Strong new and used car margins drove Pendragon’s 73% Q1 profits boost

Pendragon’s push to “maximise margins” to mitigate against automotive supply constraints on its new and used car sales has helped deliver a 73.1% increase in Q1 pre-tax profits.

A trading update issued by the AM100 PLC this morning showed that underlying profit before tax rose to £18.7 million in the period to March 31 (Q1 2021: £10.8m), with like-for-like operating profit up 39.5% at £28m (up 44.1% total reported).

The result came in a period in which Pendragon delivered a new gross profit per unit (GPU) of £2,456 – £975 higher than Q1 2021 – as the it sought to mitigate the impact of supply issues by “maximising the level of margins achieved per unit”.

Pendragon said that used GPU had “gradually softened during Q1 from the exceptional levels seen in H2 FY21”, but added that levels remained “significantly higher” than Q1 2021 at £1,767 (Q1 FY21: £1,095).

As a result, new gross profit was up 35.4% on a like-for-like basis compared to Q1 2021 as used gross profit rose 47.4%.

Confident of 'profitable growth'

Commenting on the strong Q1 performance, less than a month after stating that he was “delighted” with the car retail group’s 10-fold increase in profits during 2021, chief executive Bill Bill Berman, said: “The positive momentum in the business has continued into the first quarter of this year and I am very pleased with how we have performed.

“The benefits of the work we have done in the past two years to improve our operations, from vehicle sourcing through to online and in store sales practices is evident in our strong trading performance and we have seen good contributions from all parts of the group.

“While we are mindful of the pressures facing our market and our customers, we are confident in our strategy and focused on continuing to deliver profitable growth over the medium term.”

During the Q1 period, Pendragon reported improved aftersales revenue and profitability, with a 5% increase in like-for-like revenue and a 2ppt improvement in gross margin, to 52.1% (Q1 FY21: 50.1%). This resulted in a 9.6% increase in like-for-like aftersales gross profit, it said.

Pendragon’s software business, Pinewood, delivered an operating profit of £2.8m (Q1 FY21: £3.4m), meanwhile, as the business invested in product development and international expansion.

The Pendragon Vehicle Management (PVM) leasing business recorded an operating profit of £4.9m (Q1 FY21: £3.7m), with growth largely driven by improved residual values on end of lease disposals.

Overhead pressures

Operating and interest costs increased by £12.8m (14.8%) across the group, however, as a result of the discontinuation of Government’s COVID-19 support, together impact from inflationary labour cost pressures, higher utility costs and investment into higher levels of marketing which were partially offset by the impact of savings from store closures.

A statement detailing the group’s outlook for the year ahead, said That it remained confident that it had “the right strategy in place”, adding that it expected to make positive progress towards our long-term goals this year.

Back in 2020 Pendragon embarked on its new strategy to rebrand and restructure its Car Store used car division and increase its focus on digital sales as it targeted underlying profit before tax of £85m to £90m by 2025.

Today’s trading statement added: “While we remain cautious about the potential for further disruption to operations due to ongoing macroeconomic uncertainty, inflationary pressures and the impacts of the conflict in Ukraine, we expect to deliver underlying profitability before tax in line with the board's expectations.”