Vertu Motors plc

Good morning and welcome to the presentation of our latest preliminary results for the year-ended February 2026. My name is Robert Forrester, Chief Executive. I'm joined by Karen Anderson, our long-standing Chief Financial Officer. So the group, I think, has proven during the year that it can focus on controlling the control of elements of the business despite significant external challenges. And the aim is obviously to deliver long-term returns to shareholders. This is the 20th year we've been in business. We've got 5% of the UK car and van market, and the company has never lost money in a financial year. We have an excellent, resilient after-sales business, which continues to show growth. Management have been proactive in managing the business. Our strong ethos of risk management is clearly seen in the presence of the extended insurance cover, which largely protected the business from the third party cyber outage that we incurred with Jaguar Land Rover in the period. Our use of technology to drive productivity and very, very good customer journeys comes through. That's also aided 10 million pound of cost savings, which we've actioned in recent months to aid FY27 profits. We have a big focus on returns for shareholders And to date, we have, in the form of dividends and buybacks, returned £112 million in cash, reflecting the strong underlying cash flows of the group. We announced recently another £12 million buyback programme. We will make the right decisions for the long term, be it in pruning of operations that deliver poor returns, so recycling, capital in growing the Chinese brand presence to secure market share and future cash flows and to continue to invest in leadership training and future management. We've rolled out a very successful degree apprenticeship program to strengthen our TALA pipeline for the long run and in January promoted two new managing directors and we're already feeling the benefits of that move. We have the financial and operational capacity to grow when we've got visibility on returns and when we will grow the scale of the group when the time is right. In terms of the performance, you can see here in headlines that we've got increased revenues, but profits were back. The zero emission vehicle mandate that the government is putting to target battery electric vehicles in the UK is weighing heavily across the UK automotive sector, including on ourselves. Overall profit pools in the UK automotive sector are reduced in the new car channel. Many auto retailers are now losing money. We remain profitable. We remain cash generative and in control of our costs. Our strong balance sheet reflects in the 61 million of net debt against a very strong asset base. And that's before the receipt of 3.4 million of insurance payouts on the JLR cyber attack, which we've included in FY26 profits. Our tangible net assets per share is up again, 75.9 pence, and we continue to sell surplus property at the above net book value, showing that our property book values are indeed conservative. There are other key themes present. The growing strength of Chinese brands in the new car market is clearly important for the long run, and it's a key issue for management to address, making choices as to which partners to partner with and the speed of growth. The FCA stance on motor finance claims rumbles on. We've had a redress scheme announced and we've now had a redress scheme postponed, clearly aimed at lenders rather than the credit brokers such as us. Overall, we're in control of the business. We're controlling the controllables and looking to seize opportunities. If we turn to current trading in the months of March and April, We're delighted to show that we've had a strong start to the financial year with growing profitability above last year levels. There's a number of reasons for this. We've had the positive impact of last year's closures among the performing dealerships. Our startup and acquisition has started to mature, and the cost savings that have been delivered are clearly helping. The profit bridge here shows two very interesting trends. The first is the growth in the new retail and motability market, which has been in decline recently. for much of the past two or three years. The reason for that growth is that the manufacturers are actually starting now to push the retail channel to overcome their increased reliance on low margin fleet. The Chinese are coming into the market with a cost advantage and that is driving growth. And we're of the view actually that the growth in the new car market is partly and it's debatable how much, but it's certainly there that the Chinese are switching used car customers with two or three-year-old cars into relatively affordable PCPs on new cars. And we think that explains a lot of the growth. The market is also seeing increased levels of pre-registration activity in new cars, which flatters the S&MT registration statistics. But it's good to see growth. particularly as well the return to growth in the motability market, which was down heavily last year. That's generated more gross profit. We have seen what we think is startling growth again in our after-sales business with 2.9 million more gross profit in the core business in the two months. Record labor sales were achieved in the month of March. We are seeing a benefit in terms of efficiency in our service departments because a lot of the portfolio now does not open for service on a Saturday and that is increasing the efficiency and profitability of our service departments. If we turn to fleet and commercial new vehicle sales, this actually showed a modest decline in gross profit, which is unusual. Last year, in March, we saw significant deliveries of high margin pickup sales in the commercial vehicle arena ahead of tax changes, which clearly we didn't get this year. We are seeing major growth in volumes. If you see in the fleet car area, we were up 32% in the two months. However, we are seeing a knock on margins due to channel mix. Vans historically have a higher margin than cars, and we are entering into car markets with slightly reduced margins. So we think we'll benefit in the full year from growth. The van market itself remains subdued, but we're delighted that we grew by 8.5%. Like for like, taking good share. It is a major focus of ourselves to grow our fleet and van volumes this year. The use channel is very steady. sense that certainly premium used car demand is being impacted by the growth of new cars in the Chinese, but we do expect growth in the year in the used car channel. If we turn to outlook, what of the outlook? Well, we can all name significant headwinds and imagine all kinds of problems ahead of us from impacts of oil supply to growing inflation due to the Middle East war and lack of economic growth in the United Kingdom. If we take the oil issue, I think the biggest concern around the Middle Eastern war, apart from the wider impact on the economy, is actually oil supply itself. We cannot service petrol and diesel cars without motor oil. That's a pretty fruitless task. However, we have stockpiled supplies of motor oil to mitigate supply disruption. So we think that will stand us in good stead if the dislocation continues. We remain very focused on costs and cost control, and we've got a number of initiatives to grow sales and profits going forward, including a new initiative in the used car arena, which I'll talk about more in due course. The ZEV mandate is not going away. In fact, the targets for cars and vans are the major drag on activity in the whole automotive sector and in due profits. They remain, in fact, they ratchet up. This is the highest level of state intervention since the 1970s when the government actually owns the car plants, and it is set to get worse. We expect the government to act in relation to wholesale feedback from the whole automotive chain, from parts suppliers through to manufacturers through to retailers, and there will have to be some change to that policy going forward. If we look at our strategy, this slide has remained consistent and is likely to do so. We are committed to growing the scale of the group. However, in the past 12 months and actually in the near term, the economic uncertainty and the impact of the ZEB mandate has reduced visibility of returns and we have concluded that it wasn't the right time and isn't the right time for expansion. unless there are strategic opportunities of very, very much the right value. This may happen in terms of the distress in the sector, but we will clearly look at opportunities and assess them. However, we have been allocating capital to buybacks and portfolio reconfiguring rather than acquisitions. That is likely to remain the case. As things change, we will clearly look at opportunities. We've got the management, the systems, the strong core business, the financial firepower to attack when we consider it right to do so. And we feel we are well positioned to do so. So what's the external environment? I think one word that most people would use is volatile. There are four key elements of change which has affected the financial year and some of them going forward. The first is obviously the ZEV mandate. I've talked a lot about this over the last two, three years. The targets set by the government for battery electric vehicle mix will not be hit in cars or in vans. In fact, the SMT have recently reduced the percentage of battery electric vehicles they expect in 2026 in the car side. We are not going to achieve the ratcheted up targets to 80% ZEV mix by 2030. In fact, the policy defies basic economics. It forces manufacturers to heavily discount and retailers to discount to hit targets, reducing cash flow for further reinvestment. There will be, in all likelihood, a change in the policy because of the immense pressure that is being put on the government from the impact of this policy. It's likely that the battery electric vehicle mixes will be reduced. out to 2035 or even 2040 with more alignment with the European Union. The second area is the well-documented rise of Chinese brands, which you can see with your own eyes on Britain's roads. Chinese-owned manufacturing brands had a 14% share of the UK market year-to-date, and, indeed, Chery's G7 was the best-selling car in March. We will and are expanding with the Chinese, but it is nuanced. Not all of the entrants into the United Kingdom will be successful. Traditional players in our portfolio make good profits around very strong aftersales from years and years of selling cards. The Chinese have no aftersales from the end of the UK. We therefore apply our consistent investment models to seek to maximize returns and profits over a three-year time frame. We may indeed go slower than others, but we are ultimately seen as a desirable partner for new entrants and will gain share over time in a deliberate manner and that we can accelerate that through acquisition or indeed brands changing their representation plans over time. So we are not concerned about the speed with which we are taking on Chinese brands. The third area is the FCA Motor Commission review. The redress scheme was announced. It's now been announced it will be postponed. and that's because it's being challenged as well documented in the press. The redress is aimed primarily at lenders and therefore we've been consistent in not making provisions in this area and that remains the case today. We will, however, be working with lenders on providing data so they can deal with claims as and when they arise. The regulatory uncertainty and the retrospective changes to profitability of the lenders could indeed have a damaging impact going forward on the financial sector. If people aren't clear that the rules might not change in the future and lose confidence, then motor financing could be difficult with tighter supply. We're not seeing any changes in current supply, but it is worth noting that two of the major providers of used car finance have reduced their exposure to the UK or announced their intention to do so. And an independent player, according to press speculation, looks like it will go into administration. So the regulatory machinations of recent years could very well have an impact on future supply. We've clearly also got the Jaguar Land Rover cyber attack, which clearly is now finished and complete. We were very pleased with how Jaguar Land Rover reacted to the outages that they saw in September. They got production back up quicker. It is now back to normality. We originally in October set out we thought the impact could be up to 5.5. At the end, it was 3.9. But the insurance policy that we had has now paid out 3.4 million. and hopefully that issue is now behind us. So we've had to work nimbly and intentionally to manage the business through a period of some turbulence which indeed continues. We have not been distracted by major acquisitions and actually I think that has helped because we haven't been in integration mode. We've been focusing on what we can control and here are the areas that I think are worthy of discussion. In terms of digitalization, the business has always been very tech-focused, and our systems are generally seen as sector-leading. We have 60 in-house developers, and this area is undergoing absolutely major change in recent months almost with the impact of AI coding, which leads to much faster development, and our team are busy being retrained, and indeed we're taking on AI specialists. We've seen great use of AI deployed in our contact center environment and also in the sales environment, where we built our own large language model looking at 30,000 inbound sales phone calls, where we can now see a projected conversion for each call, but it also prompts our teams on what the next steps are in the sales process. What are the hot buttons? What should you not say? It also helps our regulatory risk. So there's some great work being done here. There's more to come. The finance efficiency project, which we've talked about and has been led by Cowen, has delivered real savings in removing manual processing. There is more to come, but we're delighted with progress there. The investment in the data warehouse and customer data platform in recent years is now being extended in terms of the number of use cases. That is helping efficiency and, indeed, aiding our conversion in marketing by having more targeted personalized marketing. In terms of the web, I think we highlighted to shareholders about 18 months ago that we thought we were off the pace with regards to the search engine optimization and the way our websites drove and held search engine optimization. I'm pleased to report that the modular changes made to our website are now fairly well complete. It is now designed to drive SEO performance, and our SEO performance is now much better with a leading visibility score in the sector. That's allowed us to rebalance our pay-per-click spend, which I think we over-indexed in. We're now investing in YouTube as a channel with car reviews. That helps SEO, especially in an age of increasing AI search and rich content. We're increasing the number of the online car reviews, and that's driving more engagement. I'll now pass to Karen to discuss the cost reductions.

Thank you, Robert. Yeah, the group took very proactive action on costs and undertook for the second consecutive year a significant cost reduction programme. We anticipate that we'll deliver £10 million of cost savings in FY27, so the current financial year, as a result of this latest exercise. And this included a further headcount reduction of approximately 280 colleagues, and that's over and above the 290 colleagues we took out last year. And that's anticipated to deliver a £7 million cost saving. And we were unable to do that as a result of some of the inefficiencies initiatives that Robert's just outlined. The avoidance of losses from closed dealerships that we identified as part of our pruning process adds a further £400,000 of cost savings. And we anticipate marketing cost savings, both as a result of reduction in sponsorship and partnership arrangements, as well as capturing the benefits of the one brand that we went to in April and the efficiency that gives us. In terms of other savings, the majority of this represents the introduction of charging for wash and vacuum in our group's volume dealership service departments, which generates a significant saving on valet costs. We also have energy savings coming through from an additional investment in solar, and we've optimised each and every one of our group's supply arrangements. in order to reduce costs where we could. Finally, the group started to trial building management systems with some good early results in terms of reduction in utility costs. We're expecting to further extend this project in the coming months, which will help us further reduce costs over and above the 10 million that we anticipated.

Okay, so let's turn to portfolio development, and the big subject here is where we're going with Chinese brands. We are repositioning our portfolio with more Chinese brand exposure, either by reconfiguring existing sites to add additional franchises or removing traditional brands in some cases and replacing them with the Chinese. I visited China in March, and the two managing directors independently visited China in April for the Beijing Voter Show. In terms of key learnings from that, Chinese car factors are currently running at about 55% capacity, which is unheard of in the Western world. and indeed shows you the amount of oversupply in the Chinese car market. This is not helped by a major decline in battery electric vehicle sales in China since subsidies were ended by the Chinese government in December 2025. The domestic market is currently running about 22% back year on year, and this goes hand in hand with a switch to exports, of which the UK is clearly very important. BYD, for example, now exporting 46% of their volume outside China. In China itself, there is massive oversupply, real problems with discounting, real pressure on manufacturers and domestic retailers from a profit standpoint. The UK is very much seen as the place to go. We are one of the few places in the world with very low tariffs on Chinese cars, and the Chinese are coming with technologically advanced cars and also with a cost advantage. We have identified four major players, BYD, which is preeminent in the battery electric vehicle market in China. We've now got five outlets. Geely, which actually also owns Volvo, we've now got three outlets with them with more to come. The Cherry family of brands, which includes JQ, Emoda, and Letpass as well as the Cherry brand, we have plans to engage with sites across those brands over the next five to six months. The final one is the long-standing MG brand in the UK, owned by SIIC. And we've always been a strong partner with MG, with a close relationship, and they are our four key pillars. In addition, Stellantis, which owns Vauxhall Peugeot Citroen, actually part-own a Chinese brand called LEED Motors, and we will be adding LEED Motors into a number of our Vauxhall sites over the coming months. So Chinese representation is a major area for what we're selling forward. In terms of identifying opportunities we can control as opposed to relying on the market, the selling of older used cars has been on the agenda for a while. On the 1st of April, we launched a new initiative in this area. Cleared with people's living standards in the UK under pressure, it's no great surprise that the element of the used car market with the highest growth is for cars over seven years old. Historically, this is not a core market for franchise retailers, and only 11% of our current used car sales are in this bracket. We actually have the cars coming in in part exchange, but have been trading them to auction houses as opposed to retailing them ourselves. From the 1st of April, this changes to mean we attack this growing segment. We've got revised preparation standards. We've procured cheaper parts to use in reconditioning, and we've got new finance and warranty products. In terms of the impact of this, the margin on average on our used cars is around 7%. But if you sell a £9,000 car for a £2,000 profit, you can make 22%. So this really, I think, helps margins, helps grow volumes, and provides us with future service work when we sell service plans. It's gone very well with management. I think we've made a good start. The business is really based on having very good people. We've got a strong operational business due to stable management, long-term investment in training at all levels, including leadership development. And the results from this are very clear on the right-hand side. We have high levels of colleague satisfaction. We have high customer experience scores measured by the manufacturers, which then aid customer retention well above national average levels. In the promotion of two of our operational directors to managing director on the 1st of January, The operations of the business, the operating division, now report to them, not me. That has given more capacity for the group to both operationally work much more tightly, but also make much better decisions. I'm spending my time more with the manufacturers, visiting dealerships, getting together with our strategic partnerships and close suppliers, and also meeting key customers. I think we are seeing the benefits.