MMH.L Regulatory News (MMH)

15 August 2017

MARSHALL MOTOR HOLDINGS PLC

("MMH" or the "Group")

Unaudited interim results for the six months ended 30 June 2017

Marshall delivers another record trading result

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 2017 ("H1") (the "Period").

Financial summary

Financial highlights

· Underlying profit before tax up 32.9% to £18.6m (H1 2016: £14.0m)

· Record results from retail segment: PBT growth of 38.2% 

· Interim dividend of 2.15p per share (2016 interim dividend: 1.80p)

· Adjusted net debt (excluding leasing loans) at 30 June 2017: £35.1m. Adjusted net debt/EBITDA: 0.7x

· Significant balance sheet capacity underpinned by £112.5m of freehold/long leasehold property.

· Net assets at 30 June 2017 of £2.04 per share (30 June 2016: £1.78 per share)

Operational highlights

· Good like-for-like3 revenue growth of 6.7%

· New car retail unit sales up 32.7% (like-for-like down 0.4%, outperforming UK new car retail market which was down 4.8%)

· Used car unit sales up 39.7% (like-for-like up 5.8%)

· Aftersales revenues up 43.1% (like-for-like up 2.3%) driven by a strong service performance

· Ridgeway acquisition delivering to plan and making a material profit before tax contribution of £5.4m (H1 2016: £1.0m)

· Continued good levels of profitability in the leasing segment with further fleet growth and a number of new customer account wins.

· Focus and control of operating expenses at 9.7% of revenue (H1 2016: 10.1%)

· Further investment in the Group's property portfolio with £12.3m retail capital expenditure during the Period.

Daksh Gupta, Group Chief Executive, said:

"The Board is pleased to announce another period of record trading, underpinned by like-for-like growth together with the contribution from Ridgeway which the Group acquired on 25 May 2016. In the two years since listing, the Group has successfully completed a number of retail acquisitions transforming its scale, geographic footprint and franchise portfolio as well as significantly growing its profitability. This, together with a strong balance sheet, leaves the enlarged Group well positioned to execute its growth strategy moving forward."

1 Underlying profit before tax is presented excluding non-underlying items (see note 5)

2 Adjusted net debt excludes £65.9m asset backed finance relating to the leasing segment (2016: £60.7m)

3 "Like-for-like" is defined in note 1 to the interim financial statements

For further information and enquiries please contact:

Notes to Editors

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

The Group's principal activities are the sale and repair of new and used vehicles through Marshall Motor Group and the leasing of vehicles through Marshall Leasing. The Group's businesses have a total of 104 franchises covering 24 brands, operating from 90 locations across 26 counties in England. In addition, the Group operates five trade parts specialists, five used car centres, five standalone body shops and one pre delivery inspection centre.

In May 2017 the Group was recognised by the Great Place to Work Institute, being ranked the 22nd best place to work in the UK (large company category). This was the seventh year in succession that the Group has achieved Great Place to Work status.

In November 2016 Marshall Leasing was named Fleet Service Company of the Year 2016 by the Association of Car Fleet Operators (ACFO), an award it also won in 2010 and 2013.

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.

Introduction

I am delighted to report that the Group has delivered another record trading result during the Period which continues the trend of strong financial growth since our IPO in April 2015.

Retail Segment Overview

Our retail segment has again reported material growth in profit before tax, up 38.2%. This was driven by continued growth in the like-for-like portfolio and a contribution from the strategic acquisition of Ridgeway Garages (Newbury) Limited ("Ridgeway") acquired on 25 May 2016.

Ridgeway

The acquisition of Ridgeway extended the Group's geographical reach into the affluent southern Home Counties and strengthened relationships with key brand partners. The integration has progressed in line with plan and is nearing completion. From both an operational and a financial perspective, Ridgeway is performing in line with expectations, contributing profit before tax during the Period of £5.4m (H1 2016: £1.0m).

New Vehicles

During the Period, overall UK new vehicle registrations decreased by 1.3% including the impact of self/dealer registrations. New vehicle registrations to retail customers decreased by 4.8% with registrations to fleet customers growing by 1.6%.

Against this background, the Group enjoyed strong new retail unit sales during the Period, up 32.7% in total. The Group continued to outperform the UK new retail vehicle market with a marginal decline in unit sales to retail customers of 0.4% on a like-for-like basis. As expected, the Group experienced a like-for-like decline in new unit vehicle sales to fleet customers following a commercial decision to withdraw from some low margin business.

Used Vehicles

Like-for-like sales of used vehicle units during the Period showed good growth, up 5.8%, with a strengthening trend throughout the Period, although there was ongoing margin pressure.

Aftersales

The Group has also shown continued like-for-like growth within aftersales across both revenue and margin, including a strong service performance.

Leasing Segment Overview

Our leasing segment has continued to deliver good levels of profitability during the Period, albeit below the exceptional levels reported in the comparable period last year. This was largely driven by a reduced level of de-fleet activity and lower levels of disposal unit profitability.

During the Period, the leasing segment was successful in winning a number of new customer accounts and, with a strong order bank at the end of the Period, is well positioned to achieve future growth in the fleet, focused on the delivery of its service-led B2B strategy, in the full year and medium term.

At 30 June 2017, the leasing fleet was 6,290 vehicles, up 3.5% versus the same date last year (H1 2016: 6,077).

Employee Engagement

The Group has continued to focus on all aspects of employee and colleague engagement and the Board is delighted to report that this has again been recognised by the Great Place to Work Institute with the Group being ranked as 22nd best place to work in the UK (large company category). We are particularly delighted with the continued ranking for 3 years within the survey, showing our committed investment in our people.

During H1 2016 the Group launched a key initiative to guarantee Sales Executive earnings during the first year of employment. Whilst too early to draw firm conclusions, the Board is pleased with the initial results of the initiative which is helping to attract new talent to the organisation, reducing staff turnover and driving productivity.

Balance Sheet Capacity

The Group remains well positioned to continue to execute its growth strategy moving forward, supported by significant balance sheet capacity. As at 30 June 2017, adjusted net debt (excluding asset backed leasing loans of £65.9m) was £35.1m (30 June 2016: £32.4m) representing an adjusted net debt to EBITDA ratio of 0.7x. The Group has significant balance sheet capacity including £112.5m of freehold/long leasehold property.

Financial Review

Group turnover increased by 43.7% to £1,187.4m (H1 2016: £826.4m). Like-for-like revenues showed strong growth of 6.7% with revenues in new, used and aftersales all showing growth against the same period last year.

Gross margin at 11.6% was 29 bps below the same period last year, driven primarily by margin investment in used vehicles to grow volume together with lower unit disposal profitability within the leasing segment.

Operating expenses of £115.2m were 37.7% higher than in the same period last year, primarily driven by the impact of Ridgeway. The enlarged scale of the Group combined with robust cost management contained operating expenses to 9.7% of revenue compared to 10.1% in the same period last year. As expected, underlying unallocated central costs of £4.9m were £1.0m higher the same period last year. This was largely driven by increased finance costs and additional infrastructure investment following the acquisition of Ridgeway.

Finance costs of £3.9m were £1.5m higher than the same period last year, as expected, driven by increased costs associated with the Group's revolving credit facility and increased stock funding charges. These additional costs include amortisation of arrangement fees and non-utilisation charges.

The reported tax rate for the Period of 22.2% is lower than the same period last year (H1 2016: 25.5%) because of the impact of disallowable transaction costs in H1 2016.

The Group's balance sheet remains strong. At 30 June 2017, adjusted net debt (excluding leasing loans) was £35.1m (2016: £32.4m). This represents a conservative pro-forma adjusted net debt/EBITDA of 0.7x, well within the Group's target range.

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.

A £120m three year unsecured, committed banking facility ("RCF") was put in place in May 2016 for general corporate purposes including acquisitions and working capital requirements. During the Period, the Group exercised an option to extend the facility for a further year to 2020. At 30 June 2017, freehold/long leasehold property (including assets under construction) totalled £112.5m (2016: £98.2m) and net assets were £158.0m (2016: £137.4m) equating to £2.04 per share (2016: £1.78 per share).

The Group remains on track with its three year capital investment programme, incurring £12.3m of retail capital expenditure in the Period.

Continuing the Group's strategy of expansion with existing brand partners in new geographic territories, during the Period the Group completed the acquisition of Leeds Volvo for £77k, further strengthening its position as the largest franchise partner of Volvo Car UK by number of sites.

In addition, the Group completed the sale of a vacant freehold site in Totton, Southampton, acquired as part of the acquisition of Ridgeway, for £2.0m.

Interim Dividend

In line with the Group's dividend policy, the Board is pleased to announce an interim dividend of 2.15p per share (2016 interim dividend: 1.80p). The dividend will be paid by 22 September 2017 to shareholders who are on the Company's register at close of business on 25 August 2017. 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

Following the addition of Leeds Volvo in June 2017, the retail segment now consists of 104 franchises trading from 90 sites in 26 counties in England. The Group operates a balanced portfolio of volume, prestige and alternate premium brands, including all of the top five premium brands. The Group's diverse portfolio means it represents manufacturer brands accounting for around 84% 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 believes it has headroom with its key manufacturer partners for potential future acquisitions in what remains a consolidating market.

The integration of Ridgeway is in line with plan and is now substantially complete. As a result of the integration, the enlarged Group has enjoyed a number of commercial and efficiency benefits. The ex-Ridgeway sites contributed profit before tax of £5.4m (2016: £1.0m) during the Period, in line with expectations.

The Group continues to leverage the benefits of the internet and social media. The acquisition of the web domain marshall.co.uk in H2 of 2016, combined with the acquisition of Ridgeway, has led to an increase in web traffic of c.20%. The Group has received 5 industry awards for its social media activity during 2017 including "Best use of Social Media" and "Most Influential Franchised Dealer".

Retail capital expenditure during the Period was £12.3m (H1 2016: £12.0m). As previously reported, the Group completed the construction of three major JLR dealerships in H2 last year. The transition to the new sites has progressed well and the customer feedback obtained so far has been very good. During the Period the Group has continued to focus on two further major developments:

· Construction of our new Audi dealership at a freehold site in Exeter is nearing completion and is scheduled to open in Q3 2017;

· Construction of a new Jaguar Land Rover dealership at a new franchise point in Newbury commenced during H2 2016 as expected and is scheduled to open in Q4 2017.

We have planned for some disruption to existing businesses at these sites over the period of development and initial transition.

Six months ended 30 June 2017

Six months ended 30 June 2016

*Revenue and Gross profit mix calculated excluding internal sales

New Vehicles

During the Period, the Group increased its total new car unit sales by 27.6% (like-for-like declined by 3.8%). The like-for-like decline was largely driven by a commercial decision to withdraw from certain low margin fleet business. Like-for-like unit sales to fleet customers therefore declined by 8.7%.

Unit sales to retail customers declined by 0.4%, significantly outperforming the wider UK retail market which recorded a decline of 4.8%. As anticipated, Q1 was particularly strong as some customers pulled forward purchases ahead of changes to Vehicle Excise Duty which took effect on 1 April 2017.

New car gross margin at 7.4% was 23bps ahead of the comparable period last year. This benefited from an increased premium franchise mix following the Ridgeway acquisition and a reduced mix of lower margin fleet business.

Personal Contract Purchases agreements (PCPs), offered primarily by manufacturer finance companies, remain a popular method for financing new vehicles and offer customers a number of potential benefits. The finance companies make individual finance approval decisions and offer customers a guaranteed future value for the vehicle at the end of the term. During the Period, 83% of the Group's financed vehicle purchases were made using PCP products. This gives the Group excellent visibility over the vehicle replacement cycle and drives strong levels of renewal business.  

Total new car gross profit of £45.1m was up by 46.3% versus the same period last year.

Used Vehicles

Used car unit sales increased by 39.7% versus the same period last year and 5.8% on a like-for-like basis.

The Group has enjoyed a strong growth in used vehicle sales, driven by a disciplined stocking policy and leveraging the benefits of an enlarged stock pool from the Ridgeway and SG Smith acquisitions. Some margin investment was necessary to drive volume and stock turnover and at 6.8%, gross margin was 62bps below the comparable period last year.

Since the strategic acquisition of Ridgeway, the Group's on-line presence has significantly improved; a key lever in selling used vehicles to a much broader geographical market and audience. The domain name marshall.co.uk was acquired in the second half of 2016 which is a more customer focused URL which has driven improved search engine optimisation. In response to the growing mobile device usage, the Group successfully launched the Marshall used car app during the Period, providing customers full access to Group used car and van stock pools across all brands. We will continue to look for new ways to drive efficiencies and improve the customer journey to deliver on our strategy of providing retailing excellence.

PCPs are increasing in popularity in the financing of used vehicles, accounting for 62% of financed vehicles in the Period versus 55% in 2016. Returns of three / four year old ex-PCP vehicles are providing a ready source of well maintained, attractive used cars for the Group.

Total used car gross profit of £31.2m was up by 36.9% versus the same period last year.

Aftersales

Aftersales involves the servicing, maintenance and repair of vehicles. The Group also operates five standalone body shops, one standalone central PDI facility and five Trade Parts Centres.

Aftersales has continued to enjoy further growth as a result of an increased vehicle parc and the Group's retention strategy through service plans. Overall aftersales revenues grew by 43.1% with gross margin at 46.5%, up from 46.1% in the same period last year.

On a like-for-like basis, aftersales revenues grew 2.3%, including a particularly strong service performance. The acquisition of Ridgeway has improved the Group's aftersales capability through the addition of a 10 acre PDI centre located in Newbury. This provides additional scale and flexibility for both retail and corporate vehicle preparation.

Total aftersales gross profit of £57.3m was up by 44.4% versus the same period last year.

Operating Review: Leasing Segment

The leasing segment achieved profit before tax of £2.4m during the Period, a reduction of 11.0% versus the same period last year. The segment has continued to grow its fleet which, at 6,290 vehicles at 30 June 2017, was 3.5% ahead of the same date last year and 1.5% ahead of the position at 31 December 2016.

The segment has continued to focus on the delivery of its business-to-business strategy offering a service-led, high added value proposition to all its clients. During the Period, the leasing segment was successful in winning a number of new customer accounts and, with a strong order bank at the end of the Period, is well positioned to achieve future growth in the fleet.

Robust risk management and control of residual values remains a core discipline of the leasing segments business model. During the Period the used car market remained relatively stable although the segment did experience pressure on disposal unit profitability as the disposal mix of non-maintained units increased which typically de-fleet at lower levels of profitability.

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 2017 was £72.2m against £65.9m of loans (30 June 2016: £66.6m against £60.7m of loans). Asset-backed leasing loans do not impact the Group's RCF capacity and are excluded from our RCF covenants.

Operating Review: Unallocated Segment

The unallocated segment consists principally of governance, administrative and asset management functions which are not directly attributable to the Group's retail or leasing segments. The unallocated segment recorded an underlying loss before tax of £4.9m during the Period compared to loss before tax of £3.9m in the same period last year. This expected increase was as a result of additional infrastructure and interest charges directly related to the recent Ridgeway acquisition.

Outlook

The Group delivered another record trading result during the Period, outperforming the UK new retail market. The acquired Ridgeway businesses have performed in line with expectations and the like-for-like business has also continued to grow.

The Board is cognisant of the economic and political uncertainty following the UK referendum on EU membership and industry forecasts for continuing declines in the UK new car market. The Board therefore remains cautious.

Overall, the Group remains well positioned and continues to seek to drive further growth in its profitability and return on capital, supported by a balanced portfolio of brands, attractive geographic locations and excellent brand partner relationships. The Board's previously upgraded outlook for the full year remains unchanged.

Daksh Gupta

Chief Executive

14 August 2017

Consolidated Statement of Comprehensive Income

For the period ended 30 June 2017

Consolidated Statement of Changes in Equity

Consolidated Statement of Financial Position

At 30 June 2017

Consolidated Cash Flow Statement

For the period ended 30 June 2017

Net Debt Reconciliation

For the period ended 30 June 2017

Notes to the Financial Information

For the period ended 30 June 2017

1. General information

Marshall Motor Holdings plc (the "Company") is a company which is quoted on the Alternative Investment Market ("AIM"), and 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 a number of subsidiaries including Marshall Motor Group Limited, Marshall Leasing Limited, Ridgeway Garages (Newbury) Limited and SG Smith Holdings Limited (collectively, the "Group"), whose activities consist principally of car and commercial vehicle sales, leasing, distribution, service and associated activities trading under the name Marshall Motor Holdings plc. The registered number of the Company is 2051461.

These consolidated interim financial statements for the six months ended 30 June 2017 and for the comparative six months ended 30 June 2016, 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 2016. A copy of the full Group accounts that comply with IFRSs for the year ended 31 December 2016 can be found at www.mmhplc.com.

The information for the year ended 31 December 2016 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies. The Auditor's Report on those accounts was not qualified and did not contain an 'emphasis of matter' statement under section 498 of the Companies Act 2006.

The principal risks and uncertainties for the for the six months ended 30 June 2017 are consistent with those set out in the Marshall Motor Holdings plc Annual Report and Accounts 2016 dated 14 March 2017. These principal risks and uncertainties are expected to be consistent for the year ending 31 December 2017

These consolidated interim financial statements for the six months ended 30 June 2017 have been reviewed by the Company's auditor and a copy of their review report is set out at the end of these statements.

The financial statements are prepared in sterling which is the functional currency of the Group and rounded to the nearest £'000 except where 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 whole of the corresponding comparative period.

Adjusted net debt is defined as debt finance, net of cash balances, excluding asset-backed finance relating to the leasing segment.

These consolidated interim financial statements were approved by the Board on 14 August 2017.

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 Reporting' as adopted by the European Union. This interim financial report has been prepared under the historical cost convention as modified by the revaluation of investment properties.

The accounting policies and critical accounting judgements and estimates applied are consistent with those set out in the Marshall Motor Holdings plc Annual Report and Accounts 2016 dated 14 March 2017, and these accounting policies and critical accounting judgements and estimates are expected to apply for the year ending 31 December 2017. The Group holds financial instruments which include financial assets (trade and other receivables excluding prepayments, and cash and cash equivalents) and financial liabilities (borrowings and trade and other payables excluding non-financial liabilities). All such financial assets and liabilities are carried at amortised cost. For all financial assets and liabilities fair value equals carrying value except for long term borrowings.

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 that these interim financial statements are signed. For these reasons they continue to adopt the going concern basis in preparing the Group's interim financial statements.

Notes to the Financial Information (continued)

For the period ended 30 June 2017

3. Segmental reporting

a) Operating Segments

Management has determined the operating segments based on the operating reports reviewed by the Chief Executive Officer that are used to assess both performance and strategic decisions. 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. No significant judgements have been made in determining the reporting segments.

· 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/(loss), assets and liabilities are attributable to the principal activities of the Group being the provision of car and commercial vehicle sales, leasing, vehicle 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, on the basis that depreciation of our leasing fleet is presented within cost of sales.

Notes to the Financial Information (continued)

For the period ended 30 June 2017

3. Segmental reporting (continued)

Notes to the Financial Information (continued)

For the period ended 30 June 2017

3. Segmental reporting (continued)

b) Retail Segment Revenue

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

4. Operating expenses

Acquisition costs of £2,163,000 in the year ended 31 December 2016 were incurred in connection with the acquisition of Ridgeway Garages (Newbury) Limited and are included within legal and professional charges.

Notes to the Financial Information (continued)

For the period ended 30 June 2017

5. Non-underlying items

Non-underlying items in the year ended 31 December 2016 substantially arose as a result of the acquisition of Ridgeway Garages (Newbury) Limited. More information about these items are available in the financial statements for the year ended 31 December 2016 which are available at www.mmhplc.com. 

6. Finance costs

7. Taxation

The reported tax rate for the period of 22.2% (six months ended 30 June 2016: 25.5%) is shown net of the tax impact of a property disposal in the period. The tax charge is lower than the prior period as the prior period included the effect of disallowable transaction costs.

Notes to the Financial Information (continued)

For the period ended 30 June 2017

8. Earnings per share

Basic 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.

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

The diluted earnings per share are based on the weighted average number of shares after taking account of the dilutive impact of shares under option of 2,380,040 (2016: 2,394,603).

9. Dividends

An interim dividend of 2.15p per share will be paid by 22 September 2017 to shareholders who are on the Company's register at close of business on 25 August 2017.

An interim dividend of £1,393,000 in respect of the year ended 31 December 2016 was paid in September 2016. This represented a payment of 1.80p per share in issue. A final dividend of £2,864,000 for the year ended 31 December 2016 was paid in May 2017. This represented a payment of 3.70p per share in issue.

10. Called up share capital

On 27 May 2016 156,599 ordinary shares of 64p each were issued as part of the IPO Restricted share option scheme.

Notes to the Financial Information (continued)

For the period ended 30 June 2017

11. Goodwill and other intangible assets

Notes to the Financial Information (continued)

For the period ended 30 June 2017

11. Goodwill and other intangible assets (continued)

On 16 November 2015 the Company acquired the entire share capital of SG Smith Holdings Limited ("SGS"). SGS itself is the holding company of 9 wholly owned subsidiary companies, SG Smith Automotive Limited, SG Smith (Motors) Limited, SG Smith (Motors) Beckenham Limited, SG Smith (Motors) Forest Hill Limited, SG Smith (Motors) Crown Point Limited, SG Smith (Motors) Sydenham Limited, SG Smith (Motors) Croydon Limited, SG Smith Trade Parts Limited and Prep-Point Limited.

Within the measurement period following acquisition of SGS and in accordance with IFRS 3, the purchase price allocation was finalised. As a result, £13,522,000 was reclassified from goodwill to franchise agreements and the corresponding recognition of a deferred tax liability increased the value of goodwill by £2,543,000. These adjustments were made at 31 December 2016 by restating the 1 January 2016 balances. As these adjustments were not finalised at 30 June 2016, the opening balances are stated as previously reported at 30 June 2016.

On 25 May 2016 the Company acquired the entire share capital of Ridgeway Garages (Newbury) Limited ("Ridgeway"). Ridgeway itself is the parent company of six wholly owned subsidiary companies, Pentagon Limited, Pentagon South West Limited, Ridgeway TPS Limited, Ridgeway Bavarian Limited, Wood in Hampshire Limited and Wood of Salisbury Limited.

In accordance with IFRS 3, 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 acquisition accounting has been finalised in the period and the net assets at the date of acquisition are stated at their fair values as set out below. There has been no significant movement in the value of net assets acquired and goodwill between 31 December 2016 and 30 June 2017.

Notes to the Financial Information (continued)

For the period ended 30 June 2017

11. Goodwill and other intangible assets (continued)

On 2 June 2017 the Group acquired the trade and assets of a Volvo dealership in Leeds.

The estimated net assets at the date of acquisition are stated at their provisional fair value as set out below.

Notes to the Financial Information (continued)

For the period ended 30 June 2017

12. Property, plant and equipment

Notes to the Financial Information (continued)

For the period ended 30 June 2017

12. Property, plant and equipment (continued)

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 2017 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 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 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union.

Ernst & Young LLP

Cambridge

14 August 2017