Marshall Motor Holdings plc (LON:MMH) CEO Daksh Gupta and CFO Richard Blumberger join DirectorsTalk to discuss an unscheduled trading update. Daksh talks us through the highlights, explains the key drivers and how her sees the remainder of the year shaping up while Richard discusses the cash performance and portfolio changes.
Marshall issued the following update announcement regarding: current trading, outlook for the year ending 31 December 2020 and portfolio and business changes.
Key Points
· Further strong current trading; continued to significantly outperform UK new vehicle market
· Targeting underlying PBT for the Year of £15m; previously break-even
· £31.5m adjusted net cash at 30 September 2020 after £10.9m early repayment of VAT deferral
· Outlook remains uncertain given COVID-19 and Brexit
· Further portfolio updates
Daksh Gupta, Marshall Motors Chief Executive, said:
“Our strong culture, brand partnerships with scale, in-house technology platform and online presence, coupled with our exceptional colleagues have enabled the Group to significantly outperform the wider automotive retail market through this important post-lockdown trading period. Our operational performance in August and September, in particular, was strong across all key like-for-like new vehicle sales metrics and we have also delivered significant like-for-like growth in both used car sales and aftersales. On behalf of the Board, I would like to thank all of our colleagues who have worked tirelessly through these unprecedented times and contributed so magnificently in delivering this performance.
Whilst this period of positive trading has been welcomed following the significant impact of COVID-19 in the first half of the Year, there remain a number of uncertainties regarding the trading environment for the remainder of the Year and beyond. We are also mindful that the market in Q3 was positively impacted by pent-up demand for new and especially used vehicles, which, allied to restricted supply, created favourable conditions from which the Group was very well positioned to benefit. It is for these reasons that we have taken appropriate actions in terms of limited business closures and restructuring measures to ensure the Group is well placed to meet these potential future challenges”.
Current Trading
On 18 August 2020, the Group announced its interim results for the six month period ending 30 June 2020. The Group reported that in the period following the reopening of its showrooms in June, it had performed strongly with an improvement in like-for-like* order take throughout June, July and the early part of August. It also noted that its key September order bank was building well and that the business was targeting a break-even underlying profit before tax performance for the Year.
The Group continued to trade strongly through the remainder of August and, importantly, during the key plate-change month of September. The Group benefitted from the ongoing release of pent-up demand in both vehicle sales and aftersales following the COVID-19 closure period, new vehicle supply shortages, increased consumer demand for private vehicles as a result of changing attitudes towards public transport and an increase in first-time vehicle users. As a result, margins were strong, particularly in used vehicles. The limited supply of new vehicles also resulted in significantly lower levels of pre-registration activity than normal, which further benefited margins in both new and used vehicles. As the supply to demand imbalance corrects itself in due course, we expect margins to normalise.
In addition to these sector tailwinds, the Group significantly outperformed the wider new vehicle market across all segments in Q3 and notably in September, with similarly strong trading in both used vehicles and aftersales.
| September Month | SMMT Registrations | MMH LFL | Variance to SMMT | MMH Total |
| New Retail Units | -1.1% | +19.1% | +20.2% | +38.6% |
| New Fleet Units | -7.4% | +17.1% | +24.5% | +23.9% |
| Total New Units | -4.4% | +18.4% | +22.8% | +33.9% |
| Used Units | – | +15.7% | – | +29.4% |
| Aftersales Revenue | – | +11.5% | – | +21.1% |
| Total Revenue | – | +16.3% | – | +28.0% |
| Quarter 3 | SMMT Registrations | MMH LFL | Variance to SMMT | MMH Total |
| New Retail Units | +4.1% | +16.0% | +11.9% | +36.0% |
| New Fleet Units | -4.3% | +4.7% | +9.0% | +13.8% |
| Total New Units | -0.5% | +11.8% | +12.3% | +27.9% |
| Used Units | – | +14.3% | – | +28.6% |
| Aftersales Revenue | – | +8.0% | – | +18.1% |
| Total Revenue | – | +17.5% | – | +29.6% |
| Year to Date | SMMT Registrations | MMH LFL | Variance to SMMT | MMH Total |
| New Retail Units | -28.9% | -21.1% | +7.8% | -8.1% |
| New Fleet Units | -36.7% | -24.6% | +12.1% | -17.6% |
| Total New Units | -33.2% | -22.4% | +10.8% | -11.5% |
| Used Units | – | -16.4% | – | -6.0% |
| Aftersales Revenue | – | -17.0% | – | -9.6% |
| Total Revenue | – | -15.5% | – | -7.1% |
September trading was particularly strong:
· The Society of Motor Manufacturer and Traders (“SMMT”) reported that total new vehicle registrations in September were down 4.4%. The Group significantly outperformed the market in September, with like-for-like* total new vehicle sales up 18.4%. Total new vehicle sales were up 33.9% as a result of strategic acquisitions made in 2019.
· The SMMT reported that new vehicle retail registrations were down 1.1% in September. The Group’s like-for-like new vehicle retail sales in September grew 19.1%, significantly ahead of the market, with total new vehicle retail sales up 38.6%.
· The Group also performed strongly in fleet sales during September with fleet sales up 17.1% on a like-for-like basis, with total new fleet sales up 23.9%, compared with the SMMT’s reported fleet registrations decline of 7.4%.
· Used vehicle sales in September were up 15.7% on a like-for-like basis and 29.4% in total.
· Aftersales revenue in September was up 11.5% on a like-for-like basis and 21.1% in total.
· Total revenue up 28.0% including the impact of acquisitions with like-for-like revenues up 16.3%.
Financial Position
The Group’s adjusted cash position also remains strong. As a result, the Group believed it was appropriate to voluntarily pay all amounts from which it benefitted under the Government’s VAT Payment Deferral Scheme which were not due to be fully paid until March 2022. The Group is now up to date on all deferred VAT liabilities and we are grateful for the support we received from the Government in this regard. Notwithstanding this £10.9m payment, the Group’s adjusted net cash (excluding IFRS16) as at 30 September 2020 was £31.5m.
In August, the Group announced the renewal of its £120m revolving credit facility until 2023. This, coupled with net assets of over £200m, leaves the Group very well positioned to take advantage of growth opportunities that make strategic and financial sense for its stakeholders.
Portfolio and Business Update
The Group has continued to focus on driving operational efficiencies and responding to a number of its brand partners’ network rationalisation strategies and the ongoing impact of COVID-19.
As a result of a review of its portfolio, and with the full support and approval of its brand partners, the Group has announced the proposed closure of four sub-scale franchised dealerships: Cambridge Hyundai, Bury St Edmunds Ford, Knebworth Vauxhall and Poole Mercedes-Benz Commercial Vehicles. In the year ended 31 December 2019, these dealerships made a combined revenue contribution of £47.3m and a loss of £0.1m.
In addition to these business closures, the Group also continues to expand its representation with key brand partners. The Group has secured the opportunity to represent Ford Commercial Vehicles in Kings Lynn, which it will operate from its existing Kings Lynn Ford freehold site. It has also agreed to represent SEAT at an open point in Oxford, which will operate from a leasehold site adjacent to the Group’s existing JLR and Volkswagen businesses. Each of these new businesses are expected to commence trading in early 2021 following completion of associated corporate identity upgrades.
As a result of the ongoing impact of COVID-19 on our operations, which could last until at least Spring 2021, the Group has identified a number of operational changes and efficiencies. The Group is consulting with a limited number of colleagues regarding the potential redundancy of their roles. These include certain driver positions and a limited number of other roles across the business. Over coming weeks, the Group will be engaging with affected colleagues and will be seeking to mitigate the impact where possible.
In line with the Group’s historic commitment to apprenticeships and in recognition of their importance for the future success of its business, all of the Group’s apprentices will have returned to the business by the end of October.
Outlook
The business has continued to perform well and as a result of a particularly strong trading performance in the important September plate-change month, is now targeting an underlying profit before tax performance for the Year of £15m.
This guidance is given in an environment where there are still significant ongoing economic and social uncertainties caused by COVID-19, together with the potential impact of the UK’s departure from the European Union on 31 December 2020, and so the risks to the Board’s guidance are much higher than in a normal year.
*Like-for-like businesses are defined as those that traded under the Group’s ownership throughout both the period under review and the whole of the comparative period.
