Vertu takes aim at online disruptors
12 May 2021
Vertu Motors has used the upheaval of the global pandemic to improve the way it operates and has improved profits, margins and its costs while chief executive Robert Forrester has used the results to call-out new online-only market entrants.
While revenues were down 21.6% to £2.5 billion in the year ended 28 February 2021, profit before tax (excluding non-underlying items) was £24.6 million up from £23.0m last year. The group’s gross margin increased to 11.8% from 10.9% and there was a cost reduction of £16m on like-for-like operations in the final nine months of the year.
The final profit before tax figure was £22.4m, up from £7.3m last year.
Vertu also reported that it had delivered 38,446 new and used vehicles in the first calendar quarter of 2021 despite lockdown.
In the group’s results statement, chief executive Robert Forrester set out the group’s key long-term objectives including a veiled reference to the switch from franchise to agency agreements and a swipe at the new online-only entrants to the market.
He said the Vertu aims to “grow as a major scaled franchised dealership group and to develop our portfolio of manufacturer partners, whilst being mindful of industry development trends, to maximise long-run returns” and “be at the forefront of online retailing and digitalisation in the sector, delivering a cohesive ‘bricks and clicks’ strategy”.
Commenting directly about agency agreements, Mr Forrester added: “The board notes that it is likely that the next few years will see an evolution of the business model with regards to the sale of new cars in certain franchises. The group undertakes sales in a number of franchises on an agency basis in the fleet market and anticipate that a number of manufacturers will move new retail sales to an agency model in the next few years. It is envisaged that such a move would reduce reported revenues, increase reported operating margins and reduce working capital investment.”
Mr Forrester said Vertu was “agnostic” as to how customers buy cars; online, offline or more likely a combination of the two. He also highlighted the value of being able to offer a test drive and that new entrants to the market had “very little, if anything to add to the sector”.
One day after Cazoo revealed it had sold 25,000 cars in 18 months, Mr Forrester said: “The strength of this proposition, together with the group’s established brands, national dealership network and reputation for excellent customer service, meant that the group delivered 38,446 new and used (retail and fleet) vehicles from 1 January to 31 March 2021, despite customers being unable to visit showrooms or test drive their chosen vehicles. 257 (0.7%) of these vehicles were purchased completely online by the Group’s customers. The majority of customers therefore elected to interact with the Group’s dealerships within the sales process. 4,700 customers have chosen to reserve their vehicle online, through the payment of a £99 deposit, since this new feature was introduced in May 2020. Use of this reservation facility has been increasing over time, with over 1,100 deposits paid in January and February 2021. Customers reserving vehicles in this way exhibit a very high conversion to ultimate sale.”
· Group revenues of £2.5bn (2020: £3.1bn) (like-for-like decline of 21.6%) impacted by Government imposed lockdowns
· Gross margin increased to 11.8% (2020: 10.9%)
· Cost reductions2 exhibited delivering a £16.0m (7.2%) reduction in like-for-like operating expenses in the nine months from 1 June to 28 February
· Growth in Adjusted1 operating profit to £33.8m (2020: £32.2m)
· Profit before tax of £22.4m (2020: £7.3m)
· Underlying earnings per share increased to 5.27p (2020: 4.99p)
· No final dividend recommended in light of the Government support received during the Year
· Net tangible assets per share of 50.2p (2020: 46.0p) reflecting very strong asset base
· Record Free Cash Flow3 of £48.4m delivered
· Adjusted4 net cash of £1.4m at 28 February 2021 (2020: net debt £2.8m)
1 Excludes non-underlying items.
2 Excludes grant receipts in respect of the furlough scheme.
3 Net cash flow from operating activities less net capital expenditure incurred and lease cash flows.
4 Excludes amounts drawn on used vehicle stocking loans and IFRS 16 lease liabilities.