10 August 2021

MARSHALL MOTOR HOLDINGS PLC

("MMH", the "Group" or the "Company")

Unaudited interim results for the six months ended 30 June 2021

Exceptional performance due to unprecedented market conditions and our strong market outperformance

Marshall Motor Holdings plc, one of the UK's leading automotive retail groups, announces its unaudited interim results for the six months ended 30 June 2021 ("H1" or the "Period").

Financial Summary

Financial Highlights

·     Record first half revenue and margin driven by unprecedented market conditions, our strong market outperformance and robust operational controls;

·     Record underlying profit before tax of £38.4m (H1 2020: underlying loss before tax of £(11.8m); H1 2019: underlying profit before tax of £15.2m);

·     Strong cash generation with adjusted net cash at 30 June 2021 of £57.2m (30 June 2020: £27.4m) after £17.2m of freehold and acquisition expenditure; commitment to repay £4.0m of 2021 Government support;

·     Balance sheet strengthened further; net assets at 30 June 2021 of £239.3m (30 June 2020: £190.5m) equivalent to 305.9p per share; underpinned by freehold/long leasehold property of £139.6m;

·     Restoration of dividends; H1 interim dividend of 8.86p per share reflecting exceptional first half performance;

·     Continuing underlying profit before tax for the full financial year expected to be not less than £40.0m.

Other Highlights

·       Strong like-for-like⁵ market outperformance across new vehicles (both retail and fleet) and used vehicles:

o  new vehicle unit sales up 46.1% versus overall market registrations⁶ up 39.2%;

o  used unit sales up 51.7% versus overall used market unit sales⁷ up 31.1%;

o  aftersales revenue up 34.8%;

·       Acquisitions of Cheltenham and Gloucester Jaguar Land Rover and Leicester Nissan;

·      Commitment to voluntarily repay all CJRS and non-essential retail sector government grants received in the Period (c.£4.0m);

·       One-off 'thank you' bonus paid to all colleagues (excluding directors);

·    Eleventh year of being a 'Great Place to Work'^® and seventh year running of being ranked in the UK's Best Workplaces.

Daksh Gupta, Chief Executive Officer, said:

"The Group's record performance in the first half of the year was exceptional. Whilst we acknowledge that this has been largely driven by unprecedented market conditions, particularly the used car market, we are proud of the contribution of our operational teams across the country for another period of strong market outperformance. On behalf of the Board, I would like to thank all our colleagues, as well as our brand and business partners, for their continued support.

There remains a high level of uncertainty over the second half of 2021 and into 2022 given well documented vehicle supply issues, an expected realignment of used vehicle values (the timing of which is uncertain) and the continuing impact of the COVID-19 pandemic.  Given these uncertainties, there remains a range of possible outcomes for the year, however, the Board expects that continuing underlying profit before tax for 2021 will be not less than £40 million."

1      H1 2020 restated to include COVID-related costs in the underlying trading result (see Note 6)

2      Underlying profit before tax is presented excluding non-underlying items (see Note 6)

3      Adjusted net cash is presented excluding the impact of the recognition of lease liabilities under IFRS16 (see the Net Debt Reconciliation)

4      Reported net debt includes the impact of the recognition of lease liabilities under IFRS16 (see the Net Debt Reconciliation)

5      "Like-for-like" businesses are defined as those which traded under the Group's ownership throughout both the period under review and the whole of the corresponding comparative period

6      Registrations as reported by the Society of Motor Manufacturers and Traders

7      Auto Trader analysis of used vehicle sales between 1 January 2021 and 30 June 2021

For further information and enquiries please contact:

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 116 franchises covering 22 brands, across 29 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 May 2021 the Group was recognised by the Great Place to Work Institute, being ranked the 12th best place to work in the UK (super large company category). This was the eleventh year in succession that the Group has achieved Great Place to Work status.

LEI number: 213800BP3HZWHDWXAY78

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. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they 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.  There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements.  The Group 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.
 

Professor Richard Parry-Jones CBE

The Board was deeply shocked and saddened by the sudden passing of its Chairman, Professor Richard Parry-Jones CBE, on 16 April 2021. Richard had been Chairman of the Board since January 2019.

Richard was an enormously well-respected, popular and influential figure in the automotive industry. During his 30-year career at Ford as Group Vice President of Global Product Development and subsequently its Chief Technical Officer, he was responsible for the development and launch of a string of iconic cars: the Mondeo, the Ka, the Fiesta and the Focus to name but a few.

Richard was passionate about MMH and was excited about the future prospects for the Group. His passing is a great loss, both to MMH and to the sector as whole and he is hugely missed by the Board.

In honour of Richard's memory and in recognition of his substantial contribution to the Group, albeit over a tragically short period, we have introduced a new annual colleague recognition award, the 'RPJ Award', which will celebrate the achievements of the Group's best performing colleagues across various business roles.

Operating Review

Introduction

Trading in the six months ended 30 June 2021 continued to be influenced by the COVID-19 pandemic. Whilst trading during the third national lockdown from 4 January 2021 to 12 April 2021 was impacted by the closure of our physical showrooms, we continued to operate effectively on a 'click and collect' basis during this period, capitalising on the investment made in our digital and remote sales processes and an improved customer proposition with online reservations for sales and aftersales, a 14 day money back guarantee on used cars and nationwide delivery or collection from a brand centre.

In addition, there were a number of positive market tailwinds related to the pandemic in the Period, including unprecedented used vehicle value appreciation and favourable demand-to-supply conditions for both new and used vehicles. This was due to new vehicle supply constraints caused by well-documented global shortages of semiconductors and other pandemic-related new vehicle production disruption. 

The Group also continued its strong market outperformance in each of its vehicle retail markets: new retail, fleet and used vehicles.

As a result, the Group delivered an excellent underlying profit before tax of £38.4m in the Period (H1 2020: underlying loss before tax: £(11.8m)) with strong cash generation of £28.4m (H1 2020: £57.9m).

The Group's trading performance and strong financial position enabled it to take a number of positive actions:

·    As previously announced, the Group has committed to repay all Coronavirus Job Retention Scheme ("CJRS") grants and non-essential retail sector grants received in the Period at a cost of approximately £4.0m. Given the market tailwinds from which both the Group and the sector as a whole has benefited, we believe these repayments to be the appropriate and responsible actions to take.

·      In June 2021, the Group implemented a Group-wide pay increase, backdated to 1 May 2021, with an increase of 4% being granted to lower-earning colleagues.  In addition, the Group paid a 'thank you' bonus to all eligible colleagues (excluding directors) in recognition of their tireless work, resilience and support in the face of such challenging circumstances.

·     The Group is also pleased to announce the resumption of dividend payments, starting with an interim dividend for 2021 of 8.86p per share.

Note on prior year comparisons

The impact of the COVID-19 pandemic both in the Period and the comparable period in 2020 has distorted each year but to different degrees.

In H1 2020, the Group's physical showrooms were required to close for 10 weeks from 23 March 2020 to 1 June 2020 with 'click and collect' sales only being permitted for 3 weeks of the closure period.  In 2021, the Group's physical showrooms were required to close for 15 weeks from 4 January 2021 to 12 April 2021, however, the Group was able to operate on a 'click and collect' basis throughout that period, capitalising on the investments it made in 2020 in its digital and remote sales capabilities.

Therefore, whilst trading was clearly impacted as a result of the COVID-19 pandemic in both H1 2020 and H1 2021, the impact was significantly greater during H1 2020 with the initial national lockdown occurring in the busiest week of the busiest month of the year for motor retailers and click and collect not being possible until mid-May 2020.

In addition, in H1 2021, and predominantly in Q2 2021, significant positive market tailwinds, particularly unprecedented used vehicle value appreciation and strong consumer demand, materially benefited the Group's financial performance.

Segmental Analysis

Six months ended 30 June 2021

Six months ended 30 June 2020

*Revenue and gross profit mix calculated excluding internal sales / other

New Vehicles

As reported by the Society of Motor Manufacturers and Traders ('SMMT'), sales of new vehicles continued to be impacted by COVID-19 in the Period, albeit the impact was significantly less than in the comparable period in 2020 as a result of retailers being permitted to operate on a 'click and collect' basis throughout the Period. 

During the Period, UK new car registrations to retail and fleet customers increased by 30.6% and 47.3% respectively, with total registrations of new vehicles in the UK (including the impact of dealer self-registration activity) increasing by 39.2% in the Period.  Whilst up on the same period in 2020, UK new car registrations were down 28.3% compared with the comparable period in 2019 as a result of the closure of physical showrooms and, increasingly towards the end of the Period, new vehicle supply constraints as a result of the well-documented global shortage of semiconductors and other pandemic-related vehicle production disruption.

The Group continued to outperform the overall UK market during the Period with a like-for-like increase in unit sales to new retail customers of 36.0% and 64.5% to fleet customers.  The Group's total like-for-like new unit sales in the Period were up 46.1% compared to H1 2020, a strong 6.9% market outperformance.

Total new car revenue in the Period was £610.5m (H1 2020: £417.4m) with like-for-like revenue of £604.8m (H1 2020: £410.2m), up 47.4%.

Gross profit in new vehicles was up £16.9m with an increase in gross margin of 85bps to 6.9% in the Period.  The main driver behind the gross profit increase was the achievement of manufacturer bonuses as a result of significantly higher new vehicle sales compared to the comparable period in 2020 (albeit still down from historical norms).

Used Vehicles

As has been widely reported, the UK used vehicle market was exceptionally strong during the Period, driven by unprecedented used vehicle value appreciation in Q2 (with used vehicles values increasing by over 14.1% during that period), strong consumer demand and more restricted new vehicle supply.

Analysis from Auto Trader shows the number of used vehicle sales transactions increasing by 31.1% in the Period versus H1 2020. In comparison, during the Period, the Group achieved a 51.7% like-for-like increase in used vehicle sales from 18,106 in H1 2020 to 27,467, significantly outperforming the wider market.

Total used car revenue in the Period was £618.8m (H1 2020: £395.6m), with like-for-like revenue of £607.3m (H1 2020: £388.4m), up 56.3%.

Gross profit in used vehicles increased from £24.3m in H1 2020 to £53.2m in the Period.  Gross margin in the Period was 8.6% (compared to 6.1% in H1 2020 and 6.6% in H1 2019), driven by market tailwinds and management actions. These included a strong focus on pricing utilising technology and real-time market data, investment in used vehicle procurement which enabled the Group to maintain good levels of used car stock despite wider shortages and improved online product presentation. The Group also continued investing in marketing the marshall.co.uk brand through advertising and sponsorship initiatives.

The unprecedented used vehicle market, together with the Group's significant market outperformance, meant that like-for-like used vehicle unit sales were also ahead of 2019 levels, up 1.6% compared to H1 2019 despite the physical closure of the Group's showrooms for 15 weeks of the Period.  This compares favourably to analysis from Auto Trader which shows the wider used car market in H1 2021 was down 6.6% versus H1 2019.

Whilst the Group's used vehicle performance in the Period was extremely strong and ahead of the wider market, it also benefited from exceptional market conditions which are not anticipated to persist.

Aftersales

All of the Group's aftersales operations remained open throughout the closure of its retail showrooms from 4 January to 12 April 2021. In the comparable period in 2020, only 62 of the Group's aftersales facilities remained open during the 2020 closure period to support essential vehicle mobility including for emergency and key workers.  However, aftersales continued to be impacted by the COVID-19 pandemic in the Period as a consequence of MOT and servicing deferrals in H1 2020.

Total aftersales revenue in the Period was up 31.8% to £132.2m (H1 2020: £100.3m) with like-for-like aftersales revenue up 34.8%. However, the ongoing impact of the pandemic meant that reported aftersales revenue increased by only 2.0% compared with the same period in 2019.

Aftersales gross margin improved by 171bps to 46.8% (H1 2020: 45.0%).

Strategic Developments

The Group's stated strategy is to grow scale with key brand partners and extend our geographic footprint into new regions across the UK. We remain committed to our long-term growth ambitions. We have further headroom to grow with our selected brand partners in what we believe will continue to be a consolidating market in which larger dealer groups with economies of scale, strength of management, a national brand and diversified franchise portfolios will be better placed. The Board continues to believe that the Group's consistently good operational performance, strong balance sheet and excellent brand partner relationships means it is well positioned to capitalise on growth opportunities as they arise.

The Group now consists of 116 franchises representing 22 brand partners trading in 29 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 continues to review its portfolio to ensure it is operating with the right brands, in the right locations with appropriate scale of operation and regularly reviews growth opportunities as they arise.

During the Period, the Group acquired two new businesses in line with its strategy: 

·    In May 2021, the Group acquired the business and assets of Cheltenham and Gloucester Jaguar Land Rover from Heritage Automotive Limited. The acquisition included the purchase of a three-acre development site in the territory at which the Group plans to develop a new dual arch Jaguar Land Rover facility. Cheltenham and Gloucester are key territories for the Jaguar and Land Rover brands and the acquisition was completed with the full support of Jaguar Land Rover UK.  Whilst the business was significantly loss-making in 2020, given our strong operational performance with each of the brands in our other Jaguar Land Rover businesses, we are confident of a material improvement in performance over the short to medium term. The Group now operates seven Jaguar and nine Land Rover businesses and is a key UK partner for each brand.

·    In June 2021, the Group completed the acquisition of Leicester Nissan from Renault Retail Group with the full support of Nissan Motor (GB). This acquisition included the purchase of the three-acre site from which the business operates. This acquisition strengthened the Group's relationship with Nissan in the East Midlands and again, whilst the business has historically been marginally loss-making, Leicester is considered to be a key territory for Nissan and we are confident of its future success. 

Investments

Whilst the Group has focused on maintaining a prudent approach to capital investments during the pandemic, its strong balance sheet, positive trading and cash generation has enabled it to make a number of strategic investments, in addition to the business acquisitions referred to above, when opportunities have arisen.

We took the opportunity to purchase the freehold of a vacant Vauxhall dealership in Beckenham, South London in the Period.  This site is now being redeveloped and will enable the Group to combine three separate Audi sites (Beckenham new Audi sales, Bromley Audi service centre and Sydenham Audi Approved used cars).  The Group will subsequently dispose of the existing freehold sites at Beckenham and Bromley and the combination will allow for significant operational efficiencies and cost savings over the medium term.

In addition, the Group has acquired the freehold of a bodyshop on the outskirts of Cambridge and is in the process of relocating its existing Cambridge and Peterborough bodyshops to this new site. Again, this will deliver operational and financial benefits over the medium term.

In the Period, the Group also completed the redevelopment of Derby Volvo (a freehold site which was acquired in December 2019 at the time the business was acquired) and Ford Commercial Vehicles in Kings Lynn.

Board of Directors

As previously announced, Kathy Jenkins stood down as a Non-Executive Director on 8 April 2021. Kathy was a nominated director of Marshall of Cambridge (Holdings) Limited ('MCHL') and her decision to step down from the Board of MMH was as a result of her appointment as Chief Executive at MCHL.

Following the sudden passing of Professor Richard Parry-Jones CBE, on 16 April 2021, Alan Ferguson, Senior Independent Director, assumed the role of Chairman in the interim.

Financial Review

Revenue

Reported revenue increased by 49.0% to a record £1,334.1m (H1 2020: £895.3m) with like-for-like revenue increasing by 49.9%.  As a result of COVID-19 and the resultant closure of our businesses for a large part of 2020, all of the Group's revenue streams, new vehicles, used vehicles and aftersales, increased against the comparable period last year. The 2021 lockdown period benefited from operating effectively on a 'click and collect' basis as a result of our investment and focus on our online retailing strategy, resulting in the strong outperformance in both new retail and used car markets. This outperformance continued as the dealerships reopened.

Profit Before Tax

The Group reported a record profit before tax of £39.5m in the Period (H1 2020: loss £10.7m), with an underlying profit before tax of £38.4m (H1 2020: loss £11.8m). This was as a result of a strong trading performance during the third national lockdown and subsequent outperformance compared to the market, together with an exceptionally strong used car performance, with used car margin benefit contributing incremental net profit of £14.6m from that recorded in H1 2019. During the Period, the Group also benefited from £4.7m from the Government's business rates holiday scheme as well as approximately £2.0m in reduced finance costs, principally as a result of abnormally low stock holding.

Margin

Gross margin in the Period was a record 11.8%, an increase of 117bps versus the comparable period last year.  Both overall gross profit and gross margin benefited from market tailwinds, including unprecedented used car value appreciation and favourable demand to supply dynamics which saw used car margins increase to 8.6% in the Period, up 246bps on 2020. This included a stock provision release of £2.8m due to the exceptional trading conditions. This was the best used car margin ever reported by the Group. New vehicle margins also increased in the Period by 85bps to 6.9%, but were nevertheless impacted by a reduction in volume related income.

Aftersales gross margin at 46.8% (H1 2020: 45.0%) improved as a result of an increased mix of higher margin service work, up 171bps versus 2020.

Overall, the Group's underlying return on sales was 2.9%.

Costs

Underlying operating costs during the Period were £114.5m, £12.9m higher than H1 2020 which benefited from lower operating costs during the 2020 national lockdown period when a higher proportion of the Group's colleagues were furloughed. Whilst year-on-year costs increased due to the abnormal trading conditions in 2020, the Group's enhanced expenditure controls remain in place and as a result operating costs were lower than in the comparable period in 2019. This is despite the acquisitive growth of the business in this period which added c.£16m of costs. In the Period, the Group also benefited from £4.7m from the Government's business rates holiday scheme (2020: £2.3m). Business rates benefit of approximately £2.0m is expected in H2 2021.

Again, the Group acknowledges the support of the Government, along with many of our brand partners and suppliers, through this challenging period.

Total finance costs of £4.5m during the Period were £0.9m lower than the same period last year, largely driven by a positive cash position resulting in the Group not requiring to draw the RCF and due to a reduction of stock in the Period.

Non-Underlying Items

During the Period, the Group recorded net non-underlying income of £1.0m due to gains on the disposal of assets held for sale and investment properties of £1.0m, offset in part by professional fees related to acquisitions completed in the Period.

At the time of reporting our 2020 interim results, it was anticipated that the impact of COVID-19 may be relatively short-term and so certain costs and associated government support were reported as non-underlying items.  It subsequently became apparent that the impact was longer term in nature and so these net costs were reported within the underlying result for the year ended 31 December 2020. As a result, H1 2020 comparatives have been restated to include the COVID-related costs in the underlying trading result.

Tax

The Group's tax charge before non-underlying items for the Period was £8.1m (H1 2020: £0.1m), an underlying effective tax rate of 21.0% (H1 2020: 1.6%).

The Group's total reported effective tax rate differs from this due to the deferred tax charge arising following the substantive enactment of the planned increase in the standard rate of corporation tax to 25% from April 2023.

Capital Expenditure

Capital expenditure during the Period (excluding expenditure related to business acquisitions) was £9.8m. This included:

·    the purchase of a new freehold property in South East London for £4.7m, a site which will be redeveloped to enable the Group to combine three separate Audi sites;

·      the purchase of a freehold bodyshop on the outskirts of Cambridge for £1.8m; and

·     other capital expenditure items including finalisation of the refurbishments of Volvo Derby and Ford Commercial Vehicles in Kings Lynn.

Capital expenditure was lower than normal as a result of the deferral of certain planned property investments agreed, where necessary, with the support of our brand partners.   

In addition, as referred to above, the Group completed the acquisitions of Cheltenham and Gloucester Jaguar Land Rover and Nissan Leicester, each of which were acquired with three-acre freehold sites.

At 30 June 2021, the Group had £139.6m of freehold property and assets under construction (30 June 2020: £123.9m), equivalent to £1.78 per share.

Financial Position

The Group's adjusted net cash position at 30 June 2021 was £57.2m compared to an adjusted net cash position of £27.4m at 30 June 2020 and adjusted net cash of £28.8m at 31 December 2020. 

There are a number of drivers behind this strong cash position, principally the Group's exceptionally strong profit performance in the Period, working capital benefits of £6.0m (despite stock funding returning to a more normal level of cover) and the proceeds from the sale of freehold and investment properties (£2.5m).

Funding Position

In July 2020, the Group's revolving credit facility (RCF), was extended to January 2023.  The RCF remained undrawn throughout the Period. Due to the Group's strong cash position, in July 2021 the Group elected to exercise its option to reduce the RCF facility by £10.0m to £110.0m. The Board believes the revised facility limit to be more than adequate to meet its needs and provide liquidity to fund significant further growth should appropriate opportunities arise.

Given the Group's strong trading and cash performance, during the Period the testing of covenants under the RCF returned to their pre covenant waiver basis. This was achieved earlier than had originally been anticipated.

Interim Dividend

As previously announced, the Board understands the importance of dividends to shareholders and in light of the strong financial performance and cash generation in the Period, is pleased to announce the restoration of dividends.

Since IPO, the Board has implemented a progressive dividend policy whereby dividends are paid in an approximate one-third (interim dividend) and two-thirds (final dividend) split. Dividends have been disrupted by the impact of the COVID-19 pandemic on the business, however, the Board intends to reinstate and reset this policy from FY 2022 onwards.

In relation to FY 2021, the Board expects that the Group's profitability will be heavily biased towards the first half due to the unprecedented trading conditions in the Period. As a result, for the current year the Board is varying the application of its usual dividend policy.  For 2021, dividend cover will remain between 2.5 to 3.5 times underlying earnings but will be paid in an approximate two-thirds (interim dividend) and one-third (final dividend) split. 

The Board is therefore pleased to announce an interim dividend of 8.86p per share (2020 interim dividend: 0p) which will be paid by 17 September 2021 to shareholders who are on the Company's register at close of business on 20 August 2021.

The Board will decide the level of the FY 2021 final dividend when the Group's 2021 full year results are announced in March 2022.

Summary and Outlook

Despite the closure of our physical retail businesses until 12 April 2021, the Group's financial performance in the Period was exceptional and we are particularly pleased to once again report the Group's continued and significant outperformance of the wider new and used car markets during the Period.

We recognise, however, that the sector has benefited from a number of significant positive tailwinds, including unprecedented used vehicle value appreciation and favourable demand-to-supply conditions for both new and used vehicles.  These market conditions, which have arisen from the COVID-19 pandemic, are not anticipated to persist in future years.

We also note that like-for-like new vehicle sales continued to be below pre-pandemic levels and that, whilst it has committed to repay all CJRS and retail sector grants for 2021, the Group has benefited from business rates relief in the Period which will decrease and then cease in the second half of the year.

There remains a high level of uncertainty over the second half of 2021 and into 2022 given well documented vehicle supply issues, an expected realignment of used vehicle values and the continuing impact of the COVID-19 pandemic (including the potential impact of colleague absences).  Supply issues had a limited impact on the Group's sales volumes in H1 2021, however the sector is currently experiencing considerable supply disruption for new vehicles in a number of brands and at this stage it is not certain the extent to which these supply issues will be resolved by the end of 2021.  As a result of this, together with a strong performance in H2 2020 driven by the release of pent up demand following the first national lockdown in H1 2020, we anticipate downward pressure on our like-for-like performance in H2 2021.

Given these uncertainties, there remains a range of possible outcomes for the year, however, the Board now expects that continuing underlying profit before tax for 2021 will be not less than £40.0m. This figure is after the commitment to repay all CJRS and non-essential retail sector grants received for this financial year.

On behalf of the Board, I would like to thank all of our brand partners, funders and other business partners for their support during this period.  I would also like to thank my colleagues across our business for their tireless work, resilience in the face of such challenging circumstances and for their significant contribution to our financial performance in the Period.

Daksh Gupta

Chief Executive Officer

9 August 2021