PDG.L Regulatory News (PDG)

PENDRAGON PLC - Q1 Trading Update & COVID-19 Update

PR Newswire

London, May 20

Q1 Trading Update & COVID-19 Update

(ISSUED 21 May 2020)

Q1 trading performance

The following trading update covers the period from the 1 January 2020 to 31 March 2020.

The Group’s performance during the first two months of the quarter was encouraging, and demonstrated a continuation of the improving trend from the second half of FY19, with a £5.1m improvement in underlying profit before tax to the end of February compared to the same period in FY19. Trading in March had also started strongly, but was significantly impacted by nationwide lock-down measures and the subsequent closure of all the Group’s retail locations on 23 March; a key trading period for both new and used cars. It is estimated that the slow-down in trading, caused by the effects of COVID-19, impacted Group underlying profit before tax by c.£10m in the quarter, with the Franchised UK Motor division being the most affected. 

As a result of these factors, the Group recorded an underlying loss before tax of £2.3m for the quarter, an improvement of £0.5m from the Q1 FY19 underlying loss before tax of £2.8m, despite the significant negative impact of COVID-19 disruption.

Underlying operating profit in the Franchised UK Motor division was £4.4m, a decline of £4.7m vs Q1 FY19, driven by sales volume reductions as a result of COVID-19 disruption, with like-for-like new revenue declining by 19.1% against market declines as measured by SMMT of 31% and with new gross margins broadly flat year-on-year. Further good progress with used vehicle stock management, as a result of the previously outlined self-help measures, resulted in used vehicle gross margin rates of 8.2% in the quarter (Q1 FY19: 7.2%), a continued improvement on the 7.8% achieved in the second half of FY19.

The COVID-19 driven reduction in the Franchised UK Motor division operating profit was more than offset by a £6.0m improvement within the Car Store division, where underlying operating losses of £1.0m were recorded (Q1 FY19: £7.0m). Car Store performed in line with expectations, despite the shut-down period, as a result of the actions taken in H2 FY19 and improved gross margin performance of 8.0% in Q1 FY20 vs 7.4% in Q4 FY19.

The underlying profit in the combination of the Pinewood, Leasing and US Motor divisions was down £1.8m vs Q1 FY19 primarily driven by the disposals of the US dealerships during the second half of FY19. These declines were partially offset by a £1.0m reduction in underlying Group net finance costs.

Current operational status

On 23 March, in light of the situation with COVID-19 and in line with the requirements of HM’s Government, Pendragon temporarily closed all of its retail locations. 

Pendragon initially reopened, with new safety procedures, around 20 service centres during April (out of a total of 145), to either service or repair vehicles for key workers or for customers who depend upon having access to a vehicle. As demand has started to return, the Group has reopened more of its service centres, with a total of 125 open as of today, operating at a reduced capacity with around 20% of total technicians currently now returned to work. Weekly labour sales, whilst building momentum, currently remain significantly down on the same time last year, with last week representing c.17% of the level achieved in the same week in 2019. As customer demand builds, further technicians will be brought back to work to increase capacity and meet this higher demand.

Pendragon recognises the key strategic importance of a strong omni-channel offer, and during the period of closure has continued to develop its digital capabilities, with enhanced online home delivery functionality being deployed on the Car Store website, ahead of a wider group roll-out. Additionally, telephone sales operations have continued, with a focus on providing support for customers and facilitating home delivery where required. This additional capability has helped to take a total of 3,610 customer orders and complete 1,187 home deliveries since the beginning of April. Whilst this volume is still significantly below normal levels, there has been an increasing daily trend in order numbers in used car sales in particular. 

Protective actions and cash position

From the outset of the current store closure period, the Group has worked to protect its cash position. A significant number of actions have been taken including utilising the wide measures of government support via business rates holidays, VAT deferrals and application of the furlough scheme, which was applied to c.80% of the Group’s colleagues at the peak of its usage. In addition, Directors and senior management have voluntarily reduced their pay during this period by up to 20% of their basic salary. 

The Group has also reviewed and reduced all non-essential expenditure during the current time, and will benefit from lower levels of utility costs, logistics costs and travel expenses during the lock-down period. In addition, all non-essential capital expenditure has been paused and will be reviewed when trading resumes. 

The business has also benefited from measures of both financial and operational support from its stakeholders, including the OEM’s and stocking loan providers, and the Group continues to recognise the importance of these relationships.

Bank net debt as at 20 May 2020 was £100.5m (31 December 19 : £119.7m, 24 March 2020: £105m) against a total facility of £235m.

Reopening plans

The safety of colleagues and customers remains the Group’s absolute priority. The business has worked hard to be in a position to implement measures and plans to safely reopen locations as permitted or appropriate. These strict new measures will allow dealerships to operate through the introduction of ways of working that enable social distancing and will include changes to both operational methods and physical layout within dealerships. The Board is confident colleagues will be provided with a safe environment in which to work and that customers are provided with a safe environment in which to shop. 

The Group will also continue to develop its digital propositions for customers who choose to shop for their next car online.

It is currently expected that dealerships will be able to open, with compliant social distancing measures, from 1 June, and the Group will work with trade bodies and OEM partners as the situation develops to enable this to happen safely and effectively.

AGM

The Company’s AGM is being held at 10.30am today. As usual, the results of the AGM voting on the resolutions will be available on the Company’s website and published through the RNS.

Bill Berman, Chief Executive Officer said:

“I would like to take this opportunity to recognise the way in which our associates have responded to the challenges posed by the COVID-19 pandemic and to thank them for working to keep key workers on the move over the past two months.

“The actions we took during the second half of 2019 to focus on costs and to reduce used stock levels started to show results both during that period and on into the first quarter of 2020, resulting in increased profitability in Q1, despite the impact of the pandemic. The commercial consequences of a full lockdown have obviously affected the business, but we moved quickly to implement a broad range of actions to mitigate the enforced closure, and I am confident that we will emerge in a strong position as the current restrictions ease.

“We are now preparing to reopen from 1 June and will therefore have the capabilities in place to meet the full needs of our customers across new, used and aftersales, as well as driving our “We come to you” online offer.”