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Vertu Motors confident despite pressure on sales volumes

Vertu Motors has experienced a tough trading period for the four months to June 30, 2011 but profitability is ahead of the group’s budget but remains below prior year levels.

The dealer group anticipated that the first half of the year’s profitability would be affected by the fragility of the retail sector and it planned its budgets to account for that drop in demand.

New and used car volumes have been pressured and the devaluation of Sterling also resulted in pricing pressure on new cars and reduced levels of manufacturer support available to stimulate the retail market, causing margin pressure on dealers.

The results for the four month period reflected the increasing importance of aftersales to Vertu. The group’s aftersales activities have put in a strong performance with like-for-like profitability increased and like-for-like gross margins improved from 40.1% to 43.1%.

The group’s volumes of new car sales to private customers declined by 6.6% on a like-for-like basis, but continued to gain market share as the UK retail market fell by 17.1% in the same period.

Sales at Vertu’s Japanese franchised have been directly impacted by the earthquake disaster and the group expects it will take several months before supply to the UK is normalised.

Taking account of acquisitions, Vertu’s new retail sales volumes increased by 14.7%. New car like-for-like margins fell from 7.9% to 7.4% in the four month period, reflecting the competitive pricing required to ensure that the group delivered on its manufacturer volume targets at a high level.

In May 2011 Vertu reported that its used car like-for-like retail volumes had declined by 9% in March and April.

This trend improved in May and June with volumes for the four month period down 5.8%.

As the period progressed, the used wholesale market showed signs of weakness resulting in successive, above normal, monthly falls in industry used vehicle valuation guides. Group like-for-like used gross margins have consequently weakened from 11% in the prior year to 10.3%.

Paul Williams, Vertu chairman, said: “The board remains confident that acquisitions undertaken in recent periods will continue to show an improving profitability trend.

“While UK consumer demand remains fragile and vehicle sales remain under pressure in the short term, further acquisition opportunities are likely to arise as a result of these market conditions. The board intends to take advantage of these opportunities in order to deliver future shareholder value.”

Portfolio development

Despite pressure on sales volumes, Vertu is still acquisitive and on June 1 acquired the trade and certain assets of a Mazda dealership in Bristol from Williams Automobiles.

The group has entered into a long term lease on the dealership property, and the purchase consideration payable is estimated to be £0.4m. This acquisition takes the number of Mazda dealerships operated by Vertu to five and the group is planning to add additional franchises to the dealership in the coming months.

On July 1, 2011 Vertu opened a Hyundai dealership in Peterlee in previously empty premises which have now been leased by the group. This represents the Vertu’s fourth Hyundai dealership.

Vertu also opened a new Nissan dealership on July 4, 2011, located on a freehold site acquired in Glasgow last year which has been developed to create a flagship site for Nissan in the west of Scotland.

This operation, situated adjacent to the group’s Glasgow Ford and Mazda operations, will encompass sales of electric vehicles, passenger and commercial vehicles in addition to a Nissan Sports Performance Centre selling the GTR and 370Z models. This is Vertu’s third Nissan dealership.

Vertu now operates 80 dealerships comprising 77 franchised and three non-franchised sales outlets.

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