“The last thing I’m worried about is Brexit, it’s certainly not keeping me awake at night,” is how Vertu Motors chief executive Robert Forrester responded to AM’s question about the impact of the EU referendum.
His comments came following publication of Vertu’s half-year financial results this morning, which showed a 14.7% rise in adjusted profit before tax to £18.7m while turnover increased 17.7% to £1.45bn.
“We’re seeing robust consumer confidence, September (new car registrations, up 1.6% overall but the private market was down 1.7%) proves that. Next year we’re expecting the fifth largest (new car) market in the UK’s history. The last thing I’m worried about is Brexit.
“We have a very robust economy. We’re the fastest growing developed economy in the world. The talk of doom has proved not to be correct. We have record low levels of interest rates, and record high levels of employment. Frankly, whether sterling’s fall was due to Brexit or not, I actually think we were due a sterling fall anyway because we have a massive current account deficit on trade, and that is not sustainable from a sterling standpoint.
“There are very diverse views on where sterling will go, and on where the European Union is going to go. I’m best running a car business and leaving that to economists and politicians,” he said.
Forrester said Vertu’s profits hike was driven by a very strong performance from used cars and service, with both showing like-for-like growth (6.6% in service, 8.5% in used cars) which is now becoming consistent. The group has almost 100,000 people on service plans and a growing vehicle parc.
New car volumes were down on a like-for-like basis in all channels (retail -4.2%, Motability -3%, fleet -10.6%) however recently acquired dealerships meant Vertu’s volume retail and Motability were ahead overall (retail +8.3%, Motability +1.3%.
Commercial vehicle volumes were ahead by 11.6% like-for-like and 13.4% overall.
Forrester said the dealerships bought since March 1 (three Mercedes-Benz, one Jaguar, one Land Rover, one Toyota, one Nissan and two Skoda) have made a contribution to profits, and those acquired last year have made a substantial contribution.
He expects the used car market to continue to offer growth potential. “We have stability of pricing, the wholesale markets are in balance, the auctions aren’t in freefall, which is all good news for the industry,” he said.
In used cars, Vertu’s goal is to increase volumes – Forrester said if you get the stock turn increasing you sometimes find your margins go up.
He said Vertu has a good sales process and good systems around stock management and control, with dedicated management continually looking at group used car stock, and that pays dividends.
“The used car market is nicely in balance. If we can keep this market forevermore I will retire very happy.
“If you look into the detail, there’s probably a slight surplus of nearly new stock, and an absolute shortage of good quality retail stock, and there’s clearly a lot of stock to send to auction to find another used car channel.
“Every one of our divisions made money in the auctions last week, which is a good sign. And to give an indication of consumer demand, last Saturday we sold more used cars than ever before – 988 in one day. That tells us the used car market is in a good place.”
Forrester said of course behind this is significant work on marketing, to optimise the number of enquiries received, and to maximise the conversions of those enquiries into sales.
- Revenues increased by 17.7% to £1,454.6m (2015 H1 : £1,236.1m)
- Record profit before tax up 14.0% to £18.7m (2015 H1 : £16.4m)
- Adjusted profit before tax up 14.7% to £19.5m (2015 H1: £17.0m)
- Period end net cash of £12.9m (2015 H1 : £32.1m)
- Cash generated from operations of £26.4m (2015 H1 : £37.6m)
- Earnings per share of 3.87p (2015 H1 : 3.82p)
- Raised £35m in March 2016 to finance further acquisitions, with the majority of funds deployed
- Interim dividend up 11.1% to 0.50p per share (2015 H1 : 0.45p per share) to be paid in January 2017
- Record group trading performance driven by improvement in recently acquired businesses, used car performance and growth in service
- Growth strategy progressed with greater premium mix, including additions of Mercedes-Benz and Toyota franchises to Group
- Group gross profit margins increased from 10.6% to 11.1%
- Like-for-like service revenues up 6.6%: long-term growth trend continues
- Group service gross profit margins strengthened from 76.9% to 77.9%
- Like-for-like used vehicle volumes increased 8.5%: the 10th consecutive half year period of growth
- Like-for-like used car margins strengthened from 10.0% to 10.7%
- Total car and van volumes sold up 10.7%
- Softening of new private retail market: Group like-for-like new car retail volumes down 4.2%
- · Strong performance in new commercial van sales with strengthening fleet and commercial margins