TIDMVTU
RNS Number : 4299N
Vertu Motors PLC
09 May 2018
9 May 2018
Vertu Motors plc ("Vertu" or "Group")
Final results for the year ended 28 February 2018
Strong balance sheet to drive growth and take advantage of
tougher trading environment
Vertu Motors plc, the UK automotive retailer with a network of
120 sales and aftersales outlets across the UK, announces its
audited results for the year ended 28 February 2018 ("the
Period").
Highlights:
-- Adjusted profit before tax of GBP28.6m (2017: GBP31.5m)
reflective of a tougher trading environment
-- Aftersales and used cars represent 72.3% of gross profit (2017: 71.5%)
-- Exceptional property profits of GBP3.5m: evidence of value in
freehold and long leasehold portfolio
-- Strong balance sheet to fund future growth with net cash of
GBP19.3m (2017: GBP21.0m) and unutilised bank facilities of GBP30m,
with the potential to add a further GBP30m
-- Tangible net assets of GBP174.3m (2017: GBP156.1m) with
tangible net assets per share up 14.9% at 45.4p (2017 : 39.5p)
-- Focus on capital allocation: GBP11.1m returned to
shareholders through dividends and share Buy-backs. Since July
2017, our ongoing share Buy-back Programme has acquired 18m
ordinary shares for cancellation at a cost of GBP7.9m, the
equivalent of 4.53% of the issued share capital
-- Full year dividend of 1.5p per share up 7.1%
-- Encouraging outlook with trading in March and April 2018 in
line with management expectations: used car volumes up year on
year
-- Board remains confident about the Group's prospects for the
year ahead and continues to evaluate acquisition growth
opportunities
Financial
Year ended Year ended % Change
28 February 28 February
2018 2017
Revenue GBP2,796.1m GBP2,822.6m (0.9%)
EBITDA GBP43.2m GBP41.4m 4.3%
Operating profit GBP32.3m GBP32.1m 0.6%
Profit before tax GBP30.5m GBP29.8m 2.3%
Earnings per share 6.31p 6.14p 2.7%
Exceptional profit
on property disposals GBP3.5m - -
Adjusted EBITDA* GBP40.7m GBP42.4m (4.0%)
Adjusted profit
before tax* GBP28.6m GBP31.5m (9.2%)
Adjusted earnings
per share* 5.79p 6.54p (11.5%)
Operating cash inflow GBP27.3m GBP58.1m (53.0%)
Net cash GBP19.3m GBP21.0m (8.1%)
Net assets per share 68.9p 62.3p 10.6%
Tangible net assets
per share 45.4p 39.5p 14.9%
Dividend per share 1.5p 1.4p 7.1%
* adjusted for amortisation of intangible assets, share based
payments charge and exceptional items.
Operational Increase/(decrease) year-on-year
Total Like-for-Like SMMT
% % Registrations
Revenue: %
Group revenues (0.9) (0.2)
Service revenues 3.5 4.2
Used retail vehicles 3.0 3.0
New retail & Motability
vehicles (8.0) (6.5)
Fleet & commercial
vehicles 2.1 2.4
Volumes:
Used retail vehicles (2.2) (0.5)
New retail vehicles (14.7) (13.3) (7.6)
Motability vehicles (5.5) (4.3) (2.7)
Fleet new cars (6.0) (5.0) (5.7)
Commercial new
vehicles (4.1) (4.2) (3.5)
Robert Forrester, Chief Executive of Vertu said:
"We have closed what turned out to be a more challenging year
for the sector, with the business in a strong position. We have
been deliberately cautious on the acquisition front as pricing
moved away from our investment valuation metrics. This trend is
beginning to reverse and potential acquisition opportunities are
increasing. Our strong balance sheet with net cash of GBP19.3m,
together with our unutilised debt facilities, provides scope for
further scaling-up of the business to drive value and further
enhance shareholder returns.
We remain very focused on capital allocation and continue to
make progress on realising surplus property assets and managing the
dealership portfolio. The Board sees value in a continued share
buyback programme cognisant that tangible net assets per share are
at 45.4p. The full year dividend has been increased by 7.1%.
We are pleased with the performance of the Group in March and
April in all key areas. The Board therefore has confidence for the
full year".
Webcast details
Vertu management will host a webcast for analysts and investors
at 9.30am (BST) this morning. Please click here to register.
http://webcasting.brrmedia.co.uk/broadcast/5acf1a2a6fc60958623b4d32
A recording of the webcast will subsequently be uploaded to the
Company's website.
Annual Report and Financial Statements
The Group's Annual Report and Financial Statements for the year
ended 28 February 2018 are available today on the Group's website
www.vertumotors.com/investors.
This announcement contains inside information as defined in
Article 7 of the Market Abuse Regulation No. 596/2014 and is
disclosed in accordance with the Company's obligations under
Article 17 of those Regulations.
For further information please contact:
Vertu Motors plc
Robert Forrester, CEO Tel: 0191 491 2111
Michael Sherwin, CFO Tel: 0191 491 2112
Camarco
Billy Clegg Tel: 020 3757 4983
Tom Huddart
Canaccord Genuity Limited
Chris Connors Tel: 020 7523 8350
Henry Fitzgerald O'Connor
Richard Andrews
Zeus Capital Limited
Dominic King Tel: 020 3829 5000
Notes to Editors
Vertu, the UK automotive retailer with a proven growth strategy,
is the sixth largest automotive retailer in the UK with a network
of 120 sales outlets across the UK. Its dealerships operate
predominantly under the Bristol Street Motors, Vertu, Farnell and
Macklin Motors brand names.
Vertu was established in November 2006 with the strategy to
consolidate the UK automotive retail sector. It is intended that
the Group will continue to acquire automotive retail operations to
grow a scaled dealership group. The Group's acquisition strategy is
supplemented by a focused organic growth strategy to drive
operational efficiencies through its national dealership network.
The Group currently operates 117 franchised sales outlets and 3
non-franchised sales outlets from 103 locations across the UK.
Vertu's Mission Statement is to "deliver an outstanding customer
motoring experience through honesty and trust".
Vertu Group websites - www.vertumotors.com /
www.vertucareers.com
Vertu brand websites - www.bristolstreet.co.uk /
www.macklinmotors.co.uk / www.vertuhonda.com /
www.farnelllandrover.com / www.farnelljaguar.com /
www.vertutoyota.com / www.vertuvolkswagen.com /
www.vertumercedes-benz.com
Chairman's Statement
The Board is announcing a creditable set of results against a
tougher market backdrop for the automotive sector. The Group
generated adjusted EBITDA of GBP40.7m (2017: GBP42.4m) and
continued to invest in its core automotive retail assets to support
future growth while focusing on capital allocation, returning
GBP11.1m to shareholders through both dividends and a programme of
share buy-backs (the "Buy-back Programme"). Under the Buy-back
Programme, the Group, as at 28 February 2018, had repurchased 12.3m
shares, equivalent to 3.1% of the Group's issued share capital.
Subsequent to the end of the financial year ended 28 February 2018
("the Period"), the purchase of the Group's own shares continued
and a further 5.7m shares have been acquired equivalent to 1.4% of
the Group's issued share capital, with the result that 18.0m shares
equating to 4.53% of the Group's share capital as at 1 March 2017
have now been repurchased in total. The cash saving from lower
dividend payments as a result of the Buy-back Programme, based upon
an annual dividend of 1.5p per share, amounts to GBP270,000 per
annum. The Board will seek a renewed approval for the Buy-back
Programme at the forthcoming Annual General Meeting.
We have kept a sharp focus on maximising the value in our
property portfolio, realising a profit of GBP4.1m from a sale and
leaseback transaction while maintaining our strong asset backing.
We have adopted a similar approach to the Group's dealership
portfolio, with the disposal or closure of five underperforming
sales outlets during the Period realising cash of GBP2.8m in the
process, with a further GBP2.0m realised from surplus property
disposals subsequent to the year end. This approach has ensured
that the Group remains in a strong position to take advantage of
both organic and acquisition-led opportunities in the months ahead.
The Group's balance sheet continues to be very well-capitalised,
with net cash of GBP19.3m at 28 February 2018 and available,
unutilised bank facilities of GBP30m with the potential to add a
further GBP30m.
The Period has been a more challenging time for the UK
automotive retail sector. The value of Sterling was weak during the
Period (trading between EUR1.08 and EUR1.20) and as a consequence,
following five consecutive years of growth, the UK private new
vehicle market fell by 6.8% in 2017 in terms of registrations
(SMMT). Neither the General Election in June, the ongoing negative
press coverage surrounding the Brexit negotiations nor the mixed
messages from Government about the future of diesel vehicles have
helped the consumer environment for vehicle sales. However, the
management team has been disciplined in avoiding distraction and
maintaining its focus on what it can control: setting the agenda
for operational improvement, especially in the businesses acquired
in recent years, investing in world class training to lift the
skills and leadership ability of the dealership teams, controlling
costs and keeping a sharp focus on capital allocation. This latter
point has been particularly important, and it is indeed no
accident, that the Group has not made any acquisitions during the
Period. Acquisition pricing has been driven in part by foreign
(non-Sterling) investors and the Board has not strayed from the
discipline of its valuation metrics. This will ensure that future
returns are not diluted by chasing inflated prices. As a
consequence, the Group is now in a strong position to grow as the
sector cycle presents better value acquisition opportunities.
It should also be noted that, against the backdrop set out
above, 2017 represented the third largest annual new car retail
market in the United Kingdom in the last 13 years and the country
remains in a positive economic growth environment. Economic
forecasts currently see this growth environment continuing.
The Group remains set for further growth, well positioned with
Manufacturers and in a very healthy financial position. I remain
optimistic about the Group's growth prospects underpinned by our
very strong and well capitalised balance sheet.
The Group's objective remains to deliver long-term value for its
owners through building a scaled, franchised dealership business
generating significant, resilient and increasing cashflows. The
Group seeks to do this by pursuing a consistent strategy with a
well-established business model. This report will set out the
strategy, explain the business model and describe how the Group has
used the model to establish a competitive position from which to
generate growth in cashflows over the long-term. Growing cashflow
is a result of growing revenues, managing margins, operating costs
and tax payments and managing working capital and capital
expenditure within the framework of a suitable funding structure.
This report will examine each of these areas.
The Group continues to develop a talented, stable and
experienced operational team which is committed to delivering on
the Group's strategy and I would like to take this opportunity to
thank every colleague in the Group for their commitment and
dedication during the year.
Current Trading and Outlook
In March and April 2018 ("the Post Year-end Period") the Group
has traded in line with management's expectations. March remains
the most significant month of the year for the profitability of UK
automotive retail due to the plate change. This year comparisons of
March with the prior year were skewed due to the impact of the pull
forward of registrations due to the vehicle excise duty changes on
1 April 2017 and the timing of Easter which reduced March
profitability in 2018. We have therefore considered the two months
of March and April together. The UK private new car market fell by
8.8% in the Post Year-end Period. The Group's like-for-like new
retail volume declined by 2.6% during the Post Year-end Period,
significantly outperforming the market with the result that the
Group grew its market share. In addition, the Group also grew
market share in the Motability, fleet and commercial channels. The
Group achieved manufacturer volume targets at a high level and, as
a result, new car gross margins were stable.
Both used car and aftersales performance during the Post
Year-end Period were impacted by the adverse weather conditions in
early March 2018. However, over the Post Year-end Period as a whole
like-for-like used car volumes rose 7.0% and like-for-like service
revenues were up 6.8%. The Group is benefitting from having
additional technician resources in place. Whilst as anticipated due
to last year's record March trading performance, the profits in the
Post Year-end Period are behind last year, the Board believes they
represent a very positive outcome.
Subsequent to the year end, the Group disposed of a vacant
freehold property for GBP2.0m in cash, realising a profit on sale
of GBP0.6m. This further demonstrates the value inherent in the
Group's freehold and long leasehold property portfolio and further
disposals of vacant property are likely in the coming months.
The prospects for the UK new car market are likely to be more
favourable with stabilisation of volumes from April 2018 onwards
currently anticipated by the SMMT. The market significantly
weakened from April 2017 onwards. There is a degree of uncertainty
over new vehicle supply around the implementation of Worldwide
Harmonised Light Vehicle Test Procedures ("WLTP") regulations due
to come into force on 1 September 2018. The impact of WLTP on
production and supply of new vehicles is currently not clear and
this may cause some short-term supply limitations until the end of
quarter four 2018. The current consumer trend for increased petrol
new vehicle demand, reducing diesel new vehicle demand, may also
result in supply limitations as a result of the lag in changing
production to respond to this shift in consumer behaviour in the
last 12 months.
The outlook for used cars is strong with the Group focused on
continuing growth in profitability for the remainder of the year
following a successful Post Year-end Period. Aftersales prospects
are positive due to the impact of previous service plan
penetration, rising vehicle parcs and the successful recruitment
and retention strategies adopted for technician resource.
Cost increases continue to impact the Group as previously
reported and these are likely to absorb some of the expected
increases in revenues and gross profit.
Given the encouraging trading performance of the Group and the
Group's strong balance sheet, the Board remains confident about the
Group's prospects for the current year and its ability to undertake
further growth through acquisitions.
P Jones
Chairman
Strategic Report
Strategy and Active Portfolio Management
To deliver long-term value to the Group's owners, the Group's
strategy is to grow a scaled UK automotive retail group through
acquiring both volume and premium franchised dealerships. The Board
believes that the benefits of scale in the sector are increasing
over time. Scale benefits include: a national on-line and off-line
co-ordinated marketing strategy to maximise the benefits of our
unique national footprint, scaled contact centres, franchise
management dedication, purchasing efficiencies and access to
competitive consumer finance packages for the Group's customers.
Further consolidation of the sector by large-scale national brands
is likely to continue in the years ahead in what is still a sector
with a fragmented ownership structure in many franchises.
The Group will continue to acquire dealerships across the volume
and premium spectrum as the Board currently believes that capital
can continue to be invested in additional dealerships to deliver
significant return on investment to shareholders in the short and
medium term. The fragmented nature of the UK automotive retail
sector means that significant growth potential remains, and
crucially, the Group has substantial headroom for further growth
with the vast majority of its Manufacturer partners, particularly
in the Premium space.
The Board adopts a rigorous and disciplined capital allocation
process in deciding whether to pursue an acquisition. Six-monthly
we assess our strategic position with each Manufacturer to confirm
the Board's standpoint on future investment in the franchise. This
leads to an Add, Hold, Reduce or Avoid conclusion which underpins
the Group's strategic portfolio management. Investment evaluations
for specific opportunities involve detailed three-year investment
appraisals and utilising set return on investment hurdle rates to
ensure appropriate capital allocation.
During the Period, the Board has continued to assess several
further acquisition opportunities, rigorously applying consistent
valuation criteria. A number of these opportunities have not
resulted in transactions as the valuations sought by the vendors
have not met the Board's investment return criteria. Indeed, a
number of the opportunities introduced by Corporate Finance
practitioners did not result in the marketed businesses being sold.
Valuation expectations in the minds of vendors have been fuelled to
some extent by overseas bidders. Further opportunities continue to
be assessed and the Group has seen an increase in potential deal
flow in the last few months. The addition of further dealerships
and new franchise partners to the Group's portfolio will enable the
Board to deliver its goal of creating a balanced and diversified
portfolio of franchised businesses, so reducing the Group's
exposure to variations in individual Manufacturers' performance.
Such growth, however, will only be undertaken at appropriate
valuations to ensure future returns. We will remain selective and
disciplined in our approach, cognisant that the Board is trusted to
spend our shareholders' capital sensibly with the goal of creating
and sustaining long term value.
Modern automotive retailing is undergoing substantial changes
and these changes are likely to accelerate in the years ahead. The
rise of digital sales channels, CASE (Connected, Autonomous,
Sharing and Electric) developments and Manufacturer investment and
scale requirements expected of retailers are likely to have an
impact on franchised networks and the locations which the Group
will want to operate from in the future. These trends which
represent an opportunity for scaled franchised dealer groups, are
likely to drive further consolidation in the sector and to lead to
an increase in sales per outlet in the sector. We are mindful of
these changes when considering the current portfolio and how it
will evolve and the following trends are considered particularly
pertinent:
-- There will be a trend away from rural, smaller franchise
points and greater investment in larger, urban representation
points. This will yield operational gearing benefits of increased
sales per outlet. Acquisitions and disposals must reflect this
trend.
-- Property flexibility may have increasing importance as
network restructuring occurs and retail formats and requirements
change. Lease length and structures will take on a greater
importance as a result. Freehold ownership is preferred by the
Board given the greater flexibility this affords.
The Board performs a detailed review of underperforming
dealerships within the portfolio on a continual basis, applying its
strategy of "fix, re-franchise, sell or close". This is an
important element of the capital allocation process providing cash
for investment in higher return activities. The Group has seen the
benefit of this during the Period.
Portfolio Changes
Portfolio changes have been made during the Period reflective of
the capital allocation principles and trends outlined above:
-- In March 2017 the Group disposed of its loss-making
Chesterfield Peugeot business and in due course the freehold
premises will be sold
-- In May 2017 the Group ceased its Mazda operations in Bristol
allowing sole focus on the Hyundai franchise
-- The Group completed its exit from the Fiat Group business
with the closure in December 2017 of Worcester Fiat and Alfa Romeo
and of its multi-franchise Cheltenham Fiat and Mazda business in
March 2018
-- The Group disposed of its loss-making former Volkswagen
dealership in Boston, Lincolnshire. This included the disposal of
the freehold premises for GBP1.2m
-- The Group closed two accident repair centres to increase
capacity in more profitable activities as part of dealership
redevelopments
-- In April 2018 the Group ceased its Volvo operation in
Sheffield allowing sole focus on the Nissan franchise at the
location
During the Period these changes released GBP1.2m from property
assets and GBP1.6m from working capital which was re-deployed to
activities generating higher returns. Dealerships acquired in the
year ended 28 February 2017 made a profit before interest and tax
contribution of GBP1.2m in the Period. The sites closed or disposed
of during the Period lost GBP1.1m (2017: GBP1.6m) hence these
actions will enhance future returns and operating margins of the
Group.
Subsequent to these changes the Group now operates 117
franchised sales outlets, and 3 non-franchised sales outlets, from
103 locations.
Business Model and Competitive Positioning
The Group's business model has remained consistent for the
eleven years the Group has operated and enables the successful
delivery of enhanced business performance from acquired
dealerships, through the implementation of the Group's brand model,
business processes and systems. This is delivered by a senior
management team that is very stable and highly experienced. Many of
the Group's acquisitions are turnaround opportunities and a number
are new start-up dealerships sharing similar characteristics,
including a weak customer database and consequently an aftersales
business performing below its potential. The aftersales activities
have significantly higher margins compared to vehicle sales and the
Group's business model works to improve and then maximise the
aftersales performance and hence improve overall margins. Growing
the aftersales potential is fundamentally a function of increasing
the sale of new and used cars by the dealership in the locality and
ensuring high levels of customer retention into service.
The success of the Group's strategy is evidenced by the rapid
growth since the first acquisition in 2007 and the turnaround and
integration of acquired dealerships to date. The Group has become
the sixth largest automotive retailer in the UK by revenues from a
standing start in 2007. Many of the acquisitions undertaken in
recent periods have still to become fully established and this
provides the Group with further opportunity to deliver improved
margins and grow organic profit over the medium term.
The successful integration of acquisitions into the Group has to
be one of our core competencies. Management has a significant
amount of experience in this area. Key to successful integration
are the following:
-- Ensuring new colleagues (employees) understand the Vision, Values and culture of the Group
-- Transferring key managers from the core Group to the new businesses
-- Implementation of the Group's single platform of systems and processes as soon as possible
-- Leveraging the Group's key scaled brands and marketing power,
including on-line assets, across the new businesses
The Group adopts a "Right People, Right Choice, Right Deal"
brand model, centred on a "Right Experience for You". The "Right
Experience" applies equally to colleagues, customers, Manufacturer
partners and indeed investors. This brand model is based on a
fundamental premise that it is the colleagues in each business
together with management who deliver on customer needs to create
long-term value for the business. Ensuring that each business has
the right Values and culture is of paramount importance to building
both long-term relationships with loyal customers and a stable team
of colleagues.
In the July 2017 Colleague Satisfaction Survey over 98% of
responding colleagues knew the Vertu Values and 88% thought the
Directors actively practiced them. It is clear that the more the
Core Values of Passion, Respect, Professionalism, Integrity,
Recognition, Opportunity and Commitment are in place in the
business, the stronger the business is and significant senior
management time is spent promoting and reinforcing these Values.
The brand model has a number of brand actions which are designed to
guide colleagues and management into being customer-centric. For
example, "effortless journeys, not complex processes" is an
important mantra in assessing the effectiveness of both on-line and
off-line processes and any proposed developments impacting
customers. By building trust from customers for the business, the
Group aims to build long term relationships through the lifecycle
of buying, owning and selling vehicles. There is a clear
correlation, in our view, between a high level of colleague
satisfaction, great customer experiences and the generation of
higher margins in the business.
The success of the business and the delivery of the brand model
relies heavily on strong, high quality management teams to deliver
the required returns over time. The recruitment, development and
retention of high performing automotive retail professionals is of
paramount importance, particularly in General Manager roles
providing leadership in each dealership. The Group has developed a
culture which seeks to attract and retain top performers and the
Board believes it is successful in doing so.
As part of the Group's strategy to attract, retain and develop
high performing colleagues and management, the Group continues to
invest in training. This includes substantial internal training
programmes, management development programmes for high potential
colleagues, including management training undertaken by Dale
Carnegie and an enterprise wide e-learning platform for all 5,340
colleagues. 1.3 million minutes of e-learning have been undertaken
on the newly launched platform since 1 January 2018. This platform
is industry leading, covering personal development, leadership
skills and sales skills, delivered on personal devices.
The operations of the Group are overseen by a CEO Committee of
the 14 most senior people in the Group. This cadre is very stable
with five members in place since the Group started and an average
tenure of nine years. Three new leaders were promoted internally to
the CEO Committee on 1 March 2018:
-- Steve Gould, Operations Director, (46) has been with the
Group for 6 years having previous experience with Reg Vardy plc,
Pendragon plc and Peter Vardy Limited. He is responsible for the
Renault and Nissan operations of the Group.
-- Matthew Barr, HR Director, (37) has been with the Group ten
years having previously worked for Reg Vardy plc. He is responsible
for HR and Training within the Group.
-- Martin Wastie, Group Strategy Director, (43) oversees the
Group's acquisitions, disposals and business improvement
initiatives. Martin was previously Group Finance Director of
Marshall Group and worked for Inchcape and Volkswagen Group. He has
been with the Group 3 years.
These three individuals bring excellent skills and energy to the
CEO Committee.
The stability of senior management provides a consistency that
helps to build a single Group culture. As the Group has expanded
over a larger number of dealerships, maintaining focus and a
consistency of culture remains paramount. We believe that
multi-layering of management is best avoided since it elongates
decision-making and can make senior management divorced from
customers and the grass roots operations. Having the right people
at a senior level in the Group who can positively influence large
divisions is therefore vital and the Board believe this balance has
been achieved to date. It is critical that the entrepreneurial
culture that the business started with, remains in place and
simplicity and lack of bureaucracy are crucial objectives applied
to operational proposals and changes. We look to have a culture
built on "Speed, Simplicity and Self-Confidence".
The Mission Statement of the Group is to "deliver an outstanding
customer motoring experience through honesty and trust".
Fundamentally it is the acquisition and retention of customers that
drives the ultimate value of the Group in the long-term. Marketing
is critical to both the acquisition and retention of customers.
During the Period substantial progress has been made to improve the
quality, effectiveness and channel reach of the Group's marketing
activities as Liz Cope concludes her second year as Chief Marketing
Officer. Key achievements in the Period include:
-- Full on-line retailing of used vehicles has been launched
including part-exchange, finance provision and delivery to the
door
-- Sales through this on-line channel continue to build and we
believe this full on-line retailing capability is unique to the
Group
-- E-commerce and digital marketing expertise has been
significantly enhanced in-house in the Period to develop user
digital experiences and deliver cost effective marketing
campaigns
-- New initiatives such as Buy-it-now are being rolled out
across the Group whereby customers are offered the ability to
purchase the vehicles on-line that they have test driven during
dealership visits
-- Implementation of nationwide TV campaigns in both new and
used car sales across multiple Group brands delivering tactical
sales and building brand awareness
-- Profitability achieved in the Group's Ace Parts on-line parts
business with increased sales and product lines through effective
use of Marketplaces
The retention of customers is achieved by several Group
strategies:
-- Retention of sales customers into the higher margin
aftersales channel is aided by the Group's centralised Business
Development Centre which ensures contact is made to book relevant
service work, in addition to increasingly effective on-line booking
capabilities.
-- High sales penetration of service retention products, notably
three-year service plans, has been successful in increasing the
retention of used car customers in the Group's service departments.
The Group now has over 104,000 customers paying monthly for
servicing over a three-year period and 44% of used car customers
are retained into the Group's service departments for routine
servicing in the year following purchase.
-- Customer experience is crucial for creating loyalty and the
desire to return to the Group for future motoring needs. Customer
experience is measured by the Group in several ways:
o Manufacturers measure service and new car sales customer
experience monthly for each dealership as well as undertaking
mystery shops. The Group scores significantly ahead of national
average scores on these measures and in addition undertakes its own
extensive mystery shopping programme.
o On used cars, the Group measures customer experience using a
third party. Over 97% of customers currently would recommend the
Group following the purchase of a used car. This high level of
customer advocacy is mirrored in high scores on the public review
sites such as Trust Pilot.
o Management at all levels, including the Executive Directors,
are rewarded based on the above customer experience measures which
the Board believes are fundamental to the future success of the
Group in generating higher revenues, margins and cash returns.
Other Industry Issues
United Kingdom's exit from the European Union (EU)
The UK's exit from the EU may impact the Group in the areas of
changing regulation, currency fluctuations and terms of trade for
new vehicle imports to the United Kingdom.
In the short term, the biggest impact of Brexit on the
automotive retail sector has been the weakening of Sterling which
reduces the attractiveness of the UK as a market to EU producing
vehicle Manufacturers. Vehicle price rises have been evident, along
with reducing volumes in the new retail car sector since the
Referendum.
In the medium term there could be consequences for the UK
automotive retail sector if tariffs were to be introduced on motor
vehicles imported into the UK. This could further increase sales
prices and potentially reduce consumer demand. The UK Government
has a stated negotiating objective to avoid any such tariff
barriers, and in the negotiation of the future trade terms between
the UK and the EU, tariffs on motor vehicles are likely to be a key
point of discussion. Potential free trade agreements with Non-EU
states may present UK opportunities for Manufacturers with Non-EU
production capacity and the future franchising strategy of the
Group will need to be cognisant of these developments.
The contractual relationships between Manufacturers and
franchise partners are constructed within the framework of EU
competition law. There is, therefore, the potential for the legal
frameworks to evolve in a different direction once legal competency
returns to the UK. The Board continues to judge that it is unlikely
to be a priority area for the UK Government in the short term and
the status quo is likely to remain in place as a result. Franchise
agreements are evolving in any event as Manufacturers and retailers
react to developments in technology, changing retail formats and
new revenue models.
GDPR
From May 2018 the Group will be required to comply with the
enhanced EU regulations regarding the use of personal data
("GDPR"). Following an extensive review of the Group's systems and
procedures, we have established a detailed plan to ensure
compliance with the new regulation. Our systems have been upgraded
to enable the capture and recording of preferences which will drive
future customer contact. Training of all colleagues involved in
customer contact is underway, and a new post of Group Data and
Security Manager has been created in order to provide the required
focus.
Regulatory Environment
The Group, via its subsidiary trading companies, acts as a
credit broker for several finance company partners, both
Manufacturer owned and independent, who provide vehicle finance to
the Group's customers. In addition, the Group sells a limited range
of other regulated products. The Group has developed a robust sales
and compliance process to ensure that customers are treated fairly,
addressing such potential risk areas as product affordability,
transparency of product explanations and ensuring remuneration
structures protect customer outcomes. Investment in systems to
enhance control in these areas is ongoing.
The Financial Conduct Authority ("FCA") is currently performing
a review of the motor finance sector, which is due to be completed
in September 2018. The Group's Compliance Committee has reviewed
the FCA update on its Motor Finance review, issued in March 2018,
and continues to monitor the Group's procedures and controls in
this area.
Diesel Vehicles
Successive Governments have encouraged drivers, via the taxation
system, to drive diesel vehicles which produce lower amounts of
carbon dioxide (CO2) emissions. This has enabled Governments to
comply with European emissions targets, based upon CO2. As a result
the proportion of diesel vehicles in the vehicle parc has grown
considerably.
More recently focus has turned to the fact that previous
generation diesel vehicles produce higher levels of nitrogen oxide
and particulates emissions, which are one of a number of sources
impacting local air quality. Cars built after 2015, which comply
with Euro 6 regulations, produce substantially less nitrogen oxide
and particulates emissions than older engines, and the introduction
of Euro 6c engines from August 2018 will further enhance air
quality impacts. There has been a considerable amount of
misinformation regarding these matters, and a lack of strategic
direction and consistency from Governments, both in the UK and
elsewhere and at local and national level. This situation has
confused customers and made them fearful of diesel in its totality
and as a consequence sales of the more modern, environmentally
friendly vehicles have reduced so reducing the potential speed of
air quality improvements. UK registrations of diesel vehicles fell
by 17.1% during 2017, with the rate of decline accelerating more
recently to 31.9% for the four month period to April 2018.
Manufacturers have begun to react by switching diesel manufacturing
capacity to petrol or hybrid vehicles, and this process is
accelerating. The UK used diesel vehicle market was buoyant in 2017
with transactions growing by 3.3% as more diesel vehicles were part
exchanged for new petrol product. Residual values of diesel
vehicles versus petrol vehicles in the Period saw no major
variation. As at 28 February 2018 diesel vehicles represented 42.3%
of the Group's used vehicle inventory (2017: 45.7%).
WLTP
New emission testing regulations for passenger cars come into
effect in the EU on 1 September 2018 called Worldwide Harmonised
Light Vehicle Test Procedures ("WLTP"). This replaces the previous
New European Driving Cycle ("NEDC") testing regimes. From 1
September 2018 only vehicles which have been tested under the new
WLTP regime can be sold as new vehicles, with the possible
exception of small volumes of vehicles which member states may
allow to be sold in the short term under "derogation powers". This
change has the capacity to cause dislocation in manufacturer
production schedules and, in particular, could lead to short term
supply issues which may impact the important September market. We
are currently working with each of our manufacturer partners to
assess this potential impact.
Market Dynamics
New Vehicles
During the Period, Sterling traded at lower levels against other
major currencies, and this currency depreciation (which began in
June 2016 following the UK referendum on EU membership) impacted
the supply side of the UK new vehicle market. The majority of
vehicles sold in the UK are manufactured in factories located in
either Euro, Yen or Won currency zones, and the depreciation of
Sterling has made it less profitable for most Manufacturers to sell
vehicles in the UK. As a consequence, several manufacturers have
increased selling prices, reassessed their UK marketing budgets and
diverted production to other more profitable markets. Manufacturers
have also reduced their exposure to the lower margin channels, for
example daily rental, fleet and broker channels. This supply side
dynamic has also put downward pressure on pre-registration activity
in the market place. These trends have been most evident in volume
franchises which have reduced the supply of vehicles into the UK
market. While the same economic and currency related challenges
have faced premium franchises, the higher margins available to
these Manufacturers have enabled them to adopt a different, and
more aggressive approach. Seeing the retreat of the volume
franchises, they have kept price rises to a minimum and have
continued to fund attractive, often finance led, offers to the UK
consumers. As a consequence, premium franchises have grown their UK
market share during the Period.
On the demand side, the period leading up to the UK General
Election in June 2017 saw a particularly volatile consumer
environment. This stabilised from July onwards but demonstrated
weakness again during the pre-Christmas period. Consumer confidence
has appeared to regain a degree of vibrancy in 2018 to date
compared to 2017. This consumer environment has been exacerbated by
a lack of clarity from Government regarding its current and future
policy for diesel vehicles, and the media focus on this issue. This
has led to a significant shift away from diesel product and may
have led to some customers delaying entering the market altogether
whilst uncertainty persists.
As a consequence of these supply and demand trends the UK
private new retail vehicle registrations during the Period fell by
7.6% and car fleet volumes fell by 5.7%.
The light commercial vehicle market also saw selling price
increases and a reduction in volumes, with UK registrations down by
3.5% in the Period. The year-on-year price increases were in part
due to the introduction in June 2016 of the more expensive Euro 6
models, and in part due to the currency impacts referred to
above.
Used Cars
During the year ended 31 December 2017, the used car market in
the UK recorded marginally declining sales of 1.1% (SMMT) against a
backdrop of volatility in consumer demand and reduced supply of
volume used cars as pre-registration activity reduced in line with
the trends described above in the new car market.
On the supply side of volume used cars, reducing part-exchanges
as a result of declining new car sales volumes from April onwards,
together with lower supply as a result of declining
pre-registration volumes and a contracting daily rental market,
kept wholesale used car market prices robust as the Period
progressed.
The premium used car market diverged in trends from the volume
car market. The continued new car volume pressure described above,
led to high levels of nearly new and pre-registered product in the
market competing with strong new car offers. Residual values saw
significant falls as a result in the Period with a consequent
impact on premium used car margins.
Since 1 January 2018 more normalised demand and supply
conditions have been exhibited across the used car market in the
UK.
Aftersales
The aftersales market continued to benefit during the Period
from a growing vehicle parc following several years of new car
market growth. The mix of service department work shifted in favour
of warranty work as a consequence of several manufacturer recalls
and significant product quality issues affecting a number of
franchises. The continuing introduction by manufacturers of
increasingly technologically complex, connected vehicles with
innovative engine and vehicle management systems is contributing to
this trend. A growth in retail and warranty demand was partly
offset by reduced internal volumes in the workshops in the
preparation of cars for sale, particularly in relation to lower new
car sales.
The rising demand for aftersales saw a lack of technician
resource nationwide in 2017 and this constrained sales growth in
workshops. This capacity constraint reduced as the year went on due
to: the impact of apprentice training from previous years;
increasing numbers of trained technicians coming into the market;
rising salaries attracting technicians from the non-franchised
sector and more resource becoming available as tougher sector
market conditions led to a number of dealership closures in the
UK.
Manufacturers continue to pursue strategies to increase the
efficiency of parts distribution networks and to seek to reduce the
supply push of parts into the retailer network. Reduced rebates may
arise from these changes, but benefits such as a reduction in low
margin sales, lower stockholding and obsolescence costs and reduced
costs of funding working capital, may also accrue to the
retailer.
Group Revenues and Margins
Year ended 28 February 2018
Gross
Revenue Gross Margin Gross
Revenue Mix Margin Mix Margin
GBP'm % GBP'm % %
Aftersales(1) 228.2 8.2 124.7 40.4 44.5
Used cars 1,068.9 38.2 98.7 31.9 9.2
New car retail
and Motability 836.5 29.9 64.1 20.8 7.7
New fleet and commercial 662.5 23.7 21.4 6.9 3.2
---------- ---------- --------- -------- ---------
2,796.1 100.0 308.9 100.0 11.0
---------- ---------- --------- -------- ---------
Year ended 28 February 2017
Gross
Revenue Gross Margin Gross
Revenue Mix Margin Mix Margin
GBP'm % GBP'm % %
Aftersales(1) 227.0 8.0 123.4 39.4 44.6
Used cars 1,037.5 36.8 100.7 32.1 9.7
New car retail
and Motability 909.4 32.2 68.3 21.8 7.5
New fleet and commercial 648.7 23.0 21.1 6.7 3.3
---------- ---------- --------- -------- ---------
2,822.6 100.0 313.5 100.0 11.1
---------- ---------- --------- -------- ---------
(1.) margin in aftersales expressed on internal and external
revenue.
Revenues in the Period fell by 0.9% (GBP26.5m) to GBP2,796.1m
(2017: GBP2,822.6m). This included the full year impact of prior
year acquisitions which grew by GBP39.5m more than offset by closed
operations contributing a year on year revenue reduction of
GBP60.8m. Group like-for-like revenues were flat at GBP2,569.9m
(2017: GBP2,572.1m) despite a significant fall in new retail
vehicle sales.
The Group saw an increased proportion of revenues and gross
profits generated by its higher margin aftersales and used car
operations. These operations contributed 46.4% (2017: 44.8%) of
revenues and 72.3% (2017: 71.5%) of gross profit. This reflected
declining volumes in the new car retail and Motability channel.
Gross margins in the Group remained stable at 11.0% (2017:
11.1%). The positive effect of the higher aftersales and used car
sales mix was offset by pressure in the used car channel on
margins. Used car margins fell from 9.7% to 9.2% and falls were
particularly apparent in the premium franchises. This was
reflective of the market dynamics previously described.
Aftersales
The Group's aftersales operations, which comprise servicing,
supply of parts, accident repairs, smart repair and forecourt
activity, form a vital element of the Group's business model, since
significantly higher returns are generated from these activities
than those achieved in vehicle sales. While aftersales represents
8.2% of Group revenues, it accounts for 40.4% of gross margin, so
management focus on maintaining and improving performance in this
area is crucial to the Group's overall results. The market for
service and repair, in particular, has expanded with the vehicle
parc as new vehicle sales have grown over recent years and this
momentum is expected to continue for a period. The Group has
substantial opportunities to grow the volume of the higher margin
activities due to this parc growth and self-help strategies to
increase customer retention. The rapid development of new
technology in vehicles is further helping to improve customer
retention into franchised dealerships as customers become
increasingly aware of the expertise and factory connectivity
required to service modern connected vehicles.
During the Period the Group has made significant progress in
developing and expanding the resource base which underpins this key
part of the business. A number of successful initiatives have been
implemented in the aftersales area:
-- Earnings packages for both technicians and service advisors
have been enhanced, both in terms of basic pay and bonus earnings
potential. This has helped a major recruitment campaign which has
substantially reduced the number of technician vacancies.
-- The Group has recruited 138 apprentices into the aftersales
arena during the Period to secure the future growth in the business
and will continue to invest heavily in this area.
-- The Group has also established an innovative degree
apprenticeship scheme in partnership with Northumbria University to
recruit service advisors who will develop into our aftersales
leaders of the future. The first nine colleagues recruited to this
five year programme joined the Group in August and a further cohort
of 12 is planned to be recruited in the coming months. A Business
Management Degree is studied for as part of the Programme, funded
by the Apprenticeship Levy.
-- As part of the Group's ongoing programme of capital
investment in the dealership infrastructure, each refurbishment or
redevelopment project undertaken has sought to improve and maximise
the productive capacity of the aftersales departments. Service
departments have been extended and restructured to increase the
number of ramps available and to enhance efficiency.
-- The Group has introduced further initiatives to increase
workshop capacity through shift patterns, longer opening hours
(including weekends), mobile van servicing and two technicians per
ramp initiatives.
This focus on increasing the Group's ability to meet customer
demand for vehicle servicing in flexible ways is essential as
customers are seeking and expecting a more flexible "on demand"
vehicle servicing experience, which is more convenient for them. In
addition, fast "while you wait" servicing is also likely to
increase in scope. While customers find franchised dealerships good
value for money and expert on the product, leakage does occur to
the independent aftermarket which can be perceived as more local
and more convenient in terms of opening hours.
The table below sets out the Group's like-for-like aftersales
revenues and margins, including both internal and external
revenue:
2018 2017 Growth
GBP'm GBP'm
Service revenue 102.8 98.2 4.7%
Parts and accident repair
revenue 145.8 143.8 1.4%
Like-for-like aftersales
revenue 248.6 242.0 2.7%
Service gross margin 76.4% 77.3%
Parts and accident repair
gross margin 23.0% 23.1%
Like-for-like aftersales
gross margin 45.1% 45.1%
Like-for-like margins were stable at 45.1% assisted by an
increase in the mix of higher margin service revenues, and
like-for-like gross profits grew by a significant GBP3.0m (2.7%) in
the Period. Service revenues rose 4.7% on a like-for-like basis,
representing the eighth successive year of growth in this key high
margin area. Like-for-like service margins fell slightly to 76.4%
(2017: 77.3%) due to the impact of higher salary levels for
technicians and lower efficiency as inefficient diagnostic and
warranty work increased at a faster rate than more efficient
routine servicing revenues. Increased service revenues are the
result of the significant focus in the Group on driving operational
excellence in service to enhance financial performance, the
delivery of excellent customer experiences to increase customer
loyalty and the success of the service plan retention strategy.
Supply of Manufacturer parts continues to be a vital part of the
retailer model. Parts revenues rose 1.6% on a like-for-like basis
while margins strengthened to 21.4% (2017: 21.3%).
Vehicle sales
The table below shows the volumes of vehicles sold on a
like-for-like basis:
Like-for-
Like Total
2018 2018 2018 2017 2017 % %
Like-for-Like Acquired(1) Total Like-for-Like Total Variance Variance
Used retail
vehicles 79,052 769 79,821 79,445 81,636 (0.5%) (2.2%)
New retail
cars 34,811 601 35,412 40,157 41,525 (13.3%) (14.7%)
Motability
cars 10,650 120 10,770 11,127 11,396 (4.3%) (5.5%)
Fleet and commercial
vehicles 34,555 297 34,852 36,235 36,741 (4.6%) (5.1%)
------------- ----------- ------- ------------- ------- --------- --------
Total New vehicles 80,016 1,018 81,034 87,519 89,662 (8.6%) (9.6%)
159,068 1,787 160,855 166,964 171,298 (4.73%) (6.1%)
------------- ----------- ------- ------------- ------- --------- --------
(1) relates to businesses acquired or developed subsequent to 1
March 2016 with businesses included within like-for-like once they
have been in the Group for over 12 months
Used retail vehicles
During the Period the Group increased both total and
like-for-like used vehicle revenues by 3.0%. This was driven by
price increases as like-for-like average sales prices rose in the
Period by 4.0% from GBP12,445 to GBP12,945.
Following six years of consecutive like-for-like volume growth
in used vehicle sales, the Group recorded a 0.5% like-for-like
volume decline during the Period. The decline in volume occurred
during the second half of the Period in line with the market trends
recorded by the SMMT. The supply side factors influencing this
included lower levels of pre-registration stocks held by the Group
due to less supply push from manufacturers, and hitting new car
targets without the need for self-registrations which are then sold
as used cars. The demand side factors related to the weaker
consumer environment during the pre-Christmas period. In these
circumstances the Group elected not to sacrifice margin in the
pursuit of volume, as evidenced by the higher gross profit per unit
in the second half of the year of GBP1,278 (2017 H2 : GBP1,222).
Higher average sales prices in the Period had a significant impact
on diluting gross margin percentages from 9.7% to 9.2%. Margin
erosion was particularly apparent in the Group's premium franchises
where nearly new product was oversupplied in the market place and
highly competitive new car offers had a depressing impact on the
sales prices that could be achieved on used product.
Like-for-like used car gross margins actually increased from
9.5% in the first half to 9.6% in the second half. The impact of
these margin trends across the Period was that the gross profit
generated from like-for-like used vehicle sales fell by GBP2.6m;
GBP2.1m of this decline was in H1 and GBP0.5m in H2.
New retail cars and Motability
Changes in new vehicle sales volumes during the Period were as
follows:-
Increase/(decrease) year-on-year
Total Like-for-Like SMMT
% % Registrations
%
Volumes:
New retail vehicles (14.7) (13.3) (7.6)
Motability vehicles (5.5) (4.3) (2.7)
Fleet new cars (6.0) (5.0) (5.7)
Commercial new
vehicles (4.1) (4.2) (3.5)
During the Period the Group's like-for-like new car retail
volumes reduced by 13.3% and the UK private new retail
registrations declined by 7.6% (SMMT) as shown in the table below.
As a consequence the Group lost market share in the Period
reflecting the decline of the Group's volume manufacturers in the
period compared to the market as a whole.
Volumes: Six months Six months 12 months
ended ended ended
31 August 28 February 28 February
2017 2018 2018
% % %
SMMT registrations
(Private) (6.4) (9.0) (7.6)
Group new retail
cars (14.7) (11.7) (13.3)
The Group's trends in new retail car sales more closely mirrored
the trends in the SMMT registrations in the second half of the
Period since the distorting impact of self-registrations included
in the SMMT data (but not Group new retail car sales volumes)
reduced. This corresponded with the reduction in supply to the UK
in volumes franchises described earlier as a consequence of weaker
Sterling.
The Motability new car market declined by 2.7% during the Period
due to some volume Manufacturers reducing supply into this low
margin channel, and the impact of Government welfare reforms.
Motability continues to be a major strength of the Group and a
major driver of servicing demand since Motability supplied vehicles
have a three year servicing plan linked to them that retains them
to the supplying retailer. The Group saw like-for-like Motability
vehicle sales decline by 4.3%.
During the Period like-for-like selling prices increased by 4.8%
as Manufacturers passed on an element of the impact of the currency
weakness. The Group maintained strong pricing disciplines and
continued to achieve Manufacturer volume targets at high levels
during the Period resulting in an increase in gross margins to 7.7%
(2017: 7.5%) and a reduction in the Group's self-registration
activity.
Fleet & Commercial new vehicle sales
During the Period the Group saw like-for-like selling prices in
the fleet and commercial segment increase by 7.2% as the major
volume Manufacturers sought to protect their margins and increase
prices in these channels. The Group's like-for-like sales volumes
reduced by 4.6%, slightly better than the market which fell by 5.2%
(SMMT). This reflected a stronger volume performance in the second
half of the Period as the Group took more market share. While gross
profit per unit remained strong at GBP582 (2017: GBP560) the higher
selling prices resulted in slightly lower gross profit margin at
3.2% (2017: 3.3%).
Exceptional Items
On 31 August 2017 the Group undertook a sale and leaseback
transaction realising GBP14.2m on a recently acquired and
redeveloped dealership property (Jaguar Land Rover Leeds) with a
book value of GBP10m. The lease commitment was for 15 years, the
initial rent was at open market value and the terms of the periodic
rent reviews contain appropriate protection against future
increases. This transaction demonstrates both the quality and value
of the property portfolio.
During January 2018 the Group disposed of its former Volkswagen
dealership in Boston, Lincolnshire. The disposal included a
freehold dealership property which realised a loss on disposal of
GBP0.5m, and a further GBP0.1m of goodwill was also written off
resulting in a loss on disposal of GBP0.6m. This loss has been
offset against the profit of GBP4.1m on the disposal of the
property referred to above, resulting in a net exceptional property
gain of GBP3.5m.
Managing Operating Expenses
In an inherently low margin business, it is vital that a
disciplined framework of cost control is in place and that this is
a core competency for operational management. This is even more
important than ever in the current environment of softer new
vehicle volumes and cost pressure evident across the UK retail
sector. The Group's cost control framework is built around a highly
detailed business planning approach which is undertaken annually
for all dealerships, profit centres and cost centres. Once the
business plans are established, costs are benchmarked on a monthly
basis for every dealership against the business plans, prior year
levels, internal benchmarks and recognised industry key performance
indicators to maintain control and to identify opportunities for
additional cost or efficiency improvements. The Group's central
purchasing function also pursues cost efficiencies and scale
purchasing benefits in the procurement and monitoring of utilities
and other goods not-for-resale.
The Group is also focused on driving productivity and efficiency
into the business to enhance cash profits and offset cost
headwinds. A committee chaired by the CEO has been in place for the
last two years with a remit to identify and execute these
productivity gains and these have borne fruit. Colleagues are
incentivised to identify bureaucracy, costs and processes that do
not add value via a "You Suggest" scheme, which has also yielded
some excellent areas for action. Several more medium term projects
are also in place to increase operational efficiencies and to
reduce costs. Projects are assessed to achieve a cash payback
within two years and often payback is shorter.
Total operating expenses in the period fell from GBP281.5m to
GBP280.1m and like-for-like operating expenses grew by GBP3m or
1.2%. This represents a significant result in the current
environment. All of the growth on a like-for-like basis arose in
the second half of the Period. As a percentage of revenues,
operating expenses remained flat at 10.0% (2017: 10.0%). This
demonstrates the significant focus which the Group has continued to
place upon cost control. The action taken to fix, re-franchise,
sell or close underperforming dealerships has removed unproductive
cost bases from the business, and the continued search for
productivity improvements has minimised the significant impact of
increases in taxes and other Government imposed costs (business
rates, apprenticeship levy, minimum wage) as well as other
inflationary impacts upon the Group's trading results.
The increase in like-for-like operating expenses includes:-
-- higher (non-cash) depreciation as a consequence of increased
capital investment levels over the last two years (GBP1.0m)
-- higher business rates on dealership properties (GBP0.3m)
-- the recruitment of technician, parts and service adviser apprentices (GBP0.3m)
-- the recruitment of additional service advisors, and
enhancements to service advisor packages (GBP0.7m)
-- higher vehicle cleaning costs reflecting increased resources
required as service demand grew and increased pay rates
(GBP0.7m)
-- the recruitment of additional colleagues to support the
development of the Group's internet and digital marketing
activities (GBP1.1m)
-- higher spend in the final quarter of the Period on TV
advertising to support the Group's new car sales in March 2018
(GBP0.4m)
These increases have been offset by headcount and other cost
savings achieved in the sales departments as vehicle sales volumes
have declined.
Interest charges
Net finance costs in the period reduced to GBP1.9m (2017:
GBP2.3m). The Group's tight control of working capital reduced bank
interest payable from GBP0.9m to GBP0.7m. Lower stocking interest
payable on new vehicle funding facilities arose reflecting reduced
new vehicle inventory levels during the Period, as Manufacturers
reduced supply of new vehicles into the UK due to the weakness in
the value of Sterling.
Year ended Year ended
28 February 28 February
2018 2017
GBP'm GBP'm
Bank interest payable 0.7 0.9
Vehicle stocking interest
expense 1.3 1.6
Pension fund: net interest
income (0.1) (0.2)
1.9 2.3
------------- -------------
Managing Pension Costs
The Bristol Street defined benefit pension scheme is closed to
future membership and accrual. During the Period the Group made
cash contributions of GBP0.4m (2017: GBP0.4m) to the scheme.
This defined benefit scheme showed a surplus as at 28 February
2018 of GBP6.6m (2017: surplus GBP1.9m). The increase in the
surplus is due to a 0.3% increase in the discount rate applied to
scheme liabilities, driven by increased corporate bond yields,
lower inflation assumptions and lower expectations of future
mortality improvements. During the current year the Group's cash
contributions to the scheme will reduce to GBP30,000 per annum as
the current recovery plan ended on 31 March 2018 with an increase
in the Group's free cash flow generation as a consequence. The next
triennial valuation of the scheme is due on 5 April 2018 and this
is expected to show the scheme remains well funded on an actuarial
basis.
Managing Tax Payments
Taxation represents one of the single biggest costs to the
Group. In the year the Group expensed GBP5.8m in corporation tax,
GBP16.6m in Employers' National Insurance Contributions, GBP9m in
business rates and GBP0.7m in the apprenticeship levy. These four
taxes alone total GBP32.1m (2017: GBP31.0m).
Through its tax strategy the Group seeks to pay its fair share
of tax in compliance with UK legislation. The Group does not engage
in any aggressive tax planning and the Group is classified by HMRC
as 'low risk'. Within this context, the effective rate of
corporation tax for the year was 18.9% (2017: 19.5%). The current
year rate is slightly below the standard UK Corporation Tax rate
for the Period and the Board expects that the Group's tax rate
should remain close to the headline UK Corporation Tax rate in the
future as this rate declines to 17% by 2020.
Capital Structure
The Group has an ungeared balance sheet with shareholders' funds
of GBP264.4m (2017: GBP246.4m), representing net assets per share
of 68.9p (2017: 62.3p) as at 28 February 2018. The Group has
tangible net assets of GBP174.3m (2017: GBP156.1m) and the balance
sheet is underpinned by a freehold and long leasehold property
portfolio, including assets held for resale, of GBP183.8m (2017:
GBP182.0m). The Group has a robust tangible net assets per share
value of 45.4p as a result. The Board believes that a strong
balance sheet backed by property assets used in the business, and
where debt taken on is long term in nature rather than short term,
is in the interests of the business's owners. This approach reduces
the Group's exposure to interest rate and rent increases and makes
the business highly resilient in the event of a cyclical downturn
in activity.
The Group finances its operations by a mixture of shareholders'
equity, bank borrowings and trade credit from suppliers and
Manufacturer partners. On 28 February 2018, the Group extended its
five year acquisition facility with Barclays Bank plc and Royal
Bank of Scotland plc for a further year. This facility, which now
matures on 27 February 2023, provides the Group with GBP40m of
committed borrowing capacity with the potential to add a further
GBP30 million which is currently uncommitted. GBP10 million of this
facility was drawn as at 28 February 2018. Interest is payable on
this facility at LIBOR plus a rate between 1.3% and 2.1% depending
upon the ratio of net debt to EBITDA. In order to reduce the
Group's exposure to interest rate risk, the Board entered into a
three year interest rate swap on 31 July 2017, maturing on 31 July
2020 in respect of the GBP10m drawn on the loan facilities. This
swap fixes the underlying LIBOR rate payable at 0.675%.
In addition to conventional bank borrowing, the Group also
utilises used car stocking loans on a very limited basis. These
loans with third party banks are subject to interest at 1.5% above
LIBOR and are secured on the related vehicles. As at 28 February
2018, these borrowings amounted to GBP12.8m (2017: GBP8.7m)
representing 14.5% of the value of the Group's used vehicles (2017:
11.7%). The Group considers such borrowings as debt and includes
such amounts in the calculation of gearing and net debt (cash).
These facilities are short term in nature and can be called to be
repaid on demand. As a consequence, these facilities are not
extensively utilised to fund long term assets.
The Group operated with cash balances for much of the year and
additional facilities are utilised to fund significant peak working
capital requirements following plate change months and quarter
ends. The Group has GBP73m of overdraft and other money market
facilities. On the overdraft, interest was paid on drawn amounts at
1.1% above Base Rate, and on the money market facilities interest
was paid at 1.1% above LIBOR. As at 28 February 2018, the Group had
cash balances of GBP41.7m (2017: GBP39.8m) and, as a consequence,
net cash of GBP19.3m (2017: net cash GBP21.0m).
During the period, the Group comfortably complied with all of
the financial covenants in respect of its borrowing facilities,
which include net debt to EBITDA and interest and lease costs to
EBITDAR.
The cash position at 28 February 2018 reflects the seasonal
reduction in working capital, typical of the industry, which arises
at the month end prior to a plate change month. As a result of the
normal seasonal movements in working capital the year-end cash
position is higher than the normalised cash balances throughout the
remainder of the year by approximately GBP20m.
Capital Allocation
Consideration of capital allocation is central to the Board's
decision making. The Board proactively believes that the Group's
funding structure should remain highly conservative and that the
application of the Group's debt facilities to fund activities or
acquisitions which meet the Group's hurdle rates for investment,
will enhance return on equity and increase cash profits in the
future.
The Board seeks to balance the dealership portfolio between
freehold and leasehold premises to ensure appropriate capital
allocation. During the financial year the Group undertook the sale
and leaseback of the recently redeveloped Jaguar Land Rover Leeds
dealership property, realising GBP14.2m of cash, against the book
value of the property of GBP10m. This transaction demonstrated both
the quality and value of the Group's property portfolio and the
Board's consideration of capital allocation in its willingness to
be flexible as to operating with either freehold or leasehold
properties, on the right terms. The Board adopts a conservative
approach to the terms of leases, favouring lease breaks to provide
flexibility and open market value rent reviews to manage rent
increase risks. The lease commitment under the sale and leaseback
transaction was for a period of 15 years, the initial rent was at
open market value and the terms of the periodic rent reviews
contain appropriate lessee protection against future increases. As
at 28 February 2018, freehold locations represented 52% of the
Group's property portfolio (2017: 53%).
The Group commenced its Share Buy-back Programme in July 2017
and as at 8 May 2018, 18.0m shares, representing 4.53% of the
issued share capital, have been purchased at an average price of
43.8p, had been acquired for cancellation for a total of GBP7.9m.
The Board believes that this is an appropriate use of capital and
we expect share Buy-backs to form a relevant element of our returns
to our shareholders, alongside dividend payments at interim and
full year. The consequence of the Buy-back Programme to date will
be to reduce future dividend payments, based on 1.5p per share,
equating to an annual saving of GBP270,000 cash. Since the Group
commenced dividend payments in 2011, our dividend has increased by
200% in absolute terms, including the 7.1% increase this year. The
Board will seek to renew approval to repurchase 10% of the issued
share capital at the forthcoming Annual General Meeting.
In common with most sector participants, the Group continues a
programme of major capital investment to increase the capacity in
existing dealerships and to meet revised Manufacturer franchise
standards. In particular, significant sums are being invested in
increasing capacity and enhancing the retail environment of the
Jaguar Land Rover dealerships with the implementation of the "Arch"
concept and similar developments are planned to improve certain of
the Group's dealerships representing the Mercedes-Benz franchise.
These were as envisaged at the time of the Greenoaks acquisition.
The bulk of these projects will be completed in the current
financial year, after which the Group's allocation of capital to
the existing dealership portfolio will significantly decrease as
set out in the next section. The Board critically evaluates all
proposed capital expenditure to ensure it makes sense from a
capital allocation and shareholder return perspective, and has
chosen not to undertake a number of prospective projects following
such reviews where it believes appropriate returns may not be
generated.
The Group regularly reviews its capital allocation within its
existing dealership and property portfolio. The importance of
property arrangements within an automotive retail business should
not be underestimated. The Property Committee, chaired by the CEO
and including external advisors, meets monthly to formally review
and actively manage the Group's property portfolio. The management
of the Group's property portfolio to maximise cash returns from
surplus assets is an important driver of both cash flows to the
Group over time and ensuring appropriate capital allocation. The
Board balances the need to recycle surplus assets into cash as
quickly as possible with the requirement to maximise the ultimate
cash generation from taking advantage of planning consents. Surplus
assets arise from the 'pruning' of poor performing dealerships, the
relocation of businesses and the sale of surplus land acquired in
the development of new dealerships and from acquisitions. During
the Period, this process recycled GBP1.2m of property and GBP1.6m
of working capital from marginal or loss-making businesses closed
or disposed of in the Period to activities generating higher
returns.
As at the date of this report the Group is actively engaged in
the marketing of a number of surplus freehold assets. The Group
sold one such surplus property subsequent to 28 February 2018,
generating cash proceeds of GBP2.0m, compared to the GBP1.4m book
value.
Capital Expenditure
The cash impact of capital expenditure and disposals during the
Period, along with the anticipated spend in future years, is set
out below:
Actual Estimate
----------------------- --------------
FY FY FY FY FY
2016 2017 2018 2019 2020
GBP'm GBP'm GBP'm GBP'm GBP'm
Purchase of property 6.3 5.3 4.3 1.6 -
New dealership build 1.8 10.4 4.3 4.6 2.5
Existing dealership
capacity increases 4.5 5.9 8.2 13.1 4.4
Manufacturer-led refurbishment
projects 3.2 2.4 3.0 9.9 4.6
IT and other ongoing
capital expenditure 5.1 4.8 4.9 4.8 4.0
Movement on capital
creditor (0.4) 0.7 (0.6) - -
------ ------ ------- ------ ------
Cash outflow from
capital expenditure 20.5 29.5 24.1 34.0 15.5
Proceeds from sale
and leaseback and
property sales (1.1) (1.0) (14.3) (4.6) -
------ ------ ------- ------ ------
Net cashflow from
capital investment 19.4 28.5 9.8 29.4 15.5
------ ------ ------- ------ ------
During the Period the Group purchased the freehold interest in
its leased Bradford Land Rover dealership at a cost of GBP3.6m. The
passing rent under the lease was GBP190,000 per annum, with a rent
review due at the time of purchase. This acquisition will allow the
Group greater flexibility over the site configuration as the
dealership is redeveloped under the Land Rover 'Arch' concept in
2020. In addition, GBP0.7m was invested in additional land for
vehicle storage in Bradford to improve the efficiency of the retail
operation.
During the year the main project in the new dealership build
category was the commencement of construction of the 'Arch' concept
Jaguar Land Rover dealership in Bolton. This GBP8.3m project,
managed by the Group's in-house team of project managers and
surveyors, will be completed in July 2018, bringing together in one
flagship freehold location, the Land Rover and Jaguar outlets
currently operating from leasehold premises in Bury and Bolton. The
new dealership utilises surplus land adjacent to another of the
Group's dealerships so maximising returns from the Group's freehold
property portfolio.
Major projects to increase the capacity of the existing
dealerships during the year included the extension and
refurbishment of Bolton Ford to create a 'Ford Store' as well as
the redevelopment of the showroom facilities at the Shirley Ford
dealership, following the relocation of aftersales activities
offsite. Shirley is one of the Group's top performing new and used
car outlets and the customer experience, for used sales in
particular, will be enhanced by this investment. Offsite aftersales
and pre-delivery inspection facilities were also developed for the
Chesterfield and Nelson Land Rover dealership to facilitate the
future development of these locations under the 'Arch' concept.
In the year ending 28 February 2019, major projects are being
undertaken to increase existing dealership capacity. These will
include redevelopments of Reading and Slough Mercedes-Benz, Nelson,
Chesterfield and Guiseley Land Rover and Bradford Jaguar Land
Rover. These developments will deliver operations with greater
capacity for sales and service and will underpin the Group's future
profitability and cash generation.
The Board is confident that the significant reduction in future
capital spend anticipated in FY2020 will deliver enhanced free cash
flow from the business. By the end of the year practically all the
dealership estate will have been redeveloped updated to the latest
manufacturer standards in recent years.
Managing Working Capital
The Group has generated cash from operating activities of
GBP27.3m from an operating profit of GBP32.3m. Working capital
absorbed GBP13.3m in the year following a number of years of
positive working capital movements generating cash. All of the
working capital absorption arose during the first half of the
Period.
The Group has significant levels of working capital in the form
of inventory, receivables and payables. These are subject to
significant, yet predictable, seasonal fluctuations which coincide
with plate change months and quarterly Manufacturer new car
campaigns. In addition, Manufacturer new vehicle supply levels and
financing changes can also impact working capital patterns over
time. The Group benefits from VAT reclaimed on new vehicle
inventory invoiced from the Manufacturer which has yet to be paid
for in cash. At the beginning of the Period, these inventory levels
declined, resulting in a VAT cash outflow in the first half of the
Period of GBP16.8m. This partially reversed in the second half of
the Period. During the final quarter of the Period the value of
this inventory and corresponding creditor increased to above prior
year levels, resulting in a GBP10.2m increase in VAT receivable in
the February 2018 balance sheet when compared to February 2017.
This cash was received in April 2018 so reducing working capital
levels at that point.
Lower new vehicle sales in September 2017 and March 2018 were
expected to generate lower part exchange supply for the Group's
used car operations, hence the Group decided to increase used
vehicle inventory going into September and March to compensate. In
addition, average value per used vehicle increased year on year. As
a consequence, total used car stock levels increased to GBP88.3m at
the end of February 2018 (2017: GBP74.0m). Partially offsetting
this working capital absorption is a reduction in fully paid new
vehicle stock and a GBP4m increase in the value of cash held in
respect of the Group's warranty and service plan products.
Free cashflow to equity
The Board regularly measures the long term free cashflow
(operating cashflow less interest, capital expenditure and tax,
before acquisitions and dividends) as a return on the shareholders'
cash invested capital (capital raised plus after-tax operating
profits less dividends). This measure, when compared to the cost of
capital, provides an indication of the extent to which cash, hence
value, is being created in the long term. This measure stands at
10.6% over the 11 years since the Group's formation (2017: 12.1%
over 10 years). This return compares favourably to the Group's
weighted average cost of capital of 8%. The reduction in the recent
Period indicated above is a result of the high level of cash
deployed on capital investment in the Period. As set out above, we
expect this level of capital investment to increase in the current
financial year before declining in 2020, when the free cashflow to
equity metric should begin to increase.
Dividends
During the six year period since the Group commenced payment of
dividends to its owners in 2011, over GBP23.1m has been returned to
the owners of the business through dividends, with the dividend per
share increasing by 200% over the same period. The dividend has
been funded from cash generated from operations, without any
negative impact on ongoing capital expenditure programmes nor
funding of suitable acquisitions.
The Board has proposed an increase in the final dividend for
2018, payable on 30 July 2018 subject to approval at the AGM, to
0.95 pence per share (2017: 0.9p), which, when taken together with
the interim dividend paid in January 2018 of 0.55 pence per share
(2017: 0.5p), provides a total dividend for the year of 1.50 pence
per share (2017: 1.40p). This represents an increase of 7.1% and a
dividend cover of 3.9 times (2017: 4.7 times) based upon adjusted
earnings per share. The ex-dividend date will be 21 June 2018 and
the associated record date 22 June 2018.
The proposed full year dividend of 1.50 pence represents an
annualised cash dividend, based on the number of shares in issue at
28 February 2018, of GBP5.7m (2017: GBP5.5m). The implementation of
the share buyback programme has, of course, reduced the cash impact
of dividend increases in the Period. The distributable reserves in
the parent company balance sheet as at 28 February 2018 were
GBP72.2m (2017: GBP58.9m). At this level of pay-out the Board does
not consider there to be any significant risks to the Group's
ability to continue to pay dividends other than those risks listed
in the annual report.
Robert Forrester Michael Sherwin
Chief Executive Officer Chief Financial Officer
CONSOLIDATED INCOME STATEMENT (AUDITED)
For the year ended 28 February 2018
2018 2017
Note GBP'000 GBP'000
Revenue 2,796,068 2,822,589
Cost of sales (2,487,176) (2,509,049)
------------ ------------
Gross profit 308,892 313,540
Operating expenses (before
exceptional items) (280,086) (281,466)
Exceptional items 3,539 -
------------ ------------
Operating profit 32,345 32,074
================================== ===== ============ ============
Amortisation of intangible
assets 614 614
Exceptional items 2 (3,539) -
Share based payments charge 1,031 1,082
------------ ------------
Operating profit before
amortisation, exceptional
items and share based payments
charge 30,451 33,770
================================== ===== ============ ============
Finance income 3 66 261
Finance costs 3 (1,964) (2,515)
------------ ------------
Profit before tax 30,447 29,820
================================== ===== ============ ============
Amortisation of intangible
assets 614 614
Exceptional items 2 (3,539) -
Share based payments charge 1,031 1,082
------------ ------------
Profit before tax, amortisation,
exceptional items and share
based payments charge 28,553 31,516
================================== ===== ============ ============
Taxation 4 (5,766) (5,800)
------------ ------------
Profit for the year attributable
to equity holders 24,681 24,020
============ ============
Basic earnings per share
(p) 5 6.31 6.14
Diluted earnings per share
(p) 5 6.21 6.04
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (AUDITED)
For the year ended 28 February 2018
2018 2017
GBP'000 GBP'000
Profit for the year 24,681 24,020
Other comprehensive income
/ (expense)
Items that will not be reclassified
to profit or loss:
Actuarial gains / (losses)
on retirement benefit obligations 4,422 (4,687)
Deferred tax relating to
actuarial (gains) / losses
on retirement benefit obligations (752) 937
Items that may be reclassified
subsequently to profit or
loss:
Cash flow hedges (93) -
Deferred tax relating to 18 -
cash flow hedges
Other comprehensive income
/ (expense) for the year,
net of tax 3,595 (3,750)
-------- ----------
Total comprehensive income
for the year
attributable to equity holders 28,276 20,270
======== ==========
CONSOLIDATED BALANCE SHEET (AUDITED)
As at 28 February 2018
2018 2017
GBP'000 GBP'000
Non-current assets
Goodwill and other indefinite
life assets 94,381 94,595
Other intangible assets 1,316 1,518
Retirement benefit asset 6,551 1,884
Property, plant and equipment 198,004 197,545
Total non-current assets 300,252 295,542
---------- ----------
Current assets
Inventories 558,386 506,470
Trade and other receivables 66,272 52,545
Cash and cash equivalents 41,709 39,845
---------- ----------
666,367 598,860
---------- ----------
Property assets held for 2,449 -
sale
---------- ----------
Total current assets 668,816 598,860
---------- ----------
Total assets 969,068 894,402
========== ==========
Current liabilities
Trade and other payables (663,404) (610,317)
Deferred consideration - (1,572)
Current tax liabilities (3,304) (3,840)
Borrowings (12,811) (8,671)
---------- ----------
Total current liabilities (679,519) (624,400)
---------- ----------
Non-current liabilities
Borrowings (9,585) (10,166)
Derivative financial instruments (92) -
Deferred consideration (100) (236)
Deferred income tax liabilities (6,477) (5,555)
Deferred income (8,877) (7,616)
---------- ----------
Total non-current liabilities (25,131) (23,573)
---------- ----------
Total liabilities (704,650) (647,973)
========== ==========
Net assets 264,418 246,429
========== ==========
Capital and reserves attributable
to equity holders of the
Group
Ordinary share capital 38,552 39,727
Share premium 124,934 124,932
Other reserve 10,645 10,645
Hedging reserve (75) -
Treasury share reserve (690) (756)
Capital redemption reserve 1,175 -
Retained earnings 89,877 71,881
---------- ----------
Shareholders' equity 264,418 246,429
========== ==========
CONSOLIDATED CASH FLOW STATEMENT (AUDITED)
For the year ended 28 February 2018
2018 2017
Note GBP'000 GBP'000
Cash flows from operating
activities
Operating profit 32,345 32,074
Profit on sale of property,
plant and equipment (3,529) (285)
Amortisation of other
intangible assets 614 614
Depreciation of property,
plant and equipment 9,714 8,665
Impairment charges 513 -
Movement in working capital (13,332) 16,040
Share based payments charge 954 1,015
---------- ----------
Cash generated from operations 27,279 58,123
Tax received 350 359
Tax paid (6,468) (6,103)
Finance income received 14 34
Finance costs paid (2,321) (2,447)
---------- ----------
Net cash generated from
operating activities 18,854 49,966
---------- ----------
Cash flows from investing
activities
Acquisition of businesses,
net of cash and overdrafts
acquired (1,181) (49,962)
Acquisition of freehold
and long leasehold land
and buildings (4,346) (4,456)
Purchases of intangible
assets (411) (460)
Purchases of other property,
plant and equipment (19,802) (25,092)
Proceeds from disposal
of business (net of cash
and overdrafts) 1,528 875
Proceeds from sale and 14,150 -
leaseback transaction
Proceeds from disposal
of property, plant and
equipment 165 950
---------- ----------
Net cash outflow from
investing activities (9,897) (78,145)
---------- ----------
Cash flows from financing
activities
Net proceeds from issuance
of ordinary shares - 33,631
Proceeds from borrowings 7 4,140 10,831
Repayment of borrowings 7 (166) (14,000)
Sale / (purchase) of treasury
shares 62 (1,000)
Repurchase of own shares (5,451) -
Dividends paid to equity
holders 6 (5,678) (5,353)
---------- ----------
Net cash (outflow) / inflow
from financing
activities (7,093) 24,109
---------- ----------
Net increase / (decrease)
in cash and cash equivalents 1,864 (4,070)
Cash and cash equivalents
at beginning of year 39,845 43,915
---------- ----------
Cash and cash equivalents
at end of year 41,709 39,845
========== ==========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (AUDITED)
For the year ended 28 February 2018
Ordinary Treasury Capital
share Share Other Hedging share redemption Retained Shareholders'
capital premium reserve Reserve reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 March
2017 39,727 124,932 10,645 - (756) - 71,881 246,429
Profit for
the year - - - - - - 24,681 24,681
Actuarial
gains
on retirement
benefit
obligations - - - - - - 4,422 4,422
Tax on items
taken
directly
to equity - - - 18 - - (752) (734)
Fair value
losses - - - (93) - - - (93)
Total
comprehensive
income for
the year - - - (75) - - 28,351 28,276
--------- ---------- ---------- ---------- ----------- ------------ ----------- --------------
Sale of
treasury
shares - 2 - - 66 - (6) 62
Repurchase
of own shares - - - - - - (5,625) (5,625)
Cancellation
of
repurchased
shares (1,175) - - - - 1,175 - -
Dividend paid - - - - - - (5,678) (5,678)
Share based
payments
charge - - - - - - 954 954
--------- ---------- ---------- ---------- ----------- ------------ ----------- --------------
As at 28
February
2018 38,552 124,934 10,645 (75) (690) 1,175 89,877 264,418
========= ========== ========== ========== =========== ============ =========== ==============
The repurchase of own shares in the year was made pursuant to
the share buyback programme announced on 26 July 2017.
Ordinary shares to the value of GBP5,441,000 had been
repurchased in the year ended 28 February 2018, of which GBP174,000
was unpaid at 28 February 2018. 11,745,322 of the repurchased
shares had been cancelled at 28 February 2018 and accordingly, the
nominal value of these shares has been transferred to the capital
redemption reserve.
During the year, the Group repurchased GBP166,000 of cumulative
preference shares for GBP350,000. The excess over the nominal value
of the preference shares of GBP184,000 is included in "Repurchase
of own shares" above.
The other reserve is a merger reserve, arising from shares
issued for shares as consideration to the former shareholders of
acquired companies.
For the year ended 28 February 2017
Ordinary Treasury
share Share Other share Retained Shareholders'
capital premium reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 March
2016 34,127 96,901 10,645 - 56,186 197,859
Profit for the
year - - - - 24,020 24,020
Actuarial losses
on retirement
benefit obligations - - - - (4,687) (4,687)
Tax on items taken
directly to equity - - - - 937 937
Total comprehensive
income for the
year - - - - 20,270 20,270
--------- ---------- ---------- --------- ----------- --------------
New ordinary shares
issued 5,600 29,400 - - - 35,000
Cost of issuance
of ordinary shares - (1,369) - - - (1,369)
Purchase of treasury
shares - - - (1,000) - (1,000)
Treasury shares
issued - - - 244 (237) 7
Dividend paid - - - - (5,353) (5,353)
Share based payments
charge - - - - 1,015 1,015
--------- ---------- ---------- --------- ----------- --------------
As at 28 February
2017 39,727 124,932 10,645 (756) 71,881 246,429
========= ========== ========== ========= =========== ==============
NOTES
For the year ended 28 February 2018
1. Basis of preparation
Vertu Motors plc is a Public Limited Company which is listed on
the AiM market and is incorporated and domiciled in England. The
address of the registered office is Vertu House, Fifth Avenue
Business Park, Team Valley, Gateshead, Tyne and Wear, NE11 0XA. The
registered number of the Company is 05984855.
The Group prepares financial information under International
Financial Reporting Standards (IFRS) issued by the IASB and as
adopted by the European Union (EU) and on the same basis as in
2017. Further information in relation to the Standards adopted by
the Group is available on the Group's website
www.vertumotors.com.
Whilst the financial information included in this announcement
has been computed in accordance with International Financial
Reporting Standards (IFRS's), this announcement does not itself
contain sufficient information to comply with IFRS's. The Group
published full financial statements that comply with IFRS's today
and these are available on the Group's website,
www.vertumotors.com.
The financial information presented for the years ended 28
February 2018 and 28 February 2017 does not constitute the
Company's statutory accounts as defined in Section 434 of the
Companies Act 2006, but is derived from those financial statements.
The auditors' reports on the 2018 and 2017 financial statements
were unqualified. A copy of the statutory accounts for 2017 has
been delivered to the Registrar of Companies. Those for 2018 will
be delivered following the Company's annual general meeting, which
will be convened on 25 July 2018.
Accounting policies
The annual consolidated financial statements of Vertu Motors plc
are prepared in accordance with IFRS's as adopted by the European
Union. The annual report has been prepared on the going concern
basis under the historical cost convention, as modified by the
revaluation of financial assets and liabilities (including
derivative financial instruments) at fair value through profit or
loss.
The accounting policies adopted in this annual report can be
found on our website, www.vertumotors.com, and are consistent with
those of the Group's financial statements for the year ended 28
February 2017.
Segmental information
The Group adopts IFRS 8 "Operating Segments" which determines
and presents operating segments based on information provided to
the Group's Chief Operating Decision Maker ("CODM"), Robert
Forrester, Chief Executive. The CODM receives information about the
Group overall and therefore there is one operating segment.
The CODM assesses the performance of the operating segment based
on a measure of both revenue and gross margin. However, to increase
transparency, the Group has included below an additional voluntary
disclosure analysing revenue and gross margin within the reportable
segment.
Year ended 28 February 2018
Gross
Revenue Gross Margin Gross
Revenue Mix Margin Mix Margin
GBP'm % GBP'm % %
Aftersales * 228.2 8.2 124.7 40.4 44.5
Used cars 1,068.9 38.2 98.7 31.9 9.2
New car retail
and Motability 836.5 29.9 64.1 20.8 7.7
New fleet and commercial 662.5 23.7 21.4 6.9 3.2
---------- ---------- --------- -------- ---------
2,796.1 100.0 308.9 100.0 11.0
---------- ---------- --------- -------- ---------
Year ended 28 February 2017
Gross
Revenue Gross Margin Gross
Revenue Mix Margin Mix Margin
GBP'm % GBP'm % %
Aftersales * 227.0 8.0 123.4 39.4 44.6
Used cars 1,037.5 36.8 100.7 32.1 9.7
New car retail
and Motability 909.4 32.2 68.3 21.8 7.5
New fleet and commercial 648.7 23.0 21.1 6.7 3.3
---------- ---------- --------- -------- ---------
2,822.6 100.0 313.5 100.0 11.1
---------- ---------- --------- -------- ---------
*margin in aftersales expressed on internal and external
turnover
2. Exceptional items
2018 2017
GBP'000 GBP'000
Profit on disposal of 4,149 -
freehold property
Loss on disposal of Boston (610) -
Volkswagen
3,539 -
======== ========
On 31 August 2017 the Group completed the sale and operating
lease back of the freehold property operated by the Group's Jaguar
Land Rover dealership in Leeds, West Yorkshire. This transaction
realised GBP14,150,000 of cash proceeds and GBP4,149,000 profit on
disposal.
On 4 January 2018, the Group disposed of the trade and certain
assets of its Volkswagen dealership in Boston. The Group received
sales proceeds of GBP1,200,000 in respect of the freehold property
from which the dealership operated, incurring a loss on disposal of
GBP610,000 representing a loss on freehold property of GBP510,000
and loss on goodwill of GBP100,000. All other assets and
liabilities disposed of with this transaction recovered their
carrying value.
3. Finance income and costs
2018 2017
GBP'000 GBP'000
Interest on short-term bank deposits 18 34
Net finance income relating to defined
benefit pension schemes 48 227
-------- --------
Finance income 66 261
======== ========
Bank loans and overdrafts (673) (876)
Vehicle stocking interest (1,291) (1,639)
Finance costs (1,964) (2,515)
======== ========
4. Taxation
2018 2017
GBP'000 GBP'000
Current tax
Current tax charge 5,861 6,468
Adjustment in respect
of prior years (283) (227)
-------- --------------------------
Total current tax 5,578 6,241
Deferred tax
Origination and reversal
of temporary differences 512 (70)
Adjustment in respect
of prior years (254) (112)
Rate differences (70) (259)
-------- --------------------------
Total deferred tax 188 (441)
Income tax expense 5,766 5,800
======== ==========================
2018 2017
GBP'000 GBP'000
Profit before taxation
from continuing operations 30,447 29,820
Profit before taxation
multiplied by the rate
of corporation tax in
the UK of 19.1% (2017:
20.0%) 5,815 5,964
Non-qualifying depreciation 499 357
Non-deductible expenses 174 267
Effect on deferred tax
balances due to rate change (70) (259)
Property adjustment (63) (168)
Permanent benefits (52) (22)
Adjustments in respect
of prior years (537) (339)
-------- --------
Total tax expense included
in the income statement 5,766 5,800
======== ========
The Group's effective rate of tax is 18.94% (2017: 19.45%).
The standard rate of Corporation Tax in the UK is 19% with
effect from 1 April 2017. Accordingly, the Group's profits for this
accounting period are taxed at a rate of 19.1%.
5. Earnings per share
Basic and diluted earnings per share are calculated by dividing
the earnings attributable to equity shareholders by the weighted
average number of ordinary shares during the year or the diluted
weighted average number of ordinary shares in issue in the
year.
The Group only has one category of potentially dilutive ordinary
shares, which are share options. A calculation has been undertaken
to determine the number of shares that could have been acquired at
fair value (determined at the average annual market price of the
Group's shares) based on the monetary value of the subscription
rights attached to the outstanding share options.
The number of shares calculated, as set out above, is compared
with the number of shares that would have been issued assuming the
exercise of the share options.
Adjusted earnings per share is calculated by dividing the
adjusted earnings attributable to equity shareholders by the
weighted average number of ordinary shares in issue during the
year.
2018 2017
GBP'000 GBP'000
Profit attributable to
equity shareholders 24,681 24,020
Amortisation of intangible
assets 614 614
Exceptional items (3,539) -
Share based payments charge 1,031 1,082
Tax effect of adjustments (119) (119)
-------- --------
Adjusted earnings attributable
to equity shareholders 22,668 25,597
======== ========
Weighted average number
of shares in issue ('000s) 391,317 391,116
Potentially dilutive shares
('000s) 5,948 6,800
-------- --------
Diluted weighted average
number of shares in issue
('000s) 397,265 397,916
======== ========
Basic earnings per share 6.31p 6.14p
======== ========
Diluted earnings per share 6.21p 6.04p
======== ========
Basic adjusted earnings
per share 5.79p 6.54p
======== ========
Diluted adjusted earnings
per share 5.71p 6.43p
======== ========
6. Dividends per share
Dividends of GBP5,678,000 were paid in the year to 28 February
2018 (2017: GBP5,353,000), 1.45p per share (2017: 1.35p). A final
dividend in respect of the year ended 28 February 2018 of 0.95p per
share, is to be proposed at the annual general meeting on 25 July
2018. The ex-dividend date will be 21 June 2018 and the associated
record date 22 June 2018. This dividend will be paid, subject to
shareholder approval, on 30 July 2018 and these financial
statements do not reflect this final dividend payable.
The last date for shareholders to elect for the Dividend
Re-Investment Plan (DRIP) will be 6 July 2018 (or such other date
as the Group may specify). A facility is provided by Link Market
Services Trustees Limited in conjunction with the Group's
registrars, Link Asset Services, for any Group shareholders who
wish to re-invest dividend payments in the Group. Under this
facility, cash dividends may be used to purchase additional
ordinary shares.
Any shareholder requiring further information should call Link
Asset Services on 0871 664 0300 (Calls cost 12p per minute plus
your phone company's access charge. Calls outside the United
Kingdom will be charged at the applicable international rate. Lines
are open between 09:00 - 17:30, Monday to Friday excluding public
holidays in England and Wales. Overseas shareholders are best to
use: +44 371 664 0300 Calls outside the United Kingdom will be
charged at the applicable international rate) or visit
www.linkassetservices.com.
7. Reconciliation of net cash flow to movement in net cash
2018 2017
GBP'000 GBP'000
Net increase / (decrease)
in cash and cash equivalents 1,864 (4,070)
Cash inflow from proceeds
of borrowings (4,140) (10,831)
Cash outflow from repayment
of borrowings 166 14,000
-------- ---------
Cash movement in net cash (2,110) (901)
Borrowings acquired - (1,085)
Capitalisation of loan arrangement
fees 501 107
Amortisation of loan arrangement
fees (86) (261)
-------- ---------
Non-cash movement in net
cash 415 (1,239)
Movement in net cash (1,695) (2,140)
Opening net cash 21,008 23,148
-------- ---------
Closing net cash 19,313 21,008
======== =========
8. Disposals
On 31 March 2017, the Group disposed of the trade and certain
assets of its Peugeot dealership in Chesterfield.
On 4 January 2018, the Group disposed of the trade and certain
assets of its Volkswagen dealership in Boston.
Total consideration received for the disposals was GBP1,528,000
and was settled in cash.
9. Post balance sheet events
On 19 March 2018, the Group disposed of surplus land, held in
property assets held for resale at 28 February 2018, at Newcastle
under Lyme realising GBP2,000,000 of cash and a GBP630,000 profit
on disposal.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BVLLBVEFXBBD
(END) Dow Jones Newswires
May 09, 2018 02:01 ET (06:01 GMT)
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