Assessment of prospects

The Group's business model and strategy together with its market position are integral to an understanding of its prospects, details of which can be found on Marketplace. The nature of the Group's activities is long term and the business model is flexible and can adapt through economic cycles. The Group's overall strategy has been renewed in the last year in order to target a wider customer base and provide more certainty over future revenues. The Group maintains its position as a market leader in its core market of flexible vehicle hire and has a distinct competitive advantage in the minimum term market, which is discussed on Marketplace.

Within the wider market context the Group has focused on four key strategic opportunities, namely:

  • defending and increasing our share of the flexible rental market;
  • gaining market share in minimum term markets;
  • converting previous owners to a rental model; and
  • consolidating the fragmented retail trading market in used vehicles.

The Group's prospects are assessed through its strategic planning process. This process includes an annual review of the ongoing strategic plan, led by the CEO together with the involvement of all relevant business functions in all territories. The Board participates fully in the process through an annual strategy day and regular Board meetings. Part of the Board's role is to challenge the plan in order to ensure it is robust and makes due consideration of the appropriate external environment.

The latest updates to the strategic plan were finalised in March 2018. As a result of this process, detailed financial forecasts were prepared for the three year period to 30 April 2021. The first year of the financial forecast forms the Group's operating budget and is subject to reforecast at regular intervals. Subsequent years are forecast from the first year, based on historical experience and expected measures within the overall strategic plan.

The key assumptions in the financial forecasts include:

  • Successful execution of the strategic plan; and
  • Implementation of the fleet optimisation strategy.

Assessment of viability

The Directors have assessed the viability of the Group over a three year period to 30 April 2021, taking into account the Group's current position and the potential impact of the principal risks documented in the Strategic Report. Based upon this assessment the Directors 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 to 30 April 2021.

The three year period was selected as this represents the normal holding period of our core vehicle assets and therefore represents the Group's investment cycle. This period is aligned to how our business model runs through its cycle, how capital is employed in the business and, therefore, how returns on investment are reviewed.

The strategy and associated principal risks underpin the Group's three year strategic planning process (the Plan), which is updated annually. This process takes into account the current and prospective macroeconomic conditions in the countries in which we operate and the competitive tension that exists within the markets that we trade in.

The Plan also encompasses the projected cash flows, dividend cover and headroom against financial covenants under the Group's existing facilities. The Plan makes certain assumptions about the normal level of capital recycling likely to occur and therefore considers whether additional financing will be required. Headroom against the Group's existing facilities at 30 April 2018 was £126m as detailed on page 30. The facilities have maturity dates between November 2018 and August 2022, which exceeds the period under review and provides sufficient headroom to fund the capital expenditure and working capital requirements during the planned period.

As explained in the Strategic Report, part of our core business provides customers with vehicles on a non-contract basis which allows them to flex their vehicle requirements as their business needs change. This is core to the proposition we offer. However, it does mean that there is less certainty over the future revenue streams of the Group over a longer period of time. The Directors have therefore made assumptions on future revenue generation in the context of current market conditions and prospects of the Group.

In making this statement, the Directors have considered the resilience of the Group, taking into account its current position and the principal risks facing the business. The Plan was stress tested for severe but reasonable scenarios and the effectiveness of any mitigating actions that would reasonably be taken. The Plan was specifically stress tested for reasonable downturns in vehicles on hire, hire rates, vehicle acquisition costs and residual values of vehicles. The outcome of this testing satisfied the Directors with respect to the ongoing liquidity and solvency of the Group over the period under review. In particular, should there be a significant downturn in demand for the Group's business, vehicle utilisation can be maintained through purchasing fewer vehicles, increasing disposals, or a combination of the two, which would generate cash and reduce debt.