MMH.L Regulatory News (MMH)

14 March 2018

MARSHALL MOTOR HOLDINGS PLC

("MMH" or the "Group")

Annual results for the year ended 31 December 2017

Marshall outperforms the UK market and delivers another record trading result

Marshall Motor Holdings plc, one of the UK's leading automotive retail groups, announces its results for the year ended 31 December 2017.

Financial summary

Highlights

· Good like-for-like** revenue growth of 3.5% with all revenue streams showing positive growth.

· Like-for-like new revenue +1.0%, used +7.0%, aftersales +2.3%.

· New car retail unit sales up 12.3% (like-for-like down 2.6% versus UK new retail market*** down 6.8%).

· Used car unit sales up 17.1% (like-for-like up 5.2% versus UK used market*** down 1.1%).

· Strong performance from aftersales, revenues up 20.0% (like-for-like up 2.3%) and further margin improvements.

· Strategic disposal of Marshall Leasing for a gross consideration of £42.5m before costs and expenses.

· Management action drives a material reduction in net debt at 31 December 2017 £2.2m (2016: £119.0m).

· Balance sheet further strengthened with net assets per share of £2.47 (2016: £1.88). Freehold / Long leasehold property £116.3m. £120m committed revolving credit facility undrawn at 31 December 2017.

· Full year dividend up 16.4% at 6.4p per share (2016: 5.5p).

Daksh Gupta, Group Chief Executive, said:

"Despite the more challenging market backdrop, the Board is pleased to announce another record financial performance which was ahead of our previously upgraded expectations. During 2017 we took a number steps, including the strategic disposal of Marshall Leasing, to prepare the Group for the future. We are now focused exclusively on our motor retail business and with a significantly strengthened balance sheet remain ideally positioned to exploit future opportunities.

"The Board notes the latest Society of Motor Manufacturers and Traders ('SMMT') UK new car market forecasts for a decline of 5.6% in 2018. As a consequence the Board therefore remains cautious about the UK car market in 2018 as it returns to a more normalised level. Our trading performance in the current financial year to date is in line with our expectations and our outlook for the full year remains unchanged.

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

*underlying profit before tax is presented excluding non-underlying items as set out in Note 4.

**like-for-like businesses are defined as those which traded under the Group's ownership throughout both the entire year under review and the corresponding comparative year.

***as reported by The Society of Motor Manufacturers and Traders.

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 through Marshall Motor Group. The Group's businesses have a total of 101 franchises covering 23 brands, operating from 84 locations across 26 counties in England. In addition, the Group operates five trade parts specialists, three used car centres, five standalone body shops and one pre delivery inspection centre.

In May 2017 the Group was recognised by the Great Place to Work Institute, being ranked the 22nd best place to work in the UK (large company category). This was the eighth 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

Annual results for the year ended 31 December 2017

Chairman's Statement

Introduction

I am delighted to present our Annual Report and Accounts for the year ended 31 December 2017 (the "Year"). Whilst the market backdrop for the Year was a more challenging one, the Group has strongly outperformed the UK car market and we are pleased to be reporting another record set of results at both revenue and underlying profit before tax ('underlying PBT')*. We have also taken significant steps to prepare the Group for the future.

Strategy

Since our IPO three years ago, the Group has, in line with its stated strategy, delivered material growth both organically and through the acquisitions of SG Smith in November 2015 and Ridgeway in May 2016.

In 2017 we focused on preparing for the next stage of the Group's development and growth. The strategic disposal of our leasing business Marshall Leasing Limited ('Marshall Leasing') in November 2017, for gross consideration of £42.5m (before costs and expenses), combined with ongoing portfolio management and the closure of a number of sub-scale, loss-making sites, has reduced our cost base, significantly strengthened our balance sheet and enabled us to focus exclusively on our retail businesses. As a result, we are well positioned to continue to deliver our future growth aspirations.

Results

The Group has enjoyed another record year, delivering 19.5% revenue growth and 14.4% underlying PBT growth.

Our net debt was effectively eliminated following the disposal of Marshall Leasing and was £2.2m at 31 December 2017 (2016: £119.0m). The Group's significantly strengthened balance sheet remains underpinned by £116.3m of freehold/long leasehold property.

Dividend

The Group's stated dividend policy is to maintain a progressive dividend policy where dividends are covered between 4 to 5 times by underlying earnings. The Board is, therefore, pleased to recommend a final dividend of 4.25p per share which, with the interim dividend of 2.15p per share, gives a total dividend for the Year of 6.40p per share (2016: 5.50p, up 16.4%).

If approved by shareholders at our AGM on 22 May 2018, the final dividend will be paid on 25 May 2018 to shareholders who are on the Company's register at close of business on 27 April 2018.

AGM

Our annual general meeting will be held on 22 May 2018 and I look forward to meeting all shareholders who are able to attend.

Outlook

The Board notes the latest Society of Motor Manufacturers and Traders ('SMMT') UK new car market forecasts for a decline of 5.6% in 2018. As a consequence the Board therefore remains cautious about the UK car market in 2018 as it returns to a more normalised level. Our trading performance in the current financial year to date is in line with our expectations and our outlook for the full year remains unchanged.

The Group has a strong brand mix, attractive geographic territories and excellent brand partner relationships and is well placed to continue to outperform the UK new car market. The strategic disposal of Marshall Leasing allows the Group to focus on its core motor retail business.

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

Peter Johnson

Chairman

13 March 2018

Operating Review

Overview

Since our IPO in April 2015, the Group has delivered material and sustained improvements in its financial and operational performance. Our 2017 results continue this excellent track record, benefitting from both continued organic growth and the first full year contribution from the Ridgeway acquisition which is now fully integrated.

During the Year, the Group also continued being proactive in portfolio management, announcing the acquisition of Leeds Volvo in June 2017, the disposal of Marshall Leasing Limited in September 2017 and the closure of six sub-scale, loss-making businesses in November 2017.

2017 was another successful year for the Group:

· Revenue up 19.5% to £2.3bn (2016: £1.9bn) with the Group also achieving like-for-like** revenue growth of 3.5%.

· Underlying PBT up 14.4% to £29.1m (2016: £25.4m). 

· Significant growth in underlying PBT in our retail segment, up 20.8% to £34.9m (2016: £28.9m), driven by a combination of contribution from the Ridgeway acquisition and continued organic growth.

o Like-for-like new unit vehicle sales to retail customers outperformed the UK market.

o Excellent performance in used unit vehicle sales with like-for-like unit sales outperforming the UK market.

o Aftersales like-for-like revenue continued to grow, up 2.3%. 

· The disposal of Marshall Leasing has enabled us to focus exclusively on our UK motor retail operations as well as further strengthening the Group's balance sheet.

Our continued outperformance of the UK new car retail market in the Year was particularly pleasing. In 2017 UK new car registrations were 2.54m (including dealer and self-registrations), 5.7% lower than in 2016. Registrations to retail customers in 2017 were 6.8% lower than in 2016. Against this market backdrop, we have continued to outperform the retail market with our like-for-like unit sales to new retail customers in the Year 2.6% lower than in 2016.

The SMMT reported a used vehicle market decline of 1.1% in the Year, however, at 8.11m units this was still the second highest market on record. Despite this overall decline, the Group recorded a like-for-like growth in used unit sales of 5.2%.

Strategy

The Group's strategic vision is to become the UK's premier automotive Group and this remains central to everything we do. Our five strategic pillars 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.

Class leading returns

The Group's strategy of building a balanced brand portfolio, in attractive geographic locations and with an increased premium franchise mix, has assisted the continuation of our strong track record in the face of a more challenging market. Total new vehicle revenue grew by 18.6% (1.0% like-for-like) and total used vehicle revenue grew 21.1% (7.0% like-for-like).

The completion of the integration of Ridgeway has also enabled the Group to access further benefits of scale across a number of areas of the business including improved commercial terms with suppliers and vehicle stock management.

An important element of the Group's success continues to be our strong and growing relationships with our brand partners, many of which are reacting to a more challenging market with a number of positive actions.

Aftersales continues to be a key focus of the Group and our strong performance in recent years continued during the Year, with total revenue growth of 20.0% (2.3% like-for-like). We continue to focus on maintaining high levels of customer retention and repeat business through the use of service plans as well as investing in technical and product training for our technicians.

Customer first

The Group continues to enjoy high levels of customer advocacy. In 2017, 42% of customers surveyed who visited our showrooms indicated that they were either previous customers or were recommended to us.

The launch of the domain marshall.co.uk enabled us to market all Group stock, including those of SG Smith and Ridgeway, on one website for the first time, giving customers increased choice with c.6,000 used vehicles available online. In 2017, visits to our website increased materially and in December 2017 marshall.co.uk was the fifth most visited franchised dealer group website in the UK (Source: Hitwise).

Retailing excellence

We continue to recognise the ever increasing importance of investment in technology, aimed towards expanding the Group's customer base and improving our own internal operating efficiencies. We have continued to invest in these areas during the Year.

In addition to our website presence, we continue to drive social media as a means of connecting with our customers. As a result of this, I am delighted that during the Year we received six awards including Most Influential Franchised Dealer (Car Dealer Awards), Best Digital Initiative (Automotive Management) and Best use of Social Media (Automotive Management).

Our tablet-based enquiry management system has now been successfully implemented across all sites and provides both a seamless customer experience as well as assisting compliance in the marketing and sale of regulated ancillary products.

Development of our internal systems also continued, with extensive upgrades to our financial reporting system which is now fully implemented across every site. This has provided a number of enhanced features which have improved the speed and quality of management information.

People-centric

The Group was pleased to have been ranked 22nd of the Top 30 large employers based on The Great Place to Work Institute's 2016 survey. We are also proud that during the Year we have, for the eighth consecutive year, been recognised by the Great Place to Work Institute as a 'great place to work' based on colleagues surveyed during 2017. This is particularly pleasing as the 2017 survey included over 1,200 colleagues from the former Ridgeway businesses for the first time and as such reinforces the importance of our structured approach to the integration of new businesses as part of our acquisition strategy. We look forward to receiving our final ranking for this survey.

We are now in the second year of our initiative to attract new talent to the industry and improve the retention of sales executives. As previously reported, this initiative includes providing a guarantee of earnings during the first year of employment, alongside retention bonuses and ongoing training and support. Whilst we have further work to do in this area, the results of this initiative have exceeded our expectations with a significant reduction in sales executive colleague turnover. We are also pleased that it has attracted talent from a wide variety of industry backgrounds, not just the automotive industry, which we expect to add strength and depth to our teams as well as improving our overall customer service.

Following the success of this programme, we are expanding it to other job roles and these initiatives will assist us in identifying the future leaders of our business.

Strategic growth

The Group's strategy is to grow scale with existing brand partners in new geographical territories, as demonstrated by the acquisitions of both SG Smith in 2015 and Ridgeway in 2016.

During the Year we added three new franchises to our portfolio in two locations. In June 2017 we completed the purchase of Leeds Volvo followed by the opening in December 2017 of a new Jaguar Land Rover dealership in Newbury, a previously unrepresented territory for these brands. 

Retail segment

* mix calculation excludes internal revenue

Overview

During the Year, the retail segment contributed an underlying PBT before unallocated costs of £34.9m, a growth of 20.8% from 2016.

Following the acquisition of Leeds Volvo, the opening of Newbury Jaguar Land Rover and the recently announced closures, the retail segment now consists of 101 franchises representing 23 brand partners trading in 26 counties. In addition, the Group operates 5 trade parts specialists, 3 used car centres, 5 standalone body shops and 1 pre-delivery inspection (PDI) centre. The Group operates a balanced portfolio of volume, premium and alternate premium brands including all of the top 5 premium brands.

The Group's diverse portfolio means it represents manufacturer brands accounting for 81.7% of all new vehicle sales in the UK. This scale and diversified spread of representation helps mitigate the effect of the cyclical nature of individual brand performance.

Acquisitions and disposals

During the Year, the Group acquired the business and assets of Leeds Volvo for £0.1m. This acquisition further strengthened the Group's position as the largest franchise partner of Volvo Car UK by number of sites and was in line with our stated strategy to grow scale with existing brand partners and extend our geographic footprint into new regions. Our focus will remain on ensuring a strong strategic and financial case for any opportunity. We have further headroom to grow with all brand partners in what we believe, with market uncertainty ahead, will continue to be a consolidating market.

In November 2017 the Board made the decision to close five sub-scale, loss-making franchise dealerships and one used car centre. Three of the franchise dealerships were within close proximity to existing Group dealerships of the same franchise which has enabled the Group to retain some of the existing customer base, these were Honda Mountsorrel, Nissan Boston and Vauxhall Welwyn Garden City.

Two of the impacted businesses shared a sub-scale site in Oxford with a high fixed cost base which was not sustainable in the longer term. These were the Maserati franchise and one of the Group's used car centres. The final closure announced was Citroen Cambridge, being the Group's only representation point with this particular brand partner.

In addition to the removal of these loss-making franchises and the cash realisation of associated working capital, the closures will allow management to give greater focus to our remaining franchises.

Investment in new retail locations

During the Year, the Group continued its significant investment in new retail locations with two key site openings:

· In August 2017, we completed and opened a new Audi dealership in Marsh Barton, Exeter, one of Europe's largest motor retail parks. This investment has significantly increased both used car and aftersales capacity with 70 used vehicle display spaces and 14 aftersales bays. Total investment (including freehold land) was £7.8m.

· In December 2017, we opened our Newbury Jaguar Land Rover dealership in a previously unrepresented territory. Total investment (including long leasehold land) was £10.9m.

Investment in existing businesses

The Group continues to invest in upgrading existing businesses to enhance the customer experience, satisfy brand requirements and increase sales and aftersales capacities. Upgrade and refurbishment investment during the Year included:

· Salisbury BMW/MINI: customer experience refurbishment and used vehicle sales extension.

· Bedford Land Rover: commencement of redevelopment.

· Mercedes-Benz Bolton and Portsmouth: customer experience upgrade, sales and aftersales.

· Grantham Nissan: customer experience upgrade.

· Peugeot - all sites: customer experience upgrades.

· Cambridge Volvo: relocation to long leasehold premises and upgrade to new Volvo standards.

· Seat - all sites: customer experience upgrade.

· Newbury SKODA: relocation to an existing freehold site.

New vehicles

During the Year, the Group's retail new car unit sales increased by 12.3%, benefitting from the full year impact of the Ridgeway acquisition. Like-for-like new retail units declined by 2.6% which was a strong performance against an overall UK new retail market decline of 6.8%.

Like-for-like unit sales to fleet customers declined by 13.9% versus an overall market decline of 4.7%. This performance was, as expected, largely driven by a commercial decision we took during the Year to withdraw from certain low margin fleet business.

As has been widely reported, sales of diesel vehicles have been adversely impacted by consumer reaction around emissions and uncertain future government policy. Diesel registrations fell 17.1% during the Year (including manufacturer registrations) across the UK market with diesel registrations accounting for 42.0% of new car registrations during the Year, down from 47.7% in 2016.

One of the Group's key strengths is its balanced portfolio of volume, alternate premium and premium brands. This balance is important due to the cyclical nature of individual brands. This has helped the Group outperform the overall new car market in 2017 with premium and alternate premium brands (which now account for over three quarters of the Group's franchise portfolio) performing more strongly than the overall market.

The choice and availability of finance products for consumers, including personal contract purchase ("PCP"), continues to play an important role in the new car market. PCPs remain a popular method of financing new vehicle purchases providing the certainty of a guaranteed future value for the vehicle at the end of the contract. During the Year, c.83% of customers purchasing new cars from the Group on finance chose to do so using a PCP product. At 31 December 2017 the Group had 67,458 active PCP customers. PCPs are also beneficial to the Group as they create a defined point of renewal/purchase/replacement and we actively manage the renewal process to ensure customers are retained with the Group.

Used vehicles

During the Year, the Group's used car unit sales increased by 17.1% (like-for-like 5.2%). This is a particularly pleasing performance when compared to an overall market decline of 1.1% as reported by the SMMT.

The Group continues to focus on improving its online presence to drive used vehicle sales. This objective has been particularly successful as a result of the Group's increased geographic footprint and enlarged stock pool following the acquisitions of SG Smith and Ridgeway.

Used car revenues showed growth of 21.1% (like-for-like 7.0%) driven by a strengthening premium brand mix with higher average selling prices. Gross margin at 6.9% was marginally below 2016.

We continue to control our stock appropriately to meet demand and our 56 day stocking policy encourages accelerated stock turn, leading to a higher sales volumes and reduced residual value risk.

As we have seen over recent years in the new car market, PCP as a method of financing a vehicle purchase has increased in the used car market. During the Year, c.58.0% of the Group's used vehicles purchased on finance were purchased using a PCP product versus c.55.0% in 2016, frequently with service plans included. This also provides further aftersales opportunities.

Aftersales

During the Year, the Group's aftersales revenues increased by 20.0% (like-for-like 2.3%).

In addition to our retail centre based aftersales facilities, the Group now operates five standalone bodyshops, five trade parts centres and one PDI centre. Aftersales contributes 44.2% of total retail gross profit and therefore makes a significant financial contribution to the Group which is important in the context of a more cyclical new car market.

Aftersales business is driven by the Group in a variety of ways:

· strong growth in new and used vehicle sales over recent years has increased the Group's customer-base, many of whom return to our dealerships for the ongoing care and maintenance of their vehicles;

· used vehicle sales, and in particular those purchased on PCPs with service plans, also drive future aftersales business with used vehicles requiring additional aftersales services (e.g. MOT tests);

· we offer service plans to customers of both new and used vehicles which allow customers to plan and budget for service costs and also drives repeat visits to our dealerships and helps us develops longer term customer relationships. At 31 December 2017 the Group had over 77,000 live service plans;

· customer service is crucial in ensuring customer retention and we monitor customer feedback throughout the business on a weekly basis and customer satisfaction is built into all of our operational pay plans.

As a result of these factors, gross margin at 46.9% improved in the Year, up from 45.6% in 2016.

Leasing segment

On 21 September 2017 the Group announced the strategic disposal of Marshall Leasing to N.I.I.B. Group Limited (trading as Northridge Finance) for gross cash consideration of £42.5m. The disposal completed on 24 November 2017.

The leasing and fleet management market continues to consolidate and the Board considered that scale was becoming increasingly important to underpin the capital intensive nature of the business model. The disposal allows the Group to focus exclusively on its UK motor retail operations, a segment which the Board believes continues to offer attractive opportunities for future growth.

As part of the transaction, the Group entered into an operating agreement with Northridge Finance for the ongoing supply of new vehicles. We are pleased to have this opportunity as we anticipate that under new ownership, Marshall Leasing will continue to grow its leasing fleet, providing an increased opportunity to the Group.

Summary

The Group has produced another record set of results at both revenue and underlying PBT, building on our strong historical performance. In the face of a more challenging new car market, the Group has continued to show progress in like-for-like performance, has integrated recent acquisitions, restructured the balance sheet following the disposal of Marshall Leasing and closed six subscale, loss making businesses. This leaves the Group well positioned for the future.

In what is now my 10th year with the Group, I would like to take this opportunity to thank our colleagues, Board members, brand and business partners for their hard work and support and I look forward to continuing to work together in 2018.

Daksh Gupta

Chief Executive Officer

13 March 2018

Financial Review

Group results

Revenue £2.3bn

2016 £1.9bn

Group revenue increased by 19.5% to £2,268.9m (2016: £1,899.4m) benefiting from the first full year contribution from Ridgeway which was acquired in May 2016. In addition to contributions from acquisitions, I am delighted to report that like-for-like retail revenue also showed growth of 3.5%. Like-for-like revenues in new vehicle sales to retail customers, used vehicle sales and aftersales all recorded growth during the Year.

Total gross margin at 11.7% was 8 basis points above the same period last year (2016: 11.6%). The Group experienced underlying margin pressure in the discontinued leasing segment but this was more than offset by margin growth in the continuing retail segment. Against the background of a more challenging market, I am pleased to report further margin growth in both new vehicles and aftersales.

Total operating expenses of £240.7m were 25.8% higher than the same period last year, primarily driven by the impact of acquisitions and non-underlying items. As anticipated, our retail segment operating overheads on a like-for-like basis grew by 5.4% as the Group faced incremental structural cost pressures in a number of areas such as business rates and transaction processing costs.

Total underlying PBT at £29.1m (2016: £25.4m) was 14.4% ahead of the previous year.

The Group's continuing operations showed an underlying PBT growth of 23.7% which represented another record year. The discontinued leasing segment delivered a PBT of £3.7m in the 11 month period to completion of the disposal in November 2017 (full year 2016: £4.9m).

The unallocated segment consists principally of administrative and asset management functions. Underlying central operating costs of £9.6m (including interest) were, as expected, £1.1m higher than in 2016. This was largely driven by additional infrastructure investment and the full year impact of increased finance / interest costs following the acquisition of Ridgeway (see finance costs section below).

Non-underlying items

£24.1m

2016 (£3.2m)

The disposal of the leasing segment generated a one-off gain of £36.9m after all transaction costs and provision for the settlement of certain historic pension liabilities.

In addition, the Group incurred net non-underlying costs of £12.8m (2016: £3.2m). These included a £6.8m charge related to the closure of five franchised dealerships and one used car centre announced in November 2017 (including £2.1m non-cash asset impairment charges). Also included in non-underlying items is a £6.0m post-retirement benefits charge, representing an estimate of the Group's costs to cease participation in a defined benefit pension scheme; one of several outcomes being considered by the Group as part of a wider strategic review of pension arrangements in the light of the disposal of Marshall Leasing. See Note 11 'Pensions' for further details.

These non-underlying items are presented separately on the face of the income statement and are excluded from underlying PBT.

Finance costs

£8.1m

2016 £6.9m

Finance costs of £8.1m were, as expected, £1.2m higher than in 2016, driven by increased full year costs associated with drawings under the Group's revolving credit facility ("RCF") (in connection with the Ridgeway acquisition) and increased stock funding charges. These additional costs include amortisation of arrangement fees and non-utilisation charges. We expect finance costs to reduce in 2018 following the disposal of Marshall Leasing.

Taxation

Underlying ETR 18.1%

2016 20.3%

Being sensitive to the impact of gains and charges associated with acquisitions, disposals and restructuring, at 7.1% (2016: 19.9%), the effective tax rate (ETR) on total reported earnings benefited materially from the one-off, non-taxable gain relating to the disposal of Marshall Leasing.

The underlying ETR was 18.1% (2016: 20.3%). The rate benefited from non-recurring, prior year adjustments. In 2018 in the underlying ETR is expected to return to historical levels.

Full details of the Group's tax governance framework can be found in the Group's tax strategy which is available on the Group's website at: http://www.mmhplc.com/investors/corporate-governance.

Acquisitions

Total spend £0.1m

2016 £94.5m

Continuing the Group's strategy of expansion with existing brand partners in new geographic territories, during the Year the Group completed the acquisition of Leeds Volvo for £0.1m, further strengthening its position as the largest franchise partner of Volvo Car UK by number of sites.

Disposal of discontinued operation

Gross proceeds £42.5m

2016 nil

On 21 September 2017 the Group announced the strategic disposal of Marshall Leasing to N.I.I.B. Group Limited (which trades as Northridge Finance), a wholly owned subsidiary of Bank of Ireland (UK) plc. Following regulatory approval from the Financial Conduct Authority, the transaction completed on 24 November 2017.

As well as further strengthening the Group's balance sheet, the disposal allows the Group to focus on its core motor retail business and to continue the Group's successful strategy of driving both organic growth and increasing its UK geographic footprint through targeted acquisitions with existing brand partners.

The gross cash consideration for the disposal was £42.5m before costs and expenses which has been used initially to reduce levels of indebtedness. The net assets of Marshall Leasing on disposal were £2.3m.

The Group incurred £1.8m of transaction costs in relation to the disposal, including the settlement of long term management incentives for certain senior employees of Marshall Leasing.

Net debt

£2.2m

2016 £119.0m

The Group's balance sheet is strong and has significant capacity to support continued growth. The Group had total net assets of £191.2m (2016: £145.7m) which equates to 247p per share as at 31 December 2017 (2016: 188p per share).

The Group incurred £24.4m of retail capital expenditure during the Year (2016: £28.8m). I am pleased to report that two major freehold/long leasehold developments opened on time and on budget during the second half of the Year. These were Audi Exeter and a new Jaguar Land Rover dealership at a new franchise point in Newbury. 2018 will be the final year of our three-year £75m retail capital expenditure programme.

Total inventory at 31 December 2017 was £401.3m (2016: £380.0m) of which £380.6m was subject to vehicle funding arrangements (2016: £364.7m).

At 31 December 2017, the Group had net debt of £2.2m (2016: £119.0m). In addition to the significant positive cash flow from the disposal of Marshall Leasing, the Group continued to focus on all aspects of working capital control, driving a positive cash flow from reduced levels of working capital during the Year. The significant reduction in net debt leaves the Group well positioned to pursue further growth opportunities and to respond appropriately to more challenging market conditions.

Importantly, the disposal of Marshall Leasing has materially reduced the Group's exposure to vehicle residual value risks during a period of more challenging market conditions.

Our £120m three year banking facility was put in place during May 2016 for general corporate purposes including acquisitions and working capital requirements. This facility was undrawn at 31 December 2017. During the Year, the Group exercised an option to extend the facility for a further year to 2020. The Group has a further option in May 2018 to extend the facility for a further twelve months.

Dividends

6.40p per share

2016 5.50p per share

The Board is delighted to recommend a final dividend of 4.25p (2016: 3.70p) per share which, together with the interim dividend of 2.15p (2016: 1.80p) per share, gives a total dividend for the Year of 6.40p (2016: 5.50p).

If approved by shareholders, the dividend will be paid on 25 May 2018 to shareholders who are on the Company's register at close of business on 27 April 2018.

The Board intends to maintain a progressive dividend policy whereby dividends are covered between 4 to 5 times underlying earnings and paid in an approximate one-third (interim dividend) and two-thirds (final dividend) split. The retained earnings of the Company at 31 December 2017 of £70.1m (2016: £19.7m) are considered sufficient for the payment of future dividends in line with the Group's dividend policy.

Mark Raban

Chief Financial Officer

13 March 2018

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2017

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2017

NET DEBT RECONCILIATION

For the year ended 31 December 2017

NOTES TO THE FINANCIAL INFORMATION

For the year ended 31 December 2017

1. General information

Marshall Motor Holdings Plc (the "Company") is incorporated and domiciled 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 Company is the holding company of a group of companies whose activities consist principally of car and commercial vehicle sales, distribution, service and associated activities (the "Group"). Until the disposal of Marshall Leasing Limited in November 2017, the Group was engaged in the business of leasing vehicles.

The condensed consolidated financial information for the year ended 31 December 2017 has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and in accordance with the requirements of the Companies Act 2006 applicable to entities reporting under IFRS. The accounting policies applied are consistent with those set out in the Marshall Motor Holdings Plc Annual Report and Accounts 2016 published on 20 March 2017.

The financial information contained within this preliminary announcement for the years ended 31 December 2017 and 31 December 2016 does not comprise statutory financial statements within the meaning of section 434 of the Companies Act 2006. Statutory financial statements for the year to 31 December 2016 have been prepared in accordance with UK GAAP and have been filed with the Registrar of Companies. Financial statements for the year ended 31 December 2017 will be filed following the Company's Annual General Meeting. The Auditors' Reports on the statutory financial statements for the years ended 31 December 2017 and 31 December 2016 are unqualified, do not draw attention to any matters by way of emphasis, and do not contain any statement under section 498 of the Companies Act 2006.

A copy of the full Group financial statements for the period ended 31 December 2017 that comply with IFRSs will be made available at www.mmhplc.com.

'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.

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 Group's financial statements.

In preparing the preliminary announcement, the Directors have also made reasonable and prudent judgements and estimates and prepared the preliminary announcement on the going concern basis. The preliminary announcement and management report contained herein give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group.

NOTES TO THE FINANCIAL INFORMATION

For the year ended 31 December 2017

2. Segmental information

Operating segments are reported in a manner 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. Management have identified the Chief Executive Officer as being the Chief Operating Decision Maker in accordance with the requirements of IFRS 8 Operating Segments.

Management has determined the operating segments based on the operating reports reviewed by the Chief Executive Officer that are used to assess both performance and strategic decisions. These results have been determined using accounting policies consistent with those used in the consolidated financial statements.

The Group's business is split into two main revenue-generating operating segments and a third support segment. No significant judgements have been made in determining the reporting segments.

Retail

This segment includes sales of new and used vehicles, together with the associated ancillary aftersales services of; servicing, body shop repairs and parts sales.

Leasing

This segment includes the leasing of vehicles to end consumers and fleet customers.

Unallocated

This segment includes the Group's head office and central management functions including; the Board, group finance functions, the human resources department and all governance and compliance related functions in support of the wider business. Also included is rental income arising from investment properties.

From 1 January 2018, the Group is organised into one business segment being the retail segment. The leasing segment was discontinued on the sale of Marshall Leasing Limited on 24 November 2017 (see Note 5 'Discontinued Operations').

Depreciation presented in the segmental note is restricted to assets other than assets held for contract rental, on the basis that depreciation on our leasing fleet is presented within cost of sales.

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, leasing, vehicle service and other related services.

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 UK.

NOTES TO THE FINANCIAL INFORMATION

For the year ended 31 December 2017

2. Segmental information (continued)

NOTES TO THE FINANCIAL INFORMATION

For the year ended 31 December 2017

2. Segmental information (continued)

Retail revenue is derived from a number of service lines, principally being new vehicle sales and aftersales, as set out below.

*mix calculation excludes internal sales

3. Profit before taxation

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

NOTES TO THE FINANCIAL INFORMATION

For the year ended 31 December 2017

4. Non-underlying items

Profit on disposal of subsidiary

See Note 5 'Discontinued Operations' for further details of the transaction giving rise to the profit on disposal of subsidiary.

Post-retirement benefits charge

See Note 11 'Pensions' for further details of the transaction giving rise to this post-retirement benefits charge.

Acquisition costs

Acquisition costs were incurred in connection with the acquisition of Ridgeway Garages (Newbury) Limited in 2016.

Profit on disposal of business units

During 2016, the Group disposed of two Toyota dealerships and one Nissan dealership realising a profit of £285,000.

Amortisation of acquired order book

Amortisation of acquired order book is considered exceptional by virtue of its nature, having been recognised as an intangible asset on acquisition and realised immediately afterwards as the orders were fulfilled.

Gain on interest rate swap termination

At the point of the acquisition, Ridgeway had a claim in progress in respect of the mis-selling of certain historic interest rate swap products. These claims, settled in 2016, gave rise to a gain on termination of £294,000.

Restructuring costs

Restructuring costs during the current year represent the costs incurred as a result of the closure of five franchised dealerships and one used car centre. Three of the franchised dealerships impacted were in relatively small markets and within close proximity of other existing Group dealerships of the same franchise. Two of the impacted businesses shared a subscale site in Oxford with a high fixed cost base which was not sustainable in the longer term. The final closure was the Citroën Cambridge new car sales franchise which was the last remaining representation point with this particular brand partner. Restructuring costs include vacant property related costs of £4,309,000, redundancy costs of £344,000 and £2,130,000 of tangible and intangible asset impairment losses and write offs.

Restructuring and reorganisation costs in the prior period relate to one-off costs of integration and reorganisation (following the acquisitions of Ridgeway and the SG Smith).

NOTES TO THE FINANCIAL INFORMATION

For the year ended 31 December 2017

5. Discontinued operations

On 24 November 2017 the Group disposed of Marshall Leasing Limited and its subsidiary (Gates Contract Hire Limited). Marshall Leasing Limited operated the Group's leasing segment.

A profit after tax of £36,851,000 on the sale, being the difference between sale proceeds and the carrying value of the net assets, less settlement of pension liability, transaction costs and taxation. This profit is disclosed within non-underlying items (Note 4 'Non-Underlying Items'). The results of the discontinued operation are disclosed in the Consolidated Statement of Comprehensive Income.

The carrying value of the assets and net cash generated on disposal are detailed below.

NOTES TO THE FINANCIAL INFORMATION

For the year ended 31 December 2017

6. Net finance costs

7. Taxation

The tax charge on discontinued operations amounting to £716,000 (2016: £1,183,000 all relates to tax payable on profit from operations.

NOTES TO THE FINANCIAL INFORMATION

For the year ended 31 December 2017

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 2,866,231 at 31 December 2017 (2016: 2,380,040).

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

Diluted earnings per share are based on the weighted average number of shares.

9. Dividends

A final dividend of £2,864,000 for the year ended 31 December 2016 was paid in May 2017. This represented a payment of 3.70p per ordinary share in issue at that time.

An interim dividend in respect of the year ended 31 December 2017 of £1,663,000 (£1,393,000), representing a payment of 2.15p per ordinary share in issue at that time, was paid in September 2017.

A final dividend of 4.25p per share in respect of the year ended 31 December 2017 is to be proposed at the annual general meeting on 22 May 2018. The ex-dividend date will be 26 April 2018 and the associated record date will be 27 April 2018. This dividend will be paid subject to shareholder approval on 25 May 2018 and these financial statements do not reflect this final dividend payable.

NOTES TO THE FINANCIAL INFORMATION

For the year ended 31 December 2017

10. Property, plant and equipment

As at 31 December 2017, the Group had capital commitments totalling £7.7m (2016: £11.7m) relating to ongoing construction projects.

NOTES TO THE FINANCIAL INFORMATION

For the year ended 31 December 2017

11. Pensions

Provision for Section 75 Employer Debt - Defined Benefit Pension Scheme

As a result of the sale of Marshall Leasing Limited during the year, the Group no longer has any current employees who are members of the defined benefit section of the Marshall Group Executive Pension Plan. This fact, combined with the current triennial valuation process, led the Group to commence a strategic review of its existing pension arrangements. Based on the status of discussions to date, current expectations are that it is reasonably probable that this review will result in the Group ceasing participation in this pension scheme.

Ceasing to participate in the defined benefit section of the Plan would trigger a debt for the Group under Section 75 of the Pensions Act 1995 ("Employer Debt"). Based on initial actuarial estimates, the estimated Employer Debt would be approximately £6 million. In light of the current status of the Group's discussions with the Trustees of the Plan and the principal employer, it is considered appropriate to recognise a provision for this estimated Employer Debt.

If the Group were to cease to participate in the defined benefit section of the Plan and on settlement of the Employer Debt, the Group would have no further commitments or participation in any defined benefit pension plans.