Everything went wrong for Pendragon last year. The accounts for 2008 show that there was a long list of negatives which sent profit tumbling from an already poor £42 million in 2007 to a loss of £30 million in 2008.

The list of items, extracted from the trading record, ran like this:

  • New car volume loss was £22 million, and the loss of new car gross margin was £5.4 million.
  • The used car trading experience was even more severe. The fall in volume caused a loss of £6 million, while the loss of gross margin on used cars was £24.7 million. 
  • There was similarly negative gearing on service work. Volume loss cost £1.8 million while the evaporation of gross margin accounted for £11.5 million. 

So much for industry claims that service work remains resilient in recession when people are running older cars for longer.

  • Another £17 million disappeared as a result of losses in the non-motor divisions (Partco and leasing), in group operating cost increases, and because of the closure of dealerships – in that order of severity.

If the profit and loss account looked bad, the balance
sheet hit looked even worse and dramatically affected the cost of raising more debt to get Pendragon out of the other side of this recession. Write-downs totalled £171 million. 

The biggest item by far in that total was the write-down of the value of car retail businesses recently acquired.

The goodwill hit was £58 million – hardly surprising when the ability of car retailers to generate profit is now shown to be so precarious.

Devaluing fixed assets (together with losses on disposal) cost a combined 

£32 million while closing businesses and paying redundancy cost another £25 milion. The cost of having to reassess the value of the stock in the business was also £25 million.

Going through all that, then having to go back to the lenders to renegotiate terms for the existing debt and the terms for new borrowings, made it a tough first quarter and explains why Pendragon was more than a month later than last year in reporting its results to the Stock Exchange.

After all the write downs, Pendragon ends up with hareholders funds in the business of just over £109 million, compared with £340 million last year. 

Total borrowings are up £70 million to £357 million. The result is that Pendragon – which always struggled hard to keep gearing at or below 100% – is now sporting a gearing ratio of 328%. 

During 2008, Pendragon closed or sold 53 dealerships and cut 3,712 jobs, creating combined cost reductions of £60 million a year. 

The downside is that there is less of a business left to generate profits to service the new high level of debt, and the company expects the new car market to be subdued for the next 12 months followed by only “a gradual improvement,”. 

Pendragon will not pay a final dividend, which means the total pay-out will be 0.5p against 4p in 2007. 

It’s going to be another tough year for Britain’s largest car retailer.