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Pendragon’s plans called into question

Acquisitive Pendragon is working to a “fragile equation”, says a motor industry consultant.

Chief executive Trevor Finn has now acquired and de-listed Reg Vardy, and says he is keen to make more acquisitions.

Pendragon announced a pre-tax profit of £59.3m for the year to December 31, 2005 (11.7% higher than for 2004). Operating margin (allowing for exceptional items) went up from 2.8% to 3%. Even so, says the consultant, Pendragon has not yet proved that continual growth is the long-term answer.

“Pendragon has become a cash machine, paying back within a year the £230m it borrowed to purchase CD Bramall,” he says.

“Its successes are there to see – gearing, by the end of last year, was down to a more reasonable 70% (£177m of debt) from 112% in the previous year.

“But we are not yet seeing proof that Pendragon’s size is providing real evidence of economies of scale.

“Finn has successfully integrated CD Bramall, which suggests he can do the same with Vardy if the deal goes through. But the bigger Pendragon gets, the more fragile it becomes.”

Finn has become used to such accusations since acquiring the Evans Halshaw group in 1999 and his reaction, as always, is a typical shrug of the shoulders.

He is equally dismissive of claims that some partners, like Ford PAG brands Jaguar and Land Rover, are viewing his growing domination of their retail networks with alarm.

In his results statement, Finn says: “Our strategy is to continue to grow with the manufacturers we represent and to introduce new brands where we believe this to be in line with our long-term plans.”

During 2005, Pendragon rebranded volume dealerships as Evans Halshaw, with premium marques trading as Stratstone. Although he owns the Reg Vardy name, Finn will rebrand the business under these twin trading names over the next two years.

“There are real benefits in terms of marketing and advertising in having two distinct brands, each with sufficient scale across the UK,” he says.

“This enables marketing and advertising expenditure to be more specifically targeted, and facilitates the use of media such as TV, which has previously not been cost effective.”

Last year, Pendragon’s turnover grew by £100m to £3.3bn. Finn says the CD Bramall integration was completed ahead of schedule, and the balance sheet strengthened.

The full-year share dividend was 13.2p, up 29.4%.

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