Full Year Results

9 March 2021

MARSHALL MOTOR HOLDINGS PLC

("MMH" or the "Group")

Results for the Year ended 31 December 2020 ("the Year")

Resilient performance in a challenging environment

Marshall Motor Holdings plc, one of the UK's leading automotive retail groups, announces its results for the Year ended 31 December 2020.

Financial summary

1 Final dividend cancelled due to COVID-19 impact, 2.85p represents interim dividend only which would typically represent one third of full year dividend

2020 Highlights:

Daksh Gupta, Chief Executive Officer, said:

"The unprecedented political, economic and social impact of the COVID-19 pandemic in 2020 challenged governments, businesses and individuals across the world.

"The response of colleagues across our businesses during the Year was outstanding. Despite significant uncertainty, our colleagues went above and beyond, rising to the challenges we collectively faced. Their contribution to our financial result cannot be underestimated and we thank them all for their dedication and commitment during the Year. Our priority in responding to the COVID-19 pandemic was the safety and wellbeing of our colleagues and customers. As well as ensuring our businesses were safe environments in line with COVID-19 secure guidelines, we worked hard to support colleagues, both financially and through wider wellbeing initiatives.

"Through a combination of support received from both the Government and our business partners, a number of one-off sector tailwinds and our continued and significant outperformance of the wider market, we are pleased to report an underlying profit before tax for the Year of £20.9m. Our financial position also remains strong, with adjusted net cash at 31 December 2020 of £28.8m.

"Our resilient business model, ability to adapt to changing consumer behaviours, such as those enforced by showroom closures, together with our exceptionally strong relationships with our brand partners, gives us confidence in the Group's future prospects and success.

"I would like to take this opportunity, on behalf of the Board, to thank our fantastic colleagues, our brand partners and suppliers for their continued support."

* 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.

** underlying profit before tax is presented excluding non-underlying items as set out in Note 5.

*** adjusted net cash / (debt) is presented excluding the impact of IFRS16 Leases.

For further information and enquiries please contact:

Notes to Editors

About Marshall Motor Holdings plc (www.mmhplc.com)

The Group's principal activities are the sale and repair of new and used vehicles. The Group's businesses have a total of 113 franchises covering 22 brands, across 28 counties in England. In addition, the Group operates six trade parts specialists, two used car centres, six standalone body shops and one pre delivery inspection centre.

In 2020 the Group was recognised by the Great Place to Work Institute, being ranked the 12th best place to work in the UK (super large company category). This was the eleventh year in succession that the Group has achieved Great Place to Work status.

Cautionary statement

This announcement contains unaudited information based on management accounts and forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts and undue reliance should not be placed on any such statements because they speak only as at the date of this document and are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. MMH undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

Chairman's Statement

Introduction

I am pleased to present our annual results for the year ended 31 December 2020 (the "Year).

The Year was, inevitably, dominated by the impact of COVID-19 and the measures put in place to control the spread of the virus. As a result, there were prolonged periods of the Year during which all, or some elements, of our physical retail business were required to close. Whilst this clearly affected trading during those periods, we recognise and are grateful for, the fact that our sector was not as negatively impacted as others.

As a sector, we benefited from a number of tailwinds following the reopening of our businesses after the initial national lockdown: we were permitted to open our retail businesses earlier than other retailers on 1 June 2020 and we benefited from the release of pent-up demand in both sales and aftersales, an increased preference for private mobility and robust used car valuations as a result of supply constraints for new cars.

We also benefitted significantly from Government support measures; including business rates relief, retail grants and the Coronavirus Job Retention Scheme (CJRS). We are grateful that these measures enabled us to protect the vast majority of jobs within the Group as well as our liquidity.

Our brand partners and suppliers have been extremely supportive during this challenging period and we are thankful for this support. In challenging times such as those experienced during the Year, the importance of the symbiotic relationship with each of our strong, global franchise partners was clearly demonstrated.

I am incredibly proud of how our management team and colleagues across the Group responded to the challenges with which we were presented during the Year. Our priority in responding to the COVID-19 pandemic has been safety and wellbeing of our colleagues and customers and doing our duty to the broader society to which we belong. As well as ensuring our businesses were safe environments in line with COVID-19 secure guidelines, we worked hard to support colleagues, both financially and through wider wellbeing initiatives.

From a trading perspective, our continued outperformance of the wider market was significant and (in combination with the support measures and sector tailwinds referred to above) enabled us to achieve a strong financial result for the Year despite the challenges we faced.

Strategy

The Group's strategy of close partnership with major global automotive brands has served us well over many years, none more so than in 2020 when the strength and depth of our partnerships was clearly demonstrated. Whilst completed corporate activity during the Year was more limited as a result of COVID-19, our clear strategy, strong financial position and support of our key brand partners will enable us to take further growth opportunities as they arise. We also believe that those automotive retailers with both scale and a diverse portfolio will be best placed to succeed in a changing market and continue to explore ways to increase our scale with high quality, financially attractive acquisitions.

The automotive sector was already undergoing a period of evolution, driven by a combination of environmental, technological and social change factors. COVID-19 has accelerated a number of these developments, in particular, the progression towards a more flexible, consumer-centric retail model incorporating remote sales utilising technology such as video consultations, online purchases with vehicle delivery and 'click and collect' services. We have embraced these developments and the operational efficiencies and improved customer choice of experience they offer.

Nevertheless, COVID-19 has also demonstrated the importance of our physical presence. Despite widespread use of remote sales channels throughout the pandemic, vehicle sales during the Year were significantly impacted by the closure of showrooms for prolonged periods with research consistently showing that the majority of consumers continue to opt for a showroom experience as part of the car buying process.

Along with our manufacturer partners, we continue to believe that a strong retail franchise network will be a crucial component of the future automotive sector. This perfectly complements our increasingly strong online presence and is positioning us to provide the 'best of both worlds' to our customers, offering a bespoke customer experience with warm human relationships at its heart.

Results

The Group delivered a strong financial performance in what was a very challenging year.

The Group achieved reported revenue (including 2019 acquisitions) of £2.2 billion (2019: £2.3 billion). Underlying profit before tax* ('PBT)' for Year was £20.9m (2019: £22.1m). The Board considers this to be a strong result given the circumstances and, as stated above, was achieved as a result of a combination of continued market outperformance, sector tailwinds and significant Government support.

The Group's balance sheet is also strong, with adjusted net cash** of £28.8m at 31 December 2020 (2019: adjusted net debt of £30.6m). Net assets rose to £215.9m, underpinned by £125.8m of freehold land and buildings.

Dividend

The Board has considered the position in relation to dividends extremely carefully. The Board is cognisant of the fact that, in light of the uncertainty caused by COVID-19, it suspended and subsequently cancelled the previously announced final dividend for 2019 and did not declare an interim dividend for 2020. The Board continues to believe this was the right action to take to maximise the Group's financial resilience in the face of an extremely unpredictable trading environment.

In relation to 2020, whilst the Group has performed well and its financial position is strong, the Board is mindful of the significant support the Group has received both from Government measures such as business rates relief and CJRS and from other stakeholders.

As a result, the Board feels it would be inappropriate to recommend the payment of a final dividend for 2020.

The Board understands the importance of dividends to shareholders and intends to resume the payment of dividends as soon as conditions allow and will consider the position next at the time of release of its interim results in August 2021. Our approach to management bonuses supports this position: while we value management's efforts and commitment enormously, the Board and management have collectively agreed that no executive management bonuses should be paid until to the Group can restore dividends.

AGM

Our annual general meeting will be held on 20 May 2021. The Board would prefer to hold a physical meeting at which shareholders are able to attend in person, but that may not be possible.

Summary

The impact of COVID-19 continues to dominate the social and economic environment in 2021. Our experience of meeting these challenges during the Year, coupled with the demonstrable resilience and flexibility of our business model, leads to our belief in being able to navigate through the headwinds that may arise in the short term.

Our strategic focus and tried and tested business model, together with our exceptionally strong relationships with our brand partners, gives us confidence in the Group's future prospects and success. The Group's balance sheet remains strong and we continue to be well positioned to take advantage of further growth and consolidation opportunities as they arise.

I would like to thank the leadership team, our brand partners, business suppliers, shareholders and colleagues throughout the Group for their wholehearted support during a very challenging year.

Finally, I would also like to thank all of our customers throughout the UK who continue to choose Marshall for their mobility products and services. We believe in putting our customers at the heart of everything we do and we never lose sight of the fact that our sustained success as a business is dependent on meeting and exceeding their expectations.

Professor Richard Parry-Jones CBE

Chairman

8 March 2021

Operating Review

Overview

2020 was dominated by COVID-19 and the impact of measures put in place to control the spread of the virus, both in the UK and globally. In common with many other businesses, there were prolonged periods during the Year when our physical retail businesses were required to close, in full or in part, which clearly had a significant impact on trading.

Nevertheless, through a combination of support received from both the Government and our business partners, a number of one-off sector tailwinds and our continued and significant outperformance of the wider market, we are pleased to report an underlying profit before tax for the Year of £20.9m (2019: £22.1m). Our financial position also remains strong, with adjusted net cash at 31 December 2020 of £28.8m (2019: adjusted net debt of £30.6m).

Our priority in responding to the COVID-19 pandemic was and remains the safety and wellbeing of our colleagues and customers. As well as ensuring our businesses were COVID-19 secure in line with Government guidelines, we worked hard to support colleagues, both financially and through wider wellbeing initiatives, further details of which are set out later in this report.

In recognition of the vital role our aftersales operations play in supporting essential vehicle mobility, we continued to provide essential vehicle aftersales services during periods of national and local lockdown to support the emergency services, commercial vehicle operators, vulnerable customers and key workers. The Board believed it was appropriate for the Company to continue to offer these services, notwithstanding they operated at a small loss, to support the country, particularly in light of the various Government support schemes provided to businesses through this period.

The response of colleagues across our businesses during the Year was outstanding. Despite significant uncertainty, our colleagues went above and beyond, rising to the challenges we collectively faced. Their contribution to our financial result cannot be underestimated and we thank them all for their dedication and commitment.

Whilst the impact of COVID-19 will continue to dominate the social and economic environment in 2021, our success in meeting these challenges to date, coupled with the demonstrable resilience and flexibility of our business model, gives us confidence in our ability to successfully navigate the coming months.

Financial Highlights:

Strategic and Operational Highlights:

COVID-19: impact and timeline

As stated above, 2020 was dominated by the impact of COVID-19 and the Year was characterised by four distinct trading periods:

1. Pre-COVID-19: strong trading (Jan to late March 2020)

In our 2019 results announcement on 10 March 2020, we reported that our order-book for the important March 2020 plate-change month had been encouraging. As the month progressed, the Group continued to perform strongly and was confident of achieving an excellent operational and financial performance in the first quarter of the Year.

Notwithstanding the temporary closure of our physical sites in what is traditionally the busiest week of the year, we were able to significantly outperform the wider UK new car market in the first quarter:

2. Safeguarding our business through the closure period (Late March to June 2020)

Our priority in responding to the COVID-19 pandemic was the safety and wellbeing of our colleagues and customers and we announced the temporary closure of our dealerships on 23 March 2020, prior to Government restrictions requiring car showrooms and all non-essential businesses to close, impacting the busiest week of the year.

In recognition of the vital role our services play in supporting essential vehicle mobility, the Group kept 62 of its aftersales operations open across the country to support the emergency services, commercial vehicle operators, vulnerable customers and key workers throughout the COVID-19 national emergency. The Board believed it was appropriate for the Company to continue to offer these services, notwithstanding they operated at a small loss, to support the country, particularly in light of the various COVID-19 Government support schemes provided to businesses through this period.

We continued to operate online and on the telephone to manage customer enquiries for sales. During the closure period from late March to June 2020, the Group took orders for over 3,700 new and used vehicles. This was, inevitably, significantly down on the comparable prior year period during which c.19,000 new and used vehicle orders were taken.

During this period, the Group furloughed around 90% of its 4,300 colleagues. The Group acknowledges the support provided by Government through the Coronavirus Jobs Retention Scheme (CJRS) which enabled the Group to support colleagues and protect their employment.

Further details of how the Group supported colleagues during their period of furlough are set out in the 'People Centric' section below. These included the additional financial support we provided to supplement CJRS, through regular video communications and a focus on supporting colleagues' mental wellbeing.

3. Re-opening under COVID-19 secure operating procedures (June to October 2020)

The Group reopened all its showrooms and other operating units from the 1 June 2020. Detailed preparations were made to ensure our business reopened under revised, COVID-19 secure, operating procedures to safeguard our colleagues, customers and all other visitors to our businesses.

Through its close connections with the National Franchised Dealers Association (NFDA) and working alongside the SMMT, the Group was pleased to contribute to the COVID-19 safety guidelines issued by the Government for motor retailers. The Group carried out detailed risk assessments, mandatory colleague training ahead of return to the business (with a required pass mark of 100%) and implemented robust auditing by our Health & Safety team to provide assurance that our COVID-19 secure procedures were being implemented and followed.

Trading from June to October was strong, benefitting from a number of sector tailwinds including a release of pent-up demand (including the delivery of outstanding vehicle orders not completed prior to the closure period and those taken during that period), extended vehicle financing agreements coming to an end and a shift from use of public transport towards vehicle ownership with an increase in first-time car purchasers. Resilient consumer demand was augmented by strong margin retention and robust used car valuations as a result of supply constraints in new cars following the prolonged closure of many manufacturers' factories during the first lockdown period.

In addition to these sector tailwinds, the Group's outperformance of the wider market during this period was significant. As announced in October 2020, the Group's outperformance of the market in the important plate-change month of September was particularly strong. Against the SMMT-reported decline in total new vehicle registrations in September 2020 of 4.4%, the Group's like-for-like total new vehicle sales were up 18.4%. Across the third quarter of the Year as a whole, the Group's total new unit sales were up 11.8% on a like-for-like basis compared with SMMT-reported new vehicle registrations down 0.5%.

This strong period of trading enabled the Group to eliminate losses from the first lockdown period and gave the Board the confidence to target a significant upgrade to our adjusted profit before tax for the Year.

4. Second National Lockdown and Geographical Tiers (November to December 2020)

The second national lockdown in November 2020 and the subsequent introduction of Tier 4 restrictions during December 2020 and the closure of all non-essential retail (including vehicle showrooms), again impacted trading during the last two months of the Year.

With the Group's strong presence in the south and east of the country which were first to be impacted by the tier system during December 2020, around 90% of our dealerships were required to close during the last month of the Year. The Group was, however, able to continue to operate 'click and collect' retailing of new and used vehicles during this period.

The work and investment made in ensuring we could operate effectively on a 'click and collect' basis mitigated the impact of the closure of our physical showrooms to customers. We were encouraged by the level of order-take and deliveries utilising telephone, online and 'click and collect' services.

This trading environment has continued into 2021 and whilst it has resulted in reduced order-take, the impact has been markedly less than that experienced during the first lockdown period.

Strategy

The Group's strategic vision to be the UK's premier automotive group remains central to everything we do. The five strategic pillars, which underpin our 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.

Class Leading Returns

Although the past Year has been challenging, the Group has delivered a resilient performance by continuing to focus on the basics of customer service combined with margin, stock and cost control. The Group continues to focus on market outperformance. In addition, the Group continues to drive sales of used vehicles and aftersales, thereby mitigating the effects of a decline in the new vehicle market.

The Group's strategy, of building a balanced brand portfolio with the right brand partners in the right geographic locations, helps allow for the cyclical nature of individual brands as well as regional variations in performance resulting from local economic issues.

In the medium to longer-term, continued growth with our brand partners will enable the Group to access additional benefits of scale across a number of areas of the business, supported by the use of the Marshall brand across the entire portfolio. The Group has a robust platform which is scalable for further future growth and is well placed to take advantage of a consolidating market. The has been most recently demonstrated by the successful integration of the twenty new business units acquired in 2019. The Board anticipates further rationalisation of manufacturer dealer networks over the coming years and given the Group's strong balance sheet and manufacturer relationships, is confident of continued future acquisitive growth.

Customer First

Customer satisfaction is an important element of the Group's strategy, driving repeat business and loyalty to the Marshall brand.

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. The Group centrally monitors customer satisfaction for both sales and aftersales across all locations and brand partners on a weekly basis. This ensures we remain focused on delivering on our brand partners' key measures whilst ensuring consistency of internal performance monitoring.

The Group's continued expansion and scale provides customers with a wider choice of location, stock and products, increasing both customer satisfaction and sales.

The Group's ability to adapt effectively to changing consumer preferences was demonstrated during the Year as we responded to the various restrictions imposed as a result of COVID-19. By utilising existing customer interaction capabilities (including through our website, our award-winning social media channels, online chat and use of video) we were able to respond effectively to the challenges presented by the closure of our physical showrooms.

We also accelerated plans already in place to further improve our website enabling online vehicle reservations and aftersales bookings. Further development of our online capabilities are underway, including the functionality to enable customers to complete the entire vehicle purchase and part exchange process online. Whilst fully online sales remain low across the sector as a whole, we recognise it is a growing area of interest for certain consumer groups and we are investing significantly in further improving our digital capabilities to enhance customer experience, improve our operational efficiencies and ensure consistent compliance.

Compliance

The Group operates in a regulated environment and takes its commitment to compliance seriously as well as recognising the benefit it can bring our customers. The Group recognises that compliance is an ongoing process and adopts a culture of continual improvement focused on training and awareness, system and process development, compliance monitoring and internal audit. Key compliance areas for the Group include environmental, health and safety, data protection and financial services. The Group has established compliance committees attended by cross functional colleagues from both compliance and internal audit and from operations and members of the senior management team.

Supported by the Group's experienced team of compliance professionals, the Group made detailed preparations for the introduction of the Financial Conduct Authority's 'Senior Managers and Certification Regime' (SMCR). These include clear statements of responsibility for the Group's Approved Persons, the identification and certification of the Group's 'Certification Employees' and group-wide training on SMCR and related conduct rules.

Retailing Excellence

The Marshall brand is synonymous with good customer service and the Group continues to leverage the use of the 'Marshall' brand consistently across all of its franchises. This brand consistency is unique amongst the large multi-brand motor retail groups in the UK.

A single brand approach allows the Group to have a single online point of entry for users with an instantly recognisable brand name. The Group's recently relaunched website, marshall.co.uk accommodates all of the Group's brand partners and stock, allowing for much wider customer choice in one place.

The Group has continued to leverage the Marshall brand during 2020 in a number nationwide marketing campaigns, including advertising at televised premier league and EFL football matches, England's Six Nations rugby matches and England cricket matches. These campaigns have reached a combined live audience of over 100 million and enjoyed over 300 million page impressions online. In addition, the Group has recently announced the sponsorship of a trio of leading professional darts players for the 2021 season. The sponsorship includes shirt branding and the Group will be running competitions, personal appearances and online game challenges over the next 12 months.

Another key differentiator for the Group in achieving retailing excellence, is a focus on technology and data to drive performance. Phoenix 2, the Group's bespoke MI system, supports local decision-making combined with central oversight to ensure consistency of performance and a focus on what makes a difference. One of the key benefits of Phoenix 2 is the integration of third party external used car pricing and transaction data. 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. The Group continues to see Phoenix 2 as one of the key drivers behind its market outperformance.

People Centric

The Group is proud of its people-centric culture and this has been reflected in the level of support provided to our colleagues during these challenging times. One of our main priorities during the COVID-19 pandemic has been the safety and wellbeing of our colleagues. During the first lockdown period the Group furloughed around 90% of our 4,300 colleagues. Throughout this furlough period, the Group supplemented the support provided by the CJRS, enhancing colleague pay during the closure period to 100% for March, 90% for April and 85% for May and not imposing the CJRS cap of £2,500 per month. Whilst they continued to work throughout, the Board and other senior members of the management team voluntarily reduced their pay in line with the reductions for furloughed colleagues in April and May, and also forfeited holiday accrued. The Group has also provided additional financial support, including salary advances through our 'Pay it Forward' initiative.

In addition to providing financial support to colleagues and recognising the importance of ongoing communication, regular management briefings have been issued to all colleagues via video message from members of the Executive Committee and other members of the senior management team. This enabled the Company to stay in touch with everyone and provide updates on the actions the Company has been taking during the closure period. Furloughed colleagues were encouraged to complete modules of the Company's bespoke training programme via its online learning platform. As well as 'business as usual' training programmes relating to financial services and data protection compliance, all colleagues completed a mandatory formal training and assessment programme on our revised operating procedures and social distancing guidelines before returning to the workplace.

Feedback from colleagues throughout the Year has been extremely positive, demonstrating why, for the eleventh consecutive year, the Group has been recognised by Great Place to Work UK as a 'great place to work' based on colleagues surveyed during 2020. At 79%, this continues to be significantly ahead of the 65% threshold score required to be considered a Great Place to Work®. We also enjoyed an exceptionally high participation rate of 84%, which compares to 70% nationally, and demonstrates the high degree of trust and engagement in the organisation. This result is also particularly pleasing given the number of new businesses the Group has integrated over recent years.

Based on the results of the 2019 survey and an extensive audit of people policies, procedures and programmes, the Group was ranked 12th in the super large category of the 2020 Best UK Workplaces programme, which included employers such as Admiral, CISCO, MARS UK, Deloitte and EY. 2020 was the sixth year running that the Group was ranked amongst the best employers in the UK.

Strategic Growth

As set out at the time of the Group's IPO and demonstrated since then, the Group's strategy is to grow scale with existing brand partners in new geographical territories. As evidenced recently, there continues to be considerable consolidation in the UK motor retail market with both Ford and Vauxhall rationalising their network and Mitsubishi announcing its exit from the European market. The Group, with its scalable platform, is very well positioned to take advantage of the opportunities arising given its strong balance sheet and excellent manufacturer relationships. The Group continually seeks to maximise return on capital employed and closely monitors and reviews its portfolio to ensure optimal returns.

Acquisitions and Disposals

During 2019, 20 new business units were added to our portfolio through eight acquisitions or start-ups. These additions significantly expanded our representation with a number of our key brand partners including ŠKODA, Honda, Volkswagen and Volvo and were in line with our strategy to grow with key brand partners. Although trading in these businesses during the Year was impacted by COVID-19 related lockdowns, we have been very encouraged with the progress made and anticipate that these businesses will make positive contributions to the Group's future profitability.

On 10 July 2020, the Group completed the acquisition of Aylesbury Volkswagen. The Aylesbury business formed part of the strategic acquisition announced in December 2019 with its completion being deferred pending resolution of certain property issues. All deferred consideration has now been paid to the seller, Jardine Motor Group UK Limited.

The Group announced in October 2020 that it had secured the opportunity to represent Ford Commercial Vehicles in King's Lynn, which will operate from our existing Ford freehold site. We also agreed to represent SEAT at an open point in Oxford, which will operate from a leasehold site adjacent to the Group's existing Jaguar Land Rover and Volkswagen businesses. These new businesses commenced trading in early 2021 following completion of associated corporate identity upgrades.

The Group has continued to focus on driving operational efficiencies and responding to a number of its brand partners' network rationalisation strategies and the ongoing impact of COVID-19. As a result of a review of its portfolio, and with the full support and approval of its brand partners, during the Year the Group announced the closure of four sub-scale franchised dealerships: Cambridge Hyundai, Bury St Edmunds Ford, Knebworth Vauxhall and Poole Mercedes-Benz Commercial Vehicles. In the year ended 31 December 2019, these dealerships made a combined revenue contribution of £47.3m and a loss of £0.1m.

The Group now consists of 113 franchises representing 22 brand partners trading in 28 counties nationwide. In addition, the Group operates six trade parts specialists, two used car centres, six 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 scale and diversified spread of representation helps mitigate the effect of the cyclical nature of individual brand performance. The Group's strategy is to develop strong relationships with its brand partners, targeting a 5% share or more of UK sales for each brand partner. We now exceed that threshold with nine of our key brand partners and our strategy is to increase that scale further.

Investment in New Retail Locations and Major Developments

As part of our cash preservation actions, the Group's capital expenditure programme was reviewed and, in collaboration with our brand partners where necessary, a number of planned projects have been deferred.

As a result, capital expenditure in the Period was £11.7m, a reduction of £7.7m versus 2019.

The Group will continue to review investment requirements closely and will reinstate the investment programme at the appropriate time.

Projects undertaken or commenced in the Year include:

• Newbury Audi - showroom corporate identity and building refurbishment;

• Wimbledon Audi - completion of Audi's "city concept", the first of its type in the UK;

• Derby Volvo - site refurbishment to Volvo VRE standards following purchase in 2019;

• Welwyn Volvo - purchase of freehold;

• Oxford Seat - preparation for opening of new franchise opportunity;

• King's Lynn Ford CV - preparation for opening of new franchise opportunity on current freehold site;

• South London TPS - Relocation from Old Kent Road to new premises in Deptford in-line with Volkswagen TPS hub and spoke strategy;

• Newbury ŠKODA - Relocation of aftersales business to new premises

In addition to large scale redevelopments, the Group continues to invest in upgrading existing businesses to enhance the customer experience, satisfy brand requirements, electrification and increase sales and aftersales capacities.

Since IPO in 2015, the Group has invested over £110m in its property estate, including corporate identity upgrades, freehold and long-leasehold acquisitions and ongoing maintenance capital expenditure.

Market and Business Update

As reported by the SMMT, sales of new vehicles during 2020 were significantly impacted by COVID-19. During the Year, new car registrations to retail and fleet customers declined by 26.6% and 31.7% respectively, with total registrations of new vehicles in the UK (including the impact of dealer self-registration activity) declining by 29.4%. These declines were predominantly experienced during April and May 2020 when total UK new registrations were down 97.3% and 89.0% respectively. The key registration month of March 2020 was also heavily impacted by the timing of the first national lockdown with the market registering c200k fewer units year-on-year. Some pent-up demand was evident as we exited the first lockdown but further restrictions including a second national lockdown in November 2020 and tiered restrictions in December 2020 meant that new vehicle registrations in most months of the Year were below the comparative months in 2019.

Against this challenging market backdrop, the Group sold a total of 42,934 new vehicles during the Year, a decrease of 9.2% versus 2019. The Group's like-for-like new unit sales decreased by 19.4%, a significant outperformance compared to the wider market.

The Group's total sales of new vehicles to retail customers decreased by 4.6% in the Year, with like-for-like sales down by 16.9% an outperformance of 9.7% versus the market.

The Group's total sales of new vehicles to fleet customers decreased by 16.8% in the Year, with like-for-like sales down by 23.2% an outperformance of 8.5% versus the market.

The Group is increasing its focus on the growing commercial vehicle segment and appointed a Head of Commercial Vehicle Sales during the Year. We now have 18 sites which sell commercial vehicles.

Overall, new vehicle margins declined by 84bps in the Year versus 2019. This margin reduction was driven by the lower volumes which in turn impacted the Group's ability to achieve manufacturer overperformance bonus targets, in particular in the peak trading month of March 2020. The Group experienced improving margins in the second half of the Year towards more normalised levels. 

Used Vehicles

The sale of used vehicles is a much larger market than new vehicles and there are a larger number of market participants, including franchised dealers, independent traders and private sellers. The SMMT reported at total market of 6,752,959 units in 2020, representing a decline of 14.9% versus 2019.

The Group is pleased that, against this challenging backdrop, its used sales decline was contained at 5.3% on a total basis and 14.6% on a like-for-like basis. This was a pleasing result given the franchised sector was more adversely affected by showroom closures.

Residual values remained strong throughout the Year due to increased demand. Following a strong second half, margin performance full year margins were flat versus 2019. 

Aftersales

Aftersales is a key strategic focus for the Group, providing future revenue and profit assurance during periods of a more challenging economic environment and the associated impact on vehicle sales. In addition to our retail centre-based aftersales facilities, the Group operates six standalone bodyshops, six trade parts centres and one PDI centre. 65 of our aftersales businesses remained open during the first national lockdown to support critical services and key workers. These businesses operated at a small loss during that period.

Aftersales contributed 45.8% of total gross profit during the Year and, therefore, made a significant financial contribution to the Group which was important in the context of the sharp decline in vehicle sales in the Year.

Our aftersales performance was impacted by the lockdown periods due to the closure of a number of our sites, the deferral of MOT and servicing work in some cases and also fewer miles being travelled by customers during the lockdown periods.

We were, however, encouraged by the rate at which aftersales activity levels picked up post-lockdown.

The reduction in aftersales revenue was partially offset by productivity and efficiency improvements and a greater focus on higher margin maintenance work with overall aftersales margins improving by 74bps versus 2019.

Service plans continue to play an important part of our aftersales retention strategy and also have the benefit of allowing 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.

Industry Strategic Landscape

As previously reported, the automotive sector is undergoing an exciting period of evolution, driven by a combination of technology, environmental and social change factors. The Group's strategy anticipates the impact that these macro factors will have for automotive retailers in the future.

The COVID-19 pandemic has materially disrupted businesses globally, including those in the automotive sector. Automotive retailers have responded to these challenges by adapting their business models, changing the way they interact with customers (which, by necessity, has moved increasingly online) and introducing more efficient ways of operating. The COVID-19 pandemic has, therefore, accelerated many of the industry changes which the Group's strategy had anticipated occurring over a number of years.

Macro change factors

Climate change and BEVs

Climate change and the response of international governments to these issues, in combination with technological developments by vehicle manufacturers, will have a significant impact on the automotive sector over the coming years.

The global response to the issue of climate change, including the Paris Agreement target for carbon neutrality by 2050, has instigated a shift from traditional internal combustion engines ('ICE') to battery electric vehicles ('BEVs'). That process is now well underway, driven by regulatory interventions such as the Clean Air for Europe programme ('CAFE'). 2020 saw the introduction of punitive financial penalties for those vehicle manufacturers which did not achieve significantly reduced fleet average Co2 emissions.

Vehicle manufacturers have responded to these changes with the launch, active promotion and attractive consumer offers on a wide range of new BEV and hybrid vehicles in 2020. In particular, the Jaguar iPace, Mercedes' EQ range, BMW's 'i' range and the much-anticipated Volkswagen ID.3 were extremely popular choices in 2020. 2021 will see the launch of a host of further new electric and hybrid vehicles, including the Volkswagen ID.4, the Audi e-tron GT and Q4 e-tron, the BMW iX3 and the ŠKODA Enyaq.

BEV registrations accounted for 6.6% of registrations in the UK in 2020, up from 1.6% in 2019 and this proportion of sales will continue to grow, driven by a combination of both consumer demand and manufacturer 'push' given the severe financial implications of not meeting CAFE targets. In addition, national governments, including the UK, are setting their own targets for the cessation of sales of new ICE vehicles (including hybrids) over the next 15-20 years.

All major vehicle manufacturers have, and continue to invest heavily in the development, and launch of hybrids and BEVs. The substantial investment requirements of these developments has already led to significant collaboration and consolidation between vehicle manufacturers, including the acquisition of Vauxhall Opel by Groupe PSA, the merger of Fiat Chrysler Automobiles and Groupe PSA and the alliance between Volkswagen Group and Ford in relation to the development of future commercial vehicles.

Connected Cars

Other technological developments will also have an increasing influence on the automotive sector in the future. Connected car capabilities have existed for a number of years and have facilitated a variety of new sharing and subscription models of vehicle use. In addition, autonomous technologies, whilst still many years away in terms of the potential for fully autonomous vehicles, have introduced a range of comfort and safety features to modern motor vehicles.

Digital Consumers

The COVID-19 pandemic has accelerated progress towards a more integrated digital and physical approach to retailing in the automotive sector. Many of these developments were already well underway at the start of the pandemic but during lockdown periods, automotive retailers were reliant on their ability to interact effectively with their customers, utilising and developing their online presence, using video to showcase products and moving the buying process, including vehicle financing, online.

Consumers are increasingly comfortable undertaking elements of the vehicle purchasing process remotely, particularly in terms of research, advice, price comparison and negotiation and the completion of associated paperwork. Nevertheless, experience from the COVID-19 pandemic has also demonstrated a strong preference amongst many consumers for making final purchasing decisions after the opportunity to physically view and test drive vehicles, particularly used vehicles.

This consumer preference for an omni-channel approach to retailing in the automotive sector has been demonstrated by recent moves of supposedly 'online-only' used vehicle retailers investing significantly in physical retail and aftersales support infrastructure to augment their online sales channels. A recent YouGov survey commissioned by The Motor Ombudsman showed that nearly two thirds of UK drivers would prefer to visit a retailer in person to buy a new or used car, rather than completing the entire vehicle ordering and purchase process on online.

As such, the distinction between these new entrants and traditional retailers has become far less marked: traditional retailers have embraced the efficiencies and consumer preferences for a digital sales experience and new entrants have recognised the requirement and consumer demand for a physical presence.

Regulatory Change

As previously reported, in the past two years the FCA has introduced a number of changes which have impacted motor retailers. First, changes introduced following the FCA's thematic review of general insurance distribution chains have impacted commission arrangements between insurance providers and insurance intermediaries such as the Group in relation to the sale of vehicle-related insurance products (including GAP). Secondly, changes have been recently introduced which affect, inter alia, commission arrangements between credit brokers such as the Group and the providers of motor vehicle finance.

The combined impact of these changes has been to reduce the proportion of profitability for new and used vehicle sales which are attributable to the sale of finance and insurance products. In each of these reviews, the FCA has acknowledged that retailers are not making excessive profits overall but expected the balance between the profitability of the vehicle sale itself and the sale of ancillary financial and insurance products, to be realigned.

Impact and opportunities for automotive retailers

The macro change factors outlined above present a number of potential challenges and opportunities for motor retailers in the future:

Marshall Strategy

The Board believes that the Group's long-standing strategy of partnering with the right brands in the right locations has positioned it well to benefit from the changes ahead.

The Group's key manufacturer partners are strong and are taking leading positions in the development of future mobility technologies. With its strong investment in both technology and colleague training the Group will benefit from the continued success of their brands.

The Board also believes that the Group's portfolio of dealerships are in the right locations and markets to benefit from the expected rationalisation and consolidation of dealer networks in the UK.

The Group is supportive of the changes introduced by the FCA, both in terms of the extension of SMCR to solo-regulated firms such as the Group and the changes made in connection with the sale of finance and insurance products. The Group believes these changes will be embraced by well-established retailers such as the Group which have the scale to invest in effective, professional internal compliance expertise and recognises the benefits and confidence it will bring to our customers.

Finally, and importantly, the Group's growing scale and depth of relationships with its manufacturer partners will help to ensure it remains a relevant and important part of their future retail and aftersales strategies.

Summary and Outlook

The unprecedented political, economic and social impact of the COVID-19 pandemic in 2020 challenged governments, businesses and individuals across the world. Whilst this resulted in a record fourth consecutive year of decline in the new vehicle market in the UK, the automotive retail sector also benefited from a number of unforeseen tailwinds and demonstrated great resilience in comparison to many other sectors, including some other areas of retail.

The Board recognises the impact of these sector tailwinds, one-off market distortions and significant Government support measures to the Group's strong financial performance in 2020. It also recognises the contribution made by the Group's response to the challenges of 2020: its strengthening market outperformance; its operational and financial discipline; and its flexibility to adapt to a new trading environment, including the highly effective adoption of 'click and collect' retailing for new and used cars.

The SMMT's latest forecast for the new car market in 2021 is an increase of 15.7% on 2020 to 1.887m registrations but it is important to note this remains down 18.3% on 2019. The national lockdown from the beginning of 2021 has impacted the market in the build up to the important March plate-change month.

As a result, the Board anticipates the first half of 2021 to once again be dominated by the immediate impact of COVID-19 and is also mindful of the likely longer-term economic impact of the pandemic. The Board also notes the potential impact of the changes introduced by the FCA in relation to motor finance commissions and the possibility of some continued new vehicle supply constraints. The Board welcomes the positive resolution of negotiations regarding the UK's future trading relationship with the European Union which had created uncertainty for the sector over the past five years.

In relation to current trading, whilst both vehicle sales and aftersales have inevitably been impacted by the current national lockdown, the Board has been encouraged by demand for remote and 'click and collect' vehicle sales and the Group continued to outperform the wider new car market in both January and February 2021. Understandably, the current national lockdown has impacted our order bank for the important plate-change month of March 2021. Based on experience from 2020, the Board anticipates an element of pent-up demand release once physical car showrooms are able to reopen (currently expected to be 12 April 2021) with the outlook for the remainder of the year correlating to the nationwide easing of COVID-19 restrictions.

The Group's balance sheet remains strong and we continue to be well positioned to take advantage of further growth and consolidation opportunities as they arise. Our resilient business model, ability to adapt to changing consumer behaviours, such as those enforced by showroom closures, together with our exceptionally strong relationships with our brand partners, gives us confidence in the Group's future prospects and success.

On behalf of the Board, I would like to thank our brand and business partners for their exceptional support throughout 2020. I would also like to give special thanks to our team of outstanding colleagues across the Group who, throughout this extremely challenging period, once again demonstrated their dedication and commitment both to our business and our customers.

Daksh Gupta

Chief Executive Officer

8 March 2021

Financial Review

Overview

I am pleased to present the Group's 2020 annual results.

Due to the impact of COVID, 2020 has been a difficult and turbulent year, but a year where once again our colleagues have risen to the challenges, helping deliver a very creditable financial performance. Key for us during the Year was to ensure we contributed towards containing the pandemic but also to keep the country moving. This has seen us invest significantly in making our businesses COVID-19 secure for our colleagues and our customers, but also to keep our essential aftersales businesses open to support the massive effort of the nation in response to COVID-19.

Despite the tumultuous environment, I am pleased to confirm that we successfully renegotiated our revolving credit facility ("RCF") in July 2020, securing our facility for a further 2.5 years through to January 2023. This is testament to the strength of the Group and gives us significant firepower to continue capitalising on opportunities as they arise.

During the Year, given the uncertainties, we focused on conserving capital and therefore our investment in acquisitive growth and capital expenditure in 2020 was lower than in previous years. Nevertheless, where we could and deemed it appropriate, we continued to invest in our business, with the acquisition of Aylesbury Volkswagen in July 2020 which completed the Volkswagen acquisitions from 2019.

Despite the difficult trading environment, the contribution from the acquisitions made in 2019 was very encouraging. These investments will deliver long term shareholder value.

We have also invested in two business start-ups for key brand partners at open points. We now represent SEAT in Oxford which will operate from a leasehold site adjacent to the Group's existing Jaguar Land Rover and Volkswagen businesses and Ford Commercial Vehicles in King's Lynn, which will operate from our existing King's Lynn Ford freehold site. We also finalised our capital expenditure programmes at our Audi businesses in Newbury and Wimbledon, commenced our investment at Derby Volvo, which we acquired in 2019, and took the opportunity to acquire the freehold of our Volvo Welwyn site.

We continuously review our portfolio and, due to a lack of overall scale with the brand, we decided to exit our Hyundai business in Cambridge in September, as well as closing some sub scale, loss-making dealerships during the Year. It is imperative for us, in ensuring we best utilise our capital, that we continue to review our portfolio on an ongoing basis.

Reported revenue for the Year was down 5.3% versus 2019, with like-for-like revenue down 13.5% as a consequence of COVID-19. Overall like-for-like unit sales were down 17.1% which was a very strong market outperformance. New retail unit sales were down 16.9% on a like-for-like basis, which was up 9.7% versus the market and used unit sales were down 14.6%, marginally ahead of the market.

We experienced a strong bounce-back after the first national lockdown fuelled by pent-up demand, in-part driven by previously extended vehicle finance agreements coming to an end and first-time buyers who have lost confidence in public transport. New car margins were impacted in the first six months of 2020 due to site closures in the critical March plate change month affecting our ability to overachieve targets which in turn affected manufacturer bonuses. Overall margins experienced a recovery in the second half, in part due to overachieving of targets but also as a result of factory closures in the early part of 2020 which led to supply shortages, positively impacting demand for used cars.

Overall, the Group delivered an underlying profit before tax of £20.9m which was only marginally down on 2019, but was significantly supported by COVID-19 support measures provided both from Central and Local Governments of £27.6m. Without this support, the Group may have had to consider taking more significant structural mitigating actions. The Group remains grateful for the Government's intervention with the furlough scheme and the many jobs this has protected, as well as the support from our brand and other business partners. Reported PBT of £20.4m was £0.8m up on 2019.

Cash was also impacted by the unique and unprecedented trading environment we faced in 2020. A working capital inflow of £43.2m, combined with reduced capital expenditure, disposal of non-operating properties, proactive cash management and no dividends declared, resulted in a strong Adjusted Net Cash position of £28.8m at 31 December 2020. During the Year, the Group utilised the VAT deferment scheme available for Q1 2020 but given our strong trading following the first national lockdown, we voluntarily paid these deferred amounts back early in September 2020, up to18 months before we were required to.

Despite the further national lockdown at the start of 2021, the Group remains in an excellent position to capitalise on growth opportunities.

COVID-19 Impact on Results

There have been a significant number of external and internal COVID-related factors impacting our financial performance in the Year, both from a profit and loss and cash perspective as summarised below.

Reported Financial Performance

*excludes non-underlying items

As a result of the COVID pandemic, reported revenue (including 2019 acquisitions) decreased by 5.3% to £2,154.4m. This was a pleasing performance given a 29.4% decline in the new vehicle market.

The Group's operating profit, on an underlying basis, was £31.1m compared to £32.0m in 2019. Underlying PBT in the Year was £20.9m compared to £22.1m in 2019. This decline was driven by a combination of reduced trading as a result of sustained periods of lockdown and margin pressures. These declines were partially offset by Government and business partner support, together with other decisive cost control actions.

Our reported PBT of £20.4m (2019: £19.6m) included one-off non-underlying items of £0.6m (2019: £2.4m) as set out in note 5 to this announcement.

Analysis of Reported Revenue and Gross Profit

The segmental mix, on a reported basis, is shown in the table below, with like-for-like analysis covered later in this report.

Twelve months ended 31 December 2020

Twelve months ended 31 December 2019

* mix calculation excludes Internal / Other Sales

Finance Costs

Net finance costs increased by £0.3m in the Year to £10.2m (2019: £9.9m). Increases in bank financing costs have been partially offset by savings in stock financing charges due to reduced inventory levels.

Shareholder Returns

Profit before tax and non-underlying items was £20.9m (2019: £22.1m), £20.4m after non underlying items (2019: £19.6m). The total reported effective tax rate was 31.6% (21.1% on an underlying basis), further details are included in tax section below. Profit from continuing operations after tax was £13.9m (2019: £15.6m), resulting in reported basic continuing earnings per share of 17.8p, a decrease of 10.6% on the prior year. Basic underlying earnings per share was 21.1p (2019: 22.9p).

The Group's strategy of organic growth incorporating cost control and sound working capital management, combined with strategic acquisitions, provides a platform for further improving shareholder returns.

Non-Underlying Items

The Income Statement includes a separate presentation of non-underlying items to provide a consistent understanding of the performance of the Group year on year.

Non-underlying items in the Year comprise the following:

During the Year, following a review of current profitability and prospects, we decided to close four of the Group's sites. The costs associated with these closures are included in restructuring costs in non-underlying items and represent redundancy costs, asset impairment, and unavoidable costs associated with contracts which related to these sites. In addition to these costs, the goodwill held in respect of our Vauxhall businesses has been impaired in full.

Consistent with our property strategy, the Group sold two freehold properties (including one investment property) during the Year, realising a gain on disposal net of costs of £1.7m which has been included in non-underlying items.

Classification of COVID-19 related costs

At the time of reporting our interim results, it was anticipated that the impact of COVID-19 and the associated costs of providing a COVID secure environment for our colleagues and customers would be relatively short-term. Since then the country experienced a tiering system and further lockdowns both of which have materially impacted our business. It is now considered likely that COVID-19 and the impact on businesses and ways of working are not one off in nature but more medium term. As a consequence of this we have reclassified COVID-related costs into our underlying trading result.

Like-for-Like Performance

Basis of Comparatives

Due to the unprecedented impact of COVID-19 on the Group's results described above, comparatives are significantly distorted. To enable some degree of meaningful comparison of the Group's year-on-year performance, units and revenue are shown on a like-for-like basis, excluding the impact of acquisitions and closures during 2019 and 2020. However, given the distortions in the gross and operating profit measures, for the 2020 annual report there will be no Alternative Performance Measures other than units and revenue as it would not give the users of the accounts any more insight or interpretation. The full definition of an Alternative Performance Measure can be found in Note 1 to this announcement.

Like-for-Like Unit Analysis

The market for new car registrations to retail and fleet customers declined by 26.6% and 31.7% respectively, with total registrations of new vehicles in the UK (including the impact of dealer self-registration activity) declining by 29.4% in the Year. The Group's like-for-like new unit sales volumes outperformed the overall market, by 9.7% in new retail units and 8.5% in fleet unit sales.

Like-for-like used unit sales declined by 14.6% versus an overall market decline of 14.9%. It should be noted that the overall market includes all used vehicle sales including private sales which continued during the first national lockdown period at a time when commercial operators were required to close.

Like-for-like Revenue

* mix calculation excludes Internal / Other sales

Like-for-like revenue in the Year was £1,866.4m (2019: £2,157.2m), a decline of 13.5% and heavily impacted by the COVID-19 pandemic. Faced with significant market declines in both the new and used markets, this was a pleasing result.

As expected, new vehicle revenues suffered the sharpest declines, falling by 16.1% to £869.0m (2019: £1,035.7m). This decline was significantly lower than the overall new car market decline of 26.6%.

Revenue relating to the sale of used vehicles, whilst faring better than new revenues, was still down 10.1% at £834.9m (2019: £928.8m), a strong performance against a used vehicle market which experienced a unit declined of 14.9%. We believe that the franchise dealership model, with its strong links to the vehicle manufacturers, provides customers with a degree of assurance when purchasing a used vehicle. This has been particularly evident during a year in which first-time vehicle owners moved away from public transport and purchased their first cars.

Like-for-like aftersales revenue decreased by 13.5% to £208.3m (2019: £240.9m). Our aftersales businesses were heavily impacted during the first lockdown where a high proportion were closed. Those remaining open focused on supporting emergency services, transport companies and key workers. Deferrals of MOTs, servicing and routine maintenance work as a result of reduced vehicle usage during lockdown periods also had an impact, however, we have been encouraged by the rate at which activity levels improved once out of lockdown.

Shareholder Returns

For the reasons described in the Chairman's statement, the Board is not recommending the payment of a final dividend for 2020. The Board understands the importance of dividends to shareholders and intends to resume the payment of dividends as soon as conditions allow and will consider the position next at the time of release of its interim results in August 2021.

ROCE

Return on capital employed, defined as Underlying Operating Profit Before Tax divided by average capital employed, was 14.9% (2019: 16.2%).

Reported Balance Sheet

Goodwill and Other Intangible Assets

Consistent with the requirements of accounting standards, the Group has carried out an impairment assessment of the carrying value of goodwill and other intangible assets. This assessment, which is based upon the Group's annual budget and medium-term plan, indicated an impairment of the goodwill of £0.2m held in respect of the Group's Vauxhall businesses as a result of the decision made during the Year to close one of the Group's three remaining Vauxhall dealerships.

Following the completion of the acquisition of Aylesbury Volkswagen in July 2020, goodwill and other intangible assets increased by £1.1m, being £0.4m associated with the Aylesbury business and £0.7m which was related to the seven other Volkswagen and ŠKODA businesses acquired as part of the same acquisition in 2019, payment of which was contingent on the completion of the acquisition of the Aylesbury business.

During 2020 the BMW business has shown substantial improvement despite the trading uncertainty experienced during the year. A number of the performance improvement initiatives have been successfully delivered and the cash flow projections for the CGU indicate a continued improvement over the plan period as other management and manufacturer initiatives are delivered.

Acquisitions

The Group acquired Aylesbury Volkswagen during the Year after resolution of certain property matters. This transaction was part of the larger Volkswagen acquisition completed during December 2019.

Trading in the businesses acquired during 2019 has been impacted by COVID-19 related lockdowns. However, we have been very encouraged with the progress made and anticipate that these businesses will make significant future contributions to the Group's profitability. 

Freehold Land and Buildings

The Group incurred a total of £10.3m capital expenditure during the Year, including £2.6m in respect of the purchase of the freehold of our Volvo Welwyn business (previously leasehold site).

The net book value of the Group's property, plant and equipment at 31 December 2020 was £158.3m (2019: £159.3m), of which £123.7m related to freehold land and buildings (2019: £123.2m).

Our property strategy continues to be a key component of the Group's success, with targeted freehold purchases reducing ongoing operating costs, together with the disposal of surplus properties delivering significant profits, including £1.6m during the Year.

Strong Working Capital Management

Given the significant challenges we faced in the Year, disciplined capital allocation and cash management was an even greater focus area for management. During the Year, the Group benefited from a working capital inflow of £43.2m, supported by extended stock facilities and strong working capital management.

Inventory, net of provisions, at £362.9m reduced by 22.9% (£107.8m) versus 2019. This significant reduction was largely due to automotive factory closures during 2020. At 31 December 2020, inventory was funded by £364.9m of vehicle finance, a level of 100.6%, in part caused by a changing sales profile due to lockdown, versus 94.3% at the end of 2019. This high level of funding is expected to reduce during 2021 as stock levels returns to more normalised levels.

A decline in trade and other receivables of £21.7m in the Year was driven by a combination of a lower level of fleet debtors at the end of Year, combined with a greater focus on debt collection.

Trade and other payables remained stable across the Year. The Group voluntarily repaid all amounts from which it benefitted under the Government's VAT Payment Deferral Scheme which were not due to be fully paid until March 2022. All other suppliers have been paid in the normal course of business.

Cash Conversion

Despite the turbulent year, the Group was able to deliver a strong cash generation performance with cash flow from operations during the Year of £96.0m (2019: £53.3m). This performance was driven by a strong second half EBITDA, the deferral of non-critical capital expenditure, reductions in stock holding, and tightened controls over the collection of receivables and the provision of credit to trade customers.

The Group continues to use operating cash flow conversion (being total cash flow generated by operations divided by operating profit from continuing operations before interest, tax, depreciation, amortisation and depreciation on right-of-use assets) as a key metric for managing operational performance. During the Year, total cash inflows from operations represented an operating cash conversion ratio of 183% (2019: 108%).

Net Debt and Facilities

At 31 December 2020, the Group's adjusted net cash was £28.8m (2019: adjusted net debt of £30.6m).

The Group's current finance facilities include a £120m revolving credit facility, which was extended in July 2020 and is committed until January 2023 with a mutual option to step down by up to £20m at the first anniversary.

Net debt (including IFRS 16 lease liabilities) at 31 December 2020 was £70.5m (2019: £138.6m).

Tax

Consistent with its published Tax Strategy, the Group focuses on ensuring that tax compliance risks are managed and, therefore, the Group pays the appropriate amount of tax. The Group's Tax Strategy is reviewed at least annually and is approved by the Board.

The Group's tax charge before non-underlying items for the Year was £4.4m (2019: £4.2m), an effective tax rate of 21.1% (2019: 18.9%). The effective tax rate for the year end 31 December 2019 was lower due to the one-off benefit of certain tax losses to offset in year profits.

The Group's effective tax rate including non-underlying items was 31.6% (2019: 20.7%). The effective tax rate for 2020 increased due to the revaluation of the Group's deferred tax liabilities following a change in the rate of corporation tax from 17% to 19% which was enacted in the Finance Bill 2020 in July 2020.

Pensions

The Group has no current commitments to defined benefit pension schemes, with all Group pension plans being on a defined contribution basis.

During the previous financial year, the Group settled the residual liability of £5.6m to the Marshall Group Executive Plan, a defined benefit pension scheme in which the Group ceased to be a participating employer during the year ended 31 December 2018.

Richard Blumberger

Chief Financial Officer

8 March 2021

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2020

All activities of the Group in both the current and prior period are continuing.

Consolidated Balance Sheet

At 31 December 2020

Consolidated Statement of Changes in Equity

For the year ended 31 December 2020

Consolidated Cash Flow Statement

For the year ended 31 December 2020

Net Debt Reconciliation

For the year ended 31 December 2020

Notes to the Consolidated Financial Statements

1. General information

Marshall Motor Holdings plc (the Company) is incorporated and domiciled 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 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 8 March 2021.

The financial information presented in this preliminary announcement has been extracted from the Group's Annual Report and Accounts for the year ended 31 December 2020 and is prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the EU and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The principal accounting policies adopted in the preparation of the financial information in this preliminary announcement are unchanged from those used in the Group's consolidated financial statements for the year ended 31 December 2019 and are consistent with those that the Group has applied in its consolidated financial statements for the year ended 31 December 2020.

The financial information contained within this preliminary announcement does not constitute the Company's statutory accounts for the current or prior year. Statutory accounts for the year ended 31 December 2020 have been reported on by the Independent Auditor. The independent auditor's report for the year ended 31 December 2020 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 December 2019 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2020 will be delivered to the Registrar following the Company's AGM. A copy of the full Group financial statements for the period ended 31 December 2020 that comply with IFRS will be made available at www.mmhplc.com.

Alternative performance measures

Non-underlying items

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.

Like-for-like

Similarly, the Directors believe that the impact of acquisitions and disposals distorts the value of comparative information provided. Therefore, the measure of 'like-for-like' financial performance is used to present consistent, comparative information. Results on 'like-for-like; basis include only the Group's businesses that have been active and trading for a period of 12 consecutive months.

Businesses 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.

Adjusted net debt

The Directors believe that the impact of the adoption of IFRS 16 Leases distorts the value of reported net debt. Therefore, the measure of 'adjusted net debt' is used to present consistent, comparative information. 

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. Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group were unable to continue as a going concern.

The Directors have considered the future prospects and performance of the Group including the potential for further disruption arising from the restrictions put in place by the UK Government to control the spread of COVID-19 and the potential for longer lasting economic impacts both from COVID-19 and from any consequences of the EU trade deal. In preparing this assessment the Directors have considered the overall economic context, the principle risks, the Group's business plans, the impact of any acquisitions, future cash flows and availability of core and auxiliary financing facilities. Details of the assessment conducted by the Directors is set out below.

At the date of approval of the consolidated financial statements, the UK is coming to the end of a national lock down under which the Group's on-site trading activities are restricted, but have to a large extent been able to continue through the use of "click & collect" for sales of new and used vehicles. During the period of restrictions the Group has been able to successfully match the sales activity levels with staffing levels by continuing to utilise the Coronavirus Job Retention Scheme.

As set out in the Operating Review and the Financial Review, the response to the COVID-19 pandemic has had an impact on the Group's trading and cash flows, both positive and negative, for the year ended 31 December 2020. The Group has taken (and is continuing to take) actions to conserve cash and mitigate losses where these arise as well as drawing on the applicable support measures introduced by the UK Government, including the Coronavirus Job Retention Scheme, the Expanded Retail Discount 2020/21 for business rates, and the deferral of VAT payments. While this support has been beneficial, the better-than-expected performance in the second half of 2020 permitted the Group to repay all deferred VAT amounts in full during September 2020, ahead of the due date.

Banking facilities and funding position

At 31 December 2020 the Group had £120m of committed but undrawn banking facilities made available under a facility agreement due to expire in January 2023. The Group's banking facilities were renegotiated during the Year, with a new agreement being successfully concluded on 29 July 2020. In recognition of the potential for trading volatility at the time the new agreement was entered into, an amended covenant package was agreed for the period up to and including 30 June 2021. This amended covenant package included a suspension of testing of the core leverage and interest cover ratios.

The profitability and cash generation of the Group since the new funding agreement was signed has permitted a mutually agreed return to normal covenant testing from 31 March 2021, three months earlier than originally envisaged.

The Group has not made use of any borrowing under the COVID-19 Corporate Financing Facility or the Coronavirus Large Business Interruption Loan Scheme.

In addition to its core banking facilities, the Group has access to vehicle inventory funding arrangements of which £364.9m was utilised at 31 December 2020.

Assessment of the Group's financial position

During the 12 months covered by these consolidated financial statements, the Group has, in common with most businesses, experienced substantial disruption arising as a result of the measures taken in respect of the COVID-19 pandemic. Further details of the impacts are set out in the Operating Review and the Financial Review.

The Directors have assessed the potential on-going impact of the measures intended to counter the COVID-19 pandemic. In addition, consideration has been given to longer-term risks arising from the economic impact of the pandemic restrictions, as well as the now concluded trade deal with the EU.

The Directors acknowledge that there remains uncertainty regarding the timing of a full resumption of normal economic activity globally, the lifting of restrictions in the UK and the potential for some further disruption to the UK economy as individuals and businesses adapt to the trade deal with the EU.

The Group has demonstrated significant resilience to issues faced during 2020. The ability to adapt and accelerate the business model to carry out more distance selling, the strength of the balance sheet, and the renegotiation of the core funding facilities have all contributed to enhancing the business during 2020 and into 2021. In addition, the support received from OEM partners, the UK Government and other key partners has all helped to strengthen the financial position, leaving the Group in a strong position to cope with any further disruption.

The Group does not expect ongoing material disruption to its supply chains, either as a result of further factory shutdowns or issues with the importation of vehicles and parts. The Group's access to labour and skills is not expected to be materially adversely impacted by the end of the free movement of labour between the UK and the EU.

To support the assessment of the Group's ability to continue as a going concern, the following scenarios have been modelled:

• An upside scenario where there is a rapid economic recovery. Under this scenario, performance in 2021 returns to the level anticipated in the original Board approved budget which was prepared prior to the announcement of additional lockdown measures during the final quarter of 2020.

• A short-term downside scenario, where the lockdown continues for the whole of the first quarter of 2021. This results in 25% loss of sales in January and February and 45% loss of sales in March, this is partially offset by a 10% saving in overhead costs during the lockdown period, supported by the Coronavirus Job Retention Scheme. There is then a return to normal trading performance for the remainder of 2021 and into 2022.

• A medium-term downside scenario, in which there is a lockdown for the first quarter of 2021 with the impact described above, followed by further lockdown for the whole of the last quarter of 2021. The lockdown in the last quarter results in a 25% loss of sales. These losses are offset by a 10% saving in overhead costs during both lockdown periods. There is then a return to normal trading performance in 2022.

• A longer-term downside scenario, in which there are further lockdowns. The associated trading impacts are as set out under the "medium-term downside" scenario described above and in addition, earnings for the whole of 2022 are 50% lower due to the macro-economic conditions arising from the disruption experienced during 2020 and forecast for 2021. Normal trading performance then returns in 2023.

Under the upside scenario and short-term downside scenario, the Group is forecast to be able to continue to operate within the bank facility limits and to comply with the banking covenants set out in the funding agreements.

Under the medium-term downside scenario and longer-term downside scenario, which the Directors consider to be remote possibilities, the Group would have sufficient finance facilities available to continue to trade but would breach the banking covenants set out in the funding agreements. Based upon the significant resilience the business has demonstrated both operationally and financially, as well as the level of support shown by funders to date, including a previous amendment to covenant requirements and reduction in the covenant package under the new funding agreement for the period up to 30 June 2021, the Directors believe that in either of these scenarios, appropriate amendments to covenant requirements would be provided by the Group's funders.

The Directors have therefore concluded that Company is able to continue as a going concern through to March 2022.

2. 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 2019.

New standards, amendments and interpretations adopted by the Group

The following amendments to existing standards became effective on 1 January 2020 and have been adopted in the consolidated financial statements for the first time during the year ended 31 December 2020. These have been assessed as having no financial or disclosure impact on the numbers presented.

· IAS 1 Presentation of Financial Statements

· IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

· IFRS 3 Business Combinations

The following amendment to an existing standard was issued on 28 May 2020. The amendment applies to annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted; the Group has applied this amendment to its annual reporting period that commenced on 1 January 2020. The impact of the adoption of this amended standard is disclosed below. 

· Amendments to IFRS 16 Leases - COVID-19-Related Rent Concessions

Three other amendments to existing standards apply for the first time with effect from 1 January 2020; however, they are not applicable to the consolidated financial statements of the Group.

Impact on current period of the adoption of new standards, amendments and interpretations

IFRS 16 Leases transition adjustment

The Group applied IFRS 16 for the first time during the year ended 31 December 2019 using the full retrospective approach. As a result, the comparative period was restated with a cumulative transition adjustment being recognised through the opening comparative retained earnings balance as at 1 January 2018. During the year ended 31 December 2020 it was identified that this transition adjustment to retained earnings was understated by £865,000 (being the impact of the derecognition of certain rent prepayments and accruals relating to leases previously classified as operating leases, net of the associated £203,000 deferred tax credit).

Due to the nature of this adjustment, prior year balances have not been restated. This adjustment has been recognised directly in retained earnings in the Consolidated Statement of Changes in Equity for the year ended 31 December 2020.

Amendments to IFRS 16 Leases - COVID-19-Related Rent Concessions

In response to the ongoing COVID-19 pandemic, on 28 May 2020 the IASB issued an amendment to IFRS 16 Leases - COVID-19-Related Rent Concessions. These were formally adopted by the European Union on 12 October 2020. These amendments add a practical expedient to provide lessees with relief from lease modification accounting requirements where the lessee has received rent concessions granted as a result of COVID-19. The practical expedient applies to all rent concessions that provide relief for payments that were originally due on or before 30 June 2021. These amendments are applicable for all accounting periods beginning on or after 1 June 2020. The Group has adopted these amendments for the first time in the consolidated financial statements for the year ended 31 December 2020 in accordance with the early application permitted for all financial statements not authorised for issue as at the date the amendments were issued.

The Group has applied this practical expedient to all leases in its property portfolio under which either deferred rent payments or forgiven rent payments have been successfully negotiated during the period from March 2020 to December 2020. Accounting for the rent concessions as lease modifications would have resulted in the Group remeasuring the lease liability to reflect the revised consideration using a revised discount rate, with the effect of the change in the lease liability being recorded against the right-of-use asset. As a result of applying this practical expedient, the Group is not required to determine a revised discount rate and the effect of the change in the lease liability is recognised as a profit of £109,000 in net operating expenses in the Consolidated Statement of Comprehensive Income.

3. Segmental Information

IFRS 8 Operating Segments requires operating segments to be consistent with the internal management reporting provided to the Chief Operating Decision Makers who are 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:

*mix calculation excludes Internal / Other

4. Profit before taxation

Profit before taxation is arrived at after charging / (crediting):

5. Non-underlying items

Details of current and deferred tax arising in relation to all income and expenditure classified as Non-Underlying Items are disclosed in Note 7 'Taxation'.

Post-retirement benefits charge

See Note 13 'Pensions' for further details of the transaction giving rise to the post-retirement benefits charge.

Acquisition costs

See Note 10(a) 'Goodwill and Other Intangible Assets' for further details of transactions giving rise to the acquisition costs.

Net recognition of restructuring costs

Restructuring costs are a continuation of items disclosed in previous periods and relate to the closure of four of the Group's franchised dealerships in 2020. Restructuring costs include closed site related costs of £1,127,000 (2019: £323,000), redundancy costs of £631,000 (2019: £303,000), tangible asset impairment reversals of £275,000 (2019: charge of £708,000), tangible asset loss on disposal of £134,000 (2019: £nil), right-of-use asset impairments and remeasurements of £406,000 (2019: £268,000) and other redundancy costs in the year totalled £47,000 (2019: £521,000).

Profit on disposal of assets classified as held for sale

In June 2020 the Group sold the freehold property classified as held for sale for a profit of £1,563,000 (2019: £nil).

Profit / (loss) on disposal of investment property

In November 2020 the Group sold a freehold investment property for a profit of £148,000 (2019: £nil). During 2019 additional legal fees of £72,000 were incurred in relation to the disposal of an investment property in 2018.

Loss on impairment of goodwill and other tangible assets

See Note 10(b) 'Goodwill and Other Intangible Assets' for further details of the transaction giving rise to the loss on impairment of goodwill and other intangible assets.

Gain on revaluation of investment properties

A revaluation surplus of £610,000 was recognised in 2019.

6. Net finance costs

7. Taxation

The income tax charge in both the current and prior year is attributable to profit from continuing operations.

The analysis of the Group's effective tax rate between underlying and non-underlying activities is as follows:

Non-recurring items

The Group's total effective tax rate for 2020 of 31.62% was influenced by the deferred taxation charge arising due to the remeasurement of the Group's deferred taxation balances, required following the legislative change substantively enacted during the year. The total effective tax rate was also impacted by the non-deductible goodwill impairment charge and profits on disposal of freehold property. Excluding the impact of these items, the total effective tax rate for 2020 would have been 21.18%. This is consistent with the Group's underlying effective tax rate of 21.13%.

The Finance Act 2016 announced a reduction to the corporation tax rate to 17% with effect from 1 April 2020. In the Budget of 11 March 2020, the Chancellor of the Exchequer announced that this planned rate reduction to 17% would no longer be taking effect. The changes announced during the Budget of 11 March 2020 were substantively enacted as at the balance sheet date, therefore, all opening deferred taxation balances have been remeasured at 19%. The deferred taxation charge of £2,380,000 arising due to this remeasurement is presented in Non-Underlying Items on the basis that this charge is a consequence of a one-off, legislative change.

The prior year total effective tax rate of 20.69% was influenced by non-deductible acquisition costs and the impact of a return to provision true-up in relation to assets held for sale in 2018. Excluding the impact of these, the total effective tax rate for 2019 would have been 18.75%. This is consistent with the Group's underlying effective tax rate of 18.91%.

8. 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 2,926,659 at 31 December 2020 (2019: 2,002,304).

Underlying earnings per share are based on basic earnings per share adjusted for the impact of non-underlying items.

9. Dividends

In light of the circumstances resulting from the ongoing COVID-19 pandemic, the previously proposed final dividend of 5.69p per share for the year ended 31 December 2019 was cancelled.

The Group similarly suspended the payment of an interim dividend in respect of the year ended 31 December 2020. (2019: An interim dividend of £2,228,000, representing a payment of 2.85p per ordinary share in issue at that time, was paid in September 2019.)

The Board is mindful of the importance of dividends to its shareholders and intends to resume the payment of dividends as soon as conditions allow.

10. Goodwill and other intangible assets

a) Acquisitions - current period

On 10 July 2020, the Group acquired the trade and assets of a Volkswagen dealership in Aylesbury. Acquisition of this dealership brought to a successful conclusion the strategic acquisition of eight Volkswagen Group UK franchises announced in December 2019. This acquisition is part of the Group's stated strategy to grow with existing brand partners in new geographic territories by adding further sites in excellent locations.

The estimated identifiable assets and liabilities at the date of acquisition are stated at their provisional fair value as set out below. The goodwill arising on acquisition is attributed to the expected synergies and benefits associated with the increased brand representation which has resulted in the Group becoming Volkswagen Group UK's largest partner by number of locations.

The completion payment for the Aylesbury VW business included the consideration of £2,302,000 as set out above, and a further payment of £643,000 held back from the acquisitions completed in December 2019 as an incentive to the vendor to complete the Aylesbury sale. Had the Aylesbury sale not been completed this further payment would not have been due.

The results of the acquired dealership were consolidated into the Group's results from 10 July 2020. For the period from acquisition to 31 December 2020, the revenues and the loss before tax generated by these dealership were immaterial in the context of the Group's revenues and profit before tax.

If the acquisition had taken effect at the beginning of the reporting period in which the acquisition occurred (1 January 2020), on a pro forma basis, the change in revenue and profit before tax of the combined Group for the year ended 31 December 2020 would have been immaterial in the context of the Group.

Transaction costs arising on acquisitions in 2020 totalled £13,000. These costs have been recognised in net operating expenses in the Consolidated Statement of Comprehensive Income and are part of operating cash flows in the Consolidated Cash Flow Statement.

a) Acquisitions - prior period

The following acquisitions are part of the Group's stated strategy to grow with existing brand partners in new geographic territories by adding further sites in excellent locations that are contiguous to the Group's existing sites.

The Group acquired the trade and assets of the following dealerships:

· ŠKODA Leicester and Nottingham on 31 January 2019;

· ŠKODA Northampton, Bedford, Letchworth and Harlow on 28 February 2019;

· Honda Reading and Newbury on 2 September 2019; and

· Volvo Derby on 20 December 2019.

The fair value of the net assets at the date of the acquisition are as set out below.

The results of the acquired ŠKODA, Honda and Volvo dealerships were consolidated into the Group's results from the relevant date of acquisition. For the period from acquisition to 31 December 2019, the revenues and the loss before tax generated by these dealerships were immaterial in the context of the Group's revenues and profit before tax.

If the acquisitions had taken effect at the beginning of the reporting period in which the acquisition occurred (1 January 2019), on a pro forma basis, revenue of the combined Group for the year ended 31 December 2019 would have been increased by £40,857,000 and profit before tax would have been reduced by £266,000. 

On 17 December 2019, the Group acquired the trade and assets of five Volkswagen dealerships, a Volkswagen commercial vehicle franchise and body shop and one ŠKODA dealership.

The results of the acquired dealerships were consolidated into the Group's results from 18 December 2019. For the period from acquisition to 31 December 2019, the revenues and the loss before tax generated by these dealerships were immaterial in the context of the Group's revenues and profit before tax.

If the acquisition had taken effect at the beginning of the reporting period in which the acquisition occurred (1 January 2019), on a pro forma basis, revenue for the combined Group for the year ended 31 December 2019 would have been increased by £167,749,000 and profit before tax would have been reduced by £1,657,000.

Transaction costs arising on acquisitions in 2019 totalled £835,000. These costs have been recognised in net operating expenses in the Consolidated Statement of Comprehensive Income and are part of operating cash flows in the Consolidated Cash Flow Statement.

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 lived intangible assets to the CGU groups is as follows:

*Volkswagen Group includes Volkswagen, Audi, ŠKODA and SEAT brands

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 2020 and 2019 and for the six months ended 30 June 2020.

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.

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 2021 to 31 December 2025.

These projections (the "Base Case") are developed from the Board approved budget for the year ending 31 December 2021 which, as described under "Going Concern" in Note 1, has been updated to reflect the expected impact of the additional trading restrictions in response to the COVID-19 pandemic which were announced during December 2020.

The key assumptions in the forecast 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 the management's current understanding the extent and duration of the COVID-19 related trading restrictions imposed by the UK Government, the current macro-economic context and outlook, 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.

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 7.8% (2019: 8.0%).

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% (2019: 2%). Terminal growth rates are based on management's estimate of future long-term average growth rates.

Conclusion

Under the Base Case the Group's CGUs all have significant headroom in respect of the carrying value of goodwill and intangible assets with the exception of the Vauxhall CGU which is included with the "Other" CGU Group. Goodwill of £193,000 is assigned to the Vauxhall CGU.

Vauxhall

Following the closure of the Group's Knebworth Vauxhall site and a further deterioration in the performance of the two remaining sites the projected cash flows are no longer sufficient to support the carrying value of the assigned goodwill and intangible assets.

Therefore at 31 December 2020 the Group recorded a non-cash impairment charge of £218,000 (2019: £nil). This impairment charge is split as £193,000 of Goodwill and £25,000 of Plant & Equipment assigned to the Vauxhall CGU and is recorded within net operating expenses in non-underlying items in the Consolidated Statement of Comprehensive Income.

Update on BMW/MINI

The Group's BMW/MINI franchises have faced several challenges in recent years brought about largely due to an oversupply of vehicles and the disruption caused by vehicle recalls.

During 2020 the business has shown substantial improvement despite the trading uncertainty experienced during the year. A number of the performance improvement initiatives have been successfully delivered and the cash flow projections for the CGU indicate a continued improvement over the plan period as other management and manufacturer initiatives are delivered.

Following the improvement delivered in 2020 the Board has approved the forecast which supports the carrying value of the BMW/MINI goodwill as at 31 December 2020. Inherent in this assessment are a number of assumptions related to the timing of the lifting of the COVID-19 related trading restrictions, the severity and duration of the resulting economic down-turn, the speed and sustainability of the subsequent recovery, and the continued successful delivery of the local management and manufacturer initiatives.

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 under the Base Case using four scenarios:

· where the discount rate decreases by 100 basis points.

· where the discount rate increases by 100 basis points.

· where the terminal value growth rate decreases by 50 basis points.

· where the terminal value growth rate increases by 50 basis points.

In order to assess the possibility of future impairments, the Group has performed additional scenarios analysis, using the forecasts prepared to support the Directors' consideration of the going concern basis of preparation. The scenario cases are as follows:

· An upside case where performance in 2021 returns to the level anticipated in the original Board approved budget.

· A short-term downside case, where the lockdown continues for the whole of the first quarter of 2020, resulting in 25% loss of sales in January and February and 45% loss of sales in March offset by a 10% saving in overhead costs during the lockdown period. There is a return to normal trading performance in 2022.

· A medium-term downside case, in which there is a lockdown for the first quarter with the impact described above, followed by further lockdown for the whole of the last quarter of 2021. The lockdown in the last quarter results in a 25% loss of sales. These losses are offset by a 10% saving in overhead costs during both lockdown periods. There is a return to normal trading performance in 2022.

· A long-term downside case, in which there are lockdowns, and the associated trading impacts as set out under the "medium-term downside" case described above, in earnings in 2022 are 50% lower due to the macro-economic conditions arising from the disruption seen during 2020 and forecast for 2021. There is then a return to normal trading performance in 2023.

Of all of the above sensitivity and scenario cases, the only one which would result in the recognition of an impairment charge is an increase in the discount rate by 100 basis points. Under this sensitivity, a minimal impairment of £143,000 would be indicated against the BMW/MINI CGU. The Directors consider the increase in risk expressed by such a significant increase in the discount rate to be a remote possibility.

11. Property, plant and equipment

As at 31 December 2020, the Group had capital commitments totalling £4.5m (2019: £6.9m) relating to ongoing construction projects.

2020

Transfers to assets held for sale

In October 2020, the Group ceased commercial activities at two of its freehold properties. As the properties were no longer being used for the commercial activity of the business and are actively being marketed for sale, the assets have been transferred to assets classified as held for sale.

2019

Impairments

The impairment loss of £708,000 represents the impairment of leasehold improvements and plant and equipment in the franchised dealership which closed in October 2019 and the franchised dealership due to close in 2020. On closure of these dealerships these assets ceased to have any value. This loss was recognised in the Consolidated Statement of Comprehensive Income in net operating expenses.

12. Leases

a) Group as lessee

The Group has lease contracts for land and buildings and vehicles. Leases of land and buildings have an average term of between 20 and 25 years. Leases of vehicles have an average term of 3 years.

The following are amounts recognised in the Consolidated Statement of Comprehensive Income:

The Group had total cash outflows in respect of leases in the year of £11,323,000 (2019: £9,780,000). The Group also had non-cash additions to right-of-use assets and lease liabilities of £3,627,000 (2019: £28,778,000). 

Set out below are the carrying amounts of the right-of-use assets recognised and the movements during the year:

2020

ImpairmentsThe premises used by the franchised dealerships closed in October 2020 became vacant on cessation of trade. The right of-use assets have therefore been fully impaired. This impairment loss of £527,000 was recognised in the Consolidated Statement of Comprehensive Income in net operating expenses.

2019ImpairmentsThe premises used by the franchised dealership closed in October 2019 became vacant on cessation of trade. The right-of-use asset has therefore been fully impaired. This impairment loss of £1,081,000 was recognised in the Consolidated Statement of Comprehensive Income in net operating expenses.

The maturity analysis of the Group's lease liabilities is as follows:

The percentages in the table below reflect the current proportions of lease payments that are either fixed or variable.

b) Group as lessor - finance leases

The Group has non-cancellable leases, as intermediate lessor, of leases for properties. The terms of these leases vary. The following are amounts recognised in the Consolidated Statement of Comprehensive Income: