Annual Report & Accounts for the Year Ended 29Th February 2016
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vertumotors.com VERTU Motors plc ANNUAL REPORT & FINANCIAL STATEMENTS For the year ended 29 February 2016 ...built on trust Contents Table of Contents Page Strategic Report 2 - Chairman’s Statement 5 - Chief Executive’s Review 7 - Chief Financial Officer’s Review 20 Main Board Directors 25 Advisors 26 Corporate and Social Responsibility Report 27 Directors’ Report 31 Corporate Governance Report 38 Remuneration Committee Report 48 Directors’ Remuneration Report 56 Independent Auditors’ Report (Consolidated Financial Statements) 62 Consolidated Income Statement 64 Consolidated Statement of Comprehensive Income 65 Consolidated Balance Sheet 66 Consolidated Cash Flow Statement 67 Consolidated Statement of Changes in Equity 68 Notes to the Consolidated Financial Statements 69 Independent Auditors’ Report (Company Financial Statements) 108 Company Balance Sheet 110 Notes to the Company Financial Statements 113 Financial Diary Annual General Meeting 20 July 2016 Interim Results 2016/17 12 October 2016 Final Results 2016/17 May 2017 Vertu Motors plc Mission Statement “To deliver an outstanding customer motoring experience through honesty and trust” 1 Vertu Motors plc Strategic Report The Directors present their strategic report on the affairs of the Group and Company, for the year ended 29 February 2016. Business Review and Future Developments The review of the business for the year is contained in the Chairman's Report, Chief Executive's Review and Chief Financial Officer’s Review. This includes details of acquisitions and likely future developments. It remains your Board's intention to deliver shareholder value and develop the Group through strategic acquisitions supplemented by the focused organic growth of its existing businesses. The Group has a number of Key Performance Indicators (“KPI’s”) by which it monitors its business. These include sales and gross margins by channel; an analysis of these KPI’s is set out in the Chief Executive’s Review on page 15. Principal 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, as set out below, are not an exhaustive list of all the potential risks and uncertainties that could adversely impact the Group’s results: STRATEGY Description of risk Impact Mitigation Failure to deliver on Stalled growth of the Maintain strong relationships with manufacturer the strategic goal of Group and associated partners to ensure that the Group remains a valued the Group to acquire shareholder returns and relevant candidate for any potential franchised and consolidate UK Reputation risk network development opportunities. motor retail Availability of resources to fund expansion ensured businesses through both committed bank facilities and positive cash generation within the Group Thorough reviews of acquisition opportunities to ensure Group investment hurdles are met Established process for swift integration of acquired businesses into the Group Failure to meet Loss of customers to The Group’s scale, technological capability and competitive competitors diversification creates the ability to capitalise on challenges to our Reduced profitability market opportunity business model or Customer experience focus of the Group attracts sector customer loyalty Ongoing monitoring to identify emerging competitive threats and act on these quickly BRAND PARTNERS AND REPUTATION Description of risk Impact Mitigation Inability to maintain Impact on our ability Group vision and values set the tone from the top to current high quality to retain existing deliver strong service to our Group stakeholders relationships with contracts and to take Constant focus on improvement in performance and manufacturer on new opportunities effective communication with our manufacturer partners for growth partners to ensure that our objectives are closely matched to theirs 2 Vertu Motors plc Strategic Report (continued) Principal Risks and Uncertainties (continued) ECONOMIC, POLITICAL AND ENVIRONMENTAL Description of risk Impact Mitigation Economic conditions Volume and margin Close monitoring of UK and European economic impacting trading are effected conditions particularly in vehicle Maintain close relationships with manufacturer sales partners Focus on retention initiatives particularly in aftersales Market may drive Used vehicle margin Daily monitoring of used vehicle market to detect fluctuation in used is effected and value pricing movements vehicle values of used vehicle Real time inventory management and control to inventory may decline enable the Group to react quickly to pricing declines LEGAL AND REGULATORY Description of risk Impact Mitigation Litigation and Litigation or Policies and procedures are in place to ensure regulatory risk in an breaching regulations compliance with relevant regulations, adherence to environment of ever could have a financial which is overseen by the Compliance Committee increasing regulatory impact or reputational Risk management programme in place aimed at scrutiny impact preventing issues in the first instance but also providing appropriate response to any issues that do arise Continuation of Group focus on customer experience and a partnership approach with its manufacturer partners, to minimise impact of Block Exemption regulation changes Failure to comply with Injury to customers or Group has a dedicated H&S Manager Health and Safety colleagues Group H&S Committee monitors compliance and (H&S) Policy recommends any corrective or preventative actions Training for all colleagues Specific H&S dashboard developed, monitoring KPI’s Independent external H&S audits carried out PEOPLE Description of risk Impact Mitigation Failure to attract, Unable to deliver on Annual colleague satisfaction survey and action develop and retain business plans planning based upon the results talent Colleagues who lack Significant investment in formalised training and motivation and development programmes delivered by in-house engagement training department and external trainers as appropriate Talent review and succession plans in place SYSTEMS AND TECHNOLOGY Description of risk Impact Mitigation Failure of Group Business is Robust business continuity process has been Information or interrupted developed telecommunication Operation of this process is regularly tested, reviewed systems and updated as necessary Group is targeted for Business is Robust business continuity process has been malicious cyber interrupted developed attack Policy prohibits installation of non-Group software Dated is Firewall and anti-virus protocols active and reviewed compromised regularly Penetration and vulnerability testing reviewed regularly to assess new threats 3 Vertu Motors plc Strategic Report (continued) Principal Risks and Uncertainties (continued) FINANCE AND TREASURY Description of risk Impact Mitigation Availability of credit Inability to secure Detailed working capital cash flow monitoring in place and vehicle financing funding impacting on Maintain relationships with key banks, financing distribution sales or arrangements in place until 30 March 2019 expansion opportunities Leverage Group relationship with OEM finance companies and retail finance providers Use of estimates Variance in Key accounting judgements are reviewed on a regular accounting judgement basis to ensure these remain appropriate impacts profitability Regular review of changes in accounting standards framework to assess any likely impact on the Group Currency risk Fluctuation in Portfolio of manufacturer partners spreads potential exchange rates risk impact the profitability No material foreign exchange transactions are of our manufacturer undertaken directly by the Group partners which may change their prices or support packages to the dealer network Financial position and performance A comprehensive analysis of the business during the year and the position at the year end is contained within the Chairman’s Statement, the Chief Executive’s Review and the Chief Financial Officer’s Review. 4 Vertu Motors plc Strategic Report (continued) Chairman’s Statement The Board is reporting another year of strong growth, with record levels of revenue, operating profit, earnings per share and dividends. In my first Chairman’s statement to shareholders last year, I explained that I was struck by three features of the Group: that the Group is set for growth, well positioned with Manufacturer partners and in a healthy financial position. These results confirm all three of these features and I remain optimistic about the Group’s growth prospects, as well as confident of its resilience. Board changes One of my key roles as Chairman is to ensure that the composition of the Board is continually reviewed to ensure that it provides the Group with the strategic oversight, vision and governance that it requires in order to deliver a sustainable long term return for shareholders. Today, I am pleased to announce that Pauline Best joins the Board as a Non-Executive Director with effect from 1 June 2016. Pauline is an experienced Human Resources professional who is currently the Global People and Organisation Director of Specsavers and whose previous roles include Global Leadership and People Capability Director for Vodafone and Human Resources Director of Talkland. The need to work to attract and retain the best available talent is a priority, as sector growth highlights skill shortages and as new ways of working develop in the digital age.