PROFITS GO INTO REVERSE

Car dealer Pendragon knocked by drop in demand for new vehicles

The used car market is over three times bigger than new car market. Trevor Finn, chief executive of Pendragon

CAR DEALER Pendragon reported a slump in full year profits after a slowdown in new vehicle sales and difficult trading conditions.

The firm, which has dealerships across Yorkshire, pointed to a “challenging economic environment and lower consumer confidence”, particularly in the third quarter.

Pendragon said underlying pre-tax profit fell nearly 20 per cent to £60.4m in 2017 as new vehicle revenue fell 4.9 per cent.

The results come as the Society of Motor Manufacturers and Traders (SMMT) reported lower monthly figures showing that Britain’s new car market is going in reverse.

Earlier this month, the SMMT revealed that just over 163,600 cars were driven off forecourts in January, down by 6.3 per cent compared with the same month in 2017.

There was a 30 per cent drop in business buyers.

However, as consumers shun new vehicles, the used car market is revving up again.

Pendragon said total revenue was up 4.5 per cent to £4.7bn, driven by used car sales, which rose 15.3 per cent on a like-forlike basis.

Pendragon’s chief executive Trevor Finn is focusing on that segment of the market, where it trades as Evans Halshaw, to help mitigate the decline in new cars.

“The used car market is over three times bigger than the new car market,” he said.

“We’re going for a 10 per cent share of the market in nought to six-year-old cars. We know the number of vehicles is increasing in that space so we know the market for us is going to grow for the next two or three years.”

Mr Finn said the group has a clear focus and direction to transform the business and double used revenue by 2021.

“This will be enabled by our market-leading software business to provide the online and technology platform and by investment in increasing the used retail and after sales representation points in the UK,” he said.

Pendragon said it has made progress towards its goal of doubling used vehicle revenue with growth in the period of 15 per cent.

“We anticipate our performance in 2018 to be in line with expectations,” added Mr Finn.

In December, Pendragon said it will shut dealerships in Britain and offload its US division following a profit warning in October.

AJ Bell investment director Russ Mould said: “An 11 per cent plus share price hike in response to weak 2017 results from car dealership Pendragon can be attributed to investor relief that life hasn’t got worse for the company, given a difficult market backdrop for the car seller.”

Analyst Adam Tomlinson at Liberum said: “Management has reiterated the four strategic pillars set out in October, with guidance largely unchanged.

“Within UK Motor, the reshaping of the portfolio to reduce the number of premium franchises over the next three years remains the ambition, which is still expected to release £100m of capital through disposals and ‘saved’ capex.

“We expect newsflow on this through 2018.

“We also expect the US Motor business disposal to be completed this year, with management expecting proceeds of £100m before tax.”