Chairman's Statement
The Board is reporting another year of strong growth, with record levels of revenue, operating
profit, earnings per share and dividends.
In my first Chairman's statement to shareholders last year, I explained that I was struck by three
features of the Group: that the Group is set for growth, well positioned with Manufacturer partners and in a healthy financial
position. These results confirm all three of these features and I remain optimistic about the Group's growth prospects, as
well as confident of its resilience.
Board changes
One of my key roles as Chairman is to ensure that the composition of the Board is continually
reviewed to ensure that it provides the Group with the strategic oversight, vision and governance that it requires in order to
deliver a sustainable long term return for shareholders.
Today, I am pleased to announce that Pauline Best joins the Board as a Non-Executive Director with
effect from 1 June 2016. Pauline is an experienced Human Resources professional who is currently the Global People and
Organisation Director of Specsavers and whose previous roles include Global Leadership and People Capability Director for
Vodafone and Human Resources Director of Talkland. The need to work to attract and retain the best available talent is a
priority, as sector growth highlights skill shortages and as new ways of working develop in the digital age. These issues
are high on the Board's agenda, which is why I have sought to add Pauline's skills to the Board at this time.
Following Ken Lever's appointment to the Board last year, he will assume the roles of Chairman of
the Audit Committee and Senior Independent Director following this year's Annual General Meeting.
UK European Union Referendum
The Board is following the UK European Union referendum debate closely and is maintaining contact
with its Manufacturer partners regarding their scenario planning for both potential outcomes. As the UK is a significant
importer of vehicles manufactured in continental Europe, the stability of trade relationships and currency will be important for
both automotive retailers and Manufacturers.
Dividends
The Board has proposed an increase in the final dividend for 2016, payable on 26 July 2016, to
0.85 pence per share (2015: 0.7p), which, when taken together with the interim dividend paid in January 2016 of 0.45 pence per
share (2015: 0.35p), provides a total dividend for the year of 1.30 pence per share (2015: 1.05p), representing an increase of
23.8%. The ex-dividend date will be 23 June 2016 and the associated record date 24 June 2016. The Group's dividend
strategy is set out in more detail in the Chief Financial Officer's Review.
Current trading and outlook
The Group has traded ahead of the current year financial plan and the prior year in March and
April 2016 ("the post year-end period"). Increasing sales and a strong aftersales performance, together with an increased
contribution from recently acquired dealerships are enabling the Group to drive profits forward again.
In the post year-end period, aftersales margins rose from 45.2% to 46.7% with like-for-like
revenue increases. Service like-for-like revenues rose 7.0% and continued to benefit from the successful customer retention
initiatives being executed by the Group. Overall aftersales profitability increased on a like-for-like basis in the post
year-end period.
The post year-end period includes March, which remains the most significant month for the
profitability of UK automotive retail. The post year-end period saw a continuation of growth in the UK private new car
market in terms of vehicle registrations. In the post year-end period, the Group has seen stable new retail volumes and a
slight decline in gross margin. The Group has seen strong growth in fleet and commercial volume margins. Overall, the
profit contribution from new vehicle sales in retail and business channels is flat on a like-for-like basis.
The Group's like-for-like used vehicle retail volumes were up 5.9% in the post year-end period
continuing the sustained, long term growth in performance. The impact of the changes made to the Group's marketing in the
second half of last year, along with a continued focus on the management of used vehicle inventory, have contributed to this
performance. Used vehicle margins were stronger during the post year-end period and the combination of increased volumes and
margin has led to a significant increase in year on year profitability.
Given trading in March and April 2016 and the encouraging improvements we are seeing in the
acquired businesses, the Board remains confident about the Group's prospects for the current year.
We have a first rate, scalable and highly motivated operational team and I would like to take this
opportunity to thank every colleague for their dedication and hard work during the year. The team has created a unique culture,
which is in place consistently across our businesses, and has delivered record profitability.
P. Jones
Non-Executive Chairman
Chief Executive's Review
Strategy
The Board has maintained a consistent strategy since flotation in December 2006 to grow a scaled
automotive retail group initially through acquiring principally volume franchised dealerships and, more recently, by adding
premium franchised dealerships. 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. Pursuant to this strategy, the Group undertook a number of further significant
acquisitions in the year and, in March 2016, undertook an equity placing of £35m (gross) to fund the continuation of this
strategy. The addition of further dealerships and new franchise partners to the Group's portfolio will enable the Board to
deliver its goal of replicating the market share of Manufacturers in the UK in the Group's portfolio of franchised
dealerships. This goal provides diversified profit streams so reducing the Group's exposure to variations in individual
manufacturers' performance.
The Group's Mission Statement is "to deliver an outstanding customer motoring experience through
honesty and trust". Achieving this Mission should secure significant gains in vehicle sales and market share in our local
territories. The resultant increase in each local vehicle parc, coupled with high levels of customer retention, is designed
to deliver higher aftersales activity levels, thereby allowing the Group to grow profitability over time. Key performance
indicators, such as local market share, in addition to colleague and customer satisfaction scores, are the key drivers for
management at all levels. The Board is pleased to note that a significant majority of dealerships deliver above average
customer satisfaction scores in sales and service, as measured by our Manufacturer partners. Used car customer satisfaction
is now measured in every dealership and 95% (2015: 93%) of used car customers would recommend the Group to friends and family.
Colleague satisfaction scores, measured in July each year, are very strong and reflect a consistent, values-driven culture across
the business. In addition to several individual dealerships winning Manufacturer excellence awards, the Group was also
recognised for the second consecutive year within the Honda franchise for having the best UK dealerships in 2015. The Group was
also Motability dealer group of the year for the second consecutive year, demonstrating further evidence of a relentless focus on
achieving high levels of customer satisfaction and performance.
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 will be 10 years old in November and
has become a very significant player in the UK automotive sector. The Group is currently ranked fifth in the UK by revenue
(source: Motortrader). Many of the acquisitions undertaken in recent periods have still to become fully established in
margin terms and this provides the Group with further opportunity to deliver improved margins and grow organic profit over the
medium term.
Business Model
The Group's business model enables the delivery of enhanced business performance from acquired
dealerships through the implementation of consistent business processes and systems and tight operational management. 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 (2016: 44.8% in aftersales and 7.2% in
vehicle sales), and the Group's business model works to improve and then maximise the aftersales performance and hence
margins. Growing the aftersales potential is fundamentally a function of increasing the sale of new and used cars by the
dealership in the locality.
The application of this business model relies heavily on strong, high quality management teams in
order to deliver the required returns over time. The recruitment, development and retention of high performing automotive
retail professionals is, therefore, of paramount importance and the Group has developed a culture which seeks to attract and
retain top performers. As the Group expands, the management capacity and bandwidth to allow further controlled expansion is
continually assessed by the Board.
In addition to management, the Group has invested in systems and central functions at its support
centre in Gateshead in the North East of England. This provides significant benefits to the Group from scale, engaging in
extensive sales and aftersales marketing and customer experience enhancing activities. The Board believes these functions
and teams provide substantial operational benefits to the Group, a key competitive advantage and a strong foundation from which
to further scale the business. This advantage is recognised by the Group's Manufacturer partners who encourage this
investment and many are keen for their franchises to be served by these centralised functions.
As part of a regular Board discipline, the Group continually reviews all operations to ensure they
will deliver value in the medium term. Underperforming businesses requiring improvement are highlighted with specific
turnaround plans established with measures and milestones. The Board monitors performance on a monthly basis. Operations
deemed not to be able to meet return on investment hurdles in the medium term are identified and are either closed, disposed of
or refranchised, to ensure value is generated.
New Revenue Streams
The Group operates several small incubator businesses which trade in areas parallel to the Group's
core automotive retail activities. In total, these growing activities made a contribution to the Group of £0.5m during the
period:
· Bristol Street Versa Mobility Solutions
supplies wheelchair accessible vehicles to customers who require conversion from standard vans. Many of the converted vans
are sourced from Group franchises, providing purchasing synergies for the supplying dealerships. The business is now the
fourth largest in its sector in the UK and has commenced export activities.
· Taxi Centre supplies new and used vehicles
to private hire taxi operators throughout the UK, and also sources vehicle finance for its customers.
· What Car? Leasing is a joint venture with
Haymarket Publishing which provides to third party automotive retailers, an internet portal for selling new vehicles on private
contract hire. The Group brings its considerable internet marketing expertise to this venture and operates the web
platform. There are a number of initiatives planned to deepen this relationship.
· Lease Cars Direct is an internet business
which sells the Group's new vehicles on lease finance products and delivered 1,066 cars in the financial year.
· Ace Parts, acquired in December 2015, is
an on-line, non-franchised vehicle parts business selling parts to both retail customers and independent garages. The Group
has plans to expand the non-franchised business and also to leverage the expertise into the selling of franchised parts to
consumers and businesses. This is likely to include white-labelling with well known portals and brands, and one platform
has already been launched.
The Group will continue to examine opportunities to leverage its existing operations and know-how
in potential new ventures, particularly opportunities associated with the growth of digital channels to market.
Portfolio development
During the year, the Group has continued to invest in its growth strategy and has expanded the
number of sales and aftersales outlets from 116 at 28 February 2015 to 127 sales outlets at 11 May 2016 through a significant
number of acquisitions and the opening of new start-up dealerships. In the same period, the Group ceased operations in four
sales outlets. The Group operates sales outlets from 105 locations highlighting an element of multi-franchising at a number
of the Group's locations.
The current portfolio of the Group is summarised below:
Sales outlet numbers
|
May
|
February
|
Car franchised outlets
|
2016
|
2015
|
Ford
|
22
|
23
|
Vauxhall
|
14
|
14
|
Honda
|
12
|
9
|
Nissan
|
10
|
9
|
Peugeot
|
7
|
9
|
Hyundai
|
7
|
7
|
Renault / Dacia
|
7
|
5
|
Volkswagen
|
6
|
5
|
SEAT
|
5
|
5
|
Land Rover
|
5
|
4
|
Citroen/DS
|
4
|
4
|
Mazda
|
4
|
4
|
Fiat
|
4
|
4
|
Mercedes-Benz/smart
|
3
|
-
|
Jaguar
|
3
|
1
|
Alfa Romeo
|
2
|
3
|
Volvo
|
2
|
2
|
Jeep
|
1
|
2
|
Infiniti
|
1
|
1
|
Škoda
|
1
|
-
|
Audi
|
1
|
-
|
Suzuki
|
-
|
1
|
|
121
|
112
|
Other franchised outlets
|
|
|
Honda Motorcycles
|
2
|
2
|
Volkswagen Commercials
|
1
|
-
|
|
3
|
2
|
Non-franchised outlets
|
|
|
Bristol Street Versa (wheelchair accessible vehicles)
|
1
|
1
|
Used car non-franchised operation
|
2
|
1
|
|
3
|
2
|
Total sales outlets
|
127
|
116
|
Acquisitions and investment
During the year, the Group has continued to acquire and to develop dealerships both in the premium
and volume segments. It is the objective of the Group to continue to strengthen its premium representation so as to provide
balance to the dealership portfolio.
Ford - our largest franchise partner
Ford is the Group's largest franchise partner in both profit terms and number of sales
outlets. The Group is the third largest Ford dealer in the UK and Ford has been the UK market leader in car and commercial
vehicle sales volumes for decades. In calendar year 2015, Ford had a market share of 12.7% of the total new car
market.
In May 2015, the new Wigan Ford dealership, which the Group built for £2.1m after acquiring this
business in November 2014 from Gordons of Bolton, was opened and relocated. This dealership now represents the brand
appropriately in this important Lancashire town and provides a high quality customer environment. In September 2015, the
Group disposed of Horwich Ford, a satellite sales outlet and petrol forecourt.
In the summer of 2015, the Group completed the redevelopment of Orpington which is now a Ford
Store, one of a number of large scale dealerships in the UK which sells the complete Ford product range including the Mustang and
Vignale premium range. In February 2016, the £1.0m redevelopment of Birmingham Bristol Street to become a Ford Store was
completed. This is an important dealership for the Group, located in the heart of Birmingham city centre. It is where
the original Bristol Street Motors business was founded and remains a major operation of the Group to this day. The current
financial year will see further redevelopments in Bolton, Stoke and Gloucester as the Group continues to invest in the Ford Store
format.
Vauxhall
The Group has carried out a major redevelopment and enlargement of the Waltham Cross Vauxhall
dealership which has involved acquiring and reconfiguring two adjacent properties to significantly increase the used car and
service department capacity. The acquisition of the properties was completed in 2014 costing £1.1m, and a further
investment of £0.9m was completed in the period which has transformed the capacity of the dealership.
In addition, the Group has upgraded the Vauxhall showrooms and facilities in the Carlisle, Crewe,
Keighley, Durham and Newcastle dealerships to provide enhanced new vehicle display facilities and an improved customer
experience. The Group is the first major group to complete the refurbishment of its Vauxhall portfolio to the latest corporate
standards.
Honda
The Group is the largest Honda dealership group in Europe with 12 outlets. Three outlets
were acquired, for a consideration of £2m, in Stockton, Nottingham and Derby in January 2016. The Group has also expanded
the service capacity at Mansfield and refurbished its Sunderland Honda business to latest corporate standards. Work is
about to commence to add a Honda sales outlet in Morpeth alongside the current Ford operation. This will be the only Honda
representation in the county of Northumberland.
The Group is also planning to acquire the freeholds of the recently acquired Nottingham and Derby
dealerships from Honda in the coming weeks.
Nissan
Nissan has been a fast growing franchise within the Group's portfolio in recent years.
Following changes in Nissan franchise representation in Scotland, from 1 April 2015 the Group
became the sole franchise partner for Nissan in Glasgow. Nissan sales outlets in the City were reduced from four to two,
being the Group's existing Glasgow South dealership, and a further temporary outlet in the North of the City. The Group has
acquired a prominent city centre property which it is currently redeveloping to create a landmark dealership. It is
expected that this will be completed in the autumn of 2016.
Renault/Dacia
The Renault/Dacia franchise is successfully rebuilding its UK market share, and the Group
continues to invest alongside this growth. During the period, the Group opened a new sales outlet in Mansfield in an
existing Group dealership and also opened a sales outlet in temporary premises in Leeds.
Hyundai
Hyundai is a growing franchise which the Group is delighted to support as it establishes itself a
significant brand in the UK. Hyundai represented 3.35% of the total new car market in the calendar year 2015.
Until January 2016, the Group operated a multi-franchised Renault/Dacia and Hyundai dealership in
Exeter. In order to maximise the market opportunities for both franchises, the Group invested £2.4m to acquire a separate
dealership property in close proximity to the existing business and invested a further £0.5m to refurbish the new property to
Hyundai's latest corporate standards. The new dealership began operation in January 2016.
The Group has also invested £0.4m in the two Hyundai sales outlets in Edinburgh which were
acquired in late 2013, developing the showroom capacity and enhancing customer facing facilities. In late May 2016, Hyundai
will open in the existing Group dealership in Bristol alongside Mazda. This will bring the Group's Hyundai representation
to 8 outlets.
Volkswagen Group - Volkswagen, Volkswagen Commercials and Audi
In October 2015, the Group invested £14.4m (including £1.5m deferred for two years) to acquire
three Volkswagen Group outlets in Hereford representing the Audi, Volkswagen Passenger Cars and Volkswagen Commercial Vehicle
franchises. This acquisition also included two Volkswagen Group parts distribution operations and a stand-alone used car
operation.
During the period, the Group also invested £0.9m in redeveloping and upgrading the Mansfield and
Nottingham South Volkswagen Passenger Car dealerships. A further investment to reconfigure the Group's Nottingham North
Volkswagen Passenger Car dealership has commenced which will complete all the Group's upgrading of its Volkswagen
portfolio.
The emissions issue surrounding the Volkswagen Group from September 2015 onwards has had no
material impact on the Group's operations. The Volkswagen Group brands have seen profit perform ahead of last year on a
like-for-like basis during the period from 1 January 2016 to 30 April 2016.
Jaguar and Land Rover
The Jaguar Land Rover business in the UK is undertaking an exercise to bring together the
ownership of the two franchises within market areas and, where possible, within the same property footprint.
In May 2015, the Group acquired Bury Land Rover for £7.0m and Bradford Jaguar for £0.8m. In
September 2014, the Group acquired a major dealership freehold property in Leeds for £5.2m which was vacated by its former
operator in November 2015. The building is currently being refurbished to Land Rover standards and the Group will relocate
its existing Land Rover and the newly acquired Leeds Jaguar operation from their current leased premises to this freehold site by
the end of 2016. The Leeds Jaguar outlet was acquired on 3 May 2016 for consideration of £0.7m.
There is a considerable amount of investment planned between now and the end of 2018 as the
remainder of the Group's Jaguar Land Rover portfolio is redeveloped to incorporate the latest corporate standards and capacity
requirements.
Addition of Mercedes-Benz
On 1 March 2016, the Group acquired Greenoaks Mercedes-Benz comprising three dealerships in Ascot,
Slough and Reading for £30.9m (including £3.5m deferred for 12 months). The dealerships include Mercedes AMG performance
cars in Ascot and smart in Ascot and Reading. This acquisition introduced Mercedes-Benz to the Group's franchise portfolio
and further develops the strategy of balancing both premium and volume franchise within the overall portfolio.
Continued Review of the Portfolio
As a result of the continued review of the portfolio during the year, the Group took actions to
dispose of, close or refranchise several operations.
In April 2015, a Peugeot dealership in Ilkeston was closed, and in July 2015, the Dunfermline
Peugeot business was sold. Also in July 2015, the Mansfield Suzuki sales outlet was refranchised to become a new Renault and
Dacia outlet.
During the year, the Group reviewed its long-term strategy with regard to its six petrol forecourt
operations. Petrol forecourts at Stroud and Dunfermline were closed in order to provide extra used car capacity at these
locations and enhance returns. In addition, forecourts at Walkden and Horwich were sold during the year realising
£2.1m. The Group now operates two profitable petrol forecourts.
In October 2015, the Group ceased sales operations at two multi-franchised dealerships being
Cheltenham Alfa Romeo and Bristol Jeep. As noted above, the Group plans to replace Jeep with Hyundai in Bristol.
Management
The Group has always benefitted from a stable senior management team which has grown as the Group
has expanded. In order to ensure that the Group's current and future growth is appropriately controlled, the Group has
strengthened its operational management team. On 1 March 2016, David Crane, who joined the Group when it was established in
2006, moved from the role of Commercial Director to become Chief Operations Officer. In addition, two new appointments have
been made to the CEO Committee (the Group's Operational Board) in recent months. Firstly, Tim Tozer, formerly Chairman of
Vauxhall Motors and President and CEO of Mitsubishi Motors Europe, joined the Group on 1 March 2016 as Divisional Director
responsible for the Peugeot, Hyundai, Mazda and Fiat Group franchises. Tim brings significant automotive experience to the
Group and adds further operational management bandwidth to the senior team. Liz Cope, formerly VP Global Marketing for Vax
and Global Brand and Research Director for Dyson, joined the Group on 1 April 2016. This important appointment reflects the
growing importance of a structured and consistent approach to marketing, to support the development and growth of the business in
all channels.
On 1 January 2016, the Group also created the position of Group Aftersales Director and appointed
Calum Thomson, who has worked in the Group since 2007. He has extensive experience of the aftersales function in automotive
retail businesses. This new position will ensure that the Group's business model, which drives the growth of the higher margin
aftersales revenues, is given the right senior management focus and co-ordination in terms of aftersales best practice, training,
recruitment and development.
Operating review
Market dynamics
Market conditions for new vehicle sales to consumers continued their run of growth driven by a
continuation of the positive consumer and business environment in the UK, and a consistent flow of excellent new model
introductions. The strength of registrations is also explained by the combined effects of the weakness of the wider
European market, the weakening of other export markets particularly China, the relative strength of Sterling versus the Euro and
attractive finance deals provided by captive finance companies. The majority of new vehicles sold in the UK are supplied by
the European sales operations of global Manufacturers and the UK remains their market of choice.
As a result of these factors, the UK private retail market rose 3.9% in the financial year.
Premium franchises continued to outperform volume franchises in the UK private retail sector, with registrations up 7.3% in
premium franchises and 1.7% in volume franchises.
New car fleet registrations in the UK rose by 9.5% in the year. This continued growth in the
fleet market has been partly driven by the same supply push actions from Manufacturers noted above.
The light commercial vehicle market, comprising vans, saw strengthening demand throughout the year
as business confidence remained robust and the economy expanded. The growth of internet shopping at the expense of the High
Street has led to a continued demand for vans for home deliveries and this trend is expected to continue. UK van market
registrations rose by 13.2% as a consequence.
The used car market in the UK grew by approximately 2% in the period. Stronger growth was
evident in the 0-3 year old segment following the increase in supply as the growth in the new car market in recent years takes
its effect in the used wholesale markets. This provides retailers with the ability to grow used car volumes compared to
previous years when supply was very much more constrained.
The market for service, parts and accident repair services saw growth in the period arising from
the impact of successive years of rising new car sales. The 0-6 year vehicle parc is growing, including the 0-3 year parc
in particular, and this cohort of car owners is very loyal to franchised dealer networks for servicing. Increased service
loyalty to franchised dealers from customers with older cars is also raising service revenues due to more customers having
service plans typically of three years in duration. These plans are largely monthly payment schemes, which lock in prices
for customers to a fixed monthly amount, making vehicle servicing both budgetable and affordable. The corporate fleet
market for servicing is also seeing considerable growth as the fleet parc expands and represents a considerable aftersales
opportunity. Growth in the servicing market results in higher demand for parts.
A further dynamic is that Manufacturer franchising policy and the impact of market forces are
trimming UK dealership numbers. This is providing operational gearing benefits to the remaining retailers. This
effect and a growing market means that the average number of new car sales per dealership is estimated to be 482 in 2016, a 46
vehicle increase on 2015 and significantly ahead of the figure ten years ago. Investment requirements in larger and
modernised outlets are moving in tandem with these trends.
Revenues, margins and profitability
Revenue and Margins
Year ended 29 February 2016
|
|
Revenue
|
Revenue
Mix
|
Gross
Margin
|
Gross
Margin
Mix
|
Gross Margin
|
|
£'m
|
%
|
£'m
|
%
|
%
|
Aftersales1
|
189.0
|
7.8
|
102.9
|
39.1
|
44.8
|
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
|
Total new vehicles
|
1,384.1
|
57.1
|
76.9
|
29.2
|
5.6
|
Used cars
|
850.2
|
35.1
|
83.5
|
31.7
|
9.8
|
|
2,423.3
|
100.0
|
263.3
|
100.0
|
10.9
|
Year ended 28 February 2015
|
|
Revenue
|
Revenue
Mix
|
Gross
Margin
|
Gross
Margin
Mix
|
Gross Margin
|
|
£'m
|
%
|
£'m
|
%
|
%
|
Aftersales1
|
168.1
|
8.1
|
89.4
|
39.2
|
43.5
|
New car retail and Motability
|
679.4
|
32.7
|
50.9
|
22.3
|
7.5
|
New fleet and commercial
|
498.5
|
24.0
|
12.3
|
5.4
|
2.5
|
Total new vehicles
|
1,177.9
|
56.7
|
63.2
|
27.7
|
5.4
|
Used cars
|
728.9
|
35.2
|
75.5
|
33.1
|
10.4
|
|
2,074.9
|
100.0
|
228.1
|
100.0
|
11.0
|
1. margin in aftersales expressed on internal and external
turnover.
These results record the fourth consecutive year of growth in Group revenues and profits.
Over the last five years revenues have more than doubled, growing by 123% from £1,088m to £2,423m and
adjusted2 profit before tax has grown by 275% from £7.3m to
£27.4m.
Revenues in the period increased by 16.8% (£348.4m) to £2,423.3m (2015: £2,074.9m). This
included the impact of acquisitions made during the year (£94.9m) and the full year impact of prior year acquisitions
(£143.0m). Like-for-like revenues grew by 7.3% (£142.6m) with growth across all revenue channels. Closed operations
resulted in a £32.1m year on year revenue reduction.
Overall vehicle revenues grew by 17.2% in the year and amounted to 92.2% of total revenues (2015:
91.9%), whereas total aftersales revenues grew by 12.4% and amounted to 7.8% of total revenues (2015: 8.1%). There is
a lag effect in the growth of aftersales revenues in the years following rises in vehicle sales as the latter takes time to feed
into significant changes to the size and shape of the wider vehicle parc. This dynamic reflects the more defensive nature
of aftersales revenues and profits and works in a counter-cyclical, positive manner in the event of a vehicle sales slowdown. On
a like-for-like basis, gross margins were stable at 11.0% despite the increase in vehicles sales mix. This reflected the
growing maturity of the Group's portfolio as the business model was applied to under-performing businesses to good effect.
Overall gross margin achieved was 10.9% (2015: 11.0%).
Adjusted2 EBITDA increased by 23.7% to
£35.5m in the year ended 29 February 2016 (2015: £28.7m). Adjusted2 operating profit grew by 26.0% to £28.6m (2015: £22.7m) due to both like-for-like growth in the core dealerships and,
significantly, the turnaround in profitability of the dealerships acquired over recent years. This improvement provides
further evidence of the effectiveness of the Group's business model in improving the profitability of underperforming businesses
that have been acquired. Adjusted2 profit before tax rose by 24.5% to £27.4m (2015: £22.0m).
2. adjusted for
amortisation of intangible assets and share based payments charge.
Aftersales
The Group's aftersales operations, which include servicing, supply of parts and accident repairs,
represent a vital element of the Group's business model since significantly higher returns are generated than those achieved in
vehicle sales. While aftersales represents 7.8% of Group revenues, it accounts for 39.1% of gross margin, so management
focus on maintaining and improving performance in this area is crucial to the Group's overall results. The Group's business model
increases customer retention in the higher margin service arena through the consistent execution of a number of core
strategies. Driving service revenues has an additional positive benefit in enhancing parts sales through the Group's
workshops. Core retention strategies include a focus on driving increased vehicle sales to build a local vehicle parc (as
opposed to distance sales where customers are unlikely to return to the dealership), marketing via a sophisticated customer
relationship management process using the Group's dedicated contact centre in Gateshead and technology such as email reminders,
SMS and on-line service booking facilities. Further retention is driven through the extensive sale of service plans and by
delivering an outstanding customer experience when customers visit. The latter is aided by extensive training programmes
and is monitored by a significant commitment to mystery shops by real customers to the service departments.
The Group continues to make real progress in each of these areas. For example, the Group now
has over 89,000 customers paying monthly for service via the Group's three year service plan product (2015: 71,031
customers). In addition, significant numbers of service plans operated by Manufacturers are also in place. The total
of these plans are helping the Group to take market share from the independent aftersales market in the service area and drive
consistent servicing revenue growth. For example, used car customers coming back for a service 12 months after
purchase has risen from 35% in 2012 to 44% in 2015. Furthermore, the Group has sold over 30,000 Motability vehicles in the
last three years, each of which is on a three year service arrangement, adding a further resilient income stream.
As the market for service and repair expands with the vehicle parc, the Group has some substantial
opportunities to grow the volume of the higher margin activities of the Group. This will be as much in expanding market
share in the corporate fleet service arena as in the retail sector.
The future development and growth of the service operations going forward will also depend on
addressing key matters such as recruiting, training and retaining more technicians and revising shift and resource patterns to
make greater use of the physical capacity of the dealerships. As the vehicle parc expands, the challenge will be to grow
capacity and convenience to customers without resorting to larger dealerships and further capital
expenditure.
The Group saw like-for-like revenues in all aftersales activities increase by 4.8% and
like-for-like gross profits grow by £6.5m (7.7%) in the period. Service revenues rose 6.5% on a like-for-like basis,
representing the sixth successive year of growth in this key high margin area. Overall aftersales margins strengthened to
44.8% (2015: 43.5%).
The improvement in aftersales margins has been achieved in each of the service, parts and accident
repair centre activities as a result of a relentless focus on the detailed operational performance in each
department. The Group's vehicle health check (VHC) process has been further embedded into the business. This seeks to
ensure that all customer vehicles visiting the Group's dealerships are given a full mechanical health check by a fully
manufacturer-trained technician to identify any service work which may be required. The results are then presented to the
customer with a clear and costed explanation of any such work identified, including via digital media. 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.
The accident repair centre sector delivered another year of improved revenue and margins as demand
has started to outstrip supply in the channel. The Group's accident repair centre revenues grew 8.0% on a like-for-like
basis and margins improved further to 66.2% (2015: 66.0%). The Group now operates 11 accident repair centres.
Supply of Manufacturer parts continues to be a vital part of the franchised dealer model.
Parts revenues rose 5.5% on a like-for-like basis, margins improved to 23.3% (2015:22.8%).
Vehicle sales
Vehicle unit sales analysis
|
2016
|
2016
|
2016
|
2015
|
Total
%
|
Like-for-Like
%
|
|
Core
|
Acquired3
|
Total
|
Total4
|
Variance
|
Variance
|
New retail cars
|
36,489
|
3,301
|
39,790
|
35,859
|
11.0%
|
4.0%
|
Motability cars
|
10,484
|
951
|
11,435
|
10,549
|
8.4%
|
1.6%
|
Fleet and commercial vehicles
|
32,517
|
2,606
|
35,123
|
30,961
|
13.4%
|
6.4%
|
Total New vehicles
|
79,490
|
6,858
|
86,348
|
77,369
|
11.6%
|
4.6%
|
Used retail vehicles
|
66,582
|
5,120
|
71,702
|
63,446
|
13.0%
|
8.0%
|
|
146,072
|
11,978
|
158,050
|
140,815
|
12.2%
|
6.2%
|
3. relates to businesses acquired or developed subsequent
to 1 March 2015 with businesses migrating into core once they have been in the Group for over 12 months
4. 2015 volumes include businesses acquired in the
year ended 28 February 2015
New retail car volumes sold (excluding Motability Scheme sales) rose by 4.0% in the year on a
like-for-like basis. This compared to an increase of 3.9% in UK private new car registrations and 3.0% for those franchises
which the Group represents. The outperformance compared to the market data was weighted to the second half when the Group's new
retail car volumes grew by 7.3% against UK registrations which grew by 4.7%. The Group's operations performed strongly in
the financial year achieving Manufacturers' targets at consistently high levels. Overall, new retail car volumes rose 11.0%
to nearly 40,000 vehicles.
Volumes of sales on the Motability Scheme rose by 1.6% on a like-for-like basis against a 2.9%
decline in UK Motability registrations. This outperformance was helped by a continued focus in the dealerships on this key
customer category and is reflected in the fact that, for the second consecutive year, the Group was awarded Motability Dealer
Group of the Year 2015 by Motability.
Gross profit per unit has continued to rise in new car retail and Motability sales due to the
Group's growing mix of premium sales and retail sales rising faster than the lower margin Motability channel. Margin
percentages were 7.4% (2015: 7.5%) reflecting higher average sales prices driven by increased premium franchise sales and rising
vehicle prices in the volume sector as PCP offers continue to allow consumers to purchase higher specification models.
Average sales prices on new vehicle sales rose from £14,213 in H1 (H1 2015: £13,342) to £14,738 in H2 (H2 2015: £13,639).
Gross profit per unit rose to its highest ever level in H2.
The Group has significant fleet operations and a shift in sales mix away from supply to lower
margin daily rental channels resulted in continued improved margins and slightly lower volumes. Consequently, the Group's
like-for-like car fleet volumes fell by 4.2% whilst margins and profitability both improved. In the light commercial
vehicles sales channel, the Group's like-for-like volumes of commercial vehicles increased by 22.0% during the year reflecting
continued market share gains against registrations in the UK up 13.2%. The Group's margins in fleet and commercial
sales improved to 3.0% (2015: 2.5%) and are now at record levels. Overall, the Group delivered growth in light commercial
vehicle volumes of 32.3% and combined fleet and commercial volumes of 35,000 vehicles.
The Group is a successful retailer of used cars. For the first time over 70,000 used cars
were retailed and overall year on year volume growth was 13.0%. The strong like-for-like growth in used vehicle volumes of
8.0% in the period was significantly ahead of the market and represents the Group's ninth consecutive half year period of
like-for-like used car volume growth. This strong growth in like-for-like used car volume, which accelerated in the second
half of the period (H1: 4.2%, H2: 12.2%), reflects both the inherent strength of the Group in used cars through sales and stock
management processes and the impact of more effective marketing, both on-line and off-line from 1 October onwards. During
the year, the Group adopted a more centralised approach to used car marketing with increased TV advertising and more nationally
co-ordinated campaigns. The impact of this approach has been to improve sales volumes and like-for-like
profitability. The appointment of the new Chief Marketing Officer will provide further momentum to ensure the Group gains
marketing benefits from its scale.
The Group's used car gross margin was 9.8% (2015: 10.4%), and gross profit per unit was £1,165
(2015: £1,190). On a like-for-like basis, used vehicle gross margin was 10.3% (2015: 10.6%). The slightly lower margin
effect was more than offset by higher volumes and related at least in part to the increased premium content within the
Group. The Group increased like-for-like used car gross profits by £3.8m in the period representing an increase of
5.2%. The Group sought, and delivered, an increase in overall used car profitability trading off higher volumes against
slightly lower margins.
Robert Forrester
Chief Executive
Chief Financial Officer's Review
Operating expenses
The Group's strategy is to grow a scaled automotive retail group through making acquisitions, and
the Group's business model plots the delivery of enhanced business performance from the acquired dealerships. At the core
of this model is a disciplined framework of cost control which is all the more important given the tight margins and the highly
competitive trading environment which characterise the UK automotive retail sector. Strong cost control is also key to
achieving the benefits of operational gearing from the growing sales activity within the Group. 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. The same zero based business planning approach is applied to all new dealerships and any acquired
businesses, with detailed three year plans being prepared as part of the investment appraisal. Once the business plans are
established, costs are benchmarked on a monthly basis for every dealership against the business plans, internal benchmarks and
recognised industry key performance indicators to maintain control and to identify opportunities for profit improvement.
The Group's central purchasing function also pursues cost efficiencies and scale purchasing benefits in the procurement of
utilities and other goods not-for-resale.
Operating expenses rose from £205.3m to £234.6m. As a percentage of revenues, operating
expenses in the continuing operations improved to 9.6% (2015: 9.9%). This ratio has been reduced consistently over the last
4 years from 11.14% to 9.6%. Underlying operating expenses rose by £12.5m year on year. The majority of this increase
relates to employment costs due to:
· increased commissions and other variable
incentives payable as a result of higher levels of sales and improved profitability at department, dealership and Group
level;
· increases in vehicle sales departments'
headcount to ensure the Group takes full advantage of higher sales volume levels as the market opportunity grows and dealership's
mature; and
· further investment in contact centres and
other central functions, including on-line, to support the Group's growth
The Group increased its investment in like-for-like advertising expenditure during the year by £2m
in order to raise share of voice to increase market share particularly in used cars. This increase in total expenditure
also saw a shift towards TV and on-line and away from press reflecting changes and shifts in consumer behaviour. In the
core brands of Bristol Street Motors and Macklin Motors, used car marketing messages were unified in order to reduce unnecessary
and conflicting marketing. This leveraging of the power of the brands has had a significant positive impact on
sales.
Interest charges
Net finance costs in the period increased by £0.5m to £1.2m (2015: £0.7m) due to higher vehicle
stocking interest payable on new vehicle funding facilities as the supply push from Manufacturer partners has increased vehicle
pipelines awaiting sale. In addition, the growth of the Group has also resulted in more franchises being added where new
vehicle funding costs are more prevalent.
|
Year ended
29 February 2016
|
|
Year ended
28 February 2015
|
|
|
£'m
|
|
|
£'m
|
Bank interest payable
|
|
0.6
|
|
|
0.6
|
Other finance costs
|
|
0.4
|
|
|
0.4
|
New vehicle stocking interest expense (income)
|
|
0.4
|
|
|
(0.2)
|
Pension fund: net interest income
|
|
(0.2)
|
|
|
(0.1)
|
|
|
1.2
|
|
|
0.7
|
Taxation
The effective rate of tax for the year was 20.3% (2015: 21.2%). The current year rate is broadly
in line with 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.
Cashflows and capital expenditure
The Group's net cash at 29 February 2016 was £23.1m (2015: £15.7m).
The Group continues to have a strong cash conversion, generating an operating cash inflow of
£65.8m from an adjusted operating profit of £28.6m in the financial year. During the period this was aided by an inflow of
£30.5m generated from working capital. The major components of this movement were: lower VAT payments during the period due
to the increase in new vehicle consignment inventory levels (£14.4m) leading to more input VAT being reclaimed; accelerated
receipts from consumer finance partners (£6.0m), reductions in fully paid vehicle inventories as Manufacturer partners
reconfigured their supply chains (£4.4m) and increase in service plan receipts from customers as the number of service plans
increased (£2.2m). With a cash conversion of profits of over two times, the Board does not expect this to be the normalised
position for cash generation. It is possible that some of these amounts may reverse in future periods as vehicle flows from
Manufacturer partners' evolve, however the Group will continue to maintain its focus on managing working capital
tightly.
The Group invested £45.3m in the year which can be analysed as follows:-
|
£'m
|
Acquisition of businesses
|
24.6
|
New dealership development projects:
|
|
Purchase of property
|
6.3
|
New dealership build
|
1.8
|
Existing dealership capacity increases
|
4.5
|
Refurbishment projects
|
3.2
|
New support centre property development
|
0.7
|
IT and other ongoing capital expenditure
|
4.2
|
|
45.3
|
The principal items of expenditure are described in the Chief Executive's Review. The Group
has several dealership development projects planned for the 2016/17 year. Several of the Group's Manufacturer partners are
currently increasing their dealership size and facility requirements and are therefore encouraging retailers to redevelop
dealership premises. Consequently, the Group anticipates that expenditure on current dealership redevelopment projects will be
approximately £11m in the 2016/17 financial year. In addition, planned new dealership developments, including freehold
purchases, totalling £16.5m are also anticipated in 2016, which will add further capacity to the Group's operations and are
similar in nature to acquisition expenditure.
The Group is currently rolling out a Group-wide, in-house developed showroom system built around
the use of computer tablet technology by sales teams. This will be rolled out by the end of September 2016 and has
contributed to increased levels of IT expenditure in the year. The system is anticipated to increase the efficiency of the
sales process and deliver enhanced customer experiences.
During the year, the Group disposed of three surplus properties for proceeds of £3.1m, with no
significant gain or loss realised on disposal.
Financial Position
The Group has a strong balance sheet with shareholders' funds of £197.9m (2015: £179.6m),
representing net assets per share of 58.0p (2015: 52.7p) as at 29 February 2016. Tangible net assets per share were 38.3p
(2015: 38.3p). The balance sheet is underpinned by a freehold and long leasehold property portfolio of £138.2m (2015:
£126.6m).
The Board continues to seek to balance those dealerships in freehold and leasehold premises and to
be conservative in terms of the lease terms entered into, favouring lease breaks and open market value rent reviews. As at
29 February 2016, freehold locations represented 51% of locations (2015: 50%).
The Group finances its operations by a mixture of shareholders' equity, bank borrowings and trade
credit from suppliers and Manufacturer partners. As at 29 February 2016, the Group had an acquisition facility of £20.0m
available until March 2019 of which £14m was drawn. Interest is payable on this facility at LIBOR plus 1.1%. During
the period, the Group comfortably complied with all of the financial covenants in respect of these borrowings, which include loan
to value, net debt to EBITDA and interest and lease costs to EBITDAR.
In addition to these loan facilities, the Group had £45m of overdraft and other money market
facilities with Barclays Bank. 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. The Group operated with cash balances for much of the year
and these additional facilities are utilised to fund significant peak working capital requirements following plate change
months. As at 29 February 2016, the Group had cash balances of £43.9m (2015: £19.3m) and, as a consequence, net cash of
£23.1m (2015: net cash of £15.7m). The cash position at 29 February 2016 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 £20m. On 31
March 2016 the Group completed an equity placing raising £35m before expenses. These funds, in addition to its acquisition
loan facility and on-going cash generation, will be used to fund the Group's on-going acquisition strategy.
Having utilised a portion of the Group's acquisition debt facilities in order to finance in
particular the Greenoaks Mercedes-Benz acquisition in March 2016, it is the Group's intention to refinance these borrowings by
raising a long term debt facility. It is envisaged that this refinancing will amount to some £50m and will take place
during the first half of the current financial year.
Pensions
The Bristol Street defined benefit pension scheme, which is accounted for on the basis of IAS 19
(revised), showed a surplus as at 29 February 2016 of £4.4m (2015: £3.0m). During the year, and in line with the funding
programme agreed with the Trustees in 2013, the Group made cash contributions to the scheme of £0.4m (2015: £0.4m). This
scheme is closed to future membership and accrual.
On 1 October 2015, the Group acquired the entire share capital of SHG Holdings Limited which
included the SHG Pension Scheme, also a defined benefit pension scheme closed to future membership and accrual. On the
basis of IAS19 (revised), this scheme showed a surplus as at 29 February 2016 of £1.7m and SHG Holdings Limited made no cash
contributions during the year on the basis that it is fully funded under the technical provisions.
Dividends
The Group's strategy is to continue to grow by acquiring further dealerships, and establishing and
maintaining sufficient financial resources to deploy in the pursuit of this strategy is a key element of the Board's
consideration of and its approach to capital management. In addition, in common with the whole UK automotive retail sector,
the Group is currently in the process of a major dealership investment and refurbishment programme required by the Group's
Manufacturer partners, which will run until 2018. This in turn is a further element of the Board's consideration of capital
management. Taking account of acquisition opportunities and capital investment plans, the Board also recognises the vital
role of dividends in delivering total shareholder return.
The Group paid its first dividend of 0.5 pence per share in 2011 and this has been progressively
increased each year to 1.05 pence per share in 2015. Last year, the Board indicated its intention to adopt an earnings
dividend cover moving closer to four times and this pay-out ratio was arrived at taking into account the competing requirements
of acquisitions, capital investment and short term shareholder returns. The Board has proposed an increase in the final
dividend for 2016, payable on 26 July 2016, to 0.85 pence per share (2015: 0.7p), which, when taken together with the interim
dividend paid in January 2016 of 0.45 pence per share (2015: 0.35p), provides a total dividend for the year of 1.30 pence per
share (2015: 1.05p), representing an increase of 23.8% and a dividend cover of 4.9 times (2015: 4.9 times) based upon adjusted
earnings per share. The ex-dividend date will be 23 June 2016 and the associated record date 24
June 2016. It is the Board's intention that the dividend cover will reduce to closer to four times over the next three
years.
The proposed full year dividend of 1.30 pence represents an annualised cash dividend of £5.2m
(2015: £3.9m). The distributable reserves in the parent company balance sheet as at 29 February 2016 were £43.8m (2015:
£25.4m).
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 listed in the Strategy
Report in the annual report and financial statements.
Post balance sheet events
On 1 March 2016, the Group refinanced its borrowing facilities, converting the £20m acquisition
facility into a £40m facility available until September 2017, after which it reverts to £20m available until March 2019. In
addition a further £10m facility was established which is available until November 2016. The overdraft and money market
facilities of £45m were increased to £58m at the same time. The interest rates and other terms on these refinanced
facilities are all similar to those on the former facilities as set out above.
Also on 1 March 2016, the Group acquired the entire issued share capital of Sigma Holdings Limited
for a total cash consideration of £21.9m (of which £3.5m was deferred for 12 months) and in addition £9m of vendor loans were
settled in cash on completion. The acquired business, trading as Greenoaks Mercedes-Benz, operates three Mercedes-Benz
dealerships in Reading, Ascot and Slough, with the Reading and Ascot outlets also representing the smart franchise, and Ascot
being an AMG performance centre. Each of the three dealerships operates from freehold premises and the transaction included
goodwill and other intangibles of £13.0m.
On 31 March 2016, the Group undertook an equity placing of 56,000,000 new ordinary shares at a
price of 62.5p per share to raise £35.0m (gross) to fund further acquisitions.
On 2 May 2016, the Group acquired the business and certain assets of Leeds Jaguar from a
subsidiary of Inchcape PLC. The estimated consideration for this leasehold acquisition is £0.65m including goodwill of
£0.5m.
Michael Sherwin
Chief Financial Officer
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (AUDITED)
For the year ended 29 February 2016
|
Ordinary
share capital
|
Share
premium
|
Other
reserve
|
Hedging
reserve
|
Retained
earnings
|
Total
equity
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'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
|
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 2015
|
Ordinary
share capital
|
Share
premium
|
Other
reserve
|
Hedging
reserve
|
Retained
earnings
|
Total
Equity
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
|
|
|
|
|
|
As at 1 March 2014
|
33,678
|
96,729
|
8,820
|
(56)
|
24,208
|
163,379
|
Profit for the year
|
-
|
-
|
-
|
-
|
16,539
|
16,539
|
Actuarial losses on retirement benefit obligations
|
-
|
-
|
-
|
-
|
(461)
|
(461)
|
Tax on items taken directly to equity
|
-
|
-
|
-
|
(10)
|
97
|
87
|
Fair value gains
|
-
|
-
|
-
|
49
|
-
|
49
|
Total comprehensive income for the year
|
-
|
-
|
-
|
39
|
16,175
|
16,214
|
New ordinary shares issued
|
413
|
81
|
1,825
|
-
|
-
|
2,319
|
Dividend paid
|
-
|
-
|
-
|
-
|
(2,895)
|
(2,895)
|
Share based payments charge
|
-
|
-
|
-
|
-
|
617
|
617
|
As at 28 February 2015
|
34,091
|
96,810
|
10,645
|
(17)
|
38,105
|
179,634
|
NOTES
For the year ended 29 February 2016
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 the United Kingdom. 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 2015. 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 preliminary 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 29 February 2016 and 28 February 2015 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 2016 and 2015 financial statements were unqualified. A copy of the
statutory accounts for 2015 has been delivered to the Registrar of Companies. Those for 2016 will be delivered following
the Company's annual general meeting, which will be convened on 20 July 2016.
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 28 February 2015.
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.
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 business 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 29 February 2016
|
|
Revenue
|
Revenue
Mix
|
Gross
Margin
|
Gross
Margin
Mix
|
Gross Margin
|
|
£'m
|
%
|
£'m
|
%
|
%
|
Aftersales*
|
189.0
|
7.8
|
102.9
|
39.1
|
44.8
|
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
|
Total new vehicles
|
1,384.1
|
57.1
|
76.9
|
29.2
|
5.6
|
Used cars
|
850.2
|
35.1
|
83.5
|
31.7
|
9.8
|
|
2,423.3
|
100.0
|
263.3
|
100.0
|
10.9
|
Year ended 28 February 2015
|
|
Revenue
|
Revenue
Mix
|
Gross
Margin
|
Gross
Margin
Mix
|
Gross Margin
|
|
£'m
|
%
|
£'m
|
%
|
%
|
Aftersales*
|
168.1
|
8.1
|
89.4
|
39.2
|
43.5
|
New car retail and Motability
|
679.4
|
32.7
|
50.9
|
22.3
|
7.5
|
New fleet and commercial
|
498.5
|
24.0
|
12.3
|
5.4
|
2.5
|
Total new vehicles
|
1,177.9
|
56.7
|
63.2
|
27.7
|
5.4
|
Used cars
|
728.9
|
35.2
|
75.5
|
33.1
|
10.4
|
|
2,074.9
|
100.0
|
228.1
|
100.0
|
11.0
|
*margin in after-sales expressed on internal and external turnover
2. Finance income and costs
|
|
2016
|
2015
|
|
|
£'000
|
£'000
|
Interest on short term bank deposits
|
|
36
|
50
|
Vehicle stocking interest
|
|
-
|
163
|
Net finance income relating to defined benefit pension schemes
|
|
137
|
140
|
Finance income
|
|
173
|
353
|
|
|
|
|
Bank loans and overdrafts
|
|
(619)
|
(642)
|
Vehicle stocking interest
|
|
(572)
|
-
|
Other finance costs
|
|
(199)
|
(398)
|
Finance costs
|
|
(1,390)
|
(1,040)
|
3. Taxation
|
|
2016
|
2015
|
|
|
£'000
|
£'000
|
Current tax
|
|
|
|
Current tax charge
|
|
5,598
|
5,214
|
Adjustment in respect of prior years
|
|
(258)
|
(96)
|
Total current tax
|
|
5,340
|
5,118
|
Deferred tax
|
|
|
|
Origination and reversal of temporary differences
|
|
395
|
(469)
|
Adjustment in respect of prior years
|
|
(145)
|
(203)
|
Rate differences
|
|
(308)
|
13
|
Total deferred tax
|
|
(58)
|
(659)
|
Income tax expense
|
|
5,282
|
4,459
|
Factors affecting taxation expense in the year:
Profit before taxation from continuing operations
|
|
25,962
|
20,998
|
|
|
|
|
Profit before taxation multiplied by the rate of corporation tax in the UK of 20.08% (2015:
21.17%)
|
|
5,213
|
4,445
|
|
|
|
|
Non-qualifying depreciation
|
|
245
|
325
|
Non-deductible expenses
|
|
412
|
109
|
Effect on deferred tax balances due to rate change
|
|
(308)
|
13
|
Property adjustment
|
|
153
|
(76)
|
Permanent benefits
|
|
(30)
|
(58)
|
Adjustments in respect of prior years
|
|
(403)
|
(299)
|
Total tax expense included in the income statement
|
|
5,282
|
4,459
|
The standard rate of Corporation Tax in the UK changed from 21% to 20% with effect from 1 April
2015, and from 20% to 19% with effect from 1 April 2016. Accordingly, the Group's profits for this accounting period are
taxed at a rate of 20.08%.
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 as 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.
|
|
2016
|
2015
|
|
|
£'000
|
£'000
|
Profit attributable to equity shareholders
|
|
20,680
|
16,539
|
Amortisation of intangible assets
|
|
558
|
405
|
Share based payments charge
|
|
911
|
645
|
Tax effect of adjustments
|
|
(112)
|
(86)
|
Adjusted earnings attributable to equity shareholders
|
|
22,037
|
17,503
|
|
|
|
|
Weighted average number of shares in issue ('000s)
|
|
341,080
|
339,797
|
Potentially dilutive shares ('000s)
|
|
8,388
|
6,410
|
Diluted weighted average number of shares in issue ('000s)
|
|
349,468
|
346,207
|
|
|
|
|
Basic earnings per share
|
|
6.06p
|
4.87p
|
Diluted earnings per share
|
|
5.92p
|
4.78p
|
Basic adjusted earnings per share
|
|
6.46p
|
5.15p
|
Diluted adjusted earnings per share
|
|
6.31p
|
5.06p
|
5. Dividends per share
Dividends of £3,923,000 were paid in the year to 29 February 2016 (2015: £2,895,000), 1.15p per
share (2015: 0.85p). A final dividend in respect of the year ended 29 February 2016 of 0.85p per share is to be proposed at
the annual general meeting on 20 July 2016. The ex-dividend date will be 23 June 2016, and the associated record date 24
June 2016. This dividend will be paid, subject to shareholder approval, on 26 July 2016 and the financial statements do not
reflect this dividend payable.
The last date for shareholders to elect for the Dividend Re-Investment Plan (DRIP) will be 1 July
2016 (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. Hedging reserve
The hedging reserve comprises cash flow hedges in relation to interest rate swap
derivatives. The movements on the hedging reserve are as follows:
|
|
2016
|
2015
|
|
|
£'000
|
£'000
|
At beginning of year
|
|
(17)
|
(56)
|
Fair value gains on derivative financial instruments during the year
|
|
23
|
49
|
Deferred taxation on fair value gains during year
|
|
(6)
|
(10)
|
At end of year
|
|
-
|
(17)
|
The cash flow hedge during the current and previous year relates to an interest rate swap used to
fix the interest rate on an outstanding term loan. The interest rate swap expired during the year on final repayment of the
underlying term loan.
7. Reconciliation of net cash flow to movement in net cash
|
|
2016
|
2015
|
|
|
£'000
|
£'000
|
|
|
|
|
Net increase / (decrease) in cash and cash equivalents
|
|
24,661
|
(17,694)
|
Cash inflow from proceeds of borrowings
|
|
(18,288)
|
-
|
Cash outflow from repayment of borrowings
|
|
4,441
|
2,000
|
Cash movement in net cash
|
|
10,814
|
(15,694)
|
|
|
|
|
Borrowings acquired
|
|
(3,409)
|
-
|
Capitalisation of loan arrangement fees
|
|
201
|
48
|
Amortisation of loan arrangement fees
|
|
(128)
|
(120)
|
Non-cash movement in net cash
|
|
(3,336)
|
(72)
|
|
|
|
|
Movement in net cash
|
|
7,478
|
(15,766)
|
Opening net cash
|
|
15,670
|
31,436
|
Closing net cash
|
|
23,148
|
15,670
|
8. Acquisitions
On 1 May 2015, the Group acquired the business and assets of Bury Land Rover in Lancashire from a
subsidiary of Pendragon PLC. Total consideration amounted to £7,011,000 and was settled in cash from the Group's existing
resources.
On 12 May 2015, the Group acquired the business and assets of Bradford Jaguar in West Yorkshire
from a subsidiary of Lancaster plc. Total consideration amounted to £825,000 and was settled in cash from the Group's
existing resources.
On 5 June 2015, the Group acquired the entire issued share capital of Blacks Autos Limited, which
operated a Skoda dealership in Darlington. Total consideration amounted to £1,576,000 including retention payable of
£250,000. The remaining balance was settled in cash from the Group's existing resources.
On 1 October 2015, the Group acquired the entire issued share capital of SHG Holdings Limited
which operates three outlets representing Audi, Volkswagen passenger cars and Volkswagen commercials in Hereford, two Volkswagen
Group parts distribution operations in Gloucester and Hereford and a used car and aftersales facility in South Herefordshire.
Consideration for the acquisition of £12,933,000 was met from the Group's existing cash resources. A further £1,500,000 is
payable after 2 years dependent on certain performance criteria.
On 1 December 2015, the Group acquired the entire issued share capital of Who's Ace Holdings
Limited which operates a well-established on-line vehicle parts business headquartered in Sittingbourne, Kent. Total
consideration for the acquisition was nil.
On 25 January 2016, the Group acquired the trade and certain assets of three Honda dealerships in
Stockton, Nottingham and Derby from Lookers plc for total consideration of £2,054,000 met from the Group's existing cash
resources.
9. Post balance sheet events
On 1 March 2016, the Group refinanced its borrowing facilities, converting the £20,000,000
acquisition facility into a £40,000,000 facility available until September 2017, after which it reverts to £20,000,000 available
until March 2019. In addition a further £10,000,000 facility was established which is available until November 2016.
The overdraft and money market facilities of £45,000,000 were increased to £58,000,000 at the same time. The interest rates
and other terms on these refinanced facilities are all similar to those on the former facilities.
Also on 1 March 2016, the Group acquired the entire issued share capital of Sigma Holdings Limited
for a total cash consideration of £21,900,000 (of which £3,500,000 was deferred for 12 months) and in addition £9,000,000 of
vendor loans were settled in cash on completion. The acquired business, trading as Greenoaks Mercedes-Benz, operates three
Mercedes-Benz dealerships in Reading, Ascot and Slough, with the Reading and Ascot outlets also representing the smart franchise,
and Ascot being an AMG performance centre. Each of the three dealerships operates from freehold premises and the
transaction included goodwill and other intangibles of £13,000,000.
On 31 March 2016, the Group undertook an equity placing of 56,000,000 new ordinary shares at a
price of 62.5p per share to raise £35,000,000 (gross) to fund further acquisitions.
On 2 May 2016, the Group acquired the business and certain assets of Leeds Jaguar from a
subsidiary of Inchcape PLC. The estimated consideration for this leasehold acquisition is £650,000 including goodwill of
£500,000.