MMH.L Regulatory News (MMH)

18 August 2015

MARSHALL MOTOR HOLDINGS PLC

("MMH" or the "Group")

Unaudited interim results for the six months ended 30 June 2015

Strong results from both Retail & Leasing

Marshall Motor Holdings plc, one of the UK's leading automotive retail and leasing groups, is pleased to announce its unaudited interim results for the six months ended 30 June 2015 (the "Period").

Financial highlights

· Revenue increased by 16.0% to £632.5m (H1 2014: £545.4m)

· Profit before tax up 9.8% to £10.5m (H1 2014: £9.5m)

· Earnings per share of 19.7p

· Maiden pro rata interim dividend of 0.58p per share

· Strong balance sheet

Operational highlights 

· Strong trading performance driven by contributions from recently acquired businesses and continued organic growth

· New car unit sales up by 10.4% (like-for-like up by 5.9%)

· Used car unit sales up by 11.8% (like-for-like up by 2.7%)

· Total aftersales revenues up by 9.0% (like-for-like up by 1.7%)

· New facility developments underway to support Audi and Jaguar Land Rover

Commenting on the results Daksh Gupta, Group Chief Executive, said:

"The Board is pleased to announce strong trading in the first half of the year, underpinned by a combination of contributions from recently acquired businesses and like-for-like organic growth which led to our retail and leasing segments reporting significant growth in profit before tax (up 26.6% and 40.9% respectively).

The successful completion of our IPO and transition to public company status marked a significant moment in the Group's development and provided us with increased financial capacity to help us continue pursuing our goal of becoming the UK's premier automotive dealer group for retail and leasing.

I would like to take the opportunity on behalf of the Board to thank the entire Marshall team, our brand partners and new investors for their continued support.

Based on current market conditions, the Board's outlook for the full year remains in line with our expectations".

For further information and enquiries please contact:

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 Motors and the leasing of vehicles through Marshall Leasing. The Group's businesses are integrated and include a total of 71 franchises covering 24 brands, operating from 63 sites across 16 counties in England.

MMH is the only franchised dealer group in the UK to represent all of the top 5 prestige vehicle manufacturer brands (being Audi, BMW, Mercedes-Benz, Land Rover and Jaguar) and all of the top 10 volume vehicle manufacturer brands (being Ford, Vauxhall, Volkswagen, Nissan, Peugeot, Toyota, Citroen, Hyundai, Kia and Skoda). Its diverse portfolio means it represents manufacturer brands accounting for around 88% of all new vehicle sales in the UK, the highest market coverage of any UK dealer group.

With revenues of £1.1bn in 2014, the Group is the tenth largest dealer group in the UK.

Cautionary statement

This announcement contains unaudited information 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 MMH'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.

Introduction

I am delighted to report that the Group has delivered a strong trading performance during the Period which builds on the positive full year performance reported in 2014. Both our retail and leasing segments have reported significant growth in profit before tax (up 26.6% and 40.9% respectively) which has been partly offset, as anticipated, by additional central costs, including the first time occurrence of costs relating to our new public company status.

Following three consecutive years of strong growth in the UK new car market, the rate of underlying growth has returned to more normalised levels. During the Period, the Group increased its total new car unit sales by 10.4% (like-for-like 5.9%) and increased its used unit sales by 11.8% (like-for-like 2.7%).

The Group's retail segment has also shown growth within aftersales across both revenue and margin, benefitting in part from a growing UK vehicle parc (particularly in vehicles aged between 1- 3 years old where customers typically return to franchised dealerships for aftersales services) but also due to a number of management initiatives to drive productivity, efficiency and customer retention.

The Group has also made significant progress within its integrated leasing segment. At 30 June 2015, the leasing fleet was 5,897 vehicles, up 1.7% versus the same date last year.

We recognise the importance of, and the opportunities that exist from, the use of technology both to attract customers and provide them with an enhanced retail experience. We will be launching our new website in the first quarter of 2016 to build on the success of our existing site which, as a result of growth over recent years, is now the 7th most visited UK dealer website. In addition, following a successful pilot, we are also improving our customers' experience in our showrooms with the roll-out in the second half of 2015 of a tablet-based enquiry management system.

The Group has continued to focus on all aspects of employee and colleague engagement and the Board is delighted to report that this has been recognised by the Great Place to Work Institute with the Group being ranked the 26th best place to work in the UK (large company category).

The Group remains well positioned to execute its acquisition strategy supported by an adjusted net cash position at 30 June 2015 of £39.9m (excluding leasing loans) and a committed, undrawn revolving credit facility of £75m.

Financial Review

Group turnover increased by 16.0% to £632.5m (H1 2014: £545.4m). Like-for-like revenues showed an encouraging growth of 6.7% with revenues in new, used and aftersales all showing growth against the same period last year.

Gross margin at 11.7% is marginally below the same period last year, driven by an increased mix of new unit sales.

Operating expenses of £62.0m are 15.7% higher than in the same period last year driven by the impact of acquisitions and an anticipated increase in unallocated central costs. Unallocated central costs of £4.1m are £2.2m higher than the same period last year. This was driven in part by the first time occurrence of ongoing costs to support our new public company status and a one-off cost relating to the settlement of historic, pre-IPO long term incentive plan ('LTIP') liabilities. Certain further professional fees and expenses in relation to the IPO have been charged against the share premium account.

Finance costs of £1.4m are £0.2m higher than the same period last year, reflecting increased costs associated with the Group's £75m revolving credit facility and increased stock financing charges in line with volume growth. These additional costs include amortisation of arrangement fees and non-utilisation charges.

At 22%, the effective tax rate is below last year in line with the reduction in the UK corporation tax rate.

Total inventory at £181.7m is 11.5% higher than the position reported at 31 December 2014. This increase has been driven, in part, by additional stock-building to support new product launches.

The Group continues to benefit from a strong balance sheet following the IPO. Total net debt at 30 June 2015 was £6.3m with an adjusted net cash position of £39.9m excluding the £46.3m asset-backed loans within the leasing segment.

A new £75m three year banking facility was put in place in March 2015 for general corporate purposes including acquisitions and working capital requirements. The facility remains undrawn as at the date of this announcement.

Over the longer term, the Board continues to believe it is in the best interests of all stakeholders that the Group maintains a sound financial position. In this respect, the Board targets net bank indebtedness (excluding leasing segment loans) of not more than 1.25x net debt / EBITDA within its future results. This leverage may rise for a period of time towards the Group's banking facility limit of not more than 3.0x should an exceptional investment opportunity arise.

Interim Dividend

The Board is pleased to announce an interim dividend of 0.58p per share. This pro-rata dividend is in line with the dividend policy set out at the time of our IPO. The dividend will be paid by 25 September 2015 to shareholders who are on the Company's register at close of business on 28 August 2015. As set out in our IPO admission document, 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.

Operating Review: Retail Segment

The retail segment consists of 71 franchises trading from 63 sites. The Group operates a well balanced portfolio of volume, prestige and alternate premium brands. The Group is the only franchised dealer group in the UK to represent all of the top five prestige vehicle manufacturer brands and all of the top ten volume vehicle manufacturer brands and its diverse portfolio means it represents manufacturer brands accounting for around 88% of all new vehicle sales in the UK. The Board believes this diversified spread of representation is a key strength of the business. In addition, the Group has significant headroom with its key manufacturer partners to achieve further growth in representation through future acquisitions.

We have now successfully completed the integration of acquisitions made in 2014 which have made a positive contribution in the Period and are performing in line with expectations.

Capital expenditure during the Period was £4.3m, including the purchase of the long-leasehold interest of our Jaguar/Land Rover facility in Cambridge at a cost of £1.7m in preparation for the longer term re-development of the site.

On 20 May 2015, the Group exchanged contracts (subject to planning approvals) for the purchase of land for development in Exeter to support the relocation of its Audi facility.

In addition, on 22 May 2015, the Group exchanged contracts (subject to planning approvals) for the purchase of land for development in Ipswich to support the establishment of a new Jaguar/Land Rover facility. This development is part of the reorganisation of the Jaguar/Land Rover Suffolk market area and will see the relocation of the Group's existing Halesworth Land Rover and Ipswich Jaguar dealerships to the new site.

Each of these new facilities is expected to commence trading in the second half of 2016. We have planned for some disruption to these businesses over the period of transition and they are all expected to generate additional revenue and profitability once through that initial transition.

In addition to the above developments, during the Period the Group has continued to invest in the retail portfolio and as part of the Group's continued improvement strategy, upgrades have been undertaken at Milton Keynes Volvo, Plymouth Audi, Barnstable Skoda, Taunton VW along with Mercedes Benz sites at South Lakes, Preston and Blackpool. Further portfolio upgrades are scheduled for Mercedes Benz Bolton and Blackburn.

*Revenue mix calculated excluding Internal Sales

New Vehicles

During the Period, the Group increased its new car unit sales by 10.4% (like-for-like 5.9%). Market growth in new vehicle sales continues to be driven by the availability of competitively priced finance. Personal contract purchase (PCP) with minimal or zero deposit requirements and affordable monthly payments have been instrumental in driving the new retail market. In addition, a weaker than expected economic recovery in the Eurozone and a strengthening of Sterling coupled with slower demand in certain international markets have resulted in additional new vehicle supplies being drawn to the UK market.

Recent reductions in fuel costs, the introduction of more fuel efficient vehicles and a stable used car market have also played their part in driving new retail sales as consumers seek to access the benefits of new car ownership.

Used Vehicles

Used car unit sales increased by 11.8% versus the same period last year and 2.7% on a like-for-like basis. The Group continues to operate a strict 56 day stocking policy and continues to account for used car refurbishment and PDI costs at full retail labour rates. The Board considers these combined policies promote improved stock turnover, reduce residual value stock holding risk and ensure rigour in appraising and valuing part exchange vehicles acquired by the Group.

Used car gross margin at 7.1% is marginally below the same period last year and is a key area of focus for further growth and development moving forward. The Board is implementing a number of incremental margin-driving initiatives including a greater focus on used vehicles aged between three to five years. These vehicles have a lower average selling price whilst maintaining similar levels of gross profit per unit and are attractive to consumers seeking reassurance and warranty protection from a franchised dealer.

Aftersales

Aftersales involves the servicing, maintenance and repair of vehicles. The Group operates two standalone body shops and one standalone petrol forecourt. Aftersales makes a significant financial contribution to the Group.

The aftersales market is highly dependent on the UK vehicle parc. The latest estimate from the Society of Motor Manufacturers and Traders is that the UK car parc currently stands at 31.4m vehicles, increasing over recent years as a result of the strong new car market. In addition, increased penetration of service plans have supported market growth allowing customers to plan and budget for service costs with a higher level of certainty and ensuring repeat visits to the dealership.

Gross margin at 44.8% has also seen a significant improvement, up from 43.2% in the same period last year partly due to workshop efficiency and productivity improvements.

Operating Review: Leasing Segment

The leasing segment achieved profit before tax of £2.5m during the Period, a growth of 40.9% versus the same period last year. The segment has continued to grow its fleet which, at 5,897 vehicles at 30 June 2015, was 1.7% ahead of the same date last year, including the addition of a number of new clients. The fleet has declined marginally from the position at 31 December 2014. This is, in part, due to a number of disposals being deferred at the end of last year to take advantage of a stronger used car market in January and February 2015. The Group is targeting a small increase in the size of the fleet for the year as a whole.

The leasing segment continues to focus on its business-to-business strategy, providing a service-led fleet management offering high added value service to clients of all sizes. The segment is fully integrated within the Group and wherever possible, sources new vehicles and de-fleets end of lease vehicles via the Group's retail segment.

The client base of the segment remains well diversified and balanced with no single customer representing more than 9% of the fleet and the top 10 customers accounting for 43.0% of the fleet.

Robust risk management and control is a core discipline of the leasing segment's business model and the segment employs sophisticated techniques to monitor and control residual value risk. The used car market remained stable during the Period and the Board will continue to monitor residual values closely. Disposal profits are only recognised at the end of leases when they have been achieved.

The leasing fleet continues to be financed by asset-backed loans secured against the vehicles. The net book value of the fleet at 30 June 2015 was £59.6m against £46.3m of loans. This represents embedded equity within the fleet of 22.4%. The Board believes that a prudent approach to residual value setting combined with significant equity in the leasing fleet provides a sustainable and resilient model for the business.

The strategy of the leasing segment moving forward continues to remain focused on recruiting and retaining clients through its service-driven offering rather than attempting to compete with larger competitors solely on pricing. The Board believes that this model is capable of delivering steady and sustained growth moving forward as well as providing additional margin retention opportunities for the retail segment.

Operating Review: Unallocated Segment

The unallocated segment consists principally of administrative and asset management functions which are not directly attributable to the Group's retail or leasing segments. The unallocated segment recorded a loss before tax of £4.1m during the Period compared to loss before tax of £1.7m in the same period last year. Additional costs are principally attributable to the first time occurrence of expenses relating to the Group's public company status. In addition, the Group incurred a one-off cost of £0.7m relating to the settlement of historic pre-IPO LTIP liabilities.

Outlook

The Group has produced a set of strong results in the Period, showing growth in both revenue and profit before tax. Order-take to date for the important plate-change month of September is in line with management expectations. The post-election economic landscape with low interest rates and a favourable exchange rate environment continues to allow manufacturers to lead with strong and attractive consumer offers, driving vehicle sales.

The outlook for the aftersales departments remains positive given the strength over recent years in the new car market and growth in the UK car parc.

We continue to consider a number of acquisition opportunities.

Based on current market conditions, the Board's outlook for the full year remains in line with our expectations.

Daksh Gupta,

Chief Executive

18 August 2015

Marshall Motor Holdings plc

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2015

Marshall Motor Holdings plc

Consolidated Statement of Changes in Equity

Marshall Motor Holdings plc

Consolidated Statement of Financial Position

At 30 June 2015

Marshall Motor Holdings plc

Consolidated Cash Flow Statement

For the six months ended 30 June 2015

1. General Information

Marshall Motor Holdings plc (the 'Company') is a company which is quoted on the Alternative Investment Market ("AIM") and is incorporated and domiciled in the UK. The address of the registered office is: Airport House, The Airport, Cambridge, CB5 8RY. The Company is the holding company of Marshall Motor Group Limited, Marshall Leasing Limited and other subsidiaries (collectively, the "Group"), whose activities consist principally of car and commercial vehicle sales, leasing, distribution, service and associated activities trading under the names 'Marshall Motor Group' and 'Marshall Leasing'. The registered number of the company is 2051461.

These consolidated interim financial statements for the six months ended 30 June 2015 and for the six months ended 30 June 2014 are unaudited. They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2014.

The figures for the year ended 31 December 2014 are not the statutory accounts for that year but have been extracted from the statutory accounts filed with the Registrar of Companies on which the auditor gave an unqualified opinion and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

These statements have been reviewed by the Company's auditor and a copy their review report is set out at the end of these statements.

The financial information is presented in thousands of pounds sterling ("£") except when otherwise indicated.

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

These consolidated interim financial statements were approved by the Board on 18 August 2015.

2. Accounting Policies

The annual financial statements of Marshall Motor Holdings plc are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The financial information included in this interim financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Accounting' as adopted by the European Union. This interim financial report has been prepared under the historical cost convention as modified by the revaluation of investments and investment properties.

These financial statements have been prepared in accordance with the accounting policies set out in the Group Financial Statements for the year ended 31 December 2014 as disclosed in the document prepared for the purposes of the Group's admission to AIM ("Admission Document"), and these accounting policies are expected to apply in the Group Financial Statements for the year ended 31 December 2015.

Basis of preparation: Going concern

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 of these interim financial statements. For these reasons, they continue to adopt the going concern basis in the preparation of these interim financial statements.

3. Segmental Reporting

Management has determined the operating segments based on the operating reports reviewed by the Chief Executive that are used to assess both performance and strategic decisions. Management has identified that the Chief Executive Officer is the chief operating decision maker in accordance with the requirements of IFRS 8 'Operating segments'.

The business is split into two main operating segments generating revenue and a third support segment:

· Retail - sales and servicing of motor vehicles and ancillary services.

· Leasing - leasing of vehicles to end consumers and fleet customers.

· Unallocated - administrative and asset management functions in support of the wider business.

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. All revenue is generated in the UK.

Depreciation presented in the segmental note is restricted to assets other than assets held for contract rental.

3. Segmental Reporting (continued) 

3. Segmental Reporting (continued)

Retail revenue is derived from a number of service lines, principally being new and used vehicle sales and aftersales as per the following:

4. Other Operating Costs

Included within the management charge from Marshall of Cambridge (Holdings) Limited in the Period is a charge of £656,000 in respect of historic LTIP liabilities which crystallised when the Company's shares were admitted to AIM.

5. Finance Costs

6. Taxation

The tax charge for the six months ended 30 June 2015 has been provided at the effective tax rate of 22% (six months ended 30 June 2014: 23%)

7. Earnings per Share

For the six month period ended 30 June 2014 and the year ended 31 December 2014, the weighted average number of ordinary shares in issue for the basic and diluted earnings per share has been adjusted to reflect the impact of the sub-division of shares described in note 9.

8. Dividends

A final dividend of £15,000,000 for the year ended 31 December 2014 was paid in March 2015 before admission of the Company's shares to trading on AIM.

An interim dividend of 0.58p per share will be paid by 25 September 2015 to shareholders who are on the Company's register at close of business on 28 August 2015.

9. Called up Share Capital

On 27 March 2015, 30 million ordinary shares of 100p each were issued at par and subsequently the entire share capital of the Company was subdivided into 50,390,625 ordinary shares of 64p each.

On 2 April 2015, 26,845,638 new ordinary shares of 64p each were issued for 149p each.

10. Intangible Assets

On 30 June 2014, Marshall Motor Group acquired the trade and assets of Volvo Bishops Stortford from Regent Automotive Group. On 1st July 2014, Marshall Motor Group acquired the trade and assets of Halesworth Land Rover from Hammond Land Rover Limited. On 8 August 2014, Marshall Motor Holdings plc acquired the entire issued share capital of CMG 2007 Limited, which operates BMW and Mini dealerships in Scunthorpe and Grimsby and Nissan dealerships in Boston, Grantham and Lincoln.

11. Property, Plant & Equipment

For the half year ended 30 June 2015 (Unaudited)

For the half year ended 30 June 2014 (Unaudited)

For the year ended 31 December 2014 (Audited)

12. Related Party Transactions

Other than the transactions described in the Admission Document, no new related party transactions have taken place in the first six months of the current financial year that have materially affected the financial position or performance of the Group during that period and there have been no material changes in related party transactions described in the last Annual Report that could do so.

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 6 months ended 30 June 2015 which comprises the Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity, Consolidated Statement of Financial Position, Consolidated Cash Flow Statement and the related notes 1 to 12. 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.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with International Accounting Standards 34, "Interim Financial Reporting," as adopted by the European Union.

As disclosed in note 2, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standards 34, "Interim Financial Reporting," as adopted by the European Union.

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 Auditing Practices Board 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 Ireland) 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 6 months ended 30 June 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union.

Ernst & Young LLP

Cambridge

18 August 2015