REG - Vertu Motors PLC - Full Year Results
15/05/2024 07:00
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RNS Number : 4389O Vertu Motors PLC 15 May 2024
15 May 2024
Vertu Motors plc ('Vertu', 'Group')
Final results for the year ended 29 February 2024
Record revenues, substantial cash generation and increased dividend
Vertu Motors, the UK automotive retailer with a network of 188 sales and
aftersales outlets, announces its final results for the year ended 29 February
2024 ('Year').
Commenting on the results, Robert Forrester, Chief Executive Officer, said:
''It was pleasing to see the Group successfully navigating a difficult period
of trading with declining used car values in the last few months of 2023.
Used vehicle prices and margins have now stabilised and there has been strong
cash generation from lower working capital reducing net debt below market
expectations. During the year, record revenues of £4.72 billion were
achieved.
Moving to the new financial year, March and April 2024 were successful
months. The Group delivered new retail like-for-like sales volumes ahead of
the market decline in March and April. This demonstrates the robustness and
strength of the Group's operations.
The Group remains focused and thoughtful around capital allocation."
FINANCIAL SUMMARY
Years ended 29 February 2024 2023 2022
Revenue £4,719.6m £4,014.5m £3,615.1m
Adjusted(1) profit before tax £37.8m £39.3m £80.7m
Profit before tax £34.6m £32.5m £78.8m
Basic Adjusted(1) EPS 8.37p 9.16p 17.92p
Dividends per share 2.35p 2.15p 1.70p
Free Cash Flow £57.0m £54.3m £44.4m
Net (Debt)(2)/ Cash (£54.0m) (£75.3m) £16.2m
HIGHLIGHTS
· Profit before tax rose 6.5% to £34.6m from £32.5m.
· Adjusted(1) profit before tax of £37.8m (FY23: £39.3m), on record
revenues of £4.7 billion. Profit in line with current market expectations.
· Operating expenses as a percentage of revenues fell to 9.7% (FY23:
9.9%) reflecting application of strong cost disciplines despite inflationary
pressures.
· Used car margins weakened in H2 due to price corrections in the
market: values and margins stabilised by the end of the Year.
· Aftersales delivered a strong performance, with like-for-like revenue
up 8.6% and Core Group gross profit up £13.2m compared to FY23.
· Free Cash Flow of £57.0m in the Year (FY23: £54.3m) reflecting
excellent working capital management and the underlying cash generative nature
of the business.
· Net debt(2) of £54.0m as at 29 February 2024, lower than market
expectations (FY23: Net debt: £75.3m).
· Final Dividend of 1.50p per share recommended, bringing full year
dividend to 2.35p per share (FY23: 2.15p), an increase of 9.3%.
· Net tangible assets per share of 70.5p.
· £7.5m returned to shareholders via repurchase of 11.3m shares during
the Year.
CURRENT TRADING AND OUTLOOK
· Strong trading performance delivered in key months of March and April
gives confidence for the new financial year.
· Group gained market share in the critical March and April new retail
market showing like-for-like decline of 2.6% against market decline in SMMT
registrations of 10.8%.
· Fleet volumes and margins remain robust.
· Used vehicle prices have been stable with volumes and margins robust
in March and April. Like-for-like used car volumes grew 5.8% year-on-year and
gross profit increased.
· Aftersales revenues and profits remain highly resilient and saw
growth aided by retention products, such as service plans, and additional
numbers of technicians recruited.
· Battery electric vehicle sales growth in the UK has stalled.
Government mandated targets increase over the coming years and there is a risk
the industry falls short of these targets. With the threat of significant
fines on Manufacturers on missing targets, the risk of potential market
volatility later in the year and medium-term is elevated.
· In FY25 cash proceeds from disposal of properties of £10.6m are
anticipated, approximately £2.6m in excess of book value.
· Group well positioned with stable management and a very strong
balance sheet.
· A share buyback approval for the potential purchase of shares for up
to £3m has been put in place for the new financial year. Gearing limit of
up to 1.5x net debt/EBITDA reconfirmed.
(1) Adjusted to remove non-underlying items
(2) Excludes lease liabilities, includes used vehicle stocking loans
Webcast details
Vertu management will make a webcast available for analysts and investors this
morning on the Group's website https://investors.vertumotors.com/results/
(https://investors.vertumotors.com/results/)
For further information please contact:
Vertu Motors plc
Robert Forrester, CEO Tel: 0191 491 2121
Karen Anderson, CFO Tel: 0191 491 2121
Phil Clark, Investor relations PClark@vertumotors.com
Stifel (Nominated Advisor and Broker)
Matthew Blawat Tel: 0207 710 7688
Nick Harland
Camarco
Billy Clegg Tel: 020 3757 4983
Tom Huddart
CHAIRMAN'S STATEMENT
The Group has again executed well, in what turned out to be a challenging
Year, delivering an Adjusted(1) profit before tax of £37.8m, broadly in line
with analysts' expectations. There were noteworthy highlights in the Year:
· The successful integration of the significant Helston acquisition
completed in December 2022 and the bolt on acquisition of Rowes in October
2023, augmenting the Group's growing presence in the Southwest of England.
· The delivery of operational excellence and digitalisation continued
with the full roll-out of the Group's in-house analytics system 'Vertu
Insights', a used vehicle stock management tool. Use of this dynamic tool
helped the Group to successfully navigate the significant impact of movements
in the wholesale used vehicle market in the second half of the Year.
· The roll out of the in-house developed 'Pay Later' product to all
Group sites, allowing customers to spread their vehicle repair payments
interest free over 3-5 months. This has aided conversion of the sale of
repair work identified as part of the Group's vehicle health check process,
and reduced costs compared to a third-party solution.
· The successful reduction of vacancy levels, particularly in respect
of service technicians.
· A 9.3% increase in the annual dividend per share reflects the Board's
confidence in the Group's future trading and continued strong free cash flow
generation.
· The return of £7.5m to shareholders through the purchase of
11,343,372 shares for cancellation, representing 3.3% of opening total issued
share capital.
The Board welcomed two new non-executive directors during the Year. John
Mewett, the Chief Executive Officer of Screwfix, part of the Kingfisher plc
group, joined the Board in June 2023. John is responsible for the development
of the Screwfix business across the UK, Ireland and France and has over 25
years' retail experience. David Gillard, a Non-Executive Director and the
Chair of Audit Committee at Bradford and Sons Limited, a builders' merchant,
joined the Board in January 2024. David was previously the Group Finance
Director and Deputy to the Managing Partner at DAC Beachcroft LLP, the
international law firm. David will replace Ken Lever as chair of the Audit
Committee when Ken leaves the Board at the forthcoming AGM after nine years'
service. I would like to take this opportunity to thank Ken for his
tremendous contribution to the strategy and success of the Group over his
nine-year tenure.
The Board is cognisant of possible challenges in the year ahead. These
include the impacts of a General Election, high interest rates and a
cost-of-living squeeze on consumer confidence. There is additionally,
potential for disruption in new vehicle supply as the UK Government seeks to
transition to battery electric vehicles and Manufacturers attempt to navigate
new emission legislation and potential significant fines. These impacts have
the potential to effect revenues and profitability in the short-term. We
remain, however, focused on the delivery of the Group's long-term strategic
goals, appropriate capital allocation and free cash flow generation.
The Group's performance is, as always, the result of the commitment and hard
work of all colleagues. I would like to thank all the team for their
continued effort and dedication.
Andy Goss, Chairman
(1) Adjusted to remove non-underlying items
CHIEF EXECUTIVE'S REVIEW
17 years of trading and 100 years of history
March 2024 marked a milestone 17 years of trading of the Group. This
followed the £40m purchase back in March 2007 of Bristol Street Group
Limited, which operated 32 franchised dealerships and three used vehicle
supermarkets. Since this initial acquisition, the Group has grown from 35 to
188 sales outlets and the number of colleagues employed by the Group has risen
from 1,700 to over 7,600. Over that same period, revenues have increased
from the £0.6 billion delivered by Bristol Street Group in 2006 to the £4.7
billion reported in these results.
Whilst the Vertu Group is a relative youngster in the sector, another
significant milestone was reached in March 2024, the centenary of Bristol
Street Motors. Officially incorporated on 18 March 1924, Bristol Street
Motors operated a single Ford dealership in the heart of Birmingham. Today,
Bristol Street Motors Birmingham Ford still operates as part of the Group from
the same location as it did 100 years ago. Bristol Street Motors is the
Group's largest brand; and is also the most well-known automotive brand in
England. This strength comes from 88 locations and substantial marketing
activity including TV campaigns, sponsorship of a British Touring Car
Championship racing team and the EFL's Bristol Street Motors Trophy cup
competition.
The Group has faced several considerable challenges over its short history.
A global financial crisis, Brexit, a global pandemic and its impact on supply
chains, a shift in powertrains and more normal economic fluctuations. The
business has proven to be very resilient in the face of these and indeed has
developed significant advantages:
· Dealer network
The Group operates franchised dealerships from a physical network of 143
locations, from as far north as Paisley in Scotland, down to Orpington in the
South East and Truro in the South West of England. These locations are
pivotal to the delivery of the Group's Mission 'to deliver an outstanding
customer motoring experience through honesty and trust' and to serve the
requirements of our Manufacturer partners.
· In-House systems
Over the years, the Group has developed in-house bespoke and proprietary
systems, including our showroom sales process system, fully integrated with
the Group's on-line customer journey, excellent management information systems
providing data in real time and used vehicle inventory management systems.
The Group currently has 56 in-house developers and robotics specialists.
· Stable committed management team
The stable senior management team have a wealth of sector expertise and the
Group has a focus on growing its 'Next Generation' of senior leaders to assure
the continued and sustainable delivery of the Group's strategic goals in the
long-term.
· Customer base
The Group's 2 million strong customer base enables the Group to focus on
retention in sales and service and the further development of ancillary
services such as retail cosmetic repair operations.
· Resilient aftersales operations
The Group has a well-established and growing aftersales business. Customer
retention initiatives such as over 163,000 live service plans together with
focus on the delivery of high levels of customer service aid the resilience of
this business.
· Brand Strength
The longevity of the Bristol Street Motors brand along with the Group's
continued investment in brand marketing and partnerships mean that Bristol
Street Motors remains the most recognised motor retail brands in England.
Macklin Motors in Scotland and Vertu also have growing brand awareness. Such
awareness is vital in a world of customers searching on the internet and
undertaking omni-channel retailing.
· Strong Manufacturer relationships
Operational delivery and strong mutual respect have generated good
relationships with the Group's chosen Manufacturer partners. Such
relationships are key to the delivery of future scale and provide excellent
support to the Group in periods of crisis, such as the pandemic.
· Balance sheet
Significant asset backing, low levels of net debt and strong cash generation
enable the Group to continue to deliver on its strategic goals.
· Values based Group
Strong values-based culture and commitment to customer service with the
Mission 'to deliver an outstanding customer motoring experience through
honesty and trust'.
Strategy Summary
The Group's key long-term strategic goal remains: To deliver growing,
sustainable cashflows from operational excellence in the automotive retail
sector. The strategic objectives of the Group, which were reviewed during
the Year, remain consistent and are summarised below:
• To grow as a major scaled franchised dealership group and to
develop our portfolio of Manufacturer partners, while being mindful of
industry development trends, to maximise long-run returns.
· To be at the forefront of digitalisation in the sector, delivering a
cohesive 'bricks and clicks' strategy, together with a focus on cost
optimisation and efficiency:
o Optimise our omnichannel retail offering and promote our brands to drive
enquiry levels.
o Digitalise aftersales processes to improve customer service and
productivity.
o Reduce the cost base of the Group by delivering efficiency using
technology.
o Utilise data driven decision making to generate enhanced returns.
· To develop and motivate the Group's colleagues to ensure operational
excellence is delivered constantly across the business.
· To develop ancillary businesses to add revenue and returns that
complement the automotive retail dealership business.
Execution of Group Strategy
Developing the Scale of the Group
The Group has an excellent platform allowing it to capitalise on growth
opportunities and deliver scale benefits. The following changes to the scale
of the Group have been delivered since 1 March 2023.
· Acquisitions
The Group completed the acquisition of Rowes Garage Limited ('Rowes') in
October 2023. This added four sales outlets in South-West of England and
further strengthened the Group's position in the region. These dealerships
were rebranded to Bristol Street Motors or Vertu Motors and were fully
integrated onto Group systems and processes upon acquisition. The outlets
represent the Honda franchise in Plymouth and Truro and a used car sales
outlet in Plymouth. In February 2024, the Honda outlet acquired in Plymstock
was closed with the business being consolidated into the central Plymouth
site. The now empty Plymstock dealership will be refranchised to provide
Plymouth with a Volvo outlet in the months ahead. The Group already operates
Volvo in the region such as in Truro, Exeter and Barnstaple. The Plymouth used
cars outlet will be franchised to represent Renault and Dacia which the Group
already represents in Exeter.
· Multi-franchising and new outlets
On 24 April 2023, the Group agreed a sub-lease of a former Cazoo outlet in
Tamworth, Staffordshire. The outlet opened in July 2023 as a Bristol Street
Motornation used car outlet and has performed successfully since opening.
The opening follows the strategy of the Group to take opportunities as they
arise in strong retail locations for the Group. In the past, outlets which
opened as Bristol Street Motornation have been transitioned to Franchise
dealerships over time. It is anticipated that Tamworth will be franchised
within the next 12 months.
In July 2023, the Group agreed a sub-lease of a former Jaguar dealership in
the west of Newcastle upon Tyne. This excellently located dealership site
was refurbished for the relocation of the Group's existing Vauxhall franchise
from nearby Scotswood Road in the city. Vauxhall opened in this new location
in October 2023. Following the move, the substantial freehold dealership
vacated by Vauxhall was re-opened on 1 December 2023 as a Ford car and
commercial vehicle operation. This follows the award by Ford of Tyne and
Wear as a market area to the Group. This additional significant Ford
operation augments the existing representation of the brand by the Group in
nearby Morpeth, Durham, and Hartlepool.
On 12 September 2023, the Group opened the MG franchise in Chesterfield,
alongside the Group's existing Vauxhall dealership. This marks the fourth
sales outlet for the MG brand (owned by SAIC of China) operated by the Group,
alongside the existing outlets in Beaconsfield, Carlisle and Edinburgh. MG
had a 4.3% market share of the UK car market in calendar 2023 having seen
significant growth.
On 28 November 2023, Bristol Street Motornation Stockton was re-franchised to
Nissan, providing a substantial dealership for this brand in Teesside and
augmenting the existing representation of the brand by the Group in nearby
Darlington.
The Group has been in discussions with BYD, the world's leading Manufacturer
of new energy vehicles, and the Board are delighted to announce that the Group
will shortly commence trading at Worcester and Gloucester with BYD.
· Active Management
The Board continues to actively manage the Group's portfolio of properties and
businesses. This includes assessing further growth opportunities as well as
the future potential of existing businesses, utilising strict investment
return metrics to ensure discipline in capital allocation.
During the Year, the Group closed operations at its BMW/MINI outlet in Malton,
Yorkshire and secured an early exit from the associated leasehold premises.
The Group also exited from a Ford operation in Stroud, Gloucestershire, and
closed its SEAT Cupra operation, exiting the associated lease, in Birmingham
in January 2024. Exiting these sub-scale dealerships has reduced operating
expenses, and the Group has retained many of the respective sales and service
customers in its nearby York BMW and MINI and Gloucester Ford dealerships, so
augmenting revenues and profits at these outlets. Additionally, in existing
multi-franchised dealership locations, the Renault/Dacia franchises in
Mansfield and the Hyundai Franchise in Morpeth have been relinquished in
consultation with the Manufacturers.
In the financial year, the Group continued to generate cash from surplus
properties. A surplus dealership in Taunton, acquired in the Helston
acquisition, was sold for proceeds of £0.8m and an accident repair centre
business and property in Newcastle was disposed of for £1.4m in the period.
In addition, a surplus property in Hayle acquired with the Rowes acquisition
was sold for proceeds of £1.4m. These transactions collectively generated
cash proceeds of £3.6m and a profit on disposal of £0.5m.
Subsequent to the financial year end, planning was formally granted in respect
of surplus land adjacent to the Group's Nissan dealership in central
Glasgow. This 1.15-acre site had been held by the Group since FY16. The
sale has not completed as contractually anticipated, due to the impact of
recent legislative changes in Scotland imposing rent controls. The Group
continue to work with the developer concerned and the Board consider that a
disposal is likely to be completed in FY25.
A further surplus property, acquired with the Helston acquisition in FY23, has
been sold following the year end on 13 March 2024. This property in Taunton
generated cash proceeds of £0.8m, in line with the asset's carrying value.
Additional surplus properties held by the Group are expected to be disposed of
in the next 18 months. In total, in FY25, cash proceeds from disposal of
properties of £10.6m are presently anticipated, approximately £2.6m in
excess of book value.
Digitalisation Developments
Omni-channel Retail Sales
Consumers continue to value a blended retail experience, with a desire to
complete tasks digitally as well as visiting a dealership to touch, feel and
test drive their prospective new vehicle ('omni-channel retailing').
In FY24, the Group focused on increasing the number of on-line vehicle sales
reservations, as such reservations convert to a sale at more than twice the
rate of traditional vehicle sales enquiries. The Group took over 22,000
on-line vehicle reservations in FY24, up 113% on the previous year.
In terms of continued development of the customer journey, changes to the
Group's sales experience/process software, built on the same platform that
underpins our eCommerce journeys, have been rolled out across the Group.
These changes provide further efficiency for the sales teams in the
dealerships as well as improving the customer buying journey.
· Data Model and Customer Data Platform
During FY24 the Group continued to scale its data capability. Further
investment in the data and business intelligence teams, which now number 14
colleagues, were made. This enabled the launch of a comprehensive data
warehouse in Q1 FY24. Utilising existing infrastructure, this provides the
bedrock of data for the Group and the opportunity to drive further
efficiencies across our finance and marketing functions as well as in
dealership operations.
This data platform drives the used vehicle pricing algorithm in use in the
Group's in-house developed 'Vertu Insights' system. This was rolled out
across the Group in FY24 and enables real-time review and updates to used
vehicle prices to reflect market conditions, and it also forms the basis of
our part exchange valuations to customers on-line. Since completing the
rollout of Vertu Insights, the number of used car price changes per day have
increased by 150% as the technology, which uses a combination of proprietary
and third party machine learning, enables price changes across all vehicles at
a location to be moved in line with market supply and demand with a single
click. Prices can go up as well as down to maximise profitability. The system
is also supported by our innovative QR Code based forecourt pricing approach,
where 'windscreen' pricing is updated in real-time, eliminating the need for
traditional price boards, which are time consuming to update.
FY24 also saw the introduction of the Group Internal Auction Platform, which
allows dealerships to sell part exchanges that do not meet their stock profile
to other Group dealerships, instead of them having traditionally been sold via
an external remarketing channel. Since launch, over 2,200 used vehicles have
been retained in the business to retail, helping with used vehicle inventory
supply whilst reducing stock availability to competitors.
The business operates in an increasingly complex technological environment and
the above developments can only be undertaken by a business with scale. As
with important cyber risk investments, once the platform is developed, scale
benefits accrue as more outlets are added to the platform.
· Digitalisation in Aftersales
The Year saw increased customer uptake of the digital self-service check-in in
the Group's service departments. 60% of customers now check in for their
service from home with a third of these going on to use the instore kiosks to
safely deposit their vehicle keys. The Group has also seen increased
penetration of add-on sales in service from customers using this facility.
The functionality of the kiosks is being further enhanced to allow courtesy
vehicle collection, customer check out and payment as well as integration with
the Group's new Retail smart repair offering, 'Bristol Street Motors Repair
Master'.
'Pay Later', an in-house developed deferred payment option for service
customers, was fully rolled out during the Year. This has substantially
reduced the cost to the business of offering this service, previously provided
by a third party. Working capital increased by £1.3m to the end of the
financial year following the rollout and no material credit issues have been
experienced to date. The offering is an efficient use of capital and has a
powerful impact on converting work from Visual Health Check activity. It is
driving higher average invoice values.
· Digitalisation to improve efficiency and reduce cost
A new substantial project has commenced, investing significant development
resource to improve the productivity of the Group's financial processing.
The first project, to allow the seamless transfer of vehicles between Group
dealerships, including invoicing, transfer of supporting records and payment
is currently under development. This functionality will then be utilised to
allow similar ease of cross charging for Group parts supply and for services
such as cosmetic repairs. The successful implementation of this technology
should substantially improve the efficiency of the Group's finance
functions. Further opportunities to increase finance efficiency, which
should bring cost savings, have also been identified.
Recruiting, Retaining and Developing Colleagues
It is a priority of the Group to develop and motivate the Group's colleagues
to ensure the delivery of operational excellence and outstanding customer
experiences. The Group has been successful in reducing colleague turnover in
recent years. Nevertheless, the Board considers that turnover in the key
roles of sales executives and service advisors remains at too high a level.
In order to increase colleague stability in all areas, the Group has commenced
substantial training and other initiatives to improve recruitment, induction
and appraisal processes. For example, every manager is currently undergoing
training to improve coaching skills. These initiatives should enhance
colleague retention and therefore the Group's ability to deliver operational
excellence.
Whilst the number of UK job vacancies has reduced slightly to 0.9 million in
January 2024 from the more than 1.0 million seen, throughout much of 2023,
(source: ONS: March 2024 labour market overview) workforce recruitment and
retention remains a challenge for many UK businesses. Resource constraints,
coupled with cost-of-living pressures and the significant increase in the
national minimum wage have led to wage inflation, with average weekly income
growing in absolute and real terms in the UK. Following the recent increase
in the National Minimum Wage, 24.3% of the Group's colleagues are paid at or
within 5% of Minimum Wage, up from 12.3%. Such colleagues are no longer able
to participate in tax efficient salary sacrifice schemes such as the holiday
purchase scheme or making pension contributions. The consequence of these
Government actions appears to have led to reduced level of satisfaction
amongst these colleagues. A survey conducted in February 2024 saw 72.7% of
colleagues ranking the Group as a great place to work (down from 85.9% in the
full annual survey). The greatest reductions in satisfaction scores were
recorded in roles paid at or just above minimum wage. In the face of such
challenges, the Group continues to strive to achieve a reasonable balance
between managing the growth of employment costs whilst ensuring that a stable,
motivated workforce is in place.
The Group has long been committed to extensive investment in the development
of all colleagues to provide opportunity to those who are talented and driven
to succeed. Programmes include a degree apprentice scheme, technician
apprentice schemes and 'Evolution' development programmes to facilitate
progression to management roles in all areas. These programmes are critical to
delivering a business which is meritocratic and full of opportunity for
colleagues.
Ancillary Businesses
The Group's ancillary business division has a dedicated divisional team to
drive the success of the businesses, which include Vansdirect, Aceparts and
The Taxi Centre. The Group has a strategy to develop such businesses to add
revenue and returns that complement the core dealership businesses.
The Taxi Centre, which has been in operation for over 20 years, delivered
1,066 taxis in the Year (FY23: 854) and importantly generated profit before
tax of £1.0m, a significant increase on the £0.5m delivered in FY23.
Improved supply of vehicles, and an expansion in the size of the sales team,
drove this strong performance.
Aceparts sells parts to customers via Marketplaces, with over 2.5 million
listings on eBay, and makes on average 2,000 despatches per day. The
business has grown 'direct to consumer' sales from selected suppliers which
has allowed sales growth whilst inventory levels have been reduced.
Wiperblades.com augments this business with a website sales platform.
Wiperblades distribution has been consolidated into the Group's existing
warehouse in Sittingbourne in Kent. Aceparts is also a material supplier to
our Dealerships for non-manufacturer parts and consumables, facilitated from
distribution centres in the Group's existing dealership premises.
Vansdirect had a good year, with a robust financial performance of £2.1m in
profit before tax (FY23: £2.8m). Supply dislocation in respect of a number
of supplying Manufacturers held back sales volumes in the Year and margins
normalised.
Strategic Summary
The Group's experienced management team, strong brands, digital prowess, and
financial strength ensure the Group is well positioned to take advantage of
opportunities and react quickly to challenges in the sector. The Group will
continue to innovate and execute to ensure that it excels in meeting customer
needs and responds to the changing external environment in which we operate.
Capital is allocated to those activities, locations and franchises that are
best placed to meet the competitive challenges arising, provide the best
growth opportunities and maximise long-term return on invested capital. The
Group will leverage on its proven strengths and execute on cost saving
initiatives, continued development of colleagues, accelerating brand growth
and pursuing new business opportunities.
Sector Trends
The franchised automotive retail sector continues to evolve with the following
trends apparent.
1. Supply and outlet dynamics
The supply disruption in the post pandemic period eased as the Year progressed
with production flowing more freely once again. This resulted in a 17.9%
increase in the number of new vehicles registered in the UK in 2023 (Source:
SMMT). Supply was such that pre-registration activity reappeared, which had
been largely absent in the last three years. This indicates an excess of
supply of inventory versus demand and a return to a supply push environment.
There is an expectation of increased competition from Chinese manufacturers as
they seek to expand vehicle sales into the relatively low tariff environments
in both Europe and the UK as growth in their domestic market has stalled.
Governments in the UK and EU are considering the competition aspects of this
with the potential for additional tariffs for Chinese producers.
Despite the addition of new entrants such as BYD and GWM ORA, the UK's total
number of franchised sales outlets fell 3.2%(2) (133 outlets), to a total of
just over 4,200 outlets. This decline in outlets continues the trend of the
last few years and should mean increased sales from those outlets which
remain.
(2)Source: Auto Retail Networks Report 2024
2. Electrification
The Group is supportive of the transition to electrified powertrains in the UK
vehicle parc as part of the move to a cleaner environment, particularly in
respect of urban air pollution. Investment in training, charging
infrastructure, specialised tooling and dedicated battery competence centres
has been made to support this transition. The Group has recently received
recognition for the efforts made in embracing the transition to 'zero
emissions', winning the National Franchised Dealers Association ('NFDA') Green
Dealer Award in April 2024. The award was given for the Group's commitment
to the Electric Vehicle Accreditation ('EVA') programme, demonstrating
dedication to being at the forefront of electric vehicle retailing.
In 2023, the UK Government rolled back the full ban on the sale of new petrol
and diesel cars in the UK from 2030 to 2035. Despite this policy
announcement, the UK Government have imposed the Vehicle Emission Trading
Scheme (VETS) from January 2024. VETS was imposed instead of the
much-discussed Zero Emissions Vehicle (ZEV) mandate. VETS represents two
schemes which run concurrently, namely the Non-Zero Emission Car Registration
Trading Scheme (CRTS) and Non-Zero Emission Car C02 Trading Scheme (CCTS).
This is the most aggressive Government imposed environment policy in Europe,
pushing BEV vehicle sales through fines rather than incentives.
CRTS requires Manufacturers to achieve specific zero emissions vehicle sales
targets, starting at 22% of total car sales and 10% of van sales in 2024.
The target rises incrementally each year to 80% for cars and 70% for vans in
2030, and 100% for both by 2035. Manufacturers can generate additional
allowances through the purchase of credits from other Manufacturers or through
the CCTS scheme. The CCTS scheme looks at the average CO2 of a
Manufacturer's registered vehicles in 2021, and if average CO2 is reduced
overall in future years, overachievement can be converted into CRTS credits.
For every vehicle that does not comply under CRTS the Manufacturer pays a fine
of £15,000. If a Manufacturer misses their CCTS target a fine of £86 is
levied for every gramme of CO2 over the base line.
The potential fines for Manufacturers from these two schemes are huge
(particularly after 2024 as targets ramp up). Increased pressure for the
sale of new electric vehicles is evident in response to this complex
legislation. Retail demand for electric vehicles remains muted with no
financial incentives from Government available, despite the onerous targets
and fine regime. Most demand is coming from the fleet and business channels
where Government tax incentives are in place. Manufacturers are seeking to
stimulate retail demand for these vehicles through the offer of discounted
prices and supported finance rates, yet these are clearly costly to their
profitability.
Both CRTS and CCTS are only judged at the end of the calendar year and as such
it is highly likely that the pressure to generate BEV volumes will further
increase as the year progresses and in future years as targets tighten. One
outcome may well be a reduction in the supply of Internal Combustion Engine
(ICE) vehicles in the second half of FY25 to minimise exposure to regulatory
fines. This could, in turn, impact on the size of the UK vehicle market.
A further potential challenge to the transition to BEV discussed in previous
reports arose from tightening Rules of Origin requirements where BEVs sold
between the EU and UK face 10% tariffs, based on the origin of their
components. The introduction of this tariff has been delayed from 1 January
2024 to 2027 which is clearly a helpful development.
The Society of Motor Manufacturers and Traders (SMMT) registration statistics
show UK BEV registrations in the period January to April 2024 represented
15.7% of all sales, below the mix achieved in 2023. Growth has been achieved
in the fleet and Motability sales channel, rather than retail.
3. Financial Conduct Authority (FCA)
The Financial Conduct Authority (FCA) is currently investigating Discretionary
Commission Arrangements (DCAs) within automotive finance. Preliminary
findings from the FCA review suggest that motor finance providers, and motor
finance credit brokers (including motor dealers) who have engaged in motor
finance agreements involving DCAs could be impacted. The Group ceased sales
involving DCAs in January 2021. The FCA have indicated that an update on
this investigation will be given by September 2024. The Board does not
currently consider that provisions are required to be made in respect of any
exposures in this area and will update shareholders as the position becomes
clearer.
In a separate development, in November 2023, the FCA highlighted concerns
regarding the proportion of premiums paid by customers being disbursed in
claims in respect of guaranteed asset protection (GAP) insurance. The Group
ceased the sale of GAP insurance to customers on 31 January 2024. No
provisions have been made.
4. Agency Distribution
Under the agency distribution model, the Manufacturer transacts with the
customer for new vehicle sales while the retailer remains the physical
touchpoint with the customer and undertakes the sales process, customer
contact and vehicle delivery as an agent. The retailer-turned-agent receives
a commission on each new vehicle sale. There are varying versions of the
agency model proposed and the picture is evolving in terms of such factors as
Manufacturers' appetite to change, the legal structure of the model, and the
details of operational implementation.
The Group has long operated on an agency basis for a significant proportion of
fleet and parts sales. Mercedes-Benz passenger cars moved to a genuine
agency model on 1 January 2023 and Volvo from July 2023 in respect of retail
new car sales. The Volkswagen Group brands have also implemented agency
distribution for their BEV ranges in the retail channel. Honda also moved to
agency for the e:Ny1 product from the end of April 2024. A number of others
still plan to do so in time.
A number of Manufacturers previously announced they were considering
implementing the agency model in the UK, notably Ford and Land Rover. Both
recently announced the transition will not now take place.
CURRENT TRADING AND OUTLOOK
· March and April 2024 Trading (the 'Period')
The Board is pleased with the Group's strong trading performance in the
critical first two months of the new financial year. Overall, the
performance was slightly ahead of the Board's expectations and expectations
for the full year are unchanged.
The UK new car market saw a growth in total registrations in March and April
2024 of 7.4% compared to the prior year. This increase arose in the Fleet
and Motability channels, whilst registrations to private retail customers saw
continued weakness and fell 10.8%.
The Group's volumes of new retail vehicles sold fell only 2.6% in the Period,
significantly ahead of the 10.8% market decline, improving share to 4.9% (4.5%
in the comparative Period). The Group's Motability sales grew 43.7%
like-for-like compared to an increase of 48.5% in the UK Market. The growing
mix of Motability sales, along with increased supply of new vehicles
generally, continues to weigh on margins. Gross profits per unit on the sale
of new retail and Motability vehicles in the Core Group were £2,101 in the
Period, a decline of £308 Period-on-period with gross margins normalising to
8.1%. Overall gross profits from the sale of new vehicles were below prior
year levels.
The Group's Fleet and Commercial performance remained strong in the Period,
generating increased gross profit levels compared to the prior year Period.
Group Fleet and Commercial like-for-like volumes grew 6.7% in the Period.
Gross profits per unit continued to exceed prior year levels at over £1,300
per unit and consequently gross profits in this channel were above prior year
Period levels.
The UK used vehicle market saw relative stability in the post year end period,
in respect of both consumer demand and used vehicle prices. Like-for-like
volumes of used cars sold by the Group grew 5.8% in the Period year-on-year.
Core Group Gross margins on the sale of used cars were robust, growing 0.3% to
7.9%. This margin percentage increase was due to a reduction in average
selling prices of almost £2,000 per unit (9.0%) reflecting lower used vehicle
prices following the market correction in late 2023. Overall, gross profit
from the sale of used vehicles was slightly up on the prior year period.
Like-for-like the Group delivered improved gross profit from all aftersales
channels in the Period compared to last year. Service revenues in the Core
Group grew by 9.5% with margins stable.
As anticipated, the Core Group saw an increase in operating expenses. Salary
costs rose due to the impact of the National Minimum Wage and further success
in filling vacancies. Vehicle running costs increased year-on-year due to
enhanced depreciation rates being applied and the requirement by manufacturers
for larger demonstrator ranges. Interest costs also exceeded prior Period
levels because of the impact of increased interest rates.
· Outlook
The Board is encouraged by the strong trading results in the first two months
of FY25 and this provides confidence for the remainder of the financial
year.
The SMMT recently upgraded its outlook for 2024 to 1.984m registrations
(previously 1.974m) with BEV vehicles expected to represent a 19.8% share,
(reduced on the previous 21.0% share anticipated). For the four months to
April 2024 BEV vehicles have taken a 15.7% share. The softness of BEV retail
demand represents a considerable challenge in achieving the ZEV mandate
targets for Manufacturers. If unamended this regime, together with the absence
of incentives for consumers in the retail market, may cause volatility and
disruption in the UK new vehicle market in the near and medium term.
The used vehicle market and pricing is likely to remain robust except
potentially in BEV residuals as consumer offers by Manufacturers increase to
avoid fines and supply to the used car market increases. A curtailment of
supply of new ICE vehicles by Manufacturers to improve the BEV mix in the
light of potential fines, could underpin future used vehicle residual values.
The Fleet and Motability markets are likely to remain strong powered by
financial tax incentives for BEV vehicles and the need to push BEV product in
channels other than retail.
Aftersales demand looks to be well set in the months ahead as the Group
benefits from its customer retention strategies. Higher availability of
technician resource is another favourable tailwind.
Group Management remains focused on operational excellence around cost,
conversion and customer experience and the delivery of the Group's strategic
objectives.
Robert Forrester, CEO
CHIEF FINANCIAL OFFICER'S REVIEW
The Group's income statement for the Year is summarised below:
FY24 FY23 Variance
£'m £'m %
Revenue 4,719.6 4,014.5 17.6
Gross profit 516.1 448.4 15.1
Operating expenses reported (456.8) (399.6) (14.3)
Adjusted Operating profit 59.3 48.8 21.5
Net Finance Charges (21.5) (9.5) 126.3
Adjusted Profit Before Tax 37.8 39.3 (3.8)
Non-Underlying items(3) (3.2) (6.8) 52.9
Profit Before Tax 34.6 32.5 6.5
Taxation (8.9) (6.9) (29.0)
Profit After Tax 25.7 25.6 0.4
(3) Non-underlying items represent, share-based payments charge, amortisation
of intangible assets, impairment charges and other non-underlying items.
The Group generated an adjusted profit before tax of £37.8m (FY23 £39.3m).
Underlying operating profitability declined due to the impact of declining
used car vehicle values in the final quarter of 2023 and the consequent impact
on used car margins and gross profit generation. Group profit before tax of
£34.6m exceeded prior year levels by 6.5% due to lower non-underlying costs
incurred in the Year.
Revenue grew to £4.7 billion, a growth of £705.1m (17.6%) compared to the
prior year. Acquisitions completed after 1 March 2022 contributed
additional revenues of £450.1m, whilst dealerships disposed of or closed in
the Year generated a £46.5m reduction in revenues. Revenue in the Core
Group increased by £301.5m (7.9%) driven by an increase in fleet and
Motability vehicle sales volumes, as new car supply increased.
Acquisition performance is dominated by the £115m Helston acquisition
completed in December 2022. This was the largest single acquisition
undertaken by the Group and will generate significant shareholder value. All
of the acquired dealerships were fully integrated onto Group systems and
processes by the first quarter of the Year as anticipated. Synergies have also
been delivered as intended, yet despite this, the financial contribution in
the Year from this acquisition was below expectations due to the impact of the
used car price correction, concentrated in premium businesses in the second
half of the Year. Financial performance is now stronger in the ex-Helston
dealership as used car prices have stabilised and a robust contribution is
anticipated in FY25.
Revenue and Gross Profit by Department
An analysis of total revenue and gross profit by department is set out below:
FY24 FY23 Variance
£'m £'m £'m
Revenue
New 1,452.5 1,121.9 330.6
Fleet & Commercial 1,037.4 897.6 139.8
Used 1,816.2 1,658.2 158.0
Aftersales 413.5 336.8 76.7
Total Group Revenue 4,719.6 4,014.5 705.1
Gross Profit
New 119.6 98.4 21.2
Fleet & Commercial 55.6 42.3 13.3
Used 122.5 125.2 (2.7)
Aftersales 218.4 182.5 35.9
Total Gross Profit 516.1 448.4 67.7
Gross Margin
New 8.2% 8.8% (0.5%)
Fleet & Commercial 5.4% 4.7% 0.7%
Used 6.7% 7.5% (0.8%)
Aftersales(4) 43.5% 44.5% (1.0%)
Total Gross Margin 10.9% 11.2% (0.3%)
(4) Aftersales margin expressed on internal and external revenues
The total and like-for-like volumes of vehicles sold by the Group and trends
against market data are set out below:
Total Units Sold % Like-for-Like Units Sold %
FY24 FY23 Variance FY24 FY23 Variance
Used retail vehicles 86,437 82,561 4.7 79,691 81,336 (2.0)
Direct new retail cars 35,228 33,727 4.5 31,607 33,167 (4.7)
Agency new retail cars 1,585 80 - 1,326 80 -
Total new retail cars 36,813 33,807 8.9 32,933 33,247 (0.9)
Motability cars 19,706 11,029 78.7 19,082 10,995 73.6
Direct fleet cars 19,474 18,259 6.7 18,388 17,813 3.2
Agency fleet cars 7,770 5,236 48.4 7,770 5,237 48.4
Total fleet cars 27,244 23,495 16.0 26,158 23,050 13.5
Commercial vehicles 17,569 17,710 (0.8) 17,276 17,636 (2.0)
Total New vehicles 101,332 86,041 17.8 95,449 84,928 12.4
Total vehicles 187,769 168,602 11.4 175,140 166,264 5.3
( )
( ) UK Market year-on-year change(6) Group year-on-year change v UK market(5)
New Retail Car (1.0%) 0.1%
Motability Car 70.2% 3.4%
Fleet Car 26.5% (13.0%)
Commercial 19.3% (21.3%)
( )
(5) Represents the year-on-year variance of like-for-like Group volumes
compared to the UK trends reported by SMMT
(6) Source SMMT
Used retail vehicles
The used vehicle market in the UK was best described as volatile in the Year,
particularly in the second half.
In terms of supply, low new vehicle registrations in the UK from 2020-2022
have meant that generally the supply of older used vehicles into the market
remains constrained. Improving new vehicle supply as 2023 progressed allowed
for the renewal of large corporate, Motability and daily rental fleets
particularly in September. This in turn generated an influx of supply into
the used wholesale markets, particularly of sub-3-year-old used petrol
vehicles and BEVs. Fleet companies typically held lower-than-market residual
values on those vehicles being de-fleeted, so wholesale sellers were willing
to accept lower prices to liquidate inventory than previously prevailing
market prices, leading to price falls.
Whilst used vehicles have remained a necessity purchase for many consumers,
factors like cost-of-living pressures, high interest rates, high vehicle
prices following considerable price inflation in 2022 and the first half of
2023, and soaring insurance costs dampened consumer demand. This was
particularly pronounced in the more expensive premium segment.
These market dynamics had an impact on wholesale UK used vehicle prices over
the Year. Values saw relative stability in the months to August 2023, with
prices remaining some 25-30%(7) above historic levels. Gentle monthly downward
movements in prices were witnessed in the first half of the financial year in
all but BEVs. Used BEV supply had grown rapidly, albeit from a very low
base, and outstripped retail demand. Used BEV prices consequently fell
significantly, with a 44%(8) correction being seen over the twelve months to
August 2023. Later in the financial year, the influx of de-fleet supply,
described above, met with more muted demand and so UK wholesale values across
all powertrains experienced a significant price correction. Wholesale values
fell by 10.3% between October and December (Source: CAPHPI). Premium vehicle
values at the higher end of the market saw the greatest declines within this,
with CAP reporting drops of 7% -11% in each month, October to December. Used
vehicle prices saw greater stability from January 2024 overall, however
Premium vehicles within this continued to show greater weakness than the
market generally.
The Group continually monitors the used vehicle pricing, demand and supply
environment. Monitoring is significantly aided by the in-house developed
'Vertu Insights' system and enhanced by the Group's new data lake. This
includes a pricing algorithm to ensure that, in fast-moving market conditions,
prices are adjusted to optimise stock turn, volume and margin mix. Retail
prices of Group inventory are now frequently changed on used cars both upwards
and downwards. The ability to respond quickly to market changes is enhanced
by the Group's strong marketing and digital capability.
The Year started with low levels of used vehicle stock as the Group reduced
inventory. Group target inventory levels were increased in the first half of
the Year reflecting good levels of consumer demand and to take account of
increased time needed to prepare vehicles for sale due to the aging parc.
Despite the ongoing supply constraints prevalent at the time, the Group was
successful in growing inventory levels to 31 August 2023 compared to the
opening position. As market conditions changed, and especially in response to
the wholesale pricing conditions evident from the end of September 2023, the
Group sought to increase stock turn and substantially reduce inventory
levels. The Group was successful in driving increased stock turn, delivering
like-for-like volume growth of 2.0% in the second half of the financial year.
In the first half used volumes declined 5.7% like-for-like, mainly due to the
absence of 0% finance used car events. Used vehicle inventory at 29 February
2024 totalled £163.0m, a 5.7% reduction on the opening position and
substantial reduction of over £40.0m when compared to half year-end inventory
levels (31 August 2023: £205.9m). Approximately £11m of the reduction was
due to an 8% fall in the average price of inventory, aided by the market price
declines. The remaining £29m reduction was driven by a 16% reduction in the
number of used retail vehicles held in stock, a fall of over 1,500 units.
Core Group gross profit from the sale of used vehicles totalled £110.1m for
the Year. This represented a £9.7m decrease in Core Group gross profit
year-on-year generated from used vehicle sales. The following like-for-like
variances compared to last year arose:
· 2.0% decrease in the number of used retail vehicles sold, with this
all arising in the first half of the Year. This decline was partly due to
being unable to execute 0% finance offer events due to increased interest
rates.
· Gross profit per unit £1,447 (FY23: £1,533) reflective of declining
used vehicle prices and margins in the second half.
· Average selling price of £20,200, a 1.4% increase.
· Gross margin reduced to 7.2% (FY23: 7.7%) reflective of higher sales
prices and reduced gross profit per unit.
Outstanding customer experience on used cars remains vital to the Group's
ongoing success in terms of profitability and future retention of customers.
The Group assesses customer experience through an extensive mystery shopping
programme and in the majority of the Group via the Judge Service third party
platform. Net Promoter Scores recorded via Judge Service throughout the Year
have been very strong at c.85%, which the Board believe to be sector leading
amongst major market players.
(7)Source: CAPHPI: October 2023 Car market overview
(8) Source: CAPHPI: September 2023 Car market overview
New retail cars and Motability sales
UK retail car registrations declined 1.0% in the year to 29 February 2024.
Retail demand has become increasingly muted over the Year, and this is
particularly the case for BEVs. Increased supply of new BEV vehicles
exceeded retail demand. Manufacturers are facing the challenging combination
of slow retail sales, complex new regulatory targets (with related significant
fines) related to the share of BEV, and increased competition from new
entrants. As a result, significant discounting and finance offers are
increasingly apparent to stimulate consumer demand for electric models.
The Group saw like-for-like new retail vehicle volumes decline by 0.9% when
compared to the prior year, in line with the market. Overall, the Group
increased its UK retail market share to 4.6% (FY23: 4.1%) aided by new
dealerships from acquisitions.
UK Motability registrations continued to benefit from pent up demand, as
already extended contracts came to an end and supply improved from
Manufacturers, rising a significant 70.2%, compared to FY23. The Group's
Motability volumes outperformed the market, growing 73.6% on a like-for-like
basis and representing an increasing UK market share of 6.2% (FY23: 5.9%).
The Group remains Motability's largest partner in the UK with over 41,200
vehicles on the fleet. These vehicles require an annual service funded by
Motability in the Group's service departments over the three-year lease period
and therefore important to aftersales revenues.
The Group is seeing a dampening effect on new vehicle gross profits as supply
push dynamics become more prevalent and impact margins and as the Motability
channel increases as a proportion of the new car market. BEV margins are
coming under pressure as the need to hit Government targets rises.
The following trends were apparent on a like-for-like basis for the New Retail
and Motability sales channel:
· A £7.0m increase in gross profit generated, driven by the substantial
increase in Motability volumes.
· Gross profit per unit of £1,970 (FY23: £2,155) representing the
higher mix of lower margin Motability volumes and increasing discounting to
drive volumes.
· An average selling price of £24,637 per unit, a 2.9% increase. This
is part driven by increased BEV mix which has higher sales prices than
internal combustion engine product.
· Gross margin of 8.0% (FY23: 8.8%).
In new vehicles, sales customer experience is measured by the Group's
Manufacturer partners. Approximately 70% of the Group's Core sales outlets
delivered experience levels above national average levels. This represents
significant outperformance and reflects the Group's focus on executing its
Mission Statement ''to deliver an outstanding customer motoring experience
through honesty and trust.''
Fleet & Commercial vehicle sales
The UK car fleet market has driven the increase in new vehicle registrations
in the UK over the Year. Registration volumes in the UK car fleet market
have grown 26.5% year-on-year compared to FY23. This growth has been aided
by robust demand for electric vehicles through the fleet channel. Within the
fleet market, daily rental registrations were up 139%(9) in the Year, as
several manufacturers increased volumes in this area. These daily retail
volumes are still a long way short of pre-pandemic levels.
Like-for-like, the Group delivered over 26,000 fleet cars in the Year,
representing an increase of 13.5% compared to FY23. The Group's performance
was below the market trends as the Group kept pricing disciplines to maintain
margin and did not undertake significant volumes of low margin daily rental
sales. Overall, the Group has a 3.6% (FY23: 3.9%) share of the UK fleet car
market.
UK van registrations grew 19.3% in the year to 29 February 2024 as supply
pressures eased and demand stabilised. The market started to see increased
pre-registration activity and a large number of customers paying for vans,
which while registered, were not delivered. These trends therefore tended to
flatter registration trends versus actual sales reported. The Group's
like-for-like sales of new commercial vehicles fell 2.0% in the Year, largely
due to keeping strong pricing disciplines. The Group sold 5.1% of UK new light
commercial vehicles in the Year (FY23: 6.1%).
Importantly, the Group saw increased profit generation from its combined fleet
and commercial operations, growing Core Group gross profit by £10.0m compared
to last year. The following fleet and commercial trends were seen on a
like-for-like basis:
· Like-for-like fleet and commercial volumes increased 6.8% and a total
of 44,800 vehicles were sold by the Group in this channel.
· An average selling price of £27,382 (FY23: £24,634) reflecting
increased BEV sales.
· Record gross profit per unit of £1,203, a rise of 18.2% from £1,018.
· Gross margin rising to a record 5.2% from 4.7%.
(9)Source: SMMT
Aftersales
The Group's aftersales operations are a vital contributor to Group
profitability, generating over 42% of total gross profit. The Group is
delighted to report that it saw growth in gross profit generation in all major
channels of aftersales on a like-for-like basis as set out below:
Service Accident & Smart Repair Total
Fuel
Parts Forecourt
£'m £'m £'m £'m £'m
Revenue(10) 169.2 213.8 23.9 11.8 418.7
Revenue(10) change 9.9 21.1 4.3 (2.1) 33.2
Revenue(10) change (%) 6.2% 11.0% 21.8% (15.1%) 8.6%
Gross profit 123.5 47.0 14.0 0.9 185.4
Gross profit change 5.8 3.8 3.6 - 13.2
Gross margin(11) FY24 (%) 73.0% 22.0% 58.9% 7.8% 44.3%
Gross margin(11) FY23 (%) 73.9% 22.4% 53.3% 6.4% 44.7%
Margin change (%) (0.9%) (0.4%) 5.6% 1.4% (0.4%)
(10) includes internal and external revenues
(11) Aftersales margin expressed on internal and external revenues
· Service
At the end of September 2023, there were 41.3 million(12) licensed vehicles in
the UK, including commercial vehicles. In January 2024, the UK reached a
milestone in that the millionth BEV reached the road. Despite this
milestone, BEV still represent a very small proportion of the overall vehicle
parc, less than 3%.
Vehicle servicing and repair remains a vital and resilient revenue stream for
the Group, benefitting from robust demand aided by the Group's excellent
retention and conquest strategies in this area. In the first half of the
financial year, the Group faced challenges in meeting demand due to
constraints in technician resources, impacting both retail service work and
the preparation of used vehicles for sale. In the first half of the Year, the
Group averaged 126 technician vacancies and, in response, the Group
implemented additional pay measures to enhance the recruitment and retention
of technicians. Each technician contributes an average of £115,000 in service
and parts gross profit for the Group, underscoring the significance of
reducing technician vacancies to capitalise on revenue opportunities. The
Group was successful in reducing vacancy levels and bolstering its technician
workforce, with a 9.8% increase in like-for-like technician numbers, totalling
914 technicians by the end of the Year (compared to 832 in those same
dealerships in February 2023).
The Group has embraced the use of technology to improve productivity in
aftersales. Over 60% of eligible customers now check-in for their service or
repair on-line in advance of attending the dealership. A third of those
customers now also go on to use the check-in kiosks in dealerships. This
increases colleague productivity and enhances the customer experience.
The added efficiency and improvement in technician resource has helped the
Group achieve greater consistency of execution in its vehicle health check
process. This process checks every vehicle in the workshop to identify
safety related issues requiring immediate attention and any items which may
warrant the customers attention within the next few months. The customer is
sent a video from the vehicle technician, highlighting any such items found
and then a colleague will contact the customer to ascertain whether they would
like the work to be carried out whilst the vehicle is with the dealership.
On average, each customer was sold an additional approximately £95 per visit
because of this process, aiding average invoice values to reach record levels
of over £330 during the Year. The ability to sell identified work to
customers was augmented during the Year by the launch of 'Pay Later', which
allows customer to spread the cost of their repair, interest free, over 3 to 5
equal instalments. In addition, the Group is now piloting a new technology
solution whereby work identified is communicated digitally to the customer who
can click to approve the work to be undertaken and can also pay for such work
online.
Service performance and delivery of outstanding customer experiences was,
negatively impacted in the Year by dislocation in parts supply in respect of
certain of the Group's Manufacturer partners and technician shortages. This
led to significantly longer repair lead times for some customers and also
reduced the efficiency of a number of the Group's service operations. The
Group's service departments delivered above average customer experiences as
measured by the Manufacturers.
The Group remains committed to excellence of customer service and uses several
customer retention strategies to ensure that vehicle sales customers return to
the Group for their service. Service plans, through which customers pay
monthly or upfront for their annual service, are a vital part of the retention
strategy. The Group has over 163,000 live service plans, including
manufacturer service plans, which creates significant resilience to future
revenue streams.
Reflecting the trends set out above, like-for-like service revenue growth of
£9.9m (6.2%) was delivered in the Year. Gross margin percentages on vehicle
servicing were 73.0% (FY23: 73.9%) in the Core Group reflecting increased
remuneration to address technician resource constraints and hence gross profit
generation rose on a like-for-like basis by £5.8m in service.
(12) source www.gov.uk (http://www.gov.uk)
· Parts
The Group's substantial parts operations include traditional wholesale
operations, agency distribution centres, on-line parts retailing and accessory
sales to dealership customers. These operations supply parts to the Group's
service and accident repair operations as well as to other businesses and
retail customers in the UK and indeed across the world via the Groups online
parts operations. The Group successfully grew like-for-like revenue by
£21.1m (11%) from the sale of parts in the Year compared to FY23. Along
with price rises, two operational enhancements have helped overall
performance. First, improvements in the Group's vehicle health check process
as outlined above drove an increase in parts revenues per labour hour sold
through the Group's workshops. Secondly, all the Group's dealerships are now
serviced by a new Gateshead based central parts sales hub where 21 colleagues
handle inbound parts sales calls in respect of retail parts sales. This
increased conversions and sales.
Gross profits generated from the sale of parts increased by £3.8m over the
Year. Parts margins reduced slightly to 22.0% in the Year reflecting higher
selling prices and reduced bonuses from Manufacturers.
· Accident and Smart Repair
The Group's accident repair centres are managed separately from the dealership
businesses in a standalone division, concentrating solely on the management of
accident repair operations. The Group now operates 13 accident repair
centres, from Sunderland in the North East to Truro in the South West of
England. The successful accident repair business in Yeovil, acquired with
the Helston acquisition, was relocated to standalone leasehold premises in
October 2023 with an investment of £0.5m. In addition, an accident repair
operation in Truro was acquired with the Rowes Garages acquisition on 31
October 2023 and immediately integrated into the Division and Group systems.
The introduction of uniform operating systems, specific key performance
indicators and focus on higher margin work providers, have all driven
performance improvements over the Year.
The Group's Smart Repair operations have two fixed operations in addition to
100 vans, mainly servicing the Group's dealerships' demand for internal
repairs to used cars. A new retail focused smart repair operation ('Bristol
Street Motors Repair Master') has been created as a new business unit to serve
the Group's two million customers. Four vans are currently operational,
servicing corporate clients. Services to retail customers have commenced in
early April 2024 with a pilot in the Group's Sunderland BMW outlet. The
pilot uses the service check-in kiosks in dealerships to determine whether
customers require a quote for work. The Group has the aspiration to
significantly increase the capacity of this new business offering
substantially over the next 18 months.
The Group has delivered a 21.8% increase in revenues generated from the
Group's accident and smart repair Core operations and a £3.6m increase in
related gross profit.
· Fuel Forecourt
In the Core Group, one fuel forecourt is operated by the Group in Widnes. As
a result of the tempering of fuel prices from the peaks in FY23, this
forecourt saw slightly reduced revenues but a return to more normal gross
margins of 7.8% in the Year. Active pricing strategies ensured that the
forecourt has maintained market share and delivered increased gross profit.
Operating Expenses
A summary of Group operating expenses is set out below:
FY24 FY23 FY24 variance to FY23
£'m £'m £'m %
Salary costs 220.0 214.2 5.8 2.7%
Vehicle and valeting costs 45.6 38.0 7.6 20.0%
Marketing costs 35.3 36.5 (1.2) (3.3%)
Property costs and depreciation 48.1 45.4 2.7 5.9%
Energy costs 8.6 7.9 0.7 9.0%
Other 33.0 33.8 (0.8) (2.4%)
Core Group operating expenses 390.6 375.8 14.8 3.9%
Acquisitions 62.5 14.9 47.6
Disposals 3.7 8.9 (5.2)
Group Net Underlying Operating Expenses 456.8 399.6 57.2
Operating expenses as a % of Revenue 9.7% 9.9% (0.2%)
Reported underlying operating expenses of £456.8m, increased by £57.2m
compared to the year ended 28 February 2023. Dealerships acquired or sold in
the period since 1 March 2022 generated a net £42.4m of this increase.
Underlying Core Group operating expenses therefore grew, by 3.9%, (£14.8m)
compared to last year. Vitally, operating expenses as a percentage of
revenue fell to 9.7% (FY23: 9.9%) despite obvious inflationary pressures.
The largest operating cost of the Group is salary costs, which have increased
by £5.8m (2.7%) in the Core Group, compared to last year. Salary costs
shown in operating expenses exclude the productive cost of the Group's
aftersales technicians, which are included in cost of sales. Much of
increase in salary costs is the result of the Group's success in reducing
outstanding vacancy levels in the Year and the impact of the investment in the
Group's Accident and Smart repair business. Salary changes, such as the
impact of the minimum wage were broadly offset by reduced commissions and
bonus payments because of reduced retail volumes delivered in the Year and by
lower profitability reducing management bonuses.
The cost of the Core Group's demonstrator and courtesy vehicle fleet, included
within vehicle and valet costs, increased by £6.7m in the Year. The
improving supply position and expanding product ranges meant a return to
increased demonstrator requirements mandated by Manufacturers. The Group
also applied in the Year increased vehicle depreciation rates, reflecting the
price correction in the wholesale vehicle market in the Year, to ensure that
vehicle carrying values on de-fleet are appropriate. BEV and Premium
vehicles, in particular, required higher write-down rates.
The Group reduced its core marketing costs principally as a result of fewer
used vehicle events undertaken in the Year. These savings were delivered
whilst further enhancing the awareness of the Group's brands. Return on
investment is a priority for all marketing spend with a focus on increasing
its effectiveness, especially in the digital space, maximising conversion, and
a renewed focus on retention rather than conquest activity.
As anticipated, energy was a significant cost headwind for the Group in the
first half of the financial year. Successful execution of the Group's energy
purchasing strategy, efforts to reduce usage along with the softening in the
market price of electricity meant that Core Group energy costs grew just
£0.7m over the Year. The Group reduced gas and electricity consumption by
2.0% on a total basis compared to FY23. The Group completed its investment
in LED Lighting and solar panel installation totalling £2.8m in FY24. A
total of 41 of the Group's dealership now have roof solar installations.
5.9% of the Group's total electricity requirements were self-generated in FY24
by this onsite clean solar energy, with this figure expected to exceed 10% in
FY25 as the full year benefit of the installations comes through.
Other costs were tightly controlled delivering a £0.8m saving in the Core
Group compared to prior year.
Non-underlying operating expenses
FY24 FY23 FY24 Var to FY23
£'m £'m £'m
Redundancy costs 0.9 - 0.9
Lease surrender premium (0.8) - (0.8)
Impairment charges 0.1 1.5 (1.4)
Share based payments charge 2.5 2.1 0.4
Amortisation 0.5 0.5 -
Acquisition fees - 2.7 (2.7)
3.2 6.8 (3.6)
The Group undertook a strategic review of aftersales collection and delivery
services at the start of the Year. Customer charges for this service were
introduced or increased, to match the cost of provision more closely. The
number of employed drivers was also significantly reduced in order to match
reduced demand levels. This led to a one-off redundancy cost in the Year of
£0.9m.
The Group purchased the freehold interest in its Derby multi-site operation in
FY23. A premium was received in the Year in respect of the remaining lease
obligation from the intermediate landlord. The premium received has been
included in non-underlying items due to its one-off nature and size.
Net Finance Charges
Net finance charges are analysed below:
FY24 FY23 FY24 Var to FY23
£'m £'m £'m
New vehicle Manufacturer stocking interest 8.2 3.4 4.8
Mortgage Interest 6.2 1.4 4.8
Interest on bank borrowings 3.8 1.7 2.1
Used vehicle stock funding interest 1.1 0.8 0.3
Interest on lease liabilities 3.5 3.5 -
Interest income (1.3) (1.3) -
Net Finance Charges 21.5 9.5 12.0
The Group saw a significant increase in interest charged by Manufacturers on
funded new vehicle inventory. This increase was due to increased interest
rates being charged as successive base rate rises took effect, increased
average prices of new vehicles in the pipeline and an easing of supply of new
vehicles in some franchises so extending the pipeline consigned. The trend
was exacerbated in some franchises by reduced interest free stocking periods
offered by Manufacturers which resulted in a cost transfer to retailers.
Total Group new vehicle stock as at 29 February 2024 was £516m (2023:
£427m), up 21%.
Interest on bank borrowings and mortgages increased due to the additional
facilities drawn for the acquisition of Helston Garages in December 2022 as
well as the impact of increased base rate applicable to the borrowing. To
minimise the interest rate risk to the Group, derivative contracts have been
entered into. The Group has secured an interest rate cap contract over £50m
of mortgage borrowing capping the underlying rate (excluding the applicable
margin) to a maximum of 4.50%. In addition, in respect of the RCF, an
interest rate swap over £30m of borrowing has been entered into, fixing the
underlying SONIA rate charged at 4.42% until March 2025.
Pension Costs
The Group has a closed defined benefit scheme. The last actuarial valuation of
the scheme was performed as at 5 April 2021. This valuation showed the
scheme had a funding surplus, with no contributions required from the Company
to meet the cost of accrued benefits. Expenses are also met by the scheme.
No contribution payments are therefore expected for the accounting period
beginning 1 March 2024.
The scheme invests in an LDI portfolio which aims to fully hedge the scheme's
interest rate and inflation risk to maintain this fully funded position.
On the accounting valuation basis, the scheme is in surplus. A reduction in
the surplus arose over the Year relating to movements in the applicable
inflation assumptions. Overall, a net actuarial loss of £0.7m was
recognised in the Statement of Comprehensive Income for the Year. The
accounting surplus on the scheme decreased to £2.5m as at 29 February 2024
(2023: £3.2m).
Tax Payments
The Group's underlying effective rate of tax for the Year was 25.0% (FY23:
19.5%). The overall effective tax rate, increased to 25.6% (FY23: 21.3%) as
a result of the increase in the corporation tax rate applied in the Year. The
total tax charge for the Year increased to £8.9m from £6.9m. The Group
continues to be classified as 'low risk' in a recent review 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.
Cash Flows
Free Cash Flow of £57.0m (FY23: £54.3m) was generated in the Year:
FY24 FY23 FY24 Var to FY23
£'m £'m £'m
Operating profit 56.0 42.0 14.0
Depreciation, amortisation, share based payments & other 37.5 34.1 3.4
Movement in working capital 16.7 23.7 (7.0)
Interest and tax payments (26.2) (19.0) (7.2)
Net Cash Inflow from operating activities 84.0 80.8 3.2
Sustaining capital expenditure (12.4) (10.3) (2.1)
Proceeds from sale of property, plant and equipment 3.6 - 3.6
Lease principal repayments (18.2) (16.2) (2.0)
Free Cash Flow 57.0 54.3 2.7
Net cash inflow from operating activities benefited from a cash inflow of
£16.7m from a reduction in working capital (FY23: £23.7m). The movements
in working capital which resulted in this cash inflow were: A reduction in the
Group's used vehicle inventory which generated a £12.6m inflow. An £11.6m
inflow arose from an increase in creditors, this represented increased
activity in the Group's businesses, including ancillary businesses such as
Aceparts, Vansdirect and in the Group's used vehicle procurement business
together with an increase in VAT recoverable on certain new vehicle
inventory. These two inflows were partially offset by a £7.5m outflow in
respect of an increase in trade receivables, arising from increased Fleet and
Commercial vehicle sales in the Year.
In addition to the above movements in working capital, the Year saw a
significant increase in new vehicle inventory, matched by an equivalent
increase in Manufacturer funding shown within creditors, thus having no impact
on cash flow overall. This £94.0m movement comprised an increase of new
vehicle inventory in the pipeline of approximately £53.0m, a £33m increase
in tactical registrations of vehicles purchased to supply the Group's fleet
and commercial vehicle operations and an £8m increase in demonstrator
vehicles.
Financing and Capital Structure
The Group has a balance sheet with shareholders' funds of £353.4m (2023:
£341.4m) underpinned by a freehold and long leasehold portfolio of £311.8m
(2023: £306.6m) and net debt (excluding lease liabilities) of £54.0m as at
29 February 2024. The Group's conservative financing and capital structure
resulted in a strong tangible net assets position of £235.0m as at 29
February 2024, representing 70.5p per share.
The Group has a committed acquisition debt facility of £93m taken out in
December 2022 for three years with the option to extend for a further two
years. During the Year, this facility was extended for the first of the two
additional years out to December 2026. £44m of this committed facility was
drawn as at 29 February 2024 with £49m therefore available undrawn. The
Group operated comfortably within all covenants during the Year.
The Group also has long term debt funding in the form of 20-year mortgages
totalling £81.5m provided by BMW Financial Services ('BMW FS'). The
mortgages are amortising facilities with annual repayments of capital of
£4.3m.
The Group makes use of used vehicle stocking loans provided by third party
banks, subject to interest and secured on the related used vehicle
inventories. While, during the Year, there was some utilisation of the
facility, as at 29 February 2024, no amounts were drawn in this facility.
The Group has a £50.0m facility under these arrangements and held £163.0m of
unencumbered used vehicle inventory at 29 February 2024.
Capital Allocation
Consideration of capital allocation is central to the Board's decision
making. The Board believes that the Group's funding structure should remain
conservative and that the application of the Group's debt facilities to fund
activities or acquisitions which meet the Group's hurdle rates for investment,
will enhance return on equity and increase cash profits in the future.
The Group spent £6.0m on acquisitions during the Year, invested £9.2m in
multi-franchising or the expansion of capacity at existing dealerships and
made a one off investment in solar panels of £2.4m, collectively 'expansion
capex'. These cash outflows are excluded from sustaining capital expenditure
utilised in the calculation of Free Cash Flow.
Cash returns to shareholders in the form of dividends are an important part of
the Company's capital allocation decision making process and remain a priority
for the Board. The Group applies a dividend policy of dividends being
covered three to four times by adjusted diluted earnings per share. An
interim dividend of 0.85p per share was paid in January 2024. The Board
recommends a final dividend in respect of the year ended 29 February 2024 of
1.50p per share to be approved at the Annual General Meeting on 25 June
2024. This dividend will be paid, subject to shareholder approval, on 26
July 2024. The ex-dividend date will be 27 June 2024 and the associated
record date 28 June 2024. This final dividend brings the total dividend in
respect of FY24 to 2.35p per share (FY23: 2.15p), an increase of 9.3%.
Against adjusted, fully diluted EPS of 7.83p this dividend is covered 3.3
times in line with the Group's stated policy of 3-4 times.
During the Year, the Group purchased 11,343,372 shares for cancellation,
representing 3.3% of opening total issued share capital, for £7.5m. The
Board believes that this is an appropriate use of capital and will continue a
programme of Buybacks as a relevant element of returns to shareholders,
alongside dividend payments. Authority is held for a further £3m buyback
programme to be appropriately deployed. £7.8m was spent on dividends paid,
representing the final dividend in respect of the year ended 28 February 2023
and interim dividend in respect of the Year.
The Group also deploys capital on its extensive franchised dealership network,
expending £24.0m on asset additions in FY24. This included £11.6m of
non-sustaining 'expansion capital expenditure' increasing Group capacity to
generate revenues. The balance of £12.4m is considered sustaining capital
expenditure. For FY25, sustaining capital expenditure is anticipated to be
approximately £18.0m, which includes some redevelopment projects to meet
revised Manufacturer standards which do not necessarily increase Group
capacity. A further £13.8m of expenditure is anticipated in respect of
expansion capital expenditure. This high level of activity includes the cost
of land purchases to provide additional vehicle compounding for certain of the
Group's dealerships. The category also includes the build costs of the Ayr
Toyota dealership and the expansion of the Group's Toyota dealership in
Chesterfield. The Group has surplus property assets with disposals in FY25
expected to generate cash proceeds of c.£10m, £0.8m of which has already
been received after 29 February 2024.
Karen Anderson, CFO
CONSOLIDATED INCOME STATEMENT (AUDITED)
For the year ended 29 February 2024
Underlying items 2024 Non-underlying items 2024 Total 2024 Underlying items 2023 Non-underlying items 2023 Total 2023
(Note 2) (Note 2)
Note £'000 £'000 £'000 £'000 £'000 £'000
Revenue 4,719,587 - 4,719,587 4,014,544 - 4,014,544
Cost of sales (4,203,507) - (4,203,507) (3,566,134) - (3,566,134)
Gross profit 516,080 - 516,080 448,410 - 448,410
Operating expenses (456,845) (3,194) (460,039) (399,590) (6,828) (406,418)
Operating profit / (loss) 59,235 (3,194) 56,041 48,820 (6,828) 41,992
Finance income 3 1,254 - 1,254 1,300 - 1,300
Finance costs 3 (22,728) - (22,728) (10,842) - (10,842)
Profit / (loss) before tax 37,761 (3,194) 34,567 39,278 (6,828) 32,450
Taxation 4 (9,430) 576 (8,854) (7,663) 746 (6,917)
Profit / (loss) for the year attributable to equity holders 28,331 (2,618) 25,713 31,615 (6,082) 25,533
Basic earnings per share (p) 5 7.60 7.40
Diluted earnings per share (p) 5 7.11 7.02
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (AUDITED)
For the year ended 29 February 2024
2024 2023
£'000 £'000
Profit for the year 25,713 25,533
Other comprehensive expenses
Items that will not be reclassified to profit or loss:
Actuarial losses on retirement benefit obligations (737) (5,973)
Deferred tax relating to actuarial losses on retirement benefit obligations 184 1,493
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges 116 172
Deferred tax relating to cash flow hedges (29) (43)
Other comprehensive expense for the year, net of tax (466) (4,351)
Total comprehensive income for the year
attributable to equity holders 25,247 21,182
CONSOLIDATED BALANCE SHEET (AUDITED)
As at 29 February 2024
2024 2023
£'000 £'000
Non-current assets
Goodwill and other indefinite life assets 129,092 128,080
Other intangible assets 1,971 2,286
Retirement benefit asset 2,477 3,188
Property, plant and equipment 335,295 328,405
Right-of-use assets 72,886 73,078
Derivative financial instruments 203 507
Total non-current assets 541,924 535,544
Current assets
Inventories 761,996 674,380
Trade and other receivables 93,702 85,827
Current tax assets 203 1,654
Cash and cash equivalents 70,599 78,984
926,500 840,845
Property assets held for sale 7,881 6,077
Total current assets 934,381 846,922
Total assets 1,476,305 1,382,466
Current liabilities
Trade and other payables (869,931) (758,594)
Contract liabilities (13,400) (13,477)
Borrowings (4,395) (29,821)
Lease liabilities (17,710) (14,498)
Total current liabilities (905,436) (816,390)
Non-current liabilities
Borrowings (120,183) (124,519)
Lease liabilities (65,214) (68,959)
Deferred income tax liabilities (22,024) (19,117)
Contract liabilities (10,075) (12,104)
Total non-current liabilities (217,496) (224,699)
Total liabilities (1,122,932) (1,041,089)
Net assets 353,373 341,377
Capital and reserves attributable to equity holders of the Group
Ordinary share capital 33,760 34,894
Share premium 124,939 124,939
Other reserve 10,645 10,645
Hedging reserve 220 133
Treasury share reserve (2,056) (2,653)
Capital redemption reserve 5,967 4,833
Retained earnings 179,898 168,586
Total equity 353,373 341,377
CONSOLIDATED CASH FLOW STATEMENT (AUDITED)
For the year ended 29 February 2024
2024 2023
Note £'000 £'000
Cash flows from operating activities
Operating profit 56,041 41,992
(Profit)/loss on sale of property, plant and equipment (516) 102
Profit on lease modification (411) (449)
Amortisation of other intangible assets 568 509
Depreciation of property, plant and equipment 17,449 14,510
Depreciation of right-of-use asset 18,254 16,225
Impairment charges 128 1,500
Movement in working capital 16,708 23,737
Share based payments charge 1,965 1,651
Cash inflow from operations 110,186 99,777
Tax received 552 100
Tax paid (5,296) (9,118)
Finance income received 1,099 1,053
Finance costs paid (22,576) (10,983)
Net cash inflow from operating activities 83,965 80,829
Cash flows from investing activities
Acquisition of businesses, net of cash, overdrafts and borrowings acquired (5,966) (122,066)
Acquisition of freehold and long leasehold land and buildings (3,003) (7,468)
Purchases of intangible assets (253) (186)
Purchases of other property, plant and equipment (23,686) (13,785)
Proceeds from disposal of businesses 204 -
Proceeds from disposal of property, plant and equipment 3,589 179
Net cash outflow from investing activities (29,115) (143,326)
Cash flows from financing activities
Proceeds from borrowings 7 - 110,570
Repayment of borrowings 7 (29,836) (23,358)
Principal elements of lease repayments (18,183) (16,187)
Purchase of treasury shares - (2,000)
Sale of treasury shares 115 744
Cash settled share options (109) (180)
Repurchase of own shares (7,463) (5,898)
Dividends paid to equity holders (7,759) (6,003)
Net cash (outflow)/inflow from financing activities (63,235) 57,688
7 (8,385) (4,809)
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year 78,984 83,793
Cash and cash equivalents at end of year 70,599 78,984
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (AUDITED)
For the year ended 29 February 2024
Ordinary Share Other Hedging reserve Treasury share Capital redemption reserve Retained Total
share capital premium reserve reserve earnings equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 1 March 2023 34,894 124,939 10,645 133 (2,653) 4,833 168,586 341,377
Profit for the year - - - - - - 25,713 25,713
Actuarial losses on retirement benefit obligations - - - - - - (737) (737)
Tax on items taken directly to equity - - - (29) - - 184 155
Fair value gains - - - 116 - - - 116
Total comprehensive income for the year - - - 87 - - 25,160 25,247
Sale of treasury shares - - - - 597 - (482) 115
Repurchase of own shares - - - - - - (7,463) (7,463)
Cancellation of repurchased shares (1,134) - - - - 1,134 - -
Dividends paid - - - - - - (7,759) (7,759)
Share based payments charge - - - - - - 1,856 1,856
As at 29 February 2024 33,760 124,939 10,645 220 (2,056) 5,967 179,898 353,373
The other reserve is a merger reserve, arising from shares issued as
consideration to the former shareholders of acquired companies.
The treasury share reserve relates to shares acquired 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"), the Company Share
Option Plan ("CSOP") 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, 1,273,903 shares were transferred from the EBT on exercise of
vested CSOP and PSO awards. 4,391,449 shares remain in the EBT at 29 February
2024.
All issued shares are fully paid.
For the year ended 28 February 2023
Ordinary Share Other Hedging reserve Treasury share Capital redemption reserve Retained Total
share capital premium reserve reserve earnings equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 1 March 2022 35,942 124,939 10,645 4 (1,586) 3,785 158,152 331,881
Profit for the year - - - - - - 25,533 25,533
Actuarial losses on retirement benefit obligations - - - - - - (5,973) (5,973)
Tax on items taken directly to equity - - - (43) - - 1,493 1,450
Fair value gains - - - 172 - - - 172
Total comprehensive income for the year - - - 129 - - 21,053 21,182
Purchase of treasury shares - - - - (2,000) - - (2,000)
Sale of treasury shares - - - - 933 - (189) 744
Repurchase of own shares - - - - - - (5,898) (5,898)
Cancellation of repurchased shares (1,048) - - - - 1,048 - -
Dividends paid - - - - - - (6,003) (6,003)
Share based payments charge - - - - - - 1,471 1,471
As at 28 February 2023 34,894 124,939 10,645 133 (2,653) 4,833 168,586 341,377
NOTES
For the year ended 29 February 2024
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.
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. The Group audited
consolidated financial statements that comply with IFRS will be published on
the Group's website, www.vertumotors.com (http://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 2025 as well as the known financial performance of
the Group in the period subsequent to 29 February 2024, projected forward to
cover the Review Period ("Base Case"). The Directors have considered these
financial projections in conjunction with the Group's available facilities.
The Directors have also considered sensitivity analysis performed in respect
of these forecasts to model the impact of various severe but plausible
downside scenarios including reduced volume of new and used car sales, reduced
demand from aftersales customers, further increases in the Group's operating
cost base and application of an arbitrary amount in respect of potential
liabilities arising as a result of ongoing investigations into Discretionary
Commission Arrangements by the Financial Conduct Authority. 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 29 February 2024 and
28 February 2023 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 2024 and 2023 financial
statements were unqualified. A copy of the statutory accounts for 2023 has
been delivered to the Registrar of Companies. Those for 2024 will be
delivered following the Company's annual general meeting, which will be
convened on 25 June 2024.
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 (http://www.vertumotors.com) , and are consistent with
those of the Group's financial statements for the year ended 28 February 2023.
Segmental information
The Group adopts IFRS 8 "Operating Segments", which determines and presents
operating segments based on information provided to the Group's Chief
Operating Decision Maker ("CODM"), Robert Forrester, Chief Executive
Officer. The CODM receives information about the Group overall and therefore
there is one operating segment.
The CODM assesses the performance of the operating segment based on a measure
of both revenue and gross margin. However, to increase transparency, the
Group has included below an additional voluntary disclosure analysing revenue
and gross margin within the reportable segment.
Year ended 29 February 2024
Gross
Revenue Gross Profit Gross Margin
Revenue Mix Profit Mix
£'m % £'m % %
Aftersales (*) 413.5 8.7 218.4 42.3 43.5
Used cars 1,816.2 38.5 122.5 23.7 6.7
New car retail and Motability 1,452.5 30.8 119.6 23.2 8.2
New fleet and commercial 1,037.4 22.0 55.6 10.8 5.4
4,719.6 100.0 516.1 100.0 10.9
Year ended 28 February 2023
Gross
Revenue Gross Profit Gross Margin
Revenue Mix Profit Mix
£'m % £'m % %
Aftersales (*) 336.8 8.4 182.5 40.7 44.5
Used cars 1,658.2 41.3 125.2 27.9 7.5
New car retail and Motability 1,121.9 27.9 98.4 22.0 8.8
New fleet and commercial 897.6 22.4 42.3 9.4 4.7
4,014.5 100.0 448.4 100.0 11.2
* Margin in aftersales expressed on internal and external revenue. A
significant part of the role of the service department is to support the
vehicle sales department and therefore internal revenue is considered to be an
important element of margin for the purpose of monitoring departmental
performance
2. Non-underlying items
2024 2023
£'000 £'000
Redundancy costs (872) -
Lease surrender premium 840 -
Share based payments charge (2,466) (2,066)
Amortisation (568) (509)
Impairment charges (128) (1,500)
Acquisition costs - (2,753)
Non-underlying loss before tax (3,194) (6,828)
Redundancy costs included in non-underlying items relate to a reduction in the
number of employed drivers following a strategic review of aftersales
collection and delivery service during the year.
The lease surrender premium included in non-underlying items relates to a
premium received following the purchase of the Group's freehold interest in
its Derby multi-site operation, in respect of the remaining lease obligation
from the intermediate landlord.
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
2024 2023
£'000 £'000
Interest on short-term bank deposits 1,099 1,053
Net finance income relating to defined benefit pension scheme 155 247
Finance income 1,254 1,300
Bank loans and overdrafts (9,924) (3,112)
Vehicle stocking interest (9,347) (4,242)
Lease liability interest (3,457) (3,488)
Finance costs (22,728) (10,842)
4. Taxation
2024 2023
£'000 £'000
Current tax
Current tax charge 6,437 6,444
Adjustment in respect of prior years (440) (1,836)
Total current tax 5,997 4,608
Deferred tax
Origination and reversal of temporary differences 2,393 409
Adjustment in respect of prior years 411 1,684
Rate differences 53 216
Total deferred tax 2,857 2,309
Income tax expense 8,854 6,917
Profit before taxation 34,567 32,450
Profit before taxation multiplied by the rate of corporation tax in the UK of 8,469 6,166
24.5% (2023: 19%)
Non-qualifying depreciation 768 658
Non-deductible expenses 471 658
Effect on deferred tax balances due to rate change 53 216
IFRS 16 (88) (65)
Property adjustment (201) 10
Permanent benefits (589) (574)
Adjustments in respect of prior years (29) (152)
Total tax expense included in the income statement 8,854 6,917
A summary of the Group's tax expense in respect of underlying and
non-underlying items is as follows:
Non-underlying items 2024 Non-underlying items 2023
Underlying items 2024 Total Underlying items 2023 Total 2023
2024
£'000 £'000 £'000 £'000 £'000 £'000
Profit / (loss) before tax 37,761 (3,194) 34,567 39,278 (6,828) 32,450
Taxation (9,430) 576 (8,854) (7,663) 746 (6,917)
Profit / (loss) after tax 28,331 (2,618) 25,713 31,615 (6,082) 25,533
Effective tax rate 24.97% 25.61% 19.51% 21.32%
The Group's underlying effective rate of tax is 24.97% (2023: 19.51%) which is
in line with the standard rate of corporation tax in the UK.
The rate of corporation tax in the UK rose from 19% to 25% on 1 April 2023.
The overall effective tax rate of 25.61% includes tax on non-underlying items
(2023: 21.32%).
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 included
in the notes to the consolidated statement of changes in equity.
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.
2024 2023
£'000 £'000
Profit attributable to equity shareholders 25,713 25,533
Non-underlying loss after tax (note 4) 2,618 6,082
Underlying earnings attributable to equity shareholders 28,331 31,615
Weighted average number of shares in issue ('000s) 338,355 345,239
Potentially dilutive shares ('000s) 23,376 18,703
Diluted weighted average number of shares in issue ('000s) 361,731 363,942
Basic earnings per share 7.60p 7.40p
Diluted earnings per share 7.11p 7.02p
Basic underlying earnings per share 8.37p 9.16p
Diluted underlying earnings per share 7.83p 8.69p
6. Dividends per share
Dividends of £7,759,000 were paid in the year ended 29 February 2024 (2023:
£6,003,000), 2.30p per share (2023: 1.75p).
A final dividend of 1.50p per share is to be proposed at the Annual General
Meeting on 25 June 2024. The ex-dividend date will be 27 June 2024 and the
associated record date 28 June 2024. The dividend will be paid, subject to
shareholder approval, on 26 July 2024 and these financial statements do not
reflect this final dividend payable.
7. Reconciliation of net cash flow to movement in net debt
2024 2023
£'000 £'000
Net decrease in cash and cash equivalents (8,385) (4,809)
Cash inflow from proceeds of borrowings - (110,570)
Cash outflow from repayment of borrowings 29,836 23,358
Cash movement in net debt 21,451 (92,021)
Capitalisation of loan arrangement fees 186 1,037
Amortisation of loan arrangement fees (184) (131)
Increase in accrued loan interest (76) (408)
Non-cash movement in net debt (74) 498
Movement in net debt (excluding lease liabilities) 21,377 (91,523)
Opening net (debt)/cash (excluding lease liabilities) (75,356) 16,167
Closing net debt (excluding lease liabilities) (53,979) (75,356)
Lease liabilities at 1 March (83,457) (88,830)
Capitalisation of new leases (20,586) (13,307)
Disposal of lease liabilities 2,936 2,493
Interest element of lease repayments (note 3) (3,457) (3,488)
Cash outflow from lease repayments 21,640 19,675
Lease liabilities at 28 February (82,924) (83,457)
Closing net debt (including lease liabilities) (136,903) (158,813)
8. Business combinations
On 31 October 2023, the Group acquired the entire issued share capital of
Rowes Garage Limited which operates three Honda outlets in Plymouth, Plymstock
and Truro as well as a used car outlet in Plymouth. Total consideration of
£10,385,000 was settled from the Group's existing cash resources.
9. Post balance sheet events
On 13 March 2024, the Group disposed of a surplus property in Taunton. The
disposal generated cash proceeds of £800,000, in line with the asset's
carrying value.
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