Vertu Motors’ chairman Peter Jones described the AM100 franchised car retail group's 2018 financial performance as “a credible result” despite a 16.8% decline in profit before tax.

The Gateshead-based group highlighted its cash generation during the 12 month period to December 31, 2018, and its continued ability to grow its scale in a shrinking market to deliver greater market share.

But, as total new car sales decline by 5% on a like-for-like basis, a 5.8% increase in used car volumes and 7% aftersales revenues growth was unable to arrest an overall profit before tax decline to £25.3 million (2018: £30.4m).

Turnover grew by £186m (6.7%) to £2.98 billion, the group said in its statement, but shirinking margins from new car sales and a decline in Motability, fleet and commercial sales impacted the overall performance.

Vertu Group chairman, Peter Jones, said: “The automotive retail sector faced a number of challenges in the year to 28 February 2019 including disruption to new vehicle supply, driven by a weaker pound and EU Worldwide Harmonised Light Vehicle Test Procedure (WLTP) regulations, political uncertainty impacting consumer confidence and significant cost pressures.

“Despite this, the Group delivered a credible result in profit terms and very strong cash generation.

“The Board proposes a final ordinary dividend of 1.05p per share taking the total ordinary dividend for the year to 1.60p per share, an increase of 6.7% on last year.

“The Group generated Free Cash Flow of £21.2m and £9.3m was returned to shareholders through a combination of ordinary dividend payments (£5.7m) and share buybacks (£3.6m). 

“During the year 8.3 million shares were repurchased for cancellation reducing the number of shares in issue by 2.2%. The Share Buyback Programme will be recommenced following this announcement.

“As anticipated, investment in the Group's property portfolio has continued, with a capital expenditure cash outflow of £33.7m before disposals. 

“This spend included significant projects to increase the operating capacity of the Group and to ensure dealerships meet the latest in Manufacturer standards. 

“The portfolio is now well invested, with reduced capital expenditure expected in the coming financial year. Adjusted Net Cash reduced to £22.9m from £32.1m, with £31.5m spent on acquisitions completed in the year. 

“Net debt, inclusive of used vehicle stocking facilities is negligible at just £0.3m at the balance sheet date and this means the Group has considerable firepower for future investment.”

Vertu reported growth in used vehicle selling prices and volumes as well as aftersales revenues during 2018. 

Total used car revenues rose by 11.6% to £1.2 billion as the group sold 82,576 units at an average price which was 6% greater than in 2017 at £14,203 (2017: £13,396).

As a result like-for-like gross profit generated from the sale of used vehicles increased by £2.5m in the period (2.5%)

Aftersales revenues rose to £257.1 million, with gross profit up 6.4% at £136 million.

The group said that these activities had contributed 49.4% (2018: 46.4%) of total revenues and 73.9% (2018: 72.2%) of gross profit, a shift which, it said: “Reflects the fact that the business success of the Group is far more resilient than being solely linked to the new car market.”

Vertu completed a number of investments in its franchise portfolio during 2018 and insisietd in its results report that consumers’ dealership visits are actually increasing in each buying cycle at present in the UK and as powertrain and model complexity in vehicles increases

In April 2019 the Group closed its Retford Honda dealership in Nottinghamshire, with three Honda dealerships operated by the Group are within 25 miles justifying closure of the profitable site amid Honda’s plans to trim its network. 

On June 30 last year the Group acquired Hughes Group Holdings Limited for total consideration of £24 million, of which £1.5 million was deferred for 12 months. 

The acquisition added the Mercedes-Benz dealerships in Beaconsfield and Aylesbury to the Group's existing adjacent market area comprising Reading, Ascot and Slough, as well as introducing the Mercedes-Benz Commercial Van franchise to the Group's portfolio for the first time and a further Skoda outlet. 

On March 31 the Group sold its Peugeot business in High Wycombe, which had been acquired in June 2018 as part of the above Hughes acquisition, to Eden Motor Group. 

The group described the operation as “sub-scale”, adding that it was unlikely to make an appropriate return to the Group. 

On January 7 the Group acquired the entire share capital of Vans Direct Ltd, which is a well-established on-line retailer of new vans (www.vansdirect.co.uk) based in Newport, South Wales.

A total consideration of £9.6 million secured the online van retail business and included £2.5m in respect of an earn-out arrangement that will be paid, subject to delivering two years on-target EBITDA performance, the group said.

Subsequent to these changes, the Group now operates 120 franchised sales outlets, and 3 non-franchised sales outlets, from 104 locations.