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Pendragon narrows losses in tough first half

By Josh White

Date: Tuesday 29 Sep 2020

Pendragon narrows losses in tough first half

(Sharecast News) - Pendragon reported a 43.4% fall in like-for-like group revenue in its first half on Tuesday, to £1.22bn.
The London-listed motor vehicle retailer said its underlying loss before tax improved 3.7% for the six months ended 30 June, to £31m.

Its net debt narrowed by 61.6% to £46m, while its loss after tax was 68.1% smaller than it was in the first half of 2019, at £41.4m.

Operationally, Pendragon said it took "rapid and decisive" action to minimise the impact of the Covid-19 pandemic, which mandated the closure of all of its dealerships for more than two months, and to protect cash.

It said it used government support measures, including the Coronavirus Job Retention Scheme, rates holidays and VAT deferral, with more than 80% of its workforce furloughed at the height of the pandemic.

The company said it reviewed its capital expenditure, and either reduced or postponed it to mitigate cash impact of the pandemic.

Vehicle payments were deferred with support from original equipment manufacturers and stocking loan providers, while voluntary management pay cuts of up to 20% were taken during the national lockdown.

Pendragon also temporarily moved to monthly rent payments with the agreement of its landlords, and reduced all of its discretionary cost activity to "minimum" levels.

A total of 20 of its service centres remained open throughout the period, initially to support key workers, with up to 125 opening during May.

The group said it accelerated the development of its digital capabilities, and introduced online payment functionality, "click and collect" and home delivery options.

Its Pinewood and PVM operations continued trading throughout the lockdown to support their customer bases, while a "comprehensive" reopening plan was developed and implemented following the lifting of the lockdown, with a staggered return to work for its staff based on increasing consumer demand while still using the Coronavirus Job Retention Scheme where required.

Financially, however, Pendragon said that despite the actions taken, the Covid-19 outbreak had a "material impact" on its reported underlying profit before tax performance, with management estimating the financial impact on the first half to be about £44.1m.

Performance prior to the pandemic had been "encouraging", with the group starting the year ahead of plan and ahead of 2019, with January and February combined £5.1m ahead of the prior year.

The company recorded an underlying loss before tax for the first quarter of £2.3m, which was an improvement of £0.5m over 2019, despite the "significant" impact from the lockdown on the "key" end of March trading period.

A further £28.7m underlying loss before tax was recorded in the second quarter, which was primarily driven by the losses incurred during the ongoing closure in April and May.

June trading returned to profitability, despite ongoing closure impacts in Wales and Scotland.

Pendragon noted that SMMT reported new volumes as being down 48.5% during the first half, while it saw a 47.9% like-for-like reduction in new cars sold in the same period, meaning it traded "marginally ahead" of the market reduction.

The impact on cash flow was estimated to be around £40m from the lower-than-expected profit before tax.

Pendragon said it would mitigate that impact through the ongoing rates holidays for the rest of 2020, and a £30m reduction in capital expenditure for the year.

The group said it remained compliant with its banking covenants during the period.

"The Covid-19 pandemic has had a significant impact on our business during the period, however, thanks to the agility, hard work and commitment of our people, we have performed resiliently," said chief executive officer Bill Berman.

"The safety of our colleagues and customers has been our priority throughout.

"I am particularly proud that despite these circumstances, we have risen to the challenge in responding to the new environment and accelerated improvements in our digital and online retail capabilities."

Berman said the firm had been "encouraged" by the first few months of trading following reopening and, while the outlook for the rest of the year remained uncertain, it was "confident" the operational improvements made left Pendragon "well-positioned" for the long term.

"We recently set out our new strategy with digital innovation and operational excellence at its core.

"Both will be instrumental in transforming Pendragon's performance and we have made great progress in both areas already this year.

"While there is some distance still to travel, we remain firmly committed to achieving our twin goals of sustainable profit growth and attractive returns for shareholders."

At 0952 BST, shares in Pendragon were up 3.14% at 7.71p.

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