Vertu Motors chief executive Robert Forrester suggested that the AM100 PLC will grow through the strong “pipeline of potential acquisition opportunities” in a trading update.

Vertu reported a 2.7% decline in revenue in the five-month period to January 31 in the update published via the London Stock Exchange today (March 3), despite a 5.4% rise in like-for-like aftersales revenues.

Like-for-like new retail vehicle volumes were 9.4% lower with stable margins as growth in like-for-like used vehicle margins and gross profit generation were delivered alongside a 2.3% like-for-like decline in volumes.

Group gross profit grew £1.6m from used cars sales as like-for-like gross profit per unit grew 6.7% to £1,229.

Commercial vehicle volumes declined by 19.7% on a like-for-like basis as trading was impacted by new WLTP regulations introduced in September 2019, Vertu said, but fleet volumes rose by 13.6%.

Aftersales margins rose to 46.3% from 44.7% following an increase in the hourly rates charged on internal work undertaken for the sales departments, from March 1, 2019 – accounting for £1.5 million of a £2.3m uplift in gross profit. 

In his statement accompanying the update, Forrester said that the financial performance in the period had been “achieved through the deployment of discipline, hard work and sector leading systems”. 

Hinting at the future growth opportunity perceived by the franchised car retail group’s board of directors, he added: “Scale will become an increasingly important success factor as the sector evolves and the current pipeline of potential acquisition opportunities is strong, with our robust balance sheet only being deployed after rigorous capital allocation testing."

Portfolio developments

While Vertu suggested further acquisitions in the period ahead, its trading update summarised the recent growth of the business through such activity.

Last week the group completed the £4 million acquisition of the trade and assets of Vantage Motor Group’s multi-franchise dealership representing Honda and Kia in Bradford, West Yorkshire. 

No goodwill was payable, and the business had an unaudited loss before taxation of £0.1m for the year ended December 31, 2019.

The acquisition of four Volkswagen leasehold dealerships in Leeds, Huddersfield, Harrogate and Skipton from Goodman Retail Limited, a trading subsidiary of Sytner Group Limited, was completed on January 15. 

On January 21, the Group acquired the trade and assets of a multi-franchise dealership in Edinburgh representing the Kia, Mitsubishi and Suzuki franchises from the administrators of Leven Cars Group Limited. 

Vertu said that its expected the sites acquired from Leven to be earnings dilutive in the first full year of ownership.   

In January 2020, the Group also opened two new franchise outlets for Hyundai in the North East of England, in existing Group premises while, on March 1 the Group commenced operation of the Peugeot franchise in Derby from newly refurbished premises. 

That business was transferred from Robins and Day. This new operation brings the number of Peugeot outlets operated by the Group to six.

Vertu now operates a network of 133 sales and aftersales outlets.

Vertu's outlook

In its summary of the challenges and opportunities for the year ahead, Vertu said that its manufacturer partners pursuit of strategies to increase the efficiency of their parts distribution networks would have an impact. 

Ford made substantial changes to their parts distribution model in 2019 and Vauxhall, is now planning to do so in 2020 through the creation of PSA Group's 'Distrigo' hubs. 

Vertu said that its trade parts activity in the Vauxhall franchise was expected to decline as its is not planning to operate a hub. 

Working capital is anticipated to be released of approximately £1.8m as a result, it said, as profits in the financial year ending February 28, 2021, reduce by £0.9m as a result.

Reflecting Forrester’s comments in its outlook for 2020, the group’s statement said: “The strong balance sheet, experienced leadership team and strong systems capability mean the group is well placed to capitalise on the significant opportunities for growth that exist within the UK automotive retail sector. 

“The Board considers that scale will become an increasingly important success factor in the sector and therefore has ambitious growth plans for the Group. 

“The current pipeline of potential acquisition opportunities is strong, with purchases only to be undertaken following an assessment of capital allocation metrics.”

Vertu Motors will announce its preliminary results for the year ended February 29, 2020 on 6 May 2020.