Auto Trader Group
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Auto Trader Group plc Annual Report and Financial Statements 2017 Driving trust and transparency Auto Trader Group plc is a 100% digital business having successfully completed the transition from a print title in 2013. Auto Trader sits at the heart of the UK’s vehicle buying and selling processes and operates the UK’s largest digital automotive marketplace. Strategic report 02 Business at a glance 04 Market overview 10 Our business model 12 Chief Executive Officer’s statement 16 Delivering on our priorities 22 Key performance indicators 26 Financial review 30 Risk management 33 Principal risks and uncertainties 36 Corporate social responsibility Governance 44 Governance overview 46 Board of Directors 48 Corporate governance statement 54 Report of the Nomination Committee 56 Report of the Audit Committee 60 Directors’ remuneration report 73 Directors’ report Financial statements 76 Independent auditors’ report to the members of Auto Trader Group plc only 79 Consolidated income statement 80 Consolidated statement of comprehensive income 81 Consolidated balance sheet 82 Consolidated statement of changes in equity 83 Consolidated statement of cash flows 84 Notes to the consolidated financial statements 116 Company balance sheet 117 Company statement of changes in equity 118 Notes to the Company financial statements 123 Shareholder information Follow us: twitter.com/ATInsight To view and download this report online: ar2017.autotrader.co.uk There’s nothing more important than trust and transparency in today’s automotive marketplace. A transparent market makes car buying fair, inherently generating trust and building better relationships. Auto Trader creates this trust and transparency throughout the market, allowing car buyers and sellers to focus on the things that really matter. We are doing this by combining technology, data and 40 years of automotive industry experience to provide a great digital experience for car buyers and a range of value-adding data and advertising services to car retailers and manufacturers. Read more about our strategy and operating priorities on page 13. Auto Trader Group plc Annual Report and Financial Statements 2017 01 Business at a glance We have achieved another strong year of growth across all three of our revenue streams. Our audience has grown – with increases in cross platform visits, minutes spent on our marketplace and full page advert views – and we have delivered on our capital return policy. Financial highlights Revenue Operating 65% Underlying 67% profit 60% operating 61% Margin profit 2 Margin +9% Margin Margin to £311.4m +18% to £203.1m +19% to £207.2m 2016 2017 2016 2017 2016 2017 £281.6m £311.4m £169.6m £203.1m £171.3m £207.2m Basic Cash generated Net external 2.2x EPS from operations 3 debt 4 1.6x Leverage 5 Leverage 5 +22% +£32.8m -£ 3 7. 6 m to 15.64p per share to £212.9m to £355.0m 2016 2017 2016 2017 2016 2017 12.67p 15.64p £180.1m £212.9m £392.6m £355.0m Total dividend Cash returns to Change from 52-week to per share shareholders 6 annual accounting period As the 2017 financial year was five days longer than the previous year, 5.2p +£123.7m year-on-year percentages for revenue, interim 1.7p to £128.7m costs and profits have been adjusted plus final 3.5p to reflect like-for-like growth. Read more in our Financial 2016 2017 2016 2017 review on page 26. 1.5p 5.2p £5.0m £128.7m Operational highlights Average monthly Average Revenue Per Number of retailer Advert views cross platform Retailer forecourt forecourts advertising per month 8,9 minutes 7,8 (‘ARPR’) per month 8 on Auto Trader 8 +12% +£162 -2% +2% to 582m to £1,546 to 13,296 to 247.4m (2016: 521m) (2016: £1,384) (2016: 13,514) (2016: 242.8m) 1 ‘2017’ references the 369 day period ended 31 March 2017 and the 5 Leverage is Net external debt as a multiple of Adjusted underlying EBITDA comparative ‘2016’ references the 52 week period ended 27 March 2016 (earnings before interest, taxation, depreciation and amortisation, unless otherwise stated. share-based payments and associated NI and exceptional items). 2 Op erating profit before share-based payments and associated national 6 Cash returns to shareholders comprise dividends paid and the cost of share insurance (‘NI’) and exceptional items. buybacks (excluding transaction costs). 3 Cash generated from operations is defined as net cash generated from 7 Cross platform minutes measured by comScore. operating activities, before corporation tax paid. 8 Average number during the year. 4 Net external debt is gross external indebtedness, less cash and 9 Company measure of the number of inspections of individual vehicle cash equivalents. advertisements on the UK marketplace for both physical and virtual stock. 02 Auto Trader Group plc Annual Report and Financial Statements 2017 Strategic report / Governance / Financial statements Our business model page 10 Chief Executive Officer’s statement page 12 Financial review page 26 Our revenue streams Trade Revenue from retailers and home traders advertising their vehicles and utilising Auto Trader’s products. Revenue performance Percentage of revenue +9% to £262.1 million 84% (2016: £236.4 million) Consumer services Revenue from private sellers who can place an advert on the marketplace for a fee and from our partners who provide services to consumers. Revenue performance Percentage of revenue +4% to £31.8 million 10% (2016: £30.3 million) Display advertising Revenue from manufacturers and their advertising agencies who advertise their brand or services on the marketplace. Revenue performance Percentage of revenue +16% to £17.5m 6% (2016: £14.9m) Auto Trader Group plc Annual Report and Financial Statements 2017 03 Market overview The automotive market today The UK automotive marketplace continues to grow. Used car volumes are benefitting from previous new car growth, which is expected to decline modestly from the record highs reached in 2017. 2.7m 2.6% 8.2m 11% new cars registered in increase in new car used cars sold in the 12 growth in finance agreements the 12 months to March 2017 1 registrations in the 12 months months to March 2017 1 for used cars in the 12 months to March 2017 1 to March 20172 UK automotive market and macroeconomic conditions New and used car sales volumes of attractive finance propositions has UK economy and EU Referendum The number of vehicles in the UK continues underpinned levels of new and used car considerations to grow, fuelled by increases in both new car transactions. 86% of private new car sales Since Britain voted to leave the European registrations and the average scrappage were purchased using dealership finance, Union, consumer spending and service age. The number of new cars registered in and the total value of finance agreements sector growth have remained steady, the 12 months to March 2017 increased for for used cars grew 11% in the 12 months to helping the UK economy to grow by 0.7% in a fifth consecutive year to 2.7 million units March 2017 2. High levels of finance uptake Q3 and Q4 of 2016. GDP grew by 2.0% in 2016 (growth of 2.6%) according to the Society have contributed to a reduction in the and similar levels are predicted for 2017. of Motor Manufacturers and Traders average length of car ownership to 3.2 years However, inflation has climbed steadily in (‘SMMT’)1. Sales to fleet customers were from 3.6 years since 2011, as new cars are the past two years, reaching 2.7% in April 2017 particularly strong, up 6.3% year-on-year, introduced into the used car market at the and estimated to rise further with the fall in whilst the number of new cars registered to end of finance agreements. the pound raising the prices of imported retail individuals was broadly flat after four goods and raw materials. Interest rates Despite the exceptionally high performing consecutive years of growth, despite the remain low, with the Bank of England cutting first quarter of the year, and the continuation dip in consumer confidence following the its base rate from 0.5% to 0.25%; this of low interest rates, the industry expects that Brexit result. continued low level of interest rates has new car transactions will begin to plateau or provided consumers with attractive car 2017 started strongly with a record rise in decline in 2017, and new car registrations were finance deals and supported the strong new car registrations in the first quarter. down by 0.6% year-on-year for the five months new car market. This was in part due to a very strong March to May 20171. We expect the strong new car as consumers looked to buy ahead of an market performance in recent years will Whilst we have seen fairly limited impact increase in vehicle excise duty effective continue to have a positive impact on used car to date from the result of the European 1 April 2017. transactions, building on the 8.2 million used Referendum, the UK’s decision to leave the cars sold in the 12 months to March 2017, EU does continue to cloud future growth Low rate finance and new car desirability which increased by 4.9% over the same expectations as it is not clear whether Britain are key drivers to the growth the market is period last year. will follow a hard or soft Brexit strategy. Turn experiencing at this time. The continuation to page 33 for more details about the impact of the EU Referendum on Auto Trader. Number of new car registrations Number of used car transactions (’000s) (%) (’000s) (%) 3,000 15 9,000 30 2,500 7,500 25 2,000 10 6,000 20 1,500 4,500 15 1,000 5 3,000 10 500 1,500 5 0 0 0 0 -5 -5 -10 2015 2016 2017 Year-on-year growth rate in that month -15 2015 2016 2017 12 month rolling total 1 SMMT trends data, March 2017 and May 2017.