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Marshall H1 pre-tax profits decline 9% despite strong performance

Daksh Gupta, chief executive Marshall Motor Group

Marshall Motor Holdings has reported a 9% decline in pre-tax profits in its interim financial results to June 30, 2019 – despite outperforming the UK’s declining new car market.

The AM100’s seventh-placed franchised car retail group reported turnover growth of 1.8% to £1.18bn (H1 2018: £1.62bn) during the period, alongside a pre-tax profit of £14.8m (H1 2018: £16.2m) during the period.

Like-for-like new unit sales to retail customers declined 0.4%, compared to a market decline of 3.2%, as like-for-like new unit sales to fleet customers declined 1.1% compared to a market decline of 3.6%.

And the group reported that it had been able to maintain its gross margin at 11.4% (H1 2018: 11.4%) with higher new vehicle margins helping to offset margin pressure in used vehicles and aftersales.

Used unit sales grew 7.2% as aftersales revenue rose 1.8%, both on a like-for-like basis.

Marshall chief executive, Daksh Gupta, said: “Despite challenging market conditions, the Group has delivered a strong H1 unit sales performance, ahead of both the new and used car markets and underlying profit before tax in line with the Board's expectations.”

Gupta said that the group remained cautious, however, as market uncertainty and the potential effect of the RDE2 emissions regulation on vehicles supply had yet to be realised.

He said: “Given continued weak consumer confidence as a result of ongoing political uncertainty over Brexit, ongoing cost headwinds for the retail sector and further potential new vehicle supply constraints in the lead up to the implementation of further emissions-related regulations on 1 September 2019, the Board believes it is right to remain cautious regarding the outlook for the remainder of the year. Nevertheless, the board's current outlook for the full year remains unchanged.”

Gupta told AM that the Society of Motor Manufacturers and Traders' (SMMT) latest registrations predictions showed a year-end new car sales volumes decline of 2.2%, suggesting that this indicated a "broadly flat" market in H2.

He expects some brands to experience disruption amid the roll-out of RDE2, but said: "We partner 19 brands covering 82% of the market. There will be disruption in some brands, but we are as well placed as we can be.

"The main concern is the customer confidence metrics. At the moment they aren't looking pretty and, clearly, we can't control that."

Marshall reported that its like-for-like net operating expenses had grown 1.6% – 2% excluding impact of lease disposal – benefitted from a number of one-off management actions.

The group’s adjusted net cash of £5.8m as at 30 June 2019 (30 June 2018: £0.9m), meanwhile, reflected “disciplined working capital management and working with our brand partners to control capital expenditure”, it said.

During the reported period Marshall continued to invest in the group’s property portfolio, with £8.8m of capital expenditure during the period.

In February the group opened the doors of its new £10 million, 40,000 square foot Dual Arch CI Jaguar Land Rover (JLR) dealership in Lincoln.

The group became Skoda UK’s largest franchised partner during the period with the acquisition of Sandicliffe Motor Group’s Skoda franchises in Nottingham and Leicester in February and the acquisition of Progress Skoda’s Bedford, Harlow, Letchworth and Northampton sites a month later.

The deals took the total number of Marshall Skoda dealerships to 11.

The group also purchased the Northampton Skoda freehold for £1.7m during the reported period.

Marshall said that it continued to have a “strong balance sheet” with net assets at June 30 of £200.7m, equivalent to £2.57 per share (30 June 2018: £195.1m, £2.51 per share) including £123.9m of freehold property.

The group said that it operates a well balanced portfolio of volume, premium and alternative premium brands which, at 30 June 2019, accounted for 27.4%, 48.1% and 24.5% respectively of the Group’s total franchises (by number).

It said in its annual statement that this “diverse portfolio” meant that it represented manufacturer brands accounting for over 80% of all new vehicle sales in the UK.

The statement added: “The board continues to believe that this scale and diversified spread of representation helps protect the Group from the effect of the cyclical nature of individual brand performance.”

Paying tribute to Sir Michael Marshall, who died while on a family holiday in Spain last month, Gupta said that he had been a "huge influence" on him.

The Marshall Motor Holdings president, former chairman, former chief executive and majority shareholder of Marshall of Cambridge Holdings, which owns 64% of Marshall Motor Holdings plc, played a key role in attracting Gupta to the business.

"He was instrumental in my decision to come to the business and his values are still at the heart of everything we do," he said.

"I know that he was proud of the business and the way that it had been built and our aim now is to contiue to continue in the same vein, always putting the customer first as he would have wanted us to."

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