Release Date: October 16, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Vertu Motors PLC (LSE:VTU) achieved record revenue levels with growth in most areas, particularly in aftersales and used cars.

• The company outperformed the market in battery electric vehicle sales, with a 10.9% growth compared to a 7% decline in the retail market.

• Vertu Motors PLC (LSE:VTU) has a strong balance sheet with tangible net assets per share at 73.7p and gearing below target at 23%.

• The company announced an extended share buyback program, demonstrating financial strength and commitment to shareholder returns.

• Operational excellence is highlighted by high customer satisfaction scores and a strong workplace culture, with an 84% great place to work score.

Negative Points

• The new car market in retail was weak, with UK registrations falling by 11.2%, impacting Vertu Motors PLC (LSE:VTU)'s new vehicle margins.

• Cost pressures, particularly in payroll and vehicle costs, continue to be a concern for the company.

• The government's ZEV mandate is causing market distortions, leading to excess supply of electric vehicles and impacting margins.

• The company experienced a free cash outflow of GBP14.3 million in the period, driven by increased used vehicle inventory and reduced creditors.

• Vertu Motors PLC (LSE:VTU) faced increased interest costs due to higher interest rates and increased pipelines of funded new vehicle inventory.

Q & A Highlights

• Warning! GuruFocus has detected 2 Warning Sign with LSE:VTU.

Q: Can you elaborate on the impact of the government's ZEV mandate on the new car market and how Vertu Motors is responding? A: Robert Forrester, CEO, explained that the ZEV mandate is causing manufacturers to face challenges, including potential fines and the need to discount electric vehicles. Vertu Motors is lobbying the government and focusing on outperforming in battery electric vehicle sales. They are also expanding partnerships with Chinese manufacturers, who may have a cost advantage in electric vehicles.

Q: What are the key drivers behind the record revenue and growth in aftersales? A: Robert Forrester, CEO, highlighted that aftersales, a high-margin business, continues to drive significant gross profit growth. The group has seen strong performance in service areas, with increased technician resources and new products like the pay later upsell contributing to growth.

Q: How is Vertu Motors managing cost pressures, particularly in payroll and vehicle costs? A: Karen Anderson, CFO, noted that salary costs rose due to increased headcount and national minimum wage increases. Vehicle costs increased due to higher value electric vehicles in the demonstrator fleet. The group is focusing on energy savings and marketing efficiency to offset these costs.

Q: What strategic steps is Vertu Motors taking to enhance digitalization and operational efficiency? A: Robert Forrester, CEO, mentioned that Vertu Motors is focusing on technology to drive revenue and reduce costs. Initiatives include the Vertu insights used car pricing system and online check-in services. The company is also consolidating its retail brand to improve marketing efficiency.

Q: Can you provide an update on Vertu Motors' capital allocation strategy and shareholder returns? A: Karen Anderson, CFO, stated that the group is balancing growth investments with shareholder returns. They have increased the interim dividend and announced a new share buyback program. The focus remains on achieving returns above the weighted average cost of capital while maintaining a strong asset base and low gearing.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.