Vertu Motors (AIM:VTU) has said that despite a strong first half performance, it expects its costs to rise in the second half, though overall its 2023 fiscal year performance is expected to be in line with expectations.
In a trading update in advance of the release of its results for the six-month period ended August 31, 2022, the company - the UK's 10th largest automotive retailer - said there remains uncertainty around vehicle supply and the macro-environment for consumers which is likely to be affected by rising energy costs and inflation generally, consequently, profitability is expected to be more weighted to the first half of the financial year.
Constrained supply of new vehicles in the UK has continued due to dislocation in global supply chains, particularly around semi-conductors with its resultant impact on vehicle production levels, it noted.
The group said its order bank levels for new vehicles remain high, with almost 13,000 new retail orders currently awaiting delivery and strong fleet and commercial order banks also in place, and gross profit generation from the sale of new vehicles is ahead of last year, despite the decline in volumes, due to stronger margins.
It noted that there have also been supply constraints in used cars, which, combined with the comparative period in the prior year reflecting post lockdown pent-up demand, have resulted in a decline in like-for-like used car volumes. Used vehicle wholesale prices have stabilised after a period of significant growth, and so whilst gross profits per unit have remained above normal levels, they are reduced from the very high levels witnessed in the financial year ended 28 February 2022, Vertu added.
The company said its high-margin aftersales departments have delivered revenues ahead of prior year levels on a like-for-like basis, while in the service departments, retail revenue grew as the group increased customer retention and continued to more effectively penetrate the older car servicing market.
However, the firm said operating expenses have increased year-on-year due to rising costs and the removal of government support for business rates, due to which costs were reduced by £5.2mln in the first half of 2021.
As a percentage of revenue, the company, which has a network of 160 sales and aftersales outlets across the UK, said its costs "are in line" with expectations.
Vertu noted that the business currently benefits from below-market-rate electricity costs under a fixed contract expiring at the end of September 2022, so there will consequently be an increase in the group's cost of energy in the second half of the financial year, though its management is very focused on reduced energy usage, the company added.
Vertu shares were trading 1.6% lower at 46p in early deals.