ANNUAL
REPORT
2018
IN THIS REPORT
“We continue to focus on our strategic priorities
and the reallocation of our capital into the areas
we see as providing the strongest long-term
growth. We have seen strong performance in
used cars in the second half of the year, with
the transformation of preparation facilities and
processes now embedded in our Car Stores.
We anticipate this will carry on into 2019 and
beyond as our new Car Store businesses further
boost our used car growth.
New car sales have been subdued and consumer
confidence has been adversely affected in
the period by macro newsflow, however, our
Software business is continuing to win market
share and has now deployed systems in twelve
overseas countries.
04
Our Leasing business has grown profitability
with a stable base of vehicles under
management.”
STRATEGIC HIGHLIGHTS
Our business model, focus and strategic direction.
09
BUSINESS PROFILES
Learn more about our four businesses: UK Motor division, our
Independent Software Vendor (Pinewood), Fleet and Leasing
(Pendragon Vehicle Management) and US Motor division.
We also share an introduction to our new online marketplace
Carstore.com.
18
PRODUCING USED CARS
Behind the scenes of what happens in our new Production
Factories to make a car ready for sale.
2
Pendragon PLC Annual Report 2018 26
OPERATIONAL AND FINANCIAL REVIEW
41
DIRECTORS REPORT
DIRECTORS REPORT
STRATEGIC REPORT
Strategic Highlights
04
06 Operational and Financial Highlights
07 Financial Summary
08 Performance Indicators
09 Business Profiles
18
20 Life at Pendragon PLC
Producing Used Cars
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
72
OPERATIONAL AND
FINANCIAL REVIEW
Industry Insight
24
28 Business Review
32 Financial Review
34 Balance Sheet
35 Risk Overview
DIRECTORS REPORT
Corporate Social Responsibility Report
Board of Directors
42
44 Corporate Governance Report
48
50 Committee Reports
56 Directors’ Remuneration Report
69 Directors’ Report
FINANCIAL STATEMENTS
73
74
83
84
85
86
87
88
Director’s Responsibility Statements
Independant Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Reconciliation of Net Cash Flow to Movement in
Net Debt
89 Notes to the Financial Statements
160 Company Balance Sheet
161 Company Statement of Comprehensive Income
162 Company Statement of Changes in Equity
163 Notes to the Financial Statements of the Company
170 Advisors, Banks and Shareholder Information
171
5 Year Group Review
3
Pendragon PLC Annual Report 2018
STRATEGIC HIGHLIGHTS
Welcome to our 2018 Annual Report.
Our goal of doubling our used car revenue by 2021 remains unchanged
and we’re moving ever closer to achieving our ambitions.
“We will continue to invest in more used car sales capacity as
we move towards our goal of doubling our revenue by 2021.
We expect to continue to grow our software revenues with our
SaaS licencing to international users. We expect broadly double digit
revenue growth for the foreseeable future.
We anticipate the sale of our US business to realise in excess
of £100 million.”
STRATEGIC HIGHLIGHTS
Double used car revenue by 2021
• Invested in and launched Carstore.com website in December
2018.
Software – global growth
• Good progress growing our Software as a Service (‘SaaS’)
licences to international users. In 2018 we have implemented
• Recruited a Used Car Director to manage the operation and
the software into customers with an addressable user base
roll out of used Car Stores.
of over 1,600 (2017 : 729).
• Opened three purpose built Car Stores and converted four
• Our overseas activities now encompass twelve countries of
former new car franchised dealerships to Car Stores.
which Germany, Norway, Sweden, Switzerland, Thailand and
• Opened four used car refurbishment factories to industrialise
Philippines were added in 2018.
this process.
• Strong used car profitability in the second half of 2018.
Board changes
• As previously announced, Trevor Finn, Chief Executive will
US Motor Group - disposal
• Completed the first disposal of a franchise in the US. Further
retire from the role of Chief Executive of Pendragon PLC on
31 March 2019. Mark Herbert joined Pendragon on 4 March
disposals are well progressed.
2019 as Chief Executive designate and will be appointed to
Premium Brand Franchises
• As part of our committed three year plan to reduce the
• As previously announced, Tim Holden, Finance Director, will
step down on 31 March 2019. His successor, Mark Willis, will
capital deployed in this area, we have sold six premium
take up the role of Chief Finance Officer and joins the Board
brand franchises (including two in February 2019) and
on 8 April 2019.
the Board as Chief Executive on 1 April 2019.
agreed lower capital expenditure levels.
• This has released £46.7 million of capital comprising
consideration and capital expenditure avoided.
4
Pendragon PLC Annual Report 2018 BUSINESS SEGMENTS
We have four main business divisions that make up our Group:
UK MOTOR
Sale and servicing
of vehicles in the
UK
INDEPENDENT
SOFTWARE
VENDOR
Licencing of
Software as a service
to automotive
businesses
FLEET AND
LEASING
Supply of new
vehicles and fleet
management to
businesses
US MOTOR
(Discontinued)
Sale and servicing
of vehicles in the US
US Motor
12%
Leasing
19%
Software
15%
UK Motor
54%
Underlying Operating Profit by business
£41.1m UK Motor
£14.8m Leasing
£11.7m Software
£8.6m US Motor
E W
N
u
S
V E H ICLE RETAILIN
used car
p p l y
p art exchanges
f
inventor
o f
r o m
y
G
G
IN
S
A
E
L
D
N
A
T
E
E
L
F
tory
n
e
v
n
i
r
a
c
d
e
s
u
f
o
y
l
p
p
u
S
“Each business
generates independent
profits, but also supports
our strategic ambition to
double used car revenue
by 2021.”
USED
VEHICLE
RETAILING
M
arket
leading s y s t e m
r
o
f
SOFTWA R E
V
E
H
I
C
L
E
T
e
c
h
f
n
o
r
i
c
a
v
l
e
h
i
c
l
e
q
u
i
e
r
e
c
o
n
d
p
m
e
n
t
a
n
itio
d
nin
e
x
p
g
ertise
S
E
R
V
I
C
E
&
R
E
P
AIR
5
Pendragon PLC Annual Report 2018
OPERATIONAL AND FINANCIAL HIGHLIGHTS
OPERATIONAL AND FINANCIAL HIGHLIGHTS
• Group Revenue -1.3% L4L (-2.4% total) Primarily the impact
of a decline in premium new car sales.
• Used Revenue -0.3% L4L (-0.9% total) Used vehicle revenue,
excluding nearly new vehicles, grew by 2.9% against a used
car market that fell 2.2%. L4L used gross profit up 4.9%.
Used gross profit increased by 27.6% (L4L) in the UK Motor
division in H2 2018 driven by very strong margins in the
second half of the year.
• Car Store Revenue in our Car Store business grew by
£83.6m, an increase of 38.5%. Gross profit was up 42.2%.
Including the impact of start-up and transformation costs
the operating loss for the business was £11.9m (2017:loss
£6.9m).
• Underlying Profit Before Tax £47.8m (2017: £60.4m)
Underlying profit before tax down £12.6 million due to
decline in UK motor division new vehicle gross profit and
the investment in new Car Store sites and refurbishment
• New Revenue -2.2% L4L (-3.8% total) Outperformed the UK
market which was down 6.8% in 2018 with UK new revenue
factories.
down 5.2% L4L. Gross profit down 8.3% following continuing
margin pressure in the Premium sector.
• Aftersales Revenue -0.5% L4L (-1.8% total) Gross profit
down 1.5%. Our retail aftersales revenue grew by 2.1% with
• Non Underlying charge of £92.2m (2017: £4.9m credit)
including a non-cash charge principally for impairment of
goodwill and non-current assets in our UK Motor Group of
£(95.8)m taking into account trading and market conditions.
margins reduced as a result of labour cost increases.
• Stable Balance Sheet Net debt £127.6m (2017:£124.1m) with
• Software Revenue +7.0% L4L (+7.0% total) Gross profit up
8.0% in spite of investment in new product development for
international markets.
Net Debt : Underlying EBITDA unchanged at 0.9.
• Capital Allocation A final dividend of 0.7p is being proposed
to maintain dividend earnings cover of at least two times.
At this stage in the company’s investment cycle our share
• Leasing Revenue -11.7% L4L (-11.7% total) Gross profit up
35.3% benefiting from utilising the factory refurbishment for
buyback programme is paused. The Board continues to
monitor the relative merits of freehold property ownership
end of contract disposals.
against the lower capital requirements of operating leasehold
premises, as we continue to grow our physical footprint.
• Operating Cost +2.5% L4L (+24.3% total)
Includes
transformation costs of the new preparation process offset
by cost saving actions taken during the year.
£M
REVENUE
GROSS PROFIT
OPERATING
PROFIT/(LOSS)
PROFIT/(LOSS)
BEFORE TAX
EPS
LIKE FOR LIKE*
UNDERLYING**
£4,509.8
£540.4
£79.2
£50.8
N/A
(-1.3%)
(+0.6%)
(-9.3%)
(-20.5%)
£4,627.0
£550.5
£76.2
£47.8
2.8p
(-2.4%)
(-0.4%)
(-9.1%)
(-20.9%)
(-15.2%)
£4,627.0
£550.5
£(14.4)
£(44.4)
(3.6p)
TOTAL
(-2.4%)
(-0.4%)
* like for like (L4L) results include only current trading businesses which have been trading for 12 consecutive months.
** underlying results that exclude items that are not incurred in the normal course of business and are sufficiently significant and/or irregular to impact the underlying trends in the business
Continuing results are stated on an underlying basis.
6
Pendragon PLC Annual Report 2018 FINANCIAL SUMMARY
4,537.0
4,739.1
4,627.0
559.6
552.9
550.5
12.3
11.7
11.9
2016
2017
2018
2016
2017
2018
2016
2017
2018
£4,627.0M
REVENUE
£550.5M
GROSS PROFIT
11.9%
GROSS MARGIN
101.2
83.8
76.2
75.4
60.4
47.8
3.9
3.3
2.8
2016
2017
2018
2016
2017
2018
2016
2017
2018
£76.2M
UNDERLYING OPERATING PROFIT
£47.8M
UNDERLYING PROFIT BEFORE TAX
2.8P
UNDERLYING EPS
100.4
91.4
73.0
65.3
124.1
127.6
91.7
(14.4)
(44.4)
2016
2017
2018
2016
2017
2018
2016
2017
2018
£(14.4M)
OPERATING (LOSS)/PROFIT
£(44.4M)
(LOSS)/PROFIT BEFORE TAX
£127.6M
NET DEBT
NOTE: Throughout this document, Alternative Performance Measures have been used which are non-GAAP measures that are presented to provide readers with
additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure,
see note 1 of the Financial Statements for details.
7
Pendragon PLC Annual Report 2018 PERFORMANCE INDICATORS
KEY FINANCIAL MEASURES
KPI
Definition
2018 Performance
Change
Underlying EPS
Underlying profit after tax divided by weighted average
number of shares
2.8p
down 15.2%
Underlying PBT
Underlying profit before tax excludes items that are
not incurred in the normal course of business and are
sufficiently significant and / or irregular to impact the
underlying trends in the business
£47.8m
down 20.9%
Underlying
Operating Margin
Underlying operating profit divided by underlying
revenue
1.6%
down 11.1%
Underlying
Net Debt
Net debt : underlying EBITDA is the ratio of our net debt
to underlying EBITDA
Ratio 0.9
no change
KEY STRATEGIC MEASURES
KPI
Definition
2018 Performance
Change
Aftersales Retail
Labour Sales
Retail labour sales is activity direct to consumers for the
servicing and repair of motor vehicles (like for like)
Retail growth 2.1%
down 1.3%
Used Revenue
All used revenues (like for like)
£2,108.6m
down 0.3%
Online Growth
Website visits to Evanshalshaw.com, Stratstone.com and
Carstore.com
28.7m visitors
up 5.1%
8
Pendragon PLC Annual Report 2018 BUSINESS PROFILES
10 UK Motor
12
Independent Software Vendor
14 Fleet and Leasing
15 US Motor
16 Online Marketplace
9
Pendragon PLC Annual Report 2018 BUSINESS PROFILES
UK MOTOR
Sale and servicing of vehicles in the UK.
Strategic focus
• Continue to invest in the transformation of our business
model to deliver a market leading share in the used vehicle
and aftersales markets in the UK.
• Double our used car revenue by 2021 by developing
our national network linked to a superior online buying
experience.
“Our UK Motor division is
recognised through our two
main consumer brands in the UK,
Evans Halshaw and Stratstone,
complemented by our used car
only brand, Car Store”
Evans Halshaw
Evanshalshaw.com represents 11 volume franchises across
the UK, retailing new and used cars, light commercial vehicles
(LCV) and heavy goods vehicles (HGV). There is also a
significant focus on the service and repair of these vehicles.
Our Sell Your Car initiative focusses on an independent car
buying service, as an alternative to the more traditional part
exchange option for consumers. These activities both result in
a supply of used cars for sale.
Stratstone
Stratstone.com is our premium brand, representing ten
prestige manufacturers. Stratstone is focused on the retail of
new and used cars, and service and repair.
Stratstone has also adopted our award winning ‘Move Me
Closer’ initiative, that enables customers to move any used car
in the UK to a location nearest to them. The scheme makes
over 28,000 used cars available at every location.
Car Store
In 2018 we completed our move to make all of our non-
franchise locations part of the Car Store division of our UK
Motor business. We now have 32 Car Store locations.
At the end of 2018 we launched a new online marketplace for
the brand. Details of Carstore.com and our proposition can be
found on page 16.
We opened four used car refurbishment factories, three
purpose built Car Stores and converted four former new car
franchised dealerships to Car Stores in 2018.
10
Pendragon PLC Annual Report 2018
Evans Halshaw 118
Ford 39
Vauxhall 30
Citroën 15
Renault 6
Dacia 6
Peugeot 6
DAF 4
Hyundai 4
Nissan 4
Kia 3
SEAT 1
Stratstone 59
Land Rover 11
Jaguar 9
Mercedes-Benz 8
BMW 7
MINI 7
Smart 6
Porsche 5
Aston Martin 3
Harley-Davidson 2
Ferrari 1
Car Stores 32
WEBSITE VISITS UP
5.1%
28.7M VISITS
177
UK FRANCHISE
POINTS
256K VEHICLES SOLD
UK USED CAR GROSS
PROFIT UP BY
5.1%
32
OWN FRANCHISE
SUPPORTED BY 4 FACTORIES
11
Pendragon PLC Annual Report 2018 BUSINESS PROFILES
INDEPENDENT SOFTWARE VENDOR
Licencing of Software as a Service to automotive business
users.
Strategic focus
• Pinewood, our software business, is core to our strategic
plan to transform the Group.
• We have an objective to achieve at least double digit growth
in revenue in the Software as a Service (“SaaS”) business
for the foreseeable future, which will be achieved by
globalisation of the products and services we offer.
• Pinewood is fast becoming a global business with users in 13
countries worldwide.
“Our Dealer Management System is
split by role-type, collating common
tasks together to make dealerships
more efficient. With one central
database, all information is shared
throughout the system.”
Integration with
Microsoft Outlook
Digital Workshop
Scheduling
Customer Contact
Plans
Digital Vehicle
Health Checks
Dealer Management System Features
Every part of the business in one place.
From CRM, to workshop workflows and
parts processing, financial analysis and
stock management. Pinewood works
with most vehicle manufacturers to
provide global solutions.
Our interconnected module structure
provides visibility and access
to
Stock feeds to
websites
Customer Mapping
tools
Technician job
cards
Wholesale Funding
information
across
dealership
operations, preventing the need for
double keying or multiple add-on
systems.
This is a valuable time saving asset
for our users,
facilitating
increased
SMS Integration
Reporting Suite
Social Media
integrations
Tyre Hotel
productivity and reduced inputting time.
7% GROWTH
IN REVENUE
MICROSOFT
PARTNER
USERS IN
13 COUNTRIES
UK
EUROPE
Ireland
Switzerland
Netherlands
Germany
Norway
Sweden
5APPS
AFRICA
South Africa
Namibia
Zimbabwe
ASIA PACIFIC
Hong Kong
Thailand
Philippines
12
Pendragon PLC Annual Report 2018
Integration with over 50 manufacturers
Cars:
Commercial Vehicles:
Motorbikes:
Pinnacle Apps
Our apps are designed to streamline
processes and improve efficiency across
the whole dealership.
Our fully integrated suite of apps work
seamlessly with our Pinewood DMS.
Our apps are multi-platform and users
can choose their preferred tablet or
mobile, across
iOS, Windows and
Android devices.
Tech+ Improve the service and repair
experience, including video integration
Host+ Integrated video processes
including 360° tours of a used vehicle
and technician time management.
in stock, or visually identifying work
required following a health check.
Pay+ Fully integrated, PCI-DSS P2PE
accredited card payment app.
Stock+ Respond to enquiries with
personalised videos, instantly update
Parts+ Issue parts on-the-move, saving
time with our in-built barcode scanner.
stock information and store vehicle
documentation.
13
Pendragon PLC Annual Report 2018
BUSINESS PROFILES
FLEET AND LEASING
Supply of new vehicles and fleet management to businesses.
Strategic focus
• Retain low capital base and high return on investment from the Leasing
business.
• Maintain at least double digit growth in revenue and gross profit.
“At Pendragon Vehicle
Management we supply fleet
vehicles and provide services
to help customers manage their
fleets, improving efficiency,
• Provide a used vehicle supply to the Group to support the goal of doubling
reducing costs and saving time.”
used revenue by 2021.
Pendragon Vehicle Management
At pendragonvehiclemanagement.co.uk our Business to Business (B2B)
brand focusses on comprehensive solutions for fleet customers. Utilising
market leading fleet software, tailored options are developed for the ever
evolving requirements of businesses.
From a variety of options on Fleet Management, to all elements of Fleet
Funding across cars and commercial vehicles, business solutions are
crafted to focus on customer priorities, from uptime to driving cost control.
Pendragon Vehicle Management has evolved to offer bespoke Business
to Employee (B2E) schemes as an alternative to company cars option for
employees. In addition there are also a variety of Daily Rental and flexible
rental solutions for customers.
Fleet Management
Fleet Funding
Telematics
Duty of Care
Fuel Cards
Contract Hire For Cars
Contract Purchase
Outsourced
Administration
Maintenance and
Accident
Repair
Management
Contract Hire For Vans
Sale and Leaseback
Business to Employee Schemes
• Businesses can offer employees brand new cars as a company benefit.
Rental Solutions
• Fast response service with over 300,000
• No company car or company car tax complications, and there is no benefit
vehicles ready to access.
in kind tax to pay.
• Real time Rental Management system
• Motivational tool to drive engagement managed by Pendragon Vehicle
• Daily and also flexible (three months and
Management.
beyond) rental options available.
• Unlike salary sacrifice schemes this offers an alternative direct to employee
• Car, van and specialist vehicle hire, delivered
contract (through a Personal Contract Hire agreement), reducing company
within four hours.
administration.
GROSS PROFIT
INCREASED BY
35.3%
14
OPERATING PROFIT UP £5M
B V R L A
MEMBER
DRIVER
APP
Pendragon PLC Annual Report 2018 US MOTOR
Sales and servicing of vehicles in the U.S.
Strategic focus
• We are selling the US Motor Group, as we have concluded
that it is economically right to realise its value.
• We are expecting proceeds in excess of £100 million before
tax.
• Further disposals are well progressed.
“In July 2018 we completed the
disposal of our Aston Martin
business, the disposal process
for the rest of the US business
is progressing well.”
Pendragon North America
Hornburg.com is a local brand that has been serving Southern
California since 1947. Focussed on the sale and service of
premium vehicles, Hornburg represents Jaguar and Land
Rover across four locations.
Our Chevrolet outlet in Puente Hills is our additional vehicle
franchise in California, retailing new Chevrolet and pre-owned
domestic vehicles and also offering service and repair.
Jaguar
4
Land Rover
4
Aston Martin
Disposal
completed
July 2018
Chevrolet
1
Jaguar Santa Monica
Land Rover Santa Monica
Jaguar Los Angeles
Land Rover Rover Los Angeles
Jaguar Newport Beach
Land Rover Newport Beach
Chevrolet Puente Hills
Jaguar Mission Viejo
Land Rover Mission Viejo
15
Pendragon PLC Annual Report 2018 BUSINESS PROFILES
ONLINE MARKETPLACE
Sale and servicing of vehicles in the UK.
Strategic focus
• Continue to invest in the transformation of our business
model to deliver a market leading share in the used vehicle
and aftersales markets in the UK.
• Double our used car revenue by 2021 by developing
our national network linked to a superior online buying
experience.
Carstore.com
recently
We
launched Carstore.com,
the new online
marketplace for our Car Store brand. The website provides
our customers with an easy-to-use experience when buying or
selling their car with the capability of a fully online experience.
Carstore.com is an important part of our strategy as we look to
double the revenues we generate from used car sales by 2021.
“In late 2018 we launched
our online marketplace,
Carstore.com.
We’re transforming how
people buy cars.”
Buy your next car online
With our network of 32 physical locations supporting our
online marketplace, our customers can do as much of the car
buying experience through our new website as they wish.
From selecting any car from our 6,000 available, to be
delivered to them in 96 hours, customers can visit our stores
to test drive and still buy their car online with both monthly
and one-off payment options available.
We understand their needs when buying a car online, which
is why all of our cars have passed a 128-point inspection by
the AA and have an AA warranty and breakdown cover. We
also offer a 14-day money back guarantee for added customer
confidence.
Sell your car to Car Store
Customers can now judge their car’s condition online and
receive an instant price valuation for their car. They can choose
to call into store or book a 30 minute appointment with one
of our Customer Service Assistants assessing the vehicle. This
service is available at every location. When a customer chooses
to sell their car to Car Store we guarantee the best price.
16
Pendragon PLC Annual Report 2018 FULFILMENT NETWORK
It is important our physical experience matches expectations
set through our online marketplace. We aim through our
integrated systems and team training, for the blend of online
and offline customer journey to be seamless.
Our in store premises vary from custom build premises to
adapted former franchise retailers, but we aim for the facilities
to deliver a consistent customer experience, setting out
customer expectations online and delivering in store.
We have also begun to deploy new hardware solutions across
the Car Store fulfilment network. These range from children’s
entertainment zones, customer kiosks to browse and order
cars online, to the use of hand held tablets across the hosting
and customer service teams.
6000+ CARS
AVAILABLE TO
BUY ONLINE
ANY CAR
TO ANY LOCATION
IN 96
HOURS
14 DAY
MONEY BACK
GUARANTEE
EVERY
CAR IS
AA
INSPECTED
4.7/5 STARS GOOGLE
14 DAY
PRICE PROMISE
3
CAR STORE AT
MORRISONS
LOCATIONS
32
SELL MY CAR
VALUATION POINTS
30 MINUTE
DRIVE AWAY
APPOINTMENTS
Production Factories
Own Franchise Points
4
PRODUCTION
FACTORIES
32
OWN FRANCHISE
17
Pendragon PLC Annual Report 2018 PRODUCING USED CARS
HAVE YOU EVER WONDERED HOW
A USED CAR BECOMES READY FOR SALE?
In many of our franchise locations across the UK we have on
premises and on site reconditioning of used cars for their local
forecourt. On site vehicle technicians balance the consumer
demand of retail servicing alongside preparing used cars (such
as part exchanged vehicles) for sale.
Here, we go behind the scenes in our Production Factories –
we have created a new supply chain to prepare inventory for
our Car Store retailers.
DAILY DELIVERIES
Every day transporters arrive at the refurbishment facility
with fresh vehicles for the production teams to assess and
recondition.
Our team assesses each car as it comes off the transporter. As
we purchase every single vehicle from our customers through
our part exchange and Sell My Car schemes (regardless of the
vehicle’s condition), at this stage the vehicles are evaluated to
either proceed to the factory or be disposed of through our
trade channels.
INVENTORY MANAGEMENT
As a piece of inventory, every vehicle is loaded into our system
through our Pinewood mobile application Stock+ as the cars
arrive on site at the factory. The detailed specifications and
notes are available across all modules of our system, from
vehicle management to accounts.
Vehicles that fit with our criteria for a sales opportunity
proceed to our AA inspection area.
INDEPENDENT INSPECTORS
We have teams of inspectors from our partner, the AA.
Each vehicle is independently reviewed to AA specifications to
achieve a pass. The testing includes 128-points checked and a
road test. Some cars pass straight away and proceed to being
prepared for advertising, others require some additional work
to achieve our standards.
Recommended works are completed onsite by our trained
specialist teams, covering all areas of mechanical repair. Each
car requiring work is then retested by the AA inspectors.
With a pass sticker in the window and all documentation in our
system, each car now includes a complimentary three month
warranty and 12 months AA breakdown cover as standard.
18
1.
2.
3.
Pendragon PLC Annual Report 2018 “Every Car Store vehicle for sale has an
independent 128 AA inspection pass”
4.
5.
READY FOR SALE
Each car proceeds to valeting for internal and external
preparation, including its Carstore.com sticker. Sales begin
online and speed is critical to have cars advertised as quickly
as possible.
ADVERTISED SAME DAY
Valeted and photo ready, each car proceeds to the photography
booths at the refurbishment facility to be captured for adverts
on our online marketplace. Images are uploaded through our
Pinewood mobile application Stock+ and vehicles feed onto
our website daily.
96 HOUR MOVES TO ANY LOCATION
Customers can self serve online and move the vehicle of their
choice to any outlet in the Car Store network.
DAILY DROP OFFS
Every day transporters take vehicles ready for customers from
the Production Factories to our fulfilment network.
Logistics is triggered directly by the customer through the
self service capability on Carstore.com, requesting the car be
transferred (to test drive, or having purchased the car online),
or placed in the best market based on our stock replenishment
and customer demand data.
EVERY CAR AVAILABLE TO DRIVE AWAY SAME DAY
6.
19
Pendragon PLC Annual Report 2018 LIFE AT PENDRAGON
We know it is our team members that make the biggest
difference to our customers and our business. Our Find,
Keep, Grow approach focuses on channelling our passion into
programmes for our team members to flourish.
FIND
Our Find strategy focusses on how we attract new talent and
pipeline talent for the future.
As an evolving retailer we have created new roles that appeal
to a wider and more diverse labour pool, making a tangible
difference to our diversity agenda.
We launched our new careers website and digital attraction
strategy in 2018, in conjunction with the implementation of new
recruitment systems and processes. Investing in technology
enables us to build sustainable channels and is a real game
changer for us and the candidate.
We were shortlisted for the Best Online Candidate Experience
Award 2019, and won Best Use of Mobile in the OnRec Awards.
These accolades reflect our commitment to attracting team
members that reflect our customer base and aspirations for
the future.
20
KEEP
We recognise that the nature of work is changing with
demand for greater flexibility and personal development.
From introducing more family-friendly working patterns, to
new learning opportunities, we have launched a number of
initiatives in 2018 in our mission to make our business irresistible
to team members.
We have signed the Time to Change pledge in support
of the mental health agenda. Launched in March 2018 our
commitment includes trained Mental Health first aiders,
learning programmes for leaders, and participation in a number
of events. These have included Wellbeing Awareness Month,
Mental Health Week and fundraising for the charity Mind. Our
aim is to make mental health openness a part of our day-to-
day working lives.
In August 2018 we relaunched our MyReward benefits mobile
application. Every team member can access a range of
exclusive company benefits, from retail discounts to offers, as
well as find support and advice on wellbeing.
Responding to the changing nature of work, and the different
types of roles we have in our Group, our Pinewood and
Central Operations offices have been remodelled to introduce
collaborative workspaces. These environments aim
for
innovation to thrive.
Pendragon PLC Annual Report 2018 GROW
Our Pendragon Academy in the centre of the UK has been
a hive of activity as we develop our team members. This
facility provides a hub for our classroom based learning,
and is supported by our extensive e-learning suite. From
developing our team members skills with new processes and
technology, to our talent programmes supporting apprentices
and graduates at the start of their careers, we have a variety
of ways to support our team members’ personal development.
In 2018 we introduced a new talent programme, Releasing
Your Potential, as well as creating opportunities for leaders to
develop their capabilities through modular courses. Delivering
today’s needs whilst balancing future skills is a key focus for
our Grow strategy.
Interactive, inspirational learning has also been a part of our
activities to develop our team members. In 2018 we introduced
our monthly Speakers’ Corner. This is an opportunity for any
team member in any team to hear from senior leaders on a
variety of personal development topics, and pose questions.
Team members can attend in person, or view these talks online.
“Our people strategy is simple.
We find, we keep and we grow exceptional people.”
YEARS OLD
16
86
YEARS OLD
YOUNGEST
TEAM MEMBER
OLDEST
TEAM MEMBER
254
APPRENTICES
9,880
TEAM MEMBERS
182
TEAM MEMBERS ON
TALENT PROGRAMMES
27%
FEMALE
73%
MALE
6,683 TRAINING DAYS
COMPLETED
160,644
HOURS OF
E LEARNING
COMPLETED
40,099
TRAINING HOURS
COMPLETED
21
Pendragon PLC Annual Report 2018 LIFE AT PENDRAGON
“Our internal events aim for our team members to feel #ProudToBePendragon.
We create experiences that motivate, recognise and inspire.”
As part of our Grow strategy and our aims for team members to strive
for excellence, we have comprehensive programme of events for our
team.
These range from conferences to share best practice and deliver
important messaging consistently, to incentive travel to reward high
performing team members setting the standard in their field.
To compliment our events programme we have also further embedded
Office 365 and its suite of products into our day to day work and
evolved our internal communications methodology to include more
focus on video, and engaging, interactive communications methods.
878 TEAM MEMBERS JOINED
INTERNAL COMMUNICATIONS CONFERENCES
963 TEAM MEMBERS
ATTENDED RECOGNITION EVENTS
Extra Mile Recognising your peers,
Team Building High performing teams that
highlighting moments in our day to day work
understand their part to play and emotionally
and simply saying thank you goes a long way.
investing in each other is key to our success.
1841
TEAM MEMBERS
ATTENDED AN
INTERNAL EVENT
55 TEAM MEMBERS
TRAVELLED INTERNATIONALLY
ON INCENTIVES
CELEBRATING SUCCESS
It is essential that team members feel
valued for their contributions to the
success of our business. We encourage
daily peer-to-peer recognition through
initiatives such as our Extra Mile
nomination scheme, which culminates in
quarterly lunches with senior leaders to
celebrate local moments. We also have
annual incentive schemes which include
prizes such as international trips for our
highest performers.
Conferences Networking and sharing
best practice, whilst recognising and
celebrating achievements with stakeholders
is an important part of our communications
strategy.
Annual Awards Recognising those team
members and teams that are setting the
standard for excellence across our Group,
telling their stories and celebrating our shared
success.
International experiences Creating
unforgettable memories for team members,
and their support network, for those
achieving a the highest level, and making
these experiences aspirational goal for future
attendees.
22
Pendragon PLC Annual Report 2018
878 TEAM MEMBERS JOINED
INTERNAL COMMUNICATIONS CONFERENCES
TALENT
We are focussed on making our business and our sector
appeal to future generations, creating a pipeline of future team
members to continue the success of our business.
We have introduced new roles, blended work and educational
programmes, custom recruitment processes, and buddying
and mentor schemes to support our diverse talent activities.
From apprenticeships in aftersales workshops to customer
services, graduate and undergraduate schemes across Central
Operations and our retailer network, our population of exciting
new team members continues to grow and evolve our business.
We also work closely with our manufacturer partners to
provide skills training and personal development at the highest
level, as well as with local educational authorities to give our
talent the very best support and recognition for their hard
work and commitment.
COMMUNITY
As a prominent business in many communities across the UK,
we encourage our teams to be close to their customers as a
valued part of their local community.
We have a framework to support charitable activities through
the year across all of our locations, and join many wider
activities to fit with our diversity and inclusivity agendas, such
as International Women’s Day and Pride.
We also utilise our facilities to support communities. Events
such as the high profile Power of Women event in London,
the launch of a contemporary motivational and inspirational
10-week TV series, to regional business networking events.
#adollar
fordawson
CAR CAFÉ
In 2018 we expanded our community car event Car Café
across the whole of the UK. We held 20 events from Glasgow
to Cardiff over the summer months. Free to attend, we have
hosted thousands of guests at our breakfast meets in locations
ranging from retailer forecourts to airports. Both drivers and
spectators of all ages come together to celebrate vehicles of
all varieties. We are joined by team members, customers and
local enthusiasts celebrating all things automotive.
23
Pendragon PLC Annual Report 2018 INDUSTRY INSIGHT
NEW CAR VEHICLE REGISTRATIONS FOR YEAR ENDED 31 DECEMBER ('000)
UK Retail Registrations
UK Fleet Registrations
UK New Registrations
Group Represented* UK Retail Registrations
Group Represented* UK Fleet Registrations
Group Represented* UK New Registrations
2017
Change %
2018
1,052.2
1,314.9
1,123.9
1,416.8
2,367.1
2,540.7
700.6
906.5
746.4
992.0
1,607.1
1,738.4
-6.4%
-7.2%
-6.8%
-6.1%
-8.6%
-7.5%
Source: new car vehicle registrations data from the ‘Society of Motor Manufacturers and Traders’.
*Group Represented is defined as national registrations for the franchised brands that the Group represents as a franchised dealer.
USED CAR MARKET
The used car market in 2018 in the UK was 7.61 million units,
of 2018 around 21% of the car parc is represented by less than
three year old cars, around 19% is represented by four to six
which was a fall of 2.2% over 2017. However, this represents
year old cars and 60% is greater than seven year old cars.
a market opportunity that is 3.2 times the size of the new car
The demand for servicing and repair activity is less impacted
market. Despite challenging economic conditions, the used
than other sectors by adverse economic conditions, as motor
market is more stable and provides a more reliable supply
vehicles require regular maintenance and repair for safety,
chain than the new vehicle sector. We believe the market will
economy and performance reasons.
be broadly flat in 2019.
AFTERSALES MARKET
The main determinant of the aftersales market is the number
of vehicles on the road, known as the ‘car parc’. The car parc
in the UK has risen to over 34.6 million vehicles in 2018, a rise
Overall, we expect at least for the next three years to see
continuing growth in the car parc.
NEW CAR MARKET
The UK new car market was 2.367 million in 2018 which is a
of 0.9% on the prior year. The car parc can also be segmented
reduction of 6.8% over the prior year. The UK new car market
into markets representing different age Groups. At the end
is divided into two markets, retail and fleet. The retail market
Units
10.0m
9.0m
8.0m
7.0m
6.0m
5.0m
4.0m
3.0m
2.0m
1.0m
0
24
UK CAR PARC BY AGE OF VEHICLE
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
0-3 YEARS
4-6 YEARS
7-10 YEARS
11-15 YEARS
>15 YEARS
Source: Callcredit (2014 to 2017) and Pendragon (2018 to 2019)
Pendragon PLC Annual Report 2018 Units
3.0m
2.8m
2.6m
2.4m
2.2m
2.0m
1.8m
1.6m
1.4m
1.2m
1.0m
0.8m
0.6m
0.4m
0.2m
0
UK NEW CAR MARKET
2.63m
2.69m
2.54m
2.37m
2.31m
2.29m
1.43m
1.49m
1.42m
1.32m
2.48m
1.30m
1.18m
1.21m
1.21m
1.12m
1.05m
2014
2015
2016
2017
2018
2019
2020
PRIVATE
FLEET/BUSINESS
PENDRAGON FORECAST
Source: SMMT (2013 to 2017) and Pendragon (2018 to 2019)
is the direct selling of vehicle units to individual customers
The new retail market was down by 6.4% in 2018, and the new
and operates at a higher margin than the fleet market. The
fleet market fell by 7.2% in the year.
retail market is the key market opportunity for the Group and
represents 44% of the total market in 2018. The fleet market
Our expectations are in line with the Society of Motor
represents the sale of multiple vehicles to businesses, and is
Manufacturers and Traders (“SMMT”) which is currently
predominately transacted at a lower margin and consumes
forecasting that the overall 2019 market will be 2.3% lower than
higher levels of working capital than retail, and represented
in 2018.
56% of the market in 2018.
Units
10.0m
8.0m
6.0m
4.0m
2.0m
0
UK USED CAR MARKET
7.4m
7.9m
7.8m
7.6m
7.7m
7.8m
7.9m
2015
2016
2017
2018
2019
2020
2021
Source: Callcredit (2015 to 2017) and Pendragon (2018 to 2021)
25
Pendragon PLC Annual Report 2018 OPERATIONAL AND FINANCIAL REVIEW
28 Business Review
32 Financial Review
34 Balance Sheet
35 Risk Overview
26
Pendragon PLC Annual Report 2019 27
Pendragon PLC Annual Report 2018 BUSINESS REVIEW
STRATEGY AND BUSINESS REVIEW
The business has four areas as follows:
• Leasing – provides a high Return on Investment stable
• UK Motor – sale and servicing of vehicles in the U.K.
profitability stream and used vehicle supply
• Software – licencing of Software as a Service to automotive
• US Motor – sale and servicing of vehicles in the U.S.
business users
(£m)
Underlying
REVENUE
UK Motor
Software
Leasing
US Motor
Revenue
GROSS PROFIT
UK Motor
Software
Leasing
US Motor
Gross Profit
OPERATING PROFIT
UK Motor
Software
Leasing
US Motor
Operating Profit
Gross Margin (%)
Operating Margin (%)
2018
2017
Change
(%)
L4L Change
(%)
4,074.4
4,243.6
16.9
57.3
478.4
15.8
64.9
414.8
4,627.0
4,739.1
456.7
14.9
18.8
60.1
550.5
41.1
11.7
14.8
8.6
76.2
11.9%
1.6%
471.0
13.8
13.9
54.2
552.9
52.3
10.9
9.8
10.8
83.8
11.7%
1.8%
-4.0%
+7.0%
-11.7%
+15.3%
-2.4%
-3.0%
+8.0%
+35.3%
+10.9%
-0.4%
-21.4%
+7.3%
+51.0%
-20.4%
-9.1%
+0.2%
-0.2%
-2.8%
+7.0%
-11.7%
+15.3%
-1.3%
-2.0%
+8.0%
+35.3%
+10.9%
+0.6%
-21.0%
+7.3%
+51.0%
-20.4%
-9.3%
+0.2%
-0.2%
UK MOTOR
Pendragon is the UK’s leading automotive online retailer with
During late 2018 we launched the new Carstore.com website
which offers a uniquely differentiated customer proposition,
32 used car only Car Stores and 177 franchise points. We
including the ability for a customer to fully transact online,
represent a range of volume and premium products that we
either for full payment or utilising one of our finance options.
sell and service.
We are continuing to invest in further online capability and
platforms to ensure we provide best in class service to our
Overall, our UK Motor business revenue has reduced by 4.0%
customers.
in the year and by 2.8% on a like for like basis. Gross profit has
reduced by 3.0% in the year and by 2.0% on a like for like basis.
Our investment in Car Stores to expand our network in the UK
continues. Following the opening of three purpose built Car
The UK Motor Business has achieved an underlying operating
Stores in the first half of the year, in the second half of the year
profit of £41.1 million (2017: £52.3 million) in the period despite
we closed former new car franchise dealerships, to repurpose
because of adverse trading conditions in the new car market
and open the sites as Nottingham Car Store, Stoke Car Store,
and start up and transformation costs in our Car Store business.
Borehamwood Car Store and Swansea Car Store in the period.
In contrast to the new car performance, used cars gross profit
has grown, particularly in the second half of 2018. Given the
In 2017 the Group achieved record used revenue growth of
impact of trading and market conditions on future cashflows,
there has been a non-cash impairment of goodwill and non-
15.8%. Against this extremely strong comparative, like for like
revenue fell by 1.0% in the year. Excluding nearly new vehicles,
current assets relating to the UK Motor Business as set out in
used vehicle revenue grew by 2.9% against a used car market
the Financial Highlights section. We continue to see growth in
reduction in the year of 2.2%.
our online business, with visits to Carstore.com, Evanshalshaw.
com and Stratstone.com up 5.1% to 28.7 million visitors from
In order to facilitate future used revenue growth, in 2018 we
27.3 million visitors in the prior year.
opened four dedicated used car refurbishment factories to
28
Pendragon PLC Annual Report 2018 industrialise this process. Whilst this process transformation
during 2018. Overall aftersales revenue fell by 2.3% on a like
during the year has impacted used revenue growth and profits,
for like basis as a result of closing a parts distribution point
we are confident looking forward that this will aid growth,
in favour of utilising the site as a Car Store. Aftersales gross
together with the new and repurposed former franchise sites
profit fell by 3.3% on a like for like basis with margin impacted
providing additional capacity.
by labour cost inflation for skilled technicians.
We have incurred transformation costs in the year comprising
New car national registrations were down 6.8% in 2018 and we
the disruption that occurred during the transition to a factory
outperformed the UK market with our L4L new revenues down
preparation process and the start-up costs of the Car Store
by 5.2%. Gross profit was down 8.3% following continuing
businesses we have opened during the year.
margin pressure in the Premium sector. UK New vehicle sales
Used gross profit increased by 4.7% on a like for like basis. This
of the year by the impact of the introduction of Worldwide
improvement was driven by exceptionally strong used margins
Harmonised Light Vehicle Testing Procedure (“WLTP”) which
and profitability were adversely affected in the second half
in the second half of 2018, when like for like used profit was
created disruption to new car sales.
27.6% higher than in the prior year compared with a reduction
of 12.6% in the first half of the year.
We have settled historic VAT claims relating to the VAT
treatment arising from purchases of vehicles from Motability.
This was primarily driven by
improved used
inventory
This has resulted in a provision release of £2.3m. During the
management and more efficient used car preparation resulting
year we sold four premium franchises for consideration of £7.9
in increased margin and significantly reduced numbers of loss-
million and avoided capital expenditure of £18.2 million as a
making used vehicles in the second half of the year. This has
result. The non-underlying profit on disposal was £0.6 million.
enabled us to reduce the level of the provision we have for
In addition we have completed the disposal of two further
loss-making used vehicles. Revenue in our Car Store business
premium franchise points in February 2019 for consideration
grew by £83.6m, an increase of 38.5%. Gross profit was up
of £3.7 million and avoided capital expenditure of £7.3 million
42.2%. Including the impact of start-up and transformation
as a result. We have also agreed lower refurbishment costs
costs the operating loss for the business was £11.9m (2017 :
at certain other premium brand locations bringing the total
£6.9m).
capital released, comprising disposal proceeds and capital
expenditure avoided, to £46.7 million since we started this
Retail service revenue increased by 2.1% on a like for like basis
strategic initiative.
UK MOTOR (£m)
Underlying
REVENUE
Used
Aftersales
New
Revenue
GROSS PROFIT
Used
Aftersales
New
Gross Profit
Operating Costs
Operating Profit
GROSS PROFIT MARGIN
Used
Aftersales
New
Gross Margin (%)
Operating Margin (%)
2018
2017
Change
(%)
L4L Change
(%)
2,092.4
337.4
1,644.6
4,074.4
164.2
181.5
111.0
456.7
(415.6)
41.1
7.8%
53.8%
6.7%
11.2%
1.0%
2,125.5
350.6
1,767.5
4,243.6
156.3
191.2
123.5
471.0
(418.7)
52.3
7.4%
54.5%
7.0%
11.1%
1.2%
-1.6%
-3.8%
-7.0%
-4.0%
5.1%
-5.1%
-10.1%
-3.0%
-0.7%
-21.4%
0.4%
-0.7%
-0.3%
0.1%
-0.2%
-1.0%
-2.3%
-5.2%
-2.8%
4.7%
-3.3%
-8.3%
-2.0%
0.7%
-21.0%
0.4%
-0.6%
-0.3%
0.1%
-0.3%
29
Pendragon PLC Annual Report 2018 BUSINESS REVIEW
SOFTWARE
The income stream from this business continues to grow and
customers with an addressable user base of over 1,600.
(2017:729). We are receiving substantial interest from a
the business model provides a gross margin in excess of 85.0%
number of markets, both from large dealer Groups and from
with strong recurring revenue.
car manufacturers.
Pinewood has SaaS users in Europe, in the UK, Ireland,
Gross profit is up 8.0% and operating profit is up 7.3% in
Switzerland, Netherlands, Norway, Sweden and Germany. In
spite of investment in new market localisation to support
Africa, in South Africa, Namibia and Zimbabwe and in Asia
the deployment of the system into new markets and new
Pacific, in Hong Kong, Thailand and the Philippines.
customers. Once this investment has been undertaken for a
local market, the cost of further roll out to new customers is
In 2018 we have implemented SaaS licences into international
typically much lower.
SOFTWARE (£m)
Underlying
REVENUE
Revenue
Gross Profit
Operating Costs
Operating Profit
Gross Profit
Operating Margin (%)
2018
2017
Change
(%)
L4L Change
(%)
16.9
14.9
(3.2)
11.7
88.2%
69.2%
15.8
13.8
(2.9)
10.9
87.3%
69.0%
7.0%
8.0%
10.3%
7.3%
0.9%
0.2%
7.0%
8.0%
10.3%
7.3%
0.9%
0.2%
LEASING
Leasing comprises our fleet and contract hire vehicle activity.
of contract. This in turn resulted in a release of provision of
£2.8m in respect of vehicles that lose money on disposal. This
Our leasing business trades under the ‘Pendragon Vehicle
was offset by a reduced level of profitability of £2.0 million
Management’ brand and offers a complete range of fleet leasing
compared to the prior year on the warranty management
and management solutions. Our customers are varied in both
activities undertaken in this business.
fleet size and business sector. Our services are delivered by
maximising the facilities of our wider Group, as well as working
Significant growth in the Leasing business was achieved in the
very closely with market leading partners. The financing for the
year with operating profit up £5.0m (+51.0%). Gross profit
leasing business is provided by third parties leading to a very
increased by 35.3% as result of the continued growth of the
high return on investment.
managed vehicle fleet and higher levels of disposals in the
period at a strong overall margin. We are pleased with the
The majority of vehicle disposals now pass through our Car
increasing contribution that this business is providing to the
Store factory preparation process and are sold to customers
Group and the strong used vehicle supply it generates for our
through our dealerships within the Group which has resulted
Car Store used vehicle business.
in a higher level of profits on disposal of vehicles at the end
LEASING (£m)
Underlying
REVENUE
Revenue
Gross Profit
Operating Costs
Operating Profit
Gross Profit
Operating Margin (%)
30
2018
2017
Change
(%)
L4L Change
(%)
57.3
18.8
(4.0)
14.8
32.8%
25.8%
64.9
13.9
(4.1)
9.8
21.4%
15.1%
-11.7%
35.3%
-2.4%
51.0%
11.4%
10.7%
-11.7%
35.3%
-2.4%
51.0%
11.4%
10.7%
Pendragon PLC Annual Report 2018 US MOTOR
The business operates from nine franchise points representing
There was a strong performance in aftersales with revenue up
16.8% and gross profit up 15.8% on a like for like basis. Used
the following products that we sell and service: Chevrolet,
revenue in the period on a like for like basis was 14.2% ahead
Jaguar and Land Rover.
of the prior year, with gross profit up 12.5%. In the new vehicle
department revenue increased by 15.5% in the period, with a
On 2 July 2018 we completed the disposal of our single Aston
7.4% increase in gross profit on a like for like basis. Operating
Martin business in the US realising proceeds of £3.1 million,
costs increased in the year by 18.7% primarily due to the full
including goodwill received of £2.6m. Further disposals are
year of costs in 2018 for our Chevrolet business.
well progressed.
(£m)
Underlying
REVENUE
Used
Aftersales
New
Revenue
GROSS PROFIT
Used
Aftersales
New
Gross Profit
Operating Costs
Operating Profit
GROSS PROFIT MARGIN %
Used
Aftersales
New
Gross Profit (%)
Operating Margin (%)
2018
2017
Change
(%)
L4L Change
(%)
97.9
43.2
337.3
478.4
5.4
22.7
32.0
60.1
(51.5)
8.6
5.5%
52.5%
9.5%
12.6%
1.8%
85.7
37.0
292.1
414.8
4.8
19.6
29.8
54.2
(43.4)
10.8
5.6%
53.0%
10.2%
13.1%
2.6%
14.2%
16.8%
15.5%
15.3%
12.5%
15.8%
7.4%
10.9%
18.7%
14.2%
16.8%
15.5%
15.3%
12.5%
15.8%
7.4%
10.9%
18.7%
-20.4%
-20.4%
-0.1%
-0.5%
-0.7%
-0.5%
-0.8%
-0.1%
-0.5%
-0.7%
-0.5%
-0.8%
31
Pendragon PLC Annual Report 2018 FINANCIAL REVIEW
FINANCIAL HIGHLIGHTS
The Group has achieved an underlying profit before tax of
used cars gross profit has grown, particularly in the second
half of 2018. Interest costs increased in the period, mainly
£47.8 million in the period despite adverse trading conditions
due to higher levels of used car stock and consequently more
in the new car market and start up and transformation costs in
utilisation of stocking credit facilities.
our Car Store business. In contrast to the new car performance,
SUMMARY OF FINANCIALS
£m
Revenue
Gross profit
Operating (loss)/profit
Analysed as:
2018
2017
Continuing Discontinued
Total Continuing Discontinued
Total Change %
4,148.6
478.4
4,627.0
4,324.3
414.8
4,739.1
490.4
(25.7)
60.1
11.3
550.5
(14.4)
498.7
80.6
Underlying operating profit
67.6
Non-underlying operating (loss)/profit
(93.3)
Finance expense
Analysed as:
Underlying net finance costs
Non-underlying net finance costs
(Loss)/profit before taxation
Analysed as:
Underlying profit before taxation
Non-underlying (loss)/profit profit
before taxation
Income tax (expense)
(Loss)/profit for the year
Underlying Earnings per share
Dividend per share
Gross Margin (%)
Operating Margin (%)
(27.5)
(25.9)
(1.6)
(53.2)
41.7
(94.9)
(3.8)
(57.0)
2.5p
11.8%
-0.6%
8.6
2.7
(2.5)
(2.5)
-
8.8
6.1
2.7
(2.3)
6.5
0.3p
12.6%
2.4%
76.2
(90.6)
(30.0)
(28.4)
(1.6)
(44.4)
47.8
(92.2)
(6.1)
(50.5)
2.8p
1.50p
11.9%
(0.3%)
73.0
7.6
(24.5)
(21.8)
(2.7)
56.1
51.2
4.9
(8.7)
47.4
2.9p
11.5%
1.9%
54.2
10.8
10.8
-
(1.6)
(1.6)
-
9.2
9.2
-
(3.3)
5.9
0.4p
13.1%
2.6%
552.9
91.4
83.8
7.6
(26.1)
(23.4)
(2.7)
65.3
60.4
4.9
(12.0)
53.3
3.3p
1.55p
11.7%
1.9%
-2.4%
-0.4%
-9.1%
+14.9%
+21.4%
-40.7%
-20.9%
-49.2%
-15.2%
-3.2%
+0.2%
-2.2%
NON-UNDERLYING ITEMS
Non-underlying income and expenses are items that are not
market conditions on future cash flows. Pension costs of £12.1
million comprise interest and for 2018 a £10.5 million charge
incurred in the normal course of business and are sufficiently
to re-align the pension liabilities to reflect the guaranteed
significant and/or irregular to impact the underlying trends
minimum pensions for all pension members. The Group
in the business. During the year the Group has recognised a
recorded gains on the sale of properties and businesses in 2018
net charge of £92.2 million of pre-tax non-underlying items
of £15.7 million against a loss in 2017 of £0.1m. This included
against a credit of £4.9 million in 2017. These include non-
£12.4 million on the sale of surplus property during the year and
cash impairments, principally of goodwill and non-current
gains of £3.3 million on the disposal of businesses. During the
assets amounting to £95.8 million which have been necessary
previous year the Group benefited from a £7.7 million credit
following assessments of the carrying value of those assets
in respect of VAT reclaims and associated interest following a
which have been calculated by taking into account trading and
Supreme Court ruling.
£m
Settlement of historic VAT issues
Impairment of goodwill, property, plant and equipment and assets held for sale
Gains/(losses) on the sale of businesses and property
Pension costs
Total non-underlying items before tax
Non-underlying items in tax
Total non-underlying items after tax
32
2018
2017
-
(95.8)
15.7
(12.1)
(92.2)
3.0
(89.2)
7.7
-
(0.1)
(2.7)
4.9
0.8
5.7
Pendragon PLC Annual Report 2018 CAPITAL ALLOCATION
The net debt to underlying EBITDA ratio was 0.9. We are
SHARES REPURCHASED AND BUYBACK
During the year the Group repurchased £6.7 million of its own
expecting proceeds from the disposal of our US business in
shares, as part of a £20.0 million share buyback programme.
excess of £100 million before tax. Proceeds of £3.1 million have
The Group has repurchased £18.2 million of its own shares since
already been generated on the disposal of our single Aston
the launch of the programme with 61.1 million shares cancelled.
Martin US business in early July and further disposals are well
progressed.
We planned to release £100 million of capital from our Premium
At this stage in the Group’s growth and investment cycle, the
buyback has been paused in February 2019.
franchise locations over a three year period. During the first
The buyback programme is capable of being stopped and
year of this process we have completed six such disposals and
restarted. This flexibility enables the Group to pursue optimal
agreed lower capital expenditure levels which has resulted in a
capital allocation.
total release of £46.7 million of capital comprising consideration
and capital expenditure avoided. This included four franchise
location disposals during 2018 and two in February 2019.
PENSIONS
The net liability for defined benefit pension scheme obligations
has increased from £62.8 million at 31 December 2017 to £68.3
The Group intends to build a national network in the UK for the
million at 31 December 2018. This increase in obligations of
Car Store Used Vehicle business. As this model matures, the
£5.5 million is largely the net effect of the expense recognised
Board is continuing to evaluate the relative merits of freehold
to equalise guaranteed minimum pensions less contributions
property ownership against the lower capital requirements
paid; movements in the respective assets and liabilities of
of operating leasehold premises as we continue to grow our
the Pension Scheme largely offset each other, reflecting the
physical footprint.
The company has ongoing capital expenditure requirements,
hedging in place and an improvement in mortality assumptions.
The Group contributed £7.5 million to the Pension Scheme in
the year following the Group commitment to pay contributions
and will continue to pursue organic and acquisitive growth and
of £7.0 million from 1 January 2017, increasing by 2.25%
investment opportunities.
thereafter until July 2022.
33
Pendragon PLC Annual Report 2018 FINANCIAL REVIEW
BALANCE SHEET AND CASH FLOW
The following table summarises the cash flows and net debt of the Group for the twelve month periods ended 31 December 2018
and 31 December 2017 as follows:
SUMMARY CASHFLOW AND NET DEBT (£m)
Underlying Operating Profit Before Other Income
Depreciation and Amortisation
Share Based Payments
Working Capital and Contract Hire Vehicle Movements*
Operating Cash Flow
Tax Paid
Underlying Net Interest Paid
Capital Expenditure – Car Store
Capital Expenditure – Franchise
Capital Expenditure – Underlying Replacement
Capital Expenditure – Business Acquisitions
Capital Expenditure – Property
Business and Property Disposals
Net Franchise Capital Expenditure
Dividends
Share Buybacks
Other
Increase In Net Debt
Opening Net Debt
Closing Net Debt
2018
76.2
27.4
0.7
(16.2)
88.1
(10.9)
(24.8)
(6.8)
(12.6)
(30.6)
-
(6.5)
30.2
(26.3)
(22.5)
(6.7)
(0.4)
(3.5)
124.1
127.6
2017
83.8
28.5
(1.7)
18.3
128.9
(16.1)
(20.0)
(17.5)
(25.5)
(13.8)
(17.8)
(24.6)
2.5
(96.7)
(21.3)
(4.0)
(3.2)
(32.4)
91.7
124.1
*includes changes in inventories, changes in trade and other payables, changes in provisions, movement in contract hire vehicle balances, contributions into defined benefit pension
scheme and loss on sales of businesses and property
PROPERTY AND INVESTMENT,
and the expected UK exit from the EU has resulted in
ACQUISITIONS AND DISPOSALS
Our property portfolio provides a key strength for our business.
a continuing level of uncertainty in terms of consumer
confidence, manufacturer behaviour in respect of new
At 31 December 2018, the Group had £240.5 million of land and
car supply and the possible impact of tariffs and currency
property assets (2017 : £261.2 million) and property assets for
movements.
sale of £35.4 million (2017 : £9.6 million).
• We will continue to invest in more used car sales capacity as
DIVIDEND
The Group is proposing a final dividend of 0.70p per share
we move towards our goal of doubling our revenue by 2021.
• We expect to continue to grow our software revenues with
in respect of 2018, bringing the full year dividend to 1.50p
our SaaS licencing to international users. We expect broadly
per share. We intend to maintain dividend cover (defined as
double digit revenue growth for the foreseeable future as we
underlying earnings per share divided by dividend per share)
invest in product localisation for international markets.
at a minimum level of two times, with a progressive dividend
• We anticipate the sale of our US business to realise in excess
approach in the future, subject to the minimum dividend cover
of £100 million before tax.
being a minimum of approximately two times.
• Further capital will be released through a mixture of disposal
proceeds and investment not deployed in respect of our
The proposed final dividend will be paid on 30 May 2019 for
premium franchise businesses in the UK.
those shares recorded on 23 April 2019.
OUTLOOK
• Economic and market conditions remain relatively subdued
Given the economic and market conditions, we expect our
performance in 2019 to be broadly stable against 2018,
underpinned by our used car profitability.
34
Pendragon PLC Annual Report 2018 RISK OVERVIEW & MANAGEMENT
PRINCIPAL RISKS
Recognising that all businesses entail elements of risk, the
Board maintains a policy of continuous identification and
Where appropriate, during the year, revised forecasts are
prepared and presented for Board review and approval.
review of risks which may cause our actual future Group
To ensure that information to be consolidated into the Group’s
results to differ materially from expected results. The table on
financial statements is in compliance with relevant accounting
pages 36 to 39 is an overview of the principal risks faced by
policies, internal reporting data is comprehensively reviewed.
the Group, with corresponding controls and mitigating factors.
Reviews of the appropriateness of Group accounting policies
The specified risks are not intended to represent an exhaustive
take place at least twice a year, under the scrutiny of the Audit
list of all potential risks and uncertainties. The risk factors
Committee, which considers reports on this from the Group’s
outlined below should be considered in conjunction with the
Auditor, the application of IFRS and the reliability of the
Group’s system for managing risk, described below and in the
Group’s system of control of financial information.
Corporate Governance Report on page 44.
RISK MANAGEMENT AND INTERNAL CONTROLS
Accountability
The Board is responsible for risk management and internal
No material changes have occurred in 2018 which have or
are likely to have a material effect on the Group’s internal
controls over financial reporting. Controls are designed to
ensure that the Group’s financial reporting presents a true and
control within the context of achieving the Group’s objectives.
fair reflection of the Group’s financial position. The Board has
The system of control the Board has established covers both
concluded that, as at 31 December 2018, the Group’s systems
the Group’s financial reporting and the mitigation of business
of control over financial reporting were effective.
and operational risks. The system is designed to manage, rather
than eliminate, the risk of failure to achieve business objectives,
and can provide only reasonable and not absolute assurance
Operational and Other Risks
Operational management is charged by the Board with
against material misstatement or loss.
responsibility for identifying and evaluating risks facing the
Financial Reporting
The Executive Directors oversee the preparation of the Group’s
Group’s businesses on a day-to-day basis and is supported
by the Risk Control Group (RCG), a Committee formed of two
Executive Directors, the Company Secretary and Group Heads
annual corporate plan; the Board reviews and approves it and
of Information Technology and Internal Audit. The approach to
monitors actual performance against it on a monthly basis.
risk control and the work of the RCG are described on pages
45 and 46.
35
Pendragon PLC Annual Report 2018 RISK OVERVIEW & MANAGEMENT
NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
STRATEGY AND BUSINESS RELATIONSHIPS
1
Our Strategy:
Failure to adopt the
right strategy
or,
Failure of our adopted
strategy to deliver the
desired outcomes
or,
Failure to implement
our strategy
effectively
or,
Our ability to deliver
our strategy is
impacted by the UK’s
decision to leave the
EU
2
Our Manufacturer
Relationships:
Dependence on
vehicle manufacturers
for the success of our
business
We miss our profit growth and/or
debt management target, alienate
key stakeholders and are unable to
invest adequately in our business
We receive complaints or poor
customer satisfaction scores
which damage our reputation and
‘customer service’ ethos
• Our strategy is informed by significant research
and market data
• We communicate effectively our adopted
strategy to our stakeholders
• We invest appropriately in the technological,
physical and human resources to deliver our
strategy, closely monitor performance against
our objectives, and adjust our actions to meet
our strategic goals
• Our sophisticated management information
identifies threats to the success of our strategy
both during the planning and implementation
phases, and informs mitigating actions, both
directionally and operationally
• We ensure that we monitor our manufacturer
and third party customer service measures and
take action in the event of low scores
• We focus strongly on efficient use of working
capital through embedded disciplines, especially
in relation to vehicle inventory
• We review capital expenditure plans to ensure
our ROI objectives are achievable
• Our mitigation steps in respect of Brexit are set
out in risk 4
Failure of, or weaknesses in, our
vehicle manufacturers’ financial
condition, reputation, marketing,
production and distribution
capabilities, including the potential
for supply disruption caused by
the UK’s decision to leave the
EU and lack of alignment with
manufacturers’ remuneration
systems for dealers impairs our
investments and prevents us
achieving our profit goals
Failure to maintain good relations
with our franchisors either through
day-to-day activities or our strategic
decisions impairs our ability to
generate good quality earnings
The Manufacturers change the
business model towards direct sales
to customers
• Our diverse franchise representation avoids over
reliance on any single manufacturer
• Our close contact with our vehicle
manufacturers seeks to ensure our respective
goals and strategic decisions are communicated,
understood and aligned, to deliver mutually
acceptable performance
• Our appropriately targeted investment in
franchise assets and our performance maintains
our reputation as a quality representative for our
brand manufacturers
• Our investment in marketing initiatives and our
online presence supplement and enhance our
market presence and offering over and above
manufacturers’ marketing efforts
• Our diverse franchise representation ensures
new vehicle inventory is sourced from a wide
variety of countries
• Our strategy to develop and maintain revenues
from used vehicles, aftersales, and our software
and leasing segments reduces our overall
reliance on new vehicle franchises
36
Pendragon PLC Annual Report 2018 NO.
PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
3
Our Competitors:
Failure to meet
competitive challenges
to our business model
or sector
Customers migrate to alternative
providers
Intermediary companies establish
a barrier between us and our
customers
Revenues and profits fall owing to
competitor action
• Our detailed market and sector monitoring systems
assist early identification and effective response to
any competitive or intermediary threats
• Our scale, expertise and technological capabilities
enable rapid and flexible response to market
opportunities
• Our well-developed customer relationship
management capabilities and online customer offer
of fulfilment tools aim to drive industry-leading
service and attract customer loyalty
• We continually seek to develop new methods
of customer interaction, particularly online. This
enables the business to anticipate changing
customer needs
THE UK’s DECISION TO LEAVE THE EUROPEAN UNION (“BREXIT”)
4
Failure to prepare for
the UK’s departure from
the EU
Changes in regulation as a result
of Brexit
Consumer confidence and
economic activity falls
New vehicle prices rise as a
result of exchange rate changes
Fewer purchasers of vehicles
Lower demand for vehicle
servicing
Availability and cost base of
appropriate team member
resource to run our business
effectively
• We maintain the right level of legal expertise
to interpret, assess and respond to proposed
changes in regulation, enabling us to adapt to our
model and processes to comply with changes in a
seamless manner
• We constantly monitor used vehicle market trends
and adjust our inventory, pricing and procurement
accordingly.
• Our diverse franchise representation ensures new
vehicle inventory is sourced from a wide variety of
countries
• Our strategy to develop and maintain revenues
from used vehicles, aftersales and our software and
legal segments reduces our overall reliance on new
vehicle franchises
• We constantly monitor and evaluate alternative
recruitment, training and apprenticeship methods
to fulfil our employment needs
ENVIRONMENTAL
5
Progression towards
greener technologies,
autonomous driving,
and/or pay-per-use,
rather than owning a
vehicle
Customers choose greener
vehicles we cannot supply
Overall vehicle parc reduces
Vehicle purchase and use
declines, adversely affecting
revenue opportunities
UK taxes change to
penalise road use, fuel
type, vehicle use and to
increase VAT
Lower demand for diesel
vehicles and potential impact on
diesel vehicle residual values
Government policy and
consumer sentiment in respect
of diesel vehicles impacts the
sale of diesel vehicles
• We represent vehicle brands which are responding
effectively to the greener technology agenda
• We identify trends in demand through our
sophisticated management information and
analysis tools and tailor our model accordingly
• We monitor diesel sales to maintain an appropriate
inventory profile
• Our breadth of relationships with asset finance
companies and geographic footprint help us to
provide innovative mobility solutions for private
and business vehicle users, whatever their needs
• We maintain the right level of tax expertise to
interpret and assess proposed changes, respond
with well-informed advice and effectively assist
our strategic planning and the design and
implementation of appropriate mitigating actions
37
Pendragon PLC Annual Report 2018 RISK OVERVIEW & MANAGEMENT
NO.
PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
• We maintain the right level of legal expertise
to interpret, assess and respond to proposed
changes in regulation, enabling us to adapt our
model and processes to comply with changes in a
seamless manner
• Our culture focuses strongly on good compliance
delivering good performance
• Our team of compliance specialists design, and
we communicate effectively, processes that
support our businesses to minimise the risk of
non-compliance
• In the case of new vehicles, our diverse
representation mitigates the risk and for parts
we maintain alternative sources of supply where
possible
• We adopt and regularly update robust business
continuity measures, including within our dealer
management systems
• Our geographic diversity allows prompt
deployment of key functions to alternative
locations
• Our Pinewood business monitors cyber security
threats and has systems and processes in place to
deal with incidents
• We have cyber liability insurance in place
• We regularly review our data protection policies,
controls, team member training and the use of
third party systems
• We assess actual outturns of previous estimates
to test the robustness of adopted assumptions,
and adjust the estimating approach accordingly
• We support estimates with reliable external
research where available
LEGAL AND REGULATORY
Significant litigation
6
Regulator action against
or otherwise impacting
the Group
Resources are diverted to taking
proceedings or defending legal or
regulatory action, at the expense
of business efficiency and profit
Reputation is damaged by
regulatory censure or punitive
action
Fines and penalties reduce profits
Changes in regulations
impacting the Group,
eg trade tariffs
The ability to obtain appropriate
inventory is impeded and/or
purchase costs rise
Disruption to the regulatory
environment as a result of the UK’s
decision to leave the EU
TECHNOLOGY, INFORMATION SYSTEMS AND ESTIMATES
Failure of systems
7
Cyber security
Data loss, including non
compliance with GDPR
8
Reliance on the use of
significant estimates
which prove to be
incorrect
Data loss interrupts business,
incurs cost of recreating records,
causes loss of or impairment to
financial and operational control
and loss of business opportunities
and potentially results in regulator
action and possible fines and
penalties
Website interruptions and other
potential consequences of system
failure or cyber attack
Customer confidence is impaired
Group’s financial statements will
be wrong, affecting vehicle values
where we have committed to
purchase at a pre-set price, and
the discounted cashflows used
to test impairment of goodwill,
expected profit or loss on sale
of our inventory items and the
retirement benefit obligation
Reputational damage and inability
to raise funding for the Group’s
business
Revenue and profits all suffer
damage
38
Pendragon PLC Annual Report 2018 NO.
PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
MACRO-ECONOMIC, POLITICAL AND ENVIRONMENTAL
9
European economic
instability and/or UK
or USA economic and
business conditions
deteriorate
UK Governmental
spending constraints
Fewer purchasers of vehicles
Vehicle manufacturers oversupply
into UK market or alterations to
supply terms, damages margins
and vehicle values
Lower demand for vehicle
servicing
• Our business model derives revenues from every
stage of the vehicle’s life-cycle and has expanded
into the older vehicle parc for both vehicle sales
and aftersales
• We carefully control new vehicle inventory to
mitigate effects of overstocking
• We invest in and vigorously pursue customer
retention initiatives to secure longer term loyalty
FINANCE & TREASURY
10
Availability of debt
funding
Unable to meet debt obligations
• Our business model produces strong free cash
flow generation
Pension liabilities
Unsustainable demand of funding
occupational pensions schemes
• We maintain adequate committed facilities to
meet forecast debt funding requirements
• Diversification of funding sources, monitor daily
our funding requirements
• Regular review by our pension trustees of
investment strategy and liability reduction and
risk mitigation, taking professional advice
TEAM MEMBERS AND THE ENVIRONMENT WE WORK IN
11
Failure to attract,
develop, motivate and
retain good quality
team members and
leaders
Failure to provide safe
working and retail
environments
Failure to control
environmental hazards
Poor decision making and inability
to deliver our strategy and meet
our business objectives
• We invest in online means of attraction and
recruitment, targeting the right quality candidates
• We set clear competencies and career goals to
Lack of innovation in our business
Loss of custom owing to poor
quality customer experience
delivered by demotivated or
untrained team members
Illness and injury, lost working time
and civil claims
Reputational damage and clean-up
costs, leading to loss of custom
and revenues
Regulatory censure, suspension
of business, convictions and fines;
reputational damage, leading to
loss of custom and revenues
Availability of appropriate team
member resource as a result of
Brexit as noted in risk 4 above
prevent mishires
• We continually review and adapt for the market
conditions our employment terms, salaries and
performance related pay elements at all levels
• We adopt and renew responsive succession plans
for all key roles
• We leverage our scale to afford training
opportunities and progression within the Group
• We work to the Health & Safety Executive’s ‘Plan,
Do, Check, Act’ framework for managing risk in
the workplace and our retail spaces
• We allocate clear responsibilities for delivery of
safe places to work and shop
• We adopt process-driven initiatives to mitigate
specific risk areas
• We measure and review our performance against
appropriate benchmarks
• We allocate local accountability for sites’
compliance and provide specialist support to
responsible leaders
• We monitor site conditions and drive corrective
action through audit follow-up
39
Pendragon PLC Annual Report 2018 VIABILITY STATEMENT
VIABILITY STATEMENT
In accordance with provision C.2.2 of the UK Corporate
•
The ability to adapt to changing environments outside
our direct control such as macro-economic, political and
Governance Code, published by the Financial Reporting
environmental factors, regulation changes, manufacturer
Council in September 2014 (the ‘Code’), the Directors have
and competitor behaviour. The Board has specifically
assessed the viability of the company over the three year
reviewed the potential impacts and available mitigating
period to 31 December 2021.
actions as a result of Brexit. In particular the Board
reviewed the causes and consequences of the reduction in
The Directors believe this period to be appropriate as:
profitability year on year in assessing the risks. We mitigate
i) The Group’s detailed plan encompasses this period.
these risks through the diverse revenue generation from
ii) We typically, at inception, look to attain a revolving credit
all parts of the vehicle cycle and wide range of franchise
facility for at least four years.
representation together with regular monitoring to
identify changes quickly.
The three year review considers the Group’s profit and loss,
cash flows, debt and other key financial ratios over the
During 2018, the Board carried out a robust assessment of the
period. These metrics are subject to sensitivity analysis which
principal risks facing the Group, including those that would
involves flexing several of the main assumptions underlying
threaten its business model, future performance, solvency or
the forecast. Where appropriate, this analysis is carried out
liquidity. The Directors believe that the Group is well placed
to evaluate the potential impact of the Group’s principal risks
to manage its business risks successfully, having taken into
actually occurring. The three year review also makes certain
account the current economic outlook. Accordingly, the Board
assumptions about the normal level of capital recycling likely to
believes that, taking into account the Group’s current position,
occur and considers whether additional financing facilities will
and subject to the principal risks faced by the business, the
be required. Based on the results of this analysis, the Directors
Group will be able to continue in operation and to meet its
have a reasonable expectation that the company will be able
liabilities as they fall due for the period up to 31 December 2021.
to continue in operation, comply with facility covenants and
meet its liabilities as they fall due over the three year period of
their assessment.
In addition, further discussion of the principal risks and material
uncertainties affecting Pendragon PLC can be found within
the Annual Report and Accounts on pages 36 to 39. The risk
disclosures section of the consolidated financial statements
set out the principal risks the Group is exposed to, including
strategic, operational, economic, market, environmental,
credit, technological, regulatory and team member resource,
including the impact of Brexit together with the Group’s
policies for monitoring, managing and mitigating its exposures
to these risks. The Board considers risks during the year on
triannual basis through the Risk Control Group and annually at
a Board meeting with ad hoc reporting as required.
The principal risks and the mitigation steps that the Board
considered as part of this viability statement were as follows:
•
The ability to adopt and implement an appropriate strategy,
including our goal to double used vehicle revenue over
five years to 2021 with investment in capacity in the UK
and the implementation of the disposals we announced
in 2017. This is mitigated by our management information
and market data, appropriate investment, monitoring of
our performance and focus on financial discipline.
•
The availability of debt funding, in particular, the successful
refinancing of the RCF, when it expires in 2021.
40
Pendragon PLC Annual Report 2018 DIRECTORS REPORT
42 Board of Directors
44 Corporate Governance Report
48 Corporate Social Responsibility Report
50 Committee Reports
56 Directors’ Remuneration Report
69 Directors’ Report
41
Pendragon PLC Annual Report 2018 BOARD OF DIRECTORS
CHRIS CHAMBERS
Non-executive Chairman
(N*) (R)
Chris joined Pendragon on 28 January 2013 and became Chairman on 23 October
2017. He is a banker with particular expertise in retail and property, and is Chairman
of Leonteq, Lonrho and a member of the supervisory board of Berenberg Bank.
RICHARD LAXER
Non-Executive Director
(A*) (N) (R) (SID)
Richard joined Pendragon on 12 November 2018. Formerly the Chairman and CEO
of GE Capital, he has extensive board experience, being a former Non-Executive
Director serving on the Boards of several European based banks.
GILLIAN KENT
Non-Executive Director
(A) (N) (R)
Gillian joined Pendragon on 23 May 2013. Formerly Managing Director of MSN,
UK, Microsoft and holds a number of Non-Executive roles including Ascential plc,
Mothercare and NAHL plc as well as working with high growth technology start-ups.
MIKE WRIGHT
Non-Executive Director
(A) (N) (R*)
Mike joined Pendragon on 2 May 2018, following an executive career in the
international automotive sector, including senior roles at Jaguar Land Rover, Ford
and BMW. In addition to his extensive executive experience, he is involved with a
number of government related initiatives, as well as activities spanning education,
sport and the arts.
MARTIN CASHA
Chief Operating Officer
Having spent his entire career with Pendragon businesses, from apprentice mechanic
to Group General Manager, Martin became Operations Director in September 1995
and Chief Operating Officer in November 2001.
Key to memberships and roles
* Committee Chairman
(A) Audit Committee
(N) Nomination Committee
(R) Remuneration Committee
(F) Audit Committee member with recent and relevant financial experience
(SID) Senior Independent Director
More detailed professional biographies of the Directors are on the company’s website.www.pendragonplc.com
42
Pendragon PLC Annual Report 2018 TREVOR FINN
Chief Executive
Having spent a career in the retail motor industry, starting as an apprentice mechanic,
Trevor became Chief Executive of Pendragon in 1989, when the company first listed
on the London Stock Exchange. Trevor retires from the role of Chief Executive of
Pendragon PLC on 31 March 2019.
MARK HERBERT
Chief Executive
Designate
Mark joined Pendragon on 4 March 2019 as Chief Executive Officer Designate. He will
assume the role of Chief Executive Officer on 1 April 2019. Mark brings the experience
of a 20 year executive career with Jardine Matheson Group, including positions as a
Group Finance Director and a Chief Executive Officer.
TIM HOLDEN
Finance Director
Tim is a chartered accountant and joined Pendragon from KPMG in June 2008, as
Group financial controller. He became Finance Director in December 2009. Tim
steps down from the company on 31 March 2019.
MARK WILLIS
Chief Finance Officer
Mark will join Pendragon on 8 April 2019 as Chief Finance Officer. Mark joins
Pendragon from Ten Entertainment Group PLC where he has been its Chief Finance
Officer since taking it through its IPO in April 2017.
Company Secretary
Richard Maloney
Group motor businesses websites
www.evanshalshaw.com
Registered Office
Loxley House
2 Oakwood Court
Little Oak Drive
Annesley
Nottingham NG15 0DR
Telephone 01623 725200
www.stratstone.com
www.carstore.com
www.hornburg.com
Group Support business websites
www.pinewood.co.uk
www.pendragonvehiclemanagement.co.uk
www.quickco.co.uk
Registered in England and Wales
Registered number 2304195
43
Pendragon PLC Annual Report 2018 CORPORATE GOVERNANCE REPORT
The UK Corporate Governance Code (Code) applies to the
and Remuneration, each made up entirely of Non-Executive
company and is available on the FRC website at https://www.
Directors. The Risk Control Group (RCG) is a Committee of
frc.org.uk. Other than where expressly stated, throughout 2018,
the Executive Directors, the Company Secretary and Group
the company complied in full with the applicable provisions of
Heads of Information Technology and Internal Audit. Each
the Code. The corporate governance statement as required
Committee operates within delegated authority and terms of
by Disclosure and Transparency Rule 7.2.1 is set out below.
reference, set by the Board, reviewed annually and available to
OUR BOARD
The Board sets our company’s strategy and ensures we have in
view on the company’s website. Details of each Committee’s
work appear on the next few pages of this Report. Executive
Directors can attend Board Committees at times, to assist their
place the financial and human resources we need to meet our
business, but only with the Committee’s prior agreement.
objectives. We take collective responsibility for Pendragon’s
long term success. The Executive Directors, led by the Chief
Executive, are responsible for running the company and our
LEADERSHIP AND BOARD COMPOSITION
As at 12 March 2019, the Board is made up of three Executive
Group to effect that strategy, and work within prescribed
Directors and four Non-Executive Directors, one of whom is
delegated authority, such as capital expenditure limits. The
Chairman. The respective responsibilities of the Board, the
Executives direct and monitor business performance through
Chairman and the Chief Executive are clearly defined by the
regular operational meetings with their respective leadership
Board in formal responsibilities documents, which the Board
teams and set and regularly review the effectiveness of key
reviewed and readopted in 2018. The Board is committed
operating controls, reporting to the Board on these and
to the progressive refreshing of our membership, so as to
any variances. The Board as a whole reviews management
maintain the right balance of skills, experience, independence
performance. Although the Board delegates to the Chief
and knowledge of the company to enable us to continue
Executive and Finance Director responsibility for briefing
operating effectively. In March 2018, Mike Wright joined the
key stakeholders, major shareholders and the
investor
Board as an additional Non-Executive Director and assumed
community, the Chairman holds himself available to engage
the Chair of the Remuneration Committee. In November 2018,
with shareholders, and the Senior Independent Director is
Jeremy King stepped down as a Non-Executive Director,
ready to perform a similar role, where appropriate. Information
Senior Independent Director and chair of the Audit Committee
from engagement with all stakeholders is shared with the
and Richard Laxer joined the Board as a Non-Executive
entire Board and taken into account in financial planning and
Director and Senior Independent Director, and assumed chair
strategy. The Board has three Committees: Audit, Nomination
of the Audit Committee. The Board is actively seeking to
PENDRAGON PLC BOARD
NOMINATION
COMMITTEE
REMUNERATION
COMMITTEE
AUDIT
COMMITTEE
EXECUTIVE
COMMITTEE
MAIN BOARD COMMITTEES
RISK CONTROL
GROUP
OPERATIONAL MEETINGS
44
Pendragon PLC Annual Report 2018 recruit an additional Non-Executive Director. In October 2018,
risk assessment and control fall within the remit of Committees
the company announced that Tim Holden would be standing
of the Board; details of their work in 2018 appear below.
down as Finance Director on 31 March 2019. Mark Willis joins
Pendragon on 8 April 2019 as Chief Finance Officer. On 18
THE BOARD’S REVIEW OF RISKS
February 2019, the company announced that Mark Herbert
joined the company as Chief Executive Officer designate,
AND CONTROLS IN 2018
During the year, the Board considered all strategic matters,
and will assume the role of Chief Executive Officer and join
received key performance
information on operating,
the Board on 1 April 2019. As announced on 14 December
financial and compliance matters and reviewed the results
2018, Trevor Finn will retire from the role of Chief Executive
of corresponding controls and risk management. We
of Pendragon PLC on 31 March 2019. Trevor will hand over
received from the Audit Committee and from the RCG timely
his Chief Executive Officer responsibilities to Mark Herbert
information and reports on all relevant aspects of risk and
and will remain available to support an orderly transition
corresponding controls. We reviewed all our key company
until his leaving. Other than the changes described above, no
policies and ensured all matters of internal control received
other changes to Board membership occurred to the date of
adequate Board scrutiny and debate. At Board meetings, and
publication of this report. In accordance with the UK Corporate
informally via the Chairman, all Directors had the opportunity
Governance Code, all Directors will be subject to annual re-
to raise matters of particular concern to them. There were no
election (or election in the case of newly joined Directors) at
unresolved concerns in 2018. We concluded that all appropriate
the Annual General Meeting of the company. Details of the
controls are in place and functioning effectively.
Directors offering themselves for election in 2019, together
with Directors’ brief biographical details appear on page 42,
The Board considers that the Group’s systems provide
and gender balance details are on page 48.
information which is adequate to permit the identification of key
HOW THE BOARD MANAGES RISK
The Board and our Committees each operate to a set meeting
risks to its business and the proper assessment and mitigation
of those risks. Based on the Audit Committee’s and the RCG’s
work, the Board has performed a high level risk assessment,
agenda which ensures that all relevant risks are identified and
to ensure that (i) the principal risks and uncertainties facing
addressed by appropriate controls. We review management
the Group’s business have been identified and assessed, taking
information which helps us to prescribe operating controls and
monitor performance against our strategy and business plans.
into account any adaptations made to the Group’s business
strategies, and (ii) that appropriate mitigation is in place. Our
The Non-Executive Directors have particular responsibility for
company policies on managing financial risk and application
monitoring financial and performance reporting, to ensure that
of hedging are set out in note 4.2 to the financial statements.
progress is being made towards our agreed goals. The Board’s
The principal risks and uncertainties we have identified are on
responsibilities also include assessing the effectiveness of
pages 35 to 39 and our viability statement is on page 40.
internal controls and the management of risk. Specific areas of
45
Pendragon PLC Annual Report 2018 CORPORATE GOVERNANCE REPORT
WORK OF THE RISK CONTROL GROUP
The accountability framework described on page 35 is
•
subject to the recruitment of an additional Non-Executive
Director, the Board and each of its Committees is of the
designed to ensure comprehensive management of risk across
right size and balance to function effectively;
the Group’s businesses. The Risk Control Group (RCG), made
• we have satisfactory plans for orderly succession to Board
up of the Chief Operating Officer, Finance Director, Company
roles;
Secretary, and Group Heads of Information Technology and
•
the Chairman and respective Committee chairmen are
Internal Audit, performs detailed work on risk assessment
performing their roles effectively;
and oversees the effective implementation of new measures
•
all Non-Executive Directors are independent in character
designed to mitigate or meet any specific risks or threats. The
and judgment;
Chair of the Audit Committee, a representative of the external
•
no Director has any relationships or circumstances which
Auditor and the Group Insurance Risk Leader attend by
could affect their exercising independent judgement; and
invitation. The RCG reports to the Audit Committee on its work.
•
the Chairman and each of the Non-Executive Directors
The Board and any of its Committees is able to refer specific
is devoting the amount of time required to attend to the
risks to the RCG for evaluation and for controls to be designed
company’s affairs and their duties as a Board member.
or modified; this occurs in consultation with operational
management. The Executive Directors are responsible for
communicating and implementing mitigating controls and
BOARD EVALUATION
Between January and March 2018 recruitment of an additional
operating suitable systems of check. The RCG met three times
Non-Executive Director was ongoing. For nine months from
in 2018. In addition to reviewing and refining the Group’s
March 2018, the Board consisted of seven Directors, consisting
corporate risk register, for Board review and adoption, the
of three executive and four Non-Executive Directors, including
RCG continues to monitor and review the Group’s anti-bribery
the non-executive Chairman and was considered to be of
controls and data protection controls Consumer Rights Act
the correct size and balance to function effectively. During
2015 training, Modern Slavery Act 2015 awareness and further
2018, the Board received informal briefings from company
initiatives to reduce incidences of theft and fraud. Following its
executives to familiarise Directors with strategic developments
review of the Group’s systems of internal control, the RCG has
and key aspects of the Group’s business. Formal presentations
reported to the Audit Committee that it has not identified any
to the Board by senior Group executives focussed on matters
weakness in controls which would have a material effect on
of strategic importance. The Board and its Committees
the Group’s business. The Audit Committee has reviewed and
conducted formal evaluations of their effectiveness in 2018,
accepted the processes adopted by the RCG in this respect
facilitated by the Chairman, addressing questions based
and accepted its conclusions.
NON-EXECUTIVE DIRECTORS
closely on the Code, applicable good governance topics
and drawn from best corporate practice. The results were
reviewed by the Chairman, the Committee chairmen and the
AND INDEPENDENCE
The Non-Executive Chairman (who, on appointment to that
Board as a whole and the Chairman has factored suggested
improvements into our 2019 Board programme. More details
role, fulfilled the requirement to be independent) has ensured
on the Board’s approach to individual and Board evaluation are
that the Board performs effectively though a well-functioning
on the company’s website. The company is currently outside
combination of Board and Committee meetings and other
of the FTSE 350, so is not required to facilitate the evaluation
appropriate channels for strategic input and constructive
externally.
challenge from Non-Executive Directors. The Chairman has
held meetings with the Non-Executive Directors without the
Executive Directors present, where necessary to assist Board
RE-ELECTION OF DIRECTORS
In accordance with the UK Corporate Governance code, all
effectiveness, and, following the 2018 year end, conducted
Directors will be subject to annual re-election or election (in
individual meetings with each Director to arrive at his and the
the case of new Directors) at the AGM.
Board’s assessment of the Directors’ respective contributions,
training needs and independence. Led by the Senior Non-
Executive Director, the Directors have assessed the Chairman’s
INFORMATION AND SUPPORT
To ensure our decisions are fully informed and debated, the
effectiveness in his role. The Board has routinely operated
Chairman ensures our Board’s business agenda is set timely to
conflict management procedures and has deemed these
procedures effective. Through these, and the evaluations
allow appropriately detailed information to be circulated to all
Directors before meetings. The Company Secretary facilitates
which are described below, we have concluded that:-
the flow of information within the Board, attends all Board
•
the Board’s collective skills, experience, knowledge of the
meetings and is responsible for advising the Board and its
company and independence allow it and its Committees
Committees, through their respective chairmen, on corporate
to discharge their respective duties properly;
governance and matters of procedure. All Directors have
46
Pendragon PLC Annual Report 2018 Director
Chris Chambers (B) (I) (N)
Gillian Kent (I)
Jeremy King* (I) (A)
Mike Wright** (I) (R)
Richard Laxer*** (I) (A)
Trevor Finn
Martin Casha
Tim Holden
Board
10/10
10/10
8/8
7/9
2/2
9/10
10/10
9/9
Audit
Nominationº
Remuneration
N/A
3/3
3/3
2/2
N/A
N/A
N/A
N/A
3/3
3/3
3/3
2/2
N/A
N/A
N/A
N/A
3/3
3/3
2/2
2/2
N/A
N/A
N/A
N/A
(I) Considered by the Board to be independent; the Chairman is required to fulfil this criterion at appointment but not thereafter.
(B) Chairman of the Board.
(A) Audit Committee Chairman (N) Nomination Committee Chairman (R) Remuneration Committee Chairman.
*Resigned from the Board as Non-Executive Director, Senior Independent Director and Chair of Audit Committee on 12 November 2018. Acting Remuneration Committee
Chairman until appointment of Mike Wright.
**Appointed as Non-Executive Director and chair of the remuneration Committee on 26 March 2018.
*** Appointed as Non-Executive Director, Senior Independent Director and chair of the Audit Committee on 12 November 2018.
Shows the number of meetings attended out of the total a Director was eligible to attend.
Where the Nomination Committee is undertaking a specific recruitment, continuing Directors only are eligible to attend.
access to support from the Company Secretary on matters of
location, provide a forum for sharing both company and local
procedure, law and governance and in relation to their own
information. At all levels, communications aim particularly to
induction and professional development as Board members.
recognise the achievements of individual team members and
All Directors are entitled to take independent advice at the
celebrate outstanding personal and business performance,
company’s expense, and to have the company and other
through peer recognition and widely publicised awards. Each
Board members provide the information required to enable
year we review our incentive and recognition programmes
them to make informed judgements and discharge their duties
aligned to the Group’s business objectives.
effectively.
COMMUNICATION
We aim to meet the challenges presented by our size and
DIVERSITY AND EQUALITY OF OPPORTUNITY
We are an equal opportunity employer, committed to ensuring
that our workplaces are free from unfair discrimination, within
geography through innovation in internal communications.
the framework of the law. We aim to ensure that our team
Internal website messaging, video and face to face presentations
members achieve their full potential and that, throughout all
as well as electronic newsletters and social media content
our attraction, recruitment, selection, employment and internal
keep team members up-to-date with the company’s strategy
promotion processes, all employment decisions are taken
and performance. Team members’ views on our performance
without reference to irrelevant or discriminatory criteria. The
and services are actively gathered via targeted electronic
company’s diversity and equal opportunities policy is available
surveys. Regular briefings for all team members, held at each
at www.pendragonplc.com
47
Pendragon PLC Annual Report 2018 CORPORATE SOCIAL RESPONSIBILITY REPORT
Number of Group Employees by category
Director
Senior Manager
All Employees
as at 31 December 2018
as at 31 December 2017
Female
Male
Total
Female
Male
Total
1
0
6
5
7
5
1
0
5
5
6
5
2,438
6,756
9,194
2,379
6,973
9,352
GENDER BALANCE
We describe our approach to Board composition diversity in
COMMUNITY
We are predominantly a retail operator, with a tangible
the Nomination Committee’s report on page 54.
presence in the many communities our businesses serve.
HEALTH AND SAFETY
We take seriously our responsibility to our team members,
During 2018, our monthly fundraising events supported a range
of national charities, including the British Heart Foundation,
Help for Heroes, Macmillan Cancer Support, Cancer Research,
customers and the public. We aim to ensure that all team
Comic Relief and Children in Need. Our Academy and retail
members in the course of their roles, and all who work in or
businesses also generate community involvement through
visit our facilities or receive our services, so far as is reasonably
local engagement, contributing to their local areas in a variety
practicable, experience an environment and practices which
of ways. Individuals and businesses organise charity events
are safe and without risk to their health.
to support schools, hospitals and local children’s and medical
charities as well as the Group wide monthly nominated charity.
Our policy is to identify and assess all potential risks and
The company supports and encourages these activities and
hazards presented by our activities and to provide systems and
we welcome the opportunities they present for team-building
procedures which allow all team members in their daily work to
within our businesses, engagement with the communities they
take responsible decisions in relation to their own and others’
serve and recognition of charitable causes with whom our
health and safety. We publish a clear hierarchy of responsibility
team members and their families have connections.
to team members and reinforce this through regular
monitoring by a variety of means. We promote awareness
of potential risks and hazards and the implementation of
RESPONSIBLE SOURCING
All our Group’s sites are situated within the UK or US and
corresponding preventative or remedial actions through our
at each of them we operate in strict compliance with all
on-line health and safety systems, operations manuals and
applicable labour relations laws. We have no presence, either
regular communications on topical issues. Our health and
directly or via sub-contractors, in any areas which present
safety management system provides our UK leadership and
any risk of the exploitation of men, women or children in the
team members with detailed access to information, guidance
workplace. We work with vehicle manufacturers and other
and control measures.
suppliers who manage their supply chains in a responsible way,
free from the exploitation of labour. We have adopted an Anti-
ACCIDENTS AT WORK
Historically, we have assessed our safety record against relevant
Slavery and Human Trafficking Policy, available to view on our
website, together with our Anti-Slavery and Human Trafficking
published benchmarks. This year, as a result of changes to the
Statement for the year ending 2018.
Health & Safety Executive sector categorisations, the natural
sector comparator for our Group is Wholesale and Retail Trade
ENVIRONMENT AND GREEN HOUSE GAS (GHG)
and Repair of Motor Vehicles and Motorcycles. There has been
an increase in RIDDOR1 reported accidents in 2018, rising to
38 per 10,000 employees (2017: 31 per 10,000 employees).
EMISSIONS REPORTING
Although not generally regarded as a high environmental
impact sector, motor retailing and its associated after sales
Whilst this is higher than the relevant sector average (24 per
service activities carries with it a range of responsibilities
10,000 employees), this is primarily as a result of our improved
reporting system for accidents, the increased accuracy of our
relating to protection of the environment. Our policy is to
promote and operate processes and procedures which, so far as
reporting and improved classification of RIDDOR and non-
is reasonably practicable, avoid or minimise the contamination
RIDDOR accidents. We continue to target specific hazards
of water, air or the ground; and to manage responsibly the by-
and risks for improved results through additional monitoring
products of our activities, such as noise, waste packaging and
and promotion of safe working processes.
substances and vehicle movements. During the year, we have
1RIDDOR: the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013.
48
Pendragon PLC Annual Report 2018
Global Greenhouse Gas Emissions Data
Source
Tonnes of CO2
01.01.18 – 31.12.18
01.01.17 – 31.12.17
C02 emitted from facilities
C02 emitted from driving activities
Intensity ratio (tonnes of CO2 per £k)
11,461
9,179
4.5
14,517
9,403
5.1
continued to be registered with and have complied with our
and estimated usage for our US businesses. We also include
obligations under the Department for Environment, Food and
emissions from driving activity, comprising data verified
Rural Affairs’ (DEFRA) carbon reduction commitment scheme.
internally, including estimates of distances travelled during test
The company’s statement of environment policy is available at
drives, transportation of vehicles and parts between sites, and
www.pendragonplc.com
business travel (excluding commuting by means which are not
owned/controlled by us).
GREENHOUSE GAS EMISSIONS
This section includes our mandatory reporting of greenhouse
gas emissions for the period 1 January 2018 to 31 December
REDUCING CARBON AND WASTE
During the year, we have continued to assess and monitor our
2018, pursuant to the Companies Act 2006 (Strategic Report
energy use and, where practicable, to implement measures
and Directors’ Report) Regulations 2013.
designed to reduce our activities’ environmental impact, which,
over time, we anticipate will help reduce our carbon footprint.
Our methodology to calculate our greenhouse gas emissions
is based on the ‘Environmental Reporting Guidelines: including
The Group has undertaken mandatory energy assessments
mandatory greenhouse gas emissions reporting guidance’
of our sites in accordance with the ESOS Regulations 2014.
(June 2013) issued by DEFRA using DEFRA’s 2018 conversion
We continue to use the results of this assessment to identify
factors. In some cases, we have extrapolated total emissions
further energy saving opportunities. To conserve energy, we
by utilising available data from part of the reporting period,
continue, where practicable, to install LED lights at our sites,
and extending it to apply to the full reporting period.
limit the duration of periods when full lighting is used on our
We report our emissions data using an operational control
and fit insulators to limit the escape of heat.
approach to define our organisational boundary. We have
reported all material emission sources for which we deem
We continue to seek to limit our paper consumption and waste,
ourselves to be responsible, including both our UK businesses
through increasingly paperless communications and systems.
sites out of hours, keep external doors closed when not in use,
49
Pendragon PLC Annual Report 2018 AUDIT COMMITTEE REPORT
The Audit Committee is a Committee of the Board and has
been chaired by Richard Laxer since November 2018, made up
entirely of Independent Non-Executive Directors. Their names and
qualifications are on page 42 and attendance at meetings in the
table on pages 47.
KEY RESPONSIBILITIES OF THE AUDIT COMMITTEE
• monitors the integrity of the financial statements and
LLP, and are satisfied that KPMG have addressed these in the
2018 audit cycle. KPMG LLP also gave formal assurance to the
formal announcements
company of its ability as Auditor to place reliance on the work
•
reviews and approves the Annual Report and Accounts
of the internal audit team and concluded that the scope and
for adoption by the Board
quality of the internal audit work done reflects an effective,
•
recommends to the Board the selection of the external
well-functioning team. Key aspects of those discussions and
Auditor and its terms of appointment and monitors its
relevant considerations and conclusions are below:-
effectiveness and independence
•
governs policy for the allocation of non-audit work to the
audit firm
KEY ACCOUNTING JUDGEMENTS
The table on page 90 are the key accounting judgements that
•
reviews internal controls and risk management
the Committee considered and discussed with the Auditor.
• monitors the effectiveness of the internal audit function
The Committee is satisfied that appropriate judgements have
•
reviews and monitors whistleblowing arrangements
been made.
Its terms of reference detail its key responsibilities and appear,
with relevant background information, on the company’s
AUDIT RISK CONSIDERED BY THE COMMITTEE
The table below sets out the key audit risks applied, for the
website www.pendragonplc.com.
2018 year results, which the Committee considered and
discussed with the Auditor, and the Committee’s conclusions.
THE COMMITTEE’S WORK IN 2018
The Audit Committee met three times in 2018 and this report
describes its work and conclusions.
FINANCIAL STATEMENTS REVIEW
The Committee received the Auditor’s memorandum on
the company’s 2017 financial statements and the Auditor’s
memorandum on the unaudited 2018 interim results. In each
case, it discussed the Auditor’s findings with the Auditor,
satisfied itself of the integrity of the financial statements
and recommended the financial statements for approval by
the Board. In addition, the Committee has been through the
findings of the FRC review of the audit in 2017 with KPMG
Audit risk considered by the Committee
Evidence considered and conclusion reached
GOODWILL VALUATION
The judgements in relation to asset impairment of the carrying
The Committee considered the risk that goodwill could be
materially overstated in the context of the sensitivity analysis,
value of goodwill largely related to the achievability of the
also set out in note 3.1. The Committee addressed these matters
assumptions underlying the calculation of the value in use
through receiving reports from management outlining the
of the business being tested for impairment, set out in note
basis for the assumptions used, assessing the range and depth
3.1 to the financial statements. These primarily consist of the
of information underpinning the assumptions and calculations,
Group’s forecasts from 2019 to 2022, which underpin the
commissioning a report from a third party export valuer and
valuation process.
discussions with the Auditors.
50
Pendragon PLC Annual Report 2019
VALUATION OF PARENT COMPANY INVESTMENT
This is the risk that the company has investments in its
The Committee is supportive of ongoing work to restructure the
company’s balance sheet as between PLC and its subsidiaries
subsidiary companies, which could be overstated when
as an exercise in redressing this balance.
considered with current market capitalisation of the company
and could impact the ability of the company to pay dividends
The Committee received a report from management detailing
should the investment be impaired. The value of investments
the controls in place to ensure the appropriate recording
is underpinned by expectation of discounted future profits and
of impairments to the value of subsidiary assets, which was
net assets of the subsidiary companies. There is an inherent
performed in conjunction with the work done to establish
uncertainty in forecasting future profits following the decline in
goodwill impairment as described above. The Committee
the share price and the profit warning issued in October 2018.
were satisfied with management’s conclusion that appropriate
controls were in place to book impairment in the value of
subsidiary assets.
VEHICLE INVENTORY VALUATION
This is the risk that the value of inventory set out in note 3.4
The Committee received a report from management which
set out factors relevant to an assessment of used inventory
to the financial statements could be materially overstated and
valuation, including the level of inventory held across the
whether or not an appropriate provision had been calculated.
business, the ageing of the inventory, the stock turn of the
The risk for used vehicles is seen as the most relevant, for
inventory and an analysis of market factors including the parc
scrutiny. Used vehicle prices can vary depending on a number
of used vehicles, the used vehicle market sales rate and historic
of factors, including general economic conditions and the
movements in used vehicle prices.
levels of new vehicle production.
The Committee discussed the report from management with
the Auditors together with all audit findings. The Committee
was satisfied that a comprehensive assessment of inventory
valuation had been undertaken and concluded that the
judgements applied were appropriate. Overall, the level of
used inventory risk remained the same as in the prior year.
PENSION SCHEME LIABILITIES
The amounts reflected in the financial statements in respect of
The Committee ascertained that judgements made on pension
scheme were all based on advice from the Group’s pension
pension scheme liabilities involve judgements made in relation
adviser. The final calculations in respect of the Group’s
to actuarial assumptions, long-term interest rates, inflation,
defined benefit pension scheme liability were performed by
longevity and investment returns. The liabilities are set out
our pension scheme actuary. The Committee discussed with
in note 5.1 to the financial statements. There is a risk that the
the Auditor the assumptions applied, in particular the findings
value of the pension scheme liabilities could be materially
of the Auditor’s own pension specialist.
under or over stated in the context of the sensitivity analysis in
that note. Following a court ruling during the year regarding
The Committee concluded that the judgements applied were
equalisation of GMP between men and women an additional
appropriate.
pension liability has been recorded
UK EXIT FROM THE EUROPEAN UNION (BREXIT)
Currency devaluation of Sterling following the 2016 referendum
The Committee received a report from the Risk Control Group,
which had carried out an initial assessment of potential Brexit
result has continued in subsequent years, and remains as an
risk to the Group in early December 2018.
upward pressure on new vehicle prices and associated finance
offers. The risk of a “no-deal” Brexit may cause further upward
The Committee considered that the Group retained sufficient
pressure on vehicle prices due to import tariffs imposed and
financial liquidity and operational facility headroom to cover
Sterling’s expected devaluation. Share prices of all UK car
any short-term financial stress scenarios resulting from a hard
dealers fell after the EU Referendum and have only partly
Brexit.
recovered. A decline in consumer confidence has continued
to reduce UK new sales since April 2017 and the expectation is
The Committee noted that in the event that Brexit caused
that this will continue into 2019. Other factors such as changes
a significant short term financial impact on the Group’s
in regulation and the availability and cost base appropriate
operations, elements of our strategy could be accelerated to
team member resource could also impact the company’s
mitigate the impact.
operations.
Pendragon PLC Annual Report 2019
51
AUDIT COMMITTEE REPORT
EXTERNAL AUDITOR
•
none of the Directors’ independence in considering this
APPOINTMENT AND PERFORMANCE EVALUATION
The Committee considered Auditor effectiveness and
matter is impaired in any way and none has a potential
or actual conflict of interest in relation to KPMG, whether
independence of the audit, during the year.
in regard to its appointment, fees, the evaluation of its
performance, any decision as to competitive tender for
The Committee arrived at its recommendation to the Board on
audit services, or any other matter.
the Auditor’s appointment by:
•
•
applying exclusively objective criteria;
EU legislation on audit firm rotation the current Auditor could
evaluating the ability of the audit firm to demonstrate its
not be reappointed after 2023.
The Committee also took into account that under the current
independence;
•
assessing the effectiveness of the audit firm in the
performance of its audit duties;
REVIEW OF NON-AUDIT SERVICES
The Committee reviewed the company’s policy on its use of its
•
reviewing and discussing with the Auditor the results of
audit firm for non-audit work. Its main principles are that the
an independent review of their audit of the 2017 financial
Auditor is excluded from providing certain non-audit services
statements by the FRC; and
the performance of which is considered incompatible with
•
assessing the audit firm’s adherence to applicable
its audit duties, but is eligible to tender for other non-audit
professional standards.
work on a competitive basis and can properly be awarded
such work if its fees and service represent value for money.
The Committee Chairman oversaw the company’s evaluation
The policy can be viewed on the company’s website. The
of the Auditor’s performance, using questionnaires covering all
Committee considered reports on the extent and nature of
aspects of the company and Auditor relationship and reviewed
non-audit work available, the allocation during the year of that
the results with the Committee members and the company’s
work to accountancy and audit firms, including KPMG LLP,
management. The Committee noted that the current Auditor,
and the associated fees. Details of audit and non-audit work
KPMG had issued to the company all requisite assurances of
performed by KPMG LLP and the related fees appear annually
its independence. The Committee reported its conclusions
in the notes to the company’s financial statements. A full
to the Board, namely, that there are no existing or historical
statement of the fees paid to KPMG LLP for work performed
relationships or other matters which adversely affect the
during the year is set out in note 2.5 to the financial statements
independence of KPMG as the company’s Auditor, and no
on page 106. Having satisfied itself on each item for its review,
performance shortcomings or unresolved issues relating to fee
the Committee reported to the Board that:-
levels.
The lead audit partner, John Leech, has held the poistion for
has been adhered to throughout the year, and is operating
•
the company’s existing policy continues to be appropriate,
three years.
effectively to provide the necessary safeguards to
independence of the external Auditor;
POLICY ON AUDIT TENDERING
KPMG was appointed as Auditor in September 1997, since
•
there are no facts or circumstances relating to the
award or performance of non-audit work that affect the
when, audit services have not been tendered competitively.
independence of KPMG LLP as Auditor or justify putting
The Committee has concluded that a competitive tender of the
out audit work to competitive tender at this time;
audit service is not necessary at this time, but acknowledged
•
no contract for non-audit services has been awarded to
that circumstances could arise where a competitive tender for
KPMG LLP in any circumstance of perceived or potential
audit services is desirable. It recommended the re-appointment
conflict of interest or non-compliance with the company’s
of KPMG as the company’s Auditor. The Board accepted the
policy; and
Committee’s recommendation and concluded that:-
•
the fees KPMG LLP have earned from non-audit services
•
there are no matters warranting a competitive tender
their amount or otherwise, such as might impair its
exercise in relation to the provision of audit services, but
independence as Auditor. The ratio of non-audit to audit
provided during the year are not, either by reason of
this position would change if there were to arise at any
time any concerns as to the continuing independence or
fees was 0.15:1 in 2018 (2017: 0.14:1).
performance of the current audit firm (no such concerns
The Board accepted these findings.
have arisen as at the date of this report);
52
Pendragon PLC Annual Report 2018 REVIEW OF INTERNAL AUDIT PERFORMANCE
The Committee Chairman oversaw the Committee’s evaluation
these and the company’s bribery risk assessment. On its
recommendation, the Board readopted the company’s
of the Internal Auditor’s performance, using questionnaires
anti-bribery policy statements and associated controls.
covering all aspects of the internal Auditor work and
The Committee considered reports on known instances of
relationship to the audit and received the Auditor’s view on
alleged wrongdoing and matters reported on the company’s
that performance. He reviewed the results with the Committee
confidential reporting line and their investigation, reviewed the
members and company management and reported the
adequacy of whistleblowing procedures and commissioned
Committee’s conclusions to the Board.
follow-up action and improvements in risk-related controls.
REVIEW OF RISK
MANAGEMENT AND INTERNAL CONTROLS
The Committee reviewed the effectiveness of the company’s
Our current anti-bribery value statements and our policies
on the control of fraud, theft and bribery risks appear on
the company’s website and are drawn to the attention of all
system of internal control and financial risk management. It
parties seeking to transact with the Group. Our whistleblowing
received reports from the Auditor on each of these areas and
procedures are published internally on our intranet and
from the RCG, whose work is described on page 44) on the
their existence is regularly reinforced in our team member
company’s risk register, emerging risks and corresponding
communications. The policy is available at www.pendragonplc.
internal controls. It scrutinised the key risks register, as revised
com
by the RCG, and approved it for adoption by the Board. Its
work informed and supported the Board’s assessments
detailed under “How the Board manages risk” on page 45.
REVIEW OF ANTI-BRIBERY
CONTROLS AND WHISTLEBLOWING
The Committee
reviewed
the company’s anti-bribery
APPROVAL
This report was approved by the Committee and signed on it’s
behalf by:-
Richard Laxer
Chairman of the Audit Committee
processes and controls and evaluated and approved
12 March 2019
53
Pendragon PLC Annual Report 2018 NOMINATION COMMITTEE REPORT
The Nomination Committee is chaired by Chris Chambers,
and made up entirely of independent Non-Executive Directors.
Their names and qualifications are on page 42 and attendance
at meetings in the table on page 47 above.
KEY RESPONSIBILITIES
OF THE NOMINATION COMMITTEE
•
reviews the Board’s size, structure and composition and
In February 2019, following Trevor Finn’s decision in December
2018 to retire as Chief Executive Officer, the Committee met
for the purposes of recruitment and selection of a replacement
•
•
leads recruitment to Board positions
Chief Executive Officer. On 4 March 2019, following the
undertakes annual Board performance evaluation
recommendation of the Nomination Committee, Mark Herbert
satisfies itself on the company’s refreshing of Board
joined the company as Chief Executive Officer designate, and
membership and succession planning
will assume the role of Chief Executive Officer on 1 April 2019.
The Nomination Committee is actively leading the process to
Its terms of reference detail its key responsibilities and appear,
recruit an additional Non-Executive Director.
with relevant background information, on the company’s
website www.pendragonplc.com .
Subject to the recruitment of an additional Non-Executive
Director, the Board concluded that the composition and
THE COMMITTEE’S WORK IN 2018
The Nomination Committee met three times in 2018. This
balance of the Board was now appropriate to the requirements
of the company. Details of the annual evaluation of the Board
report describes its work and conclusions.
are set out below.
REVIEW OF BOARD COMPOSITION AND BALANCE
In February 2018, the Committee reviewed the structure of
EVALUATION
The annual evaluations of the Board and its members were
the Board, in relation to its size, composition and potential
conducted by the Board and are described on page 46. As
vacancies. At this stage, as part of the annual review of the
part of that process, the Committee conducted an evaluation
workings of the Board and its annual valuation, the Committee
of its own performance.
concluded that a cohort of four, made up of the Chairman and
three Independent Non-Executive Directors is sufficient for the
Board and its Committees to function effectively.
DIVERSITY
All appointments made, including those of Board members,
adhere to the company’s diversity and equal opportunities
In October 2018, following the decisions of Tim Holden to
policy, which can be viewed on the company’s website. For
step down as Finance Director and Jeremy King to step down
Non-Executive Director appointments, where executive
as Non-Executive Director and Audit Committee Chairman,
search consultants are instructed, they are done so in a
the Committee met for the purposes of recruitment and
manner consistent with this policy. The company engaged
selection of a replacement Chief Finance Officer and Non-
an executive search agency for the purposes of recruiting the
Executive Director and Audit Committee Chairman. Following
Chief Executive Officer and has retained them in the search
recommendations of the Nomination Committee, Mark Willis
for an additional Non-Executive Director, having considered it
was appointed Chief Finance Officer in October 2018 and will
appropriate to do so. The company has not adopted a gender
assume the role on 8 April 2019. Richard Laxer was appointed
balance target for its Board.
Non-Executive Director, Audit Committee Chairman and
Senior Independent Director in early November 2018.
54
Pendragon PLC Annual Report 2018 REMUNERATION COMMITTEE REPORT
The Remuneration Committee is a committee of the Board,
and has been chaired by Mike Wright since March 2018.
It is made up entirely of independent Non-Executive Directors.
Their names and qualifications are on page 42 and attendance
at meetings in the table on page 47.
KEY RESPONSIBILITIES
OF THE REMUNERATION COMMITTEE
•
determines and agrees with the Board the framework for
Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013 (the Regulations) and has been prepared
in accordance with the UK Corporate Governance Code and
remuneration of Executive Directors
the UKLA Listing Rules. The parts of the report which have
•
ensures that Executive Directors are provided with
been audited in accordance with the Regulations have been
appropriate
incentives which align
their
interests
identified.
with those of shareholders, and encourage enhanced
performance in the short and medium term, as well as
achievement of the company’s longer term strategic goals
REMUNERATION POLICY
There are no changes to the remuneration policy that was
•
determines targets for any performance related pay
approved by our shareholders at the 2017 AGM. The full,
schemes
shareholder approved, policy is available on the company’s
•
seeks shareholder approval for any long-term incentive
website and sets out our policy on Directors’ remuneration,
arrangements
recruitment, loss of office, termination of employment and
•
determines the remuneration of the Chairman
change of control. Consistent with market practice, the
The terms of reference of the Remuneration Committee are
elements of variable remuneration, both in terms of annual
available at www.pendragonplc.com.
bonus awards made and long term incentive awards granted
Remuneration Committee retains full discretion over all
THE COMMITTEE’S WORK IN 2018
The Remuneration Committee met three times in 2018. The
Directors’ Remuneration Report, beginning at page 56,
describes its work and conclusions.
REMUNERATION DISCLOSURE
This report complies with the requirements of The Large
and vesting. The extent of this discretion is more particularly
described in the table on page 60.
REMUNERATION POLICY
The table below summarises the individual elements of
remuneration provided to the Executive Directors. It is a
summary only and does not replace or override the full,
shareholder policy, which is displayed on the company’s
and Medium-sized Companies and Groups (Accounts and
website (www.pendragonplc.com).
Reports) Regulations 2008 and the Large and Medium-sized
55
Pendragon PLC Annual Report 2018 DIRECTORS REMUNERATION REPORT
REMUNERATION COMMITTEE CHAIRMAN’S LETTER TO SHAREHOLDERS
Dear Shareholder
As Chairman of the Remuneration Committee, I am pleased to present the Directors’ Remuneration Report for the year ending 31
December 2018. This report has been prepared by the Remuneration Committee and approved by the Board.
This remuneration report is split into two sections:
the Directors’ Remuneration Policy; which provides an “at a glance” summary of the remuneration policy for which shareholder
approval was obtained at the 2017 AGM and which will continue to apply without amendment for the forthcoming year; and the Annual
Report on Remuneration.
Aligning the Remuneration Policy with strategy and performance
The accelerated transformation of our business continued throughout the last year, with significant investment in our used car business
in new start up locations and the roll out of used car factories for the refurbishment of used inventory. However, the Remuneration
Committee also recognises that despite the ability of our remuneration policy to incentivise and drive the internal delivery of our
strategic objectives, the policy does not operate in isolation from sector specific and market factors.
In October 2018, we announced that the introduction of the Worldwide Harmonised Light Vehicle Test Procedure (“WLTP”) had created
disruption in new car sales, causing significant new vehicle supply disruption and concern in terms of new vehicle sales and profitability.
Exogenous factors such as WLPT, uncertainty caused by Brexit and the more general automotive sector downturn currently being
experienced means that, in the coming months, the Remuneration Committee will more closely monitor the appropriateness of our
remuneration policy in terms of its ability to both incentivise and drive strategic change in our business.
Whilst maintaining this watching brief, no changes to our remuneration policy are proposed for the coming year, and the company’s
remuneration policy is not subject to shareholder approval. The Remuneration Committee continues to maintain that our current
remuneration policy, approved by our shareholders at the 2017 AGM, provides a strong and clear link between our business strategy
and incentive arrangements. The full policy is available on the company’s website at www.pendragonplc.com, and in our 2016
remuneration report, and is summarised in the policy table on pages 57 to 59.
In October 2018, the company announced that Tim Holden would be stepping down as Finance Director on 31 March 2019. In December
2018, the company announced Trevor Finn’s decision to retire as Chief Executive Officer and Director by no later than 31 March 2019.
The Committee thank both Tim and Trevor for their service, and confirm that their exit arrangements will be in line with the approved
remuneration policy and disclosed on the company’s website.
Mark Herbert joined the company on 4 March 2019 as Chief Executive Officer designate, and assumes the role of Chief Executive
Officer on 1 April 2019. Mark Willis joins the company as Chief Finance Officer on 8 April 2019. The remuneration packages for both
incoming Executive Directors will be in line with our remuneration policy and will be fully disclosed in our 2019 Annual Report.
The Committee intends to fully implement the changes introduced to remuneration reporting by the UK Corporate Governance Code
(July 2018) and the Companies (Miscellaneous Reporting) Regulations 2018, and will reflect the new disclosures in our Directors’
remuneration report to be published next year.
We continue to maintain the bias in our remuneration policy towards long term incentives, supported through interlinked share
ownership and part-deferral requirements within the annual bonus plan.
2018 Outturn
The company delivered underlying profit of £47.8m, a decline of - 20.9% year on year. Year end net had has increased by £3.5m or
2.8%, as a result of further investments in line with our clear strategy to provide more reliable and sustainable returns. As both the
profit and debt metrics of the bonus targets have not exceeded the prior years result, the Executive Directors did not receive an annual
bonus award in respect of 2018 performance.
In addition, upon conclusion of the three-year performance period, the Remuneration Committee determined that long term incentives
awarded in 2016 will not vest, as the relevant performance conditions to achieve vesting were not satisfied. The 2016 LTIP therefore
lapsed in its entirety. Full details of remuneration decisions for 2018 are set out in the Directors’ annual remuneration report on pages
63 to 68.
At last year’s AGM, 82.88% of shareholders voted in favour of the Directors’ Remuneration Report. Details of the votes cast are set out
on page 68. I hope that you find the information in this report helpful and I look forward to your continued support at the company’s
AGM.
Yours sincerely
Mike Wright
Chairman of the Remuneration Committee
56
56
Pendragon PLC Annual Report 2019
Pendragon PLC Annual Report 2018
FUTURE REMUNERATION FOR EXECUTIVE DIRECTORS
BASE SALARY
ELEMENT AND PURPOSE
Provide competitive remuneration that will attract and
MAXIMUM OPPORTUNITY
Salary levels are eligible for increases during the three-year
retain executives of the calibre required to take forward the
period that the remuneration policy operates (policy effective
company’s strategy.
from 27 April 2017). During this time, salaries may be increased
each year. Salary increases are determined after taking due
account of market conditions and any increases awarded to
the wider workforce.
Significant changes
in role scope may require further
adjustments to bring salary into line with new responsibilities.
For recent joiners or promotions, whose pay was initially
set below market rate, higher than usual increases may be
awarded to bring them into line with the market over a phased
period as they develop in their role.
OPERATION
Base salaries are reviewed annually, effective from 1 January.
PERFORMANCE METRICS
Individual performance is an important factor considered by
The Committee sets base salaries taking into account:
the Committee when reviewing base salary each year.
•
the performance and experience of the
individual
•
•
concerned;
any change in responsibilities;
appropriate executive
remuneration benchmarking,
which may include the following comparator Groups (i)
FTSE 250 companies (excluding investment trusts); (ii)
companies of a similar size to the Group, currently being
those in the bottom quartile of the FTSE 250 and the top
quartile of the FTSE Small Cap; (iii) FTSE retailers, broadly
the FTSE All Share General Retailers index excluding
companies with a market cap greater than £3.5bn; and
(iv) selected automotive retailers which are deemed to
be the closest comparators to the company. Alternative
peer Groups may need to be referenced depending on the
business circumstances.
Base salaries are paid monthly in arrears.
BENEFITS
ELEMENT AND PURPOSE
Cost-effective, market competitive benefits are provided to
MAXIMUM OPPORTUNITY
Benefit levels are set to be competitive relative to companies
assist Executive Directors in the performance of their roles.
of a comparable size. The cost of some of these benefits is
not pre-determined and may vary from year to year based on
the overall cost to the company of securing these benefits for
a population of employees (particularly health insurance and
death in service cover).
OPERATION
Life assurance, private health cover, professional subscriptions,
PERFORMANCE METRICS
None.
home telephone costs and (at executive’s option) company
cars.
Pendragon PLC Annual Report 2019
Pendragon PLC Annual Report 2018
57
57
DIRECTORS REMUNERATION REPORT
PENSION
ELEMENT AND PURPOSE
Provide cost-effective long-term retirement benefits that will
MAXIMUM OPPORTUNITY
Post-2009 executives: contribution of 10% of base salary
form part of a remuneration package that will attract and
or payment of a 10% cash alternative at the option of the
retain executives who are able to take forward the company’s
executive.
strategy.
OPERATION
Pre-2009 executives: 26% of salary cash supplement in lieu of
pension contribution.
Post-2009 executives: participation in a defined contribution
In line with the UK Corporate Governance Code (July 2018),
pension scheme. Pre-2009 executives: deferred membership
the Committee intends to ensure that pension contributions for
of defined benefit pension scheme.
incoming Executive Directors are aligned with those available
to the workforce
ANNUAL BONUS
ELEMENT AND PURPOSE
Incentivises achievement of annual objectives which support
MAXIMUM OPPORTUNITY
Maximum available bonus is equivalent to 100% of base salary.
No award is made for flat or negative growth. Maximum bonus
the short-term goals of the company, as reflected in the annual
is available only for material outperformance of the company’s
business plan.
annual business plan.
OPERATION
Annual bonuses are earned over the year and are paid annually
PERFORMANCE METRICS
Annual bonus is earned based on performance against
in arrears after the end of the financial year to which they relate,
stretching company financial performance measures as set and
based on performance against targets over the year. 25% of
assessed by the Committee. At present, financial measures
after tax bonus earned is subject to compulsory deferral into
used are underlying (adjusted) profit and year-end net debt.
the company’s shares until such time as the company’s share
A sliding scale of targets is set for each measure, with 12.5%
ownership guidelines are met. In such situations where bonus
of salary for each element being payable for achieving the
is deferred into shares, an Executive Director may be entitled
relevant threshold hurdles.
to receive dividend payments on such shares.
The specific measures, targets and weightings may vary from
year to year in order to align with the company’s strategy over
each year. The measures will be dependent on the company’s
goals over the year under review.
VALUE CREATION PLAN (VCP)
ELEMENT AND PURPOSE
The VCP rewards and retains Executive Directors over the longer
MAXIMUM OPPORTUNITY
Under the VCP, the maximum aggregate number of ordinary
term, whilst also aligning the incentives of those participating
shares in the company that can be issued to satisfy awards
with the long-term performance of the business and returns
under the VCP to all participants is limited to 5% of the
for our shareholders. The VCP is the company’s principal long
company’s issued share capital at the end of the four year
term incentive plan for rewarding and incentivising Executive
performance period. At the outset, entitlements of participants
Directors.
in the pool of returns were split as follows:-
Chief Executive Officer – up to a maximum of 30%
Chief Operating Officer – up to a maximum of 20%
Finance Director - up to a maximum of 10%
other below board participants - share of remaining balance
of 40%
58
58
Pendragon PLC Annual Report 2019
Pendragon PLC Annual Report 2018
FUTURE REMUNERATION FOR EXECUTIVE DIRECTORS
VALUE CREATION PLAN (VCP)
OPERATION
The VCP operates over a four year period which commenced
PERFORMANCE METRICS
The performance condition is based on the absolute total
on 1 January 2017. Executive Directors, and other eligible
shareholder return performance of the company over a four-
team members are granted an entitlement to a percentage
year period. Participants in the VCP are able to earn shares
share in a pool of returns delivered to shareholders, above a
equivalent to 10% of any total shareholder return created
hurdle rate of return. The participant’s percentage entitlement
above a 10% p.a. threshold.
is awarded under nil-cost options over shares, with a value
calculated to be a proportion of the total shareholder return
The VCP replaced the LTIP as the company’s selected long
created for shareholders. This is measured over a four year
term incentive plan from 1 January 2017.
VCP performance period, with a further one year holding
period being applicable to any awards vesting.
The overall effect of the VCP is that the Executive Directors
and other eligible team members will be able to earn shares
equivalent to 10% of any total shareholder return created above
a 10% per annum compound annual growth rate based on the
measurement of absolute total shareholder return generated
over the four year VCP performance period. In other words,
until shareholders receive a 10% p.a. return, the VCP will not
pay out. Beyond that, broadly participants may receive 10% of
any further value created subject to cap of 5% of issued share
capital. The company used an initial or base share price of the
Q4 2016 average share price, which was £0.3016.
LONG TERM INCENTIVE PLAN (LTIP)
ELEMENT AND PURPOSE
Incentivises executives to achieve EPS growth over a three
MAXIMUM OPPORTUNITY
No further awards will be made to Executive Directors under
year period. EPS growth is the measure most appropriate to
the LTIP.
the company’s strategy.
OPERATION
Awards are subject to performance conditions measured over
PERFORMANCE METRICS
Awards vest at the end of a three year performance period,
three years and a service requirement.
based on achievement of stretching underlying EPS targets.
The Committee retains a discretion to refine the choice of
shareholder return (TSR) underpin. Threshold performance
performance metrics in each year in light of developments
attracts vesting of 25% of the award with 100% of awards
in the company’s strategy. In the event of a significant or
being achieved for maximum performance. There is a straight
material change, the Committee would engage in dialogue with
line vesting between performance points.
The underlying EPS targets operate subject to a positive total
shareholders and, if necessary, seek a renewed shareholder
approval by ordinary resolution.
Following approval of the VCP at the 2017 AGM, the company
does not intend to use the long term incentive plan to reward
the Executive Directors over the period of the remuneration
policy and in the future, and the LTIP remains solely for a
legacy award made in 2016.
Pendragon PLC Annual Report 2019
Pendragon PLC Annual Report 2018
59
59
DIRECTORS REMUNERATION REPORT
POLICY ON EXECUTIVE DIRECTOR SHARE OWNERSHIP
POLICY ON NON-EXECUTIVE DIRECTORS’ REMUNERATION
The company continues to recognise the importance of
The company’s policy on Non-Executive Directors’
Executive Directors building significant holdings of the
remuneration is reviewed annually by the Board. Remuneration
company’s shares. To encourage share ownership among
for Non-Executive Directors is confined to fees alone, without
Executive Directors joining the company, these require
a performance related element. Non-Executive Directors
Executive Directors to aim, within five years of joining the
may elect to receive all or part of their fees in the form of
Board, to have built a stake in value equal to 100% of their
benefits in kind, typically the provision of a motor vehicle for
annual salary (200% in case of the Chief Executive). Until such
their use. The company considers that the remuneration of
time as the policy is met, Executive Directors will be required
the Non-Executive Directors remains consistent with the time
to defer 25% of annual bonus into the company’s shares and
commitments associated with individual positions and wider
retain half the after tax number of vested shares received
market practice among companies of a comparable size.
under the VCP.
Fee Type
Chairman fee
Basic fee:
Supplementary fees:
Senior Independent Director
Audit Committee Chairman
Remuneration Committee Chairman
Nomination Committee Chairman
Fee Level
£150,000
£40,000
£4,000
£10,000
£5,000
Nil
Change in 2018
None
None
None
None
None
None
None
Notes accompanying the future Remuneration Policy table:-
1. Malus and clawback – malus and clawback may operate in respect of the annual bonus, VCP, and long term incentive plan. These provisions will permit the company to reclaim
annual bonus payments or reverse VCP or LTIP awards or claim proportionate payments in exceptional circumstances of misstatement or misconduct. These are kept under review,
in the light of prevailing Financial Reporting Council guidance.
2. Salary – base salaries are set by reference to the criteria specified in the table above. If a salary is initially set below the market rate, a phased realignment may be made over time.
3. Annual bonus – targets of underlying (adjusted) profit (50%) and year-end net debt (50%) were selected as these measures correlate to measures used in the company’s overall
business plan. The split between net debt and profit, and the performance measures attributable to them is determined by the Remuneration Committee who seek external guid-
ance on the appropriateness of any performance targets set relative to the market.
4. Long term incentive plans – (i) LTIP: under the company’s current long term incentive plan, performance shares are awarded up to a maximum of 150% of salary if significantly
challenging performance targets are attained. The Remuneration Committee selected EPS as this remains the key internal measure of long term financial performance, as well as
being well understood by the executives and our investors as providing a clear incentive to deliver the company’s long term growth prospects. An underpin of creating absolute
shareholder return has been adopted as this further aligns the interests of executives with those of shareholders. The vesting schedule outlines the vesting percentages in relation
to EPS performance targets, which were set after taking into account internal scenario analysis, current market expectations and the current trading environment. (ii) VCP: the
introduction of the VCP ensures alignment of rewards with the performance and delivery of our business strategy. The initial or base share price under the VCP was set at £0.3016,
being the three month average share price prior to 01 January 2017. The hurdle price was set at £0.442, being the initial or base share price plus 10% compounded annual growth
over the four plan years. The total participation pool for the VCP is 10% of the total value created above the hurdle.
5. Pensions – Trevor Finn and Martin Casha ceased to be active members of the Pension Plan in 2006. Tim Holden participated in the defined contribution section of the Pendragon
Group Pension Scheme, to which the company made a contribution of 10% of his basic salary. In April 2016, Tim Holden elected to receive a payment of 10% of salary, rather than
continue to receive pension contributions.
6. Benefits: benefit levels are set to be competitive relative to companies of a comparable size.
7. Annual Bonus, VCP and LTIP Policy - Remuneration Committee Discretions: The Committee will operate the annual bonus plan, VCP and LTIP in accordance with their respec-
tive rules and in accordance with the Listing Rules, where relevant. Consistent with market practice, the Committee retains discretion in a number of respects with regard to the
operation and administration of these plans. These include the following (albeit with quantum and performance targets restricted to the descriptions detailed in the future policy
table above):-
who participates in the plans;
• the timing of grant of award and/or payment;
• the size of an award and/or payment;
• the determination of vesting and/or meeting targets;
• discretion required when dealing with a change of control (e.g. the timing of testing performance targets) or restructuring of the Group;
• determination of good/bad leaver cases for incentive plan purposes based on the rules of each plan and the appropriate treatment chosen;
• adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events, share buybacks and special dividends); and
• the annual review of performance measures and weighting, and targets for the annual bonus plan, VCP and LTIP from year to year or on award.
The Committee also retains the ability to adjust the targets and/or set different measures and alter weightings for the annual bonus plan and to adjust targets for the VCP or LTIP if
events occur (such as a material divestment of Group business) which cause it to determine that the conditions are no longer appropriate and the amendment is required so that the
conditions achieve their original purpose and are not materially less difficult to satisfy.
The company retains the authority to honour any commitments entered into with current of former Directors that have been disclosed to shareholders in previous remuneration
reports (e.g. all historic awards that were granted under any LTIPs that remain outstanding, as detailed in the company’s latest Annual Report), and which remain eligible to vest
based on their original award terms. Details of any payments to former Directors will be set out in the Annual Report on remuneration as they arise. With regard to any promotions
to Executive Director positions, the company will retain the ability to honour payments agreed prior to executives joining the Board, albeit any payments agreed in consideration of
being promoted to the Board will be consistent with the policy on new appointments as an Executive Director detailed in the Remuneration Policy at www.pendragonplc.com
60
Pendragon PLC Annual Report 2018 ILLUSTRATION OF OUR REMUNERATION POLICY FOR 2019
The tables below illustrates the operation of the remuneration
performance scenarios are provided for each Executive
Director. A significant percentage of remuneration is linked to
policy and provide estimates of the potential
future
performance, particularly at maximum levels.
remuneration that Executive Directors would receive, in
The table below illustrates the remuneration that could be paid
the scenarios shown, in accordance with the Directors’
to each of the Executive Directors, based on salaries at the
Remuneration Policy. Potential outcomes based on different
start of the financial year 2019.
Element
Fixed
Description
Minimum
On Target
Maximum
Fixed (comprises base
salary, benefits, pension)
Included
Included
Included
Annual Bonus
Annual bonus
Value Creation Plan
Long term incentive plan
0%
0%
25% of the maximum bonus1
100% of the maximum
bonus1
50% of the average annual
IFRS 2 value of the award2
100% of the average IFRS 2
value of the award2
1The maximum bonus available for Executive Directors is equivalent to 100% of base salary.
2Awards made under the VCP will be on a one-off basis with a four year measurement period. For illustrative purposes only, the maximum value displayed here represents 100% of the IFRS
2 value of the award, which is intended to give an estimate of the value of the award on grant.
3The additional reference point under the regulations to show the indicative of indirect share price growth of 50% over the VCP has not been included, as the basis that a 50% share growth
would result in a payment less than the maximum scenario already displayed.
61
Pendragon PLC Annual Report 2018 DIRECTORS REMUNERATION REPORT
We list below the areas of policy the company has adopted
in the shareholder approved remuneration policy (available to
view on the company’s website).
New appointments as Executive Director
Including each component of remuneration
New appointments as Non-Executive Director
Non-executive remuneration
How employees’ pay is taken account in executive remuner-
ation
Directors’ service contracts and exit payments
Treatment of fees earned from external Directorships
NON-EXECUTIVE DIRECTORS’ APPOINTMENTS
All these policy areas remain unchanged from the policy
approved by shareholders at the 2017 AGM.
Name
Commencement
Expiry/cessation
Unexpired at date of report
(months)
Chris Chambers
Richard Laxer
Mike Wright
Gillian Kent
23.10.17
12.11.18
02.05.18
20.04.18
31.12.20
31.12.21
31.12.21
31.12.21
21
33
33
33
62
Pendragon PLC Annual Report 2018 ANNUAL REPORT ON REMUNERATION
THE COMMITTEE’S WORK IN 2018
•
determined annual bonus awards in respect of 2017
ADVISERS
During 2018, the Chief Executive, Trevor Finn provided advice
performance
to the Committee but not in respect of his own pay. In addition,
•
•
set the annual bonus plan terms for 2018
external advice was provided by PwC. Pinsent Masons LLP
reviewed performance to target under the Value Creation
continue to be retained as the company’s share incentive
Plan
scheme legal advisors, although did not earn fees in 2018. In
•
tested the performance targets for the company’s 2016
2018, fees of £3,240 were paid to PwC. Pinsent Masons and
Long Term Incentive Award vesting
PwC are considered to be independent. Pinsent Masons and
•
•
set 2019 Executive Director salary levels
PwC do not provide any other services to the Group. The
noted remuneration trends across the Group
Company Secretary also acts as secretary to the Committee
and provides additional advice.
SINGLE TOTAL FIGURE (AUDITED INFORMATION)
Salary or fees1
£000
Taxable
benefits4
£000
Pension5
£000
Bonus6
£000
Long term
incentive plan7
£000
Single total
figure
£000
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Executive Directors
Trevor Finn
Martin Casha
Tim Holden
Non-Executive Directors
Chris Chambers
Richard Laxer2
Gillian Kent
Jeremy King3
Mike Wright
464
464
292
292
221
221
150
9
40
45
30
69
-
40
50
-
4
8
7
1
-
-
-
-
4
8
6
-
-
-
-
-
121
76
22
-
-
-
-
-
121
76
22
-
-
-
-
-
-
-
-
-
-
-
-
-
138
87
66
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
589
376
250
727
463
315
151
9
40
45
30
69
-
40
50
-
1In the case of Non-Executive Directors, fees include Committee chair fees in addition to the basic Non-Executive Director fee of £40,000, as detailed in the Policy on Non-Executive
Directors’ Remuneration in the policy table above at page 57.
2Richard Laxer was appointed on 12.11.2018. Accordingly, his fees are for the period 12.11.18 to 31.12.18.
3Jeremy King stood down from the Board on 12.11.2018. Accordingly, his fees are for the period 01.01.18 to 12.11.18
4Benefits in kind include life assurance, private health cover, professional subscriptions, contribution to home telephone costs and provision of up to two cars (at the Director’s election),
one of which is fully expensed.
5Salary supplement in lieu of employer pension contribution, or in the case of Tim Holden, company contribution to defined contribution pension scheme of 10% of basic salary (£22,083
in 2018, £22,083 in 2017). Trevor Finn and Martin Casha ceased to be active members of the Pendragon defined benefit Pension Plan in 2006. Trevor Finn elected to take early retirement
benefits from 08.02.08 and is therefore a pensioner member. Martin Casha also elected to take early retirement benefits from 01.07.16 and is therefore also a pensioner member. In April
2016, Tim Holden elected to a receive a payment of 10% of salary rather than continue to receive pension contributions.
6 Bonus Award for 2018 total equivalent to 0% of base salary, 2017 total equivalent to 29.8% of base salary – see page 64 for more detail.
7The performance conditions for the LTIP awarded in 2016 have not been achieved, and consequently these awards lapsed in their entirety.
63
Pendragon PLC Annual Report 2018 DIRECTORS REMUNERATION REPORT
PENSIONS
The Pendragon Pension Plan (Pension Plan) is established for
the benefit of the Group’s eligible employees. The Pension
PERFORMANCE RELATED PAY FOR 2018:
ANNUAL BONUS
Given their commercial sensitivity, we do not publish the details
Plan operates through a trustee company which holds and
of targets in advance. However, the Committee considers the
administers its assets entirely separately from the Group’s
targets to be measurable and appropriately stretching. For
assets. There is no direct investment in Pendragon PLC.
2018, the maximum available annual bonus opportunity was
Trevor Finn and Martin Casha ceased to be active members
100% of base salary, only achievable for performance in excess
of the Pension Plan in 2006. Tim Holden participated in the
of the company’s strategic plan. Payouts are achievable
Pendragon Group Pension Scheme, a defined contribution
for demanding performance, measured against underlying
pension scheme, until April 2016. From April 2016, Tim Holden
(adjusted) profit (50%) and year-end net debt (50%). This
elected to receive a payment of 10% of basic salary, rather than
structure for bonus opportunity for 2018 reflects both the
continue to receive pension contributions (10% in 2017). The
investor feedback received and the competitive market in which
Non-Executive Directors are not eligible to participate in the
the company currently operates. Details of the percentages of
Pension Plan.
salary payable at threshold, target and maximum are set out in
the table below.
Available
Actual outturn 2018
Performance measure
Underlying
profit
Year end
net debt
Underlying profit
Year end net debt
% of basic salary
payable
Level
% of basic salary
payable
Level
% of basic salary
payable
Target aligned to business plan
Threshold performance
(10% below Target) must exceed
prior year’s result
12.5
12.5
In line with Target
31.25
31.25
Maximum ≥10% above Target
50
50
-
-
-
-
-
-
-
-
-
-
-
-
Straight line vesting between performance points
It is a pre-requisite requirement that in order to receive a bonus
Committee determined that as underlying profit was behind
payment on either metric, performance must exceed the
the prior year, and year net debt performance marginally above
prior years result. For the year ended 31 December 2018, the
that of the prior year, no bonus award would be payable.
Measure
Performance metrics
2018 outturn
Performance
Payout
Threshold
Target
Maximum
Actual
% of basic salary
payable
Underlying profit
>£60.4m
≥£63.4m
≥£69.7m
Net debt
<£124.1m
<£124.1m
≤£117.7m
Total bonus achieved
£47.8m
£127.6m
0
0
0
0
64
Pendragon PLC Annual Report 2018
LONG TERM INCENTIVES VESTING IN 2018
The Remuneration Committee assesses the extent to which
the performance conditions that apply to the performance
related elements of the remuneration framework have been
met, following sign off of the company’s audited Annual Report
are considered to be commercially sensitive, and we do not
publish details of these in advance.
VALUE CREATION PLAN (VCP) AWARDS
No VCP awards were made in 2018. The Executive Directors
and Accounts. This ensures that incentive payments are made
were granted a nil cost option over ordinary shares of the
following independently audited results being known.
company on 26 May 2017. Vesting is based on the growth
of absolute total shareholder return generated over the VCP
Following an assessment of the performance conditions
performance period. The performance period for the award
applicable to the 2016 award, the Remuneration Committee
comprises the four years (“Performance Period”) commencing
determined that the relevant performance conditions to achieve
on 1 January 2017. The VCP award gives the Executive Directors
vesting were not satisfied (namely that actual underlying EPS
the opportunity to share in a proportion of the total value
achieved in the financial year ending 31 December 2018 be 4.5p
created for shareholders above a hurdle (“Threshold Total
or above for 25% vesting: actual EPS achieved was 2.9p. The
Shareholder Return”) measured at the end of the Performance
2016 LTIP therefore lapsed in its entirety.
Period on 31 December 2020 (“Measurement Date”). The price
used for this measurement (“Measurement Total Shareholder
BASE SALARY FOR 2019
Base salaries for the Executive Directors will remain unchanged
Return”) will be the sum of the average share price for the three
months ending on the Measurement Date plus the cumulative
from the 2018 salary levels. For incoming Executive Directors,
dividends paid per share over the Performance Period. The
base salaries will be disclosed in the 2019 Annual Report.
starting share price was set at £0.3016 (“Initial Price”), being
the three month average share price prior to 1 January 2017.
PERFORMANCE RELATED PAY FOR 2019
The annual bonus for the 2019 financial year will operate on the
The hurdle price was set at £0.442, being the Initial Price plus
10% compounded annual growth over the Performance Period
same basis as for the 2018 financial year and will be consistent
(“Hurdle”). The total participation pool for the VCP will be
with the policy detailed in the remuneration policy section
10% of the total value created above the Hurdle (“Pool”). The
of this report having maximum bonus opportunity, deferral
number of shares under the nil cost option will be determined
and clawback provisions identical to those in place for 2018.
at the end of the Performance Period on the Measurement
The performance metrics selected are underlying profit and
Date and will be calculated by reference to the Executive
year-end net debt, with an equal weighting given to each.
Director’s percentage entitlement to growth in value below.
Underlying profit and year-end net debt targets have been
Any awards which vest after the four year Performance Period
set to be challenging relative to the 2019 business plan. The
will be subject to a further one year holding period.
targets themselves, as they relate to the 2019 financial year,
Details of VCP Awards made in 2017
Director
Position
Trevor Finn
Chief Executive
Martin Casha
Chief Operating Officer
Tim Holden
Finance Director
Percentage entitlement of
10% Pool
Percentage entitlement of
growth in value
30%
20%
10%
3%
2%
1%
RECOVERY AND WITHHOLDING PROVISIONS
As detailed in the summary of remuneration policy on pages
the withholding of future incentive payouts (including at the
point of vesting of an LTIP or VCP award) or through requiring
57 to 59, the clawback provisions that operate in the annual
bonus, the LTIP and the VCP enable the Remuneration
the overpayment be refunded to the company on a net of tax
basis. The clawback provisions are included in the relevant
Committee to recover value overpaid in the event of either a
plan documentation so that there is a clear basis on which the
material misstatement of the company’s financial results for
Remuneration Committee could seek to enforce the provisions
any period or misconduct. Should it be considered appropriate
should it consider it necessary to do so.
to enforce these provisions, value can be recovered through
65
Pendragon PLC Annual Report 2018 DIRECTORS REMUNERATION REPORT
DIRECTORS’ SHAREHOLDINGS (AUDITED)
Trevor Finn
Martin Casha
Tim Holden
Legally
owned as at
31.12.2018
Legally
owned as at
31.12.2017
19,127,976
19,127,976
9,559,780
9,559,780
2,131,331
2,131,331
Subject to
deferral under
the annual bonus
plan
Subject to
performance
conditions under
the relevant long
term incentive plan
2016 LTIP1 award
2016 LTIP2 award
No
No
No
1,931,250
1,218,375
920,104
Vested but
unexercised
share options
0
0
0
1. Performance conditions: vesting is subject to the satisfaction of performance conditions based on achieving defined earnings per share targets measured from the 2015 earnings
per share result over a three-year performance period – 4.5p (25% vesting) rising to 5.3p (100% vesting). Actual EPS for the financial year 2018: 2.8p.
DIRECTORS’ SHAREHOLDINGS
(AUDITED) INFORMATION
Directors’ Shareholdings (Audited Information) Each Executive
TOTAL SHAREHOLDER RETURN1
The graph below shows the total shareholder return (“TSR”)2
on the company’s shares in comparison to the FTSE Small
Director fulfils the requirements of the company share
Cap Index (excluding investment companies).3 TSR has been
ownership policy applicable to them (i.e. building a 200% of
calculated as the percentage change, during the relevant
salary share ownership in the case of the Chief Executive and
period, in the market price of the shares, assuming that any
100% in the case of the other Executive Directors). There is no
dividends paid are reinvested on the ex-dividend date. The
company policy on Non-Executive Director share ownership.
relevant period is the seven years ending 31 December 2018.
The notes at the foot of the graph provide more detail of the
TSR calculation.
PENDRAGON PLC TSR 2011 - 2018
700
600
500
400
300
200
100
50
0
2011 2012
2013 2014 2015 2016 2017 2018
PENDRAGON PLC - TOTAL RETURN INDEX
FTSE SMALL CAP EX INV. TRUSTS - TOTAL RETURN INDEX
1. This report is required, pursuant to the Large and Medium sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, regulation 18, Performance Graph.
2. Total Shareholder Return (“TSR”) is calculated over the seven years ended on 31 December 2018 and reflects the theoretical growth in the value of a shareholding over that period,
assuming dividends (if any) are reinvested in shares in the company. The price at which dividends are reinvested is assumed to be the amount equal to the closing price of the shares on
the ex-dividend date plus the gross amount of annual dividend. The calculation ignores tax and reinvestment charges. For each company in the index, the TSR statistics are normalised
to a common start point, which gives the equivalent to investing the same amount of money in each company at that time. The percentage growth in TSR is measured over the chosen
period. To obtain TSR growth of the relevant index over the chosen period, the weighted average of TSR for all the companies in the index is calculated. In this case, it is the FTSE Small
Cap Index (excluding investment companies) as explained in Note 3. The weighting is by reference to the market capitalisation of each company in the index in proportion to the total
market capitalisation of all the companies in the index at the end of the chosen measurement period.
3. The FTSE Small CAP index has been selected as it represents the equity market in which the Company was a constituent member for the majority of the relevant seven year period ending
31 December 2018 detailed above.
66
Pendragon PLC Annual Report 2018 HISTORY OF CHIEF EXECUTIVE REMUNERATION
Chief Executive
Total Remuneration £m (single figure)
Annual bonus award (% of maximum
that could have been paid)
Percentage of LTIP1 vesting
2018
589
0%
0%
2017
727
2016
1,605
2015
1,775
2014
2013
3,472
2,961
2012
857
30%
87%
100%
100%
100%
54%
0%
100%
56%
100%
100%
0%
1. Percentage of shares vesting under the Pendragon Long Term Incentive Plan (for 2012, the Pendragon ExSOP) against the maximum number of shares that could
have been received.
PERCENTAGE CHANGE IN CHIEF EXECUTIVE REMUNERATION
The table below illustrates the percentage change in the remuneration awarded to the chief executive between the preceding
year and the reported year and that of the Group’s employees across its entire UK business.
% change in salary 2018 compared to 2017
% change in benefit 2018 compared to 2017
% change in bonus 2018 compared to 2017
Chief
Executive
Employees of
Company as a whole
0%
0%
-100%
4.80%
15.48%
-11.01%
RELATIVE IMPORTANCE OF SPEND ON PAY
The graph below illustrates the difference between spend on remuneration paid to all employees of the company, and dividend
(interim and final proposed dividend) compared to the prior year.
£40M
£30M
£20M
£10M
£0M
£21.3M
£22.5M
£296.9M
£297.2M
2017
2018
2017
2018
DIVIDEND
TOTAL EMPLOYEE PAY
£4OOM
£3OOM
£200M
£100M
£0M
67
Pendragon PLC Annual Report 2018
DIRECTORS REMUNERATION REPORT
SHAREHOLDERS’ VOTE ON REMUNERATION AT THE 2018 AGM
2017 Directors’ Remuneration Report
Votes cast in favour
Votes cast against
Total votes cast in favour or against
Votes withheld
Number
739,947,663
152,840,583
892,788,246
9,596,353
Proportion of votes cast
82.88%
17.12%
100%
SHARE PRICE INFORMATION AND PERFORMANCE
Other than those detailed above, there are no share option or long term incentive schemes in which the Directors are eligible to
participate. The middle market price of Pendragon ordinary shares at 31 December 2018 was 22.50 pence and the range during
the year was 20.05 pence to 30.85 pence.
APPROVAL
This report was approved by the Committee and signed on its behalf by:-
Mike Wright
Chairman of the Remuneration Committee
12 March 2019
68
Pendragon PLC Annual Report 2018 DIRECTORS REPORT
STRATEGIC REVIEW AND PRESCRIBED REPORTING
Our Strategic Review at pages 4 to 25 contains the information,
purchases of the company’s ordinary shares (in practice,
exercised only if the Directors expect it to result in an increase
prescribed by the Companies Act 2006, required to present
in earnings per share). Details of movements in the company’s
a fair review of the company’s business, a description of the
share capital are given in note • to the financial statements.
principal risks and uncertainties it faces, and certain of the
information on which reports and statements are required by
In May 2016, the company announced the commencement of
the UK Corporate Governance Code. The Board approved the
a programme to buyback an initial £20 million of its ordinary
Strategic Review set out on pages 9 to 33 and the Viability
shares. Between 20 May 2016 and 31 December 2018, the
Statement set out on page 40. Additional information on
company purchased and cancelled a total of 61,171,630
which the Directors are required by law to report is set out
ordinary shares in the company. In addition, from time to time,
below and in the following:-
Pendragon provides financial assistance to its independent
employee benefits trust to facilitate the market purchase of
•
•
•
Corporate Governance Report
ordinary shares in the company for use in connection with
Board of Directors
various of the company’s employee incentive schemes. The
Corporate Social Responsibility Report
company did not purchase any shares in this way in 2018.
• Audit Committee Report
• Nomination Committee Report
Directors’ Remuneration Report
• Directors’ Report
BUSINESS AT THE AGM
At the AGM, a separate shareholders’ resolution is proposed
for each substantive matter. We will issue shareholders with
• Directors’ Responsibility Statement
the company’s annual report and financial statements together
with the notice of AGM, giving not less than the requisite period
In the interests of increasing the relevance of the Report and
of notice. The notice sets out the resolutions the Directors are
reducing the environmental impacts of over-lengthy printed
proposing and has explanatory notes for each. At the AGM,
reports, we have placed on our website certain background
Directors’ terms of appointment are available for inspection
information on the company the disclosure of which, in
and, as well as dealing with formal AGM business, the Board
this Report, is not mandatory. We monitor reaction to
takes the opportunity to give an update shareholders on
the publication of shareholder information on our website,
the company’s trading position. The Chairman and each
to help shape our shareholder communication and future
Committee Chairman are available to answer questions put by
improvements.
shareholders present.
RESULTS AND DIVIDENDS
The results of the Group for the year are set out in the
financial statements on pages 90 to 159. An interim dividend
of 0.80 pence per ordinary share was paid to shareholders
on 23 October 2018 (2017: 0.75 pence). The Directors are
recommending a final dividend of 0.70 pence per ordinary
share (2017: 0.80 pence) which would, if approved by
shareholders at the 2019 AGM, bring total dividends for 2018
to 1.5 pence (2017 total: 1.5 pence).
APPOINTMENT AND POWERS
OF THE COMPANY’S DIRETORS
Appointment and removal of Directors is governed by the
company’s articles of association (the Articles), the UK
Corporate Governance Code (the Code), the Companies
Acts and related legislation. Subject to the Articles (which
shareholders may amend by special resolution), relevant
legislation and any directions given by special resolution, the
company and its Group is managed by its Board of Directors.
By resolutions passed at company general meetings, the
shareholders have authorised the Directors: (i) to allot and
issue ordinary shares; (ii) to offer and allot ordinary shares in
lieu of some or all of the dividends; and (iii) to make market
69
Pendragon PLC Annual Report 2018
DIRECTORS REPORT
DIRECTORS AND THEIR INTERESTS IN SHARES
Current Directors are listed on page 42. Details of the terms of
issued ordinary share capital are shown in the table below.
All holdings shown are beneficial. None of the Directors holds
appointment and notice period of each of the current Directors,
options over company shares. Each Executive Director fulfils
together with Executives Directors’ respective interests in
the requirements of the company’s share ownership policy
shares under the company’s long term incentive plan (Non-
applicable to them. There is no company policy requiring Non-
Executive Directors have none), appear in the Directors’
Executive Directors to hold a minimum number of company
Remuneration Report on pages 55 to 68. Directors who served
shares.
during 2018 and their respective interests in the company’s
Directors’ shareholdings
Number at 31.12.18
Number at 31.12.17
Martin Casha
Chris Chambers
Trevor Finn
Tim Holden
Gillian Kent
Richard Laxer
Mike Wright
9,559,780
2,000,000
19,127,976
2,131,331
Nil
Nil
Nil
9,559,780
2,000,000
19,127,976
2,131,331
Nil
n/a
n/a
Jeremy King (resigned 12.11.18)
145,030
145,030
DIRECTORS’ ROTATION
The UK Corporate Governance Code (July 2018) imposes an
Director of the company or an associated company, qualifying
third party indemnity provisions and protection against
obligation that all Directors should be subject to annual re-
derivative actions.
election.
Copies of these are available for shareholders’ inspection at the
AGM.
INDEMNITIES TO DIRECTORS
In line with market practice and the company’s Articles, each
Director has the benefit of a deed of indemnity from the
SIGNIFICANT DIRECT OR INDIRECT SHAREHOLDINGS
At 28 February 2019 the Directors had been advised of the
company, which includes provisions in relation to duties as a
following interests in the shares of the company:-
Shareholder
Teleios Capital Partners (Zug)
Odey Asset Mgt (London)
Anders Hedin Invest AB (Regional (Sweden)
Hosking Partners (London)
Schroder Investment Mgt (London)
Dimensional Fund Advisors (London)
Black Rock lnc
Government of Norway
Number of shares
Percentage of voting rights
of the issued share capital
297,762,244
193,426,898
158,792,303
85,494,471
75,251,586
43,008,008
41,159,326
31,853,532
21.30
13.84
11.36
6.12
5.40
3.08
2.94
2.28
70
Pendragon PLC Annual Report 2018 SHARE CAPITAL
As at 31 December 2018, Pendragon’s issued share capital
The Articles may be obtained from Companies House in the
UK or upon application to the Company Secretary. Other
comprised a single class: ordinary shares of 5 pence each. The
than those prescribed by applicable law and the company’s
Articles permit the creation of more than one class of share,
procedures for ensuring compliance with it, there are no
but there is currently none other than ordinary shares. Details
specific restrictions on the size of a holding nor on the transfer
of the company’ share capital are set out in note 4.4 to the
of shares, which are governed by the Articles and prevailing
accounts. All issued shares are fully paid. The company did
legislation. The Directors are not aware of any agreement
not issue any new shares during the period under review. The
between holders of the company’s shares that may result
rights and obligations attaching to the company’s ordinary
in restrictions on the transfer of securities or the exercise of
shares are set out in the Articles. The company is currently
voting rights. No person has any special rights of control over
authorised to issue up to two-thirds of its current issued share
the company’s share capital.
capital pursuant to a resolution passed at its 2018 AGM.
SHARES HELD BY THE PENDRAGON
VOTING RIGHTS, RESTRICTIONS ON VOTING RIGHTS
AND DEADLINES FOR VOTING RIGHTS
Shareholders (other than any who, under the Articles or the
EMPLOYEE BENEFIT TRUST
As at 31 December 2018, the company’s Employee Benefit
Trust with Accuro Trustees (Jersey) Limited (the Trustee) held
terms of the shares they hold, are not entitled to receive such
6,420,093 shares, representing 0.46% of the total issued share
notices) have the right to receive notice of, and to attend and
capital at that date (2017: 7,676,226; 0.42%). The Trustee has
to vote at, all general and (if any) applicable class meetings of
waived its voting rights attached to these shares. It holds these
the company. A resolution put to the vote at any general or
shares to enable it to satisfy entitlements under the company’s
class meeting is decided on a show of hands unless (before or
share schemes. During the year, the Trustee transferred
on the declaration of the result of the show of hands or on the
1,160,935 shares to satisfy such entitlements (2017: 6,515,291).
withdrawal of any other demand for a poll) a poll is properly
demanded. At a general meeting, every member present in
person has, upon a show of hands, one vote, and on a poll,
CONTRACTS
None of the Directors had an interest in any contract with the
every member has one vote for every 5 pence nominal amount
Group (other than their service agreement or appointment
of share capital of which they are the holder. In the case of joint
terms and routine purchases of vehicles for their own use)
holders of a share, the vote of the member whose name stands
at any time during 2018. The company and members of its
first in the register of members is accepted to the exclusion of
Group are party to agreements relating to banking, properties,
any vote tendered by any other joint holder. Unless the Board
employee share plans and motor vehicle franchises which alter
decides otherwise, a shareholder may not vote at any general
or terminate if the company or Group company concerned
or class meeting or exercise any rights in relation to meetings
undergoes a change of control. None is considered significant
whilst any amount of money relating to his shares remains
in terms of its likely impact on the business of the Group as a
outstanding.
whole.
A member is entitled to appoint a proxy to exercise all or any
of their rights to attend and speak and vote on their behalf at a
POLITICAL DONATIONS
The company and its Group made no political donations (2017:
general meeting. Further details regarding voting can be found
£ nil).
in the notes to the notice of the AGM. Details of the exercise
of voting rights attached to the ordinary shares held by the
company’s Employee Benefit Trust are set out below. None
AUDITOR
The Directors who held office at the date of approval of this
of the ordinary shares, including those held by the Employee
Directors’ Report confirm that: so far as they are each aware,
Benefit Trust, carries any special voting rights with regard to
there is no relevant audit information of which the Group’s
control of the company. To be effective, electronic and paper
Auditors are unaware; and each Director has taken all the steps
proxy appointments and voting instructions must be received
that they ought to have taken as a Director to make themself
by the company’s registrars not later than 48 hours before a
aware of any relevant audit information and to establish that
general meeting.
By order of the Board
Richard Maloney
Company Secretary
12 March 2019
the Group’s Auditors are aware of that information.
71
Pendragon PLC Annual Report 2018
FINANCIAL STATEMENTS
73 Director’s Responsibility Statements
89 Notes to the Financial Statements
74
Independant Auditor’s Report
83 Consolidated Income Statement
160 Company Balance Sheet
161 Company Statement of Comprehensive Income
84 Consolidated Statement of Comprehensive Income
162 Company Statement of Changes in Equity
85 Consolidated Statement of Changes in Equity
163 Notes to the Financial Statements of the Company
86 Consolidated Balance Sheet
170 Advisors, Banks and Shareholder Information
87 Consolidated Cash Flow Statement
171 5 Year Group Review
88 Reconciliation of Net Cash Flow to Movement in
Net Debt
72
Pendragon PLC Annual Report 2018
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT
OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report
at any time the financial position of the parent company and
and the Group and parent company financial statements in
enable them to ensure that its financial statements comply
accordance with applicable law and regulations.
with the Companies Act 2006. They are responsible for such
internal control as they determine is necessary to enable the
Company law requires the Directors to prepare Group and
preparation of financial statements that are free from material
parent company financial statements for each financial
misstatement, whether due to fraud or error, and have general
year. Under that law they are required to prepare the Group
responsibility for taking such steps as are reasonably open to
financial statements in accordance with International Financial
them to safeguard the assets of the Group and to prevent and
Reporting Standards as adopted by the European Union
detect fraud and other irregularities.
(IFRSs as adopted by the EU) and applicable law and have
elected to prepare the parent company financial statements in
Under applicable law and regulations, the Directors are also
accordance with UK accounting standards, including FRS 101
responsible for preparing a Strategic Report, Directors’ Report,
Reduced Disclosure Framework.
Directors’ Remuneration Report and Corporate Governance
Under company law the Directors must not approve the
financial statements unless they are satisfied that they give
The Directors are responsible for the maintenance and
a true and fair view of the state of affairs of the Group and
integrity of the corporate and financial information included
parent company and of their profit or loss for that period. In
on the company’s website. Legislation in the UK governing
preparing each of the Group and parent company financial
the preparation and dissemination of financial statements may
statements, the Directors are required to:
differ from legislation in other jurisdictions.
Statement that complies with that law and those regulations.
•
select suitable accounting policies and then apply them
Responsibility statement of the Directors in respect of the
consistently;
annual financial report
• make judgements and estimates that are reasonable,
relevant, reliable and prudent;
We confirm that to the best of our knowledge:
•
for the Group financial statements, state whether they
have been prepared in accordance with IFRSs as adopted
•
the financial statements, prepared in accordance with the
by the EU;
applicable set of accounting standards, give a true and fair
•
for the parent company financial statements, state
view of the assets, liabilities, financial position and profit
whether applicable UK accounting standards have been
or loss of the company and the undertakings included in
followed, subject to any material departures disclosed and
the consolidation taken as a whole; and
explained in the parent company financial statements;
•
the Annual Report and Accounts includes a fair review of
•
assess the Group and parent company’s ability to continue
the development and performance of the business and
as a going concern, disclosing, as applicable, matters
the position of the issuer and the undertakings included
related to going concern; and
in the consolidation taken as a whole, together with a
•
use the going concern basis of accounting unless they
description of the principal risks and uncertainties that
either intend to liquidate the Group or the parent company
they face.
or to cease operations, or have no realistic alternative but
to do so.
We consider the Annual Report and Accounts, taken as a
whole, is fair, balanced and understandable and provides the
The Directors are responsible for keeping adequate accounting
information necessary for shareholders to assess the Group’s
records that are sufficient to show and explain the parent
position and performance, business model and strategy.
company’s transactions and disclose with reasonable accuracy
Approved by order of the Board
Tim Holden
Finance Director
12 March 2019
73
Pendragon PLC Annual Report 2018
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Pendragon PLC (“the Company”) for the year ended 31 December 2018 which comprise
the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of changes in
Equity, Consolidated Balance Sheet, Consolidated Cash Flow Statement, Company Statement of Comprehensive Income, Company
Statement of Changes in Equity, Company Balance Sheet and the 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
December 2018 and of the Group’s loss 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 101 Reduced Disclosure Framework; 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 first appointed as auditor by the shareholders on 28 April 1997. The period of total uninterrupted engagement is for the
22 financial years ended 31 December 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.
2 Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, 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 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 matters.
74
Pendragon PLC Annual Report 2018 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
2. Key audit matters: including our assessment of risks of material misstatement continued
The impact of uncertainties due to the UK exiting the European Union on our audit Risk vs 2017:
51 Audit Committee report, page 37 of the Risk Overview and Management, page 40 Viability Statement
The risk – Unprecedented levels of uncertainty
All audits assess and challenge the reasonableness of
Our response – Our procedures included:
We developed a standardised firm-wide approach to the
estimates, in particular as described in the recoverable amount
consideration of the uncertainties arising from Brexit in
of goodwill and investments in subsidiaries key audit matter
below, and related disclosures and the appropriateness of the
going concern basis of preparation of the financial statements
planning and performing our audits. Our procedures included:
• Our Brexit knowledge: We considered the directors’
assessment of Brexit-related sources of risk for the
(see below). All of these depend on assessments of the future
group’s business and financial resources compared with
economic environment and the Group’s future prospects and
our own understanding of the risks. We considered the
performance.
In addition, we are required to consider the other information
•
directors’ plans to take action to mitigate the risks;
Sensitivity analysis: When addressing going concern,
the recoverable amount of goodwill and investments in
presented in the Annual Report including the principal
subsidiaries, and other areas that depend on forecasts,
risks disclosure and the viability statement and to consider
we compared the directors’ analysis to our assessment of
the directors’ statement that the annual report and
the full range of reasonably possible scenarios resulting
financial statements taken as a whole is fair, balanced and
from Brexit uncertainty and, where forecast cash flows
understandable and provides the information necessary for
are required to be discounted, considered adjustments to
shareholders to assess the Group’s position and performance,
business model and strategy.
discount rates for the level of remaining uncertainty;
• Assessing transparency: As well as assessing individual
disclosures as part of our procedures on going concern,
Brexit is one of the most significant economic events for the
recoverable amount of goodwill, carrying value of
UK and at the date of this report its effects are subject to
investments, we considered all of the Brexit related
unprecedented levels of uncertainty of outcomes, with the full
disclosures together, including those in the strategic
range of possible effects unknown.
report, comparing the overall picture against our
understanding of the risks.
Our results: As reported under the key audit matters for
going concern and the recoverable amount of goodwill and
investments in subsidiaries, we found the resulting estimates
and related disclosures to be acceptable. However, no audit
should be expected to predict the unknowable factors or
all possible future implications for a company and this is
particularly the case in relation to Brexit.
75
Pendragon PLC Annual Report 2018
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
2. Key audit matters: including our assessment of risks of material misstatement continued
Our response – Our procedures included:
•
Funding assessment: We agreed current facilities available
to the relevant facility agreements and recent lender
correspondence. We inspected the loan agreements in
order to determine the covenants attached to the loans
and assessed the evidence available to support that they
will be met;
•
•
• Historical comparisons: We assessed historical accuracy
of management forecasting by comparing the actual
cashflows for the year ended 31 December 2018 to the
forecast cashflows over the same period;
Key dependency assessment: We assessed the impact of
assumptions underpinning the cash flow forecasts in order
to identify the key dependencies within the forecasts.
Sensitivity analysis: We considered sensitivities over
the level of available financial resources indicated by the
Group’s financial forecasts taking account of reasonably
possible (but not unrealistic) adverse effects that could
arise from these risks individually and collectively. In
particular, we assessed the Group’s downside forecasts
based on the risks resulting from Brexit;
the
assumptions: We
Benchmarking
assumptions behind the Group’s cashflow forecasts to
externally derived data including market forecasts and
projected growth and cost inflation;
the
Evaluating directors’
achievability of the actions the Directors consider they
would take to improve the position should the risks
materialize. We considered the extent to which the intent
and ability of the directors to pursue mitigating actions
should such be required were realistic;
intent: We evaluated
compared
•
•
• Assessing transparency: We assessed the completeness
and accuracy of the matters covered in the going concern
disclosure by considering whether they accurately
reflected the Group’s financing arrangements and the
risks associated with the Group’s ability to continue as a
going concern.
Our results: We found the going concern disclosure without
any material uncertainty to be acceptable (2017 result:
acceptable).
Going Concern Risk vs 2017:
Refer to page 89 of the Notes to the financial statements
The risk – Disclosure quality
The financial statements explain how the Board has formed a
judgement that it is appropriate to adopt the going concern
basis of preparation for the group and parent company.
That judgement is based on an evaluation of the inherent
risks to the Group’s and Company’s business model and how
those risks might affect the Group’s and Company’s financial
resources or ability to continue operations over a period
of at least a year from the date of approval of the financial
statements.
The risks most likely to adversely affect the Group’s and
Company’s available financial resources over this period were :
•
•
•
Relationship with manufacturers;
Execution of the Car Stores new strategy;
The impact of Brexit on customer demand.
The risk for our audit was whether or not those risks were such
that they amounted to a material uncertainty that may have
cast significant doubt about the ability to continue as a going
concern. Had they been such, then that fact would have been
required to have been disclosed.
76
Pendragon PLC Annual Report 2018
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
2. Key audit matters: including our assessment of risks of material misstatement continued
Recoverable amount of goodwill and investment in subsidiaries Risk vs 2017:
(Goodwill £265.9 million, impairment £88.8 million (2017: £361.2 million), parent company investment in subsidiaries £912.4 million,
impairment £10.2 million (2017: £922.6 million))
Refer to page 50 Audit Committee report, page 113 (accounting policy) and pages 113-118 (financial disclosures).
The risk – Forecast-based valuation
Goodwill in the group and the carrying amount of the parent
company’s investment in subsidiaries are significant and at risk
of irrecoverability following, the profits warning issued by the
Group in October 2018 and the Group’s failure to achieve its
financial forecasts in the past two years.
The Group’s significant goodwill balance is allocated across
its Cash Generating Units (CGU’s) which are generally the
franchises. During the year, an impairment of £88.8million was
recognised against the carrying value of goodwill in a number
of CGUs, and an impairment of £10.2million was recognised
against the parent company investment in subsidiaries.
The estimated recoverable amount is subjective due to the
inherent uncertainty involved in forecasting and discounting
future cash flows.
The effect of these matters is that, as part of our risk
assessment, we determined that the value in use of goodwill
(and the parent company’s investment in subsidiaries) has a
high degree of estimation uncertainty, with a potential range
of reasonable outcomes greater than our materiality for the
Our response – Our procedures included:
• Historical comparisons: We assessed the Group’s
budgeting procedures by comparing the Group’s historical
budgets to actual performance by CGU;
Benchmarking assumptions: We compared the Group’s
assumptions to externally derived data in relation to key
inputs such as projected market growth and its expected
impact on forecasted results, cost inflation, and discount
rates;
•
• Our valuation experience: We used our own valuation
specialist to assist us in evaluating the assumptions and
methodology used by the Group;
Sensitivity analysis: We performed sensitivity analysis for
the reasonably possible downsides for key assumptions
such as discount rate, growth rate into perpetuity and
EBITDA noted above.
•
• Comparing valuations: We compared the sum of the
discounted cash flows to the group’s market capitalisation
to assess the reasonableness of those cash flows; and
• Assessing transparency: We assessed whether the Group’s
disclosures about the sensitivity of the outcome of the
impairment assessment to changes in key assumptions
reflected the risks inherent in the valuation of goodwill.
financial statements as a whole, and possibly many times
that amount. The financial statements (note 3.1) disclose
the sensitivity estimated by the Group, and the sensitivity in
relation to the investment is disclosed in the parent company
Our results: We found the Group’s estimate of the recoverable
amount of goodwill and investment in subsidiaries, and the
resulting impairment charges recognised, to be acceptable
(2017 result: acceptable).
accounts (note 5).
77
Pendragon PLC Annual Report 2018 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
2. Key audit matters: including our assessment of risks of material misstatement continued
Carrying amount of used vehicle inventory in the UK (£563.2 million (2017: £397.4 million))
Refer to page 51 Audit Committee report, page 124 (accounting policy) and page 124 (financial disclosures).
The risk – subjective valuation
The Group holds significant levels of used vehicle inventory
in the UK. Used vehicle selling prices vary depending upon
a number of factors including general economic conditions,
falling diesel sales and the levels of new vehicle production.
Accounting standards require inventory to be held at the
lower of cost and net realisable value. History has shown that
the average price of a used vehicle may decline significantly
over a short period of time, and therefore the estimation of the
net realisable value of used vehicles is a significant judgement
area. The risk increases as the age of the used vehicle inventory
increases.
The effect of these matters is that, as part of our risk
assessment, we determined that the carrying amount of used
vehicles in the UK has a high degree of estimation uncertainty,
with a potential range of reasonable outcomes which are
within our materiality for the financial statements as a whole.
The financial statements (note 3.4) disclose the sensitivity
estimated by the Group.
Our response – Our procedures included:
•
Reperformance: We recalculated the provision provided
by the Group and assessed the impact of sensitivity
testing on the input assumptions;
• Historical comparisons: We considered the Group’s
historical trading patterns including performing an analysis
of the ageing of the vehicles to challenge the assumptions
made in the used vehicle inventory provision. We also
assessed the Group’s methodology for calculating the
provision by performing a retrospective review of sales
prices achieved during the year compared to the prior
year provision;
Benchmarking assumptions: We compared the Group’s
expectations for used car prices to the expectations of
market commentators;
Tests of details: We assessed the appropriateness of
the related inventory provision by comparing the losses
incurred on used car sales subsequent to the year end to
the level of the year end provision;
•
•
• Assessing transparency: We also considered the adequacy
of the Group’s disclosures about the degree of estimation
involved in arriving at the vehicle inventory provision.
Our results: We found the group’s estimate of the carrying
value of UK used inventory to be acceptable (2017 result:
acceptable).
Post- retirement benefits obligation (£486.3 million (2017: £521.8 million)) Risk vs 2017:
Refer to page 51 Audit Committee report, page 147 (accounting policy) and page 147-156 (financial disclosures).
Our response – Our procedures included:
•
Benchmarking assumptions: With the support of our own
actuarial specialists, we challenged the key assumptions
applied to determine the Group’s post-retirement benefit
obligation against externally derived data. The key
assumptions tested include discount rate, inflation rate,
mortality/life expectancy and rate of pension payments;
• Assessing
transparency: We also considered
the
adequacy of the Group’s disclosures in respect of the
sensitivity of the deficit to these assumptions.
Our results: We found the valuation of the post-retirement
benefits obligation to be acceptable (2017 result: acceptable).
The risk – subjective valuation
Significant assumptions are made in valuing the Group’s
post retirement benefit obligation within the overall net
pension liability. Small changes in assumptions used to value
the Group’s post retirement benefit obligation would have a
significant effect on the Group’s net pension liability.
The effect of these matters is that, as part of our risk assessment,
we determined that the estimated post retirement benefits
obligation has a high degree of estimation uncertainty, with
a potential range of reasonable outcomes greater than our
materiality for the financial statements as a whole, and possibly
many times that amount. The financial statements (note 5.1)
disclose the sensitivity estimated by the Group.
78
Pendragon PLC Annual Report 2018 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
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 £2.25million (2017: £3.0million) determined with reference to
a benchmark of Group loss before tax normalised to exclude the impairment charge recognised in the year, giving a normalised
Group profit before tax of £44.4million of which it represents 5.1% (2017: 4.6% of group profit before tax).
Materiality for the parent company financial statements as a whole was set at £1.6million (2017: £2.1million), determined with
reference to component materiality. This is lower than the materiality we would otherwise have determined by reference to a
benchmark of company net assets, of which it represents 0.4% (2017: 0.6%).
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.1million (2017:
£0.2million), in addition to other identified misstatements that warranted reporting on qualitative grounds.
We subjected all twenty four (2017: all six) of the Group’s reporting components to full scope audits for Group purposes. The
components within the scope of our work accounted for 100% (2017:100%) of the Group’s revenue, profit before tax and total
assets.
The Group audit team approved the component materialities, which ranged from £0.1million to £1.6 million (2017: £2.1 million),
having regard to the mix of size and risk profile of the Group across the components. The Group audit team performed all of the
audit work in relation to the twenty four (2017: six) components, including the audit of the parent company.
Normalised Group
Profit before tax
£44.4m
(2017:£65.3m)
Group materiality
£2.3m
(2017:£3.0m)
£2.3m
Whole financial statements materiality
(2017:£3.0m)
£1.6m
Component materiality
(2017:£2.1m)
£0.1m
Mis-statements reported to the Audit Committee
(2017:£0.2m)
4. We have nothing to report on going concern
The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company
or the Group or to cease their operations, and as they have concluded that the Company’s and the Group’s financial position
means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant
doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements
(“the going concern period”).
Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or
conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the
time they were made, the absence of reference to a material uncertainty in this auditor’s report is not a guarantee that the Group
and the Company will continue in operation.
We identified going concern as a key audit matter (see section 2 of this report). Based on the work described in our response to
that key audit matter, 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 twelve months from the date of approval of the financial statements; or
• the related statement under the Listing Rules set out on page 81 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
79
Pendragon PLC Annual Report 2018 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
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
in our opinion those reports have been prepared in accordance 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 on page 40 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 on pages 35 to 39 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.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent
with judgments that were reasonable at the time they were made, the absence of anything to report on these statements is not
a guarantee as to the Group’s and Company’s longer-term viability.
Corporate governance disclosures
We are required to report to you if:
•
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.
•
We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven
provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
80
Pendragon PLC Annual Report 2018 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
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.
•
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 73, 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 www.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 general commercial and sector experience and through discussion with the directors and other management (as
required by auditing standards) and discussed with the directors and other management the policies and procedures regarding
compliance with laws and regulations. We communicated identified laws and regulations throughout our team and remained
alert to any indications of non-compliance throughout the audit.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the group is subject to laws and regulations that directly affect the financial statements including financial reporting
legislation (including related companies legislation), distributable profits legislation, and taxation legislation, and we assessed the
extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the group is subject to many other laws and regulations where the consequences of non-compliance could have a
material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation.
We identified the following area as those most likely to have such an effect: Anti-bribery and Corruption Act 2011, recognising
the financial and regulated nature of the group’s activities. Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory
and legal correspondence, if any. Through these procedures, we became aware of actual or suspected non-compliance and
considered the effect as part of our procedures on the related financial statement items. The identified actual or suspected non-
compliance was not sufficiently significant to our audit to result in our response being identified as a key audit matter.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the
events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing
standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as
these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not
responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
81
Pendragon PLC Annual Report 2018 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
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.
John Leech (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill, Snowhill Queensway, Birmingham B4 6GH
12 March 2019
82
Pendragon PLC Annual Report 2018 CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2018
Revenue
Cost of sales
Gross profit
Continuing
operations
£m
Discontinued
operations*
£m
Notes
Continuing
operations
£m
Discontinued
operations*
£m
2018
£m
2017
£m
2.1
4,148.6
478.4
4,627.0
4,324.3
414.8
4,739.1
(3,658.2)
(418.3)
(4,076.5)
(3,825.6)
(360.6)
(4,186.2)
490.4
60.1
550.5
498.7
54.2
552.9
Operating expenses
2.2
(529.1)
(51.5)
(580.6)
(418.0)
(43.4)
(461.4)
Operating (loss)/profit before other income
(38.7)
Other income - gains/(losses) on the
sale of businesses and property
Operating (loss)/profit
Analysed as:
Underlying operating profit
Non-underlying operating (loss)/ profit
Finance expense
Net finance costs
2.6
13.0
(25.7)
67.6
(93.3)
(27.5)
(27.5)
2.6
4.3
8.6
2.7
11.3
8.6
2.7
(2.5)
(2.5)
(30.1)
80.7
10.8
91.5
15.7
(0.1)
-
(0.1)
(14.4)
80.6
10.8
91.4
76.2
(90.6)
73.0
7.6
(30.0)
(30.0)
(24.5)
(24.5)
10.8
-
(1.6)
(1.6)
83.8
7.6
(26.1)
(26.1)
Analysed as:
Underlying net finance costs
Non-underlying net finance costs
2.6
(25.9)
(1.6)
(2.5)
(28.4)
-
(1.6)
(21.8)
(2.7)
(1.6)
-
(23.4)
(2.7)
(Loss)/profit before taxation
(53.2)
8.8
(44.4)
56.1
9.2
65.3
Analysed as:
Underlying profit before taxation
Non-underlying (loss)/ profit before
taxation
Income tax expense
(Loss)/profit for the year
Earnings per share
Basic earnings per share
Diluted earnings per share
Non GAAP measure:
Underlying basic earnings per share
Underlying diluted earnings per share
2.6
2.7
2.8
2.8
2.8
2.8
41.7
(94.9)
6.1
2.7
47.8
(92.2)
51.2
4.9
9.2
-
60.4
4.9
(3.8)
(57.0)
(2.3)
6.5
(6.1)
(50.5)
(8.7)
47.4
(3.3)
5.9
(12.0)
53.3
(4.1p)
(4.1p)
2.5p
2.5p
0.5p
0.5p
0.3p
0.3p
(3.6p)
(3.6p)
2.8p
2.8p
3.3p
3.3p
2.9p
2.9p
0.4p
0.4p
0.4p
0.4p
3.7p
3.7p
3.3p
3.3p
* The discontinued operations are in respect of the Group’s US business which is currently classified as held for sale (see note 3.3).
The notes on pages 90 to 159 form part of these financial statements
83
Pendragon PLC Annual Report 2018 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2018
(Loss)/profit for the year
Other comprehensive income
Items that will never be reclassified to profit and loss:
Defined benefit plan remeasurement (losses) and gains
Income tax relating to defined benefit plan remeasurement (gains) and losses
Items that are or may be reclassified to profit and loss:
Foreign currency translation differences of foreign operations
Notes
5.1
2.7
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income for the period attributable to equity
shareholders of the company arises from:
Continuing operations
Discontinued operations - see note 3.3
2018
£m
(50.5)
(0.9)
-
(0.9)
-
-
(0.9)
(51.4)
(58.0)
6.6
(51.4)
2017
£m
53.3
35.8
(6.3)
29.5
(0.6)
(0.6)
28.9
82.2
76.9
5.3
82.2
The notes on pages 90 to 159 form part of these financial statements
84
Pendragon PLC Annual Report 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2018
Balance at 1 January 2018
71.2
56.8
4.3
12.6
(0.8)
281.3
425.4
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Translation
differences
£m
Retained
earnings
£m
Total
£m
Total comprehensive income for 2018
Loss for the year
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Dividends paid (note 4.5)
Own shares purchased for cancellation
Own shares issued by EBT
Share based payments
-
-
-
-
(1.2)
-
-
-
-
-
-
-
-
-
Balance at 31 December 2018
70.0
56.8
-
-
-
-
1.2
-
-
5.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(50.5)
(50.5)
(0.9)
(0.9)
(51.4)
(51.4)
(22.5)
(22.5)
(6.7)
0.1
0.7
(6.7)
0.1
0.7
12.6
(0.8)
201.5
345.6
Balance at 1 January 2017
71.8
56.8
3.7
12.6
(0.2)
228.1
372.8
Total comprehensive income for 2017
Profit for the year
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Dividends paid (note 4.5)
-
-
-
-
Own shares purchased for cancellation
(0.6)
Own shares purchased by EBT
Own shares issued by EBT
Share based payments
Income tax relating to share based
payments
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
53.3
53.3
(0.6)
29.5
28.9
(0.6)
82.8
82.2
-
-
-
-
-
-
(21.3)
(21.3)
(4.0)
(2.8)
0.1
(1.7)
(4.0)
(2.8)
0.1
(1.7)
0.1
0.1
Balance at 31 December 2017
71.2
56.8
4.3
12.6
(0.8)
281.3
425.4
The notes on pages 90 to 159 form part of these financial statements
85
Pendragon PLC Annual Report 2018
CONSOLIDATED BALANCE SHEET
At 31 December 2018
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Cash and cash equivalents
Assets classified as held for sale
Total current assets
Total assets
Current liabilities
Trade and other payables
Deferred income
Current tax payable
Provisions
Liabilities directly associated with the assets held for sale
Total current liabilities
Non-current liabilities
Interest bearing loans and borrowings
Trade and other payables
Deferred income
Retirement benefit obligations
Provisions
Total non-current liabilities
Total liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Other reserves
Translation reserve
Retained earnings
Total equity attributable to equity shareholders of the Company
Approved by the Board of Directors on 12 March 2019 and signed on its behalf by:
T G Finn
Chief Executive
Registered Company Number: 02304195
T P Holden
Finance Director
The notes on pages 90 to 159 form part of these financial statements
86
Notes
3.2
3.1
3.1
2.7
3.4
3.6
4.2
3.3
3.7
3.9
3.8
3.3
4.2
3.7
3.9
5.1
3.8
4.4
4.4
4.4
4.4
4.4
2018
£m
463.9
265.9
8.2
9.8
747.8
959.6
114.8
4.3
51.4
137.6
1,267.7
2,015.5
(1,175.4)
(49.7)
-
(0.7)
(88.6)
2017
£m
479.9
361.2
7.5
11.4
860.0
1,003.5
132.8
-
53.3
11.0
1,200.6
2,060.6
(1,224.2)
(50.3)
(2.1)
(0.7)
-
(1,314.4)
(1,277.3)
(179.0)
(54.4)
(52.2)
(68.3)
(1.6)
(355.5)
(1,669.9)
345.6
70.0
56.8
5.5
12.6
(0.8)
201.5
345.6
(177.4)
(59.0)
(49.9)
(62.8)
(8.8)
(357.9)
(1,635.2)
425.4
71.2
56.8
4.3
12.6
(0.8)
281.3
425.4
Pendragon PLC Annual Report 2018
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2018
Cash flows from operating activities
(Loss)/profit for the year
Adjustment for taxation
Adjustment for net financing expense
Depreciation and amortisation
Share based payments
Pension past service costs
(Profit)/loss on sale of businesses and property
Impairment of goodwill
Impairment of assets held for sale
Impairment of property, plant and equipment
Contribution into defined benefit pension scheme
Changes in inventories
Changes in trade and other receivables
Changes in trade and other payables
Changes in provisions
Movement in contract hire vehicle balances
Cash generated from operations
Taxation paid
Interest paid
Net cash from operating activities
Cash flows from investing activities
Business acquisitions
Proceeds from sale of businesses
Purchase of property, plant, equipment and intangible assets
Proceeds from sale of property, plant, equipment and intangible assets
Net cash used in investing activities
Cash flows from financing activities
Dividends paid to shareholders
Repurchase of own shares
Own shares acquired by EBT
Disposal of shares by EBT
Repayment of loans
Proceeds from issue of loans
Net cash outflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Effects of exchange rate changes on cash held
Cash and cash equivalents at 31 December
The notes on pages 90 to 159 form part of these financial statements
Notes
3.4
3.5
6.1
6.2
3.1, 3.2
3.1, 3.2
4.2
2018
£m
(50.5)
6.1
30.0
(14.4)
27.4
0.7
10.5
(15.7)
88.8
1.2
5.8
(7.5)
(23.6)
(7.6)
61.6
(7.2)
(31.9)
88.1
(10.9)
(24.8)
52.4
-
10.9
(133.2)
96.0
(26.3)
(22.5)
(6.7)
-
0.1
(10.0)
7.1
(32.0)
(5.9)
53.3
4.0
51.4
2017
£m
53.3
12.0
26.1
91.4
28.5
(1.7)
-
0.1
-
-
-
(7.3)
(102.3)
20.8
134.0
(2.9)
(31.7)
128.9
(16.1)
(20.0)
92.8
(17.8)
-
(193.0)
114.1
(96.7)
(21.3)
(4.0)
(2.8)
0.1
(15.0)
20.4
(22.6)
(26.5)
84.0
(4.2)
53.3
87
Pendragon PLC Annual Report 2018 RECONCILIATION OF NET CASH FLOW TO MOVEMENT
IN NET DEBT
Net decrease in cash and cash equivalents
Repayment of bond and loans
Proceeds from issue of loans (net of directly attributable transaction costs)
Non-cash movements
Increase in net debt in the year
Opening net debt
Closing net debt
2018
£m
(5.9)
10.0
(7.1)
(0.5)
(3.5)
(124.1)
(127.6)
2017
£m
(26.5)
15.0
(20.4)
(0.5)
(32.4)
(91.7)
(124.1)
Note: The reconciliation of net cash flow to movement in net debt is not a primary statement and does not form part of the consolidated cash flow statement but forms part of the
notes to the financial statements.
The notes on pages 90 to 159 form part of these financial statements
88
Pendragon PLC Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Presented below are those accounting policies that relate to the financial statements as a whole and includes details of new
accounting standards that are or will be effective for 2018 or later years. To facilitate the understanding of each note to the
financial statements those accounting policies that are relevant to a particular category are presented within the relevant
notes.
Pendragon PLC is a company domiciled in the United Kingdom. The consolidated financial statements of the Group for
the year ended 31 December 2018 comprise the company and its subsidiaries and the Group’s interest in jointly controlled
entities, together referred to as the ‘Group’
The Group financial statements have been prepared and approved by the Directors in accordance with international
accounting standards, being the International Financial Reporting Standards as adopted by the EU (‘adopted IFRSs’).
The company has elected to prepare its parent company financial statements in accordance with FRS 101. These are
presented on pages 160 to 169.
The financial statements are presented in millions of UK pounds, rounded to the nearest £0.1m. They have been prepared
under the historical cost convention and where other bases are applied these are identified in the relevant accounting policy
in the notes below.
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position
are set out in the Operational Review sections on pages 9 to 17 and pages 26 to 33. The financial position of the Group,
its cash flows, liquidity position and borrowing facilities are described in the Financial Review section on pages 32 to 34.
In addition, note 4.2 to the financial statements includes the Group’s objectives, policies and processes for managing its
capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures
to credit risk and liquidity risk.
At 31 December 2018, there are undrawn available facilities and, as highlighted in note 4.2 to the financial statements, the
Group meets its day-to-day working capital requirements through bank, manufacturer and third party vehicle financing
facilities. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance,
show that the Group should be able to operate within the level of its current facility.
At 31 December 2018, the Group has access to a £300m RCF facility that expires in March 2021. The Group meets it day to
day working capital needs, principally though the additional manufacturer and vehicle financing facilities.
The Group has forecast daily cashflows for the period to 30 June 2020, based on the Directors current expectation of the
Group’s financial performance.
The Directors have prepared a reasonably possible down-side scenario forecast taking into account mitigations which
are under the Directors control, considering the impact of a no Deal Brexit. This downside scenario forecasts a positive
headroom on cash and covenant throughout the period to 30 June 2020.
It is on this basis that the Directors believe the Group has adequate resources to continue in operational existence for at
least the period to 30 June 2020. Thus they continue to adopt the going concern basis of accounting in preparing the
annual financial statements.
89
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Judgements
The Group applies judgement in how it applies its accounting policies, which do not involve estimation, but could materially
affect the numbers disclosed in these financial statements. The key accounting judgements, without estimation, that have
been applied in these financial statements are as follows:
Key judgements
Effect on Financial
Statements
Alternative accounting
judgement that could
have been applied
Effect of that
alternative
accounting
judgement
Deferred tax assets:
No recognition of certain deferred
tax assets as the Group believes their
recovery to be too uncertain.
Assets held for sale:
The Group has announced its intention
to dispose of its US business and reduce
its premium franchise locations.
No recognition of potential
assets of £7.9m relating
to unutilised tax losses of
£13.8m and unrecognised net
capital losses of £38.0m.
If the Group had determined
that the utilisation of the
losses was more certain then
full or partial recognition of
deferred tax assets would
have taken place.
Recognition of assets
within the range £0-
£7.9m.
Assets held for sale included
£37.0m for the US business
which we were actively
selling at 31 December 2018.
The disclosure of the assets
and liabilities relating to
the other businesses which
we expect to sell remain
unchanged.
If the Group had determined
that some or all of the
planned disposals were
sufficiently advanced to
meet the criteria to be
classified as assets held for
sale then other businesses
could have been classified
as assets held for sale.
Reclassification of
further businesses as
assets held for sale.
Intangibles:
Internally generated intangible assets
relate to activities that involve the
development of dealer management
systems by the Software operating
segment.
Capitalisation of
development expenditure
is completed only if
development costs meet
certain criteria. Full detail of
the criteria is in note 3.1.
Not capitalising
development costs.
Reduction of £7.1m of
asset carrying value.
90
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Accounting Estimates
The preparation of financial statements in conformity with adopted IFRSs requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting year. Although these estimates are based on management’s best knowledge
of the amount, events or actions, actual results ultimately may differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. The estimates and associated assumptions
are based on historical experience and various other factors that are believed to be reasonable under the circumstances.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only
that period, or in the period of the revision and future periods if the revision affects both current and future periods. The
Directors consider the following to be the key estimates applicable to the financial statements, which have a significant risk
of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year or in the
long term:
Potential
impact within
the next
financial year
Potential
impact in
the longer
term
Note
reference
3
3
3.1
3
3
3
3.4
5.1
3.2
3
3
Key estimate area
Key assumption
Goodwill
impairment
Inventory fair value
(UK used inventory of
£563.2m)
Retirement benefit
obligations
Contract hire vehicle
residual values
Within the Goodwill calculation we undertake
an exercise to estimate future cashflows from
each Cash Generating Unit (CGU). We have key
assumptions on the growth rates of revenue
and gross margin in each of new, used and
aftersales which impacts the profit assumed and
hence cashflow generation in each CGU. These
assumptions are key to calculation of the net
present value of cashflows. The further key
assumptions are the perpetuity growth rate and
discount rate.
The Group assessment of fair values of used
inventory involves an element of estimation. The
key assumption is estimating the likely sale period
and the expected profit or loss on sale for each
of our inventory items that are held at the year
end point. We conduct this analysis by looking at
stock by age category and comparing historical
trends and our forward expectations on these
assumptions.
The main assumptions in determining the Group’s
retirement benefit obligations are: discount
rate, mortality and rate of inflation. Full detail is
included in the pension note, 5.1.
The vehicles within the Group’s contract hire
fleet are subject to a repurchase commitment
from the vehicle’s funders at the end of the
contract hire period which is pre-determined
at the commencement of each contract. The
Group has to assess the likely value of these
vehicles at the end of their contracts and
determine if any impairment is necessary when
compared against the repurchase price. This
involves estimating the future value of these
vehicles using industry data of projected used
car values over the periods during which the
vehicles are due to be returned together with
its own historic data and expectations based
on past trends and the model mix in the fleet.
91
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Basis of consolidation
The consolidated financial statements include the financial statements of Pendragon PLC, all its subsidiary undertakings and
investments. Consistent accounting policies have been applied in the preparation of all such financial statements.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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. The financial statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases.
Investments
Investments in entities in which the Group has no control are stated at their fair value.
When the Group’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest,
including any long term investments, is reduced to zero, and the recognition of further losses is discontinued except to the
extent that the Group has an obligation or has made payments on behalf of the investee.
Transactions eliminated on consolidation
IntraGroup balances and any unrealised gains or losses or income and expenses arising from intraGroup transactions, are
eliminated in preparing the consolidated financial statements. Unrealised gains and losses arising from transactions with
joint ventures are eliminated against the investment to the extent of the Group’s interest in the entity.
Foreign currencies
Transactions in foreign currencies are translated to the respective functional currency of Group entities at the foreign
exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the
balance sheet date are translated to the functional currency at the foreign exchange rate ruling at that date. Non-monetary
assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange
rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated
at fair value are translated to sterling at foreign exchange rates ruling at the dates the fair value was determined. Foreign
currency differences arising on retranslation are recognised in profit or loss.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are
translated to sterling at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign
operations are translated to sterling at rates approximating to the foreign exchange rates ruling at the dates of the
transactions.
Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment
in a foreign operation are recognised directly in equity, in the foreign currency translation reserve, to the extent the hedge
is effective. To the extent the hedge is ineffective, such differences are recognised in profit or loss. When the hedged net
investment is disposed of, the cumulative amount in equity is transferred to profit and loss on disposal.
In respect of all foreign operations, any differences that have arisen after 1 January 2004, the date of transition to IFRS, are
presented as a separate component of equity.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise deposits with banks and financial
institutions, bank and cash balances, and liquid investments, net of bank overdrafts. Bank overdrafts that are repayable
on demand and form an integral part of the Group’s cash management are included as a component of cash and cash
equivalents for the purpose of the statement of cash flows. In the balance sheet, bank overdrafts are included in current
borrowings.
92
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Impairment
The carrying amounts of the Group’s assets, other than inventories (see note 3.4) and deferred tax assets (see note 2.7), are
reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists,
the asset’s recoverable amount is estimated.
For goodwill the recoverable amount is estimated at each balance sheet date. The recoverable amount is the higher of fair
value less costs to sell and value in use. 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 which the estimates of future cash flows have not been adjusted.
For the purpose of impairment testing, assets are Grouped together into the smallest Group of assets that generates cash
inflows from continuing use that are largely independent of the cash inflows from other Groups of assets (‘the cash generating
unit’). The goodwill acquired in a business combination, for the purpose of impairment testing is allocated to cash generating
units. Management have determined that the cash generating units of the Group are the motor franchise Groups and other
business segments.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any
goodwill allocated to cash generating units and then, to reduce the carrying amount of the other assets in the unit on a pro
rata basis.
The recoverable amount of assets is the greater of their fair value less costs to sell and value in use. 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 inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has
been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent
that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortisation, if no impairment loss had been recognised. The impact of the current year impairment review can be seen in
note 3.1.
Adoption of new and revised standards and new standards and interpretations not yet adopted
In the current year, the Group has adopted the following new standards and interpretations:
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
Classification and Measurement of Share-based Payment Transactions – Amendments to IFRS 2
Annual Improvements 2014-2016 cycle
Transfers to Investment Property – Amendments to IAS 40
Interpretation 22 Foreign Currency Transactions and Advance Consideration
The adoption of the new standards and amendments above have had no significant impact.
A number of new standards are effective for annual periods beginning after 1 January 2019 and earlier application is
permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial
statements.
93
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
IFRS 16 Leasing
IFRS 16 Leasing is effective for annual periods beginning on or after 1 January 2019. The new standard replaces existing
leases guidance, principally IAS 17 Leases.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use
(ROU) asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease
payments. There are recognition exemptions for short term leases of 12 months or less and leases of low-value items.
Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating
leases.
The Group has set up a project team which has reviewed all of the Group’s leasing arrangements over the last year in light of
the new lease accounting rules in IFRS 16. The standard will affect primarily the accounting for the Group’s operating leases,
most notably in respect of property. IFRS 16 is not anticipated to affect the existing accounting treatment of the leasing
segment.
The Group plans to apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach. Therefore, the
cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1
January 2019, with no restatement of comparative information.
The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it
will apply IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and
IFRIC 4. The Group will also use practical expedient to account for a lease as a short term lease if it has a remaining term
of 12 months or less on transition. Under this approach, the Group would not recognise a ROU asset or lease liability for this
lease. Instead, the Group would recognise rentals payable as an expense in its disclosure of total short-term lease expense.
The USA segment is classified as an asset held for sale and accordingly the impact of IFRS 16 on that segment has not been
calculated.
As at the reporting date, the Group has non-cancellable operating lease commitments of £480m, (see note 4.8). Of these
commitments, approximately £72m relate to leases in the US Motor segment which is classified as held for sale and £6m
relate to short-term leases and low value leases which will be recognised on a straight-line basis as expense in profit or
loss. For the remaining lease commitments the Group expects to recognise ROU assets of approximately £196m on 1
January 2019, lease liabilities of approximately £286m, finance lease receivables of approximately of £29m and deferred tax
assets of approximately £9m (before adjustments including prepayments and accrued lease payments recognised as at 31
December 2018 of approximately £3m). Overall net assets will be approximately £49m lower, and net current liabilities will
be approximately £20m higher due to the presentation of a portion of the liability as a current liability.
The Group expects that net profit after tax will decrease by approximately £0.5m for 2019 as a result of adopting IFRS 16.
Adjusted EBITDA as presented in note 4.2 is expected to increase by approximately £32m, as the operating lease payments
were included in EBITDA, but the amortisation of the ROU assets and interest on the lease liability are excluded from this
measure.
Operating cash flows will increase and financing cash flows decrease by approximately £32m as repayment of the principal
portion of the lease liabilities will be classified as cash flows from financing activities.
The Group will reassess the classification of sub-leases in which the Group is a lessor. Based on the information currently
available, the Group expects that it will reclassify 17 sub-leases as a finance lease, resulting in recognition of a finance lease
receivable of approximately £29m as at 1 January 2019. No significant impact is expected for other leases in which the
Group is a lessor.
The adoption of IFRS 16 will have no impact on the Group’s current banking covenants.
94
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Other standards
The following amended standards and interpretations are not expected to have a significant impact on the Group’s
consolidated financial statements.
IFRIC 23 Uncertainty over Tax Treatments.
Prepayment Features with Negative Compensation (Amendments to IFRS 9).
Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28).
Plan Amendment, Curtailment or Settlement (Amendments to IAS 19).
Annual Improvements to IFRS Standards 2015–2017 Cycle – various standards.
Amendments to References to Conceptual Framework in IFRS Standards.
IFRS 17 Insurance Contracts.
Alternative performance measures
The Group uses a number of key performance measures (‘KPI’s’) which are non-IFRS measures to monitor the performance
of its operations. The Group believes these KPIs provide useful historical financial information to help investors and other
stakeholders evaluate the performance of the business and are measures commonly used by certain investors for evaluating
the performance of the Group. In particular, the Group uses KPIs which reflect the underlying performance on the basis that
this provides a more relevant focus on the core business performance of the Group. The Group has been using the following
KPIs on a consistent basis and they are defined and reconciled as follows:
Dividend per share - dividend per share is defined as the interim dividend per share plus the proposed final year dividend
for a given period.
Gross margin % - gross margin is defined as gross profit as a percentage of revenue.
Like for like - results on a like for like basis include only businesses which have been trading for 12 consecutive months.
We use like for like results to aid in the understanding of the like for like movement in revenue, gross profit and operating
profit in the business. The difference to underlying results are simply those businesses which are not like for like which have
recently commenced operation and therefore do not have a 12 month history plus any retail points closed during the current
or previous period.
Operating margin % - operating margin is defined as operating profit as a percentage of revenue.
Underlying operating profit/profit before tax - results on an underlying basis exclude items that have non-trading attributes
due to their size, nature or incidence. The detail of the non-underlying results is shown in note 2.6 and this is also shown on
the face of the consolidated income statement to reconcile from the underlying to total results.
95
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Operating profit reconciliation
Underlying operating profit
Settlement of historic VAT issues (see note 2.6)
Gains/(losses) on the sale of businesses and property (see note 2.6)
Past service costs (see note 2.6)
Impairment of goodwill (see note 2.6)
Impairment of assets held for sale (see note 2.6)
Impairment of property, plant and equipment (see note 2.6)
Non-underlying operating (loss)/profit items
Operating (loss)/profit
(Loss)/profit before tax reconciliation
Underlying profit before tax
Non-underlying operating profit items (see reconciliation above)
Non-underlying finance costs (see note 2.6)
Non-underlying operating (loss)/profit and finance costs items
(Loss)/profit before tax
(Loss)/profit after tax reconciliation
Underlying profit after tax
Non-underlying operating (loss)/profit and finance costs items (see reconciliation above)
Non-underlying tax (see note 2.6)
Non-underlying operating (loss)/profit, finance costs and tax items
(Loss)/profit after tax
2018
£m
76.2
-
15.7
(10.5)
(88.8)
(1.2)
(5.8)
(90.6)
(14.4)
2018
£m
47.8
(90.6)
(1.6)
(92.2)
(44.4)
2018
£m
38.7
(92.2)
3.0
(89.2)
(50.5)
2017
£m
83.8
7.7
(0.1)
-
-
-
-
7.6
91.4
2017
£m
60.4
7.6
(2.7)
4.9
65.3
2017
£m
47.6
4.9
0.8
5.7
53.3
96
Pendragon PLC Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Underlying basic earnings per share (‘underlying earnings per share’) – the Group presents underlying basic earnings per
share as the Directors consider that this is a better measure of comparative performance. Underlying basic earnings per share
is calculated by dividing the underlying profit or loss attributable to ordinary shareholders by the weighted average number
of ordinary shares in issue during the period. A full reconciliation of how this is derived is found in note 2.8.
Underlying diluted earnings per share – the Group presents underlying diluted earnings per share as the Directors consider
that this is a better measure of comparative performance. Underlying diluted earnings per share is calculated by dividing the
underlying profit and loss attributable to ordinary shareholders by the weighted average number of ordinary shares in issue
taking account of the effects of all dilutive potential ordinary shares, which comprise of share options granted to employees,
LTIPs and share warrants. A full reconciliation of how this is derived is found in note 2.8.
Net Debt : Underlying EBITDA – the Group uses the ratio of net debt to underlying EBITDA to assess the use of the Group’s
financial resources. The reconciliation of this and the composition of underlying EBITDA is shown in note 4.2.
Net franchise capital expenditure - total franchise specific (manufacturer new vehicle partners) capital expenditure incurred
in the period less franchise specific disposal proceeds.
97
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
This section contains the notes and information to support the results presented in the income statement:
2.1 Revenue
2.2 Net operating expenses
2.3 Operating segments
2.4 Staff costs
2.5
2.6
2.7
2.8
Audit fees
Non-underlying items
Taxation
Earnings per share
2.1 Revenue
Accounting policy
The Group has adopted and applied IFRS 15 for the year ended 31 December 2018, using the cumulative effect method. The
comparative information therefore has not been restated and continues to be reported under IAS 18 and IAS 11. The Group
has quantified the effect of IFRS 15 on the reported revenue for the year ended 31 December 2017 and due to its amount
being immaterial no comparison table is presented in these financial statements to quantify the impact of the adoption
of IFRS 15. Accordingly the Group has not made any significant changes in its accounting policy for revenue other than
addressing the small areas identified that were not in line with IFRS 15. As these amounted to a value of less than £0.1m no
further disclosure is presented.
Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected
on behalf of third parties. The Group recognises revenue when it transfers control over a product or service to a customer.
The following is a description of principal activities from which the Group generates its revenue categorised by the reportable
segments as detailed in note 2.3.
UK Motor segment and US Motor segment
The UK and US Motor segments principally generate revenue from the sale of new and used motor vehicles, together with
the supply of motor vehicle parts, servicing and repair activities, collectively referred to as aftersales. Products and services
may be sold separately or in bundled packages. Examples of a bundled package will include the supply of a vehicle with
an extended warranty or a servicing plan. For bundled packages, the Group accounts for individual products and services
separately as they are distinct items, as each performance obligation within that contract is separately identifiable from
other items in the bundled package. The consideration is allocated between separate products and services in a bundle
based on their stand-alone selling prices. The stand-alone selling prices are determined based on the list prices at which the
Group sells these items and are separately identified on the customer’s invoice.
The Group has a number of manufacturer partners who will provide goods/services to customers, for example a warranty
or free servicing when purchasing a new vehicle. Such items do not have a contractual obligation on the Group as the
obligation lies with the manufacturer and therefore no revenue is recognised in respect of these items.
98
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.1 Revenue continued
Products
and services
Nature, timing of satisfaction of performance obligations and significant payment terms
New and used
The Group recognises revenue on the sale of motor vehicles and parts revenue when they have
vehicles, parts and
been supplied to the customer. The satisfaction of the performance obligation occurs on delivery or
accessories
collection of the product. Vehicles are usually paid for prior to delivery though selected corporate
operators may be granted terms of up to seven days. Parts are either paid for on delivery or within
one month, dependant upon whether or not the customer is retail or has trade terms.
Service and repairs
The Group recognises revenue when service has been completed. Revenue from services rendered
is recognised in the income statement in proportion to the stage of completion of the transaction
at the reporting date. The stage of completion is assessed by reference to time expended on
services that are charged on a labour rate basis. Revenue is recognised at this point provided that
the revenue and costs can be measured reliably, the recovery of the consideration is probable
and there is no continuing management involvement with the goods. Payment terms are upon
completion of the service or within one month, dependant upon whether or not the customer is
retail or trade.
Commissions
The Group receives commissions when it arranges finance and insurance packages for its
received
customers to purchase its products and services, acting as agent on behalf of various finance and
insurance companies. Any commission earned is recognised when the customer draws down the
finance or commences the insurance policy from the supplier which coincides with the delivery of
the product or service. Commissions receivable are paid typically in the month after the finance is
drawn down.
Vehicle warranty
The Group offers a warranty product on vehicles supplied with a guarantee period typically ranging
from 3 months to 3 years. The Group recognises revenue on warranties on a straight-line basis
over the warranty period. The performance obligation of the Group, being the rectification of
mechanical faults on vehicles sold, will be the period over which the customer can exercise their
rights under the warranty and therefore revenue should be recognised over the period of the
warranty. Warranties are paid for prior to the commencement of the policy. The unrecognised
income is held within deferred income (see note 3.9).
99
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.1 Revenue continued
Leasing
The leasing segment generates revenue from the provision of vehicle leasing services, principally to fleets run by various
commercial operators. Vehicles are supplied to customers on operating leases and may include servicing and maintenance
agreements, which are bundled into the overall contract. For bundled packages, the Group accounts for individual products
and services separately as they are distinct items, as each performance obligation within that contract is separately
identifiable from other items in the bundled package. At the end of each contract the Group will generate revenue from
the disposal of the vehicle, recovery of any rectification work and in some instances additional rentals beyond the original
contract term.
Products
and services
Nature, timing of satisfaction of performance obligations and significant payment terms
Leasing
Where vehicles are supplied to a leasing company for contract hire purposes and the Group
undertakes to repurchase the vehicle at a predetermined date and value the significant risks and
rewards of ownership are deemed not to have transferred outside the Group and consequently
no sale is recognised. As a result the accounting for the arrangement reflects the Group’s
retention of the asset to generate future rentals and, in accordance with IAS 17 Leases, the Group
is considered to be an operating lessor for all arrangements in place. The initial amounts received
in consideration from the leasing company are held as deferred income allocated between
the present value of the repurchase commitment, held within trade and other payables and a
residual amount of deferred revenue held within deferred income. A finance charge is accrued
against the present value of the repurchase commitment and recorded as a finance expense in
the income statement. The remaining deferred revenue, which effectively represents rentals
received in advance, is taken to the income statement on a straight line basis over the related lease
term. No additional disclosures are made under IAS 17 as there are no future rentals receivable.
These vehicles are held within ‘property, plant and equipment’ at their cost to the Group and are
depreciated to their residual values over the terms of the leases. These assets are transferred into
inventory at their carrying amount when they cease to be rented and they become available for
sale as part of the Group’s ordinary course of business. Rentals are billed and paid for on a monthly
basis.
Maintenance
The Group offer a maintenance contract to customers to cover routine servicing and unexpected
repairs of vehicles under a leasing contract. Revenue is recognised over the period of the contract
on a straight line basis. Maintenance contracts are billed and paid for on a monthly basis.
Used Vehicles
The Group recognises revenue on the sale of ex-contract hire motor vehicles when they have been
supplied to the customer. This occurs on delivery or collection of the product. Vehicles are paid for
on delivery.
100
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.1 Revenue continued
Software
The Group, through its Pinewood business, supplies dealer management systems to motor vehicle dealers. These systems
include consultancy, training and installation services and the right to use the Group’s software over a contractual period.
Products and services may be sold separately or in bundled packages. Examples of a bundled package will include system
consultancy, on and off site training for users together with the right for a number of users to use the software. For bundled
packages, the Group accounts for individual products and services separately as they are distinct items, as each performance
obligation within that contract is separately identifiable from other items in the bundled package. The consideration is allocated
between separate products and services in a bundle based on their stand-alone selling prices. The stand-alone selling prices
are determined based on the list prices at which the Group sells these items and are separately identified on the customer’s
contract and subsequent invoice.
Products
and services
Nature, timing of satisfaction of performance obligations and significant payment terms
Software
Pinewood supply its software on a hosting basis and licence specific numbers of users to access
this service. As such Pinewood supply ‘Software as a Service’ (SaaS). The software licences are
provided only in conjunction with a hosting service, the customer cannot take control of the licence
or use the software without the hosting service and as such the customer cannot benefit from
the licence on its own and the licence is not separable from the hosting services. Therefore, the
licence is not distinct and would be combined with the hosting service. The Group’s assessment
of its performance obligation under IFRS 15 of providing SaaS is that revenue is recognised over
the period of the contract. SaaS is billed one month in advance of a quarterly billing cycle ensuring
payment is received prior to commencement of usage.
Training and
consultancy
The Group recognises revenue on the provision of any consultancy time and training at the point of
providing and delivering the service. Consultancy hours are billed at the time of delivery. Training
courses are billed at the time of booking which may be in advance of the date the training is
scheduled for.
101
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
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R
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.2 Net operating expenses
Net operating expenses:
Distribution costs
Administrative expenses
Rents received
2.3 Operating segments
2018
£m
(252.7)
(332.6)
4.7
(580.6)
2017
£m
(264.0)
(202.5)
5.1
(461.4)
The Group has four reportable segments, as described below, which are the Group’s strategic business units. The segments
offer different ranges of products and services and are managed separately because they require their own specialisms
in terms of market and product. For each of these segments, the Executive Committee which is deemed to be the Chief
Operating Decision Maker (CODM), reviews internal management reports on at least a monthly basis. The review of
these management reports enables the CODM to allocate resources to each segment and form the basis of strategic and
operational decisions, such as acquisition strategy, closure programme or working capital allocation. The Group operating
segment represents franchise groups and other businesses. The Group operating segment represents franchise groups
and other businesses. The franchise groups have been aggregated into the following reportable segments: UK Motor and
US Motor due to the fact that they have similar economic characteristics such as similar margins and cost structures
and therefore aggregations is deemed to be appropriate. The following summary describes the operations in each of the
Group’s reportable segments:
UK Motor This segment comprises the Group’s motor vehicle retail, parts wholesale and fleet operations, encompassing
the sale of new and used motor cars, motorbikes, trucks and vans, together with associated aftersales activities of service,
body repair and parts sales.
Software This segment comprises the Group’s activities as a dealer management systems provider.
Leasing This segment comprises the Group’s contract hire and leasing activities.
US Motor This segment comprises the Group’s retail operation in California in the United States encompassing the sale of
new and used motor cars, together with associated aftersales activities of service and parts sales.
The tables of financial performance presented in the Operational and Financial Review on pages 26 to 33 are based upon
these segmental reports.
For a breakdown of segment revenue stream please refer to note 2.1.
Inter-segment transfers and transactions are entered into under normal commercial terms and conditions that would
also be available to unrelated third parties.
103
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.3 Operating segments continued
Year ended 31 December 2018
UK Motor
£m
Software
£m
Leasing
£m
Group
interest
£m
Continuing
operations
Sub total
£m
Discontinued
operations
US Motor
£m
Total
£m
Total gross segment revenue
4,074.4
Inter-segment revenue
-
Revenue from external customers
4,074.4
Operating profit before non-
underlying items
Non-underlying items
Operating (loss)/profit
Finance expense
Finance income
41.1
(93.3)
(52.2)
-
-
Segmental (loss)/profit before tax
(52.2)
28.3
(11.4)
16.9
11.7
-
11.7
-
0.8
12.5
Other items included in the income statement are as follows:
81.2
(23.9)
57.3
14.8
-
14.8
-
-
-
-
-
-
-
-
4,183.9
478.4
4,662.3
(35.3)
-
(35.3)
4,148.6
478.4
4,627.0
67.6
(93.3)
(25.7)
8.6
2.7
11.3
76.2
(90.6)
(14.4)
(27.5)
(27.5)
(2.5)
(30.0)
(0.8)
-
14.8
(28.3)
(53.2)
-
8.8
-
(44.4)
Depreciation and impairment
Impairment of goodwill
Impairment of property, plant
and equipment
Amortisation
Share based payments
Impairment of assets held for sale
Pension past service costs
Other income - gains on the sale
of businesses and property
(22.3)
(88.8)
(5.8)
(0.5)
(0.7)
(1.2)
(10.5)
13.0
(0.3)
(39.3)
-
-
-
-
(2.5)
(0.1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(61.9)
(88.8)
(5.8)
(3.1)
(0.7)
(1.2)
(10.5)
(0.3)
-
-
-
-
-
-
(62.2)
(88.8)
(5.8)
(3.1)
(0.7)
(1.2)
(10.5)
13.0
2.7
15.7
104
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.3 Operating segments continued
Year ended 31 December 2017
UK Motor
Software
Leasing
interest
Sub total
US Motor
Continuing
Discontinued
Group
operations
operations
£m
£m
£m
Total
£m
UK Motor
£m
Software
£m
Leasing
£m
Group
interest
£m
Continuing
operations
Sub total
£m
Discontinued
operations
US Motor
£m
Total
£m
73.0
7.6
80.6
(24.5)
-
4,341.9
414.8
4,756.7
(17.6)
-
(17.6)
4,324.3
414.8
4,739.1
10.8
-
10.8
(1.6)
-
9.2
83.8
7.6
91.4
(26.1)
-
65.3
71.2
(6.3)
64.9
9.8
-
9.8
(2.0)
-
-
-
-
-
-
-
(11.4)
(0.8)
Total gross segment revenue
4,074.4
4,183.9
478.4
4,662.3
Total gross segment revenue
4,243.6
Inter-segment revenue
(35.3)
-
(35.3)
Inter-segment revenue
-
Revenue from external customers
4,074.4
4,148.6
478.4
4,627.0
Revenue from external customers
4,243.6
Segmental (loss)/profit before tax
(52.2)
14.8
(28.3)
(53.2)
Segmental profit before tax
Operating profit before non-
underlying items
Non-underlying items
Operating profit
Finance expense
Finance income
52.3
7.6
59.9
(11.1)
-
48.8
27.1
(11.3)
15.8
10.9
-
10.9
-
0.8
11.7
£m
-
41.1
(93.3)
(52.2)
-
-
(22.3)
(88.8)
(5.8)
(0.5)
(0.7)
(1.2)
(10.5)
13.0
£m
28.3
(11.4)
16.9
11.7
-
11.7
-
0.8
12.5
-
-
-
-
-
-
£m
81.2
(23.9)
57.3
14.8
-
14.8
-
-
-
-
-
-
-
-
(2.5)
(0.1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(27.5)
(27.5)
(2.5)
(30.0)
(0.8)
-
67.6
(93.3)
(25.7)
(61.9)
(88.8)
(5.8)
(3.1)
(0.7)
(1.2)
(10.5)
8.6
2.7
11.3
-
8.8
-
-
-
-
-
-
76.2
(90.6)
(14.4)
-
(44.4)
(62.2)
(88.8)
(5.8)
(3.1)
(0.7)
(1.2)
(10.5)
Operating profit before non-
underlying items
Non-underlying items
Operating (loss)/profit
Finance expense
Finance income
Impairment of goodwill
Impairment of property, plant
and equipment
Amortisation
Share based payments
Impairment of assets held for sale
Pension past service costs
Other income - gains on the sale
of businesses and property
Other items included in the income statement are as follows:
Other items included in the income statement are as follows:
Depreciation and impairment
(0.3)
(39.3)
(0.3)
Depreciation and impairment
Amortisation
Share based payments
Other income - losses on the sale
of businesses and property
Geographical information.
(21.9)
(0.4)
1.7
(0.1)
(0.3)
(2.2)
-
-
(36.0)
(0.1)
-
-
-
-
-
-
(58.2)
(1.3)
(59.5)
(2.7)
1.7
(0.1)
-
-
-
(2.7)
1.7
(0.1)
13.0
2.7
15.7
All segments, with the exception of the US Motor Group in the United States originate in the United Kingdom. The US Motor
Group segment is a discontinued operation.
105
7.8
(12.2)
56.1
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.4 Staff costs
The average number of people employed by the Group in the following areas was:
Sales
Aftersales
Administration
Costs incurred in respect of these employees were:
Wages and salaries
Social security costs
Contributions to defined contribution plans (see note 5.1)
Cost recognised for defined benefit plans (see note 5.1)
Share based payments (see note 4.6)
2018
Number
3,260
4,446
2,174
9,880
2018
£m
272.4
24.1
7.9
12.1
0.7
317.2
2017
Number
3,296
4,495
2,198
9,989
2017
£m
272.1
24.8
5.2
2.7
(1.7)
303.1
Information relating to Directors’ emoluments, share options and pension entitlements is set out in the Directors’
Remuneration Report on pages 55 to 68.
2.5 Audit fees
Auditors’ remuneration:
2018
£m
Fees payable to the company's Auditor for the audit of the company's annual accounts:
267.0
Fees payable to the company's Auditor and its associates for other services:
Audit of the company's subsidiaries pursuant to legislation
Audit-related assurance services
Tax compliance services
Other assurance services
174.8
45.0
95.0
10.0
591.8
2017
£m
253.0
162.9
45.0
65.0
10.0
535.9
106
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.6 Non-underlying items
Non-underlying income and expenses are items that are not incurred in the normal course of business and are sufficiently
significant and/or irregular to impact the underlying trends in the business.
Within operating expenses:
Settlement of historic VAT issues
Impairment of goodwill
Impairment of assets held for sale
Impairment of property, plant and equipment
Past service costs in respect of pension obligations
Within other income - gains on the sale of businesses, property and investments:
Gains on the sale of businesses
Gains/(losses) on the sale of property
Within finance expense:
Net interest on pension scheme obligations
Total non-underlying items before tax
Non-underlying items in tax (see note 2.7 for analysis)
Total non-underlying items after tax
2018
£m
-
(88.8)
(1.2)
(5.8)
(10.5)
(106.3)
3.3
12.4
15.7
(1.6)
(1.6)
(92.2)
3.0
(89.2)
2017
£m
7.7
-
-
-
-
7.7
-
(0.1)
(0.1)
(2.7)
(2.7)
4.9
0.8
5.7
The following amounts have been presented as non-underlying items in these financial statements:
Goodwill has been reviewed for any possible impairment and as a result of this review there was an impairment charge of
£88.8m made during the year (2017: £nil) (see note 3.1).
Group property, plant and equipment and assets held for sale have been reviewed for possible impairments. As a result of
this review there was an impairment charge against assets held for sale of £1.2m during the year (2017: £nil) and property,
plant and equipment of £5.8m (2017: £nil). There were no reversals of previous impairment charges in respect of assets held
for sale where anticipated proceeds less a costs to sell have increased over their impaired carrying values (2017: £nil).
The past service costs in respect of pension obligations is an estimate of the cost of GMP equalisation, as more fully
explained in note 5.1 of these financial statements.
The net financing return on pension obligations in respect of the defined benefit schemes closed to future accrual is shown
as a non-underlying item due to the irregularity of this amount historically and it is not incurred in the normal course of
business. A net expense of £1.6m has been recognised during the year (2017: £2.7m).
Other income consists of the profit or loss on disposal of businesses and property. This comprises a £3.3m profit on
disposals of motor vehicle dealerships during the year (of which £2.7m was in respect of discontinued operations) (2017:
£nil) and a £12.4m profit on sale of properties (2017: loss £0.1m). This does not include routine transactions in relation to the
disposal of individual assets, and only relates to the disposal of motor vehicle dealerships and associated properties.
107
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.6 Non-underlying items continued
During 2017, the Group recognised a £7.7m credit in respect of the numerous offsets resulting from the 2015 Supreme Court
decision in favour of HMRC, in respect of the Group’s long running litigation in respect of financing. The credit of £7.7m was
made up of VAT reclaims of £2.2m, interest on VAT reclaims of £3.3m and other items resulting from settlement of historic
issues and litigation of £2.2m.
2.7 Taxation
Accounting policy
Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent
that it relates to items recognised directly in other comprehensive income, in which case it is recognised in the statement of
comprehensive income
.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted
at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet liability method, recognising temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following
temporary differences are not recognised: initial recognition of goodwill, the initial recognition of assets or liabilities in a
transaction that is not a business combination that affect neither accounting nor taxable profit. The amount of deferred tax
recognised is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
Estimates and judgements
The actual tax on the Group’s profits is determined according to complex laws and regulations. Where the effect of these
laws and regulations is unclear, estimates are used in determining the liability for the tax to be paid on profits which are
recognised in the financial statements. The Group considers the estimates, assumptions and judgements to be reasonable
but this can involve complex issues which may take a number of years to resolve. The final determination of tax liabilities
could be different from the estimates reflected in the financial statements but the Group believes that none have a significant
risk of causing a material adjustment to the carrying amount of the liability within the next financial year.
Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular,
judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration given to
the timing and level of future taxable income. The unrecognised deferred tax assets are disclosed below.
108
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.7 Taxation continued
Taxation - Income statement
UK corporation tax:
Current tax on (loss)/profit for the year
Adjustments in respect of prior periods
Overseas taxation:
Current tax on profit for the year
Adjustments in respect of prior periods
Total current tax
Deferred tax expense:
Origination and reversal of temporary differences
Total deferred tax
Total income tax expense in the income statement
Factors affecting the tax charge for the period:
The tax assessed is different from the standard rate of corporation tax in the UK of
19.00% (2017: 19.25%)
The differences are explained below:
(Loss)/profit before taxation
Tax on (loss)/profit at UK rate of 19.00% (2017: 19.25%)
Differences:
Tax effect of expenses that are not deductible in determining taxable profit
Permanent differences arising in respect of fixed assets
Tax rate differential on overseas income
Non-underlying items (see below)
Impact of UK corporation tax rate change
Impact of US corporate tax rate change
Adjustments to tax charge in respect of previous periods
Total income tax expense in the income statement
Taxation - Other comprehensive income
Relating to defined benefit plan remeasurement (gains) and losses
2018
£m
5.9
(2.5)
3.4
1.1
0.1
1.2
4.6
1.5
1.5
6.1
2018
£m
(37.4)
(7.1)
0.1
0.9
0.7
14.0
(0.1)
-
(1.1)
6.1
2018
£m
-
-
2017
£m
10.0
(2.7)
7.3
3.5
(0.3)
3.2
10.5
1.5
1.5
12.0
2017
£m
65.3
12.6
0.2
0.7
2.0
(1.9)
(0.2)
(0.8)
(0.6)
12.0
2017
£m
(6.3)
(6.3)
109
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.7 Taxation continued
Tax rate
The reduction in the UK corporation tax rate to 19% from 20% (effective from 1 April 2017) and to 17% (effective from 1 April
2020) were substantively enacted on 26 October 2015 and 6 September 2016 respectively. This will reduce the Group’s
future UK tax charge accordingly. The UK deferred tax asset as at 31 December 2018 has been calculated based on the
expected long term rate of 17% substantively enacted at the balance sheet date.
The reduction in the US federal corporate tax rate to 21% (effective from 1 January 2018) was substantively enacted
on 20 December 2017. This has reduced the Group’s US tax charge accordingly. The USA deferred tax liability as at 31
December 2018 has been calculated based on the expected long term rate of 21% substantively enacted at the balance sheet
date.
Factors affecting the tax charge
The tax charge/credit is decreased/increased by the release of prior year provisions relating to UK corporation tax returns
and also non-deductible expenses including the impairment of goodwill and non-qualifying depreciation.
Non-underlying tax credit
The tax credit in relation to non-underlying items referred to in note 2.6 is £3.0m (2017: £0.8m). This includes a tax credit of
£0.7m (2017: £1.9m) relating to the settlement of certain historic corporation tax issues, a tax charge of £0.8m (2017: £nil)
in respect of tax on business disposals (all of which relates to discontinued operations), a tax credit of £0.3m (2017: £nil) in
respect of tax on property disposals, a tax credit in respect of the impairment of property, plant and equipment of £0.7m
(2017: £nil) , a tax credit of £0.3m (2017: £0.4m) in respect of pension scheme interest and a tax credit of £1.8m (2017: £nil)
in respect of pension scheme past service costs. In the prior year a £1.5m charge in respect of the settlement of historic VAT
issues was also made.
Unrecognised deferred tax assets
There are unutilised tax losses within the Group of £13.8m (2017: £13.8m) relating to former overseas businesses for which no
deferred tax asset has been recognised pending the clarity of the availability of intra-EU losses. There are also unrecognised
capital losses net of rolled over gains of £38.0m (2017: £35.0m).
Deferred tax assets/(liabilities)
Deferred income tax 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 income taxes relate to the same fiscal authority. The offset amounts are
as follows:
Deferred tax assets
Deferred tax liabilities
110
2018
£m
12.6
(2.8)
9.8
2017
£m
13.1
(1.7)
11.4
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.7 Taxation continued
The table below outlines the deferred tax assets/(liabilities) that are recognised on the balance sheet, together with their
movements in the year;
Property, plant and equipment
Retirement benefit obligations
Other short term temporary differences
Losses
Tax assets/(liabilities)
Property, plant and equipment
Retirement benefit obligations
Other short term temporary differences
Losses
Tax assets/(liabilities)
At 1
January
2017
£m
(Charged) to
consolidated
income
statement
£m
(Charged)
to other
comprehensive
income
£m
Exchange
differences
£m
At 31
December
2017
£m
(2.8)
17.6
2.9
1.3
19.0
At 1
January
2018
£m
(3.1)
10.7
2.5
1.3
11.4
(0.5)
(0.6)
(0.4)
-
(1.5)
-
(6.3)
-
-
0.2
-
-
-
(6.3)
0.2
(3.1)
10.7
2.5
1.3
11.4
(Charged)
/credited to
consolidated
income
statement
£m
(Charged)
to other
comprehensive
income
£m
(1.8)
1.0
(0.7)
-
(1.5)
-
-
-
-
-
Exchange
differences
£m
At 31
December
2018
£m
(0.1)
(5.0)
-
-
-
(0.1)
11.7
1.8
1.3
9.8
111
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.8 Earnings per share
Accounting policy
The Group presents basic and diluted earnings per share (‘eps’) data for its ordinary shares. Basic eps is calculated by
dividing the profit or loss attributable to ordinary shareholders of the company by the weighted average number of ordinary
shares in issue during the period. The shares held by the EBT have been excluded from the calculation until such time as they
vest unconditionally with the employees. Diluted eps is calculated by dividing the profit and loss attributable to ordinary
shareholders by the weighted average number of ordinary shares in issue taking account of the effects of all dilutive
potential ordinary shares, which comprise of share options granted to employees and LTIPs.
Earnings per share calculation
2018
Earnings
per share
pence
2018
Earnings
Total
£m
2017
Earnings
per share
pence
2017
Earnings
Total
£m
Basic earnings per share from continuing operations
Basic earnings per share from discontinued operations
Basic earnings per share
Adjusting items:
Non-underlying items attributable to the parent from continuing operations
Non-underlying items attributable to the parent from discontinued operations
Non-underlying items attributable to the parent (see note 2.6)
Tax effect of non-underlying items from continuing operations
Tax effect of non-underlying items from discontinued operations
Tax effect of non-underlying items
Underlying earnings per share from continuing operations (Non-GAAP measure)
Underlying earnings per share from discontinued operations (Non-GAAP measure)
Underlying earnings per share (Non-GAAP measure)
Diluted earnings per share from continuing operations
Diluted earnings per share from discontinued operations
Diluted earnings per share
Diluted earnings per share - underlying from continuing operations (Non-GAAP measure)
Diluted earnings per share - underlying from discontinued operations (Non-GAAP measure)
Diluted earnings per share - underlying (Non-GAAP measure)
The calculation of basic, adjusted and diluted earnings per share is based on the
following number of shares in issue (millions):
(4.1)
0.5
(3.6)
6.8
(0.2)
6.6
(0.3)
0.1
(0.2)
2.5
0.3
2.8
(4.1)
0.5
(3.6)
2.5
0.3
2.8
Weighted average number of ordinary shares in issue
Weighted average number of dilutive shares under option
Weighted average number of shares in issue taking account of applicable
outstanding share options
Non-dilutive shares under option
(57.0)
6.5
(50.5)
94.9
(2.7)
92.2
(3.7)
0.7
(3.0)
34.2
4.5
38.7
(57.0)
6.5
(50.5)
34.2
4.5
38.7
2018
Number
1,405.7
1.4
1,407.1
10.8
3.3
0.4
3.7
47.4
5.9
53.3
(0.3)
(4.9)
-
(0.3)
(0.1)
-
(0.1)
2.9
0.4
3.3
3.3
0.4
3.7
2.9
0.4
3.3
-
(4.9)
(0.8)
-
(0.8)
41.7
5.9
47.6
47.4
5.9
53.3
41.7
5.9
47.6
2017
Number
1,422.5
2.3
1,424.8
20.2
The Directors consider that the underlying earnings per share figure provides a better measure of comparative performance.
112
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
This section contains the notes and information to support those assets and liabilities presented in the Consolidated Balance
Sheet that relate to the Group’s operating activities.
3.1
Intangible assets and goodwill
3.2 Property, plant and equipment
3.6
3.7
Trade and other receivables
Trade and other payables
3.3 Assets held for sale and discontinued operations
3.8
Provisions
3.4
Inventories
3.9
Deferred income
3.5 Movement in contract hire vehicle balances
3.1 Intangible assets and goodwill
Accounting policies
All business combinations are accounted for by applying the purchase method. Goodwill represents the excess of the cost
of acquisition over the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary
undertakings at the effective date of acquisition and is included in the balance sheet under the heading of intangible
assets. The goodwill is allocated to cash generating units (CGUs), which are franchise Groups and other business units.
An impairment test is performed annually as detailed below. Goodwill is then held in the balance sheet at cost less any
accumulated impairment losses.
Adjustments are applied to bring the accounting policies of the acquired businesses into alignment with those of the
Group. The costs associated with reorganising or restructuring are charged to the post acquisition income statement. For
those acquisitions made prior to 1 January 2004, goodwill is recorded on the basis of its deemed cost which represented
its carrying value as at 1 January 2004 under UK GAAP. Fair value adjustments are made in respect of acquisitions. If
at the balance sheet date the fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities can only
be established provisionally then these values are used. Any adjustments to these values made within 12 months of the
acquisition date are taken as adjustments to goodwill.
Internally generated intangible assets relate to activities that involve the development of dealer management systems
by the Group’s Pinewood division. Development expenditure is capitalised only if development costs can be measured
reliably, the product is technically and commercially feasible, future economic benefits are probable and the Group intends
to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes
the costs of labour and overhead costs that are directly attributable to preparing the asset for its intended use. If the
development expenditure does not meet the above criteria it is expensed to the income statement.
Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment
losses and is amortised over a period of five years.
Intangible assets other than goodwill are stated at cost less accumulated amortisation and any impairment losses. This
category of asset includes purchased computer software and internally generated intangible assets which are amortised by
equal instalments over four years and the fair value of the benefit of forward sales orders assumed on acquisition, which is
amortised by reference to when those orders are delivered.
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
Intangible assets arising on an acquisition are recognised separately from goodwill if the fair value of the asset can be
identified separately and measured reliably. Amortisation is calculated on a straight line basis over the estimated useful life
of the intangible asset. Amortisation methods and useful lives are reviewed annually and adjusted if appropriate.
113
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.1 Intangible assets and goodwill continued
Goodwill
£m
Development
costs
£m
Other
intangibles
£m
426.9
6.1
-
(0.1)
(1.4)
431.5
431.5
-
(0.4)
0.3
(23.9)
407.5
70.4
-
(0.1)
70.3
70.3
-
88.8
-
(17.5)
141.6
356.5
361.2
361.2
265.9
15.5
-
2.9
-
-
18.4
18.4
3.5
-
-
-
21.9
10.1
2.2
-
12.3
12.3
2.5
-
-
-
14.8
5.4
6.1
6.1
7.1
11.4
-
1.7
(0.2)
-
12.9
12.9
0.5
(0.4)
-
(0.3)
12.7
11.1
0.5
(0.1)
11.5
11.5
0.6
-
(0.2)
(0.3)
11.6
0.3
1.4
1.4
1.1
Cost
At 1 January 2017
Business acquisitions
Other additions
Disposals
Classified as non-current assets held for sale
At 31 December 2017
At 1 January 2018
Other additions
Disposals
Exchange adjustments
Classified as non-current assets held for sale
At 31 December 2018
Amortisation
At 1 January 2017
Amortised during the year
Disposals
At 31 December 2017
At 1 January 2018
Amortised during the year
Impairment
Disposals
Classified as non-current assets held for sale
At 31 December 2018
Carrying amounts
At 1 January 2017
At 31 December 2017
At 1 January 2018
At 31 December 2018
114
Total
£m
453.8
6.1
4.6
(0.3)
(1.4)
462.8
462.8
4.0
(0.8)
0.3
(24.2)
442.1
91.6
2.7
(0.2)
94.1
94.1
3.1
88.8
(0.2)
(17.8)
168.0
362.2
368.7
368.7
274.1
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.1 Intangible assets and goodwill continued
The following have been recognised in the income statement within net operating
expenses:
Amortisation of internally generated intangible assets
Amortisation of other intangible assets
Impairment of goodwill
Research and development costs
2018
£m
2.5
0.6
88.8
0.5
2017
£m
2.2
0.5
-
0.8
Goodwill is allocated across multiple cash-generating units which are franchise Groups and other business units and
consequently a consistent approach to performing an annual impairment test to assess the carrying value of this amount is
taken. This value was determined by comparing the carrying value of the asset with the higher of its fair value and value in
use (which value is determined by discounting the future cash flows generated from the continuing use of the unit and was
based on the following key assumptions):
Future cash flows were projected into perpetuity with reference to the Group’s forecasts from 2019 to 2021. The 2019 forecast
was derived from the corporate plan, approved by the Board and compiled on a bottom up basis with reference to SMMT data.
The 2020-2021 forecasts represent a projection from the 2019 bottom up forecast. It is recognised that the net asset value
of the company is lower than the market capitalisation which is a prima facie indicator of impairment. The Group therefore
commissioned an independent third party expert valuer to perform calculations, based on the Group’s Board approved
corporate plan, to test those forecasts and reconcile them to the Group’s market capitalisation. As a result of this process, the
Group adopted a more prudent view of its future cashflows, for the purposes of impairment testing, compared to the Board
approved corporate plan. The results of the impairment review indicated that the carrying values of certain CGUs exceeded
the higher of the fair value and value in use and a total impairment charge of £88.8m arises on certain CGUs, as described
below. For all but three CGUs, value in use was higher than fair value. For the three CGUs where this was not the case, the fair
value has been estimated using a Level 2 method, but the differences between value in use and fair value in respect of each
affected CGU was not significant.
It is anticipated that the units will grow revenues in the future. For the purpose of the impairment testing, a growth rate of
2.0% (2017: 2.4%) has been assumed beyond the business plan.
The discount rates are estimated to reflect current market estimates of the time value of money and is calculated after
consideration of market information and risk adjusted for individual circumstances. The pre-tax discount rates used are
specific to each CGU and vary between 9.7% and 21.1% (2017: single discount rate 10.2%).
115
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
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L
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.1 Intangible assets and goodwill continued
Sensitivity of assumptions
The forecasts used to determine impairment are sensitive to the key assumptions used in preparing those forecasts. Future
uncertainty with respect to the markets we operate in, further heightened at present as the UK prepares to leave the EU,
could all have an effect on our sales volumes and margins and the general costs of doing business. The key assumptions used
in our forecasts are therefore the gross profits, profit growth rates and discount rate applied. The sensitivities below indicate
the total change in the value in use forecast, keeping other assumptions constant. Such changes would only result in further
impairment to the extent that the impact of the sensitivities reduced the calculation of value in use below the carrying value
of the respective CGU. For those CGUs already impaired, any worsening of assumptions would lead to further impairment on
a pound for pound basis. For those CGUs not already impaired, the estimated headroom before impairment is disclosed.
Profit growth rate
Discount rate
Gross Profit
Increase/(decrease) in
assumptions
Increase/(decrease) in
value in use
1.0%/(1.0%)
1.0%/(1.0%)
2.0%/(2.0%)
£78.8m/£(66.4m)
£(50.7m)/£57.3m
£159.1m/(£159.1m)
117
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
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*
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.2 Property, plant and equipment
Accounting policy
Freehold land is not depreciated. Depreciation is provided to write off the cost less the estimated residual value of other
assets by equal instalments over their estimated useful economic lives. On transition to IFRS as at 1 January 2004, all land
and buildings were restated to fair value as permitted by IFRS 1, which is then treated as the deemed cost. All other assets
are initially measured and recorded at cost.
Depreciation rates are as follows:
• Freehold buildings – 2% per annum
• Leasehold property improvements – 2% per annum or over the period of the lease if less than 50 years
• Fixtures, fittings and office equipment – 10 – 20% per annum
• Plant and machinery – 10 – 33% per annum
• Motor vehicles – 20 – 25% per annum
• Contract hire vehicles are depreciated to their residual value over the period of their lease
The residual value of all assets, depreciation methods and useful economic lives, if significant, are reassessed annually.
The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such
an item when that cost is incurred if it is possible that the future economic benefits embodied within the item will flow to
the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an
expense as incurred.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from
disposal with the carrying amount of property, plant and equipment and are recognised net within other income in the
income statement.
The depreciation and impairment charge in respect of property, plant and equipment is recognised within administrative
expenses within the income statement.
119
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.2 Property, plant and equipment continued
Land &
buildings
£m
Plant &
equipment
£m
Motor
vehicles
£m
Contract hire
vehicles
£m
Cost
At 1 January 2017
Business acquisitions
Other additions
Exchange adjustments
Disposals
Contract hire vehicles transferred to inventory
Classified as non-current assets held for sale
At 31 December 2017
At 1 January 2018
Additions
Exchange adjustments
Business disposals
Other disposals
Contract hire vehicles transferred to inventory
Classified as non-current assets held for sale
At 31 December 2018
Depreciation
At 1 January 2017
Exchange adjustments
Charge for the year
Disposals
Contract hire vehicles transferred to inventory
Classified as non-current assets held for sale
At 31 December 2017
At 1 January 2018
Exchange adjustments
Charge for the year
Impairment
Business disposals
Other disposals
Contract hire vehicles transferred to inventory
Classified as non-current assets held for sale
At 31 December 2018
254.4
11.4
63.5
(2.4)
(0.7)
-
(6.8)
319.4
319.4
21.7
2.1
(4.3)
(1.6)
-
(43.0)
294.3
55.1
(0.9)
6.2
(0.4)
-
(1.8)
58.2
58.2
0.6
6.5
1.8
(0.2)
(1.3)
-
(11.8)
53.8
76.2
0.2
14.0
(0.7)
(2.7)
-
(1.0)
86.0
86.0
15.0
0.5
(0.8)
(4.7)
-
(8.8)
87.2
50.1
(0.6)
8.1
(1.0)
-
(0.7)
55.9
55.9
0.4
8.9
4.0
(0.6)
(4.3)
-
(6.3)
58.0
63.0
-
110.9
(0.1)
(121.8)
-
-
52.0
52.0
92.5
-
-
(96.0)
-
(1.8)
185.3
-
82.1
-
-
(54.2)
-
213.2
213.2
65.5
-
-
-
(48.6)
-
46.7
230.1
17.6
-
11.5
(12.0)
-
-
17.1
17.1
-
8.9
-
-
(19.8)
-
(0.2)
6.0
50.8
-
33.7
-
(25.0)
-
59.5
59.5
-
37.9
-
-
-
(20.8)
-
76.6
Total
£m
578.9
11.6
270.5
(3.2)
(125.2)
(54.2)
(7.8)
670.6
670.6
194.7
2.6
(5.1)
(102.3)
(48.6)
(53.6)
658.3
173.6
(1.5)
59.5
(13.4)
(25.0)
(2.5)
190.7
190.7
1.0
62.2
5.8
(0.8)
(25.4)
(20.8)
(18.3)
194.4
120
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.2 Property, plant and equipment continued
Carrying amounts
At 1 January 2017
At 31 December 2017
At 1 January 2018
At 31 December 2018
Land &
buildings
£m
Plant &
equipment
£m
Motor
vehicles
£m
Contract hire
vehicles
£m
199.3
261.2
261.2
240.5
26.1
30.1
30.1
29.2
45.4
34.9
34.9
40.7
134.5
153.7
153.7
153.5
Total
£m
405.3
479.9
479.9
463.9
Included in the amounts for property, plant and equipment above are the following amounts relating to leased assets and
assets acquired under hire purchase contracts:
Depreciation
Charge for the year
Carrying amounts
At 31 December 2017
At 31 December 2018
Building projects currently under construction for which no depreciation has
been charged during the year
Future capital expenditure which has been contracted for but not yet provided
in the financial statements - property development and refurbishment
Cumulative interest charges capitalised as construction costs and included in
land and buildings
The following items have been charged to
the income statement as operating expenses
during the year:
Depreciation of property, plant and equipment
- owned
Impairment
2018
£m
11.7
5.7
3.6
62.2
5.8
Land &
buildings
£m
-
0.1
0.1
2017
£m
26.8
7.3
2.6
59.5
-
As part of the impairment review of the carrying value of assets described in detail in note 3.1, an impairment of land and buildings
and plant and equipment has been recorded in the year.
121
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.3 Assets held for sale and discontinued operations
Accounting policy
Non-current assets that are expected to be recovered primarily through sale rather than through continuing use are
classified as held for sale. Immediately before classification as held for sale, the assets are measured in accordance with the
Group’s accounting policies. Thereafter the assets are measured at the lower of their carrying amount and fair value less
costs to sell. Impairment losses on remeasurement are recognised in the income statement. Gains are not recognised in
excess of any cumulative impairment loss. Non-current assets classified as held for sale are available for immediate sale and
a resultant disposal is highly probable within one year.
A non-current asset that stops being classified as held for sale is remeasured at the lower of its carrying amount prior to the
asset or disposal Group being classified as held for sale, adjusted for any depreciation or amortisation that would have been
recognised if the asset had not been classified as held for sale, or, its recoverable amount at the date of the decision not to
sell.
Discontinued operations
The Group announced at the end of 2017 that it intends to dispose of the US motor business and has initiated an active
program to find a buyer. At the date of this report this program is still on-going, with an initial sale of the Aston Martin business
being concluded in July 2018 realising proceeds of £3.1m. The Group expects that a buyer can be found to conclude a sale
of the remainder of the business during 2019. As such the results of the US Business are shown as a discontinued operation
within these consolidated financial statements and its non-current assets reclassified as held for sale. No impairment loss
has been recognised in the income statement for the year to 31 December 2018 in respect of this transaction.
The results of the discontinued operation are set out on the face of the consolidated income statement. Other financial
information relating to the discontinued operation for the period is set out below.
Assets and liabilities of a disposal Group held for sale
As at 31 December 2018, the US motor business was classified as a disposal Group which was stated at fair value less costs
to sell and comprised the following assets and liabilities.
Goodwill
Other intangible assets
Property plant and equipment
Inventories
Trade and other receivables
Assets held for sale
Trade and other payables
Liabilities held for sale
122
£m
6.5
0.1
32.0
68.9
25.1
132.6
(88.6)
(88.6)
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.3 Assets held for sale and discontinued operations continued
Exchange differences on translation of discontinued operation
Other comprehensive income from discontinued operation
Net cash from operating activities
Net cash from/(used in) investing activities
Net cash from financing activities
Net cash increase generated by discontinued operation
Basic earnings per share from discontinued operation
Underlying basic earnings per share from discontinuing operation
Diluted earnings per share from discontinued operation
Balance sheet
2018
£m
-
-
2018
£m
7.9
1.1
-
9.0
2018
pence
0.5
0.3
0.5
2017
£m
(0.6)
(0.6)
2017
£m
10.6
(18.5)
13.3
5.4
2017
pence
0.4
0.4
0.4
The Group has classified the non current assets of the US motor business as held for sale as at 31 December 2018. These
comprise of goodwill, intangible fixed assets, property, plant and equipment. The assets in this disposal Group have been
reviewed for possible impairment with reference to the expected proceeds on sale less costs to sell, with no impairment
deemed necessary. There are no non-current liabilities within the US disposal Group.
The Group also holds a number of freehold properties that are currently being marketed for sale which are expected to be
disposed of during 2019. Properties are valued using a combination of external qualified valuers and in-house experts. Due
to the nature of the market, especially in light of current economic conditions, a property may ultimately realise proceeds
that vary from those valuations applied.
Assets classified for sale (including disposal Group) comprise:
Goodwill
Other intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Income statement
The following items have been credited/(charged)
to the income statement during the year:
Income statement category
Profit on sale of assets classified as held for sale
Other income - gains/(losses) on the sale of
businesses and property
Impairment of assets held for sale
Net operating expenses
2018
£m
6.5
0.1
37.0
68.9
25.1
137.6
2018
£m
0.3
(1.2)
2017
£m
1.4
-
9.6
-
-
11.0
2017
£m
0.2
-
If the fair value less costs to sell assigned to each property were to be reduced by 10% a further impairment loss of £0.5m
would have been recognised (2017: £0.4m).
123
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.4 Inventories
Accounting policies
Motor vehicle inventories are stated at the lower of cost and net realisable value. Cost is net of incentives received from
manufacturers in respect of target achievements. Fair values of stock are conducted regularly utilising our market intelligence
and analysis of the market which we conduct by segment and by model, these fair values are updated in the light of any
changing trends by model line. The assessment of fair values involves an element of estimation: the Group takes the age
profile of our inventories at the year end, estimates the likely sale period and the expected profit or loss on sale to determine
the fair value at the balance sheet date. Whilst this data is deemed representative of current values it is possible that ultimate
sales values can vary from those applied. Parts inventories are based on an average purchase cost principle and are written
down to net realisable value by providing for obsolescence on a time in stock based formula approach.
Consignment vehicles are regarded as being effectively under the control of the Group and are included within inventories
on the balance sheet as the Group has the significant risks and rewards of ownership even though legal title has not yet
passed. The corresponding liability is included in trade and other payables. Movements in consignment vehicle inventory and
its corresponding liability within trade and other payables are not included within movements of inventories and payables as
stated in the consolidated cash flow statement as no cash flows arise in respect of these transactions until the vehicle is either
sold or purchased at which point it is reclassified within new and used vehicle inventory.
Motor vehicles are transferred from contract hire activities at the end of their lease term to inventory at their depreciated cost.
No physical cash flow arises from these transfers.
Balance sheet
New and used vehicles
Consignment vehicles
Vehicle parts and other inventories
Carrying value of inventories subject to retention of title clauses
2018
£m
858.1
71.8
32.5
959.6
2018
£m
931.8
2017
£m
870.8
95.5
37.2
1,003.5
2017
£m
897.3
The sensitivity of the key assumptions on our sales prices could have the following impact on the net realisable value of
inventory. If our assumptions were £100 per unit worse for those vehicles that are expected to make a loss per unit, the net
realisable value of inventory would reduce by £0.4m in the year.
Cash flow statement information
Movement in inventory
Inventory changes in business combinations and disposals
Impact of exchange differences
Non cash movement in consignment vehicles
Classified as held for sale
Transfer value of contract hire vehicles from fixed assets to inventory
Cash flow decrease due to movements in inventory
2018
£m
43.9
(2.0)
(0.7)
(23.7)
(68.9)
27.8
(23.6)
2017
£m
(157.3)
0.3
0.3
25.2
-
29.2
(102.3)
124
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.5 Movement in contract hire vehicle balance
Depreciation
Changes in trade and other payables and deferred income
Purchases of contract hire vehicles
Unwinding of discounts in contract hire residual values
3.6 Trade and other receivables
Accounting policy
2018
£m
37.9
(1.5)
(65.5)
(2.8)
(31.9)
2017
£m
33.7
19.3
(82.1)
(2.6)
(31.7)
Trade and other receivables are recognised initially at fair value and are subsequently stated at amortised cost using the
effective interest method, less any impairment losses.
Impairment losses are measured in accordance with IFRS 9, which replaces the ‘incurred loss’ model in IAS 39 with an
‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortised cost.
Under IFRS 9, credit losses are recognised earlier than under IAS 39. The transition to IFRS and the subsequent change in
accounting policy had no material effect on the financial position at 31 December 2017 and therefore no restatement was
required.
The calculation of ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value
of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the
cash flows that the Group expects to receive). The Group considers a trade or other receivable to be in default when the
borrower is unlikely to pay its credit obligations to the Group in full after all reasonable actions have been taken to recover
the debt.
Credit risk management
The Group is exposed to credit risk primarily in respect of its trade receivables and financial assets. Trade receivables are
stated net of provision for estimated impairment losses. Exposure to credit risk in respect of trade receivables is mitigated
by the Group’s policy of only granting credit to certain customers after an appropriate evaluation of credit risk. Credit risk
arises in respect of amounts due from vehicle manufacturers in relation to bonuses and warranty receivables. This risk is
mitigated by the range of manufacturers dealt with, the Group’s procedures in effecting timely collection of amounts due
and management’s belief that it does not expect any manufacturer to fail to meet its obligations. Financial assets comprise
trade and other receivables (as above) and cash balances. The counterparties are banks and management does not expect
any counterparty to fail to meet its obligations. The maximum exposure to credit risk is represented by the carrying amount
of each financial asset, including derivative financial instruments, in the balance sheet.
Before granting any new customer credit terms the Group uses external credit scoring systems to assess the potential new
customer’s credit quality and defines credit limits by customer. These limits and credit worthiness are regularly reviewed
and use is made of monitoring alerts provided by the providers of the credit scoring systems. The Group has no customer
that represents more than 5% of the total balance of trade receivables.
125
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.6 Trade and other receivables continued
Balance sheet
Trade receivables
Allowance for doubtful debts
Other receivables
Prepayments
All amounts are due within one year.
2018
£m
46.3
(0.4)
45.9
52.5
16.4
114.8
2017
£m
60.6
(0.3)
60.3
56.6
15.9
132.8
All trade receivables are classified as loans and receivables and held at amortised cost in the current year and prior year.
Total trade receivables held by the Group at 31 December 2018 was £60.1m (2017: £60.3m). No trade receivables have
been classified as held for sale (2017: £nil).
The average credit period taken on sales of goods is 29 days (2017: 29 days). No interest is charged on trade receivables.
The Group makes an impairment provision based on the expected credit losses it deems likely to incur. An expense has been
recognised in respect of impairment losses during the year of £0.6m (2017: £0.8m).
The ageing of trade and other receivables at the reporting date was:
Trade
receivables
2018
£m
Other
receivables
2018
£m
Trade
receivables
2017
£m
Other
receivables
2017
£m
Not past due
Past due 0-30 days
Past due 31-120 days
Past due 120+ days
Provision for impairment
31.9
10.3
3.3
0.8
46.3
(0.4)
45.9
41.7
4.6
6.2
-
52.5
-
52.5
The movement in the allowance for impairment in respect of trade receivables during
the year was as follows:
Balance at 1 January
Utilisation
Impairment loss recognised
Balance at 31 December
45.3
11.5
3.2
0.6
60.6
(0.3)
60.3
2018
£m
0.3
(0.5)
0.6
0.4
46.1
5.1
5.4
-
56.6
-
56.6
2017
£m
0.3
(0.8)
0.8
0.3
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
126
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.7 Trade and other payables
Accounting policy
Trade and other payables are recognised initially at fair value and are subsequently stated at amortised cost using the
effective interest method, less any write-offs.
Balance sheet
Trade payables
Contract hire buyback commitments
Consignment vehicle liabilities
Payments received on account
Other taxation and social security
Accruals
Non-current
Current
2018
£m
940.5
81.2
71.8
11.4
17.7
107.2
1,229.8
54.4
1,175.4
1,229.8
2017
£m
968.6
79.5
95.5
16.7
12.1
110.8
1,283.2
59.0
1,224.2
1,283.2
Trade payables are classified as other financial liabilities and principally relate to vehicle funding. Fair value is deemed to be
the same as carrying value.
The non-current element of trade and other payables relates to contract hire buyback commitments where the Group has
contracted to repurchase vehicles, at predetermined values and dates, that have been let under operating leases or similar
arrangements.
The Group enters into leasing arrangements whereby it agrees to repurchase vehicles from providers of lease finance at
the end of the lease agreement, typically two to four years in the future. The repurchase price is determined at the time the
agreement is entered into based on the then estimate of a vehicle’s future residual value. The actual value of the vehicles at
the end of the lease contract, and therefore the proceeds that can be realised from eventual sale, can vary materially from
these estimates. Annual reviews are undertaken to reappraise residual values and to recognise impairment write downs
where necessary.
127
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.8 Provisions
Accounting policy
A provision is recognised if as a result of a past event the Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that the Group will be required to settle the obligation. 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 the risks specific to the liability.
Vacant property provision
A provision for vacant properties is recognised when the expected benefits to be derived by the Group from a lease
contract are lower than the unavoidable cost of meeting its obligation under the contract. The provision is measured at the
present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with
the contract.
The vacant property provision is comprised of the future costs of vacated properties, being predominantly future lease
commitments less any contributions from income derived from the subletting of these properties. The present value of
future net lease commitments is calculated using a 1.27% discount rate. It is expected that the majority of this expenditure
will be incurred over the next four years. The present value of the income from the subleases is £6.7m over the period of
the leases and assumes that any sublet properties will remain so until the end of the sublease.
VAT assessment
The Group has settled its dispute with HM Revenue and Customs in respect of potential VAT issues arising from purchases
of vehicles from Motability.
The movements in provisions for the year are as follows:
Vacant
property
provision
£m
VAT
assessment
£m
2.7
0.5
(0.7)
(0.2)
2.3
1.6
0.7
2.3
6.8
-
(4.5)
(2.3)
-
-
-
-
Total
£m
9.5
0.5
(5.2)
(2.5)
2.3
1.6
0.7
2.3
At 31 December 2017
Provisions made during the year
Provisions used during the year
Provisions released during the year
At 31 December 2018
Non-current
Current
128
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.9 Deferred income
Property leases
Deferred income arose in 2006 from a sale and leaseback arrangement relating to certain dealership properties leased by
the Group over a 25 year period.
Warranty policies sold
The income received in respect of warranty policies sold and administered by the Group is recognised over the period of
the policy on a straight line basis. The unrecognised income is held within deferred income.
Contract hire
Vehicles supplied to a leasing company for contract hire purposes where the Group undertakes to repurchase the vehicle at
a predetermined date are accounted for in accordance with IAS 17 Leases, where the Group is considered to be an operating
lessor for all arrangements in place. The initial amounts received in consideration from the leasing company are allocated
between the present value of the repurchase commitment, held within trade and other payables and a residual amount
of deferred revenue held within deferred income. The deferred revenue, which effectively represents rentals received in
advance, is taken to the income statement on a straight line basis over the related lease term.
At 31 December 2017
Created in the year
Recognised as income during the year
At 31 December 2018
Non-current
Current
Property
leases
£m
Warranty
policies
£m
Contract
hire
£m
12.3
-
(0.9)
11.4
10.4
1.0
11.4
13.0
12.6
(6.8)
18.8
5.7
13.1
18.8
74.9
37.6
(40.8)
71.7
36.1
35.6
71.7
Total
£m
100.2
50.2
(48.5)
101.9
52.2
49.7
101.9
129
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
This section contains the notes and information to support the elements of both net debt and equity financing as presented
in the Consolidated Balance Sheet.
4.1 Accounting policies
4.2 Financial instruments and derivatives
4.3 Net financing costs
4.4 Capital and reserves
4.1 Accounting policies
4.5
4.6
4.7
4.8
Dividends
Share based compensation
Obligations under finance leases
Operating lease arrangements
IFRS 9 Financial Instruments is mandatory for reporting periods commencing on or after 1 January 2018 and is therefore
adopted in these financial statements. Compared to the previous accounting standard IAS 39, whilst there are changes in
disclosure, there are no material changes in the quantification or measurement of financial assets or financial liabilities. A
summary of the differences between IFRS 9 and IAS 39, as applied to these financial statements, is provided at the end of
this section.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial
assets are derecognised if the Group’s contractual rights to the cash flows from the financial asset expires. Financial liabilities
are derecognised if the Group’s obligations specified in the contract expire or are discharged and cancelled. Financial
instruments comprise both derivative and non-derivative financial instruments.
Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash
and cash equivalents, loans and borrowings, and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition non-derivative
financial instruments are measured as described below.
Trade and other receivables - see note 3.6
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits, and other short term highly liquid investments that
are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Loans and borrowings
Interest-bearing loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent
to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and
redemption value being recognised in the income statement over the period of the borrowings on an effective interest
basis. The effective interest basis is a method of calculating the amortised cost of a financial liability and of allocating
interest payments over the relevant period. The effective interest rate is the rate that exactly discounts estimated future
cash payments through the expected life of the financial liability, or where appropriate, a shorter period.
Trade and other payables - see note 3.7
130
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.1 Accounting policies continued
Hedging Instruments
The Group holds hedging instruments to hedge currency risks arising from its activities. Hedging instruments are recognised
at fair value. Any gain or loss on remeasurement is recognised in the income statement. However, the treatment of gains or
losses arising from hedging instruments which qualify for hedge accounting depends on the type of hedge arrangement.
The fair value of hedging instruments is the estimated amount receivable or payable to terminate the contract determined
by reference to the market prices prevailing at the balance sheet date. The only hedging instrument held by the Group at
the balance sheet date was its borrowing in USD to hedge its investment in overseas operations. A gain or loss in respect
of an effective hedge of a net investment in an overseas operation is recognised directly in equity. Any ineffective portion
of the hedge is recognised in the income statement.
4.2 Financial instruments and derivatives
Net Debt
Cash and cash equivalents
Non-current interest bearing loans and borrowings
Cash and cash equivalents
Bank balances and bank overdrafts set out below are stated net of legal rights of set-off
resulting from pooling arrangements operated by individual banks.
Bank balances and cash equivalents
Borrowings
2018
£m
51.4
(179.0)
(127.6)
2017
£m
53.3
(177.4)
(124.1)
Carrying
value and
fair value
2018
£m
51.4
Carrying
value and
fair value
2017
£m
53.3
As at 31 December 2018, the Group had a £240m credit facility and a £60m senior note, expiring as set out below:
Revolving credit facility
Senior note
Expiry Date
March 2021
March 2023
£m
240.0
60.0
300.0
131
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
During 2016 the company signed a £240m 5 year committed bank facility and a £60m 5.75% 7 year debt private placement.
The fees and expenses associated with this debt of £2.1m are amortised over the expected life of the facility commencing
in 2016. At 31 December 2018, £1.4m had been amortised and £0.7m remains to be amortised in future periods.
Revolving credit facility
Senior note
Current margin
1.40%
5.75%
Commitment
(non-utilisation)
fee
0.49%
n/a
The margin on the revolving credit facility varies according to a ratchet mechanism linked to the ratio of net debt to
underlying EBITDA (after stocking interest). At 31 December 2018, the margin was 1.40%, consequent on the Group having
achieved a ratio of less than 1.0. The commitment fee is calculated at 35% of the margin. The interest rate in respect of the
senior note is a fixed rate of 5.75% until maturity.
The revolving credit facility and the senior note are both subject to the same performance covenants with respect to net
debt : underlying EBITDA (after stocking interest) and fixed charge cover.
Security
Both the revolving credit facility and the senior note are unsecured and rank pari-passu.
Summary of borrowings
Non-current:
Bank borrowings
5.75% Senior note 2023
Other loan notes
Finance leases
Total non-current
Total borrowings
Carrying
value
2018
£m
Fair value
2018
£m
Carrying
value
2017
£m
Fair value
2017
£m
117.3
60.0
0.2
1.5
179.0
179.0
117.3
60.0
0.2
1.5
179.0
179.0
115.7
60.0
0.2
1.5
177.4
177.4
115.7
60.0
0.2
1.5
177.4
177.4
132
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
Reconciliation of movements of liabilities to cash flows arising from financing activities
____Borrowings____
__________Equity_________
Long term
borrowings
£m
Finance
Lease
£m
Share
capital
£m
Other
reserves
£m
Retained
earnings
£m
Total
£m
At 1 January 2018
175.9
1.5
71.2
72.9
281.3
602.8
Cash flows from financing activities
Dividends paid to shareholders
Repurchase of own shares
Disposal of shares by EBT
Repayment of loans
Proceeds from issue of loans
Other changes
The effect of changes in foreign exchange rates
Liability-related : Amortisation of fees and expenses
Equity-related : Total other changes
-
-
-
(10.0)
7.1
(2.9)
4.0
0.5
-
-
-
-
-
-
-
-
-
-
-
(1.2)
-
-
-
-
1.2
-
-
-
(22.5)
(22.5)
(6.7)
0.1
-
-
(6.7)
0.1
(10.0)
7.1
(1.2)
1.2
(29.1)
(32.0)
-
-
-
-
-
-
-
-
4.0
0.5
(41.2)
(41.2)
At 31 December 2018
177.5
1.5
70.0
74.1
211.0
534.1
Interest payments in respect of the above borrowings are reported in operating cash flows in the Consolidated Cash Flow
Statement.
Fair value hierarchy
Financial instruments carried at fair value are required to be measured by reference to the following levels:
Level 1: quoted prices in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
The revolving credit facility and senior note have been measured by a Level 2 valuation method.
133
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
The effective interest rates for all borrowings are all based on LIBOR for the relevant currency, except for the 5.75% Senior
note 2023, which is at a fixed rate. Finance leases are effectively held at fixed rates of interest within the range set out below.
Information regarding classification of balances and interest, the range of interest rates applied in the year to 31 December
2018 and repricing periods, is set out in the table below.
Bank balances and cash equivalents
Loans and receivables
51.4
Amortised cost
Floating GBP
0.25% - 2.09%
6 months or less
Classification
Carrying
value
£m
Classification
Interest
classification
Interest
rate range
Repricing periods
Borrowings
Non - current:
Bank borrowings
Bank borrowings
Other financial liabilities
44.4
Amortised cost
Floating GBP
1.88% - 2.12%
6 months or less
Other financial liabilities
72.9
Amortised cost
Floating USD
2.88% - 3.84%
6 months or less
5.75% Senior note 2023
Other financial liabilities
60.0
Amortised cost
Fixed GBP
Other loan notes
Finance leases
Total non-current
Total current
Total borrowings
Other financial liabilities
0.2
Amortised cost
Fixed GBP
Other financial liabilities
1.5
Amortised cost
Fixed GBP
6.00% - 7.93%
179.0
-
179.0
5.75%
12.50%
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
Pound sterling
US dollar
Treasury policy, financial risk, funding and liquidity management
Financial risk management
The Group is exposed to the following risks from its use of financial instruments:
2018
£m
106.1
72.9
179.0
n/a
n/a
n/a
2017
£m
115.5
61.9
177.4
Funding and liquidity risk - the risk that the Group will not be able to meet its financial obligations as they fall due
Credit risk - the risk of financial loss to the Group on the failure of a customer or counterparty to meet its obligations to the
Group as they fall due
Market risk - the risk that changes in market prices, such as interest rates and foreign exchange rates, have on the Group’s
financial performance
The Group’s quantitative exposure to these risks is explained throughout these financial statements whilst the Group’s
objectives and management of these risks is set out below.
134
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
Treasury policy and procedures
Group treasury matters are managed within policy guidelines set by the Board with prime areas of focus being liquidity,
interest rate and foreign exchange exposure. Management of these areas is the responsibility of the Group’s central treasury
function. Hedging financial instruments are utilised to reduce exposure to movements in foreign exchange rates. The Board
does not permit the speculative use of derivatives.
Funding and liquidity management
The Group is financed primarily by its issued Senior note, revolving credit facility, vehicle stocking credit lines and operating
cash flow. Committed facilities mature within appropriate timescales, are maintained at levels in excess of planned
requirements and are in addition to short term uncommitted facilities that are also available to the Group.
Each business within the Group is responsible for its own day-to-day cash management and the overall cash position is
monitored on a daily basis by the Group treasury department.
The maturity of non-current borrowings is as follows:
Between 2 and 5 years
Over 5 years
2018
£m
179.0
-
179.0
2017
£m
115.7
61.7
177.4
Maturities include amounts drawn under revolving credit facilities which are contractually repayable generally within a
month of the year end but which may be redrawn at the Group’s option. The maturities above therefore represent the final
repayment dates for these facilities. If the amounts drawn at the year end were redrawn at the Group’s usual practice of
monthly drawings, the total cash outflows associated with all borrowings, assuming interest rates remain at the same rates
as at the year end, are estimated on an undiscounted basis as follows:
Bank borrowings
Senior note
Loan notes
Finance leases
Carrying
amount
Con-
tractual
cashflows
117.3
60.0
0.2
1.5
125.2
74.7
0.4
5.8
179.0
206.1
The Group has the following undrawn borrowing facilities:
Expiring in more than two years
Within 6
months
6 - 12
months
1-2 years
2-5 years
1.2
1.7
-
-
2.9
1.2
1.7
-
0.1
3.0
120.3
67.8
0.4
0.3
188.8
2.5
3.5
-
0.1
6.1
2018
£m
122.7
over 5
years
-
-
-
5.3
5.3
2017
£m
124.3
135
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
Interest rate risk management
The objective of the Group’s interest rate policy is to minimise interest costs whilst protecting the Group from adverse
movements in interest rates. Borrowings issued at variable rates expose the Group to cash flow interest rate risk whereas
borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group does not actively manage cash
flow interest rate risk as the Board believes that the retail sector in which the Group operates provides a natural hedge
against interest rate movements. Consequently, it is normal Group policy to borrow on a floating rate basis and all fair value
interest rate risk arising from fixed rate borrowings entered into by the Group are usually managed by swaps into floating
rate. However, the Group decided on a deviation from this policy in respect of its former 6.875% bond 2020. This bond was
issued at a fixed rate of interest and, due to the historically low rates in current floating interest rates, there was relatively
low downside risk in maintaining the bond at fixed rate. This policy has been continued in respect of the Group’s £60m
Senior note 2023.
Interest rate risk sensitivity analysis
As some of the Group’s borrowings and vehicle stocking credit lines are floating rate instruments they therefore have a
sensitivity to changes in market rates of interest. The table below shows the effect of a 100 basis points change in interest
rates for floating rate instruments outstanding at the period end, showing how profit or loss would have varied in the period
on the assumption that the instruments at the period end were outstanding for the entire period.
100 basis points increase
Tax effect
Effect on net assets
100 basis points decrease
Tax effect
Effect on net assets
Foreign exchange risk management
Profit/(loss)
2018
£m
Profit/(loss)
2017
£m
(7.6)
1.4
(6.2)
7.6
(1.4)
6.2
(7.6)
1.5
(6.1)
7.6
(1.5)
6.1
The Group faces currency risk in respect of its net assets denominated in currencies other than sterling. On translation into
sterling, movements in currency will affect the value of these assets. The Group’s policy is therefore to match, where possible,
net assets in overseas subsidiaries which are denominated in a foreign currency with borrowings in the same currency. The
Group has therefore borrowed USD 93.0m (2017: USD 83.5m) against its net assets held in overseas subsidiaries.
136
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
Hedges of net investments in overseas operations
A gain or loss in respect of an effective hedge of a net investment in an overseas operation is recognised directly in equity.
Any ineffective portion of the hedge is recognised in the income statement.
Included within bank borrowings are balances denominated in US dollars which are designated as a hedge of the net
investment in the Group’s US subsidiaries. Foreign exchange differences on translation of the borrowings to sterling at the
balance sheet date are recognised within the translation differences reserve in equity, net of exchange differences in respect
of the net investments being hedged.
Aggregate fair value of borrowings designated as hedge of net investment
in the Group's US subsidiaries
Foreign exchange (losses)/gains on translation of borrowings to sterling at
balance sheet date
Foreign exchange gains/(losses) on translation of net investments to sterling
at balance sheet date
Net exchange gain/(loss) recognised within translation reserve in equity
2018
$m
93.0
£m
(4.0)
4.0
-
2017
$m
83.5
£m
4.2
(4.8)
(0.6)
Capital management
The Group views its financial capital resources as primarily comprising share capital, issued Senior note, bank loans, vehicle
stocking credit lines and operating cashflow.
Core debt i.e. total debt required to fund the Group’s net debt : underlying EBITDA target of 1.0 to 1.5, is essentially funded
by the Group’s issued Senior note and revolving credit facility. The Group requires its revolving credit facility to fund its
day-to-day working capital requirements. A fundamental element of the Group’s financial resources revolves around the
provision of vehicle and parts stocking credit lines, provided by the vehicle manufacturers’ funding arms and other third
party providers. The Group’s funding of its vehicle and parts inventories is set out below:
Manufacturer finance arm
Third party stock finance
Bank
Total inventories
2018
£m
524.2
407.6
96.7
2017
£m
598.6
298.7
106.2
1,028.5
1,003.5
When considering vehicle stocks from a funding risk view point we split the funding into that which is funded by the
vehicle manufacturers through their related finance arms and that funded through third party stock finance facilities and
bank borrowings. Financing for stock other than through bank borrowings is shown in trade creditors in the balance sheet.
Manufacturers’ finance arms tend to vary the level of finance facilities offered dependent on the amount of stocks their
manufacturer wishes to put into the network and this varies depending on the time of year and the level of production.
Undrawn third party stock finance facilities at 31 December 2018 amounted to £22m (2017: £85m).
137
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
The Group is also responsible for funding the pension deficit. The total financial resources required by the Group to fund
itself at 31 December 2018 comprises:
Net debt
Stock finance
Pension deficit
2018
£m
127.6
931.8
68.3
1,127.7
2017
£m
124.1
897.3
62.8
1,084.2
The Board’s policy is to maintain a strong capital base to maintain market confidence and to sustain the development of
the business, whilst maximising the return on capital to the Group’s shareholders. The Group’s strategy will be to maintain
facilities appropriate to the working requirements of the Group, to grow organically and service its debt requirements
through generating cash flow. The Group had set a net debt : underlying EBITDA target range of 1.0 to 1.5 : 1. At 31 December
2018 the net debt : underlying EBITDA ratio achieved was 0.9 : 1, calculated as follows:
Underlying operating profit
Depreciation
Amortisation
Underlying EBITDA
2018
£m
76.2
62.2
3.1
141.5
2017
£m
83.8
59.5
2.7
146.0
Net debt (being net debt as set out above)
127.6
124.1
Net debt : underlying EBITDA ratio
0.9
0.9
The key measures which management uses to evaluate the Group’s use of its financial resources, and performance achieved
against these in 2018 and 2017 are set out below:
Underlying profit before tax (£m)
Underlying earnings per share (p)
Net debt : underlying EBITDA
2018
47.8
2.8
0.9
2017
60.4
3.3
0.9
The Group’s capital structure and capital allocation priorities were reassessed during 2017 and the conclusion of that review
in December 2017 decided the following priorities: UK new car business - a review of capital allocation of Premium Brands
was completed and certain franchise locations will be reduced over a three year period. It is estimated that £100m capital
will be released through a mixture of disposal proceeds and investment not deployed over the three years from December
2017. US Motor Group - given the strong performance of this division, it is economically right to sell the business to realise
its value of approximately £100m before tax. UK used car business - this remains our focus for growth with continued
investment to complete our national network achieving our objective to double used car revenue by 2021.
The Group has a target range of 1.0 to 1.5 times net debt to underlying EBITDA and is currently trading with financial
leverage below this level.
138
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
The Group will continue to pursue organic and acquisitive growth and investment opportunities and evaluate them against
the returns generated via the share buyback programme. The buyback programme is currently paused and is capable of
being stopped and restarted and this flexibility will enable the Group to pursue other, higher returning, capital allocation
opportunities if they arise. The Group may also issue shares or purchase them in the market to satisfy share incentives issued
to employees of the Group. The Group encourages employees to be shareholders of the Group, providing selective share
option and LTIP schemes from time to time.
Certain of the company’s subsidiaries are required to maintain issued share capital at levels to support capital adequacy
under Financial Conduct Authority (FCA) requirements. The Group ensures these requirements are met by injections of
equity to the subsidiaries in question, when required.
Other than specifically set out above, there were no changes to capital management in the year.
IFRS 9 v IAS 39
Financial assets
IAS 39 classifies financial assets into classes according to their nature i.e. loans and receivables, held to maturity or available
for sale. IFRS 9, by contrast, classifies assets according to the business model for their realisation, as determined by the
expected contractual cashflows. This classification determines the accounting treatment, and the new classification under
IFRS 9 is by reference to the accounting treatment i.e. amortised cost, fair value through other comprehensive income or fair
value through profit and loss.
Impairment of financial assets
IAS 39 adopts an incurred loss approach for measuring impairment while IFRS 9 adopts an expected credit loss approach
(ECL). The IAS 39 incurred loss approach relied on a credit event occurring (an actual loss or a debt past a number of days
due) before an impairment could be recognised. The IFRS 9 approach does not require a credit event to occur but is based
on changes in expectations of credit losses. IFRS 9 also requires that impairment of financial assets be shown as a separate
line item in either the statement of comprehensive income or the income statement. Under IAS 39 the Group recorded the
impairment of its financial assets (trade and other receivables) within operating expenses.
Financial liabilities
IFRS 9 largely retains the classification requirements of IAS 39 so there are no material differences. The following table
summarises the differences between IFRS 9 and IAS 39, as applied to these financial statements.
IFRS 9 classification
IAS 39 classification
IFRS 9
Carrying
value
£m
Remeas-
urement
£m
IAS 39
Carrying
value
£m
Financial assets
Trade and other receivables
Cash and cash equivalents
Financial liabilities
Loans and borrowings
Trade and other payables
Amortised costs
Loans and receivables
139.8
Amortised costs
Loans and receivables
51.4
Amortised cost
Amortised cost
(179.0)
Amortised cost
Amortised cost
(1,318.3)
Foreign currency loans used to hedge overseas investments
Fair value hedging instrument
Fair value hedging instrument
(72.9)
-
-
-
-
-
139.8
51.4
(179.0)
(1,318.3)
(72.9)
139
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.3 Net financing costs
Accounting policy
Finance income comprises interest income on funds invested, return on net pension scheme assets and gains on hedging
instruments that are recognised in profit and loss. Interest income is recognised as it accrues in profit and loss, using the
effective rate method.
Finance expense comprises interest expense on borrowings, unwinding of the discount on provisions, interest on net pension
scheme obligations and losses on hedging instruments recognised in profit and loss. All borrowing costs are recognised in
profit and loss using the effective interest method.
Gross finance costs directly attributable to the construction of property, plant and equipment are capitalised as part of the
cost of those assets until such a time as the assets are substantially ready for their intended use or sale.
Finance expense
Recognised in profit and loss
Interest payable on bank borrowings, Senior note, bond and loan notes
Vehicle stocking plan interest
Interest payable on finance leases
Net interest on pension scheme obligations (non-underlying - see note 2.6)
Less: interest capitalised
Total interest expense being interest expense in respect of financial liabilities
held at amortised cost
Unwinding of discounts in contract hire residual values
Total finance expense
2018
£m
8.4
18.1
0.1
1.6
(1.0)
27.2
2.8
30.0
2017
£m
7.0
14.5
0.1
2.7
(0.8)
23.5
2.6
26.1
Interest of £1.0m has been capitalised during the year on assets under construction at an average rate of 5.75% (2017:
£0.8m).
140
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.4 Capital and reserves
Ordinary share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised
as a deduction from equity, net of any tax effects.
Allotted, called up and fully paid shares of 5p each at 31 December 2017
Shares cancelled during the year
Allotted, called up and fully paid shares of 5p each at 31 December 2018
There were no issues of ordinary shares during the year.
Number
1,424,814,004
(25,664,979)
1,399,149,025
£m
71.2
(1.2)
70.0
25,664,979 ordinary shares having a nominal value of £1.2m were bought back and subsequently cancelled during the year
in accordance with the authority granted by shareholders in the Annual General Meeting on 2 May 2018. The aggregate
consideration paid, including directly attributable costs, was £6.7m. Since the commencement of the current share buyback
programme in 2016, as at 31 December 2018, 61,171,630 shares have been bought back and cancelled representing 4.2% of
the issued ordinary shares, at a cost of £18.2m.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the company. All shares rank equally with regard to the company’s residual assets.
Capital redemption reserve
The capital redemption reserve has arisen following the purchase by the company of its own shares and comprises the
amount by which distributable profits were reduced on these transactions in accordance with s733 of the Companies
Act 2006. £1.2m (2017: £0.6m) was transferred into the capital redemption reserve during the year in respect of shares
purchased by the company and subsequently cancelled.
Other reserves
Other reserves comprise the amount of demerger reserve arising on the demerger of the company from Williams Holdings
PLC in 1989.
Own shares held by Employee Benefit Trust (EBT)
Transactions of the Group-sponsored EBT are included in the Group financial statements. In particular, the trust’s purchases
of shares in the company, which are classified as own shares, are debited directly to equity through retained earnings.
When own shares are sold or reissued the resulting surplus or deficit on the transaction is also recognised within retained
earnings.
The market value of the investment in the company’s own shares at 31 December 2018 was £1.4m (2017: £2.2m), being 6.4m
(2017: 7.7m) shares with a nominal value of 5p each, acquired at an average cost of £0.33 each (2017: £0.33). During the
year the trust acquired no shares (2017: 8.3m shares, for a consideration of £2.8m) and disposed of 1.3m (2017: 8.1m) shares
in respect of LTIP and executive share option awards for a consideration of £0.1m (2017: £0.1m). The amounts deducted
from retained earnings for shares held by the EBT at 31 December 2018 was £18.1m (2017: £18.2m). The trustee of the EBT
is Salamanca Group Trust (Jersey) Limited. The shares in trust may subsequently be awarded to Executive Directors and
employees under the Pendragon 1999 Approved Executive Share Option Scheme, Pendragon 1999 Unapproved Executive
Share Option Scheme and to satisfy amounts under LTIPs and the VCP. Details of the plans are given in the Directors’
Remuneration Report on pages 55 to 68.
141
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.4 Capital and reserves continued
Dividends on the shares owned by the trust, the purchase of which were funded by interest free loans to the trust from
Pendragon PLC, are waived. All expenses incurred by the trust are settled directly by Pendragon PLC and charged in the
accounts as incurred.
The trust is regarded as a quasi subsidiary and its assets and results are consolidated into the financial statements of the
Group.
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the net investment
in foreign operations as well as from the translation of liabilities held to hedge the respective net investment in foreign
operations.
4.5 Dividends
Final dividends proposed by the Board and unpaid at the end of the year are not recognised in the financial statements until
they have been approved by the shareholders at the AGM. Interim dividends are recognised when they are paid.
Ordinary shares
Final dividend in respect of 2017 of 0.8p per share (2016: 0.75p per share)
Interim dividend in respect of 2018 of 0.8p per share (2017: 0.75p per share)
2018
£m
10.7
11.8
22.5
2017
£m
10.7
10.6
21.3
The Board is recommending a final dividend for 2018 of 0.7p (2017: 0.8p) per ordinary share equating to £9.8m in total in
respect of shares in issue at the date of this report (2017: £11.3m).
142
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.6 Share based compensation
Accounting policy
The Group operates a number of employee share option schemes and an executive share ownership plan ‘exsop’ awarded in
2010. The fair value at the date at which the share options are granted is recognised in the income statement on a straight
line basis over the vesting period, taking into account the number of options that are expected to vest. The fair value of the
options granted is measured using an option pricing model, taking into account the terms and conditions upon which the
options were granted. The number of options that are expected to become exercisable is reviewed at each balance sheet
date and if necessary estimates are revised.
Executive share options
The number and weighted average exercise prices of share options is as follows:
Outstanding at beginning of period
Exercised during the period
Lapsed during the period
Outstanding at the end of the period
Exercisable at the end of the period
Weighted
average
exercise
price
2018
Number
of
options
millions
2018
Weighted
average
exercise
price
2017
Number
of
options
millions
2017
29.89p
11.17p
39.45p
23.63p
23.63p
12.9
(1.3)
(6.1)
5.5
5.5
29.76p
12.55p
38.76p
29.89p
21.83p
14.7
(0.8)
(1.0)
12.9
7.1
The options outstanding at 31 December 2018 have an exercise price in the range of 8.8p to 31.82p and a weighted contractual
life of 4.5 years. All share options are settled in equity.
Movements in the number of options to acquire ordinary shares under the Group’s various share option schemes, together
with exercise prices and the outstanding position at 31 December 2018 were as follows:
Exercise period
Date of grant
Exercise
price per
share
At 31
December
2017
Number
Exercised
Number
Lapsed
Number
20 September 2013 to 19 September 2020 20 September 2010
14.22p
435,977
-
7 October 2014 to 6 October 2021
6 October 2011
8.82p
1,384,451
(626,133)
31 March 2015 to 30 March 2022
30 March 2012
13.50p 1,730,000
(630,000)
-
-
-
At 31
December
2018
Number
435,977
758,318
1,100,000
19 September 2017 to 19 September 2024 18 September 2014
31.82p 3,579,500
-
(350,000)
3,229,500
1 April 2018 to 31 April 2025
31 March 2015
39.92p 5,729,019
- (5,729,019)
-
12,858,947
(1,256,133) (6,079,019)
5,523,795
All grants of share options were issued pursuant to the 2009 Executive Share Option Scheme, which prescribed an earnings
per share performance criterion. It is a precondition to the exercise of grants made under the 2009 Scheme that the growth
in the company’s earnings per share over the prescribed three year period must exceed by at least 3 percent per annum
compound the annual rate of inflation as shown by the RPI Index.
143
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.6 Share based compensation continued
The weighted average share price at the date of exercise for share options exercised in the year was 25.5p (2017: 32.4p).
All options are settled by physical delivery of shares.
The fair value of the services received in return for share options is measured by reference to the fair value of the options
granted. The estimate of the fair value of the services received in respect of share option schemes is measured using the
Black-Scholes option pricing model. The weighted average fair value of the options at the date of grant for those that are
outstanding at 31 December 2018 is 6.4p (2017: 7.0p).
Executive Long Term Incentive Plan (‘LTIPs’)
The number and weighted average exercise prices of executive LTIPs is as follows:
Outstanding at the start of the period
Lapsed during the period
Outstanding at the end of the period
Weighted
average
exercise
price
2018
Number
of
options
millions
2018
Weighted
average
exercise
price
2017
Number
of
options
millions
2017
0.0p
0.0p
-
6.3
(6.3)
-
0.0p
0.0p
0.0p
7.7
(1.4)
6.3
Movements in the number of options to acquire ordinary shares under the Group’s LTIP, together with the outstanding
position at 31 December 2018 were as follows:
Exercise period
31 March 2018
Date of grant
31 March 2015
14 September 2019
14 September 2016
At 31
December
2017
Number
At 31
December
2018
Number
Lapsed
Number
3,937,633
(3,937,633)
2,400,000 (2,400,000)
6,337,633
(6,337,633)
-
-
-
All grants of LTIPs were issued pursuant to the Long Term Incentive Plan, which prescribed an earnings per share performance
criterion. It is a precondition that vesting will not occur if earnings per share growth in the three year performance period
does not exceed RPI by at least 4 percent. Vesting will occur between performance points on a straight line basis. All is
subject to an underpin of creating absolute total shareholder value. In the case of the company, this means that growth
in the value of a shareholding in the company must exceed the growth in the value of shares in the comparator index the
company is in, currently the FTSE Small Cap.
The fair value of the services received in return for the LTIPs is measured by reference to the fair value of the LTIPs granted.
The estimate of the fair value of the services received in respect of the LTIPs is measured using the Black-Scholes option
pricing model. The weighted average fair value of the options at the date of grant for those that are outstanding at 31
December 2018 is nil (2017: 34.2p).
The Group recognised a total net expense of £0.7m (2017: £1.7m credit) as an employee benefit cost in respect of all equity-
settled share based payment transactions included within administration costs.
144
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.7 Obligations under finance leases
Accounting policies
Leases are classified as finance leases wherever the lease transfers substantially all the risks and rewards of ownership to the
Group. All other leases are treated as operating leases.
Assets held under finance leases are recorded at inception at the lower of the fair value of the asset and the present value
of the minimum payments required to be made under the lease. Subsequent to initial recognition, the asset is accounted
for in accordance with the accounting policy applicable to that asset. The corresponding liability is recorded as a finance
lease obligation. The finance charge element of rentals paid under these leases is expensed so as to give a constant rate
of finance charge on the remainder of the obligation. Finance charges are expensed in the income statement and the
capitalised leased asset is depreciated over the shorter of the lease term and the asset’s useful economic life.
Finance leases
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
After five years
Less: future finance charges
Present value of lease obligations
Amount due for settlement within one year
Amount due for settlement in over one year
Minimum
lease payments
Present value of
minimum lease payments
2018
£m
0.1
0.4
5.3
5.8
(4.3)
1.5
2017
£m
2018
£m
2017
£m
0.1
0.4
5.4
5.9
(4.4)
1.5
0.1
0.3
1.1
1.5
-
1.5
-
1.5
1.5
0.1
0.3
1.1
1.5
-
1.5
-
1.5
1.5
The Group’s obligations under finance leases comprise properties on long term leases with a lease term of between 50
and 75 years. The effective interest rates are shown in note 4.2 above. The Group’s obligations under finance leases are
secured by the lessors’ charges over the leased assets.
All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
145
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.8 Operating lease arrangements
Leases are classified as operating leases wherever the lease does not transfer substantially all the risks and rewards of
ownership to the Group.
Rentals paid under operating leases are charged directly to the income statement on a straight line basis over the period
of the lease. Leases subject to predetermined fixed rental uplifts have their rentals accounted for on a straight line basis
recognised over the life of the lease. Lease incentives received and paid are recognised in the income statement as an
integral part of the total lease expense over the term of the lease.
The Group as lessee
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-
cancellable operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
2018
£m
46.0
169.2
264.5
479.7
2017
£m
43.4
159.3
338.0
540.7
The Group leases a number of properties, the majority of which are motor vehicle showrooms with workshop and parts
retail facilities, with varying lease periods. None of the leases includes contingent rentals. In addition there are other leases
in respect of items of plant and equipment which includes the rental of motor vehicles hired for short term usage, typically
as courtesy cars.
The following amounts have been charged to the income statement as operating expenses during the year:
Operating lease rentals payable
- hire of plant and machinery
- property rentals
The Group as lessor
2018
£m
2.1
43.8
2017
£m
2.1
43.8
Property rental income earned during the year was £4.7m (2017: £5.1m). No contingent rents were recognised in income
(2017: £nil). The Group currently receives rental income on 32 (2017: 32) properties on short term leases. These properties
are not treated as investment properties.
At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:
Within one year
In the second to fifth years inclusive
After five years
146
2018
£m
4.6
15.9
18.5
39.0
2017
£m
4.3
13.7
24.0
42.0
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
This section explains the pension scheme obligations of the Group.
5.1 Pension obligations
Accounting policy
The Group operated a number of defined benefit and defined contribution plans during the year. The assets of the defined
benefit plan and one defined contribution plan are held in independent trustee administered funds. The Group also operates a
Group Personal Pension Plan which is a defined contribution plan where the assets are held by the insurance company under
a contract with each individual.
Defined contribution plans - A defined contribution plan is one under which the Group pays fixed contributions and has no
legal or constructive obligation to pay further amounts. Therefore, no assets or liabilities of these plans are recorded in these
financial statements. Obligations for contributions to defined contribution pension plans are recognised as an employee
benefit expense in the income statement when they are due.
Defined benefit plans - Pension accounting costs for defined benefit plans are assessed by determining the pension
obligation using the projected unit credit method after including a net return on the plan assets. Under this method, in
accordance with the advice of qualified actuaries, the amounts charged in respect of employee benefits reflect the cost of
benefits accruing in the year and the cost of financing historical accrued benefits. The Group recognises all actuarial gains
and losses arising from defined benefit plans in the statement of other comprehensive income immediately.
The present value of pension obligations is measured by reference to market yields on high quality corporate bonds which
have terms to maturity approximating to the terms of the related pension liability. Plan assets are measured at fair value.
When the calculation results in a benefit to the Group, the recognised asset is limited to the total of the present value of
economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the
plan. An economic benefit is available to the Group if it is realisable during the life of the plan, or on settlement of the plan
liabilities.
Under IAS 19 Employee Benefits, the Group recognises an interest expense or income which is calculated on the net defined
benefit liability or asset respectively by applying the discount rate to the net defined benefit liability or asset.
Remeasurements arising from defined benefit plans comprise actuarial gains and losses and the return on plan assets
(excluding interest) are immediately recognised directly in the statement of other comprehensive income. Actuarial gains
and losses are the differences between actual and interest income during the year, experience losses on scheme liabilities
and the impact of any changes in assumptions. Details of the last independent statutory actuarial valuation and assumptions
are set out below.
Pension arrangements
The Group operated six defined benefit pension schemes which provides benefits based on final salary (one of which
had a defined contribution section) which closed to new members and accrual of future benefits on 30 September 2006
and a defined contribution scheme which was closed to new contributions from April 2006. All affected employees were
offered membership of a defined contribution pension arrangement with Friends Provident. A Group Personal Pension
arrangement with Legal & General replaced the Friends Provident arrangement from 1 January 2010. Total contributions
paid by the Group in 2018 to the Legal & General arrangement were £2.7m (2017: £2.5m). To comply with the Government’s
automatic enrolment legislation, the Group chose to participate in the People’s Pension Scheme in April 2013. This is a
defined contribution occupational pension scheme provided by B&CE. Total contributions paid by the Group to the People’s
Pension in 2018 were £5.1m (2017: £2.6m). The combined contributions to the Group’s Personal Pension arrangement
(including the US Motor business) and the Peoples Pension scheme totalled £7.8m in the period.
147
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
During 2012 the Trustees merged the six defined benefit schemes into one new defined benefit scheme, ‘the Pendragon Group
Pension Scheme’, which remains closed to new members and accrual of future benefits. The assets of the six schemes have
all been transferred into the new scheme and the benefits previously accrued in the six schemes were transferred without
amendment of the benefit entitlement of members to the new scheme.
The scheme is subject to the funding legislation outlined in the Pensions Act 2004 which came into force on 30 December
2005. This, together with documents issued by the Pensions Regulator, and Guidance Notes adopted by the Financial
Reporting Council, set out the framework for funding defined benefit occupational pension schemes in the UK.
The Board of the Trustees of the pension scheme is currently composed of two member nominated trustees (i.e. members of the
pension scheme nominated by other members to be trustees), two employer representatives and a professional independent
trustee. The former independent chair of trustees retired at 31 December 2017 and the professional independent trustee
became chair during 2018. The Trustee of the scheme is required to act in the best interest of the scheme’s beneficiaries. The
appointment of the Trustee is determined by the scheme’s trust documentation.
Under IAS 24, the pension schemes are related parties of the Group. At 31 December 2018 there was an outstanding balance
of £0.8m (2017: £0.8m) payable to the pension schemes.
Funding
The Pendragon Group Pension Scheme is the liability of the parent company only, and not of any subsidiaries: it is therefore
only recognised in the financial statements of the parent company. The Scheme is fully funded by the subsidiary companies of
the group, as the parent company does not generate cash inflows itself. The funding requirements are based on the Scheme’s
actuarial measurement framework set out in the funding policies of the Scheme. Employees are not required to contribute to
the plans.
Explanation of the Pension Deficit
The liability to pay future pensions is a liability to settle a stream of future cashflows. These future cashflows have the following
profile:
m
£
t
n
e
m
y
a
P
l
a
u
n
n
A
30
25
20
15
10
5
0
148
2020
2030
2040
2050
2060
2070
2080
2090
2100
2110
Deferreds
Pensioners
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
‘Deferred’ are those pension scheme members not yet drawing a pension as at 31 December 2018; ‘Pensioners’ are those
in receipt of pension at 31 December 2018.
The actual total cash liabilities shown above are estimated at £796m. The value of these liabilities discounted to present
value at 31 December 2018 are £486.3m.
In order to meet those future cashflows, the Pension Scheme has to grow its assets sufficient to settle those liabilities. The
risk of the future value of those assets is dependent on the financial return; the liabilities will change dependent on the rate
of inflation (as most pensions are inflation adjusted) and longevity (how long the pensioner lives for and therefore in receipt
of pension). The pension deficit is the gap between those assets and liabilities and can be calculated in one of two ways,
both of which are arithmetically identical: either forecast future assets at the asset growth rate to offset against actual
liabilities or discount future liabilities by the asset growth rate and compare with the present value of the assets. The latter
method is the one commonly adopted and accounting standards require that the asset growth rate (the discount rate)
should be estimated on a similar basis for every company, to enhance comparability and to assume a relatively low level of
risk. The more realistic picture is provided by the actuarial valuation which considers what the best estimate of the asset
growth rate should be and hence what the gap is that the Group will be required to fund through cash contributions. These
actuarial valuations are conducted every three years (the triennial valuation). The last triennial valuation was conducted as
at 31 December 2015 giving the following comparison:
As at 31 December 2015
Assets
Liabilities
Pension deficit
Discount rate used
Inflation
IAS 19
(Accounts)
£m
396.9
(440.3)
(43.4)
3.90%
2.1%-3.9%
Actuarial
valuation
£m
397.0
(432.1)
(35.1)
4.20%
1.8%-3.7%
The triennial valuation of the pension scheme reflecting the position as at 31 December 2015 was agreed by the Trustees on
13 March 2017. The company has agreed with the trustees that it will aim to eliminate the deficit over a period of 5 years and
7 months from 1 January 2017 by the payment of deficit recovery contributions of £7.0m each year, increasing at 2.25% p.a.
These contributions include the expected quarterly distributions from the Central Asset Reserve over the recovery period.
The next triennial valuation of the pension scheme will reflect the position as at 31 December 2018.
Central Asset Reserve
Pendragon PLC is a general partner and the Pendragon Group Pension Scheme is a limited partner of the Pendragon
Scottish Limited Partnership (the Partnership). The Partnership holds £34.5m of properties which have been leased back to
the Group at market rates. The Group retains control over these properties, including the flexibility to substitute alternative
properties. As such, the Partnership is consolidated into the results of the Group. During the year the Group has paid £2.9m
to the Pendragon Group Pension Scheme through the Partnership (2017: £2.8m) and will increase by 2.25% on 1 August each
year until the leases expire on 31 July 2032. These payments could cease in advance of that date if the Pension Scheme’s
actuarial valuation reaches a point where there is a surplus of 5% over the liability value (on the actuarial triennial valuation
basis). The Pension Scheme therefore has a right to receive a future stream of rental receipts. No asset is recognised in
these financial statements as the Group has to consent to any proposed disposal of this asset by the Pension Scheme.
However, if the Group became insolvent the properties themselves would be retained by the Pension Scheme.
149
2020
2030
2040
2050
2060
2070
2080
2090
2100
2110
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
IAS 19 assumptions
The assumptions used by the actuary in performing the triennial valuation at 31 December 2015 are the best estimates
chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not necessarily be borne
out in practice. The IAS 19 assumptions have been updated at 31 December 2018 and differ from those used for the earlier
independent statutory actuarial valuations explained above.
The principal assumptions used by the independent qualified actuaries for the purposes of IAS 19 for all schemes were:
Inflation - RPI
Inflation - CPI
Discount rate
2018
3.25%
2.25%
2.85%
2017
3.25%
2.25%
2.55%
2016
3.35%
2.35%
2.70%
Mortality table assumption *
VitaCurves CMI 2017 M (1%) /
S2PMA CMI 2016 M (1%) /
S2PMA CMI 2015 M (1%)
VitaCurves CMI 2017 F (1%)
S2PFA CMI 2016 F (1%)
S2PFA CMI 2015 F (1%)
*The mortality table assumption implies the following expected future lifetime from age 65:
Males aged 45
Females aged 45
Males aged 65
Females aged 65
2018
Years
22.8
24.9
21.8
23.7
2017
Years
23.0
25.0
21.9
23.7
2016
Years
23.2
25.4
21.9
23.9
During 2010 the Government announced a change to the index to be used for pension increases from RPI to CPI. The change
applied to certain elements of pension increases depending on the nature of the pension entitlement, the period in which
it was earned and the rules of each scheme. The application of either RPI or CPI to calculate the pension liability has been
assessed for each scheme and the relevant elements of pension increases within each scheme.
150
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
The sensitivities regarding the principal assumptions used to measure scheme liabilities are set out below:
Assumption
Discount rate
Rate of inflation
Mortality
Change in assumption
Impact on scheme liabilities
Increase/decrease by 0.1%
Decrease/increase of £8.4m
Increase/decrease by 0.1%
Increase/decrease of £5.3m
Increase in life expectancy of 1 year
Increase by £15.6m
The sensitivities shown above are approximate. Each sensitivity considers one change in isolation. The inflation sensitivity
includes the impact of changes to the assumptions for revaluation and pension increases. The average duration of the
defined benefit obligation at the period ending 31 December 2018 is 17 years (2017: 18 years).
The scheme typically exposes the Group to actuarial risks such as investment risk in assets (the return and gain or loss
on assets invested in), inflation risk (as pensions typically rise in line with inflation) and mortality risk (the length of time a
pensioner lives for) in respect of liabilities. As the accounting deficit is calculated by reference to a discount rate linked to
corporate bonds then the Group is also exposed to interest rate risk i.e. the discounted value of liabilities will rise or fall in
line with changes in the interest rate used to calculate (discount) the future pension liabilities to present value. A decrease in
corporate bond yields, a rise in inflation or an increase in life expectancy would result in an increase to scheme liabilities. This
would detrimentally impact the balance sheet position and may give rise to increased charges in future income statements.
This effect could be partially offset by an increase in the value of the scheme’s assets. In order to further mitigate risk,
the scheme’s investment strategy was changed during 2017 and now operates within a liability driven framework known
as Liability Driven Investments (‘LDI’) i.e. the scheme invests in a mix of assets that are broadly expected to match the
expected movement in the net present value of liabilities. This is achieved by investing in assets that are broadly expected
to hedge the underlying inflation and interest rate risks of 90% of the liabilities (2017: 80% of the liabilities).
The nature of the products available for liability driven investing mean that a greater proportion of the scheme’s assets
can be used to invest in assets that are expected to have a higher growth rate than low risk assets. Traditionally, a pension
scheme would typically invest in low risk assets such as gilts or cash to broadly match the liabilities of pensions already in
payment and invest in higher risk assets such as equities in an attempt to seek growth to fund future pensions for deferred
members. Today, the products available for liability driven investing means that each £100 of gilts formerly held can now be
replaced with c. £25 of collateral LDI assets and £75 of higher growth assets in order to generate a higher expected return
with a similar expected level of risk of volatility. When the LDI investment strategy was put in place in 2017, the investments
were rebalanced to hold the required level of LDI collateral assets and the balance invested in a range of diversified growth
funds which typically target a return of 3-5% per annum. Additionally, caps on inflationary increases are in place to protect
the scheme against extreme inflation. During 2018 a new investment advisor was appointed to the Pension Scheme and
the current focus is on further reducing the risk the pension scheme runs in investing in equities, which by their nature are
volatile: the pension scheme is considering a strategy to ‘bank’ gains on equities when certain trigger points are met and to
re-invest in lower yielding but less risky assets.
151
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
The fair value of the scheme’s assets which are not intended to be realised in the short term and may be subject to significant
change before they are realised, and the value of the schemes liabilities, which is derived from cash flow projections over
long periods and thus inherently uncertain, are:
Scheme assets and liabilities
UK equities
Overseas equities
Unit trust
Corporate bonds
Government bonds
Liability driven investments
Diversified growth fund
Cash
Fair value of scheme assets
Present value of funded defined benefit obligations
Net liability on the balance sheet
2018
£m
129.1
1.9
13.2
-
-
58.9
163.1
51.8
2017
£m
2016
£m
193.0
234.5
0.2
17.8
-
-
65.6
163.1
19.3
7.8
21.9
10.9
161.2
-
-
5.1
418.0
459.0
441.4
(486.3)
(521.8)
(544.6)
(68.3)
(62.8)
(103.2)
None of the fair values of the assets shown above include any of the company’s own financial instruments or any property
occupied by, or other assets used by, the company. All of the scheme assets have a quoted market price in an active market
with the exception of the Trustee’s bank account balance.
UK equities are held as a mixture of pooled funds (where cash is invested in a quoted fund designed by the fund manager)
or via a segregated mandate where cash is advanced to a fund manager for direct investment in equities at the discretion
of the fund manager.
Liability driven investments (‘LDI’) comprises of investments in funds invested mostly in assets akin to gilts. The diversified
growth fund comprises of investments with a number of different fund managers in their individual funds, which funds
invest in a mixture of UK and global equities, government and non-government bonds, cash and derivatives.
An LDI solution does not remove all risks within a pension scheme. Those that remain include:
• Demographic risks. For example mortality experience may differ from that assumed when projecting the liability
cashflows.
• Basis risk. The valuation of the liabilities by the Scheme Actuary may be based on a specific discount rate, or perhaps a
market reference yield. The LDI portfolio will be subject to either underlying gilt or swap market rates. To the extent that
these differ, it may result in a residual variation between the two valuation approaches.
• LIBOR target risk. With derivative positions in place, the assets need to achieve a LIBOR (cash return) based target
in order to keep pace with the liabilities. To the extent that this return is not achieved (through poor cash funds, or
underperformance of growth assets), this will detract from the funding position.
• Counterparty risk. The instruments used in an LDI solution rely on investment bank counterparties to provide the required
exposures. If a counterparty defaults, this can lead to a loss of that particular exposure and potentially a loss of any
accrued profit on the position. This latter is mitigated by the counterparty placing assets as security or ‘collateral’ to
cover accrued profits.
It is the policy of the Trustee and the company to review the investment strategy at the time of each funding valuation and
keep this under review. The Trustee investment objectives and the processes undertaken to measure and manage the risks
inherent in the scheme investment strategy are documented in the scheme’s Statement of Investment Principles.
152
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
The Group has reviewed implications of the guidance provided by IFRIC 14 and have concluded that it is not necessary
to make any adjustments to the IAS 19 figures in respect of an asset ceiling or Minimum Funding Requirement as at 31
December 2018 and at 31 December 2017.
Movements in the net liability for defined benefit obligations recognised in the balance sheet
Net liability for defined benefit obligations at 1 January
Contributions received
Expense recognised in the income statement
Actuarial gains and losses recognised in the statement of other comprehensive income
Net liability for defined benefit obligations at 31 December
The defined benefit obligation can be allocated to the plan’s participants as follows:
Deferred plan participants
Retirees
Actual return on assets
Expected contributions in following year
Total in the income statement
Net interest on obligation
Past service cost
The expense is recognised in the following line items in the income statement:
Administration costs
Finance costs
2018
£m
(62.8)
7.5
(12.1)
(0.9)
(68.3)
2018
%
58
42
2018
£m
(27.3)
7.3
2018
£m
1.6
10.5
12.1
2018
£m
10.5
1.6
2017
£m
(103.2)
7.3
(2.7)
35.8
(62.8)
2017
%
58
42
2017
£m
40.1
7.2
2017
£m
2.7
-
2.7
2017
£m
-
2.7
The discount rate used to calculate interest cost for the period ending 31 December 2018 was 2.55%. This compares to the
discount rate of 2.70% used in the calculation of the interest cost for the period ending 31 December 2017.
Based on the reported deficit of £68.3m at 31 December 2018 and the discount rate assumption of 2.85% the charge in 2019
is expected to be £1.9m.
153
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
Past service costs - GMP equalisation
Between 6 April 1978 and 5 April 1997, UK legislation on state pensions included provisions as to a state earnings related
pension (SERPS). It was possible to contract out of SERPS by making alternative arrangements which provided for
guaranteed minimum pensions (“GMPs”), but the regime created a number of inherent inequalities between men and women.
Therefore, many occupational pension schemes that involved contracting out of SERPS, despite being compliant with the
legislation, created inequalities in relation to the benefits available to male and female members of those schemes.
The English High Court ruling in Lloyds Banking Group Pension Trustees Limited v Lloyds Bank plc and others was published
on 26 October 2018, and held that UK pension schemes with GMPs accrued from 17 May 1990 must equalise for the different
effects of these GMPs between men and women.
The trustees of the scheme will need to obtain legal advice covering the impact of the ruling on the scheme, before deciding
with the employer on the method to adopt. The legal advice will need to consider (amongst other things) the options for
GMP equalisation solutions, whether there should be a time limit on the obligation to make back-payments to members (the
“look-back” period) and the treatment of former members (e.g. members who have died without a spouse and members
who have transferred out).
The Lloyds case gave some guidance on related matters, including the methods for equalisation and decided that method
‘C2’ was lawful in principle and met the minimum requirements to achieve equality. Method C2 is the basis adopted for the
purposes of estimation in these financial statements. The past service cost is an estimate of the impact on the accounting
liabilities as at 31 December 2018 if the method ‘C2’ were to apply to past and future benefit payments (referred to below
as the ‘GMP equalisation impact’), assuming that there would be no limit on the ‘look-back’ period for rectification and only
considers members who currently have GMP liabilities within the scheme (and not, for example, members who have died
without a spouse or members who have transferred out).
GMP equalisation impact
The calculation approach involves applying judgement to derive a combined percentage impact on the total value of GMP
liabilities within the preliminary results of the scheme funding valuation as at 31 December 2015. This impact is expressed as
a percentage of the total scheme funding liabilities (the technical provisions) that is then applied to the accounting liabilities
as at 31 December 2018. The estimated GMP equalisation impact for the scheme is an increase of 2.2% of the total value of
scheme liabilities on the IAS 19 basis as at 31 December 2018, or £10.5m. The potential estimated range is 1.9% to 2.4% of
liabilities (£9.2m to £11.7m charge). The estimates are also sensitive to the mix between pensioners and deferred members.
The £10.5m charge (2.2% of liabilities) in these financial statements is based on a mix of 30% pensioners: 70% deferred
members. A 50%: 50% mix would result in a charge of £9.7m (2.0% of liabilities).
Where companies had not provided for equalisation in the past then the additional obligation is considered to arise from
a plan amendment, and the past service cost arising from the change in the benefits payable would be recognised in the
income statement. This is the accounting treatment adopted in these financial statements.
Actuarial gains and losses recognised directly in the statement of other comprehensive income
Cumulative amount at 1 January
Recognised during the period
Cumulative amount at 31 December
154
2018
£m
(50.7)
(0.9)
(51.6)
2017
£m
(86.5)
35.8
(50.7)
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
Defined benefit income recognised in statement of other comprehensive income
Return on plan assets excluding interest income
Experience (loss)/gain on scheme liabilities
Changes in assumptions underlying the present value of scheme obligations
Changes in the present value of the defined benefit obligation
Opening present value of defined benefit obligation
Interest cost
Past service cost
Remeasurements:
Experience adjustments
Actuarial gains due to changes in demographic assumptions
Actuarial (gains)/losses due to changes in financial assumptions
Benefits paid
Closing present value of defined benefit obligation
Movement in fair value of scheme assets during the period
Opening fair value of assets
Interest income
Return on plan assets, excluding interest income
Contributions by employer
Benefits paid
End of period
2018
£m
(38.8)
(5.2)
43.1
(0.9)
2018
£m
521.8
13.2
10.5
5.2
(17.6)
(25.5)
(21.3)
486.3
2018
£m
459.0
11.6
(38.8)
7.5
(21.3)
418.0
2017
£m
28.4
4.9
2.5
35.8
2017
£m
544.6
14.3
-
(4.9)
(4.7)
2.2
(29.7)
521.8
2017
£m
441.4
11.6
28.4
7.3
(29.7)
459.0
155
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
History of experience adjustments
Present value of defined benefit obligation
Fair value of scheme assets
Deficit in schemes
Actuarial gains and losses on scheme liabilities:
Amount
Percentage of scheme liabilities (%)
Actuarial gains and losses on scheme assets:
Amount
Percentage of scheme liabilities (%)
2018
£m
486.3
418.0
68.3
2017
£m
521.8
459.0
62.8
2016
£m
544.6
441.4
103.2
2015
£m
440.3
396.9
43.4
2014
£m
495.1
428.7
66.4
(37.9)
(7.8%)
(7.4)
(1.4%)
111.2
20.4%
(22.9)
(5.2%)
40.5
8.2%
(38.8)
(8.0%)
28.4
5.4%
49.9
9.2%
(0.5)
(0.1%)
16.5
3.3%
156
Pendragon PLC Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS
SECTION 6 - OTHER NOTES
This section contains the notes and information relating to acquisitions and disposals and related party transactions:
6.1 Business combinations
6.3 Related party transactions
6.2 Business disposals
6.4 Contingent liabilities and contingent assets
6.1 Business combinations
Accounting policy
The Group accounts for business combinations using the acquisition method when control is transferred to the Group
(see Basis of preparation in Section 1 above). The results of companies and businesses acquired during the year are
included from the effective date of acquisition.
Acquisitions on or after 1 January 2010
For acquisitions on or after 1 January 2010, the Group measures goodwill at the acquisition date as:
• the fair value of the consideration transferred; plus
• the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in
stages, the fair value of the existing equity interest in the acquiree; less
• the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such
amounts are generally recognised in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs
in connection with a business combination are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is
classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to
the fair value of the contingent consideration are recognised in profit or loss.
When share based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s
employees (acquiree’s awards) and relate to past services, then all or a portion of the amount of the acquirer’s replacement
awards is included in measuring the consideration transferred in the business combination. This determination is based on
the market based value of the replacement awards compared with the market based value of the acquiree’s awards and the
extent to which the replacement awards relate to past and/or future service.
Acquisitions between 1 January 2004 and 1 January 2010
For acquisitions between 1 January 2004 and 1 January 2010, goodwill represents the excess of the cost of the acquisition
over the Group’s interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and contingent
liabilities of the acquiree. When the excess was negative, a bargain purchase gain was recognised immediately in profit or
loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurred in
connection with business combinations were capitalised as part of the cost of the acquisition.
157
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 6 - OTHER NOTES
6.1 Business combinations continued
Acquisitions prior to 1 January 2004 (date of transition to IFRSs)
As part of its transition to IFRSs, the Group elected to restate only those business combinations that occurred on or after
1 January 2003. In respect of acquisitions prior to 1 January 2003, goodwill represents the amount recognised under the
Group’s previous accounting framework, UK GAAP.
Activity
There were no business combinations in the year.
During the prior year, on 26 September 2017 the Group acquired the trade and assets of a Chevrolet franchised dealership
in California for a total cash consideration paid on completion of £17.6m. In addition the Group acquired the entire ordinary
share capital of Suresell Limited on 31 January 2017 for a total cash consideration paid on completion of £0.2m.
6.2 Business disposals
Accounting policy
The results of businesses disposed of during the year are included up to the effective date of disposal using the acquisition
method of accounting.
Activity
During the year the Group disposed of four UK dealerships representing Jaguar and Land Rover and an Aston Martin
franchise in the US.
Net assets at the date of disposal:
Goodwill
Property, plant and equipment
Assets held for sale
Inventories
Trade and other payables
Profit on sale of businesses
Proceeds on sale satisfied by cash and cash equivalents
No cash was disposed as part of any business disposal during the year.
During the previous year there were no business disposals.
Net book value
£m
0.4
4.3
1.4
2.0
(0.5)
7.6
3.3
10.9
158
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS
SECTION 6 - OTHER NOTES
6.3 Related party transactions
Subsidiaries
The Group’s ultimate parent company is Pendragon PLC. A listing of subsidiaries, all of which are wholly owned, is shown
within the financial statements of the company on page 167.
Transactions with key management personnel
The key management personnel of the Group comprise the executive and Non-Executive Directors. The details of the
remuneration, long term incentive plans, shareholdings, share option and pension entitlements of individual Directors are
included in the Directors’ Remuneration Report on pages 55 to 68.
During the three years ended 31 December 2018, and as of 12 March 2019, no Director, nor any associate of any Director, was
indebted to the company.
During the three years ended 31 December 2018, and as of 12 March 2019, the company has not been a party to any other
material transaction, or proposed transactions, in which any member of the key management personnel had or was to have
a direct or indirect material interest.
Directors of the company and their immediate relatives control 2.35% of the ordinary shares of the company.
During the year key management personnel compensation was as follows:
Short term employee benefits
Post-employment benefits
Share based payments
6.4 Contingent assets
2018
£m
1.3
0.2
0.3
1.8
2017
£m
1.6
0.2
(0.6)
1.2
The Group is in discussion with HM Revenue and Customs over issues which may result in additional amounts of VAT
receivable to be recognised in future periods. These relate to historical claims in respect of VAT overpaid in prior periods
(‘Fleming claims’). Although these amounts, if any, could potentially be significant, it is not possible at present to quantify
them. Accordingly no amounts have been included in the 2018 financial statements in respect of these issues.
159
Pendragon PLC Annual Report 2018
COMPANY BALANCE SHEET
At 31 December 2018
Fixed assets
Investments
Loans to subsidiary undertakings
Current assets
Debtors
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Retirement benefit obligations
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Other reserves
Profit and loss account
Equity shareholders' funds
Approved by the Board of Directors on 12 March 2019 and signed on its behalf by:
T G Finn
Chief Executive
Registered Company Number: 2304195
T P Holden
Finance Director
Notes
5
6
7
8
11
2018
£m
912.4
90.0
1,002.4
40.9
40.9
2017
£m
922.6
90.0
1,012.6
41.2
41.2
(431.1)
(437.9)
(390.2)
(396.7)
612.2
615.9
(177.3)
(68.3)
(175.7)
(62.8)
366.6
377.4
70.0
56.8
5.5
13.9
220.4
366.6
71.2
56.8
4.3
13.9
231.2
377.4
The notes on pages 163 to 169 form part of these financial statements
160
Pendragon PLC Annual Report 2018
COMPANY STATEMENT OF OTHER COMPREHENSIVE INCOME
Year ended 31 December 2018
Profit for the year
Note
Other comprehensive income
Items that will never be reclassified to profit and loss:
Defined benefit plan remeasurement gains and (losses)
Income tax relating to defined benefit plan remeasurement (gains) and losses
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
2018
£m
16.6
0.8
0.2
1.0
17.6
2017
£m
31.9
37.7
(6.1)
31.6
63.5
The notes on pages 163 to 169 form part of these financial statements
161
Pendragon PLC Annual Report 2018 COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2018
Balance at 1 January 2018
71.2
56.8
4.3
13.9
231.2
Share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Total comprehensive income for 2018
Profit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Own shares purchased for cancellation
Own shares issued by EBT
Share based payments
Dividends paid (see note 4)
Total contributions by and distributions to owners
Balance at 31 December 2018
-
-
-
(1.2)
-
-
-
(1.2)
70.0
-
-
-
-
-
-
-
-
56.8
-
-
-
1.2
-
-
-
1.2
5.5
-
-
-
-
-
-
-
-
16.6
1.0
17.6
(6.7)
0.1
0.7
(22.5)
(28.4)
13.9
220.4
366.6
Total
£m
377.4
16.6
1.0
17.6
(6.7)
0.1
0.7
(22.5)
(28.4)
Balance at 1 January 2017
71.8
56.8
3.7
13.9
196.3
342.5
Total comprehensive income for 2017
Profit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
-
-
-
Transactions with owners, recorded directly in equity
Own shares purchased for cancellation
(0.6)
Own shares purchased by EBT
Own shares issued by EBT
Share based payments
Dividends paid (see note 4)
Total contributions by and distributions to owners
Balance at 31 December 2017
-
-
-
-
(0.6)
71.2
-
-
-
-
-
-
-
-
-
56.8
-
-
-
0.6
-
-
-
-
0.6
4.3
-
-
-
-
-
-
-
-
-
13.9
31.9
31.6
63.5
(4.0)
(2.8)
0.1
(0.6)
(21.3)
(28.6)
231.2
31.9
31.6
63.5
(4.0)
(2.8)
0.1
(0.6)
(21.3)
(28.6)
377.4
The notes on pages 163 to 169 form part of these financial statements
162
Pendragon PLC Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1 Accounting Policies
(a) Basic of preparation Pendragon PLC is a company incorporated and domiciled in the UK.
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (‘FRS 101’).
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements
of International Financial Reporting Standards as adopted by the EU (‘Adopted IFRSs’), but makes amendments where
necessary in order to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure
exemptions has been taken.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following
disclosures:
Cash Flow Statement and related notes;
• Comparative period reconciliations for share capital, tangible fixed assets and intangible assets;
• Disclosures in respect of transactions with wholly owned subsidiaries;
• Disclosures in respect of capital management;
• The effects of new but not yet effective IFRSs;
• Disclosures in respect of the compensation of Key Management Personnel.
• Disclosures of transactions with a management entity that provides key management personnel services to the company.
As the consolidated financial statements of the Company include the equivalent disclosures, the Company has also taken
the exemptions under FRS 101 available in respect of the following disclosures:
• IFRS 2 Share Based Payments in respect of Group settled share based payments;
• Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial
Instrument
• Disclosures.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in
these financial statements.
Judgements
The Company applies judgement in how it applies its accounting policies, which do not involve estimation, but could
materially affect the numbers disclosed in these financial statements. There are however no such key accounting judgements
applied in these financial statements.
Accounting estimates
The preparation of financial statements in conformity with FRS 101 requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting year. Although these estimates are based on management’s best knowledge of the
amount, events or actions, actual results ultimately may differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. The estimates and associated assumptions
are based on historical experience and various other factors that are believed to be reasonable under the circumstances.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only
that period, or in the period of the revision and future periods if the revision affects both current and future periods. The
Directors consider the following to be the key estimates applicable to the financial statements, which have a significant risk
of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year or in the
long-term:
163
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1 Accounting Policies continued
Key estimate area
Key assumption
Retirement benefit
obligations
Investment
impairment
The main assumptions in determining the
Company’s Retirement Benefit Obligations
are: discount rate, mortality and rate of
inflation. Full detail is included in the pension
note in the Consolidated Financial Statements
in note 5.1.
The balances of investment in subsidiary
companies are held at cost less any
impairment. It is considered that these
investments are one CGU. An impairment
exists when their recoverable amount is less
than the costs held in the accounts. There are
a number of factors which could impact the
recoverable amount which creates a risk of
this recoverable amount being lower than the
investment balance held.
Potential impact
within the next
financial year
Potential
impact in the
longer term
Note
reference
3
3
3
5.1 Group
5
(b) Deferred taxation Full provision is made for deferred taxation on all timing differences which have arisen but have not
reversed at the balance sheet date, except as follows:
(i) tax payable on the future remittance of the past earnings of subsidiaries is provided only to the extent that dividends
have been accrued as receivable or a binding agreement to distribute all past earnings exists;
(ii) deferred tax assets are recognised only to the extent that it is more likely than not that they will be recovered.
Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which the
timing differences reverse, based on tax rates and laws substantively enacted at the balance sheet date.
(c) Financial instruments The Company holds derivative financial instruments to hedge currency and interest risks arising
from its activities. Derivative financial instruments are recognised at fair value. Any gain or loss on remeasurement is
recognised in the profit and loss account. However, the treatment of gains or losses arising from derivatives which qualify
for hedge accounting depends on the nature of the hedged item itself. The fair value of derivatives is the estimated amount
receivable or payable to terminate the contract determined by reference to the market prices prevailing at the balance
sheet date.
Fair value hedges
Where a derivative financial instrument hedges the changes in fair value of recognised assets or liabilities, any gain or loss
is recognised in profit and loss. The hedged item is also stated, separately from the derivative, at fair value in respect of the
risk being hedged with any gain or loss also recognised in profit and loss. This will result in variations in the balance sheet
values of the gross debt and the offsetting derivatives as the market value fluctuates.
(d) Investments held as fixed assets are stated at cost less any impairment losses. For Investments the recoverable amount
is the higher of fair value less costs to sell and value in use. 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 which the estimates of future cash flows have not been adjusted.
(e) Employee benefits - Share based payments The Company operates a number of employee share option schemes. The
fair value at the date at which the share options are granted is recognised in profit and loss on a straight line basis over
the vesting period, taking into account the number of options that are expected to vest. The number of options that are
expected to become exercisable is reviewed at each balance sheet date and if necessary estimates are revised.
164
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1 Accounting Policies continued
(f) Pension obligations The Company operated a defined benefit and defined contribution plan during the year, the assets of
which are held in independent trustee administered funds. Pension accounting costs for defined benefit plans are assessed
by determining the pension obligation using the projected unit credit method after including a net return on the plan assets.
Under this method, in accordance with the advice of qualified actuaries, the amounts charged in respect of employee
benefits reflect the cost of benefits accruing in the year and the cost of financing historical accrued benefits. The Company
recognises all actuarial gains and losses arising from defined benefit plans in the statement of other comprehensive income
immediately.
The present value of pension obligations is measured by reference to market yields on high quality corporate bonds which
have terms to maturity approximating to the terms of the related pension liability. Plan assets are measured at fair value.
When the calculation results in a benefit to the Company, the recognised asset is limited to the total of the present value
of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the
plan. An economic benefit is available to the Company if it is realisable during the life of the plan, or on settlement of the
plan liabilities.
Under IAS 19 Employee Benefits, the Group recognises an interest expense or income which is calculated on the net defined
benefit liability or asset respectively by applying the discount rate to the net defined benefit liability or asset.
A defined contribution plan is one under which the Company pays fixed contributions and has no legal or constructive
obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an
employee benefit expense in the income statement when they are due.
In accordance with IFRIC 14 surpluses in schemes are recognised as assets only if they represent unconditional economic
benefits available to the Company in the future. Provision is made for future unrecognisable surpluses that will arise
as a result of regulatory funding requirements. Movements in unrecognised surpluses are included in the statement of
recognised income and expense. If the fair value of the assets exceeds the present value of the defined benefit obligation
then the surplus will only be recognised if the nature of the arrangements under the trust deed, and funding arrangements
between the Trustee and the Company support the availability of refunds or recoverability through agreed reductions in
future contributions. In addition, if there is an obligation for the Company to pay deficit funding, this is also recognised.
Under the provisions of FRS 101 Pendragon PLC is designated as the principal employer of the Pendragon Group Pension
Scheme and as such applies the full provisions of IAS 19 Employee benefits (2011). In line with IAS 19 Employee benefits
(2011), the Company has recognised a pension prepayment with respect to an extraordinary contribution made during
31 December 2011 as this does not meet the definition of a planned asset and therefore the amount is held in pension
prepayment and will be unwound over the period in which Scottish Limited Partnership Limited makes contributions to the
pension scheme.
Information relating to pension obligations can be found in the Consolidated Financial Statements in note 5.1.
(g) Dividends Dividends proposed by the Board and unpaid at the end of the year are not recognised in the financial
statements until they have been approved by the shareholders at the Annual General Meeting. Interim dividends are
recognised when they are paid.
(h) Own shares held by ESOP trust Transactions of the Group-sponsored ESOP trust are included in the Company financial
statements. In particular, the trust’s purchases and sales of shares in the Company are debited and credited directly to
equity.
165
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1 Accounting Policies continued
(i) Contingent liabilities Where the company enters into financial guarantee contracts to guarantee the indebtedness
of other companies within its Group, the company considers these to be insurance arrangements, and accounts for them
as such. In this respect, the company treats the guarantee contract as a contingent liability until such time as it becomes
probable that the company will be required to make a payment under the guarantee.
2 Profit and loss account of the company and distributable reserves
In accordance with the exemption allowed by Section 408 of the Companies Act 2006, the profit and loss account of the
company is not presented. The profit after taxation attributable to the company dealt with in its own accounts for the year
ended 31 December 2018 is £26.8m (2017: £31.9m).
The profit and loss account of the Parent company does not include any unrealised profits. The amount available for
distribution under the Companies Act 2006 by reference to these accounts is £220.4m (2017: £231.2m) which is stated after
deducting the ESOT reserve of £18.2m (2017: £15.5m). The Group’s subsidiary companies which earn distributable profits
themselves are expected to make distributions each year up to the Parent company in due course to ensure a regular flow
of income to the company such that surplus cash generated can continue to be returned to our external shareholders
3 Directors
Total emoluments of Directors (including pension contributions) amounted to £1.2m (2017: £1.8m). Information relating to
Directors’ emoluments, share options and pension entitlements is set out in the Directors’ Remuneration Report on pages
55 to 68.
The Directors are the only employees of the company.
4 Dividends
Ordinary shares
Final dividend in respect of 2017 of 0.8p per share (2016: 0.75p per share)
Interim dividend in respect of 2018 of 0.8p per share (2017: 0.75p per share)
2018
£m
10.7
11.8
22.5
2017
£m
10.7
10.6
21.3
The Board is recommending a final dividend for 2018 of 0.7p (2017: 0.8p) per ordinary share equating to £9.8m in total in
respect of shares in issue at the date of this report (2017: £11.3m).
5
Investments
At 31 December 2017
Impairment
At 31 December 2018
Shares in subsidiary
undertakings
£m
922.6
(10.2)
912.4
In conjunction with the impairment review of goodwill performed for the Group (see note 3.1 of the Group financial
statements), a related exercise was performed with relation to the company’s carrying value of its investment in subsidiaries,
resulting in an impairment charge of £10.2m.
The calculation is sensitive to the assumptions used in valuing the expected future cashflows of subsidiaries. A 2% increase/
(decrease) in the value of expected future cashflows would reduce/(increase) the impairment by £5.6m/(£5.6m).
166
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
5
Investments continued
Incorporated in Great Britain having a registered office at Loxley House, 2 Little Oak Drive, Annesley, Nottingham, NG15 0DR:
Alloy Racing Equipment Limited
Bramall Quicks Dealerships Limited
Car Store Limited
CD Bramall Dealerships Limited
Chatfields Limited
Derwent Vehicles Limited
Evans Halshaw Limited
Bletchley Motor Contracts Limited
Bletchley Motor Group Limited
Bletchley Motor Rentals Limited
Bletchley Motors Car Sales Limited
Bletchley Properties Limited
Boxmoor Motors Limited
Bramall Contracts Limited
National Fleet Solutions Limited
Pendragon Vehicle Management Limited
Pendragon Finance & Insurance Services Limited *
Pendragon Management Services Limited
Bridgegate Limited
Brightdart Limited
Buist Manor Limited
C P Evinson Limited
C.G.S.B Holdings Limited
Calmoon Limited
CD Bramall Motor Group Limited
CD Bramall Pensions Limited
Manchester Garages Limited
Merlin (Chatsworth) Limited
Miles (Chesham) Limited
Motors Direct Limited
Motown Limited
Munn & Chapman Limited
Munn Holdings Limited
Neville (EMV) Limited
Newport (Gwent) Motor Company Limited
Northside Truck Centre Limited
Oggelsby's Limited
P J Evans (Holdings) Limited
Paramount Cars Limited
Parkhouse Garage (Newcastle) Limited
Pendragon Company Car Finance Limited
Pendragon Motor Group Limited
Pendragon Premier Limited
Pendragon Property Holdings Limited
Pendragon Sabre Limited
Pinewood Technologies PLC *
Reg Vardy (MML) Limited
Reg Vardy (VMC) Limited **
Reg Vardy Limited *
Stratstone Limited
Stripestar Limited
Victoria (Bavaria) Limited
Chatfields - Martin Walter Limited
Pendragon Group Services Limited *
Pendragon Overseas Limited *
Pendragon Stock Limited
Pendragon Stock Finance Limited
Vardy Contract Motoring Limited
Vardy Marketing Limited
Bramall Quicks Limited
Car Store.com Limited
CD Bramall Limited *
Executive Motor Group Limited
Stratstone Motor Holdings Limited *
Petrogate Limited
CD Bramall Pension Trustee Limited
Pendragon Demonstrator Finance Limited
CD Bramall York Limited
Pendragon Demonstrator Finance November Limited
Central Motor Company (Leicester) Limited
Pendragon Demonstrator Sales Limited
Charles Sidney Holdings Limited
Charles Sidney Limited
Comet Vehicle Contracts Limited
Cumbria Vehicles Limited
Pendragon Extra Limited
Petrogate Properties Limited
Pinewood Computers Limited
Plumtree Motor Company Limited
Davenport Vernon Finance Limited
Portmann Limited
Davenport Vernon Milton Keynes Limited
Premier Carriage Limited
Davies Holdings Limited
Dunham & Haines Limited
Evans Halshaw (Cardiff) Limited
Quicks (1997) Motor Holdings Limited
Quicks Finance Limited
Reades of Telford Limited
Evans Halshaw (Chesham) Limited
Regency Automotive Limited
Evans Halshaw (Dormants) Limited *
Reg Vardy (AMC) Limited
Evans Halshaw (Midlands) Limited
Reg Vardy (RTL) Limited
Evans Halshaw Group Pension Trustees Limited
Rudds Limited
Evans Halshaw Motor Holdings Limited
Sanderson Murray & Elder Limited
Evans Halshaw Vehicle Management Services Limited Skipper of Aintree Limited
Evinson Tractors Limited
Excalibur Motor Finance Limited
Skipper of Cheltenham Limited
Skipper of Darlington Limited
Skipper of Plymouth Limited
Pendragon Limited Partner Limited *
Evans Halshaw (Halifax) Limited
Reg Vardy (Property Management) Limited
Reg Vardy (Property Management) Limited
Executive Motor Group Limited
Reg Vardy (TMC) Limited
Reg Vardy (TMH) Limited
Evans Halshaw.com Limited
Pendragon Automotive Services Limited *
Stratstone.com Limited
Vardy (Continental) Limited
Executive Motors (Stevenage) Limited
Skipper of Torbay Limited
Extra Rentals Limited
Folletts Limited
G.E. Harper Limited
Giltbase Limited
Skipper of Wakefield Limited
Storm of Leicester Limited
Strattons (Service) Limited
Strattons (Wilmslow) Limited
Godfrey Davis (Trust) Limited
Suresell Limited
Pendragon Group Pension Trustees Limited *
Godfrey Davis Motor Group Limited
The Car and Van Store Limited
Allens (Plymouth) Limited
Hemel Hempstead Motors Limited
The Mcgill Group Limited
AMG Limited
Andre Baldet Limited
Arena Auto Limited
Automend Limited
Kingston Reconditioning Services Limited
The Skipper Group Limited
Leveling Limited
Lewcan Limited
Longton Garages Limited
Tins Limited *
Trust Motors Limited
Trust Properties Limited
Berkhamsted Motor Company Limited
Manchester Garages (Cars) Limited
Vertcell Limited
Bletchley Motor Company Limited
Manchester Garages Holdings Limited
Wayahead Fuel Services Limited
Incorporated in Great Britain having a registered office at Citypoint, 65 Haymarket Terrace, Edinburgh, Scotland, EH12 5HD:
Pendragon General Partner Limited *
Incorporated in Great Britain having a registered office at 221 Windmillhill Street, Motherwell, Lanarkshire, ML1 2UB:
Reg Vardy (MME) Limited
Incorporated in Great Britain having a registered office at 1 Forth Avenue, Kirkcaldy, Fife, KY2 5PS:
Bramall Laidlaw Limited
Incorporated in the United States of America having a registered office at 2171 Campus Dr Ste 260, Irvine, California:
Pendragon North America Automotive, Inc.
Penegon West, Inc.
Penegon Mission Viejo, Inc.
Penegon Newport Beach, Inc.
Penegon Glendale, Inc.
Lincoln Irvine, Inc.
Penegon South Bay, Inc.
Penegon Santa Monica, Inc.
South County, Inc.
Bauer Motors, Inc.
Penegon Properties, Inc.
Penegon East, Inc.
Incorporated in Germany having a registered office at 40210 Düsseldorf,Nordrhein-Westfalen, Germany:
Pendragon Overseas Holdings GmbH.
* Direct subsidiary of Pendragon PLC
** Pendragon PLC owns 95% of the issued ordinary share capital
167
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
6 Debtors
Amounts due within one year:
Prepayments
Amounts due after more than one year:
Deferred tax (see note 9)
7 Creditors: amounts falling due within one year
Amounts due to subsidiary undertakings
Bank loans and overdrafts
8 Creditors: amounts falling due after more than one year
Bank loans (repayable between two and five years)
5.75% Senior notes 2023
9 Deferred tax
2018
£m
28.7
28.7
12.2
12.2
40.9
2018
£m
418.9
12.2
431.1
2018
£m
117.3
60.0
177.3
2017
£m
29.9
29.9
11.3
11.3
41.2
2017
£m
407.5
30.4
437.9
2017
£m
115.7
60.0
175.7
Deferred income tax 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 income taxes relate to the same fiscal authority. There are no offset
amounts as follows:
Deferred tax assets
The movement in the deferred tax assets for the year is as follows:
At 1 January 2017
(Charged)/credited to income statement
(Charged) to equity
At 31 December 2017
At 1 January 2018
(Charged)/credited to income statement
(Charged) to equity
At 31 December 2018
Deferred tax asset is shown within debtors (see note 6)
168
2018
£m
12.2
Retirement
benefit
obligations
Other
provisions
£m
17.7
(0.8)
(6.1)
10.8
10.8
0.7
0.2
11.7
0.4
0.1
-
0.5
0.5
-
-
0.5
2017
£m
11.3
Total
£m
18.1
(0.7)
(6.1)
11.3
11.3
0.7
0.2
12.2
Pendragon PLC Annual Report 2018
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
10 Share based payments
Details of share schemes in place for the Group of which the company participates as at 31 December 2018 are fully
disclosed above in note 4.6 of this report.
11 Called up share capital
Allotted, called up and fully paid shares of 5p each at 31 December 2017
Shares cancelled during the year
Allotted, called up and fully paid shares of 5p each at 31 December 2018
There were no issues of ordinary shares during the year.
Number
1,424,814,004
(25,664,979)
1,399,149,025
£m
71.2
(1.2)
70.0
25,664,979 ordinary shares having a nominal value of £1.2m were bought back and subsequently cancelled during the year
in accordance with the authority granted by shareholders in the Annual General Meeting on 2 May 2018. The aggregate
consideration paid, including directly attributable costs, was £6.7m. Since the commencement of the current share buyback
programme in 2016, as at 31 December 2018, 61,171,630 shares have been bought back and cancelled representing 4.2% of
the issued ordinary shares, at a cost of £18.2m.
Movements in the number of options to acquire ordinary shares under the Group’s various share option schemes, together
with exercise prices and the outstanding position at 31 December 2018 are fully disclosed above in note 4.6 of this report.
The market value of the investment in the company’s own shares at 31 December 2018 was £1.4m (2017: £2.2m), being 6.4m
(2017: 7.7m) shares with a nominal value of 5p each, acquired at an average cost of £0.33 each (2017: £0.33). During the
year the trust acquired no shares (2017: 8.3m shares, for a consideration of £2.8m) and disposed of 1.3m (2017: 8.1m) shares
in respect of LTIP and executive share option awards for a consideration of £0.1m (2017: £0.1m). The amounts deducted
from retained earnings for shares held by the EBT at 31 December 2018 was £18.1m (2017: £18.2m). The trustee of the EBT
is Salamanca Group Trust (Jersey) Limited. The shares in trust may subsequently be awarded to Executive Directors and
employees under the Pendragon 1999 Approved Executive Share Option Scheme, Pendragon 1999 Unapproved Executive
Share Option Scheme and to satisfy amounts under LTIPs and the VCP. Details of the plans are given in the Directors’
Remuneration Report on pages 55 to 68.
Dividends on the shares owned by the trust, the purchase of which were funded by interest free loans to the trust from
Pendragon PLC, are waived. All expenses incurred by the trust are settled directly by Pendragon PLC and charged in the
accounts as incurred.
12 Retirement benefit obligations
Details of Pendragon Group Pension Scheme are fully disclosed above in note 5.1 of this report.
13 Related party transactions
Identity of related parties
The company has related party relationships with its subsidiaries, its joint venture and with its key management personnel.
Transactions with related parties
The transaction with Directors of the company are set out in note 6.3 to the consolidated financial statements.
14 Contingent liabilities
(a) The company has entered into cross-guarantees with its bankers whereby it guarantees payment of bank borrowings in
respect of UK subsidiary undertakings.
(b) The company has given performance guarantees in the normal course of business in respect of subsidiary undertaking
obligations.
169
Pendragon PLC Annual Report 2018
ADVISORS, BANKS AND SHAREHOLDER INFORMATION
Financial Calendar 2019
12 March
date of this Report
12 March
preliminary announcement of 2018 results
18 April
ex-dividend date 2018 proposed final
dividend
23 April
record date 2018 proposed final dividend
30 May
payment of proposed 2018 final dividend
Share dealing service
Pendragon’s company registrar offers a share dealing service,
provided by Link Asset Services (a trading name of Link Market
Services). Details appear at www.linksharedeal.com
Shareholder and investor information
Making some of our corporate materials and policies available
on our website reduces the length of this Report. This year
we have placed certain background information on policy and
19 September ex-dividend date interim dividend 2019
governance on our website. We also display historic financial
20 September record date 2019 interim dividend
24 October
payment of 2019 interim dividend
Auditor
KPMG LLP
Banks
Barclays Bank PLC
Lloyds TSB Bank plc
Royal Bank of Scotland plc
Allied Irish Banks plc
HSBC Bank plc
Stockbrokers
Joh. Berenberg, Gossler & Co. KG
Jefferies International Limited
Solicitors
CMS Cameron McKenna Nabarro Olswang LLP
Geldards LLP
Eversheds LLP
How to find Pendragon PLC’s offices
Visit Contacts on the company’s website
www.pendragonplc.com.
Stock Classification
The company’s ordinary shares are traded on the London Stock
Exchange. Investment codes for Pendragon’s shares are:
London Stock Exchange: PDG
Bloomberg:
PDG.LN
GlobalTOPIC and Reuters: PDG.L
reports and have a section on company news, which we
regularly update on www.pendragonplc.com
Online services
Shareholders can choose to receive communications and
access a variety of share-related services online via the share
portal offered by Pendragon’s company registrar. This allows
shareholders to manage their shareholding electronically and
is free of charge. For details, visit www.mypendragonshares.
com
Getting company reports online
Reduces the environmental impacts of report distribution. To
choose online only reporting, visit the share portal and register
for electronic form reporting, or contact our registrar, whose
details are:
Registrar and shareholder enquiries
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
shareholderenquiries@linkgroup.co.uk
Tel: 0871 664 0300
170
Pendragon PLC Annual Report 2018
5 YEAR GROUP REVIEW
Revenue
Gross profit
Operating (loss)/profit before other income
(Loss)/profit before taxation
Basic earnings per share
Net assets
Net borrowings (note 1)
Other financial information
2018
£m
2017
£m
2016
£m
2015
£m
2014
£m
4,627.0
4,739.1
4,537.0
4,453.9
4,000.4
550.5
552.9
(30.1)
(44.4)
91.5
65.3
(3.6p)
3.7p
345.6
127.6
425.4
124.1
559.6
100.1
73.0
3.8p
372.8
79.6
548.9
522.6
96.4
79.0
89.8
64.6
5.0p
3.5p
395.1
108.8
339.9
139.6
Underlying profit before tax
47.8
60.4
75.4
70.1
60.2
Underlying earnings per share (note 4)
Net debt : underlying EBITDA (note 6)
Gross margin
Total operating margin (note 2)
After tax return on equity (note 3)
2.8p
0.9
11.9%
(0.7%)
(13.1%)
3.3p
0.9
11.7%
1.8%
13.4%
3.9p
0.6
12.3%
2.2%
14.5%
Dividends per share (note 5)
1.50p
1.55p
1.45p
3.7p
0.5
12.3%
2.3%
19.8%
1.3p
3.9
2.9
3.1p
0.8
13.1%
2.2%
15.4%
0.9p
3.8
3.0
2.4
3.5
2.7
3.7
29.2%
24.6%
20.1%
32.0%
Dividend cover (times)
Interest cover (times)
Gearing (note 7)
Business summary
2.0
(0.5)
36.9%
Number of franchise points
186
194
196
200
213
note 1 Net borrowings comprise interest bearing loans and borrowings, cash and cash equivalents and derivative financial instruments.
note 2 Total operating margin is calculated after adding back non-underlying items, and excluding other income.
note 3 Return on equity is profit after tax for the year as a percentage of average shareholders’ funds.
note 4 Basic earnings per share adjusted to eliminate the effects of non-underlying operating, non-underlying finance and tax items, see note 2.8 of the financial statements.
note 5 Dividends per share are based on the interim dividend paid and final dividend proposed for the year.
note 6 Full details of the calculation of the net debt : underlying EBITDA ratio are given in note 4.2 to the financial statements.
note 7 Gearing is calculated as net borrowings as a percentage of net assets.
171
Pendragon PLC Annual Report 2018
ADDRESS I Pendragon PLC Loxley House, Little Oak Drive, Annesley, Nottingham NG15 0DR
TELEPHONE I 01623 725200 E-MAIL I enquiries@pendragon.uk.com
WEBSITE I www.pendragonplc.com
DESIGN I Creative Services Loxley House, Little Oak Drive, Annesley, Nottingham NG15 0DR