MMH.L Regulatory News (MMH)

18 August 2020

MARSHALL MOTOR HOLDINGS PLC

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

Unaudited interim results for the six months ended 30 June 2020

Resilient H1, encouraging reopening, confident of long-term prospects

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 2020 ("H1" or the "Period").

Financial Summary

Responding to COVID-19

Operational and Financial Performance

Daksh Gupta, Chief Executive Officer, said:

"Despite the significant challenges presented by COVID-19, the Group has delivered a resilient first half performance and once again outperformed the market. Since full reopening under COVID-19 secure guidelines on the 1st of June, trading has been robust and our important Q3 order take is encouraging.

This has been achieved as a result of our highly engaged and professional colleagues who have gone above and beyond during this difficult period and I am incredibly proud of their commitment and dedication. On behalf of the Board I would like to take this opportunity to sincerely thank them for their passion, hard work and support. I would also like to take the opportunity to thank our brand and business partners who have been exceptionally supportive throughout.

The impact of COVID-19 will accelerate the rationalisation and consolidation of the UK franchise dealer network. With the Group's excellent brand partner relationships, strong balance sheet, recently renewed £120m revolving credit facility, depth of management team and highly engaged colleagues, the Group believes it is well placed to capitalise on value accretive growth opportunities and is therefore well placed to deliver long-term shareholder value."

1 "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

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 cash includes the impact of the recognition of lease liabilities under IFRS16 (see the Net Debt Reconciliation)

5 Registrations 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. The Group's businesses comprise a total of 117 franchises covering 23 brands, 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 May 2020 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 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.  

Operating Review

Introduction

Our unaudited interim results for the six months ended 30 June 2020 ("H1" or the "Period") reflect the unprecedented impact of COVID-19 and the resultant closure of our businesses for a large proportion of the Period.

As a result, H1 2020 is characterised by three distinct periods: the period prior to the temporary closure of our showrooms; the lockdown closure period from 23 March until 1 June; and finally the period following the reopening of our businesses on 1 June until 30 June.

Trading prior to closure period

As previously reported, the Group performed strongly during the first quarter of 2020, significantly outperforming the wider UK new car market together with strong used car and aftersales performances.

Safeguarding our business through the closure period

Our priority in responding to the COVID-19 pandemic was the safety and wellbeing of our colleagues and customers and we announced the temporary closure of our dealerships on 23 March, prior to the Government requiring car showrooms and all non-essential businesses to close, impacting the busiest week of the year.

In recognition of the vital role our aftersales operations play in supporting essential vehicle mobility, the Group kept 62 of its aftersales operations open across the country to support the emergency services, commercial vehicle operators, vulnerable customers and key workers throughout the COVID-19 national emergency. Whilst these operations were run at a small loss, the Board believed it was appropriate for the Company to continue to offer these services to support the country, particularly in light of the various COVID-19 Government support schemes provided to businesses through this period.

We also remained open online and on the telephone to receive and manage customer enquiries. During the closure period the Group took orders for over 3,700 new and used vehicles. This was, inevitably, significantly down on the comparable prior year period during which c.19,000 new and used vehicle orders were taken.

The Group furloughed around 90% of its 4,300 colleagues during the closure period. The Group acknowledges the support provided by Government through the Coronavirus Jobs Retention Scheme (CJRS) which has enabled the Group to support its furloughed colleagues and protect their employment. We have since welcomed back 88% of our colleagues and continue to transition more staff safely back into the business as consumer activity levels return.

Management estimate the impact of closure was c.£26m.

Re-opening under COVID-19 secure operating procedures

Following the Government announcement on the 26 May 2020, the Group reopened all showrooms and other operating units from the 1 June 2020. Detailed preparations were made to ensure our business reopened under revised, COVID-19 secure, operating procedures to safeguard our colleagues, customers and all other visitors to our businesses.

Trading in the final month of the Period was strong, benefitting, as anticipated, from a combination of a release of pent-up demand, extensions to vehicle financing agreements coming to an end, a shift from use of public transport towards vehicle ownership and the delivery of outstanding vehicle orders not completed prior to the closure period.

We have been encouraged by our ability to operate effectively and successfully under our revised operating procedures. 

Segmental Analysis

Six months ended 30 June 2020

Six months ended 30 June 2019

*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 have been significantly impacted by COVID-19. During the Period, new car registrations to retail and fleet customers declined by 44.6% and 51.7% respectively with total registrations of new vehicles in the UK (including the impact of dealer self-registration activity) declining by 48.5% in the Period. These declines were predominantly experienced during April and May when total new registrations were down 97.3% and 89.0% respectively.

These unprecedented market declines significantly impacted the Group's sales performance over the Period but the Group still outperformed the overall market, with a like-for-like decline in unit sales to new retail customers of 37.7% and 37.7% to fleet customers. This outperformance was driven by a strong performance in the first quarter with like-for-like new unit sales down 10.6%, significantly ahead of the market which was down 31.0% and a similarly positive performance in June with like-for-like new unit sales down 10.8%, ahead of the market which was down 34.9%.

Total new car revenue in the Period was £417.4m (H1 2019: £569.1m) with like-for-like revenue of £377.6m (H1 2019: £559.7m), down 32.5%.

Gross profit in new vehicles was down £18.4m, impacted by a combination of the decline in sold units as well as a reduction in gross margin of 162bps, down from 7.7% in H1 2019 to 6.0% in H1 2020. The main driver behind the margin decline being a reduction in volume-related income, including manufacturer bonuses, as a result of significantly lower new vehicle sales.

Used Vehicles

Used vehicle sales were also significantly impacted by COVID-19 during the Period.

The SMMT reported a decline of 168,000 used car transactions in Q1 2020 versus Q1 2019, an 8.3% decline. In the first quarter of the year, the Group experienced a like-for-like decline of 9.7%, broadly in line with the overall market. In Q2 the overall market was more heavily impacted due to showroom closures and registered a decline of 995,000 units, a reduction of 48.9%. This leaves the overall market in H1 down by 28.7% versus 2019. During H1 the Group recorded a decline of 31.8% on a like-for-like basis broadly in line with the market. This was a pleasing result given the impact of lockdown on franchised sector.

Used car sales performance following the reopening of our businesses has been very encouraging, benefiting from significant pent-up demand and a shift from use of public transport towards car ownership, with both order take and sales increasing versus the respective period in the prior year.

Total used car revenue in the Period was £395.6m (H1 2019: £509.6m), with like-for-like revenue of £348.4m (H1 2019: £495.1m), down 29.6%.

Used vehicle residual values have remained robust to date, with values increasing as a result of demand. It is anticipated that this initial spike in demand will level off during the latter part of 2020. The Group continues to monitor this situation very closely, utilising robust operating controls.

Gross profit in used vehicles reduced from £33.5m in H1 2019 to £24.3m in H1 2020. Gross margin declined by 43bps, down from 6.6% in H1 2019 to 6.1% in H1 2020, largely driven by management actions taken to reduce stock levels at the outset of the crisis and a lower proportion of vehicle sales during the closure period being sold with financing.

Aftersales

The Group kept 62 of its aftersales operations open throughout the closure of its retail showrooms to support essential vehicle mobility including for emergency and key workers. These operations were run at a small loss, however the Board believed it was appropriate for the Company to continue to offer these services to support the country. The Group is very grateful to those colleagues who put themselves forward to ensure these operations could continue.

Total aftersales revenue in the Period was £100.3m (H1 2019: £129.5m) with like-for-like aftersales revenue down 28.5%.

As a result of MOT and servicing deferrals, the post lockdown period has been encouraging with a marginal increase in revenue over the respective period last year. Service plans have consistently been a key part of the Group's retention strategy and this resilient model will continue to provide a greater level of certainty over future aftersales profits.

Despite the small loss made during the lockdown period, overall aftersales gross margin improved by 45bps to 45.0% (H1 2019: 44.6%). Since full re-opening on 1 June, our aftersales facilities have predominantly been carrying out delayed scheduled service and maintenance work which typically have higher margins.

Portfolio Management

During the Period, the Group closed its single Maserati dealership in Peterborough with all colleagues being redeployed within the Group. This business, which operated from freehold premises, has been loss making in recent years.

On 10 July the Group completed the acquisition of Aylesbury Volkswagen. The Aylesbury business formed part of the strategic acquisition announced in December 2019. As a result of the completion, all deferred consideration has now been paid to Jardine Motor Group UK Limited.

During 2019 the Group added 20 businesses through 8 acquisitions or start-ups. The integration of these businesses is ongoing and is progressing as planned and we are encouraged with the progress made. Prior to the lockdown period these businesses were trading ahead of our expectations.

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.

The Board believes that the current trading and economic environment is likely to accelerate further network rationalisation and consolidation within the automotive retail sector. The Group's stated strategy is to grow scale with key brand partners and extend our geographic footprint into new regions across the UK. Whilst our focus has been on navigating our business through the COVID-19 crisis, we remain committed to our long-term growth ambitions. We have further headroom to grow with all brand partners in what we believe, with continuing market uncertainty, will continue to be a consolidating market in which larger dealer groups with diversified franchise portfolios will be better placed. The Board continues to believe that the Group's strong balance sheet and excellent manufacturer relationships means it is well positioned to capitalise on these opportunities as they arise.

Capital Investment

As part of cash preservation, the Group's capital expenditure programme was reviewed and, in collaboration with our brand partners where necessary, a number of planned projects have been deferred. As a result, capital expenditure in the Period was £4.7m, comprising principally of completion of the refurbishments of Newbury Audi and Wimbledon Audi.

People Centric - Response to COVID-19

As a result of the temporary closure of its businesses, the Group furloughed around 90% of its 4,300 employees. At today's date, 12% of our colleagues remain furloughed however we continue to monitor business activity and customer demand patterns which will inform the rate at which we take colleagues off of furlough and welcome them back into the business.

The Group acknowledges, and is grateful for, the welcome support provided by Government through the Coronavirus Jobs Retention Scheme (CJRS) which has enabled the Company to support its furloughed colleagues and protect employment.

The Group worked hard to support its colleagues during this period of uncertainty. During the furlough period, the Group supplemented the support provided by the CJRS, enhancing colleague pay during the closure period to 100% for March, 90% for April and 85% for May and not imposing the CJRS cap of £2,500 per month. The Group has also provided additional financial support, including salary advances, to colleagues where this has been requested.

Whilst they continued to work throughout the closure period, the Board and other senior members of the management team voluntarily reduced their pay in line with the reductions for furloughed colleagues.

In addition to providing financial support to colleagues and in recognition of the importance of ongoing communication, over 26 bi-weekly management briefings were issued to all furloughed colleagues via video message from members of the executive committee and other members of the senior management team. This enabled the Group to stay in touch with furloughed colleagues and provide updates on the actions taken during the closure period. Weekly video messages and other communications have continued for remaining furloughed colleagues.

The 'Stay Marshall Colleague Hub', our bespoke internal employee platform, was regularly updated with key Company updates as well as less formal, engaging material including recognition of individual COVID-19 support initiatives, activity suggestions for children during lockdown, cooking recipes, TV series reviews etc. We recognised early on the importance of regular two-way communication with our colleagues during the lockdown for their health and wellbeing and actively encouraged all of our people to contribute material to the Stay Marshall Colleague Hub.

All furloughed colleagues were encouraged to complete modules of the Company's bespoke training programme via its online learning platform. As well as 'business as usual' training programmes relating to financial services and data protection compliance, all colleagues completed a mandatory formal training and assessment programme on our revised operating procedures and social distancing guidelines before returning to the workplace.

The feedback from colleagues on our communications during this period has been extremely positive, demonstrating why, in May 2020, the Company was once again confirmed as being a 'Great Place to Work' by the Great Place to Work Institute. This was the tenth consecutive year that the Company has been so recognised and the sixth consecutive year that it has been ranked.

Financial Review

Revenue

Reported revenue declined by 24.3% to £895.3m (H1 2019: £1,183.3m) with like-for-like revenue decreasing by 30.9%. As a result of COVID-19 and the resultant closure of our businesses for a large proportion of the Period, all of the Group's revenues streams, new vehicles, used vehicles and aftersales, declined against the comparable period last year.

Loss Before Tax

As anticipated, despite a strong trading performance in the first quarter of the year and encouraging trading levels in the period after reopening on 1 June, as a result of the closure of our businesses for a large proportion of the Period, the Group's reported loss before tax was £10.7m, with an underlying loss before tax of £8.9m during the Period.

Margin

Gross margin in the Period was 10.6%, a decline of 78bps versus the comparable period last year. Both overall gross profit and margin were impacted by a reduction in volume-related income, including manufacturer bonuses, as a result of significantly lower vehicle sales during the Period. As a result, new vehicle margin declined by 162bps to 6.0% and used vehicle margin declined by 43bps to 6.1%.

Aftersales gross margin at 45.0% (H1 2019: 44.6%) improved as a result of a greater mix of higher margin scheduled service and maintenance work.

Costs

Underlying operating costs during the Period were £98.8m, which included £10.7m relating to acquired businesses. After adjusting for these, costs were £26.8m lower than in the comparable period last year. Lower operating costs were driven by a combination of management actions taken to control costs throughout the Period and the benefit of various Government support programmes.

In particular, during the Period:

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

Total finance costs of £5.3m during the Period were £0.3m higher than the same period last year. This was driven by a combination of increased vehicle stocking charges as a result of higher levels of consignment stock (including stock attributable to our newly acquired sites) and a precautionary drawdown from our revolving credit facility.

Non-Underlying Items

During the Period, the Group incurred net £1.8m of non-underlying costs, principally related to costs directly attributable to the COVID-19 pandemic (£2.8m), integration costs relating to 2019 acquisitions and the closure of Peterborough Maserati (£0.5m), partially offset by a profit on disposal of a vacant Leicester Vauxhall freehold asset held for resale of £1.6m. The costs directly attributable to the COVID-19 pandemic includes £1.8m to "top-up" colleagues' salaries above the 80% furlough scheme after utilising the CJRS to support the employment costs of its furloughed colleagues.

Tax

The reported effective tax rate for the Period was -15.0% (H1 2019: 22.8%). The underlying effective tax rate for the Period was 1.6% (H1 2019: 22.6%).

Capital Expenditure

Capital expenditure during the Period was £4.7m. This was lower than forecast as a result of the deferral of certain planned property investments agreed, where necessary, with the support of our brand partners. Key expenditure items were the refurbishment of Newbury Audi and Wimbledon Audi.

At 30 June 2020, the Group had £123.9m of freehold property and assets under construction (30 June 2019: £120.9m), equivalent to £1.58 per share.

Financial Position

The Group's adjusted net cash position at 30 June 2020 was £27.4m compared to an adjusted net cash position of £5.8m at 30 June 2019 and adjusted net debt of £30.6m at 31 December 2019.

There are a number of drivers behind this strong cash position, including:

· working capital benefits of revised vehicle stocking payment periods implemented by our brand partners and other funding providers to support dealer networks (£24.3m);

· the benefit of the Government's VAT Payment Deferral Scheme (£10.0m);

· other VAT payment timing benefits (£9.9m);

· cancellation of the 2019 final divided (£4.5m);

· the benefit of an historic VAT reclaim (£2.8m);

· proceeds from the sale of a freehold property in Leicester (£2.8m including VAT);

· support and agreement with a number of the Group's landlords regarding rent holidays, reduced rents or revised rental payment terms (£1.5m);

· capital expenditure savings (c.£5m);

These measures effectively protected the Group's cash position over the closure period. It is anticipated that a number of these cash benefits (including VAT deferrals, working capital benefits of revised vehicle stocking payment periods and rent deferrals) will reverse as the Group returns to a more normalised trading environment.

It is also noted that, unless otherwise agreed in advance, the Group continued to pay all suppliers in line with its usual payment terms during the Period.

Funding Position

The Group's £120m revolving credit facility (RCF) with Barclays and HSBC was due to expire in June 2021. The RCF banks remain extremely supportive of the Group and, subsequent to the Period end, the RCF has been extended to January 2023.

The Group also agreed revised financial covenants for the remainder of current financial year which, if necessary, will be reviewed in 2021 in light of prevailing trading conditions at that time. In line with current market conditions, the interest rate on drawings under the extended RCF has increased.

Given the Group's positive cash position, the RCF was undrawn at the 30 June 2020 and remains undrawn at the date of these interim results.

The Board is satisfied that, in combination with its committed stock funding facilities, the RCF provides sufficient liquidity to enable the Group to withstand even its most extreme downside scenarios (including the possibility of further, extensive localised lockdown periods). Further details of the Board's downside scenario planning are set out in the notes to these interims results.

Interim Dividend

As announced at the start of the COVID-19 crisis, in order to maximise the Group's financial resilience, the Board made the decision to cancel the final dividend in respect of 2019, preserving £4.5m of cash.

Due to the ongoing uncertainty regarding the potential future impact of COVID-19 and resultant impact on the UK economy, the Board is not declaring an interim dividend. The Board is also mindful of the support provided by the Government through initiatives such as CJRS and business rates relief from which the Group has benefited and therefore the Group's immediate priority is to maintain its financial resilience to enable future investment, growth and job retention.

The Board is very mindful of the importance of dividends to its shareholders and intends to resume the payment of dividends as soon as conditions allow and will consider the position next at the time of release of its full year results in March 2021.

Summary and Outlook

The COVID-19 pandemic significantly impacted the Group's financial performance during the Period and its effects are likely to continue to be felt for at least the remainder of the year. It has also reinforced the strength and resilience of the Group's business model, its balance sheet and its operational focus. With the support of our brand partners, funders and other business partners, together with careful management of costs and cash, combined with our people-centric approach to our colleagues and with the support provided by Government, we have been able to successfully navigate the initial challenges presented by this crisis.

The period following the reopening of showrooms in June has been encouraging with an improvement in like-for-like order take throughout June, July and the early part of August. Our key September order bank is also building well.

The business has performed strongly since reopening and is currently targeting a break even underlying profit before tax performance for the financial year. Given the significant economic uncertainties caused by COVID-19, including the possibility of future nationwide or localised lockdowns, the Board believes there is a range of possible outcomes and it is right to remain cautious regarding the outlook for the remainder of the year.

Finally, 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 give special thanks to colleagues across our business for their tireless work, resilience in the face of such challenging circumstances and for their support and encouragement throughout the Period.

Daksh Gupta

Chief Executive Officer

18 August 2020

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2020

All activities of the Group in both the current and prior period are continuing.

The above Condensed Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

Condensed Consolidated Balance Sheet

At 30 June 2020

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2020

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2020

Net Debt Reconciliation

For the six months ended 30 June 2020

Notes to the Condensed Consolidated Financial Statements

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.

These interim condensed consolidated financial statements were authorised for issue by the Board of Directors on 17 August 2020.

Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union. They do not include all the information and disclosures required for full annual financial statements and should be read in conjunction with the Group's consolidated financial statements for the year ended 31 December 2019. A copy of the full Annual Report and Accounts for the year ended 31 December 2019 can be found on the Marshall Motor Holdings Plc website at: www.mmhplc.com.

The interim condensed consolidated financial statements for the six months ended 30 June 2020, and for the comparative six months ended 30 June 2019, are unaudited but have been reviewed by the Auditor. A copy of their Review Report is set out at the end of these financial statements. The financial information for the year ended 31 December 2019 does not constitute the Group's statutory financial statements for that period as defined in section 434 of the Companies Act 2006, but is instead an extract from those financial statements. The Group's financial statements for the year ended 31 December 2019 were authorised for issue by the Board of Directors on 9 March 2020 and have been delivered to the Registrar of Companies. The Auditor's Report on those financial statements contained an unqualified opinion, did not draw attention to any matters by way of emphasis and did not contain any statement under section 498 of the Companies Act 2006.

During the period the Group has adopted the amendments to IAS 1 Presentation of Financial Statements, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, IFRS 3 Business Combinations which has had no impact on the financial statements. The Group has also adopted the amendment to IFRS 16 Leases which has not had a material impact on the financial statements.

The interim condensed consolidated financial statements are prepared in Sterling, which is the presentational currency of the Group. All values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated.

Principal risks and uncertainties

With the exception of the areas disclosed below, the principal risks and uncertainties for the six months ended 30 June 2020 are consistent with those set out in the Marshall Motor Holdings Plc 2019 Annual Report and Accounts dated 9 March 2020 and are expected to be consistent for the year ending 31 December 2020.

Brexit

The UK has left the EU and following the end of the transition period on 31 December 2020 the future terms of UK/EU trade will be dependent upon the outcome of the negotiations between the UK Government and EU. If an agreement is not reached trading will be based upon the World Trade Organization rules from 1 January 2021.

The COVID-19 pandemic has impacted the progress of negotiations; however, it remains possible that a successful negotiated outcome between the UK and EU will be reached. The COVID-19 pandemic has already created economic uncertainty and a failure to reach a mutually beneficial trade agreement likely to introduce further risk and instability. The Group is monitoring the status of negotiations and the forecast impacts of these upon the UK macroeconomic environment.

Notes to the Condensed Consolidated Financial Statements

1. General information (continued)

Principal risks and uncertainties (continued)

Brexit (continued)

The Group is not a direct importer of vehicles and parts from the EU, as it makes purchases from manufacturers' UK national sales companies ("NSC") which have primary responsibility for managing imports to the UK, however changes in regulation and tariffs may lead to issues with vehicles supply or increases in prices. Whilst the Group does not make significant sales or purchases in currencies other than GBP the prices of the vehicles and parts purchased from the NSCs may also be impacted by exchange rate changes brought about by diverging economic performance and fiscal policy between the UK and Eurozone. The Group continues to maintain close relationships with manufacturers and to monitor manufacturers' preparations for a new trading relationship from 1 January 2021.

The Group is not directly reliant upon labour from EU countries, however the performance of the UK labour market due to wider changes in freedom of movement of people between the UK and the EU many impact upon the Group's ability to attract and retain staff.

Given the complexity of the economic environment and the evolving negotiations the overall impact of this risk is difficult to determine, as the position becomes clearer the Directors will take appropriate actions when necessary.

COVID-19

The Directors draw specific attention to the pervasive impacts of the ongoing COVID-19 pandemic. This represents a risk influenced by circumstances and events that have evolved subsequent to the issue of the 2019 Annual Report and Accounts. The ongoing COVID-19 pandemic has caused major disruption to businesses across the world, including the Group. As health and government authorities' responses to the pandemic continue to evolve and the full macro-economic impacts of the pandemic continue to unfold, the duration and extent of the disruption are in part unknown at this time. The Group continues to follow all government guidance to ensure a Covid secure operating environment for all customers and colleagues.

A regular assessment of the personal and commercial impacts and mitigating actions required continues to be carried out at both a Group and local geographical level by the Directors and Board. Communications and guidance on revised policies and procedures implemented in response to the impacts of COVID-19 are being regularly issued internally to support colleagues and customers. Furthermore, the Directors have taken appropriate cost mitigation actions and the Group is benefiting from the support provided by the UK Government, by vehicle manufacturers, by supply chain partners and by the Group's funding facility providers. Further details of mitigating actions taken are included in the Going Concern section below.

As the public health and economic situations continue to develop and the UK Government and the health authorities adapt their responses to the pandemic, the Group will continue to closely monitor, assess and take mitigating actions in response to the evolving risks and uncertainties resulting from the COVID-19 pandemic. These risks and uncertainties are expected to remain in existence for the foreseeable future and could continue to have a material impact on the Group's performance over the remaining six months of the financial year. Consequently, the Group's financial position and performance could differ materially from expected and historic results.

Going concern

The consolidated financial statements are prepared on a 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. Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group were unable to continue as a going concern.

The Directors have considered the future prospects and performance of the Group including the impact of no trade deal with the EU being in place at the end of the transition period on 1 January 2021, the on-going COVID-19 pandemic, available UK Government support, the Group's business plans, impact of acquisitions, future cash flows and availability of core and auxiliary financing facilities. Details of the assessment conducted by the Directors is set out below.

Notes to the Condensed Consolidated Financial Statements

1. General information (continued)

Going concern (continued)

Short-term mitigating actions

As set out in the Operating Review on page 5 and the Financial Review on page 10 the COVID-19 pandemic has had a material impact on the Group's profitability for the six months ended 30 June 2020. In response to this situation the Group has taken and is continuing to take actions to conserve cash and mitigate losses, including:

· Cancelling dividend payments relating to full year 2019 and no interim dividend has been proposed

· Drawing on the applicable support measures announced by the UK Government, including in particular, the Coronavirus Job Retention Scheme, the Expanded Retail Discount 2020/21 for business rates and the deferral of VAT payments;

· Utilising the support measures put in place by vehicle manufacturers to support franchised dealers, including the extension of vehicle funding terms; and

· Cost mitigation actions including seeking revised terms with certain suppliers and, for the period the dealerships were closed, voluntary reductions in the salaries of the Board and other senior members of the team.

Banking facilities and funding position

At 30 June 2020 the Group had £120m of committed but undrawn banking facilities made available under a facility agreement (the "Previous Agreement") due to expire in June 2021. On 29 July 2020 these facilities were extended for 2.5 years expiring in January 2023.

The Group has not made use of any borrowing under the Covid Corporate Financing Facility or Coronavirus Large Business Interruption Loan Scheme.

At 30 June 2020 the Group would have been in breach of the banking covenants under the Previous Agreement; in anticipation of the completion of the Extension Agreement the lenders agreed to waive the requirement for a covenant test as at 30 June 2020.

In addition to these banking facilities the Group has access to substantial vehicle inventory funding arrangements of which £398,575,000 was utilised at 30 June 2020.

Assessment of the Group's financial position

During the six months covered by these consolidated financial statements the Group has experienced significant business disruption arising as a result of the global COVID-19 pandemic. In particular, the Group was required to close all of its dealership showrooms from 23 March 2020 to 1 June 2020, opening on the 26 May 2020 for click and collect only. During this period only a limited number of the Group's aftersales facilities remained open to provide aftersales services to the emergency services, transport companies and other key workers and vulnerable people. Further details of the impacts are set out in the Operating Review on page 5 and the Financial Review on page 10.

The Directors have assessed the potential on-going impacts of the COVID-19 pandemic coupled with the risk of there not being a comprehensive trade deal at the end of the Brexit transition period, leading to wider economic disruption and have modelled scenarios as follows:

· A base case, including strong performance in the third quarter of 2020 fuelled by pent-up demand followed by a more challenging fourth quarter as the level of economic and social damage becomes apparent. Under this scenario in 2021, performance improves in line with the latest market forecasts and the impact of acquisitions and closures. This is followed by growth from 2022 onwards.

· A downside case, where the market declines by a further 5% in 2021 compared to the base case, by a further 5% in 2022 due to ongoing economic uncertainty, and the Group is unable to take any substantial mitigating actions.

· A mitigated downside case, where the market declines as described in the downside case however the Group is able to deliver mitigating actions including 5% headcount reductions in 2021 and a further 5% in 2022 as well as a 50% reduction in capital expenditure.

· A short-term shock case, where there are repeated local lockdowns such that 50% of the Group's dealership network is impacted for three months. The severe operational impact of this scenario would necessitate more substantial mitigation action such as overhead reductions of 10% and capital expenditure reductions of 50% in 2021.

Under the base case, downside case, and mitigated downside case the Group is forecast to be able to continue to operate within the bank facility limits and to comply with the banking covenants set out in the Extension Agreement. Under the short-term shock case the Group would have sufficient finance facilities available to it but would breach the banking covenants set out in the Extension Agreement; however, discussions with the Group's lenders indicate that in this scenario a waiver of the covenant requirements would be possible.

Notes to the Condensed Consolidated Financial Statements

1. General information (continued)

Going concern (continued)

Assessment of the Group's financial position (continued)

The Directors have therefore concluded that Company is able to continue as a going concern through to August 2021.

2. Accounting policies

Full details of the impact of adoption of amendments to existing standards are set out in Note 3 'Changes in Accounting Policies and Disclosures'.

Except where disclosed below, the accounting policies applied are consistent with those set out in the Marshall Motor Holdings plc 2019 Annual Report and Accounts dated 9 March 2020. These accounting policies are expected to apply for the year ending 31 December 2020.

Government grants

Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. All such grants relate to expense items. The grant is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed.

The grant income is disclosed in Net Operating Expenses in the Condensed Consolidated Statement of Comprehensive Income.

Significant accounting judgements, estimates and assumptions

Except where stated below, the critical accounting judgements, estimates and assumptions applied are consistent with those set out in the Marshall Motor Holdings plc 2019 Annual Report and Accounts dated 9 March 2020.

There have been no material revisions to either the nature or amount of estimates reported in prior periods. However, the ongoing impacts of the global COVID-19 pandemic have required both significant new critical accounting judgements and estimates to be made as well as immaterial changes to certain existing critical accounting judgements and estimates.

Due to the nationwide, macro-economic implications of the COVID-19 pandemic, forward-looking estimations of potential default rates have been revised when estimating expected credit losses attributable to trade receivable balances. The result of these more prudent estimates has not had a material impact on the interim condensed consolidated financial statements.

The following new critical accounting judgements and key sources of estimation uncertainty have arisen:

· Estimation of the net realisable value of vehicle inventory due to distortions in market prices as a result of the impacts of the COVID-19 pandemic on both vehicle supply and changing patterns of customer demand;

· Classification of items of income and expenditure associated directly with the impact of the COVID-19 pandemic as "Non-underlying items";

These new and revised critical accounting judgements, estimates and assumptions are expected to continue to be applicable for the year ending 31 December 2020.

Notes to the Condensed Consolidated Financial Statements

3. Changes in accounting policies and disclosures

New standards, amendments and interpretations adopted by the Group

The following amendments to existing standards became effective on 1 January 2020 and have been adopted for the first time in the interim condensed consolidated financial statements for the six months ended 30 June 2020.

· IAS 1 Presentation of Financial Statements

· IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

· IFRS 3 Business Combinations

These have been assessed as having no financial or disclosure impact on the numbers presented.

Three other amendments to existing standards apply for the first time with effect from 1 January 2020; however, they are not applicable to the interim condensed consolidated financial statements of the Group.

4. Segmental information

IFRS 8 Operating Segments requires operating segments to be consistent with the internal management reporting provided to the Chief Operating Decision Maker who is 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, (loss) / 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:

*Mix calculation excludes internal / other sales. 

Notes to the Condensed Consolidated Financial Statements

5. (Loss) / profit before taxation

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

6. Non-underlying items

Net release/recognition of restructuring costs

Restructuring costs are a continuation of items disclosed in previous periods and relate to the closure of two of the Group's franchised dealerships. Restructuring costs also include £151,000 in respect of the integration of dealerships acquired in December 2019.

Profit on disposal of assets classified as held for sale

In June 2020 the Group sold the freehold property classified as held for sale for a profit of £1,563,000.

Items directly attributable to the COVID-19 pandemic

Such directly attributable items include the carry cost of furloughed employees totalling £18,226,000, grant income received under the Coronavirus Job Retention Scheme of £16,438,000 and £1,043,000 of personal protective equipment and other associated costs incurred to establish dealership locations as Covid-secure operating environments for all colleagues and customers. 

Other non-underlying items

All other expenses disclosed in non-underlying items are a continuation of items disclosed in previous periods. More information about the non-underlying items in the year ended 31 December 2019 is available in the 2019 Annual Report and Accounts available at www.mmhplc.com. 

Notes to the Condensed Consolidated Financial Statements

7. Net finance costs

8. Taxation

The tax charge for the six months ended 30 June 2020 is recognised based on best estimates of the average annual effective tax rate expected for the full financial year, adjusted for the tax impact of any discrete items arising in the period. The estimated average annual effective tax rate for the six months to 30 June 2020 is 1.6% (six months ended 30 June 2019: 22.6%).

Due to the adverse market conditions resulting from the COVID-19 pandemic, the Group has exceptionally reported a taxable loss during the period. The resulting tax credit calculated at the 19% standard rate is fully eroded by a net add-back of both estimated non-qualifying depreciation and estimated non-deductible legal and professional fees. The value of these items is consistent with previous periods; however, because they do not vary in proportion to fluctuations in (loss) / profit before tax, these items have a distortive impact on the effective tax rate.

The underlying effective tax rate for the six months ended 30 June 2020 reflects the average annual effective tax rate expected for the full financial year and is 1.6% (six months ended 30 June 2019: 22.6%).

The total reported effective tax rate for the six months ended 30 June 2020 is -15.0% (six months ended 30 June 2019: 22.8%). Whilst the Group made a taxable loss for the period, a deferred taxation charge of £2,373,000 has arisen due to the change in the rate at which deferred taxation is recognised. This has been presented in non-underlying items as the charge represents a one-off legislative change in the period.

The Finance Act 2016 reduced the corporation tax rate to 17% with effect from 1 April 2020. In the Budget of 11 March 2020, the Chancellor of the Exchequer announced that the planned rate reduction to 17% would no longer be taking effect. The changes announced during the Budget of 11 March 2020 were substantively enacted as at the balance sheet date, therefore, all opening deferred taxation balances have been remeasured at 19%. 

Notes to the Condensed Consolidated Financial Statements

9. Earnings per share

Basic and diluted earnings per share are calculated by dividing the earnings attributed 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 2,692,304 (June 2019: 2,775,357, December 2019: 2,002,304).

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

\* The effect of share options are anti-dilutive due to the Group recognising a net loss for the period, so are excluded from the diluted earnings per share calculation.

10. Dividends

In light of the circumstances resulting from the ongoing COVID-19 pandemic, the previously proposed final dividend of 5.69p per share for the year ended 31 December 2019 has been cancelled. The Board is mindful of the importance of dividends to its shareholders and intends to resume the payment of dividends as soon as conditions allow.

An interim dividend of £2,228,000 in respect of the year ended 31 December 2019 was paid in September 2019. This represented a payment of 2.85p per ordinary share in issue at that time.

11. Share-based payments

During the period there have been no new share awards granted, no existing awards have vested and no options have been exercised.

In April 2019 the second tranche of the IPO Performance Awards vested and became exercisable. On 2 April 2019, all option holders exercised these options. As such, 306,795 ordinary shares of 64p were issued. A portion of the share options exercised were settled in cash rather than being equity-settled. The total value of cash-settled transactions was £708,000.

Notes to the Condensed Consolidated Financial Statements

12. Goodwill and other intangible assets

The carrying value of goodwill and other intangible assets principally consists of goodwill and franchise agreements of £118.0m (June 2019: £114.6m, December 2019: £118.0m).

a) Acquisitions - prior period

On 31 January 2019 the Group acquired the trade and assets of two ŠKODA dealerships located in Leicester and Nottingham. A month later, on 28 February 2019 the Group acquired the trade and assets of four ŠKODA dealerships in Northampton, Bedford, Letchworth and Harlow. These acquisitions were 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.

The fair value of the net assets at the date of the acquisitions are 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.

The results of the acquired ŠKODA dealerships were consolidated into the Group's results from the relevant date of acquisition. For the period from acquisition to 30 June 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, the change in revenue and profit before tax of the combined Group for the six months ended 30 June 2019 would have been immaterial in the context of the Group.

Transaction costs arising on acquisitions in 2019 totalled £159,000. 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.

Notes to the Condensed Consolidated Financial Statements

12. Goodwill and other intangible assets (continued)

a) Acquisitions - prior period (continued)

Measurement period adjustments

Subsequent to the issue of the Group's Interim Report and Accounts for the six months ended 30 June 2019, within the measurement period, the purchase price allocation in relation to the acquisition of these six ŠKODA dealerships was finalised. In accordance with IFRS 3 Business Combinations, the measurement period adjustment has been reflected in these financial statements as if the final purchase price allocation had been completed at the acquisition date. The adjustment consisted of a reclassification of £1,985,000 from goodwill to franchise agreements.

More information about the acquisitions made in the second half of the year ended 31 December 2019 is available in the 2019 Annual Report and Accounts available at www.mmhplc.com.

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:

*Volkswagen Group includes Volkswagen, Audi, ŠKODA and SEAT brands.

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

The COVID-19 pandemic and the associated restrictions implemented by the UK Government on 23 March 2020 are considered an impairment trigger and as a result all groups of CGUs have been tested for impairment at 30 June 2020.

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 July 2020 to 30 June 2025. These projections are based on the Board approved budget for the year ended 31 December 2020 forming the basis for the Group's five-year strategic plan.

As described under "Going Concern" in Note 1 to the consolidated financial statements five-year strategic plan base case (the "Base Case") has been updated to reflect the expected impact of the COVID-19 pandemic. This update anticipates strong performance in the third quarter of 2020 fuelled by pent-up demand followed by a more challenging fourth quarter as the level of economic and social damage becomes apparent. Under this scenario in 2021, performance improves in line with the latest market forecasts and the impact of acquisitions and closures, followed by growth from 2022 onwards.

Notes to the Condensed Consolidated Financial Statements

12. Goodwill and other intangible assets (continued)

b) Impairment testing (continued)

Period of specific projected cash flows (continued)

The key assumptions in the Base Case 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. When applying the assumptions used in the revised forecasts, management has assumed that the persuasive nature of the events surrounding the COVID-19 pandemic will have a similar impact to reduce performance across all of the Group's franchises.

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% (2019: 8.0%). For the purposes of the interim impairment testing, the discount rate used as at 31 December 2019 has continued to be used on the basis that current economic circumstances are having a distortive impact on certain inputs into the rate calculation. These circumstances and impacts are not anticipated to continue for the whole forecast period.

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% (2019: 2%).Terminal growth rates are based on management's estimate of future long-term average growth rates.

Conclusion

At 30 June 2020, the Group recorded impairment charges of £nil (30 June 2019: £nil). 

Under the Base Case 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 the latter part of 2019 the Directors identified various internal and external changes which would improve the performance of the BMW franchise. Prior to the enforced closure of the business in March 2020, the performance of the BMW franchise had shown significant improvement in both order intake and unit sales per week.

The approved forecast and therefore the value-in-use of the CGU is sensitive to changes in the delivery of the actions and initiatives. The impact of the COVID-19 pandemic has reduced the headroom and any further 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 5% below the forecast would lead to a non-cash impairment of £1.0m. An overperformance to the forecast of 5% would increase the headroom by £1.8m.

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 under the Base Case using four scenarios; firstly, where the discount rate decreases by 100 basis points, secondly, where the discount rate increases by 100 basis points, thirdly, where the terminal value growth rate decreases by 50 basis points and fourthly, where the terminal value growth rate increases by 50 basis points. The first and fourth scenarios would result in no recognition of an impairment against any CGU. The second scenario would result in an impairment of £3,400,000 of the BMW/MINI CGU. The third scenario would result in an impairment of £1,000,000 of the BMW/MINI CGU.

Notes to the Condensed Consolidated Financial Statements

12. Goodwill and other intangible assets (continued)

b) Impairment testing (continued)

Sensitivity to changes in key assumptions (continued)

In order to assess the possibility of future impairments, the Group has performed additional sensitivity analysis, using the forecasts prepared to support the Directors' consideration of the going concern basis of preparation.

· A downside case, where the market declines by 5% in 2021 compared to 2019, by a further 5% in 2022 due to ongoing economic uncertainty, and the Group is unable to take any substantial mitigating actions.

· A mitigated downside case, where the market declines as described in the downside case however the Group is able to deliver mitigating actions including 5% headcount reductions in 2021 and a further 5% in 2022 as well as a 50% reduction in capital expenditure.

· A short-term shock case, where there are repeated local lockdowns such that 50% of the Group's dealership network is impacted for three months. The severe operational impact of this scenario would necessitate more substantial mitigation action such as overhead reductions of 10% and capital expenditure reductions of 50% in 2021.

Firstly, for the downside case an impairment of £2,400,000 would be recognised against the BMW/MINI CGU. Secondly, for the mitigated downside case, an impairment of £1,100,000 would be recognised against the BMW/MINI CGU. Thirdly, for the short-term shock case no impairment would be recognised as while this case envisages major operational disruption the Directors are able to take mitigating actions to reduce costs and cash expenditure.

13. Property, plant and equipment

At 30 June 2020, the Group had capital commitments totalling £5.0m relating to ongoing construction projects.

Notes to the Condensed Consolidated Financial Statements

13. Property, plant and equipment (continued)

At 30 June 2019, the Group had capital commitments totalling £4.5m relating to ongoing construction projects.

Notes to the Condensed Consolidated Financial Statements

13. Property, plant and equipment (continued)

At 31 December 2019, the Group had capital commitments totalling £6.9m relating to ongoing construction projects.

More information about the transfers to investment property and the impairment are available in the consolidated financial statements for the year ended 31 December 2019 which are available at www.mmhplc.com.

Notes to the Condensed Consolidated Financial Statements

14. Fair value measurement

The carrying amounts and fair values of the Group's financial assets and financial liabilities are as below. The Group considers that the carrying amount of the following financial assets and financial liabilities are a reasonable approximation of their fair value: trade receivables, trade payables, bank loans and cash and cash equivalents. Therefore, these assets are not disclosed below.

All fair values shown in the table below are measured using observable inputs (Level 2). The fair value of mortgages is determined by reference to future contractual cash flows discounted using the prevailing market interest rates for facilities with similar characteristics. 

There have been no transfers between levels in the fair value hierarchy during either 2020 or 2019.

15. Events after the reporting period

On 10 July 2020, the Group's wholly-owned subsidiary, Marshall Motor Group Limited, acquired the trade and assets of a Volkswagen dealership in Aylesbury for cash consideration of £2,945,000. Acquisition of this dealership brought to a successful conclusion the strategic acquisition of eight Volkswagen Group UK franchises announced in December 2019. 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.

No related acquisition costs have been recognised during the period.

The acquisition qualifies as a business combination and will be accounted for using the acquisition method of accounting. As a result of the limited time since the acquisition date, the initial accounting for the business combination is incomplete at the time of this filing. Therefore, the Group is unable to provide the amounts recognised as at the acquisition date for the major classes of assets acquired, liabilities assumed and goodwill. Likewise, the Company is unable to provide pro forma revenues and earnings of the combined business. This information will be disclosed in the Group's Annual Report and Accounts for the year ending 31 December 2020.

Independent review report to Marshall Motor Holdings Plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity, and the Condensed Consolidated Cash Flow Statement, and the related notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

BDO LLP

Chartered Accountants

Southampton

17 August 2020

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Appendix - Alternative Performance Measures (APMs)

The Group presents various APMs as the Directors believe that these are useful for users of the financial statements in helping to provide a balanced view of, and relevant information on, the Group's financial performance. The APMs are measures which disclose the adjusted performance of the Group excluding specific items which are regarded as non-recurring. See Note 6 'Non-Underlying Items' for full details of the nature of items excluded from non-underlying performance measures.

The following table shows the reconciliation between the Group's performance as reported in accordance with International Financial Reporting Standards (IFRS) and the Group's underlying performance and like-for-like results.