2022 ANNUAL REPORT
2
Pendragon PLC Annual Report 2022
IN THIS REPORT
3
Pendragon PLC Annual Report 2022
STRATEGIC REVIEW
4
Chairman's Statement
5
Chief Executive Officer's Review
7
Business Segments
8
Financial Summary
9
Operational and Financial Highlights
9
Performance Indicators
10
s172 Statement
13
Business Profiles
19
Life at Pendragon
22
Industry Insight
OPERATIONAL AND FINANCIAL REVIEW
25
Business Review
33
Financial Review
38
Risk Overview and Management
49
Viability Statement
DIRECTORS REPORT
51
Environment, Social and Governance Report
52
Environmental Report
60
Social Report
63
Corporate Governance Report
66
Board of Directors
68
Audit Committee Report
74
Nomination Committee Report
76
Remuneration Committee Report
77
Directors’ Remuneration Report
96
Directors’ Report
FINANCIAL STATEMENTS
100
Statement of Directors’ Responsibilities in Respect
of the Annual Report and the Financial Statements
101
Independent Auditor’s Report to the Members of
Pendragon PLC
112
Consolidated Income Statement
113
Consolidated Statement of Comprehensive Income
114
Consolidated Statement of Changes in Equity
115
Consolidated Balance Sheet
116
Consolidated Cash Flow Statement
117
Reconciliation of Net Cash Flow to Movement in
Adjusted Net
Debt
118
Notes to the Financial Statements
197
Company Balance Sheet
198
Company Statement of Other Comprehensive Income
199
Company Statement of Changes in Equity
200
Notes to the Financial Statements of the Company
209
Advisors, Banks and Shareholder Information
210
5 Year Group Review
4
Pendragon PLC Annual Report 2022
CHAIRMAN'S STATEMENT
Ian Filby, Non-Executive Chairman
I am delighted to report a year of good progress for Pendragon as we continue
to deliver on our strategy which has resulted in an underlying profit before tax of
£57.6m (FY21: £83.0m). This was made possible by the effort and contribution
of our associates across all of the UK Motor, Software and Leasing divisions.
This result was achieved despite a backdrop of higher interest rates and higher
operating costs than expected at the start of 2022, contributing to the reduction
from FY21.
Doing the right thing, both in the way our associates carry out their day to day
activities, ensuring they remain passionate and enjoy what they do, together with
continued strong and effective governance is a key ingredient in delivering success
for all our stakeholders.
The Board of directors, under my leadership, remains
responsible for the long term success of the Company, setting corporate objectives
and providing the strategic oversight required as we continuously look for new
ways to exceed expectations and innovate, approve and adapt our approaches to
the prevailing circumstances.
In October 2022, following a period of engagement and reflection, we successfully
relaunched our cultural values, designed to ensure all areas of the business and
each and every associate knows what is expected of them, aiming to ensure we are
‘driving beyond the possible’ at every opportunity presented to us.
As a Group, we will continue to embed our new culture, ensuring that it assists us in
our continued focus on the implementation of our strategy to (i) unlock value in UK
Motor; (ii) growing and diversifying Pinewood and (iii) disrupting UK used car sales.
I am confident that with our new cultural values and a well developed, adaptable
and focussed strategy, and our demonstrable ability to innovate, the Group is well
placed to capitalise on its opportunities going forward.
During 2022, the Company received approaches to acquire the Group from two
parties, which recognised the real value of the Group, but neither came to fruition
for different reasons.
The Board remains completely focused on creating and
delivering value for its shareholders.
5
Pendragon PLC Annual Report 2022
We
have
made
further
progress
with
our
strategy
to
“Transform automotive retail through digital innovation and
operational excellence” during an extremely busy year of
delivery in 2022, the second full-year of our strategy since its
launch in 2020.
During the year we completed the relaunch
of Car Store, with a market leading omni-channel proposition,
developed new relationships with the world's largest new-
energy manufacturer in BYD, delivered 13% user growth in
International
markets
with
Pinewood,
and
also
delivered
numerous strategic initiatives to drive the performance of our
UK Motor division. We are already seeing the benefits of these
significant
changes,
which
underpinned
a
strong
financial
performance in a year of challenging conditions shaped by
supply shortages in both new and used vehicles, inflationary
cost pressures and rising interest rates.
The Group also navigated an intense period of corporate activity
after disclosing two offers for the Group. This demonstrates
belief in the strength of our strategy and the prospects for
the Group overall. We remain confident in our market-leading
proposition and are well positioned to capitalise on the long-
term growth opportunities while managing the short-term
challenges that consumer-facing businesses are experiencing.
We remain focussed on further opportunities for strategic
expansion in order to create shareholder value.
The Group delivered an underlying profit before tax of £57.6m
in FY22 (FY21: £83.0m), which, although behind FY21 was
ahead of expectations at the start of the year.
This performance
was delivered through higher-than-expected gross profits as a
result of both strategic self-help initiatives and strong new car
margins, which together outpaced the higher than expected
levels of cost inflation and increases to base interest rates,
which together added approximately £10m of additional cost
and interest charges.
We also further improved the strength
of our balance sheet, reducing adjusted net debt by a further
£26.4m in the year, and closing the year with net assets of
£281m, an improvement of £55m compared to FY21.
During 2022 we invested more than ever before in Pinewood,
with development capex of almost £6m being deployed in order
to further maximise the benefit that our DMS technology can
bring both to our business, and that of our external customers.
Many of the developments we have made have powered the
performance in our UK Motor Division, with multiple software
changes being implemented to support the digitisation and
presentation of finance and insurance options to our customers,
improvements to the way we value part exchanges online,
and also to the “sell-your-car” customer journey.
Pinewood’s
technology also powers the capability and functionality of
our fully transactional CarStore.com web platform.
Last year
saw significant international expansion too, with Pinewood
growing its international user base by 13% to a record of
approximately 6,400 users. International users now represent
24% of Pinewood’s total external user base. There continues to
be a strong pipeline of opportunities in new markets, with new
customers added in Singapore and the Middle East during 2022.
The used car market has evolved rapidly since 2020 presenting
permanent changes to the way that consumers search and
shop for used cars.
In this time, we have successfully adapted
our model, and evolved our strategy to respond to these
changes.
The Group’s focus has evolved from a standalone
used car proposition, to our ‘new-used car strategy’.
At its
core is a focus on an omni-channel business model across our
entire used car business, including those cars in our existing
franchise locations, ensuring we fully utilise our wider used car
inventory.
The development of our technological capability,
enhanced website functionality and the emergence of a truly
omni-channel business model has put us in a strong position to
respond to these developments in the used car market.
CHIEF EXECUTIVE OFFICER'S REVIEW
6
Pendragon PLC Annual Report 2022
During
2022
we
relaunched
Car
Store,
centred
around
CarStore.com, which is our primary market-place for all of
our used car inventory. This platform now lists approximately
12,000 cars across our brands on one single platform, more
than any of the other new automotive retail platforms that
have entered the market since 2019. To further support
CarStore.com, we launched a new cross-channel marketing
campaign during May, including prime-time TV advertising,
which aims to raise brand awareness and to highlight the
omni-channel credentials of our offer, focussing on ‘car
buying that revolves around you’. Physical space remains
a good opportunity to grow our used car proposition, and
we completed the first of our new model Car Store sites in
Chesterfield in April, with a second opened in Warrington in
December 2022.
I am pleased with the new concept of these
stores and early performance has been encouraging.
Against
a backdrop of constrained used car supply, we delivered a
strong used car performance in the second half as we saw the
benefits of our investment in CarStore.com.
This meant we
outperformed the used car market by around 600bps in H2.
As well as investing in our used car business during 2022,
we have invested heavily into our new car business, which
remains a fundamental part of the Group.
We have completed
a number of major building projects during 2022, including
completely remodelled BMW showrooms in Derby and Hull,
investment
into
the
Mercedes
showroom
in
Huddersfield,
and a new concept investment into the Mayfair Land Rover
showroom.
Finally, we are well on the way to completing
the development of a new build freehold development of our
Porsche showroom in Nottingham in 2023, reflecting the latest
design of Destination Porsche, as we exit a leased location.
We continue to work alongside our manufacturer partners to
maximise performance in this important part of the Group.
We are also looking at the potential to increase our new car
representation and are delighted to be a UK launch partner for
BYD, with our first stores opened in March, as well as exploring
other potential strategic opportunities.
We
also
invested
significant
time
and
resources
into
the
development of Pendragon’s culture during 2022.
Led by our
Chief People Officer, we completed a comprehensive review of
our purpose and values to support our vision of ‘Transforming
automotive retail through digital innovation and operational
excellence’, with input from a wide range of teams across the
business.
The resulting set of values, formed by our teams,
are all aimed to support our newly defined Group purpose –
‘Driving beyond the possible’.
I am confident that this new
purpose will further enable the changes we continue to make
at pace, throughout the organisation.
Given the mixed economic backdrop and market conditions,
I am proud of our progress during the year and believe we
are well positioned to move the business forward in 2023.
As always, our success depends on the contribution from
our associates, and I would again like to thank them for their
performance in challenging conditions during 2022.
OUTLOOK
We finished FY22 with good momentum, and trading has
been positive in the first two months of FY23, but we remain
mindful of the potential headwinds from challenging macro-
economic conditions and the potential for further interest
rate rises.
We expect the levels of supply in both new and
used vehicles to remain below historical levels during FY23,
but there are some encouraging signs of improvement in both
production and supply of new vehicles. We continue to expect
our ongoing initiatives and growth opportunities to more than
offset operating cost inflation within the business during FY23.
Accordingly, the Board remains confident in the prospects for
the Group in the year ahead.
Bill Berman
Chief Executive
22 March 2023
CHIEF EXECUTIVE OFFICER'S REVIEW
7
Pendragon PLC Annual Report 2022
BUSINESS SEGMENTS
UK MOTOR
Sale and servicing of
vehicles in the UK
SOFTWARE
Software as a Service
provision to global
automotive business
users
LEASING
Fleet and contract
hire provider - and
also a source of used
vehicle supply
The business is organised into 3 segments, analysed as follows:
N
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The Group has revised its reporting segments. In January 2022 the Group re-organised its management and reporting structure. The significant changes were that the
Franchised UK Motor and Car Store operations were brought under the management of the UK Motor operation. In the 2022 financial statements therefore, the Franchised
UK Motor and Car Store segments are no longer reported separately. See note 2.3.
8
Pendragon PLC Annual Report 2022
2021
2022
49.7
2020
ADJUSTED NET DEBT*
£23.3M
2021
2022
116.3
2020
UNDERLYING OPERATING PROFIT*
£98.5M
REVENUE
£3,620.0M
GROSS PROFIT
£457.2M
2021
2022
2020
457.2
441.3
GROSS MARGIN
12.6%
2021
2022
2020
12.8
2021
2022
2020
UNDERLYING EPS*
3.2P
5.0
£57.6M
2021
2022
2020
83.0
2021
2022
3,449.9
2020
UNDERLYING PROFIT BEFORE TAX*
3,620.0
12.6
98.5
3.2
57.6
23.3
2021
2022
107.6
2020
OPERATING PROFIT
£101.0M
101.0
2021
100.4
45.9
353.2
12.1
0.6
8.2
2,924.6
9.2
(29.6)
2022
73.3
2020
PROFIT / (LOSS) BEFORE TAX
£57.2M
57.2
NOTE:
Throughout this document, Alternative Performance Measures have been used which are non-GAAP measures that are presented to provide readers with
additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure,
see note 1 of the Financial Statements for details.
* Alternative Performance Measure
FINANCIAL SUMMARY
9
Pendragon PLC Annual Report 2022
KPI
Definition
2022 Performance
Change
Underlying EPS
Underlying profit after tax divided by weighted average
number of shares
3.2p
down 36.0%
Underlying PBT
Underlying profit before tax excludes items that are
not incurred in the normal course of business and are
sufficiently significant and/or irregular to impact the
underlying trends in the business
£57.6m
down 30.6%
Underlying
Operating Margin
Underlying operating profit divided by revenue
2.7%
down 0.7%
Leverage ratio
Adjusted net debt : underlying EBITDA is the ratio of our
adjusted net debt to underlying EBITDA
0.1
down 66.7%
KEY STRATEGIC MEASURES
KPI
Definition
2022 Performance
Change
Aftersales
Revenue
All aftersales revenues (like-for-like)
1
£276.1m
up 7.5%
Used Revenue
All used vehicle revenues (like-for-like)
1
£1,807.7m
up 6.5%
Used GPU
Used gross profit divided used retail units sold
£1,607
down 3.8%
New GPU
New gross profit divided new retail units sold
£2,719
up 42.3%
KEY FINANCIAL MEASURES
1
see section 1 of the notes to the financial statements for Alternative Performance Measure reconciliations and like-for-like reconciliations
OPERATIONAL AND FINANCIAL HIGHLIGHTS
PERFORMANCE INDICATORS
OPERATIONAL AND FINANCIAL HIGHLIGHTS
Strong financial performance
• Group Revenue up by 4.9% to £3,620.0m (FY21: £3,449.9m).
Revenue up 6.7% on a like-for-like basis.
•
Gross profit value 3.6% higher at £457.2m, with investment
in strategic initiatives delivering increases in both new and
aftersales gross profit.
• Underlying cost increases of 10.4% (£33.7m), driven by higher
levels of cost inflation, c.£10m of additional marketing costs
to support the used car proposition and the non-recurrence
of c.£12m of rates relief received in FY21.
•
Underlying profit before tax of £57.6m (FY21: £83.0m) was
ahead of the Board’s expectations at the start of the year.
Outperformance delivered despite c.£10m headwind from
approximately £4m higher operating expenses, driven by
higher levels of inflation, and approximately £6m of higher
interest costs driven by rate changes, against original
expectations for FY22.
•
After non-underlying items the Group reported profit before
tax of £57.2m (FY21: £73.3m).
•
Strengthened balance sheet, with adjusted net debt reduced
by £26.4m from £49.7m in FY21 to £23.3m in FY22.
Further strategic progress delivered
•
Technology releases in Pinewood including integrated used
car valuation tools and open banking tools are key enablers
for UK Motor performance.
•
New
processes
and
products
for
UK
Motor,
including
enhanced customer journey management and improvements
to aftersales diary management, are driving improved
productivity and supporting strong margins.
•
New omni channel used car platform, CarStore.com has
increased digital traffic by 61% year on year post-launch in
May 2022.
•
CarStore.com now lists approximately 12,000 used cars,
more than any of the new automotive retail platforms that
have entered the market since 2019.
• Investment into numerous franchise locations, including
Porsche, BMW, Mercedes-Benz and Land Rover, completed
in FY22 as well as development of a new Car Store in
Warrington.
• Pendragon selected as UK launch partner for BYD, the
world’s largest new energy vehicle manufacturer.
10
Pendragon PLC Annual Report 2022
HOW
WE ENGAGE
WHY
WE ENGAGE
WHAT MATTERS
TO THIS GROUP
WHAT DID WE DO
AS A RESULT
CUSTOMERS
We continue to engage with our
customers in a variety of ways,
including:-
Measuring customer KPIs from OEM
surveys reported to management;
Management and directors continue to
visit dealerships, regularly listening to
customer feedback;
Online review of our services through
platforms such as Trust Pilot regularly
monitored by our marketing teams;
Undertaking mystery shopping
exercises periodically carried out to
provide insight into the customer
perspective and journey
Our purpose is to
deliver a high quality,
personalised service
to all our customers
across all of our business
divisions: Franchised
UK Motor, Car Store,
Software and Leasing
• Product range, price
and quality
• Convenience and
accessibility
• Ease of transacting
• Customer service
• Responsible use of
personal data
• Improving and
developing the on-line
customer journey for
ease of transacting
• Continued prioritisation
of customer safety
following reopening of
operations throughout
the Covid-19 pandemic.
ASSOCIATES
We listen carefully to the views of our
employees across all our businesses.
In 2021, we appointed a Chief People
Officer who is further innovating
and developing our engagement
processes.
We continue to operate an
independent whistleblowing helpline,
enabling employees to raise any issues
or matters of concern in confidence
We wish to continue
to be a responsible
employer, both in
terms of continuing
to ensure the health,
safety and wellbeing of
our employees and also
ensuring we maintain a
responsible approach to
the pay and benefits our
employees receive.
• Fair employment
•
Fair pay and benefits
• Tackling our gender
pay gap
• Diversity and inclusion
• Training, development
and career
opportunities
• Health and safety
• Responsible use of
personal data
• Ensured that associate
safety and wellbeing
was at the forefront
of all decisions taken
during the Covid-19
pandemic
• We put in place
stringent measures
to protect employee
safety
• Continued to enhance
the range of benefits
available
• Recruitment and
appointment of a
diversity and equality
officer currently
underway
STATEMENT BY THE DIRECTORS IN PERFORMANCE OF THEIR STATUTORY
DUTIES IN ACCORDANCE WITH s172(1) COMPANIES ACT 2006
The board of directors of Pendragon PLC confirm that during the year under review, it has acted to promote the long term
success of the Company for the benefit of all shareholders, whilst having regard to the
matters set out in section 172(1)(a)-(f)
of the Companies Act 2006 in the decisions taken during the year ended 31 December 2022, further detail of which is set out
below and which are incorporated into the Strategic Report.
s172 STATEMENT
11
Pendragon PLC Annual Report 2022
HOW
WE ENGAGE
WHY
WE ENGAGE
WHAT MATTERS
TO THIS GROUP
WHAT DID WE DO
AS A RESULT
SUPPLIERS
Regular meetings and updates with
all key suppliers with executive
management, in particular our OEM
partners
Supplier payment terms reported and
published
Although we do not
manufacture the vehicles
we sell, we need to
maintain relationships
with all our OEM
partners to ensure
we can continue to
provide products to our
customers.
All our suppliers must be
able to demonstrate that
they take appropriate
action to prevent
involvement in modern
slavery, corruption,
bribery and breaches of
competition law
• Fair trading and
payment terms
• Anti-Bribery
•
Anti-Modern Slavery
• Operational
improvement
• We continued to
work closely with
all our suppliers to
deliver operational
improvement and
effective trading
through the
continuation of the
Covid-19 pandemic and
the associated impact
on supplies;
• We surveyed all key
suppliers for adherence
to anti-slavery
standards.
COMMUNITY
Regular involvement in charity appeals
both nationally and locally
As a predominantly retail
operator, with a tangible
nationwide presence
in many communities,
our retail businesses
generate community
involvement through
local engagement,
contributing to local
areas in a variety of
ways.
• Charitable donations
and support;
• Employment
opportunities;
•
Volunteering;
• Fair tax policy
• We continued other
charitable activities
where possible, as
reported at page
62 of the Corporate
Governance Report
12
Pendragon PLC Annual Report 2022
HOW
WE ENGAGE
WHY
WE ENGAGE
WHAT MATTERS
TO THIS GROUP
WHAT DID WE DO
AS A RESULT
ENVIRONMENT
Over the last 24-30 months,
we have re-evaluated
seriously our responsibilities
to our customers, investors,
associates, suppliers and the
public in terms of how our
activities as a retailer impact
the natural environment.
We continue to regularly
review our environment policy.
We acknowledge the
responsibility we have to
protect the environment
and to minimise the
environmental impact of
our activities.
•
Minimising atmospheric
emissions, commercial
and industrial waste
•
Minimising vehicle
movements causing
nuisance or noise
•
Minimising industrial
noise and energy
wastage
•
Complying with
statutory requirements
relating to
environmental matters
• Ensuring environmental
priorities are
accounted for
appropriately in
planning and decision
making
• Operate an obsolete asset
disposal policy
•
Minimise and where possible,
eliminating pollution
• We continue to reduce
incidences of energy wastage
wherever possible, as reported
in our Environment, Social and
Governance Report at page
56 of this Annual Report
• We have successfully reduced
our carbon emissions from
our commuting activities, see
page 56 of this Annual Report
•
We continue to work with our
OEM partners to effect the roll
out of PHEV charging points
across our dealership network
SHAREHOLDERS AND POTENTIAL SHAREHOLDERS
Annual Report and Accounts
Corporate website
AGM
Results announcements and
presentation
Shareholder and analyst
meeting with management,
followed by feedback from
brokers and financial PR
consultants
Engagement via the Directors
and Company Secretary
We work to ensure our
shareholders and their
representatives have
a good understanding
of our strategy and
business model
• Long term value
creation
• Fair and equal
treatment
•
Growth opportunity
• Financial stability
• Transparency
• To share in the success
of our business
• Dividends
• Committed to reducing
pension entitlement of
executive directors to the
workforce average
•
The chief executive officer
and chief finance officer
report back to the Board after
the investor roadshows
• The Group’s brokers and
financial advisors provide
detailed feedback after full
and half year announcements
and investor roadshows
to inform the Board about
investor views
• The non-executive chairman
and senior independent
director are available to
shareholders and respond
on matters relating to
their responsibilities where
requested
•
We continue to consult with
all major shareholders in
relation to our remuneration
policy
•
We will engage with
shareholders in the future
about when to resume
dividends
s172 STATEMENT
13
Pendragon PLC Annual Report 2022
14
UK Motor
16
Software - Pinewood
18
Leasing - Pendragon Vehicle Management
BUSINESS PROFILES
14
Pendragon PLC Annual Report 2022
UK MOTOR
Sale and servicing of vehicles in the UK.
Operating Highlights
• Revenue up 6.1% to £3,536.2m (FY21: £3,332.7m).
Revenue
up 7.0% on a like-for-like basis.
•
Underlying operating profit down 20.9% to £69.1m (FY21:
£87.4m).
•
Reported operating profit after non-underlying items of
£71.6m (FY21: £82.6m).
• Gross margin of 11.8% (FY21: 11.9%).
• Used gross margin of 7.9% (FY21: 9.6%) as margins
rebased from exceptional levels of H2 FY21.
•
New gross margin of 9.1% (FY21: 7.3%) with constrained
supply supporting higher margins.
• Aftersales gross margin of 50.5% (FY21: 50.5%).
•
Used
vehicle
gross
profit
per
unit
remained
strong,
underpinned by strategic initiatives at £1,607 (FY21: £1,670).
•
New vehicle gross profit per unit rose by £808 to a record
high of £2,719 (FY21: £1,911).
•
New volumes down 6.1%, compared to a market decline of
2%, with supply constraints the driving factor.
•
Used
volumes
down
8.7%
on
a
like-for-like
basis
as
supply constraints also impacted used vehicles.
Overall
performance
broadly
in
line
with
market
down
8.5%.
Strong H2 performance post launch of new CarStore.com
proposition, with sales down just 2.2% compared to a market
decline of 8.7%.
• Total operating costs up by £36.7m, or 11.8%, driven by non-
repeat of government support measures, increased used car
brand marketing and higher levels of cost inflation, partially
offset by an ongoing focus on cost saving opportunities and
utility hedging.
•
BUSINESS PROFILES
“Our UK Motor division is recognised through our two main consumer brands in the UK,
Evans Halshaw and Stratstone, complemented by our used car only brand, Car Store”
15
Pendragon PLC Annual Report 2022
UK RETAIL POINTS
145
138K VEHICLES
SOLD
24.1M
WEBSITE
VISITS
Evans Halshaw 90
Ford 35
Vauxhall 20
Citroën 11
Renault 6
Dacia 6
Peugeot 4
Nissan 4
Kia 2
Hyundai 2
Stratstone 43
Mercedes-Benz 7
BMW 7
MINI 7
Porsche 6
Land Rover 5
Jaguar 5
Aston Martin 3
Smart 2
Ferrari 1
Other Retail Points 12
Car Stores 10
EH Used Car Centres 2
16
Pendragon PLC Annual Report 2022
“Our Dealer Management System is
split by role-type, collating common
tasks together to make dealerships
more efficient. With one central
database, all information is shared
throughout the system.”
Personalised video to customers
Online payments
Integrated website solution for online buying
Integrated website solution for service booking
Operating Highlights
• Revenue up 4.1% to £25.4m (FY21: £24.4m).
•
Gross profit up 0.9% to £22.7m (FY21: £22.5m).
•
Operating profit down 12.0% to £11.0m (FY21: £12.5m), with
the reduction driven by increased costs, principally driven
by investment in developer resource to support product
development and implementation.
• Strong global expansion continuing:
•
Record high international users at 6,400,
up 13%.
•
International users now represent 24% of external users.
•
New market entries to Singapore and Middle East.
• System development has both supported Pendragon’s
strategic agenda as well as opened opportunities to sell
developments to external customers:
•
Pinewood technology powering CarStore.com.
•
Enhancement to used car valuation tools.
•
Development of Finance & Insurance tools.
•
Continued high levels of customer retention with net user
churn of sub 1% in FY22, supported by frequent system
updates.
BUSINESS PROFILES
SOFTWARE - PINEWOOD
Licencing of Software as a Service to global automotive business users.
17
Pendragon PLC Annual Report 2022
Pinewood Apps
Our apps are designed to streamline
processes and improve efficiency across
the whole dealership.
Our fully integrated suite of apps work
seamlessly with our Pinewood DMS.
Our apps are multi-platform and users
can choose their preferred tablet or
mobile,
across
iOS,
Windows
and
Android devices.
Sales+ Efficiently manage the vehicle
sales process and provide a great
customer experience - the ultimate
showroom app for sales professionals.
Stock+ Respond to enquiries with
personalised videos, instantly update
stock information and store vehicle
documentation.
Parts+ Issue parts on-the-move, saving
time with our in-built barcode scanner.
Tech+ Improve the service and repair
experience, including video integration
and technician time management.
Host+ Integrated video processes
including 360° tours of a used vehicle
in stock, or visually identifying work
required following a health check.
Integration with over 50 manufacturers
Cars:
Commercial Vehicles:
Motorbikes:
18
Pendragon PLC Annual Report 2022
LEASING - PENDRAGON VEHICLE MANAGEMENT
Fleet funding and services provider. Source of used vehicle
supply.
Operating Highlights
•
Revenue down 6.9% to £83.7m (FY21: £89.9m).
•
Gross profit up 10.9% to £24.4m (FY21: £22.0m), the decline
in overall revenue was more than offset by higher residual
values achieved on disposal.
•
Operating profit up 13.7% to £19.9m (FY21: £17.5m), with
operating costs flat at £4.5m.
•
Growth opportunity in EV – c.40% of current order bank for
electric and hybrid vehicles.
Pendragon Vehicle Management
At Pendragon Vehicle Management our Business to Business
(B2B) brand focuses on comprehensive solutions for fleet
customers.
Utilising
market
leading
software,
tailored
options are developed for the ever-evolving requirements of
businesses.
From a variety of options on Fleet Management, to all elements
of fleet funding across cars and commercial vehicles, business
solutions are crafted to focus on customer priorities. From
managing uptime to driving cost control, making the switch
to electric vehicles or offering a variety of rental solutions,
Pendragon Vehicle Management can provide comprehensive
and tailored fleet solutions for any business.
Rental Solutions
•
Fast response service with over 30,000 vehicles ready to
access.
•
Real Time Rental Management system.
• Daily and Flexible (three months and beyond) rental options
available.
•
Car, van, electric and specialist vehicle hire, delivered within
four hours.
Personal vehicle solutions and Employee schemes
Pendragon Vehicle Management has also evolved to offer
bespoke Business to Employee (B2E) solutions including
personal contract hire and Salary Sacrifice Car Schemes.
Salary Sacrifice
•
Associates offered a brand-new car with no credit check
and no upfront fee.
• Convenient monthly payment deducted from associates’
salaries before tax.
•
Choosing low emission vehicles offers savings on BIK tax
and National Insurances payments.
“Pendragon Vehicle Management provide fleet
funding solutions and services to help customers
manage their fleets, improving efficiency,
reducing costs and saving time.”
BVRLA
MEMBER
VAN EXCELLENCE
LOGISTICS UK MEMBER
Contract Hire
For Cars
Contract Hire
For Vans
Electric Vehicle
Contract Hire
Salary Sacrifice
Sale and
Leaseback
Contract
Purchase
Fleet Funding
Telematics
Outsourced
Administration
Risk Management
Maintenance and
Repair
Fuel Cards
Accident
Management
Fleet Management
BUSINESS PROFILES
19
Pendragon PLC Annual Report 2022
LIFE AT PENDRAGON
Our people are what allow Pendragon to drive beyond the
possible, they are the life and soul of our business, and what
makes us great.
We aim to attract, retain and develop the
best and brightest associates.
Pendragon
is
transforming
for
tomorrow,
simplifying
our
business to deliver our newly created purpose, adapt to the
tough market environments that continue to be unpredictable
and deliver on our strategy.
Long term success relies on inspiring and nurturing a range
of talent, from all sectors and industries.
We pride ourselves
on seeing the potential of our associates before they even
join the business and, then once they have, providing the
support, encouragement and skills needed to build a long and
rewarding career. Together we are unstoppable.
We remain
focussed on making our business and our sector
appeal to future generations and to support this, our people
strategy focusses on:
• Embedding our group purpose and values to enable an
inclusive and progressive culture
• Driving
continuous
improvement
of
our
associate
engagement
•
Digitalising our associate journey, people policies, benefits
and support where possible.
•
Enhancing
and
empowering
career
progression
and
experiences, through understanding and identifying our
skills shortages
• Addressing those gaps through modern skills learning
initiatives
•
Embedding
a
new
way
of
working
by
embracing
agile
principles and the delivery of value driven products to the
business
DEFINING OUR PURPOSE
Much of 2022 was spent defining our company purpose with
every level and business unit in our business involved in setting
why we are here and why we choose to exist.
Our Purpose is ‘Driving Beyond the Possible’.
Through our
new purpose we are cementing our desire to drive beyond the
possible and give the ‘Gift of Movement’ to all our customers be
that through the sales & service of their vehicle or developing
the software to enable a seamless digitally enabled buying
experience.
Our new purpose is guided by a set of co-created values:
Unite as One, Do The Right Thing, Drive Our Innovation and
Enjoy The Journey.
UNITE
AS ONE
DO THE
RIGHT THING
DRIVE OUR
INNOVATION
ENJOY THE
JOURNEY
20
Pendragon PLC Annual Report 2022
BEGINNING YOUR JOURNEY
We
review
our
recruitment
strategies
to
ensure
we
are
attracting and identifying a diverse range of talent to join and
develop within our business. We continually utilise modern
attraction strategies to ensure we are reaching a diverse range
of candidates in a difficult marketplace. We have revamped
and relaunched our company induction which is available to
all associates when they begin their journey with us.
YOUR DEVELOPMENT
We continue to provide comprehensive training to all
associates, via our in-house learning and development team
and our manufacturer partners.
All sales, technical and
leadership associates have access to a range of blended
learning packages via our manufacturer partners. In 2022, a
total of 5,222 associates received training in 2023, delivering
37,321 training hours.
In 2022, A significant focus was placed on reviewing the skills
and capabilities required for now and in the future this led to
the re-design of core sales and leadership programmes for the
business.
We remain committed to investing in early career programmes,
2022
saw
the
launch
of
a
new
sales
apprenticeship
programme, a customer service apprenticeship programme
and a partnership with Manchester College launching their new
Automotive T Levels programme. In our Pinewood business,
with the onboarding of experienced and entry level associates,
59% were recruited specifically to join either one of the graduate
or early careers Schemes, including Apprenticeships, across
the retail and development departments. During an exciting
period of growth, especially in the international markets, this
expresses
Pinewood
Technologies
commitment
to
invest
in those who are kick-starting their careers.
Pinewood also
continued to offer an undergraduate placement scheme.
YOUR WORKPLACE & YOUR REWARD
Looking after our associates is essential and we continuously
review our benefits offering.
Our ambition is to offer an
industry competitive total reward package that values our
associates and enables us to be a responsible and attractive
employer.
Our
benefits
offering
was
further
improved
in
November to ensure our associates continue to feel cared for.
We have introduced a new associate benefits platform “Your
Reward” to allow our people to have one dedicated space
to select a voluntary benefit or increase their contractual
LIFE AT PENDRAGON
21
Pendragon PLC Annual Report 2022
benefits such as pension contribution or medical insurance
cover levels. The Your Reward platform includes improved
access to our Employee Assistance Programme (EAP) that
looks after our associate’s wellbeing.
2022
also
saw
the
re-introduction
of
an
all
associate
engagement survey, Your Voice.
The tri-annual survey,
delivered digitally across the group, has enabled a way for
the organisation to get fast and frequent feedback from
our associates.
This is acted on at multiple levels within the
organisation and helps to inform our people strategy for the
group.
We saw over 79% of the organisation take part in the
last survey and we were delighted to see an increase in the
average score for our associates engagement rise from 6.9 to
7.3.
YOUR INCLUSION & YOUR INFLUENCE:
At Pendragon we are committed to fostering a more diverse,
inclusive and unified culture that is representative of our
associates, our customers and the society in which we live.
There
are
tremendous
benefits
to
an
environment
where
everyone feels valued and included. Diversity of thought
and experience will be a key driver of our future success as
a business: we cannot underestimate the positive impact that
diversity and inclusion can have on how we understand our
customers, drive our innovation and, most importantly, engage
and inspire our people.
In 2022 we recruited our first Head
of Diversity & Inclusion.
This was to ensure that appropriate
focus was placed on engaging the business and drive an
inclusion strategy that shapes a culture of unity, engages our
associates to accelerate progress and in turn to create real,
positive change.
With dealerships and offices across the UK, we’re in a unique
position to understand and positively impact the local
communities in which we live and work, while offering the
support and backing of a large national business. Over the past
year, Pendragon associates have participated in community
activities giving time, money and knowledge to organisations,
people and causes both locally and nationally. We are proud
that our associates are positive active members of their local
communities, they work to support both local and national
initiatives. This year this has included co-ordinating and
making donations to foodbanks, supplies for animal rescue
centres and Christmas box donations to support local causes
and charities. We continued our whole company support for
the BBC’s Children in Need appeal, the Save the Children
Christmas Jumper Day as well as continuing our partnership
with Battersea Dogs and Cats Home.
22
Pendragon PLC Annual Report 2022
INDUSTRY INSIGHT
NEW CAR MARKET
The UK new car market was 1,614k vehicles in FY22 which
was a decrease of 2.0% over the prior year, reflecting the
continued shortfall in supply as a result of global microchip
shortages. The UK new car market is divided into two markets,
retail and fleet. The retail market is the direct selling of vehicle
units to individual customers and operates at a higher margin
than the fleet market.
The retail market is the key market
opportunity for the Group and represents 51% of the total
market in the year.
The fleet market represents the sale
of multiple vehicles to businesses, and is predominately
transacted at a lower margin and consumes higher levels of
working capital than retail, and represents 49% of the market
in the year.
NEW CAR VEHICLE REGISTRATIONS FOR YEAR ENDED 31 DECEMBER ('000)
2022
2021
Change %
UK New Registrations
1,614.1
1,647.2
-2.0%
Group Represented*
UK New Registrations
920.2
925.1
-0.5%
Source: new car vehicle registrations data from the ‘Society of Motor Manufacturers and Traders’.
*Group Represented - defined as national registrations for the franchised brands that the Group represents as a franchised dealer.
1.05m
1.32m
1.12m
1.42m
PRIVATE
FLEET/BUSINESS
FORECAST
UK NEW CAR MARKET
Source: SMMT
3.0m
2.8m
2.6m
2.4m
2.2m
2.0m
1.8m
1.6m
1.4m
1.2m
1.0m
0.8m
0.6m
0.4m
0.2m
0
2019
2017
2020
2.31m
1.02m
1.29m
2.54m
2.37m
1.63m
2018
Units
0.75m
0.88m
2021
1.65m
2022
1.61m
2023
0.80m
0.84m
1.79m
2024
1.96m
0.82m
0.80m
23
Pendragon PLC Annual Report 2022
USED CAR MARKET
In
FY22,
there
were
6.6m
used
cars
sold
in
the
UK,
an
decrease of 8.3% on the prior year.
This represents a market
opportunity that is more than four times the size by volume of
the new car market. The used market is more stable than the
new vehicle sector, being less affected by fluctuations in the
UK economy and providing a more reliable supply chain than
the new market.
AFTERSALES MARKET
The main determinant of the aftersales market is the number
of vehicles on the road, known as the ‘car parc’. The car parc
in the UK has risen slightly to 35.5m vehicles at the end of
FY22, a rise of 0.6% from the end of FY21.
The car parc can
also be segmented into markets representing different age
groups.
At the end of FY22, around 13% of the car parc was
represented by less than three-year-old cars, around 19% by
four to six-year-old cars and 68% is greater than seven-year-
old cars.
The demand for servicing and repair activity is less
affected than other sectors by economic conditions, as motor
vehicles require regular maintenance and repair for safety,
economy and performance reasons.
UK USED CAR MARKET
Source: DVLA Market Data
10.0m
8.0m
6.0m
4.0m
2.0m
0
2017
2018
2019
2020
7.8m
7.6m
7.6m
6.5m
2021
7.2m
2022
6.6m
UK CAR PARC BY AGE OF VEHICLE
Source: GMAP
10.0m
9.0m
8.0m
7.0m
6.0m
5.0m
4.0m
3.0m
2.0m
1.0m
0
0-3 YEARS
4-6 YEARS
7-10 YEARS
11-15 YEARS
2020
2022
2017
>15 YEARS
2018
2020
2019
Units
2021
2020
2022
2017
2018
2019
2021
2020
2022
2017
2018
2019
2021
2020
2022
2017
2018
2019
2021
2020
2022
2017
2018
2019
2021
24
Pendragon PLC Annual Report 2021
25
Business Review
33
Financial Review
38
Risk Overview and Management
49
Viability Statement
OPERATIONAL AND FINANCIAL REVIEW
25
Pendragon PLC Annual Report 2022
BUSINESS REVIEW
STRATEGY AND BUSINESS REVIEW
SEGMENTAL PERFORMANCE
Units sold
H1 2022
H2 2022
FY22
H1 2021
H2 2021
FY21
Change
(%)
LFL
Change
(%)
USED UNITS
UK Motor
46,016
43,339
89,355
53,894
44,432
98,326
-9.1%
-8.7%
US Motor
-
-
-
51
-
51
-100.0%
-
Total
46,016
43,339
89,355
53,945
44,432
98,377
-9.2%
-8.7%
NEW UNITS
UK Motor
24,686
24,087
48,773
30,067
22,218
52,285
-6.7%
-6.1%
US Motor
-
-
-
397
-
397
-100.0%
-
Total
24,686
24,087
48,773
30,464
22,218
52,682
-7.4%
-6.1%
(£m)
H1 2022
H2 2022
FY22
H1 2021*
H2 2021*
FY21*
Change
(%)
LFL
Change
(%)
REVENUE
UK Motor
1,802.9
1,733.3
3,536.2
1,739.8
1,592.9
3,332.7
6.1%
7.0%
Software
12.4
13.0
25.4
12.1
12.3
24.4
4.1%
4.1%
Leasing
42.9
40.8
83.7
49.0
40.9
89.9
-6.9%
-6.9%
US Motor
-
-
-
28.3
0.3
28.6
-100%
-
Inter-segment revenue
(12.7)
(12.6)
(25.3)
(13.6)
(12.1)
(25.7)
-1.6%
-1.6%
Revenue
1,845.5
1,774.5
3,620.0
1,815.6
1,634.3
3,449.9
4.9%
6.7%
GROSS PROFIT
UK Motor
211.1
204.6
415.7
187.6
209.7
397.3
4.6%
5.6%
Software
11.1
11.6
22.7
11.2
11.3
22.5
0.9%
0.9%
Leasing
12.5
11.9
24.4
10.5
11.5
22.0
10.9%
10.9%
US Motor
-
-
-
4.0
-
4.0
-100%
-
Inter-segment gross profit
(2.5)
(3.1)
(5.6)
(2.1)
(2.4)
(4.5)
24.4%
24.4%
Gross Profit
232.2
225.0
457.2
211.2
230.1
441.3
3.6%
5.5%
UNDERLYING OPERATING PROFIT
UK Motor
37.2
31.9
69.1
37.9
49.5
87.4
-20.9%
-20.8%
Software
5.5
5.5
11.0
6.7
5.8
12.5
-12.0%
-12.0%
Leasing
10.2
9.7
19.9
8.1
9.4
17.5
13.7%
13.7%
US Motor
(0.8)
(0.7)
(1.5)
(0.8)
(0.3)
(1.1)
36.4%
-
Underlying Operating
Profit
52.1
46.4
98.5
51.9
64.4
116.3
-15.3%
-14.8%
Gross Margin %
12.6%
12.7%
12.6%
11.6%
14.1%
12.8%
-0.2%
-0.2%
Underlying Operating Margin %
2.8%
2.6%
2.7%
2.9%
3.9%
3.4%
-0.7%
-0.7%
Operating Profit
54.3
46.7
101.0
48.1
59.5
107.6
-6.1%
The business is organised into 3 segments, analysed as follows:
•
UK Motor – sale and servicing of vehicles in the UK.
•
Software – Licencing of Software as a Service to global automotive business users
•
Leasing – Fleet and contract hire provider. Source of used vehicle supply
* The Group has revised its reporting segments. In January 2022 the Group re-organised its management and reporting structure. The significant changes were that the
Franchised UK Motor and Car Store operations were brought under the management of the UK Motor operation. In the 2022 financial statements therefore, the Fran
-
chised UK Motor and Car Store segments are no longer reported separately. See note 2.3.
26
Pendragon PLC Annual Report 2022
UK MOTOR
The UK Motor business operated from 133 franchise points
and 12 used cars only retail points which represent a range of
volume and premium products offering both sales and service
functions.
• Further progress in respect of strategy to improve
performance and unlock significant value in the UK Motor
division.
•
Introduced a number of new digital initiatives, underpinned
by Pinewood, to differentiate our omni-channel model.
•
CarStore.com – our single market place for all of the Group’s
used cars.
Strategy delivery
Unlock value in the UK Motor division
The Group has made meaningful progress with its strategy
to improve performance and unlock significant value in the
UK Motor division through actions to:
1.
Accelerate digital innovation
2.
Drive operational excellence and embed consistent best
practice
3.
Operate from a lean and efficient cost base.
These initiatives have been designed to drive improvements
in used car margins, aftersales profitability and operating cost
efficiency.
BUSINESS REVIEW
UK MOTOR (£m)
H1 2022
H2 2022
FY22
H1 2021*
H2 2021*
FY21*
Change
(%)
REVENUE
Used
948.9
859.7
1,808.6
846.1
860.5
1,706.6
6.0%
Aftersales
137.2
138.9
276.1
132.0
131.7
263.7
4.7%
New
716.8
734.7
1,451.5
761.7
600.7
1,362.4
6.5%
Revenue
1,802.9
1,733.3
3,536.2
1,739.8
1,592.9
3,332.7
6.1%
GROSS PROFIT
Used
77.1
66.5
143.6
73.6
90.6
164.2
-12.5%
Aftersales
70.4
69.1
139.5
65.3
67.9
133.2
4.7%
New
63.6
69.0
132.6
48.7
51.2
99.9
32.7%
Gross Profit
211.1
204.6
415.7
187.6
209.7
397.3
4.6%
Gross margin rate
11.7%
11.8%
11.8%
10.8%
13.2%
11.9%
-0.1%
Underlying Operating Expenses
(173.9)
(172.7)
(346.6)
(149.7)
(160.2)
(309.9)
11.8%
Underlying Operating Profit
37.2
31.9
69.1
37.9
49.5
87.4
-20.9%
Underlying Operating margin rate
2.1%
1.8%
2.0%
2.2%
3.1%
2.6%
-0.6%
Stocking Interest
1
(5.7)
(9.0)
(14.7)
(4.8)
(5.0)
(9.8)
50.0%
Profit after Stocking Interest
31.5
22.9
54.4
33.1
44.5
77.6
-29.9%
Operating Profit
39.4
32.2
71.6
37.8
44.8
82.6
-13.3%
Total Revenue Change
3.6%
8.8%
6.1%
Like-for-like Revenue Change
4.2%
10.1%
7.0%
Used Units Sold
46,016
43,339
89,355
53,894
44,432
98,326
-9.1%
New Units Sold
24,686
24,087
48,773
30,067
22,218
52,285
-6.7%
Used GPU (£)
2
1,676
1,534
1,607
1,366
2,039
1,670
-3.8%
New GPU (£)
2
2,576
2,865
2,719
1,620
2,304
1,911
42.3%
Number of Locations
148
145
145
150
149
149
-2.7%
Average Used Selling Price (£)
3
18,900
18,421
18,667
14,341
17,453
15,753
18.5%
Average New Selling Price (£)
3
28,552
30,535
29,529
25,064
26,386
25,647
15.1%
1
Stocking interest. Whilst stocking interest is an interest expense and not part of operating profit, it is a cost directly related to the trading performance of both new
and used cars.
It is included as an alternative performance measure in the table above for information.
2
GPU = Gross Profit per Unit. It is calculated as total New/Used GP divided by total New/Used retail units sold.
3
Trading dealerships only.
The used selling price is retail vehicles only and excludes any trade vehicles. The new selling price excludes vehicles sold by our fleet busi
-
ness (National Fleet Solutions).
* The Group has revised its reporting segments. In January 2022 the Group re-organised its management and reporting structure. The significant changes were that
the Franchised UK Motor and Car Store operations were brought under the management of the UK Motor operation. In the 2022 financial statements therefore, the
Franchised UK Motor and Car Store segments are no longer reported separately. See note 2.3.
27
Pendragon PLC Annual Report 2022
Accelerate digital innovation
We made further good progress with accelerating digital
innovation
during
2022,
introducing
a
number
of
new
initiatives, as well as seeing the full-year benefit from the
improvements made during 2021.
Sales+, a layered DMS
application
embedded
within
the
Pinewood
system,
has
had further releases during FY22 which have enabled the
automated inclusion of insurance products, subject to customer
qualification, in all customer offers. This addition will support
improved sales penetrations with better product presentation
to the customer, as well as leaving us well positioned to meet
all current and future regulatory requirements.
Releases have
also enabled real-time modification of the customer Finance
& Insurance (“F&I") offer, allowing our teams to amend all
aspects of the offer, such as finance type, deposit amount, term
of loan, annual mileage and additional insurance products, all
of which improve customer flexibility and transparency.
We have also improved the content of our digital Finance
and Insurance offering, by introducing the ability to present
variable APR’s dependant on the balance being financed,
together
with
dynamic
lender
comparisons
to
offer
the
best rate to consumers.
Further to this, we have improved
our ability to perform used equity mining, to determine the
optimal time to approach customers to maximise the equity
in their current vehicle to facilitate a replacement vehicle sale.
Since the launch of our initiatives to drive F&I, we have seen
an improvement of c.700bps in the penetration rate, driving
approximately £10m of incremental gross profit. We expect
F&I penetration to be more challenging in FY23 as interest
rate changes have resulted in higher APR’s being passed
through to consumers.
However, we continue to develop
our digital initiatives, utilising Pinewood Technologies, to be
able to offer a menu-based approach to customers offering
packages representing ‘good’, ‘better’ and ‘best’ options and a
range of stand-alone insurance product sales to help mitigate
the more challenging market conditions.
We continued to develop our Group-wide vehicle acquisition,
management and pricing platform during the second half of
FY22, which is focussed on optimising the speed at which we
are able to turn vehicle inventory and maximising the margin
we can achieve on used vehicles.
New functionality allowed
us to respond quicker to market-based pricing changes,
augmented
with
our
internal
indicators
utilising
our
data
management tools.
We have improved our online and in-store
part-exchange and sell-your-car ("SYC") journey to include
guaranteed customer valuations.
During the year, the Group
acquired the ‘Sellyourcar.com’ domain name and developed
a new website and proposition, using our pricing and part-
exchange management tools, in order to maximise the volume
of cars acquired directly from customers.
Typically, SYC
and part exchange cars, directly sourced from the customer,
allow us to achieve higher margins of c.£500 per unit, when
compared to cars sourced from auction. During FY23 we will
further develop this proposition with the ambition to double
the number of cars we acquire through the SYC channel from
c.7% of sales in 2022 to c.15% in 2023.
Drive operational excellence and best practice
We continue to develop new processes and products to
support our used car margin performance.
Our programme
to target vehicle preparation efficiency progressed well in
FY22 with the introduction of process automation to reduce
reliance on vehicles being brought into stock manually and
speed up the availability to customers.
We also improved the
allocation of stock across the Group network to get the right
cars, to the right location, quicker.
We also delivered improvements in our Aftersales performance
with revenue increasing by 4.7% in the year, 7.5% on a like-
for-like basis. A number of operational improvements such
as a revised technician incentive structure and revised local
reporting have underpinned this.
In addition, we introduced
new functionality offering customers interest-free finance on
aftersales work which is performing well, and driving higher
penetration into the older vehicle car parc.
Our revised
guarantee product suite introduced in 2021 which introduced
new
product
options,
differential
pricing
and
operational
procedures has seen our penetration of extended guarantee
sales on eligible vehicles rising from 38% pre-pandemic to 43%
in FY22, driving approximately £2m of incremental profit in
FY22.
During FY23, we will refine the product offering further
to present a dynamic pricing model which will adapt the price
of
the product by make, model and derivative.
28
Pendragon PLC Annual Report 2022
BUSINESS REVIEW
Operate from a lean and efficient cost base
Costs increased materially during FY22 (see financial review
below),
driven
by
the
combination
of
the
withdrawal
of
government support, our planned investment into marketing
and the well-publicised levels of inflation which impacted
across the cost-base, and in particular in labour and utility
costs.
However, the Group continued to seek opportunities
to mitigate cash costs where possible in FY22. We completed
a
major
property
negotiation
with
our
largest
landlord
(c.70 properties in total) that resulted in lease extensions
at current rent levels at c.30 locations and the return of 12
vacant properties to the landlord, with the remaining sites to
be reassessed as their leases expire.
This deal will deliver an
annual cash saving in excess of £3.5m across rent and rates
at the returned sites.
Over the past three years the Group
has significantly reduced its vacant leased property exposure
through a combination of surrenders, assignments, sublets
and expiries, delivering over £7.0m in annualised rent savings
and a further £3.0m in rates savings.
Enhance new car representation – New partnership with BYD
With
our
HY
results
in
September
we
announced
that
Pendragon would be a launch partner for BYD, the world’s
largest
new
energy
vehicle
manufacturer.
We
continued
to develop our dialogue with BYD during the second-half
of FY22 ahead of their launch in 2023.
At launch in March,
Pendragon initially opened two locations in Milton Keynes and
Birmingham, with plans for up to a further six locations to be
opened during the remainder of FY23.
We will continue to
explore strategic options for expansion.
Strategy delivery – Disrupt used cars
We believe the UK is the most attractive used vehicle market
globally, with a ratio of over three used vehicles sold for every
new one.
The overall market for used cars is around seven
million cars sold per annum.
Based on the desired age and
mileage profile for our target market, we believe there is an
addressable market for Pendragon of around three million cars
per annum, which is larger than the total new car market.
To capitalise on this opportunity, we will deliver:
1.
Brand relaunch of the used car proposition
2.
Differentiated value proposition
3.
Build flexible acquisition & fulfilment capability and scale
physical estate.
Brand relaunch & Differentiate value proposition
Following the significant changes in the used car market in
the last few years, we have transformed our used car strategy
away from a standalone proposition to a Group-wide onmi-
channel hybrid proposition. During 2022 we made significant
developments to our digital capabilities, enabling us to
develop a new-look website on CarStore.com displaying the
majority of all group used vehicle stock. This capability has
enabled us to list approximately 12,000 used vehicles on a
single transactional website.
This proposition allows us to
take a market-place approach to our Group used inventory,
with consistent presentation with revised image standards.
CarStore.com is the market leading digital proposition,
supported by our extensive store network providing us with
a truly omni-channel advantage, and with greater scale than
pureplay digital competitors.
Our acquisition of the Sellyourcar.
com website will provide us with greater opportunities to
source used car stock to support our proposition in a market
that we anticipate will continue to be constrained for supply
during 2023.
In addition, we delivered a full launch of this new proposition
supported by a cross-channel marketing campaign.
This
campaign included new content advertising across prime-time
TV slots in order to drive awareness of the repositioned brand.
We have seen a strong increase in digital traffic to CarStore.
com since the launch of these campaigns, with traffic up
53% year on year, supporting new customer acquisition.
We
have also seen very strong customer scores on Trustpilot and
reputation.com, with Car Store scoring 4.6/5.0 on Trustpilot
and
4.7/5.0
on
reputation.com.
Following
the
successful
launch of the new proposition and advertising campaigns, we
saw our used car volumes outperform the wider market by
approximately 6%, or approximately 2,750 units in the second
half of FY22.
Build flexible acquisition & fulfilment capability and scale
physical estate
The first concept store to launch our physical proposition was
formally launched in Chesterfield during April and the new
store format has been very well received by customers and now
acts as a blue print for further expansion.
During November
we opened our second new format store in Warrington which
holds approximately 400 vehicles on site and will further
support the digital proposition. In addition, we are scaling our
small-format locations, CarStore Direct, with a further 10 new
29
Pendragon PLC Annual Report 2022
locations introduced during FY22 across the UK.
These new
format stores facilitate our Sell-your-car proposition and offer
greater choice for click and collect fulfilment by providing
convenient, small footprint locations, unlocking potential new
local markets for Car Store to enter.
We will continue to
look for opportunities to expand our physical estate, and are
in advanced discussions about a number of locations for full-
scale new format stores. We expect to complete at least one
addition during FY23.
Operating Review
The UK Motor division performed well during the year despite
the backdrop of ongoing supply chain issues impacting
new and used vehicle supply as well as there being various
inflationary cost pressures, particularly payroll costs.
The
overall new car market was down 2.0% in the year, with the
new market down 11.9% in H1 but up 10.1% in H2, showing some
early signs of new car supply issues easing.
The Group has
built a strong order bank across its brands, with a strong order
bank of over 20,000 orders as at the end of December, which
it expects to deliver when supply eases, and in the short-term
is focussed on achieving higher margins on the vehicles that
are supplied.
The shortage in new car supply since 2020 is
now also impacting the used car market, with a significant
reduction in new vehicles manufactured in this period that
would ordinarily flow into the important ‘nearly new’ sector
now not being available.
New Car volumes were down 6.1% on a like-for-like basis (total
reported down 6.7%), slightly below the total market decrease
of 2.0%, driven by a combination of brand representation
and product mix.
Our focus on maximising margins through
reduced levels of vehicle discounting combined with OEMs
focussing on production of higher margin models resulted in
new GPUs of £2,719, up 42.3% or £808 compared to 2021.
Used Car volumes were down 8.7% on a like-for-like basis (total
reported down 9.1%), with the total market down 8.5%.
This
performance was driven by a number of different dynamics
through the year.
During the first-half we were comparing
against a strong H1 in 2021, where our online capabilities allowed
us to outperform the market during the lock-downs of 2021,
resulting in a reduction in sales of 14% against a market down
8.3%. In the second-half, we relaunched the Car Store website
as described above, which together with our revised marketing
activity resulted in H2 performance of a sales reduction of
just 2.2% against the market down 8.7%.
Used margins were
at record levels during parts of 2021, with used GPUs of
£1,670, and margins over £2,000 in H2 2021.
As anticipated,
margins declined from these unprecedented levels in 2022,
but through the operational initiatives detailed above, used
GPU margins were maintained at strong levels, with a used GPU
of £1,607 in 2022, still significantly higher than the £1,169 and
£712 in 2020 and 2019 respectively, and over £600 higher than
the average between 2011 and 2018.
Aftersales revenue also grew in the period, up by 7.5% on a
like-for-like basis (total reported up 4.7%), which was driven by
the operational improvements detailed above.
The aftersales
gross margin of 50.5% is in line with 2021 despite the impact
of technician pay inflation on cost of sales, resulting in an
additional £6.3m of gross profit year on year.
Financial Review
Revenue increased by 6.1% to £3,536.2m in FY22 (7.0% on
a like-for-like basis), as although new and used car volumes
were down, the average selling price of vehicles increased.
Gross profit grew by 4.6% to £415.7m in FY22 (5.6% on a like-for-
like basis).
The increase in gross profit was principally driven
by improvements in new cars, with volume declines more than
offset by significantly stronger GPUs of £2,719 (FY21: £1,911),
together with higher levels of aftersales gross margin.
These
increases were partially offset by the anticipated reduction
in used car GPUs and as well as lower volumes as described
above.
Underlying operating costs have increased by 11.8% (13.3% on a
like-for-like basis).
£12.2m of the £36.7m increase in operating
expenses was as a result of the non-repeat of government
support received in FY21 and c.£10m of the increase was as a
result of increased marketing expenditure, primarily on the Car
Store re-brand.
Other inflationary cost increases, particularly
in labour costs and utilities, which combined account for
approximately 65% of the Group’s total cost base, were also
impacted by a higher-than-expected impact of inflation during
2022.
These increases have been partially mitigated by a
continued focus on cost-saving initiatives.
The division recorded an underlying operating profit of £69.1m
(FY21: £87.4m) and a reported operating profit after non-
underlying items of £71.6m (FY21: £82.6m).
30
Pendragon PLC Annual Report 2022
BUSINESS REVIEW
SOFTWARE (£m)
H1 2022
H2 2022
FY22
H1 2021
H2 2021
FY21
Change
(%)
Revenue
12.4
13.0
25.4
12.1
12.3
24.4
4.1%
Gross Profit
11.1
11.6
22.7
11.2
11.3
22.5
0.9%
Gross margin rate
89.5%
89.2%
89.4%
92.6%
91.9%
92.2%
-2.8%
Operating Expenses
(5.6)
(6.1)
(11.7)
(4.5)
(5.5)
(10.0)
17.0%
Operating Profit
5.5
5.5
11.0
6.7
5.8
12.5
-12.0%
Operating margin rate
44.4%
42.3%
43.3%
55.4%
47.2%
51.2%
-7.9%
Total Revenue Change
2.5%
5.7%
4.1%
A more detailed breakdown of the Pinewood financials for FY22 can be seen below:
SOFTWARE
Operating Review
•
Approximately 90% of DMS revenues are recurring.
•
Strong international growth driven by expansion of the
direct sales model and new market launches.
•
Strong partnerships with strategic OEMs.
Strategy delivery – Grow and diversify Pinewood
As part of its Group strategy presentation, Pendragon
announced its plan to ‘grow and diversify Pinewood’.
This
included the key objectives of:
•
Growing the international user base by 80% and the total
user base by 10%; and,
• Further
product
extension
enabling
turn-key
digital
automotive retail solutions.
In FY22 Pinewood continued to focus on both elements of the
'grow and diversify' strategy.
•
Grow: international growth accelerated in H2 FY22 with an
expansion of the direct sales model in the Asia Pacific region
and new market launches in Singapore and the Middle East.
The UK and Ireland market returned to growth in H2 FY22
with net user additions over the year.
•
Diversify: development of the core DMS product continues.
New
products
designed
to
support
digital
automotive
retail are being developed to initially benefit Pendragon
and, in the longer term, the external customer base. These
developments included further releases in the Sales+ module,
functionality to allow real time modification of the customer
F&I offer and the integration of open banking to improve
payment options. Pinewood launched a valuation tool in H2
FY22 to help power Car Store’s web capabilities and the
overall valuation and pricing platform for Pendragon used
cars. In FY23, Pinewood will continue to be a key enabler in
the further functionality development of vehicle acquisition,
management and pricing platforms.
In order to facilitate
this development the investment in new functionality of
the DMS platform saw development capital rise to
£5.7m
(FY21: £5.0m), with c.80% of these development costs being
capitalised.
In addition to the development of the DMS,
investments have also been made in platform architecture
and security with greatly expanded use of the Microsoft
Azure platform.
Operating Review
Pinewood is a software business that provides Software as
a Service (“SaaS”) in the UK and in a number of countries
worldwide.
The
UK
Dealer
Management
Systems
(DMS)
market
for
Franchised Motor Dealers is estimated to be worth over £100
million in the UK. Three DMS providers dominate the UK market,
of which Pinewood is one.
The global DMS market which is
highly fragmented, is estimated to be worth approximately
(£m)
Contribution
from
Pendragon
Contribution
from external
customers
Pinewood PLC
standalone
result
Share of
Pendragon
Group
overheads
Pinewood
segment as
reported in
Pendragon
Group
accouts
Revenue
6.3
19.1
25.4
-
25.4
Gross Profit
5.6
17.1
22.7
-
22.7
Operating Expenses
(2.1)
(9.3)
(11.4)
(0.3)
(11.7)
Operating Profit
3.5
7.8
11.3
(0.3)
11.0
31
Pendragon PLC Annual Report 2022
£2.5bn, with over 50 different DMS providers within Europe
alone.
Pinewood’s
unique
approach
to
the
DMS
market
is
characterised by:
•
a
single
product
capable
of
global
deployment,
which
simplifies future developments to the system and reduces
operating costs;
•
a feature-rich cloud-based solution, with no need for costly
third-party add-ons;
• focus on strong manufacturer partnerships and supporting
dealer profitability; and
• commitment to using the latest technology to reshape
motor retail.
Pinewood was an early adopter of the SaaS business model
and has focused on developing recurring revenue streams.
Around 90% of Pinewood’s DMS revenues are on a recurring
basis. Whilst Pendragon remains an important customer to
Pinewood, as Pinewood has grown, Pendragon’s proportion
of the Pinewood total user base has been diluted to c.17% with
intra-group charging maintained at a competitive market rate.
During FY22, overall net user numbers increased by 4% to
c.31,700 with the expansion delivered primarily in H2 FY22.
Across Pinewood’s international markets there was a 13% net
increase in user numbers to a record high of c.6,400 users.
All international markets grew user numbers in FY22 with
Pinewood
benefiting
from
both
the
expansion
of
existing
customers
and
new
sales.
Growth
was
further
supported
by successful launches in Singapore and the Middle Eastern
market.
Pinewood systems now operate in a total of 19
different countries.
In the UK and Ireland market (excluding Pendragon) there was
an increase in user numbers in FY22 to c.20,000. At H1 FY22
user numbers had declined slightly, this trend was reversed
in the second half of the year. In H2 FY22 the number of new
system implementations accelerated, and churn fell from the
elevated rates seen during FY21. The full benefit of these user
additions will be seen on an annualised basis in the FY23 result.
Pinewood’s
growth
benefits
not
just
from
sales
to
new
customers but also from the expansion of its existing customer
base. In FY22 external net user churn was less than 1% and
in international markets (excluding UK and Ireland) it was
negative, as the rate at which existing customers grew users
more than offset user reductions.
There has also been good further progress in terms of OEM
support at an international level. Pinewood continues to build
a strong partnership with Volkswagen AG and Porsche, which
has enabled constructive dialogue and, in some cases, initial
user implementations with large international dealer groups in
both the European and the Asia Pacific market.
Financial Review
Total revenues increased by 4.1% to £25.4m compared to
FY21. International DMS recurring revenues increased by 27%,
reflecting the underlying user growth and expansion of the
direct sales model in the European and Asia Pacific markets
UK and Ireland DMS recurring revenues fell slightly in the
period, driven by the annualised impact of two exceptional
customer exits at the end of the prior year and reduced user
numbers in H1 FY22. User growth returned by the end of FY22
leaving Pinewood well placed for growth in its home market
heading into FY23.
In addition to recurring revenues, there was a 9% increase
in external DMS transactional charges, system training and
implementation revenues. This was driven by an increase in
system implementations in the UK and Ireland in H2 FY22.
Gross
profit
increased
by
0.9%
to
£22.7m.
There
was
a
reduction in gross margins driven by the expanded use of the
Microsoft Azure platform. This transition is a one-off event,
and the related cost increase will not recur in future periods.
Operating costs increased by £1.7m or 17.0% compared to
FY21. In FY22 the amortisation charge of £4.2m (FY21: £3.7m)
made up over a third of operating costs. Alongside rising
personnel costs, the higher amortisation charge drove the
operating cost increase, both reflecting increased investment
in the development of the DMS platform and Pinewood’s
operational capabilities. Further cost increases arose from
higher travel expenditure following the reduction in Covid-19
restrictions, as well as higher energy costs.
As a result of these movements, underlying operating profit
was £11.0m, a reduction of 12% compared to FY21.
32
Pendragon PLC Annual Report 2022
LEASING
Operating Review
Pendragon Vehicle Management ("PVM"), a vehicle leasing
business, offers a complete range of fleet leasing and contract
hire solutions. Its customers represent all business sectors with
varied fleet sizes. The fleet of vehicles is financed through third
party asset funders which results in a high return on capital.
The overall decrease in revenue compared to FY21 was due
to a reduction in the exceptionally high level of disposals of
de-fleeted vehicles in H1 2022.
However, increased demand
for used vehicles due to continued supply shortages of new
vehicles resulted in higher residual values being achieved
on disposal, which led to the increase in gross profit. Total
revenue in H2 2022 was 0.2% lower than H2 2021.
PVM's fleet continues to experience a rapid change in the
powertrains demanded by customers in the corporate car
sector
as
employers
improve
their
green
footprint
whilst
providing their associates with low CO2 vehicles. This, coupled
with manufacturer supply constraints, has resulted in new
vehicle delivery lead times increasing significantly compared
to lead times prior to the pandemic. PVM has a strong order
bank, with over 2,100 customer vehicles on order as at the
end of December, which will support growth in the fleet when
supply constraints ease.
Financial Review
Revenue decreased by 6.9%, due to the slightly reduced
turnover on disposals.
Gross profit increased by 10.9% due
to the strong residual values as described above.
Operating
expenses were in line with last year at £4.5m and operating
profit increased by 13.7% to £19.9m (FY21: £17.5m).
LEASING (£m)
H1 2022
H2 2022
FY22
H1 2021
H2 2021
FY21
Change
(%)
Revenue
42.9
40.8
83.7
49.0
40.9
89.9
-6.9%
Gross Profit
12.5
11.9
24.4
10.5
11.5
22.0
10.9%
Gross margin rate
29.1%
29.2%
29.2%
21.4%
28.1%
24.5%
4.7%
Operating Expenses
(2.3)
(2.2)
(4.5)
(2.4)
(2.1)
(4.5)
-
Operating Profit
10.2
9.7
19.9
8.1
9.4
17.5
13.7%
Operating margin rate
23.8%
23.8%
23.8%
16.5%
23.0%
19.5%
4.3%
Revenue Change
(12.4%)
(0.2%)
(6.9%)
BUSINESS REVIEW
33
Pendragon PLC Annual Report 2022
FINANCIAL REVIEW
£m
2022
2021
Change
(%)
Interest payable on bank borrowings, senior note and loan notes
10.1
9.1
11.0%
Vehicle stocking plan interest
14.7
9.8
50.0%
Net lease interest
13.6
11.7
16.2%
Unwinding of discounts in contract hire residual values
2.5
2.7
-7.4%
Total Underlying Net Financing Costs
40.9
33.3
22.8%
UNDERLYING NET FINANCING COSTS
Underlying net financing costs increased by £7.6m to £40.9m.
Interest payable on bank borrowings increased from £9.1m
to £10.1m, largely driven by increases in the base interest
rate. The increase in vehicle stocking plan interest from
£9.8m to £14.7m was driven by a combination of higher bank
base rates and higher average values per unit in used cars.
The net lease interest increased from £11.7m to £13.6m,
principally due to the accounting impact of a lease regear
with our largest property partner in which 30 prime leaseholds
were extended until 2042 with the Group benefitting from
reductions in rent payable from the agreement to hand-
back 12 vacant properties to the landlord in exchange for
the lease extensions.
The transaction has resulted in an
increase in the net lease liability and consequently the net
interest charge has risen by £3.0m year on year (though this
has been offset by a reduction in the depreciation charge
on these properties of £2.7m due to the amortisation period
being extended).
This increase in the lease interest has been
partially offset by a reduction in the lease interest charge as
a result of lease terminations made in the previous year and
the natural wind down of lease liabilities as they are paid off.
34
Pendragon PLC Annual Report 2022
CAPITAL ALLOCATION AND DIVIDEND
Adjusted Net Debt* has improved by £26.4m from an adjusted
net debt of £49.7m at 31 December 2021 to adjusted net debt
of £23.3m at 31 December 2022.
The adjusted net debt to
underlying EBITDA ratio* was 0.1x for the rolling 12 months
to FY22.
The adjusted net debt to underlying EBITDA ratio
has moved from 0.3x at FY 2021, principally as a result of the
strong trading performance in the year, combined with the
disposal proceeds from the sale of property received.
Whilst the Group is not proposing a final dividend for 2022,
following the successful reduction of debt in line with the
Group’s stated strategy, the Board is reviewing its capital
allocation priorities including the potential for return of capital
to shareholders either through dividend or share buybacks in
due course.
* These are Alternative Performance Measures (APMs), see
page 122 for more detail.
£m
H1 2022
H2 2022
2022
2021
Impairment of goodwill
(3.6)
-
(3.6)
-
Impairment of property, plant and equipment
(1.0)
-
(1.0)
-
Impairment of right of use assets
(0.2)
-
(0.2)
(9.6)
Termination and severance costs
(0.2)
-
(0.2)
(1.8)
Aborted transaction related expenses
-
(0.4)
(0.4)
-
Gains on the sale of businesses and property, plant and equipment
7.2
0.7
7.9
2.7
Pension costs
(0.2)
(0.1)
(0.3)
(1.0)
Loss on refinancing
(2.6)
-
(2.6)
-
Total non-underlying items before tax
(0.6)
0.2
(0.4)
(9.7)
Non-underlying items in tax
0.5
0.9
1.4
2.2
Total non-underlying items after tax
(0.1)
1.1
1.0
(7.5)
NON-UNDERLYING ITEMS
Non-underlying income and expenses are items that are not
incurred in the normal course of business and are sufficiently
significant and/or irregular to impact the underlying trends in
the business.
During the year the Group has recognised a net
charge of £0.4m of pre-tax non-underlying items compared to
a charge of £9.7m in 2021.
An impairment of goodwill charge of £3.6m relates to the
impairment of acquisition goodwill on the disposal of the truck
brand, DAF, as a part of a sale to a specialist truck operator.
During the year, approaches and subsequent bids were made
by two separate external parties to purchase the Company.
As a consequence, aborted transaction costs in respect of
professional and advisory fees of £0.4m were incurred, , in the
management of these processes.
Gains of £7.9m on the sale of business and property, plant
and equipment mainly arise from the disposal of certain UK
freehold properties.
Pension costs of £0.3m represent the interest charge on
pension scheme obligations (FY21: £1.0m).
Refinancing costs of £2.6m relate to the costs of the 2022
Group refinancing exercise, and principally comprised of early
repayment charges on the previous private placement loan
notes.
FINANCIAL REVIEW
35
Pendragon PLC Annual Report 2022
RECONCILIATION TO CONSOLIDATED CASH FLOW STATEMENT (£m)
2022
2021
Net Cash From Operating Activities
76.1
63.2
Net capital (expenditure) / income
(27.1)
14.0
Receipt of lease receivables
2.0
2.2
Net cash (outflow) / inflow from investing activities
(25.1)
16.2
Financing cash flows as included above
Payment of lease liabilities
(22.2)
(27.2)
Payment to Employee Benefit Trust (EBT)
(0.4)
-
Financing cash flows not included above relating to loans
Repayment of loans
(90.5)
(88.8)
Proceeds from issue of loans (net of directly attributable transaction costs)
93.8
18.7
Net cash outflow from financing activities
(19.3)
(97.3)
SUMMARY CASHFLOW AND ADJUSTED NET DEBT (£m)
2022
2021
Underlying Operating Profit
98.5
116.3
Depreciation and Amortisation
33.5
36.1
Share Based Payments
3.3
2.9
Non-underlying Items
(0.4)
(1.8)
Contribution into defined benefit pension scheme
(13.1)
(12.8)
Working Capital and Contract Hire Vehicle Movements
1
(5.1)
(41.2)
Cash Generated from Operations
116.7
99.5
Capital Expenditure
(43.7)
(17.7)
Business and Property Disposals
16.6
31.7
Net Capital (Expenditure) / Income
2
(27.1)
14.0
Tax Paid
(1.4)
(7.1)
Interest Paid excluding lease interest
3
(22.9)
(17.5)
Lease Payments & Receipts
4
(33.9)
(36.7)
Non-underlying finance cost
(2.6)
-
Other
(2.4)
(1.5)
Decrease in Adjusted Net Debt
26.4
50.7
Opening Adjusted Net Debt
(49.7)
(100.4)
Closing Adjusted Net Debt
(23.3)
(49.7)
1
being the change in trade and other receivables, change in trade and other payables, change in stocking loans and movement in contract hire vehicle balances.
2
be-
ing the proceeds from sale of businesses, purchase of property, plant, equipment and intangible assets and proceeds from sale of property, plant, equipment and in-
tangible assets.
3
being bank and stocking interest paid.
4
being receipts of lease receivables and payment of lease liabilities including lease interest paid and received.
CASH FLOW
The following table summarises the cash flows and adjusted net debt of the Group for the twelve-month periods ended 31
December 2022 and 31 December 2021 as follows:
36
Pendragon PLC Annual Report 2022
Cash generated from operations was an inflow of £116.7m
compared to an inflow of £99.5m in 2021. Although underlying
operating profit decreased from £116.3m in 2021 to £98.5m in
2022, the working capital cash outflow of £5.1m was lower
than the 2021 working capital cash outflow of £41.2m, resulting
in an increase in cash generated from operations. The working
capital outflow of £5.1m was driven primarily by the non-
funded element of the increase in used inventory.
The net capital expenditure of £27.1m (2021: inflow of £14.0m)
comprised capital expenditure of £43.7m partially offset by
business and property disposals of £16.6m.
Capital expenditure
of £43.7m (2021: £17.7m) increased year on year, driven by
investments into improved dealership facilities at a number
of
brands
including
BMW,
Mercedes,
Porsche
and
Jaguar
Land Rover as well as investment into our new Car Store
developments in Warrington and Chesterfield, together with
increased investment into Pinewood’s software development.
Business and property disposals were principally driven by
disposal of the DAF trucks dealerships for £2.9m and the
disposal of a vacant property in St Albans for £10.5m.
Lease payments and receipts reduced by £2.8m to £33.9m,
with the decrease primarily resulting from a reduction in the
number of leasehold properties as a result of the full-year
impact of previously announced lease exits and a further
benefit resulting from the impact of a lease regear as explained
previously on page 33 and which delivered a c.£2.0m cash
benefit in rent and rate savings in 2022 and will deliver a saving
in excess of £3.5m on a full-year basis. This was partially offset
by the impact of inflationary rent increases.
Non underlying finance costs of £2.6m are the cash costs
of the 2022 Group refinancing exercise, and are principally
comprised of early repayment charges on the previous private
placement loan notes.
FINANCIAL REVIEW
BALANCE SHEET (£m)
2022
2021
Property
233.7
217.6
Plant & Equipment
26.8
24.2
Goodwill
144.6
150.3
Intangible Assets
12.4
11.1
Right of Use Assets - property
130.5
126.5
Contract hire vehicle assets
124.9
131.2
Inventories
620.3
512.8
Receivables
1
132.9
118.9
Net Assets Held for Sale
2
6.1
10.4
Net Tax Balances
4
14.9
26.6
Total Assets
1,447.1
1,329.6
Payables
3
(810.7)
(689.1)
Lease Liabilities
(217.9)
(222.1)
Contract hire vehicle Liabilities
(111.6)
(119.5)
Retirement Benefit Obligations
(2.6)
(23.6)
Adjusted Net Debt
5
(23.3)
(49.7)
Total Liabilities
(1,166.1)
(1,104.0)
Shareholders’ Funds
281.0
225.6
1
being trade and other receivables and finance lease receivables
2
being assets classified as held for sale and liabilities directly associated with assets held for sale
3
being trade and other payables less contract hire liabilities
4
being deferred tax assets, current tax assets and current tax payable
5
being cash and cash equivailents and interest bearing loans and borrowings
BALANCE SHEET SUMMARY
The following table summarises the balance sheet of the Group at 31 December 2022 and 31 December 2021.
37
Pendragon PLC Annual Report 2022
Net assets have increased from £225.6m at 31 December 2021
to £281.0m at 31 December 2022.
At 31 December 2022, the Group had £233.7m (£364.2m
including IFRS16 right of use assets) of land and property assets
(31 December 2021: £217.6m (£344.1m including IFRS16 right
of use assets)).
The increase in property principally reflects
capital investments in a number of dealership improvement
programmes in both OEM and Car Store locations as explained
with the cash flow statement, partially offset by disposal of
excess property, together with depreciation.
Stock has increased by £107.5m to £620.3m (31 December
2021: £512.8m), which is a result of an increase of c.£44m in
the level of new car inventory held at 31 December 2021 prior
to delivery, and an increase of c.£63m in used car inventory.
The increase in used car inventory is driven by a combination
of an increase in the number of cars in stock (c.£22m) and
an increase in average value of cars in stock (c.£41m).
New
car inventory remains significantly below historic records as a
result of the ongoing supply shortages, with new car inventory
approximately £170m lower than as at 31 December 2020.
The increase in payables of £121.6m to £810.7m (31 December
2021: £689.1m) principally relates to the higher vehicle creditors
as a result of the increase in new and used vehicle inventory.
The net liability for defined benefit pension scheme obligations
has improved from a £23.6m liability at FY21 to a £2.6m
liability at FY22.
The improvement of £21.0m comprises of
contributions of £13.1m, a net interest expense recognised in
the income statement of £0.3m and a net actuarial gain of
£8.2m. The net actuarial gain has arisen due in part to changes
in the principal assumptions used in the valuation of the
scheme’s assets and liabilities and also the change in value of
the assets held over the year. The Group contributed £13.1m
to the Pension Scheme in the period in line with the Group’s
funding commitment.
The triennial valuation of the company’s pension scheme as at
31 December 2021 was completed during 2022. The valuation
concluded that the actuarial funding deficit had reduced from
£117m as at 31 December 2018 to £33m as at 31 December 2021.
The company and trustees agreed to continue the current
level of contributions into the pension scheme (FY22: £13.1m)
until the end of 2023, at which point the actuarial deficit is
expected to be met. Following this, the company and trustees
agreed to move towards a long-term funding target and
continue contributions at a reduced level of contribution of
£3.5m p.a. until 31 December 2026, at which point the scheme
is expected to be fully funded on a long-term funding target
basis.
REVOLVING CREDIT FACILITY (RCF)
In March 2022 the Group refinanced its £175m RCF and £60m
Private Placement, both of which were due to mature in March
2023. The new facilities comprise a 5-year, amortising, £100m
Term Loan, maturing March 2027, with the Group’s existing
Private Placement lender plus a new lender, and a £75m 3+1+1
RCF with the Group’s existing bankers, maturing March 2025,
with extensions available at the election of lenders to March
2026 and then March 2027.
38
Pendragon PLC Annual Report 2022
RISK OVERVIEW AND MANAGEMENT
PRINCIPAL RISKS
Recognising that all businesses entail elements of risk, the
Board maintains a policy of continuous identification and
review of risks which may cause our actual future Group
results to differ materially from expected results. The Board
continues to carry out robust assessments of the Group’s
emerging and principal risks in relation to its strategy and
overall business objectives. The table on pages 40 to 48 is
an overview of the principal risks faced by the Group, with
corresponding controls and mitigating factors. A key is
included to explain the relationship between each principal
risk and the Group’s three strategic pillars. The specific risks
are not intended to represent an exhaustive list of all potential
risks
and
uncertainties.
Thorough
risk
reviews,
involving
company-wide participation, have been completed in 2022
by the Risk Control Group. There were no new risks identified
as a result, though a number of risk impact and mitigation
disclosures have been updated as a result, including:
•
Risk relating to Technology and Information Systems, and
Information and Cyber Security has increased, driven by
the threat and sophistication levels of cyber incidents such
as ransomware increasing exponentially globally. During
2022 a number of mitigation activities were implemented,
including
technology
investments,
policy
updates,
associate training, and most recently, the onboarding of a
security operations centre to further enhance and develop
our ability to monitor for, and track cyber security threats
to our business. A ransomware event occurred during the
year and controls in place at the time of the incident, as
well as the response of the security team and specialists
through cyber insurance helped contain the incident.
A
full
review
has
recently
been
completed
involving
third-party specialists and further control improvement
opportunities will be considered as part of the ongoing
security improvement plan for 2023
•
Risk relating to Macro-economic, Political & Environmental
has increased, driven by UK and Global events including
the war in Ukraine resulting in volatility in inflation and
interest rates and a UK cost of living crisis. The threat of
longer-term impact of higher interest rates on consumer
purchasing
habits
is
reflected
in
our
risk
description.
Financial
business
plans
consider
how
these
external
factors may affect areas of our business, including
customer spending on big ticket items as well as our
operating costs. The impact of reduced supply since
the Covid-19 pandemic has resulted in a large amount
of pent-up demand in the market, which together with
changes in consumer transport habits may underpin the
market despite lower consumer disposable income
•
Risk
relating
to
Manufacturer
Relationships
includes
the potential impact of emerging Chinese and Asian
manufacturer brands producing high quality BEV products
in direct competition to our traditional OEM partners
products. The overall risk trend is not considered to have
increased due to risk mitigation, such as the distribution
agreement we have recently agreed with BYD, as well as
the likelihood of the overall marketplace becoming more
competitive both in terms of product offering and market
price positions
•
Risk relating to Environmental includes the potential
impact of electricity costs reducing customer demand
causing used BEV values to fall, impacting negatively the
overall cost of ownership. We monitor and track all used
vehicle values and sales rates frequently to limit our risk
and exposure to any fall in used BEV values
The
risk
factors
outlined
below
should
be
considered
in
conjunction
with
the
Group’s
system
for
managing
risk,
described below and in the Corporate Governance Report on
page 65.
39
Pendragon PLC Annual Report 2022
R
I
S
K
M
O
N
I
T
O
R
I
N
G
A
N
D
O
N
G
O
I
N
G
A
S
S
E
S
S
M
E
N
T
R
I
S
K
I
D
E
N
T
I
F
I
C
A
T
I
O
N
R
I
S
K
M
I
T
I
G
A
T
I
O
N
P
L
A
N
N
I
N
G
C
O
N
T
R
O
L
A
C
T
I
O
N
S
I
M
P
L
E
M
E
N
T
R
I
S
K
A
S
S
E
S
S
M
E
N
T
S
T
R
A
T
E
G
Y
A
N
D
B
U
S
I
N
E
S
S
O
B
J
E
C
T
I
V
E
S
STRATEGIC RISKS
FINANCIAL RISKS
OPERATIONAL RISKS
COMPLIANCE RISKS
BOARD
LEADERS &
BUSINESS AREAS
RISK MANAGEMENT AND INTERNAL CONTROLS
Accountability
The Board is responsible for risk management and internal
control within the context of achieving the Group’s objectives.
The system of control the Board has established covers both
the Group’s financial reporting and the mitigation of business
and operational risks. The system is designed to manage,
rather than eliminate, the risk of failure to achieve business
objectives, and can provide only reasonable and not absolute
assurance against material misstatement or loss.
Financial Reporting
The executive directors oversee the preparation of the Group’s
annual corporate plan; the Board reviews and approves it and
monitors actual performance against it on a monthly basis.
Where appropriate, during the year, revised forecasts are
prepared and presented for Board review and approval. To
ensure that information to be consolidated into the Group’s
financial statements is in compliance with relevant accounting
policies, internal reporting data is comprehensively reviewed.
Reviews of the appropriateness of Group accounting policies
take place at least twice a year, under the scrutiny of the Audit
Committee, which considers reports on this from the Group’s
Auditor, the application of IFRS and the reliability of the
Group’s system of control of financial information. Controls
are designed to ensure that the Group’s financial reporting
presents a true and fair reflection of the Group’s financial
position.
Operational and Other Risks
Operational
management
is
charged
by
the
Board
with
responsibility for identifying and evaluating risks faced by the
Group’s businesses on a day-to-day basis and is supported
by the Risk Control Group (RCG), a Committee formed of
the chief operating officer, chief finance officer, company
secretary, group head of internal audit and, by invitation,
other members of the Group’s senior operational and financial
management. We maintain on-line risk registers to facilitate
an efficient and effective method for update of, review of,
and consolidated reporting across our risk profile. Risks are
reviewed as a top down and bottom up activity at the Group,
Division and functional level. The content of the risk registers
is considered and discussed regularly through discussion
with senior management and review within our governance
committees. The approach to risk control and the work of
the RCG are described on page 65. The Group continues
to follow the principles of the three lines assurance model
and in addition to the responsibilities of management, the
Group deploys specialist second line support and oversight
for certain principal risks through dedicated teams including
Finance & Insurance and Health & Safety. In addition, a well-
established Internal Audit function provides independent
third line assurance, with priorities and associated resource
requirements including any specialist external support being
agreed
at
least
annually
with
the
Audit
Committee.
Any
control issues identified by Internal Audit and second line
teams, follow a strict protocol to ensure their effective and
timely remediation. During 2022 Internal Audit has provided
independent assurance over a number of key risk areas,
including health, safety & environmental management, cyber
security for the Pinewood entity, associate retention, and
financial controls for the Finance Shared Services Centre.
40
Pendragon PLC Annual Report 2022
Residual Risk Trend:
Unchanged
Increasing
Decreasing
Link to Strategy:
Unlock value in UK Motor Division
Grow and diversify Pinewood
Disrupt UK used car sales
NO.
PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
1
STRATEGY
Failure to adopt the right
strategy, or
Failure of our adopted
strategy to deliver the
desired outcomes, or
Failure to implement our
strategy effectively
Delay to strategic
delivery and investment
financial constraints
•
We miss our profit growth and/
or debt management target,
alienate key stakeholders and
are unable to invest adequately
in our business
• We do not meet our customers’
needs by not achieving a
coherent, connected and
engaging customer journey,
leading to us to be less
competitive and losing market
share
•
Our strategy is informed by significant research
and market data
• We communicate effectively our adopted strategy
to our stakeholders. Our strategic priorities were
fully refreshed during 2021 and refined further in
2022 and full details are included on pages 25 to
31 of the Annual Report
• We invest appropriately in the technological,
physical and human resources to deliver our
strategy, closely monitor performance against
our objectives, and adjust our actions to meet
our strategic goals. Our Director of Strategy and
Transformation, together with other dedicated
resources, supports the delivery of our strategic
initiatives and provides robust governance,
including financial tracking
• Our sophisticated management information
identifies threats to the success of our strategy
both during the planning and implementation
phases, and informs mitigating actions, both
directionally and operationally
•
We ensure that we monitor our manufacturer and
third party customer service measures and take
action in the event of low scores
•
We focus strongly on efficient use of working
capital through embedded disciplines, especially
in relation to vehicle inventory
•
We review capital expenditure plans to ensure our
ROI objectives are achievable
• Our business plan has been fully refreshed in 2022
and has taken into account the latest economic
predictions
RISK OVERVIEW AND MANAGEMENT
41
Pendragon PLC Annual Report 2022
NO.
PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
2
MANUFACTURER RELATIONSHIPS
Dependence on vehicle
manufacturers for the
success of our business
Failure to maintain
sustainable, mutually
rewarding relationships
with our manufacturers
•
Failure of, or weaknesses in our vehicle
manufacturers’ financial condition,
reputation, marketing, production and
distribution capabilities such as the shortage
of semi-conductors along with the current
Ukraine invasion limiting production of
components, and other disruptions to the
supply chain; or the effectiveness of the
supply chain response to EU Trade Deal
Rules of Origin; or a lack of alignment
with manufacturers’ reduced new vehicle
supply due to lack of components and
manufacturing capability
•
Failure to adapt to the impact of lower new
vehicle registrations on future aftersales
revenue streams within our business
• Failure to adapt to manufacturer reductions
in sale distribution point numbers as
volumes fall, either planned or by limits to
production, along with the removal of some
product lines due to their inability to build
profitability
• Failure of our vehicle manufacturers to
develop within required timelines to meet
both regulatory and consumer requirements
around BEV and hybrid emission vehicles
•
Introduction of new Chinese manufacturers
into Europe and UK providing competitively
priced BEV products in direct competition
to our traditional OEM partner products
•
Failure to maintain good relations with
our franchisors either through day to day
activities or our strategic decisions impairs
our ability to generate good quality earnings
•
Failure to positively adapt to OEM
consolidation such as the creation of multi
brand operations and network rationalisation
• Failure to positively adapt to changes
manufacturers are introducing or may
make to their business models, including
the introduction of agency distribution
models, ensuring agency agreements are
not infringing any regulatory requirements,
direct sales to customers, increased
involvement in the used vehicle market, and
other changes that may affect the traditional
dealer franchise model
• Failure to positively adapt to changes in
Competition regulation, for example via the
outcome of the Aftersales block exemption
review due in May 2023 which could change
current protection impacting qualitative
selective AR agreements, or agency
introduction
• Our diverse franchise representation
avoids over reliance on any single
manufacturer
•
Our close contact with our vehicle
manufacturers seeks to ensure
our respective goals and strategic
decisions are communicated,
understood and aligned, to deliver
mutually acceptable performance
•
To compensate lower volumes,
margins increased with greater
demand than availability
• Our appropriately targeted
investment in franchise assets and our
performance maintains our reputation
as a quality representative for our
brand manufacturers
• Seeking multi brand representation
through single sites to mitigate lower
aftersales opportunities from lower
new vehicle volumes, and greater new
volume throughput per store
•
Build relationships with new OEM
partners repurposing current
locations, offering dual representation
whilst the used and aftersales market
builds
• Our investment in marketing
initiatives and our online presence
supplement and enhance our market
presence and offering over and above
manufacturers’ marketing efforts
• Our diverse franchise representation
ensures new vehicle inventory is
supplied from a wide variety of
sources
• Our model of developing and
maintaining revenues from used
vehicles, aftersales, and our software
and leasing segments reduces our
overall reliance on new vehicle
franchises
• Our ongoing innovation and
investment in customer choice as to
how they wish to purchase a vehicle
makes us an attractive partner to
OEMs
•
Our close contact with our vehicle
manufacturers ensures we are able
to identify potential supply issues
and collaborate to limit any impact
on our customers and our business
performance
42
Pendragon PLC Annual Report 2022
NO.
PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
3
COMPETITION
Failure to meet
competitive challenges
to our business model or
sector
• Customers migrate to
alternative providers
• Intermediary companies
establish a barrier between us
and our customers
•
New forms of competition
would have less barriers to
competitors entering the
market
•
Revenues and profits could
decrease owing to competitor
action
• Consolidation of existing
competitors could provide
economies of scale, product
range and customer reach that
makes our customer offer less
competitive
• The market could become
more fragmented as on-line,
click and collect, home delivery
and subscription models
become more attractive ways
of purchasing to customers
• Emerging distributors activities
affect our ability to secure
sufficient used inventory
•
New OEM brands entering the
market with advanced BEV
technology
• Our detailed market and sector monitoring
systems assist early identification and effective
response to any competitive or intermediary
threats
• Our scale, expertise and technological capabilities
enable rapid and flexible response to market
opportunities
•
Technical equipment costs and OEM connectivity
solutions for aftermarket repairs are likely to limit
the number of intermediary repairers creating
greater retention levels
• Reducing dependency on intermediary companies
within the new vehicle space, by further investing
within our own website capability providing
visibility of all new vehicle unsold physical and
pipeline inventory
•
Agency models reduce the risk of new vehicle
supply leaking out to intermediaries giving greater
protection to the brand distributor
•
Consolidating OEMs, along with the ability to
multiband key market facilities, help to represent
more brands through one rooftop, providing
greater sales and aftermarket volumes
• Emerging specialism, such as battery repair
factories within densely represented market
regions create future aftermarket opportunities for
national distributors such as ourselves who have
the ability to adapt facilities and invest
•
Our well-developed customer relationship
management capabilities and ongoing innovation
and investment in our online platforms, customer
offer and fulfilment tools aim to drive industry-
leading service and attract customer loyalty
•
We continually seek to develop new methods
of customer interaction, particularly online. This
enables the business to anticipate changing
customer needs
•
Expanding relationships with new emerging
brands, along with stronger OEM relationships
allow for greater market area representation and
coverage for sales and aftersales
RISK OVERVIEW AND MANAGEMENT
43
Pendragon PLC Annual Report 2022
NO.
PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
4
ENVIRONMENTAL
Progression towards
greener technologies,
autonomous driving,
and/or pay-per-use,
rather than owning a
vehicle
UK taxes change to
penalise road use, fuel
type, vehicle use and to
increase VAT
Failure to adapt to
the changes arising
as a result of the
Government’s future ban
on sale of petrol, diesel
and hybrid powered
vehicles
OEMs restricting
distribution of certain
vehicle models in the UK
in response to emission
targets
Failure to recognise
and minimise the
environmental impact of
our business activities
• Customers choose greener
vehicles we cannot supply
• Overall vehicle parc reduces
• Increases in electricity costs
reduces customer demand
causing used BEV values to fall,
impacting negatively the overall
cost of ownership
• Vehicle purchase and use
declines, adversely affecting
revenue opportunities
•
Lower demand for petrol,
diesel and hybrid vehicles and
potential impact on vehicle
residual values
• Government policy and
consumer sentiment in respect
of petrol, diesel and/or hybrid
vehicles impacts the sale of one
or all types of these vehicles
• Reductions in sales volumes
or margins due to loss of
certain product lines and future
aftersales opportunities
• Investment cost to adapt to a
broad range of BEV products
by 2030 and PHEV and MHEV
by 2035 is not adequately
considered
•
We represent vehicle brands which are responding
effectively to the greener technology agenda and
latest Government timescales
•
Our represented OEM partners have the ability to
grow within the light commercial vehicle sector
offering a blend of hybrid and full electric BEV
options to satisfy the growing demand of home
and business delivery
• We identify trends in demand through our
sophisticated management information and
analysis tools and tailor our model accordingly
• We monitor sales and demand of all vehicles
by fuel type whilst using our sophisticated
management information and analysis tools
ensuring our inventory matches consumer
demand, and can target supply by territory market
depending on set emission rules
•
Our breadth of relationships with asset finance
companies and geographic footprint help us to
provide innovative mobility solutions for private
and business vehicle users, whatever their needs.
These provisions can be delivered through our
national footprint locations, or via online platforms
• We maintain the right level of tax expertise to
interpret and assess proposed changes, respond
with well-informed advice and effectively assist
our strategic planning and the design and
implementation of appropriate mitigating actions
• The Group’s Environment Policy has recently
been refreshed, in order to provide further
specific oversight and direction as to the impact
of the Company’s activities on climate change,
nature loss, solid waste (including single use
plastics) and resource availability.
We continue
to develop, enhance and monitor our operational
standards, ensuring that environmental priorities
are accounted for appropriately in planning and
decision making, and where possible, the impact
of our activities on the environment is reduced or
minimised
• We carefully monitor the future product offerings
of our current and future OEM partners, along
with emerging brands, ensuring we maintain and
grow partnerships with those producing relevant
product meeting consumer demands
44
Pendragon PLC Annual Report 2022
NO.
PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
5
REGULATORY AND COMPLIANCE
Failure to comply
with legal and other
requirements and
respond to changes
which could have a
material effect on our
business model, for
example, such as our
ability to provide Finance
& Insurance products to
our customers, or adverse
changes in trade tariffs
Failure to respond to
changes in legislation,
in particular in relation
to environmental,
employment, and
governance, which could
lead to shareholder
and other stakeholder
dissatisfaction
•
This could lead to fines,
criminal penalties, litigation
and an adverse impact on our
reputation, financial results,
and/or our ability to do
business
• We may be restricted from
continuing certain business
activities, such as those
regulated by the FCA
• Resources are diverted to
address urgent remediation, as
well as taking proceedings or
defending legal or regulatory
action
• The ability to obtain
appropriate inventory is
impeded and/or purchase costs
rise
• We maintain appropriate expertise to interpret,
assess and respond to proposed changes in
regulation, enabling us to adapt our model and
processes to comply with changes in a seamless
manner
• Our culture focuses strongly on good compliance,
with emphasis on doing the right thing and
delivering good performance
• We operate a Finance & Insurance Services
Regulatory Board with a supporting governance
framework and continue to review and invest in
systems and processes to minimise the risk of
non-compliance to FCA regulations
•
Our team of compliance specialists design, and we
communicate effectively, processes that support
our businesses to minimise the risk of non-
compliance across a range of areas
•
In the case of new vehicles, our diverse
representation mitigates the risk and for parts
we maintain alternative sources of supply where
possible
•
In September 2021 we implemented a committee
to provide strategic direction and oversight
to our Environmental, Social and Governance
agendas. The work of the committee will be
informed by our self-assessment of ESG practices,
which has been completed using an independent
benchmarking tool. Further information can be
found at page 51 within our ESG Report
6
TECHNOLOGY AND INFORMATION SYSTEMS
Failure of our IT
infrastructure or key
systems, including failure
to maintain and build
performance, capacity
and resilience
Failure to invest in
new technologies and
maintain a cohesive
and comprehensive
technological capability
• This could lead to an inability
to operate and communicate
effectively, loss of information
and competitive advantage
and potential regulator action
resulting in fines and penalties
• We adopt and regularly update robust disaster
recovery measures, including within our dealer
management systems
• We operate a Pendragon Group IT function,
reporting to the Chief Information Officer, to
set strategy for technology including cloud-
based systems and processes.
Disaster recovery
capability and systems availability is in place for
all core systems
•
Central control of all Microsoft endpoints is in
place. A centralised management process for
mobile devices is being rolled out
RISK OVERVIEW AND MANAGEMENT
45
Pendragon PLC Annual Report 2022
NO.
PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
7
INFORMATION AND CYBER SECURITY
Failure to meet our
business objectives due
to an inability to protect
our customers, personnel
and our assets from
security threats and
vulnerabilities associated
with our business
activities
• This could lead to an inability
to operate and communicate
effectively, loss of
information and competitive
advantage and potential
regulator action resulting in
fines and penalties
•
The Chief Information Officer has reviewed our
cyber security measures through an independent
third party
• An Information Security Improvement Plan is in-
flight, which includes identifying opportunities for
continual improvement
• The Information Security Steering Committee
oversees change and operational activities relating
to information security. Various improvements have
been delivered over the last year, including annual
security training for all staff, improved asset visibility
and management, onboarding a Security Operations
Centre to provide centralised monitoring and
enhanced incident response capabilities, increased
authentication requirements and reduced technical
debt, and improved security configurations through
migration to cloud hosting. Further improvements
are planned for this year, reviewing approaches to
privileged access management, ongoing security
testing to help identify weaknesses across our
estate, and process improvements
•
Our Pinewood business monitors cyber security
threats and has systems and processes in place
to deal with incidents relating to the services
they provide. This is demonstrated through their
continued ISO27001 certification
• We have cyber liability insurance in place, that
includes Cyber Incident Response Centre, providing
access to expertise to assist during a crisis
8
DATA SECURITY AND DATA PRIVACY
Failure to comply with
legal or regulatory
requirements relating
to data security or data
privacy in the course of
our business activities
• This could lead to data
loss or misuse and have a
significant effect on our
reputation. Fines and criminal
penalties could be imposed
and disruption to business
operations and our ability to
serve customers. Financial
results could be adversely
affected
•
We regularly review our data protection policies,
controls, Associate training and the use of third
party systems
• Our Information Technology teams monitor cyber
security threats and have systems and processes in
place to deal with incidents, and we have recently
established a Security Operations Centre to further
enhance and develop our ability to monitor for, and
track cyber security threats to our business
• We have cyber liability insurance in place
•
The Chief Information Officer has reviewed our
cyber security measures through an independent
third party. An Information Security Improvement
Plan is in-flight, supported by an external advisor
engaged to provide oversight and direction to
remediation activities
• The Information Security Steering Committee has
been operational since March 2020 to oversee
change and operational activities relating to
information security
• A Data Protection Governance Forum is in place to
govern GDPR risk management activities
46
Pendragon PLC Annual Report 2022
NO.
PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
9
RELIANCE ON ESTIMATES
Failure to maintain
reliable systems and
methods for provision of
financial estimates
•
Group’s financial statements
will be wrong, affecting
vehicle values where we
have committed to purchase
at a pre-set price, and the
discounted cashflows used to
test impairment of goodwill,
expected profit or loss on sale
of our inventory items with
particular risk from fluctuating
used vehicle prices and the
retirement benefit obligation
• Reputational damage and
inability to raise funding for the
Group’s business
•
Revenue and profits all suffer
damage
• We assess actual outturns of previous estimates
to test the robustness of adopted assumptions,
and adjust the estimating approach accordingly
•
We support estimates with reliable external
research where available
10
PEOPLE
Failure to attract,
motivate, develop and
retain the required
capability and promote
an appropriate culture
to deliver our business &
people strategy
• This could lead to an inability
to deliver our business strategy
and achieve our focused
results.
• We could lose market share
and adversely affect our
customers owing to poor
service
• Loss of key personnel
and skilled workers (e.g.
technicians) would impact
operational performance, and
relationships with key brand
partners and suppliers
• Colleague engagement
deteriorates due to difficulties
experienced directly or
indirectly by the wellbeing of
the workforce
• An unprecedented rise in
salaries could increase our
fixed costs to a level that
is unsustainable for the
organisation to compete
•
We have a Chief People Officer who is responsible
for delivering a people strategy
• The HR Transformation Steering Group is
responsible for overseeing change and all
operational activities relating to associates
•
We are investing in strategic workforce planning
in order to be ahead of the competition with
regards to future skills needed
• We focus on clear learner journeys and career
paths to ensure we have the right skills in the
organisation
• We invest in online means of attraction and
recruitment, targeting the right quality candidates
•
We continually review our performance
management framework, to ensure it remains
effective and is linked to competencies and career
pathways
•
We continually review and adapt for the market
conditions our employment terms, salaries and
performance related pay elements at all levels
•
We adopt and renew responsive succession plans
for all key roles. Within our Motor Division we
complete a Talent Review twice yearly
•
We regularly review our policies, controls &
associate training. We leverage our scale to afford
training opportunities and progression within the
Group
• We continuously improve our cultural purpose
and behaviours to recognise and engage our
associates beyond monetary reward
RISK OVERVIEW AND MANAGEMENT
47
Pendragon PLC Annual Report 2022
NO.
PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
11
MACRO-ECONOMIC AND POLITICAL
European economic
instability and/or UK or
Global economic and
business conditions
deteriorate
UK Governmental spending
constraints
Longer term impact of
higher interest rates on
consumer purchasing
habits, and on the cost
of servicing debt. Higher
inflation has resulted in a
current ‘cost of living’ crisis
which has the potential to
reduce consumer spending
on big-ticket items
Longer term
unemployment resulting in
lower consumer spending,
in particular on big-ticket
items
•
Fewer purchasers of vehicles
• Spend on luxury purchases
reduces due to higher interest
rates, unemployment and job
insecurity
• Vehicle manufacturers
oversupply into UK market or
alterations to supply terms,
damages margins and vehicle
values
•
Lower demand for vehicle
servicing
• Our business model derives revenues from
every stage of the vehicle’s life-cycle and has
expanded into the older vehicle parc for both
vehicle sales and aftersales
•
We carefully control new vehicle inventory
to mitigate effects of overstocking and work
closely with our OEM partners, accessing
support through initiatives such as extended
stocking finance
•
We have right-sized our cost base, completed
a dealership network review and closed
loss-making operations, and we continue to
pursue opportunities to ensure our business
processes are highly efficient
• We invest in and vigorously pursue customer
retention initiatives to secure longer term
loyalty
• The impact of reduced supply since the
Covid-19 pandemic in 2020 has resulted in
a large amount of pent-up demand in the
market, which together with changes in
consumer transport habits may underpin the
market despite lower consumer disposable
income
12
FINANCE & TREASURY
Lack of availability of debt
funding
Increasing Pension
liabilities arising from our
defined benefit scheme
• As set out in more detail in note
4.2 the Group has an amortising
Senior Term Facilities Agreement
of £97m maturing in March 2027,
and a Revolving Credit Facility
of £75m maturing in March 2025,
with extensions at the option of
the lenders to March 2026 and
then to March 2027. Without
the requisite facilities the Group
would be unable to meet debt
obligations
• Changes in the strength of the
employer covenant, discount
rates, inflation, asset values,
Pension trustees’ investment
strategies or mortality
assumptions could lead to a
materially higher deficit than our
current recovery plan is designed
to fund, and a direct impact on
valuation, implied credit rating
and potential additional funding
requirements at subsequent
triennial reviews
• Our business model produces strong free cash
flow generation
• We maintain adequate committed facilities to
meet forecast debt funding requirements and
have recently agreed new facilities to mature
between March 2025 and March 2027
•
Diversification of funding sources, monitor
daily our funding requirements
•
The Defined Benefit Scheme was closed to
new entrants in 2000 and for future service
accrual in 2006
•
Regular review by our pension trustees of
investment strategy and liability reduction
and risk mitigation, taking professional advice,
including triennial valuations
•
Deficit funding recovery plan in place
48
Pendragon PLC Annual Report 2022
NO.
PRINCIPAL RISKS
IMPACT BEFORE MITIGATION
MITIGATION
13
HEALTH, SAFETY & ENVIRONMENTAL
Failure to provide safe
working and retail
environments
Failure to keep up to date
with, and put in place
adequate procedures
to comply with all HM
Government laws,
regulation and guidance
at both Country and
local/regional level
Failure to control the
environmental hazards
present within our
operations
Failure to keep up to
date with Environmental
Regulations
• This could lead to illness and
injury, fatalities, lost working
time, civil claims and clean-up
costs
• Our reputation could be
adversely affected and
regulatory action could result in
prohibition, fines and criminal
penalties and closure of
businesses
• This could lead to sanctions
from the Environmental
Agency in respect of harmful
substance emissions/ escape
into the atmosphere, which
may adversely affect the
efficiency of our Body Centres
and SMART repair throughput
and excessive charging as “End
User Packaging” levy
•
We work to the Health & Safety Executive’s ‘Plan,
Do, Check, Act’ framework for managing risk in
the workplace
• We allocate clear responsibilities for delivery of
safe places to work and shop
•
In consultation with the business and where
appropriate, external specialists we adopt
process-driven initiatives to mitigate specific risk
areas
•
We are well prepared with robust provision for
safe-working under socially distanced conditions,
with enhanced hygiene protocols and rapid
response to localised issue.
Safety remains
our number one priority and is monitored by a
centrally coordinated team. Plans are in place
should the situation escalate again
•
We measure and review our performance against
appropriate benchmarks
• We allocate local accountability for sites’
compliance and provide specialist support to
responsible leaders
• We monitor site conditions and drive corrective
action through audit follow-up
• We operate independent routes for the reporting
of any concerns (whistle blowing) and have
a standard procedure for investigation and
escalation of matters of concern
RISK OVERVIEW AND MANAGEMENT
49
Pendragon PLC Annual Report 2022
VIABILITY STATEMENT
VIABILITY STATEMENT
In
accordance
with
provision
31
of
the
UK
Corporate
Governance Code, published by the Financial Reporting
Council in July 2018 (the ‘Code’), taking into account the
company’s current position and principal risks, the Directors
have assessed the viability and prospects of the company
over the three-year period to 31 December 2025.
The Group normally expects to have in place facilities of three
years and therefore this remains the appropriate time-frame to
assess viability.
The three-year review considers the Group’s
profit and loss, cash flows, debt and other key financial ratios
over the period.
These metrics are subject to a severe but
plausible downside scenario which involves flexing several
of the main assumptions underlying the forecast, including a
severe downturn to vehicle volumes and margins based on
externally sourced forecasts and restricted new car supply
due to manufacturing constraints.
In this scenario, capital
expenditure has been reduced to run-rate expenditure and
committed projects.
Based on the results of this analysis, the Directors have a
reasonable expectation that the company will be able to
continue in operation, comply with facility covenants and meet
its liabilities as they fall due over the three-year period of their
assessment. The Directors are mindful of the potential impact
of a macro-economic downturn, a market correction in used
pricing and shortfalls in both new and used car supply resulting
from shortages in microchips impacting manufacturing and
any further risk of disruption to supply chains that the ongoing
conflict in Ukraine presents, but after assessing the risks do
not believe there to be a material risk to going concern.
In addition, further discussion of the principal risks affecting
Pendragon PLC can be found within the Annual Report and
Accounts on pages 38 to 48.
The risk disclosures section of
the consolidated financial statements set out the principal
risks the Group is exposed to, including strategic, operational,
economic,
market,
environmental,
credit,
technological,
regulatory and team member resource.
The Board considers risks during the year on a triannual
basis through the Risk Control Group and annually at a Board
meeting with ad hoc reporting as required.
The principal risks and the mitigation steps that the Board
considered as part of this viability statement were as follows:
• The availability of debt funding, in particular, the successful
refinancing of both the private placement and revolving
credit facility, when the revolving credit facility matures in
March 2025.
The Board intend to seek the right external
advice to ensure the most appropriate debt funding sources
are identified as part of any refinancing process. It is possible
that the terms of any refinancing may be less favourable for
the Group than the current facility.
• The ability to adapt to changing environments outside
our direct control such as macro-economic, political and
environmental factors, regulation changes, manufacturer
and
competitor
behaviour.
The
Board
has
specifically
reviewed the potential impacts and available mitigating
actions as a result of a downside trading scenario.
We
mitigate these risks through the diverse revenue generation
from all parts of the vehicle cycle and wide range of franchise
representation together with regular monitoring to identify
changes quickly.
During 2022, the Board carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten its business model, future performance, solvency
or liquidity.
The Directors believe that the Group is able to
manage its business risks successfully, having taken into
account the current economic outlook and the results of the
severe but plausible downside scenario for the three-year
viability period. Accordingly, the Board believes that, taking
into account the Group’s current position, and subject to the
principal risks faced by the business, the Group will be able to
continue in operation and to meet its liabilities as they fall due
for the period up to 31 December 2025.
Approved by order of the Board
Mark Willis
Chief Finance Officer
22 March 2023
50
Pendragon PLC Annual Report 2022
51
Environmental, Social and Governance Report
52
Environmental Report
60
Social Report
63
Corporate Governance Report
66
Board of Directors
68
Audit Committee Report
74
Nomination Committee Report
76
Remuneration Committee Report
77
Directors’ Remuneration Report
96
Directors’ Report
DIRECTORS’ REPORTS
51
Pendragon PLC Annual Report 2022
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
In 2021, the Group re-evaluated its responsibilities to our
customers, investors, associates, suppliers and the public in
terms of how our activities as a retailer impact the natural
environment, how we treat people such as our employees,
customers and those in the communities in which we operate
and how we control and govern the operation of our Company.
The changes we made meant that we were well placed in 2022
in terms of our environmental, social and governance (“ESG”)
objectives, in terms of:-
•
monitoring where the Group is today and what has changed
year on year in terms of our ESG standards and measures;
•
where the Group aspires to be in the future, in terms of
future targets and plans to improve our ESG reporting and
the efficacy of the measures we implement;
•
how
the
Group
aims
to
achieve
our
targets,
with
appropriately
defined
milestones
achievable
over
the
medium to long term, against which we can monitor our
progress, and what action we intend to take where we
identify our progress has been behind target.
It remains clear that the context in which businesses, including
our own, now operate is being both informed and transformed
by climate change, nature loss, social unrest around inclusion
and
working
conditions
and
changing
expectations
as
to
the role of corporations, such as the part businesses are
expected to play regarding equality and access to economic
opportunities.
Despite the progress made in 2021 and last year, we still
recognise that in some areas of ESG implementation, we remain
at the beginning of our journey of continuous improvement.
However, we have now embedded ESG initiatives into our
strategic objectives and remuneration incentives, which we
believe will further enhance and drive progress.
ENVIRONMENTAL REPORT
The Group continues to operate to a formal Environment
Policy, pursuant to which our responsibility to protect the
environment and minimise the environmental impact of our
activities is explicitly recognised.
In partnership with our
associates, manufacturers, customers and suppliers, the
Company aims to operate to high standards of environmental
protection appropriate to its business activities. The Group’s
Environment Policy includes specific oversight and direction
from the Board of directors as to the impact of the Company’s
activities on climate change, nature loss, solid waste (including
single use plastics) and resource availability.
We continue to
develop, enhance and monitor our operational standards, such
that that environmental priorities are considered in planning
and decision making, and where possible, the impact of our
activities on the environment is reduced or minimised.
In accordance with Listing Rule 9.8.6R(8), we have set out
in the TCFD overview table beginning on page 52 below
certain climate-related financial disclosures aligned to the four
recommendations and the eleven recommended disclosures
contained within the TCFD additional guidance (Implementing
the Recommendations of the Task Force on Climate Related
Financial Disclosures (2021 TCFD Annex)).
Within
the
TCFD
overview
table,
we
have
also
included
disclosures by each of the recommended disclosures,
identifying
whether
we
consider
such
disclosures
to
be
either consistent with the recommendations of the TCFD or,
where disclosures have only been partially made or omitted
a further description of any steps taken or planned to ensure
our disclosures are consistent in the future, including relevant
timeframes.
In particular, of the eleven TCFD recommended disclosures,
the Company considers that it is consistent with one disclosure
(under
risk
management
c),
partially
consistent
with
one
disclosure (under metrics and targets b) and has omitted
disclosure under nine disclosures, as more specifically set out
in the TCFD Overview table on pages 52 to 55.
Of
the
omitted
disclosures,
further
work
is
underway
to
enhance the identification, impact and reporting for climate-
related risks and opportunities, and how these map over the
short, medium and long term. Scoping work over the next
12-18 months will provide further clarity and understanding
as to what is required, having not been able to achieve the
necessary disclosures at this stage due to our current resource
base.
Furthermore, although we have now incorporated a carbon
reduction metric into the performance conditions for our long-
term incentive plan, we recognise that we still have more to
do in terms of implementing the rest of the 2021 TCFD Annex.
52
Pendragon PLC Annual Report 2022
TCFD OVERVIEW
Disclosure Level:
Full
Partial
Omitted
Recommen-
dation
Recommended
disclosures
Summary of Progress/ Measures planned to ensure
future consistency with the recommendation
Reference
Disclosure
Level
GOVERNANCE
Disclose the
organisation’s
governance
around
climate-
related
risks and
opportunities
a) Describe the
Board’s oversight
of climate
related risks and
opportunities
The Board is responsible for our climate ambition,
embodied in the Group’s Environment Policy which is
reviewed annually. We have also embedded a specific
carbon reduction target metric into our long term
incentive plan performance conditions, to further
incentivise and drive progress.
It is the Company’s intention to further revise the
Environment Policy within the next 12 months, ensuring
that a specific focus on climate-related issues becomes
fully embedded in the Policy. Consideration of climate-
related issues will also become a standing agenda
item of the Board in the context of the consideration
of our strategy, including how climate-related
issues potentially impact our strategy and financial
performance, together with the monthly submission
to the Board of our most recent and available metrics
appertaining to environmental matters.
Annual Report
Environmental,
social and
governance
report page 51
b) Describe
management’s
role in assessing
and managing
climate-related
risks and
opportunities
The Group’s ESG working group, consisting of
members of senior management from across the
Group, including the CFO, CPO, CMO and GGC,
together with the Risk Control Group (RCG) exercises
day to day oversight of climate risks.
The ESG will meet at least quarterly in order to review
and assess the Company’s progress and management
of climate related risks. Further to the enhancement of
the Board’s oversight and ability to consider climate
related risk described above, within the next 12 months,
changes will be made to the terms of reference of the
Company’s Audit Committee in order to formalise
and strengthen its ability to review and challenge
environment and climate related reporting, including
a direct line of oversight of the ESG working group: in
turn, the ESG will provide reports as to its progress to
the Audit Committee.
Annual Report
Environmental,
social and
governance
report page 51
ENVIRONMENTAL REPORT
53
Pendragon PLC Annual Report 2022
TCFD OVERVIEW
Disclosure Level:
Full
Partial
Omitted
Recommen-
dation
Recommended
disclosures
Summary of Progress/ Measures planned to ensure
future consistency with the recommendation
Reference
Disclosure
Level
STRATEGY
Disclose the
actual and
potential
impacts of
climate-
related
risks and
opportunities
on the
organisation’s
businesses,
strategy and
financial
planning
where such
information is
material
a) Describe
the climate-
related risks and
opportunities
the organisation
has identified
over the short,
medium and long
term
The actual and potential impacts climate change
can make on our business, strategy and financial
planning are outlined further below. However, in
outline, HM Government’s decision to ban the sale of
all new petrol and diesel vehicles by 2030 presents a
significant opportunity for the business to harness the
move to PHEV and BHEV vehicles, initially in the new
market but, increasingly in the used vehicle market
as consumers move to these products. Initiatives to
reduce our impact on the environment are detailed
further below.
The Group will continue to monitor climate related
risks and opportunities to ensure that the Group is
resilient and well prepared to face any emerging issues;
we engage regularly with both OEMs and consumers
to facilitate this, although recognising that as our
relationship with key OEMs is as a franchisee, our
ability to influence OEMs is limited.
Annual
Report
Risk
Management,
page 43
Environmental,
social and
governance
report page 51
b) Describe the
impact of climate
related risks and
opportunities
on the
organisation’s
businesses,
strategy and
financial planning
The Group’s strategy includes harnessing the potential
of the move to BEV and PEV vehicles, both in sales
and aftersales. As outlined above, we will be well
positioned and prepared for when the sale of new
petrol and diesel vehicles is no longer permitted in
2030. Although we consider the move to BEV and
PEV vehicles the most significant climate related
opportunity, the ESG, together with the RCG plans to
undertake a further detailed review of other specific
climate related risks and opportunities facing the group
over the next three years.
Annual Report
Risk
Management,
page 43
Environmental,
social and
governance
report page 51
c) Describe the
resilience of the
organisation’s
strategy,
taking into
consideration
different climate
related scenarios,
including a 2
o
C
or lower scenario
We recognise that there is more work to be done in
this area; the ESG working group will consider this
further as part of its mandate, and, together with
the RCG, will commission a resilience review of the
organisation’s strategy, taking into consideration
climate related scenarios over the next three years.
54
Pendragon PLC Annual Report 2022
TCFD OVERVIEW
Disclosure Level:
Full
Partial
Omitted
Recommen-
dation
Recommended
disclosures
Summary of Progress/ Measures planned to ensure
future consistency with the recommendation
Reference
Disclosure
Level
RISK MANAGEMENT
Disclose
how the
organisation
identifies,
assesses and
manages
climate
related risks
a) Describe the
organisation’s
processes for
identifying and
assessing climate-
related risks
Environmental is included as a principal risk as
part of our risk management overview processes.
Climate change has been considered as part of the
environmental risk and is not considered to be a
standalone principal risk. The ESG working group will
continue to review, assess and consider any climate
related risks which may impact upon our operations,
and report to the RCG, and, ultimately the Audit
Committee and Board where necessary.
In addition, within the next 12 months, the Company
will further revise the Environment Policy, ensuring
that a specific focus on climate-related issues becomes
fully embedded in the Policy. Consideration of climate-
related issues will also become a standing agenda
item of the Board in the context of the consideration
of our strategy, including how climate-related
issues potentially impact our strategy and financial
performance, together with the monthly submission
to the Board of our most recent and available metrics
appertaining to environmental matters.
Annual Report
Risk
Management,
page 43
b) Describe the
organisation’s
processes for
managing climate
related risks.
All areas of the business are subject to regular risk
identification, assessment and review. As part of our
annual insurance renewal processes, we continue to
note sites that are at risk of localised flooding so we can
react accordingly.
Further to the enhancement of the Board’s oversight
and ability to consider climate related risk described
above, within the next 12 months, changes will be made
to the terms of reference of the Company’s Audit
Committee in order to formalise and strengthen its
ability to review and challenge environment and climate
related reporting, including a direct line of oversight of
the ESG working group: in turn, the ESG will provide
reports as to its progress to the Audit Committee.
c) Describe
how processes
for identifying,
assessing and
managing climate
related risks are
integrated into
the organisation’s
overall risk
management
Environmental is included as a principal risk as
part of our risk management overview processes.
Climate change has been considered as part of the
environmental risk and is not considered to be a
standalone principal risk. The ESG working group will
continue to review, assess and consider any climate
related risks which may impact upon our operations,
and report to the RCG, and, ultimately, the Audit
Committee and Board where necessary.
The ESG receives sector specific information on
environmental and climate related risks from its OEM
partners and industry bodies, such as the SMMT. The
ESG working group will continue to review, assess and
consider any specific climate related risks which may
impact upon our operations.
In addition, it is proposed that a specific sub-risk
designed to identify, manage and assess climate
related risks be developed and considered within the
organisation’s risk management framework
Annual Report
Risk
Management,
page 43
ENVIRONMENTAL REPORT
55
Pendragon PLC Annual Report 2022
TCFD OVERVIEW
Disclosure Level:
Full
Partial
Omitted
Recommen-
dation
Recommended
disclosures
Summary of Progress/ Measures planned to ensure
future consistency with the recommendation
Reference
Disclosure
Level
METRICS AND TARGETS
Disclose the
metrics and
targets used
to assess
and manage
relevant
climate-
relates risks
and such
opportunities
where such
information
is material
a) Disclose the
metrics used by
the organisation
to assess climate-
related risks and
opportunities
in line with its
strategy and risk
management
process
Our assessment of climate related risks and
opportunities is summarised below; as we have
indicated, although we have a number of high level
measures already in place, we are still at the beginning
of our journey in terms of improving and enhancing our
metrics and targets in relation to (i) climate change; (ii)
land use and ecological sensitivity; (iii) solid waste and
single use plastics and (iv) product diversification.
We anticipate that both our metrics and targets will
developed and enhanced further over the next 12 to
24 months as our ability to collect and collate the
necessary data becomes more sophisticated. In relation
to climate change, it is now a performance metric of our
long term incentive scheme to effect reductions in our
CO
2
emissions over successive three year performance
periods.
Annual Report
Environmental,
social and
governance
report page 51
b) Disclose Scope
1, Scope 2 and,
if appropriate,
Scope 3
(greenhouse gas
(GHG) emissions
and the related
risks
See disclosures at page 56 of this ESG Report. Other
than emissions from emplpyee commuting, we do not
currently disclose our total Scope 3 (other indirect
emissions from extraction and production of purchased
materials and fuels for which the Company does not
own or control) as further clarity is required as to what
is applicable for the Group, and how we capture the
relevant dataset without imposing a disproportionate
burden on the effective operation of our businesses.
In terms Scope 3 emissions, we propose to undertake
further scoping work over the next 12-18 months to
provide further clarity and understanding as to what is
required and, more importantly, achievable within our
current resource base.
Annual Report
Environmental,
social and
governance
report page 51
c) Describe the
targets used by
the organisation to
manage climate-
related risks and
opportunities
and performance
against targets
Whilst we recognise that whilst we have now
embedded a specific carbon reduction metric into our
long term incentive plan performance conditions, we
recognise that there is significantly more work to do to
embed other more tangible targets into our process for
managing climate related risk; we propose to consider
and review potential targets to be used over the next
12-18 months.
Annual Report
Director’s
Remuneration
Report, page
90
Environmental,
social and
governance
report page 51
56
Pendragon PLC Annual Report 2022
Source
Tonnes of CO
2
e
01.01.22 – 31.12.22
01.01.21 – 31.12.21
Scope 1: Direct emissions from activ-
ities for which the company own or
control – emissions generated by its in
-
ternal fleet operations (Scope 1/tCO
2
e)
2,630
4,452
Scope 2: Indirect emissions from the
use of purchased electricity and gas
(Scope 2/ tCO
2
e)
12,169
14,129
Scope 3: emissions generated by em-
ployee commuting (Scope 3/ tCO
2
e)
6,548
7,967
TOTAL GROSS SCOPE 1, 2 & 3
EMISSIONS:/ tCO
2
e
21,347
26,548
Energy consumption used to calculate
above emissions:/kWh (Scope 2)
65,517,250
73,269,036
Scope 1, 2 & 3 Intensity Ratio (tonnes
of CO2 per £m of revenue)
5.9
7.7
GLOBAL GREENHOUSE GAS EMISSIONS DATA
CLIMATE CHANGE: REDUCING CARBON AND WASTE
Recognising the goals of the Paris Agreement to limit global
warming to well below 2°C above pre-industrial levels and
pursue efforts to limit global warming to 1.5°C, it remains
the Company’s objective to achieve annual reductions in the
amount of CO2
we emit from our facilities and our driving
activities.
Our Target:
Our Progress:
Initiatives to ensure continued delivery:
Annual
reductions
(where
possible) in
the amount
of CO2
emitted
from our
facilities
and driving
activities.
We have reduced the
tonnes of CO2 emitted
from our facilities by
1,960 tonnes year on
year and the tonnage
of CO2 emitted from
driving activities by
3,241 tonnes year on
year.
•
Increased and ongoing electrification or hybridisation of company car fleet,
and selection of most energy efficient vehicles where possible;
•
Continued reduction of carbon emissions from commuting activity through
hybrid and remote working and technological solutions
•
Setting shorter and measured routes for customer demonstrator vehicle usage
to reduce emissions;
•
Improving the energy efficiency of our facilities informed by the results
of mandatory energy assessments of sites in accordance with the ESOS
Regulations 2014;
•
Installation of LED lighting, limit periods when full lighting is used at facilities
out of hours, auto closure of external doors, installation of insulators to limit
heat escape, installation of solar panel and solar energy systems on any new
build developments
•
Introducing automatic shut-off valves to compressors and air tools to reduce
energy usage and increase efficiency
Methodology: (i) Scope 1 and Scope 2 emissions have been reported where the Group has operational control of a property or an asset. This includes emissions from
driving activities as detailed in note (ii). (ii) CO2 emitted from driving activity comprising of internal vehicle movements (scope 1) and employee commuting (scope 3) is
the result of analysis of mileage, vehicle and employee commute data over defined three year periods (2019-21 for 2021 data and 2020-2022 for 2022 data) to quantify the
total mileage and C02 emissions across internal operations (company cars, service loans, demonstrators, parts vans and employee commutes. Vehicle sales are outside
the scope of the review. The mileage of vehicles was extracted from vehicle stock and sales information. A vehicle master list was provided from CAP HPI to provide
carbon emissions data for each vehicle. Employee home and work postcode information was used to calculate commuting distances, with an average C02 emissions per
mile (based on the UK average) used to calculate total emissions; (iii) Other than employee commuting, scope 3 emissions are currently not included, as we currently do
not have the capability to capture the required additional dataset, and to do so at this stage would require a disproportionate use of resource. (iii) to our methodology to
calculate greenhouse gas emissions is to use UK Government GHG Conversion Factors for Company Reporting, published by DEFRA on 20 September 2022
ENVIRONMENTAL REPORT
57
Pendragon PLC Annual Report 2022
The Company again engaged Interpath Advisory, a specialist
financial advisory business to review and quantify the carbon
emissions
generated
by
its
internal
fleet
and
Associates
commuting to work for the periods 2019-2021 and 2020-
2022 Emissions have been quantified across various business
dimensions, including division, make, model and usage
profile in order to understand how our business activity in
this area contributes to carbon emissions.
Overall, emissions
for 2022 were 9,178 tonnes, of which 2,630 tonnes was from
internal fleet operations and 6,548 tonnes from commuting,
representing a 26.1% decrease on total 2021 emissions.
Over the period 2020 to 2022, emissions have declined by
40% from 15,308 to 9,178 tonnes, due to a combination of
structural changes in the business and improved efficiency in
the vehicle fleet and reduction in mileage driven.
C0
2
Emissions,
tonnes 2020 - 22
2022
2,630
6,548
9,178
2020
7,614
7,694
15,308
2021
4,452
7,967
12,419
Emissions from vehicles
Emissions from staff commuting
58
Pendragon PLC Annual Report 2022
LAND USE AND ECOLOGICAL SENSITIVITY
The Group remains conscious as to the impact of its land
use and dealership footprint on the environment, and,
consequently, where new dealerships or developments are
proposed, wherever possible, we continue to prioritise the
development of brownfield sites or the repurposing of our
existing estate accordingly.
For the majority of our new
developments, active steps are taken in conjunction with the
relevant local authority to prepare and agree a biodiversity
plan suitable for the location being developed.
In addition,
the majority of new developments are prepared and assessed
in
accordance
with
BREEAM
‘Very
Good’
standards,
as
required by relevant local authority planning requirements.
BREEAM ‘Very Good’ standards are intended to assess the
design, construction and intended use and future-proofing
of new building developments, including the local, natural or
manmade environment surrounding the building.
Our Target:
Our Progress:
Initiatives to ensure continued delivery:
Prioritise the
development of
new dealerships or
developments on
brownfield sites or
by repurposing the
existing estate
Development of new sites at
Chesterfield and Warrington
completed in 2022 and achieved
Grade B EPC ratings.
Developments
at Glasgow and Motherwell,
on brownfield sites ongoing.
Completion of rebuild of BMW Hull
achieved Grade B EPC rating.
•
In conjunction with the local authority, agreed
biodiversity plans.
•
As required by the local authority, assessment of new
build sites in accordance with BREEAM ‘Very Good’
standards.
Our Target:
Our Progress:
Initiatives to ensure continued delivery:
Reduce use of single
use plastics procured
through the Group’s
supply chain and
increase tonnage of
single use plastics
recycled.
We recycled 74.61 metric tonnes of
single use plastic in 2022, compared
to 65.73 metric tonnes of single use
plastic in 2021.
We recognise this
is only a marginal improvement and
are reviewing initiatives to both de
-
crease our single use plastics usage
and increase our single use plastics
recycling.
•
Consider the introduction of new procurement
standards requiring Group suppliers to demonstrate
initiatives/steps to reduce single use plastic
•
Consider imposing requirements on suppliers to
minimise packaging waste as part of new procurement
standards
•
Re-communication to businesses in terms of recycling
expectations and ethos.
•
Trialling an initiative in the north-east to increase our
single use plastics recycling.
SOLID WASTE: SINGLE USE PLASTICS
Although
we
are
not
a
manufacturer,
the
Group
uses
a
significant volume of single use plastics through our supply
chain, primarily in terms of aftersales parts.
In 2021, we
successfully recycled 65.73 metric tonnes of single use
plastics across all our businesses, and have improved on this
in 2022 with 74.61 metric tonnes of single use plastic being
recycled.
However, we estimate that this is only a proportion
of the total single use plastic used across the Group, and we
are now trialling an initiative in our dealerships located in the
north east designed to increase our recycling of single use
plastics.
If the pilot scheme in the north east is successful,
we will implement it across the entire Group.
In addition,
we are actively reviewing our procurement activities with a
view to developing a set of procurement standards and best
practice which will include, inter alia, renewing and refreshing
the recycling expectations across all our businesses, as well as
the review of supplier packaging to further target a reduction
of single use plastics forming part of packaging or product
supplied to us wherever possible.
ENVIRONMENTAL REPORT
59
Pendragon PLC Annual Report 2022
Our Target:
Our Progress:
Initiatives to ensure continued delivery:
Increase volume of
units of electric and
hybrid vehicles sold.
Install 500 electric
vehicle charging
points by the end of
2025.
Year on year, we have increased
sales of new electric and hybrid
vehicles by 46% and sales of used
electric and hybrid vehicles by 54%
We have now installed 396 electric
vehicle charging points across our
dealership and property estate,
making significant progress against
our target of having 500 electric
vehicle charging points in place by
2025.
•
Close liaison with our OEM partners to promote
diversification into electric vehicle sales;
•
Target to install 500 electric vehicle charging points
across our dealership and property estate by 2025.
PRODUCT DIVERSIFICATION
The UK Government has announced that by 2030, the sale
of new petrol and diesel powered cars in the UK will end.
In
line with this Government commitment, and acting primarily
as
a
retailer
in
conjunction
with
our
manufacturer/OEM
partners, we are actively and consciously working to promote
and further the sale of battery, electric and hybrid vehicles
across our businesses.
Although we are pleased to report
that interest in electric powered vehicles continues to rise
across the Group, with sales of both PHEV and BHEV vehicles
increasing year on year, we are also acutely conscious that
there is still a long way to go before electric vehicles become
the dominant choice of our customers.
Notwithstanding
our
increased
and
continued
efforts
to
diversify the range of products we retail,
including furthering
the retail and promotion of new electric vehicles, we also
recognise that as a standalone retailer of used vehicles, the
retail of petrol and diesel used vehicles will continue for a
number of years as these legacy vehicles continue to work
through
retail
channels.
In
time,
we
anticipate
that
the
availability of used electric and hybrid vehicles will increase, as
these become the pre-dominant, and eventually, only vehicles
available in the new market, and technology continues to
improve.
60
Pendragon PLC Annual Report 2022
Number of Group Employees by category
as at 31 December 2022
as at 31 December 2021
Female
Male
Total
Female
Male
Total
Director
1
6
7
1
7
8
Senior Manager
2
8
10
2
8
10
All employees
1,312
4,022
5,334
1,186
4,068
5,254
OUR PEOPLE
Our associates have a crucial role Driving Beyond the Possible
and delivering against our strategy to create value.
We aim to
be a responsible employer through all that we do, supporting
our new value of ‘Do The Right Thing’. The health, safety and
wellbeing of our associates are primary considerations in the
way we do business. We work to attract, develop and retain
the best talent, equipped with the right skills for the future.
As one of our key strategic priorities we are committed to
advance our current position for our associates.
To support
the business in achieving this, we have established a dedicated
Social Dimension (SD) Working Group that reports directly to
the company’s ESG senior oversight committee.
The SD working group has undertaken a review of our current
position and mapped the opportunities for improvement
aligned to the business’ People strategies. This has led to the
creation of a Social dimension action plan which prioritises
areas of focus for 2023 and beyond.
We have
prioritised
our ability to collect and access accurate and robust diversity
data
to support our progress against the Social dimension
framework.
OUR INCLUSION
We believe that diversity, inclusion and equality of opportunity
for all our associates, no matter who they are, to be essential
to our future success. People are the heart of our business,
and we remain committed to fostering a culture of unity
that is representative of the societies in which we live. This
year we have actively supported the development of three
diversity
and
inclusion
(D&I)
associate
networks:
Pride-
dragon (LGBTQIA+), Gender and Faith and Culture networks.
Developing associate networks sits at the heart of our D&I
strategy, enabling the business to learn alongside our diverse
associate communities and co-create a culture of inclusion.
It is critical for us that we engage out associates in order to
accelerate progress and in turn to create real, positive change.
We aim to ensure that our associates can bring their authentic
selves to work and achieve their full potential and our D&I
networks are core to this.
Wellbeing is a key part of our People Strategy in 2022 we
enabled a programme of activities to support our associates
and their families, launching a series of financial and personal
wellbeing
initiatives.
We
encouraged
and
supported
our
people to recognise Time to Talk Day, National Stress
Awareness Day, Men’s Health Week and World Menopause
Awareness Day.
Throughout
all
our
attraction,
recruitment,
selection,
employment and internal promotion processes, all employment
decisions
are
taken
without
reference
to
irrelevant
or
discriminatory criteria. The company’s diversity and equal
opportunities policy is available at www.pendragonplc.com.
As
reported
last
year
we
continue
to
have
a
mandatory
learning programme for the business to educate our people
with regards to their responsibilities with in terms of diversity
and Inclusion.
Since its introduction we have achieved 94%
completion rate.
We continue to make appointments at Board and immediately
below Board level in accordance with a formal, rigorous and
transparent procedure.
Appointments are based on merit and
objective criteria, and within this context, we aim to promote
diversity of gender, social and ethnic backgrounds, alongside
cognitive and personal strengths in accordance with Principle
J of the UK Corporate Governance Code (Code).
GENDER BALANCE
We describe our approach to Board composition diversity in
the Nomination Committee’s report on page 74.
SOCIAL REPORT
GENDER PAY GAP REPORTING
The company’s annual report containing data on our gender
pay
gap
will
be
published
in
full
on
our
website
www.
pendragonplc.com in accordance with the statutory timescale.
OUR REWARD
Looking after our associates is essential and we continuously
review our benefits offering.
Our ambition is to offer an
industry competitive total reward package that values our
associates and enables us to be a responsible and attractive
employer.
This
year
we
have
partnered
with
Benefex
to
modernise
the way we approach and provide our associates access to
benefits. By bringing all associate benefits together under a
61
Pendragon PLC Annual Report 2022
single
platform,
we
have
simplified
the
pathway
meaning
our associates have improved visibility of their benefits and
improved accessibility through the single platform. Pendragon
continues to invest in pension scheme arrangements to support
its associates, offering a choice of schemes allowing members
to select the most appropriate for their circumstances.
OUR DEVELOPMENT
Training and development is tailored and targeted to roles
or services as part of a blended learning offering integrating
online learning with virtual and classroom training. Training
is systematically planned and delivered to ensure Pendragon
meets regulatory and statutory requirements and to ensure
that both our associates and customers are not exposed to
any risks. Individual and business development needs are
identified in real time through performance check-ins and
responded to as necessary.
Internally we have completed
over 37,321, thousand hours for our associates, an average
of 7.15 hours internal learning and development hours per
associate. This is in n addition to
our collaborative working
with our manufacturer partners to deliver product and vehicle
training to a high standard and ensure robust knowledge and
expertise on the vehicles we sell.
OUR WORKPLACE
Engagement
During
2022
the
business
partnered
with
the
Employee
Engagement Survey Platform provider Peakon to create
a systematic mechanism to enable our Associates’ voice.
Associate engagement forms an essential element of our
people strategy. Providing our Associates with a clear and
open feedback mechanism to share their views and opinions
regarding where and how the business is performing well, and
where and how it could make improvements is core to our
engagement journey.
We delivered our first survey in June
and achieved 54% participation levels with 6.9 engagement
score, improving on both these measures in our November
survey achieving participation levels of 79% (+25pp) and an
engagement score of 7.3 (+0.4). Through the Peakon tool we
will regularly survey our associates and implement local and
group level actions to celebrate what and where our associates
tell us we are doing well but importantly to make responses to
areas that they feel we could improve.
Communication & Hybrid Working
We
work
to
meet
the
challenges
presented
by
our
size
and
nationwide
diverse
geography
through
a
continuous
improvement approach, taking opportunities to innovate
through our internal communications to ensure we reach all
our associates We
now have an embedded formal hybrid
working policy across the Group, applicable where job role
allows, providing our associates with a more flexible and
considered approach to how and where they perform their
work, where possible.
This policy has supported our ability
to attract and retain talent particularly in relation to specialist
roles within the Group.
We consider that the hybrid working
model has significantly changed associate perceptions of the
Company as an employer, as well as increasing productivity
and efficiency.
Internal
website
messaging
and
electronic
newsletters,
together with social media content, are deployed to keep
our associates up-to-date with the Company’s strategy and
performance.
At all levels, communications aim particularly
to recognise the achievements of individual associates and
celebrate outstanding personal and business performance,
through peer recognition.
Each year we review our incentive
and recognition programmes aligned to the Group’s business
objectives.
62
Pendragon PLC Annual Report 2022
Health and Safety
We take seriously our responsibility to our associates,
customers and the public. We aim to ensure that all associates
in the course of their roles, and all who work in or visit our
facilities or receive our services, so far as is reasonably
practicable, experience an environment and practices which
are safe and without risk to their health.
Our policy is to
identify and assess all potential risks and hazards presented
by our activities and to provide systems and procedures which
allow all associates in their daily work to take responsible
decisions in relation to their own and others’ health and safety.
We publish a clear hierarchy of responsibility to associates
and reinforce this through regular monitoring by a variety of
means. We promote awareness of potential risks and hazards
and the implementation of corresponding preventative
or remedial actions through our on-line health and safety
systems, operations manuals and regular communications on
topical issues.
Our health and safety management system
provides
our
UK
leadership
and
associates
with
detailed
access to information, guidance and control measures.
Accidents at Work
Historically, we have assessed our health and safety record
against
relevant
published
benchmarks.
In
2019,
as
a
result of changes to the Health & Safety Executive sector
categorisations,
we
determined
that
the
natural
sector
comparator for our Group is Wholesale and Retail Trade and
Repair of Motor Vehicles and Motorcycles.
There has been
a decrease in RIDDOR
1
reported accidents in 2022 dropping
to 18 (34 per 10,000 employees) from 22 (43 per 10,000
employees) in 2021. This figure is also significantly lower than
the pre Covid 2019 figure of 26. We continue to target specific
hazards and risks for improved results through additional
monitoring and promotion of safe working processes.
The
company’s
health
and
safety
policy
is
available
at
www.
pendragonplc.com .
OUR INFLUENCE, OUR COMMUNITIES
Our strategy considers the impact of the company’s operations
on the community and our wider societal responsibilities.
We
are
predominantly
a
retail
operator,
with
a
tangible
presence in the many communities our businesses serve.
We continue to support national charitable campaigns such
as BBC’s Children in Need appeal and the Save the Children
Christmas Jumper Day.
We
continue
the
Car
Store
partnership
with
Battersea
dogs and cats.
Through our Battersea dogs and cats home
partnership our associates are trained by experts to ensure
we provide the right and best support for our canine loving
customers, and through some of our fundraising activities we
look to support the charity to do their amazing work.
Over the past year, Pendragon associates have participated
in community activities giving time, money and knowledge to
organisations, people and causes both locally and nationally.
We are proud that our associates are positive active members
of their local communities.
They work to support both local
and national initiatives that as a Group means we are able to
make a widespread contribution to our local areas, for example
by our associates and businesses organising charity events
to support schools, hospitals, children and adult grassroots
sports and local foodbanks.
The company encourages these
activities and we welcome the opportunities they present to
engage with the communities our associates live and work in
and recognition of charitable causes with whom our associates
and their families have connections
OUR SOURCING
All our Group’s sites are situated within the UK and at each
of them we operate in strict compliance with all applicable
employment laws.
We have no presence, either directly or
via sub-contractors, in any areas which present any risk of
the exploitation of men, women or children in the workplace.
We work with vehicle manufacturers and other suppliers who
manage their supply chains in a responsible way, free from the
exploitation of labour. We have adopted an Anti-Slavery and
Human Trafficking Policy, available to view on our website,
together
with
our
Anti-Slavery
and
Human
Trafficking
Statement for the year ended 31 December 2022, and survey
our key suppliers on a frequent basis to ensure continued
adherence to our policy.
SOCIAL REPORT
1
RIDDOR: the Reporting of Injuries, Diseases and Dangerous Occurences Regulations 2013
63
Pendragon PLC Annual Report 2022
The UK Corporate Governance Code (Code) applies to the
Company and is available on the FRC website at https://www.
frc.org.uk.
Other than where expressly stated, throughout
the financial year ended 31 December 2022, the Company
complied in full with the applicable provisions of the Code. The
corporate governance statement as required by Disclosure
and Transparency Rule 7.2.1 is set out below.
OUR BOARD
The
Board
sets
our
Company’s
strategy
and
ensures
we
have in place the financial and human resources to meet our
objectives.
We take collective responsibility for Pendragon’s
long term success.
The executive directors, led by the chief
executive officer, are responsible for running the Company and
our Group through the executive committee comprising of the
executive directors and members of senior management to
effect that strategy, including the environmental, social and
governance impacts of the same, and work within prescribed
delegated authority, such as capital expenditure limits.
The
executives direct and monitor business performance through
regular operational meetings with their respective leadership
teams and set and regularly review the effectiveness of key
operating controls, reporting to the Board on these and
any variances.
The Board as a whole reviews management
performance.
Although the Board delegates to the chief executive and chief
finance officer responsibility for briefing key stakeholders,
major shareholders and the investor community, the non-
executive chairman holds himself available to engage with
shareholders, together with the Senior Independent Director,
where
appropriate.
Information
from
engagement
with
shareholders is shared with the entire Board and taken into
account in financial planning and strategy.
The Board has three committees: Audit, Nomination and
Remuneration, each made up entirely of non-executive
directors. The Risk Control Group (RCG) is a committee of the
executive directors, the company secretary and Group head of
internal audit.
Other members from the senior management of
the Group’s operating group functions are co-opted onto the
RCG as required from time to time.
Each committee operates
within delegated authority and terms of reference, set by
the Board, reviewed annually and available to view on the
company’s website. Details of each committee’s work appear
on the next few pages of this Report. Executive Directors can
attend Board committees at times, to assist their business, but
only with the committee’s prior agreement.
LEADERSHIP AND BOARD COMPOSITION
As at 22nd March 2023, the Board comprises three executive
directors and four non-executive directors, including the non-
executive chairman.
The respective responsibilities of the
Board, the non-executive chairman and the chief executive
are clearly defined by the Board in formal responsibilities
documents,
which
the
Board
reviewed
and
readopted
in
August 2022.
The
roles of chief executive officer and non-
executive chairman are fully segregated.
The Board remains
committed to the progressive refreshing of our membership,
so as to maintain the right balance of skills, experience,
independence and knowledge of the Company to enable us to
continue to operate effectively.
As noted below, in accordance with the Code, all Directors will
be subject to annual re-election at the Annual General Meeting
of the company.
Details of the Directors offering themselves
for election in 2023, together with directors’ brief biographical
details appear on pages 65 to 67, and gender balance details
are on page 60.
NON-COMPLIANCE WITH THE CODE
Until January 2023, the chief operating officer received a
salary supplement in lieu of a pension contribution which does
not currently align with the pension contribution available
to the wider workforce, and was therefore not compliant
with provision 38 of the Code.
However, the chief operating
officer’s salary supplement in lieu of pension contribution has
now been reduced accordingly such that it is now aligned to
the pension contribution available to the wider workforce;
compliance with provision 38 of the Code has now been
achieved.
The Board is actively seeking to recruit an additional non-
executive director to assume responsibility for chairing the
company's remuneration committee.
Once this recruitment
is complete, the Board considers that an appropriate
combination of executive and non-executive directors will be
in place in accordance with the Code.
CORPORATE GOVERNANCE REPORT
PENDRAGON PLC BOARD
MAIN BOARD COMMITTEES
NOMINATION
COMMITTEE
REMUNERATION
COMMITTEE
AUDIT
COMMITTEE
EXECUTIVE
COMMITTEE
RISK CONTROL
GROUP
OPERATIONAL MEETINGS
ESG WORKING
GROUP
64
Pendragon PLC Annual Report 2022
VOTES AGAINST RESOLUTIONS AT THE 2022 AGM
At the 2022 AGM, the Company received votes of 20 per
cent or more against resolution 2 (annual report on director's
remuneration for year ended 2021), resolution 3 (re-election
of Bill Berman and resolution 4 (re-election of Dietmar Exler).
In relation to resolution 2, we listened to the feedback and
concerns raised by our shareholders in terms of how our
remuneration policy was implemented in 2021, and in light
of that feedback, have ensured that the way the policy was
implemented
in
2022,
and
the
new
remuneration
policy
proposed for approval in 2023 was in accordance with best
practice and contained generally market accepted features.
In relation to resolutions 3 and 4, we understand that the
votes accrued against these resolutions were primarily due to
the position taken by one of our main shareholders; for the
avoidance of doubt, the majority of our major shareholders
remained supportive of the re-election of Mr Berman and Mr
Exler.
NON-EXECUTIVE DIRECTORS AND INDEPENDENCE
The non-executive chairman (who, on appointment to that
role, fulfilled the requirement to be independent) has ensured
that the Board performs effectively through a well-functioning
combination of Board and Committee meetings and other
appropriate channels for strategic input and constructive
challenge for non-executive directors.
The chairman has
had meetings with the non-executive directors without the
executive directors present, where necessary, to assist Board
effectiveness, and, following the 2022 year end, conducted
individual meetings with each director to arrive at his and the
Board’s assessment of the director’s respective contributions,
training needs and independence.
The Board has routinely
operated conflict management procedures and has deemed
these procedures effective.
Through these, and the evaluations
which are described below, we have concluded that:-
•
the Board’s collective skills, experience, knowledge of the
company and independence allow it and its committees
to discharge their respective duties properly;
•
subject to the recruitment of an additional non-executive
director, the Board and each of its committees is of the
right size and balance to function effectively;
•
we
have
satisfactory
plans
for
orderly
succession
to
Board roles;
•
the non-executive chairman and respective committee
chairmen are performing their roles effectively;
•
all non-executive directors are independent in character
and judgment;
•
no director has any relationships or circumstances which
could affect their exercising independent judgement; and
•
the non- executive chairman and each of the non-
executive directors is devoting the amount of time
required to attend to the company's affairs and their
duties as a Board member
•
During 2022, the Board received briefings from company
executives
to
familiarise
directors
with
strategic
developments and key aspects of the Group’s business
BOARD EVALUATION
The Board and its committees conducted formal evaluations
of their effectiveness in 2022, facilitated by the company
secretary, addressing questions based closely on the Code,
applicable good governance topics and drawn from best
corporate practice. The results were reviewed by the non-
executive chairman, the Committee chairmen and the Board
as a whole and the non-executive chairman has factored
suggested improvements into our 2023 Board programme.
More details on the Board’s approach to individual and Board
evaluation are on the company’s website.
CORPORATE GOVERNANCE REPORT
Current Directors
Board
Audit
Nomination
Remuneration
William Berman
14/14
N/A
N/A
N/A
Martin Casha
13/14
N/A
N/A
N/A
Dietmar Exler
(I) (SID)
12/14
3/3
0/1
5/6
Ian Filby
1 (N) (I)
13/14
N/A
1/1
6/6
Nikki Flanders
(I)
12/14
3/3
1/1
6/6
Brian Small
(I) (A)
12/14
3/3
1/1
6/6
Mark Willis
14/14
N/A
N/A
N/A
Mike Wright
2
5/5
1/1
N/A
3/3
(I) Considered by the Board to be independent
(SID) Senior Independent Director
(A) Committee chairman
(N) Committee chairman
(R) Committee chairman
1. Acting Remuneration Committee chairman since 01 June 2022.
2. Resigned from the Board as Non-Executive Director and Chair of the Remuneration Committee on 01 June 2022.
BOARD ATTENDANCE
65
Pendragon PLC Annual Report 2022
RE-ELECTION OF DIRECTORS
In
accordance
with
the
UK
Corporate
Governance
Code,
all current Directors will be subject to annual re-election or
election (in the case of new Directors) at the AGM.
INFORMATION AND SUPPORT
To ensure our decisions are fully informed and debated,
the chairman ensures that our Board’s business agenda is
set timely to allow appropriately detailed information to be
circulated to all directors before meetings.
The company
secretary facilitates the flow of information within the Board,
attends all Board meetings and is responsible for advising the
Board and its Committees, through their respective chairmen,
on corporate governance and matters of procedure.
All
directors have access to support from the group general
counsel & company secretary on matters of procedure, law
and governance and in relation to their own induction and
professional development as Board members.
All directors
are entitled to take independent advice at the Company’s
expense, and to have the Company and other Board members
provide the information required to enable them to make
informed judgements and discharge their duties effectively.
HOW THE BOARD MANAGES RISK
The Board and our Committees each operate to a set meeting
agenda which ensures that all relevant risks are identified and
addressed by appropriate controls.
We review management
information which helps us to prescribe operating controls and
monitor performance against our strategy and business plans.
The non-executive directors have particular responsibility for
monitoring financial and performance reporting, to ensure that
progress is being made towards our agreed goals. The Board’s
responsibilities also include assessing the effectiveness of
internal controls and management of risk.
Specific areas of
risk assessment and control fall within the remit of committees
of the Board; details of their work in 2022 appear below and in
the Directors’ Remuneration Report on pages 77 to 95.
THE BOARD’S REVIEW OF RISKS AND CONTROLS IN 2022
The
accountability
framework
described
on
page
39
is
designed to ensure comprehensive management of risk
across the Group’s businesses.
A revised, overarching Risk
Management Policy was introduced in October 2019, which
is reviewed and renewed annually, setting out the principles
and approaches by which we implement effective enterprise
risk management.
The Risk Management Policy remained
appropriate in 2022.
The RCG, made up of the chief operating
officer, chief finance officer, group company secretary, group
head of internal audit and, by invitation, other members of the
Group’s senior operational and financial management, meets
regularly to consider the detailed work on risk assessment
performed by leaders and key business areas and oversees
the effective implementation of new measures designed to
mitigate or meet any specific risks or threats.
The chair of
the Audit Committee, and a representative of the external
auditors attend by invitation.
The RCG reports to the Audit
Committee on its work. The Board and any of its committees
is able to refer specific risks to the RCG for evaluation and for
controls to be designed or modified; this occurs in consultation
with executive management.
The executive directors are
responsible for communicating and implementing mitigating
controls and operating suitable systems of check.
The RCG
met three times in 2022.
In addition to reviewing and refining the Group’s corporate
risk register for Board review and adoption, the RCG continues
to
monitor
and
review
the
Group’s
anti-bribery
controls,
including the development of e-learning, gifts and hospitality
training, Consumer Rights Act 2015 training, Modern Slavery
Act 2015 awareness and further initiatives designed to reduce
incidences of theft and fraud.
The RCG ensures any internal
control deficiencies identified are swiftly remediated.
Internal audit reports have highlighted some areas of control
that need improving which the Company are addressing. The
Board considers that the Group’s systems provide information
which is adequate to permit the identification of key risks
to its business and the proper assessment and mitigation of
those risks. Based on the Audit Committee’s and the RCG’s
work, the Board has performed a high level risk assessment to
ensure that (i) the principal risks and uncertainties facing the
Group’s business have been identified and assessed, taking
into account any adaptations made to the Group’s business
strategy, and (ii) that appropriate mitigation is in place.
66
Pendragon PLC Annual Report 2022
BOARD OF DIRECTORS
Bill joined Pendragon on 18 April 2019 as a non-executive director,
and became
chief executive officer on 19 February 2020.
Formerly the President and Chief
Operating Officer of AutoNation, the largest automotive retailer in America, Bill
has extensive executive experience in automotive retail, enabling him to provide
effective leadership of Pendragon’s Board and advise in relation to the Company’s
future strategy.
Brian joined Pendragon on 10 December 2019, following an extensive executive
career in the retail sector, where most recently he held the position of Chief
Finance Officer at JD Sports Fashion Plc between 2004 and 2018.
Brian is also
a non-executive director and chairman of the Audit Committee at online retailer,
Boohoo.com, and a non-executive director and chairman of the Audit Committee of
Mothercare Plc. Brian qualified as a chartered accountant with Price Waterhouse in
1981, and with industry experience across a range of retailers, he brings additional
financial and strategic perspectives to the Board.
Nikki has over 25 years in-depth retail experience, from physical to online, leading
on
growth
and
transformation
strategies
across
multiple
goods
and
services
categories, including digital services, energy and telco products.
She is currently
the Managing Director of the Customer division (UK and Ireland) at SSE plc.
Her
previous roles include that of Chief Operating Officer at Drax plc, Managing Director
for Digital at Telefonica Plc and other senior leadership roles within Centrica Plc,
Marks and Spencer plc and WH Smith plc. Nikki is widely recognised as a leading
advocate for Diversity & Inclusion and in conjunction with her career experience
brings deep commercial, customer and people leadership experience with valuable
insights.
Key to memberships, roles and re-election status
* Committee chairman
** Acting Committee chairman from 01 June 2022
(SID) Senior Independent Director
(A) Audit Committee
(N) Nomination Committee
(R) Remuneration Committee
(F) Audit committee member with recent and relevant financial experience
More detailed professional biographies of the Directors are on the Company’s website.www.pendragonplc.com
BILL BERMAN
Chief Executive Officer
BRIAN SMALL
Non-Executive Director
(A*) (N) (R) (F)
NIKKI FLANDERS
Non-Executive Director
(A) (N) (R)
Ian joined Pendragon on 01 November 2021 as non-executive chairman, following
a 40 year career in retail, a large proportion of which was spent with Alliance
Boots.
In his last executive role, Ian was the chief executive officer of furniture
retailer DFS, which significantly increased its market leadership in both online and in
physical stores during his tenure; Ian’s extensive executive experience enables him
to provide effective leadership of Pendragon’s Board and advise in relation to the
Company’s future strategy.
IAN FILBY
Non-executive Chairman
(N*) (R**)
67
Pendragon PLC Annual Report 2022
Mark joined Pendragon on 08 April 2019 as Chief Finance Officer, from Ten
Entertainment Group PLC where he held the position of Chief Finance Officer since
taking it through its IPO in April 2017.
Prior to this, Mark worked at Home Retail
Group PLC, including roles as Argos Finance Director, Director of Group Finance and
Investor Relations Director. Since joining Pendragon, Mark’s wealth of accounting,
financial and investor relations experience continues to add significant value to the
Board.
Having spent his entire career with Pendragon businesses, from apprentice mechanic
to group general manager, Martin became operations director in September 1995
and chief operating officer in November 2001.
Martin’s extensive knowledge of
Pendragon’s operations ensures he continues to be able to advise the Board as to
the most appropriate operational action and response to changes in the automotive
retail sector.
Company Secretary
Richard Maloney
Registered Office
Loxley House
2 Oakwood Court
Little Oak Drive
Annesley
Nottingham
NG15 0DR
Telephone 01623 725200
Registered in England and Wales
Group motor businesses websites
www.evanshalshaw.com
www.stratstone.com
www.carstore.com
Group Support business websites
www.pinewood.co.uk
www.pendragonvehiclemanagement.co.uk
www.quickco.co.uk
Registered number
2304195
MARK WILLIS
Chief Finance Officer
MARTIN CASHA
Chief Operating Officer
Dietmar joined Pendragon on 20 April 2020, following an extensive executive
career including experience in the automotive sector, banking and sports
management. Dietmar currently serves as Chief Operating Officer of AMB Sports &
Entertainment.
Prior to that, he held the position of President and Chief Executive
Officer of Mercedes-Benz USA and Head of Region, NAFTA Mercedes-Benz.
His
previous automotive sector specific executive experience, in particular in relation to
automotive financing enables Dietmar to contribute the industry perspective, and is
of significant value to the Board. Dietmar was appointed SID on 24 February 2021.
DIETMAR EXLER
Non-Executive Director
(SID) (A) (N) (R)
68
Pendragon PLC Annual Report 2022
AUDIT COMMITTEE REPORT
The Audit Committee is a committee of the Board and has been chaired by
Brian Small since January 2020, made up entirely of independent non-executive
directors.
Their names and qualifications are on pages 66 and 67 and attendance at
meetings in the table on page 64.
KEY RESPONSIBILITIES OF THE AUDIT COMMITTEE
•
monitors the integrity of the financial statements and
formal announcements
•
reviews and approves the Annual Report and Accounts
for adoption by the Board
•
recommends to the Board the selection of the external
auditor and its terms of appointment and monitors its
effectiveness and independence
•
governs policy for the allocation of non-audit work to the
audit firm
•
reviews internal controls and risk management
•
monitors the effectiveness of the internal audit function
•
reviews and monitors whistleblowing arrangements
Its terms of reference detail its key responsibilities and appear,
with
relevant
background
information,
on
the
company’s
website www.pendragonplc.com.
THE COMMITTEE’S WORK IN 2022
The Audit Committee met three times in 2022 and this report
describes its work and conclusions.
FINANCIAL STATEMENTS REVIEW
The Committee received the auditor’s memorandum on
the company’s 2021 financial statements and the auditor’s
memorandum on the unaudited 2022 interim results.
In each
case, it discussed the auditor’s findings with the auditor,
satisfied itself of the integrity of the financial statements
and recommended the financial statements for approval by
the Board. Key aspects of those discussions and relevant
considerations and conclusions are below.
AUDIT RISK CONSIDERED BY THE COMMITTEE
The table on page 70 sets out the key audit risks and
judgments applied, for the 2022 year end results, which the
Committee considered and discussed with the auditor, and
the Committee’s conclusions.
69
Pendragon PLC Annual Report 2022
70
Pendragon PLC Annual Report 2022
These are the key risks considered by the committee.
Audit risk considered by the Committee
VEHICLE INVENTORY VALUATION
This is the risk that the value of inventory set out in note • to
the financial statements could be materially overstated and
whether or not an appropriate provision had been calculated.
The risk for used vehicles is seen as the most relevant, for
scrutiny.
Used vehicle prices can vary depending on a number
of factors, including general economic conditions and the
levels of new vehicle production.
PENSION SCHEME LIABILITIES
The amounts reflected in the financial statements in respect of
pension scheme liabilities involve judgements made in relation
actuarial
assumptions,
long-term
interest
rates,
inflation,
longevity and investment returns. The liabilities are set out in
note • to the financial statements. There is a risk that the value
of the pension scheme liabilities could be materially under or
over stated in the context of the sensitivity analysis in that
note.
VALUATION OF PARENT COMPANY INVESTMENT
This is the risk that the company has investments in its
subsidiary
companies,
which
could
be
overstated
when
considered with current market capitalisation of the company
and could impact the ability of the company to pay dividends
should the investment be impaired.
The value of investments
is underpinned by expectation of discounted future profits and
net assets of the subsidiary companies.
There is an inherent
uncertainty in forecasting future profits.
Evidence considered and conclusion reached
The Committee discussed with the auditors, together with all
audit findings, the factors relevant to an assessment of used
inventory valuation,
including the level of inventory held
across the business, the ageing of the inventory, the stock turn
of the inventory and an analysis of market factors including
the parc of used vehicles, the used vehicle market sales rate
and historic movements in used vehicle prices.
The Committee was satisfied that a comprehensive assessment
of inventory valuation had been undertaken and concluded
that the judgements applied were appropriate.
The Committee ascertained that judgements made on pension
scheme were all based on advice from the Group’s pension
adviser.
The
final calculations in respect of the Group’s
defined benefit pension scheme liability were performed by
our pension scheme actuary. The Committee discussed with
the auditor the assumptions applied, in particular the findings
of
the
auditor’s
own
pension
specialist.
The
Committee
remained satisfied with the outcomes applied from both a
balance sheet perspective and actuarial perspective.
The Committee concluded that the judgements applied were
appropriate.
The
Committee
reviewed
management’s
report
on
the
valuation of the parent company investments.
To assess the valuation of parent company investments to
the value of subsidiary assets, analysis has been performed
to establish CGU asset impairment as described above.
The
Committee
were
satisfied
with
management’s
conclusion
that the carrying value of the parent company investment is
supported and therefore no further impairment is needed.
AUDIT COMMITTEE REPORT
71
Pendragon PLC Annual Report 2022
These are other areas of focus for the committee.
Audit risk considered by the Committee
CGU ASSET VALUATION
The estimates in relation to asset impairment of the carrying
value
of
goodwill,
intangible
assets,
property,
plant
and
equipment and right use of assets largely related to the
achievability of assumptions underlying the calculation of
the recoverable amount of the business being tested for
impairment, set out in note • to the financial statements. Key
assumptions used are the FY23 budget, growth rate and
discount rate as well as the EBITDA multiples applied or fair
value of individual assets.
GOING CONCERN
The company revised both its base case and downside forward
looking forecasts for the period to 31 March 2024, comparing
assumptions for revenue and margin, and assumptions for
working capital in the light of a potential prolonged downturn
and
recessionary
environment,
double
digit
inflation
and
ongoing supply issues in terms of global semi-conductor
chip shortages and supply shortages caused by the war in
Ukraine.
However, on a positive note, revised credit facilities
agreed in March 2022 has given much more certainty over
the availability of facilities with the senior notes of £100m
in place until 2027 and the £75m revolving credit facility in
place
until
March
2025.
The
Committee
will
nevertheless
continue to carefully monitor and review cash flow forecasts
in the forward looking forecast for a period to 31 March 2024,
challenging trading and comparing assumptions for revenue
and margin to externally sourced data, assessing assumptions
for working capital and challenging management to continue
to prepare assumptions for a severe, but plausible downside.
Evidence considered and conclusion reached
The Committee considered the risk that goodwill could be
materially overstated in the context of the sensitivity analysis,
also set out in note •. The Committee addressed these matters
through receiving reports from management outlining the
basis for the assumptions used, assessing the range and depth
of information underpinning the assumptions and calculations
and discussing this with the auditors.
The Committee concluded that the judgements applied were
appropriate.
The committee reviewed both the forecasts presented by the
Directors, and further scenarios which had been sensitised
to reflect severe but plausible downside scenarios.
Those
forecasts indicate that the Group can continue to operate
within the existing facilities. The base and sensitised forecasts
indicate that the Group will remain in compliance with the
relevant covenants for a period of at least 12 months from the
date of approval of these financial statements.
The committee concluded that it remained appropriate to
prepare the financial statements on a going concern basis.
Further details can be found within the viability statement at
page 49 and within the going concern statement on page 118.
72
Pendragon PLC Annual Report 2022
EXTERNAL AUDITOR APPOINTMENT
AND PERFORMANCE EVALUATION
The
Committee
considered
Auditor
effectiveness
and
independence of the audit, during the year.
The Committee arrived at its recommendation to the Board
on the auditor’s appointment by:
•
applying exclusively objective criteria;
•
evaluating the ability of the audit firm to demonstrate its
independence;
•
assessing
the
effectiveness
of
the
audit
firm
in
the
performance of its audit duties; and
•
assessing
the
audit
firm’s
adherence
to
applicable
professional standards.
The Committee chairman oversaw the company’s evaluation
of the auditor’s performance, and noted that the current
auditor,
KPMG
had
issued
to
the
company
all
requisite
assurances of its independence.
The Committee reported its
conclusions to the Board, namely, that there are no existing or
historical relationships or other matters which adversely affect
the independence of KPMG as the company’s auditor, and no
performance shortcomings or unresolved issues relating to
fee levels.
The lead audit partner, Craig Parkin, was appointed in early
2021.
POLICY ON AUDIT TENDERING
KPMG was appointed as auditor in September 1997, since
when, audit services have not been tendered competitively.
Under current EU legislation on audit firm rotation, the current
auditor cannot be reappointed after 2023.
Consequently,
2023 will be the final year which KPMG will be reappointed
as the company’s auditor.
In anticipation of rotation to an
alternative auditor in 2024, the company, at the request of
the Committee, commenced some preliminary work to launch
a competitive tender of the external audit service in autumn
2022.
The competitive tender process for audit services will be
further
progressed
throughout
2023,
with
the
objective
of concluding the appointment of the new external auditor
as soon as practicable, to allow for a smooth and orderly
transition.
The Committee has concluded none of the
directors’ independence in considering this matter is impaired
in any way and none has a potential or actual conflict of
interest in relation to KPMG or in the consideration of the
appointment of an alternative auditor pursuant to the tender
process, whether in regard to
appointment, fees, evaluation
of performance or potential performance, any decision as to
competitive tender for audit services, or any other matter.
REVIEW OF NON-AUDIT SERVICES
The Committee reviewed the company’s policy on its use of its
audit firm for non-audit work. Its main principles are that the
auditor is excluded from providing certain non-audit services
the performance of which is considered incompatible with
its audit duties, but is eligible to tender for other non-audit
work on a competitive basis and can properly be awarded
such work if its fees and service represent value for money.
The policy can be viewed on the company’s website. The
Committee considered reports on the extent and nature of
non-audit work available, the allocation during the year of that
work to accountancy and audit firms, including KPMG LLP,
and the associated fees. Details of audit and non-audit work
performed by KPMG and the related fees appear annually
in the notes to the company’s financial statements.
A full
statement of the fees paid to KPMG LLP for work performed
during the year is set out in note 2.5 to the financial statements
on page 136. Having satisfied itself on each item for its review,
the Committee reported to the Board that the only non-audit
service provided was the review of the half year accounts.
The Board accepted these findings.
REVIEW OF INTERNAL AUDIT PERFORMANCE
The Committee chairman oversaw the Committee’s evaluation
of the internal auditor’s performance, using questionnaires
covering
all
aspects
of
the
internal
auditor
work
and
relationship to the audit and received the auditor’s view on
that performance. He reviewed the results with the Committee
members and company management and reported the
Committee’s conclusions to the Board. The Committee
concluded that the scope and quality of the internal audit
work
done
reflects
an
effective,
well-functioning
team.
REVIEW OF RISK MANAGEMENT AND INTERNAL CONTROLS
The Committee reviewed the effectiveness of the company’s
system of internal control and financial risk management.
It received reports from the auditor on areas considered
relevant to the audit work performed and from the RCG,
whose work is described on page 39 on the company’s risk
register, emerging risks and corresponding internal controls.
It scrutinised the key risks register, as revised by the RCG, and
approved it for adoption by the Board. Its work informed and
supported the Board’s assessments detailed under “How the
Board manages risk” on page 65.
REVIEW OF ANTI-BRIBERY CONTROLS
AND WHISTLEBLOWING
The
Committee
reviewed
the
company’s
anti-bribery
processes and controls and evaluated and approved
these and the company’s bribery risk assessment. On its
recommendation, the Board readopted the company’s anti-
bribery policy statements and associated controls. The
AUDIT COMMITTEE REPORT
73
Pendragon PLC Annual Report 2022
Committee considered reports on known instances of alleged
wrongdoing and matters reported on the company’s third party
operated confidential reporting line and their investigation,
reviewed the adequacy of whistleblowing procedures and
commissioned follow-up action and improvements in risk-
related controls.
Our current anti-bribery value statements and our policies
on the control of fraud, theft and bribery risks appear on
the
company’s
website
and
are
drawn
to
the
attention
of
all
parties
seeking
to
transact
with
the
Group.
Our
whistleblowing procedures are published internally on our
intranet and their existence is regularly reinforced in our team
member communications.
The policy is available at www.
pendragonplc.com
Approximately one-fifth of our workforce are required to
complete, on an annual basis, a mandatory training module
‘Doing
the
Right
Thing
and
Conflicts
of
Interest’
which
provides realistic, scenario based training of conflict situations,
likely bribery risk and similar appropriate to our business.
There have been no incidents of actual corruption or bribery
recorded in our businesses in 2022.
APPROVAL
This report was approved by the Committee and signed on
it’s behalf by:-
Brian Small
Chairman of the Audit Committee
22 March 2023
74
Pendragon PLC Annual Report 2022
NOMINATION COMMITTEE REPORT
The Nomination Committee is chaired by Ian Filby, who
assumed the role following his appointment in November 2021.
The Nomination Committee is made up entirely of independent
non-executive directors.
Their names and qualifications are on
pages 66 and 67 and attendance at meetings in the table at pages
64 above.
KEY RESPONSIBILITIES OF THE NOMINATION COMMITTEE
•
reviews the Board’s size, structure and composition and
leads recruitment to Board positions
•
undertakes annual Board performance evaluation
•
satisfies
itself
on
the
company’s
refreshing
of
Board
membership and succession planning
Its terms of reference detail its key responsibilities and appear,
with
relevant
background
information,
on
the
company’s
website www.pendragonplc.com .
THE COMMITTEE’S WORK IN 2022 AND EARLY 2023
The Nomination Committee met once in 2022 and in early
2023 to conclude its ordinary year end business. This report
describes its work and conclusions.
REVIEW OF BOARD COMPOSITION AND BALANCE
In July 2022, the Committee met to review in detail the
company’s approach to succession planning, considering in
detail critical roles and the current health of the succession
plan, concluding on the steps to be taken to improve our
succession health and to ensure that our talent strategy
becomes a critical enabler of our business strategy.
The
company’s approach to succession planning identified what
talent is required, identified what talent we currently have and
planned how to close the gap between required talent and
currently available talent.
In early 2023, the Committee completed its year end work
by reviewing the structure of the Board, in relation to its size
composition and potential vacancies, the combination of
executive to non-executive directors and the balance of the
Board, to ensure that no one individual or group of individuals
dominated discussion of decision making.
Other than the
requirement to recruit an additional non-executive director
to
fulfil
the
role
of
Remuneration
Committee
chair,
the
Committee concluded that the size and structure outlined still
remained appropriate for the Company, and considered that
both the size, structure and balance of the Board remained
appropriate, although the structure did not preclude the
appointment of additional directors, such as non-executive
directors
with
specialist
skills
should
the
Committee,
and
ultimately the Board, consider it necessary and prudent to do
so in line with the execution of the Company’s strategy.
The
adequacy of time devoted by the non-executive directors to
Board business, and the independence of the non-executive
directors was also considered and the Committee concluded
that all non-executive directors were able to devote sufficient
time to their roles, and all remained independent. In addition
to the renewal of the appointment of Brian Small as a non-
executive director for a further three years, the Committee
further noted that that Ms Nikki Flanders and Mr Dietmar Exler
should be recommended for reappointment as non-executive
directors on further three year terms on conclusion of their
current appointments in December 2023.
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Pendragon PLC Annual Report 2022
EVALUATION
The annual evaluations of the Board and its members were
conducted by the Board and are described on page 64. As
part of that process, the Committee conducted an evaluation
of its own performance.
DIVERSITY
All appointments made, including those of Board members,
adhere to the company’s diversity and equal opportunities
policy, which can be viewed on the company’s website. For
non-executive director appointments, where executive search
consultants are instructed, they are done so in a manner
in a manner consistent with this policy.
The Committee is
mindful of the proposals outlined in the FCA Policy Paper:
Diversity and Inclusion on Company Boards and Executive
Management, and will aim to consider how the company will
aim to comply the recommendations where they align with
its overall business strategy.
At present, the company has
not adopted a gender balance target for its Board, although
continues to make appointments at Board and immediately
below Board level in accordance with a formal, rigorous and
transparent procedure.
Appointments are based on merit and
objective criteria, and within this context, we aim to promote
diversity of gender, social and ethnic backgrounds, alongside
cognitive and personal strengths in accordance with Principle
J of the Code.
In order to further this objective, we continue
to partner with external recruitment agencies, and maintain
our relationship with agencies committed to reaching and
providing access to diverse talent pools to assist with these
processes.
76
Pendragon PLC Annual Report 2022
The Remuneration Committee is a committee of the Board, and is
currently chaired by Ian Filby on an interim basis.
It is made up
entirely of independent non-executive directors.
Their names and
qualifications are on pages 66 and 67 and attendance at meetings
in the table on page 64.
KEY RESPONSIBILITIES OF THE
REMUNERATION COMMITTEE
•
has
delegated
responsibility
for
determining
the
policy for Executive Director remuneration and setting
remuneration for the chairman, executive directors, the
company secretary and the immediately below board
level of senior management;
•
reviews workforce remuneration and related policies and
the alignment of incentives and rewards with culture,
taking these into account when setting executive director
remuneration;
•
ensures
that
executive
directors
are
provided
with
appropriate
incentives
which
align
their
interests
with those of shareholders, and encourage enhanced
performance in the short and medium term, as well as
achievement of the company’s longer term strategic
goals;
•
determines targets for any performance related pay
schemes;
•
seeks
shareholder
approval
for
triannual
renewal
of
remuneration
policy
and
any
long-term
incentive
arrangements
The terms of reference of the Remuneration Committee are
available at www.pendragonplc.com.
THE COMMITTEE’S WORK IN 2022
The Remuneration Committee met six times in 2022.
The
Directors’ Remuneration Report, beginning at page 77,
describes its work and conclusions.
REMUNERATION COMMITTEE REPORT
77
Pendragon PLC Annual Report 2022
REMUNERATION COMMITTEE CHAIRMAN’S LETTER TO SHAREHOLDERS
Dear Shareholder
On behalf of the Remuneration Committee, I am pleased to present the Director’s Remuneration Report for the financial year
ending 31 December 2022. This report has been prepared by the Remuneration Committee and approved by the Board.
This remuneration report is split into two sections:
•
the new Directors’ Remuneration Policy; which we propose will apply for financial years 2023-2026; and
•
the Annual Report on Remuneration.
The proposed directors’ remuneration policy will be subject to a binding vote at the AGM. This new policy, if approved by
shareholders, will last for a period of three years from the date of the AGM or until another policy is approved in a general meeting.
The Annual Report on Remuneration describes annual remuneration and the amounts paid in respect of 2022 performance, and
remains subject to an advisory only shareholder vote at the forthcoming AGM.
As highlighted earlier, in 2022, the Company delivered an underlying profit of £57.6m as a result of the clear execution and
implementation of our strategy, and market conditions. As a result, for 2022, bonuses will be paid to the executive directors at
109% of basic salary.
No awards vested under the long term incentive plan in 2022.
The Remuneration Committee has continued to closely follow the ongoing debate on executive remuneration, fairness and
corporate culture and has worked diligently throughout the year in the development of a new remuneration policy for both
Executive Directors and our senior management for the next period of our remuneration policy cycle.
New Directors’ Remuneration Policy
At the 2022 AGM the Remuneration Report failed its vote, with a vote in favour of 34.49%. Our understanding is that this was
primarily in respect of the 2020 and 2021 LTIP grants, which were granted with a one-year performance period to ensure that
we retained our key executives.
The Remuneration Report vote, combined with the fact that the Remuneration Policy was last approved at the 2020 AGM, means
that we are required to renew our Directors Remuneration Policy at the 2023 AGM.
These are our key decisions in respect of remuneration, including the proposed changes to the Director’s Remuneration Policy.
The Committee strongly believes the suggestions set out below are in the best interests of the company and are aligned to
corporate governance best practice as well as reflecting the feedback we have received from our shareholders both historically
and as part of recent engagement..
Base salary (No change to policy)
Whilst we are making no formal changes to the policy in respect of 2023, there are two items that I wanted to update you on:
1.
We are currently proposing no changes to base salary at this stage, but intend to carry out a full review of the current salaries
for executives, considering appropriate benchmarking data, and internal and external factors following the appointment of
the new Remuneration Committee Chair.
2.
It is our intention to move the salary review process for our executive directors from January each year to May. This aligns
the process with the wider workforce and will allow us to give greater consideration to the increases we have awarded to
the wider workforce when considering executive pay arrangements.
Pension (No change to policy)
1.
The current policy is such that for newly appointed executive directors the pension provision will be in line with the wider
workforce.
2.
This continues to be true for our proposed policy, and we are also taking the opportunity to complete the alignment of our
Executive Directors pension arrangements with the wider workforce. Currently each Executive Director is on an individual
pension arrangement, and these will now be aligned to one approach.
3.
During 2022 we undertook a review of the pension provisions available to our wider workforce and increased the company
contribution to 6% for leaders in the business.
4.
Our Executive Directors will receive an equivalent pension contribution of 6%, from January 2023 a year later than the
change for other leaders in the business.
DIRECTORS’ REMUNERATION REPORT
78
Pendragon PLC Annual Report 2022
Annual bonus
1.
In line with our current Policy the annual bonus will have a maximum opportunity of 150% of salary and the on-target
opportunity will remain at 100% of salary.
2.
The threshold opportunity will remain at 25% of salary.
3.
From a policy perspective, the annual bonus will continue to be measured against stretching company financial
performance metrics set and assessed by the Committee on an annual basis. This approach ensures that we retain a
financial focus within the business, but allows us to set targets appropriately based on the key objectives of the business
each year.
4.
For 2023 it is our intention to again use Underlying Profit Before Tax
as our sole measure for the bonus, reflecting the fact
that it is a key strategic measure for Pendragon and fundamental in measuring our ability to deliver for our shareholders.
5.
We strongly believe that the targets we set, whilst commercially sensitive, are appropriate for the level of opportunity
available within the plan at each of the relevant reference points and the level of stretch required to achieve the
performance metrics that we have set.
Long Term Incentive Plan
1.
Under our current policy, the long term incentive plan has a normal maximum opportunity of 150% of salary with an
exceptional maximum opportunity of 250% of salary.
2.
The award will normally be subject to performance conditions measured over three years with an additional 2 year post-
vest holding period. As part of the current policy the Committee retained discretion to make awards with a one year
performance period and an overall three year vesting period in exceptional circumstances
3.
It is our understanding that these discretions, which we utilised for the 2020 and 2021 LTIP are the main reason why
shareholders voted against our 2022 Remuneration Report.
4.
As a result, we are proposing to remove this flexibility, and the proposed LTIP will have a maximum opportunity of 150%
of salary, with no exceptional maximum. Any awards will also be subject to a three year performance period and two
year holding period.
5.
Under the Policy, at least 70% of each award will be based on financial metrics, and for 2023 specifically the measures will
be 70% EPS, 24% strategic financial metrics and 6% on ESG, focusing equally on carbon and diversity. These measures
will be suitably stretching to recognise the opportunity available under the plan.
Non-Executive Shareholding requirements (No change to policy)
1.
In last year’s annual report, we committed to reviewing whether it was appropriate to introduce Non-Executive
shareholding requirements.
2.
The Committee considered this during the year, and as our NEDs actively look to purchase shares, we do not feel it is
necessary to have a minimum shareholding requirement for non-executives at this time.
We will continue to monitor any
evolutions in UK best practice to determine if this should change in future.
It is the Committee’s firm belief that the above proposals represent the best interests of the Company and reflect the key
feedback that we heard from shareholders as a result of last year’s voting outcome.
We hope that the disclosure provided in this report continues to provide clear insight into the Committee’s decisions and we
look forward to receiving your continued support at the next AGM.
Yours sincerely
Ian Filby
Non-Executive Chairman, Pendragon Plc
DIRECTORS’ REMUNERATION REPORT
79
Pendragon PLC Annual Report 2022
REMUNERATION DISCLOSURE
This report complies with the requirements of The Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008, The Large and Medium-sized Companies
and Groups (Accounts and Reports) (Amendment) Regulations
2013, the Companies (Miscellaneous Reporting) Regulations
2018 and The Companies (Directors’ Remuneration Policy
and Directors’ Remuneration Report) Regulations 2019 (the
Regulations) and has been prepared in accordance with the
UK Corporate Governance Code and the UKLA Listing Rules.
The parts of the report which have been audited in accordance
with the Regulations have been identified.
REMUNERATION POLICY 2023 - 2026
The remuneration policy set out in this section of the
remuneration report will replace the existing policy which
was approved by shareholders at the 2020 AGM and will take
effect for all payments made to directors from the date of
the 2023 AGM. The Remuneration Committee has taken the
opportunity to conduct a detailed review of the policy, both
in light of developments in remuneration policy and market
practice,
and
also,
following
consultation
with
our
major
shareholders, to ensure their feedback is reflected into the
design of, and any modifications to, the policy going forward.
The remuneration principles and overarching aim of our
remuneration policy continues to be framed in such a way as
to provide and maintain the link between executive pay and
strategy, aiming to:
•
ensure
remuneration
arrangements
are
clear
and
transparent,
promoting
effective
engagement
with
shareholders and our associates;
•
ensure remuneration structures avoid complexity, with an
easy to understand rationale and operation;
•
avoid reputational and other risks arising from excessive
rewards, and avoiding or otherwise mitigating behavioural
risks that may arise from target-based incentive plans;
•
clearly explain the range of possible values of rewards
to individual directors including any other limits or
discretions;
•
provide
proportionate
awards
linked
to
delivery
of
strategy and long-term performance and ensuring poor
performance is not rewarded;
•
ensure incentive schemes drive behaviours consistent
with company purpose, values and strategy;
•
attract and retain directors of the calibre necessary to run
the business effectively with levels of remuneration that
are arrived at responsibly and also reflect their individual
contribution to the value of the company;
•
weight remuneration towards variable pay;
•
encourage executives to build significant levels of share
ownership, through the retention of vested share awards.
Consistent
with
market
practice,
the
Remuneration
Committee
will
retain
full
discretion
over
all
elements
of
variable remuneration, both in terms of annual bonus awards
made and long term incentive awards granted and vesting.
The extent of this discretion is more particularly described on
page 84.
NEW REMUNERATION POLICY
The new remuneration policy is detailed in this section. This
policy will be put to shareholders for approval at the AGM. The
policy is intended to apply, subject to shareholder approval,
for three years from the 2023 AGM. Where a material change
to this policy is considered, the company will consult major
shareholders prior to submitting to all shareholders for
approval.
The remuneration policy will be displayed on the company’s
website (www.pendragonplc.com), following the 2023 AGM.
The
table
below
summarises
the
individual
elements
of
remuneration provided to the executive directors under the
new policy.
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Pendragon PLC Annual Report 2022
REMUNERATION POLICY FOR EXECUTIVE DIRECTORS
BASE SALARY
PURPOSE AND LINK TO STRATEGY
Provide
competitive
remuneration
that
will
attract
and
retain executives of the calibre required to take forward the
company’s strategy.
OPERATION
Base salaries are reviewed annually, effective from 1 May. The
Committee sets base salaries taking into account:
•
the performance and experience of the individual
concerned;
•
any change in responsibilities;
•
appropriate executive remuneration benchmarking,
reflecting the size and sector of the company
Base salaries are paid monthly in arrears.
MAXIMUM OPPORTUNITY
Salary levels are eligible for increases during the three-year
period that the remuneration policy operates. During this
time, salaries may be increased each year.
Salary increases are usually determined after taking due
account of market conditions and typically, any increases
awarded will be in line with the increase of that of the wider
workforce.
Significant
changes
in
role
scope
may
require
further
adjustments to bring salaries into line with new responsibilities.
For
recent
joiners
or
promotions
whose
pay
was
initially
set below market rate, higher than usual increases may be
awarded to bring them into line with the market over a phased
period as they develop in their role.
PERFORMANCE METRICS
Both individual and company performance is taken into
account when determining whether any salary increases are
appropriate.
PROPOSED CHANGES
Base salary review period set to 1 May to align with the salary
review of wider organisation. This was previously 1 January for
Executive Directors.
DIRECTORS’ REMUNERATION REPORT
81
Pendragon PLC Annual Report 2022
BENEFITS
PURPOSE AND LINK TO STRATEGY
Cost-effective, market competitive benefits are provided to
ensure executive directors have a reasonable and competitive
level of protection.
OPERATION
Life assurance, private health cover, professional subscriptions,
(at the executive’s option) company cars and fuel, and
any other benefits from time to time as the Remuneration
Committee deems appropriate. Relocation benefits, including
overseas health care cover and tax support may also be
provided
in
certain
circumstances,
where
applicable,
if
considered appropriate by the Remuneration Committee.
PENSION
ELEMENT AND PURPOSE
Provide long-term retirement benefits that will form part of a
remuneration package that will attract and retain executives
who are able to take forward the company’s strategy.
OPERATION
Post-2009 executives: participation in a defined contribution
pension scheme or a Pension contribution in line with the
relevant
wider
workforce.
Pre-2009
executives:
deferred
membership of defined benefit pension scheme
MAXIMUM OPPORTUNITY
Benefit levels are set to be competitive relative to companies
of a comparable size. The cost of some of these benefits is
not pre-determined and may vary from year to year based
on the overall cost to the company of securing these benefits
for a population of employees (this is particularly relevant for
health insurance and death in service cover).
PERFORMANCE METRICS
Not applicable.
PROPOSED CHANGES
None
MAXIMUM OPPORTUNITY
The maximum opportunity for newly appointed Executive
Directors will be in line with pension contributions prevailing
in the relevant wider workforce.
PERFORMANCE METRICS
No performance metrics apply.
PROPOSED CHANGES
None
82
Pendragon PLC Annual Report 2022
ANNUAL BONUS
PURPOSE AND LINK TO STRATEGY
Incentivises achievement of annual objectives which support
the short-term goals of the company, as reflected in the
annual business plan
OPERATION
Annual bonuses are earned over the year and are paid
annually in arrears after the end of the financial year to which
they relate, based on performance against targets over the
year. A minimum of 25% of after tax bonus earned is subject to
compulsory deferral into the company’s shares until such time
as the company’s share ownership guidelines are met. In such
situations where bonus is deferred into shares, an executive
director may be entitled to receive dividend payments on
such shares.
ALL EMPLOYEE SHARE SCHEME (SHARESAVE)
PURPOSE AND LINK TO STRATEGY
The Sharesave is an all employee share ownership plan which
has been designed to encourage all employees to become
shareholders in the company and thereby align their interests
with shareholders.
OPERATION
Executive directors are eligible to participate in Sharesave.
The executive directors are entitled to participate in any other
all employee arrangements implemented by the company.
MAXIMUM OPPORTUNITY
Maximum available bonus is equivalent to 150% of base salary,
which is available only for material outperformance of the
company’s annual business plan.
PERFORMANCE METRICS
Annual bonus is earned based on performance against
stretching company financial performance measures as set
and assessed by the Committee.
25%
of
salary
will
be
payable
for
threshold
performance
under each measure with 100% of salary payable for target
performance and 150% of salary for maximum performance.
The specific measures, targets and weightings may vary from
year to year in order to align with the company’s strategy and
the measures will be dependent on the company’s goals over
the year under review.
PROPOSED CHANGES
None
MAXIMUM OPPORTUNITY
The maximum levels of participation set by legislation from
time to time.
PERFORMANCE METRICS
No performance conditions.
PROPOSED CHANGES
A Sharesave scheme has not been introduced to date, but if
circumstances change this could be reviewed.
DIRECTORS’ REMUNERATION REPORT
83
Pendragon PLC Annual Report 2022
LONG TERM INCENTIVE PLAN
PURPOSE AND LINK TO STRATEGY
Promotes retention and incentivisation over the longer term.
Aligns executive directors’ interests with the company’s share
price and its shareholders.
OPERATION
The core design of the LTIP will be that awards are subject
to performance conditions measured over three years and a
service requirement for a further 2 years.
POLICY ON EXECUTIVE DIRECTOR SHARE OWNERSHIP
The company continues to recognise the importance of
executives
building
significant
holdings
of
the
company’s
shares to align the long-term interests of management and
shareholders in the success of the company.
The minimum shareholding requirement for the CEO is 200%
of salary (100% for all other Executive Directors), to be built
up within 5 years of appointment to the board.
MAXIMUM OPPORTUNITY
Maximum opportunity will be 150% of base salary.
PERFORMANCE METRICS
Stretching
performance
conditions
will
be
set
by
the
Committee each year. At least 70% of each award will be
based on financial metrics, such as underlying EPS.
25% of the award will vest for threshold performance with
100% of awards being achieved for target performance and
150% being achieved for maximum performance. Vesting
between target points will be determined on a straight-line
basis
The Committee may refine the choice of performance metrics
each year in line with developments in the company’s strategy.
In the event of a significant or material change of approach,
the Committee will engage in dialogue with shareholders.
PROPOSED CHANGES
Removal of ability to increase maximum opportunity to 250%
of salary in exceptional circumstances. Removal of discretion
to implement a one-year performance period. Inclusion of
ability to satisfy shares through a either a CSOP, nil cost
options or a combination of both.
Until such time as the policy is met, Executive Directors will
be required to hold any vested deferred bonus shares and
LTIP awards that vest (after sale of shares to cover associated
personal tax liabilities).
Post-cessation shareholding requirement of 100% of the in-
employment requirement for 2 years following cessation of
employment. This provision supports sustained share price
performance and encourages strong succession processes.
84
Pendragon PLC Annual Report 2022
POLICY ON NON-EXECUTIVE DIRECTORS’ REMUNERATION
The
company’s
policy
on
non-executive
directors’
remuneration is reviewed annually by the Board. Remuneration
for non- executive directors is confined to fees alone, without
a performance related element. Non-executive directors
may elect to receive all or part of their fees in the form of
benefits in kind, typically the provision of a motor vehicle for
their use. The company considers that the remuneration of
the non-executive directors remains consistent with the time
commitments associated with individual positions and wider
market practice among companies of a comparable size.
Fee Type
Fee Level
Change in 2022
Chairman fee
£150,000
None
Basic fee:
£50,000
None
Supplementary fees:
Senior Independent Director
£4,000
None
Audit Committee Chairman
£10,000
None
Remuneration Committee Chairman
£5,000
None
Nomination Committee Chairman
Nil
None
Notes accompanying the future Remuneration Policy table:
1.
Malus and clawback – malus and clawback may operate in respect of the annual bonus and long term incentive plan. This approach applies to all executive directors and senior
management immediately below Board level. Malus will typically be an adjustment to the cash award or number of shares before an award has been made or released. Clawback
requires the executive to make a cash repayment to the company or the surrender of shares or other benefits provided by the company. The overall intention is that, in exceptional
circumstances, malus will apply before awards are paid or vest. Clawback will apply under the annual bonus scheme, for up to three years from when the cash payment is made,
and malus will apply to any deferred shares (awarded at the same time as the cash payment) for the three-year period of the deferral. Under the LTIP, clawback will continue to
apply for up to two years following the three-year vesting period.
As a minimum, the events in which malus and clawback may apply are as follows:
•
Material misstatement of financial statements.
•
Gross misconduct/fraud of the participant.
•
Where there has been an error in the calculation of performance outcomes, the value of awards, or the number of shares under an award.
•
Participant has caused reputational damage to the Company.
•
Participant has wholly or in part caused the corporate failure of the Company.
Malus and clawback provisions are kept under review, in the light of prevailing Financial Reporting Council guidance.
2.
Salary – base salaries are set by reference to the criteria specified in the table above. If a salary is initially set below the market rate, a phased realignment may be made over time.
3.
Annual bonus – a target of underlying (adjusted) profit was selected as this measure directly correlates to Company’s overall business plan.
The specific measures, targets and
weightings may vary from year to year in order to align with the Company’s strategy and the measures will be dependent on the Company’s goals over the year under review.
Performance measures are determined by the Remuneration Committee who seek external guidance on the appropriateness of any performance targets set relative to the market.
4.
Long term incentive plans – LTIP: under the Company’s current long term incentive plan, performance shares are awarded up to a maximum of 150% of salary if significantly chal
-
lenging performance targets are attained. The Remuneration Committee has currently selected two performance metrics for the LTIP, each with an equal weighting (i) EPS: this
remains the key internal measure of long term financial performance, as well as being well understood by the executives and our investors as providing a clear incentive to deliver
the Company’s long term growth prospects; and (ii) qualitative strategic performance metrics aligned to the Company's strategic milestones.
The vesting schedule outlines the
vesting percentages in relation to both the EPS performance targets, which were set after taking into account internal scenario analysis, current market expectations and the
current trading environment, and delivery against the strategic milestones as detailed in the Group’s published strategic plan.
5.
Pensions – The Chief Operating Officer ceased to be an active member of the Pension Plan in 2006. In accordance with the Code, the company is seeking to align his pension with
that the wider workforce and is proposing to effect a phased reduction in the salary supplement in lieu of pension contribution received by the Chief Operating Officer such that,
by 01 January 2023, his salary supplement in lieu of pension contribution will be aligned to the employer pension contribution available to the majority of employees.
6.
Benefits - benefit levels are set to be competitive relative to companies of a comparable size.
7.
Annual Bonus and LTIP Policy - Remuneration Committee Discretions: The Committee will operate the annual bonus plan and LTIP in accordance with their respective rules and
in accordance with the Listing Rules, where relevant. Consistent with market practice, the Committee retains discretion in a number of respects with regard to the operation and
administration of these plans. These include the following (albeit with quantum and performance targets restricted to the descriptions detailed in the future policy table above):-
•
who participates in the plans;
•
the timing of grant of award and/or payment;
•
the size of an award and/or payment;
•
the determination of vesting and/or meeting targets with the ability to override the formulaic outcome in light of overall business proposals
•
discretion required when dealing with a change of control (e.g. the timing of testing performance targets) or restructuring of the Group;
•
determination of good/bad leaver cases for incentive plan purposes based on the rules of each plan and the appropriate treatment chosen;
•
adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events, share buybacks and special dividends); and
•
the annual review of performance measures and weighting, and targets for the annual bonus plan and LTIP from year to year or on award.
The Committee also retains the ability to adjust the targets and/or set different measures and alter weightings for the annual bonus plan and to adjust targets for the LTIP if events
occur (such as a material divestment of a Group business) which cause it to determine that the conditions are no longer appropriate and the amendment is required so that the con
-
ditions achieve their original purpose and are not materially less difficult to satisfy.
The company retains the authority to honour any commitments entered into with current of former directors that have been disclosed to shareholders in previous remuneration
reports (e.g. all historic awards that were granted under any LTIPs that remain outstanding, as detailed in the company’s latest Annual Report), and which remain eligible to vest
based on their original award terms. Details of any payments to former directors will be set out in the Annual Report on remuneration as they arise. With regard to any promotions
to executive director positions, the company will retain the ability to honour payments agreed prior to executives joining the Board, albeit any payments agreed in consideration
of being promoted to the Board will be consistent with the policy on new appointments as an executive director detailed in the Remuneration Policy at www.pendragonplc.com
DIRECTORS’ REMUNERATION REPORT
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Pendragon PLC Annual Report 2022
Element
Description
Minimum
On Target
Maximum
Fixed
Fixed (comprises base
salary, benefits, pension)
Included
Included
Included
Annual Bonus
Annual bonus
16.66% of the maximum
bonus
66.6% of the maximum
bonus
1
100% of the maximum
bonus
1
Long Term Incentive Plan
Long Term Incentive Plan
16.66% of the maximum
LTIP
66.6% of maximum LTIP
2
100% of the maximum LTIP
2
1
The maximum bonus available for executive directors is equivalent to 150% of base salary.
2
Awards made under the long term incentive plan (LTIP) will be on an annual basis with a three year performance period and two year holding period. The maximum LTIP award available
for executive directors is equivalent to the award of nil-cost options at 150% of base salary.
3
Impact of share price growth on equity based incentives – In accordance with The Companies (Miscellaneous Reporting) Regulations 2018, indications of maximum remuneration
available do not allow for any share price growth.
ILLUSTRATION OF OUR REMUNERATION POLICY FOR 2023
The table below illustrates the operation of the remuneration policy and provide estimates of the potential future remuneration
that Executive Directors would receive, in the scenarios shown, in accordance with the directors’ remuneration policy for 2023.
Potential outcomes based on different performance scenarios are provided for each Executive Director. A significant percentage
of remuneration is linked to performance, particularly at maximum levels.
The chart illustrates the remuneration that could be paid to each of the executive directors, based on salaries at the start of the
financial year 2023.
2.5m
2.0m
1.5m
1.0m
0.5m
0
Minimum
Threshhold
Maximum
0.710m
1.123m
2.360m
(£m)
CHIEF EXECUTIVE OFFICER
Value of Package (£m)
Minimum
Threshhold
Maximum
0.376m
0.637m
1.419m
CHIEF OPERATING OFFICER
Value of Package (£m)
Minimum
Threshhold
Maximum
0.309m
0.773m
1.237m
CHIEF FINANCE OFFICER
Value of Package (£m)
Fixed Elements
Annual Bonus
LTIP
+
+
=
Fixed
Annual
Bonus
LTIP
Total
The value of LTIP for the CEO with a share price gain of 50% is £1,237500, the value for the COO with a share price gain of 50% is £720,000 and the value for the CFO with a
share price gain of 50% is £680,625. Fixed elements take Benefit cost from 2022 and the costs could increase in 2023. Base salary is as at 01.01.23
86
Pendragon PLC Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
POLICY ON NEW APPOINTMENTS AS AN EXECUTIVE DIRECTOR
The table below sets out the principles which would be applied by the company when agreeing the components of a remuneration
package for a newly appointed executive director.
New appointments as executive director
Reward Element
Base Salary
Base salary in accordance with policy detailed within the remuneration policy table at page 80
Benefits
Will be provided in accordance with the policy within the remuneration policy table at page 81
LTIP
Eligible to participate in the LTIP, as described in the remuneration policy table at page 83
Pension
Pension contributions for new executive directors will not exceed the rate available to the wider workforce.
Annual Bonus
Eligible to participate in the annual bonus plan in operation as described in the remuneration policy table at page 82
SAYE
Eligible to participate in the SAYE, as described in the remuneration policy table at page 82
Buy Outs
In order to facilitate the external recruitment of executive directors, it may be necessary for the Committee to consider
buying out existing incentive awards which would be forfeit on the individual leaving their current employment. The
Committee would seek, where possible, to provide a buy out structure which was consistent with the forfeited awards
in terms of quantum, vesting period and performance conditions.
POLICY ON NEW APPOINTMENTS AS
NON-EXECUTIVE DIRECTOR
The company’s policy on non-executive director remuneration
is detailed on page 84. New appointments of non-executive
directors will be made consistent with this policy.
HOW EMPLOYEES’ PAY IS TAKEN INTO ACCOUNT IN
EXECUTIVE REMUNERATION
Pay and conditions elsewhere in the Group were considered
when finalising the current remuneration package for executive
directors,
and
the
Remuneration
Committee
reviewed
workforce remuneration and related policies to ensure rewards
and incentives were aligned with the culture when developing
and setting the policy for executive director remuneration.
The Committee continues to be updated throughout the year
on salary increases and the levels of annual bonus awards,
and proposed changes to remuneration policy and practice
for the wider Group, ensuring that changes to remuneration
policy below board level remain consistent and transparent
with those implemented or proposed for executive directors.
In addition, the Committee continues to oversee participation
in long term incentives for below Board level associates. As a
result, the Committee is aware of how typical employee total
remuneration compares to the potential total remuneration of
executive directors.
During
2022
the
Company
introduced
an
Associate
Engagement survey, Your Voice, and collected feedback
from the whole workforce on a range of topics, on both a
quantitative and qualitative basis. This feedback has been used
to shape and influence improvements to reward processes,
including the introduction of an annual pay review process in
2023.
The Company continues to ensure associates have regular
access to updates and information concerning the financial
performance of the Company through various communication
channels.
HOW ARE SHAREHOLDERS’ VIEWS TAKEN INTO
ACCOUNT WHEN DETERMINING EXECUTIVE
COMPENSATION PACKAGES?
The Board considers shareholder feedback received in relation
to the AGM each year at a meeting immediately following the
AGM and any action required is built into the Remuneration
Committee’s business for the ensuing period. This, and any
additional feedback received from shareholders from time
to time, is then considered by the Committee as part of the
Company’s annual review of remuneration policy.
During 2022 and early 2023, the Remuneration Committee
undertook a review of the remuneration policy, taking into
account
developments
in
remuneration
policy,
as
well
as
prevailing market practice and considering the views of our
major shareholders. The Acting Remuneration Committee
Chairman continues to make himself available to shareholders
to discuss specific matters arising from our remuneration
policy proposals. The outcome of this exercise forms the basis
of the remuneration policy detailed in the future policy table
above. The Chairman of the Remuneration Committee aims to
maintain regular contact with our major shareholders at key
points during the year to ensure we are fully aware of their
prevailing thinking on our remuneration policies.
87
Pendragon PLC Annual Report 2022
DIRECTOR’S SERVICE CONTRACTS AND EXIT PAYMENTS
Executive directors are appointed under service contracts of
indefinite duration (with a 12 month notice period), whereas
non-executive directors each have a fixed term appointment
letter renewable upon expiry at the company’s discretion.
Appointments of new non-executive directors and renewals
of existing appointments are on three-year fixed terms. When
considering the re-appointment of a non-executive director,
the Board reviews their attendance at, and participation in,
meetings and their overall performance, and also takes into
account the balance of skills and experience of the Board as
a whole.
EXECUTIVE DIRECTOR APPOINTMENTS
The
service
contract
of
executive
director
Martin
Casha
commenced on 20 December 1999.
The service contract of Mark Willis commenced on 08 April
2019, and was also refreshed in December 2019.
The service contract of Bill Berman commenced on 01 October
2019 for the purposes of performing the role of interim
executive chairman, and was also refreshed in December
2019. On appointment to the role of chief executive officer on
19 February 2020, Bill Berman was issued with a new service
contract.
EXIT PAYMENTS
Each executive service contract may be terminated by the
company
giving
one
year’s
notice.
The
company
would
expect any future executive director appointments to contain
the same terms as to notice periods. Executive director
appointment terms do not contain any entitlement to any
predetermined compensation or severance payments in the
event of cessation in office or employment as a consequence
of a takeover. Service contracts and letters of appointment
are kept for inspection at the company’s registered office.
With regard to the circumstances under which the current
executive directors might leave service, the possible payments
that may be anticipated are described in the table below:-
NATURE OF
BENEFIT
REASON FOR LEAVING
“Bad” leaver (e.g.
resignation)
“Good”
leaver
Departure on
Agreed Terms
Change of control
Salary in Lieu
of notice period
No salary in lieu of notice
paid on resignations unless
in the interests of the com-
pany to do so
Up to a maximum of 100%
of salary (e.g. redundancy).
Normal practice would be
for phased payment
Treatment will depend on
the circum- stances of the
leaver event, subject to
the discretion of the Remu-
neration Committee, and
the terms of any termination
agreement
Contractual entitlements
will be honoured
Pension and
benefits
Provided for period of
notice period served. No
benefits provided for peri
-
ods after actual cessation
of service unless in the
interests of the company
to do so
Up to one year’s worth of
pension and benefits (e.g.
redundancy). Possible pay-
ment of pension and insured
benefits triggered by the
leaver event (this would be
governed by the terms of
the benefits provided)
Bonus
None
Yes (discretion to pay
pro-rata based on compa-
ny’s performance)
Discretion on the proportion
of awards vesting based on
performance against targets
and the performance period
that has lapsed
Long-term
incentive
entitlements
Lapse
Discretion to allow up to full
vesting, based on com-
pany’s performance, with
normal practice to be for
pro rata vesting based on
the proportion of the per-
formance period served
Other payments
None
Disbursements such as con-
tribution to legal costs
Disbursements such as con-
tribution to legal costs
FEES FROM EXTERNAL DIRECTORSHIPS
None of the executive directors holds office as a non-executive
director of other companies. Accordingly, the company does
not have a formal policy on whether or not an executive
director may keep fees gained from holding an external non-
executive directorship or similar. This would be decided on a
case by case basis.
88
Pendragon PLC Annual Report 2022
NON-EXECUTIVE DIRECTORS’ APPOINTMENTS
THE COMMITTEE’S WORK IN 2022
•
determined annual bonus awards in respect of 2021
performance
•
set and revised the annual bonus plan terms for 2022
•
determined performance targets and granted LTIP
awards in July 2022
•
noted remuneration trends across the Group
•
considered the gender pay gap report
•
embarked on search for a new Remuneration
Committee Chair
ADVISERS
During 2022, the Committee received external advice from
PwC, who received fees of £103,000 in respect of the same.
The Group General Counsel also acts as secretary to the
Committee. The Group General Counsel and the Chief People
Officer also provided additional advice.
Name
Commencement
Expiry/cessation
Unexpired at date of report (months)
Brian Small
10.12.19
31.12.25
33
Nikki Flanders
13.03.20
31.12.23
9
Dietmar Exler
20.04.20
31.12.23
9
Ian Filby
01.11.21
31.12.24
21
HISTORY OF CHIEF EXECUTIVE REMUNERATION
In terms of the single total figure of remuneration for executive
directors in 2022, shareholders should be aware that no long
term incentives vested in 2022.
For 2021, the data in the LTIP
column in the single total figure of remuneration for executive
directors table on page 89 for 2021 reflects the outcome of
the October 2020 and July 2021 LTIP awards at the equivalent
of base salary, and is included in the table as the applicable
performance period concluded at the end of the financial year
2021. The awards themselves do not vest until October 2023
and July 2024 respectively.
Chief Executive
2022
2021
1
restated
5
2020
2019
2
2018
2017
2016
2015
2014
2013
Total Remuneration £k (single figure)
1,313
3,561
1
510
464
589
727
1,605
1,775
3,472
2,961
Annual bonus award (% of maximum
that could have been paid)
73%
100%
100%
3
0%
0%
30%
87%
100%
100%
100%
Percentage of LTIP
vesting
3
0%
0%
4
0%
0%
0%
0%
100%
56%
100%
100%
1. Of the single total remuneration figure attributable to 2021 of £3,561k, £2,016k is the cash equivalent as a percentage of salary for LTIPs awarded in October 2020
and July 2021, which do not vest until October 2023 and July 2024 respectively. The CEO did not receive a cash payment in 2021 of £3,561k: actual payment received
in 2021 was £1,545k.
2. Total remuneration for the chief executive role in 2019 has been calculated based on total remuneration paid to the holder of the role of chief executive officer for
the period from 01.01.2019 to 30.06.2019, with the total remuneration payable for full reporting period based on extrapolated data assuming the last holder of the role
of chief executive officer had continued in the role at the same level of remuneration to the end of the full reporting period.
3. The annual bonus awarded in 2020 was for the period 01 July 2020 to 31 December 2020 with a reduced maximum level of quantum available.
4. Percentage of shares vesting under the Pendragon Long Term Incentive Plan against the maximum number of shares that could have been received; the October
2020 LTIP vests in October 2023, the July 2021 LTIP vests in July 2024, following the satisfaction of applicable performance conditions, such that it was determined
that 91.6% of the maximum available under the awards would vest.
5. As declared at the 2022, AGM William Berman’s expatriate benefit of overseas healthcare and tax support were previously not disclosed and were under reported:
this has now been rectified above. (For healthcare £144k in 2021 and £118k in 2022, for tax support £2k in 2022 and £7k in 2021, car allowance was £19k in 2021 and
£23k in 2022).
DIRECTORS’ REMUNERATION REPORT
89
Pendragon PLC Annual Report 2022
Base Salary
£000
Taxable
benefits
1
£000
Pension
2
£000
Bonus
3
£000
LTIP
4
£000
Single total
figure
£000
Total Fixed
Remuneration
£000
Total Variable
Remuneration
£000
2022
2021
2022
2021
restated
2022
2021
2022
2021
2022
2021
(Oct2020
Award vests
Oct 2023)
2021
(July 2021
Award vests
July 2024)
2022
2021
restated
2022
2021
restated
2022
2021
Current Directors
William Berman
550
550
143
170
17
-
603
825
0
1,260
756
1,313
3,561
710
720
603
2,841
Martin Casha
320
307
8
7
48
61
351
461
0
422
422
727
1,680
376
375
351
1,305
Mark Willis
303
303
15
14
-
-
332
454
0
694
417
650
1,882
318
317
332
1,565
1. Taxable Benefits include life assurance, private health cover in the UK & abroad if applicable, professional subscriptions, the provision of tax support for expatriate associates and the
provision of up to two cars (at the Director’s election), one of which is fully expensed. As declared at the 2022 AGM, William Berman’s expatriate benefit of overseas healthcare and tax
support were previously not disclosed and were under reported: this has now been rectified above. (For healthcare £144k in 2021 and £118k in 2022, for tax support £2k in 2022 and
£7k in 2021, car allowance was £19k in 2021 and £23k in 2022).
2. Salary supplement in lieu of pension contribution. In 2006, Martin Casha ceased to be an active member of the Pendragon defined benefit pension plan. Martin Casha elected to take
early retirement benefits from 01.07.16 and is therefore a pensioner member. In accordance with Investment Association (IA) guidance, a phased reduction in the salary supplement
in lieu of pension contribution received by Martin Casha has now been completed, and, as of 01 January 2023, his salary supplement in lieu of pension contribution is aligned to the
employer pension contribution received by the relevant wider workforce.
3. Bonus Award paid in 2023 equivalent to 109.6% of base salary based on 2022 performance achievement.
4. Although no LTIPs vested under the LTIP in 2021, given that LTIPs previously awarded in October 2020 and July 2021 vest in respect of the performance to the end of the financial
year 2021, the Remuneration Committee assessed the performance conditions applicable to the October 2020 and July 2021 awards and determined that: (i) the EPS targets for both
the October 2020 and July 2021 awards would be satisfied in full; and (ii) the Company had delivered significantly on stretching strategic metrics set for both awards measured over
2021, resulting in 91.6% of the total awards vesting. The October 2020 LTIP vests in October 2023 and the July 2021 LTIP vests in July 2024.
5. Of the single total remuneration figure attributable to 2021 of £3,542k, £2,016k is the cash equivalent as a percentage of salary for LTIPs awarded in October 2020 and July 2021,
which do not vest until October 2023 and July 2024 respectively. The CEO did not receive a cash payment in 2021 of £3,542k: actual payment received in 2021 was £1,526k (inclusive
of benefits value).
SINGLE TOTAL FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS AND THE INTERIM EXECUTIVE CHAIRMAN 2021
(AUDITED INFORMATION)
SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS 2022
(AUDITED INFORMATION)
Basic Fee
£000
Taxable
benefits
£000
SID/Committee
Chair Fee
£000
Single total figure
£000
2022
2021
2022
2021
2022
2021
2022
2021
Current Directors
Mike Wright
1
25
50
-
-
5
10
30
60
Dietmar Exler
50
50
-
-
4
4
54
54
Ian Filby
150
25
-
-
-
-
150
25
Nikki Flanders
50
50
-
-
-
-
50
50
Brian Small
50
50
-
-
10
10
60
60
1. Mike Wright stood down from the Board on 01.06.22
PENSIONS
The Pendragon Pension Plan (Pension Plan) is established for
the benefit of the Group’s eligible employees. The Pension
Plan operates through a trustee company which holds and
administers its assets entirely separately from the Group’s
assets. There is no direct investment in Pendragon PLC
Martin Casha ceased to be an active member of the Pension
Plan in 2006.
The non-executive directors are not eligible
to participate in the Pension Plan. New executive directors
are invited to participate in the Pension Plan, should they so
wish, with any pension contributions being in line with wider
workforce.
90
Pendragon PLC Annual Report 2022
PERFORMANCE RELATED PAY FOR 2022: ANNUAL BONUS
Given their commercial sensitivity, we do not publish the
details
of
targets
in
advance.
However,
the
Committee
considered the targets to be measurable and appropriately
stretching at point of award.
For 2022, the maximum annual
bonus opportunity was 150% of base salary, only achievable
for performance 25% in excess of the Company’s target
underlying profit based on the FY 2021 Corporate Plan. The
2022 bonus performance metric was set as underlying profit
for the full year, determined in accordance with a combination
of the Company’s 2021 Corporate Plan and Broker Consensus,
this was considered to be both reflective of the continued
uncertain trading background, but also based on a realistic
assessment of the Company’s trading prospects for the full
year at the time of the award.
Details of percentage of salary payable at threshold, target
and maximum are set out in the table below, together with the
actual outturn for 2022.
As the committee determined that
underlying profit was achieved slightly above the target set,
bonus was determined to be payable at 109.6% on a straight
line vesting principle.
Target aligned to
2021 Corporate
Plan
Percentage of basic
salary payable
Underlying Profit
Outcome based on
A Combination of
the 2021 Corporate
Plan and Market
Consensus
Actual Outturn
FY2022 Underlying
Profit
% of Maximum
Bonus Awarded
Payout: % of basic
salary payable
Threshold (equal to
20% below Target)
25%
£43,920,000
Target (Achieving
Mix of 2021 Corpo
-
rate Plan & Market
Consensus)
100%
£54,900,000
£57,600,000
73%
109.6%
Maximum (Equal to
25% above Target)
150%
£68,625,000
LONG TERM INCENTIVES VESTING IN 2022
There were no awards vesting in respect of the long-term
incentive plan for the period ending 2022.
LONG TERM INCENTIVE PLAN AWARDS (“LTIP”)
AWARDED IN 2022
In August 2022, the Committee granted awards in the form of
nil cost share options pursuant to the Company’s LTIP to the
executive directors.
Vesting of the Awards under the LTIP is
subject to the satisfaction of certain performance conditions.
70% is based on achieving a defined earnings per share target.
5%
is based on an ESG metric to achieve a reduction in the
Company’s overall Carbon Emissions. 25% is based on Strategic
Metrics aligned to the Company’s Strategy.
Each Strategic
Metric has a defined financial metric outlining the achievement
required for both target and maximum pay out.
All metrics
are based over a 3 year performance period, commencing
on 01 January 2022 and measured at year end 2024.
The committee discussed the opportunity to introduce
a relative TSR metric as part of the 2022 LTIP.
Upon
receiving advice and benchmarking data from our advisors
it was identified that finding a relative group was extremely
difficult.
The
committee
was
unable
to
find
a
relative
group that’s TSR had moved in the same direction (when
measured over a 5 year period) as Pendragon’s TSR.
DIRECTORS’ REMUNERATION REPORT
91
Pendragon PLC Annual Report 2022
Element of Pay
Implementation of Policy
BASE SALARY
Other than potential adjustments to take account of market conditions and changes in role scope to reflect
additional responsibilities undertaken, base salary will continue to be set in accordance with the remuneration
policy. We intend to carry out a full review of the current salaries for executives, considering appropriate
benchmarking data, and internal and external factors following the appointment of the new Remuneration
Committee Chair.
Base salaries for 2023:
•
Chief Executive Officer: £550,000
•
Chief Finance Officer: £302,500
•
Chief Operating Officer: £347,582
BENEFITS
No changes are expected to be made to these elements of remuneration within the financial year ending 31
December 2023.
PENSION
Currently each Executive Director is on an individual pension arrangement, and these will now be aligned to
one approach.
During 2022 we undertook a review of the pension provisions available to our wider workforce and increased
the company contribution to 6% for leaders in the business.
Our Executive Directors will receive an equivalent pension contribution of 6%, from January 2023 a year later
than the change for other leaders in the business.
The Chief Operating Officer ceased to be an active member of the Pension Plan in 2006. In accordance
with the Code, the company is seeking to align his pension with that the wider workforce and has effected
a phased reduction in the salary supplement in lieu of pension contribution received by the Chief Operating
Officer such since 01 January 2023, his salary supplement in lieu of pension contribution is aligned to the
employer pension contribution available to the relevant wider workforce.
ANNUAL BONUS
The bonus opportunity for the executive directors remains at a maximum opportunity of 150% of base salary,
payable at the maximum level only for significant outperformance against the corporate plan.
The targets for the 2023 annual bonus will be disclosed retrospectively in the 2023 Director’s Remuneration
Report as the Committee deems them to be commercially sensitive.
The bonus metric for 2023 will be based on achieving underlying profit before tax against the corporate plan.
25% of after tax bonus earned will be subject to compulsory deferral into the company’s shares until such
time as the company’s share ownership guidelines are met.
LONG TERM INCENTIVE
PLAN
The proposed LTIP will have a maximum opportunity of 150% of salary, with no exceptional maximum. Any
awards will also be subject to a three year performance and two year holding period.
For 2023 specifically the measures will be 70% EPS, 24% strategic, financial metrics and 6% on ESG, focusing
equally on carbon and diversity.
The committee is currently considering the appropriate financial metrics as performance conditions for the
strategic element.
SHAREHOLDING
GUIDELINES
The minimum shareholding requirement for the CEO is 200% of salary (100% for all other Executive Direc-
tors), to be built up within 5 years of appointment to the board.
Until such time as the policy is met, Executive Directors will be required to hold any vested deferred bonus
shares and LTIP awards that vest (after sale of shares to cover associated personal tax liabilities).
MALUS AND CLAWBACK
Malus and clawback will continue to operate in respect of the annual bonus and long-term incentive plan, in
accordance with the parameters detailed in the remuneration policy.
IMPLEMENTATION OF THE REMUNERATION POLICY IN THE FINANCIAL YEAR ENDING 31 DECEMBER 2023
The Committee envisages that there will be limited changes arising from the implementation of the remuneration policy during
financial year ending 31 December 2023. The policy in respect of the executive directors will be applied as follows:
92
Pendragon PLC Annual Report 2022
700
600
500
400
300
200
100
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
PENDRAGON PLC - TOTAL RETURN INDEX
FTSE SMALL CAP EX INV. TRUSTS - TOTAL RETURN INDEX
PENDRAGON PLC TSR 2012 - 2022
1. This report is required, pursuant to the Large and Medium sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, regulation 18, Performance Graph.
2. Total Shareholder Return (“TSR”) is calculated over the ten years ended on 31 December 2022 and reflects the theoretical growth in the value of a shareholding over that period,
assuming dividends (if any) are reinvested in shares in the company. The price at which dividends are reinvested is assumed to be the amount equal to the closing price of the shares on
the ex- dividend date plus the gross amount of annual dividend. The calculation ignores tax and reinvestment charges. For each company in the index, the TSR statistics are normalised
to a common start point, which gives the equivalent to investing the same amount of money in each company at that time. The percentage growth in TSR is measured over the chosen
period. To obtain TSR growth of the relevant index over the chosen period, the weighted average of TSR for all the companies in the index is calculated. In this case, it is the FTSE Small
Cap Index (excluding investment companies) as explained in Note 3. The weighting is by reference to the market capitalisation of each company in the index in proportion to the total
market capitalisation of all the companies in the index at the end of the chosen measurement period.
3. The FTSE Small CAP index has been selected as it represents the equity market in which the Company was a constituent member for the majority of the relevant seven year period
ending 31 December 2022 detailed above.
TOTAL SHAREHOLDER RETURN
1
The graph below shows the total shareholder return (“TSR”)2
on the company’s shares in comparison to the FTSE Small
Cap Index (excluding investment companies).3 TSR has been
calculated as the percentage change, during the relevant
period, in the market price of the shares, assuming that any
dividends paid are reinvested on the ex-dividend date. The
relevant period is the ten years ending 31 December 2019. The
notes at the foot of the graph provide more detail of the TSR
calculation.
DIRECTORS’ REMUNERATION REPORT
93
Pendragon PLC Annual Report 2022
DIRECTORS’ SHAREHOLDINGS (AUDITED)
Number of shares
held outright
Awards over
nil-cost options
Shareholding
requirement
(% of base
salary)
Shareholding as
at 31 December
2022 incl
shares not
subject to
performance
requirements
(% of base
salary)
As at 31
December
2022
As at 31
December
2021
Vested but
not exer-
cised
Unvested
and subject
to continued
employment
Unvested and subject
to performance
conditions and continued
employment
Executive Directors
William Berman
1,462,114
Nil
-
12,910,581
3,478,077
200%
501%
Martin Casha
11,098,524
9,559,780
-
5,135,844
2,026,003
100%
974%
Mark Willis
804,163
Nil
-
7,100,785
1,912,942
100%
500%
Non Executive Directors
Dietmar Exler
210,000
210,000
-
-
-
N/A
N/A
Nikki Flanders
Nil
N/A
-
-
-
N/A
N/A
Brian Small
400,000
400,000
-
-
-
N/A
N/A
Ian Filby
Nil
N/A
-
-
-
N/A
N/A
PERCENTAGE CHANGE IN CHIEF EXECUTIVE REMUNERATION
The table below illustrates the percentage change in the remuneration awarded to the Directors over the last 3 years and that
of the group’s employees across its entire UK business.
DIRECTORS’ SHAREHOLDINGS (AUDITED)
The shareholdings of all Directors, including the shareholdings of their connected persons as at 31 December 2022, are set out
below. There have been no changes in the Directors’ interests from 31 December 2022 to the date of this report.
The CEO has a shareholding requirement of 200% of salary, with other Executive Directors having a shareholding requirement
of 100% of salary.
There is no company policy on non-executive director share ownership.
This was considered by the
Remuneration Committee during 2022 and as our NEDs actively look to purchase shares, we do not feel it is necessary to have
a minimum shareholding requirement for non-executives at this time. We will continue to monitor any evolutions in UK best
practice to determine if this should change in future.
Salary/Fees
Benefits
Bonus (Including deferred
amount)(% of base salary)
2022
2021
2020
2022
2021
2020
2022
2021
2020
Executive Directors
Chief Executive
0.0%
7.8%
105.6%
-15.9%
-
-
-26.9%
99.8%
100.0%
Chief Operating
Officer
4.2%
7.0%
-1.7%
14.3%
-22.2%
0.0%
-23.9%
103.1%
-
Chief Finance
Officer
0.0%
3.8%
30.9%
15.4%
30.0%
400.0%
-26.9%
101.8%
-
Non Executive Directors
Ian Filby
0.0%
-
-
-
-
-
-
-
-
Dietmar Exler
0.0%
42.9%
-
-
-
-
-
-
-
Nikki Flanders
0.0%
38.9%
-
-
-
-
-
-
-
Brian Small
0.0%
-3.8%
1633.3%
-
-
-
-
-
-
All Employees
(average)
8.7%
7.0%
8.1%
-27.0%
-33.3%
0.0%
12.1%
39%
-
1.Additional benefits allowance for 2022 inclusive of car allowance for CFO. The high percentage relates to the relatively low figures of £4k for 2021 and £15k for 2022 resulting in this
percentage appearing inflated. As declared at the 2021 AGM William Berman’s expatriate benefit of overseas healthcare and tax support were previously not disclosed in error and were
under reported this has now been rectified in the calculation above.
94
Pendragon PLC Annual Report 2022
SHAREHOLDERS’ VOTE ON REMUNERATION AT THE 2022 AGM
SHARE PRICE INFORMATION AND PERFORMANCE
Other than those detailed above, there are no share option or long term incentive schemes in which the directors are eligible to
participate. The middle market price of Pendragon ordinary shares at 31 December 2022 was 19.2 pence and the range during
the year was 17.6 pence to 28.8 pence.
2021 Directors’ Remuneration Report
Number
Proportion of votes cast
Votes cast in favour
380,612,034
34.49
Votes cast against
722,783,233
65.51
Total votes cast in favour or against
1,103,395,267
100%
Votes withheld
23,063,508
0%
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below illustrates the year-on-year change in total team member pay (being the aggregate of staff costs as set out in
note 2.4 to the financial statements and distributions to shareholders (being declared dividends).
CHIEF EXECUTIVE OFFICER PAY RATIO
The table below shows our chief executive officer pay ratio at 25th, median and 75th percentiles of our UK associates. The ratios
have been calculated based on the single total figure of remuneration for the chief executive officer and the total pay for the
associates based on our gender pay gap data under Option B of The Companies (Miscellaneous Reporting) Regulations 2018.
We have used Option B as the Company has already completed comprehensive data collection and analysis for the purposes
of gender pay gap reporting, and continues to do so on a monthly basis. The gender pay gap data used was collated on 31
December 2022.
Financial year
Method
25th percentile pay ratio
(lower quartile)
Median pay ratio
(median)
75th percentile pay ratio
(upper quartile)
2022
Option B
26:1
25:1
16:1
2021
Option B
30:1
25:1
19:1
2020
Option B
30:1
26:1
20:1
1. Total pay for the percentile employees taken from our gender pay gap data includes the following pay elements: base salary, holiday pay, hourly pay, national minimum wage top ups, car
allowance, acting up allowance, monthly advances, team member vouchers subject to national insurance, benefit schemes, statutory sick pay, maternity pay and paternity pay. Associates
w ho have not received pay (in terms of salary and adjustments) but has still received other salary payments are excluded from our gender pay gap data.
Team member pay
Distribution to shareholders
2022 (£m)
2021 (£m)
% change
2022
2021
% change
£241.5m
£210.3m
14.8%
£0m
£0m
-
DIRECTORS’ REMUNERATION REPORT
95
Pendragon PLC Annual Report 2022
AREA
Implementation
CLARITY
The committee is committed to providing transparent disclosures to shareholders and the workforce about
executive remuneration arrangements. The director’s remuneration report sets out the detail of such ar-
rangements in a clear and transparent way. Our AGM allows shareholders to ask questions on remuneration
arrangements
SIMPLICITY
Our remuneration arrangements for executive directors are simple in nature and understood by all partic-
ipants, having operated in a similar manner for a number of years. Executive directors receive fixed pay
(salary, benefits, pension) and participate in a single short term annual bonus and a single long-term incentive
plan (LTIP)
PREDICATABILITY
Payouts under the annual bonus and LTIP schemes are dependent on Company performance over the short
and long term and are governed by achievement against set targets. These schemes have strict maximum
opportunities, which are outlined in the directors remuneration report.
RISK
The committee has designed incentives that do not encourage inappropriate risk-taking. The committee
retain discretion in both the annual bonus and LTIP schemes to adjust payouts where the formulaic outcomes
are not considered reflective of underlying performance and individual contribution. Robust withholding and
recovery provisions apply to variable incentives.
PROPORTIONALITY
Payouts from variable incentive schemes require strong performance against challenging conditions over the
short and longer term. Performance conditions have been selected to support group strategy and consist of
both financial and non-financial metrics. The committee retains discretion to override formulaic outcomes in
both schemes to ensure they are appropriate and reflective of overall performance.
ALIGNMENT TO CULTURE
Performance measures used in our variable incentive schemes are selected to be consistent with the Compa
-
ny’s purpose, values and strategy. The use of annual bonus deferral, LTIP holding periods and our sharehold-
ing requirement provide a clear link to the ongoing performance of the group and ensures alignment with
shareholders.
SHAREHOLDER APPROVED REMUNERATION POLICY
The following table summarises how our shareholder approved remuneration policy fulfills the factors set out in provision 40 of
the 2018 UK Corporate Governance Code.
APPROVAL
This report was approved by the Committee and signed on its behalf by:
Ian Filby
Acting Chairman of the Remuneration Committee
22 March 2023
96
Pendragon PLC Annual Report 2022
STRATEGIC REVIEW AND PRESCRIBED REPORTING
Our Strategic Review at pages 25 to 32 contains the information,
prescribed by the Companies Act 2006, required to present
a fair review of the company’s business, a description of the
principal risks and uncertainties it faces, and certain of the
information on which reports and statements are required by
the UK Corporate Governance Code. The Board approved the
Strategic Review set out on pages 25 to 32 and the Viability
Statement set out on page 49. Additional information on
which the directors are required by law to report is set out
below and in the following:-
•
Environmental, Social and Governance Report
•
Board of Directors
•
Audit Committee Report
•
Nomination Committee Report
•
Directors’ Remuneration Report
•
Directors’ Report
•
Directors’ Responsibility Statement
In the interests of increasing the relevance of the Report
and reducing the environmental impacts of over-lengthy
printed reports, we have placed on our website at certain
background information on the company the disclosure of
which, in this Report, is not mandatory.
We monitor reaction
to the publication of shareholder information on our website,
to help shape our shareholder communication and future
improvements.
RESULTS AND DIVIDENDS
The results of the Group for the year are set out in the financial
statements on pages 112 to 196. No interim dividend was
paid during the year, and the directors are not proposing to
recommend a final dividend for the year ended 31 December
2022.
APPOINTMENT AND POWERS
OF THE COMPANY’S DIRECTORS
Appointment and removal of directors is governed by the
company’s articles of association (the Articles), the UK
Corporate Governance Code (the Code), the Companies
Acts and related legislation. Subject to the Articles (which
shareholders may amend by special resolution), relevant
legislation and any directions given by special resolution, the
company and its group is managed by its board of directors.
By resolutions passed at company general meetings, the
shareholders have authorised the directors: (i) to allot and
issue ordinary shares; (ii) to offer and allot ordinary shares in
lieu of some or all of the dividends; and (iii) to make market
purchases of the company’s ordinary shares (in practice,
exercised only if the directors expect it to result in an increase
in earnings per share). Details of movements in the company’s
share capital are given in note 4.4 to the financial statements.
From time to time, Pendragon provides financial assistance
to its independent employee benefits trust to facilitate the
market purchase of ordinary shares in the company for use in
connection with various of the company’s employee incentive
schemes.
The company did not purchase any shares in this
way in 2022.
BUSINESS AT THE AGM
At the AGM, a separate shareholders’ resolution is proposed
for each substantive matter. We will issue to our shareholders
the company’s annual report and financial statements together
with the notice of AGM, giving not less than the requisite period
of notice. The notice sets out the resolutions the directors are
proposing and has explanatory notes for each. At the AGM,
directors’ terms of appointment are available for inspection
and, as well as dealing with formal AGM business, the Board
takes the opportunity to give an update to shareholders on
the company’s trading position.
The Chairman and each
committee chairman are available to answer questions put by
shareholders present.
DIRECTORS AND THEIR INTERESTS IN SHARES
Current directors are listed on pages 66 and 67. Details of the
terms of appointment and notice period of each of the current
directors,
together
with
executives
directors’
respective
interests in shares under the company’s long term incentive
plan (non-executive directors have none), appear in the
Directors’ Remuneration Report on pages 77 to 95. Directors
who served during 2022 and their respective interests in the
company’s issued ordinary share capital are shown in the
table below.
All holdings shown are beneficial. None of the
directors holds options over company shares, other than nil
paid options pursuant to the LTIP as described on page 93 in
the director’s remuneration report. Executive directors will aim
to fulfil the requirements of the company’s share ownership
policy applicable to them within five years of appointment.
There is no company policy requiring non-executive directors
to hold a minimum number of company shares.
DIRECTORS’ ROTATION
The UK Corporate Governance Code (July 2018) imposes an
obligation that all Directors should be subject to annual re-
election.
DIRECTORS’ REPORT
97
Pendragon PLC Annual Report 2022
INDEMNITIES TO DIRECTORS
In
line
with
market
practice
and
the
company’s
Articles,
each director has the benefit of a deed of indemnity from
the company, which includes provisions in relation to duties
as a director of the company or an associated company,
qualifying third party indemnity provisions and protection
against derivative actions.
Copies of these are available for
shareholders’ inspection at the AGM.
SHARE CAPITAL
As at 31 December 2022, Pendragon’s issued share capital
comprised a single class: ordinary shares of 5 pence each. The
Articles permit the creation of more than one class of share,
but there is currently none other than ordinary shares. Details
of the company’ share capital are set out in note 4.4 to the
accounts.
All issued shares are fully paid. The company did
not issue any new shares during the period under review. The
rights and obligations attaching to the company’s ordinary
shares are set out in the Articles.
The Company is currently
authorised to issue up to two-thirds of its current issued share
capital pursuant to a resolution passed at its 2022 AGM.
SIGNIFICANT DIRECT OR INDIRECT SHAREHOLDINGS
At 6 March 2023 the directors had been advised of the
following interests in the shares of the company:-
VOTING RIGHTS, RESTRICTIONS ON VOTING RIGHTS
AND DEADLINES FOR VOTING RIGHTS
Shareholders (other than any who, under the Articles or the
terms of the shares they hold, are not entitled to receive such
notices) have the right to receive notice of, and to attend and
to vote at, all general and (if any) applicable class meetings of
the company. A resolution put to the vote at any general or
class meeting is decided on a show of hands unless (before
or on the declaration of the result of the show of hands or
on the withdrawal of any other demand for a poll) a poll is
properly demanded. At a general meeting, every member
present in person has, upon a show of hands, one vote, and on
a poll, every member has one vote for every 5 pence nominal
amount of share capital of which they are the holder.
In the
case of joint holders of a share, the vote of the member whose
name stands first in the register of members is accepted to
the exclusion of any vote tendered by any other joint holder.
Unless the Board decides otherwise, a shareholder may not
vote at any general or class meeting or exercise any rights in
relation to meetings whilst any amount of money relating to
his shares remains outstanding.
A member is entitled to appoint a proxy to exercise all or any
of their rights to attend and speak and vote on their behalf
at a general meeting.
Further details regarding voting can
Directors’ shareholdings
Number at 31.12.22
Number at 31.12.21
William Berman
1,462,114
nil
Martin Casha
11,098,524
9,559,780
Dietmar Exler
210,000
210,000
Ian Filby
nil
n/a
Nikki Flanders
nil
n/a
Mark Willis
804,163
nil
Brian Small
400,000
400,000
Shareholder
Number of shares
Percentage of voting rights
of the issued share capital
Anders Hedin Invest AB
366,424,322
27.59
Schroders
163,016,559
11.69
Briarwood Chase Management
140,127,084
10.03
Odey Asset Management
137,411,576
9.84
Hosking Partners
67,176,942
4.81
Bank of America
44,910,795
3.21
Dimensional Fund Advisors
44,886,911
3.21
Farringdon Capital Management
31,298,235
2.24
Barclays Bank
30,693,280
2.20
Huntington Partners
28,058,810
2.01
98
Pendragon PLC Annual Report 2022
By order of the Board
Richard Maloney
Company Secretary
22 March 2023
be found in the notes to the notice of the AGM.
Details of
the exercise of voting rights attached to the ordinary shares
held by the company’s Employee Benefit Trust are set out
below.
None of the ordinary shares, including those held by
the Employee Benefit Trust, carries any special voting rights
with regard to control of the company.
To be effective, electronic and paper proxy appointments
and voting instructions must be received by the company’s
registrars not later than 48 hours before a general meeting.
The Articles may be obtained from Companies House in the
UK or upon application to the company secretary. Other
than those prescribed by applicable law and the company’s
procedures
for
ensuring
compliance
with
it,
there
are
no
specific restrictions on the size of a holding nor on the transfer
of shares, which are governed by the Articles and prevailing
legislation. The directors are not aware of any agreement
between holders of the company’s shares that may result
in restrictions on the transfer of securities or the exercise of
voting rights. No person has any special rights of control over
the company’s share capital.
SHARES HELD BY THE PENDRAGON
EMPLOYEE BENEFIT TRUST
As at 31 December 2022, the company’s Employee Benefit
Trust with Accuro Trustees (Jersey) Limited (the Trustee) held
1,541,801 shares, representing 0.11% of the total issued share
capital at that date (2021: 5,846,832; 0.46%). The Trustee has
waived its voting rights attached to these shares. It holds these
shares to enable it to satisfy entitlements under the company’s
share schemes. During the year, the Trustee transferred
500,000 shares to satisfy such entitlements (2021:573,258).
In addition, a further 5,918,024 shares were transferred by the
Trustee in respect of the award of the director’s 2020 bonus
as deferred shares.
CONTRACTS
None of the directors had an interest in any contract with the
Group (other than their service agreement or appointment
terms and routine purchases of vehicles for their own use)
at any time during 2022.
The company and members of its
group are party to agreements relating to banking, properties,
employee share plans and motor vehicle franchises which alter
or terminate if the company or group company concerned
undergoes a change of control. None is considered significant
in terms of its likely impact on the business of the Group as a
whole.
POLITICAL DONATIONS
The company and its group made no political donations (2021:
£ nil).
AUDITOR
The directors who held office at the date of approval of this
directors’ report confirm that: so far as they are each aware,
there is no relevant audit information of which the Group’s
auditors are unaware; and each director has taken all the steps
that they ought to have taken as a director to make themself
aware of any relevant audit information and to establish that
the Group’s auditors are aware of that information.
DIRECTORS’ REPORT
99
Pendragon PLC Annual Report 2022
100
Statement of Directors’ Responsibilities in Respect
of the Annual Report and Financial Statements
101
Independent Auditor’s Report to the Members of
Pendragon PLC
112
Consolidated Income Statement
113
Consolidated Statement of Comprehensive Income
114
Consolidated Statement of Changes in Equity
115
Consolidated Balance Sheet
116
Consolidated Cash Flow Statement
117
Reconciliation of Net Cash Flow to Movement
in Adjusted Net Debt
118
Notes to the Financial Statements
197
Company Balance Sheet
198
Company Statement of Comprehensive Income
199
Company Statement of Changes in Equity
200
Notes to the Financial Statements of the Company
209
Advisors, Banks and Shareholder Information
210
5 Year Group Review
FINANCIAL STATEMENTS
100
Pendragon PLC Annual Report 2022
The directors are responsible for preparing the Annual Report
and the Group and parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare Group and
parent Company financial statements for each financial year.
Under that law they are required to prepare the Group financial
statements
in
accordance
with
UK-adopted
international
accounting standards and applicable law and have elected
to
prepare
the
parent
Company
financial
statements
in
accordance with UK accounting standards and applicable law,
including FRS 101 Reduced Disclosure Framework.
Under
company
law
the
directors
must
not
approve
the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and
parent Company and of the Group’s profit or loss for that
period.
In preparing each of the Group and parent Company
financial statements, the directors are required to:
•
select suitable accounting policies and then apply them
consistently;
•
make judgements and estimates that are reasonable,
relevant, reliable and prudent;
•
for the Group financial statements, state whether they
have
been
prepared
in
accordance
with
UK-adopted
international accounting standards;
•
for
the
parent
Company
financial
statements,
state
whether applicable UK accounting standards have been
followed, subject to any material departures disclosed and
explained in the parent Company financial statements;
•
assess the Group and parent Company’s ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern; and
•
use the going concern basis of accounting unless
they either intend to liquidate the Group or the parent
Company or to cease operations, or have no realistic
alternative but to do so.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent Company and
enable them to ensure that its financial statements comply
with the Companies Act 2006.
They are responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the company’s website.
Legislation in the UK governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
In accordance with Disclosure Guidance and Transparency
Rule 4.1.14R, the financial statements will form part of the
annual financial report prepared using the single electronic
reporting format under the TD ESEF Regulation.
The auditor’s
report on these financial statements provides no assurance
over the ESEF format.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
•
the financial statements, prepared in accordance with
the applicable set of accounting standards, give a true
and fair view of the assets, liabilities, financial position
and profit or loss of the company and the undertakings
included in the consolidation taken as a whole; and
•
the
strategic
report
includes
a
fair
review
of
the
development and performance of the business and the
position of the issuer and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face.
We consider the annual report and accounts, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
Approved by order of the Board
Mark Willis
Chief Finance Officer
22 March 2023
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT
OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
101
Pendragon PLC Annual Report 2022
1. Our opinion is unmodified
We have audited the financial statements of Pendragon plc (“the Company”) for the year ended 31 December 2022 which comprise
the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Company
Balance Sheets, the Consolidated and Company Statements of Changes in Equity, the Consolidated Cash Flow Statement, and the
related notes, including the accounting policies.
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31
December 2022 and of the Group’s profit for the year then ended;
•
the Group financial statements have been properly prepared in accordance with UK-adopted international accounting
standards;
•
the parent Company financial statements have been properly prepared in accordance with UK accounting standards,
including FRS 101 Reduced Disclosure Framework; and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. .
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our
responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis
for our opinion. Our audit opinion is consistent with our report to the audit committee.
We were first appointed as auditor by the shareholders on 28 April 1997.
The period of total uninterrupted engagement is for
the 26 financial years ended 31 December 2022. We have fulfilled our ethical responsibilities under, and we remain independent
of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest
entities. No non-audit services prohibited by that standard were provided.
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
Overview
Materiality:
group financial
statements as a whole
£3.45m (2021: £4.0m)
5.0% of normalised group profit before tax
(2021: 0.1% of normalised group revenue)*
Coverage
92% (2021: 90%) of Group profit before tax**
Key audit matters
vs 2021
Recurring risks
Used vehicle inventory provision
Valuation of post retirement benefit obligation
Parent Company’s key audit matter:
Carrying value of parent
company's investments in subsidiaries and debt due from group
entities
* In 2021 our materiality was based with reference to a benchmark of Group revenue, normalised by averaging over a five year period. Materiality
represented 0.1% of this benchmark. **This is the profit and losses as a percentage of total profits and losses that made up the group profit before tax.
102
Pendragon PLC Annual Report 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
(CONTINUED)
2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified
by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team.
We summarise below the key audit matters, in decreasing order of audit
significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as
required for public interest entities, our results from those procedures. These matters were addressed, and our results are based
on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and
in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on
these matters.
The risk
Our response
Used vehicle inventory
provision (£6.9 million
(2021: £8.0 million)
Refer to page 70 Audit
Committee report, page
152 (accounting policy)
and page 153 (financial
disclosures)
Subjective valuation
The Group holds significant levels of
used vehicle inventory. Used vehicle
selling prices vary depending upon a
number of factors including general
economic conditions, the availability
of used vehicles and the levels of
new vehicle production.
Accounting standards require
inventory to be held at the lower of
cost and net realisable value. History
has shown that the average price of
a used vehicle may decline signifi
-
cantly over a short period of time,
and therefore the estimation of the
net realisable value of used vehicles
is a significant area of estimation
uncertainty. The risk increases as the
age of the used vehicle inventory
increases.
The effect of these matters is that,
as part of our risk assessment, we
determined that the provision held
against the carrying amount of used
vehicles has a high degree of esti-
mation uncertainty, with a potential
range of reasonable outcomes which
approximates to our materiality for
the financial statements as a whole.
The financial statements (note 3.4)
disclose the sensitivity estimated by
the Group.
Our procedures included:
• Test of controls:
Evaluating the management review
controls over the used vehicle inventory valuation
process;
• Historical comparisons
: We challenged the assump-
tions made in the used vehicle inventory provision by
comparison to the Group’s historical trading patterns,
including performing an analysis of the number of days
used inventory is held by the Group. We performed a
retrospective review of actual profits and losses made
during 2022 in respect of inventory held at 31 December
2021 and considered the implications for the appropri-
ateness of management's provision policy
• Independent reperformance:
We considered an
alternative methodology for assessing the valuation
of used inventory, with reference to the fuel type and
brand of the vehicles within used vehicle inventory at
the year end;
• Tests of details:
We assessed the appropriateness of
the related inventory provision by comparing the losses
incurred on used car sales subsequent to the year end
to the level of the year end provision. We also assessed
the Group’s methodology for calculating the provision
by comparing net profit per unit achieved at different
points during the financial year; and
• Assessing transparency:
We assessed the adequacy of
the Group’s disclosures about the degree of estimation
involved in arriving at the UK used vehicle inventory
provision, including the sensitivity disclosures included
in note 3.4.
Our results:
We found the group's estimate of the used
vehicle inventory provision to be acceptable (2021
result: acceptable).
103
Pendragon PLC Annual Report 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
(CONTINUED)
2.
Key audit matters: including our assessment of risks of material misstatement
continued
The risk
Our response
Valuation of post
retirement benefit
obligation
(£368.9 million (2021:
£569.2million))
Refer to page 70 Audit
Committee report, page
185 (accounting policy)
and page 190 (financial
disclosures)
Subjective valuation
Small changes in the assumptions
and estimates used to value the
Group’s pension obligation (before
deducting scheme assets) would
have a significant effect on the
Group’s pension obligation.
The significant risk specifically
relates to the areas of estimation
uncertainty in the calculation of
the liability including the discount
rate, rate of inflation and forecast
mortality.
The effect of these matters is that,
as part of our risk assessment, we
determined that the valuation of the
Group pension obligation has a high
degree of estimation uncertainty,
with a potential range of reasonable
outcomes greater than our material-
ity for the financial statements as a
whole, and possibly many times that
amount. The financial statements
(note 5.1) disclose the sensitivity
estimated by the Group.
We performed the tests below rather than seeking to
rely on any of the group's controls because the nature
of the balance is such that we would expect to obtain
audit evidence primarily through the detailed procedures
described.
Our procedures included:
• Benchmarking assumptions:
We challenged, with
the support of our own actuarial specialists, the key
assumptions applied, being the discount rate, inflation
rate and mortality/life expectancy against externally
derived data;
•
Sensitivity analysis:
We performed sensitivity analysis
on input assumptions noted above;
• Assessing actuaries’ credentials:
We evaluated the
scope, competency and objectivity of the Group’s ex-
perts who assisted in determining the actuarial assump
-
tions used to determine the defined benefit obligation;
• Tests of details:
We evaluated the calculations pre-
pared by management’s external actuaries to assess the
impact of the assumptions used on the Group Financial
Statements;
• Assessing transparency:
We considered the adequacy of the Group’s disclosures
in respect of the sensitivity of the obligation to the dis-
count rate, inflation and mortality assumptions, including
the sensitivity disclosures included in note 5.1.
Our results:
We found the valuation of the pension obligation to be
acceptable (2021 result: acceptable).
104
Pendragon PLC Annual Report 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
(CONTINUED)
2. Key audit matters: including our assessment of risks of material misstatement
continued
The risk
Our response
Carrying value of
parent company's
investments in subsid
-
iaries (£981.2 million;
2021: £981.2 million)
and debt due from
group entities (£90
million; 2021: £90
million)
Refer to page 70 Audit
Committee report, page
202 (accounting policy)
and page 204 (financial
disclosures)
Forecast-based assessment
The carrying amount of the parent
Company’s investments in subsidiar-
ies and debt due from group entities
are significant and at risk of irre
-
coverability due to the requirement
for future trading profits to recover
such balances. The estimated re-
coverable amount of these balances
is subjective due to the inherent
uncertainty in forecasting trading
conditions and cash flows used in
the budgets.
The effect of these matters is that,
as part of our risk assessment
for audit planning purposes, we
determined that the carrying value
of parent company's investments
in subsidiaries and debt due from
group entities had a high degree of
estimation uncertainty, with a poten
-
tial range of reasonable outcomes
greater than our materiality for the
financial statements as a whole. In
conducting our final audit work, we
concluded that reasonably possi-
ble changes to the value in use of
subsidiaries cash flow assumptions
would not be expected to result in
material impairment.
We performed the tests below rather than seeking to
rely on any of the Company’s controls because the
nature of the balance is such that we would expect to
obtain audit evidence primarily through the detailed
procedures described.
Our procedures included:
• Tests of detail:
Comparing the carrying amount of
100% of investments and debt due from group entities
with the relevant subsidiaries’ draft balance sheet to
identify whether their net assets, being an approxi
-
mation of their minimum recoverable amount, were in
excess of their carrying amount;
• Comparing valuations
: For the investments, where
the carrying amount exceeded the net asset value,
comparing the carrying amount of the investment with
the expected value of the business based on value in use
calculations;
• Benchmarking assumptions:
Challenging the
assumptions used in the cash flows included in the
budgets based on our knowledge of the Group and
the markets in which the subsidiaries operate;
• Historical comparisons:
Assessing the reasonableness
of the budgets by considering the historical accuracy of
the previous forecasts;
• Assessing transparency:
Assessing the adequacy
of the parent Company’s disclosures in respect of the
investment in subsidiaries, including the sensitivity dis-
closures included in note 5.
Our results:
We found the Company’s conclusion that there is no
impairment of its investments in subsidiaries and group
debtor balance to be acceptable (2021: acceptable).
We continue to perform procedures over going concern. However, following the improved level of performance of the Group and
its refinancing in the year, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it
is not separately identified in our report this year.
105
Pendragon PLC Annual Report 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
(CONTINUED)
3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £3.45m (2021: £4m), determined with reference to a benchmark
of normalised Group profit before tax (2021: with reference to a normalised benchmark of Group revenue). We normalised profit
before tax by adding back adjustments that do not represent the normal, continuing operations of the Group and by averaging over
2 years. We selected 2 years to average profit before tax (2021: revenue averaged over 5 years) to account for the fluctuations in the
Group's performance due to changes in market conditions. We adjusted for the items disclosed in Note 2.6, except for termination
and severance costs, and net interest on pension scheme obligations.
Materiality for the parent Company financial statements as a whole was set at £2.6m (2021: £1.8m), determined with reference to a
benchmark of the parent Company total assets, of which it represents 0.2% (2021: 0.6% of net assets).
In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in
individual account balances add up to a material amount across the financial statements as a whole.
Performance materiality was set at 75% (2021: 75%) of materiality for the financial statements as a whole, which equates to £2.6m
(2021: £3.0m) for the Group and £2.0m (2021: £1.4m) for the parent Company. We applied this percentage in our determination of
performance materiality because we did not identify any factors indicating an elevated level of risk.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.2m (2021:
£0.2m), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s 35 (2021: 38) reporting components, we subjected 11 (2021: 13) to full scope audits for group purposes and 5 (2021:
none) to specified risk-focused audit procedures. The latter were not individually financially significant enough to require a full
scope audit for group purposes, but did present specific individual risks that needed to be addressed. We subjected 3 (2021: none)
components to specified risk-focused audit procedures over revenue, inventory and cost of sales, 1 (2021: none) to specified risk-
focused audit procedures over vehicle stocking loans and 1 (2021: none) to specified risk-focused audit procedures over pension
assets. The components within the scope of our work accounted for the percentages illustrated on the following page. The remaining
0% (2021: 8%) of total group revenue, 8% (2021: 10%) of the total profits and losses that made up the Group profit before tax and
1% (2021: 7%) of total Group assets is represented by 19 (2021: 25) reporting components, none of which individually represented
more than 3% (2021: 3%) of any of total Group revenue, the total profits and losses that made up the Group profit before tax or total
group assets.
For these components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no
significant risks of material misstatement within these.
The Group team performed procedures on the items excluded from normalised Group profit before tax.
The Group audit team performed all of the audit work in relation to the 16 (2021: 13) components, including the audit of the parent
company.
106
Pendragon PLC Annual Report 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
(CONTINUED)
3. Our application of materiality and an overview of the scope of our audit
continued
Normalised group profit before tax
£69.8m
(2021: normalised revenue of £3,784m)
Group revenue
Normalised profit before tax
Group materiality
Group materiality
£3.45m (2021: £4.0m)
£3.45m
Whole financial statements materiality
(2021: £4.0m)
£2.6m
Whole financial statements performance materiality
(2021: £3.0m)
£2.6m
Range of materiality at 16 components
(£0.7m to £2.6m)
(2021: £0.6m to £2.2m)
£0.2m
Misstatements reported to the audit committee
(2021: £0.2m)
Total profits and losses that made
up Group profit before tax
Group total assets
Full scope for group audit purposes 2022
Specified risk-focused procedures for group audit purposes 2022
Full scope for group audit purposes 2021
Residual components
100%
(2021 92%)
92%
(2021 90%)
99%
(2021 93%)
92
96
4
90
79
13
93
96
3
107
Pendragon PLC Annual Report 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
(CONTINUED)
4. Going concern
The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group
or the parent Company or to cease their operations, and as they have concluded that the Group’s and the parent Company’s
financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have
cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the
financial statements (“the going concern period”).
We used our knowledge of the Group, its industry, and the uncertain economic environment to identify the inherent risks to
the Group’s business model and analysed how those risks might affect the Group’s and parent Company’s financial resources
or ability to continue operations over the going concern period. The risk that we considered most likely to adversely affect
the Group’s and parent Company’s available financial resources and metrics relevant to debt covenants over this period was
adverse macroeconomic conditions resulting in lower than expected trading volumes and deterioration in gross profit per unit
(“GPU”) for vehicles sold.
We considered whether these risks could plausibly affect the liquidity or covenant compliance in the going concern period by
comparing severe, but plausible downside scenarios that could arise from these risks individually and collectively against the
level of available financial resources and covenants indicated by the Group’s financial forecasts.
Our procedures also included:
•
Agreeing current facilities available to the relevant facility agreements. We inspected the existing and new loan agreements
in order to determine the covenants attached to the loan and we considered compliance with the financial covenants in the
context of the cash flow forecasts
•
Comparing past budgets to actual results to assess the directors' track record of budgeting accurately.
•
Discussing key trends within the sector with our automotive sector specialists in order to identify the critical assumptions in
the cash flow forecasts and challenged the directors by applying additional specific sensitivities to the calculation;
•
Comparing the assumptions behind the Group’s cash flow forecasts for key variables, such as new car volumes to externally
derived data including market forecasts on future new and used car sales as well as macroeconomic data on projected
growth;
•
Evaluating the achievability of the mitigating actions the Directors consider they would take to improve the position should
the risks materialise. We considered the extent to which the intent and ability of the Directors to pursue mitigating actions
and implement these in the time frame required, should such actions be required, were reasonable by assessing whether the
actions were entirely within the Directors’ control and consistent with Board approved plans;
•
We considered whether the going concern disclosure in ‘Section 1 – Basis of Preparation’ section in the notes to the financial
statements set out on page 118 gives a full and accurate description of the directors’ assessment of going concern, including
the identified risks.
Our conclusions based on this work:
•
we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements
is appropriate;
•
we have not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events
or conditions that, individually or collectively, may cast significant doubt on the Group’s or parent Company's ability to
continue as a going concern for the going concern period;
•
we have nothing material to add or draw attention to in relation to the directors’ statement in the in the notes to the
financial statements set out on page 118 on the use of the going concern basis of accounting with no material uncertainties
that may cast significant doubt over the Group and parent Company’s use of that basis for the going concern period, and
we found the going concern disclosure in ‘General Information’ section in the notes to be acceptable; and
•
the related statement under the Listing Rules set out on page 49 is materially consistent with the financial statements and
our audit knowledge.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that
the Group or the parent Company will continue in operation.
108
Pendragon PLC Annual Report 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
(CONTINUED)
5. Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:
•
Enquiring of directors, the audit committee and internal audit and inspection of policy documentation as to the Group’s
high-level policies and procedures to prevent and detect fraud, including the internal audit function, and the Group’s channel
for “whistleblowing”, as well as whether they have knowledge of any actual, suspected or alleged fraud.
•
Reading Board, audit committee and Risk Control Group minutes.
•
Considering remuneration incentive schemes and performance targets for directors.
•
Using analytical procedures to identify any unusual or unexpected relationships.
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout
the audit.
As required by auditing standards, and taking into account possible pressures to meet profit targets, we perform procedures to
address the risk of management override of controls and the risk of fraudulent revenue recognition, in particular:
•
the risk that Group and component management may be in a position to make inappropriate accounting entries; and
•
the risk that new vehicle revenue for the year is misstated as a result of revenue being recorded in the wrong period
We did not identify any additional fraud risks.
We performed procedures including:
•
Identifying journal entries to test for all full scope components based on risk criteria and comparing the identified entries to
supporting documentation. These included those posted to unusual accounts.
•
Evaluated the business purpose of significant unusual transactions.
•
Assessing whether the judgements made in making accounting estimates are indicative of a potential bias.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial
statements from our general commercial and sector experience through discussion with the directors and other management
(as required by auditing standards), and discussed with the directors and other management the policies and procedures
regarding compliance with laws and regulations.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance
throughout the audit.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting
legislation (including related companies legislation), distributable profits legislation, taxation legislation and pensions legislation
and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial
statement items.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a
material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation.
We identified the following areas as those most likely to have such an effect: health and safety, anti-bribery, employment law
and certain aspects of company legislation recognising the financial nature of the Group’s activities.
Auditing standards limit
the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other
management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is
not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.
109
Pendragon PLC Annual Report 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
(CONTINUED)
5. Fraud and breaches of laws and regulations – ability to detect
continued
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements
in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards.
For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the
financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material
misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance
with all laws and regulations.
6. We have nothing to report on the other information in the Annual Report
The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our
opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or,
except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work,
the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on
that work we have not identified material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
•
we have not identified material misstatements in the strategic report and the directors’ report;
•
in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
•
in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures in
respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or draw attention to in relation to:
•
the directors’ confirmation within the viability statement on page 49 that they have carried out a robust assessment of the
emerging and principal risks facing the Group, including those that would threaten its business model, future performance,
solvency and liquidity;
•
the Principal Risks disclosures describing these risks and how emerging risks are identified, and explaining how they are
being managed and mitigated; and
•
the directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what
period they have done so and why they considered that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or
assumptions.
110
Pendragon PLC Annual Report 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
(CONTINUED)
6. We have nothing to report on the other information in the Annual Report
continued
We are also required to review the viability statement, set out on page 49 under the Listing Rules.
Based on the above procedures,
we have concluded that the above disclosures are materially consistent with the financial statements and our audit knowledge.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not
a guarantee as to the Group’s and Company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ corporate
governance disclosures and the financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements
and our audit knowledge:
•
the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair,
balanced and understandable, and provides the information necessary for shareholders to assess the Group’s position and
performance, business model and strategy;
•
the section of the annual report describing the work of the Audit Committee, including the significant issues that the audit
committee considered in relation to the financial statements, and how these issues were addressed; and
•
the section of the annual report that describes the review of the effectiveness of the Group’s risk management and internal
control systems.
We are required to review the part of the Corporate Governance Statement relating to the Group’s compliance with the provisions
of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in this respect.
7. We have nothing to report on the other matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
•
adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
•
certain disclosures of directors’ remuneration specified by law are not made; or
•
we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
111
Pendragon PLC Annual Report 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF PENDRAGON PLC
(CONTINUED)
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 100, the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error;
assessing the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent
Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report.
Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The Company is required to include these financial statements in an annual financial report prepared using the single electronic
reporting format specified in the TD ESEF Regulation.
This auditor’s report provides no assurance over whether the annual
financial report has been prepared in accordance with that format.
9.
The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
Craig Parkin (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
22 March 2023
112
Pendragon PLC Annual Report 2022
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2022
Notes
2022
£m
Continuing
operations
£m
Discontinued
operations*
£m
2021
£m
Revenue
2.1
Cost of sales
(3,162.8 )
(2,984.0 )
(24.6 )
(3,008.6 )
Gross profit
Operating expenses
2.2
(363.9 )
(326.5 )
(9.9 )
(336.4 )
Operating profit/(loss) before other income
(5.9 )
Other income - gains on the sale of
businesses and property, plant and
equipment
2.6
Operating profit/(loss)
(5.0 )
Analysed as:
Underlying operating profit/(loss)
(1.1 )
Non-underlying operating profit/(loss)
2.6
(4.8 )
(3.9 )
(8.7 )
Finance expense
4.3
(44.8 )
(34.9 )
(0.3 )
(35.2 )
Finance income
4.3
Net finance costs
(43.8 )
(34.0 )
(0.3 )
(34.3 )
Analysed as:
Underlying net finance costs
(40.9 )
(33.0 )
(0.3 )
(33.3 )
Non-underlying net finance costs
2.6
(2.9 )
(1.0 )
(1.0 )
Profit/(loss) before taxation
(5.3 )
Analysed as:
Underlying profit before taxation
(1.4 )
Non-underlying (loss) before taxation
2.6
(0.4 )
(5.8 )
(3.9 )
(9.7 )
Income tax (expense)/credit
2.7
(11.7 )
(13.1 )
(11.8 )
Profit/(loss) for the year
(4.0 )
Analysed as:
Underlying profit/(loss) after taxation
(1.0 )
Non-underlying profit/(loss) after taxation
2.6
(4.5 )
(3.0 )
(7.5 )
Earnings per share
Basic earnings per share
2.8
(0.3 p)
Diluted earnings per share
2.8
(0.3 p)
*
The discontinued operations in 2021 are in respect of the Group's US business.
**
The Basic earnings per share and diluted earnings per share measure for the current year apply to continuing and total operations.
**
**
The notes on pages 118 to 196 form part of these financial statements
113
Pendragon PLC Annual Report 2022
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2022
Notes
2022
£m
2021
£m
Profit for the year
Other comprehensive income
Items that will never be reclassified to profit and loss:
Defined benefit plan remeasurement gains and (losses)
5.1
Income tax relating to defined benefit plan remeasurement (gains) and losses
2.7
(1.6 )
(6.9 )
Items that are or may be reclassified to profit and loss:
Foreign currency translation differences of foreign operations
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income for the period attributable to equity
shareholders of the company arises from:
Continuing operations
Discontinued operations - see note 3.3
(3.0 )
The notes on pages 118 to 196 form part of these financial statements
114
Pendragon PLC Annual Report 2022
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2022
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Translation
differences
£m
Retained
earnings
£m
Total
£m
Balance at 1 January 2022
Total comprehensive income for 2022
Profit for the year
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Share based payments
Income tax relating to share based payments
(0.1 )
(0.1 )
Own shares issued by EBT
Own shares purchased by EBT
(0.5 )
(0.5 )
Balance at 31 December 2022
Balance at 1 January 2021
(1.0 )
(17.2 )
Total comprehensive income for 2021
Profit for the year
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Share based payments
Income tax relating to share based pay-
ments
Balance at 31 December 2021
The notes on pages 118 to 196 form part of these financial statements
115
Pendragon PLC Annual Report 2022
Approved by the Board of Directors on 22 March 2023 and signed on its behalf by:
W Berman
M S Willis
Chief Executive
Chief Finance Officer
CONSOLIDATED BALANCE SHEET
At 31 December 2022
Notes
2022
£m
Restated
see note 1
2021
£m
Non-current assets
Property, plant and equipment
3.2
Goodwill
3.1
Other intangible assets
3.1
Finance lease receivables
Deferred tax assets
2.7
Total non-current assets
Current assets
Inventories
3.4
Trade and other receivables
3.6
Finance lease receivables
Current tax assets
Cash and cash equivalents
4.2
Assets classified as held for sale
3.3
Total current assets
Total assets
Current liabilities
Bank overdraft
4.2
(102.5 )
(162.5 )
Interest bearing loans and borrowings
4.2
(1.7 )
Lease liabilities
4.7
(20.0 )
(26.7 )
Trade and other payables
3.7
(812.0 )
(692.7 )
Deferred income
3.8
(38.2 )
(37.2 )
Total current liabilities
(974.4 )
(919.1 )
Non-current liabilities
Interest bearing loans and borrowings
4.2
(91.0 )
(87.3 )
Lease liabilities
4.7
(197.9 )
(195.4 )
Trade and other payables
3.7
(35.7 )
(41.9 )
Deferred income
3.8
(36.4 )
(36.8 )
Retirement benefit obligations
5.1
(2.6 )
(23.6 )
Total non-current liabilities
(363.6 )
(385.0 )
Total liabilities
(1,338.0 )
(1,304.1 )
Net assets
Capital and reserves
Called up share capital
4.4
Share premium account
4.4
Capital redemption reserve
4.4
Other reserves
4.4
Translation reserve
4.4
Retained earnings
Total equity attributable to equity shareholders of the Company
The notes on pages 118 to 196 form part of these financial statements
Registered Company Number: 02304195
116
Pendragon PLC Annual Report 2022
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2022
Notes
2022
£m
2021
£m
Cash flows from operating activities
Profit for the year
Adjustment for taxation
Adjustment for net financing expense
Depreciation and amortisation
Share based payments
Profit on sale of businesses and property, plant and equipment
(7.7 )
(2.7 )
Impairment of goodwill
Impairment of property, plant and equipment
Contribution into defined benefit pension scheme
(13.1 )
(12.8 )
Changes in inventories
3.4
(119.8 )
Changes in trade and other receivables
(15.2 )
(1.1 )
Changes in trade and other payables
(111.1 )
Movement in contract hire vehicle balances
3.5
(20.9 )
(36.8 )
Cash generated from operations
Taxation paid
(1.4 )
(7.1 )
Bank and stocking interest paid
(25.5 )
(17.5 )
Lease interest paid
(14.7 )
(12.6 )
Finance lease interest received
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of businesses
6.1
Purchase of property, plant, equipment and intangible assets
3.1, 3.2
(44.3 )
(18.6 )
Proceeds from sale of property, plant, equipment and intangible assets
3.1, 3.2
Receipt of lease receivables
Net cash (used in)/from investing activities
(25.1 )
Cash flows from financing activities
Payment of lease liabilities
(22.2 )
(27.2 )
Repayment of loans
(90.5 )
(88.8 )
Proceeds from issue of loans (net of directly attributable transaction costs)
Disposal of shares by EBT
Purchase of shares by EBT
(0.5 )
Net cash outflow from financing activities
(19.3 )
(97.3 )
Net increase/(decrease) in cash and cash equivalents
(17.9 )
Cash and cash equivalents at 1 January
Effects of exchange rate changes on cash held
(0.5 )
Cash and cash equivalents at 31 December
4.2
The notes on pages 118 to 196 form part of these financial statements.
117
Pendragon PLC Annual Report 2022
RECONCILIATION OF NET CASH FLOW TO MOVEMENT
IN ADJUSTED NET DEBT
2022
£m
2021
£m
Net increase/(decrease) in cash and cash equivalents
31.7
(17.9)
Repayment of loans
90.5
88.8
Proceeds from issue of loans (net of directly attributable transaction costs)
(93.8)
(18.7)
Non-cash movements
(2.0)
(1.5)
Decrease in adjusted net debt in the year
26.4
50.7
Opening adjusted net debt
(49.7)
(100.4)
Closing adjusted net debt
(23.3)
(49.7)
The reconciliation of net cash flow to movement in adjusted net debt is not a primary statement and does not form part of the consolidated cash flow statement but forms part of the
notes to the financial statements. Adjusted net debt is defined in note 4.2.
The notes on pages 118 to 196 form part of these financial statements.
118
Pendragon PLC Annual Report 2022
NOTES TO THE FINANCIAL STATEMENTS
SECTION 1 - BASIS OF PREPARATION
Presented below are those accounting policies that relate to the financial statements as a whole and includes details of
new accounting standards that are or will be effective for 2022 or later years. To facilitate the understanding of each note
to the financial statements those accounting policies that are relevant to a particular category are presented within the
relevant notes.
the year ended 31 December 2022 comprise the Group and its subsidiaries and the Group’s interest in jointly controlled
entities, together referred to as the ‘Group’.
The consolidated financial statements of the Group as at and for the year ended 31 December 2022 are prepared in
accordance with International Financial Reporting Standards as adopted in the United Kingdom ("adopted IFRS").
The Group has elected to prepare its parent Company financial statements in accordance with FRS 101. These are presented
on pages 197 to 208.
The financial statements are presented in millions of UK pounds, rounded to the nearest £0.1m. They have been prepared
under the historical cost convention and where other bases are applied these are identified in the relevant accounting
policy in the notes below.
Going concern
Notwithstanding net current liabilities of £54.7m as at 31 December 2022 for the Group, the Directors are, at the time
of approving the financial statements, satisfied that the Group and Company has adequate resources to continue in
operational existence for the foreseeable future.
Thus, they continue to adopt the going concern basis of accounting in
preparing the financial statements.
The Directors have considered the potential impact of a macro-economic downturn,
a market correction in used pricing and shortfalls in both new and used car supply resulting from shortages in microchips
impacting manufacturing.
The Group meets its day-to-day working capital requirements from a revolving credit facility of £75m and senior note
of £97m together with cash balances and a requirement for ongoing access to rolling vehicle credit stocking facilities
amounting to £582.7m at 31 December 2022 as disclosed in note 4.2. The senior note is due for renewal in March 2027 and
the revolving credit facility is due for renewal in March 2025, with a further two, one-year options available at the election
of lenders to March 2026 and then March 2027. The senior note and revolving credit facility have quarterly leverage and
fixed charge covenants, as well as an absolute EBITDA covenant, a breach of which would result in the amounts drawn
becoming repayable on demand.
The Group remained compliant with its banking covenants throughout the year to 31
December 2022.
In the context of the above, the directors have prepared cash flow forecasts for the period to 31 March 2024 which indicate
that, taking account of reasonably possible downsides, the Group will have sufficient funds to meet its liabilities as they fall
due for that period. The Directors have modelled scenarios as follows:
1. A base cash flow forecast. The 2023 figures in this forecast are based on the Group’s 2023 budget, which reflect current
run-rates and expected strategic improvements.
The 2024 figures in the base cash flow forecast are based on the 2023
budget with a modest growth rate applied to gross profit and operating costs.
2. A severe, but plausible downside scenario. The directors have also prepared a sensitised forecast which considers the
impact of certain severe but plausible downside events, when compared to the base case. This scenario reflects a severe
downturn to vehicle volumes and margins. This considers both a worsening in economic conditions and restricted new car
supply due to manufacturing constraints.
In this scenario, capital expenditure has been reduced to run-rate expenditure
and projects committed to and the directors have assessed that the business would operate with lower staffing levels
119
through the non-replacement of leavers.
This scenario demonstrates that the Group would remain well within its facility
limits and would retain significant headroom on liquidity covenants. The scenario shows that the Group would also
remain within its minimum EBITDA covenant although this is dependant upon the mitigating actions referred to above.
Based on the above, the directors are confident that the Group and Company will have sufficient funds to continue
to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements, and
therefore the directors believe it remains appropriate to prepare the financial statements on a going concern basis.
Prior year adjustment
The Group has made adjustments to the presentation of the comparative Balance Sheet. The directors have considered
that the overdraft balances of Group entities should be separately presented gross on the Consolidated Balance Sheet,
rather than netted off against cash and cash equivalents held either by the same entity, or other Group entities, with the
same bank. As a result, the Consolidated Balance Sheet as at 31 December 2021 has been restated as follows.
2021
2021
as reported
restatement
restated
£m
£m
£m
Current Assets
Cash and cash equivalents
37.6
162.5
200.1
Current liabilities
Bank overdraft
-
(162.5)
(162.5)
37.6
-
37.6
The restatement did not result in any change to reported profit, earnings per share, net assets or cash flows reported in
the 2021 financial year.
The impact on the opening Consolidated Balance Sheet as at 31 December 2020 is as follows:
2020
2020
as reported
restatement
restated
£m
£m
£m
Current Assets
Cash and cash equivalents
56.0
187.6
243.6
Current liabilities
Bank overdraft
-
(187.6)
(187.6)
56.0
-
56.0
The restatement did not result in any change to reported profit, earnings per share, net assets or cash flows reported in
the 2020 financial year.
As these individual overdraft accounts are an integral part of the Group's cash management they are still classified as cash
and cash equivalents (see note 4.2) in the Consolidated Cash Flow Statement and therefore this reclassification has no
effect on total cash flows in the comparative period.
120
Judgements
The Group applies judgement in how it applies its accounting policies, which do not involve estimation, but could materially
affect the numbers disclosed in these financial statements. There are no key accounting judgements, without estimation,
that have been applied in these financial statements.
Accounting Estimates
The preparation of financial statements in conformity with adopted IFRSs requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting year. Although these estimates are based on management’s best knowledge
of the amount, events or actions, actual results ultimately may differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. The estimates and associated assumptions
are based on historical experience and various other factors that are believed to be reasonable under the circumstances.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only
that period, or in the period of the revision and future periods if the revision affects both current and future periods. The
directors consider the following to be the key estimates applicable to the financial statements, which have a significant risk
of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year or in the
long term:
Key estimate area
Key assumption
Potential
impact within
the next
financial year
Potential
impact in
the longer
term
Note
reference
Inventory fair value
(UK used inventory
of £388.6m (2021:
£351.4m))
The Group assessment of fair values of used
inventory involves an element of estimation. The key
assumption is estimating the likely sale period and
the expected profit or loss on sale for each of our
inventory items that are held at the year end point.
We conduct this analysis by looking at stock by age
category and comparing historical trends and our
forward expectations on these assumptions.
3
3.4
Retirement benefit
obligations
The main assumptions in determining the Group’s
Retirement Benefit Obligations are: discount rate,
mortality and rate of inflation. Full detail is included
in the pension note, 5.1.
3
3
5.1
121
Basis of consolidation
The consolidated financial statements include the financial statements of Pendragon PLC, all its subsidiary undertakings
and investments. Consistent accounting policies have been applied in the preparation of all such financial statements.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the
entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases.
Intragroup balances and any unrealised gains or losses or income and expenses arising from intragroup transactions, are
eliminated in preparing the consolidated financial statements.
Foreign currencies
Transactions in foreign currencies are translated to the respective functional currency of Group entities at the foreign
exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the
balance sheet date are translated to the functional currency at the foreign exchange rate ruling at that date. Non-monetary
assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange
rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated
at fair value are translated to sterling at foreign exchange rates ruling at the dates the fair value was determined. Foreign
currency differences arising on retranslation are recognised in profit or loss.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are
translated to sterling at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign
operations are translated to sterling at rates approximating to the foreign exchange rates ruling at the dates of the
transactions.
Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment
in a foreign operation are recognised directly in equity, in the foreign currency translation reserve, to the extent the hedge
is effective. To the extent the hedge is ineffective, such differences are recognised in profit or loss. When the hedged net
investment is disposed of, the cumulative amount in equity is transferred to profit and loss on disposal.
In respect of all foreign operations, any differences that have arisen after 1 January 2004, the date of transition to IFRS, are
presented as a separate component of equity.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise deposits with banks and financial
institutions, bank and cash balances, and liquid investments, net of bank overdrafts. Bank overdrafts that are repayable
on demand and form an integral part of the Group's cash management are included as a component of cash and cash
equivalents for the purpose of the statement of cash flows. In the balance sheet, bank overdrafts are included in current
borrowings.
Government grants
Government grants are recognised when there is reasonable assurance the grants will be received and the conditions
of the grant will be complied with. There was no income from government grants during 2022 (2021: £1.6m, being the
Coronavirus Job Retention Scheme, is included within payroll expenses). No business rates relief was received in 2022
(2021: £8.7m was received by way of business rates relief by way of waiver of these charges)
122
Pendragon PLC Annual Report 2022
Impairment
The carrying amounts of the Group's assets, other than inventories (see note 3.4) and deferred tax assets (see note 2.7),
are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication
exists, the asset's recoverable amount is estimated.
For goodwill the recoverable amount is estimated at each balance sheet date. The recoverable amount is the higher of fair
value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have not been adjusted.
In assessing fair value less costs to sell, the estimated future cash flows are multiplied by an appropriate trading multiple
or by assessing the fair value of the individual assets.
For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows from other groups of assets ('the cash
generating unit'). The goodwill acquired in a business combination, for the purpose of impairment testing is allocated to
cash generating units. Management have determined that the cash generating units of the Group are the motor franchise
groups and other business segments.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its
recoverable amount. Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any
goodwill allocated to cash generating units and then, to reduce the carrying amount of the other assets in the unit on
a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there
has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised. The impact of the current year impairment review
can be seen in note 3.1.
Adoption of new and revised standards and new standards and interpretations not yet adopted
No new or amended standards and interpretations have been adopted during the year.
IFRS 17 Insurance Contracts is effective for annual periods beginning after 1 January 2023 and is not expected to have a
significant impact on the Group’s consolidated financial statements.
Alternative performance measures
The Group uses a number of key performance measures ('KPI’s') which are non-IFRS measures to monitor the performance
of its operations. The Group believes these KPIs provide useful historical financial information to help investors and
other stakeholders evaluate the performance of the business and are measures commonly used by certain investors for
evaluating the performance of the Group. In particular, the Group uses KPIs which reflect the underlying performance on
the basis that this provides a more relevant focus on the core business performance of the Group. The Group has been
using the following KPIs on a consistent basis and they are defined and reconciled as follows:
123
Dividend per share
- dividend per share is defined as the interim dividend per share plus the proposed final year dividend
per share for a given period.
Gross margin %
- gross margin is defined as gross profit as a percentage of revenue.
Operating margin %
- operating margin is defined as operating profit as a percentage of revenue.
Underlying operating profit/profit before tax
- results on an underlying basis exclude items that have non-trading
attributes due to their size, nature or incidence. The detail of the non-underlying results is shown in note 2.6 and this is also
shown on the face of the consolidated income statement to reconcile from the underlying to total results.
Operating profit reconciliation
2022
2021
£m
£m
Underlying operating profit
98.5
116.3
Gains on the sale of businesses and property, plant and equipment (see note 2.6)
7.7
2.7
Impairment of goodwill (see note 2.6)
(3.6)
-
Impairment of property, plant and equipment (see note 2.6)
(1.0)
-
Impairment of right of use assets (see note 2.6)
(0.2)
(9.6)
Aborted transaction related expenses (see note 2.6)
(0.4)
-
Termination and severance payments (see note 2.6)
(0.2)
(1.8)
Business closure income (see note 2.6)
0.2
-
Non-underlying operating profit/(loss) items
2.5
(8.7)
Operating profit
101.0
107.6
Profit before tax reconciliation
2022
2021
£m
£m
Underlying profit before tax
57.6
83.0
Non-underlying operating profit/(loss) items (see reconciliation above)
2.5
(8.7)
Non-underlying net finance costs (see note 2.6)
(2.9)
(1.0)
Non-underlying operating profit/(loss) and finance costs items
(0.4)
(9.7)
Profit before tax
57.2
73.3
Profit after tax reconciliation
2022
2021
£m
£m
Underlying profit after tax
44.5
69.0
Non-underlying operating profit/(loss) and finance costs items (see reconciliation above)
(0.4)
(9.7)
Non-underlying tax (see note 2.6)
1.4
2.2
Non-underlying operating profit/(loss), finance costs and tax items
1.0
(7.5)
Profit after tax
45.5
61.5
124
Underlying basic earnings per share ('underlying earnings per share') – the Group presents underlying basic earnings per
share as the directors consider that this is a better measure of comparative performance. Underlying basic earnings per
share is calculated by dividing the underlying profit or loss attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the period. A full reconciliation of how this is derived is found in note 2.8.
Underlying diluted earnings per share – the Group presents underlying diluted earnings per share as the directors consider
that this is a better measure of comparative performance.
Underlying diluted earnings per share is calculated by dividing
the underlying profit and loss attributable to ordinary shareholders by the weighted average number of ordinary shares
in issue taking account of the effects of all dilutive potential ordinary shares, which comprise of share options granted to
employees, LTIPs and share warrants. A full reconciliation of how this is derived is found in note 2.8.
Adjusted net debt
– All loans and borrowings less cash and cash equivalents less IFRS 16 lease liabilities less vehicle
stocking loans.
Leverage ratio
– the Group uses the ratio of adjusted net cash/(debt) to underlying EBITDA to assess the use of the
Group’s financial resources. The reconciliation of this and the composition of underlying EBITDA is shown in note 4.2.
Like-for-Like reconciliations
Like for like (LFL) results only include trading businesses which have comparative trading periods in two consecutive
financial years. We use like-for-like results to aid in the understanding of the like-for-like movement in revenue, gross profit
and operating profit in the business. The difference to underlying results are those businesses which are not like-for-like
which have recently commenced operation and therefore do not have a full current year and prior year history plus any
retail points closed during the current or previous period. The like-for-like adjustments are split between those in relation
to businesses disposed and those other adjustments which relate to the elimination of results for a period in a year which
does not have a corresponding amount in the comparative year.
125
Revenues by Department - UK Motor
Other
non
Other
non
Group
Disposals
like-for-like
Like-for-like
Group
Disposals
like-for-like
Like-for-like
revenue
revenue
revenue
revenue
revenue
revenue
revenue
revenue
2022
2022
2022
2022
2021
2021
2021
2021
£m
£m
£m
£m
£m
£m
£m
£m
Aftersales revenue
276.1
-
-
276.1
261.9
(5.1)
-
256.8
Used vehicle revenue
1,808.6
(0.2)
(0.7)
1,807.7
1,708.4
(10.8)
-
1,697.6
New vehicle revenue
1,451.5
-
-
1,451.5
1,362.4
(12.2)
-
1,350.2
Total Revenue
3,536.2
(0.2)
(0.7)
3,535.3
3,332.7
(28.1)
-
3,304.6
Revenues by Department - US Motor
Other non
Other non
Group
Disposals
like-for-like
Like-for-like
Group
Disposals
like-for-like
Like-for-like
revenue
revenue
revenue
revenue
revenue
revenue
revenue
revenue
2022
2022
2022
2022
2021
2021
2021
2021
£m
£m
£m
£m
£m
£m
£m
£m
Aftersales revenue
-
-
-
-
2.8
(2.8)
-
-
Used vehicle revenue
-
-
-
-
3.0
(3.0)
-
-
New vehicle revenue
-
-
-
-
22.8
(22.8)
-
-
Total Revenue
-
-
-
-
28.6
(28.6)
-
-
126
Gross profit by Department - UK Motor
Group
gross profit
2022
£m
Disposals
gross profit
2022
£m
Other non
like-for-like
gross profit
2022
£m
Like-for-like
gross profit
2022
£m
Group
gross profit
2021
£m
Disposals
gross profit
2021
£m
Other non
like-for-like
gross profit
2021
£m
Like-for-like
gross profit
2021
£m
Aftersales gross profit
139.5
0.3
-
139.8
133.2
(2.4)
-
130.8
Used vehicle gross profit
143.6
-
-
143.6
164.2
(0.2)
-
164.0
New vehicle gross profit
132.6
-
-
132.6
99.9
(0.9)
-
99.0
Total Gross profit
415.7
0.3
-
416.0
397.3
(3.5)
-
393.8
Gross profit by Department - US Motor
Group
gross profit
2022
£m
Disposals
gross profit
2022
£m
Other non
like-for-like
gross profit
2022
£m
Like-for-like
gross profit
2022
£m
Group
gross profit
2021
£m
Disposals
gross profit
2021
£m
Other non
like-for-like
gross profit
2021
£m
Like-for-like
gross profit
2021
£m
Aftersales gross profit
-
-
-
-
1.6
(1.6)
-
-
Used gross profit
-
-
-
-
0.2
(0.2)
-
-
New vehicle gross profit
-
-
-
-
2.2
(2.2)
-
-
Total Gross profit
-
-
-
-
4.0
(4.0)
-
-
Underlying operating profit
Group
underlying
operating
profit/
(loss)
2022
£m
Disposals
underlying
operating
profit
2022
£m
Other non
like-for-like
underlying
operating
profit
2022
£m
Like-for-like
underlying
operating
profit
2022
£m
Group
underlying
operating
profit/
(loss)
2021
£m
Disposals
underlying
operating
profit
2021
£m
Other non
like-for-like
underlying
operating
profit
2021
£m
Like-for-like
underlying
operating
profit
2021
£m
UK Motor
69.1
1.0
0.2
70.3
87.4
1.1
-
88.5
Software
11.0
-
-
11.0
12.5
-
-
12.5
Leasing
19.9
-
-
19.9
17.5
-
-
17.5
US Motor
(1.5)
1.5
-
-
(1.1)
1.1
-
-
Total underlying
operating profit
98.5
2.5
0.2
101.2
116.3
2.2
-
118.5
127
SECTION 2 - RESULTS AND TRADING
This section contains the notes and information to support the results presented in the income statement:
2.1
Revenue
2.5
Audit fees
2.2
Net operating expenses
2.6
Non-underlying items
2.3
Operating segments
2.7
Taxation
2.4
Staff costs
2.8
Earnings per share
2.1 Revenue
Accounting policy
Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected
on behalf of third parties. The Group recognises revenue when it transfers control over a product or service to a
customer.
The following is a description of principal activities from which the Group generates its revenue categorised by the
reportable segments as detailed in note 2.3.
UK Motor segment and US Motor segment
The UK Motor and US Motor segments principally generate revenue from the sale of new and used motor vehicles, together
with the supply of motor vehicle parts, servicing and repair activities, collectively referred to as aftersales.
Products and
services may be sold separately or in bundled packages. Examples of a bundled package will include the supply of a vehicle
with an extended warranty or a servicing plan. For bundled packages, the Group accounts for individual products and
services separately as they are distinct items, as each performance obligation within that contract is separately identifiable
from other items in the bundled package. The consideration is proportionately allocated between separate products and
services in a bundle based on their stand-alone selling prices. The stand-alone selling prices are determined based on the
list prices at which the Group sells these items and are separately identified on the customer's invoice.
The Group has a number of manufacturer partners who will provide goods/services to customers, for example a warranty
obligation lies with the manufacturer and therefore no revenue is recognised in respect of these items.
128
Pendragon PLC Annual Report 2022
Products
Nature, timing of satisfaction of performance obligations and significant payment terms
and services
New and used
The Group recognises revenue on the sale of motor vehicles and parts revenue when they have
vehicles, parts and
been supplied to the customer. The satisfaction of the performance obligation occurs on delivery
accessories
or collection of the product. Vehicles are usually paid for prior to delivery though selected
corporate operators may be granted terms of up to seven days. Parts are either paid for on
delivery or within one month, dependant upon whether or not the customer is retail or has trade
terms.
Aftersales service
The Group recognises revenue when the one time service has been completed. Revenue is
and repairs
recognised at this point provided that the revenue and costs can be measured reliably, the
recovery of the consideration is probable and there is no continuing management involvement
with the goods. Payment terms are upon completion of the service or within one month,
dependant upon whether or not the customer is retail or trade.
Commissions
The Group receives commissions when it arranges finance and insurance packages for its
received
customers to purchase its products and services, acting as agent on behalf of various finance and
insurance companies. Any commission earned is recognised when the customer draws down the
finance or commences the insurance policy from the supplier which coincides with the delivery of
the product or service. Commissions receivable are paid typically in the month after the finance is
drawn down.
Vehicle warranty
The Group offers a warranty product on vehicles supplied with a guarantee period typically
ranging from 3 months to 3 years. The Group recognises revenue on warranties on a straight-line
basis over the warranty period. The performance obligation of the Group, being the rectification
of mechanical faults on vehicles sold, will be the period over which the customer can exercise
their rights under the warranty and therefore revenue should be recognised over the period of
the warranty. Warranties are paid for prior to the commencement of the policy. The unrecognised
income is held within deferred income (see note 3.8). There were no such warranties offered for
sale in the US Motor segment.
129
Leasing
The leasing segment generates revenue from the provision of vehicle leasing services, principally to fleets run by various
commercial operators. Vehicles are supplied to customers on operating leases and may include servicing and maintenance
agreements, which are bundled into the overall contract. For bundled packages, the Group accounts for individual products
and services separately as they are distinct items, as each performance obligation within that contract is separately
identifiable from other items in the bundled package. At the end of each contract the Group will generate revenue from
the disposal of the vehicle, recovery of any rectification work and in some instances additional rentals beyond the original
contract term.
Products
and services
Nature, timing of satisfaction of performance obligations and significant payment terms
Leasing
Where vehicles are supplied to a leasing group for contract hire purposes and the Group
undertakes to repurchase the vehicle at a predetermined date and value the transfer of control is
deemed not to have transferred outside the Group and consequently no sale is recognised. As a
result the accounting for the arrangement reflects the Group's retention of the asset to generate
future rentals and, in accordance with IFRS 16 Leases, the Group is considered to be an operating
lessor for all arrangements in place. The initial amounts received in consideration from the
leasing group are held as deferred income allocated between the present value of the repurchase
commitment, held within trade and other payables and a residual amount of deferred revenue held
within deferred income. A finance charge is accrued against the present value of the repurchase
commitment and recorded as a finance expense in the income statement. The remaining deferred
revenue, which effectively represents rentals received in advance, is taken to the income
statement on a straight line basis over the related lease term. No additional disclosures are made
under IFRS 16 as there are no future rentals receivable. These vehicles are held within 'property,
plant and equipment' at their cost to the Group and are depreciated to their residual values over
the terms of the leases. These assets are transferred into inventory at their carrying amount when
they cease to be rented and they become available for sale as part of the Group's ordinary course
of business. Rentals are billed and paid for on a monthly basis.
Maintenance
The Group offer a maintenance contract to customers to cover routine servicing and unexpected
repairs of vehicles under a leasing contract. Revenue is recognised over the period of the contract
on a straight line basis. Maintenance contracts are billed and paid for on a monthly basis.
Used Vehicles
The Group recognises revenue on the sale of ex contract hire motor vehicles when they have been
supplied to the customer. This occurs on delivery or collection of the product. Vehicles are paid for
on delivery.
130
Software
The Group, through its Pinewood business, supplies dealer management systems to motor vehicle dealers. These systems
include consultancy, training and installation services and the right to use the Group's software over a contractual period.
Products and services may be sold separately or in bundled packages. Examples of a bundled package will include system
consultancy, on and off site training for users together with the right for a number of users to use the software.
For
bundled packages, the Group accounts for individual products and services separately as they are distinct items, as
each performance obligation within that contract is separately identifiable from other items in the bundled package.
The consideration is allocated between separate products and services in a bundle based on their stand-alone selling
prices. The stand-alone selling prices are determined based on the list prices at which the Group sells these items and are
separately identified on the customer's contract and subsequent invoice.
Products
and services
Nature, timing of satisfaction of performance obligations and significant payment terms
Software
Pinewood supply its software on a hosting basis and licence specific numbers of users to access
this service. As such Pinewood supply 'Software as a Service' (SaaS). The software licences
are provided only in conjunction with a hosting service, the customer cannot take control of
the licence or use the software without the hosting service and as such the customer cannot
benefit from the licence on its own and the licence is not separable from the hosting services.
Therefore, the licence is not distinct and would be combined with the hosting service. The Group's
assessment of its performance obligation under IFRS 15 of providing SaaS is that revenue is
recognised over the period of the contract. SaaS is billed one month in advance of a quarterly
billing cycle ensuring payment is received prior to commencement of usage.
Training,
Installation and
Consultancy
The Group recognises revenue on the provision of any consultancy time, training and installation
at the point of providing and delivering the service. Consultancy hours are billed at the time of
delivery. Training courses are billed at the time of booking which may be in advance of the date
the training is scheduled for. Installation hours are billed at the time of completion of the service.
131
Disaggregation of revenue
In the following table, revenue is disaggregated by primary geographical market, major products/service lines and timing
of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with the Group’s four strategic
divisions, which are its reportable segments, see note 2.3
__UK Motor __
__Software__
__Leasing__
discontinued
__US Motor__
____Total____
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Primary geographical
markets
Europe
3,536.2
3,332.7
18.1
18.8
64.7
69.1
-
-
3,619.0
3,420.6
North America
-
-
-
-
-
-
-
28.6
-
28.6
Africa
-
-
0.6
0.5
-
-
-
-
0.6
0.5
Asia
-
-
0.4
0.2
-
-
-
-
0.4
0.2
Revenue from external
customers
3,536.2
3,332.7
19.1
19.5
64.7
69.1
-
28.6
3,620.0
3,449.9
Major products/service
lines
Aftersales revenue
276.1
261.9
-
-
-
-
-
2.8
276.1
264.7
Used vehicle revenue
1,808.6
1,708.4
-
-
-
-
-
3.0
1,808.6
1,711.4
New vehicle revenue
1,451.5
1,362.4
-
-
-
-
-
22.8
1,451.5
1,385.2
Software revenue
-
-
19.1
19.5
-
-
-
-
19.1
19.5
Leasing revenue
-
-
-
-
64.7
69.1
-
-
64.7
69.1
Revenue from external
customers
3,536.2
3,332.7
19.1
19.5
64.7
69.1
-
28.6
3,620.0
3,449.9
Timing of revenue
recognition
At point in time
3,526.7
3,322.7
1.4
1.9
30.9
32.1
-
28.6
3,559.0
3,385.3
Over time
9.5
10.0
17.7
17.6
33.8
37.0
-
-
61.0
64.6
Revenue from external
customers
3,536.2
3,332.7
19.1
19.5
64.7
69.1
-
28.6
3,620.0
3,449.9
132
Contract liabilities
The Group recognises the following contract liabilities:
2022
2021
£m
£m
Deposits received from customers
30.4
26.2
Unearned proportion of warranty policies sold
21.2
16.5
Movements in the deferred income balance in respect of the warranty policies is presented in note 3.8 which shows the
value of policies sold during the year and the income recognised during the year.
2.2 Net operating expenses
2022
2021
£m
£m
Net operating expenses:
Distribution costs
(185.2)
(171.5)
Administrative expenses
(181.3)
(166.5)
Impairment loss on trade receivables
(0.3)
(0.2)
Rents received
2.9
1.8
(363.9)
(336.4)
133
2.3 Operating segments
The Group has revised its reporting segments.
In January 2022 the Group re-organised its management and reporting
structure.
The significant changes were that the Franchised UK Motor and Car Store operations were brought under the
management of the UK Motor operation. This revised segmental structure is reflected in the internal reporting structure as
presented to the Chief Operating Decision Maker. In the 2022 financial statements therefore, the Franchised UK Motor and
Car Store segments are no longer reported separately.
The results of the Franchised UK Motor and Car Store segments for the comparative period have been aggregated into the
new UK Motor Group segment and is re-presented as follows for the period ended 31 December 2021:
UK Motor segment restatement
UK Motor
segment as
Franchised
restated
UK Motor
Car Store
31 Dec 21
£m
£m
£m
Total gross segment revenue
3,191.2
141.5
3,332.7
Inter-segment revenue
-
-
-
Revenue from external customers
3,191.2
141.5
3,332.7
Operating profit before non-underlying
85.8
1.6
87.4
items
Other income and non-underlying items
(4.5)
(0.3)
(4.8)
Operating profit
81.3
1.3
82.6
Finance expense
-
-
-
Finance income
-
-
-
Segmental profit before tax
81.3
1.3
82.6
Other items included in the income statement are as follows:
Depreciation and impairment
(31.1)
(0.1)
(31.2)
Impairment of property, plant and equipment
(4.3)
(0.3)
(4.6)
Amortisation
(0.4)
-
(0.4)
Share based payments
(2.9)
-
(2.9)
Termination and severance costs
(1.8)
-
(1.8)
Business closure costs
(0.2)
-
(0.2)
Other income - profit on the sale of business
-
1.8
-
1.8
es and property, plant and equipment
Following the revisions to the Group’s operating segments as outlined above there are now four reportable segments,
as described below, which are the Group's strategic business units. The segments offer different ranges of products and
services and are managed separately because they require their own specialism in terms of market and product. For
each of these segments, the Executive Committee which is deemed to be the Chief Operating Decision Maker (CODM),
reviews internal management reports on at least a monthly basis. The review of these management reports enables the
CODM to allocate resources to each segment and form the basis of strategic and operational decisions, such as acquisition
strategy,closure programme or working capital allocation. The following summary describes the operations in each of the
Group's reportable segments:
134
UK Motor
. This segment comprises the Group's motor vehicle retail, parts wholesale and fleet operations from its
franchised dealer network and the Group's used vehicle retail operation branded Car Store. These encompass the sale
of new and used motor cars, motorbikes, trucks and vans, together with associated aftersales activities of service, body
repair and parts sales.
Software
. This segment comprises the Group's activities as a dealer management systems provider.
Leasing
. This segment comprises the Group's contract hire and leasing activities.
US Motor
. This segment comprises the Group's retail operation in California in the United States encompassing the sale
of new and used motor cars, together with associated aftersales activities of service and parts sales. This segment ceased
trading in 2021 following the sale of its remaining stores.
The tables of financial performance presented in the Operational and Financial Review on pages 24 to 37 are based upon
these segmental reports.
Inter-segment transfers and transactions are entered into under normal commercial terms and conditions that would also
be available to unrelated third parties.
Year ended 31 December 2022
Continuing
Discontinued
Group operations operations
UK Motor
Software
Leasing
interest
Sub total
US Motor
Total
£m
£m
£m
£m
£m
£m
£m
Total gross segment revenue
3,536.2
25.4
83.7
-
3,645.3
-
3,645.3
Inter-segment revenue
-
(6.3)
(19.0)
-
(25.3)
-
(25.3)
Revenue from external customers
3,536.2
19.1
64.7
-
3,620.0
-
3,620.0
Operating profit/(loss) before non-underlying
69.1
11.0
19.9
-
100.0
(1.5)
98.5
items
Non-underlying items
2.5
-
-
-
2.5
-
2.5
Operating profit/(loss)
71.6
11.0
19.9
-
102.5
(1.5)
101.0
Finance expense
-
-
(2.5)
(42.3)
(44.8)
-
(44.8)
Finance income
-
-
-
1.0
1.0
-
1.0
Segmental profit/(loss) before tax
71.6
11.0
17.4
(41.3)
58.7
(1.5)
57.2
Other items included in the income statement are as follows:
Depreciation and impairment
(28.5)
(0.1)
(36.1)
-
(64.7)
-
(64.7)
Impairment of property, plant and equipment
1.2
-
-
-
1.2
-
1.2
Amortisation
(0.6)
(4.2)
(0.1)
-
(4.9)
-
(4.9)
Share based payments
3.3
-
-
-
3.3
-
3.3
Termination and severance costs
(0.2)
-
-
-
(0.2)
-
(0.2)
Business closure costs
0.2
-
-
-
0.2
-
0.2
Other income - profit on the sale of businesses
7.7
-
-
-
7.7
-
7.7
and property, plant and equipment
135
Year ended 31 December 2021
Continuing
Discontinued
Group operations operations
UK Motor
Software
Leasing
interest
Sub total
US Motor
Total
£m
£m
£m
£m
£m
£m
£m
Total gross segment revenue
3,332.7
24.4
89.9
-
3,447.0
28.6
3,475.6
Inter-segment revenue
-
(4.9)
(20.8)
-
(25.7)
-
(25.7)
Revenue from external customers
3,332.7
19.5
69.1
-
3,421.3
28.6
3,449.9
Operating profit before non-underlying items
87.4
12.5
17.5
-
117.4
(1.1)
116.3
Non-underlying items
(4.8)
-
-
-
(4.8)
(3.9)
(8.7)
Operating profit
82.6
12.5
17.5
-
112.6
(5.0)
107.6
Finance expense
-
-
(2.7)
(32.2)
(34.9)
(0.3)
(35.2)
Finance income
-
-
-
0.9
0.9
-
0.9
Segmental profit before tax
82.6
12.5
14.8
(31.3)
78.6
(5.3)
73.3
Other items included in the income statement are as follows:
Depreciation and impairment
(31.2)
(0.6)
(38.5)
-
(70.3)
(0.1)
(70.4)
Impairment of property, plant and equipment
(4.6)
-
-
-
(4.6)
(5.0)
(9.6)
Amortisation
(0.4)
(3.7)
(0.1)
-
(4.2)
-
(4.2)
Share based payments
(2.9)
-
-
-
(2.9)
-
(2.9)
Termination and severance costs
(1.8)
-
-
-
(1.8)
-
(1.8)
Business closure costs
(0.2)
-
-
-
(0.2)
0.2
-
Other income - profit on the sale of businesses
1.8
-
-
-
1.8
0.9
2.7
and property, plant and equipment
Geographical information.
All segments, with the exception of the US Motor Group in the United States originate in the United Kingdom. The US Motor
Group segment is a discontinued operation.
136
2.4 Staff costs
The average number of people employed by the Group in the following areas was:
2022
2021
Number
Number
Sales
1,823
1,811
Aftersales
2,487
2,470
Administration
1,216
1,208
5,526
5,489
Costs incurred in respect of these employees were:
2022
2021
£m
£m
Wages and salaries
192.1
182.9
Less -
receipts from the Government Coronavirus Job Retention Scheme
-
(1.6)
Social security costs
20.4
17.9
Contributions to defined contribution plans (see note 5.1)
11.7
7.2
Cost recognised for defined benefit plans (see note 5.1)
0.3
1.0
Share based payments (see note 4.6)
3.3
2.9
227.8
210.3
Information relating to directors' emoluments, share options and pension entitlements is set out in the Directors'
Remuneration Report on pages 77 to 95.
During the previous year the Group appropriately used government assistance from the Coronavirus Job Retention
Scheme and has benefitted from £1.6m of furlough support during 2021, which was recognised against the wages and
salaries expense. The furlough support is included in the underlying result as the Group do not consider it to meet the
definition of non-underlying when taken together with the payroll costs that the amount compensates for. No Government
grants were received in 2022.
2.5 Audit fees
2022
2021
Auditor’s remuneration:
£000
£000
Fees payable to the company's Auditor for the audit of the company's annual accounts
770.0
513.0
Fees payable to the company's Auditor and its associates for other services:
Audit of the company's subsidiaries pursuant to legislation
385.0
300.0
Audit-related assurance services
155.0
140.0
1,310.0
953.0
137
2.6 Non-underlying items
Non-underlying income and expenses are items that are not incurred in the normal course of business and are sufficiently
significant and/or irregular to impact the underlying trends in the business.
2022
2021
£m
£m
Within operating expenses:
Impairment of goodwill
(3.6)
-
Impairment of property, plant and equipment
(1.0)
-
Impairment of right of use assets
(0.2)
(9.6)
Termination and severance costs
(0.2)
(1.8)
Aborted transaction related expenses
(0.4)
-
Business closure income
0.2
-
(5.2)
(11.4)
Within other income - gains on the sale of businesses, property, plant and equipment:
Gains on the sale of businesses
0.3
0.7
Gains on the sale of property
7.4
2.0
7.7
2.7
Within net finance expense:
Costs incurred on refinancing
(2.6)
-
Net interest on pension scheme obligations
(0.3)
(1.0)
(2.9)
(1.0)
Total non-underlying items before tax
(0.4)
(9.7)
Non-underlying items in tax
1.4
2.2
Total non-underlying items after tax
1.0
(7.5)
The following amounts have been presented as non-underlying items in these financial statements:
Goodwill has been reviewed for any possible impairment and as a result of this review there was an impairment charge of
£3.6m made during the year (2021: £nil) (see note 3.1). The £3.6m impairment related to the goodwill in respect of the DAF
business which was classified for sale when the Group presented its interim results at 30 June 2022, prior to its eventual
sale in October 2022.
Group property, plant and equipment and assets held for sale have been reviewed for possible impairments. As a result of
this review there was no impairment charge against assets held for sale made during the year (2021: £nil) and property,
plant and equipment of £1.2m (of which £0.2m was in respect of right of use assets) (2021: £9.6m all right of use assets).
There were no reversals of previous impairment charges in respect of assets held for sale where anticipated proceeds less
costs to sell have increased over their impaired carrying values (2021: £nil).
138
There were termination and severance costs of £0.2m in FY22 (2021: £1.8m of which £1.3m related to the transfer of
Finance process from dealerships to a centralised shared service centre as part of the Finance Transformation in the UK).
This cost is driven by a combination of a small number of redundancy payments and relocation costs.
During the year approaches and subsequent bids were made by external parties to the purchase the Company. As a
consequence professional and advisory fees of £0.4m were incurred in assisting with the due diligence process undertaken
by the parties.
No internal costs have been allocated against this process as non-underlying in respect of time and
resource of Group management.
Following the disposal of the US business in 2021 a release of an over accrued settlement resulted in a credit of £0.2m
being recognised in the year.
Other income consists of the profit or loss on disposal of businesses and property, plant and equipment. This comprises a
£0.3m gain (2021: £0.7m gain in respect of discontinued operations ) on disposals of motor vehicle dealerships during the
year, a £7.4m profit on sale of properties (2021: £2.0m). These do not include routine transactions in relation to the disposal
of individual assets, and only relates to the disposal or closure of motor vehicle dealerships and associated properties.
During the year, upon the successful completion of the refinancing of the Group in March 2022, a net loss of £2.6m was
recorded which comprised of settlement of obligations under the previous arrangement.
The net financing return on pension obligations in respect of the defined benefit schemes closed to future accrual is shown
as a non-underlying item due to the irregularity of this amount historically and it is not incurred in the normal course of
business. A net expense of £0.3m has been recognised during the year (2021: £1.0m).
139
2.7 Taxation
Accounting policy
Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent
that it relates to items recognised directly in other comprehensive income, in which case it is recognised in the statement
of comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet liability method, recognising temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
The following temporary differences are not recognised: initial recognition of goodwill, the initial recognition of assets or
liabilities in a transaction that is not a business combination that affect neither accounting nor taxable profit. The amount
of deferred tax recognised is based on the expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
Estimates and judgements
The actual tax on the Group's profits is determined according to complex laws and regulations. Where the effect of
these laws and regulations is unclear, estimates are used in determining the liability for the tax to be paid on profits
which are recognised in the financial statements. The Group considers the estimates, assumptions and judgements to be
reasonable but this can involve complex issues which may take a number of years to resolve. The final determination of tax
liabilities could be different from the estimates reflected in the financial statements but the Group believes that none have
a significant risk of causing a material adjustment to the carrying amount of the liability within the next financial year.
Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular,
judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration given
to the timing and level of future taxable income. The unrecognised deferred tax assets are disclosed below.
140
Taxation - Income statement
2022
2021
£m
£m
UK corporation tax:
Current tax on profit for the year
2.6
3.9
Adjustments in respect of prior periods
0.3
-
2.9
3.9
Overseas taxation:
Current tax on profit for the year
-
1.1
Adjustments in respect of prior periods
-
(0.9)
-
0.2
Total current tax
2.9
4.1
Deferred tax expense:
Origination and reversal of temporary differences
8.3
8.2
Adjustments in respect of prior periods
0.5
(0.5)
Total deferred tax
8.8
7.7
Total income tax expense in the income statement
11.7
11.8
Factors affecting the tax charge for the period:
The tax assessed is different from the standard rate of corporation tax in the UK of
19.00% (2021: 19.00%)
The differences are explained below:
2022
2021
£m
£m
Profit before taxation
57.2
73.3
Tax on profit at UK rate of 19.00% (2021: 19.00%)
10.9
13.9
Differences:
Tax effect of expenses that are not deductible in determining taxable profit
0.6
0.5
Permanent differences arising in respect of fixed assets
0.5
0.8
Unrecognised losses
0.3
0.1
Tax rate differential on overseas income
-
(0.1)
Non-underlying items (see below)
(1.4)
(0.4)
Impact of UK corporation tax rate change
-
(1.6)
Adjustments to tax charge in respect of previous periods
0.8
(1.4)
Total income tax expense in the income statement
11.7
11.8
Taxation - Other comprehensive income
2022
2021
£m
£m
Relating to defined benefit plan remeasurement gains
(1.6)
(6.9)
Other short term temporary differences
(0.1)
0.3
(1.7)
(6.6)
141
Tax rate
The UK tax rate applying throughout 2022 was 19%, this rate is set to increase to 25% on 1 April 2023.
The rate change
to 25% was substantively enacted on 24 May 2021 and as such in the prior year the portion of the deferred tax assets and
liabilities forecast to remain at 31 March 2023 were revalued to 25% which gave a tax credit to the 2021 income statement
of £1.6m.
In 2021 the US operations ceased trading following the disposal of the remaining two dealerships.
During 2022 the US
operations incurred winding-up costs on which no deferred tax asset has been recognised.
Factors affecting the tax charge
The tax charge is decreased by the release of prior year provisions relating to UK corporation tax returns.
The tax charge
is increased by the incidence of non-deductible expenses including the impairment of goodwill and non-qualifying
depreciation.
Non-underlying tax credit
The tax credit in relation to non-underlying items referred to in note 2.6 is £1.4m (2021: £2.2m). The tax credit is higher than
the non-underlying loss multiplied by the tax rate (19%) due to a portion of gains on disposal of property being covered by
capital losses or roll-over relief (which consitute utilisation of previously unrecognised deferred tax assets, see below).
Unrecognised deferred tax assets
There are unutilised tax losses within the Group of £13.8m (2021: £13.8m) relating to former overseas businesses for
which no deferred tax asset has been recognised pending the clarity of the availability of intra-EU losses. There are also
unrecognised capital losses net of rolled over gains of £52.5m (2021: £46.7m).
During 2021 Pinewood established an
operation in Sweden, this Swedish subsidiary has been loss making in its start-up phase and no deferred tax asset has
been recognised on the cumulative losses of £0.1m.
Operations in the USA are now in a winding-down phase following
the disposal of the remaining two car dealerships in 2021. No deferred tax asset has been recognised on the US losses of
£1.2m.
The unrecognised carried forward losses related to operations in Sweden and the USA carry forward indefinitely.
The UK capital losses carry forward indefinitely but are subject to restriction on their use when capital gains are realised.
Deferred tax assets/(liabilities)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The deferred tax
assets all relate to the UK.
2022
2021
£m
£m
Deferred tax assets
11.6
22.1
142
The table below outlines the deferred tax assets/(liabilities) that are recognised on the balance sheet, together with their
movements in the year;
(Charged)/
(Charged)/
Credited to
Credited
At 1
consolidated
to other
At 31
January
income
comprehensive
December
2021
statement
income
2021
£m
£m
£m
£m
Property, plant and equipment
5.8
2.2
-
8.0
Retirement benefit obligations
14.5
(2.5)
(6.9)
5.1
Other short term temporary differences
0.7
0.7
0.3
1.7
Losses
15.4
(8.1)
-
7.3
Tax assets
36.4
(7.7)
(6.6)
22.1
(Charged) to
(Charged)
At 1
consolidated
to other
At 31
January
income
comprehensive
December
2022
statement
income
2022
£m
£m
£m
£m
Property, plant and equipment
8.0
(1.7)
-
6.3
Retirement benefit obligations
5.1
(2.5)
(1.6)
1.0
Other short term temporary differences
1.7
(1.2)
(0.1)
0.4
Losses
7.3
(3.4)
-
3.9
Tax assets/(liabilities)
22.1
(8.8)
(1.7)
11.6
The Group remained profitable in 2022 after returning to profit in 2021.
During 2022 £3.4m of the deferred tax asset in
respect of losses was utilised. The use of losses is restricted to 50% of taxable profits over £5.0m resulting in a spreading
of losses across periods where brought forward losses are over £5.0m.
The deferred tax asset on losses remaining at 31
December 2022 is £3.9m.
This deferred tax asset on losses has been recognised as it is considered probable that the losses
will be utilised.
In order to support the recognition of the £3.9m asset on losses, modelling was undertaken to review
the recovery period of the deferred tax asset.
The modelling was based on management forecasts and showed that the
deferred tax asset on losses is expected to be recovered by 2024.
A plausible downside case was also modelled which
included reduced sales volumes and margins and is the same model used for going-concern analysis; this downside case
modelling showed that the deferred tax asset on losses would also be recovered by 2024.
143
2.8 Earnings per share
Accounting policy
The Group presents basic and diluted earnings per share (‘EPS’) data for its ordinary shares. Basic EPS is calculated by
dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary
shares in issue during the period. The shares held by the EBT have been excluded from the calculation until such time
as they vest unconditionally with the employees. Diluted EPS is calculated by dividing the profit and loss attributable to
ordinary shareholders by the weighted average number of ordinary shares in issue taking account of the effects of all
dilutive potential ordinary shares, which comprise of share options granted to employees and LTIPs.
Earnings per share calculation
2022
2022
2021
2021
Earnings
Earnings
Earnings
Earnings
per share
Total
per share
Total
pence
£m
pence
£m
Basic earnings per share from continuing operations
3.3
45.5
4.7
65.5
Basic earnings per share from discontinued operations
-
-
(0.3)
(4.0)
Basic earnings per share
3.3
45.5
4.4
61.5
Adjusting items:
Non-underlying items attributable to the parent from continuing operations
-
0.4
0.4
5.8
Non-underlying items attributable to the parent from discontinued operations
-
-
0.3
3.9
Non-underlying items attributable to the parent (see note 2.6)
-
0.4
0.7
9.7
Tax effect of non-underlying items from continuing operations
(0.1)
(1.4)
(0.3)
(3.1)
Tax effect of non-underlying items from discontinued operations
-
-
0.1
0.9
Tax effect of non-underlying items
(0.1)
(1.4)
(0.2)
(2.2)
Underlying earnings per share from continuing operations (Non-GAAP measure)
3.2
44.5
4.9
68.2
Underlying earnings per share from discontinued operations (Non-GAAP measure)
-
-
0.1
0.8
Underlying earnings per share (Non-GAAP measure)
3.2
44.5
5.0
69.0
Diluted earnings per share from continuing operations
3.1
45.5
4.6
65.5
Diluted earnings per share from discontinued operations
-
-
(0.3)
(4.0)
Diluted earnings per share
3.1
45.5
4.3
61.5
Diluted earnings per share - underlying from continuing operations (Non-GAAP measure)
3.1
44.5
4.8
68.2
Diluted earnings per share - underlying from discontinued operations (Non-GAAP measure)
-
-
0.1
0.8
Diluted earnings per share - underlying (Non-GAAP measure)
3.1
44.5
4.9
69.0
The calculation of basic, adjusted and diluted earnings per share is based on
the following number of shares in issue (millions):
2022
2021
Number
Number
Weighted average number of ordinary shares in issue
1,392.9
1,390.7
Weighted average number of dilutive shares under option
51.8
25.1
Weighted average number of shares in issue taking account of applicable
1,444.7
1,415.8
outstanding share options
Non-dilutive shares under option
20.7
28.7
The Directors consider that the underlying earnings per share figure provides a better measure of comparative performance.
144
SECTION 3 - OPERATING ASSETS AND LIABILITIES
This section contains the notes and information to support those assets and liabilities presented in the Consolidated
Balance Sheet that relate to the Group’s operating activities.
3.1
Intangible assets and goodwill
3.5
Movement in contract hire vehicle balances
3.2
Property, plant and equipment
3.6
Trade and other receivables
3.3
Assets held for sale and discontinued operations
3.7
Trade and other payables
3.4 Inventories
3.8
Deferred income
3.1 Intangible assets and goodwill
Accounting policies
All business combinations are accounted for by applying the purchase method. Goodwill represents the excess of the cost
of acquisition over the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary
undertakings at the effective date of acquisition and is included in the balance sheet under the heading of intangible
assets. The goodwill is allocated to cash generating units (CGUs), which are franchise groups and other business units.
An impairment test is performed annually as detailed below. Goodwill is then held in the balance sheet at cost less any
accumulated impairment losses.
Adjustments are applied to bring the accounting policies of the acquired businesses into alignment with those of the
Group. The costs associated with reorganising or restructuring are charged to the post acquisition income statement. For
those acquisitions made prior to 1 January 2004, goodwill is recorded on the basis of its deemed cost which represented
its carrying value as at 1 January 2004 under UK GAAP. Fair value adjustments are made in respect of acquisitions. If
at the balance sheet date the fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities can only
be established provisionally then these values are used. Any adjustments to these values made within 12 months of the
acquisition date are taken as adjustments to goodwill.
Internally generated intangible assets relate to activities that involve the development of dealer management systems
by the Group’s Pinewood division. Development expenditure is capitalised only if development costs can be measured
reliably, the product is technically and commercially feasible, future economic benefits are probable and the Group intends
to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes
the costs of labour and overhead costs that are directly attributable to preparing the asset for its intended use. If the
development expenditure does not meet the above criteria it is expensed to the income statement.
Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment
losses and is amortised over a period of five years.
Intangible assets other than goodwill are stated at cost less accumulated amortisation and any impairment losses. This
category of asset includes purchased computer software and internally generated intangible assets which are amortised
by equal instalments over four years and the fair value of the benefit of forward sales orders assumed on acquisition, which
is amortised by reference to when those orders are delivered.
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
Intangible assets arising on an acquisition are recognised separately from goodwill if the fair value of the asset can be
identified separately and measured reliably. Amortisation is calculated on a straight line basis over the estimated useful life
of the intangible asset. Amortisation methods and useful lives are reviewed annually and adjusted if appropriate.
145
Development
Other
Goodwill
costs
intangibles
Total
£m
£m
£m
£m
Cost
At 1 January 2021
406.8
20.4
4.4
431.6
Additions
-
5.0
0.1
5.1
At 31 December 2021
406.8
25.4
4.5
436.7
At 1 January 2022
406.8
25.4
4.5
436.7
Additions
-
5.7
0.5
6.2
Disposals
(8.2)
-
(0.1)
(8.3)
At 31 December 2022
398.6
31.1
4.9
434.6
Amortisation
At 1 January 2021
256.5
11.0
3.6
271.1
Amortised during the year
-
3.7
0.5
4.2
At 31 December 2021
256.5
14.7
4.1
275.3
At 1 January 2022
256.5
14.7
4.1
275.3
Amortised during the year
-
4.2
0.7
4.9
Impairment of goodwill on sale of DAF business
3.6
-
-
3.6
Disposals
(6.1)
-
(0.1)
(6.2)
At 31 December 2022
254.0
18.9
4.7
277.6
Carrying amounts
At 1 January 2021
150.3
9.4
0.8
160.5
At 31 December 2021
150.3
10.7
0.4
161.4
At 31 December 2022
144.6
12.2
0.2
157.0
146
The following have been recognised in the income statement within net operating
2022
2021
expenses:
£m
£m
Amortisation of internally generated intangible assets
4.2
3.7
Amortisation of other intangible assets
0.7
0.5
Impairment of goodwill
3.6
-
Research and development costs
1.2
1.0
Goodwill is allocated across multiple cash-generating units which are UK Motor franchise groups, Pinewood and Leasing.
This is the lowest level at which cash-generating units are formed. Therefore there is a consistent approach to performing
the annual impairment test to assess the carrying value of this amount is taken. This value was determined by comparing
the carrying value of the asset with the higher of its fair value less costs to sell (where value is determined by applying
a trading multiple to the estimated future cash flow or by assessing the depreciated replacement cost of the individual
assets) and value in use (where value is determined by discounting the future cash flows generated from the continuing
use of the unit and was based on the following key assumptions):
Future cash flows were projected into perpetuity with reference to the Group’s forecasts for 2023. The 2023 forecast was
derived from the corporate plan, approved by the Board and compiled on a bottom up basis. New car volume growth was
based on the latest SMMT forecasts. Used car and aftersales revenue and gross profit growth has been based on latest run-
rates for the CGUs. The 2024 to 2027 forecast represents a projection from the 2023 bottom up forecast with new volume
growth based on the latest market projections and run-rates applied to determine used volume growth, with associated
gross profits calculated from adjusted GPUs. Short term income and costs growth have been applied at 2.0% and 2.5%
respectively. These have been applied based on short term market inflation assumptions. The directors have considered
the impact of climate change in respect of the impairment testing of goodwill. Climate change is impacting the profile of
vehicles the group sells, but is not fundamentally impacting the total cash flows in each CGU and therefore no specific
adjustments have been made.
All goodwill CGUs carrying values have been based on their respective value in use.
It is anticipated that the units will grow revenues in the future. For the purpose of the impairment testing, a long-term
growth rate of 2.0% (2021: 2.0%) has been assumed beyond 2027. The growth rate of 2.0% that has been used in the
impairment calculations is based on long-term inflation.
Goodwill has been reviewed for any possible impairment and as a result of this review there was an impairment charge
of £3.6m made during the year (2021: £nil). The £3.6m impairment related to the goodwill in respect of the DAF business
which was classified for sale when the Group presented its interim results at 30 June 2022, prior to its eventual sale
in October 2022.
Goodwill by segment
2022
2021
£m
£m
UK Motor
122.3
128.0
Pinewood
0.3
0.3
Leasing
22.0
22.0
144.6
150.3
147
The pre-tax discount rates are estimated to reflect current market estimates of the time value of money and is calculated
after consideration of market information and risk adjusted for individual circumstances. The pre-tax discount rates used are
specific to each CGU. Pinewood and Leasing pre-tax discount rates is 16.7% (2021: 15.2% and 11.3% respectively). Please see
the below table for the UK Motor Segment:
UK Motor CGUs
Goodwill
Current
Pre-tax
Value
Headroom
Discount
£m
£m
Rate
Ford
69.8
56.1
13.9%
Vauxhall
35.2
6.8
12.9%
Other UK Motor
17.3
56.1
8.2% - 12.6%
122.3
119.0
Sensitivity of assumptions
The forecasts used to determine impairment are sensitive to the key assumptions used in preparing those forecasts. Future
uncertainty with respect to the markets we operate in could have an effect on sales volumes and margins and the general
costs of doing business. The key assumptions used in our forecasts are the vehicle volumes and margins. The sensitivities
below indicate the total change in the value in use forecast, keeping other assumptions constant.
The directors and management have considered and assessed reasonably possible changes to the key assumptions. Within
a downside scenario, the reasonably possible changes to the key assumptions are a severe downturn to vehicle volumes
and margins. This considers both a worsening in economic conditions and restricted new car supply due to manufacturing
constraints. This gives sensitivity of an overall reduction in free cashflow of 11.2%.
This downside sensitivity, there was no effect on both the Pinewood and Leasing segment goodwill values, only UK Motor,
which gives rise to an impairment charge to the Vauxhall CGU of £7.5m, no other CGU impairment noted. The breakeven
point for the Vauxhall CGU would require a reduction in both new and used units of 2.8% into perpetuity or a reduction in
both new and used GPU of 1.2% into perpetuity.
3.2 Property, plant and equipment
Accounting policy
Freehold land is not depreciated. Depreciation is provided to write off the cost less the estimated residual value of other
assets by equal instalments over their estimated useful economic lives. On transition to IFRS as at 1 January 2004, all land
and buildings were restated to fair value as permitted by IFRS 1, which is then treated as the deemed cost. All other assets
are initially measured and recorded at cost.
Depreciation rates are as follows:
•
Freehold buildings – 2% per annum
• Right of use assets - over the period of the lease
•
Leasehold property improvements – 2% per annum or over the period of the lease if less than 50 years
•
Fixtures, fittings and office equipment – 10 – 20% per annum
•
Plant and machinery – 10 – 33% per annum
•
Motor vehicles – 20 – 25% per annum
• Contract hire vehicles are depreciated to their residual value over the period of their lease
The residual value of all assets, depreciation methods and useful economic lives, if significant, are reassessed annually.
148
Pendragon PLC Annual Report 2022
The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of
such an item when that cost is incurred if it is possible that the future economic benefits embodied with the item will flow
to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as
an expense as incurred.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from
disposal with the carrying amount of property, plant and equipment and are recognised net within other income in the
income statement.
The depreciation charge in respect of property, plant and equipment is recognised within administrative expenses within
the income statement.
Contract
Land &
Plant &
Motor
hire
buildings
equipment
vehicles
vehicles
Total
£m
£m
£m
£m
£m
Cost
At 1 January 2021
689.1
85.2
25.7
230.4
1,030.4
Reclassification
-
-
(22.7)
-
(22.7)
Exchange adjustments
0.1
-
-
-
0.1
Additions
17.4
4.4
0.1
42.4
64.3
Business disposals
-
(1.6)
-
-
(1.6)
Other disposals
(19.9)
(1.5)
(0.6)
-
(22.0)
Contract hire vehicles transferred to inventory
-
-
-
(48.0)
(48.0)
Classified as non-current assets held for sale
(10.5)
-
-
-
(10.5)
Reinstated from non-current assets held for sale
7.1
0.1
-
-
7.2
At 31 December 2021
683.3
86.6
2.5
224.8
997.2
At 1 January 2022
683.3
86.6
2.5
224.8
997.2
Additions
47.5
10.3
0.2
46.6
104.6
Business disposals
(0.5)
(1.9)
-
-
(2.4)
Other disposals
(39.0)
(9.9)
(0.3)
-
(49.2)
Contract hire vehicles transferred to inventory
-
-
-
(51.4)
(51.4)
Classified as non-current assets held for sale
(2.8)
-
-
-
(2.8)
Reinstated from non-current assets held for sale
3.8
-
-
-
3.8
At 31 December 2022
692.3
85.1
2.4
220.0
999.8
149
Contract
Land &
Plant &
Motor
hire
buildings
equipment
vehicles
vehicles
Total
£m
£m
£m
£m
£m
Depreciation
At 1 January 2021
320.7
59.0
4.9
73.0
457.6
Reclassification
-
-
(3.8)
-
(3.8)
Exchange adjustments
0.1
-
-
-
0.1
Charge for the year
24.8
6.6
0.5
38.5
70.4
Impairment
9.6
-
-
-
9.6
Business disposals
-
(1.2)
-
-
(1.2)
Other disposals
(14.0)
(0.7)
(0.6)
-
(15.3)
Contract hire vehicles transferred to inventory
-
-
-
(17.9)
(17.9)
Classified as non-current assets held for sale
(2.7)
-
-
-
(2.7)
Reinstated from non-current assets held for sale
0.8
0.1
-
-
0.9
At 31 December 2021
339.3
63.8
1.0
93.6
497.7
At 1 January 2022
339.3
63.8
1.0
93.6
497.7
Charge for the year
21.6
6.9
0.1
36.1
64.7
Impairment
1.0
0.2
-
-
1.2
Business disposals
(0.5)
(1.7)
-
-
(2.2)
Other disposals
(33.9)
(9.3)
(0.3)
-
(43.5)
Contract hire vehicles transferred to inventory
-
-
-
(34.6)
(34.6)
Classified as non-current assets held for sale
(0.9)
-
-
-
(0.9)
Reinstated from non-current assets held for sale
1.5
-
-
-
1.5
At 31 December 2022
328.1
59.9
0.8
95.1
483.9
Carrying amounts
At 1 January 2021
368.4
26.2
20.8
157.4
572.8
At 31 December 2021
344.0
22.8
1.5
131.2
499.5
At 31 December 2022
364.2
25.2
1.6
124.9
515.9
Assets leased out under operating leases
Cost at 31 December 2022
30.2
-
-
220.0
250.2
Accumulated depreciation at 31 December 2022
(13.9)
-
-
(95.1)
(109.0)
Accumulated impairment at 31 December 2022
(4.4)
-
-
-
(4.4)
Carrying value of assets leased out under
11.9
-
-
124.9
136.8
operating leases at 31 December 2022
150
Property, plant and equipment includes right-of-use assets of £130.5m
(see Note 4.7).
During the year two properties were re-classified as property, plant and equipment following a decision to withdraw them
from sale. The properties have been re-instated at the lower of their recoverable amount, or the carrying amount had the
assets never been moved to assets held for sale. In this instance the properties were re-instated at their recoverable values
having been previously impaired down to those values.
2022
2021
£m
£m
Building projects currently under construction for which no depreciation has
7.6
8.7
been charged during the year
Future capital expenditure which has been contracted for but not yet provided
2.8
7.1
in the financial statements - property development and refurbishment
Cumulative interest charges capitalised as construction costs and included in
6.0
5.2
land and buildings
The following items have been charged to the income statement as operating
expenses during the year:
Depreciation of property, plant and equipment - leased
15.2
18.5
Depreciation of contract hire vehicles - leased
36.1
38.5
Depreciation of property, plant and equipment - owned
13.4
13.4
Cash flow statement information
2022
2021
£m
£m
Additions to property, plant, equipment and intangible assets:
Additions to land and buildings
(47.5)
(17.4)
Additions to plant and equipment
(10.3)
(4.4)
Additions to motor vehicles
(0.2)
(0.1)
Additions to intangible assets (see note 3.1)
(6.2)
(5.1)
Total additions
(64.2)
(27.0)
Less additions of property, plant and equipment acquired under leases for
which no cash flow arises (excludes fees capitalised of £2.6m (2021: £0.1)) (see
19.9
8.7
note 4.7)
Cash flows relating to additions of property, plant and equipment made by the
-
(0.3)
US disposal group disclosed within assets held for sale
Cash flows from investing activities in respect of additions to property, plant
(44.3)
(18.6)
and equipment
Cash flows relating to the purchase of contract hire vehicles are disclosed within Movement in contract hire vehicle balances
(see note 3.5).
151
3.3 Assets held for sale and discontinued operations
Accounting policy
Non-current assets that are expected to be recovered primarily through sale rather than through continuing use are
classified as held for sale. Immediately before classification as held for sale, the assets are measured in accordance with
the Group's accounting policies. Thereafter the assets are measured at the lower of their carrying amount and fair value
less costs to sell. Impairment losses on remeasurement are recognised in the income statement. Gains are not recognised
in excess of any cumulative impairment loss. Non-current assets classified as held for sale are available for immediate sale
and a resultant disposal is highly probable within one year.
A non-current asset that stops being classified as held for sale is remeasured at the lower of its carrying amount prior
to the asset or disposal group being classified as held for sale, adjusted for any depreciation or amortisation that would
have been recognised if the asset had not been classified as held for sale, or, its recoverable amount at the date of the
decision not to sell.
Discontinued operations
There were no buinsesses in the Group classified as a discontinued operation in 2022.
During the previous period, 2021,
the Group sold its two remaining stores in its US Business, which was shown as a discontinued operation within the
comparative information in these consolidated financial statements.
The results of the discontinued operation are set out on the face of the consolidated income statement. Other financial
information relating to the discontinued operation for the period is set out below.
Assets and liabilities of a disposal Group held for sale
From 31 December 2018 until the sale of the final business unit in March 2021, the US motor business was classified as a
disposal group which was stated at fair value less costs to sell and comprised the following assets and liabilities.
2022
2021
£m
£m
Net cash used in operating activities
-
(5.4)
Net cash from investing activities
-
27.6
Net cash used in financing activities
-
(31.3)
Net cash decrease generated by discontinued operation
-
(9.1)
Included within net cash used in financing activities for 2021 is £28.8m in respect of a dividend paid by the US company to its UK
holding company.
2022
2021
pence
pence
Basic earnings per share from discontinued operation
-
(0.3)
Underlying basic earnings per share from discontinued operation
-
(0.1)
Diluted earnings per share from discontinued operation
-
(0.3)
152
Balance sheet
The Group holds a number of freehold properties that are currently being marketed for sale which are expected to be
disposed of during 2023. Properties are valued using a combination of external qualified valuers and in-house experts. Due
to the nature of the market, especially in light of current economic conditions, a property may ultimately realise proceeds
that vary from those valuations applied.
Assets classified for sale comprise:
2022
2021
£m
£m
Property, plant and equipment
6.1
10.4
Income statement
The following items have been credited/(charged)
Income statement category
2022
2021
to the income statement during the year:
£m
£m
Other income - gains on the sale of busi-
Profit on sale of assets classified as held for sale
8.0
1.7
nesses and property, plant and equipment
If the fair value less costs to sell assigned to each property were to be reduced by 10% a further impairment loss of £0.1m
would have been recognised (2021: £0.4m).
3.4 Inventories
Accounting policies
Motor vehicle inventories are stated at the lower of cost and net realisable value. Costs incurred in bringing each product
to its present location and condition are included and cost is based on price including delivery costs less specific trade
discounts. Fair value reviews of stock are conducted regularly utilising our market intelligence and analysis of the market
which we conduct by segment and by model, these fair values are updated in the light of any changing trends by model
line. The assessment of fair values involves an element of estimation: the Group takes the age profile of our inventories
at the year end, estimates the likely sale period and the expected profit or loss on sale to determine the fair value at the
balance sheet date. Whilst this data is deemed representative of current values it is possible that ultimate sales values can
vary from those applied. Parts inventories are based on an average purchase cost principle and are written down to net
realisable value by providing for obsolescence on a time in stock based formula approach.
Consignment vehicles are regarded as being effectively under the control of the Group and are included within inventories
on the balance sheet as the Group has the significant risks and rewards of ownership even though legal title has not yet
passed. The corresponding liability is included in trade and other payables. Movements in consignment vehicle inventory
and its corresponding liability within trade and other payables are not included within movements of inventories and
payables as stated in the consolidated cash flow statement as no cash flows arise in respect of these transactions until the
vehicle is either sold or purchased at which point it is reclassified within new and used vehicle inventory.
Motor vehicles are transferred from contract hire activities at the end of their lease term to inventory at their depreciated
cost. No physical cash flow arises from these transfers.
153
Balance sheet
2022
2021
£m
£m
New and used vehicles
559.7
461.2
Consignment vehicles
35.3
27.2
Vehicle parts and other inventories
25.3
24.4
620.3
512.8
2022
2021
£m
£m
Inventories recognised as an expense during the year
3,126.2
2,972.0
Carrying value of inventories subject to retention of title clauses
462.1
447.8
Write-down of inventories to net realisable value (included within cost of sales)
8.1
10.1
Included within the write-down of inventories to net realisable value is the write-down of used vehicle inventory of £6.9m
(2021: £8.0m). The key assumptions underpinning the write-down of net realisable value of the used vehicle inventory are
(i) the time to sell each vehicle; (ii) the expected sales price at the date of sale. Sensitivities have been performed on the
key assumptions; (i) a 30 day sensitivity has been used for the time to sell each vehicle as this is a plausible scenario and
(ii) a £500 sensitivity has been used for the expected sales price at the date of sale as in the region of £500 variations in
GPUs have been seen in previous reporting periods.
If the average time to sell a vehicle is increased by 30 days then it would increase the write-down of the used vehicle
inventory by £2.5m (2021: £0.2m). If the expected sales prices at the date of sale were to decrease by £500 per vehicle,
then it would increase the value of the write-down of used vehicle inventory by £3.7m (2021: £4.1m) at the balance sheet
date. Whereas if the average time to sell a vehicle is decreased by 30 days then it would decrease the value of the write-
down of used vehicle inventory by £2.3m (2021: £1.3m). Also if the expected sales prices at the date of sale were to
increase by £500 per vehicle then it would decrease the value of the write-down of used vehicle inventory by £2.4m (2021:
£3.1m) at the balance sheet date.
Cash flow statement information
2022
2021
£m
£m
Movement in inventory
(107.5)
96.0
Reclassification from property, plant and equipment (see note 3.2)
-
18.9
Inventory changes in business combinations and disposals
(37.2)
(0.6)
Impact of exchange differences
-
0.1
Non cash movement in consignment vehicles
8.1
(54.5)
Classified as held for sale
-
17.8
Transfer value of contract hire vehicles from fixed assets to inventory
16.8
30.1
Cash flow (decrease)/increase due to movements in inventory
(119.8)
107.8
154
3.5 Movement in contract hire vehicle balance
2022
2021
£m
£m
Depreciation
36.1
38.5
Changes in trade and other payables and deferred income
(7.9)
(30.2)
Purchases of contract hire vehicles
(46.6)
(42.4)
Unwinding of discounts in contract hire residual values
(2.5)
(2.7)
(20.9)
(36.8)
3.6 Trade and other receivables
Accounting policy
Trade and other receivables are recognised initially at fair value and are subsequently stated at amortised cost using the
effective interest method, less any impairment losses.
Impairment losses are measured in accordance with IFRS 9, which is based on an ‘expected credit loss’ (ECL) model. The
impairment model applies to financial assets measured at amortised cost.
The calculation of ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present
value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and
the cash flows that the Group expects to receive).
The Group considers a trade or other receivable to be in default when the borrower is unlikely to pay its credit obligations
to the Group in full after all reasonable actions have been taken to recover the debt.
Credit risk management
The Group is exposed to credit risk primarily in respect of its trade receivables and financial assets. Trade receivables are
stated net of provision for estimated impairment losses. Exposure to credit risk in respect of trade receivables is mitigated
by the Group’s policy of only granting credit to certain customers after an appropriate evaluation of credit risk. Credit risk
arises in respect of amounts due from vehicle manufacturers in relation to bonuses and warranty receivables. This risk is
mitigated by the range of manufacturers dealt with, the Group’s procedures in effecting timely collection of amounts due
and management’s belief that it does not expect any manufacturer to fail to meet its obligations. Financial assets comprise
trade and other receivables (as above) and cash balances. The counterparties are banks and management does not expect
any counterparty to fail to meet its obligations. The maximum exposure to credit risk is represented by the carrying
amount of each financial asset, including derivative financial instruments, in the balance sheet.
Before granting any new customer credit terms the Group uses external credit scoring systems to assess the potential new
customer’s credit quality and defines credit limits by customer. These limits and credit worthiness are regularly reviewed
and use is made of monitoring alerts provided by the providers of the credit scoring systems. The Group has no customer
that represents more than 5% of the total balance of trade receivables.
155
Balance sheet
2022
2021
£m
£m
Trade receivables
58.9
45.7
Allowance for doubtful debts
(0.3)
(0.3)
58.6
45.4
Manufacturer bonus receivables
23.3
17.4
Other receivables
24.3
34.7
Prepayments
9.5
3.8
115.7
101.3
All amounts are due within one year.
All trade receivables are classified as loans and receivables and held at amortised cost in the current year and prior year.
Total trade receivables held by the Group at 31 December 2022 was £58.6m (2021: £45.4m).
The average credit period taken on sales of goods is 29 days (2021: 29 days). No interest is charged on trade receivables.
The Group makes an impairment provision based on the expected credit losses it deems likely to incur. The calculation
is based on an average of previous default experiences which is assessed against the risk of the current total in light of
current economic expectations.
An expense has been recognised in respect of impairment losses during the year of
£0.3m (2021: £0.1m).
The ageing of trade and other receivables at the reporting date was:
Manufacturer
Manufacturer
Trade
bonus
Other
Trade
bonus
Other
receivables
receivables
receivables
receivables
receivables
receivables
2022
2022
2022
2021
2021
2021
£m
£m
£m
£m
£m
£m
Not past due
27.6
22.8
23.4
20.6
12.5
31.3
Past due 0-30 days
19.8
0.2
0.6
10.7
2.4
0.8
Past due 31-120 days
8.5
0.3
0.3
12.4
2.5
2.6
Past due 120+ days
3.0
-
-
2.0
-
-
58.9
23.3
24.3
45.7
17.4
34.7
Provision for impairment
(0.3)
-
-
(0.3)
-
-
58.6
23.3
24.3
45.4
17.4
34.7
156
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
2022
2021
£m
£m
Balance at 1 January
0.3
0.4
Utilisation
(0.3)
(0.3)
Impairment loss recognised
0.3
0.2
Balance at 31 December
0.3
0.3
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
Finance lease receivables
Where the group acts as a lessor of properties of which it is a lessee and the term of the head lease and sub lease are
coterminous, rather than recognise a right of use asset the Group recognises a finance lease receivable which is measured
at the net present value of future cash receipts discounted at the Group's incremental borrowing rate. The finance income
element of rentals received under these leases is credited so as to give a constant rate of finance income on the remainder
of the obligation. Finance income is credited in the income statement. The finance lease receivable is reduced by rentals
received and increased by the interest income recognised.
2022
2021
£m
£m
Non-current
14.8
15.5
Current
2.4
2.1
17.2
17.6
Finance lease rentals are invoiced quarterly on standard rent quarter days, no credit terms are extended beyond these
dates. Expected credit losses in respect of finance lease receivables are deemed immaterial.
157
3.7 Trade and other payables
Accounting policy
Trade and other payables are recognised initially at fair value and are subsequently stated at amortised cost using the
effective interest method, less any write-offs.
Balance sheet
2022
2021
£m
£m
Trade payables
71.8
56.4
Vehicle stocking loans
547.4
420.6
Contract hire buyback commitments
58.2
62.0
Consignment vehicle liabilities
35.3
27.2
Payments received on account
30.4
26.2
Other taxation and social security
2.9
24.7
Accruals
101.8
117.5
847.7
734.6
Non-current
35.7
41.9
Current
812.0
692.7
847.7
734.6
Trade payables are classified as other financial liabilities. Fair value is deemed to be the same as carrying value.
Details of the stocking loan facilities are presented in the Capital Management section of note 4.2 below.
The non-current element of trade and other payables relates to contract hire buyback commitments where the Group
has contracted to repurchase vehicles, at predetermined values and dates, that have been let under operating leases or
similar arrangements.
The Group enters into leasing arrangements whereby it agrees to repurchase vehicles from providers of lease finance at
the end of the lease agreement, typically two to four years in the future. The repurchase price is determined at the time
the agreement is entered into based on the then estimate of a vehicle’s future residual value. The actual value of the
vehicles at the end of the lease contract, and therefore the proceeds that can be realised from eventual sale, can vary from
these estimates. Annual reviews are undertaken to reappraise residual values and to recognise impairment write downs
where necessary.
158
3.8 Deferred income
Warranty policies sold
The income received in respect of warranty policies sold and administered by the Group is recognised over the period of
the policy on a straight line basis. The unrecognised income is held within deferred income.
Contract hire
Vehicles supplied to a leasing group for contract hire purposes where the Group undertakes to repurchase the vehicle
at a predetermined date are accounted for in accordance with IFRS 16 Leases, where the Group is considered to be an
operating lessor for all arrangements in place. The initial amounts received in consideration from the leasing group are
allocated between the present value of the repurchase commitment, held within trade and other payables and a residual
amount of deferred revenue held within deferred income. The deferred revenue, which effectively represents rentals
received in advance, is taken to the income statement on a straight line basis over the related lease term.
Warranty
Contract
policies
hire
Total
£m
£m
£m
At 1 January 2022
16.5
57.5
74.0
Created in the year
19.0
29.7
48.7
Recognised as income during the year
(9.5)
(33.8)
(43.3)
Warranty claims paid
(4.8)
-
(4.8)
At 31 December 2022
21.2
53.4
74.6
Non-current
8.7
27.7
36.4
Current
12.5
25.7
38.2
21.2
53.4
74.6
Recognition of opening balance as at 31 December 2021
Recognised during the year
9.1
28.1
37.2
Carried forward at 31 December 2022
7.4
29.4
36.8
16.5
57.5
74.0
The deferred income balance at 31 December for warranty policies and contract hire is the aggregate transaction price
allocated to performance obligations that are unsatisfied or partly satisfied at the reporting date. No information is provided
about remaining performance obligations at 31 December 2022 or 31 December 2021 that have an original expected
duration of one year or less as allowed by IFRS 15.
SECTION 4 - FINANCING ACTIVITIES AND CAPITAL STRUCTURE
This section contains the notes and information to support the elements of both net debt and equity financing as presented
in the Consolidated Balance Sheet.
4.1
Accounting policies
4.5
Dividends
4.2
Financial instruments and derivatives
4.6
Share based compensation
4.3
Net financing costs
4.7
Leases
4.4
Capital and reserves
4.1 Accounting policies
IFRS 9 requires an entity to recognise a financial asset or a financial liability in its statement of financial position when it
becomes party to the contractual provisions of the instrument. At initial recognition, an entity measures a financial asset or
a financial liability at its fair value plus or minus, in the case of a financial asset or a financial liability not at fair value through
profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or the financial
liability. Subsequent to initial recognition financial assets and financial liabilities are classified and measured as described
below.
Financial assets
IFRS 9 classifies assets according to the business model for their realisation, as determined by the expected contractual
cashflows. This classification determines the accounting treatment, and the classification under IFRS 9 is by reference to
the accounting treatment i.e. amortised cost, fair value through other comprehensive income or fair value through profit
and loss.
A financial asset is measured at amortised cost if both of the following conditions are met:
the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets are therefore classified and measured in these financial statements at amortised cost.
The Group recognises loss allowances for expected credit losses (ECLs) on financial assets measured at amortised cost,
debt investments measured at FVOCI and contract assets (as defined in IFRS 15).
The Group measures loss allowances at an amount equal to lifetime ECL, except for other debt securities and bank balances
for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased
significantly since initial recognition which are measured as 12-month ECL.
Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECL.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when
estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue
cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical
experience and informed credit assessment and including forward-looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.
The Group considers a financial asset to be in default when:
•
the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such
as realising security (if any is held); or
•
the financial asset is more than 90 days past due.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the
reporting date (or a shorter period if the expected life of the instrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is
exposed to credit risk.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash
shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows
that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt securities at FVOCI
are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the
estimated future cash flows of the financial asset have occurred.
Write-offs
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic
prospect of recovery.
Impairment of financial assets
IFRS 9 adopts an expected credit loss approach (ECL).
The IFRS 9 approach does not require a credit event (an actual
loss or a debt past a number of days due)
to occur but is based on changes in expectations of credit losses.
IFRS 9 also
requires that impairment of financial assets be shown as a separate line item in either the statement of comprehensive
income or the income statement.
Financial assets
IFRS 9
classification
£m
Trade and other receivables
Amortised cost
106.2
Finance lease receivables
Amortised cost
17.2
Cash and cash equivalents
Amortised cost
69.4
Trade and other receivables
- see note 3.6
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits, and other short term highly liquid investments
that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Loans and borrowings
Interest-bearing loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent
to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and
redemption value being recognised in the income statement over the period of the borrowings on an effective interest
basis. The effective interest basis is a method of calculating the amortised cost of a financial liability and of allocating
interest payments over the relevant period. The effective interest rate is the rate that exactly discounts estimated future
cash payments through the expected life of the financial liability, or where appropriate, a shorter period.
Trade and other payables
- see note 3.7
Hedging Instruments
The Group no longer holds any hedging instruments to hedge currency risks arising from its activities. There are no
material Group operations conducted in currencies other than GBP.
4.2 Financial instruments and derivatives
Adjusted net debt
2022
2021
£m
£m
Cash and cash equivalents
69.4
37.6
Current interest bearing loans and borrowings
(1.7)
-
Non-current interest bearing loans and borrowings
(91.0)
(87.3)
(23.3)
(49.7)
The Group has since adoption of IFRS 16 Leases excluded Lease liabilities from its measure of Adjusted Net Debt.
Full
details of lease liabilities are presented in note 4.7. The Group also exclude Vehicle stocking loans from its measure of
Adjusted Net Debt which are presented as current liabilities in note 3.7.
Cash and cash equivalents
Restated - see note 1
Carrying value
Carrying value
and fair value
and fair value
2022
2021
£m
£m
Bank balances and cash equivalents
69.4
37.6
2022
2021
£m
£m
Cash and cash equivalents in the Balance Sheet
171.9
200.1
Bank overdrafts repayable on demand and used for cash management in the
(102.5)
(162.5)
Balance Sheet
Cash and cash equivalents in the statement of cash flows
69.4
37.6
Bank overdrafts reflect the aggregated overdrawn balances of Group companies (even if those companies have other
positive cash balances).
Borrowings
In March 2022, the Group refinanced its £175m RCF and £60m Private Placement, both of which were due to mature in
March 2023. The new facilities comprise a
5 year £100m Senior Term Finance Agreement (SFA), maturing March 2027,
with the Group’s existing Private Placement lender plus a new lender, and a £75m 3+1+1 Revolving Credit Facility (RCF)
with four out of the five of the Group’s existing bankers, maturing March 2025, with extensions at the option of lenders to
March 2026 and then March 2027. The SFA comprises a term loan, with principal repayments at 1% per quarter in years
1 and 2, and at 2.5% per quarter thereafter. The RCF comprises a "bullet" facility i.e. there are no scheduled reductions.
Both the SFA and RCF are secured over the assets of the Group (with the exception of the Pension Fund's Central Asset
Reserve assets set out at note 5.1) , and rank pari-passu with the Pension Fund. Interest in respect of the RCF is in a range
of SONIA + 5.00%-6.00%, and for the SFA at SONIA + 6.00%-7.00%, both dependent on the same leverage ratio. Financial
covenants are common to both the RCF and SFA, and comprise leverage, fixed charge cover and minimum underlying
EBITDA.
As at 31 December 2022, total facility commitments and expiry are as set out below:
Expiry Date
£m
RCF
March 2025
75.0
SFA
March 2027
97.0
172.0
At 31 December 2022 the following margins and fees were in place:
Commitment
(non-utilisation)
Current
margin
fee
RCF
5.00%
2.25%
SFA
6.00%
n/a
The leverage covenant is calculated as the ratio of net debt to underlying profit before tax, depreciation, amortisation and
finance charges (excluding vehicle stocking plan interest charges disclosed in note 4.3) calculated on an IAS 17 basis. This
ratio can not exceed 2.00 times. At 31 December 2022 the ratio was 0.2 times.
The fixed charge cover covenant is calculated as the ratio of underlying profit before tax, depreciation, amortisation and
finance charges (excluding vehicle stocking plan interest charges disclosed in note 4.3) calculated on an IAS 17 basis plus
rent paid, to finance charges (excluding vehicle stocking plan interest charges disclosed in note 4.3) plus payments for
rent, scheduled amortisation under the SFA and pension contributions. This ratio must exceed 1.60 times. At 31 December
2022 the ratio was 2.7 times.
The minimum underlying EBITDA covenant is calculated as for the leverage covenant ratio i.e. underlying profit before tax,
depreciation, amortisation and finance charges (excluding vehicle stocking plan interest charges disclosed in note 4.3)
calculated on an IAS 17 basis. This must exceed £75.0m at 31 December 2022 and was £124.9m.
Summary of borrowings
Carrying
Carrying
value
Fair value
value
Fair value
2022
2022
2021
2021
£m
£m
£m
£m
Non-current:
Bank borrowings (RCF)
-
-
27.1
27.1
SFA
90.8
90.8
-
-
5.75% Senior note 2023
-
-
60.0
60.0
Other loan notes
0.2
0.2
0.2
0.2
Lease liabilities
197.9
197.9
195.4
195.4
Total non-current
288.9
288.9
282.7
282.7
SFA
1.7
1.7
-
-
Bank overdraft*
102.5
102.5
162.5
162.5
Lease liabilities
20.0
20.0
26.7
26.7
Total current
124.2
124.2
189.2
189.2
Total borrowings
413.1
413.1
471.9
471.9
* 2021 restated - see note 1
Reconciliation of movements of liabilities to cash flows arising from financing activities
____Borrowings___
__________Equity_________
Long term
Finance
Share
Other
Retained
borrowings
Lease
capital
reserves
earnings
Total
£m
£m
£m
£m
£m
£m
At 1 January 2022
87.3
222.1
69.9
75.0
80.7
535.0
Cash flows from financing activities
Payment of lease liabilities
-
(22.2)
-
-
-
(22.2)
Repayment of loans
(90.5)
-
-
-
-
(90.5)
Proceeds from issue of loans (net of directly attributable
93.8
-
-
-
93.8
transaction costs)
3.3
(22.2)
-
-
-
(18.9)
Other changes
The effect of changes in foreign exchange rates
0.1
0.1
-
-
-
0.2
New leases undertaken - non cash
-
35.3
-
-
-
35.3
Disposal of finance leases - non cash
-
(17.6)
-
-
-
(17.6)
Liability-related : Lease expenses - non cash
-
0.2
-
-
-
0.2
Liability-related : Amortisation of fees and expenses
2.0
-
-
-
-
2.0
Equity-related : Total other changes
-
-
-
0.5
54.9
55.4
At 31 December 2022
92.7
217.9
69.9
75.5
135.6
591.6
Interest payments in respect of the above borrowings are reported in operating cash flows in the Consolidated Cash Flow
Statement.
Fair value hierarchy
Financial instruments carried at fair value are required to be measured by reference to the following levels:
Level 1: quoted prices in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
The RCF and SFA have been measured by a Level 2 valuation method.
The effective interest rates for all borrowings are all based by reference to SONIA. Leases are effectively held at fixed
rates of interest within the range set out below. Information regarding classification of balances and interest, the range of
interest rates applied in the year to 31 December 2022 and repricing periods, is set out in the table below.
Carrying
value
Interest
Interest
Classification
£m
Classification
classification
rate range
Repricing periods
Bank balances and cash equivalents
Loans and receivables
69.4
Amortised cost
Floating GBP
0.45%-4.50%
6 months or less
Borrowings
Non - current:
RCF
Other financial liabilities
-
Amortised cost
Floating GBP
N/A - not drawn
6 months or less
SFA
Other financial liabilities
90.8
Amortised cost
Floating USD
6.75% - 8.94%
6 months or less
Other loan notes
Other financial liabilities
0.2
Amortised cost
Fixed GBP
12.50%
n/a
Lease liabilities
Other financial liabilities
197.9
Amortised cost
Fixed GBP
1.91% - 8.00%
n/a
Total non-current
288.9
RCF
Other financial liabilities
-
Amortised cost
Floating USD
N/A - not drawn
6 months or less
SFA
Other financial liabilities
1.7
Amortised cost
Floating USD
6.75% - 8.94%
6 months or less
Bank overdraft *
Other financial liabilities
102.5
Amortised cost
Floating GBP
0%
6 months or less
Lease liabilities
Other financial liabilities
20.0
Amortised cost
Fixed GBP
1.91% - 8.00%
n/a
Total current
124.2
Total borrowings
413.1
* 2021 restated - see note 1
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
2022
2021
£m
£m
Pound sterling
413.1
463.8
US dollar
-
8.1
413.1
471.9
* 2021 restated - see note 1
Treasury policy, financial risk, funding and liquidity management
Financial risk management
The Group is exposed to the following risks from its use of financial instruments:
Funding and liquidity risk - the risk that the Group will not be able to meet its financial obligations as they fall due.
Credit risk - the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.
Market risk - the risk that changes in market prices, such as interest rates and foreign exchange rates, have on the Group's
financial performance.
The Group's quantitative exposure to these risks is explained throughout these financial statements whilst the Group's
objectives and management of these risks is set out below.
Treasury policy and procedures
Group treasury matters are managed within policy guidelines set by the Board with prime areas of focus being liquidity and
interest rate exposure. Management of these areas is the responsibility of the Group’s central treasury function. The Board
does not permit the speculative use of derivatives..
Funding and liquidity management
The Group is financed primarily by its SFA, RCF, vehicle stocking credit lines and operating cash flow. The RCF and SFA
are committed facilities which mature within appropriate timescales and are maintained at levels in excess of planned
requirements. .
Each business within the Group is responsible for its own day-to-day cash management and the overall cash position is
monitored on a daily basis by the Group treasury department.
The maturity of non-current borrowings is as follows, excluding lease liabilities:
2022
2021
£m
£m
Between 1 and 2 years
7.3
87.1
Between 2 and 5 years
83.7
0.2
91.0
87.3
4.2 Financial instruments and derivatives
continued
Maturities include amounts drawn under revolving credit facilities which are contractually repayable generally within a
month of the year end but which may be redrawn at the Group’s option, together with contractual repayment dates for
the amortising SFA. The maturities above therefore represent the final repayment dates for these facilities. If the amounts
drawn at the year end were redrawn at the Group’s usual practice of monthly drawings, the total cash outflows associated
with all borrowings, assuming interest rates remain at the same rates as at the year end, are estimated on an undiscounted
basis as follows:
Carrying
Contractual
Within 6
6 - 12
over 5
amount
cashflows
months
months
1-2 years
2-5 years
years
RCF
-
-
-
-
-
-
-
SFA
92.5
126.0
5.4
5.3
15.9
99.4
-
Loan notes
0.2
0.4
-
-
-
0.4
-
92.7
126.4
5.4
5.3
15.9
99.8
-
Bank overdraft
102.5
102.5
102.5
-
-
-
-
Leases liabilities
217.9
371.3
17.9
16.4
32.2
76.5
228.3
Trade payables
71.7
71.7
71.7
-
-
-
-
Vehicle stocking loans
582.7
598.4
336.9
261.5
-
-
-
1,067.5
1,270.3
534.4
283.2
48.1
176.3
228.3
The Group has the following undrawn borrowing facilities:
2022
2021
£m
£m
Expiring in 1-2 years
-
87.9
Expiring in 2-5 years
70.0
-
70.0
87.9
The above reflects that £5m has been drawn on the RCF by way of bank guarantees to third parties, but such amounts do
not constitute borrowings.
Interest rate risk management
The objective of the Group’s interest rate policy is to minimise interest costs whilst protecting the Group from adverse
movements in interest rates. Borrowings issued at variable rates expose the Group to cash flow interest rate risk whereas
borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group does not actively manage cash
flow interest rate risk as the Board believes that the retail sector in which the Group operates provides a natural hedge
against interest rate movements. Consequently, it is normal Group policy to borrow on a floating rate basis and all fair value
interest rate risk arising from fixed rate borrowings entered into by the Group are usually managed by swaps into floating
rate. However, due to the relatively low historical rates in floating interest rates, there was relatively low downside risk in
maintaining the Group’s £60.0m Senior note 2023
at fixed rate. On refinancing in March 2022, all loans were at floating
rate, which were maintained in line with the Group's normal policy.
Interest rate risk sensitivity analysis
As some of the Group’s borrowings and vehicle stocking credit lines are floating rate instruments they therefore have a
sensitivity to changes in market rates of interest. The table below shows the effect of a 100 basis points change in interest
rates for floating rate instruments outstanding at the period end, showing how profit or loss would have varied in the period
on the assumption that the instruments at the period end were outstanding for the entire period.
Profit/(loss)
Profit/(loss)
2022
2021
£m
£m
100 basis points increase
(5.5)
(3.8)
Tax effect
1.0
0.7
Effect on net assets
(4.5)
(3.1)
100 basis points decrease
5.5
1.9
Tax effect
(1.0)
(0.4)
Effect on net assets
4.5
1.5
Foreign exchange risk management
The Group faces currency risk in respect of its net assets denominated in currencies other than sterling. On translation
into sterling, movements in currency will affect the value of these assets. The Group’s policy is therefore to match, where
possible, net assets in overseas subsidiaries which are denominated in a foreign currency with borrowings in the same
currency. With very little US assets remaining at the year end following the disposal all US business interests in prior years,
no material hedging requirement remains so the Group now has no USD borrowings (2021: USD 10.0m) against its net
assets held in overseas subsidiaries.
Hedges of net investments in overseas operations
A gain or loss in respect of an effective hedge of a net investment in an overseas operation is recognised directly in
equity. Any ineffective portion of the hedge is recognised in the income statement.
Included within bank borrowings are balances denominated in US dollars which are designated as a hedge of the net
investment in the Group’s US subsidiaries. Foreign exchange differences on translation of the borrowings to sterling at
the balance sheet date are recognised within the translation differences reserve in equity, net of exchange differences in
respect of the net investments being hedged.
2022
2021
$m
$m
Aggregate fair value of borrowings designated as hedge of net investment
-
10.0
in the Group's US subsidiaries
£m
£m
Foreign
exchange gains/(losses) on translation of borrowings to sterling at
-
0.5
balance sheet date
Foreign exchange (losses)/gains on translation of net investments to ster-
0.5
(0.5)
ling at balance sheet date
Net
exchange
gain/(loss) recognised within translation reserve in equity
0.5
-
Capital management
The Group views its financial capital resources as primarily comprising share capital, loans (RCF and SFA), vehicle stocking
credit lines and operating cashflow.
Core debt is essentially funded by the Group’s SFA. The Group requires its revolving credit facility to fund its day-to-day
working capital requirements. A fundamental element of the Group’s financial resources is the provision of vehicle stocking
credit lines, provided by the vehicle manufacturers’ funding arms and other third party providers. The Group’s funding of
its vehicle inventories is set out below:
2022
2021
£m
£m
New and used vehicles
559.7
461.2
Consignment vehicles
35.3
27.2
595.0
488.4
2022
2021
£m
£m
Manufacturer finance arm
286.0
224.7
Third
party stock finance
296.7
262.5
Total inventories
582.7
487.2
Inventories are stated net of any Value Added Tax (VAT) whilst the related creditor is a gross amount. The creditor may
also be higher than the inventory value due to timing of the vehicle sale and payment of the related liability.
When considering vehicle stocks from a funding risk view point we split the funding into that which is funded by the vehicle
manufacturers through their related finance arms and that funded through third party stock finance facilities and bank
borrowings. Financing for stock other than through bank borrowings is shown in trade creditors in the balance sheet. The
maturity analysis on page 167 includes stock finance facilities.
The third party stock facilities have prescribed limits and can be used to fund virtually any vehicle. Any undrawn amount
is therefore directly relatable to the ability of the Group to increase inventory and fund it accordingly. Undrawn third party
stock finance facilities at 31 December 2022 amounted to £65.9m (2021: £73.1m). In contrast, manufacturer limits vary with
the manufacturer’s requirements (depending on the amount of stocks each manufacturer wishes to put into the network,
which varies depending on the time of year and level of production) and are therefore not directly related to the Group’s
liquidity: it is therefore not appropriate to quote an undrawn facility.
The key contractual terms of the facilities (both manufacturer and third party) are:
• The facilities are usually structured as an agency to purchase vehicles on behalf of the funder .
• Those vehicles are immediately sold back to Pendragon on deferred payment terms.
•
Legal title to the vehicles thus remains with the funder as the funder has purchased the vehicles (via the dealer as agent)
and has an unpaid invoice (either in part or in full) outstanding from Pendragon.
•
The unpaid invoice is therefore trade credit and is accounted for as a trade payable in the financial statements.
•
The payment terms for the invoice vary with the type of vehicle:
•
A new vehicle invoice typically requires no upfront deposit payment (a new i.e. unregistered vehicle, does not
depreciate) and remains outstanding for varying periods up to 360 days.
• A used vehicle invoice typically requires an immediate payment of c.10% i.e. so that the effective “loan to value” given
for the vehicle is c.90%. As a used vehicle depreciates with age and mileage, periodic instalment payments might
also be required, for example 2% per month or 10% at day 90.
•
Interest is payable in respect of the unpaid invoice. Most new vehicle invoices from manufacturers have an interest free
period followed by commercial rates of interest. Interest rates from third party stock funders are at a commercial rate
from the start.
Payment of any outstanding amounts is due on the earlier of the sale of the vehicle by Pendragon to a customer, or upon
the expiry of a pre-determined maturity period. The maturity period varies by funder and by type of vehicle but is up to
360 days in respect of new vehicles and 330 days in respect of used vehicles.
Manufacturer facility agreements are tied to the franchise agreement i.e. for as long as the franchise agreement is
operational the manufacturer will provide funding facilities to enable the franchisee to sell the product. Other than that,
the normal provisions regarding immediate termination due to an insolvency event or change of control would apply.
Third party facility agreements are uncommitted and can be terminated immediately upon default or upon written notice
by either party; those notice periods vary by agreement but can be from 30-120 days. In practice, if notice is given, no
new contracts for funding individual vehicles would be entered into by the funding partner and the facility in respect of
each individual vehicle would be paid down over time as normal i.e. on the earlier of the normal maturity of the facility for
a particular vehicle or upon sale of the vehicle to a customer. Despite the uncommitted nature of the agreements, most
relationships with funders are of a long standing nature.
The Group is also responsible for funding the pension deficit. The total financial resources required by the Group to fund
itself at 31 December 2022 comprises:
2022
2021
£m
£m
Net debt
23.3
49.7
Finance lease liabilities
217.9
222.1
Stock finance
582.7
447.8
Pension deficit
2.6
23.6
826.5
743.2
The Board’s policy is to maintain a strong capital base to maintain market confidence and to sustain the development of
the business, whilst maximising the return on capital to the Group’s shareholders. The Group’s strategy will be to maintain
facilities appropriate to the working requirements of the Group and to service its debt requirements through generating
cash flow. At 31 December 2022 the adjusted net debt : underlying EBITDA ratio achieved was 0.1 : 1, calculated as follows:
2022
2021
£m
£m
Underlying operating profit
98.5
116.3
Depreciation
64.7
70.4
Amortisation
4.9
4.2
Underlying EBITDA
168.1
190.9
Adjusted net debt (being net debt as set out in the alternative performance measures
23.3
49.7
in note 1)
Adjusted net debt : underlying EBITDA ratio
0.1
0.3
The key measures which management uses to evaluate the Group's use of its financial resources, and performance achieved
against these in 2022 and 2021 are set out below:
2022
2021
Underlying profit before tax (£m)
57.6
83.0
Underlying earnings per share (p)
3.2
5.0
Net debt : underlying EBITDA
0.1
0.3
The Group’s capital structure and capital allocation priorities were reassessed during 2020 as part of the determination
of the Group's strategy for the next five years. That strategy shall require investment to grow the used car non-franchise
business, to develop Pinewood's offering and to maintain and improve the UK Motor franchise business.
The Group has previously engaged in share buyback programmes though none are currently operating. The Group may
also issue shares or purchase them in the market to satisfy share incentives issued to employees of the Group. The Group
encourages employees to be shareholders of the Group, providing selective share option and LTIP schemes from time to
time.
Certain of the Group’s subsidiaries are required to maintain issued share capital at levels to support capital adequacy under
Financial Conduct Authority (FCA) requirements. The Group ensures these requirements are met by injections of equity to
the subsidiaries in question, when required.
Other than specifically set out above, there were no changes to capital management in the year.
4.3 Net financing costs
Accounting policy
Finance income comprises interest income on funds invested, return on net pension scheme assets and gains on hedging
instruments that are recognised in profit and loss. Interest income is recognised as it accrues in profit and loss, using the
effective rate method.
Finance expense comprises interest expense on borrowings, unwinding of the discount on provisions, interest on net
pension scheme obligations and losses on hedging instruments recognised in profit and loss. All borrowing costs are
recognised in profit and loss using the effective interest method.
Gross finance costs directly attributable to the construction of property, plant and equipment are capitalised as part of the
cost of those assets until such a time as the assets are substantially ready for their intended use or sale.
Finance expense
Recognised in profit and loss
2022
2021
£m
£m
Interest payable on bank borrowings, SFA, Senior note and loan notes
10.8
9.4
Vehicle stocking plan interest
14.7
9.8
Interest payable on leases
14.7
12.6
Costs incurred on refinancing (non-underlying - see note 2.6)
2.6
-
Net interest on pension scheme obligations (non-underlying - see note 2.6)
0.3
1.0
Less: interest capitalised
(0.8)
(0.3)
Total interest expense being interest expense in respect of financial liabili
-
42.3
32.5
ties held at amortised cost
Unwinding of discounts in contract hire residual values
2.5
2.7
Total finance expense
44.8
35.2
Interest of £0.8m has been capitalised during the year on assets under construction at an average rate of 7.47% (2021:
£0.3m).
Finance income
Recognised in profit and loss
2022
2021
£m
£m
Interest
receivable on finance leases
1.0
0.9
Total finance income
1.0
0.9
4.4 Capital and reserves
Ordinary share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects.
Number
£m
Allotted, called up and fully paid shares of 5p each at 31 December 2021 and
1,396,944,405
69.9
31 December 2022
There were no issues of ordinary shares during the year.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the Group. All shares rank equally with regard to the Group’s residual assets.
Capital redemption reserve
The capital redemption reserve has arisen following the purchase by the Group of its own shares and comprises the
amount by which distributable profits were reduced on these transactions in accordance with s733 of the Companies Act
2006. There were no transfers into the capital redemption reserve during the year in respect of shares purchased by the
Group and subsequently cancelled (2021: £nil).
Other reserves
Other reserves comprise the amount of demerger reserve arising on the demerger of the Group from Williams Holdings
PLC in 1989.
Own shares held by Employee Benefit Trust (EBT)
Transactions of the Group-sponsored EBT are included in the Group financial statements. In particular, the trust’s
purchases of shares in the Group, which are classified as own shares, are debited directly to equity through retained
earnings. When own shares are sold or reissued the resulting surplus or deficit on the transaction is also recognised within
retained earnings.
The market value of the investment in the Group's own shares at 31 December 2022 was £0.3m (2021: £1.3m), being
1.5m (2021: 5.8m) shares with a nominal value of 5p each, acquired at an average cost of £0.24 each (2021: £0.33). The
trustee of the EBT is Salamanca Group Trust (Jersey) Limited. The shares in trust may subsequently be awarded to
Executive Directors and employees under the Pendragon 1999 Approved Executive Share Option Scheme, Pendragon
1999 Unapproved Executive Share Option Scheme and to satisfy amounts under LTIPs. Details of the plans are given in the
Directors' Remuneration Report on pages 77 to 95..
Dividends on the shares owned by the trust, the purchase of which were funded by interest free loans to the trust from
Pendragon PLC, are waived. All expenses incurred by the trust are settled directly by Pendragon PLC and charged in the
accounts as incurred.
The trust is regarded as a quasi subsidiary and its assets and results are consolidated into the financial statements of the
Group.
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the net investment
in foreign operations as well as from the translation of liabilities held to hedge the respective net investment in foreign
operations.
4.5 Dividends
The Board is not recommending the payment of a final dividend for 2022 (2021: nil).
4.6 Share based compensation
Accounting policy
The Group operates a number of employee share option schemes and an executive share ownership plan 'exsop' awarded
in 2010. The fair value at the date at which the share options are granted is recognised in the income statement on a
straight line basis over the vesting period, taking into account the number of options that are expected to vest. The fair
value of the options granted is measured using an option pricing model, taking into account the terms and conditions
upon which the options were granted. The number of options that are expected to become exercisable is reviewed at each
balance sheet date and if necessary estimates are revised.
Executive share options
The number and weighted average exercise prices of share options is as follows:
Weighted
Number
Weighted
Number
average
of
average
of
exercise
options
exercise
options
price
millions
price
millions
2022
2022
2021
2021
Outstanding at beginning of period
24.0p
3.8
24.0p
4.6
Exercised during the period
13.5p
(0.5)
8.8p
(0.6)
Lapsed during the period
13.5p
(0.5)
8.8p
(0.2)
Outstanding at the end of the period
31.8p
2.8
24.0p
3.8
Exercisable at the end of the period
31.8p
2.8
27.0p
3.8
The options outstanding at 31 December 2022 have an exercise price of 31.82p and a weighted contractual life of 1.7 years.
All share options are settled in equity.
Movements in the number of options to acquire ordinary shares under the Group's various share option schemes, together
with exercise prices and the outstanding position at 31 December 2022 were as follows:
At 31
At 31
Exercise
December
December
price per
2021
Exercised
Lapsed
2022
Exercise period
Date of grant
share
Number
Number
Number
Number
31 March 2015 to 30 March 2022
30 March 2012
13.50p
1,000,000
(500,000)
(500,000)
-
19 September 2017 to 19 September 2024
18 September 2014
31.82p
2,829,500
-
-
2,829,500
3,829,500
(500,000)
(500,000)
2,829,500
All grants of share options were issued pursuant to the 2009 Executive Share Option Scheme, which prescribed an earnings
per share performance criterion. It is a precondition to the exercise of grants made under the 2009 Scheme that the growth
in the Group's earnings per share over the prescribed three year period must exceed by at least 3 percent per annum
compound the annual rate of inflation as shown by the RPI Index.
The weighted average share price at the date of exercise for share options exercised in the year was 27.50p (2021:
17.68p).
All options are settled by physical delivery of shares.
The fair value of the services received in return for share options is measured by reference to the fair value of the options
granted. The estimate of the fair value of the services received in respect of share option schemes is measured using the
Black-Scholes option pricing model. The weighted average fair value of the options at the date of grant for those that are
outstanding at 31 December 2022 is 7.7p (2021: 6.4p).
Executive Long Term Incentive Plan (“LTIPs”)
The number and weighted average exercise prices of executive LTIPs is as follows:
Weighted
Number
Weighted
Number
average
of
average
of
exercise
options
exercise
options
price
millions
price
millions
2022
2022
2021
2021
Outstanding at the start of the period
0.00p
44.1
0.00p
27.6
Granted during the period
0.00p
12.3
0.00p
16.5
Outstanding at the end of the period
0.00p
56.4
0.00p
44.1
Movements in the number of options to acquire ordinary shares under the Group's LTIP, together with the outstanding
position at 31 December 2022 were as follows:
At 31
At 31
December
December
2021
Granted
2022
Exercise period
Date of grant
Number
Number
Number
27 October 2023
28 October 2020
27,648,123
-
27,648,123
12 July 2024
13 July 2021
16,506,004
-
16,506,004
13 August 2025
14 August 2022
-
19,562,808
19,562,808
44,154,127
19,562,808
63,716,935
All grants of LTIPs were issued pursuant to the Long Term Incentive Plan. Vesting of the 2020 and 2021 Awards under the
LTIP is subject to the satisfaction of certain performance conditions, 50% of which is based on achieving a defined earnings
per share target over a defined performance period, commencing on the grant date and measured at the respective year
end, with the remaining 50% based on the achievement of certain qualitative strategic performance metrics aligned to
the Company’s strategic milestones as set out in the Company’s Group Strategy Investor Presentation (available at www.
pendragonplc.com). For both the 2020 and 2021 LTIP, the Remuneration Committee concluded that the performance
conditions had been satisfied in full in terms of the EPS metric, and the Company had delivered significantly on stretching
strategic targets for 2021, such that both plans would vest at 91.6% in October 2023 and July 2024 respectively.
For awards made in August 2022, the performance metrics applicable were (i) achieving a defined earnings per share
target over a three year performance period, commencing on 01 January 2022 and measured at year end 2024, namely
achieving a target EPS derived from a mix of the most recently available analyst/broker consensus published at or around
the time of making the award and our business plan of 4.0p at target by year end 2024 (70% weighting); (ii) achieving an
overall reduction in carbon emissions of 5% at target by 2024 (5% weighting); (iii) deliver a year end 2024 gross profit of
£180m in used cars at target (15% weighting) and (iv) deliver revenue of £30m by year end 2024 in Pinewood at target
(10% weighting).
If the performance conditions are not satisfied, none of the LTIP award shares will vest.
Executive bonuses relating to performance in 2020 were granted in the form of deferred share awards that have vested
one year after grant date. They automatically convert into one ordinary share each on vesting at an exercise price of nil.
The executives do not receive any dividends and are not entitled to vote in relation to the deferred shares during the
vesting period.
The fair value at the date at which the share options are granted is recognised in the income statement on a straight line
basis over the vesting period, taking into account the number of options that are expected to vest. The number of options
that are expected to become exercisable is reviewed at each balance sheet date and if necessary estimates are revised. The
fair value of the services received in return for the LTIPs is measured by reference to the fair value of the LTIPs granted.
The estimate of the fair value of the services received in respect of the LTIPs is measured using the Black-Scholes option
pricing model.
The weighted average fair value of the options at the date of grant for those that are outstanding at 31
December 2022 is 14.08p (2021: 14.08p).
Executive LTIP Scheme
2022
2021
Number of share options granted in year
19,562,808
16,506,004
Weighted average share price (pence)
0.00
0.00
Weighted average exercise price (pence)
0.00
0.00
Weighted average fair value (pence)
23.72
19.09
Expected volatility (%)
50.6%
48.9%
Expected life (years)
3.0
3.0
Risk free rate (%)
358.3%
69.3%
Expected dividend yield (%)
0.0%
0.0%
Expected volatility was determined by calculating the historical volatility of the Group's share price over the corresponding
historical period.
The expected life used in the model has been adjusted, based on management's best estimate, for the
effects of exercise restrictions and associate turnover.
Income statement
The Group recognised a total net expense of £3.3m (2021: £2.9m) as an employee benefit cost in respect of all equity-
settled share based payment transactions included within administration costs.
4.7 Leases
Accounting policies
Leases as a Lessee
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease
if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a
lease in IFRS 16. This policy is applied to contracts entered into, on or after 1 January 2019.
The Group recognises a right of use asset and a lease liability at the lease commencement date. The right of use asset is
initially measured at cost, and subsequently at cost less accumulated depreciation and impairment losses, and adjusted for
certain remeasurements of the lease liability. Cost comprises the initial amount of the lease liability adjusted for any initial
direct costs incurred less any lease incentives received. Depreciation is recognised on a straight line basis over the period
of the lease the right of use asset is expected to be utilised.
The lease liability is initially measured at the present value of lease payments that are not paid at the commencement
date, discounted by the interest rate implicit in the lease or when this is not readily attainable, the Group’s incremental
borrowing rate. Lease payments include fixed rental payments and amounts expected to be payable under a residual
value guarantee. Generally the Group uses its incremental borrowing rate as the discount rate. The Group determines
its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain
adjustments to reflect the terms of the lease and type of the asset leased.
The lease liability is subsequently increased by the interest cost on the lease liability and reduced by payments made. It is
remeasured when there is a change in future lease payments arising from a change of index or rate, a variation in amounts
payable following contractual rent reviews and changes in the assessment of whether an extension/termination option is
reasonably certain to be exercised. When the lease liability is remeasured in this way, a corresponding adjustment is made
to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use
asset has been reduced to zero.
Sale and leaseback transactions. When a transfer of an asset is made and it is deemed a sale in accordance with IFRS 15,
the resulting right-of-use asset arising from the leaseback is measured at the proportion of the previous carrying amount
of the asset that relates to the right of use retained by the seller/lessee. Gain or loss is recognised only at the amount that
relates to the rights transferred to the buyer/lessor.
The Group presents right-of-use assets that do not meet the definition of investment property in ‘property, plant and
equipment’ and lease liabilities in ‘loans and borrowings’ in the Balance Sheet.
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-
term leases. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis
over the lease term.
Balance Sheet
The Group leases a large number of properties for use as motor vehicle dealerships, parts distribution warehouses, storage
compounds and offices. Lease terms vary and at 31 December 2022 property leases had an average of around 12.4 years
to expiry.
These leases comprise those with provision for periodic rent reviews, fixed scheduled increases and those
with periodic increases based on the RPI. The Group does not have any property leases that contain extension clauses. A
number of property leases have break clauses allowing the Group to terminate the agreement earlier than the lease expiry
date. The Group has applied judgement in that unless it is reasonably certain that such a break option will be exercised, the
calculation of the lease liability and right of use asset is made up to the expiry date of the lease. Had the Group recognised a
shorter lease term then right of use assets and lease liabilities would both be lower than currently reported and the interest
expense for the current year on lease liabilities would be reduced with the possibility depreciation charges could increase.
In addition to property leases the Group have leases for various items of plant and equipment and motor vehicles.
Right of use assets are presented as part of property, plant and equipment as presented in note 3.2.
Land &
Motor
Right of Use Assets
buildings
vehicles
Total
£m
£m
£m
Balance at 1 January 2021
145.6
0.4
146.0
Additions to right of use assets
8.7
0.1
8.8
Reinstated from assets held for sale as part of a disposal group
5.0
-
5.0
Depreciation charge
(18.1)
(0.4)
(18.5)
Impairment
(9.6)
-
(9.6)
Disposals of right of use assets
(5.2)
-
(5.2)
Balance at 31 December 2021
126.4
0.1
126.5
Balance at 1 January 2022
126.4
0.1
126.5
Additions to right of use assets
22.5
-
22.5
Depreciation charge
(15.1)
(0.1)
(15.2)
Impairment
(0.2)
-
(0.2)
Disposals of right of use assets
(3.1)
-
(3.1)
Balance at 31 December 2022
130.5
-
130.5
Disposals of right of use assets have occurred on assignment of leases, derecognition on entering into sub leases and early
terminations.
Lease liabilities
Included within
liabilities
associated with
Land &
Motor
the assets held
buildings
vehicles
Total
for sale
£m
£m
£m
£m
Balance at 1 January 2021
(242.7)
(0.5)
(243.2)
(30.6)
Additions to right of use assets
(8.7)
(0.1)
(8.8)
-
Additions to lease receivables
(0.4)
-
(0.4)
-
Interest expense related to lease liabilities
(12.5)
-
(12.5)
(0.1)
Disposals of lease liabilities on sale of business
-
-
-
27.8
Other disposals of lease liabilities
5.8
-
5.8
-
Reinstated from liabilities held for sale as part of a disposal group
(2.5)
-
(2.5)
2.5
Repayment of lease liabilities (including interest element)
38.9
0.5
39.4
0.4
Exchange adjustments
0.2
-
0.2
-
Other movements
(0.1)
-
(0.1)
-
Balance at 31 December 2021
(222.0)
(0.1)
(222.1)
-
Non-current
(195.4)
-
(195.4)
Current
(26.6)
(0.1)
(26.7)
Balance at 31 December 2021
(222.0)
(0.1)
(222.1)
Balance at 1 January 2022
(222.0)
(0.1)
(222.1)
Additions to right of use assets
(34.9)
-
(34.9)
Additions to lease receivables
(0.4)
-
(0.4)
Interest expense related to lease liabilities
(14.7)
-
(14.7)
Disposals of lease liabilities
17.6
-
17.6
Repayment of lease liabilities (including interest element)
36.8
0.1
36.9
Exchange adjustments
(0.1)
-
(0.1)
Other movements
(0.2)
-
(0.2)
Balance at 31 December 2022
(217.9)
-
(217.9)
Non-current
(197.9)
-
(197.9)
Current
(20.0)
-
(20.0)
Balance at 31 December 2022
(217.9)
-
(217.9)
During the year a lease regear was undertaken with our largest property partner in which 30 prime leaseholds were extended
until 2042 with the Group benefitting from reductions in rent payable from the agreement to hand-back 12 vacant properties
to the landlord in exchange for the lease extensions. The extensions were deemed lease modifications in light of the increased
duration with all other terms of the leases remaining unchanged. An updated discount rate appropriate to these modified
leases was applied in determining the increased liability and right of use asset. The 12 leases terminated had a lease liability
of £16.8m in respect of right of use assets of £0.7m and finance lease receivables of £1.1m, giving an overall net liability at
the time of the transaction of £15.0m, which, because the extensions were considered to subsidise the terminations, has
been recognised as a lease incentive and as such a reduction in the value of the 30 extended right of use assets. In respect
of the tables above this transaction resulted in additions to right of use assets of £16.5m (after deduction of the £15.0m
lease incentive and including £2.6m of additional costs incurred), disposals of right of use assets of £0.7m, disposals of
finance lease receivables of £1.1m, disposals of lease liabilities of £16.8m and an addition of a lease liability of £28.9m.
The calculation of the lease liability and the right of use asset relies upon the estimation of a suitable interest rate.
The
Group has applied rates to represent the different types of leases it has by applying its incremental borrowing rate for
shorter term leases and a higher rates based upon market rates for borrowing against equivalent assets with similar risk
profiles in specific markets for medium to longer term leases.
Future increases in rentals linked to an index or rate are not included in the lease liability until the change in cash flows
takes effect. Approximately 69.0% (2021: 69.5%) of the Group’s lease liabilities are subject to inflation linked rentals. Rental
changes linked to inflation or rent reviews typically occur on an annual basis and are subject to caps. Remeasurement
adjustments in respect of these increases are included in additions to right of use assets and lease liabilities in the tables
above.
Other future possible cash outflows not included in the lease liability include the payment of dilapidations in respect of
properties where the lease contains specific condition of return clauses. Whilst the Group endeavours to maintain its
properties to a high standard it is likely that such payments will be made in the future when lease contracts end.
Amounts recognised in profit or loss
2022
2021
£m
£m
Depreciation of right of use assets
15.2
18.5
Impairment of right of use assets (non-underlying)
0.2
9.6
Gains on the dispoal, termination and assignment of leases
(non-underlying) (included
0.6
1.5
in Other income - gains on the sale of businesses and property, plant and equipment)
Interest on lease liabilities
14.7
12.6
Expense relating to variable lease payments not included in lease liabilities
0.1
0.1
Expenses relating to low value leases
0.7
0.1
Expenses relating to short term leases
6.5
1.1
Expenses relating to variable lease payments not included in lease liabilities relate to the payment of dilapidation claims
made on properties.
The Group as lessor
Leases as a Lessor
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating
lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks
and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then
it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for
the major part of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It
assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with
reference to the underlying asset.
Where the Group acts as a Lessor of an operating lease, receipts of lease payments are recognised in the income statement
on a straight line basis over the period of the lease. Where the Group acts as a Lessor of a finance lease the Group will,
rather than recognise a right of use asset, recognise a finance lease receivable, this being the present value of future lease
receipts discounted at the interest rate implicit in the lease or if this is not specified the Group's incremental borrowing
rate. The finance lease receivable will be increased by the interest received and reduced by payments made by the lessee.
Balance Sheet
Lease receivables
2022
2021
Land and buildings
£m
£m
Balance at 1 January
17.6
18.6
Additions to lease receivables
2.6
2.7
Interest income related to lease receivables
1.0
0.9
Disposals of lease liabilities
(1.0)
(1.5)
Payment of lease receivables (including interest element)
(3.0)
(3.1)
Balance at 31 December
17.2
17.6
Non-current
14.8
15.5
Current
2.4
2.1
17.2
17.6
The following table sets out a maturity analysis of lease payments receivable, showing the undiscounted lease payments
to be received after the reporting date:
2022
2021
£m
£m
Less than one year
3.3
3.0
Between one and two years
3.1
3.0
Between two and three years
2.5
2.9
Between three and four years
2.3
2.2
Between four and five years
2.3
2.0
More than five years
8.0
9.5
Total undiscounted lease receivable
21.5
22.6
Unearned finance income
(4.3)
(5.0)
17.2
17.6
At the 31 December 2022 balance sheet date, the Group had contracted with tenants for the following future minimum
lease payments on leases classified as operating leases.
2022
2021
Property
Property
£m
£m
Less than one year
2.4
2.2
Between one and two years
2.3
1.9
Between two and three years
2.2
1.9
Between three and four years
1.8
1.8
Between four and five years
1.1
1.8
More than five years
2.8
4.5
12.6
14.1
The Group has no properties that are treated as investment properties.
Amounts recognised in profit or loss
2022
2021
£m
£m
Operating lease rentals received
2.9
1.8
Interest received on finance lease receivables
1.0
0.9
3.9
2.7
SECTION 5 - PENSION SCHEMES
This section explains the pension scheme obligations of the Group.
5.1 Pension obligations
Accounting policy
The Group operated a number of defined benefit and defined contribution plans during the year. The assets of the defined
benefit plan and one defined contribution plan are held in independent trustee administered funds. The Group also operates
a Group Personal Pension Plan which is a defined contribution plan where the assets are held by the insurance Group under
a contract with each individual.
Defined contribution plans - A defined contribution plan is one under which the Group pays fixed contributions and has
no legal or constructive obligation to pay further amounts. Therefore, no assets or liabilities of these plans are recorded
in these financial statements. Obligations for contributions to defined contribution pension plans are recognised as an
employee benefit expense in the income statement when they are due.
Defined benefit plans - Pension accounting costs for defined benefit plans are assessed by determining the pension
obligation using the projected unit credit method after including a net return on the plan assets. Under this method, in
accordance with the advice of qualified actuaries, the amounts charged in respect of employee benefits reflect the cost of
benefits accruing in the year and the cost of financing historical accrued benefits. The Group recognises all actuarial gains
and losses arising from defined benefit plans in the statement of other comprehensive income immediately.
The present value of pension obligations is measured by reference to market yields on high quality corporate bonds
which have terms to maturity approximating to the terms of the related pension liability. Plan assets are measured at fair
value. When the calculation results in a benefit to the Group, the recognised asset is limited to the total of the present
value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions
to the plan. An economic benefit is available to the Group if it is realisable during the life of the plan, or on settlement of
the plan liabilities.
Under IAS 19 Employee Benefits, the Group recognises an interest expense or income which is calculated on the net
defined benefit liability or asset respectively by applying the discount rate to the net defined benefit liability or asset.
Remeasurements arising from defined benefit plans comprise actuarial gains and losses and the return on plan assets
(excluding interest) are immediately recognised directly in the statement of other comprehensive income. Actuarial
gains and losses are the differences between actual and interest income during the year, experience losses on scheme
liabilities and the impact of any changes in assumptions. Details of the last independent statutory actuarial valuation and
assumptions are set out below.
Pension arrangements
The Group operated six defined benefit pension schemes (one of which had a defined contribution section) which closed
to new members and accrual of future benefits on 30 September 2006 and a defined contribution scheme which was
closed to new contributions from April 2006. All affected employees were offered membership of a defined contribution
pension arrangement with Friends Provident. A Group Personal Pension arrangement with Legal & General replaced the
Friends Provident arrangement from 1 January 2010. Total contributions paid by the Group in 2021 to the Legal & General
arrangement were £4.7m (2021: £3.0m). To comply with the Government’s automatic enrolment legislation, the Group
chose to participate in the People’s Pension Scheme in April 2013. This is a defined contribution occupational pension
scheme provided by B&CE. Total contributions paid by the Group to the People’s Pension in 2022 were £6.0m (2021:
£4.2m). The combined contributions to the Group's Personal Pension arrangement and the Peoples Pension scheme
therefore totalled £10.7m in the period (2021: £7.2m).
During 2012 the Trustees merged the six defined benefit schemes into one new defined benefit scheme, ‘the Pendragon
Group Pension Scheme’, which remains closed to new members and accrual of future benefits. The assets of the six
schemes have all been transferred into the new scheme and the benefits previously accrued in the six schemes were
transferred without amendment of the benefit entitlement of members to the new scheme.
The scheme is subject to the funding legislation outlined in the Pensions Act 2004 which came into force on 30 December
2005. This, together with documents issued by the Pensions Regulator, and Guidance Notes adopted by the Financial
Reporting Council, set out the framework for funding defined benefit occupational pension schemes in the UK.
The Board of the Trustees of the pension scheme is currently composed of two member nominated trustees (i.e. members
of the pension scheme nominated by other members to be trustees), two employer representatives and a professional
independent trustee, who became chair during 2018. The Trustee of the scheme is required to act in the best interest of the
scheme’s beneficiaries. The appointment of the Trustee is determined by the scheme’s trust documentation.
Under IAS 24, the pension schemes are related parties of the Group. At 31 December 2022 there was an outstanding
balance of £0.9m (2021: £0.9m)
Funding
The Pendragon Group Pension Scheme is fully funded by the Group’s subsidiaries. The funding requirements are based on
the Scheme’s actuarial measurement framework set out in the funding policies of the Scheme. Employees are not required
to contribute to the plans.
Explanation of the Pension Deficit
The liability to pay future pensions is a liability to settle a stream of future cashflows. These future cashflows have the
following profile:
30
25
Annual Payment £m
20
15
10
5
0
2030
2040
2050
2060
2070
2080
2090
2100
2110
2120
Deferreds
Pensioners
Expenses
'Deferred' are those pension scheme members not yet drawing a pension as at 31 December 2022; 'Pensioners' are those
in receipt of pension at 31 December 2022.
The actual total cash liabilities shown above are estimated at £766m. The value of these liabilities discounted to present
value at 31 December 2022 are £368.9m.
In order to meet those future cashflows, the Pension Scheme has to grow its assets sufficient to settle those liabilities. The
risk of the future value of those assets is dependent on the financial return; the liabilities will change dependent on the
rate of inflation (as most pensions are inflation adjusted) and longevity (how long the pensioner lives for and therefore
in receipt of pension). The pension deficit is the gap between those assets and liabilities and can be calculated in one of
two ways, both of which are arithmetically identical: either forecast future assets at the asset growth rate to offset against
actual liabilities or discount future liabilities by the asset growth rate and compare with the present value of the assets. The
latter method is the one commonly adopted and accounting standards require that the asset growth rate (the discount
rate) should be estimated on a similar basis for every Group, to enhance comparability and to assume a relatively low level
of risk. The more realistic picture is provided by the actuarial valuation which considers what the prudent estimate of the
asset growth rate should be and hence what the gap is that the Group will be required to fund through cash contributions.
These actuarial valuations are conducted every three years (the triennial valuation). The last triennial valuation was
conducted as at 31 December 2021 giving the following comparison:
As at 31 December 2021
IAS 19
Actuarial
(Accounts)
valuation
£m
£m
Assets
545.6
545.6
Liabilities
(569.2)
(578.7)
Pension
deficit
(23.6)
(33.1)
At each term p.a.
Nominal Gilt
Discount rate used
1.80%
Yield + 0.75%
Gilt inflation
RPI inflation
3.50%
curve
Gilt inflation
curve less
CPI inflation
3.00%
0.70% to 2020,
no adjustment
thereafter
The triennial valuation of the pension scheme reflecting the position as at 31 December 2021 was agreed by the Trustees
on 2 November 2022. The Group has agreed with the trustees that it will aim to eliminate the deficit over a period of
2 years from December 2021 until December 2023 by the payment of deficit recovery contributions of £13.06m each
year, increasing at 2.25% p.a. These contributions include the expected quarterly distributions from the Central Asset
Reserve (CAR) over the recovery period. Recognising that both the Trustee and the Group aim to achieve full funding
on a long term funding target, contributions will continue beyond 31 December 2023, but only in respect of the quarterly
distributions from the CAR. On this basis, contributions will reduce to £3.45m p.a. from 1 January 2024, increasing at a rate
of 2.25% p.a, and will be paid until 31 December 2026.
The next triennial valuation of the pension scheme will reflect the
position as at 31 December 2024.
Central Asset Reserve
Pendragon PLC is a general partner and the Pendragon Group Pension Scheme is a limited partner of the Pendragon
Scottish Limited Partnership (the Partnership). The Partnership holds properties with a book value of £45.1m (with a most
recent market valuation of £47.1m), which have been leased back to the Group at market rates. The Group retains control
over these properties, including the flexibility to substitute alternative properties. As such, the Partnership is consolidated
into the results of the Group. During the year the Group has paid £3.2m to the Pendragon Group Pension Scheme through
the Partnership (2021: £3.1m) and this will increase by 2.25% on 1 August each year until the leases expire on 31 July 2031.
These payments could cease in advance of that date if the Pension Scheme’s actuarial valuation reaches a point where
there is a surplus of 5% over the liability value (on the actuarial triennial valuation basis). The Pension Scheme therefore
has a right to receive a future stream of rental receipts. No asset is recognised in these financial statements as the Group
has to consent to any proposed disposal of this asset by the Pension Scheme. However, if the Group became insolvent the
properties themselves would be retained by the Pension Scheme.
IAS 19 assumptions
The assumptions used by the actuary in performing the triennial valuation at 31 December 2021 include an element of
caution and are chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not
necessarily be borne out in practice. The IAS assumptions have been updated at 31 December 2022 and differ from those
used for the earlier independent statutory actuarial valuations explained above.
The principal assumptions used by the independent qualified actuaries for the purposes of IAS 19 for all schemes were:
2022
2021
Inflation - RPI
3.25%
3.50%
Inflation - CPI
2.85%
3.00%
Discount rate
5.00%
1.80%
111% of the standard tables S3PMA/
VitaCurves CMI 2020 M/F
Mortality table assumption *
S3PFA_M, Year of birth, no age rat
-
(1.25%)
ing projected using CMI_2021 (1.25%)
*The mortality table assumption implies the following expected future lifetime from age 65:
2022
2021
Years
Years
Males aged 45
22.7
22.6
Females aged 45
24.7
24.8
Males aged 65
21.4
21.3
Females aged 65
23.2
23.2
No adjustments have been made to mortality assumptions at the year end to reflect the potential effects of Covid-19 as the
actual plan experience is not yet available and it is to soon to make a judgement on the impact of the pandemic on future
mortality improvements.
During 2010 the Government announced a change to the index to be used for pension increases from RPI to CPI. The
change applied to certain elements of pension increases depending on the nature of the pension entitlement, the period in
which it was earned and the rules of each scheme. The application of either RPI or CPI to calculate the pension liability has
been assessed for each scheme and the relevant elements of pension increases within each scheme.
The outcome of the formal consultation on the proposed changes to RPI was announced on 25 November 2020 and
confirmed that RPI will match CPI including Housing (CPIH) from 2030.
On balance, it is reasonable to assume that RPI
reform is priced into the market implied RPI curve and therefore, as last year, the assumption makes no change to the base
derivation of the break-even RPI assumption, other than a general allowance for the inflation risk premium of 0.2% within
the inflation curve.
At present there is no reliable indicator for market expectations of CPI inflation.
Therefore typical market practice is to
make an adjustment to the RPI assumption which takes into account the expected difference between the two inflation
measures.
The RPI/CPI gap of 0.40% p.a. (2021: 0.50% p.a.) broadly reflects an average of a long term assumed gap of
1.0% p.a. before 2030 and 0% thereafter, suitably weighted to reflect the scheme’s exposure to CPI liabilities.
The sensitivities regarding the principal assumptions used to measure scheme liabilities are set out below. The Group
regards these sensitivities as reasonably likely to occur.
Assumption
Change in assumption
Impact on scheme liabilities
Discount rate
Increase/decrease by 1.00%
Decrease of 10.9%/increase of 13.2%
Rate of inflation
Increase/decrease by 0.25%
Increase of 1.2%/decrease of 1.5%
Mortality
Increase in life expectancy of 1 year
Increase by 2.9%
The sensitivities shown above are approximate.
The discount rate sensititity has been set at 1.00% for 2022 to reflect
current market uncertainty.. Each sensitivity considers one change in isolation. The inflation sensitivity includes the impact
of changes to the assumptions for revaluation and pension increases. The average duration of the defined benefit obligation
at the period ending 31 December 2022 is 14 years (2021: 16 years).
The scheme typically exposes the Group to actuarial risks such as investment risk in assets (the return and gain or loss
on assets invested in), inflation risk (as pensions typically rise in line with inflation) and mortality risk (the length of time a
pensioner lives for) in respect of liabilities. As the accounting deficit is calculated by reference to a discount rate linked to
corporate bonds then the Group is also exposed to interest rate risk i.e. the discounted value of liabilities will rise or fall in
line with changes in the interest rate used to calculate (discount) the future pension liabilities to present value. A decrease
in corporate bond yields, a rise in inflation or an increase in life expectancy would result in an increase to scheme liabilities.
This would detrimentally impact the balance sheet position and may give rise to increased charges in future income
statements. This effect could be partially offset by an increase in the value of the scheme’s assets. In order to further
mitigate risk, the scheme’s investment strategy operates within a framework known as Liability Driven Investments (‘LDI’)
i.e. the scheme invests in a mix of assets that are broadly expected to match the expected movement in the net present
value of liabilities. This is achieved by investing in assets that are broadly expected to hedge the underlying inflation and
interest rate risks of 100% of the liabilities. The nature of the products available for liability driven investing mean that a
greater proportion of the scheme’s assets can be used to invest in assets that are expected to have a higher growth rate
than low risk assets. The scheme's assets can therefore be broadly subdivided into two categories: return -seeking assets
which aim to achieve a level of growth to reduce the deficit and "protection seeking" assets, which comprise the LDI
assets held to mitigate the changes in liabilities. There is further diversification within these individual categories, as further
described below, and a strategy to "de-risk" assets when certain pre-defined benchmarks are met: in this way the Scheme
disinvests from assets with more risk into assets with lower risk.
The fair value of the scheme’s assets which are not intended to be realised in the short term and may be subject to
significant change before they are realised, and the value of the schemes liabilities, which is derived from cash flow
projections over long periods and thus inherently uncertain, are:
Scheme assets and liabilities
2022
2021
£m
£m
Global equities
31.0
81.0
Credit funds
134.9
182.8
Private markets
69.0
92.8
Liability driven investments
86.3
106.7
Diversified growth fund
20.7
52.0
Cash
24.4
30.3
Fair value of scheme assets
366.3
545.6
Present value of funded defined benefit obligations
(368.9)
(569.2)
Net liability on the balance sheet
(2.6)
(23.6)
In addition to the assets and liabilities set out above there are a small number of insurance policies (with a value of £4.4m at
the last triennial valuation date of 31 December 2021) purchased to pay annuities to 70 pensioners. These policies represent
both an asset and liability of the scheme and therefore have no impact on the net deficit position.
None of the fair values of the assets shown above include any of the Group’s own financial instruments or any property
occupied by, or other assets used by, the Group.
All of the assets are held within pooled investment vehicles (where cash is invested in a quoted fund designed by the fund
manager).
Investment
risk
The pension scheme has exposure to a number of risks:
Credit risk: this is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to
discharge an obligation.
Currency risk: this is the risk that the fair value or future cash flows of a financial asset will fluctuate because of changes in
foreign exchange rates.
Interest rate risk: this is the risk that the fair value or future cash flows of a financial asset will fluctuate because of changes
in market interest rates.
Other price risk: this is the risk that the fair value of future cash flows of a financial asset will fluctuate because of changes
in market prices (other than those arising from interest rate risk or currency risk).
Credit risk
The Scheme is subject to credit risk as it has credit fund exposure and has cash balances. The Scheme invests in pooled
investment vehicles and is therefore directly exposed to credit risk in relation to the holdings in the pooled investment
vehicles, and is indirectly exposed to credit risks arising on the financial instruments that make up the pooled investment
vehicles.
Direct credit risk arising from pooled investment vehicles is mitigated by the underlying assets of the pooled arrangements
being ring-fenced from the pooled manager, the regulatory environments in which the pooled managers operate and
diversification of investments amongst a number of pooled arrangements.
Currency risk
The Scheme’s liabilities are denominated in sterling. The Scheme is exposed to currency risk because some of its investments
are held in overseas markets. For example, the Scheme invests in pooled funds that hold overseas equities, global credit
and also funds where the manager has discretion to hold overseas assets. The respective fund managers hedge all, or a
proportion of,
these risks back to sterling.
Interest rate risk and other price risk
The Scheme is subject to interest rate risk on the investments comprising of bonds and cash held through pooled vehicles
and other price risk arises principally in relation to the Scheme’s return-seeking portfolio which includes equities held in
pooled investment vehicles. The Scheme manages this exposure to other price risk by constructing a diverse portfolio of
investments across various markets.
Fair value determination
The fair value of financial instruments has been determined using the following fair value hierarchy:
Level 1: The unadjusted quoted price in an active market for identical assets or liabilities which the entity can access at the
measurement date
Level 2: Inputs other than quoted prices included within Level 1 which are observable (i.e. developed using market data)
for the asset or liability, either directly or indirectly
Level 3: Inputs which are unobservable (i.e. for which market data is unavailable) for the asset or liability
A summary of the risks and the fair value determination is set out in the table below
Interest
Other
rate risk
price risk
Other
Level 1
Level 2
Level 3
£m
£m
£m
£m
£m
£m
LDI and cash
110.7
-
-
24.4
86.3
-
Credit funds
134.9
-
-
-
134.9
-
Equity
31.0
-
-
31.0
-
Private markets
-
69.0
-
45.6
23.4
DGF
-
20.7
-
20.7
-
245.6
31.0
89.7
24.4
318.5
23.4
Being:
Indirect - Bonds
221.2
-
-
-
221.2
-
Indirect - Cash
24.4
-
-
24.4
-
-
Indirect - equities
-
31.0
-
-
31.0
-
Indirect - multi-asset
-
-
89.7
-
66.3
23.4
245.6
31.0
89.7
24.4
318.5
23.4
No specific risk is assigned to investment held in multi asset pooled investment vehicles, as they are multi asset by
definition, and therefore the asset allocations within these funds, and the associated risk theron, change frequently.
The Private markets investments have a level 3 valuation as they comprise investments in one fund invested in property.
It is the policy of the Trustee and the Group to review the investment strategy at the time of each funding valuation and
keep this under review. The Trustee investment objectives and the processes undertaken to measure and manage the risks
inherent in the scheme investment strategy are documented in the scheme’s Statement of Investment Principles.
The Group has reviewed implications of the guidance provided by IFRIC 14 and have concluded that it is not necessary
to make any adjustments to the IAS 19 figures in respect of an asset ceiling or Minimum Funding Requirement as at 31
December 2022 and at 31 December 2021.
The Trust Deed provides Pendragon with an unconditional right to a refund of surplus assets assuming the full settlement
of plan liabilities in the event of a plan wind-up. Based on this right, any net surplus in the UK scheme is recognised in
full.
Movements in the net liability for defined benefit obligations recognised in the balance sheet
2022
2021
£m
£m
Net liability for defined benefit obligations at 1 January
(23.6)
(75.5)
Contributions received
13.1
12.8
Expense recognised in the income statement
(0.3)
(1.0)
Actuarial gains and losses recognised in the statement of other comprehensive income
8.2
40.1
Net liability for defined benefit obligations at 31 December
(2.6)
(23.6)
The defined benefit obligation can be allocated to the plan’s participants as follows:
2022
2021
%
%
Deferred plan participants
51
58
Retirees
49
42
2022
2021
£m
£m
Actual return on assets
28.3
28.3
Expected contributions in following year
13.1
13.1
Total in the income statement
2022
2021
£m
£m
Net interest on obligation
0.3
1.0
The expense is recognised in the following line items in the income statement:
2022
2021
£m
£m
Finance costs
0.3
1.0
The expected discount rate as at 31 December 2022 was 5.00%. This compares to the discount rate of 1.80% used in the
calculation of the interest income for the period ending 31 December 2021.
Based on the reported deficit of £2.6m at 31 December 2022 and the discount rate assumption of 5.00% the charge in 2023
is expected to be £0.1m.
Past service costs
The High Court ruling in the Lloyds Banking Group Pension Trustees Limited v Lloyds Bank plc and others published in
October 2018 held that UK pension schemes with Guaranteed Minimum Pensions (GMPs) accrued from 17 May 1990 must
equalise for the different effects of these GMPs between men and women. Allowance was made in the benefit obligations
at 31 December 2018 for the estimated impact, with a cost recorded as a benefit change in the Income Statement. The
Trustees and Company have yet to implement GMP equalisation and there is no new evidence. Therefore, the previous
GMP equalisation allowance has been retained but adjusted for the passage of time and to reflect the estimated impact of
changes in market conditions.
A further High Court ruling on 20 November 2020 in the Lloyds Bank Trustees' case extends the scope of the GMP
equalisation to include previous transfer values paid from the scheme since 1990. An allowance for the estimated impact
of this was included in the benefit obligations at 31 December 2020 of £3.3m and similarly recorded as a past service cost
in the Income Statement in 2020. This approximate allowance for GMP equalisation in historic transfers out of the Plan has
been retained but adjusted for the passage of time and to reflect the estimated impact of changes in market conditions.
Actuarial gains and losses recognised directly in the statement of other comprehensive income
2022
2021
£m
£m
Cumulative amount at 1 January
(37.4)
(77.5)
Recognised during the period
8.2
40.1
Cumulative amount at 31 December
(29.2)
(37.4)
Defined benefit income recognised in statement of other comprehensive income
2022
2021
£m
£m
Return on plan assets, excluding interest income
(184.1)
21.0
Experience gain on scheme liabilities
(25.6)
8.7
Changes in assumptions underlying the present value of scheme obligations
217.9
10.4
8.2
40.1
Changes in the present value of the defined benefit obligation
2022
2021
£m
£m
Opening present value of defined benefit obligation
569.2
599.1
Interest cost
10.1
8.3
Remeasurements:
Experience adjustments
25.6
(8.7)
Actuarial gains due to changes in demographic assumptions
(1.3)
4.2
Actuarial (gains) due to changes in financial assumptions
(216.6)
(14.6)
Benefits paid
(18.1)
(19.1)
Closing present value of defined benefit obligation
368.9
569.2
Movement in fair value of scheme assets during the period
2022
2021
£m
£m
Opening fair value of assets
545.6
523.6
Interest income
9.8
7.3
Return on plan assets, excluding interest income
(184.1)
21.0
Contributions by employer
13.1
12.8
Benefits paid
(18.1)
(19.1)
End of period
366.3
545.6
History of experience adjustments
2022
2021
2020
2019
2018
£m
£m
£m
£m
£m
Present value of defined benefit obligation
368.9
569.2
599.1
531.2
486.3
Fair value of scheme assets
366.3
545.6
523.6
472.2
418.0
Deficit in schemes
2.6
23.6
75.5
59.0
68.3
Experience adjustments on scheme liabilities:
Amount
(192.3)
(19.1)
74.6
55.6
(37.9)
Percentage of scheme liabilities (%)
(52.1%)
(3.4%)
12.5%
10.5%
(7.8%)
Experience adjustments on scheme assets:
Amount
(184.1)
21.0
50.0
54.3
(38.8)
Percentage of scheme assets (%)
(50.3%)
3.8%
9.5%
11.5%
(9.3%)
SECTION 6 - OTHER NOTES
This section contains the notes and information relating to acquisitions and disposals and related party transactions:
6.1
Business disposals
6.2
Related party transactions
6.1 Business disposals
Accounting policy
The results of businesses disposed of during the year are included up to the effective date of disposal using the acquisition
method of accounting.
Activity
During the year the Group disposed of its remaining motor cycle and trucks businesses for net proceeds of £3.2m which
resulted in a profit on disposal of £0.3m.
Net assets at the date of disposal:
Total net
book value
£m
Assets held for sale
-
Goodwill
2.1
Property, plant and equipment
0.2
Inventories
37.2
Trade and other receivables
0.1
Trade and other payables
(36.7)
2.9
Profit on sale of businesses
0.3
Total proceeds
3.2
Proceeds on sale comprise
Proceeds on sale satisfied by cash and cash equivalents
3.2
Deferred consideration
0.7
3.9
No cash was disposed as part of any business disposal during the year.
Goodwill in respect of the DAF business was impaired by £3.6m when it was classified for sale.
Deferred consideration received during the year relates to the sale of the US businesses where a retention was held
pending the successful completion of a store development in progress at the time of the sale.
During the previous year the Group disposed of two US and three UK dealerships for proceeds of £27.6m and realising a
profit of £0.7m on disposal.
6.2 Related party transactions
Subsidiaries
The Group's ultimate parent company is Pendragon PLC . A listing of subsidiaries is shown within the financial statements
of the Group on page 205.
Transactions with key management personnel
The key management personnel of the Group comprise the executive and non-executive directors. The details of the
remuneration, long term incentive plans, shareholdings, share option and pension entitlements of individual directors are
included in the Directors' Remuneration Report on pages 77 to 95.
Directors of the Group and their immediate relatives control 1.000% of the ordinary shares of the Group.
During the year key management personnel compensation was as follows:
2022
2021
£m
£m
Short term employee benefits
3.0
3.2
Post-employment benefits
0.1
0.1
Share based payments
1.9
2.0
5.0
5.3
6.3 Contingent liabilities
One of the Group’s subsidiary companies, Pinewood Technologies PLC (“Pinewood”), is currently in dispute with one of its
former software resellers, Pinewood Technologies Asia Pacific Limited (“PAP”).
PAP historically contributed c.£0.2m of profit p.a. to the overall Pinewood performance. PAP owes Pinewood approximately
£0.5m (including daily interest and other charges), which relates to unpaid invoices arising from the reseller agreements.
Subsequent to the non-payment of this debt, PAP has claimed that Pinewood is in breach of the reseller agreements and
has made a claim against Pinewood. It is not practicable to estimate any potential financial effect of this claim because it
is at a level that Pinewood considers to be entirely disproportionate to the scale of the business. This claim includes a claim
for ‘loss of profits’ which is specifically excluded from the reseller agreement.
Notwithstanding the size of the claim, Pinewood considers PAP's claim to be entirely misconceived and lacking merit such
that no provision needs to be made for it on that basis. Pinewood has also applied for summary judgment to dismiss PAP's
claim and on Pinewood's claim for payment of the outstanding debt.
197
Pendragon PLC Annual Report 2022
COMPANY BALANCE SHEET
At 31 December 2022
2022
2021
Notes
£m
£m
Fixed assets
Investments
5
981.2
981.2
Loans to subsidiary undertakings
90.0
90.0
1,071.2
1,071.2
Current assets
Debtors (amounts due after more than one year : £23.0m)
6
24.7
30.6
Cash at bank and in hand
0.5
0.3
25.2
30.9
Creditors: amounts falling due within one year
7
(491.4)
(475.7)
Net current liabilities
(466.2)
(444.8)
Total assets less current liabilities
605.0
626.4
Creditors:
amounts falling due after more than one year
8
(90.8)
(87.1)
Retirement benefit obligations
(2.6)
(23.6)
Net assets
511.6
515.7
Capital and reserves
Called up share capital
11
69.9
69.9
Share premium account
56.8
56.8
Capital redemption reserve
11
5.6
5.6
Other reserves
11
13.9
13.9
Profit and loss account
365.4
369.5
Equity shareholders' funds
511.6
515.7
Approved by the Board of Directors on 22 March 2023 and signed on its behalf by:
W Berman
M S Willis
Chief Executive
Chief Finance Officer
Registered Company Number: 2304195
The notes on pages 200 to 208 form part of these financial statements.
COMPANY STATEMENT OF OTHER COMPREHENSIVE INCOME
Year ended 31 December 2022
2022
2021
£m
£m
(Loss)/profit for the year
(15.0)
167.0
Other comprehensive income
Items that will never be reclassified to profit and loss:
Defined benefit plan remeasurement gains and (losses)
9.7
41.6
Income tax relating to defined benefit plan remeasurement gains and (losses)
(1.6)
(6.9)
Other comprehensive income for the year, net of tax
8.1
34.7
Total comprehensive (expense)/income for the year
(6.9)
201.7
The notes on pages 200 to 208 form part of these financial statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2022
Share
Capital
Share
premium
redemption
Other
Retained
capital
account
reserve
reserves
earnings
Total
£m
£m
£m
£m
£m
£m
Balance at 1 January 2022
69.9
56.8
5.6
13.9
369.5
515.7
Total comprehensive income for 2022
Loss for the year
-
-
-
-
(15.0)
(15.0)
Other comprehensive income for the year, net of tax
-
-
-
-
8.1
8.1
Total comprehensive expense for the year
-
-
-
-
(6.9)
(6.9)
Transactions with owners, recorded directly in equity
Share based payments
-
-
-
-
3.3
3.3
Income tax relating to share based payments
-
-
-
-
(0.1)
(0.1)
Own shares issued by EBT
-
-
-
-
0.1
0.1
Own shares purchased by EBT
-
-
-
-
(0.5)
(0.5)
Total contributions by and distributions to owners
-
-
-
-
2.8
2.8
Balance at 31 December 2022
69.9
56.8
5.6
13.9
365.4
511.6
Balance at 1 January 2021
69.9
56.8
5.6
13.9
164.7
310.9
Total comprehensive income for 2021
Profit for the year
-
-
-
-
167.0
167.0
Other comprehensive income for the year, net of tax
-
-
-
-
34.7
34.7
Total comprehensive income for the year
-
-
-
-
201.7
201.7
Transactions with owners, recorded directly in equity
Share based payments
-
-
-
-
2.9
2.9
Income tax relating to share based payments
-
-
-
-
0.2
0.2
Total contributions by and distributions to owners
-
-
-
-
3.1
3.1
Balance at 31 December 2021
69.9
56.8
5.6
13.9
369.5
515.7
The notes on pages 200 to 208 form part of these financial statements.
200
Pendragon PLC Annual Report 2022
1
Accounting Policies
(a) Basis of preparation
Pendragon PLC is a company incorporated and domiciled in England, UK.
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework ('FRS 101').
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements
of UK-adopted international accounting standards (“Adopted IFRSs”), but makes amendments where necessary in order
to comply Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been
taken.
These financial statements have been prepared on a going concern basis as explained in note 1 of the Group Financial
Statements.
Principal risks and uncertainties are outlined in the Group Financial Statements on pages 38 to 48.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following
disclosures:
•
a Cash Flow Statement and related notes;
•
Comparative period reconciliations for share capital, tangible fixed assets and intangible assets;
•
Disclosures in respect of transactions with wholly owned subsidiaries;
•
Disclosures in respect of capital management;
•
The effects of new but not yet effective IFRSs;
•
Disclosures in respect of the compensation of Key Management Personnel.
•
Disclosures of transactions with a management entity that provides key management personnel services to the company;
• Certain disclosures required by IAS 36 Impairments of Assets in respect of the impairment of assets.
As the consolidated financial statements of the Company include the equivalent disclosures, the Company has also taken
the exemptions under FRS 101 available in respect of the following disclosures:
•
IFRS 2 Share Based Payments in respect of group settled share based payments;
•
Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial
Instrument Disclosures.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in
these financial statements.
Judgements
The Company applies judgement in how it applies its accounting policies, which do not involve estimation, but could
materially affect the numbers disclosed in these financial statements. There are however no such key accounting
judgements applied in these financial statements.
Accounting estimates
The preparation of financial statements in conformity with FRS 101 requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting year. Although these estimates are based on management's best knowledge
of the amount, events or actions, actual results ultimately may differ from those estimates.
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
201
Pendragon PLC Annual Report 2022
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1
Accounting Policies
continued
The estimates and underlying assumptions are reviewed on an ongoing basis. The estimates and associated assumptions
are based on historical experience and various other factors that are believed to be reasonable under the circumstances.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the revision affects both current and future periods.
The directors
consider the following to be the key estimates applicable to the financial statements, which have a significant risk of resulting
in a material adjustment to the carrying amounts of assets and liabilities within the next financial year or in the long-term:
Potential
Potential impact
impact in
Note
Key estimate area
Key assumption
within the next
the longer
reference
financial year
term
Retirement benefit
The main assumptions in determining the
3
3
5.1 Group
obligations
Company’s Retirement Benefit Obligations are:
discount rate, mortality and rate of inflation.
Full detail is included in the pension note in the
Consolidated Financial Statements in note 5.1.
Investment
The balances of investment in subsidiary
3
3
5 and
impairment
companies and loans to subsidiary companies
3.1 Group
are held at cost less any impairment. An
impairment exists when their recoverable
amount is less than the costs held in the
accounts. There are a number of factors which
could impact the recoverable amount which
creates a risk of this recoverable amount being
lower than the investment balance held.
(b) Deferred taxation
Full provision is made for deferred taxation on all timing differences which have arisen but have not
reversed at the balance sheet date, except as follows:
(i) tax payable on the future remittance of the past earnings of subsidiaries is provided only to the extent that dividends
have been accrued as receivable or a binding agreement to distribute all past earnings exists;
(ii) deferred tax assets are recognised only to the extent that it is more likely than not that they will be recovered.
Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which the
timing differences reverse, based on tax rates and laws substantively enacted at the balance sheet date.
(c) Impairment excluding deferred tax assets
Financial assets (including trade and other debtors)
A financial asset not carried at fair value through profit or loss is measured for impairment losses in accordance with IFRS
9 using an expected credit loss (ECL) model. The impairment model applies to financial assets measured at amortised
cost.
The calculation of ECLs are a probability-weighted estimate of credit losses. For trade receivables, the Company
applies the simplified approach set out in IFRS 9 to measure expected credit losses using a lifetime expected credit loss
allowance. The Company considered a trade or other receivables, including intercompany receivables, to be in default
when the borrower is unlikely to pay its credit obligations to the Company in full after all reasonable actions have been
taken to recover the debt.
Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than deferred tax assets, are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable
amount is estimated.
202
Pendragon PLC Annual Report 2022
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose
of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of
assets (the 'cash-generating unit').
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to
reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other
assets in the unit (group of units) on a pro rata basis.
Fair value hedges
Where a derivative financial instrument hedges the changes in fair value of recognised assets or liabilities, any gain or loss
is recognised in profit and loss.
The hedged item is also stated, separately from the derivative, at fair value in respect of
the risk being hedged with any gain or loss also recognised in profit and loss.
This will result in variations in the balance
sheet values of the gross debt and the offsetting derivatives as the market value fluctuates.
(d) Investments
Investments held as fixed assets are stated at cost less any impairment losses. For Investments the
recoverable amount is estimated at each balance sheet date. The recoverable amount is the higher of fair value less costs
to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted. Further details of impairment testing policies
are presented in note 3.1 of the Group Financial Statements.
(e) Employee benefits - Share based payments
The Company operates a number of employee share option schemes.
The
fair value at the date at which the share options are granted is recognised in profit and loss on a straight line basis over
the vesting period, taking into account the number of options that are expected to vest.
The number of options that are
expected to become exercisable is reviewed at each balance sheet date and if necessary estimates are revised.
(f) Pension obligations
The Company operated a defined benefit and defined contribution plan during the year, the
assets of which are held in independent trustee administered funds.
Pension accounting costs for defined benefit plans
are assessed by determining the pension obligation using the projected unit credit method after including a net return
on the plan assets.
Under this method, in accordance with the advice of qualified actuaries, the amounts charged in
respect of employee benefits reflect the cost of benefits accruing in the year and the cost of financing historical accrued
benefits.
The Company recognises all actuarial gains and losses arising from defined benefit plans in the statement of
other comprehensive income immediately.
The present value of pension obligations is measured by reference to market yields on high quality corporate bonds which
have terms to maturity approximating to the terms of the related pension liability.
Plan assets are measured at fair value.
When the calculation results in a benefit to the Company, the recognised asset is limited to the total of the present value
of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the
plan. An economic benefit is available to the Company if it is realisable during the life of the plan, or on settlement of the
plan liabilities.
Under IAS 19
Employee Benefits, the Group recognises an interest expense or income which is calculated on the net
defined benefit liability or asset respectively by applying the discount rate to the net defined benefit liability or asset.
A defined contribution plan is one under which the Company pays fixed contributions and has no legal or constructive
obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as
an employee benefit expense in the income statement when they are due.
1
Accounting Policies
continued
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
203
Pendragon PLC Annual Report 2022
1
Accounting Policies
continued
In accordance with IFRIC 14 surpluses in schemes are recognised as assets only if they represent unconditional economic
benefits available to the Company in the future.
Provision is made for future unrecognisable surpluses that will arise
as a result of regulatory funding requirements.
Movements in unrecognised surpluses are included in the statement of
recognised income and expense. If the fair value of the assets exceeds the present value of the defined benefit obligation
then the surplus will only be recognised if the nature of the arrangements under the trust deed, and funding arrangements
between the Trustee and the Company support the availability of refunds or recoverability through agreed reductions in
future contributions. In addition, if there is an obligation for the Company to pay deficit funding, this is also recognised.
Under the provisions of FRS 101 Pendragon PLC is designated as the principal employer of the Pendragon Group Pension
Scheme and as such applies the full provisions of IAS 19 Employee benefits (2011).
In line with IAS 19 Employee benefits
(2011), the Company has recognised a pension prepayment with respect to an extraordinary contribution made during 31
December 2011 as this does not meet the definition of a planned asset and therefore the amount is held in pension prepayment
and will be unwound over the period in which Pendragon Scottish Limited Partnership Limited makes contributions to the
pension scheme.
Information relating to pension obligations can be found in the Consolidated Financial Statements in note 5.1.
(g) Dividends
Dividends proposed by the Board and unpaid at the end of the year are not recognised in the financial
statements until they have been approved by the shareholders at the Annual General Meeting.
Interim dividends are
recognised when they are paid.
(h) Own shares held by ESOP trust
Transactions of the group-sponsored ESOP trust are included in the Company financial
statements.
In particular, the trust’s purchases and sales of shares in the Company are debited and credited directly to
equity.
(i) Contingent liabilities
Where the Company enters into financial guarantee contracts to guarantee the indebtedness
of other companies within its group, the Company considers these to be insurance arrangements, and accounts for them
as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes
probable that the Company will be required to make a payment under the guarantee.
2
Profit and loss account of the company and distributable reserves
In accordance with the exemption allowed by Section 408 of the Companies Act 2006, the profit and loss account of the
Company is not presented. The loss after taxation attributable to the Company dealt with in its own accounts for the year
ended 31 December 2022 is £15.0m (2021: profit £167.0m).
The profit and loss account of the Parent Company does not include any unrealised profits.
The amount available for
distribution under the Companies Act 2006 by reference to these accounts is £365.4m (2021: £369.5m) which is stated
after deducting the ESOT reserve of £18.5m (2021: £18.1m).
The Group's subsidiary companies which earn distributable
profits themselves are expected to make distributions each year up to the Parent Company in due course to ensure a
regular flow of income to the Company such that surplus cash generated can continue to be returned to our external
shareholders.
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
204
Pendragon PLC Annual Report 2022
3
Directors
Total emoluments of directors (including pension contributions) amounted to £5.0m (2021: £5.3m).
Information relating to
directors' emoluments, share options and pension entitlements is set out in the Directors' Remuneration Report on pages
77 to 95.
The directors are the only employees of the Company.
4
Dividends
The Board is not recommending the payment of a final dividend for 2022 (2021: nil).
5
Investments
Shares in subsidiary
undertakings
£m
Cost
At 31 December 2021 and at 31 December 2022
981.2
Impairment
At 31 December 2021 and at 31 December 2022
-
Carrying amounts
At 31 December 2021 and at 31 December 2022
981.2
In assessing the carrying value of investments in subsidiary undertakings, an assessment of the recoverable amount
of each investment has been undertaken using the same methodology and assumptions that were used to derive the
recoverable amounts of CGUs (which have been allocated to the relevant subsidiary) that was undertaken as part of the
Group CGU impairment assessment (note 3.1); included the intercompany receivables and payables due between group
entities and then assessed whether there were additional current assets, such as cash, which should be included in the
Investment recoverable amount assessment.
These recoverable amounts have been assessed during the period in line with IAS 36. The assessment resulted in nil
provision for impairment for the year ended 31 Decemeber 2022 (2021: impairment charges reversal of £177.2m) to the
investment in subsidary undertakings.
When assessing the carrying value, the value was determined by the higher of its
value in use and its fair value less costs to sell, as described in note 3.1. The range of pre-tax discount rates used was 9.1%
- 16.7%.
The directors have considered and assessed reasonably possible changes to the key assumptions used in determining
the recoverable amounts and have performed sensitivities on these key assumptions. This assessment resulted in the
reasonably possible key assumption changes not leading to any impact on the carrying value of investments in subsidiary
undertakings for year ended 31 December 2022.
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
205
Pendragon PLC Annual Report 2022
5
Investments
continued
Shares in subsidiary undertakings are stated at cost.
Pendragon PLC owns directly or indirectly 100 percent of the issued ordinary share capital of the following subsidiaries.
Incorporated in Great
Britain
having a registered office at Loxley House, 2 Little Oak Drive, Annesley, Nottingham, NG15 0DR:
Bramall Quicks Dealerships Limited
Stratstone Motor Holdings Limited *
Evans Halshaw Motor Holdings Limited
Bramall Quicks Limited
Stratstone.com Limited
Executive Motor Group Limited
Car Store Limited
Suresell Limited
G.E. Harper Limited
Car Store.com Limited
Victoria (Bavaria) Limited
Godfrey Davis (Trust) Limited
CD Bramall Limited *
Allens (Plymouth) Limited
Godfrey Davis Motor Group Limited
Chatfields Limited
Alloy Racing Equipment Limited
Lewcan Limited
Derwent Vehicles Limited
Andre Baldet Limited
Manchester Garages Holdings Limited
Evans Halshaw Limited
Arena Auto Limited
Paramount Cars Limited
Evans Halshaw.com Limited
Bletchley Motor Company Limited
Pendragon Motor Group Limited
National Fleet Solutions Limited
Bletchley Motor Group Limited
Petrogate Limited
Pendragon Automotive Services Limited *
Bramall Contracts Limited
Petrogate Properties Limited
Pendragon Finance & Insurance Services Limited *
Bridgegate Limited
Pinewood Computers Limited
Pendragon Group Pension Trustees Limited *
Brightdart Limited
Plumtree Motor Company Limited
Pendragon Group Services Limited *
C.G.S.B Holdings Limited
Quicks (1997) Motor Holdings Limited
Pendragon Limited Partner Limited *
CD Bramall Dealerships Limited
Quicks Finance Limited
Pendragon Management Services Limited
CD Bramall Motor Group Limited
Reg Vardy (Property Management) Limited
Pendragon Overseas Limited *
CD Bramall Pension Trustee Limited
Reg Vardy (TMC) Limited
Pendragon Premier Limited
Central Motor Company (Leicester) Limited
Reg Vardy (TMH) Limited
Pendragon Property Holdings Limited
Charles Sidney Limited
Skipper of Darlington Limited
Pendragon Sabre Limited
Chatfields - Martin Walter Limited
Skipper of Wakefield Limited
Pendragon Stock Finance Limited
Dunham & Haines Limited
Stripestar Limited
Pendragon Vehicle Management Limited
Evans Halshaw (Cardiff) Limited
The Car and Van Store Limited
Pinewood Technologies PLC *
Evans Halshaw (Dormants) Limited *
The Skipper Group Limited
Reg Vardy Limited *
Evans Halshaw (Midlands) Limited
Trust Properties Limited
Stratstone Limited
Incorporated in Great Britain
having a registered office at Citypoint, 65 Haymarket Terrace, Edinburgh, Scotland, EH12 5HD:
Pendragon General Partner Limited *
Incorporated in the United States of America
having a registered office at 2171 Campus Dr Ste 260, Irvine, California:
Pendragon North America Automotive, Inc.
Penegon Glendale, Inc.
SouthCounty, Inc.
Penegon West, Inc.
Lincoln Irvine, Inc.
Bauer Motors, Inc.
Penegon Mission Viejo, Inc.
Penegon South Bay, Inc.
Penegon Properties, Inc.
Penegon Newport Beach, Inc.
Penegon Santa Monica, Inc.
Penegon East, Inc.
Incorporated in Sweden
having a registered office at Eversheds Sutherland, Strandvägen, Box 11451, 104 40, Stockholm
Pinewood Technologies Northern Europe AB
*
Direct subsidiary of Pendragon PLC
** Pendragon PLC owns 95% of the issued ordinary share capital
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
206
Pendragon PLC Annual Report 2022
6
Debtors
2022
2021
£m
£m
Amounts due within one year:
Prepayments
1.7
24.5
1.7
24.5
Amounts due after more than one year:
Prepayments
21.1
-
Deferred tax (see note 9)
1.9
6.1
23.0
6.1
24.7
30.6
Expected credit losses in respect of trade and other intercompany receivables are deemed immaterial.
7
Creditors: amounts falling due within one year
2022
2021
£m
£m
Amounts due to subsidiary undertakings
489.2
454.2
Senior Term Finance Agreement
1.7
-
Bank loans and overdrafts
0.5
21.5
491.4
475.7
Amounts due to subsidiary undertakings are repayable on demand but may remain outstanding indefinitely.
8
Creditors: amounts falling due after more than one year
2022
2021
£m
£m
Bank loans (repayable between one and two years)
-
27.1
5.75% Senior notes 2023
-
60.0
Senior Term Finance Agreement
90.8
-
90.8
87.1
Full details of the Company’s borrowings including security and maturity are given in note 4.2 to the consolidated financial
statements.
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
207
Pendragon PLC Annual Report 2022
9
Deferred tax
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.
There are no offset
amounts as follows:
2022
2021
£m
£m
Deferred tax assets
1.9
6.1
The movement in the deferred tax assets for the year is as follows:
Retirement
benefit
Other
obligations
provisions
Total
£m
£m
£m
At 1 January 2021
14.4
0.7
15.1
(Charged)/credited to income statement
(2.4)
0.1
(2.3)
(Charged)/credited to equity
(6.9)
0.2
(6.7)
At 31 December 2021
5.1
1.0
6.1
At 1 January 2022
5.1
1.0
6.1
(Charged) to income statement
(2.5)
-
(2.5)
(Charged) to equity
(1.6)
(0.1)
(1.7)
At 31 December 2022
1.0
0.9
1.9
Deferred tax asset is shown within debtors (see note 6).
10 Share based payments
Details of share schemes in place for the Group of which the Company participates as at 31 December 2022 are fully
disclosed above in note 4.6 of this report.
11
Called up share capital and reserves
Number
£m
Allotted, called up and fully paid shares of 5p each
1,396,944,405
69.9
at 31 December 2021 and at 31 December 2022
There were no issues of ordinary shares during the year.
Movements in the number of options to acquire ordinary shares under the Group's various share option schemes, together
with exercise prices and the outstanding position at 31 December 2021 are fully disclosed above in note 4.6 of this report.
Transactions of the Group-sponsored EBT are included in the Company's financial statements. In particular, the trust’s
purchases of shares in the Company, which are classified as own shares, are debited directly to equity through retained
earnings. When own shares are sold or reissued the resulting surplus or deficit on the transaction is also recognised within
retained earnings.
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
208
Pendragon PLC Annual Report 2022
The market value of the investment in the Group's own shares at 31 December 2022 was £0.3m (2021: £1.3m), being
1.5m (2021: 5.8m) shares with a nominal value of 5p each, acquired at an average cost of £0.24 each (2021: £0.33). The
trustee of the EBT is Salamanca Group Trust (Jersey) Limited. The shares in trust may subsequently be awarded to
Executive Directors and employees under the Pendragon 1999 Approved Executive Share Option Scheme, Pendragon
1999 Unapproved Executive Share Option Scheme and to satisfy amounts under LTIPs. Details of the plans are given in the
Directors' Remuneration Report on pages 77 to 95.
Dividends on the shares owned by the trust, the purchase of which were funded by interest free loans to the trust from
Pendragon PLC, are waived. All expenses incurred by the trust are settled directly by Pendragon PLC and charged in the
accounts as incurred.
Capital redemption reserve
The capital redemption reserve has arisen following the purchase by the Group of its own shares and comprises the
amount by which distributable profits were reduced on these transactions in accordance with s733 of the Companies Act
2006. There were no transfers into the capital redemption reserve during the year in respect of shares purchased by the
Group and subsequently cancelled (2021: nil).
Other reserves
Other reserves comprise the amount of demerger reserve arising on the demerger of the Group from Williams Holdings
PLC in 1989.
12 Retirement benefit obligations
Details of Pendragon Group Pension Scheme are fully disclosed above in note 5.1 of this report.
13 Related party transactions
Identity of related parties
The Company has related party relationships with its subsidiaries and with its key management personnel.
Transactions with related parties
The transactions with directors of the Company are set out in note 6.2 to the consolidated financial statements.
14 Contingent liabilities
(a) The company has entered into cross-guarantees with its bankers whereby it guarantees payment of bank borrowings
in respect of UK subsidiary undertakings.
(b) The company has given performance guarantees in the normal course of business in respect of subsidiary undertaking
obligations.
NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
209
Pendragon PLC Annual Report 2022
ADVISORS, BANKS AND SHAREHOLDER INFORMATION
Share dealing service
Pendragon’s company registrar offers a share dealing service,
provided by Link Asset Services (a trading name of Link
Market Services). Details appear at www.linksharedeal.com
Shareholder and investor information
Making some of our corporate materials and policies available
on our website reduces the length of this Report. This year
we have placed certain background information on policy and
governance on our website. We also display historic financial
reports and have a section on company news, which we
regularly update on www.pendragonplc.com
Online services
Shareholders can choose to receive communications and
access a variety of share-related services online via the share
portal offered by Pendragon’s company registrar. This allows
shareholders to manage their shareholding electronically and
is free of charge. For details, visit www.mypendragonshares.
com
Getting company reports online
Reduces the environmental impacts of report distribution.
To choose online only reporting, visit the share portal and
register for electronic form reporting, or contact our registrar,
whose details are:
Registrar and shareholder enquiries
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Tel: 0871 664 0300
Financial Calendar 2023
22 March
date of this Report
22 March
preliminary
announcement of 2022 results
Auditor
KPMG LLP
Banks
Barclays Bank PLC
Lloyds TSB Bank plc
Royal Bank of Scotland plc
Allied Irish Banks plc
HSBC Bank plc
Stockbrokers
Joh. Berenberg, Gossler & Co. KG
Jefferies International Limited
Solicitors
CMS Cameron McKenna Nabarro Olswang LLP
Geldards LLP
Eversheds LLP
How to find Pendragon PLC’s offices
Visit Contacts on the company’s website
www.pendragonplc.com.
Stock Classification
The company’s ordinary shares are traded on the London
Stock Exchange.
Investment codes for Pendragon’s shares
are:
London Stock Exchange:
PDG
Bloomberg:
PDG.LN
GlobalTOPIC and Reuters: PDG.L
210
Pendragon PLC Annual Report 2022
5 YEAR GROUP REVIEW
2022
IFRS 16
£m
2021
IFRS 16
£m
2020
IFRS 16
£m
2019
IFRS 16
£m
2018
IAS 17
£m
Revenue
3,620.0
3,449.9
2,924.6
4,506.1
4,627.0
Gross profit
457.2
441.3
353.2
472.7
550.5
Operating profit/(loss) before other income
93.3
104.9
16.0
(104.4)
(30.1)
Profit/(loss) before taxation
57.2
73.3
(29.6)
(114.1)
(44.4)
Basic earnings per share
3.3p
4.4p
(1.8p)
(8.4p)
(3.6p)
Net assets
281.0
225.6
126.7
168.9
345.6
Adjusted Net borrowings (note 1)
23.3
49.7
100.4
119.7
126.1
Other financial information
Underlying profit/(loss) before tax
57.6
83.0
8.2
(16.4)
47.8
Underlying earnings per share (note 4)
3.2p
5.0p
0.6p
(1.2p)
2.8p
Adjusted net debt: underlying EBITDA (note 6)
0.1
0.3
0.8
1.1
0.9
Gross margin
12.6%
12.8%
12.1%
10.5%
11.9%
Total operating margin (note 2)
2.6%
3.0%
0.5%
-2.3%
-0.7%
After tax return on equity (note 3)
18.0%
34.9%
-16.7%
-45.6%
-13.1%
Dividends per share (note 5)
-
-
-
-
1.5p
Dividend cover (times) (note 7)
-
-
-
-
2.0
Interest cover (times) (note 8)
2.3
3.1
0.2
(1.7)
(0.5)
Gearing (note 9)
8.3%
22.0%
79.2%
70.9%
36.5%
Business summary
Number of franchise points
131
138
146
166
186
note 1
Adjusted net borrowings comprise interest bearing loans and borrowings, cash and cash equivalents and derivative financial instruments, excluding lease liabilities.
note 2
Total operating margin is calculated after adding back non-underlying items, and excluding other income.
note 3
Return on equity is profit after tax for the year as a percentage of average shareholders’ funds.
note 4
Basic earnings per share adjusted to eliminate the effects of non-underlying operating, non-underlying finance and tax items, see note 2.8 of the financial statements.
note 5
Dividends per share are based on the interim dividend paid and final dividend proposed for the year.
note 6
Full details of the calculation of the net debt : underlying EBITDA ratio are given in note 4.2 to the financial statements.
note 7
Dividend cover is underlying profit after tax divided by the total of the interim dividend paid and the final dividend per share.
note 8
Interest cover is operating profit divided by net finance expense.
note 9
Gearing is calculated as net borrowings as a percentage of net assets.
211
Pendragon PLC Annual Report 2022
ADDRESS
I
Pendragon PLC
Loxley House, 2 Oakwood Court, Little Oak Drive, Annesley, Nottingham NG15 0DR
TELEPHONE
I
01623 725200
E-MAIL
I
WEBSITE
I
www.pendragonplc.com
DESIGN
I
Creative Services
Loxley House, 2 Oakwood Court, Little Oak Drive,
Annesley, Nottingham NG15 0DR