ANNUAL REPORT & FINANCIAL STATEMENTS
For the year ended 28 February 2019
AUDI
Hereford Audi
Legion Way
Roman Road
Hereford HR1 1LN
Telephone: 01432 800 768
CITROËN
Burton Citroen
Nicholson Way
Off Wellington Road
Burton on Trent DE14 2AW
Telephone: 01283 567811
Derby Citroen
Stores Road
Derby DE21 4XF
Telephone: 01332 386900
Leicester Citroen
Raw Dykes Road
Freemans Wharf
Leicester LE2 7JU
Telephone: 0116 2495500
Nottingham Citroen
20 Nuthall Road
Nottingham NG8 5AT
Telephone: 08445 568540
DACIA
Bradford Dacia
Thornton Road
Bradford BD1 2EP
Telephone: 01274 736 440
Derby Dacia
Sir Frank Whittle Road
Derby DE21 4PB
Telephone: 08445 565201
Exeter Dacia
14A Marsh Barton Road
Marsh Barton Trading Est.
Exeter EX2 8NT
Telephone: 01392 423300
Gloucester Dacia
3 Ramsdale Road
Gloucester GL2 5FE
Telephone: 01452 505295
Mansfield Dacia
Southwell Road West
Mansfield NG18 4LW
Telephone: 01623 464656
Nottingham Dacia
Haydn Road
Sherwood
Nottingham NG5 1EA
Telephone: 0115 845 4040
FORD
Birmingham Ford
Bristol Street
Birmingham B5 7AZ
Telephone: 0121 6666000
Bolton Ford
54 - 56 Higher Bridge Street
Bolton
Lancashire BL1 2HQ
Telephone: 01204 524474
Bromley Ford
Masons Hill
Bromley
BR2 9HS
Telephone: 0208 2499000
Cheltenham Ford
Hayden Road
off Tewkesbury Road
Cheltenham
GL51 0SJ
Telephone: 01242 229922
Crewe Ford
University Way
Crewe CW1 6NB
Telephone: 01270 583511
Dunfermline Ford
Halbeath Road
Dunfermline KY12 7RD
Telephone: 01383 721536
Durham Ford
High Street
Carrville
Durham DH1 1AU
Telephone: 0844 8223433
Vertu Group Directory
Garretts Green Ford
40 Granby Avenue
Garretts Green
Birmingham B33 0TJ
Telephone: 0121 7897000
Glasgow Ford
900 Kennishead Road
Glasgow G53 7RA
Telephone: 08448 22 41 43
Gloucester Ford
Bristol Road
Gloucester GL2 5YB
Telephone: 01452 521581
Hamilton Ford
Whistleberry Road
Hamilton
Lanarkshire ML3 0EJ
Telephone: 08448 224164
Hartlepool Ford
Brenda Road
Hartlepool TS25 1HT
Telephone: 0844 8223432
Kings Norton Ford
Kings Norton Business Park
Pershore Road South
Birmingham B30 3ES
Telephone: 0121 4333030
Macclesfield Ford
Lyme Green Businsess Park
Winterton Way
Macclesfield
Cheshire SK11 0LP
Telephone: 08448 241084
Morpeth Ford
Coopies Lane
Morpeth NE61 6JN
Telephone: 01670 519611
Orpington Ford
Green Street Green
Orpington BR6 7LP
Telephone: 01689 888188
Redditch Ford
Battens Drive
Redditch
Worcester B98 0LJ
Telephone: 01527 521212
Shirley Ford
361 - 369 Stratford Road
Shirley
Solihull B90 3BS
Telephone: 0121 7333333
Stafford Ford
Stone Road
Stafford ST16 2RA
Telephone: 01785 251331
Stoke Ford
George Eastham Avenue
Trentham Lakes
Stoke ST4 4TU
Telephone: 01782 339800
West Bromwich Ford
New Swan Lane
West Bromwich B70 0NS
Telephone: 0121 5530200
Wigan Ford
Challenge Way
Martland Park
Wigan WN5 0LD
Telephone: 01942 210300
Worcester Ford
Cosgrove Close
Blackpole
Worcester WR3 8UA
Telephone: 01905 343434
HONDA
Boston Honda
Marsh Lane
Boston PE21 7QS
Telephone: 01205 319199
Derby Honda
Sir Frank Whittle Road
Derby DE21 4SX
Telephone: 01332 224 057
Doncaster Honda
Thorne Road
Doncaster DN2 5DX
Telephone: 08448 115985
Durham Honda
Abbey Road
Pity Me
Durham DH1 5DQ
Telephone: 0191 3750500
Grantham Honda
Tollemache Road
Spittlegate Level
Grantham NG31 7UH
Telephone: 01476 575777
Lincoln Honda
Outer Circle Road
Lincoln LN2 4JA
Telephone: 01522 536444
Mansfield Honda
Sovereign Way
Mansfield NG18 4LQ
Telephone: 01623 665200
Morpeth Honda
Coopies Lane
Morpeth
Northumberland NE61 6JN
Telephone: 01670 501444
Newcastle Honda
Scotswood Road
Newcastle-Upon-Tyne
NE4 7DF
Telephone: 0191 2722881
Nottingham Honda
Lenton Lane
Nottingham NG7 2PT
Telephone: 01159 863 222
Stockton Honda
Concorde Way
Preston Farm
Stockton-on-Tees
TS18 3SE
Telephone: 01642 664 695
Sunderland Honda
Wessington Way
Sunderland SR5 3NX
Telephone: 0191 5160099
HONDA BIKES
Vertu Honda Grantham
Tollemache Road
Spittlegate Level
Grantham NG31 7UH
Telephone: 01476 575111
Vertu Honda Nottingham
Haydn Road
Sherwood
Nottingham NG51EA
Telephone: 0115 845 4140
HYUNDAI
Banbury Hyundai
Southam Road
Banbury OX16 2RS
Telephone: 0844 8759633
Bristol Hyundai
St Philips Causeway
Avon Meads
Bristol BS4 3BD
Telephone: 03332 070 828
Edinburgh East Hyundai
22 Seafield Road
Edinburgh
Lothian EH15 1ED
Telephone: 0131 454 40 90
Edinburgh West Hyundai
390 Calder Road
Edinburgh
Lothian
EH11 4AS
Telephone: 0131 442 20 60
Exeter Hyundai
Unit 15
Trusham Road
Marsh Barton Trading Estate
Exeter EX2 8QQ
Telephone: 01392 423300
Mansfield Hyundai
Southwell Road West
Mansfield NG18 4LW
Telephone: 08445 76 26 79
Nottingham Hyundai
20 Nuthall Road
Nottingham NG8 5AT
Telephone: 08433 080870
Peterlee Hyundai
3 Mill Hill
North West Industrial Estate
Peterlee
County Durham SR8 2HR
Telephone: 08433 08 46 96
JAGUAR
Bolton Jaguar
Kay Street,
Bolton, BL1 2RX
Telephone: 0167 172174
Bradford Jaguar
Canal Road
Bradford
West Yorkshire BD1 4SR
Telephone: 01274 514400
Leeds Jaguar
Sheepscar Way
Gemini Business Park
Leeds
West Yorkshire LS7 3JB
Telephone: 0113 2007676
JEEP
Beaconsfield Jeep
55 Station Road,
Beaconsfield,
Buckinghamshire, HP9 1QJ
Telephone: 01494 687827
LAND ROVER
Bolton Land Rover
Kay Street,
Bolton, BL1 2RX
Telephone: 0167 172174
Bradford Land Rover
2 Kings Road
Off Canal Road
Bradford BD2 1FA
Telephone: 01274 207 000
Chesterfield Land Rover
Discovery Way
Whittington Moor
Chesterfield S41 9EG
Telephone: 01246 269 000
Guiseley Land Rover
Whitecross Garage
Bradford Road
Guiseley, Leeds LS20 8NJ
Telephone: 01943 871 100
Leeds Land Rover
Sheepscar Way
Gemini Business Park
Leeds
West Yorkshire LS7 3JB
Telephone: 0113 2007676
Nelson Land Rover
Lomeshaye Business Park
Nelson
Lancashire BB9 6LL
Telephone: 01282 723723
MAZDA
Hamilton Mazda
Whistleberry Road
Hamilton
Lanarkshire ML3 0EJ
Telephone: 08448 224206
Redditch Mazda
Battens Drive
Redditch
Worcester B98 0LJ
Telephone: 01527 521212
Page
2
3
5
34
35
39
44
54
60
66
73
74
75
76
77
79
116
117
118
128
24 July 2019
9 October 2019
May 2020
Table of Contents
Chairman’s Statement
Highlights
Strategic Report
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 2019/20
Final Results 2019/20
Vertu Motors plc (Company Number : 05984855)
1
Chairman’s Statement
The Group has delivered underlying profits in excess of market expectations and the Group
continues to trade in line with management expectations for the year ahead, which anticipates
profit growth.
The automotive retail sector faced a number of challenges in the year to 28 February 2019
including disruption to new vehicle supply, driven by a weaker pound and EU Worldwide
Harmonised Light Vehicle Test Procedure (“WLTP”) regulations, political uncertainty impacting
consumer confidence and significant cost pressures. Despite this, the Group delivered a
credible result in profit terms and very strong cash generation. The Board proposes a final
ordinary dividend of 1.05p per share taking the total ordinary dividend for the year to 1.60p per
share, an increase of 6.7% on last year.
The Group generated Free Cash Flow of £21.2m and £9.3m was returned to shareholders
through a combination of ordinary dividend payments (£5.7m) and share buybacks (£3.6m).
During the year 8.3m shares were purchased for cancellation reducing the number of shares in
issue by 2.2%. The Share Buyback Programme will be recommenced following this
announcement.
As anticipated, investment in the Group’s property portfolio has continued, with a capital
expenditure cash outflow of £33.7m before disposals. This spend included significant projects
to increase the operating capacity of the Group and to ensure dealerships meet the latest in
Manufacturer standards. The portfolio is now well invested, with reduced capital expenditure
expected in the coming financial year. Adjusted Net Cash reduced to £22.9m from £32.1m, with
£31.5m spent on acquisitions completed in the year. Net debt, inclusive of used vehicle
stocking facilities is negligible at just £0.3m at the balance sheet date and this means the Group
has considerable firepower for future investment.
There were a number of Board changes in the year. David Crane was appointed as an
Executive Director of the Company on 26 July 2018. David joined Vertu at its inception and has
been instrumental in its subsequent growth and success. Nigel Stead, who had been a Non-
executive Director of the Group for 7 years, retired from the Board on 31 December 2018.
Andrew Goss joined the Group on 3 September 2018 as a Non-executive Director and brings 39
years’ experience in the automotive sector to the Board, having held very senior roles in a
number of Manufacturers including Porsche and Jaguar Land Rover. Michael Sherwin retired
from his position as CFO on 1 March 2019. Karen Anderson, who has been with Vertu since its
incorporation in November 2006 succeeded Michael as CFO in a very smooth transition.
I have been in place as Chairman since 1 January 2015 and now consider it is time to step
down in the coming months, having overseen a number of Board changes in the last 18 months
and with the Group in an excellent position and poised for further growth. A process has
commenced to find a new Non-executive Chairman for the Group and further announcements
are expected in the coming months.
The automotive retail sector is set to remain challenging for the year ahead notably due to
political uncertainty and increased regulatory attention. It is likely that over time there will
continue to be a reduction in the number of franchise dealer outlets in the UK and drive further
network consolidation. The Group’s core strategy remains unchanged, which is to grow a
scaled franchised automotive retail group, working in conjunction with chosen Manufacturer
partners. Our aim is to deliver outstanding customer service and to build long term value
through the delivery of sustainable growth in cash flows and earnings per share.
I would like to take this opportunity to thank the Board, management and, above all, the
incredible colleagues in the Group for their passion, commitment and hard work. This Group
was founded in late 2006 and is now a significant player in the UK automotive retail sector with
an excellent, exciting future ahead of it.
P Jones
Chairman
Vertu Motors plc
2
Highlights
Strategy
Strong management and financial position enables growth of franchised businesses
with major Manufacturer partners to deliver growth in value
Leads the sector in on-line capability for omni-channel retailing. On-line retailing
capability developed in used cars, parts and vans
Delivery of market beating used car sales growth through use of technology in stock
management and vehicle pricing together with cost-effective digital and TV marketing
Growing high margin service revenues through expanded capacity, high penetration
of retention products such as service plans and delivery of outstanding customer
experiences
Strong portfolio management including divestment of sub-scale and underperforming
outlets/properties generating cash and reducing cost structures
Continuing value enhancing acquisitions
Financial
Profit before tax of £25.3m (2018: £30.4m)
Adjusted1 profit before tax of £23.7m ahead of market expectations (2018: £28.6m)
Full year dividend of 1.6p per share, up 6.7% (2018: 1.5p per share)
VAT income of £3.1m, in addition to Adjusted PBT, received following HMRC
clarification of finance deposit allowance treatment
Excellent cash conversion: Free Cash Flow of £21.2m delivered in the year (2018:
£10.7m)
Operational
£186m (6.7%) growth in revenues to £3bn, with like-for-like revenue growth of 5.1%
Excellent aftersales performance with like-for-like revenue growth of 7.0% delivering a
6.4% growth in gross profit
Like-for-like used vehicle revenue growth of 11.6% delivering £2.5m additional gross
profit
New retail volumes stable and ahead of the market trends
Throughout this Annual Report there are references to various Alternative Performance Measures (“APMs”) used to
measure performance for the financial year ended 28 February 2019, which can be reconciled to measures disclosed
in the consolidated financial statements on page 73 to 115. Definitions and reconciliations of the APMs referred to
are provided on page 128 to 132.
1 Adjusted to remove non-underlying items
Vertu Motors plc
3
Highlights (continued)
Capital Structure
Adjusted2 Net Cash of £22.9m (2018: £32.1m)
Strong balance sheet to fund future growth: tangible net assets per share of 44.9p
reflective of extensive freehold property base
Major capital expenditure programme now largely complete aiding future Free Cash
Flow generation
Used car stocking funding utilised of £23.2m (cover of 4.6 times used car stock value)
(2018: £12.8m). Substantially lower than industry peer group reflecting resilient
balance sheet
£3.6m of shares bought back in FY19 together with £5.7m of dividend payments
Share Buyback Programme recommenced on this announcement with £3m allocated
Outlook
Group has traded in line with management’s expectations in March and April 2019 with
trading profit expected to be in line with prior year period
2 Adjusted to remove used car stocking loans
4
Vertu Motors plc
Strategic Report
The purpose of this strategic report is to inform all stakeholders on how the Group has
performed in the year to 28 February 2019, through the provision of a detailed analysis of
financial performance. It also appraises the challenges the Group faces, the opportunities
available to exploit and explains how the Board plan to manage the business going forward.
Strategic Overview
Economic Backdrop
Economic indicators for the UK consumer are positive. In March 2019 the UK employment
rate was estimated at 76.1%, higher than the previous year and the highest figure on record.
In addition, those in employment have seen a 1.2% growth in wages, adjusted for inflation,
compared with 2017. Despite these positive trends, the consumer confidence index for the
United Kingdom averaged minus 9 for the first half of the Year, declining to an average of
minus 13 from October 2018, as the strong labour market was offset by ongoing Brexit
uncertainty and concerns over global growth prospects. There is a proven long-term link
between consumer confidence and UK new vehicle registrations, which were weaker in the
second half of the financial year.
Movements in the sterling exchange rate also tend to impact on UK new vehicle registrations.
Weaker sterling discourages Manufacturers bringing vehicles into the UK due to resultant
margin pressures.
Reductions in registrations of new vehicles in the UK leads to reduced availability of used
vehicles for sale, which tends to underpin used vehicle values aiding Group used vehicle
performance. Rising new car prices also tends to result in some customers switching from
new cars to used cars due to affordability. A slowdown in the change cycle of vehicles also
tends to increase the demand for the aftersales services and parts supplied by the Group.
Network Change - physical dealerships in an on-line world
The impact of the growth in on-line shopping on the general retail sector has been well
documented with increased on-line sales driving reduced physical retail transactions and
resulting in considerable dislocation on the High Street. Whilst the pace of consumer change
from physical to on-line has been fast in the general retail sector, the relative complexity of a
vehicle purchase has, thus far, led to a much lower adoption of ‘purely’ on-line transactions
within automotive retail. Customers are increasingly using the internet to research prior to
purchase and to initiate contact with dealerships, however, a recent ICDP survey found less
than 10% of consumers ideally wanted to finalise the deal on-line. Customer requirements are
likely to evolve over time and the Group’s needs to adapt to meet them.
Vertu was the first dealer group in the UK to develop the technology for customers to choose
a used vehicle, finance its purchase and trade in their existing vehicle purely on-line. This
was launched in May 2017 and has been successful, with many customers staring their
purchasing journey on the platform and in some cases completing the entire process on-line.
The relatively low volumes of purely on-line sales relate directly to the relative complexity of a
vehicle purchase transaction, which potentially includes financing, warranty and other
products, as well as a vehicle to trade in. The vast majority of customers also prefer to test
drive their chosen new vehicle, to ensure that it will meet their needs, before committing to a
purchase. The Group continues to invest in on-line sales capability since this channel is likely
to grow over time and provides the Group with significant learnings on evolving customer
digital buying behaviour.
Vertu Motors plc
5
Strategic Report (continued)
Strategic Overview (continued)
Network Change - physical dealerships in an on-line world (continued)
Whilst on-line purchase transactions remain negligible in the sector, the internet is of
paramount importance in marketing and communicating with customers in their research
phase of purchasing for both vehicles and aftersales products. It is therefore vital to have a
multi-channel approach, which offers choice to customers between on-line and off-line
channels and an omni-channel retail experience so transition from on-line to off-line is
seamless. Today’s customers utilise both on-line and off-line resources in complex ways
during the buying cycle. Lack of on-line visibility or barriers to an effortless journey can lead
to customers purchasing elsewhere so impacting sales levels. It is of the utmost importance
that the Group further invests in its in-house digital development capability, its digital
platforms and enhances its websites. This has been undertaken in the year significantly
improving Group capabilities. For example, the Group purchased Vans Direct in January.
Thus providing a dedicated channel in the increasingly important on-line van market. The
Group has also delivered further enhancements to the functionality of the Group’s existing
websites including extending on-line vehicle purchase functionality across more website and
increasing funding options with this offering.
The substantial global network of Manufacturers, and their associated supply chains, are
investing significantly in the technological development of vehicles to meet future customer
needs and to comply with increasingly complex and stringent environmental regulations.
These Manufacturers rely upon their retail franchise dealer network to deliver their products to
end users and to provide essential aftersales care. There is very little sign that this will not
continue long into the future primarily due to the capital investment required to have a
necessary physical presence and the complexity of organising businesses across every
geography across the globe. The Manufacturers appear to have enough challenges for
investment and change without seeking revolutionary new distribution models.
Clearly, this does not mean that there will not be change in the composition and structure of
the UK’s franchise dealer networks. On-line retailing will continue to develop over time and
cost and margin pressures will also result in a tendency for the number of UK franchised
dealer outlets to continue to decline as it has in recent years. Manufacturer partners continue
to seek simplification in their networks, choosing to work with fewer retail partners who best
deliver on their objectives. The majority are now actively working on or are contemplating
facilitating further reductions in sales outlets in the next few years to ‘right size’ their
distribution networks to ensure these networks make an appropriate return through increasing
sales per outlet. The positive relationships the Group has established with Manufacturer
partners means it is well placed to take advantage of this ongoing consolidation. The Group
is also seeking to add additional Manufacturer partners, not currently represented in the
portfolio, to facilitate additional growth opportunities. In addition, it is likely that dealership
locations may see increased levels of multi-franchising, where two or more franchises are
represented at one dealership location, to provide sales and service functions in a territory,
but with a lower operating cost base. The Group continues to evaluate such opportunities in
order to maximise profitability of each location. Increased flexibility of formats and
Manufacturer requirements are likely to aid this process.
The Group’s network of physical dealerships across the UK remains at the centre of its
customer offering since most new and used purchases are undertaken following a visit and
test drive. Dealership visits are actually increasing in each buying cycle at present in the UK
and as powertrain and model complexity in vehicles increases, this is likely to continue.
Moreover, the physical network is vital for the delivery of service and repair services to our
customers. This local capacity remains an important factor in many customers’ vehicle
buying decisions and is reflected in the Group’s strong service retention figures. 58% of the
Group’s new vehicle customers and 43% of used vehicle customers return to the Group to
have their vehicle serviced after their first year of ownership. The continued improvement of
Vertu Motors plc
6
Strategic Report (continued)
Strategic Overview (continued)
Network Change - physical dealerships in an on-line world (continued)
customer retention is a key goal for the Group. Initiatives such as the sale of service plans
aid service retention, but the delivery of excellent customer experience is the most important
predictor of customer loyalty. It is often stated that while the sales department sell the first
car, it is the service department which effectively sells the second.
The Board remains confident in the longer-term growth prospects for the Group. Freehold
dealership locations are a valuable financial asset and their geographic spread is important to
capitalise on a growth in on-line marketing and ultimately transactions. 53% of Group
dealership locations are freehold or long leasehold. The average remaining life on the
Group’s leasehold locations is 7.5 years, with approximately one third of property leases
having the benefit of tenant break clauses or lease end dates within the next three years.
These property arrangements therefore provide the Group with flexibility to respond to the
changing retail environment in the years ahead. The reduction in dealership retail outlets in
the UK will increase market share for those retailers who deliver excellent customer service
and work in partnership with their chosen Manufacturer partners. The Group operates
franchises where a close relationship and partnership with Manufacturers is crucial. The
Board believe Vertu is well-positioned from a relationship point of view with Manufacturers
and that the Group’s excellent financial strength will allow the right further investments to be
made.
Technological Change – powertrain shift
Over 40% of the Group’s gross profit arises from its aftersales operations, namely the
provision of servicing and repairs and the retailing and wholesaling of parts.
The increasing technological complexity of newer internal combustion and electric vehicles
has meant the barriers for new entrants into the vehicle servicing arena have, if anything,
increased as the costs of specialist diagnostic equipment, tooling and training rise.
Customers are more likely to trust Manufacturer franchise-holders to service a highly
complex, potentially electric, connected vehicle with increasing levels of autonomous driving
functionality.
Electric vehicles require less mechanical service intervention than those with an internal
combustion engine, however, latest research suggests that their complexity has the potential
to increase or at least maintain service and repair revenues from such vehicles for the next
decade and further into the future. Moreover, global growth in sales of pure electric vehicles
is expected to be modest, with industry analysis providing forecasts of a 20%3 global market
share of electric vehicle registrations by 2030. Pure electric vehicle registrations in the UK in
2018 accounted for less than 1% of the total market. This leaves a very high proportion of
registrations of vehicles with an internal combustion engine component and these vehicles
will dominate the vehicle parc well into the 2030s and even beyond. The ICDP forecast the
internal combustion engine will be fitted to the majority of cars sold in 2030 and that UK
service and repair market revenues will continue to increase as a consequence. This
provides a major growth opportunity in aftersales for the Group, especially given that
developments in the connected vehicle area are likely to increase service retention of vehicles
into franchised networks.
The cost of investment in research and development required by Manufacturers in order to
develop new engine technology is leading to some choosing to combine resources and share
know-how, either through formal ownership change or joint venture arrangements. The
continued high cash cost of such development activity may result in Manufacturer
3 Source: New Market, New Entrants, New Challenges : Battery Electric Vehicles : Deloitte
Vertu Motors plc
7
Strategic Report (continued)
Strategic Overview (continued)
Technological Change – powertrain shift (continued)
consolidation or ownership change and clearly this may have a potential knock on impact on
future automotive retailing networks.
Importance of management, colleagues and culture
The Group has over 5,500 colleagues and its success is predicated not only on having the
right strategy but in the day-to-day delivery of operational excellence to meet customers’
needs at over 100 UK locations. The calibre, skills and motivation of management and
colleagues is therefore vital to delivering the objectives of the Group. This comes down to
consistently delivering the basics within the business.
The Group has a very stable team of senior executives and General Managers in each
dealership. Training is seen as a vital part of the Group with extensive leadership
development paths in place from sales executives and technicians all the way to executive
level. These paths are combined with a formal talent strategy in each division to identify,
develop and promote high potential colleagues and to provide opportunities so that the Group
retains them. The HR Director and CEO undertake formal talent pool reviews with each
Division on a six-monthly basis. E-learning and skills-based training is also provided for all
colleagues to ensure consistency of culture and processes.
To ensure basic processes are in place to a high standard, the Group performs over 1,500
mystery shops each year on its sales activities across the Group. These highlight great
performances by colleagues which are rewarded and also identify areas for improvement and
the need for further training and coaching. Scores have improved year on year which points
to enhanced execution. These mystery shops are alongside similar programmes in sales and
aftersales conducted by the Manufacturers, where Group scores are well above average.
A sector leading management information system has also been developed to provide
management (and colleagues) with real time data, in all aspects of the business from financial
information, cost trends, colleague performance, customer experience data to complaints
analysis. This provides benchmarking to promote greater consistency in performance across
the business.
A key aspect of the Group, which the Board believe drives performance and consistency, is to
have one, consistent Group culture. This is at the core of how we do business and includes
the following:
Values that are embedded in the business. 97% of colleagues in the annual
colleague survey knew the Values and 87% considered that the Directors actively
practice them.
An annual Vision statement is produced setting out key goals to be achieved
including operational KPI’s which drive a balanced scorecard league of all
dealerships each month.
There is a focus on all senior management visiting dealerships and talking and
listening to management and colleagues rather than sitting in meetings at “Head
Office”.
Recognition is critical to colleagues so good work is rewarded and the Group has
activities to promote this from its Masters annual awards evening to hand written
letters from the Directors to colleagues who have excelled with customers.
To execute its strategies, the Group must have the right people in management and
colleague positions and have a culture that promotes excellence and is intolerant of
mediocrity. In this way, the basics of the business are executed and customers delighted.
Vertu Motors plc
8
Strategic Report (continued)
Strategic Overview (continued)
Importance of management, colleagues and culture (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.
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.
Regulatory Change
Emissions
The development and sales growth of alternatively powered vehicles is being driven by
environmental legislative change, as reductions in emissions are sought by governments
rather than reflecting change in consumer demand patterns per se. Targeted European
emissions reductions by 2021 represent a major challenge to Manufacturers who have to
invest to significantly reduce the emissions levels on their vehicle sales or face penal EU
fines.
New WLTP regulations, which changed the way in which vehicle emissions are tested, came
into force for cars on 1 September 2018. These changes disrupted the supply of new
vehicles into the UK in the year, as all new model vehicles had to be tested under the new
regime or could not be sold. Many Manufacturers simply did not have enough time to get
their many models through the WLTP testing routine in the finite number of facilities available
to carry out such tests. WLTP applies to commercial vehicles from 1 September 2019 and,
while some disruption is likely, the Manufacturers currently anticipate that they are better
prepared as a whole than last year.
The next stage of these emissions testing changes for cars is the introduction of ‘Real Driving
Emissions’ (“RDE”) regulations. Stage one of RDE (“RDE1”) will apply to all new vehicles
registered on or after 1 September 2019 and as was the case with WLTP, vehicles which
Vertu Motors plc
9
Strategic Report (continued)
Strategic Overview (continued)
Regulatory Change (continued)
Emissions (continued)
have not met the testing requirements by that date cannot be sold. An RDE test is a measure
of how closely a vehicle achieves the emissions results generated from the WLTP laboratory
test in a real-world driving scenario. The test is particularly concerned with Nitrogen Oxide
(NOx) emissions, service conformity and evaporate testing. RDE1 requires vehicles to
achieve results less than 2.2 times over the lab test results, whilst stage two (“RDE2”),
applicable from January 2021 onwards requires that new vehicles drive within 1.5 times the
WLTP levels achieved in the laboratory.
There is a risk that these new RDE regulations will again disrupt new vehicle supply in 2019
because of the testing requirements and potential non-conformity issues, however, this is
currently expected to have less of an impact on supply than WLTP. It is expected that the
number of model variants in vehicle ranges may reduce, as will the number of available
accessory options, particularly those which have an impact on driving efficiency.
FCA
In recent months the FCA published its findings in connection with a review of motor finance
and a further thematic review of general insurance product sales. The main areas of focus
arising from the motor finance review, were around commission arrangements and the
provision of timely and transparent information to consumers.
The Group has not utilised the difference in charges (“DIC”) commission basis, highlighted
negatively by the FCA, for over four years and has strong controls over the setting of interest
rates for customers. Rate caps are in place and the Group’s electronic showroom system
provides control and visibility to Group management. The FCA has commenced a
consultation process around commission arrangements. Whilst it is not known at this stage
what, if any, changes will arise from the FCA’s findings, the Group are working closely with its
retail finance partners, the National Franchised Dealer Association (“NFDA”) and Finance and
Leasing Association (“FLA”) within the consultation process.
The Group has strong compliance processes in place which include regular review of the
finance explanations and information the Group gives to its customers during the sales
process. A uniform electronic showroom system also ensures a consistency of approach in
this important compliance area. The Group has revisited the explanations given, in the light
of the FCA’s findings, and is confident that sales teams have the right tools to ensure
compliance with processes, and to provide customers with the right information to select the
financial products which best suit their needs.
The thematic review on general insurance product sales includes a number of products sold
by the Group, such as tyre and alloy insurance, and asset protection insurance. The review
highlighted areas of interest principally around value for money for customers and the
oversight insurance providers exert over the distribution and pricing of their products.
Consultation has now commenced, which the Group will actively engage with.
UK withdrawal from the EU
At this stage, the UK’s future relationship with the European Union remains unclear. The
Group’s vehicle and parts supply contracts are with the UK based sales companies of our
Manufacturer partners, limiting the need for significant Brexit contingency planning.
Manufacturer partners, however, have planned for a range of possible scenarios. Many
Manufacturers have chosen to accelerate supply of vehicles and parts into the UK over the
past few months, to limit the potential impact of short-term logistics dislocation. In the event
the UK exits the Customs Union and Single Market, there is the possibility that import tariffs of
10% will apply to those vehicles which are imported into the UK, increasing the cost
Vertu Motors plc
10
Strategic Report (continued)
Strategic Overview (continued)
Regulatory Change (continued)
UK withdrawal from the EU (continued)
of such vehicles to consumers. This is likely to cause a fall in demand for new vehicles whilst
leading to an underlying strength in used vehicle values.
A number of the Group’s Manufacturer partners have also highlighted a change to the likely
timing of new vehicle consignment stock invoicing to retailers. The Group currently receives
invoices, on which it can reclaim input VAT, from a number of its Manufacturer partners when
a vehicle leaves the assembly line following production regardless of where this may be
located within the EU. The VAT is then reclaimed by the Group whilst the invoice is classified
in trade creditors until the vehicle is sold or a prolonged period expires utilising Manufacturer
funding lines. On leaving the EU and its VAT regime, invoicing to the Group may be delayed
until the vehicle arrives in the UK. A delay in the timing of vehicle invoices to the date a
vehicle arrives in the UK, will reduce the current VAT cash flow advantage currently afforded
to the Group as a result of such invoicing arrangements.
Costs
The automotive retail sector has in recent years faced considerable cost headwinds from a
number of directions. Some of these are now stabilising. Business rates continue to rise and
have put pressure on physical retailing in general. Depreciation and rent levels have risen on
the back of substantial investments in property capacity and Manufacturer standards. This is
now set to stabilise as capital expenditure levels are reducing.
One of the major sources of cost increase has been in the area of employment costs. Labour
markets are generally tight as employment levels have risen to historic high levels and this,
combined with the National Minimum Wage increases, has put upward pressure on costs.
17% of the colleagues employed by the Group are paid at the National Minimum Wage level
and this continues to rise. Pension costs have also risen due to auto-enrolment with the last
in a number of staged increases effective on 1 April 2019.
The Group has had to work very hard to seek to mitigate these cost increases with a number
of successful cost reduction initiatives implemented in the financial year. This will continue to
be a key focus as cost pressures still remain a key factor in determining the Group’s
profitability.
Summary
There are a number of potential threats to the Group’s business model set out above,
however, there are also significant opportunities. The Group’s future success is dependent
upon its ability to continue to innovate in order to meet any changes in customers’ needs and
in response to regulatory change. The Board also needs to continue to ensure capital is
allocated to those activities, locations and Manufacturer partners’ franchises that are best
placed to meet the competitive challenges arising. The Group’s success will ultimately rely on
leveraging its proven strengths, the quality of execution of business ideas, such as cost
saving initiatives, enhancing operational efficiency, marketing campaign delivery and new
business opportunities. The Group’s management and financial strength means it is well
positioned to take advantage of the opportunities arising.
We are proud of our Vision “to deliver an outstanding customer motoring experience through
honesty and trust” and all our colleagues strive to achieve customer service excellence. The
Group’s business success is based on the delivery of this premise.
Vertu Motors plc
11
3.2
(2.7)
13.9
12.7
6.7
Gross
Profit
Change
£’000
(236)
(1,212)
3,363
12,482
14,397
2.9
(3.9)
11.6
8.8
5.1
Like for like
Gross
Profit
change %
(0.6)
(8.4)
2.5
6.4
2.7
Strategic Report (continued)
Financial Overview
The Group delivered an adjusted profit before tax of £23.7m which is ahead of market
expectations. Profit before tax was £25.3m including a receipt of £3.1m VAT income,
following HMRC’s clarification of the treatment of dealer deposit allowances, which also
benefits the wider automotive retail sector. This income has been treated as a non-underlying
item.
The Group’s income statement for the year is summarised below:
Revenue
New
Fleet & Commercial
Used
Aftersales
Total Group Revenue
FY19
£’000
862,824
644,643
1,217,596
257,137
2,982,200
Mix
%
28.9
21.6
40.9
8.6
100.0
836,370
662,520
1,068,931
228,247
2,796,068
29.9
23.7
38.2
8.2
100.0
FY18
£’000
Mix
%
%
change
Like for like
Change %
FY19
£’000
Margin4
%
FY18
£’000
Margin4
%
Gross profit
New
Fleet & Commercial
Used
Aftersales
Total Gross profit
Operating expenses
Operating Profit
Net finance charges
Adjusted PBT
Non-underlying items
Profit before tax
Taxation
Profit after tax
Earnings per share
Ordinary dividends per share
63,832
20,217
102,043
136,013
322,105
(294,714)
27,391
(3,681)
23,710
1,622
25,332
(4,796)
20,536
5.45p
1.60p
7.4
3.1
8.4
43.9
10.8
9.9
7.7
3.2
9.2
44.0
11.0
9.9
64,068
21,429
98,680
123,531
307,708
(277,257)
30,451
(1,898)
28,553
1,894
30,447
(5,766)
24,681
6.31p
1.50p
Total revenues in the year grew by 6.7% (£186.1m) and like-for-like revenues also grew by
5.1%. The Group saw growth in used vehicle selling prices and volumes and in aftersales
revenues, increasing the proportion of total revenues and gross profits generated by these
higher margin operations. These activities contributed 49.4% (2018: 46.4%) of total revenues
and 73.9% (2018: 72.2%) of gross profit and reflects the fact that the business success of the
Group is far more resilient than being solely linked to the new car market. The latter tends to
be more volatile than the Group’s other revenue streams.
Core Group gross profit increased by £8.1m (2.7%), whilst gross margins of 10.8% were
achieved (2018: 11.0%). Margins reduced due to continued increases in vehicle selling
prices, whilst profit per unit increased at a slower rate. Selling price rises were due to
currency pressures in new vehicle channels but also the increasing premium mix of the Group
which also tends to reduce gross margin percentages.
4 Margin in aftersales expressed on internal and external revenue
12
Vertu Motors plc
Strategic Report (continued)
Financial Overview (continued)
The increase in total gross profit of £14.4m was more than offset by operating expense
increases of £17.4m. Although there were upward cost pressures, operating expenses as a
percentage of revenue remained static at 9.9%. The Group acquired the Hughes business on
30 June 2018 and this increased operating expenses relative to gross profit since the trading
period excluded the most profitable month of the year being March.
The table below shows the volume of vehicles sold by the Group:
2019
2018
Variance (%)
Like-for-
like
82,576
34,711
9,521
31,584
75,816
158,392
Acquired
Total
1,868
701
275
264
1,240
3,108
84,444
35,412
9,796
31,848
77,056
161,500
Like-for-
like
78,439
34,694
10,477
34,636
79,807
158,246
Total
79,821
35,412
10,770
34,852
81,034
160,855
Like-
for-like
5.3
-
(9.1)
(8.8)
(5.0)
0.1
Total
5.8
-
(9.0)
(8.6)
(4.9)
0.4
Used retail vehicles
New retail cars
Motability cars
Fleet and Commercial
vehicles
Total New Vehicles
Grand Total
The volumes of vehicles retailed by the Group remained stable in the period with like-for-like
volumes up 0.1%. New retail volumes were static on a like-for-like and total basis with
declines exhibited in the Motability and Fleet car channels reflecting in part the strategies of
certain Manufacturers to reduce supply into the UK in these lower margin channels. These
declines were offset by growth in used car volumes.
New Vehicles
UK private new retail vehicle registrations during the year fell by 5.3% and fleet car
registrations fell by 7.5%. The light commercial vehicle market saw UK registrations down
slightly by 0.8% in the year.
The Group’s changes in new vehicle sales volumes compared to the SMMT UK registration
figures were as follows:
Increase/(decrease) year-on-year
Total
%
Like-for-Like
%
SMMT
Registrations
%
0.0
(9.0)
(17.3)
1.8
0.0
(9.1)
(17.5)
1.6
(5.3)
(3.1)
(7.5)
(0.8)
Volumes:
New retail vehicles
Motability vehicles
Fleet new cars
Commercial new vehicles
The Group saw new retail vehicle volumes decline by 0.0% compared to a UK fall in
registrations of 5.3%. This performance represented significant outperformance and the
gaining of market share in the new retail channel.
The UK Motability new car market declined by 3.1% during the year, due to volume
Manufacturers, in which the Group is heavily represented, reducing supply into this low
margin channel on the back of currency pressures and supply constraints in general. The
Group saw like-for-like Motability vehicle sales decline by 9.1%. Motability continues to be a
major strength of the Group and a key driver of servicing demand since Motability-supplied
vehicles have a three-year servicing plan that retains the vehicle to the supplying retailer for
servicing.
Vertu Motors plc
13
Strategic Report (continued)
Financial Overview (continued)
New Vehicles (continued)
New vehicle average selling prices continue to rise, driven by both Manufacturer price
increases and a growth in the premium mix of the Group’s sales. Selling prices averaged
£17,286 in the year (2018: £16,534) representing a rise of 4.6%. The Group retained £1,398
of gross profit per new unit sold on a like-for-like basis (2018: £1,381) growing this measure
by 1.2% and consequently gross margin percentages on new vehicle retail sales fell from
7.7% in 2018 to 7.4% in the year.
The Group’s like-for-like fleet car sales volumes reduced by 17.5%, reflecting the reduced
fleet appetite of certain of the Group’s volume Manufacturers. The introduction of the WLTP
regulations in the year also had a significant impact on the supply to corporate fleet
customers particularly in the premium segment. Poor supply levels and uncertainty over the
likely impact of revised emission figures under the new testing regime on company vehicle
taxation for end users both impacted volumes.
Commercial vehicle sales represent a major strength of the Group and in the year, the Group
delivered 16,115 commercial vehicles, representing 4.5% of the UK market. Volumes
increased 1.6% on a like-for-like basis, ahead of the market which declined slightly but
remained at historic high levels.
Overall in the fleet and commercial channel, gross profit per unit continue to strengthen from
£582 to £612 per unit with margin percentages stable. This reflected the decline in lower
margin car fleet activity. The Group has further increased its market share of the UK
commercial vehicle markets with its acquisition of Vans Direct in January 2019, which sells
3,500 vans annually.
Used Vehicles
During the year ended 31 December 2018, the used car market in the UK recorded marginally
declining sales of 2.1%5. Lower supply, as a result of declining pre-registration volumes and
a contracting daily rental market in the volume sector, kept wholesale used car market prices
robust. Whilst the premium segment continued to witness high levels of nearly new cars
through high pre-registration and demonstrator activity, residual values were more stable than
the previous year.
During the year the Group increased total used vehicle revenues by 13.9% (like-for-like
11.6%). This was driven by a 5.8% increase in total used volume (like-for-like 5.3%) as well
as an increase in like-for-like average used car selling prices in the year of 6.0% from £13,396
to £14,203. The Group took an increasing share of the used car market since the market
overall witnessed slight declines in activity. The Group saw a continued enhanced
performance from its Premium businesses with significant volume growth in used cars. For
example, in the Group’s Mercedes-Benz and Volkswagen businesses, like-for-like used car
volumes rose 40.4% and 34.4% respectively. The overall used car performance has
benefitted from the Group’s increasing use of technology in stock management and vehicle
pricing together with cost-effective digital and TV marketing.
Like-for-like gross profit generated from the sale of used vehicles increased by £2.5m in the
period (2.5%), and on a per unit basis this equated to £1,213 (2018: £1,247). Margin
percentages fell from 9.3% to 8.5% year-on-year due to a combination of being more price
competitive and a growing mix of premium franchise volumes, which have an inherently lower
gross margin percentage. The Group successfully grew like-for-like gross profit through a
strategy of being price competitive to grow volumes in an uncertain environment with
5 Source: SMMT
Vertu Motors plc
14
Strategic Report (continued)
Financial Overview (continued)
Used Vehicles (continued)
consumer confidence under pressure. Decisions around gross profit per unit are influenced by
ensuring prices are competitive in the market and that total gross profit is optimised through a
balance of margin and volume. Management flex this balance over time taking into account
an assessment of market dynamics.
Aftersales
The Group’s aftersales operations, which comprise servicing, supply of parts, accident repair,
smart repair and forecourt activity, form a vital element of the Group’s business model, since
significantly higher returns are generated from these activities than those achieved in vehicle
sales. While aftersales represents only 8.6% of Group revenues, it accounts for 42.2% of
gross profit. The Group has substantial opportunities to grow the volume of these higher
margin activities due to the growth in the UK vehicle parc since 2010, with almost 39m6 cars
and vans now on the road in the UK. Self-help strategies to increase customer retention,
such as through the sale of service plans and the delivery of excellent customer experiences
aid aftersales performance. The increasing technological complexity of vehicles and
innovation in engine and vehicle management systems, has contributed to an increase in the
mix of warranty related work undertaken in the Group’s service departments and reflects
another strength of the franchise retailer business model.
Rising demand for aftersales has led to a trend for inflation in technician salaries over the past
two years. Technician resource constraints within the Group have eased considerably as
2018 progressed with increased the stability in technician cohort returning. This in part
reflects the enhanced packages offered but also implementation of improved recruitment and
induction processes.
As part of the Group’s ongoing programme of capital investment in its dealership
infrastructure, each refurbishment or redevelopment project undertaken has sought to
improve and maximise the productive capacity of the dealership’s aftersales departments.
Service departments have been extended and restructured to increase the number of ramps
available and to enhance efficiency. The Group is now benefitting from this additional
aftersales capacity and this is helping to drive aftersales profitability growth.
Manufacturers continue to pursue strategies to increase the efficiency of their parts
distribution networks and to seek to reduce the supply push of parts into the retailer networks.
Ford are in the process of changing their parts distribution model nationwide. The change
transfers all stock and other working capital risk to Ford and away from the retailer. Ford
cover the operating costs of running the parts distribution hub and pays tiered handling
charges through an agency agreement to the retailer for operating the hub successfully. As a
consequence of these changes, Group parts revenue in FY20 is expected to decline by
£24.0m and related profitability is expected to decline by £0.8m. Return on investment will be
enhanced due to the reduction in capital employed. Cash inflows of £3.0m were seen in FY19
and a £0.9m further cash inflow is expected in FY20 as a consequence of the reductions in
working capital secured. Ford parts activity transitioning to the new model will be excluded
from the analysis of like-for-like performance in the coming year.
6 Source: SMMT
Vertu Motors plc
15
Strategic Report (continued)
Financial Overview (continued)
Aftersales (continued)
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 other revenue
Like-for-like aftersales revenue
Service gross margin
Parts and other gross margin
Like-for-like aftersales gross margin
2019
£’m
118.5
178.1
296.6
75.4%
22.9%
43.9%
2018
£’m
110.2
167.0
277.2
75.8%
23.2%
44.1%
Growth
%
7.6
6.6
7.0
Like-for-like aftersales gross profits grew by a significant £7.8m (6.4%) in the Year. Service
revenues rose 7.6% on a like-for-like basis, representing the ninth successive year of growth
in this key high margin area and representing a major strategic success achieved through
strong execution. The Group has over 100,000 customers paying monthly for a three-year or
five-year service plan on top of those customers with a Manufacturer service plan and these
provide the bedrock for great retail retention levels. Success has also arisen from better
execution of the vehicle health check process when vehicles are in for service or repair with
resulting required work identified and sold. This has led to a continued increase in average
invoice values in service so aiding revenue and profit growth.
Like-for-like margins were 43.9% (2018: 44.1%) due to the impact of higher salary levels for
technicians and lower efficiency. Inefficient diagnostic and warranty work increased at a
faster rate than more efficient, routine servicing revenues. Parts revenues rose 5.5% on a
like-for-like basis with margins at 21.2% (2018: 21.4%), impacted by the higher mix of
warranty work carried out in service which exhibits lower parts margins.
Strategy and Active Portfolio Management
To deliver long-term value to the Group’s owners, the Group’s strategy is to grow a scaled UK
automotive retail group through acquiring both volume and premium franchised dealerships.
The Board believes that the benefits of scale in the sector are increasing over time. Scale
benefits include: a national on-line and off-line co-ordinated marketing strategy to maximise
the benefits of The Group’s unique national footprint, on-line platforms, scaled contact
centres, franchise management dedication, purchasing efficiencies and access to competitive
consumer finance packages for the Group’s customers. Further consolidation of the sector by
large-scale national brands is likely to continue in the years ahead driven by the trends
outlined in earlier sections.
The Group has substantial headroom for further growth with the vast majority of its
Manufacturer partners, particularly in the Premium space. The Board adopts a rigorous and
disciplined capital allocation process in deciding whether to pursue an acquisition.
Investment evaluations for specific opportunities involve detailed three-year investment
appraisals and utilising set return on investment hurdle rates to ensure appropriate capital
allocation.
During the year, the Board has continued to assess several further acquisition opportunities,
rigorously applying the consistent valuation criteria outlined above. A number of these
opportunities have not resulted in transactions as the valuations sought by the vendors have
not met the Board’s investment return criteria. The addition of further dealerships and new
franchise partners to the Group’s portfolio will enable the Board to deliver its goal of creating a
balanced and diversified portfolio of franchised businesses, so reducing the Group’s exposure
to variations in individual Manufacturers’ performance. Such growth, however, will only be
Vertu Motors plc
16
Strategic Report (continued)
Strategy and Active Portfolio Management (continued)
undertaken at appropriate valuations to ensure future returns. Whilst further opportunities
continue to be assessed, the Group will remain selective and disciplined in its approach,
cognisant that the Board is trusted to spend shareholders’ capital sensibly with the goal of
creating and sustaining long term value.
Six-monthly the Board assesses the Group’s strategic position with each Manufacturer to
confirm the Board’s standpoint on future investment in the franchise. This leads to an Add,
Hold, Reduce or Avoid conclusion which underpins
the Group’s strategic portfolio
management. Property flexibility will have increasing importance as network restructuring
occurs and retail formats and requirements change for the reasons set out in an earlier
section. The Board believes that there will be a trend away from smaller franchise points and
greater concentration in larger, urban representation points. This will yield operational
gearing benefits of increased sales per outlet. Lease length and structures will take on a
greater importance as a result of these changes. Modelling has been undertaken to assess
how network changes may impact the Group’s dealerships going forward and the impact this
may have from a property perspective around the freehold property portfolio and lease
commitments. Clearly this is an important area to manage. Acquisitions and disposals must
also reflect these trends and the Board are mindful of these potential changes when
considering the current portfolio and how it will evolve. In addition, the Board performs a
detailed review of underperforming dealerships within the portfolio on a continual basis,
applying its strategy of “fix, re-franchise, sell or close”. This is an important element of the
capital allocation process providing cash for investment in higher return activities. The Group
has seen the benefit of this during the year.
Portfolio Changes
Reflective of the capital allocation principles outlined above, a good example of the decision
making process relates to the closure in April 2019 of the Group’s Retford Honda dealership
in Nottinghamshire. Three of the other Honda dealerships operated by the Group are within
25 miles of the Retford dealership and this featured in the Board’s assessment regarding the
closure of this profitable site. Modelling assumed that 40% of customers will travel to these
neighbouring dealerships for servicing in future and the Group would retain significant
amounts of the Honda new car business whilst reducing fixed operating costs. The process
of securing the disposal of the now surplus freehold property is underway.
On 30 June 2018 the Group acquired Hughes Group Holdings Limited for total consideration
of £24.0m, of which £1.5m was deferred for 12 months. The assets acquired include goodwill
and other intangibles of £10.9m and freehold property of £6.3m. This acquisition added the
Mercedes-Benz dealerships in Beaconsfield and Aylesbury to the Group’s existing adjacent
market area comprising Reading, Ascot and Slough, as well as introducing the Mercedes-
Benz Commercial Van franchise to the Group’s portfolio for the first time and a further Skoda
outlet to the Group. This is a well-run business, and the Group has retained the operational
management team. Integration into the Group has progressed well and is continuing.
On 31 March 2019 the Group sold its Peugeot business in High Wycombe, which had been
acquired in June 2018 as part of the above Hughes acquisition. This was a sub-scale
operation which was unlikely to make an appropriate return to the Group. Cash generated on
the sale was £0.8m including the freehold property with further working capital savings
anticipated. In addition, subsequent to the year end, the Group disposed of a further surplus
freehold property arising from a previous dealership closure generating cash of £0.6m.
On 7 January 2019 the Group acquired the entire share capital of Vans Direct Ltd, which is a
well-established on-line retailer of new vans (www.vansdirect.co.uk) based in Newport, South
Wales. This acquisition of a successful on-line, van retailing business complements the
Group’s existing on-line capability. Total consideration of £9.6m includes £2.5m in respect of
an earn-out arrangement that will be paid, subject to delivering two years on-target EBITDA
Vertu Motors plc
17
Strategic Report (continued)
Strategy and Active Portfolio Management (continued)
Portfolio Changes (continued)
performance. Net assets on acquisition were £1m (including £0.6m cash) with goodwill and
other intangibles arising on the transaction of £8.6m. The business is now being integrated
identified alongside
into
opportunities for business, process and efficiency improvements.
the wider Group with significant van supply opportunities
Subsequent to these changes, the Group now operates 120 franchised sales outlets, and 3
non-franchised sales outlets, from 104 locations.
Business Model and Competitive Positioning
The Group’s business model has remained consistent for the twelve 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.
This model, and an indicative timeline for its application to a newly acquired dealership, is set
out below:
Vertu Motors plc
18
Strategic Report (continued)
Stakeholder Engagement
Set out below are details of the nature and quality of our key stakeholder relationships:
Stakeholder
Customers
Colleagues
Manufacturers
Finance providers
Suppliers
Investors
Regulators
Why it is important to
engage
The Vertu mission statement is
“to deliver an outstanding
customer motoring experience
through honesty and trust”.
Our colleagues are essential
to support the delivery of the
Group strategy. Ensuring that
the business has the right
Values and culture is of
paramount importance to the
business model.
The Group operates a
franchise business model and
therefore strong ongoing
relationships with
manufacturers are
fundamental to this.
Access to finance is essential
for the Group to execute its
strategy as well as providing
customers with the ability to
finance vehicle purchases.
Group suppliers are essential
to delivery of the Group
business.
Provision of clear and
transparent information is
essential to inform investment
decisions model.
The Group operates in a highly
regulated industry and
therefore it is vital to
achievement of the business
model.
Communities
The Group values the
importance of making a
positive impact and
maintaining its physical
presence in each of its
locations.
Ways we engage
Stakeholders’ key interests
Customer satisfaction surveys
Trust pilot reviews
Social media engagement
Dedicated customer services
team
Focus group meetings
Colleague satisfaction survey
Monthly team briefs
Regular colleague appraisals
Apprenticeship programme
Management development
courses
Masters awards
Monthly financial performance
reporting
Manufacturer conferences
Membership of Manufacturer
Customer service
Value for money
Product knowledge
Product range
Service provision
Pay and employment
conditions
Career opportunities
Training and development
Wellbeing
New car volume targets
Dealership financial
performance
Customer satisfaction
dealer councils
scores
Organisation along franchise lines
Dealership portfolio
Regular review meetings and
reporting
Credit reviews
Budget analysis
Monthly compliance reporting
Compliance reviews
Periodic supplier reviews
Formal feedback and
performance review
Annual General Meetings
Corporate website
Annual report and accounts
RNS announcements
Investor presentations
National Franchised Dealer
Association (NFDA) and Finance
and Leasing Association (FLA)
members
FCA engagement
MOT Club
Compliance Committee
Trading Standards engagement
Community investment
opportunities
management
Financial performance
Strength of financial position
Business planning and
forecasting
Volumes of finance written
Compliance with regulations
Payment practices
Credit worthiness
Long-term relationships
Return on investment –
share price and dividends
Capital allocation
Strategy
Compliance with laws and
regulations
Treating customers fairly
Corporate and social
responsibility
Local sponsorship arrangements
Environmental impact
Vertu Motors plc
19
Strategic Report (continued)
Non-underlying Items
The Group delivered an Adjusted profit before tax of £23.7m. In addition, the following items
have been treated as non-underlying in arriving at Adjusted profit before tax:
Profit on sale of property
Loss on disposal of business
VAT receipt – deposit contributions
Share based payments charge
Amortisation
Total non-underlying items
Year ended 28
February 2019
Year ended 28
February 2018
£’m
-
-
3.1
(0.9)
(0.5)
1.7
£’m
4.1
(0.6)
-
(1.0)
(0.6)
1.9
The VAT receipt followed HMRC issuing a clarification over the treatment of deposit
allowances to the industry. This clarification allows a dealer provided deposit allowance to be
treated as a deduction from the vehicle selling price, thus reducing the output VAT on the
sale. The Group had previously treated such allowances as a cost of sale. The £3.1m
receipt relates to the recovery of overpaid VAT in previous years in respect of these deposit
allowances and has been treated as non-underlying in nature.
Managing Operating Expenses
In an inherently low margin business, it is vital that a disciplined framework of cost control is in
place and that this is a core competency for operational management. The Group’s cost
control framework is built around a highly detailed business planning approach which is
undertaken annually for all dealerships and cost centres. Once the business plans are
established, costs are benchmarked on a monthly basis. During the year, enhanced systems
have been developed to improve this benchmarking and these have now been rolled out to
allow graphical presentation of cost trends and detailed analysis to be quickly undertaken to
improve cost control.
The Group is also focused on driving productivity and efficiency into the business to enhance
cash profits and offset cost headwinds. A committee chaired by the CEO has been in place
for the last four years with a remit to identify and execute productivity gains and these have
borne fruit. Several significant projects are in place to increase operational efficiencies and to
reduce costs in the medium term.
Total operating expenses in the year totalled £294.7m (2018: £277.3m), with like-for-like
operating expenses increasing £11.3m (4%). As a percentage of revenues, operating
expenses remained at 9.9% (2018: 9.9%). This demonstrates the significant focus which the
Group has continued to place upon cost control. The action taken to sell or close
underperforming dealerships removes unproductive cost bases from the business, and the
continued search for productivity improvements has partially mitigated the significant impact
of increases in costs in the year.
The increase in like-for-like operating expenses includes:-
higher (non-cash) depreciation of £0.7m as a consequence of increased capital
investment levels over recent years
£4.2m in respect of variable remuneration related to the increase in volumes and gross
profit generated by the Group
the recruitment of additional parts and service advisor apprentices, £0.3m
the recruitment of additional service colleagues to serve the increasing number of service
customers has increased costs by £2.8m
Vertu Motors plc
20
Strategic Report (continued)
Managing Operating Expenses (continued)
higher vehicle cleaning costs of £1.0m reflecting increased resources required as service
demand grew and increased pay rates following increases in the rate of National
Minimum Wage
Interest charges
Net finance costs in the period totalled £3.7m (2018: £1.9m). Acquisitions in the year led to
an increase in the utilisation of the Group’s bank borrowings and as a consequence bank
interest payable rose by £0.3m. Higher stocking interest payable on new vehicle
consignment stock arose reflecting an increase in interest rates charged by Manufacturers,
reduced free stocking periods offered by Manufacturers as well as significantly increased
vehicle inventory levels as Manufacturers increased supply of new vehicles into the UK in
advance of the UK leaving the EU (which was anticipated at the end of March 2019).
Bank interest payable
Vehicle stocking interest expense
- manufacturer consignment funding
used vehicle stocking loans
-
Pension fund: net interest income
Year ended 28
February 2019
Year ended 28
February 2018
£’m
1.0
2.4
0.5
(0.2)
3.7
£’m
0.7
0.9
0.4
(0.1)
1.9
The Group makes limited use of used vehicle stocking facilities, which it classifies as debt.
As at 28 February 2019 drawings on these facilities were £23.2m, representing just 21.9% of
used vehicle stock value (2018: £12.8m, 14.5%). The utilisation of such facilities by the
Group is at substantially lower levels than the industry peer group.
Managing Pension Costs
The Bristol Street defined benefit pension scheme is closed to future membership and
accrual. During the year the Group cash contributions to the scheme ceased (2018: £0.4m)
so enhancing Free Cash Flow.
This defined benefit scheme showed a surplus as at 28 February 2019 of £6.4m, having
accounted for the estimated impact of Guaranteed Minimum Pension (GMP) equalisation
within the Scheme, which is consistent with the 2018 surplus of £6.6m. The triennial
valuation of the scheme at 5 April 2018 showed the scheme is fully funded on an actuarial
basis.
Managing Tax Payments
Taxation represents one of the single biggest costs to the Group. In the year the Group
expensed £4.8m in corporation tax, £18.7m in Employers’ National Insurance Contributions,
£10.2m in business rates and £0.8m in the apprenticeship levy. These four taxes alone total
£34.5m (2018: £32.1m).
Through its tax strategy the Group seeks to pay its fair share of tax in compliance with UK
legislation. The Group does not engage in any aggressive tax planning and the Group is
classified by HMRC as ‘low risk’. Within this context, the effective rate of corporation tax for
the year was 18.9% (2018: 18.9%). The current year rate is slightly below the standard UK
Corporation Tax rate for the Period and the Board expects that the Group’s tax rate should
remain close to the headline UK Corporation Tax rate in the future as this rate declines to
17% by 2020.
Vertu Motors plc
21
Strategic Report (continued)
Lease Accounting
The Group will adopt the requirements of IFRS16 “Leases” for the first time in FY20. As a
result, a balance sheet asset will be recognised together with a corresponding obligation,
relating to the Group’s use of properties and other assets leased under multi-year
agreements.
Rental payments made under these leases will be accounted for as repayments of the
balance sheet liability, which will include an implied interest element, and the asset
recognised will be depreciated over the remaining lease term.
The balance sheet position for August 2019, the first reporting date after adoption, will be
adjusted for right-of-use assets in the order of £69.5m, with corresponding lease liabilities of
£78.7m. FY20 net profit before tax will decrease by an estimated £0.2m as the pre-IFRS 16
rental charge is replaced by higher depreciation and interest. The depreciation will be
charged on a straight-line basis; whilst interest is charged on the outstanding lease liabilities
and is therefore higher in earlier years and decreases over time. The anticipated impact on
reported profit performance and balance sheet over the next three years is shown below:
Income statement:
EBITDA
- Depreciation
- Operating profit
- Finance expenses
(Decrease)/Increase in net profit
before tax
Balance Sheet
- Right of use assets
-
-
Decrease in net assets
Lease liabilities (current)
Lease liabilities (non-current)
Aug’19
£’000
-
-
-
FY20
£’000
14,681
(11,731)
2,950
(3,190)
FY21
£’000
11,752
(8,944)
2,808
(2,810)
FY22
£’000
10,364
(7,631)
2,733
(2,474)
(240)
(2)
259
69,517
(13,292)
(65,358)
(9,133)
63,907
(11,752)
(61,334)
(9,179)
54,963
(10,364)
(53,780)
(9,181)
47,310
(10,052)
(46,181)
(8,923)
The impact of transition to IFRS16 will have no impact on the Group’s cash flows.
Capital Structure
The Group has a largely ungeared balance sheet with shareholders’ funds of £276.6m (2018:
£264.4m), representing net assets per share of 73.8p (2018: 68.9p) as at 28 February 2019.
The Group has tangible net assets of £168.4m (2018: £174.3m) and the balance sheet is
underpinned by a freehold and long leasehold property portfolio, including assets held for
resale, of £209.1m (2018: £183.8m). The Group has a robust tangible net assets per share
value of 44.9p. The Board believes that a strong balance sheet backed by property assets
used in the business, and where debt taken on is long term in nature rather than short term, is
in the interests of the business’s owners. This approach reduces the Group’s exposure to
interest rate and rent increases and makes the business resilient in a cyclical sector.
The Group finances its operations by a mixture of shareholders’ equity, bank borrowings and
trade credit from suppliers and Manufacturer partners. On 28 February 2019, the Group
extended its five-year acquisition facility with Barclays Bank plc and Royal Bank of Scotland
plc for a further year. This facility, which now matures on 27 February 2024, provides the
Group with £62.0m of committed borrowing capacity with the potential to add a further £15.0
million which is currently uncommitted. £44.1 million of this facility was drawn as at 28
February 2019. Interest is payable on this facility at LIBOR plus a rate between 1.3% and
2.1% depending upon the ratio of net debt to EBITDA. In order to reduce the Group’s
exposure to interest rate risk, the Group uses interest rate swaps over £10.0m of drawings
fixing the underlying LIBOR rate payable at 0.675%, maturing in July 2020 and in respect of
£7.0m of drawings, fixing the underlying LIBOR rate payable at 1.424% maturing in February
Vertu Motors plc
22
Strategic Report (continued)
Capital Structure (continued)
2023. In April 2019 the Group entered into an additional interest rate swap, beginning on 31
July 2019, and covering the period to 27 February 2023, over £5,000,000 of the Group’s
borrowing, swapping LIBOR for a fixed rate of 1.214%. The notional principal amount
covered by the interest rate swap increases to £15,000,000 on 31 July 2020 concurrent with
the end of the Group’s existing £10,000,000 interest rate swap.
In addition to conventional bank borrowing and as is common practice in the automotive retail
sector, the Group also utilises used car stocking loans. These loans with third party banks
are subject to interest at 1.5% above LIBOR and are secured on the related vehicles. The
utilisation of such facilities at 28 February 2019 represents less than 25% of the value of
Group used vehicle inventories and is substantially lower than that of industry peers.
Adjusted net cash, which excludes the balances drawn on these used car stocking loans, is
£22.9m (2018: £32.1m).
The Group operated with positive cash balances for much of the year. Additional facilities are
utilised to fund significant peak working capital requirements following registration plate
change months and quarter ends. The Group has £73m of overdraft and other money market
facilities. On the overdraft, interest is paid on drawn amounts at 1.1% above Base Rate, and
on the money market facilities interest was paid at 1.1% above LIBOR. As at 28 February
2019, the Group had cash balances of £66.5m (2018: £41.7m) and, as a consequence, net
debt of £0.3m (2018: net cash £19.3m). Net debt includes balances drawn on used vehicle
stock facilities of £23.2m (cover of 5.8 times used vehicle stock) (2018: £12.8m).
During the period, the Group comfortably complied with all of the financial covenants in
respect of its borrowing facilities, which include net debt to EBITDA and interest and lease
costs to EBITDAR.
The cash position at 28 February 2019 reflects the seasonal reduction in working capital,
typical of the industry, which arises at the month end prior to a plate change month. As a
result of the normal seasonal movements in working capital, the year-end cash position is
higher than the normalised cash balances throughout the remainder of the year by
approximately £30m.
Capital Allocation
Consideration of capital allocation is central to the Board’s decision making. The Board
proactively believes that the Group’s funding structure should remain conservative and that
the application of the Group’s debt facilities to fund activities or acquisitions which meet the
Group’s hurdle rates for investment, will enhance return on equity and increase cash profits in
the future.
During the year, the Group continued its Share Buyback Programme. To date from 26 July
2017, 20.7m shares, representing 5.2% of the issued share capital, have been purchased for
cancellation for a total of £8.9m. The Board believes that this is an appropriate use of capital
and will continue this Buyback programme as a relevant element of returns to shareholders,
alongside dividend payments. The Share Buy Back Programme will therefore be
recommenced with £3m of further capital allocated to this purpose. The Board will seek to
renew approval to repurchase 10% of the issued share capital at the forthcoming Annual
General Meeting. The Group has previously stated its dividend policy to seek cover of four
times adjusted earnings per share. The Board has amended this policy to three to four times
for FY2019 and future years.
During the year, the Group substantially completed a programme of major capital investment
to increase the capacity in existing dealerships and to meet revised Manufacturer franchise
standards, such spend being in common with most sector participants. The Group’s
allocation of capital to the existing dealership portfolio will significantly decrease in the coming
financial year (see Capital Expenditure section below).
Vertu Motors plc
23
Strategic Report (continued)
Capital Allocation (continued)
As at the date of this report, the Group is actively engaged in the marketing of a number of
surplus freehold assets. The Group sold two freehold properties (including the freehold of
High Wycombe Peugeot noted above) subsequent to 28 February 2019, generating cash
proceeds of £1.3m. This was equivalent to the book value of these property assets.
Impairment Testing
The carrying amounts of the Group’s goodwill and other indefinite life assets, property plant
and equipment are required to be tested annually for indications of impairment. For the
purposes of impairment testing, assets have been grouped together into the smallest group of
assets that generate cash flows from continuing use, independent of cash flows from other
groups of assets.
A number of key assumptions have been used within the assessment of value in use cash
flows including prudent growth rate assumptions both for initial periods of up to five years,
followed by a nil growth assumption into perpetuity. Derived cash flows have been
discounted at the Group’s Weighted Average Cost of Capital of 8%.
The calculations support the carrying value of assets as at 28 February 2019 and as such no
impairment adjustments have been made. To give an indication of the sensitivity of the
calculations to changes in assumptions, a change in growth rates to minus 1% would result in
an impairment of £6.0m whilst an increase in the discount rate applied to 9% would give rise
to an impairment of £5.3m.
Capital Expenditure
The cash impact of capital expenditure and disposals during the year, along with the
anticipated spend in future years, is set out below:
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
property sales
from sale and leaseback and
Net cashflow from capital investment
FY
2017
£'m
5.3
10.4
5.9
2.4
4.8
0.7
29.5
Actual
FY
2018
£'m
4.3
4.3
8.2
3.0
4.9
(0.6)
24.1
(1.0)
28.5
(14.3)
9.8
FY
2019
£'m
9.0
6.7
11.9
1.0
4.2
0.9
33.7
(4.0)
29.7
Estimate
FY
2020
£'m
1.2
3.1
10.2
0.1
4.2
-
18.8
(1.3)
17.5
FY
2021
£'m
1.0
-
4.5
4.5
5.0
-
15.0
-
15.0
On 6 July 2018 the Group acquired the freehold of its Newcastle Vauxhall dealership, which
the Group had previously operated under a lease, whose terms provided for significant future
rental increases over its remaining 14 year term. The consideration for the purchase was
£7.5m including costs and this transaction provides the Group with improved future flexibility
for this property and removes the impact of further rent increases. On 6 April 2019, and
subsequent to the balance sheet date, the Group purchased land and buildings adjacent to its
existing Ford dealership in Shirley, Birmingham for £1m. This will improve the future
operational capacity at this high performing Ford dealership through allowing a significant
expansion in its used car capability.
Vertu Motors plc
24
Strategic Report (continued)
Capital Expenditure (continued)
In the year, major projects were undertaken to increase and improve existing dealership
capacity. These include the ongoing redevelopment of Reading and Slough Mercedes-Benz
dealerships, together with now completed projects at Chesterfield and Guiseley Land Rover.
These developments deliver operations with greater capacity for sales and service and will
underpin the Group’s future profitability and cash generation. The Group capital expenditure
budget for FY2020 also includes £0.8m of investment in electric vehicle charging
infrastructure in the dealership network to meet the Manufacturers’ latest requirements in
preparation for the expansion of electric vehicle sales from 2020 onwards.
The Board is confident that the significant reduction in future capital spend anticipated in
FY2020 will deliver enhanced Free Cash Flow for the business. A very significant proportion
of the dealership estate has now been redeveloped or updated to the latest Manufacturer
standards in recent years.
Managing Working Capital
The Group has generated cash from operating activities of £50.9m from an operating profit of
£29.0m representing excellent cash conversion of profits. The Group saw cash generated
from a reduction in working capital of £18.9m.
The Group has significant levels of working capital in the form of inventory, receivables and
payables. These are subject to significant, yet predictable, seasonal fluctuations which
coincide with plate change months and quarterly Manufacturer new car campaigns. In
addition, Manufacturer new vehicle supply levels and financing changes can also impact
working capital patterns over time. The Group benefits from VAT reclaimed on new vehicle
inventory invoiced from the Manufacturer which has yet to be paid for in cash. As part of their
planning for the UK’s exit from the European Union, a number of Manufacturers have
increased the level of new vehicle consignment stock since 1 January 2019, increasing the
level of inventories invoiced to the Group on which input VAT has been, or will be, reclaimed
(prior to the vehicle liabilities being settled).
New vehicle inventory grew by £39.1m as a consequence of these trends, with a
corresponding £39.8m increase in trade creditors in the year. The Group reduced other
working capital elements such as parts inventory by £4.2m, predominantly due to the change
in the Ford parts distribution model. Trade receivables declined £11.7m due to the reduction
in fleet vehicle sales volumes and post-acquisition reductions in working capital in the Hughes
business purchased on 30 June 2018. Used vehicle inventory declined by £2.3m as the
Group reduced inventory levels in advance of the March plate change more aggressively than
in the prior year.
Dividends
Cash returns to shareholders are an important part of the Company’s capital, allocation
decision making process and are a priority for the Board. During the eight-year period since
the Group commenced payment of dividends to its owners in 2011, over £28.7m has been
returned to the owners of the business through dividends, with the dividend per share
increasing by 320% over the same period. The dividend has been funded from cash
generated from operations, without any negative impact on capital expenditure programmes
or funding of suitable acquisitions.
The Board has proposed an increase in the final dividend for 2019, payable on 29 July 2019
subject to approval at the AGM, to 1.05 pence per share (2018: 0.95p), which, when taken
together with the interim dividend paid in January 2019 of 0.55 pence per share (2018:
0.55p), provides a total dividend for the year of 1.60 pence per share (2018: 1.50p). This
represents an increase of 6.7% and a dividend cover of 3.2 times (2018: 3.9 times) based
upon adjusted earnings per share. The ex-dividend date will be 27 June 2019 and the
associated record date 28 June 2019.
Vertu Motors plc
25
Strategic Report (continued)
Dividends (continued)
The proposed full year dividend of 1.60 pence represents an annualised cash dividend, based
on the number of shares in issue at 28 February 2019, of £6.0m (2018: £5.7m). The
implementation of the Share Buyback Programme has, of course, reduced the cash impact of
dividend increases. The distributable reserves in the parent company balance sheet as at 28
February 2019 were £82.7m (2018: £72.2m). At this level of pay-out, the Board does not
consider there to be any significant risks to the Group’s ability to continue to pay dividends
other than those risks listed in the annual report.
Outlook and Priorities for the Year Ahead
In March and April 2019 (the “Period”), the Group has traded in line with management’s
expectations and trading profit is expected to be in line with the prior year period.
The Group delivered another very strong aftersales performance in the Period with like-for-
like service revenues up 9.3% and high, stable margins generated. This reflects excellent
execution of the Group in retaining customers and the impact of increased physical capacity
and enhanced technical resource levels in the business.
The SMMT has reported a decline in UK private new retail vehicle registrations in the Period
of 4.7%. The Group’s like-for-like new retail volumes declined 13.1% reflecting above market
declines in a number of the Group’s volume Manufacturers. Margins remained stable, whilst
like-for-like gross profit reduced on lower volumes.
March saw a record market for new commercial vehicle sales in the UK reflecting the
underlying strength of the UK economy. UK commercial vehicle registrations were up 9.0% in
the Period with the Group delivering volume growth of 9.6%. Fleet car volumes in the Group
resumed growth being up 9.4% on a like-for-like basis, gaining share as UK fleet car
registrations rose 1.0%. Margins improved and like-for-like gross profit generation moved
forward year on year.
Like-for-like used vehicle volumes were flat in the Period with margins stabilising and showing
an improvement on the preceding six months.
Operating expenses increased in the Period, but at a much reduced rate of growth compared
to previous periods. This reflects strong cost control and actions taken by management.
Stocking finance charges on new vehicles continued to rise in line with trends highlighted
earlier.
There are a number of challenges and uncertainties facing the UK economy and the
automotive retail sector at present and these are outlined in the preceding report. The
priorities for the year ahead are:
maintain excellent financial and capital allocation discipline to ensure that the Group
delivers sustainable profitability, cash flow and returns for shareholders, including
recommencing the Share Buyback Programme from today
execute targeted growth of the dealership portfolio in collaboration with Manufacturer
partners, taking advantage of network change opportunities as they arise
continue investment to improve the Group’s on-line capability, moving towards
seamless, omni-channel sales functionality
closely manage costs
increase customer experience levels and productivity through continued investment in
training, leadership programmes and initiatives to increase colleague retention levels
Vertu Motors plc
26
Strategic Report (continued)
Outlook and Priorities for the Year Ahead (continued)
By executing the fundamentals well and with its strong management team and financial
position, the Group is well placed. The significant investment in the Group’s dealership
portfolio has seen over £85.0m of capital expenditure over the last three years and is now
largely complete. The Board looks to the future from a solid foundation and with cautious
optimism.
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 12, together with
the below:
KPI
Definition
Performance
Risk Factor Link
Underlying EPS
Underlying profit after tax divided by
weighted average number of shares
(note 13)
FY19 – Underlying EPS of 5.10p
FY18 – Underlying EPS of 5.79p
Underlying
PBT
Profit before tax, amortisation, share
based payments charge and
exceptional items
FY19 – Underlying PBT £23.7m
FY18 – Underlying PBT £28.6m
Gross
Margin by channel
Gross profit divided by revenue by
channel
See page 12
Like for Like Used
Volume growth
Number of used vehicles sold in
dealerships with comparable trading
periods in two consecutive years
FY19 – growth of 5.3%
FY18 – decline of (0.5%)
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
FY19 – growth of 0.0%
FY18 – decline of (13.3%)
UK private registrations
FY19 – decline of (5.3%)
FY18 – decline of (7.6%)
FY19 – Retail growth 7.6%
FY18 – Retail growth 4.7%
❶❷❸❹❺
❻❼❽❾❿
⓫⓬⓭⓮
❶❷❸❹❺
❻❼❽❾❿
⓫⓬⓭⓮
❷❸❹❺❻
❾⓮
❷❸❺❻❾
⓬⓭
❷❸❺❾⓬⓮
❷❻❽❾
Online
Growth
Website visits to all Group trading
websites
FY19 – 14.0m visitors
FY18 – 12.9m 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% (FY18: 97%) of our used vehicle
customers would recommend us –
Judge Service
❹❼❽❾
s
I
P
K
l
a
i
c
n
a
n
F
i
s
I
P
K
l
a
n
o
i
t
a
r
e
p
O
/
c
i
g
e
t
a
r
t
S
Vertu Motors plc
27
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 Officer
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 42 and 43. The
statement by the auditors about their reporting responsibilities is given on page 71.
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 COO and made up of members of
senior management including the CFO and Company Secretary. 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
28
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
Building on the Group’s established on-line sales
capability
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
29
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
affected 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
Litigation or breaching
regulations could have a
financial impact or
reputational impact
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 regulatory changes, and
ensure continued customer relationship
❽ Failure to comply with
Health and Safety
(H&S) Policy
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 on-line 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
30
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
.
Vertu Motors plc
31
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 in the Strategic Report. The nature of the
Group’s activities is long-term and the business model is open-ended.
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 2019 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 2022.
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 includes this forecast period.
Financial forecasts were prepared for the three year period to 28 February 2022, 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 29 of the Strategic
Report.
Prudent growth assumptions in both volume and margin, reflecting the risks set out
on pages 29 to 31 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 29 to 31 is primarily to summarise those matters that
could prevent the Group from implementing 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
32
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 29 to 31 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 2022.
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
8 May 2019
Karen Anderson
Chief Financial Officer
8 May 2019
Vertu Motors plc
33
Advisors
Nominated Advisor and Broker
Zeus Capital Limited
82 King Street
Manchester
M2 4WQ
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 South
Orchard Street
Newcastle upon Tyne
NE1 4AZ
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 (resigned 1 March 2019)
Nicola Loose (appointed 1 March 2019)
cosec@vertumotors.com
Registered office
Vertu Motors plc
Vertu House
Fifth Avenue Business Park
Team Valley
Gateshead
NE11 0XA
Vertu Motors plc
34
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 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.
Our Health and Safety Dashboard, which focuses on key risk areas within the Dealerships, is
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 telematics devices are fitted
into the cars of the Group’s younger drivers, as they are our largest risk population, and this
system gives us real time reporting on driver behaviour. The resultant improvement in driver
behaviour continues to have a positive impact on the number of at fault accidents we suffer.
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.
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
35
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.
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
36
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 based on 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 2019
At 28 February 2018
Female
Male
Total
Female
Male
Total
Directors
Group Senior Managers
1
6
6
48
7
54
1
6
5
43
6
49
All Colleagues
1,369
4,222
5,591
1,321
3,997
5,318
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 CEO and CFO produce blogs several times a week and regular news updates
are posted onto a Group wide intranet site. Additionally, the Group produces 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
37
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 also 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 £62,000 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.
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, the Burnley
Pendle and Rossendale Young Carers and JPC Community Farm in Stokesley.
In the local community, the dealerships also support a range of sporting and recreational
initiatives including, the Dunston Silver Band, Worcester U17s football club and the Newcastle
Eagles Basketball Club, plus a variety of youth sports clubs and emerging individual talent
across the country. In the last year dealerships have supported a number of local schools
with funding for sports activities, equipment and events.
Vertu Motors plc
38
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 2019.
Principal Activities
The principal activities of the Group are the sale of new cars, motorcycles and commercial
vehicles and used vehicles, together with related aftersales services. The principal activity 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.
Results and Dividends
The results for the year are set out in the consolidated income statement on page 73. The
Group’s profit from ordinary activities after taxation for the year was £20,536,000 (2018:
£24,681,000).
The dividend paid in the year to 28 February 2019 was £5,657,000 (1.50p per share) (2018:
£5,678,000 (1.45p per share)). A final dividend in respect of the year ended 28 February
2019 of 1.05p per share, is to be proposed at the annual general meeting on 24 July 2019.
The ex-dividend date will be 27 June 2019 and the associated record date 28 June 2019.
The dividend will be paid on 29 July 2019, 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 Companies Acts and related legislation. A Director may be appointed by an
ordinary resolution of the Company’s shareholders following recommendation of the
Nominations Committee as approved by the Board, or following retirement by rotation if the
Director chooses to seek re-election. Alternatively, the Directors may appoint a Director to fill
a vacancy or as an additional Director provided that the individual retires at the next Annual
General Meeting (and offers themselves to election if appropriate).
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). The authorities conferred
on the Directors at the 2018 Annual General Meeting will expire on the date of the 2019
General Meeting. Details of movements in the Company’s share capital are given in note 30
to the consolidated financial statements.
Vertu Motors plc
39
Directors’ Report (continued)
Appointment and Powers of the Company’s Directors (continued)
The Directors who served during the year ended 28 February 2019 and up to the date of this
Annual Report were:
P Jones
R T Forrester
K Lever
P Best
D P Crane (appointed 26 July 2018)
A P Goss (appointed 3 September 2018)
K Anderson (appointed 1 March 2019)
M Sherwin (resigned 1 March 2019)
N Stead (resigned 31 December 2018)
D Crane, A Goss and K Anderson will all retire and offer themselves for election for the first
time at the 2019 Annual General Meeting. K Lever and P Jones will also retire and offer
themselves for re-election. At the date of the AGM, the unexpired term of the service contract
of K Lever and P Jones will be 2 years and 1.5 years respectively. The process to appoint a
new Chairman is underway but is unlikely to be concluded by the AGM.
Directors who held office at 28 February 2019 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
D P Crane
P Best
A P Goss
28 February
2019
Ordinary
Shares
1,750,000
6,959,510
492,796
100,800
161,940
-
-
28 February
2018
Ordinary
Shares
1,522,000
6,929,868
489,253
40,800
n/a
-
-
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. Directors’ and Officers’ insurance has also been
established for all Directors and Officers to provide cover for their reasonable actions on
behalf of the Group.
Vertu Motors plc
40
Directors’ Report (continued)
Share Capital
As at 28 February 2019, the Company’s issued share capital comprised a single class:
ordinary shares of 10 pence each of which 376,605,968 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
2019, the Group continued its Share Buyback Programme under which 8,328,549 ordinary
shares of 10p each were repurchased at an average share price of 41p. At 1 March 2018,
1,815,553 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 2019, 232,767 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. 1,582,786 ordinary shares in
the Company remained held by the Trustee at 28 February 2019.
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 2018 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
In 2018 Biffa plc, of which Mr K Lever is a director and shareholder, acquired SWRnewstar
Limited, which provides the Group’s waste services. There have been no negotiations with
SWRnewstar Limited since this date and Mr Lever will not be involved in any renewal or
review of the Group’s contract with SWRnewstar Limited. None of the other 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 2019.
The Company and members of its Group are party to agreements relating to banking,
properties, employee share plans and motor vehicle franchises which alter or terminate if the
Company or Group Company concerned undergoes a change of control. None is considered
significant in terms of its likely impact on the business of the Group as a whole other than the
motor vehicle franchises.
Vertu Motors plc
41
Directors’ Report (continued)
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 pages 22 to 23 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.
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 38.
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 35.
Political Donations
The Group made no political donations and incurred no political expenditure during the year
(2018: nil).
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,
as far as is reasonably practical, 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.
Vertu Motors plc
42
Directors’ Report (continued)
Statement of Directors' Responsibilities (continued)
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.
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
Karen Anderson
Chief Financial Officer
8 May 2019
Vertu Motors plc
43
Corporate Governance Report
Chairman’s Corporate Governance Statement
I am pleased to present the Board’s Annual Report on Corporate Governance. The
Company’s Values underpin the Group’s strategy and support its commitment to corporate
governance.
As Vertu is an AiM listed company, the Board formally adopted the QCA Corporate
Governance Code (“QCA Code”) with effect from 28 February 2019. The QCA Code provides
a practical framework to assist the Company in developing its governance standards and this
year’s report is the first structured in accordance with the QCA Code principles. The
Company historically reported compliance against the UK Corporate Governance Code and
will no longer do so, although the Board will continue to review the UK Corporate Governance
Code as appropriate for the Company.
As the Chairman, my role is to lead the Board, ensuring it operates effectively and I take
overall responsibility for the governance framework of the Company. I have worked with the
Company Secretary and the Executive Directors to develop this new approach to reporting.
Peter Jones
Non-executive Chairman
The principles of the QCA Code
Principle 1: Establish a strategy and business model which promotes long-term value
for shareholders.
Vertu Motors plc was incorporated in 2006 to acquire franchised motor retail dealerships to
create a large franchised motor retail group in the United Kingdom. The Group’s Vision and
strategy is set out in more detail in the strategic report on pages 5 to 33.
Principle 2: Seek to understand and meet shareholder needs and expectations.
Effective communication with the Company’s shareholders is crucial. The Company’s
advisers collate all feedback received from shareholders following results meetings with the
Executive and these are fed back to the Board. The Board will also instigate contact with
material shareholders to obtain feedback on other proposals from time to time.
The Executive, Chairman and Committee Chairmen are available to shareholders as and
when requested. The Company Secretary can be contacted by shareholders as set out on
page 35 and the Board welcomes input from shareholders.
The Executive Directors contact all material shareholders to give them the opportunity to meet
with the Executive after release of the annual and interim results each year. The Company
also publishes an on-line video of the results presentation to allow other shareholders and
stakeholders to view the results presentation.
Principle 3: Take into account wider stakeholder and social responsibilities and their
implications for long-term success.
There are a number of important stakeholders in the Group, engagement with these
stakeholders is shown on page 19.
Principle 4: Embed effective risk management, considering both opportunities and
threats, throughout the organisation.
The Company operates a risk management framework which is described in more detail on
pages 28 to 31 together with a summary of the principal risks facing the Group.
Principle 5: Maintain the Board as a well-functioning balanced team led by the Chair.
The Board has four Non-executive Directors including the Chairman, together with three
Executive Directors. The Chairman was considered independent on appointment and all of
the other Non-executive Directors are considered to be independent.
Vertu Motors plc
44
Corporate Governance Report (continued)
The principles of the QCA Code (continued)
Principle 5: Maintain the Board as a well-functioning balanced team led by the Chair
(continued).
Any potential conflicts of interest with individual Directors are reviewed annually to ensure that
there is no impact on a director’s judgement. The Board’s committees have non-executive
membership or leadership, where appropriate.
Attendance records are set out on page 50. Each Non-executive Director is expected to
commit a sufficient amount of time to the role to enable them to understand the Group’s
business as well as attend the necessary meetings and assist with certain specific projects.
The time commitment varies for each individual Director but as a minimum 2 days per month
is expected. All Executive Directors are full-time and are ordinarily expected to devote their
full time and attention to the Group.
Principle 6: Ensure that, between them, the Directors have the necessary up-to-date
experience, skills and capabilities.
Details of the Directors are set out on pages 49 and 50 together with their skills and
experience.
The Board includes a mix of sector and non-sector experience and has welcomed Non-
executive Directors from a variety of backgrounds and experience to bolster the executive
and provide sufficient challenge in the boardroom. The Nominations Committee continually
reviews board composition to ensure that the Board provides the Group with the strategic
oversight, vision and governance that it needs. Ordinarily, Non-executive Directors serve for
a maximum of six years.
Ken Lever, Pauline Best and Andrew Goss are considered to be independent and Peter
Jones was considered to be independent on appointment. Ken Lever is the Senior
Independent Director.
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), the Chief
Financial Officer (K Anderson) and the Chief Operating Officer (D P Crane) 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.
The Nominations Committee has carried out an assessment of the skills and experience of
the Directors to identify any areas of weakness that can be addressed through training or
future recruitment to the Board. The Board is currently satisfied that its current composition
includes an appropriate balance of experience and skills including experience in the motor
retail sector, experience with motor manufacturers and other relevant areas.
All Non-executive Directors are asked to visit Group locations to see the operation of the
business day to day.
The Board receives regular briefings on new regulations impacting the Group, which in the
2018-2019 year included General Data Protection Regulations, proposed changes to FCA
regulation and the QCA Code.
All Directors have access to the Company Secretary for advice on their responsibilities or
relevant regulation. The Senior Independent Director also acts as a sounding board for
Directors to ensure they benefit from his experience.
Principle 7: Evaluate Board performance based on clear and relevant objectives,
seeking continuous improvement.
The Board has adopted an annual Board evaluation process to assess how the Board is
performing and to identify any areas of improvement. This evaluation process was initiated in
January 2019 by an anonymous survey by the Board. Survey results have been reviewed to
agree on actions for the coming year. As a result of the 2019 review, the Board has allocated
additional time for strategy discussions, has improved formal reporting from the Board
committees to the Board and has undertaken a review of Board remuneration strategy.
Vertu Motors plc
45
Corporate Governance Report (continued)
The principles of the QCA Code (continued)
Principle 7: Evaluate Board performance based on clear and relevant objectives,
seeking continuous improvement (continued).
This evaluation process will be repeated annually, alongside a review of progress against
previous recommendations.
The Executive Directors have annual appraisals with the CEO appraised by the Chairman, as
well as receiving 360-degree feedback reviews on an annual basis.
The Nominations Committee has responsibility for succession planning for the Board and
recommended Andrew Goss, David Crane and Karen Anderson for appointment in the last
year. Where appropriate the Committee uses external advisers to assist with candidate
identification and benchmarking, including for the work currently ongoing for the appointment
of a new Chairman for the Group.
Succession planning for other senior management roles is conducted by the HR Director and
CEO with input from other members of management as appropriate.
Principle 8: Promote a corporate culture that is based on ethical values and
behaviours.
The Group’s values are embedded into the operation of the Group. All new colleagues
receive a business-card sized copy of the Values on starting with the Group and Values are
reinforced during induction on an ongoing basis. The Vision and Values are displayed in all
Group premises and discussed in monthly meetings. An annual colleague survey asks
whether management and Directors act in accordance with the Values and any identified
shortcomings are acted upon. Results from this survey are also reviewed by the Board and
site visits enable the Directors to assess dealership culture in person.
Acting in accordance with the Values is a material part of appraisals for all colleagues.
The Group has clear policies on its zero-tolerance approach on bribery and corruption, tax
evasion and modern slavery. These are reinforced by annual on-line training for all
colleagues and the Group operates an independent whistleblowing system so that colleagues
can report any issues. Breach of the Group Values is a disciplinary matter where appropriate.
Principle 9: Maintain governance structures and processes that are fit for purpose and
support good decision-making by the Board.
Led by the Chairman, the Board is responsible for generating shareholder value over the
long-term by setting the Group’s strategic direction. Management and the Board has
established delegated authorities and controls to ensure efficient management of the Group’s
operations alongside appropriate control of risk. The matters reserved for the Board ensure
that material transactions are undertaken only after Board review. The Schedule of Matters
Reserved for the Board includes:
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
Full details of the matters reserved for the Board are set out on the Company’s website.
Executive Management have limits on the decisions delegated to them by the Board.
The various Board committees have clear terms of reference that are available on the
Company’s website and reviewed annually, and regularly report back to the Board. Details of
the Board committee responsibilities set out on page 48.
Vertu Motors plc
46
Corporate Governance Report (continued)
The principles of the QCA Code (continued)
Principle 9: Maintain governance structures and processes that are fit for purpose and
support good decision-making by the Board (continued).
Key Areas of Board Focus During the Year
STRATEGY
FINANCIAL
PERFORMANCE
GOVERNANCE
SHAREHOLDER
ENGAGEMENT
RISK
Group strategy review
Business development
Approval of the FY2018
full year results and
FY2019 interim results
Reviewing M&A
opportunities
Approval of annual
business plan and
capital budget
Interim and final
dividend
Review of colleague
engagement survey
Monthly management
accounts and
comparison against
annual business plan
Long range forecast
and funding
requirement planning
Annual review of
key Group risks
and mitigating
controls
Re-appointment of
auditors
Annual General
Meeting
Meetings with key
shareholders on
results roadshows.
Monitoring
Compliance and
Health and Safety
Committees
Adoption of QCA
Code into
reporting.
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
Chief Operations Officer’s Report – update on
industry, ancillary business
performance and manufacturer issues.
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
The Company will continue to review corporate governance reporting to ensure visibility to its
stakeholders and to keep abreast of best practice.
Principle 10: Communicate how the Company is governed and is performing by
maintaining a dialogue with shareholders and other relevant stakeholders.
The Company releases all material announcements through a regulatory news service and on
its website and also encourages shareholders and other stakeholders to sign up to receive
email updates via its website. The Company’s website contains historic annual reports and
announcements as well as other governance-related material.
The 2019 AGM will take place on 24 July 2019. 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
on-line 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.
Vertu Motors plc
47
Corporate Governance Report (continued)
The principles of the QCA Code (continued)
Principle 10: Communicate how the Company is governed and is performing by
maintaining a dialogue with shareholders and other relevant stakeholders (continued).
The table below shows the key committees and their responsibilities.
AUDIT COMMITTEE REMUNERATION
CEO COMMITTEE
COMMITTEE
NOMINATION
COMMITTEE
K Lever (Chair)
N Stead 1
A P Goss 2
PLC BOARD COMMITTEES
P Best (Chair)
N Stead 1
P Jones
K Lever
A P Goss 2
P Jones (Chair)
N Stead 1
K Lever
P Best
A P Goss 2
R T Forrester
(Chair)
D Crane
K Anderson
N Loose
10 Senior
Managers
COMPLIANCE
COMMITTEE
M Sherwin (Chair) 3
K Anderson
N Loose
2 Senior Managers
HEALTH AND
SAFETY
COMMITTEE
4 Senior
Managers
H & S Manager
Financial reporting
Remuneration
Balance of the
Review,
Compliance with
Financial risk
management
Internal control
policy
Board
Incentive plans
Performance
targets
Leadership of
the Group
Director
succession
planning
communication,
delivery and
management of
Group strategy and
day to day
operations
laws and
regulations
(excluding Health &
Safety and
environmental)
Whistleblowing
procedures
Communication with
regulators where
required
Compliance with
Health & Safety
and environmental
law and
regulations
Developing Group
best practices
Members
Delegated
authorities
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 structure
Recommends Re-appointment of
Level and
structure of
Executive
remuneration
Remuneration
policy
Appropriateness
of Remuneration
policy
auditors
Audit tender
Auditors’
remuneration
Monitors
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
Approves
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 regulatory
audit
Health & Safety
policies and
procedures
Health & Safety
audits
Accident statistics
and causes
Appointments
to the Board
Annual business
plan to the Board
Group Vision
Training
Policy change
Remedial or pre-
emptive action
Training
Policy change
Remedial or pre-
emptive action
Independence
of Non-
Executive
Directors
Succession
planning
Performance
against key
performance
indicators, plans
and prior year
Compliance with
Group risk
management
strategy, policy and
procedures
Appropriate retail
finance metrics
Accidents and
near misses
Indicators of non-
compliance with
policy
Any relevant
complaints
Legal and
regulatory
developments
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 authorities
relevant policies
Changes to relevant
Training
programmes
policies and
processes
Training
programmes
Whistleblowing
procedures
1 N Stead served on this committee until resignation from the Plc Board on 31 December 2018.
2 A P Goss served on this committee following appointment to the Plc Board on 3 September 2018.
3 From 1 March 2019, D Crane has taken over chairmanship of the Compliance Committee.
Vertu Motors plc
48
Corporate Governance Report (continued)
Board of Directors
Peter Jones – Non-Executive Chairman
Appointed 1 January 2015
Peter (62) 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.
Peter has significant boardroom experience as well as in depth knowledge and experience of
the sector and acts as Chair of the Nominations Committee.
Ken Lever – Non-Executive Director
Appointed 1 June 2015
Ken (65) 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 Chairman of Biffa plc and
RPS Group plc and a Non-executive Director of Blue Prism plc and Gresham House Strategic
plc. From 2007 to 2013, Ken was a Member of the Accounting Council of the Financial
Reporting Council (formerly the UK Accounting Standards Board).
Ken is highly experienced in public company boardrooms as well as PLC transactions and
also brings technical financial experience to the Board and his role as Chair of the Audit
Committee.
Pauline Best – Non-Executive Director
Appointed 31 May 2016
Pauline (55) is an experienced Human Resources professional who was 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.
Pauline’s human resources and people experience
Remuneration Committee and she also brings that perspective to the Board.
is
invaluable as Chair of
the
Andrew Goss - Non-Executive Director
Appointed 3 September 2018
Andrew (61) brings to the Group 39 years of experience in the automotive sector, having held
senior roles in Citroen UK, Nissan Europe, Lexus (GB), Toyota (GB), Porsche and most
recently Jaguar Land Rover. Between 2010 and 2013 Andrew headed Jaguar Land Rover’s
business in North America as its President and CEO, and between 2013 and 2018 he sat on
the Jaguar Land Rover Board as Global Sales Operations Director. During this period he also
represented Jaguar Land Rover in its joint venture interests in China and in its Spark 44
advertising agency.
Robert Forrester – Chief Executive Officer
Appointed 6 November 2006
Robert (49) 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 was also a member of the Economic Growth Board of the
Confederation of British Industry. Robert founded the Company in 2006.
David Crane – Chief Operations Officer
Appointed 26 July 2018
David (51) was appointed as Commercial Director of the Group in February 2007 having been
previously at Reg Vardy PLC since 1999. He was Commercial Director of Reg Vardy PLC
between 2004 and 2006, until the sale of Reg Vardy PLC to Pendragon PLC in February
2006, at which point he was appointed Group Services Director of Pendragon PLC. Prior to
his employment with Reg Vardy PLC he was Aftersales Operations Manager at Renault UK
between 1991 and 1999. He was appointed to the position of COO in March 2016.
Vertu Motors plc
49
Corporate Governance Report (continued)
Board of Directors (continued)
Karen Anderson – Chief Financial Officer
Appointed 1 March 2019
Karen (47) was the Finance Director of the Group from 2006 to 2010 through its initial
flotation and growth period, and has now stepped back into the Chief Financial Officer role
from her role as Deputy CFO and Company Secretary.
From 2001 to 2006 she was employed by Reg Vardy PLC, where she ultimately held the
position of Group Financial Controller. Karen qualified as a chartered accountant with Arthur
Anderson. She was also a Trustee Director of the Group’s defined benefit pension scheme,
the Bristol Street Pension Scheme from 2007 to 2019.
Karen has a wealth of motor industry finance experience together with detailed knowledge of
the operations of the Group, having helped to found the Company in 2006.
Board Attendance
During the financial year the Board met 9 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
M Sherwin
N Stead 1
K Lever
P Best
D P Crane 2
A P Goss 3
16
16
16
13
16
16
9
7
15
15
16
12
15
15
8
7
-
-
-
3
3
-
-
2
3
1
3
3
3
2
1
2
4
-
-
3
4
4
-
2
4
-
-
3
4
4
-
2
8
-
-
7
8
8
-
4
8
-
-
7
8
8
-
4
1 resigned on 31 December 2018
2 appointed on 26 July 2018
3 appointed on 3 September 2018
Director appointment and re-election
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. 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.
By order of the Board
Nicola Loose
Company Secretary
8 May 2019
Vertu Motors plc
50
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 until his resignation from
the Board on 31 December 2018 and A P Goss following his appointment to the Board on 3
September 2018. The Committee met three times during the financial year and attendance is
shown in the table on page 50.
Only members of the Committee are required to attend Committee meetings, however, other
individuals (such as the Chief Executive, Chief Financial Officer, Chief Operations Officer or
Company Secretary and external auditors) are able to attend by invitation.
The key responsibilities of the Committee are set out in the table on page 48
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
Viability and Going
Concern
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.
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
2019/20; 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 32 and 33.
Vertu Motors plc
51
Corporate Governance Report (continued)
Audit Committee Report (continued)
Significant Issues (continued)
Significant issue Action taken
Pension
benefits
Manufacturer
bonus income
Revenue
recognition
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 2019 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.
The Group’s main product/service lines are the sale of motor vehicles, parts and
aftersales services. The Group operates an income recognition policy that ensures that
revenue is recognised in line with satisfaction of the performance obligation, as set out in
note 1.
Given the complexity of the initial sale of a vehicle which can represent several bundled
products, judgement is involved in isolating the constituent parts of the transaction and
ensuring revenue is recognised appropriately.
The committee reviewed the assumptions set out in the revenue recognition policy and
considered the review performed by the external auditors and confirmed that the
assumptions applied are appropriate.
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 66 to 72.
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 Company Secretary, the Chief
Operations Officer, the Chief Marketing Officer, the HR 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 2019, 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.
Vertu Motors plc
52
Corporate Governance Report (continued)
Audit Committee Report (continued)
External Audit
to
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 eleven financial years. In accordance with ethical standards requirements the audit
partner responsible for the engagement was subject to rotation after each five year period.
February 2018 was the fifth and final year for which Randal Casson was the audit partner. For
the year ended 28 February 2019 the audit partner was Jonathan Greenaway. 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 2019.
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 advisors to undertake such work where their knowledge and
experience is appropriate for the assignment. Where PricewaterhouseCoppers LLP are used
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.
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
8 May 2019
Vertu Motors plc
53
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 2019. This Directors’ Remuneration Report has been prepared on behalf of the
Board by the Remuneration Committee (“the Committee”) in accordance with the Companies Act
2006, as well as with the spirit, principles and, as far as is reasonably practical, the requirements of
the Quoted Companies Alliance Remuneration Guidance, the 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 Directors’ remuneration policy sets out the Company’s intended policy on Directors’
remuneration from 1 March 2019; 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
2019 and is subject to an advisory shareholder vote at this year’s AGM.
The information in the Directors’ Remuneration Report set out on pages 60 to 65 highlighted as being
subject to audit, has been audited by the Group’s auditors.
Remuneration outcomes for the year to 28 February 2019
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 71.9% and 72.9% of basic salary were awarded to Executive
Directors R T Forrester and M Sherwin in respect of profit related bonus and customer outcome
bonus for the year ended 28 February 2019, 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. R T Forrester and M Sherwin received equal proportions of their available annual profit bonus
and customer outcome bonus for the year ended 28 February 2019. The amount of available annual
profit bonus and customer outcome bonus when expressed as a percentage of basic salary varies
between R T Forrester and M Sherwin which generates the 1.0% difference between the 71.9% and
72.9% numbered outlined above. D P Crane was promoted to Executive Director on 26 July 2018
and has been awarded bonuses of 44.1% of basic salary in respect of his employment throughout the
year ended 28 February 2019.
The long-term incentive awards made to R T Forrester and M Sherwin under the Long Term Incentive
Plan (“LTIP”) during the year ended 28 February 2019, detailed later in this report, may vest in May
2021, but are subject to a two year holding period thereafter. 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’).
Options over 200,000 shares were granted to D P Crane on 8 November 2018. Such options were
granted under the Group’s CSOP scheme to a number of the Group’s senior managers and details of
these awards are given later in this report and in note 30 to the consolidated accounts. D P Crane
was not included in the 2018 LTIP issue, hence his inclusion in the CSOP scheme post his
appointment to the PLC Board was considered appropriate by the Remuneration Committee. D P
Crane will be included in any 2019 LTIP and excluded from any 2019 CSOP award.
Key remuneration decisions for the year to 29 February 2020
The Executive Director annual bonus structure agreed for the year commencing 1 March 2019 will
weight 15% - 20% of on-target bonus potential to customer outcome measures. For the year
commencing 1 March 2019, a further £15,000 bonus potential has been made available to Executive
Directors based on specific colleague stability targets. The customer outcome measures include used
vehicle and service customer feedback as well as new vehicle manufacturer measured customer
satisfaction scores. The balance of on-target bonus potential relates to the profitability of the Group.
Profit targets have been updated to reflect the expected results for the coming year.
Vertu Motors plc
54
Remuneration Committee Report (continued)
Annual Statement from the Chairman of the Remuneration Committee (continued)
In developing the remuneration policy for Executive Directors R T Forrester, D P Crane and K
Anderson for the year commencing 1 March 2019, 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, but are considering a change to
the performance targets against which vesting will be measured. Shareholders will be
consulted regarding the proposed changes with the final changes to the LTIP to be proposed
to the Annual General Meeting. The awards for the forthcoming year have yet to be finalised.
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 2019. 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
8 May 2019
Vertu Motors plc
55
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, customer
outcome targets including
manufacturer new car and
service customer
satisfaction (“CSI”) scores
as well as used car Judge
Service results, and
colleague stability targets.
Operation
Maximum potential value
Performance metrics
Paid in 12 equal monthly
instalments during the year.
Currently these consist of the
option of two company cars, 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
experience, 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
2019/20 is 96%, 66% and 143%
of basic salary for K Anderson, D
P Crane and R T Forrester. In all
cases the maximum profit bonus
available represents 200% of the
profit bonus available at the
2019/20 Group profit target. The
maximum customer outcome
bonus and colleague stability
bonus is 100% 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
56
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.
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
Since the 2016 awards,
vesting has been
subject to targets
based on the
achievement of return
on shareholders’ equity
and absolute growth in
the Group’s total
shareholder return
(“TSR”). The metrics
for use from 2019
onwards are under
review.
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 2020 an initial performance target of £24.1m has been applied, and
may be adjusted during the year to reflect the impact of acquisitions and disposals.
The performance target for the LTIP is currently based on both absolute growth in the
Company’s total shareholder return (‘TSR’) and an absolute target for return on equity. A
performance target based on Group profitability is currently being considered for future LTIP
issues.
Vertu Motors plc
57
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 or hourly rate and various 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 Main Board Directors, or members of the
Chief Executive Committee.
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
most recent time the Committee consulted with certain major shareholders is in relation to the
amendments to the LTIP performance criteria proposed for future grants. This consultation is
currently ongoing. Any concerns raised by individual shareholders are considered, and the
Committee also takes into account emerging best practice and guidance from major
institutional shareholders and advisors.
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
58
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 (resigned 1 March 2019)
K. Anderson (appointed 1 March 2019)
D. P. Crane (appointed 26 July 2018)
N. Stead (resigned 31 December 2018)
A. P. Goss (appointed 3 September 2018)
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
1 March 2019
25 July 2018
8 December 2011
31 August 2018
1 June 2015
1 June 2016
Vertu Motors plc
59
Directors’ Remuneration Report
Total 2019/20 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. The element included for multiple year (LTIP Awards) relates
to options which are capable of vesting in the financial year to 29 February 2020. Subsequent
to 28 February 2019, 37% of the September 2016 LTIP awards vested with the remaining
63% lapsing as a result of not satisfying the relevant performance conditions. The vested
options, are subject to a two year holding period. The value included below is based on the
closing share price on 28 February 2019 and the number shares under option which vested in
the financial year to 29 February 2020.
Vertu Motors plc
60
Directors’ Remuneration Report (continued)
Total 2019/20 Remuneration Opportunity (continued)
Each element of remuneration is defined in the table below:
Element
Fixed
Annual Bonus
Multiple Year (LTIP
Awards)
Description
Base salary for the 2019/20 financial year plus pension and benefits.
Annual bonus awards based on adjusted profit before tax, customer
outcome measures and colleague retention targets.
Value of LTIP awards which are capable of vesting in the year ending 29
February 2020. Estimated value based on closing share price at 28
February 2019.
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
61
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 2018 to 28
February 2019 is as follows:
Salary or fees
£’000
Taxable
Benefits4
£’000
Pension
£’000
Bonus
£000
Long Term
Incentive Plan5
£’000
Single total
figure
£’000
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Executive Directors
R T Forrester
M Sherwin
D P Crane1
Non-Executive Directors
P Jones
K Lever
N Stead2
P Best
A P Goss3
315
210
117
70
55
33
40
20
294
210
-
70
55
40
40
-
3
3
2
1
-
1
1
1
3
3
-
1
-
1
1
-
52
35
19
-
-
-
-
-
52
35
-
-
-
-
-
-
246
166
51
227
165
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
616
414
189
71
55
34
41
21
576
413
-
71
55
41
41
-
1.
2.
3.
4.
5.
D P Crane was appointed on 26 July 2018, his remuneration for the year to 28 February 2019 is calculated from the date of appointment to 28 February 2019.
N Stead resigned on 31 December 2018, his fee for the year to 28 February 2019 represents payments made from 1 March 2018 until the date of resignation.
A P Goss was appointed on 3 September 2018, his fee for the year to 28 February 2019 is calculated from the date of appointment to 28 February 2019.
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 2019 lapsed in full at the end of the performance period.
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 £27.5m. The profit bonuses accruing to the
Executive Directors in respect of the year ended 28 February 2019 are shown below:
Performance measure
Actual Performance
Threshold performance
Maximum
Customer Outcome Bonus
Adjusted PBT
£’000
23,706
20,625
35,700
R T Forrester
% Basic salary
payable
61.6%
53.6%
130.0%
M Sherwin
% Basic salary
payable
62.4%
54.3%
130.0%
D P Crane
% Basic salary
payable
35.3%
30.8%
150.0%
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 £56,000
for R T Forrester, £38,000 for M Sherwin and £10,500 for D P Crane 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. For performance below these targets reduced bonuses are payable. R T Forrester
received £51,975, M Sherwin received £35,270 and D P Crane received £10,243 in respect of
such bonuses out of potential maximum customer outcome bonus for the financial year of
£84,000, £57,000 and £15,750 respectively.
Pensions
The Group operates a group personal pension plan for eligible colleagues. R T Forrester, M
Sherwin and D P Crane elected to cease active membership of the plan and receive a payment of
16.5% of current basic salary rather than Company pension contributions during the year ended
28 February 2019.
Vertu Motors plc
62
Directors’ Remuneration Report (continued)
Directors' Share Options
The movement in share options held by the Directors during the year ended 28 February 2019 is
as follows:
Number at 1 March
2018/upon
appointment
798,012
598,510
1,112,837
Exercised in
Year
-
-
-
R T Forrester
M Sherwin 1
D P Crane
1 As M Sherwin resigned on 1 March 2018, it was agreed by the Remuneration Committee that the proportion of shares that vest
should be measured by using the existing performance criteria at the end of the existing performance period in line with the existing
scheme rules and that any such proportion of shares that may be deemed to have vested under this arrangement may be exercised in
accordance with the Scheme rules during the period of twelve months immediately following the date of vesting.
2 37% of the September 2016 LTIP issue vested subsequent to 28 February 2019. The remaining 63% lapsed as a result of not
satisfying the relevant performance criteria. This included options held by R T Forrester, M Sherwin and D P Crane of 182,289,
136,717 and 68,358 respectively.
Lapsed in Year
(205,128)
(153,846)
(76,923)
Granted in Year
262,208
196,656
200,000
Number at 28
February 20192
855,092
641,320
1,235,914
Details of share options granted during the year are as follows:
Scheme Date of Grant
Earliest Exercise
Date
Expiry Date
R T Forrester
M Sherwin
D P Crane
LTIP
LTIP
CSOP
17 July 2018
17 July 2018
8 November 2018
May 20231
May 20231
8 November 2021
17 July 2028
17 July 2028
8 November 2028
Exercise
price
(pence)
Nil
Nil
38p
Market value
on date of
grant (pence)
50.85p
50.85p
38p
Number of
options granted
262,208
196,656
200,000
1. Options may meet performance criteria for vesting in 2021 but are subject to a two year retention period preventing their exercise
until May 2023.
LTIP Options vesting criteria
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 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.
CSOP Options vesting criteria
Options issued on 8 November 2018 may only be exercised if the average share price of the
Company over at least one continuous period of 30 days between 1 August 2021 and 31 July
2022 is above 50.9p and then 100% of the options vest. At an average share price of 44.6p
50% of the options are exercisable. At prices between 44.6p and 50.9p, options will vest on a
straight-line basis between 50% and 100%. At a share price below 44.6p none of the options
are exercisable.
Vertu Motors plc
63
Directors’ Remuneration Report (continued)
Information not subject to audit
Statement of Directors’ Shareholding
The Directors who held office at 28 February 2019 and their connected persons had interests
in the issued share capital of the Company as at 28 February 2019 as follows:
Number of shares held (including
by connected persons)
28 February
2019
6,959,510
492,796
161,940
1,750,000
100,800
-
-
-
28 February
2018
6,929,868
489,253
-
1,522,000
40,800
80,500
-
-
Vested unexercised share
options
28 February
2019
-
-
513,583
-
-
-
-
-
28 February
2018
-
-
-
-
-
-
-
-
R T Forrester
M Sherwin
D Crane
P Jones
K Lever
N Stead
P Best
A Goss
Unvested share options subject
to performance conditions
28 February
2019 1
855,092
641,320
722,3312
-
-
-
-
-
28 February
2018
798,012
598,510
-
-
-
-
-
-
1 37% of the September 2016 LTIP issue vested subsequent to 28 February 2019. The remaining 63% lapsed as a result of not
satisfying the relevant performance criteria. This included options held by R T Forrester, M Sherwin and D P Crane of 182,289,
136,717 and 68,358 respectively.
2 500,000 of the unvested share options are CSOP options subject to vesting criteria relating to share price performance.
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 2019 was 38.6p (28 February 2018:
43.1p) and the range during the financial year was 33.6p to 50.6p (2018: 40.5p to 51.8p).
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 2018 and 28 February 2019 compared with the
average percentage change in each of those components for the employees of the Group.
CEO
Employees
Increase in base
salary
7.1%
3.2%
Change in
benefits
-
-
Change in
bonus
8.4%
2.0%
Vertu Motors plc
64
Directors’ Remuneration Report (continued)
Relative Importance of Spend on Pay
The table below sets out the total spend on pay in the years ended 28 February 2018 and 28
February 2019 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 2019
£’000
192,024
5,657
Spend in the
year ended 28
February 2018
£’000
179,271
5,678
%
change
7.1%
(0.4%)
Shareholders’ Vote on Remuneration at the 2019 AGM
2018 Directors’ Remuneration Report
Votes cast in favour
Votes cast against
Total votes cast in favour or against
Votes withheld
Number
195,555,453
18,279
195,573,732
587,634
Proportion of
votes cast (%)
99.99
0.01
100
Implementation of Remuneration Policy for the year ending 28 February 2020
The annual salaries and fees to be paid to Directors in the year ending 28 February 2020 are
set out in the table below, together with any increase expressed as a percentage.
R T Forrester
M Sherwin 2
K Anderson 2
D P Crane 1
P Jones
K Lever
N Stead
P Best
A P Goss 1
Annual Salary/fees
29 February
2020
£’000
315
-
170
250
70
55
-
40
40
28 February
2019
£’000
315
210
-
200
70
55
33
40
40
Increase
%
-
N/A
N/A
25%
-
-
-
-
-
1 D P Crane was appointed on 26 July 2018 and A P Goss was appointed on 3 September
2018. The annual salary for the year ended 28 February 2019 shown above is based on the
full year equivalent of the amount they received while in office.
2 M Sherwin resigned on 1 March 2019 and therefore there is no comparative date for the
year ending 29 February 2020. On the same date K Anderson was appointed and therefore
there is no comparative data for the financial year ended 28 February 2019.
The Committee intends to grant options to Executive Directors R T Forrester, K Anderson and
D P Crane under the LTIP in 2019/20. It is intended that such options will be £Nil cost options
over a value of shares subject to a maximum of 125% of basic salary. The awards for the
forthcoming year are yet to be finalised.
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 (until 31 December 2018), P Jones, K Lever and A Goss (from 3
September 2018).
Vertu Motors plc
65
Independent Auditors’ Report to the members of Vertu
Motors plc
Report on the audit of the financial statements
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 2019 and of the Group’s profit and cash flows for
the year then ended;
the Group financial statements have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European
Union;
the Company financial statements have been properly prepared in accordance with
(United Kingdom
United Kingdom Generally Accepted Accounting Practice
Accounting Standards, comprising FRS 102 “The Financial Reporting Standard
applicable in the UK and Republic of Ireland”, and applicable law); and
the financial statements have been prepared in accordance with the requirements of
the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Financial
Statements (the “Annual Report”), which comprise: the consolidated and company balance
sheets as at 28 February 2019; the consolidated income statements and statements of
comprehensive income, the consolidated statement of cash flows, and the consolidated and
company statements 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 (2018: £2,400,000),
based on 0.08% of revenue.
Overall company materiality: £2,280,000 (2018: £2,280,000),
based on 1% of total assets.
Three full scope audit components have been identified,
alongside the company.
This approach provides coverage of 75% of the group's
revenue.
Carrying value of goodwill (Group).
Valuation of non-new vehicle inventory (Group).
Manufacturer bonus income (Group).
Valuation of pension scheme liabilities (Group)
Carrying value of investments (Company).
Vertu Motors plc
66
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,
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 valuations can
vary depending upon a number of external
factors, and as a
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.
result
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
to
performance
historical
historical forecasts to assess accuracy in the
budget process;
Assessed the appropriateness of CGU’s
used for Goodwill purposes;
Key
discount
revenues and costs;
We performed sensitivity analysis on the
forecasts,
including prudent downside
performance scenarios to assess headroom.
Key observations
We are satisfied with management’s
conclusion not to impair goodwill based on
the audit evidence obtained.
for example
forecast
inputs are assessed,
inflation and
rates,
To address the risk of valuation on non-new
vehicle inventory we have:
performed detailed 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;
used forward looking market data to assess
current
trading
expected
conditions.
future
and
Vertu Motors plc
67
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
Key audit matter
How our audit addressed the key audit
matter
Key observations
We are satisfied based on the procedures
performed that the valuation of non-new
vehicle stock held at 28 February 2019 was
reasonable based on the audit evidence
received.
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.
in
this
risk
bonus
respect of
To address
manufacturer bonus income, we have:
Agreed manufacturer
income
recognised in the year to February 2019
through to supporting documentation and
receipts where
post year end cash
applicable;
compared prior year judgements to the final
commercial income received
Key observations
We are satisfied with the recognition of
manufacturer bonus 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
68
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
Company
are
of which
Carrying value of investments
The Company has significant investments in
respect of acquisitions made across various
subsidiaries. The recoverable amount of the
subsidiary is impacted by various factors, a
of
number
management’s control, which could affect
whether results are in line with expectations.
Where a subsidiary has been subject to poor
historical performance, there is a risk around
the recoverability of this investment. There is
judgement
inherent uncertainty and
in
forecasting future cash
flows which are
above more recent results, and therefore this
is a particularly judgmental area of the audit.
outside
inputs are assessed,
To address this risk, we have done the
following:
Assessed the Group’s budgeting procedures
as a basis for value in use calculations;
Compared
to
performance
historical
historical forecasts to assess accuracy in the
budget process;
Key
discount
revenues and costs;
We performed sensitivity analysis on the
including prudent downside
forecasts,
performance scenarios to assess headroom.
Key observations
We are satisfied with management’s
conclusion not to impair investments based
on the audit evidence obtained.
for example
forecast
inflation and
rates,
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 with geographically disbursed dealership locations. Much of the
day to day accounting function is performed at these individual dealerships, 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 were 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
69
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 (2018: £2,400,000).
£2,280,000 (2018: £2,280,000).
How we
determined it
Rationale for
benchmark
applied
0.08% of revenue.
1% of total assets.
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.
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.
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.
We agreed with the Audit Committee that we would report to them misstatements identified
during our audit above £120,000 (Group audit) (2018: £120,000) and £114,000 (Company
audit) (2018: £114,000) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Going concern
ISAs (UK) require us to report to you when:
the Directors’ use of the going concern basis of accounting in the preparation of the financial
statements is not appropriate; or
the Directors have not disclosed in the financial statements any identified material
uncertainties that may cast significant doubt about the Group’s and Company’s ability to
continue to adopt the going concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for issue.
We have nothing to report in respect of the above matters.
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. For
example, the terms on which the United Kingdom may withdraw from the European Union are
not clear, and it is difficult to evaluate all of the potential implications on the group’s trade,
customers, suppliers and the wider economy.
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.
Vertu Motors plc
70
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
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.
Based on the responsibilities described above and our work undertaken in the course of the
audit, ISAs (UK) require us also to report certain opinions and matters as described below
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 2019 is
consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
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.
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
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.
Vertu Motors plc
71
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
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
Jonathan Greenaway (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
8 May 2019
Vertu Motors plc
72
Consolidated Income Statement
For the year ended 28 February 2019
Underlying
items 2019
Non-
underlying
items 2019
(Note 8)
Total 2019 Underlying
items 2018
Total 2018
Non-
underlying
items 2018
(Note 8)
Note
£’000
£’000
£’000
£’000
£’000
£’000
Revenue
Cost of sales
Gross profit
2,982,200
(2,660,095)
322,105
Operating expenses
6
(294,714)
Operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit for the year
attributable to equity
holders
Basic earnings per
share (p)
Diluted earnings per
share (p)
11
11
12
13
13
-
-
-
1,622
1,622
-
-
1,622
(326)
2,982,200
2,796,068
(2,660,095)
(2,488,360)
322,105
307,708
(293,092)
(277,257)
29,013
30,451
276
(3,957)
25,332
(4,796)
66
(1,964)
28,553
(5,885)
-
-
-
1,894
1,894
-
-
1,894
119
2,796,068
(2,488,360)
307,708
(275,363)
32,345
66
(1,964)
30,447
(5,766)
27,391
276
(3,957)
23,710
(4,470)
19,240
1,296
20,536
22,668
2,013
24,681
5.45
5.37
6.31
6.21
Vertu Motors plc
73
Consolidated Statement of Comprehensive Income
For the year ended 28 February 2019
Note
2019
£’000
2018
£’000
Profit for the year
20,536
24,681
Other comprehensive (expense) / income
Items that will not be reclassified to profit or loss:
Actuarial (losses) / gains on retirement benefit
obligations
Deferred tax relating to actuarial losses / (gains) 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 (expense) / income for the
year, net of tax
29
29
31
31
(269)
46
67
(11)
(167)
4,422
(752)
(93)
18
3,595
Total comprehensive income for the year
attributable to equity holders
20,369
28,276
Vertu Motors plc
74
Consolidated Balance Sheet
As at 28 February 2019
Non-current assets
Goodwill and other indefinite life assets
Other intangible assets
Retirement benefit asset
Property, plant and equipment
Derivative financial instruments
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
Contract liabilities
Borrowings
Total current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred consideration
Deferred income tax liabilities
Contract liabilities
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
26
20
22
23
21
24
17
28
25
25
26
17
27
28
30
30
30
31
30
30
2019
£’000
112,182
2,599
6,430
224,818
44
346,073
618,675
62,940
66,519
748,134
1,324
749,458
2018
£’000
94,381
1,316
6,551
198,004
-
300,252
558,386
66,272
41,709
666,367
2,449
668,816
1,095,531
969,068
(717,204)
(1,500)
(3,742)
(9,590)
(23,166)
(755,202)
(43,600)
(69)
(2,600)
(7,594)
(9,823)
(63,686)
(654,956)
-
(3,304)
(8,448)
(12,811)
(679,519)
(9,585)
(92)
(100)
(6,477)
(8,877)
(25,131)
(818,888)
(704,650)
276,643
264,418
37,661
124,939
10,645
(19)
(602)
2,066
101,953
38,552
124,934
10,645
(75)
(690)
1,175
89,877
Shareholders’ equity
276,643
264,418
These financial statements on pages 73 to 115 have been approved for issue by the Board of
Directors on 8 May 2019:
Robert Forrester
Chief Executive
Vertu Motors plc
Karen Anderson
Chief Financial Officer
75
Consolidated Cash Flow Statement
For the year ended 28 February 2019
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, overdrafts
and borrowings 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
Proceeds from borrowings
Repayment of borrowings
Sale of treasury shares
Repurchase of own shares
Dividends paid to equity holders
Net cash inflow / (outflow) from financing
activities
Net increase 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
2019
£’000
29,013
(520)
543
10,722
-
18,861
904
59,523
157
(4,860)
99
(3,953)
50,966
2018
£’000
32,345
(3,529)
614
9,714
513
(13,332)
954
27,279
350
(6,468)
14
(2,321)
18,854
17
(31,514)
(1,181)
(9,008)
(150)
(24,681)
-
-
3,964
(61,389)
44,455
-
64
(3,629)
(5,657)
35,233
24,810
41,709
66,519
(4,346)
(411)
(19,802)
1,528
14,150
165
(9,897)
4,140
(166)
62
(5,451)
(5,678)
(7,093)
1,864
39,845
41,709
32
32
32
23
Vertu Motors plc
76
Consolidated Statement of Changes in Equity
For the year ended 28 February 2019
Ordinary
share
capital
£’000
Share
premium
£’000
Other
reserve
£’000
Hedging
reserve
£’000
Treasury
share
reserve
£’000
Capital
redemption
reserve
£’000
Retained
earnings
£’000
Shareholders’
equity
£’000
As at 1 March 2018
Profit for the year
Actuarial losses on
retirement benefit
obligations
Tax on items taken
directly to equity
Fair value gains
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
2019
38,552
124,934
10,645
-
-
-
-
-
-
-
(891)
-
-
-
-
-
-
-
5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(75)
-
-
(11)
67
56
-
-
-
-
-
(690)
-
-
-
-
-
88
-
-
-
-
1,175
-
89,877
20,536
264,418
20,536
-
-
-
-
-
-
891
-
-
(269)
(269)
46
-
35
67
20,313
(29)
20,369
64
(3,455)
(3,455)
-
(5,657)
-
(5,657)
904
904
37,661
124,939
10,645
(19)
(602)
2,066
101,953
276,643
The repurchase of own shares in the year was made pursuant to the share buyback
programme announced on 26 July 2017 and under the authority renewed at the AGM on 25
July 2018.
Ordinary shares to the value of £3,455,000 had been repurchased in the year ended 28
February 2019 (2018: £5,441,000), of which £Nil was unpaid at 28 February 2019 (2018:
£174,000). 8,918,549 of repurchased shares were cancelled in the year ended 28 February
2019 and accordingly, the nominal value of these shares has been transferred to the capital
redemption reserve.
The other reserve is a merger reserve, arising from shares issued for shares as consideration
to the former shareholders of acquired companies.
Vertu Motors plc
77
Consolidated Statement of Changes in Equity (continued)
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
Vertu Motors plc
78
Notes to the Consolidated Financial Statements
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 Directors consider the forecast future cash flows to offset the net current liabilities
position at 28 February 2019, as set out in the Viability Statement on pages 32 to 33.
The consolidated financial statements include the results of all subsidiaries owned by Vertu
Motors plc listed on pages 122 to 123 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 2019 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 2019 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 2019 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 2019 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 (Property) Limited
All Car Parts Limited
Hughes Group Holdings Limited
Vertu Motors (Chingford) Limited
Vertu Motors (Property 2) Limited
Vertu Motors (Continental) Limited
Macklin Property Limited
Tyne Tees Finance Limited
Grantham Motor Company Limited
Albert Farnell Limited
Sigma Holdings Limited
The subsidiaries which have taken an exemption from the preparation of individual accounts
in respect of the year ended 28 February 2019 by virtue of s394A of Companies Act 2006 are:
Gordon Lamb Limited
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
Gordon Lamb Holdings 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
Vertu Motors plc
79
Notes to the Consolidated Financial Statements (continued)
1.
Accounting Policies (continued)
Basis of preparation (continued)
Aceparts Limited
Why Pay More For Cars Limited
Hillendale Group Limited
Hillendale LR Limited
International Concessionaires Limited
SHG Holdings Limited
Blacks Autos Limited
Easy Vehicle Finance Limited
The Taxi Centre Limited
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
2019
Amendments to IFRS 2 – Classification and Measurement of Share-based payment
Transactions
Annual Improvements to IFRS Standards 2014-2016 cycle
Amendments to IAS 40 – Transfers to Investment Property
IFRIC 22 – Foreign Currency Transactions and Advance Consideration
IFRS 15 ‘Revenue from contracts with customers’
IFRS 15, ‘Revenue from contracts with customers’ became effective for all accounting periods
commencing on or after 1 January 2018 and was initially applied by the Group on 1 March
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 Group applied IFRS 15 using the cumulative
effect method and thus comparatives have not been restated. There have been no changes
to the timing and/or measurement of revenue across the Group’s revenue streams identified.
IFRS 9 ‘Financial Instruments’
IFRS 9, ‘Financial Instruments’ became effective for the Group on 1 March 2018. 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
were 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.
There has been no impact on the classification and measurement of financial liabilities on
transition to IFRS 9. Comparative figures have not been restated.
New standards and interpretations issued but not yet effective and not early adopted
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’s minimum lease payments
under non-cancellable operating leases amounted to £99.2m, on an undiscounted basis, as
disclosed in note 36.
Vertu Motors plc
80
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 16 ‘Leases’
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 2019. Due to the
volume and age of the leases in the Group’s property portfolio, the modified retrospective
approach will be applied with additional disclosure of any financial information required to
increase comparability of financial periods given where necessary.
Impact
On transition, the Group will recognise a right of use (ROU) asset with an estimated value of
£75.6m, a corresponding lease liability of £84.6m, and a subsequent adjustment to opening
reserves of £8.9m. While net cashflows will be unchanged under IFRS 16, the IAS 17 rental
charge is replaced by depreciation and interest charges. The expected impact on adjusted
profit before tax in future financial periods based on current leases in place is as follows:
Expected increase depreciation
Expected increase in finance expenses
Expected decrease in rental expenses
Adjusted profit before tax impact
Other standards
2020
£’000
(11,731)
(3,190)
14,681
(240)
2021
£’000
(8,944)
(2,810)
11,752
(2)
2022
£’000
(7,631)
(2,474)
10,364
259
Annual Improvements to IFRS Standards 2015-2017 cycle – various standards
IFRS 9 – Financial Instruments – Amendments to prepayment features with negative
compensation and modifications of financial liabilities
IAS 19 – Employee Benefits – Amendments to plan amendments, curtailments and
settlements
IFRIC 2 – Uncertainty over Income Tax Treatments
IAS 28 – Investments in Associates and Joint Ventures – Amendments to Long-term interest
in associates and joint ventures
IAS 1 – Presentation of Financial Statements – Amendments to the definition of material
IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors - Amendments to
the definition of material
IFRS 3 – Business Combinations – Amendments to clarify the definition of a business
IFRS 17 – Insurance contracts
IFRS 10 – Consolidated Financial Statements – Amendments to the sale or contribution of
assets between an investor and its associate or joint venture
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.
Vertu Motors plc
81
Notes to the Consolidated Financial Statements (continued)
1.
Accounting Policies (continued)
Basis of consolidation (continued)
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.
Intangible assets, for example, franchise relationships, brands 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, such as franchise relationships, are tested annually for impairment. Other intangible
assets arising as part of a business combination are typically allocated a useful life of
between ten and 20 years.
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 ‘non-underlying items’.
Vertu Motors plc
82
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
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.
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.
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.
Vertu Motors plc
83
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Impairment of financial and non-financial assets (continued)
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.
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 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.
Vertu Motors plc
84
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
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:
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.
Sale of motor vehicles, parts and aftersales services
Sales of vehicles and parts are recognised when the customer has control of the goods. In
practice this means that revenue is recognised when vehicles or parts are invoiced and
physically despatched or when a service has been undertaken. Manufacturer incentives (e.g.
free service when purchasing a vehicle) do not impact the Group as the legal obligation lies
with the manufacturer. This treatment has not changed following the adoption of IFRS 15.
Sale of warranty products
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 was the case under IAS 18.
Vertu Motors plc
85
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Revenue (continued)
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. This treatment remains unchanged following the adoption of IFRS 15.
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.
Disaggregation of revenue:
The table below shows revenue disaggregated by the Group’s main product/service lines:
Aftersales
Used cars
New car retail & Motability
New fleet & commercial
Total
Timing of revenue recognition:
Recognised at a point in time
Recognised over time
Total
2019
£’000
257,137
1,217,596
862,824
644,643
2,982,200
2018
£’000
228,247
1,068,931
836,370
662,520
2,796,068
2,977,583
4,617
2,982,200
2,792,278
3,790
2,796,068
All of the Group’s revenue was generated in the United Kingdom.
Contract liabilities
Where the Group receives consideration for a sale in advance of the performance obligation
being satisfied, the amount received is held on the balance sheet within contract liabilities and
released to the income statement in line with the relevant revenue recognition policy.
Contract liabilities are presented separately on the balance sheet. Consequently, £8,448,000
has been reclassified from Trade and Other Payables to Current Contract Liabilities at 28
February 2018.
Pension costs
The Group operates a trust based defined benefit pension scheme, Bristol Street Pension
Scheme, one section of which was closed to new entrants and future accrual in May 2003,
with another closed to new entrants on 23 July 2003 and future accrual in October 2013.
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
Vertu Motors plc
86
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Pension costs (continued)
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.
Non-underlying items
Non-underlying items are presented separately in the Income Statement to enhance
comparability of trading performance between periods. Details of the items included as non-
underlying are provided in note 8.
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 Officer,
who is responsible for allocating resources and assessing performance of the operating
segment.
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.
Vertu Motors plc
87
Notes to the Consolidated Financial Statements (continued)
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.
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
Contract liabilities
Trade and other payables (excluding
social security and other taxes)
At 28 February 2019
Less than one
year
£’000
1,811
23,166
9,590
Between two
and five years
£’000
46,812
-
9,823
Total
£’000
48,623
23,166
19,413
711,267
745,834
-
56,635
711,267
802,469
Vertu Motors plc
88
Notes to the Consolidated Financial Statements (continued)
2. Financial risk management (continued)
Liquidity Risk (continued)
Bank borrowings
Other borrowings
Contract liabilities
Trade and other payables (excluding
social security and other taxes)
At 28 February 2018
Less than one
year
£’000
205
12,811
8,448
Between two
and five years
£’000
10,821
-
8,877
Total
£’000
11,026
12,811
17,325
649,137
670,601
-
19,698
649,137
690,299
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 debt of £247,000 at 28 February 2019 as disclosed in note 32 to the
consolidated financial statements (2018: net cash of £19,313,000).
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
approximates 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.
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.
Vertu Motors plc
89
Notes to the Consolidated Financial Statements (continued)
4. Critical accounting estimates and judgements (continued)
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 2019, the Group 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
2019 are provided in note 29.
Revenue recognition
The Group’s main product/service lines are the sale of motor vehicles, parts and aftersales
services. The Group operates an income recognition policy that ensures that revenue is
recognised in line with satisfaction of the performance obligation, as set out in note 1.
Given the complexity of the initial sale of a vehicle which can represent several bundled
products, judgement is involved in isolating the component parts of the transaction and
ensuring revenue is recognised appropriately.
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 Officer. The CODM receives information about
the Group overall and therefore there is one operating segment.
The CODM assesses the performance of the operating segment based on a measure of both
revenue and gross margin. However, to increase transparency, the Group has included
below an additional voluntary disclosure analysing revenue and gross margin within the
reportable segment.
Year ended 28 February 2019
Aftersales1
Used cars
New car retail and Motability
New fleet and commercial
Year ended 28 February 2018
Aftersales1
Used cars
New car retail and Motability
New fleet and commercial
Revenue
£’m
257.1
1,217.6
862.8
644.7
2,982.2
Revenue
£’m
228.2
1,068.9
836.5
662.5
Revenue
Mix
%
8.6
40.9
28.9
21.6
100.0
Revenue
Mix
%
8.2
38.2
29.9
23.7
Gross
Margin
£’m
Gross Margin
Mix
%
136.0
102.0
63.9
20.2
322.1
Gross
Margin2
£’m
123.5
98.7
64.1
21.4
42.2
31.7
19.8
6.3
100.0
Gross Margin
Mix
%
40.1
32.1
20.8
7.0
100.0
Gross
Margin
%
43.9
8.4
7.4
3.1
10.8
Gross
Margin
%
44.0
9.2
7.7
3.2
11.0
2,796.1
100.0
307.7
1 Margin in aftersales expressed on internal and external turnover. A significant part of the role of the service
department is to support the vehicle sales department and therefore this is considered to be an important measure
for the purpose of monitoring the departmental performance
2 Following a growth in the Group’s Smart Repair operations the expense in respect of this department’s productive
colleague cost has been reclassified from operating expenses to cost of sales, in order to align the treatment with
cost reporting throughout the rest of the Group’s aftersales operations. The effect of this reclassification is a
decrease in operating expenses and an increase in cost of sales of £1,184,000 for the year ended 28 February 2018.
90
Vertu Motors plc
Notes to the Consolidated Financial Statements (continued)
6. Underlying operating expenses
Wages and salaries excluding share based payments
charge (note 9)
Depreciation on property, plant and equipment
(note 18)
(Profit) / loss 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
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
8. Non-underlying items
Share based payments charge
Amortisation
Profit on disposal of freehold property
Loss on disposal of Boston Volkswagen
VAT reclaim on dealer deposit contributions
Tax on non-underlying items above
2019
£’000
2018
£’000
167,119
156,117
10,722
9,714
(520)
11,581
312
4,933
225
(175)
-
100,517
294,714
2019
£’000
220
5
225
2019
£’000
(904)
(543)
-
-
3,069
1,622
(326)
1,296
10
10,588
401
4,384
222
(259)
513
95,567
277,257
2018
£’000
217
5
222
2018
£’000
(1,031)
(614)
4,149
(610)
-
1,894
119
2,013
Non-underlying items are presented separately in the Income Statement to enhance
comparability of trading performance between periods.
During the Period the Group received VAT repayments of £3.1m resulting from a
retrospective claim following HMRC’s clarification of the VAT treatment of dealer deposit
contributions.
Vertu Motors plc
91
Notes to the Consolidated Financial Statements (continued)
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
2019
£’000
169,546
18,712
3,766
192,024
904
192,928
2019
£’000
167,119
24,905
904
192,928
2018
£’000
159,247
17,289
2,735
179,271
1,031
180,302
2018
£’000
156,117
23,154
1,031
180,302
Details of the remuneration of the Directors who served during the year from 1 March 2018 to
28 February 2019 and the year from 1 March 2017 to 28 February 2018 are given in the
Directors’ Remuneration Report on pages 60 to 65.
10. Average monthly number of people employed (including Directors)
2019
Number
2,018
2,069
1,285
5,372
2019
£’000
99
177
276
(1,063)
(2,894)
(3,957)
2019
£’000
5,439
(483)
4,956
(137)
(12)
(11)
(160)
4,796
2018
Number
2,020
1,986
1,265
5,271
2018
£’000
18
48
66
(673)
(1,291)
(1,964)
2018
£’000
5,861
(283)
5,578
512
(254)
(70)
188
5,766
Sales and distribution
Service, parts and accident repair centres
Administration
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
Vertu Motors plc
92
Notes to the Consolidated Financial Statements (continued)
12. Taxation (continued)
Profit before taxation from continuing operations
Profit before taxation multiplied by the rate of
corporation tax in the UK of 19% (2018: 19.1%)
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
2019
£’000
25,332
2018
£’000
30,447
4,813
5,815
527
213
(11)
(146)
(105)
(495)
499
174
(70)
(63)
(52)
(537)
4,796
5,766
The Group’s effective rate of tax is 18.93% (2018: 18.94%).
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.
Underlying earnings per share is calculated by dividing underlying earnings attributable to
equity shareholders by the weighted average number of ordinary shares in issue during the
year.
Profit attributable to equity shareholders
Non-underlying items (note 8)
Underlying 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 underlying earnings per share
Diluted underlying earnings per share
2019
£’000
20,536
(1,296)
2018
£’000
24,681
(2,013)
19,240
22,668
377,024
5,512
391,317
5,948
382,536
397,265
5.45p
5.37p
5.10p
5.03p
6.31p
6.21p
5.79p
5.71p
Vertu Motors plc
93
Notes to the Consolidated Financial Statements (continued)
14. Dividends per share
Dividends of £5,657,000 were paid in the year to 28 February 2019 (2018: £5,678,000), 1.50p
per share (2018: 1.45p). A final dividend in respect of the year ended 28 February 2019 of
1.05p per share, is to be proposed at the annual general meeting on 24 July 2019. The ex-
dividend date will be 27 June 2019 and the associated record date 28 June 2019. This
dividend will be paid, subject to shareholder approval, on 29 July 2019 and these financial
statements do not reflect this final dividend payable.
15. Goodwill and other indefinite life assets
2019
Cost
At 1 March 2018
Acquisitions (note 17)
At 28 February 2019
Accumulated impairment charges
At 1 March 2018 and at 28
February 2019
Net Book Value
At 28 February 2019
At 28 February 2018
2018
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
Impairment
Goodwill
£’000
74,303
11,583
85,886
Franchise
relationships
£’000
20,192
6,218
26,410
Total
£’000
94,495
17,801
112,296
(114)
-
(114)
85,772
74,189
26,410
20,192
112,182
94,381
Goodwill
£’000
74,403
(100)
74,303
-
(114)
(114)
Franchise
relationships
£’000
20,192
-
20,192
-
-
-
74,189
74,403
20,192
20,192
Total
£’000
94,595
(100)
94,495
-
(114)
(114)
94,381
94,595
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 2019 and 28 February 2018, the acquired goodwill and other
indefinite life assets were tested for impairment. During the year ended 28 February 2019, no
impairment charges were incurred (2018: £114,000) 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.
Vertu Motors plc
94
Notes to the Consolidated Financial Statements (continued)
15. Goodwill and other indefinite life assets (continued)
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
Hughes Group Limited
Vans Direct 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
Hughes Group Limited
2019
£’000
13,860
13,279
5,159
7,842
4,415
11,879
5,754
4,706
6,877
12,001
85,772
2019
£’000
7,373
1,749
2,595
1,497
3,771
3,207
6,218
26,410
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
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 typically between 0% and 3% is assumed for the first five years
depending on past performance of the CGU, 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% (2018: 8%) is applied.
Sensitivity analysis has been performed on the impairment test based on two potential
scenarios with the following results:
If the growth rate in the first five years reduces to -1%, the Group would incur a
goodwill impairment charge of £6.0m.
If the pre-tax WACC increased to 9%, the Group would incur a goodwill impairment
charge of £5.3m.
Vertu Motors plc
95
Notes to the Consolidated Financial Statements (continued)
16. Other intangible assets
2019
Cost
At 1 March 2018
Acquisitions (note 17)
Additions
Disposals
At 28 February 2019
Accumulated amortisation
At 1 March 2018
Charge for the year
Disposals
At 28 February 2019
Net book value at 28 February 2019
Net book value at 28 February 2018
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
Earn out
£’000
Software
costs
£’000
Brand
£’000
Customer
relationships
£’000
400
-
-
(400)
-
400
-
(400)
-
-
-
2,116
5
150
(1)
2,270
1,147
453
(1)
1,599
671
969
-
541
-
-
541
-
-
-
-
541
-
855
1,130
-
-
1,985
508
90
-
598
1,387
347
Total
£’000
3,371
1,676
150
(401)
4,796
2,055
543
(401)
2,197
2,599
1,316
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
Total
£’000
4,719
412
(1,760)
3,371
3,201
614
(1,760)
2,055
1,316
1,518
The earn out disposed of in the year to 28 February 2019 relates to an acquisition in a
previous accounting period for which the earn out period is now complete.
17. Business combinations
a) Acquisition of Hughes Group Holdings Limited
On 30 June 2018, the Group acquired the entire issued share capital of Hughes Group
Holdings Limited (“Hughes Group”) which operated Mercedes-Benz, Jeep, SKODA and
Peugeot outlets in Buckinghamshire. The consideration payable on completion amounted to
£22,452,000 and was settled by a £20,000,000 drawing on the Group’s bank loan facility and
the Group’s existing cash resources. A further £1,500,000 deferred consideration is payable
after one year. The excess of consideration over the provisional fair value of net assets
acquired was £10,924,000 of which £6,218,000 has been allocated to franchise relationships.
The financial statements of Hughes of Beaconsfield Limited for the year ended 31 December
2017 showed revenues of £150,996,000 and profit before taxation of £2,146,000.
Vertu Motors plc
96
Notes to the Consolidated Financial Statements (continued)
17. Business combinations (continued)
Details of the fair value of the net assets acquired and goodwill arising are as follows:
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings
Corporation tax
Deferred tax
Net assets acquired
Goodwill
Consideration
- Deferred consideration
- Consideration payable on completion
Total consideration
Fair
Value
£’000
6,218
6,894
27,060
7,696
(783)
(24,772)
(1,750)
(23)
(1,294)
19,246
4,706
23,952
1,500
22,452
23,952
Acquisition related costs (included in the consolidated income statement for the year ended
28 February 2019) totalled £257,000 in respect of this acquisition.
The goodwill arising on acquisition is attributable to the anticipated profitability of the
distribution of the Group’s products through the acquired dealerships.
If the acquisition of Hughes of Beaconsfield Limited had occurred on 1 March 2018, Group
revenues would have been £53,762,000 higher and Group profit attributable to equity holders
would have been £83,000 higher.
On 31 March 2019, the Group sold the Peugeot business acquired with this acquisition. The
transaction generated cash proceeds equal to the net book value and fair value of the assets
sold shown within the total assets acquired above.
b) Acquisition of Vans Direct Limited
On 4 January 2019, the Group acquired the entire issued share capital of Vans Direct Limited
(“Vans Direct”), a well-established on-line retailer of new vans. The estimated consideration
payable on completion amounted to £7,108,000 and was settled by a £7,100,000 drawing on
the Group’s bank loan facility and the Group’s existing cash resources. A further amount of
deferred consideration may be payable in two years as a result of an earn-out arrangement
subject to Vans Direct achieving specific performance criteria over a period of two financial
years following acquisition. The maximum payable under this arrangement, which has been
recognised as deferred consideration at 28 February 2019, is £2,500,000. The excess of
consideration over the provisional fair value of net assets acquired was £8,548,000 of which
£1,130,000 has been allocated to customer relationships and £541,000 has been allocated to
the brand. The financial statements of Vans Direct Limited for the 9 month period ended 31
July 2018 showed revenues of £24,563,000 and profit before taxation of £492,000.
Vertu Motors plc
97
Notes to the Consolidated Financial Statements (continued)
17. Business combinations (continued)
Details of the estimated fair value of the net assets acquired and goodwill arising are as
follows:
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Corporation tax
Deferred tax
Net assets acquired
Goodwill
Consideration
- Deferred consideration
- Consideration payable on completion
Total consideration
Fair
Value
£’000
1,676
166
591
702
579
(803)
(163)
(17)
2,731
6,877
9,608
2,500
7,108
9,608
Acquisition related costs (included in the consolidated income statement for the year ended
28 February 2019) totalled £189,000 in respect of this acquisition.
The goodwill arising on acquisition is attributable to the workforce and anticipated profitability
of the acquired business.
If the acquisition of Vans Direct Limited had occurred on 1 March 2018, Group revenues
would have been £27,852,000 higher and Group profit attributable to equity holders would
have been £706,000 higher.
Summary of acquisitions’ cash consideration
Hughes Group
Vans Direct
Deferred consideration
Cash
Consideration
£’000
22,452
7,108
29,560
(Cash)/
Borrowings
Acquired
£’000
2,533
(579)
1,954
Total
£’000
24,985
6,529
31,514
Deferred consideration outstanding at 28 February 2019:
Vans Direct Limited
Hughes Group
Other businesses*
Total deferred consideration
Maturity of deferred consideration:
Payable in less than 12 months
Payable in greater than 12 months
Total deferred consideration
Vertu Motors plc
98
2019
£’000
2,500
1,500
100
4,100
2019
£’000
1,500
2,600
4,100
2018
£’000
-
-
100
100
2018
£’000
-
100
100
Notes to the Consolidated Financial Statements (continued)
17. Business combinations (continued)
*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.
Summary of the fair value of net assets acquired
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings
Corporation tax
Deferred tax
Net assets acquired
18. Property, plant and equipment
2019
Cost
At 1 March 2018
Acquisitions (note 17)
Additions
Disposals
Reclassifications
Transfer to assets held for sale (note 21)
At 28 February 2019
Accumulated depreciation
At 1 March 2018
Depreciation charge
Disposals
Reclassifications
At 28 February 2019
Net Book Value
At 28 February 2019
Hughes
Group
£’000
6,218
6,894
27,060
7,696
(783)
(24,772)
(1,750)
(23)
(1,294)
19,246
Vans
Direct
£’000
1,676
166
591
702
579
(803)
-
(162)
(18)
2,731
Total
£’000
7,894
7,060
27,651
8,398
(204)
(25,575)
(1,750)
(185)
(1,312)
21,977
Freehold
and long
leasehold
land and
buildings*
£’000
200,728
6,264
26,853
(1,612)
719
(750)
232,202
19,339
4,814
(181)
485
24,457
Short
leasehold
land and
buildings*
£’000
Vehicles
and
machinery
£’000
Furniture,
Fittings
and
equipment
£’000
Total
£’000
5,421
-
23
(66)
-
-
5,378
1,941
776
(50)
-
2,667
8,460
114
2,552
(815)
125
-
10,436
3,921
1,757
(792)
19
4,905
15,206 229,815
7,060
32,795
(4,406)
-
(750)
16,498 264,514
682
3,367
(1,913)
(844)
-
6,610
3,375
(1,814)
(504)
7,667
31,811
10,722
(2,837)
-
39,696
207,745
2,711
5,531
8,831 224,818
At 28 February 2018
181,389
3,480
4,539
8,596 198,004
* Includes leasehold improvements and franchise standards property improvements.
Depreciation expense of £10,722,000 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 (2018: £10,900,000) have been
granted to manufacturer partners as security against consignment stocking lines.
Vertu Motors plc
99
650
(57)
1,312
(380)
2,165
(557)
6,803
(1,210)
Notes to the Consolidated Financial Statements (continued)
18. Property, plant and equipment (continued)
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
19. Subsidiary undertakings
A list of subsidiary undertakings (ordinary shares 100% owned and incorporated within the
United Kingdom), as at 28 February 2019 and 28 February 2018 is given in note 7 of the
Vertu Motors plc company only financial statements (pages 122 to 123).
20. Inventories
New vehicle stock
Used vehicle stock
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
2019
£’000
470,288
105,710
29,727
12,950
618,675
2019
£’000
46,401
378,954
44,933
470,288
2018
£’000
417,939
88,304
36,237
15,906
558,386
2018
£’000
26,732
339,425
51,782
417,939
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
£2,745,070,000 (2018: £2,565,965,000).
Vertu Motors plc
100
650
(57)
1,312
(380)
2,165
6,803
(557)
(1,210)
Notes to the Consolidated Financial Statements (continued)
21. Property assets held for resale
At beginning of year
Transfers in from freehold property
Property sold during the year
At end of year
2019
£’000
2,449
750
(1,875)
1,324
2018
£’000
-
2,449
-
2,449
The transfer in from freehold property during year ended 28 February 2019 relates to a
dealership property in High Wycombe which was sold on 29 March 2019 realising cash
proceeds equal to net book value and fair value of £750,000.
Also held for sale is a dealership property in Barnsley which the Group disposed of the trade
and assets in respect of during the year ended 28 February 2017. The property was sold on
26 March 2019 realising cash proceeds of £624,000 and a profit on disposal of £50,000.
Properties sold during the year relates to surplus land at Newcastle under Lyme realising
cash proceeds of £2,000,000 and a £630,000 profit on disposal together with two domestic
properties in Slough realising cash proceeds of £591,000 and £86,000 profit on disposal.
22. Trade and other receivables
Trade receivables
Less provision for impairment of trade receivables
Trade receivables (net)
Other receivables
Prepayments and accrued income
2019
£’000
36,219
(1,272)
34,947
19,459
8,534
62,940
2018
£’000
44,235
(1,224)
43,011
15,723
7,538
66,272
The Group measures the loss allowance for trade receivables at an amount equal to the
lifetime expected credit losses (“ECL”). The ECL on trade receivables are measured using a
provision matrix by reference to past default experience, current financial position of the
debtors and any known specific factors.
There has been no change in significant assumptions or the method of estimation of ECL
during the current financial year.
The following table shows the profile of the Group’s trade receivables.
Current
£’000
29,314
36,079
31-60
£’000
4,334
3,761
61-90
£’000
1,123
1,187
2019
2018
Trade
Receivables
£’000
36,219
44,235
Loss
Allowance
£’000
(1,272)
(1,224)
>90
£’000
1,448
3,208
Trade
Receivables
(net)
£’000
34,947
43,011
As at 28 February 2019, trade receivables of £836,000 (2018: £1,988,000) were past due but
not impaired. The ageing of these receivables are all within 3 months overdue.
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
2019
£’000
1,224
421
(16)
(357)
1,272
2018
£’000
1,704
239
(90)
(629)
1,224
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 loss allowance account are generally written off when there is no expectation of
recovering additional cash.
Vertu Motors plc
101
Notes to the Consolidated Financial Statements (continued)
22. Trade and other receivables (continued)
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
Other payables
2019
£’000
66,519
2019
£’000
639,577
5,937
45,690
26,000
717,204
2018
£’000
41,709
2018
£’000
577,384
5,819
48,753
23,000
654,956
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 £11,971,000 (2018: £12,557,000) in respect of outstanding service plans.
25. Borrowings
Current
Other borrowings
Non-current
Bank borrowings
Borrowings are repayable as follows:
6 months or less
6-12 months
1-5 years
2019
£’000
23,166
23,166
43,600
43,600
66,766
2019
£’000
23,166
-
43,600
66,766
2018
£’000
12,811
12,811
9,585
9,585
22,396
2018
£’000
12,811
-
9,585
22,396
The fair value of borrowings equals their carrying amount, as the impact of discounting is not
significant. Borrowings are designated under IFRS 9 as financial liabilities carried at
amortised cost. This is unchanged from IAS 39.
Vertu Motors plc
102
Notes to the Consolidated Financial Statements (continued)
25. Borrowings (continued)
a) Bank borrowings
The Group’s Revolving Credit Facility (“RCF”) was available throughout the year ended 28
February 2019. At 1 March 2018 the Group had a committed RCF available of £40,000,000,
as well as having access to an additional £30,000,000 uncommitted “accordion” facility. On 15
August 2018, £22m of the uncommitted accordion facility was transferred to the RCF facility.
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 2019.
£44,100,000 of the RCF was drawn at 28 February 2019.
Also on 18 August 2018, the accordion facility was extended by £7m, increasing to £15m.
On 5 March 2019, the Group exercised the option to extend these facilities for a further 12
months such that the facilities are now in place until 27 February 2024.
On 31 July 2017, the Group entered into a three year interest rate swap in respect of the first
£10,000,000 of the RCF facility, swapping LIBOR for a fixed interest rate of 0.675%. On 6
August 2018, the Group entered into a five year interest rate swap in respect of a further
£7,000,000 of this facility, swapping LIBOR for a fixed interest rate of 1.424%.
Subsequent to the year end, the Group entered into a further interest rate swap in respect of
£5,000,000 of the Group’s borrowings which increased the value of hedged borrowings to
£22,000,000 overall. Further details are provided in note 38.
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.
The overdraft and CMML facilities were renewed for a further 12 months on 28 March 2019.
During the year ended 28 February 2019 the facilities applicable during peak months was
£68,000,000. 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 2019:
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
2019
£’000
5,000
68,000
17,900
11,834
102,734
2018
£’000
5,000
68,000
30,000
17,189
120,189
* Excludes the uncommitted “accordion” facility referred to above.
b)
Other borrowings
Other borrowings represent amounts repayable under used car stocking facilities. These
loans are subject to interest at 1.5% above LIBOR and are secured against the related
vehicles.
At 1 March 2018 this was a £30,000,000 facility available to the Group, increasing to
£35,000,000 during the year ended 28 February 2019.
c) Financial assets
The Group’s financial assets on which floating interest is receivable comprise cash deposits
and cash in hand of £66,519,000 (2018: £41,709,000). The cash deposits comprise deposits
placed on money market at call, seven day and cash deposited with counterparty banks at
commercially negotiated interest rates.
The IFRS 9 classification for trade and other receivables and cash and cash equivalents is
amortised cost. Under IAS 39 these financial assets were classified as loans and
receivables. Their fair value is deemed to be equal to their carrying value.
Vertu Motors plc
103
Notes to the Consolidated Financial Statements (continued)
26. Derivative financial instruments
Interest rate swap contracts
The fair values of derivative financial instruments used for hedging purposes are disclosed
below:
£10m Interest rate swap – cash flow hedges
£7m Interest rate swap – cash flow hedges
Total derivates designated as hedging instruments
Non-current borrowings subject to hedging instruments
Total derivative financial liabilities
2019
£’000
44
(69)
(25)
2019
£’000
17,000
17,000
2018
£’000
(92)
-
(92)
2018
£’000
10,000
10,000
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 2019 totalled £17,000,000 (2018: £10,000,000). Their combined fair value was a
liability of £25,000 (2018: £92,000).
At 28 February 2019, 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 2019
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)
2019
£’000
2018
£’000
(1,882)
(1,737)
9,476
7,594
8,214
6,477
The gross movement on the Group’s deferred income tax account is as follows:
2019
At 1 March 2018
Credited to income statement (note 12)
(Credited) / charged directly to equity
Acquisitions (note 17)
At 28 February 2019
Deferred tax
liabilities
£’000
8,214
(4)
(46)
1,312
9,476
Deferred tax
assets
£’000
(1,737)
(156)
11
-
(1,882)
Net
£’000
6,477
(160)
(35)
1,312
7,594
Vertu Motors plc
104
Net
£’000
5,555
188
734
6,477
Total
£’000
6,477
(160)
1,312
(35)
7,594
Total
£’000
5,555
188
734
6,477
Notes to the Consolidated Financial Statements (continued)
27. Deferred income tax liabilities (continued)
2018
At 1 March 2017
Charged / (credited) to income statement
(note 12)
Charged / (credited) directly to equity
At 28 February 2018
Deferred tax
liabilities
£’000
7,059
Deferred tax
assets
£’000
(1,504)
403
752
8,214
(215)
(18)
(1,737)
2019
2018
At 1 March 2018
(Credited) / charged to income
statement (note 12)
Acquisitions
(Credited) / charged directly to equity
At 28 February 2019
(204)
255
-
1,977
Accelerated tax
depreciation
£’000
1,926
Share
based
payments Pensions
£’000
1,114
£’000
(642)
Other
timing
differences
£’000
4,079
25
-
(46)
1,093
112
1,057
11
5,259
(93)
-
-
(735)
Share
based
Accelerated tax
depreciation
£’000
2,472
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
At 1 March 2017
(Credited) / charged to income
statement (note 12)
Charged / (credited) directly to equity
At 28 February 2018
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. Contract liabilities
At 1 March 2018
Created in the year
Recognised as income during the year
At 28 February 2019
Current
Non-current
Warranty policies
Warranty
policies
£’000
15,561
6,877
(4,617)
17,821
7,998
9,823
17,821
Free
servicing
£’000
1,764
463
(635)
1,592
1,592
-
1,592
Total
£’000
17,325
7,340
(5,252)
19,413
9,590
9,823
19,413
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 a contract liability at the fair value
allocated to the warranty product at the point of sale and is released to the income statement
on a straight-line basis over the life of each warranty policy.
Vertu Motors plc
105
Notes to the Consolidated Financial Statements (continued)
28. Contract liabilities (continued)
Free servicing
The Group recognises a contract liability in respect of a “free servicing” arrangement whereby
the first or subsequent service of a vehicle post sale is provided free of charge to a customer,
as part of the initial consideration for the vehicle sale. An element of the initial consideration
which is estimated to relate to the service is recognised as a contract liability, and is released
to the income statement when the service has been undertaken.
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.
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.
Regular employer contributions to the scheme (including contributions paid in respect of
scheme expenses) for the year commencing 1 March 2019 are estimated to be £Nil.
The last actuarial valuation upon which the IAS 19 (Revised) figures and disclosures have
been based was as at 5 April 2018. 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
Liability driven Investment Funds
Other
Market Value Market Value
28 February
2018
£’000
20,796
32,434
448
53,678
28 February
2019
£’000
18,857
33,137
413
52,407
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 2018 was 2.7%. This is equal to the
discount rate used in the calculation of the net interest income for the year ended 28 February
2019.
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
Vertu Motors plc
106
2019
£’000
52,407
(45,977)
6,430
2018
£’000
53,678
(47,127)
6,551
Notes to the Consolidated Financial Statements (continued)
29. Retirement benefit asset (continued)
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
Employer contributions
Benefits paid
Expenses recognised in the income statement
Closing fair value of scheme assets
2019
£’000
53,678
1,416
(196)
63
(2,462)
(92)
52,407
2018
£’000
55,108
1,304
(981)
380
(1,950)
(183)
53,678
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 losses / (gains)
Benefits paid
Closing fair value of scheme liabilities
2019
£’000
47,127
1,239
73
(2,462)
45,977
2018
£’000
53,224
1,256
(5,403)
(1,950)
47,127
Scheme liabilities are stated after accounting for an estimated £205,000 cost in respect of
GMP equalisation.
The amounts recognised in the income statement in the year are as follows:
Expenses
Net interest income (note 11)
Total (income) / expense included in income statement
The actual returns on Scheme assets in the year are as follows:
Expected return on scheme assets
Actuarial losses
2019
£’000
92
(177)
(85)
2019
£’000
1,416
(196)
1,220
2018
£’000
183
(48)
135
2018
£’000
1,304
(981)
323
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
2019
2.65%
3.20%
2.20%
2018
2.70%
3.20%
2.20%
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
Vertu Motors plc
107
2019
22
23
2018
22
23
Notes to the Consolidated Financial Statements (continued)
29. Retirement benefit asset (continued)
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
2019
23
25
2018
23
25
Amounts recognised in the Consolidated Statement of Comprehensive Income in the year are
as follows:
Actuarial (losses) / gains
Related deferred tax liability (note 27)
Total, included within retained earnings
2019
£’000
(269)
46
(223)
2018
£’000
4,422
(752)
3,670
Cumulative actuarial losses
(1,452)
(1,229)
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
Approximate impact on
current surplus:
£’000
1,707
(1,876)
(1,361)
1,493
(1,793)
1,636
30. Ordinary share capital, share premium, other reserves, treasury share reserve
and capital redemption reserve
2019
At 1 March 2018
Issuance of treasury shares
in satisfaction of exercised
share options
Cancellation of repurchased
shares
At 28 February 2019
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
383,709
38,552
124,934
10,645
(690)
1,175 174,616
233
-
5
-
88
-
93
(8,919)
375,023
(891)
37,661
-
124,939
-
10,645
-
(602)
891
-
2,066 174,709
The other reserve is a merger reserve, arising from shares issued for shares, as
consideration to the former shareholders of acquired businesses.
Vertu Motors plc
108
Notes to the Consolidated Financial Statements (continued)
30. Ordinary share capital, share premium, other reserves, treasury share reserve
and capital redemption reserve (continued)
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
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 73, a share based payments
charge of £904,000 (2018: £1,031,000) 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
21 May 2008
28 Nov 2011*
12 Jun 2012*
24 Oct 2012*
20 Aug 2013*
5 Nov 2014
13 Nov 2015
16 Jun 2015
5 Sep 2016**
13 Oct 2016
23 Jun 2017
6 Nov 2017
2 Jul 2018
17 Jul 2018
8 Nov 2018
Type
CSOP
CSOP
CSOP
CSOP
LTIP
CSOP
CSOP
LTIP
LTIP
CSOP
LTIP
CSOP
CSOP
LTIP
CSOP
Granted /
Outstanding at 28
February 2019
No of shares
-
589,230
2,400,000
2,050,000
53,583
-
1,785,000
-
1,811,594
2,080,000
1,893,940
2,915,000
3,600,000
458,864
5,450,000
25,087,211
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
Exercise
price
44.00p
26.00p
27.50p
39.25p
0.00p
57.50p
74.50p
0.00p
0.00p
45.38p
0.00p
45.00p
49.60p
0.00p
38.00p
Date from
which
exercisable
-
28 Nov 2014
30 Aug 2015
30 Aug 2015
20 Aug 2016
-
16 Nov 2018
-
5 Sep 2021
13 Oct 2018
23 Jun 2022
7 Nov 2020
2 Jul 2021
17 Jul 2023
8 Nov 2021
Expiry date
-
28 Nov 2021
12 Jun 2022
24 Oct 2022
20 Aug 2023
-
16 Nov 2025
-
5 Sep 2026
13 Oct 2026
23 Jun 2027
7 Nov 2027
2 Jul 2028
17 Jul 2028
8 Nov 2028
* Vested
**37% of these awards vested subsequent to 28 February 2019. The remaining 63% lapsed as a result of not
satisfying the relevant performance criteria.
Vertu Motors plc
109
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)
Movements in the number of share options outstanding are as follows:
At beginning of year
Granted
Forfeited
Lapsed
Exercised
At end of year
2019
No of share
options
19,257,265
9,608,864
(1,287,930)
(2,258,205)
(232,783)
25,087,211
2018
No of share
options
20,024,179
5,402,576
(1,524,400)
(4,470,090)
(175,000)
19,257,265
The weighted average share price during the year was 43.0p (2018: 45.6p). The weighted
average fair value of CSOP options granted during the year, determined using the Black-
Scholes model was 6p (2018: 8p) per option.
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
20%
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 46p (2018: 44p) 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
20%
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.
Vertu Motors plc
110
Notes to the Consolidated Financial Statements (continued)
30. Ordinary share capital, share premium, other reserves, treasury share reserve
and capital redemption reserve (continued)
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 109.
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.
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 75p none of the options are exercisable.
The CSOP options issued on 6 November 2017 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.
The following CSOP share options were issued during the financial year to 28 February 2019.
3,600,000 CSOP options were issued on 2 July 2018. 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 2021 and 31 July 2022 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.
5,450,000 CSOP options were issued on 8 November 2018. 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 2021 and 31 July 2022 is above 50.9p and then 100% of the options
vest. At an average share price of 44.6p 50% of the options are exercisable. At prices
between 44.6p and 50.9p, options will vest on a straight-line basis between 50% and 100%.
At a share price below 44.6p none of the options are exercisable.
c)
Long Term Incentive Plan (“LTIP”)
1,128,205 LTIP share awards were issued to Executive Directors and Senior Managers on 16
June 2015. In June 2018 these awards lapsed in full as the market based performance
criteria had not been satisfied.
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. 37% of these awards vested subsequent to 28 February 2019, the
remaining 63% of the awards lapsed as a result of not satisfying the relevant performance
conditions. The vested awards are subject to a two year holding period. On 23 June 2017,
2,007,576 LTIP share awards were made to Executive Directors and Senior Managers which
may vest in May 2020. Finally, on 17 July 2018, 458,864 LTIP share awards were made to
Executive Directors which may vest in May 2021.
Vertu Motors plc
111
Notes to the Consolidated Financial Statements (continued)
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 gains / (losses) on derivative financial
instruments during the year
Deferred taxation on fair value losses during year
At end of year
2019
£’000
(75)
67
(11)
(19)
2018
£’000
-
(93)
18
(75)
32. Reconciliation of net cash flow to movement in net (debt) / cash
Net increase in cash and cash equivalents
Cash inflow from proceeds of borrowings
Cash outflow from repayment of borrowings
Cash movement in net cash
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 (debt) / cash
2019
£’000
24,810
(44,455)
-
(19,645)
214
(129)
85
(19,560)
19,313
(247)
2018
£’000
1,864
(4,140)
166
(2,110)
501
(86)
415
(1,695)
21,008
19,313
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.
2019
Trade and other payables (Note 24)
Deferred consideration (Note 17)
Contract liabilities (Note 28)
At 28 February 2019
At 28 February 2018
Balance sheet movement
Acquisitions (Note 17)
Deferred consideration on acquisitions
(Note 17)
Movement excluding business
combinations
Pension related balances
Decrease in capital creditors
Increase in interest accrual
Decrease in share repurchase accrual
Movement as shown in Consolidated
Cash Flow Statement
Inventories
(Note 20)
£’000
Current trade
and other
receivables
(Note 22)
£’000
618,675
558,386
(60,289)
27,651
62,940
66,272
3,332
8,398
Trade and
other
payables
£’000
(717,204)
(4,100)
(19,413)
(740,717)
(672,381)
68,336
(25,575)
-
-
(4,000)
(32,638)
11,730
38,761
Total
working
capital
movement
£’000
17,853
29
894
(89)
174
18,861
Vertu Motors plc
112
Notes to the Consolidated Financial Statements (continued)
33.
Cash flow from movement in working capital (continued)
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
(654,956)
(100)
(17,325)
(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)
Contract liabilities (Note 28)
At 28 February 2018
At 28 February 2017
Balance sheet movement
Disposals
Deferred consideration on acquisitions
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
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
12,811
9,585
124,934
(690)
89,877 236,517
-
-
-
10,355
-
-
-
34,100
10,355
34,100
-
5
-
-
5
-
88
-
-
88
(5,657)
(29)
(3,629)
-
(5,657)
64
(3,629)
44,455
(9,315)
35,233
-
-
23,166
(85)
-
43,600
-
-
124,939
-
-
(602)
-
21,217
(85)
21,217
101,779 292,882
As at 1 March 2018
Cash flows from financing
activities:
Dividends paid
Sale of treasury shares
Share repurchase
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 2019
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 2019 until they are satisfied in full. These
liabilities
loans of
£119,094,000 (2018: £117,385,000). Such guarantees are enforceable against Vertu Motors
plc by any person to whom any such liability is due.
total £790,722,000 (2018: £717,453,000),
intercompany
including
Vertu Motors plc
113
Notes to the Consolidated Financial Statements (continued)
36. Commitments
a) Capital Commitments
Capital commitments in respect of property, plant and equipment amounting to £3,505,000
were outstanding as at 28 February 2019 (2018: £5,478,000).
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.
When producing transition calculations for IFRS 16, the calculations underlying the operating
lease commitments note have been refined and the comparative period figures of the below
disclosure restated accordingly.
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
2019
2018
Vehicles,
plant and
equipment
£’000
Property
£’000
Vehicles,
plant and
equipment
£’000
Property
£’000
10,822
40,572
47,839
99,233
3,858
1,284
-
5,142
9,934
37,981
47,818
95,733
2,980
1,008
-
3,988
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 2019 is set out in the
Directors’ Remuneration Report on pages 60 to 65.
Ken Lever, a Director of the Company, also sits on the board of Biffa plc. A subsidiary
company of Biffa plc provides waste disposal services to the Group on normal commercial
terms. In the year ended 28 February 2019, the value of such services provided was £51,156
(2018: £Nil). £Nil was unpaid at 28 February 2019 in respect of these services (2018: £Nil).
Ken Lever also sits on the board of RPS Group plc. RPS Group provides professional
services to the Group on normal commercial terms. In the year ended 28 February 2019, the
value of such services provided was £1,980 (2018: £Nil). £Nil was unpaid at 28 February
2019 in respect of these services (2018: £Nil).
During the year to 28 February 2019, Robert Forrester, David Crane, Michael Sherwin, Peter
Jones, Nigel Stead, Andrew Goss and Pauline Best bought and sold vehicles from and to the
Group. The value of these transactions for the year ended 28 February 2019 and the year
ended 28 February 2018 is presented below. No profit or loss was made in respect of these
transactions in the year ended 28 February 2019 or the year ended 28 February 2018. 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 2019 (2018: £Nil).
Vertu Motors plc
114
Notes to the Consolidated Financial Statements (continued)
37. Related party transactions (continued)
2019
Bought from the Group
Sold to the Group
Number of
vehicles
5
3
5
2
2
2
2
Purchase
price
£’000
446
203
257
135
166
145
96
Number of
vehicles
6
3
5
2
2
3
1
Sale price
£’000
513
225
293
147
141
200
49
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
Robert Forrester
David Crane 1
Michael Sherwin 2
Peter Jones
Nigel Stead 3
Pauline Best
Andrew Goss 4
1 appointed on 26 July 2018
2 resigned on 1 March 2019
3 resigned on 31 December 2018
4 appointed on 3 September 2018
2018
Robert Forrester
Michael Sherwin
Peter Jones
Bill Teasdale *
Nigel Stead
Pauline Best
* resigned on 26th July 2018
38. Post balance sheet events
On 26 March 2019, the Group disposed of a dealership property, held in property assets held
for resale at 28 February 2019, in Barnsley realising cash proceeds of £624,000 and a profit
on disposal of £50,000.
On 31 March 2019, the Group sold its Peugeot business in High Wycombe, which had been
acquired during the year ended 28 February 2019 as part of the Hughes acquisition. Included
in the disposal was the sale of the freehold dealership property, held in property assets held
for resale at 28 February 2019, realising cash proceeds equal to net book value and fair value
of £750,000.
In April 2019 the Group ceased its Honda operation in Retford, Lincolnshire. A buyer for the
now surplus freehold property in Retford has been identified, for alternative use subject to
planning being approved.
In April 2019 the Group entered into an interest rate swap, beginning on 31 July 2019, and
covering the period to 27 February 2023, over £5,000,000 of the Group’s borrowing,
swapping LIBOR for a fixed rate of 1.214%. The notional principal amount covered by the
interest rate swap increases to £15,000,000 on 31 July 2020 concurrent with the end of the
Group’s existing £10,000,000 interest rate swap. This increased the Group’s level of hedged
borrowings to £22,000,000.
Vertu Motors plc
115
Company Balance Sheet
As at 28 February 2019
Fixed assets
Intangible assets
Tangible assets
Investments
Current assets
Debtors
Cash at bank and in hand
Total current assets
Note
5
6
7
8
2019
£’000
667
3,304
187,029
191,000
138,165
61,890
200,055
2018
£’000
968
3,480
153,633
158,081
138,386
37,730
176,116
Creditors: amounts falling due within one
year
10
(77,608)
(68,938)
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more
than one year
122,447
313,447
107,178
265,259
11
(56,033)
(18,562)
Net assets
257,414
246,697
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
37,661
124,939
10,645
(19)
(602)
2,066
72,156
18,805
(8,237)
82,724
38,552
124,934
10,645
(75)
(690)
1,175
58,943
23,382
(10,169)
72,156
Total shareholders’ funds
257,414
246,697
These financial statements, on pages 116 to 127, have been approved for issue by the Board
of Directors on 8 May 2019:
Robert Forrester
Chief Executive
Karen Anderson
Chief Financial Officer
Vertu Motors plc
116
Company Statement of Changes in Equity
For the year ended 28 February 2019
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 2018
Profit for the year
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
38,552
124,934
10,645
-
-
-
-
-
-
(891)
-
-
-
-
-
-
5
-
-
-
-
-
-
-
-
-
-
-
-
-
(75)
-
(11)
67
56
-
-
-
-
-
(690)
-
-
-
-
88
-
-
-
-
1,175
-
72,156 246,697
18,805
18,805
-
-
-
-
-
891
-
-
-
-
(11)
67
18,805
(29)
18,861
64
(3,455)
(3,455)
-
(5,657)
-
(5,657)
904
904
As at 28 February 2019
37,661
124,939
10,645
(19)
(602)
2,066
82,724 257,414
The other reserve is a merger reserve, arising from shares issued for shares as
consideration, to the former shareholders of acquired companies.
For the year ended 28 February 2018
Ordinary
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
Vertu Motors plc
117
Notes to the Company Financial Statements
For the year ended 28 February 2019
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 2019
was £18,805,000 (2018: £23,382,000).
The consolidated financial statements include the results of all subsidiaries owned by Vertu
Motors plc listed on pages 122 to 123 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 2019 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 2019 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 2019 of the subsidiaries listed
below, further detail of which is provided in note 35 to the consolidated financial statements
on page 115.
The subsidiaries which have taken an exemption from an audit for the year ended 28
February 2019 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
Vertu Motors (Continental) 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
Hughes Group Holdings Limited
Vertu Motors plc
118
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 2019 by virtue of s394A of Companies Act 2006 are:
Gordon Lamb Limited
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
Gordon Lamb Holdings 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 Limited
The auditors’ remuneration for audit and other services was £25,000 (2018: £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
119
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
120
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)
2019
£’000
12,877
1,845
1,755
16,477
904
17,381
4. Average monthly number of people employed (including Directors)
Sales
Service
Administration
5.
Intangible assets
Cost
At 1 March 2018
Acquisitions
Additions
Disposals
At 28 February 2019
Accumulated Amortisation
At 1 March 2018
Amortisation charge
Disposal
At 28 February 2019
Net Book Value
At 28 February 2019
At 28 February 2018
6. Tangible assets
Cost
At 1 March 2018
Intercompany transfers
Additions
Disposals
At 28 February 2019
Accumulated Depreciation
At 1 March 2018
Intercompany transfers
Depreciation charge
Disposals
At 28 February 2019
Net Book Value
At 28 February 2019
At 28 February 2018
2019
Number
121
18
410
549
Computer
equipment
£’000
Office
equipment
£’000
6,337
240
1,255
(72)
7,760
3,046
129
1,477
(66)
4,586
3,174
3,291
526
-
23
(5)
544
337
-
80
(3)
414
130
189
Vertu Motors plc
121
2018
£’000
12,470
1,731
1,551
15,752
1,031
16,783
2018
Number
117
17
388
522
Computer
Software
£’000
2,125
5
146
(1)
2,275
1,157
452
(1)
1,608
667
968
Total
£’000
6,863
240
1,278
(77)
8,304
3,383
129
1,557
(69)
5,000
3,304
3,480
Notes to the Company Financial Statements (continued)
7. Fixed asset investments
Cost
At 1 March 2018
Additions
At 28 February 2019
Accumulated impairment charges
At 1 March 2018 and at 28 February 2019
Net Book Value
At 28 February 2019
At 28 February 2018
2019
£’000
156,147
33,396
189,543
2,514
187,029
153,633
Vertu Motors plc, the Company, as at 28 February 2019 and 28 February 2018, invested in
100% of the ordinary share capital of the following subsidiary undertakings, incorporated in
the United Kingdom:
Principal activity
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Motor retailer
Parts retailer
Online van 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
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 *
Vertu Motors (Continental) Limited *
Gordon Lamb Limited *
Hughes of Beaconsfield Limited *
South Hereford Garages Trade Parts LLP *
Vans Direct Limited *
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 *
Hughes Group Holdings Limited
Vertu Ventures Limited
Why Pay More For Cars Limited *
International Concessionaires Limited *
Vertu Motors (AMC) Limited
Motor Nation Car Hypermarkets Limited
Bristol Street Limited *
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company
Holding company
Holding company
Holding company
Holding company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Vertu Motors plc
122
Notes to the Company Financial Statements (continued)
7. Fixed asset investments (continued)
Company
Bristol Street (No. 1) Limited *
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 *
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 *
VanMan Limited *
Best4Vans Limited *
Horseshoe Vehicle Contracts Limited *
Carsandvansdirect 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
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
The registered address of the following companies is Peugeot Paisley, Saturn Avenue,
Phoenix 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
2019
£’000
1,262
126,126
1,467
3,942
5,368
138,165
2018
£’000
922
125,989
1,323
6,928
3,224
138,386
Amounts owed by Group undertakings are unsecured, bear no interest and have no fixed
repayment date.
Vertu Motors plc
123
Notes to the Company Financial Statements (continued)
9. Deferred tax asset
At beginning of year
Credited to the profit and loss account
Credited directly to equity
At end of year
2019
£’000
1,323
155
(11)
1,467
2018
£’000
1,126
179
18
1,323
The amounts recognised for deferred tax assets, calculated under the liability method at 17%
(2018: 17%) are set out below:
Depreciation in excess of capital allowances
Other short-term timing differences
Total
2019
£’000
530
937
1,467
2018
£’000
452
871
1,323
During the year ending 28 February 2020, the reversal of deferred tax assets is expected to
decrease the corporation tax charge for the year by £46,000. 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
2019
£’000
8,481
26,000
2,597
1,500
4,264
25,176
9,590
77,608
2018
£’000
5,515
23,000
2,304
-
4,553
25,118
8,448
68,938
Other creditors comprise non-interest bearing advance payments from the Group’s finance
company partners.
Accruals includes £11,971,000 (2018: £12,557,000) in respect of outstanding service plans.
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
2019
£’000
43,601
2,600
9,832
56,033
2019
£’000
-
-
43,601
43,601
2018
£’000
9,585
100
8,877
18,562
2018
£’000
-
-
9,585
9,585
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.
Vertu Motors plc
124
Notes to the Company Financial Statements (continued)
11. Creditors: amounts falling due after more than one year (continued)
Bank borrowings
Trade and other creditors
At 28 February 2019
Bank borrowings
Trade and other creditors
At 28 February 2018
12. Deferred income
Within one
year
£’000
-
77,608
77,608
Within one
year
£’000
-
68,938
68,938
Within two
to five years
£’000
43,601
12,432
56,033
Within two
to five years
£’000
9,585
8,977
18,562
Deferred income due in greater than one year comprises:
Warranty income
2019
£’000
9,832
9,832
Total
£’000
43,601
90,040
133,641
Total
£’000
9,585
77,915
87,500
2018
£’000
8,877
8,877
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 £7,998,000 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 (2018: £6,684,000).
13. Called up share capital, share premium, other reserve, treasury share reserve and
capital redemption reserve
2019
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 2018
Shares issued during
the year
Cancellation of
repurchased shares
At 28 February 2019
383,709
38,552
124,934
10,645
(690)
1,175 174,616
233
-
5
-
88
-
93
(8,919)
375,023
(891)
37,661
-
124,939
-
10,645
-
(602)
891
-
2,066 174,709
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.
Vertu Motors plc
125
Notes to the Company Financial Statements (continued)
13. Called up share capital, share premium, other reserve, treasury share reserve and
capital redemption reserve (continued)
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
175
-
2
-
66
-
68
(11,745)
383,709
(1,175)
38,552
-
124,934
-
10,645
-
(690)
1,175
-
1,175 174,616
14. Hedging reserve
Cash flow hedges:
At beginning of year
Fair value gains/(losses) on derivative financial
instruments during the year
Deferred taxation on fair value gains/(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
2019
£’000
(75)
67
(11)
(19)
2019
£’000
72,156
18,805
(5,657)
904
(3,455)
(29)
82,724
2018
£’000
-
(93)
18
(75)
2018
£’000
58,943
23,382
(5,678)
954
(5,441)
(4)
72,156
The issue of treasury shares in the period was in satisfaction of the exercise of vested share
options by senior managers.
16. Dividends per share
Dividends of £5,657,000 were paid in the year to 28 February 2019 (2018: £5,678,000), 1.50p
per share (2018: 1.45p). A final dividend in respect of the year ended 28 February 2019 of
1.05p per share, is to be proposed at the annual general meeting on 24 July 2019. The ex-
dividend date will be 27 June 2019 and the associated record date 28 June 2019. This
dividend will be paid, subject to shareholder approval, on 29 July 2019 and these financial
statements do not reflect this final dividend payable.
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 £904,000 (2018: £1,031,000).
18. Contingencies
See note 35 to the consolidated financial statements for details of contingent liabilities as at
the balance sheet date.
Vertu Motors plc
126
Notes to the Company Financial Statements (continued)
19. Directors’ Remuneration
The remuneration of the Directors who served during the year from 1 March 2018 to 28
February 2019 is set out within the Directors’ Remuneration Report on pages 60 to 65.
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
2019
Vehicles
£’000
259
67
-
326
2018
Vehicles
£’000
188
124
-
312
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 2019, the Company made cash contributions of
£63,000 into the Bristol Street Pension Scheme (2018: £380,000).
Vertu Motors plc
127
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
FY2019
FY2018
Dealerships
consecutive financial years.
that have comparable
trading periods
in
two
The twelve month period ended 28 February 2019.
The twelve month period ended 28 February 2018.
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
Adjusted EBITDA (adjusted for non-underlying items)
EBITDA
Non-underlying items (note 8):
Share based payment charge
VAT reclaim on dealer deposit contributions
Profit on disposal of freehold property
Loss on disposal of Boston Volkswagen
Adjusted EBITDA
Free cash flow
Adjusted EBITDA
Movement in working capital
Capital expenditure
Proceeds from disposal of property, plant and equipment
Purchase of freehold and long leasehold land and buildings
Non-underlying VAT income
Finance costs paid
Tax paid
Free cash flow
2019
£’000
29,013
-
10,722
543
40,278
2019
£’000
40,278
904
(3,069)
-
-
38,113
2019
£’000
38,113
18,861
(25,351)
3,964
(9,008)
3,069
(3,854)
(4,703)
21,091
2018
£’000
32,345
513
9,714
614
43,186
2018
£’000
43,186
1,031
-
(4,149)
610
40,678
2018
£’000
40,678
(13,332)
(18,274)
14,315
(4,346)
-
(2,307)
(6,118)
10,616
Vertu Motors plc
128
Alternative Performance Measures (continued)
Adjusted Net Cash
Cash and cash equivalents
Borrowings (note 25)
Net (debt) / cash (note 32)
Used car stocking loans – other borrowings (note 25)
Adjusted net cash
Adjusted Profit Before Tax (PBT)
Profit before tax
Non-underlying items (note 8):
Amortisation
Share based payment charge
VAT reclaim on dealer deposit contributions
Profit on disposal of freehold property
Loss on disposal of Boston Volkswagen
Adjusted PBT
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
2019
£’000
66,519
(66,766)
(247)
23,166
22,919
2019
£’000
25,332
543
904
(3,069)
-
-
23,710
2019
£’000
276,643
(112,182)
(2,599)
6,576
168,438
44.9p
2018
£’000
41,709
(22,396)
19,313
12,811
32,124
2018
£’000
30,447
614
1,031
-
(4,149)
610
28,553
2018
£’000
264,418
(94,381)
(1,316)
5,561
174,282
45.4p
At 28 February 2019, there were 376,605,968 shares in issue (2018: 385,524,417) of which,
1,582,786 were hold by the Group’s employee benefit trust (2018:1,815,553).
Like-for-like reconciliations:
Revenues by department
2019
New car retail and Motability
New fleet and commercial
Used cars
Aftersales
Total revenue
2018
New car retail and Motability
New fleet and commercial
Used cars
Aftersales
Total revenue
FY19
Group
revenue
£’m
862.8
644.7
1,217.6
257.1
2,982.2
FY18
Group
revenue
£’m
836.4
662.5
1,068.9
228.3
2,796.1
FY19
Acquisition
revenue
£’m
(20.0)
(11.8)
(41.2)
(11.9)
(84.9)
FY18
Acquisition
revenue
£’m
-
-
-
-
-
FY19
Disposals
revenue
£’m
(1.2)
-
(0.5)
(0.1)
(1.8)
FY18
Disposals
revenue
£’m
(18.2)
(3.8)
(15.6)
(3.0)
(40.6)
FY19
Like-for-like
revenue
£’m
841.6
632.9
1,175.9
245.1
2,895.5
FY18
Like-for-like
revenue
£’m
818.2
658.7
1,053.3
225.3
2,755.5
Vertu Motors plc
129
Alternative Performance Measures (continued)
Like-for-like reconciliations (continued):
Aftersales revenue by department
2019
Parts
Other revenue
Parts and other revenue
Service
Total revenue*
2018
Parts
Other revenue
Parts and other revenue
Service
Total revenue*
FY19
Group
revenue
£’m
168.5
16.8
185.3
124.3
309.6
FY18
Group
revenue
£’m
154.7
14.4
169.1
111.4
280.5
FY19
Acquisition
revenue
£’m
(6.6)
(0.6)
(7.2)
(5.8)
(13.0)
FY19
Disposals
revenue
£’m
-
-
-
-
-
FY18
Acquisition
revenue
£’m
-
-
-
-
-
FY18
Disposals
revenue
£’m
(1.3)
(0.8)
(2.1)
(1.2)
(3.3)
FY19
Like-for-like
revenue
£’m
161.9
16.2
178.1
118.5
296.6
FY18
Like-for-like
revenue
£’m
153.4
13.6
167.0
110.2
277.2
*Inclusive of both internal and external revenue
Gross profit by department
2019
New car retail and Motability
New fleet and commercial
Used cars
Aftersales
Gross profit
2018
New car retail and Motability
New fleet and commercial
Used cars
Aftersales
Gross profit
FY19
Group gross
profit
£’m
63.8
20.2
102.1
136.0
322.1
FY18
Group gross
profit
£’m
64.1
21.4
98.7
123.5
307.7
FY19
Acquisition
gross profit
£’m
(1.2)
(0.7)
(1.6)
(5.9)
(9.4)
FY18
Acquisition
gross profit
£’m
-
-
-
-
-
FY19
Disposals
gross profit
£’m
-
-
-
-
-
FY18
Disposals
gross profit
£’m
(1.0)
(0.1)
(0.7)
(1.3)
(3.1)
FY19
Like-for-like
gross profit
£’m
62.6
19.5
100.5
130.1
312.7
FY18
Like-for-like
gross profit
£’m
63.1
21.3
98.0
122.2
304.6
Aftersales gross profit by department
2019
Parts
Other
Parts and other
Service
Gross profit
FY19
Group gross
profit
£’m
35.7
6.7
42.4
93.6
136.0
FY19
Acquisition
gross profit
£’m
(1.4)
(0.3)
(1.7)
(4.2)
(5.9)
FY19
Disposal
gross profit
£’m
-
-
-
-
-
FY19
Like-for-like
gross profit
£’m
34.3
6.4
40.7
89.4
130.1
Vertu Motors plc
130
Alternative Performance Measures (continued)
Like-for-like reconciliations (continued):
Aftersales gross profit by department (continued)
2018
Parts
Other
Parts and other
Service
Gross profit
FY18
Group gross
profit
£’m
33.0
6.0
39.0
84.5
123.5
FY18
Acquisition
gross profit
£’m
-
-
-
-
-
FY18
Disposals
gross profit
£’m
(0.2)
(0.2)
(0.4)
(0.9)
(1.3)
FY18
Like-for-like
gross profit
£’m
32.8
5.8
38.6
83.6
122.2
Number of units sold by department
2019
New car retail
New car Motability
New fleet
New commercial
Used cars
Total units
2018
New car retail
New car Motability
New fleet
New commercial
Used cars
Total units
FY19
Group
35,412
9,796
15,733
16,115
84,444
161,500
FY19
Acquisition
(652)
(271)
(209)
(54)
(1,833)
(3,019)
FY19
Disposals
(49)
(4)
(1)
-
(35)
(89)
FY19
Like-for-like
34,711
9,521
15,523
16,061
82,576
158,392
FY18
Group
35,412
10,770
19,029
15,823
79,822
160,856
FY17
Acquisition
-
-
-
-
-
-
FY18
Disposals
(944)
(66)
(223)
(5)
(1,189)
(2,427)
FY18
Like-for-like
34,468
10,704
18,806
15,818
78,633
158,429
Average selling price by department
2019
New car retail and Motability*
New fleet and commercial*
Used cars
FY19
Group
17,286
20,128
14,419
FY19
Acquisition
26,867
27,251
25,495
FY19
Disposals
12,345
20,367
15,329
FY19
Like-for-like
17,151
19,922
14,203
*Average selling price is stated inclusive of wholesale units
2018
New car retail and Motability*
New fleet and commercial*
Used cars
FY18
Group
16,534
18,786
13,391
FY18
Acquisition
-
-
-
FY18
Disposals
16,359
16,700
13,107
FY18
Like-for-like
16,538
18,912
13,396
Vertu Motors plc
131
Alternative Performance Measures (continued)
Like-for-like reconciliations (continued):
Operating expenses
2019
Operating expenses
2018
Operating expenses
FY19
Group
£’m
294.7
FY19
Acquisition
£’m
(9.8)
FY19
Disposals
£’m
(0.3)
FY19
Like-for-like
£’m
284.6
FY18
Group
£’m
277.3
FY18
Acquisition
£’m
-
FY18
Disposals
£’m
(4.0)
FY18
Like-for-like
£’m
273.3
Vertu Motors plc
132
Vertu Group Directory
MERCEDES-BENZ
Ascot Mercedes-Benz
London Road
Bracknell
Berkshire RG12 9FR
Telephone: 01344 420096
Northampton Peugeot
2 Fortune Close
Riverside Park
Northampton NN3 9HZ
Telephone: 01604 401141
SMART
Ascot Smart
London Road
Bracknell
Berkshire RG12 9FR
Telephone: 01344 420096
Aylesbury Mercedes-Benz
Bicester Road,
Aylesbury,
Buckinghamshire, HP19 8BL
Telephone: 01296 319600
Beaconsfield Mercedes-Benz
55 Station Road,
Beaconsfield,
Buckinghamshire HP9 1QJ
Telephone: 01494 672141
Reading Mercedes-Benz
Richfield Avenue
Reading
Berkshire RG1 8EQ
Telephone: 01189 391133
Slough Mercedes-Benz
273-283 Bath Road
Slough
Berkshire SL1 5PR
Telephone: 01753 554444
NISSAN
Bradford Nissan
Thornton Road
Bradford BD1 2EP
Telephone: 01274 736440
Chesterfield Nissan
1 Discovery Way
Whittington Moor
Chesterfield S41 9EG
Telephone: 01246 260100
Darlington Nissan
McMullen Road
Darlington DL1 1XP
Telephone: 08448 115975
Derby Nissan
Sir Frank Whittle Road
Derby DE21 4PB
Telephone: 01332 375360
Glasgow Nissan Central
144 Port Dundas Road
Glasgow G4 0HZ
Telephone: 0141 896 6611
Glasgow Nissan South
60 Wellbeck Road
Darnley
Glasgow G53 7SD
Telephone: 0141 896 3040
Halifax Nissan
Shay Syke
Halifax
West Yorkshire HX1 2ND
Telephone: 08432 182 548
Ilkeston Nissan
Derby Road
Ilkeston DE7 5FH
Telephone: 01159 444499
Northampton Nissan
Carousel Way
Northampton NN3 9HG
Telephone: 08436 589 626
Sheffield Nissan
Attercliffe Road
Sheffield
South Yorkshire S4 7WW
Telephone: 0114 270 1400
Widnes Nissan
Moor Lane
Widnes
Cheshire WA8 7AL
Telephone: 08433 08 87 37
PEUGEOT
Banbury Peugeot
Southam Road
Banbury OX16 2RS
Telephone: 01295 253511
Harlow Peugeot
Edinburgh Way
Harlow
Essex CM20 2DS
Telephone: 0127 9624190
Oxford Peugeot
370 Iffley Road
Oxford OX4 4AT
Telephone: 01865 749000
Paisley Peugeot
Saturn Avenue
Phoenix Retail Park
Paisley PA1 2BH
Telephone: 0141 8428800
RENAULT
Bradford Renault
Thornton Road
Bradford BD1 2EP
Telephone: 01274 736 440
Derby Renault
Sir Frank Whittle Road
Derby DE21 4PB
Telephone: 08445 565014
Exeter Renault
14A Marsh Barton Road
Marsh Barton Trading Est.
Exeter EX2 8NT
Telephone: 01392 423300
Gloucester Renault
3 Ramsdale Road
Gloucester GL2 5FE
Telephone: 01452 505295
Mansfield Renault
Southwell Road West
Mansfield NG18 4LW
Telephone: 01623 413 996
Nottingham Renault
Haydn Road
Sherwood
Nottingham NG5 1EA
Telephone: 0115 845 4040
SEAT
Birmingham SEAT
Watson Road
Star City
Birmingham B7 5SA
Telephone: 0121 327 3700
Carlisle SEAT
Parkhouse Road
Kingstown Industrial Estate
Carlisle CA3 0GW
Telephone: 01228 558916
Darlington SEAT
Haughton Road
Darlington DL1 2BP
Telephone: 01325 354145
Derby SEAT
Locomotive Way
Pride Park
Derby DE24 8PU
Telephone: 08448 154775
ŠKODA
Aylesbury ŠKODA
Bicester Road,
Aylesbury,
Buckinghamshire, HP19 8BL
Telephone: 01296 319603
Chesterfield ŠKODA
1 Discovery Way
Whittington Moor
Chesterfield S41 9EG
Telephone: 01246 260100
Darlington ŠKODA
McMullen Road
Darlington
County Durham DL1 1XP
Telephone: 01325 365200
Derby ŠKODA
Sir Frank Whittle Road
Derby DE21 4PB
Telephone: 01332 497080
Used Car Centres
A Vertu Motors Company
Used Car Centres
A Vertu Motors Company
Beaconsfield Smart
55 Station Road,
Beaconsfield,
Buckinghamshire HP9 1QJ
Telephone: 01494 687188
Reading Smart
Richfield Avenue
Reading
Berkshire RG1 8EQ
Telephone: 01189 391133
TOYOTA
Chesterfield Toyota
2 Lockoford Lane
Chesterfield S41 7HY
Telephone: 01246 221100
USED CARS CENTRES
Bristol Street Motors
Used Cars Stroud
London Road
Stroud GL5 2AX
Telephone: 08445 56 79 85
Used Cars Derby
Sir Frank Whittle Road
Derby DE21 4PB
Telephone: 08445 565051
Hughes Select
Bicester Road,
Aylesbury,
Buckinghamshire, HP19 8BL
Telephone: 01296 319619
VAUXHALL
Carlisle Vauxhall
Parkhouse Road
Kingstown Industrial Estate
Carlisle CA3 0GW
Telephone: 08436 587801
Chesterfield Vauxhall
464 Chatsworth Road
Chesterfield S40 3BD
Telephone: 01246 245200
Chingford Vauxhall
3 Shadbolt Avenue
Chingford
London E4 8GP
Telephone: 020 8418 5000
Crewe Vauxhall
Macon Way
Crewe
Cheshire CW1 6GY
Telephone: 08448 116979
Durham Vauxhall
Abbey Road
Pity Me
Durham DH1 5DQ
Telephone: 08433 080286
Hexham Vauxhall
Alemouth Road
Hexham NE46 3PJ
Telephone: 01434 605151
Keighley Vauxhall
The Crossings Business Park
Crosshills
Nr Keighley BD20 7BW
Telephone: 08436 59 84 91
Knaresborough Vauxhall
Grimbald Crag Road
St. James Retail Park
Knaresborough HG5 8PY
Telephone: 08436 58 78 23
Lichfield Vauxhall
Eastern Avenue
Lichfield WS13 7SA
Telephone: 01543 414466
Macclesfield Vauxhall
Brindley Way
Lyme Green Business Park
Macclesfield
Cheshire SK11 0TB
Telephone: 08448 221042
Newcastle Vauxhall
2 City West Business Park
Scotswood Road
Newcastle-Upon-Tyne NE4 7DF
Telephone: 0191 2986400
Northampton Vauxhall
Unit 21
Carousel Way
Riverside Retail Park
Northampton NN3 9HG
Telephone: 0843 3087572
Sunderland Vauxhall
Alexandra Avenue
Hylton Riverside
Sunderland SR5 2TB
Telephone: 0191 5489090
Waltham Cross Vauxhall
South Side
Eleanor Cross Road
Waltham Cross EN8 7NZ
Telephone: 01992 787171
BRISTOL STREET VERSA
Batley Versa
Carlinghow Mills
501 Bradford Road
Batley WF17 8LL
Telephone: 08433 081 814
Widnes Versa
Moor Lane
Widnes
Cheshire WA8 7AL
Telephone: 08433 081 812
VERTU SPECIALIST CARS
Newcastle
Middle Engine Lane
Silverlink Business Park
Newcastle NE28 9NZ
Telephone: 0191 204 9729
VOLKSWAGEN
Hereford Volkswagen
Centurion Way
Roman Road
Hereford HR1 1LQ
Telephone: 01432 800 774
Lincoln Volkswagen
Outer Circle Road
Lincoln LN2 4HW
Telephone: 08433 16 08 01
Mansfield Volkswagen
206 Chesterfield Road North
Mansfield
Nottinghamshire NG19 7JG
Telephone: 08433 16 09 14
Nottingham North
Volkswagen
199 Mansfield Road
Daybrook
Nottingham NG5 6GZ
Telephone: 08433 16 09 33
Nottingham South
Volkswagen
180 Loughborough Road
West Bridgford
Nottinghamshire NG2 7JB
Telephone: 08436 59 05 80
Whitchurch Volkswagen
Whitchurch
Nr Ross on Wye
Herefordshire HR9 6DF
Telephone: 01600 730 737
VOLVO
Derby Volvo
Sir Frank Whittle Road
Derby DE21 4PB
Telephone: 08445 56 50 75
VAN CENTRE
Exeter Van Centre
Unit 15
Trusham Road
Marsh Barton Trading Estate
Exeter EX2 8QQ
Telephone: 01392 457 281
Registered Office:
Vertu House,
Fifth Avenue Business Park,
Team Valley, Gateshead,
Tyne and Wear, NE11 0XA
Company Number: 05984855
www.vertumotors.com