Interim Management Statement

RNS Number : 7809H

Pendragon PLC

10 November 2008

 



Interim Management statement

This Interim management Statement by Pendragon PLC is for the period from 1 July 2008 and updates our Interim Report which we published on 28 August 2008.

Overview

Since we last commented on our trading performance there has been a marked deterioration in the outlook for economic activity in the UK.  Whilst we welcome recent interest rate cuts, we believe it will be some time before the consumer benefits from banks passing this benefit on. In common with most companies in the retail sector, we are experiencing the impact of faltering consumer spending in the face of a squeeze on household budgets and tighter credit.  

The economic downturn has had a significant impact on new car registrations this year, particularly over recent months. Year to date new car registrations are down by 9% with the retail sector in which we operate down considerably more at 12%. In October registrations were down for the sixth successive month and registrations have fallen by 21.4% over the past three months.  Industry forecasts for new car registrations have been revised down to 2.1 million this year and to 1.9 million next year.

The used car market has also been more difficult in the last four months with prices falling by approximately 5% per month on average, with executive and large 4x4 vehicles being hardest hit. The aftersales market, whilst holding up well, has become more difficult in recent months.

Cost reductions

During the second half of 2008 we have completed a number of cost saving exercises which we have discussed in previous announcements:

• Headcount reductions:  we have made more than 2500 jobs redundant on a like for like basis which is nearly 20% of the total headcount in the business. The cost of these redundancies was £3 million expensed in the year.  The annualised saving as a result of this reduction is expected to be at least £40 million

• Dealership closures:  by the end of this year we will have closed 75 dealerships since June 2007 which were identified as likely to be unviable in the more difficult markets we are now experiencing.  The trading losses and closure costs of those dealerships this year have been £12 million. The annualised losses of the closed dealerships are estimated at £20 million.  

• Stock reductions:  there has been a continuing focus on stock reductions and our target is to reduce non manufacturer funded stocks by at least £50 million at the year end compared to last year end. New manufacturer funded stocks had risen at the half year and are now reducing, as anticipated, as manufacturers are starting to reduce production levels.

The actions taken this year have negatively impacted our results, both directly through such things as redundancy and closure costs, and indirectly through disruption caused. However, these actions have been necessary in the light of the ever declining outlook for our economy. The benefits to profits next year, coupled with savings from the recent interest rate reductions, will be significant and at least £60 million. 

Outlook

Assuming no significant further downturn in economic activity between now and the year end, we expect to report a full year loss before exceptional items for 2008 of £30 million. The Group continues to generate positive operating cashflows.

Notwithstanding a further reduction in the new car market the positive actions taken on the cost base and the favourable impact of the recent interest rate cut lead us to be optimistic of improved trading next year.

We also note yesterday's press speculation regarding the sale of our software subsidiary, Pinewood. We can confirm that we are currently considering options regarding the future of this business and a further announcement will be made as appropriate in due course.

Enquiries:

Pendragon PLC	Trevor Finn, Chief Executive	Tel:	01623 725114
	David Forsyth, Finance Director
Finsbury	Rollo Head/Gordon Simpson	Tel:	0207 2513801

 

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