Marshall Motor Holdings Q&A: Very well placed to take advantage of current environment (LON:MMH)

Marshall Motors

Marshall Motor Holdings plc (LON:MMH) Chief Executive Officer Daksh Gupta and Chief Financial Officer Richard Blumberger caught up with DirectorsTalk for an exclusive interview to discuss their latest update, outperforming the market, strong cash performance, portfolio changes and how the rest of the year will shape up for the company.

Q1: Daksh, an unscheduled announcement from Marshall Motor Holdings today, it looks like a benchmark performance. Can you talk us through the highlights?

A1: So, really pleased to report that we’ve continued to deliver strong outperformance against the new car market in Q3 across all of our segments and September, in particular, was exceptionally strong. Our three new car sales KPIs in particular were exceptional with double double digit outperformance to the market.

  • Like-for-like new retail unit sales grew by 19.1, that was significantly ahead of the market which was down 1.1% so we were 20.2% ahead of the market there.
  • Fleet unit sales was also strong, up 17.1% on a like-for-like basis which compares to a market that was down 7.4% so just under 25% ahead of the market there.
  • Our total new unit sales, in a market that was down 4.4%, were up 18.4% so combined 22.8% ahead of the market.
  • Used cars performed exceptionally well, benefiting from a pent up demand and strong demand throughout the period which has benefited margins as resulted of used car supply shortages and that drove a used car like-for-like growth of 15.1% in unit sales there.
  • Aftersales also benefitted from pent up  demand with like-for-like revenues up 11.5% so overall, our revenues were up on a like-for-like basis 16.3%.

In particular, you will have seen from the release, our acquisitions made in 2019 gave our total volumes a boost as well so total new car sales were up 33.9%, total used car sales up 29.4%, aftersales revenues up on a total basis by 21.1% and our total revenues up 28%.

So, a very, very strong performance from our acquired businesses in 2019 and of course, those like-for-like p-performances, particularly new with a double double digit ahead of the market.

Q2: Now, I know you touched on this but how did you achieve these excellent metrics?

A2: Well, as I just said, I think we benefited as a result of pent up demand coming through in both the vehicle sales and also following the COVID-19 closure period. In addition, we have seen new vehicle supply shortages as a result of temporary closure of factories during lockdown and I think we’ve also seen the attitude of the public towards using public transport has waned somewhat, and that’s driven an increase in demand for vehicles. We’ve also seen an increase in first time vehicle users as well. All of that collectively has driven a significant demand in the sales department.

This strong demand and limited supply has meant that our margins were very strong, particularly in used vehicles as well, and I think the other dynamic, particularly around new vehicles, we’ve seen that there’s been a much lower level of pre-registration activity than normal which of course has benefitted our margins, both new and used vehicles, but we have to put some balance on this though.

We have to recognise that the sector has tailwinds as a result of a pent up demand, that said, the whole industry and this whole sector has had the benefit of those tailwinds and that demand. We significantly outperformed the wider market and that’s largely as a result of our strong culture, stable management team, our prime partnerships with scale and in-house technology platform and online presence with and our social media presence. That coupled with all exceptional colleagues has really driven this result.

Q3: Richard, another strong cash performance, do you think it’s sustainable?

A3: You will recall at the interims, the net cash position was £27.4 million, which is a £58 million improvement from the year end position and that was driven by a combination of government support and other external actions. I’m pleased to be able to say that we’ve maintained that cash position as trading continues and we closed the period with £31.5 million of net cash.

Even more impressively, it’s worth saying this is after the early repayment of the government backed payment deferral scheme that was worth £10.9 million, we paid some 18 months ahead of when it was due to be repaid. We are, of course, grateful to the government support that that’s been provided but we felt the right thing to do is to pay that back early. That means the group is fully up to date on all of its taxes that are due.

It is also worth pointing out that September is historically a peak cash cycle and therefore, as such, we expect some of the outflows to unwind through Q4 which is in line with normal trading.

So, we are super pleased by cash position which further strengthens our balance sheet and along about extended RCF, it means that we are in a phenomenally strong position to capitalise on any opportunities as they arise.

Q4: Just thinking about opportunities, could you talk us through the portfolio changes?

A4: So, the group has continued to focus on driving operational efficiency and responding to a number of its brand partners, network rationalisation strategy and the ongoing impact of COVID-19. As a result of a review of our portfolio, and with the full support and approval of our brand partners, we’ve announced the proposed closure of four subscale franchise dealerships. The last financial year, these dealerships made a combined revenue contribution of £47.3 million and a loss at £0.1 million.

In addition to these closures, I’m really excited that the group also continues to expand its representation with key brand partners, securing opportunity to represent Ford Commercial Vehicles in King’s Lynn and we will operate this from an existing King’s Lynne Ford freehold site. We’ve also agreed to represent Seat at an open point in Oxford which will operate from a leasehold site adjacent to the group’s existing Jaguar Land Rover facility and Volkswagen business.

Each of these new businesses are expected to commence trading in early 2021 following the completion of associated corporate identity upgrades.

Q5: Just coming back to you Daksh, looking forward, how do you see the remainder of the year shaping up and how are Marshall Motor Holdings positioned?

A5: I think, obviously, during our interim results so on the 18th of August, we flagged that we will be targeting a breakeven underlying profit before tax performance and that follows a first half performance where we lost £8.9 million. So, at interims, we were particularly pleased and got a lot of credit for the fact that we were targeting that breakeven.

As a result of the strong August and, in particular, September trading which we’ve covered, we’re now targeting an underlying profit before tax of £15 million which would be a fantastic result. That said, we have to recognise there’s a lot of uncertainty out there surrounding COVID-19 and Brexit.

As a result of that, the Board believes its right to remain cautious but I think certainly, as Richard will have covered, we have a very, very strong balance sheet, we’re operating in an environment which is clearly a consolidating market, we’ve got those great manufacturer relationships plus that track record of M&A. We’ve now bought and sold 167 businesses so we’re just about getting used to knowing what we’re doing there and we feel in this market, there will be further opportunities for us to grow the business both organically and through M&A.

So, we feel very well placed to take advantage of the current environment.

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