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Marshall Motor Hldgs (MMH)

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Tuesday 10 March, 2020

Marshall Motor Hldgs

Full Year Results

RNS Number : 5212F
Marshall Motor Holdings PLC
10 March 2020
 

MARSHALL MOTOR HOLDINGS PLC

("MMH" or the "Group")

 

Results for the Year ended 31 December 2019

 

Strong Market Outperformance and Strategic Growth

 

Marshall Motor Holdings plc, one of the UK's leading automotive retail groups, announces its results for the Year ended 31 December 2019.

Financial summary

Continuing Operations

 

2019

 

2018

(restated)*

Var %

 

Underlying:

 

 

 

Like-for-like** revenue (£m)

  2,209.6

  2,161.5

2.2%

Like-for-like operating profit (£m)

33.1

34.5

(4.1%)

Underlying profit before tax*** ('PBT') (£m)

22.1

24.7

(10.8%)

Basic Underlying Earnings per share (p)

22.9

26.3

(12.9%)

 

 

 

 

Reported:

 

 

 

Revenue (£m)

2,276.1

2,186.9

4.1%

Operating profit (£m)

32.0

34.3

(6.7%)

Profit before tax (£m)

19.6

18.0

8.9%

Earnings per share (p)

19.9

17.2

15.7%

 

 

 

 

Dividend per share (p)

8.54

8.54

-

 

 

 

 

Adjusted Net debt (£m)****

30.6

5.1

 

Reported Net debt (£m)

138.6

92.8

 

 

2019 Highlights:

Significant strategic growth with 20 new businesses;

Record reported revenue and a fifth year of like-for-like revenue growth since IPO;

Despite market challenges, like-for-like operating profit of £33.1m, down only 4.1% against last year's record result and underlying profit before tax was £22.1m, down 10.8%;

Like-for-like total new vehicle unit sales up 0.3% (market registrations down 2.4%), with both retail and fleet delivering a strong market outperformance;

Like-for-like used car unit sales up 6.1% (market volumes decline 0.1%);

Further growth in aftersales like-for-like revenue, up 3.2%;

Disciplined cost management; like-for-like operating expense increased 1.5% despite cost headwinds;

Strong operational cash generation supporting £46.8m of acquisitions and capital investment;

Recommended final dividend of 5.69p giving a full Year dividend of 8.54p per share (2018: 8.54p);

10th consecutive year of Great Place to Work status and fifth consecutive year ranked in the best UK work places.

 

Daksh Gupta, Chief Executive Officer, said:

" The Group continued to perform well in 2019 and despite a sustained period of market decline, has grown market share by outperforming in all of its key segments . The Group delivered record total reported revenue and achieved like-for-like revenue growth.  Despite market conditions, the business performed well, with like-for-like operating profit down 4.1% to £33.1m against last year's record result.

"The Group has taken advantage of continued market consolidation, completing a number of strategic acquisitions in 2019, adding 20 new businesses. We are particularly proud to have become Volkswagen Group's largest partner in the UK.

"The Board notes the latest forecast by the Society of Motor Manufacturers and Traders ('SMMT') for a further decline in the UK new car market in 2020 of 2.6%. It is also cognisant of the potential impact that uncertainty over the outcome of future trade agreement negotiations between the UK and the European Union may have on the automotive sector.  Although we have not seen an impact to date, the Board is monitoring the potential impact of COVID-19 and is considering contingency plans in the event it starts to impact our dealerships .  The Board therefore remains cautious but our order book for the important March plate-change period is encouraging and our outlook for the full Year is unchanged.

"The UK motor retail landscape may change over the years and decades ahead. The Group's long standing strategy of partnering with the right brands in the right locations has positioned it well to remain a relevant and important part of that future landscape.

"I would like to take this opportunity, on behalf of the Chairman and the Board, to thank our entire team, our brand partners and suppliers for their continued support."

 

* The comparative figures have been restated on adoption of IFRS 16 Leases.  Full details of the impact of adoption are included in Note 2.

 

** results on a 'like-for-like' basis include only the Group's businesses that have been active and trading for a period of 12 consecutive months.  Business that are excluded from the definition of 'like-for-like' are those sites that have recently commenced operation, therefore do not have a 12-month trading history, as well as any businesses that were closed and market segments or activities that were ceased during the current or previous Year.

 

*** underlying profit before tax is presented excluding non-underlying items as set out in Note 5.

 

**** adjusted net debt is presented excluding the impact of IFRS16 Leases.

 

 

For further information and enquiries please contact:

 

Marshall Motor Holdings plc

c/o Hudson Sandler

Daksh Gupta, Chief Executive Officer

Tel: +44 (0) 20 7796 4133

Richard Blumberger, Chief Financial Officer

 

 

Investec Bank plc (Financial Adviser, NOMAD & Broker)

Tel: +44 (0) 20 7597 5970

Christopher Baird

 

David Flin

 

David Anderson

 

 

Hudson Sandler

Tel: +44 (0) 20 7796 4133

Nick Lyon

Bertie Berger

 

Nick Moore

 

 

 

Notes to Editors

About Marshall Motor Holdings plc  ( www.mmhplc.com )

The Group's principal activities are the sale and repair of new and used vehicles. The Group's businesses have a total of 117 franchises covering 24 brands, operating from 98 locations across 28 counties in England. In addition, the Group operates six trade parts specialists, two used car centres, six standalone body shops and one pre delivery inspection centre.  

 

In 2019 the Group was recognised by the Great Place to Work Institute, being ranked the 11st best place to work in the UK (super large company category). This was the tenth year in succession that the Group has achieved Great Place to Work status.

 

Cautionary statement

This announcement contains unaudited information based on management accounts and forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts and undue reliance should not be placed on any such statements because they speak only as at the date of this document and are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.  MMH undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

 

 

 

Marshall Motor Holdings plc

Results for the Year ended 31 December 2019

 

Chairman's Statement

Introduction

I am delighted to present our annual results for the Year ended 31 December 2019 (the "Year).

Whilst market conditions in 2019 continued to be challenging with further declines in the new car market, the Group continued its track record of market out-performance in new and used car sales and further growth in aftersales revenues.

I am also pleased to welcome Nicky Dulieu to the Board. Nicky joined the Board in January 2020 as a Non-Executive Director and Chair of the Remuneration Committee following Sarah Dickins' retirement from the Board in June 2019. I would like to once again thank Sarah for her contribution to the Group since its IPO in 2015.

Strategy

The Group's strategy of close partnership with major global automotive brands has served it well over many years. We are delighted to have extended and strengthened those partnerships during the Year with the acquisition of an additional 20 business. These included the addition of seven ŠKODA, six Volkswagen passenger car, two Volkswagen commercial vehicles, two Honda and a Volvo business. As a result, in the UK we are now the largest partner for Volkswagen Group, the largest partner for Volvo and the second largest partner for Honda.

The automotive sector is undergoing a period of evolution, driven by a combination of environmental, technological and social change factors. The progression towards battery electric vehicles over the coming years, for example, presents both challenges and opportunities for automotive retailers.  Along with our manufacturer partners, we continue to believe that a strong retail franchise network will be a crucial component of that development. We also believe that those automotive retailers with both scale and a diverse portfolio will be best placed to succeed in a changing market.

Results

The Group has delivered a strong financial performance in what was a very challenging year for the sector.  The Group achieved record reported revenue of £2.3 billion with a fifth consecutive year of like-for-like revenue growth since IPO, up 2.2% to £2.2 billion.  This revenue growth helped to mitigate the impact of significant margin pressure across all main revenue streams (new, used and aftersales) and the impact of loss-making businesses acquired during the Year.  Given these factors, the Board considers underlying PBT during the Year of £22.1m (2018 restated: £24.7m) to be a strong result.

The Group's balance sheet also remains strong, underpinned by £124.9m of freehold land and buildings.

Dividend

The Group's revised dividend policy adopted last year is that, subject to the Group's trading prospects being satisfactory and taking into account potential investments, dividends will be covered by between 2.5 to 3.5 times underlying earnings and paid in an approximate one-third (interim dividend) and two-thirds (final dividend) split.  The Board believes this policy is appropriate and sustainable, balancing the Group's strong financial position and cash generation with its stated strategy of further investment and growth in its business.

The Board is therefore recommending a final dividend for 2019 of 5.69p per share which, if approved by shareholders at our AGM on 21 May 2020, will be paid on 22 May 2020 to shareholders who are on the Company's register at close of business on 24 April 2020.  If approved, this will result in a full year dividend of 8.54p per share (2018: 8.54p) and dividend cover of 2.7x (2018: 3.2x).

AGM

Our annual general meeting will be held on 21 May 2020 and I look forward to meeting all shareholders who are able to attend.

Outlook

The Board notes the latest forecast by the Society of Motor Manufacturers and Traders ('SMMT') for a further decline in the UK new car market in 2020 of 2.6%. It is also cognisant of the potential impact that uncertainty over the outcome of future trade agreement negotiations between the UK and the European Union may have on the automotive sector.  Although we have not seen an impact to date, the Board is monitoring the potential impact of COVID-19 and is considering contingency plans in the event it starts to impact our dealerships.  The Board therefore remains cautious but our order book for the important March plate-change period is encouraging and our outlook for the full Year is unchanged.

The UK motor retail landscape may change over the years and decades ahead. The Group's long standing strategy of partnering with the right brands in the right locations has positioned it well to remain a relevant and important part of that future landscape.

I would like to thank the leadership team, our brand partners, business suppliers, shareholders and colleagues throughout the Group for their continued support during another successful year.

I would also like to thank all of our customers throughout the UK who choose Marshall for their mobility products and services. We continue to put our customers at the heart of everything we do and recognise that our success as a business is dependent on meeting and exceeding their expectations.

 

Professor Richard Parry-Jones CBE

Chairman

9 March 2020

 

 

 

 

Operating Review

 

Overview

I am pleased to announce a strong performance against the backdrop of another challenging Year for the UK automotive retail sector, with a third year of both new and used car market decline. 

The Society of Motor Manufacturers and Traders ("SMMT") reported a total market of 2.31m registrations in 2019, a decline of 2.4% versus 2018. This included a 3.2% decline in registrations to new retail customers and a 1.7% decline in registrations to fleet customers. The used car market also declined by 0.1%.

Despite these continued challenging market conditions, the Group continued to grow its market share both organically and by acquisition. The Group's like-for-like vehicle unit sales outperformed the market in all of its key vehicle segments: total new unit sales, new retail sales, new fleet sales and used vehicle sales.  Aftersales revenue also continued to grow on a like-for-like basis, despite the further reduction in the UK vehicle parc as a result of falling new vehicle sales since 2016. 

Reflecting the difficult market, underlying profit before tax ("PBT") of £22.1m (which included the impact of loss-making acquisitions and the first time adoption of IFRS16) was down by 10.8% (2018 (restated: £24.7m). The Board considers this to be a strong result in the context of the challenging market conditions described above.

I am also pleased that the Group completed a number of strategic acquisitions in the Year, adding 20 new businesses through 8 transactions or start-ups, demonstrating the Group's commitment to grow scale with our existing brand partners in new geographical territories.  Whilst these acquisitions will be earnings dilutive in the short-term, we are confident in their medium to long-term potential as we work to improve their operational performance.  The Group has a track-record of acquiring underperforming business and creating long term value for its shareholders through its well-established business model and scalable platform. We therefore believe these acquisitions will be excellent additions to the Group.

Financial Highlights of the Year:

Record reported revenue of £2.3 billion (2018: £2.2bn) with a fifth consecutive year of like-for-like revenue growth since IPO of 2.2% to £2.2 billion;

Despite market challenges, like-for-like operating profit of £33.1m, down only 4.1% against last year's record result;

Total new vehicle sales up 2.4% with like-for-like total new vehicle unit sales up 0.3%, a strong outperformance against a UK market registration decline of 2.4% (including the impact of dealer self-registrations);

 

Total new vehicle sales to retail customers up 1.3% with like-for-like down 2.2%, an outperformance against retail market registration decline of 3.2% (including the impact of dealer self-registrations);

 

Total new vehicle sales to fleet customers up 4.1% with like-for-like up 4.5%, an outperformance against fleet market registration decline of 1.7% (including the impact of dealer self-registrations);

Excellent used car performance against strong prior year comparisons: total unit sales up 8.5% with like-for-like volumes up 6.1%, significantly outperforming the wider UK market which saw volumes decline by 0.1%;

Further growth in aftersales like-for-like revenue, up 3.2%;

Continued disciplined cost management; like-for-like operating expense increase contained to 1.5%;

Continued investment in the Group's property portfolio; £15.2m invested in upgrading facilities and acquiring freehold sites (excluding freehold property purchased in connection with acquisitions);

Property portfolio revaluation as at 31 December 2019 confirmed a c£15m surplus to net book value (not recognised in the accounts);

Adjusted net debt at 31 December 2019 of £30.6m, up £25.5m from 31 December 2018 as a result of acquisitions made through the Year and strong fleet volumes in December 2019;

Recommended final dividend of 5.69p giving a full Year dividend of 8.54p per share, in line with the prior Year.

 

Strategic and Operational Highlights of the Year;

The Group became the largest partner for Volkswagen Group in the UK, adding six Volkswagen passenger car franchises, two Volkswagen commercial franchises and seven ŠKODA franchises.  The Group is also now the largest partner for each of these brands by number of locations;

The acquisition of two Honda franchises in Reading and Newbury, taking our representation to eight locations and reinforcing our No.2 position with the Honda brand in the UK;

Extending our relationship with Volvo by adding our ninth Volvo franchise, confirming our No.1 position with the Volvo brand in the UK;

Tenth consecutive year of Great Place to Work status and fifth consecutive year ranked in the best UK work places, recognised with a laureate award;

Further technological advancements in the Group's bespoke management information system, 'Phoenix 2', including unique third party data integration of vehicle market pricing; and

First national TV marketing promoting the Marshall brand.

 

Strategy

The Group's strategic vision to be the UK's premier automotive group remains central to everything we do. The five strategic pillars, of equal importance, which underpin that vision are: class leading returns; putting our customers first; delivering retailing excellence for the benefit of our customers; being people-centric by focusing on employee engagement; and pursuing strategic growth both organically and through targeted acquisitions in line with the Group's strategy.

This strategy has enabled a transformation of the Group since its IPO in 2015.  Selective, value enhancing acquisitions, combined with strategic portfolio management and organic growth, have led to annual revenues more than doubling to £2.3bn with continuing underlying profit before tax growing at a faster rate to £22.1m.  Since IPO, we have invested more than £100m in our property portfolio and, with the final dividend for 2019 announced today, will have returned nearly £25m to shareholders through dividends. This has been achieved with a constant focus on our customers, excellent relationships with our business partners and, as demonstrated by our consistent ranking as one of the UK's Best Workplaces, our colleagues.

 

The Group's strong track record of delivery against its strategy since IPO has provided a solid platform for further future growth.

 

Class Leading Returns 

The Group continues to focus on organic growth through market outperformance, demonstrated by our strong volume performance in the Year.  In addition, the Group continues to drive sales of used vehicles and aftersales, thereby mitigating the effects of a decline in the new vehicle market.  This resulted in a 6.1% like-for-like increase in used unit sales and a 3.2% like-for-like increase in aftersales revenue, whilst also containing like-for-like expense increase to 1.5% despite continued cost headwinds. 

In recognition of our market leading performance in the first half of the Year, the Group was awarded the Outstanding Achievement Award by Car Dealer Magazine.  In addition, the Group was runner up for the Best Dealer Group Award at the 2020 Automotive Management Awards.

The Group's strategy of building a balanced brand portfolio with the right brand partners in attractive geographic locations, allows for the cyclical nature of individual brands as well as regional variations in performance resulting from local economic issues.

Continued growth with our brand partners will enable the Group to access additional benefits of scale across a number of areas of the business, supported by the use of the Marshall brand across the entire portfolio.  The Group has a robust platform which is scalable for further future growth and is well placed to take advantage of a consolidating market.  The Board anticipates further rationalisation of manufacturer dealer networks over the coming years and given the Group's strong balance sheet and manufacturer relationships, is confident of continued future acquisitive growth.

Customer First

Customer satisfaction is an important element of the Group's strategy, driving repeat business and loyalty to the Marshall brand.

In 2019, 45.2% (2018: 45.6%) of the 72,530 customers surveyed who visited our showrooms indicated that they were either previous customers or were recommended to us. We believe this to be strong for the sector.

Our in-house developed management information system (Phoenix 2) provides daily customer satisfaction information by dealership which allows management to proactively respond to customer needs.

The Group centrally monitors customer satisfaction for both sales and aftersales across all locations and brand partners on a weekly basis. This ensures we remain focused on delivering on our brand partners' key measures whilst ensuring consistency of internal performance monitoring.

The Group's continued expansion and scale provides customers with a wider choice of location, stock and products, increasing both customer satisfaction and sales.

Compliance

The Group operates in a regulated environment and takes its commitment to compliance, and the benefit it brings our customers, seriously.  The Group recognises that compliance is an ongoing process and adopts a culture of continual improvement focused on training and awareness, system and process development, compliance monitoring and internal audit. Key compliance areas for the Group include environmental, health and safety, data protection and financial services. The Group has established compliance committees attended by cross functional colleagues from both compliance and internal audit and from operations and members of the senior management team.  

In April 2019, the Financial Conduct Authority ('FCA') published the findings of its thematic review of general insurance distributions chains and in October 2019 it published its final findings following its review of the motor finance sector.  As part of its findings, the FCA has proposed a number of changes, including to commission arrangements between finance and insurance providers and credit brokers and insurance intermediaries such as the Group. The Group is supportive of the changes proposed by the FCA and the benefits they will bring to our customers and is working with its finance and insurance provider partners to implement them.

Retailing Excellence

The Group's use of the 'Marshall' brand consistently across all of its franchises is unique amongst the large UK multi-brand motor retail groups. As the Group grows and leverages its existing platform, new businesses are re-branded and quickly benefit from wider recognition of the Marshall brand.

The Group believes there are a number of benefits of this consistent brand: 

The Marshall brand is synonymous with good customer service;

The Group's website, marshall.co.uk accommodates all of the Group's brand partners and stock, allowing for much wider customer choice in one place;

One Marshall brand gives the ability to market nationwide in single campaigns, for example, recent marketing campaigns on Sky Sports during the cricket world cup in December 2019 and ITV1 during the England v Kosovo football match November 2019.  These two campaigns reached a combined audience of c20 million viewers and were the first time the Group has carried out any form of national TV marketing.

 

As the Group grows, we intend to continue national marketing, where economic, in order to leverage the reputation and recognition of the Marshall brand on a national scale as part of our omni-channel marketing strategy.

Another key differentiator for the Group in achieving retailing excellence is a focus on technology and data to drive performance.  Phoenix 2, the Group's bespoke MI system, supports local decision-making combined with central oversight to ensure consistency of performance and a focus on what makes a difference.  One of the key benefits of Phoenix 2 is the integration of third party external used car pricing and transaction data.  This enables visibility of pricing comparison to the market, including regional and market desirability variations, all of which leads to greater customer transparency and optimal pricing.  The Group continues to see Phoenix 2 as one of the key drivers behind its market outperformance.

Targeted use of online channels and social media continue to be utilised to increase lead conversion, Marshall is viewed as an industry leader in this area as evidenced by two further awards in the Year; "Best Use of Social Media", Automotive Management Awards and winner of the Social Media category at the Motor Trader Awards.

During 2019, the Group began development work on a new website which will contain a number of new customer-centric features including being fully transactional.  The new website will go live in the first half of 2020. The Group believes it is well-placed grow market share further given its unique investment in its online platform, unique use of data through Phoenix 2 and ability to leverage the Marshall brand through its national marketing and social media channels.

People Centric

For the tenth consecutive year, the Group has been recognised by the Great Place to Work Institute as a 'great place to work' based on colleagues surveyed during 2019. We are particularly pleased that the proportion of colleagues stating that Marshall is a 'great place to work' has increased for the tenth consecutive year.  At 80%, this is significantly ahead of the UK average score of 52% and well ahead of the 65% score required to be considered a Great Place to Work.  We also enjoyed an exceptionally high participation rate of 84%, which compares to 70% nationally, and demonstrates the high degree of trust and engagement in the organisation. This result is also particularly pleasing given the number of new businesses the Group has integrated over recent years.

Based on the results of the 2019 survey, the Group was ranked 11th in the super large category in the UK which included employers such as Admiral, Cisco, Deloitte, EY, Hilton, and Mars. 2019 was the fifth year running that the Group was ranked amongst the best employers in the UK, as a result of which the Group received a Laureate award which has only been awarded to a handful of companies in the history of the Great Place to Work Institute.

The Group continues to be committed to diversity, both in Marshall and the wider industry. The Group is a member of the Automotive 30% Club, the aim of which is to work towards having women in at least 30% of management positions in the sector by 2030. The Group has made great strides towards this target with over 24% of our management positions in our like-for-like businesses filled by females. This is up from 15% in 2015. In recognition of this commitment, I am proud to have been asked to become a patron of the Automotive 30% Club.

The Group announced a number of new strategic people initiatives during the Year and we are pleased to report we have seen significant progress in these areas:

Future leaders programme:  This programme is for high potential colleagues to prepare for their first line management position.  The Group is now in the third year of the programme with 25 colleagues currently participating in the programme.

In-house recruitment team:  Our new in-house recruitment team gives us more control over recruitment quality and cost.  Since its inception in September 2019, the team has recruited over 300 colleagues, saving both significant cost and time in the recruitment process and also providing recruiting managers far more control over the process, leading to better and quicker recruitment decisions.

Learning management system; over 4000 employees have been through on-line training since the release of the system in 2019.

 

The Group is proud of its longstanding commitment to offering apprenticeship programmes.  In 2020, the Group celebrates 100 years of offering apprenticeship programmes and we currently employ 115 apprentices in the Group.  The Group also partners with Drive My Career, a platform which connects prospective apprentices with career opportunities.  During the Year, the Group took part in the Drive My Career Apprentice Takeover which was run throughout National Apprentice Week.  Drive My Career members were encouraged to promote across their social media channels the most successful stories about their apprentices or hand over their social media accounts directly to their apprentices.  We were delighted that one of our second year apprentice technicians was the overall winner of the event

In keeping with our social agenda and aim to support local communities, we have also implemented a new work experience programme to attract new talent for the future alongside our current apprentice programme.

Finally, the Group is pleased that during the year it also announced the appointed of Jo Moxon as Human Resources Director.  Jo has extensive experience across a diverse range of industries including, financial services, property, online and retail. More latterly, Jo was Group Human Resources Director for Pendragon PLC.  Her experience in these sectors will be invaluable to the Group as we continue with our current growth strategy. I would also like to take this opportunity to thank Helen Burrows for her contribution to the success of the Group since 2013. We wish her well for the future.

StrategicGrowth

As demonstrated since IPO, the Group's strategy is to grow scale with existing brand partners in new geographical territories. There continues to be considerable consolidation in the UK motor retail market and the Group, with its scalable platform, is very well positioned to take advantage of the opportunities arising given its strong balance sheet and excellent manufacturer relationships. The Group continually seeks to maximise return on capital employed and closely monitors and reviews its portfolio to ensure optimal returns.

Acquisitions and Disposals

During the Year, 20 new business units were added to our portfolio through eight acquisitions or start-ups.  We are pleased that, in line with our historical practice, all of these transactions were off-market and completed with the full support of our brand partners.

The Group completed five trade and asset acquisitions during the Year as follows:

 

In March 2019 the Group announced two transactions which further extended its relationship with ŠKODA  from 5 locations to 11, making it the largest retailer in the UK for the brand. The Group acquired Leicester and Nottingham ŠKODA from Sandicliffe Limited and subsequently acquired the Bedford, Harlow, Letchworth and Northampton ŠKODA businesses from Progress Bedford Limited. We are very pleased with the progress of integrating these businesses which are already showing strong signs of improvement and are benefiting from the Group's scale and operating model.

 

In September 2019, the Group acquired two Honda businesses in Reading and Newbury from Jardine Motor Group UK Limited, reinforcing the Group's position as the second largest Honda partner in the UK.  The acquisitions were completed with the full support of Honda UK and the Group now represents the Honda brand in eight excellent locations in the UK.  Again, the early signs are encouraging in terms of the integration of these businesses.

 

In December 2019, the Group was delighted to announce the acquisition of the business and assets of a portfolio of Volkswagen and ŠKODA passenger and commercial vehicle franchises from Jardine Motor Group UK Limited. The businesses acquired comprise six Volkswagen passenger car franchises in Aylesbury, Harlow, Letchworth, Loughton, Milton Keynes and St Albans, making the Group Volkswagen passenger car's biggest partner in the UK, together with a Volkswagen commercial vehicle franchise and bodyshop in Loughton and a ŠKODA passenger car franchise in Milton Keynes.

 

Aggregate revenue for these businesses was £196.1m in the year ended 31 December 2017 and £212.8m for the year ended 31 December 2018 with a loss before tax in these years of £3.3m and £2.8m respectively.  As a result, the acquisition is expected to be earnings dilutive in 2020 and 2021 while the Group improves the operational performance of the businesses. We expect the acquisition to be earnings enhancing from 2022 onwards.  Completion of Aylesbury Volkswagen has been deferred pending completion of the legal process to sub-divide the site.  It is expected that this process and the transfer of the Aylesbury Volkswagen business will be completed in 2020.

 

We are proud of the development of our relationship with Volkswagen Group, from acquiring our first Volkswagen Group franchise in 2012 to now becoming its largest partner in the UK with 53 operations. The Volkswagen Group is one of the world's leading automobile manufacturers and the largest carmaker in Europe.  The Group partners with all of the Volkswagen Group's core brands: Volkswagen Passenger Cars, Audi, SEAT, ŠKODA and Volkswagen Commercial Vehicles. Volkswagen Group's core passenger car brands account for around 20% of all new vehicles sold in the UK and 11.5% for commercial vehicles. It is also investing €60bn in e-mobility, hybridisation and digitisation between 2020 and 2024, with the much anticipated Volkswagen ID.3 model scheduled for release in the UK in 2020.

 

Finally, in December 2019, the Group completed the acquisition of Volvo Derby from Vertu Motors plc. The franchise was relocated to a new freehold facility in Derby which was also acquired during December 2019. This addition takes the Group's Volvo representation to nine sites, the largest representation in the UK for the brand.

 

During 2019 the Group also announced the following portfolio additions:

Volkswagen Commercial Vehicles in Lincoln. The Group was awarded an open point and commenced trading in October 2019, occupying one of the Group's existing freehold facilities. This addition, along with the operation in Loughton, made the Group Volkswagen Commercial Vehicle's largest partner in the UK;

Commencement of a new partnership with LEVC, the manufacturer of electric London taxis owned by Geely Automotive Holdings, which also owns the Volvo brand.  The Group now represents the LEVC brand in Nottingham, sharing facilities with the Group's Volvo franchise;

The Group now also represents Ford in the Cambridge region for the supply of genuine Ford parts to third party repairers through its Ford Parts Plus franchise.

 

Following a review of the Group's portfolio, the Board took the decision to close its Halesworth Land Rover used car centre. During 2016 the Group relocated the Halesworth Land Rover franchise to a state of the art 'dual arch' site in Ipswich.  The Board has also, with the agreement of the brand partner, taken the decision to exit the Maserati franchise in Peterborough. The business will continue trading until June 2020 to ensure a smooth transition.

The Group now consists of 117 franchises representing 24 brand partners trading in 28 counties nationwide. In addition, the Group operates six trade parts specialists, two used car centres, six standalone body shops and a pre-delivery inspection (PDI) centre. The Group operates a balanced portfolio of volume, premium and alternate premium brands including all of the top five premium brands.

The Group's scale and diversified spread of representation helps mitigate the effect of the cyclical nature of individual brand performance. The Group's strategy is to develop strong relationships with our brand partners, targeting a 5% share or more of UK sales for each brand partner.  We now exceed that threshold with nine of our key brand partners and our strategy is to grow that scale further.

Investment in New Retail Locations and Major Developments

The Group continues to invest in its retail sites and has invested a total of £19.4m into its asset base during the Year. Investment in relocations and major rebuilds included:

Nursling Mercedes Benz Commercial Vehicles- Substantial new build of aftersales and used vehicle facility;

Wimbledon Audi- major refurbishment of leasehold Audi site in-line with new manufacturer "city concept", first of its type in the UK;

Completion of the relocation of Lincoln Jaguar Land Rover, historically two separate leasehold sites into one purpose built freehold site;

Relocation of Lincoln Nissan to larger premises (utilising ex-Lincoln Land Rover leasehold facility) compliant with Nissan brand standards;

Purchase of freehold land to extend Grimsby BMW used vehicle display space.

Acquire the freehold land of Northampton ŠKODA;

Purchase of freehold land and buildings to accommodate recently acquired Derby Volvo franchise;

 

In addition to large scale redevelopments, the Group continues to invest in upgrading existing businesses to enhance the customer experience, satisfy brand requirements, electrification and increase sales and aftersales capacities. 

Since IPO in 2015, the Group has invested over £100m into its estate including corporate identity upgrades, freehold and long-leasehold acquisitions and ongoing maintenance capital expenditure.  Following this unprecedented level of investment, the Group expects to see its free cashflow benefit from 2021.

 

Market and Business Update

 

New Vehicles

 

 

 

 

  Growth

 

2019

2018

Total

LFL

Retail Units

29,249

28,871

1.3%

(2.2%)

Fleet Units

18,054

17,342

4.1%

4.5%

Total Units

47,303

46,213

2.4%

0.3%

 

2019 proved to be a challenging year for new vehicle sales in the UK.  The SMMT reported a third year of decline in 2019 with the market down 14.2% from its peak in 2016.

Total new vehicle registrations of 2.31m in the Year represented a decline of 2.4% versus 2018. Registrations of new vehicles to retail customers continued to be impacted by general economic uncertainty, weaker sterling and the negative impact of Brexit and were down 3.2%.  Fleet registrations were more encouraging, with the decline contained to 1.7%. Purchasing decisions continue to be influenced by the lack of clarity on the future tax implications of diesel vehicles.  Fleet registrations also benefitted from a pull forward of demand towards the end of 2019 as OEMs incentivised the sales of higher Co2 emitting vehicles as a result of the introduction of the new Clean Air For Europe programme ("CAFE") which came into effect on the 1 January 2020.

Against this challenging market backdrop, during the Year, the Group sold a total of 47,303 new vehicles, an increase of 2.4% versus 2018.  Despite the market decline, the Group's like-for-like new unit sales increased by 0.3%.

Total sales of new vehicles to retail customers increased by 1.3% in the Year, with like-for-like sales outperforming the market with a decline of 2.2%.

Total sales of new vehicles to fleet customers increased by 4.1% in the Year, with like-for-like sales also outperforming the market with an increase of 4.5%.

Overall new vehicle margins improved versus 2018, up 32bps to 7.4%.  Margins declined in the second half of the Year, reflecting a combination of reduced manufacturer support for vehicles affected by changes introduced by the Worldwide Light Vehicle Test Procedure ('WLTP') in 2018 and an increased proportion of lower margin fleet sales.

 

Used Vehicles

 

 

 

Growth

 

2019

2018

Total

LFL

Total Units

46,974

43,302

8.5%

6.1%

       

 

 

The SMMT reported further used vehicle market decline of 0.1% in 2019.  The Group is therefore pleased that with its continued focus on sales of used vehicles, we are able to report an increase in used unit sales of 8.5%, with like-for-like sales increasing by 6.1%.

The Group's strategy on used car sales is to utilise capacity within the current Group portfolio to maximise throughput on its existing footprint, therefore mitigating the associated investment in additional sites and resource. We believe this approach reinforces the resilience of the franchise model.  As the Group continues to grow, the combination of increased used vehicle stock availability, the ability to market that stock on our unified Marshall.co.uk website and the overall awareness of the Marshall brand, assists all franchises to leverage the benefits of our group scale.

The Group continually looks for opportunities to increase the number of used vehicles sold including through:

increased on-site space, as demonstrated by the purchase of freehold land adjacent to our Grimsby BMW site;

operational controls, for example our strict 56-day stocking policy which encourages accelerated stock turn;

the use of technology, including further enhancements to Phoenix 2, our in-house management information system, which integrates third party information on sales volumes and pricing

increased brand recognition, including the first time utilisation of national television advertising.

 

There was further growth in the number of used cars purchased from the Group using PCP products which have now become a key feature of the 3-6 year old used car market in which the Group primarily operates. 63% of the Group's used vehicles which were purchased on finance were purchased using a PCP (2018: 63%). As in the new car market, PCPs create a defined point of renewal/purchase/replacement and we actively manage the renewal process to ensure, where possible, customers are retained by the Group.

We believe the recent popularity of used car PCPs presents the Group with future opportunities for the sale of older used cars given the event-driven nature of a PCP.

 

 

Aftersales

 

 

 

Growth

 

2019

2018

Total

LFL

Revenue (£m)

258.2

246.1

4.9%

3.2%

       

 

 

Aftersales remains a key strategic focus of the Group, providing future revenue and profit assurance during periods of a more challenging economic environment. In addition to our retail centre based aftersales facilities, the Group operates six standalone bodyshops, six trade parts centres and one PDI centre.

Aftersales contributed 43.9% of total retail gross profit during the Year and therefore makes a significant financial contribution to the Group which is important in the context of a more cyclical new car market.

Our strong aftersales performance in recent years continued during the Year, with total revenue growth of 4.9% (3.2% like-for-like) partially offsetting margin pressure (down 127bps) due to an increased proportion of parts sales compared to servicing revenue. Overall like-for-like gross profit from aftersales during the Year increased by £0.4m.

In order to drive customer retention, we offer service plans to customers of both new and used vehicles which allow customers to plan and budget for service costs. These plans are often included in the monthly payment of a vehicle and are therefore very convenient for customers.

As most new and used cars purchased with PCPs also come with service plans, this has helped to increase our segment 2 and segment 3 penetration, an area of the market that's historically been dominated by the independent sector.

Industry Strategic Landscape

 

The automotive sector is undergoing an exciting period of evolution, driven by a combination of technology, environmental and social change factors.  The Group's strategy anticipates the impact that these macro factors will have for automotive retailers in the future.

 

Macro change factors

Climate change and the response of international governments to these issues, in combination with technological developments by vehicle manufacturers, will have a significant impact on the automotive sector over the coming years.

 

The global response to the issue of climate change, including the Paris Agreement target for carbon neutrality by 2050, has instigated a shift from traditional internal combustion engines ('ICE') to battery electric vehicles ('BEVs').  That process is already well underway, driven by regulatory interventions such as the Clean Air for Europe programme ('CAFE'). Under the CAFE regulations, punitive financial penalties will be imposed from 2020 on vehicles manufacturers which do not achieve significantly reduced average Co2 emissions.  In addition, national governments, including the UK, are setting their own targets for the cessation of sales of new ICE vehicles (including hybrids) over the next 15-20 years.

 

As a result, all major vehicle manufacturers are investing heavily in the development and launch of hybrids and BEVs.  The substantial investment requirements of these developments has already led to significant collaboration and consolidation between vehicle manufacturers, including the acquisition of Vauxhall Opel by Groupe PSA, the merger of Fiat Chrysler Automobiles and Groupe PSA and the alliance between Renault, Nissan and Mitsubishi.

 

Other technological developments will also have an increasing influence on the automotive sector in the future. Connected car capabilities have existed for a number of years and have facilitated a variety of new sharing and subscription models of vehicle use.  In addition, autonomous technologies, whilst still many years away in terms of the potential for fully autonomous vehicles, have introduced a range of comfort and safety features to modern motor vehicles. 

 

Impact and opportunities automotive retailers

The macro change factors outlined above present a number of potential challenges and opportunities for motor retailers in the future. 

 

The increasing proportion of BEVs in the vehicle parc is likely to impact traditional aftersales activities, including the sale of parts and oil products.  However, these new technologies, and the associated expertise and facilities required to service them, can also offer opportunities for certain franchised dealers. Close partnerships with vehicle manufacturers and the ability to invest in infrastructure required to service BEVs, differentiates their franchised dealers' expertise and service capabilities from those of the independent aftersales sector. 

 

Connected car technology will provide further opportunities for manufacturers, through their franchised dealer networks, to improve retention rates for older vehicles within their aftersales networks. 

 

Ancillary revenue streams including digital services, the sale of charging points and tyres (given increased replacement cycles for BEVs) are also areas of opportunity for certain retailers able and willing to invest.

 

Finally, further consolidation of vehicle manufacturers and the anticipated reduction of retail networks by up to c25% over the coming years should assist in higher throughput and profitability per retail location.

 

Marshall Strategy 

The Board believes that the Group's long standing strategy of partnering with the rights brands in the right locations has positioned it well to benefit from the changes ahead. 

 

The Group's key manufacturer partners are strong and are taking leading positions in the development of future mobility technologies and the Group will benefit from the continued success of their brands. 

 

The Board also believes that the Group's portfolio of dealerships are in the right locations and markets to benefit from the expected rationalisation and consolidation of dealer networks in the UK. 

 

Finally, and importantly, the Group's growing scale and depth of relationships with its manufacturer partners will help to ensure it remains a relevant and important part of their future retail strategies.

 

Market Outlook

 

As reported above, 2019 was a challenging year for the new vehicle market with registrations down 2.4% from 2018 and down 14.2% from the market peak of 2.69m registrations in 2016.

The current SMMT forecast for 2020 predicts a further new car market decline of 2.6% to 2.25m. Further declines are expected in diesel market share, with growth in registrations of alternative fuel vehicle registrations expected to continue.

The Board is also cognisant of the potential impact that uncertainty over the outcome of future trade agreement negotiations between the UK and the European Union may have on the automotive sector.  We are, however, confident in our brand partners' commitment to the UK automotive retail market (the second largest in Europe).

Although we have not seen an impact to date, the Board is monitoring the potential impact of COVID-19 and is considering contingency plans in the event it starts to impact our dealerships. 

Summary

 

The Group continues to perform well despite a sustained period of market decline.  Despite a declining market, the Group has grown market share by outperforming in all of its key segments and carefully managing both margins and costs.

We are particularly pleased with our used vehicle performance and growth in aftersales revenues. These revenue streams provide resilience to the business during more challenging periods of the cyclical new car market.

The Group has demonstrated the benefits of its strong balance sheet and has taken advantage of continued market consolidation in the YearWe are pleased to welcome 20 new business and over 400 new colleagues to the Marshall family, demonstrating our confidence and belief in both the industry and our brand partners.

Finally, on behalf of the Board, I would like to thank our colleagues and our brand and business partners for their hard work and support during 2019. I look forward to continuing to work together in 2020.

 

Daksh Gupta

Chief Executive Officer

9 March 2020

 

 

 

 

 

Financial Review

 

Overview

 

I am pleased to present the Group's 2019 annual results.

 

2019 has been a year of exciting growth. Despite the ongoing economic uncertainty, we continued to outperform the new and used car markets with continued growth of like-for-like unit sales of both new and used vehicles, with a particularly strong performance from our fleet business.  In line with our strategy of partnering with the right brands and in the right markets, we acquired a number of underperforming businesses in the Year.  Whilst these acquisitions were earnings dilutive in 2019 and are expected to be earnings dilutive in 2020 and 2021, we are confident in their medium and long term potential.  Losses from the acquired businesses are reflected in our 2019 results which are presented below.

 

As I stated last year, we were in a strong position to capitalise on acquisition opportunities as they arose. Including freehold property associated with acquired businesses, we invested over £30m in the Year on acquisition activity which included 6 Volkswagen, 7 SKODA, 2 Honda, 1 Volvo and 1 LEVC franchise. As a result of this exciting year of acquisitive growth, we have seen our number of sites increase by almost 20%.  We also continued to invest in the business and spent £15.2m on capital expenditure, excluding freehold property acquired as part of business acquisitions. This also included the exciting upgrade of Audi Wimbledon, the first virtual reality showroom of its kind in the UK and which opened in February 2020. We also completed the development of our new multi-million-pound Mercedes-Benz Commercial Vehicles site in Nursling, Southampton.

 

We continued to delight our customers and grow market share and, with the benefit of our industry-leading software, we are able to continue to go from strength to strength. This is in a large part thanks to our dedicated team of people who go about their day to day activities, challenging everything they can and delivering strong customer outcomes. All this is done whilst controlling our cost base, demonstrated by the fact that our like-for-like expenses were up only 1.5% despite ongoing cost headwinds, or 1.8% excluding the impact of a lease disposal.

 

The Group achieved revenue growth during the Year on both reported and like-for-like basis.  We did experience margin pressure as a result of the market decline and we saw strong headwinds in our cost base, both of which were highlighted in our annual report last year.  When combined with the impact of loss making acquisitions referred to above, these have led to an overall decline in the Group's underlying continuing PBT.

 

Despite the continued investment in our existing portfolio and the number of acquisitions we made, along with the working capital increase from a growing business, especially around fleet, I am pleased to report that we continue to optimise our working capital and Adjusted Net Debt  at the end of the Year was £30.6m (2018: £5.1m), giving a healthy leverage of less than 1x EBITDA (pre IFRS16).  Our balance sheet continues to strengthen with Net Assets of £202.3m (2018 restated: £194.0m) and is underpinned by our strong freehold and long leasehold property portfolio.

 

Notwithstanding the SMMT forecast for further new car market decline in 2020, our platform leaves us in an excellent position to continue our outperformance.

 

 

Reported Financial Performance

 

The Group adopted IFRS 16 Leases effective 1 January 2019, using the full retrospective approach. Further details of this can be found in note 2 of this report . 

 

Revenue
Gross profit
Operating expenses

2019

 

2,276.1

260.8

(228.8)

2018

 

2,186.9

253.2

(218.9)

Var %

 

4.1%

3.0%

(4.5%)

Operating Profit

32.0

34.3

(6.7%)

Net finance costs

(9.9)

(9.6)

(3.9%)

PBT underlying

22.1

24.7

(10.8%)

Non-underlying items

(2.4)

(6.7)

63.6%

PBT reported

19.6

18.0

8.9%

Tax

(4.1)

(4.7)

12.9%

PAT reported

15.6

13.4

16.5%

Discontinued operations

-

0.6

-

Profit for the year

15.6

14.0

11.6%

 

Despite the site closures effected in November 2018, reported revenue increased by 4.1% during the Year to £2,276.1m.  This strong performance was achieved as a result of both organic growth and acquisitions made during 2019.

 

The Group's operating profit, on a continuing underlying basis was £32.0m compared to £34.3m in 2018. Continuing underlying PBT in the Year was £22.1m compared to £24.7m in 2018. This decline was driven by a combination of anticipated margin pressure, cost headwinds and the impact of loss-making acquisitions made during the Year.

Our reported PBT of £19.6m (2018 restated: £18.0m) included one-off non-underlying items of £2.4m (2018: £6.7m) as set out in note 5 of this report.

Analysis of Reported Revenue and Gross Profit

The segmental mix on a reported basis is shown in the table below, with like-for-like analysis covered later in this report.   The table below shows a broadly similar mix versus 2018.

Twelve months ended 31 December 2019

 

  Revenue

£m    mix*

  Gross Profit

  £m  mix

New Vehicles

1,079.5

46.4%

80.1

30.8%

Used Vehicles

986.7

42.5%

65.5

25.2%

Aftersales

258.1

11.1%

114.6

44.0%

Internal/Other

(48.2)

-

0.6

-

Total

2,276.1

100.0%

260.8

100.0%

 

 

Twelve months ended 31 December 2018

 

  Revenue

£m    mix*

  Gross Profit

  £m  mix

New Vehicles

1,064.8

47.7%

75.7

29.9%

Used Vehicles

920.2

41.2%

65.4

25.9%

Aftersales

246.1

11.0%

111.9

44.2%

Internal/Other

(44.3)

-

0.2

-

Total

2,186.9

100.0%

253.2

100.0%

 

* mix calculation excludes Internal / Other Sales

 

Finance Costs

Net finance costs increased by £0.3m in the Year to £9.9m (2018 restated: £9.6m) reflecting the costs of financing higher average stock levels as a result of the growth in the business during the Year.

Generating Sustainable Shareholder Value

Profit from continuing operations before tax and non-underlying items was £22.1m (2018 restated: £24.7m), £19.6m after non underlying (2018 restated: £18.0m). The total reported effective tax rate was 20.7% (18.9% on a continuing underlying basis).  Profit from continuing operations after tax was £15.6m (2018 restated: £13.4m), resulting in a reported basic continuing earnings per share of 19.9p, an increase of 15.7% on the prior year.

 

The Group's strategy of organic growth incorporating cost control and sound working capital management, combined with strategic acquisitions, provides a platform for improving shareholder returns.

Non-Underlying Items

The Income Statement includes a separate presentation of non-underlying items to assist a consistent understanding of the performance of the Group year on year.

Non-underlying items in the Year comprise the following:

£m

2019

2018

Acquisition costs

0.8

-

Restructuring costs - recognition / (release)

2.1

(3.5)

Gain on revaluation of investment properties

(0.6)

-

Loss on disposal of investment property

-

1.2

Goodwill impairment

-

9.3

Other

0.1

(0.3)

Total - Continuing operations

2.4

6.7

Profit on disposal of subsidiary

-

(0.6)

Total

2.4

6.1

 

Acquisition costs include professional advisory costs and initial integration costs for the new dealerships added to the Group during the Year.

 

Following a review of the Group's dealerships, a decision was made to close one site, with a further site scheduled for closure during the year ended 31 December 2020. The costs, included in restructuring costs in non-underlying items, represent redundancy costs, asset impairment, and unavoidable costs associated with contracts which relate to these sites.

 

An independent valuation of the Group's properties was obtained during the Year which indicated an increase in value of the investment properties held of £0.6m, the benefit of which is taken through non underlying. Whilst non-investment properties also had a substantial gain, no accounting adjustment is made for these.

 

Like-for-Like Financial Performance

 

Basis of Comparatives

To enable effective comparison of the Group's year-on-year performance, underlying operating profit is shown on a like-for-like basis.  The full definition of an Alternative Performance Measure can be found in Note 2 of this report.

 

Like-for-like

2019

2018

Var %

Revenue

2,209.6

2,161.5

2.2%

Gross Profit

252.3

250.4

0.8%

GP%

Expenses

11.4%

(219.3)

11.6%

(215.9)

(17 bps)

(1.5%)

Operating Profit

33.1

34.5

(4.1%)

 

Like-for-Like Segmental Analysis

Twelve months ended 31 December 2019

 

  Revenue

£m    mix*

  Gross Profit

  £m  mix

New Vehicles

1,056.7

46.8%

78.0

31.0%

Used Vehicles

951.0

42.1%

63.3

25.2%

Aftersales

250.1

11.1%

110.8

43.8%

Internal/Other

(48.2)

-

0.3

-

Total

2,209.6

100.0%

252.3

100.0%

 

 

Twelve months ended 31 December 2018

 

  Revenue

£m    mix*

  Gross Profit

  £m  mix

New Vehicles

1,060.2

48.1%

75.4

30.1%

Used Vehicles

903.4

40.9%

64.4

25.8%

Aftersales

242.3

11.0%

110.4

44.1%

Internal/Other

(44.3)

-

0.3

-

Total

2,161.5

100.0%

250.4

100.0%

* mix calculation excludes Internal / Other Sales

 

 

Like-for-like Revenue

£2,209.6m (up 2.2%)

(2018: £2,161.5m)

Like-for-like revenue in the Year was £2,209.6m (2018: £2,161.5m), an increase of 2.2% and a continuation of our track record of like-for-like revenue growth since IPO.  This result is particularly pleasing in a year which saw the new car market decline by 2.4% and the used car market decline by 0.1%.

This year-on-year improvement was driven by a strong used car performance with unit sales up by 6.1% and associated revenues, at £951.0m (2018: £903.4m), up by 5.3%.  This increase was against the backdrop of a total used car market which declined by 0.1%.

Aftersales revenue increased by 3.2% to £250.1m (2018: £242.3m) with both service and parts revenue increasing in the year and parts mix of aftersales increasing to 51.6% (2018: 50.7%)

Revenue relating to the sales of new vehicles was marginally down (0.3%) in the Year at £1,056.7m (2018: £1,060.2m), on a unit sales increase of 0.3%, reflecting a decline in the turnover per unit largely due to an increased mix of fleet sales.  This performance is particularly pleasing when compared to an overall market decline of ‑2.4% in unit sales.

During periods of cyclical market decline, a strong used and aftersales revenue growth demonstrates the resilience of the business model.  It is, therefore, pleasing that our focus on these areas has allowed the business to continue to drive revenue growth in the Year.

Like-for-like Gross Profit

£252.3m (up 0.8%)

(2018: £250.4m)

As anticipated, the Group was impacted by margin pressure during the Year.  At 11.4%, gross margin percentage was slightly down (17bps) from the prior Year (2018: 11.6%).  Despite this margin decline, absolute like-for-like gross profit increased 0.8% to £252.3m (2018: £250.4m) as a result of the strong revenue growth referred to above.

New vehicle margins at 7.4% were up versus 2018 by 27bps (2018: 7.1%), a recovery following the well documented challenges experienced in 2018 relating to Worldwide Harmonised Light Vehicle Test Procedure ("WLTP") and the availability of petrol vehicle alternatives.

Our used vehicle margin at 6.7% was down by 47bps versus 2018 (2018: 7.1%), a trend which was highlighted at the half year caused by market residual value declines experienced in Q2 2019.  These pressures eased in the second half of the Year, but not to an extent to offset the declines experienced in the first half of the Year.

Like-for-like aftersales margin was 44.0% compared to 45.6% last year. This was as a result of an increased proportion of lower margin parts sales referred to above, combined with an increase in aftersales operating costs.

Like-for-like Operating Expenses

£219.3m (up 1.5%)

(2018 restated: £215.9m)

Although cost pressures continue to impact the overall sector, our like-for-like expenses, at £219.3m, were contained to 1.5%, or 1.8% excluding the benefit of a lease disposal.  This was an excellent performance given the significant cost headwinds experienced, in particular employee and property related costs. The Group continued to place focus on all discretionary costs, particularly in relation to marketing effectiveness, use of temporary labour and costs relating to vehicle stockholding.

Like-for-like Operating Profit

£33.1m (down 4.1%)

(2018 restated: £34.5m)

Given the factors referred to above in relation to margin pressures and cost headwinds, our like-for-like operating profit declined by £1.4m to £33.1m, a solid result given the challenges the sector is facing.  Overall operating margin, at 1.5%, was down 10bps versus last Year (2018 restated: 1.6%).

Shareholder Returns

Full year dividend per share

8.54p (maintained)

(2018: 8.54p)

In March 2019, the Group announced a revised dividend policy whereby dividends would be covered between 2.5x to 3.5x underlying earnings per share.  The Board believes this policy is appropriate and sustainable, balancing the Group's strong financial position and cash generation with its stated strategy of further investment and growth in its business.  The Board is recommending a final dividend for 2019 of 5.69p which would give a full year dividend of 8.54p, flat versus last year (2018: 8.54p) and cover of 2.68x.

During the Year, total dividends of £7.2m were paid to shareholders, an increase of £2.2m versus last year (2018: 5.0m).

ROCE

Return on capital employed (ROCE) for the Year was 10.9% (2018 restated: 12.8%). ROCE is calculated as underlying profit before tax divided by total equity.

This movement is a reflection of the decline in continuing underlying PBT which was, in part, impacted by loss making acquisitions which management expect to show significant improvement in the medium term.

Reported Balance Sheet

 

£m

2019

2018 restated

Goodwill and intangibles

119.3

112.2

Freehold land and buildings

124.9

117.7

Right-of-use assets

108.0

85.4

Other

39.5

34.5

Fixed assets

391.6

349.8

Inventory

470.7

384.0

Trade / other receivables

87.5

79.0

Cash & equivalents

0.1

1.2

Assets held for sale

0.8

0.8

Current assets

559.1

464.9

Vehicle funding

(443.7)

(370.8)

Trade / other payables

(140.6)

(127.2)

Lease liabilities

(108.1)

(87.6)

Bank / other debt

(30.7)

(6.3)

Other liabilities

(25.2)

(28.7)

Total liabilities

(748.4)

(620.6)

Net assets

202.3

194.0

Adjusted net debt (£m)

(30.6)

(5.1)

 

Goodwill and Other Intangible Assets

Following the completion of a number of acquisitions during the Year, additions to goodwill and other intangible assets total £7.5m; of this, £5.0m represents the assessment of the value of the acquired dealership franchise agreement with the vehicle manufacturer. These franchise agreement intangible assets are deemed to have an indefinite life and so no amortisation is charged to the income statement.

Consistent with the requirements of accounting standards, the Group has carried out an assessment of the carrying value of goodwill and other intangible assets. This assessment, which is based upon the Group's annual budget and medium-term plan, has not indicated any impairment of these assets (see note 10).

Acquisitions

Including the purchase of freehold property relating to Northampton ŠKODA and Derby Volvo, the Group invested £31.6m (2018: Nil) acquiring businesses during the Year.  Although the majority of these businesses were loss making at the point of acquisition, the Group views them as having strong potential for the future, further growing representation with a number of our key brand partners. 

 

As a result of these acquisitions, the Group has added £6.6m of intangible assets, £5.0m relating to franchise agreements and £1.5m for goodwill.  The remaining £25m related to property plant and equipment, right of use assets and the associated lease liabilities along with inventory and other working capital related items.

 

These acquisitions were funded through existing resources, utilising our unsecured £120m revolving credit facility with all relevant inventory placed onto our current stock funding lines.

 

Freehold Land and Building

The Group invested a total of £15.2m (excluding the freehold property acquired in relation to business acquisitions) in capital expenditure during the Year.  This amount included major redevelopments in Nursling Mercedes Benz Commercial Vehicles, Wimbledon Audi, Lincoln Jaguar Land Rover, Lincoln Nissan and Grimsby BMW.

This investment brings the net book value of the Group's property, plant and equipment at 31 December 2019 to £159.3m (2018 restated: £148.2m), of which £123.2m related to freehold land and buildings (2018 restated: £108.2m).

Since IPO in 2015, the Group has invested over £100m in to its estate including corporate identity upgrades, freehold and long-leasehold acquisition and ongoing maintenance capital expenditure.  Following this unprecedented level of investment, the Group expects to see its free cashflow benefit from 2021.

During the Year the Group instructed external property advisors, BNP Paribas, to conduct a revaluation exercise of its freehold properties.  I am pleased to report that this showed our freehold estate (excluding investment properties) has been market valued at c£15m above book value.  This difference, in-line with our accounting policies, has not been recognised in our balance sheet.

 

Strong Working Capital Management

A disciplined approach to working capital remains a key focus for the Group.  In the Year, excluding the settlement of the defined benefit pension scheme, the Group generated a cash inflow of £7.5m from working capital.  Of this amount c£15m related to stock funding on vehicles acquired as part of the acquisitions referred to above.  The remaining increase in working capital related to increased levels of fleet debt at the year end following strong fleet deliveries at the end of the Year.

Inventory, net of provisions, at £470.7m increased by 22.6% versus 2018, largely due to acquisitions with the like-for-like inventory increasing 9.3%. £443.7m (94.2%) of this inventory was covered by vehicle financing arrangements which is a marginal decline from 2018 (96.6%) mainly due to timings of year end deliveries and increased fleet orders.

An increase in trade and other receivables reflected the increased scale of the Group following acquisitions and start-ups as well as the increased level of fleet debt referred to above.

Overall, the Group's reported net assets at 31 December 2019 were £202.3m (2018 restated: £194.0m), which equates to £2.59 per share (2018 restated: £2.50).

Cash Conversion

The Group remains cash generative with cash flow from operations during the Year of £53.3m. This enabled us to maintain our investment programme supporting both organic growth and facilitate the acquisition of new dealerships when appropriate opportunities arose. Operating cash flow conversion (being total cash flow generated by operations divided by operating profit from continuing operations before interest, tax, depreciation, amortisation and depreciation on right-of-use assets) is a key metric for managing operational performance.

During the Year, total cash inflows from operations of £53.3m (2018 restated: £47.3m) represented a cash conversion of 108% (2018: restated: 86%).

The Group's cash conversion remains strong and is supported by a focus on the management of working capital, appropriate stock holding policies and the utilisation of stock funding facilities.

Net Debt and Facilities (excluding IFRS16)

At 31 December 2019, the Group's adjusted net debt was £30.6m (2018: £5.1m).

The Group's current finance facilities include a £120m revolving credit facility which is committed until May 2021. The interest rate on this facility is LIBOR plus 120bps to 200bps dependent upon the ratio of Net Debt (excluding IFRS16) to EBITDA. The Group is at an advanced stage of discussions with its lenders to enter into a new RCF.

Net debt including IFRS 16 lease liabilities at 31 December 2019 was £138.6m (2018 restated: £92.8m).

Tax

The Group manages all taxes in line with its published Tax Strategy. This focuses on ensuring that tax compliance risks are managed and therefore the Group pays the appropriate amount of tax. The Group's Tax Strategy is reviewed at least annually and is approved by the Board.

The Group's tax charge before non-underlying items for the Year was £4.2m (2018 restated: £4.3m), an effective tax rate of 18.9% (2018 restated: 17.3%). The effective tax rate for 2018 was reduced by the benefit of retrospective capital allowance claims, excluding the impact of these would result in an effective tax rate for 2018 of 21.6%.

The Group's effective tax rate including non-underlying items was 20.7% (2018 restated: 25.9%).

 

IFRS 16

The Group adopted IFRS 16 Leases effective 1 January 2019 using the full retrospective approach under which the standard is applied as though it had been in place at the start date of the Group's current lease portfolio. The comparative results for the Year ended 31 December 2018 are therefore restated. Further details can be found in note 3 to the Consolidated Financial Statements.

The Group balance sheet at 31 December 2019 includes additional assets of £98.6m (being principally right of use assets) and additional liabilities of £105.6m (being principally lease liabilities). Further detail can be found in note 2 of this report.

Due to the profile of the Group's lease portfolio, the adoption of the standard is marginally earnings diluting in the early years.

While this standard is a substantial change for the presentation of the balance sheet and the income statement, it has no impact on the underlying cash flows and therefore economic performance of the Group.

Pensions

As previously reported, during the Year ended 31 December 2018, the Group ceased to be a participating employer in the Marshall Group Executive Plan (a defined benefit pension scheme).  A provision for the Group's residual liability of £5.6m as at 31 December 2018 and was paid to the scheme in February 2019.

The Group has no further commitments to defined benefit pension schemes, with all remaining Group pension plans being on a defined contribution basis.

 

Richard Blumberger

Chief Financial Officer

9 March 2020

 

 

 

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019

 

 

Underlying items

Non-underlying items

Total

Underlying items

Non-underlying items

Total

 

 

2019

2019

2019

2018

2018

2018

 

 

 

 

 

Restated

Restated

Restated

 

Note

£'000

£'000

£'000

£'000

£'000

£'000

Continuing operations

 

 

 

 

 

 

 

Revenue

3

  2,276,129

  - 

2,276,129

2,186,887

  - 

2,186,887

Cost of sales

 

  (2,015,328)

  - 

(2,015,328)

(1,933,640)

  - 

(1,933,640)

Gross profit

 

  260,801

  - 

260,801

253,247

  - 

253,247

 

 

 

 

 

 

 

 

Net operating expenses

 

  (228,772)

  (2,443)

(231,215)

(218,931)

(6,714)

(225,645)

Operating profit

 

  32,029

  (2,443)

29,586

34,316

  (6,714)

27,602

 

 

 

 

 

 

 

 

Net finance costs

6

  (9,943)

  - 

(9,943)

(9,568)

-

(9,568)

Profit before taxation

4

  22,086

  (2,443)

19,643

24,748

  (6,714)

18,034

 

 

 

 

 

 

 

 

Taxation

7

  (4,177)

  112

(4,065)

(4,286)

(380)

(4,666)

Profit from continuing operations after tax

 

  17,909

  (2,331)

15,578

20,462

  (7,094)

13,368

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

Profit from discontinued operations after tax

5

  - 

  - 

  - 

  - 

589

589

Profit for the year

 

  17,909

  (2,331)

15,578

20,462

  (6,505)

13,957

 

 

 

 

 

 

 

 

Total comprehensive income for the year net of tax

 

  17,909

  (2,331)

15,578

20,462

  (6,505)

13,957

 

 

 

 

 

 

 

 

Earnings per share (EPS) attributable to equity shareholders of the parent (pence per share)

 

 

 

 

 

 

 

From continuing operations:

 

 

 

 

 

 

 

Basic

8

  22.9

 

  19.9

  26.3

 

  17.2

Diluted

8

  22.6

 

  19.7

  25.5

 

  16.6

From continuing and discontinued operations:

 

 

 

 

 

 

 

Basic

8

  22.9

 

  19.9

  26.3

 

  18.0

Diluted

8

  22.6

 

  19.7

  25.5

 

  17.4

 

 

 

 

 

 

 

 

 

 

The comparative figures have been restated on adoption of IFRS 16 Leases. Full details of the impact of adoption are included in Note 2 'Changes in Accounting Policies and Disclosures'.
 

Consolidated Balance Sheet

At 31 December 2019

 

 

2019

2018

As at 1 January 2018

 

 

 

Restated

Restated

 

Note

£'000

£'000

£'000

Non-current assets

 

 

 

 

Goodwill and other intangible assets

10

119,260

112,177

121,514

Property, plant and equipment

11

159,293

148,159

135,023

Right-of-use assets

12

107,967

85,427

91,969

Investment property

 

3,638

2,590

2,590

Non-current financial assets

 

1,442

1,405

1,684

Deferred tax asset

 

-

-

39

Total non-current assets

 

391,600

349,758

352,819

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

470,700

384,005

401,260

Trade and other receivables

 

87,462

78,950

91,324

Cash and cash equivalents

 

110

1,174

4,867

Assets classified as held for sale

 

797

797

750

Total current assets

 

559,069

464,926

498,201

Total assets

 

950,669

814,684

851,020

 

 

 

 

 

Non-current liabilities

 

 

 

 

Loans and borrowings

 

5,024

5,665

6,466

Lease liabilities

12

97,396

80,228

91,642

Trade and other payables

 

6,371

5,596

4,281

Provisions

 

299

-

3,258

Deferred tax liabilities

 

20,134

19,574

19,343

Total non-current liabilities

 

129,224

111,063

124,990

 

 

 

 

 

Current liabilities

 

 

 

 

Loans and borrowings

 

25,641

641

642

Lease liabilities

12

10,689

7,414

6,078

Trade and other payables

 

578,010

492,387

525,987

Provisions

 

3,085

7,795

5,798

Current tax liabilities

 

1,704

1,346

2,180

Total current liabilities

 

619,129

509,583

540,685

Total liabilities

 

748,353

620,646

665,675

Net assets

 

202,316

194,038

185,345

 

 

 

 

 

Shareholders' equity

 

 

 

 

Share capital

 

50,068

49,834

49,531

Share premium

 

19,672

19,672

19,672

Share-based payments reserve

 

1,025

1,570

2,608

Own shares reserve

 

(12)

-

-

Retained earnings

 

131,563

122,962

113,534

Total equity

 

202,316

194,038

185,345

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 201 9

 

Note

Share
capital

Share
premium

Share-based payments reserve

Own shares reserve

Retained
earnings

Total equity

 

 

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 December 2017 as originally presented

49,531

19,672

2,608

-

119,323

191,134

Impact of change in accounting policies

2

  - 

  - 

  - 

  - 

  (5,789)

  (5,789)

Restated balance at 1 January 2018

49,531

19,672

2,608

-

113,534

185,345

 

 

 

 

 

 

 

 

Profit for the year

 

-

-

-

-

13,957

13,957

Total comprehensive income

 

-

-

-

-

13,957

13,957

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

Dividends paid

9

-

-

-

-

(4,983)

(4,983)

Issue of share capital

 

303

-

-

(303)

-

-

Exercise of share options

 

-

-

(1,567)

303

504

(760)

Share-based payments charge

 

-

-

529

-

-

529

Acquisition of non-controlling interest in subsidiaries

 

-

-

-

-

(50)

(50)

Balance at 31 December 2018

 

49,834

19,672

1,570

-

122,962

194,038

 

 

 

 

 

 

 

 

Profit for the year

 

-

-

-

-

15,578

15,578

Total comprehensive income

 

-

-

-

-

15,578

15,578

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

Dividends paid

9

-

-

-

-

(7,223)

(7,223)

Issue of share capital

 

234

-

-

(234)

-

-

Exercise of share options

 

-

-

(1,675)

385

246

(1,044)

Acquisition of own shares

 

-

-

-

(163)

-

(163)

Share-based payments charge

 

-

-

1,130

-

-

1,130

Balance at 31 December 2019

 

50,068

19,672

1,025

(12)

131,563

202,316

 

 

 

Consolidated Cash Flow Statement

For the year ended 31 December 201 9

 

 

2019

2018

 

 

 

Restated

 

Note

£'000

£'000

Operating profit

 

 

 

 - continuing operations

 

29,586

27,602

 - discontinued operations

 

-

589

Adjustments for:

 

 

 

Depreciation and amortisation

4

19,995

17,960

Share-based payments charge

 

1,282

732

Profit on disposal of assets classified as held for sale

4/5

-

(268)

Loss on disposal of property plant and equipment

4

411

67

Profit on disposal and remeasurement of right-of-use assets and lease liabilities

4/5

(403)

(3,460)

Loss on impairment of goodwill and other intangible assets

4/5

-

9,302

Loss on impairment of right-of use assets

4/5

1,081

132

Loss on impairment of property, plant and equipment

4

708

87

Loss on disposal of investment property

4/5

72

1,146

Loss on disposal of finance lease receivable

4

-

183

Increase in fair value of investment properties

5

(610)

-

Profit on disposal of subsidiary

5

-

(589)

Cash flows from operating activities before working capital

 

52,122

53,483

 

 

 

 

(Increase) / decrease in inventories

 

(69,893)

17,255

(Increase) / decrease in trade and other receivables

 

(7,677)

12,269

Increase / (decrease) in trade and other payables

 

83,946

(33,543)

Increase / (decrease) in provisions

 

379

(2,157)

Settlement of defined benefit pension scheme

 

(5,567)

-

Total cash flows generated by operations

 

53,310

47,307

 

 

 

 

Tax paid

 

(4,698)

(5,231)

Interest paid on lease liabilities

 

(3,068)

(3,273)

Other net finance costs

 

(6,875)

(6,362)

Net cash inflow from operating activities

 

38,669

32,441

 

 

 

 

Investing activities

 

 

 

Purchase of property, plant, equipment and software

10/11

(19,433)

(22,242)

Net purchase of investment property

 

(72)

(1,146)

Acquisition of businesses, net of cash acquired

10

(27,397)

-

Acquisition of non-controlling interest in subsidiaries

10

-

(50)

Lease payments received under finance lease

4

201

268

Interest received under finance leases

 

63

67

Net cash flow from sale of discontinued operation

5

-

589

Proceeds from disposal of property, plant and equipment

 

420

274

Proceeds from disposal of assets classified as held for sale

 

-

1,018

Net cash outflow from investing activities

 

(46,218)

(21,222)

 

 

 

 

Financing activities

 

 

 

Proceeds from borrowings

 

70,000

30,000

Repayment of borrowings

 

(45,641)

(30,802)

Repayment of lease liabilities

 

(9,780)

(8,159)

Dividends paid

9

(7,223)

(4,983)

Purchase of own shares

 

(163)

-

Settlement of exercised share awards

 

(708)

(968)

Net cash inflow / (outflow) from financing activities

 

6,485

(14,912)

 

 

 

 

Net decrease in cash and cash equivalents

 

(1,064)

(3,693)

Cash and cash equivalents at 1 January

 

1,174

4,867

Cash and cash equivalents at year end

 

110

1,174

 

 

Net Debt Reconciliation

For the year ended 31 December 2019

 

 

2019

2018

 

 

 

Restated

 

 

£'000

£'000

Reconciliation of net cash flow to movement in net debt

 

 

 

Net decrease in net cash and cash equivalents

 

(1,064)

(3,693)

Proceeds from drawdown of RCF

 

(70,000)

(30,000)

Repayment of drawdown of RCF

 

45,000

30,000

Repayment of other borrowings

 

641

802

Change in lease liability commitments

 

(33,228)

(1,354)

Repayment of lease liabilities

 

12,785

11,432

(Increase)/decrease in net debt

 

(45,866)

7,187

Opening net debt

 

(92,774)

(99,961)

Net debt at year end

 

(138,640)

(92,774)

 

 

 

 

Lease liabilities

12

(108,085)

(87,642)

Adjusted net debt at year end (non GAAP measure)

 

(30,555)

(5,132)

 

 

 

 

Net debt at year end consists of:

 

 

 

Cash and cash equivalents

 

110

1,174

Loans and borrowings

 

(30,665)

(6,306)

Lease liabilities

12

(108,085)

(87,642)

Closing net debt

 

(138,640)

(92,774)

 

 

Notes to the Consolidated Financial Statements

 

1.  General information

Marshall Motor Holdings plc (the Company) is incorporated and resident in the United Kingdom. The Company is a public limited company, limited by shares, whose shares are listed on the Alternative Investment Market (AIM) of the London Stock Exchange. The Company is registered in England under the Companies Act 2006 (registration number 02051461) with the address of the registered office being; Airport House, The Airport, Cambridge, CB5 8RY, United Kingdom.

The financial statements of Marshall Motor Holdings plc were authorised for issue by the Board of Directors on 9 March 2020.

The financial information presented in this preliminary announcement has been extracted from the Group's Annual Report and Accounts for the year ended 31 December 2019 and is prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the EU and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

With the exception of IFRS 16 Leases, the principal accounting policies adopted in the preparation of the financial information in this preliminary announcement are unchanged from those used in the Group's consolidated financial statements for the year ended 31 December 2018 and are consistent with those that the Group has applied in its consolidated financial statements for the year ended 31 December 2019. The Group adopted IFRS 16 Leases with effect from 1 January 2019 and has restated the comparative information. Details of the Group's transition to IFRS 16 are presented in Note 2.

The financial information contained within this preliminary announcement does not constitute the Company's statutory accounts for the current or prior year. Statutory accounts for the year ended 31 December 2019 have been reported on by the Independent Auditor. The independent auditor's report for the year ended 31 December 2019 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.

Statutory accounts for the year ended 31 December 2018 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2019 will be delivered to the Registrar following the Company's AGM.

A copy of the full Group financial statements for the period ended 31 December 2019 that comply with IFRS will be made available at www.mmhplc.com

 

Alternative performance measures

 

Non-underlying items

Certain items recognised in reported profit or loss before tax can vary significantly from year to year, therefore, these create volatility in reported earnings which does not reflect the Group's underlying performance. The Directors believe that the 'underlying profit before tax' and 'underlying basic earnings per share' measures presented provide a clear and consistent presentation of the underlying performance of the Group's on-going business for shareholders. Underlying profit is not defined under IFRS, therefore, it may not be directly comparable with the 'adjusted' profit measures of other companies.

 

Non-underlying items are defined as follows:

· Acquisition costs;

· Profits/losses arising on closure or disposal of businesses;

· Restructuring and reorganisation costs - these are one-off in nature and do not relate to the Group's underlying performance;

· Investment property fair value movements - these reflect the difference between the fair value of an investment property at the reporting date and its carrying amount at the previous reporting date;

· One-off tax items and pension charges; and

· Asset impairments.

 

Like-for-like

Similarly, the Directors believe that the impact of acquisitions and disposals distorts the value of comparative information provided. Therefore, the measure of 'like-for-like' financial performance is used to present consistent, comparative information. Results on a 'like-for-like; basis include only the Group's businesses that have been active and trading for a period of 12 consecutive months.

 

Businesses that are excluded from the definition of 'like-for-like' are those sites that have recently commenced operation, therefore do not have a 12-month trading history, as well as any businesses that were closed and market segments or activities that were ceased during the current or previous year.

 

Adjusted net debt

The Directors believe that the impact of the adoption of IFRS 16 Leases distorts the value of reported net debt. Therefore, the measure of 'adjusted net debt' is presented.

 

 

Notes to the Consolidated Financial Statements

 

1.  General information (continued)

 

Going concern

The consolidated financial statements are prepared on the going concern basis. After making appropriate enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and for at least one year from the date that these consolidated financial statements are signed. For these reasons they continue to adopt the going concern basis in preparing the consolidated financial statements. 

 

The Directors have considered the future prospects and performance of the Group including: business plans, impact of acquisitions, future cash flows and availability of core and auxiliary financing facilities.

 

 

 

 

Notes to the Consolidated Financial Statements

 

2.  Changes in accounting policies and disclosures

Except where disclosed otherwise in this note, the accounting policies adopted in the preparation of the consolidated financial statements are consistent with those applied when preparing the consolidated financial statements for the year ended 31 December 2018.

New standards, amendments and interpretations adopted by the Group

The following new standards and amendments to existing standards became effective on 1 January 2019 and have been adopted in the consolidated financial statements for the first time during the year ended 31 December 2019. These have been assessed as having no financial or disclosure impact on the numbers presented.

 

· IFRIC Interpretation 23 Uncertainty over Income Tax Treatment

· IFRS 3 Business Combinations

· IAS 12 Income Taxes

· IAS 23 Borrowing Costs

The following new standard became effective on 1 January 2019 for the current reporting period. The Group had to change

its accounting policies and make adjustments as a result of adopting the following new standard:

 

· IFRS 16 Leases

 

The impact of the adoption of this standard is disclosed below. The accounting policies above have been updated to include the new accounting policies.

 

Three other standards, amendments and interpretations apply for the first time with effect from 1 January 2019; however, they do not have an impact on the consolidated financial statements of the Group.

 

Impact on current period of the adoption of new standards, amendments and interpretations

IFRS 16 Leases

The Group has applied IFRS 16 issued in January 2016 with a date of initial application of 1 January 2019. IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement Contains a Lease, SIC-15 Operating Lease Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

 

The Group has applied IFRS 16 using the full retrospective approach, therefore, the Group applied IFRS 16 at the date of initial application as if the standard had already been effective at the commencement date of the Group's existing lease contracts. As a result, the comparative information in these consolidated financial statements has been restated. The nature and effects of the key changes to the Group's accounting policies resulting from the adoption of IFRS 16 are summarised below.

 

Definition of a lease

 

Previously the Group determined at contract inception whether an arrangement is or contains a lease under IFRIC 4. Under IFRS 16, the Group assesses whether a contract is or contains a lease based on the definition of a lease.

 

On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Group has applied the definition of a lease under IFRS 16 to contracts that have been entered into, or changed, on or after 1 January 2019.

 

Group as lessee

 

As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all the risks and rewards incidental to ownership of the underlying asset to the Group. Under IFRS 16, the Group recognises in the Consolidated Balance Sheet right-of-use assets and lease liabilities for most leases.

 

The Group has elected to apply the recognition exemptions for lease contracts that do not contain a purchase option and have a lease term of 12 months or less and/or are for underlying assets with a low value.

 

For leases not covered by these recognition exemptions, the Group recognised right-of-use assets and lease liabilities on adoption of IFRS 16. The Group also tested these right-of-use assets for impairment and recognised an impairment loss against some right-of-use assets on transition and when restating the comparative 2018 period.

 

 

Notes to the Consolidated Financial Statements

 

2.  Changes in accounting policies and disclosures (continued)

Impact on current period of the adoption of new standards, amendments and interpretations (continued)

IFRS 16 Leases(continued)

Group as lessor

Under IFRS 16, lessor accounting continues to require lessors to classify leases as either operating leases or finance leases using similar principles as were used under IAS 17. As a result, with the exception of sub-lease arrangements, the Group is not required to make any adjustments on transition to IFRS 16 for leases in which it acts as a lessor.

 

Under IFRS 16, the Group is required to assess the classification of a sub-lease with reference to the right-of-use asset, not the underlying asset. On transition, the Group reassessed the classification of sub-lease contracts previously classified as an operating lease under IAS 17. The Group concluded that two sub-leases are finance leases under IFRS 16, and accounted for these subleases as new finance leases entered into at the date of initial application.

 

Impacts on financial statements

 

As described above, December 2018 comparatives have been restated following the adoption of IFRS 16. The following tables summarise the restatements arising on adoption of IFRS 16 in the Group's consolidated financial statements.


Taxation

A deferred tax liability arises on the right-of-use asset and a deferred tax asset arises on the corresponding lease liabilities. These meet the conditions for offsetting and are presented net on the Consolidated Balance Sheet. The net effect is a deferred tax asset which has been recognised as it is probable that future taxable profits will be available against which the deferred tax asset can be offset.

 

 

Notes to the Consolidated Financial Statements

 

2.  Changes in accounting policies and disclosures (continued)

Impact on current period of the adoption of new standards, amendments and interpretations (continued)

IFRS 16 Leases(continued)

 

Consolidated statement of comprehensive income

The adoption of IFRS 16 results in an increased depreciation charge, the elimination of operating lease rental charges and increased finance costs. Depreciation is recognised on right-of-use assets and interest is recognised on lease liabilities. These charges are recognised instead of operating lease rental payments and income.

 

 

31 December 2019 Pre IFRS 16

IFRS 16 Transition

31 December 2019 As presented

31 December 2018 As originally presented

IFRS 16 Transition

31 December 2018
Restated

 

£'000

£'000

£'000

£'000

£'000

£'000

Revenue

  2,276,129

  - 

  2,276,129

  2,186,887

  - 

  2,186,887

Cost of sales

  (2,015,328)

  - 

  (2,015,328)

  (1,933,640)

  - 

  (1,933,640)

Gross profit

  260,801

  - 

  260,801

  253,247

  - 

  253,247

Net operating expenses

  (233,528)

  2,313

  (231,215)

  (228,181)

  2,536

  (225,645)

Operating profit

  27,273

  2,313

  29,586

  25,066

  2,536

  27,602

Net finance costs

  (6,938)

  (3,005)

  (9,943)

  (6,362)

  (3,206)

  (9,568)

Profit before taxation

  20,335

  (692)

  19,643

  18,704

  (670)

  18,034

Taxation

  (4,134)

  69

  (4,065)

  (4,775)

  109

  (4,666)

Profit from continuing operations after tax

  16,201

  (623)

  15,578

  13,929

  (561)

  13,368

Profit from discontinued operations after tax

  - 

  - 

  - 

  589

  - 

  589

Profit for the year

  16,201

  (623)

   15,578

  14,518

  (561)

  13,957

 

 

 

 

 

 

 

Continuing underlying profit

  18,485

  (576)

  17,909

  21,272

  (810)

  20,462

Non-underlying profit

  (2,284)

  (47)

  (2,331)

  (6,754)

  249

  (6,505)

Profit for the year

  16,201

  (623)

  15,578

  14,518

  (561)

  13,957

 

There is no material impact on other comprehensive income or on basic and diluted earnings per share.

 

 

Notes to the Consolidated Financial Statements

 

2. Changes in accounting policies and disclosures (continued)

Impact on current period of the adoption of new standards, amendments and interpretations (continued)

IFRS 16 Leases(continued)

 

Consolidated balance sheet

 

Right-of-use assets and corresponding lease liabilities have been recognised and presented separately in the Consolidated Balance Sheet. Long leasehold assets previously included under property, plant and equipment have been derecognised as well as any rent prepayments and accruals relating to leases previously classified as operating leases. In addition, the portion of vacant property provisions relating to operating lease rents has been derecognised and replaced with impairments of right-of-use assets in respect of leases of vacant premises.

 

Dilapidation provisions recognised against goodwill at acquisition have been reclassified to right-of-use assets. Favourable lease intangible assets have been derecognised on adoption of IFRS 16. Finance lease receivables in respect of sub-leases have been recognised in non-current finance assets. The net effect of all these adjustments has been recognised in retained earnings.-

 

Consolidated Balance Sheet (extract)

31 December 2019 Pre IFRS 16

IFRS 16 Transition

31 December 2019 As presented

 

£'000

£'000

£'000

Goodwill and other intangible assets

  119,191

  69

  119,260

Property, plant and equipment

  169,144

  (9,851)

  159,293

Right-of-use assets

  - 

  107,967

  107,967

Investment property

  3,638

 

  3,638

Financial assets

  - 

  1,544

  1,544

Other current assets

  560,115

  (1,148)

  558,967

Total assets

  852,088

  98,581

  950,669

 

 

 

 

Loans and borrowings

  30,665

 

  30,665

Lease liabilities

  - 

  108,085

  108,085

Provisions

  3,484

  (100)

  3,384

Trade and other payables

  586,451

  (2,070)

  584,381

Deferred tax liabilities

  20,495

  (361)

  20,134

Current tax liabilities

  1,704

  - 

  1,704

Total liabilities

  642,799

  105,554

  748,353

 

 

 

 

Net assets

 

 

 

 

Retained earnings

  138,536

  (6,973)

  131,563

Other reserves

  70,753

  - 

  70,753

Total equity

 

 

 

Notes to the Consolidated Financial Statements

 

2. Changes in accounting policies and disclosures (continued)

Impact on current period of the adoption of new standards, amendments and interpretations (continued)

IFRS 16 Leases(continued)

 

Consolidated balance sheet(continued)

 

Consolidated Balance Sheet (extract)

31 December 2018 As originally presented

IFRS 16 Transition

31 December 2018
Restated

1 January 2018 As originally presented

IFRS 16 Transition

1 January 2018
Restated

 

£'000

£'000

£'000

£'000

£'000

£'000

Goodwill and other intangible assets

  112,202

  (25)

  112,177

  121,596

  (82)

  121,514

Property, plant and equipment

  155,758

  (7,599)

  148,159

  142,428

  (7,405)

  135,023

Right-of-use assets

  - 

  85,427

  85,427

  - 

  91,969

  91,969

Investment property

  2,590

  - 

  2,590

  2,590

  - 

  2,590

Financial assets

  - 

  1,500

  1,500

  - 

  1,884

  1,884

Other current assets

  465,658

  (827)

  464,831

  498,981

  (941)

  498,040

Total assets

  736,208

  78,476

  814,684

  765,595

  85,425

  851,020

 

 

 

 

 

 

 

Loans and borrowings

  6,306

  - 

  6,306

  7,108

  - 

  7,108

Lease liabilities

  - 

  87,642

  87,642

  - 

  97,720

  97,720

Provisions

  7,926

  (131)

  7,795

  12,830

  (3,774)

  9,056

Trade and other payables

  499,455

  (1,472)

  497,983

  531,895

  (1,627)

  530,268

Deferred tax liabilities

  20,787

  (1,213)

  19,574

  20,448

  (1,105)

  19,343

Current tax liabilities

  1,346

  - 

  1,346

  2,180

  - 

  2,180

Total liabilities

  535,820

  84,826

  620,646

  574,461

  91,214

  665,675

 

 

 

 

 

 

 

Net assets

  200,388

  (6,350)

  194,038

  191,134

  (5,789)

  185,345

 

 

 

 

 

 

 

Retained earnings

  129,312

  (6,350)

  122,962

  119,323

  (5,789)

  113,534

Other reserves

  71,076

  - 

  71,076

  71,811

  - 

  71,811

Total equity

  200,388

  (6,350)

  194,038

  191,134

  (5,789)

  185,345

  

 

Notes to the Consolidated Financial Statements

 

2. Changes in accounting policies and disclosures (continued)

Impact on current period of the adoption of new standards, amendments and interpretations (continued)

IFRS 16 Leases(continued)

 

Consolidated cash flow statement

 

The adoption of IFRS 16 changes neither the timing nor amount of the Group's cash flows. The only changes are presentational. The classification of lease payments changes from being shown exclusively as an operating cash flow. Lease payments become a combination of operating cash flows (reflecting the interest portion of lease payments) and financing cash flows (reflecting the principal portion of the lease liability). The following table shows the reclassification between categories of cash flows.

 

2019

2018

 

£'000

£'000

Increase in net cash inflows from operating activities

  9,516

  7,540

Decrease in net cash outflows from investing activities

  264

  619

Increase in net cash outflows from financing activities

  (9,780)

  (8,159)

Net impact on decrease in cash and cash equivalent

  - 

  - 

  

 

Notes to the Consolidated Financial Statements

 

3.  Segmental Information

IFRS 8 Operating Segments requires operating segments to be consistent with the internal management reporting provided to the Chief Operating Decision Makers who are responsible for allocating resources and assessing the performance of the operating segments. The Group considers the Chief Executive Officer to be the Chief Operating Decision Maker.

 

The Group has identified its key product and service lines as being its operating segments because both performance and strategic decisions are analysed at this level. The IFRS 8 aggregation criteria have been met as a result of the Group's key product and service lines sharing common characteristics such as; similar types of customer for the products and services, similar nature of the product and service offerings, similar methods used to distribute the products and provide the services and similar regulatory and economic environment. As a result of these criteria being satisfied, the Group's operating segments constitute one reportable segment (retail) and all segmental information has been disclosed as such. The retail segment includes sales of new and used vehicles, together with the associated ancillary aftersales services of; servicing, body shop repairs and parts sales.

 

The Group has concluded that rental income arising from investment properties does not meet the quantitative thresholds required to constitute a reportable segment as defined in IFRS 8. Due to the non-material nature of these amounts, they are combined with the retail segment rather than being disclosed separately. As a result, all of the Group's activities are disclosed within the one reportable segment - the retail segment.

 

Geographical information

Revenue earned from sales is disclosed by origin and is not materially different from revenue by destination. All of the Group's revenue is generated in the United Kingdom.

 

Information about reportable segment

All segment revenue, profit before taxation, assets and liabilities are attributable to the principal activity of the Group being the provision of car and commercial vehicle sales, vehicle service and other related services.

 

The following tables show the disaggregation of revenue by major product/service lines for continuing operations:

 

For the year ended 31 December 2019

Revenue

Gross profit

 

£'000

mix

£'000

mix

New Vehicles

1,079,474

46.4%

80,148

30.8%

Used Vehicles

986,718

42.5%

65,456

25.2%

Aftersales

258,087

11.1%

114,572

44.0%

Internal / Other

(48,150)

-

625

-

Total

2,276,129

100%

260,801

100%

 

 

 

 

 

For the year ended 31 December 2018

Revenue

Gross profit

 

£'000

mix

£'000

mix

New Vehicles

1,064,830

47.7%

75,669

29.9%

Used Vehicles

920,237

41.2%

65,441

25.9%

Aftersales

246,116

11.1%

111,862

44.2%

Internal / Other

(44,296)

-

275

-

Total

2,186,887

100%

253,247

100%

 

 

 

Notes to the Consolidated Financial Statements

 

4.  Profit before taxation

Profit before taxation is arrived at after charging / (crediting):

 

2019

2018

 

 

Restated

 

£'000

£'000

Depreciation of property, plant and equipment (note 11)

10,217

8,885

Amortisation of other intangibles (note 10)

421

295

Profit on disposal of assets classified as held for sale (note 5)

-

(268)

Loss on disposal of property plant and equipment

411

67

Impairment of property, plant and equipment (note 11)

708

87

Loss on disposal of investment property (note 5)

72

1,146

Intangible assets impairment (note 5)

-

9,302

Depreciation of right-of-use assets (note 12)

9,357

8,780

Profit on disposal and remeasurement of right-of-use assets and lease liabilities (note 5/12)

(403)

(3,460)

Impairment loss on right-of-use assets (note 12)

1,081

132

Loss on disposal of finance lease receivable (note 12)

-

183

Income received from subleasing right-of-use assets (note 12)

(201)

(268)

 

5.  Non-underlying items

 

2019

2018

 

 

Restated

 

£'000

£'000

Continuing operations

 

 

Post-retirement benefits charge

(23)

-

Acquisition costs

(835)

-

(Recognition) / net release of restructuring costs

(2,123)

3,466

Profit on disposal of assets classified as held for sale

-

268

Loss on disposal of investment property

(72)

(1,146)

Loss on impairment of goodwill and other intangible assets

-

(9,302)

Gain on revaluation of investment properties

610

-

 

(2,443)

(6,714)

Discontinued operations

 

 

Profit on disposal of subsidiary

-

589

Non-underlying Items

(2,443)

(6,125)

 

Post-retirement benefits charge

See Note 13 'Pensions' for further details of the transaction giving rise to the post-retirement benefits charge.

 

Acquisition costs

See Note 10(a) 'Goodwill and Other Intangible Assets' for further details of transactions giving rise to the acquisition costs.

 

 

Notes to the Consolidated Financial Statements

 

5.  Non-underlying items (continued)

(Recognition) / net release of restructuring costs

Restructuring costs during the current year include costs incurred as a result of the closure of two of the Group's franchised dealerships. Restructuring costs include closed site related costs of £323,000 (2018: profit of £1,128,000), redundancy costs of £303,000 (2018: £280,000), tangible asset impairments of £708,000 (2018: £252,000), right-of-use asset impairments and remeasurements of £268,000 (2018: profit of £3,127,000 - see Note 6 'Profit before taxation' and Note 12 'Leases'). Restructuring costs also include other redundancy costs in the year of £521,000 (2018: £257,000).

 

Profit on disposal of assets classified as held for sale

In May 2018 the Group sold the freehold property classified as held for a profit of £268,000.

 

Loss on disposal of investment property

In December 2018 the Group disposed of the investment property acquired in the year for proceeds of £4,654,000; resulting in a loss on disposal of £1,146,000. The acquisition and the immediate disposal of the investment property provided the Group with a better than expected exit from the lease commitment. During the current year additional legal fees of £72,000 were incurred in relation to this disposal. 

 

Loss on impairment of goodwill and other intangible assets

See Note 10(b) 'Goodwill and Other Intangible Assets' for further details of the transaction giving rise to the loss on impairment of goodwill and other intangible assets.

 

 

Profit on disposal of subsidiary

In November 2017 the Group disposed of Marshall Leasing Limited and its subsidiary (Gates Contract Hire Limited). A retention of £1,500,000 was withheld in respect of anticipated settlement of legacy defined benefit pension obligations triggered by the change in ownership of Marshall Leasing Limited. In April 2018, the surplus retention withheld was calculated and returned to the Group, generating an additional £589,000 profit on disposal of Marshall Leasing Limited and its subsidiary.

 

 

6.  Net finance costs

 

2019

2018

 

 

Restated

 

£'000

£'000

Interest income on short term bank deposits

-

(13)

Finance lease interest receivable

(63)

(67)

Stock financing charges and other interest

5,944

5,395

Interest payable on lease liabilities

3,068

3,273

Interest payable on bank borrowings

994

980

Net finance costs

9,943

9,568

 

 

Notes to the Consolidated Financial Statements

 

7.  Taxation

 

2019

2018

 

 

Restated

 

£'000

£'000

Current tax

 

 

Current tax on profits for the year

4,201

5,106

Adjustments in respect of prior years

31

(724)

Total current tax charge

4,232

4,382

 

 

 

Deferred tax

 

 

Origination and reversal of temporary differences

23

541

Adjustments in respect of prior years

(190)

(257)

Total deferred tax (credit) / charge

(167)

284

Total taxation charge

4,065

4,666

 

 

The income tax charge in both the current and prior year is attributable to profit from continuing operations.

 

The analysis of the Group's effective tax rate between underlying and non-underlying activities is as follows:

 

 

2019

2019

2019

2018

2018

2018

 

Underlying

Non-underlying

Total

Underlying

Non-underlying

Total

 

 

 

 

Restated

Restated

Restated

 

£'000

£'000

£'000

£'000

£'000

£'000

Profit before taxation

22,086

(2,443)

19,643

24,748

(6,714)

18,034

Taxation

4,177

(112)

4,065

4,286

380

4,666

Effective tax rate

18.91%

4.58%

20.69%

17.32%

(5.66%)

25.87%

 

 

Non-recurring items

 

The Group's total effective tax rate for 2019 of 20.69% was influenced by non-deductible acquisition costs and the impact of adjustments in respect of prior years in relation to assets held for sale in 2018. Excluding the impact of these, the total effective tax rate for 2019 would have been 18.75%. This is consistent with the Group's underlying effective tax rate of 18.91%.

 

The prior year total effective tax rate of 25.87% was influenced by the impairment of goodwill as well as by the non-taxable gain on disposal of Marshall Leasing Limited in the prior year and profit on disposal of freehold properties shielded from chargeable gains.  The underlying effective tax rate of 17.32% is lower than the Group's expected underlying effective tax rate due to the impact of substantial credits in respect of adjustments in respect of prior years resulting from the filing in the prior year of retrospective capital allowance claims on the Group's historic capital expenditure. Excluding the impact of these, the underlying effective tax rate would have been 21.60%.

 

 

Notes to the Consolidated Financial Statements

 

8.  Earnings per share

Basic and diluted earnings per share are calculated by dividing the earnings attributable to equity shareholders by the weighted average number of ordinary shares during the year and the diluted weighted average number of ordinary shares in issue in the year after taking account of the dilutive impact of shares under option of 2,002,304 at 31 December 2019 (2018: 2,423,249).

 

Underlying earnings per share are based on basic earnings per share adjusted for the impact of non-underlying items.

 

2019

2018

 

 

Restated

 

£'000

£'000

From continuing operations

 

 

Underlying net profit attributable to equity holders of the parent

  17,909

20,462

Non-underlying items after tax

  (2,331)

(7,094)

Net profit attributable to equity holders of the parent

  15,578

13,368

 

 

 

 

2019

2018

 

 

Restated

 

£'000

£'000

From continuing and discontinued operations

 

 

Underlying net profit attributable to equity holders of the parent

  17,909

  20,462

Non-underlying items after tax

  (2,331)

  (6,505)

Net profit attributable to equity holders of the parent

  15,578

  13,957

 

 

 

 

2019

2018

 

Thousands

Thousands

Number of shares

 

 

Weighted average number of ordinary shares for the purpose of basic EPS

  78,097

  77,736

Effect of dilutive potential ordinary shares: share options

  1,178

  2,584

Weighted average number of ordinary shares for the purpose of diluted EPS

   79,275

  80,320

 

 

 

 

2019

2018

 

Pence

Pence

From continuing operations

 

 

Basic underlying earnings per share

  22.9

  26.3

Basic earnings per share

  19.9

  17.2

Diluted underlying earnings per share

  22.6

  25.5

Diluted earnings per share

  19.7

  16.6

 

 

 

From continuing and discontinued operations

 

 

Basic underlying earnings per share

  22.9

  26.3

Basic earnings per share

  19.9

  18.0

Diluted underlying earnings per share

  22.6

  25.5

Diluted earnings per share

  19.7

  17.4

 

 

Notes to the Consolidated Financial Statements

 

9. Dividends

A final dividend of £4,995,000 for the year ended 31 December 2018 was paid in May 2019. This represented a payment of 6.39p per ordinary share in issue at that time.

 

An interim dividend in respect of the year ended 31 December 2019 of £2,228,000 (2018: £1,674,000), representing a payment of 2.85p per ordinary share in issue at that time, was paid in September 2019.

 

A final dividend of 5.69p per share in respect of the year ended 31 December 2019 is to be proposed at the Annual General Meeting on 21 May 2020. The ex-dividend date will be 23 April 2020 and the associated record date will be 24 April 2020. This dividend will be paid subject to shareholder approval on 22 May 2020 and these financial statements do not reflect this final dividend payable.

 

 

10. Goodwill and other intangible assets

 

 

Goodwill

Franchise
agreements

Software

Total

 

 

 

 

Restated*

 

£'000

£'000

£'000

£'000

Cost

 

 

 

 

Balance at 1 January 2018

48,629

72,137

1,371

122,137

Additions

-

-

260

260

At 31 December 2018

48,629

72,137

1,631

122,397

Additions

-

-

982

982

Additions on acquisition

1,525

5,036

-

6,561

Disposals

-

-

(82)

(82)

At 31 December 2019

50,154

77,173

2,531

129,858

 

 

 

 

 

Accumulated amortisation

 

 

 

 

Balance at 1 January 2018

-

-

623

623

Charge for the year

-

-

295

295

Impairment

9,302

-

-

9,302

At 31 December 2018

9,302

-

918

10,220

Charge for the year

-

-

421

421

Disposals

-

-

(43)

(43)

At 31 December 2019

9,302

-

1,296

10,598

 

 

 

 

 

Net book value

 

 

 

 

At 31 December 2018

39,327

72,137

713

112,177

At 31 December 2019

40,852

77,173

1,235

119,260

 

*Favourable leases with a net book value at 31 December 2018 of £25,000 (2017: £82,000) have been de-recognised on adoption of IFRS 16 Leases.

 

a) Acquisitions - current period

 

On 31 January 2019 the Group acquired the trade and assets of two ŠKODA dealerships located in Leicester and Nottingham.

 

On 28 February 2019 the Group acquired the trade and assets of four ŠKODA dealerships in Northampton, Bedford, Letchworth and Harlow. These acquisitions are part of the Group's stated strategy to grow with existing brand partners in new geographic territories by adding further sites in excellent locations that are contiguous to the Group's existing ŠKODA sites.

 

 

 

Notes to the Consolidated Financial Statements

 

10. Goodwill and other intangible assets (continued)

a) Acquisitions - current period (continued)

 

On 2 September 2019, the Group acquired the trade and assets of two Honda dealerships in Reading and Newbury. This acquisition is part of the Group's stated strategy to grow with existing brand partners in new geographic territories by reinforcing the Group's position as the second largest Honda partner in the UK.

 

On 20 December 2019, the Group acquired the trade and assets of a Volvo dealership in Derby. This acquisition is part of the Group's stated strategy to grow with existing brand partners in new geographic territories.

 

The estimated combined identifiable assets and liabilities at the dates of these acquisitions are stated at their provisional fair value as set out below. The goodwill arising on acquisition is attributed to the expected synergies and benefits associated with the increased brand representation which has resulted in the Group becoming the UK's largest ŠKODA retailer.

 

 

 

Fair value of net assets acquired

 

 

 

£'000

Intangible assets

 

 

1,985

Property, plant and equipment

 

 

907

Right-of-use assets

 

 

6,020

Inventories

 

 

3,886

Trade and other receivables

 

 

12

Trade and other payables

 

 

(460)

Lease liabilities

 

 

(5,870)

Provisions

 

 

(552)

Deferred tax liabilities

 

 

(7)

Net assets acquired

 

 

5,921

Goodwill

 

 

1,244

Total cash consideration

 

 

7,165

 

The results of the acquired ŠKODA, Honda and Volvo dealerships were consolidated into the Group's results from the relevant date of acquisition. For the period from acquisition to 31 December 2019, the revenues and the loss before tax generated by these dealerships were immaterial in the context of the Group's revenues and profit before tax. 

 

If the acquisitions had taken effect at the beginning of the reporting period in which the acquisition occurred (1 January 2019), on a pro forma basis, revenue of the combined Group for the year ended 31 December 2019 would have been increased by £40,857,000 and profit before tax would have been reduced by £266,000.

 

 

 

Notes to the Consolidated Financial Statements

 

10. Goodwill and other intangible assets (continued)

 

a)  Acquisitions - current period(continued)

 

On 17 December 2019, the Group acquired the trade and assets of five Volkswagen dealerships, a Volkswagen commercial vehicle franchise and body shop and one ŠKODA dealership. This acquisition is part of the Group's stated strategy to grow with existing brand partners in new geographic territories by adding further sites in excellent locations. The estimated identifiable assets and liabilities at the date of acquisition are stated at their provisional fair value as set out below. The goodwill arising on acquisition is attributed to the expected synergies and benefits associated with the increased brand representation which has resulted in the Group becoming Volkswagen Group UK's largest partner by number of locations.

 

 

 

Fair value of net assets acquired

 

 

 

£'000

Intangible assets

 

 

3,051

Property, plant and equipment

 

 

3,681

Right-of-use assets

 

 

20,388

Inventories

 

 

12,916

Cash and cash equivalents

 

 

2

Trade and other payables

 

 

(655)

Lease liabilities

 

 

(18,487)

Provisions

 

 

(225)

Deferred tax liabilities

 

 

(720)

Net assets acquired

 

 

19,951

Goodwill

 

 

281

Total cash consideration

 

 

20,232

 

 

The results of the acquired dealerships were consolidated into the Group's results from 18 December 2019. For the period from acquisition to 31 December 2019, the revenues and the loss before tax generated by these dealerships were immaterial in the context of the Group's revenues and profit before tax. 

 

If the acquisition had taken effect at the beginning of the reporting period in which the acquisition occurred (1 January 2019), on a pro forma basis, revenue for the combined Group for the year ended 31 December 2019 would have been increased by £167,749,000 and profit before tax would have been reduced by £1,657,000.

 

Transaction costs arising on acquisitions in 2019 totalled £835,000. These costs have been recognised in net operating expenses in the Consolidated Statement of Comprehensive Income and are part of operating cash flows in the Consolidated Cash Flow Statement.

 

 

Acquisitions - prior period purchase of non-controlling interests

On 22 February 2018, the Group acquired the remaining 1% of the share capital of the following subsidiary undertakings; Marshall of Peterborough limited, Marshall of Ipswich Limited and Marshall of Stevenage Limited, taking the Group's shareholdings in these entities up to 100%. Total consideration for these shares amounted to £50,000; the value of consideration in excess of the carrying value of the non-controlling interests acquired has been recognised in retained earnings.

 

 

Notes to the Consolidated Financial Statements

 

10. Goodwill and other intangible assets (continued)

 

b)  Impairment testing

 

For the purpose of impairment testing, goodwill and franchise agreements are allocated to a cash generating unit ("CGU"), or to the smallest group of CGUs where it is not possible to apportion the goodwill or intangible assets at the individual CGU level. Each CGU or group of CGUs to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for management purposes. Goodwill and intangible assets arising on business combinations are allocated to CGUs by determining which CGU is expected to benefit from the synergies of the business combination.

 

The Group's CGUs are groups of dealerships connected by manufacturer brand. The allocation of goodwill and indefinite lived intangible assets to the CGU groups is as follows:

 

Goodwill

Franchise
Agreements

 

£'000

£'000

Volkswagen Group*

17,042

35,247

BMW/MINI

1,461

8,345

Jaguar/Land Rover

8,003

14,358

Mercedes-Benz/Smart

11,182

19,201

Other

3,164

22

Total

40,852

77,173

 

*Volkswagen Group includes Volkswagen, Audi, Skoda and Seat brands

 

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable and a potential impairment may be required. Impairment reviews have been performed for all groups of CGUs for the years ended 31 December 2019 and 2018.

 

Valuation basis

The recoverable amount of the Group's CGUs is determined by reference to their value-in-use to perpetuity calculated using a discounted cash flow approach, with a pre-tax discount rate applied to the projected, risk-adjusted pre-tax cash flows and terminal value. Where higher, the fair value of groups of CGUs, less costs of disposal, is taken as the recoverable amount.

 

Period of specific projected cash flows

The value-in-use of each CGU is calculated using cash flow projections for a five-year period; from 1 January 2020 to 31 December 2024. These projections are based on the Board approved budget for the year ending 31 December 2020 forming the basis for the Group's five year strategic plan. The key assumptions in the most recent annual budget on which the cash flow projections are based relate to expectations of sales volumes and margins and expectations around changes in the operating cost base. The assumptions made are based on past experience, adjusted for expected changes, and external sources of information. The cash flows include ongoing capital expenditure required to maintain the Group's dealership network, but exclude any growth capital expenditure projects to which the Group was not committed at the reporting date.

 

Discount rate

The cash flow projections have been discounted using a rate derived from the Group's pre-tax weighted average cost of capital adjusted for industry and market risk. The discount rate used is 8.0% (2018: 10.5%). The prior year discount rate has not been restated as transition to IFRS 16 Leases does not trigger a revised impairment outcome.

 

The discount rate is lower than in previous years due to the adoption of IFRS 16 Leases.

 

 

Notes to the Consolidated Financial Statements

 

10.  Goodwill and other intangible assets (continued)

b)  Impairment testing (continued)

 

Headroom

The Group's CGUs all have significant headroom in respect of the carrying value of goodwill and intangible assets with the exception of the BMW/MINI CGU, to which goodwill of £1,461,000 and indefinite life franchise agreement intangible assets of £8,345,000 are assigned.

 

The Group's BMW/MINI franchises have faced a number of challenges in the last two years brought about largely due to brand challenges around oversupply of vehicles and vehicle recalls. As a result, BMW was impaired by £8,388,000 during the year ended 31 December 2018.

 

During 2019 the business did not show the improvement forecast and as a result the assumptions relating to future profitability and growth rates have been revised. The Board has approved this revised forecast which supports the carrying value of the BMW/MINI goodwill as at 31 December 2019. Inherent in this are a number of assumptions related to the successful delivery of actions already started by the manufacturer within the network to support profitable trading by each franchised dealership. In addition to these market assumptions the forecast assumes delivery of a number of local management initiatives. The result of which will lead to a significant performance improvement on the 2019 trading.

 

The approved forecast and therefore the value-in-use of the CGU is sensitive to changes in the delivery of the actions and initiatives. Any delay in achieving these improvements during 2020 will put pressure on the carrying value of the associated goodwill and intangible assets and consequently an impairment trigger event is likely to be realised.

 

An underperformance resulting in the EBITDA generated by the CGU being £0.5m below the forecast would lead to a non-cash impairment of £4.5m. An underperformance of c6% would not result in an impairment, being the approximate breakeven point. An overperformance to the forecast of 5% would increase the headroom by £3.7m.

 

Terminal growth rate

The cash flows after the forecast period are extrapolated into the future over the useful economic life of the group of CGUs using a steady or declining growth rate that is consistent with that of the product and industry. These cash flows form the basis of what is referred to as the terminal value. The growth rate to perpetuity beyond the initial budgeted cash flows applied in the value-in-use calculations to arrive at a terminal value is 2% (2018: 2%).Terminal growth rates are based on management's estimate of future long-term average growth rates.

 

Conclusion

 

At 31 December 2019 the Group recorded impairment charges of £nil (2018: £9,302,000 of which £8,388,000 was in respect of BMW/MINI and £914,000 in respect of other brands). The impairments recorded in the prior year were as a consequence of the deterioration in market conditions resulting in revised assumptions around future profitability and growth rates.  The impairment charge was recorded within net operating expenses in non-underlying items in the Consolidated Statement of Comprehensive Income.

 

Sensitivity to changes in key assumptions

Impairment testing is dependent on estimates and judgements, particularly as they relate to the forecasting of future cash flows, the discount rates selected and expected long-term growth rates.

 

The Group has performed a sensitivity analysis on the impairment tests using two scenarios; firstly, where the discount rate increases by 100 basis points, secondly, where cash flows in 2020 are based on a 100 basis point decline in current year performance. The first scenario would result in an impairment of £1,100,000 of the BMW/MINI CGU. The second scenario would result in no recognition of an impairment against any CGU.

 

In order to assess the possibility of future impairments, the Group has performed additional sensitivity analysis (in addition to those outlined above) based on any 'worse case' estimate. Firstly, where the discount rate increases by a further 100 basis points, an additional impairment of £4,100,000 would be recognised against the BMW/MINI CGU. Impairments of £3,100,000 and £200,000 would be recognised against the Volkswagen Group and the Other CGUs respectively. Secondly, where cash flows in 2020 are based on a further 200 basis points decline in current year performance, no impairment would be recognised.

 

 

Notes to the Consolidated Financial Statements

 

11.  Property, plant and equipment

 

 

Freehold
land and
buildings

Leasehold
improvements

Plant and
equipment

Assets
under
construction

Total

 

Restated

 

 

Restated

Restated

 

£'000

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

Balance at 1 January 2018

  112,953

  17,684

  38,544

  5,123

  174,304

Additions at cost

  1,687

  523

  3,410

  17,626

  23,246

Disposals

  (205)

  (1,040)

  (5,277)

-

  (6,522)

Transfers

  5,143

  4,873

  3,232

  (13,248)

  - 

Transfers to assets held for sale

  (797)

  - 

  - 

  - 

  (797)

At 31 December 2018

118,781

22,040

39,909

9,501

190,231

Additions at cost

4,937

418

4,519

8,827

18,701

Additions on acquisition

1,991

734

1,863

-

4,588

Disposals

-

(595)

(3,042)

-

(3,637)

Transfers to investment property

(441)

-

-

-

(441)

Transfers

10,353

4,372

1,918

(16,643)

-

At 31 December 2019

135,621

26,969

45,167

1,685

209,442

 

 

 

 

 

 

Accumulated depreciation and impairment

 

 

 

 

 

Balance at 1 January 2018

9,173

5,116

24,992

-

39,281

Charge for the year

1,628

1,802

5,455

-

8,885

Disposals

(205)

(1,076)

(4,900)

-

(6,181)

Impairment

-

-

87

-

87

Transfers

-

324

(324)

-

-

At 31 December 2018

10,596

6,166

25,310

-

42,072

Charge for the year

1,850

2,137

6,230

-

10,217

Disposals

-

(184)

(2,661)

-

(2,845)

Impairment

-

502

206

-

708

Transfers to investment property

(3)

-

-

-

(3)

At 31 December 2019

12,443

8,621

29,085

-

50,149

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 31 December 2018

108,185

15,874

14,599

9,501

148,159

At 31 December 2019

123,178

18,348

16,082

1,685

159,293

 

 

As at 31 December 2019, the Group had capital commitments totalling £6.9m (2018: £20.8m) relating to ongoing construction projects.

 

 

Notes to the Consolidated Financial Statements

 

11. Property, plant and equipment (continued)

2019

 

Impairments

The impairment loss of £708,000 represents the impairment of leasehold improvements and plant and equipment in the franchised dealership which closed in October 2019 and the franchised dealership due to close in 2020. On closure of these dealerships these assets ceased to have any value. This loss was recognised in the Consolidated Statement of Comprehensive Income in net operating expenses.

 

2018

 

Transfers to assets held for sale

In October 2018, the Group ceased commercial activities at one if its freehold properties. As the property was no longer used for the commercial activity of the business and is actively being marketed for sale, the asset has been transferred to assets classified as held for sale.

 

Impairments

The impairment loss of £87,000 represents the net of £101,000 impairment of plant and equipment in the franchised dealership that closed in October 2018 and £14,000 impairment reversal of plant and equipment in a franchised dealership that closed in December 2017. These assets all had no residual value. This loss was recognised in the Consolidated Statement of Comprehensive Income in net operating expenses.

 

12. Leases

a)  Group as lessee

The Group has lease contracts for land and buildings and vehicles. Leases of land and buildings have an average term of between 20 and 25 years. Leases of vehicles have an average term of 3 years.

 

 

The following are amounts recognised in the Consolidated Statement of Comprehensive Income:

 

 

2019

2018

 

 

Restated

 

£'000

£'000

Depreciation of right-of-use assets

9,357

8,788

Profit on disposal and remeasurement of right-of-use assets and lease liabilities

(403)

(3,460)

Impairment loss on right-of-use assets

1,081

132

Expenses relating to short-term leases

209

109

Expenses relating to leases of low-value assets

847

1,164

Interest payable on lease liabilities

3,068

3,273

Total amount recognised in profit or loss

14,159

10,006

 

The Group had total cash outflows in respect of leases in the year of £12,785,000 (2018: £11,432,000). The Group also had non-cash additions to right-of-use assets and lease liabilities of £28,778,000 (2018: £1,773,000). 

 

 

 

Notes to the Consolidated Financial Statements

 

12. Leases (continued)

a)  Group as lessee (continued)

 

Set out below are the carrying amounts of the right-of-use assets recognised and the movements during the year:

 

Land and buildings

Vehicles

Total

 

Restated

Restated

Restated

 

£'000

£'000

£'000

Cost

 

 

 

At 1 January 2018

  131,870

  608

132,478

Additions

  1,292

  481

1,773

Disposals

  (7,687)

  (233)

(7,920)

Remeasurement

  597

  - 

597

At 31 December 2018

126,072

856

126,928

Additions

2,248

122

2,370

Additions on acquisition

26,408

-

26,408

Disposals

(1,206)

(234)

(1,440)

Remeasurement

5,324

-

5,324

At 31 December 2019

158,846

744

159,590

 

 

 

 

Accumulated depreciation and impairment

 

 

 

At 1 January 2018

40,289

220

40,509

Charge for the year

8,367

413

8,780

Disposals

(7,687)

(233)

(7,920)

Impairment

132

-

132

At 31 December 2018

41,101

400

41,501

Charge for the year

8,991

366

9,357

Disposals

(82)

(234)

(316)

Impairment

1,081

-

1,081

At 31 December 2019

51,091

532

51,623

 

 

 

 

Net book value

 

 

 

At 31 December 2018

84,971

456

85,427

At 31 December 2019

107,755

212

107,967

2019

Impairments

The premises used by the franchised dealership closed in October 2019 became vacant on cessation of trade. The right-of-use asset has therefore been fully impaired. This impairment loss of £1,081,000 was recognised in the Consolidated Statement of Comprehensive Income in net operating expenses.

 

2018

Impairments

The premises used by a franchised dealership were temporarily vacant due to the relocation of the franchise. The right-of-use asset has therefore been partially impaired. This impairment loss of £132,000 was recognised in the Consolidated Statement of Comprehensive Income in net operating expenses.

 

 

Notes to the Consolidated Financial Statements

 

12. Leases (continued)

a)  Group as lessee (continued)

The maturity analysis of the Group's lease liabilities is as follows:

 

2019

2018

 

 

Restated

 

£'000

£'000

Within 1  year

10,689

7,414

Between 1 and 5 years

40,215

29,532

After 5 years

57,181

50,696

Total lease liabilities

108,085

87,642

 

 

b)  Group as lessor - finance leases

 

The Group has non-cancellable leases, as intermediate lessor, of leases for properties. The terms of these leases vary. The following are amounts recognised in the Consolidated Statement of Comprehensive Income:

 

 

2019

2018

 

 

Restated

 

£'000

£'000

Loss on disposal of finance lease receivable

-

183

Income received from subleasing right-of-use assets

(201)

(268)

Finance income on net investment in leases

(63)

(67)

Total amount recognised in profit or loss

(264)

(152)

 

 

 

Future minimum lease payments receivable for property under non-cancellable finance leases are set out below:

 

 

2019

2018

 

 

Restated

 

£'000

£'000

Within 1 year

185

155

Between 1 and 2 years

185

155

Between 2 and 3 years

185

155

Between 3 and 4 years

185

155

Between 4 and 5 years

185

155

After 5 years

1,154

1,141

Total undiscounted lease payments receivable

2,079

1,916

Unearned finance income

(535)

(416)

Net investment in the lease

1,544

1,500

 

 

 

 

 

2019

2018

 

 

Restated

 

£'000

£'000

Current

102

95

Non-current

1,442

1,405

Total finance lease receivable

1,544

1,500

 

 

Notes to the Consolidated Financial Statements

 

12. Leases (continued)

c)  Group as lessor - operating leases

 

The Group has entered into non-cancellable operating leases, as lessor on property included in investment property and as an intermediate lessor on head leases of property assets. The terms of these leases vary. Future minimum lease payments receivable for property under non-cancellable operating leases are as set out below.

 

 

2019

2018

 

 

Restated

 

£'000

£'000

Within 1 year

326

223

Between 1 and 2 years

246

200

Between 2 and 3 years

208

200

Between 3 and 4 years

154

169

Between 4 and 5 years

154

125

After 5 years

602

615

 

1,690

1,532

 

13. Pensions

a)  Defined contribution pension schemes

 

The Group makes contributions to defined contribution pension schemes; contributions paid are calculated by reference to a percentage of each employee's salary. All defined contribution schemes into which the Group makes contributions are managed by third party providers. The only obligation of the Group with respect to these schemes is to make the specified contributions. The total income statement charge for contributions for the year ended 31 December 2019 was £2,732,000 (2018: £1,999,000).

 

The total unpaid pension contributions outstanding at the year end were £526,000 (2018: £313,000).

 

b)  Defined benefit pension schemes

Cessation of Participation in the Plan and Provision for Section 75 Employer Debt

Following the sale of Marshall Leasing Limited in 2017, the Group no longer had any current employees who were members of the defined benefit section of the Plan.  As a result of the Group's strategic review of its existing pension arrangements on 31 December 2018, the Group ceased to be a participating employer in the Plan as a result of it no longer employing any active members of the defined contribution section of the Plan.  Accordingly, on 31 December 2018, a debt was triggered under Section 75 of the Pension Act 1995 on the Group ("Employer Debt").

 

On 7 February 2019 the Plan's actuary issued a certificate for the purposes of Regulation 5(18) and Regulation 6(8) of the Occupational Pension Schemes (Employer Debt) Regulations 2005 confirming that the Employer Debt at 31 December 2018 was £5,541,000.

 

On 25 February 2019 the Group paid the Employer Debt (together with Trustee expenses of £25,000) to the Trustees of the Plan and entered in to a Deed of De-Adherence with the Trustees and Marshall of Cambridge (Holdings) Limited confirming the discharge of the Group from the trusts of the Plan and from any further obligations in relation to the Plan with effect from that date.  Accordingly, with effect from that date, the Group has no further commitments or participation in any defined benefit pension plans.

 

Principal Employer's IAS 19 Disclosures

Details of the full scheme are included in the Annual Report and Accounts of Marshall of Cambridge (Holdings) Limited which can be obtained from: Airport House, The Airport, Cambridge CB5 8RY.

 


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