ANNUAL REPORT & FINANCIAL STATEMENTS
For the year ended 28 February 2018
Table of Contents
Chairman’s Statement and Financial Highlights
Strategic Report
Main Board Directors
Advisors
Corporate and Social Responsibility Report
Directors’ Report
Corporate Governance Report
Remuneration Committee Report
Directors’ Remuneration Report
Independent Auditors’ Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Alternative Performance Measures
Financial Diary
Annual General Meeting
Interim Results 2018/19
Final Results 2018/19
Page
2
6
32
33
34
38
43
52
58
63
70
71
72
73
74
76
111
112
113
123
25 July 2018
10 October 2018
May 2019
Vertu Motors plc Mission Statement
“To deliver an outstanding customer motoring experience through honesty and trust”
Vertu Motors plc
1
Chairman’s Statement
The Board is announcing a creditable set of results against a tougher market backdrop for the
automotive sector. The Group generated adjusted EBITDA of £40.7m (2017: £42.4m) and
continued to invest in its core automotive retail assets to support future growth while focusing
on capital allocation, returning £11.1m to shareholders through both dividends and a
programme of share buy-backs (the “Buy-back Programme”). Under the Buy-back
Programme, the Group, as at 28 February 2018, had repurchased 12.3m shares, equivalent
to 3.1% of the Group’s issued share capital. Subsequent to the end of the financial year
ended 28 February 2018 (“the Period”), the purchase of the Group’s own shares continued
and a further 5.7m shares have been acquired equivalent to 1.4% of the Group’s issued share
capital, with the result that 18.0m shares equating to 4.53% of the Group’s share capital as at
1 March 2017 have now been repurchased in total. The cash saving from lower dividend
payments as a result of the Buy-back Programme, based upon an annual dividend of 1.5p per
share, amounts to £270,000 per annum. The Board will seek a renewed approval for the Buy-
back Programme at the forthcoming Annual General Meeting.
We have kept a sharp focus on maximising the value in our property portfolio, realising a
profit of £4.1m from a sale and leaseback transaction while maintaining our strong asset
backing. We have adopted a similar approach to the Group’s dealership portfolio, with the
disposal or closure of five underperforming sales outlets during the Period realising cash of
£2.8m in the process, with a further £2.0m realised from surplus property disposals
subsequent to the year end. This approach has ensured that the Group remains in a strong
position to take advantage of both organic and acquisition-led opportunities in the months
ahead. The Group’s balance sheet continues to be very well-capitalised, with net cash of
£19.3m at 28 February 2018 and available, unutilised bank facilities of £30m with the potential
to add a further £30m.
The Period has been a more challenging time for the UK automotive retail sector. The value
of Sterling was weak during the Period (trading between €1.08 and €1.20) and as a
consequence, following five consecutive years of growth, the UK private new vehicle market
fell by 6.8% in 2017 in terms of registrations (SMMT). Neither the General Election in June,
the ongoing negative press coverage surrounding the Brexit negotiations nor the mixed
messages from Government about the future of diesel vehicles have helped the consumer
environment for vehicle sales. However, the management team has been disciplined in
avoiding distraction and maintaining its focus on what it can control: setting the agenda for
operational improvement, especially in the businesses acquired in recent years, investing in
world class training to lift the skills and leadership ability of the dealership teams, controlling
costs and keeping a sharp focus on capital allocation. This latter point has been particularly
important, and it is indeed no accident, that the Group has not made any acquisitions during
the Period. Acquisition pricing has been driven in part by foreign (non-Sterling) investors and
the Board has not strayed from the discipline of its valuation metrics. This will ensure that
future returns are not diluted by chasing inflated prices. As a consequence, the Group is now
in a strong position to grow as the sector cycle presents better value acquisition opportunities.
It should also be noted that, against the backdrop set out above, 2017 represented the third
largest annual new car retail market in the United Kingdom in the last 13 years and the
country remains in a positive economic growth environment. Economic forecasts currently
see this growth environment continuing.
The Group remains set for further growth, well positioned with Manufacturers and in a very
healthy financial position. I remain optimistic about the Group’s growth prospects
underpinned by our very strong and well capitalised balance sheet.
Throughout this Annual Report there are references to various Alternative Performance Measures (“APMs”) used to
measure performance for the financial year ended 28 February 2018, which can be reconciled to measures disclosed
in the financial statements on page 70 to 110. Definitions and reconciliations of the APMs referred to are provided on
page 123 to 125.
Vertu Motors plc
2
Chairman’s Statement (continued)
The Group’s objective remains to deliver long-term value for its owners through building a
scaled, franchised dealership business generating significant, resilient and increasing
cashflows. The Group seeks to do this by pursuing a consistent strategy with a well-
established business model. This report will set out the strategy, explain the business model
and describe how the Group has used the model to establish a competitive position from
which to generate growth in cashflows over the long-term. Growing cashflow is a result of
growing revenues, managing margins, operating costs and tax payments and managing
working capital and capital expenditure within the framework of a suitable funding structure.
This report will examine each of these areas.
The Group continues to develop a talented, stable and experienced operational team which is
committed to delivering on the Group’s strategy and I would like to take this opportunity to
thank every colleague in the Group for their commitment and dedication during the year.
Financial Highlights
Revenues and Volumes
• Revenues of £2,796.1m (2017: £2,822.6m)
• Like-for-like service revenues up 4.7% continuing long-term growth trend
• Like-for-like used vehicle volumes declined 0.5%
• Continued softening of new vehicle market, particularly in volume franchises, as supply
reduced and prices rose on currency pressure
• Group like-for-like new car retail volumes down 13.3%, fleet car supply volumes down 5%
and light commercial van volumes down 4.2%
Margins and Profitability
• Adjusted profit before tax of £28.6m (2017: £31.5m) down 9.2% and profit before tax up
2.3% to £30.5m (2017: £29.8m)
• Earnings per share 6.31p up 2.8% (2017: 6.14p)
• Group gross profit margins stable at 11.0% (2017: 11.1%)
• Group like-for-like service gross profit margins reduced slightly to 76.4% from 77.3%
• Solid performance in aftersales and used cars representing 72.3% of gross profit (2017:
71.5%)
• Like-for-like used car margins declined to 9.6% (2017: 10.1%), stabilising in second half
• Exceptional profit on property disposals of £3.5m
Managing Operating Expenses and Tax Payments
• Total adjusted operating expenses down 0.5% to £278.4m (2017: £279.8m) achieved in
spite of well publicised cost headwinds
• Operating expenses as a percentage of revenue stable at 10.0%
• Effective rate of taxation 18.9% (2017: 19.5%)
Generating Cash Profits and Managing Working Capital
• EBITDA up 4.3% to £43.2m (2017: £41.4m)
• Cash generated from operations of £27.3m (2017: £58.1m)
• Working capital outflow of £13.3m driven by increased used vehicle inventory holdings
and VAT movements related to new vehicle consignment levels
Disciplined Capital Allocation
• £24.1m of capital expenditure, primarily on new dealership developments and increasing
capacity in sales and aftersales areas (2017: £26.4m)
• Period of major capital investment: spend levels expected to substantially reduce in FY20
• Cash of £2.8m released from portfolio management decisions to dispose of poorly
performing operations
• Sale and leaseback transaction generated £14.2m of cash and exceptional profit on
disposal supporting value in freehold and long leasehold portfolio
• Dividend up 7.1% to 1.5p per share (2017: 1.4p per share), eighth consecutive year of
dividend growth
Vertu Motors plc
3
Chairman’s Statement (continued)
Financial Highlights (continued)
Disciplined Capital Allocation (continued)
• Share buyback programme: 18.0 million shares repurchased to date at an average of
43.8p per share deploying £7.9m
• The Board sees value in a continued share buy-back programme cognisant that tangible
net assets per share are at 45.4p
Very Strong Balance Sheet to Fund Growth
• Period end net cash of £19.3m (2017: £21.0m)
• Unutilised five year bank facility of £30m, with the potential to add a further £30m
• Used car inventory largely unencumbered from short-term stocking loans
• Freehold and long leasehold property of £183.8m (2017: £182.0m)
• Potential acquisition opportunities are increasing, giving scope for further scaling-up of
the business to drive value and further enhance shareholder returns
Current Trading and Outlook
In March and April 2018 (“the Post Year-end Period”) the Group has traded in line with
management’s expectations. March remains the most significant month of the year for the
profitability of UK automotive retail due to the plate change. This year comparisons of March
with the prior year were skewed due to the impact of the pull forward of registrations due to
the vehicle excise duty changes on 1 April 2017 and the timing of Easter which reduced
March profitability in 2018. We have therefore considered the two months of March and April
together. The UK private new car market fell by 8.8% in the Post Year-end Period. The
Group’s like-for-like new retail volume declined by 2.6% during the Post Year-end Period,
significantly outperforming the market with the result that the Group grew its market share. In
addition, the Group also grew market share in the Motability, fleet and commercial channels.
The Group achieved manufacturer volume targets at a high level and, as a result, new car
gross margins were stable.
Both used car and aftersales performance during the Post Year-end Period were impacted by
the adverse weather conditions in early March 2018. However, over the Post Year-end
Period as a whole like-for-like used car volumes rose 7.0% and like-for-like service revenues
were up 6.8%. The Group is benefitting from having additional technician resources in place.
Whilst as anticipated due to last year’s record March trading performance, the profits in the
Post Year-end Period are behind last year, the Board believes they represent a very positive
outcome.
Subsequent to the year end, the Group disposed of a vacant freehold property for £2.0m in
cash, realising a profit on sale of £0.6m. This further demonstrates the value inherent in the
Group’s freehold and long leasehold property portfolio and further disposals of vacant
property are likely in the coming months.
The prospects for the UK new car market are likely to be more favourable with stabilisation of
volumes from April 2018 onwards currently anticipated by the SMMT. The market
significantly weakened from April 2017 onwards. There is a degree of uncertainty over new
vehicle supply around the implementation of Worldwide Harmonised Light Vehicle Test
Procedures (“WLTP”) regulations due to come into force on 1 September 2018. The impact
of WLTP on production and supply of new vehicles is currently not clear and this may cause
some short-term supply limitations until the end of quarter four 2018. The current consumer
trend for increased petrol new vehicle demand, reducing diesel new vehicle demand, may
also result in supply limitations as a result of the lag in changing production to respond to this
shift in consumer behaviour in the last 12 months.
Vertu Motors plc
4
Chairman’s Statement (continued)
Current Trading and Outlook (continued)
The outlook for used cars is strong with the Group focused on continuing growth in profitability
for the remainder of the year following a successful Post Year-end Period. Aftersales
prospects are positive due to the impact of previous service plan penetration, rising vehicle
parcs and the successful recruitment and retention strategies adopted for technician
resource.
Cost increases continue to impact the Group as previously reported and these are likely to
absorb some of the expected increases in revenues and gross profit.
Given the encouraging trading performance of the Group and the Group’s strong balance
sheet, the Board remains confident about the Group’s prospects for the current year and its
ability to undertake further growth through acquisitions.
P Jones
Chairman
Vertu Motors plc
5
Strategic Report
The Directors present their Strategic Report on the affairs of the Group and Company, for the
year ended 28 February 2018.
Strategic and Portfolio Management
To deliver long-term value to the Group’s owners, the Group’s strategy is to grow a scaled UK
automotive retail group through acquiring both volume and premium franchised dealerships.
The Board believes that the benefits of scale in the sector are increasing over time. Scale
benefits include: a national on-line and off-line co-ordinated marketing strategy to maximise
the benefits of our unique national footprint, scaled contact centres, franchise management
dedication, purchasing efficiencies and access to competitive consumer finance packages for
the Group’s customers. Further consolidation of the sector by large-scale national brands is
likely to continue in the years ahead in what is still a sector with a fragmented ownership
structure in many franchises.
The Group will continue to acquire dealerships across the volume and premium spectrum as
the Board currently believes that capital can continue to be invested in additional dealerships
to deliver significant return on investment to shareholders in the short and medium term. The
fragmented nature of the UK automotive retail sector means that significant growth potential
remains, and crucially, the Group has substantial headroom for further growth with the vast
majority of its Manufacturer partners, particularly in the Premium space.
The Board adopts a rigorous and disciplined capital allocation process in deciding whether to
pursue an acquisition. Six-monthly we assess our strategic position with each Manufacturer to
confirm the Board’s standpoint on future investment in the franchise. This leads to an Add,
Hold, Reduce or Avoid conclusion which underpins
the Group’s strategic portfolio
management. Investment evaluations for specific opportunities involve detailed three-year
investment appraisals and utilising set return on investment hurdle rates to ensure
appropriate capital allocation.
the Period,
A number of
to assess several
the Board has continued
During
further acquisition
these
opportunities, rigorously applying consistent valuation criteria.
opportunities have not resulted in transactions as the valuations sought by the vendors have
not met the Board’s investment return criteria. Indeed, a number of the opportunities
introduced by Corporate Finance practitioners did not result in the marketed businesses being
sold. Valuation expectations in the minds of vendors have been fuelled to some extent by
overseas bidders. Further opportunities continue to be assessed and the Group has seen an
increase in potential deal flow in the last few months. The addition of further dealerships and
new franchise partners to the Group’s portfolio will enable the Board to deliver its goal of
creating a balanced and diversified portfolio of franchised businesses, so reducing the
Group’s exposure to variations in individual Manufacturers’ performance. Such growth,
however, will only be undertaken at appropriate valuations to ensure future returns. We will
remain selective and disciplined in our approach, cognisant that the Board is trusted to spend
our shareholders’ capital sensibly with the goal of creating and sustaining long term value.
Modern automotive retailing is undergoing substantial changes and these changes are likely
to accelerate in the years ahead. The rise of digital sales channels, CASE (Connected,
Autonomous, Sharing and Electric) developments and Manufacturer investment and scale
requirements expected of retailers are likely to have an impact on franchised networks and
the locations which the Group will want to operate from in the future. These trends which
represent an opportunity for scaled franchised dealer groups, are likely to drive further
consolidation in the sector and to lead to an increase in sales per outlet in the sector. We are
mindful of these changes when considering the current portfolio and how it will evolve and the
following trends are considered particularly pertinent:
• There will be a trend away from rural, smaller franchise points and greater investment in
larger, urban representation points. This will yield operational gearing benefits of
increased sales per outlet. Acquisitions and disposals must reflect this trend.
Vertu Motors plc
6
Strategic Report (continued)
Strategic and Portfolio Management (continued)
• Property flexibility may have increasing importance as network restructuring occurs and
retail formats and requirements change. Lease length and structures will take on a
greater importance as a result. Freehold ownership is preferred by the Board given the
greater flexibility this affords.
The Board performs a detailed review of underperforming dealerships within the portfolio on a
continual basis, applying its strategy of “fix, re-franchise, sell or close”. This is an important
element of the capital allocation process providing cash for investment in higher return
activities. The Group has seen the benefit of this during the Period.
Portfolio Changes
Portfolio changes have been made during the Period reflective of the capital allocation
principles and trends outlined above:
•
•
In March 2017 the Group disposed of its loss-making Chesterfield Peugeot business and
in due course the freehold premises will be sold
In May 2017 the Group ceased its Mazda operations in Bristol allowing sole focus on the
Hyundai franchise
• The Group completed its exit from the Fiat Group business with the closure in December
2017 of Worcester Fiat and Alfa Romeo and of its multi-franchise Cheltenham Fiat and
Mazda business in March 2018
• The Group disposed of its loss-making former Volkswagen dealership in Boston,
Lincolnshire. This included the disposal of the freehold premises for £1.2m
• The Group closed two accident repair centres to increase capacity in more profitable
activities as part of dealership redevelopments
•
In April 2018 the Group ceased its Volvo operation in Sheffield allowing sole focus on the
Nissan franchise at the location
During the Period these changes released £1.2m from property assets and £1.6m from
working capital which was re-deployed to activities generating higher returns. Dealerships
acquired in the year ended 28 February 2017 made a profit before interest and tax
contribution of £1.2m in the Period. The sites closed or disposed of during the Period lost
£1.1m (2017: £1.6m) hence these actions will enhance future returns and operating margins
of the Group.
Subsequent to these changes the Group now operates 117 franchised sales outlets, and 3
non-franchised sales outlets, from 103 locations.
Business Model and Competitive Positioning
The Group’s business model has remained consistent for the eleven years the Group has
operated and enables the successful delivery of enhanced business performance from
acquired dealerships, through the implementation of the Group’s brand model, business
processes and systems. This is delivered by a senior management team that is very stable
and highly experienced. Many of the Group’s acquisitions are turnaround opportunities and a
number are new start-up dealerships sharing similar characteristics, including a weak
customer database and consequently an aftersales business performing below its potential.
The aftersales activities have significantly higher margins compared to vehicle sales and the
Group’s business model works to improve and then maximise the aftersales performance and
hence improve overall margins. Growing the aftersales potential is fundamentally a function
of increasing the sale of new and used cars by the dealership in the locality and ensuring high
levels of customer retention into service.
Vertu Motors plc
7
Strategic Report (continued)
Business Model and Competitive Positioning (continued)
This model, and an indicative timeline for its application to a newly acquired dealership, is set
out below:
The success of the Group’s strategy is evidenced by the rapid growth since the first
acquisition in 2007 and the turnaround and integration of acquired dealerships to date. The
Group has become the sixth largest automotive retailer in the UK by revenues from a
standing start in 2007. Many of the acquisitions undertaken in recent periods have still to
become fully established and this provides the Group with further opportunity to deliver
improved margins and grow organic profit over the medium term.
The successful integration of acquisitions into the Group has to be one of our core
competencies. Management has a significant amount of experience in this area. Key to
successful integration are the following:
• Ensuring new colleagues (employees) understand the Vision, Values and culture of the
Group
• Transferring key managers from the core Group to the new businesses
•
Implementation of the Group’s single platform of systems and processes as soon as
possible
• Leveraging the Group’s key scaled brands and marketing power, including on-line assets,
across the new businesses
Vertu Motors plc
8
Strategic Report (continued)
Business Model and Competitive Positioning (continued)
The Group adopts a “Right People, Right Choice, Right Deal” brand model, centred on a
“Right Experience for You”. The “Right Experience” applies equally to colleagues, customers,
Manufacturer partners and indeed investors.
This brand model is illustrated below and utilised extensively in the business to provide clarity
on what we do, how we do it and where we are going as a business.
The Group adopts a “Right People, Right Choice, Right Deal” brand model, centred on a
“Right Experience for You”. The “Right Experience” applies equally to colleagues, customers,
Manufacturer partners and indeed investors. This brand model is based on a fundamental
premise that it is the colleagues in each business together with management who deliver on
customer needs to create long-term value for the business. Ensuring that each business has
the right Values and culture is of paramount importance to building both long-term
relationships with loyal customers and a stable team of colleagues.
In the July 2017 Colleague Satisfaction Survey over 98% of responding colleagues knew the
Vertu Values and 88% thought the Directors actively practiced them. It is clear that the more
the Core Values of Passion, Respect, Professionalism, Integrity, Recognition, Opportunity
and Commitment are in place in the business, the stronger the business is and significant
senior management time is spent promoting and reinforcing these Values. The brand model
has a number of brand actions which are designed to guide colleagues and management into
being customer-centric. For example, “effortless journeys, not complex processes” is an
important mantra in assessing the effectiveness of both on-line and off-line processes and
any proposed developments impacting customers. By building trust from customers for the
business, the Group aims to build long term relationships through the lifecycle of buying,
owning and selling vehicles. There is a clear correlation, in our view, between a high level of
colleague satisfaction, great customer experiences and the generation of higher margins in
the business.
Vertu Motors plc
9
Strategic Report (continued)
Business Model and Competitive Positioning (continued)
The success of the business and the delivery of the brand model relies heavily on strong, high
quality management teams to deliver the required returns over time. The recruitment,
development and retention of high performing automotive retail professionals is of paramount
importance, particularly in General Manager roles providing leadership in each dealership.
The Group has developed a culture which seeks to attract and retain top performers and the
Board believes it is successful in doing so.
As part of the Group’s strategy to attract, retain and develop high performing colleagues and
management, the Group continues to invest in training. This includes substantial internal
training programmes, management development programmes for high potential colleagues,
including management training undertaken by Dale Carnegie and an enterprise wide e-
learning platform for all 5,340 colleagues. 1.3 million minutes of e-learning have been
undertaken on the newly launched platform since 1 January 2018. This platform is industry
leading, covering personal development, leadership skills and sales skills, delivered on
personal devices.
The operations of the Group are overseen by a CEO Committee of the 14 most senior people
in the Group. This cadre is very stable with five members in place since the Group started
and an average tenure of nine years. Three new leaders were promoted internally to the
CEO Committee on 1 March 2018:
o Steve Gould, Operations Director, (46) has been with the Group for 6 years
having previous experience with Reg Vardy plc, Pendragon plc and Peter Vardy
Limited. He is responsible for the Renault and Nissan operations of the Group.
o Matthew Barr, HR Director, (37) has been with the Group ten years having
previously worked for Reg Vardy plc. He is responsible for HR and Training
within the Group.
o Martin Wastie, Group Strategy Director, (43) oversees the Group’s acquisitions,
disposals and business improvement initiatives. Martin was previously Group
Finance Director of Marshall Group and worked for Inchcape and Volkswagen
Group. He has been with the Group 3 years.
These three individuals bring excellent skills and energy to the CEO Committee.
The stability of senior management provides a consistency that helps to build a single Group
culture. As the Group has expanded over a larger number of dealerships, maintaining focus
and a consistency of culture remains paramount. We believe that multi-layering of
management is best avoided since it elongates decision-making and can make senior
management divorced from customers and the grass roots operations. Having the right
people at a senior level in the Group who can positively influence large divisions is therefore
vital and the Board believe this balance has been achieved to date. It is critical that the
entrepreneurial culture that the business started with, remains in place and simplicity and lack
of bureaucracy are crucial objectives applied to operational proposals and changes. We look
to have a culture built on “Speed, Simplicity and Self-Confidence”.
The Mission Statement of the Group is to “deliver an outstanding customer motoring
experience through honesty and trust”. Fundamentally it is the acquisition and retention of
customers that drives the ultimate value of the Group in the long-term. Marketing is critical to
both the acquisition and retention of customers. During the Period substantial progress has
been made to improve the quality, effectiveness and channel reach of the Group’s marketing
activities as Liz Cope concludes her second year as Chief Marketing Officer. Key
achievements in the Period include:
• Full on-line retailing of used vehicles has been launched including part-exchange, finance
provision and delivery to the door
Vertu Motors plc
10
Strategic Report (continued)
Business Model and Competitive Positioning (continued)
• Sales through this on-line channel continue to build and we believe this full on-line
retailing capability is unique to the Group
• E-commerce and digital marketing expertise has been significantly enhanced in-house in
the Period to develop user digital experiences and deliver cost effective marketing
campaigns
• New initiatives such as Buy-it-now are being rolled out across the Group whereby
customers are offered the ability to purchase the vehicles on-line that they have test
driven during dealership visits
•
Implementation of nationwide TV campaigns in both new and used car sales across
multiple Group brands delivering tactical sales and building brand awareness
• Profitability achieved in the Group’s Ace Parts on-line parts business with increased sales
and product lines through effective use of Marketplaces
The retention of customers is achieved by several Group strategies:
• Retention of sales customers into the higher margin aftersales channel is aided by the
Group’s centralised Business Development Centre which ensures contact is made to
book relevant service work, in addition to increasingly effective on-line booking
capabilities.
• High sales penetration of service retention products, notably three-year service plans, has
been successful in increasing the retention of used car customers in the Group’s service
departments. The Group now has over 104,000 customers paying monthly for servicing
over a three-year period and 44% of used car customers are retained into the Group’s
service departments for routine servicing in the year following purchase.
• Customer experience is crucial for creating loyalty and the desire to return to the Group
for future motoring needs. Customer experience is measured by the Group in several
ways:
o Manufacturers measure service and new car sales customer experience monthly
for each dealership as well as undertaking mystery shops. The Group scores
significantly ahead of national average scores on these measures and in addition
undertakes its own extensive mystery shopping programme.
o On used cars, the Group measures customer experience using a third party.
Over 97% of customers currently would recommend the Group following the
purchase of a used car. This high level of customer advocacy is mirrored in high
scores on the public review sites such as Trust Pilot.
o Management at all levels, including the Executive Directors, are rewarded based
on the above customer experience measures which the Board believes are
fundamental to the future success of the Group in generating higher revenues,
margins and cash returns.
Other Industry Issues
United Kingdom’s exit from the European Union (EU)
The UK’s exit from the EU may impact the Group in the areas of changing regulation,
currency fluctuations and terms of trade for new vehicle imports to the United Kingdom.
In the short term, the biggest impact of Brexit on the automotive retail sector has been the
weakening of Sterling which reduces the attractiveness of the UK as a market to EU
producing vehicle Manufacturers. Vehicle price rises have been evident, along with reducing
volumes in the new retail car sector since the Referendum.
Vertu Motors plc
11
Strategic Report (continued)
Other Industry Issues (continued)
United Kingdom’s exit from the European Union (EU) (continued)
In the medium term there could be consequences for the UK automotive retail sector if tariffs
were to be introduced on motor vehicles imported into the UK. This could further increase
sales prices and potentially reduce consumer demand. The UK Government has a stated
negotiating objective to avoid any such tariff barriers, and in the negotiation of the future trade
terms between the UK and the EU, tariffs on motor vehicles are likely to be a key point of
discussion. Potential free trade agreements with Non-EU states may present UK
opportunities for Manufacturers with Non-EU production capacity and the future franchising
strategy of the Group will need to be cognisant of these developments.
The contractual relationships between Manufacturers and franchise partners are constructed
within the framework of EU competition law. There is, therefore, the potential for the legal
frameworks to evolve in a different direction once legal competency returns to the UK. The
Board continues to judge that it is unlikely to be a priority area for the UK Government in the
short term and the status quo is likely to remain in place as a result. Franchise agreements
are evolving in any event as Manufacturers and retailers react to developments in technology,
changing retail formats and new revenue models.
GDPR
From May 2018 the Group will be required to comply with the enhanced EU regulations
regarding the use of personal data (“GDPR”). Following an extensive review of the Group’s
systems and procedures, we have established a detailed plan to ensure compliance with the
new regulation. Our systems have been upgraded to enable the capture and recording of
preferences which will drive future customer contact. Training of all colleagues involved in
customer contact is underway, and a new post of Group Data and Security Manager has
been created in order to provide the required focus.
Regulatory Environment
The Group, via its subsidiary trading companies, acts as a credit broker for several finance
company partners, both Manufacturer owned and independent, who provide vehicle finance
to the Group’s customers. In addition, the Group sells a limited range of other regulated
products. The Group has developed a robust sales and compliance process to ensure that
customers are treated fairly, addressing such potential risk areas as product affordability,
transparency of product explanations and ensuring remuneration structures protect customer
outcomes. Investment in systems to enhance control in these areas is ongoing.
The Financial Conduct Authority (“FCA”) is currently performing a review of the motor finance
sector, which is due to be completed in September 2018. The Group’s Compliance
Committee has reviewed the FCA update on its Motor Finance review, issued in March 2018,
and continues to monitor the Group’s procedures and controls in this area.
Diesel Vehicles
Successive Governments have encouraged drivers, via the taxation system, to drive diesel
vehicles which produce lower amounts of carbon dioxide (CO2) emissions. This has enabled
Governments to comply with European emissions targets, based upon CO2. As a result the
proportion of diesel vehicles in the vehicle parc has grown considerably.
More recently focus has turned to the fact that previous generation diesel vehicles produce
higher levels of nitrogen oxide and particulates emissions, which are one of a number of
sources impacting local air quality. Cars built after 2015, which comply with Euro 6
regulations, produce substantially less nitrogen oxide and particulates emissions than older
engines, and the introduction of Euro 6c engines from August 2018 will further enhance air
quality impacts. There has been a considerable amount of misinformation regarding these
matters, and a lack of strategic direction and consistency from Governments, both in the UK
Vertu Motors plc
12
Strategic Report (continued)
Other Industry Issues (continued)
Diesel Vehicles (continued)
and elsewhere and at local and national level. This situation has confused customers and
made them fearful of diesel in its totality and as a consequence sales of the more modern,
environmentally friendly vehicles have reduced so reducing the potential speed of air quality
improvements. UK registrations of diesel vehicles fell by 17.1% during 2017, with the rate of
decline accelerating more recently to 31.9% for the four month period to April 2018.
Manufacturers have begun to react by switching diesel manufacturing capacity to petrol or
hybrid vehicles, and this process is accelerating. The UK used diesel vehicle market was
buoyant in 2017 with transactions growing by 3.3% as more diesel vehicles were part
exchanged for new petrol product. Residual values of diesel vehicles versus petrol vehicles
in the Period saw no major variation. As at 28 February 2018 diesel vehicles represented
42.3% of the Group’s used vehicle inventory (2017: 45.7%).
WLTP
New emission testing regulations for passenger cars come into effect in the EU on 1
September 2018 called Worldwide Harmonised Light Vehicle Test Procedures (“WLTP”).
This replaces the previous New European Driving Cycle (“NEDC”) testing regimes. From 1
September 2018 only vehicles which have been tested under the new WLTP regime can be
sold as new vehicles, with the possible exception of small volumes of vehicles which member
states may allow to be sold in the short term under “derogation powers”. This change has the
capacity to cause dislocation in manufacturer production schedules and, in particular, could
lead to short term supply issues which may impact the important September market. We are
currently working with each of our manufacturer partners to assess this potential impact.
Market Dynamics
New Vehicles
During the Period, Sterling traded at lower levels against other major currencies, and this
currency depreciation (which began in June 2016 following the UK referendum on EU
membership) impacted the supply side of the UK new vehicle market. The majority of
vehicles sold in the UK are manufactured in factories located in either Euro, Yen or Won
currency zones, and the depreciation of Sterling has made it less profitable for most
Manufacturers to sell vehicles in the UK. As a consequence, several manufacturers have
increased selling prices, reassessed their UK marketing budgets and diverted production to
other more profitable markets. Manufacturers have also reduced their exposure to the lower
margin channels, for example daily rental, fleet and broker channels. This supply side
dynamic has also put downward pressure on pre-registration activity in the market place.
These trends have been most evident in volume franchises which have reduced the supply of
vehicles into the UK market. While the same economic and currency related challenges have
faced premium franchises, the higher margins available to these Manufacturers have enabled
them to adopt a different, and more aggressive approach. Seeing the retreat of the volume
franchises, they have kept price rises to a minimum and have continued to fund attractive,
often finance led, offers to the UK consumers. As a consequence, premium franchises have
grown their UK market share during the Period.
On the demand side, the period leading up to the UK General Election in June 2017 saw a
from July onwards but
particularly volatile consumer environment.
demonstrated weakness again during the pre-Christmas period. Consumer confidence has
appeared to regain a degree of vibrancy in 2018 to date compared to 2017. This consumer
environment has been exacerbated by a lack of clarity from Government regarding its current
and future policy for diesel vehicles, and the media focus on this issue. This has led to a
significant shift away from diesel product and may have led to some customers delaying
entering the market altogether whilst uncertainty persists.
This stabilised
Vertu Motors plc
13
Strategic Report (continued)
Market Dynamics (continued)
New Vehicles (continued)
As a consequence of these supply and demand trends the UK private new retail vehicle
registrations during the Period fell by 7.6% and car fleet volumes fell by 5.7%.
The light commercial vehicle market also saw selling price increases and a reduction in
volumes, with UK registrations down by 3.5% in the Period. The year-on-year price increases
were in part due to the introduction in June 2016 of the more expensive Euro 6 models, and in
part due to the currency impacts referred to above.
Used Cars
During the year ended 31 December 2017, the used car market in the UK recorded marginally
declining sales of 1.1% (SMMT) against a backdrop of volatility in consumer demand and
reduced supply of volume used cars as pre-registration activity reduced in line with the trends
described above in the new car market.
On the supply side of volume used cars, reducing part-exchanges as a result of declining new
car sales volumes from April onwards, together with lower supply as a result of declining pre-
registration volumes and a contracting daily rental market, kept wholesale used car market
prices robust as the Period progressed.
The premium used car market diverged in trends from the volume car market. The continued
new car volume pressure described above, led to high levels of nearly new and pre-registered
product in the market competing with strong new car offers. Residual values saw significant
falls as a result in the Period with a consequent impact on premium used car margins.
Since 1 January 2018 more normalised demand and supply conditions have been exhibited
across the used car market in the UK.
Aftersales
The aftersales market continued to benefit during the Period from a growing vehicle parc
following several years of new car market growth. The mix of service department work shifted
in favour of warranty work as a consequence of several manufacturer recalls and significant
product quality issues affecting a number of franchises. The continuing introduction by
manufacturers of increasingly technologically complex, connected vehicles with innovative
engine and vehicle management systems is contributing to this trend. A growth in retail and
warranty demand was partly offset by reduced internal volumes in the workshops in the
preparation of cars for sale, particularly in relation to lower new car sales.
The rising demand for aftersales saw a lack of technician resource nationwide in 2017 and
this constrained sales growth in workshops. This capacity constraint reduced as the year
went on due to: the impact of apprentice training from previous years; increasing numbers of
trained technicians coming into the market; rising salaries attracting technicians from the non-
franchised sector and more resource becoming available as tougher sector market conditions
led to a number of dealership closures in the UK.
Manufacturers continue to pursue strategies to increase the efficiency of parts distribution
networks and to seek to reduce the supply push of parts into the retailer network. Reduced
rebates may arise from these changes, but benefits such as a reduction in low margin sales,
lower stockholding and obsolescence costs and reduced costs of funding working capital,
may also accrue to the retailer.
Vertu Motors plc
14
Strategic Report (continued)
Group Revenues and Margins
Year ended 28 February 2018
Aftersales1
Used cars
New car retail and Motability
New fleet and commercial
Year ended 28 February 2017
Aftersales1
Used cars
New car retail and Motability
New fleet and commercial
Revenue
£’m
228.2
1,068.9
836.5
662.5
2,796.1
Revenue
£’m
227.0
1,037.5
909.4
648.7
2,822.6
Revenue
Mix
%
8.2
38.2
29.9
23.7
100.0
Gross
Margin
£’m
124.7
98.7
64.1
21.4
308.9
Revenue
Mix
%
Gross
Margin
£’m
8.0
36.8
32.2
23.0
100.0
123.4
100.7
68.3
21.1
313.5
Gross
Margin
Mix
%
40.4
31.9
20.8
6.9
100.0
Gross
Margin
Mix
%
39.4
32.1
21.8
6.7
100.0
Gross
Margin
%
44.5
9.2
7.7
3.2
11.0
Gross
Margin
%
44.6
9.7
7.5
3.3
11.1
1 margin in aftersales expressed on internal and external revenue
Revenues in the Period fell by 0.9% (£26.5m) to £2,796.1m (2017: £2,822.6m). This included
the full year impact of prior year acquisitions which grew by £39.5m more than offset by
closed operations contributing a year on year revenue reduction of £60.8m. Group like-for-
like revenues were flat at £2,569.9m (2017: £2,572.1m) despite a significant fall in new retail
vehicle sales.
The Group saw an increased proportion of revenues and gross profits generated by its higher
margin aftersales and used car operations. These operations contributed 46.4% (2017:
44.8%) of revenues and 72.3% (2017: 71.5%) of gross profit. This reflected declining
volumes in the new car retail and Motability channel.
Gross margins in the Group remained stable at 11.0% (2017: 11.1%). The positive effect of
the higher aftersales and used car sales mix was offset by pressure in the used car channel
on margins. Used car margins fell from 9.7% to 9.2% and falls were particularly apparent in
the premium franchises. This was reflective of the market dynamics previously described.
Aftersales
The Group’s aftersales operations, which comprise servicing, supply of parts, accident
repairs, smart repair and forecourt activity, form a vital element of the Group’s business
model, since significantly higher returns are generated from these activities than those
achieved in vehicle sales. While aftersales represents 8.2% of Group revenues, it accounts
for 40.4% of gross margin, so management focus on maintaining and improving performance
in this area is crucial to the Group’s overall results. The market for service and repair, in
particular, has expanded with the vehicle parc as new vehicle sales have grown over recent
years and this momentum is expected to continue for a period. The Group has substantial
opportunities to grow the volume of the higher margin activities due to this parc growth and
self-help strategies to increase customer retention. The rapid development of new technology
in vehicles is further helping to improve customer retention into franchised dealerships as
customers become increasingly aware of the expertise and factory connectivity required to
service modern connected vehicles.
Vertu Motors plc
15
Strategic Report (continued)
Group Revenues and Margins (continued)
Aftersales (continued)
During the Period the Group has made significant progress in developing and expanding the
resource base which underpins this key part of the business. A number of successful
initiatives have been implemented in the aftersales area:
• Earnings packages for both technicians and service advisors have been enhanced, both
in terms of basic pay and bonus earnings potential. This has helped a major recruitment
campaign which has substantially reduced the number of technician vacancies.
• The Group has recruited 138 apprentices into the aftersales arena during the Period to
secure the future growth in the business and will continue to invest heavily in this area.
• The Group has also established an innovative degree apprenticeship scheme in
partnership with Northumbria University to recruit service advisors who will develop into
our aftersales leaders of the future. The first nine colleagues recruited to this five year
programme joined the Group in August and a further cohort of 12 is planned to be
recruited in the coming months. A Business Management Degree is studied for as part of
the Programme, funded by the Apprenticeship Levy.
• As part of the Group’s ongoing programme of capital investment in the dealership
infrastructure, each refurbishment or redevelopment project undertaken has sought to
improve and maximise the productive capacity of the aftersales departments. Service
departments have been extended and restructured to increase the number of ramps
available and to enhance efficiency.
• The Group has introduced further initiatives to increase workshop capacity through shift
patterns, longer opening hours (including weekends), mobile van servicing and two
technicians per ramp initiatives.
This focus on increasing the Group’s ability to meet customer demand for vehicle servicing in
flexible ways is essential as customers are seeking and expecting a more flexible “on
demand” vehicle servicing experience, which is more convenient for them. In addition, fast
“while you wait” servicing is also likely to increase in scope. While customers find franchised
dealerships good value for money and expert on the product, leakage does occur to the
independent aftermarket which can be perceived as more local and more convenient in terms
of opening hours.
The table below sets out the Group’s like-for-like aftersales revenues and margins, including
both internal and external revenue:
Service revenue
Parts and accident repair revenue
Like-for-like aftersales revenue
Service gross margin
Parts and accident repair gross margin
Like-for-like aftersales gross margin
Growth
4.7%
1.4%
2.7%
2018
£’m
102.8
145.8
248.6
76.4%
23.0%
45.1%
2017
£’m
98.2
143.8
242.0
77.3%
23.1%
45.1%
Vertu Motors plc
16
Strategic Report (continued)
Group Revenues and Margins (continued)
Aftersales (continued)
Like-for-like margins were stable at 45.1% assisted by an increase in the mix of higher margin
service revenues, and like-for-like gross profits grew by a significant £3.0m (2.7%) in the
Period. Service revenues rose 4.7% on a like-for-like basis, representing the eighth
successive year of growth in this key high margin area. Like-for-like service margins fell
slightly to 76.4% (2017: 77.3%) due to the impact of higher salary levels for technicians and
lower efficiency as inefficient diagnostic and warranty work increased at a faster rate than
more efficient routine servicing revenues. Increased service revenues are the result of the
significant focus in the Group on driving operational excellence in service to enhance financial
performance, the delivery of excellent customer experiences to increase customer loyalty and
the success of the service plan retention strategy.
Supply of Manufacturer parts continues to be a vital part of the retailer model. Parts revenues
rose 1.6% on a like-for-like basis while margins strengthened to 21.4% (2017: 21.3%).
The table below shows the volumes of vehicles sold on a like-for-like basis:
Used retail vehicles
New retail cars
Motability cars
Fleet and commercial vehicles
Total New vehicles
2018
Like-for-
Like
79,052
34,811
10,650
34,555
80,016
2018
Acquired1
2018
Total
769
601
120
297
1,018
79,821
35,412
10,770
34,852
81,034
2017
Like-for-
Like
79,445
40,157
11,127
36,235
87,519
2017
Total
81,636
41,525
11,396
36,741
89,662
Like-for-
Like
%
Variance
(0.5%)
(13.3%)
(4.3%)
(4.6%)
(8.6%)
Total
%
Variance
(2.2%)
(14.7%)
(5.5%)
(5.1%)
(9.6%)
159,068
1,787
160,855
166,964
171,298
(4.73%)
(6.1%)
1 relates to businesses acquired or developed subsequent to 1 March 2016 with businesses included within like-for-
like once they have been in the Group for over 12 months
Used retail vehicles
During the Period the Group increased both total and like-for-like used vehicle revenues by
3.0%. This was driven by price increases as like-for-like average sales prices rose in the
Period by 4.0% from £12,445 to £12,945.
Following six years of consecutive like-for-like volume growth in used vehicle sales, the Group
recorded a 0.5% like-for-like volume decline during the Period. The decline in volume
occurred during the second half of the Period in line with the market trends recorded by the
SMMT. The supply side factors influencing this included lower levels of pre-registration
stocks held by the Group due to less supply push from manufacturers, and hitting new car
targets without the need for self-registrations which are then sold as used cars. The demand
side factors related to the weaker consumer environment during the pre-Christmas period. In
these circumstances the Group elected not to sacrifice margin in the pursuit of volume, as
evidenced by the higher gross profit per unit in the second half of the year of £1,278 (2017 H2
: £1,222). Higher average sales prices in the Period had a significant impact on diluting gross
margin percentages from 9.7% to 9.2%. Margin erosion was particularly apparent in the
Group’s premium franchises where nearly new product was oversupplied in the market place
and highly competitive new car offers had a depressing impact on the sales prices that could
be achieved on used product.
Like-for-like used car gross margins actually increased from 9.5% in the first half to 9.6% in
the second half. The impact of these margin trends across the Period was that the gross
profit generated from like-for-like used vehicle sales fell by £2.6m; £2.1m of this decline was
in H1 and £0.5m in H2.
Vertu Motors plc
17
Strategic Report (continued)
Group Revenues and Margins (continued)
New retail cars and Motability
Changes in new vehicle sales volumes during the Period were as follows:-
Volumes:
New retail vehicles
Motability vehicles
Fleet new cars
Commercial new vehicles
Increase/(decrease) year-on-year
Total
%
(14.7)
(5.5)
(6.0)
(4.1)
Like-for-Like
%
SMMT
Registrations
%
(13.3)
(4.3)
(5.0)
(4.2)
(7.6)
(2.7)
(5.7)
(3.5)
During the Period the Group’s like-for-like new car retail volumes reduced by 13.3% and the
UK private new retail registrations declined by 7.6% (SMMT) as shown in the table below. As
a consequence the Group lost market share in the Period reflecting the decline of the Group’s
volume manufacturers in the period compared to the market as a whole.
Volumes:
SMMT registrations (Private)
Group new retail cars
Six months ended
31 August 2017
%
(6.4)
(14.7)
Six months ended
28 February 2018
%
(9.0)
(11.7)
12 months ended
28 February 2018
%
(7.6)
(13.3)
The Group’s trends in new retail car sales more closely mirrored the trends in the SMMT
registrations in the second half of the Period since the distorting impact of self-registrations
included in the SMMT data (but not Group new retail car sales volumes) reduced. This
corresponded with the reduction in supply to the UK in volumes franchises described earlier
as a consequence of weaker Sterling.
The Motability new car market declined by 2.7% during the Period due to some volume
Manufacturers reducing supply into this low margin channel, and the impact of Government
welfare reforms. Motability continues to be a major strength of the Group and a major driver
of servicing demand since Motability supplied vehicles have a three year servicing plan linked
to them that retains them to the supplying retailer. The Group saw like-for-like Motability
vehicle sales decline by 4.3%.
During the Period like-for-like selling prices increased by 4.8% as Manufacturers passed on
an element of the impact of the currency weakness. The Group maintained strong pricing
disciplines and continued to achieve Manufacturer volume targets at high levels during the
Period resulting in an increase in gross margins to 7.7% (2017: 7.5%) and a reduction in the
Group’s self-registration activity.
Fleet & Commercial new vehicle sales
During the Period the Group saw like-for-like selling prices in the fleet and commercial
segment increase by 7.2% as the major volume Manufacturers sought to protect their margins
and increase prices in these channels. The Group’s like-for-like sales volumes reduced by
4.6%, slightly better than the market which fell by 5.2% (SMMT). This reflected a stronger
volume performance in the second half of the Period as the Group took more market share.
While gross profit per unit remained strong at £582 (2017: £560) the higher selling prices
resulted in slightly lower gross profit margin at 3.2% (2017: 3.3%).
Vertu Motors plc
18
Strategic Report (continued)
Exceptional item
On 31 August 2017 the Group undertook a sale and leaseback transaction realising £14.2m
on a recently acquired and redeveloped dealership property (Jaguar Land Rover Leeds) with
a book value of £10m. The lease commitment was for 15 years, the initial rent was at open
market value and the terms of the periodic rent reviews contain appropriate protection against
future increases. This transaction demonstrates both the quality and value of the property
portfolio.
During January 2018 the Group disposed of its former Volkswagen dealership in Boston,
Lincolnshire. The disposal included a freehold dealership property which realised a loss on
disposal of £0.5m, and a further £0.1m of goodwill was also written off resulting in a loss on
disposal of £0.6m. This loss has been offset against the profit of £4.1m on the disposal of the
property referred to above, resulting in a net exceptional property gain of £3.5m.
Managing operating expenses
In an inherently low margin business, it is vital that a disciplined framework of cost control is in
place and that this is a core competency for operational management. This is even more
important than ever in the current environment of softer new vehicle volumes and cost
pressure evident across the UK retail sector. The Group’s cost control framework is built
around a highly detailed business planning approach which is undertaken annually for all
dealerships, profit centres and cost centres. Once the business plans are established, costs
are benchmarked on a monthly basis for every dealership against the business plans, prior
year levels, internal benchmarks and recognised industry key performance indicators to
maintain control and to identify opportunities for additional cost or efficiency improvements.
The Group’s central purchasing function also pursues cost efficiencies and scale purchasing
benefits in the procurement and monitoring of utilities and other goods not-for-resale.
The Group is also focused on driving productivity and efficiency into the business to enhance
cash profits and offset cost headwinds. A committee chaired by the CEO has been in place
for the last two years with a remit to identify and execute these productivity gains and these
have borne fruit. Colleagues are incentivised to identify bureaucracy, costs and processes
that do not add value via a “You Suggest” scheme, which has also yielded some excellent
areas for action. Several more medium term projects are also in place to increase operational
efficiencies and to reduce costs. Projects are assessed to achieve a cash payback within two
years and often payback is shorter.
Total operating expenses in the period fell from £281.5m to £280.1m and like-for-like
operating expenses grew by £3m or 1.2%. This represents a significant result in the current
environment. All of the growth on a like-for-like basis arose in the second half of the Period.
As a percentage of revenues, operating expenses remained flat at 10.0% (2017: 10.0%).
This demonstrates the significant focus which the Group has continued to place upon cost
control. The action taken to fix, re-franchise, sell or close underperforming dealerships has
removed unproductive cost bases from the business, and the continued search for
productivity improvements has minimised the significant impact of increases in taxes and
other Government imposed costs (business rates, apprenticeship levy, minimum wage) as
well as other inflationary impacts upon the Group’s trading results.
The increase in like-for-like operating expenses includes:-
• higher (non-cash) depreciation as a consequence of increased capital investment levels
over the last two years (£1.0m)
• higher business rates on dealership properties (£0.3m)
•
•
the recruitment of technician, parts and service adviser apprentices (£0.3m)
the recruitment of additional service advisors, and enhancements to service advisor
packages (£0.7m)
• higher vehicle cleaning costs reflecting increased resources required as service demand
grew and increased pay rates (£0.7m)
Vertu Motors plc
19
Strategic Report (continued)
Managing operating expenses (continued)
•
the recruitment of additional colleagues to support the development of the Group’s
internet and digital marketing activities (£1.1m)
• higher spend in the final quarter of the Period on TV advertising to support the Group’s
new car sales in March 2018 (£0.4m)
These increases have been offset by headcount and other cost savings achieved in the sales
departments as vehicle sales volumes have declined
Interest charges
Net finance costs in the period reduced to £1.9m (2017: £2.3m). The Group’s tight control of
working capital reduced bank interest payable from £0.9m to £0.7m. Lower stocking interest
payable on new vehicle funding facilities arose reflecting reduced new vehicle inventory levels
during the Period, as Manufacturers reduced supply of new vehicles into the UK due to the
weakness in the value of Sterling.
Bank interest payable
Vehicle stocking interest expense
Pension fund: net interest income
Managing Pension Costs
Year ended 28
February 2018
Year ended 28
February 2017
£’m
0.7
1.3
(0.1)
1.9
£’m
0.9
1.6
(0.2)
2.3
The Bristol Street defined benefit pension scheme is closed to future membership and
accrual. During the Period the Group made cash contributions of £0.4m (2017: £0.4m) to the
scheme.
This defined benefit scheme showed a surplus as at 28 February 2018 of £6.6m (2017:
surplus £1.9m). The increase in the surplus is due to a 0.3% increase in the discount rate
applied to scheme liabilities, driven by increased corporate bond yields, lower inflation
assumptions and lower expectations of future mortality improvements. During the current
year the Group’s cash contributions to the scheme will reduce to £30,000 per annum as the
current recovery plan ended on 31 March 2018 with an increase in the Group’s free cash flow
generation as a consequence. The next triennial valuation of the scheme is due on 5 April
2018 and this is expected to show the scheme remains well funded on an actuarial basis.
Managing Tax Payments
Taxation represents one of the single biggest costs to the Group. In the year the Group
expensed £5.8m in corporation tax, £16.6m in Employers’ National Insurance Contributions,
£9m in business rates and £0.7m in the apprenticeship levy. These four taxes alone total
£32.1m (2017: £31.0m).
Through its tax strategy the Group seeks to pay its fair share of tax in compliance with UK
legislation. The Group does not engage in any aggressive tax planning and the Group is
classified by HMRC as ‘low risk’. Within this context, the effective rate of corporation tax for
the year was 18.9% (2017: 19.5%). The current year rate is slightly below the standard UK
Corporation Tax rate for the Period and the Board expects that the Group’s tax rate should
remain close to the headline UK Corporation Tax rate in the future as this rate declines to
17% by 2020.
Vertu Motors plc
20
Strategic Report (continued)
Capital Structure
The Group has an ungeared balance sheet with shareholders’ funds of £264.4m (2017:
£246.4m), representing net assets per share of 68.9p (2017: 62.3p) as at 28 February 2018.
The Group has tangible net assets of £174.3m (2017: £156.1m) and the balance sheet is
underpinned by a freehold and long leasehold property portfolio, including assets held for
resale, of £183.8m (2017: £182.0m). The Group has a robust tangible net assets per share
value of 45.4p as a result. The Board believes that a strong balance sheet backed by
property assets used in the business, and where debt taken on is long term in nature rather
than short term, is in the interests of the business’s owners. This approach reduces the
Group’s exposure to interest rate and rent increases and makes the business highly resilient
in the event of a cyclical downturn in activity.
The Group finances its operations by a mixture of shareholders’ equity, bank borrowings and
trade credit from suppliers and Manufacturer partners. On 28 February 2018, the Group
extended its five year acquisition facility with Barclays Bank plc and Royal Bank of Scotland
plc for a further year. This facility, which now matures on 27 February 2023, provides the
Group with £40m of committed borrowing capacity with the potential to add a further £30
million which is currently uncommitted. £10 million of this facility was drawn as at 28
February 2018. Interest is payable on this facility at LIBOR plus a rate between 1.3% and
2.1% depending upon the ratio of net debt to EBITDA. In order to reduce the Group’s
exposure to interest rate risk, the Board entered into a three year interest rate swap on 31
July 2017, maturing on 31 July 2020 in respect of the £10m drawn on the loan facilities. This
swap fixes the underlying LIBOR rate payable at 0.675%.
In addition to conventional bank borrowing, the Group also utilises used car stocking loans on
a very limited basis. These loans with third party banks are subject to interest at 1.5% above
LIBOR and are secured on the related vehicles. As at 28 February 2018, these borrowings
amounted to £12.8m (2017: £8.7m) representing 14.5% of the value of the Group’s used
vehicles (2017: 11.7%). The Group considers such borrowings as debt and includes such
amounts in the calculation of gearing and net debt (cash). These facilities are short term in
nature and can be called to be repaid on demand. As a consequence, these facilities are not
extensively utilised to fund long term assets.
The Group operated with cash balances for much of the year and additional facilities are
utilised to fund significant peak working capital requirements following plate change months
and quarter ends. The Group has £73m of overdraft and other money market facilities. On
the overdraft, interest was paid on drawn amounts at 1.1% above Base Rate, and on the
money market facilities interest was paid at 1.1% above LIBOR. As at 28 February 2018, the
Group had cash balances of £41.7m (2017: £39.8m) and, as a consequence, net cash of
£19.3m (2017: net cash £21.0m).
During the period, the Group comfortably complied with all of the financial covenants in
respect of its borrowing facilities, which include net debt to EBITDA and interest and lease
costs to EBITDAR.
The cash position at 28 February 2018 reflects the seasonal reduction in working capital,
typical of the industry, which arises at the month end prior to a plate change month. As a
result of the normal seasonal movements in working capital the year-end cash position is
higher than the normalised cash balances throughout the remainder of the year by
approximately £20m.
Capital Allocation
Consideration of capital allocation is central to the Board’s decision making. The Board
proactively believes that the Group’s funding structure should remain highly conservative and
that the application of the Group’s debt facilities to fund activities or acquisitions which meet
the Group’s hurdle rates for investment, will enhance return on equity and increase cash
profits in the future.
Vertu Motors plc
21
Strategic Report (continued)
Capital Allocation (continued)
The Board seeks to balance the dealership portfolio between freehold and leasehold
premises to ensure appropriate capital allocation. During the financial year the Group
undertook the sale and leaseback of the recently redeveloped Jaguar Land Rover Leeds
dealership property, realising £14.2m of cash, against the book value of the property of £10m.
This transaction demonstrated both the quality and value of the Group’s property portfolio and
the Board’s consideration of capital allocation in its willingness to be flexible as to operating
with either freehold or leasehold properties, on the right terms. The Board adopts a
conservative approach to the terms of leases, favouring lease breaks to provide flexibility and
open market value rent reviews to manage rent increase risks. The lease commitment under
the sale and leaseback transaction was for a period of 15 years, the initial rent was at open
market value and the terms of the periodic rent reviews contain appropriate lessee protection
against future increases. As at 28 February 2018, freehold locations represented 52% of the
Group’s property portfolio (2017: 53%).
The Group commenced its Share Buy-back Programme in July 2017 and as at 8 May 2018,
18.0m shares, representing 4.53% of the issued share capital, have been purchased at an
average price of 43.8p, had been acquired for cancellation for a total of £7.9m. The Board
believes that this is an appropriate use of capital and we expect share Buy-backs to form a
relevant element of our returns to our shareholders, alongside dividend payments at interim
and full year. The consequence of the Buy-back Programme to date will be to reduce future
dividend payments, based on 1.5p per share, equating to an annual saving of £270,000 cash.
Since the Group commenced dividend payments in 2011, our dividend has increased by
200% in absolute terms, including the 7.1% increase this year. The Board will seek to renew
approval to repurchase 10% of the issued share capital at the forthcoming Annual General
Meeting.
In common with most sector participants, the Group continues a programme of major capital
investment to increase the capacity in existing dealerships and to meet revised Manufacturer
franchise standards. In particular, significant sums are being invested in increasing capacity
and enhancing the retail environment of the Jaguar Land Rover dealerships with the
implementation of the “Arch” concept and similar developments are planned to improve
certain of the Group’s dealerships representing the Mercedes-Benz franchise. These were as
envisaged at the time of the Greenoaks acquisition. The bulk of these projects will be
completed in the current financial year, after which the Group’s allocation of capital to the
existing dealership portfolio will significantly decrease as set out in the next section. The
Board critically evaluates all proposed capital expenditure to ensure it makes sense from a
capital allocation and shareholder return perspective, and has chosen not to undertake a
number of prospective projects following such reviews where it believes appropriate returns
may not be generated.
The Group regularly reviews its capital allocation within its existing dealership and property
portfolio. The importance of property arrangements within an automotive retail business
should not be underestimated. The Property Committee, chaired by the CEO and including
external advisors, meets monthly to formally review and actively manage the Group’s property
portfolio. The management of the Group’s property portfolio to maximise cash returns from
surplus assets is an important driver of both cash flows to the Group over time and ensuring
appropriate capital allocation. The Board balances the need to recycle surplus assets into
cash as quickly as possible with the requirement to maximise the ultimate cash generation
from taking advantage of planning consents. Surplus assets arise from the ‘pruning’ of poor
performing dealerships, the relocation of businesses and the sale of surplus land acquired in
the development of new dealerships and from acquisitions. During the Period, this process
recycled £1.2m of property and £1.6m of working capital from marginal or loss-making
businesses closed or disposed of in the Period to activities generating higher returns.
As at the date of this report the Group is actively engaged in the marketing of a number of
surplus freehold assets. The Group sold one such surplus property subsequent to 28
February 2018, generating cash proceeds of £2.0m, compared to the £1.4m book value.
Vertu Motors plc
22
Strategic Report (continued)
Capital Expenditure
The cash impact of capital expenditure and disposals during the Period, along with the
anticipated spend in future years, is set out below:
Purchase of property
New dealership build
Existing dealership capacity increases
Manufacturer-led refurbishment projects
IT and other ongoing capital expenditure
Movement on capital creditor
Cash outflow from capital expenditure
Proceeds from Sale and leaseback and
property sales
Net Cashflow from capital investment
FY
2016
£'m
6.3
1.8
4.5
3.2
5.1
(0.4)
20.5
(1.1)
19.4
Actual
FY
2017
£'m
5.3
10.4
5.9
2.4
4.8
0.7
29.5
(1.0)
28.5
FY
2018
£'m
4.3
4.3
8.2
3.0
4.9
(0.6)
24.1
(14.3)
9.8
Estimate
FY
2019
£'m
1.6
4.6
13.1
9.9
4.8
-
34.0
(4.6)
29.4
FY
2020
£'m
-
2.5
4.4
4.6
4.0
-
15.5
-
15.5
During the Period the Group purchased the freehold interest in its leased Bradford Land
Rover dealership at a cost of £3.6m. The passing rent under the lease was £190,000 per
annum, with a rent review due at the time of purchase. This acquisition will allow the Group
greater flexibility over the site configuration as the dealership is redeveloped under the Land
Rover ‘Arch’ concept in 2020. In addition, £0.7m was invested in additional land for vehicle
storage in Bradford to improve the efficiency of the retail operation.
in
the year
the main project
the new dealership build category was
During
the
commencement of construction of the ‘Arch’ concept Jaguar Land Rover dealership in Bolton.
This £8.3m project, managed by the Group’s in-house team of project managers and
surveyors, will be completed in July 2018, bringing together in one flagship freehold location,
the Land Rover and Jaguar outlets currently operating from leasehold premises in Bury and
Bolton. The new dealership utilises surplus land adjacent to another of the Group’s
dealerships so maximising returns from the Group’s freehold property portfolio.
Major projects to increase the capacity of the existing dealerships during the year included the
extension and refurbishment of Bolton Ford to create a ‘Ford Store’ as well as the
redevelopment of the showroom facilities at the Shirley Ford dealership, following the
relocation of aftersales activities offsite. Shirley is one of the Group’s top performing new and
used car outlets and the customer experience, for used sales in particular, will be enhanced
by this investment. Offsite aftersales and pre-delivery inspection facilities were also
developed for the Chesterfield and Nelson Land Rover dealership to facilitate the future
development of these locations under the ‘Arch’ concept.
In the year ending 28 February 2019, major projects are being undertaken to increase
existing dealership capacity. These will include redevelopments of Reading and Slough
Mercedes-Benz, Nelson, Chesterfield and Guiseley Land Rover and Bradford Jaguar Land
Rover. These developments will deliver operations with greater capacity for sales and service
and will underpin the Group’s future profitability and cash generation.
The Board is confident that the significant reduction in future capital spend anticipated in
FY2020 will deliver enhanced free cash flow from the business. By the end of the year
practically all the dealership estate will have been redeveloped updated to the latest
manufacturer standards in recent years.
Vertu Motors plc
23
Strategic Report (continued)
Managing Working Capital
The Group has generated cash from operating activities of £27.3m from an operating profit of
£32.3m. Working capital absorbed £13.3m in the year following a number of years of positive
working capital movements generating cash. All of the working capital absorption arose
during the first half of the Period.
The Group has significant levels of working capital in the form of inventory, receivables and
payables. These are subject to significant, yet predictable, seasonal fluctuations which
coincide with plate change months and quarterly Manufacturer new car campaigns. In
addition, Manufacturer new vehicle supply levels and financing changes can also impact
working capital patterns over time. The Group benefits from VAT reclaimed on new vehicle
inventory invoiced from the Manufacturer which has yet to be paid for in cash. At the
beginning of the Period, these inventory levels declined, resulting in a VAT cash outflow in the
first half of the Period of £16.8m. This partially reversed in the second half of the Period.
During the final quarter of the Period the value of this inventory and corresponding creditor
increased to above prior year levels, resulting in a £10.2m increase in VAT receivable in the
February 2018 balance sheet when compared to February 2017. This cash was received in
April 2018 so reducing working capital levels at that point.
Lower new vehicle sales in September 2017 and March 2018 were expected to generate
lower part exchange supply for the Group’s used car operations, hence the Group decided to
increase used vehicle inventory going into September and March to compensate. In addition,
average value per used vehicle increased year on year. As a consequence, total used car
stock levels increased to £88.3m at the end of February 2018 (2017: £74.0m). Partially
offsetting this working capital absorption is a reduction in fully paid new vehicle stock and a
£4m increase in the value of cash held in respect of the Group’s warranty and service plan
products.
Free cashflow to equity
The Board regularly measures the long term free cashflow (operating cashflow less interest,
capital expenditure and tax, before acquisitions and dividends) as a return on the
shareholders’ cash invested capital (capital raised plus after-tax operating profits less
dividends). This measure, when compared to the cost of capital, provides an indication of the
extent to which cash, hence value, is being created in the long term. This measure stands at
10.6% over the 11 years since the Group’s formation (2017: 12.1% over 10 years). This
return compares favourably to the Group’s weighted average cost of capital of 8%. The
reduction in the recent Period indicated above is a result of the high level of cash deployed on
capital investment in the Period. As set out above, we expect this level of capital investment
to increase in the current financial year before declining in 2020, when the free cashflow to
equity metric should begin to increase.
Dividends
During the six year period since the Group commenced payment of dividends to its owners in
2011, over £23.1m has been returned to the owners of the business through dividends, with
the dividend per share increasing by 200% over the same period. The dividend has been
funded from cash generated from operations, without any negative impact on ongoing capital
expenditure programmes nor funding of suitable acquisitions.
The Board has proposed an increase in the final dividend for 2018, payable on 30 July 2018
subject to approval at the AGM, to 0.95 pence per share (2017: 0.9p), which, when taken
together with the interim dividend paid in January 2018 of 0.55 pence per share (2017: 0.5p),
provides a total dividend for the year of 1.50 pence per share (2017: 1.40p). This represents
an increase of 7.1% and a dividend cover of 3.9 times (2017: 4.7 times) based upon adjusted
earnings per share. The ex-dividend date will be 21 June 2018 and the associated record
date 22 June 2018.
Vertu Motors plc
24
Strategic Report (continued)
Dividends (continued)
The proposed full year dividend of 1.50 pence represents an annualised cash dividend, based
on the number of shares in issue at 28 February 2018, of £5.7m (2017: £5.5m). The
implementation of the share buyback programme has, of course, reduced the cash impact of
dividend increases in the Period. The distributable reserves in the parent company balance
sheet as at 28 February 2018 were £72.2m (2017: £58.9m). At this level of pay-out the Board
does not consider there to be any significant risks to the Group’s ability to continue to pay
dividends other than those risks listed in the annual report.
Key Performance Indicators
The Group has a number of Key Performance Indicators (“KPI’s”) by which it monitors its
business. These include analysis of results by channel; as set out on page 15, together with
the below:
KPI
Definition
Performance
Risk Factor Link
Adjusted
EPS
Adjusted profit after tax divided by
weighted average number of shares
(note 13)
FY18 – Adjusted EPS of 5.79p
FY17 – Adjusted EPS of 6.54p
I
s
P
K
l
Adjusted
PBT
Profit before tax, amortisation, share
based payments charge and
exceptional items
FY18 – Adjusted PBT £28.6m
FY17 – Adjusted PBT £31.5m
Gross
Margin by channel
Gross profit divided by revenue by
channel
See page 15
Like for Like Used
Volume growth
Number of used vehicles sold in
dealerships with comparable trading
periods in two consecutive years
FY18 – decline (0.5%)
FY17 – growth of 7.1%
Like for Like New
Retail volume
compared to UK
private registrations
Number of new retail vehicles sold in
dealerships with comparable trading
periods in two consecutive years
compared to the movement in UK
private registrations
Like for Like Service
Revenue growth
Retail labour sales activity direct to
consumers for the servicing and
repair of motor vehicles in
dealerships with comparable trading
periods in two consecutive years
Group
FY18 – decline of (13.3%)
FY17 – decline of (6.4%)
UK private registrations
FY18 – decline of (7.6%)
FY17 – decline of (1.0%)
FY18 – Retail growth 4.7%
FY17 – Retail growth 5.8%
i
a
c
n
a
n
F
i
I
s
P
K
l
a
n
o
i
t
a
r
e
p
O
/
i
c
g
e
t
a
r
t
S
❶❷❸❹❺
❻❼❽❾❿
⓫⓬⓭⓮
❶❷❸❹❺
❻❼❽❾❿
⓫⓬⓭⓮
❷❸❹❺❻
❾⓮
❷❸❺❻❾
⓬⓭
❷❸❺❾⓬⓮
❷❻❽❾
Online
Growth
Website visits to all Group trading
websites
FY18 – 12.9m visitors
FY17 – 11.1m visitors
❷❸❼❾❿
⓫
Customer
Service
Customer service is measured via
email survey responses from
customers gathered by our
manufacturer partners for new
vehicles or on Judge Service for used
vehicles
97% (FY17 96%) of our used vehicle
customers would recommend us –
Judge Service
❹❼❽❾
Vertu Motors plc
25
Strategic Report (continued)
Risk Management Process
THE BOARD
Responsibility for identifying significant risks, determining the Group’s risk appetite and oversight of the
principal risks to the Group’s strategic objectives
HEALTH AND SAFETY
COMMITTEE
Delegated responsibilities for
compliance with Health & Safety
and Environmental law and
regulations
AUDIT COMMITTEE
Delegated responsibility from the
Board for risk management and
Internal Controls
COMPLIANCE COMMITTEE
Delegated responsibility from the
Board for Compliance and
Whistleblowing
INTERNAL AUDIT
Responsibility for reviewing financial and operational controls, monitoring risk capture and mitigating actions, reporting
to the Audit Committee
CHIEF EXECUTIVE’S (CEO) COMMITTEE
Key day to day risk oversight is managed through the CEO Committee which is chaired by
the Group Chief Executive
Financial and Business Reporting
The Board is responsible for presenting a fair, balanced and understandable assessment of
the Group’s position and prospects. A statement of the Directors’ responsibilities for
preparing the Annual Report and financial statements is set out on pages 41 and 42. The
statement by the auditors about their reporting responsibilities is given on page 69.
Risk Management and Internal Controls
The Board is responsible for establishing and maintaining adequate internal controls over
regular financial reporting for the Group, including the consolidation process. There is a
comprehensive system of internal controls in place, including the Annual Business Plan
(“Plan”) which is reviewed and approved by the Board. Monthly actual results are reviewed
by management against both the Plan and prior year results. All data to be consolidated in
the Group’s financial statements is reviewed thoroughly by management to ensure that it
complies with relevant accounting policies and the financial reporting presents a true and fair
reflection of the financial performance and position of the Group.
The Board has overall responsibility for risk management and is advised of key risks facing
the Group on a regular basis with a formal review of the most significant risks annually, or
more frequently if required. The Board takes a proactive approach to the management of all
forms of risk, and views risk management as a vital constituent of its commitment to provide
value protection and growth for its various stakeholders. The internal controls system is
designed to manage, rather than eliminate, the risk of failure to achieve the Group's
objectives and can, therefore, only provide reasonable, rather than absolute, assurance
against material misstatement or loss. The Board regularly reviews the risks to which the
Group is exposed, as well as the operation and effectiveness of the system of internal
controls.
The day to day responsibility for compliance and certain regulatory activities has been
delegated to the Compliance Committee, chaired by the CFO and made up of members of
senior management. This includes the Group’s compliance with regulation under the
requirements of the Financial Conduct Authority (FCA), the Advertising Standards Authority,
the Trading Standards Institute, the Data Protection Act and all other applicable regulations.
Oversight of health and safety and environmental regulatory risk is delegated to the Health
and Safety Committee, made up of members of senior management.
The Board's approach involves identification of material risks that may restrict the Group's
ability to meet its objectives, the assessment of these risks in terms of impact, likelihood and
control effectiveness, and the establishment of risk management strategies. For some key
risks, where it is considered necessary, specialist advice is sought from external agencies
and professional advisers.
Vertu Motors plc
26
Strategic Report (continued)
Principal Risks and Uncertainties
There are certain risk factors which could result in the actual results of the Group differing
materially from expected results. These factors, as set out below, are not an exhaustive list of
all the potential risks and uncertainties that could adversely impact the Group’s results:
STRATEGY
Description of risk
Impact
Mitigation
❶ Failure to deliver on
the strategic goal of the
Group to acquire and
consolidate UK motor
retail businesses
Stalled growth of the
Group and associated
shareholder returns
Reputation risk
• Maintain strong relationships with manufacturer
partners to ensure that the Group remains a valued
and relevant candidate for any potential franchised
network development opportunities
• Availability of resources to fund expansion ensured
through both committed bank facilities and positive
cash generation within the Group
• Thorough reviews of acquisition opportunities to
ensure Group investment hurdles are met
• Established process for swift integration of acquired
businesses into the Group
❷ Failure to meet
competitive challenges
to our business model
or sector
Loss of customers to
competitors
Reduced profitability
• The Group’s scale, technological capability and
diversification creates the ability to capitalise on
market opportunities
• Customer experience focus of the Group attracts
❸ Advances in vehicle
technology provide
customers with mobility
solutions which bypass
the dealer network
Business model
becomes obsolete
customer loyalty
• Ongoing monitoring to identify emerging competitive
threats and act on these quickly
• Maintain strong relationships with manufacturer
partners to work closely with them as the future shape
of the sector evolves
• Establish sufficient scale with manufacturer partners
to ensure the Group is a key part of their route to
market
• Provide manufacturer partners with excellent retail
facilities and customers with excellent services, to
ensure Group is successful in the event of significant
industry consolidation
BRAND PARTNERS AND REPUTATION
Description of risk
Impact
Mitigation
❹ Inability to maintain
current high quality
relationships with
manufacturer partners
Impact on our ability to
retain existing contracts
and to take on new
opportunities for growth
• Group vision and values set the tone from the top to
deliver strong service to our Group stakeholders
• Constant focus on improvement in performance and
effective communication with our manufacturer
partners to ensure that our objectives are closely
matched to theirs
Vertu Motors plc
27
Strategic Report (continued)
Principal Risks and Uncertainties (continued)
ECONOMIC, POLITICAL AND ENVIRONMENTAL
Description of risk
Impact
Mitigation
❺ Economic conditions,
including the potential
consequences of the
UK decision to leave
the EU, impacting
trading
❻ Market and
environmental
considerations may
drive fluctuation in
used vehicle values
Volume and margin are
affected particularly in
vehicle sales
Amendments to
franchise contracts,
embracing new
legislation
Used vehicle margin is
effected and value of
used vehicle inventory
may decline
LEGAL AND REGULATORY
• Close monitoring of UK and European economic
conditions
• Maintain close relationships with manufacturer partners
• Focus on retention initiatives particularly in aftersales
• Daily monitoring of used vehicle market to detect pricing
movements
• Real time inventory management and control to enable
the Group to react quickly to pricing declines
Description of risk
Impact
Mitigation
❼ Litigation and
regulatory risk in an
environment of ever
increasing regulatory
scrutiny
❽ Failure to comply with
Health and Safety
(H&S) Policy
Litigation or breaching
regulations could have a
financial impact or
reputational impact
Customer contact
limited by GDPR
legislation
• Policies and procedures are in place to ensure
compliance with relevant regulations, adherence to
which is overseen by the Compliance Committee
• Risk management programme in place aimed at
preventing issues in the first instance but also providing
appropriate response to any issues that do arise
• Continuation of Group focus on customer experience
and a partnership approach with its manufacturer
partners, to minimise impact of Block Exemption regime
changes, and ensure continued customer relationship
Injury to customers or
colleagues
• Group has a dedicated H&S Manager
• Group H&S Committee monitors compliance and
recommends any corrective or preventative actions
• Training for all colleagues
• Specific H&S dashboard developed, monitoring KPI’s
•
Independent external H&S audits carried out
PEOPLE
Description of risk
Impact
Mitigation
❾ Failure to attract,
develop and retain
talent
Unable to deliver on
business plans
Colleagues who lack
motivation and
engagement
• Annual colleague satisfaction survey and action
planning based upon the results
• Significant investment in online and formalised training
and development programmes delivered by in-house
training department and external trainers as appropriate
• Talent review and succession plans in place
Vertu Motors plc
28
Strategic Report (continued)
Principal Risks and Uncertainties (continued)
SYSTEMS AND TECHNOLOGY
Description of risk
Impact
Mitigation
❿ Failure of Group
Business is interrupted • Robust business continuity process has been
Information or
telecommunication
systems
developed
• Operation of this process is regularly tested, reviewed
and updated as necessary
⓫ Group is targeted for
Business is interrupted
• Robust business continuity process has been
malicious cyber attack
developed
Data is compromised
• Policy prohibits installation of non-Group software
• Firewall and anti-virus protocols active and reviewed
regularly
• Penetration and vulnerability testing reviewed regularly
to assess new threats
FINANCE AND TREASURY
Description of risk
Impact
Mitigation
⓬ Availability of credit
and vehicle financing
1. ⓭ Use of estimates
⓮ Currency risk
Inability to secure
funding impacting on
distribution sales or
expansion opportunities
• Detailed working capital cash flow monitoring in place
• Maintain relationships with key banks, financing
arrangements in place until 27 February 2023
• Leverage Group relationship with OEM finance
companies and retail finance providers
Variance in accounting
judgement impacts
profitability
• Key accounting judgements are reviewed on a regular
basis to ensure these remain appropriate
• Regular review of changes in accounting standards
framework to assess any likely impact on the Group
• Portfolio of manufacturer partners spreads potential risk
• No material foreign exchange transactions are
undertaken directly by the Group
Fluctuation in exchange
rates impact the
profitability of our
manufacturer partners
which may change their
prices or support
packages to the dealer
network
Financial Position and Performance
A comprehensive analysis of the business during the year and the position at the year end is
contained within this Strategic Report.
Vertu Motors plc
29
Strategic Report (continued)
Viability Statement
Assessment of Prospects
The Group’s business model and strategy are central to an understanding of its prospects.
The Group’s strategy is to grow a scaled automotive retail group in both volume and premium
motor retail franchises, by acquisition or organic growth through enhanced performance.
Further details of the Group’s strategy can be found on pages 6 and 7 of the Strategic Report.
The nature of the Group’s activities is long-term and the business model is open-ended. The
Group’s current overall strategy has been in place since flotation in 2006, subject to the
ongoing monitoring and development described below.
Decisions relating to acquisitions and significant investment in dealership locations are made
by reference to both consideration of balance within the existing Group’s portfolio and the
projects’ expected achievement, within a three to five year time frame, of a range of financial
metrics including target EV/EBITDA ratios, IRR and ROCE.
The Assessment Process and Key Assumptions
The Group’s prospects are assessed primarily through its strategic planning process. This
process includes a detailed annual business plan review, led by the CEO through the Chief
Executive’s Committee.
The Board participates fully in the annual process through both the review and approval of the
annual business plan and through annual strategic reviews. Part of the Board’s role is to
consider whether the plan continues to take appropriate account of the external environment
including macroeconomic, political, social and technological changes. The output of the
annual review process is an analysis of the risks that could prevent the plan from being
delivered and financial forecasts highlighting the impact of the strategic plan. The latest
updates to the strategic plan were finalised in February 2018 following this year’s review.
This considered the Group’s current position and the development of the business as a
whole, and the Board assessed the viability of the Company over the three year period to 28
February 2021.
The Directors believe that a three year period is appropriate as the Group’s financial
forecasting encompasses this period and the Group’s key bank financing arrangement is in
place for five years which include this forecast period.
Financial forecasts were prepared for the three year period to 28 February 2021, so that two
years nine months remains at the time of approval of this year’s annual report. The first year
of the financial forecasts comprised of the Group’s detailed business plan. Years two and
three of the forecasts are extrapolated from the first year, based on the overall content of the
strategic plan.
The key assumptions in the financial forecasts, include:
• The core group with no acquisitive growth beyond a known pipeline, reflecting the
Strategic and Brand Partners principal risks set out on page 27 of the Strategic
Report.
• Prudent growth assumptions in both volume and margin, reflecting the risks set out
on pages 27 to 29 of the Strategic Report.
The Board carried out a robust assessment of the principal risks facing the Group and the
purpose of the principal risks on pages 27 to 29 is primarily to summarise those matters that
could prevent the Group from delivering on its strategy. A number of other aspects of the
principal risks, because of their nature or potential impact, could also threaten the Group’s
ability to continue in business in its current form if they were to occur. This was considered
as part of the assessment of the Group’s viability, as explained below.
Vertu Motors plc
30
Strategic Report (continued)
Viability Statement (continued)
Assessment of Viability
Although the strategic plan reflects the Directors’ estimate of the future prospects of the
business, the Board has also considered the potential impact on the Group of a number of
scenarios over and above those included in the plan, that would represent serious threats to
its liquidity. The principal risks and mitigation steps that the Board considered as part of this
viability assessment are set out in pages 27 to 29 of the Strategic Report. The Group also
mitigates the principal risks it faces through the diverse revenue generation from all parts of
the vehicle cycle, range of franchise representation and investment in complementary
business streams together with regular monitoring to identify change quickly. The Board
believes that the Group is well placed to manage its business risk successfully.
Based on their assessment of prospects and viability as set out above, the Directors confirm
that they have a reasonable expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the three year period ending 28 February 2021.
Going Concern
The Directors also considered it appropriate to prepare the financial statements on the going
concern basis, as explained in the Basis of Preparation paragraph in note 1 to the
Consolidated Financial Statements.
Robert Forrester
Chief Executive Officer
9 May 2018
Michael Sherwin
Chief Financial Officer
9 May 2018
Vertu Motors plc
31
Main Board Directors
The Board currently comprises the Directors outlined below.
Peter Jones – Non-Executive Chairman
Peter (61) has an extensive industry background including his joint ownership of the
successful independent motor group Bramall and Jones Ltd; Commercial Director at Inchcape
Retail; CEO of C.D. Bramall plc and Commercial Director of Rover Cars UK & Ireland. From
2008 to 2013, Peter served as an Executive Director of Lookers plc including the CEO role
from October 2009 to the end of December 2013.
Ken Lever – Non-Executive Director
Ken (64) is a former partner of Arthur Andersen and has held senior executive director roles
in many listed companies including Alfred McAlpine plc, Albright & Wilson plc and Tomkins
plc. Ken was CFO of Numonyx in Switzerland from April 2008 to September 2010, and was
CEO of Xchanging plc from June 2011 until December 2015. Ken is also a Non-Executive
Director of Gresham House Strategic plc, Blue Prism plc, FM Insurance Company Limited
and DAC Beachcroft LLP and is Non-Executive Chairman of RPS Group plc and Biffa plc.
From 2007 to 2013, Ken was a Member of the Accounting Council of the Financial Reporting
Council (formerly the UK Accounting Standards Board).
Pauline Best – Non-Executive Director
Pauline (54) is an experienced Human Resources professional who is currently the Global
People and Organisation Director of Specsavers and whose previous roles include Global
Leadership and People Capability Director for Vodafone and Human Resources Director of
Talkland.
Nigel Stead - Non-Executive Director
Nigel (68) was previously CEO of Lex Autolease, the UK’s largest contract hire and leasing
group and a Director of the British Vehicle Rental and Leasing Association. He has also been
a Non-Executive Director of Motability Operations Group plc, APD Global Research Limited
and Universal Salvage plc. Nigel was a Non-Executive Director of Merrion Fleet Management
Limited until July 2017 and was a Non-Executive Director of Prohire plc until March 2018.
Robert Forrester – Chief Executive
Robert (48) was a Director of Reg Vardy plc between 2001 and 2006 where he held the roles
of Finance Director and Managing Director. Robert qualified as a chartered accountant with
Arthur Andersen. He is also a member of the Economic Growth Board of the Confederation
of British Industry.
Michael Sherwin – Chief Financial Officer
Michael (59) has extensive retail, transactional and public market experience. From 1999 to
2008, Michael was Group Finance Director of Games Workshop Group PLC, a FTSE listed
consumer goods company. Michael is a qualified Chartered Accountant having trained with
Price Waterhouse, where he held positions in the UK, Paris and Sydney. He was also Non-
Executive Director of Plusnet plc, an AIM listed internet business, from 2004-2007. In
December 2017 Michael was appointed as a Non-Executive Director of Sumo Group plc.
Vertu Motors plc
32
Broker
Zeus Capital Limited
82 King Street
Manchester
M2 4WQ
Advisors
Nominated Advisor and Broker
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
Solicitors
Womble Bond Dickinson (UK) LLP
St Ann’s Wharf
112 Quayside
Newcastle upon Tyne
NE1 3DX
Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
Central Square
29 Wellington Street
Leeds
LS1 4DL
Tax Advisors
Deloitte LLP
One Trinity Gardens
Broad Chare
Newcastle upon Tyne
NE1 2HF
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Financial PR Advisors
Camarco
107 Cheapside
London
EC2V 6DN
Company Secretary
Karen Anderson
Registered office
Vertu Motors plc
Vertu House
Fifth Avenue Business Park
Team Valley
Gateshead
NE11 0XA
Vertu Motors plc
33
Corporate and Social Responsibility Report
Introduction
Corporate and Social Responsibility (“CSR”) is at the very core of our Group’s culture and
values and the CSR strategy falls into four main areas:
o Health and Safety
o Environmental Management
o Colleagues
o Vertu in the Community
1. Health and Safety
A consistent Group-wide approach is taken with regards to Health and Safety and
environmental matters. A Health and Safety Committee, now chaired by the CEO, meets
monthly to consider all aspects of our Health and Safety performance, including reviewing any
incidents, and considering how to spread best practice across the Group. All line managers
receive comprehensive, externally provided training to ensure they understand relevant
legislation and the scope of their responsibility in this critical area. There are clear lines of
responsibility which are communicated to all colleagues. The General Manager is the main
responsible individual at each dealership for all Health and Safety matters supported by a
dealership Health and Safety Co-ordinator. A Group Health and Safety Manager is
responsible for monitoring compliance with Health and Safety systems and providing support
and advice to the General Managers, as well as continually assessing the quality of our
systems, outputs and recommending improvements. The Health and Safety Committee also
reports monthly to the Board, and key findings are communicated regularly to Senior and
General Managers to retain a focus on Health and Safety matters.
This year has seen significant further progress in the management of Health and Safety within
the Group. Our Health and Safety Dashboard, which focuses on key risk areas within the
Dealerships, has become a cornerstone of our processes with consistent reporting on any
shortfalls being provided to the Board. This has allowed us to quickly identify any locations
where the required level of concentration on this critical area is falling short and allows us to
generate corrective actions.
In order to manage the Health and Safety risk involved in driving we have implemented
telematics devices into the cars of our younger drivers as they were identified as our largest
risk population, and this system gives us real time reporting on driver behaviour. The resultant
change in driver behaviour has had a positive impact on the number of at fault accidents we
have suffered in the year.
During the year, each location has had an independent external audit to assess adherence to
our Health and Safety Operating System. The results of these audits have been encouraging
with most Dealerships scoring very highly, and only a small number of failed audits which
resulted in immediate corrective action. The audit output has also provided a list of
improvements to be addressed at each dealership and attending to these will again raise the
bar on delivering a safe environment for Customers and Colleagues. This audit process will
now be repeated annually as an independent check of our process strength.
2. Environmental Management
• Responsible Sourcing
All of the Group’s business locations are situated within the UK and operate in strict
compliance with all applicable labour relations laws. We have no presence, either directly or
via sub-contractors, in any areas which present a material 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. The Group’s modern slavery
statement has been published on the Group’s website.
Vertu Motors plc
34
Corporate and Social Responsibility Report (continued)
2. Environmental Management (continued)
• Reducing Carbon and Waste
The Group’s strategy on environmental matters is to ensure legal and regulatory compliance
as well as seeking to manage costs through effective resource allocation. During the year,
the Group complied with the Energy Savings Opportunity Scheme Regulations 2014 (‘ESOS‘)
to undertake a mandatory energy assessment of our sites. We used the results of this
assessment to identify further energy saving opportunities and to encourage best practice
throughout the Group.
During the year, we have continued to assess, monitor and manage our energy use. Also
where practicable, we have implemented measures designed to reduce our activities’
environmental impact, which, over time, we anticipate will help reduce our carbon footprint.
To conserve energy, we continue to install LED lighting schemes, fix luminair and movement
sensors, 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 suitable insulation to limit the escape of heat.
3. Colleagues
The Group seeks to fulfil the career aspirations and potential of all colleagues. The Board
seeks to create an environment in which every colleague enjoys coming to work, feels
motivated in everything that they do and takes pride in their contribution to the Group. The
enthusiasm and dedication of colleagues is a vital factor in the Group’s success. In order to
develop a culture that is positive and contributes to the Group performance, seven core
values are used extensively in the business to signpost desired behaviours. These are set
out below:
•
Values
o Passion
We are proud of our Company and dedicated to its purpose. We are enthusiastic, enjoy
challenges and are eager for success.
o Respect
We are friendly and courteous in all our relationships with colleagues, customers and
suppliers.
o Professionalism
We are reliable and consistent and we excel in the standards and presentation of our
people, products and premises.
o
Integrity
We are trustworthy and honest in all that we say and do and take responsibility for our
own actions.
o Recognition
We appreciate the endeavours of our colleagues. We praise their achievements and
enjoy celebrating their success.
o Opportunity
We have a vision of what can be achieved and provide colleagues with personal
development, supportive training and exciting career progression.
o Commitment
We are all determined to achieve total customer satisfaction by providing a service built
on trust.
Vertu Motors plc
35
Corporate and Social Responsibility Report (continued)
3. Colleagues (continued)
• Employment Policies
The Group's aim is to attract and retain the best people in the automotive retail sector while
observing best practice in employment policies and procedures through a commitment to:
o Offering equal opportunities in recruitment and promotion;
o The continuous development of all colleagues;
o Encouraging internal promotion;
o Using progressive, consistent and fair selection methods;
o Offering family friendly policies and ensuring colleagues are treated with respect and
dignity in an environment where no form of intimidation or harassment is tolerated.
All appointments are made solely on the basis of a person's suitability for a particular post and
without reference to gender, sexual orientation, age, ethnic origin, religion or disability (except
when there is a genuine occupational requirement). The principle of equality also applies to
career development opportunities and training.
Employment career progression and development of disabled people is considered on merit
with regard only to the ability of the applicant to carry out the function required. Arrangements
to enable disabled people to carry out the function required will be made if it is reasonable to
do so. A colleague becoming disabled would, where appropriate, be offered retraining and
support to continue in their role where possible.
The Group pays attractive salaries and additional benefits to dedicated people. The Group is
keen to ensure that colleagues prepare for retirement and offer a Group Personal Pension
arrangement with varying levels of employer contribution based on seniority, in addition to a
default auto-enrolment pension scheme into which all qualifying colleagues are enrolled if
they choose not to opt out. The Group encourages colleagues to become shareholders in the
Company through participation in the Group's share schemes; including an all-colleague
Share Incentive Plan. The Group also offers private health and life insurance to senior
management colleagues as well as a reward platform, childcare voucher and cycle to work
scheme which are open to all colleagues.
Number of Group colleagues by gender:
At 28 February 2018
At 28 February 2017
Female
Male
Total
Female
Male
Total
Directors
Senior Managers
1
6
5
43
6
49
1
6
6
45
7
51
All Colleagues
1,321
3,997
5,318
1,305
3,911
5,216
• Communication
The Group is committed to providing colleagues with information on matters of interest to
them on a regular basis. Individual achievement is recognised publicly and privately to
reinforce behaviours in line with the Group’s Values and Mission Statement. ‘Working
together’ is vital when developing a successful team and at the very heart of this is good
communication. The Group utilises many formal and informal channels to achieve this. For
example, the Chief Executive produces a blog several times a week and regular news
updates are posted onto a Group wide intranet site. Additionally, the Group produces printed
newsletters, which feature news stories from colleagues working across the Group’s network
of dealerships. Each General Manager undertakes a monthly Team Brief, updating
colleagues in small groups on relevant issues impacting the Group and the dealership. These
meetings seek to reinforce the Group’s values and contribute to the creation of a Group
culture.
Vertu Motors plc
36
Corporate and Social Responsibility Report (continued)
3. Colleagues (continued)
• Communication (continued)
The Group operates several award schemes covering all colleagues. These schemes are
intended to recognise and reward talented and committed individuals throughout the Group.
One such scheme is the CEO Awards, which are announced each December and sees a
number of managers recognised for their outstanding performance. The Group also operates
‘The Masters’ Club Awards’, whereby a number of high performing non-management
colleagues from across the Group are recognised for their individual performance. The
recipients range from sales executives, service advisors and technicians to drivers, cleaners,
valeters and receptionists with a category to cover every dealership based colleague. The
Group recognises colleagues with long service, with specific recognition for those reaching 10
and 20 years within the Group. These award programmes are designed to reward and
reinforce behaviours underpinning both Group financial performance and other strategic
objectives including the delivery of an outstanding customer experience.
4. Vertu in the Community
The scope of our involvement in the community includes both charity and community support.
• Charity Support
The Group is proud to work with a diverse and broad range of national charities and local
projects. In the last two years the Group has raised more than £66,000 for Children in Need.
This year the Group also supported BEN (Motor and Allied Trades Benevolent Fund), a not-
for-profit organisation that partners with the automotive industry to provide life-long support to
its people and their families and the New Testament Church of God Social Responsibility
Programme.
• Community Support
As the Group has expanded, so has the scope of its involvement in the community as part of
our wider corporate and social responsibility strategy. The projects chosen for support reflect
the diversity and depth within the business, and also the desire of colleagues to be an active
part of the communities served by their dealership. Across the country, the dealerships
support a range of local charities, including St Oswald’s Hospice in Newcastle and Harlow
Food Bank.
In the local community, the dealerships also support a range of sporting and recreational
initiatives including, the Dunston Silver Band, Banbury United FC and the Newcastle Eagles
Basketball Club, plus a variety of youth sports clubs and emerging individual talent across the
country.
Vertu Motors plc
37
Directors’ Report
The Directors present their annual report and the audited financial statements on the affairs of
the Group and Company, for the year ended 28 February 2018.
Principal Activities
The principal activities of the Group is the sale of new cars, motorcycles and commercial
vehicles and used vehicles, together with related aftersales services. The principal activities
of the Company is the provision of management services to all subsidiary statutory entities.
Business Review and Future Developments
The review of the business for the year is contained in the Strategic Report. This includes
details of likely future developments of the Group. It remains your Board’s intention to grow
the value of the business and develop the Group through strategic acquisitions supplemented
by the focused organic growth of its existing businesses.
The UK market for the sale and servicing of motor vehicles is well developed and represents
all of the major global vehicle manufacturers. The UK consumer has consistently
demonstrated its demand for vehicles evidenced by the relatively short vehicle change cycle
in this country. The vehicle retail market in the UK, however, remains highly fragmented and
in the year ended 28 February 2018 the Group had just a 3.2% share of UK private car
registrations. These market dynamics support the Group’s strategy of growth through both
acquisition and organic improvement.
Results and Dividends
The results for the year are set out in the consolidated income statement on page 70. The
Group’s profit from ordinary activities after taxation for the year was £24,681,000 (2017:
£24,020,000).
The dividend paid in the year to 28 February 2018 was £5,678,000 (1.45p per share) (2017:
£5,323,000 (1.35p per share)). A final dividend in respect of the year ended 28 February
2018 of 0.95p per share, is to be proposed at the annual general meeting on 25 July 2018.
The ex-dividend date will be 21 June 2018 and the associated record date 22 June 2018.
The dividend will be paid on 30 July 2018, and these financial statements do not reflect this
final dividend payable.
Company Number
The registered number of the Company is 05984855.
Business at the Annual General Meeting (“AGM”)
At the AGM, a separate shareholders’ resolution is proposed for each substantive matter. We
will issue to shareholders the Company’s annual report and financial statements together with
the notice of AGM, giving not less than the requisite period of notice. The notice will set out
the resolutions the Directors are proposing and explanatory notes for each. At the AGM,
Directors’ terms of appointment are available for inspection and, as well as dealing with
formal AGM business, the Board takes the opportunity to update shareholders on the
Company’s trading position. The Chairman and each committee chairman are available to
answer questions put by shareholders present.
Appointment and Powers of the Company’s Directors
Appointment and removal of Directors is governed by the Company’s articles of association
(the Articles), the UK Corporate Governance Code (the Code), the Companies Acts and
related legislation. Subject to the Articles (which shareholders may amend by special
resolution), relevant legislation and any directions given by special resolution, the Company
and its Group is managed by its board of Directors. By resolutions passed at Company
general meetings, the shareholders have authorised the Directors: (i) to allot and issue
ordinary shares; and (ii) to make market purchases of the Company’s ordinary shares (in
practice, exercised only if the Directors expect it to result in an increase in earnings per
share). Details of movements in the Company’s share capital are given in note 30 to the
consolidated financial statements.
Vertu Motors plc
38
Directors’ Report (continued)
Directors and Their Interests in Shares
Brief particulars of the Directors are listed on page 32. Further details of the Board
composition are contained in the Corporate Governance Report and details of Directors'
service contracts are contained in the Remuneration Committee Report. The Directors who
served during the year ended 28 February 2018 and up to the date of signing the financial
statements were:
P Jones
R T Forrester
M Sherwin
W M Teasdale (resigned 26 July 2017)
N Stead
K Lever
P Best
The Directors retiring at the AGM are R Forrester, N Stead and P Best who, being eligible,
each offer themselves for re-election. At the date of the AGM, the unexpired term of the
service contracts of N Stead and P Best will be 2 years 4 months and 3 years 10 months
respectively.
Directors who held office at 28 February 2018 and their respective interests in the Company’s
issued ordinary share capital are shown in the table below. All holdings shown are beneficial.
There is no current policy requiring Directors to hold a minimum number of Company shares.
P Jones
R T Forrester
M Sherwin
K Lever
N Stead
P Best
28 February
2018
Ordinary
Shares
1,522,000
6,929,868
489,253
40,800
80,500
-
28 February
2017
Ordinary
Shares
1,405,000
6,925,606
484,993
40,800
80,500
-
Details of related party transactions, which include transactions between Directors and Group
companies, are given in note 37 to the consolidated financial statements.
Indemnities to Directors
In line with market practice and the Company’s Articles, each Director has the benefit of an
ongoing deed of indemnity from the Company, which includes provisions in relation to duties
as a Director of the Company or an associated company, qualifying third party indemnity
provisions and protection against derivative actions. Copies of these are available for
shareholders’ inspection at the AGM.
Share Capital
As at 28 February 2018, the Company’s issued share capital comprised a single class:
ordinary shares of 10 pence each of which 385,524,517 were in issue. The Articles permit
the creation of more than one class of share, but there is currently none other than ordinary
shares. Details of the Company’s share capital are set out in note 30 to the consolidated
financial statement. All issued shares are fully paid. During the year ended 28 February
2018, the Group commenced a programme of share buy-backs under which 12,335,322
shares were repurchased at an average share price of 44p, of which 590,000 were awaiting
cancellation at 28 February 2018. At 1 March 2017, 1,990,553 shares were held by Estera
Trust (Jersey) Limited (“Trustee”), the trustee of the Company’s employee benefit trust. The
shares are held for the purpose of the trust and may be used to transfer shares to individuals
exercising share options in the Company. During the year ended 28 February 2018, 175,000
of the shares purchased by the trust were transferred to individuals pursuant to exercises of
options or sold to satisfy the resulting tax. The Trustee waives its right to dividends on any
Company shares held in the trust and such holdings are disclosed within ‘Treasury Shares’ in
the financial statements. 1,815,553 ordinary shares in the Company remained in the trust at
28 February 2018.
Vertu Motors plc
39
Directors’ Report (continued)
Share Capital (continued)
The rights and obligations attaching to the Company’s ordinary shares are set out in the
Articles. The Company is currently authorised to issue up to two-thirds of its current issued
share capital pursuant to a resolution passed at its 2017 AGM.
Voting Rights, Restrictions on Voting Rights and Deadlines for Voting Rights
Shareholders (other than any who, under the Articles or the terms of the shares they hold, are
not entitled to receive such notices) have the right to receive notice of, and to attend and to
vote at, all general and (if any) applicable class meetings of the Company. A resolution put to
the vote at any general or class meeting is decided on a show of hands unless (before or on
the declaration of the result of the show of hands or on the withdrawal of any other demand
for a poll) a poll is properly demanded. At a general meeting, every member present in
person has, upon a show of hands, one vote, and on a poll, every member has one vote for
every 10 pence nominal amount of share capital of which they are the holder. In the case of
joint holders of a share, the vote of the member whose name stands first in the register of
members is accepted to the exclusion of any vote tendered by any other joint holder. Unless
the Board decides otherwise, a shareholder may not vote at any general or class meeting or
exercise any rights in relation to meetings whilst any amount of money relating to his shares
remains outstanding. A member is entitled to appoint a proxy to exercise all or any of their
rights to attend, speak and vote on their behalf at a general meeting. Further details
regarding voting can be found in the notes to the notice of the AGM. To be effective,
electronic and paper proxy appointments and voting instructions must be received by the
Company’s registrars not later than 48 hours before a general meeting. The Articles may be
obtained from Companies House in the UK or upon application to the Company Secretary.
Other than those prescribed by applicable law and the Company’s procedures for ensuring
compliance with it, there are no specific restrictions on the size of a holding nor on the
transfer of shares, which are governed by the Articles and prevailing legislation. The
Directors are not aware of any agreement between holders of the Company’s shares that may
result in restrictions on the transfer of securities or the exercise of voting rights. No person
has any special rights of control over the Company’s share capital.
Contracts
None of the Directors had an interest in any contract with the Group (other than their service
agreement or appointment terms and routine purchases of vehicles for their (or their family’s)
own use) at any time during the financial year to 28 February 2018.
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.
Derivatives and Financial Instruments
The Group’s treasury activities are operated within policies and procedures approved by the
Board, which include defined controls on the use of financial instruments managing the
Group’s risk. The major financial risks faced by the Group relate to interest rates and funding.
The policies agreed for managing these financial risks are summarised below.
The Group finances its operations by a mixture of shareholders’ equity funds and bank
borrowings and trade credit from both suppliers and manufacturer partners. To reduce the
Group’s exposure to movements in interest rates, the Group seeks to ensure that it has an
appropriate balance between fixed and floating rate borrowings, and utilises interest rate
swaps where appropriate to manage the risk of interest rate rises on its long-term bank
borrowing.
Details of the current borrowing facilities of the Group are given on page 21 of the Strategic
Report.
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and
other reserve borrowing facilities, by continuously monitoring forecast and actual cash flows
and matching the maturity profiles of financial assets and liabilities.
Vertu Motors plc
40
Directors’ Report (continued)
Colleagues
The policies of the Group on equal opportunities, including those of disabled colleagues and
colleague involvement, are set out in the Corporate and Social Responsibility Report on
pages 35 to 37.
Health and Safety
The policies of the Group on health and safety, as well as goals and controls in place are set
out in the Corporate and Social Responsibility Report on page 34.
Directors’ Statement as to Disclosure of Information to Auditors
In the case of each person who was a Director of the Group at the date when this report was
approved:
•
•
so far as each of the Directors is aware, there is no relevant audit information of which
the Group and Company’s auditors are unaware, and;
each of the Directors has taken all the steps that they ought to have taken as a Director
in order to make themselves aware of any relevant audit information and to establish that
the Group and Company’s auditors are aware of that information.
The auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in
office, and a resolution concerning their reappointment will be proposed at the Annual
General Meeting.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year.
Under that law the Directors have prepared the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European Union, and
the parent Company financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102
‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’, and
applicable law).
Under company law the Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group for that period.
In preparing these financial statements, the Directors are required to:
•
•
•
•
select suitable accounting policies and then apply them consistently;
state whether applicable IFRSs as adopted by the European Union have been followed
for the Group financial statements and United Kingdom Accounting Standards,
comprising FRS 102, have been followed for the Company financial statements, subject
to any material departures disclosed and explained in the financial statements;
make judgements and estimates that are reasonable and prudent; and
prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to
show and explain the Company’s transactions and disclose with reasonable accuracy at any
time the financial position of the Company and the Group and enable them to ensure that the
financial statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
Vertu Motors plc
41
Directors’ Report (continued)
Statement of Directors' Responsibilities (continued)
The Directors are responsible for the maintenance and integrity of the Company’s website
(www.vertumotors.com). Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the annual report and accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary for shareholders to
assess the Group and Company’s position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Main Board Directors
section of this Annual Report, confirms that, to the best of their knowledge:
•
•
•
the Company financial statements, which have been prepared in accordance with
United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the
UK and Republic of Ireland”, and applicable law), give a true and fair view of the assets,
liabilities, financial position and profit of the Company;
the Group financial statements, which have been prepared in accordance with IFRSs as
adopted by the European Union, give a true and fair view of the assets, liabilities,
financial position and profit of the Group; and
the Directors' Report and Strategic Report include a fair review of the development and
performance of the business and the position of the Group and Company, together with
a description of the principal risks and uncertainties that it faces.
By order of the Board
Michael Sherwin
Chief Financial Officer
9 May 2018
Vertu Motors plc
42
Corporate Governance Report
The UK Corporate Governance Code
This Corporate Governance Report (the ‘Report’) is intended to give shareholders an
understanding of the Group’s governance procedures. As an AiM listed Company, Vertu
Motors plc does not have to comply with the UK Corporate Governance Code (2016) (the
‘Code’) published by the Financial Reporting Council. However, the Board embraces the
principles of good corporate governance. Although the Group does not choose to voluntarily
comply with the Code in full, the Report describes how the relevant principles and provisions
set out in the Code were applied to the Company and Group during the financial year and will
continue to be relevant for the forthcoming financial year. The Company does not yet comply
with all of the Code requirements relating to ‘effectiveness’, does not produce a separate
nomination committee report, and does not yet make available its Committee terms of
reference. The Audit Committee, prior to the resignation of W M Teasdale on 26 July 2017,
comprised of three Non-Executive Directors, subsequent to this, the Audit Committee
comprised of two Non-Executive Directors. The Board
is currently considering the
composition of the Audit Committee. The Company complies with all other areas of the Code.
Board Composition
Board composition is continually reviewed to ensure that it provides the Group with the
strategic oversight, vision and governance that it needs in order to deliver a sustainable long-
term return for shareholders. It is the Board’s intention that going forward, Non-Executive
Directors will ordinarily rotate every six years, in line with current corporate governance best
practice.
Bill Teasdale retired from the Board on 26 July 2017.
During the year under review, the Board was made up of seven members comprising two
Executive Directors and five Non-Executive Directors, including W M Teasdale who served as
a Non-Executive Director until resignation on 26 July 2017. P Jones, K Lever, P Best and N
Stead are considered to be independent. K Lever is the Senior Independent Director. Details
of all Directors can be found on page 32.
The Board and its Committees
The role of the Board is to have responsibility for generating shareholder value over the long-
term by setting the Group’s strategy, ensuring that appropriate resources are available to
enable the Group to meet its objectives and monitoring the delivery of those objectives within
an effective framework of internal controls. The Board has a defined set of responsibilities
which are formalised into a Schedule of Matters Reserved for the Board and these include:
• Strategy and management – responsibility for long-term success of the Company and
Group, commercial strategy, and approval of the expansion of the Group through
acquisition or any significant disposals
• Financial reporting and controls – review and approval of the annual business plan
and capital budget, major capital expenditure projects and any significant changes to
these, all trading or results statements and the annual financial statements
Internal controls – reviewing the effectiveness of internal control processes to support
strategy
•
• Risk – approval of the Group’s risk appetite, determining the nature and extent of
significant risks the Group is willing to take to achieve its objectives
Executive Management have limits on the decisions delegated to them by the Board.
Vertu Motors plc
43
Corporate Governance Report (continued)
The Board and its Committees (continued)
Key Areas of Board Focus During the Year
STRATEGY
FINANCIAL
PERFORMANCE
GOVERNANCE
SHAREHOLDER
ENGAGEMENT
RISK
Re-appointment of
auditors
Annual General
Meeting
Monitoring
Compliance and
Health and Safety
Committees
Meetings with key
shareholders on
results roadshows.
Annual review of
key Group risks
and mitigating
controls
Group strategy review
Business development
Approval of the FY2017
full year results and
FY2018 interim results
Reviewing M&A
opportunities
Approval of annual
business plan and
capital budget
Interim and final
dividend
Board Meetings
Monthly management
accounts and
comparison against
annual business plan
Long range forecast
and funding
requirement planning
The Board meetings are structured to allow the Board sufficient time to discuss and review
financial performance, achievement of objectives, development of the Group’s strategy,
operational performance and risk and internal controls. Standing agenda items are discussed
at each Board meeting, which include:
• Chief Executive’s Report – update on performance, strategic opportunities, property
matters and management
• Chief Financial Officer’s Report – includes the latest financial information for the
Group
• Health and Safety Report – Summary of training undertaken throughout the Group,
risk management plus commentary on any reported incidents
• Compliance Report – summary of regulatory developments and minutes of the latest
Compliance Committee meeting
•
Investor Relations (‘IR’) Report – update on market trends, share register movements
and summary of IR activity
• Risk Matrix – consideration of key strategic risks
Vertu Motors plc
44
(Chair)
• 3 Senior
Managers
• H & S Manager
• Compliance with
Health & Safety
and environmental
law and
regulations
• Developing Group
best practices
• Health & Safety
policies and
procedures
• Health & Safety
audits
• Accident statistics
and causes
Corporate Governance Report (continued)
Committee Responsibilities
The table below shows the key committees and their responsibilities.
AUDIT
COMMITTEE
REMUNERATION
COMMITTEE
NOMINATION
COMMITTEE
CEO COMMITTEE
COMPLIANCE
COMMITTEE
HEALTH AND
SAFETY
COMMITTEE
Members
• K Lever (Chair)
• W Teasdale 1
• N Stead
PLC BOARD COMMITTEES
• Pauline Best
(Chair)
• N Stead
• P Jones
• W Teasdale 1
• K Lever
• P Jones (Chair)
• W Teasdale 1
• N Stead
• K Lever
• P Best
• R T Forrester (Chair)
• M Sherwin (Chair)
• R T Forrester
• M Sherwin
• 12 Senior Managers
• W Teasdale
• 6 Senior
Managers
Delegated
authorities
• Financial reporting
• Remuneration
• Balance of the
• Review,
• Financial risk
management
• Internal control
policy
Board
• Incentive plans
• Performance
targets
• Leadership of
the Group
communication,
delivery and
management of
Group strategy and
day to day operations
• Compliance with
laws and
regulations
(excluding Health
& Safety and
environmental)
• Whistleblowing
procedures
• Communication
with regulators
where required
Reviews
• Full year and half
year results
• Accounting
policies
• Terms of
engagement of
auditors
• Internal audit
• Achievement of
performance
targets for short
and long term
incentives
• Senior
management
pay
• Composition of
• Group HR and IT
• Adequacy and
the Board
strategy
• Skills,
• Allocation of
knowledge &
experience on
the Board
resources (financial
and colleague)
• Group performance
• Diversity
effectiveness of
Group policies in
response to
current law and
regulation
• Licences and
consents required
• Internal audit
Recommends
• Re-appointment of
• Level and
Monitors
Approves
auditors
• Audit tender
• Auditors’
remuneration
• Integrity of
financial
statements
• Effectiveness of
internal controls
and risk
management
• Internal audit
function
• Legal & regulatory
requirements
• External audit
• Statements in
Annual Report
concerning
internal controls
and risk
management
structure of
Executive
remuneration
• Remuneration
policy
• Appropriateness
of Remuneration
policy
• Appointments
to the Board
• Annual business plan
to the Board
• Acquisition
opportunities to the
Board
• Group Vision
• Training
• Policy change
• Remedial or pre-
emptive action
• Training
• Policy change
• Remedial or pre-
emptive action
• Independence
• Performance against
of Non-
Executive
Directors
• Succession
planning
key performance
indicators, plans and
prior year
• Compliance with
Group risk
management
strategy, policy and
procedures
• Appropriate retail
finance metrics
• Indicators of non-
compliance with
policy
• Any relevant
complaints
• Legal and
regulatory
developments
• Accidents and
near misses
• Changes to law
and regulations
• New sites to the
Group and
redevelopments
• Other changes in
working practice
• Appointments
for Executive
Directors
• Skills profile for
Non-Executive
Directors
• Remuneration
policy
• Remuneration
packages for
Executive
Directors
• Design of long
term incentive
plans
• Appointments to
• Reports to the
• Reports to the
dealership
management
positions
• Performance related
remuneration of
dealership
colleagues
• Operational process
and changes
Board
Board
• Submissions to
• Changes to
relevant policies
• Training
programmes
relevant
authorities
• Changes to
relevant policies
and processes
• Training
programmes
• Whistleblowing
procedures
1 W Teasdale served on this committee until resignation from the Plc Board on 26 July 2017.
Vertu Motors plc
45
Corporate Governance Report (continued)
Leadership
During the financial year the Board met 13 times in person and on other occasions by
telephone. The number of meetings attended by each Director was as follows:
Board
Meetings
Audit Committee
Meetings
Nomination
Committee Meetings
Remuneration
Committee Meetings
Scheduled
Attended
Scheduled
Attended
Scheduled
Attended
Scheduled
Attended
P Jones
R T Forrester
W M Teasdale1
M Sherwin
N Stead
K Lever
P Best
13
13
3
13
13
13
13
13
13
3
13
13
13
10
-
-
2
-
4
4
-
1 resigned on 26 July 2017.
4
1
2
4
4
4
-
1
-
-
-
1
1
1
1
-
-
-
1
1
1
3
-
-
-
3
3
3
3
-
-
-
3
3
3
The Board seeks to ensure that the necessary financial and human resources are in place for
the Group to be able to meet its objectives, to review management performance and to
ensure that its obligations to its shareholders are understood and met. Whilst the executive
responsibility for running the Group rests with the Chief Executive (R T Forrester) and the
Chief Financial Officer (M Sherwin), the Non-Executive Directors fulfil an essential role in
ensuring that the strategies proposed by the Executive Directors are fully discussed and
critically examined prior to adoption. They also scrutinise the performance of management in
meeting agreed goals and objectives and monitor the reporting of performance, both financial
and non-financial.
All Directors appointed by the Board must retire and seek election at the first Annual General
Meeting following their appointment. One third of the other Directors are then required to
retire and submit themselves for re-election each year so that all Directors are required to
retire and submit themselves for re-election at least once in every three years. R Forrester, N
Stead and P Best are to retire and submit themselves for re-election at the 2018 Annual
General Meeting. The Board is satisfied that plans are in place for orderly succession for
appointments to the Board and senior management, so as to maintain an appropriate balance
of skills and experience within the Company and on the Board.
Audit Committee and Auditors
The Board has delegated responsibility for risk management and internal controls to the Audit
Committee. Details of the Committee’s activities during the year can be found on pages 48
and 49.
Remuneration
The Remuneration Committee has responsibility for developing the Company’s remuneration
policy and monitoring its implementation. Details of the Committee’s activities along with the
Remuneration Report can be found on pages 52 to 62.
Relations with Shareholders
The Board understands that effective communication is essential to enable shareholders to
gain a clear understanding of the Group’s strategy and business model. The Chief Executive
and the Chief Financial Officer are in regular communication with institutional investors
throughout the year and keep in close contact with the Company’s corporate brokers who
play an important role in ensuring shareholders’ views are heard. The Board reviews a report
of shareholder activity at each Board meeting and receives regular updates on all
communications between major shareholders and any Director or the Company’s NOMAD.
Vertu Motors plc
46
Corporate Governance Report (continued)
Relations with Shareholders (continued)
Shareholders are also kept informed of Company performance through regular press
releases. These are made available to the London Stock Exchange and on the Company’s
website. Presentations were held for analysts at the Group’s full year and half year
announcements, these presentations were streamed live and recordings are available on the
Company’s website.
Annual General Meeting (“AGM”)
The 2018 AGM will take place on 25 July 2018. The AGM gives all shareholders an
opportunity to meet the Board and ask any questions they have regarding the Group. The
Board encourages participation of private shareholders at the AGM, however, the Board
understands that it is not always possible for shareholders to attend. For this reason
instructions are sent to shareholders to enable them to appoint a proxy electronically via an
online proxy form, should they be unable to attend the AGM in person. Details of voting on
resolutions at the AGM are made available on the Company’s website.
By order of the Board
Karen Anderson
Company Secretary
9 May 2018
Vertu Motors plc
47
Corporate Governance Report (continued)
Audit Committee Report
Audit Committee Membership and Meetings
During the year the Audit Committee was comprised of Committee Chairman, K Lever and
two other Non-Executive Directors of the Group, namely, N Stead and W M Teasdale until his
resignation from the Board on 26 July 2017. The Committee met four times during the
financial year and attendance is shown in the table on page 46.
Only members of the Committee are required to attend Committee meetings, however, other
individuals (such as the Chief Executive, Chief Financial Officer, Company Secretary or
General Counsel and external auditors) are able to attend by invitation.
The key responsibilities of the Committee are set out in the table on page 45.
Activities during the year
During the year the Committee focused on the following matters:
• Review of the interim and year-end financial statements for the Group
• Review of the consistency and appropriateness of the accounting policies
• Review of the methods used to account for significant transactions, completeness of
disclosures and material areas in which significant judgements had been applied
• Review of the effectiveness of internal controls, risk assessment process, the assurance
•
process and changes to significant risks
Approval of the terms of engagement, strategy, scope and effectiveness of external
auditors
Significant Issues
As part of the reporting and review process, the Committee has discussed the significant
issues considered in relation to the financial statements and how those issues were
addressed.
During the year the Committee considered the following key risks, accounting issues and
judgements:
Significant issue
Action taken
Carrying value of
goodwill, other
intangibles and
tangible assets
Management performed a detailed impairment review on the goodwill, other
intangibles and tangible assets, in the consolidated financial statements of
the Group. The Committee challenged the methodology, assumptions, and
sensitivity analysis used by management. The Committee also considered
the independent review by the external auditors.
The Committee concluded that the carrying amounts shown in notes 15, 16
and 18 of the consolidated financial statements were appropriate and
approved the disclosures.
Vertu Motors plc
48
Corporate Governance Report (continued)
Audit Committee Report (continued)
Significant Issues (continued)
Significant issue
Action taken
Viability and Going
Concern
Share based
payments
Pension benefits
Manufacturer bonus
income
Management have reviewed the Group’s current financial position and have
prepared financial projections covering a three year period. The projections
assume that profits earned from new car sales will remain stable throughout
2018/19; the used car and aftersales businesses and recent acquisitions will
continue to show growth; UK interest rates will grow gradually over the next
three years; manufacturer partners will remain in production and supply on
normal terms of trade, and there will be no significant downturn in the global
economic environment.
These projections, even after allowing for sensitivity analysis to
accommodate a reasonable downside scenario (including weaker trading and
adverse movements in interest rates), indicate that the Group would be able
to manage its operations so as to comfortably remain within its current
funding facilities and in compliance with its banking covenants.
The Committee challenged the assumptions used and also considered the
review conducted by the external auditors. The Committee concluded that
the Board is able to make the Viability and Going Concern statements on
pages 30 and 31.
Management have ascribed a fair value to share options issued during the
financial year. This is estimated using a fair value model, populated with a
number of assumptions.
The Committee reviewed and challenged these assumptions and also
considered the review conducted by the external auditors. The Committee
concluded that the assumptions applied and resultant fair value were
appropriate.
Assets and obligations under the “Bristol Street Pension Scheme”, which is a
defined benefit scheme in which accrual ceased on 31 May 2003, are
recognised in the balance sheet.
The valuation of the scheme assets and the present value of the obligations
are calculated by external advisors.
The Committee reviewed the assumptions applied in calculating the scheme
assets and obligation (set out in note 29) at 28 February 2018 and confirmed
that these were appropriate.
Income is received from manufacturer partners in the form of rebates and
volume related bonuses. A Group wide income recognition policy is in place
in respect of this income. Management allocate responsibility to Divisional
Finance Directors, as nominated ‘franchise experts’ to ensure bonus
programmes are fully understood and communicated to Dealership teams.
The Group’s internal audit function reviews the treatment of manufacturer
bonus income recognition on a dealership by dealership basis. The
Committee also considered the review performed by the external auditors.
The Committee concluded that it was satisfied with the income recognition
policy, and with the appropriateness of the controls currently in operation,
over manufacturer bonus income recognition.
Vertu Motors plc
49
Corporate Governance Report (continued)
Audit Committee Report (continued)
Financial and Business Reporting
The Committee is responsible for monitoring the integrity of the financial statements including
the Group’s annual and half-yearly results and ensuring they are fair, balanced and
understandable.
The external auditors also provide an auditors’ report to the members providing an
independent opinion on the truth and fairness of the Group’s financial statements. This report
can be found on pages 63 to 69.
Risk Management and Internal Controls
The Group has well established risk management and internal control processes. These are
regularly subject to audit and the results are reported to the Audit Committee and the Board
for their review.
Day to day management of risk is delegated to the Chief Executive’s Committee, which
consists of the Chief Executive, the Chief Financial Officer, the General Counsel, the Chief
Operations Officer, the Chief Marketing Officer, the HR Director, the Strategy Development
Director and the seven Divisional Operations Directors of the Group.
The Audit Committee confirms that the effectiveness of the system of internal control,
covering all material controls including financial, operational and compliance controls and risk
management systems, has been reviewed during the year under review and up to the date of
approval of the Annual Report.
Internal Audit
The Group Risk team report regularly on the audits carried out in each dealership which, for
the financial year ended 28 February 2018, covered both balance sheet and sales process
audits as well as audits of key financial control processes. The Group Risk team met with the
Committee without the presence of management.
External Audit
for a
further year subject
The Audit Committee has recommended to the Board that a resolution be put to shareholders
at the Annual General Meeting to reappoint PricewaterhouseCoopers LLP as auditors of the
Company
their continued satisfactory performance.
PricewaterhouseCoopers LLP have been appointed as auditors to the Company for the
previous ten financial years. In accordance with ethical standards requirements the audit
partner responsible for the engagement was subject to rotation after five years. Since
February 2014 the audit partner has been Randal Casson, with the February 2018 year end
being the fifth and final year before being subject to rotation. No tender has been conducted.
The Committee reviewed the effectiveness, independence and objectivity of the external
auditors and no matters of concern were raised during the financial year to 28 February 2018.
to
The external auditors attend some of the Committee meetings and the Committee meets with
the external auditors without management present.
Independence of the Independent Auditors
Both the Audit Committee and the Independent Auditors have in place safeguards to avoid
the Independent Auditors' objectivity and independence being compromised. The Group's
policy with regard to services provided by the Independent Auditors, PricewaterhouseCoopers
LLP, is as follows:
• Statutory audit services
The Independent Auditors, who are appointed annually by the shareholders, undertake this
work. The Independent Auditors also provide regulatory services and formalities relating to
shareholder and other circulars. The Committee reviews the Independent Auditors'
performance on an ongoing basis.
• Further assurance services (this includes work relating to acquisitions and disposals)
The Group's policy is to appoint PricewaterhouseCoopers LLP to undertake this work where
their knowledge and experience is appropriate for the assignment. The Board reviews their
independence and expertise on every assignment. Other professional services firms are
employed in certain cases on acquisition and disposal related assignments.
Vertu Motors plc
50
Corporate Governance Report (continued)
Audit Committee Report (continued)
Independence of the Independent Auditors (continued)
• Other non-audit services
The Independent Auditors are not permitted to provide internal audit, risk management,
litigation support or remuneration advice. The provision of other non-audit services, is
assessed on a case by case basis, depending on which professional services firm is best
suited to perform the work. These safeguards, which are monitored by the Committee, are
regularly reviewed and updated to ensure they remain appropriate. The appointment of
PricewaterhouseCoopers LLP to provide non-audit services requires Board approval for any
assignment with fees above a set financial limit. The Independent Auditors report to the
Committee on the actions they take to comply with the professional and regulatory
requirements and best practice designed to ensure their independence, including the rotation
of key members of the audit team. PricewaterhouseCoopers LLP have formally confirmed
this to the Board. The disclosure of non-audit fees paid to PricewaterhouseCoopers LLP
during the year is included in note 7 to the consolidated financial statements.
K Lever
Chairman of Audit Committee
9 May 2018
Vertu Motors plc
51
Remuneration Committee Report
Annual Statement from the Chairman of the Remuneration Committee
Introduction
On behalf of your Board, I am pleased to present our Directors’ Remuneration Report for the year
ended 28 February 2018. This Directors’ Remuneration Report has been prepared on behalf of the
Board by the Remuneration Committee (“the Committee”) in accordance with the spirit, principles and,
as far as is reasonably practical, the requirements of the Companies Act 2006, the Quoted
Companies Alliance Remuneration Guidance,
Investment Association’s Principles of
Remuneration and the Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008, notwithstanding that, as the Company is listed on AiM, these regulations do not all
strictly apply. This report is split into two sections;
the
•
•
the Directors’ remuneration policy sets out the Company’s intended policy on Directors’
remuneration from 1 March 2018; and
the annual report on remuneration sets out payments and awards made to the Directors and
details the link between Company performance and remuneration for the year to 28 February
2018 and is subject to an advisory shareholder vote at this year’s AGM.
The information in the Directors’ Remuneration Report set out on pages 59 to 62 highlighted as being
subject to audit, has been audited by the Group’s auditors.
Remuneration outcomes for the year to 28 February 2018
During the year ended 28 February 2018, the Remuneration Committee completed a benchmarking
exercise in respect of the remuneration of senior executives in the Company by comparison to other
companies of a similar size, as well as companies in the industry. As a result of this exercise, on 1
August 2017 the remuneration package of Executive Director R T Forrester was increased from an
annual basic pay of £265,000 to £315,000 and an annual on-target bonus opportunity of £235,000 to
£281,000.
Annual bonus opportunities are based both on the achievement of adjusted profit before tax targets
and customer outcome targets including manufacturer new car and service CSI performance and
Judge Service results. Bonuses of 77.2% and 78.4% of basic salary have been awarded to Executive
Directors R T Forrester and M Sherwin respectively in respect of profit related bonus and customer
outcome bonus for the year ended 28 February 2018, which reflects the financial results and
customer satisfaction scores of the Group for the year relative to expectations at the beginning of the
financial year.
The long-term incentive awards made to Executive Directors under the Long Term Incentive Plan
(“LTIP”) during the year ended 28 February 2018, detailed later in this report, may vest in June 2020,
but are subject to a holding period preventing their exercise until June 2022. These awards took the
form of £Nil value share options where the vesting is subject to targets based on the achievement of
absolute growth in the Company’s total shareholder return (‘TSR’), and an absolute target for the
Company’s return on shareholders’ equity (‘ROE’).
Key remuneration decisions for the year to 28 February 2019
The Committee considered current trends in the market in which the Company is operating and in
particular, the high level of salary control being imposed by Senior Management on the rest of the
Group. The Remuneration Committee have recommended that from 1 March 2018, Executive Director
basic salaries will remain at current levels. Similarly no increase in Non-Executive Directors’ fees has
been recommended.
The Executive Director annual bonus structure agreed for the year commencing 1 March 2018 will
continue to weight 20% of on-target bonus potential to customer outcome measures and the balance
to the profitability of the Group. The customer outcome measures include used vehicle and service
customer feedback as well as new vehicle manufacturer measured customer satisfaction scores.
Profit targets have been updated to reflect the expected results for the coming year.
In developing the remuneration policy for Executive Directors R T Forrester and M Sherwin for the
year commencing 1 March 2018, the Committee considered the form and level of awards to be made
under the LTIP. In summary, the Committee decided that these awards will again be £Nil cost share
options under the LTIP subject to return on shareholders’ equity and absolute growth in TSR over the
next three years. The awards for the forthcoming year have yet to be finalised.
Vertu Motors plc
52
Remuneration Committee Report (continued)
Annual Statement from the Chairman of the Remuneration Committee (continued)
Conclusion
The Directors’ remuneration policy which follows this annual statement sets out the
Committee’s principles on remuneration for the future and the annual report on remuneration
provides details of remuneration for the year ended 28 February 2018. The Committee will
continue to be mindful of shareholder views and interests, and we believe that our Directors’
remuneration policy continues to be aligned with the achievement of the Company’s business
objectives. Material changes to remuneration policy will only be made after consultation with
major shareholders. We hope that we can rely on your votes in favour of the annual report on
remuneration.
By Order of the Board:
P. Best
Chairman of Remuneration Committee
9 May 2018
Vertu Motors plc
53
Remuneration Committee Report (continued)
Remuneration Policy
The policy of the Committee is to ensure that the Executive Directors are fairly rewarded for
their individual contributions to the Group’s overall performance and to provide a competitive
remuneration package to Executive Directors, including long-term incentive plans, to attract,
retain and motivate individuals of the calibre required to ensure that the Group is managed
successfully in the interests of shareholders. In addition, the Committee’s policy is that a
substantial proportion of the remuneration of the Executive Directors should be performance
related, consistent with the balance of remuneration paid to Directors and Senior
Management in the automotive retail sector.
Future Policy Table
The main elements of the remuneration package of Executive Directors are set out below:
Purpose and link to
strategy
BASIC SALARY
Attract and retain high
calibre Executive Directors
to deliver strategy.
BENEFITS
Provide benefits consistent
with role.
ANNUAL BONUS
Incentivises achievement of
business objectives by
providing rewards for
performance against annual
profit targets and customer
outcome targets including
manufacturer new car and
service customer
satisfaction (“CSI”) scores
as well as used car Judge
Service results.
Operation
Maximum potential value
Performance metrics
Paid in 12 equal monthly
instalments during the year.
Currently these consist of the
option of a company car, or
access to an employee car
ownership scheme, health
insurance, critical illness and
life assurance and the
opportunity to join the
Company’s share incentive
plan (“SIP”). The Committee
reviews the level of benefit
provision from time to time and
has the flexibility to add or
remove benefits to reflect
changes in market practices or
the operational needs of the
Group.
Paid in cash after the end of
the financial year to which it
relates.
None
Reviewed periodically to reflect
role, responsibility and
performance of the individual and
the Group, and to take into
account rates of pay for
comparable roles in similar
companies. When selecting
comparators, the Committee has
regard to, inter alia, the Group’s
revenue, profitability, market
worth and business sector.
There is no prescribed maximum
increase. Annual rates are set
out in the annual report on
remuneration for the current year
and the following year.
The cost of providing benefits is
borne by the Company and varies
from time to time.
None
It is the policy of the Committee
to cap maximum annual bonuses.
The level of such caps are
reviewed annually. The
maximum profit bonus for
2018/19 is 130% of basic salary
and the maximum customer
outcome bonus is 150% of the on
target available bonus for that
measure.
Targets are based on
adjusted profit before
tax of the Group and
customer outcome
measures.
The Committee sets
threshold and
maximum targets on an
annual basis.
A sliding scale operates
between threshold and
maximum performance.
No bonus is payable
where performance is
below the threshold.
Payment of any bonus
is subject to overriding
discretion of the
Committee.
Vertu Motors plc
54
Remuneration Committee Report (continued)
Remuneration Policy (continued)
Future Policy Table (continued)
Purpose and link to
strategy
LONG-TERM INCENTIVES
Alignment of interests with
shareholders by providing
long-term incentives
delivered in the form of
shares.
PENSION
Attract and retain Executive
Directors for the long-term
by providing funding for
retirement.
Operation
Maximum potential value
Performance metrics
Grant of £Nil cost options
under the LTIP. Options vest
at least 3 years from grant
subject to the achievement of
performance conditions, with a
further 2 year holding period
required following the vesting
period (applicable to LTIP
options granted post 29
February 2016) and may not
be exercised after the 10th
anniversary of grant.
The Committee may, at its
discretion, structure awards as
qualifying LTIP awards
consisting of both an HMRC
tax qualifying option and an
LTIP award. Qualifying LTIP
awards enable the participant
and the Company to benefit
from tax advantaged treatment
in respect of part of the award
without increasing the pre-tax
value delivered to participants.
The qualifying LTIP awards will
be structured as a tax
qualifying option and an LTIP
award with the vesting of the
LTIP award scaled back to
take account of any gain made
on the exercise of the tax
advantaged option.
All Executive Directors are
entitled to participate in money
purchase arrangements, or to
receive a cash allowance in
lieu of pension contributions.
Vesting is subject to
targets based on the
achievement of return
on shareholders’ equity
and absolute growth in
the Group’s total
shareholder return
(“TSR”).
permitted
annual
Maximum
award of options under the LTIP
is 125% of basic salary.
into account
Tax qualifying options may be
granted. Shares subject to a tax
qualifying option granted as part
of a qualifying LTIP award are not
taken
the
purposes of the individual limits
because, as referred to in the
operation column, the LTIP award
will be scaled back to reflect the
gain made on the exercise of the
tax advantaged option.
for
None
The Group makes payments of
up to 16.5% of basic salary into
any pension scheme or similar
arrangement as
the Executive
Director may reasonably request.
Such payments are not counted
for the purposes of determining
bonus or LTIP levels.
Notes to the Policy Table
Performance conditions
The Committee selected the performance conditions as they are central to the Group’s
strategy and are the key metrics used by the Executive Directors to oversee the operations of
the business. The performance targets for the annual bonus are determined annually by the
Committee, with maximum bonus typically requiring a substantial out-performance of the
Company’s financial target.
The initial performance target for the annual bonus is based on adjusted profit before tax.
This target takes account of both the Group’s budget for the year and of market expectations
after taking account of the pre-close update issued at the end of the previous year. For the
year ending 28 February 2019 the initial performance target is £27.5m, and may be adjusted
during the year to reflect the impact of acquisitions and disposals.
The performance target for the LTIP is based on both absolute growth in the Company’s total
shareholder return (‘TSR’) and an absolute target for return on equity.
Vertu Motors plc
55
Remuneration Committee Report (continued)
Remuneration Policy (continued)
Future Policy Table (continued)
Notes to the Policy Table (continued)
Differences from remuneration policy for all employees
All employees of the Company are entitled to base salary and many other colleague benefits.
The opportunity to earn a bonus is made available to all management colleagues in the
Group. The maximum opportunity available is based on the seniority and responsibility of the
role.
Share options are only granted under the LTIP to selected Senior Executives and Executive
Directors.
Statement of consideration of employment conditions of employees elsewhere in the Group
The Committee receives reports on an annual basis on the level of any pay rises awarded
across the Group and takes these into account when determining salary increases for
Executive Directors. In addition, the Committee receives regular reports on the structure of
remuneration for senior management in the tier below the Executive Directors and uses this
information to ensure a consistency of approach for the most senior managers in the Group.
The Committee also approves the award of any long-term incentives.
The Committee does not specifically invite colleagues to comment on the Directors’
remuneration policy, but it does take note of any comments made by colleagues.
Statement of consideration of shareholder views
The Chairman of the Committee consults with major shareholders from time to time or where
any significant remuneration changes are proposed, in order to understand their expectations
with regard to Executive Directors remuneration and reports back to the Committee. The last
time the Committee consulted with certain major shareholders was in relation to the
amendments to the LTIP performance criteria for the grant made in July 2016. Any other
concerns raised by individual shareholders are also considered, and the Committee also
takes into account emerging best practice and guidance from major institutional shareholders.
Approach to recruitment remuneration
The Committee’s approach to recruitment remuneration is to offer a market competitive
remuneration package sufficient to attract high calibre candidates who are appropriate to the
role but without paying any more than is necessary.
Any new Executive Director’s regular remuneration package would include the same
elements and be in line with the policy table set out earlier in this Directors’ remuneration
policy, including the same limits on performance related remuneration.
Where an internal candidate is promoted to the Board the original grant terms and conditions
of any bonus or share award made before that promotion will continue to apply, as will
membership of any of the Group’s pension arrangements.
Reasonable relocation and other similar expenses may be paid if appropriate.
Vertu Motors plc
56
Remuneration Committee Report (continued)
Directors’ Service Contracts, Notice Periods and Termination Payments
Provision
Policy
Notice periods in
Executive
Directors’ service
contracts
Compensation for
loss of office
Treatment
of
annual bonus on
termination
Treatment of LTIP
awards
12 months by Company or Executive Director
No more than 12 months’ basic salary and benefits (including
company pension contributions).
Bonuses which have already been declared are payable in full. In
the event of termination by the Company (except for cause) pro-
rated bonus to the end of the notice period is payable at the
discretion of the Remuneration Committee.
Unvested awards will normally lapse on cessation of employment.
However, for Good leavers the Committee shall determine
whether the award is released on the normal release date or on
some other date.
The extent of vesting will be determined by the Committee taking
into account the extent to which the performance condition is
satisfied and, unless the Committee determines otherwise, the
period of time elapsed from the date of grant to the date of
cessation relative to the performance period.
Following release, good leavers may exercise their options within
12 months (or such a period as the Committee determines).
Good leaver awards that have vested but not been released (i.e.
during the holding period) will ordinarily continue to the normal
release date when they will be released to the extent vested. The
Committee retains the discretion to release awards earlier.
LTIP awards of other leavers will cease to be exercisable following
notice of cessation of employment, unless
the Committee
determines otherwise in exceptional circumstances.
Exercise of
discretion
Intended only to be relied upon to provide flexibility in exceptional
or inequitable circumstances.
Outside
appointments
Non-Executive
Directors
Subject to approval
Re-election
Details
Executive Directors may be
required
the
notice period.
to work during
leaver
Good
circumstances
comprise death, illness, injury,
disability, retirement, transfer of
employing
outside
exceptional
Group
circumstances at the discretion
of the Committee.
business
or
take
into account
The Committee’s determination
will
the
particular circumstances of the
Executive Director’s departure
and the recent performance of
the Company and will be
detailed in the next published
Remuneration
Committee
Report.
Board approval must be sought.
All Non-Executives are subject
to re-election every three years.
No compensation payable
if
required to stand down.
In the event of the negotiation of a settlement agreement between the Company and a
departing Director, the Committee may make payments it considers reasonable in settlement
of potential legal claims. Such payments may also include reasonable reimbursement of
professional fees in connection with such agreements.
The Committee may also include the reimbursement of fees for professional or outplacement
advice in the termination package, if it considers it reasonable to do so. It may also allow the
continuation of benefits for a limited period.
Date of Service Contracts/Letters of Appointment
DIRECTOR
Date of service contract/
letter of appointment
P. Jones
R. T. Forrester
M. Sherwin
N. Stead
W. M. Teasdale (resigned 26 July 2017)
K. Lever
P. Best
Copies of Directors’ service contracts and letters of appointment are available for inspection
at the Company’s registered office.
1 January 2015
20 December 2006
4 January 2010
8 December 2011
24 March 2016
1 June 2015
1 June 2016
Vertu Motors plc
57
Directors’ Remuneration Report
Total 2018/19 Remuneration Opportunity
The chart below illustrates the remuneration that would be paid to each of the Executive
Directors under three different performance scenarios: (i) Minimum; (ii) On-target; and (iii)
Maximum.
The elements of remuneration have been categorised into three components: (i) Fixed; (ii)
Annual variable (annual bonus awards); and (iii) Multiple year (LTIP awards) which are set out
in the future policy table above. There is no element for multiple year (LTIP Awards) in this
table this year as no options (under the LTIP or otherwise) are capable of vesting in the
financial year to 28 February 2019 as the LTIP options granted in 2015 have not met the
performance conditions for vesting and have therefore lapsed in full. The earliest vesting date
for the remaining LTIP awards is 5 September 2019 however these options, to the extent they
have vested, will not become exercisable until 5 September 2021 due to a 2 year holding
period which these options are subject to.
Each element of remuneration is defined in the table below:
Element
Fixed
Annual Bonus
Description
Base salary for the 2018/19 financial year plus pension and benefits.
Annual bonus awards based on adjusted profit before tax and customer
outcome measures.
The on-target scenario assumes that for the annual bonus, adjusted profit is in line with
financial targets.
Non-Executive Directors’ Fee Policy
The policy for the remuneration of the Non-Executive Directors is as set out below. Non-
Executive Directors are not entitled to a bonus, they cannot participate in the Company’s
share option scheme and they are not eligible for pension arrangements.
Performance
metrics
None
Purpose and link to strategy
Operation
Maximum potential value
Annual rate set out in the
annual report on remuneration
for the current year and the
following year. No prescribed
maximum annual increase.
The cost of providing benefits
is borne by the Company and
varies from time to time.
NON-EXECUTIVE DIRECTOR (‘NED’) FEES
To attract NEDs who have a
broad range of experience and
skills
the
implementation of our strategy
oversee
to
NED fees are determined by the
Board within the limits set out in
the Articles of Association and
are paid in 12 equal monthly
instalments during the year.
Non-Executive Directors may be
eligible for benefits such as the
use of secretarial support or
other benefits
that may be
appropriate.
Vertu Motors plc
58
Directors’ Remuneration Report (continued)
Information subject to audit
Single Total Figure of Remuneration
The remuneration of the Directors who served during the period from 1 March 2017 to 28
February 2018 is as follows:
Salary or fees
£’000
Taxable
Benefits2
£’000
Pension
£’000
Bonus
£000
2018
2017
2018
2017
2018
2017
2018
2017
Long Term
Incentive Plan3
£’000
2018
2017
Single total
figure
£’000
2018
2017
Executive Directors
R T Forrester
M Sherwin
Non-Executive Directors
P Jones
K Lever
N Stead
P Best
W M Teasdale1
294
210
265
210
70
55
40
40
23
70
50
39
30
54
3
3
1
-
1
1
1
3
3
1
-
1
1
1
52
35
-
-
-
-
-
44
35
227
165
240
196
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
71
53
576
413
623
497
-
-
-
-
-
71
55
41
41
24
71
50
40
31
55
1. W M Teasdale resigned on 26 July 2017, his fee for the year to 28 February 2018 is calculated from 1 March 2017 until the date of resignation.
2.
3.
4.
Benefits in kind include vehicle insurance, together with medical and life assurance premiums
The LTIP awards eligible for vesting during the year ended 28 February 2018, lapsed in full at the end of the performance period.
On 1 August 2017, the remuneration package of R T Forrester was increased from an annual basic pay of £265,000 to £315,000 and an annual on-target bonus opportunity of £235,000 to
£281,000.
Annual Bonus
Group Performance Related Bonus
Bonuses are earned by reference to the financial year and paid following the end of the financial
year. The target adjusted profit before tax was £32.7m. The profit bonuses accruing to the
Executive Directors in respect of the year ended 28 February 2018 are shown below:
Performance measure
Actual Performance
Threshold performance
Maximum
Customer Outcome Bonus
Adjusted PBT
£’000
28,553
24,525
42,500
R T Forrester
% Basic salary
payable
62.3%
53.4%
132.2%
M Sherwin
% Basic salary
payable
63.3%
54.3%
131.9%
In addition to the profit related bonus above, a customer outcome bonus is available if the Group
achieves stretching targets in respect of customer satisfaction including manufacturer new car
and service CSI as well as used car Judge Service scores. To earn on target earnings of £52,250
for R T Forrester and £38,000 for M Sherwin in this area, 65% of Group sales departments and
60% of Group service departments had to achieve their respective manufacturer’s national
average target at each quarter end, and the Group had to achieve an overall “Would
Recommend” score of 95%, as measured by Judge Service, at the end of each quarter. R T
Forrester received £43,941 and M Sherwin received £31,733 in respect of such bonuses out of
potential maximum customer outcome bonus for the financial year of £78,375 and £57,000
respectively.
Pensions
The Group operates a group personal pension plan for eligible colleagues. R T Forrester and M
Sherwin ceased to be active members of the plan in 2015 and 2014 respectively. R T Forrester
and M Sherwin have elected to receive a payment of 16.5% of current basic salary rather than
Company pension contributions during the year ended 28 February 2018.
Directors' Share Options
The movement in share options held by the Directors during the year ended 28 February 2018 is
as follows:
R T Forrester
M Sherwin
Number at 1
March 2017
1,003,457
752,593
Exercised in
Year
-
-
Lapsed in Year
(508,475)
(381,356)
Granted in Year
303,030
227,273
Number at 28
February 2018
798,012
598,510
The June 2015 LTIP issue lapsed in full subsequent to 28 February 2018. This included
options held by R T Forrester and M Sherwin of 205,128 and 153,846 respectively.
Vertu Motors plc
59
Directors’ Remuneration Report (continued)
Directors' Share Options (continued)
Details of share options granted during the year are as follows:
Scheme Date of Grant
R T Forrester
M Sherwin
LTIP
LTIP
23 June 2017
23 June 2017
Earliest
Exercise
Date1
23 June 2022
23 June 2022
Expiry Date
23 June 2027
23 June 2027
Exercise
price
(pence)
Nil
Nil
Market value
on date of
grant (pence)
44.0p
44.0p
Number of
options granted
303,030
227,273
1. Options may meet performance criteria for vesting in 2020 but are subject to a two year retention period preventing their exercise until 23 June
2022.
LTIP Options issued prior to 29 February 2016
Vesting of one half of the LTIP options is dependent on absolute growth in the Company's
TSR, and the other half dependent on the Company's TSR performance as compared to the
TSR achieved by the FTSE small cap index (excluding investment trusts). All TSR
calculations will be based on the average of opening and closing share prices over a 10
Business Day period prior to the commencement and end of the performance period.
The absolute growth performance condition, applying to half of the LTIP options granted to
date, is as follows:
Growth in Company TSR
Less than 25% absolute growth
More than 25% but less than 100% absolute
growth
100% or more than 100% absolute growth
Proportion of awards subject to absolute TSR
condition vesting
0%
Straight line vesting 0 – 100%
100%
The relative TSR performance condition, applying to the other half of the LTIP options granted
prior to 29 February 2016, is as follows:
Ranking of Company TSR*
Below median
Between median and 90th percentile
Above 90th percentile
Proportion of award subject to relative TSR
condition vesting
0%
Straight line vesting 0 – 100%
100%
*Based on FTSE small cap index (excluding investment trusts)
The only remaining LTIP options issued prior to 29 February 2016 lapsed in full subsequent to
28 February 2018.
LTIP Options issued after 29 February 2016
Vesting of one half of the LTIP options is dependent on absolute growth in the Company's
TSR. TSR calculations will be based on the average of opening and closing share prices
over a 10 Business Day period prior to the commencement and end of the performance
period. Vesting of the remaining half of the LTIP options is dependent on the Group’s return
on shareholders’ equity (‘ROE’).
The TSR performance condition, applying to half of the LTIP options granted after 29
February 2016, is:
Growth in Company TSR
Less than 26% absolute growth
More than 26% but less than 42% absolute growth
42% or more than 42% absolute growth
Proportion of awards subject to TSR condition
vesting
0%
Straight line vesting 0 – 100%
100%
The ROE performance condition, applying to the remaining half of the LTIP options granted
after 29 February 2016, is:
Group ROE1
Less than 8%
More than 8% but less than 10%
10% or more than 10%
1. ROE is measured as average annual adjusted profit after tax as stated in the financial statements for the performance period,
Proportion of awards subject to ROE condition
vesting
0%
Straight line vesting 0 – 100%
100%
divided by average Group Net Assets.
Vertu Motors plc
60
Directors’ Remuneration Report (continued)
Information not subject to audit
Statement of Directors’ Shareholding
The Directors who held office at 28 February 2018 and their connected persons had interests
in the issued share capital of the Company as at 28 February 2018 as follows:
R T Forrester
M Sherwin
P Jones
K Lever
N Stead
P Best
Number of shares held (including by
connected persons)
Unvested share options subject to
performance conditions1
28 February
2018
6,929,868
489,253
1,522,000
40,800
80,500
-
28 February
2017
6,925,606
484,993
1,405,000
40,800
80,500
-
28 February
20182
798,012
598,510
-
-
-
-
28 February
2017
1,003,457
752,593
-
-
-
1 The Directors hold no vested but unexercised share options.
2 June 2015 LTIP options lapsed in full subsequent to 28 February 2018. This included options held by R T Forrester and M Sherwin
of 205,128 and 153,846 respectively.
Performance Graph
The chart below shows the Company’s eight-year annual Total Shareholder Return (“TSR”)
performance against the FTSE small cap index (excluding investment trusts), which is
considered to be an appropriate comparison to other public companies of a similar size.
The middle market price of the shares as at 28 February 2018 was 43.1p (28 February 2017:
47.8p) and the range during the financial year was 40.5p to 51.8p (2017: 37.3p to 71.0p).
Vertu Motors plc
61
Directors’ Remuneration Report (continued)
Change in Remuneration of Chief Executive
The following table sets out the change in the Chief Executive’s salary, benefits and bonus
between the years ended 28 February 2017 and 28 February 2018 compared with the
average percentage change in each of those components for the employees of the Group.
CEO
Employees
Relative Importance of Spend on Pay
Increase in base
salary
10.9%
2.6%
Change in benefits
17%
-
Change in bonus
(5.4%)
(17.4%)
The table below sets out the total spend on pay in the years ended 28 February 2017 and 28
February 2018 compared with other disbursements from profit (i.e. the distributions to
shareholders).
Spend on remuneration (including Directors)
Profit distributed by way of dividend
Spend in the year
ended 28 February
2018
£’000
179,271
5,678
Spend in the
year ended 28
February 2017
£’000
179,222
5,353
Shareholders’ Vote on Remuneration at the 2017 AGM
2017 Directors’ Remuneration Report
Votes cast in favour
Votes cast against
Total votes cast in favour or against
Votes withheld
Number
157,603,161
420,122
158,023,283
13,369,104
% change
0.3%
6.1%
Proportion of
votes cast (%)
99.73%
0.27%
100%
Implementation of Remuneration Policy for the year ending 28 February 2019
The annual salaries and fees to be paid to Directors in the year ending 28 February 2019 are
set out in the table below, together with any increase expressed as a percentage.
R T Forrester 1
M Sherwin
P Jones
K Lever
N Stead
P Best
Annual Salary/fees
28 February
2019
£’000
315
210
70
55
40
40
28 February
2018
£’000
294
210
70
55
40
40
Increase
%
7.1%
-
-
-
-
-
The remuneration package of R T Forrester was increased on 1 August 2017. The increase in
this table reflects the pro-rata impact on the year ended 28 February 2018 of 7 months at the
higher rate.
The basis for determining annual bonus payments for the year to 28 February 2019 is set out
in the future policy table in the Remuneration Committee Report (pages 54 and 55).
The Committee intends to grant options to Executive Directors R T Forrester and M Sherwin
under the LTIP in 2018/19. These options will be £Nil cost options over a value of shares
subject to a maximum of 125% of salary where the vesting is subject to targets based on the
achievement of return on shareholders’ equity targets and the achievement of absolute
growth in the Company’s total shareholder return (“TSR”), measured over a three year period
from 1 March 2018. Part of the LTIP awards can take the form of a tax advantaged qualifying
option over shares to the limit prescribed by the applicable tax legislation (currently £30,000).
Consideration by the Directors of Matters Relating to Directors’ Remuneration
The Committee
The Committee is responsible for reviewing and recommending the framework and policy for
remuneration of the Executive Directors. The Committee’s terms of reference are available
from the Company Secretary. The members of the Committee during the financial year were
P Best (Chairman), N Stead, W M Teasdale (until 26 July 2017), P Jones and K Lever.
Vertu Motors plc
62
Independent Auditors’ Report to the members of Vertu
Motors plc
Report on the audit of the financial statements
Opinion
In our opinion, Vertu Motors Plc’s Group financial statements and Company financial
statements (the “financial statements”):
•
•
•
give a true and fair view of the state of the Group’s and of the Company’s affairs as at
28 February 2018 and of the Group’s profit and the Group’s and the Company’s cash
flows for the year then ended;
have been properly prepared in accordance with IFRSs as adopted by the European
Union and, as regards the Company’s financial statements, as applied in accordance
with the provisions of the Companies Act 2006; and
have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise:
the Group and parent company balance sheets as at 28 February 2018; the Group income
statement and statement of comprehensive income, the Group cash flow statement, and the
Group and parent company statement of changes in equity for the year then ended; and the
notes to the financial statements, which include a description of the significant accounting
policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs
(UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the
Auditors’ responsibilities for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical
Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
Our audit approach
Overview
• Overall group materiality: £2,400,000, based on 0.09% of
revenue.
• Overall company materiality: £2,280,000, based on 1% of
total assets.
• Three full scope audit components have been identified, along wiside the
with the Company.
• This approach provides coverage of 75% of the Group's
revenue.
• Carrying value of goodwill (Group) and investments
(Company)
• Valuation of non-new vehicle inventory.
• Manufacturer bonus income.
• Valuation of pension scheme liabilities.
Vertu Motors plc
63
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the financial statements. In particular, we looked at where the Directors made
subjective judgements, for example in respect of significant accounting estimates that
involved making assumptions and considering future events that are inherently uncertain.
As in all of our audits we also addressed the risk of management override of internal controls,
including evaluating whether there was evidence of bias by the Directors that represented a
risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of
most significance in the audit of the financial statements of the current period and include the
most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, 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. These matters, and any comments we make on the results of our procedures thereon,
were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters. This
is not a complete list of all risks identified by our audit.
Key audit matter
Group
Carrying value of goodwill
The Group has significant goodwill balances
in respect of acquisitions made across
various CGU's. The recoverable amount of
the CGU is impacted by various factors, a
number of which are outside of Vertu's
control, which could affect whether results
are in line with expectations.
Where this is the case and a CGU has been
subject to poor historical performance, there
is a risk around the recoverability of this
goodwill. There is inherent uncertainty and
judgement in forecasting future cash flows
which are above more recent results, and
therefore this is a particularly judgmental
area of the audit.
Valuation of non-new vehicle inventory
The Group holds significant levels of vehicle
inventory. Non new vehicle selling prices can
vary depending upon a number of factors,
and as a result large price fluctuations can be
experienced in short periods. Therefore,
valuation and provisions in relation to non-
new stock is an area of particular judgment.
How our audit addressed the key audit
matter
To address this risk, we have done the
following:
Assessed the Group’s budgeting procedures
as a basis for value in use calculations;
Compared historical performance to historical
forecasts to assess accuracy in the budget
process;
Assessed the appropriateness of CGU’s
used for Goodwill purposes;
Key inputs are assessed, for example
discount rates, inflation and forecast
revenues and costs;
We performed sensitivity analysis on the
forecasts, including prudent poor
performance scenarios to assess headroom.
Key observations
We are satisfied with management’s
conclusion not to impair goodwill based on
the audit evidence obtained.
To address the risk of valuation on non-new
vehicle inventory we have:
performed detail testing over the non-new
vehicle stock held at year end, where
possible looking to post year-end sales to
support year end carrying values;
performed analysis on the non-new vehicle
stock to understand history of profits and
losses on non-new car stock, and use this to
assess the adequacy of the year end
Vertu Motors plc
64
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
Key audit matter
Manufacturer bonus income
The Group receives a level of manufacturer
bonus which has a large impact on the
overall result. Due to the complex nature of
some of these arrangements, there is often
judgement required in relation to whether
targets have been met at a point in time. As a
result, the related income recognised is a
judgemental part of the audit.
Valuation of pension scheme liabilities
There is inherent judgement in valuing the
Group’s post-retirement benefit liabilities
within the pension scheme. The nature of the
calculation means that small movements in
key assumptions could have a significant
effect on the pension deficit. In addition,
factors impacting the pension liability can be
outside of management’s control.
How our audit addressed the key audit
matter
provision;
used forward looking market data to assess
current and expected future trading
conditions;
considered the adequacy of the Group’s
disclosures about the degree of estimation
involved in arriving at the vehicle inventory
provision.
Key observations
We are satisfied based on the procedures
performed that the valuation of non-new
vehicle stock was reasonable based on the
audit evidence received.
To address this risk in respect of
manufacturer bonus income, we have:
Agreed the manufacturer bonus income
through to supporting documentation;
tested the key controls in place around
commercial income recognition;
compared prior year judgements to the final
commercial income received.
Key observations
We are satisfied with the recognition of
commercial income in the year based on the
audit evidence received.
To address this risk in respect of valuation of
pension scheme liabilities, we have:
used our actuarial specialists to review the
appropriateness of the assumptions used;
compared key inputs, such as mortality/life
expectancy, discount rate and inflation rate to
market data;
considered the adequacy of the Group’s
disclosure in respect of the sensitivity of the
scheme liabilities to changes in key inputs.
Key observations
We concluded that the key inputs used in
calculating the pension liability were within an
acceptable range when compared with
market data.
Vertu Motors plc
65
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
Company
Carrying value of investments
The Group has significant investments in
respect of acquisitions made across various
subsidiaries. The recoverable amount of the
subsidiary is impacted by various factors, a
number of which are outside of Vertu's
control, which could affect whether results
are in line with expectations.
Where this is the case and a subsidiary has
been subject to poor historical performance,
there is a risk around the recoverability of this
investment. There is inherent uncertainty and
judgement in forecasting future cash flows
which are above more recent results, and
therefore this is a particularly judgmental
area of the audit.
To address this risk, we have done the
following:
Assessed the Group’s budgeting procedures
as a basis for value in use calculations;
Compared historical performance to historical
forecasts to assess accuracy in the budget
process;
Key inputs are assessed, for example
discount rates, inflation and forecast
revenues and costs;
We performed sensitivity analysis on the
forecasts, including prudent poor
performance scenarios to assess headroom.
Key observations
We are satisfied with management’s
conclusion not to impair investments based
on the audit evidence obtained.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to
give an opinion on the financial statements as a whole, taking into account the structure of the
Group and the Company, the accounting processes and controls, and the industry in which
they operate.
The Vertu Motors Group has grown organically through acquisition, and as a result has a
number of subsidiary entities which contain legacy acquired dealerships. Much of the day to
day accounting function is performed at these individual dealership levels, with the support of
a central Group accounting function.
As a result of this structure there are three components which required a full scope audit of
their financial information, due to their size and contribution to the financial results of the
Group. These are Bristol Street First Investments Limited, Bristol Street Fourth Investments
Limited and Albert Farnell Limited. Vertu Motors Plc is also subject to full scope audit of its
financial information, due to the separate presentation of these financial statements within this
report.
The audit work over these components is performed principally from the central Group
accounting function, however site visits to all in scope components are carried out as part of
our audit procedures, in order to verify the existence of stock, and to carry out testing over
sales records.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain
quantitative thresholds for materiality. These, together with qualitative considerations, helped
us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on the financial statements as
a whole.
Vertu Motors plc
66
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
Based on our professional judgement, we determined materiality for the financial statements
as a whole as follows:
Group financial statements
Company financial statements
Overall materiality £2,400,000
£2,280,000
Rationale for
benchmark applied
We applied our professional
judgement to determine an
amount that was relevant to both
revenue and profit before tax,
which are measures used to
assess the performance and
growth objectives of the Group, as
well as the scale of the Group’s
operations. Our materiality
represents 0.09% of revenue.
We believe that total assets is the
primary measure used by the
shareholders in assessing the
performance of the entity, and is a
generally accepted auditing
benchmark. Our materiality
represents 1% of total assets.
For each component in the scope of our group audit, we allocated a materiality that is less
than our overall Group materiality. The range of materiality allocated across components was
between £1,500,000 and £2,280,000. Certain components were audited to a local statutory
audit materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified
during our audit above £120,000 (Group audit) and £114,000 (Company audit) as well as
misstatements below those amounts that, in our view, warranted reporting for qualitative
reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or
draw attention to in respect of the Directors’ statement in the
financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting in
preparing the financial statements and the Directors’
identification of any material uncertainties to the Group’s and the
Company’s ability to continue as a going concern over a period
of at least twelve months from the date of approval of the
financial statements.
Outcome
We have nothing material
to add or to draw attention
to. However, because not
all future events or
conditions can be
predicted, this statement
is not a guarantee as to
the Group’s and
Company’s ability to
continue as a going
concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the
financial statements and our auditors’ report thereon. The Directors are responsible for the
other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent
otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material
misstatement of the financial statements or a material misstatement of the other information.
If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the
disclosures required by the UK Companies Act 2006 have been included.
Vertu Motors plc
67
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
Based on the responsibilities described above and our work undertaken in the course of the
audit, the Companies Act 2006, (CA06) and ISAs (UK) require us also to report certain
opinions and matters as described below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information
given in the Strategic Report and Directors’ Report for the year ended 28 February 2018 is
consistent with the financial statements and has been prepared in accordance with
applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their
environment obtained in the course of the audit, we did not identify any material
misstatements in the Strategic Report and Directors’ Report. (CA06)
The Directors’ assessment of the prospects of the Group and of the principal risks
that would threaten the solvency or liquidity of the Group
As a result of the Directors’ voluntary reporting on how they have applied the UK Corporate
Governance Code (the “Code”), we are required to report to you if we have anything material
to add or draw attention to regarding:
• The Directors’ confirmation on page 30 of the Annual Report that they have carried
out a robust assessment of the principal risks facing the Group, including those that
would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they
are being managed or mitigated.
• The Directors’ explanation on page 30 of the Annual Report as to how they have
assessed the prospects of the Group, over what period they have done so and why
they consider 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.
We have nothing to report in respect of this responsibility.
Other Code Provisions
As a result of the Directors’ voluntary reporting on how they have applied the Code, we are
required to report to you if, in our opinion:
• The statement given by the Directors, on page 41 to 42, that they consider the Annual
Report taken as a whole to be fair, balanced and understandable, and provides the
information necessary for the members to assess the Group’s and Company’s
position and performance, business model and strategy is materially inconsistent with
our knowledge of the Group and Company obtained in the course of performing our
audit.
• The section of the Annual Report on page 48 to 51 describing the work of the Audit
Committee does not appropriately address matters communicated by us to the Audit
Committee.
We have nothing to report in respect of this responsibility.
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement, the Directors are
responsible for the preparation of the financial statements in accordance with the applicable
framework and for being satisfied that they give a true and fair view. The Directors are also
responsible for such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s
and the 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 the Directors
Vertu Motors plc
68
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
either intend to liquidate the Group or the Company or to cease operations, or have no
realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
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 error, and to issue an
auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located
on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s
members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and
for no other purpose. We do not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it
may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
•
•
•
•
we have not received all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the Company, or returns
adequate for our audit have not been received from branches not visited by us; or
certain disclosures of Directors’ remuneration specified by law are not made; or
the Company financial statements are not in agreement with the accounting records
and returns.
We have no exceptions to report arising from this responsibility.
Randal Casson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
9 May 2018
Vertu Motors plc
69
Consolidated Income Statement
For the year ended 28 February 2018
Note
2018
£’000
2017
£’000
Revenue
Cost of sales
Gross profit
Operating expenses (before exceptional items)
Exceptional items
Operating profit
Amortisation of intangible assets
Exceptional items
Share based payments charge
Operating profit before amortisation, exceptional
items and share based payments charge
Finance income
Finance costs
Profit before tax
Amortisation of intangible assets
Exceptional items
Share based payments charge
Profit before tax, amortisation, exceptional items
and share based payments charge
Taxation
Profit for the year attributable to equity holders
Basic earnings per share (p)
Diluted earnings per share (p)
6
8
16
8
30
11
11
16
8
30
12
13
13
2,796,068
2,822,589
(2,487,176)
(2,509,049)
308,892
(280,086)
313,540
(281,466)
3,539
32,345
614
(3,539)
1,031
30,451
66
(1,964)
30,447
614
(3,539)
1,031
28,553
(5,766)
24,681
6.31
6.21
-
32,074
614
-
1,082
33,770
261
(2,515)
29,820
614
-
1,082
31,516
(5,800)
24,020
6.14
6.04
Vertu Motors plc
70
Consolidated Statement of Comprehensive Income
For the year ended 28 February 2018
Note
2018
£’000
2017
£’000
Profit for the year
24,681
24,020
Other comprehensive income / (expense)
Items that will not be reclassified to profit or loss:
Actuarial gains / (losses) on retirement benefit
obligations
Deferred tax relating to actuarial (gains) / losses on
retirement benefit obligations
Items that may be reclassified subsequently to profit or
loss:
Cash flow hedges
Deferred tax relating to cash flow hedges
Other comprehensive income / (expense) for the
year, net of tax
29
29
31
31
Total comprehensive income for the year
attributable to equity holders
4,422
(752)
(93)
18
(4,687)
937
-
-
3,595
(3,750)
28,276
20,270
Vertu Motors plc
71
Consolidated Balance Sheet
As at 28 February 2018
Non-current assets
Goodwill and other indefinite life assets
Other intangible assets
Retirement benefit asset
Property, plant and equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Property assets held for sale
Total current assets
Total assets
Current liabilities
Trade and other payables
Deferred consideration
Current tax liabilities
Borrowings
Total current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred consideration
Deferred income tax liabilities
Deferred income
Total non-current liabilities
Total liabilities
Net assets
Capital and reserves attributable to equity
holders of the Group
Ordinary share capital
Share premium
Other reserve
Hedging reserve
Treasury share reserve
Capital redemption reserve
Retained earnings
Note
15
16
29
18
20
22
23
21
24
17
25
25
26
17
27
28
30
30
30
31
30
30
2018
£’000
94,381
1,316
6,551
198,004
300,252
558,386
66,272
41,709
666,367
2,449
668,816
2017
£’000
94,595
1,518
1,884
197,545
295,542
506,470
52,545
39,845
598,860
-
598,860
969,068
894,402
(663,404)
-
(3,304)
(12,811)
(679,519)
(9,585)
(92)
(100)
(6,477)
(8,877)
(25,131)
(610,317)
(1,572)
(3,840)
(8,671)
(624,400)
(10,166)
-
(236)
(5,555)
(7,616)
(23,573)
(704,650)
(647,973)
264,418
246,429
38,552
124,934
10,645
(75)
(690)
1,175
89,877
39,727
124,932
10,645
-
(756)
-
71,881
Shareholders’ equity
264,418
246,429
These financial statements on pages 70 to 110 have been approved for issue by the Board of
Directors on 9 May 2018:
Robert Forrester
Chief Executive
Michael Sherwin
Chief Financial Officer
Vertu Motors plc
72
Consolidated Cash Flow Statement
For the year ended 28 February 2018
Cash flows from operating activities
Operating profit
Profit on sale of property, plant and equipment
Amortisation of other intangible assets
Depreciation of property, plant and equipment
Impairment charges
Movement in working capital
Share based payments charge
Cash generated from operations
Tax received
Tax paid
Finance income received
Finance costs paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of businesses, net of cash and
overdrafts acquired
Acquisition of freehold and long leasehold land and
buildings
Purchases of intangible assets
Purchases of other property, plant and equipment
Proceeds from disposal of business (net of cash
and overdrafts)
Proceeds from sale and leaseback transaction
Proceeds from disposal of property, plant and
equipment
Net cash outflow from investing activities
Cash flows from financing activities
Net proceeds from issuance of ordinary shares
Proceeds from borrowings
Repayment of borrowings
Sale / (purchase) of treasury shares
Repurchase of own shares
Dividends paid to equity holders
Net cash (outflow) / inflow from financing
activities
Net increase / (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
6 & 8
16
18
6
33
2018
£’000
32,345
(3,529)
614
9,714
513
(13,332)
954
27,279
350
(6,468)
14
(2,321)
18,854
2017
£’000
32,074
(285)
614
8,665
-
16,040
1,015
58,123
359
(6,103)
34
(2,447)
49,966
17
(1,181)
(49,962)
(4,346)
(411)
(19,802)
1,528
14,150
165
(9,897)
-
4,140
(166)
62
(5,451)
(5,678)
(4,456)
(460)
(25,092)
875
-
950
(78,145)
33,631
10,831
(14,000)
(1,000)
-
(5,353)
(7,093)
24,109
1,864
39,845
41,709
(4,070)
43,915
39,845
17
8
32
32
32
23
Vertu Motors plc
73
Consolidated Statement of Changes in Equity
For the year ended 28 February 2018
Ordinary
share
capital
£’000
Share
premium
£’000
Other
reserve
£’000
Hedging
reserve
£’000
Treasury
share
reserve
£’000
Capital
redemption
reserve
£’000
As at 1 March 2017
Profit for the year
Actuarial gains on
retirement benefit
obligations
Tax on items taken
directly to equity
Fair value losses
Total comprehensive
income for the year
Sale of treasury shares
Repurchase of own
shares
Cancellation of
repurchased shares
Dividend paid
Share based payments
charge
As at 28 February
2018
39,727
124,932
10,645
-
-
-
-
-
-
-
(1,175)
-
-
-
-
-
-
-
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
(93)
(75)
-
-
-
-
-
(756)
-
-
-
-
-
66
-
-
-
-
Retained
earnings
£’000
Shareholders’
equity
£’000
71,881
24,681
246,429
24,681
4,422
4,422
(752)
-
28,351
(6)
(734)
(93)
28,276
62
(5,625)
(5,625)
-
-
-
-
-
-
-
-
1,175
-
-
(5,678)
-
(5,678)
-
954
954
38,552
124,934
10,645
(75)
(690)
1,175
89,877
264,418
The repurchase of own shares in the year was made pursuant to the share buyback
programme announced on 26 July 2017.
Ordinary shares to the value of £5,441,000 had been repurchased in the year ended 28
February 2018, of which £174,000 was unpaid at 28 February 2018. 11,745,322 of the
repurchased shares had been cancelled at 28 February 2018 and accordingly, the nominal
value of these shares has been transferred to the capital redemption reserve.
During the year, the Group repurchased £166,000 of cumulative preference shares for
£350,000. The excess over the nominal value of the preference shares of £184,000 is
included in “Repurchase of own shares” above.
The other reserve is a merger reserve, arising from shares issued for shares as consideration
to the former shareholders of acquired companies.
Vertu Motors plc
74
Consolidated Statement of Changes in Equity (continued)
For the year ended 28 February 2017
Ordinary
share
capital
£’000
Share
premium
£’000
Other
reserve
£’000
Treasury
share
reserve
£’000
Retained
earnings
£’000
Shareholders’
equity
£’000
As at 1 March 2016
Profit for the year
Actuarial losses on retirement
benefit obligations
Tax on items taken directly to
equity
Total comprehensive income for
the year
New ordinary shares issued
Cost of issuance of ordinary
shares
Purchase of treasury shares
Treasury shares issued
Dividend paid
Share based payments charge
As at 28 February 2017
34,127
-
96,901
-
10,645
-
-
-
-
-
-
5,600
-
29,400
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
39,727
(1,369)
-
-
-
-
124,932
-
-
-
-
-
10,645
-
(1,000)
244
-
-
(756)
56,186
24,020
197,859
24,020
(4,687)
(4,687)
937
937
20,270
-
-
-
(237)
(5,353)
1,015
71,881
20,270
35,000
(1,369)
(1,000)
7
(5,353)
1,015
246,429
Vertu Motors plc
75
Notes to the Consolidated Financial Statements
For the year ended 28 February 2018
1.
Accounting Policies
Basis of preparation
Vertu Motors plc is a Public Limited Company which is listed on the Alternative Investment
Market (AiM) and is incorporated and domiciled in England. The address of the registered
office is Vertu House, Fifth Avenue Business Park, Team Valley, Gateshead, Tyne and Wear,
NE11 0XA. The registered number of the Company is 05984855.
The consolidated financial statements of Vertu Motors plc have been prepared in accordance
with International Financial Reporting Standards as adopted by the European Union (IFRSs
as adopted by the EU), International Financial Reporting Standards Interpretations Committee
("IFRS-IC") interpretations and the Companies Act 2006 applicable to companies reporting
under IFRS.
The consolidated financial statements have been prepared on the going concern basis under
the historical cost convention, as modified by the revaluation of financial assets and liabilities
(including derivative financial instruments) at fair value.
The consolidated financial statements include the results of all subsidiaries owned by Vertu
Motors plc listed on pages 117 to 119 of the annual report. Certain of these subsidiaries,
which are listed below, have taken the exemption from an audit for the year ended 28
February 2018 by virtue of s479A of Companies Act 2006. Certain other subsidiaries, which
are also listed below, have taken the exemption from preparing individual accounts for the
year ended 28 February 2018 by virtue of s394A of Companies Act 2006. In order to allow
these subsidiaries to take the audit exemption or exemption from the preparation of individual
accounts (as appropriate), the parent company Vertu Motors plc has given a statutory
guarantee of all the outstanding liabilities as at 28 February 2018 of the subsidiaries listed
below, further details of which are provided in note 35.
The subsidiaries which have taken an exemption from an audit for the year ended 28
February 2018 by virtue of s479A Companies Act 2006 are:
Bristol Street First Investments Limited
Bristol Street Fourth Investments Limited
Vertu Motors (Knaresborough) Limited
Vertu Motors (VMC) Limited
South Hereford Garages Limited
South Hereford Garages Trade Parts LLP Grantham Motor Company Limited Gordon Lamb Holdings Limited
Vertu Motors (Chingford) Limited
Vertu Motors (Property 2) Limited
Greenoaks (Maidenhead) Limited
Macklin Property Limited
Tyne Tees Finance Limited
Vertu Motors (Property) Limited
Albert Farnell Limited
All Car Parts Limited
Sigma Holdings Limited
Gordon Lamb Limited
The subsidiaries which have taken an exemption from the preparation of individual accounts
in respect of the year ended 28 February 2018 by virtue of s394A of Companies Act 2006 are:
Blake Holdings Limited
Bristol Street (No.1) Limited
Bristol Street (No.2) Limited
Bristol Street Fifth Investments Limited
Bristol Street Fleet Services Limited
Bristol Street Group Limited
Bristol Street Limited
BSH Pension Trustee Limited
Merifield Properties Limited
Motor Nation Car Hypermarkets Limited
Dunfermline Autocentre Limited
Widnes Car Centre (1994) Limited
Compare Click Call Limited
K C Motability Solutions Limited
Bristol Street Commercials (Italia) Limited
Newbolds Garage (Mansfield) Limited
Gordon Lamb Group Limited
Aceparts Limited
Why Pay More For Cars Limited
Hillendale Group Limited
Hillendale LR Limited
International Concessionaires Limited
National Allparts Limited
Peter Blake (Chatsworth) Limited
Peter Blake (Clumber) Limited
Peter Blake Limited
Typocar Limited
Vertu Fleet Limited
Vertu Motors (Finance) Limited
Vertu Motors (Retail) Limited
Boydslaw 103 Limited
Vertu Motors (Pity Me) Limited
Widnes Car Centre Limited
Vertu Motors (Durham) Limited
Dobies (Carlisle) Limited
Vertu Motors (AMC) Limited
Brookside (1998) Limited
Nottingham TPS LLP
Vertu Motors Property 2 Holdings Limited
SHG Holdings Limited
Blacks Autos Limited
Easy Vehicle Finance Limited
The Taxi Centre Limited
Vertu Motors plc
76
Notes to the Consolidated Financial Statements (continued)
1.
Accounting Policies (continued)
Basis of preparation (continued)
The preparation of financial statements in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires management to exercise its judgement in the
process of applying the Group’s accounting policies. The estimates and assumptions that
have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities are set out in note 4.
The Directors consider that the accounting policies set out below are the most appropriate
and have been consistently applied.
Standards and interpretations adopted by the Group in the year ended 28 February
2018
Amendments to IAS 7, Statement of cash flows, disclosure initiative (note 34)
Amendments to IAS 12, ‘Income taxes’, recognition of deferred tax assets for unrealised
losses
Annual improvements 2014-2016 – IFRS 12, ‘Disclosure of interests in other entities’
regarding clarification of the scope of the standard
New standards and interpretations issued but not yet effective and not early adopted
IFRS 15 ‘Revenue from contracts with customers’
IFRS 15, ‘Revenue from contracts with customers’ is mandatory for all financial years
commencing on or after 1 January 2018. IFRS 15 provides a detailed framework for the
timing and amount of revenue recognised. The standard replaces IAS 18 Revenue, IAS 11
Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The impact of applying
IFRS 15 to the Group’s financial statements has been reviewed by revenue stream.
Sale of motor vehicles, parts and aftersales services
Sales of vehicles and parts are currently recognised when the goods have been supplied.
Aftersales services are recognised when the service has been completed in line with stage of
completion of the transaction at the reporting date, assessed by the time expended on
services that are charged on a labour rate basis. Under IFRS 15, revenue will be recognised
when the customer has control of the goods. This is expected to have no impact on the
current revenue recognition policies. Manufacturer incentives (e.g. free service when
purchasing a vehicle) are not expected to impact the Group as the legal obligation lies with
the manufacturer.
Sale of warranty products
There is expected to be no change to the recognition of revenue from the sale of warranty
products as a result of transition to IFRS 15. Under the new accounting standard, revenue will
be recognised in line with the performance obligation, i.e. the period in which the customer
can exercise their rights under the warranty, and therefore recognised over the life of the
warranty, as is the case under IAS 18.
Commissions received
The Group recognises income received in respect of commissions from various finance and
insurance companies when the finance and/or insurance package that the customer has
entered into commences, and recognises a provision for the estimated cost of this
commission being repaid should the customer subsequently cancel their finance package.
Typically, this is on delivery of the vehicle. Under IFRS 15, the revenue will be recognised on
satisfaction of
the
arrangement of vehicle financing and/or insurance products. The Group’s assessment
indicates that no changes in revenue recognition policies will be required.
the performance obligation which corresponds
to completion of
Transition
The Group plans to adopt IFRS 15, at 1 March 2018, using the cumulative effect method. The
Group will therefore not apply the requirements of IFRS 15 to the comparative period.
Vertu Motors plc
77
Notes to the Consolidated Financial Statements (continued)
1.
Accounting Policies (continued)
New standards and interpretations issued but not yet effective and not early adopted
(continued)
IFRS 9 ‘Financial Instruments’
IFRS 9, ‘Financial Instruments’ is effective for financial years commencing on or after 1
January 2018 and replaces IAS 39, the accounting standard used in the preparation of these
financial statements.
Under IFRS 9, financial assets are classified according to the business model for their
realisation, as determined by the expected contractual cash flows. This is in contrast to IAS
39 where assets are classified by nature. IFRS 9 requires the classification to determine the
accounting treatment i.e. amortised cost, fair value through other comprehensive income or
fair value through profit or loss. The classification requirements of financial assets and
liabilities under IFRS 9 is largely in line with that of IAS 39 and therefore no material
differences are expected.
Impairment of financial assets
Impairment of assets under IAS 39 is based on an incurred loss approach whereby an
impairment exists when a credit event occurs (debts become overdue) whereas IFRS 9 is
based upon expected credit loss (ECL) approach. IFRS 9 also requires the impairment of
financial assets to be shown as a separate line item in either the income statement or
statement of comprehensive income. Impairment of financial assets under IAS 39 is
recognised in operating expenses.
The Group’s analysis suggests the carrying value of financial assets and liabilities under IFRS
9 will not differ materially from IAS 39 measurement.
Transition
The Group plans to adopt IFRS 9, at 1 March 2018, using the cumulative effect method. The
Group will therefore not apply the requirements of IFRS 9 to the comparative period.
IFRS 16 ‘Leases’
In addition to the above, IFRS 16, ‘Leases’, is effective for periods beginning on or after 1
January 2019 and replaces IAS 17, ‘Leases’. The new standard requires lessees to recognise
a right-of-use asset and a lease liability based on discounted future lease payments for
almost all leased assets with some exemptions available for short-term or low value leases.
The impact of this standard on the Group will be the recognition of right-of-use assets and
lease liabilities, predominantly in respect of the Group’s operating leased property portfolio, as
well as an increase in depreciation and interest charges which will replace the straight-line
operating lease expense recognised under IAS 17. The Group will continue to assess the
financial impact over the next financial year until the effective date. The Group’s minimum
lease payments under non-cancellable operating leases amounted to £90.8m, on an
undiscounted basis, as disclosed in note 36.
Transition
For lessees, transition options include a retrospective approach in which comparative
financial information will be restated at the date of transition and the right-of-use asset and
lease liability will be calculated as if IFRS 16 had been applied from inception of the lease. A
modified retrospective approach is also available in which comparative information is not
required to be restated and instead, the cumulative effect of adopting IFRS 16 is recognised
as an adjustment to the opening balance of retained earnings at 1 March 2018. Due to the
volume and age of the leases in the Group’s property portfolio, it is currently anticipated that
the modified retrospective approach will be applied with additional disclosure of any financial
information required to increase comparability of financial periods given where necessary.
Vertu Motors plc
78
Notes to the Consolidated Financial Statements (continued)
1.
Accounting Policies (continued)
New standards and interpretations issued but not yet effective and not early adopted
(continued)
Other standards
Amendments to IFRS 2, ‘Share based payments’, on clarifying how to account for certain
types of share-based payment transactions
Annual improvements 2014-2016 – Amendments to IFRS1 and IAS 28
Annual improvements 2015-2017 – Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23
Amendments to IAS 28 ‘Investments in associates’, on long term interests in associates and
joint ventures
Amendments to IAS 19, ‘Employee benefits’ on plan amendments, curtailment or settlement
IFRIC 22, ‘Foreign currency transactions and advance consideration’
IFRIC 23, ‘Uncertainty over income tax treatments’
The Directors anticipate that the adoption of these standards and interpretations in future
periods will have no material impact on the financial statements of the Group.
Other new standards and interpretations in the year have not been included in the list above
as they are not considered relevant to the Group.
Basis of consolidation
The consolidated financial statements comprise the financial statements of Vertu Motors plc
and its subsidiary undertakings. Subsidiaries are all entities (including structured entities) over
which the Group has control. The Group controls an entity when the Group is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect
those returns through its power to direct the activities of the entity. Subsidiaries are
consolidated from the date at which control is transferred to the Group and they are excluded
from the consolidated financial statements from the date that control ceases.
Inter-company transactions, balances and unrealised gains on transactions between Group
companies are eliminated. Unrealised losses are also eliminated. Accounting policies of
subsidiaries have been changed where necessary to ensure consistency with the accounting
policies adopted by the Group.
Business combinations and goodwill
Business combinations are accounted for using the purchase method of accounting. This
involves recognising identifiable assets (including intangible assets not previously recognised
by the acquiree) and liabilities (including contingent liabilities) of acquired businesses at fair
value. Goodwill acquired in a business combination is initially measured at cost being the
excess of the cost of the consideration over the Group’s interest in the net fair value of the
acquiree’s identifiable assets, liabilities and contingent liabilities. Where the net fair value of
the acquired identifiable assets, liabilities and contingent liabilities exceeds the consideration,
the excess or “negative goodwill” is recognised immediately in the income statement.
Following initial recognition, goodwill is measured at cost less any accumulated impairment
losses. For the purpose of impairment testing, goodwill acquired in a business combination
is, from the acquisition date, allocated to each of the Group’s cash generating units.
Each cash generating unit (“CGU”) or group of cash generating units to which the goodwill is
allocated represents the lowest level within the Group at which the goodwill is monitored for
internal management purposes. Gains and losses on the disposal of a business component
are calculated on a basis which incorporates the carrying amount of goodwill relating to the
business sold. Acquisition related costs are expensed to the income statement as incurred.
Other intangible assets
Intangible assets, when acquired separately from a business combination, comprise computer
software and are carried at cost less accumulated amortisation and any impairment losses.
Amortisation is provided on a straight-line basis to allocate the cost of the asset over its
estimated useful life, which in the case of computer software is between four and six years.
Vertu Motors plc
79
Notes to the Consolidated Financial Statements (continued)
1.
Accounting Policies (continued)
Other intangible assets (continued)
Intangible assets, for example, franchise relationships and customer relationships acquired as
part of a business combination, are capitalised separately from goodwill if the asset is
separable and if the fair value can be measured reliably on initial recognition. Such assets
are stated at fair value less accumulated amortisation. Amortisation is provided on a straight-
line basis over their expected useful lives. Intangible assets with an indefinite useful life are
tested annually for impairment.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any
impairment in value. Cost includes expenditure that is directly attributable to the acquisition of
the asset. Assets’ residual values, useful lives and methods of depreciation are reviewed,
and adjusted if appropriate, at each financial year end. Freehold land is not depreciated.
Depreciation is provided at rates calculated to write off the cost of property, plant and
equipment less their estimated residual values, on a straight-line basis over their estimated
useful lives, as follows:
Freehold buildings
Long leasehold buildings
Short leasehold buildings
Franchise standards property improvements
Vehicles and machinery
Furniture, fittings and equipment
2%
Lease term
Lease term (under 25 years)
20%
10% - 20%
20% - 50%
An asset’s carrying amount is written down immediately to its recoverable amount if the
asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses
on disposals are determined by comparing the proceeds with the carrying amount and are
recognised within ‘operating expenses’ in the consolidated income statement, except where
amounts are material and are disclosed separately in ‘exceptional items’.
Sale and leaseback
A sale and leaseback transaction occurs when the Group sells an asset before immediately
reacquiring the use of the asset through a lease arrangement with the buyer. Where this
results in a finance lease, any excess proceeds over the carrying amount of the asset are
deferred and amortised on a straight-line basis over the term of the lease. Where this results
in an operating lease, and the transaction is carried out at fair value, any profit or loss is
recognised immediately.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost for parts is
determined using the first-in, first-out (FIFO) method. Costs incurred in bringing each product
to its present location and condition are included and cost is based on price including delivery
costs less specific trade discounts. Net realisable value is based on estimated selling price
less further costs to be incurred on disposal. Provision is made for obsolete, slow-moving or
defective items where appropriate.
The timing of recognition of new vehicle inventory as an asset of the Group is dependent on
the terms of the purchase which vary by manufacturer. Some manufacturers invoice on
release from their factory, although the vehicle may not be physically present at a Group
location, title has passed and therefore the vehicle is recognised in inventory upon receipt of
the invoice. Some manufacturers operate traditional consignment stock arrangements where
unpaid vehicles may be physically present at dealerships however title is retained by the
manufacturer. If the vehicle consignment is unsold after a period of time it begins to accrue
interest from the manufacturer and at the point interest starts to accrue, the vehicle is
recorded as an asset with a corresponding creditor, to reflect the asset and funding element
of the transaction. This is in order to record the economic substance of the transaction rather
than just the legal form. Other vehicle inventory is recognised upon title passing to the Group,
typically on physical receipt.
Vertu Motors plc
80
Notes to the Consolidated Financial Statements (continued)
1.
Accounting Policies (continued)
Inventories (continued)
As part of its normal trading activities the Group has contracted to repurchase, at
predetermined values and dates, certain vehicles previously sold. The Group recognises its
residual interest in these vehicles through the inclusion of such vehicles within inventory, at
the lower of the repurchase price or estimated recoverable value, with a liability equal to the
repurchase price within the trade payables.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method, less provision for impairment. A provision
for impairment of trade receivables is established when there is objective evidence that the
Group will not be able to collect all amounts due according to the original terms of the
receivables. Significant financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30
days overdue) are considered indicators that the trade receivable is impaired. The amount of
the provision is the difference between the asset’s carrying amount and the present value of
estimated future cash flows, discounted at the original effective interest rate. The carrying
amount of the asset is reduced through the use of an allowance account, and the amount of
the loss is recognised in the consolidated income statement within operating expenses.
When a trade receivable is uncollectible, it is written off against the allowance account for
trade receivables. Subsequent recoveries of amounts previously written off are credited
against operating expenses in the income statement.
Trade payables
Trade payables are recognised at fair value initially and subsequently measured at amortised
cost using the effective interest method.
Deferred income
Deferred income relates to warranty product income. The Group sells used vehicle warranty
policies which are in-house products that can be taken out over 12, 24 or 36 months with
income received on inception of the policy. The policy covers replacement of mechanical and
electrical parts which have suffered a mechanical breakdown, the cost of labour to fit failed
parts and breakdown assistance for the period of the warranty.
When the income is received it is recognised initially as deferred income and is released to
the income statement on a straight-line basis over the life of each warranty policy.
Impairment of financial and non-financial assets
The Group assesses at each balance sheet date whether a financial asset or group of
financial assets are impaired.
If there is objective evidence that an impairment loss on loans and receivables at amortised
cost has been incurred, the amount of the loss is measured as the difference between the
asset’s carrying amount and the present value of estimated future cash flows discounted at
the financial asset’s original effective interest rates. The amount of the loss is recognised in
the income statement.
At each reporting date, the Group assesses whether there is an indication that a non-financial
asset may be impaired. If any such indication exists, or when annual impairment testing for
an asset is required, the Group makes an estimate of the asset’s recoverable amount. An
asset’s recoverable amount is the higher of an asset’s fair value less costs to sell and its
value in use. Where fair value cannot be determined then the recoverable amount will be
determined by reference to value in use. Value in use is determined for an individual asset,
unless the asset does not generate cash flows that are largely independent of those from
other assets or groups of assets. Where the carrying amount of an asset exceeds its
recoverable amount, the asset is considered impaired and is written down to its recoverable
amount.
Vertu Motors plc
81
Notes to the Consolidated Financial Statements (continued)
1.
Accounting Policies (continued)
Impairment of financial and non-financial assets (continued)
In assessing value in use, the estimated future cash flows of separately identifiable cash
generating units (“CGU’s”) 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 CGU. In determining fair value less costs to sell, an appropriate valuation model is used.
Impairment losses of continuing operations are recognised in the income statement in the
expense category consistent with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether
there is any indication that previously recognised impairment losses may no longer exist or
may have decreased. If such indication exists, the Group makes an estimate of any amount
recoverable. A previously recognised impairment loss is only reversed if there has been a
change in the estimates used to determine the asset’s recoverable amount since the
impairment loss was recognised.
Derivative financial instruments
The Group manages its interest rate risk through hedging instruments. The Group recognises
hedging instruments at fair value with any gain or loss on measurement recognised in the
income statement. The Group does not hold or issue derivative financial instruments for
speculative purposes.
The Group documents at the inception of the transaction the relationship between hedging
instruments and hedged items, as well as its risk management objectives and strategy for
undertaking various hedging transactions. The Group also documents its assessment, both
at hedge inception and on an ongoing basis, of whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes in fair values or cash flows of
hedged items.
The only derivative financial instrument held by the Group throughout the year is a cash flow
hedge swapping floating for fixed interest rates. The effective portion of changes in the fair
value of derivatives that are designated and qualify as cash flow hedges is recognised in
equity in the other reserve. Any gain or loss relating to the ineffective portion is recognised
immediately in the income statement within finance income or costs.
Amounts accumulated in equity are recycled in the income statement in the years when the
hedged item affects profit and loss. The gain or loss relating to the effective portion of interest
rate swaps hedging variable rate borrowings is recognised in the income statement within
‘finance costs’. The fair values of derivative financial instruments used for hedging purposes
are disclosed in note 26.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing in equity at that time remains in
equity and is recognised when the forecast transaction is ultimately recognised in the income
statement. When a forecast transaction is no longer expected to occur, the cumulative gain
or loss that was reported within equity is immediately transferred to the income statement
within finance income or costs.
Taxation
Current tax
Current income tax assets and liabilities are measured at amounts expected to be paid (or
recovered) using the tax rates and laws that have been enacted or substantively enacted at
the balance sheet date.
Deferred tax
Deferred tax is provided using the liability method on temporary differences at the balance
sheet date between the tax bases of assets and liabilities and their carrying amounts at the
balance sheet date for financial reporting purposes. Deferred tax liabilities are recognised for
all temporary differences, except:
Vertu Motors plc
82
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Taxation (continued)
Deferred tax (continued)
a. where the deferred tax liability arises from the initial recognition of goodwill or of an asset
or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; and
b.
in respect of taxable temporary differences associated with investments in subsidiaries,
where the timing of the reversal of the temporary difference can be controlled and it is
probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets are recognised for all temporary differences, carry forward of unused tax
credits and unused tax losses, to the extent that it is probable that taxable profit will be
available against which the temporary differences, and the carry forward of unused tax credits
and unused tax losses can be utilised except:
a. where the deferred tax asset relating to the deductible temporary differences arises from
the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; and
b.
in respect of deductible
in
subsidiaries, deferred tax assets are only recognised to the extent that it is probable that
the temporary difference will reverse in the foreseeable future and taxable profits will be
available against which the temporary differences can be utilised.
temporary differences associated with
investments
Deferred tax is calculated using the enacted or substantively enacted rates that are expected
to apply when the asset or liability is settled. Deferred tax is charged or credited to the
income statement, except when it relates to items credited or charged direct to equity in which
case the deferred tax is also credited or charged to equity.
Revenue
Revenue for the sale of goods and services is measured at the fair value of consideration
receivable, net of value added tax and any discounts. It excludes sales related taxes and
intra Group transactions. Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be reliably measured. In
practice this means that revenue is recognised when vehicles or parts are invoiced and
physically despatched or when a service has been undertaken.
Finance commissions
Finance commissions are received for the arrangement of vehicle financing and related
insurance products where the Group acts as agent on behalf of a principal. Commissions are
based on agreed rates and income is recognised when the finance and/or insurance package
that the customer has entered into commences. Typically this is on delivery of the vehicle.
Where the commission received relates to a specific vehicle sale, it is recognised within
revenue. Where the commission received relates to a central rebate, it is recognised within
cost of sales.
Manufacturer rebates
Vehicle specific rebates from manufacturers are recognised when it is probable that the
economic benefit will flow to the Group and the value can be reliably measured. In practice,
this means that vehicle specific manufacturer rebates are recognised when the vehicle to
which the rebate relates, has been invoiced and physically despatched. In the case of non-
vehicle specific related rebates from suppliers, these are recognised in the income statement
upon achievement of the specific agreed supplier criteria. Manufacturer rebates are
recognised within cost of sales.
Vertu Motors plc
83
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Pension costs
The Group operates a trust based defined benefit pension scheme, Bristol Street Pension
Scheme, which was closed to new entrants and future accrual in May 2003.
Typically, defined benefit schemes define an amount of pension benefit that an employee will
receive on retirement, usually dependent on one or more factors such as age, years of
service and compensation.
The assets of the defined benefit scheme are held separately from the assets of the Group.
The asset or liability recognised in the balance sheet in respect of the defined benefit pension
scheme is the present value of the defined benefit obligations at the balance sheet date less
the fair value of plan assets. Defined benefit obligations are calculated annually by
independent actuaries using the projected unit credit method. The present value of defined
benefit obligations is determined by discounting the estimated future cash outflows using
interest rates of high-quality corporate bonds that are denominated in the currency in which
the benefits will be paid, and that have terms to maturity approximating to the terms of the
related pension liability.
Differences between the actual and expected return on assets, changes in retirement benefit
obligations due to experience and changes in actuarial assumptions are included in the
statement of comprehensive income in full for the year in which they arise.
A Group personal pension arrangement under which the Group pays fixed contributions into
an individual’s funds, is also in place. The Group has no legal or constructive obligations to
pay further contributions if the fund does not hold sufficient assets to pay employees the
benefits relating to employee service in the current and prior years. Contributions into this
scheme are charged to the income statement in the year in which they are payable.
Share based payments
The Group allows employees to acquire shares of the Company through share option
schemes. The fair value of share options granted is recognised as an employee expense
with a corresponding increase in equity. The Group operates a number of equity-settled,
share-based compensation plans. The total amount to be expensed over the vesting period
is determined by reference to the fair value of the options granted, excluding the impact of
any non-market vesting conditions (for example, profitability and sales growth targets). Non-
market vesting conditions are included in assumptions about the number of options that are
expected to vest. At each balance sheet date, the entity revises its estimates of the number
of options that are expected to vest. It recognises the impact of the revision to original
estimates, if any, in the income statement, with a corresponding adjustment to equity.
The proceeds received net of any directly attributable transaction costs are credited to share
capital (nominal value) and share premium when the options are exercised.
Exceptional items
Exceptional items are disclosed separately in the financial statements where it is necessary to
do so to provide further understanding of the financial performance of the Group. They are
items that are material either because of their size or their nature and are nonrecurring.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash in hand, deposits held at call
with banks and other short-term highly liquid investments with original maturities of three
months or less.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided
to the Chief Operating Decision Maker (“CODM”), Robert Forrester, Chief Executive, who is
responsible for allocating resources and assessing performance of the operating segment.
Vertu Motors plc
84
Notes to the Consolidated Financial Statements (continued)
1.
Accounting Policies (continued)
Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the
lessor are classified as operating leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the income statement on a straight-line
basis over the lifetime of the lease.
Share capital
Ordinary shares are classed as equity. Incremental costs directly attributable to the issue of
new shares are shown in equity as a deduction, net of tax, from the proceeds.
Dividend distribution
Final dividends to the Company’s shareholders are recognised as a liability in the Group’s
financial statements in the period in which the dividends are approved by the Company’s
shareholders. Interim dividends are recognised when they are paid.
2.
Financial risk management
The Group’s activities expose it to a variety of financial risks, including the effects of changes
in debt market prices and interest rates. The Group’s treasury management programme
focuses on the unpredictability of financial markets and seeks to minimise potential adverse
effects on the financial performance of the Group. The Group used derivative financial
instruments to reduce exposure to interest rate movements on drawn debt. The outstanding
derivative instruments held by the Group at the balance sheet date are set out in note 26.
The use of financial derivatives is governed by the Group’s policies approved by the Board of
Directors, which provide principles on interest rate risk, credit risk, the use of financial
derivatives and non-derivative financial instruments and the investment of excess liquidity.
The Board adopts an ongoing process for identifying, evaluating and managing the significant
risks faced by the Group.
Market Risk – Cash Flow Interest Rate Risk
The Group’s interest rate risk arises from long-term borrowings, which are issued at variable
rates that expose the Group to cash flow interest rate risk. The Group’s borrowings are
denominated in sterling.
The interest rate exposure of the Group is managed within the constraints of the Group’s
business plan and the financial covenants under its facilities. The Group has performed
calculations to analyse its interest rate exposure taking into account refinancing, renewal of
existing positions, alternative financing and hedging. Based on these scenarios, the Group
calculates the impact on profit and loss of a defined interest rate shift. The scenarios are run
only for liabilities that represent major interest-bearing positions. No significant issues were
highlighted as a resulted of these sensitivities being performed.
Credit Risk
Credit risk arises from cash and deposits with banks as well as credit exposures to
customers. Individual customer risk limits are set based on external credit reference agency
ratings and the utilisation of these credit limits is regularly monitored. Further disclosure on
credit exposure is given in note 22.
Liquidity Risk
Ultimate responsibility for liquidity risk rests with the Board of Directors, which has built an
appropriate liquidity risk management framework for the management of the Group’s short,
medium and long-term funding and liquidity management requirements. The Group manages
liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecast and actual cash flows and matching the maturity
profiles of financial assets and liabilities. Disclosed within note 25 are the undrawn banking
facilities that the Group has at its disposal, in order to further reduce liquidity risk.
Vertu Motors plc
85
Notes to the Consolidated Financial Statements (continued)
2.
Financial risk management (continued)
Liquidity Risk (continued)
The table below analyses the Group’s financial liabilities and derivative financial instruments
into relevant maturity groupings based on the remaining period at the balance sheet date to
contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows. All borrowings are denominated in sterling.
Bank borrowings
Other borrowings
Trade and other payables (excluding
social security and other taxes)
At 28 February 2018
Bank borrowings
Other borrowings
Trade and other payables (excluding
social security and other taxes)
At 28 February 2017
Less than one
year
£’000
205
12,811
Between two
and five years
£’000
10,821
-
Total
£’000
11,026
12,811
657,585
670,601
-
10,821
657,585
681,422
Less than one
year
£’000
180
8,671
Between two
and five years
£’000
10,720
-
Total
£’000
10,900
8,671
604,791
613,642
-
10,720
604,791
624,362
Other borrowings represent amounts repayable under used car stocking facilities.
3.
Capital risk management
The Group’s primary objective when managing capital is to safeguard the Group’s ability to
continue as a going concern in order to provide returns for shareholders and benefits for other
stakeholders.
The Group must ensure that sufficient capital resources are available for working capital
requirements and meeting principal and interest payment obligations as they fall due.
Consistent with others in this industry, the Group monitors capital on the basis of the gearing
ratio, which is calculated as net debt divided by total capital. Net debt is calculated as total
borrowings (including current and non-current borrowings as shown in the consolidated
balance sheet) less cash and cash equivalents. Total capital is calculated as total
shareholders’ equity.
The Group had net cash of £19,313,000 at 28 February 2018 as disclosed in note 32 to the
consolidated financial statements (2017: net cash of £21,008,000).
Fair value estimation
The carrying value less impairment provision of trade receivables and payables are
considered to approximate their fair values. The fair value of long-term borrowings
approximate to the carrying value reported in the balance sheet, as the majority are variable
rate borrowings.
4.
Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates, will, by definition, seldom equal the related actual results. The
estimates and assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities are discussed below:
Valuation of goodwill
The valuation of goodwill acquired is performed in accordance with IFRS 3 and is therefore
based on provisional values ascribed within the measurement period subsequent to
acquisition. Management judgement has been used in determining the existence and value of
separately identifiable assets acquired as part of the business combination.
Vertu Motors plc
86
Notes to the Consolidated Financial Statements (continued)
4.
Critical accounting estimates and judgements (continued)
Valuation of other intangible assets
When a business combination takes place, the Group is required to assess whether there are
any additional intangible assets arising separately from goodwill. Management judgement is
required to determine whether an intangible asset can be separately identified, what fair value
should be ascribed to the asset and its attributable useful life.
Impairment of goodwill and other indefinite life assets
The Group tests annually, or whenever events or changes in circumstances occur, to
determine whether goodwill or other indefinite life assets have suffered any impairment, in
accordance with the accounting policy stated above and in note 15. The recoverable
amounts of cash-generating units have been determined based on value-in-use calculations.
These calculations require the use of estimates.
Share based payments
Share options issued to certain employees are measured at fair value at the grant date using
a fair value model, and are expensed on a straight-line basis over the vesting period based on
an estimate of the number of options which will vest. The key assumptions of this model are
disclosed in note 30.
Estimated useful life of intangibles, property, plant and equipment and impairment testing
The Group estimates the useful life and residual values of intangible assets, property, plant
and equipment and reviews these estimates at each financial year end. The Group also tests
for impairment when a trigger event occurs, or annually, as appropriate.
Pension benefits
During the year ended 28 February 2018, the Group operated two defined benefit schemes,
the “Bristol Street Pension Scheme” and the “SHG Pension Scheme”. On 27 February 2017,
the assets and liabilities of the SHG Pension Scheme were merged into the Bristol Street
Pension Scheme and on 7 February 2018 the SHG Pension Scheme was wound up.
Therefore at 28 February 2018, the Group only operated one defined benefit pension
scheme, the “Bristol Street Pension Scheme”. The obligations under this defined benefit
scheme are recognised in the balance sheet and represent the present value of the
obligations calculated by independent actuaries, with input from management. These
actuarial valuations include assumptions such as discount rates, annual rates of return and
mortality rates. These assumptions vary from time to time according to prevailing economic
conditions. Details of the assumptions used for the scheme in the year ended 28 February
2018 are provided in note 29.
5.
Segmental information
The Group adopts IFRS 8 “Operating Segments”, which determines and presents operating
segments based on information provided to the Group’s Chief Operating Decision Maker
(“CODM”), Robert Forrester, Chief Executive. The CODM receives information about the
Group overall and therefore there is one operating segment.
The CODM assesses the performance of the operating segment based on a measure of both
revenue and gross margin. However, to increase transparency, the Group has included
below an additional voluntary disclosure analysing revenue and gross margin within the
reportable segment.
Vertu Motors plc
87
Notes to the Consolidated Financial Statements (continued)
5.
Segmental information (continued)
Year ended 28 February 2018
Aftersales*
Used cars
New car retail and Motability
New fleet and commercial
Year ended 28 February 2017
Aftersales*
Used cars
New car retail and Motability
New fleet and commercial
Revenue
£’m
Revenue
Mix
%
Gross
Margin
£’m
228.2
1,068.9
836.5
662.5
2,796.1
8.2
38.2
29.9
23.7
100.0
124.7
98.7
64.1
21.4
308.9
Revenue
£’m
227.0
1,037.5
909.4
648.7
2,822.6
Revenue
Mix
%
8.0
36.8
32.2
23.0
100.0
Gross
Margin
£’m
123.4
100.7
68.3
21.1
313.5
Gross
Margin
Mix
%
40.4
31.9
20.8
6.9
100.0
Gross
Margin
Mix
%
39.4
32.1
21.8
6.7
100.0
Gross
Margin
%
44.5
9.2
7.7
3.2
11.0
Gross
Margin
%
44.6
9.7
7.5
3.3
11.1
* margin in aftersales expressed on internal and external turnover
6.
Operating expenses (before exceptional items)
Wages and salaries excluding share based payments
charge (note 9)
Share based payments charge (note 30)
Depreciation on property, plant and equipment
(note 18)
Amortisation (note 16)
Loss / (profit) on disposal of property, plant and
equipment
Operating lease rentals – property
Operating lease rentals – plant and equipment
Operating lease rentals – vehicles
Auditors’ remuneration (note 7)
Rental income
Impairment charges (notes 15 & 18)
Other expenses
2018
£’000
2017
£’000
157,301
1,031
9,714
614
10
10,588
401
4,384
222
(259)
513
95,567
280,086
157,788
1,082
8,665
614
(285)
10,417
323
3,895
288
(243)
-
98,922
281,466
Vertu Motors plc
88
Notes to the Consolidated Financial Statements (continued)
7.
Auditors’ remuneration
Fees payable to the Company’s auditors for the
audit of the parent Company and consolidated
financial statements
Fees payable to the Company’s auditors and its
associates for other services:
- audit of Group’s subsidiaries
- Due diligence and other services
8.
Exceptional items
Profit on disposal of freehold property
Loss on disposal of Boston Volkswagen
2018
£’000
2017
£’000
217
5
-
222
2018
£’000
4,149
(610)
3,539
194
33
61
288
2017
£’000
-
-
-
On 31 August 2017 the Group completed the sale and operating lease back of the freehold
property operated by the Group’s Jaguar Land Rover dealership in Leeds, West Yorkshire.
This transaction realised £14,150,000 of cash proceeds and £4,149,000 profit on disposal.
On 4 January 2018, the Group disposed of the trade and certain assets of its Volkswagen
dealership in Boston. The Group received sales proceeds of £1,200,000 in respect of the
freehold property from which the dealership operated, incurring a loss on disposal of
£610,000 representing a loss on freehold property of £510,000 and loss on goodwill of
£100,000. All other assets and liabilities disposed of with this transaction recovered their
carrying value.
9.
Employee benefit expense
Wages and salaries
Social security costs
Pension costs – defined contribution plans
Share based payments charge (note 30)
Employee benefit expense included in:
Operating expenses
Cost of sales
Share based payment charge
2018
£’000
159,247
17,289
2,735
179,271
1,031
180,302
2018
£’000
157,301
21,970
1,031
180,302
2017
£’000
160,107
16,560
2,555
179,222
1,082
180,304
2017
£’000
157,788
21,434
1,082
180,304
Details of the remuneration of the Directors who served during the year from 1 March 2017 to
28 February 2018 and the year from 1 March 2016 to 28 February 2017 are given in the
Directors’ Remuneration Report on pages 52 to 62.
10. Average monthly number of people employed (including Directors)
Sales and distribution
Service, parts and accident repair centres
Administration
Vertu Motors plc
89
2018
Number
2,020
1,986
1,265
5,271
2017
Number
2,042
1,943
1,260
5,245
Notes to the Consolidated Financial Statements (continued)
11. Finance income and costs
Interest on short-term bank deposits
Net finance income relating to defined benefit
pension schemes (note 29)
Finance income
Bank loans and overdrafts
Vehicle stocking interest
Finance costs
12. Taxation
Current tax
Current tax charge
Adjustment in respect of prior years
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustment in respect of prior years
Rate differences
Total deferred tax (note 27)
Income tax expense
Profit before taxation from continuing operations
Profit before taxation multiplied by the rate of
corporation tax in the UK of 19.1% (2017: 20.0%)
Non-qualifying depreciation
Non-deductible expenses
Effect on deferred tax balances due to rate change
Property adjustment
Permanent benefits
Adjustments in respect of prior years
Total tax expense included in the income
statement
2018
£’000
18
48
66
(673)
(1,291)
(1,964)
2018
£’000
5,861
(283)
5,578
512
(254)
(70)
188
5,766
2018
£’000
30,447
2017
£’000
34
227
261
(876)
(1,639)
(2,515)
2017
£’000
6,468
(227)
6,241
(70)
(112)
(259)
(441)
5,800
2017
£’000
29,820
5,815
5,964
499
174
(70)
(63)
(52)
(537)
357
267
(259)
(168)
(22)
(339)
5,766
5,800
The Group’s effective rate of tax is 18.94% (2017: 19.45%).
The standard rate of Corporation Tax in the UK is 19% with effect from 1 April 2017.
Accordingly, the Group’s profits for this accounting period are taxed at a rate of 19.1%.
13. Earnings per share
Basic and diluted earnings per share are calculated by dividing the earnings attributable to
equity shareholders by the weighted average number of ordinary shares during the year or
the diluted weighted average number of ordinary shares in issue in the year.
The Group only has one category of potentially dilutive ordinary shares, which are share
options. A calculation has been undertaken to determine the number of shares that could
have been acquired at fair value (determined at the average annual market price of the
Group’s shares) based on the monetary value of the subscription rights attached to the
outstanding share options.
The number of shares calculated, as set out above, is compared with the number of shares
that would have been issued assuming the exercise of the share options.
Vertu Motors plc
90
Notes to the Consolidated Financial Statements (continued)
13. Earnings per share (continued)
Adjusted earnings per share is calculated by dividing the adjusted earnings attributable to
equity shareholders by the weighted average number of ordinary shares in issue during the
year.
Profit attributable to equity shareholders
Amortisation of intangible assets
Exceptional items (note 8)
Share based payments charge
Tax effect of adjustments
Adjusted earnings attributable to equity
shareholders
Weighted average number of shares in issue (‘000s)
Potentially dilutive shares (‘000s)
Diluted weighted average number of shares in
issue (‘000s)
Basic earnings per share
Diluted earnings per share
Basic adjusted earnings per share
Diluted adjusted earnings per share
14. Dividends per share
2018
£’000
24,681
614
(3,539)
1,031
(119)
2017
£’000
24,020
614
-
1,082
(119)
22,668
25,597
391,317
5,948
391,116
6,800
397,265
397,916
6.31p
6.21p
5.79p
5.71p
6.14p
6.04p
6.54p
6.43p
Dividends of £5,678,000 were paid in the year to 28 February 2018 (2017: £5,353,000), 1.45p
per share (2017: 1.35p). A final dividend in respect of the year ended 28 February 2018 of
0.95p per share, is to be proposed at the annual general meeting on 25 July 2018. The ex-
dividend date will be 21 June 2018 and the associated record date 22 June 2018. This
dividend will be paid, subject to shareholder approval, on 30 July 2018 and these financial
statements do not reflect this final dividend payable.
15. Goodwill and other indefinite life assets
Cost
At 1 March 2017
Disposals
At 28 February 2018
Accumulated impairment charges
At 1 March 2017
Impairment charges
At 28 February 2018
Net Book Value
At 28 February 2018
At 28 February 2017
2017
Cost and net book value
At 1 March 2016
Additions
At 28 February 2017
Goodwill
£’000
74,403
(100)
74,303
-
(114)
(114)
Franchise
relationships
£’000
20,192
-
20,192
-
-
-
74,189
74,403
20,192
20,192
Goodwill
£’000
56,270
18,133
74,403
Franchise
relationships
£’000
13,214
6,978
20,192
Total
£’000
94,595
(100)
94,495
-
(114)
(114)
94,381
94,595
Total
£’000
69,484
25,111
94,595
Vertu Motors plc
91
Notes to the Consolidated Financial Statements (continued)
15. Goodwill and other indefinite life assets (continued)
Impairment
In accordance with IAS 36, ‘Impairment of Assets’, the Group tests the following assets for
impairment annually:
• Goodwill and other indefinite life assets
• Other assets where there is any indication that the relevant asset may be impaired
In the years ended 28 February 2018 and 28 February 2017, the acquired goodwill and other
indefinite life assets were tested for impairment. During the year ended 28 February 2018,
impairment charges of £114,000 were incurred to align the carrying value with value in use.
For the purposes of impairment testing of goodwill and other indefinite life assets, the
Directors recognise the Group’s Cash Generating Units (“CGU”s) to be connected groupings
of dealerships acquired together.
A summary of the goodwill purchased is presented below:
Bristol Street Group Limited
Albert Farnell Limited
Hillendale Group Limited
SHG Holdings Limited
Bury Land Rover
Sigma Holdings Limited
Gordon Lamb Group Limited
Other acquisitions
A summary of franchise relationships acquired is presented below:
Albert Farnell Limited
Hillendale Group Limited
Bury Land Rover
SHG Holdings Limited
Sigma Holdings Limited
Gordon Lamb Group Limited
2018
£’000
13,860
13,279
5,159
7,842
4,415
11,879
5,754
12,001
74,189
2018
£’000
7,373
1,749
2,595
1,497
3,771
3,207
20,192
2017
£’000
13,860
13,279
5,159
7,842
4,415
11,879
5,754
12,215
74,403
2017
£’000
7,373
1,749
2,595
1,497
3,771
3,207
20,192
The recoverable amount of a CGU is determined based on value-in-use calculations. These
calculations use post-tax cash flow projections to perpetuity.
The key assumptions for the value in use calculations are those regarding the discount rates,
growth rates and expected changes to gross profits and direct costs during the year:
• Management estimates discount rates using pre-tax rates that reflect current market
assessments and the time value of money and the risks specific to the CGUs.
• Growth rates are based upon industry forecasts
• Changes in gross profits and direct costs are based on past practices and expectations
of future changes in the market.
An annual growth rate of 3% is assumed for the first five years, after which a growth rate of
0% is assumed to perpetuity. A risk adjusted pre-tax discount rate reflecting the Group’s
Weighted Average Cost of Capital (“WACC”) of 8% (2017: 8%) is applied. A pre-tax WACC
of above 9% has to be applied before any entity impairment arises.
The breakdown point sensitivity of the key assumptions which would cause the first CGU to
become impaired are as follows:
• The growth rate would have to fall to -0.5% from the 3% in our assumptions. If we
reduced the growth rate to -2% this would lead to an impairment of £2.1m.
• The pre-tax WACC would need to increase to 8.5% from the 8% in our assumptions. If
we increased the WACC to 9% this would lead to an impairment of £1.5m.
Vertu Motors plc
92
Notes to the Consolidated Financial Statements (continued)
16.
Other intangible assets
2018
Cost
At 1 March 2017
Additions
Disposals
At 28 February 2018
Accumulated amortisation
At 1 March 2017
Charge for the year
Disposals
At 28 February 2018
Net book value at 28 February 2018
Net book value at 28 February 2017
2017
Cost
At 1 March 2016
Additions
Disposals
At 28 February 2017
Accumulated amortisation
At 1 March 2016
Charge for the year
Disposals
At 28 February 2017
Net book value at 28 February 2017
Net book value at 29 February 2016
17. Business combinations
Business disposals
Earn out
£’000
Software
costs
£’000
Customer
relationships
£’000
400
-
-
400
312
88
-
400
-
88
3,464
412
(1,760)
2,116
2,472
435
(1,760)
1,147
969
992
855
-
-
855
417
91
-
508
347
438
Earn out
£’000
Software
costs
£’000
Customer
relationships
£’000
400
-
-
400
178
134
-
312
88
222
3,015
460
(11)
3,464
2,094
389
(11)
2,472
992
921
855
-
-
855
326
91
-
417
438
529
Total
£’000
4,719
412
(1,760)
3,371
3,201
614
(1,760)
2,055
1,316
1,518
Total
£’000
4,270
460
(11)
4,719
2,598
614
(11)
3,201
1,518
1,672
On 31 March 2017, the Group disposed of the trade and certain assets of its Peugeot
dealership in Chesterfield.
On 4 January 2018, the Group disposed of the trade and certain assets of its Volkswagen
dealership in Boston.
Details of the fair value of the combined net assets disposed of are as follows:
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Net cash consideration received
Fair
Value
£’000
1,227
432
24
(155)
1,528
Disposal related costs (included in the consolidated income statement for the year ended 28
February 2018) totalled £18,000 in respect of these disposals.
Vertu Motors plc
93
Notes to the Consolidated Financial Statements (continued)
17. Business combinations (continued)
Deferred consideration
Deferred consideration outstanding at 28 February 2018:
SHG Holdings Limited
Other businesses*
Total deferred consideration
Maturity of deferred consideration:
Payable in less than 12 months
Payable in greater than 12 months
Total deferred consideration
2018
£’000
-
100
100
2018
£’000
-
100
100
2017
£’000
1,500
308
1,808
2017
£’000
1,572
236
1,808
During the year ended 28 February 2018, £1,181,250 was paid in respect of the SHG
Holdings acquisition which took place during the year ended 28 February 2016. The valuation
of the final payment was dependent on certain performance criteria.
*Deferred consideration in respect of “other businesses” relates to earn out arrangements on
the acquisitions of ancillary businesses payable in future periods. The value of this liability is
reassessed at each period end based on what is expected to be due in future periods under
these arrangements.
18. Property, plant and equipment
2018
Cost
At 1 March 2017
Additions
Disposals
Reclassifications
Transfer to assets held for sale (note 21)
At 28 February 2018
Accumulated depreciation and impairment
At 1 March 2017
Depreciation charge
Impairment
Disposals
Reclassifications
Transfer to assets held for sale (note 21)
At 28 February 2018
Net Book Value
At 28 February 2018
Freehold
and long
leasehold
land and
buildings*
£’000
197,786
18,238
(12,448)
(153)
(2,695)
200,728
15,830
4,232
399
(825)
(51)
(246)
19,339
Short
leasehold
land and
buildings*
£’000
Vehicles
and
machinery
£’000
Furniture,
Fittings
and
equipment
£’000
Total
£’000
5,073
928
(733)
153
-
5,421
1,856
767
-
(733)
51
-
1,941
7,502
1,864
(892)
(14)
-
8,460
3,197
1,573
-
(838)
(11)
-
3,921
15,010 225,371
24,718
(17,579)
-
(2,695)
15,206 229,815
3,688
(3,506)
14
-
6,943
3,142
-
(3,486)
11
-
6,610
27,826
9,714
399
(5,882)
-
(246)
31,811
181,389
3,480
4,539
8,596 198,004
At 28 February 2017
181,956
3,217
4,305
8,067 197,545
* Includes leasehold improvements and franchise standards property improvements.
Vertu Motors plc
94
650
(57)
Notes to the Consolidated Financial Statements (continued)
18. Property, plant and equipment (continued)
Depreciation expense of £9,714,000 has been charged in operating expenses (note 6).
In addition to the security provided for the Group’s bank borrowings, specific charges over
freehold land and buildings with a cost of £10,900,000 (2017: £10,900,000) have been
granted to manufacturer partners as security against consignment stocking lines.
2017
Cost
At 1 March 2016
Acquisitions
Additions
Disposals
Reclassifications
At 28 February 2017
Accumulated depreciation and impairment
At 1 March 2016
Depreciation charge
Disposals
Reclassifications
At 28 February 2017
Net Book Value
At 28 February 2017
Freehold
and long
leasehold
land and
buildings
£’000
150,191
30,528
18,075
(1,297)
289
197,786
12,530
3,597
(379)
82
15,830
Short
leasehold
land and
buildings
£’000
Vehicles
and
machinery
£’000
Furniture,
Fittings
and
equipment
£’000
Total
£’000
4,889
-
1,049
(798)
(67)
5,073
1,995
699
(798)
(40)
1,856
6,931
364
2,076
(1,757)
(112)
7,502
3,203
1,576
(1,512)
(70)
3,197
12,351 174,362
31,447
25,698
(6,136)
-
15,010 225,371
555
4,498
(2,284)
(110)
6,273
2,793
(2,151)
28
6,943
24,001
8,665
(4,840)
-
27,826
181,956
3,217
4,305
8,067 197,545
At 29 February 2016
137,661
2,894
3,728
6,078 150,361
19. Subsidiary undertakings
A list of subsidiary undertakings (ordinary shares 100% owned and incorporated within the
United Kingdom), as at 28 February 2018 and 28 February 2017 is given in note 7 of the
Vertu Motors plc company only financial statements (pages 117 to 119).
Vertu Motors plc
95
Notes to the Consolidated Financial Statements (continued)
20.
Inventories
New vehicle stock
Used, demonstrator and courtesy vehicles
Parts and sundry stocks
The total value of new vehicle stock is comprised of the following:
Interest bearing consignment stock
Stock invoiced not yet paid held by Manufacturers
to the order of the Group
Other new vehicle stock
2018
£’000
417,939
124,541
15,906
558,386
2018
£’000
26,732
339,425
51,782
417,939
2017
£’000
385,368
106,116
14,986
506,470
2017
£’000
34,091
305,740
45,537
385,368
A corresponding liability is held in trade payables in respect of stock invoiced not yet paid held
by Manufacturers to the order of the Group and interest bearing consignment stock. The cost
of inventories recognised as expense and included within ‘cost of sales’ amounted to
£2,565,965,000 (2017: £2,584,811,000).
21. Property assets held for resale
At beginning of year
Transfers in from freehold property
Property sold during the year
At end of year
2018
£’000
-
2,449
-
2,449
2017
£’000
537
-
(537)
-
The transfer in from freehold property during year ended 28 February 2018 relates to three
assets: surplus land at Newcastle under Lyme which was sold on 19 March 2018 realising
cash proceeds of £2,000,000 and a £630,000 profit on disposal; a dealership property in
Barnsley which the Group ceased to operate and the property is now under offer for sale with
a fair value and net book value of £574,000; and 2 domestic properties in Slough with a fair
value and net book value of £505,000.
22. Trade and other receivables
Current
Trade receivables
Less provision for impairment of trade receivables
Trade receivables (net)
Other receivables
Prepayments and accrued income
2018
£’000
44,235
(1,224)
43,011
15,723
7,538
66,272
2017
£’000
40,759
(1,704)
39,055
6,438
7,052
52,545
As at 28 February 2018, trade receivables of £1,988,000 (2017: £1,844,000) were past due
but not impaired. The ageing of these receivables are all within 3 months overdue.
As at 28 February 2018, trade receivables of £1,224,000 (2017: £1,704,000) were impaired
and provided for.
Movements in the Group’s provision for impairment of trade receivables are as follows:
At beginning of year
Charge for receivables impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
At end of year
96
Vertu Motors plc
2018
£’000
1,704
239
(90)
(629)
1,224
2017
£’000
1,159
918
(48)
(325)
1,704
Notes to the Consolidated Financial Statements (continued)
22.
Trade and other receivables (continued)
The creation and release of provision for impaired receivables has been included in ‘other
expenses’ within ‘operating expenses’ in the income statement (note 6). Amounts charged to
the allowance account are generally written off when there is no expectation of recovering
additional cash.
The Group considers there to be no material difference between the fair value of trade and
other receivables and their carrying amount in the balance sheet.
The other asset classes within trade and other receivables do not contain impaired assets.
Credit Risk Management
It is the Group’s policy to invest cash and assets safely and profitably. To control credit risk,
counterparty credit limits are set by reference to published credit ratings. The Group
considers the risk of material loss in the event of non-performance by a financial counterparty
to be low. The maximum exposure to credit risk at the reporting date is the carrying value of
each class of receivable mentioned above.
23. Cash and cash equivalents
Cash in bank and in hand
24. Trade and other payables
Current
Trade payables
Social security and other taxes
Accruals
Deferred income
Other payables
2018
£’000
41,709
2018
£’000
577,384
5,819
48,753
8,448
23,000
663,404
2017
£’000
39,845
2017
£’000
529,181
5,526
44,151
6,459
25,000
610,317
Other payables comprise non-interest bearing advance payments from the Group’s finance
company partners.
Trade and other payables, excluding social security and other taxes and deferred income, are
designated as financial liabilities carried at amortised cost. Their fair value is considered to
be equal to their carrying value.
Accruals includes £12,557,000 (2017: £11,057,000) in respect of outstanding service plans.
25. Borrowings
Current
Other borrowings
Non-current
Bank borrowings
Other borrowings
Borrowings are repayable as follows:
6 months or less
6-12 months
1-5 years
Vertu Motors plc
97
2018
£’000
12,811
12,811
9,585
-
9,585
22,396
2018
£’000
12,811
-
9,585
22,396
2017
£’000
8,671
8,671
10,000
166
10,166
18,837
2017
£’000
8,671
-
10,166
18,837
Notes to the Consolidated Financial Statements (continued)
25.
Borrowings (continued)
Non-current other borrowing at 28 February 2017 comprised cumulative preference shares of
£166,000 which were repurchased during the year ended 28 February 2018.
a) Bank borrowings
The fair value of bank borrowings equals their carrying amount, as the impact of discounting
is not significant. Bank borrowings are designated as financial liabilities carried at amortised
cost.
The Group’s £40,000,000 Revolving Credit Facility (“RCF”) was available throughout the year
ended 28 February 2018. This facility bears an interest rate of between 1.3% and 2.1% above
LIBOR depending on the value of the Group’s net debt to EBITDA ratio. Interest was paid on
the debt drawn under this facility at the rate of 1.3% above LIBOR throughout the year to 28
February 2018. On 31 July 2017, the Group entered into an interest rate swap in respect of
the first £10,000,000 of this facility, swapping LIBOR for a fixed interest rate of 0.675%.
£10,000,000 of the RCF was drawn at 28 February 2018. A rate of 1.10% above base rate
has been applied in relation to overdrafts and a rate of 1.10% above LIBOR has been applied
to the Committed Money Market Loan (“CMML”) facility. The bank borrowings are secured on
the assets of the Company and the Group.
In addition to the RCF facility, the Group also has access to an additional £30,000,000
uncommitted “accordion” facility.
On 28 February 2018, the Group exercised the option to extend these facilities for a further 12
months such that the facility is now in place until 28 February 2023.
The overdraft and CMML facilities were renewed for a further 12 months on 16 February 2018
with the CMML facility now rising to £68,000,000 for four peak months of the year. During the
year ended 28 February 2018 the facility during these peak months was £63,000,000. The
applicable interest rates on the working capital facilities, namely the CMML and overdraft,
were unchanged.
The Group had the following undrawn borrowing and overdraft facilities at 28 February 2018:
Floating rate
- Overdraft (uncommitted) expiring in one year
- CMML (committed) facility expiring in one year
- RCF facility expiring in greater than one year *
- Used car stocking facility expiring in one year
2018
£’000
5,000
68,000
30,000
17,189
120,189
2017
£’000
5,000
63,000
30,000
16,329
114,329
* Excludes the uncommitted “accordion facility” referred to above.
b) Financial assets
The Group’s financial assets on which floating interest is receivable comprise cash deposits
and cash in hand of £41,709,000 (2017: £39,845,000). The cash deposits comprise deposits
placed on money market at call, seven day and cash deposited with counterparty banks at
commercially negotiated interest rates.
Trade and other receivables and cash and cash equivalents are designated as loans and
receivables, carried at amortised cost. Their fair value is deemed to be equal to their carrying
value.
26. Derivative financial instruments
Interest rate swap contracts
The fair values of derivative financial instruments used for hedging purposes are disclosed
below:
Interest rate swaps – cash flow hedges
Total derivates designated as hedging instruments
Vertu Motors plc
98
2018
£’000
92
92
2017
£’000
-
-
Notes to the Consolidated Financial Statements (continued)
26.
Derivative financial instruments (continued)
Non-current borrowings subject to hedging instruments
Total derivative financial liabilities
2018
£’000
10,000
10,000
2017
£’000
-
-
The Group manages its cash-flow interest rate risk by using floating-to-fixed interest rate
swaps. Normally the Group raises long-term borrowings at floating rates and swaps them into
fixed rates.
The notional principal amounts of outstanding floating to fixed interest rate swap contracts
designated as hedging instruments in cash flow interest rate hedges of variable rate debt at
28 February 2018 totalled £10,000,000 (2017: £Nil). Their fair value was £92,000 (2017: £Nil).
The ineffective portion recognised in the finance expense that arises from cash flow hedges
amounts to a loss of £Nil (2017: £Nil).
At 28 February 2018, the main floating rate was LIBOR. Gains and losses recognised in the
cash flow hedging reserve in equity on interest rate swap contracts as at 28 February 2018
will be released to the consolidated statement of comprehensive income as the related
interest expense is recognised.
27. Deferred income tax 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 amounts offset are as follows:
Deferred tax asset to be recovered after more than 12
months
Deferred tax liabilities to be recovered after more than 12
months
Deferred tax liabilities (net)
2018
£’000
2017
£’000
(1,737)
(1,504)
8,214
6,477
7,059
5,555
The gross movement on the Group’s deferred income tax account is as follows:
2018
At 1 March 2017
Charged / (credited) to income statement
(note 12)
Charged / (credited) directly to equity
At 28 February 2018
2017
At 1 March 2016
Credited to income statement (note 12)
Credited directly to equity
Acquisitions
At 28 February 2017
Deferred tax
liabilities
£’000
7,059
Deferred tax
assets
£’000
(1,504)
403
752
8,214
(215)
(18)
(1,737)
Deferred tax
liabilities
£’000
5,820
(388)
(937)
2,564
7,059
Deferred tax
assets
£’000
(1,370)
(53)
-
(81)
(1,504)
Net
£’000
5,555
188
734
6,477
Net
£’000
4,450
(441)
(937)
2,483
5,555
Vertu Motors plc
99
Total
£’000
5,555
188
734
6,477
Total
£’000
4,450
(441)
2,483
(937)
5,555
Notes to the Consolidated Financial Statements (continued)
27.
Deferred income tax liabilities (continued)
2018
At 1 March 2017
(Credited) / charged to income
statement (note 12)
Charged / (credited) directly to equity
At 28 February 2018
Accelerated tax
depreciation
£’000
2,472
Share
based
payments Pensions
£’000
321
£’000
(488)
Other
timing
differences
£’000
3,250
(546)
-
1,926
(154)
-
(642)
41
752
1,114
847
(18)
4,079
2017
At 1 March 2016
(Credited) / charged to income
statement (note 12)
Acquisitions
Credited directly to equity
At 28 February 2017
Accelerated tax
depreciation
£’000
1,606
Share
based
payments Pensions
£’000
1,098
£’000
(434)
Other
timing
differences
£’000
2,180
(431)
1,297
-
2,472
(54)
-
-
(488)
160
-
(937)
321
(116)
1,186
-
3,250
The 2016 Finance Bill included provisions to reduce the rate of corporation tax to 17% with
effect from 1 April 2020. Accordingly, deferred tax balances have been revalued at the lower
rate of 17% in these financial statements.
28. Deferred income due in greater than one year
Warranty income
2018
£’000
8,877
8,877
2017
£’000
7,616
7,616
Deferred income relates to used car warranty products sold by the Group. These warranty
policies can be taken out over 12, 24 or 36 months with income received in advance of this
period being released on a straight-line basis over the life of the policies. There is an
additional £6,684,000 included in ‘deferred income’ in current trade and other payables in
respect of such warranties recognising the amount to be released over the next 12 months
(2017: £5,536,000).
29. Retirement benefit asset
The Group operates a trust based defined benefit pension scheme, “Bristol Street Pension
Scheme”, which has three defined benefit sections in which accrual ceased on 31 May 2003.
The assets of the scheme are held separately from those of the Group, being held in separate
funds by the Trustee of the Bristol Street Pension Scheme.
In the year ended 29 February 2016, the Group acquired a second defined benefit pension
scheme, SHG Pension Scheme, with the acquisition of SHG Holdings Limited in the same
period. On 27 February 2017, the assets and liabilities of the SHG Pension Scheme were
merged into the Bristol Street Pension Scheme, and on 7 February 2018 the SHG Pension
Scheme was wound up.
In the Bristol Street Pension Scheme disclosures below, the comparatives reflect the
combined position of the formerly separate Bristol Street Pension Scheme and SHG Pension
Scheme to aid comparability of the Scheme performance for the financial year ended 28
February 2018.
The Group has applied IAS 19 (Revised) to the scheme and the following disclosures relate to
this standard. The Group recognises any actuarial gains and losses in each year in the
Statement of Comprehensive Income.
Vertu Motors plc
100
Notes to the Consolidated Financial Statements (continued)
29. Retirement benefit asset (continued)
a)
Bristol Street Pension Scheme
Regular employer contributions to the scheme (including contributions paid in respect of
scheme expenses) for the year commencing 1 March 2018 are estimated to be £32,000.
The last actuarial valuation upon which the IAS 19 (Revised) figures and disclosures have
been based was as at 5 April 2015. Changes in the present value of the defined benefit
obligation resulting from plan amendments or curtailments are recognised immediately in
profit or loss as past service costs.
The fair value of the assets of the scheme are:
Equities and Diversified growth funds
Bonds
Liability driven Investment Funds
Other
Market Value Market Value
28 February
2017
£’000
24,578
1,731
28,635
356
55,300
28 February
2018
£’000
20,796
-
32,434
448
53,678
None of the assets listed above have a quoted market price in an active market as they are
pooled investment funds specifically designed for occupational pension schemes. A value is
placed on the Scheme’s unit holdings in the funds by the funds’ investment managers /
custodians.
The Liability Driven Investments (“LDI”) that the Scheme is invested in is an investment tool
used to reduce the investment risk and therefore volatility in the Scheme’s funding position.
Changes in interest rates and inflation rates will result in these assets moving in the same
way as the liabilities. The LDI portfolio is primarily formed of derivatives, such as swaps,
which are leveraged meaning that less LDI assets have to be held to match the same
movement in the Scheme’s liabilities.
The expected return on the assets as at 28 February 2017 was 2.4%. This is equal to the
discount rate used in the calculation of the net interest income for the year ended 28 February
2018.
The overall net surplus between the assets of the Bristol Street Group defined benefit scheme
and the actuarial liabilities of the scheme which have been recognised on the balance sheet is
as follows:
Fair value of scheme assets
Present value of funded obligations
Asset on the balance sheet
2018
£’000
53,678
(47,127)
6,551
2017
£’000
55,300
(53,416)
1,884
A surplus may be recognised if the economic benefits are available in the form of a refund or
reduction in future contributions. Clause 5.6.2 of the Scheme Rules enables the Scheme to
refund surplus assets to the employer. Surpluses are therefore recognised in full.
The movements in the fair value of scheme assets in the year are as follows:
Opening fair value of scheme assets
Interest income
Actuarial (losses) / gains
Employer contributions
Benefits paid
Expenses recognised in the income statement
Closing fair value of scheme assets
Vertu Motors plc
101
2018
£’000
55,108
1,304
(981)
380
(1,950)
(183)
53,678
2017
£’000
47,596
1,693
7,289
380
(1,525)
(133)
55,300
Notes to the Consolidated Financial Statements (continued)
29. Retirement benefit asset (continued)
a)
Bristol Street Pension Scheme (continued)
The movement in the present value of the defined benefit obligations of the scheme in the
year are as follows:
Opening fair value of scheme liabilities
Interest cost
Actuarial (gains) / losses
Benefits paid
Closing fair value of scheme liabilities
2018
£’000
53,224
1,256
(5,403)
(1,950)
47,127
The amounts recognised in the income statement in the year are as follows:
Expenses
Net interest income (note 11)
Total expense / (income) included in income statement
The actual returns on Scheme assets in the year are as follows:
Expected return on scheme assets
Actuarial (losses) / gains
2018
£’000
183
(48)
135
2018
£’000
1,304
(981)
323
2017
£’000
41,499
1,466
11,976
(1,525)
53,416
2017
£’000
133
(227)
(94)
2017
£’000
1,693
7,289
8,982
The principal assumptions used by the independent qualified actuaries to calculate the
liabilities under IAS 19 are set out below:
Discount rate
Limited Price Indexation (“LPI”) pension increases
Inflation rate
2018
2.70%
3.20%
2.20%
2017
2.40%
3.50%
2.50%
Assumptions regarding future mortality experience are set based on mortality tables which
allow for future mortality improvements.
The average life expectancy in years of a pensioner retiring at age 65 at the balance sheet
date is as follows:
Male
Female
2018
22
23
2017
22
24
The average life expectancy in years of a pensioner retiring at age 65, 20 years after the
balance sheet date is as follows:
Male
Female
2018
23
25
2017
24
26
Amounts recognised in the Consolidated Statement of Comprehensive Income in the year are
as follows:
Actuarial gains / (losses)
Related deferred tax liability (note 27)
Total, included within retained earnings
2018
£’000
4,422
(752)
3,670
2017
£’000
(4,687)
937
(3,750)
Cumulative actuarial gains / (losses)
(1,229)
(4,899)
Vertu Motors plc
102
Notes to the Consolidated Financial Statements (continued)
29. Retirement benefit asset (continued)
a)
Bristol Street Pension Scheme (continued)
Sensitivity analysis
The table below gives an indication of the impact on the IAS 19 valuation as a result of
changes to the principal assumptions:
Change in assumption:
0.25% increase in discount rate
0.25% decrease in discount rate
0.25% increase in price inflation (and associated assumptions)
0.25% decrease in price inflation (and associated assumptions)
1 year increase in life expectancy at age 65
1 year decrease in life expectancy at age 65
b)
SHG Pension Scheme
Approximate impact on
current surplus:
£’000
1,843
(1,956)
(1,331)
1,632
(1,759)
1,734
Following the transfer of scheme assets and liabilities from the SHG Pension Scheme into the
Bristol Street Pension Scheme on 27 February 2017, £192,000 remained in the SHG scheme
bank account (included in total scheme assets at 28 February 2017) for administrative
purposes in order to meet final payments due to remaining members. Benefits of £192,000
were paid to members during the year to February 2018 and the scheme was subsequently
wound up on 7 February 2018.
30. Ordinary share capital, share premium, other reserves, treasury share reserve
and capital redemption reserve
2018
At 1 March 2017
Issuance of treasury shares
in satisfaction of exercised
CSOP options
Cancellation of repurchased
shares
At 28 February 2018
Ordinary
shares of
10p each
Number of
shares
(‘000)
Ordinary
share
capital
£’000
Share
premium
£’000
Other
reserve
£’000
Treasury
share
reserve
£’000
Capital
redemption
reserve
£’000
Total
£’000
395,279
39,727
124,932
10,645
(756)
- 174,548
175
-
2
-
66
-
68
(11,745)
383,709
(1,175)
38,552
-
124,934
-
10,645
-
(690)
-
1,175
1,175 174,616
The other reserve is a merger reserve, arising from shares issued for shares, as
consideration to the former shareholders of acquired businesses.
2017
Ordinary
shares of
10p each
Number of
shares
(‘000)
Ordinary
shares
£’000
Share
premium
£’000
Other
reserve
£’000
Treasury
share
reserve
£’000
Total
£’000
At 1 March 2016
Shares issued during the year
Costs on issuance of shares
Purchase of treasury shares
Issuance of treasury shares in
satisfaction of exercised LTIP awards
Issuance of treasury shares in
satisfaction of exercised CSOP awards
At 28 February 2017
341,270
56,000
-
(2,636)
34,127
5,600
-
-
96,901
29,400
(1,369)
-
10,645
-
-
-
- 141,673
-
35,000
-
(1,369)
(1,000)
(1,000)
625
-
-
-
237
237
20
395,279
-
39,727
-
124,932
-
10,645
7
7
(756) 174,548
Vertu Motors plc
103
Notes to the Consolidated Financial Statements (continued)
30. Ordinary share capital, share premium, other reserves, treasury share reserve
and capital redemption reserve (continued)
Share Option Schemes
Under the Group’s equity-settled share option schemes, share options are granted to
Executive Directors and to selected employees. The exercise price of the granted CSOP
options is equal to the market price of the shares on the date of the grant and is £Nil in the
case of options issued under the long term incentive plan (“LTIP”) Scheme. Options are
conditional on the employee completing three years’ service (the vesting period). The options
are exercisable starting three years from grant date, subject to the performance criteria set
out below. The Group has no legal or constructive obligation to repurchase or settle the
options in cash.
As disclosed in the Consolidated Income Statement on page 70, a share based payments
charge of £1,031,000 (2017: £1,082,000) has been recognised during the year, in relation to
the schemes as described below.
Movements in the number of share options in issue during the year are as follows:
Award Date
4 May 2007
13 Jun 2007
1 Aug 2007
28 Aug 2007
7 Sep 2007
4 Jan 2008
26 Feb 2008
21 May 2008*
28 Nov 2011*
12 Jun 2012*
24 Oct 2012*
20 Aug 2013*
30 Oct 2013
16 May 2014
5 Nov 2014
13 Nov 2015
16 Jun 2015**
5 Sep 2016
13 Oct 2016
23 Jun 2017
6 Nov 2017
Type
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
LTIP
CSOP
LTIP
CSOP
CSOP
LTIP
LTIP
CSOP
LTIP
CSOP
Granted /
Outstanding at 28
February 2018
No of shares
-
-
-
-
-
-
-
74,799
639,230
2,400,000
2,120,000
107,166
-
-
1,160,000
2,055,000
1,128,205
1,920,289
2,340,000
2,007,576
3,305,000
19,257,265
Granted /
Outstanding at 28
February 2017
No of shares
111,111
77,170
591,549
169,231
136,363
115,000
10,000
79,200
749,230
2,400,000
2,530,000
107,166
1,050,000
2,404,665
1,310,000
2,375,000
1,128,205
1,920,289
2,760,000
-
-
20,024,179
Exercise
price
81.00p
77.75p
71.00p
65.00p
66.00p
40.00p
43.00p
44.00p
26.00p
27.50p
39.25p
0.00p
59.50p
0.00p
57.50p
74.50p
0.00p
0.00p
45.38p
0.00p
45.00p
Date from
which
exercisable
4 May 2010
13 Jun 2010
1 Aug 2010
28 Aug 2010
7 Sep 2010
4 Jan 2011
26 Feb 2011
21 May 2011
28 Nov 2014
30 Aug 2015
30 Aug 2015
20 Aug 2016
30 Oct 2016
16 May 2017
5 Nov 2017
16 Nov 2018
16 Jun 2018
5 Sep 2021
13 Oct 2019
23 Jun 2020
7 Nov 2020
Expiry date
4 May 2017
13 Jun 2017
1 Aug 2017
28 Aug 2017
7 Sep 2017
4 Jan 2018
26 Feb 2018
21 May 2018
28 Nov 2021
12 Jun 2022
24 Oct 2022
20 Aug 2018
30 Oct 2023
16 May 2024
5 Nov 2024
16 Nov 2025
16 Jun 2020
5 Sep 2026
13 Oct 2026
23 Jun 2022
7 Nov 2027
*Vested
** Lapsed in full subsequent to 28 February 2018
Movements in the number of share options outstanding are as follows:
At beginning of year
Granted
Forfeited
Lapsed
Exercised
At end of year
2018
No of share
options
20,024,179
5,402,576
(1,524,400)
(4,470,090)
(175,000)
19,257,265
2017
No of share
options
17,133,663
4,780,289
(515,263)
(729,376)
(645,134)
20,024,179
The weighted average share price during the year was 45.6p (2017: 48.9p). The weighted
average fair value of CSOP options granted during the year, determined using the Black-
Scholes model was 8p (2017: 10p) per option.
Vertu Motors plc
104
Notes to the Consolidated Financial Statements (continued)
30. Ordinary share capital, share premium, other reserves, treasury share reserve
and capital redemption reserve (continued)
Share Option Schemes (continued)
Significant inputs into the Black-Scholes model for all CSOP option awards above are set out
below:
Vesting period
Expected volatility
Option life
Expected life
Annual risk-free interest rate
Dividend yield
3 years
25%
7 years
5 years
1%
2%
The weighted average fair value of LTIP options granted during the year, determined using
the Black-Scholes model was 44p (2017: 46p) per option.
Significant inputs into the Black-Scholes model for the LTIP option awards above are set out
below:
Vesting period
Expected volatility
Option life
Expected life
Annual risk-free interest rate
Dividend yield
3 years
25%
2 years
5 years
1%
2%
The volatility measured at the standard deviation of continuously compounded share returns
is based on statistical analysis of daily share prices since the admission of Vertu Motors plc to
AiM. This is then adjusted for events not considered to be reflective of the volatility of the
share price going forward.
The performance conditions attaching to any share options issued to Executive Directors,
Senior Management or colleagues of the Company are considered and set by the
Remuneration Committee. The following share incentive schemes are operated by the
Company:
a)
Share Incentive Plan (“SIP”)
The SIP was introduced in accordance with appropriate legislation and it allows colleagues to
invest in partnership shares out of gross salary. A participant may withdraw from the SIP at
any time but if he or she does so before the partnership shares have been held in trust for five
years (except in certain specified circumstances such as redundancy or disability) he or she
will incur an income tax liability. The Company currently does not supplement or match the
partnership shares acquired by colleagues.
b)
Company Share Option Plan (“CSOP”) Approved and Unapproved Share Option
Schemes
The number of vested options issued prior to 24 October 2012, which remain outstanding are
shown in the table on page 104.
The CSOP options issued on 5 November 2014 may only be exercised if the average share
price of the Company over at least one continuous period of 30 days between 1 August 2017
and 31 July 2018 is above 70p and then 100% of the options vest. At an average share price
of below 70p none of the options are exercisable.
The CSOP options issued on 13 November 2015 may only be exercised if the average share
price of the Company over at least one continuous period of 30 days between 1 August 2018
and 31 July 2019 is above 90p and then 100% of the options vest. At an average share price
of below 90p none of the options are exercisable.
Vertu Motors plc
105
Notes to the Consolidated Financial Statements (continued)
30. Ordinary shares, share premium, treasury share reserve and other reserves
(continued)
Share Option Schemes (continued)
b)
Company Share Option Plan (“CSOP”) Approved and Unapproved Share Option
Schemes (continued)
The CSOP options issued on 13 October 2016 may only be exercised if the average share
price of the Company over at least one continuous period of 30 days between 1 August 2019
and 31 July 2020 is above 75p and then 100% of the options vest. At an average share price
of below 90p none of the options are exercisable.
The following CSOP share options were issued during the financial year to 28 February 2018.
None of these options were issued to the Executive Directors of Vertu Motors plc.
3,395,000 CSOP options were issued on 6 November 2017. These options may only be
exercised if the average share price of the Company over at least one continuous period of 30
days between 1 August 2019 and 31 July 2020 is above 62.5p and then 100% of the options
vest. At an average share price of 57.5p 50% of the options are exercisable. At prices
between 57.5p and 62.5p, options will vest on a straight-line basis between 50% and 100%.
At a share price below 57.5p none of the options are exercisable.
c)
Long Term Incentive Plan (“LTIP”)
On 16 May 2014 2,404,665 LTIP share awards were issued to Executive Directors and Senior
Managers. In May 2017 these awards lapsed in full as the market based performance criteria
had not been satisfied.
A further 1,128,205 LTIP share awards were issued to Executive Directors and Senior
Managers on 16 June 2015. These awards lapsed in full, subsequent to the year end, as the
market based performance criteria had not been satisfied.
Each tranche of awards made prior to 16 June 2015 took the form of £Nil value share options
where the vesting is subject to targets based on the achievement of absolute growth in the
Company’s total shareholder return (‘TSR’), and relative growth in TSR against FTSE small
cap index (excluding investment trusts). Further detail on the vesting conditions is given in the
Directors Remuneration Report on page 55 of the Financial Statements.
Vesting of LTIP awards issued subsequent to June 2015 is subject to targets based on the
achievement of absolute growth in the Company’s total shareholder return (“TSR”) and the
Group’s target return on shareholders’ equity. The vesting of such awards is measured over a
three year period, but the awards are subject to an additional two year holding period before
they can be exercised.
On 5 September 2016 1,920,289 LTIP share awards were made to Executive Directors and
Senior Managers. The awards may vest in September 2019. A further 2,007,576 LTIP share
awards were made to Executive Directors and Senior Managers on 23 June 2017 which may
vest in June 2020.
31. Hedging reserve
The hedging reserve arises as a result of cash flow hedges in relation to interest rate swap
derivatives. The movements on the hedging reserve are as follows:
At beginning of year
Fair value losses on derivative financial instruments
during the year
Deferred taxation on fair value losses during year
At end of year
Vertu Motors plc
106
2018
£’000
-
(93)
18
(75)
2017
£’000
-
-
-
-
Notes to the Consolidated Financial Statements (continued)
32. Reconciliation of net cash flow to movement in net cash
Net increase / (decrease) in cash and cash
equivalents
Cash inflow from proceeds of borrowings
Cash outflow from repayment of borrowings
Cash movement in net cash
Borrowings acquired
Capitalisation of loan arrangement fees
Amortisation of loan arrangement fees
Non-cash movement in net cash
Movement in net cash
Opening net cash
Closing net cash
2018
£’000
1,864
(4,140)
166
(2,110)
-
501
(86)
415
(1,695)
21,008
19,313
2017
£’000
(4,070)
(10,831)
14,000
(901)
(1,085)
107
(261)
(1,239)
(2,140)
23,148
21,008
33. Cash flow from movement in working capital
The following adjustments have been made to reconcile from the movement in balance sheet
heading to the amount presented in the cash flow from the movement in working capital. This
is in order to more appropriately reflect the cash impact of the underlying transactions.
2018
Current
trade and
other
receivables
(Note 22)
£’000
Inventories
(Note 20)
£’000
558,386
506,470
(51,916)
(432)
66,272
52,545
(13,727)
(24)
Trade and
other
payables
£’000
(663,404)
(100)
(8,877)
(672,381)
(619,741)
52,640
155
-
-
1,181
(52,348)
(13,751)
53,976
Total
working
capital
movement
£’000
(12,123)
(197)
(784)
(54)
(174)
(13,332)
Trade and other payables (Note 24)
Deferred consideration (Note 17)
Deferred income (Note 28)
At 28 February 2018
At 28 February 2017
Balance sheet movement
Disposals (Note 17)
Deferred consideration on acquisitions
(Note 17)
Movement excluding business
combinations
Pension related balances
Increase in capital creditors
Increase in interest accrual
Increase in share repurchase accrual
Movement as shown in Consolidated
Cash Flow Statement
Vertu Motors plc
107
Notes to the Consolidated Financial Statements (continued)
33.
Cash flow from movement in working capital (continued)
2017
Trade and other payables
Deferred consideration
Deferred income
At 28 February 2017
At 29 February 2016
Balance sheet movement
Acquisitions
Disposals
Movement excluding business
combinations
Pension related balances
Decrease in capital creditors
Decrease in interest accrual
Movement as shown in Consolidated
Cash Flow Statement
Current
trade and
other
receivables
£’000
Inventories
£’000
506,470
530,371
23,901
17,345
(149)
52,545
63,412
10,867
4,325
(56)
Trade and
other
payables
£’000
(610,317)
(1,808)
(7,616)
(619,741)
(639,126)
(19,385)
(21,583)
199
41,097
15,136
(40,769)
Total
working
capital
movement
£’000
15,464
(247)
736
87
16,040
34. Reconciliation of movement in liabilities to cash arising from financing activities
Current
borrowings
£’000
Non-current
borrowings
£’000
Share
premium
£’000
Treasury
share
reserve
£’000
Retained
earnings
£’000
Total
£’000
8,671
10,166
124,932
(756)
71,881 214,894
-
-
-
-
4,140
4,140
-
-
12,811
-
-
-
(166)
-
(166)
-
2
-
-
-
2
-
66
-
-
-
66
(5,678)
(6)
(5,451)
-
-
(5,678)
62
(5,451)
(166)
4,140
(11,135)
(7,093)
(415)
-
9,585
-
-
124,934
-
-
(690)
(415)
-
29,131
29,131
89,877 236,517
As at 1 March 2017
Cash flows from financing
activities:
Dividends paid
Shares issued
Share repurchase
Repayment of loans
Proceeds from issue of loan
Net cash outflow from financing
activities
Other changes:
Liability related: amortisation of
loan fees and expenses
Equity related: other movements
As at 28 February 2018
35. Contingencies
Contingent liabilities
Under sections 394A and 479A of the Companies Act 2006, the parent company Vertu
Motors plc has guaranteed all outstanding liabilities to which the subsidiaries listed on page
76 were subject to at the end of 28 February 2018 until they are satisfied in full. These
liabilities
loans of
£117,385,000 (2017: £120,190,000). Such guarantees are enforceable against Vertu Motors
plc by any person to whom any such liability is due.
total £717,453,000 (2017: £617,304,000),
intercompany
including
Vertu Motors plc
108
Notes to the Consolidated Financial Statements (continued)
36. Commitments
a) Capital Commitments
Capital commitments in respect of property, plant and equipment amounting to £5,478,000
were outstanding as at 28 February 2018 (2017: £3,242,000).
b) Operating Lease Commitments
The Group leases various motor dealerships and other premises under non-cancellable
operating lease agreements. The lease terms are between 2 and 25 years. The Group also
leases various plant and equipment under non-cancellable operating lease agreements.
The future aggregate minimum lease payments under non-cancellable operating leases,
ignoring property landlord only lease breaks, are as follows:
Commitments under non-
cancellable operating leases
payable:
No later than 1 year
Later than 1 year and no
later than 5 years
Later than 5 years
2018
2017
Vehicles,
plant and
equipment
£’000
Property
£’000
Vehicles,
plant and
equipment
£’000
Property
£’000
10,384
35,301
41,128
86,813
2,980
1,008
-
3,988
8,772
30,825
37,211
76,808
3,413
1,033
-
4,446
37. Related party transactions
Key management personnel are defined as the Directors of the Company. The remuneration
of the Directors who served during the year ended 28 February 2018 is set out in the
Directors’ Remuneration Report on pages 58 to 62.
During the year, Robert Forrester and Peter Jones sat on the board of Trusted Dealers
Limited as unpaid non-Executive Directors. Trusted Dealers Limited operates a used car
sales website. In the year ended 28 February 2018, the value of services provided by
Trusted Dealers Limited to the Group was £60,000 (2017: £60,000). No outstanding balances
were due to Trusted Dealers Limited in respect of these services at 28 February 2018 (2017:
£Nil). Both Robert Forrester and Peter Jones resigned as Non-Executive Directors of Trusted
Dealers Limited on 24 January 2018 and 12 January 2018 respectively.
Nigel Stead, a Director of the Company also sits on the Board of Prohire plc. The Group sells
vehicles and provides aftersales services to Prohire plc on normal commercial terms. In the
year ended 28 February 2018, sales of vehicles to Prohire plc totalled £150,000 (2017:
£66,000). The value of aftersales services invoiced in the same period was £9,000 (2017:
£26,000). £1,000 was unpaid at 28 February 2018 in respect of these supplies (2017:
£2,000). Nigel Stead resigned as Non-Executive Director of Prohire Plc on 21 March 2018.
William Teasdale, a Director of the Company until his resignation on 26 July 2017 also sits on
the Board of Remedios Limited. Remedios Limited provides environmental investigation
services to the Group on normal commercial terms. In the year ended 28 February 2018, the
value of such services provided was £120 (2017: £33,000). £Nil was unpaid at 28 February
2018 in respect of these services received (2017: £Nil).
During the year to 28 February 2018, Robert Forrester, Michael Sherwin, Peter Jones, Bill
Teasdale, Nigel Stead and Pauline Best bought and sold vehicles from and to the Group. The
value of these transactions for the year ended 28 February 2018 and the year ended 28
February 2017 is presented below. No profit or loss was made in respect of these
transactions in the year ended 28 February 2018 or the year ended 28 February 2017. All of
these transactions were pursuant to an employee vehicle ownership plan available to
Executive Directors and certain Senior Managers. No outstanding balances were due to or
from the Group in respect of these transactions at 28 February 2018 (2017: £Nil).
Vertu Motors plc
109
Notes to the Consolidated Financial Statements (continued)
37. Related party transactions (continued)
2018
Robert Forrester
Michael Sherwin
Peter Jones
Bill Teasdale *
Nigel Stead
Pauline Best
* resigned on 26th July 2017.
2017
Robert Forrester
Michael Sherwin
Peter Jones
Bill Teasdale
Nigel Stead
Pauline Best
Bought from the Group
Sold to the Group
Number of
vehicles
6
8
3
1
3
4
Purchase
price
£’000
465
424
255
71
215
249
Number of
vehicles
6
8
3
1
3
4
Sale price
£’000
460
418
256
65
200
262
Bought from the Group
Sold to the Group
Number of
vehicles
5
5
2
3
4
3
Purchase
price
£’000
339
216
180
210
249
212
Number of
vehicles
5
5
2
3
4
2
Sale price
£’000
330
227
177
216
251
144
38. Post balance sheet events
On 19 March 2018, the Group disposed of surplus land, held in property assets held for
resale at 28 February 2018, at Newcastle under Lyme realising £2,000,000 of cash and a
£630,000 profit on disposal.
Vertu Motors plc
110
Company Balance Sheet
As at 28 February 2018
Fixed assets
Intangible assets
Tangible assets
Investments
Current assets
Debtors
Cash at bank and in hand
Total current assets
Note
5
6
7
8
2018
£’000
968
3,480
153,633
158,081
138,386
37,730
176,116
2017
£’000
990
2,988
153,397
157,375
136,294
28,293
164,587
Creditors: amounts falling due within one
year
10
(68,938)
(70,619)
Net current assets
Total assets less current liabilities
107,178
265,259
93,968
251,343
Creditors: amounts falling due after more
than one year
11
(18,562)
(17,852)
Net assets
246,697
233,491
Capital and reserves
Called up share capital
Share premium account
Other reserve
Hedging reserve
Treasury share reserve
Capital redemption reserve
Profit and loss account:
At start of year
Profit for the year
Other changes in retained earnings
13
13
13
14
13
13
15
38,552
124,934
10,645
(75)
(690)
1,175
58,943
23,382
(10,169)
72,156
39,727
124,932
10,645
-
(756)
-
43,792
19,726
(4,575)
58,943
Total shareholders’ funds
246,697
233,491
These financial statements, on pages 111 to 122, have been approved for issue by the Board
of Directors on 9 May 2018:
Robert Forrester
Chief Executive
Michael Sherwin
Chief Financial Officer
Vertu Motors plc
111
Company Statement of Changes in Equity
For the year ended 28 February 2018
Ordinary
share
capital
£’000
Share
premium
£’000
Other
reserve
£’000
Hedging
reserve
£’000
Treasury
share
reserve
£’000
Capital
redemption
reserve
£’000
Profit and
loss account
£’000
Total
Equity
£’000
As at 1 March 2017
Profit for the year
Tax on items taken
directly to equity
Fair value losses
Total comprehensive
income for the year
New ordinary shares
issued
Repurchase of own
shares
Cancellation of
repurchased shares
Dividend paid
Share based payments
charge
As at 28 February 2018
39,727
124,932
10,645
-
-
-
-
-
-
(1,175)
-
-
-
-
-
-
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
(93)
(75)
-
-
-
-
-
(756)
-
-
-
-
66
-
-
-
-
-
-
-
-
-
-
-
1,175
-
58,943 233,491
23,382
23,382
-
-
18
(93)
23,382
23,307
(4)
64
(5,441)
(5,441)
-
(5,678)
-
(5,678)
-
954
954
38,552
124,934
10,645
(75)
(690)
1,175
72,156 246,697
The other reserve is a merger reserve, arising from shares issued for shares as
consideration, to the former shareholders of acquired companies.
For the year ended 28 February 2017
Ordinary
share
capital
£’000
Share
premium
£’000
Other
reserve
£’000
Treasury
share
reserve
£’000
Profit
and loss
account
£’000
Total
Equity
£’000
As at 1 March 2016
Profit for the year
Total comprehensive income for the
year
New ordinary shares issued
Cost of issuance of ordinary shares
Purchase of treasury shares
Treasury shares issued
Dividend paid
Share based payments charge
As at 28 February 2017
34,127
-
-
5,600
-
-
-
-
-
39,727
96,901
-
-
29,400
(1,369)
-
-
-
-
124,932
10,645
-
-
-
-
-
-
-
-
10,645
-
-
43,792
19,726
185,465
19,726
-
-
-
(1,000)
244
-
-
(756)
19,726
-
-
-
(237)
(5,353)
1,015
58,943
19,726
35,000
(1,369)
(1,000)
7
(5,353)
1,015
233,491
Vertu Motors plc
112
Notes to the Company Financial Statements
For the year ended 28 February 2018
1. Accounting Policies
Statement of compliance
The separate financial statements of Vertu Motors plc, the parent undertaking, have been
prepared in compliance with United Kingdom Accounting Standards, including Financial
Reporting Standard 102, “The Financial Reporting Standard applicable in the United Kingdom
and the Republic of Ireland” (“FRS 102”) and the Companies Act 2006.
Exemptions for qualifying entities under FRS 102
FRS 102 allows a qualifying entity certain disclosure exemptions, subject to certain
conditions, which have been complied with.
The Company has taken advantage of the following exemptions in paragraph 1.12 of FRS
102:
-
-
-
-
from preparing a statement of cash flows and related notes, on the basis that it is a
qualifying entity and the consolidated statement of cash flows of Vertu Motors plc
includes the Company’s cash flows,
certain disclosures in relation to financial instruments,
certain disclosures in relation to share based payments; and
from disclosing the Company key management personnel compensation.
Basis of preparation
The financial statements have been prepared on the going concern basis under the historical
cost convention as modified by the revaluation of derivative financial instruments to fair value.
The principal accounting policies, which have been consistently applied throughout the year,
are set out below.
No profit and loss account is presented by the Company, as permitted under section 408 of
the Companies Act 2006. The profit of the Company for the year ended 28 February 2018
was £23,382,000 (2017: £19,726,000).
The consolidated financial statements include the results of all subsidiaries owned by Vertu
Motors plc listed on pages 117 to 119 of these financial statements. Certain of these
subsidiaries, which are listed below, have taken the exemption from an audit for the year
ended 28 February 2018 by virtue of s479A of Companies Act 2006. Certain other
subsidiaries, which are also listed below, have taken the exemption from preparing individual
accounts for the year ended 28 February 2018 by virtue of s394A of Companies Act 2006. In
order to allow these subsidiaries to take the audit exemption or exemption from the
preparation of individual accounts (as appropriate), the Company has given a statutory
guarantee of all the outstanding liabilities as at 28 February 2018 of the subsidiaries listed
below, further detail of which is provided in note 35 to the consolidated financial statements
on page 108.
The subsidiaries which have taken an exemption from an audit for the year ended 28
February 2018 by virtue of s479A Companies Act 2006 are:
Bristol Street First Investments Limited
Bristol Street Fourth Investments Limited
Vertu Motors (Knaresborough) Limited
Vertu Motors (VMC) Limited
South Hereford Garages Limited
South Hereford Garages Trade Parts LLP
Vertu Motors (Chingford) Limited
Vertu Motors (Property 2) Limited
Greenoaks (Maidenhead) Limited
Macklin Property Limited
Tyne Tees Finance Limited
Grantham Motor Company Limited
Vertu Motors (Property) Limited
Albert Farnell Limited
All Car Parts Limited
Sigma Holdings Limited
Gordon Lamb Limited
Gordon Lamb Holdings Limited
Vertu Motors plc
113
Notes to the Company Financial Statements (continued)
1. Accounting Policies (continued)
Basis of preparation (continued)
The subsidiaries which have taken an exemption from the preparation of individual accounts
in respect of the year ended 28 February 2018 by virtue of s394A of Companies Act 2006 are:
Blake Holdings Limited
Bristol Street (No.1) Limited
Bristol Street (No.2) Limited
Bristol Street Fifth Investments Limited
Bristol Street Fleet Services Limited
Bristol Street Group Limited
Bristol Street Limited
BSH Pension Trustee Limited
Merifield Properties Limited
Motor Nation Car Hypermarkets Limited
Dunfermline Autocentre Limited
Widnes Car Centre (1994) Limited
Compare Click Call Limited
K C Motability Solutions Limited
Bristol Street Commercials (Italia) Limited
Newbolds Garage (Mansfield) Limited
Gordon Lamb Group Limited
Aceparts Limited
Why Pay More For Cars Limited
Hillendale Group Limited
Hillendale LR Limited
International Concessionaires Limited
National Allparts Limited
Peter Blake (Chatsworth) Limited
Peter Blake (Clumber) Limited
Peter Blake Limited
Typocar Limited
Vertu Fleet Limited
Vertu Motors (Finance) Limited
Vertu Motors (Retail) Limited
Boydslaw 103 Limited
Vertu Motors (Pity Me) Limited
Widnes Car Centre Limited
Vertu Motors (Durham) Limited
Dobies (Carlisle) Limited
Vertu Motors (AMC) Limited
Brookside (1998) Limited
Nottingham TPS LLP
Vertu Motors Property 2 Holdings Limited
SHG Holdings Limited
Blacks Autos Limited
The Taxi Centre Limited
Easy Vehicle Finance
The auditors’ remuneration for audit and other services was £25,000 (2017: £25,000).
Intangible assets
Intangible assets comprise computer software and are carried at cost less accumulated
amortisation and any impairment losses. Amortisation is provided on a straight-line basis to
allocate the cost of the asset over its estimated useful life, which in the case of computer
software is between four and six years.
Tangible fixed assets
Tangible fixed assets are stated at cost less accumulated depreciation and any impairment in
value. Cost includes expenditure that is directly attributable to the acquisition of the asset.
Depreciation is provided at rates calculated to write off the cost of tangible fixed assets less
their estimated residual values, on a straight-line basis over their estimated useful lives as
follows:
Computer equipment
Office equipment
16.6% - 50%
25%
Investments
Investments in subsidiary undertakings are stated at cost, less provision for impairment.
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have originated but not
reversed at the balance sheet date where transactions or events that result in an obligation to
pay more tax in the future or a right to pay less tax in the future have occurred at the balance
sheet date. Timing differences are differences between the Company’s taxable profits and its
results as stated in the financial statements that arise from the inclusion of gains and losses in
tax assessments in years different from those in which they are recognised in the financial
statements.
A deferred tax asset is regarded as recoverable and therefore recognised only to the extent
that, on the basis of all available evidence, it can be regarded as more likely than not that
there will be sufficient taxable profits from which the future reversal of the underlying timing
differences can be deducted.
Vertu Motors plc
114
Notes to the Company Financial Statements (continued)
1. Accounting Policies (continued)
Deferred taxation (continued)
Deferred tax is measured at the tax rates that are expected to apply in the years in which the
timing differences are expected to reverse based on tax rates and laws that have been
enacted or substantively enacted by the balance sheet date.
Deferred income
Deferred income is in relation to vehicle warranty product income. The Group sells used
vehicle warranty policies which are in house products that can be taken out over 12, 24 or 36
months with income received on inception of the policy. The policy covers replacement of
mechanical and electrical parts which have suffered a mechanical breakdown, the cost of
labour to fit failed parts and breakdown assistance for the period of the warranty.
When the income is received it is recognised initially as deferred income and is released to
the income statement on a straight-line basis over the life of each warranty policy.
Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to
the Company and the revenue can be reliably measured. In practice this means that revenue
is recognised when a service has been undertaken.
Share based payments
The Company allows employees to acquire shares of the Company through share option
schemes. The fair value of share options granted is recognised as an employee expense
with a corresponding increase in equity. The Company operates a number of equity-settled,
share-based compensation plans. The total amount to be expensed over the vesting period
is determined by reference to the fair value of the options granted, excluding the impact of
any non-market vesting conditions (for example, profitability and sales growth targets).
Non-market vesting conditions are included in assumptions about the number of options that
are expected to vest. At each balance sheet date, the entity revises its estimates of the
number of options that are expected to vest. It recognises the impact of the revision to
original estimates, if any, in the profit and loss account, with a corresponding adjustment to
equity.
The proceeds received net of any directly attributable transaction costs are credited to share
capital (nominal value) and share premium when the options are exercised.
Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the
lessor are classified as operating leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the profit and loss account on a straight-
line basis over the period of the lease.
2. Critical accounting estimates and judgements
The Company makes estimates and assumptions concerning the future. The resulting
accounting estimates, will, by definition, seldom equal the related actual results. The
estimates and assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities are discussed below:
Impairment of fixed asset investments
The Company tests annually, or whenever events or changes in circumstances occur, to
determine whether the fixed asset investments held have suffered any impairment. The
recoverable amounts of cash-generating units have been determined based on value-in-use
calculations. These calculations require the use of estimates.
Share based payments
Share options issued to certain employees are measured at fair value at the grant date using
a fair value model, and are expensed on a straight-line basis over the vesting period based on
an estimate of the number of options which will vest. The key assumptions of this model are
disclosed in note 30 of the Vertu Motors plc consolidated financial statements.
Vertu Motors plc
115
Notes to the Company Financial Statements (continued)
3. Employee benefit expense
Wages and salaries
Social security costs
Pension costs – defined contribution plans
Share based payments charge (note 17)
2018
£’000
12,470
1,731
1,551
15,752
1,031
16,783
4. Average monthly number of people employed (including Directors)
Sales
Service
Administration
5.
Intangible assets
Cost
At 1 March 2017
Additions
Disposals
At 28 February 2018
Accumulated Amortisation
At 1 March 2017
Amortisation charge
Disposal
At 28 February 2018
Net Book Value
At 28 February 2018
At 28 February 2017
6. Tangible assets
Cost
At 1 March 2017
Additions
Disposals
At 28 February 2018
Accumulated Depreciation
At 1 March 2017
Depreciation charge
Disposals
At 28 February 2018
Net Book Value
At 28 February 2018
At 28 February 2017
2018
Number
117
17
388
522
Computer
equipment
£’000
Office
equipment
£’000
7,094
2,004
(2,761)
6,337
4,335
1,472
(2,761)
3,046
3,291
2,759
683
36
(193)
526
454
76
(193)
337
189
229
2017
£’000
11,608
1,514
1,308
14,430
1,082
15,512
2017
Number
98
18
355
471
Computer
Software
£’000
3,465
421
(1,761)
2,125
2,475
442
(1,760)
1,157
968
990
Total
£’000
7,777
2,040
(2,954)
6,863
4,789
1,548
(2,954)
3,383
3,480
2,988
Vertu Motors plc
116
Notes to the Company Financial Statements (continued)
7. Fixed asset investments
Cost
At 1 March 2017
Additions
At 28 February 2018
Accumulated impairment charges
At 1 March 2017
Impairment charges
At 28 February 2018
Net Book Value
At 28 February 2018
At 28 February 2017
2018
£’000
155,797
350
156,147
2,400
114
2,514
153,633
153,397
Vertu Motors plc, the Company, as at 28 February 2018 and 28 February 2017, invested in
100% of the ordinary share capital of the following subsidiary undertakings, incorporated in
the United Kingdom:
Principal activity
Company
The registered office address of the following companies is Vertu House, Fifth Avenue
Business Park, Team Valley, Gateshead, Tyne & Wear, NE11 0XA:
Bristol Street First Investments Limited
Bristol Street Fourth Investments Limited
Vertu Motors (VMC) Limited
Grantham Motor Company Limited
Vertu Motors (Chingford) Limited
Albert Farnell Limited
South Hereford Garages Limited *
Tyne Tees Finance Limited *
Greenoaks (Maidenhead) Limited *
Gordon Lamb Limited *
South Hereford Garages Trade Parts LLP *
Vertu Motors Third Limited
All Car Parts Limited *
Macklin Property Limited
Vertu Motors (Property) Limited
Vertu Motors (Knaresborough) Limited
Vertu Motors (Property 2) Limited *
BSH Pension Trustee Limited *
Vertu Motors (Finance) Limited
Vertu Motors (Durham) Limited *
Bristol Street Fifth Investments Limited *
Blake Holdings Limited *
Bristol Street Group Limited *
Vertu Motors Property 2 Holdings Limited
Widnes Car Centre (1994) Limited *
Brookside (1998) Limited *
Hillendale Group Limited
Sigma Holdings Limited
Gordon Lamb Group Limited
Gordon Lamb Holdings Limited *
Why Pay More For Cars Limited *
International Concessionaires Limited *
Vertu Motors (AMC) Limited
Motor Nation Car Hypermarkets Limited
Bristol Street Limited *
Bristol Street (No. 1) Limited *
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Parts retailer
Online advertising
Online parts retailer
Property company
Property company
Property company
Property company
Pension scheme trustee
Finance company
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company
Holding company
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company
Holding company
Holding company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Vertu Motors plc
117
Notes to the Company Financial Statements (continued)
7. Fixed asset investments (continued)
Company
Bristol Street (No. 2) Limited *
National Allparts Limited *
Merifield Properties Limited *
Peter Blake Limited *
Peter Blake (Chatsworth) Limited *
Peter Blake (Clumber) Limited *
Typocar Limited
Widnes Car Centre Limited *
KC Mobility Solutions Limited *
Compare Click Call Limited
Dobies (Carlisle) Limited *
Newbolds Garages (Mansfield) Limited *
Nottingham TPS LLP *
Hillendale LR Limited *
Blacks Autos Limited *
Alpha Banbury *
Alpha Birmingham *
Alpha Bromley *
Alpha Cheltenham*
Alpha Huddersfield *
Alpha Ilford *
Alpha Leeds *
Alpha Newcastle *
Alpha Nottingham *
Alpha Parts *
Alpha Poole *
Alpha Romford *
Alpha Ruislip *
Alpha Sherwood *
Alpha Shirley *
Alpha Southampton *
Alpha Stamford *
Alpha Stourbridge *
Alpha Sunderland *
Alpha Worcester *
Dispose Seton (No 2) *
Jessups Motor Group *
Alpha Bournemouth Limited *
Alpha Cramlington Limited *
Alpha Jessups Limited *
Alpha Stamford Hill Limited *
Alpha Stanley Limited *
Fleet Datascan Limited *
Milehire Limited *
Seton House Manchester Limited *
Aceparts Limited
SHG Holdings Limited
Vertu Motors (Pity Me) Limited *
Bristol Street Commercials (Italia) Limited
Vertu Fleet Limited
Vertu Motors (Retail) Limited
Bristol Street Fleet Services Limited *
Principal activity
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
The registered address of the following companies is Dunfermline Autocentre, Halbeath
Road, Dunfermline, Fife, KY12 7RD
Boydslaw 103 Limited *
Dunfermline Autocentre Limited *
Holding company (dormant subsidiaries)
Dormant company
Vertu Motors plc
118
Notes to the Company Financial Statements (continued)
7.
Fixed asset investments (continued)
The registered address of the following companies is Peugeot Paisley, Saturn Avenue,
Pheonix Retail Park, Paisley, PA1 2BH
The Taxi Centre Limited
Easy Vehicle Finance Limited *
Dormant company
Dormant company
* Held indirectly by the Company.
The Directors believe that the carrying value of the investments is supported by their
underlying net assets.
8. Debtors
Trade debtors
Amounts owed by Group undertakings
Deferred tax asset (note 9)
Value Added Tax
Prepayments and accrued income
2018
£’000
922
125,989
1,323
6,928
3,224
138,386
2017
£’000
1,388
127,794
1,126
2,153
3,833
136,294
Amounts owed by Group undertakings are unsecured, bear no interest and have no fixed
repayment date.
9. Deferred tax asset
At beginning of year
Credited to the profit and loss account
Charged directly to equity
At end of year
2018
£’000
1,126
179
18
1,323
2017
£’000
815
311
-
1,126
The amounts recognised for deferred tax assets, calculated under the liability method at 17%
(2017: 17%) are set out below:
Depreciation in excess of capital allowances
Other short-term timing differences
Total
2018
£’000
452
871
1,323
2017
£’000
372
754
1,126
During the year ending 28 February 2019, the reversal of deferred tax assets is expected to
decrease the corporation tax charge for the year by £127,000. This is primarily due to timing
differences in relation to depreciation in excess of capital allowances.
10. Creditors: amounts falling due within one year
Trade creditors
Other creditors
Corporation tax
Deferred consideration
Other taxation and social security
Accruals
Deferred income
2018
£’000
5,515
23,000
2,304
-
4,553
25,118
8,448
68,938
2017
£’000
6,387
25,000
2,909
1,571
4,307
23,986
6,459
70,619
Other creditors comprise non-interest bearing advance payments from the Group’s finance
company partners.
Accruals includes £12,557,000 (2017: £11,057,000) in respect of outstanding service plans.
Vertu Motors plc
119
Notes to the Company Financial Statements (continued)
11. Creditors: amounts falling due after more than one year
Bank borrowings
Deferred consideration
Deferred income (note 12)
Borrowings are repayable as follows:
Under 1 year
1-2 years
2-5 years
2018
£’000
9,585
100
8,877
18,562
2018
£’000
-
-
9,585
9,585
2017
£’000
10,000
236
7,616
17,852
2017
£’000
-
-
10,000
10,000
The bank borrowings are secured on the assets of the Company and the Group. The table
below analyses the Company’s financial liabilities into relevant maturity groupings based on
the remaining period at the balance sheet date to contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows. Balances due within 12
months equal their carrying amounts as the impact of discounting is not significant.
Bank borrowings
Trade and other creditors
At 28 February 2018
Bank borrowings
Trade and other creditors
At 28 February 2017
12. Deferred income
Within one
year
£’000
-
68,938
68,938
Within one
year
£’000
-
70,619
70,619
Within two
to five years
£’000
9,585
8,977
18,562
Within two
to five years
£’000
10,000
7,852
17,852
Deferred income due in greater than one year comprises:
Warranty income
2018
£’000
8,877
8,877
Total
£’000
9,585
77,915
87,500
Total
£’000
10,000
78,471
88,471
2017
£’000
7,616
7,616
Deferred income relates to used car warranty products sold by the Group. These warranty
policies can be taken out over 12, 24 or 36 months with income received in advance of this
period being released on a straight-line basis over the life of the policies. There is an
additional £6,684,000 included in ‘Deferred income’ in creditors: amounts falling due within
one year, in respect of such warranties recognising the amount to be released over the next
12 months (2017: £5,536,000).
Vertu Motors plc
120
Notes to the Company Financial Statements (continued)
13. Called up share capital, share premium, other reserve, treasury share reserve and
capital redemption reserve
2018
Ordinary
shares of
10p each
Number of
shares
(‘000)
Called up
Share
Share premium
account
capital
£’000
£’000
Other
reserve
£’000
Treasury
share
reserve
£’000
Capital
redemption
reserve
£’000
Total
£’000
At 1 March 2017
Shares issued
during the year
Cancellation of
repurchased
shares
At 28 February
2018
395,279
39,727
124,932
10,645
(756)
- 174,548
-
-
(11,745)
(1,175)
2
-
-
-
66
-
68
-
1,175
-
383,534
38,552
124,934
10,645
(690)
1,175 174,616
All issued shares are fully paid-up.
The other reserve is a merger reserve, arising from shares issued for shares as consideration
to the former shareholders of acquired businesses.
2017
At 1 March 2016
Shares issued during the year
Cost of issuance of ordinary
shares
Purchase of treasury shares
Issuance of treasury shares
At 28 February 2017
14. Hedging reserve
Ordinary
shares of
10p each
Number of
shares
(‘000)
Called up
Share
Share premium
account
capital
£’000
£’000
Treasury
Share
Reserve
£’000
Other
Reserve
£’000
Total
£’000
341,270
56,000
-
(2,636)
645
395,279
34,127
5,600
-
-
-
39,727
96,901
29,400
-
-
10,645 141,673
35,000
-
(1,369)
-
-
124,932
-
(1,000)
244
(756)
-
-
-
(1,369)
(1,000)
244
10,645 174,548
Cash flow hedges:
At beginning of year
Fair value losses on derivative financial instruments
during the year
Deferred taxation on fair value losses during year
At end of year
15. Profit and loss account
As at beginning of year
Profit for the financial year
Dividend paid
Share based payments charge
Repurchase of own shares
Treasury shares issued
As at end of year
2018
£’000
-
(93)
18
(75)
2018
£’000
58,943
23,382
(5,678)
954
(5,441)
(4)
72,156
2017
£’000
-
-
-
-
2017
£’000
43,792
19,726
(5,353)
1,015
(237)
58,943
The issue of treasury shares in the period was in satisfaction of the exercise of vested share
options by senior managers.
Vertu Motors plc
121
Notes to the Company Financial Statements (continued)
16. Dividends per share
Dividends of £5,678,000 were paid in the year to 28 February 2018 (2017: £5,353,000), 1.45p
per share (2017: 1.35p). A final dividend in respect of the year ended 28 February 2018 of
0.95p per share, is to be proposed at the annual general meeting on 25 July 2018. The ex-
dividend date will be 21 June 2018 and the associated record date 22 June 2018. This
dividend will be paid, subject to shareholder approval, on 30 July 2018 and these financial
statements do not reflect this final dividend payable.
17. Share based payments
For details of share based payment awards and fair values, see note 30 to the consolidated
financial statements. The Company financial statements include a share based payments
charge for the year of £1,031,000 (2017: £1,082,000).
18. Contingencies
See note 35 to the consolidated financial statements for details of contingent liabilities as at
the balance sheet date.
19. Directors’ Remuneration
The remuneration of the Directors who served during the year from 1 March 2017 to 28
February 2018 is set out within the Directors’ Remuneration Report on pages 58 to 62.
20. Commitments
The Company leases vehicles under non-cancellable operating lease agreements.
The future aggregate minimum lease payments under non-cancellable operating leases is set
out below:
Commitments under non-cancellable operating leases
payable:
No later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years
2018
Vehicles
£’000
188
124
-
312
2017
Vehicles
£’000
395
121
18
534
21. Related party transactions
The Company has related party relationships with its subsidiaries and with key management
personnel.
Transactions with the Directors of the Company are disclosed in note 37 of the consolidated
financial statements.
During the financial year ended 28 February 2018, the Company made cash contributions of
£380,000 into the Bristol Street Pension Scheme (2017: £380,000). Under the terms of the
recovery plan as agreed between the Company and the Trustees, these contributions will
continue until 31 March 2018.
Vertu Motors plc
122
Alternative Performance Measures
Set out below are the definitions and sources of various alternative performance measures which are
referred to throughout the Annual Report. All financial information provided is in respect of the Vertu
Motors plc Group.
Definitions
Like-for-like
FY2018
H2 FY2018
H2 FY2017
Adjusted
Dealerships that have comparable trading periods in two consecutive
financial years, only the comparable period is measured as “like-for-like”
The twelve month period ended 28 February 2018
The six month period ended 28 February 2018
The six month period ended 28 February 2017
Adjusted for exceptional items, amortisation of intangible assets and share
based payments as these are unconnected with the ordinary business of
the Group.
Aftersales gross margin Aftersales gross margin compares the gross profit earned from aftersales
activities to the total aftersales revenues, including internal revenue
relating to service and vehicle preparation work performed on the Group’s
own vehicles. This is to properly reflect the real activity of the Group’s
aftersales department.
Alternative Performance Measures
EBITDA (Earnings before interest, taxation, depreciation and amortisation)
Operating profit
Impairment charges (note 6)
Depreciation (note 18)
Amortisation (note 16)
EBITDA
2018
£’000
32,345
513
9,714
614
43,186
2017
£’000
32,074
-
8,665
614
41,353
Adjusted EBITDA (adjusted for exceptional items and share based payment charge)
EBITDA
Exceptional items (note 8)
Share based payment charge (note 30)
Adjusted EBITDA
Adjusted Profit Before Tax (PBT)
Profit before tax
Amortisation (note 16)
Exceptional items (note 8)
Share based payment charge (note 30)
Adjusted PBT
2018
£’000
43,186
(3,539)
1,031
40,678
2018
£’000
30,447
614
(3,539)
1,031
28,553
2017
£’000
41,353
-
1,082
42,435
2017
£’000
29,820
614
-
1,082
31,516
Vertu Motors plc
123
Alternative Performance Measures (continued)
Tangible net assets per share
Net assets
Less:
Goodwill and other indefinite life assets
Other intangible assets
Add:
Deferred tax on above adjustments
Tangible net assets
Tangible net assets per share
Like-for-like reconciliations:
Revenues by department
2018
£’000
264,418
(94,381)
(1,316)
5,561
174,282
45.4p
New car retail and Motability
New fleet and commercial
Used cars
Aftersales
Total revenue
FY18
Group
revenue
£’m
836.5
662.5
1,068.9
228.2
2,796.1
FY17
Acquisition
revenue
£’m
(73.2)
(14.1)
(84.4)
(22.7)
(194.4)
FY18
Disposals
revenue
£’m
(11.9)
(1.3)
(15.6)
(3.0)
(31.8)
FY18
Like-for-like
revenue
£’m
751.4
647.1
968.9
202.5
2,569.9
FY17
Like-for-like
revenue
£’m
803.8
631.9
940.8
198.6
2,575.1
Aftersales revenue by department
Parts
Accident repair
Parts and accident repair
Service
Total revenue*
FY18
Group
revenue
£’m
159.9
5.8
165.7
114.8
280.5
FY17
Acquisition
revenue
£’m
(17.7)
-
(17.7)
(10.8)
(28.5)
FY18
Disposals
revenue
£’m
(1.8)
(0.3)
(2.1)
(1.2)
(3.3)
FY18
Like-for-like
revenue
£’m
140.4
5.5
145.9
102.8
248.7
FY17
Like-for-like
revenue
£’m
138.2
5.6
143.8
98.2
242.0
*Inclusive of both internal and external revenue
Vertu Motors plc
124
Alternative Performance Measures (continued)
Gross profit by department
New car retail and Motability
New fleet and commercial
Used cars
Aftersales
Gross profit
FY18
Group gross
profit
£’m
64.1
21.4
98.7
124.7
308.9
FY17
Acquisition
gross profit
£’m
(5.9)
(1.0)
(5.2)
(11.4)
(23.5)
FY18
Disposals
gross profit
£’m
(0.6)
-
(0.7)
(1.2)
(2.5)
FY18
Like-for-like
gross profit
£’m
57.6
20.4
92.8
112.1
282.9
FY17
Like-for-like
gross profit
£’m
60.3
19.8
95.4
109.1
284.6
Aftersales gross profit by department
Parts
Accident repair
Parts and accident repair
Service
Gross profit
FY18
Group gross
profit
£’m
33.4
3.7
37.1
87.6
124.7
FY17
Acquisition
gross profit
£’m
(3.2)
-
(3.2)
(8.2)
(11.4)
FY18
Disposal
gross profit
£’m
(0.1)
(0.2)
(0.3)
(0.9)
(1.3)
FY18
Like-for-like
gross profit
£’m
30.1
3.5
33.6
78.5
112.1
FY17
Like-for-like
gross profit
£’m
29.5
3.7
33.2
75.9
109.1
Number of units sold by department
New car retail
New car Motability
New fleet
New commercial
Used cars
Total units
FY18
Group
35,412
10,770
18,712
16,140
79,821
160,855
FY17
Acquisition
(554)
(118)
(229)
(64)
(627)
(1,592)
FY18
Disposals
(47)
(2)
(4)
-
(142)
(195)
FY18
Like-for-like
34,811
10,650
18,479
16,076
79,052
159,068
FY17
Group
41,528
11,397
19,912
16,829
81,636
171,302
FY17
Like-for-like
40,157
11,127
19,448
16,787
79,445
166,964
Average selling price by department
New car retail and Motability*
New fleet and commercial*
Used cars
FY18
Group
16,534
18,786
13,391
FY17
Acquisition
24,321
19,515
22,308
FY18
Disposals
16,279
23,679
13,107
FY18
FY17
Like-for-like
Like-for-like
16,038
18,763
12,945
15,297
17,503
12,445
*Average selling price is stated inclusive of wholesale units
Operating expenses
Operating expenses
FY18
Group
£’m
280.1
FY17
Acquisition
£’m
(22.3)
FY18
Disposals
£’m
(3.7)
FY18
Like-for-like
£’m
254.1
FY18
Like-for-like
£’m
251.1
Vertu Motors plc
125
Registered Office:
Vertu House,
Fifth Avenue Business Park,
Team Valley, Gateshead,
Tyne and Wear, NE11 0XA
Company Number: 05984855
www.vertumotors.com