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Vertu Motors reports record results by 'controlling the controllables'

Robert Forrester of Vertu Motors

Vertu Motors are focussing on “controlling the controllables” as they reap the fruits of their labour in aftersales and a growing market to record a £2.4bn turnover for the year ended February 29.

Turnover rose by 16.8% and adjusted profit before tax by 24.5% to £27.4m as the group – which has purchased 16 new dealership operations since March 2015 and now has 112 franchised sites – returned record results.

And while the PLC operation celebrated growing profits, chief executive Robert Forrester told AM: “This is a really great performance for us but there is always room for improvement and we are on a constant drive to improve the way we do things.

“The referendum is on the horizon, but it is not something we are concerned about. We can only control the controllables and that’s what we aim to do.

“Our aftersales success is an area that I’m particularly pleased with and that has really seen us reaping the rewards of a five-year plan to increase our service plan penetration and make our aftersales operation sustainable.

“That’s just one area where we have refined our approach and seen positive results.”

Forrester said that Vertu dealerships were achieving 45% service plan penetration on used cars and now had 90,000 customers signed up to its own scheme.

He said: “If sales staff don’t want to sell service plans they have no interest in being with the business 12 months down the line. They are core to the sustainability of the aftersales business.”

Vertu reported that its continued improvement in aftersales performance has seen gross margins increase to 44.8% (2015: 43.5%) on a £189m turnover in the 12 months to February 29, with service revenues up 6.5% on a like-for-like basis.

Used car sales rose by 8% like-for-like in H2 to move the group into a nine-year period of used car sales growth, meanwhile, as Vertu also marginally outperformed the new-car arena, continuing to increase profitability in its fleet and commercial operations, as it moved away from the daily rental business.

Overall new car sales (86,348) generated 1.4bn turnover at a gross margin of 5.6% while used sales (71,702) generated turnover of £850m at a gross margin of 9.8% (0.6ppt down on 2015).

Zeus Capital market analyst Mike Allen said that Vertu had also outperformed his financial predictions, stating: “Final results were 4% ahead of our expectations at the adjusted EPS level.”

He added: “Overhead recovery remains a key feature driving profit growth in the business, with operating expenses as a percentage of revenues falling a further 30bps to 9.6%.

“Cash conversion was significantly ahead of our expectations, with operating cashflow at £65.8m. The dividend was also 4% ahead of our forecast and +24% YOY.

“We are confident in our blue-sky EPS target of 8p given the company’s historical track record of execution following the Farnell placement in 2013: we had set a blue-sky target of 6p, and Vertu delivered 6.5p three years later in 2016.”

In March Vertu raised £35m to fund future acquisitions and Forrester said that certain deals would be completed in the coming weeks.

Commenting on the success of recent acquisitions, Forrester said: "Our acquisitions have been integrated quickly and efficiently and are performing encouragingly. 

“March and April have been good months. We see a stabilisation of the new car market at these high levels. 

“At the moment, with GDP above 2%, the economy looks strong and we have seen 20% like-for-like growth in our van sales, which gives us more cause for optimism.

“The board looks to the future with confidence."

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