2019
ANNUAL REPORT
“ A much improved second half performance and a return to profitability
in challenging market conditions were more than offset by significant
underlying losses in the first half of the year, resulting in an overall
underlying loss before tax in FY19. Financial performance in the first half
was impacted by a combination of issues, with the principal driver being the
impact of the clearance of used car stock from excess levels. The second
half performance improved as a result of actions taken by management to
re-set performance, which included the closure of 22 underperforming Car
Store locations, better management of used vehicle inventory and a clear
focus on operational cost management. The improvement in performance
during the second-half puts the business on a much stronger footing for
FY20. The company is closely monitoring the unprecedented impact of the
COVID-19 virus and its potential impact on the economy. At the moment,
and excluding any impact from COVID-19, the company expects Group
underlying profit before tax for FY20 to be in line with market expectations,
but will continue to watch the situation closely, particularly in light of the
measures that were announced by the UK Government on 16 March. At this
stage, it is too early to accurately quantify what the impact may be.”
2
Pendragon PLC Annual Report 2019
CONTENTS
STRATEGIC REPORT
4 Chief Executive Officer Statement
5 Business Segments
6 Financial Summary
7 Operational and Financial Highlights
7 Performance Indicators
8
9 Business Profiles
16 Life at Pendragon PLC
18
Industry Insight
s172 Statement
OPERATIONAL AND FINANCIAL REVIEW
21 Business Review
30 Financial Review
34 Risk Overview & Management
42 Viability Statement
DIRECTORS REPORT
44 Board of Directors
46 Corporate Governance Report
50 Corporate Social Responsibility Report
52 Committee Reports
60 Directors’ Remuneration Report
79 Directors’ Report
FINANCIAL STATEMENTS
83 Statement of Director’s Responsibilities in Respect
of the Annual Report and the Financial Statements
84 Independent Auditor’s Report
93 Consolidated Income Statement
94 Consolidated Statement of Comprehensive Income
95 Consolidated Statement of Changes in Equity
96 Consolidated Balance Sheet
97 Consolidated Cash Flow Statement
98 Reconciliation of Net Cash Flow to Movement in Net Debt
99 Notes to the Financial Statements
182 Company Balance Sheet
183 Company Statement of Comprehensive Income
184 Company Statement of Changes in Equity
185 Notes to the Financial Statements of the Company
194 Advisors, Banks and Shareholder Information
195 5 Year Group Review
3
Pendragon PLC Annual Report 2019
CHIEF EXECUTIVE OFFICER STATEMENT
Bill Berman, Chief Executive Officer
“I am excited to have been appointed to the role of Chief Executive Officer
of Pendragon and look forward to the prospect of leading the business
through a period of rapid change and innovation in the automotive retail
sector. Despite having only been with the business for a short period of time,
it is clear this is a company with great potential and a very strong team.
2019 was a year of transition for the Group, that played out against
challenging market conditions, however, we returned to profitable growth
in the second half and this provides us with a solid platform for the coming
year. At the moment, we are closely monitoring the impact of COVID-19 on
the economy as the situation continues to develop.
We will be providing a fuller update on the Group strategy later in the year,
which will continue to be based on four strategic pillars; the opportunity
to create a strong, stand-alone used car brand, an improved and stable
platform in the Franchised UK Motor division, delivering growth in Pinewood
and further strengthening our leasing business. I am confident in the long-
term prospects for Pendragon and look forward to communicating our
strategy in more detail in due course.”
BOARD AND MANAGEMENT CHANGES
• A number of Board and senior management positions have been added to strengthen the business to support its future growth
potential.
• Bill Berman appointed as Chief Executive Officer.
• Two new Non-Executive Board members appointed.
• New roles of Chief Information Officer and Chief Marketing Officer created and appointed.
OUTLOOK
• We remain cautious given the ongoing level of economic uncertainty post the UK’s exit from the EU, with trade terms only
agreed until the end of 2020. We will continue to monitor market conditions and respond accordingly.
• The company has considered and will continue to monitor the threat and economic implications of COVID-19. At the moment,
and excluding any impact from COVID-19, the company expects Group underlying profit before tax for FY20 to be in line with
market expectations, but will continue to watch the situation closely, particularly in light of the measures that were announced
by the UK government on 16 March. At this stage, it is too early to accurately quantify what the impact maybe.
• The Group has taken some additional protective measures such as deferring commitments in our capital expenditure programme,
increasing the flexibility we have in our marketing spend, closely monitoring inventory levels and developing alternating work
schedules and home working options for employees.
4
Pendragon PLC Annual Report 2019 BUSINESS SEGMENTS
We have five main business divisions that make up our Group:
CAR STORE
Sale and
servicing of
vehicles in
the UK
FRANCHISED
UK MOTOR
Sale and
servicing of
vehicles in
the UK
SOFTWARE
Licencing of
Software as
a service to
automotive
businesses
LEASING
Supply of new
vehicles and fleet
management to
businesses
US MOTOR
(Discontinued)
Sale and servicing
of vehicles in the
US
I N G
t o r y
n
h i c l e s
e
v
e
S
A
E
N D L
ply of used c a r i n
ef eete d v
m d
p
u
S
o
r
f
T A
E
E
L
F
s
n
o
r
i
o
f
t
a
r
e
m
p
e
t
o
E
s
r
y
a
s
c
R
g
d
A
W
n
i
d
e
s
a
eff cient u
Market le
T
F
O
S
NEW V
Supply of u
fro
m p
s
e
E
H
I
C
L
E
a
d
r
t
e
c
a
x
r
c
i
R
E
T
h
n
A
a
v
I
n
e
g
n
e
t
o
s
r
y
L
I
N
G
T
e
c
f
h
o
n
r v
ic
e
al e
q
V
E
H
IC
L
hicle reco
E SERVIC
uipment a
ditioning
d e
E & REPAIR
n
n
xpertise
USED
VEHICLE
RETAILING
5
Pendragon PLC Annual Report 2019
FINANCIAL SUMMARY
4,739.1
4,627.0
4,506.1
552.9
550.5
472.7
11.7
11.9
10.5
2017
2018
2019
2017
2018
2019
2017
2018
2019
£4,506.1M
REVENUE
£472.7M
GROSS PROFIT
10.5%
GROSS MARGIN
83.8
76.2
60.4
47.8
3.3
2.8
26.7
(16.4)
(1.2)
2017
2018
2019
2017
2018
2019
2017
2018
2019
£26.7M
UNDERLYING OPERATING PROFIT
£(16.4)M
UNDERLYING PROFIT BEFORE TAX
(1.2)P
UNDERLYING EPS
91.4
65.3
(14.4)
(71.1)
(44.4)
(114.1)
124.1
126.1
119.7
2017
2018
2019
2017
2018
2019
2017
2018
2019
£(71.1)M
OPERATING (LOSS)/PROFIT
£(114.1)M
(LOSS)/PROFIT BEFORE TAX
£119.7M
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.
6
Pendragon PLC Annual Report 2019 OPERATIONAL AND FINANCIAL HIGHLIGHTS
OPERATIONAL AND FINANCIAL HIGHLIGHTS
• Group Revenue £4,506.1m +3.8% LFL (-2.6% total)
• Loss After Tax £(117.4)m (2018 : £(50.5)m loss)
• Underlying (Loss) / Profit Before Tax £(16.4)m loss (2018 :
£47.8m profit). H1 loss of £(32.2)m loss, H2 profit of £15.8m
• Dividend – The Group is not proposing a final dividend for
FY19 (2018: 0.7p)
• Non-Underlying Charge of £97.7m (2018 : £92.2m charge)
including a non-cash charge principally for impairment of
goodwill and non-current assets of £130.2m.
• Closing Net Debt – £119.7m (FY18 : £126.1m), down 5.1w%
PERFORMANCE INDICATORS
KEY FINANCIAL MEASURES
KPI
Definition
2019 Performance
Change
Underlying EPS
Underlying profit after tax divided by weighted average
number of shares
(1.2)p
down >100%
Underlying PBT
Underlying profit before tax excludes items that are not in-
curred in the normal course of business and are sufficiently
significant and / or irregular to impact the underlying trends
in the business
£(16.4)m
down >100%
Underlying
Operating Margin
Underlying operating profit divided by underlying
revenue
0.6%
down 62.5%
Underlying
Net Debt
Net debt : underlying EBITDA is the ratio of our net debt to
underlying EBITDA
Ratio 1.5
up 66.6%
KEY STRATEGIC MEASURES
KPI
Definition
2019 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 3.6%
up 1.5%
Used Revenue
All used revenues (like for like)
£1,829.0m
down 0.0%
Online Growth
Website visits to Evanshalshaw.com, Stratstone.com and
Carstore.com
34.9m visitors
up 21.8%
7
Pendragon PLC Annual Report 2019
s172 STATEMENT
Statement by the directors in performance of their statutory duties in accordance with s172(1) Companies Act 2006
The board of directors of Pendragon PLC consider, both individually and together, that they have acted in the way they
consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole
(having regard to the stakeholders and matters set out in s172(1)(a)-(f) of the Act) in the decisions taken during the year ended
31 December 2019.
• Our plan was designed to have a long-term beneficial impact on the company and to contribute to its success in delivering
a high quality of service across all of our business divisions: Franchised UK Motor, Software, Leasing and UK Motor.
• Our team members are fundamental to the delivery of our plan. We aim to be responsible employer in our approach to the
pay and benefits our team members receive. The health, safety and well-being of our team members is one of our primary
considerations in the way we do business.
•
Engagement with suppliers and customers is key to our success. We meet with our major manufacturing partners
regularly throughout the year and take the appropriate action, when necessary, to prevent involvement in modern slavery,
corruption, bribery and breaches of competition law.
• Our plan took into account the impact of the Group’s operations on the community and environment and our wider social
responsibilities, and in particular how we comply with environmental legislation and pursue waste-saving opportunities and
react promptly to local community concerns.
• As the Board of Directors, our intention is to behave responsibly and ensure that the management operate the business
in a responsible manner, operating within the high standards of business conduct and good governance expected for a
business such as ours and in doing so, will contribute to the delivery of our plan. The intention is to nurture our reputation,
through both the construction and delivery of our plan, that reflects our responsible behaviour.
• As the Board of Directors, our intention is to behave responsibly towards our shareholders and treat them fairly and
equally, so they too may benefit from the successful delivery of our plan.
8
Pendragon PLC Annual Report 2019 BUSINESS PROFILES
10 Car Store
10 Franchised UK Motor
12
14
Software - Pinewood
Leasing – Pendragon Vehicle Management
15 US Motor Group
9
Pendragon PLC Annual Report 2019 BUSINESS PROFILES
CAR STORE
Own brand proposition for the sale of used vehicles in the U.K..
Operating Highlights
• A full market and operating model assessment of Car
Store was completed during H1, which confirmed there is
a significant and attractive market opportunity and that
the proposition is well received by its target customers.
•
Following this, a clear roadmap of short-term and long-
term steps were established. The short-term actions
included the closure of 22 Car Stores and one preparation
centre in H2. In addition, following a review of capacity, a
further preparation centre was closed.
• During the first half of FY19, Car Store incurred underlying
operating losses of £(19.1)m, of which £(6.1)m resulted
from the clearance of used car stock from excess levels
that had built up at the end of FY18, and £(13.0)m was due
to operational performance contraints. In the second half
of FY19, Car Store had operating losses of £(6.1)m.
•
Significant performance improvements in the remaining
12 stores since the closure programme was completed,
with underlying operating losses from the remaining 12
stores reducing to £(1.1)m in the fourth quarter. Further
improvements are targeted during 2020.
“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”
FRANCHISED UK MOTOR
Sale and servicing of vehicles in the UK.
Operating Highlights
• H1 reported underlying operating loss of £(7.7)m (H1 2018
: £31.8m) , H2 reported underlying operating profit of
£20.7m (H2 2018 : £21.2m).
• H1 2019 was impacted by the previously disclosed
clearance of used car stock from excess levels.
• Used car gross margins stabilised at 7.8% in H2 vs 4.9%
in H1.
•
Further progress has been made with right-sizing the
Franchised UK Motor operation with 6 Jaguar Land Rover
sites either disposed of or closed in FY19.
• While market conditions remained challenging during
H2, with the new car market down (1.1)%. The Group
outperformed the new car market in the period, with H2
like-for-like new car unit sales growth of 2.3%.
• Underlying operating costs were well managed in H2
and on a proforma IAS17 basis, in total were down 5.6%
(down 0.8% on a LFL basis) as a result of the previously
announced cost reduction programmes.
10
Pendragon PLC Annual Report 2019 Evans Halshaw 120
Ford 38
Vauxhall 30
Citroën 14
Renault 6
Dacia 6
Peugeot 6
DAF 4
Hyundai 4
Nissan 4
Kia 3
SEAT 1
EH Used Car Centres 4
Stratstone 46
Land Rover 5
Jaguar 5
Mercedes-Benz 8
BMW 7
MINI 7
Smart 2
Porsche 5
Aston Martin 3
Harley-Davidson 2
Ferrari 1
SS Used Car Centres 1
Car Stores 12
178
UK RETAIL POINTS
253K VEHICLES SOLD
WEBSITE VISITS UP
22%
35M VISITS
11
Pendragon PLC Annual Report 2019 BUSINESS PROFILES
SOFTWARE - PINEWOOD
Licencing of Software as a Service to automotive business users.
Operating Highlights
• Underlying operating profit up 14.5% to £13.4m (2018 : £11.7m).
•
The software business continues to perform well, with continued international expansion.
• Additional customers were added in multiple territories, including Norway and Sweden during 2019.
“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.
8% GROWTH
IN REVENUE
MICROSOFT
PARTNER
12
Pendragon PLC Annual Report 2019
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 2019
BUSINESS PROFILES
LEASING - PENDRAGON VEHICLE MANAGEMENT
Fleet and contract hire provider. Source of used vehicle supply.
Operating Highlights
• Underlying operating profit down 13.5% to £12.8m (2018 : £14.8m), as
a result of the previously disclosed provision release of £2.8m in FY18.
•
Continued high return on investment from a low capital base.
• Valuable source of used car stock to the group.
“At Pendragon Vehicle
Management we supply fleet
vehicles and provide services
to help customers manage their
fleets, improving efficiency,
reducing costs and saving time.”
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.
B V R L A
MEMBER
14
DRIVER
APP
Pendragon PLC Annual Report 2019 US MOTOR GROUP
Sale and servicing of vehicles in the U.S.
Operating Highlights
• Disposal of two franchise locations in 2019 (Mission Viejo
•
Puente Hills Chevrolet disposal was completed in February
2020 for consideration of £16.5m.
and Newport Beach) for a combined consideration of
• Discussions for the remaining two sites in the US Motor
£59.3m.
Group are continuing.
•
This followed the initial disposal of Newport Beach Aston
• On target for expected total gross proceeds from the
Martin in 2018 for £3.1m.
combined sale of US assets of c.£100m pre-tax.
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 two 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
2
Land Rover
2
Chevrolet
1
Jaguar Santa Monica
Land Rover Santa Monica
Jaguar Los Angeles
Land Rover Rover Los Angeles
Chevrolet Puente Hills
15
Pendragon PLC Annual Report 2019 LIFE AT PENDRAGON
Our team members are what makes us great and what sets
us apart from our competition. We believe we have the best
RETAIN:
The automotive industry is changing more quickly than it
people in the business, and that’s not through luck.
ever has and we recognise that there is a great demand for
We adopt a simple people strategy focussed on three key
We’ve addressed this by introducing more flexible working
areas:
patterns designed to allow greater work-life balance and meet
flexibility and personal development from our team members.
the needs of modern families.
IDENTIFY I RETAIN I GROW
IDENTIFY:
It’s all about enhancing and empowering career experiences;
offering great employment opportunities for external job
seekers, whilst maximising career opportunities for all current
team members. Our strategy of identifying the best talent
starts with our current team members. We maximise career
development opportunities and offer the chance to progress
and diversify their careers with us.
As a retailer operating in an ever-changing industry we have
created new roles that appeal to a wider and more diverse
market, making a real difference to our diversity agenda. We
remain focussed on making our business and our sector appeal
to future generations to continue the success of our business.
Over the past few years we have utilised market-leading
digital attraction solutions to embed our online recruitment
strategy and have implemented a new recruitment systems
and associated processes. Continually investing in technology
enables us to build game changing experiences for us and the
candidate.
Additional apprenticeships in aftersales workshops, customer
services and IT have been introduced in the past year along
with the continuation of our ever-popular graduate and
undergraduate schemes across Central Operations and our
retailer network.
In recent years our resourcing team have been shortlisted for
In 2019 we furthered our commitment to Time to Change in
the Best Online Candidate Experience Award, and won Best
support of mental health through increased Mental Health first
Use of Mobile in the OnRec Awards; but far more valuable to
aider training and learning programmes for leaders, showing
us is the fantastic feedback we get from candidates.
our dedication to the mental wellbeing of our Team Members
and customers alike. Team Members have participated in a
number of events throughout the included Time to Talk day
and Mental Health Week, where Team Members took the
opportunity to break the stigma surrounding mental health
issues by talking openly and fundraising for the charity Mind.
Our MyReward benefits mobile application is available to all
Team Members and can be used to access exclusive company
benefits, from retail discounts and offers on shopping to
finding support and advice on wellbeing.
16
Pendragon PLC Annual Report 2019 GROW:
Our Learning and Development team offer comprehensive and
CELEBRATING SUCCESS
Celebrating Team Members success, both individually and as
tailored development programmes for every team member.
part of a team, is an essential part of life at Pendragon and
Training is offered as a mix of classroom, on the job and digital
helps everyone feel valued. Daily peer-to-peer recognition
modules designed to suit team member’s individual learning
is encouraged through initiatives such as our Extra Mile
styles.
recognition programme and high performer incentive schemes
run annually, with winners enjoying prizes such as short
During 2019 the Learning and Development team worked
European group trips.
in partnership with Leaders to support our rapidly evolving
business needs, including the development and implementation
of a new and successful company-wide approach to managing
performance, On-Track.
The team also introduced a fully revised and updated Learning
Management System “Pendragon Learn”, providing access to
online learning from any device for the first time.
2019 also saw the launch of a number of new leadership
development
initiatives to support our talent pipelines
including Aspiring Leaders for Team Members wanting to take
the step up into a Leadership role, and STARS for aspiring
Business Managers. These new programmes sat naturally
alongside our flagship High Potential Talent programme which
was expanded to all our motor retail brands ready for 2020.
Customer satisfaction is key to our success and we have a
renewed focus on developing a customer service culture,
supported by sales, leadership and operational training
through our online and classroom courses delivered at our
Training Academy in Mansfield and regional locations across
the country.
Our development programmes are delivered by a dedicated
team of trainers who work closely with external training
COMMUNITY
Our extensive footprint across the UK gives our dealerships a
partners to further upskill our front-line teams. We also work
unique ability to operate locally within communities but with
closely with our manufacturer partners to provide training
the backing of a large national organisation. We encourage
on the latest automotive technologies, as well as with local
our teams to be a responsible and valued part of their local
educational authorities to give Team Members the support and
community, supporting them however and whenever they can.
recognition their hard work and commitment deserves.
We support national and local charitable activities through the
TRAINING
DAYS COMPLETED
6,439
172,609 HOURS OF
E LEARNING COMPLETED
42,793 TRAINING
HOURS COMPLETED
year through both fundraising and Team Member activities
and have in the past 12 months furthered our commitment
to support activities aligned to our diversity and inclusion
agendas.
CAR CAFÉ
In 2019 we continued our popular Car Café community events
over the summer months, spreading our love of cars further
into communities across the UK. The events, which remained
free to attend, hosted thousands of guests at locations
including our Head Office in Nottingham and our dealerships
up and down the country. The Car Café meets bought together
some of the countries rarest, most desirable and much loved
vehicles, both in person and via it’s increasing social media
following.
17
Pendragon PLC Annual Report 2019 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
2019
2018
Change %
1,018.3
1,052.2
1,292.8
1,314.9
-3.2%
-1.7%
2,311.1
2,367.1
-2.4%
660.0
700.6
844.9
906.5
-5.8%
-6.8%
Group Represented* UK New Registrations
1,504.9
1,607.1
-6.4%
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 FY19 in the UK was 7.6m units, a fall of
AFTERSALES MARKET
The main determinant of the aftersales market is the number
0.1% against 2018. This represents a market opportunity that
of vehicles on the road, known as the ‘car parc’. The car parc
is c.3.3 times the size by volume of the new car market. The
in the UK has risen to 35.1m vehicles at FY19, a rise of 1.4%
used market is more stable than the new vehicle sector, being
on the prior year. The car parc can also be segmented into
less affected by fluctuations in the UK economy and providing
markets representing different age groups. At the end of
a more reliable supply chain than the new market.
HY19, around 20% of the car parc was represented by less than
three-year-old cars, around 20% by four to six-year-old cars
and 60% is greater than seven-year-old cars. The demand for
servicing and repair activity is less affected than other sectors
by economic conditions, as motor vehicles require regular
maintenance and repair for safety, economy and performance
reasons.
Units
10.0m
9.0m
8.0m
7.0m
6.0m
5.0m
4.0m
3.0m
2.0m
1.0m
0
18
UK CAR PARC BY AGE OF VEHICLE
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
0-3 YEARS
4-6 YEARS
7-10 YEARS
11-15 YEARS
>15 YEARS
Source: GMAP (2016 to 2019) and Pendragon (2020 to 2021)
Pendragon PLC Annual Report 2019
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
2.252m
2.270m
1.43m
1.49m
1.42m
1.32m
1.29m
1.21m
1.21m
1.12m
1.05m
1.02m
2015
2016
2017
2018
2019
2020
2021
PRIVATE
FLEET/BUSINESS
PENDRAGON FORECAST
Source: SMMT (2015 to 2021)
NEW CAR MARKET
The UK new car market was 2.311m in FY19 which is a reduction
transacted at a lower margin and consumes higher levels of
working capital than retail, and represents 56% of the market
of 2.4% over the prior year. The UK new car market is divided
in the year.
into two markets, retail and fleet. The retail market is the direct
selling of vehicle units to individual customers and operates at
The new retail market was down by 3.2% in FY19, and the new
a higher margin than the fleet market. The retail market is the
fleet market fell by 1.7% in the year. All new car market figures
key market opportunity for the Group and represents 44% of
are from the Society of Motor Manufacturers and Traders
the total market in the year. The fleet market represents the
(SMMT).
sale of multiple vehicles to businesses, and is predominately
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: GMAP (2015 to 2019) and Pendragon (2020 to 2021)
19
Pendragon PLC Annual Report 2019 OPERATIONAL AND FINANCIAL REVIEW
21 Business Review
30 Financial Review
34 Risk Overview & Management
20
Pendragon PLC Annual Report 2019 BUSINESS REVIEW
SEGMENTAL PERFORMANCE
Units sold
H1 2019
H2 2019
FY19
H1 2018
H2 2018
FY18
Change
(%)
LFL
Change
(%)
USED UNITS
Car Store
Franchised UK Motor
US Motor
Total
NEW UNITS
Franchised UK Motor
US Motor
Gross Profit
17,474
76,105
1,452
10,392
59,102
1,046
27,866
135,207
2,498
12,944
78,334
1,630
15,499
65,475
1,658
28,443
143,809
-2.0%
-6.0%
3,288
-24.0%
95,031
70,540
165,571
92,908
82,632
175,540
-5.7%
43,085
3,413
38,338
2,662
81,423
6,075
45,060
3,394
38,365
3,551
83,425
6,945
46,498
41,000
87,498
48,454
41,916
90.370
-2.4%
-12.5%
-3.2%
13.3%
-2.1%
-21.2%
-1.1%
-0.1%
1.7%
0.0%
STRATEGY AND BUSINESS REVIEW
The business is organised into 5 segments, analysed as follows:
• Software – Licencing of Software as a Service to global
• Car Store – Own brand proposition for the sale of used
automotive business users
vehicles in the U.K.
• Leasing – Fleet and contract hire provider. Source of used
• Franchised UK Motor – sale and servicing of vehicles in the
vehicle supply
U.K.
(£m)
REVENUE
Car Store
Franchised UK Motor
Software
Leasing
US Motor
Revenue
GROSS PROFIT
Car Store
Franchised UK Motor
Software
Leasing
US Motor
• US Motor – Sale and servicing of vehicles in the U.S.
H1 2019
H2 2019
FY19
H1 2018
H2 2018
FY18
170.8
1,999.2
8.9
42.8
233.9
99.5
1,731.6
9.4
21.6
188.4
270.3
146.7
3,730.8
2,048.3
18.3
64.4
422.3
8.4
40.8
232.0
153.8
1,725.6
8.5
16.5
246.4
300.5
3,773.9
16.9
57.3
478.4
2,455.6
2,050.5
4,506.1
2,476.2
2,150.8
4,627.0
5.3
182.2
7.9
8.4
31.4
5.6
189.4
8.5
8.7
25.3
10.9
371.6
16.4
17.1
56.7
10.3
227.1
7.4
8.2
30.1
14.3
205.0
7.5
10.6
30.0
24.6
432.1
14.9
18.8
60.1
Change
(%)
LFL
Change
(%)
-10.0%
-1.1%
8.3%
12.4%
-11.7%
-2.6%
-55.7%
-14.0%
10.1%
-9.0%
-5.7%
6.3%
3.8&
8.3%
12.4%
1.2%
3.8%
-46.5%
-10.4%
10.1%
-9.0%
-0.3%
Gross Profit
235.2
237.5
472.7
283.1
267.4
550.5
-14.1%
-10.1%
UNDERLYING OPERATING PROFIT
Car Store
Franchised UK Motor
Software
Leasing
US Motor
Underlying
Operating Profit
Gross Margin (%)
Operating Margin (%)
(19.1)
(7.7)
6.5
6.3
3.3
(10.7)
9.6%
-0.4%
(6.1)
20.7
6.9
6.5
9.4
37.4
11.6%
1.8%
(25.2)
13.0
13.4
12.8
12.7
26.7
10.5%
0.6%
(6.4)
31.8
5.6
6.1
5.6
42.7
11.4%
1.7%
(5.5)
21.2
6.1
8.7
3.0
(11.9)
53.0
11.7
14.8
8.6
111.8%
-75.5%
14.5%
-13.5%
47.7%
166.7%
-66.0%
14.5%
-13.5%
93.9%
33.5
76.2
-65.0%
-49.8%
12.4%
1.6%
11.9%
1.6%
-1.4%
-1.0%
-1.6%
-1.1%
21
Pendragon PLC Annual Report 2019 BUSINESS REVIEW
CAR STORE (£m)
Revenue
Gross Profit
Gross margin rate
Underlying
Operating Expenses
Underlying
Operating (Loss)
Underlying
Operating Margin
H1 2019
H2 2019
FY19
H1 2018
H2 2018
FY18
Change
(%)
-10.0%
-55.7%
-4.2%
FY19**
270.3
10.9
4.0%
170.8
5.3
3.1%
(24.4)
99.5
5.6
5.6%
(11.7)
270.3
10.9
4.0%
(36.1)
146.7
10.3
7.0%
153.8
14.3
9.3%
300.5
24.6
8.2%
(16.7)
(19.8)
(36.5)
-1.1%
(37.3)
(19.1)
(6.1)
(25.2)
(6.4)
(5.5)
(11.9)
111.8%
(26.4)
(11.2)%
(6.1)%
(9.3)%
(4.4)%
(3.6)%
(4.0)%
-5.3%
(9.8)%
Total Revenue Change
16.4%
-35.3%
-10.0%
Like-for-like Revenue
Change
Units Sold
Number of Locations
Average Selling Price*
27.5%
-11.8%
-6.3%
17,474
34
8,283
10,392
27,866
12
8,333
12
8,307
12,944
25
9,502
15,499
28,443
-2.0%
32
9,022
32
9,231
-10.0%
*Trading dealerships only
**Restated on a proforma IAS17 basis to exclude impact of IFRS16 for comparison purposes
CAR STORE
Operating Review
During the first half of FY19, Car Store incurred underlying
Improved stock management. The levels of stock at each
site has been subject to improved controls to prevent over-
stocking re-occurring. The stock profile of Car Store vehicles
operating losses of £(19.1)m, of which £(6.1)m resulted from the
was refined during the second half to limit the focus to the
clearance of used car stock from excess levels that had built up
prime retail market of cars up to seven years old, and reducing
at the end of FY18, with the remainder driven by operational
the exposure to older vehicles.
performance constraints. As outlined in the Group’s interim
results, a detailed strategic and market review of the Car Store
Following the clearance in the over-age stock. improved
business was completed during the first half of the year and the
controls have been put in place to manage the ageing of stock
decision was taken to close 22 of the 34 Car Stores and one of
in order to mitigate losses on over-age cars. Used car gross
the three vehicle preparation centres. The review concluded
margins increased from 3.8% in H1 2019 to 4.6% in quarter three
that the stores that were identified for closure did not have
2019 and to 7.4% in quarter four 2019.
the right physical characteristics to succeed as a Car Store
location, for example, converted ex-franchised dealerships
Increased management focus – The reduction in the size of the
that had limited external display space. The closures were
estate, combined with the improvement of the suitability of the
completed during September and October 2019.
remaining sites has enabled the Car Store management team
to better focus on driving performance.
Since the closure programme was completed, and following
a further review of the production capacity of Car Stores
As a result of these actions, performance improved significantly
main preparation centre in Coventry, an additional vehicle
in the last quarter of FY19 such that underlying operating
preparation centre has been closed, which will further improve
losses for Car Store reduced from £(5.0)m in quarter three
the underlying cost performance of the business. This additional
2019 to £(1.1)m in quarter four FY19, giving a £(6.1)m underlying
reduction was facilitated by an increase in capacity at Coventry
operating loss in the second half of the year. Whilst Car Store
following an operational process review to improve both the
is expected to remain loss making in FY20, management now
speed, and quality of vehicle preparation.
believe that this underlying loss will be limited to around £5m
and believe there remains scope for further performance
In addition to the store closure programme, a number of actions
improvement in the remaining portfolio and will continue to
to improve performance were taken during H2, including:
focus on driving this during FY20.
22
Pendragon PLC Annual Report 2019 Good progress has been made with the property management
of the closed store estate. Of the total of 24 sites (22 stores
Financial Review
Revenue reduced by 10.0% in FY19 as a result of the 22 store
and two preparation centres) closed, eight have been either
closures (6.3% revenue increase on an LFL basis in FY19).
sold, had the lease surrendered or been sublet as at the end of
Units sold reduced by 2.0% in FY19 (13.3% units increase on a
February 2020. The remaining sites will continue to be actively
LFL basis in FY19). The average sales price per unit reducing
marketed, with several of the remaining sites currently under
from £9,231 to £8,307.
offer.
We remain confident that the strategic opportunity for a
gross profit in FY19). This was primarily a consequence of the
standalone used car proposition is significant. The strategic
clearance of used car stock from excess levels and a fall in
review completed during the first half (outlined in detail in the
national used car values. The falling national used car values in
FY19 interim results) confirmed there is an attractive used-car
FY19 also adversely affected profitability.
Gross profit reduced by 55.7% in FY19 (46.5% reduction in LFL
market within the UK, where Car Store should be strategically
advantaged against peers given its stock purchasing scale
Operating costs decreased by 1.1% in FY19 (3.9% reduction on a
and relationships, its scale purchasing of parts and high levels
LFL basis in FY19). On a proforma IAS17 basis, operating costs
of brand referrals and cross site traffic from the Group. Car
were up 2.2% (2.8% on a LFL basis).
Store will continue to focus on an omni-channel approach,
positioning this business for a digitally-led future to serve early
The underlying operating loss for Car Store in FY19 was
adopters who want to complete the end-to-end customer
£(25.2)m (FY18: £(11.9)m). Losses were reduced in line with
journey online, showcase the product and drive digital traffic,
expectations during the second Half of FY19 to total £6.1m.
supported by physical locations of the optimal size and
location for customers who want to view and test the product.
23
Pendragon PLC Annual Report 2019 BUSINESS REVIEW
FRANCHISED UK MOTOR (£m)
REVENUE
Used
Aftersales
New
Revenue
GROSS PROFIT
Used
Aftersales
New
Gross Profit
Gross margin rate
Underlying
Operating Expenses
Underlying Operating
(Loss) / Profit
Underlying
Operating margin
Total Revenue
Change
Like-for-like Revenue
Change
Used Units Sold
New Units Sold
Number of Locations
Average Used Selling
Price*
Average New Selling
Price*
H1 2019
H2 2019
FY19
H1 2018
H2 2018
FY18
Change
(%)
FY19**
959.4
168.0
871.8
743.0
158.2
830.4
1,702.4
326.2
1,702.2
984.7
168.4
895.2
811.4
164.8
749.4
1,796.1
333.2
1,644.6
-5.2%
-2.1%
3.5%
1,702.4
326.2
1,702.2
1,999.2
1,731.6
3,730.8
2,048.3
1,725.6
3,773.9
-1.1%
3,730.8
47.0
83.7
51.5
182.2
9.1%
58.2
77.8
53.4
189.4
10.9%
105.2
161.5
104.9
371.6
10.0%
68.3
94.3
64.5
227.1
11.1%
73.0
85.5
46.5
205.0
11.9%
141.3
179.8
111.0
432.1
11.4%
-25.5%
-10.2%
-5.5%
-14.0%
-1.4%
105.2
161.5
104.9
371.6
10.0%
(189.9)
(168.7)
(358.6)
(195.3)
(183.8)
(379.1)
-5.4%
(369.3)
(7.7)
(0.4)%
20.7
1.2%
13.0
31.8
21.2
53.0
-75.5%
2.3
0.3%
1.6%
1.2%
1.4%
-1.1%
0.1%
-2.4%
0.3%
-1.1%
2.6%
5.2%
3.8%
76,105
43,085
170
59,102
38,338
166
135,207
81,423
166
78,334
45,060
185
65,475
38,365
177
143,809
83,425
177
-6.0%
-2.4%
11,449
11,467
11,457
11,378
11,458
11,415
0.4%
19,880
21,639
20,717
19,257
18,959
19,118
8.4%
*Trading dealerships only
**Restated on a proforma IAS17 basis to exclude impact of IFRS16 for comparison purposes
FRANCHISED UK MOTOR
Operating Review
The Franchised UK Motor business operated from 161 franchise
In the second half of FY19, a number of actions were taken to
improve performance including:
points and five used cars only retail points. The points represent
Improved stock management. As with Car Store, improvements
a range of volume and premium products offering both sales
to the management of both the quantity and the ageing of stock
and service functions.
levels resulted in significantly improved used car performance.
Used Gross margins increased by 2.9% from 4.9% in H119 to
In the first half of 2019, Franchised UK Motor had underlying
7.8% in H219 as a result of the improved stock management.
operating losses of £(7.7)m. A significant increase in used
car stock at the end of FY18 without an associated increase
Cost management. The actions to reduce headcount outlined
in sales rates, led to excess used car stock during the first-half
with the interim results were completed during the second half,
of FY19. The subsequent programme to clear used car stock
from excess levels, combined with a reduction in national used
and combined with an increased focus on all costs resulted in
comparable like for like operating expense reductions of 0.8%
car values led to a c.£20m impact on the underlying operating
(underlying down 5.6%) in H219 vs H218, compared with a 5.4%
performance in the first-half.
like for like increase in H119.
24
Pendragon PLC Annual Report 2019 New car performance improvements. The division recorded
a 16.8% increase in like for like new car revenue in H219,
Financial Review
Revenue decreased by 1.1% in FY19 (3.8% increase in LFL
outperforming the overall market (SMMT data reports 1.1%
revenue in FY19). In the first half of FY19 revenue fell by 2.4%
H2 decline in new car registrations), which combined with an
(2.6% LFL increase) and in the second half of FY19 revenue
increase in gross margin of 50 basis points vs the first half
increased by 0.3% (5.2% LFL increase). Aftersales revenue fell
resulted in new gross profit increasing by £6.9m in H2 2019
by 2.1% (1.6% LFL increase), new revenue increased by 3.5%
compared to last year.
(8.3% LFL increase) and used revenue fell by 5.2% (flat LFL).
The new revenue increase was despite UK new car registrations
As a result of these actions, underlying performance improved
falling by 2.4% in 2019, with national new retail car registrations
significantly, in what remained a challenging market, during the
falling by 3.2%.
second half resulting in underlying operating profit for H219 of
£20.7m (H218: £21.2m).
Gross profit fell by 14.0% in FY19 (10.4% reduction in LFL gross
profit in FY19) with the principal driver being a 25.5% reduction
Overall for the year, the new car market was down 2.4%, with
(22.0% LFL reduction) in the used gross profit, largely as a
national new car registrations declining by 3.4% in the first half
result of the exercise to reduce excess stock during the first
of the year and declining by 1.1% in the second half of 2019.
half of the year combined with a national fall in used car values
The Group outperformed this market overall with like-for-like
during the same period. Used car margin rates improved
new unit volumes being flat vs FY18. During the second half
significantly during the second half following the management
of FY19 the business focussed on reducing the reliance on pre-
actions set out above.
registrations to achieve targets by achieving these targets
through earlier sales to the end customer during each target-
The reduction in aftersales gross profit of 10.2% (6.7% LFL
led period. This resulted in a slight decline in the gross margin
reduction) is principally due to the increased cost of service
rate to 6.2% (FY18: 6.7%), although for the second half the rate
technicians. Finally, new gross profit was down 5.5% (down
was marginally ahead year on year at 6.4% (H218: 6.2%) as
1.2% LFL), despite the new revenue increase as a result of
performance improved.
lower new car margins to achieve natural registrations in a
challenging market environment.
A total of six Jaguar Land Rover sites were either disposed of or
closed in FY19. In addition, five ‘satellite’ Vauxhall dealerships
Underlying operating costs have decreased by 5.4% (0.7%
were closed in January 2020 as a result of a manufacturer
decrease on an LFL basis). On a proforma IAS17 basis, operating
review of the estate right-size. The Group will continue to
costs were down 2.6% (up 2.3% on a LFL basis). During the
monitor the overall size of the portfolio.
second half, on a proforma IAS17 comparable basis, operating
costs were 0.8% down, compared to a 5.4% increase in the first
Aftersales gross profit was impacted by a combination of
half as a result of the ongoing focus on the level of underlying
technician cost increases following a benchmarking exercise
operating costs, with a reduction in headcount and reduced
of industry rates of pay exercise in late 2018 and an increased
advertising expenditure supporting the overall reductions.
mix of lower margin warranty work.
The Franchised Motor division will remain an important part
profit in FY19 (FY18: £53.0m), with the previously reported first
of the Group’s portfolio of operations. During FY20 work will
half underlying operating losses of £7.7m (H118: £31.8m) offset
continue to improve the performance of the business across
by the improved performance of the second half underlying
Used, New and aftersales with a number of initiatives in place.
operating profit of £20.7m (H218: £21.2m).
In total, the division delivered a £13.0m underlying operating
There remains significant opportunity for improvement in
both the underlying used car and aftersales performance
through a series of self-help performance improvement
measures, including used margin growth through improved
pricing capabilities and process execution, driving aftersales
performance through conversion of health checks and more
efficient marketing. In addition, the Group will continue to
focus on cost control and optimisation.
25
Pendragon PLC Annual Report 2019
BUSINESS REVIEW
SOFTWARE
Operating Review
Pinewood, our software business provides Software as a
Service (“SaaS”) in the UK and in a number of countries
worldwide. Pinewood is strategically important to the Group
and we believe it has potential for further expansion. Pinewood
Our core UK business continues to grow with orders from
new customers and existing customers extending their user
subscriptions.
Financial Review
As the Pinewood business expands its global footprint, revenue
currently has SaaS users in 16 countries.
has grown by 8.3% in FY19. Gross profit has increased by 10.1%
as the strong gross margins have been maintained.
Pinewood has secured orders for the Pinewood DMS from
dealers in both Sweden & Norway and implementations
Underlying operating profit was £13.4m, an increase of 14.5%
commenced in the second half of 2019. This is in addition to
on FY18.
further orders secured by our partners in South Africa, Asia
Pacific and The Netherlands. In total, over 1,000 net new users
were added by Pinewood during FY19.
SOFTWARE (£m)
REVENUE
Revenue
Gross Profit
Gross margin rate
Underlying Operating Expenses
Underlying Operating Profit
Underlying Operating margin rate
Revenue Change
FY19
18.3
16.4
89.6%
(3.0)
13.4
73.2%
8.3%
FY18
16.9
14.9
88.2%
(3.2)
11.7
69.2%
Change
(%)
8.3%
10.1%
1.4%
-6.3%
14.5%
4.0%
26
Pendragon PLC Annual Report 2019
LEASING
Operating Review
Pendragon Vehicle Management (PVM), our Leasing business
budget announcement detailing zero Benefit in Kind Tax for
these vehicles. During FY20 the Group will continue to focus
on driving incremental growth in the overall size of the fleet
offers a complete range of fleet leasing and contract hire
whilst maintaining a sensible approach to the assessment of
solutions. Our customers are varied in both fleet size and
residual values.
business sector. The financing for the leasing business is
provided by third parties leading to a high return on capital.
The British Leasing and Rental Association reported that
Financial Review
Revenue has grown by 12.4% in FY19, but there has been a
the business contract hire car fleet sector fell 9% whilst light
9.0% decrease in gross profit from a strong comparative,
commercial vehicles increased by 2.8% compared to prior
which included the benefit of the previously disclosed release
year. PVM grew its fleet size (number of cars) by 5.5% during
of the provision in respect of loss-making disposals of £2.8m
FY19. The overall reduction in the market for new contracts
in FY18. Underlying operating costs were up 7.5% to £4.3m
put pressure on margins, and regardless of these market
(FY18: £4.0m).
conditions PVM continued to adopt a responsible approach
to future residual values. PVM’s fleet is starting to experience
As a result, underlying operating profit decreased by 13.5% to
a reduction in the levels of take up of diesel product and
£12.8m (FY18: £14.8m).
increased uptake in electric vehicles particularly post the June
LEASING (£m)
Underlying
REVENUE
Revenue
Gross Profit
Gross margin rate
Underlying Operating Expenses
Underlying Operating Profit
Underlying Operating margin rate
Revenue Change
FY19
64.4
17.1
26.6%
(4.3)
12.8
19.9%
12.4%
FY18
57.3
18.8
32.8%
(4.0)
14.8
25.8%
Change
(%)
12.4%
-9.0%
-6.2%
7.5%
-13.5%
-5.9%
27
Pendragon PLC Annual Report 2019 BUSINESS REVIEW
US MOTOR
Operating Review
The disposal of the US Motor Group is ongoing with total
classification is that these non-current assets are not subject
to a depreciation charge during the accounting period, an
impairment test being undertaken instead. As a result, there
proceeds expected to be c.£100m before tax. In FY18, the
has been a £2.7m adjustment to the reported performance of
sale of the Newport Beach Aston Martin business for £3.1m
the business as a result of the application of IFRS16 by virtue
was completed. During the second half of FY19 the previously
of the lease expense for 2019 comprising a £0.8m interest
announced transactions at sites in Mission Viejo and Newport
expense and no depreciation charge, rather than a £3.5m rent
Beach, California, were completed for a combined consideration
expense.
of £59.3m. Post the year end, the previously announced
transaction at Puente Hills, California, also completed on the 10
February 2020 for consideration of £16.5m.
Financial Review
Revenue is down by 11.7% in the year (1.2% LFL increase) with
new falling 9.3% (+7.3% LFL), aftersales falling 5.8% (+2.0% LFL)
The process to complete the disposals of the two remaining
and used revenue falling by 22.7% (-21.5% LFL). Gross profit
Jaguar Land Rover locations in Los Angeles (Beverley Hills)
decreased by 5.7% (flat LFL), with aftersales gross profit down
and Santa Monica are actively ongoing.
7.0% (up 1.6% LFL), used gross profit up 5.6% (down 3.3% LFL)
Impact of IFRS 16
Leases in the US Motor Group are now subject to the application
and new gross profit down 6.6% (down 0.6% LFL). Underlying
operating costs decreased by 14.6% (down 11.2% LFL).
of IFRS16, which replaces the rent expense with depreciation
Underlying operating profit was up by £4.1m to £12.7m (2018 :
and interest charges. In the case of the US Motor Group, all
£8.6m). Adjusting for the impact of the transition to IFRS 16 as
assets are classified as ‘held for sale’ which will include the
outlined above, underlying operating profit was up £1.4m on a
lease assets capitalised under IFRS 16. A consequence of this
comparable basis to £10.0m.
28
Pendragon PLC Annual Report 2019 US MOTOR (£m)
REVENUE
Used
Aftersales
New
Revenue
GROSS PROFIT
Used
Aftersales
New
Gross Profit
Gross margin rate
Underlying
Operating Expenses
Underlying
Operating Profit
Underlying
Operating margin
Total Revenue
Change
Like-for-like Revenue
Change
Used Units Sold
New Units Sold
Number of Locations
Average Used Selling
Price*
Average New Selling
Price*
H1 2019
H2 2019
FY19
H1 2018
H2 2018
FY18
43.1
22.5
168.3
233.9
3.5
11.7
16.2
31.4
13.4%
(28.1)
32.6
18.2
137.6
188.4
2.2
9.4
13.7
25.3
13.4%
(15.9)
75.7
40.7
305.9
422.3
5.7
21.1
29.9
56.7
47.3
21.6
163.1
50.6
21.6
174.2
97.9
43.2
337.3
232.0
246.4
478.4
-11.7%
2.9
11.5
15.7
30.1
2.5
11.2
16.3
30.0
12.2%
13.4%
13.0%
5.4
22.7
32.0
60.1
12.6%
(51.5)
(44.0)
(24.5)
(27.0)
-14.6%
(47.5)
Change
(%)
-22.7%
-5.8%
-9.3%
5.6%
-7.0%
-6.6%
-5.7%
0.8%
FY19**
75.7
40.7
305.9
422.3
5.7
21.1
29.9
56.7
13.4%
3.3
9.4
12.7
5.6
3.0
8.6
47.7%
9.2
1.4%
5.0%
3.0%
2.4%
1.2%
1.8%
1.2%
2.2%
0.8%
-23.5%
-11.7%
8.9%
1,452
3,413
9
-6.0%
1,046
2,662
5
1.2%
2,498
6,075
5
1,630
3,394
10
1,658
3,551
9
3,288
6,945
9
-24.0%
-12.5%
£19,744
£20,925
£20,293
£19,978
£20,376
£20,183
0.5%
£45,209
£47,133
£46,119
£42,781
£44,634
£43,727
5.5%
*Trading dealerships only
**Restated on a proforma IAS17 basis to exclude impact of IFRS16 for comparison purposes
29
Pendragon PLC Annual Report 2019 FINANCIAL REVIEW
NON-UNDERLYING ITEMS
Non-underlying income and expenses are items that are not
incurred in the normal course of business and are sufficiently
market conditions on future cash flows and the current market
capitalisation of the Group.
significant and/or irregular to impact the underlying trends in
Pension income of £3.0m represents a £4.8m credit relating
the business. During the year the Group has recognised a net
to past service costs in respect of pension obligations and an
charge of £97.7m of pre-tax non-underlying items against a
interest charge on pension scheme obligations of £1.8m for
charge of £92.2m in FY18. These include non-cash impairments,
FY19. The Group recorded gains on the sale of properties and
principally of goodwill and non-current assets amounting to
businesses in the period of £33.3m. This included gains on
£130.2m. There is £102.4m impairment of goodwill, £23.3m
disposal of businesses of £32.1m and gains on the sale of surplus
impairment of property assets primarily within Car Store,
property during the year of £1.2m. There were termination and
£2.6m impairment of property, plant and equipment and £1.9m
severance costs of £5.5m in FY19, partially offset by a credit of
impairment of assets held for sale. These have been necessary
£3.5m on settlement of historic VAT issues in respect of VAT
following assessments of the carrying value of those assets
reclaims and associated interest.
which have been calculated by taking into account trading,
Non-underlying Items
Settlement of historic VAT issues
H1 2019
£m
3.5
H2 2019
£m
-
2019
£m
3.5
2018
£m
-
Impairment of goodwill, property, plant and equipment and assets held for sale
(102.5)
(27.7)
(130.2)
(95.8)
Termination and severance costs
Gains on the sale of businesses and property
Car Store closure costs
Pension income / (costs)
Total non-underlying items before tax
Non-underlying items in tax
Total non-underlying items after tax
(1.4)
(1.1)
-
(0.9)
(102.4)
(4.1)
34.4
(1.8)
3.9
4.7
(5.5)
33.3
(1.8)
3.0
-
15.7
-
(12.1)
(97.7)
(92.2)
(0.3)
(3.0)
(3.3)
3.0
(102.7)
1.7
(101.0)
(89.2)
CAPITAL ALLOCATION
Net debt* has reduced by £6.4m from £126.1m at 31 December
2018 to £119.7m at 31 December 2019. The net debt to
The final two disposals are expected to complete during FY20
with interest in both remaining sites.
underlying EBITDA ratio* was 1.5x for the rolling 12 months
6 Jaguar Land Rover franchise sites were either disposed of
to FY19. The net debt to underlying EBITDA ratio has moved
or closed in FY19. In addition, during January 2020 The Group
from 0.9x at FY18 largely due to the trading impact of the
announced it would be closing five Vauxhall franchise points.
stock clearance as detailed in the operating reviews.
All of these are satellite locations and are not expected to
materially impact on Group underlying profit.
The Group expects gross proceeds from the disposal of the
entire US business of around £100m before tax. Proceeds of
PROPERTY AND INVESTMENT,
£3.1m had already been generated on the disposal of a single
Aston Martin US business in July 2018, proceeds of £28.7m
ACQUISITIONS AND DISPOSALS
Our property portfolio is a key strength for our business. At
were generated from the disposal of the Mission Viejo Jaguar
FY19, the Group had £238.7m (£396.5m including IFRS16 right
Land Rover business in July 2019 and proceeds of £30.6m
of use assets) of land and property assets (FY18 : £240.5m).
were generated from the disposal of the Newport Beach
There was a small reduction in this value as our disposals were
Jaguar Land Rover business in December 2019. In February
matched by new property acquisitions and developments.
2020, the Puente Hills Chevrolet business was disposed of for
Property assets classified as held for sale were £71.8m (FY18
£16.5m. In total to date, total disposal proceeds of £78.8m
: £32.8m).
have been received.
30
Pendragon PLC Annual Report 2019 DIVIDEND
The Group is not proposing a final dividend for 2019.
extended by one year to 31 March 2022 and the facility size
was reduced from £240m to £175, in line with the Group’s
PENSIONS
The net liability for defined benefit pension scheme obligations
has decreased from £68.3m at FY18 to £59.0m at FY19.
Movements in the respective assets and liabilities of the
requirements going forward. The Group has agreed to pay an
increased margin of 0.50%.
ADOPTION OF IFRS 16
IFRS 16 Leasing is a new accounting standard that was effective
Pension Scheme largely offset each other, reflecting the
from 1 January 2019. The new standard replaces existing leases
hedging in place. The Group contributed £7.6m to the Pension
guidance, principally IAS 17 Leases. IFRS 16 introduces a single,
Scheme in the period following the Group commitment to pay
on-balance sheet leases accounting model for lessees. A lessee
annual contributions of £7.0m from 1 January 2017, increasing
recognises a right-of-use (ROU) asset representing its right to
by 2.25% thereafter until July 2022.
use the underlying asset and a lease liability representing its
Following the full actuarial valuation of the company’s pension
using the modified retrospective approach. Therefore, the
scheme at 31 December 2018 showing a deficit of [£117m], the
cumulative effect of adopting IFRS 16 has been recognised as
company and trustees agreed to raise its annual contribution
an adjustment to the opening balance of retained earnings at 1
to the pension scheme to £12.5 million from 1 January 2020
January 2019, with no restatement of comparative information.
from £7.6m of contributions in 2019.
Further details of this can be found in note 3. The impact of
obligation to make lease payments. IFRS 16 has been applied
adopting IFRS 16 on the 2019 consolidated income statement
REVOLVING CREDIT FACILITY (RCF)
In March 2020 the maturity date of the Group’s RCF was
can be seen below:
CONSOLIDATED INCOME STATEMENT
Year ended 31 December
Revenue
Cost of sales
Gross profit
Underlying operating expenses
Underlying operating (loss) profit
Underlying net finance costs
Underlying (loss) / profit before
taxation
Analysed as:
Non-underlying (loss) / profit
before taxation
Total income tax credit / (expense)
Total (loss) / profit for the period
Earnings per share
Basic earnings per share
Diluted earnings per share
Non GAAP Measure
Underlying basic earnings per share
Underlying diluted earnings per share
2019
£m
4,506.1
(4,033.4)
472.7
(446.0)
26.7
(43.1)
(16.4)
(97.7)
(3.3)
(117.4)
(8.4)p
(8.4)p
(1.2)p
(1.2)p
2018
£m
4,627.0
(4,076.5)
550.5
(474.3)
76.2
(28.4)
47.8
(92.2)
(6.1)
(50.5)
(3.6)p
(3.6)p
2.8p
2.8p
20191
£m
4,506.1
(4,033.4)
472.7
(461.4)
11.3
(29.8)
(18.5)
31
Pendragon PLC Annual Report 2019 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 2019
and 31 December 2018 as follows:
SUMMARY CASHFLOW AND NET DEBT (£m)
Underlying Operating Profit Before Other Income
Depreciation and Amortisation
Share Based Payments
Non-underlying Items
Working Capital and Contract Hire Vehicle Movements*
Underlying Operating Cash Flow
Tax Received / (Paid)
Underlying Net Interest Paid
Net Cash Flow From Operating Activities
Capital Expenditure – Car Store
Capital Expenditure – Franchise
Capital Expenditure – Underlying Replacement
Capital Expenditure – Property
Business and Property Disposals
Net Capital Expenditure Income/(Expenditure)
Dividends
Share Buybacks
Lease Payments & Receipts
Other
Decrease In Net Debt
Opening Net Debt1
Closing Net Debt
2019
26.7
44.7
0.6
(5.7)
(2.2)
64.1
(3.3)
(26.8)
34.0
(3.8)
(20.2)
(9.3)
(16.1)
72.4
23.0
(9.7)
(0.5)
(39.9)
(0.5)
6.4
126.1
119.7
2018
76.2
27.4
0.7
-
(16.2)
88.1
(10.9)
(24.8)
52.4
(6.8)
(12.6)
(30.6)
(6.5)
30.2
(26.3)
(22.5)
(6.7)
-
(0.4)
(3.5)
122.6
126.1
20192
11.3
25.5
0.6
(7.3)
(5.9)
24.2
(3.3)
(26.8)
(5.9)
(3.8)
(20.2)
(9.3)
(16.1)
72.4
23.0
(9.7)
(0.5)
-
(0.5)
6.4
126.1
119.7
1 On adoption of IFRS 16 on 1 January 2019 the Group has opted to re-define it’s net debt metric to exclude finance lease liabilities. This has resulted in the net debt at 31 December
2018 being adjusted by £1.5m, the finance lease liability at those dates. Net debt has been adjusted from £127.6m to £126.1m respectively at 31 December 2018.
2 Restated to exclude impact of IFRS 16 for comparison purposes.
RECONCILIATION TO CONSOLIDATED CASH FLOW STATEMENT
Net Cash Flow From Operating Activities
Net cash from/(used) in investing activities
Financing cash flows as included above
Dividend
Net finance lease payments
Share buyback
Shares acquired EBT
Financing cash flows not included above relating to loans
Repayment of loans
Proceeds from issue of loans
Net cash outflow from financing activities
Net increase/(decrease) in cash and cash equivalents
per consolidated cash flow statement
Repayment of / proceeds from loans
Non-cash movements (other above)
Movement in net debt as above
2 Restated to exclude impact of IFRS 16 for comparison purposes.
32
2019
34.0
23.0
(9.7)
(39.9)
(0.5)
-
(5.0)
5.4
(49.7)
7.3
(0.4)
(0.5)
6.4
2018
52.4
(26.3)
(22.5)
-
(6.7)
0.1
(10.0)
7.1
(32.0)
(5.9)
2.9
(0.5)
(3.5)
20192
(5.9)
23.0
(9.7)
-
(0.5)
-
(5.0)
5.4
(9.8)
7.3
(0.4)
(0.5)
6.4
Pendragon PLC Annual Report 2019 The underlying operating cash flow was 64.1m in FY19
interest expense of £13.3m is not a component of the operating
compared to £88.1m in FY18. This reduction was largely due
result and a £19.2m depreciation charge, included in the
to the impact of the clearance of used car stock from excess
underlying operating loss, has been added back. Under IFRS
levels.
16 the actual net cash paid and received of £39.9m in respect
of lease payments and receipts is now presented as a financing
Non-underlying cash items of £5.7m comprised of redundancy
cash flow.
costs of £5.5m in relation to three former Executive Directors,
and other senior executive team. In addition, there was a cash
outflow of £1.8m in relation to the Car Store closure programme
BALANCE SHEET SUMMARY
The following table summarises the balance sheet of the Group
and a cash inflow of £1.6m in relation to the settlement of
at 31 December 2019 and 31 December 2018. There is also a
historic VAT issues.
restated 2019 balance sheet that illustrates the balance sheet
position presented on a proforma IAS 17 basis, excluding the
The net capital expenditure inflow of £23.0m (FY18: outflow of
impact of IFRS 16 for comparison purposes.
£26.3m) was principally due to the £72.4m cash inflow from
business and property disposals, which more than offset the
Net assets have reduced from £345.6 million at FY18 to £168.9
outgoing capital expenditure in the year.
million. The reduction in goodwill and intangibles is principally
a result of a goodwill impairment charge of £102.4m recorded
Dividends of £9.7m (FY18: £22.5m) reflects the payment of the
in the period. The Group has adopted IFRS 16 Leases from 1
FY18 final dividend. No interim dividend was paid for FY19. The
January 2019. IFRS 16 introduces a single, on balance model
adoption of IFRS 16 on 1 January 2019 has resulted in changes
for leases. As a result, the Group as a lessee has recognised a
to the way the cash flows in respect of lease rentals paid and
right or use asset of £159.2m representing its right to use the
received are reported, as, in adopting the modified retrospective
underlying asset and a lease liability representing its obligation
method of transition the Group have not restated comparative
to make lease payments. This lease liability of £240.0m is the
information in the cash flow statement. In the prior period the
primary reason for the increase in creditors, partially offset by
net rental expense was presented in the income statement as
a reduction of £89.2m largely as a result of the lower level of
an operating expense and subsequently an operating cash flow
stocking finance following the reduction in used car stock levels.
but for FY19 the equivalent charge into the income statement
Stock has been reduced by £120.6m versus FY18, principally as
has instead been accounted for as a depreciation charge and
a result of the stock reduction exercise previously described.
net interest expense. In terms of cash flow reporting, the net
BALANCE SHEET
Property
Plant & Equipment
Goodwill & Intangibles
Right of Use Assets
Stock
Debtors
Net Assets Held for Resale
Creditors
Net Debt2
Shareholders Funds
2019
237.8
231.3
172.3
159.2
839.0
129.9
59.6
2018
240.5
233.4
274.1
-
959.6
114.8
49.0
20191
241.4
231.3
172.3
-
839.0
116.6
56.5
(1,540.5)
(1,389.7)
(1,300.5)
(119.7)
168.9
(126.1)
345.6
(119.7)
236.9
1 Restated to exclude impact of IFRS 16 for comparison purposes
2 On adoption of IFRS 16 on 1 January 2019 the Group has decided to re-define its net debt metric to exclude finance lease liabilities. This has resulted in the net debt at 31 December
2018 being adjusted by £1.5m, the finance lease liability at those dates. Net debt has been adjusted from £127.6m to £126.1m respectively at 31 December 2018.
33
Pendragon PLC Annual Report 2019 RISK OVERVIEW & MANAGEMENT
POTENTIAL IMPACT OF COVID-19
The Group is closely monitoring the evolution of COVID-19
We have modelled the impact of a severe reduction in vehicle
sales over a sustained period on our financial covenants and
and to date, we have seen minimal impact on our business.
bank facility limits and we are comfortable that we are well
However, it is hard to predict with any certainty what may
positioned in this regard, with mitigants available in the more
happen.
severe scenarios where headroom becomes more limited.
However, we have taken some additional protective measures
Pendragon’s key priority is the health and wellbeing of our
such as deferring commitments in our capital expenditure
colleagues, customers and business partners, while we
programme, increasing the flexibility we have in our marketing
maintain our high standards of service to customers. We have
spend and closely monitoring inventory levels.
clear business continuity plans in place to deal with a range
of scenarios and we have taken appropriate preventative
steps, such as minimising all non-essential business travel,
PRINCIPAL RISKS
Recognising that all businesses entail elements of risk, the
and implementing contingency plans for alternative working
Board maintains a policy of continuous identification and
locations.
review of risks which may cause our actual future Group
results to differ materially from expected results. The Board
Our new vehicles are predominantly sourced from the EU and
has carried out a robust assessment of the Group’s emerging
UK and recently, some manufacturers have announced short
and principal risks. The table on pages 36 to 41 is an overview
term shut downs to their production facilities. However, we
of the principal risks faced by the Group, with corresponding
understand that the vehicle manufacturers have inventory
controls and mitigating factors. The specified risks are not
buffers of several months. Therefore, we currently anticipate
intended to represent an exhaustive list of all potential risks and
our supply of new vehicles should not be significantly disrupted
uncertainties. A thorough risk review , involving company-wide
before the Autumn of 2020.
participation, has been completed during 2019. A small number
of risks and mitigation disclosures have been updated as a
As the virus spreads across the UK then this will likely influence
result, including those relating to latest external factors such as
the willingness of customers to visit our dealerships, which
the UK’s exit from the EU and Government announcements in
could affect our financial performance. Most of our new car
respect of future planned climate change action on diesel, petrol
sales and a substantial proportion of used car sales are made
and hybrid vehicles. Two existing risks have been segmented
through a Purchase Car Plan or similar arrangement which
into more detailed disclosures increasing the numbered risks
provides an incentive to customers to change their vehicle at
by two. The developing situation in relation to the outbreak
the expiry of the arrangement. Consumers can purchase both
and spread of coronavirus (COVID-19) is constantly under the
new and used cars with associated finance over the telephone
review as part of our risk management. Our immediate focus
or internet without visiting dealerships. We also offer vehicle
is the health, safety and well being of our team members and
delivery to the customer’s chosen destination. This provides
we have convened our crisis management team to co-ordinate
underpinning for vehicle sales, although if the situation worsens,
our response and introduce new measures such as remote
we anticipate there may be some level of deferral. We also
working. The risk factors outlined below should be considered
note that servicing and repair work is generally undertaken in
in conjunction with the Group’s system for managing risk,
compliance with manufacturer warranty, extended warranty
described below and in the Corporate Governance Report on
or service plan arrangements that customers will continue to
page 47.
observe.
34
Pendragon PLC Annual Report 2019 RISK MANAGEMENT AND INTERNAL CONTROLS
Accountability
The Board is responsible for risk management and internal
No material changes have occurred in 2019 which have or
are likely to have a material effect on the Group’s internal
controls over financial reporting. Controls are designed to
control within the context of achieving the Group’s objectives.
ensure that the Group’s financial reporting presents a true and
The system of control the Board has established covers both
fair reflection of the Group’s financial position. The Board has
the Group’s financial reporting and the mitigation of business
understood that there are certain internal control deficiencies
and operational risks. The system is designed to manage, rather
which it intends to remediate during 2020.
than eliminate, the risk of failure to achieve business objectives,
and can provide only reasonable and not absolute assurance
against material misstatement or loss.
Operational and Other Risks
Operational management is charged by the Board with
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 the Chief
annual corporate plan; the Board reviews and approves it and
Operating Officer, Chief Finance Officer, Company Secretary,
monitors actual performance against it on a monthly basis.
Group Head of Internal Audit and, by invitation, other members
Where appropriate, during the year, revised forecasts are
of the Group’s senior operational and financial management.
prepared and presented for Board review and approval. To
ensure that information to be consolidated into the Group’s
We maintain risk registers and risks are reviewed as a top down
financial statements is in compliance with relevant accounting
and bottom up activity at the Group, Division and Functional
policies, internal reporting data is comprehensively reviewed.
level. The content of the risk registers are considered
Reviews of the appropriateness of Group accounting policies
and discussed regularly through discussion with senior
take place at least twice a year, under the scrutiny of the Audit
management and review within our governance committees.
Committee, which considers reports on this from the Group’s
The approach to risk control and the work of the RCG are
Auditor, the application of IFRS and the reliability of the
described on page 47.
Group’s system of control of financial information.
B
O
A
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D
D
N
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S
S
E
S
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T I F I C
ID E N
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B
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STRATEGIC RISKS
FINANCIAL RISKS
OPERATIONAL RISKS
COMPLIANCE RISKS
P
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K
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NIN
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CONTROL ACTIONS
IMPLEMENT
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&
35
Pendragon PLC Annual Report 2019
RISK OVERVIEW & MANAGEMENT
NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
STRATEGY AND BUSINESS RELATIONSHIPS
1
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
We miss our profit growth and/
or debt management target,
alienate key stakeholders and
are unable to invest adequately
in our business
We do not meet our customers’
needs by not achieving a
coherent, connected and
engaging customer journey,
leading to us to be less
competitive and losing market
share
• 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
2
Manufacturer
Relationships:
Dependence on vehicle
manufacturers for the
success of our business
Failure to maintain
sustainable, mutually
rewarding relationships
with our manufacturers
Failure of, or weaknesses in, our
vehicle manufacturers’ financial
condition, reputation, marketing,
production and distribution
capabilities (including those
arising from the ongoing effect
of coronovirus COVID-19)
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
Manufacturers change their
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 supplied from a wide variety of
sources
• Our model of developing and maintaining revenues
from used vehicles, aftersales, and our software and
leasing segments reduces our overall reliance on
new vehicle franchise
36
Pendragon PLC Annual Report 2019 NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
STRATEGY AND BUSINESS RELATIONSHIPS
3
Competition:
Failure to meet
competitive challenges
to our business model or
secton
Customers migrate to alternative
providers
Intermediary companies establish
a barrier between us and our
customers
• 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
New forms of competition would
have less barriers to their entering
the market
management capabilities and online customer offer
of fulfilment tools aim to drive industry-leading
service and attract customer loyalty
Revenues and profits could
decrease owing to competitor
action
• We continually seek to develop new methods of
customer interaction, particularly online. This enables
the business to anticipate changing customer needs
TRADE DEALS AND OTHER OUTCOMES ARISING FROM THE UK’S EXIT FROM THE EUROPEAN UNION
4
Dependence on the UK
Government trade and
other negotiations with
the EU.
Failure to secure
arrangements which
maintain the status quo
or gain more favourable
terms could adversely
affect our supply base,
and our ability to service
our customers
This could lead to an adverse
effect on our business, financial
results and operations as a result
of:
•
•
Changes in regulation
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
• 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 supplied from a wide variety of
sources
• 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
appropriate team member
resources to run our
business effectivel
• We constantly monitor and evaluate alternative
recruitment, training and apprenticeship methods to
fulfil our employment needs
37
Pendragon PLC Annual Report 2019 RISK OVERVIEW & MANAGEMENT
NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
ENVIRONMENTAL
5
Progression towards
greener technologies,
autonomous driving, and/
or pay-per-use, rather
than owning a vehicle
UK taxes change to
penalise road use, fuel
type, vehicle use and to
increase VAT
Failure to adapt to
the changes arising
as a result of the
Government’s future ban
on sale of petrol, diesel
and hybrid powered
vehicles
Customers choose greener
vehicles we cannot supply
Overall vehicle parc reduces
Vehicle purchase and use
declines, adversely affecting
revenue opportunities
Lower demand for petrol,
diesel and hybrid vehicles and
potential impact on vehicle
residual values
Government policy and
consumer sentiment in respect
of petrol, diesel and/or hybrid
vehicles impacts the sale of one
or all types of these vehicle
• 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 sales by fuel type 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 action
REGULATORY & COMPLIANCE
Significant litigation
6
Failure to comply
with legal and other
requirements and
respond to changes
which could have a
material effect on our
business model, such
as our ability to provide
Finance & Insurance
products to our
customers, or adverse
changes in trade tariffs
This could lead to fines,
criminal penalties, litigation
and an adverse impact on our
reputation, financial results, and/
or our ability to do business.
We may be restricted from
continuing certain business
activities, such as those
regulated by the FCA
Resources are diverted to
address urgent remediation, as
well as taking proceedings or
defending legal or regulatory
action
• 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
• We operate a Finance & Insurance Services
Regulatory Board with a supporting governance
framework and continually invest in systems and
processes to minimise the risk of non-compliance to
FCA regulations
• 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
The ability to obtain appropriate
inventory is impeded and/or
purchase costs rise
representation mitigates the risk and for parts
we maintain alternative sources of supply where
possible
38
Pendragon PLC Annual Report 2019 NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
TECHNOLOGY AND INFORMATION SYSTEMS
7
8
Failure of our IT
infrastructure or key
systems, including failure
to maintain and build
resilience to events such
as cyber threat
This could lead to an inability
to operate and communicate
effectively, loss of information
and competitive advantage
and potential regulator action
resulting in fines and penalties
• We adopt and regularly update robust business
continuity measures, including within our dealer
management systems
• Our business monitors cyber security threats and
has systems and processes in place to deal with
incidents
• We have cyber liability insurance in place
Failure to invest in
new technologies and
maintain a cohesive
and comprehensive
technological capability
DATA SECURITY AND DATA PRIVACY
Failure to comply with
legal or regulatory
requirements relating
to data security or data
privacy in the course of
our business activities
This could lead to data loss or
misuse and have a significant
effect on our reputation. Fines
and criminal penalties could
be imposed and disruption to
business operations and our
ability to serve customers.
Financial results could be
adversely affected.
• We regularly review our data protection policies,
controls, team member training and the use of third
party systems
• Our business monitors cyber security threats and
has systems and processes in place to deal with
incidents
• We have cyber liability insurance in place
• We have appointed a Chief Information Officer
who is reviewing and updating our cyber security
measures
• 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
RELIANCE ON ESTIMATES
9
Failure to maintain
reliable systems and
methods for provision of
financial estimates
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
39
Pendragon PLC Annual Report 2019 RISK OVERVIEW & MANAGEMENT
NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
PEOPLE
10
Failure to attract,
motivate, develop and
retain the required
capability and promote
an appropriate culture
This could lead to instability,
poor communication and
decision making and an inability
to deliver our strategy and
achieve our business objectives.
We could lose market share and
adversely affect our customers
owing to poor service
• We invest in online means of attraction and
recruitment, targeting the right quality candidates
• We set clear competencies and career goals
• We have a clear performance management
framework in place, linked to competencies and
career pathways
• 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. Within our Motor Division we
complete a Talent Review twice yearly
• We leverage our scale to afford training
opportunities and progression within the Group
MICRO-ECONOMIC, POLITICAL AND ENVIRONMENTAL
11
European economic
instability and/or UK or
Global 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
Lack of availability of
debt funding
12
Unable to meet debt obligations
• Our business model produces strong free cash flow
generation
Increasing 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 the pension trustees of
investment strategy and liability reduction and risk
mitigation, taking professional advice
40
Pendragon PLC Annual Report 2019 NO. PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
HEALTH, SAFETY & ENVIRONMENTAL
13
Failure to provide safe
working and retail
environments
This could lead to illness and
injury, lost working time, civil
claims and clean-up costs.
Failure to control the
environmental hazards
present within our
operations
Our reputation could be
adversely affected and
regulatory action could result in
fines and criminal penalties
Failure to limit the impact
of pandemic disaster
• 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
• In response to COVID-19 we have put in place
additional measures to assist our team members
in limiting the risk of spread of infection. We have
specifically considered and will continue to monitor
the potential impact of COVID-19 on our business in
accordance with our business continuity plans
41
Pendragon PLC Annual Report 2019 VIABILITY STATEMENT
VIABILITY STATEMENT
In accordance with provision 31 of the UK Corporate Governance
Code, published by the Financial Reporting Council in July 2018
(the ‘Code’), taking into account the company’s current position
and principal risks, the Directors have assessed the viability
and prospects of the company over the three-year period to 31
December 2022.
The Directors believe this period to be appropriate as:
i) The Group’s planning cycle encompasses this period. The
changes in Executive leadership during FY19 meant that a longer-
term plan encompassing the 2022 period has been performed
on a high-level basis, pending the new Chief Executive Officer to
develop these plans accordingly.
ii) The time period corresponds to the normal expected duration of
the Groups Revolving Credit Facility. The Group’s current facility
runs until March 2022, so there remains risk that the terms of any
refinancing may be less favourable to the Group. The Group has
nominated external advisers to mitigate this risk and identify the
most appropriate source of financing.
The three-year review considers the Group’s profit and loss,
cash flows, debt and other key financial ratios over the period.
These metrics are subject to sensitivity analysis which involves
flexing several of the main assumptions underlying the forecast,
including the removal of expected proceeds from the sale of the
Groups remaining US assets. In addition, this analysis is carried
out to evaluate the potential impact of the Group’s principal risks
actually occurring via what the Directors consider to be a severe
but plausible downside scenario. The three-year review also makes
certain assumptions about the normal level of capital recycling
likely to occur and considers whether additional financing facilities
will be required. Finally, the analysis takes into account the capital
plans of the Group and the ability to mitigate downside risk through
the cancellation of these plans.
Based on the results of this analysis, the Directors have a reasonable
expectation that the company will be able to continue in operation,
comply with facility covenants and meet its liabilities as they fall
due over the three-year period of their assessment. The Directors
consider that the current economic outlook presents significant
challenges in terms of sales volume and pricing and both Brexit
and the Coronavirus pandemic presents uncertainties to future
trading conditions. Whilst the directors have instituted measures
to preserve cash and improve performance, there remains a level
of uncertainty over future trading results and cash flows.
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 93 to 193. 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 the ongoing negotiation of the terms of trade following
the UK’s withdrawal from the European Union. The Board has also
considered and will continue to monitor the threat and implications
of the Coronavirus, but it is too early to fully understand the impact
that the virus will have on potential disruption to supply, potential
for closures to retail outlets and the wider macro-economic
environment. The risk disclosure section also sets out 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 to
grow the business in the medium term following the appointment
of the new Chief Executive Officer. The Board consider that Bill
Berman is the right appointment to improve the performance of
the business following the results of FY19 and restore the business
to profitable growth. The availability of debt funding, in particular,
the successful refinancing of the RCF, when it expires in 2022 is a
further uncertainty. The Board intend to seek the right external
advice to ensure the most appropriate debt funding sources are
identified as part of any refinancing process. It is possible that the
terms of any refinancing may be less favourable for the Group than
the current RCF.
The ability to adapt to changing environments outside our direct
control such as macro-economic, political and environmental
factors,
regulation changes, manufacturer and competitor
behaviour. The Board has specifically reviewed the potential
impacts and available mitigating actions as a result of a downside
trading scenario in the event of economic challenges resulting from
either unfavourable trade terms at the end of the EU withdrawal
agreement transition period, or a potential impact from the
currently unknown effect of the Coronavirus. In particular the
Board reviewed the causes and consequences of the reduction in
profitability year on year in assessing the risks. We mitigate these
risks through the diverse revenue generation from all parts of the
vehicle cycle and wide range of franchise representation together
with regular monitoring to identify changes quickly.
During 2019, the Board carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or
liquidity. The Directors believe that the Group is able to manage its
business risks successfully, having taken into account the current
economic outlook. Accordingly, the Board believes that, taking into
account the Group’s current position, and subject to the principal
risks faced by the business, the Group will be able to continue in
operation and to meet its liabilities as they fall due for the period
up to 31 December 2022.
Approved by order of the Board
Mark Willis
Chief Finance Officer
18 March 2020
42
Pendragon PLC Annual Report 2019 DIRECTORS REPORT
44 Board of Directors
46 Corporate Governance Report
50 Corporate Social Responsibility Report
52 Committee Reports
60 Directors’ Remuneration Report
79 Directors’ Report
43
Pendragon PLC Annual Report 2019 BOARD OF DIRECTORS
BILL BERMAN
Chief Executive &
Interim Chairman
Bill joined Pendragon on 18 April 2019 as a non-executive director, and assumed the
role of chief executive officer with effect from 19 February 2020. Bill continues to
perform the role of interim chairman. Formerly the President and Chief Operating
Officer of AutoNation, the largest automotive retailer in America, Bill brings to the
Board significant experience in automotive retail, enabling him to provide effective
executive leadership of Pendragon’s Board and advise in relation to the Company’s
future strategy.
BRIAN SMALL
Non-Executive Director
(A*) (N) (R) (F)
Brian joined Pendragon on 10 December 2019, following an extensive executive
career in the consumer and retail sector, where most recently he held the position
of Chief Finance Officer at JD Sports Fashion Plc between 2004 and 2018. Mr
Small is also a non-executive director and chair of the Audit Committee at online
retailer, Boohoo.com, and a non-executive deputy chair and chairman of the Audit
Committee of Mothercare Plc. Brian qualified as a chartered accountant with Price
Waterhouse in 1981, and with industry experience across a range of retailers, he
brings additional financial and strategic perspectives to the Board.
MIKE WRIGHT
Non-Executive Director
(A) (N**) (R)
Mike joined Pendragon on 2 May 2018, following an executive career in the international
automotive sector, retiring as Executive Director at Jaguar Land Rover in 2016. Since
then he has developed a strong international portfolio of NED, Chair and Advising
roles in FTSE and North American listed businesses, and the education, sports and
arts sectors. His previous automotive sector specific executive experience, over a 40
year career enables Mike to contribute the industry perspective, and is of significant
value to the Board.
Key to memberships, roles and re-election status
* Committee chairman
** Acting Committee chairman
(A) Audit Committee
(N) Nomination Committee
(R) Remuneration Committee
(F) Audit committee member with recent and relevant financial experience
More detailed professional biographies of the Directors are on the company’s website.www.pendragonplc.com
44
Pendragon PLC Annual Report 2019
MARTIN CASHA
Chief Operating Officer
Having spent his entire career with Pendragon businesses, Martin became operations
director in September 1995 and chief operating officer in November 2001. Martin’s
extensive knowledge of Pendragon’s operations ensures he continues to be able
to advise the Board as to the most appropriate operational action and response to
changes in the automotive retail sector.
MARK WILLIS
Chief Finance Officer
Mark joined Pendragon on 08 April 2019 from Ten Entertainment Group PLC where
he held the position of Chief Finance Officer since taking it through its IPO in April
2017. Prior to this Mark worked at Home Retail Group PLC, including roles as Argos
Finance Director, Director of Group Finance and Investor Relations Director. Since
joining Pendragon, Mark’s wealth of accounting, financial and investor relations
experience continues to add significant value to the Board.
Company Secretary
Richard Maloney
Registered Office
Loxley House
2 Oakwood Court
Little Oak Drive
Annesley
Nottingham NG15 0DR
Telephone 01623 725200
Group motor businesses websites
www.evanshalshaw.com
www.stratstone.com
www.carstore.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
45
Pendragon PLC Annual Report 2019 CORPORATE GOVERNANCE REPORT
The UK Corporate Governance Code (the Code) applies to
reference, set by the Board, reviewed annually and available to
the company and is available on the FRC website at https://
view on the company’s website. Details of each committee’s
www.frc.org.uk. Other than where expressly stated below,
work appear on the next few pages of this Report. Executive
throughout the financial year ended 31 December 2019, the
Directors can attend Board committees at times, to assist their
company complied in full with all relevant provisions of the
business, but only with the committee’s prior agreement.
Code. The corporate governance statement as required by
Rule 7.2.1 of the Disclosure and Transparency Rules is set out
below.
LEADERSHIP AND BOARD COMPOSITION
As at 18 March 2020, the Board is made up of three executive
directors and two non-executive directors. The Board is
OUR BOARD
The Board sets our company’s strategy and ensures we have in
actively seeking to recruit a non-executive chairman. The
Board continues to recognise the need for an appropriate
place the financial and human resources we need to meet our
combination of executive and non-executive representation
objectives. We take collective responsibility for Pendragon’s
on the Board, and a clear division of responsibilities between
long term success. The executive directors, led by the chief
the leadership of the Board and the executive leadership of
executive, are responsible for running the company and our
the business. In this regard, the respective responsibilities of
Group through the executive committee comprising of the
the Board, the chairman and the chief executive are clearly
executive directors and members of senior management to
defined by the Board in formal responsibilities documents,
effect that strategy, and work within prescribed delegated
which the Board reviewed and readopted in April 2019. The
authority, such as capital expenditure limits. The executives
Board remains committed to the progressive refreshing of
direct and monitor business performance through regular
our membership, so as to maintain the right balance of skills,
operational meetings with their respective leadership teams
experience, independence and knowledge of the company to
and set and regularly review the effectiveness of key operating
enable us to continue to operate effectively.
controls, reporting to the Board on these and any variances.
The Board as a whole reviews management performance.
In April 2019, Gillian Kent stood down from the Board as a
non-executive director and Bill Berman joined the Board as
Although the Board delegates to the chief executive and chief
an additional non-executive director. Subsequently, following
finance officer responsibility for briefing key stakeholders,
the decision of Chris Chambers to step down as non-executive
major shareholders and the investor community, the interim
chairman on 01 October 2019, and pending the Company
chairman holds himself available to engage with shareholders,
appointing a permanent chief executive officer following
and the Senior Independent Director, when appointed, will
the departure of Mark Herbert on 30 June 2019, Bill Berman
perform a similar role, where appropriate. Information from
assumed the newly created role of interim executive chairman
engagement with shareholders is shared with the entire Board
with effect from 01 October 2019. In this respect, the company
and taken into account in financial planning and strategy.
recognises that for the final three months of 2019 and since,
PENDRAGON PLC BOARD
NOMINATION
COMMITTEE
REMUNERATION
COMMITTEE
AUDIT
COMMITTEE
EXECUTIVE
COMMITTEE
MAIN BOARD COMMITTEES
RISK CONTROL
GROUP
OPERATIONAL MEETINGS
the company did not comply with provision 9 of the Code,
in that in performing the role of Interim executive chairman
and, latterly, Interim chairman, Bill Berman was effectively
exercising both the role of chairman and chief executive.
However, the company considers that, given the exceptional
circumstances in which the company found itself, the creation
of, and appointment of Bill Berman to this role at that time
was in the company’s best interests and the board considered
it remained fully justified. The company acted both swiftly
and responsively to ensure suitable leadership was in place at
the time of Chris Chambers’s departure, recognising that the
process of finding, assessing and recruiting the right executive
The Board has three committees: Audit, Nomination and
and non-executive directors requires careful consideration, to
Remuneration, each made up entirely of non-executive
ensure that candidates with the requisite capabilities, attributes,
directors. The Risk Control Group (RCG) is a committee of
the Executive Directors, the Company Secretary and Group
skills and experience are appointed. Following Mr Chambers’
departure, the Board instructed Longwater Partners, an
Head of Internal Audit. Other members from the senior
independent external search consultancy, in connection with
management of the Group’s operating group functions are
the recruitment of a separate chairman and chief executive.
co-opted onto the RCG as required from time to time. Each
committee operates within delegated authority and terms of
The Board continues to remain fully committed to ensuring that
46
Pendragon PLC Annual Report 2019 the company observes and maintains at all times the highest
company policies and ensured all matters of internal control
standards of corporate governance, and is now working to
received adequate Board scrutiny and debate. At Board
ensure that the appropriate combination of executive and
meetings, and informally via the chairman, all directors had
non-executive directors will be in place in accordance with the
the opportunity to raise matters of particular concern to
Code as soon as practicable.
them. There were no unresolved concerns in 2019. The Board
considers that the Group’s systems provide information
With effect from 30 December 2019, Richard Laxer stepped
which is adequate to permit the identification of key risks
down as a non-executive director, senior independent director
to its business and the proper assessment and mitigation of
and chair of the Audit Committee, and Brian Small joined the
those risks. Based on the Audit Committee’s and the RCG’s
Board as a non-executive director, assuming the role of chair of
work, the Board has performed a high level risk assessment,
the Audit Committee in January 2020. Other than the changes
to ensure that (i) the principal risks and uncertainties facing
described above, no other changes to Board membership
the Group’s business have been identified and assessed, taking
occurred in 2019.
into account any adaptations made to the Group’s business
strategies, and (ii) that appropriate mitigation is in place.
On 19 February 2020, Bill Berman was appointed chief
executive officer of the Company, and continues to perform
Our company policies on managing financial risk and application
the role of Chairman on an interim basis while the process
of hedging are set out in note 4.2 to the financial statements.
for the recruitment of a permanent non-executive chairman
The principal risks and uncertainties we have identified are on
continues.
page 153 and our viability statement is on page 42.
In March 2020, Nikki Flanders joined the Board as an additional
non-executive director.
WORK OF THE RISK CONTROL GROUP
The accountability framework described on page 35 is
designed to ensure comprehensive management of risk
As noted below, in accordance with the Code, all directors
across the Group’s businesses. Following a detailed review
will be subject to annual re-election (or election in the case of
of our approach to risk management, in October 2019, an
newly joined Directors) at the AGM of the company. Details of
overarching Risk Management Policy was introduced, setting
the directors offering themselves for election in 2020, together
out the principles and approaches by which we will continue
with directors’ brief biographical details appear on pages 44
to implement effective enterprise risk management. The RCG,
and 45, and gender balance details are on page 50.
made up of the Chief Operating Officer, Chief Finance Officer,
Company Secretary, Group Head of Internal Audit and, by
HOW THE BOARD MANAGES RISK
The Board and our Committees each operate to a set meeting
invitation, other members of the Group’s senior operational
and financial management, meets regularly to consider the
agenda which ensures that all relevant risks are identified and
detailed work on risk assessment performed by leaders and
addressed by appropriate controls. We review management
key business areas, and oversees the effective implementation
information which helps us to prescribe operating controls and
of new measures designed to mitigate or meet any specific
monitor performance against our strategy and business plans.
risks or threats. The Chair of the Audit Committee, and a
The non-executive directors have particular responsibility for
representative of the external auditor attend by invitation. The
monitoring financial and performance reporting, to ensure that
RCG reports to the Audit committee on its work. The Board
progress is being made towards our agreed goals. The Board’s
and any of its committees is able to refer specific risks to the
responsibilities also include assessing the effectiveness of
RCG for evaluation and for controls to be designed or modified;
internal controls and the management of risk. Specific areas of
this occurs in consultation with operational management.
risk assessment and control fall within the remit of committees
The executive directors are responsible for communicating
of the Board; details of their work in 2019 appear below and in
and implementing mitigating controls and operating suitable
the Directors’ Remuneration Report on pages 60 to 78.
systems of check. The RCG met twice in 2019. In addition to
THE BOARD’S REVIEW OF RISKS AND CONTROLS IN 2019
During the year, the Board considered all strategic matters,
reviewing and refining the Group’s corporate risk register, for
Board review and adoption, the RCG continues to monitor
and review the Group’s anti-bribery controls, including the
information on operating,
received key performance
financial and compliance matters and reviewed the results of
development of e-learning, gifts and hospitality training,
Consumer Rights Act 2015 training, Modern Slavery Act 2015
corresponding controls and risk management. We received
awareness and further initiatives to reduce incidences of theft
from the Audit committee and from the Risk Control Group
and fraud. The Board has understood that there are certain
(‘RCG’) timely information and reports on all relevant aspects
internal control deficiencies which it intends to remediate
of risk and corresponding controls. We reviewed all our key
during 2020.
47
Pendragon PLC Annual Report 2019 CORPORATE GOVERNANCE REPORT
NON-EXECUTIVE DIRECTORS AND INDEPENDENCE
2019 has been a year of transition for the Board, presenting
Between January and March 2019, recruitment of both an
additional Non-Executive Director and Chief Executive Officer
its own unique challenges. For 9 months of 2019, the non-
was ongoing.
executive chairman Chris Chambers (who on appointment to
that role, fulfilled the requirement to be independent) ensured
•
For the six month period between January 2019 and
that the Board performed effectively through a well-functioning
June 2019, the Board consisted of seven Directors,
combination of Board and committee meetings and other
consisting of three Executive and four Non-Executive
appropriate channels for strategic input and constructive
Directors, including the Non-Executive Chairman, and
challenge from non-executive directors. Since his appointment
was considered to be of the correct size and balance to
to the role of interim executive chairman on 01 October 2019,
function effectively.
and subsequently Interim Chairman following his appointment
•
For the period between July 2019 and October 2019,
as Chief Executive Officer on 19 February 2020, Bill Berman
the Board consisted of six Directors, consisting of two
has continued with the approach adopted by his predecessor,
Executive and four Non-Executive Directors, including the
whilst remaining vigilant of the need to avoid any conflict of
Non-Executive Chairman. During this period, the Board
interest in such situations where exercising the responsibilities
was actively seeking to recruit an additional Executive
or functions ordinarily carried out by the Chairman may
Director to fulfil the Chief Executive Officer role.
conflict with the responsibilities or functions ordinarily carried
•
For the three month period between October 2019 and
out by the chief executive officer. In this respect, the Board
December 2019, the Board consisted of five Directors,
and interim chairman, as advised by the company secretary,
consisting of two Executive Directors, two Non-Executive
has operated conflict management procedures with increased
Directors and the Interim Executive Chairman.
vigilance, in particular ensuring that the Mr Berman does not
participate in any meetings or discussions in which he was
As announced on 18 September 2019 and as noted above,
being considered for the appointment to certain roles. These
during the final quarter, the Board was actively seeking to
procedures were deemed effective. As outlined above, it
recruit both an additional executive director to fulfil the chief
remains the Board’s intention to revert to a Board structure
executive officer role, and a new non-executive chairman. On
where the roles of non-executive chairman and chief executive
19 February 2020, Bill Berman was appointed chief executive
officer are performed by separate individuals as soon as
officer and will continue to perform the role of chairman on
practically possible. Through the conflict management
an interim basis whilst the process of recruiting a permanent
procedures outlined above, and the evaluations which are
non-executive chairman continues. The Board considers that
described below, we have concluded that:-
Bill Berman has provided strategic leadership whilst fulfilling
the role of interim executive chairman, and the Company
•
the Board’s collective skills, experience, knowledge of
considers that the Board has been able to function effectively,
the company and independence allow it and balance of
notwithstanding ongoing recruitment activity designed to
independant and non-independant directors allows it
redress the size and balance of the same. During 2019, the
and its committees to discharge their respective duties
Board received informal briefings from company executives
properly;
to familiarise Directors with strategic developments and key
•
subject to the recruitment of a non-executive chairman,
aspects of the Group’s business. Formal presentations to the
the Board and each of its committees is of the right size
Board by senior group executives focussed on matters of
and balance to function effectively;
strategic importance.
• we have satisfactory plans for orderly succession to Board
roles;
•
the interim executive chairman and respective committee
BOARD EVALUATION
The Board and its committees conducted formal evaluations
chairmen are performing their roles effectively;
of their effectiveness in 2019, facilitated by the interim
•
all non-executive directors are independent in character
executive chairman, addressing questions based closely on
and judgment;
the Code, applicable good governance topics and drawn
•
no Director has any relationships or circumstances which
from best corporate practice. The results were reviewed by
could affect their exercising independent judgement; and
the interim chairman, the Committee chairmen and the Board
•
the interim executive chairman and each of the non-
executive directors is devoting the amount of time
as a whole and the interim chairman has factored suggested
improvements into our 2020 Board programme. More details
required to attend to the company’s affairs and their
on the Board’s approach to individual and Board evaluation
duties as a Board member.
are on the company’s website.
48
Pendragon PLC Annual Report 2019 Current Directors
William Berman 1 (B)
Martin Casha
Brian Small 2 (I) (A)
Mark Willis 3
Mike Wright (I) (R) (N) 4
Former Directors
Chris Chambers 5
Trevor Finn 6
Mark Herbert 7
Tim Holden 8
Gillian Kent 9
Richard Laxer 10
Board
Audit
Nominationº
Remuneration
11/12
19/19
1/1
15/15
16/19
1/1
N/A
N/A
N/A
2/3
1/1
N/A
N/A
N/A
7/7
1/1
N/A
N/A
N/A
4/4
Board
Audit
Nominationº
Remuneration
11/11
4/4
4/4
4/4
4/6
19/19
N/A
N/A
N/A
N/A
1/1
3/3
5/5
N/A
N/A
N/A
2/2
7/7
2/2
N/A
N/A
N/A
1/1
4/4
(B) Chairman of the Board
(I) Considered by the Board to be independent
(A) Committee chairman
(N) Committee chairman
(R) Committee chairman
1 Appointed as non-executive director on 18 April 2019, and subsequently Interim Executive Chairman on 01 October 2019, and subsequently chief executive officer on
19 February 2020.
2 Appointed as non-executive director on 10 December 2019 and chair of the audit committee on 02 January 2020.
3 Appointed Chief Finance Officer on 08 April 2019.
4 Acting Nomination Committee chairman since 08 November 2019.
5 Resigned from the Board as Non-Executive Chairman on 01 October 2019.
6 Retired on 31 March 2019.
7 Left on 30 June 2019.
8 Resigned from the Board as Finance Director on 31 March 2019.
9 Resigned from the Board as Non-Executive director on 18 April 2019.
10 Resigned from the Board as Non-Executive Director, Senior Independent Director and Chair of Audit Committee on 31 December 2019.
Shows the number of meetings attended out of the total a director was eligible to attend
RE-ELECTION OF DIRECTORS
In accordance with the Code, all Directors will be subject to
COMMUNICATION
We aim to meet the challenges presented by our size and
annual re-election or election (in the case of new Directors) at
geography through innovation in internal communications.
the Annual General Meeting.
INFORMATION AND SUPPORT
To ensure that our decisions are fully informed and debated, the
Internal website messaging, video and face to face presentations
as well as electronic newsletters and social media content
keep team members up-to-date with the company’s strategy
and performance. Team members’ views on our performance
interim chairman ensures our Board’s business agenda is set in a
and services are actively gathered via targeted electronic
timely manner so as to allow appropriately detailed information
surveys. Regular briefings for all team members, held at each
to be circulated to all directors before meetings. The company
location, provide a forum for sharing both company and local
secretary facilitates the flow of information within the Board,
information. At all levels, communications aim particularly to
attends all Board meetings and is responsible for advising the
recognise the achievements of individual team members and
Board and its committees, through their respective chairmen,
celebrate outstanding personal and business performance,
on corporate governance and matters of procedure. All
through peer recognition and widely publicised awards. Each
directors have access to support from the company secretary
year we review our incentive and recognition programmes
on matters of procedure, law and governance and in relation
aligned to the Group’s business objectives.
to their own induction and professional development as Board
members. All directors are entitled to take independent advice
at the company’s expense, and to have the company and other
Board members provide the information required to enable
them to make informed judgements and discharge their duties
effectively.
49
Pendragon PLC Annual Report 2019 CORPORATE SOCIAL RESPONSIBILITY REPORT
Number of Group Employees by category
Director
Senior Manager
All Employees
as at 31 December 2019
as at 31 December 2018
Female
Male
Total
Female
Male
Total
0
0
5
5
5
5
1
0
6
5
7
5
2,084
5,841
7,925
2,438
6,756
9,194
DIVERSITY AND EQUALITY OF OPPORTUNITY
We are an equal opportunity employer, committed to ensuring
ACCIDENTS AT WORK
Historically, we have assessed our health and safety record
that our workplaces are free from unfair discrimination, within
against relevant published benchmarks. Last year, as a
the framework of the law. We aim to ensure that our team
result of changes to the Health & Safety Executive sector
members achieve their full potential and that, throughout all
categorisations, we determined that the natural sector
our attraction, recruitment, selection, employment and internal
comparator for our Group is Wholesale and Retail Trade and
promotion processes, all employment decisions are taken
Repair of Motor Vehicles and Motorcycles. There has been a
without reference to irrelevant or discriminatory criteria. The
decrease in RIDDOR1 reported accidents in 2019, falling to 34
company’s diversity and equal opportunities policy is available
per 10,000 employees (2018: 38 per 10,000 employees). Whilst
at www.pendragonplc.com
this remains higher than the relevant sector average 22 per
10,000 employees), this is primarily as a result of our improved
GENDER BALANCE
We describe our approach to Board composition diversity in
reporting system for accidents, the increased accuracy of our
reporting of accidents and improved classification of RIDDOR
the Nomination Committee’s report on page 58.
and non-RIDDOR accidents. We continue to target specific
GENDER PAY GAP REPORTING
The company’s annual report containing data on our gender
hazards and risks for improved results through additional
monitoring and promotion of safe working processes and in
particular how behavious are impacting on the safety culture
pay gap will be published in full on our website www.
of our business. The company’s health and safety policy is
pendragonplc.com in accordance with the statutory timescale.
available at www.pendragonplc.com .
HEALTH AND SAFETY
We take seriously our responsibility to our team members,
COMMUNITY
We are predominantly a retail operator, with a tangible
customers and the public. We aim to ensure that all team
presence in the many communities our businesses serve.
members in the course of their roles, and all who work in or
During 2019, our monthly fundraising events supported a
visit our facilities or receive our services, so far as is reasonably
range of national charities, including Alzheimer’s Research
practicable, experience an environment and practices which
UK, Alzheimer’s Society, MS Society, Loganberry Trust, Jerry
are safe and without risk to their health.
Green Dog Rescue, Save the Children and Children in Need.
Our Academy and retail businesses also generate community
Our policy is to identify and assess all potential risks and
involvement through local engagement, contributing to their
hazards presented by our activities and to provide systems and
local areas in a variety of ways. Individuals and businesses
procedures which allow all team members in their daily work to
organise charity events to support schools, hospitals and
take responsible decisions in relation to their own and others’
local children’s and medical charities as well as the Group
health and safety. We publish a clear hierarchy of responsibility
wide monthly nominated charity. The company supports and
to team members and reinforce this through regular
encourages these activities and we welcome the opportunities
monitoring by a variety of means. We promote awareness
they present
for team-building within our businesses,
of potential risks and hazards and the implementation of
engagement with the communities they serve and recognition
corresponding preventative or remedial actions through our
of charitable causes with whom our team members and their
on-line health and safety systems, operations manuals and
regular communications on topical issues. Our health and
families have connections.
safety management system provides our UK leadership and
team members with detailed access to information, guidance
RESPONSIBLE SOURCING
All our Group’s sites are situated within the UK or US and
and control measures.
at each of them we operate in strict compliance with all
applicable labour relations laws. We have no presence, either
1RIDDOR: the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013.
50
Pendragon PLC Annual Report 2019
directly or via sub-contractors, in any areas which present
any risk of the exploitation of men, women or children in the
workplace. We work with vehicle manufacturers and other
suppliers who manage their supply chains in a responsible way,
free from the exploitation of labour. We have adopted an Anti-
Slavery and Human Trafficking Policy, available to view on our
website, together with our Anti-Slavery and Human Trafficking
Statement for the year ended 31 December 2019.
ENVIRONMENT AND GHG REPORTING
Although the retails sector is not generally regarded as a
high environmental impact sector, motor retailing and its
associated after sales service activities carries with it a range of
responsibilities relating to protection of the environment. Our
policy is to promote and operate processes and procedures
which, so far as is reasonably practicable, avoid or minimise
the contamination of water, air or the ground; and to manage
responsibly the by-products of our activities, such as noise,
waste packaging and substances and vehicle movements.
We report our emissions data using an operational control
During the year, we have continued to be registered with and
approach to define our organisational boundary. We have
have complied with our obligations under the Department
reported all material emission sources for which we deem
for Environment, Food and Rural Affairs’ (DEFRA) carbon
ourselves to be responsible, including both our UK businesses
reduction commitment scheme. We also actively co-operate
and estimated usage for our US businesses. We also include
with our manufacturing partners in relation to the move to
emissions from driving activity, comprising data verified
green technologies, such as supporting the introduction
internally, including estimates of distances travelled during test
of infrastructure designed to promote electric and battery
drives, transportation of vehicles and parts between sites, and
powered vehicle technologies. The company’s statement of
business travel (excluding commuting by means which are not
environment policy is available at www.pendragonplc.com
owned/controlled by us).
Global Greenhouse Gas Emissions Data
Source
Tonnes of CO2
01.01.19 – 31.12.19
01.01.18 – 31.12.18
C02 emitted from facilities
C02 emitted from driving activities
Intensity ratio (tonnes of CO2 per £k)
9,630
7,934
3.9
11,461
9,179
4.5
GREENHOUSE GAS EMISSIONS
This section includes our mandatory reporting of greenhouse
REDUCING CARBON AND WASTE
During the year, we have continued to assess and monitor our
gas emissions for the period 1 January 2019 to 31 December
energy use and, where practicable, to implement measures
2019, pursuant to the Companies Act 2006 (Strategic Report
designed to reduce our activities’ environmental impact, which,
and Directors’ Report) Regulations 2013.
over time, we anticipate will help reduce our carbon footprint.
The Group has undertaken mandatory energy assessments of
Our methodology to calculate our greenhouse gas emissions
our sites in accordance with the ESOS Regulations 2014. We
is based on the ‘Environmental Reporting Guidelines: including
continue to use the results of this assessment to identify further
mandatory greenhouse gas emissions reporting guidance’
energy saving opportunities. To conserve energy, we continue,
(June 2013) issued by DEFRA using DEFRA’s 2019 conversion
factors.
where practicable, to install LED lights at our sites, limit the
duration of periods when full lighting is used on our sites out
of hours, keep external doors closed when not in use, and fit
In some cases, we have extrapolated total emissions by utilising
insulators to limit the escape of heat. We continue to seek to
available data from part of the reporting period, and extending
limit our paper consumption and waste, through increasingly
it to apply to the full reporting period.
paperless communications and systems.
51
Pendragon PLC Annual Report 2019 AUDIT COMMITTEE REPORT
The Audit Committee is a committee of the Board and has been chaired by Brian Small since
January 2020, made up entirely of independent non-executive directors. Their names and
qualifications are on pages 44 and 45 and attendance at meetings in the table on page 49.
BOARD COMPOSITION
With effect from 30 December 2019 Richard Laxer stepped
THE COMMITTEE’S WORK IN 2019
The Audit Committee met three times in 2019 and this report
down as chair of the Audit Committee. Brian Small assumed
describes its work and conclusions.
the role of chair of the Audit Committee in January 2020
when there was a comprehensive induction and handover
with Richard Laxer, Mark Willis (Chief Executive Officer) and
FINANCIAL STATEMENTS REVIEW
The Committee received the auditor’s memorandum on
Richard Maloney (Company Secretary)
the company’s 2018 financial statements and the auditor’s
memorandum on the unaudited 2019 interim results. In each
KEY RESPONSIBILITIES OF THE AUDIT COMMITTEE
• monitors the integrity of the financial statements and
case, it discussed the auditor’s findings with the auditor,
satisfied itself of the integrity of the financial statements
formal announcements
and recommended the financial statements for approval by
•
reviews and approves the Annual Report and Accounts
the Board. Key aspects of those discussions and relevant
for adoption by the Board
considerations and conclusions are below:-
•
recommends to the Board the selection of the external
auditor and its terms of appointment and monitors its
effectiveness and independence
AUDIT RISK CONSIDERED BY THE COMMITTEE
The table on pages 54 and 55 sets out the key audit risks
•
governs policy for the allocation of non-audit work to the
and judgments applied, for the 2019 year results, which the
audit firm
Committee considered and discussed with the auditor, and the
•
reviews internal controls and risk management
Committee’s conclusions.
• monitors the effectiveness of the internal audit function
•
reviews and monitors whistleblowing arrangements
Its terms of reference detail its key responsibilities and appear,
with relevant background information, on the company’s
website www.pendragonplc.com .
52
Pendragon PLC Annual Report 2019
Pendragon PLC Annual Report 2019
53
AUDIT COMMITTEE REPORT
Audit risk considered by the Committee
Evidence considered and conclusion reached
GOING CONCERN
losses
Given the
incurred within FY19, the committee
Directors, and further scenarios which had been sensitised
The committee reviewed both the forecasts presented by the
considered the Group’s ability to continue as a going concern
to reflect severe but plausible downside scenarios. Those
which included reviewing cash flow forecasts as prepared by
forecasts indicate that the group can continue to operate with
the Directors for the period to 31 December 2021 against the
the existing facilities. The base and sensitised forecasts which
Groups available borrowing facilities.
include a combined Brexit and COVID-19 sensitivity indicate
that the group will remain in compliance with the relevant
covenants, though headroom is limited in the period ended
31 December 2021 in the case of the sensitised forecasts after
considering mitigants available to the Group such as deferral
of capital expenditure. The committee concluded it remains
appropriate to prepare the financial statements on a going
concern basis. Further details can be found within the viability
statement on page 42 and within the going concern statement
on page 99.
CGU ASSET VALUATION
The estimates 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, intangiable assets, property, plant and
also set out in note 3.1. The Committee addressed these matters
equipment and right of use assets largely related to the
through receiving reports from management outlining the
achievability of the assumptions underlying the calculation
basis for the assumptions used, assessing the range and depth
of the recoverable amount of the business being tested for
of information underpinning the assumptions and calculations
impairment, set out in note 3.1 to the financial statements.
and discussing this with the auditors.
Key assumptions used are the FY20 budget, growth rate and
discount rate as well as the EBIDTA multiples applied or fair
The Committee concluded that the judgements applied were
value of individual assets.
appropriate.
DEFERRED TAX ASSET
The Group recognises deferred tax assets if they believe their
The Group has considered the business plans for 2020 and
2021 and determined that deferred tax assets of £25.5m can
recovery can be justified.
be recovered.
VALUATION OF PARENT COMPANY INVESTMENT
This is the risk that the company has investments in its
Work continues to restructure the company’s balance sheet as
between PLC and it subsidiaries, and the Committee remains
subsidiary companies, which could be overstated when
supportive of this ongoing work.
considered with current market capitalisation of the company
and could impact the ability of the company to pay dividends
To assess the valuation of parent company investment and
should the investment be impaired. The value of investments
impairments to the value of subsidiary assets, analysis has been
is underpinned by expectation of discounted future profits and
performed in conjunction with the work done to establish CGU
net assets of the subsidiary companies. There is an inherent
asset impairment as described above. The Committee were
uncertainty in forecasting future profits.
satisfied with management’s conclusion book impairment in
the value of subsidiary assets, and therefore to ascertain the
carrying value of the parent company investment.
54
Pendragon PLC Annual Report 2019 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
actuarial assumptions,
long-term
interest rates,
inflation,
defined benefit pension scheme liability were performed by
longevity and investment returns. The liabilities are set out in
our pension scheme actuary. The Committee discussed with
note 5.1 to the financial statements. There is a risk that the value
the auditor the assumptions applied, in particular the findings
of the pension scheme liabilities could be materially under or
of the auditor’s own pension specialist.
over stated in the context of the sensitivity analysis in that
note. Following a court ruling in 2018 regarding equalisation of
The Committee concluded that the judgements applied were
GMP between men and women an additional pension liability
appropriate.
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, and has continued to
upward pressure on new vehicle prices and associated finance
monitor any potential impacts since.
offers. Continued uncertainty in terms of the UK’s future trading
relationship with the EU following the UK’s withdrawal from
The Committee considered that the Group retained sufficient
the EU on 31 January 2020 may cause further upward pressure
financial liquidity and operational facility headroom to cover
on vehicle prices due to import tariffs imposed and Sterling’s
any short-term financial stress scenarios resulting from the
expected devaluation. Share prices of all UK car dealers fell
impacts of Brexit.
after the EU Referendum and have only partly recovered. A
decline in consumer confidence has continued to reduce UK
The Committee noted that in the event that Brexit caused
new sales since April 2017 and the expectation is that this
a significant short term financial impact on the Group’s
will continue into 2020. Other factors such as changes in
operations, elements of our strategy could be accelerated to
regulation and the availability and cost base appropriate team
mitigate the impact.
member resource could also impact the company’s operations.
55
Pendragon PLC Annual Report 2019 AUDIT COMMITTEE REPORT
EXTERNAL AUDITOR APPOINTMENT
AND PERFORMANCE EVALUATION
The Committee considered Auditor effectiveness and
independence of the audit, during the year.
whether in regard to its appointment, fees, the evaluation
of its performance, any decision as to competitive tender
for audit services, or any other matter.
The Committee arrived at its recommendation to the Board on
EU legislation on audit firm rotation the current Auditor could
the Auditor’s appointment by:
not be reappointed after 2023.
The Committee also took into account that under the current
•
•
applying exclusively objective criteria;
evaluating the ability of the audit firm to demonstrate its
independence;
REVIEW OF NON-AUDIT SERVICES
The Committee reviewed the company’s policy on its use of its
audit firm for non-audit work. Its main principles are that the
•
assessing the effectiveness of the audit firm in the
auditor is excluded from providing certain non-audit services
performance of its audit duties; 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 LLP had issued to the company all requisite assurances
performed by KPMG LLP and the related fees appear annually
of 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 LLP as the company’s auditor, and no
on page 122. 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 position for
has been adhered to throughout the year, and is operating
•
the company’s existing policy continues to be appropriate,
four 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 exercise
their amount or otherwise, such as might impair its
in relation to the provision of audit services, but this position
independence as auditor. The ratio of non-audit to audit
would change if there were to arise at any time any concerns
fees was [0.15:1] in 2019 (2018: 0.15:1).
as to the continuing independence or performance of the
current audit firm (no such concerns have arisen as at the date
The Board accepted these findings.
provided during the year are not, either by reason of
of this report);
•
none of the directors’ independence in considering this
REVIEW OF INTERNAL AUDIT PERFORMANCE
The Committee chairman oversaw the Committee’s evaluation
matter is impaired in any way and none has a potential
of the internal auditor’s performance, using questionnaires
or actual conflict of interest in relation to KPMG LLP,
covering all aspects of the
internal auditor work and
56
Pendragon PLC Annual Report 2019 relationship to the audit and received the auditor’s view on
statements and associated controls. The Committee
that performance. He reviewed the results with the Committee
considered reports on known instances of alleged wrongdoing
members and company management and reported the
and matters reported on the company’s third party operated
Committee’s conclusions to the Board.
confidential reporting line and their investigation, reviewed the
adequacy of whistleblowing procedures and commissioned
REVIEW OF RISK MANAGEMENT
follow-up action and improvements in risk-related controls.
AND INTERNAL CONTROLS
The Committee reviewed the effectiveness of the company’s
Our current anti-bribery value statements and our policies
system of internal control and financial risk management. It
on the control of fraud, theft and bribery risks appear on
received reports from the auditor on each of these areas and
the company’s website and are drawn to the attention of all
from the RCG, whose work is described on page 47) on the
parties seeking to transact with the Group. Our whistleblowing
company’s risk register, emerging risks and corresponding
procedures are published internally on our intranet and
internal controls. It scrutinised the key risks register, as revised
their existence is regularly reinforced in our team member
by the RCG, and approved it for adoption by the Board. Its
communications. The policy is available at www.pendragonplc.
work informed and supported the Board’s assessments
com
detailed under “How the Board manages risk” on page 47.
REVIEW OF ANTI-BRIBERY CONTROLS
APPROVAL
This report was approved by the Committee and signed on it’s
AND WHISTLEBLOWING
The Committee reviewed the company’s anti-bribery processes
behalf by:-
and controls and evaluated and approved these and the
company’s bribery risk assessment. On its recommendation,
Brian Small
Chairman of the Audit Committee
the Board readopted the company’s anti-bribery policy
18 March 2020
57
Pendragon PLC Annual Report 2019 NOMINATION COMMITTEE REPORT
The Nomination Committee has been chaired by Mike Wright,
on an interim basis, since November 2019, and is made up entirely
of independent non-executive directors. Their names and
qualifications are on pages 44 and 45 and attendance at meetings
in the table on page 49 above.
KEY RESPONSIBILITIES OF THE NOMINATION COMMITTEE
•
reviews the Board’s size, structure and composition and
a replacement chief executive officer and non-executive
directors, further to the decision of Richard Laxer to step down
•
•
leads recruitment to Board positions
as non-executive director and audit committee chairman on
undertakes annual Board performance evaluation
31 December 2019, and the assumption by Bill Berman of
satisfies itself on the company’s refreshing of Board
the interim executive chairman role in September 2019. The
membership and succession planning
Committee also reviewed the structure of the Board in relation
to its size, composition and potential vacancies in the light of
Its terms of reference detail its key responsibilities and appear,
recent changes.
with relevant background information, on the company’s
website www.pendragonplc.com .
THE COMMITTEE’S WORK IN 2019
The Nomination Committee met seven times in 2019. This
In December 2019, the Committee met for the purposes of
recruitment and selection of a replacement non-executive
director and audit committee chairman. Following the
Nomination Committee’s recommendation, Brian Small was
report describes its work and conclusions.
appointed non-executive director on 10 December 2019, and
REVIEW OF BOARD COMPOSITION AND BALANCE
In February 2019, the Committee reviewed the structure of
the Board, in relation to its size, composition and potential
assumed the role of audit committee chairman on 02 January
2020. In February 2020, the Committee recommended that
Bill Berman be appointed chief executive officer.
vacancies. At this stage, as part of the annual review of the
In March 2020, the company announced that Nikki Flanders
workings of the Board and its annual valuation, the Committee
would join the Board as additional non-executive directors.
concluded that at this point, a cohort of four, made up of
The process of recruiting a new non-executive chairman
the non-executive Chairman and three independent non-
continues, in conjunction with an executive search agency,
executive directors was sufficient for the Board and its
and the Nomination Committee continues to lead this process.
committees to function effectively. The Committee also met
Details of the annual evaluation of the Board are set out below.
for the purposes of recruitment and selection of a replacement
chief executive officer and non-executive director. Following
recommendations of the Nomination Committee, Mark Herbert
EVALUATION
The annual evaluations of the Board and its members were
was appointed chief executive officer in April 2019.
conducted by the Board and are described on page 48. As
part of that process, the Committee conducted an evaluation
In June 2019, the Committee met to consider the discontinuation
of its own performance.
in office of Mark Herbert as Chief Executive Officer; Mark
Herbert left the company with effect from 30 June 2019.
DIVERSITY
All appointments made, including those of Board members,
In September 2019, the Committee met for the purposes of
adhere to the company’s diversity and equal opportunities
discussing the appointment of non-executive director Bill
policy, which can be viewed on the company’s website. For
Berman to the role of interim executive chairman, and following
non-executive director appointments, where executive search
the Committee’s recommendation to the Board, Bill Berman
was duly appointed to the role of interim executive chairman
consultants are instructed, they are done so in a manner in a
manner consistent with this policy. The company engaged
with effect from 1 October 2019.
an executive search agency for the purposes of recruitment
activities to fill Board vacancies in 2019, having considered it
In November 2019, the Committee met for the purposes of
appropriate to do so. The company has not adopted a gender
discussing progress as to the recruitment and selection of
balance target for its Board.
58
Pendragon PLC Annual Report 2019 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 pages 44 and 45 and attendance at meetings
in the table on page 49.
KEY RESPONSIBILITIES OF THE
REMUNERATION COMMITTEE
•
has delegated responsibility for determining the policy for
THE COMMITTEE’S WORK IN 2019
The Remuneration Committee met four times in 2019. The
Directors’ Remuneration Report, beginning at page 60,
executive director remuneration and setting remuneration
describes its work and conclusions.
for the chairman, executive directors, the company
secretary and senior management
•
reviews workforce remuneration and related policies and
the alignment of incentives and rewards with culture,
taking these into account when setting executive director
remuneration
•
ensures that executive directors are provided with
appropriate
incentives which align
their
interests
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
•
determines targets for any performance related pay
schemes
•
seeks shareholder approval for triannual renewal of
remuneration policy and any
long-term
incentive
arrangements
The terms of reference of the Remuneration Committee are
available at www.pendragonplc.com.
59
Pendragon PLC Annual Report 2019 DIRECTORS REMUNERATION REPORT
REMUNERATION COMMITTEE CHAIRMAN’S LETTER TO SHAREHOLDERS
Dear Shareholder
On behalf of the Remuneration Committee, I am pleased to present the Director’s Remuneration Report for the financial
year ending 31 December 2019. This report has been prepared by the Remuneration Committee and approved by the
Board.
This remuneration report is split into two sections:
•
•
the new Directors’ Remuneration Policy; which we propose will apply for financial years 2020-2023; and
the Annual Report on Remuneration.
The proposed directors’ remuneration policy will be subject to a binding vote at the AGM on 23 April 2020. This new
policy, if approved by shareholders, will last for a period of three years from the date of the AGM or until another policy
is approved in a general meeting. The Annual Report on Remuneration describes annual remuneration and the amounts
paid in respect of 2019 performance, and remains subject to an advisory only shareholder vote at the forthcoming AGM.
Unquestionably, 2019 has been a challenging year for the business, both in terms of company performance and challenges
caused by changes to, and the refreshing of, our Board of Directors. Set alongside these challenges, the Remuneration
Committee has continued to closely follow the ongoing debate on executive remuneration, fairness and corporate culture.
This has clearly been given more impetus by the implementation of the new UK Corporate Governance Code on 01 January
2019, Investment Association focus and expected action on executive pensions, the expectation of protecting against
reward for failure and the expanded Remuneration Committee remit in terms of reviewing workforce remuneration and
related policies.
Despite the combination of all these challenges, the Remuneration Committee has worked diligently throughout the year
in the development of a new remuneration policy for both Executive Directors and our senior management for the next
period of our remuneration policy cycle.
New Directors’ Remuneration Policy
The Remuneration Committee believes that the proposed remuneration policy continues the focus on an approach to pay
which we believe is both in our shareholders’ best interests but can also be categorised as providing executive remuneration
packages which are competitive, flexible and transparent. We continue to maintain the bias in our remuneration policy
towards long term incentives, supported through interlinked share ownership and deferral requirements within the annual
bonus plan.
Whilst the overall principles of the 2017 remuneration policy remain appropriate, the proposed 2020 remuneration policy
provides greater flexibility in taking into account the challenges faced given the current uncertain macroeconomic climate.
The main areas of change in the proposed Policy are:
Increase to the maximum opportunity under the annual bonus to 150% of salary with maximum available only for true out-
performance of budget.
Moving away from the VCP to an LTIP which overall, the remuneration committee intends to be in line with best practice,
with a three-year performance period and two-year holding period, but which retains a discretion for the remuneration
committee to mkae awards with a one-year performance period and overall 3-year vesting period in exceptional
circumstances.
60
60
Pendragon PLC Annual Report 2019
Pendragon PLC Annual Report 2018
Notwithstanding the above, the Committee is proposing several best practice changes to ensure that the Policy is aligned
from a corporate governance perspective:
Improved malus & clawback provisions including the addition of reputational risk and corporate failure to the triggers;
Introduction of a post-cessation shareholding requirement equal to the in-employment shareholding requirement for 2
years after cessation of employment; and
Changes to the pension policy to bring executive director pensions in line with the average employee rate over time by
ensuring that new executive directors are appointed with a pension contribution which is not above the level available to
the wider workforce. The CFO and CEO are entitled to a pension contribution which is in line with the wider workforce.
Furthermore, the COO’s pension contribution (currently 26% of salary) will be reduced to be in line with the wider workforce
by 1 January 2023.
Annual bonus
With regards to the 2019 annual bonus, the Committee notes that the executive directors would have received a payment
based on the formulaic outcome of 100% of salary each. However, as a result of the overall performance of the Group and
the challenges faced across the business, the executive directors decided to waive their entitlement to the bonus.
For the annual bonus under the Policy, the proposal is to increase the opportunity from 100% of salary to 150% of salary and
recalibrate targets such that the maximum pay-out is only possible where the Company’s budget has been significantly
out-performed.
The rationale for this increase is that the Committee has discovered during recruitment efforts that the annual bonus
opportunity was not sufficiently attractive to be able to recruit the level of executive sought to lead the Company,
particularly in a global market for talent.
Furthermore, the Company believes that the additional stretch introduced to the targets will ensure that the executive
directors are only rewarded the maximum amount for delivering over and above budgeted figures.
Long-term incentives
Our current VCP remains underwater and the last time value was realisable under the previous LTIP was in 2017: the
Company therefore currently lacks a workable or meaningful long-term incentive plan with the ability to attract, retain or
motivate our executive team.
In order to address this issue, and ensure we have an effective and workable long-term incentive plan in place, we
are proposing to introduce a new form of long-term incentive plan (“LTIP”), which we consider will align reward with
performance and delivery of our business strategy.
As a core policy, it is the Committee’s intention to be in line with best practice in the long-term, and on this basis, we
intend to introduce a new form of LTIP with a three-year performance period and two-year holding period as our core
LTIP framework. However, given the uncertain climate in the automotive sector and the macro-economic challenges in
the UK, exacerbated by internal challenges faced by the company, the Committee intends to retain a discretion to make
awards with a one-year performance period and overall three-year vesting period in such exceptional circummstances.
It is currently anticipated that the committee will only exercise this discretion for initial awards. The proposal ensures the
company will have a flexible long-term incentive structure which can be used as a tool to incentivise, motivate and attract
executives.
61
Pendragon PLC Annual Report 2019 DIRECTORS REMUNERATION REPORT
In outline, the proposed LTIP will be:-
•
•
•
•
Flexible: providing a discretion for a 1-year performance period in exceptional circumstances with the potential to
change performance measures and targets for subsequent grants;
Promote Retention: after performance is measured, an additional vesting period of 2 years is proposed before awards
may be exercised, therefore there will be a total vesting period of 5 years for the core policy where discretion is not
exercised;
Incentivising: by offering the opportunity to be awarded up to 150% of salary for executive directors, with 1-year
performance periods for initial grants in exceptional circumstances and annual grants, executives will be more
motivated if there is greater certainty of accruing value sooner.
Sustainable: the proposed LTIP will contain a number of features to ensure that the delivered performance is
sustainable, including Remuneration Committee discretion to override formulaic outcomes where these do not reflect
appropriately overall group performance.
For the 2020 award it is proposed that exceptional grants be made to the CEO and the CFO. When the CEO and CFO
joined the business, there was no long-term incentive arrangement in place under the current Policy which could have
been used to incentivise them. As such, the enhanced award in 2020 is proposed to support the continued recovery of
the business. The Committee would like to ensure that the CEO is appropriately incentivised at this crucial time for the
Company. The COO will receive an award at the normal level as he had received an award under the VCP in 2017.
The proposed award levels are therefore 250% of salary for the CEO and for the CFO. The proposed opportunity for the
COO is 150% of salary.
2019 Outturn
In August 2019, in recognition of the particular and unique challenges faced by the Executive Directors throughout the
year, including in particular the continued and effective implementation of the Company’s strategy, the Remuneration
Committee exercised its discretion to adjust targets and/or set different measures and weightings for the annual bonus
plan which differed from those previously published (underlying (adjusted) profit and year end net debt).
In the alternative, in order to ensure that the Executive Directors remained fully incentivised, qualitative criteria were
introduced in which performance would be assessed against the ongoing execution, performance and delivery of the
Company’s stated strategy objectives. The Remuneration Committee would be solely responsible for assessing progress
against such strategic qualitative criteria, and determining whether any annual bonus (which remained capped at a
maximum of 100% of salary) would be payable at its assessment at year end.
Despite the exercise of this discretion, it has not been necessary for the Remuneration Committee to assess performance
against the qualitative criteria, as all Executive Directors elected to voluntarily waive any entitlement to 2019 annual bonus
which was supported by the Remuneration Committee.
At last year’s AGM, 91.83% of shareholders voted in favour of the Directors’ Remuneration Report. Details of the votes cast
are set out on page 78. 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
62
Pendragon PLC Annual Report 2019 REMUNERATION DISCLOSURE
•
clearly explain the range of possible values of rewards
This report complies with the requirements of The Large and
to individual directors including any other limits or
Medium-sized Companies and Groups (Accounts and Reports)
discretions;
Regulations 2008, The Large and Medium-sized Companies
•
provide proportionate awards linked to delivery of
and Groups (Accounts and Reports) (Amendment) Regulations
strategy and long-term performance and ensuring poor
2013, the Companies (Miscellaneous Reporting) Regulations
performance is not rewarded;
2018 and The Companies (Directors’ Remuneration Policy
•
ensure incentive schemes drive behaviours consistent
and Directors’ Remuneration Report) Regulations 2019 (the
with company purpose, values and strategy;
Regulations) and has been prepared in accordance with the
•
attract and retain directors of the calibre necessary to run
UK Corporate Governance Code and the UKLA Listing Rules.
the business effectively with levels of remuneration that
The parts of the report which have been audited in accordance
are arrived at responsibly and also reflect their individual
with the Regulations have been identified.
contribution to the value of the company;
• weight remuneration towards variable pay;
REMUNERATION POLICY
•
encourage executives to build significant levels of share
The remuneration policy set out in this section of the
ownership, through the retention of vested share awards.
remuneration report will replace the existing policy which
was approved by shareholders at the 2017 AGM and will take
Consistent with market practice, the Remuneration Committee
effect for all payments made to directors from the date of the
will retain full discretion over all elements of variable
2020 AGM. The Remuneration Committee has nevertheless
remuneration, both in terms of annual bonus awards made and
taken the opportunity to conduct a detailed review of the
long term incentive awards granted and vesting. The extent of
policy, both in light of developments in remuneration policy
this discretion is more particularly described on page 61.
and market practice, and also, following consultation with
our major shareholders, to ensure their feedback is reflected
REMUNERATION POLICY
into the design of, and any modifications to, the policy going
The new remuneration policy is detailed in this section. This
forward. The remuneration principles and overarching aim of
policy will be put to shareholders for approval at the AGM to
our remuneration policy continues to be framed in such a way
be held on 23 April 2020. The policy is intended to apply,
as to provide and maintain the link between executive pay and
subject to shareholder approval, for three years from the 2020
strategy, aiming to:
AGM. Where a material change to this policy is considered, the
company will consult major shareholders prior to submitting to
•
ensure
remuneration arrangements are clear and
all shareholders for approval.
transparent, promoting effective engagement with
shareholders and our team members;
The remuneration policy will be displayed on the company’s
•
ensure remuneration structures avoid complexity, with an
website (www.pendragonplc.com), following the 2020 AGM.
easy to understand rationale and operation;
•
avoid reputational and other risks arising from excessive
The table below summarises the individual elements of
rewards, and avoiding or otherwise mitigating behavioural
remuneration provided to the executive directors.
risks that may arise from target-based incentive plans;
63
Pendragon PLC Annual Report 2019 DIRECTORS REMUNERATION REPORT
BASE SALARY
PURPOSE AND LINK TO STRATEGY
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. During this time,
company’s strategy.
salaries may be increased each year.
Salary increases are usually determined after taking due
account of market conditions and typically, any increases
awarded will be in line with the increase of that of the wider
workforce.
Significant changes
in role scope may require further
adjustments to bring salaries 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
Both individual and company performance is taken into
The Committee sets base salaries taking into account:
account when determining whether any salary increases are
•
the performance and experience of the
individual
appropriate.
•
•
concerned;
any change in responsibilities;
appropriate executive
remuneration benchmarking,
reflecting the size and sector of the company
PROPOSED CHANGES
No changes proposed.
Base salaries are paid monthly in arrears.
BENEFITS
MAXIMUM OPPORTUNITY
Benefit levels are set to be competitive relative to companies
PURPOSE AND LINK TO STRATEGY
Cost-effective, market competitive benefits are provided to
of a comparable size. The cost of some of these benefits is
not pre-determined and may vary from year to year based on
assist executive directors in the performance of their roles.
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
Not applicable.
home telephone costs and (at executive’s option) company
cars.
Relocation benefits may also be provided
in certain
circumstances if considered appropriate by the Remuneration
Committee.
PROPOSED CHANGES
None.
64
Pendragon PLC Annual Report 2019 FUTURE REMUNERATION POLICY FOR EXECUTIVE DIRECTORS
PENSION
ELEMENT AND PURPOSE
Provide cost-effective long-term retirement benefits that will
MAXIMUM OPPORTUNITY
The maximum opportunity for newly appointed Executive
form part of a remuneration package that will attract and
Directors will be in line with pension contributions prevailing in
retain executives who are able to take forward the company’s
the wider workforce, and this is the case for the CEO and CFO
strategy.
were they to elect to take up a pension contribution.
The COO currently receives a pension contribution of 26% of
salary which is the maximum under the Policy. However, the
following reductions are planned over the next four years:-
Current 26% of salary;
Effective 1 June 2020 – 23% of salary;
01 January 2021 – 20% of salary;
01 January 2022 – 15% of salary;
01 January 2023 – in line with wider workforce which will
become 5% of salary;
Further adjustments may be considered in subsequent years
to maintain alignment.
OPERATION
Post-2009 executives: participation in a defined contribution
PERFORMANCE METRICS
No performance metrics apply.
pension scheme. Pre-2009 executives: deferred membership
of defined benefit pension scheme.
PROPOSED CHANGES
Pension contributions for new executive directors will be in line
with wider workforce.
65
Pendragon PLC Annual Report 2019 DIRECTORS REMUNERATION REPORT
ANNUAL BONUS
PURPOSE AND LINK TO STRATEGY
Incentivises achievement of annual objectives which support
MAXIMUM OPPORTUNITY
Maximum available bonus is equivalent to 150% of base salary,
the short-term goals of the company, as reflected in the annual
which is available only for material outperformance of the
business plan.
company’s 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
stretching company financial performance measures as set
relate, based on performance against targets over the year.
and assessed by the Committee.
A minimum of 25% of after tax bonus earned is subject to
compulsory deferral into the company’s shares until such time
25% will be payable for threshold performance under each
as the company’s share ownership guidelines are met. In such
measure with 50% payable for target performance and 100%
situations where bonus is deferred into shares, an executive
for maximum performance. The specific measures, targets and
director may be entitled to receive dividend payments on such
weightings may vary from year to year in order to align with
shares.
the company’s strategy and the measures will be dependent
on the company’s goals over the year under review.
PROPOSED CHANGES
Enhanced malus and clawback provisions. Increase in
maximum opportunity from 100% of salary to 150% of salary
in order to aid retention and recruitment of the calibre of
executive required.
LONG TERM INCENTIVE PLAN
PURPOSE AND LINK TO STRATEGY
Promotes retention and incentivisation over the longer term.
MAXIMUM OPPORTUNITY
Maximum opportunity will be 150% of base salary. In
Aligns executive directors’ interests with the company’s share
exceptional circumstances, the Committee may award up to
price and its shareholders.
250% of salary. Prior to making any exceptional award, the
Company will consult with its major shareholders.
OPERATION
The core design of the LTIP will be that awards are subject
PERFORMANCE METRICS
Stretching performance conditions will be set by the
to performance conditions measured over three years and a
Committee each year. At least 50% of each award will be
service requirement for a further 2 years. The Committee may
based on financial metrics, such as underlying EPS. 25% of the
refine the choice of performance metrics each year in line with
award will vest for threshold performance with 100% of awards
developments in the company’s strategy. In the event of a
being achieved for maximum performance. There is a straight
significant or material change of approach, the Committee will
line vesting between performance points.
engage in dialogue with shareholders.
The Committee may also apply a 2-year post-vesting holding
period during which shares may not be sold.
PROPOSED CHANGES
New LTIP will replace the VCP under the previous remuneration
policy.
However, the Committee will retain a discretion to make
awards with a one-year performance period and overall three-
year vesting period in exceptional circumstances.
66
Pendragon PLC Annual Report 2019 FUTURE REMUNERATION POLICY FOR EXECUTIVE DIRECTORS
ALL EMPLOYEE SHARE SCHEME (SHARESAVE)
PURPOSE AND LINK TO STRATEGY
The Sharesave is an all employee share ownership plan which
MAXIMUM OPPORTUNITY
The maximum levels of participation set by legislation from
has been designed to encourage all employees to become
time to time.
shareholders in the company and thereby align their interests
with shareholders.
OPERATION
Executive directors are eligible to participate in Sharesave.
PERFORMANCE METRICS
No performance conditions.
The executive directors are entitled to participate in any other
all employee arrangements implemented by the company.
CHANGES
Introduction of the scheme.
POLICY ON EXECUTIVE DIRECTOR SHARE OWNERSHIP
The company continues to recognise the importance of
Until such time as the policy is met, Executive Directors will
executives building significant holdings of the company’s
be required to hold any vested deferred bonus shares and
shares to align the long-term interests of management and
LTIP awards that vest (after sale of shares to cover associated
shareholders in the success of the company.
personal tax liabilities).
The minimum shareholding requirement for the CEO is 200%
Post-cessation shareholding requirement of 100% of the in-
of salary (100% for all other Executive Directors), to be built up
employment requirement for 2 years following cessation of
within 5 years of appointment to the board. In circumstances
employment. This provision supports sustained share price
where the company is operating under an LTIP structure with
performance and encourages strong succession processes.
an overall three-year vesting period, this requirement will be
reduced to 3 years.
67
Pendragon PLC Annual Report 2019 DIRECTORS REMUNERATION REPORT
POLICY ON NON-EXECUTIVE DIRECTORS’ REMUNERATION
The company’s policy on non-executive directors’ remuneration
in kind, typically the provision of a motor vehicle for their
use. The company considers that the remuneration of the
is reviewed annually by the Board. Remuneration for non-
non-executive directors remains consistent with the time
executive directors is confined to fees alone, without a
commitments associated with individual positions and wider
performance related element. Non-executive directors may
market practice among companies of a comparable size.
elect to receive all or part of their fees in the form of benefits
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 2019
None
None
None
None
None
None
Notes accompanying the future Remuneration Policy table:-
1. Malus and clawback – 1. malus and clawback may operate in respect of the annual bonus and long term incentive plan. This approach applies to all Executive Directors and senior
management immediately below Board level. Malus will typically be an adjustment to the cash award or number of shares before an award has been made or released. Clawback
requires the executive to make a cash repayment to the company or the surrender of shares or other benefits provided by the company. The overall intention is that, in exceptional
circumstances, malus will apply before awards are paid or vest. Clawback will apply under the annual bonus scheme, for up to three years from when the cash payment is made,
and malus will apply to any deferred shares (awarded at the same time as the cash payment) for three-year period of the deferral. Under the LTIP, clawback will continue to apply
for up to two years following the three-year vesting period.
As a minimum, the events in which malus and clawback may apply are as follows:
• Material misstatement of financial statements.
• Gross misconduct/fraud of the participant.
• Where there has been an error in the calculation of performance outcomes, the value of awards, or the number of shares under an award.
• Participant has caused reputational damage to the Company.
• Participant has wholly or in part caused the corporate failure of the Company.
Malus and clawback provisions 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 – a target of underlying (adjusted) profit was selected as this measure directly correlates to company’s overall business plan. The specific measures, targets and
weightings may vary from year to year in order to align with the company’s strategy and the measures will be dependent on the company’s goals over the year under review.
Performance measures are determined by the Remuneration Committee who seek external guidance on the appropriateness of any performance targets set relative to the market.
4. Long term incentive plans – LTIP: under the company’s proposed 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. 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.
5. Pensions – The Chief Operating Officer ceased to be an active member of the Pension Plan in 2006. In accordance with Investment Association (IA) guidelines, the company is
proposing to effect a phased reduction in the salary supplement in lieu of pension contribution received by the Chief Operating Officer such that, by 01 January 2024, his salary
supplement in lieu of pension contribution will be aligned to the employer pension contribution received by the majority of team members.
6. Benefits: - benefit levels are set to be competitive relative to companies of a comparable size.
7. Annual Bonus and LTIP Policy - Remuneration Committee Discretions: -The Committee will operate the annual bonus plan and LTIP in accordance with their respective 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 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 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
68
Pendragon PLC Annual Report 2019 ILLUSTRATION OF OUR REMUNERATION POLICY FOR 2020
The table below illustrates the operation of the remuneration policy and provide estimates of the potential future remuneration
that Executive Directors would receive, in the scenarios shown, in accordance with the directors’ remuneration policy for 2020.
Potential outcomes based on different performance scenarios are provided for each Executive Director. A significant percentage
of remuneration is linked to performance, particularly at maximum levels.
The chart illustrates the remuneration that could be paid to each of the executive directors, based on salaries at the start of the
financial year 2020.
Fixed
+
Annual
Bonus
+
LTIP
=
Total
Element
Fixed
Description
Minimum
On Target
Maximum
Fixed (comprises base
salary, benefits, pension)
Included
Included
Included
Annual Bonus
Annual bonus
Long Term Incentive Plan
25%
25%
50% of the maximum bonus1
100% of the maximum
bonus1
50% of maximum LTIP2
100% of the maximum LTIP2
1The maximum bonus available for executive directors is equivalent to 150% of base salary.
2Awards made under the long term incentive plan (LTIP) will be on an annual basis with a one year measurement period. The maximum LTIP award available for executive directors is
equivalent to the award of nil-cost options at 150% of base salary pursuant to the core policy..
3Impact of share price growth on equity based incentives – In accordance with The Companies (Miscellaneous Reporting) Regulations 2018, indications of maximum remuneration available
do not allow for any share price growth.
(£m)
2.5m
2.0m
1.5m
1.0m
0.5m
0
2.200m
1.374m
0.550m
1.504m
0.940m
1.237m
0.773m
0.376m
0.309m
Minimum
On Target
Maximum
Minimum
On Target
Maximum
Minimum
On Target
Maximum
CHIEF EXECUTIVE OFFICER
CHIEF OPERATING OFFICER
CHIEF FINANCE OFFICER
Fixed Elements
Annual Bonus
LTIP
69
Pendragon PLC Annual Report 2019 DIRECTORS REMUNERATION REPORT
POLICY ON NEW APPOINTMENTS AS AN EXECUTIVE DIRECTOR
The table below sets out the principles which would be applied by the company when agreeing the components of a remuneration
package for a newly appointed executive director.
New appointments as executive director
Reward Element
Base Salary
Base salary in accordance with policy detailed within the remuneration policy table at page 64.
Benefits
LTIP
Pension
Annual Bonus
SAYE
Buy Outs
Will be provided in accordance with the policy within the remuneration policy table at page 64.
Eligible to participate in the LTIP, as described in the remuneration policy table at page 66.
Pension contributions for new executive directors will not exceed the rate available to the wider workforce.
Eligible to participate in the annual bonus plan in operation as described in the remuneration policy table at
page 66.
Eligible to participate in the SAYE, as described in the remuneration policy table at page 67.
In order to facilitate the external recruitment of executive directors, it may be necessary for the Committee
to consider buying out existing incentive awards which would be forfeit on the individual leaving their current
employment. The Committee would seek, where possible, to provide a buy out structure which was consistent
with the forfeited awards in terms of quantum, vesting period and performance conditions.
POLICY ON NEW APPOINTMENTS
changes to our below board compensation and reward
AS NON-EXECUTIVE DIRECTOR
The company’s policy on non-executive director remuneration
packages, including consideration of changes to bonus
structures, pension arrangements and leave entitlements,
is detailed in the remuneration policy table. New appointments
as well as general in-work benefits. Having taken into
of non-executive directors will be made consistent with this
consideration team member views, proposals to change below
policy.
board compensation structures were reviewed by a working
party consisting of the executive directors and Head of Human
HOW EMPLOYEES’ PAY IS TAKEN INTO
Resources, and subsequently by the Remuneration Committee
ACCOUNT IN EXECUTIVE REMUNERATION
Pay and conditions elsewhere in the Group were considered
in order to ensure that team member views and interests
were fully considered prior to any changes being made. In
when finalising the current remuneration package for executive
addition to the above, the Company is also proposing the
directors, and
the Remuneration Committee
reviewed
re-introduction of an all employee sharesave scheme, when
workforce remuneration and related policies to ensure rewards
economic conditions allow, to encourage team member
and incentives were aligned with the culture when developing
involvement in the Company’s performance through share
and setting the policy for executive director remuneration.
ownership. The Company continues to ensure team members
The Committee continues to be updated throughout the year
have regular access to updates and information concerning
on salary increases and the levels of annual bonus awards, and
the financial performance of the Company through various
proposed changes to remuneration policy and practice for the
communication channels, as described on page 49.
wider Group, ensuring that changes to remuneration policy
below board level remain consistent and transparent with
HOW ARE SHAREHOLDERS’ VIEWS TAKEN INTO
those implemented or proposed for executive directors. In
ACCOUNT WHEN DETERMINING EXECUTIVE
addition, the Committee continues to oversee participation in
long term incentives for below Board level team members. As
COMPENSATION PACKAGES?
The Board considers shareholder feedback received in relation
a result, the Committee is aware of how typical employee total
to the AGM each year at a meeting immediately following the
remuneration compares to the potential total remuneration of
AGM and any action required is built into the Remuneration
executive directors.
No across the board pay increases have been awarded to the
Committee’s business for the ensuing period. This, and any
additional feedback received from shareholders from time
to time, is then considered by the Committee as part of the
wider workforce in recent years, and this is also the case for
Company’s annual review of remuneration policy.
executive directors’ salaries.
During 2019, the company consulted with team members in
undertook a review of remuneration policy, taking into account
order to take into account team member’s views on proposed
developments in remuneration policy, as well as prevailing
During late 2019 and early 2020, the Remuneration Committee
70
Pendragon PLC Annual Report 2019 market practice and considering the views of our major
shareholders.
The Remuneration Committee Chairman
SERVICE CONTRACTS AND EXIT PAYMENTS
Executive directors are appointed under service contracts of
continues to make himself available to shareholders to discuss
indefinite duration (with a 12 month notice period), whereas
our specific matters arising from our remuneration policy
non-executive directors each have a fixed term appointment
proposals. The outcome of this exercise forms the basis of the
letter renewable upon expiry at the company’s discretion.
remuneration policy detailed in the future policy table above,
Appointments of new non-executive directors and renewals of
and which we intend will form the basis of our remuneration
existing appointments are on three-year fixed terms. When
policy for the period 2020-2023. The Chairman of the
considering the re-appointment of a non-executive director,
Remuneration Committee aims to maintain regular contact
the Board reviews their attendance at, and participation in,
with our major shareholders at key points during the year to
meetings and their overall performance, and also takes into
ensure we are fully aware of their prevailing thinking on our
account the balance of skills and experience of the Board as
remuneration policies.
a whole.
Name
Mike Wright
Brian Small
Commencement
Expiry/cessation
Unexpired at date of report (months)
02.05.18
10.12.19
31.12.21
31.12.22
21
33
As noted at page 46, the company is actively seeking to recruit
notice. The company would expect any future executive
and appoint a non-executive chairman. The service contract of
director appointments to contain the same terms as to
executive director Martin Casha commenced on 20 December
notice periods. Executive director appointment terms do not
1999, and was refreshed in December 2019. The service
contain any entitlement to any predetermined compensation
contract of Mark Willis commenced on 08 April 2019, and was
or severance payments in the event of cessation in office or
also refreshed in December 2019. The service contract of Bill
employment as a consequence of a takeover. Service contracts
Berman commenced on 01 October 2019 for the purposes of
and letters of appointment are kept for inspection at the
performing the role of interim executive chairman, and was
company’s registered office. With regard to the circumstances
also refreshed in December 2019. On appointment to the role
under which the current executive directors might leave
of chief executive officer on 19 February 2020, Bill Berman was
service, the possible payments that may be anticipated are
issued with a new service contract. Each executive service
described in the table below:-
contract may be terminated by the company giving one year’s
NATURE OF BENEFIT
REASON FOR LEAVING
“Bad” leaver
(e.g. resignation)
“Good” leaver
(e.g. ill health or retirement)
Departure on
Agreed Terms
Salary in lieu of notice
period
No salary in lieu of notice paid on
resignations unless in the interests of
the company to do so.
Up to a maximum of 100% of salary (e.g.
redundancy). Normal practice would be for
phased payment.
Pension and benefits
Provided for period of notice period
served. No benefits provided for
periods after actual cessation of service
unless in the interests of the company
to do so.
Up to one year’s worth of pension and
benefits (e.g. redundancy). Possible payment
of pension and insured benefits triggered by
the leaver event (this would be governed by
the terms of the benefits provided).
Treatment will de-
pend on the circum-
stances of the leaver
event, subject to
the discretion of the
Remuneration Com-
mittee, and the terms
of any termination
agreement.
Bonus
Long-term incentive
entitlements
None
Lapse
Yes (discretion to pay pro-rata based on
company’s performance)
Discretion to allow up to full vesting, based on
company’s performance, with normal practice
to be for pro rata vesting based on the
proportion of the performance period served.
Other payments
None
Disbursements such as contribution to legal costs
FEES FROM EXTERNAL DIRECTORSHIPS
None of the executive directors holds office as a non-executive
director may keep fees gained from holding an external non-
executive directorship or similar. This would be decided on a
director of other companies. Accordingly, the company does
case by case basis.
not have a formal policy on whether or not an executive
71
Pendragon PLC Annual Report 2019 ANNUAL REPORT ON REMUNERATION
THE COMMITTEE’S WORK IN 2019
•
determined annual bonus awards in respect of 2018
ADVISERS
During 2019, the Committee received external advice from
•
•
•
•
•
performance
PwC, who received fees of £118,000 in respect of the same. The
set and revised the annual bonus plan terms for 2019
Company Secretary also acts as secretary to the Committee
reviewed performance to target under the Value Creation
and provided additional advice.
Plan
set 2019 executive director salary levels
noted remuneration trends across the Group
reviewed remuneration policy and proposed introduction
of a new Long Term Incentive Plan
SINGLE TOTAL FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS AND THE INTERIM EXECUTIVE CHAIRMAN 2019
(AUDITED INFORMATION)
Base Salary
£000
Taxable
benefits1
£000
Pension2
£000
Bonus3
£000
LTIP & VCP4
£000
Single total
figure
£000
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
248
292
223
116
168
55
-
292
-
464
-
221
-
9
2
4
1
9
-
8
-
4
-
6
-
76
-
30
-
6
-
76
-
121
-
22
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
248
377
225
150
169
70
-
376
-
589
-
250
Current Directors
William Berman
Martin Casha
Mark Willis
Former Directors
Trevor Finn
Mark Herbert
Tim Holden
1. Benefits in kind include life assurance, private health cover, professional subscriptions, contribution to home telephone costs and the provision of up to two cars (at the Director’s
election), one of which is fully expensed.
2. Salary supplement in lieu of pension contribution, or in the case of former director Tim Holden, company contribution to defined benefit contribution scheme of 10% of basic salary
(£6,000 in 2019, £22,083 in 2018). In 2006, Martin Casha and former director Trevor Finn ceased to be active members of the Pendragon defined benefit pension plan. Former director
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, former director Tim Holden elected to receive a payment of 10% of salary rather than continue to receive pension contributions.
In accordance with Investment Association (IA) guidelines, the company is proposing to effect a phased reduction in the salary supplement in lieu of pension contribution received by
Martin Casha such that, by 01 January 2024, his salary supplement in lieu of pension contribution will be aligned to the employer pension contribution received by the majority of team
members.
3. Bonus Award in 2019 equivalent to 0% of base salary. 2018 total equivalent to 0% of base salary.
4. There are no outstanding rewards remaining under the previous company Long Term Incentive Plan. The performance conditions for the LTIP awarded in 2016 have not been
achieved, and consequently these awards lapsed in their entirety in 2018. The performance period for the Value Creation Plan (“VCP”) awarded in 2017 is 01.01.17 to 31.12.20: no awards
vest during this performance period, with entitlement to awards due to be assessed at the measurement date of 31 December 2020, subject to the satisfaction of the performance
condition outlined on page 66.
72
Pendragon PLC Annual Report 2019 SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS 2019 (AUDITED INFORMATION)
Basic Fee
£000
Taxable
benefits
£000
SID/Committee Chair Fee
£000
Single total figure
£000
2019
2018
2019
2018
2019
2018
2019
2018
40
3
150
40
12
17
30
-
150
9
40
-
-
-
1
-
-
-
-
-
1
4
-
-
5
-
-
14
-
-
-
-
-
-
-
-
45
3
151
54
12
17
45
-
151
9
40
-
Current Directors
Mike Wright
Brian Small1
Former Directors
Chris Chambers2
Richard Laxer3
Gillian Kent4
William Berman4
1. Brian Small was appointed to the Board on 10.12.19. Accordingly, his fees are for the period 10.12.19 to 31.12.19
2. Chris Chambers stood down from the Board on 01.10.19, although it was agreed that he would continue to receive fees until 31.12.19.
3. Richard Laxer stood down from the Board on 31.12.19.
4. Gillian Kent stood down from the Board on 18.04.19. Accordingly, her fees are for the period 01.01.19 to 18.04.19
5. William Berman was a non-executive director for the period 18.04.19 to 01.10.19. Accordingly, his fees as a non-executive director are for this period.
PAYMENTS TO PAST DIRECTORS AND PAYMENTS
and he received the sum of £221,000 as a contractual payment
FOR LOSS OF OFFICE (AUDITED INFORMATION)
Termination Payments: Trevor Finn’s employment with the
in lieu of 12 months’ notice, the sum of £80,000 on an ex gratia
basis as compensation for the termination of his employment
company terminated on 31.03.19 and he received the sum
and the sum of £2,500 as a contribution towards the cost
of £463,500 as a contractual payment in lieu of 12 months’
of legal fees incurred in connection with the cessation of his
notice, the sum of £125,000 in respect of 12 month’s loss of
employment. Mr Holden’s participation in the VCP ceased on
pension contributions and benefits and the sum of £10,000
the termination date of his employment and he has no further
as a contribution towards the cost of legal fees incurred in
rights or benefits under the VCP. Mark Herbert’s employment
connection with the cessation of his employment. Mr Finn
with the company terminated on 30.06.19 and he received the
continues to hold an option under the Company’s Value
sum of £463,500, paid in two equal instalments at the half year
Creation Plan (“VCP”). Mr Finn’s VCP Award will be retained
and year end as a contractual payment in lieu of 12 months’
and vest in accordance with the VCP rules on its normal
notice, such payment including the sum of £46,350 in respect
vesting date on the basis of the performance conditions which
of 12 month’s loss of pension contributions and benefits. In
have been set for the VCP Award, save that the number of
addition, the company paid Mark Herbert the sum of £5,000
plan shares which vest will be reduced pro rata to reflect the
as a contribution towards the cost of legal fees incurred in
number of whole months from the award date of the VCP
connection with the cessation of his employment. Mr Herbert
Award to the termination date of Mr Finn’s employment. Tim
was not a participant in the VCP and accordingly has no rights
Holden’s employment with the company terminated on 31.03.19
or benefits under the same.
73
Pendragon PLC Annual Report 2019 DIRECTORS REMUNERATION REPORT
IMPLEMENTATION OF THE REMUNERATION POLICY IN THE FINANCIAL YEAR ENDING 31 DECEMBER 2020
he Committee envisages that there will be a number of changes arising from the implementation of the remuneration policy
during financial year ending 31 December 2020. The policy in respect of the executive directors will be applied as follows:
Element of Pay
Implementation of Policy
BASE SALARY
Other than potential adjustments to take account of market conditions and changes in role scope to reflect
additional responsibilities undertaken, base salary will continue to be set in accordance with the remuneration
policy.
Base salaries for 2020:
Chief Executive Officer: £550,000
Chief Finance Officer: £302,500
Chief Operating Officer: £301,182
BENEFITS
PENSION
No changes are expected to be made to these elements of remuneration within the financial year ending 31
December 2020.
The Chief Operating Officer receives a pension contribution of 26% of salary. In accordance with the
remuneration policy, it is the intention to ensure that all executive directors receive a pension contribution
or salary supplement in lieu thereof in line with the pension contribution received by the wider workforce.
It is proposed to effect a reduction in the Chief Operating Officer’s salary supplement in lieu of pension
contribution to 23% of salary by 01 June 2020, as the first step in a phased reduction over a four year period.
Any new executive director will have their pension contribution aligned to that available to the majority of
UK-based team members.
ANNUAL BONUS
The bonus opportunity for the executive directors has been increased to a maximum opportunity of 150% of
base salary, payable at the maximum level only for significant (50%) outperformance against the corporate
plan.
LONG TERM INCENTIVE
PLAN
The targets for the 2020 annual bonus will be disclosed retrospectively in the 2021 Director’s Remuneration
Report as the Committee deems them to be commercially sensitive.
The bonus metric for 2020 will be based on achieving underlying (adjusted) profit against the corporate plan.
25% of after tax bonus earned will be subject to compulsory deferral into the company’s shares until such
time as the company’s share ownership guidelines are met.
For the 2020 LTIP award and first award under the policy, the Remuneration Committee intends to use its
discretion to make an award of 250% for the chief executive officer and chief finance officer and operate
a shorter performance period of one year. Vesting of awards is determined based on the achievement
of stretching EPS targets over a 1 year performance period. 25% of the award will vest for threshold
performance with 100% of awards being achieved for maximum performance. There is a straight line vesting
between performance points.
ALL EMPLOYEE SHARE
SCHEME (SHARESAVE)
In the event that the Company elects to make an award under the All Employee (Sharesave) Scheme,
executive directors will be invited to participate.
SHAREHOLDING
GUIDELINES
The minimum shareholding requirement for the CEO is 200% of salary (100% for all other Executive
Directors), to be built up within 5 years of appointment to the board; 3 years where LTIP operates to a 3 year
vesting period
Until such time as the policy is met, Executive Directors will be required to hold any vested deferred bonus
shares and LTIP awards that vest (after sale of shares to cover associated personal tax liabilities).
MALUS AND CLAWBACK
Malus and clawback will continue to operate in respect of the annual bonus and long-term incentive plan, in
accordance with the parameters detailed in the remuneration policy.
PENSIONS
The Pendragon Pension Plan (Pension Plan) is established for
Martin Casha ceased to be an active member of the Pension
Plan in 2006. The non-executive directors are not eligible
the benefit of the Group’s eligible employees. The Pension
to participate in the Pension Plan. New executive directors
Plan operates through a trustee company which holds and
administers its assets entirely separately from the Group’s
are invited to participate in the Pension Plan, should they so
wish, with any pension contributions being in line with wider
assets. There is no direct investment in Pendragon PLC.
workforce.
74
Pendragon PLC Annual Report 2019 PERFORMANCE RELATED PAY FOR 2019: ANNUAL BONUS
There were no annual bonuses earnt in 2019. For 2019,
three months ending on the Measurement Date plus the
cumulative dividends paid per share over the Performance
the Remuneration Committee exercised its discretion, in
Period. The starting share price was set at £0.3016 (“Initial
accordance with the remuneration policy, to reset the
Price”), being the three month average share price prior to
performance conditions for the 2019 annual bonus such that
01 January 2017. The hurdle price was set at £0.442, being
a maximum annual bonus opportunity of 100% of base salary
the Initial Price plus 10% compounded annual growth over the
would be payable provided that certain pre-determined
Performance Period (“Hurdle”). The total participation pool for
strategic performance objectives were achieved. It has not
the VCP will be 10% of the total value created above the Hurdle
been necessary for the Remuneration Committee to assess
(“Pool”). The number of shares under the nil cost option will
performance against the qualitative criteria, as both executive
be determined at the end of the Performance Period on the
directors elected to voluntarily waive any entitlement to 2019
Measurement Date and will be calculated by reference to the
annual bonus.
executive director’s percentage entitlement to growth in value
below. Any awards which vest after the four year Performance
LONG TERM INCENTIVES VESTING IN 2019
There were no outstanding long-term incentive due to vest
Period will be subject to a further one year holding period.
[Executive director Martin Casha has voluntarily elected
based on performance to full year 2019.
to waive his VCP award entitlement]. Former director Tim
VALUE CREATION PLAN (VCP) AWARDS
No VCP awards were made in 2019. The executive directors
Holden’s participation in the VCP ceased on the termination
of his employment. Former director Trevor Finn retained his
VCP award which will vest in accordance with the VCP rules on
were granted a nil cost option over ordinary shares of the
its normal vesting date provided the performance conditions
company on 26 May 2017. Vesting is based on the growth
outlined above have been achieved, save that the number
of absolute total shareholder return generated over the VCP
of plan shares which vest will be reduced pro rata to reflect
performance period. The performance period for the award
the number of whole months from the award date of the
comprises the four years (“Performance Period”) commencing
VCP Award to the termination date of his employment as a
on 01 January 2017. The VCP award gives the executive
proportion of the original vesting period.
directors the opportunity to share in a proportion of the total
value created for shareholders above a hurdle (“Threshold Total
Shareholder Return”) measured at the end of the Performance
DIRECTORS’ SHAREHOLDINGS (AUDITED)
The shareholdings of all Directors, including the shareholdings
Period on 31 December 2020 (“Measurement Date”). The price
of their connected persons as at 31 December 2019, are set out
used for this measurement (“Measurement Total Shareholder
below. There have been no changes in the Directors’ interests
Return”) will be the sum of the average share price for the
from 31 December 2019 to the date of this report.
DIRECTORS’ SHAREHOLDINGS (AUDITED)
Legally owned as at 31.12.2019
Legally owned as at 31.12.2018
William Berman
Martin Casha
Mark Willis
Brian Small
Mike Wright
Nil
9,559,780
Nil
400,000
Nil
n/a
9,559,780
n/a
n/a
Nil
Directors’ Shareholdings (Audited Information) Executive
requirement to build up a shareholding of 200% of salary and
director Martin Casha fulfils the requirement of the company
100% of salary respectively within 5 years from appointment
share ownership policy applicable to them (i.e. building a stake
as executive directors. There is no company policy on non-
equivalent to 100% of base salary. The CEO and CFO have a
executive director share ownership.
75
Pendragon PLC Annual Report 2019 DIRECTORS REMUNERATION REPORT
TOTAL SHAREHOLDER RETURN1
The graph below shows the total shareholder return (“TSR”)2
period, in the market price of the shares, assuming that any
dividends paid are reinvested on the ex-dividend date. The
on the company’s shares in comparison to the FTSE Small
relevant period is the ten years ending 31 December 2019.
Cap Index (excluding investment companies).3 TSR has been
The notes at the foot of the graph provide more detail of the
calculated as the percentage change, during the relevant
TSR calculation.
PENDRAGON PLC TSR 2010 - 2019
300
200
100
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
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 ten years ended on 31 December 2019 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 2019 detailed above.
HISTORY OF CHIEF EXECUTIVE REMUNERATION
Chief Executive
20191
2018
2017
2016
2015
2014
2013
2012
2011
2010
Total Remuneration £m (single figure)
464
589
727
1,605
1,775
3,472
2,961
857
946
944
Annual bonus award (% of maximum
that could have been paid)
0%
0%
30%
87%
100%
100%
100%
54%
75%
75%
Percentage of LTIP2 vesting
0%
0%
0%
100%
56%
100%
100%
0%
0%
0%
1. Total remuneration for the chief executive role in 2019 has been calculated based on total remuneration paid to the holder of the role of chief executive officer for the
period from 01.01.2019 to 30.06.2019, with the total remuneration payable for full reporting period based on extrapolated data assuming the last holder of the role of
chief executive officer had continued in the role at the same level of remuneration to the end of the full reporting period.
2. Percentage of shares vesting under the Pendragon Long Term Incentive Plan against the maximum number of shares that could have been received.
76
Pendragon PLC Annual Report 2019
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
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 2019 compared to 2018
% change in in benefit 2019 compared to 2018
% change in bonus 2019 compared to 2018
Chief
Executive
Employees of
Company as a whole
0%
0%
0%
7.14%
17.07%
-16.26%
77
Pendragon PLC Annual Report 2019
DIRECTORS REMUNERATION REPORT
CHIEF EXECUTIVE OFFICER PAY RATIO
The table below shows our chief executive officer pay ratio at 25th, median and 75th percentiles of our UK team members. The
ratios have been calculated based on the single total figure of remuneration for the chief executive officer and the total pay for
the team members based on our gender pay gap data under Option B of The Companies (Miscellaneous Reporting) Regulations
2018. We have used Option B as the Company has already completed comprehensive data collection and analysis for the
purposes of gender pay gap reporting, and continues to do so on a monthly basis. The gender pay gap data used was collated
on 31 December 2019.
Financial year
Method
25th percentile pay ratio
(lower quartile)
Median pay ratio
(median)
75th percentile pay ratio
(upper quartile)
2019
Option B
29:1
25:1
19:1
1. Total pay for the percentile employees taken from our gender pay gap data includes the following pay elements: base salary, holiday pay, hourly pay, national minimum wage top ups,
car allowance, acting up allowance, monthly advances, team member vouchers subject to national insurance, benefit schemes, statutory sick pay, maternity pay and paternity pay. Team
members who have not received pay (in terms of salary and adjustments) but has still received other salary payments are excluded from our gender pay gap data.
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below illustrates the year-on-year change in total team member pay (being the aggregate of staff costs as set out in
note 2.4 to the financial statements and distributions to shareholders (being declared dividends).
Team member pay
Distribution to shareholders
2019 (£m)
2018 (£m)
%change
2019
2018
%change
£297.6m
£297.2m
-0.13%
£9.7m
£22.5m
-56.89%
SHAREHOLDERS’ VOTE ON REMUNERATION AT THE 2019 AGM
2019 Directors’ Remuneration Report
Number
Proportion of votes cast
Votes cast in favour
Votes cast against
Total votes cast in favour or against
Votes withheld
976,064,550
86,865,776
1,062,930,326
0
91.83
8.17
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 2019 was 13 pence and the range during the
year was 9 pence to 28.45 pence.
APPROVAL
This report was approved by the Committee and signed on its behalf by:-
Mike Wright
Chairman of the Remuneration Committee
18 March 2020
78
Pendragon PLC Annual Report 2019 DIRECTORS REPORT
STRATEGIC REVIEW AND PRESCRIBED REPORTING
Our Strategic Review at pages 4 to 19 contains the information,
By resolutions passed at company general meetings, the
shareholders have authorised the directors: (i) to allot and
prescribed by the Companies Act 2006, required to present
issue ordinary shares; (ii) to offer and allot ordinary shares in
a fair review of the company’s business, a description of the
lieu of some or all of the dividends; and (iii) to make market
principal risks and uncertainties it faces, and certain of the
purchases of the company’s ordinary shares (in practice,
information on which reports and statements are required by
exercised only if the directors expect it to result in an increase
the UK Corporate Governance Code. The Board approved the
in earnings per share). Details of movements in the company’s
Strategic Review set out on pages 4 to 19 and the Viability
share capital are given in note 4.4 to the financial statements.
Statement set out on page 42. Additional information on which
the directors are required by law to report is set out below and
From time to time, Pendragon provides financial assistance
in the following:-
Corporate Governance Report
Board of Directors
•
•
•
to its independent employee benefits trust to facilitate the
market purchase of ordinary shares in the company for use in
connection with various of the company’s employee incentive
schemes. The company did not purchase any shares in this
Corporate Social Responsibility Report
way in 2019.
• 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 with shareholders
• 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 at certain background
directors’ terms of appointment are available for inspection
information on the company the disclosure of which, in this
and, as well as dealing with formal AGM business, the Board
Report, is not mandatory.
takes the opportunity to give an update shareholders on
the company’s trading position. The Chairman and each
We monitor reaction to the publication of shareholder
committee chairman are available to answer questions put by
information on our website, to help shape our shareholder
shareholders present.
communication and future improvements.
RISK ASSESMENT
The board has carried out a robust assessment of the Group’s
DIRECTORS AND THEIR INTERESTS IN SHARES
Current directors are listed on pages 44 to 45. Details of the
terms of appointment and notice period of each of the current
emerging and principal risks. Please see pages 34 to 41.
directors, together with executives directors’ respective
RESULTS AND DIVIDENDS
The results of the Group for the year are set out in the financial
interests in shares under the company’s long term incentive
plan (non-executive directors have none), appear in the
Directors’ Remuneration Report on pages 60 to 78. Directors
statements on pages 93 to 181. No interim dividend was
who served during 2018 and their respective interests in the
paid during the year, and the directors are not proposing to
company’s issued ordinary share capital are shown in the table
recommend a final dividend for the year ended 31 December
below. All holdings shown are beneficial. None of the directors
2019.
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
holds options over company shares. Each executive director
fulfils the requirements of the company’s share ownership
policy applicable to them. There is no company policy
requiring non-executive directors to hold a minimum number
of company shares.
DIRECTORS’ ROTATION
The UK Corporate Governance Code (July 2018) imposes an
obligation that all Directors should be subject to annual re-
legislation and any directions given by special resolution, the
election.
company and its group is managed by its board of directors.
79
Pendragon PLC Annual Report 2019 DIRECTORS REPORT
Directors’ shareholdings
William Berman
Martin Casha
Mark Willis
Mike Wright
Brian Small
Chris Chambers (exited 01.10.19)
Trevor Finn (exited on 31.03.19)
Tim Holden (exited on 31.03.19)
Richard Laxer (exited 31.12.19)
Gillian Kent (exited 18.04.19)
Mark Herbert (exited 30.06.19)
Number at 31.12.19
Number at 31.12.18
nil
9,559,780
nil
nil
400,000
2,500,000
19,127,976
2,131,331
nil
nil
n/a
9,559,780
n/a
nil
n/a
2,000,000
19,127,976
2,131,331
nil
nil
500,000
nil
INDEMNITIES TO DIRECTORS
In line with market practice and the company’s Articles,
each director has the benefit of a deed of indemnity from
VOTING RIGHTS, RESTRICTIONS ON VOTING RIGHTS
AND DEADLINES FOR VOTING RIGHTS
Shareholders (other than any who, under the Articles or the
the company, which includes provisions in relation to duties
terms of the shares they hold, are not entitled to receive such
as a director of the company or an associated company,
notices) have the right to receive notice of, and to attend and
qualifying third party indemnity provisions and protection
to vote at, all general and (if any) applicable class meetings of
against derivative actions. Copies of these are available for
the company. A resolution put to the vote at any general or
shareholders’ inspection at the AGM.
class meeting is decided on a show of hands unless (before
or on the declaration of the result of the show of hands or
SHARE CAPITAL
As at 31 December 2019, Pendragon’s issued share capital
on the withdrawal of any other demand for a poll) a poll is
properly demanded. At a general meeting, every member
comprised a single class: ordinary shares of 5 pence each. The
present in person has, upon a show of hands, one vote, and on
Articles permit the creation of more than one class of share,
a poll, every member has one vote for every 5 pence nominal
but there is currently none other than ordinary shares. Details
amount of share capital of which they are the holder. In the
of the company’ share capital are set out in note 4.4 to the
case of joint holders of a share, the vote of the member whose
accounts. All issued shares are fully paid. The company did
name stands first in the register of members is accepted to
not issue any new shares during the period under review. The
the exclusion of any vote tendered by any other joint holder.
rights and obligations attaching to the company’s ordinary
Unless the Board decides otherwise, a shareholder may not
shares are set out in the Articles. The Company is currently
vote at any general or class meeting or exercise any rights in
authorised to issue up to two-thirds of its current issued share
relation to meetings whilst any amount of money relating to his
capital pursuant to a resolution passed at its 2019 AGM.
shares remains outstanding.
SIGNIFICANT DIRECT OR INDIRECT SHAREHOLDINGS
At 1 March 2020 the directors had been advised of the following
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
interests in the shares of the company:-
general meeting. Further details regarding voting can be found
Shareholder
Teleios Capital Partners (Zug)
Odey Asset Mgt (London)
Anders Hedin Invest AB (Regional (Sweden)
Schroder Investment Mgt (London)
Hosking Partners (London)
Dimensional Fund Advisors
UBS Group AG
Legal & General Group
Blackrock Inc
80
Number of shares
Percentage of voting rights
of the issued share capital
317,943,656
209,713,895
189,188,563
90,043,993
69,492,838
42,912,071
42,450,839
27,317,853
27,149,392
22.76
15.01
13.54
6.45
4.97
3.07
3.04
1.96
1.94
Pendragon PLC Annual Report 2019 in the notes to the notice of the AGM. Details of the exercise
of voting rights attached to the ordinary shares held by the
WORKFORCE ENGAGEMENT
Throughout 2019, our team members were kept up to date
company’s Employee Benefit Trust are set out below. None
with matters of concern to them as employees through
of the ordinary shares, including those held by the Employee
regular communications and updates on our intranet and
Benefit Trust, carries any special voting rights with regard to
the Pendragon PLC website, as well as being provided with
control of the company.
information via our employee relations (ER) platforms. Our
team members are made aware of financial and economic
To be effective, electronic and paper proxy appointments
factors affecting the performance of the company with
and voting instructions must be received by the company’s
communication of the company’s full year and half year results
registrars not later than 48 hours before a general meeting. The
statements, primarily through our intranet platforms. Team
Articles may be obtained from Companies House in the UK or
members are also consulted on matters of concern to them via
upon application to the company secretary. Other than those
the forum of regular divisional best practice meetings, where
prescribed by applicable law and the company’s procedures for
leaders have the opportunity to report issues of concern to
ensuring compliance with it, there are no specific restrictions
senior management. Going forward, following the appointment
on the size of a holding nor on the transfer of shares, which
of Bill Berman as Chief Executive Officer, roadshows to foster
are governed by the Articles and prevailing legislation. The
communication between team members at dealership level
directors are not aware of any agreement between holders
are envisaged, in order to ensure directors have fully engaged
of the company’s shares that may result in restrictions on the
with as many team members as possible, and have taken
transfer of securities or the exercise of voting rights. No person
account of their interests. In addition, as part of our proposed
has any special rights of control over the company’s share
remuneration policy framework, we are seeking approval of an
capital.
all employee sharesave scheme at our 2020 AGM.
SHARES HELD BY THE PENDRAGON
EMPLOYEE BENEFIT TRUST
As at 31 December 2019, the company’s Employee Benefit
Trust with Accuro Trustees (Jersey) Limited (the Trustee) held
It is the Board’s intention to appoint a non-executive director
with designated responsibility for engagement with our
workforce going forwards.
6,420,093 shares, representing 0.46% of the total issued share
capital at that date (2018: 6,420,093; 0.46%). The Trustee has
ENGAGEMENT WITH SUPPLIERS
The directors meet and engage regularly with all our key
waived its voting rights attached to these shares. It holds these
suppliers, frequently taking time to ensure that the interests of
shares to enable it to satisfy entitlements under the company’s
our manufacturer and supplier partners are taken into account
share schemes. During the year, the Trustee did not transfer
on a regular basis, and using the information received to inform
any shares to satisfy such entitlements (2018: 1,160,935).
our principal decision making processes.
CONTRACTS
None of the directors had an interest in any contract with the
POLITICAL DONATIONS
The company and its group made no political donations (2018:
Group (other than their service agreement or appointment
£ nil).
terms and routine purchases of vehicles for their own use)
at any time during 2019. The company and members of its
group are party to agreements relating to banking, properties,
employee share plans and motor vehicle franchises which alter
or terminate if the company or group company concerned
undergoes a change of control. None is considered significant
in terms of its likely impact on the business of the Group as a
whole.
AUDITOR
The directors who held office at the date of approval of this
directors’ report confirm that: so far as they are each aware,
there is no relevant audit information of which the Group’s
auditors are unaware; and each director has taken all the steps
that they ought to have taken as a director to make themself
aware of any relevant audit information and to establish that
the Group’s auditors are aware of that information.
By order of the Board
Richard Maloney
Company Secretary
18 March 2020
81
Pendragon PLC Annual Report 2019
FINANCIAL STATEMENTS
83 Statement of Director’s Responsibilities in Respect
99 Notes to the Financial Statements
of the Annual Report and the Financial Statements
182 Company Balance Sheet
84
Independent Auditor’s Report
93 Consolidated Income Statement
183 Company Statement of Comprehensive Income
184 Company Statement of Changes in Equity
94 Consolidated Statement of Comprehensive Income
185 Notes to the Financial Statements of the Company
95 Consolidated Statement of Changes in Equity
194 Advisors, Banks and Shareholder Information
96 Consolidated Balance Sheet
97 Consolidated Cash Flow Statement
98 Reconciliation of Net Cash Flow to Movement
in Net Debt
195 5 Year Group Review
82
Pendragon PLC Annual Report 2019
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.
Company law requires the Directors to prepare Group and
They are responsible for such internal control as they determine
parent company financial statements for each financial
is necessary to enable the preparation of financial statements
year. Under that law they are required to prepare the Group
that are free from material misstatement, whether due to fraud
financial statements in accordance with International Financial
or error, and have general responsibility for taking such steps
Reporting Standards as adopted by the European Union
as are reasonably open to them to safeguard the assets of the
(IFRSs as adopted by the EU) and applicable law and have
Group and to prevent and detect fraud and other irregularities.
elected to prepare the parent company financial statements in
accordance with UK accounting standards, including FRS 101
Under applicable law and regulations, the Directors are also
Reduced Disclosure Framework.
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Under company law the Directors must not approve the
Statement that complies with that law and those regulations.
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and
The Directors are responsible for the maintenance and
parent company and of their profit or loss for that period. In
integrity of the corporate and financial information included
preparing each of the Group and parent company financial
on the company’s website. Legislation in the UK governing
statements, the Directors are required to:
the preparation and dissemination of financial statements may
•
select suitable accounting policies and then apply them
consistently;
Responsibility statement of the Directors in respect of the
• make judgements and estimates that are reasonable,
annual financial report
differ from legislation in other jurisdictions.
relevant, reliable and prudent;
•
for the Group financial statements, state whether they
We confirm that to the best of our knowledge:
have been prepared in accordance with IFRSs as adopted
by the EU;
•
the financial statements, prepared in accordance with the
•
for the parent company financial statements, state
applicable set of accounting standards, give a true and fair
whether applicable UK accounting standards have been
view of the assets, liabilities, financial position and profit
followed, subject to any material departures disclosed and
or loss of the company and the undertakings included in
explained in the parent company financial statements;
the consolidation taken as a whole; and
•
assess the Group and parent company’s ability to continue
•
the strategic report
includes a fair review of the
as a going concern, disclosing, as applicable, matters
development and performance of the business and the
related to going concern; and
position of the issuer and the undertakings included in the
•
use the going concern basis of accounting unless they
consolidation taken as a whole, together with a description
either intend to liquidate the Group or the parent company
of the principal risks and uncertainties that 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
Mark Willis
Chief Finance Officer
18 March 2020
83
Pendragon PLC Annual Report 2019
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 2019 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 2019 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
23 financial years ended 31 December 2019. 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.
84
Pendragon PLC Annual Report 2019 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 2018:
Refer to page 55 Audit Committee report, page 37 Risk Overview and Management, page 42 Viability Statement
The risk – Unprecedented levels of uncertainty
All audits assess and challenge the reasonableness of
Our response – We developed a standardised firm-wide
approach to the consideration of the uncertainties arising from
estimates, in particular as described in the going concern,
Brexit in planning and performing our audits. Our procedures
valuation of assets, including goodwill, in relation to the
following CGUs: Aston Martin, BMW, Citroen, JLR, Mercedes,
Mini, Hyundai, Nissan, Renault, Vauxhall and Car Stores (“the
included:
• Our Brexit knowledge: We considered the directors’
assessment of Brexit-related sources of risk for the
specified CGUs”) and recoverability of parent’s investments
Group’s business and financial resources compared with
in subsidiaries and loans to subsidiary undertakings, and
our own understanding of the risks. We considered the
valuation of used vehicles inventory in the UK key audit matters
below, and related disclosures and the appropriateness of the
•
going concern basis of preparation of the financial statements
directors’ plans to take action to mitigate the risks;
Sensitivity analysis: When addressing going concern,
valuation of assets, including goodwill, for the specified
(see below). All of these depend on assessments of the future
CGUs and recoverability of parent’s investments in
economic environment and the Group’s future prospects and
subsidiaries and
loans
to subsidiary undertakings,
performance.
and valuation of used vehicles inventory in the UK and
other areas that depend on forecasts, we compared the
In addition, we are required to consider the other information
directors’ analysis to our assessment of the full range
presented in the Annual Report including the principal
of reasonably possible scenarios resulting from Brexit
risks disclosure and the viability statement and to consider
uncertainty and, where forecast cash flows are required to
the directors’ statement that the annual report and
be discounted, considered adjustments to discount rates
financial statements taken as a whole is fair, balanced and
for the level of remaining uncertainty;
understandable and provides the information necessary for
shareholders to assess the Group’s position and performance,
• Assessing transparency: As well as assessing individual
disclosures as part of our procedures on going concern,
business model and strategy.
valuation of assets, including goodwill, for the specified
CGUs and recoverability of parent’s investments in
Brexit is one of the most significant economic events for
subsidiaries and loans to subsidiary undertakings, and
the UK its effects are subject to unprecedented levels of
valuation of used vehicles inventory in the UK, we
uncertainty of consequences, with the full range of possible
considered all of the Brexit related disclosures together,
effects unknown.
including those in the strategic report, comparing the
overall picture against our understanding of the risks.
Our results: As reported under the key audit matters for
valuation of assets, including goodwill, for the specified CGUs
and recoverability of parent’s investments in subsidiaries
and loans to subsidiary undertakings, and valuation of
used vehicles inventory in the UK, we found the resulting
estimates and related disclosures in relation to the key audit
matters and disclosures in relation to going concern 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.
85
Pendragon PLC Annual Report 2019
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
2. Key audit matters: including our assessment of risks of material misstatement continued
Going Concern Risk vs 2018:
Refer to page 54 Audit Committee report, page 42 Viability Statement, page 99 Section 1 Basis of preparation
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. We
consider the risk has increased compared to 2018 due to the
requirement for the Group to refinance, the performance of
the Group in the year and the challenging economic climate.
That judgement is based on an evaluation of the inherent risks
to the Group’s and Company’s business model, including the
impact of Brexit and the Coronavirus, 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:
•
•
•
The impact of Coronavirus (COVID-19) on consumer
spend;
The impact of Brexit on consumer confidence; and
The continued downward trend in the market for new and
used car sales..
There are also less predictable but realistic second order
impacts, such as the impact of Brexit and COVID-19 on the
Group’s supply chain, which could result in a rapid reduction
of available financial resources.
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.
Given the increased risk the Group is facing, complete and
detailed disclosure of the risks and the judgement applied for
the use of the going concern assumption is a key financial
statements disclosure to allow readers to understand fully the
key risks and uncertainties.
Our response – Our procedures included:
•
Funding assessment: We agreed current
facilities
available to the relevant facility agreements and recent
lender correspondence. We inspected the existing and
new loan agreements in order to determine the covenants
attached to the loan and we considered compliance with
the financial covenants in the context of the cash flow
forecasts;
•
•
• Historical comparisons: We assessed historical accuracy
of directors’ forecasting by comparing the actual cash
flows for the year ended 31 December 2019 to the forecast
cash flows over the same period;
Key dependency assessment: We engaged our
restructuring specialist expertise in order to identify
the critical assumptions in the cash flow forecasts and
challenged the directors by applying additional specific
sensitivities to the calculation;
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 and the
Coronavirus, and the potential impact these risks may
have on new and used sales;
the
assumptions: We
Benchmarking
assumptions behind the Group’s cash flow forecasts for
key variables, such as expected used car gross profit per
unit, to externally derived data including market forecasts
on future new and used car sales as well as macroeconomic
data on 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
materialise. We considered the extent to which the intent
and ability of the Directors to pursue mitigating actions
and implement these in the time frame required, should
such be required, were reasonable by assessing whether
the actions were entirely within the Directors’ control and
consistent with Board approved plans;
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 Group’s ability to continue as a going
concern.
Our results: We found the going concern disclosure, without
any material uncertainty, to be acceptable (2018 result:
acceptable).
86
Pendragon PLC Annual Report 2019
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC (CONTINUED)
2. Key audit matters: including our assessment of risks of material misstatement continued
Valuation of assets, including goodwill, in relation to following CGUs: Aston Martin, BMW, Citroen, JLR, Mercedes, Mini,
Hyundai, Nissan, Renault, Vauxhall and Car Stores and recoverability of parent’s investments in subsidiaries and loans to
subsidiary undertakingss Risk vs 2018:
(Carrying value of assets in relation to the specified CGUs: £239.9m, Group impairment of £128.3m (2018: £94.6m); Parent company
investment in subsidiaries £804.0m (2018: £912.4m), impairment £108.4m (2018: £10.2m); loans to subsidiary undertakings
£90.0m (2018: £90.0m).Refer to page 54 Audit Committee report, pages 130 and 187 (accounting policy) and pages 131-135 and
189-190 (financial disclosures)
The risk – Forecast-based valuation
The carrying amount of assets, including goodwill, in the group
in relation to the following cash-generating units (“CGUs”):
Aston Martin, BMW, Citroen, JLR, Mercedes, Mini, Hyundai,
Nissan, Renault, Vauxhall and Car Stores (“ the specified CGUs”)
and the carrying amount of the parent company’s investments
in subsidiaries and loans to subsidiary undertakings are
significant and at risk of irrecoverability.
Market conditions have been challenging in the specified CGUs.
During the prior year the Group impaired goodwill across a
number of CGUs and an impairment was recognised against
the parent company investment in subsidiaries, as a result
there is limited headroom when testing for impairment and the
headroom is sensitive to the assumptions adopted. During the
year further Group impairments of £128.3m (2018: £94.6m) in
relation to the CGUs and £108.4m (2018: £10.2m) for parent
company investment in subsidiaries have been recognised.
Therefore we consider the risk has increased compared to 2018
due to this, and the trading performance of the Group in 2019.
The estimated recoverable amount of these balances is
subjective due to the
in
forecasting and discounting future cash flows, and relatively
small changes in these assumptions could give rise to material
changes in the assessment of the carrying value of these
balances.
inherent uncertainty
involved
The effect of these matters is that, as part of our risk
assessment, we determined that the valuation of the assets in
relation to these specified CGUs and the recoverable amount
of the cost of parent company’s investment in subsidiaries
and loans due to subsidiary undertakings 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 3.1 for the Group and note 5 for
the Company) disclose the sensitivity estimated by the Group.
Our response – Our procedures included:
•
compared
the
assumptions: We
Benchmarking
assumptions behind the Group’s cash flow forecasts for
key variables, such as expected used car gross profit per
unit, to externally derived data including market forecasts
on future new and used car sales as well as macroeconomic
data on projected growth and cost inflation;
• Historical comparison: We assessed the historical
accuracy of the forecasts used in the impairment models
by comparing forecast cash flows on a CGU level to
those achieved in 2019, including an assessment of the
consistency of key variables including forecast gross
profit per vehicle in new and used car;
• Our sector experience: We evaluated the underlying
assumptions by challenging where forecasted cash flows
were significantly higher than current trading levels or did
not reflect known or probable changes in the business
environment;
• Our valuation experience: We challenged, assisted by
our own valuation specialists, the key inputs used in the
calculation of the discount rate by comparing it against
external data sources and comparator group data;
Sensitivity analysis: We performed breakeven analysis on
the assumptions noted above for CGUs with headroom
and sensitivity analysis to identify the CGUs most sensitive
to further impairment;
•
• 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 assets in
relation to these CGUs.
Our results: We found the valuation of assets, including
goodwill, in relation to the Aston Martin, BMW, Citroen, JLR,
Mercedes, Mini, Hyundai, Nissan, Renault, Vauxhall and Car
Stores CGUs, and the group’s assessment of the recoverable
amount of the parent company’s investments in subsidiaries
and loans to subsidiary undertakings, and the resulting
impairment charges to be acceptable (2018 result: acceptable).
87
Pendragon PLC Annual Report 2019 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 (£330.3 million (2018: £563.2 million)) Risk vs 2018:
Refer to page 55 Audit Committee report, page 141 (accounting policy) and page 141 (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 realizable 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 approximates
to our materiality for the financial statements as a whole.
The financial statements (note 3.4) disclose the sensitivity
estimated by the Group.
•
in the used vehicle
Our response – Our procedures included:
• Historical comparisons: We challenged the assumptions
inventory provision by
made
comparison to the Group’s historical trading patterns,
including performing an analysis of the ageing of the
vehicles. We also assessed the Group’s methodology
for calculating the provision by comparing sales prices
achieved during the year to the prior year provision;
Benchmarking assumptions: We compared the Group’s
expectations for used car prices to the expectations of
market data and various commentators;
Sensitivity analysis: We performed sensitivity analysis on
input assumptions noted above;
Independent reperformance: We considered alternative
methodology
for assessing the valuation of used
inventory, with reference to the age, fuel type and brand
of the vehicles within used vehicle inventory in the UK at
the year end.
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 assessed the adequacy of
the Group’s disclosures about the degree of estimation
involved in arriving at the UK used vehicle inventory
provision.
Our results: We found the group’s estimate of the carrying
value of UK used inventory to be acceptable (2018 result:
acceptable).
We continue to perform procedures over the post-retirement benefits obligation (£531.2 million (2018: £486.3 million)). However
in the context of the increased risk identified this year for key audit matters outlined above, we have not assessed this as one of
the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year.
88
Pendragon PLC Annual Report 2019 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 £4.0 million (2018: £2.3 million) determined with reference
to a benchmark of Group revenue of which it represents 0.1% (2018: 5.1% of the prior year benchmark of Group loss before tax
normalised to exclude the impairment charge). The benchmark used has changed to total revenue, which we consider to be
the most appropriate benchmark as it provides a more stable measure year on year than group profit or loss before tax. As a
result this has led to a change in materiality as a percentage of the benchmark. If the same benchmark had been applied in 2018,
materiality would have represented 0.1% of 2018 total revenue.
Materiality for the parent company financial statements as a whole was set at £2.2million (2018:
£1.6million), determined with reference to component materiality. This is lower than the materiality we would otherwise have
determined by reference to a benchmark of the company’s net assets, of which it represents 0.6% (2018: 0.4%).
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.2 million (2018:
£0.1 million), in addition to other identified misstatements that warranted reporting on qualitative grounds.
We subjected thirteen (2018: twenty four) of the Group’s twenty four reporting components (2018: twenty four) to full scope
audits for Group purposes. For the residual components, we performed analysis at an aggregated group level to re-examine our
assessment that there were no significant risks of material misstatement within these. The components within the scope of our
work accounted for 90% (2018: 100%) of the Group’s revenue, 90% (2018: 100%) of total profits and losses that made up Group
loss before tax and 89% (2018: 100%) of Group total assets.
The Group audit team approved the component materialities, which ranged from £0.4 million to £2.2 million (2018: £0.1 million
to £1.6 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 thirteen (2018: twenty four) components, including the audit of the parent
company.
Group Revenue
£4,600m
Group materiality
£4.0m
(2018:£2.3m)
£4.0m
Whole financial statements materiality
(2018:£2.3m)
£2.2m
Range of materialities at 13 components
(£0.1m to £1.6m) (2018: 24 components)
£0.2m
Misstatements reported to the audit committee
(2018: £0.1m)
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
or 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 42 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
89
Pendragon PLC Annual Report 2019 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 42 that they have carried out a robust assessment of the
emerging and principal risks facing the Group, including those that would threaten its business model, future performance,
solvency and liquidity;
the Principal Risks disclosures on pages 34 to 41 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 Report does not properly disclose a departure from the provisions
of the UK Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
90
Pendragon PLC Annual Report 2019 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 83, the Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing
the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company
or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report.
Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and
are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at 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, through discussion with the directors and other management (as required by
auditing standards), and from inspection of the group’s regulatory and legal correspondence 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, pension 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 or
the loss of the group’s licence to operate. We identified the following areas as those most likely to have such an effect: compliance
with the treating customers fairly requirements of the Financial Conduct Authority and compliance with General Data Protection
Regulation. 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.
91
Pendragon PLC Annual Report 2019 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
18 March 2020
92
Pendragon PLC Annual Report 2019 CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2019
Revenue
Cost of sales
Gross profit
Continuing
operations
£m
Discontinued
operations*
£m
2019
IFRS 16
£m
Continuing
operations
£m
Discontinued
operations*
£m
Notes
2018
IAS 17
£m
2.1
4,083.8
422.3
4,506.1
4,148.6
478.4
4,627.0
(3,667.8)
(365.6)
(4,033.4)
(3,658.2)
(418.3)
(4,076.5)
416.0
56.7
472.7
490.4
60.1
550.5
Operating expenses
2.2
(533.1)
(44.0)
(577.1)
(529.1)
(51.5)
(580.6)
Operating (loss)/profit before other income
(117.1)
12.7
(104.4)
(38.7)
Other income - gains/(losses) on the
sale of businesses and property
2.6
0.3
33.0
33.3
13.0
Operating profit/(loss)
(116.8)
45.7
(71.1)
(25.7)
Analysed as:
Underlying operating profit
Non-underlying operating (loss)/profit
14.0
(130.8)
12.7
33.0
26.7
(97.8)
67.6
(93.3)
8.6
2.7
11.3
8.6
2.7
(30.1)
15.7
(14.4)
76.2
(90.6)
Finance expense
Finance income
Net finance costs
Analysed as:
4.3
4.3
(42.9)
3.0
(39.9)
(3.1)
(46.0)
(27.5)
(2.5)
(30.0)
-
3.0
-
-
-
(3.1)
(43.0)
(27.5)
(2.5)
(30.0)
Underlying net finance costs
(40.0)
(3.1)
(43.1)
Non-underlying net finance costs
0.1
-
0.1
(25.9)
(1.6)
(2.5)
(28.4)
-
(1.6)
(Loss)/profit before taxation
(156.7)
42.6
(114.1)
(53.2)
8.8
(44.4)
Analysed as:
Underlying (loss)/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
2.7
2.8
2.8
2.8
2.8
(26.0)
(130.7)
7.8
(148.9)
9.6
33.0
(11.1)
31.5
(16.4)
(97.7)
41.7
(94.9)
(3.3)
(117.4)
(3.8)
(57.0)
(10.7p)
(10.7p)
2.3p
2.3p
(8.4p)
(8.4p)
(4.1p)
(4.1p)
(1.8p)
(1.8p)
0.6p
0.6p
(1.2p)
(1.2p)
2.5p
2.5p
6.1
2.7
(2.3)
6.5
0.5p
0.5p
0.3p
0.3p
47.8
(92.2)
(6.1)
(50.5)
(3.6p)
(3.6p)
2.8p
2.8p
The Group adopted IFRS 16 Leases with effect from 1 January 2019 using the modified retrospective approach on transition and has accordingly not restated prior periods. As a conse-
quence, the results for the year ended 31 December 2019 are not directly comparable with those of the prior period which were prepared using the accounting standard IAS 17 Leases.
* 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 99 to 181 form part of these financial statements
93
Pendragon PLC Annual Report 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2019
Loss for the year
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
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
2019
IFRS 16
£m
(117.4)
(1.3)
0.2
(1.1)
(0.2)
(0.2)
(1.3)
(118.7)
(150.0)
31.3
(118.7)
2018
IAS 17
£m
(50.5)
(0.9)
-
(0.9)
-
-
(0.9)
(51.4)
(57.9)
6.5
(51.4)
The Group adopted IFRS 16 Leases with effect from 1 January 2019 using the modified retrospective approach on transition and has accordingly not restated prior periods. As a
consequence the results for the year ended 31 December 2019 are not directly comparable with those of the prior period which were prepared using the accounting standard IAS 17
Leases.
The notes on pages 99 to 181 form part of these financial statements
94
Pendragon PLC Annual Report 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2019
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Translation
differences
£m
Retained
earnings
£m
Total
£m
Balance at 1 January 2019
70.0
56.8
5.5
12.6
(0.8)
201.5
345.6
Adjustment on initial application of IFRS 16
(net of tax) (see note 1)
-
-
-
-
-
(48.4)
(48.4)
Adjusted balance at 1 January 2019
70.0
56.8
5.5
12.6
(0.8)
153.1
297.2
Total comprehensive income for 2019
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
Share based payments
-
-
-
-
(0.1)
-
-
-
-
-
-
-
Balance at 31 December 2019
69.9
56.8
-
-
-
-
0.1
-
5.6
-
-
-
-
-
-
-
(117.4)
(117.4)
(0.2)
(1.1)
(1.3)
(0.2)
(118.5)
(118.7)
-
-
-
(9.7)
(0.5)
0.6
25.0
(9.7)
(0.5)
0.6
168.9
12.6
(1.0)
Balance at 1 January 2018
71.2
56.8
4.3
12.6
(0.8)
281.3
425.4
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
The Group adopted IFRS 16 Leases with effect from 1 January 2019 using the modified retrospective approach on transition and has accordingly not restated prior periods. As a
consequence, the results for the year ended 31 December 2019 are not directly comparable with those of the prior period which were prepared using the accounting standard IAS 17
Leases.
The notes on pages 99 to 181 form part of these financial statements
95
Pendragon PLC Annual Report 2019
CONSOLIDATED BALANCE SHEET
At 31 December 2019
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Finance lease receivables
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Finance lease receivables
Current tax assets
Cash and cash equivalents
Assets classified as held for sale
Total current assets
Total assets
Current liabilities
Lease 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
Lease liabilities
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 18 March 2020 and signed on its behalf by:
W Berman
Chief Executive
M S Willis
Chief Finance Officer
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
2019
IFRS 16
£m
628.3
162.8
9.5
20.6
25.5
846.7
839.0
106.9
2.4
-
55.7
150.1
1,154.1
2,000.8
(23.9)
(1,084.6)
(50.9)
(2.8)
-
(90.5)
(1,252.7)
(175.4)
(237.8)
(60.4)
(46.6)
(59.0)
-
(579.2)
(1,831.9)
168.9
69.9
56.8
5.6
12.6
(1.0)
25.0
168.9
2018
IAS 17
£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)
(1,314.4)
(177.5)
(1.5)
(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
The Group adopted IFRS 16 Leases with effect from 1 January 2019 using the modified retrospective approach on transition and has accordingly not restated prior periods. As a
consequence the balance sheet as at 31 December 2019 is not directly comparable with that of the prior period which was prepared using the accounting standard IAS 17 Leases.
The notes on pages 99 to 181 form part of these financial statements
Registered Company Number: 02304195
96
Pendragon PLC Annual Report 2019
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2019
Notes
2019
IFRS 16
£m
Cash flows from operating activities
Loss 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
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 from/(used) in investing activities
Cash flows from financing activities
Dividends paid to shareholders
Repurchase of own shares
Disposal of shares by EBT
Payment of lease liabilities
Receipt of lease receivables
Repayment of loans
Proceeds from issue of loans
Net cash outflow from financing activities
Net increase/(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 99 to 181 form part of these financial statements
(117.4)
3.3
43.0
(71.1)
44.7
0.6
(4.8)
(33.3)
102.4
1.9
25.9
(7.6)
186.7
1.7
(127.4)
-
(55.6)
64.1
(3.3)
(26.8)
34.0
67.4
(115.0)
70.6
23.0
(9.7)
(0.5)
-
(43.2)
3.3
(5.0)
5.4
(49.7)
7.3
51.4
(3.0)
55.7
3.4
3.5
6.2
3.1, 3.2
3.1, 3.2
4.2
2018
IAS 17
£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
97
Pendragon PLC Annual Report 2019
RECONCILIATION OF NET CASH FLOW TO MOVEMENT
IN NET DEBT
Net increase/(decrease) in cash and cash equivalents
Repayment of loans
Proceeds from issue of loans (net of directly attributable transaction costs)
Non-cash movements
Decrease/(increase) in net debt in the year
Opening net debt
Adjustment for finance lease liabilities (see note below)
Closing net debt
2019
£m
7.3
5.0
(5.4)
(0.5)
6.4
(126.1)
-
(119.7)
2018
£m
(5.9)
10.0
(7.1)
(0.5)
(3.5)
(124.1)
1.5
(126.1)
The Group adopted IFRS 16 Leases with effect from 1 January 2019 using the modified retrospective approach on transition and has accordingly not restated prior periods. As a con-
sequence, the cash flows for the year ended 31 December 2019 are not directly comparable with those of the prior period which were prepared using the accounting standard IAS 17
Leases.
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. On adoption of IFRS 16 on 1 January 2019 the Group has decided to re-define it’s net debt metric to exclude finance lease liabilities. This has resulted in the net
debt at 31 December 2018 being adjusted by £1.5m, the finance lease liability at that date from. £127.6m to £126.1m.
The notes on pages 99 to 181 form part of these financial statements.
98
Pendragon PLC Annual Report 2019
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 2019 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 2019 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 183 to 193.
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 financial statements are prepared on a going concern basis notwithstanding that the Group has reported an operating
loss of £104.4m for the year to 31 December 2019 (2018: loss of £30.1m). Further, the directors consider that the current
economic outlook presents significant challenges in terms of sales volume and pricing and both Brexit and the Coronavirus
outbreak presents uncertainties to future trading conditions. Whilst the directors have instituted measures to preserve cash
and secure additional finance, there is uncertainty over future trading results and cash flows.
The Group meets its day-to-day working capital requirements from a revolving credit facility of £175m and senior note of
£60m (see note 4.2) together with manufacturer stocking facilities and cash balances. The revolving credit facility is due for
renewal in March 2022 and includes covenants, a breach of which would result in the amounts drawn becoming repayable
on demand.
The directors have prepared base cash flow forecasts for the 21 month period to 31 December 2021 which assume the
disposal of US dealerships which have been previously announced. The directors have also prepared sensitised forecasts
which consider the impacts of certain severe but plausible downside scenarios and which remove the disposal of US
dealerships and also include the impact of a reasonably possible downside contraction in sales volumes and margins.
The have also considered the mitigations which are available to them and wholly within their control through which they
could offset those downside scenarios should they arise, principally the deferral of uncommitted capital expenditure. The
sensitised cases include the impact of a combined, severe but plausible Coronavirus and Brexit scenario and these forecasts
include mitigations, principally the deferral of capex.
Those forecasts indicate that the group can continue to operate for at least the next 12 months from the date of approval of
these financial statements with the existing facilities. The base and sensitised forecasts indicate that the group will remain
in compliance with the relevant covenants, though headroom is limited in the period ended 31 December 2021 in the case of
the sensitised forecasts.
Based on the above, the directors believe it remains appropriate to prepare the financial statements on a going concern
basis.
99
Pendragon PLC Annual Report 2019
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.
No recognition of potential
assets of £8.3m relating
to unutilised tax losses of
£13.8m and unrecognised net
capital losses of £35.2m.
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-
£8.3m.
100
Pendragon PLC Annual Report 2019
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:
Key estimate area
Key assumption
CGU asset
impairment
Inventory fair value
(UK used inventory of
£285.0m)
Retirement benefit
obligations
To determine any possible impairment of our
goodwill, intangible assets, property, plant and
equipment we undertake an exercise to estimate
the recoverable amount for each Cash Generating
Unit (CGU). We have key assumptions on the
growth, discount rates and multiples applied to
the financial year 2020 budget as well as the fair
value of individual assets.
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.
Potential
impact within
the next
financial year
Potential
impact in
the longer
term
Note
reference
3
3
3
3
3.1
3.4
3
5.1
101
Pendragon PLC Annual Report 2019
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.
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.
102
Pendragon PLC Annual Report 2019
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.
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 2019 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the Group:
• IFRS 16 ‘Leases’
• IFRIC 23 ‘Uncertainty over Income Tax treatments’
• Amendments to IFRS 9 ‘Financial Instruments’
• Amendments to IAS 28 ‘Long-term Interests in Associates and Joint Ventures’
• Annual Improvements to IFRSs – 2015-2017 Cycle
• Amendments to IAS 19 ‘Employee Benefits’
The impact of IFRS 16 on the Group’s results for the year is set out below. IFRIC 23 and the other amendments have not had
a material impact on the financial statements.
103
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
IFRS 16 Leases
The Group has adopted IFRS 16 Leases from 1 January 2019. IFRS 16 introduces a single, on balance model for leases. As
a result, the Group as a lessee has recognised a right or use asset representing it’s right to use the underlying asset and
a lease liability representing it’s obligation to make lease payments. The Group also acts as a Lessor, and whilst Lessor
accounting remains similar to that under the Group’s previous accounting policies, where the substantial risks and rewards of
ownership of the asset has been passed to it’s Lessee then the underlying asset of the Group becomes that of a finance lease
receivable.
Under the previous accounting policy the Group previously classified leases as either an operating lease or a finance lease
depending upon whether it was deemed that substantially all of the risks and rewards of ownership had transferred. Under
IFRS 16 the Group recognises a right of use asset for all leases with the exception of those deemed to be of low value
or short term in nature, in which case lease payments are expensed on a straight line basis over the lease term. In its
transition to IFRS 16 the Group has applied a modified retrospective approach, under which the cumulative effect of initial
application is recognised in retailed earnings at 1 January 2019. Accordingly, the comparative information for 2018 has not
been restated. The revised accounting policy is:
Significant accounting policies - Leases.
The Group recognises a right of use asset and a lease liability at the lease commencement date. The right of use asset is
initially measured at cost, and subsequently at cost less accumulated depreciation and impairment losses, and adjusted for
certain remeasurements of the lease liability. Depreciation is recognised on a straight line basis over the period of the lease
the right of use asset is expected to be utilised.
The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date,
discounted by the interest rate implicit in the lease or when this is not readily attainable the Group’s incremental borrowing
rate. Generally the Group uses it’s incremental borrowing rate as the discount rate.
The lease liability is subsequently increased by the interest cost on the lease liability and reduced by payments made. It is
remeasured when there is a change in future lease payments arising from a change of index or rate, a variation in amounts
payable following contractual rent reviews and changes in the assessment of whether an extension/termination option is
reasonably certain to be exercised.
The Group has applied judgement in determining the lease term for some lease contracts which include renewal and
termination options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease
term and the subsequent recognition of the lease liability and right of use asset.
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks
and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then
it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for
the major part of the economic life of the asset. When the Group is an intermediate lessor, it accounts for its interests in the
head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use
asset arising from the head lease, not with reference to the underlying asset.
Where the Group acts as a Lessor of an operating lease, receipts of lease payments are recognised in the income statement
on a straight line basis over the period of the lease. Where the Group acts as a Lessor of a finance lease the Group will,
rather than recognise a right of use asset, recognise a finance lease receivable, this being the present value of future lease
receipts discounted at the interest rate implicit in the lease or if this is not specified the Group’s incremental borrowing rate.
The finance lease receivable will be increased by the interest received and reduced by payments made by the lessee.
Transition
The Group has a significant leasehold property portfolio which, in the most part, where previously accounted for as operating
104
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
IFRS 16 Leases continued
leases under IAS 17. The leases have a variety of lease terms and some include scheduled rent reviews, break options or
provide for rent increases based upon future UK price indices.
At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the Group’s incremental borrowing rate as at 1 January 2019. Right of use assets as
measured at either:
their carrying amount as if IFRS 16 had been applied since the lease commencement date, discounted by the Group’s
incremental borrowing rate as at 1 January 2019. The Group has applied this methodology to the majority of it’s property
leases where sufficient historical information has been available to facilitate this.
An amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. This has been
applied to a small number of property leases where it was not possible to ascertain sufficient historical data to enable a
retrospective calculation. This method has also been applied to the Group’s small number of non property leases, comprising
of motor vehicles and items of plant and equipment.
The Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases
under IAS 17.
Applied the exemption not to recognise right of use assets and liabilities with less than 12 months of the lease term remaining
at 1 January 2019.
Excluded initial direct costs from measuring the right of use asset at date of initial application.
Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
Used the option to grandfather the assessment of which transactions are leases by applying IFRS 16 only to contracts that
were previously identified as a leases under IAS 17.
Used previous assessments of whether leases are onerous instead of performing an impairment review.
The Group previously classified two properties as finance leases. These leases have been reassessed under IFRS 16 and
reclassified as right of use assets.
As a Lessor the Group has sub-let a number of surplus properties with some of these matching the term of the under lease.
In these instances the Group has deemed that it has none of the risks and rewards of ownership of the properties and has
recognised a finance lease receivable based on expected lease receipts from the date of application, discounted at the same
interest rate as applied to the head lease. There are no residual values applicable to these leases.
The Group, during the period between 2005 and 2006 entered into sale and leaseback arrangements on some of it’s properties.
At the time it was deemed that the consideration received for these properties and the subsequent rents attached to the
leases were in excess of their equivalent fair values at the time. An adjustment was made at the time of these transactions to
reduce the profit on disposal of these properties and defer this over the remaining lease terms to offset the excess rentals
payable in the future. This credit was held as deferred income in the financial statements. On transition to IFRS 16 the residual
deferred income credit relating to these properties at 1 January 2019 has been allocated to the right of use asset.
Provision had previously recognised a provision for vacant properties which related to sub-let properties where the rental
income was insufficient to cover the lease costs paid. Where these relate to leases in which the Group retain the risks and
rewards of ownership of the property the provision previously recognised has been credited to the right of use asset. Where
these relate to leases in which the Group do not retain the risks and rewards of ownership of the property the provision
previously recognised has been credited to reserves on transition (see note 3.8) .
105
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
IFRS 16 Leases continued
Impacts of transition
The impacts of the transition to IFRS 16 is summarised below;
Property, plant and equipment
Assets classified as held for sale
Lease liabilities
Lease liabilities classified as held for sale
Finance lease receivables
Trade and other receivables
Trade and other payables
Deferred income
Provisions
Deferred tax
Retained earnings
1 January 2019
£m
193.1
39.4
(279.7)
(39.4)
24.7
(9.2)
0.3
11.4
2.3
8.7
48.4
When measuring lease liabilities for leases that were classified as operating leases, the Group has discounted lease pay-
ments using either it’s incremental borrowing rate for shorter term leases or higher rates based upon market rates for
borrowing against equivalent assets with similar risk profiles in specific markets for medium to longer term leases as at 1
January 2019 . The weighted average rate applied was 4.20%.
Operating lease commitment at 31 December 2018 as disclosed in the Group’s
consolidated financial statements
Discounted using incremental borrowing rate at 1 January 2019
Finance lease liabilities recognised at 31 December 2018
Recognition exemption for leases with less than 12 months of lease term at transition *
Recognition exemption for low value leases
Lease liabilities recognised beyond break terms reasonably certain to be utilised **
Lease liabilities recognised at 1 January 2019 including those classified as held for sale
1 January 2019
£m
479.7
325.5
1.5
(14.1)
-
7.7
320.6
* Included within the £14.1m recognition exemption for leases with less than 12 months of lease term at transition, are £11.9m
of lease commitments in the US business which is a discontinued operation held for sale. These US leases were deemed to
be short leases on transition as the Group was reasonably certain that obligations under those leases would be discharged
in 2019. These were assigned as part of the sales of US businesses which were completed in 2019.
** The operating lease commitment disclosed at 31 December 2018 was in respect of minimum lease payments under each
lease which was based on terminating leases with break clauses at the earliest opportunity. The Group is reasonably certain
that the majority of these break options will not be exercised with the lease being utilised up to the lease expiry date,
therefore the IFRS 16 liability recognised is greater than that of the corresponding IAS 17 disclosure.
106
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Impact for the period
As a result of initially applying IFRS 16, in relation to those leases which were originally classified as operating leases, the
Group has recognised an interest and depreciation cost instead of an operating lease expense and as a Lessor on leases
where the Group no longer has the risks and rewards of ownership, recognises an interest receipt instead of a rental
income. During the year ended 31 December 2019 the Group recognised £19.2m of depreciation charges, a non-underlying
impairment charge of £23.3m, an interest expense of £14.4m and made payments of £43.2m in respect of it’s lease liabilities.
As a Lessor, the Group has an interest receipt of £1.1m having received payments of £3.3m in respect of the finance lease
receivable.
Other standards
A number of new standards are effective for annual periods beginning after 1 January 2020 and earlier application is
permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated
financial statements.
The following amended standards and interpretations are not expected to have a significant impact on the Group’s
consolidated financial statements.
IFRS 17 Insurance Contracts.
Definition of Material – Amendments to IAS 1 and IAS 8
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.
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.
107
Pendragon PLC Annual Report 2019
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)
Impairment of right of use assets (see note 2.6)
Car Store closure costs (see note 2.6)
Termination and severance payments (see note 2.6)
Non-underlying operating profit/(loss) items
Operating loss
(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
2019
IFRS 16
£m
26.7
1.6
33.3
4.8
(102.4)
(1.9)
(2.6)
(23.3)
(1.8)
(5.5)
(97.8)
(71.1)
2019
IFRS 16
£m
(16.4)
(97.8)
0.1
(97.7)
(114.1)
2019
IFRS 16
£m
(16.4)
(97.7)
(3.3)
(101.0)
(117.4)
2018
IAS 17
£m
76.2
-
15.7
(10.5)
(88.8)
(1.2)
(5.8)
-
-
-
(90.6)
(14.4)
2018
IAS 17
£m
47.8
(90.6)
(1.6)
(92.2)
(44.4)
2018
IAS 17
£m
38.7
(92.2)
3.0
(89.2)
(50.5)
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.
108
Pendragon PLC Annual Report 2019 NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
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 - the Group uses the ratio of net debt to underlying EBITDA to assess the use of the Group’s
financial resources. We have adjusted the underlying operating profit used in the calculation of EBITDA to present it on a pre
IFRS 16 basis by treating the rentals paid as an operating expense, adjusting out right of use depreciation and various other
adjustments that would have been made under IAS 17. This is to ensure consistency in the 12m period against our target
measure of net debt : underlying EBITDA of between 1.0 and 1.5 which is based on a pre IFRS 16 basis.
Underlying operating profit on a pre IFRS 16 basis - reconciliation
Underlying operating profit (see reconciliation above)
Adjustments to 2019 to restate as if under IAS 17:
Rentals paid expense
Rentals paid expense classified as non-underlying
Reversal of IFRS 16 depreciation
Lease receivable receipts taken to income
Underlying operating profit on IAS 17 basis
Net debt : Underlying EBITDA – reconciliation
Underlying operating profit on IAS 17 basis
Depreciation and amortisation
Reversal of IFRS 16 depreciation
Depreciation and amortisation - IAS 17 basis
Underlying EBITDA on IAS 17 basis
Net debt
Net debt : Underlying EBITDA ratio
2019
£m
26.7
(39.5)
1.6
19.2
3.3
11.3
2019
£m
11.3
86.8
(19.2)
67.6
78.9
119.7
1.5
2018
£m
76.2
-
-
-
-
76.2
2018
£m
76.2
65.3
-
65.3
141.5
126.1
0.9
Net franchise capital expenditure - total franchise specific (manufacturer new vehicle partners) capital expenditure incurred
in the period less franchise specific disposal proceeds.
Like for Like reconciliations
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.
109
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Revenues by Department - Franchised UK Motor
2019
Group
revenue
£m
326.2
1,702.5
1,702.1
3,730.8
Aftersales revenue
Used vehicle revenue
New vehicle revenue
Total Revenue
Revenues by Department - Car Store
2019
Disposals
revenue
£m
2019
Other non
like for like
revenue
£m
2019
like for like
revenue
£m
(1.6)
318.4
2018
Group
revenue
£m
333.2
2018
Disposals
revenue
£m
(19.8)
(131.5)
2018
Other non
like for like
revenue
£m
2018
like for like
revenue
£m
-
-
-
-
313.4
1,664.6
1,537.7
3,515.7
(5.2)
1,664.2
1,796.1
-
1,665.9
1,644.6
(106.9)
(6.8)
3,648.5
3,773.9
(258.2)
(6.2)
(33.1)
(36.2)
(75.5)
2019
Group
revenue
£m
2019
Disposals
revenue
£m
2.5
267.8
270.3
(2.0)
(129.9)
(131.9)
2019
Other non
like for like
revenue
£m
2019
like for like
revenue
£m
-
(8.1)
(8.1)
0.5
129.8
130.3
2018
Group
revenue
£m
2018
Disposals
revenue
£m
4.2
(3.5)
296.3
300.5
(174.4)
(177.9)
2018
Other non
like for like
revenue
£m
2018
like for like
revenue
£m
-
-
-
0.7
121.9
122.6
Aftersales revenue
Used vehicle revenue
Total Revenue
Revenues by Department - Franchised US Motor
2019
Group
revenue
£m
2019
Disposals
revenue
£m
2019
Other non
like for like
revenue
£m
2019
like for like
revenue
£m
2018
Group
revenue
£m
2018
Disposals
revenue
£m
2018
Other non
like for like
revenue
£m
2018
like for like
revenue
£m
Aftersales revenue
Used vehicle revenue
New vehicle revenue
Total Revenue
40.7
75.7
305.9
422.3
(15.6)
(40.7)
(131.5)
(187.8)
-
-
-
-
25.1
35.0
174.4
234.5
43.2
97.9
337.3
478.4
(18.6)
(53.3)
(174.7)
(246.6)
-
-
-
-
24.6
44.6
162.6
231.8
Gross profit by Department - Franchised UK Motor
2019
Group
gross profit
£m
2019
Disposals
gross profit
£m
2019
Other non
like for like
gross profit
£m
2019
like for like
gross profit
£m
2018
Group
gross profit
£m
2018
Disposals
gross profit
£m
2018
Other non
like for like
gross profit
£m
2018
like for like
gross profit
£m
Aftersales gross profit
Used vehicle gross profit
New vehicle gross profit
Total Gross profit
161.5
105.2
104.9
371.6
(1.5)
2.5
(2.4)
(1.4)
(0.7)
(0.5)
-
159.3
107.2
102.5
179.8
141.3
111.0
(9.1)
(3.9)
(7.3)
(1.2)
369.0
432.1
(20.3)
-
-
-
-
170.7
137.4
103.7
411.8
110
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Gross profit by Department - Car Store
2019
Group
gross profit
£m
2019
Disposals
gross profit
£m
2019
Other non
like for like
gross profit
£m
2019
like for like
gross profit
£m
2018
Group
gross profit
£m
2018
Disposals
gross profit
£m
2018
Other non
like for like
gross profit
£m
2018
like for like
gross profit
£m
Aftersales gross profit
Used vehicle gross profit
Total Gross profit
(1.8)
12.7
10.9
2.8
(5.5)
(2.7)
-
(0.5)
(0.5)
1.0
6.7
7.7
1.7
22.9
24.6
1.5
(11.7)
(10.2)
-
-
-
3.2
11.2
14.4
Gross profit by Department - US Motor
2019
Group
gross profit
£m
2019
Disposals
gross profit
£m
2019
Other non
like for like
gross profit
£m
2019
like for like
gross profit
£m
2018
Group
gross profit
£m
2018
Disposals
gross profit
£m
2018
Other non
like for like
gross profit
£m
2018
like for like
gross profit
£m
Aftersales gross profit
Used gross profit
New vehicle gross profit
Total Revenue
21.1
5.7
29.9
56.7
(8.6)
(2.8)
(14.4)
(25.8)
-
-
-
-
12.5
2.9
15.5
30.9
22.7
5.4
32.0
60.1
(10.4)
(2.4)
(16.4)
(29.2)
-
-
-
-
12.3
3.0
15.6
30.9
Underlying operating profit/(loss)
2019
Group
underlying
operating
profit/(loss)
£m
2019
Disposals
underlying
operating
profit/(loss)
£m
2019
Other non
like for like
underlying
operating
profit/(loss)
£m
2019
like for like
underlying
operating
profit/(loss)
£m
2018
Group
underlying
operating
profit/(loss)
£m
2018
Disposals
underlying
operating
profit/(loss)
£m
2018
Other non
like for like
underlying
operating
profit/(loss)
£m
2018
like for like
underlying
operating
profit/(loss)
£m
13.0
(25.2)
13.4
12.8
12.7
26.7
7.3
15.1
-
-
(6.3)
16.1
0.5
0.5
-
-
-
20.8
(9.6)
13.4
12.8
6.4
1.0
43.8
53.0
(11.9)
11.7
14.8
8.6
76.2
8.1
8.3
-
-
(5.3)
11.1
-
-
-
-
-
-
61.1
(3.6)
11.7
14.8
3.3
87.3
Franchised UK Motor
Car Store
Software
Leasing
US Motor
Total underlying
operating profit
Operating (loss)/profit
2019
Group
operating
profit/(loss)
£m
2019
Disposals
operating
profit/(loss)
£m
2019
Other non
like for like
operating
profit/(loss)
£m
2019
like for like
operating
profit/(loss)
£m
2018
Group
operating
profit/(loss)
£m
2018
Disposals
operating
profit/(loss)
£m
2018
Other non
like for like
operating
profit/(loss)
£m
2018
like for like
operating
profit/(loss)
£m
Franchised UK Motor
Car Store
Software
Leasing
US Motor
Total operating profit
(96.4)
(46.6)
13.4
12.8
45.7
(71.1)
7.3
15.1
-
-
(6.3)
16.1
0.5
0.5
-
-
-
(88.6)
(31.0)
13.4
12.8
39.4
(24.5)
(27.7)
11.7
14.8
11.3
1.0
(54.0)
(14.4)
8.1
8.3
-
-
(5.3)
11.1
-
-
-
-
-
-
(16.4)
(19.4)
11.7
14.8
6.0
(3.3)
111
Pendragon PLC Annual Report 2019
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
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 Franchised 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 activates, 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.
112
Pendragon PLC Annual Report 2019
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 the one time service has been completed. 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). There are no such warranties offered for sale in the US Motor
segment.
113
Pendragon PLC Annual Report 2019
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 Group for contract hire purposes and the Group
undertakes to repurchase the vehicle at a predetermined date and value the transfer of control is
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 IFRS 16 Leases, the Group is considered to be an operating
lessor for all arrangements in place. The initial amounts received in consideration from the leasing
Group 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 IFRS
16 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.
114
Pendragon PLC Annual Report 2019
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.
115
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
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R
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.1 Revenue continued
Contract balances
Contract Assets
The Group recognises the following contract assets
Aftersales work in progress yet to be completed
Contract liabilities
The Group recognises the following contract liabilities
Deposits received from customers
Unearned proportion of warranty policies sold
2019
£m
1.5
2019
£m
18.7
19.4
2018
£m
2.1
2018
£m
11.4
18.8
Movements in the deferred income balance in respect of the warranty policies is presented in note 3.9 which shows the
value of policies sold during the year and the income recognised during the year.
2.2 Net operating expenses
Net operating expenses:
Distribution costs
Administrative expenses
Impairment loss on trade receivables
Rents received
2019
IFRS 16
£m
(256.2)
(322.2)
(0.6)
1.9
(577.1)
2018
IAS 17
£m
(252.7)
(332.1)
(0.5)
4.7
(580.6)
117
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.3 Operating segments
The Group has five 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 following
summary describes the operations in each of the Group’s reportable segments:
Franchised UK Motor This segment comprises the Group’s motor vehicle retail, parts wholesale and fleet operations from
it’s franchised dealer network, 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.
Car Store This segment comprises the Group’s used vehicle retail operation branded Car Store, encompassing the sale of
used motor cars, together with associated aftersales service activities.
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 Group has revised its reporting segments. In January 2019 the Group re-organised its management and reporting
structure. The significant change was that the Car Store operation was segregated from the management of the Franchised
UK Motor operation (previously known as UK Motor) and this is reflected in the internal reporting structure as presented
to the Chief Operating Decision Maker. In these financial statements therefore the Car Store segment is now reported
separately. The results of the Franchised UK Motor segment and Car Store segment for the comparative period have been
dis-aggregated and is restated as follows for the period ended 31 December 2019.
118
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.3 Operating segments continued
Year ended 31 December 2018
Total gross segment turnover
Inter-segment turnover
Revenue from external customers
Operating profit before non-underlying items
Other income and non-underlying items
Operating profit/(loss)
Finance expense
Segmental (loss)/profit before tax
Other items included in the income statement are as follows:
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
UK Motor
£m
4,074.4
-
4,074.4
41.1
(93.3)
(52.2)
-
(52.2)
(22.3)
(88.8)
(5.8)
(0.5)
(0.7)
(1.2)
(10.5)
13.0
_segments as restated_
Franchised
UK Motor
£m
Car Store
£m
3,773.9
300.5
-
-
3,773.9
300.5
53.0
(77.5)
(11.9)
(15.8)
(24.5)
(27.7)
-
-
(24.5)
(27.7)
(16.9)
(5.4)
(78.8)
(10.0)
-
(5.8)
(0.5)
(0.7)
(1.2)
(10.5)
13.0
-
-
-
-
-
The tables of financial performance presented in the Operational and Financial Review on pages 20 to 41 are based upon
these segmental reports.
Inter-segment transfers and transactions are entered into under normal commercial terms and conditions that would also
be available to unrelated third parties.
119
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.3 Operating segments continued
Year ended 31 December 2019 - IFRS 16
Franchised
UK Motor
£m
Car Store
£m
Software
£m
Leasing
£m
Group
interest
£m
Continuing
operations
Sub total
£m
Discontinued
operations
US Motor
£m
Total
£m
Total gross segment revenue
3,730.8
270.3
30.9
87.7
Inter-segment revenue
-
-
(12.6)
(23.3)
Revenue from external customers
3,730.8
270.3
18.3
64.4
Operating profit before non-
underlying items
Non-underlying items
13.0
(25.2)
(109.4)
(21.4)
Operating profit/(loss)
(96.4)
(46.6)
Finance expense
Finance income
-
-
-
-
13.4
-
13.4
-
-
Segmental (loss)/profit before tax
(96.4)
(46.6)
13.4
12.8
-
12.8
-
9.7
4,119.7
422.3
4,542.0
(35.9)
-
(35.9)
4,083.8
422.3
4,506.1
14.0
12.7
26.7
(130.8)
33.0
(97.8)
-
-
-
-
-
-
(116.8)
(3.1)
(39.8)
(42.9)
3.0
3.0
45.7
(3.1)
-
(71.1)
(46.0)
3.0
(36.8)
(156.7)
42.6
(114.1)
-
-
-
-
-
-
-
-
-
-
-
(83.3)
(102.4)
(25.9)
(3.5)
(0.6)
(1.9)
1.6
(5.5)
(1.8)
4.8
-
-
-
-
-
-
1.0
-
-
-
(83.3)
(102.4)
(25.9)
(3.5)
(0.6)
(1.9)
2.6
(5.5)
(1.8)
4.8
0.3
33.0
33.3
Other items included in the income statement are as follows:
Depreciation and impairment
(40.0)
(0.5)
(0.6)
(42.2)
Impairment of goodwill
(102.4)
-
Impairment of property, plant
and equipment
(6.3)
(19.6)
Amortisation
Share based payments
Impairment of assets held for sale
Settlement of historic VAT issues
(0.7)
(0.6)
(1.9)
1.6
Termination and severance costs
(5.5)
Car Store closure costs
Share based payments
Other income - losses on the sale
of businesses and property
-
4.8
0.3
-
-
-
-
-
(1.8)
-
-
-
-
(2.8)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
120
Pendragon PLC Annual Report 2019 NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.3 Operating segments continued
Year ended 31 December 2018 - IAS 17
Franchised
UK Motor
£m
Car Store
£m
Software
£m
Leasing
£m
Group
interest
£m
Continuing
operations
Sub total
£m
Discontinued
operations
US Motor
£m
Total
£m
Total gross segment revenue
3,773.9
300.5
28.3
81.2
Inter-segment revenue
-
-
(11.4)
(23.9)
Revenue from external customers
3,773.9
300.5
16.9
57.3
Operating profit before non-
underlying items
Non-underlying items
53.0
(11.9)
(77.5)
(15.8)
Operating profit/(loss)
(24.5)
(27.7)
Finance expense
Finance income
-
-
-
-
Segmental (loss)/profit before tax
(24.5)
(27.7)
11.7
-
11.7
-
0.8
12.5
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)
(2.8)
(24.7)
(27.5)
(2.5)
(30.0)
-
(0.8)
-
12.0
(25.5)
(53.2)
-
8.8
-
(44.4)
Other items included in the income statement are as follows:
Depreciation and impairment
(16.9)
(5.4)
(0.3)
(39.3)
Impairment of goodwill
(78.8)
(10.0)
Impairment of property, plant
and equipment
-
(5.8)
Amortisation
Share based payments
Impairment of assets held for sale
Pension past service costs
Other income - losses on the sale
of businesses and property
(0.5)
(0.7)
(1.2)
(10.5)
13.0
-
-
-
-
-
-
-
-
-
(2.5)
(0.1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(61.9)
(0.3)
(62.2)
(88.8)
(5.8)
(3.1)
(0.7)
(1.2)
(10.5)
-
-
-
-
-
-
(88.8)
(5.8)
(3.1)
(0.7)
(1.2)
(10.5)
13.0
2.7
15.7
Geographical information.
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.
121
Pendragon PLC Annual Report 2019
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)
2019
Number
3,156
4,304
2,104
9,564
2019
£m
271.6
25.4
11.6
(3.0)
0.6
306.2
2018
Number
3,260
4,446
2,174
9,880
2018
£m
272.4
24.1
7.9
12.1
0.7
317.2
Information relating to directors’ emoluments, share options and pension entitlements is set out in the Directors’
Remuneration Report on pages 60 to 78.
2.5 Audit fees
Auditor’s remuneration:
Fees payable to the company's Auditor for the audit of the company's annual accounts:
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
2019
£000
350.0
210.0
80.0
71.0
10.0
721.0
2018
£000
267.0
174.8
45.0
95.0
10.0
591.8
122
Pendragon PLC Annual Report 2019
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
Impairment of right of use assets
Termination and severance costs
Car Store closure costs
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:
Interest on settlement of historic VAT issues
Net interest on pension scheme obligations
Total non-underlying items before tax
Non-underlying items in tax
Total non-underlying items after tax
2019
IFRS 16
£m
1.6
(102.4)
(1.9)
(2.6)
(23.3)
(5.5)
(1.8)
4.8
(131.1)
32.1
1.2
33.3
1.9
(1.8)
0.1
(97.7)
(3.3)
(101.0)
2018
IAS 17
£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)
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
£102.4m made during the year (2018: £88.8m) (see note 3.1).
123
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.6 Non-underlying items continued
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 £1.9m during the year (2018: £1.2m) and
property, plant and equipment of £25.9m (2018: £5.8m) which comprised impairment of owned assets of £2.6m and right
of use assets of £23.3m. There were no reversals of previous impairment charges in respect of assets held for sale where
anticipated proceeds less costs to sell have increased over their impaired carrying values (2018: £nil).
A Pension Increase Exchange exercise was carried out during the year and the impact of this has been to recognise a credit
of £4.8m in the past service cost line. The past service costs for the previous year in respect of pension obligations is an
estimate of the cost of GMP equalisation exercise undertaken in 2018.
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 £1.8m has been recognised during the year (2018: £1.6m).
Other income consists of the profit or loss on disposal of businesses and property. This comprises a £32.1m (2018: £3.3m)
profit on disposals of motor vehicle dealerships during the year (of which £33.0m was in respect of discontinued operations
(2018: £2.7m)) and a £1.2m profit on sale of properties (2018: 12.4m). 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.
The Group announced during the year the closure of 22 Car Stores and one preparation centre following a full market and
operating model assessment of the Car Store business. The resultant costs of closure of these sites of £1.8m have been
recognised as a non-underlying item.
During the year some of the Group’s senior executive team were offered compensation on terminating their employment
contracts which amounted to £5.5m (2018: £nil).
We acquired CD Bramall PLC in 2004, with the Group having made a claim in 2003 for VAT overpaid in respect of bonuses
received by the Group’s leasing companies from OEMs during the period 1988-1995 (Fleming claims). These claims were
refused by HMRC over the years for a number of reasons which gradually fell away through litigation with other parties. We
were then left with a fundamental objection of principle by HMRC and so we litigated in 2017 and were successful (decision
released August 2018). As the legal decision was one of principle only, we were then left to agree quantum with HMRC. This
was concluded during the first half of 2019, resulting in a VAT repayment of just over £1.9m (cash received in June 2019)
with interest to follow shortly of another £1.9m. Associated costs are expected to be £0.3m which will result in a net gain of
£3.5m.
124
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
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.
125
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.7 Taxation continued
Taxation - Income statement continued
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% (2018: 19.00%)
The differences are explained below:
Loss before taxation
2019
IFRS 16
£m
(3.6)
-
(3.6)
13.4
0.2
13.6
10.0
(6.7)
(6.7)
3.3
2019
IFRS 16
£m
(114.1)
2018
IAS 17
£m
5.9
(2.5)
3.4
1.1
0.1
1.2
4.6
1.5
1.5
6.1
2018
IAS 17
£m
(44.4)
Tax on loss at UK rate of 19.00% (2018: 19.00%)
(21.7)
(8.4)
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
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
0.3
1.6
1.1
22.0
0.6
(0.6)
3.3
2019
£m
0.2
0.2
0.1
0.9
0.7
14.0
(0.1)
(1.1)
6.1
2018
£m
-
-
126
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 2 - RESULTS AND TRADING
2.7 Taxation continued
Tax rate
A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on 6
September 2016, and the UK deferred tax asset as at 31 December 2019 has been calculated based on this rate. In the 11
March 2020 Budget it was announced that the UK tax rate will remain at the current 19% and not reduce to 17% from 1 April
2020. This will have a consequential effect on the group’s future tax charge. If this rate change had been substantively
enacted at the current balance sheet date the deferred tax asset would have increased by £3.0m.
The USA deferred tax liability as at 31 December 2019 has been calculated based on the expected long term federal 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 charge in relation to non-underlying items referred to in note 2.6 is £3.3m (2018: credit of £3.0m). Despite the non-
underlying items constituting an overall loss, a tax charge arises due to majority of the loss not being eligible for tax relief
(goodwill impairment) and the gains arising on disposal of businesses arises in the US, which is taxed at higher rates.
Unrecognised deferred tax assets
There are unutilised tax losses within the Group of £13.8m (2018: £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 £35.2m (2018: £38.0m).
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
2019
IFRS 16
£m
25.9
(0.4)
25.5
2018
IAS 17
£m
12.6
(2.8)
9.8
127
Pendragon PLC Annual Report 2019
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
2018
£m
(Charged) to
consolidated
income
statement
£m
(Charged)
to other
comprehensive
income
£m
(3.1)
10.7
2.5
1.3
11.4
(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
Recognised
on initial
application
of IFRS 16
£m
(Charged)
/credited to
consolidated
income
statement
£m
(Charged)
to other
comprehensive
income
£m
8.7
-
-
-
8.7
1.7
(1.8)
-
6.8
6.7
-
0.2
-
-
0.2
At 1
January
2019
£m
(5.0)
11.7
1.8
1.3
9.8
Exchange
differences
£m
At 31
December
2019
£m
0.1
-
-
-
0.1
5.5
10.1
1.8
8.1
25.5
A deferred tax asset of £8.1m is recognised in the financial statements in respect of losses arising in the UK. £6.8m of this
deferred tax asset was generated during 2019 due to the exceptional nature of activity that occured during 2019. The losses
have been recognised as the Group made taxable profits in the UK in 2018 and immediately preceding periods, the Group
returned to profit in the second half of 2019 and is forecasting profits to continue in the UK in 2020 and beyond.
Losses carry forward indefinitely though are restricted in their use to 50% of taxable profits above £5m. A sensitivity
analysis was conducted to determine the forecast recovery of the whole deferred tax assets of £25.4m. Under this analysis
the deferred tax assets are expected to be recovered by the end of 2026. If taxable profit increased by 25% the period
of recovery would shorten to the end of 2025. If taxable profits decrease by 25% compared to the forecast the period of
recovery would extend to 2028. If taxable profit decreased by 50% the period of recovery would extend to 2031.
128
Pendragon PLC Annual Report 2019
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 Group 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
2019
IFRS 16
Earnings
per share
pence
2019
IFRS 16
Earnings
Total
£m
2018
IAS 17
Earnings
per share
pence
2018
IAS 17
Earnings
Total
£m
Basic earnings per share from continuing operations
Basic earnings per share from discontinued operations
Basic earnings per share
Adjusting items:
(10.7)
(148.9)
2.3
31.5
(8.4)
(117.4)
Non-underlying items attributable to the parent from continuing operations
9.4
130.7
Non-underlying items attributable to the parent from discontinued operations
(2.4)
(33.0)
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)
7.0
(0.4)
0.6
0.2
(1.8)
0.6
(1.2)
97.7
(5.5)
9.3
3.3
(24.2)
7.8
(16.4)
Diluted earnings per share from continuing operations
(10.7)
(148.9)
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):
2.3
(8.4)
(1.8)
0.6
(1.2)
31.5
(117.4)
(24.2)
7.8
(16.4)
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
2019
Number
1,390.6
2.6
1,393.2
8.7
(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
(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
The Directors consider that the underlying earnings per share figure provides a better measure of comparative performance.
129
Pendragon PLC Annual Report 2019
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.
130
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.1 Intangible assets and goodwill continued
Cost
At 1 January 2018
Additions
Disposals
Exchange adjustments
Classified as non-current assets held for sale (note 3.3)
At 31 December 2018
At 1 January 2019
Additions
Disposals
Exchange adjustments
Classified as non-current assets held for sale (note 3.3)
At 31 December 2019
Amortisation
At 1 January 2018
Amortised during the year
Impairment
Disposals
Classified as non-current assets held for sale (note 3.3)
At 31 December 2018
At 1 January 2019
Amortised during the year
Impairment
Disposals
Classified as non-current assets held for sale (note 3.3)
At 31 December 2019
Carrying amounts
At 1 January 2018
At 31 December 2018
At 31 December 2019
Goodwill
£m
Development
costs
£m
Other
intangibles
£m
431.5
-
(0.4)
0.3
(23.9)
407.5
407.5
-
(0.7)
-
-
406.8
70.3
-
88.8
-
(17.5)
141.6
141.6
-
102.4
-
-
244.0
361.2
265.9
162.8
18.4
3.5
-
-
-
21.9
21.9
4.1
(9.9)
-
-
16.1
12.3
2.5
-
-
-
14.8
14.8
2.8
-
(9.9)
-
7.7
6.1
7.1
8.4
12.9
0.5
(0.4)
-
(0.3)
12.7
12.7
0.7
(9.0)
-
-
4.4
11.5
0.6
-
(0.2)
(0.3)
11.6
11.6
0.7
-
(9.0)
-
3.3
1.4
1.1
1.1
Total
£m
462.8
4.0
(0.8)
0.3
(24.2)
442.1
442.1
4.8
(19.6)
-
-
427.3
94.1
3.1
88.8
(0.2)
(17.8)
168.0
168.0
3.5
102.4
(18.9)
-
255.0
368.7
274.1
172.3
131
Pendragon PLC Annual Report 2019
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
2019
£m
2.8
0.7
102.4
0.6
2018
£m
2.5
0.6
88.8
0.5
Goodwill is allocated across multiple cash-generating units which are motor 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 less costs to sell
(where value is determined by applying a trading multiple to the estimated future cash flow or by assessing the depreciated
replacement cost of the individual assets) (this is the cost to replace or construct a substitute asset) and value in use (where
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 for 2020. The 2020 forecast was
derived from the corporate plan, approved by the Board and compiled on a bottom up basis. New car volume growth was
based on the latest SMMT forecasts. Used car and aftersales revenue and gross profit growth has been based on latest run-
rates for the CGUs. The 2021 to 2024 forecast represents a projection from the 2020 bottom up forecast.
Fair value less costs of disposal has been calculated using transaction and trading multiples. The multiples are based on
median EV / LTM EBITDA for relevant transactions post 2010 across the 3 main sectors of Pendragon: retail, leasing and
software.
It is anticipated that the units will grow revenues in the future. For the purpose of the impairment testing, a long-term growth
rate of 1.6% (2018: 2.0%) has been assumed beyond 2024. The growth rate of 1.6% that has been used in the impairment
calculations is based on long-term inflation.
The pre-tax 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 discount rates used are specific to
each CGU and vary between 8.0% and 12.0% (2018: discount rates varied between 9.7% and 21.1%). The reduction in discount
rates reflect the cash flow forecasts being risk adjusted to a greater degree this year.
It is recognised that the net asset value of the Group 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.
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 £102.4m arises on certain CGUs, as described below.
132
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
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S
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.1 Intangible assets and goodwill continued
Goodwill by segment
UK Motor
Pinewood
Leasing
Sensitivity of assumptions
2019
£m
140.5
0.3
22.0
162.8
2018
£m
243.6
0.3
22.0
265.9
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 long-term 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.
Sensitivities have not been provided for FVLCTS and DRC as reasonably possible changes in assumptions would not lead to
a significant change in any impairment required.
134
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.1 Intangible assets and goodwill continued
Sensitivity by CGU
_______Headroom Increase_______
____Further Impairment___
Carrying
Value
£m
Current
Headroom
£m
Long-Term
Growth Rate
1.0%
Increase
Discount
Rate 1.0%
Decrease
69.7
35.2
-
9.6
-
11.9
36.4
162.8
30.8
24.7
9.7
7.0
2.6
0.6
3.0
-
-
-
-
-
382.8
413.6
31.8
13.3
9.5
3.5
0.7
3.8
Long-Term
Rate 1.0%
Decrease
Discount
Rate 1.0%
Increase
(18.2)
(7.0)
(5.2)
(1.9)
(0.4)
(2.2)
(23.5)
(9.8)
(6.9)
(2.6)
(0.6)
(2.8)
Ford
Vauxhall
Jaguar Land Rover
Citroen
Nissan
Renault
Others
Total
* Note that “Others” comprises individual CGUs amalgamated for the purposes of disclosure.
Ford is the CGU with the largest amount of headroom (£30.8m) noted above. For an impairment to occur in the Ford CGU,
there would have to be either: a reduction in the profit growth rate of 0.3%, or an increase in the discount rate to 9.4%.
135
Pendragon PLC Annual Report 2019
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 with 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 charge in respect of property, plant and equipment is recognised within administrative expenses within
the income statement.
Cost
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
(note 3.3)
Land &
buildings
£m
Plant &
equipment
£m
Motor
vehicles
£m
Contract hire
vehicles
£m
319.4
21.7
2.1
(4.3)
(1.6)
-
(43.0)
86.0
15.0
0.5
(0.8)
(4.7)
-
(8.8)
52.0
92.5
-
-
(96.0)
-
(1.8)
213.2
65.5
-
-
-
(48.6)
-
Total
£m
670.6
194.7
2.6
(5.1)
(102.3)
(48.6)
(53.6)
At 31 December 2018
294.3
87.2
46.7
230.1
658.3
136
Pendragon PLC Annual Report 2019
(10.7)
(72.4)
-
-
-
-
-
-
86.3
37.6
245.3
1,064.7
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
46.7
230.1
Cost
At 1 January 2019
Recognition of right-of-use asset on initial
application of IFRS 16
Adjusted balance at 1 January 2019
Additions
Exchange adjustments
Business disposals
Other disposals
Contract hire vehicles transferred to inventory
Classified as non-current assets held for sale
(note 3.3)
Reinstated from non-current assets held for sale
At 31 December 2019
Depreciation
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
(note 3.3)
294.3
394.1
688.4
37.8
-
(6.1)
(12.8)
-
(22.7)
10.9
695.5
58.2
0.6
6.5
1.8
(0.2)
(1.3)
-
(11.8)
At 1 January 2019
Recognition of right-of-use asset on initial
application of IFRS 16
Adjusted balance at 1 January 2019
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
(note 3.3)
Reinstated from non-current assets held for sale
At 31 December 2019
53.8
201.5
255.3
-
25.6
25.5
(1.1)
(8.0)
-
(4.3)
6.0
299.0
87.2
-
87.2
10.9
-
(1.1)
55.9
0.4
8.9
4.0
(0.6)
(4.3)
-
(6.3)
58.0
-
58.0
-
8.5
0.4
(0.5)
(9.7)
-
-
-
0.5
47.2
62.8
-
-
17.1
-
8.9
-
-
(19.8)
-
(0.2)
6.0
6.0
-
6.0
-
7.1
-
-
(7.7)
-
-
-
At 31 December 2018
53.8
58.0
56.7
5.4
75.3
Total
£m
658.3
394.6
1,052.9
219.4
-
(7.2)
(95.9)
(92.7)
(22.7)
10.9
59.5
-
37.9
-
-
-
(20.8)
-
190.7
1.0
62.2
5.8
(0.8)
(25.4)
(20.8)
(18.3)
76.6
194.4
230.1
107.9
-
-
-
(92.7)
-
-
76.6
-
76.6
-
42.1
-
-
-
(43.4)
-
-
194.4
201.5
395.9
-
83.3
25.9
(1.6)
(25.4)
(43.4)
(4.3)
6.0
436.4
137
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.2 Property, plant and equipment continued
Carrying amounts
At 1 January 2018
At 31 December 2018
At 31 December 2019
Land &
buildings
£m
Plant &
equipment
£m
Motor
vehicles
£m
Contract hire
vehicles
£m
261.2
240.5
396.5
30.1
29.2
29.6
34.9
40.7
32.2
153.7
153.5
170.0
Total
£m
479.9
463.9
628.3
Property, plant and equipment includes right-of-use assets of £158.7m (see Note 4.7).
During the year three properties were re-classified as property, plant and equipment following decisions to withdraw them
from sale. All three properties have been re-instated at the lower of their recoverable amount, or the carrying amount had
the asset never been moved to assets held for sale. In all three instances the properties were re-instated at their recoverable
value having been previously impaired down to those values.
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 - leased
Depreciation of contract hire vehicles - leased
Depreciation of property, plant and equipment - owned
2019
£m
19.6
8.4
4.4
19.2
42.1
22.0
2018
£m
11.7
5.7
3.6
-
37.9
24.3
138
Pendragon PLC Annual Report 2019
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 intended to dispose of the US motor business and had 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 and the sale of Jaguar Land Rover Mission Viejo and Newport Beach completed in
the second half of 2019 for proceeds of £59.3m. The Group expects that a buyer can be found to conclude a sale of the
remainder of the business during the first half of 2020. As such the results of the US Business are shown as a discontinued
operation within these consolidated financial statements and its assets and liabilities reclassified as held for sale as a
disposal group. No impairment loss has been recognised in the income statement for the year ended 31 December 2019 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
From 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
2019
£m
6.2
0.1
61.7
50.2
19.2
137.3
(90.5)
(90.5)
2018
£m
6.5
0.1
32.0
68.9
25.1
132.6
(88.6)
(88.6)
139
Pendragon PLC Annual Report 2019
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 (used in)/from operating activities
Net cash from investing activities
Net cash used in financing activities
Net cash increase generated by discontinued operation
Basic earnings per share from discontinued operation
Underlying basic earnings per share from discontinued operation
Diluted earnings per share from discontinued operation
Balance sheet
2019
£m
(0.2)
(0.2)
2019
£m
(41.1)
79.2
(24.4)
13.7
2019
pence
2.3
0.6
2.3
2018
£m
-
-
2018
£m
7.9
1.1
-
9.0
2018
pence
0.5
0.3
0.5
The Group has classified the non current assets of the US motor business as held for sale as at 31 December 2019. 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
2019
IFRS 16
£m
6.2
0.1
74.5
50.2
19.2
150.1
2019
£m
32.9
(1.9)
2018
IAS 17
£m
6.5
0.1
37.0
68.9
25.1
137.6
2018
£m
0.3
(1.2)
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 (2018: £0.5m).
140
Pendragon PLC Annual Report 2019
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
Inventories recognised as an expense during the year
Carrying value of inventories subject to retention of title clauses
Write-down of inventories to net realisable value
2019
£m
730.5
79.5
29.0
839.0
2019
£m
3,977.8
726.4
7.2
2018
£m
858.1
71.8
29.7
959.6
2018
£m
4,021.2
931.8
7.6
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 £500 per unit worse for used vehicles that are expected to make a loss per unit, the net
realisable value of inventory would reduce by £2.4m 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
2019
£m
120.6
(2.9)
0.5
7.7
(50.2)
49.3
186.7
2018
£m
43.9
(2.0)
(0.7)
(23.7)
(68.9)
27.8
(23.6)
141
Pendragon PLC Annual Report 2019
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
2019
£m
42.1
13.3
(107.9)
(3.1)
(55.6)
2018
£m
37.9
(1.5)
(65.5)
(2.8)
(31.9)
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 is based on an ‘expected credit loss’ (ECL) model. The
impairment model applies to financial assets measured at amortised cost.
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.
142
Pendragon PLC Annual Report 2019
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
2019
IFRS 16
£m
42.4
(0.4)
42.0
60.0
4.9
106.9
2018
IAS 17
£m
46.3
(0.4)
45.9
52.5
16.4
114.8
All amounts are due within one year with the exception of finance lease receivables.
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 2019 was £50.9m (2018: £60.1m). This includes trade receivables
that have been classified as held for sale of £8.9m (2018: £14.2m).
The average credit period taken on sales of goods is 29 days (2018: 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. The calculation is
based on an average of previous default experiences which is assessed against the risk of the current total in light of current
economic expectations. An expense has been recognised in respect of impairment losses during the year of £0.6m (2018:
Trade
receivables
2019
£m
Other
receivables
2019
£m
Trade
receivables
2018
£m
Other
receivables
2018
£m
£0.6m).
The ageing of trade and other receivables
at the reporting date was:
Not past due
Past due 0-30 days
Past due 31-120 days
Past due 120+ days
Provision for impairment
28.6
9.7
3.4
0.7
42.4
(0.4)
42.0
51.3
4.9
3.8
-
60.0
-
60.0
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
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
31.9
10.3
3.3
0.8
46.3
(0.4)
45.9
2019
£m
0.4
(0.6)
0.6
0.4
41.7
4.6
6.2
-
52.5
-
52.5
2018
£m
0.4
(0.5)
0.5
0.4
143
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.6 Trade and other receivables continued
Finance lease receivables
Where the group acts as a lessor of properties of which it is a lessee and the term of the head lease and sub lease are
coterminous, rather than recognise a right of use asset the Group recognises a finance lease receivable which Is measured
at the net present value of future cash receipts discounted at the Groups incremental borrowing rate. The finance income
element of rentals received under these leases is credited so as to give a constant rate of finance income on the remainder
of the obligation. Finance income is credited in the income statement. The finance lease receivable is reduced by rentals
received and increased by the interest income recognised.
Non-current
Current
2019
IFRS 16
£m
20.6
2.4
23.0
2018
IAS 17
£m
-
-
-
Finance lease rentals are invoiced quarterly on standard rent quarter days, no credit terms are extended beyond these
dates. Expected credit losses in respect of finance lease receivables are deemed immaterial.
144
Pendragon PLC Annual Report 2019
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
2019
£m
843.1
88.1
79.5
18.7
25.8
89.8
1,145.0
60.4
1,084.6
1,145.0
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
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.
145
Pendragon PLC Annual Report 2019
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
Prior to the adoption of IFRS 16 on 1 January 2019 a provision for vacant properties was recognised when the expected
benefits to be derived by the Group from a lease contract were lower than the unavoidable cost of meeting its obligation
under the contract. The provision was 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.
On adoption of IFRS 16 the Group has, as an alternative to performing an impairment review, applied the practical expedient
to determine if a lease is onerous by applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets immediately
before the date of initial application. On the date of initial application the value of right of use assets has been reduced by
£0.7m in respect of leases previously classified as operating leases by applying the value of the vacant property provision
held against them.
At 31 December 2018 the Group had a vacant property provision of £2.3m. £0.7m related to leases now clasified as right
of use assets and on transition to IFRS 16 this has been allocated against the carrying value of those assets. The remaining
£1.6m of the vacant property provision related to properties that were fully sub-let to term. As such, the Group will not
share the risks and rewards of ownership in these leases over the lease term and therefore no right of use asset has been
recognised so the £1.6m has been credited to reserves on transition.
The movements in provisions for the year are as follows:
At 31 December 2018
Provisions allocated to right of use assets on adoption of IFRS 16
Provisions derecognised on adoption of IFRS 16
At 31 December 2019
Vacant
property
provision
£m
2.3
(0.7)
(1.6)
-
146
Pendragon PLC Annual Report 2019
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. This comprised of a credit recognised in respect of the contractual rentals being higher
than the fair values of such rentals at the time of the sale and leaseback, and of the resultant credit form recognising rentals
with fixed annual increases on a straight line basis. On transition to IFRS 16 on 1 January 2019, the fair value component of
the deferred income of £11.4m has been credited against the carrying value of right of use assets.
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 Group for contract hire purposes where the Group undertakes to repurchase the vehicle at a
predetermined date are accounted for in accordance with IFRS 16 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 Group 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 2018
Allocated to right of use assets on adoption of IFRS 16
Created in the year
Recognised as income during the year
At 31 December 2019
Non-current
Current
Recognition of opening balance as at 31 December 2018
Reclassified on adoption of IFRS 16
Recognised during the year
Carried forward at 31 December 2019
Property
leases
£m
Warranty
policies
£m
Contract
hire
£m
11.4
(11.4)
-
-
-
-
-
-
11.4
-
-
11.4
18.8
-
11.0
(10.4)
19.4
5.4
14.0
19.4
-
13.9
4.9
18.8
71.7
-
49.0
(42.6)
78.1
41.2
36.9
78.1
-
36.3
35.4
71.7
Total
£m
101.9
(11.4)
60.0
(53.0)
97.5
46.6
50.9
97.5
11.4
50.2
40.3
101.9
The deferred income balance at 31 December for warranty policies and contract hire is the aggregate transaction price
allocated to performance obligations that are unsatisfied or partly satisfied at the reporting date. No information is provided
about remaining performance obligations at 31 December 2019 or 31 December 2018 that have an original expected duration
of one year or less as allowed by IFRS 15.
147
Pendragon PLC Annual Report 2019
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
Dividends
Share based compensation
Obligations under finance leases
IFRS 9 requires an entity to recognise a financial asset or a financial liability in its statement of financial position when it
becomes party to the contractual provisions of the instrument. At initial recognition, an entity measures a financial asset or
a financial liability at its fair value plus or minus, in the case of a financial asset or a financial liability not at fair value through
profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or the financial
liability. Subsequent to intial recognition financial assets and financial liabilities are classified and measured as described
below.
Financial assets
IFRS 9 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 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.
A financial asset is measured at amortised cost if both of the following conditions are met:
the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and the
contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
Financial assets are therefore classified and measured in these financial statements at amortised cost.
The Group recognises loss allowances for expected credit losses (ECLs) on financial assets measured at amortised cost,
debt investments measured at FVOCI and contract assets (as defined in IFRS 15).
The Group measures loss allowances at an amount equal to lifetime ECL, except for other debt securities and bank balances
for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased
significantly since initial recognition which are measured as 12-month ECL.
Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECL.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when
estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue
cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical
experience and informed credit assessment and including forward-looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.
The Group considers a financial asset to be in default when:
• the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such
as realising security (if any is held); or
• the financial asset is more than 90 days past due.
148
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.1 Accounting policies continued
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the
reporting date (or a shorter period if the expected life of the instrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed
to credit risk.
Measurement of ECLs
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). ECLs are discounted at the effective interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt securities at FVOCI
are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the
estimated future cash flows of the financial asset have occurred.
Write-offs
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic
prospect of recovery.
Impairment of financial assets
IFRS 9 adopts an expected credit loss approach (ECL). The IFRS 9 approach does not require a credit event (an actual loss
or a debt past a number of days due) 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.
Financial assets
Trade and other receivables
Finance lease receivables
Cash and cash equivalents
Trade and other receivables - see note 3.6
Cash and cash equivalents
IFRS 9
classification
Amortised cost
Amortised cost
Amortised cost
£m
102.0
23.0
55.7
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.
149
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.1 Accounting policies continued
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
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
2019
£m
55.7
(175.4)
(119.7)
2018
£m
51.4
(177.5)
(126.1)
The Group has on adoption of IFRS 16 Leases excluded Finance Lease liabilities from its measure of Net Debt. Full details
of lease liabilities are presented in note 4.7.
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.
Carrying value
and fair value
2019
£m
Carrying value
and fair value
2018
£m
Bank balances and cash equivalents
55.7
51.4
Borrowings
As at 31 December 2019, the Group had a £240m credit facility and a £60m senior note, expiring as set out below:
Revolving credit facility
Senior note
150
Expiry Date
March 2021
March 2023
£m
240.0
60.0
300.0
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
During 2016 the Group 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 2019, £2.0m had been amortised and £0.1m remains to be amortised in future periods.
Revolving credit facility
Senior note
Current margin
1.85%
5.75%
Commitment
(non-utilisation)
fee
0.65%
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 2019, the margin was 1.85%, consequent on the Group having
achieved a ratio of between 1.5 and 2.0 for the twelve month period ended 30 June 2019. 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.
Amendment and extension of the revolving credit facility
With effect from 11 March 2020 the maturity of the revolving credit facility has been extended to 31 March 2022 and the
facility has been reduced to £175m. The margin has been increased by 0.50% for each level of the net debt to underlying
EBITDA ratchet.
Summary of borrowings
Non-current:
Bank borrowings
5.75% Senior note 2023
Other loan notes
Finance leases
Total non-current
Finance leases
Total current
Total borrowings
Carrying
value
IFRS 16
2019
£m
Fair value
IFRS 16
2019
£m
Carrying
value
IAS 17
2018
£m
Fair value
IAS 17
2018
£m
115.2
60.0
0.2
237.8
413.2
23.9
23.9
115.2
60.0
0.2
237.8
413.2
23.9
23.9
117.3
60.0
0.2
1.5
117.3
60.0
0.2
1.5
179.0
179.0
-
-
437.1
437.1
179.0
179.0
151
Pendragon PLC Annual Report 2019
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
At 1 January 2019
Adjustment on initial application of IFRS 16
(net of tax) (see note 1)
____Borrowings____
__________Equity_________
Long term
borrowings
£m
Finance
Lease
£m
177.5
1.5
-
279.7
Share
capital
£m
70.0
-
Other
reserves
£m
Retained
earnings
£m
74.1
-
201.5
(48.4)
Total
£m
524.6
231.3
Adjusted balance at 1 January 2019
177.5
281.2
70.0
74.1
153.1
755.9
Cash flows from financing activities
Dividends paid to shareholders
Repurchase of own shares
Payment of lease liabilities (excluding those classified
as held for sale)
Repayment of loans
Proceeds from issue of loans
Other changes
-
-
-
(5.0)
5.4
0.4
-
-
(38.2)
-
-
-
(0.1)
-
-
-
-
0.1
-
-
(9.7)
(0.5)
-
-
-
(9.7)
(0.5)
(38.2)
(5.0)
5.4
(38.2)
(0.1)
0.1
(10.2)
(48.0)
The effect of changes in foreign exchange rates
(3.0)
New finance leases undertaken
Disposal of finance leases
Liability-related : Lease expenses
Liability-related : Amortisation of fees and expenses
Equity-related ; Total other changes
-
-
-
0.5
-
-
8.4
(4.2)
14.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(3.0)
8.4
(4.2)
14.5
0.5
(0.2)
(120.2)
(120.4)
At 31 December 2019
175.4
261.7
69.9
74.0
22.7
372.4
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.
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
2019 and repricing periods, is set out in the table below.
152
Pendragon PLC Annual Report 2019
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
55.7
Amortised cost
Floating GBP
0.70% - 2.11%
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
39.8
Amortised cost
Floating GBP
1.88% - 2.12%
6 months or less
Other financial liabilities
75.4
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
Finance leases
Total current
Total borrowings
Other financial liabilities
0.2
Amortised cost
Fixed GBP
Other financial liabilities
237.8
Amortised cost
Fixed GBP
6.00% - 7.93%
Other financial liabilities
23.9
Amortised cost
Fixed GBP
1.91%
413.2
23.9
437.1
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:
2019
IFRS 16
£m
361.7
75.4
437.1
n/a
n/a
n/a
n/a
2018
IAS 17
£m
106.1
72.9
179.0
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 if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.
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.
153
Pendragon PLC Annual Report 2019
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, excluding finance lease liabilities:
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
2019
IFRS 16
£m
115.2
60.2
-
175.4
2018
IAS 17
£m
-
179.0
-
179.0
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
115.2
60.0
0.2
175.4
261.7
437.1
119.0
71.2
0.4
190.6
371.6
752.8
The Group has the following undrawn borrowing facilities:
Expiring in 1-2 years
Expiring in more than two years
Within 6
months
6 - 12
months
1-2 years
2-5 years
over 5
years
1.5
1.7
-
3.2
18.2
24.6
1.5
1.7
-
3.2
18.1
24.5
-
64.3
0.4
64.7
102.9
232.3
116.0
3.5
-
119.5
35.7
274.7
2019
£m
124.8
-
-
-
-
-
196.7
196.7
2018
£m
-
122.7
154
Pendragon PLC Annual Report 2019
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)
2019
£m
Profit/(loss)
2018
£m
(4.7)
0.9
(3.8)
4.7
(0.9)
3.8
(7.6)
1.4
(6.2)
7.6
(1.4)
6.2
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 100.0m (2018: USD 93.0m) against its net assets held in overseas subsidiaries.
155
Pendragon PLC Annual Report 2019
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 gains/(losses) on translation of borrowings to sterling at
balance sheet date
Foreign exchange (losses)/gains on translation of net investments to sterling
at balance sheet date
Net exchange gain/(loss) recognised within translation reserve in equity
Capital management
2019
$m
100.0
£m
3.0
(3.2)
(0.2)
2018
$m
93.0
£m
(4.0)
4.0
-
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
2019
£m
474.7
280.7
83.6
839.0
2018
£m
524.2
407.6
96.7
1,028.5
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 2019 amounted to £47m (2018: £22m).
156
Pendragon PLC Annual Report 2019
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 2019 comprises:
Net debt
Finance lease liabilities
Stock finance
Pension deficit
2019
IFRS 16
£m
119.7
237.8
726.4
59.0
1,142.9
2018
IAS 17
£m
126.1
1.5
931.8
68.3
1,127.7
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
2019 the net debt : underlying EBITDA ratio achieved was 1.1 : 1 on an IFRS 16 basis and 1.5 : 1 on an IAS 17 basis (see
alternative performance measures in section 1), calculated as follows:
Underlying operating profit
Depreciation
Amortisation
Underlying EBITDA
Net debt (being net debt as set out above)
Net debt : underlying EBITDA ratio
2019
IFRS 16
£m
26.7
83.3
3.5
113.5
119.7
1.1
2019
IAS 17
£m
11.3
64.1
3.5
78.9
119.7
1.5
2018
IAS 17
£m
76.2
62.2
3.1
141.5
126.1
0.9
The key measures which management uses to evaluate the Group’s use of its financial resources, and performance achieved
against these in 2019 and 2018 are set out below:
Underlying profit before tax (£m)
Underlying earnings per share (p)
Net debt : underlying EBITDA
2019
IFRS 16
(16.4)
(1.2)
1.1
2018
IAS 17
47.8
2.8
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 would be reduced over a three year period. To date this procees is now
complete with 6 Jaguar Land Rover franchise sites either disposed of or closed in FY19. US Motor Group - the business
would be sold to realise its value of approximately £100m before tax. In total to date, total disposal proceeds of £78.8m have
been received (includng £16.5m received in February 2020): two businesses remain to be sold. UK Used car business - this
would be the focus for growth and will remain a core part of the strategy to be developed by the Group’s new management.
157
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.2 Financial instruments and derivatives continued
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 within this level. The Group believes that it will continue to generate strong cash flows and shall be developing a
strategy during 2020 to assess the capital needs of the business and the leverage position.
The Group has previously engaged in share buyback programmes though none are currently operating. 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 Group’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.
158
Pendragon PLC Annual Report 2019
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 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
2019
IFRS 16
£m
8.2
19.3
14.4
1.8
(0.8)
42.9
3.1
46.0
Interest of £0.8m has been capitalised during the year on assets under construction at an average rate of 5.75%
Finance income
Recognised in profit and loss
Interest receivable on finance leases
Interest on settlement of historic VAT issues
Total finance income
2019
IFRS 16
£m
1.1
1.9
3.0
2018
IAS 17
£m
8.4
18.1
0.1
1.6
(1.0)
27.2
2.8
30.0
2018
IAS 17
£m
-
-
-
159
Pendragon PLC Annual Report 2019
Financial assets
Trade and other receivables
Cash and cash equivalents
Financial liabilities
Loans and borrowings
Trade and other payables
IFRS 9 classification
IAS 39 classification
IFRS 9
Carrying
value
£m
Remeas-
urement
£m
IAS 39
Carrying
value
£m
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)
-
-
-
-
-
139.8
51.4
(179.0)
(1,318.3)
(72.9)
Foreign currency loans used to hedge overseas investments
Fair value hedging instrument
Fair value hedging instrument
(72.9)
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 2018
Shares cancelled during the year
Allotted, called up and fully paid shares of 5p each at 31 December 2019
There were no issues of ordinary shares during the year.
Number
1,399,149,025
(2,204,621)
1,396,944,404
£m
70.0
(0.1)
69.9
2,204,621 ordinary shares having a nominal value of £0.1m were bought back and subsequently cancelled during the year
in accordance with the authority granted by shareholders in the Annual General Meeting on 25 April 2019. The aggregate
consideration paid, including directly attributable costs, was £0.5m. Since the commencement of the current share buyback
programme in 2016, as at 31 December 2019, 63,376,251 shares have been bought back and cancelled representing 4.3% of
the issued ordinary shares, at a total cost to date of £18.7m. The share buyback programme has been suspended and the
Group anticipate that no further transactions will be made during 2020.
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 Group. All shares rank equally with regard to the Group’s residual assets.
Capital redemption reserve
The capital redemption reserve has arisen following the purchase by the Group 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.
£0.1m (2018: £1.2m) was transferred into the capital redemption reserve during the year in respect of shares purchased by
the Group and subsequently cancelled.
Other reserves
Other reserves comprise the amount of demerger reserve arising on the demerger of the Group 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 Group, 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 Group’s own shares at 31 December 2019 was £0.8m (2018: £1.4m), being 6.4m
(2018: 6.4m) shares with a nominal value of 5p each, acquired at an average cost of £0.33 each (2018: £0.33). During the
year the trust acquired no shares (2018: nil) and disposed of no shares (2018: 1.3m, for a consideration of £0.1m ) shares in
respect of LTIP and executive share option awards. The amounts deducted from retained earnings for shares held by the
EBT at 31 December 2019 was £18.1m (2018: £18.1m). 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 60 to 78.
160
Pendragon PLC Annual Report 2019
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 2018 of 0.7p per share (2017: 0.8p per share)
Interim dividend in respect of 2019 of nil per share (2018: 0.8p per share)
2019
£m
9.7
-
9.7
2018
£m
11.3
11.2
22.5
The Board is not recommending the payment of a final dividend for 2019 (2018: 0.7p equating to £9.7m).
161
Pendragon PLC Annual Report 2019
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
2019
Number
of
options
millions
2019
Weighted
average
exercise
price
2018
Number
of
options
millions
2018
23.6p
-
5.5
-
31.8p
(0.3)
23.1 p
23.1 p
5.2
5.2
29.89p
11.17p
39.45p
23.63p
23.63p
12.9
(1.3)
(6.1)
5.5
5.5
The options outstanding at 31 December 2019 have an exercise price in the range of 8.82p to 31.82p and a weighted
contractual life of 3.4 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
2018
Number
Exercised
Number
Lapsed
Number
At 31
December
2019
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
758,318
31 March 2015 to 30 March 2022
30 March 2012
13.50p
1,100,000
19 September 2017 to 19 September 2024 18 September 2014
31.82p 3,229,500
5,523,795
-
-
-
-
-
-
-
-
435,977
758,318
1,100,000
(350,000)
2,879,500
(350,000)
5,173,795
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 Group’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.
There were no exercises of share options during the year. The weighted average share price at the date of exercise for share
options exercised in the previous year was 25.5p.
All options are settled by physical delivery of shares.
162
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.6 Share based compensation continued
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 2019 is 6.4p (2018: 6.4p).
The Group recognised a total net expense of £0.6m (2018: £0.7) as an employee benefit cost in respect of all equity-settled
share based payment transactions included within administration costs.
4.7 Leases
Accounting policies
The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has
not been restated and continues to be reported under IAS 17 and IFRIC 4. The details of accounting policies under IAS 17
and IFRIC 4 are disclosed separately.
Leases as a Lessee - Policy applicable from 1 January 2019
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease
if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a
lease in IFRS 16. This policy is applied to contracts entered into, on or after 1 January 2019.
The Group recognises a right of use asset and a lease liability at the lease commencement date. The right of use asset is
initially measured at cost, and subsequently at cost less accumulated depreciation and impairment losses, and adjusted for
certain remeasurements of the lease liability. Cost comprises the initial amount of the lease liability adjusted for any initial
direct costs incurred less any lease incentives received. Depreciation is recognised on a straight line basis over the period
of the lease the right of use asset is expected to be utilised.
The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date,
discounted by the interest rate implicit in the lease or when this is not readily attainable, the Group’s incremental borrowing
rate. Lease payments include fixed rental payments and amounts expected to be payable under a residual value guarantee.
Generally the Group uses it’s incremental borrowing rate as the discount rate. The Group determines its incremental
borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect
the terms of the lease and type of the asset leased.
The lease liability is subsequently increased by the interest cost on the lease liability and reduced by payments made. It is
remeasured when there is a change in future lease payments arising from a change of index or rate, a variation in amounts
payable following contractual rent reviews and changes in the assessment of whether an extension/termination option is
reasonably certain to be exercised. When the lease liability is remeasured in this way, a corresponding adjustment is made
to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use
asset has been reduced to zero.
The Group presents right-of-use assets that do not meet the definition of investment property in ‘property, plant and
equipment’ and lease liabilities in ‘loans and borrowings’ in the Balance Sheet.
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term
leases. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over
the lease term.
163
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.7 Obligations under finance leases
Leases as a Lessee - Policy applicable before 1 January 2019
In the comparative period, leases were 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.
Leases were 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 were 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 were recognised in the income statement as an
integral part of the total lease expense over the term of the lease.
Balance Sheet
The Group leases a large number of properties for use as motor vehicle dealerships, parts distribution warehouses, storage
compounds and offices. Lease terms vary and at 31 December 2019 property leases had an average of around 13 years
to expiry. These leases comprise those with provision for periodic rent reviews, fixed scheduled increases and those with
periodic increases based on the RPI. The Group does not have any property leases that contain extension clauses. A number
of property leases have break clauses allowing the Group to terminate the agreement earlier than the lease expiry date.
The Group has applied judgement in that unless it is reasonably certain that such a break option will be exercised, the
calculation of the lease liability and right of use asset is made up to the expiry date of the lease. Had the Group recognised a
shorter lease term then right of use assets and Lease liabilities would both be lower than currently reported and the interest
expense for the current year on lease liabilities would be reduced with the possibility depreciation charges could increase.
In addition to property leases the Group have leases for various items of plant and equipment and motor vehicles.
Right of use assets are presented as part of property, plant and equipment as presented in note 3.2.
Right of Use Assets
2019 - IFRS 16
Balance at 1 January 2019
Additions to right of use assets
Depreciation charge
Impairment
Other disposals of right of use assets
Balance at 31 December 2019
Land &
buildings
£m
Plant &
Equipment
£m
Motor
vehicles
£m
196.2
7.6
(18.8)
(23.3)
(3.0)
158.7
-
-
-
-
-
-
0.5
0.4
(0.4)
-
-
0.5
Total
£m
196.7
8.0
(19.2)
(23.3)
(3.0)
159.2
Disposals of right of use assets have occurred on assignment of leases, derecognition on entering into sub leases and early
terminations.
164
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.7 Obligations under finance leases continued
Assets acquired under Finance Leases
Included in the amounts for property, plant and equipment in note 3.2 are the following amounts relating to leased assets
and assets acquired under hire purchase contracts:
2018 - IAS 17
Balance at 31 December 2018
Lease liabilities
2019 - IFRS 16
Balance at 1 January 2019
Additions to right of use assets
Interest expense related to lease liabilities
Disposals of lease liabilities
Repayment of lease liabilities (including interest element)
Other movements
Balance at 31 December 2019
Non-current
Current
Land &
buildings
£m
Plant &
Equipment
£m
Motor
vehicles
£m
0.1
-
-
Land &
buildings
£m
Plant &
Equipment
£m
Motor
vehicles
£m
Total
£m
0.1
Total
£m
(280.7)
(8.0)
(14.4)
4.2
37.8
(0.1)
(261.2)
(237.8)
(23.4)
(261.2)
(0.5)
(281.2)
(0.4)
-
-
0.4
-
(8.4)
(14.4)
4.2
38.2
(0.1)
(0.5)
(261.7)
-
(237.8)
(0.5)
(0.5)
(23.9)
(261.7)
-
-
-
-
-
-
-
-
-
The calculation of the lease liability and the right of use asset relies upon the estimation of a suitable interest rate. The
Group has applied rates to represent the different types of leases it has by applying its incremental borrowing rate for
shorter term leases and a higher rates based upon market rates for borrowing against equivalent assets with similar risk
profiles in specific markets for medium to longer term leases.
Had the interest rate applied to the shorter term leases been 0.5% higher and that to the medium/longer term leases been
1.0% higher the lease liability at 31 December 2019 would have been £11.5m lower, the right of use asset would be £12.3m
lower, the interest charge would have been £1.4m higher and the depreciation charge on leased assets would have been
£0.9m lower.
165
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.7 Obligations under finance leases continued
Amounts recognised in profit or loss
2019 – Leases under IFRS 16
Impairment of right of use assets (non-underlying)
Impairment of right of use assets (non-underlying)
Interest on lease liabilities
Expenses relating to low value leases
Expenses relating to short term leases
2018 – Operating leases under IAS 17
Lease expenses - hire of plant and machinery
Lease expenses - property rentals
The Group as lessee - obligations under IAS 17
2019
£m
19.2
23.3
14.4
-
3.6
2.1
43.8
45.9
At 31 December 2018, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows: A reconciliation of these obligations to the Finance Lease liability on transition to
IFRS 16 is presented in note 1.
Within one year
In the second to fifth years inclusive
After five years
The Group as lessor
2018
£m
46.0
169.2
264.5
479.7
Leases as a Lessor - Accounting policy applicable from 1 January 2019
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and
rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is
an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the
major part of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It
assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with
reference to the underlying asset.
166
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.7 Obligations under finance leases continued
Leases as a Lessor - Accounting policy applicable before 1 January 2019
Where the Group acts as a Lessor, receipts of lease payments are recognised in the income statement on a straight line
basis over the period of the lease.
Balance Sheet
Lease receivables
2019 - IFRS 16
Balance at 1 January 2019
Additions to lease receivables
Interest income related to lease receivables
Disposals of lease liabilities
Payment of lease receivables (including interest element)
Balance at 31 December 2019
Non-current
Current
Land &
Buildings
£m
24.7
0.5
1.1
-
(3.3)
23.0
20.6
2.4
23.0
The following table sets out a maturity analysis of lease payments receivable, showing the undiscounted lease payments to
be received after the reporting date:
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
More than five years
Total undiscounted lease receivable
Unearned finance income
2019
IFRS 16
£m
3.6
3.7
3.6
3.6
3.4
15.0
32.9
(9.9)
23.0
167
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
4.7 Obligations under finance leases continued
At the 31 December 2019 balance sheet date, the Group had contracted with tenants for the following future minimum lease
payments on leases classified as operating leases.
Within one year
In the second to fifth years inclusive
After five years
The Group has no properties that are treated as investment properties.
2018 - IAS 17
2019
IFRS 16
£m
1.1
23.1
22.7
46.9
At the 31 December 2018 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
Amounts recognised in profit or loss
2019 – Leases under IFRS 16
Operating lease rentals received
Interest received on finance lease receivables
2018 – Leases under IAS 17
2018
IAS 17
£m
4.6
15.9
18.5
39.0
2019
IFRS 16
£m
1.9
1.1
3.0
Property rental income earned during the prior year was £4.7m. No contingent rents were recognised in income in the prior
year. These properties are not treated as investment properties.
In addition, the Group is a lessor in respect of vehicle sales with committed repurchase terms (see notes 3.7 and 3.9). There
are no future minimum lease payments outstanding.
168
Pendragon PLC Annual Report 2019
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 Group 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 (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 2019 to the Legal & General
arrangement were £2.8m (2018: £2.7m). 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 2019 were £8.7m (2018: £5.1m).
The combined contributions to the Group’s Personal Pension arrangement (including the US Motor business) and the
Peoples Pension scheme therefore totalled £11.6m in the period.
169
Pendragon PLC Annual Report 2019
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 2019 there was an outstanding balance
of £0.9m (2018: £0.8m) payable to the pension schemes.
Funding
The Pendragon Group Pension Scheme is fully funded by the Group’s subsidiaries. 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
170
2020
2030
2040
2050
2060
2070
2080
2090
2100
2110
Deferreds
Pensioners
Pendragon PLC Annual Report 2019
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 2019; ‘Pensioners’ are those in
receipt of pension at 31 December 2019.
The actual total cash liabilities shown above are estimated at £731m. The value of these liabilities discounted to present
value at 31 December 2019 are £531.2m.
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 Group, 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 prudent 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 2018 giving the following comparison:
As at 31 December 2018
Assets
Liabilities
Pension deficit
Discount rate used
Inflation
IAS 19
(Accounts)
£m
418.0
(486.3)
(68.3)
Actuarial
valuation
£m
418.1
(535.2)
(117.1)
3.90%
2.1%-3.9%
2.47%
2.65%-3.45%
The triennial valuation of the pension scheme reflecting the position as at 31 December 2018 was agreed by the Trustees on
17 March 2020. The Group has agreed with the trustees that it will aim to eliminate the deficit over a period of 7 years and 7
months from 31 March 2020 by the payment of deficit recovery contributions of £12.5m 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 2021.
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 properties with a book value of £345.5m (with a most
recent market valuation of £47m), 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 £3.0m to the Pendragon Group Pension Scheme through
the Partnership (2018: £2.9m) 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.
171
2020
2030
2040
2050
2060
2070
2080
2090
2100
2110
Pendragon PLC Annual Report 2019
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 include an element of
caution and are chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not
necessarily be borne out in practice. The IAS assumptions have been updated at 31 December 2019 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
2019
2.85%
2.05%
2.05%
2018
3.25%
2.25%
2.85%
2017
3.25%
2.25%
2.55%
Mortality table assumption *
VitaCurves CMI 2018 M (1.25%) /
S2PMA CMI 2017 M (1%) /
S2PMA CMI 2016 M (1%)/
VitaCurves CMI 2018 F (1.25%)
S2PFA CMI 2017 F (1%)
S2PFA CMI 2016 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
2019
Years
22.6
24.7
21.2
23.1
2018
Years
22.8
24.9
21.8
23.7
2017
Years
23.0
25.0
21.9
23.7
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.
The Group has updated its approach to setting RPI and CPI inflation assumptions in light of the RPI reform proposals
published on the 4th September 2019 by the UK Chancellor and UK Statistics Authority. The Group continued to set RPI
inflation in line with the market break-even expectations less an inflation risk premium. The inflation risk premium has been
increased from 0.2% at 31 December 2018 to 0.4% at 31 December 2019, reflecting an allowance for additional market
distortions caused by the RPI reform proposals. For CPI, the Group reduced the assumed difference between the RPI and
CPI by 1% to an average of 0.8% per annum. The estimated impact of the change in the methodology is approximately a
£5.0m decrease in the defined benefit obligation as at 31 December 2019.
In January 2019, the House of Lords Economic Affairs Committee published a report that strongly criticised the calculation
of the RPI index and called for the RPI calculation methodology to be improved. In response, correspondence between the
UK Statistics Authority and the UK Government, published on 4 September 2019, proposed changes to the calculation of
RPI to match CPI including Housing (CPIH) at some time between 2025 and 2030. Whilst there is still to be a consultation
on how this could be implemented, we believe the most likely outcome is that this will go ahead. We expect that there will
be varying views on how to allow for the proposed reforms and so a range of approaches may be considered reasonable.
The extent to which these reforms require an adjustment to the derivation of the RPI inflation rate depends upon the
extent to which market-implied RPI remains a good indicator of the expected future level of RPI. Our assumption is that the
market implied inflation curve (which is derived from market prices for nominal inflation linked gilts) does not fully reflect
172
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
the proposed changes, and that the curve is no longer a reliable guide to RPI expectations after 2030. A 0.2% p.a. reduction
has been made to the RPI inflation assumption to reflect the likelihood that RPI expectations will be lower in the longer term.
RPI is expected to match CPIH (which includes housing costs) sometime between 2025 and 2030. While the RPI assumption
is reduced, it remains above the CPI inflation assumption. The proposal in Government correspondence is not expected
to impact on CPI inflation expectations, so the outlook for CPI inflation is unchanged. It is therefore necessary to make a
consistent reduction of 0.2% to the wedge (or ‘gap’) between the RPI and CPI assumptions, i.e. to reflect the change made
to the RPI inflation assumption.
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 £8.5m
Increase/decrease by 0.1%
Increase/decrease of £5.1m
Increase in life expectancy of 1 year
Increase by £17.0m
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 2019 is 16 years (2018: 17 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 (2018: 90% 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. In poursuance of this strategy, in 2019 the trustees divested from riskier UK only equities and Diversified Growth
Funds and reinvested in less risky overseas equities and multi-asset credit funds (including corporate bonds, and classified
in total as corporate bonds in the table below). Further diversification is planned away from Diversified Growth Funds and
into illiquid assets (investments into a pooled fund which invests in mainly land and buildings with rental yields).
173
Pendragon PLC Annual Report 2019
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
2019
£m
-
106.3
-
87.6
-
115.4
119.9
43.0
472.2
2018
£m
129.1
1.9
13.2
-
-
58.9
163.1
51.8
418.0
2017
£m
193.0
0.2
17.8
-
-
65.6
163.1
19.3
459.0
(531.2)
(486.3)
(521.8)
(59.0)
(68.3)
(62.8)
None of the fair values of the assets shown above include any of the Group’s own financial instruments or any property
occupied by, or other assets used by, the Group. 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 Group 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.
174
Pendragon PLC Annual Report 2019
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 2019 and at 31 December 2018.
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
Income/(expense) recognised in the income state-
ment
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:
Operating expenses
Finance costs
2019
£m
(68.3)
7.6
3.0
(1.3)
(59.0)
2019
%
58
42
2019
£m
66.0
12.5
2019
£m
1.8
(4.8)
(3.0)
2019
£m
(4.8)
1.8
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
The expected discount rate as at 31 December 2019 was 2.05%. This compares to the discount rate of 2.85% used in the
calculation of the interest income for the period ending 31 December 2018.
Based on the reported deficit of £59.0m at 31 December 2019 and the discount rate assumption of 2.05% the charge in 2020
is expected to be £1.2m.
175
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
Past service costs
2019: Pension Increase Exchange (PIE)
The Group has implemented a PIE for pensioner members whereby future inflationary increases in pension payments were
exchanged for an increased fixed pension. 31% of eligible members took up the offer and the new pensions went into
payment on 27 September 2019.The gain arising has been recorded as a negative past service cost in the income statement.
The rule change made to facilitate the offer was implemented in November 2018 but the amount has all been recognised in
the current year.
Past service costs - GMP equalisation
On 26 October 2018, a landmark pensions case was handed down by the High Court, which has confirmed that pesnion
schmes are required to equalise Guaranteed Minimum Pensions (“GMP”). The cost of equalising GMPs was estimated to be
£10.5 million and this was recognised as a past service cost via the income statement in 2018. There are no chnages in the
expected GMP and no further charge is required in 2019.
176
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 5 - PENSION SCHEMES
5.1 Pension obligations continued
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
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
2019
£m
(51.6)
(1.3)
(52.9)
2019
£m
54.3
(5.1)
(50.5)
(1.3)
2019
£m
486.3
13.5
(4.8)
5.1
0.2
50.3
(19.4)
531.2
2019
£m
418.0
11.7
54.3
7.6
(19.4)
472.2
2018
£m
(50.7)
(0.9)
(51.6)
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
177
Pendragon PLC Annual Report 2019
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
Experience adjustments on scheme liabilities:
Amount
Percentage of scheme liabilities (%)
Experience adjustments on scheme assets:
Amount
Percentage of scheme liabilities (%)
2019
£m
531.2
472.2
59.0
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
55.6
10.5%
(37.9)
(0.1)
(7.4)
(1.4%)
111.2
20.4%
(22.9)
(5.2%)
54.3
10.2%
(38.8)
(0.1)%
28.4
5.4%
49.9
9.2%
(0.5)
(0.1%)
178
Pendragon PLC Annual Report 2019 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
6.1 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.
179
Pendragon PLC Annual Report 2019
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 current or prior year.
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 six UK dealerships representing Jaguar and Land Rover and four US dealerships
representing Jaguar and Land Rover.
Net assets at the date of disposal:
Goodwill
Property, plant and equipment
Assets held for sale
Inventories
Trade and other receivables
Trade and other payables
US
Businesses
£m
Other
disposables
£m
Net book
value
£m
-
-
26.3
-
-
-
26.3
33.0
59.3
0.7
5.6
-
2.9
0.1
(0.3)
9.0
(0.9)
8.1
0.7
5.6
26.3
2.9
0.1
(0.3)
35.3
32.1
67.4
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 the Group disposed of four UK dealerships representing Jaguar and Land Rover and an Aston
Martin franchise in the US for proceeds of £10.9m and realising a profit of £3.3m on disposal.
180
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS
SECTION 6 - OTHER NOTES
6.3 Related party transactions
Subsidiaries
The Group’s ultimate parent Group is Pendragon PLC. A listing of subsidiaries is shown within the financial statements of the
company on page 190.
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 60 to 78.
Directors of the Group and their immediate relatives control 2.31% of the ordinary shares of the Group.
During the year key management personnel compensation was as follows:
Short term employee benefits
Post-employment benefits
Termination payments
Share based payments
2019
£m
1.4
0.1
1.4
0.6
3.5
2018
£m
1.3
0.2
-
0.3
1.8
181
Pendragon PLC Annual Report 2019
COMPANY BALANCE SHEET
At 31 December 2019
Fixed assets
Investments
Loans to subsidiary undertakings
Current assets
Debtors (amounts due after more than one year:£10.5m)
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 18 March 2020 and signed on its behalf by:
W Berman
Chief Executive
Registered Company Number: 2304195
M S Willis
Chief Finance Officer
Notes
5
6
7
8
11
11
11
2019
£m
804.0
90.0
894.0
38.0
38.0
2018
£m
912.4
90.0
1,002.4
40.9
40.9
(371.6)
(431.1)
(333.6)
(390.2)
560.4
612.2
(175.2)
(59.0)
(177.3)
(68.3)
326.2
366.6
69.9
56.8
5.6
13.9
180.0
326.2
70.0
56.8
5.5
13.9
220.4
366.6
The Company adopted IFRS 16 Leases with effect from 1 January 2019 using the modified retrospective approach on transition and has accordingly not restated prior periods. However the
Company has had no lease arrangements during the year so the periods presented are directly comparable.
The notes on pages 185 to 193 form part of these financial statements.
182
Pendragon PLC Annual Report 2019
COMPANY STATEMENT OF OTHER COMPREHENSIVE INCOME
Year ended 31 December 2019
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
2019
£m
(31.4)
0.4
0.2
0.6
(30.8)
2018
£m
16.6
0.8
0.2
1.0
17.6
The notes on pages 185 to 193 form part of these financial statements
183
Pendragon PLC Annual Report 2019 COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2019
Share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Total
£m
Balance at 1 January 2019
70.0
56.8
5.5
13.9
220.4
366.6
Total comprehensive income for 2019
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 2019
-
-
-
(0.1)
-
-
-
(0.1)
69.9
-
-
-
-
-
-
-
-
56.8
-
-
-
0.1
-
-
-
0.1
5.6
-
-
-
-
-
-
-
-
(31.4)
0.6
(31.4)
0.6
(30.8)
(30.8)
(0.5)
-
0.6
(9.7)
(9.6)
(0.5)
-
0.6
(9.7)
(9.6)
13.9
180.0
326.2
Balance at 1 January 2018
71.2
56.8
4.3
13.9
231.2
377.4
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)
16.6
1.0
17.6
(6.7)
0.1
0.7
(22.5)
(28.4)
13.9
220.4
366.6
The Company adopted IFRS 16 Leases with effect from 1 January 2019 using the modified retrospective approach on transition and has accordingly not restated prior periods. However the
Company has had no lease arrangements during the year so the periods presented are directly comparable.
The notes on pages 185 to 193 form part of these financial statements.
184
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1 Accounting Policies
(a) Basic of preparation Pendragon PLC is a company incorporated and domiciled in England, 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.
These financial statements have been perpared on a going concern basis as explained in note 1 of the Group financial
statements. Principal risks and uncertainties are outlined in the Group financial statements on pages 34 to 41.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following
disclosures:
• a 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;
• Certain disclosures required by IAS 36 Impairments of Assets in respect of the impairment of assets.
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:
185
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1 Accounting Policies continued
Key estimate area
Key assumption
Potential impact
within the next
financial year
Potential
impact in the
longer term
Note
reference
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.
3
3
3
5.1 Group
3
5 and
3.1 Group
(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) Impairment excluding deferred tax assets Financial assets (including trade and other debtors) A financial asset not
carried at fair value through profit or loss is measured for impairment losses in accordance with IFRS 9 using an expected
credit loss (ECL) model. The impairment model applies to financial assets measured at amortised cost. The calculation
of ECLs are a probability-weighted estimate of credit losses. For trade receivables, the Company applies the simplified
approach set out in IFRS 9 to measure expected credit losses using a lifetime expected credit loss allowance. The Company
considered a trade or other receivables, including intercompany receivables, to be in default when the borrower is unlikely
to pay its credit obligations to the Company in full after all reasonable actions have been taken to recover the debt.
Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than deferred tax assets, are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable
amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to
sell. 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 the purpose
of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of
assets (the ‘cash-generating unit).
186
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1 Accounting Policies continued
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to
reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other
assets in the unit (group of units) on a pro rata basis.
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 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. Further details of impairment testing policies are presented in note
3.1 of the Group Financial Statements.
(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.
(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.
187
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1 Accounting Policies continued
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.
(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 loss after taxation attributable to the Company dealt with in its own accounts for the
year ended 31 December 2019 is £31.4m (2018: profit £16.6m).
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 £180.0m (2018: £220.4m) which is stated after
deducting the ESOT reserve of £18.2m (2018: £18.2m). 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.
188
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
3 Directors
Total emoluments of directors (including pension contributions) amounted to £3.5m (2018: £1.8m). Information relating to
directors’ emoluments, share options and pension entitlements is set out in the Directors’ Remuneration Report on pages 60
to 78.
The directors are the only employees of the Company.
4 Dividends
Ordinary shares
Final dividend in respect of 2018 of 0.7p per share (2017: 0.8p per share)
Interim dividend in respect of 2019 of nil per share (2018: 0.8p per share)
2019
£m
9.7
-
9.7
2018
£m
11.3
11.2
22.5
The Board is not recommending the payment of a final dividend for 2019 (2018: 0.7p equating to £9.7m).
5
Investments
At 31 December 2018
Impairment
At 31 December 2019
Shares in subsidiary
undertakings
£m
912.4
(108.4)
804.0
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 £108.4m (2018: £10.2m).
The calculation is sensitive to the assumptions used in valuing the expected future cashflows of subsidiaries. Full details of
impairment testing are presented in note 3.1 of the Group Financial Statements.
Shares in subsidiary undertakings are stated at cost. Pendragon PLC owns directly or indirectly 100 percent of the issued
ordinary share capital of the following subsidiaries.
189
Pendragon PLC Annual Report 2019
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
National Fleet Solutions Limited
Bletchley Motor Company 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
Pendragon Vehicle Management Limited
Bridgegate Limited
Manchester Garages Holdings Limited
Manchester Garages Limited
Merlin (Chatsworth) Limited
Miles (Chesham) Limited
Motors Direct Limited
Motown Limited
Munn & Chapman Limited
Munn Holdings Limited
Neville (EMV) Limited
Pendragon Finance & Insurance Services Limited *
Brightdart Limited
Newport (Gwent) Motor Company Limited
Pendragon Management Services 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
Buist Manor Limited
C P Evinson Limited
C.G.S.B Holdings Limited
Calmoon Limited
CD Bramall Motor Group Limited
CD Bramall Pensions Limited
Oggelsby's Limited
P J Evans (Holdings) Limited
Paramount Cars Limited
Parkhouse Garage (Newcastle) Limited
Pendragon Company Car Finance Limited
Pendragon Demonstrator Finance Limited
CD Bramall Pension Trustee Limited
Pendragon Demonstrator Finance November Limited
CD Bramall York Limited
Pendragon Demonstrator Sales Limited
Central Motor Company (Leicester) Limited
Petrogate Properties Limited
Charles Sidney Holdings Limited
Charles Sidney Limited
Pinewood Computers Limited
Plumtree Motor Company Limited
Comet Vehicle Contracts Limited
Portmann Limited
Davenport Vernon Finance Limited
Premier Carriage Limited
Davenport Vernon Milton Keynes Limited
Quicks (1997) Motor Holdings Limited
Davies Holdings Limited
Dunham & Haines Limited
Evans Halshaw (Cardiff) Limited
Evans Halshaw (Chesham) Limited
Quicks Finance Limited
Reades of Telford Limited
Regency Automotive Limited
Reg Vardy (AMC) Limited
Evans Halshaw (Dormants) Limited *
Reg Vardy (Property Management) Limited
Pendragon Limited Partner Limited *
Evans Halshaw (Halifax) Limited
Reg Vardy (RTL) Limited
Bramall Quicks Limited
Car Store.com Limited
CD Bramall Limited *
Executive Motor Group Limited
Stratstone Motor Holdings Limited *
Petrogate Limited
Evans Halshaw (Midlands) Limited
Rudds Limited
Evans Halshaw Group Pension Trustees Limited
Sanderson Murray & Elder Limited
Evans Halshaw Motor Holdings Limited
Skipper of Aintree Limited
Evans Halshaw Vehicle Management Services Limited Skipper of Cheltenham Limited
Evinson Tractors Limited
Excalibur Motor Finance Limited
Skipper of Darlington Limited
Skipper of Torbay Limited
Skipper of Wakefield 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
Strattons (Service) Limited
Folletts Limited
G.E. Harper Limited
Giltbase Limited
Godfrey Davis (Trust) Limited
Godfrey Davis Motor Group Limited
Strattons (Wilmslow) Limited
Suresell Limited
The Car and Van Store Limited
The Mcgill Group Limited
The Skipper Group Limited
Pendragon Group Pension Trustees Limited *
Hemel Hempstead Motors Limited
Tins Limited *
Allens (Plymouth) Limited
Kingston Reconditioning Services Limited
Trust Motors Limited
AMG Limited
Andre Baldet Limited
Arena Auto Limited
Automend Limited
Berkhamsted Motor Company Limited
Leveling Limited
Lewcan Limited
Longton Garages Limited
Manchester Garages (Cars) Limited
Trust Properties Limited
Vertcell 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
190
Pendragon PLC Annual Report 2019
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)
2019
£m
27.5
27.5
10.5
10.5
38.0
Expected credit losses in respect of trade and other intercompany receivables are deemed immaterial.
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 one and two years)
Bank loans (repayable between two and five years)
5.75% Senior notes 2023
2019
£m
359.0
12.6
371.6
2019
£m
115.2
-
60.0
175.2
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
Full details of the Company’s borrowings including security and maturity are given in note 4.2 to the consolidated financial
statements.
191
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
9 Deferred tax
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 2018
Credited to income statement
Credited to equity
At 31 December 2018
At 1 January 2019
Charged to income statement
Credited to equity
At 31 December 2019
2019
£m
10.5
Retirement
benefit
obligations
Other
provisions
£m
10.8
0.7
0.2
11.7
11.7
(1.8)
0.2
10.1
0.5
-
-
0.5
0.5
(0.1)
-
0.4
2018
£m
12.2
Total
£m
11.3
0.7
0.2
12.2
12.2
(1.9)
0.2
10.5
Deferred tax asset is shown within debtors (see note 6)
10 Share based payments
Details of share schemes in place for the Group of which the Company participates as at 31 December 2019 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 2018
Shares cancelled during the year
Allotted, called up and fully paid shares of 5p each at 31 December 2019
There were no issues of ordinary shares during the year.
Number
1,399,149,025
(2,204,621)
1,396,944,404
£m
70.0
(0.1)
69.9
2,204,621 ordinary shares having a nominal value of £0.1m were bought back and subsequently cancelled during the year
in accordance with the authority granted by shareholders in the Annual General Meeting on 25 April 2019. The aggregate
consideration paid, including directly attributable costs, was £0.5m. Since the commencement of the current share buyback
programme in 2016, as at 31 December 2019, 63,376,251 shares have been bought back and cancelled representing 4.3% of
the issued ordinary shares, at a total cost to date of £18.7m. The share buyback programme has been suspended and the
Group anticipate that no further transactions will be made during 2020.
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 2019 are fully disclosed above in note 4.6 of this report.
192
Pendragon PLC Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
The market value of the investment in the Group’s own shares at 31 December 2019 was £0.8m (2018: £1.4m), being 6.4m
(2018: 6.4m) shares with a nominal value of 5p each, acquired at an average cost of £0.33 each (2018: £0.33). During the
year the trust acquired no shares (2018: nil) and disposed of no shares (2018: 1.3m, for a consideration of £0.1m ) shares in
respect of LTIP and executive share option awards. The amounts deducted from retained earnings for shares held by the
EBT at 31 December 2019 was £18.1m (2018: £18.1m). 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 60 to 78.
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.
Capital redemption reserve
The capital redemption reserve has arisen following the purchase by the Group 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.
£0.1m (2018: £1.2m) was transferred into the capital redemption reserve during the year in respect of shares purchased by
the Group and subsequently cancelled.
Other reserves
Other reserves comprise the amount of demerger reserve arising on the demerger of the Group from Williams Holdings PLC
in 1989.
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 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.
193
Pendragon PLC Annual Report 2019
ADVISORS, BANKS AND SHAREHOLDER INFORMATION
Financial Calendar 2020
18 March
date of this Report
Share dealing service
Pendragon’s company registrar offers a share dealing service,
provided by Link Asset Services (a trading name of Link Market
18 March
preliminary announcement of 2019 results
Services). Details appear at www.linksharedeal.com
21 may
May Annual General Meeting
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
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
governance on our website. We also display historic financial
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:
Solicitors
CMS Cameron McKenna Nabarro Olswang LLP
Registrar and shareholder enquiries
Link Asset Services
Geldards LLP
Eversheds LLP
How to find Pendragon PLC’s offices
Visit Contacts on the company’s website
www.pendragonplc.com.
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Stock Classification
The company’s ordinary shares are traded on the London Stock
shareholderenquiries@linkgroup.co.uk
Exchange. Investment codes for Pendragon’s shares are:
Tel: 0871 664 0300
London Stock Exchange: PDG
Bloomberg:
PDG.LN
GlobalTOPIC and Reuters: PDG.L
194
Pendragon PLC Annual Report 2019 5 YEAR GROUP REVIEW
Revenue
Gross profit
2019
IFRS 16
£m
2018
IAS 17
£m
2017
IAS 17
£m
2016
IAS 17
£m
2015
IAS 17
£m
4,506.1
4,627.0
4,739.1
4,537.0
4,453.9
472.7
550.5
552.9
Operating (loss)/profit before other income
(104.4)
(30.1)
(Loss)/profit before taxation
(114.1)
(44.4)
91.5
65.3
Basic earnings per share
(8.4)p
(3.6p)
3.7p
Net assets
Net borrowings (note 1)
Other financial information
168.9
119.7
345.6
425.4
126.1
124.1
559.6
100.1
73.0
3.8p
372.8
79.6
548.9
96.4
79.0
5.0p
395.1
108.8
Underlying profit before tax
(16.4)
47.8
60.4
75.4
70.1
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)
Dividends per share (note 5)
Dividend cover (times) (note 8)
Interest cover (times) (note 9)
Gearing (note 9)
Business summary
-1.2p
1.1
10.5%
-2.3%
-45.6%
-
-
(1.7)
70.9%
2.8p
0.9
11.9%
(0.7%)
(13.1%)
1.50p
2.0
(0.5)
36.9%
3.3p
0.9
0.1
0.0
0.1
1.6
2.4
3.5
0.3
3.9p
0.6
12.3%
2.2%
14.5%
1.5p
2.7
3.7
3.7p
0.5
12.3%
2.3%
19.8%
1.3p
3.9
2.9
24.6%
20.1%
Number of franchise points
166
186
194
196
200
note 1 Net borrowings comprise interest bearing loans and borrowings, cash and cash equivalents and derivative financial instruments, excluding lease liabilities.
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 Dividend cover is underlying profit after tax divided by the total of the interim dividend paid and final dividend proposed for the year.
note 8
Interest cover is operating profit divided by net finance expense.
note 9 Gearing is calculated as net borrowings as a percentage of net assets.
Pendragon PLC Annual Report 2019
195
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