REG - Vertu Motors PLC - Half-year Results
05/10/2022 09:34
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RNS Number : 7737B Vertu Motors PLC 05 October 2022
5 October 2022
Vertu Motors plc ("Vertu", "Group")
Unaudited interim results for the six months ended 31 August 2022
"Full year profits anticipated to be ahead of market expectations"
Vertu Motors plc, the automotive retailer with a network of 160 sales and
aftersales outlets across the UK and a sector leading online presence,
announces its interim results for the six months ended 31 August 2022 ("the
Period").
Commenting on the results, Robert Forrester, Chief Executive, said:
"The first half has seen a strong trading performance with vehicle margin
strength offsetting market driven volume shortfalls. The Group continues to
benefit from its focus on operational excellence around cost, conversion and
customer experience aided by continued digitalisation initiatives. Cashflow
generation has been strong and the dividend for the first half has increased
again.
The business is strategically very well placed with significant firepower to
expand its footprint of franchised dealerships across the UK."
FINANCIAL SUMMARY
H1 FY23 H1 FY22 FY22
Revenue £1,999.7m £1,924.1m £3,615.1m
Adjusted(1) profit before tax £28.2m £51.8m £80.7m
Free Cash Flow £23.2m £63.6m £44.2m
Basic Adjusted(1) EPS 6.50p 11.32p 17.92p
Dividends per share 0.70p 0.65p 1.70p
Net Cash / (Debt)(2) £17.8m £57.3m £16.2m
HIGHLIGHTS
· Delivery of strategy to grow scaled franchised dealership group with
commencement of operations of Toyota in the West of Scotland
· Revenues grew 3.9% and the Group is now anticipated to be the fourth
largest automotive retailer in the UK by revenues
· Market share growth in all new vehicle channels with 6% new van
market share achieved
· Adjusted(1) profit before tax of £28.2m (H1 FY22: £51.8m), on
revenues of £2.0bn
· Gross margin of 11.2% (H1 FY22: 11.6%) reflects continued strong
pricing disciplines in all areas
· Free Cash Flow of £23.2m in the Period and Net Cash(2) of £17.8m
(28 February 2022: £16.2m)
· Net tangible assets per share of 71.2p (28 February 2022: 66.8p)
reflecting strong asset base and cashflow generation
· 10.5m shares (representing 2.9% of share capital in issue on 1 March
2022) repurchased at a cost of £5.9m since 1 March 2022
· Increased interim dividend of 0.70p per share declared, up from 0.65p
in H1 FY22, payable in January 2023
CURRENT TRADING AND OUTLOOK
· The Board now anticipates that full year profits will be ahead of
market expectations
· Strong performance delivered in key month of September despite
ongoing supply constraints
· New and used vehicle supply constraints continue to be offset by
continued higher margins
· Aftersales demand remains robust and increased technician resource is
now in place to drive revenues
· First major franchise to implement agency model on new retail sales
will be Mercedes-Benz on 1 January 2023
· Cost pressures evident, particularly energy costs. Energy strategy
developed and being executed including approved capital investment. Cost is
a key management focus
· Government action regarding energy costs and National Insurance rates
will benefit the Group in the second half
· Strong acquisition pipeline in place
(1) Adjusted to remove share-based payments charge and amortisation of
intangible assets
(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
Zeus Capital Limited
Jamie Peel Tel: 020 3829 5000
Dominic King
Camarco
Billy Clegg Tel: 020 3757 4983
Tom Huddart
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the Company's obligations under Article 17 of
MAR.
CHAIRMAN'S STATEMENT
The Group continued to execute well during the period ended 31 August 2022,
delivering an Adjusted(1) profit before tax of £28.2m. This is the second
highest in the Group's history. There were significant highlights in the
Period:
· Enhancements to the Group's technological capabilities continue to be
piloted and rolled out. Transparent, unified part exchange valuation
capability is in place online and offline. Customer experience in service is
being enhanced by the rollout of digital self-service check-in capability.
· Successful growth exhibited via the continued roll-out of
multi-franchise dealerships. Further progress in growth shown in developing
the new West of Scotland Toyota business, and the acquisition of Wiper Blades
Limited, an online retailer.
· Strong people focus, with the delivery of enhanced benefits to
colleagues, enrichment of training opportunities and improved engagement
through colleague forums. The Group has continued to record excellent scores
in quarterly colleague satisfaction surveys.
· Enhanced brand awareness through media presence and the commercial
partnerships of the Group's three trading brands: Bristol Street Motors, Vertu
Motors and Macklin Motors.
I am very proud to see how every colleague has contributed to the success of
the Group and I would like to thank them for this. The Board continues to
function well and undertook a review of the Group's strategy and execution
against it during September. I believe that progress in this regard has been
strong and the next twelve months should see this progress continue.
The Group's excellent financial position, continued investment in its
colleagues and systems and its established track record of execution gives me
confidence that we will continue to deliver on our strategic objectives. The
Group has the scale and firepower to take advantage of the considerable sector
changes working in partnership with the Group's Manufacturer partners through
accretive consolidation of this fragmented market.
Andy Goss, Chairman
(1) Adjusted to remove share-based payments charge and amortisation of
intangible assets
CHIEF EXECUTIVE'S REVIEW
Update on Strategy Execution and Associated Risks
The Group's key long-term strategic objectives were summarised in the Annual
Report issued in May 2022. The core goal is: To deliver growing, sustainable
cashflows from operational excellence in the franchise automotive retail
sector. The strategic objectives of the Group are set out below:
· To grow as a major scaled franchised dealership group and to develop
our portfolio of Manufacturer partners, whilst being mindful of industry
development trends, to maximise long-run returns.
• To be at the forefront of digitalisation in the sector, delivering
a cohesive 'bricks and clicks' strategy:
o Optimise our omnichannel retail offering through leveraging the
'Click2Drive' technology and utilising this important sub-brand to promote its
usage.
o Digitalise aftersales processes to improve customer service.
o Reduce the cost base of the Group by delivering efficiency through the use
of 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 core business.
An update on progress in executing this strategy over the Period is set out
below:
1. Developing the Scale of the Group
The Group has an excellent financial, operational and technological platform
allowing it to capitalise on sector opportunities:
· Financial capacity
The Group's balance sheet strength is underpinned by a significant freehold
and long leasehold property portfolio with a net book value of £243.8m and a
net cash position at the end of the Period of £17.8m. There is significant
opportunity to leverage the strong balance sheet to provide firepower for
acquisitive growth. The Board has a conservative attitude to debt funding,
targeting a long-term debt to EBITDA ratio of sub 1.5 times and has a
preference to match the term of debt to the nature of secured assets. For
example, this may include the use of longer-term mortgage type debt, with
security over freehold property assets provided. The Group's capital
allocation disciplines include a rigorous assessment of potential acquisitions
to ensure appropriate return hurdle rates are met. High sector earnings over
the last 18 months will be disregarded by the Group, particularly in a cost
inflationary environment, when assessing acquisition opportunities to ensure
appropriate deployment of capital. The Group will continue to apply this
very disciplined approach to accretive, acquisitive growth ensuring only the
right opportunities are executed to drive long-term success and shareholder
value.
· Management capacity
The Group has a stable and experienced senior management team, with an
established track record of execution and performance delivery. The senior
management team was augmented in the Period with the appointment of a Chief
Technology Officer (CTO). Bruce Clark was promoted into this newly created
role, which has a place on the Group's CEO Committee, in April 2022. This
appointment marked a further step change in the Group's focus on technology
strategy and the management bandwidth to deliver the Group's strategic
technology plans. Further recruitment was undertaken to backfill Bruce's
previous role, appoint a new Head of Data and augment management and
capability in digital marketing.
The senior management team has very much an "owner" mentality and sets the
"tone from the top" to ensure that the Group's culture is appropriate and
consistent across all its operations. This ensures the delivery of the
Group's Mission Statement ("To deliver an outstanding customer motoring
experience through honesty and trust") through application of the Group's
Values ("Professionalism, Passion, Recognition, Integrity, Respect,
Opportunity and Commitment").
· Operational systems platform
The Group's in-house developed systems provide uniform processes and control,
as well as live management information and data to allow speedy and
appropriate decision making. These systems continue to be developed and
improved. Acquired businesses are quickly migrated onto this scalable
technology and process platform to ensure control is quickly established,
performance improvement opportunities are highlighted, and synergies
maximised. The scale of the Group allows ongoing investment in systems
development to augment the Group's customer offering and to drive efficiencies
in process automation.
· Brand strength
The Group operates three major customer facing brands in the UK: Bristol
Street Motors, Macklin Motors and Vertu Motors. Bristol Street Motors
remains one of the top three sector brands. Each of the Group's brands are
supported by extensive TV campaigns, sports sponsorships, partnerships and
digital marketing initiatives.
· Execution of growth strategy in the Period
The Group has the brand strength and financial, operational, and management
capabilities to continue to add additional franchised outlets to the
business. We are ambitious to do so. The Group also continues to evaluate
and execute multi-franchising actions in its locations to maximise the
long-term profitability of each location.
The Period saw the Group execute on this strategy for growth as set out below:
· On 1 April 2022 the Group opened Macklin Motors Toyota in
Darnley, South Glasgow. This dealership represents the first of a number of
dealerships to be opened, following the Group being awarded the Toyota
franchise in the West of Scotland territory. The second dealership, located
in the Group's former Ford premises in Hamilton, will open in October 2022
following the completion of a showroom refurbishment to Toyota standards.
· On 1 May 2022, the Group opened a further Bristol Street
Motor Nation used car outlet in newly acquired leasehold premises at Stockton,
Teesside. This is a large used car operation in a prime location in the
town.
· Work is being finalised on the introduction of sales
outlets for Vauxhall and Citroen alongside the Group's Peugeot operation in
Harlow. The outlets will open later this month and follow the move of the
aftersales operation off site to a new larger dedicated aftersales operation.
· The LEVC franchise commenced covering Scotland and the
North East of England as part of the Group's Taxi Centre operation.
Pruning activities were undertaken in the Period. The Group's single Jeep
sales outlet in Beaconsfield ceased operation and the Ford outlet in Hamilton
closed to allow for the redevelopment of the site for the Toyota franchise
alongside Mazda. In addition, the Group closed its accident repair centre in
Chesterfield in the Period in order to facilitate further multi-franchising
opportunities.
On 1 July 2022, the Group also executed on its strategy to add complementary
ancillary businesses with the purchase of Wiper Blades Limited for a net cash
consideration of £2.3m. This business complements the Group's existing
Sittingbourne based AceParts online parts sales operation, which sells to
consumers via Marketplaces, and augments the Powerbulbs business purchased in
March 2021, adding another parts ecommerce website, with good reach and
rankings, to the Group's online parts business.
2. Digitalisation Developments
· Omnichannel retail sales developments
The Group was the first UK retailer in 2017 to offer full online retailing of
used cars in the UK and continues to be at the forefront of developments to
provide customers with innovative ways to purchase and interact online. The
Group's online retailing proposition is branded 'Click2Drive' supported by the
Group's sponsorship of 'W-Series' racing, under the Bristol Street Motors
brand umbrella. In October 2021 the Group launched the concierge service to
increase conversion of sales online. The concierge acts as a personal
shopper for customers online, co-ordinating all interaction with the customer,
including liaison with the Group's 160 sales outlets. Over 850 vehicles have
now been delivered to Group customers using this service, since its launch in
late October 2021.
Further development of the Group's sales process has been undertaken to
further align the online and dealership customer sales journey and improve
efficiency. The Group's used car inventory analytics and pricing system,
already in place across the dealership network for inventory management, has
now been linked to the Group's sales system to provide part exchange
valuations to customers whether online or in the showroom. This results in a
transparent and unified part exchange valuation to customers irrespective of
customer journey and provides great consistency of valuation. The early
signs are that this innovation is augmenting used car margins, increasing part
exchange rates and providing an enhanced omnichannel experience.
· Digitalisation of aftersales
The Group's aftersales functions, which include vehicle service and mechanical
repair, accident repair and parts supply, represent a significant and
important proportion of overall profitability. As seen in the digitalisation
of sales processes, there is also an increasingly important role for digital
within aftersales operations.
The Group's customers have long been able to book their vehicle service
appointment fully online, and over 40,000 service bookings were made online in
the Period, a growth of 10% compared to H1 FY22. Customers in the Group's
BMW dealerships are now also able to utilise self-service check in technology
when attending a dealership for a vehicle repair or service. 'ATM' style
machines in the dealership capture customer details and allow customers to
select additional products, such as four-wheel alignment, air conditioning
decontamination or even whether they wish to have their vehicle cleaned whilst
with the Group. The technology also asks the customer to confirm where they
have parked their vehicle on site before allowing them to safely deposit their
vehicle keys. The technology is integrated into Group systems and can allow
the further development of self-service check out and payment. Group
experience to date shows this technology results in improved add-on sales, and
enhanced customer experience and productivity levels. These systems will be
rolled out across all Group aftersales operations in the coming months.
Accessory sales post vehicle delivery are also being enhanced in pilots within
the Group using the interaction of targeted emails with full online retailing
capability via Group shops within digital market places.
There remains significant opportunity for further digitalisation of the
customer aftersales journey and the Group is working on several developments
in this regard to ensure that customers are delighted and retained, efficiency
is enhanced and costs reduced.
· Digitalisation to improve efficiency and reduce cost
The Group has always been very focused on the detailed management of its cost
base and has been successful in the digitalisation of processes to drive
efficiency and therefore reduce costs per transaction. We have continued to
develop significant Robotic Process Automation (RPA) capacity, and our Robots
are currently executing a major customer data cleanse. This aids efficiency
by ensuring our outbound marketing activity is targeted only at customers who
still own the vehicle. The Group now has so many Robots, operating to avoid
manual data processing in various areas of our activity, that we have Robots
who manage the Robots. The Group is also in the process of rolling out
digital payment solutions for both vehicle and aftersales payments via open
banking, again improving flexibility for customers while increasing payment
security and reducing payment transaction costs.
3. 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. One of the most
significant challenges in the business remains workforce recruitment and
retention. The number of UK job vacancies remains at high levels and there
is low unemployment. The Group saw high vacancy levels throughout the Period
in line with the wider UK, with Group colleague turnover rising back to
historic pre-pandemic levels.
A number of initiatives have been undertaken to ensure that the Group remains
an employer of choice in the sector. The Group launched dealership colleague
forums in FY22, a formalised way in which colleagues of all levels can provide
their feedback on work matters. Forums have had access to the Non-executive
director for colleague engagement, Pauline Best, and action has been taken on
much of the feedback received. For example, enhanced pay and benefits, such
as increased holiday entitlement for long serving colleagues, have been
applied. Vacancy levels in the Group have significantly reduced in recent
months to approximately 400 vacancies.
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. Current programmes include a degree apprentice scheme,
technician and customer service apprentice schemes. Development programmes
to facilitate progression to management roles have been scaled up reflecting
the increased size of the Group and to increase overall management capability.
4. Priorities of Cost, Conversion and Customer
Experience
Considering the inflationary cost pressures facing the Group, which have not
been previously evident over the Group's 16-year history, three management
priorities were established at the start of the current financial year: Cost,
Conversion and Customer Experience.
a) Cost management
The right mindset and culture of cost management is vital. The Group
relaunched its 'War on Waste' initiative to drive behavioural change,
particularly around energy use, given escalating costs. A 5.3% reduction in
the Group's electricity consumption was achieved in the Period when compared
to the six-months ended 31 August 2021. These energy savings were largely
delivered through improved housekeeping and behaviours. The Group is
currently in the process of rolling out LED lighting across its dealership
network which will be complete by the end of September 2023. As an example,
LED lighting installed in the Group's central services building in Gateshead
in April 2022 has delivered a 10% electricity usage reduction.
The Board have recently approved a £3m capital expenditure programme for the
next 12 months to invest in solar power generation capability at 46 of the
Group's freehold properties. This investment is intended to generate around
10% of the current Group's electricity requirement and has an expected payback
of around 4.5 years. This will aid energy security for the Group and reduce
overall expected costs compared to using the grid in the future.
Savings on gas usage were also delivered in the Period, aided by the warmer
conditions experienced in the UK. The Group is nevertheless focused on
maintaining strong disciplines in the use of gas as we enter the winter
months.
The Group continues to focus on cost management and the identification of
further areas of saving or efficiency of process. These efforts continue to
be co-ordinated by the long-standing Bureaucracy, Efficiency and Productivity
committee which meets bi-monthly and is chaired by the CEO.
b) Maximisation of conversion of enquiries to revenues
The Group is seeking to increase the conversion of opportunities to revenues
in both the sales and aftersales areas through a focus on process, measurement
and use of technology. Maximising the return from the Group's significant
marketing spend is a key priority. Examples of developments in this area
include:
· Simplification of part-exchange valuation and automated first
offers so that customers can be quickly provided with the cost to change their
car without any need for management involvement.
· Roll out of "Reserve it Now" functionality allowing £99 vehicle
deposits to be taken on-line, via concierge personal shoppers, or in the
dealership. This functionality has been embraced by customers, with over
1,500 "Reserve it Now" deposits taken in August 2022 alone. Overall,
conversion to a sale when such a deposit is taken was over 60%.
· Enhanced follow up of lost sales opportunities through digital
and contact centre activity.
· The concierge function enhancing online sales conversion.
· Enhanced training capability in sales and service to ensure all
colleagues have the right skills.
· Continuation of the industry's most extensive phone and physical
visit mystery shopping programme to ensure processes and customer experiences
are robust and training needs identified: Scores have significantly increased
over the Period.
· Self-service check-in in service increasing add-on sale
penetration.
· All inbound retail parts sales enquiries now routed to a central
team of parts experts in Gateshead to make the sale, ensuring enhanced
consistency of process and customer experience.
c) Customer experience to drive retention and further sales
Delivery of the Group's Mission 'to deliver an outstanding customer motoring
experience through honesty and trust' remains vital to improving retention of
customers into both the Group's service departments and for future vehicle
sales. Great experiences boost retention, recommendation rates and profit
per transaction. In addition, positive online reviews provide a fantastic
and vital window into the Group's service delivery for prospective customers.
The Group is targeting a significant improvement in the retention of vehicle
sales customers, through the execution of its digitalisation and customer
focused developments. This includes the establishment of 'renewal hubs' for
both new and used car sales. Colleagues in these hubs contact previous
customers at the time they are likely to be in the market to change their
vehicle to create consequent sales opportunities.
The Group has also developed a digital "Recommend a Friend" referral scheme to
multiply the number of sales from the original customer sale by encouraging
customer referrals. The new system is to be piloted in Macklin Motors in
November.
Strategic Summary
Our experienced management team, strong brands, digital prowess and financial
strength, ensure the Group is well positioned to take advantage of the
opportunities arising and as a team, we remain ambitious to do so. We will
continue to innovate and execute to ensure that the Group excels in meeting
customer needs in order to overcome any demand and supply headwinds that may
arise. We will ensure that capital is allocated to those activities,
locations and franchises that are best placed to meet the competitive
challenges arising and to provide the best growth opportunities and maximise
long-term return on invested capital. We will leverage our proven strengths
and execute on our business ideas such as cost saving initiatives, continued
development of our colleagues, accelerating brand growth and pursuing new
business opportunities. In essence, we have a long-standing plan and will
execute it.
Current Trading and Outlook
The Board now anticipates that profits for the financial year ending 28
February 2023 will be higher than current market expectations.
September trading saw a continuation of market trends seen in the first half
of the financial year. New car, fleet and commercial volumes were subject to
significant supply constraints and uncertainty. Volume shortfalls were again
offset in part by strong margins. Manufacturer bonus levels on a quarterly
basis reduced, due to the volume trends. Overall new car, fleet and
commercial profits were therefore down year on year.
Used car markets remain stable in terms of pricing, reflecting supply
constraints. Demand was subdued in the month as consumer demand levels were
impacted by energy concerns and the passing of the Queen. Margins remained
strong.
Service demand remained strong and higher technician resource levels are
helping to drive increased revenues. September was impacted by the loss of
aftersales revenue when the business closed for the National Day of Mourning
for the Queen's funeral.
Overall, profit levels in the month were, as anticipated, behind last year,
but September profitability was the third highest recorded for this month in
the Group's history.
A tight supply environment for new and used vehicles is anticipated to
continue well into the next financial year. Margins are therefore expected
to remain strong and used car pricing robust. Higher resource levels in the
Group should help to underpin a strong aftersales contribution.
Future consumer confidence levels will be key in determining retail vehicle
demand and recent Government action around tax cuts and support for energy
prices give the prospect of supporting consumer demand in the months ahead.
The Board remains cautious in this regard.
A number of the Group's Manufacturer partners are actively involved in
consulting on the introduction of agency models for the sale of new retail
cars. These models change the nature of the profit and loss account for
these sales and reduce working capital requirements. Mercedes-Benz will be
the first major Manufacturer to make this transition on 1 January 2023. The
Board does not currently anticipate a material change to overall profitability
from these changes.
Cost control remains a major focus for management. Government support for
business energy costs in the next six months and a reduction in employer's
national insurance also provide some relief from the inflationary pressures
facing the Group and their impact on costs.
The Board believes that the Group is very well positioned to deliver on its
stated strategy and to take advantage of the increasing opportunities in the
UK sector. A good pipeline of acquisitions is apparent.
Robert Forrester, CEO
CHIEF FINANCIAL OFFICER'S REVIEW
The Group's income statement for the Period is summarised below:
H1 FY23 H1 FY22 H1 FY23 Var to H1 FY22
£'000 £'000 %
Revenue 1,999,712 1,924,134 3.9
Gross Profit 223,721 223,121 0.3
Operating expenses excluding Government support (192,417) (173,261) (11.1)
Government support(3) - 5,611 -
Operating expenses reported (192,417) (167,650) (14.8)
Adjusted Operating Profit 31,304 55,471 (43.6)
Net Finance Charges (3,087) (3,638) 15.1
Adjusted Profit Before Tax 28,217 51,833 (45.6)
Non-Underlying items(4) (1,278) (731) (74.8)
Profit Before Tax 26,939 51,102 (47.3)
Taxation (5,416) (13,597)
Profit After Tax 21,523 37,505
(3) includes receipts under the Coronavirus Job Retention Scheme and business
rates relief
(4) Non-underlying items represent share-based payment charge and amortisation
of intangible assets
The Group delivered an adjusted profit before tax of £28.2m in the Period,
which was reduced, as anticipated, from the record result delivered in H1 FY22
of £51.8m. Revenue grew to £2.0bn, a growth of 3.9% aided by new and used
average vehicle sales prices. Despite these price rises, gross margin of
11.2% was delivered which remains strong by historic standards, reflecting
supply constraints and strong pricing disciplines.
Revenue and Gross Profit by Department
An analysis of total revenue and gross profit by department is set out below:
H1 FY23 H1 FY22 H1 FY23
£'000 £'000 Var to H1 FY22
Revenue %
New 557,640 530,766 5.1
Fleet & Commercial 428,715 445,189 (3.7)
Used 854,466 804,792 6.2
Aftersales 158,891 143,387 10.8
Total Group Revenue 1,999,712 1,924,134 3.9
Gross Profit
New 47,435 38,853 22.1
Fleet & Commercial 20,146 18,757 7.4
Used 67,113 82,361 (18.5)
Aftersales 89,027 83,150 7.1
Total Gross Profit 223,721 223,121 0.3
Gross Margin
New 8.5% 7.3% 1.2
Fleet & Commercial 4.7% 4.2% 0.5
Used 7.9% 10.2% (2.3)
Aftersales(5) 45.4% 47.5% (2.1)
Total Gross Margin 11.2% 11.6% (0.4)
(5) Aftersales margin expressed on internal and external revenues
The total volumes of vehicles sold by the Group and like-for-like trends
against market data are set out below:
H1 FY23 H1 FY22 Like-for-like Change
(H1 FY23
Total Units Total Units % Var to H1 FY22)
Used retail vehicles 43,022 49,697 (15.2%)
New retail cars 17,673 18,086 (7.0%)
Motability cars 4,711 4,865 (7.5%)
Direct fleet cars 9,205 8,713 (5.5%)
Agency fleet cars 2,317 2,982 (31.9%)
Total fleet cars 11,522 11,695 (12.2%)
Commercial vehicles 8,707 9,915 (14.8%)
Total New vehicles 42,613 44,561 (10.2%)
Total Vehicles 85,635 94,258 (12.8%)
Variance(6) UK Market (SMMT)
New Retail Car (4.2%) (2.8%)
Motability Car 11.8% (19.3%)
Fleet Car 15.8% (28.0%)
Commercial 10.7% (25.5%)
(6) Represents the variance of like-for-like Group volumes to the UK trends
reported by SMMT
Used retail vehicles
The used vehicle market in the UK experienced unprecedented market dynamics
throughout 2021, as tightness in used vehicle supply coincided with a period
of strong customer demand for used vehicles. These trends resulted in
extraordinary increases in the price of used vehicles in the UK, with
three-year-old vehicles increasing by one-fifth of their value from May to
August 2021. In 2022, supply of used vehicles has remained constrained due
to muted new car registrations resulting in lower part exchange levels and
defleeting by fleets. Demand has stabilised as the 'pent-up' boost post
lockdowns eased. This balance in supply and demand has resulted in stability
of used vehicle pricing in the UK, despite values remaining comparatively
high. Average three-year-old vehicle values dropped just 2.1% between May
and August 2022, with a higher decline of 5-8% historically expected over this
same period. Group gross profits per unit remain in excess of historic
norms, although there has been some decline from the extraordinary levels
experienced last year. The Group's like-for-like used vehicle volumes were
15.2% lower in the Period reflecting the prevailing supply and demand dynamics
in the market compared to the exceptional conditions of last year.
The Group monitors the pricing and supply environment and has continued to
develop its used vehicle pricing and analytical tools to optimise gross profit
generation and control inventory. The Group appointed an experienced Head
of Used Car Buying in August 2022 to facilitate additional central procurement
of inventory, augmenting the existing direct from consumer and dealership
purchasing activity. Ensuring a good supply of used vehicle inventory will
be vital in the next few years. Overall, despite supply constraints, the Group
increased the number of used retail vehicles in inventory at 31 August 2022
compared to 28 February by 4%, whilst the overall value of used retail
inventory was £5m lower as pricing eased from the highs of 2021 and the Group
targeted older, lower priced vehicles.
As a result of the trends noted above, Group gross profit from the sale of
used vehicles totalled £67.1m for the Period (H1 FY22: £82.4m). The
following like-for-like variances arose:
· £15.8m reduction in gross profit generated from used vehicle sales
· 15.2% less used retail units sold
· Gross profit per unit of £1,579 (H1 FY22: £1,665)
· Average selling price of £19,958 per unit, a 23.2% increase from H1
FY22 levels
· Gross margin of 7.9% (H1 FY22: 10.3%) reflecting higher sales prices
New retail cars and Motability sales
UK retail registrations continue to be impacted by reduced supply, driven by
well documented component shortages (including semi-conductors) and general
global supply chain disruption. In the light of these ongoing supply
constraints, in July 2022 the SMMT reduced its full-year outlook by 7% to 1.60
million units, from the previous forecast published in April 2022 of 1.72
million. Registrations at this level represent a significant reduction
compared to average UK new vehicle registration volumes pre-pandemic.
Against this backdrop, the Group's like-for-like new retail vehicle volumes
declined by 7.0% in the Period when compared to the six months ended 31 August
2021. SMMT private registrations declined by 2.8%. A number of the Group's
volume franchises saw significant curtailment of supply compared to the market
in general which impacts the Group's retail market share. New retail order
bank levels in this channel are at a record high reflective of continued
success of the Group's sales teams in taking orders.
UK Motability registrations were also impacted by supply constraints and were
lower by 19.3% in the Period, compared to the six months ended 31 August
2021. Motability is a lower margin channel and has seen more supply
restrictions than the retail channel in general. The Group represents the
largest Motability fleet in the UK, accounting for approximately 5% of scheme
customers. The Group consistently performs at a high level in terms of
Motability customer service, and in Q2 2022 received 25% of all geographically
awarded Motability dealer awards for that period. The Group's Motability
volumes in the Period were significantly ahead of the market, declining by
7.5% on a like-for-like basis, representing a UK market share of 5.6% (H1
FY22: 4.7%). This outperformance reflected several of the Group's franchises
providing good supply into the channel relative to the overall market and
taking significant market share as customers on the scheme sought to change
their vehicle.
The Group saw significantly improved gross profit retention on new vehicle
sales, through the application of effective pricing disciplines. Consumers
continue to accept long lead times, with order bank levels remaining very
high. The Group is not experiencing significant cancellation levels.
Compared to the six months ended 31 August 2021, the following trends were
apparent on a like-for-like basis for the New Retail and Motability sales
channel:
· A £7.7m increase in gross profit generated, despite a 7.0% reduction
in the number of new retail units delivered
· Gross profit per unit of £2,124, a rise of 25.7% from £1,690
· An average selling price of £24,294 per unit, a 13.2% increase
· Gross margin rose to 8.5% from 7.3%
· Order bank of 13,000 new retail units and 6,500 Motability units at
the end of the Period
Fleet & Commercial vehicle sales
The UK car fleet market remains perhaps the hardest hit by the restrictions in
the supply of new vehicles, as Manufacturers divert limited capacity to higher
margin, retail channels. Registration volumes in the UK car fleet market
have declined 28.0% in the Period compared to the six months ended 31 August
2021. Like-for-like, the Group delivered 10,190 fleet cars in the Period,
representing a decline of 12.2% compared to H1 FY22, which was significantly
ahead of the market trends. The Group continues to invest in its fleet sales
capacity in order to take market share. Margins strengthened again with the
Group adopting strong pricing disciplines.
The Group saw a 14.8% fall in the like-for-like volume of new commercial
vehicles sold which represented an increase in market share, with the market
back 25.5% over the Period compared to the six months to 31 August 2021. The
market fall reflected supply constraints and a moderating of demand after the
demand frenzy created by lockdowns on the courier and online delivery market
for vans.
When compared to the six-month period ended 31 August 2021, the following
fleet and commercial trends were seen on a like-for-like basis:
· A £1.0m increase in gross profit, despite the significant reduction
in the number of units sold
· Record gross profit per unit of £999, a rise of 15.1% from £868
· Gross margin rising to 4.7% from 4.2%
· Strong forward order bank of over 24,000 units as at the end of
August 2022
Aftersales
The Group's aftersales operations are a vital contributor to Group
profitability, generating almost 40% of total gross profit. Due to the
exceptional conditions in the petrol forecourt market in the Period, the
results for the Group's forecourt have been split out. Overall, compared to
the six-month period ended 31 August 2021 the following like-for-like trends
in aftersales performance were witnessed:
Service Accident & Smart Repair Total
Parts Forecourt
£'000 £'000 £'000 £'000 £'000
Revenue(7) 80,457 93,264 9,866 6,747 190,334
Revenue(7) change 3,692 7,411 2,298 3,253 16,654
Revenue(7) change (%) 4.8% 8.6% 30.4% 93.1% 9.6%
Gross profit change 1,190 2,001 1,116 113 4,420
Gross margin(8) H1 FY23 (%) 74.8% 22.5% 53.2% 5.9% 45.6%
Gross margin(8) H1 FY22 (%) 76.8% 22.1% 54.7% 8.1% 47.4%
Margin change (%) (2.0%) 0.4% (1.5%) (2.2%) (1.8%)
(7) includes internal and external revenues
(8) Aftersales margin expressed on internal and external revenues
· Service
Performance in the Group's service departments in 2021 was impacted by
higher-than-average levels of technician vacancies and by covid related
absences. To address colleague recruitment and retention, a Group wide
salary review was undertaken and implemented for technicians in November
2021. The impact of this review is apparent in the 2% reduction in gross
margin as expected with technician salary costs included in aftersales
department cost of sales. The Group has successfully increased the number of
technicians recruited in the Period.
The Group executed well on its retention and aftersales processes, improving
sales of additional work and products. The Group's customer retention
strategies focus on ensuring vehicle sales customers return to the Group for
their service, whether they have purchased a new or used vehicle. Service
plans, through which customers pay monthly or upfront for their annual service
are a vital part of retention, with approx. 170,000 of the Group's customers
currently holding live service plans either with the Group or its Manufacturer
partners (28 February 2022: 160,000). These initiatives meant that the Group
delivered a 2.5% growth in like-for-like retail labour hours sold in the
Period. Overall, despite the increase in retail labour hours sold, total
service labour hours declined because of a reduction in warranty work
undertaken by the Group on behalf of its Manufacturer partners. The
significant decline in the 0-3-year vehicle parc due to supply constraints and
the impact of lockdowns in recent years is the major reason for this fall in
warranty hours sold. Overall, the vehicle parc is anticipated to increase in
the UK between now and 2030 which will aid aftersales demand and help offset
any negative impact of electrification.
Like-for-like service revenues grew compared to H1 FY22 despite the reduction
in hours sold as an improvement in revenue generated per labour hour was
achieved and the Group was successful in growing sales of add-on products such
as tyres in the Period. Of the 4.8% increase in like-for-like service
revenues, approximately two thirds arose due to an increase in the labour
rates charged to sales departments for internal work undertaken in the service
departments. This increase was implemented recognising higher technician
costs.
Like-for-like gross margin percentages on vehicle servicing fell to 74.8% (H1
FY22: 76.8%) reflecting the rise applied to technician salaries despite the
rise in internal labour rates. Another factor in the declining margin is that
a significant number of technicians have been recruited who are new to the
franchise operated and their efficiency is lower as they are trained and build
their franchise knowledge. There is also increased dislocation in parts supply
to the dealerships from Manufacturers which results in reduced efficiency as
the Group awaits parts to complete repairs.
· Parts
Parts revenues in the Core Group grew £7.4m (8.6%) compared to H1 FY22, as
the Group gained market share and the accident repair market returned to more
normalised levels of demand. The centralisation of inbound parts retail
phone enquiries with orders taken in Gateshead has contributed to increased
parts retail sales. Overall gross margins in parts rose from 22.1% to
22.5%.
· Accident and Smart Repair
The Group continues to grow its Smart Repair operations, increasing the size
of the fleet to 120 cosmetic and alloy wheel repair vans, up from 75, to serve
both the Group's dealerships and external customers across the UK. The
expansion of these operations has been vital as the Group has targeted the
increased purchase of older used vehicles for resale, and this has led to a
significant increase in demand for smart repair and alloy wheel refurbishment
services from the Group's dealer network.
The Group's accident repair centres are now operated in a new standalone
division, concentrating solely on the management of this channel. An
increase in accident repair revenues in the Period arose from customer
journeys reverting to more normal levels and an increase in the number of
vehicles being repaired rather than written off as replacement vehicles were
increasingly difficult and more expensive for insurance companies to source.
Operational excellence levels have improved as the Group's dedicated
management have executed uniformity of systems and measurement.
The Group's accident and smart repair operative salaries were reviewed as part
of the Group wide review of salary levels undertaken at the end of 2021. The
result of this review has reduced gross margins in this channel as
anticipated.
· Forecourt
The Group operates a single petrol forecourt in Widnes, Cheshire which has
historically been reported within Accident and Smart Repair. Revenues
doubled by £3.3m in the Period as the Group sought to be competitive and to
take increased market share versus supermarket competitors. Margins reduced
accordingly and litres of fuel sold increased by 86% in the Period.
Acquisitions, Disposals and Closures
Acquisitions and new operations opened since 1 March 2021 are not included in
the Core Group for reporting purposes. These operations made a loss before
taxation of £689k (H1 FY22: Loss of £134k). The Group commenced start-up
operations in Glasgow with Toyota and Stockton Motor Nation. Start-up losses
arose as anticipated. Disposals and closures in the Period represented a
loss of £87k relating to the closure of an accident repair centre in
Chesterfield.
Operating Expenses
A summary of Core Group operating expenses is set out below:
H1 FY23 H1 FY22 H1 FY23 Var to H1 FY22
£'m £'m £'m
Salary costs 108.4 99.8 8.6
Vehicle and valeting costs 18.5 17.5 1.0
Marketing costs 18.5 17.7 0.8
Property costs and rates 19.6 19.6 -
Energy costs 2.1 2.1 -
Other 19.7 14.8 4.9
Core Group operating expenses before Government support 186.8 171.5 15.3
Non-Core operating expenses 5.6 1.8 3.8
192.4 173.3 19.1
Government support (CVJRS receipts and rates relief) - (5.6) 5.6
Group Net Underlying Operating Expenses 192.4 167.7 24.7
Reported underlying operating expenses of £192.4m, up £19.1m, (excluding the
impact of government support (predominantly rates relief) in the prior
period), compared to H1 FY22. Dealerships acquired in the period since 1
March 2021 contributed £3.8m of this increase with underlying Core Group
expenses up by £15.3m when compared to H1 FY22. These cost rises were
planned.
The most significant increase in cost arose within salary cost. This saw an
increase of £8.6m, representing approximately 60% of the rise in Core Group
expenses. This increase is analysed below:
H1 FY23
£'m
Impact of new national minimum wage and NIC rate increase 2.0
Additional headcount 2.0
Pay awards 4.8
Commissions and bonuses (0.8)
Investment in increased apprentice headcount 0.6
8.6
£2.0m of this salary cost increase relates to both the application of the new
national minimum wage rates on 1 April 2022 to applicable colleagues and the
increase in company NIC rate (which is set to reverse in November). The
investment in headcount added costs of £2.0m and reflected key Group
strategies around centralisation of lead management, enhanced customer
follow-up and further investment in software development teams, digital
marketing expertise and cyber security.
Pay awards outside of the national minimum wage increases were granted to
colleagues following the Group-wide review in late 2021. This led to an
increase in the Period of £4.8m. Bonuses and commissions reduced by £0.8m
in the Period reflecting lower sales volumes and the impact of new sales roles
with higher basic pay but lower commission payable. Finally, £0.6m was
invested in additional apprentices, under the Group's apprenticeship
programmes. The Group has recruited over 100 customer service apprentices
into the aftersales functions to create a pipeline of future talent for the
service advisor role.
Vehicle and valet costs rose due to the impact of National Minimum Wage rises
in valeting and increases in demonstration fleets following their exceptional
decline during the pandemic period.
Energy costs in the Core Group were stable year on year despite the increases
seen in the wider wholesale markets. The Group benefited from below market
rate electricity costs under a fixed contract which covered the majority of
the Group's dealerships until the end of September 2022. Any new build
dealerships or acquisitions post the contract being entered into back in
September 2020 have been subject to higher variable rates. The Group remains
focused on reduced energy usage and successfully reduced electricity usage on
a like-for-like basis by 5% in the Period. An energy purchasing strategy has
been developed, which includes the sourcing of off-grid energy solutions
within the next 12 months to manage the Group's exposure to energy market
price volatility risks. In addition, the Board has approved a £3m
investment in solar panels at 46 freehold dealerships which should generate
10% of the Group's electricity load and the project is set to complete by the
end of September 2023 (subject to sourcing constraints).
The Group saw a £4.9m increase in other costs. This includes the investment
in core systems and infrastructure including improved telephony systems and
enhanced data security environments. Other cost increases arose in areas such
as travel and training as the Group reverted to more normal behaviour
patterns. Whilst many of the Group's training courses are still delivered
'virtually', physical training at Manufacturer locations, such as technical
training for vehicle technicians, has now returned to pre-pandemic levels
hence increasing costs.
Net Finance Charges
Net finance charges fell year on year as analysed below:
H1 FY23 H1 FY22 H1 FY23 Var to H1 FY22
£'000 £'000 £'000
New vehicle Manufacturer stocking interest 913 1,058 (145)
Interest on bank borrowings 802 848 (46)
Used vehicle stock funding interest 206 36 170
Interest on lease liabilities 1,645 1,762 (117)
Interest on bank deposits (356) (4) (352)
Net finance income relating to defined benefit pension scheme (123) (62) (61)
Net Finance Charges 3,087 3,638 (551)
Interest income on bank deposits rose during the Period as a result of the
rise in interest rates generating higher levels of income on the Group's
significant cash reserves. Interest on bank borrowings reduced despite the
movement in interest rates due to the impact of hedging and reductions in bank
borrowings.
Interest on used vehicle stocking loans increased in the Period as a result of
the Group increasing the utilisation of such facilities. There remained
£137.6m of unencumbered used car stock at 31 August 2022.
Pension Costs
The accounting surplus on the Group's closed defined benefit pension scheme
has decreased to £5.1m at 31 August 2022 (28 February 2022: £9.1m). A net
actuarial loss of £3.0m was recognised in the Statement of Comprehensive
Income in the Period.
Tax Payments
In the September 2022 Mini Budget, it was announced that the increase in the
rate of corporation tax in the UK to 25% would now not occur and the rate will
be held at 19%. As this change had not been substantively enacted at 31
August 2022, the Group's deferred tax balances continue to be measured at the
full 25% rate. On enactment of the retention of the 19% rate, the Group's
deferred tax obligations are anticipated to reduce by £3.4m.
The Group's underlying effective rate of tax for the Period was 19.8% (H1
FY22: 20.9%). The Group continues to be classified as "low risk" by HMRC and
takes a pro-active approach to minimising tax liabilities whilst ensuring it
pays the appropriate level of tax to the UK Government.
Dividend
An interim dividend of 0.70p per share (H1 FY22: 0.65p) in respect of FY23
will be paid on 20 January 2023. The ex-dividend date will be 15 December
2022 and the associated record date 16 December 2022.
Cash Flows
Free cash flow of £23.2m (H1 FY22: £63.6m) was generated in the Period with
a broadly neutral movement in working capital overall generating cash of
£0.9m. This free cash flow included cash outflows in respect of interest and
taxation, principal elements of lease repayments and sustaining capital
expenditure, each comprising £7.8m cash outflow in the period.
The Group spent £2.3m, net of cash acquired, on the acquisition of Wiper
Blades Limited on 1 July 2022 and a further £7.5m acquiring the freehold and
long leasehold interests in the property from which the Group's Nissan,
Renault, Skoda, Peugeot and Motor Nation businesses operate in Derby.
During the Period, the Group completed its latest Share Buyback Programme
purchasing 10,477,450 shares for cancellation in the Period, representing 2.9%
of total issued share capital, for a total of £5.9m. 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. The Board has agreed a further £3m buyback programme being
announced today. A further £2m was spent acquiring shares in the Group's
Employee Benefit Trust ("EBT") to be used for the satisfaction of colleague
share incentive programmes. £3.6m was spent on dividends paid as a result of
the final dividend in respect of the year ended 28 February 2022.
Karen Anderson, CFO
For the six months ended 31 August 2022
Six months ended 31 August 2022 Six months ended 31 August 2021 Year ended 28 February 2022
Note Underlying items Non-underlying items Total Underlying items Non-underlying items Total Underlying items Non- Total
(note 4) (note 4) underlying items
(note 4)
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 1,999,712 - 1,999,712 1,924,134 - 1,924,134 3,615,052 - 3,615,052
Cost of sales (1,775,991) - (1,775,991) (1,701,013) - (1,701,013) (3,179,632) - (3,179,632)
Gross profit 223,721 - 223,721 223,121 - 223,121 435,420 - 435,420
Operating expenses (192,417) (1,278) (193,695) (167,650) (731) (168,381) (347,753) (1,934) (349,687)
Operating profit 31,304 (1,278) 30,026 55,471 (731) 54,740 87,667 (1,934) 85,733
Finance income 5 479 - 479 66 - 66 163 - 163
Finance costs 5 (3,566) - (3,566) (3,704) - (3,704) (7,126) - (7,126)
Profit before tax 28,217 (1,278) 26,939 51,833 (731) 51,102 80,704 (1,934) 78,770
Taxation 6 (5,598) 182 (5,416) (10,837) (2,760) (13,597) (16,062) (2,708) (18,770)
Profit for the period attributed to equity holders 22,619 (1,096) 21,523 40,996 (3,491) 37,505 64,642 (4,642) 60,000
Basic earnings per share (p) 7 6.19 10.36 16.64
Diluted earnings per share (p) 7 5.85 9.95 15.96
For the six months ended 31 August 2022
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2022 2021 2022
Note £'000 £'000 £'000
Profit for the period 21,523 37,505 60,000
Other comprehensive (expense) / income
Items that will not be reclassified to profit or loss:
Actuarial (loss) / gain on retirement benefit obligations 10 (4,048) 1,639 2,801
Deferred tax relating to actuarial loss / (gain) on retirement benefit 1,012 (410) (700)
obligations
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges 185 149 503
Deferred tax relating to cash flow hedges (35) (28) (96)
Other comprehensive (expense) / income for the period, net of tax (2,886) 1,350 2,508
Total comprehensive income for the period attributable to equity holders 18,637 38,855 62,508
As at 31 August 2022
31 August 31 August 28 February
2022 2021 2022
Note £'000 £'000 £'000
Non-current assets
Goodwill and other indefinite life assets 12 105,077 99,444 103,470
Other intangible assets 2,397 2,019 1,797
Retirement benefit asset 10 5,073 7,906 9,055
Property, plant and equipment 261,712 246,920 254,133
Right of use assets 74,608 81,254 78,278
448,867 437,543 446,733
Current assets
Inventories 496,739 392,491 475,027
Trade and other receivables 72,117 43,038 51,839
Derivative financial instruments 190 - -
Cash and cash equivalents 85,860 113,504 83,793
654,906 549,033 610,659
Property assets held for sale - 995 -
Total current assets 654,906 550,028 610,659
Total assets 1,103,773 987,571 1,057,392
Current liabilities
Trade and other payables (569,717) (482,109) (529,086)
Current tax liabilities (3,039) (6,563) (3,734)
Derivative financial liabilities - - (13)
Contract liabilities (12,526) (12,639) (11,752)
Borrowings (12,954) (638) (12,283)
Lease liabilities (14,415) (13,920) (14,132)
Total current liabilities (612,651) (515,869) (571,000)
Non-current liabilities
Borrowings (55,063) (55,544) (55,343)
Lease liabilities (70,691) (77,461) (74,698)
Derivative financial instruments - (348) -
Deferred income tax liabilities (13,448) (13,063) (13,023)
Contract liabilities (11,897) (10,159) (11,447)
Total non-current liabilities (151,099) (156,575) (154,511)
Total liabilities (763,750) (672,444) (725,511)
Net assets 340,023 315,127 331,881
Capital and reserves attributable to equity holders of the Group
Ordinary share capital 34,894 36,859 35,942
Share premium 124,939 124,939 124,939
Other reserve 10,645 10,645 10,645
Hedging reserve 154 (282) 4
Treasury share reserve (3,134) (2,584) (1,586)
Capital redemption reserve 4,833 2,868 3,785
Retained earnings 167,692 142,682 158,152
Total equity 340,023 315,127 331,881
For the six months ended 31 August 2022
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2022 2021 2022
Note £'000 £'000 £'000
Cash flows from operating activities
Operating profit 30,026 54,740 85,733
Loss/(profit) on sale of property, plant and equipment 6 (64) (9)
Profit on lease modification (2) (157) (269)
Amortisation of intangible assets 214 202 407
Depreciation of property, plant and equipment 6,900 6,493 14,365
Depreciation of right of use assets 7,775 7,946 16,658
Impairment charges - - 131
Movement in working capital 11 904 15,842 (27,973)
Share based payments charge 857 455 1,061
Cash inflow from operations 46,680 85,457 90,104
Tax received - 128 135
Tax paid (4,801) (5,289) (14,479)
Finance income received 356 4 39
Finance costs paid (3,394) (3,443) (6,798)
Net cash inflow from operating activities 38,841 76,857 69,001
Cash flows from investing activities
Acquisition of businesses, net of cash, overdrafts and borrowings acquired (2,626) (1,567) (9,508)
Acquisition of freehold and long leasehold land and buildings (7,468) - -
Purchases of intangible assets (1) (20) (44)
Purchases of other property, plant and equipment (7,835) (5,907) (16,571)
Proceeds from disposal of property, plant and equipment - 464 1,605
Net cash outflow from investing activities (17,930) (7,030) (24,518)
Cash flows from financing activities
Proceeds from borrowings 8 671 - 5,699
Repayment of borrowings 8 (319) (16,267) (10,638)
Principal elements of lease repayments (7,827) (7,798) (15,786)
Sale of treasury shares 304 18 951
Purchase of treasury shares (2,000) - -
Cash settled share options (169) - (403)
Repurchase of own shares (5,898) (104) (6,014)
Dividends paid to equity holders (3,606) - (2,327)
Net cash outflow from financing activities (18,844) (24,151) (28,518)
8 2,067 45,676 15,965
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period 83,793 67,828 67,828
Cash and cash equivalents at end of period 85,860 113,504 83,793
For the six months ended 31 August 2022
Treasury share Capital redemption reserve
Ordinary Share Other Hedging reserve reserve Retained Total
share capital premium 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 period - - - - - - 21,523 21,523
Actuarial losses on retirement benefit obligations - - - - - - (4,048) (4,048)
Tax on items taken directly to equity - - - (35) - - 1,012 977
Fair value gains - - - 185 - - - 185
Total comprehensive income for the period - - - 150 - - 18,487 18,637
Sale of treasury shares - - - - 452 - (131) 321
Purchase of treasury shares - - - - (2,000) - - (2,000)
Cancellation of repurchased shares (1,048) - - - - 1,048 - -
Repurchase of own shares - - - - - - (5,898) (5,898)
Dividends paid - - - - - - (3,606) (3,606)
Share based payments charge - - - - - - 688 688
As at 31 August 2022 34,894 124,939 10,645 154 (3,134) 4,833 167,692 340,023
The repurchase of own shares in the period was made pursuant to the share
buyback programmes announced on 2 March and 7 June 2022.
10,477,450 ordinary shares to the value of £5,898,000 had been repurchased in
the six months ended 31 August 2022. These shares were cancelled immediately
and accordingly, the nominal value of these shares has been transferred to the
capital redemption reserve.
The 'Other reserve' is a merger reserve, arising from shares issued as
consideration to the former shareholders of acquired companies.
For the six months ended 31 August 2021
Treasury share Capital redemption reserve
Ordinary Share Other Hedging reserve reserve Retained Total
share capital premium reserve earnings equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 1 March 2021 36,917 124,939 10,645 (403) (2,791) 2,810 103,823 275,940
Profit for the period - - - - - - 37,505 37,505
Actuarial losses on retirement benefit obligations - - - - - - 1,639 1,639
Tax on items taken directly to equity - - - (28) - - (410) (438)
Fair value losses - - - 149 - - - 149
Total comprehensive income for the period - - - 121 - - 38,734 38,855
Sale of treasury shares - - - - 27 - (9) 18
Issuance of treasury shares - - - - 180 - (15) 165
Cancellation of repurchased shares (58) - - - - 58 - -
Repurchase of own shares - - - - - - (306) (306)
Share based payments charge - - - - - - 455 455
As at 31 August 2021 36,859 124,939 10,645 (282) (2,584) 2,868 142,682 315,127
For the year ended 28 February 2022
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 2021 36,917 124,939 10,645 (403) (2,791) 2,810 103,823 275,940
Profit for the year - - - - - - 60,000 60,000
Actuarial losses on retirement benefit obligations - - - - - - 2,801 2,801
Tax on items taken directly to equity - - - (96) - - (700) (796)
Fair value gains - - - 503 - - - 503
Total comprehensive income for the year - - - 407 - - 62,101 62,508
Sale of treasury shares - - - - 1,025 - (74) 951
Issuance of treasury shares - - - - 180 - (15) 165
Repurchase of own shares - - - - - - (6,014) (6,014)
Cancellation of repurchased shares (975) - - - - 975 - -
Dividends paid - - - - - - (2,327) (2,327)
Share based payments charge - - - - - - 658 658
As at 28 February 2022 35,942 124,939 10,645 4 (1,586) 3,785 158,152 331,881
NOTES
For the six months ended 31 August 2022
1. Basis of preparation
Vertu Motors plc is a Public Limited Company which is quoted on the AiM Market
and is incorporated and domiciled in the United Kingdom. The address of the
registered office is Vertu House, Fifth Avenue Business Park, Team Valley,
Gateshead, Tyne and Wear, NE11 0XA. The registered number of the Company is
05984855.
The financial information for the period ended 31 August 2022 and similarly
the period ended 31 August 2021 has neither been audited nor reviewed by the
auditors. The financial information for the year ended 28 February 2022 has
been based on information contained in the audited financial statements for
that year.
The information for the year ended 28 February 2022 does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The Auditors' Report on those accounts was not qualified under
section 498 of the Companies Act 2006.
2. Accounting policies
In line with International Accounting Standard 34 and the Disclosure and
Transparency Rules of the Financial Conduct Authority, these condensed interim
financial statements have been prepared applying the accounting policies and
presentation that were applied in the preparation of the Company's published
consolidated financial statements for the year ended 28 February 2022.
3. 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.
Six months ended 31 August 2022 Revenue £'m Revenue Mix % Gross Profit £'m Gross Profit Mix % Gross Margin %
Aftersales(9) 158.9 8.0 89.0 39.8 45.4
Used cars 854.5 42.7 67.1 30.0 7.9
New car retail and Motability 557.6 27.9 47.4 21.2 8.5
New fleet & commercial 428.7 21.4 20.2 9.0 4.7
Total 1,999.7 100.0 223.7 100.0 11.2
Six months ended 31 August 2021 Revenue £'m Revenue Mix % Gross Profit £'m Gross Profit Mix % Gross Margin %
Aftersales(9) 143.4 7.5 83.1 37.3 47.5
Used cars 804.8 41.8 82.4 36.9 10.2
New car retail and Motability 530.7 27.6 38.8 17.4 7.3
New fleet & commercial 445.2 23.1 18.8 8.4 4.2
Total 1,924.1 100.0 223.1 100.0 11.6
Year ended 28 February 2022 Revenue £'m Revenue Mix % Gross Profit £'m Gross Profit Mix % Gross Margin %
Aftersales(9) 288.8 8.0 164.9 37.9 47.1
Used cars 1,584.4 43.8 154.4 35.5 9.7
New car retail and Motability 969.9 26.8 80.6 18.5 8.3
New fleet & commercial 772.0 21.4 35.5 8.1 4.6
Total 3,615.1 100.0 435.4 100.0 12.0
(9) Aftersales margin expressed on internal and external turnover
4. Non-underlying items
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2022 2021 2022
£'000 £'000 £'000
Impairment charges - - (131)
Share based payment charge (1,064) (529) (1,396)
Amortisation (214) (202) (407)
Non-underlying loss before tax (1,278) (731) (1,934)
Non-underlying taxation charge 182 (2,760) (2,708)
Non-underlying loss after tax (1,096) (3,491) (4,642)
5. Finance income and costs
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2022 2021 2022
£'000 £'000 £'000
Interest on short-term bank deposits 356 4 39
Net finance income relating to Group pension scheme 123 62 124
Finance income 479 66 163
Bank loans and overdrafts (802) (848) (1,701)
Vehicle stocking interest (1,119) (1,094) (1,844)
Lease liability interest (1,645) (1,762) (3,581)
Finance costs (3,566) (3,704) (7,126)
6. Taxation
In the September 2022 Mini Budget, it was announced that the increase in the
rate of corporation tax in the UK to 25% would now not occur and the rate will
be held at 19%. As this change had not been substantively enacted at 31
August 2022, the Group's deferred tax balances continue to be measured at the
full 25% rate. On enactment of the retention of the 19% rate, the Group's
deferred tax obligations are anticipated to reduce by £3.4m.
The Group's underlying effective rate of tax for the Period was 19.8% (H1
FY22: 20.9%). The Group continues to be classified as "low risk" by HMRC and
takes a pro-active approach to minimising tax liabilities whilst ensuring it
pays the appropriate level of tax to the UK Government.
7. 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 period or the diluted weighted average number of ordinary
shares in issue in the period.
The Group only has one category of potentially dilutive ordinary shares, which
are share options. A calculation has been undertaken to determine the number
of shares that could have been acquired at fair value (determined as the
average annual market price of the Group's shares) based on the monetary value
of the subscription rights attached to the outstanding share options. The
number of shares calculated as above is compared with the number of shares
that would have been issued assuming the exercise of the share options.
7. Earnings per share (continued)
Adjusted earnings per share is calculated by dividing the adjusted earnings
attributable to equity shareholders by the weighted average number of ordinary
shares in issue during the period.
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2022 2021 2022
£'000 £'000 £'000
Profit attributable to equity shareholders 21,523 37,505 60,000
Non-underlying items (note 4) 1,096 3,491 4,642
Adjusted earnings attributable to equity shareholders 22,619 40,996 64,642
Weighted average number of shares in issue ('000s) 347,939 362,165 360,651
Potentially dilutive shares ('000s) 20,072 14,890 15,222
Diluted weighted average number of shares in issue ('000s) 368,011 377,055 375,873
Basic earnings per share 6.19p 10.36p 16.64p
Diluted earnings per share 5.85p 9.95p 15.96p
Underlying earnings per share 6.50p 11.32p 17.92p
Diluted underlying earnings per share 6.15p 10.87p 17.20p
At 31 August 2022, there were 348,945,522 shares in issue (including 6,922,122
held by the Group's employee benefit trust).
8. Reconciliation of net cash flow to movement in net cash
31 August 31 August 28 February
2022 2021 2022
£'000 £'000 £'000
Net increase in cash and cash equivalents 2,067 45,676 15,965
Cash inflow from proceeds of borrowings (671) - (5,699)
Cash outflow from repayment of borrowings 319 16,267 10,638
Cash movement in net cash 1,715 61,943 20,904
Capitalisation of loan arrangement fees - - -
Amortisation of loan arrangement fees (39) (90) (206)
Non-cash movement in net cash (39) (90) (206)
Movement in net cash (excluding lease liabilities) 1,676 61,853 20,698
Opening net cash/(debt) (excluding lease liabilities) 16,167 (4,531) (4,531)
Closing net cash (excluding lease liabilities) 17,843 57,322 16,167
Opening lease liabilities (88,830) (91,101) (91,101)
Capitalisation of new leases (4,196) (8,245) (14,132)
Disposal of lease liabilities 93 167 617
Interest element of lease repayments (1,645) (1,762) (3,581)
Cash outflow from lease repayments 9,472 9,560 19,367
Closing lease liabilities (85,106) (91,381) (88,830)
Closing net debt (including lease liabilities) (67,263) (34,059) (72,663)
9. Acquisitions
On 1 July 2022, the Group acquired the entire issued share capital of Wiper
Blades Limited, an online retailer. Total consideration of £3,445,000 was
settled from the Group's cash resources.
10. Retirement benefit asset
The Group operates a trust based defined benefit pension scheme, "Bristol
Street Pension Scheme", which has three defined benefit sections which were
closed to new entrants and future accrual on 31 May 2003, with another section
closed to new entrants in July 2003 and future accrual in October 2013. The
Group has applied IAS 19 (revised) to the scheme.
During the six month period ended 31 August 2022, there have been changes in
the financial and demographic assumptions underlying the calculation of the
liabilities. In particular, the discount rate has increased due to the rise in
corporate bond yields. The effect of these changes in assumptions was a
decrease in liabilities of £8,228,000. The hedging strategy in place within
the scheme investment portfolio meant that the Period also saw a decline in
the market value of scheme assets of £12,210,000, offsetting the decrease in
liabilities. In total, an actuarial loss of £4,048,000 was recognised in the
Consolidated Statement of Comprehensive Income.
11. Cash flow from movement in working capital
The following table reconciles the movement in balance sheet headings to the
movement in working capital as presented in the Consolidated Cash Flow
Statement.
For the six months ended 31 August 2022
Trade and other receivables Trade and other payables Total working capital movement
£'000 £'000 £'000
Inventories
£'000
Trade and other payables (569,717)
Contract liabilities (24,423)
At 31 August 2022 496,739 72,117 (594,140)
At 28 February 2022 475,027 51,839 (552,285)
Balance sheet movement (21,712) (20,278) 41,855
Acquisitions 123 16 156
Movement excluding business combinations (21,589) (20,262) 42,011 160
Pension related balances 57
Decrease in capital creditor 823
Increase in interest accrual (136)
Movement in working capital 904
11. Cash flow from movement in working capital (continued)
For the six months ended 31 August 2021
Trade and other receivables Trade and other payables Total working capital movement
£'000 £'000 £'000
Inventories
£'000
Trade and other payables (482,109)
Contract liabilities (22,798)
At 31 August 2021 392,491 43,038 (504,907)
At 28 February 2021 597,391 59,375 (710,515)
Balance sheet movement 204,900 16,337 (205,608)
Acquisitions 686 347 (8)
Movement excluding business combinations 205,586 16,684 (205,616) 16,654
Pension related balances 41
Increase in capital creditor (643)
Increase in interest accrual (172)
Increase in share buyback accrual (202)
Bonus accrual settled in shares 164
Movement in working capital 15,842
For the year ended 28 February 2022
Trade and other receivables Trade and other payables Total working capital movement
£'000 £'000 £'000
Inventories
£'000
Trade and other payables (529,086)
Contract liabilities (23,199)
At 28 February 2022 475,027 51,839 (552,285)
At 28 February 2021 597,391 59,375 (710,515)
Balance sheet movement 122,364 7,536 (158,230)
Acquisitions 5,175 1,469 (6,181)
Movement excluding business combinations 127,539 9,005 (164,411) (27,867)
Pension related balances 116
Increase in capital creditor (286)
Increase in interest accrual (100)
Bonus accrual settled in shares 164
Movement in working capital (27,973)
12. Goodwill and other indefinite life assets
31 August 31 August 28 February
2022 2021 2022
£'000 £'000 £'000
Goodwill 76,182 71,862 74,575
Other indefinite life assets - Franchise relationships 28,895 27,582 28,895
At end of period 105,077 99,444 103,470
13. Risks and uncertainties
There are certain risk factors which could result in the actual results of the
Group differing materially from expected results. These factors include:
failure to deliver on the strategic goal of the Group to acquire and
consolidate UK motor retail businesses, failure to meet competitive challenges
to our business model or sector, advances in vehicle technology providing
customers with mobility solutions which bypass the dealer network, inability
to maintain current high quality relationships with Manufacturer partners,
economic conditions impacting trading, market driven fluctuations in used
vehicle values, litigation and regulatory risk, failure to comply with health
and safety policy, failure to attract, develop and retain talent, failure of
Group information and telecommunication systems, malicious cyber-attack,
availability of credit and vehicle financing, use of estimates and currency
risk.
All of the above principal risks are consistent with those detailed in the
Annual Report for the year ended 28 February 2022.
The Board continually review the risk factors which could impact on the Group
achieving its expected results and confirm that the above principal factors
will remain relevant for the final six months of the financial year ending 28
February 2023.
Set out below are the definitions and sources of various alternative
performance measures which are referred to throughout the Interim Financial
Report. All financial information provided is in respect of the Vertu Motors
plc Group.
Definitions
Like-for-like
Dealerships that have comparable trading periods in two consecutive financial
years, only the comparable period is measured as "Like-for-like".
H1
FY23
The six month period ended 31 August 2022
H1
FY22
The six month period ended 31 August 2021
Adjusted
Adjusted for amortisation of intangible assets and share based payment charges
as these are unconnected with the ordinary business of the Group.
Aftersales gross margin Aftersales gross margin compares the gross
profit earned from aftersales activities to total aftersales revenues,
including internal revenue relating to service and vehicle preparation work
performed on the Group's own vehicles. This is to properly reflect the real
activity of the Group's aftersales departments.
Alternative Performance Measures
Adjusted Profit Before Tax (PBT) Six months Six months
ended ended
31 August 31 August
2022 2021
£'000 £'000
Profit before tax 26,939 51,102
Amortisation 214 202
Share based payment charge 1,064 529
Adjusted PBT 28,217 51,833
Tangible net assets per share 31 August 28 February
2022 2022
£'000 £'000
Net assets 340,023 331,881
Less:
Goodwill and other indefinite life assets (105,077) (103,470)
Other intangible assets (2,397) (1,797)
Add:
Deferred tax on above adjustments 11,100 10,856
Tangible net assets 243,649 237,470
Tangible net assets per share (p) 71.2p 66.8p
At 31 August 2022, there were 348,945,522 shares in issue (28 February 2022:
359,422,972), of which 6,922,122 were held by the Group's employee benefit
trust (28 February 2022: 4,141,272). Rights to dividends on shares held in the
Group's employee benefit trust have been waived and therefore such shares are
not included in the tangible net asset per share calculation.
Free Cash Flow
Six months Six months
ended ended
31 August 2022 31 August 2021
£'000 £'000
Net cash inflow from operating activities 38,841 76,857
Purchase of other property, plant and equipment (7,835) (5,907)
Purchase of intangible assets (1) (20)
Proceeds from disposal of property, plant and equipment - 464
Principal elements of lease repayments (7,827) (7,798)
Free cash flow 23,178 63,596
Like-for-like reconciliations:
Revenue by department
H1 FY23 H1 FY23
Group revenue Acquisitions Disposals revenue Like-for-like revenue £'m
£'m revenue £'m
£'m
New car retail and Motability 557.6 (12.3) - 545.3
New fleet and commercial 428.7 (5.6) - 423.1
Used cars 854.5 (21.9) - 832.6
Aftersales 158.9 (4.8) - 154.1
Total revenue 1,999.7 (44.6) - 1,955.1
H1 FY22 H1 FY22
Group revenue Acquisitions Disposals revenue Like-for-like revenue £'m
£'m revenue £'m
£'m
New car retail and Motability 530.7 (0.4) (2.5) 527.8
New fleet and commercial 445.2 (0.2) - 445.0
Used cars 804.8 (0.9) (9.2) 794.7
Aftersales 143.4 (0.2) (0.9) 142.3
Total revenue 1,924.1 (1.7) (12.6) 1,909.8
Aftersales revenue by department
H1 FY23 H1 FY23
Group revenue Acquisitions Disposals Like-for-like revenue £'m
£'m revenue revenue
£'m £'m
Parts 96.7 (3.4) - 93.3
Accident repair 10.2 (0.2) (0.1) 9.9
Parts and accident repair 106.9 (3.6) (0.1) 103.2
Forecourt 6.7 - - 6.7
Service 82.3 (1.9) - 80.4
Total revenue (10) 195.9 (5.5) (0.1) 190.3
(10) Inclusive of both internal and external revenue
Like-for-like reconciliations (continued):
Aftersales revenue by department (continued)
H1 FY22 H1 FY22
Group revenue Acquisitions Disposals Like-for-like revenue
£'m revenue revenue £'m
£'m £'m
Parts 86.3 (0.2) (0.3) 85.8
Accident repair 8.0 - (0.4) 7.6
Parts and accident repair 94.3 (0.2) (0.7) 93.4
Forecourt 3.5 - - 3.5
Service 77.2 (0.1) (0.3) 76.8
Total revenue (10) 175.0 (0.3) (1.0) 173.7
(10) Inclusive of both internal and external revenue
Gross profit by department
H1 FY23 H1 FY23
Group gross profit Acquisitions gross profit Disposals Like-for-like gross profit
£'m £'m gross profit £'m
£'m
New car retail and Motability 47.4 (1.1) - 46.3
New fleet and commercial 20.2 (0.4) - 19.8
Used cars 67.1 (1.2) - 65.9
Aftersales 89.0 (2.2) - 86.8
Total gross profit 223.7 (4.9) - 218.8
H1 FY22 H1 FY22
Group gross profit Acquisitions gross profit Disposals Like-for-like gross profit
£'m £'m gross profit £'m
£'m
New car retail and Motability 38.8 - (0.2) 38.6
New fleet and commercial 18.8 - - 18.8
Used cars 82.4 (0.1) (0.6) 81.7
Aftersales 83.1 (0.1) (0.6) 82.4
Total gross profit 223.1 (0.2) (1.4) 221.5
Like-for-like reconciliations (continued):
Aftersales gross profit by department
H1 FY23 H1 FY23
Group gross profit Acquisitions Disposals Like-for-like gross profit
£'m gross profit gross profit £'m
£'m £'m
Parts 21.7 (0.7) - 21.0
Accident repair 5.4 (0.2) - 5.2
Parts and accident repair 27.1 (0.9) - 26.2
Forecourt 0.4 - - 0.4
Service 61.5 (1.3) - 60.2
Total gross profit 89.0 (2.2) - 86.8
H1 FY22 H1 FY22
Group gross profit Acquisitions Disposals Like-for-like gross profit
£'m gross profit gross profit £'m
£'m £'m
Parts 19.0 - - 19.0
Accident repair 4.5 - (0.4) 4.1
Parts and accident repair 23.5 - (0.4) 23.1
Forecourt 0.3 - - 0.3
Service 59.3 (0.1) (0.2) 59.0
Total gross profit 83.1 (0.1) (0.6) 82.4
Number of units sold by department
H1 FY23 H1 FY23
Total Group Acquisitions Disposals Core Group
New car retail 17,673 (661) - 17,012
New car Motability 4,711 (66) - 4,645
New fleet 11,522 (339) - 11,183
New commercial 8,707 (267) - 8,440
Used cars 43,022 (1,307) - 41,715
Total units 85,635 (2,640) - 82,995
H1 FY22 H1 FY22
Total Group Acquisitions Disposals Core Group
New car retail 18,086 (46) (84) 17,956
New car Motability 4,865 - (35) 4,830
New fleet 11,695 - (33) 11,662
New commercial 9,915 (11) - 9,904
Used cars 49,697 (71) (552) 49,074
Total units 94,258 (128) (704) 93,426
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