12th Jun 2019 08:56
(Alliance News) - Pendragon PLC issued a profit warning on Wednesday, saying it now expects to post a small underlying loss in 2019 due to market conditions and excess stock across the business.
Shares in Pendragon were down 25% at 17.21 pence in early morning trade.
The automotive retailer said the UK market has stayed "challenging" and noted the Society of Motor Manufacturers & Traders' report of a 3.1% decline in new car registrations in the year to May.
Adding to the difficult market, Pendragon said it has also be hurt by "certain internal operational challenges" and now expects to report a small underlying pretax loss in 2019, prior to the disposal of its US Motor group unit. The first half of the year is likely to be "significantly loss making", followed by a return to profit in the second half.
Pendragon expects the GBP11.9 million operating loss suffered by its Car Store business in 2018 to accelerate to around GBP25 million in 2019 due to "execution inefficiency" and an increase in used car stock at the end of 2018 to GBP485 million from GBP372 million a year before, which caused excess stock to be held across Pendragon's business.
Also hindering performance has been "lower than anticipated new car margins in order to achieve volume targets with lower levels of tactical registrations" and higher costs, especially in aftersales.
Pendragon announced the disposal of another two franchise locations in the US within its US Motor unit for around GBP60.0 million in total, with both disposals due to complete in the third quarter of 2019. Discussions for disposal of the rest of US Motor continue, the company said.
Pendragon Chief Executive Mark Herbet commented: "Notwithstanding the challenging market and uncertain macro outlook, the expected loss for the year is still disappointing. That said, we see significant addressable opportunities to improve the business and return to profitable growth. We are continuing to work on our review of the business ahead of our strategic update in September, but I am confident there are real opportunities for self-help that will improve the performance of the core UK Motor and Leasing businesses.
"In the short-term, there is a need for a refocus of strategy and execution in Car Store but I believe this, together with Pinewood, to be significant long-term market opportunities that we should be pursuing with vigour."
Pendragon said it expects the publication of its interim results to be delayed to late September, "given the level of ongoing work".
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