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Vertu Motors announces acquisition intention in 2019 financial results

Vertu Motors' CEO Robert Forrester

Vertu Motors declared an intention to add new manufacturer partners as it grows through acquisition in a 2019 results statement following its first two days of showroom trading since the COVID-19 lockdown.

Group chief executive, Robert Forrester, told AM “there’s no point being pessimistic” as he discussed the results of the group’s financial year to February 29, 2020, this morning (June 3).

Vertu’s revenues rose by 2.8% (£82.3m) to £3.1 billion in a period which saw adjusted operating profit held steady at £23.5m (2018: £23.7m) despite absorbing costs and losses of £0.7m in relation to recent acquisitions (2019: £23.7m).

Non-adjusted profit before tax declined from £25.3m to £7.3m, however, as adjustments were made to account for the impact of the COVID-19 pandemic.

“We’ve taken a charge of £14.4m because when we look at the effects of COVID you effectively have a calculation of value of use,” said Forrester.

However, positivity followed the first two days of trading at the group’s showrooms in England and the early success of a new omnichannel retail website.

“If we’d opened the doors of our showrooms this week and no one had come walking in I’d be worried. As it stands, that isn’t the case,” said Forrester.

“We sold 450 cars on Monday and over 400 cars on Tuesday and that’s above our normal level.

“Clearly there’s an element of pent-up demand, but it’s certainly encouraging.”

Forrester also said that there were signs that the group may have “cracked online retailing”.

Since the launch of new online retail website across all its retail divisions on May 15, it had succeeded in completing the end-to-end online sale of 40 cars and taken 69 online orders.

The Group’s online service booking bot ‘Leo’ has been enhanced to eliminate any need for re-keying and the group now completes 5,000 online service bookings each month via the platform.

“I think there are a lot of positives to be taken from the business right now,” he said.

“From a leadership and management perspective we have learned to operate in a very different way.

“We now work on three, rather than 30-day cycles, we’re far less bureaucratic and we have learned to innovate.”

Vertu’s immediate growth plans include the growth of its Vertu brand as a premium franchise offering, with a new television advertising campaign set to start in July.

On the acquisition trail

The annual results statement also spelled out an intention to grow through acquisition, however.

A total of 12 sales outlets added in year including the addition of three new franchise partners to the Group’s portfolio, and Forrester stated: “The group’s strategy is to continue to grow through acquiring both volume and premium franchised dealerships.

“The Board believes that the benefits of scale in the sector are increasing over time.”

Vertu’s recent franchised portfolio changes saw it exit the Volvo franchise in Derby in December 2019 at a site which accommodated the opening of its sixth Peugeot dealership in February.

In January it opened two new Hyundai franchises in the North East and bringing its total Hyundai outlets to 10.

Also in January, the group acquired the trade and assets of four Volkswagen dealerships in West Yorkshire from Goodman Retail Limited, a subsidiary of Sytner Group Limited for a cash consideration of £6.9m.

Later in January 2020 the group also acquired the trade and assets of Kia, Suzuki and Mitsubishi franchises, on a multi-franchise dealership in Edinburgh, from the administrators of Leven Cars Group Limited.

Finally, in 28 February this year, the group completed the £3.9m acquisition of the trade and assets of Bradford Kia and Honda, from Vantage Motor Group.

Sales and aftersales performance

Vertu’s revenues from new car sales declined by 1.5% to £862,517 in its 2019 financial year as used car revenues remained flat (up by 0.2%) at £1.24m.

A total of 83,382 used retail vehicles were sold by the group (up 0.1% like-for-like) as 31,995 new retail cars were sold (down 8.9% like-for-like).

Vertu said that supply side issues, such as continued Sterling weakness and changing regulations with regards to emissions, continued throughout the financial year.

“In addition, volatile consumer confidence driven by political and economic uncertainty, together with consumer uncertainty over powertrains, had an impact on demand,” it said.

Higher manufacturer new vehicle stocking charges - in the run-up to Brexit and new EU emissions regulations - also contributed to a rise in net finance charges of £1.9m, which resulted in the reported decline in adjusted profit before tax.

Total fleet sales rose by 16.8% on a like-for-like basis, to 22,559.

Fleet and commercial sales revenues grew by 5.3% to £708,528 as the group managed to leverage a 4.6% increase in aftersales revenues, from £257,137 in 2018 to £258,104 in 2019 after an increase in the hourly labour rate charged by the business.

COVID-19 cost mitigation

Vertu’s senior management volunteered to take a 20% reduction in salary and members of the plc board elected to take a 30% reduction in salary for the period from April 1 to the end of May.

Executive Directors also agreed to waive their contractual annual bonus entitlement for the financial year ending February 28, 2021.

As a result of these actions the payroll cost to the Group for April and May combined is £13.4m, net of Government Job Retention Grant support of £15.9m.

Forrester told AM that around 50% of the group’s workforce has now returned from furlough.

Vertu said that the Government’s business rates relief had meant that the Group will pay no business rates for 12 months from April 1 for much of its property estate.

The annualised saving is anticipated to be £10.6m, representing 90% of the Group’s total business rates costs.

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