# Marshall Motor Holdings Trading significantly ahead of market in period prior to lockdown

- Link: https://www.directorstalkinterviews.com/marshall-motor-holdings-trading-significantly-ahead-of-market-in-period-prior-to-lockdown/412827433
- Published: 2020-06-01T07:10:02+01:00
- Author: Giles Arbor

**Marshall Motor Holdings plc** ([LON:MMH](https://www.directorstalkinterviews.com/company/marshall-motor-holdings/mmh.l)),
one of the UK’s leading automotive retail groups, provided today the following operational
and financial update in advance of the re-opening of its retail showrooms from today.

**Key points:**

| • | Trading significantly ahead of market in period prior to lockdown closure period. | 
| • | 62 aftersales operations kept open during lockdown closure period to support emergency services, commercial vehicle operators and key workers. | 
| • | Maintained retail presence online and by telephone to support customers. | 
| • | Focus on cost management and cash preservation actions. | 
| • | Adjusted net debt* at 31 May 2020 £3.2m (31 December 2019: £30.6m) benefitting from a focus on cash management and significant working capital inflows which are expected to reverse when trading recommences. | 
| • | Term of £120m RCF expected to be extended in coming weeks, together with covenant amendments to reflect impact of COVID-19; future interest costs are expected to rise significantly as a result of increased utilisation and margin in line with current market rates. | 
| • | Impact of lockdown closure period and a gradual return to normalised trading levels is anticipated to result in a loss in H1. | 
| • | All 117 car showrooms re-opened from today as well as all of the Group’s other operating units, under revised, COVID-19 secure, operating procedures |

* Unaudited and excluding IFRS16 Leases

**Operational update**

**Trading prior to showroom closures on 23 March 2020**

In our full year results announcement on 10 March 2020, we reported that our order-
book for the important March 2020 plate-change month had been encouraging.  As the
month progressed, the Group continued to perform strongly and was confident of achieving
an excellent operational and financial performance in the first quarter of the current
financial year. 

As a result of our strong trading performance in the run-up to the temporary closure
of our physical sites in what is traditionally the busiest week of the year, we 
were able to significantly outperform the wider UK new car market in the first quarter
of the year. Like-for-like new unit sales for the 3 months to 31 March 2020 were
down 10.6% compared to the 31.0% decline in new vehicle registrations reported by
the Society of Motor Manufacturers and Traders (SMMT) over that period. Like-for-
like used unit sales were down 9.7%, broadly in line with the wider UK used car 
market. Like-for-like aftersales revenues were down just 3.1% despite the loss of
seven trading days at the end of March. Total like-for-like revenue was down 6.9%
in the period.

**Operations during closure period**

As previously announced, 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.

In line with the gradual lifting of lockdown restrictions and Government guidelines,
in the past week, we have expanded our aftersales services being offered, reopening
all of the Company’s aftersales facilities for all customers and for all services.
Whilst still early, initial demand is encouraging as we start to ramp-up our aftersales
operations.

In terms of maintaining our retail presence and supporting our customers, the Group
put in place a variety of measures to ensure that we continued to provide a high
level of customer service.  We remained open online and on the telephone to receive
and manage customer enquiries.  Customers have been able to browse, enquire about
and order new and used vehicles via our website, by video chat and by telephone.
We also retained our fleet teams to handle and process fleet enquiries and orders.

In the past week, we have begun the process of fulfilling both vehicle orders taken
during the closure period and those vehicles sold in March 2020 but which could 
not be delivered before the closure of our retail sites.

**Trading during showroom closures**

Trading during the closure period has inevitably been severely impacted.  The SMMT
reported that new vehicle sales declined by 97.3% in April 2020 compared to the 
prior year.  In addition, with only 62 of our aftersales operations open for a limited
categories of customer, aftersales performance has also been significantly impacted.

Since 23 March 2020 we have taken orders for over 3,700 new and used vehicles, including
from both retail and fleet customers.  As expected, given the closure of our physical
showrooms during this period, order-take was significantly down on the comparable
prior year period during which c19,000 new and used vehicle orders were taken.

In terms of retail customers, in line with the wider market, orders taken during
the closure period have been heavily weighted towards used vehicles.  One of the
principal reasons for this, we believe, is that a large proportion of new vehicle
sales are associated with expiring financing agreements which have typically been
extended by vehicle funders during the current crisis.  We, therefore, expect to
see some level of pent-up demand for new vehicles being released over the coming
months as those extended financing arrangements come to an end, albeit we expect
consumer confidence to be generally subdued as the economy gradually recovers from
this crisis. Over the last couple of weeks, we have seen demand for used vehicles
pick up significantly.

In aftersales, we have seen encouraging signs of demand as we have been re-opening
our aftersales facilities to all categories of customers.  Booking levels have been
positive, albeit again we expect some of this to represent pent-up demand for aftersales
services which, in the light of strong Government advice regarding essential travel
only, customers have elected not to access until now, along with the deferral of
MOTs.

**Colleague arrangements during closure period**

During the temporary closure of our physical retail showrooms and many of our aftersales
centres, the Group furloughed around 90% of our 4,300 colleagues across the business.
The Group acknowledges the welcome support provided by Government through the Coronavirus
Jobs Retention Scheme (CJRS) which has enabled the Company to support its furloughed
colleagues.  

The Group has worked hard to support its colleagues during this period of uncertainty.
During the furlough period, the Group has supplemented the support provided by the
CJRS, enhancing colleague pay to 100% for March, 90% for April and 85% for May and
not imposing the CJRS cap of £2,500 per month.  In addition, 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. The Board will continue to review remuneration of both Board members
and other senior members of the management team as the business begins the process
of returning to a more normal trading environment and furloughed colleagues return
to the business.   Other colleagues working during the closure period continued 
to receive 100% of normal pay.

In addition to providing financial support to colleagues and recognising the importance
of ongoing communication, bi-weekly management briefings have been issued to all
furloughed colleagues via video message from members of the executive committee 
and other members of the senior management team.  This has enabled the Company to
stay in touch with furloughed colleagues and provide updates on the actions the 
Company has been taking during the closure period.  

Furloughed colleagues have been 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 will have 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.

**Re-opening of Showrooms from 1 June 2020**

As announced on 26 May 2020, the Board welcomed the confirmation from the Government
that car showrooms would be permitted to re-open from 1 June provided they have 
taken all necessary steps to ensure they were COVID-19 secure in line with current
Health and Safety legislation. 

All our 117 car showrooms and all other operating units will therefore be open with
effect from today, operating in accordance with our revised operating procedures.
Initially, the number of colleagues returning to our businesses will be limited,
both to ensure that we are able to safely operate in accordance with social distancing
guidelines and to enable the Company to match resource to consumer demand. Therefore,
we will be operating with approximately 50% of colleagues returning to work. The
health and wellbeing of our colleagues and customers remains our priority.

We expect the return to a more normalised trading levels to be a gradual process
over the coming months.

**Financial Update**

**Cost mitigation and cash preservation actions**

The Group has taken a range of actions to manage and mitigate costs and protect 
its cash position during this period. Through a combination of Government support
schemes and a series of management actions, the Group has been able to reduce ongoing
operating expenses during the closure period by approximately 50%.

These actions have included utilisation of CJRS as referred to above, business rates
relief for retail businesses, reductions in marketing and other discretionary expenditure
and agreeing appropriate and mutually beneficial arrangements with suppliers and
a number of the Group’s landlords, coupled with voluntary salary reductions by the
Board and other members of the senior management team.  

In addition, the Group’s capital expenditure programme has been reviewed and, with
the support of our brand partners where necessary, a number of planned projects 
have been deferred.  As announced on 23 March 2020, the Board also suspended the
previously announced final dividend for 2019.

The Board also acknowledges the proactive actions taken by many of the Group’s key
suppliers, including our manufacturer brand partners, who have supported the Group
through a range of initiatives during this period.

**Financial position**

The Group’s adjusted net debt position (excluding the impact of IFRS16 Leases) at
31 December 2019 was £30.6m.  As reported in our results statement in March, this
was driven in part by positive fleet volumes at the end of 2019.   

During the closure period, the Group’s working capital position has benefited from
significant working capital inflows. Together with the Group’s focus on cost mitigation
and cash preservation, at 31 May 2020 the Group’s adjusted net debt was £3.2m.  
The recommencement of trading will see the current low level of working capital 
return to more normalised levels.

**Funding position**

The Group’s principal funding arrangements are its £120m revolving credit facility(
RCF) with Barclays and HSBC, together with its vehicle stock funding facilities.
All funders have been extremely supportive of the Group during this period.

The Group’s RCF is due to expire in June 2021 and the Group has been in positive
and constructive discussions with the RCF banks over an extension to the current
facility which is anticipated to be concluded in the coming weeks.  As part of these
discussions, the Group has agreed with the RCF banks the basis on which financial
covenants until the end of 2020 will be amended to reflect the current trading environment,
with these amendments to be incorporated in the RCF extension documentation.

Due to the impact of COVID-19, the Group is expecting to see both an increased utilisation
of the RCF and an increased margin in line with current market rates, therefore,
the Group’s interest costs are expected to increase significantly.

The Group’s vehicle stock funding providers have all been similarly supportive with
certain facility levels being increased and stocking periods being extended to reflect
the fact that our car showrooms have been temporarily closed.

**Annual General Meeting**

The Company was originally scheduled to hold its Annual General Meeting (AGM) on
21 May 2020.  In light of the COVID-19 restrictions and in consultation with a number
of the Group’s shareholders, the decision was made to defer the AGM date. 

The Company now plans to hold its AGM on 16 July 2020.  Formal notice will be dispatched
to shareholders in due course. 

In light of ongoing Government advice to restrict all non-essential travel and social
contact, the AGM will take place at the Company’s office in Milton Keynes with the
minimum quorum of shareholders facilitated by the Company. Physical attendance by
other shareholders will not be permitted, however, shareholders will be encouraged
to vote of on the AGM resolutions electronically and will also have an opportunity
to submit questions on the AGM resolutions electronically before the meeting.

**Outlook**

We are pleased to be re-opening our dealership sites and welcoming both colleagues
and customers back to our businesses.  Operationally, our priority is ensuring that
our businesses operate in a safe, COVID-19 secure manner in line with Government
guidelines. As the country as a whole begins the gradual process of exiting the 
lockdown period, we anticipate a gradual return to a more normalised level of trading.
We will remain focused on cost mitigations and cash preservation in light of uncertain
demand levels and expected working capital outflows as trading increases.

Given the continued uncertainty over the economic and trading environment, financial
guidance for the year ending 31 December 2020 will remain suspended at this stage.
However, the significant impact of both the temporary closure of the Group’s physical
retail showrooms during the current crisis and a gradual return to a more normalised
trading environment, is anticipated to result in a loss before tax for the six months
ending 30 June 2020.

The Group will announce its interim results for the six months ending 30 June 2020
in August 2020, the date of which will be announced in due course.

> **Daksh Gupta, Marshall Motor Holdings Chief Executive Officer, said:**
> “On behalf of the Board, I would like to thank our brand and business partners
> for their continuing support as we collectively and in partnership, navigate through
> this period of national crisis.  We are also grateful for the support provided
> by Government to both the business sector as a whole and the automotive sector
> in particular.  Initiatives such as the Coronavirus Jobs Retention Scheme and 
> business rates relief have enabled us to take the right long term decisions and
> to protect jobs today in this vitally important sector for the UK economy.
> Finally, I would like to pay special thanks to my colleagues throughout our businesses
> for their hard work and support during this difficult time.  Those colleagues 
> who continued to work during the temporary closure of our dealerships, including
> my senior management team, have demonstrated great dedication and commitment to
> the Company. We are also extremely grateful for the messages of support and encouragement
> for the actions the Company has taken from our furloughed colleagues. I am delighted
> to see so many of them begin to return to work to reactivate our businesses and
> I look forward to remaining furloughed colleagues re-joining us over the coming
> weeks and months.”

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