Annual Repor t &
Accounts 2018
P U T T I N G O U R C U S T O M E R S A B O V E A L L E L S E S I N C E 1 9 0 9
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Contents
CHAIRMAN’S
STATEMENT
P8
OPERATING
REVIEW
P10
FINANCIAL
REVIEW
P22
STRATEGIC REPORT
FINANCIAL STATEMENTS
Chairman’s Statement 8
Independent Auditor’s Report 62
Operating Review 10
Financial Review 22
Principal Risks and Uncertainties 28
GOVERNANCE
Board of Directors 32
Directors’ Report 34
Corporate and Social Responsibility 36
Consolidated Financial Statements
Consolidated Statement of Comprehensive Income 72
Consolidated Balance Sheet 73
Consolidated Statement of Changes in Equity 74
Consolidated Cash Flow Statement 75
Net Debt Reconciliation 76
Notes to the Consolidated Financial Statements 77
Corporate Governance Report 42
Parent Company Financial Statements
Audit Committee Report 48
Remuneration Committee Report 51
Directors’ Remuneration Report 53
Statement of Directors’ Responsibilities 61
Parent Company Balance Sheet 133
Parent Company Statement of Changes in Equity 134
Notes to the Parent Company Financial Statements 135
COMPANY INFORMATION 144
STRATEGIC REPORT
Historical Financial Trends
Revenue £m
excluding discontinued leasing segment
Gross Profit £m
excluding discontinued leasing segment
£2,232.0m
£2,186.9m
£258.3m
£255.7m
£1,860.1m
£212.1m
£1,195.7m
£1,050.1m
£136.4m
£118.2m
2014 2015 2016
2017
2018
2014 2015 2016 2017
2018
CAGR 20.1%
CAGR 21.3%
Underlying Profit Before Tax* £m
Net Assets £m
£200.4m
£191.2m
£25.4m
£25.7m
£20.5m
£145.7m
£129.9m
£11.0m
£9.1m
£66.2m
2014 2015
2016 2017
2018
2014
2015 2016 2017
2018
CAGR 29.6%
CAGR 31.8%
* underlying profit before tax is presented
excluding non-underlying items and discontinued
leasing segment (see Note 7)
4
Marshall Motor Holdings plc | Annual Report & Accounts 2018
2018 Quick Overview
Revenue
£2.2bn
£25.7m
89,515
Underlying Profit Before Tax
New and Used Units Sold
£200.4m
Net Assets
120
3,749
Operating Units
Colleagues
at 31 December 2018
No.1
AUTOMOTIVE
RETAIL EMPLOYER
As Voted by our Colleagues
Range Rover Sport SVR
Putting our customers above all else since 1909.
5
7th
Largest Automotive Retailer
23
Brand Partners
120
Operating Units
27
Counties Nationwide
81.4 %
Brand Coverage
South Lakes
Scarborough
Blackpool
Harrogate
York
Preston
Blackburn
Leeds
Bolton
Hull
Scunthorpe
Motorrad
Grimsby
Lincoln
Nottingham
Grantham
Melton Mowbray
Leicester
Peterborough
Northampton
King’s Lynn
Vans
Halesworth
Bury St.
Edmunds
St. Neots
Cambridge
Bedford
Milton Keynes
Trade Parts
Specialist
Oxford
Letchworth
Ipswich
Knebworth
Welwyn
Bishop’s
Stortford
Harlow
Braintree
Trade Parts
Specialist
Swindon
Newbury
Commercial
Vehicles
Andover
Reading
Approved
Centre
Hook
Wimbledon
Sydenham
Trade Parts
Specialist
Old Kent Rd
Bexley
Beckenham
& Bromley
Barnstaple
DAS WELT
Bridgwater
Trade Parts
Specialist
Taunton
Exeter
Salisbury
Trade Parts
Specialist
Winchester
Mitcham
Coulsdon
Croydon
Southampton
Bournemouth
Poole
Commercial
Vehicles
Fareham Commercial
Portsmouth
Vehicles
Chichester
Commercial
Vehicles
Plymouth
Commercial
Vehicles
Audi all-electric PB18 e-tron
6
% 2018
Manufacturer
Market
Share
Retail Franchised Dealerships
Motorrad
6.1
7.3
10.7
2.2
3.8
1.6
4.1
3.3
0.1
7.3
2.8
4.3
3.4
2.7
3.2
0.3
7.5
8.6
2.1
Commercial Vehicle Dealerships
Vans
Commercial
Vehicles
Commercial
Vehicles
Commercial
Vehicles
Commercial
Vehicles
Commercial
Vehicles
Other Stand-Alone Operating Units
Trade Parts
Specialist
Trade Parts
Specialist
Trade Parts
Specialist
Trade Parts
Specialist
Trade Parts
Specialist
Paint &
Body Repair
Centre
Paint &
Body Repair
Centre
Paint &
Body Repair
Centre
Paint &
Body Repair
Centre
Paint &
Body Repair
Centre
Approved
Centre
Used Car
Centre
Commercial
Vehicles
*acquired January 2019
**acquired February 2019
7
Beckenham & Bromley, Bexley,
Coulsdon, Exeter, Newbury, Oxford,
Plymouth, Taunton and Wimbledon
Bournemouth, Grimsby (with Motorrad),
Hook, Salisbury and Scunthorpe
Bury St Edmunds, Cambridge
and Kings Lynn
Harrogate, Hull, South Leicester,
Peterborough, Scarborough and York
Cambridge
Cambridge, Ipswich, Lincoln,
Newbury, Oxford and Peterborough
Ipswich, Scunthorpe
Bedford, Cambridge, Ipswich,
Lincoln, Melton Mowbray, Newbury
Oxford and Peterborough
Peterborough
Blackburn, Blackpool, Bolton, Chichester,
Portsmouth, Preston, Southampton,
South Lakes and Winchester
Bournemouth, Grimsby,
Hook and Salisbury
Grantham and Lincoln
Cambridge, Peterborough
and St Neots
Braintree, Cambridge
and Leicester
Barnstaple, Bedford**, Croydon, Harlow**,
Leicester*, Letchworth**, Newbury,
Northampton**, Nottingham*, Oxford
Blackpool, Bolton, Portsmouth
and Southampton
Ipswich, Knebworth, and
Peterborough
Barnstaple, Grimsby, Newbury, North
Oxford, South Oxford, Reading,
Scunthorpe and Taunton
Bishops Stortford, Cambridge, Grantham,
Leeds, Milton Keynes, Nottingham,
Peterborough, and Welwyn Garden City
Cambridge
Andover, Fareham, Poole
and Southampton
Bridgwater, Oxford, Reading
and Scunthorpe
Exeter, Mitcham, Old Kent Road /
Dartford, Oxford and Swindon
Cambridge, Greenham Prep Centre,
Grimsby, New Forest and Peterborough
Audi Sydenham, Cambridge Used Cars
and Halesworth Jaguar Land Rover
Croydon Service Centre
STRATEGIC REPORT
Chairman’s Statement
“The Group performed strongly
in a challenging market”
Introduction
I am delighted to present our Annual Report and Accounts
(“Annual Report”) for the year ended 31 December 2018
(the “Year”), my first since becoming Chairman of the Group
on 1 January 2019.
Whilst the market backdrop in 2018 remained challenging,
the Group performed strongly. We are pleased to report a
record continuing underlying profit before tax* (“PBT”)
performance for the Year.
I am excited to have joined the Group at this time in its
development. The global automotive industry is undergoing
unprecedented change, driven in large part by exciting new
technologies, some of which I have been heavily involved
with during my career.
I have visited a number of our dealerships and met with
many of our colleagues since I joined the Group and I have
been very impressed with how the Group operates.
Strategy
The Group’s strategy of close partnership with major global
automotive brands has served it well over many years,
enabling it to grow significantly and become a leading UK
automotive retailer. This strategy has positioned the Group
well to continue its success and I very much look forward to
being part of the leadership team to help deliver its future
potential. We remain committed to our strategy of growing
the Group further, both organically and through targeted
acquisitions. We continue to believe that those automotive
retailers with both scale and a diverse portfolio will be best
placed to succeed in a changing market.
Results
The Group has enjoyed another record year, delivering like-
for-like** revenue growth of 1.2% and continuing underlying
PBT growth of 1.2% to £25.7m. The Group’s balance sheet
also remains strong, underpinned by £125.3m of
freehold/long leasehold property.
Dividend
The Group’s stated dividend policy since 2015 has been to
maintain a progressive dividend policy where dividends
were covered between 4 to 5 times by underlying earnings.
The Board has recently reviewed its dividend policy and, in
light of the Group’s strong financial position and confidence
in its long-term prospects, is pleased to announce a change
to this policy.
The Group’s revised dividend policy is that, subject to the
Group’s trading prospects being satisfactory and taking into
account potential investments, dividends will be covered by
between 2.5 to 3.5 times underlying earnings and paid in
an approximate one-third (interim dividend) and two-thirds
(final dividend) split. The Board believes the revised
dividend policy is appropriate and sustainable, balancing
the Group’s strong financial position and cash generation
with its stated strategy of further investment and growth in
its business.
The Board is therefore recommending a final dividend for
2018 of 6.39p per share which, if approved by shareholders
Professor
Richard Parry-Jones CBE
Chairman
at our AGM on 21 May 2019, will be paid on 24 May 2019
to shareholders who are on the Company’s register at close
of business on 26 April 2019. If approved, this will result in
a full year dividend of 8.54p per share, an increase of
33.4% on the prior year (2017: 6.40p) and dividend cover
of 3.2x (2017: 4.2x).
AGM
Our annual general meeting will be held on 21 May 2019
and I look forward to meeting all shareholders who are able
to attend.
Outlook
The Board notes the latest forecast by the Society of Motor
Manufacturers and Traders (‘SMMT’) for a further decline
in the UK new car market in 2019 of 2.3%. The Board is
also cognisant of the potential impact that Brexit may have
on both the UK economy generally and the automotive
sector in particular. At the date of this Annual Report, the
terms of the UK’s departure from the European Union are
not certain and the Board therefore remains cautious about
the economic outlook for 2019. We are, however, confident
in our brand partners’ commitment to the UK automotive
retail market (the second largest in Europe) and their
collective ability to respond effectively to the potential
challenges that Brexit may bring.
Our order book for the important March plate-change period
is, however, encouraging and our outlook for the full year
remains unchanged.
The Group has the benefit of a strong balance sheet with a
low level of net debt. This, together with an exceptional
management team, leaves it well placed to respond to
market changes and challenges and to take advantage of
opportunities when they arise.
its
transformation,
On behalf of the Board, I would once again like to thank
Peter Johnson who retired as Chairman on 31 December
2018. His leadership since the Group’s IPO in 2015
oversaw
the
acquisitions of SG Smith in 2015, Ridgeway in 2016 and
the disposal of Marshall Leasing in 2017. I would also like
to thank Mark Raban, who stepped down from his position
as Chief Financial Officer on 2 January 2019, for his
valuable contribution to the Group over the same period.
I am very pleased to welcome Richard Blumberger to the
Board as our new Chief Financial Officer.
including
through
I would also like to thank the leadership team, our brand
partners, business suppliers, shareholders and colleagues
throughout the Group for their continued support during
another successful year.
Finally, I would like to thank all of our customers throughout
the UK who choose Marshall as their preferred source of
mobility products and services – delighting and satisfying
you is the ultimate goal of everything we do.
Professor Richard Parry-Jones CBE
Chairman
12 March 2019
* underlying profit before tax is presented excluding non-underlying
items (see Note 7 to the financial statements)
** See Note 2 to the financial statements
8
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Our Vision
To be the UK's premier automotive retail group as recognised by our colleagues,
customers, business partners and shareholders. To achieve our vision we will create
a people centric culture, as well as operate as retailers who deliver retailing
excellence and are regarded as an employer of choice.
Class leading
returns
Customer
first
Retailing
excellence
People
centric
Strategic
growth
The Group
aims to deliver
benchmarked
class leading
returns for its
shareholders.
Customer service
is at the core of
the Group as it
drives repeat car
sales and the
purchase of
higher margin
aftersales
products.
The Group
maintains its
competitive edge
by investing in
the best people
supported by
cutting-edge
technology in
the sector.
The Group is
committed to
recruiting,
training, and
retaining the
best talent in
the industry.
The Group
aims to grow
both organically
and through
acquisitions,
building scale
with its existing
brand partners
and extending
its geographic
footprint.
Underpinned by five strategic pillars
9
STRATEGIC REPORT
Operating Review
“Despite a challenging new and used
car market, the Group performed
robustly, exceeding last year’s record
result at continuing underlying PBT
level”
“Overall like-for-like revenue growth
in the face of a decline in the new and
used vehicle market”
Daksh Gupta
Chief Executive
Officer
Overview
For the fourth consecutive year since our IPO, I am pleased to
announce another record result at continuing underlying PBT
level. Despite the well-publicised decline in our markets, the
Group delivered continuing underlying PBT of £25.7m, ahead of
last year’s record result.
2018 was another successful year for the Group:
• Total revenue of £2.2 billion with like-for-like revenue growth of
1.2% to £2.1 billion;
• Continuing underlying PBT up 1.2% to £25.7m, ahead of last
year’s record result;
• Strong used car performance: like-for-like volumes up 2.3%
combined with a 32bps margin improvement;
• Aftersales like-for-like revenue continued to grow, up 2.3%;
• Like-for-like total new vehicle unit sales down 8.2% due to
impact of WLTP and diesel challenges;
Like-for-Like Revenue
£2,134.6m (up 1.2%)
(2017: £2,108.9m)
Continuing Underlying PBT
£25.7m (up 1.2%)
(2017: £25.4m)
Full Year Dividend
8.54p (up 33.4%)
(2017: 6.40p)
• Disciplined cost management despite significant costs
like-for-like operating expenses as a
headwinds with
percentage of turnover marginally down at 10.1%;
Ninth Year of
‘Great Place to Work’ Status
• Net debt at 31 December 2018 of £5.1m after continued
investment in capital expenditure of £23.8m, including a new
freehold at Lincoln Jaguar Land Rover and a long leasehold
development at Cambridge Ford;
• Extinguished residual liability for historic defined benefit
pension arrangements;
• Revised dividend cover policy of 2.5 to 3.5 underlying earnings
with recommended final dividend of 6.39p per share, giving a
full year dividend of 8.54p per share, an increase of 33.4%
versus last year;
• Ninth year of Great Place to Work status with four consecutive
years achieving ranked status; and
• Further technological advancements in the Group’s bespoke
management information system, ‘Phoenix 2’.
10
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Celebrating Loyalty
Recognising Achievement
Celebrating Success
Recognising and thanking colleagues is a fundamental element of our commitment to provide a great environment
for colleagues to work in. It also supports our desire to continue to be recognised as a Best Large UK Workplace.
Whether it’s for loyalty, outstanding achievement or delivery of our values, we hold several annual events and award
ceremonies to celebrate our incredible colleagues. Details and photos of each event are featured in our quarterly
colleague magazine so we can share our colleagues’ success with everyone and reinforce how important these
programmes are.
11
MAVTA Awards
Apprentice Award
STRATEGIC REPORT
Our
strategy
Class
leading returns
Customer
first
The Group’s strategic
vision, which is unchanged,
is to become the UK’s
premier automotive Group
and this remains central to
everything we do. The five
strategic pillars, of equal
importance, which underpin
that vision are: class
leading returns; putting
our customers first;
delivering retailing
excellence for the benefit
of our customers; being
people-centric by focusing
on employee engagement;
and pursuing strategic
growth both organically
and through targeted
acquisitions in-line with the
Group’s strategy.
The Group’s strategy of building a
balanced brand portfolio in
attractive geographic locations, has
assisted the continuation of our
strong track record in the face of a
more challenging market. In spite
of an overall market decline during
the Year, with the new car market
declining by 6.8% and the used car
market declining by 2.1%, our like-
for-like revenue grew by 1.2% and
our continuing underlying PBT grew
by 1.2% versus last year’s record
result. In the face of increasing
pressures, our costs were tightly
controlled and our margins
continued to be strong.
In light of the Group’s strong
financial position and confidence in
its long-term prospects, we are
pleased that we have been able to
amend our dividend policy which
has resulted in a 33.4% increase in
our full year dividend.
Continuing to grow with our brand
partners will enable the Group to
access further benefits of scale
across a number of areas of the
business, including improved
commercial terms with suppliers
and vehicle stock management.
The recent ŠKODA acquisitions
also highlight the strength of our
relationships with our brand
partners. We continue to actively
pursue acquisition opportunities
which are in-line with our strategy
and meet our investment criteria.
Customer satisfaction is an important
element of the Group’s strategy,
driving repeat business and loyalty to
the Marshall brand.
It is therefore pleasing that during the
Year, 45.6% of the 40,471 customers
surveyed who visited our showrooms
indicated that they were either
previous customers or were
recommended to us, up from 42% in
the prior year.
Our in-house developed
management information system
(Phoenix 2) provides daily customer
satisfaction information by dealership
which allows management to
proactively respond to customer
needs and follow up on potential
areas of concern.
In addition, on a weekly basis, the
Group centrally monitors customer
satisfaction for both sales and
aftersales across all locations and
brand partners. This alignment
ensures we focus on our brand
partners’ key measures whilst also
ensuring consistency of internal
performance monitoring.
The Group’s continued expansion
and scale gives customers a wider
choice of location and products,
increasing both customer satisfaction
and sales.
12
Marshall Motor Holdings plc | Annual Report & Accounts 2018
www.marshall.co.uk is
the sixth most visited dealer
group website in the UK
13
Business Intelligence Platform
STRATEGIC REPORT
Retailing
excellence
People
centric
A key differentiator is the Group’s
focus on, and investment in,
technology aimed at expanding the
Group’s customer base and
improving operating efficiencies.
2018 saw further investment in
these areas.
The Group is focused on
engaging and attracting new and
existing customers with its online
presence both through our
website and social media. During
the Year, the Group has focused
on maximising its marketing return
on investment through its online
channels which has seen an
increase in lead conversion. The
Group is widely regarded as being
at the forefront of social media in
the sector, winning 14 awards in
the last two years and two further
awards so far in 2019.
During the Year, the Group
partnered with one of the UK’s
leading suppliers of used car
pricing and transaction data. This
data has been uniquely integrated
into Phoenix 2, our bespoke, in-
house management information
system, to create a separate
module to support management in
vehicle valuations. This enables
visibility of pricing comparison to
the market, including regional and
market desirability variations, all of
which leads to greater customer
transparency and optimal pricing.
In addition, central oversight of
stock management and market
pricing has been improved. We
believe this gives us a competitive
advantage in the market place.
For the ninth consecutive year, the
Group has been recognised by the
Great Place to Work Institute as a
‘great place to work’ based on
colleagues surveyed during 2018. Our
2018 scores were excellent with 78%
of colleagues stating that Marshall was
a ‘great place to work’. This compares
to an average UK score of 55%.
Based on the results of the 2017
survey, the Group was ranked 21st of
the Top 30 large employers in the UK
which included employers such as
Cisco, Admiral Group Plc, SAP and
MBNA. 2018 was the fourth year
running that the Group was ranked.
Given the further improvements of
colleague engagement in 2018, we
are confident of being ranked for a fifth
year running which only 11 companies
in the Great Place to Work Institute
have achieved.
The Group is committed to diversity in
both Marshall and the wider industry.
This is demonstrated by the Group
recently becoming a member of the
Automotive 30 Club, the aim of which
is to work towards having women in
30% of key leadership positions by
2030. Currently, 14.3% of the Group’s
management positions are undertaken
by female colleagues and we continue
to work towards growing this
proportion.
Our Gender Pay Gap Report, which is
published on our website, sets out the
actions we are taking to address the
gender pay gap which exists both in
our business and the wider sector. We
have made improvements in this area
and are committed to do more.
As previously reported, the Group
continues to make a significant
investment in its sales executive
offering with the objective of increasing
diversity and retention in these key
customer interfacing roles. Since
launch, the Group has seen a
significant decrease in sales executive
turnover although there remains more
to do in this area. In addition, the
proportion of female sales executives
in the Group has grown by 60%. This
is encouraging for succession, talent
development and gender diversity for
the future.
14
Recognising that people are at the
heart of our success, further strategic
initiatives have been launched during
the Year in the following areas:
• Future leaders programme to identify
and develop our future management
teams – this programme is for high
potential colleagues to ready
themselves for their first line
management position. Encouragingly,
we have already seen a number of the
first cohort achieve promotion to their
first line management role.
• Management development
programme aimed at supporting and
upskilling existing managers to help
better equip them to get the best out
of their teams and improve business
performance.
• New in-house recruitment team giving
more control over recruitment quality
and cost. This initiative also sees the
implementation of a new applicant
tracking system which will provide
greater control over our employment
brand and candidate experience,
whilst also saving time and cost.
• New learning management system
Our new Group wide e-learning
platform will help us to deliver more
learning and development
opportunities to all colleagues.
In keeping with our social agenda and
aim to support local communities, we
have also implemented a new work
experience programme to attract new
talent for the future alongside our
current apprentice programme which
currently has 122 participants.
Strategic
growth
The Group’s strategy is to grow scale
with existing brand partners in new
geographical territories, as
demonstrated by the acquisitions
completed since our IPO.
There has been considerable
consolidation in the UK motor retail
market over the last ten years, in
which the Group has played an active
role. We expect further industry
consolidation over the coming years
for which the Group is very well
positioned, with a strong balance
sheet and excellent manufacturer
relationships.
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Industry leading on
social media
The Group is committed to diversity
UK’s largest ŠKODA retailer
15
STRATEGIC REPORT
Development at Lincoln Jaguar Land Rover
1
p
e
t
S
Site search & acquisition
In March 2016, we started searching for alternate premises to
accommodate our Land Rover and Jaguar businesses in
Lincoln. Various options were considered and in November
2016, JLR approved our proposed relocation to a greenfield site
identified at Teal Park. Heads of terms for the land purchase
were negotiated and agreed in December 2016 and solicitors
instructed to prepare the contracts. Further negotiations were
conducted to ensure delivery of services to the site during the
first half of 2017 and contracts were exchanged for the
conditional purchase of the site in July 2017.
Planning application and detailed design
The design process began in June 2016 when the site was
first identified. The design development proceeded through
various iterations culminating in brand approval to our
preferred designs in February 2017 and a detailed planning
application submitted in July with full planning consent
received in October 2017. Detailed design process then
commenced in readiness for tender.
2
p
e
t
S
Procurement and build phase
A full design team was appointed and each component price for the building contract was negotiated with BDB Design & Build. This process
commenced in July 2017 whilst waiting for planning consent and letter of intent was placed in December 2017 followed by a start on site in
February 2018. Construction programme was overseen for the 52 week build phase and all fit out items were costed and ordered during this
period culminating in formal handover was accepted on 1st February 2019, approximately 3 weeks ahead of schedule.
3
p
e
t
S
Overall therefore, it was almost 3 years from deciding to start looking for relocation options through to receiving the keys.
Cambridge FordStore Dealership
16
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Acquisitions and disposals
The Group continually seeks to maximise return on capital
employed and closely monitors and reviews its portfolio to
ensure optimal returns. As a result, in November 2017 the
Group closed six sub-scale, loss-making businesses. These
businesses lost, in aggregate, £1.3m in 2017, with the
resultant financial benefits of their closure being realised
during the Year. The Group also successfully disposed of its
property interests and liabilities in each of these closed sites
by the end of the Year. Management took further proactive
steps during the Year, closing two used car centres and one
franchised site, Vauxhall Leicester, as part of a wider network
reorganisation announced by the brand in 2018.
Consistent with our strategic growth pillar, during early
2019 the Group announced two acquisitions which have
further extended our relationship with ŠKODA and the
Volkswagen Group as a whole, growing our ŠKODA
partnership from 5 locations to 11.
Our growth with ŠKODA is in-line with the Group’s strategy
to grow scale with key brand partners and extend our
geographic footprint. The Group joined the ŠKODA network
in 2013 with the acquisition of Silver Street Automotive which
included Barnstaple ŠKODA. We added Croydon ŠKODA as
part of the acquisition of S.G. Smith in 2015, followed by the
addition of our Newbury, Oxford and Reading ŠKODA
businesses as a part of the acquisition of Ridgeway in 2016.
In January 2019, the Group acquired Leicester and
Nottingham ŠKODA from Sandicliffe Limited and in February
2019 acquired the Bedford, Harlow, Letchworth and
Northampton ŠKODA businesses from Progress Bedford
Limited. These dealerships are in excellent locations, fully
compliant with the latest ŠKODA brand standards and are
contiguous to our existing ŠKODA sites. We believe they
have potential for growth and improvement in their operating
performance as part of a scaled and focused division.
Each acquisition was completed in consultation with, and the
support of, ŠKODA UK, making Marshall the largest ŠKODA
retailer in the UK. The ŠKODA brand has enjoyed strong
growth in recent years. In 2018 the brand achieved 74,512
registrations which represented a UK market share of 3.2%
and has enjoyed a 13.1% growth in the last five years. This
has been driven by significant product development,
particularly across the SUV segment, and this is expected to
increase further with the introduction of two new models in
2019. The brand is part of the Volkswagen Group which has
announced it will invest almost €44 billion in electrification
and new mobility services. We are very proud to represent
the ŠKODA brand and wish to thank the ŠKODA UK
management team for their support over the years and look
forward to building on our excellent relationship. We would
also like to take this opportunity to welcome all colleagues of
the acquired businesses to the Group.
Following these additions, the Group now consists of
106 franchises representing 23 brand partners trading in
27 counties nationwide. In addition, the Group operates five
trade parts specialists, three used car centres, five
standalone body shops and a pre-delivery inspection (PDI)
centre. The Group operates a balanced portfolio of volume,
premium and alternate premium brands including all of the
top five premium brands.
The Group’s diverse portfolio means
it represents
manufacturer brands accounting for 81.4% of all new vehicle
sales in the UK. This scale and diversified spread of
representation helps mitigate the effect of the cyclical nature
of individual brand performance.
Investment in new retail locations and
major developments
The Group continues to invest in its retail sites and has
invested a total of £19.6m into its property portfolio during the
Year. Investment in relocations and major rebuilds included:
• Lincoln Jaguar Land Rover this development brings
together Lincoln Jaguar and Lincoln Land Rover, previously
two separate leasehold sites, on one purpose-built freehold
site providing a significant increase in capacity for both
vehicle and aftermarket sales.
• Cambridge Ford this relocated our existing leasehold
showroom on Newmarket Road to a state-of-the-art Ford
Store on long leasehold property and provides a
significantly improved customer experience.
• Completion of a redevelopment of Bedford Land Rover,
an existing freehold site. This investment brings the site up
to Jaguar Land Rover ‘arch’ concept standard.
Investment in existing businesses
In addition to large scale redevelopments, the Group
continues to invest in upgrading existing businesses to
enhance the customer experience, satisfy brand requirements
and increase sales and aftersales capacities. In recent years,
the Group has invested significantly in its portfolio, with 84%
of the Group’s facilities having benefited from investment in
the latest corporate identity or relocation. We expect this to
materially reduce after 2019. Significant corporate identity
upgrades were completed at the following locations:
• Audi – Sydenham and Taunton
• Volkswagen Commercial Vehicles – Bridgwater and
Reading
• ŠKODA – Newbury and Reading
• SEAT – Cambridge, Leicester and Newbury
• Mercedes-Benz Commercial Vehicles – Croydon
• Honda – Harrogate, Hull, Leicester and Peterborough
• BMW – Salisbury and Scunthorpe
• Volvo – Grantham and Leeds
17
STRATEGIC REPORT
Market and Business Update
New Vehicles
Variance
2018 2017 Total LFL
28,871 31,801 (9.2%) (8.4%)
17,342 21,507 (19.4%) (7.7%)
46,213 53,308 (13.3%) (8.2%)
Retail units
Fleet units
Total units
As has been widely reported, 2018 was challenging for the
new vehicle market. The SMMT recorded new vehicle
registrations of 2.37m in the Year, a decline of 6.8% versus
2017 (2.54m). A number of factors impacted the market:
• Firstly, general economic uncertainty, including the
negative impact of Brexit on consumer confidence.
Weakness in Sterling also impacted new vehicle prices
and European manufacturers’ focus on the UK market.
• Secondly, the introduction of the Worldwide Light Vehicle
Test Procedure (WLTP) which replaced the outgoing New
European Driving Cycle (NEDC) in September 2018,
significantly impacted the new vehicle market in 2018.
The introduction of the new procedure, during a peak
registration month, led to shortages of supply and longer
lead times in certain brands and continued to impact the
industry for the remainder of 2018 and into 2019.
• Thirdly, the current uncertainty of future government
policy in relation to diesel engines has led to a decline of
29.6% in total diesel registrations, taking its share to a
15 year low of 31.7%. This particularly impacted the
premium segment which has historically offered a higher
Used Vehicles
Growth
2018 2017 Total LFL
43,302 44,237 (2.1%) 2.3%
Total Units
The SMMT reported further used vehicle market decline
of 2.1% in 2018 despite the used car market benefiting
from WLTP-related supply shortages in the new vehicle
market. In the context of an overall market decline, we
are therefore particularly pleased to report continued
like-for-like growth in used vehicle unit sales. In addition
to increased unit sales, we also delivered a total gross
margin improvement of 36bps which we consider to be
an excellent performance.
The Group’s strategy on used car sales is to utilise
existing capacity within the current Group portfolio to
maximise throughput on its existing footprint, therefore
mitigating the associated investment in additional sites
and resource. We believe this approach highlights the
resilience of the franchise model even during a time of
declining new vehicle sales.
As a result of the closures made in November 2017, total
used car unit sales declined by 2.1%. Like-for-like used unit
sales grew 2.3% and like-for-like used vehicle revenues
increased by 8.1%. This is a particularly strong performance
when compared with the overall market decline.
proportion of diesel vehicles. Manufacturers have been
responding to changing consumer demand for petrol
engines by switching production through 2018 and we
expect to see this continue through 2019.
Against this market backdrop, during the Year, the Group’s
like-for-like new retail unit sales declined by 8.4% against
an overall UK new retail registration decline of 6.4%.
Like-for-like new revenues declined by 4.5%. Given the
Group’s weighting towards premium brands which were
more affected by the decline in diesel, together with a
number of our key brands being more exposed to WLTP
supply shortages, we were pleased with this result.
Total unit sales to fleet customers declined by 19.4%. This
was largely driven by a commercial decision we took
during 2017 to withdraw from certain low margin fleet
business. Excluding the impact of this and site closures,
like-for-like unit sales to fleet customers declined by 7.7%
versus an overall market decline of 7.2%.
Sales of new vehicles utilising personal contract purchase
(“PCP”) have stabilised at 81% during the Year (2017:
83%). At 31 December 2018, the Group had 69,429 active
PCPs which create a defined point of renewal/purchase/
replacement and we actively manage the renewal process
to ensure, where possible, customers are retained with the
Group.
Total new vehicle gross margins were flat versus 2017 at
7.2%, a pleasing performance in a challenging market.
The continued improvement in used volumes and
margins has been driven by the addition of our recently
enhanced in-house management information system,
Phoenix 2 as described earlier. This, along with a
continuation of our 56 day stocking policy which
encourages accelerated stock turn, leading to higher
sales volumes and reduced residual value risk,
contributed to the strong volume and margin performance
during the Year.
There was further growth in the number of used vehicles
purchased using PCP products which have now become
a key feature of the 3-6 year old used car market in which
the Group primarily operates. 63% of the Group’s used
vehicles which were purchased on finance were
purchased using a PCP (2017: 58%). As in the new car
of
market, PCPs
renewal/purchase/replacement and we actively manage
the renewal process
to ensure, where possible,
customers are retained by the Group.
defined
create
point
a
We believe the recent popularity of used car PCPs
presents the Group with future opportunities for the sale
of older used cars given the event-driven nature of a
PCP.
18
Marshall Motor Holdings plc | Annual Report & Accounts 2018
MINI Clubman City
Peugeot 508
Vauxhall GT X Experimental brand concept
19
BMW X7
Ford Transit Connect
STRATEGIC REPORT
Aftersales
Growth
2018 2017 Total LFL
246.1 243.1 1.3% 2.3%
Revenue (£m)
Aftersales remains a key strategic focus of the Group,
providing revenue and profit assurance during a
challenging economic environment. Our strong
performance in recent years continued during the Year,
with total revenue growth of 1.3% (2.3% like-for-like).
This growth has partially offset margin pressure (down
126bps versus 2017) as a result of reduced
pre-delivery inspection revenue caused by fewer new
vehicle sales and an increased proportion of lower
margin parts sales.
the Group operates
In addition to our retail centre based aftersales
facilities,
five standalone
bodyshops, five trade parts centres and one PDI
centre. Aftersales contributes 44.0% of total retail gross
profit and therefore makes a significant financial
contribution to the Group which is important in the
context of a more cyclical new car market.
In order to drive customer retention, we offer service
plans to customers of both new and used vehicles
which allow customers to plan and budget for service
costs. These plans are often included in the monthly
payment of a vehicle and are therefore very convenient
for customers. At 31 December 2018, the Group had
over 75,000 live service plans (2017: 77,000).
Market Outlook
In 2018 the SMMT reported new vehicle registrations of
2.37m, down 6.8% versus 2017 and down 13.1% from
the peak year of 2016. The current SMMT forecast for
2019 predicts a further new car market decline of 2.3%
to 2.31m. Further declines are expected in diesel
market share, with growth in registrations of alternative
fuel vehicle registrations expected to continue.
The new vehicle market in 2019 may also be affected
by the implementation of WLTP for commercial
vehicles and changes to the Real Driving Emissions
Test in September.
Finally, we are cognisant of the potential impact that
Brexit may have on both the wider UK economy and
the automotive sector. At the date of this report, the
terms of the UK’s departure from the European Union
are not certain. However, we remain confident in our
brand partners’ commitment to the UK automotive retail
market (the second largest in Europe) and their
collective ability to respond effectively to the potential
challenges that this situation may bring.
Summary
In a challenging economic environment and reduced new
and used vehicle market, the Group has delivered a
record continuing underlying PBT performance.
I am particularly pleased with our used vehicle
in aftersales
performance and continued growth
revenues. These revenue streams provide resilience to
the business during more challenging periods of the
cyclical new car market, as demonstrated during the Year.
The Group has the benefit of a strong balance sheet with
a low level of net debt which leaves it well placed to
respond to market changes and take advantage of
opportunities when they arise.
I am pleased that Richard Parry-Jones, as Chairman, and
Richard Blumberger, as Chief Financial Officer, have
joined the Group and Board. I would also like to thank
Peter Johnson and Mark Raban for their significant
contributions to the Group since its IPO.
Finally, on behalf of the Board I would like to thank our
colleagues, and our brand and business partners for their
hard work and support during what is now my 10th full
year with the Group. I look forward to continuing to work
together in 2019.
Daksh Gupta
Chief Executive Officer
12 March 2019
20
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Honda E Prototype
Maserati Ghibli Ribelle
The new Mercedes-Benz EQC
SEAT Arona
BMW S 1000 RR
KIA Proceed
21
STRATEGIC REPORT
Financial Review
“A resilient and cash
generative business”
Overview
I am delighted to present the Group’s 2018 annual
results, my first since appointment as Chief Financial
Officer in January 2019.
The Group is focused on delivering long-term value for
our shareholders, our customers and our people. This
year’s financial results show continued underlying PBT
growth, strong margin, growth in earnings per share
(“EPS”) and solid cash generation. The Group is in a
strong financial position with low leverage, a strong
balance sheet and long-term committed financing
facilities. As a result of this, and our confidence in the
Group’s long-term prospects, we have been able to
amend our dividend policy and increase our dividend.
This was another good year for the Group which again
demonstrated the strategic importance and resilience
of our business in a toughening market.
Following four years of strong growth since IPO, we
anticipated a challenging market in 2018. As such, our
focus for the Year was on our cost base and portfolio
management. In-line with this strategy, we closed a
Reported Financial Performance
2018 2017 Var %
Revenue 2,186.9 2,232.0 (2.0%)
Gross profit 255.7 258.3 (1.0%)
Operating Expenses (223.6) (225.4) 0.8%
Operating Profit 32.0 32.9 (2.6%)
Net finance costs (6.4) (7.5) 15.4%
PBT underlying 25.7 25.4 1.2%
Non-underlying items (7.0) (12.8) 45.6%
PBT reported 18.7 12.6 48.9%
Tax (4.8) (3.1) (54.0%)
PAT reported 13.9 9.5 47.2%
Discontinued operations 0.6 39.8 (98.5%)
Profit for the year 14.5 49.3 (70.5%)
Due to 2017 site closures, reported revenue from
continuing operations was £2,186.9m compared with
£2,232.0m for 2017. The Group’s operating profit, on a
continuing basis, before non-underlying items, was
£32.0m compared to £32.9m in 2017. Continuing
underlying PBT in the Year was £25.7m compared to
£25.4m in 2017.
Richard Blumberger
Chief Financial
Officer
number of sub-scale, loss-making sites in both 2017
and 2018.
We are, nevertheless, committed to targeting further
growth and in early 2019 we have further expanded our
portfolio in-line with our strategy to grow with existing
brand partners and extend our geographic footprint,
and we recently announced two acquisitions, adding 6
ŠKODA dealerships.
Our balance sheet remains robust, with minimal net
debt and we continue to invest in our asset base, with
a particular focus on freehold and long leasehold
property. Total capital expense of £23.8m was invested
during
to
investments in freehold and long leasehold properties.
including £19.6m
the Year,
relating
Notwithstanding that the year ahead may be uncertain
and we expect the difficult market backdrop to continue,
the Group is in a strong position to continue its strategic
growth and market penetration.
Our reported PBT of £18.7m (2017: £12.6m) included
one-off non-underlying items of £7.0m (2017: £12.8m) as
set out on page 23 of this report.
Analysis of Reported Revenue and Gross Profit
The segmental mix on a reported basis is shown in the
table below. Whilst the like-for-like analysis is covered later
in the report, the reported basis demonstrates the decline
in the new car market in 2018 and our strong performance
in the used car market despite the overall market decline.
Twelve months ended 31 December 2018
Revenue Gross Profit
£m mix* £m mix
New Car 1,064.8 47.7% 76.3 29.9%
Used Car 920.2 41.2% 66.8 26.1%
Aftersales 246.1 11.0% 112.3 44.0%
Internal/Other (44.3) – 0.3 –
Total 2,186.9 100.0% 255.7 100.0%
22
Marshall Motor Holdings plc | Annual Report & Accounts 2018
In addition, the Group recognised a further profit on the
disposal of our discontinued leasing segment of £0.6m
which related to the settlement of certain historic pension
liabilities at a reduced cost to that originally provided.
Like-for-Like Financial Performance
Basis of Comparatives
To enable effective comparison of our year-on-year
performance, underlying operating profit is shown on a
like-for-like basis. The full definition of an Alternative
Performance Measure can be found in Note 2 to the
financial statements.
Like-for-like 2018 2017 Var%
Revenue 2,134.6 2,108.9 1.2%
Gross Profit 250.5 251.1 (0.3%)
GP% 11.7% 11.9% (17 bps)
Expenses (216.4) (216.6) 0.1%
Operating Profit 34.1 34.6 (1.4%)
Like-for-Like Segmental Analysis
Twelve months ended 31 December 2018
Revenue Gross Profit
£m mix* £m mix
New Car 1,045.4 48.0% 75.0 30.0%
Used Car 893.1 41.0% 65.4 26.1%
Aftersales 240.5 11.0% 109.8 43.9%
Internal/Other (44.3) – 0.3 –
Total 2,134.6 100.0% 250.5 100.0%
Twelve months ended 31 December 2017
Revenue Gross Profit
£m mix* £m mix
New Car 1,094.8 50.8% 82.3 32.8%
Used Car 826.5 38.3% 57.9 23.1%
Aftersales 234.9 10.9% 110.7 44.1%
Internal/Other (47.3) – 0.3 –
Total 2,108.9 100.0% 251.1 100.0%
Twelve months ended 31 December 2017
Revenue Gross Profit
£m mix* £m mix
New Car 1,166.5 51.2% 84.1 32.6%
Used Car 869.7 38.2% 59.9 23.2%
Aftersales 243.1 10.6% 114.0 44.2%
Internal/Other (47.3) – 0.3 –
Total 2,232.0 100.0% 258.3 100.0%
* mix calculation excludes Internal / Other Sales
Finance Costs
Net finance costs decreased in the Year to £6.4m (2017:
£7.5m), reflecting the ongoing strengthening of the balance
sheet and focus on vehicle stock management.
Generating Sustainable Shareholder Value
Underlying profit before tax was £25.7m (2017: £25.4m).
The total reported effective tax rate was 24.8%, (17.1%
on a continuing underlying basis). Profit from continuing
operations after tax was £21.3m (2017: £20.8m), giving
a basic continuing earnings per share of 27.4p, an
increase of 2% on the prior year.
Non-Underlying Items
Non-underlying items are presented separately in the
income statement to provide an effective comparison of
performance. Non-underlying items in the Year are
summarised below:
2018 2017
2017 closure provision 3,282 (6,783)
Impairment of goodwill (9,302) –
2018 closure provisions/
other restructuring costs (943) –
Pension – (6,000)
Total (6,963) (12,783)
Profit on disposal of discontinued
business 589 36,851
We are pleased to report that all outstanding property
issues in relation to dealership closures announced in
November 2017 were resolved during 2018, ahead of our
initial timing and cost expectations, leading to a net
non-underlying profit of £3.3m in the Year.
Following our annual impairment test, a charge of £9.3m
has been taken against our BMW/MINI and Nissan
goodwill values, which is detailed in the balance sheet
review section of this report.
Other restructuring costs of £0.9m are detailed in note 7
to the financial statements.
23
STRATEGIC REPORT
Life-for-like Revenue
Life-for-like Operating Expenses
£2,134.6m (up 1.2%)
(2017: £2,108.9m)
£216.4m (down 0.1%)
(2017: £216.6m)
(2017:
was
Like-for-like revenue
£2,108.9m), a 1.2% growth in a year which saw the new
car market declining by 6.8% and the used car market
declining by 2.1%.
£2,134.6m
Like-for-like new retail units, one of our Key Performance
Indicators (KPI), declined 8.4% in a year in which the new
retail market declined 6.4%. Like-for-like fleet units
declined by 7.7% against a market decline of 7.2%. As
expected, these were impacted by WLTP and issues
surrounding diesel-fuelled engines which had a
disproportionate effect on our portfolio. As a result of an
increase in the average revenue per unit, like-for-like new
revenue only declined by 4.5%.
Our used car business performed very well with
like-for-like unit sales up 2.3% year on year against a
used car market decline of 2.1%. Used unit sales is a KPI
and continued to be a key area of focus. Strong focus on
margin and mix meant the 2.3% unit increase translated
into an 8.1% revenue increase.
Aftersales revenue had another strong year with
like-for-like revenues up 2.3%, the fourth consecutive
year of growth.
Life-for-like Gross Profit
£250.5m (down 0.3%)
(2017: £251.1m)
Like-for-like gross profit at £250.5m (2017: £251.1m) was
consistent year on year, with margins remaining strong
at 11.7% compared to 11.9% in 2017.
New vehicle margins were slightly down in the year at
7.2% (2017: 7.5%) which we consider a good result in a
challenging market.
Our used vehicle margin at 7.3% was up by 32bps driven
by our technology-led approach in our used car sales
process and further reflects our strategic focus on the
used car market. The combination of revenue and
volume growth led to a total gross profit improvement of
£7.5m on used vehicles.
Like-for-like aftersales margin was 45.7% compared to
47.1% last year. This was as a result of reduced
pre-delivery inspection revenue caused by fewer new
vehicle sales and an increased proportion of lower
margin parts sales.
Despite cost pressures continuing to impact the overall
sector, like-for-like expenses were marginally down
£216.4m (2017: £216.6m). This was strong performance
given the significant cost headwinds experienced. The
Group placed particular focus on discretionary costs both
in our central cost base as well as at dealership level,
including marketing effectiveness, demonstrator vehicle
costs and stocking costs.
Life-for-like Operating Profit
£34.1m (down 1.4%)
(2017: £34.6m)
Given the factors referred to above, like-for-like operating
profit at £34.1m (2017: £34.6m), whilst slightly down on
2017, is a good example of the resilience shown in a
difficult market, allowing our operating margins to be
consistent at 1.6% year on year.
24
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Shareholder Returns
Full year dividend per share
8.54p (up 33.4%)
(2017: 6.40p)
The Group has a strong track record of delivering growth
in our financial results and growing returns to our
shareholders as a result is an important part of our
strategy. As mentioned earlier, we have amended our
dividend policy and as such,
final dividend
recommended by the Board is 6.39p per share, giving a
full year dividend of 8.54p and cover of 3.2x underlying
earnings per share (2017: 4.2x). This year’s dividend to
shareholders and change in dividend policy, demonstrates
the Group’s strong financial position and our confidence in
its long-term prospects and represents growth of 33.4%.
the
During the Year, total dividends of £5.0m were paid to
shareholders.
ROCE
Return on capital employed (ROCE) for the Year was
12.8% (2017: 13.3%). ROCE is calculated as underlying
profit before tax divided by total equity.
The Group has ongoing capital expenditure requirements
and will continue to pursue organic and acquisitive
growth opportunities. This may also include further
freehold investments in preference to leasehold liabilities
which can have a short-term impact on ROCE as it did in
2018 with our capital programme.
Balance Sheet
There is no material difference between the reported
and the like-for-like balance sheet so unless otherwise
stated, the remainder of the financial review is on an
as reported basis.
£m 2018 2017
Intangible 112.2 121.6
Freehold/long leasehold 125.3 116.3
Other retail assets 30.5 26.1
Other 2.6 2.6
Fixed assets 270.5 266.7
Inventory 384.0 401.3
Trade / other receivables 79.7 92.1
Cash & equivalents 1.2 4.9
Assets held for sale 0.8 0.8
Current assets 465.7 499.0
Vehicle funding (370.8) (380.6)
Trade / other payables (128.6) (151.3)
Bank / other debt (6.3) (7.1)
Other liabilities (30.1) (35.5)
Total liabilities (535.8) (574.5)
Net assets 200.4 191.2
Reported net debt (£m) (5.1) (2.2)
25
Intangibles
Each year we test the carrying value of goodwill and other
intangible assets for impairment. For the year ended
31 December 2018, we have applied a more cautious
assessment on the market outlook for our BMW and
Nissan CGUs and as a result, recognised an impairment
of £9.3m of goodwill. Further details are set out in Note
15 to the financial statements.
There were no additions to goodwill and intangibles in the
Year with the only movement being the amortisation of
previous acquisitions.
Freehold / Long Leasehold
The Group’s property portfolio is a key strength of the
business. Our capital programme continues, with a
further £23.8m of capital expenditure invested in the Year
including the new builds of Lincoln Jaguar Land Rover
and Cambridge Ford Store, the major redevelopment of
Bedford Land Rover and further investment across a
number of our brands. This brings our cumulative
expenditure to £76.4m over the last three years, of which
£63.1m has been invested in freehold and long leasehold
properties. The net book value of the Group’s property,
plant and equipment at 31 December 2018 was
£155.8m, of which £125.3m (80.4%) related to freehold
and long leasehold property.
Strong Working Capital Management
Working capital management is a key focus for the Group
with a strong result in inventory and debtor management
in the Year.
Inventory, net of provisions, at £384.0m reduced year on
year by 4.3% with a strong focus on stock profiling. As at
31 December 2018, the value of vehicles held under
vehicle financing arrangements was £370.8m (2017:
£380.6m).
A reduction of 13.5% in our trade and other receivables
was reflective of the strong focus placed on working
capital management at all levels of the business.
Overall the Group had reported net assets as at
31 December 2018 of £200.4m (2017: £191.8m), which
equates to £2.57 per share (2017: £2.47).
Good Cash Conversion
Operating cash flow conversion (defined as cash flow
generated by operations divided by continuing operations
operating profit before interest, tax, depreciation and
amortisation), is key to allowing us to maintain our
investment programme. During the Year, cash inflows
(2017: £69.6m),
from operations were £36.5m
representing a cash conversion of 88.2% (2017:
150.0%). Our cash conversion has been consistently
strong,
focus on working capital
reflecting our
management over recent years.
STRATEGIC REPORT
Net Debt and Facilities
As at 31 December 2018, net debt was £5.1m (2017:
£2.2m). Our current facilities include a £120m revolving
credit facility which is in place until June 2021. Our interest
rate is LIBOR plus 1.2% to 2.0%, dependant on the
leverage level. We remain comfortably within each of our
banking covenants.
Tax
The Group manages all taxes, both direct and indirect to
ensure that it pays the appropriate amount of tax. Our tax
strategy is reviewed regularly and approved by the Board.
for
the Year
tax charge
The Group’s
(before
non-underlying items) was £4.4m (2017: £5.3m) giving an
effective tax rate of 17.1% (2017: 18.1%). The effective
tax rate was positively impacted by a review of historic
capital allowance claims. Excluding the impact of these,
the underlying effective tax rate would have been 21.6%.
After adjusting for non-underlying items, the total tax
charge was £4.8m (2017: £3.8m) giving an effective tax
rate of 24.8% (2017: 7.1%).
Full details of the Group’s tax governance framework can
be found in the Group’s tax strategy which is available on
the Group’s website.
IFRS16
The Group is finalising its impact assessment of the
accounting standard IFRS16 which is mandatory for
accounting periods starting 1 January 2019. The standard
has no economic impact on the Group or on our cash
flows. It does, however, have an impact on the way the
assets, liabilities and the income statement of the Group
are presented, as well as the classification of cash flows
relating to lease contracts.
Due to the profile of our current operating lease portfolio,
it is anticipated that the impact of IFRS16 is likely to be
marginally earnings dilutive in the early years of adoption,
with an initial 1%-2% impact on profit before tax. In
addition, if the balance sheet at 31 December 2018 had
been restated, we estimate c£86.0m of right-of-use
assets and c£92.5m of associated liabilities, would have
been recognised in the Group’s balance sheet, resulting
in a c£6.5m decline in net assets.
Pensions
During the year, the Group ceased to be a participating
employer in the Marshall Group Executive Plan (‘Plan’)
following a strategic decision taken in 2017 to crystallise
and pay the Group’s residual liability to this historic
defined benefit pension scheme. The aggregate amount
paid by the Group to exit the Plan was in-line with the
provision of £6.0m taken in last year’s accounts and was
paid to the Trustees in February 2019. As a result, the
Group no longer has any further obligations in relation to
any defined benefit pension schemes.
Richard Blumberger
Chief Financial Officer
12 March 2019
26
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Jaguar E-PACE
Volkswagen I.D. VIZZION
ŠKODA VISION RS
Volvo XC40
27
Mercedes-Benz X-Class
Ford Focus
STRATEGIC REPORT
Principal Risks and Uncertainties
The Group faces a range of risks and uncertainties. The processes that the Board has established to safeguard both
shareholder value and the assets of the Group are described in the Corporate Governance report.
Set out below are the principal risks and uncertainties the Directors believe could have the most significant adverse
impact on the Group’s business, together with the principal controls in place to mitigate those risks. The risk trend
column indicates the Board’s view on whether, from a Group perspective taking into account mitigating actions, these
risks have increased, remained relatively stable or decreased over the past 12 months. The risks and uncertainties
described below are not intended to be an exhaustive list.
STRATEGY
AND
BUSINESS
RELATIONSHIPS
PEOPLE
ECONOMIC
AND
POLITICAL
IT
AND
CYBER
SECURITY
ENVIRONMENTAL
AND
HEALTH & SAFETY
Principal Risks
and Uncertainties
FINANCE
AND
TREASURY
LEGAL
AND
REGULATORY
COMPLIANCE
28
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Risk Area Potential Impact Mitigation/Controls Risk Trend
STRATEGY AND BUSINESS RELATIONSHIPS
Failure to adopt the
right business
strategy and/or
failure to implement
strategy
successfully
The Group misses its financial
targets or is unable to invest in
its businesses
Reduction in confidence of key
stakeholders (shareholders,
brand partners, lenders,
employees)
Poor investment decisions/
failure to achieve targeted
investment returns
Manufacturer
Relationships
Failure, or downturn in
performance, of manufacturer
partners impacting vehicle sales
and profitability of those
franchises
Failure to maintain good relations
with manufacturers impacting
revenue and profitability
Loss of a franchise leading to a
reduction in revenue and
profitability and the risk of vacant
properties and/or onerous leases
Poor manufacturer relationships
impacting acquisition and/or
growth opportunities
Annual strategy review by the Board
Monthly reporting and monitoring of key financial
information and performance
Detailed business planning and due diligence prior to
potential acquisitions
Review of capital expenditure plans to ensure our
return on capital objectives are achievable
Capital investment appraisal process with Board
review of major investments
Diversity of franchises mitigates the cyclical nature
of, and an over reliance on individual vehicle brands
Focus on efficient use of working capital
Ongoing portfolio management focused on
strengthening key franchise relationships/divestment
of non-core businesses
Diverse franchise representation avoids over reliance
on any single manufacturer
Close contact and regular review with manufacturers
(through CEO, Operations, Commercial and
Franchise Directors) to ensure our respective goals
are communicated, understood and aligned
Failure to integrate
acquisitions
successfully
Loss of key personnel/customers
Brand partner relationship
damage
Reduced financial performance
of acquired businesses
Failure to achieve targeted
synergies
Damage to manufacturer and/or
customer relationships
Detailed business planning and due diligence on
potential acquisitions
Integration plan developed prior to acquisition and
implemented in a timely manner thereafter
Group-wide single dealer management platform and
Phoenix management system implemented
immediately after acquisition
Implementation of Group policies and procedures.
Internal Audit verification of successful
implementation of Group processes post-acquisition
Disruption to
franchise business
model
Alternative business models
impacting franchised dealer
model
Direct sales channels
circumventing franchised dealers
Revenues and profits may fall
due to competitor action
‘Mobility as a service’ leading to
reduced private vehicle
ownership
Electric and alternative fuel
vehicles leading to a decline in
sales for traditional vehicle
manufacturers and/or reduced
demand for aftersales services
29
Ongoing development of customer experience to
ensure the Group maintains a competitive advantage
IT developments to maintain competitive advantage
(e.g. development of website/Phoenix management
system)
Maintaining close relationships with manufacturer
partners to ensure each party’s mutual aims are
achieved
Partnering with brands who are responding
effectively to the cleaner technology agenda
Connected car technology reinforces link between
customers and manufacturers through franchised
dealers
Annual strategy review
STRATEGIC REPORT
Risk Area Potential Impact Mitigation/Controls Risk Trend
ECONOMIC AND POLITICAL
Monitoring of economic conditions with appropriate
actions
Stock management & monitoring (56 day stocking
policy) with appropriately prudent financial provisions
Maintaining close relationships with manufacturers
Low level of net debt with facility headroom
Deterioration in
economic conditions/
consumer confidence
Increased inflation and falling consumer
confidence leading to lower vehicle
sales/margins and a reduction in
revenue and profitability
Reduction in used vehicle values
impacting stock values
Weakening Sterling impacting new
vehicle prices and sales
Manufacturers’ focus on the UK
automotive retail market may decline
leading to reduced output and sales
Interest rate rises impacting availability
and affordability of vehicle finance
Increased costs of servicing the
Group’s borrowings
UK’s withdrawal from
the European Union
(‘Brexit’)
Negative impact on UK economy:
increased inflation and falling consumer
confidence leading to lower vehicle
sales/margins and a reduction in
revenue and profitability
Monitoring of economic conditions with appropriate
actions taken
Impact of a deterioration in consumer confidence
mitigated by PCP renewal cycle (primarily in new car
market)
Reduction in used vehicle values
impacting stock values
Weakening Sterling impacting new
vehicle prices and sales
Manufacturers’ focus on the UK
automotive retail market may decline
leading to reduced output and sales
Potential regulatory changes may
impact franchising model in the UK
(including potential changes to EU
Block Exemptions)
‘No Deal’ Brexit significantly more
negative for automotive retail sector
than a managed exit with a UK-EU free
trade deal
Stock management and monitoring (56 day stocking
policy) with appropriately prudent financial provisions to
mitigate impact of falling vehicle values
Maintaining close relationship with manufacturers and
monitoring of manufacturers’ Brexit preparations
The Group is not a direct importer of vehicles and parts
from the EU; Extent of supply disruptions to the Group
and its customers in a ‘No Deal’ Brexit scenario will
depend on manufacturers’ ability to manage import
challenges
Diversity of the Group’s portfolio of brand partners which
includes UK, EU and ROW manufacturers
Increased Operating
Costs
Increased operating and non-
controllable costs (e.g. employment
costs, Apprentice Levy, business rate
changes, IT and marketing costs)
impacting profitability
Increased costs monitored and forecast in budgets.
Cost reduction and efficiency initiatives to offset
structural cost increases
FINANCE AND TREASURY
Liquidity & credit
Credit availability/withdrawal of financing
facilities impacting trading ability
Breach of covenants or inability to meet
debt obligations
Increased stock funding costs
Working capital management & cash flow monitoring
Committed RCF and vehicle stocking facilities
Maintaining strong relationships with funders
Low level of net debt
Vehicle residual values
volatility
Fluctuations in used vehicle values
adversely impacting the value of the
Group’s vehicle inventory
Stock management & monitoring (56 day stocking
policy)
Risk reduced following disposal of Marshall Leasing
30
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Risk Area Potential Impact Mitigation/Controls Risk Trend
LEGAL AND REGULATORY
Legal & Regulatory
Changes and
Compliance
Non-compliance with key legal and
regulatory codes (FCA, VOSA, ICO,
etc.) leading to fines, litigation,
authorisation suspension and/or
reputational damage
Group policies and procedures to minimise risk of
non-compliance
Training and development of employees
Compliance committees to monitor compliance
Regulatory intervention into the market
(e.g. FCA motor finance review) may
impact operations
Compliance Team strengthened
Internal Audit department strengthened
Monitoring of regulatory announcements/market
studies to assess potential changes and modifying
operations to adapt to any implemented changes
ENVIRONMENTAL AND HEALTH & SAFETY
Environmental and
Health & Safety
Failure to ensure colleagues and
customers safe places of work
leading to accidents, litigation,
fines and regulatory intervention
Non-compliance with
environmental laws &
regulations leading to fines,
penalties and compensation and
clean-up costs and disruption to
operations
Group health & safety policies and procedures to
promote safe places of work
EH&S audit programme across Group
Regular inspection of plant and equipment
Health & Safety team monitors compliance and
promotes a health and safety helps culture
Standing agenda item on main board and
operational board
Waste management procedures and employee
training
Environmental due diligence for new site acquisitions
with appropriate environmental insurance in place for
higher risk sites
IT AND CYBER SECURITY
Failure of key IT
systems
Loss of key information systems,
downtime and business
interruption
In-house IT team monitors systems and implements
upgrade programmes
Contingency and disaster recovery plans in place
IT steering committee and IT risk register maintained
to monitor risk
Ongoing investment in IT infrastructure maintenance
and upgrade
Cyber Security
PEOPLE
Failure to attract,
develop, motivate
and retain key
employees
Potential to corrupt, affect or
destroy key systems and data
(email, DMS & customer
records), denial of service
attacks and business interruption
leading to lost revenue
Unified threat management - Firewall installed
Clear protocols/policies in place regarding use and
access to the Group’s IT systems
Anti-virus software installed on all computers to
reduce risk of viral infections
Further investment in cyber security and systems
resilience
Loss of key personnel and
skilled workers (e.g. technicians)
impacting operational
performance, and relationships
with key brand partners and
suppliers
Appropriate remuneration packages which reward
performance and long term incentive plans for senior
employees
Guaranteed earnings scheme for new sales staff to
assist recruitment and retention
Promotion of “Great Place to Work” culture
31
GOVERNANCE
Board of Directors
1
2
3
4
1. Professor Richard Parry-Jones CBE
Non-Executive Chairman and Chair of the Nominations Committee
Richard has had a long and distinguished career in the automotive industry. He spent over 30 years in senior executive
positions at Ford Motor Company, including Group Vice President of Global Product Development and served as its Chief
Technical Officer for 10 years.
Richard’s non-executive career has included positions working with the Government as Co-Chair of the UK Automotive Council
and in infrastructure sectors as Chairman of Network Rail and Chairman of Kelda Group Holdings and Yorkshire Water. He
also served for 10 years as a non-executive director of GKN plc, a global leader in automotive and aerospace systems,
including the role of senior independent director. Richard’s other current roles include Visiting Professor at Loughborough
University and Chairman of the Faraday Challenge Advisory Board.
Richard joined the Board as Non-Executive Chairman in January 2019.
2. Daksh Gupta
Chief Executive Officer
Daksh has over 26 years’ experience in the automotive retail sector and joined the Company in 2008 as its Chief Executive
Officer. Daksh was a franchise director for Inchcape for seven years where he was responsible for the Volkswagen, Audi and
Mercedes-Benz brands. Daksh also served as Chief Operating Officer of Accident Exchange Group plc and prior to joining the
Group, was Group Managing Director for Ridgeway Group. Daksh was a director of Marshall of Cambridge (Holdings) Limited
until 2 April 2015 and is vice president of the UK automotive industry charity, BEN.
3. Richard Blumberger FCMA
Chief Financial Officer
Richard has a wealth of experience gained from senior finance roles with major UK public companies. Before joining Marshall,
Richard was Director of Group Finance at Mitie plc and previously held senior finance roles at Engie (formerly GDF Suez) and
Balfour Beatty plc. He has a strong understanding of multi-site businesses and a track record of strategic planning, profit
enhancement and extensive M&A experience.
Richard was appointed to the Board as Chief Financial Officer in January 2019.
4. Alan Ferguson
Senior Independent Director and Chair of the Audit Committee
Alan is a non-executive director of Johnson Matthey plc, Croda International plc and AngloGold Ashanti Limited. He chairs the
audit committees and is the senior independent director of both Johnson Matthey Plc and Croda International plc. Alan was
chief financial officer and a director of Lonmin plc until December 2010, prior to which he was group finance director of the BOC
Group plc. Alan spent 22 years in a variety of roles at Inchcape plc, including six years as its group finance director from 1999.
Alan is a chartered accountant and sits on the Business Policy Panel of the Institute of Chartered Accountants of Scotland.
Alan was appointed to the Board in March 2015.
32
Marshall Motor Holdings plc | Annual Report & Accounts 2018
5
6
7
8
9
5. Sarah Dickins
Non-Executive Director and Chair of the Remuneration Committee
Sarah has over 20 years’ HR experience across a broad range of sectors including retail, utilities and financial services. She
spent 16 years at Asda, five of those years as an operating board member responsible for people operations and customer
service for 150,000 colleagues. Sarah joined Provident Financial Group in 2012 as Executive People Director before becoming
Group People Director at Bourne Leisure Limited in 2015.
Sarah was appointed to the Board in March 2015.
6. Kathy Jenkins
Non-Executive Director
Kathy joined Marshall of Cambridge (Holdings) Limited in April 2017 as Group HR Director. Before joining Marshall, Kathy spent
14 years at Thales plc where she held a number of senior executive positions. She has also worked with Marconi plc.
Kathy was appointed to the Board in May 2018 as a nominated director of Marshall of Cambridge (Holdings) Limited.
7. Christopher Walkinshaw
Non-Executive Director
Christopher joined Marshall of Cambridge (Holdings) Limited in 1983 and has worked in all of the principal Marshall businesses,
including Marshall Aerospace, Marshall Land Systems and, from 1994 to 2011, Marshall Motor Holdings. Christopher joined the
senior team in Marshall of Cambridge (Holdings) Ltd in 2011 and has responsibility for external relations and communications.
Christopher is Chairman of the Regional Employers Engagement Group for the East Anglian Reserve Forces’ and Cadets’
Association, Chairman of No. 104 (City of Cambridge) Squadron Air Cadets, a director of the Cambridgeshire Chambers of
Commerce, a Trustee of the Addenbrooke’s Charitable Trust and a Member of Anglian Learning.
Christopher was appointed to the Board in July 2016 as a nominated director of Marshall of Cambridge (Holdings) Limited.
8. Francesca Ecsery
Non-Executive Director
Francesca has over 20 years’ directorship experience in both blue chip companies and start-ups in the digital, retail, fast-moving
consumer goods (FMCG) and leisure industries. She is a Harvard MBA, fluent in five languages and has special expertise in
multi-platform consumer marketing, branding and commercial strategies. Francesca is currently a non-executive director of listed
companies F&C Investment Trust plc and Share plc and was appointed as a non-executive director of Air France in May 2018.
She was previously a non-executive director of Good Energy Group plc until December 2017. Her previous executive experience
includes McKinsey, Pepsi Co, ThornEMI, Thomas Cook, STA Travel and many other consumer brands.
Francesca was appointed to the Board in March 2015.
9. Stephen Jones
Company Secretary
Stephen is a practising Solicitor and spent eight years as a corporate lawyer at Eversheds LLP. He also spent eight years as
Group Counsel and Company Secretary at Automotive and Insurance Solutions Group plc.
Stephen joined the Company in March 2015.
33
GOVERNANCE
Directors’ Report
The Directors present their Annual Report on the affairs of the Group, together with the financial statements and
Independent Auditor’s Report, for the year ended 31 December 2018 (the “Year”).
Principal Activities
The principal activity of the Company is that of a holding company. The principal activity of its subsidiary undertakings is
the sale and servicing of passenger cars and commercial vehicle and associated activities.
Results and Dividends
The results for the Year are set out in the Consolidated Statement of Comprehensive Income. The Directors recommend
the payment of a final dividend of 6.39p per ordinary share to be paid on 24 May 2019 to shareholders who are on the
Company’s register at close of business on 26 April 2019.
Business Review and Future Developments
The review of the business and likely future developments is included within the Strategic Report. This also includes details
of acquisitions, disposals and growth plans for the future.
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 of these financial
statements. For these reasons, they continue to adopt the going concern basis in the preparation of these financial
statements.
Directors
Details of the current directors are set out on pages 32 to 33. The directors who served during the Year and subsequently
are detailed below.
Current Directors – Non-Executive Directors
Richard Parry-Jones (Appointed 1 January 2019)
Alan Ferguson
Sarah Dickins
Francesca Ecsery
Kathy Jenkins (Appointed 23 May 2018)
Christopher Walkinshaw
Executive Directors
Daksh Gupta
Richard Blumberger (Appointed 2 January 2019)
Other Directors who held office during the Year
Peter Johnson (Resigned 31 December 2018)
Christopher Sawyer (Resigned 23 May 2018)
Mark Raban (Resigned 2 January 2019)
In accordance with the Articles of Association of the Company adopted on 12 March 2015 (the “Articles”), having been
appointed since the date of the last annual general meeting of the Company, Richard Parry-Jones, Kathy Jenkins and
Richard Blumberger will each retire by rotation and each offers themselves for reappointment at the annual general meeting
to be held on 21 May 2019 (the “AGM”).
The interests of the Directors and their immediate families in the share capital of the Company, along with details of
Directors share options and awards, are contained in the Directors’ Remuneration Report on pages 53 to 60.
Share Capital
The authorised and issued share capital of the Company, together with the details of shares issued during the Year are
shown in Note 28 to the financial statements. The issued share capital of the Company at 31 December 2018 was
77,865,653 ordinary shares of 64p each.
34
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Substantial Shareholdings
As at 11 March 2019, the Company had been notified of interests in excess of 3 per cent in the Company’s share capital
by the following shareholders:
Percentage of Existing
Name Number of Ordinary Shares Ordinary Shares Held
Marshall of Cambridge (Holdings) Limited 50,390,625 64.72%
Union Investments and Development Limited 7,005,839 9.00%
Polar Capital LLP 3,087,900 3.97%
Share Option Schemes
Details of employee share option schemes are set out in the Remuneration Committee Report and in Note 31 to the
consolidated financial statements.
Charitable and Political Donations
During the Year, the Group made the following charitable donations during the year: £8,000 (2017: £14,000).
No political contributions were made during the Year (2017: £nil).
Disabled Employees
The Group gives full consideration to applications for employment from disabled persons where the candidate’s particular
aptitude and abilities are consistent with adequately meeting the requirements of the job. Opportunities are available to
disabled employees for training, career development and promotion. Where existing employees become disabled, it is
the Group’s policy to provide continuing employment wherever practicable in the same or an alternative position and to
provide appropriate training to achieve this aim.
Employee Involvement
During the Year the policy of providing employees with information about the Group has been continued through the
newsletters ‘Marshall Matters’ and ‘Compliance Matters’, team briefings and through our global email network. Regular
meetings are held between local management and employees to allow a free flow of information and ideas. We also
participate in the Great Place to Work Institute’s employee engagement programme. Further details are set out in the
Corporate Social Responsibility Section of this Annual Report.
Anti-Bribery and Corruption
The Group has in place an anti-bribery and corruption policy, the aim of which is to ensure that colleagues understand
their obligations under anti-bribery legislation and includes authorisation and disclosure procedures around the provision
and receipt of corporate hospitality and gifts.
Disclosure of Information to Auditor
In so far as each of the persons who were Directors at the date of approving these financial statements is aware:
• There is no relevant audit information of which the Company’s auditor is unaware; and
• Each director has taken all steps that they ought to have taken to make themselves aware of any relevant audit
information and to establish that the auditor is aware of that.
Auditor
A resolution to appoint Ernst & Young LLP as auditor will be put to the members at the AGM.
AGM
Notice of the AGM to be held on 21 May 2019 will be sent to shareholders with a copy of this Annual Report and will be
made available on the Group’s website at www.mmhplc.com.
By order of the Board
Stephen Jones
Company Secretary
12 March 2019
35
GOVERNANCE
Corporate and Social Responsibility
Community
Striving to have a positive impact on
the communities in which we serve
MARSHALL MAKING A DIFFERENCE
Our values are incredibly important to us as they
determine how we should all behave. We encourage
colleagues to help us make a difference and stand out
from the crowd.
Whilst our focus is on creating an environment where
colleagues enjoy coming to work and help us to meet our
business objectives, we also believe it is important to give
back to our communities and the environment in which we
live.
Group Giving
We have been actively involved in supporting and raising
awareness for the Motor and Allied Trades Benevolent
Fund (‘BEN’) – since 1984. BEN is the UK’s dedicated
charity for those who work, or have worked, in the
automotive and related industries, as well as their
dependants. In that time, we have raised over £800,000
which includes the generous donations our colleagues
make via payroll giving.
CEO, Daksh Gupta, became a trustee and Vice President
of BEN in October 2012.
For the third year running we have run ‘BEN Week’ where
every Marshall business did something to raise money and
awareness for this charity. Colleagues dressed up, took
part in sporting challenges and other fun activities during
this awareness week. This was a tremendous team
building opportunity for colleagues, creating camaraderie
among each other as well as with our customers.
We have also supported Hats on 4 Mental Health for the
past two years. BEN launched this initiative to help raise
awareness of the mental health issues which people face
every day. We are committed to helping our colleagues
understand the importance of looking after their mental
health and provide various sources of support should they
need it.
We have supported the Macmillan Coffee Mornings for
many years which enables our businesses to get involved
at a local level, bringing colleagues and customers
together. We have raised over £116,000 for Macmillan
over this period.
We also support national initiatives such as Red Nose
Day, Children in Need, Wear it Pink for Breast Cancer and
Christmas Jumper Day for Save the Children. Each
dealership determines how they are going to support
these events. This generally involves having a lot of fun
and getting customers involved. For example, coming to
work in fancy dress or taking part in a daring challenge
such as head shaving or sitting in a bath of baked beans.
Local Giving
We encourage our colleagues to get involved with local
causes which support the communities in which they work.
By way of example, a small team of colleagues from head
office slept rough for a night to raise money and
awareness for the homeless charity Centrepoint raising
over £12,000.
‘Services in the Community’ is one of the categories
recognised as part of our Marshall Achievement, Values
and Teamwork Awards.
Whilst supporting BEN remains close to our hearts, giving
colleagues the opportunity to get involved with other good
causes is equally important.
People
Innovation
Recognising that
people are at the
heart of our success.
Maintaining competitive
edge through innovation
and creativity.
Integrity
Customers
Upholding the
highest standards of
integrity and fairness.
Putting our
customers
above all else.
36
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Hats on for World Mental Health Day
Marshall Senior Management Conference
37
Marshall sleepout for Centrepoint
GOVERNANCE
Colleagues
Committed to attracting, developing and
retaining the best talent to help drive our
business forward in line with our values
MARSHALL PEOPLE
Our Values
We seek to ensure our values are at the forefront of
everything we do. We encourage colleagues to uphold
these values and behave in a way that brings them to life
and supports our culture of being a great place to work,
delivering first class customer service.
Recruiting, retaining and developing our people
We have a clear Colleague Value Proposition to attract
the best talent and support our strategy to be an
employment destination. We use a range of tools and
assessment methods to ensure we recruit people who
can deliver their objectives in line with our values and
business strategy.
Every new colleague experiences a thorough induction
programme which incorporates our history, values, aims
and objectives as well as a structured programme of
training and coaching relevant to their role, the brand and
the team.
Our dedicated team of HR professionals support the
business, aided by policies and practices to ensure we
provide
the best support, benefits and career
opportunities to our colleagues.
Our bespoke Marshall Learning & Development
Academy provides opportunities for our colleagues to
realise their potential and support their development to
ensure they have a fulfilling career with us.
In addition, all new Sales Executives attend our
residential Sales Orientation Programme before starting
in their dealership. This is a rounded programme which
not only includes the technicalities of the role but
culturally what our customers should experience when
they interact with us. This programme has significantly
reduced our sales executive turnover since launching in
June 2016.
Recognising our people
Our recognition programmes are designed to support our
colleague engagement agenda. These programmes
include Apprentice of the Year Awards, Long Service
Events and awards for demonstrating our values.
Communicating with our people
We believe communication is the key to maintaining
colleague engagement and our employment brand. We
have an ethos of transparency and sharing news on a
regular basis including CEO communications, weekly
bulletins, our Colleague magazine, intranet and regular
team meetings.
Diversity and our people
We are committed to encouraging diversity and ensuring
that discrimination has no place in our business. We
want every colleague to feel respected and able to
perform to the best of their ability. We do not make
assumptions about a person’s ability to carry out his or
her duties based on ethnic origin, gender, sexual
orientation, marital status, religion or other philosophical
beliefs, age or disability.
We expect all our colleagues to act with integrity and
behave ethically in everything they do. To reinforce this,
we have the Marshall Code of Conduct which is
supported by an online programme which forms part of
every new colleague’s induction.
Engaging our people
Our employment policies and practices are consistent
with our values and culture, helping us to achieve our
business objectives through engaged people.
Since 2008 we have worked with the Great Place to
Work Institute’s Best Workplaces programme. This has
given us the opportunity to seek feedback from our
colleagues each year to measure levels of engagement
and drive continuous improvement.
Since 2010 we have achieved survey scores ahead of
the 70% UK benchmark which determines a great place
to work. In 2017 we achieved an overall score of 79%
with a participation rate of 80%. In April 2018 we were
proud to be ranked as a Best Large UK Workplace for
the fourth year in succession.
Our MAVTA programme (Marshall Achievement, Values
and Teamwork Awards) recognises colleagues who
demonstrate outstanding achievements in Customer
Service, Teamwork, Innovation, Leadership, Services in
the
and
Business
Environmental.
Community,
Excellence
38
Marshall Motor Holdings plc | Annual Report & Accounts 2018
39
GOVERNANCE
Health & Safety
Making Health & Safety an
integral part of Marshall’s day
to day operation
MARSHALL EMBRACING SAFETY
In 2018, we continued to increase the visibility of our Health,
Safety & Environmental (HSE) team across the business.
Targeted communications and visits to sites enable us to
adopt a consistent approach to health and safety for all
activities across our business.
Our HSE team aims to provide support and direction to all
sites by continually reviewing and improving our policies
and procedures, supporting and advising managers to
assist them in fulfilling their H&S responsibilities.
The team also provide access to first aider, fire warden and
risk assessor training.
Our first aiders and fire wardens are all volunteers who
undertake these roles in addition to their usual duties.
Monthly checks of first aid boxes, firefighting equipment and
emergency lighting, as well as weekly fire alarm tests are
just some of the additional tasks these colleagues
undertake on our behalf.
In addition, each of our sites has a trained risk assessor
who is responsible for ensuring that the site specific risk
assessments remain relevant and up to date for their site.
The HSE team also monitor, report and investigate all
incidents and where trends are identified an HSE Alert is
created and shared with all colleagues.
Planned preventive maintenance is organised by the HSE
team, working
in conjunction with our business
management teams and our approved contractors to
ensure all relevant inspections and any identified remedial
work is undertaken on time and certificated evidence is
available.
We track our Accident Frequency Rate (AFR) on a monthly
and annual basis. The AFR is the measure of the number
of accidents per 1m hours worked. The Motor Industry AFR
average is currently 14.2 (taken from HSE document ‘Injury
frequency rates’). Our AFR for 2018 was 8.67.
Environmental
Embracing our environmental
responsibilities
At Marshall we take our duty of care responsibilities very
seriously and as such work closely with our approved waste
contractor to provide a comprehensive collection and
processing service of our hazardous and non-hazardous
recyclable materials.
MARSHALL GOING GREEN
In 2018, our environmental focus has sharpened following
the arrival of our new Environmental Co-ordinator, who has
been working on increasing awareness across the business.
In 2018 96.2% of our hazardous waste materials, such as
engine oil, lead acid batteries, rags and absorbents were
recycled and recovered. This equates to over 1.2m kg of
waste which didn’t go to landfill.
We have engaged with our colleagues to reinvigorate
Marshall LEAF (Lowering Energy to Aid the Future) which
aims to lower the impact we have on the environment, by
holding a competition for children related to our colleagues
to create posters on saving energy and designing a new
logo or slogan.
This initiative complements our obligations to report under
Energy Savings Opportunity Scheme (ESOS) which is
designed to lead to greater energy efficiency, cost savings
and carbon reduction.
We use the information from the ESOS surveys when
developing our new dealerships as well as refurbishments
of existing sites.
All of our new-build dealerships have been built to BREEAM
"Very Good” rating. BREEAM is the world’s leading
environmental assessment method for buildings and sets
the standard for best practice in sustainable building design,
construction and operation and has become one of the most
comprehensive and widely recognised measures of a
building’s environmental performance.
Also in 2018, 68.2% of our dry mixed recycling waste
materials, such as paper, plastics, metals and cardboard,
were recycled and recovered. This equates to over 1.4m kg
of waste which didn’t go to landfill.
We work with our Brand partners to ensure compliance with
The Producer Responsibility Obligations (Packaging Waste)
Regulations the aim of which is to reduce the amount of
packaging waste that ends up in landfill.
Additionally, we work closely with water retailers and local
water authorities to ensure that where our operations
involve the discharge of waste water (e.g. valeting), we
have obtained the correct level of consent and that our
actions do not cause pollution via surface water drainage
and other water courses.
Finally, we work with the Environmental Protection Teams
at various councils across England to ensure we have the
relevant permits in place, under the Environmental
Permitting (England & Wales Regulations 2007) at those of
our dealerships which have a Bodyshop, or where we have
independent Bodyshop operations. This
includes
undertaking regular monitoring to ensure we remain
compliant with the limits set within the permits.
40
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Health and safety statistics 2018
Total number of incidents 180
Of which RIDDOR* reportable incidents 20
• Fatalities 0
• Specified Injuries 3
• Over 7 day absence 10
• Non workers (contractors, visitors, third parties) 2
• Occupational Disease 1
• Dangerous occurrences reported under RIDDOR* 1
Number of enforcement notices issued by HSE 0
Number of prohibition notices issued by HSE 1
*Reporting of Injuries, Dangerous Occurrences Regulations 2013
SUBSTANCES
Control of Substances
Hazardous to
Health (COSHH)
ENERGY
Reducing
energy
consumption
RECYCLING
Waste
and
recycling
Continually minimising the impact of our
operational activities on the environment
41
GOVERNANCE
Corporate Governance
PRINCIPLES OF CORPORATE GOVERNANCE
The Board recognises that applying sound governance principles in the running of the Group is essential. The Group has, since
its admission to AIM in April 2015, adopted the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies.
An explanation of how these principles are applied by the Group are set out in the table below and the remainder of this corporate
governance report.
APPLICATION OF THE QCA CORPORATE GOVERNANCE CODE
QCA Principle Application by the Group
1. Establish a strategy and
business model which
promote long-term value
for shareholders
2. Seek to understand and
meet shareholder needs
and expectations
The Group’s vision is to be the UK’s premier automotive retail group. This vision is
underpinned by five strategic pillars set by the Board: class leading returns; customer first;
retailing excellence; people-centric; and strategic growth.
The Group’s business model and strategy are set out both in its AIM Admission document
(which can be found on the Group’s website at www.mmhplc.com) and the Strategic Report
section of this Annual Report.
In addition, the principal risks and uncertainties identified by the Board to the successful
delivery of the Group's strategy, together with the principal controls in place to mitigate
those risks, are set out on pages 28 to 31 of this Annual Report. The Board reviews the
Group’s risk register at least twice a year as part of the annual and interim accounts
processes.
The Group is committed to maintaining good relations with all its shareholders through the
provision of interim and annual reports, other trading statements and its AGM.
The Chief Executive Officer and Chief Financial Officer also meet with the Group’s
institutional shareholders regularly to discuss the Group’s performance and business model
and strategy and feedback from these meetings is reported to the Board.
Each Board member attends the AGM where investors are invited to formally and informally
field questions and discuss their views with the Board.
In light of Marshall of Cambridge (Holdings) Limited’s (“MCHL”) aggregate shareholding in
the Group, on Admission the Group entered into a Relationship Agreement (“Relationship
Agreement”) with MCHL in order to regulate the relationship between MCHL and the Group
and enable the Group to act independently of MCHL and its affiliates. Under the terms of
this agreement, MCHL has the right, for so long as it owns 30% or more of the Ordinary
Shares in the capital of the Company, to appoint two directors to the Board and one director
to each of the committees of the Board, including the Audit, Remuneration and Nomination
Committee. The Relationship Agreement will terminate in the event that MCHL ceases to
own 30% or more of the ordinary shares in the capital of the Company. Further details of
the Relationship Agreement can be found on page 13 of the Group’s AIM Admission
Document.
42
Marshall Motor Holdings plc | Annual Report & Accounts 2018
QCA Principle Application by the Group
3. Take into account wider
stakeholder and social
responsibilities and their
implications for long-term
success
The Group recognises that its long-term success relies on maintaining and building strong
relationships with its various stakeholders, including in particular, its customers,
shareholders, suppliers and employees.
As a franchise partner to global automotive manufacturers, the Group is focused on building
and maintaining excellent brand partner relationships. The Group’s recent success and
growth has been achieved as a result of strong and growing relationships with its brand
partners. The Group has also invested in long-term strategic partnerships with other key
suppliers, many of whom have worked with the Group over many years.
The Group is committed to maintaining good employee relationships and employs a range of
recruitment, communication and employee engagement initiatives designed to attract, recruit
and retain employees. Further details of the Group’s employee engagement programme are
set out in the Corporate and Social Responsibility section of this Annual Report.
The Group’s participation in the Great Place to Work Institute’s Best Workplaces programme
provides an effective means to seek feedback from colleagues each year and to measure
levels of engagement and drive continuous improvement.
The Group also recognises the potential impact of its operations on the environment and
examples of how the Group seeks to minimise that impact are set out in the Corporate and
Social Responsibility section of this Annual Report.
4. Embed effective risk
The principal elements of the Group’s system of internal control are set out on page 47.
management considering
both opportunities and
threats, throughout the
organisation
5. Maintain a well-functioning,
balanced team led by the
Chair
6. Ensure that between them
the Directors have the
necessary up-to-date
experience, skills and
capabilities
In addition, the principal risks and uncertainties the Board believes could have the most
significant adverse impact on the Group’s business, together with the principal controls in
place to mitigate those risks, are set out on pages 28 to 31.
The Chairman is responsible for leading the Board and its governance arrangements.
The Group currently has eight directors, of which four are independent non-executives (being
Richard Parry-Jones, Alan Ferguson, Sarah Dickins and Francesca Ecsery). Details of the
directors, including their roles, committee memberships, skills and experience and are set out
on pages 32 to 33 and their attendance record in the last financial year is set out on page 45.
Details of the Group’s Board Committees, being the Audit Committee, Remuneration
Committee and Nominations Committee, are set out below.
As stated above, under the terms of the Relationship Agreement, MCHL is entitled to appoint
two nominated directors to the Board, so long as it holds 30% or more of the Company’s ordinary
shares. Christopher Walkinshaw and Kathy Jenkins are the two nominated directors of MCHL.
The Board is satisfied that it has a suitable balance between independence and knowledge
of the Group to enable it to discharge its duties and responsibilities effectively. The
Nomination Committee is responsible for reviewing the Board’s balance and membership.
Details of each Board member’s experience, skills and qualifications are set out on pages
32 and 33 of this Annual Report.
All Directors are able to take independent professional advice, if necessary, at the
Company’s expense. In addition, the Directors have direct access to the advice and services
of the Company Secretary, a qualified solicitor.
The Board considers that collectively, it has the necessary experience, skills and capabilities
to discharge its duties effectively.
43
GOVERNANCE
QCA Principle Application by the Group
7. Evaluation of Board
performance
The Non-Executive Directors meet each financial year without the presence of the Executive
Directors, during which the performance of Executive Directors is assessed and without the
presence of the Chairman (to assess the performance of the Chairman).
The Board intends to commence a formal Board evaluation process in 2019 which will
include a review of development and mentoring needs of the Group’s management team.
8. Promote a culture based on
ethical values and
behaviours
The Group has clear and defined values based on people, innovation, integrity and
customers.
9. Maintain governance
structures and processes
that are fit for purpose and
support good decision-
making by the Board
10. Communicate how the
Group is governed and is
performing by maintaining
a dialogue with
shareholders and other
relevant stakeholders
These values are embedded in the Group’s internal systems and controls (including its
whistleblowing, anti-corruption and modern slavery policies) and in its HR policies which,
collectively define how it behaves as a Group.
Further details of our approach to embedding these values are set out in the Corporate and
Social Responsibility section of this Annual Report.
Details of the Group’s principal governance structures, including the Board and its
committees are set out below. In addition, pages 48 to 60 contain reports from the Audit and
Remuneration Committees which set out their key areas of responsibility and activities.
The Board considers that the Group’s governance structures and processes are fit for
purpose and support good decision making by the Board.
The Group communicates with shareholders through its Annual Report and Accounts,
annual and interim announcements, the AGM and individual meetings with shareholders.
Key corporate information (including all Group announcements and presentations) is
available on the Group’s website at www.mmhplc.com.
The Board receives regular updates on shareholders’ views through briefings from the Chief
Executive Officer, Chief Financial Officer and the Group’s brokers. In addition, both the
Chairman and the Senior Independent Director are available to meet on an ad hoc basis
with the Group’s principal shareholders.
The Group communicates with its institutional investors through briefings with management
at least twice a year, coinciding with the Group’s annual and interim results and at other
times during the year. In addition, analysts’ notes and brokers’ briefings are reviewed to
provide insight into investors’ views of the Group, its strategy and performance.
44
Marshall Motor Holdings plc | Annual Report & Accounts 2018
THE BOARD
The table below sets out details of all Directors who have served during the Year and their membership of Board Committees.
This includes details of each member’s attendance at the ten board meetings held during the Year. There are separate attendance
statements in respect of the Audit and Remuneration Committees on pages 48 and 53.
Director
Date appointed
Role
Committees
(C = current chair)
2018 Board
attendance
Peter Johnson
27 June 2014
Non-Executive Chairman
Nomination Committee (C)
Alan Ferguson
11 March 2015
Senior Independent Director
Francesca Ecsery
25 March 2015
Independent Non-Executive
Sarah Dickins
11 March 2015
Independent Non-Executive
Christopher Sawyer* 2 April 2015
Non-Executive
Audit Committee (C)
Remuneration Committee
Nomination Committee
Audit Committee
Remuneration Committee
Nomination Committee
Audit Committee
Remuneration Committee (C)
Nominations Committee
Audit Committee
Remuneration Committee
Nomination Committee
10/10
10/10
10/10
10/10
**4/10
Christopher
Walkinshaw*
12 July 2016
Non-Executive
Audit Committee (from May 2018) 10/10
Nomination Committee
Kathy Jenkins*
23 May 2018
Non-Executive
Remuneration Committee
(from May 2018)
Nomination Committee
(from May 2018)
Daksh Gupta
1 October 2008
Chief Executive Officer
Mark Raban
2 April 2015
Chief Financial Officer
n/a
n/a
**5/10
10/10
10/10
* Christopher Walkinshaw and Kathy Jenkins are nominated directors of Marshall of Cambridge (Holdings) Limited. Christopher
Sawyer was also a nominated director of Marshall of Cambridge (Holdings) Limited until his retirement from the Board on 23
May 2018.
** Christopher Sawyer retired from the Board and Kathy Jenkins was appointed to the Board, on 23 May 2018.
Peter Johnson resigned from the Board on 31 December 2018. Subsequent to the year end, Richard Parry-Jones was appointed
to the Board as Non-Executive Chairman on 1 January 2019. Mark Raban resigned from the Board on 2 January 2019 and
Richard Blumberger was appointed to the Board as Chief Financial Officer on the same date.
Board decisions are generally on matters of strategy (including acquisitions and disposals), policy, people, performance, budgets
and significant capital expenditure. Each director receives information on matters to be discussed (including Board reports from
the Chief Executive Officer, Chief Financial Officer and Company Secretary) in advance of each Board meeting to ensure that
there is a full debate at Board level and in particular so that the non-executive directors can contribute fully.
The Board has formally reserved specific matters for its determination and has approved terms of reference for all Board
Committees.
All directors have access to independent professional advice, if they have the need to seek it. There is an induction process for
new directors and training is available when required.
45
GOVERNANCE
Chairman, Chief Executive Officer and Senior Independent Director
Richard Parry-Jones is Non-Executive Chairman and the Chief Executive Officer is Daksh Gupta. There is a formal division of
responsibilities between the Chairman and the Chief Executive Officer. The Senior Independent Director is Alan Ferguson.
Board Balance
The Company currently has eight directors, of which four are independent non-executives.
Under the terms of a Relationship Agreement (“Relationship Agreement”) with Marshall of Cambridge (Holdings) Limited (“MCHL”)
(details of which are set out below), MCHL is entitled to appoint two nominated directors to the Board, so long as it holds 30% or
more of the Company’s ordinary shares. The current MCHL-nominated directors are Christopher Walkinshaw and Kathy Jenkins.
Performance Evaluation
The Non-Executive Directors have met without the presence of the Executive Directors, during which the performance of executive
directors was assessed. The Board intends to conduct a formal evaluation of its performance in the coming year.
Re-appointment of Directors
In accordance with the Articles, having been appointed since the date of the last annual general meeting of the Company, Richard
Parry-Jones, Kathy Jenkins and Richard Blumberger will each retire by rotation and each offers themselves for reappointment
at the AGM to be held on 21 May 2019. In addition, the Notice of AGM sets out those directors who are retiring by rotation in
accordance with the Articles and are offering themselves for re-election at the AGM.
BOARD COMMITTEES
Nomination Committee
The Company has established a Nomination Committee which comprises Richard Parry-Jones (Chair of the Committee), Alan
Ferguson, Sarah Dickins, Francesca Ecsery, Christopher Walkinshaw and Kathy Jenkins.
The Nomination Committee is responsible for reviewing the structure, size and composition of the Board, preparing a description
of the role and capabilities required for a particular appointment and identifying and nominating candidates to fill Board positions
as and when they arise. The Nomination Committee met on a number of occasions during the Year to discuss the appointment
of the new Chairman following the announcement that Peter Johnson planned to retire and the appointment of the new Chief
Financial Officer, following the resignation of Mark Raban.
Audit Committee
The Company has established an Audit Committee, which comprises Alan Ferguson (Chair of the Committee), Sarah Dickins,
Francesca Ecsery and Christopher Walkinshaw. Further information on the Audit Committee is set out on pages 48 to 50.
Remuneration Committee
The Company has established a Remuneration Committee which comprises Sarah Dickins (Chair of the Committee) Alan
Ferguson, Francesca Ecsery and Kathy Jenkins. Further information on the Remuneration Committee is set out on pages
51 to 60.
RELATIONS WITH SHAREHOLDERS
The Group is committed to maintaining good relations with all its shareholders through the provision of Interim and Annual Reports,
other trading statements and the Annual General Meeting. The Group also meets with its institutional shareholders regularly.
In light of MCHL’s aggregate shareholding in the Group, on Admission the Group entered into the Relationship Agreement with
MCHL in order to regulate the relationship between MCHL and the Group and enable the Group to act independently of MCHL
and its affiliates. Under the terms of this agreement MCHL has the right, for so long as it owns 30% or more of the Ordinary
Shares in the capital of the Company, to appoint two directors to the Board and one director to each of the committees of the
Board, including the Audit, Remuneration and Nomination Committee. The Relationship Agreement will terminate in the event
that MCHL ceases to own 30% or more of the ordinary shares in the capital of the Company.
Further details of the Relationship Agreement can be found in the Group’s AIM Admission Document which is available on the
Group’s website at www.mmhplc.com.
46
Marshall Motor Holdings plc | Annual Report & Accounts 2018
ANNUAL GENERAL MEETING
The Annual General Meeting provides an opportunity for all shareholders to be updated on the Group’s progress and ask questions
of the Board.
FINANCIAL REPORTING
The Board has ultimate responsibility for both the preparation of accounts and the monitoring of systems of internal financial
control. The Board seeks to present a fair, balanced and understandable assessment of the Group’s position and its prospects
and present price-sensitive information in an appropriate way.
INTERNAL CONTROL
The Board has ultimate responsibility for the Group’s system of internal control and for reviewing its effectiveness. However, any
such system of internal control can provide only reasonable but not absolute, assurance against material misstatement or loss.
The Board considers that the internal controls in place are appropriate for the size, complexity and risk profile of the Group.
The principal elements of the Group’s internal control system include:
• management of the day to day activities of the Group by the Executive Directors; aided by the Group’s bespoke management
information system, Phoenix 2;
an organisational structure with defined levels of responsibility;
a forecasting process at each quarter end;
an annual budgeting process which is approved by the Board;
detailed weekly and monthly reporting of performance against budget and the prior year using Cognos;
central control over key areas such as capital expenditure authorisation, contracts and financing facilities;
formal accounting policies and procedures which are regularly reviewed and publicised in the business;
an Internal Audit department which monitors compliance of Group processes and procedures and whose programme of
work is overseen by the Audit Committee;
a Compliance team to assess and monitor the Group’s compliance with its regulatory responsibilities with a particular focus
on compliance with FCA and data protection requirements.
•
•
•
•
•
•
•
•
The Group continues to review its system of internal control to ensure compliance with best practice, whilst also having regard
to its size and the resources available.
The principal risks and uncertainties identified by the Board are set out on pages 28 to 31.
By order of the Board
Stephen Jones
Company Secretary
12 March 2019
47
GOVERNANCE
Audit Committee Report
Alan Ferguson
Senior Independent Director and
Chair of the Audit Committee
Audit Committee Members
The Group’s Audit Committee currently comprises myself,
Sarah Dickins, Francesca Ecsery and Christopher
Walkinshaw, who joined the Committee on 23 May 2018
following the retirement of Christopher Sawyer from the Board
and the Committee.
With the exception of Christopher Walkinshaw (given his
position as a nominated director of MCHL), all members of the
Audit Committee are considered to be independent.
It is considered that the Audit Committee possesses the
necessary skills and experience to fulfil its responsibilities
effectively with its members, through their other business
activities, having a wide range of financial and commercial
expertise. In particular, as set out on page 32, my background
was as an experienced Finance Director serving on the
boards of a number of large companies throughout my
executive career. I am the current chair of the audit
committees of Johnson Matthey Plc and Croda International
Plc and was the chair of the audit committee of The Weir
Group Plc until April 2018.
Audit Committee Responsibilities
The Audit Committee’s principal responsibilities are to:
• monitor
the
integrity of
the Company’s
financial
statements (including its annual and interim reports,
interim management statements results’ announcements
and any other formal announcement relating to its
financial performance);
• make recommendations to the Board in relation to the
appointment of the external auditor and oversee the
relationship with the external auditor including approving
the annual audit plan, assessing audit quality,
effectiveness and approving the audit fee.
The Audit Committee’s responsibilities, its procedures and its
authority are set out in formal terms of reference approved by
the Board.
Audit Committee Meetings
The Audit Committee has an annual agenda of matters to be
considered and is scheduled to meet three times each year
and at any other time when it is appropriate to consider and
discuss audit and accounting related issues.
During the Year, the Audit Committee met formally three times,
each member’s attendance at those meetings being set out
below:
Committee
Member
Role
Attendance
record
whilst a
Committee
Member
Alan Ferguson
Chair of the Committee
Sarah Dickins
Non-Executive Director
Francesca Ecsery
Non-Executive Director
3/3
3/3
3/3
Christopher Sawyer Non-Executive Director
*1/1
review significant financial reporting issues, judgements
and estimates as described in Note 4 to the financial
statements;
Christopher
Walkinshaw
Non-Executive Director
**2/2
keep under review the effectiveness of internal controls
and risk management systems;
* Retired on 23 May 2018
** Appointed on 23 May 2018
•
•
•
review arrangements for its employees to raise concerns,
in confidence, about possible wrongdoing in financial
reporting or other matters;
• monitor and review the effectiveness of the internal audit
function, review and approve the internal audit function’s
planned work and meet privately with the head of internal
audit without the presence of management; and
Audit Committee meetings are also attended (at the discretion
and invitation of the Committee Chair) by the Chairman,
Non-Executive and Executive Directors, the Head of Internal
Audit and representatives of the Company’s external auditor.
Between the end of the Year and the date of this report, there
were two further meetings of the Audit Committee which were
attended by all members.
48
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Activities During the Period
During the period since the last annual report to the date of
this report, the Audit Committee has:
•
•
•
•
•
•
reviewed its terms of reference and operated in
accordance with an annual agenda of matters to be
considered by it;
reviewed the key accounting judgements and estimates
and going concern assessment in connection with the full
year and interim results announcements;
reviewed and after challenge, approved the external
auditor’s audit plan for 2018, including their proposed fee
and statement of independence. The Audit Committee
also reviewed the quality of the external audit and
recommended the re-appointment of the external auditor;
reviewed non audit fees paid to the external auditor in the
Year. These fees totalled £36,000 and related solely to
the review of the Group’s interim results;
considered the potential impact of future changes to
accounting standards, in particular IFRS 9 and IFRS 16;
considered the recommendations of the Financial
Reporting Council following its thematic review of the
Group’s 2017 financial statements and in particular
the
implemented
disclosure of the allocation of goodwill and intangible
assets by CGU in these financial statements. It is noted
that the FRC’s review only covered specific disclosures
relating to its thematic review;
recommendations
regarding
its
•
•
•
•
considered and subsequently recommended the taking
of an exemption from an audit pursuant to S.479A
Companies Act 2006 in respect of the year ending
31 December 2018 for certain subsidiary companies as
set out in Note 2 to the consolidated financial statements.
approved the programme of work for internal audit in 2018
and considered the output of that work. In addition, it
approved the internal audit plan for 2019;
considered the Group’s risk management process and its
effectiveness; and
reviewed the Company’s arrangements to enable
employees to raise concerns about possible improprieties
confidentially including the use of an independent
organisation to provide a confidential ‘whistleblowers’
hotline.
The Committee receives reports from executive directors and
also receives reports from, and periodically meets with the
external auditor and the head of internal audit in the absence
of management. In addition, as chair of the Audit Committee,
I also meet with the external and internal auditor outside of the
formal meetings.
Audit issues considered by the Committee
The Audit Committee has considered areas of significant complexity, management judgement and estimation applied in the
preparation of the Group’s financial statements for the year ended 31 December 2018. In addition, the Audit Committee discussed
with the Company’s external auditors those areas of audit focus described in the Independent Auditor’s Report on pages 62 to 71.
Set out below are the key audit risks and judgements considered by the Audit Committee together with the Committee’s conclusions:
Audit Risks Considered Audit Committee’s Review and Conclusions
Valuation of inventory
The Group recognises a provision for its vehicle
inventory. When determining an appropriate
provision, management judgement is required to
assess and make reasonable assumptions to
determine the net realisable value of the Group’s
vehicle inventory.
The Audit Committee reviewed the Group’s inventory provision in the light
of external industry data, the inventory profile and the movement in the
provision in the period. The Audit Committee discussed this analysis with
management and with the external auditor.
Conclusion:
The Committee concluded that the judgements and assumptions applied
to assess inventory valuation and calculate the net realisable value of the
Group’s vehicle inventory were appropriate.
The Audit Committee also noted that, overall, the assumptions used were
consistent with those applied in previous years.
49
GOVERNANCE
Audit Risks Considered Audit Committee’s Review and Conclusions
Valuation and possible impairment of goodwill
and other intangible assets
As disclosed in Note 15 ‘Goodwill and Other
Intangible Assets’ to the financial statements, the
Group has goodwill and indefinite-life intangible
assets arising from acquisitions of businesses
totaling £112.2m. These assets are assessed for
impairment every six months.
Assessment for impairment involves comparing the
carrying value of the asset with its recoverable
amount (the higher of value-in-use and fair value
less costs to sell). Value-in-use is determined with
reference to projected future cash flows discounted
at an appropriate rate.
Both the cash flows and the discount rate involve a
significant degree of estimation, uncertainty as well
as judgemental assessments of the future brand
performance of individual vehicle manufacturers.
Recognition and valuation of provisions
As disclosed in Note 24 ‘Provisions’ to the financial
statements, the Group has provisions totalling £7.9m
consisting largely of property provisions and a
provision for the costs of exiting the defined benefit
pension scheme.
Provisions are, by their nature, judgemental and
involve estimates of likely outcomes and an
assessment of the likelihood of future events
occurring. When determining the recognition and
quantification of a provision, management are
required to make assumptions and estimates which
may materially influence the financial statements.
income
from volume
Revenue recognition
The Group’s core revenue streams are new and
used car sales, parts sales and servicing. The Group
also derives
incentive
arrangements with suppliers. Given the business
focus on sales targets and incentives and the
complexity and varied nature of the supplier incentive
schemes, together with the materiality of these
revenues for the Group, revenue recognition
represents an area of focus for the Audit Committee.
The Audit Committee reviewed management’s process for reviewing and
testing goodwill and other intangible assets for potential impairment. The
Audit Committee also considered the adequacy of the disclosures in the
Group’s financial statements in respect of the allocation of goodwill and
intangible assets to CGUs, as well as in relation to key assumptions and
sensitivities.
The external auditor also independently reviewed management’s estimate
of value-in-use, including challenging management’s underlying cash flow
projections, long-term growth assumptions and discount rates.
Conclusion:
The Audit Committee concluded that the judgements and assumptions
applied when determining the £9.3m impairment were appropriate and
reasonable.
The Audit Committee pays particular attention to management’s estimates
and judgements in this area. Based on detailed reports and through
discussion with both management and the Group’s external auditor, the
Audit Committee reviewed and assessed the basis and level of provisions.
Conclusion:
The Audit Committee concluded that the judgements and assumptions
applied to assess whether to recognise a provision and to estimate the
amounts to be recognised, were reasonable and appropriate.
The Audit Committee also noted that, where relevant, the assumptions
used were consistent with those applied in previous years.
The Audit Committee has reviewed the work of the external and internal
auditors in this area and noted any deviation from the Group’s revenue
recognition policy.
Conclusion:
Sales are individually immaterial, and the Audit Committee and based on
the review work undertaken, did not consider revenue recognition to be a
material fraud risk for the Group.
Alan Ferguson
Chair of the Audit Committee
12 March 2019
50
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Remuneration Committee Report
Sarah Dickins
Non-Executive Director and
Chair of the Remuneration Committee
I am pleased to present, on behalf of the Board, the
Remuneration Committee’s (the “Committee”) Remuneration
Report providing details of the remuneration of the Directors
for the Year and of our remuneration policy and principles.
Remuneration policy
The Committee regularly reviews its remuneration policy to
ensure it supports achievement of the Company’s short-term
financial goals and longer-term strategic objectives, including
transformational activity such as the acquisition of SG Smith
in 2015, Ridgeway in 2016 and the disposal of Marshall
Leasing Limited in 2017. Although not bound by the same
regulation as main market listed companies, including the
requirement to put remuneration policy to shareholder vote at
least every three years, the Committee continues to monitor
developments in regulation, governance and best practice,
including the recently updated UK Corporate Governance
Code and considers the current remuneration policy
appropriate to the Company’s circumstances.
Key Committee decisions and remuneration outcomes
for the period to 31 December 2018
As outlined in the Operating Review, the Company has
continued its excellent track record of performance in 2018.
Financial highlights include like-for-like revenue growth of
1.2% and continuing underlying PBT of £25.7m representing
an increase of 1.2% versus 2017.
Annual bonus opportunity and Performance Share Plan
(“PSP”) opportunities for both Daksh Gupta and Mark Raban
remained the same as the previous year.
Annual bonus opportunity during 2018 was based on the
achievement of underlying PBT targets with bonuses of 96.3%
of maximum awarded to the Chief Executive and Chief
Financial Officer respectively in respect of performance in the
year ended 31 December 2018.
The Executive Directors also received an award under the
Company's Performance Share Plan (‘PSP’) which is subject
to demanding three year EPS targets. Subject to the
performance condition being met, PSP awards will vest on the
third anniversary of grant with any vested shares required to
be held for a further 12 months post vesting.
51
On 3 July 2018, we announced that Mark Raban intended to
step down as Chief Financial Officer. In role since 2014, Mark
played a pivotal role in the Group’s IPO in 2015, the successful
acquisitions of SG Smith in 2015, Ridgeway in 2016, and the
disposal of Marshall Leasing Limited in 2017. Despite Mark
notifying his intention to step down in July, he remained
committed to the business throughout 2018 whilst a successor
was appointed and has remained available to support the
business if and when required. The Committee therefore
considered him eligible to participate in the 2018 annual
bonus.
Further, taking into account Mark’s contribution during his
tenure, the Committee has exercised its discretion to permit
the final tranche of his 2015 IPO Performance Awards to vest
on 2 April 2019 and that subject to pro-rating for time and
achievement of the attaching EPS performance target, his
2016 PSP award will continue to its ordinary vesting date of
13 June 2019. All other PSP awards made to Mark have
lapsed. On behalf of the Committee, we thank Mark for his
valuable contribution to the business and wish him well in
the future.
We welcomed Richard Blumberger as our new Chief Financial
Officer on 2 January 2019. Richard joins on the same base
salary as the outgoing Chief Financial Officer and will be
eligible to participate in the 2019 annual bonus plan and
receive a PSP award in 2019 as per the terms of current
remuneration policy.
As we announced in December 2018, Professor Richard
Parry-Jones CBE was appointed Non-Executive Chairman
effective 1 January 2019 following the retirement of Peter
Johnson on 31 December 2018. Richard was appointed on
the same fee as the outgoing Chairman of £135,500 per
annum.
to
for
the year
remuneration decisions
Key
31 December 2019
The Committee continues to believe that the remuneration
policy remains appropriate and having reviewed the base
salary for the Chief Executive Officer in the context of increases
for the wider workforce, the Committee has approved an
increase of 2%. The new Chief Financial Officer will not be
receiving an increase due to having only recently been
appointed. The maximum annual bonus potential for 2019 will
be 125% of salary for the CEO and 100% of salary for the CFO
based on PBT in line with the stretching business plan.
GOVERNANCE
The Committee intends to make awards in 2019 under the
PSP subject to a maximum of 125% of salary in respect of the
Chief Executive Officer. The Chief Financial Officer will receive
100% of salary on the same basis as his predecessor. Any
shares awarded this year to Executive Directors that vest
under the PSP must be retained for a further year before they
can be sold.
Conclusion
The directors’ remuneration policy which follows this annual
statement sets out
the Committee’s principles on
remuneration for the future and the annual report on
remuneration provides details of remuneration for the period
ended 31 December 2018. The Committee will continue to be
mindful of shareholder views and interests, and we believe
that the Directors’ remuneration policy is aligned with the
achievement of the Company’s business objectives.
Sarah Dickins
Chair of Remuneration Committee
12 March 2019
52
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Directors’ Remuneration Report
REMUNERATION GOVERNANCE
Throughout the period 1 January 2018 to 31 December 2018,
the Committee comprised three independent Non-Executive
Directors: Sarah Dickins (Chair of the Committee), Alan
Ferguson and Francesca Ecsery alongside Christopher
Sawyer who was an appointed representative of MCHL until
23 May 2018 when he was replaced by Kathy Jenkins.
The table below sets out each member’s attendance record
at Committee meetings during the financial year.
Committee
Member
Role
Attendance
record
Sarah Dickins
Chair of the Committee
Alan Ferguson
Non-Executive Director
Francesca Ecsery
Non-Executive Director
Christopher Sawyer
Kathy Jenkins
Non-Executive Director
(resigned 24 May 2018)
Non-Executive Director
(appointed 24 May 2018)
4/4
4/4
3/4
2/2
2/2
The Chair, members of the management team, as well as the
Committee’s advisers, are invited to attend meetings as
appropriate, unless there is any potential conflict of interest.
The Remuneration Committee: Responsibilities
The terms of reference of the Committee cover such issues
as: committee membership; frequency of meetings; quorum
requirements; and the right to attend meetings. In addition, the
Committee has responsibility for, amongst other things:
• making recommendations to the Board on the Company’s
policy on remuneration for the Group;
•
•
•
•
determining and monitoring specific remuneration
packages for the Chairman, each of the Executive
Directors and certain senior management in the Group,
including pension
rights and any compensation
payments;
recommending and monitoring the level and structure of
remuneration for senior management;
recommending and overseeing the implementation of
share related schemes, including scheme grants; and
ensuring the Committee has access to independent
for
remuneration advice
appointing a suitably qualified adviser.
responsibility
including
The Board remains responsible for the approval and
implementation of any recommendations made by the
Committee. The remuneration of Non-Executive Directors
other than the Chairman is determined by the Chairman of the
Board and the Executive Directors.
The Committee’s Advisers
The Committee engages external advisers to assist it in
meeting its responsibilities and has retained Willis Towers
Watson to provide independent remuneration advice to the
Committee. Willis Towers Watson are a signatory to the
Remuneration Consultants’ Code of Conduct, and the
Committee is satisfied that the advice that it receives is
objective and independent.
REMUNERATION POLICY
The overall aim of our remuneration policy is to provide
appropriate incentives that reflect the Group’s performance
culture and values, through a number of specific remuneration
components (detailed in the table on the following pages). In
summary, we aim to:
•
•
•
•
attract, retain and motivate high calibre, senior
management and to focus them on the delivery of the
Group’s strategic and business objectives;
set base pay having had due regard to the competitive
talent market in which the Company operates with
incentive pay structured so that top quartile pay can be
achieved for top quartile performance;
be simple and understandable, both externally and to
colleagues; and
achieve consistency of approach across the senior
management population to the extent appropriate.
In determining the practical application of the policy, the
Committee considers a range of internal and external factors,
including pay and conditions for employees generally,
shareholder feedback, and appropriate market comparisons
with remuneration practices in FTSE-listed, AIM-listed and
other automotive-based companies.
The Committee is satisfied that this policy successfully aligns
the interests of Executive Directors, senior managers, and
other employees with the long-term interests of shareholders,
total
by ensuring
remuneration is directly linked to the Group’s performance
over both the short and the long term.
that an appropriate proportion of
53
GOVERNANCE
REMUNERATION POLICY (continued)
Future Policy Table
The main elements of the remuneration package of Executive Directors are set out below:
Purpose and link to
strategy
BASIC SALARY
Operation
Maximum opportunity
Performance metrics
Attract and retain high calibre
Executive Directors to deliver
strategy.
Paid in 12 equal monthly
instalments during the year.
ANNUAL BONUS
Incentivises achievement of
by
business
for
providing
performance against annual
financial targets.
objectives
reward
Paid in cash after the end of
the financial year to which it
relates.
Recovery and withholding
provisions apply.
Reviewed annually to reflect
and
responsibility
role,
performance of the individual
and the Group, and to take
into account rates of pay for
comparable roles in similar
companies. When selecting
comparators, the Committee
has regard to, inter alia, the
Group’s revenue, profitability,
market worth and business
sector. There is no prescribed
maximum increase. Annual
rates are set out in the annual
report on remuneration for the
current year and the following
year.
It is the policy of the committee
to cap maximum annual
bonuses. The levels of such
caps are reviewed annually
and are set at an appropriate
percentage of annual salary.
Currently the maximum bonus
is 125% of base salary in
respect of the Chief Executive
Officer and 100% in respect of
the Chief Financial Officer.
None.
Performance
is normally
measured over one year,
financial
based solely on
targets (e.g. profit before tax).
The Committee sets threshold
and maximum targets on an
annual basis.
threshold
A sliding scale operates
between
and
maximum performance. No
is payable where
bonus
performance is below the
threshold.
Payment of any bonus is
subject
the overriding
discretion of the Committee
to
54
Marshall Motor Holdings plc | Annual Report & Accounts 2018
REMUNERATION POLICY (continued)
Future Policy Table (continued)
Purpose and link to
strategy
Operation
Maximum opportunity
Performance metrics
LONG-TERM INCENTIVES – MMH PERFORMANCE SHARE PLAN
Alignment of interests with
shareholders by providing
long-term incentives designed
to incentivise and recognise
execution of the business
strategy over the longer-term.
BENEFITS
Provide benefits consistent
with role and in support of
the personal health and
well-being of employees.
PENSION
Attract and retain Executive
Directors for the long term by
for
providing
retirement.
funding
Grant of £nil cost options
the PSP. Options
under
normally vest 3 years from
grant
the
achievement of performance
conditions and continued
employment.
subject
to
A 12 months post-vesting
holding period applies for
awards made from 2016.
A dividend equivalent applies.
Recovery and withholding
the
provisions apply at
discretion of the Committee
within three years of vesting.
Currently these consist of
holiday entitlement, health
life assurance
insurance,
income
and
premiums
protection
insurance. The
Committee reviews the level
of benefit provision from time
to time and has the flexibility
to add or remove benefits to
reflect changes in market
practices or the operational
needs of the Group.
All Executive Directors are
entitled to participate in the
defined
Company’s
contribution pension scheme
or to receive a cash allowance
in lieu of pension contributions.
base
Only
pensionable.
salary
is
150% of base salary (up to
in
200% of base salary
exceptional circumstances) in
any financial year.
Current award levels are set
out in the Annual Report on
Remuneration.
is
subject
Vesting
to
continuous employment and
targets linked to the strategy
of
the business. Current
targets are based on
achievement of growth in
earnings per share, but the
Committee may vary the
targets. 25% vests
for
achieving
threshold
performance,100% vests for
achieving
maximum
performance.
The cost of providing benefits
is borne by the Company and
varies from time to time.
None.
The Chief Executive receives
a 16% of base salary
contribution.
None.
whereby
The Chief Financial Officer
participates in the Company’s
defined contribution pension
the
scheme
Company makes an 8% of
base salary contribution,
conditional upon the Chief
Financial Officer making a
matched contribution of 8%.
55
GOVERNANCE
REMUNERATION POLICY (continued)
Future Policy Table (continued)
Purpose and link to
strategy
Operation
Maximum opportunity
Performance metrics
SHARE OWNERSHIP GUIDELINES
Increase alignment between
the Executive Directors and
shareholders.
Executive Directors
are
expected to retain 50% of the
net of tax vested PSP shares
until the guideline level is met.
NON-EXECUTIVE DIRECTOR FEES (“NED”)
At least 100% of base salary
for Executive Directors.
None.
To attract NEDs who have a
broad range of experience
and skills to oversee the
implementation
our
strategy and provide strong
performance stewardship
of
NED fees are determined by
the Board (excluding NEDs)
within the limits set out in the
Articles of Association and are
paid in 12 equal monthly
instalments during the year.
None.
Annual rate set out in the
annual report on remuneration
for the current year and the
following year. No prescribed
maximum annual increase.
Directors’ Service Contracts, Notice Periods and Termination Payments
Provision
Details
Notice periods in Executive Directors’
service contracts
Maximum of 12 months by Company or Executive Director. Executive Directors
may be required to work during the notice period.
Compensation for loss of office
In the event of termination, service contracts provide for payments of base salary,
pension and benefits only over the notice period.
Treatment of annual bonus on
termination
Treatment of unvested PSP awards
There is no contractual right to any bonus payment in the event of termination
although in certain "good leaver" circumstances the Remuneration Committee
may exercise its discretion to pay a bonus for the period of employment and based
on performance assessed after the end of the financial year.
The default treatment for any entitlements under the PSP is that any outstanding
awards lapse on cessation of employment. However, in certain prescribed
circumstances, or at the discretion of the Committee “good leaver” status can be
applied. In these circumstances a participant’s awards vest subject to the
satisfaction of the relevant performance criteria and, ordinarily, on a time pro-rata
basis, with the balance of the awards lapsing.
Outside appointments
Other directorships have been permitted with prior agreement:
– Daksh Gupta is a director of BEN – Motor and Allied Trades Benevolent Fund.
– Mark Raban is a director of Precise Finance Limited. Precise Finance Limited
is the company owned by Mr Raban and used to provide consultancy services
prior to his appointment to Marshall Motor Holdings plc.
Non-executive directors
All Non-Executives are subject to re-election every three years. No compensation
payable if required to stand down.
56
Marshall Motor Holdings plc | Annual Report & Accounts 2018
REMUNERATION POLICY (continued)
Directors’ Service Contracts, Notice Periods and Termination Payments (continued)
In the event of the negotiation of a compromise or settlement agreement between the Company and a departing Director, the
Committee may make payments it considers reasonable in settlement of potential legal claims. Such payments may also include
reasonable reimbursement of professional fees in connection with such agreements.
The Committee may also include the reimbursement of fees for professional or outplacement advice in the termination package,
if it considers it reasonable to do so. It may also allow the continuation of benefits for a limited period.
Dates of appointment
Director Date of appointment Date of resignation as a director
D Gupta 1 October 2008 –
P Johnson 27 June 2014 31 December 2018
M Raban 2 April 2015 2 January 2019
A Ferguson 11 March 2015 –
S Dickins 11 March 2015 –
F Ecsery 25 March 2015 –
C Sawyer 2 April 2015 23 May 2018
C Walkinshaw 12 July 2016 –
K Jenkins 23 May 2018 –
Copies of Directors’ service contracts and letters of appointment are available for inspection at the Company’s registered office.
57
GOVERNANCE
Annual Report on Remuneration
Single total figure of remuneration
The table below sets out the single total figure of remuneration and breakdown for each Director in respect of the 12 month period
ending 31 December 2018.
Basic Annual Long term
salary Fees Benefits Pension bonuses incentives3 Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Executive Directors
D Gupta 416.9 – 18.0 67.0 501.7 1,021.6 2,025.5
M Raban1 260.6 – 3.0 21.0 250.9 302.7 838.2
Total 677.5 – 21.0 88.0 752.6 1,324.3 2,863.4
Non-Executive Directors
P Johnson – 135.5 – – – – 135.5
A Ferguson – 59.5 – – – – 59.5
S Dickins – 49.5 – – – – 49.5
F Ecsery – 42.0 – – – – 42.0
C Sawyer2 – 17.5 – – – – 17.5
C Walkinshaw1 – 40.0 – – – – 40.0
K Jenkins1 25.8 25.8
Total – 369.8 – – – – 369.8
Aggregate directors
emoluments 677.5 369.8 21.0 88.0 752.6 1,324.3 3,233.2
The benefits above include items such as medical cover, life assurance premiums and income protection insurance.
1 Mark Raban has a 12 month notice period and although he served notice on 3 July 2018, he continued to fulfil the position
of CFO for the remainder of 2018 until a successor was appointed. Mark has agreed to be available to support the new
CFO for the remainder of his notice period. Salary, pension and benefits will be paid in the ordinary manner during the
12 month notice period (subject to mitigation should he take up alternative employment during his remaining notice period)
and the Committee exercised its discretion to consider him eligible to receive an annual bonus in respect of 2018.
2 Christopher Walkinshaw and Kathy Jenkins are nominated directors of Marshall of Cambridge (Holdings) Ltd with the fee
payable in respect of their undertakings as a Non-Executive Director payable to Marshall of Cambridge (Holdings) Ltd.
3. Market value of share options exercised during the Year (based on the Company’s share price on the date of exercise) plus
the value of dividend equivalents on those options (which were settled in cash). Included within the figures quoted for long
term incentives in the prior year was an amount of £260k which was the market value of share options on the date of their
vesting, not their exercise. These options were exercised in the current year and are correctly included within the totals
presented above.
LTIP awards
Details of LTIP awards granted during the year are as follows:
Market
value
Earliest Exercise on date Number of
Date of exercise price of grant options
Scheme grant date (pence) (pence) grants
D Gupta 2018 LTIP award 17-Apr-18 17-Apr-21 £Nil 155p 328,845
M Raban1 2018 LTIP award 17-Apr-18 17-Apr-21 £Nil 155p 164,423
1 Mark Raban’s 2018 LTIP awards lapsed during the Year.
Awards vest for achieving growth in EPS from 2018 to 2020; 25% vest for achieving EPS growth of 1.3% per annum increasing
to 100% vesting for achieving EPS growth of 6.0% per annum.
58
Marshall Motor Holdings plc | Annual Report & Accounts 2018
The movement in directors’ LTIP Awards during the year are as follows:
Number Number Number
granted exercised lapsed Number at
during during during 31 December
Number at 1 January 2018 the year the year the year 2018
D Gupta 1,487,703 328,845 604,026 – 1,212,522
M Raban 587,253 164,423 178,971 335,072 237,633
Statement of Directors’ Shareholding
Our Executive Directors are expected to build up and maintain a 100% of salary shareholding in the Company and are expected
to retain 50% of the net of tax vested PSP shares until the guideline level is met. The Directors who held office at 31 December
2018 and their connected persons had interests in the issued share capital of the Company as at 31 December 2018 as follows:
Number of
ordinary Number of Number of
shares ordinary ordinary
held shares Market shares
beneficially acquired Purchases Disposals beneficially LTIP Interests1 Total
as at on exercise during during held at Vested but interest in
31/12/17 of options the year the year 31/12/18 Unvested unexercised shares
P Johnson 175,328 – – – 175,328 – – 175,328
D. Gupta 843,138 320,134 – – 1,163,272 1,212,522 – 2,375,794
M Raban2 61,726 94,855 – – 156,581 237,633 – 394,214
A Ferguson 58,557 – – – 58,557 – – 58,557
S Dickins 6,711 – – – 6,711 – – 6,711
F Ecsery 2,013 – – – 2,013 – – 2,013
The middle market price of the shares as at 31 December 2018 was 156p and the range in respect of the 12 month period ending
31 December 2018 was 122.5p to 175.5p.
1
2
These include the 2018, 2017 and 2016 LTIP Awards along with the IPO Performance Awards which vest subject to growth
in the Company’s underlying basic Earnings Per Share (EPS). 25% of the award vests for achieving growth in underlying
basic EPS of 1.3%, CPI plus 1.0%, CPI plus 3.0% and CPI plus 4.0% per annum respectively, increasing to 100% vesting
for achieving growth of 6.0%, CPI plus 5.0%, CPI plus 8.0% and CPI plus 10.0% per annum respectively over a three year
performance period. 50% of the IPO Performance Awards vested on the third anniversary of Admission and the remaining
50% will vest on the fourth anniversary subject to continued employment. A 12 month holding period applies to the 2016,
2017 and 2018 LTIP Awards.
Taking into account Mark’s contribution during his tenure, the Committee has exercised its discretion to permit the final
tranche’ of his 2015 IPO Performance Awards to vest on 2 April 2019 and that subject to pro-rating for time and achievement
of the attaching EPS performance target, his 2016 PSP award will continue to its ordinary vesting date of 13 June 2019. All
other PSP awards made to Mark have lapsed.
The Committee has discretion to adjust the aforementioned performance targets to reflect the impact of events which occur after
the date of grant in order to take into account the impact of events such as material acquisitions and disposals made by the
Group and to ensure that the adjusted targets are no more difficult or easier to satisfy than they would have otherwise been.
59
GOVERNANCE
Implementation of remuneration policy for the year ending 31 December 2019
The annual salaries and fees to be paid to directors in the year ending 31 December 2019 are set out below, together with any
increase expressed as a percentage.
31 December 2019 31 December 2018 Increase
Executive Directors £'000 £'000 %
D Gupta 425.3 416.9 2
R Blumberger1 260.0 – n/a
Non-executive Directors £'000 £'000 %
R Parry-Jones1 135.5 – n/a
A Ferguson 60.3 59.5 2
S Dickins 50.3 49.5 2
F Ecsery 42.8 42.0 2
C Walkinshaw2 40.0 40.0 0
K Jenkins2 40.0 40.0 0
1 Richard Parry-Jones was appointed on 1 January 2019. Richard Blumberger was appointed on 2 January 2019.
2 Christopher Walkinshaw and Kathryn Jenkins are nominated directors of Marshall of Cambridge (Holdings) Ltd with the fee
payable in respect of their undertakings as a Non-Executive Director payable to Marshall of Cambridge (Holdings) Ltd.
The maximum potential annual bonus for the year ending 31 December 2019 will be 125% of salary for the CEO and 100% of
salary for the CFO. Awards are determined based on PBT targets. Recovery and withholding provisions will apply.
The Committee intends to grant options under the PSP in 2019. These options will be £nil cost options over a value of shares
subject to a maximum of 125% of salary in respect of the Chief Executive Officer and 100% of salary in respect of the Chief
Financial Officer where the vesting is subject to performance targets.
By order of the Board
Sarah Dickins
Chair of Remuneration Committee
12 March 2019
60
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law
and regulations.
The Directors are required to prepare Consolidated financial statements for each financial year in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union. The Directors have elected to prepare the parent
company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the Group and Company and of the profit and loss of the Group for that
period. In preparing those Consolidated financial statements, the Directors are required to:
•
•
•
•
select and apply accounting policies in accordance with IAS 8;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial
performance; and
state that the group has complied with IFRS, subject to any material departures disclosed and explained in the financial
statements.
In preparing the Company financial statements, the Directors are required to:
•
select suitable accounting policies and apply them consistently;
• make judgements and estimates that are reasonable and prudent;
•
•
state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and
explained in the financial statements; and
prepared the financial statements on a going concern basis unless it is inappropriate to presume that the company will not
continue in business.
The Directors are responsible for keeping adequate accounting records which are sufficient to disclose with reasonable accuracy
at any time the financial position of the Company and enable them to ensure that the financial statements comply with the
Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible
for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
61
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MARSHALL
MOTOR HOLDINGS PLC
What we have audited
We have audited the financial statements of Marshall Motor Holdings plc. for the year ended 31 December 2018 which comprise:
Group Parent company
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity Parent Company Statement of Changes in Equity
Consolidated Statement of Financial Position Parent Company Statement of Financial Position
Consolidated Cash Flow Statement
Related notes 1 to 34 to the consolidated financial Related notes 1 to 15 to the Company financial statements
statements, including a summary of significant including a summary of significant accounting policies
accounting policies
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law
and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework
that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom
Accounting Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”
(United Kingdom Generally Accepted Accounting Practice).
Opinion
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at
31 December 2018 and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are described further in the Auditor’s responsibilities for the audit of the financial statements
section of our report below. We are independent of the group and parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a
period of at least twelve months from the date when the financial statements are authorised for issue.
62
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Overview of our audit approach
Materiality • Overall group materiality of £1.28m (2017: £1.45m) which represents approximately 5% (2017: 5%)
of Underlying Profit before Tax.
• Any audit differences in excess of £64k (2017: £73k) are reported to the audit committee.
Audit scope • We performed an audit of the complete financial information of 14 (2017:14) full scope components
and performed audit procedures for a further 21 (2017:22) review scope components.
• The full scope components accounted for 94% (2017: 92%) of Underlying Profit before Tax, 92%
(2017: 92%) of External Revenue and 97% (2017: 97%) of Total Net Assets.
Key audit matters • Valuation of inventory
• Assessment of the carrying value of goodwill and other intangible assets
• Misstatement of provisions and head office accruals
• Revenue recognition, including manufacturer’s rebates and bonuses
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent
of our audit procedures.
We determined materiality for the Group to be £1.28 million (2017: £1.45 million), which is approximately 5% (2017: 5%) of
Underlying Profit before Tax. The rationale for using Underlying Profit before Tax as our basis for materiality is that it provides a
consistent year on year approach, excluding gains and losses from transactions which are considered one off in nature by
management and that are unlikely to reoccur, which can be significant compared to underlying trading. We review the assessment
of these items before inclusion in our materiality calculation. There were no changes in the approach year on year.
We determined materiality for the Parent Company to be £1.28 million. This is capped at group materiality.
See breakdown below for details of adjustments made
63
FINANCIAL STATEMENTS
As part of our audit planning, we reported to the audit committee on 3 August 2018, an initial materiality calculation of £1.30m.
This amount was based on the estimated annualised profit before tax.
During the course of our audit, we reassessed initial materiality and calculated a reduction from £1.30m to a final figure of £1.28m.
This was primarily the result of estimation used when annualising the materiality base during the planning phase of the audit
when compared to the actual full year results observed.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low
level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement
was that performance materiality should be set at 50% (2017: 50%) of our planning materiality, namely £641k (2017: £725k).
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is
undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based
on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that
component. In the current year, the range of performance materiality allocated to components was 30% to 100% (2017: 30% to
100%) of total performance materiality or £192k to £641k (2017: £218k to £725k).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £64k (2017:
£73k), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting
on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our opinion.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determines our audit
scope for each component within the Group. Taken together, this enables us to form an opinion on the financial statements. We
take into account size, risk profile, the organisation of the group, the effectiveness of group-wide controls and changes in the
business environment when assessing the level of work to be performed at each component.
After assessing the risk of material misstatement to the Group financial statements we ensured we had adequate quantitative
coverage of significant accounts in the financial statements. Of the 35 reporting components of the Group, we selected 14
components all within the UK, which represent the principal business units within the Group.
We performed an audit of the complete financial information of all 14 components (“full scope components”) of which 9 were
selected based on their size or risk characteristics and the remaining 5 components on the basis that these entities are required
to file statutory accounts in accordance with the Companies Act 2006.
The full scope components contributed 94% (2017: 92%) of the Underlying Profit before Tax, 92% (2017: 92%) of External
Revenue and 97% (2017: 97%) of Total Net Assets.
Of the remaining 20 components that together represent 6% of the Group’s Underlying Profit before Tax, none are individually
greater than 2% of Underlying Profit before tax. For these components, we performed analytical review and testing of consolidation
journals and intercompany eliminations to respond to any potential risks of material misstatement to the Group financial
statements.
64
Marshall Motor Holdings plc | Annual Report & Accounts 2018
The charts below illustrate the coverage obtained from the work performed by our audit teams.
Underlying Profit Before Tax
Profit Before Tax
94% Full scope
components
6% Review scope
94% Full scope
components
6% Review scope
Revenue
Total Net Assets
92% Full scope
components
8% Review scope
97% Full scope
components
3% Review scope
Changes from the prior year
There were no changes in the approach and no significant changes in terms of coverage year on year.
Involvement with component teams
All audit work performed for the purposes of the audit was undertaken by the Group audit team.
Our assessment of the risks of material misstatement
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in expressing our opinion thereon. We do not provide a separate opinion on
these matters.
65
FINANCIAL STATEMENTS
Key observations
communicated to the
Risk Our response to the risk Audit Committee
Our audit procedures indicate
that the provision is consistent
with prior years and that it is
reasonable
based
assumptions
the
underlying exposures in the UK
used car market.
regarding
on
We consider the provision to be
within an appropriate range.
Valuation of inventory: Gross
inventory – £393.7 million, (2017:
£410.4 million); Inventory provision –
£9.7 million, (2017: £9.2 million)
The group has a significant value of new and
used vehicle inventory.
Vehicles have the potential to experience
significant value declines in short time
periods.
Value volatility is a response to market
conditions impacting demand and is deemed
a higher risk in relation to used, demonstration
and pre-reg vehicle inventory.
The valuation of vehicle inventory is subject
to significant judgement. Therefore, there is a
risk that inventory is misstated.
Refer to Accounting policies (page 81);
judgements and
Significant accounting
estimates (page 97) and Note 18 of the
Consolidated
Statements
Financial
(page 113)
We understood the method applied by
management in performing its inventory
provisioning calculation and walked through
the controls over the process.
We recalculated management’s provision
and agreed all vehicle prices included through
to third party independent market values
(CAP). This provides a base value for all
vehicles at the year end date. This is
compared to the current carrying value of the
vehicles in order to calculate an estimated
provision figure for used vehicles. Higher
provisions are made against demonstration
and pre-reg vehicles using historic
experience adjusted for current market
conditions.
We performed Analytical Review of the level
of provision held to identify any significant
provisions on a particular vehicle type or
brand in the portfolio. A particular focus was
given in this area to used, demonstration and
pre-reg vehicles.
We evaluated the accuracy of the provision
in prior periods to assess management’s long
term forecasting ability and compared the
post year end utilisation of the provision in the
current year to the comparable period in the
prior year.
We performed full scope audit procedures
over this risk area in 14 full scope locations,
which covered 87.1% of the risk amount.
Further, as the inventory provision is a single
calculation based on inventory across all
the
locations our procedures covered
inventory provision for all components.
66
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Key observations
communicated to the
Risk Our response to the risk Audit Committee
Assessment of the carrying value of
goodwill and other intangible assets:
£112.2 million, (2017: £121.6 million)
The group has a significant value of goodwill
that has arisen from acquisitions as well as
other intangible assets in the form of franchise
agreements.
Goodwill is allocated to cash generating units
(‘CGUs’) grouped by manufacturer brand.
A number of brands have experienced
challenging trading conditions driving poor
financial performance. Management have
recorded an impairment charge of £9.3 million
in the year in relation to BMW/Mini (£8.4m)
and Nissan (£0.9m).
There is a risk that these CGUs may not
achieve the anticipated financial performance
to support their carrying value, leading to an
impairment charge
that has not been
recognised by management.
We understood the method applied by
management in performing its impairment
test for each of the relevant CGUs and
walked through the controls over the process.
We have reviewed the rationale in respect of
the allocation of goodwill to identified CGU’s.
For all CGUs we calculated the degree to
which the key inputs and assumptions would
need to change before an impairment was
triggered or where the currently calculated
impairment would be materially adjusted, and
considered the likelihood of this occurring. We
performed our own sensitivities on the
group’s forecasts and determined whether
adequate headroom remained.
For CGUs where management identified
impairment, there was evidence of indicators
of impairment or low levels of headroom exist
we performed detailed testing to critically
assess and corroborate the key inputs to the
valuations, including:
We are satisfied that group
goodwill and intangible assets
have been correctly assessed
for
impairment, based on
appropriate allocation to CGU’s
and the impairment charge in
the year is appropriate.
Management describes these
sensitivities appropriately in the
goodwill and intangibles note to
the group financial statements,
in accordance with IAS 36.
is
required
judgement
Significant
in
forecasting the future cash flows of each CGU
due
the
the current conditions
automotive market, together with the rate at
which they are discounted.
to
in
Refer to Accounting policies (page 79);
Significant accounting
judgements and
estimates (page 96) and Note 15 of the
Consolidated
Statements
Financial
(page 108)
•
•
•
•
Analysing the historical accuracy of
budgets to actual results to determine
whether forecast cash flows are reliable
based on past experience;
Corroborating the discount rate by
obtaining the underlying data used in the
calculation and benchmarking it against
market
comparable
organisations; and
data
and
Validating the growth rates assumed by
comparing them to either economic and
industry
detailed
management action plans; and
forecasts
or
Applying sensitivities to assumptions and
recalculating headroom.
the
requirements of
We assessed the disclosures in Note 15
against
IAS 36
Impairment of Assets, in particular in respect
of the requirement to disclose further
sensitivities for CGUs where a reasonably
possible change in a key assumption would
cause an impairment.
We have performed
full scope audit
procedures over this risk area in all relevant
statutory locations, covering 100% of the risk
amount. We have performed specified
procedures to identify any indicators of
potential impairment of intangible assets, and
determined the impact of these indicators
where such circumstances arose.
67
FINANCIAL STATEMENTS
Key observations
communicated to the
Risk Our response to the risk Audit Committee
Misstatement of provisions and head
office accruals: £33 million,
(2017: £43.7 million)
The nature of the group’s system architecture
and individual site accounting functions
results in the requirement for provisions and
certain accruals to be maintained in entities
accounted for by the head office function,
primarily in relation to property and in respect
of the participation in a defined benefit
pension scheme.
Management has to apply judgement in
assessing provisions and demonstrate
diligence in identifying required accruals held
in respect of individual sites and for the group
as a whole. Given this judgement and
complicated system architecture, there is a
risk that provisions and head office accruals
are misstated.
Refer to Accounting policies (page 85) and
Note 24 of the Consolidated Financial
Statements (page 116)
We consider the provisions and
head office accruals to be within
an appropriate range.
The balance in respect of
property provisions has fallen in
the year from £6.4m to £1m and
pension liability of £5.6m was
settled post year end. As a
result, we consider the level
of management
judgement
required relating to provisions is
now lower than in prior years.
the
We understood the group’s process for
and
determining
measurement of provisions along with
management’s controls associated to the
process.
completeness
We assessed the level of provisions and
challenged management’s judgments in
relation to the recognition requirements of IAS
37. We referred to pre and post year end third
party evidence where appropriate to validate
the existence and valuation of provisions and
head office accruals.
As part of our procedures designed to
address the risk of management override of
controls we reviewed journal postings related
to provisions and head office accruals to
identify significant releases and postings
around the year end, which may be indicative
of management override.
Knowledge of the sector and the company’s
operations was utilised to identify any new
provisions that in our professional judgement
would be considered unusual.
We have performed
full scope audit
procedures over this risk area in all relevant
statutory locations, which covered 100% of
the risk amount.
68
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Key observations
communicated to the
Risk Our response to the risk Audit Committee
Based on
the procedures
performed, including those in
respect of manufacturer rebates
and bonuses, we are satisfied
that
was
appropriately recognised during
the year.
revenue
the
Revenue recognition: £2,187 million,
(2017: £2,269 million), including
manufacturer’s rebates and bonuses:
£122.9 million (2017: £121.2 million)
The majority of the group’s sales arrangements
are generally straightforward, being on a point
of sale basis where vehicles are handed over to
customers or servicing takes place at an agreed
point in time, requiring little judgement to be
exercised.
There is a natural pressure on the group to meet
expectations and targets. Employee reward and
incentive schemes based on achieving revenue
targets may also create pressure to manipulate
revenue transactions.
to
There is a risk that management may override
controls
intentionally misstate revenue
transactions and bonuses within cost of sales.
This could be either through the judgements
made in estimating manufacturer rebates and
bonuses or by recording fictitious revenue
transactions across the business.
Refer to Accounting policies (page 85) and
Note 5 of the Consolidated Financial Statements
(page 98)
the business’s
We understood
revenue
recognition policy and how this was applied
including the relevant controls operating in
respect of the recognition of revenue and the
allocation of manufacturer bonuses and rebates.
As part of our overall revenue recognition testing
we used data analysis tools on £2.16 billion
(98.7%) of revenue from continuing operations
in the year to test the correlation of revenue to
cash receipts to verify the occurrence of revenue.
We reviewed revenue by dealership and
considered margins in comparison to prior year
and similar dealerships in order to identify
unusual changes in performance, material
increases in revenue recognised or increased
margins which may indicate an overstatement
of manufacturer rebates or bonuses.
We performed cut-off testing for a sample of
revenue transactions around the period end
date, to check that they were recognised in the
appropriate period.
Other audit procedures designed to address the
risk of management override of controls
included journal entry testing, applying particular
focus to the manual entries associated to
revenue accounts.
We discussed key contractual arrangements
with management and obtained relevant
documentation,
respect of
including
manufacturer rebate and bonus arrangements
to ensure the accuracy of accrued rebates and
bonuses at the year end.
in
Where rebate arrangements existed we
reviewed contracts, recalculated rebates and
agreed values to post year end credit notes and
cash receipts. We performed analysis over
changes to prior period rebate estimates to
challenge assumptions made,
including
assessing estimates
for evidence of
management bias.
We reviewed management’s assessment of the
impact of IFRS 15 on revenue recognition,
including the recognition criteria under the
five-step model.
In addition, we assessed the disclosures against
the requirements of IFRS 15 and benchmarked
against disclosures issued by competitors.
We performed full scope audit procedures over
revenue for the 92% of revenue within full scope
components and our review procedures obtained
a further 8% coverage over revenue recognised
in relation to review scope components.
There have been no changes to key audit matters in the current year.
69
FINANCIAL STATEMENTS
Our opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the Strategic Report and the Directors’ Report for the financial period for which the financial statements
are prepared is consistent with the financial statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
ISAs (UK and
Ireland) reporting
We are required to report to you if we identify material misstatements in the Strategic
Report or Directors’ Report in light of the knowledge and understanding of the group
and parent company and its environment obtained in the course of the audit.
no
have
We
exceptions to report.
Companies Act
2006 reporting
We are required to report to you if, in our opinion:
•
•
•
•
adequate accounting records have not been kept by the parent company, or
returns adequate for our audit have not been received from branches not visited
by us; or
the parent company financial statements are not in agreement with the
accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our
audit.
We
no
have
exceptions to report.
Other Information
The other information comprises the information included in the annual report set out on pages 4 to 61, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities set out on page 61, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as
the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group and parent company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative
but to do so.
70
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Nigel Meredith (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Birmingham
12 March 2019
Notes:
1.
The maintenance and integrity of the Marshall Motor Holdings PLC web site is the responsibility of the directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditor accept no responsibility for any changes that may have occurred to the financial statements
since they were initially presented on the web site.
2.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
71
FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
Non-
Underlying underlying Underlying
items items Total items
2018 2018 2018 2017
Note £'000 £'000 £'000 £'000
Total
2018
£'000
Non-
underlying
items
2017
£'000
Total
Total
2017
2017
£'000
£'000
Continuing operations
Revenue 5 2,186,887 - 2,186,887 2,231,979
2,186,887
Cost of sales (1,931,210) - (1,931,210) (1,973,678)
(1,931,210)
Gross profit 255,677 - 255,677 258,301
255,677
-
-
-
2,231,979
2,231,979
(1,973,678)
(1,973,678)
258,301
258,301
Net operating expenses (223,648) (6,963) (230,611) (225,421)
(230,611)
Operating profit 32,029 (6,963) 25,066 32,880
25,066
(12,783)
(12,783)
(238,204)
(238,204)
20,097
20,097
Net finance costs 11 (6,362) - (6,362) (7,519)
(6,362)
-
Profit before taxation 6 25,667 (6,963) 18,704 25,361
18,704
(12,783)
(7,519)
(7,519)
12,578
12,578
Taxation 12 (4,395) (380) (4,775) (4,554)
(4,775)
1,474
(3,080)
(3,080)
Profit from continuing
operations after tax 21,272 (7,343) 13,929 20,807
13,929
(11,309)
9,498
9,498
Discontinued operations
Profit from discontinued
operations after tax 8 - 589 589 2,990
589
Profit for the year 21,272 (6,754) 14,518 23,797
14,518
36,851
25,542
39,841
39,841
49,339
49,339
Attributable to:
Owners of the parent 21,272 (6,754) 14,518 23,818
14,518
25,542
49,360
49,360
Non-controlling interests - - - (21)
-
-
(21)
(21)
21,272 (6,754) 14,518 23,797
14,518
25,542
49,339
49,339
Total comprehensive
income for
the year net of tax 21,272 (6,754) 14,518 23,797
14,518
25,542
49,339
49,339
Attributable to:
Owners of the parent 21,272 (6,754) 14,518 23,818
14,518
25,542
49,360
49,360
Non-controlling interests - - - (21)
-
-
(21)
(21)
21,272 (6,754) 14,518 23,797
14,518
25,542
49,339
49,339
Earnings per share (EPS)
attributable to equity
shareholders of the parent
From continuing operations:
Basic 13 27.4 - 17.9 26.9
17.9
Diluted 13 26.5 - 17.3 26.0
17.3
From continuing and
discontinued operations:
Basic 13 27.4 - 18.7 30.8
18.7
Diluted 13 26.5 - 18.1 29.8
18.1
-
-
-
-
12.3
12.3
11.9
11.9
63.8
63.8
61.7
61.7
72
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Consolidated Balance Sheet
At 31 December 2018
Note
2018
£’000
2017
£’000
Assets
Non-current assets
Goodwill and other intangible assets
Property, plant and equipment
Investment property
Deferred tax asset
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets classified as held for sale
Total current assets
Total assets
Non-current liabilities
Loans and borrowings
Trade and other payables
Provisions
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Provisions
Current tax liabilities
Total current liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Share-based payments reserve
Own shares reserve
Retained earnings
Equity attributable to owners of the parent
Share of equity attributable to non-controlling interests
Total equity
15
16
17
25
18
19
20
21
23
22
24
25
23
22
24
28
28
28
28
112,202
155,758
2,590
-
121,596
142,428
2,590
39
270,550
266,653
384,005
79,682
1,174
797
465,658
736,208
5,665
5,596
-
20,787
32,048
401,260
92,141
4,867
750
499,018
765,671
6,466
4,281
4,015
20,448
35,210
641
642
493,859
527,614
7,926
1,346
503,772
535,820
200,388
49,834
19,672
1,570
-
129,312
200,388
-
8,815
2,180
539,251
574,461
191,210
49,531
19,672
2,608
-
119,399
191,210
-
200,388
191,210
The consolidated financial statements of Marshall Motor Holdings plc were approved for issue by the Board of Directors on
12 March 2019.
Daksh Gupta
Chief Executive Officer
Richard Blumberger
Chief Financial Officer
73
FINANCIAL STATEMENTS
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Equity
Share- attributable
based Own to owners
Non-
Share Share payments shares Retained of the controlling
interests
capital premium reserve reserve earnings parent
£'000
Note £'000 £'000 £'000 £'000 £'000 £'000
Total
equity
£'000
Balance at
1 January 2017 49,531 19,672 1,869 - 74,566 145,638
Profit for the year - - - - 49,360 49,360
Total comprehensive
income - - - - 49,360 49,360
21
(21)
145,659
49,339
(21)
49,339
Transactions with
owners
Dividends paid 14 - - - - (4,527) (4,527)
Share-based
payments charge 29 - - 739 - - 739
Balance at
31 December 2017 49,531 19,672 2,608 - 119,399 191,210
Change in accounting
policy 3 - - - - (76) (76)
Restated balance at
1 January 2018 49,531 19,672 2,608 - 119,323 191,134
Profit for the year - - - - 14,518 14,518
Total comprehensive
income - - - - 14,518 14,518
Transactions with
owners
Dividends paid 14 - - - - (4,983) (4,983)
Issue of share
capital 28 303 - - (303) - -
Exercise of share
options 29 - - (1,567) 303 504 (760)
Share-based
payments charge 29 - - 529 - - 529
Acquisition of non-
controlling interest
in subsidiaries 33 - - - - (50) (50)
Balance at
31 December 2018 49,834 19,672 1,570 - 129,312 200,388
-
-
-
-
-
-
-
-
-
-
-
-
-
(4,527)
739
191,210
(76)
191,134
14,518
14,518
(4,983)
-
(760)
529
(50)
200,388
74
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Consolidated Cash Flow Statement
For the year ended 31 December 2018
Operating profit
– continuing operations
– discontinued operations
Adjustments for:
Depreciation and amortisation
Share-based payments charge
Profit on disposal of assets classified as held for sale
Loss on disposal of property plant and equipment
Loss on impairment of goodwill and other intangible assets
Loss on impairment of property, plant and equipment
Loss on disposal of investment property
Impairment of investment
Profit on disposal of subsidiary
Cash flows from operating activities
Decrease/(increase) in inventories
Decrease in trade and other receivables
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions
Total cash flows generated by operations
Tax paid
Interest paid
Net cash inflow from operating activities
Investing activities
Purchase of property, plant, equipment,
leased vehicles and software
Net purchase of investment property
Acquisition of businesses, net of cash acquired
Acquisition of non-controlling interest in subsidiaries
Note
8
15/16
29
7
6
15
16
6
8
24
11
15/16
Net cash flow from sale of discontinued operation
8
Proceeds from disposal of property, plant
and equipment and leased vehicles
Proceeds from disposal of assets classified as held for sale
Net cash outflow from investing activities
Financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Settlement of exercised share awards
Net cash outflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at year end
14
20
75
2018
£’000
25,066
589
9,327
732
(268)
67
9,302
87
1,146
-
(589)
45,459
17,255
12,383
(33,699)
(4,904)
36,494
(5,231)
(6,362)
24,901
(22,526)
(1,146)
-
(50)
589
274
1,018
(21,841)
30,000
(30,802)
(4,983)
(968)
(6,753)
(3,693)
4,867
1,174
2017
£’000
20,097
41,137
25,183
739
-
1,085
-
945
-
10
(38,664)
50,532
(21,223)
450
33,703
6,138
69,600
(7,443)
(8,099)
54,058
(57,549)
-
(77)
-
44,695
11,985
-
(946)
41,778
(85,579)
(4,527)
-
(48,328)
4,784
83
4,867
FINANCIAL STATEMENTS
Net Debt Reconciliation
For the year ended 31 December 2018
Reconciliation of cash flow to movement in net debt
Net (decrease)/increase in cash and cash equivalents
Proceeds from drawdown of RCF
Repayment of drawdown of RCF
Proceeds of asset backed borrowings (Discontinued)
Repayment of asset backed borrowings (Discontinued)
Repayment of other borrowings
Repayment of bank overdraft
Repayment of debt with acquisitions
Repayment of derivatives with acquisitions
(Increase)/decrease in net debt
Opening net debt
Net debt at year end
Net debt at year end consists of:
Cash and cash equivalents
Loans and borrowings
Closing net debt
Note
23
23
23
23
20
23
2018
£'000
2017
£'000
(3,693)
(30,000)
30,000
-
-
802
-
-
-
(2,891)
(2,241)
(5,132)
1,174
(6,306)
(5,132)
4,784
(10,000)
45,000
(31,778)
68,185
2,791
10,825
25,705
1,258
116,770
(119,011)
(2,241)
4,867
(7,108)
(2,241)
76
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
1. Presentation of the financial statements
General information
Marshall Motor Holdings plc (the Company) is incorporated and resident in the United Kingdom. The Company is a public limited
company, limited by shares, whose shares are listed on the Alternative Investment Market (AIM) of the London Stock Exchange.
The Company is registered in England and Wales under the Companies Act 2006 (registration number 02051461) with the
address of the registered office being; Airport House, The Airport, Cambridge, CB5 8RY, United Kingdom.
The financial statements of Marshall Motor Holdings plc were authorised for issue by the Board of Directors on 12 March 2019.
Basis of preparation
The consolidated financial statements of the Company are prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union and in accordance with the requirements of the Companies Act 2006
applicable to entities reporting under IFRS.
The consolidated financial statements include the results of the Company and its subsidiaries (together “the Group”); a schedule
of all subsidiaries is contained in Note 6 ‘Investments in Subsidiaries’ of the Company financial statements (page 139). The
consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of
investment properties and assets held for sale.
During the year the Group has adopted the amendments to IAS 40 Investment Properties, the amendments to IFRS 2 Share
Based Payment Transactions as well as the following new standards IFRS 9 Financial Instruments and IFRS 15 Revenue from
Contracts with Customers. Full details of the impact of adoption are set out in Note 3 ‘Changes in Accounting Policies and
Disclosures’.
The consolidated financial statements are prepared in Sterling which is both the functional currency of the Group’s subsidiaries
and presentational currency of the Group. All values are rounded to the nearest thousand pounds (£’000) except where otherwise
indicated.
Going concern
The consolidated financial statements are prepared on a going concern basis. 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 consolidated financial statements are signed. For these reasons they
continue to adopt the going concern basis in preparing the consolidated financial statements.
The Directors have considered the future prospects and performance of the Group including: business plans, impact of
acquisitions, future cash flows and availability of core and auxiliary financing facilities.
2. Accounting policies
Basis of consolidation
Subsidiaries are entities controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if, and only if, the Group has: a) power over the investee (i.e., existing rights that give
it the current ability to direct the relevant activities of the investee); b) exposure, or rights, to variable returns from its involvement
with the investee; and c) the ability to use its power over the investee to affect its returns.
In assessing control potential voting rights that presently are exercisable or convertible are taken into account. Generally, there
is a presumption that a majority of voting rights results in control. The Group re-assesses whether or not it controls an investee
if facts and circumstances indicate that there are changes to one or more of the elements of control detailed above.
77
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Basis of consolidation (continued)
The financial information of subsidiaries is included in the consolidated financial information from the date that control commences
until the date that control ceases. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year
are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to
control the subsidiary.
When the Group losses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling
interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained
is recognised at fair value.
Transactions eliminated on consolidation
Intragroup balances and any gains and losses or income and expenses arising from intragroup transactions, are eliminated in
preparing the consolidated financial information. Losses are eliminated in the same way as gains but only to the extent that there
is no evidence of impairment.
Subsidiary audit exemption
The consolidated financial statements include the results of all subsidiary undertakings owned by the Company as listed in Note 6
‘Investments in Subsidiaries’ on page 139 of the Annual Report.
Certain of the Group’s subsidiaries, listed below, have taken the exemption from an audit for the year ended 31 December 2018
by virtue of s479A of the Companies Act 2006. In order to allow these subsidiaries to take the audit exemption, the parent company,
Marshall Motor Holdings plc, has given a statutory guarantee of all the outstanding liabilities as at 31 December 2018 of the
subsidiaries listed below.
The subsidiaries which have taken an exemption from audit for the year ended 31 December 2018 by virtue of s479A of the
Companies Act 2006 are:
Tim Brinton Cars Limited (reg no. 01041301) S.G. Smith (Motors) Limited (reg no. 00287379)
Marshall of Scunthorpe Limited (reg no. 01174004) S.G. Smith (Motors) Beckenham Limited (reg no. 00648395)
CMG 2007 Limited (reg no. 06275636) S.G. Smith (Motors) Forest Hill Limited (reg no. 00581710)
S.G. Smith Automotive Limited (reg no. 00622112) S.G. Smith (Motors) Crown Point Limited (reg no. 00581711)
Exeter Trade Parts Specialists LLP (reg no. OC329331) S.G. Smith (Motors) Sydenham Limited (reg no. 00660066)
Astle Limited (reg no. 01114983) Prep-Point Limited (reg no. 00660067)
Crystal Motor Group Limited (reg no. 04813767) S.G. Smith Trade Parts Limited (reg no. 01794317)
Business combinations
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition
of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity
interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a
contingent consideration arrangement.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance
with IFRS 9 Financial Instruments in the Consolidated Statement of Comprehensive Income. Contingent consideration that is
classified as equity is not re-measured and its subsequent settlement is accounted for within equity.
Acquisition related costs are expensed as incurred and are excluded from underlying profit before tax.
On the acquisition of a business, fair values are attributed to the identifiable assets and liabilities and contingent liabilities unless
the fair value cannot be reliably measured, in which case the value is subsumed into goodwill. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination that meet the recognition criteria under IFRS 3 Business
Combinations are measured initially at their fair values at the acquisition date.
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Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Business combinations (continued)
Non-controlling interests
The Group recognises any non-controlling interest in the acquiree on an acquisition by acquisition basis, either at fair value or at
the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets.
Measurement period adjustments
The Group assesses the fair value of assets acquired and finalises purchase price allocation within the measurement period
following acquisition and in accordance with IFRS 3 Business Combinations. This includes an exercise to evaluate other material
separately identifiable intangible assets such as franchise agreements, favourable leases and order backlog.
The finalisation of purchase price allocations may result in a change in the fair value of assets acquired. In accordance with IFRS
3 Business Combinations measurement period adjustments are reflected in the financial statements as if the final purchase
price allocation had been completed at the acquisition date.
Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of; the consideration transferred, the amount of any
non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the
fair value of the identifiable net assets acquired.
Where the fair value of the consideration received is less than the fair value of the acquired net assets, the deficit is recognised
immediately in the Consolidated Statement of Comprehensive Income as a bargain purchase. Goodwill is capitalised and subject
to an impairment review at least annually and is carried at cost less accumulated impairment losses. Impairment losses on
goodwill are not reversed in subsequent periods.
Intangible assets
Intangible assets, when acquired separately from a business combination, include computer software and licences. Cost
comprises purchase price from third parties and amortisation is calculated on a straight line basis over the assets’ expected
economic lives, which varies depending on the nature of the asset. Licenses are amortised over the length of the licence and
software is amortised between 3-5 years.
Intangible assets acquired as part of a business combination include franchise agreements, favourable leases and order backlog.
These items are capitalised separately from goodwill if the asset is separable or if the benefit of the intangible asset is obtained
through contractual or other legal rights and if its fair value can be measured reliably on initial recognition. Such assets are stated
at fair value less accumulated amortisation.
Amortisation is charged on a straight-line basis over the following periods:
Favourable leases - 3 years
•
• Order backlog - as the orders are fulfilled
•
Franchise agreements - indefinite life, not amortised.
Intangible assets with an indefinite useful economic life are tested annually for impairment. Amortisation is included within net
operating expenses in the Consolidated Statement of Comprehensive Income.
Property, plant and equipment
Items of property, plant and equipment are stated at cost less accumulated depreciation and less any recognised impairment
loss. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition
for its intended use. When parts of an item of property, plant and equipment have different useful lives those components are
accounted for as separate items of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the
item will flow to the Group and the cost of the item can be measured reliably.
79
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Property, plant and equipment (continued)
Depreciation is charged to write assets down to their residual values over their estimated useful economic lives. Depreciation is
charged on a straight-line basis over the following periods:
•
•
•
•
•
•
Leasehold improvements – shorter of the lease term or 10 years
Fixtures and fittings – 5 years
Computer equipment – 2-5 years
Freehold and long-leasehold buildings – 50 years
Land – indefinite life, not depreciated
Assets under construction – not depreciated.
The residual values and useful economic lives of assets are reviewed, and adjusted if appropriate, at each balance sheet date.
The gains and losses on disposal of assets are determined by comparing sales proceeds with the carrying amount of the asset
and are recognised in the Consolidated Statement of Comprehensive Income.
Investment property
Initial recognition
Investment properties are measured initially at cost, including transaction costs.
Subsequent measurement
Land and buildings are shown at fair value based on formal valuations by external, independent valuers performed at least every
three years and updated each year for the Directors’ estimate of value. Valuations are performed with sufficient regularity to
ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Investment property is not
depreciated. Any surplus or deficit on revaluation is taken to the Consolidated Statement of Comprehensive Income and is not
included within underlying profit before tax.
Derecognition
Investment properties are derecognised either when they have been disposed of (i.e., at the date the recipient obtains control)
or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference
between the net disposal proceeds and the carrying amount of the asset is recognised in the Consolidated Statement of
Comprehensive Income in the period of derecognition. The amount of consideration to be included in the gain or loss arising
from the derecognition of investment property is determined in accordance with the requirements for determining the transaction
price under IFRS 15 Revenue from Contracts with Customers.
Impairment of non-financial assets
Assets not subject to amortisation are tested annually for impairment, or more frequently if events or changes in circumstances
indicate a potential impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by
which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value
less costs to sell and value in use. For the purposes of assessing impairment assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash generating units). Non-financial assets other than goodwill that suffered
impairment are reviewed for possible reversal of the impairment at each reporting date.
Goodwill and franchise agreements acquired in a business combination are allocated to each of the cash generating units. For
the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units
(“CGUs”), or groups of CGUs, that are expected to benefit from the synergies of the combination. The group of CGUs to which
the goodwill and franchise agreements are allocated (being groups of dealerships connected by manufacturer brand) represents
the lowest level within the entity at which the goodwill and franchise agreements are monitored for internal management purposes.
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Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location
and condition are included and cost is based on price including delivery costs less specific trade discounts. Net realisable value
is based on estimated selling price less further costs to be incurred to disposal. Provision is made for obsolete, slow-moving or
defective items where appropriate.
Inventories held on consignment are recognised in the Consolidated Balance Sheet with a corresponding liability when the terms
of a consignment agreement and industry practice indicate that the principal benefit of owning the inventory (the ability to sell it)
and principal risks of ownership (stock financing charges, responsibility for safekeeping and some risk of obsolescence) rest with
the Group. Stock financing charges from manufacturers and other vehicle funding facilities are presented within finance costs.
These charges are expensed over this period that vehicles are funded.
The Group finances the purchase of new and used vehicle inventories using vehicle funding facilities provided by various lenders
including the captive finance companies associated with brand partners. These finance arrangements generally have a maturity
of 90 days or less and the Group is normally required to repay amounts outstanding on the earlier of the sale of the vehicles that
have been funded under the facilities or the stated maturity date. Amounts due to finance companies in respect of vehicle funding
are included within trade payables and disclosed under vehicle financing arrangements. Related cash flows are reported within
cash flows from operating activities within the Consolidated Statement of Cash Flows. Vehicle financing facilities are subject to
LIBOR-based (or similar) interest rates. The interest incurred under these arrangements is included within finance costs and
classified as stock holding interest.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and cash in hand.
Assets held for sale
Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction
rather than through continuing use. This classification is used where a sale is considered highly probable. Assets held for sale
are measured at the lower of their carrying amount and their fair value less costs to sell.
An impairment loss is recognised for any initial or subsequent write-down of the asset to fair value less costs to sell. Any
subsequent increase in the fair value less costs to sell of an asset is recognised where it is not in excess of any cumulative
impairment loss which has been previously recognised. Non-current assets are not depreciated while they are classified as held
for sale.
Assets classified as held for sale are presented separately from other asset classes in the current assets section of the
Consolidated Balance Sheet.
Financial instruments
Financial assets
Recognition and initial measurement
Trade receivables are initially recognised when they originated. Trade receivables are amounts due from customers for goods
sold or for services performed by the Group in the ordinary course of business. Credit terms are less than one year, as such they
are recognised as current assets.
All other financial assets are initially recognised when the Group becomes a party to the contractual provisions of the instrument.
On initial recognition, a financial asset (unless it is a trade receivable without a significant financing component) is initially measured
at fair value plus, for a financial asset not at fair value reported in profit or loss, transaction costs that are directly attributable to
its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
81
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Financial instruments (continued)
Financial assets (continued)
Classification and subsequent measurement
A financial asset is classified either as being; measured subsequently at fair value (either through other comprehensive income
or through profit or loss), or measured at amortised cost. The classification depends on the Group’s business model for managing
the financial assets and the contractual terms of the cash flows.
All financial assets of the Group are classified as measured at amortised cost.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for
managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting period
following the change in the business model.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at fair value
reported in profit or loss:
•
•
it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
Financial assets at amortised cost are subsequently measured at amortised cost using the effective interest method. The
amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairments are
recognised in profit or loss. Any gain or loss on de-recognition is recognised in profit or loss.
Derecognition
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it
transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of
ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks
and rewards of ownership and it does not retain control of the financial asset.
Impairment of financial assets
The Group recognises loss allowances for expected credit losses (ECL) on financial assets measured at amortised cost. Loss
allowances for trade receivables are always measured at an amount equal to lifetime ECL. ECL are a probability-weighted
estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the
cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). An assessment
of the ECL is calculated using a provision matrix model to estimate the loss rates to be applied to each trade receivable category.
ECL are discounted at the effective interest rate of the financial asset. Loss allowances for financial assets measured at amortised
cost are deducted from the gross carrying amount of the assets.
At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial
asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the
financial asset have occurred.
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect
of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income
that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written
off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.
Financial liabilities
The Group classifies its financial liabilities as measured at amortised cost. The classification of financial instruments is determined
at initial recognition in accordance with the substance of the contractual arrangement into which the Group has entered.
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Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Financial liabilities (continued)
Financial liabilities measured at amortised cost include non-derivative financial liabilities which are held at original cost, less
amortisation. Financial liabilities measured at amortised cost comprise mainly trade and other payables and borrowings (see
below for the separate accounting policies for each specific financial liability).
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount presented in the Consolidated Balance Sheet when, and
only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net
basis or to realise the asset and settle the liability simultaneously.
Comparative period financial instruments accounting policy under IAS 39 Financial Instruments:
Recognition and Measurement.
The Group classifies its financial assets as loans and receivables and has financial liabilities measure at amortised cost. The
classification of financial instruments is determined at initial recognition in accordance with the substance of the contractual
arrangement into which the Group has entered.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that arise principally through the
provision of services to customers. They are initially recognised at fair value and are subsequently stated at amortised cost using
the effective interest method. They are included in current assets except for maturities greater than 12 months after the end of
the reporting period. Loans and receivables comprise mainly cash and cash equivalents and trade and other receivables (see
above for the separate accounting policies for each specific financial asset).
Impairment of financial assets
Impairment of financial assets are recognised when there is objective evidence (such as significant financial difficulties on the
part of the counterparty, or default or significant delay in payment) that the Group will be unable to collect all of the amounts due
under the terms receivable. The amount of such a provision is the difference between the net carrying amount and the present
value of the future expected cash flows associated with the impaired financial asset.
Financial liabilities measured at amortised cost
Financial liabilities measured at amortised cost include non-derivative financial liabilities which are held at original cost, less
amortisation. Financial liabilities measured at amortised cost comprise mainly trade and other payables and borrowings (see
below for the separate accounting policies for each specific financial liability).
Fair value measurement
The Group measures non-financial assets such as investment properties, at fair value at each balance sheet date. Fair value is
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or
transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in
the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by
the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial
asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best
use or by selling it to another market participant that would use the asset in its highest and best use.
83
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Fair value measurement (continued)
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets
and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
•
•
•
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable
Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines
whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input
that is significant to the fair value measurement as a whole) at the end of each reporting period.
External valuers are involved for valuation of investment properties and assets held for sale. At each reporting date, the Directors
consider movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the Group’s
accounting policies. For this analysis, the Directors consider the major inputs applied in the latest valuation by reviewing the
information in the valuation computation to valuation reports and other relevant documents.
The Directors, in conjunction with the Group’s external valuers, also compare the change in the fair value of each asset and
liability with relevant external sources to determine whether the change is reasonable.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above.
Fair-value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair
values are disclosed, are summarised in Note 27 ‘Fair Value Measurement’.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in share
premium as a deduction from the proceeds.
Dividend distribution
Final dividends to the Group’s shareholders are recognised as a liability in the Group’s financial statements in the period in which
the dividends are approved by the Group’s shareholders. Interim dividends are recognised when they are paid.
Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business. These
are classified as current liabilities if payment is due in one year or less. If payment is due at a later date they are presented as
non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
rate method.
Trade payables include the liability for vehicles held on consignment with the corresponding asset included within inventories.
84
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Borrowings
Borrowings comprise asset backed finance, mortgages and bank borrowings; they are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently carried at amortised cost. Any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the Consolidated Statement of Comprehensive Income over the
period of the borrowings using the effective interest method.
Bank overdrafts, which form an integral part of the Group’s cash management, are included as a component of loans and
borrowings for the purpose of presentation in the Consolidated Statement of Cash Flows. Bank overdrafts are presented within
borrowings in current liabilities in the Consolidated Balance Sheet.
Provisions
A provision is recognised in the Consolidated Balance Sheet when the Group has; a present legal or constructive obligation as
a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable
estimate can be made of the obligation. If the effect is material provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks
specific to the liability. The increase in the provision due to the passage of time is recognised in finance costs.
Dilapidation provision
The Group operates from a number of leasehold premises and is typically required by the terms of the lease to restore leased
premises to their original condition on vacation of the premises at the end of the lease term. Estimates of dilapidation costs are
calculated in accordance with the specific remediation requirements stipulated in each lease contract. At the point at which these
remediation costs can be reliably estimated, a provision is recognised.
Restructuring (closed sites) provision
Provisions for restructuring costs are recognised at the point when a detailed restructuring plan is in place and the Group has
either started to implement the plan or has announced the main features of the plan to those affected. Restructuring provisions
include only direct expenditures necessarily entailed by the restructuring.
Vacant property provision
The Group recognises provisions for all vacant leasehold property which the Group has substantially ceased to use for the
purpose of its business and where subletting is unlikely, or would be at a reduced rental compared to that being paid under the
head lease. The provision recognised represents the estimated future unavoidable costs of meeting the obligations under the
leases during the remaining lease term.
Revenue recognition
The Group has applied IFRS 15 Revenue from Contracts with Customers using the cumulative effect method; therefore, the
comparative information has not been restated in accordance with the transition exemptions available under IFRS 15. The
following reflects the new revenue recognition policy adopted for the current reporting period onwards.
Revenue is measured based on the consideration received or receivable as specified in a contract with a customer and represents
amounts receivable for goods supplied, stated net of discounts, returns and value added taxes. Revenue excludes amounts
collected on behalf of third parties. Revenue comprises sales and charges for vehicles sold and services rendered during the
period, including sales to other Marshall of Cambridge (Holdings) Limited group companies but excluding inter-company sales
within the Group.
85
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Revenue recognition (continued)
The Group recognises revenue when it transfers control over a product or service to a customer, as described below.
Sale of motor vehicles, parts and aftersales services
The Group generates revenue through the sale of new and used motor vehicles and through the provision of aftersales services
in the form of vehicle servicing, maintenance and repairs. The Group recognises revenue from the sale of new and used motor
vehicles when a customer takes possession of the vehicle, at which point they have an obligation to pay in full and as such control
is considered to transfer at this point. The Group typically receives cash equal to the invoice amount for most direct retail sales
to consumers at the time the consumer takes possession of the vehicle. When the consumer has taken out a finance (PCP)
agreement to purchase the vehicle, the Group receives payment from the finance company at the time the consumer takes
possession of the vehicle. Payment terms on sales to corporate customers typically range from 7 to 60 days. The Group
recognises revenue from the provision of aftersales services when the service has been completed, at which point customers
have an obligation to pay in full. The Group typically receives cash equal to the invoice amount for most direct retail sales to
consumers at the time the service has been completed. Payment terms on sales to corporate customers typically range from
30 to 60 days.
Sale of warranty products
Income received in respect of warranty policies sold and administered by the Group is recognised over the period during which
a customer can exercise their rights under the warranty; as such, revenue is recognised over the period of the policy on a straight
line basis. This is not a material revenue stream for the Group.
Commission income
The Group receives commissions when it arranges vehicle financing and related insurance products for its customers to purchase
its products and services, acting as agent on behalf of various finance and insurance companies. Commissions are based on
agreed rates.
Where the Group acts as an agent on behalf of a principal, the associated income is recognised within revenue on completion
of the arranging of the various products (i.e. at the point at which control passes to the customer).
Rental income
Rental income arising from operating leases on investment properties is recognised in revenue on a straight line basis over the
period of the lease. Rental income is not disclosed separately from revenue from contracts with customers in the Consolidated
Statement of Comprehensive Income due to the immateriality of this income stream.
Contract liabilities
Where the Group receives an amount of consideration in advance of completion of performance obligations under a contract
with a customer, the value of the advance consideration is initially recognised as a contact liability in liabilities. Revenue is
subsequently recognised as the performance obligations are completed over the period of the contract (i.e. as control is passed
to the customer). Contract liabilities are presented within trade and other payables in the Consolidated Balance Sheet and
disclosed in Note 22 ‘Trade and Other Payables’.
Contract costs
The Group applies the practical expedient in paragraph 94 of IFRS 15 and recognises the incremental costs of obtaining contracts
as an expense when incurred if the amortisation period of the assets that the Group otherwise would have recognised is one
year or less.
Transaction price allocation to remaining performance obligations
The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining
performance obligations that have original expected durations of one year or less.
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Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Revenue recognition (continued)
Disaggregation of revenue
Revenue recognised from contracts with customers has been disaggregated into categories that depict how the nature, amount,
timing and uncertainty of revenue and cash flows are affected by economic factors. This disclosure, as well as the reconciliation
between the disaggregated revenue disclosures and the revenue figures disclosed for each of the Group’s reportable segments,
is made in Note 5 ‘Segmental Information’.
Comparative period revenue recognition accounting policy under IAS 18 Revenue
Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods
supplied, stated net of discounts, returns and value added taxes. The Group recognises revenue when the amount of revenue
can be reliably measured, when it is probable that future economic benefits will flow to the entity, and when specific criteria have
been met for each of the Group’s activities, as described below.
Revenue comprises sales and charges for vehicles sold and services rendered during the year including sales to other Marshall
of Cambridge (Holdings) Limited group companies but excluding inter-company sales within the Group. Revenue from the sale
of new and used vehicles is recognised at the point at which a customer takes possession of a vehicle. Revenue in respect of
other services is recognised once the service has been provided. Income received in respect of warranty policies sold and
administered by the Group is recognised over the period of the policy on a straight line basis.
Where the Group acts as an agent on behalf of a principal, the associated income is recognised within revenue in the period in
which the product is sold. Revenue also comprises commissions receivable for arranging vehicle financing and related insurance
products. Commissions are based on agreed rates and the income is recognised when the vehicle is recognised as sold.
Rental income
Vehicles leased out under finance leases, which are leases where substantially all the risks and rewards of ownership of the
assets are passed to the lessee and hire purchase contracts, are shown as debtors in the Consolidated Balance Sheet at the
amount of the net investment in the lease. The interest elements of the rental obligations are credited to the Consolidated
Statement of Comprehensive Income over the period of the lease and are apportioned based on a pattern reflecting a constant
periodic rate of return. Finance lease income is presented in revenue.
Rental income arising from operating leases on vehicles and investment properties is recognised in revenue on a straight line
basis over the period of the lease. Vehicles leased out under operating leases are held within property, plant and equipment at
their cost to the Group and are depreciated to their residual values over the terms of the leases. The vehicle assets held for
contract rental are transferred into inventory at their carrying amount when they cease to be leased out and become available
for sale in the Group’s ordinary course of business.
Deferred income
Where the Group receives an amount in advance of future income streams the value of the receipt is amortised over the period
of the contract as the services are delivered. The unexpired element is disclosed in other liabilities as deferred income.
Supplier income
The Group receives income from brand partners and other suppliers. The Group receives income from its suppliers based on
specific agreements in place. These are generally based on achieving certain objectives such as specific sales volumes and
maintaining agreed operational standards. This supplier income received is recognised as a deduction from cost of sales at the
point when it is reasonably certain that the targets have been achieved for the relevant period and when income can be measured
reliably based on the terms of each relevant supplier agreement.
Supplier income that has been earned but not invoiced at the balance sheet date is recognised in other receivables and primarily
relates to volume-based incentives that run up to the period end.
87
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Discontinued operations
A discontinued operation is a component of the Group that has been disposed of and that either represents a separate major line
of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or
geographical area of operations or is a subsidiary which was acquired exclusively with a view to resale. The results of discontinued
operations are presented separately in the Consolidated Statement of Comprehensive Income.
Leases
A lease is an agreement whereby the lessor conveys to the lessee, in return for a payment or a series of payments, the right to
use a specific asset for an agreed period of time. Leases under which the Group assumes substantially all the risks and rewards
of ownership of the underlying asset are classified as finance leases. All other leases are classified as operating leases.
Group as lessee
Rental charges payable under operating leases are charged to the Consolidated Statement of Comprehensive Income on a
straight line basis over the lease term.
Group as lessor
Where the Group is a lessor under an operating lease, the asset is capitalised within property, plant and equipment and
depreciated over its useful economic life or is capitalised within investment property. Payments received under operating leases
are recognised in the Consolidated Statement of Comprehensive Income on a straight-line basis over the term of the lease.
Where the Group is a lessor under a finance lease, the amount due from the lessee is recognised as a receivable at the amount
of the Group’s net investment in the lease. Finance lease income is allocated to accounting periods to reflect a constant periodic
rate of return on the Group’s net investment outstanding in respect of the lease. The Group’s finance lease as lessor activates
were discontinued in the prior period following the disposal of Marshall Leasing Limited.
Share-based payments
The Group operates a number of equity-settled, share-based compensation plans through which the Group allows employees
to receive shares in the Company.
Equity-settled share-based payments are measured at fair value (calculated excluding the effect of service and non-market based
performance vesting conditions) at the date of grant. The share-based payment charge to be expensed is determined by reference
to the fair value of share options granted and is recognised as an employee expense within underlying earnings, with a
corresponding increase in equity.
The share-based payment charge is recognised on a straight-line basis over the vesting period (being the period over which all
vesting conditions are to be satisfied). An award subject to graded vesting is accounted for as though it were multiple, separate
awards, the number of awards being determined in direct correlation to the number of instalments in which the options vest.
The share-based payment charge is based on the Group’s estimate of the number of options that are expected to vest. At each
balance sheet date, the Group revises its estimates of the number of options that are expected to vest based on the non-market
performance vesting conditions and service conditions. The Group’s remuneration policy gives the Remuneration Committee
discretion to revise performance conditions to adjust for the impact of Group restructurings and reorganisations on incentive
outcomes. The impact of any revisions to original vesting estimates or performance conditions is recognised in the Consolidated
Statement of Comprehensive Income with a corresponding adjustment to equity.
Social security contributions payable in connection with share options granted are considered to be an integral part of the grant
and are, therefore, treated as cash-settled transactions. For cash settled share-based payments, the Group recognises a liability
for the services acquired, measured initially at the fair value of the liability. This liability is re-measured at each balance sheet
date and at the date of settlement, with any changes in fair value recognised in the Consolidated Statement of Comprehensive
Income.
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Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Share-based payments (continued)
When options are exercised, the Company issues new shares. These shares are gifted to the Employee Benefit Trust by the
Company at nominal value. The cost of these shares is recognised as a reduction to equity in the own shares reserve. When the
options are exercised and the shares transferred to the employees, the cost on the own shares reserve is transferred to equity.
When options issued by the Employee Benefit Trust are exercised the own shares reserve is reduced and a gain or loss is
recognised in reserves based on proceeds less weighted-average cost of shares initially purchased now exercised.
Where shares options are forfeited, effective from the date of the forfeiture, any share-based payment charge previously
recognised in both the current and prior periods in relation to these options is reversed though the Consolidated Statement of
Comprehensive Income with a corresponding adjustment through the Consolidated Statement of Changes in Equity.
Net finance costs
The Group has no borrowing costs with respect to the acquisition or construction of qualifying assets, therefore, no borrowing
costs are capitalised. Qualifying items of property, plant and equipment are considered to be those which take a substantial
period of time to get ready for their intended use. These would include assets which are under construction for periods in excess
of a year; the Group’s dealership development programmes are not considered to qualify.
Finance costs
Finance costs comprise interest payable on borrowings, stock financing charges and other interest.
Finance income
Finance income comprises interest receivable on funds invested. Interest income is recognised in the Consolidated Statement
of Comprehensive Income as it accrues using the effective interest method.
Taxation
The taxation charge comprises corporation tax payable, deferred tax and any adjustments to tax payable in respect of previous
years.
Current taxation
The current tax payable is based on the Group’s taxable profit for the year. Taxable profit differs from net profit as reported in the
Consolidated Statement of Comprehensive Income because it excludes items of income or expenditure that are taxable or
deductible in other years and items of income or expenditure that are never taxable income or tax deductible expenditure. The
Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet
date.
Deferred taxation
Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amount of assets and
liabilities in the consolidated financial statements and their tax bases used in the computation of taxable profit. Deferred taxation
is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to
the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the
initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, except for deferred tax liabilities where
the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference
will not reverse in the foreseeable future.
89
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Taxation (continued)
Deferred taxation (continued)
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the
deductible temporary differences can be utilised. The carrying amount of deferred tax assets are reviewed at each balance sheet
date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
The Group’s deferred tax balances are calculated using tax rates that have been enacted or substantively enacted by the balance
sheet date and that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged
or credited in the income statement, except where it relates to items charged or credited directly to other comprehensive income
or equity, in which case the deferred tax is also dealt with in other comprehensive income or equity respectively.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current
tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either
the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Pensions
Defined contribution pension plans
A defined contribution plan is a pension plan under which the employer/employee pays contributions into a separate fund managed
and administered by a third party. The employer has no legal or constructive obligation to pay further contributions if the fund
does not hold sufficient assets to pay employees the benefits relating to their service and contributions in current and prior periods.
The Group operates the Marshall Motor Holdings Defined Contribution Pension Scheme.
Until 31 December 2018, the Group also participated in the defined contribution section of the Marshall Group Executive Pension
Plan (“the Plan”) which is operated by Marshall of Cambridge (Holdings) Limited acting as principal employer. The Plan also has
a defined benefit section
Where the Group makes employer pension contributions, the Group’s contributions to both sections of the Plan are charged to
the Consolidated Statement of Comprehensive Income as they become payable.
Defined benefit pension plans
A defined benefit plan is a pension plan which defines the amount of pension benefit that an employee will receive on retirement,
usually dependant on one or more factors such as age, years of service and remuneration.
By virtue of historic employment relationships, the Group was, until 31 December 2018, a participating employer in the defined
benefit pension section of the Marshall Group Executive Pension Plan (“the Plan”). The Plan is non-sectionalised, therefore, the
assets of the Plan are not allocated to or directly associated with individual participating employers of the Plan. There is no
contractual agreement or stated policy for charging the net defined benefit cost between participating employers in the Plan,
therefore, any contributions would be accounted for as if they were being made to a defined contribution scheme.
On 31 December 2018, the Group ceased to be a participating employer in the Plan as a result of it no longer employing any
active members of the defined contribution section of the Plan. Accordingly, on 31 December 2018, a debt was triggered under
Section 75 of the Pension Act 1995 on the Group (“Employer Debt”). On 7 February 2019 the Plan’s actuary issued a certificate
for the purposes of Regulation 5(18) and Regulation 6(8) of the Occupational Pension Schemes (Employer Debt) Regulations
2005 confirming that the Employer Debt at 31 December 2018 was £5,541,000. On 25 February 2019 the Group paid the
Employer Debt (together with Trustee expenses of £25,000) to the Trustees of the Plan and entered into a Deed of De-Adherence
with the Trustees and Marshall of Cambridge (Holdings) Limited confirming the discharge of the Group from the trusts of the Plan
and from any further obligations in relation to the Plan with effect from that date. The Employer debt was utilised against the
provision of £6,000,000 recognised in the financial statements for the year ended 31 December 2017.
Details of the latest actuarial valuation of the Plan are disclosed in the financial statements of the principal employer, Marshall of
Cambridge (Holdings) Limited.
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Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
2. Accounting policies (continued)
Alternative performance measures
Certain items recognised in reported profit or loss before tax can vary significantly from year to year, therefore, these create
volatility in reported earnings which does not reflect the Group’s underlying performance. The Directors believe that the ‘underlying
profit before tax’ and ‘underlying basic earnings per share’ measures presented provide a clear and consistent presentation of
the underlying performance of the Group’s on-going business for shareholders. Underlying profit is not defined under IFRS,
therefore, it may not be directly comparable with the ‘adjusted’ profit measures of other companies.
Non-underlying items are defined as follows:
– Acquisition costs;
– Profits/losses arising on closure or disposal of businesses;
– Restructuring and reorganisation costs – these are one-off in nature and do not relate to the Group’s underlying performance;
Investment property fair value movements – these reflect the difference between the fair value of an investment property at
–
the reporting date and its carrying amount at the previous reporting date;
– One-off tax items and pension charges; and
– Asset impairments.
Similarly, the Directors believe that the impact of acquisitions and disposals distort the value of comparative information provided.
Therefore, the measure of ‘like-for-like’ financial performance is used to present consistent, comparative information. Results on
a ‘like-for-like’; basis include only the Group’s businesses that have been active and trading for a period of 12 consecutive months.
Business that are excluded from the definition of ‘like-for-like’ are those sites that have recently commenced operation, therefore
do not have a 12-month trading history, as well as any businesses that were closed and market segments or activities that were
ceased during the current or previous year. See Appendix on page 143 for full details.
3. Changes in accounting policies and disclosures
Except where disclosed otherwise in this note, the accounting policies adopted in the preparation of the consolidated financial
statements are consistent with those applied when preparing the consolidated financial statements for the year ended
31 December 2017.
New standards, amendments and interpretations adopted by the Group
The following amendments to existing standards became effective on 1 January 2018 and have been adopted in the consolidated
financial statements for the first time during the year ended 31 December 2018. These have been assessed as having no financial
or disclosure impact on the numbers presented.
•
•
IAS 40 Transfers to Investment Property (amendments to IAS 40)
IFRS 2 Classification and Measurements of Share-based Payment Transactions (amendments to IFRS 2)
IFRS 2 Classification and Measurements of Share-based Payment Transactions (amendments to IFRS 2)
The IASB issued amendments to IFRS 2 Share-Based Payment that address three main areas. These are: the effects of vesting
conditions on the measurement of a cash-settled share-based payment transaction, the classification of a share-based payment
transaction with net settlement features for withholding tax obligations and accounting where a modification to the terms and
conditions of a share-based payment transaction changes its classification from cash settled to equity settled.
These amendments are adopted prospectively. Therefore, application of the amendments does not require the restating of prior
periods.
The Group’s accounting policy for cash-settled share based payments is consistent with the approach clarified in the amendments.
91
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
3. Changes in accounting policies and disclosures (continued)
New standards, amendments and interpretations adopted by the Group (continued)
IFRS 2 Classification and Measurements of Share-based Payment Transactions (amendments to IFRS 2) (continued)
The Group’s equity-settled share-based payment transactions have net settlement modification features to allow for withholding
tax obligations. The amendment permits the entire transaction to continue to be treated as equity-settled with a debit to equity at
the point of settlement to set up the liability. Any incremental fair value is charged to the Consolidated Statement of Comprehensive
Income. The Group applied the amendment to the exercises of share awards which took place in April 2018. This was the first
time the Group had utilised the option for net settlement of awards.
The following new standards became effective on 1 January 2018 for the current reporting period. The Group had to change its
accounting policies and make adjustments as a result of adopting these standards:
•
•
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
The impact of the adoption of these standards are disclosed below. The accounting policies above have been updated to include
the new accounting policies.
Impact on current period of the adoption of new standards, amendments and interpretations
a)
IFRS 9 Financial Instruments
The Group has adopted IFRS 9 Financial Instruments issued in July 2014 with a date of initial application of 1 January 2018.
The requirements of IFRS 9 represent a significant change from IAS 39 Financial Instruments: Recognition and Measurement.
The nature and effects of the key changes to the Group’s accounting policies resulting from its adoption of IFRS 9 are summarised
below.
Additionally, the Group adopted consequential amendments to IFRS 9 Financial Instruments: Disclosures that are applied to
disclosures about 2018 but generally have not been applied to comparative information in compliance with IFRS 9.
Classification of financial assets and financial liabilities
IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value reported in
other comprehensive income (FVOCI) and fair value reported in profit and loss (FVPL). The classification of financial assets
under IFRS 9 is generally based on the business model in which a financial asset is managed based on its contractual cash flow
characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for
sale. For an explanation of how the Group classifies and measures financial assets and accounts for related gains and losses
under IFRS 9, see the ‘Financial Assets’ accounting policy.
The adoption of IFRS 9 has not had a significant effect on the Group’s accounting policies for financial liabilities.
Impairment of financial assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ (ECL) model. The new impairment model applies
to financial assets measured at amortised cost. Under IFRS 9, credit losses are recognised earlier than under IAS 39.
Hedge accounting
IFRS 9 introduces a new general hedge accounting model. The Group has not previously applied hedge accounting under IAS
39, and has not commenced hedge accounting under IFRS 9; therefore, this change has had no impact on the Group’s financial
statements.
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Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
3. Changes in accounting policies and disclosures (continued)
Impact on current period of the adoption of new standards, amendments and interpretations (continued)
a)
IFRS 9 Financial Instruments (continued)
Transition
Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as described
below:
•
•
Comparative figures have not been restated. Differences in the carrying amounts of financial assets resulting from the
adoption of IFRS 9 have been recognised in opening retained earnings and reserves as at 1 January 2018 in accordance
with IFRS 9. Accordingly, the information presented for the year ended 31 December 2017 does not generally reflect the
requirements of IFRS 9 and is not comparable to the information presented for the year ended 31 December 2018 under
IFRS 9.
The assessment of the determination of the business model within which a financial asset is held has been made on the
basis of the facts and circumstances that existed at 1 January 2018, the date of initial application.
The following table summarises the impact, net of tax, of transition to IFRS 9 on reserves and retained earnings at 1 January
2018.
Closing balance as at 31 December 2017 - IAS 39
Recognition of expected credit losses from adoption of IFRS 9 on 1 January 2018
Deferred tax credit on transition adjustment
Opening balance as at 1 January 2018 - IFRS 9
£’000
119,399
(91)
15
119,323
Classification and measurement of financial assets and financial liabilities on the date of initial application of IFRS9
The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS
9 for each class of the Group’s financial assets as at 1 January 2018.
New
Original classification classification
under IFRS 9
under IAS 39
Trade and other receivables
Loans and receivables Amortised cost
Cash and cash equivalents
Loans and receivables Amortised cost
Original
carrying
amount
under IAS 39
£’000
New
carrying
amount
under IFRS 9
£’000
92,141
4,867
92,050
4,867
Trade and other receivables that were classified as loans and receivables under IAS 39 are now classified as at amortised cost.
An increase of £91,000 in the allowance for impairment was recognised in opening retained earnings as at 1 January 2018 on
transition to IFRS 9.
There has been no change in the classification and measurement of financial liabilities on the transition to IFRS 9.
b)
IFRS 15 Revenue from Contracts with Customers
The Group has adopted IFRS 15 Revenue from Contracts with Customers issued in May 2014 with a date of initial application
of 1 January 2018. As a result, the Group has changed its accounting policy for revenue recognition as detailed below.
The Group has applied IFRS 15 using the modified retrospective approach (i.e. by recognising the cumulative effect of initially
applying IFRS 15 as an adjustment to the opening balance of retained earnings as at 1 January 2018). Therefore, the comparative
information has not been restated in accordance with the transition exemptions available under IFRS 15.
No changes to the timing and measurement of revenue across the Group’s revenue streams have been identified on transition
to IFRS 15.
93
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
3. Changes in accounting policies and disclosures (continued)
New standards, amendments and interpretations not yet adopted by the Group
The following standards, amendments and interpretations were in issue, but were not yet effective at the balance sheet date.
These standards have not been applied when preparing the consolidated financial statements for the year ended 31 December
2018.
Date issued
Effective for
accounting periods
beginning on or after
IFRS 16 Leases (see below) January 2016
IFRIC 23 Uncertainty over Income Tax Treatments June 2017
1 January 2019
1 January 2019
Impact on future periods of the adoption of new standards, amendments and interpretations
IFRS 16 Leases
Overview
IFRS 16 Leases was issued by the IASB in January 2016 and will replace IAS 17 Leases, IFRIC 4 Determining whether an
arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions
Involving the Legal Form of a Lease. IFRS 16 is due to take effect for accounting periods commencing on or after 1 January
2019. The Group will adopt the new standard in 2019 and will apply IFRS 16 for the first time in the interim report for the six
months ending 30 June 2019 and the annual report for the year ending 31 December 2019.
Lessee accounting
IFRS 16 removes the current distinction between operating leases and finance leases and requires that, for all leases, a right-of-
use asset and a financial liability are recognised in the Consolidated Balance Sheet. The asset represents the right to use the
leased asset and the financial liability represents the commitments payable under the lease and is substantively different to the
existing accounting.
Operating lease rental charges in the Consolidated Statement of Comprehensive Income will be replaced by interest charges
and depreciation expenses. The timing of the recognition of these lease costs will also change on adoption of IFRS 16, with
increased costs being recognised in the earlier years of the lease due to interest being recognised at a constant rate on the
carrying value of the lease liability.
The classification of lease payments in the Consolidated Statement of Cash Flows changes from being exclusively operating
cash flows to a combination of operating cash flows (reflecting the interest portion of lease payments) and financing cash flows
(reflecting the principal portion of the lease liability).
Lessor accounting
With the exception of where the Group is an intermediate lessor, the adoption of IFRS 16 Leases does not significantly change
the Group’s lessor accounting. Lessors will continue to classify leases using the same classification principle as in IAS 17 and
will continue to distinguish between two types of leases: operating leases and finance leases. On adoption of IFRS 16, in situations
where the Group is an intermediate lessor, the Group will account for its interests in head leases and sub-leases separately.
Based on initial impact assessments completed to date, the Group anticipates that the majority of properties for which the Group
is an intermediate lessor (i.e. sublets property in which it has an interest as lessee in a head lease) will meet the definition of a
finance lease and will be accounted for and disclosed as such on adoption if IFRS 16. As a result, new finance lease receivables
will be recognised on adoption of IFRS 16.
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Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
3. Changes in accounting policies and disclosures (continued)
Impact on future periods of the adoption of new standards, amendments and interpretations (continued)
IFRS 16 Leases (continued)
Transition
The Group is currently finalising a detailed impact assessment to determine the impact and transition adjustments that the adoption
of IFRS 16 will have on the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Cash Flows and
the Consolidated Balance Sheet.
As a result of these assessments, the Group currently expects to adopt the standard using the retrospective method. Therefore,
the cumulative impact of adoption will be recognised in retained earnings as of 1 January 2018 and comparatives for 2018 will
be restated.
The Group intends to apply the recognition exemptions available for short-term leases and leases for low-value assets, both of
which exist in the Group’s lease portfolio. The Group also intends to elect to apply the practical expedient permitting IFRS 16 to
be applied only to contracts that were previously identified as leases under IAS 17 and IFRIC 4. Therefore, the Group will not
apply IFRS 16 to contracts that were not previously identified under IAS 17 and IFRIC 4 as containing a lease. At this stage, the
Group is not aware of any leases where the definition may differ between IFRS 16 and IAS 17/IFRIC 4.
Estimated financial impact of adoption
Based on analysis of the Group’s lease portfolio at the transition date, the Group’s assets are expected to increase in the region
of £86,000,000 being the net impact of the recognition of right-of-use assets, derecognition of long leasehold property costs and
the recognition of finance lease receivables on subleases. There is expected to be a corresponding approximate £92,500,000
increase in liabilities resulting from the net effect of recognising lease liabilities and derecognising vacant property provisions.
The adoption of IFRS 16 is anticipated to result in a reduction of the Group’s net assets in the region of £6,500,000.
On restatement, an immaterial reduction to the Group’s profit before tax for the year ended 31 December 2018 is expected.
The Group continues to finalise procedures and accounting policy choices required to apply the new requirements of IFRS 16.
As a result, revisions to the estimated impact of adoption may arise prior to the issue of the 30 June 2019 Interim Report and
Accounts. However, at this time, any such revisions are not expected to be significant.
4. Significant accounting judgements, estimates and assumptions
The Directors are required to make judgements, estimates and assumptions about the future when applying the Group’s
accounting policies (as detailed in Note 2 ‘Accounting Policies’) to determine the amounts of assets, liabilities, revenue and
expenses reported in the consolidated financial statements. Actual amounts may differ from these estimates.
The Directors regularly review these judgements, estimates and assumptions and any resulting revisions to accounting estimates
are recognised in the period in which the estimate is revised. If the change in estimation impacts future accounting periods, the
revision is recognised in the current and future periods.
Critical accounting judgements
The accounting judgements and assumptions (excluding those which also involve estimates which are covered in the key sources
of estimation uncertainty section below) included in the consolidated financial statements which have a material impact on amounts
reported are as detailed below.
95
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
4. Significant accounting judgements, estimates and assumptions (continued)
Critical accounting judgements (continued)
Determination of indefinite useful economic life
Goodwill and franchise agreements are intangible assets acquired through business combinations. An asset is considered to
have an indefinite useful economic life if there is no foreseeable limit to the period over which the asset is expected to generate
net cash inflows for the Group. The useful economic life of goodwill and franchise agreements is determined at the point of initial
recognition. Each franchise agreement is different; each contract being for varying durations, with varying renewal or termination
options. Previous franchise agreements acquired have historically either been renewed without substantial cost or not had
termination options exercised. This past experience, coupled with the strength of the Group’s relationships with brand partners,
determines that these assets have indefinite useful economic lives.
Significant financing components when determining transaction prices
The nature of the Group’s activities is such that, with the exception of certain commission arrangements, the Group does not
have any contracts where the period between the transfer of the promised goods or services to the customer and payment by
the customer exceeds one year. Certain commissions are received in advance of the Group selling the associated finance or
insurance products (as an agent). The advance commissions are paid upfront and typically relate to periods of two to three years,
depending on the arrangement. The advance commissions are recognised in revenue when sales of finance or insurance products
are made. This can be over a year after the receipt of the advance.
Nevertheless, there is not deemed to be a financing component because, being an agency arrangement, the timing of the
recognition of the commission income varies on the basis of the occurrence of future events that are not substantially within the
control of the customer or the Group. As a consequence, the Group does not adjust any of the transaction prices for the time
value of money.
Key sources of estimation uncertainty
The accounting estimates included in the consolidated financial statements which have a material impact on amounts reported
are as detailed below.
Goodwill and other intangible asset impairment
Goodwill is deemed to have an indefinite useful economic life and is not amortised. As a result, the Group reviews goodwill for
impairment on at least an annual basis and more frequently where there are indicators of potential impairment. The impairment
review requires the value-in-use of each CGU to be estimated; these calculations are based on a number of assumptions. Areas
of significant judgement include:
–
–
–
–
the estimation of future cash flows
the selection of risk and the estimation of risk adjustment factors to be applied to cash flows
the selection of an appropriate discount rate to calculate present value
the selection of an appropriate terminal growth rate.
The assumptions used in the impairment test are detailed in Note 15(b) ‘Goodwill and Other Intangible Assets’. The assumptions
relating to future cash flows, estimated useful economic lives and discount rates are based on forecasts and are inherently
judgemental. Future events could result in the assumptions used needing to be revised, changing the outcome of the impairment
test and resulting in impairment charges being recognised.
96
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
4. Significant accounting judgements, estimates and assumptions (continued)
Key sources of estimation uncertainty (continued)
Inventory valuation
Inventories are stated at the lower of their cost and their net realisable value (being the fair value of the motor vehicles less costs
to sell). Fair values are assessed using reputable industry valuation data which is based upon recent industry activity and forecasts.
Whilst this data is deemed representative of the current value of vehicles held in inventory it is possible that the price at which
the vehicles are actually sold will differ from the vehicles’ industry valuations. Where this is the case, adjustments arise in the
Consolidated Statement of Comprehensive Income on the sale of vehicles held in inventory.
Industry valuations are sensitive to rapid changes in regulatory and market conditions which are difficult to anticipate. In light of
the materiality of the inventory balance in the Consolidated Balance Sheet, this uncertainty is considered to represent a key
source of estimation uncertainty. The inventory provision as at 31 December 2018 represents 2.5% of the gross inventory balance
(2017: 2.2%). A 100bps change in this ratio in 2018 would have changed the charge to the Consolidated Statement of
Comprehensive Income by approximately £4.1 million (2017: £4.0 million).
Reassessment of previous areas of estimation uncertainty
Following a review of the Group’s sources of estimation uncertainty, it has been concluded that the following are no longer key
areas of estimation that have a significant risk of resulting in a material adjustment in the next financial year to the amounts
currently reported.
Taxation
Following the payment of the settlement in respect of a tax issue inherited on acquisition (see Note 24 ‘Provisions’), the Group
currently has no material open income tax issues with the tax authorities. Therefore, estimation uncertainty inherent in the Group’s
provisions for uncertain income tax treatments is no longer considered to represent a significant risk of a material adjustment
being required to the carrying amount of either current or deferred tax provisions in subsequent accounting periods.
Where the final tax treatment applied on finalisation of the Group’s corporation tax returns differs to the assumptions used when
calculating the amounts currently recognised, these differences impact the current and/or deferred tax provisions in the period in
which the final tax treatment is determined. No single item is expected to give rise to a material adjustment in subsequent years,
neither are individual differences when taken in aggregate.
Pension provision valuation
As described in Note 32 ‘Pensions’, the Group undertook a strategic pension review in the prior year which resulted in the Group
ceasing to be a participant in the defined benefit section of the Plan in December 2018. Based on the status of discussions as at
31 December 2017, it was reasonably probable that this review would result in the Group ceasing participation in this pension
scheme. Therefore, a provision was recognised for the estimated amount which would become payable in accordance with
Section 75 of the Pensions Act 1995 were the Group to cease to participate in the Plan (the “Employer Debt”).
As a result of ceasing to participate in the defined benefit section of the Plan in December 2018, the Employer Debt was crystallised
triggering a formal actuarial valuation. Per this valuation the Employer Debt is £5,541,000, such that there is no future estimation
uncertainty.
97
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
5. Segmental information
a) Operating segments – 2018 onwards
IFRS 8 Operating Segments requires operating segments to be consistent with the internal management reporting provided to
the Chief Operating Decision Maker who is responsible for allocating resources and assessing the performance of the operating
segments. The Group considers the Chief Executive Officer to be the Chief Operating Decision Maker.
The Group has identified its key product and service lines as being its operating segments because both performance and
strategic decisions are analysed at this level. The IFRS 8 aggregation criteria have been met as a result of the Group’s key
product and service lines sharing common characteristics such as; similar types of customer for the products and services, similar
nature of the product and service offerings, similar methods used to distribute the products and provide the services and similar
regulatory and economic environment. As a result of these criteria being satisfied, the Group’s operating segments constitute
one reportable segment (retail) and all segmental information has been disclosed as such. The retail segment includes sales of
new and used vehicles, together with the associated ancillary aftersales services of; servicing, body shop repairs and parts sales.
The Group has concluded that rental income arising from investment properties does not meet the quantitative thresholds required
to constitute a reportable segment as defined in IFRS 8. Due to the non-material nature of these amounts, they are combined
with the retail segment rather than being disclosed separately. As a result, all of the Group’s activities are disclosed within the
one reportable segment – the retail segment.
Geographical information
Revenue earned from sales is disclosed by origin and is not materially different from revenue by destination. All of the Group’s
revenue is generated in the United Kingdom.
Information about reportable segment
All segment revenue, profit before taxation, assets and liabilities are attributable to the principal activity of the Group being the
provision of car and commercial vehicle sales, vehicle service and other related services.
The following tables show the disaggregation of revenue by major product/service lines for continuing operations:
Revenue Gross Profit
For the year ended 31 December 2018
£’000
£’000
mix*
mix
New Car
Used Car
Aftersales
Internal / Other
Total
1,064,830
920,237
246,116
(44,296)
47.7%
41.2%
11.1%
-
76,349
66,753
112,300
275
2,186,887
100%
255,677
29.9%
26.1%
44.0%
-
100%
Revenue Gross Profit
For the year ended 31 December 2017
£’000
£’000
mix*
mix
New Car
Used Car
Aftersales
Internal / Other
Total
1,166,471
869,733
243,064
(47,289)
51.2%
38.2%
10.6%
-
84,086
59,918
113,975
322
2,231,979
100%
258,301
32.6%
23.2%
44.2%
-
100%
*mix calculation excludes Internal / Other Sales
Prior to the disposal of Marshall Leasing Limited, the Group’s business was split into two main revenue-generating operating
segments and a third support segment. No significant judgments were made in determining the reporting segments.
98
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
5. Segmental information (continued)
b) Operating segments – prior periods
Retail
The retail segment included sales of new and used vehicles, together with the associated ancillary aftersales services of; servicing,
body shop repairs and parts sales.
Leasing
The leasing segment included the leasing of vehicles to end consumers and fleet customers.
Unallocated
The unallocated segment included the Group’s head office and central management functions including; the Board, group finance
functions, the human resources department, the IT department and all governance and compliance related functions in support
of the wider business. Also included was rental income arising from investment properties.
All segment revenue, profit before taxation, assets and liabilities were attributable to the principal activity of the Group being the
provision of car and commercial vehicle sales, leasing, vehicle service and other related services.
Geographical information
Revenue earned from sales was disclosed by origin and was not materially different from revenue by destination. All of the
Group’s revenue was generated in the United Kingdom.
Information about reportable segments
Information related to each reportable segment is set out below.
For the year ended 31 December 2017
Revenue
Total revenue
Total revenue from external customers
Depreciation and amortisation
Segment operating profit/(loss)
Other income - profit on disposal of subsidiary
Net finance costs
Underlying profit/(loss) before tax
Non-underlying items
Profit/(loss) before taxation
Total assets
Total liabilities
Retail
£’000
Leasing
(Discontinued)
£’000
Unallocated
£’000
Total
£’000
2,231,696
2,231,696
(9,190)
34,714
-
(6,586)
34,911
(6,783)
28,128
762,304
537,064
36,969
36,969
(4)
4,286
36,851
(580)
3,706
36,851
40,557
-
-
283
283
(27)
(14,617)
-
(933)
(9,550)
(6,000)
(15,550)
2,268,948
2,268,948
(9,221)
24,383
36,851
(8,099)
29,067
24,068
53,135
3,367
765,671
37,397
574,461
Additions in the period (including acquisitions)
Property, plant, equipment and software assets
24,365
34,700
-
59,065
99
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
6. Profit before taxation
Profit before taxation is arrived at after charging / (crediting):
Depreciation of assets held for contract rental (note 16) (Discontinued)
Depreciation of property, plant and equipment (note 16)
Amortisation of other intangibles (note 15)
Profit on disposal of assets classified as held for sale (note 7)
Loss on disposal of property plant and equipment
Loss on impairment of property, plant and equipment (note 16)
Loss on disposal of investment property
Operating lease rentals - property
Operating lease rentals - vehicles and equipment
Intangible assets impairment
7. Non-underlying items
Continuing operations
Post-retirement benefits charge
Profit on disposal of assets classified as held for sale
Net release/(recognition) of restructuring costs and provisions
Loss on disposal of investment property
Loss on impairment of goodwill and other intangible assets
Discontinued operations
Profit on disposal of subsidiary
Non-underlying items
Post-retirement benefits charge
2018
£’000
-
8,975
352
(268)
67
87
1,146
11,363
1,340
9,302
2018
£’000
-
268
3,217
(1,146)
(9,302)
(6,963)
589
(6,374)
2017
£’000
15,962
8,917
304
-
1,085
945
-
11,698
824
-
2017
£’000
(6,000)
-
(6,783)
-
-
(12,783)
36,851
24,068
See Note 32 ‘Pensions’ for further details of the transaction giving rise to the post-retirement benefits charge in the prior year.
Profit on disposal of assets classified as held for sale
In May 2018, the Group sold the freehold property classified as held for sale as at 31 December 2017 for a profit of £268,000.
Net release/(recognition) of restructuring costs and provisions
Restructuring costs during the current year include costs incurred as a result of the closure of one of the Group’s franchised
dealerships. The closure arose in the context of the UK wide franchise network review carried out by Vauxhall. Restructuring
costs include vacant property related costs of £154,000, redundancy costs of £280,000 and £252,000 of tangible asset impairment
losses and write offs. Also included in the current year is a £4,160,000 release of vacant property and dilapidation provisions
following the better than expected exit from lease commitments noted above on premises no longer used by the Group.
£3,234,000 of the release relates to the exiting of a lease through the acquisition and immediate disposal of an investment property.
Restructuring and reorganisation costs in the prior period represent the costs incurred as a result of the closure of five franchised
dealerships and one used car centre.
100
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
7. Non-underlying items (continued)
Loss on disposal of investment property
In December 2018 the Group disposed of the investment property acquired in the year for proceeds of £4,654,000; resulting in
a loss on disposal of £1,146,000. The acquisition and immediate disposal of the investment property provided the Group with a
better than expected exit from the lease commitment.
Loss on impairment of goodwill and other intangible assets
See Note 15 ‘Goodwill and Other Intangible Assets’ for further details of the transaction giving rise to the loss on impairment of
goodwill and other intangible assets.
Profit on disposal of subsidiary
See Note 8 ‘Discontinued Operations’ for further details of the transaction giving rise to the profit on disposal of subsidiary.
8. Discontinued operations
In November 2017 the Group disposed of Marshall Leasing Limited and its subsidiary (Gates Contract Hire Limited). A retention
of £1,500,000 was withheld in respect of anticipated settlement of legacy defined benefit pension obligations triggered by the
change in ownership of Marshall Leasing Limited. In April 2018, the surplus retention withheld was calculated and returned to the
Group, generating an additional £589,000 profit on disposal of Marshall Leasing Limited and its subsidiary.
a) Details of the sale of subsidiary
Gross disposal consideration in cash
Pension retention
Net disposal consideration in cash
Less carrying value of net assets sold at 24 November 2017:
– Property, plant and equipment
– Deferred tax
– Trade and other receivables
– Bank overdraft
– Trade and other payables
– Asset backed borrowings
– Corporation tax
Gain on sale of subsidiary before income tax
Transaction costs
Net gain on sale of subsidiary before income tax
Income tax expense on gain
Gain on sale of subsidiary after income tax
Cash inflow on disposal of subsidiary:
Net disposal consideration in cash
Disposal of bank overdraft
Net cash flow from sale of discontinued operation
101
2018
£’000
1,500
(911)
589
-
-
-
-
-
-
-
-
589
-
589
-
589
589
-
589
2017
£’000
42,500
(1,500)
41,000
78,959
1,547
2,510
(3,695)
(8,120)
(68,185)
(680)
2,336
38,664
(1,813)
36,851
-
36,851
41,000
3,695
44,695
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
8. Discontinued operations (continued)
b) Discontinued cash flow information
Net cash inflow from operating activities
Purchase of property, plant, equipment and software
Proceeds from disposal of property, plant and equipment
Net cash outflow from investing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Net cash outflow from financing activities
Net decrease in cash generated by the subsidiary
c) Discontinued profit before taxation information
Revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
Other income - gain on disposal of subsidiary
Net finance costs
Profit before taxation
9. Auditor’s remuneration
During the year the Group obtained the following services from the Group’s auditors:
Audit services:
– fees payable to the Company’s auditors for the audit of the parent
Company and consolidated financial statements
– audit of Group’s subsidiaries
Fees payable to the Company’s auditors for other services:
– review of interim condensed consolidated financial statements
Total auditor’s remuneration
102
2018
£’000
-
-
-
-
-
-
-
-
-
2018
£’000
-
-
-
-
-
589
-
589
2017
£’000
16,027
(34,700)
9,474
(25,226)
31,778
(28,106)
(18,712)
(15,040)
(24,239)
2017
£’000
36,969
(30,159)
6,810
(2,524)
4,286
36,851
(580)
40,557
2018
£’000
2017
£’000
200
78
36
314
215
78
36
329
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
10. Employees and directors
a)
Employee costs for the Group during the year
The aggregate remuneration of employees and directors was:
Wages and salaries
Social security costs
Other pension costs
Share based payments
Employee costs are included in:
Cost of sales
Net operating expenses
The average number of employees (including Executive Directors) was:
Retail
Leasing (Discontinued)
Unallocated (Discontinued)
2018
£’000
114,367
13,383
1,999
732
2017
£’000
115,905
13,553
8,059
1,005
130,481
138,522
2018
£’000
13,505
116,976
130,481
2018
3,749
-
-
3,749
2017
£’000
13,750
124,772
138,522
2017
3,616
43
264
3,923
The average number of Group employees excludes temporary and contract staff.
b) Directors’ emoluments
Details of the remuneration of the Directors, their share incentives and pension entitlements are set out in the Directors’
Remuneration Report on pages 53 to 60.
c) Key management compensation
The following table details the aggregate compensation paid in respect of key management personnel – which comprises both
senior management who sit on the enlarged operational board and statutory directors.
Wages and salaries
Post-employment benefits
Compensation for loss of office
Share-based payments
Details of the share option schemes are provided in Note 29 ‘Share-Based Payments’.
2018
£’000
5,249
179
-
732
6,160
2017
£’000
4,805
273
52
1,005
6,135
103
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
11. Net finance costs
Interest income on short term bank deposits
Net interest payable on asset backed finance (Discontinued)
Stock financing charges and other interest
Interest payable on bank borrowings
Net finance costs
12. Taxation
a)
Taxation charge
Current tax
Current tax on profits for the year
Adjustments in respect of prior years
Total current tax charge
Deferred tax
Origination and reversal of temporary differences
Adjustments in respect of prior years
Total deferred tax charge / (credit) (note 25)
Total taxation charge
Income tax expense is attributable to:
Profit from continuing operations
Profit from discontinued operation
Total taxation charge
2018
£’000
(13)
-
5,395
980
6,362
2018
£’000
5,106
(724)
4,382
650
(257)
393
4,775
4,775
-
4,775
2017
£’000
(11)
580
5,385
2,145
8,099
2017
£’000
5,651
50
5,701
(2,015)
110
(1,905)
3,796
3,080
716
3,796
The tax charge on discontinued operations amounting to £nil (2017: £716,000) all relates to tax payable on profit from operations.
104
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
12. Taxation (continued)
b) Reconciliation of tax charge
The tax charge for the year differs from the standard rate of corporation tax in the UK of 19%. The differences are explained below:
Profit before taxation
Notional taxation charge at corporation tax rate
of 19.00% (2017: 19.25%)
Effects of:
Tax effect of items not deductible for tax purposes1
Non-taxable gain on sale of subsidiary
Loss/(profit) on disposal of non-qualifying assets
Adjustments in respect of prior years
Derecognition of brought forward losses previously recognised
Utilisation of brought forward losses previously unrecognised
Effect of difference between closing deferred tax rate
and current tax rate
Taxation charge and effective tax rate
2018
£’000
19,293
2018
%
2017
£’000
53,135
2017
%
3,666
19.00%
10,228
19.25%
2,189
(111)
100
(981)
43
-
(131)
4,775
11.35%
(0.58%)
0.52%
(5.08%)
0.22%
-
(0.68%)
24.75%
630
(7,094)
(145)
160
-
(31)
48
3,796
1.19%
(13.36%)
(0.27%)
0.30%
-
(0.06%)
0.09%
7.14%
1 Expenses not deductible for tax purposes predominantly consist of depreciation charges on non-qualifying assets, the creation of capital losses, and non-deductible
amortisation.
The applicable corporation tax rate is calculated at 19% (2017: 19.25%) of the estimated taxable profit for the year. The standard
rate of corporation tax reduced from 20% to 19% on 1 April 2017 and will reduce to 17% on 1 April 2020.
The analysis of the Group’s effective tax rate between underlying and non-underlying activities is as follows:
2018
2018
Non-
Underlying underlying
£’000
£’000
2017
2018
2017
Non-
Total Underlying underlying
£’000
£’000
£’000
2017
Total
£’000
Profit before taxation
Taxation
Effective tax rate
24,068
53,135
(1,474)
3,796
7.14%
25,667
4,395
(6,374)
19,293
380
4,775
29,067
5,270
17.12%
(5.96%)
24.75%
18.13%
(6.12%)
105
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
12. Taxation (continued)
b) Reconciliation of tax charge (continued)
Non-recurring items
The Group’s total effective tax rate for 2018 of 24.75% was influenced by the impairment of goodwill as well as by the non-taxable
gain on disposal of Marshall Leasing Limited in the prior year and profit on disposal of freehold properties shielded from chargeable
gains. The 2018 underlying effective tax rate of 17.12% is lower than the Group’s expected underlying effective tax rate due to
the impact of substantial credits in respect of return to provision true-ups resulting from the filing in 2018 of retrospective capital
allowances claims on the Group’s historic capital expenditure. Excluding the impact of these, the underlying effective tax rate
would have been 21.6%.
The prior year total effective tax rate of 7.14% was influenced by the significant non-taxable gain on disposal of a subsidiary, due
to the chargeable gain falling within the substantial shareholding exemption. Excluding this item, the total effective tax rate for the
year would have been 18.13%.
c)
Factors affecting the taxation charge of future years
Future tax charges, and the Group’s effective tax rate, may be affected by factors such as acquisitions, disposals, restructuring
and tax regime reforms.
There have been no changes to the standard rate of corporation tax announced during either 2018 or 2017.
In the budget of 16 March 2016, the Chancellor of the Exchequer announced a further 1.00% reduction to the standard rate of
corporation tax which will be applicable in the financial year beginning 1 April 2020. The Finance Act 2016, which was substantively
enacted when it received Royal Assent on 15 September 2016, reduced the corporation tax rate to 19.00% with effect from 1 April
2017 decreasing to 17.00% with effect from 1 April 2020. These changes to the rate of corporation tax will impact the amount of
future cash tax payments for which the Group will be responsible.
106
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
13. Earnings per share
Basic and diluted earnings per share are calculated by dividing the earnings attributable 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 after taking account of the dilutive impact of shares under option of 2,423,249 at 31 December 2018 (2017: 2,866,231).
Underlying earnings per share are based on basic earnings per share adjusted for the impact of non-underlying items.
From continuing operations
Underlying net profit attributable to equity holders of the parent
Non-underlying items after tax
Net profit attributable to equity holders of the parent
From continuing and discontinued operations
Underlying net profit attributable to equity holders of the parent
Non-underlying items after tax
Net profit attributable to equity holders of the parent
Number of shares
Weighted average number of ordinary shares for the purpose of basic EPS
Effect of dilutive potential ordinary shares: share options
Weighted average number of ordinary shares for the purpose of diluted EPS
From continuing operations
Basic underlying earnings per share
Basic earnings per share
Diluted underlying earnings per share
Diluted earnings per share
From continuing and discontinued operations
Basic underlying earnings per share
Basic earnings per share
Diluted underlying earnings per share
Diluted earnings per share
2018
2018
£’000
£’000
21,272
21,272
(7,343)
(7,343)
13,929
13,929
2018
2018
£’000
£’000
21,272
21,272
(6,754)
(6,754)
14,518
14,518
2017
£’000
20,807
(11,309)
9,498
2017
£’000
23,797
25,542
49,339
2018
2018
Thousands
Thousands
2017
Thousands
77,736
77,736
2,584
2,584
80,320
80,320
2018
2018
pence
pence
27.4
27.4
17.9
17.9
26.5
26.5
17.3
17.3
27.4
27.4
18.7
18.7
26.5
26.5
18.1
18.1
77,393
2,536
79,929
2017
pence
26.9
12.3
26.0
11.9
30.8
63.8
29.8
61.7
107
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
14. Dividends
A final dividend of £3,309,000 (2016: £2,864,000) for the year ended 31 December 2017 was paid in May 2018. This represented
a payment of 4.25p per ordinary share in issue at that time.
An interim dividend in respect of the year ended 31 December 2018 of £1,674,000 (2017: £1,663,000), representing a payment
of 2.15p per ordinary share in issue at that time, was paid in September 2018.
A final dividend of 6.39p per share in respect of the year ended 31 December 2018 is to be proposed at the Annual General
Meeting on 21 May 2019. The ex-dividend date will be 25 April 2019 and the associated record date will be 26 April 2019. This
dividend will be paid subject to shareholder approval on 21 May 2019 and these financial statements do not reflect this final
dividend payable.
15. Goodwill and other intangible assets
Cost
At 1 January 2017
Additions
Additions on acquisition
Write-offs
Transfers from property, plant and equipment
At 31 December 2017
Additions
At 31 December 2018
Accumulated amortisation
At 1 January 2017
Charge for the year
Disposals
At 31 December 2017
Charge for the year
Impairment
At 31 December 2018
Net book value
At 31 December 2017
At 31 December 2018
Franchise
Goodwill agreements
£’000
£’000
Software
£’000
Favourable
leases
£’000
Order
backlog
£’000
Total
£’000
49,076
72,115
-
-
(447)
-
-
22
-
-
48,629
72,137
-
-
48,629
72,137
-
-
-
-
-
9,302
9,302
-
-
-
-
-
-
-
48,629
39,327
72,137
72,137
1,079
235
-
-
57
1,371
260
1,631
376
247
-
623
295
-
918
748
713
172
769
123,211
-
-
-
172
-
172
33
57
-
90
57
-
147
82
25
-
-
235
22
(769)
(1,216)
-
-
-
-
57
122,309
260
122,569
769
-
(769)
-
-
-
-
-
-
1,178
304
(769)
713
352
9,302
10,367
121,596
112,202
108
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
15. Goodwill and other intangible assets (continued)
a) Disposals
There were no disposals in 2018.
In November 2017, the decision was made to close five franchised dealerships and one used car centre, which resulted in
goodwill of £447,000 being written off.
b)
Impairment testing
For the purpose of impairment testing, goodwill and franchise agreements are allocated to a cash generating unit (“CGU”), or to
the smallest group of CGUs where it is not possible to apportion the goodwill or intangible assets at the individual CGU level.
Each CGU or group of CGUs to which the goodwill is allocated represents the lowest level within the entity at which the goodwill
is monitored for management purposes. Goodwill and intangible assets arising on business combinations are allocated to CGUs
by determining which CGU is expected to benefit from the synergies of the business combination.
The Group’s CGUs are groups of dealerships connected by manufacturer brand. The allocation of goodwill and indefinite life
intangible assets to the CGU groups is as follows:
VW Audi Group
BMW/MINI
Jaguar/Land Rover
Mercedes-Benz/Smart
Other
Total
Goodwill
Franchise
Agreements
£’000
15,523
1,461
8,003
11,182
3,158
39,327
£’000
30,211
8,345
14,358
19,201
22
72,137
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate that the
carrying amount may not be recoverable and a potential impairment may be required. Impairment reviews have been performed
for all groups of CGUs for the years ended 31 December 2018 and 2017.
Valuation basis
The recoverable amount of the Group’s CGUs is determined by reference to their value-in-use to perpetuity calculated using a
discounted cash flow approach, with a pre-tax discount rate applied to the projected, risk-adjusted pre-tax cash flows and terminal
value. Where higher, the fair value of groups of CGUs, less costs of disposal, is taken as the recoverable amount. The fair value
amount is calculated by adding the net assets of each CGU to the estimated goodwill per CGU (budgeted EBITDA multiplied by
a goodwill premium factor). The goodwill premium factor is estimated based on brand premiums paid by our market peers in
recent acquisitions.
109
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
15. Goodwill and other intangible assets (continued)
b)
Impairment testing (continued)
Period of specific projected cash flows
The value-in-use of each CGU is calculated using cash flow projections for a five-year period; from 1 January 2019 to
31 December 2023. These projections are based on the most recent budget which has been approved by the Board; the budget
for the year ending 31 December 2019. The key assumptions in the most recent annual budget on which the cash flow projections
are based relate to expectations of sales volumes and margins and expectations around changes in the operating cost base.
The assumptions made are based on past experience, adjusted for expected changes, and external sources of information. The
cash flows include ongoing capital expenditure required to maintain the Group’s dealership network, but exclude any growth
capital expenditure projects to which the Group was not committed at the reporting date.
Growth rates, ranging from -2% to 5% (2017: 5%) have been used to extrapolate cash flows for a further four years beyond
budget, through to 31 December 2023. Growth rates for the BMW/Mini CGU have been used to extrapolate budgeted cash flows
from 2021 onwards. These growth rates reflect the products and markets in which the relevant CGU, or groups of CGUs, operate.
Growth rates are internal forecasts based on both internal and external market information.
Discount rate
The cash flow projections have been discounted using a rate derived from the Group’s pre-tax weighted average cost of capital
adjusted for industry and market risk. The discount rate used is 10.5% (2017: 10.4%).
Terminal growth rate
The cash flows after the forecast period are extrapolated into the future over the useful economic life of the group of CGUs using
a steady or declining growth rate that is consistent with that of the product and industry. These cash flows form the basis of what
is referred to as the terminal value. The growth rate to perpetuity beyond the initial budgeted cash flows applied in the value-in-
use calculations to arrive at a terminal value is 2% (2017: 2%). Terminal growth rates are based on management’s estimate of
future long-term average growth rates.
Conclusion
At 31 December 2018 the Group recorded impairment charges totalling £9,302,000; of which £8,388,000 is in respect of
BMW/MINI and £914,000 is in respect of Nissan. The impairments recorded are a consequence of the continuing deterioration
in market conditions in these brands, resulting in revised assumptions around future profitability and growth rates. The impairment
charge is recorded within net operating expenses in non-underlying items in the Consolidated Statement of Comprehensive
Income.
Sensitivity to changes in key assumptions
Impairment testing is dependent on estimates and judgements, particularly as they relate to the forecasting of future cash flows,
the discount rates selected and expected long-term growth rates.
The Group has performed a sensitivity analysis on the impairment tests using two scenarios; firstly, where the discount rate
increases by 200 basis points, secondly, where cash flows in 2019 are based on a 1% decline in current year performance.
Under both scenarios, all groups of CGUs not currently subject to impairment continue to have adequate headroom to support
the carrying value of associated goodwill and other intangible assets. Both scenarios would increase impairment of the BMW/MINI
CGU by 53% and 8% respectively. However, only the second scenario affects the recoverable value of the Other CGU, increasing
the impairment by 46%.
110
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
16. Property, plant and equipment
Freehold
and long Assets
leasehold held for Assets
land and Leasehold Plant and contract under
buildings improvement equipment rental construction Total
£’000 £’000 £’000 £’000 £’000 £’000
Cost
At 1 January 2017 108,487 15,015 35,126 101,944 7,022 267,594
Additions at cost 47 829 5,206 34,700 18,016 58,798
Additions on acquisition - - 32 - - 32
Disposals (2,485) (673) (2,734) (23,148) - (29,040)
Disposal of subsidiary - (42) (45) (113,496) - (113,583)
Transfers 16,052 2,555 1,308 - (19,915) -
Transfers to software - - (349) - - (349)
Transfers to assets held
for sale (750) - - - - (750)
At 31 December 2017 121,351 17,684 38,544 - 5,123 182,702
Additions at cost 1,687 523 3,410 - 17,910 23,530
Disposals (205) (1,040) (5,277) - - (6,522)
Transfers 5,143 4,873 3,232 - (13,248) -
Transfers to assets held
for sale (797) - - - - (797)
At 31 December 2018 127,179 22,040 39,909 - 9,785 198,913
Accumulated depreciation and impairment
At 1 January 2017 8,996 3,383 21,146 32,258 - 65,783
Charge for the year 1,434 1,913 5,570 15,962 - 24,879
Disposals (53) (608) (2,083) (13,673) - (16,417)
Disposal of subsidiary - (42) (35) (34,547) - (34,624)
Impairment 194 332 419 - - 945
Transfers (405) 138 267 - - -
Transfers to software - - (292) - - (292)
At 31 December 2017 10,166 5,116 24,992 - - 40,274
Charge for the year 1,718 1,802 5,455 - - 8,975
Disposals (205) (1,076) (4,900) - - (6,181)
Impairment - - 87 - - 87
Transfers - 324 (324) - - -
At 31 December 2018 11,679 6,166 25,310 - - 43,155
Net book value
At 31 December 2017 111,185 12,568 13,552 - 5,123 142,428
At 31 December 2018 115,500 15,874 14,599 - 9,785 155,758
As at 31 December 2018, the Group had capital commitments totalling £20.8m (2017: £7.7m) relating to ongoing construction
projects.
111
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
16. Property, plant and equipment (continued)
2018
Transfers to assets held for sale
In October 2018, the Group ceased commercial activities at one if its freehold properties. As the property was no longer used for
the commercial activity of the business and is actively being marketed for sale, the asset has been transferred to assets classified
as held for sale (see Note 21 ‘Assets Classified as Held for Sale’).
Impairments
The impairment loss of £87,000 represents the net of £101,000 write-down of certain property, plant and equipment in the
franchised dealership that closed in October 2018 and £14,000 impairment reversal of certain property, plant and equipment in
a franchised dealership that closed in December 2017. This loss was recognised in the Consolidated Statement of Comprehensive
Income in net operating expenses.
2017
Transfers to software
On integration of the Ridgeway businesses into the Group, certain items of software were identified in the tangible fixed assets
records of the recently acquired businesses. These software assets have been reclassified from property, plant and equipment
to intangible assets (see Note 15 ‘Goodwill and Other Intangible Assets’) consistent with the Group’s accounting policies.
Transfers to assets held for sale
In December 2017, the Group ceased commercial activities at one if its freehold properties. As the property was no longer used
for the commercial activity of the business and is being marketed for sale, the asset has been written down to its fair value and
transferred to assets classified as held for sale (see Note 21 ‘Assets Classified as Held for Sale’).
Impairments
The impairment loss of £787,000 represented the write-down of certain property, plant and equipment in the five franchised
dealerships and one used car centre which closed in November 2017. This loss was recognised in the Consolidated Statement
of Comprehensive Income in net operating expenses.
17. Investment property
Fair value at 1 January
Additions
Disposals
Fair value at 31 December
2018
£’000
2,590
5,800
(5,800)
2,590
2017
£’000
2,590
-
-
2,590
See Note 7 ‘Non-underlying items’ for details of additions and disposals in the year.
Investment properties are stated at fair value; a formal valuation is carried out at least every three years by a Chartered Surveyor
on an open market value basis. The most recent full valuation of investment properties was carried out as at 31 December 2016
by Rapleys, Chartered Surveyors. The Group’s leasehold investment property was valued on a fair value basis as at 31 December
2016 at £590,000 and the Group’s freehold investment property on a fair value basis as at 31 December 2016 at £2,000,000.
A revaluation surplus of £670,000 was taken to the Consolidated Statement of Comprehensive Income in 2016.
No formal valuation was required as at 31 December 2018. The Directors assessed the valuation of property based on a desktop
review which was carried out by Rapleys, Chartered Surveyors as at 13 November 2017; no indicators were identified which
signalled a material change in the fair value of investment properties, and as such, investment properties continue to be held at
their 31 December 2016 value.
The properties are rented out to third parties. Rental income of £266,000 was recognised in 2018 (2017: £283,000). There are
no restrictions on the Group’s ability to dispose of the investment properties or use any funds arising on disposal. There are no
contractual commitments for further development of the investment properties.
112
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
18. Inventories
Stock held for resale
Less: Provisions
Inventories
2018
£’000
393,667
(9,662)
384,005
2017
£’000
410,423
(9,163)
401,260
Stock held for resale include new and used vehicles held for resale, vehicle parts and other inventory. As at 31 December 2018
£370,823,000 (2017: £380,641,000) of finished goods are held under vehicle financing arrangements (see Note 22 ‘Trade and
Other Payables’).
Inventory recognised in cost of sales during the year as an expense was £1,895 million (2017: £1,943 million).
19. Trade and other receivables
Amounts falling due within one year:
Trade receivables
Other receivables
Amounts due from related undertakings (note 31)
Prepayments
Trade and other receivables
2018
£’000
42,644
29,235
26
7,777
79,682
2017
£’000
51,669
31,613
-
8,859
92,141
More information in respect of principal risk management is provided in Note 26 ‘Financial Instruments – Risk Management’.
All financial assets included within trade and other receivables are held at amortised cost. The carrying amount of trade and
other receivables approximates fair value.
Other receivables include accrued supplier income of £11,940,000 (2017: £17,102,000).
20. Cash and cash equivalents
Cash at bank and in hand
2018
£’000
1,174
2017
£’000
4,867
Cash and cash equivalents are held at amortised cost. Fair value approximates carrying value.
Cash at bank earns interest at floating interest rates determined by reference to short-term benchmark rates.
21. Assets classified as held for sale
Non-current assets held for sale
Freehold land and buildings
At 1 January
Transfers from property, plant and equipment
Disposals
At 31 December
113
2018
£’000
2017
£’000
750
797
(750)
797
-
750
-
750
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
21. Assets classified as held for sale (continued)
2018
Following the closure of one of the Group’s dealerships in October 2018, the decision was taken to sell the freehold property
owned by the Group and used by the dealership. Based on current market conditions, the sale is expected to be completed
within one year from the balance sheet date. As a result, the freehold property has been reclassified as held for sale and transferred
from property, plant and equipment into current assets. On reclassification, the freehold property was measured at the lower of
its carrying amount and fair value less costs to sell at the date of reclassification (fair value as determined by a desktop valuation
from Chartered Surveyors). No impairment was required as fair value less costs to sell exceed the asset’s carrying value.
Profits on disposal of assets classified as held for sale are included in Note 7 ‘Non-Underlying Items’.
2017
Following the closure of the one of the Group’s dealerships in December 2017, the decision was taken to sell the freehold property
owned by the Group and used by the dealership. Based on current market conditions, the sale is expected to be completed
within one year from the balance sheet date. As a result, the freehold property has been reclassified as held for sale and transferred
from property, plant and equipment into current assets. On reclassification, the freehold property was measured at the lower of
its carrying amount and fair value less costs to sell at the date of reclassification (fair value as determined by a desktop valuation
from Chartered Surveyors). This remeasurement resulted in an impairment loss of £194,000 being recognised in the Consolidated
Statement of Comprehensive Income.
The asset is presented within total assets of the prior year Retail segment in Note 5 ‘Segmental Information’.
22. Trade and other payables
Current – trade and other payables
Trade payables:
– vehicle financing arrangements
– other trade payables
Contract liabilities
Amounts owed to related undertakings (note 31)
Other tax and social security payable
Other payables
Accruals
Total current trade and other payables
Non-current – other payables
Accruals
Total non-current other payables
2018
£’000
2017
£’000
370,823
81,749
18,165
37
4,443
1,658
16,984
493,859
380,641
89,281
21,478
149
4,500
8,205
23,360
527,614
5,596
5,596
4,281
4,281
All financial liabilities included within current trade and other payables are held at amortised cost; carrying value is a reasonable
approximation of fair value.
Vehicle financing arrangements
The Group finances the purchases of new and used vehicle inventories using vehicle funding facilities’ provided by various lenders
including the captive finance companies associated with brand partners. These finance arrangements generally have a maturity
of 90 days or less and the Group is normally required to repay amounts outstanding on the earlier of the sale of the vehicles that
have been funded under the facilities or the stated maturity date.
114
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
22. Trade and other payables (continued)
Vehicle financing arrangements (continued)
Amounts due to finance companies in respect of vehicle funding are included within trade payables and disclosed under vehicle
financing arrangements. Related cash flows are reporting within cash flows from operating activities within the consolidated
statement of cash flows.
Vehicle financing facilities are subject to LIBOR-based (or similar) interest rates. The interest incurred under these agreements
is included within finance costs and classified as stock holding interest.
Contract liabilities
Contract liabilities include commission income received in advance from the various finance and insurance companies for which
the Group acts as agent.
In 2018 the Group recognised revenue of £9,863,000 (2017: £11,528,000) that was held in contract liabilities as at 1 January 2018.
23. Loans and borrowings
Current loans and borrowings
Mortgages
Non-current loans and borrowings
Mortgages
Total loans and borrowings
2018
Nominal and
book value
£’000
2017
Nominal and
book value
£’000
641
641
5,665
5,665
6,306
642
642
6,466
6,466
7,108
Mortgages comprise amounts borrowed from commercial financial institutions and are secured by fixed charges over specified
property assets of certain subsidiaries of the Group.
Committed facilities
The Group has a revolving credit facility of £120,000,000 of which £nil was drawn at 31 December 2018 (2017: £nil). This facility
includes access to an overdraft facility of £25,000,000. This facility is available for general corporate purposes including
acquisitions or working capital requirements. The facility is held in a cash pooling arrangement and balances have been offset in
the Consolidated Balance Sheet.
The facility is secured by cross guarantees granted by the certain members of the Group. The facility is available until May 2021.
More information in respect of principal risk management is provided in Note 26 ‘Financial Instruments – Risk Management’.
The carrying amount of current loans and borrowings approximate fair value.
The carrying amounts and fair value of the non-current loans and borrowings are as below. The fair values are based on cash
flows discounted using the prevailing rates.
Mortgages
2018
Fair
value
£’000
4,478
Carrying
amount
£’000
6,466
2017
Fair
value
£’000
4,917
Carrying
amount
£’000
5,665
115
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
23. Loans and borrowings (continued)
a)
Interest rate profile of borrowings
Mortgages
Weighted average cost of drawn borrowings
2018
Debt
£’000
6,306
6,306
2018
Average
effective
interest rate
2.40
2.40
2017
Debt
£’000
7,108
7,108
2017
Average
effective
interest rate
1.63
1.63
All loans and borrowings are subject to floating rates of interest which are determined by reference to official market rates such
as LIBOR or the Finance House Base Rate.
b) Maturity profile of borrowings
The Group’s borrowings have the following maturity profile:
6 months or less
6 – 12 months
1 – 5 years
Over 5 years
Total loans and borrowings
24. Provisions
2018
£’000
321
321
2,565
3,099
6,306
2017
£’000
321
321
2,565
3,901
7,108
At 1 January 2018
Transfer from accruals
Charged to income statement in the year
Reversed and credited to income
statement in the year
Utilised during the year
Other
£’000
200
390
778
-
-
As at 31 December 2018
1,368
Pension
£’000
6,000
-
-
-
Tax
£’000
237
-
-
-
(420)
5,580
(237)
-
Closed
sites Dilapidations
£’000
£’000
Vacant
property
£’000
Total
£’000
527
-
35
(135)
(328)
99
1,053
4,813
12,830
140
385
(818)
(117)
643
-
147
530
1,345
(3,581)
(1,143)
236
(4,534)
(2,245)
7,926
The reversed and credited to income statement in the year total includes £4,160,000 of non-underlying items included in Note 7
‘Non-underlying items’.
Provisions have been allocated between current and non-current as below.
Current
Non-current
Total provisions
2018
£’000
7,926
-
7,926
2017
£’000
8,815
4,015
12,830
116
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
24. Provisions (continued)
Tax
On acquisition of Pentagon Limited and Ridgeway Garages (Newbury) Limited during the year ended 31 December 2016, the
Group inherited a potential settlement in respect of various film tax planning initiatives previously entered into pre-acquisition.
The estimated settlement was provided for as at 31 December 2016. In February 2017 a settlement with HMRC was agreed
with most instalments paid during the year; the final instalment was paid in January 2018.
Closed sites, dilapidations and vacant property
The Group manages its portfolio carefully and either closes or sells sites which no longer fit with the Group’s strategy. When sites
are closed or sold provisions are made for any residual costs or commitments.
The Group operates from a number of leasehold premises under full repairing leases. The provision recognises that repairs are
required to put the buildings back into the state of repair required under the leases.
Where property commitments exist at sites which are closed or closing the Group provides for the unavoidable cost of those
leases post closure. The £4,534,0000 release of unutilised provision in the year resulted from the better than expected exit from
lease commitments on premises no longer used by the Group.
Pension
See Note 32 ‘Pensions’ for full details of the circumstances giving rise to the recognition of this provision. The provision was
utilised on 25 February 2019.
Other
Other provisions include an amount of £301,000 in respect of the Group’s estimated financial exposure under open insurance
claims. The claims are generally expected to be concluded within the next year.
Other provisions also include an allowance of £814,000 for potential output VAT payable arising from uncertain VAT treatment of
specific vehicle purchases. The conclusion of this open position is not expected in the forthcoming year.
25. Deferred tax assets and liabilities
The analysis of deferred tax assets and deferred tax liabilities is as below.
Deferred tax assets:
– Deferred tax asset
Deferred tax liabilities:
– Deferred tax liability to be recovered after more than 12 months (note 25a)
– Deferred tax assets to be offset against liabilities (note 25b)
Net Deferred tax liabilities
The gross movement on the deferred tax account is as follows:
At 1 January
Transitional adjustment on adoption of IFRS 9
Disposal of subsidiaries
Income statement charge (note 12)
At 31 December
117
2018
£’000
2017
£’000
-
39
(22,202)
1,415
(20,787)
(20,787)
(22,234)
1,786
(20,448)
(20,409)
2018
£’000
2017
£’000
(20,409)
(20,767)
15
-
(393)
-
(1,547)
1,905
(20,787)
(20,409)
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
25. Deferred tax assets and liabilities (continued)
a) Deferred tax liabilities
The movement in deferred tax liabilities during the year, without taking into consideration the offsetting of balances within the
same tax jurisdiction, is as follows:
Fixed assets Assets
Accelerated acquired on a previously
tax business Roll over qualifying Investment Intangible
depreciation combination relief for IBAs properties assets Goodwill
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Total
£’000
Deferred tax liabilities
At 1 January 2017 - 6,800 1,206 303 164 12,283 1,564 22,320
Charged/(credited) to the
income statement – current year 80 (710) (3) (81) (8) (8) 179
(551)
Charged/(credited) to the
income statement – prior year 5 235 - - (71) - (367)
(198)
Transfers to deferred tax asset 720 - - - (57) - -
663
At 31 December 2017 805 6,325 1,203 222 28 12,275 1,376 22,234
Charged/(credited) to the
income statement – current year 609 (189) - (26) - (11) 177
560
Charged/(credited) to the
income statement – prior year (172) (482) 51 - - 4 7
(592)
At 31 December 2018 1,242 5,654 1,254 196 28 12,268 1,560 22,202
b) Deferred tax assets
The movement in deferred tax assets during the year, without taking into consideration the offsetting of balances within the same
tax jurisdiction, is as follows:
Accelerated Share- Disposals Other
tax Tax based Investment Capital on a sale temporary
depreciation losses payments properties losses basis differences
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Total
£’000
Deferred tax assets
At 1 January 2017 887 36 268 57 116 - 189
1,553
(Charged)/credited to the
income statement – current year 41 2 - - 3 42 1,376
1,464
(Charged)/credited to the
income statement – prior year (103) 1 (268) - 44 - 18
(308)
Transfers from deferred
tax liability 720 - - (57) - - -
663
Disposal of subsidiaries (1,545) - - - - - (2) (1,547)
At 31 December 2017 - 39 - - 163 42 1,581
1,825
Transitional adjustment IFRS 9 - - - - - - 15
15
(Charged)/credited to the
income statement – current year - (43) - - 207 167 (421)
(90)
(Charged)/credited to the
income statement – prior year - 4 - - (2) - (337)
(335)
At 31 December 2018 - - - - 368 209 838
1,415
118
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
25. Deferred tax assets and liabilities (continued)
b) Deferred tax assets (continued)
Deferred tax assets are recognised for tax loss carry forwards to the extent that the realisation of the related tax benefit through
future taxable profits is probable.
Trading losses
Available indefinitely
At 31 December
2018
Tax losses
£’000
2018
Unrecognised
deferred
tax asset
£’000
2017
Tax losses
£’000
2017
Unrecognised
deferred
tax asset
£’000
1,387
1,387
236
236
1,133
1,133
192
192
26. Financial instruments – risk management
a)
Financial instruments by category
The Group’s principal financial instruments consist of cash and cash equivalents, bank overdrafts and loans and borrowings.
The main purpose of these financial instruments is to manage the Group’s funding and liquidity requirements. The Group has
other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.
The table below analyses financial instruments by type. In 2018, all financial assets are carried at amortised cost (2017: loans
and receivables (amortised cost). All financial liabilities are carried at amortised cost in both 2018 and 2017. For all financial
assets and liabilities, fair value equals carrying value except for long-term borrowings as disclosed in Note 23.
Assets as per the Consolidated Balance Sheet
Trade and other receivables excluding prepayments (note 19)
Cash and cash equivalents (note 20)
Total financial assets
Liabilities as per the Consolidated Balance Sheet
Loans and borrowings (note 23)
Trade and other payables excluding non-financial liabilities (note 22)
Total financial liabilities
b) Risk management
The Group’s activities expose it to the following financial risks:
• Market risk;
•
•
Credit risk; and
Liquidity risk.
2018
£’000
71,905
1,174
73,079
2017
£’000
83,282
4,867
88,149
6,306
495,012
501,318
7,108
527,395
534,503
Each of these risks are managed in accordance with Board-approved policies. Risk management policies and systems have
been established and are reviewed regularly to reflect changes in market conditions and the Group’s activities. These policies
are set out below.
The Group’s financial risk management processes seek to enable the early identification, evaluation and effective management
of the significant risks facing the business.
119
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
26. Financial instruments – risk management (continued)
b) Risk management (continued)
The Group does not use financial derivatives and does not enter into trade financial instruments, including derivative financial
instruments, for speculative purposes.
Market risk
Market risk is the risk of movements in the fair value of future cash flows of a financial instrument or forecast transaction as
underlying market prices change. The only market risk to which the Group is exposed is changes in interest rates. The Group’s
business activities neither expose it to commodity price risk nor foreign currency risk.
Interest rate risk is the risk that a change in interest rates adversely effects the Group’s performance or ability to settle financial
obligations and comprises two elements.
Interest price risk
This risk results from financial instruments bearing fixed interest rates; changes in floating interest rates affect the fair value of
these fixed rate financial instruments.
The Group has no debt subject to fixed interest rates and is, therefore, not exposed to interest price risk.
Interest cash flow risk
This risk results from financial instruments bearing floating interest rates. Changes in floating interest rates affect cash flows on
interest receivable or payable.
The Group is exposed to interest rate risk on its floating rate debt, namely all loans and borrowings. The interest rate exposure
of the Group is managed within the constraints of the Group’s business plan and the financial covenants under its facilities. Due
to the low value of the Group’s loans and borrowings as at 31 December 2018, the Group does not have significant sensitivities
to the impact of future changes in interest rates on floating rate debt.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
The Group is exposed to credit risk on its financial assets which consist of cash balances with banks and trade and other
receivables to the extent that settlement is cash-related. The Group does not have a significant exposure to this type of financial
risk due to the nature of its customer base and the types of transaction that are undertaken.
The maximum exposure to credit risk on the Group’s financial assets is represented by the assets’ carrying amount.
120
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
26. Financial instruments – risk management (continued)
b) Risk management (continued)
Credit risk (continued)
Exposure to credit risk
A summary of the Group’s exposure to credit risk for trade receivables and cash and cash equivalents is as follows:
Counterparties without external credit rating:
Group 1
Group 2
Total gross carrying amount
Loss allowance
Net carrying amount of trade receivables
Counterparties with external credit rating:
A \ AA- (stable)*
Loss allowance
Cash at bank
2018
£’000
Not credit-
impaired
2018
£’000
Credit-
impaired
1,338
41,983
43,321
(677)
42,644
1,174
-
1,174
-
-
-
-
-
-
-
-
2017
£’000
1,587
51,026
52,613
(944)
51,669
4,867
-
4,867
Group 1 – new customers/related parties (less than 6 months)
Group 2 – existing customers/related parties (more than 6 months) and no defaults in the past.
* Standard & Poor’s rating (long term)
Trade receivables
The Group has a high volume of transactions spread across a large customer base, therefore, does not have a significant
exposure to the credit worthiness of any single counterparty.
The Group has an established credit policy applied by each business under which the credit status of each new customer is
reviewed (by reference to external credit evaluations, where possible) before credit is advanced. Credit limits are established for
all significant or high-risk customers, which represent the maximum amount permitted to be outstanding without requiring additional
approval from the appropriate level of management. These limits are based on external credit reference agency ratings and the
utilisation of approved credit limits is regularly monitored. Outstanding debts are continually monitored by each business unit.
Trade receivables are considered to be past due once they have passed their contractual due date. At each reporting date, the
Group uses a provision matrix to measure expected credit losses on trade receivables. When the debt is deemed irrecoverable,
the allowance account is written off against the underlying receivable.
Credit quality of trade receivables – expected credit loss assessment at 1 January 2018 and 31 December 2018
The Group uses a provision matrix to measure the expected credit losses on trade receivables. Loss rates are calculated using
a ‘roll rate’ method based on the probability of a receivable progressing through successive stages of delinquency to write-off.
Loss rates are based on actual credit loss experience over the past two years.
121
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
26. Financial instruments – risk management (continued)
b) Risk management (continued)
Credit risk (continued)
Credit quality of trade receivables – expected credit loss assessment at 1 January 2018 and 31 December 2018 (continued)
The movement in the allowance for impairment in respect of trade and other receivables during the year was as follows:
Balance at 1 January per IAS 39
Adjustment on initial application of IFRS 9
Balance at 1 January per IFRS 9 (2018)/IAS 39 (2017)
Amounts written off
Net remeasurement of loss allowances
Balance at 31 December per IFRS 9 (2018)/IAS 39 (2017)
Cash and cash equivalents
2018
£’000
1,542
91
1,633
(736)
(220)
677
2017
£’000
1,944
-
1,944
(214)
(188)
1,542
Banking relationships are generally limited to those banks that are members of the core relationship group. These banks are
selected for their credit status and their ability to meet the businesses’ day-to-day banking requirements. The credit ratings of
these institutions are monitored on a continuing basis.
The Group has not recorded impairments against cash or cash equivalents, nor have any recoverability issues been identified
with such balances. Such items are typically recoverable on demand or in line with normal banking arrangements.
Liquidity risk
Liquidity risk is the risk that the group will encounter difficulty in meeting its obligations associated with its financial liabilities as
they fall due.
Ultimate responsibility for liquidity risk management rests with the Board, which has built an appropriate liquidity risk management
framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements.
Liquidity risk is managed by maintaining adequate levels of easily accessible cash reserves and committed banking facilities. To
assess the adequacy of resources, available headroom is continuously monitored through review of forecast and actual cash
flows and through matching the maturity profiles of financial assets and liabilities. The Group has access to undrawn banking
facilities in order to further reduce liquidity risk. The Group does not anticipate any issues drawing on the committed, undrawn
banking facilities should this be necessary. Full details of the Group’s borrowing facilities are given in Note 23 ‘Loans and
Borrowings’.
122
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
26. Financial instruments – risk management (continued)
b) Risk management (continued)
Liquidity risk (continued)
The table below analyses the contractual undiscounted cash flows relating to the Group’s financial liabilities at the balance sheet
date. The cash flows are grouped based on the remaining period to the contractual maturity date. The Group holds sufficient
funds to meet these commitments as they fall due.
Due within
Due
between
6 months
6 months and 1 year
£’000
£’000
Mortgages
Trade and other payables
(excluding other taxes and social security)
At 31 December 2018
379
489,416
489,795
376
-
376
Due within
Due
between
6 months
6 months and 1 year
£’000
£’000
Mortgages
Trade and other payables
(excluding other taxes and social security)
At 31 December 2017
385
523,114
523,499
382
-
382
Due
between
1 and 2
years
£’000
Due
between
2 and 5 Due after
5 years
£’000
years
£’000
741
2,150
3,396
Total
£’000
7,042
5,596
6,337
Due
between
1 and 2
years
£’000
-
-
495,012
2,150
3,396
502,054
Due
between
2 and 5 Due after
5 years
£’000
years
£’000
753
2,187
4,099
Total
£’000
7,806
4,281
5,034
-
-
527,395
2,187
4,099
535,201
The above tables do not include forecast data for liabilities which may be incurred in the future but which were not contracted as
at the balance sheet date.
Capital risk management
The capital structure of the Group consists of cash and cash equivalents, loans and borrowings and shareholders’ equity. The
consolidated statement of changes in equity provides details on equity, Note 20 provides details of cash and cash equivalents
and Note 23 provides details of loans and borrowings.
The Group manages its capital structure with the following objectives:
•
•
•
•
to safeguard the Group’s ability to continue as a going concern and maintain sufficient available resources as protection for
unforeseen events;
to ensure that sufficient capital resources are available for working capital requirements and meeting principal and interest
payment obligations as they fall due;
to provide flexibility of resource for strategic growth and investment where opportunities arise; and
to provide reasonable returns to shareholders and benefits for other stakeholders whilst maintaining a limited level of risk.
There were no changes to the Group’s approach to capital management during the year.
By virtue of the Group’s retail mediation activities, the Group is subject to the capital requirements imposed by the Financial
Conduct Authority on all non-investment insurance intermediaries. The Group’s capital adequacy is monitored on a quarterly
basis and its capital resources have been consistently in excess of the requirements.
123
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
26. Financial instruments – risk management (continued)
b) Risk management (continued)
Capital risk management (continued)
The Directors monitor the Group’s capital structure and determine the level of dividends payable to shareholders at least twice
a year prior to the announcement of results, taking into account the Group’s ability to continue as a going concern and the capital
requirements of its strategic business plans. Consistent with others in the industry, the Directors monitor levels of leverage by
reference to the ratio of net debt to total shareholders’ equity. Net debt is calculated as total borrowings (including both current
and non-current borrowings) less cash and cash equivalents. As disclosed in the Net Debt Reconciliation on page 76, the Group
had net debt of £5,131,000 as at 31 December 2018 (2017: £2,241,000).
27. Fair value measurement
The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities.
Fair value measurement using:
Date of valuation
Assets measured at fair value:
Investment properties (note 17) 31 December 2018
Assets held for sale (note 21) 31 December 2018
Total
£’000
2,590
797
Liabilities for which fair values are disclosed:
Mortgages (note 23) 31 December 2018
4,478
Assets measured at fair value:
Investment properties (note 17) 31 December 2017
Assets held for sale (note 21) 31 December 2017
2,590
750
Liabilities for which fair values are disclosed:
Mortgages (note 23) 31 December 2017
4,917
There were no transfers between Level 1 and 2 during 2018 or 2017.
Quoted prices
in active
markets
(Level 1)
£’000
Significant
Significant
observable unobservable
inputs
(Level 3)
£’000
inputs
(Level 2)
£’000
-
-
-
-
-
-
2,590
797
4,478
2,590
750
4,917
-
-
-
-
-
-
124
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
28. Share capital and reserves
Share capital and share premium
At 1 January 2017
At 31 December 2017
Issued 11 April 2018
At 31 December 2018
Number
of shares
77,392,862
77,392,862
472,791
77,865,653
Ordinary
shares
£’000
49,531
49,531
303
49,834
Share
premium
£’000
19,672
19,672
-
19,672
Total
£’000
69,203
69,203
303
69,506
On 11 April 2018 472,791 ordinary shares of 64p each were issued as part of the exercise of share options awarded under the
IPO Restricted and IPO Performance share option schemes. There were no shares issued in 2017.
All shares issued are fully paid.
Details of Directors’ interests in shares are shown in the Directors’ Remuneration Report on pages 53 to 60.
Share repurchases
In April 2018 the Employee Benefit Trust (controlled by the Company) subscribed to 472,791 ordinary shares of the Company as
part of the aforementioned exercise of share options. The Trust subscribed to the shares at nominal value. No ordinary shares
were repurchased by the Company in 2017.
Shares held by subsidiaries
No shares in the Company were held by subsidiaries in 2018 (2017: nil).
Share-based payments reserve
The share-based payments reserve is used to recognise the value of equity-settled share-based payments granted to employees,
including key management personnel, and Directors of the Group as part of their remuneration. Refer to Note 29 ‘Share-Based
Payments’ for further details of these plans.
Own shares reserve
Represents shares in the Company held by the Marshall Motor Holdings Employee Benefit Trust. These shares are held in order
to satisfy options exercised under the Group’s Performance Share Plan. Further details of which are set out in Note 29 ‘Share-
Based Payments’.
29. Share-based payments
The Group operates an equity-settled share option scheme for certain senior managers and executive directors of the Group
(“the Performance Share Plan”). As at 31 December 2018, five share grants have been awarded under the scheme being (a)
IPO Restricted Awards (vesting in three tranches), (b) IPO Performance Awards (vesting in two tranches), (c) 2016 Performance
Awards, (d) 2017 Performance Awards and (e) 2018 Performance Awards. Awards are made annually to eligible employees at
the discretion of the Remuneration Committee; employees receive shares at the end of the performance period, subject to the
achievement of the specified underlying basic earnings per share (“EPS”) performance conditions. Performance conditions are
designed to incentivise senior managers and executive directors to maximise long-term shareholder returns. Each option grant
under the scheme is disclosed separately below.
The total share-based payment charge recognised during the year ended 31 December 2018 was £732,000 (2017: £1,005,000).
This is split as £203,000 (2017: £266,000) in accruals and £529,000 (2017: £739,000) in share-based payment reserve.
If an option remains unexercised after a period of ten years from the date of grant, the option expires. The weighted average
remaining contractual life of options outstanding as at 31 December 2018 is 8.1 years (2017: 8.2 years).
125
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
29. Share-based payments (continued)
The fair value of share options is determined by reference to the market value of the Group’s shares at the date of grant. No
valuation model is required to calculate the fair value of awards on the basis that the employees receiving the awards are entitled
to receive the full value of the shares and there are no market-based performance conditions attached to the awards. The weighted
average fair value of options outstanding as at 31 December 2018 is £1.68 (2017: £1.65). The fair value of options granted during
the year was £1.59 (2017: £1.69). The fair value of equity settled share options granted was based on market value on
17 April 2018 when the share options were granted.
Options are ordinarily forfeited if the employee leaves the Group before the options vest.
All options issued are nil cost options and all awards have an exercise price of £nil.
The share option scheme is in place to encourage option holders to take appropriate and timely action to maximise the long-term
financial performance and success of the Group. As a result, in accordance with the discretion afforded to them under the Group’s
remuneration policy, the Remuneration Committee regularly reviews any impact of Group restructurings and reorganisations on
incentive outcomes to ensure that performance conditions are not distorted by action taken to optimise business performance
for the long-term benefit of the Group.
The Remuneration Committee exercised this discretion during 2017. Incentive outcomes on the IPO Performance Awards and
the 2016 Performance Awards were adjusted for the impact of the disposal of Marshall Leasing Limited.
In April 2018, the third tranche of the IPO Restricted Share Awards as well as the first tranche of the IPO Performance Awards
vested and became exercisable. On 11 April 2018, all option holders exercised these options as well as the second tranche of
the IPO Restricted Awards which had previously vested and become exercisable in 2017. As such, 472,791 ordinary shares of
64p were issued to satisfy the exercise of options. On exercise, the Remuneration Committee exercised its discretion to settle a
proportion of the share options equal to the option holders’ tax liability arising on exercise in cash rather than being cash settled.
The total value of cash-settled transactions was £968,000.
As at 31 December 2018 outstanding share options were as follows:
Award Award date
IPO Performance Awards – Tranche 2 2 April 2015
2016 Performance Awards 13 June 2016
2017 Performance Awards 29 September 2017
2018 Performance Awards 17 April 2018
No of shares
over which
options are
outstanding
Exercise
price
Date
from which
exercisable
Expiry
date
578,856
493,575
619,763
731,054
Nil
Nil
Nil
Nil
2 April 2019
2 April 2025
13 June 2019
13 June 2026
29 September 2020
29 September 2027
17 April 2021
17 April 2028
126
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
29. Share-based payments (continued)
a)
IPO Restricted Awards
The IPO Restricted Share Awards were not subject to any performance conditions; vesting was purely subject to the service
condition of continuous employment.
These options vested in three equal tranches and became exercisable on the first, second and third anniversaries of the date on
which the Company’s shares were admitted to trading on the Alternative Investment Market of the London Stock Exchange
(2 April 2015).
IPO Restricted Share Awards
Outstanding as at 1 January
Granted during the year
Forfeited during the year
Exercised
Expired during the year
Outstanding as at 31 December
Exercisable as at 31 December
b)
IPO Performance Awards
2018
No.
2018
WAEP
2017
No.
2017
WAEP
313,199
-
-
(313,199)
-
-
-
-
-
-
-
-
-
-
313,199
-
-
-
-
313,199
156,599
-
-
-
-
-
-
-
The IPO Performance Awards are subject to non-market performance conditions as detailed below as well as the service condition
of continuous employment.
The options vest for achieving growth in EPS from 2014 to 2017; 25% vest for achieving growth of CPI plus 4% per annum
increasing to 100% vesting for achieving growth of CPI plus 10% per annum.
These options vest in two equal tranches and 50% become exercisable on the third anniversary of the date on which the
Company’s shares were admitted to trading on the Alternative Investment Market of the London Stock Exchange and the
remaining 50% become exercisable on the fourth anniversary.
IPO Performance Awards
Outstanding as at 1 January
Granted during the year
Forfeited during the year
Exercised
Expired during the year
Outstanding as at 31 December
Exercisable as at 31 December
2018
No.
2018
WAEP
2017
No.
2017
WAEP
1,208,056
-
(50,341)
(578,859)
-
578,856
-
-
-
-
-
-
-
-
1,406,040
-
(197,984)
-
-
1,208,056
-
-
-
-
-
-
-
-
127
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
29. Share-based payments (continued)
c)
2016 Performance Awards
The 2016 Performance Awards are subject to non-market performance conditions as detailed below as well as the service
condition of continuous employment.
The options vest for achieving growth in EPS from 2015 to 2018; 25% vest for achieving growth of CPI plus 3% per annum
increasing to 100% vesting for achieving growth of CPI plus 8% per annum.
These options all become exercisable on the third anniversary of the grant date.
The 2016 Performance Awards are subject to a holding period which starts on the grant date and ends on the fourth anniversary
of the grant date.
2016 Performance Awards
Outstanding as at 1 January
Granted during the year
Forfeited during the year
Exercised
Expired during the year
Outstanding as at 31 December
Exercisable as at 31 December
d)
2017 Performance Awards
2018
No.
2018
WAEP
2017
No.
2017
WAEP
538,835
-
(45,260)
-
-
493,575
-
-
-
-
-
-
-
-
660,801
-
(121,966)
-
-
538,835
-
-
-
-
-
-
-
-
The 2017 Performance Awards are subject to non-market performance conditions as detailed below as well as the service
condition of continuous employment.
The options vest for achieving growth in underlying, basic EPS from 2017 to 2019; 25% vest for achieving growth of CPI plus 1%
per annum and the percentage of options which vests increases on a straight line basis up to 100% vesting for achieving growth
of CPI plus 5% per annum.
These options all become exercisable on the third anniversary of the grant date.
The 2017 Performance Awards are subject to a holding period which starts on the grant date and ends on the fourth anniversary
of the grant date.
2018
No.
2018
WAEP
2017
No.
2017
WAEP
2017 Performance Awards
Outstanding as at 1 January
Granted during the year
Forfeited during the year
Exercised
Expired during the year
Outstanding as at 31 December
Exercisable as at 31 December
-
-
-
-
-
-
-
-
806,141
-
-
-
806,141
-
-
-
-
-
-
-
-
806,141
-
(186,378)
-
-
619,763
-
128
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
29. Share-based payments (continued)
e)
2018 Performance Awards
The 2018 Performance Awards are subject to non-market performance conditions as detailed below as well as the service
condition of continuous employment.
The options vest for achieving growth in underlying, basic EPS from 2017 to 2020; 25% vest for achieving growth of 1.3% per
annum and the percentage of options which vests increases on a straight line basis up to 100% vesting for achieving growth of
6% or more per annum.
These options all become exercisable on the third anniversary of the grant date.
The 2018 Performance Awards are subject to a holding period which starts on the grant date and ends on the fourth anniversary
of the grant date.
2018 Performance Awards
Outstanding as at 1 January
Granted during the year
Forfeited during the year
Exercised
Expired during the year
Outstanding as at 31 December
Exercisable as at 31 December
2018
No.
2018
WAEP
2017
No.
2017
WAEP
-
930,966
(199,912)
-
-
731,054
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30. Commitments and contingencies
Operating lease commitments – Group as lessee
The Group, as lessee, has non-cancellable operating lease agreements. The lease terms vary and the majority of lease
agreements are renewable at the end of the lease period at market rate.
The lease expenditure charged to the Consolidated Statement of Comprehensive Income during the year is disclosed in Note 6
‘Profit before Taxation’.
The future aggregate minimum lease payments under non-cancellable operating leases are set out below.
Year ended Year ended
31 December 2018 31 December 2017
Within 1 year
Later than 1 year and less than 5 years
After 5 years
Property
£’000
10,065
35,339
61,707
107,111
Vehicles and
equipment
£’000
352
94
-
446
Property
£’000
11,560
41,739
69,906
123,205
Vehicles and
equipment
£’000
362
38
-
400
129
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
30. Commitments and contingencies (continued)
Operating leases – Group as lessor
The Group has entered into non-cancellable operating leases, as lessor, on property included in investment property. The terms
of these leases vary.
Future minimum lease payments receivable for property under non-cancellable operating leases are as set out below.
Within 1 year
Between 1 and 5 years
After 5 years
2018
£’000
378
1,314
1,777
3,469
2017
£’000
593
1,520
2,057
4,170
31. Related party transactions
Key management compensation is given in Note 10 ‘Employees and Directors’.
During 2018 and 2017 the Directors were members of an employee car ownership scheme under which the following transactions
were made in the year. The Directors purchased 19 cars in 2018 (2017:15) at a price of £1,338,000 (2017: £1,170,000) and sold
back 22 (2017:12) at a price of £1,532,000 (2017: £938,000). The Directors did not make a profit on these transactions.
The following table shows the aggregate transactions with companies within Marshall of Cambridge (Holdings) Limited other
than those which are subsidiaries of Marshall Motor Holdings plc.
2018
Ultimate parent undertaking
Marshall of Cambridge (Holdings) Limited
Other related parties
Marshall of Cambridge Aerospace Limited
Marshall Thermo King Limited
Marshall Group Properties Limited
2017
Ultimate parent undertaking
Marshall of Cambridge (Holdings) Limited
Other related parties
Marshall of Cambridge Aerospace Limited
Marshall Thermo King Limited
Marshall Fleet Solutions Limited
Marshall Group Properties Limited
Aeropeople Limited
Marshall Land Systems Limited
130
Sales
£’000
Purchases
£’000
Year-end
balance
£’000
52
16
296
(89)
275
606
254
3
1,112
1,975
1
(39)
27
-
(11)
Sales
£’000
Purchases
£’000
Year-end
balance
£’000
278
62
327
3
100
2
3
775
332
303
3
8
1,335
-
-
2
(37)
254
-
(368)
-
-
1,981
(149)
Marshall Motor Holdings plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
31. Related party transactions (continued)
Outstanding balances with group entities are unsecured, interest free and are expected to be settled in cash. During the year
ended 31 December 2018, the Group has not made any provision for doubtful debts relating to amounts owed by related parties
(2017: £nil).
32. Pensions
a) Defined contribution pension schemes
The Group makes contributions to defined contribution pension schemes; contributions paid are calculated by reference to a
percentage of each employee’s salary. All defined contribution schemes into which the Group makes contributions are managed
by third party providers. The only obligation of the Group with respect to these schemes is to make the specified contributions.
The total income statement charge for contributions for the year ended 31 December 2018 was £1,999,000 (2017: £2,059,000).
The total unpaid pension contributions outstanding at the year end were £313,000 (2017: £263,000).
b) Defined benefit pension schemes
The defined benefit section of the Marshall Group Executive Pension Plan (“the Plan”) has multiple participating entities which
are under common control. There is no contractual agreement or stated policy for charging the net defined benefit pension cost
for the Plan as a whole to the various participating employers of the Plan. Therefore, in line with the disclosure requirements of
IAS 19 Employee Benefits, the net defined benefit cost is recognised in the financial statements of the principal employer (Marshall
of Cambridge (Holdings) Limited) and the other participating employers (including the Group) recognise a cost equal to their
contributions payable for the year. Consequently, the Group accounts for all of its pension contributions as if the contributions
were made to a defined contribution pension scheme (see Note 2 ‘Accounting Policies’).
The most recent triennial actuarial valuation of the defined benefit section of the Plan is as at 31 December 2016. The valuation
was agreed by the Trustees after the Group’s year end and revealed a global, scheme-wide deficit on a technical provisions
basis of £8.1 million. As a result, a recovery plan was put in place to which the Group, as a participating employer, was required
to contribute.
The Group’s only contributions to the defined benefit section of the Plan during the current year was a payment of £420,000 due
under the recovery plan (2017: £nil).
Cessation of Participation in the Plan and Provision for Section 75 Employer Debt
Following the sale of Marshall Leasing Limited in 2017, the Group no longer had any current employees who were members of
the defined benefit section of the Plan. As a result of the Group’s strategic review of its existing pension arrangements, on
31 December 2018 the Group ceased to be a participating employer in the Plan as a result of it no longer employing any active
members of the defined contribution section of the Plan. Accordingly, on 31 December 2018, a debt was triggered under Section
75 of the Pension Act 1995 on the Group (“Employer Debt”).
On 7 February 2019 the Plan’s actuary issued a certificate for the purposes of Regulation 5(18) and Regulation 6(8) of the
Occupational Pension Schemes (Employer Debt) Regulations 2005 confirming that the Employer Debt at 31 December 2018
was £5,541,000.
On 25 February 2019 the Group paid the Employer Debt (together with Trustee expenses of £25,000) to the Trustees of the Plan
and entered in to a Deed of De-Adherence with the Trustees and Marshall of Cambridge (Holdings) Limited confirming the discharge
of the Group from the trusts of the Plan and from any further obligations in relation to the Plan with effect from that date. Accordingly,
with effect from that date, the Group has no further commitments or participation in any defined benefit pension plans.
The Group recognised a provision of £6,000,000 in its financial statements for the year ending 31 December 2017 in respect of
the estimated costs (including the Employer Debt) of it ceasing to be a participating employer of the Plan.
131
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
32. Pensions (continued)
Principal Employer’s IAS 19 Disclosures
Details of the full scheme are included in the Annual Report and Accounts of Marshall of Cambridge (Holdings) Limited which
can be obtained from: Airport House, The Airport, Cambridge CB5 8RY.
33. Acquisition of non-controlling interest in subsidiaries
On 22 February 2018, the Group acquired the remaining 1% of the share capital of the following subsidiary undertakings; Marshall
of Peterborough Limited, Marshall of Ipswich Limited and Marshall of Stevenage Limited, taking the Group’s shareholdings in
these entities up to 100%. Total consideration for these shares amounted to £49,553; the value of consideration in excess of the
carrying value of the non-controlling interest acquired has been recognised in retained earnings.
34. Ultimate parent company
The parent undertaking of the largest group of undertakings for which consolidated financial statements are drawn up and of
which the Company is a member is Marshall of Cambridge (Holdings) Limited. This is both the immediate parent undertaking
and the ultimate parent undertaking. In light of its aggregate shareholding in the capital of the Company, Marshall of Cambridge
(Holdings) Limited has entered into a relationship agreement in order to regulate the relationship between it and the Company
and enable the Company to act independently of Marshall of Cambridge (Holdings) Limited and its affiliates.
Copies of the consolidated financial statements for Marshall of Cambridge (Holdings) Limited can be obtained from: Airport
House, The Airport, Cambridge CB5 8RY.
132
Company Financial Statements
Balance Sheet
at 31 December 2018
Fixed assets
Investments
Current assets
Debtors
Creditors: amounts falling due within one year
Net current liabilities
Net assets
Capital and reserves
Called-up share capital
Share premium
Share-based payment reserve
Own shares reserve
Profit and loss account
Shareholders’ funds
Marshall Motor Holdings Plc | Annual Report & Accounts 2018
Note
2018
£’000
2017
£’000
6
7
9
10
161,886
163,528
6,317
6,317
(38,880)
(32,563)
129,323
49,834
19,672
1,570
-
58,247
129,323
6,265
6,265
(30,499)
(24,234)
139,294
49,531
19,672
2,608
-
67,483
139,294
The total comprehensive loss of the Company for the year ended 31 December 2018 was £4,757,000 (2017: income of
£54,208,000).
The Company financial statements were approved for issue by the Board of Directors and authorised for issue on 12 March 2019.
Richard Blumberger
Chief Financial Officer
133
FINANCIAL STATEMENTS
Company Financial Statements
Statement of Changes in Equity
For the year ended 31 December 2018
Share-
Called-up based Own Profit and
share Share payments shares loss
Capital Premium reserve reserve account Total
Note £’000 £’000 £’000 £’000 £’000 £’000
At 1 January 2017 49,531 19,672 1,869 - 17,802 88,874
Profit for the financial year - - - - 54,208 54,208
Total comprehensive
income for the year - - - - 54,208 54,208
Equity dividends paid - - - - (4,527) (4,527)
Share-based payment charge - - 739 - - 739
At 31 December 2017 49,531 19,672 2,608 - 67,483 139,294
Loss for the financial year - - - - (4,757) (4,757)
Total comprehensive
loss for the year - - - - (4,757) (4,757)
Equity dividends paid 12 - - - - (4,983) (4,983)
Issue of share capital 303 - - (303) - -
Exercise of share options - - (1,567) 303 504 (760)
Share-based payment charge - - 529 - - 529
At 31 December 2018 49,834 19,672 1,570 - 58,247 129,323
134
Marshall Motor Holdings Plc | Annual Report & Accounts 2018
Notes to the Company Financial Statements
1. Statement of compliance
Marshall Motor Holdings plc (the Company) is incorporated and resident in the United Kingdom. The Company is a public limited
company, limited by shares, whose shares are listed on the Alternative Investment Market (AIM) of the London Stock Exchange.
The Company is registered in England and Wales under the Companies Act 2006 (registration number 02051461) with the address
of the registered office being; Airport House, The Airport, Cambridge, CB5 8RY, United Kingdom.
The parent company financial statements have been prepared in compliance with FRS 102, the Financial Reporting Standard
applicable in the United Kingdom and the Republic of Ireland and in accordance with the Companies Act 2006.
2. Basis of preparation
The financial statements are prepared in Sterling which is both the functional and presentational currency of the Company and all
values are rounded to the nearest thousand pounds (£’000) except where otherwise indicated. The financial information has been
prepared on the going concern and historical cost basis.
The Company is part of the consolidated financial statements of Marshall Motor Holdings plc.
Exemptions adopted
The following disclosure exemptions have been adopted as permitted by FRS 102:
Financial instrument-related disclosures
– Presentation of a cash-flow statement and related notes
–
– Key management personnel compensation disclosures
– Share-based payments disclosures
Company profit
As permitted under section 408 of the Companies Act 2006, the Company has elected to neither present a Company Income
Statement nor Company Statement of Comprehensive Income.
3. Accounting policies
Except where disclosed otherwise in this note, the accounting policies adopted in the preparation of the Company financial
statements are consistent with those applied when preparing the Company financial statements for the year ended
31 December 2017.
Investments in subsidiaries
Investments in subsidiaries are recognised at cost less any impairment. Impairments are recognised directly through the
Income Statement.
Taxation
Current taxation
Current tax is recognised for the amount of income tax payable in respect of the taxable profit for the current or past reporting
periods using the tax rates and laws that have been enacted or substantively enacted by the reporting date.
Deferred taxation
Deferred tax is recognised in respect of all timing differences which are differences between taxable profits and total comprehensive
income that arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are
recognised in the financial statements. There are the following exceptions.
135
FINANCIAL STATEMENTS
Notes to the Company Financial Statements
3. Accounting policies (continued)
Taxation (continued)
Deferred taxation (continued)
Where, in a business combination, there are differences between amounts that can be deducted for tax for assets (other than
goodwill) and liabilities compared with the amounts that are recognised in the financial statements for those assets and liabilities,
a deferred tax liability or asset is recognised. The amount attributed to goodwill is adjusted by the amount of the deferred tax
recognised.
Unrelieved tax losses and other deferred tax assets are recognised only to the extent that it is considered probable that they will
be recovered against the reversal of deferred tax liabilities or other future taxable profits. Deferred tax is measured on an
undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax
rates and laws enacted or substantively enacted at the balance sheet date.
With the exception of changes arising on the initial recognition of a business combination, the taxation charge or credit is presented
either in the income statement or the statement of other comprehensive income depending on the transaction that resulted in the
taxation charge or credit.
Deferred tax liabilities are presented within provisions for liabilities and deferred tax assets within debtors. Deferred tax assets and
deferred tax liabilities are offset only if:
–
–
the company has a legally enforceable right to set off current tax assets against current tax liabilities, and
the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the
same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or
to realise the assets and settle the liabilities simultaneously.
Financial instruments
The Company has non-derivative financial instruments comprising trade and other receivables, cash and cash equivalents, loans
and borrowings and trade and other payables.
The Company has no financial instruments measured at fair value.
Cash and cash equivalents
Cash and cash equivalents comprise cash at banks and in hand.
Short-term debtors and creditors
Debtors and creditors with no stated interest rate and which are receivable or payable within one year are recorded at transaction
price. Any losses arising from impairment are recognised in the Income Statement.
Interest-bearing loans and borrowings
All interest-bearing loans and borrowings are initially recognised at the present value of cash payable to the bank (including interest).
After initial recognition they are measured at amortised cost using the effective interest rate method, less impairment. The effective
interest rate amortisation is included in the Income Statement.
Share-based payments
The Company operates a number of equity-settled, share-based compensation plans through which the Company allows
employees to receive shares in the Company.
Equity-settled share-based payments are measured at fair value (calculated excluding the effect of service and non-market based
performance vesting conditions) at the date of grant. The share-based payment charge to be expensed is determined by reference
to the fair value of share options granted and is recognised as an employee expense within underlying earnings, with a
corresponding increase in equity.
136
Marshall Motor Holdings Plc | Annual Report & Accounts 2018
Notes to the Company Financial Statements
3. Accounting policies (continued)
Share-based payments (continued)
The share-based payment charge is recognised on a straight-line basis over the vesting period (being the period over which all
vesting conditions are to be satisfied). An award subject to graded vesting is accounted for as though it were multiple, separate
awards, the number of awards being determined in direct correlation to the number of instalments in which the options vest.
The share-based payment charge is based on the Company’s estimate of the number of options that are expected to vest. At
each balance sheet date, the Company revises its estimates of the number of options that are expected to vest based on the
non-market performance vesting conditions and service conditions. The Company’s remuneration policy gives the Remuneration
Committee discretion to revise performance conditions to adjust for the impact of group restructurings and reorganisations on
incentive outcomes. The impact of any revisions to original vesting estimates or performance conditions is recognised in the Income
Statement with a corresponding adjustment to equity.
Social security contributions payable in connection with share options granted are considered to be an integral part of the grant
and are treated as cash-settled transactions. Cash-settled share-based payments transactions are measured at fair value at the
settlement date, with changes in fair value recognised directly in equity in retained earnings.
When options are exercised, the Company issues new shares. These shares are gifted to the Employee Benefit Trust by the
Company at nominal value. The cost of these shares is recognised as a reduction to equity in the own shares reserve. When the
options are exercised and the shares transferred to the employees, the cost on the own shares reserve is transferred to equity.
When options issued by the Employee Benefit Trust are exercised the own shares reserve is reduced and a gain or loss is
recognised in the reserves based on proceeds less weighted-average cost of shares initially purchased now exercised.
Where shares options are forfeited, effective from the date of the forfeiture, any share-based payment charge previously recognised
in both the current and prior periods in relation to these options is reversed though the Income Statement with a corresponding
adjustment to equity.
The cost of awards granted to employees of the Company’s subsidiaries is recognised as an addition to the cost of its investment
in the employing subsidiary, with a corresponding increase in the Share-Based Payments Reserve in the Statement of Changes
in Equity.
Pensions
The Company participates in a defined contribution scheme for its employees. Contributions are charged to the Income Statement
as they become payable in accordance with the rules of the scheme.
Dividend distribution
Final dividends to the Company’s shareholders are recognised as a liability in the financial statements in the period in which the
dividends are approved by the Company’s shareholders. Interim dividends are recognised when they are paid.
Dividend income
Income is recognised when the Company’s right to receive the payment is established, which is generally when shareholders
approve the dividend. All of the Company’s income is generated in the UK.
4. Auditor’s remuneration
The auditor’s remuneration for audit and other services was £3,000 (2017: £3,000).
137
FINANCIAL STATEMENTS
Notes to the Company Financial Statements
5. Employees and directors
Employee costs for the Company during the year:
Wages and salaries
Social security costs
Other pension costs
Share based payments
The average number of employees (including Executive Directors) was:
Management
2018
£’000
1,337
412
101
583
2017
£’000
2,098
454
115
633
2,433
3,300
2018
No.
3
3
2017
No.
3
3
Details of the remuneration of the Directors, their share incentives and pension entitlements are set out in the Directors’
Remuneration Report on pages 53 to 60.
6.
Investments in subsidiaries
Cost
At 1 January 2018
Acquisition of minority interest shareholding
Share-based payment awards to employees of subsidiaries
Impairment
At 31 December 2018
2018
£’000
163,528
50
84
(1,776)
161,886
On 22 February 2018, the Company acquired the remaining 1% of the share capital of the following subsidiary undertakings;
Marshall of Peterborough Limited, Marshall of Ipswich Limited and Marshall of Stevenage Limited, taking the Company’s
shareholdings in these entities up to 100%. Total consideration for these shares amounted to £49,553; the value of consideration
in excess the carrying value of the non-controlling interest acquired has been recognised as an addition to Investments in
Subsidiaries.
Management has recognised an impairment charge of £1,776,000 in the current year against investments in subsidiaries with a
carrying amount of £12,946,000 as at 31 December 2017. The impairment charge is recorded within administrative expenses in
the Income Statement. The impairments recorded are a consequence of the continuing deterioration in market conditions resulting
in revised assumptions around future profitability and growth rates within certain brands
The Company owns directly or indirectly the whole of the issued and fully paid ordinary share capital of the following subsidiary
undertakings. All subsidiaries are incorporated in England and Wales and are 100% owned except where referenced.
The registered office for all subsidiary companies listed above is Airport House, The Airport, Cambridge, CB5 8RY, United Kingdom.
All subsidiaries listed below are included within the consolidated financial statements on pages 72 to 132.
138
Marshall Motor Holdings Plc | Annual Report & Accounts 2018
Notes to the Company Financial Statements
6.
Investments in subsidiaries (continued)
Name of Undertaking
Marshall Motor Group Limited
Marshall of Cambridge (Garage Properties) Limited
Tim Brinton Cars Limited* (reg no. 01041301)
Marshall of Ipswich Limited*
Marshall of Peterborough Limited*
S.G. Smith Holdings Limited
S.G. Smith Automotive Limited* (reg no. 00622112)
S.G. Smith (Motors) Limited* (reg no. 00287379)
S.G. Smith (Motors) Beckenham Limited* (reg no. 00648395)
S.G. Smith (Motors) Forest Hill Limited* (reg no. 00581710)
S.G. Smith (Motors) Crown Point Limited* (reg no. 00581711)
S.G. Smith (Motors) Sydenham Limited* (reg no. 00660066)
S.G. Smith (Motors) Croydon Limited
S.G. Smith Trade Parts Limited* (reg no. 01794317)
Prep-Point Limited* (reg no. 00660067)
Marshall of Stevenage Limited*
Marshall Commercial Vehicles Limited
Marshall North West Limited
Marshall of Scunthorpe Limited* (reg no. 01174004)
Silver Street Automotive Limited
Exeter Trade Parts Specialists LLP* (reg no. OC329331)
Audi South West Limited
Hanjo Russell Limited
CMG 2007 Limited* (reg no. 06275636)
Astle Limited* (reg no. 01114983)
Crystal Motor Group Limited* (reg no. 04813767)
Ridgeway Garages (Newbury) Limited
Pentagon Limited
Pentagon South West Limited
Ridgeway TPS Limited
Ridgeway Bavarian Limited
Wood in Hampshire Limited
Wood of Salisbury Limited
Principal activity
at period end
Franchised motor dealership
Property holding
Property holding
Franchised motor dealership
Franchised motor dealership
Holding company
Holding company
Property holding
Franchised motor dealership
Franchised motor dealership
Franchised motor dealership
Franchised motor dealership
Dormant
Motor parts sales
Maintenance and repair of motor vehicles
Franchised motor dealership
Dormant
Franchised motor dealership
Franchised motor dealership
Franchised motor dealership
Motor parts sales
Dormant
Dormant
Holding company
Franchised motor dealership
Franchised motor dealership
Franchised motor dealership
Franchised motor dealership
Dormant
Motor parts sales
Franchised motor dealership
Dormant
Dormant
* subsidiaries for which exemption from audit by virtue of s479A of the Companies Act 2006 has been taken for the year ended
31 December 2018.
7. Debtors
Amounts owed by Group undertakings
Other debtors
VAT
Prepayments and accrued income
Deferred tax asset (note 8)
2018
£’000
5,567
603
21
113
13
2017
£’000
5,371
186
56
552
100
6,317
6,265
Amounts owed by group undertakings are unsecured, bear no interest and have no fixed repayment date.
139
FINANCIAL STATEMENTS
Notes to the Company Financial Statements
8. Deferred tax assets
The analysis and movements in deferred tax assets during the year are as follows:
Deferred tax assets
At 1 January 2017
Credited to the income statement - current year
(Charged)/credit to the income statement - prior year
At 31 December 2017
Charged to the income statement - current year
Charged to the income statement - prior year
At 31 December 2018
Share-
based
payments
£’000
Other
temporary
differences
£’000
307
-
(307)
-
-
-
-
5
66
29
100
(82)
(5)
13
Total
£’000
312
66
(278)
100
(82)
(5)
13
The Directors believe that all dividends paid by the Company’s subsidiaries will meet the exemption conditions set out in tax
legislation and are non-taxable income.
9. Creditors: amounts falling due within one year
Bank overdraft
Trade creditors
Amounts owed to Group undertakings
Corporation tax
Other taxes and social security
Other creditors
Accruals and deferred income
2018
£’000
4,274
735
30,775
1,490
63
354
1,189
38,880
Amounts owed to group undertakings are unsecured, bear no interest and have no fixed repayment date.
10. Called-up share capital
77,865,653 (2017: 77,392,862) ordinary shares of 64p each
Ordinary shares
At 1 January
Issued on 11 April 2018
2018
£’000
49,834
2018
£’000
49,531
303
49,834
2017
£’000
6,390
77
20,561
1,554
60
-
1,857
30,499
2017
£’000
49,531
2017
£’000
49,531
-
49,531
On 11 April 2018 472,791 ordinary shares of 64p each were issued as part of the exercise of share options awarded under the
IPO Restricted and IPO Performance share option schemes. There were no shares issued in 2017.
140
Marshall Motor Holdings Plc | Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
11. Share-based payments
The Company operates a share-based payment scheme; having adopted the disclosure exemptions permitted by FRS 102, full
details of the scheme are included in Note 29 ‘Share-Based Payments’ of the consolidated financial statements and are not
duplicated here.
The share-based payment expense recognised by the Company is calculated by reference to the number of options awarded to
the employees of the Company.
12. Dividends
Paid during the year
Final dividend for 2016
Interim dividend for 2017
Final dividend for 2017
Interim dividend for 2018
2018
£’000
-
-
3,309
1,674
4,983
2017
£’000
2,864
1,663
-
-
4,527
A final dividend of £3,309,000 (2016: £2,864,000) for the year ended 31 December 2017 was paid in May 2018. This represented
a payment of 4.25p per ordinary share in issue at that time.
An interim dividend in respect of the year ended 31 December 2018 of £1,674,000 (2017: £1,663,000), representing a payment
of 2.15p per ordinary share in issue at that time, was paid in September 2018.
A final dividend of 6.39p per share in respect of the year ended 31 December 2018 is to be proposed at the annual general meeting
on 21 May 2019. The ex-dividend date will be 25 April 2019 and the associated record date will be 26 April 2019. This dividend will
be paid subject to shareholder approval on 24 May 2019 and these financial statements do not reflect this final dividend payable.
13. Pensions
As described in Note 3 ‘Accounting Policies’, the Company participates in a pension scheme for the benefits of its employees
which is a defined contribution scheme. The scheme is funded by the payment of contributions to a trustee administered fund
which is kept independently from the assets of the participating employers.
The total pension cost for the year was £101,000 (2017: £115,000)
The total unpaid pension contributions outstanding at the year end were £3,000 (2017: £3,000)
14. Related party transactions
Company transactions with subsidiaries
The Company has taken advantage of exemption, under the terms of Section 33 of FRS 102, not to disclose related party
transactions with subsidiaries within the Group.
Transactions with Directors
Details of transactions with Directors are included in Note 31 ‘Related Party Transactions’ of the consolidated financial statements.
141
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
15. Ultimate parent company
The parent undertaking of the largest group of undertakings for which group financial statements are drawn up and of which the
Company is a member is Marshall of Cambridge (Holdings) Limited. This is considered to be the ultimate parent company.
Copies of the group financial statements for Marshall of Cambridge (Holdings) Limited can be obtained from Airport House, The
Airport, Cambridge CB5 8RY.
142
Marshall Motor Holdings Plc | Annual Report & Accounts 2018
Appendix – Alternative Performance Measures (APMs)
The Group presents various APMs as the Directors believe that these are useful for users of the financial statements in helping to
provide a balanced view of, and relevant information on, the Group’s financial performance. The APMs are measures which
disclose the adjusted performance of the Group excluding specific items which are regarded as non-recurring. See Note 7
‘Non-Underlying Items’ for full details of the nature of items excluded from non-underlying performance measures.
The following table shows the reconciliation between the Group’s performance as reported in accordance with International Financial
Reporting Standards (IFRS) and the Group’s underlying performance and like-for-like results.
2018
£'000
2017
£'000
25,066
20,097
-
(3,217)
(268)
1,146
9,302
6,963
32,029
2018
£'000
6,000
6,783
-
-
-
12,783
32,880
2017
£'000
2,186,887
2,231,979
(36,334)
(15,908)
-
(4,437)
(67,772)
(50,859)
(52,242)
(123,068)
2,134,645
2,108,911
2018
£'000
2017
£'000
255,677
258,301
(3,537)
(1,623)
(5,160)
(617)
(6,538)
(7,155)
250,517
251,146
Continuing operating profit
Total continuing operating profit as reported
Impact of non-underlying items
Post-retirement benefits charge
Restructuring costs and provisions
Profit on disposal of assets classified as held for sale
Loss on disposal of investment property
Loss on impairment of goodwill and other intangible assets
Continuing underlying operating profit
Continuing revenue
Total continuing revenue as reported
Impact of non like-for-like activities
New dealerships acquired or opened in the year
Dealerships closed in the year
Business activities ceased in the year
Continuing like-for-like revenue
Continuing gross profit
Total continuing gross profit as reported
Impact of non like-for-like activities
New dealerships acquired or opened in the year
Dealerships closed in the year
Continuing like-for-like gross profit
143
SHAREHOLDERS INFORMATION
Company Information
Registered Office:
Company websites:
Airport House
The Airport
Cambridge
CB5 8RY
www.mmhplc.com
www.marshall.co.uk
Nominated Adviser and Broker:
Investec Bank plc
30 Gresham Street London EC2V 7QP
Auditor:
Joint Bankers:
Ernst & Young LLP
One Cambridge Business Park
Cambridge CB4 0WZ
Barclays Bank plc
1 Churchill Place London E14 5HP
HSBC Bank plc
8 Canada Square London E145HQ
Legal Advisers to the Company:
Dentons UKMEA LLP
One Fleet Place London EC4M 7WS
Registrar:
Link Market Services Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
144
Perivan Financial Print 253348
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Audi
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BMW Motorrad
CUPRA
Ford
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Honda
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Mercedes-Benz
Mercedes-Benz Commercials
MINI
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Trade Parts Specialists
Used Car Centres
23 BRAND PARTNERS
120 OPERATING UNITS
27 COUNTIES NATIONWIDE
www.mmhplc.com
Marshall Motor Holdings plc
Airport House, The Airport, Cambridge, CB5 8RY
© 2019 Marshall Motor Holdings plc