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Dealer group size emerges as a factor in financial performance

The largest motor retailers are experiencing strong growth and are beginning to pull away from their smaller rivals, according to new research from accountants and business advisers BDO LLP.

The 2013 edition of the Motor 150 report reveals that the industry collectively posted sales growth for the third consecutive year in 2012, the most recent year for which accounts are available. 

In total, revenue for the 150 largest motor retail groups rose by 4.7% from £40.7 billion to £42.6bn. 

However, the survey uncovered a clear dichotomy between larger and smaller companies for the first time in its five year history: turnover for the 60 largest companies increased by 6.8% on average while revenue for the remaining 90 businesses in the sample fell by 2.9%.

Malcolm Thixton, head of BDO’s motor retail team, said: “In many ways, this is a very encouraging set of results for the motor sector. 

After several challenging years, it appears that the industry is getting itself back on the road to recovery: turnover is up, gross profit is up and businesses are investing for the future.

“That said, it’s important not to get too carried away.  Businesses have had to dig deep into their cash balances, resulting in a significant rise in gearing. “

“Moreover, the growth that we’ve seen in the sector recently has been patchy and a two-tier structure appears to be emerging for the first time, with the larger players taking advantage of the nascent economic recovery more successfully than their smaller rivals.  We’re not seeing a broad-based upturn just yet.”

“Businesses that have weathered the tough times will now want to make the most of the recovery.

"However, no-one should expect an entirely smooth ride from here, or rush to abandon the careful strategies that have carried them safely so far. There are still plenty of potential hazards on the road ahead.”

Businesses in the BDO Motor 150 managed to keep their gross margins at an average of 11.6%, leading to a £212 million increase in gross profit to £4.9bn. Net profit rose only slightly to £331m from £317m due to higher dealer operating expenses and a 52% increase in tax.

Arnold Clark reported the highest profit before tax, for the second year running, and beat its 2011 profit by £9m to achieve £61m in total.

The largest loss before tax (£18m) was reported by Robins & Day, a group owned by Peugeot, for the fourth consecutive year.

The balance sheet of the BDO Motor 150 increased in aggregate, although gearing leaped from 31% to 43% - almost as high as in 2009.

However, this change came not from any significant increase in loans or other finance, but rather from a fall in the cash balances held from £831m to £364m, as business sought to invest.

Over the year, the Motor 150 employed an additional 2,280 people, bringing the total to 102,582. This has resulted in a rise in staff costs (up £1.6%) to almost £3bn.

Directors’ remuneration, however, has dropped for the third consecutive year: the 2% drop brings it down to £89m, the lowest since 2008.

BDO 2014 forecasts

1. A stronger retail market: Upbeat views on the economy have boosted consumer confidence, and we have already seen a pick-up in retail sales. Consumer expenditure should continue to grow in the New Year as conditions improve further.

2. Increased use of marketplace channels: Retailers will start to fully embrace marketplace channels such as eBay.

3. Retailers collecting greater levels of personal data (and using it): More retailers will launch loyalty cards and/or begin harvesting customer data. In return, consumers will receive a personalised service.

4. Value retailers go from strength to strength: consumers will happily part with their cash for products where quality matters to them, but they will turn to value retailers where they can.

5. Supply chains become more efficient and more cost effective (increasing availability, decreasing stock holdings): Retailers will focus investment on both the front and back ends of their supply chains in order to meet the needs of an omnichannel world.

6. Failures still likely: Though the outlook is the brightest we have seen for some time, we are not yet in the clear. Expect to see a couple more high profile failures in 2014.

 

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