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Vertu Motors Plc

Vertu Motors plc Board pleased with further growth and strong position

Vertu Motors plc (LON:VTU), the automotive retailer with a network of 125 sales and aftersales outlets across the UK, announced today its interim results for the six months ended 31 August 2018.

Financial Highlights

· Revenues of £1.56bn (2017 H1: £1.45bn) representing growth of 7.9% (8.0% on like-for-like basis)

· Group gross margin of 10.7% (2017 H1: 11.0%)

· Adjusted1 operating profit of £19.4m (2017 H1: £21.4m)

· Adjusted[1] profit before tax of £18.1m (2017 H1: £20.9m)

· Profit before tax of £17.3m (2017 H1: £24.2m) with no exceptional items (2017 H1: exceptional profit of £4.1m on disposal of freehold property)

· Adjusted1 earnings per share of 3.90p (2017 H1: 4.24p)

· Period end net debt of £8.7m (2017 H1: net cash £20.8m)

– Hughes Acquisition completed for consideration of £21.8m in the Period

· Freehold and long leasehold property portfolio: £202.9m (2017 H1: £175.0m)

· Tangible net assets per share 45.9p (2017 H1: 44.5p)

· Focus on returns to shareholders and capital allocation:

– Free cashflow of £10.9m (21017 H1: £4.6m)

– 5.6m shares repurchased at an average of 43.6 pence per share deploying £2.5m of cash

– Interim dividend held at 0.55p per share (2017 H1: 0.55p)

Operational Highlights

· Like-for-like service revenues up 7.4% continuing the long term growth trend in aftersales

· Rise in like-for-like aftersales gross profits of £3.4m year on year

· Strong growth in like-for-like used vehicle volumes of 5.8%, representing 12.4% revenue growth

· Increase in like-for-like used car gross profits due to volume growth and higher gross profit per unit; lower margins of 8.8% (2017 H1 : 9.2%) due to higher average prices

· Group like-for-like new car retail volumes up 5.7%, gaining market share as UK private registrations declined by 2.4%

· Average new car sales prices continue to rise; gross profit per unit stable; new car margins of 7.4% (2017 H1: 7.6%)

· Operating expenses as a % of revenue lower at 9.4% (2017 H1: 9.5%) reflecting strong cost control despite on-going cost pressures

· Surplus property realisations of £3.3m during the Period with more anticipated

· New Board and management appointments

Six months ended 31 August 2018

Increase (decrease) period-on-period

                     Total

         Like-for-Like

           SMMT UK      Registrations

Group Revenues

+7.9%

+8.0%

Service Revenues*

+8.7%

+7.4%

Volumes:

Used retail vehicles

+5.3%

+5.8%

New retail vehicles

+4.4%

+5.7%

(2.4%)

New Motability vehicles

(7.4%)

(6.3%)

(2.5%)

New fleet cars

(11.8%)

(12.4%)

(5.2%)

New commercial vehicles

+9.9%

+8.1%

(2.7%)

 

* includes internal and external revenues

Current trading and outlook

· Supply side issues in the new car market led to declining volumes with September registrations being the lowest since 2011:

– September impacted by EU wide WLTP emissions regulations with some supply issues likely to continue into early 2019

– Continued depressed Sterling levels weighing on the profitability of Manufacturers supplying the UK market: new car margins under pressure

· Demand side robust during the Period, however, political uncertainty in the UK may create consumer uncertainty and volatility for the remainder of the financial year

· The Group outperformed the market in volume terms in September with like-for-like new retail volumes down 13.8%, whilst new private registrations fell 20.1% in the month

· Used cars continued to exhibit strong profit growth year on year in September. Used car margins strengthened in September on the back of reduced vehicle supply. Used car prices are likely to strengthen in the coming months

· Aftersales continues to exhibit growth trends and represents a significant opportunity to drive increased higher margin revenues

· Period of significant capital expenditure coming to an end with materially lower levels anticipated from 1 March 2019

· A number of Manufacturers are currently reviewing their parts distribution models for franchise parts which may lead to structural changes in a number of Group businesses

· Cost pressures impact the Group’s trading performance and are a crucial focus for management

· Following the September trading performance, the Board anticipates that the Group’s full year results will be in line with expectations[2] as recently revised by the market

Commenting on the results, Robert Forrester, Vertu Motors PLC Chief Executive, said:

“The Group performed well in the first half against a back drop of supply side issues in the new car market, including the continued weakness of Sterling and the impact of WLTP. The Board is pleased to see further growth in aftersales revenues and to re-establish growth in used car volumes. On the demand side, consumer confidence has remained robust during the Period reflecting the underlying strength of the UK economy. As is so often the case in the UK new car market, the supply side is by far and away the key to explaining variations and trends.

The Group’s discipline around the allocation of capital, its low net debt level, including a very low usage level of used vehicle stock financing, together with a very strong property portfolio, places the Group in a strong position to take advantage of consolidation opportunities to continue to grow the value of the Company.”