not actively looking to grow our franchised business. Compared to the other areas that we have moved the business into, the margins are very small and it can be hard to justify the investment” Stuart Smith, finance director, CEM Day
In its annual accounts for the year ended December 31, 2015, CEM Day achieved £10.1m profit before tax on a turnover of £230m.
Turnover places the business 60th in the AM100 update, but the business’ credentials are better reflected by its high placing in the annual survey’s other rankings.
A record 4.4% RoS rate for its 2015 financial year saw it top the table – up 0.4 percentage points on last year and 0.8ppts on the year before.
The group’s dominance for the past two years in pre-interest and tax profit per staff member and profit per outlet, meanwhile, was only broken by the high margins of the Porsche Retail Group, which posted figures of £32,733 and £1.77m against CEM Day’s £24,196 and £1.2m respectively.
Earlier this month, CEM Day also moved up one place in the FN50 – the UK’s top 50 leasing companies, by size, as listed by AM’s sister publication, Fleet News – from 21st to 20th, despite an overall reduction in the size of its fleet, from 9,201 to 9,020.
This sits alongside a finance book of £12m, said Smith.
Reflecting on 2015’s results, he acknowledged that “we’re not quite forecasting that for 2016”, but he said the group was currently in a “very positive place”.
The group’s growth in assets from £51m to £57.3m also showed its ability to invest in new premises and facilities.
A focus on returns
The breadth of CEM Day’s automotive business – which yields a £27.4m turnover from contract hire, £21.1m from short-term hire and £11m from aftersales – allows its directors to identify areas of growth they need to develop.
A focus on RoS means it is unlikely there will be further growth in its franchised business. Built on the foundations of an 80-year partnership with Ford – which has benefitted from custom derived from staff employed at a now closed car parts factory in Swansea as well as the manufacturer’s Bridgend engine plant – CEM Day’s 10 franchised locations also include Peugeot in Swansea and Haverfordwest, Fiat in Swansea (added in 2010) and a Nissan aftersales franchise for Swansea.
Smith said: “We are not actively looking to grow our franchised business. Compared to the other areas that we have moved the business into, the margins are very small and it can be hard to justify the investment.”
CEM Day has invested in its facilities, with the construction of a FordStore in September 2015 – including a 12-vehicle showroom and an adjoining Ford Transit Centre – representing a £250,000 investment.
The facility, on Beaufort Road, Swansea, features separate areas for Ford’s main range, Vignale premium model lines and the brand’s performance line-up of Focus RS and Mustang coupé.
Smith said: “The response to the FordStore has been very positive. It is a huge step forward in terms of style and the customer satisfaction levels. It really has boosted footfall to the site and created a bit of a buzz around the Ford brand and the group. There are lots of new, interactive elements to the site and new models that have drawn people in.
“The Mustang has been a real surprise. It’s a really fun car, a flagship for the Ford brand, but it has also attracted a lot of attention and genuine enquiries. Supply is outstripping demand.”
CEM Day also increased the scale of the Ford franchises’ used car operation, Smith said, a trend which has been echoed across the group.
He said it had invested £4m in a former supermarket site next to its Ford car and van centres on Beaufort Road back in 2013, which processes cars coming back to market after their contract hire and leasing terms expire.
CEM Day chairman and chief executive, Graham Day, describes the sales operation as the glue that sticks the business together and the “passion” of the family.
“There’s a culture that exists within the group and a sense of security. It’s not down to reward necessarily; it’s more to do with the working environment and the colleagues we work with”
Russell Day, sales director, CEM Day
The dealerships that allow the fleet side of the business to repair and dispose of vehicles more effectively ensure that the group doesn’t struggle to find quality used car stock.
A stream of cars that can tap into brands not supported by its franchises offer customers greater choice and give the group greater scope to profit from its financing capabilities, particularly via its six Motor Park used car sites – three in Swansea, and one each in Llanelli, Neath Abbey, and Haverfordwest.
A change in management has also seen Motor Park take a more proactive approach to sourcing cars from outside the part-exchange and ex-fleet stock.
Smith said used vehicle sales were up about 50% in 2016. He said: “Large investment in a site adjacent to our Swansea West operation has allowed us to refurbish cars and commercial vehicles ready for retail, streamlining our operation and bringing a flow of good-quality used cars back into the business.
“It not only props up our used volumes, but will boost our finance penetration also, which is good business.”
Furthering its fleet ambition In late 2015, CEM Day added a new Days Rental outlet at Exeter, adding to its existing portfolio of eight rental sites: Bridgend; Bristol; Cardiff; Gorseinon; Haverfordwest; Newport; Shrewsbury; and Swansea.
Smith said two further sites could be added as the group targets a fleet size of 14,000 to 15,000 vehicles, adding: “I don’t expect we will go much bigger than that in the immediate future, but that is what we are targeting.”
In February, it rebranded Days Contract Hire, its division serving the company car and van markets, as Days Fleet. The new name was part of a change that includes the group broadening its in-life fleet management and mobility services to a growing number of employers that may purchase company cars and vans outright or fund them through a third-party provider.
Days Fleet has employed a system developed by fleet management specialists Jaama to deliver apps that allow its fleet customers to track the status of fleet vehicles and keep tabs on servicing and costs.
Days Fleet director, Aled Williams, said this was expected to boost the group’s involvement in managed vehicles – company cars and vans – and ‘grey fleet’ vehicles as well as realising growth in the company’s core funded fleet.
Williams said: “The fleet market has changed rapidly in recent years and continues to evolve very quickly. Clients and prospects are looking for total mobility solutions; that may embrace vehicle funding or may not.
“Days Fleet offers a wide range of ancillary in-life vehicle management products which are part of the mainstream enabling best practice management of cars, vans, drivers and journeys.”
Williams believes the change of name will also help the fleet business expand its customer base. He said it would have been difficult to talk to potential clients about providing a “cradle-to-grave fleet solution” if the business had the words ‘contract hire’ in its name.
Days Fleet offers products and services including: fleet consultancy, whole life cost analysis, fleet management,
maintenance management, accident management, mileage management, driver licence checking, telematics, fuel cards, temporary vehicle replacement, GAP insurance and vehicle movements as well as contract hire, sale and leaseback, salary sacrifice and flexi-hire.
Chasing growth in parts and aftersales
Smith said aftersales and parts supply is another area likely to provide CEM Day with growth in 2017.
To achieve this, it has a centralised parts wholesale centre for all franchises, 14 vans with telematics trackers to measure utilisation, a telesales centre with 20 dedicated direct lines that handle incoming calls in addition to booking services and rental vehicles.
It also introduced a service app and online service-booking facility and has online parts and accessories shops under the Motor Parts 4U brand.
The group has also been made an official parts supplier for the PSA Group as part of its new “hub and spoke” supply chain.
Smith said: “Aftersales has become an increasingly difficult area because of the reliability of modern vehicles and increased service intervals, but we have managed to maintain strong revenues. The group has widened its territories in terms of parts supply and the recent development, which has seen us become a PSA parts supplier for the region, has been very positive.”
Its developments in parts supply, fleet and rental over the past 12 months have played a key part in the growth of its staff numbers, too – the business started the year with 567 and will finish 2016 with more than 600.
Sales staff use iPads on the showroom floor on a daily basis and are kept updated on the business’ progress and any developments via monthly online updates delivered by the directors.
Smith conceded that the group was not a pioneer of the high-basic, low-commission model, which is starting to be adopted by some dealer groups, but said it placed an emphasis on
satisfaction, with rewards for customer service part of the incentive model.
Russell Day, sales director, said: “One of the biggest things for us is the loyalty and quality of our staff.
“We don’t have outrageous packages for staff, but there’s a culture that exists within the group and a sense of security. It’s not down to reward necessarily; it’s more to do with the working environment and the colleagues we work with.”
Smith said training was carried out in-house and that FCA compliance was a central part of the process.
He said: “We run a finance business. The FCA rules and Treating Customers Fairly has to be central to our business.”
What the EU referendum means for CEM Day
A previous AM feature on CEM Day highlighted the economic make-up of the South Wales region in which it operates.
Since the decline of the mining industry, a high proportion of the population of south-west Wales has been on a low income.
Average weekly earnings for adults in full-time employment in Wales stood at £492.4 in April 2016, 91.4% of the UK average (£538.7).
The Welsh unemployment rate has reduced from a high of 22.9% in 2009 to 18.3% today, but this is still behind the UK-wide figure of 15.5%.
Russell Day said: “We’ve got a very unique base here. There are a lot of low-income, or public sector workers that have certain deals with manufacturers, or Motability recipients, so it’s tough to get true retail business here. Some manufacturers struggle to understand this.”
He said Ford’s presence in South Wales had helped its market share, with many return customers sticking with the business despite the closure of the former Swansea plant. He said: “The repeat customers we’ve been serving for decades are our lifeblood.”
Now Wales faces new uncertainty as the Government’s austerity measures are compounded by the effects of June’s EU referendum vote. Smith conceded that any change that causes interest rates to rise dramatically could have a profound effect on CEM Day’s fortunes.
The new funding streams – delivered from a variety of sources, including key partner Barclays as well as Lombard, Black Horse, and Santander – developed by CEM Day have left it with a gearing ratio of 60.45%, which is high, but lower than a decade ago (2004: 77.7%).
Smith said: “Our business is traditionally highly geared and all we need is for interest rates to go up substantially and five years from now we could be looking at the core business as doing really well and the contract hire and rental business as suffering.
“The risks are not so much with contract hire, because that is operated on fixed rates of three to five years, but daily rental is funded on a variable rate. If that goes up and up and up, then it will have an effect.
“As it stands, Brexit does not seem to have had a significant effect on business and our growing used operation should see us well placed to offer our customers options if consumer confidence does suffer next year.”
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