Cambria Automobiles have now released their final results for the year ended 2017.
Revenues increased when compared to last year with a £13.1M growth in used car revenue, an £11.3M increase in new car revenue and a £5.9M growth in after sales revenue. Cost of sales also increased to give a gross profit £3.1M higher. There was no income from the sale of businesses, which brought in £2M last year but relocation costs fell by £498K and transaction costs were down £261K. Staff costs increased by £1.2M, operating leases grew by £431K and other admin costs were up £838K to give an operating profit £618K lower. Consignment and vehicle stocking interest fell by £110K and tax charges fell by £437K to give a profit for the year of £9.2M, broadly flat year on year with a decline of just £80K.
When compared to the end point of last year, total assets increased by £29.3M driven by a £13M growth in goodwill, an £8M increase in inventories, a £4.4M growth in cash and a £3.9M increase in freehold land and buildings. Total liabilities also increased during the year due to a £5M growth in other payables and accrued expenses, a £4.9M increase in vehicle funding payable, a £4.4M growth in vehicle consignment creditors payable, a £5M increase in secured bank loans and a £1M onerous lease provision. The end result was a net tangible asset level of £20.7M, a decline of £4.5M year on year.
Before movements in working capital, cash profits declined by £108K to £13.9M. There was a cash inflow from working capital but this was lower than last year and despite no transaction costs, which were £787K last year, the net cash from operations was £14.5M, a decline of £2.3M year on year. The group spent £7.9M on capex and received £411K from an insurance settlement to give a free cash flow of £7M. They then paid back £2.6M of loans and paid out £950K in dividends to give a cash flow for the year of £3.2M and a cash level of £23M at the year-end.
The UK motor retail industry has seen a weakening since the March plate change month where it showed record registration figures. The group’s trading in the first half of the year was very strong but the period from April to August was weaker as consumer demand softened across the industry with a more difficult trading environment with some of the group’s OEM partners being exposed to a weaker forex position as importers.
The gross profit in the New Car division was £21.3M, a growth of £2M year on year. New vehicle revenue increased by more than £11M but volumes reduced by 17% on a like for like basis and gross profit was down £200K on a like for like basis. The reduced volumes were offset by an improvement in the gross profit per unit sold which increased by 26%, a combination of a like for like increase and a strengthening mix from the JLR and Aston Martin dealerships. The like for like volume decline was partly attributed to reductions in unit sales from certain manufacturing partners and a reduction in unit sales from the Barnet JLR site during the disruptive building project.
The group’s sale of new vehicles to private individuals was 10% lower, showing the volume reduction that was anticipated. New commercial vehicle sales reduced by 34% in the period and new fleet vehicle sales increased by 14%. The new vehicle registration data showed total registration were down 1%. The registration of new cars to private individuals was down 5% but in the period of April to August was down 14%. The sale of diesel engine vehicles has been hardest hit as a result of the negative press around emissions.
The gross profit in the Used Car division was £23.5M, a decline of £200K when compared to last year. Revenues increased by £13.1M whilst the number of units sold declined by 6% partly driven by the closure of Swindon Motor Park, which was a high volume used car operation. Despite the decline in gross profit, the gross profit per unit increased by nearly 6%. On a like for like basis volumes were down 2.4% and the gross profit increased by 2.1% with profit per unit up 4.3%. The increase in efficiency of sourcing, preparing and marketing the vehicles has given rise to the increase in profitability.
The gross profit in the Aftersales division was £27.8M, an increase of £2.2M when compared to 2016. Aftersales revenue increased by 9% and like for like revenues were 3% higher with like for like gross profit improving by 1.7% (£400K). The aftersales margin was slightly diluted as the parts component increased in mix terms. The fire that took place in 2016 at the Jaguar and Aston Martin aftersales workshop in Welwyn Garden City had a significant impact on that site. The insurance claim has now been settled and has been included in the trading figures. The site reinstatement took significantly longer than first anticipated as a result of the complexity around stakeholders and insurance liability allocation. Whilst this was frustrating the work is now complete and they were able to re-occupy the workshop in July.
In August the group was partially through the building project relating to its JLR dealership in Swindon. There was a further £6M of contract sum payments to be made under the terms of the agreement with the contractor.
The major property redevelopment at Hatfield which is due to start in January 2018 will relocate the group’s JLR and Aston Martin dealerships in Welwyn Garden City which currently operate in short leasehold facilities into a purpose built freehold property with the addition of the McLaren franchise which will operate on the same site. The expected capital cost is £17M and the cost will be funded through existing cash and new facilities secured on the property.
In 2016 the group opened its Aston Martin dealership in Solihull. In order to secure the franchise for the territory, they acquired a freehold property and invested in a refurb of the facility to accommodate the franchise whilst a permanent location is built. They have secured a new site on the A34 in Solihull on a business park for a permanent facility. They have exchanged contracts and completion is subject to planning permission and the conclusion of extensive highways works to define the site and the new estate road. It is expected that the total freehold investment in the facility will be around £5M with completion expected by the end of Q1 2019.
The group will also be operating two Bentley dealerships in January operating from existing group freehold facilities. The dealership properties are currently undergoing refurbishments to meet the Bentley franchise standard requirements. Overall the group is planning building investment of £29M over the next two years.
Going forward, the UK economy remains in a period of uncertainty while the ramifications of leaving the EU are worked through. There is a lack of clarity on how any free trade agreement will be negotiated and there continue to be major implications for the forex rate. It is unclear how these factors will impact the UK motor trade although the group have seen an industry-wide softening in the new car market from April onwards.
The SMMT is currently forecasting a 5.5% reduction in the new car market in 2018. After the year-end, September and October trading was in line with expectations but down on the previous year due to new car volume and bonus achievements impacting new car margins.
At the year-end the group had a net cash position of £6.1M compared with £400K at the end of last year.
On the 5th January the group announced that Chairman Philip Swatman sold a total of 100,000 shares at a value of £57K to partially finance a house purchase. Following the disposal he has 200,000 shares left.
On the 4th January the group released a Q1 trading update where they stated that trading was in line with market expectations, albeit behind the corresponding period last year. The weaker new car market has seen pressure on both volumes and margins across the period. New vehicle sales were down 14.4% on a like for like basis with gross profit per unit also reducing.
Used vehicle sales continued to perform well on a like for like basis. Total unit sales were down 9.2% due to the lost units from the closed Swindon Motor Park, and like for like units were down 2.8%. This reduction was offset by continued improvement in gross profit per unit and this performance has again enhanced the profit from this segment of the business.
Overall, the group’s aftersales operations delivered a good performance, with revenue increasing by 0.3% (6.1% like for like) with profitability down 0.7% (like for like up 5.9%). This business has been impacted by some of the new franchising decisions that have been taken. These have necessitated the closure of the group’s body shop operations in two locations in order to facilitate the property development for the new franchises.
The group are opening a Lamborghini dealership in Q1, located in Chelmsford, in the same facility as the Bentley dealership and work is underway to complete that showroom for occupation in Q1. The building work to construct the JLR, Aston Martin and McLaren dealership in Hatfield is scheduled to begin in January and will take just under a year to complete.
Going forward, the board remains cautious about the new car market in light of the general uncertainty in the consumer environment and the pressure that vehicle manufacturers are under as a result of the current Sterling rate. Nevertheless the franchising progress that has been made through 2017 and into 2018 has further enhanced the group’s portfolio of dealerships and leaves the business well positioned with strong representation in the luxury segment of motor retail.
At the current share price the shares are trading on a PE ratio of 6.8 which rises to 8.2 on next year’s consensus forecast. After an 11.1% increase in the total dividend the shares are yielding 1.5% which increases to 1.7% on next year’s forecast. At the year-end the group had a net cash position of £6.1M compared to £400K at the end of last year.
On the 8th January the group announced that non-executive director Paul McGill purchased 41,897 shares at a value of £25K.
On the 6th March the group released a trading update covering the first five months of the year, which was in line with board expectations, albeit behind the corresponding period last year both in total and on a like for like basis. The weaker new car market has seen pressure on volumes in the period although bonus earnings have enhanced the group martins. New vehicle unit sales were down 14.6% on a like for like basis but gross profit per unit improved to partially offset the reduction in volume.
Used vehicle sales continued to perform well on a like for like basis with unit sales in line with the same period last year. Total sales were down 6.8% as a result of the lost units from the site closures and refranchising activity carried out. This was offset by continued improvement in gross profit per unit and this performance continues to enhance the profit from the used car segment of the business.
Overall the group’s aftersales operations delivered a good performance with revenue increasing by 0.6% (6.1% like for like) with profitability up 2.1% year on year.
In January the group completed the refurb of existing freehold properties to locate the two new Bentley businesses in Tunbridge Wells and Chelmsford. The refurbs were completed efficiently and both businesses are establishing themselves in the new facilities. The work to create their first Lamborghini dealerships in Chelmsford is nearing completion for an expected site launch in March.
The construction of the JLR, Aston Martin and McLaren dealership on one site in Hatfield started in February. There was a slight delay in starting the works whilst planning conditions were discharges but these are now addressed and the construction work is now progressing. In January the group built a temporary McLaren showroom on the site and began trading at the end of the month. To facilitate these new dealerships in Tunbridge Wells, the group have closed on Honda, one Alfa Romeo and a Jeep dealership along with two body shop operations.
Going forward the board continues to remain cautious about the new car market. The government’s clean air policy narrative and the inconsistent messaging around the forward looking position of diesel engines has created a reduction in consumer demand for diesel vehicles. The new car market in 2017 was down 5.7% with all of the reduction seen in the diesel segment.
The general uncertainty in the consumer environment remains, as does the pressure that vehicle manufacturers are under as a result of the Sterling exchange rate. Whilst the outlook has some challenges, the board believes that the group is well placed to continue to deliver on its strategy of enhancing their portfolio with the arrival of Bentley, Lamborghini and McLaren in the period.
Overall then this is a tricky period for the business. Profits fell but this seems mainly due to no business sales during the year. Net tangible assets declined, as did operating cash flow but there remained a decent amount of free cash being generated. So far this year, the performance has deteriorated due to the weakness in the new car market. Used cars are holding up better due to the increased profit per unit and aftersales seems to be performing fairly well, however. With a forward PE of 8.2 and yield of 1.7% I believe the shares are priced broadly correctly.