Vertu Motors above expectation results for FY21 and a strong start to FY22

Vertu Motors

Vertu Motors plc (LON:VTU), the automotive retailer with a network of 149 sales and aftersales outlets across the UK, has announced its final results for the year ended 28 February 2021 (“Year”).

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

“These results, which are ahead of expectations, are outstanding in the Covid interrupted circumstances.  I am proud of the entire Vertu team for their adaptability and effort to deliver these remarkable results.

The Group has significantly evolved during the year, with accelerated delivery of its strategy in achieving enhanced online sales capability via its inhouse developed Click2Drive technology platform, reduced cost base due to productivity gains and significantly grown the number of sales outlets. 

We have started the new financial year very strongly, have generated record levels of cash and have a very strong balance sheet.  We have now re-instated guidance. Brexit uncertainty is now behind us, and we are exceedingly well placed to benefit from the changes and opportunities which are ahead of us.”

OPERATIONAL HIGHLIGHTS

·    Adjusted1 profit before tax of £24.6m ahead of Analysts’ forecasts (2020: £23.0m)

·   18 sales outlets added to the Group since 1 March 2020, including the addition of 3 new franchise partners to the Group’s portfolio – BMW, MINI and BMW Motorrad

·    Strong, stable management, supported by scalable, sector-leading in-house developed technology and systems, provides assurance of tight control of operations and swift execution of strategies

·    Substantial growth in online retailing using the Group’s Click2Drive sales technology platform 

·    Increased efficiency of transaction processing including use of robotic process automation

·   38,446 new and used vehicles delivered from 1 January to 31 March 2021, despite lockdown restrictions keeping showrooms closed

·   Increased awareness of the Group’s core brands delivered through strong, effective marketing campaigns including significant TV advertising campaigns

·    Excellent customer experiences delivered in the new environment: Used Car Net Promoter Score in H2 of 84%

OUTLOOK HIGHLIGHTS

·    Strong start to new financial year with trading profits at a record level in the two months to April 2021. Adjusted profit before tax in the two months of £19.2m compared to £14.8m in the same months in 2019

·    The Board expect the Group will deliver an adjusted profit before tax for the year ending 28 February 2022 in the range of £24.0m to £28.0m

·    The Board is confident that, dependent on the financial performance of the Group, dividends can recommence in January 2022

FINANCIAL HIGHLIGHTS

·    Group revenues of £2.5bn (2020: £3.1bn) (like-for-like decline of 21.6%) impacted by Government imposed lockdowns

·    Gross margin increased to 11.8% (2020: 10.9%)

·    Cost reductions2 exhibited delivering a £16.0m (7.2%) reduction in like-for-like operating expenses in the nine months from 1 June to 28 February

·    Growth in Adjusted1 operating profit to £33.8m (2020: £32.2m)

·    Profit before tax of £22.4m (2020: £7.3m)

·    Underlying earnings per share increased to 5.27p (2020: 4.99p)

·    No final dividend recommended in light of the Government support received during the Year

·    Net tangible assets per share of 50.2p (2020: 46.0p) reflecting very strong asset base

·    Record Free Cash Flow3 of £48.4m delivered

·    Adjusted4 net cash of £1.4m at 28 February 2021 (2020: net debt £2.8m)

Excludes non-underlying items.

2 Excludes grant receipts in respect of the furlough scheme.

Net cash flow from operating activities less net capital expenditure incurred and lease cash flows.

4 Excludes amounts drawn on used vehicle stocking loans and IFRS 16 lease liabilities.

CHAIRMAN’S STATEMENT

I am pleased to report that the Group has delivered a resilient, profitable result, in excess of Analysts’ forecasts in this unprecedented year.  This result reflects positively on all management and colleagues within the Group, who have adapted to new ways of working and executed exceptionally well in the most challenging of circumstances.  I would like to personally express my appreciation and thanks to the whole Vertu team.  The Board is also extremely grateful for the significant Government support received both in respect of furloughed colleagues and business rates relief, and the assistance provided by its Manufacturer partners.  The latter demonstrates the partnership approach and a key strength of the franchised dealer model.

On 1 June 2020, the business emerged from the first lockdown stronger in many ways for the experience.  Trading conditions throughout the summer months that followed were bolstered by pent-up consumer demand.  The period also saw the additional benefit of cost reductions, achieved through the roll out of technology developed during the lockdown, which enhanced efficiency across a number of different areas of the business.

When the UK faced further restrictions from November onwards, the Group’s showrooms were again closed to customers.  The Group’s strengthened customer and online offering, together with its strong brands and local presence, meant that vehicle sales continued on a click and collect/home delivery basis, despite the restrictions, at much higher levels than were seen in the first lockdown.  The Group’s customers could choose to buy their used car fully online or complete part of their buying journey online and part in direct remote contact with either our local dealership or central teams.  Central sales and aftersales enquiries were handled efficiently by the Group’s customer contact centre which was able to switch seamlessly between home and office working using the Group’s digital telephony technology.  To illustrate the progress made, 38,446 vehicles were delivered during the latest restrictions when showrooms were closed from 1 January to 31 March, demonstrating the strength of the Group’s online offering, customer propositions, strong brands, national footprint and reputation for strong customer service.

The Board is mindful that the immediate future of the Group will be affected by the continued uncertainty around COVID-19 and the Government’s reaction to it. The Group is, however, strong and resilient. It has one of the strongest balance sheets in the sector, and this was further enhanced in the year through the generation of a record level of Free Cash Flow of £48.4m.  Costs were well controlled throughout and, whilst it was regrettable that many of the Group’s colleagues have been furloughed at times during the year, capacity levels were carefully matched to demand as the Group moved between lockdowns. 

The Board is optimistic that the Group’s proven track record of execution and strong balance sheet will allow the continued expansion of the Group, to deliver a business of greater scale and efficiency.  The forthcoming post COVID-19 period will again evidence some consolidation in the Retail sector.  Vertu is in a strong position to take advantage of this environment as appealing opportunities arise.  Our strong financial position, healthy appetite for growth, considerable digital expertise and first-class leadership means that we can look forward with optimism.

The business is fifteen years old in November 2021 and has achieved much in that timeframe.  From floating as a cash shell in December 2006, the business is now one of the largest and strongest operations in the UK automotive retail sector.  Whilst justifiably proud of these achievements, the Board remains focused on the future and building on the very successful platform put in place.   We guard against complacency.

Andy Goss, Chairman

CHIEF EXECUTIVE’S REVIEW

Update on Strategy Execution and Associated Risks

The Group is now in its fifteenth year and has executed a consistent strategy to build a scaled UK automotive retailer with a strong culture, a reputation for execution and excellent relations within its Manufacturer Partners.  The Group now has normalised annual revenues of £3.7bn and has built a substantial base of tangible net assets.

The Group’s key long-term strategic objectives remain:

·    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 online 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 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

Portfolio Development and Changes

As part of the strategy for scale, the Group historically has sought to add additional Manufacturer partners, not represented in the portfolio, to facilitate additional growth opportunities.  A noticeable gap in the Group’s portfolio of Manufacturer partners was closed in December 2020, with the addition of the much sought-after BMW, MINI and BMW Motorrad franchises.  Both BMW and MINI are extremely well positioned to take advantage of the electrification of the UK automotive market over the next decade and the addition of these franchises had long been a strategic objective of the Group.  The Group now operates 32 car, van and motorcycle franchises which is more than any other UK player.

The well-timed acquisition of a BMW/MINI market area of 12 sales outlets in five locations: York, Sunderland, Teesside, Durham and Malton, achieved immediate scale in a region where the Group is headquartered and already has strong representation.  The outlets were acquired from The Cooper Group Limited, part of Inchcape plc, for total consideration of £19.6m.  The assets acquired include £16m of freehold and long leasehold properties and a payment was made in respect of goodwill of £0.8m.  

For the year ended 31 December 2019, these dealerships generated revenues of £305m and a loss before tax of £6.0m.  The Group has developed a clear plan to drive performance improvements over a three-year period and the integration of these businesses into the Group has proceeded in line with this plan.  The Group’s systems and processes were implemented immediately on acquisition, in order to facilitate business improvements in the areas of customer experience and financial performance.  Despite the COVID-19 related restrictions imposed immediately post acquisition, the acquired businesses have performed ahead of the business plan, which has not been adjusted for the impact of these restrictions.  The Board is therefore optimistic of a progressive turnaround of these businesses and the generation of significant shareholder value, particularly given the minimal levels of goodwill paid for the businesses.  The businesses have been branded Vertu, reflecting the continued growth of the Vertu brand in Premium franchises in the UK and supported by the increasingly successful website, vertumotors.com.

Following the Group’s entry into the Kia franchise in January 2020, further growth with the Kia franchise was achieved when, on 1 October, the Group acquired the Nottingham Kia business from Sandicliffe for £1.9m, taking a short-term lease on the dealership premises.  This business will be relocated this month into existing large Group leasehold dealership premises in Nottingham.  This location currently represents one of two Group Volkswagen franchise outlets located in the city and, whilst new vehicle activity will be consolidated in the remaining flagship Nottingham Volkswagen dealership at West Bridgeford, Volkswagen authorised repair and approved used vehicle sales activity will continue in this location, alongside the relocated Kia franchise.

Subsequent to the financial year end, on 1 March 2021 the Group opened a Macklin Motornation used vehicle outlet in Glasgow, following the acquisition in late 2020 of a vacant freehold dealership from Lookers plc.  Further on 12 March 2021, the Group acquired the trade and assets of a Honda car dealership in Huddersfield from Hepworth Motor Group.  The purchase of this leasehold dealership complements the Group’s existing Honda outlets in Yorkshire and the consideration, settled in cash, was £0.8m. The Group now has considerable scale in Yorkshire, operating 23 outlets in the county.

The Group continues to actively manage its dealership portfolio including the regular assessment of viability and returns achieved from each business and franchise and the potential for property gains and cash generation from the portfolio.  Execution of multi-franchising, in order to maximise potential returns of each location, is seen as a key element of the Group’s strategy in this regard.  Increased flexibility of Manufacturer representation requirements and varying formats will aid this process, allowing investment levels to be reasonable and multi-franchising to be increased.

During the Year the Group added the Citroen brand to its existing Ford dealership operations in Worcester and Macclesfield.  The Group also added the Peugeot franchise to the Group’s Edinburgh dealership which already represented Kia, Suzuki and Mitsubishi.  Further multi-franchising activity is planned to be delivered in the coming months, with several projects currently being progressed.

Further network changes and consolidation for franchised retailers are anticipated.  Potential opportunities for growth for those established retail groups with a proven track record, strong financial position and positive relationship with Manufacturers remain strong. 

Further to the regular review process outlined above, a number of disposals and closures have been implemented, in line with the Group’s capital allocation disciplines, both during the year and post year end, to optimise the portfolio:

·    The Group sold the trade and assets of its Citroen dealership in Leicester to Manufacturer-owned Robins and Day on 28 February 2021.  The leasehold premises were retained and the dealership is currently being redeveloped and refranchised to reopen as a franchise outlet in the coming months.

·    Vertu Motors disposed of its ancillary wheelchair accessible vehicle (“WAV”) business, Bristol Street Versa, to Gowrings Mobility, a well-established WAV operator on 30 November 2020.  The Group will continue to supply commercial vehicles for conversion to the enlarged entity.  This disposal generated £1.7m of cash.  In FY20 the business delivered a loss before tax of £68,000.

·    On 26 April 2021, the Group closed a used car sales and Volkswagen service outlet at Whitchurch, Herefordshire. The vast majority of colleagues were transferred to the Volkswagen dealership in Hereford and it is anticipated that a large proportion of the dealership’s activity will be retained in Hereford.  The freehold property was sold on 7 May 2021 yielding cash proceeds of £430,000, slightly in excess of the book value.  In addition to the property disposal, working capital of approx. £0.9m has been released to be re-invested in higher return assets.

·    Following the acquisition of BMW Sunderland, the Group operated two accident repair centres in the city. On 1 April 2021, these operations were consolidated into one with a surplus freehold property now being marketed for sale.  

Move to Agency Model

The Board notes that it is likely that the next few years will see an evolution of the business model with regards to the sale of new cars in certain franchises. The Group undertakes sales in a number of franchises on an agency basis in the fleet market and anticipate that a number of Manufacturers will move new retail sales to an agency model in the next few years.  It is envisaged that such a move would reduce reported revenues, increase reported operating margins and reduce working capital investment. The Board will keep shareholders updated on developments in this area.

Increasing Importance of Scale and Brand

The Group’s strategy is to continue to grow through the acquisition of both volume and premium franchised dealerships.  Scale benefits include: a national online and offline co-ordinated marketing strategy based on a limited number of strong brands; maximising the benefits of the Group’s national footprint; the Click2Drive platform; scaled highly efficient contact centres; dedicated franchise management; purchasing efficiencies; and, access to competitive consumer finance packages for the Group’s customers.

Brand awareness is vital in an online environment, with increasingly more of the sales process, either in the research or buying phase, completed online.  The Group currently operates four brands in the UK, Bristol Street Motors (England Volume), Macklin Motors (Scotland), Farnell (Jaguar Land Rover) and Vertu Motors (other premium franchises).  Having more than one brand allows the Group the flexibility to differ its offers and approach between geographies or between volume or premium franchises. During the course of 2021, the Group’s Jaguar Land Rover dealerships will be rebranded to Vertu, bringing all the Group’s premium businesses under this one brand.  When this is complete, the Vertu brand will have 58 outlets in the UK, Bristol Street Motors 77 and Macklin Motors 14.

Brand awareness is supported by the Group’s marketing activity, including extensive TV advertising campaigns and sponsorship of Formula One coverage on Channel 4, secured for a second consecutive year for the Macklin Motors and Bristol Street Motors brands. In addition, sponsorship arrangements have commenced for the Vertu Motors brand with Yorkshire and Durham County Cricket Clubs to increase brand awareness in two of the Group’s key regions of operation. The success of the Group’s marketing activity is supported by a recent YouGov survey, which included responses from over 5,000 adults collected over the period from 1 October 2020 to 1 March 2021. Bristol Street Motors currently has the highest prompted awareness of the Group’s brands, with over 42% awareness, the second highest of any automotive retail brand in the sector, including the so-called ‘disruptors’.

The strength of our brands and marketing activity led to the Group’s websites collectively receiving a monthly average of 1.4m unique visits over the Year (2020: 1.2m).  The Group saw a 29% year on year increase in sales enquiries received from online sources in the period from 1 June to 28 February, however, as expected in the light of restrictions, walk in dealership visits were down year on year.

Of equal importance to brand awareness, is brand reputation.  The Group’s Mission, “to deliver an outstanding customer motoring experience through honesty and trust” recognises the importance of excellent customer service and high ethical standards.  The Group’s commitment to customer service is verified through customer satisfaction feedback, gathered either by our Manufacturer partners or from a third-party survey (Judge Service) in respect of used cars.  The Group’s dealerships regularly feature in the top quartile of our Manufacturer’s customer service leagues and perform significantly above average for the sector overall.  The Group consistently achieves a net promoter score (“NPS”) in excess of 80% from Judge Service.  In H2 the Group received feedback from over 10,400 Group used car customers via Judge Service averaging a NPS score of 84%.

Online and Omni-channel Retailing

There is a significant degree of confusion over the terms online and omni-channel retailing. Whilst online sales could be defined as pure ecommerce transactions with no human involvement, convention in the sector is that online sales relate to any sale where the enquiry originated from an online source.  The current automotive retailing environment in the UK is certainly heavily digitised and omni-channel in nature – customers come in and out of the digital world, interacting by phone and video call extensively with dealerships as well as undertaking dealership visits and crucially, test drives.  No one customer’s journey is now the same, since the options and flexibility offered by platforms such as the Group’s Click2Drive technology platform puts the customer in the driving seat as to how to buy a car.  Given our goal is firmly to sell a car, the Group is agnostic as to which journey the customer chooses as long as a sale is achieved.  Our experience is that pure ecommerce online transactions are a small percentage of retail sales and omni-channel retailing is probably a better term to describe the current position.  Where the term online is used in this report, it is used in a much wider sense and is akin to omnichannel.  In time, greater definition of terms in the sector is vital to increase understanding.

The Group continues to be at the forefront of developments to provide customers with innovative ways to purchase and interact online.  The Group’s online functionality is a fully integrated end to end process termed Click2Drive, allowing customers the flexibility of a purely online purchase, or one which includes interaction with our sales teams through telephone or video appointments, should they require assistance with their vehicle search or purchase.  If the Group’s customers choose to transact fully online, they are able to value their part exchange, choose a suitable finance option, make payment and arrange home delivery of their vehicle, including the collection of any part exchange.  Every one of the Group’s used vehicles is prepared to a high standard, in accordance with a strict vehicle preparation policy.  All used vehicle customers also benefit from a 14-day money back guarantee and a 90-day warranty as standard.  This is superior to the current offering of disrupters.

The strength of this proposition, together with the Group’s established brands, national dealership network and reputation for excellent customer service, meant that the Group delivered 38,446 new and used (retail and fleet) vehicles from 1 January to 31 March 2021, despite customers being unable to visit showrooms or test drive their chosen vehicles.  257 (0.7%) of these vehicles were purchased completely online by the Group’s customers.  The majority of customers therefore elected to interact with the Group’s dealerships within the sales process.  4,700 customers have chosen to reserve their vehicle online, through the payment of a £99 deposit, since this new feature was introduced in May 2020.  Use of this reservation facility has been increasing over time, with over 1,100 deposits paid in January and February 2021.  Customers reserving vehicles in this way exhibit a very high conversion to ultimate sale.

Disrupters who have recently entered the used car market have very little, if anything, to add to the sector in terms of customer proposition or experience, and they do not sell new cars or in some cases, support customers thereafter with their servicing needs.  The best in class in the sector, and Vertu in particular, have a fully established “bricks and clicks” platform and sell far more used vehicles than these new entrants.  The Group also builds relationships with customers over many years facilitating the supply of new and used cars and customer servicing activities.

The Group’s national franchise dealer network, with a strong customer service reputation, gives customers the confidence to transact purely online, however, many still choose to interact with the Group in their buying journeys and we expect that this will continue.  A local presence not only aids the building of brand awareness but remains essential to the delivery of customer service, with the majority of customers preferring to undertake a test drive prior to purchasing the big-ticket item of a car.  Local aftersales support is also an important factor in many vehicle buying decisions.  The Group retains a high proportion of its vehicle sales customers into the higher-margin service channel and this also aids overall long-term sales retention.  A “bricks and clicks” model is therefore 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.  The fact disruptors to the sector such as Cazoo and Tesla have been developing physical networks is illustrative of their recognition of the need to have a physical presence in addition to their purely online capabilities.

Cost Reduction

Enhanced scale of operations allows Vertu Motors to maximise on purchasing benefits, to 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 robotic process automation to enhance productivity and reduce the cost base of the Group. Enhanced integration of the Group’s sales showroom and financial systems in FY21 facilitated significant efficiency improvements in processing vehicle sale transactions.  By way of example, robotic processes have now automated the taxation of each used vehicle the Group sells with the DVLA.  Similar technology has also automated the invoicing of all vehicles traded at auction.  Such in-house developed system automations have enabled the Group to reduce costs, with the delivery of a programme completed in July 2020 yielding anticipated annualised savings of £10m.  The Group continues to develop technology to maximise efficiency and aid decision making.

Motivated, Professional Colleagues

The Group seeks one consistent culture across all its operations.  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 the business operates.  The Group has high standards, with colleagues expected to execute the basics of the business and delight customers, acting with energy and urgency. 

The Group’s colleagues are therefore at the core of the delivery of the Group’s vision and strategy and their passion and commitment has certainly been demonstrated over the Year.  It was regrettable that so many of the Group’s colleagues were put into the Government Furlough scheme as virus restrictions closed substantial parts of the business.  The Group provided enhanced benefits, designed to ensure that no colleague suffered undue hardship whilst unable to work.  The Group’s Board and senior management teams also accepted reductions to their remuneration during the Year. Colleague communication was vital so frequent and open dialogue was maintained throughout the Year.  To measure the success of the Group’s colleague engagement, the Group carries out an annual colleague satisfaction survey as well as shorter quarterly surveys.  Over 4,200 (84%) of Group colleagues participated in this year’s survey in October 2020.  Perhaps in recognition of the support given to colleagues during the pandemic, 87.0% of responding colleagues considered the Group a great place to work, up from 83.9% in the previous year.  In addition, 98.2% of colleagues knew the Vertu Values and 93.3% believed that the Directors actively practiced these Values.  These scores reflect the strength and consistency of the Group culture that has been built up over time.

I would like to personally thank every Vertu colleague for their hard work and commitment during the Year.  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

Electrification and Alternative Powertrains

Potential future development of the wider automotive sector has in recent years been linked to the development of Connected, Autonomous, Shared and Electric (CASE) vehicles.  The ongoing impact of COVID-19 will almost certainly affect the ‘Shared’ element of mobility, with the potential that consumers shy away from public and shared transport modes, at least in the short-term.  It is also apparent that, whilst increased autonomy is certainly assisting drivers, full autonomous capability remains a long way off, with technological, regulatory and legal considerations weighing heavily.

The UK Government’s stringent objective to achieve Net Zero in terms of Carbon emissions is driving significant change to the powertrains used by new vehicles.  2030 is now the date the UK proposes to phase out internal combustion engines in respect of new vehicle sales.  A glide path is therefore needed in terms of technological advancement and Government support in terms of vehicle engineering, subsidies to promote uptake and a national infrastructure for recharging which is capable of coping with significant growth in electric vehicle sales. The SMMT estimates that a full, zero emission-capable UK new car market will require 1.7 million public charge points by the end of the decade and 2.8 million by 2035, costing some £16.7 billion.  The UK has a long way to go in this regard.

The level of customer adoption of electric and alternatively fuelled vehicles is increasing in the UK reflecting higher supply, enhanced ranges and more interest from customers.  The SMMT reported that 2020 was the best ever year for electric cars, with battery and plug-in hybrid vehicle market share increasing to 10.7%, albeit in an overall reduced market, and with regulation requirements being the key driver rather than customer preference.  Group sales of electric and alternatively fuelled vehicles doubled over the Year to 2,356 vehicles, representing 9.3% of the Group’s sales of new retail vehicles.

The move to electric has undeniably put Manufacturer businesses, cash levels and future returns under pressure, with this being exacerbated by the impact of COVID-19.  A recent study by the Financial Times highlighted that the cost of production of electric cars is expected to continue to exceed that of the combustion engine vehicle until beyond 2030.  This is even after taking into account the expected reduction in the cost of battery production.  According to the SMMT, price is one of the main factors holding 52% of today’s potential buyers back from purchasing an electric vehicle.  This was perhaps recognised by the recent changes in the UK to the plug-in grant scheme, which is now targeted exclusively at lower priced cars.

Over 40% of the Group’s gross profit has historically arisen from its aftersales operations, namely the provision of servicing and repairs and the retailing and wholesaling of parts.  Pure electric vehicles require less mechanical service intervention than those with an internal combustion engine, however, they will not form a majority of the vehicle parc until well after 2030 (source: National Grid FES 2020 report).  Thereafter, the potential diminution in servicing, as a result of the electrification of the parc, is expected to be mitigated by the need for increased specialist equipment, technology and knowledge to maintain these vehicles, connectivity and a growth in prepaid maintenance programmes, all retaining a greater share of maintenance work within the franchise dealer network.  The Group is developing substantial expertise in its service departments in the area of batteries. Leeds Volkswagen, for example, is only one of 15 specialist battery centres in the Volkswagen network in the UK.  With our Manufacturer relationships, scale, financial strength and expertise, the Board sees the drive train transition as an opportunity rather than a threat.

FCA

Following the publication of the FCA’s final findings in connection with their review of motor finance, the Group amended its sales processes in January 2021 to ensure that its arrangement with finance providers were aligned with the ban of discretionary commission models.  These changes have been seamlessly introduced, aided by the Group’s in-house developed sales technology platform, Click2Drive. The changes have not had a material impact on earnings from finance commission to date.

UK withdrawal from the EU

The UK’s future trading arrangements with the European Union are now clear, with agreement having been reached prior to the 31 December 2020 deadline.  The SMMT reported that 7 out of 10 vehicles sold in 2020 in the UK were imported from Europe.  The application of zero tariffs and quota free trade was therefore critical to a strong new car market in the UK.  Clarity over the UK’s future relationship with the EU has removed a major sector uncertainty.

The Sterling Euro exchange rate remains an important factor in the pricing and import of vehicles manufactured in Europe into the UK.  Since 1 January 2021, Sterling has strengthened against the Euro and a stronger pound helps make imported new cars more affordable to UK buyers.

Strategic Summary

The Group’s stable and experienced management team and financial strength ensures that the Group is well positioned to take advantage of opportunities arising and we remain ambitious to do so.  We will ensure that capital is allocated to those activities, locations and franchises that are best placed to meet the competitive challenges arising, to provide the best growth opportunities and maximise return on invested capital.

We will continue to innovate to meet changes in customers’ needs, leveraging our brand strength, reputation for excellence in customer service and national footprint to maximise on the available online opportunity.  We will execute cost saving initiatives, enhance operational efficiency and pursue other new business opportunities which complement the Group’s core activities.  The goal is to drive growth in the cash flows of the business to provide returns for shareholders.

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