A message from Robert Forrester, CEO of Vertu Motors plc.

Chairman's Corporate Governance Statement

I am pleased to present the Board's Annual Report on Corporate Governance. The Vertu Motors plc ("Company" or "Group") Values underpin the Group's strategy and support its commitment to corporate governance.

As Vertu is an AiM listed company, the Board formally adopted the QCA Corporate Governance Code ("QCA Code") with effect from 28 February 2019. The QCA Code provides a practical framework to assist the Company in developing its governance standards and this year's report is the first structured in accordance with the QCA Code principles. The Company historically reported compliance against the UK Corporate Governance Code and will no longer do so, although the Board will continue to review the UK Corporate Governance Code as appropriate for the Company.

As the Chairman, my role is to lead the Board, ensuring it operates effectively and I take overall responsibility for the governance framework of the Company. I have worked with the Company Secretary and the Executive Directors to develop this new approach to reporting.

Peter Jones Non-executive Chairman

28 February 2019

The Principles of the QCA Code

  • Principle 1: Establish a strategy and business model which promotes long-term value for shareholders.

    Vertu Motors plc was incorporated in 2006 to acquire franchised motor retail dealerships to create a large franchised motor retail group in the United Kingdom. The Group's Vision and strategy is set out in more detail in the 2019 Annual Report on pages 5 to 33.

  • Principle 2: Seek to understand and meet shareholder needs and expectations.

    Effective communication with the Company's shareholders is crucial. The Company's advisers collate all feedback received from shareholders following results meetings with the Executive and these are fed back to the Board. The Board will also instigate contact with material shareholders to obtain feedback on other proposals from time to time.

    The Executive, Chairman and Committee Chairmen are available to shareholders as and when requested. The Company Secretary can be contacted by shareholders as set out on page 35 and the Board welcomes input from shareholders.

    The Executive Directors contact all material shareholders to give them the opportunity to meet with the Executive after release of the annual and interim results each year. The Company also publishes an on-line video of the results presentation to allow other shareholders and stakeholders to view the results presentation.

  • Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-term success.

    There are a number of important stakeholders in the Group, engagement with these stakeholders is shown on page 19 of the 2019 Annual Report.

  • Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organisation.

    The Company operates a risk management framework which is described in more detail on pages 28 to 31 of the 2019 Annual Report together with a summary of the principal risks facing the Group.

  • Principle 5: Maintain the Board as a well-functioning balanced team led by the Chair.

    The Board has four Non-executive Directors including the Chairman, together with three Executive Directors. The Chairman was considered independent on appointment and all of the other Non-executive Directors are considered to be independent.

    Any potential conflicts of interest with individual Directors are reviewed annually to ensure that there is no impact on a director's judgement. The Board's committees have non-executive membership or leadership, where appropriate.

    Attendance records are set out on page 50 of the 2019 Annual Report. Each Non-executive Director is expected to commit a sufficient amount of time to the role to enable them to understand the Group's business as well as attend the necessary meetings and assist with certain specific projects. The time commitment varies for each individual Director but as a minimum 2 days per month is expected. All Executive Directors are full-time and are ordinarily expected to devote their full time and attention to the Group.

  • Principle 6: Ensure that, between them, the Directors have the necessary up-to-date experience, skills and capabilities.

    Details of the Directors are set out on pages 49 and 50 of the 2019 Annual Report and the "Who We Are" section of the Company's website, together with their skills and experience.

    The Board includes a mix of sector and non-sector experience and has welcomed Non-executive Directors from a variety of backgrounds and experience to bolster the executive and provide sufficient challenge in the boardroom. The Nominations Committee continually reviews board composition to ensure that the Board provides the Group with the strategic oversight, vision and governance that it needs. Ordinarily, Non-executive Directors serve for a maximum of six years.

    Ken Lever, Pauline Best and Andrew Goss are considered to be independent and Peter Jones was considered to be independent on appointment. Ken Lever is the Senior Independent Director.

    The Board seeks to ensure that the necessary financial and human resources are in place for the Group to be able to meet its objectives, to review management performance and to ensure that its obligations to its shareholders are understood and met. Whilst the executive responsibility for running the Group rests with the Chief Executive (R T Forrester), the Chief Financial Officer (K Anderson) and the Chief Operating Officer (D P Crane) the Non-Executive Directors fulfil an essential role in ensuring that the strategies proposed by the Executive Directors are fully discussed and critically examined prior to adoption. They also scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance, both financial and non-financial.

    The Nominations Committee has carried out an assessment of the skills and experience of the Directors to identify any areas of weakness that can be addressed through training or future recruitment to the Board. The Board is currently satisfied that its current composition includes an appropriate balance of experience and skills including experience in the motor retail sector, experience with motor manufacturers and other relevant areas.

    All Non-executive Directors are asked to visit Group locations to see the operation of the business day to day.

    The Board receives regular briefings on new regulations impacting the Group, which in the 2018-2019 year included General Data Protection Regulations, proposed changes to FCA regulation and the QCA Code. All Directors have access to the Company Secretary for advice on their responsibilities or relevant regulation. The Senior Independent Director also acts as a sounding board for Directors to ensure they benefit from his experience.

  • Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement.

    The Board has adopted an annual Board evaluation process to assess how the Board is performing and to identify any areas of improvement. This evaluation process was initiated in January 2019 by an anonymous survey by the Board. Survey results have been reviewed to agree on actions for the coming year. As a result of the 2019 review, the Board has allocated additional time for strategy discussions, has improved formal reporting from the Board committees to the Board and has undertaken a review of Board remuneration strategy.

    The evaluation process will be repeated annually, alongside a review of progress against previous recommendations.

    The Executive Directors have annual appraisals with the CEO appraised by the Chairman, as well as receiving 360-degree feedback reviews on an annual basis.

    The Nominations Committee has responsibility for succession planning for the Board and recommended Andrew Goss, David Crane and Karen Anderson for appointment in the last year. Where appropriate the Committee uses external advisers to assist with candidate identification and benchmarking, including for the work currently ongoing for the appointment of a new Chairman for the Group. Succession planning for other senior management roles is conducted by the HR Director and CEO with input from other members of management as appropriate.

  • Principle 8: Promote a corporate culture that is based on ethical values and behaviours.

    The Group's values are embedded into the operation of the Group. All new colleagues receive a business-card sized copy of the Values on starting with the Group and Values are reinforced during induction on an ongoing basis. The Vision and Values are displayed in all Group premises and discussed in monthly meetings. An annual colleague survey asks whether management and Directors act in accordance with the Values and any identified shortcomings are acted upon. Results from this survey are also reviewed by the Board and site visits enable the Directors to assess dealership culture in person. Acting in accordance with the Values is a material part of appraisals for all colleagues. The Group has clear policies on its zero-tolerance approach on bribery and corruption, tax evasion and modern slavery. These are reinforced by annual on-line training for all colleagues and the Group operates an independent whistleblowing system so that colleagues can report any issues. Breach of the Group Values is a disciplinary matter where appropriate.

  • Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board.

    Led by the Chairman, the Board is responsible for generating shareholder value over the long-term by setting the Group's strategic direction. Management and the Board has established delegated authorities and controls to ensure efficient management of the Group's operations alongside appropriate control of risk. The matters reserved for the Board ensure that material transactions are undertaken only after Board review. The Schedule of Matters Reserved for the Board includes:

    • Strategy and management - responsibility for long-term success of the Company and Group, commercial strategy, and approval of the expansion of the Group through acquisition or any significant disposals
    • Financial reporting and controls - review and approval of the annual business plan and capital budget, major capital expenditure projects and any significant changes to these, all trading or results statements and the annual financial statements
    • Internal controls - reviewing the effectiveness of internal control processes to support strategy
    • Risk - approval of the Group's risk appetite, determining the nature and extent of significant risks the Group is willing to take to achieve its objectives

    Full details of the matters reserved for the Board are set out on the Website. Executive Management have limits on the decisions delegated to them by the Board. The various Board committees have clear terms of reference that are available on the Website and reviewed annually, and regularly report back to the Board. Details of the Board committee responsibilities set out on page 48 of the 2019 Annual Report.

    Strategy Financial Performance Governance Shareholder Engagement Risk
    Group Strategy Review Approval of the FY2018 full year results and FY2019 interim results Re-appointment of auditors Annual General Meeting Annual review of key Group rsisk and mitigating controls
    Business Development Monthly management accounts and comparison against annual business plan Monitoring Compliance and Health and Safety Committees Meetings with key shareholders on results roadshows.
    Reviewing M&A opportunities Long range forecast and funding requirement planning Adoption of QCA Code into reporting. Reviewing M&A opportunities
    Approval of annual business plan and capital budget
    Interim and final dividend
    Review of colleague engagement survey

    Board meetings are structured to allow the Board sufficient time to discuss and review financial performance, achievement of objectives, development of the Group's strategy, operational performance and risk and internal controls. Standing agenda items are discussed at each Board meeting, which include:

    • Chief Executive's Report - update on performance, strategic opportunities, property matters and management
    • Chief Financial Officer's Report - includes the latest financial information for the Group
    • Chief Operations Officer's Report - update on industry, ancillary business performance and manufacturer issues.
    • Health and Safety Report - Summary of training undertaken throughout the Group, risk management plus commentary on any reported incidents
    • Compliance Report - summary of regulatory developments and minutes of the latest Compliance Committee meeting
    • Investor Relations ('IR') Report - update on market trends, share register movements and summary of IR activity
    • Risk Matrix - consideration of key strategic risks

    The Company will continue to review corporate governance reporting to ensure visibility to its stakeholders and to keep abreast of best practice.

  • Principle 10: Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders.

    The Company releases all material announcements through a regulatory news service and on its website and also encourages shareholders and other stakeholders to sign up to receive email updates via its website. The Company's website contains historic annual reports and announcements as well as other governance-related material.

    The 2019 AGM will take place on 24 July 2019. The AGM gives all shareholders an opportunity to meet the Board and ask any questions they have regarding the Group. The Board encourages participation of private shareholders at the AGM, however, the Board understands that it is not always possible for shareholders to attend. For this reason instructions are sent to shareholders to enable them to appoint a proxy electronically via an on-line proxy form, should they be unable to attend the AGM in person. Details of voting on resolutions at the AGM are made available on the Company's website.

    The section below shows the key committees and their responsibilities.

  • Audit Committee

    Members

    • K Lever (Chair)
    • A P Goss
    • P Best

    Delegated Authorities

    • Financial reporting
    • Financial risk management
    • Internal control

    Reviews

    • Full year and half year results
    • Accounting policies
    • Terms of engagement of auditors
    • Internal audit

    Recommends

    • Re-appointment of auditors
    • Audit tender
    • Auditors' remuneration

    Monitors

    • Integrity of financial statements
    • Effectiveness of internal controls and risk management
    • Internal audit function
    • Legal & regulator requirements
    • External audit

    Approves

    • Statements in Annual Report concerning internal controls and risk management
  • Remuneration Committee

    Members

    • P Best (Chair)
    • K Lever
    • A P Goss

    Delegated Authorities

    • Remuneration policy
    • Incentive plans
    • Performance targets

    Reviews

    • Achievement of performacne targets for short and long term incentives
    • Senior management pay structure

    Recommends

    • Level and structure of Executive remuneration
    • Remuneration policy

    Monitors

    • Appropriateness of Remuneration policy

    Approves

    • Remunertion policy
    • Remuneration packages for Executive Directors
    • Design of long term incentive plans
  • Nomination Committee

    Members

    • A P Goss (Chair)
    • K Lever
    • P Best

    Delegated Authorities

    • Balance of the Board
    • Leadership of the Group
    • Director succession planning

    Reviews

    • Composition of the Board
    • Skills, knowledge & experience on the Board
    • Diversity

    Recommends

    • Appointments to the Board

    Monitors

    • Independence of Non-Executive Directors
    • Succession planning

    Approves

    • Appointments for Executive Directors
    • Skills profile for Non-Executive Directors
  • CEO Committee

    Members

    • R T Forrester (Chair)
    • D Crane
    • K Anderson
    • N Loose
    • 10 Senior Managers

    Delegated Authorities

    • Review, communication, delivery and management of Group strategy and day to day operations

    Reviews

    • Group HR and IT strategy
    • Allocation of resources (financial and colleague)
    • Group performance

    Recommends

    • Annual business plan to the Board
    • Group vision

    Monitors

    • Performance against key performance indicators, plans and prior year
    • Compliance with Group risk management strategy, policy and procedures

    Approves

    • Appointments to dealership management positions
    • Performance related remuneration of dealership colleagues
    • Operational process and changes
  • Compliance Committee

    Members

    • D Crane (Chair)
    • K Anderson
    • N Loose
    • 2 Senior Managers

    Delegated Authorities

    • Compliance with laws and regulations (excluding Health & Safety and envrionmental)
    • Whistleblowing procedures
    • Communication with regulators where required

    Reviews

    • Adequacy and effectiveness of Group policies in response to current law and regulation
    • Licences and consents required
    • Internal regulatory audit

    Recommends

    • Training
    • Policy change
    • Remedial of pre-emptive action

    Monitors

    • Appropriate retail finance metrics
    • Indicators of non-compliance with policy
    • Any relevant complaints
    • Legal and regulator developments

    Approves

    • Reports to the Board
    • Submissions to relevant authorities
    • Changes to relevant policies and processes
    • Training programmes
    • Whistleblowing procedures
  • Health & Safety Committee

    Members

    • 4 Senior Managers
    • H & S Manager

    Delegated Authorities

    • Compliance with Health & Safety and envrionmental law and regulations
    • Developing Group best practices

    Reviews

    • Health & Safety policies and procedures
    • Heath & Safety audits
    • Accident statistics and causes

    Recommends

    • Training
    • Policy change
    • Remedial of pre-emptive action

    Monitors

    • Accidents and near-misses
    • Changes to law and regulations
    • New sites to the Group and redevelopments
    • Other changes in working practice

    Approves

    • Reports to the Board
    • Changes to relevant policies
    • Training programmes

Terms of Reference

View matters reserved for the Board - November 2019