Vertu Motors’ accelerated COVID-19 recovery delivers £4.7m H1 profit

Vertu Motors’ COVID-19 recovery accelerated the AM100 PLC to a £19 million profit in Q2 to reverse a £14.3m Q1 loss and deliver an overall profit in a challenging period for automotive retail.

Reacting to a set of interim financial results in conversation with AM this morning (October 7), chief executive Robert Forrester described how the sector’s momentum had grown in recent months, culminating in a strong September which he felt had been “a good time for all”.

Vertu’s financial results for the six-month period to August 31 showed that, despite the 10-week lockdown of its 135 sales sites across the UK due to the coronavirus pandemic, its reduction in revenues had been restricted to 32% year-on-year, at a total of £1.12bn.

Forrester described the group's H1 result as “an exceptional performance in the circumstances” and, reflecting on more recent trading, said: “We’ve been working exceptionally hard and the sector has been in a sweet spot in terms of trading. I would think everyone’s had a great time.”

Vertu’s share prices have almost doubled since March, when they fell to a low of 17.2p, rising to 31.5p this morning.

Performance turnaround

Q1 saw new car retail sales volumes decline by 59.3%, to 4,771, as used car sales decline as used car retail volumes declined by 74.1% to 5,813.

The group’s Q2 recovery delivered a 3.4% like-for-like rise in new car retail volumes, to 6,684, as like-for-like used car retail volumes and revenues increased 1.9% (to 22,590) and 8.1%, respectively.

Pent-up demand from aftersales customers drive an 9.7% increase in the like-for-like service revenues and the like-for-like gross margin percentage on vehicle servicing rose 2ppts year-on-year to 79.8%.

During September, Forrester revealed that the group had delivered significant additional growth in new (up 14.5%) and used cars (up 13.5%), commercial vehicles (up 53.3%) and service (17.6%).

Only the group’s fleet business suffered a reduction year-on-year, as revenues for the month declined by 18.4%.

Forrester said that new car supplies had been an issue in the month, but suggested this had delivered more positive trading for many. He said: “When we actually look at a clean set of data, we’ve much less pre-reg and much less volume push what we end up with is a retail sector that makes far better returns.”

Driving efficiencies

Vertu has worked hard to drive efficiencies during H2 and Forrester said that the acceleration of technology designed to drive efficiencies within the business – not the impact of COVID – being the main driver of a cost reduction programme which reduced group headcount by 345 in the period, yielding expected annualised savings of £10m.

He said that there were “no plans whatsoever” to make more redundancies in the business and described the process of losing staff as “desperately sad”.

Furlough rules which dictate that staff accrued holiday while on leave through the Government’s Coronavirus Job Retention Scheme (CJRS) mean that Vertu is one of many businesses left with something of a staffing headache in the remainder of 2020.

Forrester said: “What we have been left with is a situation where a lot of staff now have accrued holiday to take in the final three months of the year.”

Vertu’s chief financial officer, Karen Anderson, revealed that group operating expenses, excluding the Job Retention Grant receipt, were 9.6% lower than the same quarter in the prior year during Q1, 2020, representing a saving of £10m in the core group. 

Relief on business rates in respect of the group's showrooms saved £1.5m of this total. 

In Q2, a saving of £5.9m was delivered with total group operating expenses, ignoring the furlough grant receipt, reduced by 2.9%. 

Business rates relief saved £2.4m in Q2, helping to offset a £600,000 investment in personal protective equipment (PPE), meanwhile.

Targeting growth

Vertu's results statement once again underlined the group's desire to continue its growth through acquisition strategy, with both volume and premium brand franchises in its plan.

Group chairman Andy Goss said that "a strong balance sheet will allow a new period of expansion to commence", delivering a business of "greater scale".  

The group added its first Kia outlets late in the previous financial year, in Bradford and Edinburgh and completed its first acquisition since the COVID-19 crisis on October 1, adding Sandicliffe Motor Group's Nottingham Kia business for a sum of £1.9m, including £1.8m of used vehicle inventory. 

The dealership, which was loss-making in 2019, will be relocated in due course, Vertu said.