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Pendragon boosts profits in full year results

Trevor Finn

Top AM100 dealer group Pendragon saw profit before tax increase by 14% to £38.9 million in its full year results for 2013.

The group saw growth in all areas of the business, with a strong performance in used, aftersales and new car departments helping to boost profits.

Turnover increased by 6% to £3.8 billion, gross profits were up by 4% to £500m and operating profits increased by 14% to £77.2m.

Trevor Finn, chief executive, said: “Underlying profit before tax is up 21% in the period and the group continues to achieve record used performance, with volume growth of 7%.

“We are very encouraged by the second half performance in aftersales which provides verification that the vehicle parc is recovering, as a result of the growth in new car sales.”

Pendragon saw traffic to its groups’ websites, Evanshalshaw.com, Stratstone.com and Quicks.co.uk increase by 22% in 2013 with over 13 million website visits.

Our online performance continues to surpass expectations growing by 22% in the year with over 13 million website visits to Evanshalshaw.com, Stratstone.com and Quicks.co.uk.

Finn said: “The group is in a strong position with its leading UK retail business, strong balance sheet and the continued delivery of strategy in the used vehicle sector.

“We would like to thank our teams for helping deliver a strong performance in 2013 and we look forward to their continued engagement and commitment in 2014.  We are confident that 2014 will be another year of good performance, with Group performance in line with expectations for the year."

Aftersales

Within aftersales, the level of warranty revenue appears to be beginning to plateau for Pendragon, falling by 2% in 2013.

On a like for like basis, aftersales gross profit increased by £5.9 million (of which £1.3 million was within the first half of the year and £4.6 million in the second half of the year). Aftersales gross margin increased from 61.1% in 2012 to 62.5% in 2013.

Used vehicle sector

In the year, like for like used volumes increased by 7%, and over a four year period, Pendragon has increased used volumes by 59%.

In the year, like for like used gross profit increased by nearly 6%, which equates to a £7.1 million increase in profit.  Gross margin was flat at 8.7%.

New vehicle performance

Pendragon increased new gross profitability by £17.4 million on a like for like basis and by £14.7 million on an underlying basis.

New car retails sales increased by 18% on a like for like basis, which compares to a 17% increase for the brands that the group represents.

Overall, the group sold 115,000 like for like new units in 2013, an increase of 13% over the prior year. Gross margin improved slightly from 7.5% in 2012 to 7.6% in 2013 as a result of stronger margin in both Stratstone and Evans Halshaw.

Pendragon’s business in California saw new gross profitability increase by £5.1 million, largely as a result of the strength of the Land Rover franchise.

Analysts view

Michael Allen, Panmure Gordon executive director equity research, support services, said: "The key positives of the results are the better than expected net debt reduction and the increased dividend. The performance of its core motor operations Stratstone and Evans Halshaw were below our expectations, and maybe seen as slightly disappointing given the strong market conditions experienced throughout 2013.

"We would not expect to see any material changes to headline forecasts on the back of the outlook statement and maintain our neutral stance on the shares for now."

Pendragon's strategy

Finn's performance review statement in full:

"The group remains focussed on maximising returns from our three key sectors: aftersales, used and new.  The group's strategy is focussed on continuing the growth trajectory in the used and aftersales sectors together with delivering first class customer service.

"In order to achieve these objectives, the group has defined four "strategic pillars" which are a prerequisite to our success: number one online motor retailer, value pricing, national footprint and scale and a superior IT platform.

"Online channels remain a key strategic pillar for the group and are a key differentiator for the group.  Online visits to Evanshalshaw.com, Stratstone.com and Quicks.co.uk increased by 22% over the prior year.  Online visits to Evanshalshaw.com, Stratstone.com and Quicks.co.uk are in excess of 13.3 million for the year ended 31 December 2013.  The group continues to invest resource into a number of projects to support our online pillar.

"Aligned with this strong online and social media offering, the Group's second strategic pillar is a 'value pricing' offer for consumers.  Our value pricing provides the consumer with the assurance of frequently researched prices to ensure we offer the best pricing proposition to consumers in the market.

"Our third and fourth strategic pillars are key enablers for achieving the group's objectives and are: a superior IT platform and a national footprint and scale.  Pinewood provides the group with a superior integrated IT platform with which to monitor, control, report and analyse the group's results and progress against objectives. Pinewood also has a growing external customer base.  Our IT system remains a key differentiator for the success of the group.

"Our national footprint enables us to fulfil the needs of consumers locally to their home or business.  This, coupled with scale, provides a true differentiator from our peers in the industry.  Within the new car market, our large balanced brand portfolio ensures that we are insulated from the product cycles of the vehicle manufacturers we represent, hence any franchises which are impacted by a falling market share tend to be compensated by franchises which have increased market share.  Our scale also provides a number of efficiencies and economies of scale within procurement, fixed overheads, shared services and central marketing.

"This strategy is underpinned by our people.  We recognise that people provide the essential platform for us to deliver our objectives and we are continuing to invest more in this area of resource in 2014.  The group is investing in training, development and recruitment activities.

"Following the comprehensive refinancing and debt reduction in 2013 the group has a strong balance sheet.  The Board's target debt : underlying EBITDA ratio of 1.5 was achieved 18 months early at 30 June 2013, and at 31 December 2013 this ratio was 1.2.

"The board has now adopted a debt : underlying EBTIDA target range of between 1.0 and 1.5. 

"This target range has been set in the light of the group's expected ongoing cash flow generation and is designed to give the flexibility to maintain shareholder value growth by returning cash to shareholders, whilst at the same time allowing the group to assess and pursue appropriate expansion opportunities or otherwise continue with debt reduction."

> Pendragon's strategy review

Note: The financial information here does not constitute the company's statutory accounts. The 2013 accounts have yet to be delivered to the registrar of companies.



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