Interim Results

14 August 2018

MARSHALL MOTOR HOLDINGS PLC

("MMH" or the "Group")

Unaudited interim results for the six months ended 30 June 2018

Marshall delivers robust H1 and further profit growth

Marshall Motor Holdings plc, one of the UK's leading automotive retail groups, announces its unaudited interim results for the six months ended 30 June 2018 ("H1" or the "Period").

Financial Summary

Highlights

· Robust financial performance in our continuing business; continuing underlying profit before tax of £16.4m, up 1.2% on previous record result (H1 2017: £16.2m).

· Like-for-like3 new unit sales to retail customers down 5.9%.

· Like-for-like used unit sales down 0.3%; like-for-like used revenues up 5.2% with strong gross margin improvement, up 37bp to 7.2%.

· Like-for-like aftersales revenue up 3.2%.

· Continuing gross margin maintained at 11.5% (H1 2017: 11.5%).

· Net operating expenses lower than H1 2017 despite significant cost headwinds; driven by strong management actions on discretionary costs and site closures.

· Net cash at 30 June 2018: £0.9m following the disposal of Marshall Leasing Limited (30 June 2017: Net debt £101.1m).

· Net assets at 30 June 2018: £201.2m, £2.58 per share (30 June 2017: £158.0m, £2.04 per share).

· Strong balance sheet underpinned by £121.1m of freehold / long leasehold property (30 June 2017: £112.5m); £120m revolving credit facility extended to June 2021.

· Continued investment in the Group's property portfolio; £10.0m capital expenditure during the Period.

· Interim dividend maintained at 2.15p per share (2017: 2.15p).

Daksh Gupta, Chief Executive Officer, said:

"The Board is pleased to announce further profit growth in our continuing retail business in the Period against an ongoing background of a challenging UK new car market. This has been achieved by a combination of robust operating disciplines, strong management actions on cost control and the benefit of site closures in 2017. With our excellent portfolio, robust operating disciplines, strong balance sheet and the support of our brand partners, I am confident the Group remains very well positioned for the future. The Board's current outlook for the full year remains unchanged".

1 Underlying profit before tax is presented excluding non-underlying items (see Note 6)

2 Includes discontinued operations

3 "Like-for-like" businesses are defined as those which traded under the Group's ownership throughout both the period under review and the whole of the corresponding comparative period

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 comprise a total of 101 franchises covering 23 brands, operating from 84 locations across 26 counties in England. In addition, the Group operates five trade parts specialists, three used car centres, five standalone body shops and one pre delivery inspection centre.

In April 2018 the Group was recognised by the Great Place to Work Institute, being ranked the 21st best place to work in the UK (large company category). This was the eighth 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.

Operating Review

Introduction

Our unaudited interim results for the six months ended 30 June 2018 ("H1" or the "Period") reflect a robust performance in the context of a challenging market. The Group has delivered underlying profit before tax from continuing operations of £16.4m, 1.2% ahead of the record result reported last year. I am pleased to report that our gross margin in the Period was maintained at 11.5%.This result has been underpinned by robust trading disciplines, tight control of discretionary costs despite significant cost headwinds and the positive impact of the previously announced closure of six loss making sites.

The strategic disposal of our leasing business, Marshall Leasing Limited ("MLL"), in November 2017 has enabled us to focus exclusively on our retail businesses. At 30 June 2018 the Group consisted of 101 franchises representing 23 brand partners trading in 26 counties in England. In addition, the Group operates five trade parts specialists, three used car centres, five standalone body shops and one pre-delivery inspection (PDI) centre. The Group closed five franchised dealerships and one used car centre in November 2017 and the Group's financial performance in the Period has benefited from these actions.

The Group operates a well balanced portfolio of volume, premium and alternative premium brands which at 30 June 2018 accounted for 24%, 50% and 26% respectively of the Group's total franchises. The Group's diverse portfolio means it represents manufacturer brands accounting for over 80% of all new vehicle sales in the UK. The Board continues to believe that this scale and diversified spread of representation helps protect the Group from the effect of the cyclical nature of individual brand performance.

Six months ended 30 June 2018

Six months ended 30 June 2017

*Revenue and gross profit mix calculated excluding internal sales / other

New Vehicles

Total new car revenue in the Period was £584.6m (H1 2017: £611.2m).

As widely forecast, the UK new car market continued to decline during the Period. The Society of Motor Manufacturers and Traders ('SMMT') has reported that during the Period, total registrations of new vehicles, including the impact of dealer self-registration activity, declined by 6.3%. The first quarter of the Period declined by 12.4%, being particularly impacted by the changes to vehicle excise duty in the corresponding period last year which caused some consumers to pull forward purchasing decisions to avoid higher vehicle excise duties. The SMMT has reported that during the Period, UK new car registrations to retail and fleet customers declined by 4.9% and 7.3% respectively.

Over the same period, the Group's like-for-like sales of new units to retail customers declined by 5.9%. New retail unit sales were impacted by the Group's mix of premium brands which, due in part to their historic weighting towards diesel models, experienced the greatest levels of retail decline over the Period. Premium brands are now increasing the proportion of petrol derivatives being produced to address current consumer demand.

As previously disclosed, in 2017 the Group took a commercial decision to withdraw from certain low margin fleet business which has impacted comparative sales volumes in the Period. Excluding this, the Group's overall new car unit sales in the Period were down 3.5%. This action has improved the Group's fleet business profitability and the fleet sector remains a market to which the Group is fully committed as it seeks to grow its corporate customer base profitably.

New car gross margin during the Period was 7.0%, down 40bp on the same period last year (H1 2017: 7.4%). This margin pressure across the new car segment was driven by the challenging and more competitive new car market.

Sales of new vehicles on Personal Contract Purchase agreements ("PCPs") continue to remain popular, accounting for 80% of the Group's financed new retail vehicle sales in the Period (H1 2017: 83%). PCPs remain an important driver behind the attraction and retention of customers, particularly into the premium market. As at 30 June 2018 the Group had 66,540 active PCP customers (H1 2017: 66,450).

Used Vehicles

Total used car revenue in the Period was £474.6m (H1 2017: £458.2m).

Like-for-like sales of used units during the Period were down 0.3% versus the corresponding period last year. In H1 2018, the Group focused its used vehicle strategy on improving gross margin retention and despite the marginal volume decrease, delivered a 9.2% improvement in total gross profit. Used vehicle margin at 7.2% during the Period was 37bp ahead of the comparable period last year.

The significant improvement in used vehicle unit profitability has been achieved by robust operating controls supported by the further development of the Group's management information system Phoenix 2. During the Period, the system has been enhanced to include wider external market data to support optimum pricing and enhance visibility of the Group's overall competitive price position.

In addition to these developments, the Group continues its commitment to its prudent 56-day used vehicle stocking policy which has supported a reduction in used and demonstrator inventory levels.

PCPs have continued to grow in the used vehicle sector increasing customer retention and helping to support residual values which during the Period have remained relatively stable. PCP's accounted for 63% of used vehicles purchased on finance in the Period (H1 2017: 62%).

Aftersales

Total aftersales revenue in the Period was £126.4m (H1 2017: £123.3m).

In addition to the servicing, maintenance and repair of vehicles in our franchised retail centres, the Group also operates five standalone bodyshops, five Trade Parts Centres and one standalone central PDI facility.

During the Period, the Group has continued to deliver consistent like-for-like growth in aftersales revenues, up 3.2%.

At 46.1%, aftersales margin remained strong, albeit 37bp below the comparable period last year. This was driven by an increased mix of lower margin parts revenue, reduced internal PDI work as a result of lower new vehicle sales and reduced levels of warranty work in a number of brands.

At 30 June 2018, the Group had over 78,000 customers in live service plans. Service plans continue to form a key part of the Group's retention strategy, allowing customers to spread the maintenance cost of their vehicle whilst providing a greater level of certainty over future aftersales profits.

Total aftersales gross profit was up 1.7% to £58.3m (H1 2017: £57.3m) and accounted for 43.8% of the Group's total gross profit (H1 2017: 42.9%).

Operating Costs

In anticipation of the challenging UK new vehicle market and as part of the Group's ongoing commitment to control costs and maximise efficiency, during the latter part of 2017 the Group implemented a number of cost reduction initiatives. These initiatives mainly focused on managing discretionary costs more efficiently and have enabled the Group to partly offset significant structural and inflationary cost pressures.

During the Period, like-for-like costs within the Group's retail dealerships increased by 1.3% versus the comparable period last year.

Portfolio Management

As announced on 21 November 2017, the Group closed six loss making and sub-scale sites at an estimated cost of £6.8m. During H1 2017, these sites contributed combined revenue of £21.1m and a pre-tax loss of £0.7m.

During the Period, the Group successfully completed the disposal of a surplus freehold property in relation to one of the closures giving rise to a non-underlying profit of £0.3m. The Group is making positive progress on dealing with the remaining surplus property and further updates will be provided in due course.

Capital Investment

The Group's 2016-2018, £75m capital expenditure programme is nearing completion with £10.0m incurred in H1 2018. During the Period, the Group has focused on the following developments:

· Completion of a significant redevelopment of Bedford Land Rover, an existing freehold site with a total additional investment of £2.4m to achieve the new JLR 'Arch' concept.

· The purchase of freehold land and the commencement of the development of a new combined Jaguar Land Rover facility in Lincoln.

· The purchase of a long leasehold site in Cambridge and the commencement of development of a new Ford Store which will allow the Group to sell the full range of Ford products and exit from its current leasehold premises.

· Commencement of significant customer experience upgrades in Grantham and Leeds Volvo.

· Customer experience refurbishment in Salisbury BMW.

· Reading Skoda relocation and refurbishment.

· Reading VWCV relocation and refurbishment.

People Centric

The Group was delighted to be ranked as a great place to work for the eighth consecutive year. Marshall Motor Holdings plc was ranked amongst the Top 30 large employers based on The Great Place to Work Institute's 2017 survey for a fourth year, being ranked 21st. The Group was also the number one ranked automotive company for the second year running.

Technology and Online

The Group continues to leverage its strength in technology, online and social media to drive both increased customer engagement levels and support the optimal efficiency of the day-to-day operation of the business.

Despite the more challenging new vehicle market in H1 2018, the Group recorded 3.2m visits to the Group's website www.marshall.co.uk, an increase of 16% on the comparable period last year.

The Group remains committed to active participation in relevant social media channels which supports further customer engagement and additional online visibility and profile. In recognition of the Group's innovative work in this important area, we were awarded 'Most Influential Dealer on Social Media' by Car Dealer Expo and were highly commended for 'Best Social Media Strategy' at the 2018 Automotive Management Awards.

The Group's management information system, Phoenix 2, remains an essential ingredient of our operational effectiveness. The system has been further enhanced during the Period. Working with third parties, the Group has been able to improve the quality of its used vehicle data-set which we believe provides competitive advantage, facilitating a more dynamic approach to vehicle pricing and margin retention.

Worldwide Harmonised Light Vehicle Test Procedure

From 1 September 2018 all new vehicles sold in the UK are required to have been tested and certified under the new Worldwide Harmonised Light Vehicle Test Procedure ("WLTP"). The new testing regime replaces the outgoing New European Driving Cycle ("NEDC") test first introduced in the 1980s and is based on more accurate, real-driving data.

This is a significant change for automotive manufacturers and it is anticipated that it will have an impact on the new car retail market over the remainder of the year and possibly into 2019. The extent of this impact is not yet known and it will vary by manufacturer and by vehicle model. Industry forecasts suggest there is likely to be some impact on vehicle supply and longer lead times for some models and brands of new vehicles. In addition, because implementation of the new regime coincides with the key September plate-change, it is anticipated that the spread of vehicle registrations and sales throughout Q3 and Q4 2018 will deviate from historical norms.

Financial Review

On 24 November 2017 the Group completed the strategic disposal of MLL. In the first half of 2017, MLL contributed £19.5m of revenue and £2.4m of underlying profit before tax to the overall Group results. Unless otherwise stated, the commentary below (including comparisons versus the comparable period last year), relates to the continuing Retail operation only and therefore excludes the contribution from MLL.

Group revenue declined by 0.4% to £1,162.9m (H1 2017: £1,167.9m). As announced on 21 November 2017, the Group closed six sites which contributed combined revenue of £21.1m during the first half of 2017. Like-for-like revenues grew 0.1% with revenues in used and aftersales showing growth against the same period last year. Like-for-like revenue from the sale of new vehicles declined in the Period as a result of the declining UK new car market and the Group's decision to withdraw from certain low margin fleet business.

Gross margin at 11.5% was flat against the same period last year. As expected, the challenging new car retail market resulted in margin pressure on new retail vehicle sales. This was offset by a favourable mix impact resulting from the withdrawal from certain low margin new car fleet business together with improved used car margins.

Used vehicles gross margin at 7.2% was 37bp above the same period last year. During the Period, the Group remained focused on robust used vehicle trading disciplines which have enabled the Group to deliver strong improvements in used vehicle profitability.

Aftersales gross margin at 46.1% was 37bp below the same period last year. This has been driven by an increased mix of lower margin parts revenues together with lower levels of new car preparation, used car refurbishment and warranty activity in certain brands.

Underlying operating expenses of £113.6m were 0.3% lower than in the same period last year, primarily driven by the impact of six site closures. Like-for-like costs in the Group's retail dealerships increased by 1.3% during the Period. The Group continues to face a number of structural and inflationary cost head-winds which have been contained by ongoing tight control of discretionary costs.

Total finance costs of £3.3m were £0.6m lower than the same period last year. As expected, the Group has benefitted from lower structural debt levels following the disposal of MLL which has been partly offset by increased costs relating to the Group's various stock funding lines following the increase in the bank base rate in November 2017.

During the Period, the Group generated £0.6m of non-underlying other income primarily related to additional profit on the disposal of MLL following the agreement and settlement of certain historic pension liabilities. In addition, the Group made a £0.3m profit on the disposal of surplus freehold property.

The reported effective tax rate for the Period was 21.0% (H1 2017: 22.2%).

The Group's balance sheet remains strong. At 30 June 2018 the Group had a net cash position of £0.9m compared to a net debt position of £101.1m at 30 June 2017. During the Period, the Group exercised its option to extend its £120m revolving credit facility for a further 12 months until 3 June 2021, to provide it with increased financial flexibility to take advantage of opportunities if and when they arise.

Capital expenditure during the Period was £10.0m, in line with expectations including further spend on freehold property development. This year marks the completion of the Groups three year, £75m capital expenditure programme. At 30 June 2018 the Group had £121.1m of freehold / long-leasehold property representing £1.56 per share.

Over the longer term, the Board continues to believe it is in the best interests of all stakeholders that the Group maintains a sound financial position. In this respect, the Board targets net bank indebtedness of not more than 1.25x net debt/EBITDA within its future results. This leverage may rise for a period of time towards the Group's banking facility limit of not more than 3.0x should an exceptional investment opportunity arise.

Interim Dividend

In line with the Group's dividend policy, the Board is pleased to announce an interim dividend of 2.15p per share (2017 interim dividend: 2.15p). The dividend will be paid by 21 September 2018 to shareholders who are on the Company's register at close of business on 24 August 2018. The Board intends to maintain a progressive dividend policy whereby dividends are covered between 4 to 5 times underlying earnings and paid in an approximate one-third (interim dividend) and two-thirds (final dividend) split.

Summary and Outlook

The Group has delivered a positive performance in the Period with a record profit performance from our continuing retail business. The challenges presented by a decline in the new vehicle market have been mitigated by strong operational disciplines and the benefits of the decisive action taken in 2017 to proactively manage costs and the Group's dealership portfolio.

In light of continued economic uncertainty and ongoing consumer confusion around diesel vehicles, together with the anticipated impact of WLTP on new vehicle supply and the phasing of vehicle registrations and sales around the key September plate-change month, the Board believes it is right to remain cautious for the UK car market for the remainder of the year and possibly into 2019.

Nevertheless, with the support of the Group's brand partners, excellent portfolio, robust operating disciplines and strong balance sheet, the Board continues to believe that the Group remains very well positioned for the future. The Board's current outlook for the full year remains unchanged.

Daksh Gupta

Chief Executive Officer

13 August 2018

Marshall Motor Holdings plc

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2018

All activities of the Group in the current period are continuing.

The above Condensed Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

Marshall Motor Holdings plc

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2018

Marshall Motor Holdings plc

Condensed Consolidated Statement of Financial Position

At 30 June 2018

Marshall Motor Holdings plc

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2018

Marshall Motor Holdings plc

Net Debt Reconciliation

For the six months ended 30 June 2018

Marshall Motor Holdings plc

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2018

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.

These interim condensed consolidated financial statements were authorised for issue by the Board of Directors on 13 August 2018.

Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2018 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union. They do not include all the information and disclosures required for full annual financial statements and should be read in conjunction with the Group's consolidated financial statements for the year ended 31 December 2017. A copy of the full Annual Report and Accounts for the year ended 31 December 2017 can be found on the Marshall Motor Holdings Plc website at: www.mmhplc.com.

The interim condensed consolidated financial statements for the six months ended 30 June 2018, and for the comparative six months ended 30 June 2017, are unaudited but have been reviewed by the Auditor. A copy of their Review Report is set out at the end of these financial statements. The financial information for the year ended 31 December 2017 does not constitute the Group's statutory financial statements for that period as defined in section 434 of the Companies Act 2006, but is instead an extract from those financial statements. The Group's financial statements for the year ended 31 December 2017 were authorised for issue by the Board of Directors on 13 March 2018 and have been delivered to the Registrar of Companies. The Auditor's Report on those financial statements contained an unqualified opinion, did not draw attention to any matters by way of emphasis and did not contain any statement under section 498 of the Companies Act 2006.

The interim condensed consolidated financial statements are prepared in Sterling which is both the functional and presentational currency of the Group and all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated.

Principal risks and uncertainties

The principal risks and uncertainties for the six months ended 30 June 2018 are consistent with those set out in the Marshall Motor Holdings Plc Annual Report and Accounts 2017 dated 13 March 2018. These principal risks and uncertainties are expected to be consistent for the year ending 31 December 2018.

Going concern

The interim condensed consolidated financial statements are prepared on the 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 interim condensed consolidated financial statements are signed. For these reasons they continue to adopt the going concern basis in preparing the interim condensed consolidated financial statements.

2. Accounting policies

Except where disclosed otherwise in Note 3 'Changes in Accounting Policies and Disclosures', the accounting policies as well as the critical accounting judgements, estimates and assumptions applied are consistent with those set out in the Marshall Motor Holdings Plc Annual Report and Accounts 2017 dated 13 March 2018, and these accounting policies and critical accounting judgements, estimates and assumptions are expected to apply for the year ending 31 December 2018.

3. Changes in accounting policies and disclosures

New standards, amendments and interpretations adopted by the Group

A number of new or amended standards became effective on 1 January 2018 for the current reporting period. The Group had to change its accounting policies and make adjustments as a result of adopting the following standards:

· IFRS 9 Financial Instruments, and

· IFRS 15 Revenue from Contracts with Customers

The impact of the adoption of these standards and the new accounting policies are disclosed below.

Other standards, amendments and interpretations apply for the first time with effect from 1 January 2018, however, they do not have an impact on the interim condensed consolidated financial statements of the Group. 

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

a) IFRS 9 Financial Instruments - impact of adoption

The Group has adopted IFRS 9 Financial Instruments issued in July 2014 with a date of initial application of 1 January 2018. The requirements of IFRS 9 represent a significant change from IAS 39 Financial Instruments: Recognition and Measurement. The nature and effects of the key changes to the Group's accounting policies resulting from its adoption of IFRS 9 are summarised below.

Additionally, the Group adopted consequential amendments to IFRS 9 Financial Instruments: Disclosures that are applied to disclosures about 2018 but generally have not been applied to comparative information in compliance with IFRS 9.

Classification of financial assets and financial liabilities

IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value reported in other comprehensive income (FVOCI) and fair value reported in profit and loss (FVPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed based on its contractual cash flow characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. For an explanation of how the Group classifies and measures financial assets and accounts for related gains and losses under IFRS 9, see the 'Financial Assets' accounting policy.

The adoption of IFRS 9 has not had a significant effect on the Group's accounting policies for financial liabilities.

Impairment of financial assets

IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' (ECL) model. The new impairment model applies to financial assets measured at amortised cost. Under IFRS 9, credit losses are recognised earlier than under IAS 39.

Hedge accounting

IFRS 9 introduces a new general hedge accounting model. The Group has not previously applied hedge accounting under IAS 39, and has not commenced hedge accounting under IFRS 9; therefore, this change has had no impact on the Group's financial statements.

Transition

Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as described below:

· Comparative figures have not been restated. Differences in the carrying amounts of financial assets resulting from the adoption of IFRS 9 have been recognised in opening retained earnings and reserves as at 1 January 2018 in accordance with IFRS 9. Accordingly, the information presented for the six months ended 30 June 2017 and for the year ended 31 December 2017 does not generally reflect the requirements of IFRS 9 and, therefore, is not comparable to the information presented for the six months ended 30 June 2018 under IFRS 9.

· The assessment of the determination of the business model within which a financial asset is held has been made on the basis of the facts and circumstances that existed at 1 January 2018, the date of initial application.

The following table summarises the impact, net of tax, of transition to IFRS 9 on reserves and retained earnings at 1 January 2018.

Classification and measurement of financial assets and financial liabilities on the date of initial application of IFRS 9

The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group's financial assets as at 1 January 2018.

Trade and other receivables that were classified as loans and receivables under IAS 39 are now classified as at amortised cost. An increase of £91,000 in the allowance for impairment was recognised in opening retained earnings as at 1 January 2018 on transition to IFRS 9.

There has been no change in the classification and measurement of financial liabilities on the transition to IFRS 9.

b) IFRS 9 Financial Instruments - accounting policies applied from 1 January 2018

Financial assets

Recognition and initial measurement

Trade receivables are initially recognised when they originated. All other financial assets are initially recognised when the Group becomes a party to the contractual provisions of the instrument.

On initial recognition, a financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for a financial asset not at fair value reported in profit or loss, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

Classification and subsequent measurement

A financial asset is classified either as being; measured subsequently at fair value (either through other comprehensive income or through profit or loss), or measured at amortised cost. The classification depends on the Group's business model for managing the financial assets and the contractual terms of the cash flows.

All financial assets of the Group are classified as measured at amortised cost.

Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at fair value reported in profit or loss:

· it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

· its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortised cost are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairments are recognised in profit or loss. Any gain or loss on de-recognition is recognised in profit or loss.

Impairment of financial assets

The Group recognises loss allowances for expected credit losses (ECL) on financial assets measured at amortised cost. Loss allowances for trade receivables are always measured at an amount equal to lifetime ECL. ECL are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). An assessment of the ECL is calculated using a provision matrix model to estimate the loss rates to be applied to each trade receivable category. ECL are discounted at the effective interest rate of the financial asset. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group's procedures for recovery of amounts due.

c) IFRS 15 Revenue from Contracts with Customers - impact of adoption

The Group has adopted IFRS 15 Revenue from Contracts with Customers issued in May 2014 with a date of initial application of 1 January 2018. As a result, the Group has changed its accounting policy for revenue recognition as detailed below.

The Group has applied IFRS 15 using the cumulative effect method (i.e. by recognising the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance of retained earnings as at 1 January 2018). Therefore, the comparative information has not been restated in accordance with the transition exemptions available under IFRS 15.

Following the disposal of Marshall Leasing Limited, no changes to the timing and measurement of revenue across the Group's revenue streams have been identified on transition to IFRS 15.

d) IFRS 15 Revenue from Contracts with Customers - accounting policies applied from 1 January 2018

The Group has applied IFRS 15 using the cumulative effect method, therefore, the comparative information has not been restated in accordance with the transition exemptions available under IFRS 15. The following reflect the new revenue recognition policy adopted for the current reporting period onwards.

Revenue recognition

Revenue is measured based on the consideration received or receivable as specified in a contract with a customer and represents amounts receivable for goods supplied, stated net of discounts, returns and value added taxes. Revenue excludes amounts collected on behalf of third parties. Revenue comprises sales and charges for vehicles sold and services rendered during the period, including sales to other Marshall of Cambridge (Holdings) Limited group companies but excluding inter-company sales within the Group.

The Group recognises revenue when it transfers control over a product or service to a customer, as described below.

Sale of motor vehicles, parts and aftersales services

The Group generates revenue through the sale of new and used motor vehicles and through the provision of aftersales services in the form of vehicle servicing, maintenance and repairs. The Group recognises revenue from the sale of new and used motor vehicles when a customer takes possession of the vehicle, at which point they have an obligation to pay in full and as such control is considered to transfer at this point. The Group recognises revenue from the provision of aftersales services when the service has been completed, at which point customers have an obligation to pay in full.

Sale of warranty products

Income received in respect of warranty policies sold and administered by the Group is recognised over the period during which a customer can exercise their rights under the warranty; as such, revenue is recognised over the period of the policy on a straight line basis.

Commission income

The Group receives commissions when it arranges vehicle financing and related insurance products for its customers to purchase its products and services, acting as agent on behalf of various finance and insurance companies. Commissions are based on agreed rates.

Where the Group acts as an agent on behalf of a principal, the associated income is recognised within revenue on completion of the arranging of the various products (i.e. at the point at which control passes to the customer).

Contract liabilities

Where the Group receives an amount of consideration in advance of completion of performance obligations under a contract with a customer, the value of the advance consideration is initially recognised as a contact liability in liabilities. Revenue is subsequently recognised as the performance obligations are completed over the period of the contract (i.e. as control is passed to the customer). Contract liabilities are presented within trade and other payables in the Consolidated Statement of Financial Position.

Disaggregation of revenue

Revenue recognised from contracts with customers has been disaggregated into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. This disclosure, as well as the reconciliation between the disaggregated revenue disclosures and the revenue figures disclosed for each of the Group's reportable segments, is made in Note 4 'Segmental Information'.

New standards, amendments and interpretations not yet adopted by the Group

The following standards, amendments and interpretations were in issue, but were not yet effective at the balance sheet date. These standards have not been applied when preparing the interim condensed consolidated financial statements for the period ended 30 June 2018.

Impact on future periods of the adoption of new standards, amendments and interpretations

IFRS 16 Leases

The Group continues to assess the impact of adopting IFRS 16. The Group will adopt the new standard in 2019 and will apply IFRS 16 for the first time in the interim report for the six months ending 30 June 2019 and the annual report for the year ending 31 December 2019. The Group currently expects to adopt the standard using the retrospective method, therefore, in the 2019 financial statements, comparatives for 2018 will be restated and the cumulative impact of adoption will be recognised in opening retained earnings as of 1 January 2018.

Lessee accounting

Based on analysis of the Group's lease portfolio held at the transition date, initial assessments indicate that the adoption of IFRS 16 will have a significant impact on key metrics and profitability measures used by the Group. In addition, a material adjustment to reserves is expected as is the recognition of significant right-of-use assets in non-current assets and significant lease liabilities in financial liabilities.

Lessor accounting

With the exception of where the Group is an intermediate lessor, the adoption of IFRS 16 does not significantly change the Group's lessor accounting. Initial impact assessments based on analysis of the Group's lease portfolio held at the transition date indicate that the majority of properties for which the Group is an intermediate lessor are expected to meet the definition of a finance lease. As a result, it is anticipated that new finance lease receivables will be recognised on adoption of IFRS 16.

4. Segmental information

a) Operating segments - 2018 onwards

IFRS 8 Operating Segments requires operating segments to be consistent with the internal management reporting provided to the Chief Operating Decision 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 sales

*mix calculation excludes internal / other sales

b) Operating segments - prior periods

Prior to the disposal Marshall Leasing Limited, the Group's business was split into two main revenue-generating operating segments and a third support segment. No significant judgements were made in determining the reporting segments.

Retail

The retail segment included sales of new and used vehicles, together with the associated ancillary aftersales services of; servicing, body shop repairs and parts sales.

Leasing

The leasing segment included the leasing of vehicles to end consumers and fleet customers.

Unallocated

The unallocated segment included the Group's head office and central management functions including; the Board, group finance functions, the human resources department, the IT department and all governance and compliance related functions in support of the wider business. Also included was rental income arising from investment properties.

All segment revenue, profit before taxation, assets and liabilities were attributable to the principal activity of the Group being the provision of car and commercial vehicle sales, leasing, vehicle service and other related services.

Geographical information

Revenue earned from sales was disclosed by origin and was not materially different from revenue by destination. All of the Group's revenue was generated in the United Kingdom.

Information about reportable segments

Information related to each reportable segment is set out below.

Information related to each reportable segment is set out below.

5. Profit before taxation

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

6. Non-underlying items

Profit on disposal of subsidiary

In November 2017 the Group disposed of Marshall Leasing Limited and its subsidiary (Gates Contract Hire Limited) for gross consideration of £42,500,000 generating a profit on disposal of £36,851,000. A retention of £1,500,000 was withheld in respect of anticipated settlement of legacy defined benefit pension obligations triggered by the change in ownership of Marshall Leasing Limited. In April 2018, the surplus retention withheld was calculated and returned to the Group, generating an additional £589,000 profit on disposal of Marshall Leasing Limited and its subsidiary.

Profit on disposal of assets classified as held for sale

In May 2018, the Group sold the freehold property classified as held for sale for a profit of £268,000.

Other non-underlying items

More information about the non-underlying items in the year ended 31 December 2017 are available in the consolidated financial statements for the year ended 31 December 2017 which are available at www.mmhplc.com. 

7. Net finance costs

8. Taxation

The tax charge for the six months ended 30 June 2018 is recognised based on best estimates of the average annual effective tax rate expected for the full financial year, adjusted for the tax impact of any discrete items arising in the period. The estimated average annual effective tax rate used for the six months to 30 June 2018 is 21.72% (six months ended 30 June 2017: 22.20%).

The reported effective tax rate for the six months ended 30 June 2018 is 21.00% (six months ended 30 June 2017: 22.20%). The underlying effective tax rate for the six months ended 30 June 2018 is 21.84% (six months ended 30 June 2017: 22.10%). The reported effective tax rate in the current period is lower than in the previous period due to the non-taxable gain on disposal of subsidiary.

9. Earnings per share

Basic and diluted earnings per share are calculated by dividing the earnings attributed 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 2,757,186 (June 2017: 2,380,040, December 2017: 2,866,231).

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

10. Dividends

An interim dividend of 2.15p per share will be paid by 21 September 2018 to shareholders who are on the Company's register at close of business on 24 August 2018.

An interim dividend of £1,663,000 in respect of the year ended 31 December 2017 was paid in September 2017. This represented a payment of 2.15p per share in issue. A final dividend of £3,309,000 for the year ended 31 December 2017 was paid in May 2018. This represented a payment of 4.25p per share in issue.

11. Share-based payments

In April 2018, the third tranche of the IPO Restricted Share Awards as well as the first tranche of the IPO Performance Awards vested and became exercisable. On 11 April 2018, all option holders exercised these options as well as the second tranche of the IPO Restricted Awards which had previously vested and become exercisable in the prior period. As such, 472,791 ordinary shares of 64p were issued. During the period, the decision was made for a portion of the share options being exercised to be settled in cash rather than being equity-settled. The total value of cash-settled transactions is £968,000.

12. Acquisition of non-controlling interest in subsidiaries

On 22 February 2018 the Group acquired the remaining 1% of the share capital of the following subsidiary undertakings; Marshall of Peterborough Limited, Marshall of Ipswich Limited and Marshall of Stevenage Limited, taking the Group's shareholdings in these entities up to 100%. Total consideration for these shares amounted to £49,553; the value of consideration in excess the carrying value of the non-controlling interest acquired has been recognised in retained earnings.

13. Goodwill and other intangible assets

The carrying value of goodwill and other intangible assets principally consists of goodwill and franchise agreements of £120.8m (June 2017: £121.2m, December 2017: £120.8m).

14. Property, plant and equipment

At 30 June 2018, the Group had capital commitments totalling £17.6m relating to ongoing construction projects.

At 30 June 2017, the Group had capital commitments totalling £11.7m relating to ongoing construction projects.

At 31 December 2017, the Group had capital commitments totalling £7.7m relating to ongoing construction projects.

More information about the transfers to software, transfers to assets held for sale and the impairment are available in the consolidated financial statements for the year ended 31 December 2017 which are available at www.mmhplc.com.

15. Fair value measurement

The carrying amounts and fair values of non-current financial assets and financial liabilities are as below. The fair values are based on cash flows discounted using the prevailing rates.