TIDMVTU
RNS Number : 2934Y
Vertu Motors PLC
08 May 2019
8 May 2019
Vertu Motors plc ("Vertu", "Group")
Final results for the year ended 28 February 2019
Profit and cash generation ahead of expectations: dividend
increased
Vertu Motors plc, the automotive retailer with a network of 123
sales and aftersales outlets across the UK, announces its final
results for the year ended 28 February 2019
Commenting on the results, Robert Forrester, Chief Executive
Officer, said:
"Our highly skilled, disciplined and motivated team offers our
aftersales, used and new vehicle customers outstanding service. By
executing the basic fundamentals well, and with our strong
financial position, Vertu will continue to generate significant and
growing levels of cash. Over the last three years, we have invested
over GBP85.0m in our capex programme across our dealership estate.
This programme is now coming to an end and we would expect to
generate increased levels of cash which, through our disciplined
capital allocation framework, we will invest in operations,
acquisitions and dividends as well as share buybacks, where
appropriate."
HIGHLIGHTS
Strategy
-- Strong management and financial position enables growth of
franchised businesses with major Manufacturer partners to deliver
growth in value
-- Leads the sector in on-line capability for omni-channel
retailing. On-line retailing capability developed in used cars,
parts and vans
-- Delivery of market beating used car sales growth through use
of technology in stock management and vehicle pricing together with
cost-effective digital and TV marketing
-- Growing high margin service revenues through expanded
capacity, high penetration of retention products such as service
plans and delivery of outstanding customer experiences
-- Strong portfolio management including divestment of sub-scale
and underperforming outlets/properties generating cash and reducing
cost structures
-- Continuing value enhancing acquisitions
Financial
-- Profit before tax of GBP25.3m (2018: GBP30.4m)
-- Adjusted(1) profit before tax of GBP23.7m ahead of market expectations (2018: GBP28.6m)
-- Full year dividend of 1.6p per share, up 6.7% (2018: 1.5p per share)
-- VAT income of GBP3.1m, in addition to Adjusted PBT, received
following HMRC clarification of finance deposit allowance
treatment
-- Excellent cash conversion: Free Cash Flow of GBP21.2m delivered in the year (2018: GBP10.7m)
Operational
-- GBP186m (6.7%) growth in revenues to GBP3bn, with like-for-like revenue growth of 5.1%
-- Excellent aftersales performance with like-for-like revenue
growth of 7.0% delivering a 6.4% growth in gross profit
-- Like-for-like used vehicle revenue growth of 11.6% delivering GBP2.5m additional gross profit
-- New retail volumes stable and ahead of the market trends
(1) Adjusted to remove non-underlying items
Capital Structure
-- Adjusted(2) Net Cash of GBP22.9m (2018: GBP32.1m)
-- Strong balance sheet to fund future growth: tangible net
assets per share of 44.9p reflective of extensive freehold property
base
-- Major capital expenditure programme now largely complete
aiding future Free Cash Flow generation
-- Used car stocking funding utilised of GBP23.2m (cover of 4.6
times used car stock value) (2018: GBP12.8m). Substantially lower
than industry peer group reflecting resilient balance sheet
-- GBP3.6m of shares bought back in FY19 together with GBP5.7m of dividend payments
-- Share Buyback Programme recommenced on this announcement with GBP3m allocated
(2) Adjusted to remove used car stocking loans
Outlook
-- Group has traded in line with management's expectations in
March and April 2019 with trading profit expected to be in line
with prior year period
Webcast details
Vertu Management will host a webcast for analysts and investors
at 9.30am (BST) this morning. Please click here to register:
https://protect-eu.mimecast.com/s/vO8wC0YBQUmj3MwiwsVcB
A recording of the webcast will subsequently be uploaded to
Vertu's website.
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
Karen Anderson, CFO Tel: 0191 491 2112
Zeus Capital Limited
Jamie Peel Tel: 020 3829 5000
Andrew Jones
Dominic King
Camarco
Billy Clegg Tel: 020 3757 4983
Tom Huddart
CHAIRMAN'S STATEMENT
The Group has delivered underlying profits in excess of market
expectations and the Group continues to trade in line with
management expectations for the year ahead, which anticipates
profit growth.
The automotive retail sector faced a number of challenges in the
year to 28 February 2019 including disruption to new vehicle
supply, driven by a weaker pound and EU Worldwide Harmonised Light
Vehicle Test Procedure ("WLTP") regulations, political uncertainty
impacting consumer confidence and significant cost pressures.
Despite this, the Group delivered a credible result in profit terms
and very strong cash generation. The Board proposes a final
ordinary dividend of 1.05p per share taking the total ordinary
dividend for the year to 1.60p per share, an increase of 6.7% on
last year.
The Group generated Free Cash Flow of GBP21.2m and GBP9.3m was
returned to shareholders through a combination of ordinary dividend
payments (GBP5.7m) and share buybacks (GBP3.6m). During the year
8.3m shares were repurchased for cancellation reducing the number
of shares in issue by 2.2%. The Share Buyback Programme will be
recommenced following this announcement.
As anticipated, investment in the Group's property portfolio has
continued, with a capital expenditure cash outflow of GBP33.7m
before disposals. This spend included signigficant projects to
increase the operating capacity of the Group and to ensure
dealerships meet the latest in Manufacturer standards. The
portfolio is now well invested, with reduced capital expenditure
expected in the coming financial year. Adjusted Net Cash reduced to
GBP22.9m from GBP32.1m, with GBP31.5m spent on acquisitions
completed in the year. Net debt, inclusive of used vehicle stocking
facilities is negligible at just GBP0.3m at the balance sheet date
and this means the Group has considerable firepower for future
investment.
There were a number of Board changes in the year. David Crane
was appointed as an Executive Director of the Company on 26 July
2018. David joined Vertu at its inception and has been instrumental
in its subsequent growth and success. Nigel Stead, who had been a
Non-executive Director of the Group for 7 years, retired from the
Board on 31 December 2018. Andrew Goss joined the Group on 3
September 2018 as a Non-executive Director and brings 39 years'
experience in the automotive sector to the Board, having held very
senior roles in a number of Manufacturers including Porsche and
Jaguar Land Rover. Michael Sherwin retired from his position as CFO
on 1 March 2019. Karen Anderson, who has been with Vertu since its
incorporation in November 2006 succeeded Michael as CFO in a very
smooth transition.
I have been in place as Chairman since 1 January 2015 and now
consider it is time to step down in the coming months, having
overseen a number of Board changes in the last 18 months and with
the Group in an excellent position and poised for further growth. A
process has commenced to find a new Non-executive Chairman for the
Group and further announcements are expected in the coming
months.
The automotive retail sector is set to remain challenging for
the year ahead notably due to political uncertainty and increased
regulatory attention. It is likely that over time there will
continue to be a reduction in the number of franchise dealer
outlets in the UK and drive further network consolidation. The
Group's core strategy remains unchanged, which is to grow a scaled
franchised automotive retail group, working in conjunction with
chosen Manufacturer partners. Our aim is to deliver outstanding
customer service and to build long term value through the delivery
of sustainable growth in cash flows and earnings per share.
I would like to take this opportunity to thank the Board,
management and, above all, the incredible colleagues in the Group
for their passion, commitment and hard work. This Group was founded
in late 2006 and is now a significant player in the UK automotive
retail sector with an excellent, exciting future ahead of it.
Peter Jones
Chairman
CHIEF EXECUTIVE'S REVIEW
The purpose of this report is to inform all stakeholders on how
the Group has performed in the year to 28 February 2019, through
the provision of a detailed analysis of financial performance. It
also appraises the challenges the Group faces, the opportunities
available to exploit and explains how the Board plan to manage the
business going forward.
Strategic Overview
Economic Backdrop
Economic indicators for the UK consumer are positive. In March
2019 the UK employment rate was estimated at 76.1%, higher than the
previous year and the highest figure on record. In addition, those
in employment have seen a 1.2% growth in wages, adjusted for
inflation, compared with 2017. Despite these positive trends, the
consumer confidence index for the United Kingdom averaged minus 9
for the first half of the Year, declining to an average of minus 13
from October 2018, as the strong labour market was offset by
ongoing Brexit uncertainty and concerns over global growth
prospects. There is a proven long-term link between consumer
confidence and UK new vehicle registrations, which were weaker in
the second half of the financial year.
Movements in the sterling exchange rate also tend to impact on
UK new vehicle registrations. Weaker sterling discourages
Manufacturers bringing vehicles into the UK due to resultant margin
pressures.
Reductions in registrations of new vehicles in the UK leads to
reduced availability of used vehicles for sale, which tends to
underpin used vehicle values aiding Group used vehicle performance.
Rising new car prices also tends to result in some customers
switching from new cars to used cars due to affordability. A
slowdown in the change cycle of vehicles also tends to increase the
demand for the aftersales services and parts supplied by the
Group.
Network Change - physical dealerships in an on-line world
The impact of the growth in on-line shopping on the general
retail sector has been well documented with increased on-line sales
driving reduced physical retail transactions and resulting in
considerable dislocation on the High Street. Whilst the pace of
consumer change from physical to on-line has been fast in the
general retail sector, the relative complexity of a vehicle
purchase has, thus far, led to a much lower adoption of 'purely'
on-line transactions within automotive retail. Customers are
increasingly using the internet to research prior to purchase and
to initiate contact with dealerships, however, a recent ICDP survey
found less than 10% of consumers ideally wanted to finalise the
deal on-line. Customer requirements are likely to evolve over time
and the Group needs to adapt to meet them.
Vertu was the first dealer group in the UK to develop the
technology for customers to choose a used vehicle, finance its
purchase and trade in their existing vehicle purely on-line. This
was launched in May 2017 and has been successful, with many
customers starting their purchasing journey on the platform and in
some cases completing the entire process on-line. The relatively
low volumes of purely on-line sales relate directly to the relative
complexity of a vehicle purchase transaction, which potentially
includes financing, warranty and other products, as well as a
vehicle to trade in. The vast majority of customers also prefer to
test drive their chosen new vehicle, to ensure that it will meet
their needs, before committing to a purchase. The Group continues
to invest in on-line sales capability since this channel is likely
to grow over time and provides the Group with significant learnings
on evolving customer digital buying behaviour.
Whilst on-line purchase transactions remain negligible in the
sector, the internet is of paramount importance in marketing and
communicating with customers in their research phase of purchasing
for both vehicles and aftersales products. It is therefore vital to
have a multi-channel approach, which offers choice to customers
between on-line and off-line channels and an omni-channel retail
experience so transition from on-line to off-line is seamless.
Today's customers utilise both on-line and off-line resources in
complex ways during the buying cycle. Lack of on-line visibility or
barriers to an effortless journey can lead to customers purchasing
elsewhere so impacting sales levels. It is of the utmost importance
that the Group further invests in its in-house digital development
capability, its digital platforms and enhances its websites. This
has been undertaken in the year significantly improving Group
capabilities. For example, the Group purchased Vans Direct in
January thus providing a dedicated channel in the increasingly
important on-line van market. The Group has also delivered further
enhancements to the functionality of the Group's existing websites
including extending on-line vehicle purchase functionality across
more websites and increasing funding options within this
offering.
The substantial global network of Manufacturers, and their
associated supply chains, are investing significantly in the
technological development of vehicles to meet future customer needs
and to comply with increasingly complex and stringent environmental
regulations. These Manufacturers rely upon their retail franchise
dealer network to deliver their products to end users and to
provide essential aftersales care. There is very little sign that
this will not continue long into the future primarily due to the
capital investment required to have a necessary physical presence
and the complexity of organising businesses across every geography
across the globe. The Manufacturers appear to have enough
challenges for investment and change without seeking revolutionary
new distribution models.
Clearly, this does not mean that there will not be change in the
composition and structure of the UK's franchise dealer networks.
On-line retailing will continue to develop over time and cost and
margin pressures will also result in a tendency for the number of
UK franchised dealer outlets to continue to decline as it has in
recent years. Manufacturers continue to seek simplification in
their networks, choosing to work with fewer retail partners who
best deliver on their objectives. The majority are now actively
working on or are contemplating facilitating further reductions in
sales outlets in the next few years to 'right size' their
distribution networks to ensure these networks make an appropriate
return through increasing sales per outlet. The positive
relationships the Group has established with Manufacturer partners
means it is well placed to take advantage of this ongoing
consolidation. The Group is also seeking to add additional
Manufacturer partners, not currently represented in the portfolio,
to facilitate additional growth opportunities. In addition, it is
likely that dealership locations may see increased levels of
multi-franchising, where two or more franchises are represented at
one dealership location, to provide sales and service functions in
a territory, but with a lower operating cost base. The Group
continues to evaluate such opportunities in order to maximise
profitability of each location. Increased flexibility of formats
and Manufacturer requirements are likely to aid this process.
The Group's network of physical dealerships across the UK
remains at the centre of its customer offering since most new and
used purchases are undertaken following a visit and test drive.
Dealership visits are actually increasing in each buying cycle at
present in the UK and as powertrain and model complexity in
vehicles increases, this is likely to continue. Moreover, the
physical network is vital for the delivery of service and repair
services to our customers. This local capacity remains an important
factor in many customers' vehicle buying decisions and is reflected
in the Group's strong service retention figures. 58% of the Group's
new vehicle customers and 43% of used vehicle customers return to
the Group to have their vehicle serviced after their first year of
ownership. The continued improvement of customer retention is a key
goal for the Group. Initiatives such as the sale of service plans
aid service retention, but the delivery of excellent customer
experience is the most important predictor of customer loyalty. It
is often stated that while the sales department sell the first car,
it is the service department which effectively sells the
second.
The Board remains confident in the longer-term growth prospects
for the Group. Freehold dealership locations are a valuable
financial asset and their geographic spread is important to
capitalise on a growth in on-line marketing and ultimately
transactions. 53% of Group dealership locations are freehold or
long leasehold. The average remaining life on the Group's leasehold
locations is 7.5 years, with approximately one third of property
leases having the benefit of tenant break clauses or lease end
dates within the next three years. These property arrangements
therefore provide the Group with flexibility to respond to the
changing retail environment in the years ahead. The reduction in
dealership retail outlets in the UK will increase market share for
those retailers who deliver excellent customer service and work in
partnership with their chosen Manufacturer partners. The Group
operates franchises where a close relationship and partnership with
Manufacturers is crucial. The Board believe Vertu is
well-positioned from a relationship point of view with
Manufacturers and that the Group's excellent financial strength
will allow the right further investments to be made.
Technological Change - powertrain shift
Over 40% of the Group's gross profit arises from its aftersales
operations, namely the provision of servicing and repairs and the
retailing and wholesaling of parts.
The increasing technological complexity of newer internal
combustion and electric vehicles has meant the barriers for new
entrants into the vehicle servicing arena have, if anything,
increased as the costs of specialist diagnostic equipment, tooling
and training rise. Customers are more likely to trust Manuacturer
franchise-holders to service a highly complex potentially electric,
connected vehicle with increasing levels of autonomous driving
functionality.
Electric vehicles require less mechanical service intervention
than those with an internal combustion engine, however, latest
research suggests that their complexity has the potential to
increase or at least maintain service and repair revenues from such
vehicles for the next decade and further into the future. Moreover,
global growth in sales of pure electric vehicles is expected to be
modest, with industry analysis providing forecasts of a 20%(3)
global market share of electric vehicle registrations by 2030. Pure
electric vehicle registrations in the UK in 2018 accounted for less
than 1% of the total market. This leaves a very high proportion of
registrations of vehicles with an internal combustion engine
component and these vehicles will dominate the vehicle parc well
into the 2030s and even beyond. The ICDP forecast the internal
combustion engine will be fitted to the majority of cars sold in
2030 and that UK service and repair market revenues will continue
to increase as a consequence. This provides a major growth
opportunity in aftersales for the Group, especially given that
developments in the connected vehicle area are likely to increase
service retention of vehicles into franchised networks.
The cost of investment in research and development required by
Manufacturers in order to develop new engine technology is leading
to some choosing to combine resources and share know-how, either
through formal ownership change or joint venture arrangements. The
continued high cash cost of such development activity may result in
Manufacturer consolidation or ownership change and clearly this may
have a potential knock on impact on future automotive retailing
networks.
(3) Source: New Market, New Entrants, New Challenges: Battery
Electric Vehicles: Deloitte.
Importance of Management, Colleagues and Culture
The Group has over 5,500 colleagues and its success is
predicated not only on having the right strategy but in the
day-to-day delivery of operational excellence to meet customers'
needs at over 100 UK locations. The calibre, skills and motivation
of management and colleagues is therefore vital to delivering the
objectives of the Group. This comes down to consistently delivering
the basics within the business.
The Group has a very stable team of senior executives and
General Managers in each dealership. Training is seen as a vital
part of the Group with extensive leadership development paths in
place from sales executives and technicians all the way to
executive level. These paths are combined with a formal talent
strategy in each division to identify, develop and promote high
potential colleagues and to provide opportunities so that the Group
retains them. The HR Director and CEO undertake formal talent pool
reviews with each Division on a six-monthly basis. E-learning and
skills-based training is also provided for all colleagues to ensure
consistency of culture and processes.
To ensure basic processes are in place to a high standard, the
Group performs over 1,500 mystery shops each year on its sales
activities across the Group. These highlight great performances by
colleagues which are rewarded and also identify areas for
improvement and the need for further training and coaching. Scores
have improved year on year which points to enhanced execution.
These mystery shops are alongside similar programmes in sales and
aftersales conducted by the Manufacturers, where Group scores are
well above average.
A sector leading management information system has also been
developed to provide management (and colleagues) with real time
data, in all aspects of the business from financial information,
cost trends, colleague performance, customer experience data to
complaints analysis. This provides benchmarking to promote greater
consistency in performance across the business.
A key aspect of the Group, which the Board believe drives
performance and consistency, is to have one, consistent Group
culture. This is at the core of how we do business and includes the
following:
-- Values that are embedded in the business. 97% of colleagues
in the annual colleague survey knew the Values and 87% considered
that the Directors actively practice them.
-- An annual Vision statement is produced setting out key goals
to be achieved including operational KPI's which drive a balanced
scorecard league of all dealerships each month.
-- There is a focus on all senior management visiting
dealerships and talking and listening to management and colleagues
rather than sitting in meetings at "Head Office".
-- Recognition is critical to colleagues so good work is
rewarded and the Group has activities to promote this from its
Masters annual awards evening to hand written letters from the
Directors to colleagues who have excelled with customers.
To execute its strategies, the Group must have the right people
in management and colleague positions and have a culture that
promotes excellence and is intolerant of mediocrity. In this way,
the basics of the business are executed and customers
delighted.
Regulatory Change
Emissions
The development and sales growth of alternatively powered
vehicles is being driven by environmental legislative change, as
reductions in emissions are sought by governments rather than
reflecting change in consumer demand patterns per se. Targeted
European emissions reductions by 2021 represent a major challenge
to Manufacturers who have to invest to significantly reduce the
emissions levels on their vehicle sales or face penal EU fines.
New WLTP regulations, which changed the way in which vehicle
emissions are tested, came into force for cars on 1 September 2018.
These changes disrupted the supply of new vehicles into the UK in
the year, as all new model vehicles had to be tested under the new
regime or could not be sold. Many Manufacturers simply did not have
enough time to get their many models through the WLTP testing
routine in the finite number of facilities available to carry out
such tests. WLTP applies to commercial vehicles from 1 September
2019 and, while some disruption is likely, the Manufacturers
currently anticipate that they are better prepared as a whole than
last year.
The next stage of these emissions testing changes for cars is
the introduction of 'Real Driving Emissions' ("RDE") regulations.
Stage one of RDE ("RDE1") will apply to all new vehicles registered
on or after 1 September 2019 and as was the case with WLTP,
vehicles which have not met the testing requirements by that date
cannot be sold. An RDE test is a measure of how closely a vehicle
achieves the emissions results generated from the WLTP laboratory
test in a real-world driving scenario. The test is particularly
concerned with Nitrogen Oxide (NOx) emissions, service conformity
and evaporate testing. RDE1 requires vehicles to achieve results
less than 2.2 times over the lab test results, whilst stage two
("RDE2"), applicable from January 2021 onwards requires that all
new vehicles drive within 1.5 times the WLTP levels achieved in the
laboratory.
There is a risk that these new RDE regulations will again
disrupt new vehicle supply in 2019 because of the testing
requirements and potential non-conformity issues, however, this is
currently expected to have less of an impact on supply than WLTP.
It is expected that the number of model variants in vehicle ranges
may reduce, as will the number of available accessory options,
particularly those which have an impact on driving efficiency.
FCA
In recent months the FCA published its findings in connection
with a review of motor finance and a further thematic review of
general insurance product sales. The main areas of focus arising
from the motor finance review, were around commission arrangements
and the provision of timely and transparent information to
consumers.
The Group has not utilised the difference in charges ("DIC")
commission basis, highlighted negatively by the FCA, for over four
years and has strong controls over the setting of interest rates
for customers. Rate caps are in place and the Group's electronic
showroom system provides control and visibility to Group
management. The FCA has commenced a consultation process around
commission arrangements. Whilst it is not known at this stage what,
if any, changes will arise from the FCA's findings, the Group are
working closely with its retail finance partners, the National
Franchised Dealer Association ("NFDA") and Finance and Leasing
Association ("FLA") within the consultation process.
The Group has strong compliance processes in place which include
regular review of the finance explanations and information the
Group gives to its customers during the sales process. A uniform
electronic showroom system also ensures a consistency of approach
in this important compliance area. The Group has revisited the
explanations given, in the light of the FCA's findings, and is
confident that sales teams have the right tools to ensure
compliance with processes, and to provide customers with the right
information to select the financial products which best suit their
needs.
The thematic review on general insurance product sales includes
a number of products sold by the Group, such as tyre and alloy
insurance, and asset protection insurance. The review highlighted
areas of interest principally around value for money for customers
and the oversight insurance providers exert over the distribution
and pricing of their products. Consultation has now commenced,
which the Group will actively engage with.
UK withdrawal from the EU
At this stage, the UK's future relationship with the European
Union remains unclear. The Group's vehicle and parts supply
contracts are with the UK based sales companies of our Manufacturer
partners, limiting the need for significant Brexit contingency
planning. Manufacturer partners, however, have planned for a range
of possible scenarios. Many Manufacturers have chosen to accelerate
supply of vehicles and parts into the UK over the past few months,
to limit the potential impact of short-term logistics dislocation.
In the event the UK exits the Customs Union and Single Market,
there is the possibility that import tariffs of 10% will apply to
those vehicles which are imported into the UK, increasing the cost
of such vehicles to consumers. This is likely to cause a fall in
demand for new vehicles whilst leading to an underlying strength in
used vehicle values.
A number of the Group's Manufacturer partners have also
highlighted a change to the likely timing of new vehicle
consignment stock invoicing to retailers. The Group currently
receives invoices, on which it can reclaim input VAT, from a number
of its Manufacturer partners when a vehicle leaves the assembly
line following production regardless of where this may be located
within the EU. The VAT is then reclaimed by the Group whilst the
invoice is classified in trade creditors until the vehicle is sold
or a prolonged period expires utilising Manufacturer funding lines.
On leaving the EU and its VAT regime, invoicing to the Group may be
delayed until the vehicle arrives in the UK. A delay in the timing
of vehicle invoices to the date a vehicle arrives in the UK, will
reduce the current VAT cash flow advantage currently afforded to
the Group as a result of such invoicing arrangements.
Costs
The automotive retail sector has in recent years faced
considerable cost headwinds from a number of directions. Some of
these are now stabilising. Business rates continue to rise and have
put pressure on physical retailing in general. Depreciation and
rent levels have risen on the back of substantial investments in
property capacity and Manufacturer standards. This is now set to
stabilise as capital expenditure levels are reducing.
One of the major sources of cost increase has been in the area
of employment costs. Labour markets are generally tight as
employment levels have risen to historic high levels and this,
combined with the National Minimum Wage increases, has put upward
pressure on costs. 17% of the colleagues employed by the Group are
paid at the National Minimum Wage level and this continues to rise.
Pension costs have also risen due to auto-enrolment with the last
in a number of staged increases effective on 1 April 2019.
The Group has had to work very hard to seek to mitigate these
cost increases with a number of successful cost reduction
initiatives implemented in the financial year. This will continue
to be a key focus as cost pressures still remain a key factor in
determining the Group's profitability.
Summary
There are a number of potential threats to the Group's business
model set out above, however, there are also significant
opportunities. The Group's future success is dependent upon its
ability to continue to innovate in order to meet any changes in
customers' needs and in response to regulatory change. The Board
also needs to continue to ensure capital is allocated to those
activities, locations and Manufacturer partners' franchises that
are best placed to meet the competitive challenges arising. The
Group's success will ultimately rely on leveraging its proven
strengths, the quality of execution of business ideas, such as cost
saving initiatives, enhancing operational efficiency, marketing
campaign delivery and new business opportunities. The Group's
management and financial strength means it is well positioned to
take advantage of the opportunities arising.
We are proud of our Vision "to deliver an outstanding customer
motoring experience through honesty and trust" and all our
colleagues strive to achieve customer service excellence. The
Group's business success is based on this the delivery of this
premise.
Financial Overview
The Group delivered an adjusted profit before tax of GBP23.7m
which is ahead of market expectations. Profit before tax was
GBP25.3m including a receipt of GBP3.1m of VAT income, following
HMRC's clarification of the treatment of dealer deposit allowances,
which also benefits the wider automotive retail sector. This income
has been treated as a non-underlying item.
The Group's income statement for the year is summarised
below:
Like-for-like
Change
FY19 Mix FY18 Mix % %
GBP'000 % GBP'000 % change
Revenue
New 862,824 28.9 836,370 29.9 3.2 2.9
Fleet & Commercial 644,643 21.6 662,520 23.7 (2.7) (3.9)
Used 1,217,596 40.9 1,068,931 38.2 13.9 11.6
Aftersales 257,137 8.6 228,247 8.2 12.7 8.8
---------- ----------- ---------- ----------- --------- ------------------
Total Group
Revenue 2,982,200 100.0 2,796,068 100.0 6.7 5.1
Gross Like-for-like
profit Gross
FY19 Margin(4) FY18 Margin(4) change Profit
GBP'000 % GBP'000 % GBP'000 change
%
Gross profit
New 63,832 7.4 64,068 7.7 (236) (0.6)
Fleet & Commercial 20,217 3.1 21,429 3.2 (1,212) (8.4)
Used 102,043 8.4 98,680 9.2 3,363 2.5
Aftersales 136,013 43.9 123,531 44.0 12,482 6.4
---------- ----------- ---------- ----------- --------- --------------
Total Gross
profit 322,105 10.8 307,708 11.0 14,397 2.7
Operating expenses (294,714) 9.9 (277,257) 9.9
---------- ----------
Operating Profit 27,391 30,451
Net finance
charges (3,681) (1,898)
---------- ----------
Adjusted PBT 23,710 28,553
Non-underlying
items 1,622 1,894
---------- ----------
Profit before
tax 25,332 30,447
Taxation (4,796) (5,766)
---------- ----------
Profit after
tax 20,536 24,681
---------- ----------
Earnings per
share 5.45p 6.31p
Ordinary dividends
per share 1.60p 1.50p
(4) Margin in aftersales expressed on internal and external
revenue
Total revenues in the year grew by 6.7% (GBP186.1m) and
like-for-like revenues also grew by 5.1%. The Group saw growth in
used vehicle selling prices and volumes and in aftersales revenues,
increasing the proportion of total revenues and gross profits
generated by these higher margin operations. These activities
contributed 49.4% (2018: 46.4%) of total revenues and 73.9% (2018:
72.2%) of gross profit and reflects the fact that the business
success of the Group is far more resilient than being solely linked
to the new car market. The latter tends to be more volatile than
the Group's other revenue streams.
Core Group gross profit increased by GBP8.1m (2.7%), whilst
gross margins of 10.8% were achieved (2018: 11.0%). Margins reduced
due to continued increases in vehicle selling prices, whilst profit
per unit increased at a slower rate. Selling price rises were due
to currency pressures in new vehicle channels but also the
increasing premium mix of the Group which also tends to reduce
gross margin percentages.
The increase in total gross profit of GBP14.4m was more than
offset by operating expense increases of GBP17.4m. Although there
were upward cost pressures, operating expenses as a percentage of
revenue remained static at 9.9%. The Group acquired the Hughes
business on 30 June 2018 and this increased operating expenses
relative to gross profit since the trading period excluded the most
profitable month of the year being March.
The table below shows the volume of vehicles sold by the
Group:
2019 2018 Variance (%)
Like-for-like Acquired Total Like-for-like Total Like-for-like Total
Used retail vehicles 82,576 1,868 84,444 78,439 79,821 5.3 5.8
-------------- --------- -------- -------------- -------- -------------- ------
New retail cars 34,711 701 35,412 34,694 35,412 - -
Motability cars 9,521 275 9,796 10,477 10,770 (9.1) (9.0)
Fleet and Commercial
vehicles 31,584 264 31,848 34,636 34,852 (8.8) (8.6)
-------------- --------- -------- -------------- -------- -------------- ------
Total New Vehicles 75,816 1,240 77,056 79,807 81,034 (5.0) (4.9)
-------------- --------- -------- -------------- -------- -------------- ------
Grand Total 158,392 3,108 161,500 158,246 160,855 0.1 0.4
-------------- --------- -------- -------------- -------- -------------- ------
The volumes of vehicles retailed by the Group remained stable in
the period with like-for-like volumes up 0.1%. New retail volumes
were static on a like-for-like and total basis with declines
exhibited in the Motability and Fleet car channels reflecting in
part the strategies of certain manufacturers to reduce supply into
the UK in these lower margin channels. These declines were offset
by growth in used car volumes.
New Vehicles
UK private new retail vehicle registrations during the year fell
by 5.3% and fleet car registrations fell by 7.5%. The light
commercial vehicle market saw UK registrations down slightly by
0.8% in the year.
The Group's changes in new vehicle sales volumes compared to the
SMMT UK registration figures were as follows:
Increase/(decrease) year-on-year
Total Like-for-Like SMMT
% % Registrations
%
Volumes:
New retail vehicles 0.0 0.0 (5.3)
Motability vehicles (9.0) (9.1) (3.1)
Fleet new cars (17.3) (17.5) (7.5)
Commercial new vehicles 1.8 1.6 (0.8)
The Group saw new retail vehicle volumes level compared to a UK
fall in registrations of 5.3%. This performance represented
significant outperformance and the gaining of market share in the
new retail channel.
The UK Motability new car market declined by 3.1% during the
year, due to volume Manufacturers, in which the Group is heavily
represented, reducing supply into this low margin channel on the
back of currency pressures and supply constraints in general. The
Group saw like-for-like Motability vehicle sales decline by 9.1%.
Motability continues to be a major strength of the Group and a key
driver of servicing demand since Motability-supplied vehicles have
a three-year servicing plan that retains the vehicle to the
supplying retailer for servicing.
New vehicle average selling prices continue to rise, driven by
both Manufacturer price increases and a growth in the premium mix
of the Group's sales. Selling prices averaged GBP17,286 in the year
(2018: GBP16,534) representing a rise of 4.6%. The Group retained
GBP1,398 of gross profit per new unit sold on a like-for-like basis
(2018: GBP1,381) growing this measure by 1.2% and consequently
gross margin percentages on new vehicle retail sales fell from 7.7%
in 2018 to 7.4% in the year.
The Group's like-for-like fleet car sales volumes reduced by
17.5%, reflecting the reduced fleet appetite of certain of the
Group's volume Manufacturers. The introduction of the WLTP
regulations in the year also had a significant impact on the supply
to corporate fleet customers particularly in the premium segment.
Poor supply levels and uncertainty over the likely impact of
revised emission figures under the new testing regime on company
vehicle taxation for end users both impacted volumes.
Commercial vehicle sales represent a major strength of the Group
and in the year, the Group delivered 16,115 commercial vehicles,
representing 4.5% of the UK market. Volumes increased 1.6% on a
like- for-like basis, ahead of the market which declined slightly
but remained at historic high levels.
Overall in the fleet and commercial channel, gross profit per
unit continue to strengthen from GBP582 to GBP612 per unit with
margin percentages stable. This reflected the decline in lower
margin car fleet activity. The Group has further increased its
market share of the UK commercial vehicle market with its
acquisition of Vans Direct in January 2019, which sells 3,500 vans
annually.
Used Vehicles
During the year ended 31 December 2018, the used car market in
the UK recorded marginally declining sales of 2.1%(5) . Lower
supply, as a result of declining pre-registration volumes and a
contracting daily rental market in the volume sector, kept
wholesale used car market prices robust. Whilst the premium segment
continued to witness high levels of nearly new cars through high
pre-registration and demonstrator activity, residual values were
more stable than the previous year.
During the year the Group increased total used vehicle revenues
by 13.9% (like-for-like 11.6%). This was driven by a 5.8% increase
in total used volume (like-for-like 5.3%) as well as an increase in
like-for-like average used car selling prices in the year of 6.0%
from GBP13,396 to GBP14,203. The Group took an increasing share of
the used car market since the market overall witnessed slight
declines in activity. The Group saw a continued enhanced
performance from its Premium businesses with significant volume
growth in used cars. For example, in the Group's Mercedes-Benz and
Volkswagen businesses, like-for-like used car volumes rose 40.4%
and 34.4% respectively. The overall used car performance has
benefitted from the Group's increasing use of technology in stock
management and vehicle pricing together with cost-effective digital
and TV marketing.
Like-for-like gross profit generated from the sale of used
vehicles increased by GBP2.5m in the period (2.5%), and on a per
unit basis this equated to GBP1,213 (2018: GBP1,247). Margin
percentages fell from 9.3% to 8.5% year-on-year due to a
combination of being more price competitive and a growing mix of
premium franchise volumes, which have an inherently lower gross
margin percentage. The Group successfully grew like-for-like gross
profit through a strategy of being price competitive to grow
volumes in an uncertain environment with consumer confidence under
pressure. Decisions around gross profit per unit are influenced by
ensuring prices are competitive in the market and that total gross
profit is optimised through a balance of margin and volume.
Management flex this balance over time taking into account an
assessment of market dynamics.
(5) Source: SMMT.
Aftersales
The Group's aftersales operations, which comprise servicing,
supply of parts, accident repair, 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
only 8.6% of Group revenues, it accounts for 42.2% of gross profit.
The Group has substantial opportunities to grow the volume of these
higher margin activities due to the growth in the UK vehicle parc
since 2010, with almost 39m(5) cars and vans now on the road in the
UK. Self-help strategies to increase customer retention, such as
through the sale of service plans and the delivery of excellent
customer experiences, aid aftersales performance. The increasing
technological complexity of vehicles and innovation in engine and
vehicle management systems, has contributed to an increase in the
mix of warranty related work undertaken in the Group's service
departments and reflects another strength of the franchise retailer
business model.
Rising demand for aftersales has led to a trend for inflation in
technician salaries over the past two years. Technician resource
constraints within the Group have eased considerably as 2018
progressed with increased stability in the technician cohort
returning. This in part reflects the enhanced packages offered but
also implementation of improved recruitment and induction
processes.
As part of the Group's ongoing programme of capital investment
in its dealership infrastructure, each refurbishment or
redevelopment project undertaken has sought to improve and maximise
the productive capacity of the dealership's aftersales departments.
Service departments have been extended and restructured to increase
the number of ramps available and to enhance efficiency. The Group
is now benefitting from this additional aftersales capacity and
this is helping to drive aftersales profitability growth.
Manufacturers continue to pursue strategies to increase the
efficiency of their parts distribution networks and to seek to
reduce the supply push of parts into the retailer networks. Ford
are in the process of changing their parts distribution model
nationwide. The change transfers all stock and other working
capital risk to Ford and away from the retailer. Ford cover the
operating costs of running the parts distribution hub and pays
tiered handling charges through an agency agreement to the retailer
for operating the hub successfully. As a consequence of these
changes, Group parts revenue in FY20 is expected to decline by
GBP24.0m and related profitability is expected to decline by
GBP0.8m. Return on investment will be enhanced due to the reduction
in capital employed. Cash inflows of GBP3.0m were seen in FY19 and
a GBP0.9m further cash inflow is expected in FY20 as a consequence
of the reductions in working capital secured. Ford parts activity
transitioning to the new model will be excluded from the analysis
of like-for-like performance in the coming year.
(5) Source: SMMT.
The table below sets out the Group's like-for-like aftersales
revenues and margins, including both internal and external
revenue:
2019 2018 Growth
GBP'm GBP'm %
Service revenue 118.5 110.2 7.6
Parts and other revenue 178.1 167.0 6.6
Like-for-like aftersales revenue 296.6 277.2 7.0
Service gross margin 75.4% 75.8%
Parts and other gross margin 22.9% 23.2%
Like-for-like aftersales gross
margin 43.9% 44.1%
Like-for-like aftersales gross profits grew by a significant
GBP7.8m (6.4%) in the year. Service revenues rose 7.6% on a
like-for-like basis, representing the ninth successive year of
growth in this key high margin area and representing a major
strategic success achieved through strong execution. The Group has
over 100,000 customers paying monthly for a three-year or five-year
service plan on top of those customers with a Manufacturer service
plan and these provide the bedrock for great retail retention
levels. Success has also arisen from better execution of the
vehicle health check process when vehicles are in for service or
repair with resulting required work identified and sold. This has
led to a continued increase in average invoice values in service so
aiding revenue and profit growth.
Like-for-like margins were 43.9% (2018: 44.1%) due to the impact
of higher salary levels for technicians and lower efficiency.
Inefficient diagnostic and warranty work increased at a faster rate
than more efficient, routine servicing revenues. Parts revenues
rose 5.5% on a like-for-like basis with margins at 21.2% (2018:
21.4%), impacted by the higher mix of warranty work carried out in
service which exhibits lower parts margins.
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 the
Group's unique national footprint, on-line platforms, 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 driven by the trends outlined in earlier sections.
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.
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 year, the Board has continued to assess several
further acquisition opportunities, rigorously applying the
consistent valuation criteria outlined above. 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. 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. Whilst further opportunities continue to be
assessed, the Group will remain selective and disciplined in its
approach, cognisant that the Board is trusted to spend
shareholders' capital sensibly with the goal of creating and
sustaining long term value.
Six-monthly the Board assesses the Group's 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. Property flexibility will have increasing importance as
network restructuring occurs and retail formats and requirements
change for the reasons set out in an earlier section. The Board
believes that there will be a trend away from smaller franchise
points and greater concentration in larger, urban representation
points. This will yield operational gearing benefits of increased
sales per outlet. Lease length and structures will take on a
greater importance as a result of these changes. Modelling has been
undertaken to assess how network changes may impact the Group's
dealerships going forward and the impact this may have from a
property perspective around the freehold property portfolio and
lease commitments. Clearly this is an important area to manage.
Acquisitions and disposals must also reflect these trends and the
Board are mindful of these potential changes when considering the
current portfolio and how it will evolve. In addition, 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 year.
Portfolio Changes
Reflective of the capital allocation principles outlined above,
a good example of the decision making process relates to the
closure in April 2019 of the Group's Retford Honda dealership in
Nottinghamshire. Three of the other Honda dealerships operated by
the Group are within 25 miles of the Retford dealership and this
featured in the Board's assessment regarding the closure of this
profitable site. Modelling assumed that 40% of customers will
travel to these neighbouring dealerships for servicing in future
and the Group would retain significant amounts of the Honda new car
business whilst reducing fixed operating costs. The process of
securing the disposal of the now surplus freehold property is
underway.
On 30 June 2018 the Group acquired Hughes Group Holdings Limited
for total consideration of GBP24.0m, of which GBP1.5m was deferred
for 12 months. The assets acquired include goodwill and other
intangibles of GBP10.9m and freehold property of GBP6.3m. This
acquisition added the Mercedes-Benz dealerships in Beaconsfield and
Aylesbury to the Group's existing adjacent market area comprising
Reading, Ascot and Slough, as well as introducing the Mercedes-Benz
Commercial Van franchise to the Group's portfolio for the first
time and a further Skoda outlet to the Group. This is a well-run
business, and the Group has retained the operational management
team. Integration into the Group has progressed well and is
continuing.
On 31 March 2019 the Group sold its Peugeot business in High
Wycombe, which had been acquired in June 2018 as part of the above
Hughes acquisition. This was a sub-scale operation which was
unlikely to make an appropriate return to the Group. Cash generated
on the sale was GBP0.8m including the freehold property with
further working capital savings anticipated. In addition,
subsequent to the year end, the Group disposed of a further surplus
freehold property arising from a previous dealership closure
generating cash of GBP0.6m.
On 7 January 2019 the Group acquired the entire share capital of
Vans Direct Ltd, which is a well-established on-line retailer of
new vans (www.vansdirect.co.uk) based in Newport, South Wales. This
acquisition of a successful on-line, van retailing business
complements the Group's existing on-line capability. Total
consideration of GBP9.6m includes GBP2.5m in respect of an earn-out
arrangement that will be paid, subject to delivering two years
on-target EBITDA performance. Net assets on acquisition were GBP1m
(including GBP0.6m cash) with goodwill and other intangibles
arising on the transaction of GBP8.6m. The business is now being
integrated into the wider Group with significant van supply
opportunities identified alongside opportunities for business,
process and efficiency improvements.
Subsequent to these changes, the Group now operates 120
franchised sales outlets, and 3 non-franchised sales outlets, from
104 locations.
CHIEF FINANCIAL OFFICER'S REVIEW
Non-underlying Items
The Group delivered an Adjusted profit before tax of GBP23.7m.
In addition, the following items have been treated as
non-underlying in arriving at Adjusted profit before tax:
Year ended Year ended
28 February 28 February
2019 2018
GBP'm GBP'm
Profit on sale of property - 4.1
Loss on disposal of business - (0.6)
VAT receipt - deposit contributions 3.1 -
Share based payments charge (0.9) (1.0)
Amortisation (0.5) (0.6)
------ ---------------
Total non-underlying items 1.7 1.9
------ ---------------
The VAT receipt followed HMRC issuing a clarification over the
treatment of deposit allowances to the industry. This clarification
allows a dealer provided deposit allowance to be treated as a
deduction from the vehicle selling price, thus reducing the output
VAT on the sale. The Group had previously treated such allowances
as a cost of sale. The GBP3.1m receipt relates to the recovery of
overpaid VAT in previous years in respect of these deposit
allowances and has been treated as non-underlying in nature.
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. The Group's cost
control framework is built around a highly detailed business
planning approach which is undertaken annually for all dealerships
and cost centres. Once the business plans are established, costs
are benchmarked on a monthly basis. During the year, enhanced
systems have been developed to improve this benchmarking and these
have now been rolled out to allow graphical presentation of cost
trends and detailed analysis to be quickly undertaken to improve
cost control.
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 four years with a remit to identify and execute productivity
gains and these have borne fruit. Several significant projects are
in place to increase operational efficiencies and to reduce costs
in the medium term.
Total operating expenses in the year totalled GBP294.7m (2018:
GBP277.3m), with like-for-like operating expenses increasing
GBP11.3m (4%). As a percentage of revenues, operating expenses
remained at 9.9% (2018: 9.9%). This demonstrates the significant
focus which the Group has continued to place upon cost control. The
action taken to sell or close underperforming dealerships removes
unproductive cost bases from the business, and the continued search
for productivity improvements has partially mitigated the
significant impact of increases in costs in the year.
The increase in like-for-like operating expenses includes:-
-- higher (non-cash) depreciation of GBP0.7m as a consequence of
increased capital investment levels over recent years
-- GBP4.2m in respect of variable remuneration related to the
increase in volumes and gross profit generated by the Group
-- the recruitment of additional parts and service advisor apprentices, GBP0.3m
-- the recruitment of additional service colleagues to serve the
increasing number of service customers has increased costs by
GBP2.8m
-- higher vehicle cleaning costs of GBP1.0m reflecting increased
resources required as service demand grew and increased pay rates
following increases in the rate of National Minimum Wage
Interest charges
Net finance costs in the period totalled GBP3.7m (2018:
GBP1.9m). Acquisitions in the year led to an increase in the
utilisation of the Group's bank borrowings and as a consequence
bank interest payable rose by GBP0.3m. Higher stocking interest
payable on new vehicle consignment stock arose reflecting an
increase in interest rates charged by Manufacturers, reduced free
stocking periods offered by Manufacturers as well as significantly
increased inventory levels as Manufacturers increased supply of new
vehicles into the UK in advance of the UK leaving the EU (which was
anticipated at the end of March 2019).
Year ended Year ended
28 February 28 February
2019 2018
GBP'm GBP'm
Bank interest payable 1.0 0.7
Vehicle stocking interest
expense
* manufacturer consignment funding 2.4 0.9
* used vehicle stocking loans 0.5 0.4
Pension fund: net interest
income (0.2) (0.1)
3.7 1.9
------------- -------------
The Group makes limited use of used vehicle stocking facilities,
which it classifies as debt. As at 28 February 2019 drawings on
these facilities were GBP23.2m, representing just 21.9% of used
vehicle stock value (2018: GBP12.8m, 14.5%). The utilisation of
such facilities by the Group is at substantially lower levels than
the industry peer group.
Managing Pension Costs
The Bristol Street defined benefit pension scheme is closed to
future membership and accrual. During the year the Group cash
contributions to the scheme ceased (2018: GBP0.4m) so enhancing
Free Cash Flow.
This defined benefit scheme showed a surplus as at 28 February
2019 of GBP6.4m, having accounted for the estimated impact of
Guaranteed Minimum Pension (GMP) equalisation within the Scheme,
which is consistent with the 2018 surplus of GBP6.6m. The triennial
valuation of the scheme at 5 April 2018 showed the scheme is fully
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 GBP4.8m in corporation tax,
GBP18.7m in Employers' National Insurance Contributions, GBP10.2m
in business rates and GBP0.8m in the apprenticeship levy. These
four taxes alone total GBP34.5m (2018: GBP32.1m).
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% (2018: 18.9%). 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.
Lease Accounting
The Group will adopt the requirements of IFRS16 "Leases" for the
first time in FY20. As a result, a balance sheet asset will be
recognised together with a corresponding obligation, relating to
the Group's use of properties and other assets leased under
multi-year agreements.
Rental payments made under these leases will be accounted for as
repayments of the balance sheet liability, which will include an
implied interest element, and the asset recognised will be
depreciated over the remaining lease term.
The balance sheet position for August 2019, the first reporting
date after adoption, will be adjusted for right-of-use assets in
the order of GBP69.5m, with corresponding lease liabilities of
GBP78.7m. FY20 net profit before tax will decrease by an estimated
GBP0.2m as the pre-IFRS 16 rental charge is replaced by higher
depreciation and interest. The depreciation will be charged on a
straight-line basis; whilst interest is charged on the outstanding
lease liabilities and is therefore higher in earlier years and
decreases over time. The anticipated impact on reported profit
performance and balance sheet over the next three years is shown
below:
Aug'19 FY20 FY21 FY22
Income statement: GBP'000 GBP'000 GBP'000 GBP'000
* EBITDA 14,681 11,752 10,364
* Depreciation (11,731) (8,944) (7,631)
--------- --------- --------- ---------
* Operating profit - 2,950 2,808 2,733
* Finance expenses - (3,190) (2,810) (2,474)
--------- --------- --------- ---------
* (Decrease) increase in net profit before tax - (240) (2) 259
--------- --------- --------- ---------
Balance Sheet
* Right of use assets 69,517 63,907 54,963 47,310
* Lease liabilities (current) (13,292) (11,752) (10,364) (10,052)
* Lease liabilities (non-current) (65,358) (61,334) (53,780) (46,181)
--------- --------- --------- ---------
* Decrease in net assets (9,133) (9,179) (9,181) (8,923)
--------- --------- --------- ---------
The impact of transition to IFRS16 will have no impact on the
Group's cash flows.
Capital Structure
The Group has a largely ungeared balance sheet with
shareholders' funds of GBP276.6m (2018: GBP264.4m), representing
net assets per share of 73.8p (2018: 68.9p) as at 28 February 2019.
The Group has tangible net assets of GBP168.4m (2018: GBP174.3m)
and the balance sheet is underpinned by a freehold and long
leasehold property portfolio, including assets held for resale, of
GBP209.1m (2018: GBP183.8m). The Group has a robust tangible net
assets per share value of 44.9p. 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 resilient in a cyclical sector.
The Group finances its operations by a mixture of shareholders'
equity, bank borrowings and trade credit from suppliers and
Manufacturer partners. On 28 February 2019, 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 2024, provides the Group with GBP62.0m of
committed borrowing capacity with the potential to add a further
GBP15.0 million which is currently uncommitted. GBP44.1 million of
this facility was drawn as at 28 February 2019. 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 Group uses interest
rate swaps over GBP10.0m of drawings fixing the underlying LIBOR
rate payable at 0.675%, maturing in July 2020 and in respect of
GBP7.0m of drawings, fixing the underlying LIBOR rate payable at
1.424% maturing in February 2023. In April 2019 the Group entered
into an additional interest rate swap, beginning on 31 July 2019,
and covering the period to 27 February 2023, over GBP5,000,000 of
the Group's borrowing, swapping LIBOR for a fixed rate of 1.214%.
The notional principal amount covered by the interest rate swap
increases to GBP15,000,000 on 31 July 2020 concurrent with the end
of the Group's existing GBP10,000,000 interest rate swap.
In addition to conventional bank borrowing and as is common
practice in the automotive retail sector, the Group also utilises
used car stocking loans. These loans with third party banks are
subject to interest at 1.5% above LIBOR and are secured on the
related vehicles. The utilisation of such facilities at 28 February
2019 represents less than 25% of the value of Group used vehicle
inventories and is substantially lower than that of industry peers.
Adjusted net cash, which excludes the balances drawn on these used
car stocking loans, is GBP22.9m (2018: GBP32.1m).
The Group operated with positive cash balances for much of the
year. Additional facilities are utilised to fund significant peak
working capital requirements following registration plate change
months and quarter ends. The Group has GBP73m of overdraft and
other money market facilities. On the overdraft, interest is 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
2019, the Group had cash balances of GBP66.5m (2018: GBP41.7m) and,
as a consequence, net debt of GBP0.3m (2018: net cash GBP19.3m).
Net debt includes balances drawn on used vehicle stock facilities
of GBP23.2m (cover of 5.8 times used vehicle stock) (2018:
GBP12.8m).
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 2019 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 GBP30m.
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 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.
During the year, the Group continued its Share Buyback
Programme. To date from 26 July 2017, 20.7m shares, representing
5.2% of the issued share capital, have been purchased for
cancellation for a total of GBP8.9m. The Board believes that this
is an appropriate use of capital and will continue this Buyback
programme as a relevant element of returns to shareholders,
alongside dividend payments. The Share Buyback Programme will
therefore be recommenced with GBP3m of further capital allocated to
this purpose. The Board will seek to renew approval to repurchase
10% of the issued share capital at the forthcoming Annual General
Meeting. The Group has previously stated its dividend policy to
seek cover of four times adjusted earnings per share. The Board has
amended this policy to three to four times for FY2019 and future
years.
During the year, the Group substantially completed a programme
of major capital investment to increase the capacity in existing
dealerships and to meet revised Manufacturer franchise standards,
such spend being in common with most sector participants. The
Group's allocation of capital to the existing dealership portfolio
will significantly decrease in the coming financial year (see
Capital Expenditure section below).
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 two freehold properties (including the freehold of High
Wycombe Peugeot noted above) subsequent to 28 February 2019,
generating cash proceeds of GBP1.3m. This was equivalent to the
book value of these property assets.
Impairment Testing
The carrying amounts of the Group's goodwill and other
indefinite life assets, property plant and equipment are required
to be tested annually for indications of impairment. For the
purposes of impairment testing, assets have been grouped together
into the smallest group of assets that generate cash flows from
continuing use, independent of cash flows from other groups of
assets.
A number of key assumptions have been used within the assessment
of value in use cash flows including prudent growth rate
assumptions both for initial periods of up to five years, followed
by a nil growth assumption into perpetuity. Derived cash flows have
been discounted at the Group's Weighted Average Cost of Capital of
8%.
The calculations support the carrying value of assets as at 28
February 2019 and as such no impairment adjustments have been made.
To give an indication of the sensitivity of the calculations to
changes in assumptions, a change in growth rates to minus 1% would
result in an impairment of GBP6.0m whilst an increase in the
discount rate applied to 9% would give rise to an impairment of
GBP5.3m.
Capital Expenditure
The cash impact of capital expenditure and disposals during the
year, along with the anticipated spend in future years, is set out
below:
Actual Estimate
----------------------- --------------
FY FY FY FY FY
2017 2018 2019 2020 2021
GBP'm GBP'm GBP'm GBP'm GBP'm
Purchase of property 5.3 4.3 9.0 1.2 1.0
New dealership build 10.4 4.3 6.7 3.1 -
Existing dealership capacity
increases 5.9 8.2 11.9 10.2 4.5
Manufacturer-led refurbishment
projects 2.4 3.0 1.0 0.1 4.5
IT and other ongoing capital
expenditure 4.8 4.9 4.2 4.2 5.0
Movement on capital creditor 0.7 (0.6) 0.9 - -
------ ------- ------ ------ ------
Cash outflow from capital
expenditure 29.5 24.1 33.7 18.8 15.0
Proceeds from sale and leaseback
and property sales (1.0) (14.3) (4.0) (1.3) -
------ ------- ------ ------ ------
Net cashflow from capital
investment 28.5 9.8 29.7 17.5 15.0
------ ------- ------ ------ ------
On 6 July 2018 the Group acquired the freehold of its Newcastle
Vauxhall dealership, which the Group had previously operated under
a lease, whose terms provided for significant future rental
increases over its remaining 14 year term. The consideration for
the purchase was GBP7.5m including costs and this transaction
provides the Group with improved future flexibility for this
property and removes the impact of further rent increases. On 6
April 2019, and subsequent to the balance sheet date, the Group
purchased land and buildings adjacent to its existing Ford
dealership in Shirley, Birmingham for GBP1m. This will improve the
future operational capacity at this high performing Ford dealership
through allowing a significant expansion in its used car
capability.
In the year, major projects were undertaken to increase and
improve existing dealership capacity. These include the ongoing
redevelopment of Reading and Slough Mercedes-Benz dealerships,
together with now completed projects at Chesterfield and Guiseley
Land Rover. These developments deliver operations with greater
capacity for sales and service and will underpin the Group's future
profitability and cash generation. The Group capital expenditure
budget for FY2020 also includes GBP0.8m of investment in electric
vehicle charging infrastructure in the dealership network to meet
the Manufacturers' latest requirements in preparation for the
expansion of electric vehicle sales from 2020 onwards.
The Board is confident that the significant reduction in future
capital spend anticipated in FY2020 will deliver enhanced Free Cash
Flow for the business. A very significant proportion of the
dealership estate has now been redeveloped or updated to the latest
Manufacturer standards in recent years.
Managing Working Capital
The Group has generated cash from operating activities of
GBP50.9m from an operating profit of GBP29.0m representing
excellent cash conversion of profits. The Group saw cash generated
from a reduction in working capital of GBP18.9m.
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. As part of their planning for the UK's exit from the
European Union, a number of Manufacturers have increased the level
of new vehicle consignment stock since 1 January 2019, increasing
the level of inventories invoiced to the Group on which input VAT
has been, or will be, reclaimed (prior to the vehicle liabilities
being settled).
New vehicle inventory grew by GBP39.1m as a consequence of these
trends, with a corresponding GBP39.8m increase in trade creditors
in the year. The Group reduced other working capital elements such
as parts inventory by GBP4.2m, predominantly due to the change in
the Ford parts distribution model. Trade receivables declined by
GBP11.7m due to the reduction in fleet vehicle sales volumes and
post-acquisition reductions in working capital in the Hughes
businesses purchased on 30 June 2018. Used vehicle inventory
declined by GBP2.3m as the Group reduced inventory levels in
advance of the March plate change more aggressively than in the
prior year.
Dividends
Cash returns to shareholders are an important part of the
Company's capital allocation decision making process and are a
priority for the Board. During the eight-year period since the
Group commenced payment of dividends to its owners in 2011, over
GBP28.7m has been returned to the owners of the business through
dividends, with the dividend per share increasing by 320% over the
same period. The dividend has been funded from cash generated from
operations, without any negative impact on capital expenditure
programmes or funding of suitable acquisitions.
The Board has proposed an increase in the final dividend for
2019, payable on 29 July 2019 subject to approval at the AGM, to
1.05 pence per share (2018: 0.95p), which, when taken together with
the interim dividend paid in January 2019 of 0.55 pence per share
(2018: 0.55p), provides a total dividend for the year of 1.60 pence
per share (2018: 1.50p). This represents an increase of 6.7% and a
dividend cover of 3.2 times (2018: 3.9 times) based upon adjusted
earnings per share. The ex-dividend date will be 27 June 2019 and
the associated record date 28 June 2019.
The proposed full year dividend of 1.60 pence represents an
annualised cash dividend, based on the number of shares in issue at
28 February 2019, of GBP6.0m (2018: GBP5.7m). The implementation of
the Share Buyback Programme has, of course, reduced the cash impact
of dividend increases. The distributable reserves in the parent
company balance sheet as at 28 February 2019 were GBP82.7m (2018:
GBP72.2m). 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.
Outlook and Priorities for the Year Ahead
In March and April 2019 (the "Period"), the Group has traded in
line with management's expectations and trading profit is expected
to be in line with the prior year period.
The Group delivered another very strong aftersales performance
in the Period with like-for-like service revenues up 9.3% and high,
stable margins generated. This reflects excellent execution of the
Group in retaining customers and the impact of increased physical
capacity and enhanced technical resource levels in the
business.
The SMMT has reported a decline in UK private new retail vehicle
registrations in the Period of 4.7%. The Group's like-for-like new
retail volumes declined 13.1% reflecting above market declines in a
number of the Group's volume Manufacturers. Margins remained
stable, whilst like-for-like gross profit reduced on lower
volumes.
March saw a record market for new commercial vehicle sales in
the UK reflecting the underlying strength of the UK economy. UK
commercial vehicle registrations were up 9.0% in the Period with
the Group delivering volume growth of 9.6%. Fleet car volumes in
the Group resumed growth being up 9.4% on a like-for-like basis,
gaining share as UK fleet car registrations rose 1.0%. Margins
improved and like-for-like gross profit generation moved forward
year on year.
Like-for-like used vehicle volumes were flat in the Period with
margins stabilising and showing an improvement on the preceding six
months.
Operating expenses increased in the Period, but at a much
reduced rate of growth compared to previous periods. This reflects
strong cost control and actions taken by management. Stocking
finance charges on new vehicles continued to rise in line with
trends highlighted earlier.
There are a number of challenges and uncertainties facing the UK
economy and the automotive retail sector at
present and these are outlined in the preceding report. The priorities for the year ahead are:
-- maintain excellent financial and capital allocation
discipline to ensure that the Group delivers sustainable
profitability, cash flow and returns for shareholders, including
recommencing the Share Buyback Programme from today
-- execute targeted growth of the dealership portfolio in
collaboration with Manufacturer partners, taking advantage of
network change opportunities as they arise
-- continue investment to improve the Group's on-line
capability, moving towards seamless, omni-channel sales
functionality
-- closely manage costs
-- increase customer experience levels and productivity through
continued investment in training, leadership programmes and
initiatives to increase colleague retention levels
By executing the fundamentals well and with its strong
management team and financial position, the Group is well placed.
The significant investment in the Group's dealership portfolio has
seen over GBP85.0m of capital expenditure over the last three years
and is now largely complete. The Board looks to the future from a
solid foundation and with cautious optimism.
CONSOLIDATED INCOME STATEMENT (AUDITED)
For the year ended 28 February 2019
Underlying Non-underlying Total 2019 Underlying Non-underlying Total 2018
items 2019 items 2019 items 2018 items 2018
(Note 2) (Note 2)
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 2,982,200 - 2,982,200 2,796,068 - 2,796,068
Cost of sales (2,660,095) - (2,660,095) (2,488,360) - (2,488,360)
----------- -------------- ----------- ----------- -------------- -----------
Gross profit 322,105 - 322,105 307,708 - 307,708
Operating expenses (294,714) 1,622 (293,092) (277,257) 1,894 (275,363)
----------- -------------- ----------- ----------- -------------- -----------
Operating profit 27,391 1,622 29,013 30,451 1,894 32,345
Finance income 3 276 - 276 66 - 66
Finance costs 3 (3,957) - (3,957) (1,964) - (1,964)
----------- -------------- ----------- ----------- -------------- -----------
Profit before
tax 23,710 1,622 25,332 28,553 1,894 30,447
Taxation 4 (4,470) (326) (4,796) (5,885) 119 (5,766)
----------- -------------- ----------- ----------- -------------- -----------
Profit for
the year attributable
to equity holders 19,240 1,296 20,536 22,668 2,013 24,681
=========== ============== =========== =========== ============== ===========
Basic earnings
per share (p) 5 5.45 6.31
Diluted earnings
per share (p) 5 5.37 6.21
----------- -----------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (AUDITED)
For the year ended 28 February 2019
2019 2018
GBP'000 GBP'000
Profit for the year 20,536 24,681
Other comprehensive (expense) /
income
Items that will not be reclassified
to profit or loss:
Actuarial (losses) / gains on retirement
benefit obligations (269) 4,422
Deferred tax relating to actuarial
losses / (gains) on retirement benefit
obligations 46 (752)
Items that may be reclassified subsequently
to profit or loss:
Cash flow hedges 67 (93)
Deferred tax relating to cash flow
hedges (11) 18
Other comprehensive (expense) /
income for the year, net of tax (167) 3,595
-------- --------
Total comprehensive income for the
year
attributable to equity holders 20,369 28,276
======== ========
CONSOLIDATED BALANCE SHEET (AUDITED)
As at 28 February 2019
2019 2018
GBP'000 GBP'000
Non-current assets
Goodwill and other indefinite life
assets 112,182 94,381
Other intangible assets 2,599 1,316
Retirement benefit asset 6,430 6,551
Property, plant and equipment 224,818 198,004
Derivative financial instruments 44 -
Total non-current assets 346,073 300,252
---------- ----------
Current assets
Inventories 618,675 558,386
Trade and other receivables 62,940 66,272
Cash and cash equivalents 66,519 41,709
---------- ----------
748,134 666,367
---------- ----------
Property assets held for sale 1,324 2,449
----------
Total current assets 749,458 668,816
---------- ----------
Total assets 1,095,531 969,068
========== ==========
Current liabilities
Trade and other payables (717,204) (654,956)
Deferred consideration (1,500) -
Current tax liabilities (3,742) (3,304)
Contract liabilities (9,590) (8,448)
Borrowings (23,166) (12,811)
---------- ----------
Total current liabilities (755,202) (679,519)
---------- ----------
Non-current liabilities
Borrowings (43,600) (9,585)
Derivative financial instruments (69) (92)
Deferred consideration (2,600) (100)
Deferred income tax liabilities (7,594) (6,477)
Contract liabilities (9,823) (8,877)
---------- ----------
Total non-current liabilities (63,686) (25,131)
---------- ----------
Total liabilities (818,888) (704,650)
========== ==========
Net assets 276,643 264,418
========== ==========
Capital and reserves attributable
to equity holders of the Group
Ordinary share capital 37,661 38,552
Share premium 124,939 124,934
Other reserve 10,645 10,645
Hedging reserve (19) (75)
Treasury share reserve (602) (690)
Capital redemption reserve 2,066 1,175
Retained earnings 101,953 89,877
---------- ----------
Shareholders' equity 276,643 264,418
========== ==========
CONSOLIDATED CASH FLOW STATEMENT (AUDITED)
For the year ended 28 February 2019
2019 2018
Note GBP'000 GBP'000
Cash flows from operating activities
Operating profit 29,013 32,345
Profit on sale of property, plant
and equipment (520) (3,529)
Amortisation of other intangible
assets 543 614
Depreciation of property, plant
and equipment 10,722 9,714
Impairment charges - 513
Movement in working capital 18,861 (13,332)
Share based payments charge 904 954
---------- ----------
Cash generated from operations 59,523 27,279
Tax received 157 350
Tax paid (4,860) (6,468)
Finance income received 99 14
Finance costs paid (3,953) (2,321)
---------- ----------
Net cash generated from operating
activities 50,966 18,854
---------- ----------
Cash flows from investing activities
Acquisition of businesses, net
of cash, overdrafts and borrowings
acquired (31,514) (1,181)
Acquisition of freehold and long
leasehold land and buildings (9,008) (4,346)
Purchases of intangible assets (150) (411)
Purchases of other property, plant
and equipment (24,681) (19,802)
Proceeds from disposal of business
(net of cash and overdrafts) - 1,528
Proceeds from sale and leaseback
transaction - 14,150
Proceeds from disposal of property,
plant and equipment 3,964 165
---------- ----------
Net cash outflow from investing
activities (61,389) (9,897)
---------- ----------
Cash flows from financing activities
Proceeds from borrowings 7 44,455 4,140
Repayment of borrowings 7 - (166)
Sale of treasury shares 64 62
Repurchase of own shares (3,629) (5,451)
Dividends paid to equity holders 6 (5,657) (5,678)
---------- ----------
Net cash inflow / (outflow) from
financing
activities 35,233 (7,093)
---------- ----------
Net increase in cash and cash
equivalents 24,810 1,864
Cash and cash equivalents at beginning
of year 41,709 39,845
---------- ----------
Cash and cash equivalents at end
of year 66,519 41,709
========== ==========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (AUDITED)
For the year ended 28 February 2019
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
2018 38,552 124,934 10,645 (75) (690) 1,175 89,877 264,418
Profit for the
year - - - - - - 20,536 20,536
Actuarial losses
on retirement
benefit obligations - - - - - - (269) (269)
Tax on items
taken directly
to equity - - - (11) - - 46 35
Fair value gains - - - 67 - - - 67
-------- --------- --------- --------- ---------- ------------ ---------- -------------
Total comprehensive
income for the
year - - - 56 - - 20,313 20,369
-------- --------- --------- --------- ---------- ------------ ---------- -------------
Sale of treasury
shares - 5 - - 88 - (29) 64
Repurchase of
own shares - - - - - - (3,455) (3,455)
Cancellation
of repurchased
shares (891) - - - - 891 - -
Dividend paid - - - - - - (5,657) (5,657)
Share based payments
charge - - - - - - 904 904
-------- --------- --------- --------- ---------- ------------ ---------- -------------
As at 28 February
2019 37,661 124,939 10,645 (19) (602) 2,066 101,953 276,643
======== ========= ========= ========= ========== ============ ========== =============
The repurchase of own shares in the year was made pursuant to
the share buyback programme announced on 26 July 2017 and under the
authority renewed at the AGM on 25 July 2018.
Ordinary shares to the value of GBP3,455,000 had been
repurchased in the year ended 28 February 2019 (2018:
GBP5,441,000), of which GBPNil was unpaid at 28 February 2019
(2018: GBP174,000). 8,918,549 of repurchased shares were cancelled
in the year ended 28 February 2019 and accordingly, the nominal
value of these shares has been transferred to the capital
redemption reserve.
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 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
========= ========== ========== ========== =========== ============ =========== ==============
NOTES
For the year ended 28 February 2019
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
2018, with the exception of the adoption of IFRS 9 and IFRS 15.
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 2019 and 28 February 2018 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 2019 and 2018 financial statements
were unqualified. A copy of the statutory accounts for 2018 has
been delivered to the Registrar of Companies. Those for 2019 will
be delivered following the Company's annual general meeting, which
will be convened on 24 July 2019.
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 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
2018.
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 2019
Gross
Revenue Gross Margin Gross
Revenue Mix Margin Mix Margin
GBP'm % GBP'm % %
Aftersales * 257.1 8.6 136.0 42.2 43.9
Used cars 1,217.6 40.9 102.0 31.7 8.4
New car retail and Motability 862.8 28.9 63.9 19.8 7.4
New fleet and commercial 644.7 21.6 20.2 6.3 3.1
---------- ---------- --------- -------- ---------
2,982.2 100.0 322.1 100.0 10.8
========== ========== ========= ======== =========
Year ended 28 February 2018
Gross
Revenue Gross Margin Gross
Revenue Mix Margin** Mix Margin
GBP'm % GBP'm % %
Aftersales * 228.2 8.2 123.5 40.1 44.0
Used cars 1,068.9 38.2 98.7 32.1 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 7.0 3.2
---------- ---------- ----------- -------- ---------
2,796.1 100.0 307.7 100.0 11.0
---------- ---------- ----------- -------- ---------
*margin in aftersales expressed on internal and external
turnover. A significant part of the role of the service department
is to support the vehicle sales department and therefore this is
considered to be an important measure for the purpose of measuring
the departmental performance.
**Following a growth in the Group's Smart Repair operations, the
expense in respect of this department's productive colleague cost
has been reclassified from operating expenses to cost of sales, in
order to align the treatment with cost reporting throughout the
rest of the Group's aftersales operations. The effect of this
reclassification is a decrease in operating expenses and an
increase in cost of sales of GBP1,184,000 for the year ended 28
February 2018.
2. Non-underlying items
2019 2018
GBP'000 GBP'000
Share based payments charge (904) (1,031)
Amortisation (543) (614)
Profit on disposal of freehold
property - 4,149
Loss on disposal of Boston Volkswagen - (610)
VAT reclaim on dealer deposit 3,069 -
contributions
-------- --------
1,622 1,894
Tax on non-underlying items (326) 119
1,296 2,013
======== ========
Non-underlying items are presented separately in the Income
Statement to enhance comparability of trading performance between
periods.
During the Period the Group received VAT repayment of GBP3.1m
resulting from a retrospective claim following HMRC's clarification
of the VAT treatment of dealer deposit contributions.
3. Finance income and costs
2019 2018
GBP'000 GBP'000
Interest on short-term bank deposits 99 18
Net finance income relating to
defined benefit pension schemes 177 48
-------- --------
Finance income 276 66
======== ========
Bank loans and overdrafts (1,063) (673)
Vehicle stocking interest (2,894) (1,291)
Finance costs (3,957) (1,964)
======== ========
4. Taxation
2019 2018
GBP'000 GBP'000
Current tax
Current tax charge 5,439 5,861
Adjustment in respect of prior
years (483) (283)
-------- ----------
Total current tax 4,956 5,578
Deferred tax
Origination and reversal of temporary
differences (137) 512
Adjustment in respect of prior
years (12) (254)
Rate differences (11) (70)
-------- ----------
Total deferred tax (160) 188
Income tax expense 4,796 5,766
======== ==========
2019 2018
GBP'000 GBP'000
Profit before taxation from continuing
operations 25,332 30,447
Profit before taxation multiplied
by the rate of corporation tax
in the UK of 19% (2018: 19.1%) 4,813 5,815
Non-qualifying depreciation 527 499
Non-deductible expenses 213 174
Effect on deferred tax balances
due to rate change (11) (70)
Property adjustment (146) (63)
Permanent benefits (105) (52)
Adjustments in respect of prior
years (495) (537)
-------- --------
Total tax expense included in
the income statement 4,796 5,766
======== ========
The Group's effective rate of tax is 18.93% (2018: 18.94%).
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 underlying
earnings attributable to equity shareholders by the weighted
average number of ordinary shares in issue during the year.
2019 2018
GBP'000 GBP'000
Profit attributable to equity
shareholders 20,536 24,681
Non-underlying items (note 2) (1,296) (2,013)
Adjusted earnings attributable to
equity shareholders 19,240 22,668
======== ========
Weighted average number of shares
in issue ('000s) 377,024 391,317
Potentially dilutive shares ('000s) 5,512 5,948
-------- --------
Diluted weighted average number
of shares in issue ('000s) 382,536 397,265
======== ========
Basic earnings per share 5.45p 6.31p
======== ========
Diluted earnings per share 5.37p 6.21p
======== ========
Basic adjusted earnings per share 5.10p 5.79p
======== ========
Diluted adjusted earnings per
share 5.03p 5.71p
======== ========
6. Dividends per share
Dividends of GBP5,657,000 were paid in the year to 28 February
2019 (2018: GBP5,678,000), 1.50p per share (2018: 1.45p). A final
dividend in respect of the year ended 28 February 2019 of 1.05p per
share, is to be proposed at the annual general meeting on 24 July
2019. The ex-dividend date will be 27 June 2019 and the associated
record date 28 June 2019. This dividend will be paid, subject to
shareholder approval, on 29 July 2019 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 8 July 2019 (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 (debt) / cash
2019 2018
GBP'000 GBP'000
Net increase in cash and cash equivalents 24,810 1,864
Cash inflow from proceeds of borrowings (44,455) (4,140)
Cash outflow from repayment of borrowings - 166
--------- --------
Cash movement in net cash (19,645) (2,110)
Capitalisation of loan arrangement
fees 214 501
Amortisation of loan arrangement
fees (129) (86)
--------- --------
Non-cash movement in net cash 85 415
Movement in net cash (19,560) (1,695)
Opening net cash 19,313 21,008
--------- --------
Closing net (debt) / cash (247) 19,313
========= ========
8. Acquisitions
On 30 June 2018, the Group acquired the entire issued share
capital of Hughes Group Holdings Limited ("Hughes Group") which
operated Mercedes-Benz, Jeep, SKODA and Peugeot outlets in
Buckinghamshire. The consideration payable on completion amounted
to GBP22,452,000 and was settled by a GBP20,000,000 drawing on the
Group's bank loan facility and the Group's existing cash resources.
A further GBP1,500,000 deferred consideration is payable after one
year.
On 4 January 2019, the Group acquired the entire issued share
capital of Vans Direct Limited ("Vans Direct"), a well-established
on-line retailer of new vans. The estimated consideration payable
on completion amounted to GBP7,108,000 and was settled by a
GBP7,100,000 drawing on the Group's bank loan facility and the
Group's existing cash resources. A further amount of deferred
consideration may be payable in two years as a result of an
earn-out arrangement subject to Vans Direct achieving specific
performance criteria over a period of two financial years following
acquisition. The maximum payable under this arrangement, which has
been recognised as deferred consideration at 28 February 2019, is
GBP2,500,000.
9. Post balance sheet events
On 26 March 2019, the Group disposed of a dealership property,
held in property assets held for resale at 28 February 2019, in
Barnsley realising cash proceeds of GBP624,000 and a profit on
disposal of GBP50,000.
On 31 March 2019, the Group sold its Peugeot business in High
Wycombe, which had been acquired during the year ended 28 February
2019 as part of the Hughes acquisition. Included in the disposal
was the sale of the freehold dealership property, held in property
assets held for resale at 28 February 2019, realising cash proceeds
equal to net book value and fair value of GBP750,000.
In April 2019 the Group ceased its Honda operation in Retford,
Lincolnshire. A buyer for the now surplus freehold property in
Retford has been identified, for alternative use subject to
planning being approved.
In April 2019 the Group entered into an interest rate swap,
beginning on 31 July 2019, and covering the period to 27 February
2023, over GBP5,000,000 of the Group's borrowing, swapping LIBOR
for a fixed rate of 1.214%. The notional principal amount covered
by the interest rate swap increases to GBP15,000,000 on 31 July
2020 concurrent with the end of the Group's existing GBP10,000,000
interest rate swap. This increased the Group's level of hedged
borrowings to GBP22,000,000.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BCGDUBDGBGCR
(END) Dow Jones Newswires
May 08, 2019 02:00 ET (06:00 GMT)
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