TIDMVTU
RNS Number : 6651E
Vertu Motors PLC
10 May 2017
10 May 2017
Vertu Motors plc ("Vertu" or "Group")
Final results for the year ended 28 February 2017
Record profitability, excellent cash conversion and robust
balance sheet to drive future growth
Vertu Motors plc, the UK automotive retailer with a network of
124 sales and aftersales outlets across the UK, announces its
audited results for the year ended 28 February 2017.
Highlights:
Financial
Year ended Year ended % Change
28 February 29 February
2017 2016
Revenue GBP2,822.6m GBP2,423.3m 16.5%
Adjusted profit
before tax* GBP31.5m GBP27.4m 15.0%
Adjusted earnings
per share* 6.54p 6.46p 1.2%
EBITDA GBP41.4m GBP34.5m 20.0%
Operating profit GBP32.1m GBP27.2m 18.0%
Profit before tax GBP29.8m GBP26.0m 14.6%
Earnings per share 6.14p 6.06p 1.3%
Operating cash inflow GBP58.1m GBP65.8m (11.7%)
Net cash GBP21.0m GBP23.1m (9.1%)
Net assets per share 62.3p 58.0p 7.4%
Tangible net assets
per share 39.5p 38.3p 3.1%
Dividend per share 1.4p 1.3p 7.7%
Cash conversion** 181% 242% (61.0%)
* adjusted for amortisation of intangible assets and share based
payments charge.
** cash generated from operations divided by operating
profit.
Operational Increase/(decrease) year-on-year
Total Like-for-Like SMMT
Revenue: % % Registrations
%
Group revenues 16.5 4.4
Service revenues 22.5 5.8
Volumes:
Used retail vehicles 13.9 7.1
New retail vehicles 4.4 (6.4) (1.0)
Motability vehicles (0.3) (4.8) (1.1)
Fleet new cars 0.0 (4.2) 5.1
Commercial new
vehicles 2.7 1.6 1.2
-- Record Group trading performance driven by improvement in
recently acquired businesses, a strong used car performance and
growth in higher margin service area
-- Growth strategy progressed with greater premium mix,
including the addition of the Mercedes-Benz franchise to the
Group
-- Strong balance sheet to fund future growth with net cash of
GBP21.0m (2016 : GBP23.1m) and new five year acquisition banking
facility signed in February of GBP40m, with the potential to add a
further GBP30m
-- Encouraging outlook with robust trading in March and April
2017 - Board remains confident about the Group's prospects for the
year ahead
Robert Forrester, Chief Executive of Vertu said:
"Since our inception ten years ago, Vertu has remained focused
on consolidating the UK automotive retail sector to grow a scaled
and sustainable dealership business. Today's results, our fifth
consecutive year of growth, evidences our continued delivery of
this strategy. Significant acquisitions have been integrated
through the year and have enriched the premium mix of the franchise
portfolio. Record Profit before Tax of GBP29.8m represented a 14.6%
increase for the Group, EBITDA rose to over GBP40m for the first
time and cash conversion was excellent.
"Our strong balance sheet with net cash of GBP21.0m together
with our unutilised debt facilities provide scope for further
scaling-up in due course to drive value and further enhance
shareholder returns.
"Trading up to the end of April 2017 has been strong giving the
Board confidence for the future. The full year dividend has been
increased by 7.7%."
Webcast details
Vertu management will host a webcast for analysts and investors
at 9.30am (BST) this morning. Please click here to register.
http://webcasting.brrmedia.co.uk/broadcast/5909ca0043140725f4d1a6c8
A recording of the webcast will subsequently be uploaded to the
Company's website.
For further information please contact:
Vertu Motors plc
Robert Forrester, CEO Tel: 0191 491 2111
Michael Sherwin, CFO Tel: 0191 491 2112
Camarco
Billy Clegg Tel: 020 3757 4983
Georgia Edmonds
Tom Huddart
Canaccord Genuity Limited
Bruce Garrow Tel: 020 7523 8350
Chris Connors
Richard Andrews
Zeus Capital Limited
Dominic King Tel: 020 3829 5000
Notes to Editors
Vertu, the UK automotive retailer with a proven growth strategy,
is the fifth largest automotive retailer in the UK with a network
of 124 sales outlets across the UK. Its dealerships operate
predominantly under the Bristol Street Motors, Vertu, Farnell and
Macklin Motors brand names.
Vertu was established in November 2006 with the strategy to
consolidate the UK automotive retail sector. It is intended that
the Group will continue to acquire automotive retail operations to
grow a scaled dealership group. The Group's acquisition strategy is
supplemented by a focused organic growth strategy to drive
operational efficiencies through its national dealership network.
The Group currently operates 121 franchised sales outlets and 3
non-franchised sales operations from 104 locations across the
UK.
Vertu's Mission Statement is to "deliver an outstanding customer
motoring experience through honesty and trust".
Vertu Group websites - www.vertumotors.com /
www.vertucareers.com
Vertu brand websites - www.bristolstreet.co.uk /
www.macklinmotors.co.uk / www.vertuhonda.com /
www.farnelllandrover.com / www.farnelljaguar.com /
www.vertutoyota.com / www.vertuvolkswagen.com /
www.vertumercedes-benz.com
Chairman's Statement
The Board is reporting a further year of strong growth,
exhibiting record levels of revenue, operating profit, earnings per
share and dividends.
These results demonstrate that the Group remains set for further
growth, well positioned with Manufacturers and in a healthy
financial position. I remain optimistic about the Group's growth
prospects underpinned by a very strong balance sheet.
The Group's objective is to deliver long-term value for its
owners through building a scaled, franchised dealership business
generating significant, resilient and increasing cashflows. The
Group seeks to do this by pursuing a consistent strategy with a
well-established business model. This report will set out the
strategy, explain the business model and describe how the Group has
used the model to establish a robust competitive position from
which to generate growth in cashflows over the long-term. Growing
cashflow is a result of growing revenues, managing margins,
operating costs and tax payments and managing working capital and
capital expenditure within the framework of a suitable funding
structure. This report will examine each of these areas. The record
results announced for the year ended 28 February 2017 ("the
Period") demonstrate further delivery against the Group's
objective.
We have a very talented, stable operational team which is
committed to delivering on the Group's strategy and I would like to
take this opportunity to thank every colleague in the Group for
their commitment and dedication during the year.
Board changes
Bill Teasdale, who served as Chairman of the Company when it was
initially established then subsequently as a Non-Executive Director
since March 2007, will retire from the Board at this year's Annual
General Meeting on 26 July 2017. As one of the founders of Vertu
Motors plc, Bill's role in supporting Robert both in the creation
of the Group, and subsequently in its growth over the last 10
years, has been seminal. The entire Board will miss Bill's wise
counsel and we all wish him the best in his forthcoming retirement
which is well deserved.
Current Trading and Outlook
In March and April 2017 ("the post year-end period") the Group
has continued to trade strongly, with profits ahead of the prior
year on a like-for-like and total basis. Margins strengthened and
operating expenses on a like-for-like basis were reduced as the
cost base was flexed for lower new vehicle sales volumes and cost
efficiency programmes delivered.
Used cars continued to see like-for-like volume growth and
margin improvement. Service also witnessed growing revenues and
stable margins on a like-for-like basis.
The March plate change month saw a record number of new vehicle
registrations in the UK according to the SMMT. The 4.4% growth in
March new retail UK registrations was aided by an element of pull
forward of demand due to increasing vehicle excise duty from 1
April 2017 and the timing of Easter. April, as anticipated, saw a
decline in SMMT new retail registrations of 28.4%. In the post
year-end period SMMT new retail registrations declined by 3.5%. The
Group saw significant growth in new retail vehicle profit
contribution in the post year-end period despite a 9.7% decline in
like-for-like new retail volumes. Pricing disciplines and cost
control delivered higher margins and profits year on year in new
vehicle sales.
The Board is also pleased to report an excellent contribution in
the post year-end period from dealerships acquired in the previous
financial year.
While the Board is aware of the wider reporting of the UK
entering a more cautious consumer environment, trading in the post
year-end period has been strong. The Board remains confident about
the Group's prospects for the current financial year and in
delivering further progress in enlarging the scale of the
Group.
P Jones
Chairman
Strategic Report
Strategy and Portfolio Management
To deliver long-term value to the Group's owners, the Group's
strategy is to grow a scaled UK automotive retail group through
acquiring both volume and premium franchised dealerships. The Board
believes that the benefits of scale in the sector are increasing
over time. Scale benefits include: a national on-line and off-line
co-ordinated marketing strategy to maximise the benefits of our
unique national footprint, scaled contact centres, franchise
management dedication, purchasing efficiencies and access to
competitive consumer finance packages for the Group's customers.
Further consolidation of the sector by large-scale national brands
is likely to continue in the years ahead in what is still a sector
with a fragmented ownership structure in the majority of
franchises.
The Group will continue to acquire dealerships across the volume
and premium spectrum as the Board currently believes that capital
can continue to be invested in additional dealerships to deliver
significant return on investment to shareholders in the short and
medium term. The fragmented nature of the UK automotive retail
sector means that significant growth potential remains and
crucially, the Group has substantial headroom for further growth
with the vast majority of its Manufacturer partners, particularly
in the Premium space. Following this strategy, the Group undertook
a number of further significant acquisitions in the first quarter
of the financial year.
The Board adopts a rigorous process in deciding whether to
pursue an acquisition. Six-monthly we assess our strategic position
with each Manufacturer to confirm the Board's standpoint on future
investment in the franchise. This leads to an Add, Hold, Reduce or
Avoid conclusion which underpins the Group's strategic portfolio
management. Investment evaluations for specific opportunities
involve detailed three-year investment appraisals, utilising set
return on investment hurdle rates, to ensure appropriate capital
allocation.
Since the first quarter of the financial year, the Board has
continued to assess several further acquisition opportunities,
rigorously applying consistent valuation criteria. For those
opportunities, the valuations sought by the vendors have not met
the Board's investment return criteria and therefore have not been
progressed. Further opportunities continue to be assessed. The
addition of further dealerships and new franchise partners to the
Group's portfolio will enable the Board to deliver its goal of
creating a balanced and diversified portfolio of franchised
businesses, so reducing the Group's exposure to variations in
individual Manufacturers' performance. Such growth, however, can
only be undertaken at appropriate valuations to ensure future
returns are acceptable.
Modern automotive retailing is undergoing substantial changes
and these changes are likely to accelerate in the years ahead. The
rise of digital sales channels, CASE (Connected, Autonomous,
Sharing and Electric) developments and Manufacturer investment and
scale requirements are likely to have an impact on franchised
networks and the locations which the Group will want to operate
from in the future. These trends represent an opportunity for
scaled franchised dealer groups and are likely to drive further
consolidation in the sector. We are mindful of these changes when
considering the current portfolio and how it will evolve and the
following trends are considered particularly pertinent:
-- There will be a trend away from rural, smaller franchise
points and greater investment in larger, urban representation
points. Acquisitions and disposals must reflect this trend.
-- Property flexibility may have increasing importance,
resulting in lease length and structure being important as the
Group manages its portfolio. Freehold ownership is preferred by the
Board given the greater flexibility this affords.
The Board performs a detailed review of underperforming
dealerships within the portfolio on a regular basis.
Underperformance can stem from local management issues, franchise
performance variability or more long-seated factors. Where the
latter prevail and the Board considers long term appropriate
returns may not be achievable, then action is taken such as
refranchising, disposal or closure. Manufacturer capital
expenditure requirements are often a key factor in crystallising
such decisions based on an assessment of future returns.
The Board notes the prospective acquisition of Vauxhall/Opel by
PSA. The combined PSA business will be a very important, scaled
Manufacturer partner to the Group. PSA has undergone a major
turnaround in its profitability in recent years which contrasts
with the losses made by Opel/Vauxhall over a long period. The
proposed acquisition is viewed positively by the Board in
increasing the ability of the enlarged PSA business to invest in
new products and technologies which are so vital to the long-term
success of franchised retailers. The Group operates 14 Vauxhall
dealerships together with nine PSA dealerships.
Portfolio Changes
Portfolio changes have been made reflective of the principles
and trends outlined above:
-- A number of smaller franchise outlets were exited in the
Period, including Barnsley SEAT and Worksop Peugeot.
-- Steps were taken to exit the Fiat, Jeep and Alfa Romeo
franchises. This included the disposal of the Newcastle Fiat brand
centre in September 2016 and the closure of Fiat sales outlets in
Cheltenham and Derby in January 2017. The Group's one remaining
Fiat/Alfa sales outlet will cease operations in Worcester by the
end of 2017.
-- On 31st March 2017 the Group disposed of its loss-making
Chesterfield Peugeot dealership to Stoneacre. This reduces the
Peugeot representation held by the Group to five dealerships and no
further reduction is planned.
-- Two accident repair centres located within Group dealerships
were closed in the Period. These operations were marginal and
sub-scale. Post year end, the closure of a further two accident
repair centres was announced to allow for the space utilised to be
allocated to increase capacity in more profitable activities as
part of dealership redevelopments. This will leave the Group with
six accident repair centres.
-- Hyundai was introduced to the Group's existing dealership in
Bristol and in May 2017 the Mazda operations at this dealership
ceased to allow single franchise focus on Hyundai.
-- The Group entered the Mercedes-Benz franchise in March 2016
with the acquisition of the Greenoaks dealerships in Reading,
Slough and Ascot. The franchise is currently the top rated
franchise in the UK by retailers in the latest NFDA survey.
-- The Gordon Lamb acquisition in June 2016 brought the Toyota
franchise to the Group for the first time and
further enhanced representation with Land Rover, Nissan and Skoda.
-- Leeds Jaguar was acquired in May 2016 from Inchcape.
Dealerships acquired in the year ended 29 February 2016 made a
profit before interest and tax contribution of GBP2.1m in the
Period, and those acquired in the Period contributed a further
GBP1.5m. These businesses have been successfully integrated into
the Group and are performing in line with their acquisition
business plans. The sites closed or disposed of during the Period
lost GBP0.7m (2016: GBP0.7m) hence these actions will enhance
future returns of the Group.
As a consequence of the above changes, the Group now operates
124 franchised sales outlets, and 3 non-franchised sales outlets,
from 104 locations.
Business Model and Competitive Positioning
The Group's business model has remained consistent for the ten
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 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.
The success of the Group's strategy is evidenced by the rapid
growth since the first acquisition in 2007 and the turnaround and
integration of acquired dealerships to date. The Group has become
the fifth largest automotive retailer in the UK by revenues from a
standing start in 2007. Many of the acquisitions undertaken in
recent periods have still to become fully established and this
provides the Group with further opportunity to deliver improved
margins and grow organic profit over the medium term.
The successful integration of acquisitions into the Group has to
be one of our core competencies. Management has a significant
amount of experience in this area. Key to successful integration
are the following:
-- Ensuring new colleagues (employees) understand the Vision, Values and Culture of the Group
-- Transferring key managers from the core Group to the new businesses
-- Implementation of the Group's single platform of systems and processes as soon as possible
-- Leveraging the Group's key scaled brands and marketing power,
including on-line assets, across the new businesses
The Group adopts a "Right People, Right Choice, Right Deal"
brand model, centred on "Right Experience for You". The "Right
Experience" applies equally to colleagues, customers, Manufacturer
partners and indeed owners. This brand model is based on a
fundamental premise that it is the colleagues in each business
together with management who deliver on customer needs to create
long-term value for the business. Ensuring that each business has
the right Values and culture is of paramount importance to building
both long-term relationships with loyal customers and a stable team
of colleagues. In the July 2016 Colleague Satisfaction Survey over
98% of responding colleagues knew the Vertu Values and 91% thought
the Directors actively practiced them. It is clear that the more
the Core Values of Passion, Respect, Professionalism, Integrity,
Recognition, Opportunity and Commitment are in place in the
business, the stronger the business is and significant senior
management time is spent promoting and reinforcing these Values.
The brand model has a number of brand actions which are designed to
guide colleagues and management into being customer-centric. For
example, "effortless journeys, not complex processes" is an
important mantra in assessing the effectiveness of both on-line and
off-line processes and any proposed developments impacting
customers. By building trust from customers for the business, the
Group aims to build long term relationships through the lifecycle
of buying, owning and selling vehicles. There is a clear
correlation, in our view, between a high level of colleague
satisfaction, great customer experiences and the generation of
higher margins in the business.
The success of the business and the delivery of the brand model
relies heavily on strong, high quality management teams to deliver
the required returns over time. The recruitment, development and
retention of high performing automotive retail professionals is of
paramount importance, particularly in General Manager roles
providing leadership in each dealership. The Group has developed a
culture which seeks to attract and retain top performers.
The operations of the Group are overseen by a CEO Committee of
the 12 most senior people in the Group. This cadre is very stable
with four members in place since the Group started and an average
tenure of seven years. This stability provides a consistency to
Group management which helps to build a single Group culture. As
the Group has expanded over a larger number of dealerships,
maintaining focus and a consistency of culture remains paramount.
We believe that multi-layering of management is best avoided since
it elongates decision-making and can make senior management
divorced from customers and the grass roots operations. Having the
right people at a senior level in the Group who can positively
influence large divisions is therefore vital and the Board believe
this balance has been achieved to date. It is critical that the
entrepreneurial culture that the business started with, remains in
place and simplicity and lack of bureaucracy are crucial objectives
applied to operational proposals and changes.
As the Group has expanded the senior team has been augmented
over time through recruitment or via acquisition. In 2016 two key
appointments were made:
-- Tim Tozer, formerly of Inchcape, Autobinck and Chairman of
Vauxhall Motors joined the Group as a new
Operations Director responsible for a number of franchises
-- Liz Cope, former Global Brand and Research Director of Dyson
and VP Global Marketing for Vax, joined as
Chief Marketing Officer
Both individuals have settled in well and have now been in place
for over 12 months. They are having a positive impact on the
business.
The Mission Statement of the Group is to "deliver an outstanding
customer motoring experience through honesty and trust".
Fundamentally it is the acquisition and retention of customers that
drives the ultimate value of the Group in the long-term. Marketing
is critical to both the acquisition and retention of customers.
Following the appointment of Liz Cope substantial progress has been
made to improve the quality, effectiveness and channel reach of the
Group's marketing activities. Key achievements have been:
-- Bringing social media activities in-house with a significant
increase in engagement as a consequence
-- Development of a new marketing campaign centred around
"What's Yours Called"- what name do you give your car - which is
consistently run across TV, digital and other off-line platforms
for a number of the Group's core brands. Over one million people
have been reached on Facebook by the campaign since 1 March
2017
-- Capability has been increased with further investment in new
divisional marketing roles, live chat and reputation management
resource and bringing design in-house
-- Media purchasing is now sourced through a single, external
agency which is yielding purchasing and marketing deployment
economies and efficiencies
-- Full on-line retailing of used vehicles has been launched
including part-exchange valuation and finance provision. Further
digital initiatives (which are developed from a systems perspective
in -house) are in progress to ensure the Group is at the forefront
of the industry in this area.
The retention of customers is achieved by several Group
strategies:
-- Retention of sales customers into the higher margin
aftersales channel is aided by the Group's centralised Business
Development Centre which ensures contact is made to book relevant
service work, in addition to on-line booking capabilities and
secures the high sales penetration of service retention products
such as three-year service plans. The Group now has over 100,000
customers paying monthly over a three-year period for services and
MOT creating a highly resident, high margin service business.
-- Customer experience is crucial for creating loyalty and the
desire to return to the Group for future motoring needs. Customer
experience is measured by the Group in several ways:
o Manufacturers measure service and new car sales customer
experience monthly for each dealership as well as undertaking
mystery shops. The Group scores significantly ahead of national
average scores on these measures and in addition undertakes its own
mystery shopping programme.
o On used cars, the Group measures customer experience using an
external supplier. 96% of customers currently would recommend the
Group following the purchase of a used car. This high level of
customer advocacy is mirrored in high scores on the public review
sites such as Trust Pilot.
o Management at all levels, including the Executive Directors,
are rewarded based on the above customer experience measures which
the Board believe are fundamental to the future success of the
Group in generating higher revenues, margins and cash returns.
The Board is cognisant of further EU regulations in relation to
the use of personal data, ("GDPR"). In order to ensure customer
contact post May 2018 can be undertaken by the Group in line with
these regulations, the Group is currently undertaking a review of
systems and processes.
United Kingdom's exit from the European Union
Brexit may impact the Group in the areas of changing regulation,
currency fluctuations and terms of trade for new vehicle imports to
the United Kingdom.
In the short term, the biggest impact of Brexit on the
automotive retail sector is the weakening of Sterling which reduces
the attractiveness of the UK as a market to EU producing vehicle
Manufacturers. Vehicle price rises have been evident, along with
reducing volumes in the new retail car sector over the last twelve
months. Effects have been somewhat muted to date with March 2017,
for example, delivering a record month overall for UK new vehicle
registrations.
In the medium term there could be consequences for the UK
automotive retail sector if tariffs were to be introduced on motor
vehicles imported into the UK. This could further increase sales
prices and potentially reduce consumer demand. The UK Government
has a stated negotiating objective to avoid any such tariff
barriers, and during the two year period of the negotiation of the
future trade terms between the UK and the EU, tariffs on motor
vehicles are likely to be a key point of discussion. Potential free
trade agreements with Non-EU states may present UK opportunities
for Manufacturers with Non-EU production capacity and the future
franchising strategy of the Group will need to be cognisant of
these developments.
The contractual relationships between Manufacturers and
franchise partners are constructed within the framework of EU
competition law. There is, therefore, the potential for the legal
frameworks to evolve in a different direction once legal competency
returns to the UK. The Board judge that it is unlikely to be a
priority area for the UK Government in the short term and the
status quo is likely to remain in place as a result. Franchise
agreements are likely to evolve in any event as Manufacturers and
retailers react to developments in technology and new revenue
models emerge.
Growing Revenues and Margins
Year ended 28 February 2017
Gross
Revenue Gross Margin Gross
Revenue Mix Margin Mix Margin
GBP'm % GBP'm % %
Aftersales(1) 227.0 8.0 123.4 39.4 44.6
Used cars 1,037.5 36.8 100.7 32.1 9.7
New car retail
and Motability 909.4 32.2 68.3 21.8 7.5
New fleet and commercial 648.7 23.0 21.1 6.7 3.3
---------- ---------- --------- -------- ---------
2,822.6 100.0 313.5 100.0 11.1
---------- ---------- --------- -------- ---------
Year ended 29 February 2016
Gross
Revenue Gross Margin Gross
Revenue Mix Margin Mix Margin
GBP'm % GBP'm % %
Aftersales(1) 189.0 7.8 102.9 39.1 44.8
Used cars 850.2 35.1 83.5 31.7 9.8
New car retail
and Motability 796.5 32.9 59.3 22.5 7.4
New fleet and commercial 587.6 24.2 17.6 6.7 3.0
---------- ---------- --------- -------- ---------
2,423.3 100.0 263.3 100.0 10.9
---------- ---------- --------- -------- ---------
(1.) margin in aftersales expressed on internal and external
turnover.
The results for the year ended 28 February 2017 record the fifth
consecutive year of growth in Group revenues and profits.
Revenues in the Period increased by 16.5% (GBP399.3m) to
GBP2,822.6m (2016: GBP2,423.3m). This included the impact of
acquisitions made during the year (GBP179.7m) and the full year
impact of prior year acquisitions (GBP140.7m). Like-for-like
revenues grew by 4.4% (GBP99.4m) driven predominantly by higher
volumes of used car sales. Closed operations resulted in a GBP20.5m
year on year revenue reduction.
Overall vehicle revenues grew by 16.2% in the year and amounted
to 92.0% of total revenues (2016: 92.2%), whereas total aftersales
revenues grew by 20.1% and amounted to 8.0% of total revenues
(2016: 7.8%). On a like-for-like basis and a total basis, gross
margins strengthened from 10.9% to 11.1% aided, in part, by the
enhanced mix of the business towards higher margin aftersales
activities.
Aftersales
The Group's aftersales operations, which comprise servicing,
supply of parts, accident repairs, smart repair and forecourt
activity, represent a vital element of the Group's business model,
since significantly higher returns are generated from these
activities than those achieved in vehicle sales. While aftersales
represents 8.0% of Group revenues, it accounts for 39.3% of gross
margin, so management focus on maintaining and improving
performance in this area is crucial to the Group's overall results.
The market for service and repair, in particular, has expanded with
the vehicle parc as new vehicle sales have grown over recent years
and this parc growth is expected to continue for a period. The
Group has substantial opportunities to grow the volume of the
higher margin activities due to this parc growth and self-help
strategies to increase customer retention.
The future development and growth of the service operations will
also depend on addressing a number of key issues in recruiting,
training and retaining more technicians. As a result, there is a
significant increase planned in apprenticeship recruitment in the
service operations. There is also likely to be a need to revise
shift and resource patterns to make greater use of the physical
capacity of the dealerships. Customers are seeking and expecting a
more flexible "on demand" vehicle servicing experience,
particularly at week-ends and potentially overnight, which is more
convenient for them. In addition, fast while you wait servicing is
also likely to increase in scope. While customers find franchised
dealerships good value for money and expert on the product, leakage
does occur to the independent aftermarket which can be more local
and more convenient in terms of opening hours. Accordingly, to
address the capacity and convenience points, the Group is
experimenting with flexible working rotas, new shift patterns for
service technicians and fast turnaround for waiting customers with
two technicians per work station.
Overall aftersales revenues increased by 20.1% in the Period
reflecting both acquisition and organic growth. Margins fell
slightly from 44.8% to 44.6% due to reduced parts margins as bonus
income from Manufacturers reduced in the period.
The Group saw like-for-like revenues in all aftersales
activities increase by 5.1% and like-for-like gross profits grew by
GBP4.6m (4.7%) in the period. Like-for-like aftersales margins were
stable at 45.3%. Service revenues rose 5.8% on a like-for-like
basis, representing the seventh successive year of growth in this
key high margin area. Like-for-like service margins grew to 77.7%
(2016: 76.8%). These trends are the result of the significant focus
in the Group on driving operational excellence in service to
enhance financial performance, the delivery of excellent customer
experiences to increase customer loyalty and the success of the
service plan retention strategy. The Group's vehicle health check
process has been further embedded into the business. This seeks to
ensure that all customer vehicles visiting the Group's dealerships
are given a comprehensive mechanical health check to identify any
service and repair work which may be required. The results are then
presented to the customer with a clear and costed explanation of
any such work identified, increasingly utilising video technology.
The performance of this process is monitored daily to ensure that
the Group's customers are given the best opportunity to enjoy a
trouble-free motoring experience following their visit.
The Group's accident repair centre revenues grew 2.9% on a
like-for-like basis and margins improved further to 66.4% (2016:
66.3%). Capacity continues to reduce in the market overall in this
sector and consolidation continues.
Supply of Manufacturer parts continues to be a vital part of the
franchised retailer model. Parts revenues rose 5.7% on a
like-for-like basis while margins fell to 21.9% (2016: 23.2%) due
to reduced Manufacturer rebates in several key franchises.
Manufacturers are increasingly pursuing strategies to increase the
efficiency of parts distribution networks and to reduce the supply
push of parts into the network. Reduced rebates may arise from
these changes, but benefits, such as a reduction in low margin
sales, lower stockholding and obsolescence costs and reduced costs
of funding working capital, also may accrue to the retailer.
Vehicle sales
Vehicle unit sales analysis
Like-for
Total Like
2017 2017 2017 2016 % %
Core Acquired(2) Total Total(3) Variance Variance
Used retail vehicles 74,385 7,251 81,636 71,702 13.9% 7.1%
New retail cars 36,635 4,890 41,525 39,790 4.4% (6.4%)
Motability cars 10,755 641 11,396 11,435 (0.3%) (4.8%)
Fleet and commercial
vehicles 34,194 1,383 35,577 35,123 1.3% (1.5%)
------- ----------- ------- -------- --------- ---------
Total New vehicles 81,584 6,914 88,498 86,348 2.5% (4.2%)
155,969 14,165 170,134 158,050 7.6% 0.9%
------- ----------- ------- -------- --------- ---------
(2.) relates to businesses acquired or developed subsequent to 1
March 2016 with businesses included within core once they have been
in the Group for over 12 months
(3.) 2016 volumes include businesses acquired in the year ended
29 February 2016
The Used vehicle market has remained stable during the year from
a pricing perspective. Vehicle values have displayed the usual
seasonal fluctuations driven primarily by the ebb and flow in
supply created by new vehicle plate change months. Sales volumes in
the market generally have increased around 6% augmented by
increased nearly new product entering the market as self-registered
vehicles.
The Group had a very successful year in the key area of used
vehicle retailing. For the first time over 80,000 used vehicles
were retailed and overall year-on-year volume growth was 13.9%. The
strong like-for-like growth in used vehicle volumes of 7.1% in the
period includes the Group's eleventh consecutive half year period
of like-for-like used vehicle volume growth. Used car growth has
been aided by the expertise of dealership management in their local
area augmented by excellent sales and stock processes and
internally developed systems. For example, the Group Sales
Director, Steve Ferry, undertakes regular reviews of dealership
used car sales and stock trends with Divisional Management to
ensure improvements are identified and actioned. This drives both
sales volumes and better margin through enhanced stock turn and the
reinforcement of strong pricing disciplines. The Group has also
benefitted from increased and, we believe, more effective used car
marketing approaches in the period.
The Group's like-for-like used vehicle gross margin rose to
10.6% (2016: 10.1%), and gross profit per unit was GBP1,263 (2016:
GBP1,185). As a result of these positive trends, the Group
increased like-for-like used vehicle gross profits by GBP10.6m in
the period representing an increase of 13.3%.
The UK new vehicle market reached a record level of 2.7 million
registrations in the year ended 31 December 2016 (SMMT). Private
new vehicle registrations, which had grown for over three years
until March 2016, began to record year-on-year declines from April
2016, and during the Period, the SMMT private new vehicle
registrations fell by 1.0%. As the private new retail market has
softened, there have been higher levels of self-registration of
vehicles by retailers to bridge the gap between genuine retail
demand and the volume aspirations of Manufacturers. In these
circumstances, the Group's new retail sales volume tends to lag the
SMMT registration data. The Group's strategy during this period has
been to work to achieve Manufacturer performance targets at high
levels while also maintaining strong pricing disciplines. As a
consequence of these trends, new vehicle car sales accounted for a
declining percentage of Group revenues of 32.2% (2016: 32.9%).
The Group delivered over 41,000 new retail vehicles in the year.
The Group's total new retail vehicle volumes grew by 4.4%, while
like-for-like volumes fell by 6.4%. The decline accelerated in the
second half of the financial year with like-for-like new retail
sales volumes down 4.2% in H1 and down 8.9% in H2. This decline in
volume reflected in the main, the impact of the fall of Sterling
against the Euro and other currencies following the Referendum.
Average sales prices rose for the Group, and in the market
generally, and some Manufacturers started to reduce planned volumes
into the UK, even with the prospect of losing market share.
Like-for-like new vehicle gross margins were stable at 7.4% while
gross profit per unit increased by 5.2% to GBP1,196 (2016:
GBP1,137). The Group's like-for-like new vehicle gross profits
declined by GBP1.0m and the Board is pleased to have maintained
percentage margins in this context. Total margins rose slightly
from 7.4% to 7.5% due to the Premium mix of recent
acquisitions.
Volumes of sales on the Motability Scheme fell by 4.8% on a
like-for-like basis against a 1.1% decline in UK Motability
registrations. The Group delivered over 11,000 Motability vehicles
and will benefit from the guaranteed service revenues on these
vehicles over the next three years. The Group's under performance
in the Motability channel versus the wider Motability market
reflected franchise mix as Manufacturers reacted to Sterling's
depreciation in different ways. The Motability market overall is
seeing slight declines as a consequence of the replacement of the
Disability Living Allowance by Personal Independence Payments as
part of UK benefits reform. The Group was awarded Motability Dealer
Group of the Year 2016 by Motability for the third year in a row.
This reflects the Group's focus and success in this key channel of
the UK car market.
Fleet and Commercial vehicle sales represent a substantial part
of the Group accounting for 23% of Group revenues and the delivery
of over 35,000 vehicles. Total Fleet and Commercial volumes rose
1.3% with like-for-like volumes down 1.5%. The Commercial vehicle
business continued to take market share with like-for-like volumes
up 1.6% compared to a 1.2% increase in SMMT registration data. The
growth was heavily skewed towards the first half with a slowdown in
the second half. One of the key drivers of this was the change in
diesel engine specification in June 2016 from Euro5 to Euro6. The
Euro6 models are more expensive, so many fleet operators
accelerated purchases prior to the change benefiting from
advantageous pricing on the run out of Euro5 models. This has
resulted in a market slow-down after June 2016. Fleet car supply
saw declines in the first half of the period but returned to growth
in the second half. Overall, like-for-like Fleet car volumes fell
4.2% in the Period as the Group maintained its pricing disciplines
in this competitive, low margin channel. Total gross profit margins
rose from 3.0% to 3.3% reflecting these disciplines together with
enhanced Premium franchise mix and the growth in commercial van
sales. Like-for-like margins rose 0.1%.
Managing operating expenses
As a sector consolidator, the Group aims to gain operational
leverage benefits from spreading central operating expenses over a
growing, enlarged group. Moreover, in an inherently low margin
business, it is vital that a disciplined framework of cost control
is in place and is a core competency for operational management.
The Group's cost control framework is built around a highly
detailed business planning approach which is undertaken annually
for all dealerships, profit centres and cost centres. Once the
business plans are established, costs are benchmarked on a monthly
basis for every dealership against the business plans, prior year
levels, internal benchmarks and recognised industry key performance
indicators (Source: ASE) to maintain control and to identify
opportunities for additional cost control. The Group's central
purchasing function also pursues cost efficiencies and scale
purchasing benefits in the procurement and monitoring of utilities
and other goods not-for-resale.
The Group is also focussed 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 over a year with a remit to identify and execute these
productivity gains and these are now starting to bear fruit.
Colleagues are incentivised to identify bureaucracy, costs and
processes that do not add value via a "You Suggest" scheme, which
has yielded some excellent areas for action. Several more medium
term projects are also in place to increase operational
efficiencies and to reduce costs. Projects are assessed to achieve
a cash payback within two years.
Total operating expenses rose from GBP236.1m to GBP281.5m and
like-for-like operating expenses grew by GBP14.5m. As a percentage
of revenues, operating expenses increased to 10.0% (2016: 9.7%).
Following four years of reduction from 11.1% in 2012, this ratio
increased in the first half of the year due to:
-- Increased investment in used car marketing to step change the
effectiveness of the Group's on-line and off-line reach.
-- Increased investment in customer facing colleagues, both in
dealerships and centralised activities, following several years of
growth in vehicle sales and reflecting higher activity levels,
particularly in service.
-- Increased property related costs such as increased
depreciation on redeveloped and larger dealerships and higher
business rates.
This key ratio improved year on year in the second half of the
year and it is a key objective of management to ensure as much
discipline is placed on controlling cost as effort placed on
growing revenue and margin. This is particularly important given
the ongoing cost pressures facing UK retailers from Government
actions, including the apprenticeship levy, minimum wage increases
and business rates re-valuations.
It is also self-evident that the Board's focus upon improving or
removing poor performing dealerships outlined above also has the
effect of improving the ratio of operating expenses to revenue and
overall operating margins.
Interest charges
Net finance costs in the period increased to GBP2.3m (2016:
GBP1.2m) due to higher stocking interest payable on new vehicle
funding facilities. As the new retail market softened, the Group
temporarily saw increased new vehicle inventory levels, both in
interest-bearing consignment and fully paid inventories funded by
the Group. These trends in inventory have now reversed and new
inventory levels were at reduced levels year on year at the year
end. In addition, the growth of the Group has also resulted in more
exposure to premium franchises where new vehicle funding costs are
more prevalent as part of the business model.
Year ended Year ended
28 February 29 February
2017 2016
GBP'm GBP'm
Bank interest payable 0.9 0.6
Other finance costs - 0.4
New vehicle stocking
interest expense 1.6 0.4
Pension fund: net interest
income (0.2) (0.2)
2.3 1.2
------------- -------------
Managing Pension Costs
The Bristol Street defined benefit pension scheme has been
operated by the Group for several years. This scheme is closed to
future membership and accrual, and during the Period the Group made
cash contributions of GBP0.4m (2016: GBP0.4m).
On 1 October 2015 the Group acquired the SHG Pension Scheme,
also a defined benefit scheme, and on 27 February 2017 the two
schemes were merged to reduce administration costs. The merged
scheme showed a surplus as at 28 February 2017 of GBP1.9m (2016:
combined surplus GBP6.1m). The fall in the surplus is largely due
to the reduction in the discount rate applied to the scheme
liabilities which has reduced by 115 basis points. During the
current year the Group's cash contributions to the merged scheme
will remain at GBP0.4m.
Managing Tax Payments
Taxation represents one of the single biggest costs to the
Group. In the Period the Group paid GBP5.7m in corporation tax,
GBP16.6m in Employers' National Insurance Contribution and GBP8.7m
in business rates. These three taxes alone total GBP31.0m.
Through its tax strategy the Group seeks to pay its fair share
of tax in compliance with UK legislation. The Group does not engage
in any aggressive tax planning and the Group is classified by HMRC
as 'low risk'. Within this context, the effective rate of tax for
the year was 19.5% (2016: 20.3%). The current year rate is slightly
below the standard UK corporation tax rate for the Period and the
Board expects that the Group's tax rate should remain close to the
headline UK Corporation Tax rate in the future as this rate
declines to 17% by 2020.
Managing Working Capital
The Group has significant levels of working capital in the form
of inventory, receivables and payables. These are subject to
significant, yet predictable, seasonal fluctuations which coincide
with plate change months and quarterly Manufacturer new car
campaigns. In addition, Manufacturer new vehicle supply levels and
financing changes can also impact working capital patterns over
time. It is vital to maintain control of working capital in order
to minimise potential write-offs and to allow the Group to deliver
sustainable growth in cashflow. The Group has a major focus on
managing working capital comprising daily reporting, weekly
meetings at all dealerships and weekly group reporting and
commentary to the CEO Committee. Finance teams are tasked on
driving working capital down through process efficiency in areas
such as invoicing and cash collection. Such process efficiency is
monitored daily at dealership level.
The Group has continued to achieve a strong cash conversion,
generating cash from operating activities of GBP58.1m from an
operating profit of GBP32.1m. This represents an excellent cash
conversion of 181%. This was supported by GBP16.0m generated from
working capital, comprising lower inventories (GBP2m), lower
receivables (GBP1m), higher warranty and service plan receipts
(GBP3m), higher vehicle deposits (GBP4m), higher accruals (GBP3m)
and lower VAT receivable (GBP3m).
Investing to Support Future Cash Generation
Since 1 March 2016, the Group has continued to invest in its
growth strategy and has added 10 sales outlets including six
representing Premium franchises. In the same period, the Group
ceased operations in 11 sales outlets in line with the strategy to
ensure the dealership portfolio maximises long run cash profits. At
the date of this report the Group operates 124 sales outlets from
104 locations, highlighting an element of multi-franchising at
several of the Group's locations.
The Group, in common with most sector participants, is in the
process of a major programme of capital investment; developing new
dealerships, increasing capacity in existing dealerships and
responding to Manufacturer Partner-led refurbishments of the
existing dealership portfolio to meet enhanced franchised
standards. In particular, substantial sums are being invested in
increasing capacity and enhancing the retail environment of the
Jaguar Land Rover dealerships with the implementation of the 'Arch'
concept.
This programme of capital additions during the Period, along
with the anticipated spend in future periods, is set out below:
FY FY FY FY
2016 2017 2018 2019
GBPm GBPm GBPm GBPm
New dealership development
projects
* Purchase of land and buildings 6.3 2.2 2.2 -
* New dealership investment 1.8 10.4 6.5 4.0
Existing dealership
capacity increases 4.5 5.9 18.9 10.3
Manufacturer-led refurbishment
projects 3.2 2.4 5.2 1.7
IT and plant replacement 4.9 4.8 4.7 4.8
--------- --------- --------- ---------
20.7 25.7 37.5 20.8
--------- --------- --------- ---------
During the Period the main projects in the new dealership
investment category were the opening of major new city centre
freehold dealerships for Jaguar Land Rover in Leeds and Nissan in
Glasgow. These investments represent substantial increases in
aftersales and sales capacity on the previous outlets. Both of
these major projects, managed by the Group's in-house team of
project managers and surveyors were delivered on time and on
budget. In addition, major redevelopments were also completed at
Hereford Audi, the creation of a Ford Store in Gloucester and the
redevelopment of Nottingham Volkswagen North.
In the year ending 28 February 2018, major projects are
anticipated to increase existing dealership capacity. These will
include redevelopments of Reading Mercedes-Benz, Nelson Land Rover,
Bradford Jaguar Land Rover, Guiseley Land Rover, Shirley Ford and
Bolton Ford. These developments will underpin the Group's future
profitability and cash generation and all will represent operations
with greater capacity for sales and service.
The Board is confident that the significant decline in future
capital spend anticipated in FY2019 will drive enhanced free cash
flow from the business from that point in time with the Group
having a well-invested dealership estate including over 50% being
freehold in nature.
The above table does not include any proceeds from the sale of
property. As at the date of this report the Group is actively
engaged in the marketing of freehold assets which are expected to
realise at least GBP7 million in due course. The management of the
Group's property portfolio to maximise cash returns from surplus
assets is an important driver of both cash flows to the Group over
time and ensuring appropriate capital allocation. The Board balance
the need to recycle surplus assets into cash as quickly as possible
with the requirement to maximise the ultimate cash generation from
taking advantage of planning consents. Surplus assets arise from
the 'pruning' of poor performing dealerships, the relocation of
businesses and the sale of surplus land acquired in the development
of new dealerships. The importance of property arrangements within
an automotive retail business should not be understated. The
Property Committee, chaired by the CEO and containing external
advisors, meets monthly to formally review and manage the Group's
property portfolio.
Capital Structure
The Group has an ungeared balance sheet with shareholders' funds
of GBP246.4m (2016: GBP197.9m), representing net assets per share
of 62.3p (2016: 58.0p) as at 28 February 2017. The Group has
tangible net assets of GBP156.1m (2016: GBP130.6m) and the balance
sheet is underpinned by a freehold and long leasehold property
portfolio of GBP182.0m (2016: GBP137.7m). The Board believes that a
strong balance sheet backed by property assets used in the
business, and where debt taken on is long term in nature rather
than short term, is in the interests of the owners. This approach
reduces the Group's exposure to interest rate and rent increases
and makes the business highly resilient in the event of a downturn
in activity.
The Board continues to seek to balance those dealerships in
freehold and leasehold premises and to adopt a conservative
approach to the terms of any leases, favouring lease breaks to
provide flexibility and open market value rent reviews to manage
rent increase risks. As at 28 February 2017, freehold locations
represented 53% of locations (2016: 51%).
The Group finances its operations by a mixture of shareholders'
equity, bank borrowings and trade credit from suppliers and
Manufacturer partners. On 31 March 2016, the Group undertook a
GBP35m (gross) equity placing to provide funds for further
acquisitions and the funds have been deployed as envisaged at the
time of the Placing.
On 27 February 2017 the Group established a five year
acquisition facility with Barclays Bank plc and Royal Bank of
Scotland plc which provides the Group with GBP40m of committed
borrowing capacity with the potential to add a further GBP30
million which is currently uncommitted. GBP10 million of this
facility was drawn as at 28 February 2017. 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. The Board believes that the
current funding structure is highly conservative. The Board further
believes that use of these additional debt facilities on
appropriate acquisitions, which meet the required investment
hurdles, would be beneficial in enhancing return on equity and
increasing cash profits.
During the period, the Group comfortably complied with all of
the financial covenants in respect of its borrowing facilities,
which include net debt to EBITDA and interest and lease costs to
EBITDAR.
The Group operated with cash balances for much of the year and
additional facilities are utilised to fund significant peak working
capital requirements following plate change months and quarter
ends. The Group has GBP68m of overdraft and other money market
facilities. On the overdraft, interest was paid on drawn amounts at
1.1% above Base Rate, and on the money market facilities interest
was paid at 1.1% above LIBOR. As at 28 February 2017, the Group had
cash balances of GBP39.8m (2016: GBP43.9m) and, as a consequence,
net cash of GBP21.0m (2016: net cash GBP23.1m). The cash position
at 28 February 2017 reflects the seasonal reduction in working
capital, typical of the industry, which arises at the month end
prior to a plate change month. Consequently, the year-end cash
position is higher than the normalised cash balances throughout the
remainder of the year by approximately GBP30m.
The net cash position shown above is stated net of GBP8.7m
(2016: GBP6.8m) of utilised used car stocking loans. These loans
with third party banks are subject to interest at 1.5% above LIBOR
and are secured on the related vehicles. These facilities are short
term in nature and can be called to be repaid on demand. As a
consequence, these facilities are not extensively utilised to fund
long term assets.
Dividends
Since the Group commenced payment of dividends to its owners in
2011, during that six year period, over GBP17.3m has been returned
to the owners of the business, with the dividend per share
increasing by 280% over the same period. While still maintaining
one of the strongest balance sheets in the listed automotive retail
sector, the dividend has been funded from cash generated from
operations, without any negative impact to ongoing capital
expenditure programme nor funding of suitable acquisitions.
Maintaining a strong balance sheet is a key element of the
Board's approach to capital management, with a stated policy of
moving dividend cover closer to four times. The Board has proposed
an increase in the final dividend for 2017, payable on 31 July
2017, to 0.9 pence per share (2016: 0.85), which, when taken
together with the interim dividend paid in January 2017 of 0.5
pence per share (2016: 0.45p), provides a total dividend for the
year of 1.40 pence per share (2016: 1.30p). This represents an
increase of 7.7% and a dividend cover of 4.7 times (2016: 4.9
times) based upon adjusted earnings per share. The ex-dividend date
will be 29 June 2017 and the associated record date 30 June
2017.
The proposed full year dividend of 1.40 pence represents an
annualised cash dividend of GBP5.5m (2016: GBP4.9m). The
distributable reserves in the parent company balance sheet as at 28
February 2017 were GBP58.9m (2016: GBP43.8m). At this level of
pay-out the Board does not consider there to be any significant
risks to the Group's ability to continue to pay dividends in
accordance with this pay-out strategy other than those risks listed
in the annual report.
Return on equity
The Group's post-tax return on equity (measured as a 12 month
average throughout the Period) was 10.8% (2016 : 11.4%). This
dilution resulted from the use of the cash raised from the equity
raise in March 2016 to fund the acquisition of the freehold
property-rich premium dealerships. While these acquisitions have
strengthened the Group's property and brand portfolios, the Board
is cognisant of the impact of equity returns, and intends to
utilise the new debt facilities to finance future acquisitions,
hence improving equity returns.
Free cashflow to equity
The Board regularly measures the long term free cashflow
(operating cashflow less interest, capital expenditure and tax,
before acquisitions and dividends) as a return on the shareholders'
cash invested capital (capital raised plus after-tax operating
profits less dividends). This measure, when compared to the cost of
capital, provides an indication of the extent to which cash, hence
value, is being created in the long term. This measure stands at
12.1% over the 10 years since the Group's formation (2016: 12.7%
over 9 years). This return compares favourably to the Group's
weighted average cost of capital of 8%. The reduction in the recent
Period indicated above is a result of the high level of cash
deployed on capital investment in the Period. As set out above, we
expect this level of capital investment to increase in the current
financial year before declining in 2019, when the free cashflow to
equity metric should begin to increase.
Robert Forrester Michael Sherwin
Chief Executive Officer Chief Financial Officer
CONSOLIDATED INCOME STATEMENT (AUDITED)
For the year ended 28 February 2017
2017 2016
Note GBP'000 GBP'000
Revenue 2,822,589 2,423,279
Cost of sales (2,509,049) (2,160,000)
------------ ------------
Gross profit 313,540 263,279
Operating expenses (281,466) (236,100)
------------ ------------
Operating profit 32,074 27,179
================================== ===== ============ ============
Amortisation of intangible
assets 614 558
Share based payments charge 1,082 911
------------ ------------
Operating profit before
amortisation and share based
payments charge 33,770 28,648
================================== ===== ============ ============
Finance income 2 261 173
Finance costs 2 (2,515) (1,390)
------------ ------------
Profit before tax 29,820 25,962
================================== ===== ============ ============
Amortisation of intangible
assets 614 558
Share based payments charge 1,082 911
------------ ------------
Profit before tax, amortisation
and share based payments
charge 31,516 27,431
================================== ===== ============ ============
Taxation 3 (5,800) (5,282)
------------ ------------
Profit for the year attributable
to equity holders 24,020 20,680
============ ============
Basic earnings per share
(p) 4 6.14 6.06
Diluted earnings per share
(p) 4 6.04 5.92
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (AUDITED)
For the year ended 28 February 2017
2017 2016
Note GBP'000 GBP'000
Profit for the year 24,020 20,680
Other comprehensive (expense)
/ income
Items that will not be reclassified
to profit or loss:
Actuarial (losses) / gains
on retirement benefit obligations (4,687) 680
Deferred tax relating to
actuarial losses / (gains)
on retirement benefit obligations 937 (137)
Items that may be reclassified
subsequently to profit or
loss:
Cash flow hedges - 23
Deferred tax relating to
cash flow hedges - (6)
Other comprehensive (expense)
/ income for the year, net
of tax (3,750) 560
---------- --------
Total comprehensive income
for the year
attributable to equity holders 20,270 21,240
========== ========
CONSOLIDATED BALANCE SHEET (AUDITED)
As at 28 February 2017
2017 2016
Note GBP'000 GBP'000
Non-current assets
Goodwill and other indefinite
life assets 94,595 69,484
Other intangible assets 1,518 1,672
Retirement benefit asset 1,884 6,097
Property, plant and equipment 197,545 150,361
295,542 227,614
---------- ----------
Current assets
Inventories 506,470 530,371
Trade and other receivables 52,545 63,412
Property assets held for
sale - 537
Cash and cash equivalents 39,845 43,915
---------- ----------
Total current assets 598,860 638,235
---------- ----------
Total assets 894,402 865,849
========== ==========
Current liabilities
Trade and other payables (610,317) (631,148)
Deferred consideration (1,572) (241)
Current tax liabilities (3,840) (3,647)
Borrowings (8,671) (6,756)
---------- ----------
Total current liabilities (624,400) (641,792)
---------- ----------
Non-current liabilities
Borrowings (10,166) (14,011)
Deferred consideration (236) (1,659)
Deferred income tax liabilities (5,555) (4,450)
Deferred income (7,616) (6,078)
---------- ----------
(23,573) (26,198)
---------- ----------
Total liabilities (647,973) (667,990)
========== ==========
Net assets 246,429 197,859
========== ==========
Capital and reserves attributable
to equity holders of the
Group
Ordinary shares 39,727 34,127
Share premium 124,932 96,901
Other reserve 10,645 10,645
Treasury reserve (756) -
Retained earnings 71,881 56,186
---------- ----------
Shareholders' equity 246,429 197,859
========== ==========
CONSOLIDATED CASH FLOW STATEMENT (AUDITED)
For the year ended 28 February 2017
2017 2016
Note GBP'000 GBP'000
Cash flows from operating
activities
Operating profit 32,074 27,179
Profit on sale of property,
plant and equipment (285) (26)
Amortisation of other
intangible assets 614 558
Depreciation of property,
plant and equipment 8,665 6,803
Movement in working capital 16,040 30,515
Share based payments charge 1,015 781
---------- ----------
Cash generated from operations 58,123 65,810
Tax received 359 4
Tax paid (6,103) (7,704)
Finance income received 34 36
Finance costs paid (2,447) (1,451)
---------- ----------
Net cash generated from
operating activities 49,966 56,695
---------- ----------
Cash flows from investing
activities
Acquisition of businesses,
net of cash and overdrafts
acquired (49,962) (24,565)
Acquisition of freehold
and long leasehold land
and buildings (4,456) (6,475)
Purchases of intangible
assets (460) (325)
Purchases of other property,
plant and equipment (25,092) (13,977)
Proceeds from disposal
of business (net of cash
and overdrafts) 875 2,137
Proceeds from disposal
of property, plant and
equipment 950 1,120
---------- ----------
Net cash outflow from
investing activities (78,145) (42,085)
---------- ----------
Cash flows from financing
activities
Net proceeds from issuance
of ordinary shares 33,631 127
Proceeds from borrowings 6 10,831 18,288
Repayment of borrowings 6 (14,000) (4,441)
Purchase of treasury shares (1,000) -
Dividends paid to equity
holders (5,353) (3,923)
---------- ----------
Net cash inflow from financing
Activities 24,109 10,051
---------- ----------
Net (decrease) / increase
in cash and cash equivalents (4,070) 24,661
Cash and cash equivalents
at beginning of year 43,915 19,254
---------- ----------
Cash and cash equivalents
at end of year 39,845 43,915
========== ==========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (AUDITED)
For the year ended 28 February 2017
Ordinary Treasury
share Share Other share Retained Total
capital premium reserve reserve Earnings Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 March
2016 34,127 96,901 10,645 - 56,186 197,859
Profit for the
year - - - - 24,020 24,020
Actuarial losses
on retirement
benefit obligations - - - - (4,687) (4,687)
Tax on items taken
directly to equity - - - - 937 937
Total comprehensive
income for the
year - - - - 20,270 20,270
--------- ---------- ---------- --------- ----------- --------
New ordinary shares
issued 5,600 29,400 - - - 35,000
Cost of issuance
of ordinary shares - (1,369) - - - (1,369)
Purchase of treasury
shares - - - (1,000) - (1,000)
Treasury shares
issued - - - 244 (237) 7
Dividend paid - - - - (5,353) (5,353)
Share based payments
charge - - - - 1,015 1,015
--------- ---------- ---------- --------- ----------- --------
As at 28 February
2017 39,727 124,932 10,645 (756) 71,881 246,429
========= ========== ========== ========= =========== ========
The purchase of treasury shares in the period relates to the
acquisition of 2,635,687 shares by Estera Trust (Jersey) Limited,
the Trustee of Vertu Motors plc's Employee Benefit Trust ("EBT").
The shares were purchased by the Trustee to be held for the
purposes of the Employee Benefit Trust, and may be used to transfer
shares to individuals when options are exercised. This could
include the Company's Long Term Incentive Plan ("LTIP"), under
which each of the executive directors of the Company, the Company's
other PDMRs and certain other senior managers are potential
participants, and is therefore regarded as having a notional
interest in these shares.
During the year, 625,134 treasury shares were transferred or
sold by the EBT on exercise of vested LTIP options, and 20,000
treasury shares were transferred or sold by the EBT on exercise of
vested Company Share Options.
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 29 February 2016
Ordinary
share Share Other Hedging Retained Total
capital premium reserve reserve earnings Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 March
2015 34,091 96,810 10,645 (17) 38,105 179,634
Profit for the
year - - - - 20,680 20,680
Actuarial gains
on retirement
benefit obligations - - - - 680 680
Tax on items taken
directly to equity - - - (6) (137) (143)
Fair value gains - - - 23 - 23
--------- ---------- ---------- ---------- ----------- --------
Total comprehensive
income for the
year - - - 17 21,223 21,240
--------- ---------- ---------- ---------- ----------- --------
New ordinary shares
issued 36 91 - - - 127
Dividend paid - - - - (3,923) (3,923)
Share based payments
charge - - - - 781 781
--------- ---------- ---------- ---------- ----------- --------
As at 29 February
2016 34,127 96,901 10,645 - 56,186 197,859
========= ========== ========== ========== =========== ========
NOTES
For the year ended 28 February 2017
1. Basis of Preparation
Vertu Motors plc is a Public Limited Company which is listed on
the AiM market 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 Group prepares financial information under International
Financial Reporting Standards (IFRS) issued by the IASB and as
adopted by the European Union (EU) and on the same basis as in
2016. Further information in relation to the Standards adopted by
the Group is available on the Group's website
www.vertumotors.com.
Whilst the financial information included in this announcement
has been computed in accordance with International Financial
Reporting Standards (IFRS's), this announcement does not itself
contain sufficient information to comply with IFRS's. The Group
published full financial statements that comply with IFRS's today
and these are available on the Group's website,
www.vertumotors.com.
The financial information presented for the years ended 28
February 2017 and 29 February 2016 does not constitute the
Company's statutory accounts as defined in Section 434 of the
Companies Act 2006, but is derived from those financial statements.
The auditors' reports on the 2017 and 2016 financial statements
were unqualified. A copy of the statutory accounts for 2016 has
been delivered to the Registrar of Companies. Those for 2017 will
be delivered following the Company's annual general meeting, which
will be convened on 26 July 2017.
Accounting policies
The annual consolidated financial statements of Vertu Motors plc
are prepared in accordance with IFRS's as adopted by the European
Union. The annual report has 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 through profit or
loss.
The accounting policies adopted in this annual report can be
found on our website, www.vertumotors.com, and are consistent with
those of the Group's financial statements for the year ended 29
February 2016.
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. There has been no change in the
Group's one reportable business segment. Dealerships operate a
number of different business streams such as new vehicle sales,
used vehicle sales and after-sales operations. Management is
organised based on the dealership operations as a whole rather than
the specific business streams.
Dealerships are considered to have similar economic
characteristics and offer similar products and services which
appeal to a similar customer base. As such, the results of each
dealership have been aggregated to form one reportable operating
segment.
The CODM assesses the performance of the operating segment based
on a measure of both revenue and gross margin. Therefore, to
increase transparency, the Group has included below an additional
voluntary disclosure analysing revenue and gross margin within the
reportable segment.
Year ended 28 February 2017
Gross
Revenue Gross Margin Gross
Revenue Mix Margin Mix Margin
GBP'm % GBP'm % %
Aftersales * 227.0 8.0 123.4 39.4 44.6
Used cars 1,037.5 36.8 100.7 32.1 9.7
New car retail
and Motability 909.4 32.2 68.3 21.8 7.5
New fleet and commercial 648.7 23.0 21.1 6.7 3.3
---------- ---------- --------- -------- ---------
2,822.6 100.0 313.5 100.0 11.1
---------- ---------- --------- -------- ---------
Year ended 29 February 2016
Gross
Revenue Gross Margin Gross
Revenue Mix Margin Mix Margin
GBP'm % GBP'm % %
Aftersales* 189.0 7.8 102.9 39.1 44.8
Used cars 850.2 35.1 83.5 31.7 9.8
New car retail
and Motability 796.5 32.9 59.3 22.5 7.4
New fleet and commercial 587.6 24.2 17.6 6.7 3.0
---------- ---------- --------- -------- ---------
2,423.3 100.0 263.3 100.0 10.9
---------- ---------- --------- -------- ---------
*margin in after-sales expressed on internal and external
turnover
2. Finance income and costs
2017 2016
GBP'000 GBP'000
Interest on short term
bank deposits 34 36
Net finance income relating
to defined benefit pension
schemes 227 137
-------- --------
Finance income 261 173
======== ========
Bank loans and overdrafts (876) (619)
Vehicle stocking interest (1,639) (572)
Other finance costs - (199)
-------- --------
Finance costs (2,515) (1,390)
======== ========
3. Taxation
2017 2016
GBP'000 GBP'000
Current tax
Current tax charge 6,468 5,598
Adjustment in respect
of prior years (227) (258)
-------- --------
Total current tax 6,241 5,340
Deferred tax
Origination and reversal
of temporary differences (70) 395
Adjustment in respect
of prior years (112) (145)
Rate differences (259) (308)
-------- --------
Total deferred tax (441) (58)
Income tax expense 5,800 5,282
======== ========
2017 2016
GBP'000 GBP'000
Profit before taxation
from continuing operations 29,820 25,962
Profit before taxation
multiplied by the rate
of corporation tax in
the UK of 20% (2016: 20.08%) 5,964 5,213
Non-qualifying depreciation 357 245
Non-deductible expenses 267 412
Effect on deferred tax
balances due to rate change (259) (308)
Property adjustment (168) 153
Permanent benefits (22) (30)
Adjustments in respect
of prior years (339) (403)
-------- --------
Total tax expense included
in the income statement 5,800 5,282
======== ========
The standard rate of Corporation Tax in the UK is 20% with
effect from 1 April 2015. Accordingly, the Group's profits for this
accounting period are taxed at a rate of 20%. The standard rate of
Corporation Tax in the UK will be 19% with effect from 1 April
2017.
4. 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.
Adjusted earnings per share is calculated by dividing the
adjusted earnings attributable to equity shareholders by the
weighted average number of ordinary shares in issue during the
year.
2017 2016
GBP'000 GBP'000
Profit attributable to
equity shareholders 24,020 20,680
Amortisation of intangible
assets 614 558
Share based payments charge 1,082 911
Tax effect of adjustments (119) (112)
-------- --------
Adjusted earnings attributable
to equity shareholders 25,597 22,037
======== ========
Weighted average number
of shares in issue ('000s) 391,116 341,080
Potentially dilutive shares
('000s) 6,800 8,388
-------- --------
Diluted weighted average
number of shares in issue
('000s) 397,916 349,468
======== ========
Basic earnings per share 6.14p 6.06p
======== ========
Diluted earnings per share 6.04p 5.92p
======== ========
Basic adjusted earnings
per share 6.54p 6.46p
======== ========
Diluted adjusted earnings
per share 6.43p 6.31p
======== ========
5. Dividends per share
Dividends of GBP5,353,000 were paid in the year to 28 February
2017 (2016: GBP3,923,000), 1.35p per share (2016: 1.15p). A final
dividend in respect of the year ended 28 February 2017 of 0.90p per
share, is to be proposed at the annual general meeting on 26 July
2017. The ex-dividend date will be 29 June 2017 and the associated
record date 30 June 2017. This dividend will be paid, subject to
shareholder approval, on 31 July 2017 and these financial
statements do not reflect this final dividend payable.
The last date for shareholders to elect for the Dividend
Re-Investment Plan (DRIP) will be 6 July 2017 (or such other date
as the Group may specify). A facility is provided by Capita IRG
Trustees Limited in conjunction with the Group's registrars, Capita
Asset Services, for any Group shareholders who wish to re-invest
dividend payments in the Group. Under this facility, cash dividends
may be used to purchase additional ordinary shares.
Any shareholder requiring further information should call Capita
on 0871 664 0300 (Calls cost 12p per minute plus your phone
company's access charge. Calls outside the United Kingdom will be
charged at the applicable international rate. Lines are open
between 09:00 - 17:30, Monday to Friday excluding public holidays
in England and Wales. Overseas shareholders are best to use: +44
371 664 0300 Calls outside the United Kingdom will be charged at
the applicable international rate) or visit
www.capitaassetservices.com.
6. Reconciliation of net cash flow to movement in net cash
2017 2016
GBP'000 GBP'000
Net (decrease) increase
in cash and cash equivalents (4,070) 24,661
Cash inflow from proceeds
of borrowings (10,831) (18,288)
Cash outflow from repayment
of borrowings 14,000 4,441
--------- ---------
Cash movement in net cash (901) 10,814
Borrowings acquired (1,085) (3,409)
Capitalisation of loan arrangement
fees 107 201
Amortisation of loan arrangement
fees (261) (128)
--------- ---------
Non-cash movement in net
cash (1,239) (3,336)
Movement in net cash (2,140) 7,478
Opening net cash 23,148 15,670
--------- ---------
Closing net cash 21,008 23,148
========= =========
7. Acquisitions
On 1 March 2016, the Group acquired the entire issued share
capital of Sigma Holdings and its subsidiary Greenoaks (Maidenhead)
Limited (together "Greenoaks") which operates three Mercedes-Benz
outlets in Reading, Ascot and Slough. Total consideration amounted
to GBP30,743,000 comprising initial consideration of GBP11,743,000
settled from the Group's existing cash resources, a GBP10,000,000
bank loan and vendor shareholder loans of GBP9,000,000 which were
settled in cash on completion.
On 2 May 2016, the Group acquired the business and certain
assets of Leeds Jaguar from a subsidiary of Inchcape Plc. The
consideration for this acquisition was GBP592,000 and was settled
in cash from the Group's existing resources.
On 1 June 2016, the Group acquired the entire issued share
capital of Gordon Lamb Group Limited and its subsidiaries,
including Gordon Lamb Limited (together "Gordon Lamb") which
operates the Toyota, Land Rover, Skoda, and Nissan outlets in
Chesterfield and the Skoda outlet in Derby. The estimated
consideration amounted to GBP18,781,000 and was settled in cash
from the Group's existing resources.
8. Post balance sheet events
On 31 March 2017, the Group disposed of the trade and certain
assets of its Peugeot dealership in Chesterfield to Decidebloom
Limited, trading as Stoneacre. The Group still owns the freehold
property from which the dealership operates.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR KKLFBDEFZBBV
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May 10, 2017 02:00 ET (06:00 GMT)
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