ANNUAL REPORT & FINANCIAL STATEMENTS
For the year ended 29 February 2020
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20 August 2020
7 October 2020
May 2021
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 2020/21
Final Results 2020/21
Vertu Motors plc (Company Number: 05984855)
1
Chairman’s Statement
This is not the report I envisaged writing when the financial year under review ended on the
29 February 2020 with recent months dominated by the impact of the COVID-19 virus.
Despite well publicised industry headwinds, the Group delivered a robust underlying trading
result. The outcome is even more pleasing as it has absorbed trading losses and acquisition
costs relating to the businesses acquired in January and February 2020. Year-on-year growth
in trading performance, excluding the impact of these acquisitions was delivered.
The Group at present faces a fundamental challenge posed by the global COVID-19
pandemic. The effects of reduced mobility and the temporary closure of Group’s sales
showrooms has had a significant impact on the Group in the post year end period. The
lockdown on 24 March commenced during the sector’s most significant month for activity and
profitability. Immediate actions were taken to protect colleagues and customers in applying
the requirements of Government to close all the Group’s vehicle sales showrooms and
physical sales activity. The bulk of the Group’s vehicle service and repair operations
remained open, at reduced capacity, in order to keep key workers and other essential
vehicles on the road. In mid-May, following the relaxation of the lockdown, service operations
were extended to all customers and the Group commenced a vehicle delivery service for
vehicle sales from dealerships in line with revised English guidelines. Showroom activity in
England recommenced from 1 June.
Considering the ongoing situation, and to preserve cash, the Board does not recommend a
final dividend for the year ended 29 February 2020. The Board recognises the importance of
dividends in delivering shareholder value and will consider resumption of dividend payments
in due course.
The Board has taken sensible steps around Executive remuneration and cash preservation.
The strong balance sheet has aided the ability of the business to withstand the current crisis.
Banking covenants have been waived and significant liquidity is in place, aided by the support
of the Group’s banks and Manufacturer Partners.
Prior to the spread of the virus from China, the UK automotive retail sector already faced a
series of challenges in FY20. These included new vehicle supply constraints, driven by
continued weakness in Sterling and EU Worldwide Harmonised Light Vehicle Test Procedure
(“WLTP”) regulations, which applied to commercial vehicles for the first time in 2019, political
uncertainty around the exit of the UK from the EU impacting consumer confidence and
continued cost pressures.
Whilst we believe the pandemic will eventually pass or be controlled, we do not know exactly
what the longer-term impacts on the sector and business will be. It is possible that the
aftermath will see reversals to sector trends in some areas and an acceleration of others. It is
likely that the growth in importance of omni-channel retailing and digital channels will be
accelerated and the Group is well-positioned for this change. Financial pressures on already
stressed businesses in the sector, could lead to an acceleration of much needed franchise
retailer capacity reductions in the UK and this should enhance volumes and returns for those
remaining. We expect that those businesses in the sector with scale, strong brands, stable
and experienced management and financial resilience will be net beneficiaries from these
trends.
The Board, in late 2019, agreed the following strategic imperatives for the Group and
considers that they remain critical and highly relevant in the new environment the business
finds itself in today:
• To grow as a major scaled franchised dealership group and to develop our portfolio of
Manufacturer partners, whilst being mindful of industry development trends, to
maximise long-run returns.
• To be at the forefront of omni-channel retailing and digitalisation in the sector,
delivering a cohesive ‘bricks and clicks’ strategy.
• To reduce the cost base of the Group through scale economies and using
digitalisation of processes to reduce costs.
• To develop and motivate the Group’s colleagues to ensure consistency of operational
delivery across the business.
• To develop ancillary businesses to add revenue and returns which complement the
core business.
2
Vertu Motors plc (Company Number: 05984855)
Chairman’s Statement (continued)
Our aims are to deliver outstanding customer service and to build long-term value through the
delivery of sustainable growth in cash flows and earnings per share. It is imperative that this is
done alongside the constant application of the Group’s Core Values to foster trust with all
stakeholders be they colleagues, customers, investors or Manufacturer partners. The Group
is very well positioned to do this and the current crisis, in all likelihood, will enhance the speed
of change and provides a clear opportunity to continue to deliver on our strategy.
I would like to take this opportunity to thank all the management and colleagues for their
professionalism and fortitude to deliver the result for the financial year and to react positively
to the impacts of the pandemic.
Andrew Goss
Chairman
Vertu Motors plc (Company Number: 05984855)
3
Highlights
OPERATIONAL AND OUTLOOK HIGHLIGHTS
• Adjusted1 profit before tax of £23.5m in line with expectations, despite absorbing
costs and losses of £0.7m in relation to recent acquisitions (2019: £23.7m)
• 12 sales outlets added in year including the addition of 3 new franchise partners to
the Group’s portfolio
• Strong management, supported by scalable, sector-leading in-house developed
systems, provides assurance of tight control of operations and swift execution of
strategies
• Deployment of new technologies accelerating progress in both omni-channel retailing
and increasing efficiency in transaction processing across the business
• Meticulous planning undertaken for the re-opening of dealerships in a safe and
socially distanced way
• Strong balance sheet with low debt levels results in significant liquidity being in place,
aided by supportive banks and Manufacturer partners
• Group is very well positioned to take a larger role in the sector through consolidation
and growth opportunities and has the ambition to do so
FINANCIAL HIGHLIGHTS
• £82.3m (2.8%) growth in revenues to £3.1bn, with like-for-like revenue growth of
1.2%
• Excellent aftersales performance with like-for-like revenue growth of 4.6% delivering a
5.9% growth in gross profit
• Stable used vehicle volume and margins delivered, despite pricing volatility in first half
and absorption of additional preparation charges from aftersales
• Like-for-like fleet and commercial revenue growth of 5.3% delivering £5.6m additional
total gross profit
• Strong cost control exhibited with like-for-like operating expense growth of 1.4%
(2019: 4%) and total underlying operating expenses representing 10.0% of revenues
(2019: 9.9%)
• Growth in Adjusted1 operating profit to £29.1m (2019: £27.4m)
• Non-cash impairment charge of £14.4m included in non-underlying charges
• Profit before tax of £7.3m (2019: £25.3m)
• Underlying earnings per share increased to 5.12p (2019: 5.10p)
• No final dividend is recommended
• Net tangible assets per share of 46.0p (2019: 44.9p)
• Adjusted2 net debt of £2.8m at 29 February 2020 (2019: net cash £22.9m)
1 Excludes non-underlying items
2 Excludes amounts drawn on used vehicle stocking loans
Given the heightened uncertainty of any forecast at this current time it is inappropriate to provide any guidance
with respect to market expectations
Vertu Motors plc (Company Number: 05984855)
4
Strategic Report
This report seeks to inform all stakeholders on how the Group has performed in the year to 29
February 2020 and to review the challenges the Group faces, the opportunities available to
exploit and explains how the business will be managed going forward. Clearly the Group’s
current position is dominated by the impact of COVID-19 in the United Kingdom and this is
addressed later in the report. The financial overview section includes a detailed analysis of
financial and operational performance.
The year saw the Group move forward significantly in terms of its key strategic objectives.
Despite sector wide trading headwinds, the Group delivered a robust financial result with
Adjusted profit before tax of £23.5m (2019: £23.7m). This result was after absorbing £0.7m of
trading losses and acquisition costs from the additional 12 sales outlets added to the Group in
the early part of 2020.
Profit before tax reduced from £25.3m to £7.3m, largely reflecting a significant non-cash
impairment of £14.4m in relation to intangible and tangible assets. This impairment reflected
revised cash flow forecasts in the light of the impact of COVID-19 on anticipated future cash
flows. This impairment was predominantly in relation to goodwill relating to the Group’s
Mercedes-Benz operations and a freehold property operating the Vauxhall franchise.
The Group’s Adjusted operating profit rose from £27.4m to £29.1m bearing witness to the
strong operational execution of the Group in the year, despite headwinds. Higher
manufacturer new vehicle stocking charges in the year contributed to a rise in net finance
charges of £1.9m which resulted in the reported decline in adjusted profit before tax. The
stocking charge increase arose due to higher consignment stock pipelines in anticipation of
Brexit and higher interest rates.
This financial result reflected the inherent strength of the Group with its stable management
team, strong culture and increasingly sophisticated in-house digital systems platform. The
Group has a clear strategy and is executing it.
Execution of Strategy
Progress made during the year towards the delivery of the Group’s strategic imperatives is
outlined below, together with an assessment of the changing environment in which the Group
operates and how the business has and intends to react.
Growth
Importance of Scale and Brand
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 the
necessary physical presence and the complexity of organising businesses across every
geography across the globe. The Manufacturers have enough challenges for investment
(exacerbated by the current crisis) and so the development of revolutionary new distribution
models is considered unlikely. Indeed, the level of assistance by Manufacturers to their retail
networks during the pandemic has been significant and gives evidence of their desire to
support and maintain their existing distribution model.
This does not mean that there will be no changes in the composition and structure of the UK’s
franchise dealer network. We expect a continued tendency for the number of UK franchised
dealer outlets to decline and this may indeed progress more quickly now. Manufacturers will
seek simplification in their networks, choosing to work with fewer, larger retail partners of
scale which best deliver on their objectives. The positive relationships the Group has
established with Manufacturer partners means it is well placed to take advantage of this
ongoing consolidation. In terms of representation, a more fluid representation plan is
anticipated to emerge, more suited to local market conditions (rather than a one size fits all
approach across varying geographies) which could involve the development of market areas,
large dealership hubs, used car only operations, local aftersales only facilities, potentially
combined with localised delivery points. These trends are likely to enhance sales per sales
outlets for the remaining network representation points.
Vertu Motors plc (Company Number: 05984855)
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Strategic Report (continued)
Execution of Strategy (continued)
Growth (continued)
Importance of Scale and Brand (continued)
To deliver long-term value to the Group’s owners, the Group’s strategy is to continue to grow
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
online and off-line co-ordinated marketing strategy, based on strong brands, to maximise the
benefits of the Group’s unique national footprint, online platforms, scaled highly efficient
contact centres, franchise management dedication, purchasing efficiencies and access to
competitive consumer finance packages for the Group’s customers.
their effectiveness
Further consolidation of the sector by large-scale national brands is likely to continue in the
years ahead. The Group currently operates a small number of brands in the UK and
third-party assessments of consumer
measures
awareness. Bristol Street Motors is one of the top automotive retail brands in England for
volume franchises and has been promoted by significant TV advertising in recent years.
Bristolstreet.co.uk is one of the most significant websites in the sector and the brand is over
100 years old. In Scotland, Macklin Motors is the Group’s sole brand North of the Border and
is ten years old this year. It has also benefitted from recent acquisition growth and a long
period of TV exposure.
through regular
The Group is increasingly developing customer awareness of its core premium franchise
brand, Vertu, and will commence its first TV marketing campaign in relevant regions in the
coming months. Vertu is a fresh brand developed since 2006 and the Board believe it is set
to become a major player in the UK in the years ahead. A new website, Vertumotors.com,
has now launched to leverage the brand on a single platform across franchises such as
Honda, Volkswagen, Toyota and Mercedes-Benz.
The final, major Group brand is Farnell, which operates Jaguar Land Rover franchises in the
North of England and has been associated with the brands since 1948. Farnell has an
excellent reputation and has the ability to be further developed.
Portfolio Development and changes
As part of the strategy for scale, the Group seeks to add additional Manufacturer partners, not
currently represented in the portfolio, to facilitate additional growth opportunities and
succeeded in this in the financial year. In addition, it is likely that more dealership locations
will see increased levels of multi-franchising, where two or more franchises are represented at
one location, to provide sales and service functions in a territory, but with a lower operating
cost base. The Group has executed multi-franchising actions in several its locations in the
year ended 29 February 2020 and continues to evaluate such opportunities to maximise the
profitability of each location. Increased flexibility of formats and Manufacturer requirements
are likely to aid this process and again the current situation is likely to accelerate this trend.
Reflective of the above, on 20 December 2019, the Group exited the Volvo franchise in Derby
with the business being transferred to a subsidiary of Marshall Motor Holdings plc. The
premises were retained and after refurbishment, the Group opened the site as the Group’s
sixth Peugeot dealership on 28 February 2020. Additionally, in January 2020, the Group
opened two new franchise outlets for Hyundai in the North East of England bringing the total
of Hyundai outlets operated to 10. This growth of Bristol Street Motors arose at Silverlink,
North Tyneside in the Group's former Infiniti dealership and, in addition, the franchise was
added to the existing Ford and Honda operation in Morpeth, Northumberland - an excellent
example of multi-franchising.
Vertu Motors plc (Company Number: 05984855)
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Strategic Report (continued)
Execution of Strategy (continued)
Growth (continued)
Portfolio Development and changes (continued)
On 15 January 2020 the Group acquired the trade and assets of four Volkswagen passenger
car dealerships in West Yorkshire from Goodman Retail Limited, a trading subsidiary of
Sytner Group Limited. The purchase of these four substantial Volkswagen leasehold
dealerships in Leeds, Huddersfield, Harrogate and Skipton represented further expansion of
the Group's Vertu brand and complements the Group's existing 13 outlets in Yorkshire
comprising the Nissan, Renault, Jaguar, Land Rover, Vauxhall and Honda brands. Cash
consideration payable on completion totalled £6.9m, including a payment in respect of
goodwill of £1.8m. The financial statements for these businesses for the year ended 31
December 2018 showed revenues of £112m and a profit before taxation of £0.6m.
On 20 January 2020 the Group acquired the trade and assets of three franchises on a multi-
franchise dealership in Edinburgh, Scotland from the administrators of Leven Cars Group
Limited. The purchase of this Kia, Suzuki and Mitsubishi leasehold dealership represented
further expansion of the Group’s Macklin Motors brand and complements the Group’s existing
nine outlets in Scotland comprising the Nissan, Ford, Mazda, Peugeot and Hyundai brands.
The acquisition also brought Kia, Suzuki and Mitsubishi as new franchises to the Group. The
consideration paid on completion was £0.03m.
Finally, on 28 February 2020, the Group acquired the trade and assets, including a freehold
property, of Bradford Kia and Honda, from Vantage Motor Group. Consideration payable on
completion was £3.9m, including £3.1m in respect of the freehold property. The addition of
the Honda franchise in Bradford adds to the Group’s geographic coverage of 12 other Honda
car dealerships across the East Midlands, South Yorkshire and North East of England.
Bradford Kia became the second Kia dealership operated by the Group.
The Group’s business model has remained consistent for the thirteen 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 (Company Number: 05984855)
7
Strategic Report (continued)
Execution of Strategy (continued)
Growth (continued)
Portfolio Development and changes (continued)
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 utilise set return on investment hurdle rates to ensure
appropriate capital allocation.
Six-monthly, the Board assesses the Group’s strategic position with each Manufacturer to
confirm the Group’s standpoint on future investment in the franchise. This leads to an Add,
Hold, Reduce or Avoid conclusion which underpins the Group’s strategic franchise portfolio
management.
The anticipated acceleration of network changes for franchised retailers outlined above,
means that property flexibility, such as freehold ownership and sensible lease lengths and
structures, takes on greater importance. 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. Acquisitions and disposals must also reflect these trends and the Board is
mindful of them when considering the current portfolio and how it will evolve. In addition, the
Board performs regular reviews of underperforming dealerships within the portfolio, applying
its strategy of “fix, re-franchise, sell or close”. These disciplines are a very important element
of the capital allocation process providing cash for investment in higher return activities. In
the wake of the current situation, such reviews take on even greater importance and a further
review is planned once the “new normal” position of the economy and sector becomes
apparent later in the coming months.
Impact of Industry development trends
Potential future development of the automotive sector has in recent years been linked to the
development of the Connected, Autonomous, Shared and Electric (CASE) vehicle. The
current global pandemic will almost certainly impact on the ‘Shared’ element of mobility, with
the potential that consumers shy away from public and shared transport, at least in the short-
term. It is also increasingly apparent that whilst increased autonomy is certainly assisting
drivers, full autonomous capability is still a long way off, with technological, regulatory and
legal considerations weighing heavily.
The wake of the pandemic may put pressure on Regulators around the stringent Co2
legislation that has been put in place in the EU. This is the key driving force of the ‘Electric’
element of CASE. The public have undoubtedly noticed less air pollution in urban areas
during the lockdown and this will no doubt lead to continued efforts to reduce NOx emissions
due to the health benefits. Current new models of petrol and diesel vehicles have a major
part to pay in this effort, alongside alternative fuelled vehicles. With regards to carbon dioxide
reduction targets in the EU, the situation may be more complex since tightening emissions
regulations have undeniably put Manufacturer business models, cash levels and future
returns under significant pressure. The post pandemic return of a strong, automotive
manufacturing and retail sector will be vital to rebuild European economies in the months and
years ahead.
Over 40% of the Group’s gross profit has historically arisen from its aftersales operations,
namely the provision of servicing and repairs and the retailing and wholesaling of parts.
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 at least.
The increasing technological complexity of newer internal combustion, hybrid 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, access to
software downloads 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.
Vertu Motors plc (Company Number: 05984855)
8
Strategic Report (continued)
Execution of Strategy (continued)
Impact of Industry development trends (continued)
The UK saw a significant increase in registration of pure electric vehicles in 2019, however,
the 1.6% market share achieved is still tiny. This leaves a very high proportion of
registrations of vehicles with an internal combustion engine component and it is expected that
these vehicles will dominate the vehicle parc well into the 2030s and even beyond. This
provides a major growth opportunity in high margin aftersales for the Group, especially given
that developments in the ‘Connected’ vehicle area are likely to increase service retention of
vehicles into franchised networks.
Notwithstanding the above, electric vehicles will undoubtedly form a rising proportion of new
and used sales in the years ahead. The Group has trained all colleagues on electric vehicles
via e-learning and the Group has 10 of its dealerships audited and approved as “Electric
Vehicle Approved” outlets as part of a Government and sector promoted scheme to promote
enhanced standards to consumers in this area. 10 is the maximum number of dealerships a
Group can currently have approved.
Omni-channel retailing
Digitalisation of Sales
Whilst the pace of consumer change from physical to online 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’ online transactions within automotive retail. However, the industry may
now see an acceleration in the transition to an enhanced role for online capability for
automotive purchases and the Group has been at the forefront of developments to provide
customers with innovative ways to purchase and interact in vehicle sales.
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 entirely online. This
was launched in May 2017 and has seen many customers starting their purchasing journey
on the platform and in some cases completing the entire process online. The relatively low
volumes of entirely online sales to date 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. Until now, customers have also preferred to test drive their
chosen new vehicle, to ensure that it will meet their needs, before committing to a purchase.
This requirement is highly likely to continue when some degree of normality returns to life.
During the lockdown period, the Group continued with its in-house software developments
undertaken by its 25 strong development team. Great progress in developing omni-channel
retailing functionality was made throughout 2019 and into 2020 and the benefits are
increasingly coming to fruition. As customers faced lockdown and potentially demand a
contactless sales environment, these developments take on increasing importance. Recent
developments include:
• Online retailing functionality has been launched across all Group websites for new
and used cars. In May 2020 this functionality was enhanced with a simplified
customer journey, resulting in a record level of purely online transactions completed.
• Consumers can now reserve a car for a fee online so effectively taking the car off-
market while the deal is finalised with the dealership. Uptake of this functionality has
been excellent
• Online finance calculators now provide the same experience online as in the
showroom.
• Contactless document “signing” is now in place with approval obtained from the
customer, whether at home or in the showroom, via SMS message.
• Video technology is now embedded into the Group’s bespoke showroom system to
allow sales executives to hold video calls with one or more customers and to
demonstrate vehicles and present deals in the same way that would be done were
the customer in the showroom.
Vertu Motors plc (Company Number: 05984855)
9
Strategic Report (continued)
Execution of Strategy (continued)
Omni-channel retailing (continued)
Digitalisation of Sales (continued)
It will now be more vital than ever before to have an omni-channel approach offering choice to
customers between online and offline channels. The customer experience of the transition
from online to offline (and return) must be seamless. The Group has moved a long way down
this road in recent months which will lead to competitive benefits in the future.
A “Bricks and clicks” strategy
The Group’s network of physical dealerships across the UK remains at the centre of its
customer offering and is vital for the delivery of service and repair work to our customers. A
“bricks and clicks” model is likely to prevail in this sector. The vast majority of customers buy
from their local dealership and the majority will still want to undertake a test drive. Local sales
and aftersales support is a key factor in many vehicle buying decisions and the Group retains
a high proportion of its vehicle sales customers into service. The continued improvement of
such 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. Opening aftersales in most locations during the
lockdown period reinforced customer loyalty and future retention.
Cost Reduction
Enhanced scale of operations allows the Group to maximise on purchasing benefits, provide
process efficiencies with common systems and technology and to gain marketing synergies
from promoting a larger network for each of the Group’s brands.
The Group’s inhouse management information system has 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. We believe this gives the Group a scalable, competitive advantage in business
performance and indeed regulatory compliance. Such tools provide benchmarking to
promote greater consistency in performance across the business.
Enhanced integration of the Group’s sales showroom and financial systems has removed the
need for paper documents within the sales process and facilitates significant efficiency
improvements in processing vehicle sale transactions. This will deliver future reduced costs.
Further examples of innovations to deliver enhanced efficiency, so delivering costs benefits
are:
• The Group’s online service booking bot ‘Leo’ has been further developed and
integrated into the Group’s service diary to remove any re-keying of information by
the Group’s central contact centre. The Group is now booking in over 5,000
customers per month online for their service, delivering a significant cost reduction.
Internet sales enquiries from Manufacturers and third parties are now auto-populating
the Group’s showroom system so reducing double-keying and leakage.
•
• A new telephony system is now uniform across the Group and not only reduces costs
but also allows for efficiency improvements in call handling. This significantly
enhanced the ability of contact centre operatives to work easily and effectively from
home during the lockdown.
Further projects are being undertaken to utilise robotic processes and machine learning in
various areas, including lead prioritisation. Attrition marketing is also being progressively
developed to ensure marketing spend ROI is optimised.
Vertu Motors plc (Company Number: 05984855)
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Strategic Report (continued)
Execution of Strategy (continued)
Motivated, Professional Colleagues
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.
The Group has over 5,800 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 130 UK outlets. 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 with the application of the right Values.
The Group has a very stable team of senior executives and dealership General Managers.
Training is seen as vital within 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 their skills are retained in the Group.
To aid this, 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. The Group regularly invests in bringing to the
UK, world class management trainers to train all the Group’s 600 managers to raise
management standards and create a Group-wide performance culture. Indeed this was again
undertaken when a renowned US trainer trained every manager for a day in January.
A key aspect of the Group, which drives performance and consistency, is to have one,
consistent Group culture. Delivery of the Group’s Mission Statement (“To deliver an
outstanding customer motoring experience through honesty and trust”) through application of
the Group’s Values (“Professionalism, Recognition, Integrity, Respect, Opportunity and
Commitment”) is at the core of how we do business. The latest annual colleague survey,
completed by over 80% of the Group’s colleagues in August 2019, confirmed that 97% knew
the Values of the Group and 90% considered that the Directors actively practice them. An
evidence to the Group’s commitment to the delivery of outstanding customer service, the
Group was delighted to win, in July, the AutoTrader Customer Experience Award and, in
November, the Lex Autolease Aftersales Excellence award. This external validation
reinforces that the customer focused culture of the Group is increasingly consistent. As at 29
February 2020, 81.6% of Group dealership sales departments and 57.3% of aftersales
departments achieved above national average scores in customer satisfaction, as measured
by our Manufacturer partners. In addition, the Group’s Judge Service Net Promotor Score
measured in respect of used vehicle sales was 82.9% based on a three month rolling
measure.
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.
Vertu Motors plc (Company Number: 05984855)
11
Strategic Report (continued)
Execution of Strategy (continued)
Motivated, Professional Colleagues (continued)
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.
Responding to Regulatory Change
FCA
Following the publication of the FCA’s findings in connection with a review of motor finance,
commission arrangements looked set to change in the second half of 2020. The FCA
commenced a consultation process around these changes, but it is not known at this stage
what changes will arise from the FCA’s findings. In response to the COVID-19 pandemic, the
FCA have announced a further delay to the publication of its recommendations arising from
this review until later in the Summer.
The Group has always considered regulatory compliance to be a core operational
competence. The Group has for many years used one electronic showroom system across
the Group to ensure consistency of process in this important area of regulatory compliance,
as well as to provide customers with the right information to select the financial products
which best suit their needs. The Group has a long-established Compliance Committee which
regularly reviews the Group’s sales process, key performance metrics and real time customer
feedback to ensure that the Group continues to demonstrate appropriate compliance with all
the relevant legislation. The Group benefits from the uniformity of its core systems platforms
and its sales and administration processes. The Group has an excellent, internally developed
in-house management information system providing a holistic view to management of activity
including customer outcomes. Acquisitions are brought onto these platforms very quickly.
Vertu Motors plc (Company Number: 05984855)
12
Strategic Report (continued)
Execution of Strategy (continued)
Responding to Regulatory Change (continued)
UK withdrawal from the EU
At this stage, the UK’s future trading arrangements with the European Union remain unclear.
In the event the UK exits the Customs Union and Single Market without a deal on trade, it is a
possibility that World Trade Organisation rules will apply. Tariffs of 10% may be charged on
vehicles which are imported into the UK, increasing the cost of such vehicles to consumers. If
this occurs it is likely to cause a fall in sales of new imported vehicles, whilst contributing to an
underlying strength in used vehicle values.
In the absence of an agreement on the future arrangements as part of a customs union, a
change to the timing of new vehicle consignment stock invoicing to retailers is also possible.
The Group currently receives invoices, on which it can reclaim input VAT, from several 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 included 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.
Strategic 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 Group also needs to continue to ensure capital is
allocated to those activities, locations and 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 stable, experienced management team and the relative financial
strength, compared to many others in the wider sector, means it is well positioned to take
advantage of the opportunities arising and is ambitious to do so.
We are proud of our Mission Statement “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.
COVID-19 Impact
It is clearly important to inform shareholders of the risks that the COVID-19 pandemic poses
to the Group and the actions taken to ensure the safety of colleagues and customers and to
protect the business for the future.
The UK has no experience in the last 100 years of a crisis like the one we are currently
facing. It is not yet clear how long the virus will last and what consequent effects on
consumer behaviour and the sector may arise.
Vehicle Sales - retail
An immediate and dramatic reduction in retail vehicle demand has been witnessed,
particularly as individuals were locked down and encouraged to “stay at home”. Vehicle
showrooms in the UK were not deemed as essential businesses and consequently all of our
dealership showrooms closed on 24 March 2020.
It is pleasing to report that despite closing all sales showrooms and contact centres
physically, the Group has continued to market and sell a limited number of vehicles. This has
been achieved by ensuring seamless operation, at colleagues’ homes, of the Group’s inbound
telephone contact centres (taking on average 2,500 calls a day during the lockdown), and the
full operation of digital marketing activity and our internet sales team, also home-working,
responding quickly to all sales leads and calls. The Group has operated full online sales
functionality on all Group websites and this has been supported by significant TV advertising
Vertu Motors plc (Company Number: 05984855)
13
Strategic Report (continued)
COVID-19 Impact (continued)
Vehicle Sales – retail (continued)
Dealership General Managers continued to work at the vast majority of the Group’s
dealerships during the lockdown and they have personally handled the sales enquiries with
customers. Vehicle deliveries have been made to local key workers where the vehicle
requirement is urgent and through home deliveries. Where this is the not the case, an order
bank has been built up.
Sales enquiries and orders taken during the lockdown have continually increased via the web
and telephone, particularly following the recent modest relaxation of the regulations in
England. Since the lockdown on 24 March 2020 and up to 23 May 2020, the Group has
taken 240 new retail and 1,640 used car retail orders. Used vehicle demand dominated at the
start of the lockdown but more balanced new and used demand patterns emerged over the
period. The Group has witnessed an increased mix of sales towards cheaper used cars in
the period. From 18 May, the Group has been able to undertake deliveries of vehicles to
customers from outside of its premises located in England. This enhances the sales
proposition and was a major move forward prior to full opening.
On 1 June English showrooms re-opened for sales. Scottish showrooms remain closed but
are able to make home deliveries.
Vehicle Sales - fleet
During the lockdown, the Group has maintained fleet sales capacity in all its operating
divisions to ensure that its large customer base continued to be served. This is critical since,
especially in the area of commercial vehicles, demand in certain essential sectors has been
robust. The Group undertook deliveries to end users utilising third party logistic partners.
Similarly, the Group’s online commercial vehicle sales operation, Vans Direct, has operated
normally but with a reduced sales team. Between 24 March and 23 May the business took
230 orders recommencing deliveries from May.
Overall, the Group fleet car and commercial vehicle operations have taken 1,966 orders from
24 March to 23 May 2020.
Aftersales
Our vehicle repair and parts supply businesses remained open during the lockdown in the
vast majority of locations, but at reduced capacity, in order to provide services initially to keep
key workers and essential vehicles on the road. The IFS estimated that 22% of the UK
workforce were key workers equating to 7 million people. Demand for regular servicing from
non-key workers was initially delayed and postponed due to restriction of movement for
customers, especially as the validity of MOTs was extended for six months from 1 April 2020.
The Group opened a higher proportion of its service operations than the vast majority of its
competitors and has therefore seen an increase in customers visiting who are new to the
Group. Customer feedback has been overwhelmingly positive that operations have been
open for them at an already stressful time.
Throughout the lockdown and particularly from mid- May the Group has increasingly added
additional capacity to the service operations in terms of contact centre capability, technician
numbers and trade parts resource. Bookings were extended from mid-May to include non-
key workers servicing and repair and forward booking levels for June are strong. The small
number of dealerships that were initially closed to all operations were reopened in England
from the 18 May for aftersales. Overall, the opening of service operations during the lockdown
generated cash and reduced losses compared to full closure.
The Group also operates an online parts retailer Aceparts, which sells parts and accessories
via the Ebay and Amazon marketplaces. This business has been particularly suited to the
lockdown environment and consequently sales revenues in April and May increased by
16.7% year on year from £0.6m to £0.7m per month, with enhanced profitability exhibited.
Vertu Motors plc (Company Number: 05984855)
14
Strategic Report (continued)
COVID-19 Impact (continued)
Expenses
The Group sought to minimise its underlying cost base during the period of closure of its
showrooms. As locations were closed, a detailed closure checklist was completed in order to
ensure both the security of the locations and the minimisation of ongoing costs such as
energy, with many supplies to the Group suspended during the closures. Close monitoring of
all areas of spend, to highlight where further cost reduction could be made, has been critical
and the Group has been aided in this by having a centralised approach to purchasing and
strong monitoring systems in areas such as energy. By way of example, a 60% energy
saving was delivered in the first month of lockdown compared to the previous month.
The Group’s greatest operating expense is its payroll cost. From late March, the Group
furloughed 82% of the 5,877 colleagues. The Group has claimed for the grants available for
furloughed colleagues under the Government’s Job Retention Scheme. These grants totalled
£1.8m in March, £8.1m in April and £7.8m in May.
The colleagues of the Group are a significant asset and their knowledge, skill and Values give
a competitive advantage. During the April and May lockdown period, the Group paid those
not on furlough leave at 100% of the previous six months average earnings and those on
furlough leave at 80% of previous average earnings. In addition, no Group colleague
received less than national minimum wage. Colleagues who joined the Group after 28
February 2020, and hence did not qualify for Government support, were also paid by the
Group in line with other colleagues. Pay levels in the period were subject to caps for high
earners and yet were substantially above Government support levels. The feedback from the
colleague base has been overwhelmingly positive in respect of the Group’s stance to date.
From June, remuneration support levels will be reduced as more colleagues return to work
from furlough leave and we seek to re-establish the link between remuneration and business
and individual performance.
In addition, in light of the effect of the pandemic, the Group’s Senior Management, who
remained at work, volunteered to take a 20% reduction in salary and members of the plc
board elected to take a 30% reduction in salary for the period from 1 April to the end of May.
In addition, with the agreement of the Remuneration Committee, the Executive Directors
agreed to waive their contractual annual bonus entitlement for the financial year ending 28
February 2021, notwithstanding that some elements may have entitled them to payment. As
a result of these actions the payroll cost to the Group for April and May combined is £13.4m,
net of Government Job Retention Grant support of £15.9m.
It is considered vital to maintain contact with all colleagues in this uncertain period and all
colleagues have received regular written and video updates to their own email accounts so
they are up to date with Group developments and feel included.
Property costs, including rent, rates, depreciation and cleaning are the next largest cost, after
payroll, in terms of their proportion of total Group operating expenses. The Group welcomed
the business rates relief from the Government, which has meant that the Group will pay no
business rates for 12 months from 1 April 2020 for much of its property estate. The
annualised saving is anticipated to be £10.6m, representing 90% of the Group’s total
business rates costs.
During this crisis period, Manufacturers and other major Group suppliers have provided
significant support to the Group in terms of cost reductions and cashflow assistance,
cognisant that their customer base was in a unique position. The Board is very grateful for
these measures and continues to work closely with partners to ensure that the business is in
the best position possible.
Cash flow and liquidity
The Group has a strong balance sheet, used vehicle inventory which is largely unencumbered
by used car stocking loans, and supportive banks.
The impact of the pandemic on the Group’s cash flows and liquidity position is considered in
detail in the financial overview section.
Vertu Motors plc (Company Number: 05984855)
15
Strategic Report (continued)
COVID-19 Impact (continued)
Post lockdown sales outlook
Our primary focus remains the continued health and safety of our valued colleagues and
customers. Meticulous planning has been undertaken for the re-opening of dealerships in a
safe and socially distanced way, with strict guidelines and the use of personal protection
equipment (PPE) where appropriate, once restrictions are lifted. The Group commenced
training of all colleagues in these matters prior to re-opening and has ensured that customers
are well informed as to the protocols, including the implementation of timed appointments in
sales and service and social distancing requirements. Dealership sales showrooms opened
in England on June 1 with Scottish sales outlets expected in due course. A phased return of
colleagues from furlough is being adopted to balance resource levels and opportunity.
The longer-term consequences of the virus on retail and fleet demand are not known,
however, the use of public transport and shared mobility may become less attractive, due to
the risks of close contact with others, increasing demand for vehicles for personal mobility
using private cars. In contrast, increased flexibility of the workforce in future may reduce the
demand for transport as more are able and choose to work from home. The evolution of the
UK vehicle parc going forward will be impacted by these factors.
Supply side impacts on new vehicles are also currently difficult to predict. Many
Manufacturers temporarily closed production lines during the pandemic. Supply chains have
been disrupted and are likely to take time to recover to previous levels. With Manufacturers
already stretched in terms of their investment in alternative power trains, the impact of this
disruption upon their liquidity, investment levels and ability to stimulate markets may also be
significant. Car makers in Europe have commenced the restart of production with the
introduction of improved cleaning and protective practices. Experience in China to date
points to manufacturing resuming relatively quickly, with most factories now reopened but with
reduced output. The scale of the production ramp up in Europe will determine the scale of
new car sales in the coming months and the level of supply in the market will also have an
impact on used car pricing dynamics.
A reduction in the UK new vehicle market in 2020 is certain, given the significant falls in
March through to May. Current SMMT forecasts are for the new car market to fall 27% from
2.31m to 1.69m in 2020 and light commercial vehicles are also expected to see a similar
volume reduction of 28% from 0.366m to 0.263m units. This is likely to have a significant
impact on the level of sales volumes achievable by the Group during the FY21 financial year.
Looking to the experience in China, new retail vehicle demand has seen a return to a little
over half previous levels in their early days of recovery post virus. This continues to improve
and there is also optimism in China that the new car market there will return to close to last
year levels by the summer. Certainly the rise of PCP financing in the UK sector in new cars in
recent years also creates a useful impetus to the new car change cycle, which is more
pronounced than previously and could help to underpin new car demand in the months
ahead.
One material consideration on future trading would be whether the UK Government seeks to
kickstart new car demand through an incentive scheme in partnership with the Manufacturers.
The introduction of an incentive programme may favourably change sector outlook in the
short term.
It is likely for a number of reasons that the UK market for used vehicles will recover quickly in
the short term as movement restrictions are lifted. Pent-up demand, aversion to public
transport and the increased staycations in the UK may all come into play here. By way of
illustration, a recent Autotrader survey indicated that 56% of UK holders of driving licenses,
who did not own a car, were actively considering a purchase. Online activity during the
lockdown has been robust as activity from other normal enquiry routes was shifted online and
used car pricing has been remarkably stable to date. The robustness of the used car market
in terms of volumes and pricing is also likely to be aided by a potential curtailment of new
vehicle production referred to above. It is difficult to forecast where used car pricing will go in
months following the re-opening of showrooms.
Vertu Motors plc (Company Number: 05984855)
16
Strategic Report (continued)
COVID-19 Impact (continued)
Post lockdown sales outlook (continued)
Clearly, the medium-term robustness of both the new and used car markets will be impacted
by economic growth trends and changes in employment rates. Higher unemployment levels
tend to reduce demand for cars in the UK, as less people need a car to get to work. A
recessionary environment could also drive consumers to be more cautious, reduce spending
and increase saving ratios. Finance providers may also become more risk averse so the
market may see more finance declines impacting sales. The used car market tends to be
more resilient than the new car market in such environments as people trade down to the
former from the latter.
Current trading and outlook summary
Vertu has well located dealerships, works with the right Manufacturers, with which it has good
relationships, has sector leading omni-channel capabilities, supportive banks, and very
motivated colleagues.
We are monitoring data daily and meticulous planning has been undertaken for the re-
opening of dealerships in a safe and socially distanced way, with customer and colleague
safety paramount and with a phasing of the return to work of colleagues from furlough leave
to match demand from customers.
The month of March initially tracked well with good vehicle sales demand for the first two
weeks of the month before dipping in the week running up to lockdown. Manufacturers’
supported the Group with enhanced or guaranteed bonuses and paid out on reduced
volumes. Adjusted profit before tax delivered in the month was £5.9m, well below normal
levels.
With lockdown severely impacting operations, April and May saw combined losses incurred of
£20m, which were significantly improved on the Group’s initial forecasts at the start of the
COVID-19 crisis.
Cashflow performance has been the focus of the Group during lockdown and the Board are
delighted with the progress made in collecting receivables, delivering stock and controlling
costs. Cash levels have been significantly higher than the Group’s initial forecasts with cash
balances at 22 May of £44.7m, up from £30.0m disclosed on 7 May.
Given the heightened uncertainty of any forecast at this current time, it is inappropriate to
provide any guidance with respect to market expectations.
The Board sees the Group as well-positioned to take advantage of the opportunities which will
arise. As a well-managed Group with strong culture, brands and systems, the Group has the
ambition to grow in scale as the sector consolidates as a result of the acceleration of
numerous trends. With its strong liquidity, disciplined approach to capital allocation and its
partnership with Manufacturers, the Group looks forward with confidence.
Financial Overview
Underlying operating profit
Continuing operations
Acquisitions
Net finance costs
Underlying profit before tax
Impairment charges
Impact of adoption of IFRS 16
Share based payments charge
Amortisation
VAT reclaim on dealer deposit contributions
Profit before tax
Vertu Motors plc (Company Number: 05984855)
17
2020
£'000
29,795
(733)
29,062
(5,561)
23,501
(14,378)
(478)
(733)
(595)
-
7,317
2019
£'000
27,391
-
27,391
(3,681)
23,710
-
-
(904)
(543)
3,069
25,332
Year on year
%
£'000
8.8%
100.0%
6.1%
51.1%
(0.9%)
2,404
(733)
1,671
(1,880)
(209)
(14,378)
(478)
171
(52)
(3,069)
(18,015)
Strategic Report (continued)
Financial Overview (continued)
The Group delivered an 8.8% growth in underlying operating profit from continuing operations
in the year ended 29 February 2020. The dealerships acquired in January and February
2020, together with their associated acquisition costs, contributed an operating loss of £0.7m
in the year, which reduced underlying Group operating profit growth to 6.1%. The losses
arose due to the timing of acquisitions at a low point in the normal annual cycle of sector
profitability.
Higher interest costs on new vehicle consignment inventory were incurred, which meant that
the Group’s underlying profit before tax declined slightly compared to the prior year. Despite
the impact of acquisitions, the Group delivered an adjusted profit before tax of £23.5m which
was in line with expectations. Profit before tax, including non-underlying charges of £16.2m,
predominantly in respect of impairment of assets, was £7.3m (2019: £25.3m).
%
Revenue
change
-
9.9
1.5
0.4
2.8
Gross
profit
change
£’000
(1,166)
5,558
63
7,497
11,952
Like-for-
like
Change
%
(1.5)
5.3
0.2
4.6
1.2
Like-for-
like
Gross
Profit
change
%
(3.5)
11.3
(0.4)
5.9
2.3
The Group’s income statement for the year is summarised below:
Revenue
New
Fleet & Commercial
Used
Aftersales
Total Group Revenue
FY20
£’000
862,517
708,528
1,235,381
258,104
3,064,530
Mix
%
28.1
23.1
40.3
8.5
100.0
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
FY20
£’000
Margin4
%
FY19
£’000
Margin4
%
7.4
3.1
8.4
43.9
10.8
9.9
Gross profit
New
Fleet & Commercial
Used
Aftersales
Total Gross profit
Operating expenses
Adjusted Operating Profit
Net finance charges
Adjusted PBT
Non-underlying items
Profit before tax
Taxation
Profit after tax
Adjusted Earnings per share
Earnings per share
Ordinary dividends per share
62,666
25,775
102,106
143,510
334,057
(304,995)
29,062
(5,561)
23,501
(16,184)
7,317
(4,330)
2,987
5.12p
0.81p
0.60p
7.3
3.6
8.3
46.9
10.9
10.0
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
5.10p
5.45p
1.60p
4Margin in aftersales expressed on internal and external revenue
Vertu Motors plc (Company Number: 05984855)
18
Strategic Report (continued)
Financial Overview (continued)
Total revenues in the year grew by 2.8% (£82.3m) and like-for-like revenues also grew by
1.2%. The Group saw growth in used vehicle selling prices and total volumes of used units
sold. Revenues and gross profit in the used channel were stable on a like-for-like basis
demonstrating a resilient performance given the volatility exhibited in the wider market in the
year. Aftersales exhibited growth in retail revenues and also in internal work, where the
hourly rate charged to the new and used sales departments increased. The changes in parts
distribution in the Ford franchise to a new agency model, also had a positive impact on Group
aftersales margins. Group margins grew considerably in aftersales from 43.9% to 46.9% as a
result. Used cars and aftersales represent approximately half Group total revenues and
approximately 74% of gross profit and reflect the fact that the business success of the Group
is far more resilient than being solely linked to the more volatile new car market. Group gross
margins increased to 10.9% from 10.8%. The Core Group, which excludes dealerships
acquired and sold and the impact of the Ford Parts Distribution reorganisation, saw gross
profits rise by £7m (2.3%).
Vehicle sales
The table below shows the volume of vehicles sold by the Group:
Used retail vehicles
New retail cars
Motability cars
Direct fleet sales
Agency fleet sales
Total fleet sales
Commercial sales
Total New vehicles
Total vehicles
2020
2020
Core Acquired5
1,389
706
75
1
201
202
2,011
2,994
4,383
83,382
31,995
9,647
16,854
5,503
22,357
15,783
79,782
163,164
2020
Total
84,771
32,701
9,722
16,855
5,704
22,559
17,794
82,776
167,547
2019
Total
84,444
35,412
9,795
15,735
3,419
19,154
16,327
80,688
165,132
2019
Core
83,465
35,122
9,736
15,727
3,419
19,146
16,327
80,331
163,796
Total
%
Variance
0.4
(7.7)
(0.7)
7.1
66.8
17.8
9.0
2.6
1.5
Like-for-
Like %
Variance
(0.1)
(8.9)
(0.9)
7.2
61.0
16.8
(3.3)
(0.7)
(0.4)
SMMT
%
Variance
(4.8)
5.7
0.9
2.1
5 Relates to businesses acquired or developed subsequent to 1 March 2019 with businesses migrating into core
once they have been in the Group for over 12 months
The volumes of vehicles sold by the Group remained relatively stable in the year with growth
in total sales achieved of 1.5% and like-for-like volumes down slightly by 0.4%.
New retail car and Motability sales
UK private new retail vehicle registrations during the year fell by 4.8%. Supply side issues,
such as continued Sterling weakness and changing regulations with regards to emissions,
continued throughout the financial year. In addition, volatile consumer confidence driven by
political and economic uncertainty, together with consumer uncertainty over powertrains, had
an impact on demand. The Group saw like-for-like new retail vehicle volumes fall 8.9%
reflecting the market decline and Group’s franchise mix, with some of the Group’s
Manufacturer partners seeing significant contractions in market share.
Motability volumes declined 0.9% on a like-for-like basis, compared to a rise in UK
registrations through this channel of 5.7%. The Group’s Motability volumes are heavily
weighted to volume Manufacturers, who reduced supply into this low margin channel as a
result of the impact of Sterling on margins and consequently saw lower market share in the
UK compared to premium franchises, which have continued to aggressively push volume into
this channel.
Vertu Motors plc (Company Number: 05984855)
19
Strategic Report (continued)
Financial Overview (continued)
New retail car and Motability sales (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
£18,521 in the year (2019: £17,286) representing a rise of 7.1%. The Group retained £1,451
of gross profit per new unit sold on a like-for-like basis (2019: £1,396) growing this measure
by 4.0%. Gross margin percentages on new vehicle retail sales fell from 7.4% in 2019 to
7.3%. Like-for-like gross profit generated from the sale of new retail and Motability vehicles
declined by £2.2m over the year as a consequence of the decline in volumes of cars sold
together with higher charges from the service department on preparing vehicles.
Fleet and Commercial vehicle sales
The Group outperformed the market in new fleet cars, growing like-for-like volumes, including
agency volumes, by 16.8% against a 0.9% growth in the UK fleet market. Agency volumes in
the fleet channel relate to vehicles where the Group receives a handling fee for the
registration, preparation and delivery of the vehicle, but where no vehicle sales revenue is
recorded. The Group saw considerable success in developing its fleet capacity in both the
premium and volume markets, with 22,559 cars delivered in the year. The Group was
particularly successful in increasing its share of Mercedes-Benz fleet business and also
supply to leasing companies in certain volume franchises.
The UK commercial vehicle market experienced disruption driven by the introduction of new
WLTP regulations which came into force for vans on 1 September 2019. Total Group sales
volumes of commercial vehicles increased 9.0% in the year, boosted by the additional volume
of the Vans Direct business acquired in January 2019. The Group delivered nearly 18,000
commercial vehicles in the year. Commercial vehicle sales remain a core competency of the
Group and where the Group has excellent levels of expertise. The Group’s like-for-like sales
volumes of new commercial vans declined by 3.3% in the year. This was below the market
trends, with this loss of market share reflective of the weighting of the Group’s commercial
vehicle operations to brands which saw greater declines in van registrations compared to the
market overall.
The Group successfully grew like-for-like gross profit per unit in the Fleet and Commercial
channel to record levels, increasing by 4.7% to £593 (2019: £566). Consequently, like-for-like
gross profit generation from the fleet and commercial channel rose £2.2m in the year. Like-
for-like fleet and commercial gross margin grew from 3.1% to 3.3%, aided by an increase in
agency volume.
Used Vehicles
During the year ended 31 December 2019, the total used car market in the UK recorded 7.9
million transactions, just 0.1% below 2018 levels6. The used vehicle market in the UK
experienced higher than normal seasonal price drops from April to June 2019, driven by
strong supply of vehicles (from March trading) entering the wholesale markets in a period of
increasingly weak consumer demand. In the second half of the financial year, UK used
vehicle supply tightened as the new car market continued to decline, restricting fresh supplies
of part exchanges into the wholesale markets. Used wholesale prices increased because of
these supply constraints and remained stable for the remainder of the financial year, so
underpinning used car margins as the year progressed.
During the year, the Group sold nearly 85,000 used vehicles, increasing total used vehicle
revenues by 1.5% (like-for-like 0.2%). This rise was driven by an increase in like-for-like
average used car selling prices in the year of 0.3% from £14,142 to £14,188 as well as a
0.4% increase in total used volume (like-for-like, a small decline of 0.1%).
Like-for-like gross profit generated from the sale of used vehicles declined by £0.3m in the
year (0.4%). The Group increased the internal labour rate charged by its service operations
in the preparation of new and used vehicles for sale. This increase effectively transferred
£2.9m of gross profit from the Group’s used vehicle department into the aftersales channel
and helped to drive the higher aftersales margins. Therefore, discounting this value transfer,
significant growth of used gross profit was delivered which, considering the market volatility,
was very pleasing.
Vertu Motors plc (Company Number: 05984855)
20
Strategic Report (continued)
Financial Overview (continued)
Used Vehicles (continued)
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. Gross profit per unit of £1,214 was delivered, which was in line with the prior year
despite the absorption of the additional charges from the service department and used margin
percentages were held at 8.6%. This represents an excellent used car performance. Supply
constraints from the summer onwards resulted in a rebalancing of the strategy on used cars
towards margin rather than volume growth.
6 Source: SMMT.
Aftersales
The Group’s high margin aftersales operations, which include servicing, parts supply and
accident repair 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 8.5% of Group revenues, it accounts for 43.0% of gross profit. On
1 March 2019, the Group increased the hourly rates charged on internal work undertaken for
the sales departments and this has augmented margins and Group profitability. Overall,
margins have also been aided by the change to an agency parts sales model in the Ford
franchise, with this activity excluded from the Core Group in the reported results.
There remains substantial opportunity to grow the volume of these higher margin aftersales
activities due to size of the UK vehicle parc in the UK, which currently comprises 37.1m7 cars
and vans. 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 the maintenance of the mix of warranty-related
work undertaken in the Group’s service departments, reflecting another strength of the
franchise retailer business model. It should be noted that around 50% of the Group’s retail
service revenues (excluding fleet customers) emanate from customers who have a Group or
Manufacturer service plan. We believe this is ahead of the sector generally with the Group
having over 102,000 customers paying monthly for servicing over a three year period,
boosting retention levels.
As part of the Group’s now largely completed programme of capital investment, service
departments were extended and restructured to increase the number of ramps available. The
Group is now benefitting from this additional capacity and this is helping to drive aftersales
profitability growth.
Manufacturers continue to pursue strategies to increase the efficiency of their parts
distribution networks. Ford changed their parts distribution model nationwide in the financial
year. As a consequence of these changes, Group parts revenues declined by £23.1m and
related profitability declined by £0.8m as anticipated. Vauxhall is currently in the middle of
reorganising their parts distribution model and this is expected to be complete by the end of
2020. Parts revenues are expected to reduce and profitability to decline by £0.9m as
previously announced.
7 Source: Gov.co.uk.
Vertu Motors plc (Company Number: 05984855)
21
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 revenues.
Revenue
Service
Parts and other
Like-for-like aftersales
Gross Margin
Service
Parts and other
Like-for-like aftersales
2020
£’m
124.7
156.3
281.0
77.0%
23.0%
47.0%
2019
£’m
116.8
151.6
268.4
75.4%
24.1%
46.4%
Variance
%
6.8
3.1
4.7
1.6
-1.1
0.6
The Group continued to focus on driving growth in its vehicle servicing departments,
achieving a 6.8% increase in like-for-like service revenues in the year. Approximately 50% of
this growth was as a result of the increase in internal charges to the sales departments. Like-
for-like margins of vehicle servicing rose to 77.0% (2019: 75.4%) with the increased hourly
rates charged to the sales departments augmenting margins by 0.7%. Technician salary
levels are stable and the Group drove higher average invoice values on retail work through
pricing actions and more effective vehicle health check processes.
Overall, like-for-like gross profits in aftersales rose £7.3m year on year, with the increase in
internal rate charges accounting for £3.9m of this improvement. There has been an excellent
underlying improvement in service operation profitability achieved through good execution.
Operating Expenses
In an inherently low margin business, it is vital that a disciplined framework of cost control is in
place and this is a core competency for operational management. The Group’s cost control
framework is built around a highly detailed business planning approach, undertaken annually
for all dealerships and cost centres. Once the business plans are established, costs are
benchmarked on a monthly basis using excellent analytical tools developed by the Group.
The Group is 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 five years with a remit to identify and execute productivity gains and these have borne
fruit. As previously noted, several significant projects are in place to increase operational
efficiencies and to reduce costs in the medium-term.
Core Group Operating Expenses
Employment and salary costs
Marketing costs
Occupancy costs
Other operating expenses
Non-Core Operating Expenses
FY20 acquisition operating
expenses
FY19 acquisition operating
expenses
Closed sites
Group Underlying Operating
Expenses
2020 % Revenue
%
£'000
2019 % Revenue
%
£'000
Year on year
£'000
%
142,370
31,013
33,410
76,069
282,862
2,216
17,548
2,369
4.6%
1.0%
1.1%
2.5%
9.2%
0.1%
0.6%
0.1%
140,091
28,945
32,009
77,944
278,989
4.7%
1.0%
1.1%
2.6%
9.4%
2,279
2,068
1,401
(1,875)
3,873
1.6%
7.1%
4.4%
(2.4%)
1.4%
-
0.0%
2,216
0.0%
11,833
3,892
0.4%
0.1%
5,715
(1,523)
48.3%
(39.1%)
304,995
10.0%
294,714
9.9%
10,281
3.5%
Vertu Motors plc (Company Number: 05984855)
22
Strategic Report (continued)
Financial Overview (continued)
Operating Expenses (continued)
Total underlying operating expenses in the year totalled £305.0m (2019: £294.7m) and as a
percentage of Group revenues, operating expenses were stable at 10.0% (2019: 9.9%). Like-
for-like operating expenses increased by £3.9m, an increase of 1.4%, which is significantly
reduced compared to the 4% growth seen in 2019. This is a pleasing result given the sector’s
cost pressures in particular around property and employment costs. This demonstrates the
focus which the Group has continued to place upon cost control.
The greatest expense of the Group is employment costs, which in the Core Group increased
by £2.3m (1.6%) over the financial year. Following investment in additional dealership
capacity, in particular, in aftersales, additional front of house colleagues were taken on to
facilitate the growth in customer numbers. This investment in the Group’s service operations
accounts for £1.5m of the total increase in Core Group salary costs. 15% of colleagues in the
Group were paid at the national minimum wage rate in 2019 and the UK increase in national
minimum wage rates in April 2019 accounted for £0.6m of the Group’s employment cost
increase. The proportionately bigger increase in national minimum wage in April 2020 means
that 17% of Group colleagues are now likely to be paid at this level.
As part of the Group’s strategy to build significant automotive retail brands with high levels of
awareness and to overcome weakness in consumer confidence, the Group invested in brand
marketing campaigns in the second half of the financial year. This utilised TV, online and
cinema campaigns and improved the awareness of the Bristol Street Motors and Macklin
Motors brands, aiding the sales operations through the generation of increased enquiries and
sales. This brand investment saw overall marketing costs increase by £2.1m compared to
prior year.
One of the other significant costs of the Group is occupancy costs in the form of property rent,
rates and insurance. The year on year increase of £1.4m represents both an increase in
business rates and depreciation (following capital investment in recent years).
Savings in other expenses of £1.9m have been achieved. For example, a significant saving
in the cost of telephony and call costs for the Group arose following investment in a telephone
system and network infrastructure.
Non-underlying Items
The Group delivered an Adjusted profit before tax of £23.5m. The following items have been
treated as non-underlying in arriving at Adjusted profit before tax:
Impact of adoption of IFRS 16
Impairment charges
VAT receipt – deposit contributions
Share based payments charge
Amortisation
Total non-underlying items
Impact of adoption of IFRS 16
Year ended 29
February 2020
Year ended 28
February 2019
£’000
(478)
(14,378)
-
(733)
(595)
(16,184)
£’000
-
-
3,069
(904)
(543)
1,622
The Group has adopted the requirements of IFRS 16 “Leases” for the first time in FY20. As a
result, a balance sheet asset has been recognised together with a corresponding obligation,
relating to the Group’s use of properties and other assets leased under multi-year
agreements. Comparatives have not been restated as is permitted under the transitional
arrangements.
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.
Vertu Motors plc (Company Number: 05984855)
23
Strategic Report (continued)
Financial Overview (continued)
Non-underlying Items (continued)
Impact of adoption of IFRS 16 (continued)
The balance sheet position at 1 March 2020 has been adjusted for right-of-use assets of
£87.0m, with corresponding lease liabilities of £96.9m. FY20 net profit before tax has
decreased by £0.5m as the pre-IFRS 16 rental charge has been replaced by higher
depreciation and interest. The depreciation is 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 impact of transition to IFRS 16 has had no impact on the Group’s cash position, but does
impact presentation within the cash flow statement. Operating lease rentals are no longer
presented within operating cash flow, but as a lease repayment presented within financing
cash flows. For the financial year ended 29 February 2020, the effect of the transition to IFRS
16 has been presented as a non-underlying item to aid comparability. Going forward, the
impact of IFRS 16 will be included within the Group’s underlying result
Impairment Charges
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. 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. The recoverable amount of a CGU is determined
based on value-in-use calculations. These calculations use pre-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, the time value of money and the risks specific to the CGUs.
• Growth rates are based on best management estimates by reference to industry
forecasts.
• Changes in gross profits and direct costs are based on anticipated scenarios, factoring in
an estimate of the impact of COVID-19, together with best estimation of future changes
in the market.
In the light of the substantial curtailment of operations in response to the global COVID-19
pandemic, a cautious assessment has been applied on the market outlook and, therefore, the
cash flow projections across all of the Group’s CGU’s. Specific modelling of cash flows for
the next two financial years has replaced the previous assumptions. The value in use model
reflects the full closure period of dealership sales operations in the year to February 2021,
followed by a further period of steady recovery to historic levels of performance for each CGU
by year three. The model assumes annual growth rates of between 0% and 3% will then
apply to years three to five in the forecasts. A growth rate of 0% has then been assumed to
perpetuity. A risk adjusted pre-tax discount rate reflecting the Group’s Weighted Average
Cost of Capital (“WACC”) of 8% (2019: 8%) has been applied.
The impact of COVID-19 on the Group has been treated as an adjusting post balance sheet
event. As a consequence, during the year ended 29 February 2020, impairment charges
totalling £14.4m have been incurred to align the carrying value with resultant value in use
calculations.
Vertu Motors plc (Company Number: 05984855)
24
Strategic Report (continued)
Financial Overview (continued)
Interest charges
Underlying net finance costs in the period totalled £5.6m (2019: £3.7m) with the substantial
increase arising due to higher new car stocking interest charges.
A £1.5m increase in stocking interest payable on new vehicle consignment stock arose,
reflecting an increase in interest rates charged and reduced free stocking periods offered, in
addition to increased opening inventory levels. Manufacturers increased supply of new
vehicles into the UK in advance of the initial date for the UK leaving the EU at the end of
March 2019.
used vehicle stocking loans
Bank interest payable
Vehicle stocking interest expense
- Manufacturer new vehicle consignment funding
-
Pension fund: net interest income
Underlying net finance charges
IFRS 16 Adoption impact
Net finance charges
Year ended 29
February 2020
Year ended 28
February 2019
Change
£’000
1,181
3,918
630
(168)
5,561
3,595
9,156
£’000
964
2,399
495
(177)
3,681
-
3,681
£’000
217
1,519
135
9
1,880
3,595
5,475
The full year impact of acquisitions completed in the year ended February 2019 led to an
increase in the average utilisation of both the Group’s bank borrowings and the utilisation of
used vehicle stocking loans.
The Group makes limited use of used vehicle stocking facilities, which it classifies as debt.
As at 29 February 2020, drawings on these facilities were £25.5m, representing just 21.1% of
used retail vehicle stock value (2019: £23.2m, 21.9%). The utilisation of such facilities by the
Group is at substantially lower levels than the industry peer group and this has allowed the
Group to use increased levels of this funding as one of the levers to secure additional liquidity
following the disruption to trade caused by the COVID-19 pandemic.
Pension Costs
The Bristol Street defined benefit pension scheme is closed to future membership and
accrual. At the last triennial valuation of the scheme, at 5 April 2018, the scheme was fully
funded and therefore no contributions are required from the Group to meet the cost of
accrued benefits under the scheme.
This defined benefit scheme holds assets with a value of £59.2m as at 29 February 2020 and
showed an accounting surplus of £8.9m, (2019 surplus of £6.4m). The improved surplus was
the result of returns on investments being higher than required to meet scheme obligations,
partially offset by an increase in the value of scheme liabilities. The increase in liability was
driven by a reduction in discount rate following falls in corporate bond yields over the financial
year.
Tax Payments
Taxation represents one of the single biggest costs to the Group. In the year, the Group
expensed £4.3m in corporation tax, £18.1m in Employers’ National Insurance Contributions,
£10.6m in business rates and £0.9m in the apprenticeship levy. These four taxes alone total
£33.9m (2019: £34.5m).
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 underlying effective rate of
corporation tax for the year was 19.2% (2019: 18.9%). The current year rate is slightly above
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.
Vertu Motors plc (Company Number: 05984855)
25
Strategic Report (continued)
Financial Overview (continued)
Capital Structure
The Group has a strong balance sheet with shareholders’ funds of £263.4m (2019: £276.6m),
representing net assets per share of 71.7p (2019: 73.8p) as at 29 February 2020. The Group
has tangible net assets of £168.8m (2019: £168.4m) and the balance sheet is underpinned by
a freehold and long leasehold property portfolio, including assets held for resale, of £212.2m
(2019: £209.1m). Debt levels in comparison are low. The Group has a robust tangible net
assets per share value of 46.0p (2019: 44.9p). This strong asset backing makes the business
resilient and able to withstand both the cyclical nature of the sector and shocks such as the
impact of COVID-19.
The Group finances its operations by a mixture of shareholders’ equity, bank borrowings and
trade credit from suppliers and Manufacturer partners. The position at 29 February and 22
May 2020 of the Group’s facilities and utilisation is set out below
Facilities at
29 February
2020
£’m
Drawn at
29 February
2020
£’m
Facilities at
22 May
2020
£’m
Drawn at
22 May
2020
£’m
5-year acquisition facility (from February 2019)
(further £15m uncommitted “Accordion”)
62.0
(43.6)
62.0
(53.7)
1 year working capital facility (from 30 April
2020)
Total committed facilities
Cash
Adjusted net debt (before used vehicle
stocking loans)
Used vehicle stocking loans
Overdraft
Total facilities
Net debt (excluding IRFS 16 liabilities)
Used vehicle inventory value
Cover on used vehicle facility
68.0
130.0
35.0
5.0
170.0
-
68.0
-
(43.6)
40.8
(2.8)
(25.5)
-
(28.3)
121.3
4.8 times
130.0
45.0
5.0
180.0
(53.7)
44.7
(9.0)
(30.5)
-
(39.5)
134.0
4.4 times
The Group has a five-year acquisition facility with Barclays Bank plc and Royal Bank of
Scotland plc which matures on 27 February 2024. This facility 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 29 February
2020, but in response to the potential impact of COVID-19 on the liquidity of the Group a
further £10m of this facility was drawn down in March 2020.
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. Interest was paid at the rate of LIBOR plus 1.3%
throughout the financial year to 29 February 2020, however, in the light of covenant waivers
obtained in respect of the impact of COVID-19 on the Group, interest will be payable at the
higher rate of LIBOR plus 2.1% from 1 June 2020 on these borrowings.
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 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 this latter 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.
Vertu Motors plc (Company Number: 05984855)
26
Strategic Report (continued)
Financial Overview (continued)
Capital Structure (continued)
In addition to conventional bank borrowing, the Group also utilises used car stocking loan
finance. 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 29 February 2020
represents less than 25% of the value of Group used vehicle inventories. Subsequent to the
financial year, the Group extended its used vehicle funding line by £10m to £45m to provide
additional liquidity, if required. Adjusted net debt, which excludes the balances drawn on
these used car stocking loans, is £2.8m (2019: net cash £22.9m).
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 other quarter ends. The Group has £73m of peak 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
with interest rates applicable to the revolving credit facility, interest payable on amounts
drawn under these facilities will increase to 1.75% above LIBOR from 1 June 2020. As at 29
February 2020, the Group had cash balances of £40.8m (2019: £66.5m) and, as a
consequence, net debt of £28.4m (2019: £0.3m).
Group Liquidity
During the financial year to 29 February 2020, 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 Directors have considered detailed financial
projections for a period of 12 months from the date of this announcement (‘Review Period’).
These projections are based on the Group’s detailed annual business plan, adjusted to
include assumptions around the financial impact of the global COVID-19 pandemic. The key
assumptions applied include:
• The period of temporary closure of all the Group’s sales operations from 23 March to
31 May in accordance with Government guidelines.
• Muted revenue projections, with an easing towards more normal levels over the
Review Period.
• The delivery of operating expense savings and cash savings such as a reduction in
capital expenditure.
The financial projections also assume the continued support of the Group’s Manufacturer
partners through their continued funding of new vehicle consignment inventory. The financial
projections assume that normal adoption timings are delayed for a significant proportion of
new vehicle inventories until the vehicles are sold. Past experience of the Group supports
this assumption. By their very nature forecasts and projections are inherently uncertain,
however, the forecasts so prepared show that the Group will operate within its committed
facilities, as set out above, throughout the Review Period.
Due to the impact of the lockdown on the Group’s EBITDA, the financial projections show that
existing bank covenants may be breached in future periods. Subsequent to the financial year
end, the Group obtained a waiver of covenants for the quarters ending 31 May and 31 August
in respect of the period impacted by COVID-19. The Board is confident that the Group’s
banks will agree to review the calculation of covenants after this date, as more certainty over
the impact of closure periods due to COVID-19 is obtained, so as to avoid the risk that a
future event of default will occur. In addition, the Group secured additional peak level working
capital facilities for the months of August and September to provide flexibility and liquidity
headroom should this be required. Further detail of the cash flow modelling and assumptions
applied is given in the basis of preparation section of note 1 to the annual report and financial
statements.
Vertu Motors plc (Company Number: 05984855)
27
Strategic Report (continued)
Financial Overview (continued)
Group Liquidity (continued)
Due to the inherent level of uncertainty over future financial performance and cash flows, as
well as the importance of the key assumptions underpinning the Group’s projections,
sensitivity analysis has been performed to model the impact of more adverse trends
compared to those included in the financial projections. These sensitivities seek to model the
impact of severe but plausible downside risks to the achievement of the financial projections.
The sensitivities applied were a further decrease in future sales rates and a reduction in the
proportion of new vehicle consignment stock assumed to be funded by the Manufacturers. In
the absence of mitigating actions available to the Group, when these sensitivities are applied
to the forecasts, they indicate additional banking facilities may be required over and above
those which are currently secured. Given the strength of the Group’s balance sheet and low
debt levels, the Board is confident that additional bank funding and covenant amendments
would be forthcoming if required. Based on what is known at this time and forecast
information available, the Board believes it appropriate to prepare accounts under the going
concern basis. The unqualified audit report on the 29 February 2020 financial statements
draws attention to the material uncertainty relating to going concern arising from COVID-19.
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.
In the first half of the financial year, the Group continued its Share Buyback Programme,
completing the purchase of 7.4m shares in the financial year. Whilst the Board believes that
the repurchase of Group shares remains an appropriate use of capital, the Buyback
programme will be suspended until greater clarity on the potential impact on the business of
COVID-19 is obtained. The Board intends to seek to renew approval to repurchase 10% of
the issued share capital at the forthcoming Annual General Meeting to maintain flexibility in
this regard.
Dividends
Cash returns to shareholders are an important part of the Company’s capital allocation
decision making process. During the nine-year period since the Group commenced payment
of dividends to its owners in 2011, over £34.8m has been returned to the owners of the Group
through dividends. The dividend has been funded from cash generated from operations. In
the light of the impact of COVID-19 on the Group, the Board does not propose a final dividend
for 2020. The Group recognises the importance of dividend returns to Shareholders and will
continue to review the ongoing situation with a view to the re-commencement of dividend
payments as soon as practicable.
Capital Expenditure
The cash impact of capital expenditure and disposals during the year and previous years is
set out below:
FY
2018
£'m
4.3
4.3
8.2
3.0
4.9
(0.6)
24.1
(14.1)
(0.2)
9.8
FY
2019
£'m
9.0
6.7
11.9
1.0
4.2
0.9
33.7
-
(4.0)
29.7
FY
2020
£'m
1.4
3.0
4.7
0.8
5.3
0.4
15.6
-
(3.0)
12.6
Purchase of property
New dealership build
Existing dealership capacity increases
Manufacturer-led refurbishment projects
IT and other ongoing capital expenditure
Movement on capital creditor
Cash outflow from capital expenditure
Proceeds from sale and leaseback
Proceeds from sale of property
Net cashflow from capital investment
Vertu Motors plc (Company Number: 05984855)
28
Strategic Report (continued)
Financial Overview (continued)
Capital Expenditure (continued)
As anticipated, the levels of capital expenditure reduced substantially year on year and are
anticipated to remain at these more subdued levels. The Group completed a number of key
projects in the year ended 29 February 2020 including the completion of the redevelopment of
the Reading and Slough Mercedes-Benz dealerships, Chesterfield Land Rover 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.
In terms of large-scale projects, the Group will compete its final projects in the coming months
being the development of the Nelson Land Rover showroom and redevelopment of Bradford
Land Rover to new brand standards and capacities. This brings an end to the large-scale
projects that have been undertaken by the Group over the last five years.
Managing Working Capital
The Group has generated cash from operating activities of £23.1m (2019: £51.0m) with cash
absorbed by an increase in working capital of £23.6m. This was due to an expansion of the
Group’s fleet operations, investment in additional working capital post acquisition in the sales
outlets acquired in January and February 2020 and higher general used vehicle stock levels.
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. The
successful growth of the Group’s fleet and commercial vehicle sales operations seen in the
year has contributed to the year on year growth in working capital as has the impact of
businesses acquired in the financial year, which were acquired with very low levels of working
capital and have subsequently been stocked up to normal levels.
New vehicle funded inventory reduced by £7.0m as high levels of new inventory seen at the
end of the last financial year partially unwound. A related £8.3m decrease in trade creditors
in the year was also seen. The Group has significantly expanded its fleet operations fuelled
by tactical registration activity in certain franchises. Fully paid new vehicle stock was
consequently high at 29 February 2020, growing by £11.9m to £57.1m compared to 2019
levels.
Trade receivables also grew by £8.4m year on year due to the growth in fleet vehicle sales
volumes and the impact of acquired businesses. Used vehicle inventory grew by £9.3m as
the Group saw tightened availability of used inventory levels in the market in the second half
and chose not to destock at the end of February as aggressively as it had in the prior year in
order to ensure March trading was not impacted by stock shortages.
s172 Statement
During the year ended 29 February 2020, the Board of Directors acted in a way they consider,
in good faith, would be most likely to promote the success of the company for the benefit of its
key stakeholder groups as a whole, in accordance with s172(1)(a)-(f) of the Companies Act
2006. Details of the Group’s strategic imperatives and progress made towards their delivery
during the year ended 29 February 2020 is presented on page 5 to 13.
The Board of Directors have identified the Group’s key stakeholder groups which are set out
below, including details of the nature of the relationship, the stakeholder groups’ key interests
and the methods used to engage with these groups. The potential impact on these
stakeholder groups is key to the Board’s decision-making process, including the likely
consequences of any decisions in the long term. The long term consequence of the Board’s
decision making is considered further in the Viability Statement on page 36 to 37.
Vertu Motors plc (Company Number: 05984855)
29
Strategic Report (continued)
s172 Statement (continued)
Set out below are details of the nature and quality of our key stakeholder relationships:
Stakeholder Why it is important to engage
Ways we engage
Customers
The Vertu mission statement is “to deliver
an outstanding customer motoring
experience through honesty and trust”.
Colleagues
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, as set
out on page 11 to 12.
Manufacturers The Group operates a franchise business
model and therefore strong ongoing
relationships with manufacturers are
fundamental to this.
• Customer satisfaction surveys
• Trust pilot reviews
• Social media engagement
• Dedicated customer services team
• Focus group meetings
• Colleague satisfaction survey
• Monthly team briefs and regular
communication
• Apprenticeship programme
• Training and development courses
• Colleague awards
• Monthly financial performance
reporting
• Manufacturer conferences
• Membership of Manufacturer dealer
performance
• Customer satisfaction
councils
scores
• Organisation along franchise lines
• Dealership portfolio
Finance
providers
Access to finance is essential for the
Group to execute its strategy as well as
providing customers with the ability to
finance vehicle purchases.
• Regular review meetings and
reporting
• Credit reviews
• Budget analysis
• Monthly compliance reporting
• Compliance reviews
Group suppliers are essential to delivery
of the Group business.
• Periodic supplier reviews
• Formal feedback and performance
Suppliers
Investors
Provision of clear and transparent
information is essential to inform
investment decisions model.
Regulators
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.
review
• Annual General Meetings (with voting
rights as set out on page 44)
• 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
• Local sponsorship arrangements
(For more details refer to the Corporate
and Social Responsibility Report on
page 39 to 42.)
Vertu Motors plc (Company Number: 05984855)
30
Stakeholders’ key
interests
• 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
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
• Execution of strategy
• Compliance with laws
and regulations
• Treating customers fairly
• Corporate and social
responsibility
• Environmental impact
Strategic Report (continued)
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 18, 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)
FY20 – Underlying EPS of 5.12p
FY19 – Underlying EPS of 5.10p
I
s
P
K
Underlying
PBT
Profit before tax and non-underlying
items
FY20 – Underlying PBT £23.5m
FY19 – Underlying PBT £23.7m
Gross
Margin by channel
Gross profit divided by revenue by
channel
See page 18
Like for Like Used
Volume growth
Number of used vehicles sold in
dealerships with comparable trading
periods in two consecutive years
FY20 – decline of (0.1%)
FY19 – growth of 5.3%
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
FY20 – decline of (8.9%)
FY19 – growth of 0.0%
UK private registrations
FY20 – decline of (4.8%)
FY19 – decline of (5.3%)
FY20 – Retail growth 6.8%
FY19 – Retail growth 7.6%
l
i
a
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
❶❷❸❹❺
❻❼❽❾❿
⓫⓬⓭⓮⓯
❶❷❸❹❺
❻❼❽❾❿
⓫⓬⓭⓮⓯
❷❸❹❺❻
❾⓮⓯
❷❸❺❻❾
⓬⓭⓯
❷❸❺❾⓬⓮
⓯
❷❻❽❾⓯
Online
Growth
Website visits to all Group trading
websites
FY20 – 15.7m visitors
FY19 – 14.0m visitors
❷❸❼❾❿
⓫⓯
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% (FY19: 97%) of our used vehicle
customers would recommend us –
Judge Service
❹❼❽❾
Vertu Motors plc (Company Number: 05984855)
31
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 page 47. The statement
by the auditors about their reporting responsibilities is given on page 76.
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
Vertu Motors plc (Company Number: 05984855)
32
Strategic Report (continued)
Risk Management and Internal Controls (continued)
risks, where it is considered necessary, specialist advice is sought from external agencies
and professional advisers.
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:
STRATEGIC
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
❷ Failure to meet
competitive challenges
to our business model
or sector
Loss of customers to
competitors
Reduced profitability
❸ Advances in vehicle
technology provide
customers with mobility
solutions which bypass
the dealer network
Business model
becomes obsolete
• Maintain strong relationships with manufacturer
partners to ensure that the Group remains a valued
and relevant candidate for any potential franchised
network development opportunities
• Thorough reviews of acquisition opportunities to
ensure Group investment hurdles are met
• Established process for swift integration of acquired
businesses into the Group
• The Group’s scale, technological capability and
diversification creates the ability to capitalise on
market opportunities
• Omni-channel development / digital progress
• Customer experience focus of the Group attracts
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 (Company Number: 05984855)
33
Strategic Report (continued)
Principal Risks and Uncertainties (continued)
ECONOMIC, POLITICAL AND ENVIRONMENTAL
Description of risk
Impact
Mitigation
❺ Economic conditions,
including the lasting
effects of the
measures to tackle
COVID-19 and the
potential
consequences of the
UK decision to leave
the EU, impacting
trading
Volume and margin are
affected particularly in
vehicle sales
Amendments to
franchise contracts,
embracing new
legislation
Taxes and tariffs
• Close monitoring of UK and European economic
conditions
• Maintain close relationships with manufacturer partners
• Focus on retention initiatives particularly in aftersales
• Focus on cost control
❻ Market and
environmental
considerations may
drive fluctuation in
used vehicle values
Used vehicle margin is
affected and value of
used vehicle inventory
may decline
• 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 changes
LEGAL AND REGULATORY
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 and/or
reputational impact
• Standard Group-wide policies and procedures are in
place to ensure compliance with relevant regulations,
adherence to which is overseen by the Compliance
Committee
❽ Failure to comply with
Health and Safety
(H&S) Policy
Injury to customers or
colleagues
•
In-house developed sales system to ensure regulatory
compliance and ease of customer journey, with key
checks in place.
• 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
• Group has a dedicated H&S Manager
• Group H&S Committee monitors compliance and
recommends any corrective or preventative actions
• Risk assessments in respect of COVID-19 carried out in
all locations
• Training for all colleagues
• Specific H&S dashboard developed, monitoring KPIs
•
Independent external H&S audits carried out
COLLEAGUES
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 (Company Number: 05984855)
34
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 or key system
Business is interrupted
• Robust business continuity process has been
provider is targeted for
malicious cyber attack
Data is compromised
• Policy prohibits installation of non-Group software
developed
• 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
⓯ Financial impact of
global COVID-19
pandemic
• Detailed working capital cash flow monitoring in place
• Maintain relationships with key banks
• Leverage Group relationship with OEM finance
companies and retail finance providers
• 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
Inability to secure
funding impacting on
distribution sales or
expansion opportunities
Variance in accounting
judgement impacts
profitability
Fluctuation in exchange
rates impact the
profitability of our
manufacturer partners
which may change their
prices or support
packages to the dealer
network
Deterioration in
profitability and cash
flow due to significant
curtailment of operations
in respect of the
Governments response
to the pandemic
Reduction in used car
stock values due to
lower sales volumes and
falling consumer
demand
Potential for economic
decline after restrictions
are lifted
• Monitoring of cashflow forecasts and modelling various
trading scenarios.
• Ongoing dialogue with banks to ensure facilities reflect
appropriate requirements (including both the waiver of
covenants for the period 1 March 2020 to 31 August
2020 and commitment by the Group’s banks to review
covenant measurement thereafter).
• Detailed stock management and reporting system with
internal limits in place to stimulate cash flows.
• Ongoing review of market data to align used car
valuations.
• Focus on cost control
.
Vertu Motors plc (Company Number: 05984855)
35
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 2020 following this year’s review.
Since the start of March 2020, to the Group has seen a substantial curtailment of operations
in respect of the Governments response to the global COVID-19 pandemic. By their very
nature forecasts and projections are inherently uncertain, inevitably the COVID-19 crisis has
heightened this uncertainty such that circumstances could arise under which extreme
downside scenarios may occur that would impact on the viability of the Group.
Nevertheless the strong financial position of the Group entering March 2020, the availability of
committed banking facilities, the Group’s utilisation of the Government’s Coronavirus Job
Retention Scheme and various other cash conservation measures aided the Board’s
assessment of viability in the light of the increase in uncertainty. The key assumptions and
sensitivities applied in the financial forecasts are detailed in the basis of preparation note on
page 84 to 85 of these financial statements.
Assessment of Viability
The Board has also considered the potential impact on the Group’s annual business plan and
its longer term strategic plan. A number of scenarios over and above those included in the
plan have been considered, that would represent serious threats to its liquidity. The principal
risks and mitigation steps that the Board considered as part of this viability assessment are
set out in pages 27 to 28 of the Strategic Report and as detailed in the basis of preparation
included in note 1 to the Consolidated Financial Statements.
Based on their assessment of prospects and viability as set out above, the Directors
acknowledge the uncertainty around reliable forecasting as a consequence of the unique
circumstances around COVID-19. Nevertheless, based on what is known at this time and
based upon the forecast information available, 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 2023.
Vertu Motors plc (Company Number: 05984855)
36
Strategic Report (continued)
Viability Statement (continued)
Going Concern
By their very nature forecasts and projections are inherently uncertain. Inevitably the COVID-
19 crisis has heightened uncertainty such that circumstances could arise under which
extreme downside scenarios may occur that would render the preparation of accounts based
on the assumption of a going concern inappropriate. If the downside scenario were to occur
or agreement were not to be reached on waiving covenants or extending facilities beyond
April 2021 this would indicate the existence of a material uncertainty which would cast
significant doubt over the Group’s ability to continue as a going concern. Based on what is
known at this time and based upon the forecast information available, the Directors believe it
appropriate to prepare accounts under the going concern basis and expect that agreement
will be reached on covenant waivers and extension of facilities and that the downside
scenarios will not occur. Therefore, the financial statements do not include the adjustments
that would result if the Group and Company were unable to continue as going concerns.
On behalf of the Board
Robert Forrester
Chief Executive Officer
3 June 2020
Karen Anderson
Chief Financial Officer
3 June 2020
Vertu Motors plc (Company Number: 05984855)
37
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
Nicola Loose
cosec@vertumotors.com
Registered office
Vertu Motors plc
Vertu House
Fifth Avenue Business Park
Team Valley
Gateshead
Tyne & Wear
NE11 0XA
Vertu Motors plc (Company Number: 05984855)
38
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:
1. Health and Safety
2. Environmental Management
3. Colleagues
4. 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.
As part of the Group’s planning around the re-opening of retail premises following the COVID-
19 lockdown, a sub Committee of the CEO Committee was formed to prepare a cohesive
approach to health and safety. This Committee prepared a COVID-19 Safety Policy, all
colleagues returning to work from furlough leave must confirm that they have read this policy
and watched the accompanying training video. Colleague consultation around the safety
measures introduced by this Policy was completed prior to 1 June 2020. Finally, the
Committee prepared a risk assessment which was completed by all dealership General
Managers for the sites under their responsibility by 22 May. Appropriate PPE has been
obtained and social distancing measures will be applied in all dealerships.
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.
During the year, Group locations received an independent external audit carried out without
prior warning 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
also provides 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
39
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. Hourly energy usage data is used to highlight areas of potential
wastage for attention.
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
40
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
supported colleagues placed on furlough through payments in April and May which were not
capped at amounts claimed through the Government’s Job Retention Scheme, including
payments at a minimum of National Minimum Wage. 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 29 February 2020
At 28 February 2019
Female
Male
Total
Female
Male
Total
Directors
Group Senior Managers
2
6
4
47
6
53
1
6
6
48
7
54
All Colleagues
1,474
4,470
5,944
1,369
4,222
5,591
• 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 online
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
41
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 three years the Group has raised more than £92,000 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 and Ashgate
Hospicecare in Chesterfield.
In the local community, the dealerships also support a range of sporting and recreational
initiatives including, the Dunston Silver Band and the Newcastle Eagles Basketball Club, plus
a variety of youth sports clubs and emerging individual talent across the country.
Vertu Motors plc
42
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 29 February 2020.
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 78. The
Group’s profit after taxation for the year was £2,987,000 (2019: £20,536,000).
The dividend paid in the year to 29 February 2020 was £6,122,000 (1.65p per share) (2019:
£5,657,000 (1.50p per share)). In light of the impact of COVID-19 on the Group, the Board
does not propose a final dividend in respect of the year ended 29 February 2020.
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 publish 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. On the day of the AGM, the
Board takes the opportunity to update shareholders on the Company’s trading position via an
RNS announcement. Normally, the Chairman and each committee chairman are available at
the AGM to answer questions put by shareholders present. This year’s AGM will be held with
only the quorum present and the results will be published on the Company’s website.
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 2019 Annual General Meeting will expire on the date of the 2020
General Meeting. Details of movements in the Company’s share capital are given in note 31
to the consolidated financial statements.
Vertu Motors plc
43
Directors’ Report (continued)
Appointment and Powers of the Company’s Directors (continued)
The Directors who served during the year ended 29 February 2020 and up to the date of this
Annual Report were:
A P Goss
R T Forrester
D P Crane
K Anderson (appointed 1 March 2019)
K Lever
P Best
P Jones (resigned 24 July 2019)
M Sherwin (resigned 1 March 2019)
R Forrester and P Best will retire and offer themselves for re-election at the 2020 Annual
General Meeting. At the date of the AGM, the unexpired term of the service contract of P
Best will be 2 years.
Directors who held office at 29 February 2020 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.
R T Forrester
K Anderson
D P Crane
K Lever
P Best
A P Goss
29 February
2020
Ordinary Shares
28 February
2019
Ordinary Shares
7,071,465
893,039
187,670
100,800
-
62,083
6,959,510
N/A
161,940
100,800
-
-
Details of related party transactions, which include transactions between Directors and Group
companies, are given in note 38 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
44
Directors’ Report (continued)
Share Capital
As at 29 February 2020, the Company’s issued share capital comprised a single class:
ordinary shares of 10 pence each of which 369,173,981 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 31 to the consolidated
financial statement. All issued shares are fully paid. During the year ended 29 February
2020, the Group continued its Share Buyback Programme under which 7,431,987 ordinary
shares of 10p each were repurchased at an average share price of 37p.
At 1 March 2019, 1,582,786 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 29 February 2020, 528,965 of the shares purchased by the
trust were transferred to individuals pursuant to exercises of options or sold to satisfy the
resulting tax, and a further 1,000,000 shares were purchased by the trust at a share price of
40p per share. 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.
2,053,821 ordinary shares in the Company remained held by the Trustee at 29 February
2020.
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 2019 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 29 February 2020.
Vertu Motors plc
45
Directors’ Report (continued)
Contracts (continued)
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.
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 26 and 27 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 39 to 42.
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 39.
Political Donations
The Group made no political donations and incurred no political expenditure during the year
(2019: 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.
Vertu Motors plc
46
Directors’ Report (continued)
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year.
Under that law the Directors have prepared the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European Union, and
the parent Company financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102
‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’, and
applicable law).
Under company law the Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group for that period.
In preparing these financial statements, the Directors are required to:
•
•
•
•
select suitable accounting policies and then apply them consistently;
state whether applicable IFRSs as adopted by the European Union have been followed
for the Group financial statements and United Kingdom Accounting Standards,
comprising FRS 102, have been followed for the Company financial statements, subject
to any material departures disclosed and explained in the financial statements;
make judgements and estimates that are reasonable and prudent; and
prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to
show and explain the Company’s transactions and disclose with reasonable accuracy at any
time the financial position of the Company and the Group and enable them to ensure that the
financial statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
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.
On behalf of the Board
Karen Anderson
Chief Financial Officer
3 June 2020
Vertu Motors plc
47
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 second structured in accordance with the QCA Code principles. The
Board continues to review the UK Corporate Governance Code as and when 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 report.
Andrew Goss
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 37. The Board meet
regularly to review and develop the Group’s strategy.
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 38 and the Board welcomes input from shareholders.
The Executive Directors contact all material shareholders to give them the opportunity to meet
with the Executive, in person or via video, 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. This year, the meetings are
expected to be by telephone or video conference as a result of the current restrictions around
COVID-19.
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 30.
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 32 to 35 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 three Non-executive Directors including the Chairman, together with three
Executive Directors. The Chairman was considered independent on appointment and the
other Non-executive Directors are considered to be independent.
Vertu Motors plc
48
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 54. 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 53 and 54 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 and Pauline Best are considered to be independent and Andrew Goss 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
2019-2020 year included changes to FCA Regulation to apply the Senior Managers and
Certification Regime to the Group.
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 repeated in
March 2020 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 2020 review, the Board will review its
meeting schedule and structure after the current COVID-19 situation.
Vertu Motors plc
49
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 and Karen Anderson for appointment in the last year. Where
appropriate the Committee uses external advisers to assist with candidate identification and
benchmarking.
Succession planning for other senior management roles is conducted by the HR Director and
CEO with input from other members of management as appropriate and overview by the
Remuneration Committee.
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 52.
Vertu Motors plc
50
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 FY2019
full year results and
FY2020 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
including the impact of
sector changes
Re-appointment of
auditors
Annual General
Meeting
Meetings with key
shareholders on
results roadshows.
Monitoring
Compliance and
Health and Safety
Committees
Adoption of Senior
Managers and
Certification
Regime by the
FCA regulated
entities in the
Group.
Annual review of
key Group risks
and mitigating
controls
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:
• Executive’s Directors Report – update on performance, strategic opportunities,
industry and property matters compliance update and colleague matters
• Health and Safety Report – Summary of training undertaken throughout the Group,
•
risk management plus commentary on any reported incidents
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 2020 AGM will take place on 20 August 2020. The AGM normally gives all shareholders
an opportunity to meet the Board and ask any questions they have regarding the Group and
the Board encourages participation of private shareholders at the AGM. However, the Board
understands that it is not always possible for shareholders to attend, and in 2020 the AGM will
be held without any shareholders present other than the quorum. Instructions are sent to
shareholders to enable them to appoint a proxy electronically via an on-line proxy form.
Details of voting on resolutions at the AGM are then made available on the Company’s
website.
Vertu Motors plc
51
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 COMPLIANCE
COMMITTEE
NOMINATION
COMMITTEE
COMMITTEE
HEALTH AND
SAFETY
COMMITTEE
Members
PLC BOARD COMMITTEES
• K Lever (Chair)
• A P Goss
• P Best 1
• P Best (Chair)
• P Jones 2
• K Lever
• P Jones (Chair) 2
• A P Goss (Chair)3
• K Lever
• A P Goss
• P Best
• R T Forrester
• D P Crane (Chair)
• 4 Senior
• K Anderson
• N Loose
• 2 Senior Managers
Managers
• H & S Manager
(Chair)
• D P Crane
• K Anderson
• N Loose
• 10 Senior
Managers
Delegated
authorities
Reviews
• Financial reporting
• Remuneration
• Balance of the
• Review,
• Compliance with
• Financial risk
management
policy
Board
• Incentive plans
• Leadership of the
• Internal control
• Performance
targets
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
• 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
auditors
• Audit tender
• Auditors’
remuneration
structure of
Executive
remuneration
• Remuneration
policy
• Composition of
• Group HR and IT
• Adequacy and
• Health & Safety
the Board
strategy
• Skills, knowledge
& experience on
the Board
• Diversity
• Allocation of
resources
(financial and
colleague)
• Group
effectiveness of
Group policies in
response to current
law and regulation
• Licences and
consents required
performance
• Internal regulatory
audit
policies and
procedures
• Health & Safety
audits
• Accident
statistics and
causes
• Appointments to
the Board
• Annual business
plan to the Board
• Group Vision
• Training
• Training
• Policy change
• Policy change
• Remedial or pre-
emptive action
• Remedial or pre-
emptive action
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
• Appropriateness
of Remuneration
policy
• 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
• Remuneration
• Appointments for
• Appointments to
• Reports to the
• Reports to the
Executive
Directors
• Skills profile for
Non-Executive
Directors
policy
• Remuneration
packages for
Executive
Directors
• Design of long
term incentive
plans
dealership
management
positions
• Performance
related
remuneration of
dealership
colleagues
• Operational
process and
changes
Board
Board
• Submissions to
• Changes to
relevant authorities
relevant policies
• Training
programmes
• Changes to
relevant policies
and processes
• Training
programmes
• Whistleblowing
procedures
1 P Best was appointed to this committee on 25 April 2019.
2 P Jones served on this committee until resignation from the Plc Board on 24 July 2019.
3 A P Goss was appointed Chair of the Nomination Committee on 24 July 2019.
Vertu Motors plc
52
Corporate Governance Report (continued)
Board of Directors
Andrew Goss - Non-Executive Chairman
Appointed as a director on 3 September 2018, appointed as Chairman 24 July 2019.
Andrew (62) brings to the Group 40 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.
Andrew was appointed as Non-Executive Chairman of the Group on 24 July 2019 after
previously having served as Non-Executive Director.
Ken Lever – Non-Executive Director
Appointed 1 June 2015
Ken (66) 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 (56) 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
Robert Forrester – Chief Executive Officer
Appointed 6 November 2006
Robert (50) 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 (52) 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
53
Corporate Governance Report (continued)
Board of Directors (continued)
Karen Anderson – Chief Financial Officer
Appointed 1 March 2019
Karen (48) 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
A P Goss
P Jones 1
R T Forrester
D P Crane
K Anderson
K Lever
P Best 2
16
8
16
16
16
16
16
15
8
16
16
16
16
15
3
1
-
-
-
3
3
3
1
1
-
3
3
2
2
2
-
-
-
2
2
-
2
-
-
-
2
2
8
4
-
-
-
8
8
7
4
-
-
-
8
8
1 P Jones resigned on 24 July 2019
2 P Best was appointed to the Audit Committee on 25 April 2019
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
3 June 2020
Vertu Motors plc
54
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, A P Goss and P Best following her
appointment to the Audit Committee on 25 April 2019. The Committee met three times during
the financial year and attendance is shown in the table on page 54.
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 52.
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
Valuation of
inventory
impairment review on
Management performed a detailed
the goodwill, other
intangibles and tangible assets, in the consolidated financial statements of the Group,
based on forecast future cash flows. In the light of the curtailment of operations in
respect of the Governments response to the global COVID-19 pandemic, a revised
assessment of future cash flows has been applied. As a result, the detailed impairment
review resulted in the Group incurring an impairment charge of £14,754,000 against
the carrying value of goodwill and an impairment charge of £2,124,000 against two of
the Group’s freehold properties. Further details of the impairment charge are provided
in notes 15 and 18 of the consolidated financial statements. 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 February 2020 carrying amounts shown in notes
15, 16 and 18 of the consolidated financial statements following the impairment
charges noted above were appropriate and approved the disclosures.
The Group’s assessment of the valuation of used vehicle inventory at 29 February
2020 involves an element of estimate to determine the expected net realisable value
post year end. Significantly reduced sales, as a result of the temporary closure of all
UK vehicle sales showrooms on 24 March 2020, in accordance with Government
guidelines in response to the global COVID-19 pandemic, have increased uncertainty
over vehicle valuations. Key assumptions used in the valuation of used vehicle
inventory at 29 February 2020 include sales which took place post year end but prior to
the closure of sales operations, confirmed order take during the lockdown period, latest
industry guidance and historical trends.
The committee reviewed and challenged the assumptions applied in determining the
valuation of inventory at 29 February 2020 as shown in note 21 and concluded that
these were appropriate.
Vertu Motors plc
55
Corporate Governance Report (continued)
Audit Committee Report (continued)
Significant Issues (continued)
Significant issue Action taken
Viability and
Going Concern
Management have prepared detailed financial projections for a period of 12 months from
the date of signing the financial statements (‘Review Period’). These projections are
based on the Group’s detailed annual business plan, adjusted to include assumptions
around the financial impact of the global COVID-19 pandemic. The key assumptions
applied include:
•
The period of temporary closure of all the Group’s sales operations from 23
March in accordance with Government guidelines.
• As restrictions are lifted revenue projections are muted with an easing towards
more normal levels over the Review Period.
•
The delivery of operating expense savings and cash savings such as a reduction
in capital expenditure.
Management have reviewed the output of these detailed projections alongside the
Group’s funding facilities and banking covenants, further details of which are provided in
note 1 of the consolidated financial statements, including the waiver of banking covenants
for the May 2020 and August 2020 test periods.
Sensitivity analysis has been performed to model the impact of more adverse trends
compared to those included in the financial projections to model the impact of severe but
plausible downside risks. In the absence of mitigating actions available to the Group,
when these sensitivities are applied to the financial projections, they indicate additional
banking facilities may be required in 2021 over and above those which are currently
secured.
By their very nature forecasts and projections are inherently uncertain. Inevitably the
COVID-19 crisis has heightened uncertainty such that circumstances could arise under
which extreme downside scenarios may occur that would render the preparation of
accounts based on the assumption of a going concern inappropriate. If the downside
scenario were to occur or agreement were not to be reached on waiving covenants or
extending facilities beyond April 2021 this would indicate the existence of a material
uncertainty which would cast significant doubt over the Group’s ability to continue as a
going concern. Based on what is known at this time and based upon the forecast
information available, the Directors believe it appropriate to prepare accounts under the
going concern basis and expect that agreement will be reached on covenant waivers and
extension of facilities and that the downside scenarios will not occur. Therefore, the
financial statements do not include the adjustments that would result if the Group and
Company were unable to continue as going concerns.
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 36 and 37.
Pension
benefits
Manufacturer
bonus income
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 30) at 29 February 2020 and confirmed that these were
appropriate.
Income is received from manufacturer partners in the form of rebates and volume related
bonuses. A Group wide income recognition policy is in place in respect of this income.
Management allocate responsibility to Divisional Finance Directors, as nominated
‘franchise experts’ to ensure bonus programmes are fully understood and communicated
to Dealership teams. The Group’s internal audit function reviews the treatment of
manufacturer bonus income recognition on a dealership by dealership basis. The
Committee also considered the review performed by the external auditors.
The Committee concluded that it was satisfied with the income recognition policy, and
with the appropriateness of the controls currently in operation, over manufacturer bonus
income recognition.
Vertu Motors plc
56
Corporate Governance Report (continued)
Audit Committee Report (continued)
Significant Issues (continued)
Significant issue Action taken
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 of the consolidated financial statements.
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 on adoption of IFRS 15 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 71 to 77.
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 29 February 2020, covered both balance sheet and sales process
audits as well as audits of key financial control processes. The Group Risk team met with the
Committee without the presence of management.
External Audit
for a
further year subject
The Audit Committee has recommended to the Board that a resolution be put to shareholders
at the Annual General Meeting to reappoint PricewaterhouseCoopers LLP as auditors of the
Company
their continued satisfactory performance.
PricewaterhouseCoopers LLP have been appointed as auditors to the Company for the
previous twelve financial years. In accordance with ethical standards requirements the audit
partner responsible for the engagement was subject to rotation after each five year period and
since February 2019 has been 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 29 February 2020.
to
The external auditors attend some of the Committee meetings and the Committee meets with
the external auditors without management present.
Vertu Motors plc
57
Corporate Governance Report (continued)
Audit Committee Report (continued)
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 PricewaterhouseCoopers 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
3 June 2020
Vertu Motors plc
58
Remuneration Committee Report
Annual Statement from the Chairman of the Remuneration Committee
Introduction
On behalf of the Board, I am pleased to present our Directors’ Remuneration Report for the
year ended 29 February 2020. 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 2020 and is provided for information to
shareholders; 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 29 February 2020 and is subject to an advisory shareholder vote at this
year’s AGM.
The information in the Directors’ Remuneration Report set out on pages 67 to 68 highlighted
as being subject to audit, has been audited by the Group’s auditors.
This year’s report has been written in the midst of the evolving situation regarding COVID-19
and, although it addresses some of the issues created by that and reflects the response and
actions that have been taken to date, the Committee is very conscious that it will need to keep
the remuneration of directors under review throughout the year, and that there may be further
changes necessary as the position and impact on the Company become clearer.
Key remuneration decisions for the year to 28 February 2021
Over the course of the last financial year, the Committee carried out a comprehensive review
of Executive Director packages, using the support of an independent remuneration
consultant, to ensure that the Company was providing appropriate motivation and
incentivisation. The Committee considered comparisons with the small cap market as well as
the rest of the automotive retail sector in the UK. From this review, it was apparent that the
Company’s executive packages were low compared to the market, and the Committee
decided that there needed to be an adjustment to ensure that there was no future retention
issue. As a result of this review, the basic salaries for R Forrester and K Anderson were
increased with effect from 1 March 2020. The salary for K Anderson was also increased as
part of her development into the CFO role following personal targets having been met. The
Committee believes that the revised salaries are competitive at the mid-market level.
The Executive Director annual bonus structure and amount agreed for the year commencing
1 March 2020 was unchanged and reflected measures on financial performance, customer
satisfaction and colleague stability. The potential bonus earnings for the CEO and CFO have
consequently reduced as a percentage of basic salary. Profit targets were updated to reflect
the expected results for the coming year as at the time of business planning before the start
of the financial year.
Over the course of the last year, the Committee has also considered the form and level of
awards made to Executive Directors under the Group’s Long Term Incentive Plan (“LTIP”)
and had proposed to consult shareholders on an alteration to the scheme for approval at this
year’s Annual General Meeting. In the light of the current situation, this has been postponed
and may be considered further by the Committee later in the year.
Other senior management colleagues in the Group received a new form of share incentive for
the year commencing 1 March 2020. Under this scheme, colleagues received nil cost share
options in the Company pro rata to their basic salary. The amount of options vesting are then
determined by the performance of that individual colleague against their annual bonus
targets. Vested options can then be exercised after February 2024 if colleagues remain
employed by the Group. The Committee believed that this provided an additional element of
remuneration to ensure the Group remains competitive in the market and would have the
longer term benefit of increasing colleague ownership of shares in the Company and acting
as a retention tool.
Vertu Motors plc
59
Remuneration Committee Report (continued)
Annual Statement from the Chairman of the Remuneration Committee (continued)
COVID-19
In light of the significant impact of COVID-19 on the Group, the Committee has carried out
further reviews of remuneration for the coming year.
Under the terms of the Governments response to the pandemic, the Group’s vehicle sales
operations were required to close on 24 March 2020. The Company used the furlough
scheme outlined by the Government to agree that approximately 80% of Group colleagues
would be placed on furlough leave from dates in March and April. The Group has applied for
grants under the Government’s Job Retention Scheme in respect of such furloughed
colleagues. All furloughed colleagues, including new starters, received 80% of their average
earnings in April and May with a minimum payment of National Minimum Wage. The £2,500
per month cap in Government funding was not applied to colleagues’ pay. All colleagues who
remained at work were paid in full (other than certain senior management who accepted a
pay cut and other higher paid colleagues where certain caps were applied). The Directors
were unanimous that supporting colleagues at this critical time was the appropriate action to
take.
In consultation with the Executive Directors, no alteration to the LTIP will be proposed for this
year and the Committee has further resolved that no awards under the LTIP scheme will be
issued to the Executive Directors for the year commencing 1 March 2020. In addition, the
Executive Directors have waived their right to the LTIPs issued in the year ended 29 February
2020 and these have been cancelled.
The Executive Directors have also waived 30% of their basic salary and pension contribution
for the months of dealership closure of April and May. The non-exec directors of the
Company have taken a corresponding reduction in fees. With the agreement of the
Committee, the Executive Directors have also agreed to waive their annual bonus entitlement
for the financial year ended 28 February 2021, notwithstanding that some elements may have
entitled them to payment.
In addition, other senior management have waived 20% of basic salary and pension
contribution for the months of dealership closure of April and May.
As a consequence of the significant curtailment in sales activity resulting from the COVID-19
impact, it is unlikely that bonus for the financial year to 28 February 2021 will now be paid to
the majority of senior colleagues. This will be reviewed by the Committee later in the year
and the Committee reserves the right to determine that alternative incentives, whether cash or
share based, are provided to non-director colleagues for performance where appropriate.
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 29 February 2020. 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. 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
3 June 2020
Vertu Motors plc
60
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 ordinarily 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. No bonus will be paid
for the 2020/21 financial year
following a waiver by the
executive directors in response
to the impact of COVID-19 on
the Group.
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 normal policy of the
Committee to cap maximum
annual bonuses. The level of
such caps are reviewed annually.
Targets are based on
adjusted profit before
tax of the Group and
customer outcome
measures.
The Committee sets
performance measures,
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 of
75%.
Payment of any bonus
earned is subject to
overriding discretion of
the Committee in the
event of gross
misconduct.
Vertu Motors plc
61
Remuneration Committee Report (continued)
Remuneration Policy (continued)
Future Policy Table (continued)
Operation
Maximum potential value
Performance metrics
No options will be issued to the
Executive Directors for the
2020/21 financial year.
permitted
annual
Maximum
award of options under the LTIP
is 125% of basic salary.
Vesting is subject to a
target adjusted profit
before tax over the
performance period.
The metrics for use
from 2021 onwards are
under review.
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
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.
Normally, 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 2 year
holding period required
following the vesting period
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.
None
Director
The Group currently makes
payments of up to 16.5% of basic
salary into any pension scheme
or similar arrangement as the
Executive
may
reasonably request.
Such payments are not counted
for the purposes of determining
bonus or LTIP levels.
Any new Directors would receive
a pension contribution in line with
the majority of the workforce.
Vertu Motors plc
62
Remuneration Committee Report (continued)
Remuneration Policy (continued)
Notes to the Policy Table
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 described above to Executive Directors
(although they were historically granted to other senior management).
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 and other share
schemes.
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 was in relation to
the amendments to the LTIP performance criteria approved at the 2019 AGM. 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 (subject to the statement regarding pension contributions and any specific personal
targets or development), 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.
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
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.
Details
Executive Directors may be
required
the
notice period.
to work during
Vertu Motors plc
63
Remuneration Committee Report (continued)
Remuneration Policy (continued)
Directors’ Service Contracts, Notice Periods and Termination Payments (continued)
Provision
Policy
Details
Treatment of LTIP
awards
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
leaver
circumstances
Good
comprise death, illness, injury,
disability, retirement, transfer of
employing
outside
Group
exceptional
circumstances at the discretion
of the Committee.
business
or
take
into account
The Committee’s determination
the
will
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.
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
NON-EXECUTIVE DIRECTOR (‘NED’) FEES
To attract NEDs who have a
broad range of experience
the
and skills
implementation of our strategy
to oversee
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
64
Annual rate set out in the annual
report on remuneration for the
following
current year and
year. No prescribed maximum
annual increase.
the
The cost of providing benefits is
borne by the Company and varies
from time to time.
Directors’ Remuneration Report
Remuneration Policy (continued)
Total 2020/21 Remuneration Opportunity
The chart below illustrates the remuneration that would be paid to each of the Executive
Directors in 2020/21 financial year 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 28 February 2021. Subsequent
to 29 February 2020, the June 2017 LTIP awards lapsed in full as a result of not satisfying the
relevant performance conditions. The waiver of bonus and LTIP mean that the figures
payable under each scenario are the same for the 2020/21 financial year.
Vertu Motors plc
65
Directors’ Remuneration Report (continued)
Remuneration Policy (continued)
Total 2020/21 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 2020/21 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 28
February 2021.
The on-target scenario assumes that for the annual bonus, adjusted profit is in line with
financial targets.
Annual report on remuneration
The annual salaries and fees to be paid to Directors in the year ending 28 February 2021 are
set out in the table below, together with any increase expressed as a percentage.
R T Forrester
K Anderson2
D P Crane
K Lever
P Best
A P Goss3
Annual Salary/fees
28 February
2021
£’000 1
355
250
250
55
40
100
29 February
2020
£’000
315
170
250
55
40
75
Increase
%
12.7%
47.1%
-
-
-
33%
1 The Executive Directors have waived 30% of their basic salary for the months of April and
May, and the Non-Executive Directors have waived 30% of their fees for the months of April
and May. The figures in the table above do not include this reduction.
2 The salary for K Anderson was increased as a result of a stepped-increase linked to
individual goals as part of development into the CFO role, as well as the wider market review.
3 A P Goss was appointed Non-Executive Chairman of the Group on 24 July 2019. Prior to
this, he served as a Non-Executive Director and therefore the annual salary for the year
ended 29 February 2020 reflects the full year equivalent of the amount received while serving
as Non-Executive Chairman.
Vertu Motors plc
66
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 2019 to 29
February 2020 is as follows:
Salary or fees
£’000
Taxable
Benefits6
£’000
Pension
£’000
Bonus
£000
Long Term
Incentive Plan7
£’000
Single total
figure
£’000
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Executive Directors
R T Forrester
K Anderson1
M Sherwin1
D P Crane2
Non-Executive Directors
P Jones3
K Lever
N Stead4
P Best
A P Goss5
315
170
-
250
28
55
-
40
76
315
-
210
117
70
55
33
40
20
3
3
-
3
1
-
-
1
1
3
-
3
2
1
-
1
1
1
52
28
-
41
-
-
-
-
-
52
-
35
19
-
-
-
-
-
283
106
-
106
-
-
-
-
-
246
-
166
51
-
-
-
-
-
37
14
-
14
-
-
-
-
-
-
-
-
-
-
-
-
-
-
690
321
-
414
29
55
-
41
77
616
-
414
189
71
55
34
41
21
1. M Sherwin resigned on 1 March 2019 and therefore there is no data for the year ended 29 February 2020. On the same date K Anderson was appointed and therefore there is no comparative
2.
3.
4.
5.
6.
7.
data for the financial year ended 28 February 2019.
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.
P Jones resigned on 24 July 2019, his fee for the year to 29 February 2020 represents payments made from 1 March 2019 until the date of resignation.
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. On 25 July 2019, A P Goss was
appointed Non-Executive Chairman.
Taxable benefits 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. The LTIP awards eligible for vesting during the year ended 29 February 2020 vested at a rate of 37%.
The remaining 62% lapsed as a result of not satisfying the relevant performance criteria.
Annual Bonuses
The annual bonus for each of the Executive Directors is comprised of three different
performance measures. The actual, on target and maximum earnings against each of these
measures for the year ended 29 February 2020 are set out below, as well as further detail of
the performance criteria.
R T Forrester
Actual On Target Maximum Actual
£’000
£’000
£’000
£’000
K Anderson
On Target Maximum Actual
£’000
£’000
£’000
D P Crane
On Target Maximum
£’000
£’000
Group Performance
Related Bonus
Customer Outcome Bonus
Colleague Stability Bonus
Total
219
56
8
283
225
56
15
296
450
56
15
521
80
18
8
106
82
18
15
115
164
18
15
197
80
18
8
106
82
18
15
115
164
18
15
197
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 £24m. The profit bonuses accruing to the
Executive Directors in respect of the year ended 29 February 2020 are shown below:
Performance measure
Actual Performance
Threshold performance
Maximum
Adjusted PBT
£’000
23,501
24,000
31,330
R T Forrester
% Basic salary
payable
69.9%
71.4%
142.9%
K Anderson
% Basic salary
payable
47.2%
48.2%
96.5%
D P Crane
% Basic salary
payable
32.1%
32.8%
65.6%
Customer Outcome Bonus
A customer outcome bonus is also 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 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.
Colleague Stability Bonus
In addition to the Group performance related bonus and the customer outcome bonus, a
colleague stability bonus is available based on the percentage of colleagues with greater than 12
months service on 29 February 2020, excluding incremental headcount and acquisitions. The
bonus available was £7,500 where the Group achieved a stability level of 77.5% and a further
£7,500 where the Group achieved a stability measure of 80%.
Vertu Motors plc
67
Directors’ Remuneration Report (continued)
Pensions
The Group operates a group personal pension plan for eligible colleagues. R T Forrester 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 29
February 2020.
Directors' Share Options
The movement in share options held by the Directors during the year ended 29 February 2020 is
as follows:
Exercised in
Year
(107,565)
(40,337)
(80,674)
(40,337)
Number at 1 March
2019
855,092
1,152,331
641,320
1,235,914
Lapsed in Year
(182,289)
(68,358)
(136,717)
(68,358)
Granted in Year
466,665
350,876
-
350,876
R T Forrester
K Anderson
M Sherwin 1
D P Crane
1 As M Sherwin resigned on 1 March 2019, 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 The June 2017 LTIP issue lapsed in full subsequent to 29 February 2020 as a result of not satisfying the relevant performance
criteria. This included options held by R T Forrester, K Anderson and D P Crane of 303,030, 113,636 and 113,636 respectively and
227,273 held by M Sherwin.
3 Subsequent to 29 February 2020 the Executive Directors waived their entitlement to the options granted in the year and these have
now been cancelled. Following cancellation of the 2019 LTIP options and lapse of the 2017 LTIP options, the remaining share options
held by R T Forrester, K Anderson, and D P Crane are 262,208, 930,000 and 1,013,583 respectively and 196,656 held by M Sherwin.
Number at 29
February 20202 3
1,031,903
1,394,512
423,929
1,478,095
Options issued prior to February 2019:
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 is:
Group ROE1
Less than 8%
More than 8% but less than 10%
10% or more than 10%
Proportion of awards subject to ROE condition
vesting
0%
Straight line vesting 0 – 100%
100%
1
ROE is measured as average annual adjusted profit after tax as stated in the financial statements for the performance
period, divided by average Group Net Assets.
CSOP Options vesting criteria
Options issued on 2 July 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 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 57.5% none of the options
are exercisable.
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
68
Directors’ Remuneration Report (continued)
Information not subject to audit
Statement of Directors’ Shareholding
The Directors who held office at 29 February 2020 and their connected persons had interests
in the issued share capital of the Company as at 29 February 2020 as follows:
Number of shares held (including
by connected persons)
29 February
2020
7,071,465
893,039
N/A
187,670
N/A
100,800
-
62,083
28 February
2019
6,959,510
N/A
492,796
161,940
1,750,000
100,800
-
-
Vested unexercised share
options
Unvested share options subject
to performance conditions3
29 February
2020
-
430,000
N/A
513,583
N/A
-
-
-
28 February 29 February
20201
1,031,903
964,5122
N/A
964,5122
N/A
-
-
-
2019
-
N/A
-
513,583
-
-
-
-
28 February
2019
855,092
N/A
641,320
722,3312
-
-
-
-
R T Forrester
K Anderson
M Sherwin
D P Crane
P Jones
K Lever
P Best
A P Goss
1 The June 2017 LTIP issue lapsed in full subsequent to 29 February 2020 as a result of not satisfying the relevant performance
criteria. This included options held by R T Forrester, K Anderson and D P Crane of 303,030, 113,636 and 113,636 respectively.
2 500,000 of the unvested share options are CSOP options subject to vesting criteria relating to share price performance.
3 Subsequent to 29 February 2020 the Executive Directors waived their entitlement to the LTIP options granted in the year and these
have now been cancelled. Following cancellation of the 2019 LTIP options and lapse of the 2017 LTIP options, the remaining share
options held by R T Forrester, K Anderson, and D P Crane are 262,208, 930,000 and 1,013,583 respectively and 196,656 held by M
Sherwin.
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 29 February 2020 was 31.7p (28 February 2019:
38.6p) and the range during the financial year was 31.1p to 42.0p (2019: 33.6p to 50.6p).
Vertu Motors plc
69
Directors’ Remuneration Report (continued)
Change in Remuneration of Chief Executive
The following table sets out the change in the Chief Executive’s salary, benefits and bonus
between the years ended 28 February 2019 and 29 February 2020 compared with the
average percentage change in each of those components for the employees of the Group.
CEO
Employees
Increase in base
salary
-
2.0%
Change in
benefits
-
-
Change in
bonus
15.3%
13.3%
Date of Service Contracts/Letters of Appointment
DIRECTOR
P Jones (resigned 24 July 2019)
R T Forrester
M Sherwin (resigned 1 March 2019)
K Anderson
D P Crane
A P Goss
K Lever
P Best
Date of service contract/
letter of appointment
1 January 2015
20 December 2006
4 January 2010
1 March 2019
25 July 2018
19 July 2019
1 June 2015
1 June 2016
Copies of Directors’ service contracts and letters of appointment are available for inspection
at the Company’s registered office.
Relative Importance of Spend on Pay
The table below sets out the total spend on remuneration in the Group in the years ended 28
February 2019 and 29 February 2020 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 29
February 2020
£’000
200,167
6,122
Spend in the
year ended 28
February 2019
£’000
192,024
5,657
%
change
4.2%
8.2%
Shareholders’ Vote on Remuneration at the 2019 AGM
2019 Directors’ Remuneration Report
Votes cast in favour
Votes cast against
Total votes cast in favour or against
Votes withheld
The Committee
Number
153,568,637
39,980,620
193,549,257
1,000
Proportion of
votes cast (%)
79.34
20.66
100
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
on the Company’s website. The members of the Committee during the financial year were P
Best (Chairman), P Jones (until 24 July 2019), K Lever and A P Goss.
Vertu Motors plc
70
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 29 February 2020 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 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); 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 29 February 2020; the consolidated income statement and consolidated
statement of comprehensive income, the consolidated cash flow statement, 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.
Material uncertainty related to going concern arising from COVID-19 - Group and
Company
In forming our opinion on the financial statements, which is not modified, we have considered
the adequacy of the disclosure made in note 1 to the financial statements concerning the
group’s and company’s ability to continue as a going concern.
Note 1 to the financial statements indicates the challenges posed by the COVID-19 pandemic
and the impact this has on the group’s and the company’s ability to continue as a going
concern in a severe but plausible downside scenario. Management have obtained additional
funding post year end and have agreed covenants waivers for the period to August 2020. The
forecasts prepared by management indicate that covenants will continue to be breached
throughout the going concern period and waivers are not in place for the full period at the date
of the financial statements. Certain banking facilities which are forecast to be utilised over the
going concern period are agreed annually and as such, these facilities are in place until 30
April 2021. In addition, the forecasts prepared by management are dependent on key
assumptions on revenue and continuity of current new vehicle funding, which are uncertain.
Downside sensitivities on these assumptions indicate that without further mitigating action that
Group may need additional banking facilities. These conditions, along with the other matters
explained in note 1 to the financial statements, indicate the existence of a material uncertainty
which may cast significant doubt about the group’s and company’s ability to continue as a
going concern. The financial statements do not include the adjustments that would result if the
group and company were unable to continue as a going concern.
Vertu Motors plc
71
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
What audit procedures we performed
In concluding there is a material uncertainty, our audit procedures included:
● We assessed management’s forecasts and stress test scenarios including levers
available to management to mitigate the impacts. Based on the information available
at the time the Directors’ approval of these financial statements, we consider the
scenarios to be reasonable whilst noting the impact of COVID-19 on future sales and
other inputs is currently difficult to quantify;
● We challenged management on the key assumptions included in the scenarios and
confirmed management’s mitigating actions are within their control;
● We read the agreements from the bank confirming the extension of the facilities
available and the waiver of the covenants for the period of 1 March 2020 to 31 August
2020; and
● We evaluated management’s disclosures in relation to the COVID-19 impact and
found them to be consistent with the stress test scenarios performed and the
accounting framework.
Our audit approach
Overview
● Overall group materiality: £2,400,000 (2019: £2,400,000),
based on 0.08% of revenue.
● Overall
company materiality:
(2019:
£2,280,000), based on 1% of total assets, capped at 95%
of overall group materiality.
£2,280,000
● Three full scope audit components have been identified,
alongside the company.
● This approach provides coverage of 72% of the group's
revenue.
● Carrying value of intangible assets including goodwill
(Group).
● Valuation of used inventory (Group).
● Accounting for manufacturer bonuses (Group).
● Valuation of pension scheme liabilities (Group).
● Carrying value of investments in subsidiaries (Parent).
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. In
addition to going concern, described in the Material uncertainty related to going concern
section above, we determined the matters described below to be the key audit matters to be
communicated in our report. This is not a complete list of all risks identified by our audit.
Vertu Motors plc
72
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
Key audit matter
Group
Carrying value of intangible assets including
goodwill
across
various CGUs.
The Group has significant goodwill and other
intangible balances in respect of acquisitions
made
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.
COVID-19 has
risk of
impairment given the post year end impact
on trading.
Where this is the case and a CGU has been
subject to poor historical performance, there
is a risk around the recoverability of goodwill
is
and other
inherent uncertainty and
in
forecasting future cash flows and therefore
this is a judgemental area of the audit.
intangible assets. There
judgement
increased
the
Group
Valuation of used inventory (including demos)
The Group holds significant levels of vehicle
inventory. Used vehicle selling prices can
vary depending upon a number of factors,
and as a result large price fluctuations can
be experienced in short periods. COVID-19
has significantly reduced the level of sales
post year end, impacting the level of data on
which to assess the valuation of used stock.
Therefore, valuation and provisions
in
relation to used stock is an area of particular
judgement.
Group
Accounting for manufacturer bonuses
The level of manufacturer bonus the group
receives has a significant impact on financial
performance . 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.
How our audit addressed the key audit
matter
for Goodwill and other
the appropriateness of CGUs
intangible
To address this risk, we have performed 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
used
assets;
Key
discount
revenues and costs;
We performed sensitivity analysis on the
forecasts, including downside scenarios to
assess headroom.
Key observations
We are satisfied with management’s
conclusion on the carrying value of goodwill
and other intangibles based on the audit
evidence obtained.
for example
forecast
inputs are assessed,
inflation and
rates,
testing over
the adequacy of
To address the risk of valuation on used
vehicle inventory we have:
Performed detail
the used
vehicle stock held at year end, relying on the
reduced levels of sales post year end and
market data on car valuations.
Performed analysis on the used vehicle
stock to understand history of profits and
losses on used car stock, and use this to
assess
the year end
provision;
Considered the adequacy of the Group’s
disclosures about the degree of estimation
involved in arriving at the vehicle inventory
provision.
Key observations
We are satisfied based on the procedures
performed that the valuation of used vehicle
stock was reasonable based on the audit
evidence received.
in
risk
this
respect of
the manufacturer bonus
To address
manufacturer bonus income, we have:
Agreed
through to supporting documentation;
Tested the key controls in place around
commercial income recognition;
Compared prior year judgements to the final
commercial income received.
Key observations
income
Vertu Motors plc
73
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
Key audit matter
Group
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.
Group
How our audit addressed the key audit
matter
We are satisfied with the recognition of
commercial income in the year based on the
audit evidence received.
To address this risk in respect of valuation of
pension scheme liabilities, we have:
Used our actuarial specialists to review the
appropriateness of the assumptions used;
Compared key inputs, such as mortality/life
expectancy, discount rate and inflation rate
to market data;
Considered the adequacy of the group’s
disclosure in respect of the sensitivity of the
scheme liabilities to changes in key inputs.
Key observations
We concluded that the key inputs used in
calculating the pension liability were within
an acceptable range when compared with
market data.
Company
Carrying value of investments in subsidiaries
The Group has significant investments in
respect of acquisitions made across various
subsidiaries. The recoverable amount of the
subsidiary is impacted by various factors, a
number of which are outside of Vertu's
control, which could affect whether results
are in line with expectations. COVID-19 has
increased the risk of impairment given the
post year end impact on trading.
Where this is the case and a subsidiary has
been subject to poor historical performance,
there is a risk around the recoverability of
this investment. There is inherent uncertainty
and judgement in forecasting future cash
flows which are above more recent results,
and therefore this is a particularly judgmental
area of the audit.
Parent
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;
to
performance
historical
Compared
historical forecasts to assess accuracy in the
budget process;
Key
discount
revenues and costs;
We performed sensitivity analysis on the
forecasts, including downside scenarios to
assess headroom.
Key observations
We are satisfied with management’s
conclusion on
the carrying value of
investments 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 and through acquisition, and as a result has a
number of subsidiary entities which contain legacy acquired dealerships. Much of the day to
day accounting function is performed at these individual dealership levels, with the support of
a central group accounting function.
Vertu Motors plc
74
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
As a result of this structure there are three components which required a full scope audit of
their financial information, due to their size and contribution to the financial results of the
group. These are Bristol Street First Investments Limited, Bristol Street Fourth Investments
Limited and Albert Farnell Limited. Vertu Motors Plc is also subject to full scope audit of its
financial information, due to the separate presentation of these financial statements within this
report.
The audit work over these components is performed principally from the central group
accounting function, however site visits to all in scope components are carried out as part of
our audit procedures, in order to verify the existence of stock, and to carry out testing over
sales records.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain
quantitative thresholds for materiality. These, together with qualitative considerations, helped
us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on the financial statements as
a whole.
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 (2019: £2,400,000).
£2,280,000 (2019: £2,280,000).
How
determined it
Rationale
benchmark
applied
we
0.08% of revenue.
for
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.
1% of total assets, capped at
95% of overall group materiality.
We believe that total assets is the
primary measure used by the
the
shareholders
performance of the entity, and is
a generally accepted auditing
benchmark.
in assessing
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) (2019: £120,000) and £114,000 (Company
audit) (2019: £114,000) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
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.
Vertu Motors plc
75
Independent Auditors’ Report to the members of Vertu
Motors plc (continued)
If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the
disclosures required by the UK Companies Act 2006 have been included.
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 29 February 2020 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 Statement of Directors' Responsibilities, 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
76
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
3 June 2020
Vertu Motors plc
77
Consolidated Income Statement
For the year ended 29 February 2020
Underlying
items 2020
Non-
underlying
items 2020
(Note 8)
Total 2020 Underlying
items 2019
Total 2019
Non-
underlying
items 2019
(Note 8)
Note
£’000
£’000
£’000
£’000
£’000
£’000
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Finance income
Finance costs
Profit/(loss) before
tax
5
3,064,530
(2,730,473)
334,057
-
-
-
3,064,530
2,982,200
(2,730,473)
(2,660,095)
334,057
322,105
(304,995)
(12,589)
(317,584)
(294,714)
29,062
(12,589)
16,473
27,391
405
-
405
276
(5,966)
(3,595)
(9,561)
(3,957)
5
6
11
11
-
-
-
1,622
1,622
-
-
2,982,200
(2,660,095)
322,105
(293,092)
29,013
276
(3,957)
23,501
(16,184)
7,317
23,710
1,622
25,332
Taxation
12
(4,523)
193
(4,330)
(4,470)
(326)
(4,796)
Profit/(loss) for the
year attributable to
equity holders
Basic earnings per
share (p)
Diluted earnings per
share (p)
13
13
18,978
(15,991)
2,987
19,240
1,296
20,536
0.81
0.80
5.45
5.37
Vertu Motors plc
78
Consolidated Statement of Comprehensive Income
For the year ended 29 February 2020
Profit for the year
Other comprehensive income / (expense)
Items that will not be reclassified to profit or loss:
Actuarial gains / (losses) on retirement benefit
obligations
Deferred tax relating to actuarial (gains) / losses on
retirement benefit obligations
Items that may be reclassified subsequently to profit or
loss:
Cash flow hedges
Deferred tax relating to cash flow hedges
Other comprehensive income / (expense) for the
year, net of tax
Note
30
30
32
32
2020
£’000
2,987
2,400
(408)
(468)
80
1,604
2019
£’000
20,536
(269)
46
67
(11)
(167)
Total comprehensive income for the year
attributable to equity holders
4,591
20,369
Vertu Motors plc
79
Consolidated Balance Sheet
As at 29 February 2020
Non-current assets
Goodwill and other indefinite life assets
Other intangible assets
Retirement benefit asset
Property, plant and equipment
Right-of-use assets
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
Lease liabilities
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
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
30
18
19
27
21
23
24
22
25
17
29
26
19
26
19
27
17
28
29
2020
£’000
99,315
2,120
8,867
229,148
87,013
-
426,463
639,177
71,720
40,839
751,736
417
752,153
2019
£’000
112,278
2,599
6,430
224,818
-
44
346,169
618,675
62,893
66,519
748,087
1,324
749,411
1,178,616
1,095,580
(716,270)
-
(2,935)
(10,974)
(25,547)
(14,071)
(769,797)
(43,657)
(82,823)
(493)
-
(8,179)
(10,294)
(145,446)
(717,264)
(1,500)
(3,731)
(9,590)
(23,166)
-
(755,251)
(43,600)
-
(69)
(2,600)
(7,594)
(9,823)
(63,686)
(915,243)
(818,937)
263,373
276,643
36,917
124,939
10,645
(407)
(803)
2,810
89,272
37,661
124,939
10,645
(19)
(602)
2,066
101,953
Total equity
263,373
276,643
These financial statements on pages 78 to 126 have been approved for issue by the Board of
Directors on 3 June 2020 and signed on its behalf by:
Robert Forrester
Chief Executive
Vertu Motors plc
Karen Anderson
Chief Financial Officer
80
Consolidated Cash Flow Statement
For the year ended 29 February 2020
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
Depreciation of right of use asset
Impairment charges
Change to fair value of contingent consideration
Movement in working capital
Share based payments charge
Cash inflow from operations
Tax received
Tax paid
Finance income received
Finance costs paid
Net cash inflow 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 property, plant and
equipment
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from borrowings
Principal elements of lease repayments
(Purchase) / sale of treasury shares
Repurchase of own shares
Dividends paid to equity holders
Net cash (outflow) / inflow from financing
Activities
Net (decrease) / increase in cash and cash
equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
6
16
18
19
8
8
34
2020
£’000
16,473
(238)
595
11,309
14,065
16,878
(2,500)
(23,563)
619
33,638
362
(5,348)
237
(5,792)
23,097
2019
£’000
29,013
(520)
543
10,722
-
-
-
18,861
904
59,523
157
(4,860)
99
(3,953)
50,966
17
(12,398)
(31,514)
(1,421)
(155)
(14,180)
3,255
(24,899)
2,381
(16,987)
(401)
(2,749)
(6,122)
(9,008)
(150)
(24,681)
3,964
(61,389)
44,455
-
64
(3,629)
(5,657)
(23,878)
35,233
(25,680)
66,519
40,839
24,810
41,709
66,519
33
33
33
24
Vertu Motors plc
81
Consolidated Statement of Changes in Equity
For the year ended 29 February 2020
Ordinary
share
capital
£’000
Share
premium
£’000
Other
reserve
£’000
Hedging
reserve
£’000
Treasury
share
reserve
£’000
Capital
redemption
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
37,661
124,939
10,645
(19)
(602)
2,066
101,953
276,643
-
-
-
-
-
-
(9,208)
(9,208)
37,661
-
124,939
-
10,645
-
(19)
-
-
(602)
2,066
-
92,745
2,987
267,435
2,987
-
-
-
-
-
-
-
(744)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
80
-
(468) -
(388)
-
-
-
-
-
-
-
200
(401)
-
-
-
-
-
-
-
-
-
-
-
744
-
-
2,400
(408)
-
4,979
(200)
-
(2,749)
-
(6,122)
619
2,400
(328)
(468)
4,591
-
(401)
(2,749)
-
(6,122)
619
36,917
124,939
10,645
(407)
(803)
2,810
89,272
263,373
As at 1 March 2019
Effect of adoption of
accounting policy
(note 1)
Balance at 1 March
2019 adjusted
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
Purchase of treasury
shares
Repurchase of own
shares
Cancellation of
repurchased shares
Dividend paid
Share based payments
charge
As at 29 February
2020
The repurchases of own shares in the year were made pursuant to the share buyback
programme announced on 24 July 2019 as well as the previous programme announced in
2018, and under the authority renewed at the AGMs in 2018 and on 24 July 2019.
Ordinary shares to the value of £2,749,000 had been repurchased in the year ended 29
February 2020 (2019: £3,455,000), of which £Nil was unpaid at 29 February 2020 (2019:
£Nil). Such repurchases of shares all occurred prior to October 2019. 7,431,987 of
repurchased shares were cancelled in the year ended 29 February 2020 (2019: 8,918,549)
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 as consideration to the
former shareholders of acquired companies.
Vertu Motors plc
82
Consolidated Statement of Changes in Equity (continued)
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
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
-
-
-
-
Total
equity
£’000
264,418
20,536
1,175
-
89,877
20,536
-
-
-
-
-
-
891
-
-
(269)
(269)
46
-
35
67
20,313
20,369
(29)
(3,455)
-
(5,657)
904
64
(3,455)
-
(5,657)
904
37,661
124,939
10,645
(19)
(602)
2,066
101,953
276,643
Vertu Motors plc
83
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.
In order to prepare the financial statements on the going concern basis, the Directors have
considered detailed financial projections for a period of 12 months from the date of signing the
financial statements (‘Review Period’). These projections are based on the Group’s detailed
annual business plan, adjusted to include assumptions around the financial impact of the
global COVID-19 pandemic. The key assumptions applied include:
• The period of temporary closure of all the Group’s sales operations from 23 March in
accordance with Government guidelines.
• As restrictions are lifted revenue projections are muted with an easing towards more
normal levels over the Review Period.
• The delivery of operating expense savings and cash savings such as a reduction in
capital expenditure.
The financial projections also assume the continued support of the Group’s Manufacturer
partners through their continued funding of new vehicle consignment inventory. The financial
projections assume that normal adoption timings are delayed for a significant portion of new
vehicle inventories until the vehicles are sold. Past experience of the Group supports this
assumption.
By their very nature, forecasts and projections are inherently uncertain, however, the
prepared forecasts show that the Group will operate within its committed facilities, as set out
below, throughout the Review Period.
The Group has the following committed facilities available:
• A five-year acquisition revolving credit facility (‘RCF’) with Barclays Bank plc and
Royal Bank of Scotland plc which matures on 27 February 2024. This facility
provides the Group with £62.0m of committed borrowing capacity and as at 29
February 2020, £44.1 million of this facility was utilised. A further £10m was drawn
on this facility in March 2020 in respect of acquisitions completed in early 2020.
•
• The Group also utilises used car stocking loans. As at 29 February 2020 the Group
had used vehicle stocking facilities of £35m and £25.5m was utilised compared to a
used vehicle inventory value of £121.3m. On 1 May the used car stocking facility limit
was increased by £10m to £45m.
In addition to the above facilities, a Committed Money Market Loan (‘CMML’) is
utilised to fund the Group’s significant peak working capital requirements, which fall in
the weeks following calendar quarter ends. The Group has £68m of peak facilities for
four months of each financial year and £28m of facilities at other times. In addition,
the Group has a £5m overdraft facility. On 1 May 2020 the Group secured an
increase to the peak CMML facility of £68m into the additional months of August and
September. These working capital facilities are reviewed annually each year with the
latest review completed on 1 May 2020. The established track record of annual
renewal of these facilities gives the Directors confidence that they will again be
renewed prior to their expiry on 30 April 2021.
Further detail on the Group’s borrowing facilities is included in note 26.
Vertu Motors plc
84
Notes to the Consolidated Financial Statements (continued)
1.
Accounting Policies (continued)
Basis of preparation (continued)
Due to the impact of the lockdown on the Group’s EBITDA, the financial projections show that
existing bank covenants are forecast to be breached throughout the Review Period. Banking
covenants have been formally waived for the May 2020 and August 2020 measurement
periods, as detailed in note 26. Although not formalised at the date of these financial
statements, the Directors are confident that the Group’s banks will agree to review covenant
arrangements for the November 2020 period and beyond so as to avoid the risk that a future
event of default will occur.
Due to the inherent level of uncertainty over future financial performance and cash flows, as
well as the importance of the key assumptions underpinning the Group’s projections,
sensitivity analysis has been performed to model the impact of more adverse trends
compared to those included in the financial projections. These sensitivities seek to model the
impact of severe but plausible downside risks to the achievement of the financial projections.
The sensitivities applied were a further decrease in future sales rates and a reduction in the
proportion of new vehicle consignment stock assumed to be funded by the Manufacturers. In
the absence of mitigating actions available to the Group, when these sensitivities are applied
to the financial projections, they indicate additional banking facilities may be required in 2021
over and above those which are currently secured.
By their very nature forecasts and projections are inherently uncertain. Inevitably the COVID-
19 crisis has heightened uncertainty such that circumstances could arise under which
extreme downside scenarios may occur that would render the preparation of accounts based
on the assumption of a going concern inappropriate. If the downside scenario were to occur
or agreement were not to be reached on waiving covenants or extending facilities beyond
April 2021 this would indicate the existence of a material uncertainty which would cast
significant doubt over the Group’s ability to continue as a going concern. Based on what is
known at this time and based upon the forecast information available, the Directors believe it
appropriate to prepare accounts under the going concern basis and expect that agreement
will be reached on covenant waivers and extension of facilities and that the downside
scenarios will not occur. Therefore, the financial statements do not include the adjustments
that would result if the Group and Company were unable to continue as going concerns.
The Directors consider the forecast future cash flows to offset the net current liabilities
position at 29 February 2020, as set out in the Viability Statement on pages 36 to 37.
The consolidated financial statements include the results of all subsidiaries owned by Vertu
Motors plc listed on pages 133 to 135 of the annual report. Certain of these subsidiaries,
which are listed below, have taken the exemption from an audit for the year ended 29
February 2020 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 29 February 2020 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 29 February 2020 of the subsidiaries listed
below, further details of which are provided in note 36.
The subsidiaries which have taken an exemption from an audit for the year ended 29
February 2020 by virtue of s479A Companies Act 2006 are:
Albert Farnell Limited
All Car Parts Limited
Bristol Street First Investments Limited
Bristol Street Fourth Investments Limited
Grantham Motor Company Limited
Hughes of Beaconsfield Limited
Macklin Property Limited
Sigma Holdings Limited
South Hereford Garages Limited
South Hereford Garages Trade Parts LLP
Tyne Tees Finance Limited
Vans Direct Limited
Vertu Ventures Limited
Vertu Motors (Chingford) Limited
Vertu Motors (Continental) Limited
Vertu Motors (Knaresborough) Limited
Vertu Motors (Property) Limited
Vertu Motors (Property 2) Limited
Vertu Motors (VMC) Limited
Vertu Motors plc
85
Notes to the Consolidated 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 29 February 2020 by virtue of s394A of Companies Act 2006 are:
Aceparts Limited
Best4Vans Limited
Blacks Autos Limited
Blake Holdings Limited
Boydslaw 103 Limited
Bristol Street (No.1) Limited
Bristol Street (No.2) Limited
Bristol Street Commercials (Italia) Limited
Bristol Street Fifth Investments Limited
Bristol Street Fleet Services Limited
Bristol Street Group Limited
Bristol Street Limited
Brookside (1998) Limited
BSH Pension Trustee Limited
Carsandvansdirect Limited
Compare Click Call Limited
Dobies (Carlisle) Limited
Dunfermline Autocentre Limited
SHG Holdings Limited
The Taxi Centre Limited
Typocar Limited
Vertu Fleet Limited
Vertu Motors (AMC) Limited
Vertu Motors (Durham) Limited
Vertu Motors (Finance) Limited
Easy Vehicle Finance Limited
Gordon Lamb Group Limited
Gordon Lamb Limited
Gordon Lamb Holdings Limited
Hillendale Group Limited
Hillendale LR Limited
Horseshoe Vehicle Contracts Limited
Hughes Group Holdings Limited
International Concessionaires Limited
K C Motability Solutions Limited
Merifield Properties Limited
Motor Nation Car Hypermarkets Limited
National Allparts Limited
Newbolds Garage (Mansfield) Limited
Nottingham TPS LLP
Peter Blake (Chatsworth) Limited
Peter Blake (Clumber) Limited
Peter Blake Limited
VanMan Limited
Vertu Motors (Retail) Limited
Vertu Motors (Pity Me) Limited
Vertu Motors Property 2 Holdings Limited
Why Pay More For Cars Limited
Widnes Car Centre Limited
Widnes Car Centre (1994) 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 29 February
2020
The Group has applied the following standards and amendments for the first time for their
annual reporting period commencing 1 March 2019:
IFRS 16 Leases
•
• Prepayment Features with Negative Compensation – Amendments to IFRS 9
• Long-term Interests in Associates and Joint Ventures – Amendments to IAS 28
• Annual Improvements to IFRS Standards 2015 – 2017 Cycle
• Plan Amendment, Curtailment or Settlement – Amendments to IAS 19
•
Interpretation 23 Uncertainty over Income Tax Treatments
The Group had to change its accounting policies as a result of adopting IFRS 16. The Group
elected to adopt the new rules retrospectively but recognised the cumulative effect of initially
applying the new standard on 1 March 2019. This is disclosed below. The other amendments
listed above did not have any impact on the amounts recognised in prior periods and are not
expected to significantly affect the current or future periods.
Vertu Motors plc
86
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Standards and interpretations adopted by the Group in the year ended 29 February
2020 (continued)
IFRS 16 ‘Leases’
In the year ended 29 February 2020, the Group has applied IFRS 16 ‘Leases’, for the first
time.
The Group leases various dealerships, compounds and vehicles. Rental contracts are
typically made for fixed periods of 12 months to 150 years, but may have extension options as
described below.
Contracts may contain both lease and non-lease components. The Group allocates the
consideration in the contract to the lease and non-lease components based on their relative
stand-alone prices. However, for leases of real estate for which the Group is a lessee, it has
elected not to separate lease and non-lease components and instead accounts for these as a
single lease component.
Lease terms are negotiated on an individual basis and contain a wide range of different terms
and conditions. The lease agreements do not impose any covenants other than the security
interests in the leased assets that are held by the lessor. Leased assets may not be used as
security for borrowing purposes.
The Group has adopted IFRS 16 retrospectively from 1 March 2019 but has not restated
comparatives for the 2019 reporting period, as permitted under the specific transitional
provisions in the standard. The reclassifications and adjustments arising from the adoption of
IFRS 16 have therefore been recognised in the opening balance sheet on 1 March 2019.
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had
previously been classified as operating leases. These liabilities were measured at the present
value of the remaining lease payments, discounted using the Group’s incremental borrowing
rate as of 1 March 2019. The incremental borrowing rate applied to the lease liabilities on 1
March 2019 was 4.15% in respect of the Group’s property leases, and 2.25% in respect of the
Group’s vehicle leases.
The associated right-of-use assets were measured on a retrospective basis as if the new
rules had always been applied.
The change in accounting policy affected the following items in the balance sheet on 1 March
2019:
- Right-of-use assets – increased by £78,753,000
- Current lease liabilities – increased by £15,286,000
- Non-current lease liabilities – increased by £72,675,000
The net impact on retained earnings on 1 March 2019 was a decrease of £9,208,000.
In applying IFRS 16 for the first time, the Group has used the following practical expedients
permitted by the standard:
- The use of a single discount rate to a portfolio of leases with reasonably similar
characteristics;
- Reliance on previous assessment of whether leases are onerous;
- The accounting for operating leases with a remaining lease term of less than 12
months as at 1 March 2019 as short-term leases;
- The exclusion of initial direct costs for the measurement of the right-of-use asset at
the date of initial application; and
- The use of hindsight in determining the lease term where the contract contains
options to extend or terminate the lease.
Until the year ended 28 February 2019, leases of property, plant and equipment were
classified as either finance or operating leases. Payments made under operating leases were
charged to profit or loss on a straight-line basis over the period of the lease.
Vertu Motors plc
87
Notes to the Consolidated Financial Statements (continued)
1.
Accounting Policies (continued)
Standards and interpretations adopted by the Group in the year ended 29 February
2020 (continued)
IFRS 16 ‘Leases’ (continued)
From 1 March 2019, leases are recognised as a right-of-use asset and a corresponding lease
liability at the date at which the leased asset is available for use by the Group. The finance
cost is charged to profit or loss over the lease period so as to produce a constant periodic rate
of interest on the remaining balance of the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset’s useful life and the lease term on a straight-line
basis.
Assets and liabilities arising from a lease are initially measured on a present value basis.
Lease liabilities include the net present value of the following lease payments:
- Fixed payments, less any incentives receivable,
- Variable lease payments that are based on an index or a rate,
- Amounts expected to be payable by the lessee under residual value guarantees,
- The exercise price of a purchase option if the lessee is reasonably certain to exercise
that option; and
- Payment of penalties for terminating the lease, if the lease term reflects the lessee
exercising that option.
Lease payments to be made under reasonably certain extension options are also included in
the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate
cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the
lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in
a similar economic environment with similar terms and conditions.
To determine the incremental borrowing rate, the Group:
• where possible, uses recent third-party financing received by the individual lessee as
a starting point, adjusted to reflect changes in financing conditions since third party
financing was received, or
• uses a build-up approach that starts with a risk-free interest rate adjusted for credit
risk for leases held by Vertu Motors plc, which does not have recent third party
financing, and
• makes adjustments specific to the lease, eg term, country, currency and security.
The Group is exposed to potential future increases in variable lease payments based on an
index or rate, which are not included in the lease liability until they take effect. When
adjustments to lease payments based on an index or rate take effect, the lease liability is
reassessed and adjusted against the right-of-use asset.
The finance cost is charged to profit or loss over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
- The amount of the initial measurement of the lease liability,
- Any lease payments made at or before the commencement date, less any lease
incentives received,
- Any initial direct costs; and
- Restoration costs.
Payments associated with short-term leases of low-value assets are recognised on a straight-
line basis as an expense in profit or loss with the exception of those relating to vehicle leases.
Short-term leases are leases with a lease term of 12 month or less. Low-value assets
comprise small items of furniture or equipment.
Vertu Motors plc
88
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Standards and interpretations adopted by the Group in the year ended 29 February
2020 (continued)
IFRS 16 ‘Leases’ (continued)
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and
the lease term on a straight-line basis. If the Group is reasonably certain to exercise a
purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life.
While the Group revalues its land and buildings that are presented within property, plant and
equipment, it has chosen not to do so for the right-of-use buildings held by the Group.
Extension and termination options
Extension and termination options are included in a number of property leases across the
Group and are used to maximise flexibility to respond to the changing retail environment in
the years ahead. Approximately one fifth of the Group’s property leases have the benefit of a
tenant break clause.
A reconciliation of total operating lease commitments to the IFRS 16 lease liability at 1 March
2019 is as follows:
Operating lease commitments disclosed at 28 February 2019 (note 37)
Effect of discounting using incremental borrowing rate at the date of initial application
Impact of IFRS 16 data review *
Lease liability recognised at 1 March 2019
Of which:
Current lease liabilities
Non-current lease liabilities
£’000
104,375
(19,799)
3,385
87,961
15,286
72,675
87,961
* When producing transition calculations for IFRS 16, the calculations underlying the operating lease commitments
note have been refined, with £3,385,000 additional present value of lease liabilities on transition identified as a result.
As the Group has adopted this accounting policy change using the modified retrospective
approach in the current period and therefore comparatives have not been restated, the profit
or loss impact has been presented for this transition year within non-underlying items (note 8)
to enhance comparability with the previous period. Going forwards, the impact will be included
in underlying profits.
Whilst having no impact on the Group’s cash position, the adoption of IFRS 16 has had an
impact on the presentation of the payment of lease rentals in the cash flow statement. In the
comparative periods, lease rentals were included in operating expenses and therefore
operating cash flows. In the year ended 29 February 2020, operating expenses instead
includes a depreciation charge which has subsequently been added back to cash generated
from operations. The interest element of lease repayments is presented within finance costs
paid and the principal element has been included within cash flows from financing activities.
New standards and interpretations issued but not yet effective and not early adopted
Certain new accounting standards and interpretations have been published that are not
mandatory for 29 February 2020 reporting period and have not been early adopted by the
Group. These standards are not expected to have a material impact on the entity in the
current or future reporting periods and on foreseeable future transactions.
Measurement period adjustment
The Group assesses the fair value of assets acquired and finalises purchase price allocation
within the measurement period following acquisition and in accordance with IFRS 3. This
includes an exercise to search for other material separately identifiable intangible assets such
as brand value, supplier agreements, franchise relationships and customer relationships. The
finalisation of the purchase price allocation may result in a change in the fair value of assets
acquired.
Vertu Motors plc
89
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Measurement period adjustment (continued)
Within the measurement period of a number of acquisitions made in the year ended 28
February 2019, the purchase price allocation was finalised which resulted in a £47,000
reduction in the fair value of trade and other receivables acquired, a £60,000 increase in the
fair value of trade and other payables acquired and a £11,000 reduction in corporation tax
payable. There was a corresponding increase of £96,000 in the fair value of goodwill arising
on these acquisitions.
In accordance with IFRS 3, measurement period adjustments are reflected in the financial
statements as if the final purchase price allocation had been completed at the acquisition
date.
Basis of consolidation
The consolidated financial statements comprise the financial statements of Vertu Motors plc
and its subsidiary undertakings. Subsidiaries are all entities (including structured entities) over
which the Group has control. The Group controls an entity when the Group is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect
those returns through its power to direct the activities of the entity. Subsidiaries are
consolidated from the date at which control is transferred to the Group and they are excluded
from the consolidated financial statements from the date that control ceases.
Inter-company transactions, balances and unrealised gains on transactions between Group
companies are eliminated. Unrealised losses are also eliminated. Accounting policies of
subsidiaries have been changed where necessary to ensure consistency with the accounting
policies adopted by the Group.
Business combinations and goodwill
Business combinations are accounted for using the purchase method of accounting. This
involves recognising identifiable assets (including intangible assets not previously recognised
by the acquiree) and liabilities (including contingent liabilities) of acquired businesses at fair
value. Goodwill acquired in a business combination is initially measured at cost being the
excess of the cost of the consideration over the Group’s interest in the net fair value of the
acquiree’s identifiable assets, liabilities and contingent liabilities. Where the net fair value of
the acquired identifiable assets, liabilities and contingent liabilities exceeds the consideration,
the excess or “negative goodwill” is recognised immediately in the income statement.
Following initial recognition, goodwill is measured at cost less any accumulated impairment
losses. For the purpose of impairment testing, goodwill acquired in a business combination
is, from the acquisition date, allocated to each of the Group’s cash generating units.
Each cash generating unit (“CGU”) or Group of cash generating units to which the goodwill is
allocated represents the lowest level within the Group at which the goodwill is monitored for
internal management purposes. Gains and losses on the disposal of a business component
are calculated on a basis which incorporates the carrying amount of goodwill relating to the
business sold. Acquisition related costs are expensed to the income statement as incurred.
Other intangible assets
Intangible assets, when acquired separately from a business combination, comprise computer
software and are carried at cost less accumulated amortisation and any impairment losses.
Amortisation is provided on a straight-line basis to allocate the cost of the asset over its
estimated useful life, which in the case of computer software is between four and six years.
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.
Vertu Motors plc
90
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
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’.
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. Key assumptions used in the determination of net
realisable value of used vehicle inventory at 29 February 2020 include sales which took place
post year end but prior to the closure of sales operations on 24 March 2020, confirmed order
take during the lockdown period, industry guidance and historical trends.
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 trade payables.
Vertu Motors plc
91
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
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.
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.
Vertu Motors plc
92
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
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 hedging 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 27.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing in equity at that time remains in
equity and is recognised when the forecast transaction is ultimately recognised in the income
statement. When a forecast transaction is no longer expected to occur, the cumulative gain
or loss that was reported within equity is immediately transferred to the income statement
within finance income or costs.
Taxation
Current tax
Current income tax assets and liabilities are measured at amounts expected to be paid (or
recovered) using the tax rates and laws that have been enacted or substantively enacted at
the balance sheet date.
Deferred tax
Deferred tax is provided using the liability method on temporary differences at the balance
sheet date between the tax bases of assets and liabilities and their carrying amounts at the
balance sheet date for financial reporting purposes. Deferred tax liabilities are recognised for
all temporary differences, except:
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
Vertu Motors plc
93
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Taxation (continued)
Deferred tax (continued)
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.
Sale of warranty products
Revenue is 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.
Finance commissions
Finance commissions are received for the arrangement of vehicle financing and related
insurance products where the Group acts as agent on behalf of a principal. Commissions are
based on agreed rates and income is recognised when the finance and/or insurance package
that the customer has entered into commences. Typically, this is on delivery of the vehicle.
Where the commission received relates to a specific vehicle sale, it is recognised within
revenue. Where the commission received relates to a central rebate, it is recognised within
cost of sales.
Manufacturer rebates
Vehicle specific rebates from manufacturers are recognised when it is probable that the
economic benefit will flow to the Group and the value can be reliably measured. In practice,
this means that vehicle specific manufacturer rebates are recognised when the vehicle to
which the rebate relates, has been invoiced and physically despatched. In the case of non-
vehicle specific related rebates from suppliers, these are recognised in the income statement
upon achievement of the specific agreed supplier criteria. Manufacturer rebates are
recognised within cost of sales.
Vertu Motors plc
94
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Revenue (continued)
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
2020
£’000
258,104
1,235,381
862,517
708,528
3,064,530
2019
£’000
257,137
1,217,596
862,824
644,643
2,982,200
3,057,126
7,404
3,064,530
2,975,175
7,025
2,982,200
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.
Pension costs
The Group operates a trust based defined benefit pension scheme, “Bristol Street Pension
Scheme”, which has three defined benefit sections which were closed to new entrants and
future accrual on 31 May 2003, with another section closed to new entrants in 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
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.
Vertu Motors plc
95
Notes to the Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
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.
Share capital
Ordinary shares are classed as equity. Incremental costs directly attributable to the issue of
new shares are shown in equity as a deduction, net of tax, from the proceeds.
Dividend distribution
Final dividends to the Company’s shareholders are recognised as a liability in the Group’s
financial statements in the period in which the dividends are approved by the Company’s
shareholders. Interim dividends are recognised when they are paid.
2. Financial risk management
The Group’s activities expose it to a variety of financial risks, including the effects of changes
in debt market prices and interest rates. The Group’s treasury management programme
focuses on the unpredictability of financial markets and seeks to minimise potential adverse
effects on the financial performance of the Group. The Group used derivative financial
instruments to reduce exposure to interest rate movements on drawn debt. The outstanding
derivative instruments held by the Group at the balance sheet date are set out in note 27.
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.
Vertu Motors plc
96
Notes to the Consolidated Financial Statements (continued)
2. Financial risk management (continued)
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.
As a result of financial modelling in respect of the Government’s response to the global
COVID-19 pandemic, the Group’s banks agreed to a waiver of financial covenants for the
May 2020 and August 2020 measurement periods. The Directors are confident that the
Group’s banks will agree to review the calculation of covenants after this date, as more
certainty over the impact of closure periods due to COVID-19 is obtained, so as to avoid the
risk that a future event of default will occur.
In consideration for the agreed covenant waiver, interest rates at 2.1% above LIBOR
(increasing from 1.3% above LIBOR) will be applied to drawings under the RCF facility from 1
June 2020. Additionally, interest rates applicable to the Group’s Committed Money Mark Loan
(“CMML”) facility have been increased to 1.75% above LIBOR (from 1.1% above LIBOR) from
1 June 2020 following changes to the available facility, as set out within “Liquidity Risk” below,
to aid cash flow requirements as a consequence of the global COVID-19 pandemic.
No significant issues were highlighted as a result of the financial modelling and sensitivities
being performed after allowing for these increased interest rates.
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 23.
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.
As set out in the Viability Statement on pages 36 to 37, since the start of March 2020, various
financial scenarios have been modelled in response to the substantial curtailment of
operations in respect of the Government’s response to the global COVID-19 pandemic, with a
cautious assessment of future cash flows as a result. The Group has worked with its banking
partners to ensure that sufficient headroom is available to manage working capital
requirements and consequently on 6 May 2020 the Group’s peak Committed Money Market
Loan (“CMML”) facility of £68,000,000 usually made available in April, July, October and
January was extended such that it will also be made available in August and September.
Additionally, on 30 April 2020, the Group extended its used vehicle funding line from
£35,000,000 to £45,000,000 to provide additional liquidity if required.
Disclosed within note 26 are the undrawn banking facilities that the Group has at its disposal.
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.
Vertu Motors plc
97
Notes to the Consolidated Financial Statements (continued)
2. Financial risk management (continued)
Liquidity Risk (continued)
Bank borrowings
Other borrowings
Lease liabilities
Contract liabilities
Trade and other payables (excluding
social security and other taxes)
At 29 February 2020
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
904
25,547
14,071
10,974
Between two
and five years
£’000
45,908
-
82,823
10,294
Total
£’000
46,812
25,547
96,894
21,268
709,603
761,099
-
139,025
709,603
900,124
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
711,327
745,894
-
56,635
711,327
802,529
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 £125,259,000 (including £96,894,000 IFRS16 lease obligations) at
29 February 2020 as disclosed in note 33 to the consolidated financial statements (2019: net
debt of £247,000).
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.
Vertu Motors plc
98
Notes to the Consolidated Financial Statements (continued)
4. Critical accounting estimates and judgements (continued)
Valuation of other intangible assets
When a business combination takes place, the Group is required to assess whether there are
any additional intangible assets arising separately from goodwill. Management judgement is
required to determine whether an intangible asset can be separately identified, what fair value
should be ascribed to the asset and its attributable useful life.
Impairment of goodwill and other indefinite life assets
The Group tests annually, or whenever events or changes in circumstances occur, to
determine whether goodwill or other indefinite life assets have suffered any impairment, in
accordance with the accounting policy stated above and in note 15. The recoverable
amounts of cash-generating units have been determined based on value-in-use calculations.
These calculations require the use of estimates. Details of the key assumptions used for the
impairment testing for the year ended 29 February 2020, as well as the results of sensitivity
analysis performed, are provided in note 15.
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 29 February 2020, 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 29 February
2020 are provided in note 30.
Valuation of inventory
The Group’s assessment of the valuation of used vehicle inventory at 29 February 2020
involves an element of estimate to determine the expected net realisable value post year
end. Significantly reduced sales, as a result of the temporary closure of all UK vehicle sales
showrooms on 24 March 2020 in accordance with Government guidelines in response to the
global COVID-19 pandemic, have increased uncertainty over vehicle valuations. Key
assumptions used in the valuation of used vehicle inventory at 29 February 2020 of £121.3m
include sales which took place post year end but prior to the closure of sales operations,
confirmed order take during the lockdown period, latest industry guidance and historical
trends.
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.
Vertu Motors plc
99
Notes to the Consolidated Financial Statements (continued)
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 29 February 2020
Aftersales1
Used cars
New car retail and Motability
New fleet and commercial
Year ended 28 February 2019
Aftersales1
Used cars
New car retail and Motability
New fleet and commercial
6. Operating expenses
Revenue
£’m
258.1
1,235.4
862.5
708.5
3,064.5
Revenue
£’m
257.1
1,217.6
862.8
644.7
Revenue
Mix
%
8.4
40.3
28.1
23.2
100.0
Revenue
Mix
%
8.6
40.9
28.9
21.6
Gross
Profit
£’m
143.5
102.1
62.7
25.8
334.1
Gross
Profit
£’m
136.0
102.0
63.9
20.2
Gross Profit
Mix
%
Gross
Margin
%
43.0
30.6
18.8
7.6
100.0
46.9
8.3
7.3
3.6
10.9
Gross Profit
Mix
%
Gross
Margin
%
42.2
31.7
19.8
6.3
43.9
8.4
7.4
3.1
2,982.2
100.0
322.1
100.0
10.8
Wages and salaries excluding share based payments
charge (note 9)
Depreciation on property, plant and equipment
(note 18)
Profit on disposal of property, plant and equipment
Auditors’ remuneration (note 7)
Rental income
Share based payments charge
Amortisation
VAT reclaim on dealer deposit contributions
Impairment charges (notes 15 & 18)
Change to fair value of contingent consideration
Operating lease rentals – property
Operating lease rentals – plant and equipment
Operating lease rentals – vehicles
Depreciation on right-of-use assets
Other expenses
2020
£’000
2019
£’000
173,911
167,119
11,309
(238)
240
(185)
733
595
-
16,878
(2,500)
-
256
-
14,065
102,520
317,584
10,722
(520)
225
(175)
904
543
(3,069)
-
-
11,581
312
4,933
-
100,517
293,092
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
100
Vertu Motors plc
Notes to the Consolidated Financial Statements (continued)
7. Auditors’ remuneration
2020
£’000
2019
£’000
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
- Other services
8. Non-underlying items
Impairment charges (notes 15 & 18)
Change to fair value of contingent consideration
Net impairment charges *
Share based payments charge
Amortisation
VAT reclaim on dealer deposit contributions
Impact of change in accounting policy:
- Depreciation on right of use assets (note 19)
- Operating lease rentals – property
- Operating lease rentals – vehicles
Non-underlying operating (expenses)/income
Impact of change in accounting policy:
- Finance cost
Non-underlying (loss)/profit before tax
Tax on non-underlying items
231
5
4
240
2020
£’000
(16,878)
2,500
(14,378)
(733)
(595)
-
(14,065)
11,588
5,594
(12,589)
(3,595)
(16,184)
193
(15,991)
220
5
-
225
2019
£’000
-
-
-
(904)
(543)
3,069
-
-
-
1,622
-
1,622
(326)
1,296
*£2,500,000 of the impairment charges relates to Vans Direct Limited. Contingent consideration for
a corresponding amount was also released.
Non-underlying items are presented separately in the Income Statement to enhance comparability
of trading performance between periods.
9.
Employee benefit expense
Wages and salaries
Social security costs
Pension costs – defined contribution plans
Share based payments charge (note 31)
Employee benefit expense included in:
Operating expenses
Cost of sales
Share based payment charge
2020
£’000
176,421
19,013
4,733
200,167
733
200,900
2020
£’000
173,911
26,256
733
200,900
2019
£’000
169,546
18,712
3,766
192,024
904
192,928
2019
£’000
167,119
24,905
904
192,928
Details of the remuneration of the Directors who served during the year from 1 March 2019 to 29
February 2020 and the year from 1 March 2018 to 28 February 2019 are given in the Directors’
Remuneration Report on pages 65 to 70.
Vertu Motors plc
101
Notes to the Consolidated Financial Statements (continued)
10. Average monthly number of people employed (including Directors)
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 30)
Finance income
Bank loans and overdrafts
Vehicle stocking interest
Lease liability 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 28)
Income tax expense
Profit before taxation
Profit before taxation multiplied by the rate of
corporation tax in the UK of 19% (2019: 19%)
Non-qualifying depreciation
Non-deductible expenses
Change to fair value of contingent consideration
Goodwill impairment
Effect on deferred tax balances due to rate change
IFRS 16 adjustment
Property adjustment
Permanent benefits
Adjustments in respect of prior years
Total tax expense included in the income statement
2020
Number
2,055
2,235
1,413
5,703
2020
£’000
237
168
405
(1,418)
(4,548)
(3,595)
(9,561)
2020
£’000
4,495
(307)
4,188
181
(21)
(18)
142
4,330
2020
£’000
7,317
1,390
944
68
(475)
2,770
(18)
91
10
(122)
(328)
4,330
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
2019
£’000
25,332
4,813
527
213
-
-
(11)
-
(146)
(105)
(495)
4,796
The Group’s effective rate of tax is 19.24% (2019: 18.85%) in line with the standard rate of
corporation tax in the UK. The rate of 59.18% includes tax on non-underlying items (2019:
18.93%).
Vertu Motors plc
102
Notes to the Consolidated Financial Statements (continued)
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
14. Dividends per share
2020
£’000
2,987
15,991
18,978
2019
£’000
20,536
(1,296)
19,240
370,470
4,348
377,024
5,512
374,818
382,536
0.81p
0.80p
5.12p
5.06p
5.45p
5.37p
5.10p
5.03p
Dividends of £6,122,000 were paid in the year to 29 February 2020 (2019: £5,657,000), 1.65p per
share (2019: 1.50p). In light of the immediate and significant impact of the Government’s
response to COVID-19 on the Group, the Board does not propose a final dividend in respect of
the year ended 29 February 2020.
15. Goodwill and other indefinite life assets
2020
Cost
At 1 March 2019
Acquisitions (note 17)
At 29 February 2020
Accumulated impairment charges
At 1 March 2019
Impairment charge
At 29 February 2020
Net Book Value
At 29 February 2020
At 28 February 2019
Goodwill
£’000
Franchise
relationships
£’000
Total
£’000
112,392
1,791
114,183
114
14,754
14,868
26,410
677
27,087
-
-
-
27,087
26,410
99,315
112,278
85,982
1,114
87,096
114
14,754
14,868
72,228
85,868
Vertu Motors plc
103
Notes to the Consolidated Financial Statements (continued)
15. Goodwill and other indefinite life assets (continued)
2019
Cost
At 1 March 2018
Acquisitions
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
Impairment
Goodwill
£’000
74,303
11,679
85,982
Franchise
relationships
£’000
20,192
6,218
26,410
Total
£’000
94,495
17,897
112,392
(114)
-
(114)
85,868
74,189
26,410
20,192
112,278
94,381
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 29 February 2020 and 28 February 2019, the acquired goodwill and other
indefinite life assets were tested for impairment.
For the purposes of impairment testing of goodwill and other indefinite life assets, the
Directors recognise the Group’s Cash Generating Units (“CGU”s) to be connected groupings
of dealerships acquired together.
A summary of the goodwill purchased is presented below:
Bristol Street Group Limited
Albert Farnell Limited
Hillendale Group Limited
SHG Holdings Limited
Bury Land Rover
Sigma Holdings Limited and Hughes Group Limited
Gordon Lamb Group Limited
Vans Direct Limited
Leeds, Huddersfield, Harrogate and Skipton Volkswagen
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 and Hughes Group Limited
Gordon Lamb Group Limited
Leeds, Huddersfield, Harrogate and Skipton Volkswagen
2020
£’000
13,860
13,279
5,159
7,842
4,415
5,874
5,754
4,475
1,114
10,456
72,228
2020
£’000
7,373
1,749
2,595
1,497
9,989
3,207
677
27,087
2019
£’000
13,860
13,279
5,159
7,842
4,415
16,585
5,754
6,973
-
12,001
85,868
2019
£’000
7,373
1,749
2,595
1,497
9,989
3,207
-
26,410
The recoverable amount of a CGU is determined based on value-in-use calculations. These
calculations use pre-tax cash flow projections to perpetuity.
Vertu Motors plc
104
Notes to the Consolidated Financial Statements (continued)
15. Goodwill and other indefinite life assets (continued)
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 and the past performance of the CGU.
• Changes in gross profits and direct costs are based on past practices and expectations
of future changes in the market.
Impairment testing in the year ended 29 February 2020 included a cautious assessment of
the cash flow impact of a substantial curtailment of operations in response to the global
COVID-19 pandemic. Calculations included an assumed three-month full closure of
dealership sales operations in the year to February 2021, followed by a further period of
steady recovery to historic levels of performance for each CGU starting February 2022.
Annual growth rates typically between 0% and 3% are assumed for years three to five
depending on the CGU, after which a growth rate of 0% is assumed to perpetuity. Cash flows
into perpetuity have been used to reflect the long-term and open-ended nature of the Group’s
business model.
A risk adjusted pre-tax discount rate reflecting the Group’s Weighted Average Cost of Capital
(“WACC”) of 8% (2019: 8%) is applied.
As a result of this value in use calculation taking into account the impact of COVID-19 on post
year end trading performance and cash flows, impairment charges of £14,754,000 were
incurred during the year ended 29 February 2020 (2019: £Nil) to align the carrying value with
the value in use.
In addition to the calculations outlined above, the Group also performed a review of deferred
consideration due under earn out arrangements in respect of acquisitions from previous
financial years. As a result of the financial performance of Vans Direct Limited against the
relevant earn out criteria during the year ended 29 February 2020, the value of the liability in
respect of deferred consideration for the earn out on this acquisition was reassessed at 29
February 2020 as £Nil, with the change in fair value being recognised in profit or loss in
accordance with IFRS 9.
Sensitivity analysis has been performed on the impairment test based on three potential
scenarios with the following results:
•
•
•
If the impact of COVID-19 resulted in a reduction in gross profit which is 20% higher
than that included in the forecast, the Group would incur an additional impairment
charge in respect of goodwill and other indefinite life assets of £1.9m.
If the growth rate in years three to five reduces to -3%, the Group would incur an
additional impairment charge in respect of goodwill and other indefinite life assets of
£8.4m.
If the pre-tax WACC increased to 9%, the Group would incur an additional
impairment charge in respect of goodwill and other indefinite life assets of £9.9m.
Vertu Motors plc
105
Notes to the Consolidated Financial Statements (continued)
16. Other intangible assets
2020
Cost
At 1 March 2019
Additions
At 29 February 2020
Accumulated amortisation
At 1 March 2019
Charge for the year
At 29 February 2020
Net book value at 29 February 2020
Net book value at 28 February 2019
2019
Cost
At 1 March 2018
Acquisitions
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
Software
costs
£’000
Brand
£’000
Customer
relationships
£’000
2,270
116
2,386
1,599
356
1,955
431
671
541
-
541
-
54
54
487
541
1,985
-
1,985
598
185
783
1,202
1,387
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
4,796
116
4,912
2,197
595
2,792
2,120
2,599
Total
£’000
3,371
1,676
150
(401)
4,796
2,055
543
(401)
2,197
2,599
1,316
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 Harrogate, Leeds, Skipton and Huddersfield Volkswagen
On 16 January 2020, the Group acquired the trade and assets of four Volkswagen dealerships in
Yorkshire from Goodman Retail Limited. The consideration payable on completion amounted to
£6,921,000 and was initially settled from the Group’s existing cash resources, this was drawn down
from the Group’s Revolving Credit Facility subsequent to the year end.
Details of the fair value of the net assets acquired and goodwill arising are as follows:
Intangible assets
Property, plant and equipment
Right-of-use asset
Inventories
Trade and other receivables
Trade and other payables
Lease liabilities
Deferred tax
Provision
Net assets acquired
Goodwill
Consideration
Vertu Motors plc
106
Fair
Value
£’000
677
1,608
9,491
5,700
286
(2,062)
(9,491)
(115)
(287)
5,807
1,114
6,921
Notes to the Consolidated Financial Statements (continued)
17. Business combinations (continued)
a) Acquisition of Harrogate, Leeds, Skipton and Huddersfield Volkswagen (continued)
Acquisition related costs (included in the consolidated income statement for the year ended 29
February 2020) totalled £147,000 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.
b) Acquisition of Bradford Honda and Kia
On 28 February 2020, the Group acquired the trade and assets of a multi franchise dealership in
Bradford consisting of Honda and Kia from Vantage Motor Group Limited. The consideration
payable on completion amounted to £3,906,000 and was initially settled from the Group’s existing
cash resources. Subsequent to the year end this was drawn down from the Group’s Revolving
Credit Facility.
Details of the fair value of the net assets acquired and goodwill arising are as follows:
Property, plant and equipment
Inventories
Trade and other payables
Net assets acquired
Goodwill
Consideration
Fair
Value
£’000
3,071
863
(28)
3,906
-
3,906
Acquisition related costs (included in the consolidated income statement for the year ended 29
February 2020) totalled £29,000 in respect of this acquisition.
c) Other acquisitions
On 20 January 2020, the Group acquired the trade and assets of Leven Cars Group Limited in
respect of its Kia, Suzuki and Mitsubishi Edinburgh franchises from administration. The
consideration payable on completion amounted to £25,000 and was settled from the Group’s
existing cash resources.
On 28 February 2020, the Group acquired the trade and assets of a Peugeot dealership from
Robins and Day. There was a receivable due on completion of £1,000. On 1 March 2020, the
Group commenced operation of the Peugeot franchise in Derby from newly refurbished existing
Group premises.
Details of the estimated fair value of the net assets acquired and goodwill arising in these
acquisitions are as follows:
Property, plant and equipment
Trade and other payables
Net assets acquired
Goodwill
Consideration
Fair
Value
£’000
27
(3)
24
-
24
Acquisition related costs (included in the consolidated income statement for the year ended 29
February 2020) totalled £23,000 in respect of these acquisitions.
Vertu Motors plc
107
Notes to the Consolidated Financial Statements (continued)
17. Business combinations (continued)
Summary of acquisitions’ cash consideration
Yorkshire Volkswagen
Bradford Honda and Kia
Other acquisitions
Hughes Group Limited – payment of
deferred consideration
Vans Direct Limited – measurement
period adjustments
Cash outflow on acquisition of
businesses
Cash
Consideration
£’000
6,921
3,906
24
10,851
(Cash)/
Borrowings
Acquired
£’000
-
-
-
-
Total
£’000
6,921
3,906
24
10,851
1,500
47
12,398
Deferred consideration of £1,500,000 was paid during the year in respect of the acquisition of
Hughes Group Limited which became due 12 months after the acquisition date. A further
£47,000 cash outflow arose as a result of adjustments to the net assets on acquisition of
Vans Direct Limited identified within the measurement period subsequent to acquisition.
Deferred consideration
Deferred consideration outstanding at 29 February 2020:
Vans Direct Limited
Hughes Group Limited
Other businesses*
Total deferred consideration
Maturity of deferred consideration:
Payable in less than 12 months
Payable in greater than 12 months
Total deferred consideration
2020
£’000
-
-
-
-
2020
£’000
-
-
-
2019
£’000
2,500
1,500
100
4,100
2019
£’000
1,500
2,600
4,100
Deferred consideration in relation to Vans Direct Limited was released during the year due to a
reassessment of the likelihood of the business achieving the relevant performance criteria in the
earn out period.
*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 was
reassessed at each period end based on what is expected to be due in future periods under these
arrangements. The period of assessment expired in February 2020 and there is no longer a liability
due.
Vertu Motors plc
108
Notes to the Consolidated Financial Statements (continued)
17. Business combinations (continued)
Summary of the fair value of net assets acquired
Intangible assets
Property, plant and equipment
Right-of-use asset
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Lease liabilities
Provisions
Corporation tax
Deferred tax
Net assets acquired
18. Property, plant and equipment
2020
Cost
At 1 March 2019
Acquisitions (note 17)
Additions
Disposals
Reclassifications
Transfers to assets held for sale
At 29 February 2020
Accumulated depreciation and
impairment
At 1 March 2019
Depreciation charge
Disposals
Reclassifications
Impairment
Transfer to assets held for sale
At 29 February 2020
Net Book Value
At 29 February 2020
Yorkshire
Volkswagen
£’000
Bradford
Honda
and Kia
£’000
Other
acquisitions
£’000
677
1,608
9,491
5,700
286
-
(2,062)
(9,491)
(287)
-
(115)
5,807
-
3,071
-
863
-
-
(28)
-
-
-
-
3,906
-
27
-
-
-
-
(3)
-
-
-
-
24
Total
£’000
677
4,706
9,491
6,563
286
-
(2,093)
(9,491)
(287)
-
(115)
9,737
Freehold
and long
leasehold
land and
buildings*
£’000
232,202
3,945
9,084
(1,712)
76
(495)
243,100
24,457
5,012
(228)
63
2,124
(78)
31,350
Short
leasehold
land and
buildings*
£’000
Vehicles
and
machinery
£’000
Furniture,
Fittings
and
equipment
£’000
Total
£’000
5,378
-
84
(23)
(76)
-
5,363
2,667
641
(2)
(63)
-
-
3,243
10,436
514
2,351
(713)
(51)
-
12,537
4,905
1,988
(565)
(15)
-
-
6,313
16,498 264,514
4,706
15,177
(3,169)
-
(495)
19,733 280,733
247
3,658
(721)
51
-
7,667
3,668
(671)
15
-
-
10,679
39,696
11,309
(1,466)
-
2,124
(78)
51,585
211,750
2,120
6,224
9,054 229,148
At 28 February 2019
207,745
2,711
5,531
8,831 224,818
* Includes leasehold improvements and franchise standards property improvements.
Depreciation expense of £11,309,000 has been charged in operating expenses (note 6).
The £2,124,000 impairment charge in the period relates to two of the Group's freehold properties
in Newcastle and Sheffield and has been included in non-underlying items (note 8).
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 (2019: £10,900,000) have been granted to
manufacturer partners as security against consignment stocking lines.
Vertu Motors plc
109
Notes to the Consolidated Financial Statements (continued)
18. Property, plant and equipment (continued)
2019
Cost
At 1 March 2018
Acquisitions
Additions
Disposals
Reclassifications
Transfer to assets held for sale
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
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
19. Leases
Amounts recognised in the balance sheet
The balance sheet shows the following amounts relating to leases:
Right-of-use assets
Property
Vehicles
Lease liabilities
Current
Non-current
2020
£’000
80,801
6,212
87,013
1 March 2019*
£’000
73,865
4,888
78,753
(14,071)
(82,823)
(96,894)
(15,286)
(72,675)
(87,961)
*In the previous year, the Group only recognised lease assets and lease liabilities in relation to leases that were classified
as ‘finance leases’ under IAS 17 Leases. The assets presented in property, plant and equipment and the liabilities as part of
the Group’s borrowings. For adjustments recognised on adoption of IFRS 16 on 1 March 2019, please refer to note 1.
Additions to the right-of-use assets during the 2020 financial year were £22,325,000.
Amounts recognised in the statements of profit or loss
The statement of profit or loss shows the following amounts relating to leases:
Depreciation charge of right-of-use assets
Property
Vehicles
Interest expense (included in finance cost)
2020
£’000
8,704
5,361
14,065
3,595
2019
£’000
-
-
-
-
The total cash outflow in respect of lease payments in the year ended 29 February 2020 was
£16,987,000.
Vertu Motors plc
110
Notes to the Consolidated Financial Statements (continued)
20. Subsidiary undertakings
A list of subsidiary undertakings (ordinary shares 100% owned and incorporated within the
United Kingdom), as at 29 February 2020 and 28 February 2019 is given in note 7 of the
Vertu Motors plc company only financial statements (pages 133 to 135).
21. 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
2020
£’000
475,427
121,252
29,457
13,041
639,177
2020
£’000
51,849
366,513
57,065
475,427
2019
£’000
470,288
105,710
29,727
12,950
618,675
2019
£’000
46,401
378,954
44,933
470,288
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 £2,815,187,000
(2019: £2,745,070,000).
22. Property assets held for resale
At beginning of year
Transfers in from freehold property
Property sold during the year
At end of year
2020
£’000
1,324
417
(1,324)
417
2019
£’000
2,449
750
(1,875)
1,324
Properties sold during the year 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 and
an empty dealership property in Barnsley. The property was sold on 26 March 2019 realising cash
proceeds of £624,000 and a profit on disposal of £50,000.
The transfer in from freehold property during the year ended 29 February 2020 relates to a
dealership property in Retford.
23. Trade and other receivables
Trade receivables
Less provision for impairment of trade receivables
Trade receivables (net)
Other receivables
Prepayments and accrued income
2020
£’000
52,136
(1,557)
50,579
10,197
10,944
71,720
2019
£’000
36,219
(1,272)
34,947
19,459
8,487
62,893
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.
Vertu Motors plc
111
Notes to the Consolidated Financial Statements (continued)
23. Trade and other receivables (continued)
The following table shows the profile of the Group’s trade receivables.
Current
£’000
42,889
29,314
31-60
£’000
5,878
4,334
61-90
£’000
741
1,123
2020
2019
>90
£’000
2,628
1,448
Trade
Receivables
£’000
52,136
36,219
Loss
Allowance
£’000
(1,557)
(1,272)
Trade
Receivables
(net)
£’000
50,579
34,947
As at 29 February 2020, trade receivables of £4,108,000 (2019: £836,000) 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
2020
£’000
1,272
505
11
(231)
1,557
2019
£’000
1,224
421
(16)
(357)
1,272
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.
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.
24. Cash and cash equivalents
Cash in bank and in hand
25. Trade and other payables
Current
Trade payables
Social security and other taxes
Accruals
Other payables
2020
£’000
40,839
2020
£’000
632,911
6,667
50,692
26,000
716,270
2019
£’000
66,519
2019
£’000
639,577
5,937
45,750
26,000
717,264
Other payables comprise non-interest bearing advance payments from the Group’s finance
company partners.
Trade and other payables, excluding social security and other taxes and deferred income, are
designated as financial liabilities carried at amortised cost. Their fair value is considered to
be equal to their carrying value.
Accruals includes £12,767,000 (2019: £11,971,000) in respect of outstanding service plans.
Vertu Motors plc
112
Notes to the Consolidated Financial Statements (continued)
26. Borrowings
Current
Other borrowings
Non-current
Bank borrowings
Borrowings are repayable as follows:
6 months or less
6-12 months
1-5 years
2020
£’000
25,547
25,547
43,657
43,657
69,204
2020
£’000
25,547
-
43,657
69,204
2019
£’000
23,166
23,166
43,600
43,600
66,766
2019
£’000
23,166
-
43,600
66,766
The fair value of borrowings equals their carrying amount, as the impact of discounting is not
significant. Borrowings are designated as financial liabilities carried at amortised cost.
a) Bank borrowings
The Group’s Revolving Credit Facility (“RCF”) was available throughout the year ended 29
February 2020 and is in place until 27 February 2024. At 1 March 2019 the Group had a
committed RCF available of £62,000,000, as well as having access to an additional
£15,000,000 uncommitted “accordion” 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 29 February 2020. £44,100,000 of the RCF was drawn at 29 February
2020.
On 17 March 2021, subsequent to the year end, the Group drew down a further £10,000,000
of the RCF facility to aid liquidity driven by the uncertainty surrounding the Global COVID-19
pandemic. The Group’s banks agreed to a waiver of financial covenants for the May 2020 and
August 2020 measurement periods. In consideration for this interest rates at 2.1% above
LIBOR will be applied to drawings under the RCF facility from 1 June 2020.
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%. On 31 July
2019, the Group entered into a further interest rate swap in respect of £5,000,000 of the
Group’s borrowings, swapping LIBOR for a fixed interest rate of 1.214% which increased the
value of hedged borrowings to £22,000,000 overall.
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 6 May 2020.
During the year ended 29 February 2020 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. On 6 May 2020, the terms of the CMML facility were
amended such that the 4 peak months of the year were extended to include August and
September, as well as April, July, October and January, to aid cash flow requirements as a
consequence of the global COVID-19 pandemic. Interest rates applicable to these facilities
have been increased to 1.75% above LIBOR from 1 June 2020.
Vertu Motors plc
113
Notes to the Consolidated Financial Statements (continued)
26. Borrowings (continued)
a) Bank borrowings (continued)
The Group had the following undrawn borrowing and overdraft facilities at 29 February 2020:
Floating rate
- Overdraft (uncommitted) expiring in one year
- CMML (committed) facility expiring in one year
- RCF facility expiring in greater than one year *
- Other borrowings
2020
£’000
5,000
68,000
17,900
9,453
100,353
2019
£’000
5,000
68,000
17,900
11,834
102,734
* 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 29 February 2020 the facility available to the Group was £35,000,000 (2019: £35,000,000).
Subsequent to the year end, on 30 April 2020 the available facilities were increased to
£45,000,000.
c) Financial assets
The Group’s financial assets on which floating interest is receivable comprise cash deposits
and cash in hand of £40,839,000 (2019: £66,519,000). 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. Their fair value is deemed to be equal to their carrying value.
27. 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
£5m Interest rate swap – cash flow hedges
Total derivates designated as hedging instruments
Non-current borrowings subject to hedging instruments
Total derivative financial liabilities
2020
£’000
(1)
(198)
(294)
(493)
2020
£’000
22,000
22,000
2019
£’000
44
(69)
-
(25)
2019
£’000
17,000
17,000
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
29 February 2020 totalled £22,000,000 (2019: £17,000,000). Their combined fair value was a
liability of £493,000 (2019: £25,000).
At 29 February 2020, 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 29 February 2020
will be released to the consolidated statement of comprehensive income as the related
interest expense is recognised.
Vertu Motors plc
114
Notes to the Consolidated Financial Statements (continued)
28. 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)
2020
£’000
2019
£’000
(2,152)
(1,882)
10,331
8,179
9,476
7,594
The gross movement on the Group’s deferred income tax account is as follows:
2020
At 1 March 2019
Charged/(credited) to income statement
(note 12)
Charged/(credited) directly to equity
Acquisitions
At 29 February 2020
2019
At 1 March 2018
Credited to income statement (note 12)
(Credited)/charged directly to equity
Acquisitions (note 17)
At 28 February 2019
2020
Deferred tax
liabilities
£’000
9,476
Deferred tax
assets
£’000
(1,882)
332
408
115
10,331
(190)
(80)
-
(2,152)
Deferred tax
liabilities
£’000
8,214
(4)
(46)
1,312
9,476
Deferred tax
assets
£’000
(1,737)
(156)
11
-
(1,882)
Share
based
payments Pensions
£’000
1,093
£’000
(735)
Other
timing
differences
£’000
5,259
Accelerated tax
depreciation
£’000
1,977
At 1 March 2019
Charged/(credited) to income
statement (note 12)
Acquisitions
Charged/(credited) directly to equity
At 29 February 2020
400
-
-
2,377
(72)
-
-
(807)
6
-
408
1,507
(192)
115
(80)
5,102
2019
At 1 March 2018
(Credited)/charged to income
statement (note 12)
Acquisitions
(Credited)/charged directly to equity
At 28 February 2019
Accelerated tax
depreciation
£’000
1,926
Share
based
payments Pensions
£’000
1,114
£’000
(642)
Other
timing
differences
£’000
4,079
(204)
255
-
1,977
(93)
-
-
(735)
25
-
(46)
1,093
112
1,057
11
5,259
In March 2020 it was announced that the reduction in the UK rate to 17% will now not occur
and the Corporation Tax Rate will be held at 19%. As the substantive enactment was after the
balance sheet date the deferred tax balances as at 29 February 2020 have continued to be
measured at a rate of 17%.
Vertu Motors plc
115
Net
£’000
7,594
142
328
115
8,179
Net
£’000
6,477
(160)
(35)
1,312
7,594
Total
£’000
7,594
142
115
328
8,179
Total
£’000
6,477
(160)
1,312
(35)
7,594
Notes to the Consolidated Financial Statements (continued)
29. Contract liabilities
At 1 March 2019
Created in the year
Recognised as income during the year
At 29 February 2020
Current
Non-current
Warranty policies
Warranty
policies
£’000
17,821
9,481
(8,093)
19,209
8,915
10,294
19,209
Free
servicing
£’000
1,592
810
(343)
2,059
Total
£’000
19,413
10,291
(8,436)
21,268
2,059
-
2,059
10,974
10,294
21,268
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.
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.
30. Retirement benefit asset
The Group operates a trust based defined benefit pension scheme, “Bristol Street Pension
Scheme”, which has three defined benefit sections which were closed to new entrants and future
accrual on 31 May 2003, with another section closed to new entrants in July 2003 and future
accrual in October 2013. 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 2020 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:
Market Value Market Value
28 February
2019
£’000
6,780
12,077
33,137
413
52,407
29 February
2020
£’000
-
12,742
43,483
2,972
59,197
Equities
Diversified growth funds
Liability driven Investment Funds
Other
Vertu Motors plc
116
Notes to the Consolidated Financial Statements (continued)
30. Retirement benefit asset (continued)
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 2019 was 2.65%. This is equal to the
discount rate used in the calculation of the net interest income for the year ended 29 February
2020.
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
2020
£’000
59,197
(50,330)
8,867
2019
£’000
52,407
(45,977)
6,430
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 gains/(losses)
Employer contributions
Benefits paid
Expenses recognised in the income statement
Closing fair value of scheme assets
2020
£’000
52,407
1,367
7,047
-
(1,493)
(131)
59,197
2019
£’000
53,678
1,416
(196)
63
(2,462)
(92)
52,407
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
Benefits paid
Closing fair value of scheme liabilities
2020
£’000
45,977
1,199
4,647
(1,493)
50,330
The amounts recognised in the income statement in the year are as follows:
Expenses
Net interest income (note 11)
Total income included in income statement
2020
£’000
131
(168)
(37)
2019
£’000
47,127
1,239
73
(2,462)
45,977
2019
£’000
92
(177)
(85)
Vertu Motors plc
117
Notes to the Consolidated Financial Statements (continued)
30. Retirement benefit asset (continued)
The actual returns on Scheme assets in the year are as follows:
Expected return on scheme assets
Actuarial gains/(losses)
2020
£’000
1,367
7,047
8,414
2019
£’000
1,416
(196)
1,220
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 before 2030
Limited Price Indexation (“LPI”) pension increases after 2030
Inflation rate
2020
1.70%
2.90%
2.40%
1.90%
2019
2.65%
3.20%
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
2020
22
24
2019
22
23
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
2020
23
25
2019
23
25
Amounts recognised in the Consolidated Statement of Comprehensive Income in the year are
as follows:
Actuarial gains/(losses)
Related deferred tax liability (note 28)
Total, included within retained earnings
2020
£’000
2,400
(408)
1,992
2019
£’000
(269)
46
(223)
Cumulative actuarial gains/(losses)
540
(1,452)
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
1,954
(2,071)
(1,783)
1,276
(2,065)
2,024
Vertu Motors plc
118
Notes to the Consolidated Financial Statements (continued)
31. Ordinary share capital, share premium, other reserves, treasury share reserve and
capital redemption reserve
2020
At 1 March 2019
Issuance of treasury shares
in satisfaction of exercised
share options
Cancellation of repurchased
shares
Purchase of treasury shares
At 29 February 2020
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
375,023
37,661
124,939
10,645
(602)
2,066 174,709
529
-
-
-
200
-
200
(7,432)
(1,000)
367,120
(744)
-
36,917
-
-
124,939
-
-
10,645
-
(401)
(803)
744
-
-
(401)
2,810 174,508
The other reserve is a merger reserve, arising from shares issued for shares, as
consideration to the former shareholders of acquired businesses.
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
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 note 8, a share based payments charge of £733,000 (2019: £904,000) has
been recognised during the year, in relation to the schemes as described below.
Vertu Motors plc
119
Notes to the Consolidated Financial Statements (continued)
31. 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 in issue during the year are as follows:
Award Date
28 Nov 2011*
12 Jun 2012*
24 Oct 2012*
20 Aug 2013*
13 Nov 2015
5 Sep 2016**
13 Oct 2016
23 Jun 2017****
6 Nov 2017
2 Jul 2018
17 Jul 2018
8 Nov 2018
3 Sept 2019***
Type
CSOP
CSOP
CSOP
LTIP
CSOP
LTIP
CSOP
LTIP
CSOP
CSOP
LTIP
CSOP
LTIP
Granted /
Outstanding at 29
February 2020
No of shares
569,230
2,000,000
2,010,000
53,583
-
121,011
1,880,000
1,893,940
2,640,000
3,600,000
458,864
5,170,000
1,168,417
21,565,045
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
Exercise
price
26.00p
27.50p
39.25p
0.00p
74.50p
0.00p
45.38p
0.00p
45.00p
49.60p
0.00p
38.00p
0.00p
Date from
which
exercisable
28 Nov 2014
30 Aug 2015
30 Aug 2015
20 Aug 2016
16 Nov 2018
5 Sep 2019
13 Oct 2018
23 Jun 2020
7 Nov 2020
2 Jul 2021
17 Jul 2021
8 Nov 2021
3 Sep 2022
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
3 Sep 2029
* 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.
***Cancelled post year end
****Lapsed in full subsequent to 29 February 2020 as a result of not satisfying the relevant performance criteria.
Movements in the number of share options outstanding are as follows:
At beginning of year
Granted
Forfeited
Lapsed
Exercised
At end of year
2020
No of share
options
25,087,211
1,168,417
(940,000)
(2,811,618)
(938,965)
21,565,045
2019
No of share
options
19,257,265
9,608,864
(1,287,930)
(2,258,205)
(232,783)
25,087,211
The weighted average share price during the year was 36.3p (2019: 43.0p). The weighted
average fair value of CSOP options granted during the year, determined using the Black-
Scholes model was Nil (2019: 6p) per option.
Movements in the number of share options outstanding and their related exercise prices are
as follows:
CSOP
LTIP
Options
No of
shares
14,094,029
9,150,000
(1,065,600)
(179,200)
(1,130,000)
20,869,229
-
(940,000)
(410,000)
(1,650,000)
17,869,229
Weighted
average
exercise
price
45.68p
43.00p
51.76p
36.17p
57.50p
43.64p
0.00p
49.60p
27.50p
74.50p
40.85p
120
Options
No of
shares
5,163,236
458,864
(222,330)
(53,583)
(1,128,205)
4,217,982
1,168,417
-
(528,965)
(1,161,618)
3,695,816
Weighted
average
exercise
price
0.00p
0.00p
0.00p
0.00p
0.00p
0.00p
0.00p
0.00p
0.00p
0.00p
0.00p
Total
Options
No of
shares
19,257,265
9,608,864
(1,287,930)
(232,783)
(2,258,205)
25,087,211
1,168,417
(940,000)
(938,965)
(2,811,618)
21,565,045
At beginning of 1 March 2018
Granted
Forfeited
Exercised
Lapsed
At 28 February 2019
Granted
Forfeited
Exercised
Lapsed
At 29 February 2020
Vertu Motors plc
Notes to the Consolidated Financial Statements (continued)
31. Ordinary share capital, share premium, other reserves, treasury share reserve and
capital redemption reserve (continued)
Share Option Schemes (continued)
Significant inputs into the Black-Scholes model for all CSOP option awards above are set out
below:
Vesting period
Expected volatility
Option life
Expected life
Annual risk-free interest rate
Dividend yield
3 years
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 29.7p (2019: 46.0p) 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%
7 years
3 years
1%
2%
The volatility measured at the standard deviation of continuously compounded share returns
is based on statistical analysis of daily share prices since the admission of Vertu Motors plc to
AiM. This is then adjusted for events not considered to be reflective of the volatility of the
share price going forward.
The performance conditions attaching to any share options issued to Executive Directors,
Senior Management or colleagues of the Company are considered and set by the
Remuneration Committee. The following share incentive schemes are operated by the
Company:
a)
Share Incentive Plan (“SIP”)
The SIP was introduced in accordance with appropriate legislation and it allows colleagues to
invest in partnership shares out of gross salary. A participant may withdraw from the SIP at
any time but if he or she does so before the partnership shares have been held in trust for five
years (except in certain specified circumstances such as redundancy or disability) he or she
will incur an income tax liability. The Company currently does not supplement or match the
partnership shares acquired by colleagues.
b)
Company Share Option Plan (“CSOP”) Approved and Unapproved Share Option
Schemes
The number of vested options issued prior to 24 October 2012, which remain outstanding are
shown in the table on page 120.
The CSOP options issued on 13 November 2015 could 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 was above 90p and then 100% of the options vest. At an average share
price of below 90p none of the options are exercisable, these options therefore lapsed during
the year.
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.
Vertu Motors plc
121
Notes to the Consolidated Financial Statements (continued)
31. Ordinary share capital, share premium, other reserves, treasury share reserve and
capital redemption reserve (continued)
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 2020
and 31 July 2021 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 CSOP options issued on 2 July 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 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 CSOP 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.
There were no CSOP share options issued during the financial year to 29 February 2020.
c) Long Term Incentive Plan (“LTIP”)
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 LTIP share awards were made to Executive Directors and Senior
Managers. 37% of these awards vested during the year ended 29 February 2020, 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. These
awards lapsed in full subsequent to 20 February 2020 as a result of not satisfying the relevant
performance conditions. On 17 July 2018, 458,864 LTIP share awards were made to
Executive Directors which may vest in May 2021. On 3 September 2019, 1,168,417 LTIP
share awards were made to Executive Directors which were cancelled in full post year end, in
agreement between the Executive Directors and the Remuneration Committee.
32. Hedging reserve
The hedging reserve arises as a result of cash flow hedges in relation to interest rate swap
derivatives. The movements on the hedging reserve are as follows:
At beginning of year
Fair value (losses) / gains on derivative financial
instruments during the year
Deferred taxation on fair value losses / (gains) during
year
At end of year
2020
£’000
(19)
(468)
80
(407)
2019
£’000
(75)
67
(11)
(19)
Vertu Motors plc
122
Notes to the Consolidated Financial Statements (continued)
33. Reconciliation of net cash flow to movement in net (debt) / cash
Net (decrease) / increase in cash and cash
equivalents
Cash inflow from proceeds 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 (debt) / cash
Opening net (debt) / cash
Closing net debt (excluding lease liabilities)
Lease liabilities transitional adjustment (Note 1)
Capitalisation of new leases (Note 19)
Interest element of new leases (Note 11)
Cash outflow from lease repayments (Note 19)
Impact of IFRS 16 transition
2020
£’000
2019
£’000
(25,680)
24,810
(2,381)
(28,061)
(44,455)
(19,645)
118
(175)
(57)
(28,118)
(247)
(28,365)
(87,961)
(22,325)
(3,595)
16,987
(96,894)
214
(129)
85
(19,560)
19,313
(247)
-
-
-
-
-
Closing net debt
(125,259)
(247)
34. 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.
2020
Trade and other payables (Note 25)
Contract liabilities (Note 29)
At 29 February 2020
At 28 February 2019
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
Movement as shown in Consolidated
Cash Flow Statement
Inventories
(Note 21)
£’000
Current trade
and other
receivables
(Note 23)
£’000
639,177
618,675
(20,502)
6,563
71,720
62,893
(8,827)
286
Trade and
other
payables
£’000
(716,270)
(21,268)
(737,538)
(740,777)
(3,239)
(2,380)
-
-
4,100
(13,939)
(8,541)
(1,519)
Total working
capital
movement
£’000
(23,999)
131
422
(117)
(23,563)
Vertu Motors plc
123
Notes to the Consolidated Financial Statements (continued)
34. Cash flow from movement in working capital (continued)
2019
Current trade
and other
receivables
(Note 23)
£’000
Inventories
(Note 21)
£’000
618,675
558,386
(60,289)
27,651
-
62,893
66,272
3,379
8,351
-
Trade and
other
payables
£’000
(717,264)
(4,100)
(19,413)
(740,777)
(672,381)
68,396
(25,635)
(4,000)
(32,638)
11,730
38,761
Total
working
capital
movement
£’000
17,853
29
894
(89)
174
18,861
Trade and other payables
Deferred consideration
Contract liabilities
At 28 February 2019
At 28 February 2018
Balance sheet movement
Acquisitions
Deferred consideration on acquisitions
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
35. 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
23,166
43,600
124,939
(602)
101,953 293,056
-
-
-
-
2,381
(16,987)
(14,606)
-
-
-
-
-
-
-
-
57
-
-
-
-
-
-
-
-
-
200
(401)
-
-
-
(6,122)
(200)
-
(2,749)
-
-
(6,122)
-
(401)
(2,749)
2,381
(16,987)
(201)
(9,071) (23,878)
-
-
57
31,058
-
39,618
82,823
-
126,480
-
-
124,939
-
-
(803)
- 113,881
(3,610)
(3,610)
89,272 379,506
As at 1 March 2019
Cash flows from financing
activities:
Dividends paid
Sale of treasury shares
Purchase of treasury shares
Share repurchase
Proceeds from issue of loan
Lease repayments
Net cash outflow from financing
activities
Other changes:
Liability related: capitalisation
and amortisation of loan fees
and expenses
Liability related: capitalisation of
lease liabilities and lease interest
charges
Equity related: other movements
As at 29 February 2020
Vertu Motors plc
124
Notes to the Consolidated Financial Statements (continued)
36. 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 pages
85 to 86 were subject to at the end of 29 February 2020 until they are satisfied in full. These
liabilities total £822,279,000 (2019: £790,722,000), offset by intercompany loans of
£143,344,000 (2019: £119,094,000). Such guarantees are enforceable against Vertu Motors
plc by any person to whom any such liability is due.
37. Commitments
a) Capital Commitments
Capital commitments in respect of property, plant and equipment amounting to £3,127,000
were outstanding as at 29 February 2020 (2019: £3,505,000).
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.
Following the adoption of IFRS 16 all leases have been recognised as right of use assets and
corresponding lease liabilities in the current year.
The future aggregate minimum lease payments under non-cancellable operating leases,
ignoring property landlord only lease breaks, are as follows:
2020
2019
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
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
38. 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 29 February 2020 is set out in the
Directors’ Remuneration Report on pages 65 to 70.
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 29 February 2020, the value of such services provided was
£425,473 (2019: £51,156). £43,348 was unpaid at 29 February 2020 in respect of these
services (2019: £Nil). In the year ended 29 February 2020, sales of £43,674 (2019: £Nil) were
made to Biffa plc, of which £1,646 was outstanding at the year end (2019: £Nil).
Ken Lever also sits on the board of RPS Group plc. RPS Group plc provides professional
services to the Group on normal commercial terms. In the year ended 29 February 2020, the
value of such services provided was £Nil (2019: £1,980). £Nil was unpaid at 29 February
2020 in respect of these services (2019: £Nil).
During the year to 29 February 2020, Robert Forrester, David Crane, Karen Anderson, 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 29 February 2020 and the year
ended 28 February 2019 is presented below. No profit or loss was made in respect of these
transactions in the year ended 29 February 2020 or the year ended 28 February 2019. 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 29 February 2020 (2019: £Nil).
Vertu Motors plc
125
Notes to the Consolidated Financial Statements (continued)
38. Related party transactions (continued)
Bought from the Group
Sold to the Group
Number of
vehicles
5
6
1
3
2
5
Purchase
price
£’000
402
354
97
201
145
284
Number of
vehicles
5
6
2
2
2
5
Sale price
£’000
415
308
173
147
119
259
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
2020
Robert Forrester
David Crane
Peter Jones 1
Pauline Best
Andrew Goss
Karen Anderson 2
2019
Robert Forrester
David Crane
Michael Sherwin 3
Peter Jones
Nigel Stead 4
Pauline Best
Andrew Goss 5
1 resigned on 24 July 2019
2 appointed on 1 March 2019
3 resigned on 1 March 2019
4 resigned on 31 December 2018
5 appointed on 3 September 2018
39. Post balance sheet events
As a result of the Government’s response to the global COVID-19 pandemic, all of the Group’s
sales operations were temporarily closed on 24 March 2020. Sales operations reopened in
England on 1 June 2020 with Scottish sites (13 in the Group) expected to follow in due course.
The impact of the COVID-19 pandemic on the Group has been treated as an adjusting post
balance sheet event.
As a result of financial modelling in respect of the Government’s response to the global
COVID-19 pandemic, the Group’s banks agreed to a waiver of financial covenants for the
May 2020 and August 2020 measurement periods. The Directors are confident that the
Group’s banks will agree to review the calculation of covenants after this date, as more
certainty over the impact of closure periods due to COVID-19 is obtained, so as to avoid the
risk that a future event of default will occur.
Furthermore, the Group has worked with its banking partners to ensure that sufficient
headroom is available to manage working capital requirements throughout the year ending 28
February 2021 following the Group’s cautious assessment of future cash flows as a result of
the pandemic and consequently, on 6 May 2020 the Group’s peak Committed Money Market
Loan (“CMML”) facility of £68,000,000 usually made available in April, July, October and
January was extended such that it will also be made available in August and September.
Additionally, on 30 April 2020, the Group extended its used vehicle funding line from
£35,000,000 to £45,000,000 to provide additional liquidity if required.
Vertu Motors plc
126
Company Balance Sheet
As at 29 February 2020
Fixed assets
Intangible assets
Tangible assets
Investments
Current assets
Debtors
Cash at bank and in hand
Total current assets
Note
5
6
7
8
2020
£’000
421
3,222
166,722
170,365
171,452
33,616
205,068
2019
£’000
667
3,304
187,029
191,000
138,165
61,890
200,055
Creditors: amounts falling due within one
year
10
(78,202)
(77,608)
Net current assets
Total assets less current liabilities
126,866
297,231
122,447
313,447
Creditors: amounts falling due after more
than one year
11
(53,960)
(56,033)
Net assets
243,271
257,414
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
(Loss)/profit for the year
Other changes in retained earnings
13
13
13
14
13
13
15
36,917
124,939
10,645
(407)
(803)
2,810
82,724
(5,102)
(8,452)
69,170
37,661
124,939
10,645
(19)
(602)
2,066
72,156
18,805
(8,237)
82,724
Total shareholders’ funds
243,271
257,414
These financial statements, on pages 127 to 139, have been approved for issue by the Board
of Directors on 3 June 2020 and signed by:
Robert Forrester
Chief Executive
Karen Anderson
Chief Financial Officer
Vertu Motors plc
127
Company Statement of Changes in Equity
For the year ended 29 February 2020
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 2019
Loss for the year
Tax on items taken
directly to equity
Fair value losses
Total comprehensive
expense for the year
Sale of treasury shares
Purchase of treasury
shares
Repurchase of own
shares
Cancellation of
repurchased shares
Dividend paid
Share based payments
charge
37,661
124,939
10,645
-
-
-
-
-
-
-
(744)
-
-
-
-
-
-
-
-
-
-
-
-
-
- 80
-
-
-
-
-
-
-
-
(19)
-
(468)
(388)
-
-
-
-
-
-
(602)
2,066
82,724
257,414
-
-
-
-
200
(401)
-
-
-
-
-
-
-
-
-
-
-
744
-
-
(5,102)
(5,102)
-
-
80
(468)
(5,102)
(200)
(5,490)
-
-
(401)
(2,749)
(2,749)
-
(6,122)
-
(6,122)
619
619
As at 29 February 2020
36,917
124,939
10,645
(407)
(803)
2,810
69,170
243,271
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 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 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
-
72,156 246,697
18,805
18,805
-
-
-
-
-
891
-
-
-
-
(11)
67
18,805
18,861
(29)
64
(3,455)
(3,455)
-
(5,657)
-
(5,657)
904
904
37,661
124,939
10,645
(19)
(602)
2,066
82,724 257,414
Vertu Motors plc
128
Notes to the Company Financial Statements
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
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 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.
Note 1 of the consolidated financial statements provides further details on the Directors’
conclusions regarding the going concern basis of preparation.
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 loss of the Company after posting an impairment charge of
£10,757,000 (note 7), for the year ended 29 February 2020 was £5,102,000 (2019: profit of
£18,805,000).
The consolidated financial statements include the results of all subsidiaries owned by Vertu
Motors plc listed on pages 133 to 135 of these financial statements. Certain of these
subsidiaries, which are listed below, have taken the exemption from an audit for the year
ended 29 February 2020 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 29 February 2020 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 29 February 2020 of the subsidiaries listed
below, further detail of which is provided in note 36 to the consolidated financial statements
on page 116.
The subsidiaries which have taken an exemption from an audit for the year ended 29
February 2020 by virtue of s479A Companies Act 2006 are:
Albert Farnell Limited
All Car Parts Limited
Bristol Street First Investments Limited
Bristol Street Fourth Investments Limited
Grantham Motor Company Limited
Hughes of Beaconsfield Limited
Macklin Property Limited
Sigma Holdings Limited
South Hereford Garages Limited
South Hereford Garages Trade Parts LLP
Tyne Tees Finance Limited
Vans Direct Limited
Vertu Ventures Limited
Vertu Motors (Chingford) Limited
Vertu Motors (Continental) Limited
Vertu Motors (Knaresborough) Limited
Vertu Motors (Property) Limited
Vertu Motors (Property 2) Limited
Vertu Motors (VMC) Limited
Vertu Motors plc
129
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 29 February 2020 by virtue of s394A of Companies Act 2006 are:
Aceparts Limited
Best4Vans Limited
Blacks Autos Limited
Blake Holdings Limited
Boydslaw 103 Limited
Bristol Street (No.1) Limited
Bristol Street (No.2) Limited
Bristol Street Commercials (Italia) Limited
Bristol Street Fifth Investments Limited
Bristol Street Fleet Services Limited
Bristol Street Group Limited
Bristol Street Limited
Brookside (1998) Limited
BSH Pension Trustee Limited
Carsandvansdirect Limited
Compare Click Call Limited
Dobies (Carlisle) Limited
Dunfermline Autocentre Limited
Easy Vehicle Finance Limited
Gordon Lamb Group Limited
Gordon Lamb Limited
Gordon Lamb Holdings Limited
Hillendale Group Limited
Hillendale LR Limited
Horseshoe Vehicle Contracts Limited
Hughes Group Holdings Limited
International Concessionaires Limited
K C Motability Solutions Limited
Merifield Properties Limited
Motor Nation Car Hypermarkets Limited
National Allparts Limited
Newbolds Garage (Mansfield) Limited
Nottingham TPS LLP
Peter Blake (Chatsworth) Limited
Peter Blake (Clumber) Limited
Peter Blake Limited
SHG Holdings Limited
The Taxi Centre Limited
Typocar Limited
Vertu Fleet Limited
Vertu Motors (AMC) Limited
Vertu Motors (Durham) Limited
Vertu Motors (Finance) Limited
VanMan Limited
Vertu Motors (Retail) Limited
Vertu Motors (Pity Me) Limited
Vertu Motors Property 2 Holdings Limited
Why Pay More For Cars Limited
Widnes Car Centre Limited
Widnes Car Centre (1994) Limited
The auditors’ remuneration for audit and other services was £25,000 (2019: £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.
Vertu Motors plc
130
Notes to the Company Financial Statements (continued)
1. Accounting Policies (continued)
Deferred taxation (continued)
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.
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. Details of the key assumptions
used for the impairment testing for the year ended 29 February 2020, as well as the results of
sensitivity analysis performed, are provided in note 7.
Vertu Motors plc
131
Notes to the Company Financial Statements (continued)
2. Critical accounting estimates and judgements (continued)
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 31 of the Vertu Motors plc consolidated financial statements.
3. Employee benefit expense
Wages and salaries
Social security costs
Pension costs – defined contribution plans
Share based payments charge (note 17)
2020
£’000
15,313
1,341
1,922
18,576
733
19,309
4. Average monthly number of people employed (including Directors)
2020
Number
124
23
416
563
Sales
Service
Administration
5.
Intangible assets
Cost
At 1 March 2019
Additions
Disposals
At 29 February 2020
Accumulated Amortisation
At 1 March 2019
Amortisation charge
Disposals
At 29 February 2020
Net Book Value
At 29 February 2020
At 28 February 2019
2019
£’000
12,877
1,845
1,755
16,477
904
17,381
2019
Number
121
18
410
549
Computer
Software
£’000
2,275
113
(6)
2,382
1,608
358
(5)
1,961
421
667
Vertu Motors plc
132
Notes to the Company Financial Statements (continued)
6. Tangible assets
Cost
At 1 March 2019
Additions
Disposals
At 29 February 2020
Accumulated Depreciation
At 1 March 2019
Depreciation charge
Disposals
At 29 February 2020
Net Book Value
At 29 February 2020
At 28 February 2019
7. Fixed asset investments
Cost
At 1 March 2019
Intercompany transfer
At 29 February 2020
Accumulated impairment charges
At 1 March 2019
Impairment charges
At 29 February 2020
Net Book Value
At 29 February 2020
At 28 February 2019
Computer
equipment
£’000
Office
equipment
£’000
7,760
1,601
(177)
9,184
4,586
1,608
(168)
6,026
3,158
3,174
544
5
-
549
414
71
-
485
64
130
Total
£’000
8,304
1,606
(177)
9,733
5,000
1,679
(168)
6,511
3,222
3,304
2020
£’000
189,543
(9,550)
179,993
2,514
10,757
13,271
166,722
187,029
Vertu Motors plc, the Company, as at 29 February 2020 and 28 February 2019, invested in
100% of the ordinary share capital of the following subsidiary undertakings, incorporated in
the United Kingdom:
Principal activity
Company
The registered office address of the following companies is Vertu House, Fifth Avenue
Business Park, Team Valley, Gateshead, Tyne & Wear, NE11 0XA:
Bristol Street First Investments Limited
Bristol Street Fourth Investments Limited
Vertu Motors (VMC) Limited
Grantham Motor Company Limited
Vertu Motors (Chingford) Limited
Albert Farnell Limited
South Hereford Garages Limited *
Tyne Tees Finance Limited *
Vertu Motors (Continental) Limited *
Hughes of Beaconsfield Limited *
South Hereford Garages Trade Parts LLP *
Vans Direct Limited *
Vertu Motors Third Limited
All Car Parts Limited *
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
Vertu Motors plc
133
Notes to the Company Financial Statements (continued)
7. Fixed asset investments (continued)
Company
Macklin Property Limited
Vertu Motors (Property) Limited
Vertu Motors (Knaresborough) Limited
Vertu Motors (Property 2) Limited *
BSH Pension Trustee Limited *
Vertu Motors (Durham) Limited *
Bristol Street Fifth Investments Limited *
Blake Holdings Limited *
Widnes Car Centre (1994) Limited *
Brookside (1998) Limited *
Hillendale Group Limited
Gordon Lamb Group Limited
Gordon Lamb Holdings Limited *
Bristol Street Group Limited *
Vertu Motors Property 2 Holdings Limited
Sigma Holdings Limited
Hughes Group Holdings Limited
Vertu Ventures Limited
Aceparts Limited
SHG Holdings Limited
Why Pay More For Cars Limited *
International Concessionaires Limited *
Vertu Motors (AMC) Limited
Motor Nation Car Hypermarkets Limited
Bristol Street Limited *
Bristol Street (No. 1) Limited *
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 *
Gordon Lamb Limited *
Vertu Motors (Finance) 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
Property company
Property company
Property company
Property company
Pension scheme trustee
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company (dormant subsidiaries)
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
Dormant company
The registered address of the following companies is Dunfermline Autocentre, Halbeath
Road, Dunfermline, Fife, KY12 7RD
Boydslaw 103 Limited *
Dunfermline Autocentre Limited *
Holding company
Dormant company
Vertu Motors plc
134
Notes to the Company Financial Statements (continued)
7. Fixed asset investments (continued)
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.
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 (“CGUs”) have been determined based on
value-in-use calculations.
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 in respect
of the Company’s trading subsidiaries:
• 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 and the past performance of the CGU.
• Changes in gross profits and direct costs are based on past practices and expectations
of future changes in the market.
Impairment testing in the year ended 29 February 2020 included a cautious assessment of
the cash flow impact of a substantial curtailment of the Company’s subsidiary companies’
operations in response to the global COVID-19 pandemic. Calculations included an assumed
three-month full closure of dealership sales operations in the year to February 2021, followed
by a further period of steady recovery to historic levels of performance for each CGU starting
February 2022.
Annual growth rates typically between 0% and 3% are assumed for years three to five
depending on 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% (2019: 8%) is applied.
As a result of this value in use calculation taking into account the impact of COVID-19 on post
year end trading performance and cash flows, impairment charges of £10,757,000 were
incurred during the year ended 29 February 2020 (2019: £Nil) to align the carrying value with
the value in use.
Sensitivity analysis has been performed on the impairment test based on three potential
scenarios with the following results:
•
•
•
If the impact of COVID-19 resulted in a reduction in gross profit which is 20% higher
than that included in the forecast, the Company would incur an additional impairment
charge in respect of fixed asset investments of £1.9m.
If the growth rate in years three to five reduces to -3%, the Company would incur an
additional impairment charge in respect of fixed asset investments of £8.4m.
If the pre-tax WACC increased to 9%, the Company would incur an additional
impairment charge in respect of fixed asset investments of £9.8m.
Vertu Motors plc
135
Notes to the Company Financial Statements (continued)
8. Debtors
Trade debtors
Amounts owed by Group undertakings
Deferred tax asset (note 9)
Value Added Tax
Prepayments and accrued income
2020
£’000
1,401
157,478
1,733
3,586
7,254
171,452
2019
£’000
1,262
126,126
1,467
3,942
5,368
138,165
Amounts owed by Group undertakings are unsecured, bear no interest and have no fixed
repayment date.
9. Deferred tax asset
At beginning of year
Credited to the profit and loss account
Credited/(charged) directly to equity
At end of year
2020
£’000
1,467
186
80
1,733
2019
£’000
1,323
155
(11)
1,467
The amounts recognised for deferred tax assets, calculated under the liability method at 17%
(2019: 17%) are set out below:
Depreciation in excess of capital allowances
Other short-term timing differences
Total
2020
£’000
601
1,132
1,733
2019
£’000
530
937
1,467
During the year ending 28 February 2021, the reversal of deferred tax assets is expected to
decrease the corporation tax charge for the year by £274,000. 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
2020
£’000
8,421
26,000
2,094
-
5,180
25,533
10,974
78,202
2019
£’000
8,481
26,000
2,597
1,500
4,264
25,176
9,590
77,608
Other creditors comprise non-interest bearing advance payments from the Group’s finance
company partners.
Accruals includes £12,767,000 (2019: £11,971,000) in respect of outstanding service plans.
Vertu Motors plc
136
Notes to the Company Financial Statements (continued)
11. Creditors: amounts falling due after more than one year
Bank borrowings
Deferred consideration
Deferred income (note 12)
Borrowings are repayable as follows:
Under 1 year
1-2 years
2-5 years
2020
£’000
43,657
-
10,303
53,960
2020
£’000
-
-
43,657
43,657
2019
£’000
43,601
2,600
9,832
56,033
2019
£’000
-
-
43,601
43,601
The bank borrowings are secured on the assets of the Company and the Group. The table
below analyses the Company’s financial liabilities into relevant maturity groupings based on
the remaining period at the balance sheet date to contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows. Balances due within 12
months equal their carrying amounts as the impact of discounting is not significant.
Bank borrowings
Trade and other creditors
At 29 February 2020
Bank borrowings
Trade and other creditors
At 28 February 2019
12. Deferred income
Within one
year
£’000
-
78,202
78,202
Within one
year
£’000
-
77,608
77,608
Within two
to five years
£’000
43,657
10,303
53,960
Within two
to five years
£’000
43,601
12,432
56,033
Deferred income due in greater than one year comprises:
Warranty income
2020
£’000
10,303
10,303
Total
£’000
43,657
88,505
132,162
Total
£’000
43,601
90,040
133,641
2019
£’000
9,832
9,832
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 £8,915,000 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 (2019: £7,998,000).
Vertu Motors plc
137
Notes to the Company Financial Statements (continued)
13. Called up share capital, share premium, other reserve, treasury share reserve and
capital redemption reserve
2020
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 2019
Sale of treasury
shares
Issuance of treasury
shares in satisfaction
of exercised share
options
Purchase of treasury
shares
Cancellation of
repurchased shares
At 29 February 2020
375,023
37,661
124,939
10,645
(602)
2,066
174,709
-
529
(1,000)
-
-
-
-
-
-
-
-
-
(7,432)
367,120
(744)
36,917
-
124,939
-
10,645
200
-
(401)
-
(803)
-
-
-
200
-
(401)
744
2,810
-
174,508
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.
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
14. Hedging reserve
Cash flow hedges:
At beginning of year
Fair value (losses)/gains on derivative financial
instruments during the year
Deferred taxation on fair value losses/(gains) during year
At end of year
15. Profit and loss account
As at beginning of year
(Loss)/profit for the financial year
Dividend paid
Share based payments charge
Repurchase of own shares
Treasury shares issued
As at end of year
Vertu Motors plc
138
2020
£’000
(19)
(468)
80
(407)
2020
£’000
82,724
(5,102)
(6,122)
619
(2,749)
(200)
69,170
2019
£’000
(75)
67
(11)
(19)
2019
£’000
72,156
18,805
(5,657)
904
(3,455)
(29)
82,724
Notes to the Company Financial Statements (continued)
16. Dividends per share
Dividends of £6,122,000 were paid in the year to 29 February 2020 (2019: £5,657,000), 1.65p
per share (2019: 1.50p). In light of the immediate and significant impact of COVID-19 on the
Group, the Board does not propose a final dividend in respect of the year ended 29 February
2020.
17. Share based payments
For details of share based payment awards and fair values, see note 31 to the consolidated
financial statements. The Company financial statements include a share based payments
charge for the year of £733,000 (2019: £904,000).
18. Contingencies
See note 36 to the consolidated financial statements for details of contingent liabilities as at
the balance sheet date.
19. Directors’ remuneration
The remuneration of the Directors who served during the year from 1 March 2019 to 29
February 2020 is set out within the Directors’ Remuneration Report on pages 65 to 70.
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
2020
£’000
142
318
-
460
2019
£’000
259
67
-
326
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 29 February 2020, the Company made cash contributions of
£nil into the Bristol Street Pension Scheme (2019: £63,000).
Vertu Motors plc
139
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
FY2020
FY2019
Dealerships
consecutive financial years.
that have comparable
trading periods
in
two
The twelve month period ended 29 February 2020.
The twelve month period ended 28 February 2019.
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
Adjusted Operating Profit
Operating profit
Impairment charges (note 6)
Depreciation on right-of-use assets (note 19)
Amortisation (note 16)
Share based payment charge
Operating lease rentals – property
Operating lease rentals – vehicles
VAT reclaim on dealer deposit contributions
Adjusted operating profit
Adjusted Net (Debt)/Cash
Cash and cash equivalents
Borrowings (note 26)
Net debt (note 33)
Used car stocking loans – other borrowings (note 26)
Adjusted net (debt)/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
Impairment charges
Operating lease rentals
Lease finance costs
Depreciation on right-of-use assets
Adjusted PBT
Vertu Motors plc
140
2020
£’000
16,473
14,378
14,065
595
733
(11,588)
(5,594)
-
29,062
2020
£’000
40,839
(69,204)
(28,365)
25,547
(2,818)
2020
£’000
7,317
595
733
-
14,378
(17,182)
3,595
14,065
23,501
2019
£’000
29,013
-
-
543
904
-
-
(3,069)
27,391
2019
£’000
66,519
(66,766)
(247)
23,166
22,919
2019
£’000
25,332
543
904
(3,069)
-
-
-
-
23,710
Alternative Performance Measures (continued)
Tangible net assets per share
Net assets
Less:
Goodwill and other indefinite life assets
Other intangible assets
Add:
Deferred tax on above adjustments
Tangible net assets
Tangible net assets per share
2020
£’000
263,373
(99,315)
(2,120)
6,821
168,759
46.0p
2019
£’000
276,643
(112,278)
(2,599)
6,576
168,342
44.9p
At 29 February 2020, there were 369,173,981 shares in issue (2019: 376,605,968) of which,
2,053,821 were hold by the Group’s employee benefit trust (2019: 1,582,786).
Like-for-like reconciliations:
Revenues by department
2020
New car retail and Motability
New fleet and commercial
Used cars
Aftersales
Total revenue
2019
New car retail and Motability
New fleet and commercial
Used cars
Aftersales
Total revenue
FY20
Group
revenue
£’m
862.5
708.5
1,235.4
258.1
3,064.5
FY19
Group
revenue
£’m
862.8
644.7
1,217.6
257.1
2,982.2
FY20
Acquisition
revenue
£’m
(34.9)
(43.1)
(62.3)
(18.5)
(158.8)
FY19
Acquisition
revenue
£’m
(18.1)
(10.5)
(38.9)
(11.9)
(79.4)
FY20
Disposals
revenue
£’m
(5.3)
(0.3)
(20.6)
(1.8)
(28.0)
FY19
Disposals
revenue
£’m
(9.9)
(2.5)
(28.4)
(2.8)
(43.6)
FY20
Ford Parts
revenue
£’m
-
-
-
-
-
FY19
Ford Parts
revenue
£’m
-
-
-
(8.0)
(8.0)
FY20
Like-for-like
revenue
£’m
822.3
665.1
1,152.5
237.8
2,877.7
FY19
Like-for-like
revenue
£’m
834.8
631.7
1,150.3
234.4
2851.2
Vertu Motors plc
141
Alternative Performance Measures (continued)
Like-for-like reconciliations (continued):
Aftersales revenue by department
2020
Parts
Other revenue
Parts and other revenue
Service
Total revenue*
2019
Parts
Other revenue
Parts and other revenue
Service
Total revenue*
FY20
Group
revenue
£’m
164.8
6.4
171.2
134.7
305.9
FY19
Group
revenue
£’m
179.1
6.3
185.4
124.3
309.7
FY20
Acquisition
revenue
£’m
(10.8)
(1.2)
(12.0)
(8.9)
(20.9)
FY20
Disposals
revenue
£’m
(1.3)
-
(1.3)
(1.2)
(2.5)
FY20
Ford Parts
revenue
£’m
-
-
-
-
-
FY19
Acquisition
revenue
£’m
(6.6)
(0.6)
(7.2)
(5.8)
(13.0)
FY19
Disposals
revenue
£’m
(1.8)
-
(1.8)
(1.8)
(3.6)
FY19
Ford Parts
revenue
£’m
(16.0)
-
(16.0)
-
(16.0)
FY20
Like-for-like
revenue
£’m
152.7
5.2
157.9
124.6
282.5
FY19
Like-for-like
revenue
£’m
154.7
5.7
160.4
116.7
277.1
*Inclusive of both internal and external revenue
Gross profit by department
2020
New car retail and Motability
New fleet and commercial
Used cars
Aftersales
Gross profit
2019
New car retail and Motability
New fleet and commercial
Used cars
Aftersales
Gross profit
FY20
Group gross
profit
£’m
62.7
25.8
102.1
143.5
334.1
FY19
Group gross
profit
£’m
63.9
20.2
102.0
136.0
322.1
FY20
Acquisition
gross profit
£’m
(2.3)
(4.0)
(2.5)
(9.7)
(18.5)
FY19
Acquisition
gross profit
£’m
(1.1)
(0.6)
(1.5)
(5.9)
(9.1)
FY20
Disposals
gross profit
£’m
(0.4)
-
(1.1)
(1.1)
(2.6)
FY19
Disposals
gross profit
£’m
(0.6)
(0.1)
(1.6)
(1.7)
(4.0)
FY20
Ford Parts
gross profit
£’m
-
-
-
(0.8)
(0.8)
FY19
Ford Parts
gross profit
£’m
-
-
-
(3.8)
(3.8)
FY20
Like-for-like
gross profit
£’m
60.0
21.8
98.5
131.9
312.2
FY19
Like-for-like
gross profit
£’m
62.2
19.5
98.9
124.6
305.2
Aftersales gross profit by department
2020
Parts
Other
Parts and other
Service
Gross profit
Vertu Motors plc
FY20
Group gross
profit
£’m
35.7
4.4
40.1
103.4
143.5
FY20
Acquisition
gross profit
£’m
(2.2)
(0.9)
(3.1)
(6.5)
(9.6)
FY20
Disposal
gross profit
£’m
(0.2)
-
(0.2)
(0.8)
(1.0)
FY20
Ford Parts
gross profit
£’m
(0.8)
-
(0.8)
-
(0.8)
FY20
Like-for-like
gross profit
£’m
32.5
3.5
36.0
96.1
132.1
142
Alternative Performance Measures (continued)
Like-for-like reconciliations (continued):
Aftersales gross profit by department (continued)
2019
Parts
Other
Parts and other
Service
Gross profit
FY19
Group gross
profit
£’m
38.4
4.1
42.5
93.5
136.0
FY19
Acquisition
gross profit
£’m
(1.4)
(0.3)
(1.7)
(4.2)
(5.9)
FY19
Disposal
gross profit
£’m
(0.3)
-
(0.3)
(1.3)
(1.6)
FY19
Ford Parts
gross profit
£’m
(3.8)
-
(3.8)
-
(3.8)
FY19
Like-for-like
gross profit
£’m
32.9
3.8
36.7
88.0
124.7
Number of units sold by department
2020
New car retail
New car Motability
New fleet
New commercial
Used cars
Total units
2019
New car retail
New car Motability
New fleet
New commercial
Used cars
Total units
FY20
Group
32,701
9,722
22,559
17,794
84,771
167,547
FY20
Acquisition
(1,156)
(117)
(1,376)
(2,556)
(2,433)
(7,638)
FY20
Disposals
(173)
(23)
(10)
(1)
(1,108)
(1,315)
FY20
Like-for-like
31,372
9,582
21,173
15,237
81,230
158,594
FY19
Group
35,412
9,795
19,154
16,327
84,444
165,312
FY19
Acquisition
(559)
(47)
(112)
(285)
(1,453)
(2,456)
FY19
Disposals
(366)
(87)
(116)
(3)
(1,655)
(2,227)
FY19
Like-for-like
34,487
9,661
18,926
16,039
81,336
160,449
Average selling price by department
2020
New car retail and Motability*
New fleet and commercial*
Used cars
FY20
Group
18,521
20,313
14,573
FY20
Acquisition
26,306
15,752
25,592
FY20
Disposals
22,551
27,600
18,594
FY20
Like-for-like
18,270
20,698
14,188
*Average selling price is stated inclusive of wholesale units
2019
New car retail and Motability*
New fleet and commercial*
Used cars
FY19
Group
17,287
19,994
14,419
FY19
Acquisition
28,888
26,545
26,778
FY19
Disposals
18,064
21,316
17,190
FY19
Like-for-like
17,129
19,907
14,142
Vertu Motors plc
143
Alternative Performance Measures (continued)
Like-for-like reconciliations (continued):
Operating expenses
2020
Operating expenses
FY20
Group
£’m
305.0
FY20
Acquisition
£’m
(19.7)
FY20
Disposals
£’m
(2.4)
2019
Operating expenses
FY19
Group
£’m
294.7
FY19
Acquisition
£’m
(9.6)
FY19
Disposals
£’m
(3.9)
FY20
Ford Parts
Revenue
£’m
-
FY19
Ford Parts
Revenue
£’m
(2.2)
FY20
Like-for-like
£’m
282.9
FY19
Like-for-like
£’m
279.0
Vertu Motors plc
144
Registered Office:
Vertu House,
Fifth Avenue Business Park,
Team Valley, Gateshead,
Tyne and Wear, NE11 0XA
Company Number: 05984855
www.vertumotors.com