Pendragon’s profits drop due to inflation and loss of business rates relief

Car dealership chain Pendragon saw annual profits row back from record highs last year amid rising inflation and an absence of Covid-related government support.

The Nottingham-based motor retailer behind the Evans Halshaw and Stratstone brands revealed profits declined by over a quarter to £45.5million in 2022, down from £61.5million the previous year.

Earnings were impacted by higher marketing spending related to the relaunch of the CarStore online marketplace and the non-repeat of around £12million in business rates relief received in 2021.

Margins were also dented by higher labour and utility costs, as well as rising interest rates. 

The company said it still delivered a ‘strong financial performance’ during the year despite a more difficult trading environment, with more drivers delaying purchasing cars because of cost-of-living pressures.

Total revenue grew by 6.7 per cent on a like-for-like basis to £3.6billion even as the volume of cars Pendragon sold declined, primarily thanks to ongoing semiconductor shortages affecting car manufacturers. 

After Covid-19 restrictions were loosened following the end of the third lockdown in England, supply chain problems and the release of pent-up demand led to a huge boost in gross margins, providing a windfall for British motor dealerships.

In 2021, Pendragon made record underlying pre-tax profits of £83million, increased revenues by almost £600million and cut its net debt by over half.

Last year saw secondhand vehicle margins fell back from historically-high levels, but gross profit on newly-sold cars skyrocketed to a record £2,719, helping Pendragon’s core earnings to beat expectations.

Pendragon said trade had remained positive in the first two months of 2023, and there were ‘encouraging signs’ of the production and supply of new cars improving. 

Chief executive Bill Berman said the London-listed company was ‘mindful of the potential headwinds from challenging macroeconomic conditions’.

He added: ‘However, we continue to expect our ongoing operational initiatives and growth opportunities to more than offset operating cost inflation within the business this year, and the Board remains confident in the prospects for the group in 2023.’

Pendragon shares were flat at 16.8p on late Wednesday morning.

They are down by around 40 per cent since the abandonment of a takeover attempt by its largest shareholder, Hedin Mobility Group, in December. 

Hedin, the owner of multiple dealerships and automotive services across Europe, blamed ‘challenging market conditions and [an] uncertain economic outlook’ for walking away from the £411million acquisition.

The Swedish firm had been a major critic of the Pendragon board proposing high executive compensation packages while refusing to hand back millions it received in Covid-related government support.

Before the company’s AGM last June, where two-thirds of investors voted against the directors’ remuneration report, it described the £3.4million pay packet for William Berman as ‘excessive and unwarranted.’