Auto Trader Group plc
Annual Report and Financial Statements 2018
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Auto Trader Group plc is the UK’s
largest digital automotive marketplace.
Auto Trader sits at the heart of the UK’s
vehicle buying and selling processes,
bringing together the largest and most
engaged consumer audience with the
largest pool of vehicle sellers.
Follow us:
twitter.com/ATInsight
Financial statements
84
Independent auditors’ report to the
members of Auto Trader Group plc only
88 Consolidated income statement
Consolidated statement of
89
comprehensive income
90 Consolidated balance sheet
Consolidated statement of
91
changes in equity
Notes to the consolidated financial statements
92 Consolidated statement of cash flows
93
124 Company balance sheet
125 Company statement of changes in equity
126 Notes to the Company financial statements
131 Shareholder information
Strategic report
02 Business at a glance
04 Unique journeys
10 Chairman’s statement
11 Chief Executive Officer’s statement
12 Value generation story
14
18
20
22
26 Operating and financial review
32 Risk management
34 Principal risks and uncertainties
39 Corporate social responsibility
– Market overview
– Our business model
– Our strategy
– Key performance indicators
Governance
50 Governance overview
52 Board of Directors
54 Corporate governance statement
60 Report of the Nomination Committee
62 Report of the Audit Committee
66 Directors’ remuneration report
81 Directors’ report
To view and download this report online:
plc.autotrader.co.uk
We all have
journeys
in life...
With over 10 million transactions each
year, the journey of buying or selling a
car is often complex and inefficient.
Auto Trader, the UK’s largest digital
automotive marketplace, addresses this by
driving efficiencies through its innovative
products and solutions that enable
smoother buying and selling experiences.
Making these journeys easier will lead
to people changing their cars more
often – a win for consumers, retailers
and manufacturers alike.
Start the journey on page 4
01
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Business at a glance
Another year
of growth
Change from 52-week to
annual accounting period
As the 2017 financial year was four days
longer than the 2018 financial year,
year-on-year percentages for revenue,
costs, profit, EPS and dividend per share
have been adjusted throughout this report
to reflect like-for-like growth.
Operating and financial review
page 28
Financial highlights 1
Revenue
+7%
to £330.1m
Average Revenue
Per Retailer (‘ARPR’) 2
+£149
to £1,695 pcm
Operating profit
Basic EPS
+10%
to £220.6m
65%
67%
Margin
Margin
+15%
to 17.76p per share
2017
£311.4m
2018
£330.1m
2017
£1,546
2018
£1,695
2017
£203.1m
2018
£220.6m
2017
15.64p
2018
17.76p
Cash generated from operations 3
Net external debt 4,5
Total dividend per share
Cash returns to shareholders 6
+£13.2m
to £226.1m
-£16.3m
to £338.7m
5.9p
+£19.7m
interim 1.9p plus final 4.0p
to £148.4m
1.65x
1.46x
Leverage
Leverage
2017
£212.9m
2018
£226.1m
2017
£355.0m
2018
£338.7m
2017
5.2p
2018
5.9p
2017
£128.7m
2018
£148.4m
Operational highlights
Average monthly cross
platform minutes 7,8
+6%
to 618m
(2017: 582m)
Advert views per month 2,8
Live car stock 2,9
-0%
to 246m
(2017: 247m)
+1%
to 453,000
(2017: 450,000)
Number of retailer forecourts
advertising on Auto Trader 2
-1%
to 13,213
(2017: 13,296)
1
‘2018’ references the year ended 31 March 2018 and
the comparative ‘2017’ references the 369-day period
ended 31 March 2017 unless otherwise stated.
2 Average number during the year.
3 Cash generated from operations is defined as net
cash generated from operating activities, before
corporation tax paid.
4 Net external debt is gross external indebtedness,
7 Cross platform minutes as measured by comScore
less cash and cash equivalents.
MMX Multi-Platform.
5 Leverage is Net external debt as a multiple of Adjusted
underlying EBITDA (earnings before interest, taxation,
depreciation and amortisation, share-based payments
and associated NI).
8 Company measure of the number of inspections
of individual vehicle advertisements on the UK
marketplace for both physical and virtual stock.
9 Physical cars advertised on autotrader.co.uk.
6 Cash returns to shareholders comprise dividends
paid and the cost of share buybacks (excluding
transaction costs).
02
Auto Trader Group plc Annual Report and Financial Statements 2018
We have maintained our market leading position,
with consistent full page advert views and
increasing minutes spent on our marketplace.
Profit growth has largely been converted into cash,
which has been returned to shareholders in line
with our capital returns policy.
Chairman’s statement
Chief Executive Officer’s statement
Our business model
Operating and financial review
page 10
page 11
page 18
page 26
Our revenue streams
6%
9%
85%
Trade
Revenue from retailers, home
traders and logistics companies,
utilising Auto Trader’s products
and marketplaces.
Consumer services
Revenue from private sellers
who pay to place adverts on our
marketplace and from our partners
who provide services to consumers.
Manufacturer
and Agency
Revenue from manufacturers
and their advertising agencies
who advertise their brand or
services on the marketplace.
Revenue performance
Revenue performance
Revenue performance
+8%
to £281.2m
(2017: £262.1m)
-5%
to £29.8m
(2017: £31.8m)
+10%
to £19.1m
(2017: £17.5m)
03
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Unique journeys: consumers
From desire,
to research,
to decision.
Auto Trader makes the
consumer journey easier
The role we play for consumers:
New and used car
search listings
Consumers can search from
453,000 1 used cars and 6,000
virtual cars on the marketplace
each month.
Searching by
monthly budget
With 52% of car buyers wanting
to search for their next car by
monthly price 2, we launched a
new finance search tool which
allows them to do just that. Over
8,000 retailers feature monthly
price payments on their adverts.
Dealer reviews
and ratings
Over 8,000 retailers feature in
circa 470,000 reviews, helping
consumers make an informed
and trusted decision about
who they want to buy from.
Vehicle Check
We offer a free standard
five point vehicle check
so consumers can quickly
assess the provenance
of a vehicle.
Valuations
We provide free vehicle
valuations, offering both a
private sale price as well as
a part-exchange price.
Price Indicator
Powered by our valuations,
these good, great or low price
indicators give consumers full
price transparency so they can
understand the price they
are paying compared to the
market value.
Private sales
Consumers can list their
vehicles for sale directly
to other consumers.
Motoring services
We offer consumers a variety
of services to help them make an
informed decision about the car
they are looking to buy. These
include finance and insurance.
Motoring advice
We feature over 48,000 expert
and owner reviews, as well as
regularly updated editorial
and advice articles to help
consumers in their car buying
journey. We recently launched
a new series of expert reviews
called ‘The REV Test’ which are
presented by expert female
automotive journalists and are
aimed at helping both women
and men choose their next car
based on a monthly budget or
lifestyle change.
1 Average physical cars advertised on
autotrader.co.uk.
2 Auto Trader Market Report, March 2018.
04
Auto Trader Group plc Annual Report and Financial Statements 2018 Greater choice
453,000 1
used cars and 6,000
virtual new make/model
derivatives listed each month
Over
8,000
retailers feature monthly price
payments on their adverts
05
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Unique journeys: retailers
Average retailer
forecourts
13,213
Average Revenue
Per Retailer (pcm)
£1,695
06
Auto Trader Group plc Annual Report and Financial Statements 2018 From
marketing,
to finance,
to deal.
Auto Trader makes the
retailer journey easier
The role we play for retailers:
Classified advertising
Our core classified platform
reaches the UK’s largest
automotive audience. Our
product packages enable
retailers to compete effectively
on the marketplace. Our ‘starter’
retailer package now includes
products such as 100 images,
Live Chat, Dealer Reviews and
the Part-Exchange Guide. We
offer progressively higher levels,
giving retailers the opportunity
to pay for greater prominence
and stand out in a search.
Finance solutions
After gaining FCA authorisation,
we can now enable retailers
to display their own finance
calculator as standard on their
full page adverts on Auto Trader.
This allows retailers to show
their finance offerings much
earlier on in the car buying
journey, therefore increasing the
opportunity for them to sell their
own finance over a consumer
sourcing finance from elsewhere.
Forecourt
management tools
Powered by both our own and
third-party data, we offer data
intelligence solutions (i-Control
and Retail Check) enabling
retailers to buy the right stock,
at the right price.
Valuations
An improvement in the
underlying data that powers
our valuations has allowed us
to launch specification-adjusted
valuations which power price
indicators consumers see
on the marketplace. Our
valuations also power our
part-exchange tool.
Creating a trusted
marketplace
We invest in technology and a
security team that is focused
on creating a safe and secure
marketplace. We remove
misleading adverts and also
operate two-factor verification
on our platforms to protect
our customers.
Retailer education
and insight
As well as providing every
retailer customer with monthly
performance dashboard
analytics to help them assess
their performance on
Auto Trader, we also offer free
best practice events. In the
last year over 4,000 retailers
have attended a free webinar,
masterclass or conference
where our insight team have
shared the latest consumer
insights and best practice advice.
07
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Unique journeys: manufacturers
From
production,
to advertising,
to sale.
Auto Trader makes the
manufacturer journey easier
The role we play for manufacturers:
New cars
We know that 75% of buyers
consider new cars, so we added
over 6,000 brand new car
make/model variants. These
new cars are unregistered and
do not physically exist, and are
called ‘virtual stock’.
Advertising solutions
Our platform enables
manufacturers to advertise
to the UK’s largest car buying
audience. We provide
manufacturers with a range
of manufacturer and agency
options, including a new format
InSearch, which allows brands
to serve new car adverts within
search results. And as 58% of
car buyers used video to inform
their recent purchase decision 3,
we responded with new video
format advertising.
New car reviews
and awards
Make/model pages for all new
cars improve the buying journey,
and the extra content enhances
Auto Trader’s position in the new
car market. Last year we launched
our first New Car Awards – where
we asked over 10,000 consumers
to vote on their favourite cars
based on true lifestyle categories
such as family car of the year
and best car for long distances.
These accolades were well
received by manufacturers,
with some using the award
in their marketing collateral.
Data-driven targeting
We have developed our own data
management platform (‘DMP’)
which allows us to use both first
and third-party data to create
highly targeted audience
segments for advertising. We are
utilising our DMP together with
our Creative Solutions offering to
give manufacturers a compelling
proposition to reach new
car buyers.
3 Google Gear Shift Research 2017.
08
Auto Trader Group plc Annual Report and Financial Statements 2018 A greater choice
of virtual stock
6,000
brand new cars covered
by our discovery search
The
automotive
market
Read more in the Market
overview on page 14
09
58%
of car buyers used video
to inform their purchases
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Chairman’s statement
We continue to make
progress against our
strategy of improving
car buying in the UK
2018 was a year of investment in
innovation, reflecting a long-term
perspective underpinned by our
financial strength.
Ed Williams
Chairman
Driving sustainable growth
Creating sustainable shareholder value over the long term,
underpinned by a diverse, transparent and open culture.
Board diversity
As at 31 March 2018
OLT diversity
As at 31 March 2018
2
4
7
7
Men
Women
Men
Women
Governance overview
page 50
10
Change from 52-week to
annual accounting period
As the 2017 financial year was four days
longer than the 2018 financial year,
year-on-year percentages for revenue,
costs, profit, EPS and dividend per share
have been adjusted throughout this report
to reflect like-for-like growth.
Operating and financial review
page 28
Overview
The challenges to the car industry
in the UK during this pre-Brexit
period are well reported, though
concentrated predominantly in
the new car sector. Nonetheless,
Auto Trader continued to innovate
and grow. Total revenue grew by 7%
to £330.1m, and earnings per share
(‘EPS’) grew by 15%, principally
as a result of rising profits but
enhanced by share buybacks.
We also continued to innovate,
enhancing the consumer
experience and delivering
more value to retailers and
manufacturers.
Dividend and capital strategy
We are recommending to
shareholders a final dividend
of 4.0 pence per share, bringing
the total dividend for the year
to 5.9 pence per share. This 15%
increase on the previous year is
underpinned by our EPS growth.
Our policy is to distribute
around a third of net income
as dividends. We use the
majority of surplus cash, after
dividends, to buy back shares
while also reducing debt. In
2018, we returned £148.4m to
shareholders through dividends
and share buybacks, bringing the
total since IPO to £282.1m.
Refinancing
On 6 June 2018 we signed into a
new five-year £400m revolving
credit facility, ahead of our existing
facility maturity of March 2020.
See the Operating and financial
review section for more details.
Culture, diversity and inclusion
We foster a culture of openness
and transparency. The Board
spends a significant proportion
of its time on supporting the
executives in maintaining and
improving our culture.
We are committed to having a
diverse workforce, including the
Board. Women now make up 50%
of our Operational Leadership
Team (‘OLT’) and a third of
our Board. The proportion of
women and minorities amongst
our workforce has increased in
recent years, at least in part due
to a number of well supported
internal initiatives. We recently
published our Gender Pay Gap,
which though improved, still
leaves us short of the goal of
eliminating the gap entirely.
The CSR report on page 43
contains more detail on the
work we are doing to continue
to foster diversity.
Board changes and governance
Sean Glithero stepped down
as Chief Financial Officer on
21 September 2017. During his
11 years with Auto Trader, Sean
made a huge contribution in a
wide range of areas and under
differing ownership structure.
We thank him for this
contribution and wish him well
in his new role. Nathan Coe,
Chief Operating Officer, took
on the additional responsibility
of Chief Financial Officer on
Sean’s departure.
As a result, the overall Board
size reduced from seven
to six. Whilst very small by
the standards of FTSE 250
companies, we remain
compliant with all provisions
of the Corporate Governance
Code. The small Board size
helps maintain a level of trust
and openness in line with our
culture.
Annual General Meeting
Our Annual General Meeting
(‘AGM’) will be held at 10.00am
on Thursday 20 September 2018
at 4th Floor, 1 Tony Wilson Place,
Manchester, M15 4FN and we
expect that all Directors will
be in attendance.
Ed Williams
Chairman
7 June 2018
Auto Trader Group plc Annual Report and Financial Statements 2018
Chief Executive Officer’s statement
Our business model
Key performance indicators
page 18
page 22
We maintained our market leading
position and our audience has
continued to grow as consumers
spend more time on the site.
Trevor Mather
Chief Executive Officer
Another year of growth
1. Innovation driving our operational
and financial results
Operating and financial review, page 26
2. Our strategy and strategic pillars
Our strategy, page 20
3. A commitment to our people and culture
Corporate social responsibility, page 39
4. The automotive market today
Market overview, page 14
1 Auto Trader employee engagement survey, 2017
2 Glassdoor, April 2018
Delivering against our strategy
Our purpose is to lead the
future of the digital automotive
marketplace and we continue
to make progress against our
strategy of improving car buying
in the UK. We seek to continually
evolve the automotive
ecosystem so consumers,
retailers and manufacturers
realise greater efficiencies.
Summary of operating
performance
It has been another good year
for the business despite the
toughest market conditions we
have seen since we became a
public company. We achieved
revenue growth of 7%, through our
core Retailer and Manufacturer
and Agency revenue streams, but
this has been partially offset by
weakness in Consumer services
where broader economic
uncertainty has affected our
private listings business. With
Operating profit growth of 10%,
we saw continued improvement
in Operating profit margin to 67%.
What we’ve delivered
We have a market leading
position as the UK’s largest
digital automotive marketplace.
Our audience has grown as
consumers spend more time
on our platforms, viewing an
average of 94 adverts every
second of every day, and the vast
majority of our audience remains
unique to Auto Trader.
During the year we improved our
offering to retailer customers,
including the successful launch
of our new advertising packages
in April 2017, which enabled
retailers to compete more
effectively on our marketplace.
We have also continued to
leverage our data to evolve our
consumer and retailer products,
integrated Motor Trade Delivery
(‘MTD’) and delivered our new
Dealer Finance product in
December 2017.
The market
The overall size of the UK’s
car parc continues to grow,
which is beneficial for our
stock-based business model.
However, in the year to March
2018 both new and used car
transactions declined, and
industry forecasts suggest
that both markets will continue
to decline for the remainder
of the calendar year 2018.
People and culture
As we strive to become the
UK’s most admired digital
business, I am delighted to
say that 90% of employees
say they are proud to work
at Auto Trader1 and would
recommend the Company
to a friend2.
We are committed to
addressing the gender and
wider diversity balance that is
common in most technology
and digital companies and we
have made good progress in
this area. Along with all other
large companies, we reported
our Gender Pay Gap this
year for the first time. We are
dedicated to reducing this gap
as well as increasing diversity
at all levels of our business
and we have implemented
a number of initiatives which
are already having an impact.
Finally, this year we
re-assessed our business’
core values, and collectively
decided to add a sixth value
– community-minded – as a
reflection of our commitments
to support the Auto Trader
community, as well as the
wider communities in which
we operate.
Trevor Mather
Chief Executive Officer
7 June 2018
11
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Value generation story
A holistic approach
to generating value
Market overview
Our business model
The automotive market, with over 10 million
transactions each year, is complex and often
inefficient. We believe that by continually improving
transparency in the marketplace around pricing,
specifications of the car and dealer reviews we can
improve trust held within the industry. Greater trust,
as well as a much improved buying journey, should
help many consumers overcome their perception
that changing their car is an onerous process and,
ultimately, encourage more transactions.
Auto Trader is the UK’s largest digital automotive
marketplace. Our trusted brand has been built over
40 years, where we have built a network of highly
engaged consumers shopping for cars. These cars
are largely supplied by retailers, as well as a small
proportion from other consumers, and are then
advertised on our marketplace – the most effective
automotive sales platform. We collect large amounts
of data and continually invest in our platform,
marketing, insight and customer relationships.
Focus areas
Consumers
Owners of the 34.7 million
cars within the UK car parc.
Consumers involved in
transactions as buyers,
sometimes also sellers
and providers of stock via
part-exchange.
Retailers
Retailers are involved
in the sale of new cars,
as part of a manufacturers’
distribution network,
and sellers of used cars.
Much of that used car stock
is sourced via part-exchange
or through auctions.
Manufacturers
New cars are built and
distributed either to fleet
and lease companies or
sold to companies and
private buyers, usually
via a franchise network.
10.4m
cars sold to
consumers
(new and used)
5.0m
used car sales from
trade to consumers
2.4m
new car
registrations to
consumers
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Market overview
page 14
Our business model
page 18
12
Auto Trader Group plc Annual Report and Financial Statements 2018
Our strategy
KPIs
We remain committed to our purpose of leading
the future of the digital automotive marketplace
and we have continued to make progress against our
strategy of improving car buying in the UK. We seek
to continually evolve the automotive ecosystem so
consumers, retailers and manufacturers alike
experience greater efficiencies.
We use the metrics below to track our operational
and financial performance. This financial year,
we have moved to using statutory Operating profit,
as the growth in share-based payments has reached
steady state as described at IPO. We have also
introduced live car stock as a new operational
measure, as this is a key revenue driver.
Our strategic pillars
Improve car buying
in the UK
Evolve the automotive
ecosystem in the UK
Become the most admired
digital business
Financial
Revenue
£m
330.1
Average Revenue
Per Retailer (‘ARPR’)
£ per month
1,695
Operating profit
£m
220.6
Operating profit
margin
67%
Basic EPS
pence per share
17.76
Cash generated
from operations
£m
226.1
Our strategy
page 20
Key performance indicators
page 22
Operational
Advert views
Average number per month (millions)
246
Number of retailer
forecourts
Average number per month
13,213
Live car stock
Average number of physical cars
advertised on autotrader.co.uk per month
453,000
Cross platform minutes
Monthly average minutes spent
across all our platforms (millions)
618
Number of full-time
equivalent employees (‘FTEs’)
Average number (including contractors)
824
13
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018
Market overview
The automotive
market today
Market overview
UK automotive market and
associated macroeconomic
conditions
Following the record highs reached
in 2016, both new and used car
market volumes have declined.
However, transaction volumes are
still at historically high levels.
New and used car sales
A growing number of vehicles
in the UK, coupled with a stable
desire of car owners wanting
to change their car (average
ownership is 3.3 years),
resulted in 10.4 million total
car transactions in the 12 months
to March 2018.
New car sales have fallen from
record highs seen in 2016, with
the total number of new car
registrations down by 11% to
2.4 million in the 12 months to
March 2018, according to the
Society of Motor Manufacturers
and Traders (‘SMMT’).
Despite the decline, the overall
UK car parc has continued to grow,
increasing by 1% to 34.7 million
cars 1, as the number of cars
registered outweighs the number
of cars that are scrapped each
year. In the 12 months to March
2018, used car transactions were
down 3% to 7.9 million3.
Used car prices continue to
increase. The Auto Trader Retail
Price Index shows that the price
of a used car in the UK has
continued to grow; achieving
an average of £12,171 over the
12-month period to March 2018,
an increase of 5.4% when
compared to the same period
the previous year. This is on a
like-for-like basis – stripping
out the impact of changes in
the mix of cars being sold.
Looking forward, industry
predictions suggest that new
car transactions will decline
again in 2018 by similar levels
experienced in 2017. However,
the used car market is less
volatile and therefore we
anticipate only a small decline
in the number of used car
sales in 2018.
UK economy and EU
Referendum implications
Against a backdrop of the UK
negotiating its exit from the EU,
the economy remained fairly
buoyant in the calendar year 2017.
GDP grew by 1.7% with similar
levels predicted for calendar
year 2018. Inflation has continued
to climb steadily to 2.3% in March
2018, with the largest downward
contribution to change in the rate
coming from prices for motor
14
12-month rolling new car registrations
(’000s)
3,000
2,000
1,000
0
(%)
20
10
0
-10
-20
2016
2017
2018
Year-on-year growth in the month
Number of new car registrations
12-month rolling used car transactions
(’000s)
9,000
6,000
3,000
0
(%)
30
20
10
0
-10
-20
-30
2016
2017
2018
Year-on-year growth for the month
Number of used car transactions
Auto Trader Retail Price Index
(£)
15,000
12,000
9,000
6,000
3,000
0
2016
2017
2018
Year-on-year price growth for the month
Year-on-year mix growth for the month
Average price of a trade car for the month
(%)
15.0
12.5
10.0
7.5
5.0
2.5
0
-2.5
-5.0
Auto Trader Group plc Annual Report and Financial Statements 2018 Market overview
Our business model
Our strategy
KPIs
34.7m
cars registered
in the UK 1
2.4m
7.9m
new cars registered
in the 12 months
to March 20182
used cars sold
in the 12 months
to March 2018 3
10.4m
car transactions
in the 12 months
to March 2018
However, there are concerns
about the implications
surrounding the UK’s departure
from the EU. Economic conditions
and, critically for the automotive
industry, currency volatility and
consumer confidence levels
could all be adversely affected.
For our business specifically, if
prices of cars increase and
consumer confidence levels
decrease, then there’s a potential
impact on the number of actual
car transactions. This would
likely impact our retailers and
their ability to spend on our
marketplace. Turn to page 34
for more information about the
impact of the EU Referendum
on Auto Trader.
fuels, which rose by less than
they did a year ago. Interest rates
remain low, although the Bank of
England increased its base rate
to 0.5% in November 2017, the first
increase since July 2007; this
continued low level of interest
rates has contributed to the
attractiveness of car finance
deals and therefore overall
vehicle sales.
1
2
3
SMMT UK car parc.
SMMT new car registrations.
DVLA used car transactions.
The automotive market, with over 10 million car transactions
each year, is complex and often inefficient. Through the
evolution of our digital platforms and our innovative data
products, we continue to make the car buying process
easier for consumers, retailers and manufacturers.
Manufacturers
2.4m
new car
registrations
1.2m
New cars sold
via retailers
Trade
New
cars
Used
cars
1.6m
Trade-
to-trade
transactions
1.1m
New cars direct
to consumers
5.0m
Used car sales
to consumers
3.4m
Part-exchange
of used cars
Consumers
9.0m
cars sold to consumers
(new and used)
2.9m
consumer-
to-consumer
transactions
0.1m
Business
Direct car sales
to businesses
1.2m
Fleet
& lease
customers
Commercial
buyers of
new cars
Auction
Buying and
selling by
all types of
car traders
Third parties
making cash
offers to
consumers
Used car sales to immediate cash buyers
15
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Market overview continued
Market overview
Improving the
car buying experience
Simplifying the car
buying journey
The automotive retail sector
is a fast evolving one. The way
people search for their next car,
the way they pay for it, and the
cars themselves, have all
changed dramatically over the
last decade. Today, 94% of
consumers conduct their car
buying research online, spending
an average of 13 hours looking
for their next car4, choosing from
an almost endless list of brands,
specifications, budgets
and deals.
However, for many car buyers
this change has created a
complex and often frustrating
process. Our award-winning
Car Buyers Report found that
85% of consumers entering the
process expect it to be hard,
with 60% giving up their pursuit
for the perfect car and making
a purchase simply out of
exhaustion. The problem is
even more prevalent amongst
younger buyers.
At Auto Trader we are committed
to creating an end-to-end buying
experience that is easy,
convenient, transparent and safe
for consumers, and one which
reflects their evolving retail
needs and expectations. As part
of this commitment, we provide
our retailer customers with the
products, tools, data and insight
to create a more engaging,
efficient and simplified buying
journey for today’s car buyers.
16
Building trust through
transparency
One of the biggest challenges
faced by the automotive industry
is trust. Just 7% of consumers
claim to trust car dealers, and
as a result nearly a quarter of
car buyers (23%) find visiting a
dealership daunting and 22%
see car dealerships as
untrustworthy5. We have worked
hard to address this issue. We
have built relationships with the
leading third-party review sites
and have aggregated over
470,000 reviews, as well as
developed our own ‘open’
review platform. We are now the
number one dealer review site in
the UK, with over 8,000 retailers
providing reviews. This level of
transparency offers consumers
greater confidence and trust
in the dealer, and for retailers,
it provides the opportunity
to differentiate themselves
amongst competitors.
Underlining the positive
influence reviews have on
consumers, car buyers spend
22% more time on full page
adverts that carry reviews than
those that don’t6.
For consumers, a key factor in
establishing trust is price
transparency. In fact, 76% of car
buyers believe that transparent
pricing is the most important
factor when buying a car 7. Last
year we launched Price Indicator
to help consumers validate the
price of a car versus similar ones
on our marketplace. Adverts are
labelled as having either a Great
Price, Good Price or Priced Low,
determined by comparing prices
against Auto Trader market
valuations. The calculations are
based on make, model,
derivative, age, mileage and
94%
of consumers
conduct their car
buying research
online4
52%
of buyers worked out
their monthly budget
when researching
their next car 8
88%
of new cars bought
on finance9
1.5m
valuations
conducted per
month
adjusted for any optional extras
on the car. We combine and
analyse data from circa 500,000
trade used car listings every day,
as well as additional dealer
forecourt and website data,
ensuring indicators are an
accurate reflection of the live
retail market. Adverts with
Price Indicator are viewed over
four million times every day.
With 33% of buyers walking away
from a part-exchange due to a
disagreement on the valuation
offered10, our valuations are also
used to build trust in the price of
the car consumers are selling.
Our Part-Ex Guide Price is
designed to bring consumers
and retailers together. It gives
potential car buyers a
convenient way in which to get
an accurate part-exchange guide
price on their car based on our
powerful valuations.
Auto Trader Group plc Annual Report and Financial Statements 2018 Market overview
Our business model
Our strategy
KPIs
Operating and financial review
page 26
Looking forward
New car sales
continue to decline
Industry predictions suggest that new car transactions will decline again in
2018 by similar levels experienced in 2017. The used car market, which makes
up two thirds of annual car transactions, is less volatile and therefore the
industry expects only a small decline in the number of used car sales in 2018.
Brexit negotiations
If prices of cars increase and consumer confidence levels decrease, then
there’s a potential impact on the number of car transactions, which may impact
on our retailers’ profitability.
Consumer
behaviour change
Consumers spend an average of 13 hours researching their next car online and only visit 1.6 dealerships
before they buy 4. Consumers will demand a complete end-to-end buying journey and will do more of
the process online and visit fewer dealerships to make their purchase.
Cars bought
on finance
88% of new cars, and circa 30% of used cars, were bought on finance in 2017 9. As this is set to increase,
making the financing of used cars especially more competitive, accessible and easier to understand
will be crucial to driving more options for buyers and more sales for retailers.
4 Auto Trader internal data.
5 Auto Trader Market Report
(September 2016).
6 Auto Trader internal data.
7 Auto Trader Market Report
(September 2016).
8 Auto Trader Market Report (March 2018).
9 Auto Trader Market Report (March 2018).
10 Auto Trader internal data.
11 Cross platform visits as measured by
comScore (average during the year).
12 Cross platform minutes as measured
by comScore (average during the year).
For retailers, the tool not
only encourages a more
cost-effective source of stock,
but it also enables smoother
negotiations with engaged car
buyers earlier in the car buying
process. Accordingly, circa 9,000
retailers choose to promote our
tool on their full page adverts.
Each month, 1.5 million valuations
are carried out, with over 85,000
enquiries sent to retailers.
Demystifying finance
Our latest Market Report
revealed that over half of car
buyers (52%) already consider the
cost of a car as a monthly price,
rather than the full retail value8.
However, despite 88% of new
cars bought on finance in 2017,
and circa 30% of used, consumers
have told us that finance is one
of the most challenging and
confusing aspects of the modern
car buying journey9. And for our
retailer customers, all too many
were losing out on lucrative
finance deals to alternative
lenders, such as high-street
banks and specialist providers.
To address both challenges, we
introduced finance across our
retailer adverts, integrating
finance options from over 6,000
retailers. For non-Financial
Conduct Authority (‘FCA’)
authorised retailers, we
partnered with car finance
broker, Zuto.
To further enhance the finance
experience, in December 2017
we launched a search by monthly
price functionality, making it even
easier for consumers to find a car
based on their monthly budget.
For consumers it’s added greater
simplicity and convenience. For
our customers it provides a
welcome competitive advantage
with the opportunity to engage
with car buyers at the very
beginning of their buying journey,
not at the end of it.
Despite a growing number
of competitive brands and
platforms, our ability to evolve
and adapt alongside changing
market conditions means we
remain the UK’s largest digital
automotive marketplace for new
and used cars. With 55 million
cross platform visits 11 we are
the most visited automotive
website, with an audience three
times larger than our nearest
competitor. With car buyers
spending 618 million minutes on
Auto Trader12, we also have the
most engaged audience. What’s
more, we are the most trusted
automotive classified brand in
the UK, with nearly 10 times more
consumers claiming to trust
Auto Trader over our nearest
competitor.
17
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Our business model
Leveraging the scale of our
network to generate value
Market overview
Our business model
Inputs
How we generate value
We generate value by investing in the largest
and most trusted automotive marketplace...
T he largest
tform
la
s p
e
l
a
s
e
v
i
t
c
e
f
f
e
t
s
o
M
A U DIENCE
t m e n t i n growing audie
s
e
v e s t m ent in platform
– I n
n
c
e
v
– I n
Auto Trader’s
trusted
marketplace
o ls
e l
d
– In
vestment in in s i g h t & t o
– Stock-based rev e n u e m o
The largest choice o f t r u s t e
STOC K
d
B
e
s
t
c
a
r
b
u
y
i
n
g
e
x
p
e
rie
n
ce
...this generates greater consumer engagement,
a larger choice of stock and therefore revenue.
Strategic pillars
Auto Trader is the UK’s largest
digital automotive marketplace.
Our trusted brand has been built
over the last 40 years through
advancements in our technology
and products, coupled with a
highly skilled digital workforce.
Our
people
Technology
Data
Brand
strength
18
Improve car buying in the UKEvolve the automotive ecosystem in the UKBecome the most admired digital businessAuto Trader Group plc Annual Report and Financial Statements 2018
Our business model
Our strategy
KPIs
Value outputs
Trust in the market
Brand reputation
Market position
Data & insight
Revenue
Shareholder returns
Value
19
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Our strategy
To be the UK’s leading digital
automotive marketplace
Market overview
Our business model
Our strategy
Strategic pillars
Focus areas
Improve
car buying
in the UK
Evolve the
automotive
ecosystem
in the UK
1
Increase consumer
audience, advert
views and use of our
valuation tools
Having the largest and most engaged consumer
audience is one of the key components in our
network effects business model. Investing in the
best consumer experience and growing audience
underpins the value we deliver to our retailers. Part
of that experience is the free valuation tool we offer.
2
Improve stock
choice, volumes
and accuracy
Consumers visit Auto Trader because of the volume
and choice of trusted stock from our fragmented
customer base. It’s important we maintain coverage
across age, price, region, make and model to ensure
we can meet the buying needs of all our consumers.
Stock is underpinned by accurate taxonomy, which
we continue to improve.
3
Grow ARPR in a
balanced, sustainable
way by creating value
for our customers
Average Revenue Per Retailer (‘ARPR’) growth is
driven by three levers: stock, price and product.
Over a three to four-year period we look to balance
their contribution, as we seek to attain long-term
sustainable growth.
4
Enhance our
relevance and value
to manufacturers
Whilst the majority of our revenue comes from retailers,
there is considerable opportunity with manufacturers.
We know three out of four consumers are open to
buying new cars high up in the buying funnel, which
promotes our audience of in-market car buyers as a
valuable target audience for manufacturers.
5
Extend our product
offering further down the
buying funnel, towards
online transactions
There’s considerable market research suggesting
that consumers are becoming more open to the idea
of transacting cars online. We believe having the
component parts of the deal will be a key differentiator
for us as a business.
Become the
most admired
digital business
6
Create and maintain
high-performing,
data-oriented teams
Auto Trader’s people are one of our most important
assets. We continually invest in their development,
our environment and promoting diversity and
inclusion. Data is at the heart of how we operate
as a business and how our people work.
20
2018 progress
Relevant risks
How we measure progress
We have maintained our share of
audience versus competitors and kept
full page advert views, our key measure
of audience engagement, consistent
year on year.
2 Brand: Failure to protect our brand could result in a reduction
in audience.
3 Increased competition: Competitors could develop a superior
consumer experience which we find hard to replicate, resulting
in loss of audience share.
– Advert views
– Cross platform minutes
We grew the number of live cars on site
1% in the year, giving consumers greater
choice. We offered free consumer
adverts for cars priced under £1,000,
to gain share in this space.
1 Economy, market and business environment: Declining used cars
transactions could lead to a reduction in the amount of car stock
– Live stock
– Number of retailer forecourts
in the market.
3 Increased competition: Competitors could expand from specific
types of stock, with smaller niche audiences, into other types of
stock and disrupt our market position.
ARPR saw good growth of £149 in 2018.
Product was the largest growth
contributor, with the launch of our
advanced and premium packages,
as well as added value products included
in the packages. Price and stock also
contributed to growth.
1 Economy, market and business environment: Declining new
and used cars transactions could lead to a reduction of retailers’
advertising spend, resulting in downgrades and pressure on
customer wallet.
4 Failure to innovate: disruptive technologies and changing
consumer behaviours: If we rely too much on price and do not
innovate our product offering to increase value, we could see
downgrades and cancellations offsetting the growth expected
from pricing initiatives.
– Revenue
– Operating profit
– Operating profit margin
– Number of retailer forecourts
– Average Revenue Per Retailer
(‘ARPR’)
– Live stock
We saw a solid year of growth in our
Manufacturer and Agency line. We’ve
seen significant investment in the team,
recruiting a number of people with OEM
experience and investing in our product
offering for these customers.
1 Economy, market and business environment: Declining new car
registrations could lead to a reduction in manufacturer spend on
digital display advertising.
– Revenue
– Operating profit
– Operating profit margin
– Advert views
2 Brand: Failure to change perception of manufacturers that we are
– Cross platform minutes
a destination for new car buyers could result in lost opportunity
to attract more of the c.£500 million manufacturers spend on
digital advertising.
The business has made good strides in
delivering some of the component parts
of online transactions. We acquired Motor
Trade Delivery (‘MTD’) in April, which acts
as a marketplace for logistics companies,
and have also developed our finance
proposition to display monthly payment
prices on Auto Trader.
We’ve held our headcount flat year-on-
year, but have increased our developer
and data science ratios. Data continues to
play an ever more prominent role driving
business decisions, with capability
increasing across the organisation.
4 Failure to innovate: disruptive technologies and changing
consumer behaviours: If we do not innovate in this area, there is
a risk that we miss out on the opportunity to be at the front of
industry developments and lose market share.
– Revenue
– Operating profit
– Operating profit margin
– Number of retailer forecourts
– Average Revenue Per Retailer
(‘ARPR’)
6 Employees: Manchester and London continue to grow in
terms of competition for top talent, particularly in data science
and developers.
– Operating profit
– Operating profit margin
– Number of full-time equivalent
employees (‘FTEs’)
Auto Trader Group plc Annual Report and Financial Statements 2018 Our strategy
KPIs
Risk management
Principal risks and uncertainties
page 32
page 34
Strategic pillars
Focus areas
1
2
3
4
5
6
Increase consumer
audience, advert
views and use of our
valuation tools
Having the largest and most engaged consumer
audience is one of the key components in our
network effects business model. Investing in the
best consumer experience and growing audience
underpins the value we deliver to our retailers. Part
of that experience is the free valuation tool we offer.
Improve stock
choice, volumes
and accuracy
Grow ARPR in a
balanced, sustainable
way by creating value
for our customers
Consumers visit Auto Trader because of the volume
and choice of trusted stock from our fragmented
customer base. It’s important we maintain coverage
across age, price, region, make and model to ensure
we can meet the buying needs of all our consumers.
Stock is underpinned by accurate taxonomy, which
we continue to improve.
Average Revenue Per Retailer (‘ARPR’) growth is
driven by three levers: stock, price and product.
Over a three to four-year period we look to balance
their contribution, as we seek to attain long-term
sustainable growth.
Enhance our
relevance and value
to manufacturers
Whilst the majority of our revenue comes from retailers,
there is considerable opportunity with manufacturers.
We know three out of four consumers are open to
buying new cars high up in the buying funnel, which
promotes our audience of in-market car buyers as a
valuable target audience for manufacturers.
Extend our product
offering further down the
buying funnel, towards
online transactions
There’s considerable market research suggesting
that consumers are becoming more open to the idea
of transacting cars online. We believe having the
component parts of the deal will be a key differentiator
for us as a business.
Create and maintain
high-performing,
data-oriented teams
Auto Trader’s people are one of our most important
assets. We continually invest in their development,
our environment and promoting diversity and
inclusion. Data is at the heart of how we operate
as a business and how our people work.
2018 progress
Relevant risks
How we measure progress
We have maintained our share of
audience versus competitors and kept
full page advert views, our key measure
of audience engagement, consistent
year on year.
2 Brand: Failure to protect our brand could result in a reduction
in audience.
3 Increased competition: Competitors could develop a superior
consumer experience which we find hard to replicate, resulting
in loss of audience share.
– Advert views
– Cross platform minutes
We grew the number of live cars on site
1% in the year, giving consumers greater
choice. We offered free consumer
adverts for cars priced under £1,000,
to gain share in this space.
1 Economy, market and business environment: Declining used cars
transactions could lead to a reduction in the amount of car stock
in the market.
3 Increased competition: Competitors could expand from specific
types of stock, with smaller niche audiences, into other types of
stock and disrupt our market position.
– Live stock
– Number of retailer forecourts
ARPR saw good growth of £149 in 2018.
Product was the largest growth
contributor, with the launch of our
advanced and premium packages,
as well as added value products included
in the packages. Price and stock also
contributed to growth.
1 Economy, market and business environment: Declining new
and used cars transactions could lead to a reduction of retailers’
advertising spend, resulting in downgrades and pressure on
customer wallet.
4 Failure to innovate: disruptive technologies and changing
consumer behaviours: If we rely too much on price and do not
innovate our product offering to increase value, we could see
downgrades and cancellations offsetting the growth expected
from pricing initiatives.
– Revenue
– Operating profit
– Operating profit margin
– Number of retailer forecourts
– Average Revenue Per Retailer
(‘ARPR’)
– Live stock
We saw a solid year of growth in our
Manufacturer and Agency line. We’ve
seen significant investment in the team,
recruiting a number of people with OEM
experience and investing in our product
offering for these customers.
1 Economy, market and business environment: Declining new car
registrations could lead to a reduction in manufacturer spend on
digital display advertising.
2 Brand: Failure to change perception of manufacturers that we are
a destination for new car buyers could result in lost opportunity
to attract more of the c.£500 million manufacturers spend on
digital advertising.
– Revenue
– Operating profit
– Operating profit margin
– Advert views
– Cross platform minutes
The business has made good strides in
delivering some of the component parts
of online transactions. We acquired Motor
Trade Delivery (‘MTD’) in April, which acts
as a marketplace for logistics companies,
and have also developed our finance
proposition to display monthly payment
prices on Auto Trader.
We’ve held our headcount flat year-on-
year, but have increased our developer
and data science ratios. Data continues to
play an ever more prominent role driving
business decisions, with capability
increasing across the organisation.
4 Failure to innovate: disruptive technologies and changing
consumer behaviours: If we do not innovate in this area, there is
a risk that we miss out on the opportunity to be at the front of
industry developments and lose market share.
– Revenue
– Operating profit
– Operating profit margin
– Number of retailer forecourts
– Average Revenue Per Retailer
(‘ARPR’)
6 Employees: Manchester and London continue to grow in
terms of competition for top talent, particularly in data science
and developers.
– Operating profit
– Operating profit margin
– Number of full-time equivalent
employees (‘FTEs’)
Risk that applies to all focus areas:
5
IT systems and cyber security
Measures that apply
to all focus areas:
– Basic EPS
– Cash generated from
operations
21
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Key performance indicators
Financial KPIs
Market overview
Our business model
Our strategy
KPIs
Revenue
£m
Average Revenue
Per Retailer (‘ARPR’)
£ per month
Operating profit
£m
Basic EPS
pence per share
Cash generated
from operations
£m
+7%
+£149
+10%
£
+15%
+£13.2m
311.4
330.1
281.6
1,695
1,546
1,384
60%
65%
67%
Margin
Margin
Margin
203.1
220.6
169.6
17.76
15.64
12.67
212.9
226.1
180.1
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
Relevant focus areas
1 2 3 4 5 6
Relevant focus areas
1 2 3 4 5 6
Relevant focus areas
1 2 3 4 5 6
Definition
The Group generates revenue from three
different streams: Trade, Consumer
services and Manufacturer and Agency.
Trade is further analysed into three
classes: Retailer, Home Trader and Other.
Progress
Revenue increased 7% year-on-year,
with much of the growth coming
through our Retailer line, supported by
Manufacturer and Agency. This growth
was slightly undermined by a decline in
Consumer services, due to a reduction
in private listings.
Definition
Average Revenue Per Retailer (‘ARPR’) is
the average monthly revenue generated
from retailer forecourts divided by the
average monthly number of retailer
forecourts.
Progress
ARPR grew £149 in the year. This was
largely a function of product growth,
as we launched a new set of packages,
monetising part-exchange, video,
dealer reviews and introducing further
prominence products in our new
advanced and premium levels. This was
supported by a c.3% underlying price
rise and modest levels of stock growth.
Definition
Last year we announced we are no longer
reporting Underlying operating profit.
Instead, the focus is now on the statutory
measure of Operating profit.
Operating profit is as reported in the
consolidated income statement on
page 88. This is defined as revenue less
administrative expenses.
Operating profit margin is Operating profit
as a percentage of revenue.
Progress
Operating profit grew 10% due to top line
revenue growth of 7% and well managed
costs. Margin continued to improve, albeit
at a slower rate than previous years.
Relevant focus areas
Relevant focus areas
1 2 3 4 5 6
Definition
1 2 3 4 5 6
Definition
Basic earnings per share is defined as
Cash generated from operations as
profit for the year attributable to equity
reported in the consolidated statement
holders of the parent divided by the
of cash flows on page 92. This is defined
weighted average number of shares in
as cash generated from operating
issue during the year.
Progress
Basic EPS grew at 15%, demonstrating
the Group’s high operational gearing.
Part of the growth drops through from
profit, but it was supported by a reduction
in the weighted average number of shares
in issue during the year.
activities, before corporation tax paid.
This is considered to be a more
meaningful measure of performance than
the statutory measure of cash generated
from operating activities, which can be
distorted by changes in funding structure
and the time lag that applies to the
payment of corporation tax.
Progress
Cash generated from operations
increased to £226.1 million, giving
£13.2 million growth in the year. This
represented a high proportion of profit
converted into cash, which was largely
returned to shareholders through
dividends and share buybacks.
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
22
Auto Trader Group plc Annual Report and Financial Statements 2018 Revenue
£m
+7%
£ per month
+£149
311.4
330.1
281.6
1,695
1,546
1,384
KPIs
+10%
60%
65%
67%
Margin
Margin
Margin
203.1
220.6
169.6
Average Revenue
Operating profit
Per Retailer (‘ARPR’)
£m
Basic EPS
pence per share
Cash generated
from operations
£m
+15%
+£13.2m
17.76
15.64
12.67
212.9
226.1
180.1
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
Relevant focus areas
Relevant focus areas
Relevant focus areas
1 2 3 4 5 6
Definition
1 2 3 4 5 6
Definition
1 2 3 4 5 6
Definition
The Group generates revenue from three
Average Revenue Per Retailer (‘ARPR’) is
Last year we announced we are no longer
different streams: Trade, Consumer
the average monthly revenue generated
reporting Underlying operating profit.
services and Manufacturer and Agency.
from retailer forecourts divided by the
Instead, the focus is now on the statutory
Trade is further analysed into three
average monthly number of retailer
measure of Operating profit.
classes: Retailer, Home Trader and Other.
forecourts.
Progress
Progress
Revenue increased 7% year-on-year,
with much of the growth coming
ARPR grew £149 in the year. This was
largely a function of product growth,
through our Retailer line, supported by
as we launched a new set of packages,
Manufacturer and Agency. This growth
monetising part-exchange, video,
was slightly undermined by a decline in
dealer reviews and introducing further
Operating profit is as reported in the
consolidated income statement on
page 88. This is defined as revenue less
administrative expenses.
Operating profit margin is Operating profit
as a percentage of revenue.
Consumer services, due to a reduction
prominence products in our new
Progress
in private listings.
advanced and premium levels. This was
Operating profit grew 10% due to top line
supported by a c.3% underlying price
revenue growth of 7% and well managed
rise and modest levels of stock growth.
costs. Margin continued to improve, albeit
at a slower rate than previous years.
Relevant focus areas
1 2 3 4 5 6
Relevant focus areas
1 2 3 4 5 6
Definition
Basic earnings per share is defined as
profit for the year attributable to equity
holders of the parent divided by the
weighted average number of shares in
issue during the year.
Progress
Basic EPS grew at 15%, demonstrating
the Group’s high operational gearing.
Part of the growth drops through from
profit, but it was supported by a reduction
in the weighted average number of shares
in issue during the year.
Definition
Cash generated from operations as
reported in the consolidated statement
of cash flows on page 92. This is defined
as cash generated from operating
activities, before corporation tax paid.
This is considered to be a more
meaningful measure of performance than
the statutory measure of cash generated
from operating activities, which can be
distorted by changes in funding structure
and the time lag that applies to the
payment of corporation tax.
Progress
Cash generated from operations
increased to £226.1 million, giving
£13.2 million growth in the year. This
represented a high proportion of profit
converted into cash, which was largely
returned to shareholders through
dividends and share buybacks.
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Linked to remuneration
£
Directors’ remuneration report
page 66
Focus areas relevant to our KPIs
Improve car buying in the UK
1 Increase consumer audience, advert
views and use of our valuation tools
2 Improve stock choice, volumes
and accuracy
Evolve the automotive ecosystem in the UK
3 Grow ARPR in a balanced, sustainable
way by creating value for our customers
4 Enhance our relevance and value
to manufacturers
5 Extend our product offering further
down the buying funnel, towards online
transactions
Become the most admired digital business
6 Create and maintain high-performing,
data-oriented teams
Our strategy
page 20
Risks relevant to our KPIs
1 Economy, market and business
environment
2 Brand
3 Increased competition
4 Failure to innovate: disruptive technologies
and changing consumer behaviours
5 IT systems and cyber security
6 Employee retention
Principal risks and uncertainties
page 34
23
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018
Key performance indicators continued
Operational KPIs
Market overview
Our business model
Our strategy
KPIs
Cross platform
minutes
Monthly average minutes spent across
all our platforms (millions)
Advert views
Average number per month
(millions)
Number of retailer
forecourts
Average number per month
+6%
-0%
£
-1%
Number of full-time
Live car stock
equivalent employees
Average number per month
Average number (including contractors)
(‘FTEs’)
0%
+1%
582
618
521
243
247
246
13,514
13,296
13,213
859
824
824
437,000
450,000
453,000
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
Relevant focus areas
1 2 3 4 5 6
Relevant focus areas
1 2 3 4 5 6
Relevant focus areas
1 2 3 4 5 6
Definition
Monthly average minutes spent across all
our platforms, as defined by comScore.
Progress
Cross platform minutes, as measured by
comScore, increased 6% year-on-year.
This was in part due to a methodology
change in calculation, however we’ve
retained our market share when
measured against our competitor set.
Definition
Advert views are click-throughs from
initial search result pages to see the more
detailed specification of the vehicle.
Research has shown that a higher level
of advert views correlates with a higher
number of retailer sales.
Progress
Advert views were broadly flat in the year.
The absolute volume remains high as we
delivered on average 246 million advert
views per month, a considerable volume
of engagement for our customers with
their adverts.
Definition
The average number of retailer forecourts
per month that are advertising vehicles on
the Auto Trader marketplace over the
financial year.
Progress
Number of retailer forecourts was flat,
following a year of decline in 2017. We still
saw a small level of decline in independent
forecourts, but this was offset by growth
in Franchise and non-car channels.
Relevant focus areas
Relevant focus areas
1 2 3 4 5 6
Definition
1 2 3 4 5 6
Definition
Full-time equivalent employees are
The average number of physical cars
measured on the basis of the number
that are advertised on autotrader.co.uk
of hours worked by full-time employees,
per month.
with part-time employees included on
a pro-rata basis. Number of FTEs
(which includes contractors) is reported
internally each calendar month, with
the full-year number being generated
from an average of those 12 time periods.
Progress
FTEs were flat year-on-year following a
number of years of decline. Much of that
decline was due to the transition from
print to digital and we are now at a level
of headcount that feels right for the
business moving forward.
This KPI has been included for the first
time in the current financial year. Retailer
advertising revenue is dependent on the
level of stock advertised on our platforms
and so this is a key revenue driver.
Progress
Live car stock on site increased by 1%.
This was a result of greater penetration
into our existing customer bases’
available stock as they saw greater
value of investing more in Auto Trader.
This added stock helped reinforce
our network effects, giving greater
choice to consumers.
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
24
Auto Trader Group plc Annual Report and Financial Statements 2018
KPIs
Cross platform
minutes
Monthly average minutes spent across
all our platforms (millions)
Advert views
Average number per month
(millions)
Number of retailer
forecourts
Average number per month
+6%
-0%
-1%
Number of full-time
equivalent employees
(‘FTEs’)
Average number (including contractors)
Live car stock
Average number per month
0%
+1%
£
Linked to remuneration
£
Directors’ remuneration report
page 66
582
618
521
243
247
246
13,514
13,296
13,213
859
824
824
437,000
450,000
453,000
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
Relevant focus areas
Relevant focus areas
Relevant focus areas
1 2 3 4 5 6
Definition
1 2 3 4 5 6
Definition
1 2 3 4 5 6
Definition
Monthly average minutes spent across all
Advert views are click-throughs from
The average number of retailer forecourts
our platforms, as defined by comScore.
initial search result pages to see the more
per month that are advertising vehicles on
detailed specification of the vehicle.
the Auto Trader marketplace over the
Progress
Cross platform minutes, as measured by
comScore, increased 6% year-on-year.
This was in part due to a methodology
change in calculation, however we’ve
Progress
Research has shown that a higher level
financial year.
of advert views correlates with a higher
number of retailer sales.
Progress
Number of retailer forecourts was flat,
following a year of decline in 2017. We still
retained our market share when
Advert views were broadly flat in the year.
saw a small level of decline in independent
measured against our competitor set.
The absolute volume remains high as we
forecourts, but this was offset by growth
delivered on average 246 million advert
in Franchise and non-car channels.
views per month, a considerable volume
of engagement for our customers with
their adverts.
Relevant focus areas
1 2 3 4 5 6
Relevant focus areas
1 2 3 4 5 6
Definition
Full-time equivalent employees are
measured on the basis of the number
of hours worked by full-time employees,
with part-time employees included on
a pro-rata basis. Number of FTEs
(which includes contractors) is reported
internally each calendar month, with
the full-year number being generated
from an average of those 12 time periods.
Progress
FTEs were flat year-on-year following a
number of years of decline. Much of that
decline was due to the transition from
print to digital and we are now at a level
of headcount that feels right for the
business moving forward.
Definition
The average number of physical cars
that are advertised on autotrader.co.uk
per month.
This KPI has been included for the first
time in the current financial year. Retailer
advertising revenue is dependent on the
level of stock advertised on our platforms
and so this is a key revenue driver.
Progress
Live car stock on site increased by 1%.
This was a result of greater penetration
into our existing customer bases’
available stock as they saw greater
value of investing more in Auto Trader.
This added stock helped reinforce
our network effects, giving greater
choice to consumers.
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Relevant risks
1 2 3 4 5 6
Focus areas relevant to our KPIs
Improve car buying in the UK
1 Increase consumer audience, advert
views and use of our valuation tools
2 Improve stock choice, volumes
and accuracy
Evolve the automotive ecosystem in the UK
3 Grow ARPR in a balanced, sustainable
way by creating value for our customers
4 Enhance our relevance and value
to manufacturers
5 Extend our product offering further
down the buying funnel, towards online
transactions
Become the most admired digital business
6 Create and maintain high-performing,
data-oriented teams
Our strategy
page 20
Risks relevant to our KPIs
1 Economy, market and business
environment
2 Brand
3 Increased competition
4 Failure to innovate: disruptive technologies
and changing consumer behaviours
5 IT systems and cyber security
6 Employee retention
Principal risks and uncertainties
page 34
25
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018
Operating and financial review
Innovation and growth
Nathan Coe
Chief Financial Officer and Chief Operating Officer
“Despite the backdrop of
a slightly tougher market,
we have continued to deliver
improvements for customers,
consumers and our business
which has resulted in a strong
financial performance.”
Key performance indicators
page 22
26
Operating review
Introduction
We are pleased with the progress we have
made this year, both from an operational and
financial perspective. Despite the backdrop
of a slightly tougher market, we have
continued to deliver improvements for
customers, consumers and our business
which has resulted in a strong financial
performance.
Improving car buying in the UK
We have launched new products that make
car buying more efficient, with the most
prominent of these being the ability to search
for a car by monthly payment. With over half
of car buyers (52%) considering the price of
their next car as a monthly figure rather than
the full advertised price1, we responded by
launching the ability for consumers to search
for their next car by monthly payment in
December 2017.
The change was not only designed to meet
consumers’ growing expectations of being
able to search for everything they buy on
monthly payments, but also to support
retailers attract more buyers to their cars
and increase their finance penetration by
promoting their own finance offers much
earlier on in the buying journey.
At the start of the year we relaunched our
retailer advertising packages, so that our
entry level starter package now includes
products such as: 100 images, Live Chat,
Dealer Reviews, and the Part-Exchange
Guide. We also offer progressively higher
package levels, giving retailers the
Average advert views
per month
246m
Average cross platform
minutes per month6
618m
Auto Trader Group plc Annual Report and Financial Statements 2018
Our business model
Our strategy
page 18
page 20
Average number of
retailer forecourts
advertising per month
13,213
Average number of live
car stock advertised on
our site per month
453,000
opportunity to pay for greater prominence to
stand out in search. Alongside these changes
to our core packages we also re-platformed
our core vehicle upload process to make it
both easier and quicker for retailers to
advertise stock on our marketplace.
We have continued our focus on growing
penetration of our ‘Managing’ products:
i-Control and Retail Check. Approximately
3,000 retailer forecourts (2017: 2,500) listing
39% of trade stock, are using at least one of
these data analytics products, which we
have improved by adding Price Indicator
flags and evolving our valuation engine with
machine learning to take into account vehicle
specification – a first for the UK market.
We continue to invest in our brand to ensure
it stays front of mind with consumers.
Auto Trader enjoys 91% prompted brand
awareness2 with consumers and is
consistently voted as the most influential
automotive website by consumers in the car
buying process. We redesigned our website
and native apps, and improved functionality
to better reflect our position as the number
one marketplace for both used and new cars.
With three out of every four visitors to
Auto Trader considering purchasing a new
car3, we have developed new products that
allow manufacturers and their agencies to
reach and influence these buyers. In the last
12 months we launched InSearch, our native
advertising performance product, which
allows new cars to be promoted within search
in a highly targeted way. More recently we
have further developed this product to
include a video format allowing us to capitalise
on the fast growth in video advertising.
Both manufacturers and retailers can now
use our Search API service to operate their
websites, saving them the effort of building
backend systems and allowing them to
benefit from our taxonomy, valuations and
product improvements. They can also
benefit from a new Image app, which enables
them to take 360-degree interior and exterior
shots that meet manufacturer standards.
Maintaining our market leading position
We have a market leading position as the
UK’s largest digital automotive marketplace.
Our audience has grown as consumers spend
more time on our platforms, viewing an
average of 94 adverts every second of every
day4, and the vast majority of this audience
remains unique to Auto Trader. Our audience
is three times larger than that of our nearest
competitor, with our share of cross platform
visits for the year at 54% on average5, whilst
total minutes spent increased by 6%6.
Full page advert views were consistent
year-on-year at 246 million per month
(2017: 247 million).
We have increased the level of physical stock
on site, with the average number of cars on
the marketplace increasing 1% to 453,000
(2017: 450,000). The average number of retailer
forecourts using our marketplace declined
slightly in the year at 13,213 (2017: 13,296)
following a 2% decline last year.
1 Auto Trader Market Report (March 2018).
2 Acacia Avenue Brand Tracker (March 2018).
3 Auto Trader search data (2017).
4 Auto Trader internal data.
5 Monthly visits as measured by comScore.
6 Monthly minutes as measured by comScore.
27
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Operating and financial review continued
(2017: £311.4m)
Revenue
+7%
£330.1m
+10%
£220.6m
Operating profit
(2017: £203.1m)
Cash generated
from operations
£226.1m
(2017: £212.9m)
Cash returned
to shareholders
£148.4m
(2017: £128.7m)
Financial review
Revenue
Retailer
Home Trader
Other
Trade
Consumer services
Manufacturer and Agency
Total
Revenue
In 2018, revenue grew 7% to £330.1m
(2017: £311.4m) predominantly through
Trade revenue, and more specifically
Retailer revenue, as our core business
continued to grow.
Trade revenue increased by 8% to £281.2m.
Retailer revenue grew 9% to £268.7m
(2017: £250.1m) as a result of growth in ARPR,
where there was improvement of £149 to
£1,695 per month (2017: £1,546). Average
retailer forecourts declined by 1% in the year
to 13,213 (2017: 13,296).
ARPR growth of £149 per month was
generated through all three of our levers:
price, stock and product.
– Price: Our price lever contributed £43
(2017: £86) and 29% (2017: 53%) of total
ARPR growth. We restructured our retailer
advertising packages to include enhanced
features for all customers as part of their
subscription. All packages now have Dealer
Reviews, Part-Exchange Guide, 100 Images
and Live Chat – tools which not only help
retailers to compete effectively, but also
provide the best experience for car buyers.
We also launched two new package tiers
– Advanced and Premium – which give
customers the opportunity to pay more
for greater prominence when consumers
search for cars.
2018
£m
268.7
11.4
1.1
281.2
29.8
19.1
330.1
2017
£m
250.1
12.0
–
262.1
31.8
17.5
311.4
Days-adjusted
change
9%
(4%)
n/m
8%
(5%)
10%
7%
– Stock: Our stock lever contributed £20
(2017: £48) and 13% (2017: 30%) of total
ARPR growth. The average number of
cars advertised on autotrader.co.uk each
month increased by 1% in 2018 to 453,000
(2017: 450,000) as the number of cars
advertised per retailer forecourt increased.
Used car transactions in the UK decreased
by 3% in the 12 months to March 2018,
however the UK car parc continues to
grow as new car registrations exceed
scrappage rates.
– Product: Our product lever contributed
£86 (2017: £28) and 58% (2017: 17%) of total
ARPR growth. The launch of Advanced
and Premium advertising package levels
contributed to this growth, with 12% of retailer
car stock moving into one of these new
higher-priced tiers by the end of the year.
The penetration of our ‘Managing’ products
(i-Control and Retail Check) increased from
19% in 2017 to 23% in the current year.
Home Trader declined 4% to £11.4m
(2017: £12.0m). Other revenue comprises
logistics revenue from Motor Trade Delivery,
which contributed £1.1m since its acquisition
in April 2017.
ARPR levers
(£)
58
41
33
86
86
48
28
43
20
2018
2016
2017
Key
Price
Stock
Product
28
Auto Trader Group plc Annual Report and Financial Statements 2018 Consumer services revenue decreased
5% in the year to £29.8m (2017: £31.8m).
Private revenue decreased 11% to £21.6m
(2017: £24.4m). Motoring services revenue
grew 12% to £8.2m (2017: £7.4m), with a large
proportion of the growth coming through
delivering greater response to our third-party
partner for finance.
Manufacturer and Agency revenue grew
10% to £19.1m (2017: £17.5m). The automotive
industry spends a huge amount on
advertising every year and the addressable
digital market continues to grow. In order to
grow our market share, we have invested in
people, with experience of working at some
of the largest manufacturers; and content,
by innovating new products such as
InSearch. InSearch is our native performance
product, which allows manufacturers to
advertise new cars directly within our main
search, providing a highly targeted way to
influence in-market car buyers.
Administrative expenses
Operating costs continue to be well
controlled, with administrative expenses
increasing by 2% to £109.5m (2017: £108.3m).
People costs, which comprise staff costs
(excluding share-based payments) and
third-party contractor costs, increased 4%
in the year to £51.1m (2017: £49.5m). Full-time
equivalent employees (‘FTEs’) (including
contractors) remained flat at an average
of 824 (2017: 824).
Costs
People costs
Share-based payments
Marketing
Other costs
Depreciation and amortisation
Exceptional items
Total administrative expenses
A share-based payment charge of £3.7m
(2017: £4.5m) was recognised during the year,
including national insurance costs (‘NI’) on
potential employee gains where applicable.
The year-on-year decrease in the charge
was primarily due to leavers under the
Performance Share Plan, offset by further
Performance Share Plan awards made in
June 2017. We also launched a second
Save As You Earn scheme in November 2017
which was available to all eligible employees.
Marketing spend was flat at £16.3m
(2017: £16.0m), reflecting the release of
our ‘Next Car’ campaign across TV and
radio platforms. Other costs, which
include property costs, data services
and other overheads, increased in the year
to £31.3m (2017: £30.7m).
Depreciation and amortisation decreased by
10% to £7.1m (2017: £8.0m). Within this cost line
is £1.0m of amortisation from intangibles
recognised following the acquisition of MTD.
2018
£m
51.1
3.7
16.3
31.3
7.1
–
109.5
2017
£m
49.5
4.5
16.0
30.7
8.0
(0.4)
108.3
Days-adjusted
change
4%
(17%)
3%
3%
(10%)
n/m
2%
Operating profit
In the year, Operating profit grew 10% to
£220.6m (2017: £203.1m). Operating profit
margin increased two percentage points
to 67% (2017: 65%).
The Group previously used a measure of
Underlying operating profit to highlight the
impact of certain one-off and other items,
including exceptional items, share-based
payment charges and costs related to
management incentive schemes linked to
the previous private ownership of the Group.
From this financial year the Group will no
longer report Underlying operating profit
and instead will focus on the statutory
measure of Operating profit.
Change from 52-week to
annual accounting period
As the 2017 financial year was four days
longer than the 2018 financial year,
year-on-year percentages for revenue,
costs, profit, EPS and dividend per share
have been adjusted throughout this report
to reflect like-for-like growth.
29
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Operating and financial review continued
Profit before taxation
Profit before taxation increased by 10%
to £210.8m (2017: £193.4m). Finance costs
remained stable year-on-year at £9.8m
(2017: £9.7m). A year-on-year reduction in the
average level of gross debt drawn, coupled
with a margin benefit resulting from a
reduction in the Group’s leverage, resulted
in a reduced interest cost on the Group’s
term loan. This was offset by an increase
in the amount of debt issue costs that were
amortised, with an acceleration of £1.1m
of these costs recognised in the year
following the decision in the year to
refinance the debt facility by June 2018.
Taxation
The Group tax charge of £39.5m
(2017: £38.7m) represents an effective tax
rate of 19% (2017: 20%) which is in line with
the average standard UK rate.
Earnings per share
Basic earnings per share rose by 15% to
17.76 pence (2017: 15.64 pence) based on a
weighted average number of ordinary shares
in issue of 964,516,212 (2017: 989,278,991).
Diluted earnings per share of 17.70 pence
(2017: 15.60 pence) increased by 15%, based
on 967,912,689 shares (2017: 991,812,212)
which takes into account the dilutive impact
of outstanding share awards.
Cash flow and net external debt
Cash generated from operations increased
to £226.1m (2017: £212.9m) and was achieved
as a result of strong Operating profit and a
high level of cash conversion.
Corporation tax payments totalled
£39.4m (2017: £34.8m). Cash generated
from operating activities was £186.7m
(2017: £178.1m).
Interest paid on financing arrangements
was £6.7m (2017: £7.6m). Net external debt
reduced to £338.7m (2017: £355.0m) following
Term Loan repayments of £20.0m (2017:
£40.0m). Leverage, defined as the ratio of
net external debt to Adjusted underlying
EBITDA, decreased to 1.46x (2017: 1.65x).
Acquisition
On 25 April 2017, the Group acquired MTD for
a total cash consideration of £12.2m, less
cash acquired with the business of £0.3m.
The assets and liabilities acquired have been
accounted for at fair value in accordance
with IFRS 3, as described in note 26 to the
financial statements, with the remaining
value of £8.5m being allocated to goodwill.
30
Auto Trader Group plc Annual Report and Financial Statements 2018 Contingent liability
HMRC has identified a potential VAT risk in
respect of VAT applicable to our insurance
intermediary revenue within Consumer
services, dating back to 2013 onwards.
The Group continues to work collaboratively
with HMRC to provide clarity surrounding the
nature of the services provided. No provision
has been recognised as the Group does not
believe a settlement will be probable, but has
estimated the maximum one-off liability at
£3.0m including interest and penalties.
The Directors are recommending a final
dividend for the year of 4.0 pence per share,
which together with the interim dividend
makes a total dividend of 5.9 pence per share,
amounting to £56.1m, in line with our policy of
distributing approximately one third of net
income. Subject to shareholders’ approval
at the Annual General Meeting (‘AGM’) on
20 September 2018, the final dividend will be
paid on 28 September 2018 to shareholders
on the register of members at the close of
business on 31 August 2018.
Capital structure and dividends
During the year, a total of 26.8m shares
(2017: 26.3m) were repurchased for a total
consideration of £96.2m (2017: £102.1m)
before transaction costs of £0.5m
(2017: £0.5m). A further £52.2m (2017: £26.6m)
was paid in dividends, giving a total of
£148.4m (2017: £128.7m) in cash returned
to shareholders.
The Group’s capital allocation policy is to
continue to invest in the business enabling it
to grow whilst returning around one third of
net income to shareholders in the form of
dividends. Any surplus cash following these
activities will be used to continue our share
buyback programme and to steadily reduce
gross indebtedness.
At the 2017 AGM, the Company’s shareholders
generally authorised the Company to make
market purchases of up to 97,476,919 of its
ordinary shares, subject to minimum and
maximum price restrictions.
This authority will expire at the conclusion
of the 2018 AGM and the Directors intend
to seek a similar general authority from
shareholders at the 2018 AGM. The
programme will be ongoing, and any
purchases of its shares made by the
Company under the programme will be
effected in accordance with the Company’s
general authority to repurchase shares,
Chapter 12 of the UKLA Listing Rules and
relevant conditions for trading restrictions
regarding time and volume, disclosure and
reporting obligations and price conditions.
Post balance sheet event
On 6 June 2018 the Group signed into a new
Revolving Credit Facility (the ‘New RCF‘)
to replace the existing Senior Syndicated
Term Loan and revolving credit facility.
The New RCF, which is unsecured, has total
commitments of £400m and a termination
date of June 2023.
Interest on the New RCF is charged at LIBOR
plus a margin of between 1.2% and 2.1%
depending on the consolidated leverage
of Auto Trader Group plc. A commitment fee
of 35% of the margin applicable to the New
RCF is payable quarterly in arrears on the
unutilised amounts of the New RCF. There is
no requirement to settle all or part of the debt
earlier than the termination date in June 2023.
Nathan Coe
Chief Financial Officer
and Chief Operating Officer
7 June 2018
31
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Risk management
Understanding and
managing our principal
risks and uncertainties
Risk management process
We recognise that effective
risk management is critical to
enable us to meet our strategic
objectives and to achieve
sustainable long-term growth.
A four-step process has been
adopted to identify, monitor
and manage the risks to which
the Group is exposed:
Identify risks
A top-down and bottom-up approach is
used to identify principal risks across the
business. Whilst the Board has overall
responsibility for the effectiveness of
internal control and risk management,
the detailed work is delegated to the
Operational Leadership Team (‘OLT’).
1
Identify
risks
Assess and quantify risks
Risks and controls are
analysed and evaluated
to establish the root
causes, financial impact
and likelihood of
occurrence. The Group
categorises risks into
six areas:
– economy, market and
business environment;
– financial and
compliance risk;
– asset risk;
– operational risk;
– competitive risk; and
– product specific risk.
4
Monitor
and review
2
Assess
and quantify
risks
3
Respond to,
manage and
mitigate
risks
Respond to, manage and mitigate risks
The effectiveness and adequacy
of controls in place are assessed.
If additional controls are required
to mitigate identified risks then
these are implemented and
responsibilities assigned.
Monitor and review
The OLT is responsible
for monitoring progress
against principal risks
in a continual process.
They are assisted by
the Group’s internal
audit programme run
in conjunction with
Deloitte.
The Board reviews the
Group’s risk register and
assesses the adequacy
of the principal risks
identified and the
mitigating controls and
procedures adopted.
32
Auto Trader Group plc Annual Report and Financial Statements 2018
Our strategy
Key performance indicators
page 20
page 22
Our framework
Risks are reviewed on an
ongoing basis and are captured
in a risk register, identifying the
risk area, the likelihood of the
risk occurring, the impact if it
does occur and the actions
being taken to manage the risk
to the desired level. The Board’s
role is to consider whether, given
the risk appetite of the Group,
the level of risk is acceptable
within its strategy.
The roles and responsibilities
of each level of this framework
are as follows:
r
o
t
i
d
u
a
l
a
n
r
e
t
x
E
Board
Audit
Committee
Operational Leadership Team
Risk register and risk review
Operational management
I
n
t
e
r
n
a
l
a
u
d
i
t
o
r
Risk governance and responsibilities
The Board’s responsibilities
– Overall responsibility
for risk management.
The Audit Committee’s
responsibilities
– Assess the scope and
effectiveness of risk
management processes
and internal control
systems.
Operational Leadership
Team responsibilities
– Identify, assess, monitor,
manage and mitigate risks
and exploit opportunities;
– Ensure appropriate internal
controls are in place;
– Ensure the risk register is
properly maintained; and
– Embed risk management
as business as usual.
Operational management
and internal controls
– Embed and manage internal
controls and risk
management day to day as
part of business as usual.
Oversight functions and
internal audit
– Aid in setting appropriate
policies, provide guidance,
advice and direction on
implementation of those
policies and monitor the
first line of defence.
Additional line of defence
– External auditor.
33
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018
Principal risks and uncertainties
Identify, evaluate and
manage the Group’s risks
Principal risk
Impact
Changes in the year
Key mitigations
The Board has carried out a robust
assessment of the principal risks facing the
Group, including those that would threaten
its business model, future performance,
solvency or liquidity.
This included an assessment of the likelihood
and impact of each risk identified, and the
mitigating actions being taken. Risk levels
were modified to reflect the current view
of the relative significance of each risk.
The principal risks and uncertainties identified
are detailed herein. Additional risks and
uncertainties to the Group, including those
that are not currently known or that the Group
currently deems immaterial, may individually
or cumulatively also have a material effect on
the Group’s business, results of operations
and/or financial condition.
Focus areas relevant to our risks
Improve car buying in the UK
1 Increase consumer audience, advert views
and use of our valuation tools
2 Promote trust and fairness in the marketplace
Evolve the automotive ecosystem in the UK
3 Grow ARPR in a balanced, sustainable way
by creating value for our customers
4 Extend the penetration of products outside
of our core classified proposition
5 Enhance our relevance and value to manufacturers
Become the most admired digital business
6 Operate a simpler, leaner and more
data-oriented business
Our strategy
page 20
1.
Economy, market and
business environment
2.
Brand
3.
Increased
competition
A contraction in the number of new or used
car transactions could lead to consolidation
of retailers and a reduction of retailers’
advertising spend. It could also lead to a
reduction in manufacturers’ spend on digital
display advertising.
There are concerns about the implications
surrounding the UK’s departure from the
EU as economic conditions, currency volatility
and consumer confidence levels could all
be adversely affected. If the prices of cars
increase, consumer confidence levels
decrease, and manufacturers’ appetite
to supply cars to the UK market reduces,
this could have an adverse impact on
our business.
Our brand is one of our biggest assets. Our
research shows that we are the most trusted
automotive classified brand in the UK, with
nearly 10 times more consumers claiming to
trust Auto Trader over our nearest competitor.
Failure to maintain and protect our brand,
or any negative publicity that affects our
reputation (for example, a data breach),
could diminish the confidence that retailers,
consumers and advertisers have in our
products and services, and result in a
reduction in audience and revenue.
There are a number of online competitors in
the motor classified market, and alternative
routes for consumers to sell cars, such as
auctions or part-exchange.
Competitors could develop superior
consumer experiences or retailer products
that we are unable to replicate; or change
focus to try to expand their range of stock
and disrupt our market position.
This could impact our ability to grow revenue
due to the loss of audience or customers,
or erosion of our paid-for business model.
34
As we anticipated, new car sales have fallen
We monitor new and used car transactions closely, using data
during this financial year, and the used car
from SMMT and now also data directly from the DVLA.
market has also seen declines of around 3%.
We have developed the Auto Trader Retail Price Index to monitor
However, the overall UK car parc has
the pricing trends of used cars by trade sellers.
Relevant
focus areas Change
2 3
4
continued to grow as the number of cars
registered still outweighs the number of
cars that are scrapped each year.
The number of retailer forecourts has
remained relatively flat.
We continue to diversify into related and adjacent activities to
reduce our reliance on stock and to improve the resilience of
our business model.
We closely manage our cost base and operate on a lean basis,
and would be able to respond swiftly in the event of a downturn.
The Board has considered the potential implications of the UK’s
departure from the EU, taking into account the factors above, as well
as the time lag between the registration of new cars and the entry
of cars into the used car marketplace and the strength of our value
proposition, and does not consider that there will be a significant
impact on our business.
Our research shows that Auto Trader
We have a clear and open culture with a focus on trust
has 91% prompted brand awareness with
and transparency.
1
4
consumers for new and used cars and is
consistently voted as the most influential
automotive website by consumers in the
car buying process.
We have seen a significant reduction in
fraudulent and misleading adverts, due
to additional measures and monitoring
techniques used by our security team.
We have a dedicated customer security team, who closely monitor
our site to identify and quickly remove fraudulent or misleading
adverts.
We invest in new and innovative marketing campaigns and new ways
of engaging car buyers to continue to maintain brand awareness,
and to change perceptions of Auto Trader to be a destination for
new cars as well as used.
Our approach to cyber security and data protection, as described on
page 36, helps to protect us from the adverse impact of a significant
data breach or cyber attack.
The competitive landscape continues
We have the largest and most engaged audience of any UK
to develop, with new business models
automotive site. Our investment in brand as described above helps us
1 2
emerging.
Big media players are also entering the
to protect and grow our audience, to ensure that we remain the most
influential website a consumer visits when purchasing a vehicle.
marketplace, mostly competing for
We have a dedicated competitors’ guild to closely monitor
lower-value private sales.
competitor activity.
We continue to invest in and develop our product offering to improve
the value we offer to consumers, retailers and manufacturers.
We work in an agile way and can respond quickly to emerging
competitive threats.
15623563456Auto Trader Group plc Annual Report and Financial Statements 2018
Key performance indicators
page 22
Principal risk
Impact
Changes in the year
Key mitigations
As we anticipated, new car sales have fallen
during this financial year, and the used car
market has also seen declines of around 3%.
However, the overall UK car parc has
continued to grow as the number of cars
registered still outweighs the number of
cars that are scrapped each year.
The number of retailer forecourts has
remained relatively flat.
We monitor new and used car transactions closely, using data
from SMMT and now also data directly from the DVLA.
We have developed the Auto Trader Retail Price Index to monitor
the pricing trends of used cars by trade sellers.
We continue to diversify into related and adjacent activities to
reduce our reliance on stock and to improve the resilience of
our business model.
We closely manage our cost base and operate on a lean basis,
and would be able to respond swiftly in the event of a downturn.
Relevant
focus areas Change
2 3
4
Our research shows that Auto Trader
has 91% prompted brand awareness with
consumers for new and used cars and is
consistently voted as the most influential
automotive website by consumers in the
car buying process.
We have seen a significant reduction in
fraudulent and misleading adverts, due
to additional measures and monitoring
techniques used by our security team.
The competitive landscape continues
to develop, with new business models
emerging.
Big media players are also entering the
marketplace, mostly competing for
lower-value private sales.
The Board has considered the potential implications of the UK’s
departure from the EU, taking into account the factors above, as well
as the time lag between the registration of new cars and the entry
of cars into the used car marketplace and the strength of our value
proposition, and does not consider that there will be a significant
impact on our business.
1
4
We have a clear and open culture with a focus on trust
and transparency.
We have a dedicated customer security team, who closely monitor
our site to identify and quickly remove fraudulent or misleading
adverts.
We invest in new and innovative marketing campaigns and new ways
of engaging car buyers to continue to maintain brand awareness,
and to change perceptions of Auto Trader to be a destination for
new cars as well as used.
Our approach to cyber security and data protection, as described on
page 36, helps to protect us from the adverse impact of a significant
data breach or cyber attack.
We have the largest and most engaged audience of any UK
automotive site. Our investment in brand as described above helps us
to protect and grow our audience, to ensure that we remain the most
influential website a consumer visits when purchasing a vehicle.
1 2
We have a dedicated competitors’ guild to closely monitor
competitor activity.
We continue to invest in and develop our product offering to improve
the value we offer to consumers, retailers and manufacturers.
We work in an agile way and can respond quickly to emerging
competitive threats.
35
1.
Economy, market and
business environment
2.
Brand
3.
Increased
competition
A contraction in the number of new or used
car transactions could lead to consolidation
of retailers and a reduction of retailers’
advertising spend. It could also lead to a
reduction in manufacturers’ spend on digital
display advertising.
There are concerns about the implications
surrounding the UK’s departure from the
EU as economic conditions, currency volatility
and consumer confidence levels could all
be adversely affected. If the prices of cars
increase, consumer confidence levels
decrease, and manufacturers’ appetite
to supply cars to the UK market reduces,
this could have an adverse impact on
our business.
Our brand is one of our biggest assets. Our
research shows that we are the most trusted
automotive classified brand in the UK, with
nearly 10 times more consumers claiming to
trust Auto Trader over our nearest competitor.
Failure to maintain and protect our brand,
or any negative publicity that affects our
reputation (for example, a data breach),
could diminish the confidence that retailers,
consumers and advertisers have in our
products and services, and result in a
reduction in audience and revenue.
There are a number of online competitors in
the motor classified market, and alternative
routes for consumers to sell cars, such as
auctions or part-exchange.
Competitors could develop superior
consumer experiences or retailer products
that we are unable to replicate; or change
focus to try to expand their range of stock
and disrupt our market position.
This could impact our ability to grow revenue
due to the loss of audience or customers,
or erosion of our paid-for business model.
15623563456Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018
Principal risks and uncertainties continued
Principal risk
Impact
Changes in the year
Key mitigations
Focus areas relevant to our KPIs
Improve car buying in the UK
1 Increase consumer audience, advert views
and use of our valuation tools
2 Promote trust and fairness in the marketplace
Evolve the automotive ecosystem in the UK
3 Grow ARPR in a balanced, sustainable way
by creating value for our customers
4 Extend the penetration of products outside
of our core classified proposition
5 Enhance our relevance and value to manufacturers
Become the most admired digital business
6 Operate a simpler, leaner and more
data-oriented business
Our strategy
page 20
4.
Failure to innovate:
disruptive technologies
and changing consumer
behaviours
5.
IT systems and
cyber security
Failure to innovate and develop new products
or technologies, to execute new product
launches or to adapt to changing consumer
behaviour towards car buying or ownership
could have an adverse impact. For example,
this could lead to an over-reliance on price to
drive revenue growth in an unsustainable way;
or could result in missed opportunities as we
fail to be at the front of industry developments.
As a digital business, we are reliant on our
IT infrastructure to continue to operate.
Any significant downtime of our systems
would result in an interruption to the services
we provide.
A significant data breach, whether as a result
of our own failures or a malicious cyber attack,
would lead to a loss in confidence by our
retailers, advertisers and consumers.
This could result in loss of audience, loss of
revenue, reputational damage and potential
financial losses in the form of penalties.
Relevant
focus areas Change
3
5
In recognition of changing consumer
Continuous research into changing consumer behaviour, including
behaviour, we have successfully launched
our bi-annual Market Reports and Buyer Behaviour Report.
monthly price search in 2018, a complex
product requiring FCA authorisation,
integration with external partners and
significant development of our platform.
Monitoring of emerging trends, using external resources where
needed, and regular contact with other similar businesses in other
territories.
in technology.
Ability to innovate and respond quickly due to our agile and
collaborative way of working, and continuous investment
The enactment of GDPR in May 2018 has
We have a disaster recovery and business continuity plan in place
significantly increased the financial impact
which is regularly reviewed and tested. This includes the use of
of a data breach. We have enhanced our
two data centres and regular back ups of data.
1 2 3
4 5 6
processes and policies as required.
We continuously monitor the availability and resilience of processing
systems and services and if required can restore the availability and
access systems and data in a timely manner in the event of a physical
or technical incident.
We have dedicated security teams, including white hat hackers,
and carry out regular penetration testing and review of threats and
vulnerabilities. We invest in IT and security infrastructure to ensure
our systems remain robust.
Over the last 12 months we have taken the opportunity to review all
processes that involve data collection, storage or processing, and
have updated and amended to ensure that they meet the enhanced
GDPR requirements.
All of our employees are required to undertake annual compliance
training which includes Information Security and GDPR.
We have introduced two-factor verification for all our retailers,
and for employees, to access our network.
We have been PCI DSS (payment card industry data security
standard) compliant since 2013 and use an external Quality Security
Assessor to maintain best practice.
6.
Employees
Our continued success and growth is
dependent on our ability to attract,
recruit, retain and motivate our highly skilled
workforce, with a particular focus on
specialist technological and data skills.
Failure to do so could result in the loss
of key talent.
90% of employees completing our
engagement survey said they were
proud to work at Auto Trader.
We use long-term incentive plans for our senior and key staff.
We carry out active succession planning and career development
plans to retain and develop the next level of executives, and added
6
Our Glassdoor rating based on anonymous
oversight of talent development to the terms of reference of the
reviews is 4.6/5.
Nomination Committee.
Launched a mentoring matching
We have a strong, value-led culture which is embedded through
programme.
recruitment, induction, training and appraisals.
Carried out a review of long-term incentive
We carry out employee engagement surveys and closely monitor
plans and plan to make some changes to
Glassdoor ratings. We have regular business updates, all-employee
make them more relevant and motivating.
annual conference, networks and guilds.
36
124612345Auto Trader Group plc Annual Report and Financial Statements 2018
4.
Failure to innovate:
disruptive technologies
and changing consumer
behaviours
5.
IT systems and
cyber security
Failure to innovate and develop new products
or technologies, to execute new product
launches or to adapt to changing consumer
behaviour towards car buying or ownership
could have an adverse impact. For example,
this could lead to an over-reliance on price to
drive revenue growth in an unsustainable way;
or could result in missed opportunities as we
fail to be at the front of industry developments.
As a digital business, we are reliant on our
IT infrastructure to continue to operate.
Any significant downtime of our systems
would result in an interruption to the services
we provide.
A significant data breach, whether as a result
of our own failures or a malicious cyber attack,
would lead to a loss in confidence by our
retailers, advertisers and consumers.
This could result in loss of audience, loss of
revenue, reputational damage and potential
financial losses in the form of penalties.
Key performance indicators
page 22
Principal risk
Impact
Changes in the year
Key mitigations
In recognition of changing consumer
behaviour, we have successfully launched
monthly price search in 2018, a complex
product requiring FCA authorisation,
integration with external partners and
significant development of our platform.
Continuous research into changing consumer behaviour, including
our bi-annual Market Reports and Buyer Behaviour Report.
Monitoring of emerging trends, using external resources where
needed, and regular contact with other similar businesses in other
territories.
Ability to innovate and respond quickly due to our agile and
collaborative way of working, and continuous investment
in technology.
Relevant
focus areas Change
3
5
The enactment of GDPR in May 2018 has
significantly increased the financial impact
of a data breach. We have enhanced our
processes and policies as required.
We have a disaster recovery and business continuity plan in place
which is regularly reviewed and tested. This includes the use of
two data centres and regular back ups of data.
1 2 3
4 5 6
We continuously monitor the availability and resilience of processing
systems and services and if required can restore the availability and
access systems and data in a timely manner in the event of a physical
or technical incident.
We have dedicated security teams, including white hat hackers,
and carry out regular penetration testing and review of threats and
vulnerabilities. We invest in IT and security infrastructure to ensure
our systems remain robust.
Over the last 12 months we have taken the opportunity to review all
processes that involve data collection, storage or processing, and
have updated and amended to ensure that they meet the enhanced
GDPR requirements.
All of our employees are required to undertake annual compliance
training which includes Information Security and GDPR.
We have introduced two-factor verification for all our retailers,
and for employees, to access our network.
We have been PCI DSS (payment card industry data security
standard) compliant since 2013 and use an external Quality Security
Assessor to maintain best practice.
6.
Employees
Our continued success and growth is
dependent on our ability to attract,
recruit, retain and motivate our highly skilled
workforce, with a particular focus on
specialist technological and data skills.
Failure to do so could result in the loss
of key talent.
90% of employees completing our
engagement survey said they were
proud to work at Auto Trader.
Our Glassdoor rating based on anonymous
reviews is 4.6/5.
We use long-term incentive plans for our senior and key staff.
We carry out active succession planning and career development
plans to retain and develop the next level of executives, and added
oversight of talent development to the terms of reference of the
Nomination Committee.
6
Launched a mentoring matching
programme.
We have a strong, value-led culture which is embedded through
recruitment, induction, training and appraisals.
Carried out a review of long-term incentive
plans and plan to make some changes to
make them more relevant and motivating.
We carry out employee engagement surveys and closely monitor
Glassdoor ratings. We have regular business updates, all-employee
annual conference, networks and guilds.
37
124612345Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018
Principal risks and uncertainties continued
Viability statement
In accordance with Provision C.2.2 of the 2014 UK Corporate
Governance Code, the Directors have assessed the prospects
and viability of the Group over a period significantly longer than
12 months from the approval of these financial statements.
Assessment of prospects
The Board has determined that a period of three years to March 2021
is the most appropriate period to provide its viability statement due to:
– it being consistent with the Group’s rolling three-year strategic
planning process;
– it reflects reasonable expectations in terms of the reliability
and accuracy of operational forecasts;and
– projections looking out further than three years become
significantly less meaningful given the pace of change in the
digital automotive market.
The Group’s overall strategy and business model, as set out on pages
18 to 21, are central to assessing its future prospects. As such, key factors
likely to affect the future development, performance and position of
the Group are:
– Data and technology: continuous investment is made in developing
platform technologies which leads to improvements for consumers,
retailers and manufacturers;
– Market position: the Group has the largest and most engaged audience
of any UK automotive site and is the most influential website a consumer
visits when purchasing a vehicle; and
– People: continued success and growth are dependent on ability to
attract, retain and motivate a highly skilled workforce, with a particular
focus on specialist technological and data skills.
The Group’s prospects are assessed primarily through its strategic
planning process. This process includes an annual review of the ongoing
plan, led by the Group CEO and CFO/COO through the Operational
Leadership Team and in conjunction with relevant functions. The Board
participates fully in the annual process and has the task of considering
whether the plan continues to take appropriate account of the external
environment including technological, social and macroeconomic changes.
The output of the annual review process is a set of objectives which the
Group determines to be its focus areas, an analysis of the risks that could
prevent the plan being delivered, and the annual financial budget. The
latest updates to the plan were finalised in March 2018, which considered
the Group’s current position and its prospects over the forthcoming years.
Detailed financial forecasts that consider customer numbers, live car
stock, ARPR, revenue, profit, cash flow and key financial ratios have been
prepared for the three-year period to March 2021.
Funding requirements have also been considered. On 6 June 2018 the
Group signed into a new Revolving Credit Facility (the ‘New RCF‘) to
replace the existing Senior Syndicated Term Loan and revolving credit
facility. The New RCF, which is unsecured, has total commitments of
£400m and a termination date of June 2023. There is no requirement
to settle all or part of the debt before the termination date.
The first year of the financial forecasts forms the Group’s 2019 annual
budget and is subject to a re-forecasting process at the mid-point of the
year. The second and third years are prepared in detail and are flexed
based on the actual results in year one. Progress against financial budgets
and focus areas are reviewed monthly by both the Operational Leadership
Team and the Board. This control measure is in place to prevent and
mitigate the impact of factors that may affect the Group’s prospects.
Assessment of viability
The output of the Group’s strategic and financial planning process
detailed above reflects the Board’s best estimate of the future prospects
of the business. To make the assessment of viability, however, additional
scenarios have been modelled over and above those in the ongoing plan,
based upon a number of the Group’s principal risks and uncertainties
which are documented on pages 34 to 37. These scenarios were overlaid
into the plan to quantify the potential impact of one or more of these
crystallising over the assessment period.
While each of the Group’s principal risks has a potential impact and has
therefore been considered as part of the assessment, only those that
represent severe but plausible scenarios have been modelled through
the plan. These were:
Scenario 1: Reduction of stock on the Auto Trader marketplace
Link to risk – Economy, market and business environment, Increased
competition, Failure to innovate
Macroeconomic factors such as consumer confidence have an impact
on the number of new and used car transactions that occur in the UK and
therefore retailer and manufacturer profitability. A contraction in the
number of new and used car transactions, when coupled with failure to
innovate new products in order to grow ARPR in a sustainable way, could
lead to retailers reducing their advertising spend in favour of competitors.
This scenario assumes a shock reduction in live car stock around a pricing
event. The number of retailers advertising stock with the Group was
assumed to reduce in a short space of time with further reductions in the
year after the shock event. No cost savings were assumed.
Scenario 2: Data breaches
Link to risk – IT systems and cyber security, Brand
The impact of any regulatory fines has been considered. The biggest
of these is the General Data Protection Regulation (‘GDPR’) fine for
data breaches, which was enacted in May 2018.
This scenario assumes a data breach resulting in the maximum fine,
coupled with significant reputational damage to the Group’s brand.
A severe reduction in revenue was modelled through each of the Trade,
Consumer services and Manufacturer and Agency areas. Marketing costs
were increased to model a potential need to increase traffic.
The scenarios above are hypothetical and severe for the purpose of
creating outcomes that have the ability to threaten the viability of the
Group; however, multiple control measures are in place to prevent and
mitigate any such occurrences from taking place.
The results of the stress testing demonstrated that due to the Group’s
significant free cash flow, access to the New RCF and the Board’s ability
to adjust the discretionary share-buy back programme, it would be able
to withstand the impact and remain cash generative.
Viability statement
Based on their assessment of prospects and viability above, the Directors
confirm that they have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as they fall due over
the three-year period ending March 2021.
Going concern
The Directors also considered it appropriate to prepare the financial
statements on the going concern basis, as explained in the Basis of
preparation paragraph in note 1 to the financial statements.
38
Auto Trader Group plc Annual Report and Financial Statements 2018 Corporate social responsibility
How we are
making a
difference
A part of our strategy is to become
the most admired UK digital business.
To achieve this we have built a digital
culture that is values-oriented,
customer-centric and data-driven
with a focus on an agile approach
to change and, importantly,
underpinned by creating a diverse
and inclusive workforce.
Measuring the impact
of our CSR strategy
These are just some of the metrics we
are focused on, in order to measure our
‘Make a difference’ strategy:
88%
of employees would
recommend Auto Trader
as a great place to work
90%
proud to work at
Auto Trader score
4.6 / 5
Glassdoor rating
50%
women on our OLT
£170k
donated to charity
4,000
retailers reached through
insight programme
39
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Corporate social responsibility continued
Our culture
Our culture is built around
evolving our digital, values-
oriented approach to ensure
our people are proud of our
diversity, our focus on the
wildly important, our rapid
response to change and
our continued success
and growth.
A div e r s
e a n d i nclusive workf
o
r
c
Values and value-led
Purpose and principles-driven
e
Driven by
innovation
Based
on trust
and
debate
Digital
and
data-
driven
days that are available to all
employees each year, Give as
You Earn, which is one of our
Incredible Benefits, and through
the Auto Trader Community
Fund which supports grassroots
projects in Greater Manchester
and Greater London. We
constantly look at ways we can
make a positive contribution
to our industry; whether
that’s developing the next
generation of talent, sharing
best practice advice with our
retailer customers through
masterclasses and larger-scale
industry events, or helping the
industry as a whole to operate in
a more transparent, progressive
and diverse manner.
Overview
People are the Group’s most
valuable resource and the
success of the Group is to the
credit of all its employees.
Last year we were focused
on creating a simpler, leaner,
and more data-oriented
organisation. To ensure our
culture is digital, agile and
enables our teams to be quick
to respond to change, we have
continued to focus on creating
and maintaining consistently
high-performing, data-oriented
squads across the whole
Auto Trader business. Our culture
is shaped by the evolution of
our values of being determined,
reliable, curious, courageous,
humble and community-minded.
These values often manifest
themselves in our fast-paced
and highly customer-oriented
approach in our commitment
to being an exciting, innovative
and digital-led company.
40
Corporate social responsibility
at Auto Trader is driven by our
values and culture and is focused
on making a difference to our
employees, our community
and our industry. This, along
with our diversity and inclusion
strategy, is embedded into how
we operate on a daily basis.
As an employer, it comprises
employee engagement, rewards
and recognition schemes,
people development, health
and safety, the environmental
impact, sustainability and
energy efficient operations.
As a company, we are keen
to give back to our local
communities in which we
operate, as well as supporting
charities and causes that
are close to our employees’
hearts. We continue to focus
our community support in four
areas: employees’ individual
charitable fundraising efforts,
promoting the two volunteering
Auto Trader Group plc Annual Report and Financial Statements 2018 Strategic report / Governance / Financial statements
Our values
To truly reflect our culture and the
behaviours we all adhere to every
day, we updated our values this year.
We made the decision to change
inspirational to courageous and we
added community-minded to
encapsulate our business’s focus on
supporting not only the Auto Trader
community but the wider
communities in which we operate.
Be determined
We are passionate about our customers,
showing stamina and resilience, and have
the conviction to do the right thing. We will
roll up our sleeves to get the job done.
Be reliable
We are outcome-oriented and we do
what we say we will do. We perform under
pressure and have a strong work ethic.
Be curious
We are always learning. We question why,
we search for better ways, ask questions
and actively listen.
Be humble
We are open, honest, approachable and
we treat each other fairly. We recognise
success in ourselves and others but admit
and learn from mistakes.
Be courageous
We are bold in our thinking, overcoming
fears, challenging the conventional and
we will run towards and embrace change.
Be community-minded
We look after each other, respect
diversity and advocate inclusion. We are
committed to making a difference to the
communities around us and think of others
before ourselves.
41
Auto Trader Group plc Annual Report and Financial Statements 2018 Corporate social responsibility continued
Making a
difference
to diversity
and inclusion
“Diversity is the mix,
inclusion is getting the mix
to work well together.”
Ensuring Auto Trader is a diverse and inclusive
employer that contributes positively to the
communities in which we operate remains
a key strategic priority for our business. Our
dedicated diversity and inclusion working
group has committed to design and deliver
a comprehensive strategy concentrating on
all diversity strands, with a focus on LGBT+,
gender equality, disability and neurodiversity
and BAME for this year.
Diversity – for everyone at Auto Trader –
means respect for and appreciation of
differences in: gender, age, sexual orientation,
disability, race and ethnic origin, religion
and faith, marital status, social, education
background and way of thinking. We believe
that inclusion is a state of being valued,
respected and supported for who you are.
Our colleagues across the business have
worked collaboratively with our Diversity
and Inclusion group and achieved
positive results.
We continued our one-day Diversity and
Inclusion workshops, which every new joiner
attends within their first three months,
focusing on creating common understanding
of the concepts as well as exploring
participants’ unconscious biases and how
they can impact their own behaviour and
relationships with other people inside and
outside of work. This year we extended the
invite to customers and business partners,
who participated in the workshop and took
learnings back to their own organisations.
This year we launched a Diversity and
Inclusion month in August to bring together
some already successful initiatives with new
ones, aiming to educate, celebrate and make
a difference. We introduced workshops by
the National Autistic Society, Stonewall and
Mental Health First Aid England. The latter
resulted in us creating our team of Mental
Health First Aiders, available to provide
support to colleagues in our offices and
out in the field. Our Auto Trader Women’s
Network hosted a talk with two inspirational
senior leaders sharing their personal stories
42
as women in the digital industry and our
Photography Club created an exhibition
celebrating the diverse city of Manchester.
Our accessibility and inclusive design
working group ran workshops to introduce
employees to some of the challenges
disabled and neurodiverse people
potentially face and help them understand
how they can make a difference when
creating products for our customers. The
month ended with more than a hundred of
our employees taking part in the Manchester
Pride Festival Parade and being awarded
Best Corporate Entry for their passionate
showcase of support to the LGBT+
community.
Our employee groups and networks (Family
Network, Women’s Network, Photography,
Book, Board game, Running and Film Clubs)
continue to bring our colleagues together,
in line with our philosophy that inclusion
will be achieved by respecting each other’s
differences but concentrating on finding
common ground.
We continue our participation to promote
Science, Technology, Engineering and Maths
(‘STEM’) careers by supporting schools by
running Code Clubs to teach young children
how to code.
We also ran summer experience days hosting
schools and universities, introducing them
to the digital, technology and automotive
industries. Following the success of the past
two years we continue to participate in the
Change 100 programme organised by Leonard
Cheshire Disability. We offered two summer
placements, one resulting in a permanent
placement to our Graduate Scheme.
Our ambition to become one of the most
diverse and inclusive employers is supported
by our Company policies and practices which
are reviewed regularly in line with the Equality
Act 2010 protected characteristics and best
practice. Everyone from across the business
is involved in providing feedback to help us
continuously evolve and take positive action
to ensure our colleagues, customers and
partners feel they can be their authentic
self while having a brilliant experience
working with us.
Auto Trader Group plc Annual Report and Financial Statements 2018 Gender Pay Gap
We published our Gender Pay Gap
information earlier this year, in line with the
Government’s requirements for companies
with over 250 employees to do so. Although
we only had to report data for Auto Trader
Limited (being the only company in the Group
with more than 250 employees) we voluntarily
provided information for the whole Group,
in order to be more transparent.
The mean hourly Gender Pay Gap for
Auto Trader Group was 14.9% while the
median gap was 17.5%. This gap is not about
inequality of pay. We are confident that
men and women are paid equally across the
business for comparable roles. Our Gender
Pay Gap arises from under-representation
of women in certain highly paid functions,
including technology and other STEM related
roles; as well as under-representation
of women in leadership roles. Although
we do not believe that any level of gap is
acceptable, our Gender Pay Gap is lower
than the UK high-tech sector of 25%,
showing the progress we have already
made. Our median Gender Pay Gap is lower
than the UK average of 18.5%.
We are committed to addressing the
Gender Pay Gap, and we are taking a number
of actions as outlined in the full report on
our corporate website.
Gender diversity
As a result of some of the actions we
have taken, we have seen our gender
diversity continue to improve. We’re really
pleased to report that our Operational
Leadership Team (‘OLT’) is now 50% women,
and we are making good progress towards
the Hampton-Alexander targets for 33% of
women on the OLT and their direct reports.
Hourly Gender Pay Gap
14.9%
mean
17.5%
median
Men Women
Total
4
7
70
2
7
26
6
14
96
Women
as % of
total
33%
50%
27%
509
315
824
38%
Board
OLT 1
OLT direct
reports
Total
Company
1 Senior managers for the purpose of s.414C of the
Companies Act 2006 (Strategic Report and Directors’
Report) Regulations 2013.
Operational Leadership Team (%)
50
50
Direct reports (%)
27
73
Men
Women
43
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Corporate social responsibility continued
100
BEST
COMPANIES
TO WORK FOR
2018
Making a
difference
to our
employees
To help us achieve our mission of being one
of the most admired UK digital businesses,
we have built a business that is centred
around its people. Our success is due to the
diverse talent of our innovative, courageous,
talented and committed people.
Informing and consulting
our employees
We value our people and their opinions.
Every year we organise an all-employee
conference where we celebrate our
achievements and share the strategy
and focuses for the year ahead.
We also hold regular business and financial
updates throughout the year to keep
employees informed on the Group’s
performance and priorities as well as giving
them the opportunity to feed back and
contribute with questions and ideas.
We hold regular checks throughout the year,
allowing teams to spend time together in
an open and secure environment to discuss
how they feel in the workplace and how
we are doing against our key focus areas.
We also offered a second Sharesave scheme
in 2017, promoting a culture of shared
ownership, and saw take-up rates of over 40%.
Training and development
Investing in our people remains a key
focus. We have a dedicated Learning and
Development team, specialising in various
fields including personal, career, leadership,
systems and business-related training, and
also use external experts to bring outside
insight and knowledge when required.
All new people joining our business are
given a brilliant start to their careers with
us by attending a three-day induction
programme, allowing them to understand
the core values of our business and culture
and ways of working.
We recognise that all our employees are
unique and have different needs and
learning styles. We offer blended learning
opportunities that are aligned to our
collaborative and inclusive culture, including
workshops, bitesize sessions, on-the-job
solutions, attendance at conferences,
coaching and mentoring, online learning
and professional qualifications.
Our managers take part in the Practical
People Leadership Programme (‘PPLP’),
and senior leaders take part in the Leadership
Development Programme (‘LDP’), both
aimed at developing well-rounded leaders
that will drive the future of Auto Trader.
We have welcomed a number of apprentices,
graduates and work placements under
our future talent programme, to equip
our business with the skills needed for
our ongoing success. Every individual
is responsible for their own career and
personal development, and we aim for
everyone to have quarterly development
conversations with their people leaders.
Employee engagement
and recognition
We conducted an employee engagement
survey again this year, and achieved a
response rate of 91% of our total workforce.
Overall engagement remains positive, with
90% of our people feeling proud to work
for Auto Trader, and 88% saying they would
recommend us as a great place to work.
There were also areas to improve, and we
have set up working groups to concentrate
on these, including recognition, career
development and physical and mental
health. Our Glassdoor rating is 4.5 out of 5,
based on more than 200 anonymous reviews.
For the second year we participated in the
Sunday Times Top 100 Best Companies
to Work For and we achieved a two-star
‘Outstanding’ rating and moved up the list
to number 32.
44
Auto Trader Group plc Annual Report and Financial Statements 2018 Making a
difference
to our
communities
Disabled employees
We are part of the Department
for Work and Pensions Disability
Confident employer scheme and
have agreed to its commitments and
taken action to make a difference
to disabled people.
Our dedicated resourcing team
actively reaches out to disabled
candidates and welcomes their
applications for employment. We
take great care to make reasonable
adjustments during the assessment
process according to the needs of
each individual to ensure that
they can perform at their best.
We remain committed to supporting
disabled employees or those who
become disabled during their
employment with us. Recognising
that everyone is unique, we provide
the right support to ensure they
continue to realise their full potential
at work and develop their careers
with us. This year we have also added
more support and education for
managers of disabled colleagues,
for example ‘Understanding Autism
for Managers’ workshops provided
by the National Autism Society.
We have established a dedicated team
of colleagues from across our business
who are committed to driving our Make a
Difference strategy, which aims to maximise
the support and impact we provide to the
communities in which we operate.
We donate to local causes through the
Auto Trader Community Fund, powered by
Forever Manchester (a registered charity),
which makes awards of up to £1,000 to
community groups and grassroots projects
across Greater Manchester. This year, the
fund has donated over £60,000 to various
local groups that bring people together and
empower them to create sustainable changes
in their lives. As a recognition of our efforts,
Forever Manchester awarded us the
Business Supporter of the Year for 2017.
We are extending this fund and are in the
process of setting up a similar fund model
to support charities in Greater London.
Donations from Auto Trader directly to
other charities totalled an additional
£60,000 through our Auto Trader
Sponsorships initiative which provides
match-funding to employees, customers
and partners fundraising for charities
that are close to their hearts.
Our Give as You Earn (‘GAYE’) scheme
participation has reached 11% of our total
workforce and £100,000 has been donated
to various charities through payroll.
But Make a Difference is more than just
donating money.
We encourage all our colleagues to utilise
two optional volunteering days every
year. One in four of our employees have
offered their time and skills to support
worthy causes across the UK, such as
Barnabus, a drop-in centre for homeless
people; FareShare, to fight food waste and
tackle hunger; Didsbury Park, to maintain
eight acres of green space; and Dress for
Success, helping to empower women by
providing professional attire and skills to
gain employment.
To support the arts and design in Manchester,
we continue our successful partnership with
HOME arts centre and supported various
initiatives including the PUSH festival of
fresh creative experiences from the North
West, showcasing some of the most exciting
film, theatre and visual arts from the region,
and sponsorship of the monthly ‘Bring the
Family’ initiative, enabling the provision of
an intergenerational film programme to
audiences in Greater Manchester.
45
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Corporate social responsibility continued
Making a
difference to
our industries
Our Make a Difference strategy extends
to supporting the wider technology,
automotive, advertising and creative
industries.
Supporting STEM careers
To encourage future talent, we have
continued our partnership with Manchester
Digital by taking part in their Apprenticeship
Scheme for the second year, welcoming
an additional four apprentices. We also
support relevant degrees for Software
Developer and Infrastructure Technician
apprentices. We continue to offer a PhD
scholarship and two summer project
grants for Data Science students from
the University of Manchester.
We work with local universities and schools
and host numerous experience days in our
offices, run mock interviews and give talks
to introduce them to careers in digital. We
continue to participate to promote STEM
subjects and careers by supporting local
schools and clubs in the Manchester area.
25 of our colleagues have trained to
become ‘STEM ambassadors’ so that they
can support ‘Code Clubs’, teaching young
children how to code and supporting the
‘People Like Me’ initiative to encourage girls
into relevant STEM careers.
We are proud that our Director of Risk and
Compliance, Helena Fearon, was shortlisted
in this year’s Women in IT Award: Security
Champion of the Year, in recognition of her
work in the safety and security arena. Helena
leads our customer security team and risk
and compliance function, and chairs the
wider industry body Vehicle Safe Trading
Advisory Group (‘VSTAG’) which aims to
bring the industry, police and fraud agencies
together to help consumers buy and sell
vehicles safely and securely.
We hosted over 100 events and conferences,
including: Manchester Youth HAC, Rails
Girls, Manimation, Real UX and Manchester
Futurists. We are also members of the
Manchester Publicity Association, working
to evolve the creative, media, publishing
and digital industries in Manchester.
46
Automotive industry
The automotive industry, much like the
wider technology sector, has a significant
challenge with diversity. We work with key
media partners, recruitment businesses and
major automotive retailer groups to actively
drive the diversity agenda.
We participate in key industry events such
as Inspiring Automotive Women, and will be
hosting an upcoming event in partnership
with Ennis & Co. and media title ARN, which
aims to bring together the wider automotive
industry to discuss diversity issues as
well as to encourage actionable plans for
businesses to take away.
Leading the industry, sharing ideas, and
inspiring change and action are at the heart of
our work with our retailer customers. Through
our masterclasses, conferences, webinars,
in-house discovery days and award events
we share the latest consumer trends, best
practice advice and insights gleaned from our
data to help shape the future of the industry.
Over 4,000 retailer customers or industry
figures joined us for one of these sessions.
We want to make a difference to our
customers by rewarding their efforts, and
we do this annually at our Retailer Awards
Ceremony – The Auto Trader Click Awards.
The awards recognise those at the forefront
of digital automotive retailing and those
that really do put the consumer at the heart
of their business. These awards are used
by retailers to promote their business to
consumers on our marketplace.
Auto Trader Group plc Annual Report and Financial Statements 2018 Making a difference
to our environment
Scope 1: Fuel for
company cars (tCO2e) 1
Scope 2: Electricity and
gas for our offices
(tCO2e) 1
Total carbon emissions
(tCO2e) 1
Revenue (£m)
Carbon intensity 2
Year-on-year change
2018
2017
390
491
340
437
928
311.4
3.0
731
330.1
2.2
(27%)
1 Tonnes of carbon dioxide equivalent.
2
Absolute carbon emissions divided by
revenue in millions.
Greenhouse gas emissions
statement
Auto Trader is required to measure and
report its direct and indirect greenhouse
gas (‘GHG’) emissions by the Companies
Act 2006 (Strategic Report and Directors’
Report) Regulations 2013. The greenhouse
gas reporting period is aligned to the
financial reporting year. The methodology
used to calculate our emissions is based
on the financial consolidation approach,
as defined in the Greenhouse Gas Protocol,
A Corporate Accounting and Reporting
Standard (Revised Edition). Emission factors
used are from UK government (‘BEIS’)
conversion factor guidance current for
the year reported.
The report includes the ‘Scope 1’
(combustion of fuel) in relation to company
cars and ‘Scope 2’ (purchased electricity
and gas) emissions associated with our
offices. We have chosen to include the
emissions associated with leased company
cars in Scope 1, as we are responsible for
these emissions.
We have chosen to present a revenue
intensity ratio as this is a relevant indicator
of our growth and is aligned with our
business strategy. The reduction in our
GHG emissions is due to a reduction in our
company car fleet and continued refreshing
of energy efficient office and IT equipment.
Health and safety
We are committed to maintaining a safe
workforce for our employees, customers
and visitors and anyone affected by our
business’s activities. It is therefore our policy
that all of the Group’s facilities, products and
services comply with applicable laws and
regulations governing safety and quality.
During the year, there were no major injuries
reported under the Reporting of Injuries,
Diseases and Dangerous Occurrences
Regulations.
Our offices
As a digital business, based between our
offices in Manchester, London and Dublin,
we believe our environmental footprint is
small. We actively encourage our employees
to consider our environmental impact.
We operate recycling systems in the
offices, established with local authorities,
and we have no waste bins by desks,
which encourages the amount of recycling
we do. We operate a staff café in our
Manchester office and have implemented
measures to reduce the consumption of
single use plastics.
Our UK offices are both graded highly by the
BREEAM standard; Kings Cross in London
achieved an ‘Outstanding’ rating and our
Manchester office an ‘Excellent’ one.
We continue to use Fruitful Office to deliver
fruit to our offices each week. Fruitful Office
plants one tree in Malawi for every basket of
fruit we receive. Last year, 2,030 trees were
planted on behalf of Auto Trader, helping the
organisation to mitigate the effects of global
warming, deforestation and providing an
income to local communities.
47
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Corporate social responsibility continued
Doing the
right thing
Auto Trader believes in promoting trust
and fairness in the marketplace and
this has become part of the way we
work across the organisation. We aspire
to be the UK’s most admired digital
business and we want that admiration
to come from employees, suppliers
and customers.
The only way to deliver the best
services for our customers – and do
the right things by our people – is to
approach things in the right way. We
have established policies, procedures
and training to ensure that everyone
at Auto Trader knows that they must
behave professionally, ethically
and legally, treating people with
decency and respect.
We promote a culture of compliance
and shared responsibility by providing
advice and information to keep our
employees and customers smart,
safe and secure.
Each year, our employees complete
compliance training that covers
fraud, bribery, anti-money laundering,
information security and GDPR.
Anti-bribery and corruption
We are committed to carrying out all
business activities in an honest, open
and ethical manner. We have zero
tolerance to any aspect of bribery and
corruption, both within our business
and in respect of any third parties with
whom we have dealings. We have an
established anti-bribery and corruption
policy and procedures in place including
reporting of gifts and hospitality,
standard contractual clauses with
suppliers and annual online compliance
training for all employees.
48
Maintaining a trusted
marketplace
Consumers trust Auto Trader to show
genuine, accurate adverts when they
search for vehicles. We have a dedicated
customer security team who monitor our
site to identify adverts that are potentially
fraudulent or misleading, whether that
be a misleading price or inaccurate
mileage in their advert. We also have
functionality to enable users of our site to
report a misleading advert whilst they are
searching, which we then investigate and,
if necessary, remove from the site.
Modern slavery policy
We have a zero-tolerance approach to
modern slavery and are committed to
acting ethically and with integrity in all our
business dealings and relationships, and
to implementing and enforcing effective
systems and controls to ensure modern
slavery is not taking place anywhere in
our own business or in any of our supply
chains. We are committed to ensuring there
is transparency in our own business and in
our approach to tackling modern slavery
throughout our supply chains. We expect the
same high standards from all our contractors,
suppliers and other business partners.
Whistleblowing
We provide an independent whistleblowing
service if employees need to report
anything untoward or experience any serious
malpractice or wrongdoing in our business.
Auto Trader Group plc Annual Report and Financial Statements 2018 Protecting our customers’
and consumers’ data
Protecting the data of our consumers
and our retailer customers is also an
important focus for us.
We invest heavily in security and data
protection. We have a dedicated
security squad and we invest to ensure
that our systems are robust and that
we remain compliant with PCI/DSS
(payment card industry, data security
standard). Over the last 12 months
we have taken the opportunity to
review all processes that involve data
collection, storage or processing, and
have updated and amended to ensure
that they meet the enhanced GDPR
requirements.
Human rights and equal
opportunity
The Group is committed to treating
all its employees and job applicants
fairly and equally. It is our policy not to
discriminate based on their gender,
sexual orientation, marital or civil
partner status, gender reassignment,
race, religion or belief, colour,
nationality, ethnic or national origin,
disability or age, pregnancy, or trade
union membership or the fact that
they are a part-time worker or a
fixed-term employee. The equal
opportunities policy operated
by the Group ensures all workers have
a duty to act in accordance with this.
The Company’s Strategic report is
set out on pages 1 to 49. Approved by
the Board on 7 June 2018 and signed
on its behalf by:
Nathan Coe
Chief Financial Officer
and Chief Operating Officer
7 June 2018
“Auto Trader
believes in
promoting trust
and fairness in the
marketplace and
this has become
part of the way
we work across
the organisation.”
49
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Governance overview
A robust framework of
governance underpinned
by a culture of openness
and transparency
Ed Williams
Chairman
“The Company
complied with all
provisions set out
in the Corporate
Governance Code
for the period.”
Corporate governance statement
page 54
50
I am pleased to introduce our corporate
governance statement which incorporates
reports from the Chairmen of each of our
Board Committees. These reports explain
our governance policies and procedures in
detail and describe how we have applied
the principles of corporate governance
contained in the UK Corporate Governance
Code 2016 (the ‘Code’).
Compliance with the Corporate
Governance Code
The Company complied with all provisions
set out in the Code for the period.
Directors
Sean Glithero stepped down as Chief
Financial Officer on 21 September 2017
after 11 years with Auto Trader. Sean made
a significant contribution to the success
of Auto Trader’s transformation from a print
to a digital business and was instrumental in
taking our Company from private ownership
to a listed UK plc. We would like to thank him
for his tremendous contribution and wish him
well in his next venture. Nathan Coe, Chief
Operating Officer, took on the additional role
of Chief Financial Officer from that date.
The composition of the Board is kept under
continual review to ensure that it has the
skills, experience and balance required for
the proper stewardship of the business.
We have three independent Non-Executive
Directors, who bring with them significant
commercial and financial expertise and are
well placed to support the Executive Team
in implementing our strategy. We have two
Executive Directors and therefore comply
with the relevant provision of the Code for
at least half of the Board to be independent,
excluding myself.
All Directors will offer themselves for
election or re-election by the shareholders
at the forthcoming AGM.
Board effectiveness
In our third year as a premium listed
business, we engaged an external company,
Independent Audit Limited, to facilitate our
Board evaluation process.
A comprehensive review process was
carried out, including a review of Board
and Committee papers and observation
of meetings as well as interviews with
every Board member.
Auto Trader Group plc Annual Report and Financial Statements 2018
Committees of the Board
The Board has established the following Committees and has
delegated certain functions and tasks within their approved Terms
of Reference. This allows the Board to operate efficiently and focus
on relevant areas of its responsibilities.
The membership of each Committee and a summary of its role is
below. The full Terms of Reference of each Committee are published
on the Company’s website at plc.autotrader.co.uk/investors
Board
Nomination
Committee
Audit
Committee
Remuneration
Committee
Disclosure
Committee
Members
– Ed Williams (Chairman)
Members
– David Keens (Chairman)
Members
– Jill Easterbrook (Chairman)
– David Keens
– Jill Easterbrook
– Jeni Mundy
– Jill Easterbrook
– Jeni Mundy
– David Keens
– Jeni Mundy
Members
– Trevor Mather
– Nathan Coe
– Claire Baty
Role and Terms
of Reference
Reviews the structure,
size and composition of
the Board and its Committees,
and makes recommendations
to the Board. Also covers
diversity, talent development
and succession planning.
Role and Terms
of Reference
Reviews and reports to the
Board on the Group’s financial
reporting, internal control,
whistleblowing, internal
audit and the independence
and effectiveness of the
external auditors.
Role and Terms
of Reference
Responsible for all elements
of the remuneration of the
Executive Directors, the
Chairman and senior
employees.
Role and Terms
of Reference
Assists the Board in discharging
its responsibilities relating to
monitoring the existence of
Inside Information and its
disclosure to the market.
Read more
page 60
Read more
page 62
Read more
page 66
plc.autotrader.co.uk/investors
The review demonstrated that our Board
and each Committee continue to function
well, with only minor recommendations
for improving effectiveness further.
The performance of every Director also
remains effective. More detail can be found
on page 56.
Remuneration Policy review
We also carried out a review of our
Remuneration Policy during the year, and
having consulted widely with shareholders
and governance advisory agencies, we will
be proposing some changes to our policy for
approval at the 2018 AGM. We believe that
the changes being proposed will result in a
policy which will serve to attract, retain and
motivate our executive colleagues, without
being excessive. More details can be found
in the Remuneration Policy on pages 68.
Annual General Meeting
Our Annual General Meeting (‘AGM’) will be
held at 10.00 am on Thursday 20 September
2018 at 4th Floor, 1 Tony Wilson Place,
Manchester, M15 4FN and we expect that
all Directors will be in attendance.
Ed Williams
Chairman
7 June 2018
51
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018
Board of Directors
1
3
5
2
4
6
The dates of appointment shown are the dates on which the Directors were first
appointed to the Board of Auto Trader Group plc or the Group’s previous parent company,
Auto Trader Holding Limited.
52
Auto Trader Group plc Annual Report and Financial Statements 2018 1. Ed Williams
Chairman
2. Trevor Mather
Chief Executive Officer
Biography
Ed has been a Non-Executive Director
of Auto Trader since November 2010
and Chairman since March 2014.
He was the founding Chief Executive
of Rightmove plc, serving in that capacity
from November 2000 until his retirement
from the business in April 2013. Rightmove plc
was floated on the London Stock Exchange
in February 2006. Prior to Rightmove,
Ed spent the majority of his career as a
management consultant with Accenture
and McKinsey & Co. Ed holds an MA in
Philosophy, Politics and Economics from
St Anne’s College, Oxford.
Biography
Trevor joined Auto Trader as Chief Executive
Officer in June 2013. Previously, Trevor was
President and CEO of ThoughtWorks, a global
IT and software consulting company.
Trevor joined ThoughtWorks in 2001, to
kick-start the UK branch of the company, and
then took responsibility for all international
operations before becoming CEO in 2007.
He helped oversee the business grow from
a 300-person North American company to
a 2,200-person global business with
operations in 29 cities around the world
with a particular personal focus on helping
businesses become truly digital. Before his
time at ThoughtWorks, Trevor spent almost
10 years at Andersen Consulting (now
Accenture) focusing on e-business solutions.
Trevor holds an MEng in Aeronautics and
Astronautics from Southampton University.
3. Nathan Coe
Chief Financial Officer
and Chief Operating Officer
Biography
Nathan was appointed to the Board as Chief
Operating Officer (‘COO’) in April 2017 and
as Chief Financial Officer (‘CFO’) in July 2017.
Nathan joined Auto Trader in 2007 to oversee
the transition from a magazine business to
being a pure digital company. He was
responsible for launching a number of new
business areas, and led the Company’s early
entry and subsequent growth in mobile and
online. For the past two years, Nathan has
been the joint Operations Director, sharing
responsibility for the day-to-day operations
of the business.
Prior to joining Auto Trader, Nathan
was at Telstra, Australia’s leading
telecommunications company, where he
led Mergers and Acquisitions and Corporate
Development for its media and internet
businesses. He was previously a consultant
at PwC, having graduated from the
University of Sydney with a B.Com. (Hons).
Appointed to Board: November 2010.
Appointed to Board: June 2013.
Appointed to Board: April 2017.
Independent on appointment: Yes.
Independent: N/A.
Independent: N/A.
External appointments: Idealista S.A.
External appointments: Burns Sheehan
Limited; Forever Manchester.
External appointments: None.
Committee memberships:
Nomination (Chairman).
Committee memberships:
Disclosure.
Committee memberships:
Disclosure.
4. David Keens
Senior Independent Non-Executive Director
5. Jill Easterbrook
Independent Non-Executive Director
6. Jeni Mundy
Independent Non-Executive Director
Biography
David was appointed as a Non-Executive
Director on 1 May 2015.
Biography
Jill was appointed as a Non-Executive
Director to the Board on 1 July 2015.
Biography
Jeni was appointed as a Non-Executive
Director on 1 March 2016.
David was previously Group Finance
Director of NEXT plc (1991 to 2015) and its
Group Treasurer (1986 to 1991). Previous
management experience includes nine years
in the UK and overseas operations of
multinational food manufacturer Nabisco
(1977 to 1986) and prior to that seven years
in the accountancy profession. David is a
member of the Association of Chartered
Certified Accountants and of the Association
of Corporate Treasurers.
Jill is currently the CEO of Boden,
the clothing retailer.
Jill was previously at Tesco PLC (2001-16)
where she was a member of the Executive
Committee, having held a variety of roles
across Strategy and Operations.
Jill started her career at Marks & Spencer
in buying and merchandising and also spent
time as a management consultant with
Capgemini Ernst & Young.
Jeni was previously at Vodafone (1998 to
2017). Most recently she held Group Director
roles across Product Management and
Sales. Prior to that she was Chief Technology
Officer on the UK and New Zealand
Executive Boards.
Jeni started her career as a
Telecommunications Engineer with
BellSouth in New Zealand and holds
an MSc in Electronic Engineering from
Cardiff University.
Appointed to Board: May 2015.
Appointed to Board: July 2015.
Appointed to Board: March 2016.
Independent: Yes.
Independent: Yes.
Independent: Yes.
External appointments: J Sainsbury plc.
External appointments: Boden Limited.
External appointments: None.
Committee memberships:
Audit (Chairman), Nomination, Remuneration.
Committee memberships:
Remuneration (Chairman), Nomination, Audit.
Committee memberships:
Remuneration, Nomination, Audit.
53
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Corporate governance statement
This corporate governance statement explains key features
of the Company’s governance framework and how it
complies with the UK Corporate Governance Code published
in 2016 by the Financial Reporting Council.
Introduction
This statement also includes items
required by the Listing Rules and the
Disclosure Guidance and Transparency
Rules (‘DTRs’). The UK Corporate
Governance Code (the ‘Code’) is
available on the Financial Reporting
Council website at frc.org.uk
Compliance with
the 2016 Code
The Company has complied in full
with all provisions of the 2016 Corporate
Governance Code during the year.
This report is structured to follow
each of the sections of the Code:
e
c
n
a
n
r
e
v
o
G
A Leadership
See page 54
B Effectiveness
See page 56
C Accountability
See page 58
D Remuneration
See page 59
E Relations with shareholders
See page 59
Board responsibilities
The Board has adopted a formal schedule
of matters reserved for its approval and has
delegated other specific responsibilities to
its Committees. The schedule sets out key
aspects of the affairs of the Company which
the Board does not delegate. It is reviewed at
least annually, and is published on our website
at plc.autotrader.co.uk/investors
Refer to page 51 for a summary of
these matters.
Insurance
The Company maintains appropriate
insurance to cover Directors’ and officers’
liability for itself and its subsidiaries and such
insurance was in force for the whole of the
financial year ending 31 March 2018.
Number of scheduled meetings held
Director
Ed Williams
Trevor Mather
Nathan Coe
David Keens
Jill Easterbrook
Jeni Mundy
Board
Audit
Remuneration
Nomination
8
8
8
8
8
8
8
4
n/a
n/a
n/a
4
4
4
7
n/a
n/a
n/a
7
7
7
3
3
n/a
n/a
3
3
3
A Leadership
Board and Committee meetings
and attendance
Board meetings are planned around the key
events in the corporate calendar, including
the half-yearly and final results and the
Annual General Meeting (‘AGM’), and a
strategy meeting is held each year.
In months where there is no Board meeting,
a financial update call is held at which the
Board discusses results with operational
management. Once a year, Directors
spend a day visiting customers.
During the year, the Chairman and
Non-Executive Directors have met without
Executive Directors present. In addition,
the Non-Executive Directors have met
without the Chairman and the Executive
Directors present.
54
Auto Trader Group plc Annual Report and Financial Statements 2018
Board roles
To ensure a clear division of responsibility
at the head of the Company, the positions
of Chairman and Chief Executive Officer are
separate and not held by the same person.
The division of roles and responsibilities
between the Chairman and the Chief
Executive Officer is set out in writing
and has been approved by the Board.
David Keens is the Senior Independent
Director.
Chairman
Chief Executive Officer
– Leadership and governance of the Board.
– Responsible for the day-to-day operations
– Creating and managing constructive
relationships between the Executive
and Non-Executive Directors.
and results of the Group.
– Developing the Group’s objectives and
strategy and successful execution of strategy.
– Ensuring ongoing and effective communication
between the Board and its key shareholders.
– Responsible for the effective and ongoing
communication with shareholders.
– Setting the Board’s agenda and ensuring that
adequate time is available for discussions.
– Ensuring the Board receives sufficient,
pertinent, timely and clear information.
– Delegates authority for the day-to-day
management of the business to the
Operational Leadership Team (comprising the
Executive Directors and senior management)
who have responsibility for all areas of
the business.
Non-Executive Directors
Senior Independent Director
Company Secretary
– Scrutinise and monitor the performance
– Acts as a sounding board for the Chairman.
– Available to all Directors to provide
of management.
– Constructively challenge the Executive
Directors.
– Monitor the integrity of financial information,
financial controls and systems of risk
management.
– Available to shareholders if they have
concerns which the normal channels through
the Chairman, Chief Executive Officer or
other Directors have failed to resolve.
– Meets with the other Non-Executive
Directors without Executive Directors
present.
– Leads the annual evaluation of the
Chairman’s performance.
advice and assistance.
– Responsible for providing governance advice.
– Ensures compliance with the Board’s
procedures, and with applicable rules
and regulations.
– Acts as secretary to the Board and all
Committees.
Overall authority for the management
and conduct of the Group’s business,
strategy, objectives and development.
Monitoring delivery of business strategy
and objectives; responsibility for any
necessary corrective action.
Oversight of operations including
effectiveness of systems of internal
controls and risk management.
Board
responsibilities
Providing leadership
for the long-term success
of the Group
Approval of changes to the capital,
corporate and/or management structure
of the Group.
Approval of the Annual Report and
Financial Statements, communications
with shareholders and the wider
investment community.
Approval of the dividend policy.
55
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Corporate governance statement continued
Letters of appointment
The Chairman and the Non-Executive
Directors have letters of appointment which
are available for inspection at the registered
office of the Company during normal
business hours and at the place of the AGM
from at least 15 minutes before and until the
end of the meeting. These letters set out
the expected time commitment from
each Director.
The Board as a whole is updated,
as necessary, in light of any governance
developments as and when they occur,
and there is an annual Legal and Regulatory
Update provided as part of the Board
meeting. All Directors are required to
complete our annual compliance training
modules covering anti-bribery, anti-money
laundering, data protection and
information security.
As part of the Board evaluation, the Chairman
meets with each Director to discuss any
individual training and development needs.
Information and support available
to Directors
Full and timely access to all relevant
information is given to the Board. For Board
meetings, this consists of a formal agenda,
minutes of previous meetings and a
comprehensive set of papers including
regular operational and financial reports,
provided to Directors in a timely manner in
advance of meetings.
All of the Directors have the right to have
their opposition to, or concerns over,
any Board decision noted in the minutes.
Directors are entitled to take independent
professional advice at the Company’s
expense in the furtherance of their duties,
where considered necessary.
All Directors have access to the advice
and services of the Company Secretary,
Claire Baty.
Election of Directors
The Board can appoint any person to be
a Director, either to fill a vacancy or as an
addition to the existing Board. Any Director
so appointed by the Board shall hold office
only until the next AGM and shall then be
eligible for election by the shareholders.
External directorships
Any external appointments or other
significant commitments of the Directors
require the prior approval of the Board.
Trevor Mather is a director on the board
of Burns Sheehan Limited, a recruitment
business, for which he does not receive
any remuneration. The Board approved
the appointment and confirmed that it
was satisfied that there was no conflict of
interest arising. Trevor is also Chair of Forever
Manchester, a charity which Auto Trader
supports through donations. Nathan Coe
does not have any external directorships
as at the date of this report. The Board is
comfortable that external appointments
of the Chairman and the Non-Executive
Directors do not impact on the time that
any Director devotes to the Company.
In accordance with the Company’s Articles
of Association, the Board has a formal system
in place for Directors to declare conflicts of
interests and for such conflicts to be
considered for authorisation.
Induction and development
All newly appointed Directors receive an
induction briefing on their duties and
responsibilities as Directors of a publicly
quoted company. There is a formal induction
programme to ensure that newly appointed
Directors familiarise themselves with the
Group and its activities, either through
reading, meetings with the relevant member
of senior management or through sessions in
the Board meetings.
Each Board meeting contains a presentation
from senior management on one of the focus
areas for the year. Specific business-related
presentations are given to the Board by
senior management and external advisors
when appropriate – refer to the table of
activities opposite.
All Directors are offered the opportunity to
meet with customers and take part in sales
calls to understand the business from a
customer’s perspective. There is a formal
day of ‘dual calling’ where Board members
accompany the sales force on their visits
to customers. All Directors now receive a
weekly newsletter from our sales and service
team to ensure they are kept informed of the
latest customer dialogue and sentiment.
B Effectiveness
Board composition, balance
and independence
At the date of this report, the Board
consists of the Non-Executive Chairman,
three independent Non-Executive Directors
and two Executive Directors.
All of the Non-Executive Directors (David
Keens, Jill Easterbrook and Jeni Mundy) are
considered to be independent in character
and judgement, and free of any business or
other relationship which could materially
influence their judgement. Ed Williams was
considered to be independent on
appointment. The Chairman’s fees and the
Non-Executive Directors’ fees are disclosed
on pages 75 and 79, and they received no
additional remuneration from the Company
during the year.
Therefore, at 31 March 2018 and to the date
of this report, the Company is compliant with
the Code provision that at least half the Board,
excluding the Chairman, should comprise
independent Non-Executive Directors.
The Board and its Committees have an
appropriate balance of skills, experience
and knowledge of the Group to enable them
to discharge their respective duties and
responsibilities effectively in accordance
with main principle B.1 of the Code.
Biographies of all members of the Board
appear on pages 52 and 53.
Appointments to the Board
The Board has established a Nomination
Committee, chaired by Ed Williams, with
all other members comprising independent
Non-Executive Directors, and one of the
main responsibilities of this Committee is
to identify and nominate candidates for
appointment as Directors to the Board.
The work of the Committee is described
on pages 60 and 61.
Non-Executive appointments to the Board
are for an initial term of up to three years.
Non-Executive Directors are typically
expected to serve two three-year terms,
although the Board may invite the Director
to serve for an additional period.
56
Auto Trader Group plc Annual Report and Financial Statements 2018 Board and Committee activities in 2018
Strategy
Operational
Financial
People
Shareholders
Risk and governance
l
i
r
p
A
e
n
u
J
y
l
u
J
r
e
b
m
e
t
p
e
S
r
e
b
o
t
c
O
r
e
b
m
e
v
o
N
y
r
a
u
r
b
e
F
h
c
r
a
M
7
1
0
2
8
1
0
2
Regular reports received
Monthly operational
report with key
achievements and
issues in the month,
view of the industry,
competitors and
customers.
Monthly financial
report with results,
KPIs, outturn and
external view.
Monthly report
of people changes,
recruitment,
resourcing needs
and employee
engagement.
Regular feedback
from investor
meetings.
Quarterly
shareholder
analysis.
Approval of Annual
Report and
Preliminary Results
Announcement.
Bonus approval
for 2017 PSP targets
and grants.
Appointment of
Nathan Coe as joint
CFO/COO.
Develop consistently
high-performing,
data-oriented teams
AT-wide.
Appointment
of Deloitte as
Remuneration
Committee advisors.
Diversity and
inclusion.
Succession planning.
Confirmation of
Group’s capital
structure and the
dividend policy.
Approval of final
dividend.
Reviewed feedback
from analysts and
investors from results
roadshow.
Reviewed feedback
from investors and
proxy advisory
agencies in advance
of Annual General
Meeting (‘AGM’).
Approval of material
contracts.
Governance and
regulatory updates.
Annual review
of governance
framework.
Business continuity
planning and disaster
recovery.
Review and approval
of Group risk register.
Review and approval
of viability statement.
Review and approval
of Modern Slavery
Statement.
Criminal offence
of tax evasion.
Insurance
programme.
Review approach
to risk management.
Acquisition of Motor
Trade Delivery
Limited.
Accelerate audience,
ad views and
valuations growth.
Improve stock
choice, volumes
and accuracy.
Become known by
consumers, retailers
and manufacturers as
a new car destination.
Strategy off-site
including customer
visits.
Pricing and product
strategy for 2018.
Approval of
half-yearly report.
Initial review of
Remuneration Policy.
Approval of interim
dividend.
Review and approval
of Group risk register.
Capital strategy and
refinancing.
2019 Operating plan.
ROI on marketing
activity.
Review of tax
compliance.
Large customers
update.
2019 Financial plan.
Gender Pay Gap
reporting and
action plan.
Approval of changes
to Remuneration
Policy to be proposed
to shareholders.
Salary reviews
and bonus targets
for 2019.
Legal and regulatory
update.
Review of internal
control framework.
Review of progress
towards GDPR
compliance.
External Board
evaluation feedback
and action plan.
Reviewed feedback
from analysts and
investors from results
roadshow.
Feedback from
Capital Markets Day.
Feedback from
shareholder
consultation on
Remuneration review.
57
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Corporate governance statement continued
Board evaluation and effectiveness
In the third year as a listed company, the Board engaged Independent Audit Limited to facilitate an external evaluation of the Board,
Committees and individual Directors during the year.
This included interviews with each of the Board Directors and members of senior management, review of Board and Committee papers
and observation of Board and Committee meetings. The draft findings were discussed with the Chairman and then presented to the Board
in March 2018.
Actions arising from the review
The Board and Committees operate with a relatively
informal and high trust approach, and should monitor
that this continues to function well.
The Board should develop a systematic approach
to building a view of and measuring the culture
of the business.
This will be kept under continuous review, and specifically focused on during
meetings of the Chairman and Non-Executive Directors, including review
of any behavioural early warnings, weakening business performance relative
to the economic cycle, and retrospective review of major decisions taken.
A cultural scorecard will be developed and used by the Board to formally
measure and track culture.
The Nomination Committee should focus on succession
planning and motivation of senior managers beyond
the Board.
The Terms of Reference of the Nomination Committee have been broadened
to explicitly include talent development and succession planning below
Board level.
The Board should consider opportunities for deeper
and wider contact between the Non-Executive
Directors and the wider workforce.
More opportunities for contact are being developed, including employee
forums, attendance at all-employee events and greater exposure to areas
of the business on an ad hoc and informal basis.
Board papers should be reviewed to ensure they are
consistent and concise, and address the desired areas.
The Company Secretary will review all Board papers to ensure that every
paper has a clear purpose and positioning to give focus to Board discussions.
In addition, an assessment of the Chairman’s performance was carried out, led by the Senior Independent Director, and feedback
was provided to him individually.
Overall, the results showed that the Board and its Committees continue to operate well, and that each individual Director continues
to make an effective contribution.
The Board, assisted by the Audit Committee,
has carried out a review of the effectiveness
of the system of risk management and
internal controls during the year ended
31 March 2018 and for the period up to the
date of approval of the consolidated
financial statements contained in the
Annual Report. The review covered all
material controls, including financial,
operational and compliance controls and
risk management systems. The Board
considered the weaknesses identified and
reviewed the developing actions, plans and
programmes that it considered necessary.
The Board confirms that no significant
weaknesses or failings were identified as
a result of the review of effectiveness.
C Accountability
The Board has established an Audit
Committee, chaired by David Keens
and comprised entirely of Independent
Non-Executive Directors. The Committee
has defined Terms of Reference which
include assisting the Board in discharging
many of its responsibilities with respect
to financial and business reporting,
risk management and internal control.
The work of the Committee is described
on pages 62 to 65.
Financial and business reporting
Assisted by the Audit Committee, the Board
has carried out a review of the 2018 Annual
Report and considers that, in its opinion, the
report is fair, balanced and understandable
and provides the information necessary for
shareholders to assess the Company’s
position and performance, business model
and strategy. Refer to the Audit Committee
report on page 63 for details of the review
process.
See pages 18 to 21 in the Strategic report
for a description of our business model,
strategy and focus areas.
See page 38 for the Board’s statement on
going concern and the viability statement.
Risk management and internal control
The Company does not have a separate
Risk Committee; the Board is collectively
responsible for determining the nature and
extent of the principal risks it is willing to
take in achieving its strategic objectives.
The processes in place for assessment,
management and monitoring of risks are
described in a separate section on pages
32 to 33.
The Board acknowledges its responsibility
for establishing and maintaining the Group’s
system of risk management and internal
controls and it receives regular reports from
management identifying, evaluating and
managing the risks within the business. The
system of internal controls is designed to
manage, rather than eliminate, the risk of
failure to achieve business objectives and
can provide only reasonable, and not
absolute, assurance against material
misstatement or loss. The Audit Committee
reviews the system of internal controls
through reports received from
management, along with others from
internal and external auditors. Management
continues to focus on how internal controls
and risk management can be further
embedded into the operations of the
business and on how to deal with areas of
improvement which come to the attention
of management and the Board.
58
Auto Trader Group plc Annual Report and Financial Statements 2018 The Board receives regular reports on
issues relating to share price, trading activity
and movements in institutional investor
shareholdings. The Board is also provided
with current analyst opinions, forecasts and
feedback from its joint corporate brokers,
Bank of America, Merrill Lynch and Numis,
on the views of institutional investors on a
non-attributed and attributed basis, and
on the views of analysts from its finance
PR agency, Powerscourt. Any major
shareholders’ concerns are communicated
to the Board by the Executive Directors.
The Chairman, the Senior Independent
Director and other Non-Executive Directors
are available to meet with shareholders and
arrangements can be made through the
Company Secretary.
Annual General Meeting
The AGM of the Company will take place
at 10.00 am on Thursday 20 September 2018
at the Company’s registered office at
4th Floor, 1 Tony Wilson Place, Manchester,
M15 4FN. All shareholders have the
opportunity to attend and vote, in person
or by proxy, at the AGM.
All proxy votes received in respect of each
resolution at the AGM are counted and the
balance for and against, and any votes
withheld, are indicated. At the meeting itself,
voting on all the proposed resolutions is
conducted on a poll rather than a show of
hands, in line with recommended best
practice. The Chairman, the Chair of each of
the Committees and the Executive Directors
are present at the AGM and available to
answer shareholders’ questions.
The Notice of the AGM can be found in a
booklet which is being mailed out at the
same time as this Annual Report. The Notice of
the AGM sets out the business of the meeting
and an explanatory note on all resolutions.
Separate resolutions are proposed in respect
of each substantive issue. Results of
resolutions proposed at the AGM will be
published on the Company’s website:
plc.autotrader.co.uk/investors following
the AGM.
D Remuneration
The Board has established a Remuneration
Committee, chaired by Jill Easterbrook and
comprised entirely of Independent
Non-Executive Directors. The work of the
Committee is described on pages 66 to 80.
E Relations with
shareholders
The Board has a comprehensive investor
relations programme to ensure that existing
and potential investors understand the
Company’s strategy and performance.
As part of this programme, the Executive
Directors give formal presentations to
investors and analysts on the half-year
and full-year results in November and June
respectively. These updates are webcast
live and then posted on the Group’s website
and are available to all shareholders.
The results presentations are followed
by formal investor roadshows in the UK
and overseas.
In March 2018, a Capital Markets Day was
held, attended by institutional investors,
buy-side and sell-side analysts. During the
Capital Markets Day, the Executive Directors
presented an update on progress made since
the IPO, information about long-term risks
and opportunities, the automotive market
and the competitive environment. Members
of senior management also presented more
detail on the Company’s customers,
consumers and products, including
product demonstrations.
All announcements, investor
presentations, the Capital Markets Day
presentations and the Annual Report are
on the Company’s website:
plc.autotrader.co.uk/investors
During the year, the Company carried out an
extensive consultation process in relation
to the Remuneration Policy to be proposed
at the 2018 AGM, which included contact
with the top 30 investors, and with proxy
advisory agencies.
There is also an ongoing programme of
attendance at conferences, one-to-one
meetings and group meetings with
institutional investors, fund managers and
analysts. These meetings cover a wide range
of issues, including strategy, performance
and governance, but care is exercised to
ensure that any price-sensitive information is
released to all shareholders, institutional and
private, at the same time. Meetings which
relate to governance are attended by the
Chairman or another Non-Executive Director
as appropriate. Private shareholders are
encouraged to give feedback and
communicate with the Board through
ir@autotrader.co.uk
59
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Report of the Nomination Committee
Ed Williams
Chairman of the Nomination Committee
Composed of the Chairman and three independent
Non-Executive Directors.
At least one meeting held per year.
Meetings are attended by the Chief Executive Officer
and other relevant attendees by invitation.
For more information on the Committee’s Terms of
Reference visit plc.autotrader.co.uk/investors
Three meetings were held during the year:
Meetings attended/
total meetings held
Percentage of
meetings attended
Ed Williams (Chairman)
David Keens
Jill Easterbrook
Jeni Mundy
3/3
3/3
3/3
3/3
100%
100%
100%
100%
Our progress in 2018:
– Appointment of Nathan Coe in joint role of Chief Financial
Officer and Chief Operating Officer and continued monitoring
of succession planning.
– Further focus on diversity and inclusion.
– Renewal of additional three-year term for the Chairman
and Senior Independent Director.
– Engagement of external Board evaluators and review
of the recommendations.
In 2019 we will:
– Continue to monitor Board and senior management succession
in the context of the Company’s long-term strategy.
– Renewal of additional three-year terms for Non-Executive
Directors.
– Support management and the Board in promoting diversity
in senior management and across the workforce.
60
Dear shareholders,
I am pleased to present the Report of the Nomination Committee
for 2018.
Role of the Committee
The Committee reviews the structure, size and composition
of the Board and its Committees, and makes appropriate
recommendations to the Board for appointments to the Board.
The Committee also has specific responsibility to oversee
diversity and inclusion across the whole Group; and as a result of
the external Board evaluation, now monitors talent development
below Board level.
How the Committee operates
All members of the Committee are independent Non-Executive
Directors. The Chairman of the Board chairs all meetings of
the Committee unless they relate to the appointment of his
successor; for these meetings, the Senior Independent Director
(‘SID’) is invited to take the Chair unless the SID is in contention
for the role.
The Committee meets at least annually, and on an ad hoc basis as
required throughout the year. Only members of the Committee
have the right to attend meetings; however, the Chief Executive
Officer attends for all or part of meetings so that the Committee
can understand his views, particularly on key talent within
the business.
Succession planning in action
The Committee recognises that effective succession planning
is critical to the Company’s long-term success.
Our succession plans were put into action when Sean Glithero
announced his intention to resign in July 2017. The Committee
considered the options for replacing Sean, and agreed that,
in line with the succession plan, Nathan Coe was the most
suitable candidate for CFO in addition to his existing role as
COO, and so was appointed as joint CFO/COO with effect from
21 September 2017.
Following Nathan’s appointment and Sean’s departure, the
Committee reviewed and updated the succession plan to ensure
orderly succession for the Board and senior management, in the
context of the Group’s strategy. The succession plan takes into
account future skills requirements in the context of the Group’s
strategy, as well as recognising the importance of growing and
developing our internal talent.
Policy on appointments to the Board
The most important priority of the Committee has been, and
will continue to be, ensuring that members of the Board should
collectively possess the broad range of skills, expertise and
industry knowledge, and business and other experience
necessary for the effective oversight of the Group.
Appointments are made on merit, against objective criteria
and with due regard to the benefits of diversity on the Board.
The Committee takes account of a variety of factors before
recommending any new appointments to the Board, including
relevant skills to perform the role, experience, knowledge and
diversity, including gender diversity.
We have a target of women representation on our Board of 25%,
and we continue to meet this target, as two of our six Board
members are women.
Auto Trader Group plc Annual Report and Financial Statements 2018 Diversity and inclusion
The Nomination Committee’s Terms of Reference also include the
responsibility to oversee diversity and inclusion across the whole
Group, not just at Board and senior management level.
The Company has established a Diversity and Inclusion Guild,
with representation from across all parts of the business and led
by members of our Operational Leadership Team. This guild is
responsible for developing and driving our strategy to create a
diverse, inclusive and conscious Auto Trader, and reports to the
Nomination Committee on its activities and progress.
Diversity at Auto Trader means respect for and appreciation of
differences in: gender, age, sexual orientation, disability, race and
ethnic origin, religion and faith, marital status, social, educational
background and way of thinking. We do not set targets but we do
aim for our employee workforce to be reflective of the communities
in which we operate, across all aspects of diversity.
We acknowledge the recommendations of the Hampton-Alexander
Review and we are committed to strengthening women representation
at senior management level and throughout the organisation,
particularly in parts of the business where women are currently
unrepresented, such as technology.
We are pleased to report that 50% of our Operational Leadership
Team (‘OLT’) and 27% of the OLT’s direct reports are women.
External Board evaluation
During the year, there was an externally facilitated Board evaluation.
This is described in detail on page 58 of the corporate governance
statement.
Independence and re-election to the Board
In accordance with the UK Corporate Governance Code, all Directors
will retire and offer themselves for election or re-election to the Board.
The Directors who have been in post throughout the year have been
subject to a formal evaluation process, and both the Committee and
the Board are satisfied that all Directors continue to be effective in,
and demonstrate commitment to, their respective roles on the Board
and that each makes a valuable contribution to the leadership of
the Company.
The Board therefore recommends that shareholders approve the
resolutions to be proposed at the 2018 AGM relating to the election
and re-election of the Directors.
I will be available at the AGM to answer any questions on the work
of the Committee.
Ed Williams
Chairman of the Nomination Committee
7 June 2018
Board composition
As at 31 March 2018
3
2
1
Chairman
Independent Non-Executive Directors
Executive Directors
Board diversity
As at 31 March 2018
2
Men
Women
4
Board tenure
As at 31 March 2018
1
1
4
Over 5 years
2-5 years
Up to 2 years
61
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Dear shareholders,
I am pleased to introduce the Audit Committee report for 2018.
The Committee operates under defined Terms of Reference
and assists the Board in discharging many of its responsibilities
over monitoring the integrity of the Group’s financial reporting;
the effectiveness of the internal control and risk management
framework; the internal audit function; and the independence
and effectiveness of the external auditors. The Committee is
comprised entirely of independent Non-Executive Directors.
I fulfil the requirement for a Committee member to have recent
and relevant financial experience, and all members (and
therefore the Committee as a whole) have competence in
consumer and digital businesses.
The Committee met four times during the year, arranged around
our external reporting and audit cycle and with an additional
meeting this year in relation to GDPR compliance. Meetings are
attended by the CFO/COO and other members of management
by invitation, and with representation from KPMG and Deloitte.
The Committee reviewed significant accounting matters with an
appropriate level of challenge and debate. We believe that the
information in this Annual Report clearly explains progress
against our strategic objectives and is fair, balanced and
understandable.
The Committee plays a key role in ensuring that we continue
to have a robust internal control and risk management process.
Our internal audit function is outsourced to Deloitte LLP, who
continue to provide us with specialist expertise in delivering
a risk-based rolling review programme.
At the 2017 AGM, shareholders approved the Board’s
recommendation to re-appoint KPMG LLP as our external
auditors. The Committee has carried out a review of the
effectiveness and independence of KPMG and has
recommended to the Board that they are re-appointed
at the 2018 AGM.
David Keens
Chairman of the Audit Committee
7 June 2018
Report of the Audit Committee
David Keens
Chairman of the Audit Committee
Composed of three independent Non-Executive Directors.
David Keens is considered by the Board to have recent
and relevant experience. All members have significant
commercial and operating experience in consumer
and digital businesses.
At least three meetings held per year.
Meetings are attended by the Chief Financial Officer
and Chief Operating Officer, Chief Executive Officer,
internal auditors and external auditors by invitation.
For more information on the Committee’s Terms of Reference
visit plc.autotrader.co.uk/investors
Four meetings were held during the year:
Meetings attended/
total meetings held
Percentage of
meetings attended
David Keens (Chairman)
Jill Easterbrook
Jeni Mundy
4/4
4/4
4/4
100%
100%
100%
Our progress in 2018:
– Focus on key areas of judgement, including acquisition
accounting for Motor Trade Delivery and treatment of contingent
liability for VAT treatment of insurance revenue.
– Review of effectiveness of internal audit function, internal
controls and risk management framework.
– Evaluate effectiveness and independence of external audit.
– Review of GDPR compliance.
In 2019 we will:
– Agree with KPMG any changes for their 2019 audit.
– Review the impact of changes to accounting policies for IFRS 9,
IFRS 15 and IFRS 16.
– Continue to review the effectiveness of the internal audit
function and risk management framework.
62
Auto Trader Group plc Annual Report and Financial Statements 2018 Financial reporting
The primary role of the Committee in relation to financial reporting is to review and monitor the integrity of the financial statements,
including annual and half-year reports, result announcements, dividend proposals and any other formal announcement relating to the
Group’s financial performance.
The Committee assessed the quality and appropriateness of the accounting principles and policies adopted, and whether management had
made appropriate underlying estimates and judgements. In doing so, the Committee reviewed management reports in respect of the main
financial reporting issues and judgements made, together with reports prepared by the external auditor on the 2018 half-year statement and
2018 Annual Report.
The Committee, with assistance from management and KPMG, identified areas of financial statement risk and judgement as described below.
Description of focus area
Revenue recognition
Revenue recognition for the Group’s revenue streams is not complex.
However, this remained an area of focus for KPMG due to the large
volume of transactions and as revenue is the most material figure in
the financial statements.
KPMG carried out a review of our revenue recognition policies;
performed detailed analytical procedures; tested completeness
and existence of revenue by matching sales information from sales
systems to the financial systems and to cash receipts; reviewed
customer contracts; tested revenue cut-off and assessment of
deferred and accrued revenue; and carried out other computer-
assisted audit techniques.
KPMG also reviewed the Group’s assessment of IFRS 15 which
will be adopted from 1 April 2018 when it becomes mandatory.
Share-based payments
The Company has a number of share-based payment arrangements,
accounted for under IFRS 2, which requires the use of valuation
models and certain assumptions in determining their fair value at
grant and in the recognition of charges and, as such, is an area of
judgement for management.
Acquisition accounting
Management’s assessment of the allocation of goodwill and
intangible assets as part of the acquisition of Motor Trade Delivery
requires significant judgement.
KPMG evaluated the process and models used, challenged the
assessment of the identification of intangible assets and verified
the reliability and relevance of the data used.
Going concern and viability statement
The Directors must satisfy themselves as to the Group’s viability and
confirm that they have a reasonable expectation that it will continue
to operate and meet its liabilities as they fall due. The period over
which the Directors have determined it is appropriate to assess the
prospects of the Group has been defined as three years. In addition,
the Directors must consider if the going concern assumption is
appropriate.
Audit Committee action
The Committee was satisfied with the explanations provided
and conclusions reached.
The Committee reviewed the assumptions made by management,
particularly in relation to profit forecasts that determine the
proportion of shares granted under the PSP and DABP. The
Committee reviewed the comments within KPMG’s report into the
calculation of the charge and satisfied itself that the share-based
payment accounting is appropriate and in accordance with
accounting standards.
The Committee reviewed the assumptions made by management
in respect of the identification and valuation of intangible assets,
and the allocation of consideration, and was satisfied that these
were appropriately accounted for under IFRS 3.
The Committee reviewed management’s schedules supporting the
going concern assessment and viability statements. These included
the Group’s medium-term plan and cash flow forecasts for the
period to March 2021. The Committee discussed with management
the appropriateness of the three-year period, and discussed the
correlation with the Group’s principal risks and uncertainties as
disclosed on pages 34 to 37. The feasibility of mitigating actions and
the potential speed of implementation to achieve any flexibility
required was discussed. The Committee evaluated the conclusions
over going concern and viability and the proposed disclosures in the
financial statements and satisfied itself that the financial statements
appropriately reflect the conclusions.
63
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Report of the Audit Committee continued
Fair, balanced and understandable
At the request of the Board, the Committee has reviewed the content
of the 2018 Annual Report and considered whether, taken as a whole,
in its opinion it is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s
position, performance, business model and strategy. The Committee
was provided with an early draft of the Annual Report, and provided
feedback on areas where further clarity or information was required
in order to provide a complete picture of the Group’s performance.
The final draft was then presented to the Audit Committee for review
before being recommended for approval by the Board. When forming
its opinion, the Committee reflected on discussions held during the
year and reports received from the external auditor and considered
the following main areas:
Is the report
fair?
Is the report
balanced?
– Is a complete picture presented and has any
sensitive material been omitted that should
have been included?
– Are key messages in the narrative aligned
with the KPIs and are they reflected in the
financial reporting?
– Are the revenue streams described in the
narrative consistent with those used for
financial reporting in the financial statements?
– Is there a good level of consistency between
the reports in the front and the reporting in
the back of the Annual Report?
– Do you get the same messages when reading
the front end and the back end independently?
– Is there an appropriate balance between
statutory and adjusted measures and are
any adjustments explained clearly with
appropriate prominence?
– Are the key judgements referred to in the
narrative reporting and significant issues
reported in the Report of the Audit Committee
consistent with disclosures of key estimation
uncertainties and critical judgements set out
in the financial statements?
– How do these compare with the risks that
KPMG are planning to include in their report?
Is the report
understandable?
– Is there a clear and cohesive framework
for the Annual Report?
– Are the important messages highlighted
and appropriately themed throughout
the document?
– Is the report written in accessible language
and are the messages clearly drawn out?
Budgeting and
reforecasting
Following the Committee’s review, the Directors confirm that,
in their opinion, the 2018 Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position
and performance, business model and strategy.
Delegation of
authority and
approval limits
Segregation
of duties
64
Risk management and internal control
The Committee’s responsibilities include a review of the risk
management systems and internal controls to ensure that they
remain effective and that any identified weaknesses are properly
dealt with. The Committee:
– reviews annually the effectiveness of the Group’s internal
control framework;
– receives reports from the Group’s outsourced internal audit
function and ensures recommendations are implemented
where appropriate; and
– reviews reports from the external auditors on any issues identified
in the course of their work, including any internal control reports
received on control weaknesses, and ensures that there is an
appropriate response from management.
The Group has internal controls and risk management systems in
place in relation to its financial reporting processes and preparation
of consolidated accounts. These systems include policies and
procedures to ensure that adequate accounting records are
maintained and transactions are recorded accurately and fairly
to permit the preparation of financial statements in accordance
with IFRS. The internal control systems include the elements
described below.
Element
Approach and basis for assurance
Risk
management
Financial
reporting
Whilst risk management is a matter for the Board
as a whole, the day-to-day management of the
Group’s key risks resides with the Operational
Leadership Team (‘OLT’) and is documented in a
risk register. A review and update of the risk
register is undertaken twice a year and reviewed
by the Board. The management of identified risks
is delegated to the OLT, and regular updates are
given to executive management at quarterly
steering group meetings.
Group consolidation is performed on a monthly
basis with a month-end pack produced that
includes an income statement, balance sheet,
cash flow statement and detailed analysis.
The month-end pack also includes KPIs and these
are reviewed each month by the OLT and the
Board. Results are compared against the Plan
or Reforecast and narrative provided by
management to explain significant variances.
An annual Plan is produced and monthly results
are reported against this. A half-year Reforecast
is produced. The Plan and the Reforecast are
prepared using a bottom up approach, informed
by a high-level assessment of market and
economic conditions. Reviews are performed
by the OLT and the Board whilst the Plan is also
compared to the top down Medium Term Plan
(‘MTP’) as a sense check. The Plan is approved
by the OLT and the Board, and the Reforecast is
approved by the OLT and reported to the Board.
A documented structure of delegated authorities
and approval for transactions is maintained
beyond the Board’s Terms of Reference. This is
reviewed regularly by management to ensure
it remains appropriate for the business.
Procedures are defined to segregate duties
over significant transactions, including
procurement, payments to suppliers, payroll
and discounts/refunds. Key reconciliations
are prepared and reviewed on a monthly basis
to ensure accurate reporting.
Auto Trader Group plc Annual Report and Financial Statements 2018 Internal audit
Deloitte has been appointed as the Group’s outsourced internal
audit function. They are accountable to the Audit Committee and use
a risk-based approach to provide independent assurance over the
adequacy and effectiveness of the control environment. The internal
audit work plan for 2018 was approved by the Audit Committee and
covers a broad range of core financial and operational processes
and controls, focusing on specific risk areas, including:
– FCA compliance framework
– Fraud risk management
– Business continuity planning
– GDPR readiness
– Key financial controls
Management actions that are recommended following the audits
are tracked to completion and reviewed by the Committee to ensure
that identified risks are mitigated appropriately.
The Committee met with representatives from Deloitte without
management present and with management without representatives
of Deloitte present. There were no issues of significance raised
during these meetings.
Whistleblowing
A whistleblowing policy has been adopted which includes access
to a whistleblowing telephone service run by an independent
organisation, allowing employees to raise concerns on an entirely
confidential basis. The Committee receives regular reports on the
use of the service, any significant reports that have been received,
the investigations carried out and any actions arising as a result.
External auditors
One of the Committee’s roles is to oversee the relationship with the
external auditor, KPMG, and to evaluate the effectiveness of the
service provided and their ongoing independence. The Committee
has carried out a review based on discussion of audit scope and
plans, materiality assessments, review of auditors’ reports and
feedback from management on the effectiveness of the audit
process, and has concluded that the external auditor remains
effective and independent.
During the year the Committee reviewed KPMG’s findings of the
external auditor in respect of their review of the half-yearly report
for the six-month period ending 30 September 2017, and in respect
of the audit of the financial statements for the year ended
31 March 2018. The Committee met with representatives from
KPMG without management present and with management without
representatives of KPMG present, to ensure that there were no
issues in the relationship between management and the external
auditor which it should address. There were none.
The Committee has reviewed, and is satisfied with,
the independence of KPMG as the external auditor.
Non-audit services provided by the external auditor
The external auditor is primarily engaged to carry out statutory audit
work. There may be other services where the external auditor is
considered to be the most suitable supplier by reference to their
skills and experience. It is the Group’s practice that it will seek quotes
from several firms, which may include KPMG, before engagements
for non-audit projects are awarded. Contracts are awarded based
on individual merits. A policy is in place for the provision of non-audit
services by the external auditor, to ensure that the provision of such
services does not impair the external auditor’s independence or
objectivity, in accordance with the EU Audit Reform.
Non-audit service
Policy
Considered to be approved
by the Committee up to a level
of £100,000 for each individual
engagement, and to a
maximum aggregate in any
financial year of the higher
of £200,000 and 70% of the
average audit fees paid to
the audit firm in the last three
consecutive years.
Any engagement of the
external auditor to provide
permitted services over these
limits is subject to the specific
approval in advance by the
Audit Committee.
Prohibited, with the exception
of certain services which
are subject to derogation if
certain conditions are met,
in accordance with the EU
Audit Reform.
Audit-related services
directly related to the audit
For example, the review of interim
financial statements, compliance
certificates and reports to
regulators.
Acceptable non-audit services
Including, but not limited to:
work related to mergers,
acquisitions, disposals,
joint ventures or circulars;
benchmarking services; and
corporate governance advice.
Prohibited services
In line with the EU Audit Reform,
services where the auditor’s
objectivity and independence
may be compromised by the
threat of self-interest, self-review,
management, advocacy, familiarity
or intimidation – for example, tax
services, accounting services,
internal audit services, valuation
services and financial systems
consultancy.
Refer to plc.autotrader.co.uk/investors for full details of the policy.
During the year, KPMG charged the Group £37,575 for audit-related
assurance services.
The Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes
and Audit Committee Responsibilities) Order 2014 – statement
of compliance
As a competitive tender was carried out in 2016, and KPMG LLP were
first appointed as statutory auditors in the financial year to March
2017, we have complied with the requirement that the external audit
contract is tendered within the 10 years prescribed by EU and UK
legislation and the Code’s recommendation. The Company confirms
that it complied with the provisions of the Competition and Markets
Authority’s Order for the financial year under review.
David Keens
Chairman of the Audit Committee
7 June 2018
65
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018
Directors’ remuneration report
Annual statement
by the Chairman of the Remuneration Committee
Jill Easterbrook
Chairman of the Remuneration Committee
Composed of three independent Non-Executive Directors.
At least two meetings held per year.
The Company Chairman, Chief Executive Officer, the Chief
Financial Officer and Chief Operating Officer and other
relevant individuals are invited to attend the meetings –
no person is present during any discussion relating to their
own remuneration.
The Company Secretary acts as secretary to the Committee.
For more information on the Committee’s Terms of Reference
visit plc.autotrader.co.uk/investors
Three meetings were held during the year:
Meetings attended/
total meetings held
Percentage of
meetings attended
Jill Easterbrook (Chairman)
David Keens
Jeni Mundy
3/3
3/3
3/3
100%
100%
100%
Our progress in 2018:
– Reviewed our remuneration framework to ensure it remains
aligned with our strategy in advance of submitting a revised
Directors’ Remuneration Policy for approval at the 2018 AGM.
– Consulted with shareholders in relation to this revised
framework, the most notable aspect of which is the replacement
of TSR with Total Group revenue growth in our PSP.
– Assessed the achievement of targets for the 2018 annual bonus
and 2015 PSP awards.
– Determined the remuneration packages in respect of the
exit of Sean Glithero and the change in role of Nathan Coe.
– Set appropriate targets for 2019 bonuses and PSP awards
to be granted in 2018.
– Gave consideration to the approach to equity participation across
the workforce and launched our second SAYE scheme in 2018.
– Approved the 2017/18 Directors’ remuneration report.
In 2019 we will:
– Continue to monitor the executive pay environment,
governance developments and market practice.
– Determine how pay should be implemented for 2019/20 and set
appropriate targets for annual bonus and long-term awards.
– Assess the achievement of targets for the 2019 annual bonus
and 2016 PSP awards.
66
Dear shareholders,
I am pleased to present, on behalf of the Board, the Report
of the Remuneration Committee (the ‘Committee’) in respect
of the year ended 31 March 2018.
Performance and reward in 2018
2018 has been another strong year, with revenue growth of 7%
and Operating profit growth of 10%. We have also continued to
deliver good progress against our strategy. Further details can
be found on pages 20 to 21 of the Strategic report.
Annual bonus
The annual bonus for 2018 was based 75% on Operating profit
and 25% on strategic targets (growth in full page advert views
and penetration of managing products). Operating profit was
£220.6m, slightly above our target of £219.0m, which resulted
in a payout of 62% of maximum for this element. Full page advert
views showed a slight decline, which was below the threshold
for this element. Managing forecourts grew by a further 20% to
3,000 which was just below our target of 3,100. Total bonus for
2017/18 was therefore 50.3% of maximum, resulting in payments
of £411,830 for the CEO and £228,706 for the CFO & COO. Half of
this bonus will be deferred into shares for a two-year period.
Performance Share Plan (‘PSP’)
Our first PSP award following IPO was awarded in 2015 and will
vest in June 2018 based on performance over the three years
to 31 March 2018. The award was based 75% on Cumulative
Underlying operating profit performance and 25% on Total
Shareholder Return (‘TSR’) relative to the FTSE 250 (excluding
investment trusts). Cumulative Underlying operating profit
performance for the three years to 31 March 2018 was £603m,
which was above the maximum of £550m. TSR performance
exceeded the index by 27%, which is again above the maximum
target of 25%, and so overall, this award will vest in full in June
2018. Under the terms of the PSP holding period, the Directors
will retain the vested shares received for at least two years from
the point of vesting.
The Committee judged that annual bonus plan payouts and the
level of PSP award vesting appropriately reflected the underlying
performance of the Company.
Remuneration review
In light of the requirement to seek shareholder approval for a new
policy at the 2018 AGM, during 2017/18 the Committee undertook
a thorough review of our current remuneration arrangements.
The Committee considered a range of options for the structure
of remuneration going forward, but ultimately concluded that our
current remuneration framework has been successful and
continues to be appropriate for the Executive Directors.
The Committee has, however, made some modifications to the
structure and assessment of performance measures for the PSP
to better align performance measures with our strategy as well
as to simplify and increase the transparency of our approach to
assessing performance and setting targets. These modifications
are as follows:
– Total Group revenue growth will replace relative TSR as a
performance measure for 25% of the PSP award from 2018
onwards. Revenue growth is an important performance
indicator of the business and the Committee believes that
incentivising management to continue to grow revenue
performance through our three business lines – Trade,
Consumer services and Manufacturer and Agency
– will support long-term profit growth and shareholder
value creation.
Auto Trader Group plc Annual Report and Financial Statements 2018 – To ensure revenue performance is aligned with long-term value
creation the vesting for the revenue portion of the award will be
subject to an ‘underpin’ whereby the Operating profit measure must
be at least at threshold levels of performance for any portion of the
Total Group revenue element to pay out.
– His annual bonus opportunity will be increased, subject to the
approval of our new Remuneration Policy, to 150% of base salary
(from 130%). His PSP opportunity will be increased to 200% of base
salary (from 150%). This brings his incentive package in line with the
current award opportunities for the CEO.
– To ensure sustained long-term value creation for shareholders,
a further underpin will apply to the two-year post-vesting holding
period, whereby the Committee has discretion to make a downward
adjustment if there has been a material subsequent deterioration in
underlying performance which significantly departs from any
market deterioration.
– The Committee reconfirmed that Operating profit remains the
most appropriate profit measure for the remainder of the PSP.
Although EPS is widely used by other companies for long-term
incentives, the Committee believes that the method by which cash
may be returned to shareholders (e.g. through share buybacks)
should not affect executive compensation and therefore believes
that Operating profit is a more appropriate performance measure
for the PSP.
– Operating profit will be assessed based on growth over the
three-year performance period rather than Cumulative Operating
profit as used previously, aligning with the way revenue growth
is assessed.
– Taking into account shareholder feedback and to increase
transparency, we will disclose Total Group revenue and Operating
profit PSP targets at the time of award rather than with a one-year
delay. Targets for 2018 PSP awards are set out on page 70.
Current
Proposed
75% based on
Cumulative Operating
profit
75% on Operating
profit growth
– Note that Nathan’s shareholding guideline will also increase from
150% to 200% of salary, in line with the increase to the PSP award.
This approach creates a market competitive total package, but with
the increase to quantum driven primarily via the annual bonus and
PSP, which are subject to the achievement of stretching short and
long-term performance targets, which is best aligned to the interests
of our investors. Fixed pay would continue to be positioned towards
the lower end of market practice compared to companies of a similar
size and complexity to Auto Trader. Following this increase the
Committee believes that Nathan’s salary and total compensation
package will be appropriately positioned to reflect the size and
scope of his dual role and it is intended that any future salary
increases will be in line with those awarded to other employees
in the business.
For our CEO, Trevor Mather, his salary was increased by 2% to £557,134
with effect from 1 April 2018 in line with the general increase for other
employees across the Group. His maximum bonus opportunity and
his PSP award will continue to be 150% and 200% of salary, respectively,
in line with the Policy.
Annual bonus
75% of the maximum bonus opportunity will be based on Operating
profit with the remaining 25% being based on two strategic metrics
(based on stock and audience targets, which underpin the core health
and position of our business). Targets will be disclosed retrospectively
in next year’s report.
PSP
For the 2018 award, 75% will be based on Operating profit growth,
requiring compound annual growth over a three-year period of 10% for
maximum vesting. As outlined above, the remaining 25% will be based
on Total Group revenue growth, requiring 8% growth for maximum
vesting. The targets are disclosed in full on page 70.
25% based on TSR
relative to the FTSE 250
(excl. investment trusts)
25% based on Group
Total revenue growth
The Committee consulted with our main shareholders regarding the
proposed changes set out above and was pleased with the level of
support received.
Other elements of our policy will continue unchanged.
– This Annual Statement by the Chairman of the Remuneration
This remuneration report is in three parts.
Board changes
Sean Glithero left the Board on 21 September 2017. He received salary,
benefits and pension to this date. No further payments were made in
lieu of notice. On his departure all his long-term incentives and
deferred bonus shares lapsed.
Implementation of policy for 2018/19
Salary and incentive opportunities
On 3 July 2017, it was announced that following Sean Glithero’s
departure, Nathan Coe would be taking on the role of Chief Financial
Officer in addition to his existing role of Chief Operating Officer.
The Committee reviewed Nathan’s package and agreed the following
changes to reflect the significant increase in the size and the scope
of his responsibilities given his combined CFO & COO role:
– His base salary was increased to £370,000 with effect from 1 April
2018. This is an increase of 5.7% on his current salary and represents
both an annual adjustment and an increment to reflect his promotion
to CFO, in addition to his previous COO responsibilities. For
reference, across the Group for the 2018/19 financial year, the
average increase in salary was around 3.5%, reflecting both the
general market, promotions and individual rewards for performance.
Committee.
– The Directors’ Remuneration Policy (set out on pages 68 to 73),
which sets out our Policy for Executive Director and Non-Executive
Director remuneration. The Policy will be subject to a binding
shareholder vote at the AGM on 20 September 2018.
– The Annual Report on Remuneration (set out on pages 74 to 80),
which sets out how the Policy has been implemented during 2017/18
and how we intend to implement the Policy for 2018/19. The Annual
Statement by the Chairman, together with the Annual Report on
Remuneration, will be subject to an advisory vote at the AGM on
20 September 2018.
This report has been prepared in accordance with the Companies Act
2006, Schedule 8 of the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 (as amended in
2013) and the UKLA’s Listing Rules.
I hope that you will be supportive of the AGM resolutions to approve
our Directors’ Remuneration Policy and our Annual Report on
Remuneration for 2017/18. I shall be available at the AGM to answer
any specific questions that you may have.
Jill Easterbrook
Chairman of the Remuneration Committee
7 June 2018
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Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Directors’ remuneration report continued
Directors’ Remuneration Policy
This Remuneration Policy will be put to shareholders for approval in a binding vote at the AGM on 20 September 2018 and will be effective
from this date.
Policy overview
As outlined in the Remuneration Committee Chairman’s statement, in light of the requirement to seek shareholder approval for a new
Remuneration Policy, the Committee undertook a thorough review of the current remuneration arrangements for Executive Directors,
considering a range of potential approaches. The Committee concluded that the current framework remains appropriate and therefore
the Policy will be re-submitted to shareholders largely unchanged from the version approved by shareholders at the 2015 AGM.
Minor changes have been made to the Policy to clarify its practical operation and to reflect prevailing market practice.
The Policy is structured so as to ensure that the main elements of remuneration are linked to Company strategy, in line with best practice and
aligned with shareholders’ interests. The Policy is designed to reward Executive Directors by offering competitive remuneration packages,
which are prudently constructed, sufficiently stretching and linked to long-term profitability. In promoting these objectives, the Policy aims
to be simple in design, transparent and structured so as to adhere to the principles of good corporate governance and appropriate risk
management.
A further aim of the Remuneration Policy is to encourage a culture of share ownership by colleagues throughout the Company, and in support
of this we have both a SIP, under which an award of free shares to commemorate the Admission was granted, and a SAYE scheme. In November
2017 we launched our second SAYE programme.
How the views of shareholders and employees are taken into account
Whilst the Committee does not consult directly with employees on the Directors’ Remuneration Policy, the Committee does receive regular
updates regarding remuneration arrangements across the Group. These updates are taken into consideration when determining the
Remuneration Policy for the Executive Directors and in particular when considering any changes to policy and increases in the level of fixed
remuneration. The Company regularly undertakes an employee engagement survey which includes questions to understand employees’
views on their own remuneration and benefits, which the Committee also reviews.
The Committee is committed to a constructive dialogue with our shareholders in order to ensure that our Remuneration Policy is aligned with
their views. The Committee consulted with shareholders in advance of submitting our revised Policy to the shareholder vote and carefully
considered the feedback received. In conjunction with any additional feedback received from time to time, this will be considered as part
of the Committee’s annual review of how we intend to implement our Remuneration Policy.
If any significant changes to our Remuneration Policy which require shareholder approval are proposed, the Committee will seek to engage
with major shareholders to explain our proposals and obtain feedback.
Remuneration Policy for Executive Directors
Our Policy is designed to offer competitive, but not excessive, remuneration structured so that there is a significant weighting towards
performance-based elements. A significant proportion of our variable pay is delivered in shares with deferral and holding periods being
mandatory, and with appropriate recovery and withholding provisions in place to safeguard against overpayments in the event of certain
negative events occurring. The table below provides a full summary of the Policy elements for Executive Directors.
Purpose and link
to strategy
Operation and performance
conditions
Maximum
opportunity
Performance
assessment
To recruit and reward
executives of high
calibre.
Recognises individual’s
experience,
responsibility and
performance.
Salaries are normally reviewed annually
with changes effective from 1 April but
may be reviewed at other times if
considered appropriate.
Salary reviews will consider:
– personal performance;
– Group performance;
– the nature and scope of the role;
– the individual’s experience; and
– increases elsewhere in the Company.
Periodic reviews of market practice
(for example, in comparable companies
in terms of size and complexity) will
also be undertaken.
The Committee considers the impact
of any salary increase on the total
remuneration package.
There is no prescribed maximum
salary level or salary increase;
however, any base salary increases
will normally be in line with the
percentage increases awarded to
other employees of the Group.
The Committee reviews
the salaries of Executive
Directors each year taking
due account of all the factors
described in how the salary
policy operates.
However, increases may be made
outside of this policy in appropriate
circumstances, such as:
– Where a Director is appointed on
a salary that is at the lower end of
the market practice range, larger
increases may be awarded as the
executive gains experience to
move the salary closer to a more
typical market level.
– Where there has been a change in
the nature and scope of the role.
– Where there has been a significant
and sustained change in the size
and complexity of the business.
– Where there has been a significant
change in market practice.
Element
Salary
68
Auto Trader Group plc Annual Report and Financial Statements 2018 Element
Benefits
Purpose and link
to strategy
Operation and performance
conditions
Maximum
opportunity
Performance
assessment
To provide competitive
benefits to ensure
the wellbeing of
employees.
Executive Directors are entitled
to the following benefits:
– life assurance;
– income protection insurance; and
– private medical insurance.
The value of benefits is not capped
as it is determined by the cost to
the Company, which may vary.
N/A
Pension
To provide retirement
benefits for
employees.
Annual
bonus
To incentivise and
reward the achievement
of annual financial and
operational objectives
which are closely linked
to the corporate
strategy.
The Committee may determine that
Executive Directors should receive
additional reasonable benefits if
appropriate, taking into account typical
market practice and practice
throughout the Group.
Executive Directors may be reimbursed
for all reasonable expenses and the
Company may settle any tax incurred
in relation to these.
Where an Executive Director is required
to relocate to perform their role, they
may be provided with reasonable
benefits as determined by the
Committee in connection with this
relocation (on either a one-off or ongoing
basis), including any benefits such as
housing, travel or education allowances.
Directors are eligible to receive
employer contributions to the
Company’s pension plan (which is a
defined contribution plan), a salary
supplement in lieu of pension
benefits (or combination of the above)
or similar arrangement.
The annual bonus is based
predominantly on stretching financial
and operational objectives set at the
beginning of the year and assessed by
the Committee following the year end.
Half of any bonus earned is normally
subject to deferral into shares under the
Deferred Annual Bonus Plan (‘DABP’),
typically for a period of two years from
the date of award. The deferred shares
will vest subject to continued
employment, but there are no further
performance targets.
A dividend equivalent provision applies,
as described below.
Recovery and withholding provisions
apply, as described below.
Participation in the bonus plan, and all
bonus payments, are at the discretion
of the Committee.
Maximum contribution in line
with the contribution of other
employees in the Group, currently
5% of salary.
N/A
Maximum of 150% of salary.
Financial measures will
normally represent the
majority of bonus, with
strategic or operational
non-financial targets
representing the balance
(if any).
Not more than 20% of each
part of the bonus will be
payable for achieving the
relevant threshold hurdle.
Measures and weightings
may change each year to
reflect any year-on-year
changes to business
priorities.
The Committee has the
discretion to adjust targets
for any exceptional events
including acquisitions or
disposals that may occur
during the year.
69
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Directors’ remuneration report continued
Element
Performance
Share Plan
(‘PSP’)
Note, PSP awards
granted in June
2018 will take
effect under
this Policy.
Purpose and link
to strategy
Operation and performance
conditions
Maximum
opportunity
Performance
assessment
Normal: maximum of 200% of salary.
Exceptional circumstances:
maximum of 300% of salary.
To incentivise and
recognise successful
execution of the
business strategy over
the longer term.
To align the long-term
interests of Executive
Directors with those
of shareholders.
Awards will normally be made annually
under the PSP, and will take the form of
nil-cost options or conditional share
awards. Participation and individual
award levels will be determined at the
discretion of the Committee within
the Policy.
Awards normally vest after three years
subject to the extent to which the
performance conditions specified
for the awards are satisfied, and
continued service.
Recovery and withholding provisions
apply, as described below.
Executive Directors are required to
retain vested shares delivered under
the PSP for at least two years from the
point of vesting, subject to the terms
of the holding period described below.
A dividend equivalent provision applies,
as described below.
The vesting of awards will be
subject to the achievement
of performance metrics
which may be financial, share
price or strategic in nature.
The metrics and weightings
for each award will be set
out in the Annual Report on
Remuneration. Any strategic
measure(s) will account for
no more than 25% of the
award.
The Committee has the
discretion to adjust targets
for any exceptional events
(including acquisitions and
disposals) that occur during
the performance period.
No more than 25% of the
award vests for achieving
threshold performance.
All-employee
Share Plans
– SIP & SAYE
To encourage
Group-wide equity
ownership across all
employees, and create
a culture of ownership.
The Company operates two
all-employee tax-advantaged plans,
namely a Save As You Earn (‘SAYE’) and
a Share Incentive Plan (‘SIP’) for the
benefit of Group employees.
Maximum permitted based on
HMRC limits from time to time.
N/A
Share
ownership
guidelines
To increase alignment
between executives
and shareholders.
The operation of these plans will be
at the discretion of the Committee,
and Executive Directors will be eligible
to participate on the same basis as
other employees.
Executive Directors are expected to
build and maintain a holding of shares
in the Company. This is expected to be
built through retaining a minimum of 50%
of the net of tax vested PSP and DABP
shares, until the guideline level is met.
The minimum share ownership
guideline is 200% of salary for
current Executive Directors.
N/A
Notes to the Policy table
Recovery and withholding provisions
Recovery and withholding provisions apply to variable pay, to enable the Company to recover amounts paid under the annual bonus and PSP
in the event of the following negative events occurring within three years of the payment of a cash bonus, the grant date of an award under
the DABP or the vesting date of PSP awards:
– a material misstatement of or restatement to the audited financial statements or other data;
– an error in calculation leading to over-payment of bonus; or
– individual gross misconduct.
Should such an event be suspected, there will be a further two years in which the Committee may investigate the event. The amount to be
recovered would generally be the excess payment over the amount which would otherwise be paid, and recovery may be satisfied in a variety of
ways, including through the reduction of outstanding deferred awards, reduction of the net bonus or PSP vesting and seeking a cash repayment.
Dividend equivalents
Under the DABP and the PSP, the Committee may also pay the value of dividends, at the Committee’s discretion, on vested shares (in cash or
shares) which may assume the reinvestment of dividends on a cumulative basis.
Discretion available under the Policy
In order to ensure that the Remuneration Policy is capable of achieving its intended aims, the Committee retains certain discretions over
the operation of the variable pay policy. These include the ability to vary the operation of the plans in certain circumstances (such as a change
of control, rights issue, corporate restructuring event, special dividend or acquisition or disposal) including the timing and determination
of payouts/vesting; and making appropriate adjustments to performance measures or targets as necessary to ensure that performance
conditions remain appropriate. However, it should be noted that in the event that the measures or targets are varied for outstanding awards
in the light of a corporate event, the revised targets may not be materially less difficult to satisfy. Should these discretions be used, they
would be explained in the Annual Report on Remuneration and may be subject to consultation with shareholders as appropriate.
70
Auto Trader Group plc Annual Report and Financial Statements 2018 Operation of the PSP holding period
Executive Directors are required to retain vested shares delivered under the PSP (on a net of tax basis, where applicable) for at least two years
from the point of vesting. In exceptional circumstances, the Committee may at its discretion allow participants to sell, transfer, assign or
dispose of some or all of the PSP shares before the end of the holding period.
Previously agreed payment
The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any discretions
available to it in connection with such payments) notwithstanding that they are not in line with the Policy set out above where the terms of
the payment were agreed (i) before 17 September 2015 (the date the Company’s first shareholder-approved Directors’ Remuneration Policy
came into effect); (ii) before the Policy set out above came into effect, provided that the terms of the payment were consistent with the
shareholder-approved Directors’ Remuneration Policy in force at the time they were agreed; or (iii) at a time when the relevant individual was
not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a
Director of the Company. For these purposes, ‘payments’ includes the Committee satisfying awards of variable remuneration and, in relation
to an award over shares, the terms of the payment are ‘agreed’ at the time the award is granted.
Selection of performance measures
Annual bonus performance measures are selected annually to reflect the Group’s key strategic initiatives for the year and include both
financial and strategic or operational non-financial objectives. A majority weighting will be placed on financial performance, ensuring that
payouts are closely linked to the Group’s performance and the execution of strategy.
PSP awards to be granted in 2018/19 will be subject to the achievement of Operating profit growth and Total Group revenue measures.
The Committee believes this combination of measures ensures that rewards are linked to long-term shareholder value creation.
The performance metrics used and their weighting may differ for awards to ensure they continue to support the Company’s long-term
growth strategy.
Differences in Remuneration Policy between Executive Directors and other employees
Whilst the Policy described above applies specifically to the Company’s Executive Directors, the Policy principles are designed with due
regard to employees across the Group.
‘At risk, performance-linked pay’ is restricted to the most senior employees in the Company, as it is this group that is most influential in driving
corporate performance.
The Committee is committed to promoting a culture of widespread share ownership across all levels of the organisation. At senior levels this
will predominantly be achieved through participation in performance-based incentive plans, whilst across the rest of the workforce it will be
supported via all-employee share plans.
Illustration of application of Remuneration Policy
The chart below illustrates how the composition of the Executive Directors’ remuneration packages varies under three different performance
scenarios: threshold, on-target and maximum, both as a percentage of total remuneration opportunity and as a total value.
Chief Executive Officer
)
£
(
n
o
i
t
a
r
e
n
u
m
e
R
£3,000k
£2,500k
£2,000k
£1,500k
£1,000k
£500k
£0k
Fixed remuneration
Annual variable
remuneration
Long-term variable
remuneration
£2,536k
44%
33%
23%
£1,561k
36%
27%
37%
£586k
100%
CFO & COO
)
£
(
n
o
i
t
a
r
e
n
u
m
e
R
£3,000k
£2,500k
£2,000k
£1,500k
£1,000k
£500k
£0k
Fixed remuneration
Annual variable
remuneration
Long-term variable
remuneration
£1,037k
36%
27%
37%
£389k
100%
£1,684k
44%
33%
23%
Minimum
Target
Maximum
Minimum
Target
Maximum
Assumptions
– Minimum = fixed pay (base salary, benefits and pension)
– Target = fixed pay plus 50% of maximum bonus payout and 50% vesting under the PSP
– Maximum = fixed pay plus 100% of bonus payout and 100% PSP vesting
Salary levels (on which other elements of the package are calculated) are based on those applying on 1 April 2018. The value of taxable benefits
is as disclosed in the single figure for the year ending 31 March 2018.
No share price increase is assumed and any dividend equivalents payable are not included.
71
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018
Directors’ remuneration report continued
Service contracts and policy for payments on loss of office
The service contracts for the Executive Directors are terminable by either the Company or the Executive Director on 12 months’ notice and
make provision for early termination by way of payment of a cash sum equal to 12 months’ salary and pension. The Company may continue
to provide benefits until the end of the notice period or may make a payment to the value of 12 months’ contractual benefits.
Payment in lieu of notice can be paid either as a lump sum or in equal monthly instalments over the notice period and will normally be subject
to mitigation. The Committee will consider the particular circumstances of each leaver and retains flexibility as to at what point, and the extent
to which, payments are reduced.
The Committee reserves the right to make any other payments in connection with a Director’s cessation of office or employment where the
payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way
of settlement of any claim arising in connection with the cessation of a Director’s office or employment or for any fees for outplacement
assistance and/or the Director’s legal and/or professional advice fees in connection with his cessation of office or employment. SAYE options
will become exercisable on cessation of employment to the extent permitted in accordance with the rules of the SAYE scheme, which does
not provide for the exercise of discretion by the Committee. On cessation, a payment may be made in respect of accrued but untaken holiday.
Relevant details will be provided in the Annual Report on Remuneration should such circumstances apply.
In summary, the contractual provisions on termination where the Company elects to make a payment in lieu of notice are as follows:
Provision
Notice period
Detailed terms
12 months by either party.
Termination payments over the notice period
100% of salary and pension contribution for the relevant period.
Change of control
No enhanced provisions on a change of control.
The Company may continue to provide benefits until the end of the notice period or may make
a payment to the value of 12 months’ contractual benefits.
The Executive Directors are subject to annual re-election at the AGM. Service contracts are available for inspection at the Company’s
registered office.
Annual bonus on termination
There is no automatic or contractual right to bonus payment. At the discretion of the Committee, for certain leavers, a bonus may become
payable at the normal payment date based on performance. Such bonus would normally be pro-rated for time in employment unless the
Committee determines otherwise. At its discretion the Committee may also pay such bonus at the time of cessation of employment based
on performance to that date. Any bonus paid may be paid 100% in cash for the year of departure or preceding financial year if the bonus for
that year has not yet been awarded. Should the Committee decide to make a payment in such circumstances, the rationale would be fully
disclosed in the Annual Report on Remuneration.
DABP awards on termination
Any existing awards under the DABP will lapse on termination unless the termination is due to death, the sale of the employing company from
the business or otherwise at the discretion of the Committee. Where an award does not lapse it will vest on cessation (or on such later date as
the Committee determines), to the extent determined by the Committee.
PSP on termination
Share-based awards are outside of service contracts provisions. Normally, PSP awards will lapse upon a participant ceasing to hold
employment. However, under the rules of the PSP, in certain prescribed circumstances (namely death, sale of employing company from the
business or otherwise at the discretion of the Committee), ‘good leaver’ status can be applied. In exercising its discretion as to whether an
Executive Director should be treated as a good leaver, the Committee will take into account the performance of the individual and the reasons
for their departure and, in the event of this determination being made, will set out its rationale in the following Annual Report on Remuneration.
Awards will typically vest on the originally anticipated date, although the Committee has discretion to vest awards sooner (and to assess
performance conditions accordingly if vesting occurs before the end of the performance period).
The extent to which PSP awards will vest in good leaver circumstances will depend on:
(i)
(ii)
the extent to which the performance conditions have been satisfied at the end of the performance period (or such other relevant time as
the Committee determines); and
unless the Committee determines otherwise, the pro-rating of the award determined by the period of time served in employment during
the vesting period.
Change of control
In the event of a change of control of the Company or other relevant event, awards under the PSP, DABP and SIP and options under the SAYE
scheme will vest early. Vesting of awards under the PSP will be determined by applying any relevant performance condition and, unless the
Committee determines otherwise, pro-rating the award by reference to the period of time from grant to vest as a proportion of a period of
three years. DABP award shall vest in full, and the extent to which an SAYE option can be exercised will be determined by the Committee in
accordance with the rules of the SAYE scheme on the same basis as for other employees.
72
Auto Trader Group plc Annual Report and Financial Statements 2018 Approach to recruitment and promotions
The recruitment package for a new Executive Director would normally be set in accordance with the terms of the Company’s approved
Remuneration Policy. Currently, this would include an annual bonus opportunity of up to 150% of salary and policy PSP award of up to 200%
of salary (other than in exceptional circumstances where up to 300% of salary may be made). The Committee, however, retains discretion
to include any other remuneration component or award which it feels is appropriate taking into account the specific circumstances of
the recruitment, subject to the limit on variable remuneration of 350% of salary (450% of salary in exceptional circumstances) which is in line
with current Policy limits. This limit does not include any payment(s) or award(s) made to ‘buy-out’ remuneration forfeited on leaving a
previous employer. The key terms and rationale for any such component would be disclosed as appropriate in that year’s Annual Report
on Remuneration.
On recruitment, salary will be set so as to reflect the individual’s experience and skills. It may be set at a level below the normal market rate,
with phased increases greater than those received by others as the Executive Director gains experience.
Where an individual forfeits outstanding variable pay opportunities or contractual rights at a previous employer as a result of appointment, the
Committee may offer compensatory payments or awards, in such form as the Committee considers appropriate taking into account relevant
factors which may include the form of awards, expected value and vesting timeframe of forfeited opportunities. When determining any such
‘buyout’, the principle would be that awards would be on a ‘like-for-like’ basis unless this is considered by the Committee not to be practical
or appropriate.
Where an Executive Director is required to relocate from their home location to take up their role, the Committee may provide assistance with
relocation (either via one-off or ongoing payments or benefits).
If an internal candidate is promoted to the Board, legacy terms and conditions would normally be honoured, including pension entitlements
and any outstanding incentive awards.
In the event of recruitment, the Committee may grant awards to a new Executive Director relying on the exemption in the Listing Rules which
allows for the grant of awards, to facilitate, in unusual circumstances, the recruitment of an Executive Director, without seeking prior
shareholder approval or under any other appropriate Company incentive plan.
Policy on external appointments
Subject to Board approval, Executive Directors are permitted to take on one non-executive position with another company and to retain their
fees in respect of such position. Additional appointments may be undertaken in exceptional circumstances. Details of outside directorships
held by the Executive Directors and any fees that they received are provided in the Annual Report on Remuneration.
Remuneration Policy for the Chairman and Non-Executive Directors
The Non-Executive Directors do not have service contracts with the Company, but instead have letters of appointment.
Maximum opportunity
There is no prescribed maximum
annual increase or fee level.
The fee levels are reviewed on a
periodic basis, with reference to
the time commitment of the role
and market levels (for example in
companies of comparable size
and complexity).
Element
Purpose and link to strategy
Operation
Fees
To attract and retain a
high-calibre Chairman and
Non-Executive Directors by
offering a market competitive
fee level.
Fees are reviewed periodically and approved by the Board,
with Non-Executive Directors abstaining from any discussion
in relation to their fees. Both the Chairman and the
Non-Executive Directors are paid annual fees and do not
participate in any of the Company’s incentive arrangements,
or receive any pension provision or other benefits.
The Chairman receives a single fee covering all of his duties.
The Non-Executive Directors receive a basic Board fee,
with additional fees payable for chairing the Audit and
Remuneration Committees and for performing the Senior
Independent Director role.
Additional fees may be paid to reflect additional Board or
Committee responsibilities or an increased time commitment
as appropriate.
The Chairman and Non-Executive Directors shall be entitled
to have reimbursed all expenses that they reasonably incur in
the performance of their duties. The Company may meet any
tax liabilities that may arise on such expenses.
The Board may introduce benefits for the Chairman or
Non-Executive Directors if it is considered appropriate
to do so.
Letters of appointment
All Non-Executive Directors have letters of appointment with the Company for an initial period of three years, subject to annual re-election at
the AGM. Appointment is terminable on six months’ written notice. The appointment letters for the Non-Executive Directors provide that no
compensation is payable upon termination of employment.
Letters of appointment are available for inspection at the Company’s registered office.
Approach to recruitment
For the appointment of a new Chairman or Non-Executive Director, the fee arrangement would be set in accordance with the approved
remuneration policy in force at that time.
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Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Directors’ remuneration report continued
Annual Report on Remuneration
Implementation of the Remuneration Policy
for the year ending 31 March 2019
The following sets out a summary of how our Remuneration Policy will
be implemented for the year ended 31 March 2019.
Base salary
The Executive Directors’ salaries were reviewed in early 2018 with
the changes becoming effective from 1 April 2018. The following table
sets out the new salaries effective 1 April 2018 (financial year 2019)
compared to those which applied in financial year 2018:
Trevor Mather
Nathan Coe
2019
Percentage
change
2018
£557,134
£546,210
£370,000
£350,000
+2.0%
+5.7%
On 3 July 2017, it was announced that following Sean Glithero’s
departure, Nathan Coe would be taking on the role of Chief Financial
Officer in addition to his existing role of Chief Operating Officer.
With effect from 1 April 2018 the Committee reviewed and increased
Nathan’s salary (as shown above) and his incentive award levels to
reflect the significant increase in the size and the scope of his role.
Following these increases, the Committee believes that his salary
and total compensation package are appropriately positioned.
The increase for the CEO is in line with the general increase received
for other senior employees across the Group, and lower than the
average increase in salary across the wider employee population
of around 3.5% (reflecting both general market, promotions and
individual rewards for performance).
Pension and benefits
Executive Directors will continue to receive a pension contribution
at the rate of 5% of base salary (in line with pensions offered to other
employees), payable into the Company pension scheme or as a cash
alternative. Ancillary benefits are provided in the form of private
medical cover, life assurance and income protection insurance.
Annual bonus
The maximum annual bonus opportunity will be 150% of base salary in
line with the Policy. Half of any bonus earned will be payable in shares,
deferred for two years under the DABP. The metrics and their
weightings for the year ending 31 March 2019 are:
The targets are commercially sensitive, but the Committee intends
to disclose them in the next Annual Report on Remuneration provided
they are no longer considered to be commercially sensitive at
that time.
PSP
In line with the Policy, PSP awards will be made at the level of 200%
of base salary. Awards will be subject to the following performance
measures and targets:
The performance conditions applying to the 2018 PSP awards are set
out below. Each element will be assessed independently of the other:
Measure
Weighting Basis
Threshold
(25%
vesting)
Stretch
(100%
vesting)
Operating
profit
75%
Total Group
revenue
25%
6% p.a.
5% p.a.
Operating profit
compound annual
growth rate for the
three years ended
31 March 2021
Total Group revenue
compound annual
growth rate for the
three years ended
31 March 2021
Equal to
or above
10% p.a.
Equal to
or above
8% p.a.
For performance between the threshold and stretch targets,
vesting will be calculated on a pro-rata basis. There is no vesting
for performance below the threshold target.
Revenue growth is a key performance indicator of the business and
the Committee believes that incentivising management to continue to
grow revenue performance through our three business lines – Trade,
Consumer services and Manufacturer and Agency – will support
long-term profit growth and shareholder value creation. To ensure
revenue performance is aligned with long-term value creation the
vesting for the revenue portion of the award will be subject to an
‘underpin’ whereby the Operating profit measure must be at least at
threshold levels of performance for any portion of the Total Group
revenue element to pay out.
Continuing to drive Operating profit is a key strategic objective of the
business. Though EPS is widely used by other companies, we believe
that the method by which the Company returns cash to shareholders
should not affect executive compensation and therefore for
Auto Trader the Committee believes that Operating profit is a more
appropriate performance measure.
Percentage
of total
bonus
Metric
Operating profit
Strategic objectives
– Stock – average live car stock
– Audience – average full page advert views
75%
25%
To align with the approach being used to assess revenue performance,
Operating profit will be assessed based on percentage growth over
the three-year period rather than Cumulative Operating profit as
previously used (for example, see the table on page 76).
The Committee set Operating profit and Total Group revenue growth
targets taking into account internal and external expectations of
performance and organic growth of the business. The Committee
believes that these targets are appropriately stretching.
In line with the Policy, Executive Directors will be required to hold any
vested shares for a further period of two years under the terms of the
PSP holding period.
Operating profit is a key performance indicator of the business and
the Board believes continuing to deliver Operating profit performance
will generate long-term value for shareholders. For the Operating
profit measure, for achievement of the threshold target, 20% of this
part of the bonus opportunity becomes payable with the maximum
becoming payable for outperforming the 2018 business plan.
The Committee believes that it is important to incentivise executives
to deliver key strategic objectives to ensure that the business is well
positioned to deliver profit growth and shareholder value in future.
The strategic targets selected for 2018/19 are aligned with our Group
KPIs and are the key metric that underpin our core business.
The strategic objectives are equally weighted, accounting for 12.5%
of the bonus each. A financial underpin will apply to the strategic
targets, such that no bonus will be payable unless a threshold level
of Operating profit is exceeded.
74
Auto Trader Group plc Annual Report and Financial Statements 2018 Single figure of remuneration for the year ended 31 March 2018 (Audited)
The table below shows the aggregate emoluments earned by the Directors of the Company in the year ended 31 March 2018.
£’000
Executive
Trevor Mather
Nathan Coe 1
Sean Glithero 2
Non-Executive
Ed Williams
David Keens
Jill Easterbrook
Jeni Mundy
Salary and
fees
Benefits
Annual
bonus
Long-term
incentives 3
Pension
Total
546
350
143
176
73
64
55
1
1
–
–
–
–
–
412
229
1,644
705
–
–
–
–
–
–
–
–
–
–
27
18
7
–
–
–
–
2,630
1,302
150
176
73
64
55
The following table shows the aggregate emoluments earned in the year ended 31 March 2017.
£’000
Executive
Trevor Mather
Sean Glithero
Non-Executive
Ed Williams
David Keens
Jill Easterbrook
Jeni Mundy
Salary and
fees
Benefits
Annual
bonus
Long-term
incentives 4
Pension
Total
536
296
173
72
63
54
1
1
–
–
–
–
416
199
–
–
–
–
–
–
–
–
–
–
27
15
–
–
–
–
980
511
173
72
63
54
1 Nathan Coe was appointed to the Board on 1 April 2017.
2 Sean Glithero stepped down from the Board on 21 September 2017.
3
100% of PSP awards granted in 2015 will vest in June 2018. For the purpose of the single figure the vested shares have been valued based on the three-month average share price
to 31 March 2018 of 359.58p. Dividend equivalents to the value of £37,386 for Trevor Mather and £16,019 for Nathan Coe have also been included.
4 There were no long-term incentives eligible to vest in respect of performance to 31 March 2017.
Additional information to support the single figure
Benefits
Benefits include: private healthcare, life assurance and income protection insurance.
Pension
Employer’s pension contributions of 5% of salary were paid in respect of Executive Directors.
Annual bonus for the year ended 31 March 2018
The performance measures, targets and actual outcomes for the annual bonus for the year ended 31 March 2018 are shown in the following table:
Performance measures
Weighting
Threshold
Financial
Strategic
targets
Total
Operating profit
Growth in full page advert views
New product initiatives (the
adoption of Managing products)
75%
12.5%
12.5%
100%
£211m
>0%
Target
£219m
>2%
Stretch
£226m
>4%
>2,800
>3,100
>3,400
Actual
performance
Payout (as a % of
maximum)
£220.6m
46.3% of the 75%
<0%
3,000
0% of the 12.5%
4% of the 12.5%
50.3% of the 100%
Payout for performance between threshold and stretch is calculated on a pro-rata basis. The payout at threshold is 20% of maximum for Financial
measures and 32% for the Strategic measures. The payout at target is 50% of maximum for Financial measures and 64% for Strategic measures.
This level of performance resulted in a bonus payout of £411,830 for Trevor Mather (CEO) and of £228,706 for Nathan Coe (CFO & COO).
Half of the bonus earned will be payable in shares, deferred for two years under the DABP in line with the Policy.
In light of the Company’s performance during the year under review, the Committee was comfortable with the overall level of annual bonus payout.
75
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Directors’ remuneration report continued
Performance Share Plan vesting for year ended 31 March 2018
Our first PSP award following IPO was awarded in 2015 and will vest in June 2018 based on performance to 31 March 2018. The performance
conditions this award was based on, the targets and performance delivered are set out in the table below:
Measure
Cumulative Underlying operating
profit
Weighting
Threshold
(25% vesting)
75%
£510m
TSR compared to the FTSE 250 Index
(excluding investment trusts) 1
25%
Equal to Index TSR
Stretch
(100% vesting)
Equal to or above
£550m
Equal to Index TSR
plus 25% or above
Actual
performance
£603m
Index TSR
plus 27%
Payout
(as a percentage
of maximum)
75% of the 75%
25% of the 25%
Total vesting
100% of the 100%
1 End average TSR performance is calculated based on a three-month average to 31 March 2018; start average TSR performance is the IPO price.
For performance between the threshold and stretch targets, vesting is calculated on a pro-rata basis.
Executive Directors will be required to retain vested shares delivered under this PSP for at least two years from the point of vesting,
subject to the terms of the PSP holding period.
Scheme interests awarded during the year (Audited)
Awards granted in the year under the DABP and PSP are shown in the table below.
Executive Director
DABP awards1
Trevor Mather
Nathan Coe
Sean Glithero3
PSP awards2
Trevor Mather
Nathan Coe
Sean Glithero3
Number of
shares awarded
Multiple of
salary
Face/maximum
value of awards
at grant date 4
% award vesting
at threshold
(% maximum)
Performance
period 2
52,062
25,783
24,923
273,309
131,348
113,228
£208,092
£103,055
£99,617
£1,092,416
£524,998
£452,572
200%
150%
150%
25%
1 April 2017 to
31 March 2020
Awards are granted as nil-cost options.
1 DABP awards were granted in respect of the annual bonus for the year to 31 March 2017. The awards will normally be eligible to vest two years from grant (16 June 2019) based on
continuous employment.
2 PSP awards will normally be eligible to vest three years from grant (16 June 2020) based on performance over the three years to 31 March 2020 and continuous employment.
3 Sean Glithero’s award lapsed when he left the Company on 21 September 2017.
4 Face/maximum value was calculated based on the closing share price on the day before grant date (16 June 2017) of £3.997.
The performance conditions applying to the 2017 PSP awards shown in the table above are set out below. Each element will be
assessed independently.
Measure
Weighting
Basis
Cumulative Operating profit
75%
TSR
25%
The sum of the Group’s Operating profit
result over the three consecutive
financial years ending on 31 March 2020
Performance relative to the FTSE 250
Index (excluding investment trusts)1
Threshold
(25% vesting)
£690m
Stretch
(100% vesting)
Equal to or above
£750m
Equal to Index TSR
Equal to Index TSR plus
25% or above
1 Start and end average TSR will be calculated based on the three-month average TSR to 31 March.
For performance between the threshold and stretch targets, vesting will be calculated on a pro-rata basis. There is no vesting below
threshold performance.
Executive Directors will ordinarily be required to retain their net of tax number of vested shares delivered under the PSP for at least two years
from the point of vesting.
76
Auto Trader Group plc Annual Report and Financial Statements 2018 Directors’ shareholding and share interests (Audited)
The Group has adopted shareholding guidelines in order to encourage Executive Directors to maintain a shareholding in the Company
equivalent in value to 200% of salary. If an Executive Director does not meet the guideline, they will be expected to retain at least half of the net
shares vesting under the Company’s discretionary share-based employee incentive schemes until the guideline is met. Both Executive
Directors currently hold well in excess of this limit. Non-Executive Directors do not have shareholding guidelines.
The table below sets out the number of shares held or potentially held by Directors (including their connected persons where relevant) as at
31 March 2018.
Director
Executive Directors
Trevor Mather
Nathan Coe
Sean Glithero 3
Non-Executive Directors
Ed Williams
Jill Easterbrook
David Keens
Jeni Mundy
Beneficially
owned shares 1
12,000,000
2,883,252
2,997,581
6,875,444
–
25,000
–
Number of awards
held under the
PSP conditional on
performance
Number of awards
held under the
DABP conditional
on continued
employment
Target
shareholding
guideline
(as a % of salary)
Percentage of
salary held in
shares as at
31 March 2018 2
995,438
440,831
381,741
–
–
–
–
153,283
75,911
73,380
–
–
–
–
200%
200%
150%
N/A
N/A
N/A
N/A
7,703%
2,888%
N/A
N/A
N/A
N/A
N/A
Includes shares owned by connected persons. Only beneficially owned shares count towards the shareholding guideline.
1
2 Based on the Director’s salary and the mid-market price at close of business on 31 March 2018 of 350.6p.
3 Sean Glithero stepped down from the Board on 21 September 2017 and his shareholding is shown at this date. Awards held by Sean under the PSP and DABP lapsed on the date
he left the business.
Trevor Mather
Scheme
PSP 1
PSP 2
PSP 3
DABP
DABP
Total
Nathan Coe
Scheme
PSP 1
PSP 2
PSP 3
DABP
DABP
Total
No. of shares/
options at
31 March 2017
Shares/options
granted
in the year
Shares/options
lapsed
in the year
Options
exercised
in the year
No. of shares/
options at
31 March 2018
446,808
275,321
–
–
–
273,309
101,221
–
823,350
–
52,062
325,371
–
–
–
–
–
–
–
–
–
–
–
–
446,808
275,321
273,309
101,221
52,062
1,148,721
No. of shares/
options at
31 March 2017
Shares/options
granted
in the year
Shares/options
lapsed
in the year
Options
exercised
in the year
No. of shares/
options at
31 March 2018
191,489
117,994
–
50,128
–
359,611
–
–
131,348
–
25,783
157,131
–
–
–
–
–
–
–
–
–
–
–
–
191,489
117,994
131,348
50,128
25,783
516,742
Date of grant
19/6/2015
17/6/2016
16/6/2017
17/6/2016
16/6/2017
Date of grant
19/6/2015
17/6/2016
16/6/2017
17/6/2016
16/6/2017
Date
from which
exercisable
19/6/2018
17/6/2019
16/6/2020
17/6/2018
16/6/2019
Date
from which
exercisable
19/6/2018
17/6/2019
16/6/2020
17/6/2018
16/6/2019
Expiry date
19/6/2025
17/6/2026
16/6/2027
17/6/2026
16/6/2027
Expiry date
19/6/2025
17/6/2026
16/6/2027
17/6/2026
16/6/2027
1 As noted above, 100% of the PSP award granted in 2015 will vest in June 2018 based on Cumulative Underlying operating profit and relative TSR performance compared to the
FTSE 250 (excluding investment trusts) to 31 March 2018.
2 2016 PSP awards are subject 75% to Cumulative Underlying Operating profit and 25% to relative TSR performance compared to the FTSE 250 (excluding investment trusts) over the
three-year period to 31 March 2019. For the Cumulative Underlying operating profit portion, 25% will vest if Cumulative Underlying operating profit is £660m or greater. 100% will vest
if Cumulative Underlying operating profit is £710m or above. For performance between these points, vesting will be calculated on a pro-rata basis. For the Relative TSR portion, 25%
will vest if Auto Trader’s TSR performance is equal to the FTSE 250 Index (excluding investment trusts). 100% will vest if Auto Trader’s TSR performance exceeds the FTSE 250 Index
(excluding investment trusts) by 25% or more. For performance between these points, vesting will be calculated on a pro-rata basis.
3 Performance measures for 2017 PSP awards are set out on page 76.
Remuneration on departure of Sean Glithero (Audited)
Sean Glithero left the Board on 21 September 2017. He received salary, benefits and pension to this date. No further payments were made
in lieu of notice. On his departure all his long-term incentives and deferred bonus shares lapsed.
Payments to former Directors (Audited)
There were no payments made to former Directors during the year.
77
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Directors’ remuneration report continued
Performance graph and CEO remuneration table
The graph below illustrates the Company’s TSR performance relative to the FTSE 250 Index (excluding investment trusts) of which the
Company is a constituent, from the start of conditional share dealing on 18 March 2015. The graph shows the performance of a hypothetical
£100 invested and its performance over that period.
Total Shareholder Return
)
£
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
)
d
e
s
a
b
e
r
(
l
a
t
o
T
180
160
140
120
100
80
60
40
20
0
18 March 2015
31 March 2016
31 March 2017
31 March 2018
Auto Trader Group plc
FTSE 250 (excluding investment trusts)
Source: Datastream (Thomson Reuters).
CEO remuneration
The table below sets out the CEO’s single figure of total remuneration together with the percentage of maximum annual bonus awarded over
the same period.
CEO total remuneration (£’000)
Annual bonus (% of maximum)
PSP vesting (% of maximum)
1 From the date of Admission in March 2015.
2 Private company when bonus plan implemented in 2015.
3 No awards were eligible to vest in respect of long-term performance ending in 2015, 2016 or 2017.
2018
2,630
50.3%
100%
2017
980
51.8%
N/A 3
2016
1,339
100%
N/A3
2015 1
20
N/A 2
N/A3
Percentage increase in the remuneration of the CEO
The table below shows the average increase in each component between the CEO and the average employee in the Company from 2017
to 2018. The average value of benefits for employees has decreased due to a reduction in the cost of private medical insurance.
Component
Salary
Benefits
Bonus
Change in remuneration levels
CEO
+2%
0%
-1%
Average
employee
+4%
-15%
-6%
Relative importance of the spend on pay
The following table shows the Group’s actual spend on pay for all employees compared to distributions to shareholders. The average number
of employees has also been included for context. Revenue and Operating profit have also been disclosed as these are two key measures of
Group performance.
Employee costs (see note 5 to the consolidated financial statements)
Average number of employees (see note 6 to the consolidated financial statements)
Revenue (see consolidated income statement)
Operating profit
Dividends paid and proposed (see note 23 to the consolidated financial statements)
1 Days adjusted.
2018
£m
54.5
822
330.1
220.6
56.1
2017
£m
53.6
820
311.4
203.1
50.7
% change
2%
0%
7% 1
10% 1
11%
78
Auto Trader Group plc Annual Report and Financial Statements 2018
Fees for the Chairman and Non-Executive Directors
The fees were reviewed in early 2018 and were increased by 2% with effect from 1 April 2018. The Chairman and Non-Executive Directors’ fees
will next be reviewed in early 2019, with any increase becoming effective from 1 April 2019.
The following table sets out the new fees effective from 1 April 2018 (financial year 2019) compared to those which applied in financial year 2018:
Base fees
Chairman
Non-Executive Director
Additional fees
Senior Independent Director
Audit Committee Chairman
Remuneration Committee Chairman
2019
2018
Percentage
change
£180,405
£55,713
£176,868
£54,621
£9,551
£9,551
£9,551
£9,364
£9,364
£9,364
+2%
+2%
+2%
+2%
+2%
There is no additional fee payable to the Chairman of the Nomination Committee. The Company Chairman is currently Chair of the Nomination
Committee.
All Non-Executive Directors have letters of appointment with the Company for an initial period of three years, subject to annual
re-appointment at the AGM. Appointment is terminable on six months’ written notice. The appointment letters for the Non-Executive
Directors provide that no compensation is payable upon termination of employment. The letters of appointment are available for inspection
at the Company’s registered office. Details of the appointment terms of the Non-Executive Directors are as follows:
Ed Williams
David Keens
Jill Easterbrook
Jeni Mundy
Start of current term
Expiry of current term
6 March 2018
1 May 2018
1 July 2015
5 March 2021
30 April 2021
30 June 2018 1
1 March 2016
28 February 2019
1 The Board has approved the renewal of this term with effect from 1 July 2018 to expire on 30 June 2021.
Funding of equity awards
Share awards may be funded by a combination of newly issued shares, treasury shares and shares purchased in the market. Where shares
are newly issued or from treasury, the Company complies with Investment Association dilution guidelines on their issue. The current dilution
usage of all share plans is c.0.53% of shares in issue.
Where shares are purchased in the market, these will be held by a trust, in which case the voting rights relating to the shares are exercisable
by the Trustees in accordance with their fiduciary duties. At 31 March 2018 the Trust held 932,761 shares in respect of the Share Incentive Plan.
External directorships
Auto Trader recognises that its Executive Directors may be invited to become non-executive directors of other companies. Such
non-executive duties can broaden a Director’s experience and knowledge which can benefit Auto Trader. The Company Chairman would
approve any such directorships in advance to ensure that there was no conflict of interest. Trevor Mather is a director on the board of
Burns Sheehan Limited, a recruitment business, for which he does not receive any remuneration. The Board approved the appointment
and confirmed that it was satisfied that there was no conflict of interest arising.
Membership of the Committee
Jill Easterbrook is the Committee Chairman, and its other members are David Keens and Jeni Mundy. Refer to page 66 to 67 for further details
of the membership of the Committee, the Terms of Reference, the meetings held and activities during the year.
79
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Directors’ remuneration report continued
External advisors
During the year the Committee undertook a review of advisors and from October 2017 appointed Deloitte following a competitive tender process.
Deloitte are founding members of the Remuneration Consultants Code of Conduct and adhere to this Code in its dealings with the Committee.
The Committee is satisfied that the advice provided by Deloitte is objective and independent. The Committee is comfortable that the Deloitte
engagement partner and team that provide remuneration advice to the Committee do not have connections with the Company that may
impair their independence. The Committee reviewed the potential for conflicts of interest and judged that there were appropriate safeguards
against such conflicts.
Fees are charged on a time and materials basis. During the year Deloitte was paid £62,450 for advice provided to the Committee.
Deloitte provided additional services to the Company in relation to internal audit and tax services.
Prior to this date, the Committee received advice from New Bridge Street (‘NBS’), part of Aon plc. NBS are also a founding member of the
Remuneration Consultants Code of Conduct and the Committee is satisfied that the advice received by NBS in relation to remuneration matters
during the year was objective and independent. NBS did not provide any other services to the Company during the year. Aon currently provides
actuarial, valuation and administration services in relation to the defined benefit pension scheme of the Company. The fees payable to NBS for
providing advice in relation to executive remuneration over the financial year under review were £12,429, charged on a time-spent basis.
Statement of shareholder voting
Shareholder voting in relation to recent AGM resolutions is as follows:
2015 AGM: Remuneration policy (binding)
2017 AGM: Annual Report on Remuneration (advisory)
797,281,130
809,249,426
98.20
99.12
14,637,737
7,198,204
1.80
0.88
Votes
for
% of votes cast
for
Votes
against
% of votes cast
against
Abstentions
7,139,212
51,313
Approval
This Directors’ remuneration report has been approved by the Board of Directors.
Signed on behalf of the Board of Directors.
Jill Easterbrook
Chairman of the Remuneration Committee
7 June 2018
80
Auto Trader Group plc Annual Report and Financial Statements 2018 Directors’ report
The Directors have pleasure in submitting their
Report and the audited financial statements of
Auto Trader Group plc (the ‘Company’) and its
subsidiaries (together the ‘Group’) for the financial
year to 31 March 2018.
Statutory information
Information required to be part of the Directors’ report can be found
elsewhere in this document, as indicated in the table below, and is
incorporated into this Report by reference:
Section of Annual Report
Page reference
Employee
involvement
Employees with
disabilities
Financial
instruments
Future developments
of the business
Greenhouse gas
emissions
Non-financial
reporting
Strategic report; Corporate social
responsibility (page 44)
Strategic report; Corporate social
responsibility (page 45)
Note 2 to the consolidated
financial statements
Strategic report (pages 1 to 49)
Strategic report; Corporate social
responsibility (page 47)
Strategic report: Corporate social
responsibility (page 39)
Information required by LR 9.8
Information required to be included in the Annual Financial Report by
LR 9.8 can be found in this document as indicated in the table below:
Section of Annual Report
Page reference
Allotment of shares
during the year
Note 21 to the consolidated
financial statements
Directors’ interests
Remuneration report (page 77)
Significant shareholders
Directors’ report (page 82)
Going concern
Principal risks and uncertainties
(page 38)
Long-term incentive
schemes
Directors’ remuneration report
(pages 74 to 78)
Powers for the Company
to buy back its shares
Directors’ report (page 82)
Significant contracts
Directors’ report (page 82)
Significant related
party agreements
Directors’ report (page 82)
Statement of corporate
governance
Corporate governance statement
(pages 50 to 80)
Management report
This Directors’ report, on pages 81 to 83, together with the Strategic
report on pages 1 to 49, form the Management Report for the
purposes of DTR 4.1.5R.
Strategic report
The Strategic report, which can be found on pages 1 to 49, sets out the
Group’s strategy, objectives and business model; the development,
performance and position of the Group’s business (including
financial and operating key performance indicators); a description of
the principal risks and uncertainties; and the main trends and factors
likely to affect the future development, performance and position of
the Group’s business.
UK Corporate Governance Code
The Company’s statement on corporate governance can be found in
the Corporate governance statement, the Report of the Nomination
Committee, the Report of the Audit Committee and the Directors’
remuneration report on pages 54 to 80, all of which form part of this
Directors’ report and are incorporated into it by reference.
2018 Annual General Meeting
The Annual General Meeting (‘AGM’) will be held at 10.00 am on
20 September 2018 at the Company’s registered office at 4th Floor,
1 Tony Wilson Place, Manchester, M15 4FN. The Notice of Meeting sets
out the resolutions to be proposed and specifies the deadlines for
exercising voting rights and appointing a proxy or proxies to vote in
relation to resolutions to be passed at the AGM. All proxy votes will
be counted and the numbers for, against or withheld in relation to
each resolution will be announced at the AGM and published on the
Company’s website.
Board of Directors
The following individuals were Directors of the Company for the
whole of the financial year ending 31 March 2018, and to the date
of approving this report unless otherwise stated:
– Ed Williams
– Trevor Mather
– Nathan Coe
– David Keens
– Jill Easterbrook
– Jeni Mundy
Sean Glithero resigned as a Director on 21 September 2017.
All Directors will stand for election or re-election at the 2018
AGM in line with the recommendations of the Code.
Appointment and replacement of Directors
At each AGM each Director then in office shall retire from office
with effect from the conclusion of the meeting. When a Director
retires at an AGM in accordance with the Articles of Association
of the Company, the Company may, by ordinary resolution at the
meeting, fill the office being vacated by re-electing the retiring
Director. In the absence of such a resolution, the retiring Director
shall nevertheless be deemed to have been re-elected, except
in the cases identified by the Articles.
Results and dividends
The Group’s and Company’s audited financial statements for the year
are set out on pages 88 to 130.
The Company declared an interim dividend on 9 November 2017
of 1.9 pence per share which was paid on 26 January 2018.
The Directors recommend payment of a final dividend of 4.0 pence
per share (2017: 3.5 pence per share) to be paid on 28 September 2018
to shareholders on the register of members at 31 August 2018, subject
to approval at the 2018 AGM.
Amendment of the Articles
The Company’s Articles of Association may only be amended
by a special resolution at a general meeting of shareholders.
No amendments are proposed to be made to the existing Articles
of Association at the forthcoming AGM.
Authority to allot shares
Under the 2006 Act, the Directors may only allot shares if authorised
to do so by shareholders in a general meeting. The authority
conferred on the Directors at the 2017 AGM under section 551 of the
2006 Act expires on the date of the forthcoming AGM, and ordinary
resolution 13 seeks a new authority to allow the Directors to allot
ordinary shares up to a maximum nominal amount of £6,320,335
(632,033,500 shares, representing approximately two thirds of
the Company’s existing share capital at 7 June 2018), of which
315,969,350 shares (representing approximately one third of the
Company’s issued ordinary share capital) can only be allotted
pursuant to a rights issue. The Directors have no present intention
of exercising this authority which will expire at the conclusion of
the AGM in 2019 or 19 December 2019 if earlier.
81
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Directors’ report continued
Authority to purchase own shares
The Company’s share buyback programme continued during the year.
By resolutions passed at the 2017 AGM the Company was authorised
to make market purchases of up to 97,476,919 of its ordinary shares,
subject to minimum and maximum price restrictions. A total of
26,809,702 ordinary shares of £0.01 each were purchased in the year
to 31 March 2018, being 2.75% of the shares in issue at the time the
authority was granted. The average price paid per share was 358.5p
with a total consideration paid (inclusive of all costs) of £96.7 million,
and all shares were purchased to be immediately cancelled. The
Directors will seek authority from shareholders at the forthcoming
AGM for the Company to purchase, in the market, up to a maximum
of 10% of its own ordinary shares (excluding shares held in treasury)
either to be cancelled or retained as treasury shares.
Share capital and control
The Company’s issued share capital comprises ordinary shares
of £0.01 each which are listed on the London Stock Exchange
(LSE: AUTO.L). The ISIN of the shares is GB00BVYVFW23.
The issued share capital of the Company as at 31 March 2018 and
7 June 2018 comprises 952,161,444 of £0.01 each. 4,194,989 shares were
held in treasury at 31 March 2018. Further information regarding the
Company’s issued share capital and details of the movements in
issued share capital during the year are provided in note 21 to the
Group’s financial statements. All the information detailed in note 21
forms part of this Directors’ report and is incorporated into it
by reference.
Details of employee share schemes are provided in note 25 to the
Group financial statements.
Rights attaching to shares
All shares have the same rights (including voting and dividend rights
and rights on a return of capital) and restrictions as set out in the
Articles, described below. Except in relation to dividends which have
been declared and rights on a liquidation of the Company, the
shareholders have no rights to share in the profits of the Company.
The Company’s shares are not redeemable. However, following any
grant of authority from shareholders, the Company may purchase
or contract to purchase any of the shares on or off market, subject to
the Companies Act 2006 and the requirements of the Listing Rules.
No shareholder holds shares in the Company which carry special
rights with regard to control of the Company. There are no shares
relating to an employee share scheme which have rights with regard
to control of the Company that are not exercisable directly and solely
by the employees, other than in the case of the Auto Trader Group
Share Incentive Plan, where share interests of a participant in such
scheme can be exercised by the personal representatives of a
deceased participant in accordance with the Scheme rules.
Voting rights
Each ordinary share entitles the holder to vote at general meetings
of the Company. A resolution put to the vote of the meeting shall be
decided on a show of hands unless a poll is demanded. On a show
of hands, every member who is present in person or by proxy at a
general meeting of the Company shall have one vote. On a poll, every
member who is present in person or by proxy shall have one vote for
every share of which they are a holder. The Articles provide a deadline
for submission of proxy forms of not less than 48 hours before the
time appointed for the holding of the meeting or adjourned meeting.
No member shall be entitled to vote at any general meeting either in
person or by proxy, in respect of any share held by him, unless all
amounts presently payable by him in respect of that share have been
paid. Save as noted, there are no restrictions on voting rights nor any
agreement that may result in such restrictions.
82
Restrictions on transfer of securities
The Articles do not contain any restrictions on the transfer of ordinary
shares in the Company other than the usual restrictions applicable
where any amount is unpaid on a share. Certain restrictions are also
imposed by laws and regulations (such as insider trading and
marketing requirements relating to close periods) and requirements
of the Company’s share dealing code whereby Directors and certain
employees of the Company require approval to deal in the
Company’s securities.
Change of control
Save in respect of a provision of the Company’s share schemes which
may cause options and awards granted to employees under such
schemes to vest on takeover, there are no agreements between the
Company and its Directors or employees providing for compensation
for loss of office or employment (whether through resignation,
purported redundancy or otherwise) because of a takeover bid.
Significant contracts
The only significant agreements to which the Company is a party
that take effect, alter or terminate upon a change of control of the
Company following a takeover bid, and the effect thereof, are the
Term Loan and Revolving Credit Facility agreements, which contain
customary prepayment, cancellation and default provisions
including, if required by a lender, mandatory prepayment of
all utilisations provided by that lender upon the sale of all or
substantially all of the business and assets of the Group or a
change of control.
Interests in voting rights
At the year end the Company had been notified, in accordance
with Chapter 5 of the Financial Conduct Authority’s Disclosure
Guidance and Transparency Rules, of the following significant
interests in the issued ordinary share capital of the Company:
At 31 March 2018
At 7 June 2018
Number of
ordinary
shares/
voting
rights
notified
Percentage
of voting
rights over
ordinary
shares of
£0.01 each
Number of
ordinary
shares/
voting
rights
notified
Percentage
of voting
rights over
ordinary
shares of
£0.01 each
Shareholder
BlackRock Inc.
100,307,795
10.55% 80,654,003
Baillie Gifford & Co.
n/a
n/a
47,482,549
Kayne Anderson
Rudnick Investment
Management LLC
26,770,275
2.82%
49,059,618
8.50%
5.01%
5.18%
CI Investments Inc.
37,805,677
3.93%
27,343,814
2.88%
Transactions with related parties
As described in note 28, during the year, the Group transacted with
Burns Sheehan Limited, a third party which a Director holds a
shareholding. This company is deemed to be a related party. Costs
incurred were in respect of recruitment consultancy services which
amounted to £35k (2017: £nil). There were no amounts outstanding at
the year end. All transactions were completed at an arm’s length basis.
Compensation paid to Directors and Key Management is as disclosed
in note 6 to the Group financial statements.
Research and development
Innovation, specifically in software, is a critical element of
Auto Trader’s strategy and therefore of the future success of
the Group. Accordingly, the majority of the Group’s research and
development expenditure is predominantly related to this area.
Since 30 September 2013, the Group has changed its approach to
technology development such that the Group now develops its
core infrastructure through small-scale, maintenance-like
incremental improvements, and as a result the amount of capitalised
development costs has decreased as less expenditure meets
the requirements of IAS 38 Intangible assets.
Auto Trader Group plc Annual Report and Financial Statements 2018 Indemnities and insurance
The Company maintains appropriate insurance to cover Directors’
and officers’ liability for itself and its subsidiaries and such insurance
was in force for the whole of the financial year ending 31 March 2018.
The Company also indemnifies the Directors under a qualifying
indemnity for the purposes of section 236 of the Companies Act
2006: in the case of the Non-Executive Directors in their respective
letters of appointment and in the case of the Executive Directors in a
separate deed of indemnity. Such indemnities contain provisions that
are permitted by the Director Liability provisions of the Companies
Act and the Company’s Articles.
Environmental
Information on the Group’s greenhouse gas emissions is set out in the
Corporate social responsibility section on page 47 and forms part of
this Report by reference.
Political donations
There were no political donations made during the year or the
previous year.
Post balance sheet events
On 6 June 2018 the Group signed into a new Revolving Credit Facility
(the ‘New RCF’) to replace the existing Senior Syndicated Term Loan
and revolving credit facility. The New RCF, which is unsecured, has
total commitments of £400m and a termination date of June 2023.
External branches
The Group had no active registered external branches during
the reporting period.
Financial instruments
Details of the financial risk management objectives and policies
of the Group, including hedging policies and exposure of the entity
to price risk, credit risk, liquidity risk and cash flow risk, are given in
note 2 to the consolidated financial statements.
Disclosure of information to auditors
Each of the Directors has confirmed that:
– so far as the Director is aware, there is no relevant audit information
of which the Company’s auditors are unaware; and
– the Director has taken all the steps that he/she ought to have
taken as a Director to make him/herself aware of any relevant
audit information and to establish that the Company’s auditor
is aware of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of Section 418 of the Companies Act 2006.
Statement of Directors’ responsibilities in respect
of the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report and
the Group and parent company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards as
adopted by the European Union (‘IFRSs as adopted by the EU’) and
applicable law, and have elected to prepare the parent company
financial statements in accordance with UK Accounting Standards,
including FRS 102 ‘The Financial Reporting Standard Applicable in
the UK and Republic of Ireland’.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and parent company and of their
profit or loss for that period. In preparing each of the Group and
parent company financial statements, the Directors are required to:
– select suitable accounting policies and then apply them consistently;
– make judgements and accounting estimates that are reasonable,
relevant, reliable and prudent;
– for the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the EU;
– for the parent company financial statements, state whether
applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the parent
Company financial statements;
– assess the Group and parent company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern; and
– use the going concern basis of accounting unless they either intend
to liquidate the Group or the parent company or to cease operations,
or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the parent company and enable them to ensure
that its financial statements comply with the Companies Act 2006.
They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error, and
have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Group and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Responsibility statement of the Directors in respect
of the annual financial report
We confirm, to the best of our knowledge:
– the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation
taken as a whole; and
– the Strategic report includes a fair review of the development
and performance of the business and the position of the issuer and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face.
We consider that the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s position and
performance, business model and strategy.
Approval of Annual Report
The Strategic report and the Corporate governance report were
approved by the Board on 7 June 2018.
Approved by the Board and signed on its behalf.
Claire Baty
Company Secretary
7 June 2018
83
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Independent auditors’ report to the members
of Auto Trader Group plc only
1. Our opinion is unmodified
We have audited the financial statements of Auto Trader Group plc
for the year ended 31 March 2018 which comprise the Group
Statement of Financial Position and Parent Company Balance Sheet,
the Group Statement of Comprehensive Income, the Group
Statement of Cash Flows, the Group and Parent Company’s
Statements of Changes in Equity, and related notes including the
accounting policies in note 1.
In our opinion:
– the financial statements give a true and fair view of the state of the
Group’s and of the Parent Company’s affairs as at 31 March 2018 and
of the Group’s profit for the year then ended;
– the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union;
– the Parent Company financial statements have been properly
prepared in accordance with UK Accounting Standards, including
FRS 102 The Financial Reporting Standard applicable in the UK and
Republic of Ireland; and
– the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006; and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
are described below. We believe that the audit evidence we have
obtained is a sufficient and appropriate basis for our opinion. Our
audit opinion is consistent with our report to the Audit Committee.
We were appointed as auditor by the shareholders on 22 September
2016. The period of total uninterrupted engagement is for the two
financial years ended 31 March 2018. We have fulfilled our ethical
responsibilities under, and we remain independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical
Standard as applied to listed public interest entities. No non-audit
services prohibited by that standard were provided.
Overview
Materiality:
Group financial
statements as a whole
£8.0m (2017: £8.0m)
3.8% (2017: 4.1%) of Group profit before tax
Coverage
100% (2017: 100%) of Group profit before tax
Risks of material misstatement
vs 2017
Recurring risks
Revenue recognition
Recoverability of Parent Company’s
investment in subsidiary
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and
include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had
the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.
We summarise below the key audit matters (unchanged from 2017), in decreasing order of audit significance, in arriving at our audit opinion
above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those
procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose
of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we
do not provide a separate opinion on these.
The risk
Our response
Revenue recognition
(£330.1 million;
2017: £311.4 million)
Refer to page 62
(Audit Committee Report),
page 93 (accounting
policy) and page 102
(financial disclosures).
Data processing
Revenue primarily consists
of fees for advertising on
the Group’s website and
web-related activities, along
with retailer website build and
hosting subscription fees,
maintenance contracts and
other subscription fees. Given
the variety of packages available,
the ability of retailers to bespoke
the combination of products
they receive, and to amend this
through time, as well as the large
volume of transactions, there
is a risk that revenue may be
misstated due to errors made
in capturing and processing
this large variety of data.
Our procedures included:
– Data comparisons: Using computer assisted audit techniques to match sales
information from the billing system to the accounting records;
– Tests of details: Using computer assisted audit techniques to match entire
population of billings to cash received during the year and trade debtors outstanding
at the year end. Selecting a sample of trade debtors and assessing their recoverability
with reference to post year end cash receipts;
– Expectation vs outcome: For customers with bespoke contracts, obtaining these
contracts and forming an expectation of the revenue to be recognised in the period,
comparing this to the actual;
– Tests of details: Selecting a sample of transactions recorded within a month before
and after the period end and assessing whether revenue has been recognised in the
correct period with reference to supporting invoices and cash receipts;
– Tests of details: Assessing the appropriateness of accrued income at the year end
with reference to post year end billings and cash receipts. Assessing the
appropriateness of deferred income at the year end with reference to the prior year
and our knowledge of the billing pattern of each revenue stream;
– Tests of details: Performing a review of credit notes raised in the year and post year
end to assess the adequacy of the credit note provision and that revenue is not
overstated; and
– Analytic sampling: Obtaining all journals posted to revenue and, using computer
assisted audit techniques, analysing these to identify those with unusual attributes or
those with corresponding postings to unexpected accounts. Agreeing any journals
identified back to relevant supporting documentation.
Our results:
– We found the amount of revenue recognised to be acceptable (2017: acceptable).
84
Auto Trader Group plc Annual Report and Financial Statements 2018 The risk
Our response
Recoverability of parent
company’s investment
in subsidiary
(£1,212.9 million;
2017: £1,210.5 million)
Refer to page 62
(Audit Committee Report),
page 92 (accounting
policy) and page 128
(financial disclosures).
Low risk, high value:
The carrying amount of the
parent company’s investment
in subsidiary represents 73%
(2017: 74%) of the Company’s
total assets. Its recoverability
is not at a high risk of significant
misstatement or subject to
significant judgement. However,
due to its materiality in the
context of the parent company
financial statements, this is
considered to be the area that
had the greatest effect on our
overall parent company audit.
Our procedures included:
– Comparing valuations: comparing the carrying amount of the investment to the
market capitalisation of the Group, as all of the Group’s trading operations are
contained within the subsidiary and its subgroup.
Our results :
– We found the parent company’s assessment of the recoverability of the investment
in subsidiary to be acceptable (2017 result: acceptable).
3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £8.0m (2017: £8.0m), determined with reference to a benchmark
of Group profit before tax of £210.8m (2017: £193.4m), of which it represents 3.8% (2017: 4.1%).
The materiality of the parent company financial statements as a whole was set at £5.0m (2017: £5.0m), determined with reference
to a benchmark of parent company net assets, of which it represents 0.4% (2017: 0.4%).
We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.4m (2017: £0.4m),
in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s four (2017: four) reporting components, we subjected four (2017: four) to full scope audits for Group purposes, all of which
were performed by the Group audit team.
The components within the scope of our work accounted for the percentages illustrated below.
Profit before tax
£210.8m (2017: £193.4m)
Materiality
£8.0m
£8.0m
Whole financial
statements materiality
£7.5m
Range of materiality at four
components (£0.2m–£7.5m)
£0.4m
Misstatements reported
to the Audit Committee
Profit before tax
Group materiality
Group revenue
%
100%
100%
Group profit before tax
%
100%
100%
Group total assets
%
100%
100%
Full scope for Group audit purposes 2018
Full scope for Group audit purposes 2017
85
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Independent auditors’ report to the members
of Auto Trader Group plc only continued
4. We have nothing to report on going concern
We are required to report to you if:
Corporate governance disclosures
We are required to report to you if:
– we have anything material to add or draw attention to in relation to
the Directors’ statement in note 1 to the financial statements on the
use of the going concern basis of accounting with no material
uncertainties that may cast significant doubt over the Group and
Company’s use of that basis for a period of at least 12 months from
the date of approval of the financial statements; or
– if the related statement under the Listing Rules set out on page 50
is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
– we have identified material inconsistencies between the
knowledge we acquired during our financial statements audit and
the Directors’ statement that they consider that the Annual Report
and Financial Statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s position and performance,
business model and strategy; or
– the section of the Annual Report describing the work of the Audit
Committee does not appropriately address matters communicated
by us to the Audit Committee.
5. We have nothing to report on the other information
in the Annual Report
The Directors are responsible for the other information presented
in the Annual Report together with the financial statements.
Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based solely on that
work we have not identified material misstatements in the other
information.
Strategic Report and Directors’ Report
Based solely on our work on the other information:
– we have not identified material misstatements in the Strategic
Report and the Directors’ Report;
– in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the
11 provisions of the UK Corporate Governance Code specified
by the Listing Rules for our review.
We have nothing to report in these respects.
6. We have nothing to report on the other matters on
which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if,
in our opinion:
– adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
– the parent company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
– certain disclosures of Directors’ remuneration specified by law
are not made; or
– we have not received all the information and explanations we
require for our audit.
– in our opinion those reports have been prepared in accordance
We have nothing to report in these respects.
with the Companies Act 2006.
Directors’ Remuneration Report
In our opinion the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with
the Companies Act 2006.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements
audit, we have nothing material to add or draw attention to in relation to:
– the Directors’ confirmation within the Viability statement page 38
that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business
model, future performance, solvency and liquidity;
– the Principal Risks disclosures describing these risks and explaining
how they are being managed and mitigated; and
– the Directors’ explanation in the Viability statement of how
they have assessed the prospects of the Group, over what period
they have done so and why they considered that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Under the Listing Rules we are required to review the viability
statement. We have nothing to report in this respect.
86
Auto Trader Group plc Annual Report and Financial Statements 2018 8. The purpose of our audit work and to whom we owe
our responsibilities
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members,
as a body, for our audit work, for this report, or for the opinions we
have formed.
Mick Davies (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 St Peter’s Square
Manchester
M2 3AE
7 June 2018
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 83,
the Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the Group
and parent company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and using
the going concern basis of accounting unless they either intend to
liquidate the Group or the parent company or to cease operations,
or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or other irregularities (see below), or error, and to
issue our opinion in an auditor’s report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud, other irregularities
or error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at frc.org.uk/auditorsresponsibilities
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our sector experience and through discussion with the Directors
(as required by auditing standards).
We had regard to laws and regulations in areas that directly affect the
financial statements including financial reporting (including related
company legislation) and taxation legislation. We considered the
extent of compliance with those laws and regulations as part of our
procedures on the related financial statement items.
We communicated identified laws and regulations throughout our
team and remained alert to any indications of non-compliance
throughout the audit.
As with any audit, there remained a higher risk of non-detection of
non-compliance with relevant laws and regulations (irregularities),
as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls.
87
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Consolidated income statement
For the year ended 31 March 2018
Revenue
Administrative expenses
Operating profit
Finance costs
Profit before taxation
Taxation
Profit for the year attributable to equity holders of the parent
Basic earnings per share
From profit for the year (pence per share)
Diluted earnings per share
From profit for the year (pence per share)
Note
3
4
7
8
9
9
2018
£m
330.1
(109.5)
220.6
(9.8)
210.8
(39.5)
171.3
2017
£m
311.4
(108.3)
203.1
(9.7)
193.4
(38.7)
154.7
17.76
15.64
17.70
15.60
As outlined in the basis of preparation on page 93, the current period is for the 365 days ended 31 March 2018 and the comparative period
is for the 369 days ended 31 March 2017.
88
Auto Trader Group plc Annual Report and Financial Statements 2018 Consolidated statement of comprehensive income
For the year ended 31 March 2018
Profit for the year
Items that may be subsequently reclassified to profit or loss
Currency translation differences
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to equity holders of the parent
2018
£m
171.3
0.2
0.2
171.5
2017
£m
154.7
0.5
0.5
155.2
Currency translation differences arise on the consolidation of the Group’s subsidiaries that have a functional currency other than sterling.
As outlined in the basis of preparation on page 93, the current period is for the 365 days ended 31 March 2018 and the comparative period
is for the 369 days ended 31 March 2017.
89
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Consolidated balance sheet
At 31 March 2018
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Deferred taxation assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity and liabilities
Equity attributable to equity holders of the parent
Share capital
Retained earnings
Capital reorganisation reserve
Own shares held
Capital redemption reserve
Other reserves
Total equity
Liabilities
Non-current liabilities
Borrowings
Deferred taxation liabilities
Retirement benefit obligations
Provisions for other liabilities and charges
Current liabilities
Trade and other payables
Current income tax liabilities
Provisions for other liabilities and charges
Total liabilities
Total equity and liabilities
Note
10
11
19
14
15
21
22
17
19
20
18
16
18
2018
£m
329.8
6.0
5.1
340.9
55.5
4.3
59.8
2017
£m
320.4
6.7
4.7
331.8
50.7
8.0
58.7
400.7
390.5
9.5
1,041.7
(1,060.8)
(16.9)
0.5
30.6
4.6
9.8
1,015.9
(1,060.8)
(16.9)
0.2
30.4
(21.4)
340.8
0.7
–
1.1
342.6
33.3
19.9
0.3
53.5
396.1
357.8
0.2
–
1.1
359.1
33.3
19.2
0.3
52.8
411.9
400.7
390.5
The financial statements from pages 88 to 123 were approved by the Board of Directors and authorised for issue.
Nathan Coe
Chief Financial Officer and Chief Operating Officer
7 June 2018
Auto Trader Group plc
Registered number 09439967
90
Auto Trader Group plc Annual Report and Financial Statements 2018 Consolidated statement of changes in equity
For the year ended 31 March 2018
Note
Share
capital
£m
10.0
Retained
earnings
£m
Own shares
held
£m
Capital
reorganisation
reserve
£m
Capital
redemption
reserve
£m
970.9
(1.5)
(1,060.8)
Balance at March 2016
Profit for the year
Other comprehensive income:
Currency translation differences
Total comprehensive income, net of tax
Transactions with owners
IFRS 2 – share-based payments
Deferred tax on share-based payments
Repurchase of own shares for treasury
Cancellation of shares
Dividends paid
Transfer of shares from ESOT
Total transactions with owners,
recognised directly in equity
25
19
22
21
23
22
–
–
–
–
–
–
(0.2)
–
–
154.7
–
154.7
4.0
0.1
–
(87.1)
(26.6)
(0.1)
–
–
–
–
–
(15.5)
–
–
0.1
(0.2)
(109.7)
(15.4)
–
–
–
–
–
–
–
–
–
–
Balance at March 2017
9.8
1,015.9
(16.9)
(1,060.8)
Profit for the year
Other comprehensive income:
Currency translation differences
Total comprehensive income, net of tax
Transactions with owners
IFRS 2 – share-based payments
Deferred tax on share-based payments
Cancellation of shares
Dividends paid
Total transactions with owners,
recognised directly in equity
25
19
21
23
–
–
–
–
–
(0.3)
–
(0.3)
171.3
–
171.3
3.3
0.1
(96.7)
(52.2)
(145.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at March 2018
9.5
1,041.7
(16.9)
(1,060.8)
–
–
–
–
–
–
–
0.2
–
–
0.2
0.2
–
–
–
–
–
0.3
–
0.3
0.5
Other
reserves
£m
29.9
Total
equity
£m
(51.5)
–
154.7
0.5
0.5
–
–
–
–
–
–
–
0.5
155.2
4.0
0.1
(15.5)
(87.1)
(26.6)
–
(125.1)
30.4
(21.4)
–
171.3
0.2
0.2
0.2
171.5
–
–
–
–
–
3.3
0.1
(96.7)
(52.2)
(145.5)
30.6
4.6
91
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Consolidated statement of cash flows
For the year ended 31 March 2018
Cash flows from operating activities
Cash generated from operations
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchases of intangible assets – financial systems
Purchases of intangible assets – other
Purchases of property, plant and equipment
Net cash outflow on acquisition of subsidiary
Net cash used in investing activities
Cash flows from financing activities
Dividends paid to Company’s shareholders
Repayment of Syndicated Term Loan
Payment of interest on borrowings
Purchase of own shares for cancellation
Purchase of own shares for treasury
Payment of fees on repurchase of own shares
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
24
26
23
17
15
15
2018
£m
226.1
(39.4)
186.7
(0.3)
(0.3)
(2.3)
(11.9)
(14.8)
(52.2)
(20.0)
(6.7)
(96.2)
–
(0.5)
(175.6)
(3.7)
8.0
4.3
2017
£m
212.9
(34.8)
178.1
(0.7)
(0.5)
(2.5)
–
(3.7)
(26.6)
(40.0)
(7.6)
(86.7)
(15.4)
(0.5)
(176.8)
(2.4)
10.4
8.0
As outlined in the basis of preparation on page 93, the current period is for the 365 days ended 31 March 2018 and the comparative period
is for the 369 days ended 31 March 2017.
92
Auto Trader Group plc Annual Report and Financial Statements 2018 Notes to the consolidated financial statements
General information
Auto Trader Group plc is a public limited company which is listed on the London Stock Exchange and is domiciled and incorporated
in the United Kingdom under the Companies Act 2006. The address of the registered office is given on the inside back cover.
1. Accounting policies
Basis of preparation
The principal accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies have
been consistently applied to all the periods presented, unless otherwise stated. The financial information presented is at and for the year
(365 days) ended 31 March 2018 and for the 369-day period ended 31 March 2017. Due to the publishing heritage of the business, results have
historically been reported on a 52-week basis, with the accounting period ending on the closest Sunday to 31 March. During the year ended
31 March 2017, the Board made the decision to change the period end date to be 31 March every year, to better align with our customers’ needs
and to the products and services we offer. As a consequence of this change, the 2017 financial year was four days longer than the current year.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted
by the European Union (‘EU’), IFRS Interpretation Committee (‘IFRS IC’), certain interpretations as adopted by the EU, and the Companies Act
2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared on the going concern basis
and under the historical cost convention, as modified by the revaluation of certain financial assets and financial liabilities (including derivative
instruments) at fair value through profit or loss.
Going concern
The Directors, after making enquiries and on the basis of current financial projections and facilities available, believe that the Group has
adequate financial resources to continue in operation for a period not less than 12 months from the date of this report. For this reason,
they continue to adopt the going concern basis in preparing the financial statements.
Accounting estimates and judgements
The preparation of financial statements in conformity with IFRS requires the use of certain accounting estimates and assumptions. It also
requires management to exercise its judgement in the process of applying the Group’s accounting policies. Estimates and judgements are
continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed
to be reasonable under the circumstances.
There are no accounting estimates or judgements which are critical to the reporting of results of operations and financial position.
The accounting estimates believed to require the most difficult, subjective or complex judgements are as follows:
– carrying values of goodwill; and
– share-based payments.
The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated. The recoverable
amounts of cash-generating units have been determined based on value-in-use calculations, which require the use of estimates; see note 10.
Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are
accounted for as equity-settled share-based payment transactions. The fair value of services received in return for share options is
calculated with reference to the fair value of the award on the date of grant. Black-Scholes and Monte Carlo models have been used where
appropriate to calculate the fair value and the Directors have therefore made estimates with regard to the inputs to that model and the period
over which the share award is expected to vest (note 25).
93
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 1. Accounting policies continued
New accounting standards and IFRS IC interpretations
The Group has adopted the following new and amended IFRSs in the consolidated financial statements with no significant impact
on its consolidated results or financial position:
– Amendments to IAS 12 ‘Income Taxes’
– Amendments to IAS 7 ‘Statement of Cash Flows’
The following standards and interpretations were issued by the IASB but have not been adopted, either because they were not endorsed
by the EU as at 31 March 2018 or they are not yet mandatory:
– IFRS 9 ‘Financial Instruments‘ and IFRS 15 ‘Revenue from Contracts with Customers’
The Group is required to adopt IFRS 9 and IFRS 15 from 1 April 2018. The Group has assessed the estimated impact that the initial application
of IFRS 9 and IFRS 15 will have on its consolidated financial statements and does not expect this to be material.
– IFRS 16 ‘Leases’
IFRS 16 replaces IAS 17 ‘Leases’ and is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities
that apply IFRS 15 at or before the date of initial application of IFRS 16. The Group intends to early adopt IFRS 16 when IFRS 15 becomes
mandatory, being 1 April 2018, using the fully retrospective approach.
The Group’s lease commitments will be brought onto the consolidated statement of financial position, as a liability with a corresponding
asset, both of which are immaterial in relation to the net assets of the Group.
Total costs incurred remain unchanged over the life of the lease but the timing of when those costs are recognised within the consolidated
income statement will be impacted. Based on analysis of lease commitments held by the Group at 31 March 2018, and using estimated discount
rates, the net impact on profit is expected to be immaterial to the Group. This does not impact the Group’s cash flows.
– Amendment to IFRS 2 – Classification and Measurement of Share-Based Payments Transactions (not yet EU endorsed). This standard is not
anticipated to have a significant impact on the financial statements.
– Annual improvements to IFRSs 2014–2016 (not yet EU endorsed).
– IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration (not yet EU endorsed).
– IFRIC 23 Uncertainty over Income Tax Treatments (not yet EU endorsed).
Basis of consolidation
The Group’s consolidated financial statements consolidate the financial statements of Auto Trader Group plc and all of its subsidiary
undertakings.
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power
over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from
the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is
measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.
Costs directly attributable to the acquisition are expensed. Identifiable assets acquired and liabilities and contingent liabilities assumed in
a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling
interest. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair
value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the
total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the
net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.
Intercompany transactions and balances between Group companies are eliminated on consolidation.
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between
20% and 50% of the voting rights. Where significant influence is not demonstrated but the shareholding is between 20% and 50% the Group would
account for its interest as an investment. All investments are initially recognised at cost and the carrying value is reviewed for impairment.
94
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments,
has been identified as the Operational Leadership Team that makes strategic decisions (note 3).
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course
of the Group’s activities. Revenue is stated net of discounts, rebates, refunds and value-added tax.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow
to the entity and when specific criteria have been met for each of the Group’s activities as described below.
Revenue is recognised as follows:
– Trade revenue: fees from retailer and home trader customers for advertising on the Group’s websites and web-related activities are
recognised on a straight-line basis as the service is provided. Retailer website build and hosting subscription fees, maintenance contracts
and other subscription fees are recognised on a straight-line basis over the period to which they relate. Fees from logistic firms and retailers
for facilitating the move of vehicles on the Group’s Motor Trade Delivery platform are recognised at the point the vehicle has been delivered.
– Consumer services revenue: fees from private sellers for advertising on the Group’s websites are recognised on a straight-line basis as
the service is provided. Revenues from third-party partners who provide services to consumers relating to their motoring needs, such as
insurance and loan finance, are recognised as the service is provided to the third-party partner.
– Manufacturer & Agency revenue: revenue from manufacturers and their advertising agencies for placing display advertising on the Group’s
websites is recognised on a straight-line basis as the service is provided.
Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which
the dividend is approved by the Company’s shareholders in the case of final dividends, or the date at which they are paid in the case of
interim dividends.
Employee benefits
The Group operates several pension schemes and all except one are defined contribution schemes. Within the UK all pension schemes
set up prior to 2001 have been closed to new members and only one defined contribution scheme is now open to new employees.
a) Defined contribution scheme
The assets of the defined contribution scheme are held separately from those of the Group in independently administered funds.
The costs in respect of this scheme are charged to the income statement as incurred.
b) Defined benefit scheme
The Group operates one defined benefit pension scheme that is closed to new members. The asset or liability recognised in the balance sheet
in respect of the defined benefit scheme is the present value of the defined benefit obligation at the balance sheet date less the fair value of
the scheme’s assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method.
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates
of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity
approximating those of the related pension liability. Remeasurement gains and losses arising from experience adjustments and changes
in actuarial assumptions are charged or credited to equity in ‘other comprehensive income’ in the period in which they arise. Any scheme
surplus (to the extent it can be recovered) or deficit is recognised in full on the balance sheet.
c) Share-based payments
Equity-settled awards are valued at grant date, and the difference between the grant date fair value and the consideration paid by the
employee is charged as an expense in the income statement spread over the vesting period. Fair value of the awards are measured using
Black-Scholes and Monte Carlo pricing models. The credit side of the entry is recorded in equity. Cash-settled awards are revalued at each
reporting date with the fair value of the award charged to the profit and loss account over the vesting period and the credit side of the entry
recognised as a liability.
Exceptional items
Significant non-recurring items of income and expense are disclosed as ‘exceptional items’. Examples of items that may give rise to disclosure
as exceptional items include costs of major restructuring and reorganisation of the business, corporate refinancing and restructuring costs,
gains on the early extinguishment of borrowings or impairments of intangible assets, property, plant and equipment, as well as the reversal of
such writedowns or impairments, material disposals of property, plant and equipment and litigation settlements. A full analysis of exceptional
items is provided in note 4.
Foreign currency translation
a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment
in which the entity operates. The consolidated financial statements are presented in sterling (£), which is the Group’s presentation currency,
and rounded to the nearest hundred thousand (£0.1m) except when otherwise indicated.
95
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 1. Accounting policies continued
b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the period end exchange rates
of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement within administrative expenses.
c) Group companies
The results and financial position of all Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional
currency other than sterling are translated into sterling as follows:
– assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; and
– income and expenses for each income statement are translated at average exchange rates.
On the disposal of a foreign operation, the cumulative exchange differences that were recorded in equity are recognised in the income
statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated
as assets and liabilities of the foreign entity and translated at the closing rate.
Intangible assets
a) Goodwill
Goodwill represents the excess cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired
subsidiary at the date of acquisition.
Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses. Impairment losses are charged to
the income statement and are not reversed. The gain or loss on the disposal of an entity includes the carrying amount of goodwill relating
to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units
that are expected to benefit from the business combination in which the goodwill arose.
b) Trademarks, trade names, technology, non-compete agreements and customer relationships
Separately acquired trademarks, trade names, technology and customer relationships are recognised at historical cost. They have a finite
useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost
over their estimated useful lives of between one and 15 years. Trademarks, trade names, technology, non-compete agreements and customer
relationships acquired in a business combination are recognised at fair value at the acquisition date and subsequently amortised.
c) Software
Acquired computer software is capitalised at cost, including any costs to bring it into use, and is carried at cost less accumulated amortisation.
Amortisation is calculated using the straight-line method to allocate the cost over the estimated useful life of three to five years.
d) Software and website development costs and financial systems
Development costs that are directly attributable to the design and testing of identifiable and unique software products, websites and systems
controlled by the Group are recognised as intangible assets when the following criteria are met:
– it is technically feasible to complete the software product or website so that it will be available for use;
– management intends to complete the software product or website and use or sell it;
– there is an ability to use or sell the software product or website;
– it can be demonstrated how the software product or website will generate probable future economic benefits;
– adequate technical, financial and other resources to complete the development and to use or sell the software product or website
are available; and
– the expenditure attributable to the software product or website during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product, website or system include employee and contractor costs.
Other development expenditures that do not meet these criteria, as well as ongoing maintenance and costs associated with routine upgrades
and enhancements, are recognised as an expense as incurred.
Development costs for software, websites and systems are carried at cost less accumulated amortisation and are amortised over their useful
lives (not exceeding five years) at the point in which they come into use.
96
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 Property, plant and equipment
All property, plant and equipment is stated at historical cost less accumulated depreciation and impairment losses. Historical cost comprises
the purchase price of the asset and expenditure directly attributable to the acquisition of the item.
Freehold land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost less their
estimated residual values over the estimated useful lives as follows:
Land, buildings and leasehold improvements:
– Freehold buildings
– Leasehold land and buildings
– Leasehold improvements
– Plant and equipment
50 years
life of lease
life of lease
3–10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. The carrying value of assets
is reviewed for impairment if events or changes in circumstances suggest that the carrying value may not be recoverable. Assets will be
written down to their recoverable amount if lower than the carrying value, and any impairment is charged to the income statement.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income
statement within administrative expenses.
Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets
that are subject to amortisation and depreciation are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Non-financial assets other than goodwill that have suffered an impairment are reviewed for possible reversal of the impairment at each
reporting date.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely
independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated
to the cash-generating unit (or group of units) and then to reduce the carrying amount of other assets in the unit (or group of units) on a
pro-rata basis.
Financial assets
The Group classifies its financial assets in the categories of loans and receivables and at fair value through profit or loss. The classification
depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at
initial recognition.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They
are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified as non-current
assets. The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet. Loans
and receivables are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.
Financial assets measured at fair value are those held for trading or designated at fair value through profit or loss. Derivatives are categorised
as held for trading unless they are designated as hedges. Assets in this category are classified as current assets. Financial assets carried at fair
value through the profit or loss account are initially recognised at fair value, and transaction costs are expensed in the income statement. They
are subsequently re-measured to fair value and gains or losses arising from changes in the fair value are recognised in the income statement in
the period in which they arise.
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset
the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets
is impaired. A financial asset is impaired only if there is objective evidence of impairment as a result of one or more events that occurred after
the initial recognition of the asset and that this event has an impact on the estimated future cash flows of the financial asset that can be
reliably estimated. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of
estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced
and the amount of the loss is recognised in the income statement.
If, in a subsequent period, the amount of the impairment loss decreased and the decrease can be related objectively to an event occurring
after the impairment was recognised, the reversal of the previously recognised impairment loss is credited to the income statement.
97
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 1. Accounting policies continued
Derivative financial instruments and hedging
The Group does not currently use derivative financial instruments for hedging or for speculative purposes.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method,
less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group
will not be able to collect all amounts due according to the original terms of the receivables.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, short-term deposits held on call with banks and bank overdrafts. Bank overdrafts are shown
within borrowings in ‘current liabilities’ on the balance sheet.
Trade payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred, and are subsequently carried at amortised cost, with any
difference between the proceeds (net of transaction costs) and the redemption value being recognised in the income statement over the
period of the borrowings using the effective interest method.
Finance and issue costs associated with the borrowings are charged to the income statement using the effective interest rate method from
the date of issue over the estimated life of the borrowings to which the costs relate.
Borrowings are derecognised when the obligation under the liability is discharged, cancelled or expired. Where an existing financial liability is
replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such
an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, such that the difference
in respective carrying amounts together with any costs or fees incurred are recognised in the income statement.
The buyback of bank borrowings represents the discharge of the obligation to repay the debt. The difference between the carrying amount of
the financial liability extinguished and the consideration paid is recognised as an exceptional gain in the income statement, as it is a significant
non-recurring item.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least
12 months after the balance sheet date.
Provisions
A provision is recognised when a present legal or constructive obligation exists at the balance sheet date as a result of a past event, it is
probable that an outflow of resources will be required to settle the obligation and a reliable estimate of that obligation can be made. Where
there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class
of obligations as a whole. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate
that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the obligation.
Contingent liabilities are not recognised but are disclosed unless an outflow of resources is remote. Contingent assets are not recognised
but are disclosed where an inflow of economic benefits is probable.
Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line
basis over the period of the lease.
98
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 Taxation
The tax expense for the period comprises current and deferred taxation. Tax is recognised in the income statement, except to the extent
that it relates to items recognised in ‘other comprehensive income’ or directly in equity. In this case the tax is also recognised in ‘other
comprehensive income’ or directly in equity, respectively. Management periodically evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Current taxation is provided at amounts expected to be paid (or recovered) calculated using the rates of tax and laws that have been enacted
or substantively enacted at the balance sheet date in the countries where the Group operates and generates taxable income.
Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax base of assets and liabilities
and their carrying amounts in the consolidated financial statements.
Deferred taxation is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred taxation assets are recognised only to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
Deferred taxation is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the
temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred taxation assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred taxation assets and liabilities relate to taxes levied by the same taxation authority on either the taxable entity
or different taxable entities where there is an intention to settle the balance on a net basis.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction
from the proceeds.
Where the Group purchases its own equity share capital, the consideration paid is deducted from equity attributable to the Group’s
shareholders. Where such shares are subsequently cancelled, the nominal value of the shares repurchased is deducted from share capital
and transferred to a capital redemption reserve.
Where the Group purchases its own equity share capital to hold in Treasury, the consideration paid for the shares is shown as own shares
held within equity.
Shares held by the Employee Share Option Trust
The Employee Share Option Trust (‘ESOT’) provides for the issue of shares to Group employees principally under share option schemes.
The Group has control of the ESOT and therefore consolidates the ESOT in the Group financial statements. Accordingly, shares in the
Company held by the ESOT are included in the balance sheet at cost as a deduction from equity.
Share premium and other reserves
The amount subscribed for the ordinary shares in excess of the nominal value of these new shares is recorded in ‘share premium’.
Costs that directly relate to the issue of ordinary shares are deducted from share premium net of corporation tax.
The capital reorganisation reserve arose on consolidation as a result of the share-for-share exchange on 24 March 2015. It represents the
difference between the nominal value of shares issued by Auto Trader Group plc in this transaction and the share capital and reserves of
Auto Trader Holding Limited.
The capital redemption reserve arises from the purchase and subsequent cancellation of the Group’s own equity share capital.
Other reserves comprise the currency translation reserve on the consolidation of entities whose functional currency is other than sterling.
Earnings per share
The Group presents basic and diluted earnings per share (‘EPS’) for its ordinary shares. Basic EPS is calculated by dividing the profit
attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. For diluted EPS,
the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares.
99
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 2. Financial risk management
a) Financial risk factors
In the course of its business the Group is exposed to market risk (including foreign exchange risk and interest rate risk), credit risk, liquidity
risk and technology risk. The Group’s overall risk management strategy is to minimise potential adverse effects on the financial performance
and net assets of the Group. These policies are set and reviewed by senior finance management and all significant financing transactions
are authorised by the Board of Directors.
Market risk
i. Foreign exchange risk
The Group has no significant foreign exchange risk as 98% of the Group’s revenue and 97% of costs are sterling-denominated. As the amounts
are not significant, no sensitivity analysis has been presented.
The Group operates in Ireland. Foreign currency-denominated net assets of overseas operations are not hedged as they represent a relatively
small proportion of the Group’s net assets. The Group operates a dividend policy, ensuring any surplus cash is remitted to the UK and
translated into sterling, thereby minimising the impact of exchange volatility.
ii. Interest rate risk
The Group’s interest rate risk arises from long-term borrowings under the Senior Facilities Agreement with floating rates of interest linked
to LIBOR. The Group monitors interest rates on an ongoing basis but does not currently hedge interest rate risk.
iii. Credit risk
Credit risk is the risk that financial loss arises from the failure of a customer or counterparty to meet its obligations under a contract. The Group
has dedicated standards, policies and procedures to control and monitor all such risks. Although the Group is potentially exposed to credit
loss in the event of non-performance by counterparties, such credit risk is controlled through credit rating reviews of the counterparties and by
limiting the total amount of exposure to any one party. The Group does not believe it is exposed to any material concentrations of credit risk.
Trade receivables
Credit risk relating to trade receivables is managed centrally and the credit risk for new customers is analysed before standard payment
terms and conditions are offered. Policies and procedures exist to ensure that existing customers have an appropriate credit history and a
significant number of balances are prepaid or collected via direct debit. Sales to private customers are primarily settled using major debit or
credit cards which reduces the risk in this area. Overall, the Group considers that it is not exposed to a significant amount of either customer
credit or bad debt risk, due to the diversified and fragmented nature of the customer base.
The cost of bad debts for the year ended 31 March 2018 was 0.6% of revenue (2017: 0.6%).
Cash and cash equivalents
As at 31 March 2018, the Group held cash and cash equivalents of £4.3m (2017: £8.0m). The cash and cash equivalents are held with bank
and financial institution counterparties, which are rated between P-1 and P-2 based on Moody’s ratings.
iv. Liquidity risk
Cash flow forecasting is performed centrally by the Group treasury manager. Rolling forecasts of the Group’s liquidity requirements
are monitored to ensure it has sufficient cash to meet operational needs. Such forecasting takes into consideration the Group’s debt
financing plans.
Surplus cash held by operating entities over and above the balance required for working capital management is invested centrally in
interest-bearing current accounts and money market deposits with appropriate maturities or sufficient liquidity as required by the
above-mentioned forecasts.
100
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 The tables below analyse the Group’s financial liabilities and undrawn commitments into relevant maturity groupings based on the remaining
period at the balance sheet date to contractual maturity date. Derivative financial instruments are included in the analysis if their contractual
maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual
undiscounted cash flows. As disclosed in note 17 of these consolidated financial statements, the borrowings are currently drawn down under
a syndicated debt arrangement and repayments can be made at any time without penalty. As such, there is no contractual interest cost.
Interest paid in the year in relation to borrowings amounted to £6.7m.
At 31 March 2018
Borrowings
Trade and other payables
Undrawn revolving credit and other facilities
Total
At 31 March 2017
Borrowings
Trade and other payables
Undrawn revolving credit and other facilities
Total
Less than
1 year
£m
-
5.1
-
5.1
Less than
1 year
£m
–
7.1
–
7.1
Between
1 and 2
years
£m
343.0
-
-
343.0
Between
1 and 2
years
£m
–
–
–
–
Between
2 and 5
years
£m
-
-
30.0
30.0
Between
2 and 5
years
£m
363.0
–
30.0
393.0
Over
5 years
£m
-
-
-
-
Over
5 years
£m
–
–
–
–
b) Capital risk management
The Group considers capital to be net debt plus total equity. Net debt is defined as borrowings excluding debt issue costs less cash and
short-term deposits. Total equity is as shown in the consolidated balance sheet.
The calculation of total capital is shown in the table below:
Loans due within one year
Loans and overdrafts greater than one year
Less: Cash and cash equivalents
Total net debt
Total equity
Total capital
2018
£m
-
343.0
(4.3)
338.7
4.6
343.3
2017
£m
–
363.0
(8.0)
355.0
(21.4)
333.6
The objectives for managing capital are to safeguard the Group’s ability to continue as a going concern, in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an efficient capital structure to optimise the cost of capital. In order to
maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders,
issue new shares or take other steps to increase share capital and reduce or increase debt facilities.
As at 31 March 2018, the Group had borrowings of £343.0m (2017: £363.0m) through its Syndicated Term Loan. Interest was payable on this
facility at a rate of LIBOR plus a margin of between 1.5% and 3.25% depending on the consolidated leverage ratio of Auto Trader Group plc
and its subsidiaries, which was calculated and reviewed on a biannual basis. Repayments could be made without penalty.
On 6 June 2018, the Group signed into a new Revolving Credit Facility (the ‘new RCF’) to replace the existing Syndicated Term Loan and revolving
credit facility. The new RCF, which is unsecured, has total commitments of £400m and a termination date of June 2023.
Interest on the new RCF is charged at LIBOR plus a margin of between 1.2% and 2.1% depending on the consolidated leverage of Auto Trader
Group plc. A commitment fee of 35% of the margin applicable to the new RCF is payable quarterly in arrears on unutilised amounts of the new
RCF. There is no requirement to settle all, or part, of the debt earlier than the termination date.
The Group remains in compliance with its banking covenants.
c) Fair value estimation
At 31 March 2018 and 31 March 2017, the Group had no financial instruments held at fair value through profit and loss.
101
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 3. Segmental information
IFRS 8 ‘Operating segments’ requires the Group to determine its operating segments based on information which is provided internally. Based
on the internal reporting information and management structures within the Group, it has been determined that there is only one operating
segment, being the Group, as the information reported includes operating results at a consolidated Group level only. This reflects the nature
of the business, where the major cost is to support the IT platforms upon which all of the Group’s customers are serviced. These costs are
borne centrally and are not attributable to any specific customer type or revenue stream. There is also considered to be only one reporting
segment, which is the Group, the results of which are shown in the consolidated income statement.
Management has determined that there is one operating and reporting segment based on the reports reviewed by the Operational Leadership
Team (‘OLT’) which is the chief operating decision-maker (‘CODM’). The OLT is made up of the Executive Directors and Key Management and is
responsible for the strategic decision-making of the Group.
To assist in the analysis of the Group’s revenue-generating trends, the OLT reviews revenue from three customer types as detailed below:
– Trade: revenue from retailer and home trader customers advertising their vehicles and utilising the Group’s products. Following the acquisition
of Motor Trade Delivery (‘MTD’) in April 2017, this category also includes revenue from logistics firms who pay to access the MTD website;
– Consumer services: revenue from private sellers for vehicle advertisements on the Group’s websites. This category also includes revenue
from third-party partners who provide services to consumers relating to their motoring needs, such as insurance and loan finance; and
– Manufacturer & Agency: revenue from manufacturers and their advertising agencies for placing display advertising on the Group’s websites.
The reporting information provided to the OLT, which presents revenue by customer type, has been voluntarily disclosed below:
Revenue
Trade
Consumer services
Manufacturer & Agency
Total revenue
2018
£m
281.2
29.8
19.1
330.1
2017
£m
262.1
31.8
17.5
311.4
The revenue from external parties reported to the OLT is measured in a manner consistent with that in the income statement.
Operating profit
As disclosed in the 2017 Annual Report and Financial Statements, from this financial year, the business now reports against the statutory
measure of Operating profit as opposed to the non-GAAP measure of Underlying operating profit. A reconciliation of prior year comparatives
has been shown for completeness.
Operating profit
– Share-based payments and associated NI
– Exceptional items
Underlying operating profit
A reconciliation of the total segment Operating profit to the Profit before tax is provided as follows:
Total segment Operating profit
Finance costs – net
Profit before tax
2018
£m
220.6
3.7
–
224.3
2018
£m
220.6
(9.8)
210.8
2017
£m
203.1
4.5
(0.4)
207.2
2017
£m
203.1
(9.7)
193.4
The OLT reviews the balance sheet information for the one operating segment. The segment’s assets and liabilities are presented in a manner
consistent with that of these consolidated financial statements.
102
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 The Group is domiciled in the UK and the following table details external sales by location of customers and non-current assets
(excluding deferred tax) by geographic area:
Revenue:
UK
Ireland
Total revenue
Non-current assets:
UK
Ireland
Total non-current assets (excluding deferred tax)
2018
£m
324.9
5.2
330.1
329.8
6.0
335.8
2017
£m
306.1
5.3
311.4
321.0
6.1
327.1
Due to the large number of customers the Group serves, there are no individual customers whose revenue is greater than 10% of the Group’s
total revenue in all periods presented in these financial statements.
4. Operating profit
Operating profit is stated after charging:
Staff costs
Contractor costs
Depreciation of property, plant and equipment
Amortisation of intangible assets
Operating leases
Exceptional items:
Restructuring of Group operations
Total exceptional items
Note
5
11
10
2018
£m
54.5
0.4
3.0
4.1
2.7
2018
£m
-
-
2017
£m
53.6
0.4
3.2
4.8
2.7
2017
£m
(0.4)
(0.4)
Exceptional income for the year ended 31 March 2017 relates to the reversal of provisions previously made for restructuring costs that are
no longer required.
Services provided by the Company’s auditors
During the year, the Group (including overseas subsidiaries) obtained the following services from the operating company’s auditors:
Fees payable for the audit of the Company and consolidated financial statements
Fees payable for other services:
– the audit of the subsidiary undertakings pursuant to legislation
Total
2018
£m
0.1
0.1
0.2
2017
£m
0.1
0.1
0.2
103
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 5. Employees and Directors
Wages and salaries
Social security costs
Other pension costs (note 20)
Share-based payments and associated NI (note 25)
Total
2018
£m
44.1
4.8
1.9
50.8
3.7
54.5
2017
£m
42.5
4.7
1.9
49.1
4.5
53.6
The average monthly number of employees (including Executive Directors but excluding third-party contractors) employed by the Group
was as follows:
Customer operations
Product and technology
Display
Corporate
Total
6. Directors and Key Management remuneration
The remuneration of Directors was as follows:
Aggregate Directors’ emoluments
Share-based payments charge
Total
2018
Number
2017
Number
331
312
49
130
822
2018
£m
1.6
1.5
3.1
339
311
46
124
820
2017
£m
1.5
1.3
2.8
During the year ended 31 March 2018, three Directors (2017: two Directors) were members of the Group’s defined pension contribution scheme.
The remuneration of the highest paid Director was as follows:
Aggregate emoluments
Share-based payments charge
Total
2018
£m
0.7
1.0
1.7
2017
£m
0.7
0.9
1.6
During the year to 31 March 2018, Trevor Mather, Sean Glithero and Nathan Coe (2017: Trevor Mather and Sean Glithero) received remuneration
in respect of their services as Directors of the Company and subsidiary undertakings. Ed Williams (2017: Ed Williams) received remuneration in
respect of his services as a Director of the Company.
Refer to the Directors’ remuneration report on pages 74 to 80 for further detail.
Key Management compensation
During the year to 31 March 2018, Key Management comprised the members of the OLT (2017: OLT). The remuneration of all Key Management
(including Directors) was as follows:
Short-term employee benefits
Share-based payments
Termination benefits
Pension contributions
Total
104
2018
£m
4.9
2.6
0.1
0.2
7.8
2017
£m
5.0
2.6
–
0.2
7.8
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 7. Finance costs
Finance costs
On bank loans and overdrafts
Amortisation of debt issue costs
Total
2018
£m
6.8
3.0
9.8
Debt issue costs incurred on the original Senior Facilities Agreement were accelerated in the year with an additional £1.1m recognised
in the consolidated income statement (2017: additional charge of £nil).
8. Taxation
Current taxation
UK corporation taxation
Foreign taxation
Adjustments in respect of prior years
Total current taxation
Deferred taxation
Origination and reversal of temporary differences
Adjustments in respect of prior years
Total deferred taxation
Total taxation charge
2018
£m
40.7
0.2
(0.9)
40.0
(0.3)
(0.2)
(0.5)
39.5
The taxation charge for the year is lower than (2017: the same as) the effective rate of corporation tax in the UK of 19% (2017: 20%).
The differences are explained below:
Profit before taxation
Tax on profit on ordinary activities at the standard UK corporation tax rate of 19% (2017: 20%)
Expenses not deductible for taxation purposes
Adjustments in respect of foreign tax rates
Adjustments in respect of prior years
Total taxation charge
2018
£m
210.8
40.1
0.6
(0.1)
(1.1)
39.5
2017
£m
7.5
2.2
9.7
2017
£m
39.3
0.2
(0.4)
39.1
(0.3)
(0.1)
(0.4)
38.7
2017
£m
193.4
38.7
0.6
(0.1)
(0.5)
38.7
Taxation on items taken directly to equity was a credit of £0.1m (2017: £0.1m) relating to deferred tax on share-based payments.
The tax charge for the year is based on the standard rate of UK corporation tax for the period of 19% (2017: 20%). Deferred income taxes have
been measured at the tax rate expected to be applicable at the date the deferred income tax assets and liabilities are realised. Management
has performed an assessment, for all material deferred income tax assets and liabilities, to determine the period over which the deferred
income tax assets and liabilities are forecast to be realised, which has resulted in an average deferred income tax rate of 17% being used to
measure all deferred tax balances as at 31 March 2018 (2017: 17%).
105
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 9. Earnings per share
Basic earnings per share is calculated using the weighted average number of ordinary shares in issue during the year, excluding those held
by the Employee Share Option Trust (‘ESOT’), based on the profit for the year attributable to shareholders.
Year ended 31 March 2018
Basic EPS
Diluted EPS
Year ended 31 March 2017
Basic EPS
Diluted EPS
Weighted average
number of ordinary
shares
Total
earnings
£m
Pence
per share
964,516,212
967,912,689
989,278,991
991,812,212
171.3
171.3
154.7
154.7
17.76
17.70
15.64
15.60
The number of shares in issue at the start of the year is reconciled to the basic and diluted weighted average number of shares below:
Year ended 31 March 2018
Issued ordinary shares at 31 March 2017
Weighted effect of ordinary shares purchased for cancellation
Weighted effect of ordinary shares held in treasury
Weighted effect of shares held by the ESOT
Weighted average number of shares for basic EPS
Dilutive impact of share options outstanding
Weighted average number of shares for diluted EPS
Weighted average
number of shares
978,971,146
(9,314,068)
(4,199,275)
(941,591)
964,516,212
3,396,477
967,912,689
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially
dilutive ordinary shares. The Group has potentially dilutive ordinary shares arising from share options granted to employees. Options are
dilutive under the Sharesave scheme where the exercise price together with the future IFRS 2 charge is less than the average market price of
the ordinary shares during the year. Options under the Performance Share Plan, the Deferred Annual Bonus Plan and the Share Incentive Plan
are contingently issuable shares and are therefore only included within the calculation of diluted EPS if the performance conditions, as set out
in the Board report on remuneration on pages 74 to 80, are satisfied.
The average market value of the Group’s shares for the purposes of calculating the dilutive effect of share-based incentives was based on
quoted market prices for the period during which the share-based incentives were outstanding.
106
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 10. Intangible assets
Cost
At 31 March 2016
Additions
Exchange differences
At 31 March 2017
Acquired through a business combination
Additions
Exchange differences
At 31 March 2018
Accumulated amortisation
and impairments
At 31 March 2016
Amortisation charge
At 31 March 2017
Amortisation charge
At 31 March 2018
Net book value at 31 March 2018
Net book value at 31 March 2017
Net book value at 31 March 2016
Software and
website
development costs
£m
Goodwill
£m
Financial
systems
£m
Other
£m
433.6
–
0.5
434.1
8.5
–
0.2
442.8
120.8
–
120.8
–
120.8
322.0
313.3
312.8
54.0
0.5
0.1
54.6
0.4
0.3
–
55.3
52.3
1.5
53.8
0.6
54.4
0.9
0.8
1.7
11.6
0.7
–
12.3
–
0.3
–
12.6
4.2
2.3
6.5
2.4
8.9
3.7
5.8
7.4
13.3
–
–
13.3
3.8
–
–
17.1
11.8
1.0
12.8
1.1
13.9
3.2
0.5
1.5
Total
£m
512.5
1.2
0.6
514.3
12.7
0.6
0.2
527.8
189.1
4.8
193.9
4.1
198.0
329.8
320.4
323.4
Other intangibles include customer relationships, technology, trade names, trademarks and non-compete agreements.
Intangible assets which have a finite useful life are carried at cost less accumulated amortisation. Amortisation of these intangible assets is
calculated using the straight-line method to allocate the cost of the assets over their estimated useful lives (three to 15 years). The longest
estimated useful life remaining at 31 March 2018 is five years.
For the year to 31 March 2018, the amortisation charge of £4.1m (2017: £4.8m) has been charged to administrative expenses in the
income statement.
At 31 March 2018, £0.1m (2017: £0.1m) of software and website development costs represented assets under construction. Amortisation
of these assets will commence when they are brought into use.
In accordance with International Financial Reporting Standards, goodwill is not amortised, but instead is tested annually for impairment, or more
frequently if there are indicators of impairment. Goodwill is carried at cost less accumulated impairment losses.
Impairment test for goodwill
Goodwill is allocated to the appropriate cash-generating unit (‘CGU’) based on the smallest identifiable group of assets that generates cash
inflows independently in relation to the specific goodwill. The recoverable amount of the CGU is determined from value-in-use calculations
that use cash flow projections from the latest three-year plan. The carrying value of CGUs is the sum of goodwill, property, plant and
equipment and intangibles and is as follows:
Digital
Webzone
Total
2018
£m
330.2
6.1
336.3
2017
£m
307.6
5.7
313.3
Income and costs within the budget are derived on a detailed ‘bottom up’ basis – all income streams and cost lines are considered and
appropriate growth, or decline, rates are assumed. Income and cost growth forecasts are risk adjusted to reflect specific risks facing each
CGU and take into account the markets in which they operate. Key assumptions include revenue growth rates, associated levels of marketing
support and directly associated overheads. Cash flows beyond the budgeted period are extrapolated using the estimated growth rate stated
below into perpetuity. The growth rate does not exceed the long-term average growth rate for the markets in which the CGUs operate. Other
than as included in the financial budgets, it is assumed that there are no material adverse changes in legislation that would affect the forecast
cash flows.
107
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 10. Intangible assets continued
The pre-tax discount rate used within the recoverable amount calculations was 8.0% (2017: 8.0%) and is based upon the weighted average cost
of capital reflecting specific principal risks and uncertainties. The discount rate takes into account the risk-free rate of return, the market risk
premium and beta factor reflecting the average beta for the Group and comparator companies which are used in deriving the cost of equity.
The same discount rate has been applied to both CGUs as the principal risks and uncertainties associated with the Group, as highlighted on
pages 34 to 37, would also impact each CGU in a similar manner. The Board acknowledges that there are additional factors that could impact
the risk profile of each CGU, which have been considered by way of sensitivity analysis performed as part of the annual impairment tests.
Significant headroom exists in both CGUs. The level of headroom may change if different growth rate assumptions or a different pre-tax
discount rate were used in the cash flow projections, however there are no likely changes to these assumptions that would result in any
impairment recorded in each of the years presented in these financial statements.
11. Property, plant and equipment
Cost
At 31 March 2016
Additions
At 31 March 2017
Additions
Disposals
At 31 March 2018
Accumulated depreciation
At 31 March 2016
Charge for the year
At 31 March 2017
Charge for the year
Disposals
At 31 March 2018
Net book value at 31 March 2018
Net book value at 31 March 2017
Net book value at 31 March 2016
Land, buildings and
leasehold
improvements
£m
Office
equipment
£m
3.9
–
3.9
–
–
3.9
1.1
0.3
1.4
0.3
–
1.7
2.2
2.5
2.8
17.9
2.5
20.4
2.3
(6.0)
16.7
13.3
2.9
16.2
2.7
(6.0)
12.9
3.8
4.2
4.6
Total
£m
21.8
2.5
24.3
2.3
(6.0)
20.6
14.4
3.2
17.6
3.0
(6.0)
14.6
6.0
6.7
7.4
The depreciation expense of £3.0m for the year to 31 March 2018 (2017: £3.2m) has been recorded in administrative expenses.
During the year, £6.0m (2017: £nil) worth of office equipment with £nil net book values were disposed of.
108
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 12. Investments
Shares in other undertakings
Cost
At 31 March 2018 and 31 March 2017
Provision for impairment
At 31 March 2018 and 31 March 2017
Net book value at 31 March 2018
Net book value at 31 March 2017
£m
3.2
3.2
–
–
At the balance sheet date, the Group holds a 16.0% (2017: 19.4%) interest in the preferred share capital of IAUTOS Company Limited. IAUTOS
Company Limited is an intermediate holding company through which trading companies incorporated in the People’s Republic of China are
held. It is not considered an associate as the Group does not have significant influence over this entity. This investment was fully impaired
in the year to 31 March 2014 as the Chinese trading companies are loss-making with forecast future cash outflows.
Subsidiary undertakings
At 31 March 2018 the Group’s related undertakings were:
Subsidiary undertakings
Country of registration or
incorporation
Principal activity
Class of shares
held
Auto Trader Holding Limited 1
England and Wales
Financing company
Auto Trader Limited 1
Trader Licensing Limited 1
Webzone Limited 2
England and Wales
Online marketplace
England and Wales
Dormant company
Republic of Ireland
Online marketplace
Motor Trade Delivery Limited 1
England and Wales
Online marketplace
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Percentage
owned by the
parent
Percentage
owned by the
Group
100%
–
–
–
–
100%
100%
100%
100%
100%
1 Registered office address for UK companies is shown on page 131.
2 Registered office address for the Republic of Ireland companies is Paramount Court, Corrig Road, Sandyford Industrial Estate, Dublin 18, D18 R9C7.
A guarantee exists in respect of the wholly owned subsidiary that is incorporated in the Republic of Ireland and consolidated within these
financial statements. They have availed themselves of an exemption from filing their individual financial statements in accordance with
Section 357 of the Companies (Amendment) Act, 2014, Ireland.
109
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 13. Financial instruments by category
The accounting policies for financial instruments have been applied to the loans and receivables and financial liabilities as detailed
in the table below:
31 March 2018
Financial assets as per balance sheet:
Trade and other receivables
Cash and cash equivalents
Total
31 March 2018
Financial liabilities as per balance sheet:
Borrowings
Trade and other payables
Total
31 March 2017
Financial assets as per balance sheet:
Trade and other receivables
Cash and cash equivalents
Total
31 March 2017
Financial liabilities as per balance sheet:
Borrowings
Trade and other payables
Total
Loans and
receivables
£m
Non-financial
assets
£m
25.5
4.3
29.8
30.0
–
30.0
Financial liabilities
measured at
amortised cost
£m
Non-financial
liabilities
£m
(340.8)
(5.1)
(345.9)
–
(28.2)
(28.2)
Loans and
receivables
£m
Non-financial
assets
£m
21.4
8.0
29.4
29.3
–
29.3
Financial liabilities
measured at
amortised cost
£m
Non-financial
liabilities
£m
(357.8)
(7.1)
(364.9)
–
(26.2)
(26.2)
Total
£m
55.5
4.3
59.8
Total
£m
(340.8)
(33.3)
(374.1)
Total
£m
50.7
8.0
58.7
Total
£m
(357.8)
(33.3)
(391.1)
Non-financial assets include prepayments and accrued income. Non-financial liabilities include other taxes and social security, accruals and
deferred income.
The carrying amounts of financial assets and liabilities approximate their fair values.
110
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 14. Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Accrued income
Prepayments
Other receivables
Total
The ageing analysis of trade receivables is as follows:
Fully performing
Past due but not impaired:
Up to three months
Impaired
Total
2018
£m
28.8
(3.4)
25.4
26.7
3.3
0.1
55.5
2018
£m
21.5
3.3
4.0
28.8
2017
£m
24.4
(3.1)
21.3
26.1
3.2
0.1
50.7
2017
£m
17.8
2.8
3.8
24.4
Trade receivables which are less than three months past due are not considered impaired unless specific information indicates otherwise.
Trade receivables greater than three months past due are considered for recoverability, and where appropriate, a provision against bad debt
is recognised.
It was assessed that a portion of the impaired receivables is expected to be recovered.
Movements on the provision for impairment of trade receivables are as follows:
At beginning of year
Provision for receivables impairment
Receivables written off during the year as uncollectible
Total
2018
£m
3.1
2.0
(1.7)
3.4
2017
£m
3.2
1.7
(1.8)
3.1
The creation and release of the provision for impaired trade receivables is included in administrative expenses in the income statement.
The other classes within ‘trade and other receivables’ do not contain impaired assets.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable included within ‘trade and other
receivables’. The Group does not hold any collateral as security. Due to the large number of customers the Group services, the credit quality
of trade receivables is not deemed a significant risk.
The carrying amount of the Group’s trade receivables is denominated in the following currencies:
Sterling
Euro
Total
At 31 March 2018 and 31 March 2017 all other financial receivables are primarily denominated in sterling.
2018
£m
28.0
0.8
28.8
2017
£m
23.6
0.8
24.4
111
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 15. Cash and cash equivalents
Cash at bank and in hand is denominated in the following currencies:
Sterling
Euro
Cash at bank and in hand
16. Trade and other payables
Trade payables
Accruals
Other taxes and social security
Deferred income
Other payables
Accrued interest payable
Total
17. Borrowings
Non-current
Syndicated Term Loan gross of unamortised debt issue costs
Unamortised debt issue costs
Total
The Syndicated Term Loan is repayable as follows:
One to two years
Two to five years
Total
The carrying amounts of borrowings approximate their fair values.
A reconciliation of changes in borrowings arising from financing activities is as follows:
2018
£m
4.1
0.2
4.3
2018
£m
3.7
14.6
11.8
1.8
0.9
0.5
33.3
2018
£m
343.0
(2.2)
340.8
2018
£m
343.0
-
343.0
2017
£m
7.4
0.6
8.0
2017
£m
6.1
14.3
10.0
1.9
0.5
0.5
33.3
2017
£m
363.0
(5.2)
357.8
2017
£m
-
363.0
363.0
Total borrowings
At
1 April 2017
£m
Cash
movement
£m
Non-cash
movement
£m
At
31 March 2018
£m
357.8
(20.0)
3.0
340.8
During the year to 31 March 2018 the Group repaid £20.0m of the Syndicated Term Loan (2017: £40.0m).
112
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 Senior Facilities Agreement (including the Syndicated Term Loan)
On 24 March 2015, the Company and a subsidiary undertaking, Auto Trader Holding Limited, entered into a £550.0m Senior Facilities
Agreement. The associated debt transaction costs were £9.4m. The first utilisation was made on 24 March 2015 when £550.0m was drawn.
Interest on the Syndicated Term Loan was charged at LIBOR plus a margin of between 1.5% and 3.25% depending on the consolidated leverage
ratio of the Group. There was no requirement to settle all or part of the debt earlier than the termination date in March 2020.
Under the Senior Facilities Agreement, the lenders also made available to the Company and Auto Trader Holding Limited a £30.0m revolving
credit facility (the ‘RCF’). The RCF was undrawn at 31 March 2018 (2017: undrawn). Cash drawings under the RCF would incur interest at LIBOR
plus a margin of between 1.25% and 3.0% depending on the consolidated leverage of the Group (31 March 2017: 1.25% and 3.0%). A commitment
fee of 35% of the margin applicable to the RCF from time to time was payable quarterly in arrears on the unutilised amounts of the RCF.
On 6 June 2018, the Group signed into a new Revolving Credit Facility (the ‘new RCF’) to replace the existing Syndicated Term Loan and
revolving credit facility. The new RCF, which is unsecured, has total commitments of £400m and a termination date of June 2023.
Interest on the new RCF is charged at LIBOR plus a margin of between 1.2% and 2.1% depending on the consolidated leverage of
Auto Trader Group plc. A commitment fee of 35% of the margin applicable to the new RCF is payable quarterly in arrears on unutilised
amounts of the new RCF. There is no requirement to settle all, or part, of the debt earlier than the termination date.
The exposure of the Group’s borrowings (excluding debt issue costs) to LIBOR rate changes and the contractual repricing dates at the
balance sheet date are as follows:
One month or less
Total
18. Provisions for other liabilities and charges
At 31 March 2017
Charged to the income statement
Utilised in the year
At 31 March 2018
Current
Non-current
Total
2018
£m
343.0
343.0
Onerous lease and
dilapidations provision
£m
Holiday pay
provision
£m
1.1
0.1
(0.1)
1.1
0.3
0.3
(0.3)
0.3
2018
£m
0.3
1.1
1.4
2017
£m
363.0
363.0
Total
£m
1.4
0.4
(0.4)
1.4
2017
£m
0.3
1.1
1.4
The onerous lease provision was provided for future payments under property leases in respect of unoccupied properties no longer suitable
for the Group’s use. This has been fully utilised in the current year.
Dilapidations have been provided for all UK and Ireland properties based on the estimate of costs upon exit of the leases, which expire
between April 2025 and February 2029.
The holiday pay provision relates to liabilities for holiday pay in relation to the UK and Ireland operations for leave days accrued and not yet
taken at the end of the financial year, and is expected to be fully utilised in the year to 31 March 2019.
113
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 19. Deferred taxation
The movement in deferred taxation assets and liabilities during the year, without taking into consideration the offsetting of balances within
the same tax jurisdiction, is as follows:
Deferred taxation assets
At 31 March 2016
Credited/(charged) to the income statement
Credited directly to equity
At 31 March 2017
Credited to the income statement
Credited directly to equity
At 31 March 2018
Deferred taxation liabilities
At 31 March 2016
Credited to the income statement
At 31 March 2017
Acquired in business combination
Credited to the income statement
At 31 March 2018
Share-based
payments
£m
Accelerated
capital
allowances
£m
Other
temporary
differences
£m
0.4
0.4
0.1
0.9
0.2
0.1
1.2
3.9
(0.1)
–
3.8
0.1
–
3.9
–
–
–
–
–
–
–
Share-based
payments
£m
Accelerated
capital
allowances
£m
Other
temporary
differences
£m
–
–
–
–
–
–
–
–
–
–
–
–
0.3
(0.1)
0.2
0.7
(0.2)
0.7
Total
£m
4.3
0.3
0.1
4.7
0.3
0.1
5.1
Total
£m
0.3
(0.1)
0.2
0.7
(0.2)
0.7
The Group has estimated that £0.8m (2017: £nil) of the Group’s net deferred income tax asset will be realised in the next 12 months.
This is management’s current best estimate and may not reflect the actual outcome in the next 12 months.
20. Retirement benefit obligations
Across the UK and Ireland the Group operates several pension schemes. All except one are defined contribution schemes. Within the UK,
all pension schemes set up prior to 2001 have been closed to new members and only one defined contribution scheme is now open to
new employees.
In the year to 31 March 2018 the pension contributions to the Group defined contribution scheme amounted to £1.9m (2017: £1.9m). At 31 March
2018, there were £0.3m (31 March 2017: £0.3m) of pension contributions outstanding relating to the Group’s defined contribution scheme.
The defined benefit pension scheme provides benefits based on final pensionable pay and this scheme was closed to new joiners with effect
from May 2002. New employees after that date have been offered membership of the Group’s defined contribution scheme.
The most recent actuarial valuation of the defined benefit obligations was performed as at 31 March 2018 by a qualified independent actuary.
The amounts recognised in the balance sheet are determined as follows:
Present value of funded obligations
Fair value of plan assets
Effect of surplus cap
Net liability recognised in the balance sheet
2018
£m
19.7
(21.0)
1.3
–
2017
£m
21.0
(21.4)
0.4
–
The surplus of £1.3m (2017: £0.4m) has not been recognised as an asset as it is not deemed to be recoverable by the Group.
114
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 The net retirement benefit income before taxation recognised in the income statement in respect of the defined benefit schemes
is summarised as follows:
Interest income on net defined benefit obligation
Administration expenses paid by the scheme
Net retirement benefit income before taxation
The amounts recognised in the statement of other comprehensive income are as follows:
Remeasurement gains/(losses) recognised in the year (before tax)
Effect of surplus cap
Total
The movement in the defined benefit obligations over the year is as follows:
At 31 March 2016
Interest expense/(income)
Remeasurements:
Loss from changes in financial assumptions
Gains arising from experience
Return on plan assets, excluding amounts included in interest income
Benefits paid
Effect of surplus cap
At 31 March 2017
Interest expense/(income)
Remeasurements:
Gain from changes in financial assumptions
Loss arising from experience
Other:
Contributions paid by the employer
Benefits paid
Effect of surplus cap
At 31 March 2018
2018
£m
–
–
–
2018
£m
0.9
(0.9)
–
Present value
of obligation
£m
Fair value
of plan assets
£m
17.5
0.6
3.9
(0.2)
–
(0.8)
–
21.0
0.5
(0.9)
0.1
–
(1.0)
–
19.7
(17.5)
(0.6)
–
–
(3.2)
0.8
(0.5)
(21.0)
(0.5)
–
–
(0.1)
1.0
0.9
(19.7)
The Company has agreed to contribute £70,000 per annum to the scheme with effect from 1 October 2016 for a period of three years.
During the year to 31 March 2018, the Group contributed £70,000 to the scheme (2017: £29,165).
As at 31 March 2018, approximately 65% of the liabilities (2017: 65%) are attributable to former employees who have yet to reach retirement
and 35% to current pensioners (2017: 35%).
2017
£m
–
–
–
2017
£m
(0.5)
0.5
–
Total
£m
–
–
3.9
(0.2)
(3.2)
–
(0.5)
–
–
(0.9)
0.1
(0.1)
–
0.9
–
115
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 20. Retirement benefit obligations continued
The significant actuarial assumptions were as follows:
Discount rate
Pension growth rate
Inflation rate (‘RPI’)
2018
%
2.60
2.25
3.35
2017
%
2.60
2.35
3.45
Sensitivity to key assumptions has not been disclosed as any reasonable possible changes would not result in a significant change to the
amounts recorded in the financial statements.
The Group has assumed that mortality will be in line with nationally published mortality table S2NA with CMI 2017 projections related to
members’ years of birth with long-term rate of improvement of 1.5% per annum. These tables translate into an average life expectancy for
a pensioner retiring at age 65 as follows:
Member aged 65 (current life expectancy)
Member aged 45 (life expectancy at age 65)
Plan assets are comprised as follows:
Equities
Corporate bonds
Real estate
Total
All plan assets have a quoted market price.
2018
Men
Years
87
89
2018
£m
11.4
8.5
1.1
21.0
Women
Years
89
91
%
54.3
40.5
5.2
100.0
2017
Men
Years
88
90
2017
£m
12.0
8.3
1.1
21.4
Women
Years
90
92
%
56.1
38.8
5.1
100.0
This defined benefit pension scheme exposes the Group to a number of risks, the most significant of which are:
Asset volatility
The scheme liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform this yield,
this will create a deficit. The scheme holds a significant proportion of equities, which are expected to outperform corporate bonds in the
long term while creating volatility and risk in the short term. The allocation to equities is monitored to ensure it remains appropriate given
the scheme’s long-term objectives.
Changes in bond yields
A decrease in corporate bond yields will increase the scheme liabilities, although this will be partially offset by an increase in the value of the
scheme’s bond holdings.
Inflation risk
A proportion of the scheme’s benefit obligations are linked to inflation and higher inflation will lead to higher liabilities (although in most cases
caps on the level of inflationary increases are in place to protect against extreme inflation). The majority of the assets are either unaffected by
or only loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit.
Life expectancy
The majority of the scheme’s obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an
increase in the liabilities.
The weighted average duration of the defined benefit obligation is 22 years.
116
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 21. Share capital
Share capital
Allotted, called-up and fully paid ordinary shares of 1p each
At 1 April
Purchase and cancellation of own shares
Total
2018
2017
Number
’000
Amount
£m
Number
’000
Amount
£m
978,971
(26,810)
952,161
9.8
(0.3)
9.5
1,001,052
(22,081)
978,971
10.0
(0.2)
9.8
In the year ended 31 March 2017, the Company commenced a share buyback programme. By resolutions passed at the 2017 AGM, the Company
was authorised to make market purchases of up to 97,476,919 of its ordinary shares, subject to minimum and maximum price restrictions.
A total of 26,809,702 ordinary shares of £0.01 were purchased in the year (2017: 26,292,510). The average price paid per share was 358.5p
(2017: 387.9p), with a total consideration paid (inclusive of all costs) of £96.7m (2017: £102.6m).
No shares were purchased to be held in treasury (2017: 4,211,957).
Included within shares in issue at 31 March 2018 are 932,761 (2017: 948,924) shares held by the ESOT and 4,194,989 (2017: 4,203,277) shares held
in treasury, as detailed in note 22.
22. Own shares held
Own shares held – £m
Own shares held as at 1 April 2016
Transfer of shares from ESOT
Repurchase of own shares for treasury
Own shares held as at 31 March 2017
Own shares held as at 1 April 2017
Own shares held as at 31 March 2018
Own shares held – number
Own shares held as at 1 April 2016
Transfer of shares from ESOT
Shares purchased for treasury
Share-based incentives exercised in the year
Own shares held as at 31 March 2017
Own shares held as at 1 April 2017
Transfer of shares from ESOT
Share-based incentives exercised in the year
Own shares held as at 31 March 2018
Total
£m
(1.5)
0.1
(15.5)
(16.9)
(16.9)
(16.9)
1,021,224
(72,300)
4,211,957
(8,680)
5,152,201
ESOT shares
reserve
£m
Treasury
shares
£m
(1.5)
0.1
–
(1.4)
(1.4)
(1.4)
ESOT shares
reserve
Number of
shares
1,021,224
(72,300)
–
–
(15.5)
(15.5)
(15.5)
(15.5)
–
–
Treasury
shares
Number of
shares
Total
number of
own shares
held
–
–
4,211,957
(8,680)
948,924
4,203,277
948,924
(16,163)
–
4,203,277
5,152,201
–
(8,288)
(16,163)
(8,288)
932,761
4,194,989
5,127,750
117
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 23. Dividends
Dividends declared and paid by the Company were as follows:
2016 final dividend paid
2017 interim dividend paid
2017 final dividend paid
2018 interim dividend paid
2018
Pence
per share
–
–
3.5
1.9
5.4
2017
Pence
per share
1.0
1.7
–
–
2.7
£m
–
–
34.0
18.2
52.2
£m
9.9
16.7
–
–
26.6
The proposed final dividend for the year ended 31 March 2018 of 4.0p per share, totalling £37.9m, is subject to approval by shareholders
at the Annual General Meeting (‘AGM’) and hence has not been included as a liability in the financial statements.
The 2018 interim dividend paid on 26 January 2018 was £18.2m, being a difference of £0.1m compared to that reported in the 2017 half year
results. This was due to a decrease in the ordinary shares entitled to a dividend between the date that the dividend was declared on
9 November 2017 and the dividend record date of 5 January 2018.
The 2017 final dividend paid on 29 September 2017 was £34.0m, being a difference of £0.1m compared to that reported in the 2017 Annual Report.
This was due to a decrease in the ordinary shares entitled to a dividend between the date that the dividend was proposed on 8 June 2017 and the
final dividend record date of 1 September 2017.
The Directors’ policy with regard to future dividends is set out in the Strategic report on page 31.
24. Cash generated from operations
Profit before taxation
Adjustments for:
Depreciation
Amortisation
Share-based payments charge (excluding associated NI)
Finance costs
Changes in working capital (excluding the effects of exchange differences on consolidation):
Trade and other receivables
Trade and other payables
Provisions
Cash generated from operations
2018
£m
210.8
3.0
4.1
3.3
9.8
(3.5)
(1.5)
0.1
226.1
2017
£m
193.4
3.2
4.8
4.0
9.7
0.7
(2.3)
(0.6)
212.9
118
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018
25. Share-based payments
The Group currently operates four share schemes: the Performance Share Plan, Deferred Annual Bonus Plan, Share Incentive Plan and the
Sharesave scheme.
All share-based incentives are subject to a service condition. Such conditions are not taken into account in the fair value of the service
received. The fair value of services received in return for share-based incentives is measured by reference to the fair value of share-based
incentives granted. The estimate of the fair value of the share-based incentives is measured using either the Monte Carlo or Black-Scholes
pricing model as is most appropriate for each scheme.
The total charge in the year relating to the four schemes was £3.7m (2017: £4.5m) with a Company charge of £1.0m (2017: £1.5m). This included
associated national insurance (‘NI’) at 13.8%, which management expects to be the prevailing rate when the awards are exercised, and
apprenticeship levy at 0.5%, based on the share price at the reporting date.
Share Incentive Plan (‘SIP’)
Sharesave scheme (‘SAYE’)
Performance Share Plan (‘PSP’)
Deferred Annual Bonus Plan (‘DABP’)
Total share-based payment charge
NI and apprenticeship levy on applicable schemes
Total charge
Group
Company
2018
£m
0.8
0.3
1.8
0.4
3.3
0.4
3.7
2017
£m
0.8
0.3
2.4
0.5
4.0
0.5
4.5
2018
£m
–
–
0.7
0.2
0.9
0.1
1.0
2017
£m
–
–
1.0
0.3
1.3
0.2
1.5
Share Incentive Plan
In 2015, the Group established a Share Incentive Plan (‘SIP’). All eligible employees were awarded free shares (or nil-cost options in the case
of employees in Ireland) valued at £3,600 each based on the share price at the time of the Company’s admission to the Stock Exchange in
March 2015, subject to a three-year service period (‘Vesting Period’). The SIP shareholders are entitled to dividends over the Vesting Period.
There are no performance conditions applicable to the vesting of SIP shares. The fair value of the SIP awards at the grant date was measured
to be £2.72 using the Black-Scholes model. The resulting share-based payments charge is being spread evenly over the Vesting Period.
UK SIP
Outstanding at 1 April
Dividend shares awarded
Forfeited
Released
Outstanding at 31 March
Vested and outstanding at 31 March
Irish SIP
Outstanding at 1 April
Dividend shares awarded
Forfeited
Released
Outstanding at 31 March
Vested and outstanding at 31 March
2018
Number
776,045
9,778
(75,986)
(19,046)
690,791
–
2018
Number
44,431
788
(7,950)
(1,347)
35,922
–
The weighted average market value per ordinary share for SIP awards released in 2018 was 372.01p (2017: 387.14p).
The SIP shares outstanding at 31 March 2018 have a weighted average remaining vesting period of 0.1 years (2017: 1.1 years).
Shares released relate to those attributable to good leavers as defined by the scheme rules.
2017
Number
913,917
6,139
(69,589)
(74,422)
776,045
–
2017
Number
45,491
–
(1,060)
–
44,431
–
119
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 25. Share-based payments continued
Performance Share Plan
The Group operates a Performance Share Plan (‘PSP’) for Executive Directors, the OLT and certain key employees.
On 16 June 2017, the Group awarded 1,120,267 nil cost options under the PSP scheme. A further 67,882 nil cost option shares were awarded
on 30 August 2017. The extent to which such awards vest will depend upon the Group’s performance over a three-year performance period
following the award date. The vesting in June 2020 (‘Vesting Date’) of 25% of the 2017 PSP award will be dependent on a relative TSR
performance condition measured over the performance period and the vesting of the 75% of the 2017 PSP award will be dependent on
the satisfaction of a cumulative Operating profit (‘OP’) target measured over the performance period.
The TSR performance conditions for the awards issued in 2015 and 2016 will be dependent on the satisfaction of a cumulative Underlying
operating profit (‘UOP’) target measured over the performance period. For details of TSR, OP and UOP performance conditions refer to the
Directors’ remuneration report on pages 74 to 78.
The PSP awards have been valued using the Monte Carlo model for the TSR element and the Black-Scholes model for the Operating profit
and Underlying operating profit element and the resulting share-based payments charge is being spread evenly over the period between the
grant date and the Vesting Date.
Grant date
Condition
19 June 2015
TSR dependent
19 June 2015
UOP dependent
17 June 2016
TSR dependent
17 June 2016
UOP dependent
16 June 2017
TSR dependent
16 June 2017
OP dependent
30 August 2017 TSR dependent
30 August 2017 OP dependent
Share price
at grant date
(£)
Exercise
price
(£)
Expected
volatility
(%)
Option
life
(years)
Risk-free
rate
(%)
Dividend
yield
(%)
Non-vesting
condition
(%)
Fair value
per option
(£)
3.06
3.06
3.89
3.89
4.00
4.00
3.42
3.42
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
30
n/a
29
n/a
31
n/a
31
n/a
3.0
3.0
3.0
3.0
3.0
3.0
3.0
3.0
0.9
0.9
0.4
0.4
0.2
0.2
0.2
0.2
0.0
0.0
0.4
0.4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2.08
3.06
2.16
3.89
2.17
4.00
2.17
3.42
Expected volatility is estimated by considering historic average share price volatility at the grant date.
Outstanding at 1 April
Options granted in the year
Forfeited
Outstanding at 31 March
Exercisable at 31 March
2018
Number
2,682,738
1,188,149
(766,324)
3,104,563
–
2017
Number
1,641,267
1,186,365
(144,894)
2,682,738
–
The PSP awards outstanding at 31 March 2018 have a weighted average remaining vesting period of 1.2 years (2017: 1.6 years) and a weighted
average contractual life of 8.2 years (2017: 8.7 years).
Deferred Annual Bonus Plan
The Group operates a Deferred Annual Bonus Plan (‘DABP’) for Executive Directors and certain key senior executives.
Awards under the plan are contingent on the satisfaction of pre-set internal targets relating to financial and operational objectives. Awards
have a vesting period of two years from the date of the award (the ‘Vesting Period’) and are potentially forfeitable during that period should
the employee leave employment. The DABP awards have been valued using the Monte Carlo model and the resulting share-based payments
charge is being spread evenly over the combined Performance Period and Vesting Period of the shares, being three years.
On 16 June 2017, the Group awarded 127,691 nil cost options under the DABP scheme.
Share price
at grant date
(£)
Exercise
price
(£)
Expected
volatility
(%)
Option
life
(years)
Risk-free
rate
(%)
Dividend
yield
(%)
Non-vesting
condition
(%)
Fair value
per option
(£)
3.89
4.00
Nil
Nil
30
31
2.0
2.0
0.4
0.2
0.4
0.0
0.0
0.0
3.89
4.00
Grant date
17 June 2016
16 June 2017
120
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 Expected volatility is estimated by considering historic average share price volatility at the grant date.
Outstanding at 1 April
Options granted in the year
Dividend shares awarded
Options forfeited in the year
Outstanding at 31 March
Exercisable at 31 March
2018
Number
248,263
127,691
1,306
(73,380)
303,880
74,686
2017
Number
–
248,263
–
–
248,263
–
The DABP awards outstanding at 31 March 2018 have a weighted average remaining vesting period of 1.2 years (2017: 2.2 years) and a weighted
average contractual life of 8.6 years (2017: 9.2 years).
The charge for the year includes an estimate of the awards to be granted after the balance sheet date in respect of achievement of 2018 targets.
Sharesave scheme
The Group operates a Sharesave (‘SAYE’) scheme for all employees under which employees are granted an option to purchase ordinary shares
in the Company at up to 20% less than the market price at invitation, in three years’ time, dependent on their entering into a contract to make
monthly contributions into a savings account over the relevant period. Options are granted and are linked to a savings contract with a term
of three years. These funds are used to fund the option exercise. No performance criteria are applied to the exercise of Sharesave options.
The assumptions used in the measurement of the fair value at grant date of the Sharesave plan are as follows:
Share price
at grant date
(£)
Exercise
price
(£)
Expected
volatility
(%)
Option
life
(years)
Risk-free
rate
(%)
Dividend
yield
(%)
Non-vesting
condition
(%)
Fair value
per option
(£)
25 September 2015
13 December 2017
3.28
3.48
2.64
2.59
30
31
3.0
3.0
1.0
0.6
0.0
1.3
33
14
0.96
1.12
Expected volatility is estimated by considering historic average share price volatility at the grant date. The requirement that an employee has
to save in order to purchase shares under the Sharesave plan is a non-vesting condition. This feature has been incorporated into the fair value
at grant date by applying a discount to the valuation obtained from the Black-Scholes pricing model.
Outstanding at 1 April
Options granted in the year
Exercised
Lapsed
Outstanding at 31 March
Exercisable at 31 March
2018
2017
Number of
share options
Weighted average
exercise price
£
919,281
728,520
(6,941)
(110,008)
1,530,852
–
2.64
2.59
2.64
2.63
2.61
–
Number of
share options
1,060,225
–
(8,680)
(132,264)
919,281
–
Weighted average
exercise price
£
2.64
–
2.64
2.64
2.64
–
The weighted average market value per ordinary share for Sharesave options exercised in 2018 was 372.52p (2017: 369.51p).
The Sharesave options outstanding at 31 March 2018 have a weighted average remaining vesting period of 1.7 years (2017: 1.7 years)
and a weighted average contractual life of 2.2 years (2017: 2.2 years).
Sharesave options exercised relate to those attributable to good leavers as defined by the scheme rules.
121
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 26. Acquisition of a subsidiary
On 25 April 2017, Auto Trader Limited, a subsidiary of Auto Trader Group plc, acquired the entire share capital of Motor Trade Delivery Limited
(‘MTD’), an online real-time marketplace for the trade delivery of vehicles across the UK. Through the platform, car dealerships and rental
companies list ‘jobs’ – vehicles that need moving to another retailer site or a customer – and logistics providers bid for the jobs via a live
auction process. This acquisition is an extension of Auto Trader’s overall strategy of using digital technology to improve efficiencies for retailer
customers.
The total cash consideration paid of £12.2 million excludes acquisition costs of £0.2 million, £0.1 million of which was recognised as an expense
in the year ended 31 March 2017. The remainder has been recognised in the current period within administrative expenses in the consolidated
income statement.
The following table provides a reconciliation of the amounts included in the consolidated statement of cash flows:
Cash paid for subsidiary
Less: cash acquired
Net cash outflow
2018
£m
12.2
(0.3)
11.9
From the period from acquisition to 31 March 2018, MTD contributed revenue of £1.1 million, and a loss of £0.5 million (after an amortisation
charge of £1.0 million) to the Group’s results.
The purchase has been accounted for as a business combination under the acquisition method in accordance with IFRS 3. The fair value of net
assets acquired was assessed and no material adjustments from book value were made to existing assets and liabilities. The following table
represents the fair value of the net assets acquired at the date of acquisition:
Intangible assets recognised on acquisition:
Customer relationships
Non-compete agreement
Website
Deferred tax liability arising on intangible assets
Current assets
Trade and other receivables
Cash and cash equivalents
Current liabilities
Total net assets acquired
Goodwill on acquisition
Cash consideration
Fair value
£m
3.2
0.6
0.4
(0.7)
3.5
0.7
0.3
1.0
(0.8)
3.7
8.5
12.2
12.2
The goodwill recognised on acquisition relates to value arising from intangible assets that are not separately identifiable under IFRS 3.
This represents synergies expected to arise from combining with the existing business of Auto Trader Limited. None of the acquired
intangible assets or goodwill is expected to be deductible for tax purposes.
In addition to the goodwill recognised, the customer relationships, non-compete agreement and website obtained through the acquisition
met the requirements to be separately identifiable under IFRS 3.
122
Notes to the consolidated financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 27. Contingent liabilities and guarantees
Guarantees
A number of the Group’s entities provide guarantees under the Group’s Senior Facilities Agreement. The amount borrowed under this
agreement at 31 March 2018 was £343.0m (2017: £363.0m).
Contingent liabilities
HMRC have identified a potential VAT risk in respect of the rate of VAT applicable to our insurance intermediary revenue within Consumer
services, dating back from 2013 onwards. The Group recognises provisions for liabilities when it is more likely than not that a settlement
will be required and the value of such a payment can be reliably estimated. A provision has not been recognised as the Group does not
consider a settlement will be probable. The Group is providing further information to clarify the nature of the services supplied but has
estimated the maximum one-off liability at £3.0m including interest and penalties.
28. Related party transactions
During the year, the Group transacted with Burns Sheehan Limited, a third party in which a Director holds a shareholding. This company is
deemed to be a related party. Costs incurred were in respect of recruitment consultancy services which amounted to £34,737 (2017: £nil).
There were no amounts outstanding at the year end. All transactions were completed on an arm’s length basis.
Key Management personnel compensation has been disclosed in note 6.
29. Operating lease commitments
At the balance sheet date, the Group had outstanding commitments for future aggregate minimum lease payments under non-cancellable
operating leases, which fall due as follows:
No later than one year
Later than one year and no later than five years
Later than five years
Total
Land and buildings
Other
2018
£m
2.5
9.9
9.8
22.2
2017
£m
1.4
9.9
12.4
23.7
2018
£m
0.5
0.3
–
0.8
2017
£m
0.6
0.7
–
1.3
At 31 March 2018, £9.3m (2017: £11.8m) of future lease payments payable after five years relate to the Manchester and London properties.
The lease terms on these properties are between 10 and 15 years and both lease agreements are renewable at the end of the lease period
at market rate.
30. Post balance sheet event
On 6 June 2018, the Group signed into a new Revolving Credit Facility (the ‘new RCF’) to replace the existing Syndicated Term Loan and
revolving credit facility. The new RCF, which is unsecured, has total commitments of £400m and a termination date of June 2023.
Interest on the new RCF is charged at LIBOR plus a margin of between 1.2% and 2.1% depending on the consolidated leverage of
Auto Trader Group plc. A commitment fee of 35% of the margin applicable to the new RCF is payable quarterly in arrears on unutilised
amounts of the new RCF. There is no requirement to settle all, or part, of the debt earlier than the termination date.
123
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Company balance sheet
At 31 March 2018
Fixed assets
Investments
Current assets
Debtors
Cash and cash equivalents
Creditors: amounts falling due within one year
Net current assets
Net assets
Capital and reserves
Called-up share capital
Own shares held
Capital redemption reserve
Retained earnings
Total equity
Note
3
4
5
6
9
10
2018
£m
1,212.9
1,212.9
440.7
0.2
440.9
2017
£m
1,210.5
1,210.5
420.1
–
420.1
(288.4)
(118.4)
152.5
301.7
1,365.4
1,512.2
9.5
(16.9)
0.5
1,372.3
1,365.4
9.8
(16.9)
0.2
1,519.1
1,512.2
The financial statements from pages 124 to 130 were approved by the Board of Directors and authorised for issue.
Nathan Coe
Director
7 June 2018
Auto Trader Group plc
Registered number 09439967
124
Auto Trader Group plc Annual Report and Financial Statements 2018 Company statement of changes in equity
For the year ended 31 March 2018
Balance at March 2016
Loss for the year
Total comprehensive expense, net of tax
Transactions with owners:
Purchase and cancellation of own shares
Purchase of treasury shares
Transfer from ESOT
Dividends paid
Share-based payments
Total transactions with owners recognised directly in equity
(0.2)
Balance at March 2017
Loss for the year
Total comprehensive expense, net of tax
Transactions with owners:
Purchase and cancellation of own shares
Dividends paid
Share-based payments
Deferred tax on share-based payments
Total transactions with owners recognised directly in equity
Balance at March 2018
9.8
–
–
(0.3)
–
–
–
(0.3)
9.5
Share
capital
£m
10.0
Own shares
held
£m
(1.5)
–
–
(0.2)
–
–
–
–
Capital
redemption
reserve
£m
–
–
–
0.2
–
–
–
–
0.2
0.2
–
–
0.3
–
–
–
0.3
0.5
Retained
earnings
£m
1,630.8
(1.9)
(1.9)
(87.1)
–
(0.1)
(26.6)
4.0
(109.8)
Total
equity
£m
1,639.3
(1.9)
(1.9)
(87.1)
(15.5)
–
(26.6)
4.0
(125.2)
1,519.1
1,512.2
(1.4)
(1.4)
(96.7)
(52.2)
3.3
0.2
(145.4)
(1.4)
(1.4)
(96.7)
(52.2)
3.3
0.2
(145.4)
1,372.3
1,365.4
–
–
–
(15.5)
0.1
–
–
(15.4)
(16.9)
–
–
–
–
–
–
–
(16.9)
As at 31 March 2018, the Company had distributable reserves of £1,372.3m (2017: £1,519.1m). When required, the Company can receive dividends
from its subsidiaries to further increase distributable reserves.
125
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 Notes to the Company financial statements
1. Accounting policies
Auto Trader Group plc is a public limited company which is listed on the London Stock Exchange and is domiciled and incorporated in the
United Kingdom under the Companies Act 2006. The Company was incorporated on 13 February 2015 and adopted FRS 102 from that date.
Statement of compliance and basis of preparation
The Company financial statements of Auto Trader Group plc have been prepared in compliance with United Kingdom Accounting Standards,
including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland’
(‘FRS 102’) and the Companies Act 2006. The Company financial statements have been prepared under the historic cost convention, as modified
for the revaluation of certain financial assets and liabilities through profit or loss. The current year financial information presented is at and for
the year (365 days) ended 31 March 2018. The comparative financial information presented is at and for the 369-day period ended 31 March 2017.
During the year ended 31 March 2017, the Board made the decision to change the period end date to be 31 March every year, to better align with our
customers’ needs and to the products and services we offer. As a consequence of the change, the 2017 financial year was four days longer than
the current year.
The Directors have used the going concern principle on the basis that the current profitable financial projections and facilities of the
consolidated Group will continue in operation for a period not less than 12 months from the date of this report.
The Company financial statements have been prepared in sterling (£), which is the functional and presentational currency of the Company,
and have been rounded to the nearest hundred thousand (£0.1m) except where otherwise indicated.
As permitted by Section 408 of the Companies Act 2006, an entity profit and loss account is not included as part of the published consolidated
financial statements of Auto Trader Group plc. The loss for the financial period dealt with in the financial statements of the parent Company
was £1.4m (2017: loss of £1.9m).
As the Company is included in the consolidated financial statements and is considered to be a qualifying entity under FRS 102 paragraphs
1.8 to 1.12, the following exemptions have been applied:
– no separate parent Company cash flow statement with related notes has been included; and
– Key Management personnel compensation has not been included a second time.
Amounts paid to the Company’s auditors in respect of the statutory audit were £56,650 (2017: £55,000).
Estimation techniques
The preparation of financial statements in conformity with FRS 102 requires the use of certain critical accounting estimates. It also requires
management to exercise their judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree
of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are:
– share-based payments; and
– carrying value of investments.
Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are
accounted for as equity-settled share-based payment transactions. The accounting policies of such arrangements are disclosed in note 1 of
the Group accounts. The fair value of services received in return for share options is calculated with reference to the fair value of the award on
the date of grant. Black-Scholes and Monte Carlo models have been used where appropriate to calculate the fair value and the Directors have
therefore made estimates with regard to the inputs to that model and the period over which the share award is expected to vest (note 25 of
the consolidated Group financial statements).
The Group considers annually whether the carrying value of investments has suffered any impairment in accordance with the accounting policy
stated. The recoverable amounts of investments have been determined based on value-in-use calculations, which require the use of estimates.
Investments in subsidiaries
Investments in subsidiaries are held at cost, less any provision for impairment. Annually, the Directors consider whether any events or
circumstances have occurred that could indicate that the carrying amount of fixed asset investments may not be recoverable. If such
circumstances do exist, a full impairment review is undertaken to establish whether the carrying amount exceeds the higher of net
realisable value or value in use. If this is the case, an impairment charge is recorded to reduce the carrying value of the related investment.
Where equity-settled share-based payments are granted to the employees of subsidiary companies, the fair value of the award is treated
as a capital contribution by the Company and the investments in subsidiaries are adjusted to reflect this capital contribution.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction
from the proceeds.
Where the Group purchases its own equity share capital, the consideration paid is deducted from equity attributable to the Group’s
shareholders. Where such shares are subsequently cancelled, the nominal value of the shares repurchased is deducted from share capital
and transferred to a capital redemption reserve. Where the Group purchases its own equity share capital to hold in Treasury, the consideration
paid for the shares is shown as own shares held within equity.
Shares held by the Employee Share Option Trust
Shares in the Company held by the Employee Share Option Trust (‘ESOT’) are included in the balance sheet at cost as a deduction from equity.
126
Auto Trader Group plc Annual Report and Financial Statements 2018 Taxation
UK corporation tax is provided at amounts expected to be paid or recovered using the tax rates and laws that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where
transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred on the
balance sheet date.
A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all evidence available, it can be
regarded as more likely than not that there will be suitable taxable profits against which to recover carried-forward tax losses and from
which the future reversal of underlying timing differences can be deducted.
Deferred tax is measured at the average rates that are expected to apply in the periods in which the timing differences are expected to reverse
based on the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on an
undiscounted basis.
Financial instruments
The Company has chosen to adopt Sections 11 and 12 of FRS 102 in respect of financial instruments.
a) Financial assets
Basic financial assets, including trade and other receivables, cash and bank balances and investments in commercial paper, are initially
recognised at transaction price (unless the arrangement constitutes a financing transaction) and are subsequently carried at amortised cost
using the effective interest method.
Financial assets which constitute a financing transaction are measured at the present value of the future receipts discounted at a market rate
of interest. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that
investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less
impairment.
At the end of each reporting period financial assets measured at amortised cost are assessed for objective evidence of impairment. If an
asset is impaired the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows
discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed.
The reversal is such that the current carrying amount does not exceed what the carrying amount would have been had the impairment not
previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised when (a) the contractual rights to the cash flows from the asset expire or are settled, or (b) substantially all
the risks and rewards of the ownership of the asset are transferred to another party or (c) despite having retained some significant risks and
rewards of ownership, control of the asset has been transferred to another party who has the practical ability to unilaterally sell the asset to
an unrelated third party without imposing additional restrictions.
b) Financial liabilities
Basic financial liabilities, including trade and other payables, bank loans, loans from fellow Group companies and preference shares that are
classified as debt, are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the debt
instrument is measured at the present value of the future receipts discounted at a market rate of interest. Debt instruments are subsequently
carried at amortised cost, using the effective interest rate method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or
all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is
probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over
the period of the facility to which it relates.
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers.
Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current
liabilities. Trade payables are recognised initially at transaction price and subsequently measured at amortised cost using the effective
interest method.
Dividend distribution
Dividends to the Company’s shareholders are recognised as a liability in the Company’s financial statements in the period in which the
dividends are approved by the Company’s shareholders in the case of final dividends. In respect of interim dividends, these are recognised
once paid.
2. Directors’ emoluments
The Company has no employees other than the Directors. Full details of the Directors’ remuneration and interests are set out in the Directors’
remuneration report on pages 74 to 78.
127
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 3. Investments in subsidiaries
At beginning of the period
Additions
At end of the period
2018
£m
1,210.5
2.4
1,212.9
2017
£m
1,207.8
2.7
1,210.5
The additions in the year and prior year relate to equity-settled share-based payments granted to the employees of subsidiary companies.
Subsidiary undertakings
At 31 March 2018 the Group’s related undertakings were:
Subsidiary undertakings
Country of registration
or incorporation
Principal activity
Class of
shares held
Percentage
owned by the
parent
Percentage
owned by the
Group
Auto Trader Holding Limited 1
England and Wales
Financing company
Auto Trader Limited 1
Trader Licensing Limited 1
Webzone Limited 2
England and Wales
Online marketplace
England and Wales
Dormant company
Republic of Ireland
Online marketplace
Motor Trade Delivery Limited 1
England and Wales
Online marketplace
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
–
–
–
–
1 Registered office address for UK companies is shown on the inside back cover.
2 Registered office address for the Republic of Ireland companies is Paramount Court, Corrig Road, Sandyford Industrial Estate, Dublin 18, D18 R9C7.
4. Debtors
Amounts owed by Group undertakings
Deferred tax asset
Total
Amounts owed by Group undertakings are non-interest-bearing, unsecured and have no fixed date of repayment.
5. Cash and cash equivalents
Cash at bank and in hand
6. Creditors: amounts falling due within one year
Amounts owed to Group undertakings
Accruals and deferred income
Total
Amounts owed to Group undertakings are non-interest-bearing, unsecured and have no fixed date of repayment.
2018
£m
439.9
0.8
440.7
2018
£m
0.2
2018
£m
287.3
1.1
288.4
100%
100%
100%
100%
100%
2017
£m
419.7
0.4
420.1
2017
£m
–
2017
£m
117.5
0.9
118.4
128
Notes to the Company financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 7. Financial instruments
Financial instruments utilised by the Company during the year ended 31 March 2018 and period ended 31 March 2017 may be analysed as follows:
Financial assets
Financial assets measured at amortised cost
Financial liabilities
Financial liabilities measured at amortised cost
2018
£m
439.9
2018
£m
288.4
Current assets and liabilities
Financial instruments included within current assets and liabilities (excluding cash and borrowings) are generally short term in nature and
accordingly their fair values approximate to their book values.
8. Dividends
Dividends declared and paid by the Company were as follows:
2016 final dividend paid
2017 interim dividend paid
2017 final dividend paid
2018 interim dividend paid
2018
Pence
per share
–
–
3.5
1.9
5.4
2017
Pence
per share
1.0
1.7
–
–
2.7
£m
–
–
34.0
18.2
52.2
2017
£m
419.7
2017
£m
118.4
£m
9.9
16.7
–
–
26.6
The proposed final dividend for the year ended 31 March 2018 of 4.0p per share, totalling £37.9m, is subject to approval by shareholders
at the Annual General Meeting (‘AGM’) and hence has not been included as a liability in the financial statements.
The 2018 interim dividend paid on 26 January 2018 was £18.2m, being a difference of £0.1m compared to that reported in the 2017 half year
results. This was due to a decrease in the ordinary shares entitled to a dividend between the date that the dividend was declared on
9 November 2017 and the dividend record date of 5 January 2018.
The 2017 final dividend paid on 29 September 2017 was £34.0m, being a difference of £0.1m compared to that reported in the 2017 Annual Report.
This was due to a decrease in the ordinary shares entitled to a dividend between the date that the dividend was proposed on 8 June 2017 and the
final dividend record date of 1 September 2017.
The Directors’ policy with regard to future dividends is set out in the Strategic report on page 31.
9. Called-up share capital
Share capital
Allotted, called-up and fully paid ordinary shares of 1p each
At 1 April
Purchase and cancellation of own shares
Total
2018
2017
Number
’000
Amount
£m
Number
’000
Amount
£m
978,971
(26,810)
952,161
9.8
(0.3)
9.5
1,001,052
(22,081)
978,971
10.0
(0.2)
9.8
In the year ended 31 March 2017, the Company commenced a share buyback programme. By resolutions passed at the 2017 AGM, the Company
was authorised to make market purchases of up to 97,476, 919 of its ordinary shares, subject to minimum and maximum price restrictions.
A total of 26,809,702 ordinary shares of £0.01 were purchased in the year (2017: 26,292,510). The average price paid per share was 358.5p
(2017: 387.9p), with a total consideration paid (inclusive of all costs) of £96.7m (2017: £102.6m).
No shares were purchased to be held in treasury (2017: 4,211,957).
Included within shares in issue at 31 March 2018 are 932,761 (2017: 948,924) shares held by the ESOT and 4,194,989 (2017: 4,203,277) shares held in
treasury, as detailed in note 10.
129
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018 10. Own shares held
Own shares held – £m
Own shares held as at 1 April 2016
Transfer of shares from ESOT
Repurchase of own shares for treasury
Own shares held as at 31 March 2017
Own shares held as at 1 April 2017
Own shares held as at 31 March 2018
Own shares held – number
Own shares held as at 1 April 2016
Transfer of shares from ESOT
Shares purchased for treasury
Share-based incentives exercised in the year
Own shares held as at 31 March 2017
Own shares held as at 1 April 2017
Transfer of shares from ESOT
Share-based incentives exercised in the year
Own shares held as at 31 March 2018
11. Contingent liabilities and guarantees
Total
£m
(1.5)
0.1
(15.5)
(16.9)
(16.9)
(16.9)
1,021,224
(72,300)
4,211,957
(8,680)
5,152,201
ESOT shares
reserve
£m
Treasury
shares
£m
(1.5)
0.1
–
(1.4)
(1.4)
(1.4)
ESOT shares
reserve
Number of
shares
1,021,224
(72,300)
–
–
(15.5)
(15.5)
(15.5)
(15.5)
–
–
Treasury
shares
Number of
shares
Total
number of
own shares
held
–
–
4,211,957
(8,680)
948,924
4,203,277
948,924
(16,163)
–
4,203,277
5,152,201
–
(8,288)
(16,163)
(8,288)
932,761
4,194,989
5,127,750
The Company is a guarantor to a borrowing facility relating to a loan provided to a Group entity. The amount borrowed under this agreement
at 31 March 2018 was £343.0m (2017: £363.0m).
12. Related parties
During the year, a management charge of £2.1m (2017: £1.9m) was received from Auto Trader Limited in respect of services rendered.
At the year end, balances outstanding with other Group undertakings were £439.9m and £287.3m respectively for debtors and creditors
(2017: £419.7m and £117.5m) as set out in notes 4 and 6.
13. Post balance sheet event
On 6 June 2018, a Group entity signed into a new Revolving Credit Facility (the ‘new RCF’) to replace the existing Syndicated Term Loan and
revolving credit facility. The new RCF, which is unsecured, has total commitments of £400m and a termination date of June 2023. The Company
will continue to be a guarantor under the new RCF agreement.
130
Notes to the Company financial statements continuedAuto Trader Group plc Annual Report and Financial Statements 2018 Shareholder information
Registered office and headquarters
Auto Trader Group plc
4th Floor, 1 Tony Wilson Place
Manchester
M15 4FN
United Kingdom
Registered number: 09439967
Tel: +44 (0) 161 669 9888
Web: autotrader.co.uk
Web: plc.autotrader.co.uk
Investor relations: ir@autotrader.co.uk
Company Secretary
Claire Baty
Joint stockbrokers
Bank of America Merrill Lynch
2 King Edward Street
London
EC1A 1HQ
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
Independent auditors
KPMG LLP
1 St. Peter’s Square
Manchester
M2 3AE
Registrar
Link Asset Services
34 Beckenham Road
Beckenham
BR3 4TU
Tel UK: +44 (0) 871 664 0300
(calls cost 12p per minute plus network extras;
lines are open 9.00am to 5.30pm Monday to Friday,
excluding public holidays in England and Wales)
Tel international: +44 (0) 371 664 0300
(charged at the appropriate international rate)
Web: linkassetservices.com
Email: enquiries@linkgroup.co.uk
Financial calendar 2018–2019
Annual General Meeting
2019 Half-year results
2019 Full-year results
20 September 2018
8 November 2018
June 2019
Shareholder enquiries
Our registrars will be pleased to deal with any questions
regarding your shareholdings (see contact details in the opposite
column). Alternatively, if you have internet access, you can access
https://www.autotradershares.co.uk where you can view and
manage all aspects of your shareholding securely including electronic
communications, account enquiries or amendment to address.
Investor relations website
The investor relations section of our website,
plc.autotrader.co.uk/investors, provides further information for
anyone interested in Auto Trader. In addition to the Annual Report and
Financial Statements and share price, Company announcements
including the full-year results announcements and associated
presentations are also published there.
Cautionary note regarding forward-looking statements
Certain statements made in this Report are forward-looking
statements. Such statements are based on current expectations
and assumptions and are subject to a number of risks and
uncertainties that could cause actual events or results to differ
materially from any expected future events or results expressed
or implied in these forward-looking statements. They appear in a
number of places throughout this
Report and include statements regarding the intentions, beliefs
or current expectations of the Directors concerning, amongst
other things, the Group’s results of operations, financial condition,
liquidity, prospects, growth, strategies and the business. Persons
receiving this Report should not place undue reliance on forward-
looking statements. Unless otherwise required by applicable law,
regulation or accounting standard, Auto Trader Group plc does
not undertake to update or revise any forward-looking statements,
whether as a result of new information, future developments
or otherwise.
131
Strategic report / Governance / Financial statementsAuto Trader Group plc Annual Report and Financial Statements 2018
Notes
132
Auto Trader Group plc Annual Report and Financial Statements 2018 This report is printed on GenYous uncoated paper.
Manufactured at a mill that is FSC® accredited.
Printed by Principal Colour.
Principal Colour are ISO 14001 certified, Alcohol Free
and FSC® Chain of Custody certified.
Designed and produced by SampsonMay
Telephone: 020 7403 4099
www.sampsonmay.com
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Manchester
Auto Trader Group plc
4th Floor, 1 Tony Wilson Place
Manchester
M15 4FN
United Kingdom
+44 (0) 161 669 9888
London
Auto Trader Group plc
3rd Floor, 2 Pancras Square
London
N1C 4AG
United Kingdom
+44 (0) 20 3747 7100
autotrader.co.uk
plc.autotrader.co.uk