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AM 100: Listed Companies

Jack Petchey, the 84-year-old former car dealer turned share trader and philanthropist, does not believe the UK’s listed car sector will be on its uppers for long. 

He has spent many millions buying 11% of Pendragon, which makes him the biggest single shareholder. He is also the owner of 21% of Lookers, having bought a stake in January.
He has already made profit from investment in H R Owen and European Motor Holdings.

Petchey has made the most of very depressed share prices. Pendragon, which was trading at 2p around Christmas, is now 20p. Lookers bottomed out at 60p, having fallen from 90p. 

The reason for the very severe fall in Pendragon was the news that it had breached its banking covenants, would have to pay a ‘fine’ for doing so, and would be forced to renegotiate the loans on worse terms. 

So long did the talks go on that investors feared agreement would never be reached. It did happen, but the properties in the company had to be written- down in value by £58 million and shareholders’ funds in the company reduced to £80 million.

Loss-making companies

Pendragon has worked hard to take out the loss-making companies, and the number of dealers in the group now is down from 341 to 280. Volvo, Ford, Renault and Kia are the franchises that have been most reduced.

Nevertheless, the company fell into a loss of £30 million at the pre-tax level, compared with a positive £42 million the previous year.

Lookers has done better than expected over the last year. In April it was able to announce a profit of £14 million (compared with £23 million last year) which became a loss of £15 million after write-downs on the value of the business and goodwill. It paid no dividend in order to con-serve cash. 

After lengthy negotiations with bankers it managed to secure fresh borrowings of £210 million which will not fall due for repayment until 2010. The arrangement fees also contributed to the bottom line losses caused by the write-downs. It is possible the company will want to copy Inchcape and raise money from the stock market in a rights issue if conditions allow.

AM100 (2009) AM100 - Top 100 dealers (2009)





Parts and aftersales make a big contribution

 

A big contribution came from the parts business and after-sales activities which the group always maintained would be a good hedge against falling car sales.

It instituted a pay freeze across the group, made redundancies, and closed 21 marginal sites that were a drain on the resources of the group. Those measures have improved costs by £12 million a year. Group turnover was up by 6% to £1.8 billion despite the 12% fall in new car sales and 11% fall in used.

Chief executive Ken Surgenor has said that the outlook for new cars – the market was down 30% in the first quarter – was still very difficult, but the first quarter has been good for used cars, aftersales and parts. 

During last year, the Lookers share price performed better than the rest of the sector, falling from a high of 90p to 60p at its worst point.

The Stock Market is expecting the company to make a profit of £11 million this year, despite conditions likely to be worse than last. David Dyson, the long-time finance director of the group, has resigned for reasons that are unexplained. He has been replaced by Robin Gregson who was previously in charge of finances at CD Bramall.

Inchcape expects to make a small profit this year after a year in which its trading profit fell to £23 million from £70 million. It now operates in 26 countries across the world and is market leader in 14 of them. The resilience of those markets has varied dramatically.

Russia is very bad, but China is still resilient, but with demand switching into small cars in the more rural areas after an initial surge in sales of luxury cars in the major cities.

Because Inchcape is so new to many of the overseas markets, there was a high degree of nervousness among shareholders. From a peak price of 74p in the middle of last year, the share price fell as low as 7p at the beginning of 2009.

Andre Lacroix, the chief executive, was paid £742,000 for his year’s work which was higher than the previous year’s £687,000. But there was no bonus, compared to £535,000 the year before.

AM100 (2009) AM100 - Top 100 dealers (2009)



 

Sales are ‘getting no worse’

In the first quarter of this year, sales dropped by 13%, but are said to be “getting no worse” and to be on track for a recovery starting in the second half of next year. 

Inchcape managed to get a rights issue fully taken-up by shareholders and has reduced its debt to £408 million after raising £232 million. The debt is now sufficiently low for its bankers to be comfortable.

In the UK, Inchcape now has 130 franchised dealers and Inchcape Fleet Solutions (IFS), a fleet leasing business with 31,000 cars. 

The regions where it considers itself to have the right scale are the south- east, Midlands, north and north-east of England. The brands have been cut to a carefully considered list of partners which will now not vary.

They are Audi, VW, Honda, Jaguar, Land Rover, BMW/Mini, Mercedes/Smart, Porsche and Toyota.

Lacroix said at his results meeting that he “continues to outperform his competitors” in the UK and managed a 5% like-for-like drop in sales (compared with the market’s 11%) and a margin decline from 2.4% to 1.2%.

The lease fleet made a loss of £5.7 million after Lacroix decided to take an increase in residual value provision of £8.5 million. That move was born of the view that residual values will continue to fall over the next two to three years.

Revenues in the UK were more than a third of the group total at £2.3 billion. That was down 14% on last year but down only 7% like-for-like after accounting for the closures. Trading profit on that was £23 million.

Vertu is doing OK. Though it was floated as an acquisition vehicle three years ago, it resisted purchase of rival motor groups as the climate deteriorated – expecting better bargains as the year progresses. It is now about to take advantage of the bargains having successfully raised £30 million through a rights issue to fund dealership expansion.

The aim is to increase the network from 41 to 100.
It will also be able to gain market share as closures occur around its territories. The volume segment is outperforming the premium segment and is being driven strongly by consumers pricing down.

AM100 (2009) AM100 - Top 100 dealers (2009)

 

 

Volume retailers

Residual value guides show the super mini and small/city car segments now offer the best resi-duals. Vertu is the only pure play volume retailer amongst the listed companies. Inchcape, Pendragon and Lookers have all been pushing hard for premium brands in the last few years.

Vertu’s annual report shows the company delivering a modest pre-tax profit of £72,000 for the last 12 months, compared to £140,000 for the previous 16 months. 

But with cash in hand, watch out as Vertu goes on a shopping spree.

AM100 (2009) AM100 - Top 100 dealers (2009)

AM100 plcs by numbers

Pendragon
Position 1 (Last year: 1)
Turnover £4.03 bn (£5.06 bn)
Outlets 280 (341)

Inchcape Retail
Position 2 (2)
Turnover £2.34 bn (£2.56 bn)
Outlets 130 (147)

Lookers
Position 5 (4)
Turnover £1.78 bn (£2.2 bn)
Outlets 89 (144)

Vertu Motors
Position 9 (10)
Turnover £762 m (£705 m)
Outlets 39 (47)

Caffyns
Position 45 (45)
Turnover £180 m (£190 m)
Outlets 25 (27)

H R Owen
Position 67 (48)
Turnover £144 m (£183 m)
Outlets 10 (12)

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