10 May 2023

Vertu Motors has outperformed market expectations with a £39.3 million adjusted profit before tax figure on a £4 billion turnover – a new record for the business – for the full year to 28 February 2023.

The results also give an insight into the OEM strategy changes from Mercedes and JLR.

While the £39.3m profit figure was the firm’s second highest, last year’s £80.7m was seen as an anomaly as the entire industry caught the tailwinds of short supply and high demand resulting in  significantly improved margins, plus Government support of £6.6m.

The results also include the acquisition of the majority of the Helston group.

Vertu’s profit before tax figure after non-underlying items, including a significant one-off legal and financial due diligence cost of the Helston purchase, was £32.5m.

Commenting on the acquisition and the performance post-results, CEO Robert Forrester said: “ The Helston businesses have now been integrated into our systems platform.  The acid test was how our core Group and new dealerships performed in March and April and I am delighted to report that the trading result post year end has been encouraging and gives confidence for the year ahead.

“The reported results reflect a strong profit and excellent cash performance, both ahead of expectations. As a result, we have chosen to propose a significantly increased final dividend, delivering a 26.5% higher dividend for the year as a whole. The business is in a healthy financial and operational position to further develop and gain from the benefits of scale as sector consolidation continues.”

Vertu also reported that vehicle supply was becoming “evident” but has a “continued high group order bank of high margin” orders.

Commenting on OEM moves to the agency retail model, Forrester said: “The group has long operated on an agency basis for a significant proportion of fleet and parts sales. The first of the Group’s significant manufacturer partners to operate the agency model for new retail sales was Mercedes-Benz passenger cars which moved to a genuine agency model on 1 January 2023. The implementation has been successful from a systems perspective and the Board will monitor how the change impacts volume and profit levels, albeit remaining cognisant that the change to agency is, of course, only one of a number of factors which impacts volume and profit. The Volkswagen Group brands and Volvo are likely to be the next in line for agency implementation.”

Vertu’s results also revealed that while the group added 31 franchises over the year, it is set to reduce its Jaguar portfolio from six to one, under JLR’s Reimagine strategy, with £1.5m of goodwill written off in the year.

HIGHLIGHTS

• Adjusted¹ profit before tax of £39.3m (FY22: £80.7m), on record revenues of £4.0bn.  Profit slightly ahead of market expectations.
• Acquisitions successfully integrated onto Group systems and processes and on track to deliver expected synergies and earnings enhancement.
• Group portfolio grown by 31 sales outlets during the Year, including 27 from Helston and 2 from BMW Motorrad acquisitions, contributing to scale benefit opportunities.
• Free Cash Flow of £54.3m in the Year (FY22: £44.4m) reflecting excellent working capital management.
• Net debt² of £75.3m as at 28 February 2023, significantly ahead of market expectations (FY22: Net cash: £16.2m).
• Expanded debt facilities agreed in December 2022, including a new £74.8m 20-year mortgage, an upsized revolving credit facility of £93m with a third bank added to syndicate, and an increased used vehicle stocking facility to £70m (from £35m).
• Net tangible assets per share of 65.3p reflecting strong asset base.
• Final Dividend of 1.45p per share recommended, bringing full year dividend to 2.15p per share (FY22: 1.70p) an increase of 26.5%.
• £5.9m returned to shareholders via repurchase of 10.5m shares during the Year.

OUTLOOK

• Trading performance in excess of last year delivered in key months of March and April aided by the contribution from acquisitions.
• Improvement in new vehicle supply evident with continued high Group order bank of high margin new vehicle orders in place.
• Used vehicle demand remains strong and continued used supply constraints underpin residual values.  Vertu Insights rollout underway to help optimise used car gross margin.
• Aftersales revenues and profits remain highly resilient aided by retention products such as service plans and ageing of the vehicle parc.
• Cost pressures, reflecting continued high inflation remain evident with strategies in place to mitigate where possible.
• Active portfolio management strategy expected to deliver a further c.£9.5m of assets disposals in next 12 months, £3m above book value.
• Net debt expected to reduce through ongoing strong Free Cash Flow generation.

Tags: Robert Forrester, Vertu