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Pendragon's profits plunge by a third

Figures released by Pendragon this morning show operating profit for the first six months of 2008 plunged to £41.2 million from the £62.1 million in the same period last year.

Half year turnover has also slumped from £2.7 billion to £2.48 billion.

However the group, which now has 332 UK dealerships and 11 in the USA, has reduced its borrowing by £44 million since the end of last year, through good operating cashflow and working capital focus.

Sale of selected businesses and showrooms boosted Pendragon's coffers by £8.4 million, and a VAT refund brought in another £14.9 million.

The company has more surplus properties, valued at £55.7 million, which it hopes to sell and use the cash generated to reduce its debts.

But the closure of several businesses, and its redundancy programme, have cost the business £5.2 million.

Pendragon has identified another six struggling dealerships for closure in the second half of the year.

Its statement also confirms that, as previously revealed by AM, it is in the process of selling two loss-making BMW/Mini outlets and closing a third. It has already sold a fourth BMW outlet in Tring to Specialist Cars.

Trevor Finn, chief executive, said: "The UK motor retail sector has faced a challenging six months through weak demand and rising vehicle ownership costs.

"We have reacted quickly to the market changes, improving our competitiveness in used cars, cutting our cost base and reducing borrowings.

"Our aftersales and support businesses will continue to underpin the profitability of the group and the experienced management team will guide the group successfully through what we expect to be difficult trading conditions for the remainder of this year and next."

Looking ahead, Finn said the market conditions "are challenging" and Pendragon has taken a number of strategic actions to improve its competitiveness.

"During the first half of the year we have continued to roll out changes to our used car sales processes which have enabled us to better utilise low cost internet advertising and offer cars in lower price brackets. This has proven effective in holding margins and maintaining margins after marketing costs," he added.

"Revenue is down £170 million on a like for like basis excluding support businesses. A large element of this reduction is due to average vehicle unit sales price reductions as we have added lower price bracket vehicles in our used car business.

"Underlying operating profit was £41.8 million compared to £61.3 million in the first half of last year. The underlying operating profit margin was 1.7% against 2.3% for the same period in 2007.

"Although gross margins have reduced, the main factor contributing to the fall in operating margin has been lower activity levels leading to a relative increase in operating costs per unit sold.

We have taken action in the first half to reduce the level of operating costs mainly by reducing advertising and marketing expenditure through better internet use and by making around 500 jobs redundant."

The group is slightly critical of the tactics used in recent years by some car manufacturers to maintain or improve their own market share at the expense of flooding the market.

Registrations for manufacturers represented by Pendragon fell by 1.9% with Stratstone brands up 1.7% and Evan Halshaw brands down 3.2%.

Finn said: "We believe that registration levels are now starting to reflect the real level of demand in the market whereas for the last 12 months cars were being pushed aggressively into the market by manufacturers.

"This has had a knock on effect in putting pressure on used car prices where we have done well to maintain gross margin on a like for like basis."

  • For full analysis of Pendragon's results see AM's September 5 issue. To subscribe to AM magazine click here or call 01733 468659.
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