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Share Name Share Symbol Market Type Share ISIN Share Description
Vertu Motors Plc LSE:VTU London Ordinary Share GB00B1GK4645 ORD 10P
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Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
General Retailers 3,064.5 7.3 0.8 41.0 125

Vertu Motors PLC Unaudited interim results to 31 August 2020

07/10/2020 7:00am

UK Regulatory (RNS & others)


Vertu Motors (LSE:VTU)
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RNS Number : 3013B

Vertu Motors PLC

07 October 2020

7 October 2020

Vertu Motors plc ("Vertu", "Group")

Unaudited interim results for the six months ended 31 August 2020

Emerging strongly from the Lockdown

Vertu Motors plc, the automotive retailer with a network of 135 sales and aftersales outlets across the UK, announces its interim results for the six months ended 31 August 2020 ("the Period").

HIGHLIGHTS

-- The Group delivered Adjusted(1) profit before tax of GBP4.7m with no exceptional items in the Period, on sales of GBP1.12bn, despite 10 weeks of closed sales showrooms:

o Quarter one saw a loss of GBP14.3m due to the lockdown

o Quarter two, in contrast, generated a profit of GBP19.0m, significantly in excess of the prior year period profit of GBP3.8m, emerging from lockdown with a very motivated team

o Result aided by government support in the form of the furlough grant and business rates relief

-- Very strong cash flow performance - operating cash flow of GBP80.0m in the period and period end net cash(2) of GBP36.5m

   --    Net tangible assets per share of 46.5p (2019: 46.1p) 
   --    Delivered GBP10m of annualised cost savings 

-- Significantly progressed technology advancements driving Group's omni-channel capabilities (with strong customer uptake) and higher colleague productivity levels

   --    Record trading performance delivered in key month of September 

-- The result for the 7 months to September 2020 gives the board confidence that a strong financial outcome will be delivered in the full financial year

   --    Group well positioned to benefit from continued consolidation 

(1) Adjusted to remove share-based payments and amortisation of intangible assets

(2) Excludes IFRS 16 liabilities and is net of used vehicle stocking loans

Six months ended 31 August 2020:

 
                                   Total                     Like-for-like           SMMT Registrations 
                        Q1 FY21   Q2 FY21   H1 FY21   Q1 FY21   Q2 FY21   H1 FY21     Q1 FY21    Q2 FY21 
                          % Var     % Var     % Var     % Var     % Var     % Var       % Var      % Var 
                          to Q1     to Q2     to H1     to Q1     to Q2     To H1       to Q1      to Q2 
                           FY20      FY20      FY20      FY20      FY20      FY20        FY20       FY20 
 
 Group Revenues         (64.2%)      9.3%   (32.0%)   (65.4%)      4.8%   (34.7%) 
 Service Revenues(3)    (56.3%)     15.9%   (21.7%)   (58.1%)      9.7%   (25.5%) 
 
 Volumes: 
 Used Retail 
  Vehicles              (73.4%)      5.9%   (34.0%)   (74.1%)      1.9%   (35.7%) 
 New Retail 
  Vehicles              (56.4%)     12.7%   (31.9%)   (59.3%)      3.4%   (37.0%)     (60.5%)     (2.2%) 
 Motability 
  Vehicles              (66.3%)     19.4%   (28.4%)   (67.8%)     11.7%   (32.6%)     (67.9%)       9.4% 
 New Fleet 
  Cars(4)               (63.6%)   (23.4%)   (46.1%)   (66.3%)   (29.2%)   (50.2%)     (69.3%)    (21.1%) 
 New Commercial 
  Vehicles              (67.0%)      0.2%   (38.8%)   (67.0%)      0.2%   (38.8%)     (65.7%)    (13.2%) 
 

(3) Includes internal and external revenues

(4) Includes agency volumes

Commenting on the results, Robert Forrester, Chief Executive, said:

"The energised Vertu team delivered a safe operating environment for customers and colleagues and an outstanding trading performance as lockdown was eased. Individual records in used cars, aftersales and new cars were set across the Group. We did the basics well and have increased investment in omni-channel technology, which has been received enthusiastically by customers. Vertu made a profit in the first half, we have taken GBP10m of annualised costs out of the business and period end net cash was GBP36m. This is an exceptional performance in the circumstances. We are well placed for the opportunities that an uncertain future offers.

I would like to thank all my colleagues, our manufacturer partners, our customers and our other key suppliers for their hard work and support during this unprecedented period."

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/

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 
  Andrew Jones 
  Dominic King 
 Camarco 
 Billy Clegg              Tel: 020 3757 4983 
  Tom Huddart 
 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

CHAIRMAN'S STATEMENT

I am pleased to report that the Group has delivered a resilient, profitable result in this unprecedented period. This result is arguably better than other publicly quoted motor retail groups and reflects well on all management and colleagues within the Group. I would like to personally express my appreciation and thanks to the whole Vertu team. The pandemic has been costly and traumatic for the automotive industry and retail sector yet, in our case, some good has come from the challenges. The Group moved quickly to new ways of working, providing a safe environment and making sure the colleagues of the Group were supported and communicated with continually. The business has emerged from the lockdown stronger in many ways for the experience and colleagues have certainly repaid the support the Group provided. We believe the Group has outperformed what has been a strong market rebound in the last few months. The strength of the trading performance post 1 June and the strong result in September, results in the Board being increasingly confident of a strong outturn for the financial year as a whole.

The executive management of the Group, through clear communication and prompt and decisive action, provided excellent leadership throughout the lockdown and with the strong support and involvement of all colleagues the Group has executed exceptionally throughout the Period. The following key themes illustrate this:

   --    Financial stability 

The Group has always had one of the strongest balance sheets in the sector. During the Period stock levels were reduced, generating significant positive cash flow. Costs were well controlled throughout, with capacity levels carefully matched to demand as the Group emerged from the lockdown. The actions taken led to the Group being able to report an improved net cash position at the end of the Period.

   --    Resilience 

At a time when customer communication was more vital than ever, the Group's centralised customer contact centre in Gateshead was able to switch seamlessly to home working using the established telephony technology. This enabled sales and aftersales enquiries, as well as customer queries, to be handled efficiently. A considerable vehicle order bank was built during the lockdown. From the national lockdown on the 23 March, vehicle repair operations were kept open in the vast majority of Group dealerships, in order to keep key workers and essential businesses on the road. The momentum of building activity during the lockdown gave the business a head start with which to take advantage of the favourable market conditions as the dealerships reopened. The size and location of the Group's dealership showrooms also helped to mitigate some of the pandemic's impact on the wider retail sector. The dealerships tend to be in out of town locations, accessible by car and with plenty of space to ensure social distancing can be maintained.

   --    New ways of working 

The lockdown afforded the time and motivation to further develop the business, in particular in the area of technology. Colleagues took quickly to new ways of working and this enabled the application of more speed in the roll out of process and systems changes with less upheaval. Enhanced omni-channel retail capability allows customers to increasingly transact with the Group as seamlessly from home as they can in person in a dealership. Vehicles can be purchased contactlessly. The Group's in-house development team, working tirelessly from home delivered further integration of systems to vastly improve operating efficiency. Colleagues no longer accompanied customers on test drives and this not only increased efficiency, but customers seem to prefer it. This is a great example of a "forced" innovation that is likely to be kept in the business in the long-term.

The Board are optimistic that the Group's proven track record of execution and strong balance sheet will allow a new period of expansion to commence, to deliver a business of greater scale. An increased acquisition pipeline is in place and it was pleasing to see the purchase of the first dealership since the lockdown on 1 October, with more on the horizon. I would like to thank colleagues at all levels for their extraordinary effort in not only keeping the Group operating through lockdown, but in helping it emerge as a stronger business.

Andy Goss, Chairman

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 and are re-iterated 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 omni-channel retailing and digitalisation in the sector, delivering a cohesive 'bricks and clicks' strategy.

-- To reduce the cost base of the Group through scale economies and using digitalisation of processes.

-- To develop and motivate the Group's colleagues to ensure consistency of operational delivery across the business.

-- To develop ancillary businesses to add revenue and returns which complement the core business.

Growth

Importance of Scale and Brand

To deliver long-term value to the Group's owners, the Group's strategy is to continue to grow through acquiring both volume and premium franchised dealerships. Scale benefits include: a national online and offline co-ordinated marketing strategy, based on strong brands, to maximise the benefits of the Group's unique national footprint, online platforms, scaled highly efficient contact centres, franchise management dedication, purchasing efficiencies and access to competitive consumer finance packages for the Group's customers.

Further consolidation of the sector by large-scale national brands is likely to continue in the months and years ahead. The Group currently operates a small number of brands in the UK, Bristol Street Motors, Macklin Motors, Farnell and Vertu Motors. Bristol Street Motors remains one of the longest established and the number two automotive retail brand in the UK, despite only representing the Group's volume franchises in England. Bristolstreet.co.uk is one of the most visited websites in the sector and the brand is supported by extensive TV campaigns across England. In Scotland, Macklin Motors is the Group's sole brand north of the border, with strong and growing brand awareness. Bristol Street Motors and Macklin Motors are the current programme sponsors of Formula One coverage on Channel 4 south and north of the border respectively. Farnell operates Jaguar Land Rover franchises in the North of England and has been associated with the brands since 1948. Vertu Motors is the newest of the Group's vehicle sales brands. Customer awareness has been boosted recently by a TV marketing campaign in the Period and sponsorship of a Channel 4 car related series. Vertumotors.com, was repositioned as a customer facing website, rather than purely an investor web platform, to increase customer awareness of the Group's major premium franchises branded Vertu. The Group will continue to invest in the Vertu brand which it hopes to make a very major player in the premium franchised dealership space in the UK.

Portfolio Development and Changes

As part of the strategy for scale, the Group seeks to add additional Manufacturer partners, not currently represented in the portfolio, to facilitate additional growth opportunities. The Group also continues to evaluate and execute multi-franchising actions in its locations to maximise the profitability of each location. Increased flexibility of formats and Manufacturer requirements are likely to aid this process and the current pandemic is likely to also accelerate this trend.

Reflective of the above, the Group added the Citroen brand to its existing Ford dealership operations in Worcester in August, with a similar action anticipated in Macclesfield in January.

The Kia franchise in the UK is highly regarded by franchised retailers with the brand coming third in the recent NFDA dealer attitude survey out of all Manufacturers. The Group was pleased to have acquired its first Kia outlets late in the previous financial year, in Bradford and Edinburgh. Further growth has now been undertaken when on 1 October, the Group acquired Nottingham Kia from Sandicliffe for GBP1.9m, including used vehicle inventory with a value of GBP1.8m, together with a short-term lease on the dealership premises. Relocation of the business is anticipated in due course. The dealership acquired had revenues of GBP28.5m and loss before tax of GBP0.3m in 2019. The Group's entry into the Kia franchise and subsequent expansion in 2020 added an excellent franchise to the Group's portfolio and a partnership of increasing scale.

In the wake of the current situation, we anticipate an acceleration of network changes for franchised retailers. Potential opportunities for growth for those established retail groups with a proven track record, strong financial position and positive relationship with Manufacturers are therefore increasing.

Omni-channel Retailing

Digitalisation of Sales

The environment in the first half has driven an acceleration in the role of omni-channel capability for automotive purchases. The Group has been at the forefront of developments to provide customers with innovative ways to purchase and interact online. The Group was the first retailer in 2017 to offer full online retailing of used cars in the UK. That said, the relative complexity of a vehicle purchase which potentially includes financing, warranty and other products, as well as a vehicle to trade in means the number of transactions completed 'purely' online within automotive retail remains extremely low.

The Group continued its innovative approach to omni-channel retailing in the Period, simplifying the customer journey to ensure that the online and physical buying experiences are as identical, seamless and contactless as possible. The following recent enhancements have been built into our bespoke and internally developed showroom systems:

-- Consumers can reserve a car online for a fee, so effectively taking the car off-market while the deal is finalised. Uptake of this functionality has been excellent, with many more customers now starting their buying journey online but completing their journey in a dealership.

-- Customers can book a virtual or physical sales appointment online and these are facilitated with sales executives who can share their screen as easily with customers online as they can with customers physically on the premises.

-- Sales documentation, including those of a compliance nature, are 'signed' via SMS to the customer's mobile, avoiding the need for a dealership visit at all, if that is the customer's preference.

A "Bricks and Clicks" Strategy

Whilst more customers than ever before are starting their buying journey online, most customers buy from their local dealership and the majority still want to undertake a test drive. The Group witnessed a reduction in enquiries initiated in person, through dealership visits, post lockdown. This reduction in 'walk-in' traffic was more than offset by an increase in sales enquiries originating online or by phone. Local sales and aftersales support is an increasingly important factor in many vehicle buying decisions. The Group retains a high proportion of its vehicle sales customers into service and this aids overall long-term sales retention. A "bricks and clicks" model is crucial in this sector, with the Group's network of physical dealerships across the UK at the centre of its customer offering and vital for the delivery of service and repair work to our customers.

Cost Reduction

Enhanced scale of operations allows the Group to maximise on purchasing benefits, provide process efficiencies with common systems and technology and to gain marketing synergies from promoting a larger network for each of the Group's brands.

A key feature of the Group's digitalisation strategy has been to use system integration and development (particularly using an increasing number of inhouse robotics specialists) to enhance productivity and reduce the cost base of the Group. Enhanced integration of the Group's sales showroom and financial systems has facilitated significant efficiency improvements in processing vehicle sale transactions. This has enabled to Group to reduce cost in the key area of vehicle administration, for example. Further enhancements are being undertaken to expand the use of robotic processes to provide improved efficiency, in areas such as vehicle invoicing and taxation. These initiatives formed a key part of the cost reduction programme in the Period which reduced Group headcount by 345, yielding expected annualised savings of GBP10m. This programme was completed by July 2020 and the associated reorganisation costs of GBP0.8m reduced underlying profits in the Period.

Motivated, Professional Colleagues

A key aspect of the Group, which drives performance and consistency, is to have one, consistent Group culture. Delivery of the Group's Mission Statement ("To deliver an outstanding customer motoring experience through honesty and trust") through application of the Group's Values ("Professionalism, Passion, Recognition, Integrity, Respect, Opportunity and Commitment") is at the core of how we do business. The Group must have the right people in management and colleague positions and have a culture that promotes excellence, energy and urgency and is intolerant of mediocrity. In this way, the basics of the business are executed, and customers delighted.

To reinforce this culture in this strangest of periods, the Group undertook significant communication direct to colleagues whether in the business or on furlough. Videos were extensively utilised and feedback from colleagues was very appreciative. They understood throughout, the challenges, opportunities and management actions being undertaken. Shorter term goal setting was used to focus all colleagues on key goals as the Group reopened following the lockdown. A three-month plan was established from 1 May, which focused everyone on the following five areas:

-- Keep colleagues and customers safe through appropriate safety and social distancing measures. One-way systems, daily temperature checking for colleagues, Perspex shields and sanitisation stations were put in place in all of our business locations prior to reopening and remain in place.

-- Ensure a culture of working together to drive cross departmental, dealership and divisional benefits.

   --    Balance colleague resource in the ramp back to full capacity. 

-- Fanatical focus on cost and cash management, including a goal to deliver a reduction in used vehicle stock levels to generate cash.

   --    Management to lead from the front motivating colleagues. 

By the end of July, when most of the Group's dealerships were operating at close to full capacity, a second two-month plan was launched. This was aimed at maximising performance in August and September, taking advantage of the favourable market conditions. These two-month goals were focused on the pillars of 'Speed', 'Simplicity' and 'Confidence' and required focus on consistent execution, as well as applying the changes in systems and processes developed to aid efficiency. We were delighted with the way colleagues understood and actioned these focus areas across the Group. The Period has undoubtedly strengthened the Group culture and increased consistency.

I would like to personally thank every Vertu colleague for their hard work and commitment during the Period. I am proud to be the leader of such an exceptional team of people, who treat others the way they themselves would like to be treated.

Responding to Regulatory Change

FCA

The FCA has now published their final findings in connection with the review of motor finance. The recommendations of this review are required to be implemented by 28 January 2021 and vary the way commission for the sale of finance products can be earned. The prominence of disclosures of the nature of the commissions earned are also to be enhanced.

The Group has always considered regulatory compliance to be a core operational competence and vital to putting the customer first. The Group uses one in-house, electronic showroom system to ensure consistency of process in this important area of regulatory compliance, as well as to provide customers with the right information to select the financial and other products which best suit their needs. This gives the Group the ability to respond to such regulatory changes quickly and effectively.

The Group is well advanced in discussions with its retail finance partners to ensure that commission models used in future are aligned to the recommendations of the FCA review. The Group expects to fully trial the amended models before the end of the calendar year, for roll out across the Group in advance of the stated deadlines. Our current modelling suggests that the changes will not have a material impact on Group earnings from finance commission. Ultimately, however, this will be, to some extent, impacted by how competitors in the market react to the changes. The changes do therefore pose a future earnings risk, which the Board will monitor.

UK withdrawal from the EU

At this stage, the UK's future trading arrangements with the European Union remain unclear and may change the terms of trade for new vehicles in particular. Given the vast majority of new cars sold in the UK are imported from the EU, these changes may have a significant future impact on the Group.

In the absence of an agreement on the future arrangements as part of a customs union (which appears highly likely), a change to the timing of new vehicle consignment stock invoicing to retailers is possible. The Group currently receives invoices, on which it can reclaim input VAT, from several of its Manufacturer partners when a vehicle leaves the assembly line following production, regardless of where this may be located within the EU. The VAT is currently then reclaimed by the Group, whilst the invoice is included in trade creditors until the vehicle is sold or a prolonged period expires utilising Manufacturer funding lines. Changes to future VAT regimes on imports may change the timing of VAT cash flows in this regard. The most material current VAT advantage arises in the Group's extensive Ford Division.

In anticipation of the changes to VAT regimes from 1 January 2021, Ford is proposing to amend their invoicing process for vehicles imported into the UK. Ford retailers are to become the 'importer of record' which means in future, vehicles will be invoiced and funded net of VAT. This will change the timing of VAT cash flows to the Group in respect of Ford funded new vehicles. The Group has 22 Ford dealerships and the change is anticipated to reduce the Group's current cash flow advantage in respect of VAT by up to GBP15m, depending on seasonality.

Strategic Summary

Our experienced management team and relative financial strength, compared to many others in the wider sector, mean that we are well positioned to take advantage of the opportunities arising and are ambitious to do so. We will continue to innovate and execute to meet changes in customers' needs and to respond to regulatory change. 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 return on invested capital. We will leverage our proven strengths, execute on our business ideas such as cost saving initiatives, enhancing operational efficiency, deliver brand growth through marketing and pursue other new business opportunities.

OPERATING PERFORMANCE REVIEW

This unprecedented Period was very much characterised by two distinct phases. Quarter 1 (March to May) saw the peak registration month of March increasingly impacted by a pre-lockdown slowdown until the national lockdown was initiated on 23 March. The business was then significantly impacted for the remainder of the quarter. Quarter 2 (June to August) saw the progressive end of lockdown and a considerable rebound in activity. Reviewing the two quarters separately is therefore important and this is reflected in the analysis below.

 
                       Q1 FY21   Q2 FY21     H1 FY21   Q1 FY20   Q2 FY20     H1 FY20   Q1 FY21   Q2 FY21 
                                                                                         % Var     % Var 
                                                                                         to Q1     to Q2 
                       GBP'000   GBP'000     GBP'000   GBP'000   GBP'000     GBP'000      FY20      FY20 
 Revenue 
 New                   132,246   214,639     346,885   299,283   172,819     472,102   (55.8%)     24.2% 
 Fleet & Commercial     77,111   147,454     224,565   225,748   164,732     390,480   (65.8%)   (10.5%) 
 Used                   92,544   357,329     449,873   335,182   318,605     653,787   (72.4%)     12.2% 
 Aftersales             30,375    67,634      98,009    66,749    63,990     130,739   (54.5%)      5.7% 
                      --------  --------              --------  --------              --------  -------- 
 Total Group 
  Revenue              332,276   787,056   1,119,332   926,962   720,146   1,647,108   (64.2%)      9.3% 
 
 Gross Profit 
 New                    11,727    11,618      23,345    19,384    14,270      33,654   (39.5%)   (18.6%) 
 Fleet & Commercial      3,623     4,979       8,602     7,113     6,024      13,137   (49.1%)   (17.3%) 
 Used                    7,623    33,548      41,171    27,854    24,939      52,793   (72.6%)     34.5% 
 Aftersales             16,507    39,923      56,430    37,079    36,034      73,113   (55.5%)     10.8% 
                      --------  --------              --------  --------              --------  -------- 
 Total Gross 
  Profit                39,480    90,068     129,548    91,430    81,267     172,697   (56.8%)     10.8% 
 
 Gross Margin 
 New                      8.9%      5.4%        6.7%      6.5%      8.3%        7.1%      2.4%    (2.9%) 
 Fleet & Commercial       4.7%      3.4%        3.8%      3.2%      3.7%        3.4%      1.5%    (0.3%) 
 Used                     8.2%      9.4%        9.2%      8.3%      7.8%        8.1%    (0.1%)      1.6% 
 Aftersales(5)           47.0%     50.9%       49.7%     46.5%     47.7%       47.1%      0.5%      3.2% 
                      --------  --------              --------  --------              --------  -------- 
 Total Gross 
  Margin                 11.9%     11.4%       11.6%      9.9%     11.3%       10.5%      2.0%      0.1% 
 

(5) Aftersales margin expressed on internal and external revenues

Volumes of vehicles sold by the Group on a like-for-like basis were:

 
                       Q1 FY21   Q2 FY21   H1 FY21   Q1 FY20    Q2 FY20   H1 FY20   Q1 FY21   Q2 FY21 
                                                                                      % Var     % Var 
                                                                                      to Q1     to Q2 
                                                                                       FY20      FY20 
 Used retail 
  vehicles               5,813    22,590    28,403    22,446     22,166    44,612   (74.1%)      1.9% 
 New retail 
  cars                   4,771     6,684    11,455    11,731      6,465    18,196   (59.3%)      3.4% 
 Motability 
  cars                     910     2,507     3,417     2,826      2,244     5,070   (67.8%)     11.7% 
--------------------  --------  --------  --------  --------  ---------            --------  -------- 
 Direct fleet 
  cars                   1,478     2,587     4,065     5,136      3,879     9,015   (71.2%)   (33.3%) 
 Agency fleet 
  cars                     752     1,014     1,766     1,484      1,208     2,692   (49.3%)   (16.1%) 
--------------------  --------  --------  --------  --------  ---------            --------  -------- 
 Total fleet 
  cars                   2,230     3,601     5,831     6,620      5,087    11,707   (66.3%)   (29.2%) 
 Commercial 
  vehicles               1,965     4,315     6,280     5,951      4,308    10,259   (67.0%)      0.2% 
                      --------  --------  --------  --------  ---------            --------  -------- 
 Total New vehicles      9,876    17,107    26,983    27,128     18,104    45,232   (63.6%)    (5.5%) 
                      --------  --------  --------  --------  ---------            --------  -------- 
 Total vehicles         15,689    39,697    55,386    49,574     40,270    89,844   (68.4%)    (1.4%) 
                      --------  --------  --------  --------  ---------            --------  -------- 
 
                                                               UK Market (SMMT) 
                                                               New retail 
                                                                car                 (60.5%)    (2.2%) 
                                                               Motability 
                                                                car                 (67.9%)      9.4% 
                                                               Fleet car            (69.3%)   (21.1%) 
                                                               Commercial           (65.7%)   (13.2%) 
                                                              -------------------  --------  -------- 
 

March to May Quarter

The Group incurred an adjusted loss before tax of GBP14.3m in the March to May quarter ("Q1"), a shortfall of GBP27.4m on the prior year period (2019: Profit before tax of GBP13.1m).

In Q1, total registrations of new cars in the UK fell by 65.2%, representing a decline year on year of over half a million vehicles, because of the closure of the retail network during lockdown. March activity started off strongly, but was increasingly impacted by the uncertainty over Covid-19 and the progressively tighter lockdown rules. Showrooms closed on 24 March, perhaps the busiest week for new vehicle deliveries in the year and in the historically most profitable month for motor retail, driven by the plate change. The delivery of new and used vehicles was severely curtailed as were aftersales operations in the final week of the month. March profitability was therefore reduced on expected levels.

During the lockdown, the Group maintained marketing activity and continued to build a vehicle order bank via online and telephone orders. Colleagues worked in the sales contact centres from home and General Managers remained in place in the dealerships to facilitate the taking of orders remotely and the delivery of limited numbers of vehicles to key workers. The demand for new vans was very noticeable, as home courier services took off and the Group's Vansdirect on-line business in South Wales saw a significant rise in demand which bolstered fleet and commercial order take. Like-for-like sales of new retail and Motability cars fell to 39.0% of prior year levels, fleet and commercial sales to 33.4% and used retail vehicles to 25.9% of prior year in Q1. In Q1, total Group gross profit from the sale of vehicles fell by GBP31.4m compared to the prior year. The Group's twelve Scottish dealerships remained unable to undertake deliveries from dealerships until after the end of the quarter.

After the 23 March 2020, the vast majority of the Group's aftersales operations remained open for key worker and essential service vehicles, on reduced capacity. This resulted in the generation of total aftersales gross profits of GBP16.5m, which was GBP20.6m below the same quarter last year. This activity increased during the quarter as the lockdown restrictions eased and by 31 May 46% of the Group's technicians were back in the business. Aftersales activity was significantly aided by the excellent work undertaken by the Group's centralised reception and service booking operations, which worked seamlessly from kitchen tables and back bedrooms in colleagues' homes in the North East of England. There is no doubt that the centralised approach to many of the Group's back office functions and uniform IT infrastructure and systems aided the Group's ability to be flexible and to retain momentum.

The Group took all available actions to mitigate this significant reduction in activity and profitability by reducing its costs during this period.

Remuneration costs represent the largest component of the Group's operating expense and whilst savings were made through the furloughing of colleagues, the Group paid colleagues in excess of the amounts received from the Job Retention Grant. No colleague was paid below the national minimum wage and colleagues were not capped at the maximum grant received of GBP2,500 per month. This protected colleagues' earnings during this critical time (paying 80% of average earnings if above the GBP2,500 level). In addition, the Group's Senior Management, who remained at work, volunteered to take a 20% reduction in salary and all members of the plc board elected to take a 30% reduction in salary for the period from 1 April to the end of May. Gross pay was GBP4.5m in excess of the grant receipt in the quarter, for those colleagues on furlough leave. The Group initially placed up to 80% of Group colleagues on furlough leave, this then declined over time as activity increased. The resultant receipt from the Government's Job Retention Grant significantly supported the Group in this period, with the grant receipt totalling GBP17.7m. Business rates relief generated a further year on year cost saving of GBP1.5m for the Group in the quarter and will continue until the end of March 2021.

Other costs were reduced significantly, particularly when showrooms were closed, to conserve cash. Group centralised supplier arrangements facilitated swift actions to be taken to remove costs. In addition, the Group received substantial support from certain third-party suppliers who reduced or suspended charges. The Group's Manufacturer partners were also excellent in the period in taking steps to reduce franchise costs, some of which continue.

June to August Quarter

The quarter to 31 August ("Q2") generated a profit of GBP19.0m, significantly more than the prior year period profit of GBP3.8m, with some record breaking departmental performances being witnessed within this strong result.

The easing of lockdown restrictions on 1 June allowed the Group's dealership sales operations located in England to reopen and our aftersales operations to return to capacity. The Group's 12 Macklin Motors sales outlets, located in Scotland, opened later on 29 June, however, were able to recommence deliveries from dealerships earlier. The following departmental trends were seen in Q2.

Used retail vehicles

Strong post-lockdown demand from customers was witnessed and exceeded expectations. The reasons for this include, consumers wishing to avoid public or shared transport, increased savings levels by consumers during lockdown and the absence of alternative spending options, such as holidays, hospitality and entertainment. The Group continued to grow volumes of used vehicles sold as compelling marketing campaigns also boosted sales enquiries. Like-for-like volumes and revenues increased 1.9% and 8.1% respectively and record levels of used vehicle profit were delivered by the Group during the quarter.

The used vehicle market in the UK, in contrast to seasonal norms, experienced very strong pricing conditions throughout Q2. Tight supply of vehicles following the lockdown coincided with a period of robust consumer demand. Part of the supply constraint related to wholesale auctions, which were not allowed to restart until later post lockdown than the retail network. Logistics constraints were significant and the move to online only auctions, meant lower trade volumes for much of the quarter helping to underpin values. The Group recognised the pricing and supply environment ensuring appropriate high margins were obtained in the quarter on the available stock.

The beneficial pricing environment and good demand resulted in core gross profit generated from used vehicle sales in Q2 increasing by GBP7.7m compared to the prior year, due principally to enhanced margin retention. The prior year, in contrast, saw used car pricing weakness and margin pressure. Gross profit per unit on a like-for-like basis increased to record levels of GBP1,436 from GBP1,116 (28.7%). This growth in profitability contributed to used gross margin percentages improving from 7.9% to 9.5% on a like-for-like basis, despite increased average selling prices.

The Group continued to ensure lean stock management and high stock turns. In-house stock management systems were further developed in the lockdown period, providing even better real time data to ensure the correct stock levels and valuations were applied. This new bespoke system called 'Vertu Analytics' uses various industry data sets such as Autotrader, BCA and Cazana as well as Group data. It is now in the process of being rolled out Group-wide and is expected to further improve used vehicle stock management and pricing.

New retail cars and Motability sales

Demand for new cars was weaker in the lockdown than used cars and was slower to rebuild momentum. UK retail registrations fell by 19.2% in the month of June compared to the prior year. June registration statistics were undoubtedly impacted by less pre-registration and other tactical registration activity in the market year on year, as there were supply constraints and reduced push by Manufacturers. This is a continuing feature of the market, as halted and disrupted production due to lockdowns and social distancing feeds through. In addition, logistics constraints also reduced supply in June, though this aspect has now been resolved.

In the vast majority of franchises, volume targets were reduced or removed by Manufacturers. The rise in consumer demand seen in used cars was replicated in new cars in July which saw UK new retail registrations rising 20.4% year on year. In August, a traditionally low month for new retail volumes, a 1.7% decline in UK registrations arose as a result of a combination of tightening of supply in some franchises and the impact in the prior year of WLTP related registrations. Underlying consumer demand remained robust and this was witnessed in the building of strong order banks for the September market. Overall, Q2 saw UK new retail registrations fall 2.2%. In contrast, the Group overperformed and took market share, growing like-for-like new retail volumes by 3.4% in the same quarter.

UK Motability sales operations closed completely during lockdown, re-opening for new applications from 1 July. In Q2, UK registrations in this channel grew by 9.4%, reflective of definitive pent up consumer demand as deferred contracts were renewed. The Group's Motability volumes in Q2 grew 11.7% on a like-for-like basis representing outperformance.

Despite the increase in the volume of new retail and Motability vehicles sold by the Group, like-for-like gross profits from this channel in Q2 fell GBP3.6m year on year. Significantly reduced quarterly manufacturer volume bonus income receipts in June (representing the period, April to June) was the primary reason for this decline. The lockdown impact on vehicle sales volumes in the April to June period inevitably reduced volume bonus earnings recognised at the end of the calendar quarter in June. The resultant lack of bonus income meant that total gross profit per unit fell 28.6% on a like-for-like basis in Q2. The Group's new vehicle margin percentages declined from 8.3% to 5.4% in the quarter on a like-for-like basis. Underlying new retail margins, excluding this quarterly volume bonus drop-in effect in June, were robust.

Fleet & Commercial vehicle sales

The UK car fleet market declined 21.1% in Q2. A lack of demand from the daily rental market, principally due to reductions in leisure and airport travel, along with reduced demand from corporate fleets, due to market uncertainty and potentially also increased home working, drove this decline. Like-for-like the Group delivered 3,601 fleet cars in Q2, representing a decline of 29.2%, which was behind the market. This reflects the mix of franchises held by the Group, with some Manufacturers moving away from this low margin channel to preserve profit and to reflect constrained supply.

The SMMT reported a 13.2% decline in registrations of commercial vehicles in the UK in Q2, as large corporate players took longer to restart than the consumer-led car market following lockdown. The Group's like-for-like sales volumes of new commercial vans was significantly ahead of these market trends, increasing slightly by 0.2% in Q2. This was aided by very strong performance from the Vansdirect business and the Group taking share from competitors seeking to reduce their working capital demands by reducing their exposure to fleet channels.

Like-for-like gross profit per unit in the Fleet and Commercial channel fell by 4.7% to GBP609 (Q2 FY20: GBP639). Like-for-like gross profit generation from fleet and commercial sales fell GBP1.2m in Q2. As with new vehicles, these trends were a reflection of the lack of calendar quarter volume bonus receipts in June, driven by the reduction in volumes in the lockdown period.

Aftersales

In Q2, pent up demand from customers whose vehicles reached service intervals in the lockdown aided growth in the Group's vehicle servicing departments, driving an 9.7% increase in the Group's like-for-like service revenues. The like-for-like gross margin percentage on vehicle servicing rose to 79.8% (Q2 FY20: 77.8%). Higher average invoice values on retail work were achieved through the Group's effective vehicle health check processes. The introduction of individual timed appointments for customers, to ensure social distancing in dealerships, allowed more time for the Group's Service Advisors to better explain identified work to customers, aiding improved sales conversion. In addition, the Group saw a higher retail mix of work in workshops with private consumer demand more evident than business users from the fleet sector and this enhanced margins. Fleet servicing demand was back to normal levels by August. Similarly, warranty work has been muted post lockdown compared to normal and this also aided margins and productive efficiency.

In contrast to the strong performance in service, parts and accident repair like-for-like revenues fell 8.9% in Q2. Fewer motoring journeys led to less accidents, reducing accident repair work and trade parts sales to accident repair centres. In addition, the previously announced changes to parts distribution within the Vauxhall network also had a reducing effect on the Group's parts sales and profitability.

Overall, like-for-like gross profits in aftersales rose GBP1.8m in Q2 driven by the strong service performance.

Acquisitions

Acquisitions from the prior year contributed an additional GBP0.4m of profit in Q2. The Yorkshire Volkswagen acquisitions contributed most of this profit, with the remaining acquisitions at breakeven performance for the quarter. These results exceed the original acquisition business plans. All acquired businesses are fully integrated onto Group systems and we are pleased with the progress made to date.

Current trading - September

The Group's trading performance in September was significantly ahead of prior year and original budget levels. The month's profit represented a record month in terms of the Group's profitability. Across the business activity levels remained strong as the post lockdown trends continued and are summarised below:

 
 September Performance        Year on Year % Change 
                                     Like-for- 
                             Total        Like    SMMT 
 
 Group Revenues               19.7        13.9 
 Service Revenues(6)          17.6        10.8 
 
 Volumes: 
 Used Retail Vehicles         13.5         8.9 
 New Retail Vehicles          14.5         6.3   (1.1) 
 Motability Vehicles          17.3         8.0     4.3 
 New Fleet Cars(7)          (18.4)      (27.5)   (5.8) 
 New Commercial Vehicles      53.3        53.3    26.4 
 

(6) Includes internal and external revenues

(7) Includes agency volumes

Group revenue rose substantially in the month aided by acquisitions, like-for-like volume increases and higher average selling prices.

Service activity continued to benefit from pent up demand with like-for-like revenue up 10.8%, aided by an extra working day year on year. Used vehicles saw very strong like-for-like volume growth of 8.9% together with continued high gross margin levels, reflecting constrained supply.

In new vehicles, despite evident supply constraints for certain manufacturers, the Group delivered a like-for-like volume increase in the new retail channel of 6.3%, ahead of UK market registrations which fell by 1.1%. Market registrations dipped due to lower levels of pre-registration and tactical activity with actual sales to consumers in the month reflecting robust consumer demand and order take through the summer. Motability sales also grew on a like-for-like basis by 8% as post-lockdown volumes benefited from pent up demand.

The fleet car market continued to be impacted by trends seen in the first half. Tactical registrations, supply constraints, weaker daily rental demand and uncertainty in the corporate company car market all weighed on the market in the month. Like-for-like fleet car volumes fell 27.5% with a reduced profit impact since this is a low margin channel.

In contrast, new commercial vehicle sales were up 53.5% in volume terms on a like-for-like basis. This reflected the Group taking significant share in a strong market driven principally by the rise of courier services and delivery of online purchases. Competitor actions to preserve working capital led to their exiting of the channel in some cases and the Group taking share. In addition, Vansdirect, the Group's online commercial vehicle channel, continued its significant growth.

The Group continued to benefit from the rates holiday on showrooms and started to see the cost savings from the cost reduction programme coming through aiding profitability.

Outlook

The Board is confident in the prospects for the Group. With its strong balance sheet, well invested systems and omni-channel technology and experienced leadership team, the Board believes that the Group is strategically very well placed to capitalise on the challenges and consequent opportunities in the UK motor retail sector. The Board is actively considering several opportunities for the expansion of the Group and expects such consolidation opportunities will be significant over the coming months and years. At the same time, dealership numbers in the UK are likely to face downward pressure. This should improve the profit potential of those that remain, with more scaled operations gaining from cost and marketing synergies.

As we write this report, the Government is again increasing the restrictions related to Covid-19 in the UK. September witnessed a rise in the occurrence of Covid-19 cases and increased incidence of self-isolation amongst colleagues around the Group. This has had no material impact on financial performance to date, but clearly represents an uncertainty. The pandemic is likely to dominate the environment certainly for the next six months at least. While the essential tenor of this report about the future is optimistic, the prospects for the next six months remain uncertain and the impact on the business is unclear. In addition, there is uncertainty over the UK's departure from the EU and rising unemployment due to the pandemic. The prospects for the remainder of the financial year remain as uncertain as the virus itself and therefore the outlook for FY21 trading performance is subject to risks and should be viewed in this context.

Despite this uncertain environment, following the strong trading performance seen since 1 June the Board is increasingly confident of a strong financial outcome for the financial year as a whole.

Robert Forrester, CEO

CHIEF FINANCIAL OFFICER'S REVIEW

The Group's income statement for the Period is summarised below, including analysis of Q1 and Q2 results:

 
                          Q1 FY21    Q2 FY21     H1 FY21    Q1 FY20    Q2 FY20     H1 FY20 
                          GBP'000    GBP'000     GBP'000    GBP'000    GBP'000     GBP'000     % Var 
 
 Revenue                  332,277    787,055   1,119,332    926,962    720,146   1,647,108   (32.0%) 
                        ---------  ---------              ---------  ---------              -------- 
 
 Gross profit              39,480     90,068     129,548     91,429     81,268     172,697   (25.0%) 
----------------------  ---------  ---------              ---------  ---------              -------- 
 Operating expenses 
  (gross)                (68,914)   (73,148)   (142,062)   (76,210)   (75,359)   (151,569)      6.3% 
 Job Retention Scheme 
  Grant                    17,733      5,050      22,783          -          -           -         - 
----------------------  ---------  ---------  ----------  ---------  ---------  ----------  -------- 
 Operating expenses 
  (net)                  (51,181)   (68,098)   (119,279)   (76,210)   (75,359)   (151,569)     21.3% 
                        ---------  ---------              ---------  ---------              -------- 
 Adjusted Operating 
  (loss) profit          (11,701)     21,970      10,269     15,219      5,909      21,128   (51.4%) 
 Net Finance Charges      (2,618)    (2,965)     (5,583)    (2,147)    (2,100)     (4,247)   (31.5%) 
                        ---------  ---------              ---------  ---------              -------- 
 Adjusted (Loss) 
  Profit Before Tax      (14,319)     19,005       4,686     13,072      3,809      16,881   (72.2%) 
                        ---------  ---------              ---------  --------- 
 Non-Underlying 
  items(8)                                         (712)                             (782) 
 Profit Before Tax                                 3,974                            16,099 
 Taxation                                        (1,426)                           (3,100) 
 Profit After Tax                                  2,548                            12,999 
 

(8) Non-underlying items represent share-based payments and amortisation of intangible assets

Operating Expenses

In Q1 and in the light of the impact of the national lockdown, the Group took decisive action to minimise costs as outlined above. As a consequence of these actions, total Group operating expenses, excluding the Job Retention Grant receipt, were 9.6% lower than the same quarter in the prior year. This represented a saving of GBP10m in the Core Group, with the total inclusive of the impact of acquired businesses. Relief on business rates in respect of the Group's showrooms saved GBP1.5m of this total. Savings were delivered on almost every other cost line in the business.

The focus on cost reduction carried into Q2, where a core saving of GBP5.9m was delivered. This saving reduced total Group operating expenses, ignoring the furlough grant receipt, by 2.9%. Business rates relief saved GBP2.4m in this period, helping to offset the Group's investment in PPE for the re-opening of dealerships totalling GBP0.6m.

The application of technological improvements to improve efficiency, allowed the Group to remove costs from some key areas. Future costs will be reduced by this restructuring programme which was completed in July at a cost of GBP0.8m. This restructuring is expected to generate annual cost savings of approximately GBP10m going forward.

The Group disposed of a surplus property asset in the Period generating cash proceeds of GBP0.8m and a profit on disposal, included within the underlying result of GBP0.4m.

Net Finance Charges

Net finance charges rose year on year by GBP1.3m as analysed below:

 
                                      H1 FY21   H1 FY20   Variance 
                                        GBP'm     GBP'm      GBP'm 
 New vehicle Manufacturer stocking 
  interest                                2.7       1.7        1.0 
 Interest on bank borrowings              0.9       0.7        0.2 
 Used vehicle stock funding 
  interest                                0.2       0.3      (0.1) 
 Interest on lease liabilities            1.9       1.8        0.1 
 Interest income                        (0.1)     (0.2)        0.1 
                                     --------  --------  --------- 
 Net finance charges                      5.6       4.3        1.3 
                                     --------  --------  --------- 
 

The bulk of the increase in net finance charges arose with a GBP1.0m increase in interest charged by Manufacturers on funded new vehicle inventory. Few vehicles were added to the new vehicle pipeline during the lockdown period, as factory production halted, however, with no material deliveries possible, the existing pipeline aged with more stock becoming interest bearing. Manufacturers aided franchise network cashflows by deferring vehicle adoptions and associated cash outflows. This also increased interest costs, though a number of Manufacturers also reduced interest rates as a support. Interest bearing new vehicle stock in the Group was on average GBP80m higher in Q1 compared to the previous year. As the dealerships opened post lockdown and vehicle deliveries could re-commence, the Group has been successful in significantly reducing the new vehicle stock pipeline. Total new vehicle stock at 31 August 2020 was GBP342m (29 February 2020: GBP475m, 31 August 2019: GBP418m). Supply constraints also had an impact on reducing new vehicle pipeline stocks below last year's levels.

The Group took action to protect liquidity by drawing an additional GBP10m on the revolving credit facility in early March. The increase in interest on bank borrowings relates to this increase in drawings, together with a 0.8% increase in the margin charged on bank borrowings following the previously announced waiver of covenants obtained for H1. The margin charged on this borrowing will revert to previous levels on 1 December 2020.

Pension Costs

The accounting surplus on the Group's closed defined benefit pension scheme was GBP8.4m at 31 August 2020 (29 February 2020: GBP8.9m). During the Period, there have been changes in the financial and demographic assumptions underlying the calculation of the liabilities. In particular, the discount rate has fallen, due to reductions in corporate bond yields and the expectation of future inflation has increased slightly. The effect of these changes in assumptions was an increase in liabilities of GBP1.6m. The hedging strategy in place within the scheme investment portfolio meant that the Period saw a gain on assets of GBP1.1m, largely offsetting the increase in liabilities. In total, an actuarial loss of GBP0.5m was recognised in the Statement of Comprehensive Income in the Period.

Tax Payments

In the July 2020 Finance Act, it was enacted that the previously announced reduction in the rate of corporation tax to 17% will no longer occur. This meant that the rate of corporation tax in the UK will instead be held at 19%. This has resulted in the Group's deferred tax obligations being measured at the higher rate of 19% in the Period (2019 H1: 17%). The Group's underlying effective rate of tax for the Period therefore increased to 32.9% as a consequence of this deferred tax adjustment and the overall effective tax rate to 35.9% (2019 H1: 19.2%). 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. All payments of tax obligations are up to date.

Cash Flows

The Group generated cash from operating activities of GBP80.0m from an operating profit of GBP9.6m reflecting the actions of management to manage liquidity during the pandemic. Significant working capital reductions were secured and this generated a net cash inflow of GBP64.2m in the Period. The Group is up to date on all creditor payments including rent, VAT, employment and corporation taxes.

A significant element of the working capital inflow relates to the build-up in Q2 of a VAT creditor, totalling GBP34.2m at 31 August 2020 (2019: VAT debtor of GBP2m). This VAT creditor relates to the strong sales rate and reduced level of new vehicle stock supply witnessed since 1 June. This amount was paid to HMRC at the end of September 2020, in line with the normal payment date.

The Group also reduced used vehicle inventory by GBP18.4m over the Period. As the majority of the Group's used vehicle stock is unencumbered by vehicle stocking loans, this reduction fed straight into the cash resources of the Group. Fully paid new vehicle stock levels have also been reduced by GBP9.1m in the Period.

During the pandemic, capital expenditure was reviewed and reduced where appropriate. The Group continued with the redevelopments during lockdown of the remaining Land Rover businesses in Nelson, Lancashire and Bradford, Yorkshire. These are now complete and bring to end the Arch developments in our Farnell Jaguar Land Rover businesses.

Financing and capital structure

The Group has a balance sheet with shareholders' funds of GBP265.8m (2019 H1: GBP275.3m) underpinned by a freehold and long leasehold portfolio of GBP213.2m (2019 H1: GBP209.1m) and net cash (excluding lease liabilities) of GBP36.5m at 31 August 2020. The Group's conservative financing and capital structure results in a strong tangible net assets position of GBP164.6m at 31 August 2020.

The Group has a committed acquisition debt facility of GBP62m, maturing in February 2024, with the potential to add a further GBP15m which is currently uncommitted. GBP54m of this committed facility was drawn as at 31 August 2020. As a consequence of the losses incurred in Q1, waivers were obtained in respect of the covenants in place in respect of this facility. Latest projections show that the Group is anticipated to be able to operate comfortably within these covenants for the remainder of the financial year, however, at reduced headroom compared to historic levels. A relaxation of covenants has therefore been obtained for the remainder of the financial year to 28 February 2021 in order to re-establish headroom to the previous levels.

The Group's Adjusted net cash position of GBP49.2m is stated excluding GBP12.7m of used car stocking loans (2019: GBP22.5m). These used car stocking loans with third party banks are subject to interest and are secured on the related used vehicle inventories. The Group has a GBP45m facility under these arrangements but uses these facilities selectively, and this has acted to the benefit of the Group in the Period, as significant cash was able to be generated from reducing used vehicle stock levels, aiding liquidity. This resulted in repayment of certain amounts of used car stocking loans given the Group's strong cash position. The Group had GBP102.8m of used vehicle inventory at 31 August 2020 (2019 H1: GBP105.4m).

Shareholder returns

The Board remains cognisant of the importance of dividends to total shareholder returns. The need to ensure liquidity in the short-term resulted in no final dividend for the year ended 29 February 2020 being declared. The Board anticipate that payment of dividends will resume in the next financial year to February 2022, dependent on the financial performance of the Group. The Board is mindful of the substantial amounts of Government support received in the current financial year.

Another important element of shareholder return can be share buyback programmes, particularly in an environment of share price weakness. The Board will evaluate the benefits of such a programme in 2021.

Karen Anderson, CFO

CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)

For the six months ended 31 August 2020

 
                              Six months ended 31                     Six months ended 31                Year ended 29 February 
                                  August 2020                              August 2019                            2020 
                                                                                                                                    ----------- 
               Note  Underlying  Non-underlying      Total   Underlying  Non-underlying        Total    Underlying  Non-underlying        Total 
                          items           items                   items           items                      items           items 
                                          (Note                                   (Note                                   (Note 4) 
                                             4)                                      4) 
                        GBP'000         GBP'000    GBP'000      GBP'000         GBP'000      GBP'000       GBP'000         GBP'000      GBP'000 
 
Revenue               1,119,332               -  1,119,332    1,647,108               -    1,647,108     3,064,530               -    3,064,530 
Cost of sales         (989,784)               -  (989,784)  (1,474,411)               -  (1,474,411)   (2,730,473)               -  (2,730,473) 
                     ----------  --------------  ---------  -----------  --------------  -----------  ------------  --------------  ----------- 
Gross profit            129,548               -    129,548      172,697               -      172,697       334,057               -      334,057 
Operating 
 expenses             (119,279)           (712)  (119,991)    (151,569)           (782)    (152,351)     (301,878)        (15,706)    (317,584) 
                     ----------  --------------  ---------  -----------  --------------  -----------  ------------  --------------  ----------- 
Operating 
 profit                  10,269           (712)      9,557       21,128           (782)       20,346        32,179        (15,706)       16,473 
Finance 
 income         5            96               -         96          216               -          216           405               -          405 
Finance costs   5       (5,679)               -    (5,679)      (4,463)               -      (4,463)       (9,561)               -      (9,561) 
                     ----------  --------------  ---------  -----------  --------------  -----------  ------------  --------------  ----------- 
Profit before 
 tax                      4,686           (712)      3,974       16,881           (782)       16,099        23,023        (15,706)        7,317 
Taxation        6       (1,541)             115    (1,426)      (3,161)              61      (3,100)       (4,523)             193      (4,330) 
                     ----------  --------------  ---------  -----------  --------------  -----------  ------------  --------------  ----------- 
Profit for 
 the 
 period 
 attributable 
 to equity 
 holders                  3,145           (597)      2,548       13,720           (721)       12,999        18,500        (15,513)        2,987 
                     ==========  ==============  =========  ===========  ==============  ===========  ============  ==============  =========== 
 
Basic 
 earnings 
 per share 
 (p)            7                                     0.69                                      3.48                                       0.81 
Diluted 
 earnings 
 per share 
 (p)            7                                     0.69                                      3.45                                       0.80 
                                                 ---------                               -----------                                ----------- 
 
 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

For the six months ended 31 August 2020

 
                                                       Six months   Six months 
                                                            Ended        Ended      Year ended 
                                                        31 August    31 August     29 February 
                                                             2020         2019            2020 
                                                Note      GBP'000      GBP'000         GBP'000 
 
 Profit for the period                                      2,548       12,999           2,987 
 
 Other comprehensive (expense) / 
  income 
 Items that will not be reclassified to 
  profit or loss: 
    Actuarial (loss) / gain on retirement 
     benefit obligations                           9        (521)        1,377           2,400 
    Deferred tax relating to actuarial 
     loss / (gain) on retirement benefit 
     obligations                                               99        (234)           (408) 
 Items that may be reclassified subsequently 
  to profit or loss: 
    Cash flow hedges                                        (150)        (429)           (468) 
    Deferred tax relating to cash flow 
     hedges                                                    38           73              80 
 Other comprehensive (expense) / 
  income for the period, net of tax                         (534)          787           1,604 
                                                      -----------  -----------  -------------- 
 Total comprehensive income for the 
  period attributable to equity holders                     2,014       13,786           4,591 
                                                      ===========  ===========  ============== 
 
 

CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

As at 31 August 2020

 
                                            31 August   31 August   29 February 
                                                 2020        2019          2020 
                                     Note     GBP'000     GBP'000       GBP'000 
 Non-current assets 
 Goodwill and other indefinite 
  life assets                          11      99,315     109,729        99,315 
 Other intangible assets                        1,934       2,330         2,120 
 Retirement benefit asset               9       8,365       7,840         8,867 
 Property, plant and equipment                230,280     224,391       229,148 
 Right of use assets                           81,391      78,557        87,013 
                                              421,285     422,847       426,463 
                                           ----------  ----------  ------------ 
 Current assets 
 Inventories                                  477,525     566,037       639,177 
 Trade and other receivables                   66,309      60,131        71,720 
 Cash and cash equivalents                    102,958      72,679        40,839 
                                           ----------  ----------  ------------ 
                                              646,792     698,847       751,736 
                                           ----------  ----------  ------------ 
 Property assets held for sale                      -       1,401           417 
                                           ----------  ---------- 
 Total current assets                         646,792     700,248       752,153 
                                           ----------  ----------  ------------ 
 Total assets                               1,068,077   1,123,095     1,178,616 
                                           ==========  ==========  ============ 
 
 Current liabilities 
 Trade and other payables                   (612,000)   (660,673)     (716,270) 
 Deferred consideration                             -       (100)             - 
 Current tax liabilities                      (1,462)     (6,459)       (2,935) 
 Contract liabilities                        (12,042)    (10,085)      (10,974) 
 Borrowings                                  (12,731)    (22,488)      (25,547) 
 Lease liabilities                           (17,574)    (15,426)      (14,071) 
                                           ----------  ----------  ------------ 
 Total current liabilities                  (655,809)   (715,231)     (769,797) 
                                           ----------  ----------  ------------ 
 
 Non-current liabilities 
 Borrowings                                  (53,745)    (43,571)      (43,657) 
 Lease liabilities                           (73,701)    (72,516)      (82,823) 
 Derivative financial instruments               (643)       (454)         (493) 
 Deferred income tax liabilities              (8,848)     (5,636)       (8,179) 
 Contract liabilities                         (9,519)    (10,341)      (10,294) 
                                           ----------  ----------  ------------ 
 Total non-current liabilities              (146,456)   (132,518)     (145,446) 
                                           ----------  ----------  ------------ 
 Total liabilities                          (802,265)   (847,749)     (915,243) 
                                           ----------  ----------  ------------ 
 Net assets                                   265,812     275,346       263,373 
                                           ==========  ==========  ============ 
 
 Capital and reserves attributable 
  to equity holders of the Group 
 Ordinary share capital                        36,917      37,042        36,917 
 Share premium                                124,939     124,939       124,939 
 Other reserve                                 10,645      10,645        10,645 
 Hedging reserve                                (519)       (375)         (407) 
 Treasury share reserve                         (787)       (602)         (803) 
 Capital redemption reserve                     2,810       2,685         2,810 
 Retained earnings                             91,807     101,012        89,272 
                                           ----------  ----------  ------------ 
 Total equity                                 265,812     275,346       263,373 
                                           ==========  ==========  ============ 
 

CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

For the six months ended 31 August 2020

 
                                                  Six months   Six months 
                                                       ended        ended      Year ended 
                                                   31 August    31 August     29 February 
                                                        2020         2019            2020 
                                           Note      GBP'000      GBP'000         GBP'000 
 Cash flows from operating activities 
 Operating profit                                      9,557       20,346          16,473 
 Profit on sale of property, plant 
  and equipment                                        (399)         (34)           (238) 
 Amortisation of intangible assets                       218          321             595 
 Depreciation of property, plant 
  and equipment                                       13,583       12,342          25,374 
 Impairment charges                                        -            -          16,878 
 Change to fair value of contingent 
  consideration                                            -            -         (2,500) 
 Movement in working capital                 10       64,197        1,791        (23,563) 
 Share based payments charge                             425          416             619 
                                                 -----------  -----------  -------------- 
 Cash inflow from operations                          87,581       35,182          33,638 
 Tax received                                            188          362             362 
 Tax paid                                            (2,281)      (2,857)         (5,348) 
 Finance income received                                  21          132             237 
 Finance costs paid                                  (3,649)      (2,705)         (5,792) 
 Interest paid on lease liabilities                  (1,870)      (1,761)         (3,595) 
                                                 -----------  -----------  -------------- 
 Net cash inflow from operating 
  activities                                          79,990       28,353          19,502 
                                                 -----------  -----------  -------------- 
 
 Cash flows from investing activities 
 Acquisition of businesses, net 
  of cash, overdrafts and borrowings 
  acquired                                             (182)      (1,547)        (12,398) 
 Acquisition of freehold land and 
  buildings                                          (1,313)      (1,421)         (1,421) 
 Purchases of intangible assets                         (34)         (54)           (155) 
 Purchases of other property, plant 
  and equipment                                      (6,733)      (7,058)        (14,180) 
 Proceeds from disposal of property, 
  plant and equipment                                    840        1,374           3,255 
                                                 -----------  -----------  -------------- 
 Net cash outflow from investing 
  activities                                         (7,422)      (8,706)        (24,899) 
                                                 -----------  -----------  -------------- 
 
 Cash flows from financing activities 
 Proceeds from borrowings                     8       10,000            -           2,381 
 Repayment of borrowings                      8     (12,816)        (678)               - 
 Principal elements of lease repayments              (7,633)      (6,577)        (13,392) 
 Purchase of treasury shares                               -            -           (401) 
 Repurchase of own shares                                  -      (2,319)         (2,749) 
 Dividends paid to equity shareholders                     -      (3,913)         (6,122) 
                                                                           -------------- 
 Net cash outflow from financing 
  activities                                        (10,449)     (13,487)        (20,283) 
                                                 -----------  -----------  -------------- 
 
   Net increase/(decrease) in cash 
   and cash equivalents                       8       62,119        6,160        (25,680) 
 Cash and cash equivalents at beginning 
  of period                                           40,839       66,519          66,519 
                                                 -----------  -----------  -------------- 
 Cash and cash equivalents at end 
  of period                                          102,958       72,679          40,839 
                                                 ===========  ===========  ============== 
 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

For the six months ended 31 August 2020

 
                                                                        Treasury       Capital 
                         Ordinary       Share       Other     Hedging      share    redemption     Retained      Total 
                    share capital     premium     reserve     reserve    reserve       reserve     earnings     Equity 
                          GBP'000     GBP'000     GBP'000     GBP'000    GBP'000       GBP'000      GBP'000    GBP'000 
 As at 1 March 2020        36,917     124,939      10,645       (407)      (803)         2,810       89,272    263,373 
 Profit for the period          -           -           -           -          -             -        2,548      2,548 
 Actuarial losses 
  on retirement benefit 
  obligations                   -           -           -           -          -             -        (521)      (521) 
 Tax on items taken 
  directly to equity            -           -           -          38          -             -           99        137 
 Fair value losses              -           -           -       (150)          -             -            -      (150) 
                         --------  ----------  ----------  ----------  ---------  ------------  -----------  --------- 
 Total comprehensive 
  income for the period         -           -           -       (112)          -             -        2,126      2,014 
                         --------  ----------  ----------  ----------  ---------  ------------  -----------  --------- 
 Sale of treasury 
  shares                        -           -           -           -         16             -         (16)          - 
 Share based payments 
  charge                        -           -           -           -          -             -          425        425 
                                               ---------- 
 As at 31 August 
  2020                     36,917     124,939      10,645       (519)      (787)         2,810       91,807    265,812 
                         ========  ==========  ==========  ==========  =========  ============  ===========  ========= 
 

The 'Other reserve' is a merger reserve, arising from shares issued for shares as consideration to the former

shareholders of acquired companies.

For the six months ended 31 August 2019

 
                                                                        Treasury       Capital 
                         Ordinary       Share       Other     Hedging      share    redemption     Retained      Total 
                    share capital     premium     reserve     reserve    reserve       reserve     earnings     Equity 
                          GBP'000     GBP'000     GBP'000     GBP'000    GBP'000       GBP'000      GBP'000    GBP'000 
 As at 1 March 2019        37,661     124,939      10,645        (19)      (602)         2,066      101,953    276,643 
 Adoption of IFRS 
  16                            -           -           -           -          -             -      (9,167)    (9,167) 
 Balance at 1 March 
  2019 adjusted            37,661     124,939      10,645        (19)      (602)         2,066       92,786    267,476 
 Profit for the period          -           -           -           -          -             -       12,999     12,999 
 Actuarial gain on 
  retirement benefit 
  obligations                   -           -           -           -          -             -        1,377      1,377 
 Tax on items taken 
  directly to equity            -           -           -          73          -             -        (234)      (161) 
 Fair value losses              -           -           -       (429)          -             -            -      (429) 
                         --------  ----------  ----------  ----------  ---------  ------------  -----------  --------- 
 Total comprehensive 
  income for the period         -           -           -       (356)          -             -       14,142     13,786 
                         --------  ----------  ----------  ----------  ---------  ------------  -----------  --------- 
 Repurchase of own 
  shares                        -           -           -           -          -             -      (2,420)    (2,420) 
 Cancellation of 
  shares                    (619)           -           -           -          -           619            -          - 
 Dividends paid                 -           -           -           -          -             -      (3,912)    (3,912) 
 Share based payments 
  charge                        -           -           -           -          -             -          416        416 
                                               ---------- 
 As at 31 August 
  2019                     37,042     124,939      10,645       (375)      (602)         2,685      101,012    275,346 
                         ========  ==========  ==========  ==========  =========  ============  ===========  ========= 
 

For the year ended 29 February 2020

 
                              Ordinary                                    Treasury       Capital 
                                 share      Share      Other    Hedging      share    redemption    Retained     Total 
                               capital    premium    reserve    reserve    reserve       reserve    earnings    Equity 
                               GBP'000    GBP'000    GBP'000    GBP'000    GBP'000       GBP'000     GBP'000   GBP'000 
 As at 1 March 2019             37,661    124,939     10,645       (19)      (602)         2,066     101,953   276,643 
 Adoption of IFRS 16                 -          -          -          -          -             -     (9,208)   (9,208) 
                             ---------  ---------  ---------  ---------  ---------  ------------  ----------  -------- 
 Balance at 1 March 
  2019 adjusted                 37,661    124,939   10,645         (19)      (602)         2,066      92,745   267,435 
 Profit for the year                 -          -          -          -          -             -       2,987     2,987 
 Actuarial gains on 
  retirement benefit 
  obligations                        -          -          -          -          -             -       2,400     2,400 
 Tax on items taken 
  directly to equity                 -          -          -         80          -             -       (408)     (328) 
 Fair value losses                   -          -          -      (468)          -             -           -     (468) 
                             ---------  ---------  ---------  ---------  ---------  ------------  ----------  -------- 
 Total comprehensive 
  income for the year                -          -          -      (388)          -             -       4,979     4,591 
                             ---------  ---------  ---------  ---------  ---------  ------------  ----------  -------- 
 Sale of treasury shares             -          -          -          -        200             -       (200)         - 
 Purchase of treasury 
  shares                             -          -          -          -      (401)             -           -     (401) 
 Repurchase of own 
  shares                             -          -          -          -          -             -     (2,749)   (2,749) 
 Cancellation of 
  repurchased 
  shares                         (744)          -          -          -          -           744           -         - 
 Dividend paid                       -          -          -          -          -             -     (6,122)   (6,122) 
 Share based payments 
  charge                             -          -          -          -          -             -         619       619 
                             ---------  ---------  ---------  ---------  ---------  ------------  ----------  -------- 
 As at 29 February 
  2020                          36,917    124,939     10,645      (407)      (803)         2,810      89,272   263,373 
                             =========  =========  =========  =========  =========  ============  ==========  ======== 
 

NOTES

For the six months ended 31 August 2020

   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 2020 and similarly the period ended 31 August 2019 has neither been audited nor reviewed by the auditors. The financial information for the year ended 29 February 2020 has been based on information in the audited financial statements for that year.

The information for the year ended 29 February 2020 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that period 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 29 February 2020.

   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          Revenue   Revenue   Gross Profit   Gross Profit   Gross Margin 
  31 August 2020             GBP'm     Mix %          GBP'm          Mix %              % 
 Aftersales(9)                98.0       8.8           56.4           43.6           49.7 
 Used cars                   449.9      40.2           41.2           31.8            9.2 
 New car retail and 
  Motability                 346.9      31.0           23.3           18.0            6.7 
 New fleet & commercial      224.5      20.0            8.6            6.6            3.8 
                          --------  --------  -------------  -------------  ------------- 
 Total                     1,119.3     100.0          129.5          100.0           11.6 
                          ========  ========  =============  =============  ============= 
 
 Six months ended          Revenue   Revenue   Gross Profit   Gross Profit   Gross Margin 
  31 August 2019             GBP'm     Mix %          GBP'm          Mix %              % 
 Aftersales(9)               130.7       7.9           73.1           42.3           47.1 
 Used cars                   653.8      39.7           52.8           30.6            8.1 
 New car retail and 
  Motability                 472.1      28.7           33.7           19.5            7.1 
 New fleet & commercial      390.5      23.7           13.1            7.6            3.4 
                          --------  --------  -------------  -------------  ------------- 
 Total                     1,647.1     100.0          172.7          100.0           10.5 
                          ========  ========  =============  =============  ============= 
 
 Year ended 29 February    Revenue   Revenue   Gross Profit   Gross Profit   Gross Margin 
  2020                       GBP'm     Mix %          GBP'm          Mix %              % 
 Aftersales(9)               258.1       8.4          143.5           43.0           46.9 
 Used cars                 1,235.4      40.3          102.1           30.6            8.3 
 New car retail and 
  Motability                 862.5      28.1           62.7           18.8            7.3 
 New fleet & commercial      708.5      23.2           25.8            7.6            3.6 
                          --------  --------  -------------  -------------  ------------- 
 Total                     3,064.5     100.0          334.1          100.0           10.9 
                          ========  ========  =============  =============  ============= 
 

(9) Margin in aftersales expressed on internal and external turnover

   4.   Non-underlying items 
 
                                       Six months   Six months 
                                            ended        ended      Year ended 
                                        31 August    31 August     29 February 
                                             2020         2019            2020 
                                          GBP'000      GBP'000         GBP'000 
 Impairment charges                             -            -        (16,878) 
 Change to fair value of contingent 
  consideration                                 -            -           2,500 
                                      -----------  -----------  -------------- 
 Net impairment charges                         -            -        (14,378) 
 Share based payment charge                 (494)        (461)           (733) 
 Amortisation                               (218)        (321)           (595) 
                                      -----------  -----------  -------------- 
 Non-underlying loss before tax             (712)        (782)        (15,706) 
 Tax on non-underlying items above            115           61             193 
                                      -----------  -----------  -------------- 
 Non-underlying loss after tax              (597)        (721)        (15,513) 
                                      ===========  ===========  ============== 
 
   5.      Finance income and costs 
 
                                         Six months   Six months 
                                              ended        ended      Year ended 
                                          31 August    31 August     29 February 
                                               2020         2019            2020 
                                            GBP'000      GBP'000         GBP'000 
 Interest on short-term bank deposits            21          132             237 
 Net finance income relating to 
  Group pension scheme                           75           84             168 
                                        -----------  -----------  -------------- 
 Finance income                                  96          216             405 
                                        ===========  ===========  ============== 
 
 Bank loans and overdrafts                    (870)        (739)         (1,418) 
 Vehicle stocking interest                  (2,939)      (1,963)         (4,548) 
 Lease liability interest                   (1,870)      (1,761)         (3,595) 
                                        -----------  -----------  -------------- 
 Finance costs                              (5,679)      (4,463)         (9,561) 
                                        ===========  ===========  ============== 
 
   6.      Taxation 

In the July 2020 Finance Act, it was enacted that the previously announced reduction in the UK rate of corporation tax to 17% will no longer occur and the corporation tax rate will instead be held at 19%. This has resulted in the Group's deferred tax obligations now being measured at a rate of 19% in the Period (2019 H1: 17%). The Group's underlying effective rate of tax for the period therefore increased to 32.9% and the overall effective tax rate to 35.9% (2019 H1: 19.2%), reflecting this deferred tax rate change. 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. All payments of tax obligations are up to date.

   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.

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    29 February 
                                                     2020         2019           2020 
                                                  GBP'000      GBP'000        GBP'000 
 Profit attributable to equity shareholders         2,548       12,999          2,987 
 Non-underlying items (note 4)                        597          721         15,513 
 Adjusted earnings attributable to 
  equity shareholders                               3,145       13,720         18,500 
                                              ===========  ===========  ============= 
 
 Weighted average number of shares 
  in issue ('000s)                                367,158      373,195        370,470 
 Potentially dilutive shares ('000s)                  633        3,809          4,348 
                                              -----------  -----------  ------------- 
 Diluted weighted average number of 
  shares in issue ('000s)                         367,791      377,004        374,818 
                                              ===========  ===========  ============= 
 
 Basic earnings per share                           0.69p        3.48p          0.81p 
                                              ===========  ===========  ============= 
 Diluted earnings per share                         0.69p        3.45p          0.80p 
                                              ===========  ===========  ============= 
 Underlying earnings per share                      0.86p        3.68p          4.99p 
                                              ===========  ===========  ============= 
 Diluted underlying earnings per share              0.86p        3.64p          4.94p 
                                              ===========  ===========  ============= 
 

At 31 August 2020, there were 369,173,981 shares in issue (including 2,013,484 held in Treasury).

   8.      Reconciliation of net cash flow to movement in net cash 
 
                                              31 August   31 August   29 February 
                                                   2020        2019          2020 
                                                GBP'000     GBP'000       GBP'000 
 
 Net increase in cash and cash equivalents       62,119       6,160      (25,680) 
 Cash inflow from proceeds of borrowings       (10,000)           -       (2,381) 
 Cash outflow from repayment of 
  borrowings                                     12,816         678             - 
 Cash movement in net cash                       64,935       6,838      (28,061) 
 
 Capitalisation of loan arrangement 
  fees                                                -         117           118 
 Amortisation of loan arrangement 
  fee                                              (88)        (88)         (175) 
                                             ----------  ----------  ------------ 
 Non cash movement in net cash                     (88)          29          (57) 
 
 Movement in net cash/(debt)                     64,847       6,867      (28,118) 
 Opening net cash/(debt)                       (28,365)       (247)         (247) 
                                             ----------  ----------  ------------ 
 Closing net cash/(debt) excluding 
  lease liabilities                              36,482       6,620      (28,365) 
 
 Lease liabilities transitional 
  adjustment                                          -    (87,961)      (87,961) 
 Lease liabilities at 1 March 2020             (96,894)           -             - 
 Capitalisation of new leases                   (2,014)     (6,558)      (22,325) 
 Cash outflow from lease repayments               7,633       6,577        13,392 
                                             ----------  ----------  ------------ 
 Impact of IFRS 16                             (91,275)    (87,942)      (96,894) 
 
 Closing net debt                              (54,793)    (81,322)     (125,259) 
                                             ==========  ==========  ============ 
 
   9.      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 2020, there have been changes in the financial and demographic assumptions underlying the calculation of the liabilities. In particular, the discount rate has fallen due to reductions in corporate bond yields, and the expectation of future inflation has increased slightly. The effect of these changes in assumptions was an increase in liabilities of GBP1,604,000. The hedging strategy in place within the scheme investment portfolio meant that the Period saw a gain on assets of GBP1,083,000, largely offsetting the increase in liabilities. In total, an actuarial loss of GBP521,000 was recognised in the Statement of Comprehensive Income.

   10.   Cash flow from movement in working capital 

The following adjustments have been made to reconcile from the movement in working capital balance sheet headings to the amount presented in the cash flow as the movement in working capital. This is in order to more appropriately reflect the cash impact of the underlying transactions.

 
 For the six months ended 
  31 August 2020 
                                                          Trade and                      Total working 
                                                  other receivables          Trade and         capital 
                                   Inventories              GBP'000     other payables        movement 
                                       GBP'000                                 GBP'000         GBP'000 
 Trade and other payables                                                    (612,000) 
 Contract liabilities                                                         (21,561) 
                                                                     ----------------- 
 At 31 August 2020                     477,525               66,309          (633,561) 
 At 29 February 2020                   639,177               71,720          (737,538) 
 Balance sheet movement                161,652                5,411          (103,977) 
 Acquisitions                                2                  293               (96) 
 Movement excluding business 
  combinations                         161,654                5,704          (104,073)          63,285 
                                ==============  ===================  ================= 
 Pension related balances                                                                           56 
 Decrease in capital creditor                                                                      928 
 Increase in interest accrual                                                                     (72) 
 Movement in working capital                                                                    64,197 
                                                                                        ============== 
 
 
 For the six months ended 31 
  August 2019 
                                                          Trade and 
                                                  other receivables          Trade and        Total working 
                                   Inventories              GBP'000     other payables     capital movement 
                                       GBP'000                                 GBP'000              GBP'000 
 Trade and other payables                                                    (660,673) 
 Deferred consideration                                                          (100) 
 Contract liabilities                                                         (20,426) 
                                                                     ----------------- 
 At 31 August 2019                     566,037               60,131          (681,199) 
 At 28 February 2019                   618,675               62,893          (740,777) 
                                --------------  -------------------  ----------------- 
 Balance sheet movement                 52,638                2,762           (59,578) 
 Acquisitions                                -                   47                 60 
 Deferred consideration on 
  acquisitions                               -                    -              4,000 
                                --------------  -------------------  ----------------- 
 Movement excluding business 
  combinations                          52,638                2,809           (55,518)                 (71) 
                                ==============  ===================  ================= 
 Pension related balances                                                                                51 
 Decrease in capital creditor                                                                         1,938 
 Increase in interest accrual                                                                          (26) 
 Increase in share repurchase 
  accrual                                                                                             (101) 
                                                                                        ------------------- 
 Movement in working capital                                                                          1,791 
                                                                                        =================== 
 
 
For the year ended 29 February 
 2020 
                                                                   Current 
                                                                 trade and         Trade and       Total working 
                                           Inventories   other receivables    other payables    capital movement 
                                               GBP'000             GBP'000           GBP'000             GBP'000 
Trade and other payables                                                           (716,270) 
Contract liabilities                                                                (21,268) 
                                                                            ---------------- 
At 29 February 2020                            639,177              71,720         (737,538) 
At 28 February 2019                            618,675              62,893         (740,777) 
                                         -------------  ------------------  ---------------- 
Balance sheet movement                        (20,502)             (8,827)           (3,239) 
Acquisitions                                     6,563                 286           (2,380) 
Deferred consideration on acquisitions               -                   -             4,100 
Movement excluding business 
 combinations                                 (13,939)             (8,541)           (1,519)            (23,999) 
                                         =============  ==================  ================ 
Pension related balances                                                                                     131 
Decrease in capital creditor                                                                                 422 
Increase in interest accrual                                                                               (117) 
Movement in working capital                                                                             (23,563) 
                                                                                              ================== 
 

11. Goodwill and other indefinite life assets

 
                                             31 August   31 August   29 February 
                                                  2020        2019          2020 
                                               GBP'000     GBP'000       GBP'000 
 Goodwill                                       72,228      83,319        72,228 
 Other indefinite life assets - Franchise 
  relationships                                 27,087      26,410        27,087 
 At end of period                               99,315     109,729        99,315 
                                            ==========  ==========  ============ 
 

12. 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, including the potential consequences of the UK decision to leave the EU, 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, currency risk and the ongoing financial impact of the global COVID-19 pandemic.

All of the above principal risks are consistent with those detailed in the Annual Report for the year ended 29 February 2020.

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 2021.

Alternative Performance Measures

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". This measure is used when analysing performance in Q2.

   H1 FY21                                      The six month period ended 31 August 2020 
   H1 FY20                                      The six month period ended 31 August 2019 
   Q2 FY21                                      The three month period ended 31 August 2020 
   Q2 FY20                                      The three month period ended 31 August 2019 
   Q1 FY21                                      The three month period ended 31 May 2020 
   Q1 FY20                                      The three month period ended 31 May 2019 

Adjusted Adjusted for amortisation of intangible assets and share based payments, 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.

 
 Adjusted                  Q1        Q2        H1        Q1        Q2        H1 
  (loss)/profit          FY21      FY21      FY21      FY20      FY20      FY20 
  before tax 
                      GBP'000   GBP'000   GBP'000   GBP'000   GBP'000   GBP'000 
 (Loss)/profit 
  before tax         (14,578)    18,552     3,974    12,692     3,407    16,099 
 Amortisation             113       105       218       165       156       321 
 Share based 
  payment charge          146       348       494       215       246       461 
                                         --------                      -------- 
 Adjusted 
  (loss)/profit 
  before tax         (14,319)    19,005     4,686    13,072     3,809    16,881 
                    =========  ========  ========  ========  ========  ======== 
 
 
 Adjusted net cash            31 August   31 August 
                                   2020        2019 
                                GBP'000     GBP'000 
 Cash and cash equivalents      102,958      72,679 
 Borrowings                    (53,745)   (43,571) 
                             ----------  ---------- 
 Adjusted net cash               49,213      29,108 
 Used car stocking loans       (12,731)   (22,488) 
 Net cash                        36,482       6,620 
                             ==========  ========== 
 

Tangible net assets per share

 
                                        31 August   31 August 
                                             2020        2019 
                                          GBP'000     GBP'000 
 Net assets                               265,812     275,346 
 Less: 
 Goodwill and other indefinite life 
  assets                                 (99,315)   (109,729) 
 Other intangible assets                  (1,934)     (2,330) 
                                       ----------  ---------- 
 Tangible net assets                      164,563     163,287 
 Deferred tax on above adjustments          6,230       6,576 
 Tax adjusted tangible net assets         170,793     169,863 
                                       ----------  ---------- 
 Tangible net assets per share              46.5p       46.1p 
                                       ==========  ========== 
 

At 31 August, there were 369,173,981 shares in issue (2019: 370,413,984) of which 2,013,484 were held by the Group's employee benefit trust (2019: 1,582,786).

Q2 like-for-like reconciliations:

Revenue by department

 
                                                                         Q2 FY21 like-for-like 
                       H1 FY21 Group    Q1 FY21          Q2 FY21          Q2 FY21            Q2 FY21           Q2 FY21 
                             revenue      Group    Group revenue     Acquisitions          Disposals     Like-for-like 
                               GBP'm    revenue            GBP'm          revenue            revenue           revenue 
                                          GBP'm                             GBP'm              GBP'm             GBP'm 
 New car retail 
  and Motability               346.9      132.2            214.7           (17.0)                  -             197.7 
 New fleet and 
  commercial                   224.5       77.1            147.4            (0.3)                  -             147.1 
 Used cars                     449.9       92.6            357.3           (19.9)                  -             337.4 
 Aftersales                     98.0       30.4             67.6            (3.8)                  -              63.8 
                   -----------------  ---------  ---------------  ---------------  -----------------  ---------------- 
 Total revenue               1,119.3      332.3            787.0           (41.0)                  -             746.0 
                   =================  =========  ===============  ===============  =================  ================ 
 
 
                                                                       Q2 FY20 like-for-like 
                        H1 FY20    Q1 FY20           Q2 FY20         Q2 FY20              Q2 FY20              Q2 FY20 
                          Group      Group     Group revenue    Acquisitions    Disposals revenue        Like-for-like 
                        revenue    revenue             GBP'm         revenue                GBP'm              revenue 
                          GBP'm      GBP'm                             GBP'm                                     GBP'm 
 New car retail and 
  Motability              472.1      299.3             172.8               -                (0.9)                171.9 
 New fleet and 
  commercial              390.5      225.8             164.7               -                (0.1)                164.6 
 Used cars                653.8      335.2             318.6               -                (6.5)                312.1 
 Aftersales               130.7       66.7              64.0               -                (0.5)                 63.5 
                      ---------  ---------  ----------------  --------------  -------------------  ------------------- 
 Total revenue          1,647.1      927.0             720.1               -                (8.0)                712.1 
                      =========  =========  ================  ==============  ===================  =================== 
 

Aftersales revenue by department

 
                                                                           Q2 FY21 like-for-like 
                    ------------  ----------------- 
                         H1 FY21            Q1 FY21            Q2 FY21         Q2 FY21      Q2 FY21            Q2 FY21 
                      Aftersales         Aftersales         Aftersales    Acquisitions    Disposals      Like-for-like 
                         revenue            revenue            revenue         revenue      revenue            revenue 
                           GBP'm              GBP'm              GBP'm           GBP'm        GBP'm              GBP'm 
 Parts                      57.7               18.9               38.8           (1.7)            -               37.1 
 Accident repair             2.0                0.5                1.5           (0.3)            -                1.2 
                    ------------  -----------------  -----------------  --------------  -----------  ----------------- 
 Parts and 
  accident repair           59.7               19.4               40.3           (2.0)            -               38.3 
 Service                    53.9               15.7               38.2           (2.4)            -               35.8 
                    ------------  -----------------  -----------------  --------------  -----------  ----------------- 
 Total revenue 
  (10)                     113.6               35.1               78.5           (4.4)            -               74.1 
                    ============  =================  =================  ==============  ===========  ================= 
 
 
                                                                            Q2 FY20 like-for-like 
                   ----------------  ---------------- 
                            H1 FY20           Q1 FY20           Q2 FY20         Q2 FY20      Q2 FY20           Q2 FY20 
                         Aftersales        Aftersales        Aftersales    Acquisitions    Disposals     Like-for-like 
                            revenue           revenue           revenue         revenue      revenue           revenue 
                              GBP'm             GBP'm             GBP'm           GBP'm        GBP'm             GBP'm 
 Parts                         83.4              42.3              41.1               -        (0.4)              40.7 
 Accident repair                3.1               1.5               1.6               -            -               1.6 
                   ----------------  ----------------  ----------------  --------------  -----------  ---------------- 
 Parts and 
  accident repair              86.5              43.8              42.7               -        (0.4)              42.3 
 Service                       68.8              35.8              33.0               -        (0.3)              32.7 
                   ----------------  ----------------  ----------------  --------------  -----------  ---------------- 
 Total revenue 
  (10)                        155.3              79.6              75.7               -        (0.7)              75.0 
                   ================  ================  ================  ==============  ===========  ================ 
 

(10) Inclusive of both internal and external revenue

Gross profit by department

 
                                                                           Q2 FY21 like-for-like 
                  ---------------  --------------- 
                          H1 FY21          Q1 FY21           Q2 FY21          Q2 FY21         Q2 FY21          Q2 FY21 
                      Group gross      Group gross       Group gross     Acquisitions       Disposals    Like-for-like 
                           profit           profit            profit     gross profit    gross profit     gross profit 
                            GBP'm            GBP'm             GBP'm            GBP'm           GBP'm            GBP'm 
 New car retail 
  and Motability             23.3             11.7              11.6            (1.0)               -             10.6 
 New fleet and 
  commercial                  8.6              3.6               5.0            (0.2)               -              4.8 
 Used cars                   41.2              7.6              33.6            (1.4)               -             32.2 
 Aftersales                  56.4             16.5              39.9            (2.4)               -             37.5 
                  ---------------  ---------------  ----------------  ---------------  --------------  --------------- 
 Total gross 
  profit                    129.5             39.4              90.1            (5.0)               -             85.1 
                  ===============  ===============  ================  ===============  ==============  =============== 
 
 
                                                                           Q2 FY20 like-for-like 
                  ---------------  --------------- 
                          H1 FY20          Q1 FY20           Q2 FY20          Q2 FY20         Q2 FY20          Q2 FY20 
                      Group gross      Group gross       Group gross     Acquisitions       Disposals    Like-for-like 
                           profit           profit            profit     gross profit    gross profit     gross profit 
                            GBP'm            GBP'm             GBP'm            GBP'm           GBP'm            GBP'm 
 New car retail 
  and Motability             33.7             19.4              14.3                -           (0.1)             14.2 
 New fleet and 
  commercial                 13.1              7.1               6.0                -               -              6.0 
 Used cars                   52.8             27.9              24.9                -           (0.4)             24.5 
 Aftersales                  73.1             37.1              36.0                -           (0.3)             35.7 
                  ---------------  ---------------  ----------------  ---------------  --------------  --------------- 
 Total gross 
  profit                    172.7             91.5              81.2                -           (0.8)             80.4 
                  ===============  ===============  ================  ===============  ==============  =============== 
 

Aftersales gross profit by department

 
                                                                           Q2 FY21 like-for-like 
                  ---------------  ---------------- 
                          H1 FY21           Q1 FY21           Q2 FY21         Q2 FY21         Q2 FY21          Q2 FY21 
                       Aftersales        Aftersales       Group gross    Acquisitions       Disposals    Like-for-like 
                     gross profit      gross profit            profit    gross profit    Gross profit     gross profit 
                            GBP'm             GBP'm             GBP'm           GBP'm           GBP'm            GBP'm 
 Parts                       12.8               4.4               8.4           (0.3)               -              8.1 
 Accident repair              1.3               0.3               1.0           (0.2)               -              0.8 
                  ---------------  ----------------  ----------------  --------------  --------------  --------------- 
 Parts and 
  accident 
  repair                     14.1               4.7               9.4           (0.5)               -              8.9 
 Service                     42.3              11.8              30.5           (1.9)               -             28.6 
                  ---------------  ----------------  ----------------  --------------  --------------  --------------- 
 Total gross 
  profit                     56.4              16.5              39.9           (2.4)               -             37.5 
                  ===============  ================  ================  ==============  ==============  =============== 
 
 
                                                                           Q2 FY20 like-for-like 
                  ---------------  ---------------- 
                          H1 FY20           Q1 FY20           Q2 FY20         Q2 FY20         Q2 FY20          Q2 FY20 
                       Aftersales        Aftersales       Group gross    Acquisitions       Disposals    Like-for-like 
                     gross profit      gross profit            profit    gross profit    Gross profit     gross profit 
                            GBP'm             GBP'm             GBP'm           GBP'm           GBP'm            GBP'm 
 Parts                       18.3               9.0               9.3               -           (0.1)              9.2 
 Accident repair              2.1               1.1               1.0               -               -              1.0 
                  ---------------  ----------------  ----------------  --------------  --------------  --------------- 
 Parts and 
  accident 
  repair                     20.4              10.1              10.3               -           (0.1)             10.2 
 Service                     52.7              27.0              25.7               -           (0.2)             25.5 
                  ---------------  ----------------  ----------------  --------------  --------------  --------------- 
 Total gross 
  profit                     73.1              37.1              36.0               -           (0.3)             35.7 
                  ===============  ================  ================  ==============  ==============  =============== 
 

Operating expenses

 
                                                                            Q2 FY21 like-for-like 
                                                                          Q2 FY21   Q2 FY21 Disposals          Q2 FY21 
                                  H1 FY21     Q1 FY21     Q2 FY21    Acquisitions               GBP'm    Like-for-like 
                                    GBP'm       GBP'm       GBP'm           GBP'm                                GBP'm 
 Operating expenses (net)           119.3        51.2        68.1 
 Job Retention Scheme Grant          22.8        17.7         5.1 
                               ----------  ----------  ---------- 
 Adjusted operating expenses 
  (gross)                           142.1        68.9        73.2           (4.4)                   -             68.8 
                               ==========  ==========  ==========  ==============  ==================  =============== 
 
 
                                                                        Q2 FY20 like-for-like 
                                                                Q2 FY20 Acquisitions     Q2 FY20         Q2 FY20 
                                 H1 FY20    Q1 FY20    Q2 FY20                 GBP'm   Disposals   Like-for-like 
                                   GBP'm      GBP'm      GBP'm                             GBP'm           GBP'm 
 Adjusted operating expenses       151.6       76.2       75.4                     -       (0.7)            74.7 
                                          ========= 
 

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END

IR EANEKEFLEFFA

(END) Dow Jones Newswires

October 07, 2020 02:00 ET (06:00 GMT)

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