TIDMVTU
RNS Number : 2969Y
Vertu Motors PLC
12 May 2021
12 May 2021
Vertu Motors plc ("Vertu", "Group")
Final results for the year ended 28 February 2021
"Leadership in online retailing contributes to above expectation
results for FY21 and a strong start to FY22"
Vertu Motors plc, the automotive retailer with a network of 149
sales and aftersales outlets across the UK, announces its final
results for the year ended 28 February 2021 ("Year").
Commenting on the results, Robert Forrester, Chief Executive
Officer, said:
"These results, which are ahead of expectations, are outstanding
in the Covid interrupted circumstances. I am proud of the entire
Vertu team for their adaptability and effort to deliver these
remarkable results.
The Group has significantly evolved during the year, with
accelerated delivery of its strategy in achieving enhanced online
sales capability via its inhouse developed Click2Drive technology
platform, reduced cost base due to productivity gains and
significantly grown the number of sales outlets.
We have started the new financial year very strongly, have
generated record levels of cash and have a very strong balance
sheet. We have now re-instated guidance. Brexit uncertainty is now
behind us, and we are exceedingly well placed to benefit from the
changes and opportunities which are ahead of us."
OPERATIONAL HIGHLIGHTS
-- Adjusted(1) profit before tax of GBP24.6m ahead of Analysts' forecasts (2020: GBP23.0m)
-- 18 sales outlets added to the Group since 1 March 2020,
including the addition of 3 new franchise partners to the Group's
portfolio - BMW, MINI and BMW Motorrad
-- Strong, stable management, supported by scalable,
sector-leading in-house developed technology and systems, provides
assurance of tight control of operations and swift execution of
strategies
-- Substantial growth in online retailing using the Group's
Click2Drive sales technology platform
-- Increased efficiency of transaction processing including use of robotic process automation
-- 38,446 new and used vehicles delivered from 1 January to 31
March 2021, despite lockdown restrictions keeping showrooms
closed
-- Increased awareness of the Group's core brands delivered
through strong, effective marketing campaigns including significant
TV advertising campaigns
-- Excellent customer experiences delivered in the new
environment: Used Car Net Promoter Score in H2 of 84%
OUTLOOK HIGHLIGHTS
-- Strong start to new financial year with trading profits at a
record level in the two months to April 2021. Adjusted profit
before tax in the two months of GBP19.2m compared to GBP14.8m in
the same months in 2019
-- The Board expect the Group will deliver an adjusted profit
before tax for the year ending 28 February 2022 in the range of
GBP24.0m to GBP28.0m
-- The Board is confident that, dependent on the financial
performance of the Group, dividends can recommence in January
2022
FINANCIAL HIGHLIGHTS
-- Group revenues of GBP2.5bn (2020: GBP3.1bn) (like-for-like
decline of 21.6%) impacted by Government imposed lockdowns
-- Gross margin increased to 11.8% (2020: 10.9%)
-- Cost reductions(2) exhibited delivering a GBP16.0m (7.2%)
reduction in like-for-like operating expenses in the nine months
from 1 June to 28 February
-- Growth in Adjusted(1) operating profit to GBP33.8m (2020: GBP32.2m)
-- Profit before tax of GBP22.4m (2020: GBP7.3m)
-- Underlying earnings per share increased to 5.27p (2020: 4.99p)
-- No final dividend recommended in light of the Government support received during the Year
-- Net tangible assets per share of 50.2p (2020: 46.0p) reflecting very strong asset base
-- Record Free Cash Flow (3) of GBP48.4m delivered
-- Adjusted(4) net cash of GBP1.4m at 28 February 2021 (2020: net debt GBP2.8m)
(1) Excludes non-underlying items.
(2) Excludes grant receipts in respect of the furlough
scheme.
(3) Net cash flow from operating activities less net capital
expenditure incurred and lease cash flows.
(4) Excludes amounts drawn on used vehicle stocking loans and
IFRS 16 lease liabilities.
Webcast details
Vertu Management has recorded a webcast for analysts and
investors. A recording of the webcast will be made
available on Vertu's website this morning: investors.vertumotors.com
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the Company's obligations under Article 17 of MAR.
For further information please contact:
Vertu Motors plc
Robert Forrester, CEO Tel: 0191 491 2121
Karen Anderson, CFO Tel: 0191 491 2121
Zeus Capital Limited
Jamie Peel Tel: 020 3829 5000
Dominic King
Camarco
Billy Clegg Tel: 020 3757 4983
Tom Huddart
CHAIRMAN'S STATEMENT
I am pleased to report that the Group has delivered a resilient,
profitable result, in excess of Analysts' forecasts in this
unprecedented year. This result reflects positively on all
management and colleagues within the Group, who have adapted to new
ways of working and executed exceptionally well in the most
challenging of circumstances. I would like to personally express my
appreciation and thanks to the whole Vertu team. The Board is also
extremely grateful for the significant Government support received
both in respect of furloughed colleagues and business rates relief,
and the assistance provided by its Manufacturer partners. The
latter demonstrates the partnership approach and a key strength of
the franchised dealer model.
On 1 June 2020, the business emerged from the first lockdown
stronger in many ways for the experience. Trading conditions
throughout the summer months that followed were bolstered by
pent-up consumer demand. The period also saw the additional benefit
of cost reductions, achieved through the roll out of technology
developed during the lockdown, which enhanced efficiency across a
number of different areas of the business.
When the UK faced further restrictions from November onwards,
the Group's showrooms were again closed to customers. The Group's
strengthened customer and online offering, together with its strong
brands and local presence, meant that vehicle sales continued on a
click and collect/home delivery basis, despite the restrictions, at
much higher levels than were seen in the first lockdown. The
Group's customers could choose to buy their used car fully online
or complete part of their buying journey online and part in direct
remote contact with either our local dealership or central teams.
Central sales and aftersales enquiries were handled efficiently by
the Group's customer contact centre which was able to switch
seamlessly between home and office working using the Group's
digital telephony technology. To illustrate the progress made,
38,446 vehicles were delivered during the latest restrictions when
showrooms were closed from 1 January to 31 March, demonstrating the
strength of the Group's online offering, customer propositions,
strong brands, national footprint and reputation for strong
customer service.
The Board is mindful that the immediate future of the Group will
be affected by the continued uncertainty around COVID-19 and the
Government's reaction to it. The Group is, however, strong and
resilient. It has one of the strongest balance sheets in the
sector, and this was further enhanced in the year through the
generation of a record level of Free Cash Flow of GBP48.4m. Costs
were well controlled throughout and, whilst it was regrettable that
many of the Group's colleagues have been furloughed at times during
the year, capacity levels were carefully matched to demand as the
Group moved between lockdowns.
The Board is optimistic that the Group's proven track record of
execution and strong balance sheet will allow the continued
expansion of the Group, to deliver a business of greater scale and
efficiency. The forthcoming post COVID-19 period will again
evidence some consolidation in the Retail sector. Vertu is in a
strong position to take advantage of this environment as appealing
opportunities arise. Our strong financial position, healthy
appetite for growth, considerable digital expertise and first-class
leadership means that we can look forward with optimism.
The business is fifteen years old in November 2021 and has
achieved much in that timeframe. From floating as a cash shell in
December 2006, the business is now one of the largest and strongest
operations in the UK automotive retail sector. Whilst justifiably
proud of these achievements, the Board remains focused on the
future and building on the very successful platform put in place. We guard against complacency.
Andy Goss, Chairman
CHIEF EXECUTIVE'S REVIEW
Update on Strategy Execution and Associated Risks
The Group is now in its fifteenth year and has executed a
consistent strategy to build a scaled UK automotive retailer with a
strong culture, a reputation for execution and excellent relations
within its Manufacturer Partners. The Group now has normalised
annual revenues of GBP3.7bn and has built a substantial base of
tangible net assets.
The Group's key long-term strategic objectives remain:
-- To grow as a major scaled franchised dealership group and to
develop our portfolio of Manufacturer partners, whilst being
mindful of industry development trends, to maximise long-run
returns.
-- To be at the forefront of online retailing and digitalisation
in the sector, delivering a cohesive 'bricks and clicks'
strategy.
-- To reduce the cost base of the Group through scale economies
and digitalisation of processes.
-- To develop and motivate the Group's colleagues to ensure
consistency of operational delivery across the business.
-- To develop ancillary businesses to add revenue and returns
which complement the core business.
Growth
Portfolio Development and Changes
As part of the strategy for scale, the Group historically has
sought to add additional Manufacturer partners, not represented in
the portfolio, to facilitate additional growth opportunities. A
noticeable gap in the Group's portfolio of Manufacturer partners
was closed in December 2020, with the addition of the much
sought-after BMW, MINI and BMW Motorrad franchises. Both BMW and
MINI are extremely well positioned to take advantage of the
electrification of the UK automotive market over the next decade
and the addition of these franchises had long been a strategic
objective of the Group. The Group now operates 32 car, van and
motorcycle franchises which is more than any other UK player.
The well-timed acquisition of a BMW/MINI market area of 12 sales
outlets in five locations: York, Sunderland, Teesside, Durham and
Malton, achieved immediate scale in a region where the Group is
headquartered and already has strong representation. The outlets
were acquired from The Cooper Group Limited, part of Inchcape plc,
for total consideration of GBP19.6m. The assets acquired include
GBP16m of freehold and long leasehold properties and a payment was
made in respect of goodwill of GBP0.8m.
For the year ended 31 December 2019, these dealerships generated
revenues of GBP305m and a loss before tax of GBP6.0m. The Group has
developed a clear plan to drive performance improvements over a
three-year period and the integration of these businesses into the
Group has proceeded in line with this plan. The Group's systems and
processes were implemented immediately on acquisition, in order to
facilitate business improvements in the areas of customer
experience and financial performance. Despite the COVID-19 related
restrictions imposed immediately post acquisition, the acquired
businesses have performed ahead of the business plan, which has not
been adjusted for the impact of these restrictions. The Board is
therefore optimistic of a progressive turnaround of these
businesses and the generation of significant shareholder value,
particularly given the minimal levels of goodwill paid for the
businesses. The businesses have been branded Vertu, reflecting the
continued growth of the Vertu brand in Premium franchises in the UK
and supported by the increasingly successful website,
vertumotors.com.
Following the Group's entry into the Kia franchise in January
2020, further growth with the Kia franchise was achieved when, on 1
October, the Group acquired the Nottingham Kia business from
Sandicliffe for GBP1.9m, taking a short-term lease on the
dealership premises. This business will be relocated this month
into existing large Group leasehold dealership premises in
Nottingham. This location currently represents one of two Group
Volkswagen franchise outlets located in the city and, whilst new
vehicle activity will be consolidated in the remaining flagship
Nottingham Volkswagen dealership at West Bridgeford, Volkswagen
authorised repair and approved used vehicle sales activity will
continue in this location, alongside the relocated Kia
franchise.
Subsequent to the financial year end, on 1 March 2021 the Group
opened a Macklin Motornation used vehicle outlet in Glasgow,
following the acquisition in late 2020 of a vacant freehold
dealership from Lookers plc. Further on 12 March 2021, the Group
acquired the trade and assets of a Honda car dealership in
Huddersfield from Hepworth Motor Group. The purchase of this
leasehold dealership complements the Group's existing Honda outlets
in Yorkshire and the consideration, settled in cash, was GBP0.8m.
The Group now has considerable scale in Yorkshire, operating 23
outlets in the county.
The Group continues to actively manage its dealership portfolio
including the regular assessment of viability and returns achieved
from each business and franchise and the potential for property
gains and cash generation from the portfolio. Execution of
multi-franchising, in order to maximise potential returns of each
location, is seen as a key element of the Group's strategy in this
regard. Increased flexibility of Manufacturer representation
requirements and varying formats will aid this process, allowing
investment levels to be reasonable and multi-franchising to be
increased.
During the Year the Group added the Citroen brand to its
existing Ford dealership operations in Worcester and Macclesfield.
The Group also added the Peugeot franchise to the Group's Edinburgh
dealership which already represented Kia, Suzuki and Mitsubishi.
Further multi-franchising activity is planned to be delivered in
the coming months, with several projects currently being
progressed.
Further network changes and consolidation for franchised
retailers are anticipated. Potential opportunities for growth for
those established retail groups with a proven track record, strong
financial position and positive relationship with Manufacturers
remain strong.
Further to the regular review process outlined above, a number
of disposals and closures have been implemented, in line with the
Group's capital allocation disciplines, both during the year and
post year end, to optimise the portfolio:
-- The Group sold the trade and assets of its Citroen dealership
in Leicester to Manufacturer-owned Robins and Day on 28 February
2021. The leasehold premises were retained and the dealership is
currently being redeveloped and refranchised to reopen as a
franchise outlet in the coming months.
-- The Group disposed of its ancillary wheelchair accessible
vehicle ("WAV") business, Bristol Street Versa, to Gowrings
Mobility, a well-established WAV operator on 30 November 2020. The
Group will continue to supply commercial vehicles for conversion to
the enlarged entity. This disposal generated GBP1.7m of cash. In
FY20 the business delivered a loss before tax of GBP68,000.
-- On 26 April 2021, the Group closed a used car sales and
Volkswagen service outlet at Whitchurch, Herefordshire. The vast
majority of colleagues were transferred to the Volkswagen
dealership in Hereford and it is anticipated that a large
proportion of the dealership's activity will be retained in
Hereford. The freehold property was sold on 7 May 2021 yielding
cash proceeds of GBP430,000, slightly in excess of the book value.
In addition to the property disposal, working capital of approx.
GBP0.9m has been released to be re-invested in higher return
assets.
-- Following the acquisition of BMW Sunderland, the Group
operated two accident repair centres in the city. On 1 April 2021,
these operations were consolidated into one with a surplus freehold
property now being marketed for sale.
Move to Agency Model
The Board notes that it is likely that the next few years will
see an evolution of the business model with regards to the sale of
new cars in certain franchises. The Group undertakes sales in a
number of franchises on an agency basis in the fleet market and
anticipate that a number of Manufacturers will move new retail
sales to an agency model in the next few years. It is envisaged
that such a move would reduce reported revenues, increase reported
operating margins and reduce working capital investment. The Board
will keep shareholders updated on developments in this area.
Increasing Importance of Scale and Brand
The Group's strategy is to continue to grow through the
acquisition of both volume and premium franchised dealerships.
Scale benefits include: a national online and offline co-ordinated
marketing strategy based on a limited number of strong brands;
maximising the benefits of the Group's national footprint; the
Click2Drive platform; scaled highly efficient contact centres;
dedicated franchise management; purchasing efficiencies; and,
access to competitive consumer finance packages for the Group's
customers.
Brand awareness is vital in an online environment, with
increasingly more of the sales process, either in the research or
buying phase, completed online. The Group currently operates four
brands in the UK, Bristol Street Motors (England Volume), Macklin
Motors (Scotland), Farnell (Jaguar Land Rover) and Vertu Motors
(other premium franchises). Having more than one brand allows the
Group the flexibility to differ its offers and approach between
geographies or between volume or premium franchises. During the
course of 2021, the Group's Jaguar Land Rover dealerships will be
rebranded to Vertu, bringing all the Group's premium businesses
under this one brand. When this is complete, the Vertu brand will
have 58 outlets in the UK, Bristol Street Motors 77 and Macklin
Motors 14.
Brand awareness is supported by the Group's marketing activity,
including extensive TV advertising campaigns and sponsorship of
Formula One coverage on Channel 4, secured for a second consecutive
year for the Macklin Motors and Bristol Street Motors brands. In
addition, sponsorship arrangements have commenced for the Vertu
Motors brand with Yorkshire and Durham County Cricket Clubs to
increase brand awareness in two of the Group's key regions of
operation. The success of the Group's marketing activity is
supported by a recent YouGov survey, which included responses from
over 5,000 adults collected over the period from 1 October 2020 to
1 March 2021. Bristol Street Motors currently has the highest
prompted awareness of the Group's brands, with over 42% awareness,
the second highest of any automotive retail brand in the sector,
including the so-called 'disruptors'.
The strength of our brands and marketing activity led to the
Group's websites collectively receiving a monthly average of 1.4m
unique visits over the Year (2020: 1.2m). The Group saw a 29% year
on year increase in sales enquiries received from online sources in
the period from 1 June to 28 February, however, as expected in the
light of restrictions, walk in dealership visits were down year on
year.
Of equal importance to brand awareness, is brand reputation. The
Group's Mission, "to deliver an outstanding customer motoring
experience through honesty and trust" recognises the importance of
excellent customer service and high ethical standards. The Group's
commitment to customer service is verified through customer
satisfaction feedback, gathered either by our Manufacturer partners
or from a third-party survey (Judge Service) in respect of used
cars. The Group's dealerships regularly feature in the top quartile
of our Manufacturer's customer service leagues and perform
significantly above average for the sector overall. The Group
consistently achieves a net promoter score ("NPS") in excess of 80%
from Judge Service. In H2 the Group received feedback from over
10,400 Group used car customers via Judge Service averaging a NPS
score of 84%.
Online and Omni-channel Retailing
There is a significant degree of confusion over the terms online
and omni-channel retailing. Whilst online sales could be defined as
pure ecommerce transactions with no human involvement, convention
in the sector is that online sales relate to any sale where the
enquiry originated from an online source. The current automotive
retailing environment in the UK is certainly heavily digitised and
omni-channel in nature - customers come in and out of the digital
world, interacting by phone and video call extensively with
dealerships as well as undertaking dealership visits and crucially,
test drives. No one customer's journey is now the same, since the
options and flexibility offered by platforms such as the Group's
Click2Drive technology platform puts the customer in the driving
seat as to how to buy a car. Given our goal is firmly to sell a
car, the Group is agnostic as to which journey the customer chooses
as long as a sale is achieved. Our experience is that pure
ecommerce online transactions are a small percentage of retail
sales and omni-channel retailing is probably a better term to
describe the current position. Where the term online is used in
this report, it is used in a much wider sense and is akin to
omnichannel. In time, greater definition of terms in the sector is
vital to increase understanding.
The Group continues to be at the forefront of developments to
provide customers with innovative ways to purchase and interact
online. The Group's online functionality is a fully integrated end
to end process termed Click2Drive, allowing customers the
flexibility of a purely online purchase, or one which includes
interaction with our sales teams through telephone or video
appointments, should they require assistance with their vehicle
search or purchase. If the Group's customers choose to transact
fully online, they are able to value their part exchange, choose a
suitable finance option, make payment and arrange home delivery of
their vehicle, including the collection of any part exchange. Every
one of the Group's used vehicles is prepared to a high standard, in
accordance with a strict vehicle preparation policy. All used
vehicle customers also benefit from a 14-day money back guarantee
and a 90-day warranty as standard. This is superior to the current
offering of disrupters.
The strength of this proposition, together with the Group's
established brands, national dealership network and reputation for
excellent customer service, meant that the Group delivered 38,446
new and used (retail and fleet) vehicles from 1 January to 31 March
2021, despite customers being unable to visit showrooms or test
drive their chosen vehicles. 257 (0.7%) of these vehicles were
purchased completely online by the Group's customers. The majority
of customers therefore elected to interact with the Group's
dealerships within the sales process. 4,700 customers have chosen
to reserve their vehicle online, through the payment of a GBP99
deposit, since this new feature was introduced in May 2020. Use of
this reservation facility has been increasing over time, with over
1,100 deposits paid in January and February 2021. Customers
reserving vehicles in this way exhibit a very high conversion to
ultimate sale.
Disrupters who have recently entered the used car market have
very little, if anything, to add to the sector in terms of customer
proposition or experience, and they do not sell new cars or in some
cases, support customers thereafter with their servicing needs. The
best in class in the sector, and Vertu in particular, have a fully
established "bricks and clicks" platform and sell far more used
vehicles than these new entrants. The Group also builds
relationships with customers over many years facilitating the
supply of new and used cars and customer servicing activities.
The Group's national franchise dealer network, with a strong
customer service reputation, gives customers the confidence to
transact purely online, however, many still choose to interact with
the Group in their buying journeys and we expect that this will
continue. A local presence not only aids the building of brand
awareness but remains essential to the delivery of customer
service, with the majority of customers preferring to undertake a
test drive prior to purchasing the big-ticket item of a car. Local
aftersales support is also an important factor in many vehicle
buying decisions. The Group retains a high proportion of its
vehicle sales customers into the higher-margin service channel and
this also aids overall long-term sales retention. A "bricks and
clicks" model is therefore crucial in this sector, with the Group's
network of physical dealerships across the UK at the centre of its
customer offering and vital for the delivery of service and repair
work to our customers. The fact disruptors to the sector such as
Cazoo and Tesla have been developing physical networks is
illustrative of their recognition of the need to have a physical
presence in addition to their purely online capabilities.
Cost Reduction
Enhanced scale of operations allows the Group to maximise on
purchasing benefits, to provide process efficiencies with common
systems and technology, and to gain marketing synergies from
promoting a larger network for each of the Group's brands.
A key feature of the Group's digitalisation strategy has been to
use system integration and robotic process automation to enhance
productivity and reduce the cost base of the Group. Enhanced
integration of the Group's sales showroom and financial systems in
FY21 facilitated significant efficiency improvements in processing
vehicle sale transactions. By way of example, robotic processes
have now automated the taxation of each used vehicle the Group
sells with the DVLA. Similar technology has also automated the
invoicing of all vehicles traded at auction. Such in-house
developed system automations have enabled the Group to reduce
costs, with the delivery of a programme completed in July 2020
yielding anticipated annualised savings of GBP10m. The Group
continues to develop technology to maximise efficiency and aid
decision making.
Motivated, Professional Colleagues
The Group seeks one consistent culture across all its
operations. Delivery of the Group's Mission Statement ("To deliver
an outstanding customer motoring experience through honesty and
trust") through application of the Group's Values
("Professionalism, Passion, Recognition, Integrity, Respect,
Opportunity and Commitment") is at the core of how the business
operates. The Group has high standards, with colleagues expected to
execute the basics of the business and delight customers, acting
with energy and urgency.
The Group's colleagues are therefore at the core of the delivery
of the Group's vision and strategy and their passion and commitment
has certainly been demonstrated over the Year. It was regrettable
that so many of the Group's colleagues were put into the Government
Furlough scheme as virus restrictions closed substantial parts of
the business. The Group provided enhanced benefits, designed to
ensure that no colleague suffered undue hardship whilst unable to
work. The Group's Board and senior management teams also accepted
reductions to their remuneration during the Year. Colleague
communication was vital so frequent and open dialogue was
maintained throughout the Year. To measure the success of the
Group's colleague engagement, the Group carries out an annual
colleague satisfaction survey as well as shorter quarterly surveys.
Over 4,200 (84%) of Group colleagues participated in this year's
survey in October 2020. Perhaps in recognition of the support given
to colleagues during the pandemic, 87.0% of responding colleagues
considered the Group a great place to work, up from 83.9% in the
previous year. In addition, 98.2% of colleagues knew the Vertu
Values and 93.3% believed that the Directors actively practiced
these Values. These scores reflect the strength and consistency of
the Group culture that has been built up over time.
I would like to personally thank every Vertu colleague for their
hard work and commitment during the Year. I am proud to be the
leader of such an exceptional team of people, who treat others the
way they themselves would like to be treated.
Responding to Regulatory Change
Electrification and Alternative Powertrains
Potential future development of the wider automotive sector has
in recent years been linked to the development of Connected,
Autonomous, Shared and Electric (CASE) vehicles. The ongoing impact
of COVID-19 will almost certainly affect the 'Shared' element of
mobility, with the potential that consumers shy away from public
and shared transport modes, at least in the short-term. It is also
apparent that, whilst increased autonomy is certainly assisting
drivers, full autonomous capability remains a long way off, with
technological, regulatory and legal considerations weighing
heavily.
The UK Government's stringent objective to achieve Net Zero in
terms of Carbon emissions is driving significant change to the
powertrains used by new vehicles. 2030 is now the date the UK
proposes to phase out internal combustion engines in respect of new
vehicle sales. A glide path is therefore needed in terms of
technological advancement and Government support in terms of
vehicle engineering, subsidies to promote uptake and a national
infrastructure for recharging which is capable of coping with
significant growth in electric vehicle sales. The SMMT estimates
that a full, zero emission-capable UK new car market will require
1.7 million public charge points by the end of the decade and 2.8
million by 2035, costing some GBP16.7 billion. The UK has a long
way to go in this regard.
The level of customer adoption of electric and alternatively
fuelled vehicles is increasing in the UK reflecting higher supply,
enhanced ranges and more interest from customers. The SMMT reported
that 2020 was the best ever year for electric cars, with battery
and plug-in hybrid vehicle market share increasing to 10.7%, albeit
in an overall reduced market, and with regulation requirements
being the key driver rather than customer preference. Group sales
of electric and alternatively fuelled vehicles doubled over the
Year to 2,356 vehicles, representing 9.3% of the Group's sales of
new retail vehicles.
The move to electric has undeniably put Manufacturer businesses,
cash levels and future returns under pressure, with this being
exacerbated by the impact of COVID-19. A recent study by the
Financial Times highlighted that the cost of production of electric
cars is expected to continue to exceed that of the combustion
engine vehicle until beyond 2030. This is even after taking into
account the expected reduction in the cost of battery production.
According to the SMMT, price is one of the main factors holding 52%
of today's potential buyers back from purchasing an electric
vehicle. This was perhaps recognised by the recent changes in the
UK to the plug-in grant scheme, which is now targeted exclusively
at lower priced cars.
Over 40% of the Group's gross profit has historically arisen
from its aftersales operations, namely the provision of servicing
and repairs and the retailing and wholesaling of parts. Pure
electric vehicles require less mechanical service intervention than
those with an internal combustion engine, however, they will not
form a majority of the vehicle parc until well after 2030 (source:
National Grid FES 2020 report). Thereafter, the potential
diminution in servicing, as a result of the electrification of the
parc, is expected to be mitigated by the need for increased
specialist equipment, technology and knowledge to maintain these
vehicles, connectivity and a growth in prepaid maintenance
programmes, all retaining a greater share of maintenance work
within the franchise dealer network. The Group is developing
substantial expertise in its service departments in the area of
batteries. Leeds Volkswagen, for example, is only one of 15
specialist battery centres in the Volkswagen network in the UK.
With our Manufacturer relationships, scale, financial strength and
expertise, the Board sees the drive train transition as an
opportunity rather than a threat.
FCA
Following the publication of the FCA's final findings in
connection with their review of motor finance, the Group amended
its sales processes in January 2021 to ensure that its arrangement
with finance providers were aligned with the ban of discretionary
commission models. These changes have been seamlessly introduced,
aided by the Group's in-house developed sales technology platform,
Click2Drive. The changes have not had a material impact on earnings
from finance commission to date.
UK withdrawal from the EU
The UK's future trading arrangements with the European Union are
now clear, with agreement having been reached prior to the 31
December 2020 deadline. The SMMT reported that 7 out of 10 vehicles
sold in 2020 in the UK were imported from Europe. The application
of zero tariffs and quota free trade was therefore critical to a
strong new car market in the UK. Clarity over the UK's future
relationship with the EU has removed a major sector
uncertainty.
The Sterling Euro exchange rate remains an important factor in
the pricing and import of vehicles manufactured in Europe into the
UK. Since 1 January 2021, Sterling has strengthened against the
Euro and a stronger pound helps make imported new cars more
affordable to UK buyers.
Strategic Summary
The Group's stable and experienced management team and financial
strength ensures that the Group is well positioned to take
advantage of opportunities arising and we remain ambitious to do
so. We will ensure that capital is allocated to those activities,
locations and franchises that are best placed to meet the
competitive challenges arising, to provide the best growth
opportunities and maximise return on invested capital.
We will continue to innovate to meet changes in customers'
needs, leveraging our brand strength, reputation for excellence in
customer service and national footprint to maximise on the
available online opportunity. We will execute cost saving
initiatives, enhance operational efficiency and pursue other new
business opportunities which complement the Group's core
activities. The goal is to drive growth in the cash flows of the
business to provide returns for shareholders.
OPERATING PERFORMANCE REVIEW
This unprecedented Year has been impacted by successive
lockdowns as a Government response to COVID-19. The period from 1
March to 31 May 2020 saw the peak registration month of March
increasingly impacted by a pre-lockdown slowdown, until the first
national lockdown was initiated on 23 March. The Group was then
significantly impacted for the remainder of the first quarter of
the Year. Vehicle sales activity was initially halted and the
Group's aftersales operations opened on a much reduced basis, to
provide only essential repairs to keep key workers and their
vehicles on the road. The period from 1 June to 31 October saw
dealerships able to reopen to customers under social distancing
restrictions and trading benefitted from significant levels of
pent-up demand following the first lockdown. The remaining period
from 1 November through to 28 February saw further local and
national lockdowns, which again closed sales showrooms to customers
for prolonged periods. However, in contrast to much of the first
national lockdown, sales of vehicles were permitted through click
and collect or home delivery. In this period, our service
departments remained fully operational as an essential service and
saw near normal levels of demand. In contrast, trade parts
operations and accident repair centres have seen continued
year-on-year declines in activity due to lower accident levels as
journeys undertaken fell below normal levels in the UK.
The Group's revenues and margins are shown below. The impact of
the first national lockdown on trading in the first quarter of the
financial year, March to May, was very significant. This quarter
has therefore been shown separately, along with the remaining nine
month period and full financial year below:
Mar Mar June
to May to May to Feb
FY21 June Mar June Year Year
to Feb to May to Feb on Year on Year
FY21 FY21 FY20 FY20 FY20 Variance Variance
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Revenue
New 132.2 607.5 739.7 299.3 563.2 862.5 (167.1) 44.3
Fleet & Commercial 77.1 501.3 578.4 225.7 482.8 708.5 (148.6) 18.5
Used 92.6 915.8 1,008.4 335.2 900.2 1,235.4 (242.6) 15.6
Aftersales 30.4 190.8 221.2 66.7 191.4 258.1 (36.3) (0.6)
-------- -------- -------- -------- ---------- ----------
Total Group
Revenue 332.3 2,215.4 2,547.7 926.9 2,137.6 3,064.5 (594.6) 77.8
Gross Profit
New 11.7 42.6 54.3 19.4 43.3 62.7 (7.7) (0.7)
Fleet & Commercial 3.6 19.6 23.2 7.1 18.7 25.8 (3.5) 0.9
Used 7.7 86.2 93.9 27.8 74.3 102.1 (20.1) 11.9
Aftersales 16.5 113.1 129.6 37.1 106.4 143.5 (20.6) 6.7
-------- -------- -------- -------- ---------- ----------
Total Gross
Profit 39.5 261.5 301.0 91.4 242.7 334.1 (51.9) 18.8
Gross Margin
New 8.9% 7.0% 7.3% 6.5% 7.7% 7.3% 2.4% (0.7%)
Fleet & Commercial 4.7% 3.9% 4.0% 3.1% 3.9% 3.6% 1.6% -
Used 8.3% 9.4% 9.3% 8.3% 8.3% 8.3% - 1.1%
Aftersales(5) 46.9% 49.7% 49.3% 46.5% 47.1% 46.9% 0.5% 2.6%
-------- -------- -------- -------- ---------- ----------
Total Gross
Margin 11.9% 11.8% 11.8% 9.9% 11.4% 10.9% 2.0% 0.4%
(5) Aftersales margin expressed on internal and external
revenues
Volumes of vehicles sold by the Group on a like-for-like basis
for the same periods were:
Mar Jun Mar June Mar June
to May to Feb to May to Feb to May to Feb
FY21 FY21 FY21 FY20 FY20 FY20 FY21 FY21
% Var % Var
to FY20 to FY20
Used retail
vehicles 5,813 55,897 61,710 22,446 61,651 84,097 (74.1%) (9.3%)
New retail
cars 4,771 18,324 23,095 11,731 20,770 32,501 (59.3%) (11.8%)
Motability
cars 910 7,057 7,967 2,826 6,667 9,493 (67.8%) +5.8%
---------------- -------- -------- -------- -------- ----------------- --------- ---------
Direct fleet
cars 1,478 7,988 9,466 5,136 11,831 16,967 (71.2%) (32.5%)
Agency fleet
cars 752 2,913 3,665 1,484 4,220 5,704 (49.3%) (31.0%)
---------------- -------- -------- -------- -------- ----------------- --------- ---------
Total fleet
cars 2,230 10,901 13,131 6,620 16,051 22,671 (66.3%) (32.1%)
Commercial
vehicles 1,965 13,659 15,624 5,951 11,719 17,670 (67.0%) +16.6%
-------- -------- -------- -------- ----------------- --------- ---------
Total New
vehicles 9,876 49,941 59,817 27,128 55,207 82,335 (63.6%) (9.5%)
-------- -------- -------- -------- ----------------- --------- ---------
Total vehicles 15,689 105,838 121,527 49,574 116,858 166,432 (68.4%) (9.4%)
-------- -------- -------- -------- ----------------- --------- ---------
UK Market (SMMT)
New retail
cars (60.5%) (11.2%)
Motability
cars (67.9%) 4.8%
Fleet cars (69.3%) (17.5%)
Commercial
vehicles (65.7%) 3.3%
--------------------------- --------- -----------
March to May Quarter
The Group incurred an adjusted loss before tax of GBP14.3m in
the March to May quarter ("Q1"), a shortfall of GBP27.4m on the
prior year period (Q1 2020: Profit before tax of GBP13.1m).
The closure of the retail network during this first period of
lockdown saw total registrations of new cars in the UK in Q1 fall
by 65.2%, representing a decline year-on-year of over half a
million vehicles. During this period, the Group maintained
marketing activity and continued to build a vehicle order bank via
online and telephone orders. Nevertheless, the Group's
like-for-like sales of new retail and Motability cars fell to 39.0%
of prior year levels, fleet and commercial sales to 33.4% and used
retail vehicles to 25.9% of prior year in Q1. Total Group gross
profit from the sale of vehicles fell in Q1 by GBP31.3m compared to
the same period in the prior year.
After 23 March 2020, the vast majority of the Group's aftersales
operations remained open for key worker and essential service
vehicles, on much reduced capacity at first and then progressively
growing as lockdown eased. This resulted in the generation of total
aftersales gross profits of GBP16.5m, which was GBP20.6m below the
same quarter last year.
The Group took all available actions to mitigate this
significant reduction in activity and profitability by reducing its
costs during this period. Remuneration costs represent the largest
component of the Group's operating expense and, whilst savings were
made through the furloughing of colleagues, the Group paid
colleagues in excess of the amounts received under the Job
Retention Scheme. No colleague was paid below the national minimum
wage and colleagues were not capped at the maximum grant receipt of
GBP2,500 per month. This protected colleagues' earnings during this
critical and anxious time (paying 80% of average earnings if above
the GBP2,500 level). In addition, the Group's Senior Management who
remained at work volunteered to take a 20% reduction in salary, and
all members of the plc Board elected to take a 30% reduction in
salary for the period from 1 April to the end of May. The executive
directors also waived their entitlement to all bonuses for the
financial year. In light of the performance and the significant
progress made by the Group during the year, the Remuneration
Committee have elected to award one-off bonuses to the executives.
These bonuses will be paid 50% in cash and 50% in shares in the
Company, with the shares required to be held for three years from
the date of issue. Further details are provided in the Remuneration
Committee Report. Gross pay was GBP4.5m in excess of the grant
receipt in the quarter for those colleagues on furlough leave. The
Group initially placed up to 80% of Group colleagues on furlough
leave, though this declined over time as activity increased. The
resultant receipt from the Government's Job Retention Grant of
GBP17.7m significantly supported the Group in this first quarter as
did the business rates relief of GBP1.5m in the same period.
Other costs were reduced significantly, particularly when
showrooms were closed, to conserve cash. Group centralised supplier
arrangements facilitated swift actions to be taken to remove costs.
In addition, the Group received substantial support from
third-party suppliers who reduced or suspended charges. The Group's
Manufacturer partners were also excellent in taking steps to reduce
franchise costs and to ensure retailers were able to conserve
cash.
June to February Period
The remaining nine months of the financial year from 1 June 2020
to 28 February 2021 ("Period") generated an adjusted profit before
tax of GBP38.9m, significantly more than the prior year profit of
GBP9.9m in the same period. Strong demand in most channels,
beneficial used car pricing movements, strong cost control and
continued Government and Manufacturer support all contributed to a
very strong trading environment for the Group, despite successive
local and national lockdowns and restrictions. Enhancements to the
Group's Click2Drive sales platform allowed the business to
increasingly operate very effectively online in the sales area
despite showroom closures.
The following departmental trends were seen in this Period:
Used retail vehicles
The used vehicle market in the UK has been remarkably resilient
since 1 June 2020. Pent-up consumer demand was apparent,
particularly from June to October. Despite further restrictions
closing showrooms from November, sales rates were significantly in
excess of those seen in the first lockdown, as both the Group and
customers adapted to the situation.
The wholesale used vehicle market in the UK operates almost as a
'perfect market' as far as pricing is concerned. From June to
October, tight supply of vehicles coincided with a period of robust
consumer demand and consequently strong used vehicle pricing
conditions were apparent. This strength in used vehicle values was
in contrast to historic seasonal norms. As lockdowns again impacted
on demand from November onwards, wholesale prices witnessed
slightly higher than normal seasonal reductions. Margins overall,
however, remained strong in the Period especially in relation to
premium franchises.
Reduction in pressure to achieve new vehicle volume targets,
particularly in premium franchises, has led to a reduction in
nearly new vehicles in the used supply channel and this has also
had a beneficial impact on margin retention from which the Group
benefitted. In addition, a new stock management and pricing system
was developed in-house and implemented in the Period ("Vertu
Analytics") which has also aided pricing decisions and margin
management.
The beneficial used car pricing environment went some way to
offsetting the impact of a like-for-like 9.3% year-on-year
reduction in Group used vehicle sales volumes in the Period. Gross
profit per unit on a like-for-like basis increased to GBP1,467 from
GBP1,197 (22.6%) with this uplift even more apparent in the Group's
premium franchise dealerships. The growth in profitability
contributed to Group used gross margin percentages for the Period
improving from 8.3% to 9.6% on a like-for-like basis, despite a
5.4% increase in average selling prices. Overall, core Group gross
profit generated from used vehicle sales in the Period increased by
GBP8.3m compared to the prior year due to this enhanced margin
retention.
New retail cars and Motability sales
Demand for new cars was weaker than used cars in the first
national lockdown and was slower to rebuild momentum. UK retail
registrations have declined year-on-year in every month of the
Group's financial year except for just one month, July. Supply
constraints and a reduced volume push by Manufacturers have been
part of the reason for this reduction. Supply constraints in the
Period were driven by post lockdown logistics dislocation, the
impact of social distancing on production levels both in
Manufacturers and their suppliers and also the challenges of
switching the emissions mix of vehicle production to meet emissions
regulations.
In the vast majority of franchises, volume targets were amended,
reduced or removed by Manufacturers in response to showroom opening
restrictions. The rise in consumer demand seen in used cars was
replicated in new cars from July, with underlying consumer demand
robust throughout the summer and this was witnessed in the building
of strong order banks for the September market. Overall, the Period
saw UK new retail registrations fall 11.2%. The Group's
like-for-like new retail volumes declined by 11.8% broadly matching
these market trends.
UK Motability sales operations closed completely during the
first lockdown, re-opening for new applications from 1 July and
remaining open during subsequent lockdowns. In the Period, UK
registrations in this channel grew by 4.8%, reflective of pent-up
consumer demand as deferred contracts were renewed. The Group's
Motability volumes in the Period grew 5.8% on a like-for-like basis
representing outperformance. The Group has the largest Motability
vehicle fleet in the mainland of the UK.
Like-for-like gross profits from the sale of new retail and
Motability vehicles fell GBP4.1m year on year in the Period.
Reduced volumes of vehicles sold, together with significantly
reduced quarterly manufacturer volume bonus income receipts in June
(representing the period, April to June) were the primary reasons
for this decline. The lockdown impact on vehicle sales volumes in
April and May inevitably reduced volume bonus earnings recognised
at the end of the calendar quarter in June. New vehicle gross
profit per unit fell 2.2% on a like-for-like basis in the Period
and the Group's new vehicle margin percentages declined from 7.7%
to 7.0% on a like-for-like basis. Excluding the impact of the
reduction in quarterly volume bonuses earned in the calendar
quarter to June, underlying new retail margins were robust.
Fleet & Commercial vehicle sales
The UK car fleet market declined 17.5% in the Period. A lack of
demand from the daily rental market, principally due to reductions
in leisure and airport travel, along with reduced demand from
corporate fleets, drove this decline. Like-for-like the Group
delivered 10,901 fleet cars in the Period, representing a decline
of 32.1%, which was behind the market. This reflects the mix of
franchises held by the Group, with some Manufacturers moving away
from this low margin channel to preserve profit and reflecting
constrained supply.
The SMMT reported a 3.3% increase in registrations of commercial
vehicles in the UK in the Period. This reflected strong demand for
commercial vehicles, in particular, to satisfy increased demand for
home deliveries as internet shopping increased. The Group's
like-for-like sales volumes of new commercial vans was
significantly ahead of these market trends, increasing by 16.6% in
the Period. This was aided by very strong performance from the
Group's Vansdirect business and the Group taking share from
competitors seeking to reduce their working capital demands by
reducing their exposure to fleet and commercial vehicle channels.
As a consequence of strong demand for vans, both here in the UK and
across Europe, van supply was tight which aided margin
retention.
Like-for-like gross profit per unit in the Fleet and Commercial
vehicle channel grew 14.2% from GBP671 to GBP766, reflecting both
the change in mix away from the low margin daily rental channel and
strong demand for commercial vehicles. Group like-for-like gross
profit generation from fleet and commercial sales increased by
GBP0.2m in the Period. As with new vehicles, lack of calendar
quarter volume bonus receipts in June, driven by the reduction in
volumes in the initial lockdown period held back performance.
Aftersales
From June to September pent-up demand from customers aided
growth in the Group's vehicle servicing departments, driving
increased like-for-like service revenues. Further national COVID-19
restrictions from November drove year-on-year reductions in the
Group's like-for-like service revenues from November to February.
Overall, in the Period, 0.6% growth in Group like-for-like service
revenues was delivered with the impact of acquisitions driving
Group total service revenues up 8.1%.
The like-for-like gross margin percentage on vehicle servicing
rose to 78.5% in the Period (FY20: 77.5%). Higher average invoice
values on retail work were achieved through the Group's effective
vehicle health check processes. The introduction of individual
timed appointments for customers, to ensure social distancing in
dealerships, allowed more time for the Group's Service Advisors to
better explain identified work to customers, aiding improved sales
conversion. In addition, the Group saw a higher retail mix of work
in workshops as warranty work remained muted compared to normal and
this also aided margins and productive efficiency. Like-for-like
gross profits generated from service activity increased by GBP1.5m
in the Period as a result of these trends.
In contrast, like for like gross profits arising from the sale
of parts and accident repair centres fell GBP2.5m in the Period.
Like-for-like revenues fell 11.0% in the Period as fewer motoring
journeys led to fewer accidents, reducing accident repair work and
trade parts sales to accident repair centres.
The Group currently operates 10 accident repair centres, with
dealership acquisitions made since 1 January 2020 representing half
of this total. In recognition of this growing number of operations,
the Group formed Vertu Accident Repair Limited ("VARC") in early
2021. VARC has a separate dedicated management team, with
significant accident repair experience, in order to provide
specialist focus to these businesses. All of the Group's accident
repair centres will be transferred into VARC from the Group's
franchised dealership divisions over the remainder of 2021. Growth
in accident repair revenues is targeted, through the expansion of
the number of manufacturer repair approvals held by each outlet and
improved relationships with insurance work providers, as well as
through further targeted acquisitions. Greater efficiencies will be
sought by enhancing standard Group systems and processes across the
accident repair centres and gaining from the impact of the
dedicated new management team.
Parts revenues were also negatively impacted by the previously
announced changes to parts distribution within the Vauxhall
network. As a consequence of these changes, the Group exited trade
parts in the franchise in early 2020 with an impact on revenues and
profits but a gain in short term cash generation as working capital
was liquidated. The Group previously indicated this would reduce
annual profits by GBP0.9m.
Overall, like-for-like gross profits in aftersales declined
GBP1.0m in the Period.
Current trading and outlook
In March 2021, the Group's sales showrooms remained closed as a
result of the continued national lockdown. The Group's Macklin
Motors sales showrooms in Scotland reopened on 5 April (subject to
requiring an appointment to be made) with the rest of the Group's
sales showrooms opening on 12 April without the need for an
appointment. Despite the lockdown restrictions, the Group saw
strong trading conditions in March with trading profits at record
levels for the Group. The reopening of showrooms in April saw
pent-up demand in sales again evident as customers sought to test
drive vehicles for the first time in three months. The Group
undertook significant marketing activity to gain market share. As a
consequence, the Group saw March and April deliver a combined
adjusted profit before tax of GBP19.2m which was in excess of the
Group's business plan, prepared assuming no impact of COVID-19 on
the business.
The Group's trading performance in March and April ("the post
year end period") is summarised below:
March and April Performance Year on Year % Change
Like-for-
Total Like SMMT
Group Revenues 152.8% 134.8%
Service Revenues(6) 107.7% 91.8%
Volumes:
Used Retail Vehicles 238.8% 215.9%
New Retail Vehicles 59.1% 47.4% 41.8%
Motability Vehicles 129.0% 122.8% 110.2%
New Fleet Cars(7) 103.9% 112.3% 89.4%
New Commercial Vehicles 167.5% 169.3% 157.4%
(6) Includes internal and external revenues
(7) Includes agency volumes
Group revenue rose substantially as expected since last year was
significantly impacted by the first national lockdown which started
on 23 March 2020. The Group has also undertaken considerable
acquisition activity in the last 12 months and these acquired
dealerships contributed over GBP50m to Group revenues in the post
year end period.
Service activity saw strong levels of demand in March aided by
substantial vehicle sales volumes, the Group's well developed
customer contact strategy and high level of pre-paid service plans
held by the Group's customers. In April 2020, service departments
operated on a significantly reduced basis due to the impact of the
lockdown in the prior year. Many service and MOTs were postponed
(until after the lockdown eased in late May). Group vehicle sales
levels in April 2020 were also very low due to the lockdown. As a
result, in April 2021 the Group has seen some weakening of demand
for retail annual servicing. This may very well reverse in future
months as the seasonalisation of service work has been changed by
lockdowns.
New and used retail vehicle demand and volumes have increased
substantially year-on-year in the Period as expected. Whilst sales
under lockdown conditions in March 2021 were considerably higher
than in the first lockdown (at around 60% and 97% of normalised
levels for new retail and used volumes respectively), there was
still an element of pent-up demand exhibited when showrooms
reopened in April 2021. This pent-up demand was primarily due to
customers holding off on purchases until test drives and physical
visits to dealerships could be resumed.
The new car market in the UK is as much driven by supply factors
as those impacting demand. There are increasing signs that new car
supply will be tight in the coming months reflecting the continued
impact of COVID-19 on manufacturing both in the assembly plants and
the parts supplier base. Semi-conductor shortages are also likely
to limit new vehicle supply in the months ahead as several plant
closures and curtailments of production have been announced across
the globe. Manufacturers are also having to balance the emission
levels of their sales, which may impact production and
availability. In contrast, the renewed strength of Sterling against
the Euro and Yen makes the UK a more profitable market for
Manufacturers to export cars into and this tends to increase supply
levels. Overall, the Board believes constrained new vehicle supply
is a key uncertainty in the near term which may impact the
business.
The used car market remains very robust from a demand
perspective. Coming out of the lockdown in April 2021, supply of
used cars in the UK was much tighter than normal for the time of
year. In addition, new car supply constraints are also likely to
contribute to this tightness in used car markets continuing over
the summer and perhaps beyond. Used car values are therefore
expected to remain robust for the remainder of H1 at least.
The fleet car market recovered well in March and April from the
lows of last year. Fleets that had postponed vehicle changes took
advantage of the strong used car market for disposal of defleeted
vehicles, contributing to this recovery. The Group took share with
like-for-like fleet car volumes increasing 112.3% compared to a
89.4% growth in SMMT registrations in the post year end period.
The Group's new commercial vehicle sales were up 169.3% in
volume terms on a like-for-like basis, with the SMMT reporting a
growth of 157.4%. The SMMT reported that the UK new van market in
April was the highest on record, reflecting strong demand driven
principally by the rise of courier services and delivery of online
purchases. Whilst the Group took share in this buoyant market,
demand exceeded supply with new van order lead times very much
extended as supply remains tight. The global semi-conductor
shortage will not help this supply situation in the short-term.
The Group continued to benefit from the extended business rates
holiday on showrooms in March and April (impact of GBP1.8m) and the
cost savings from the cost reduction programme undertaken in 2020.
The furlough scheme was utilised on a very small scale in March and
early April with receipts of GBP0.4m. It is envisaged that in the
absence of further lockdowns and restrictions related to COVID-19,
the Group will make no further use of the Job Retention Scheme.
The Group's BMW and MINI dealerships acquired in December 2020
saw a strong performance in March and April, delivering an adjusted
profit before tax over the two months of GBP0.5m. This is ahead of
business plan for the year to date. The Board is pleased with the
progress of this new Division and the success of the integration
process.
The Board remains confident in the prospects for the Group. With
its strong asset base, balance sheet, scale, Manufacturer
relationships, well invested systems including the Click2Drive
sales technology platform and experienced leadership team, the
Board believes that the Group is strategically very well placed to
capitalise on the consequent changes and opportunities in the UK
motor retail sector.
The promising trading result in the post year end period has
been aided by strong consumer demand. Supply of new vehicles in the
coming months is a concern, however, reduced supply should result
in robust vehicle margins.
The Board expect the Group will deliver an adjusted profit
before tax for the year ending 28 February 2022 in the range of
GBP24.0m to GBP28.0m.
Robert Forrester, CEO
CHIEF FINANCIAL OFFICER'S REVIEW
The Group's income statement for the Year is summarised below,
including analysis of the initial quarter, March to May, which
included the first national COVID-19 lockdown and the remainder of
the financial year's results:
Mar June
to to Mar June
May Feb to May to Feb June
FY21 FY21 FY21 FY20 FY20 FY20 to Feb
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm % Var
Revenue 332.3 2,215.4 2,547.7 926.9 2,137.6 3,064.5 3.6%
------- -------- -------- -------- --------
Gross Profit 39.5 261.5 301.0 91.4 242.7 334.1 7.7%
---------------------- ------- -------- -------- -------- --------
Operating Expenses
(gross) (68.9) (226.1) (295.0) (76.2) (225.7) (301.9) (0.2%)
Job Retention Scheme
Grant 17.7 10.1 27.8 - - - -
---------------------- ------- -------- -------- -------- -------- -------- --------
Operating Expenses
(net) (51.2) (216.0) (267.2) (76.2) (225.7) (301.9) 4.2%
------- -------- -------- -------- --------
Adjusted Operating
(Loss) Profit (11.7) 45.5 33.8 15.2 17.0 32.2 167.6%
Net Finance Charges (2.6) (6.6) (9.2) (2.1) (7.1) (9.2) 7.0%
------- -------- -------- -------- --------
Adjusted (Loss)
Profit Before Tax (14.3) 38.9 24.6 13.1 9.9 23.0 292.9%
------- -------- -------- --------
Non-Underlying
Items(8) (2.2) (15.7)
Profit Before Tax 22.4 7.3
Taxation (6.1) (4.3)
Profit After Tax 16.3 3.0
(8) Non-underlying items represent share-based payments,
amortisation of intangible assets and non-cash impairment of
assets
Operating Expenses
In the three months to 31 May 2020 and in the light of the
impact of the national lockdown, the Group took decisive action to
minimise costs as outlined in the previous section. As a
consequence of these actions, total Group operating expenses,
excluding the Job Retention Grant receipt, were 9.6% lower than the
same quarter in the prior year. This represented a saving of GBP10m
in the Core Group, with the total inclusive of the impact of
acquired businesses. Relief on business rates in respect of the
Group's showrooms saved GBP1.5m of this total. Savings were
delivered on almost every other cost line in the business.
The focus on cost reduction continued throughout the remainder
of the financial year on reopening from 1 June 2020 to 28 February
2021 ('Period'). The application of technological developments to
improve efficiency, allowed the Group to remove costs from some key
areas. This restructuring programme was completed in July and as
previously announced, this generated annualised headcount cost
savings of approximately GBP10m. Total restructuring costs for the
financial year of GBP1.1m have been included in underlying
expenses. Group operating expenses in the Period, excluding
furlough grant receipts, were GBP0.4m higher than the prior year
period as a result of dealership acquisitions. However, excluding
the impact of acquisitions and receipts from the Job Retention
Grant, operating expense savings of GBP16m were delivered in the
Core Group in the Period with business rates relief saving GBP7.2m
of this total.
The Group disposed of a surplus property asset in the Period
generating cash proceeds of GBP0.8m and a profit on disposal,
included within the underlying result of GBP0.4m.
Government Support
Given the forced closure of the business due to Government
lockdown regulations, the Group received Government assistance
during the Year in two key areas. For the full financial year,
furlough grant receipts of GBP27.8m and business rates relief
savings of GBP8.7m arose. This assistance offset substantial losses
particularly in the first lockdown. In April and May 2020, for
example, the Group reported a pre-tax loss of GBP20.1m after
Government assistance.
The Group does not intend to repay this Government support which
arose due to the forced closure of its operations.
Net Finance Charges
Net finance charges were level year-on-year, as set out
below:
FY21 FY20 Variance
GBP'm GBP'm GBP'm
Bank interest payable 1.8 1.2 0.6
Mortgage interest payable 0.1 - 0.1
Vehicle stocking interest
expense
* New vehicle Manufacturer stocking interest 3.6 3.9 (0.3)
- Used vehicle stock
funding interest 0.3 0.6 (0.3)
Interest on lease liabilities 3.6 3.6 -
Interest income (0.2) (0.1) (0.1)
------- ------- ---------
Net finance charges 9.2 9.2 -
------- ------- ---------
At the start of the first national lockdown in March 2020, the
Group took action to protect liquidity by drawing an additional
GBP10m on its revolving credit facility. The increase in interest
on bank borrowings of GBP0.6m relates to this increase in drawings,
together with a 0.8% increase in the margin charged on bank
borrowings effective from 1 June 2020 to 1 December 2020. This
increase followed a waiver of covenants obtained in respect of the
first half of the financial year. The margin charged on this
borrowing reverted to previous levels on 1 December 2020.
The Group partly funded the purchase of its BMW/MINI acquisition
in December 2020 through taking a new GBP12.76m 20-year mortgage on
the freehold and long leasehold properties acquired. The mortgage
is repayable in 240 equal instalments over the 20-year term and
carries a fixed annual interest rate of 2.9% for the first five
years.
The Group saw a year-on-year reduction in interest charged by
Manufacturers on funded new vehicle inventory. As a consequence of
the timing of the first nationwide lockdown, being normally the
most significant month for new vehicle sales in the calendar year,
interest bearing new vehicle stock levels in the Group were on
average GBP80m higher in the first quarter compared to the previous
year. On the reopening from June onwards, the Group was successful
in significantly reducing the new vehicle stock pipeline and hence
interest charged. New vehicle supply constraints also had an impact
reducing new vehicle pipeline stocks below last year's levels. As a
consequence, over the year as a whole, consignment stock interest
reduced by GBP0.3m.
The Group also accesses used vehicle stocking loans to fund
working capital. As a result of the strong cash position of the
Group throughout much of the financial year, amounts utilised on
this GBP45m facility were reduced to GBP5.9m at 28 February 2021,
representing 4.9% of used vehicle inventory (29 February 2020:
GBP25.5m, 21.0% of inventory).
Finally, additional working capital requirements are met by a
committed money market loan ('CMML') facility. This facility varies
over a financial year with peak availability in the months
following calendar quarter ends, namely April, July, October and
January. The Group has not utilised its peak CMML facility since
early 2019 and consequently has agreed to reduce the peak facility
from GBP68m to GBP48m to better reflect utilisation patterns and to
minimise recurring costs. Margins on this facility were increased
by 25pbs on renewal in April 2021.
Pension Costs
The accounting surplus on the Group's closed defined benefit
pension scheme was GBP6.2m at 28 February 2021 (29 February 2020:
GBP8.9m). During the Year, there have been changes in the financial
and demographic assumptions underlying the calculation of the
liabilities. In particular, the discount rate, which is linked to
movements in corporate bond yields, has increased slightly as has
the expectation of higher future inflation. The effect of these
changes in assumptions resulted in a decrease in liabilities of
GBP0.4m. Scheme assets reduced in value by GBP3.0m over the
financial year. In total, an actuarial loss of GBP2.6m has been
recognised in the Statement of Comprehensive Income in the
Year.
Tax Payments
In the July 2020 Finance Act, the previously announced reduction
in the rate of corporation tax to 17% was removed. This resulted in
the Group's deferred tax obligations being measured at the higher
rate of 19% in the financial year (2020: 17%). On 3 March 2021, the
Chancellor announced that the headline UK corporation tax rate will
rise to 25% from 1 April 2023. As this increase had not been
enacted by the balance sheet date, the further revaluation of the
Group's deferred tax obligations from 19% to 25% is likely to be
applied in the financial year ending 28 February 2022. This change
is expected to increase the Group's non-underlying tax charge by
GBP2.9m for FY22.
The Group's underlying effective rate of tax for the year
increased to 21.25% (2020: 19.65%). The overall effective tax rate,
impacted by the revaluation of deferred tax obligations, was 27.17%
(2020: 59.18%). The Group continues to be classified as "low risk"
by HMRC and takes a pro-active approach to minimising tax
liabilities whilst ensuring it pays the appropriate level of tax to
the UK Government.
Shareholder Returns
The Group commenced operations in March 2007 and in November
2021 will have been incorporated for 15 years. In that time, the
Group has utilised equity markets to create a Top 5 UK automotive
retailer which is also the 9(th) largest in Europe by revenues. The
Group has delivered profitability each year since incorporation,
has an excellent asset base with GBP181.6m of tangible net assets
and normalised annual revenues of over GBP3.7bn. Crucially, returns
generated to date are in excess of the weighted average cost of
capital.
The Board remains cognisant of the importance of dividends to
total shareholder returns. Mindful of the substantial amounts of
Government support received and the need to protect the Group's
liquidity in the first quarter, the Board did not declare a final
dividend for the year ended 29 February 2020, nor propose any
dividend for the financial year ended 28 February 2021. The Board
anticipates that the payment of dividends will resume in respect of
the financial year to February 2022, dependent on the financial
performance of the Group.
Another important element of shareholder return can be share
buyback programmes, particularly in an environment of share price
weakness compared to the Board's view of the intrinsic value of the
business. The Board will evaluate the benefits of such a programme
in 2021.
Capital Expenditure
Despite the curtailment of capital expenditure to preserve
liquidity during the Year, the Group completed some key projects in
the year ended 28 February 2021. These included the completion of
the redevelopment of the Bradford and Nelson Land Rover showrooms.
These developments deliver operations with greater capacity for
sales and service and will underpin the Group's future
profitability and cash generation.
In terms of large-scale projects for the coming financial year,
the Group will construct a new build dealership in Edinburgh so
that the current multi-franchise operation in the city in short
leasehold premises can be relocated. The Group already owns the
land on which this new dealership will be built having acquired it
a number of years ago. The Group also plans to execute on its
multi-franchising strategy in a number of existing locations which
will require capital expenditure investment albeit it is aided by
support from Manufacturers. Capital expenditure for FY22 is
currently expected to be approximately GBP18.6m.
Managing Working Capital
The Group has generated cash from operating activities of
GBP74.9m (2020: GBP19.5m) aided by a substantial level of cash
generation from a reduction in working capital of GBP29.6m. This
was due to reduced sales activity levels which have led to lower
levels of receivables and inventory at 28 February 2021 compared to
last year.
The Group has significant levels of working capital in the form
of inventory, receivables and payables. These are ordinarily
subject to significant, yet predictable, seasonal fluctuations
which coincide with plate change months and quarterly Manufacturer
new car campaigns.
New vehicle funded inventory reduced by GBP49.1m as high levels
of new inventory seen at the end of the last financial year
significantly unwound. A related GBP46.9m decrease in trade
creditors was also seen. Reduced levels of supply of new vehicles
along with reduced sales activity, particular in fleet car sales,
meant that tactical registration activity was much reduced compared
to the prior year. Fully paid new vehicle stock was consequently
lower than seen at 29 February 2020, with a decline of GBP2.9m.
Trade receivables also fell by GBP12.7m year-on-year reflecting
reduced levels of sale activity as a result of the lockdown in the
run up to the year end. Used vehicle inventory fell by GBP10.3m as
the Group sought to control its stock levels during lockdown, in
the context of lower sales levels and moderate month-on-month
market value reductions in the run up to the year end.
Financing and Capital Structure
The Group has a balance sheet with shareholders' funds of
GBP275.9m (2020: GBP263.4m) representing net assets per share of
76.2p (2020: 71.7p). The net asset value is underpinned by a
freehold and long leasehold portfolio of GBP229.2m (2020:
GBP211.8m) and net debt (excluding lease liabilities) of GBP4.5m at
28 February 2021. The Group's conservative financing and capital
structure results in a strong tangible net assets position of
GBP181.6m at 28 February 2021.
The Group has a committed acquisition debt facility of GBP62m,
maturing in February 2024, with the potential to add a further
GBP15m, which is currently uncommitted. GBP54m of this committed
facility was drawn as at 28 February 2021. As a consequence of the
losses incurred in Q1, waivers were obtained in respect of the
covenants in place in respect of this facility for the test periods
ended 31 May and 31 August 2020. Strong cash generation means that
the Group is anticipated to be able to operate comfortably within
all covenants for the foreseeable future.
The Group's Adjusted net cash position of GBP1.4m is stated
excluding GBP5.9m of used car stocking loans (2020: GBP25.5m).
These used car stocking loans with third party banks are subject to
interest and are secured on the related used vehicle inventories.
The Group has a GBP45m facility under these arrangements but uses
these facilities selectively, and this has acted to the benefit of
the Group in the Period, as significant cash was able to be
generated from reducing used vehicle stock levels, aiding
liquidity. This resulted in the repayment of significant amounts of
used car stocking loans given the Group's strong cash position. The
Group had GBP121.2m of used vehicle inventory at 28 February 2021
(2020: GBP121.3m) and the low level of used car stocking loan
utilisation is a major structural difference in financing compared
to many industry peers.
Karen Anderson, CFO
CONSOLIDATED INCOME STATEMENT (AUDITED)
For the year ended 28 February 2021
Underlying Non-underlying Total 2021 Underlying Non-underlying Total 2020
items items 2021 items 2020 items 2020
2021
(Note 2) (Note 2)
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 2,547,665 - 2,547,665 3,064,530 - 3,064,530
Cost of sales (2,246,642) - (2,246,642) (2,730,473) - (2,730,473)
----------- -------------- ----------- ----------- -------------- -----------
Gross profit 301,023 - 301,023 334,057 - 334,057
Operating expenses (267,240) (2,153) (269,393) (301,878) (15,706) (317,584)
----------- -------------- ----------- ----------- -------------- -----------
Operating profit 33,783 (2,153) 31,630 32,179 (15,706) 16,473
Finance income 3 174 - 174 405 - 405
Finance costs 3 (9,405) - (9,405) (9,561) - (9,561)
----------- -------------- ----------- ----------- -------------- -----------
Profit / (loss) before
tax 24,552 (2,153) 22,399 23,023 (15,706) 7,317
Taxation 4 (5,217) (867) (6,084) (4,523) 193 (4,330)
----------- -------------- ----------- ----------- -------------- -----------
Profit / (loss) for
the year attributable
to equity holders 19,335 (3,020) 16,315 18,500 (15,513) 2,987
=========== ============== =========== =========== ============== ===========
Basic earnings per
share (p) 5 4.44 0.81
Diluted earnings
per share (p) 5 4.36 0.80
----------- -----------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (AUDITED)
For the year ended 28 February 2021
2021 2020
GBP'000 GBP'000
Profit for the year 16,315 2,987
Other comprehensive (expenses) /
income
Items that will not be reclassified
to profit or loss:
Actuarial (losses) / gains on retirement
benefit obligations (2,619) 2,400
Deferred tax relating to actuarial
losses / (gains) on retirement benefit
obligations 498 (408)
Items that may be reclassified subsequently
to profit or loss:
Cash flow hedges (6) (468)
Deferred tax relating to cash flow
hedges 10 80
Other comprehensive (expense) /
income for the year, net of tax (2,117) 1,604
-------- --------
Total comprehensive income for the
year
attributable to equity holders 14,198 4,591
======== ========
CONSOLIDATED BALANCE SHEET (AUDITED)
As at 28 February 2021
2021 2020
GBP'000 GBP'000
Non-current assets
Goodwill and other indefinite
life assets 99,192 99,315
Other intangible assets 1,948 2,120
Retirement benefit asset 6,246 8,867
Property, plant and equipment 246,664 229,148
Right-of-use assets 81,152 87,013
Total non-current assets 435,202 426,463
---------- ----------
Current assets
Inventories 597,391 639,177
Trade and other receivables 59,375 71,720
Cash and cash equivalents 67,828 40,839
---------- ----------
724,594 751,736
Property assets held for sale 1,369 417
Total current assets 725,963 752,153
---------- ----------
Total assets 1,161,165 1,178,616
========== ==========
Current liabilities
Trade and other payables (688,948) (716,270)
Current tax liabilities (1,573) (2,935)
Contract liabilities (12,395) (10,974)
Borrowings (6,582) (25,547)
Lease liabilities (14,126) (14,071)
---------- ----------
Total current liabilities (723,624) (769,797)
---------- ----------
Non-current liabilities
Borrowings (65,777) (43,657)
Lease liabilities (76,975) (82,823)
Derivative financial instruments (497) (493)
Deferred income tax liabilities (9,180) (8,179)
Contract liabilities (9,172) (10,294)
---------- ----------
Total non-current liabilities (161,601) (145,446)
---------- ----------
Total liabilities (885,225) (915,243)
========== ==========
Net assets 275,940 263,373
========== ==========
Capital and reserves attributable
to equity holders of the Group
Ordinary share capital 36,917 36,917
Share premium 124,939 124,939
Other reserve 10,645 10,645
Hedging reserve (403) (407)
Treasury share reserve (2,791) (803)
Capital redemption reserve 2,810 2,810
Retained earnings 103,823 89,272
---------- ----------
Total equity 275,940 263,373
========== ==========
CONSOLIDATED CASH FLOW STATEMENT (AUDITED)
For the year ended 28 February 2021
2021 2020
Note GBP'000 GBP'000
Cash flows from operating activities
Operating profit 31,630 16,473
Profit on sale of property, plant
and equipment (432) (238)
Profit on lease modification (234) -
Amortisation of other intangible
assets 436 595
Depreciation of property, plant
and equipment 12,333 11,309
Depreciation of right of use asset 15,643 14,065
Impairment charges 1,452 16,878
Change to fair value of contingent
consideration - (2,500)
Movement in working capital 29,640 (23,563)
Share based payments charge 373 619
--------- ---------
Cash inflow from operations 90,841 33,638
Tax received 188 362
Tax paid (6,692) (5,348)
Finance income received 23 237
Finance costs paid (9,440) (9,387)
--------- ---------
Net cash inflow from operating
activities 74,920 19,502
--------- ---------
Cash flows from investing activities
Acquisition of businesses, net
of cash, overdrafts and borrowings
acquired (21,489) (12,398)
Acquisition of freehold and long
leasehold land and buildings (2,713) (1,421)
Proceeds from disposal of a business 1,698 -
Purchases of intangible assets (264) (155)
Purchases of other property, plant
and equipment (11,844) (14,180)
Proceeds from disposal of property,
plant and equipment 972 3,255
--------- ---------
Net cash outflow from investing
activities (33,640) (24,899)
--------- ---------
Cash flows from financing activities
Proceeds from borrowings 7 22,760 2,381
Repayment of borrowings 7 (19,705) -
Principal elements of lease repayments (15,342) (13,392)
Purchase of treasury shares (2,004) (401)
Repurchase of own shares - (2,749)
Dividends paid to equity holders - (6,122)
--------- ---------
Net cash outflow from financing
activities (14,291) (20,283)
--------- ---------
Net increase / (decrease) in cash
and cash equivalents 7 26,989 (25,680)
Cash and cash equivalents at beginning
of year 40,839 66,519
--------- ---------
Cash and cash equivalents at end
of year 67,828 40,839
========= =========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (AUDITED)
For the year ended 28 February 2021
Ordinary Treasury Capital
share Share Other Hedging share redemption Retained Total
capital premium reserve reserve reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 March
2020 36,917 124,939 10,645 (407) (803) 2,810 89,272 263,373
Profit for the
year - - - - - - 16,315 16,315
Actuarial losses
on retirement
benefit obligations - - - - - - (2,619) (2,619)
Tax on items
taken directly
to equity - - - 10 - - 498 508
Fair value losses - - - (6) - - - (6)
--------- --------- --------- --------- --------- ------------ ---------- --------
Total comprehensive
income for the
year - - - 4 - - 14,194 14,198
--------- --------- --------- --------- --------- ------------ ---------- --------
Issue of treasury
shares - - - - 16 - (16) -
Purchase of treasury
shares - - - - (2,004) - - (2,004)
Share based payments
charge - - - - - - 373 373
--------- --------- --------- --------- --------- ------------ ---------- --------
As at 28 February
2021 36,917 124,939 10,645 (403) (2,791) 2,810 103,823 275,940
========= ========= ========= ========= ========= ============ ========== ========
The other reserve is a merger reserve, arising from shares
issued as consideration to the former shareholders of acquired
companies.
The purchase of treasury shares in the period relates to the
acquisition of 5,273,820 shares by Ocorian 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 EBT and
may be used to transfer shares to individuals when options are
exercised. This could include the Company's Long Term Incentive
Plan ("LTIP") or Partnership Share Options ("PSO"), 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, 40,337 treasury shares were transferred from
the EBT on exercise of vested LTIP options. 7,287,304 shares were
remaining in the EBT at 28 February 2021.
For the year ended 29 February 2020
Ordinary Treasury Capital
share Share Other Hedging share redemption Retained Total
capital premium reserve reserve reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 March
2019 37,661 124,939 10,645 (19) (602) 2,066 92,745 267,435
Profit for the
year - - - - - - 2,987 2,987
Actuarial gains
on retirement
benefit obligations - - - - - - 2,400 2,400
Tax on items
taken directly
to equity - - - 80 - - (408) (328)
Fair value losses - - - (468) - - - (468)
Total comprehensive
income for the
year - - - (388) - - 4,979 4,591
--------- --------- --------- --------- --------- ------------ ---------- --------
Sale of treasury
shares - - - - 200 - (200) -
Purchase of
treasury shares - - - - (401) - - (401)
Repurchase of
own shares - - - - - - (2,749) (2,749)
Cancellation
of repurchased
shares (744) - - - - 744 - -
Dividend paid - - - - - - (6,122) (6,122)
Share based
payments charge - - - - - - 619 619
--------- --------- --------- --------- --------- ------------ ---------- --------
As at 29 February
2020 36,917 124,939 10,645 (407) (803) 2,810 89,272 263,373
========= ========= ========= ========= ========= ============ ========== ========
NOTES
For the year ended 28 February 2021
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 consolidated financial statements of Vertu Motors plc have
been prepared in accordance with international accounting standards
in conformity with the requirements of the Companies Act 2006 ("UK
IFRS"). 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 UK IFRS, this announcement
does not itself contain sufficient information to comply with UK
IFRS's. The Group audited consolidated financial statements that
comply with IFRS's will be published on the Group's website,
www.vertumotors.com .
The consolidated financial statements have been prepared on the
going concern basis under the historical cost convention, as
modified by the revaluation of financial assets and liabilities
(including derivative financial instruments) at fair value.
In order to prepare the financial statements on the going
concern basis, the Directors have considered detailed financial
projections for a period of 12 months from the date of signing the
financial statements ('Review Period'). These projections are based
on the Group's detailed annual business plan for the year ending 28
February 2022 as well as the known financial performance of the
Group in the period subsequent to 28 February 2021, projected
forward to cover the Review Period. The Directors have considered
these financial projections in conjunction with the Group's
available facilities, which are outlined in detail in note 26 to
the consolidated financial statements.
The Directors have also considered sensitivity analysis
performed in respect of these forecasts to model the impact of
potential further 3-month period of COVID-19 related sales
restrictions taking place later in the year ending 28 February
2022, based on assumptions driven by analysis of the actual trends
that the Group experienced during the latest restrictions imposed
in the year ended 28 February 2021. This analysis did not indicate
any issues with the Group's ability to operate within its banking
facilities during the Review Period.
Based on the forecast information available and the sensitivity
analysis performed as set out above, the Directors believe it is
appropriate to prepare these financial statements on the going
concern basis.
The financial information presented for the years ended 28
February 2021 and 29 February 2020 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 2021 and 2020 financial statements
were unqualified. A copy of the statutory accounts for 2020 has
been delivered to the Registrar of Companies. Those for 2021 will
be delivered following the Company's annual general meeting, which
will be convened on 23 June 2021.
Accounting policies
The annual consolidated financial statements of Vertu Motors plc
are prepared in accordance with UK IFRS. 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 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
2020.
The Group adopted IFRS 16 'Leases' for the first time in the
year ended 29 February 2020. As the new standard was adopted
prospectively, the impact on the Consolidated Income Statement was
presented within non-underlying items in the year ended 29 February
2020 to enhance the comparability of the financial results in that
year. As the standard has now been adopted for two full financial
years, the Consolidated Income Statement for the year ended 29
February 2020 has been restated to present the impact of IFRS 16
'Leases' within underlying items.
As a result, underlying operating expenses in the year ended 29
February 2020 have decreased by GBP3,117,000 (and non-underlying
operating expenses have increased by the same value) and underlying
finance costs have increased by GBP3,595,000 (non-underlying
finance costs have decreased by the same value).
Segmental information
The Group adopts IFRS 8 "Operating Segments", which determines
and presents operating segments based on information provided to
the Group's Chief Operating Decision Maker ("CODM"), Robert
Forrester, Chief Executive Officer. The CODM receives information
about the Group overall and therefore there is one operating
segment.
The CODM assesses the performance of the operating segment based
on a measure of both revenue and gross margin. However, to increase
transparency, the Group has included below an additional voluntary
disclosure analysing revenue and gross margin within the reportable
segment.
Year ended 28 February 2021
Gross
Revenue Gross Profit Gross
Revenue Mix Profit Mix Margin
GBP'm % GBP'm % %
Aftersales * 221.2 8.7 129.6 43.1 49.3
Used cars 1,008.4 39.6 93.9 31.2 9.3
New car retail and
Motability 739.7 29.0 54.3 18.0 7.3
New fleet and commercial 578.4 22.7 23.2 7.7 4.0
---------- ---------- --------- -------- ---------
2,547.7 100.0 301.0 100.0 11.8
========== ========== ========= ======== =========
Year ended 29 February 2020
Gross
Revenue Gross Profit Gross
Revenue Mix Profit Mix Margin
GBP'm % GBP'm % %
Aftersales * 258.1 8.4 143.5 43.0 46.9
Used cars 1,235.4 40.3 102.1 30.6 8.3
New car retail and Motability 862.5 28.1 62.7 18.8 7.3
New fleet and commercial 708.5 23.2 25.8 7.6 3.6
---------- ---------- --------- -------- ---------
3,064.5 100.0 334.1 100.0 10.9
========== ========== ========= ======== =========
* Margin in aftersales expressed on internal and external
turnover. A significant part of the role of the service department
is to support the vehicle sales department and therefore this is
considered to be an important measure for the purpose of monitoring
the departmental performance
2. Non-underlying items
2021 2020
GBP'000 GBP'000
Impairment charges (1,452) (16,878)
Change to fair value of contingent
consideration - 2,500
-------- ---------
Net impairment charges * (1,452) (14,378)
Share based payments charge (265) (733)
Amortisation (436) (595)
-------- ---------
Non-underlying loss before tax (2,153) (15,706)
======== =========
*GBP2,500,000 of the impairment charges in the year ended 29
February 2020 related to Vans Direct Limited. Contingent
consideration for a corresponding amount was also released.
Non-underlying items are presented separately in the
Consolidated Income Statement to enhance comparability of trading
performance between periods.
Details of current and deferred tax arising in respect of
non-underlying items is shown in note 4.
3. Finance income and costs
2021 2020
GBP'000 GBP'000
Interest on short-term bank deposits 24 237
Net finance income relating to
defined benefit pension scheme 150 168
Finance income 174 405
======== ========
Bank loans and overdrafts (1,874) (1,418)
Vehicle stocking interest (3,899) (4,548)
Lease liability interest (3,632) (3,595)
Finance costs (9,405) (9,561)
======== ========
4. Taxation
2021 2020
GBP'000 GBP'000
Current tax
Current tax charge 5,279 4,495
Adjustment in respect of prior
years (137) (307)
-------- --------
Total current tax 5,142 4,188
Deferred tax
Origination and reversal of temporary
differences 76 181
Adjustment in respect of prior
years (95) (21)
Rate differences 961 (18)
-------- --------
Total deferred tax 942 142
Income tax expense 6,084 4,330
======== ========
Profit before taxation 22,399 7,317
Profit before taxation multiplied
by the rate of corporation tax
in the UK of 19% (2020: 19%) 4,256 1,390
Non-qualifying depreciation 560 944
Non-deductible expenses 305 68
Change to fair value of contingent
consideration - (475)
Goodwill impairment 276 2,770
Effect on deferred tax balances
due to rate change 961 (18)
IFRS 16 adjustment 31 91
Property adjustment (30) 10
Permanent benefits (43) (122)
Adjustments in respect of prior
years (232) (328)
-------- --------
Total tax expense included in the income
statement 6,084 4,330
======== ========
A summary of the Group's tax expense in respect of underlying
and non-underlying items is as follows:
Non-underlying Non-underlying
Underlying items Total Underlying items 2020 Total
items 2021 2021 2021 items 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Profit / (loss)
before tax 24,552 (2,153) 22,399 23,023 (15,706) 7,317
Taxation (5,217) (867) (6,084) (4,523) 193 (4,330)
Profit / (loss)
after tax 19,335 (3,020) 16,315 18,500 (15,513) 2,987
============= =============== ======== ============= =============== ========
Effective tax
rate 21.25% 27.17% 19.65% 59.18%
The Group's underlying effective rate of tax is 21.25% (2020:
19.65%) which is higher than the standard rate of corporation tax
in the UK as a result of the impact of non-qualifying depreciation
in the year ended 28 February 2021.
In March 2020 it was announced that the reduction in the UK rate
of corporation tax to 17% would not occur and the rate would be
held at 19%. As this was substantively enacted during the year
ended 28 February 2021, the Group's deferred tax obligations have
been remeasured at 19%. This resulted in a deferred tax charge of
GBP961,000 being incurred in the year ended 28 February 2021 which
has been presented within non-underlying items as a result of this
being driven by a non-recurring legislative change taking place in
the year.
On 3 March 2021, the Chancellor announced that the headline UK
corporation tax rate will rise to 25% from 1 April 2023. As this
increase had not been enacted by the balance sheet date, the
further revaluation of the Group's deferred tax obligations from
19% to 25% will be applied in the financial year ending 28 February
2022 and is expected to increase the Group's tax charge by GBP2.9m
for in that year.
The overall effective tax rate of 27.17% includes tax on
non-underlying items (2020: 59.18%).
5. 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.
For the purposes of calculating the weighted average shares in
issue, shares held by the Group's employee benefit trust are
excluded as rights to dividends on such shares have been
waived.
Details of the shares held in the Group's employee benefit trust
are provided on page 68 of the consolidated financial
statements.
The Group only has one category of potentially dilutive ordinary
shares, which are share options. A calculation has been undertaken
to determine the number of shares that could have been acquired at
fair value (determined at the average annual market price of the
Group's shares) based on the monetary value of the subscription
rights attached to the outstanding share options.
The number of shares calculated, as set out above, is compared
with the number of shares that would have been issued assuming the
exercise of the share options.
Underlying earnings per share is calculated by dividing
underlying earnings attributable to equity shareholders by the
weighted average number of ordinary shares in issue during the
year.
2021 2020
GBP'000 GBP'000
Profit attributable to equity shareholders 16,315 2,987
Non-underlying loss after tax (note
4) 3,020 15,513
Underlying earnings attributable
to equity shareholders 19,335 18,500
======== ========
Weighted average number of shares
in issue ('000s) 367,092 370,470
Potentially dilutive shares ('000s) 7,134 4,348
-------- --------
Diluted weighted average number of
shares in issue ('000s) 374,226 374,818
======== ========
Basic earnings per share 4.44p 0.81p
======== ========
Diluted earnings per share 4.36p 0.80p
======== ========
Basic underlying earnings per share 5.27p 4.99p
======== ========
Diluted underlying earnings per share 5.17p 4.94p
======== ========
6. Dividends per share
As a result of the substantial amounts of Government support
received and the need to protect the Group's liquidity in the year
ended 28 February 2021, the Board did not declare a final dividend
for the year ended 29 February 2020, nor any dividend for the
financial year ended 28 February 2021. Dividends of GBP6,122,000
were paid in the year ended 29 February 2020, representing 1.65p
per share.
7. Reconciliation of net cash flow to movement in net debt
2021 2020
GBP'000 GBP'000
Net increase / (decrease) in cash
and cash equivalents 26,989 (25,680)
Cash inflow from proceeds of borrowings (22,760) (2,381)
Cash outflow from repayment of borrowings 19,705 -
Cash movement in net debt 23,934 (28,061)
Capitalisation of loan arrangement
fees 75 118
Amortisation of loan arrangement
fees (175) (175)
----------------------- ----------
Non-cash movement in net debt (100) (57)
Movement in net debt (excluding lease
liabilities) 23,834 (28,118)
Opening net debt (excluding lease
liabilities) (28,365) (247)
----------------------- ----------
Closing net debt (excluding lease
liabilities) (4,531) (28,365)
Lease liabilities at 1 March (96,894) (87,961)
Capitalisation of new leases (12,098) (22,325)
Disposal of lease liabilities 2,549 -
Interest element of lease repayments
(note 3) (3,632) (3,595)
Cash outflow from lease repayments 18,974 16,987
----------------------- ----------
Lease liabilities at 28 February (91,101) (96,894)
Closing net debt (including lease
liabilities) (95,632) (125,259)
======================= ==========
8. Business combinations
On 1 October 2020, the Group acquired the trade and assets of
Nottingham Kia from Sandicliffe Limited. The consideration payable
on completion amounted to GBP1,904,000 and was settled from the
Group's existing cash resources.
On 6 December 2020, the Group acquired the business and assets
of a market area of 12 sales outlets located in York, Sunderland,
Teesside, Durham and Malton. These five locations each represent
the BMW and MINI franchises, in addition to a BMW Motorrad
motorcycle operation in Sunderland and a used car operation located
in York. The Business was acquired from The Cooper Group Limited,
part of Inchcape plc for estimated cash consideration of
GBP19,585,000. The cash consideration has been funded with a
combination of a new GBP12,760,000 20-year mortgage facility from
BMW Financial Services, secured on the acquired freehold and long
leasehold dealership properties at a fixed interest rate of 2.9%
for the first 5 years, and a payment from the Group's existing cash
resources.
On 30 November 2020, the Group disposed of its ancillary
wheelchair accessible vehicle business, Versa, to Gowrings
Mobility. Consideration of GBP1,698,000 was received in cash on
completion.
9. Post balance sheet events
On 12 March 2021, the Group acquired the trade and assets of a
Honda car dealership in Huddersfield, West Yorkshire, which also
holds an authorised repair contract for Mitsubishi, from Hepworth
Motor Group. Total consideration of GBP0.8m was settled from the
Group's cash resources.
On 7 May 2021, the Group disposed of a surplus properly in
Whitchurch following the closure of its Volkswagen dealership on 26
April 2021, which previously operated from these premises. Sales
proceeds of GBP430,000 were received generating a profit on
disposal of GBP55,000.
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END
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May 12, 2021 02:00 ET (06:00 GMT)
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