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Reg Vardy has ‘enviable’ 2% profit to turnover

Acquisitions of under-performing businesses and declining residual values of short-term lease cars have contributed to a 13% drop in operating profits to £38.9m at Reg Vardy.

Turnover grow by 6.8% to £1.72bn in the year ending April 30.

Piers Trenear-Thomas of Grant Thornton says that despite first impressions, Vardy’s results are still rather good.

“Operating profit to turnover of 2% would be found enviable by most dealer groups. With the scale of Vardy it is even better because it takes into account the underperformers. The business is now of a scale that makes that sort of profit generate significant amounts of cash, hence its low gearing,” he adds.

Robert Forrester, Reg Vardy managing director, reports strong business from the prestige marques in its Specialist division but says the Volume division has been affected by falling retail sales, particularly in the small car segment.

Declining market share at Fiat, with which Reg Vardy has 10 dealerships, has led the dealer group to begin a review of its representation. Forrester is adding Kia franchises alongside two of the Fiat outlets, but is coy about the future of the other sites. “We’re working closely with Fiat to make sure that these businesses remain viable,” he says. He sees Kia as a growth franchise.

Forrester is busy bringing more than 30 dealerships into profitability. These under-performing businesses were bought by Reg Vardy during the past three years, and he doesn’t expect them to contribute positively to group performance until at least four years post-acquisition. The group also has three MG Rover dealerships to re-franchise by the end of 2005.

“There’s concern now that the new car retail market is unlikely to pick up in the next 12 months. That said, there are opportunities for profit growth where businesses are run correctly,” he adds.

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