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Territory changes may prevent Vardy record

Reg Vardy plc has declared a new record for interim profits but manufacturers' reorganisation of territories could prevent a similar full-year achievement.

The half-year profit was £15.17m – £200,000 above the previous record, for the year 2000. Reg Vardy needs to make more than £32.2m for the year to beat the previous record, and City estimates are for no more than £31m.

Its problem is that Mercedes-Benz is only midway through its redistribution of territories. Nissan and Renault are hard at work making sense of their new alliance and will probably require Vardy (as with all franchise holders) to withdraw from some areas and invest in others.

Gerard Murray, Reg Vardy chief executive, said: “The effect on us is that we may lose operations where our profitability is nicely mature, and be forced to start again in new areas.

“The difference can be loss of half the profit. We have dealerships doing a 5% operating margin in volume franchises. But the norm is 2.5% to 3.0% and it can take four years for us to get profit up to maturity in a new business.”

Mr Murray supports the consensus forecast of a 2.25m UK market in the coming year. His confidence about Vardy's prospects is based partly on the growing move away from company cars.

“Companies are taking fewer fleet cars,” he said. “We have already seen a reduction in fleet sizes. There is a clear trend to cash for cars. There will be more private buyers and that has to be good for profit. The cost of sales is higher but the retained margin is better.”

There is still potential for growth in the size of the business. Mr Murray wants to see the current 73 dealerships expand to 100. A larger business will spread the benefit of the investment in Vardy Central – the customer relationship marketing system that has already cost £750,000. It will absorb another £1.5m before it is implemented by all dealerships.

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