Pendragon’s used vehicle strategy pays dividends

Pendragon’s used vehicle strategy pays dividends

PendragonPendragon PLC has released its results for 6 Months Ended 30 June 2017. The group recorded a 4.6% increase in gross profit to £295.7m, on the back of UK used vehicle revenue up +20.9% on a like for like basis, while new vehicle sales declined by 4.3% on a like for like basis. 

The group appears to be delivering on its strategy, as set out in its 2016 annual report, to achieve double digit growth in used revenue in 2017, and double its used vehicle revenue over the following 5 years.  This has been supported by developments within the Evanshalshaw.com and Stratstone.com websites.  The sites generated 26 million visits for the 12 months to June 2017.   In the first half, visits have increased by 27.7% - with 66% of visitors from self-generated sources rather than paid sources.

Pendragon has also been aggressively opening used car stores during the period, with sites in Exeter, Coventry, Glasgow and Gloucester coming on stream in H1 2017.  The business has plans in place for an additional five sites in the second half of 2017 at Ipswich, Norwich, Borehamwood, Dartford and Ashford.  These will provide an additional annual sales capacity of circa 17,000 units for 2018 onwards for the Group.

The group’s used revenue increased by 21.0% on a like for like basis in the first six months of 2017, making a significant contribution to Pendragon’s UK Motor business increase in gross profit by £5.7 million in the period. The group’s US Motor business (8% of operating profit) recorded an operating profit up 6.4% in the period. Its Pinewood Software business (9% of operating profit) has increased operating profit by 14.6% in the period, following expansion into into new markets.

Pendragon’s new vehicle revenue fell by -4.3% on a like for like basis against a UK retail market that fell by -5.1% for the brands it represents.  Gross profit fell by 5.2% (£4.6 million) like for like.  The UK business’ aftersales revenue was up +6.0% on a like for like basis. Aftersales contributes 37.0% of the gross profit of the Group, and delivered a gross margin of 56.4%.  Its underlying operating margin for the group as a whole was recorded as 2.4%.

Trevor Finn, Chief Executive, commented, "Pendragon PLC has had a strong first half with underlying profit before tax up 9.7%.  We are particularly pleased with our used revenue growth, up 20.9% on a like for like basis, after setting our objective at the end of 2016 to achieve at least double digit growth in used revenue in 2017 and our aspiration over five years to double our used vehicle revenue.  During the second half we will make further adjustments to our pricing to maintain our new higher level of volume and enrich the margin.  The used vehicle volumes will be driven by capacity being installed as part of our used vehicle strategy. “

Addressing the business new vehicle performance, Finn added, “Whilst we have seen some of the expected decline in new vehicle gross profit, this has been more than offset by higher activity in the aftersales sector which provides our greatest share of gross profit and margin.  Our future growth is focused on increasing profitability of used vehicles and aftersales within the UK and US Motor businesses, geographical expansion in the US Motor and Software businesses and further growth in our Leasing businesses. “

Finn remains optimistic that the business will perform according to its own projections for the remainder of the year, “While we are expecting harder comparatives in the second half we still anticipate our performance for 2017 will be in line with expectations as we enhance our profitability streams further."