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Pendragon's 'spectacular' profit warning issued to London Stock Exchange

Pendragon chief executive Trevor Finn

Pendragon is set to review and restructure its franchised dealer operations after issuing a profit warning to the London Stock Exchange.

The AM100’s second-placed retail group said that it expected its underlying profit before tax for 2017 to fall over 20%, from £75.4m in 2016 to £60m by the end of the year, despite a 6.7% revenue growth for the year-to-date and used revenue growth of 21.1% in the statement, covering the period from July 1st to October 20th, 2017.

Pendragon reported that new gross profit had reduced by 20.7% in Q3 on a like-for-like basis new gross profit reduced by 10.2% on a like for like basis year-to-date.

Used gross profit reduced by 20.3% on a like-for-like basis in Q3, despite being used up 2.1% on a like for like basis year-to-date.

Aftersales gross profit reduced by 3% in the period on a like for like basis with one working day less in the period having grown by 3% year-to-date on a like-for-like basis.

Overall in the quarter, underlying like for like profit before tax was a break-even position, Pendragon reported, however, claiming that its debt ratio “remains below our target range”.

Net debt reduced by £34.5m, compared to 2016's Q3 period net debt reduction of £2.5m.

The London Evening Standard’s city expert, Simon English, pulled no punches in his appraisal of Pendragon’s fortunes.

Taking to Twitter following news of the profits warning, he speculated that the “spectacular profit warning from Pendragon” could be an indicator that the “bottom just fell out of the UK car industry”.

This morning The Guardian newspaper reported that shares in Inchcape had fallen by 4% in early trading, claiming: “That shows that traders believe Pendragon’s woes are part of a wider malaise in the UK economy.”

"Committed to focussing on reshaping the business"

In his comments within Pendragon’s trading update, Trevor Finn (pictured), chief executive, said: "Following a strategic review, the board is now committed to focussing on reshaping the business to accelerate transformation.

“We are placing our software and online technologies at the heart of our business as a platform to fulfil customers' vehicle and servicing needs. We believe this strategy will provide more reliable and sustainable returns."

Pendragon’s report said that as consumer confidence waned in Q3, the business had been exposed to significant market pressures. 

A reduction in margin was prompted by price corrections in the used vehicle market, primarily focussed on some premium brands affecting the Stratstone business, which were the result of large numbers of pre-registered vehicles being sold at “significant discounts” during the period.

The statement said: “We are now experiencing an improvement in margin going into the fourth quarter which we expect to normalise by the year end.” 

Stratstone’s gross profit declined by £10.9m in Q3 compared to the prior year.

The business reported that it remained committed to its strategic goal to double used car revenue over the five years to 2021 and in order to maintain growth in our used car and aftersales business, adding that it would be “seeking to make a senior appointment to lead all aspects of our UK used car operations” in order to enhance and accelerate our progress in this area.

A strategic review of its premium franchises will be carried out to evaluate by manufacturer the investment appeal of their franchise proposition.

A capital review will be carried out in a bid to determine what capital requirements are being made by manufacturers to ensure that capital will only be invested where Pendragon sees “strong future prospects for reliable returns”, the plan added.

The business will make no further acquisitions in the USA “in the light of our capital allocation priorities to assess the ongoing value of this business to the group”.

Its software business, Pinewood, continues to be considered a “unique asset” and a global opportunity, however.

The statement said that the software business would be placed at the heart of the business “as a strategic priority”, adding “As such the senior management with technology expertise will play a larger part in the development of our business as a whole.”

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Comments

  • APC1953 - 23/10/2017 12:59

    Pendragon is doomed to fail until it replaces its Board of Directors with 21st century business people who understand modern retail and empower its employees to run its businesses without some one looking over there shoulders 24/7. It needs managers not custodians to run its businesses as all they employ are employees who run to the tune of its DOC's and report to some one outside of the business two or three times a day, which is not managing.

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  • shogun11 - 23/10/2017 21:49

    There are many factors here, and seeing this report is no surprise to me. All of this on the back of a wage structure to all employees that rewards the weak, for poor results, and steals from the people who are performing. I wonder if the group will publish their staff attrition costs this year ? From what I hear they have had a mass exodus of staff since their new payplan was rolled out earlier this year. According to a friend of mine who worked for the group, they have lost staff from all departments due to lack of payment disguised by an increased basic salary and a bonus sytem that is only achievable by a small few, and even at that a reduced amount for the small few. They also told me that the company directors were completely out of touch with their employees, and that was pretty much the feeling throughout the buisness.

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    • Idriveamerc - 25/10/2017 11:44

      well I left a very nice position at one of their Landover dealerships. all over the new wage plan and I was not alone I was over 12 yrs with them in a mix of roles. Ii wrote to the board about it but never got a reply just couldn't see I would make money .... real shame because they spent a fortune training me

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      • shogun11 - 25/10/2017 11:59

        This comes as no shock to me, I have several friends who worked for them, all with the same story.

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  • Phil Wright - 01/11/2017 08:23

    I am £1200 nett on the same period last year doing the same numbers and working all the hours God sends.A lot of employees thought their boats had come in with the pay rise but many had not worked it out(the company had to pay this due to the national living wage). ** edited for legal reasons **.

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