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MOTOR 150 REPORT Consolidated accounts of the top 150 companies in the UK motor retail sector


BDO Motor 150 Report

WELCOME TO THE MOTOR 150 REPORT prepared by BDO LLP

Motor retail is the shop floor of the UK automotive industry. It has become an established and interdependent network of businesses that contributes £10bn added value to the national economy and employs more than 700,000 in associated motor retail businesses of supply and servicing.* In this light, the Motor 150 report – revealing the aggregated performance of a study group comprising the top 150 companies in the UK motor retail sector – is an important business barometer. Our aim in producing this report is to provide a considered insight into recent economic events and sector activity, the current and future dynamics of motor retailing, and to offer our professional views and advice for the future. As such, this report, which covers performance in the latest audited accounts and looks forward into the current and future accounting periods, does not specify or comment upon the individual performance of companies, except where it is relevant to explain a variance from the market norm or to highlight a fresh sector trend.

CONTENTS 01 KPIs 02 Operational and financial review 06 Market activity, strategic moves and industry insights 08 The changing nature of today’s retail sector 12 Motor retail outlook – BDO opinions and advice 13 Compilation of the report 14 Review of the Top 150 accounts 22 The Motor 150 companies 24 The BDO team

*Source: SMMT


KEY PERFORMANCE INDICATORS 2011

2010

2009

2008

£40.7bn

£39.9bn

£34.6bn

£36.1bn

2.0%

15%

(4.2%)

(2.1%)

Gross profit

£4.7bn

£4.8bn

£4.6bn

£4.4bn

Operating profit

£549m

£643m

£538m

£184m

Profit before tax

£399m

£483m

£360m

(£198m)

Return on sales

0.98%

1.21%

1.04%

(0.55%)

Turnover Change in turnover

It is important that dealerships focus less on “getting back to normal” and more on adapting to the current economy MALCOLM THIXTON, HEAD OF MOTOR RETAIL, BDO


OPERATIONAL AND FINANCIAL REVIEW

THE NEW NORMAL? by Malcolm Thixton, Head of Motor Retail, BDO

In last year’s report we asked who was up for the long run and, drawing on the nations focus on the forthcoming Olympics, asked who was fit enough to complete the marathon. I was struck by Mervyn King’s words in June 2012 about how long the current economic climate might last, saying he didn’t think the UK was even “halfway through” the economic crisis and suggested that we may not see recovery for five years. By November the UK economy had emerged from a double-dip recession with the economy growing by 1%, but King warned that this was driven by one-off factors and predicted the UK could drop into a triple-dip recession if the economy was to contract again. Trading conditions certainly remain difficult in the motor retail market against a background of general uncertainty in the UK economy. The UK new car market reduced by 4% to 1.9m in 2011 and total registrations were at their lowest since 1994. However, recent figures released for 2012 show that the market is back on track and the UK is set to be the second largest new car market in Europe. The long-term issue for dealerships is that whilst costs have been cut, balance sheets strengthened and profits stabilised, it is questionable how much further this process can usefully go. The next round of cost cutting is going to be harder, will most likely impact profits and could prove difficult to implement at a time when manufacturers are again increasing their demands on standards and facilities required to operate their franchises. In addition, there is evidence of a gap opening up between those businesses who can adapt to the new market conditions and those that risk being stuck in a chase to the bottom as they fight over static demand and falling margins. The bigger companies in the Motor 150 (the ‘Group’) are making more profit – this report shows the top ten contributed 52% of operating profit compared to 43% in the prior year. Given this outlook it is important that dealerships focus less on “getting back to normal” and more on adapting to the current economy – they need to accept that any material bounce back is unlikely and take appropriate actions for the “new normal”. Key areas of focus: n Building longer term relationships with their customers n Keeping close to their manufacturers and their long-term UK strategies n Building their own brand alongside that of the manufacturers n Developing their e-commerce approach to be highly effective in attracting, converting and retaining customers n Attracting, rewarding and retaining the best people.


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FIGURE 1: TURNOVER BY POSITION (GROUPED)

2011 turnover £

2010 turnover £

2009 turnover £

Increase/ decrease in year

% change

Positions 1-15

20,005,500,872

19,563,139,361

17,020,726,000

442,361,511

2.3%

Positions 16-30

5,358,403,509

5,243,593,187

4,471,123,298

114,810,322

2.2%

Positions 31-45

3,504,006,170

3,418,181,118

2,926,917,240

85,825,052

2.5%

Positions 46-60

2,719,336,657

2,680,603,803

2,281,380,829

38,732,854

1.4%

Positions 61-75

2,325,469,128

2,283,216,205

1,928,035,653

42,252,923

1.9%

Positions 76-90

1,878,051,486

1,846,720,483

1,614,764,900

31,331,003

1.7%

Positions 91-105

1,580,204,812

1,553,622,197

1,361,033,094

26,582,615

1.7%

Positions 106-120

1,345,125,430

1,300,856,754

1,161,086,591

44,268,676

3.4%

Positions 121-135

1,095,095,440

1,105,566,700

959,260,024

(10,471,260)

(0.9%)

Positions 136-150

860,620,527

874,256,629

857,026,701

(13,636,102)

(1.6%)

40,671,814,031

39,869,756,437

34,581,354,330

802,057,594

2.0%

PROFIT AND LOSS Overall, turnover for the Motor 150 was up by 2%, increasing by £802m to £40.7bn, but reductions in gross margins resulted in a fall in operating profit of £94m to £549m. Over two thirds of the Group (107 companies) produced lower profits than last year, with 25 making a loss compared to only 11 last year. Profits were under pressure as manufacturer incentives were curtailed, used cars did not see the price increases we saw in the previous year and aftersales were impacted by a number of factors, including fewer miles driven on our roads and longer servicing intervals. Looking through the detail of the accounts a number of companies have attributed improvements they have made to specific factors. Pendragon, for example, refer to their internet presence as an important differentiator – their profits improved despite redundancies. Arnold Clark talk about improving finance sales and JCT600, increased investment in staff training and IT systems.

Interestingly, our comparison of turnover gains within the Motor 150 (see Figure 1) also reveals that the larger groups had similar increases (average of 2.3% for the top 45), but the 30 companies with the lowest turnover experienced a fall of approximately 2%. The highest profit made was £52m, by Arnold Clark, which was an increase of £1m in the previous year. The biggest loss was £13m, made by the Peugeot-owned Robins and Day, who lost a similar amount in the year before. Aftersales continued to see challenging trading conditions. Although the total number of cars on UK roads increased in 2011, there has been a 20% reduction in vehicle parc over last five years, reducing the number of cars available for servicing. In addition, the average car is now 7.44 years old, two months older than a year ago, suggesting either that motorists are keeping their cars longer or that new cars are more efficient and need less servicing. There are also fewer miles being driven and manufacturers are introducing longer servicing intervals or “free servicing” provided at warranty labour rates. There is also increasing pressure from independents, including Halfords and customers are delaying servicing beyond manufacturer recommendations.

However, we see a number of groups who are still able to grow this area of their business and are making the most of opportunities including; introducing service plans for vehicles over three years old, which acts as a retention tool, improving customer databases and contact points via call centres, text messaging, Facebook and Twitter. Many are setting and achieving targets for conversion of red and amber alerts from Vehicle Health Checks. Regular training of service advisors is also essential to maximise profitability. Staff costs rose by 3.7% to £2,953m, largely as a result of a 2% increase in the average number of employees to 100,302. Total directors’ remuneration fell for the second year, by 11% to £92m, and the average emolument of the highest paid fell by 9% to £286k, although the number of directors increased by 38 to 667. Dividends reduced from £143m to £80m, although the number of companies that paid dividends went up slightly from 58 to 61 (despite the fact that 107 companies out of the 150 produced worse results!).


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BALANCE SHEET Overall, the balance sheet of the Group improved, in particular gearing, as companies retained profits and paid down borrowing rather than incurring large amounts of capital expenditure or investment by way of acquisition. That said, intangible assets rose slightly by a net £4m to £706m, as 27 companies added a total of £49m to their goodwill and intangibles, including Jardine Motor Group who spent £21.5m on the acquisition of the Wayside Group and Addison Motors who spent £8m on acquiring Colebrook & Burgess. The total costs of £139m were incurred by just over half of the companies in the Group, on adding or improving their freehold properties. This trend looks to continue as there appears to be increasing pressure from manufacturers on dealers to improve their facilities at a time when margins are declining.

Stock and corresponding loans increased by £500m, although this was spread across the group with no obvious reason why this has happened, but this could be the result of pressure from manufacturers.

VOLUME V PRESTIGE

Gearing (excluding stocking finance) was marginally up at 31%, but still significantly down from the 45% we saw in 2009 as companies very sensibly retain profits and pay down borrowing.

NORTH-SOUTH DIVIDE? We are often asked for regional data and indeed whether there is a ’north-south’ divide in the financial performance for the dealers within the Group. Unfortunately, it is very difficult to analyse the statutory accounts on a regional basis, so we are limited to looking at new car registrations statistics published by the SMMT. The table below shows that both the north and south saw reductions in registrations, with the north 8.7% down compared to 4.6% in the south. Interestingly, registrations in the Midlands were up.

The prestige brands are certainly in demand – volumes are increasing and as a result profits are too. Looking further at the detail of new car registrations shows that whilst overall they fell by just under 90,000 (4%), prestige brands bucked the trend with sales increasing by just over 35,000 (5%) to 652,117. This reflects trends we see in the general retail market and the popularity of “entry level” models – volume brands are under pressure as the prestige manufacturers stretch downwards, for example the BMW 1 series and the new Mercedes A Class, and new entrants such as Kia and Hyundai challenge on value for money with even their basic models including more and more features.

LOOKING FORWARD The results to 31 December 2012 appear to be looking better, in particular the listed companies’ results. Anecdotally, dealers have been talking about better trading conditions over the past 12 months. This is supported by higher car registrations – up 5.3% for 2012.*

NEW CAR REGISTRATIONS

2011

2010

Increase/ decrease in year

% change

NI, Scotland and Wales

276,285

297,636

(21,351)

(7.2)

Midlands

465,285

456,107

9,178

2.0

North

416,251

455,916

(39,665)

(8.7)

South

772,692

809,980

(37,288)

(4.6)

1,930,513

2,019,639

(89,126)

(4.4)

Source: SMMT

*Source: SMMT

Prestige brands are bucking the trend, increasing 5%


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VOLUME V PRESTIGE

2011 registrations

Market share (%)

2010 registrations

Market share (%)

Increase/ (decrease)

Luxury

2,061

0.11

2,079

0.10

(0.87)

Sports

12,259

0.63

13,756

0.68

(10.88)

Prestige

652,117

33.58

617,068

30.39

5.68

Volume

1,130,471

58.21

1,246,604

61.39

(9.32)

143,040

7.37

148,941

7.33

(3.96)

2,087

0.11

2,303

0.11

(9.38)

1,942,035

100

2,030,751

100

(4.37)

Economy Other

THE FRANCHISE MODEL – IS IT BROKEN? As profits come under pressure, manufacturers continue to look at how they go to market, with a number either operating or taking strategic interests in retailing. As the internet plays an increasing role in the way consumers source and buy new and used cars, here too manufacturers are taking a greater interest in how dealers represent their franchises. The imminent changes in block exemption, which we discuss later, are also widely anticipated to move the balance of power largely back to the manufacturers. As a result of these developments it is becoming much more critical that retail groups work very closely with their manufacturers to understand their strategies and ensure that their business is “right-sized� and financed to secure their long term future. Renault and Peugeot have both recently begun to consolidate the number of dealerships they have in their networks. In addition, BMW and Mercedes are both stretching their model ranges which will require appropriate market approaches to consumers. The recent announcement that US car brand Chevrolet will be the shirt sponsor for Manchester United from the 2014-5 season is an interesting development by General Motors in the UK. Chevrolet is also the football club's car sponsor and recently signed a similar car deal with Premier League rivals Liverpool. Manufacturer demands are changing, indeed generally increasing, including showroom requirements in terms of size, location and design. Location and tenure of property are particularly important in the balance of power equation.


MARKET ACTIVITY, STRATEGIC MOVES AND INDUSTRY INSIGHTS

CONTINUED SURVIVAL OF THE FITTEST

In last year’s report we predicted there would be tears of both joy and sadness. Looking back over the past 12 months this has certainly been the case. There have been a number of administrations in the period whilst at the same time we have seen a number of successful acquisitions. A number of potentially large new entrants into the market such as Tesco have not been as successful as they would have liked and the dealer model has to some extent seen off these new competitors. This is not to say that the year was a good one for everyone in the industry. Some manufacturers have fared better than others, but they all have continuing aspirations to grow and take market share from their competitors. Profits have remained but dealers have had to work harder to achieve these and to maintain their margins. They have also had to invest time and effort in improving the customer experience beyond that of a transactional event. Companies have continued to review their cost base and we believe that these measures are, in a lot of cases, taking the cost bases back to 2008 levels. We have identified below the following factors as key to dealer success: n Good relationships with the manufacturers n Manufacturers developing and bringing out new cars at regular intervals n Improving the overall customer experience n Good controls and processes.

Companies have continued to review their cost base and we believe that these measures are, in a lot of cases, taking the cost bases back to 2008 levels.

If dealers continue to work hard on the controllable points they will continue to reap the rewards.


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ON THE ACQUISITION TRAIL Although the economic outlook has remained challenging for the dealer network, those with strong balances sheets have taken the opportunity to invest further to strengthen their position in the market, with the majority of deals being completed by the top 20 dealerships. The year saw deals worth in excess of £89m representing 21 individual transactions in the period. This is half the number of deals completed in the previous period, but some of the transactions were significant, indicating there is still cash available for the largest groups to invest when the opportunity is right. This is supported by cheap bank rates that are currently still available. The largest acquisition was Jardine Motor Group’s share acquisition of the Wayside Group for a consideration of £30m, with underlying goodwill totalling £21.5m. This is the largest acquisition seen for four years and complements the current market offering with the acquisition of a top 30 dealer group with turnover in the region of £300m. Also, at the start of 2012, Sytner Group completed a share acquisition of Irish Top 25 dealer Isaac Agnew Group. Both deals demonstrate the willingness of the largest groups to expand if the right strategic purchase presents itself.

The year saw deals worth in excess of £89m representing 21 individual transactions in the period.

WHAT’S IT WORTH? Levels of up to four times operating profit have been paid. The best example of this is the prestige marques which have continued to hold up sales in the challenging market place, as they continue to diversify their range successfully. This is evident by Audi, Volkswagen and BMW all breaking into the top five manufacturers and holding over 5% share of the new car market. Other brands attracting attention are those which prospered from scrappage a number of years ago and have continued to be popular with consumers, namely Kia and Hyundai. Many transactions have been predominantly trade and asset deals, reflecting the cautious approach adopted by most dealer groups and in some cases have included the acquisition of freehold property, which is still considered a good long-term investment.

One further significant acquisition related to Addison Motors, a top 20 dealer group share acquisition of Colebrook and Burgess for a consideration of £13m, with goodwill totalling £7m. This increases the groups’ Audi presence.

TOP FIVE TRANSACTIONS IN 2011 n Jardine Motor Group acquires Wayside Group n Addison Motors acquires Colebrook & Burgess Holdings n Listers Group acquires Droitwich Limited n Listers Group acquires Sport Motor Holdings n Clare James Automotive acquires certain assets of Lookers Motor Group


THE CHANGING NATURE OF THE MOTOR SECTOR

WHAT FOR THE FUTURE?

We forecast 2013 to be a year of continued opportunity for those dealers who continue to take on the challenge and keep their eyes open to new opportunities which present themselves to their business. For growth to be sustained, dealers need to continue to adapt and remain open to change. Registrations look set to increase further and we believe there is still some pent up demand in the market. However, it still requires the industry as a whole to continue to work together and ‘talk up’ the sector – be it at government, industry or local community level. We have identified the following issues that will continue to affect the industry going forward:

BLOCK EXEMPTION As reported in the prior year, the changes to Block Exemption Regulation (BER) are moving closer – they will come into effect on 1 June 2013. The rules in the current BER that specifically benefit the motor retailer will disappear – they are not part of the new legislation which will come into force on in June. We have identified four clauses which we believe could potentially have the most impact on the sector: 1. The non-compete clause Current legislation encourages multi-franchising, allowing consumers to view rival brands in the same showroom, whereas under the new legislation manufacturers will, in theory at least, be allowed to restrict multi-franchising or even insist on standalone sites. However, this is thought to be unlikely to be enforced by manufacturers, as the business model of the dealership would be affected.


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2. The termination clause Rules regarding the length of termination period and requiring manufacturers to provide reasons for termination will cease with the new legislation. However, most manufacturers are negotiating new contract terms with correspondence from the dealers, which is likely to result in more regulated and agreeable periods. ACEA’s short code of conduct suggests best practice is a notice period for both parties of no less than six months for a fixed contract and two years on a rolling contract. Not all manufacturers have subscribed to the code, but our view is that complying with standards is beneficial to manufacturers in the long-term. We are of the opinion that underperforming dealerships will come under more pressure to reach targets and comply with standards, and may be in a weaker position if the manufacturer believes they have no future in the network. 3. The veto clause Under the current legislation, if you represent a brand in one area you are free to acquire another dealer representing the same brand anywhere in Europe. However, this can be refused under the new ruling. Whilst this may on the face of it appear a dramatic change, the reality is that hostile deals in this sector are non–existent, and the act of buying and selling has historically been done with the approval of the relevant manufacturers. Nevertheless, some acquisitions could be seen as more desirable in the view of the manufacturers than others, possibly influencing acquisition prices as franchises are not sold to the highest bidder. 4. The location clause The new location clause removes the ability to open an unauthorised dealership in any location. Again this is unlikely to have much impact, as there have been few cases where dealers took advantage of this under the current legislation.

THE APPLICATION OF BER

Certain manufacturers have been issued a new dealer agreement which they have used as a way to reduce or rationalise the dealer network. In addition, manufacturers will no longer be able to make the warranty conditional on having the oil changed, or other car services carried out, in authorised garages only. However, they may request that repairs covered by the warranty, and paid for by the manufacturer, are carried out within its authorised network. The European Commission said this was an important issue as it estimated repair bills account for an around 40 per cent of the total cost of owning a car. As a result of this new law change, certain manufacturers have been issued a new dealer agreement which they have used as a way to reduce or rationalise the dealer network. At the same time some operators have used it as an opportunity to dispose of their business whilst they were still able to decide who they wanted to sell to. However, in practice the manufacturers have still had a large say in who it should be disposed to. Our thoughts on the changes are that although some power is being passed back to the manufacturer under the new legislation, it can be argued that although legally they did not previously have this power it was often exercised anyway.

FAQs Whilst consumers won’t notice much change, dealers and franchisees undoubtedly will. On 27 August 2012, the European Commission published guidance, in the form of a set of frequently asked questions (FAQs), on the application of EU competition rules in the motor vehicle sector. The FAQs deal in depth with the following six topics: 1. Warranties – Manufacturers can only require customers to use authorised repairers or own branded parts for warranty work, free services or product recalls. Nonwarranty repairs and maintenance can be carried out by other service centers without impacting on manufacturer warranty. 2. Leasing – As long as there is no certainty that the lessee will retain the car at the end of the term then the leasing company can insist that servicing is carried out at an authorized repairer. 3. Spare parts – The Commission acknowledges that in most cases bonus and rebate schemes are a legitimate means of motivating a repairer to sell more parts for their manufacturer. However, making bonuses or rebates on parts conditional on the repairer having to buy competitive parts of the vehicle supplier's brand could imply that the vehicle supplier is leveraging a dominant position in the market. In addition captive and competitive parts can both be stored close to workshop bays (albeit separately). 4. Electronic tools – Manufacturers will be able to insist that authorised repairers use specific electronic tools, even if available elsewhere. 5. Technical information – Vehicle manufacturers are in principle required to release technical information, for which they are the only source, to independent operators. Only in exceptional circumstances will a failure to provide such information be justified for safety or security reasons. 6. Authorised networks – These must generally be open to all that meet relevant quality criteria.

* BER covering aftersales will run in their current form until May 2023.


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THE DIGITAL CONSUMER The digital age is changing the way consumers look at and buy cars – in the UK there are over 30 million active users on Facebook, 4 million registered users on LinkedIn and 10 million on Twitter. The majority of the top 150 dealers are currently using social media, with many using Twitter and Facebook as a means to entice customers into their showrooms, both actual and virtual. With people increasingly looking to these social networks for opinion and information, car dealers are well advised to ensure that they maximise their presence and use social media to engage with existing and potential customers. General consensus in the market place is that social media is more effective for motor dealers as a way of promoting their business as opposed to selling cars – 70% of LinkedIn members now follow companies as well as individuals. However, it isn’t just enough to have followers on your Facebook page – dealers need to think about how they can translate social media activity into sales revenue or customer loyalty. In Western Europe, 90% of mobile phone users have an internet enabled phone making mobile phones increasingly important – 28% of consumer research is now done online via mobile phones. This means consumers are far more informed about the product they are looking to buy and the price that they are willing to pay for it. In December 2011, Hendy Group launched the Hendy App for iPhone and iPad. The app allows users to search for a used vehicle by make, model, price and dealership location. The vehicle’s details and images can then be selected so users can see the vehicle and find out all of its relevant information. Hendy Group Managing Director Paul Hendy says, “It’s another great way for us to interact with our customers in a professional and succinct manner.” The end of the road for showrooms? It seems that the traditional dealership model is now out of step with modern consumer behaviour. A survey conducted in the US highlighted the growing importance of social media for car dealers. The 2012 Automotive dealership social media and online reputation study survey carried out by Digital Air Strike found that the majority of car buyers (69%) use social media in their dealership selection process. Speaking at the 2012 SMMT

*Source: AM Online

International Automotive Summit Google’s Head of Automotive, Hugh Dickerson, said that deals are no longer done in the showroom and that a dealer visit is only affirmation of online research. Google statistics show that desktop searches of cars on Google have increased by four times the amount in five years, 18 sources of information are used and 51% of buyers don’t buy their original choice of car. At the same summit Joe Doyle from HR Owen plc said customers are more informed than ever and dealers need to work hard to retain their ‘expert’ status. Reputation, reputation, reputation Social media can also be used as a reputation management tool and to help boost customer satisfaction. The Digital Air Strike survey found dealers need to increase engagement with car shoppers on social networks and review sites during the car buying process. The study, measuring usage trends on Facebook, Twitter and Google+, surveyed 275 car buyers who purchased a vehicle in the last six months.

HIGHLIGHTS INCLUDE n 69% of consumers said social media sites helped their vehicle purchase decision n 68% of car shoppers said that dealership reviews impacted which dealership they visited when shopping for a vehicle n 50% of consumers said that reading reviews affirmed their original choice of dealership n 18% of consumers said they either selected a dealership based on the reviews they read or changed their choice of dealership after reading reviews on multiple dealerships “This study highlights the importance of social networks and review sites in the car buying process,” said Alexi Venneri, co-founder of Digital Air Strike. According to recent research by social commerce provider Reevoo, 66% of car buyers read owner reviews prior to making their purchase decision before visiting a dealership. Consumers are also more likely to buy from a site that offers customer reviews, with 60% reporting being ‘much more’ or ‘more’ likely to make a purchase if the retailer’s web presence includes customer reviews.*


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A warning Whilst there is a real opportunity for car dealers to leverage and benefit from the wealth of customer opinion available to them online they also need to monitor blogs and forums for negative customer feedback so it can be acted upon quickly before it has chance to do some damage to the business. There have even been instances where an individual has posted a negative comment on a social media site which has been picked up by a rival dealer who has then entered into dialogue with this customer and has directed them to their dealership.

include Autoquake, who went into administration in early 2011, despite their claim to being the UK’s biggest online used car retailer, and more recently Tesco Cars, who after purchasing the carsite.co.uk name in early 2011, also folded in 2012. AutoeBid seem to be having more success by operating in a different way to traditional auction sites – their ‘reverse auction’ site asks purchasers to set a maximum price for the vehicle they wish to purchase and then sellers in AutoeBid’s network bid down from this figure competing against each other to try to secure the sale.

All of this makes it more surprising that a recent online poll conducted by Automotive Management (AM) found that an overwhelming 85.2% of respondents receive no guidance or inspiration from manufacturers regarding social media. They instead have to take the lead and adopt a proactive approach in forming their own digital strategies. Many of the dealers commented that the industry is behind many other areas of the service industry when it comes to social media and online sales.

As consumers get increasingly used to performing more complex purchases and tasks online it seems inevitable we will see further growth in the online car buying market.

Buying online The online marketplace continues to present a challenge to those that are prepared to make the considerable investment required to have an effective online presence. eBay Motors, the pioneer of online car auctions, is probably the most successful in terms of sales, although its focus on lower value vehicles has led to a preoccupation with the sale of cheaper, used vehicles. Others who have had less success

HP OR PCP? To further stimulate current sales, manufacturers and dealers have started to offer personal contract purchase (PCP) schemes to ease the burden of buying a vehicle. According to the FLA (Finance and Leasing Association), 62.9% of all new cars bought in 2011 by consumers used dealer finance, and approximately 20-25% of used cars also relied on dealer finance. Of those cars financed through dealerships, the total percentage of consumer car finance for new cars provided through PCP contracts grew in 2011 to 61.1%, compared with 58.7% in 2010. By contrast, hire-purchase (HP) fell from 34% of the market in 2010 to 30% in 2011.

THE GREEN AGENDA Since the recession started, environmental concerns have pretty well slipped off the agenda of the average motorist. However, a number of dealers over the last 18 months have continued to use the green agenda to their advantage. Companies such as Blackshaws and JCT600 have invested in solar panels in some of their dealerships. JCT600 have invested £400,000 in the installation of 600 solar panels which are predicted to save around £60,000 a year. This project is part of a wider company initiative looking at improving the energy usage and efficiency across all of JCT600’s dealerships. This is a result of increasing fuel costs and highlights that innovative dealers are working to reduce their cost base of their businesses.

Customers are more informed than ever and dealers need to work hard to retain their ‘expert’ status JOE DOYLE, CEO, HR OWEN PLC


MOTOR RETAIL OUTLOOK – BDO OPINIONS AND ADVICE

FOCUS

PREDICTIONS FOR 2013

These are the three areas we think dealers should continue to focus on:

In our latest ‘BDO Retail Forecasts 2013’ report, we make ten predictions. Below are the ones that we think will have the most impact on the motor sector.

n Embrace technology – Use all avenues available to the business to reach out to your customers and potential customers. The more times you can enter dialogue with them, the more you will be at the front of their mind when they require a service, want to change their car or want to visit a dealership. n Processes and controls – As margins are so tight, a dealer’s controls and processes are key to ensure every opportunity is maximised and costs controlled. n Plan for today and tomorrow – It is very difficult to accurately reflect what will happen in the future and therefore difficult to prepare a well rounded strategy.

BETTER GROWTH PROSPECTS? Trading conditions will remain far from easy with sales growth of around 2–3%.

COMPETITION FOR THE BEST LOCATIONS With limited supply of new space becoming available, competition for the best locations will increase, which should be good for those with surplus but not so good where rent reviews are due.

4G The introduction of 4G will further embed the use of online channels with mobile sales of cars likely to increase further.

SUNDAY TRADING Although opinions regarding extending Sunday opening hours are mixed, expect to see a broad consensus emerging favouring longer hours.

CORPORATE OPPORTUNITIES We should see increased levels of M&A activity as confidence increases with further sales to overseas buyers and distressed opportunities. However, activity is likely to remain subdued by historical standards.

To download the full report please visit www.bdo.co.uk


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COMPILATION OF THE REPORT

SOURCES OF INFORMATION The 150 companies included in this report were selected from the "Top 200 Franchised Dealership Survey" published in Motor Trader magazine and copies of most recent financial statements were obtained from Companies House filings. The published accounts (see below for year ends), obtained from Companies House filings, were used to provide the financial information included in this report.

YEAR ENDS The year ends included in the ‘current period’ financial information in this report range from 30 April 2011 to 31 March 2012 being the most recent accounts filed at Companies House at the time of the compilation of this report. For companies with December year ends (116 in the population) the ‘current period’ will be the year ended 31 December 2011. For January to March year ends (13) the current period is that ending in 2012. For April to November year-end companies (21), due to the restrictions of the filing deadlines at Companies House and the timescale of compilation of this report the current periods are predominantly those ending in 2011.

AGGREGATION The published accounts of the 150 companies identified by the above processes have been combined by a simple aggregation to produce the financial information in this report. No consolidation adjustments have been made and in particular no adjustments have been made to reflect the non-coterminous year-ends of the companies.

IFRS AND UK GAAP Of the 150 companies, seven have prepared their accounts under IFRS and the remainder under UK GAAP. However, as those companies represent 19% of total revenue and as the implementation of IFRS will increase in future we have decided to present the financial information in a format more consistent with IFRS than UK GAAP. We have made no attempt to adjust UK GAAP numbers to comply with IFRS, we have merely represented the UK GAAP numbers in a format similar to IFRS. Consequently a number of allocation judgements were required that may impact the comparability of the financial information.

DISCONTINUED OPERATIONS/NON OPERATING ITEMS No distinction has been made between continuing and discontinued operations due to the variety of judgements and presentational approaches taken by relevant companies. Where it has been possible to identify such items, all ‘exceptional’ or similar items reflected outside operating profit have been aggregated, although we have produced a brief analysis of the main items in the notes to the accounts.

CASH FLOW STATEMENT Whilst some of the individual line items on the cash flow statement have been obtained from the aggregation of cash flows, the cash flow statement has been largely derived from the simplistic approach of reconciling the movements between the balance sheets. This was to ensure that the changes in cash and cash equivalents in the cash flow statement reconciled with the balance sheets which they do not in the aggregation due to the differences in starting points, definitions of cash and cash equivalents and the treatment of debt in all the companies.

DISCLAIMER The financial information in this report has been compiled exclusively from publicly available information under the key assumptions and limitations outlined above. It has been designed solely for illustrative purposes to highlight trends in the financial performance of a representative sample of companies in the sector. BDO has made a number of judgments in aggregating the information into a consistent format BDO does not, and cannot, warrant the completeness or accuracy of such adjustments. Furthermore in adjusting the presentation adopted in published accounts to meet the specific requirements of this report, BDO is not making any judgement nor giving any opinion on the presentation adopted in those published accounts. BDO has not carried out any verification work on the financial information in this report and gives no opinion on the financial information. The financial information was not compiled with the intention that it should be used for any purpose save for that described above. We do not accept responsibility for the financial information to any person or for any purpose other than that for which it was prepared.


MOTOR UK LIMITED REVIEW OF TOP 150 ACCOUNTS


BDO Motor 150 Report 15

CONSOLIDATED PROFIT AND LOSS ACCOUNT

Note

2011 £'m

2010 £'m

2009 £'m

2008 £'m

39,869 (35,084) 4,785 12.00% (4,267) 126 1 – 645

34,581 (30,027) 4,554 13.17% (4,129) 111 1 1 538

36,099 (31,675) 4,424 12.26% (4,350) 114 – (4) 184

Turnover Cost of sales Gross profit Gross profit % Operating expenses Other operating income Income from investments Share of associate and JV profit Operating profit

1

40,672 (35,945) 4,727 11.62% (4,295) 117 – – 549

Exceptional items

2

16

5

11

(125)

Interest paid Interest received Profit / (loss) before tax

5

(213) 47 399

(202) 35 483

(222) 33 360

(336) 79 (198)

Taxation Profit / (loss) after tax

6

(81) 318

(135) 348

(107) 253

22 (176)

(1) 317

– 348

(1) 252

– (176)

Profit / (loss) for the financial year

317

348

252

(176)

Unrealised surplus on revaluation Actuarial gains and losses on pension scheme Taxation in respect of gain/(loss) on pension scheme Other comprehensive income

10 (59)

(3) 39

(5) (72)

(13) (60)

6 9

(5) 2

18 (20)

15 1

283

381

173

(233)

(1)

(1)

283

380

172

(233)

Minority interest Net profit / (loss) Consolidated Statement of Total Recognised Gains and Losses

Exchange differences Total recognised gains and losses


16 BDO Motor 150 Report

CONSOLIDATED BALANCE SHEET

Fixed assets Intangible Tangible Investments Current assets Stock Debtors Deferred tax asset Cash Other

Note

2011 £'m

2010 £'m

2009 £'m

2008 £'m

8 9

706 3,755 213

702 3,676 201

701 3,460 182

710 3,432 198

4,674

4,579

4,343

4,340

5,864 2,156 24 831 110

5,360 2,154 26 1,042 49

4,754 2,258 38 719 46

5,420 2,195 30 449 69

8,985

8,631

7,816

8,163

39

19

18

19

13,698

13,229

12,176

12,522

2,369 5,774 99

2,213 5,634 135

2,290 4,905 129

2,420 5,263 86

8,242

7,981

7,324

7,769

1,150 397 140 67 74 1

1,268 374 178 73 74 1

1,209 339 246 93 68 3

1,411 339 190 115 77 3

10

Debtors due after more than one year Total assets Current liabilities Loans and bank overdrafts Trade and other payables Current tax liabilities Non-current liabilities Loans and bank overdrafts Trade and other payables Pension liabilities Provisions Deferred tax Derivatives

11 12

13 14 15

1,829

1,969

1,957

2,135

Total net assets

3,627

3,279

2,895

2,618

Capital and reserves Share capital Share premium Profit and loss account Other reserves Capital redemption reserve Revaluation reserve

727 287 2,298 73 40 155

663 286 2,076 63 38 140

611 303 1,719 53 39 159

565 214 1,574 52 38 164

3,580

3,266

2,883

2,607

47

13

12

11

3,627

3,279

2,895

2,618

Minority interest Total equity


BDO Motor 150 Report 17

NOTES TO THE ACCOUNTS

2011 £'m

2010 £'m

2009 £'m

2008 £'m

1. Operating profit Depreciation of tangible fixed assets Amortisation of intangible fixed assets Audit fees Non audit fees Operating leases - land & buildings Operating leases - other

363 29 8 4 262 13

353 21 8 4 236 13

328 31 8 6 208 15

336 29 7 5 210 14

2. Exceptional items Waiver of intercompany debt Loss/(profit) on sale of fixed assets VAT refund (Profit)/loss on sale of operations Refinance costs Impairment of goodwill Impairment of fixed assets and other assets Gain on early surrender of property lease Restructure and closure costs Other

(32) 4 – – 1 – 7 – 2 2

(4) (11) (2) – 3 – 6 – 2 1

(10) (7) (6) 3 7 2 6 (7) 3 (1)

5 (20) (10) 21 – 68 41 – 12 8

(16)

(5)

(11)

125

2,629 266 11 47

2,524 252 2 64

2,452 246 1 57

2,527 255 1 55

2,953

2,842

2,756

2,838

100,302

98,082

98,368

105,624

Average pay per employee (£000)

29

29

28

27

4. Directors emoluments Salaries and fees Bonuses Compensation for loss of office Pension contributions

86 1 – 5

95 2 1 5

105 3 1 5

82 – – 4

92

103

114

86

634 33

597 32

666 23

646 24

667

629

689

670

Average emoluments per highest paid director (£000)

237

311

383

282

5. Interest payable Bank loans and overdrafts Other interest payable Other finance expense

65 152 (4)

79 121 2

86 130 6

124 210 2

213

202

222

336

3. Staff costs Wages and salaries Social security costs Share based payments Pension costs

Total number of employees

Number of executive directors Number of non-executive directors


18 BDO Motor 150 Report

NOTES TO THE ACCOUNTS CONTINUED

2011 £'m

2010 £'m

2009 £'m

2008 £'m

95 (11) 84 (4) 1

134 (16) 118 13 4

107 (2) 105 1 1

32 (16) 16 (38) –

81

135

107

(22)

80

143

35

69

979 49 (11) 3 – – (3)

964 25 6 – – – (4)

966 15 6 – – 5 (6)

916 23 – 20 5 5 (3)

1,017

991

986

966

Amortisation b/fwd Charge Transfer Impairments Disposals

280 31 – 1 (1)

259 21 – 9 –

256 31 – 2 (4)

160 29 – 68 (1)

Amortisation c/fwd

311

289

285

256

Net book value at year-end

706

702

701

710

6. Taxation Corporation tax and income tax on overseas operations Prior year Deferred tax current year Prior year

7. Dividends Dividends paid in the period 8. Intangible fixed assets Cost b/fwd Additions Reclassifications Acquisitions Adjustments Transfers Disposals Cost c/fwd


BDO Motor 150 Report 19

NOTES TO THE ACCOUNTS CONTINUED

Freehold property

Leasehold property

Motor vehicles

Plant and fixtures

Total

2,491 139 (63) 20 4 – 8 (3)

386 37 (31) 8 – 1 – –

1,068 650 (576) (1) – – – –

1,087 138 (86) 11 – (7) – –

5,032 964 (756) 38 4 (6) 8 (3)

2,596

401

1,141

1,143

5,281

Depreciation b/fwd Charge Disposals Acquisitions Revaluations Impairments Transfers Reclassifications Exchange movements

238 37 (10) – (2) 9 – – –

83 16 (8) 1 (1) – – – –

319 204 (189) – – – – – 32

747 106 (62) 5 – 1 – – –

1,387 363 (269) 6 (3) 10 – – 32

Depreciation c/fwd

272

91

366

797

1,526

2,324

310

775

346

3,755

9. Tangible fixed assets Cost b/fwd Additions Disposals Acquisitions Revaluations Transfers Reclassifications Exchange movements Cost c/fwd

Net book value at year-end


20 BDO Motor 150 Report

NOTES TO THE ACCOUNTS CONTINUED

2011 £'m

2010 £'m

2009 £'m

2008 £'m

912 682 2 7 242 31 280

983 638 2 10 243 17 262

883 875 1 3 225 39 11 232

854 871 1 11 213

2,156

2,154

2,258

2,195

485 1,274 1 19 579 2 9

437 736 1 29 1,000 1 9

579 659 1 22 1,022 1 6

772 684 1 23 940 – –

2,369

2,213

2,290

2,420

12. Trade and other payables - current Payments received on account

41

66

46

29

Trade creditors Obligations under vehicle repurchase Other taxation and social security Finance leases Consignment creditor Other creditors Dividends payable Accruals

3,236 185 157 328 716 325 1 785

3,153 163 182 297 690 289 1 793

2,778 152 159 284 524 247 2 713

2,796 190 159 274 905 260 – 650

5,774

5,634

4,905

5,263

574 212 5 4 355

666 253 3 5 341

626 219 4 14 347

814 237 4 12 344

1,150

1,268

1,209

1,411

10. Debtors - current Trade debtors Group and related party loans Directors' current accounts Corporation tax Other debtors Other tax and social security Prepayments

11. Loans and overdrafts - current Bank loans and overdrafts Stocking loans Pension fund loans Directors' loans Group loans Shares classified as debt Derivative financial instruments

13. Loans and bank overdrafts - non current Bank loans Other loans Shares classified as debt Directors' loans Group loans

234


BDO Motor 150 Report 21

NOTES TO THE ACCOUNTS CONTINUED

2011 £'m

2010 £'m

2009 £'m

2008 £'m

25 25 347 –

24 12 338 –

23 6 306 4

22 14 299 4

397

374

339

339

34 1 20 6 6

38 5 21 7 2

47 11 25 7 3

55 27 23 8 2

67

73

93

115

(485) (574) (1,274) (675) (212)

(437) (666) (736) (635) (253)

(579) (626) (659) (590) (219)

(772) (814) (684) (573) (237)

Cash and cash equivalents

(3,220) 831

(2,727) 1,042

(2,673) 719

(3,080) 449

Net debt

(2,389)

(1,685)

(1,954)

(2,631)

Total equity

3,627

3,279

2,895

2,618

Debt/equity

66%

51%

67%

101%

14. Trade and other payables - non current Accruals Other creditors Finance leases Rentals in advance

15. Provisions Warranty service VAT assessment Property and restructure costs Finance commission Other

16. Net debt and gearing Net debt comprises: Loans and bank overdrafts due within one year Loans and bank overdrafts due after more than one year Stocking loans Finance leases Other loans


THE 150 GROUP COMPANIES


BDO Motor 150 Report 23

Addison Motors Limited

Grevan Cars Limited

Pentagon Motor Holdings Limited

Allen Ford (UK) Limited

Group 1 Automotive UK Limited

Peoples Limited

Aprite (GB) Limited

Guildford Portfolios Limited

Perrys Group Limited

Arnold Clark Automobiles Limited

Halliwell Jones Group

Peter Vardy Holdings Limited

Barretts of Canterbury Limited

Hanif Automotive Limited

Porsche Retail Group Limited

Baylis (Gloucester) Limited

Hartwell plc

R. Robinson & Co. (Motor Services) Limited

Beadles Group Limited

Harwoods Limited

Renault Retail Group UK Limited

Bedfordia Automotive Limited

Helston Garages Group Limited

Renrod Holdings Limited

Bestodeck Limited

Hendy Group Limited

Ridgeway Group Limited

Blade Motor Group Limited

Heritage Automotive Limited

Robins & Day Limited

Blue Bell Wimslow Limited

Hodgson Automotive Limited

Rybrook Holdings Limited

Bugle Inn Motor Company (Holdings) Limited

Howard Garages (Weston) Limited

S G Petch Limited

Burrows Motor Company Limited

HR Owen plc

C.E.M Day Limited

Hughes of Beaconsfield Limited

S G Smith Motors Insurance & Management Services Limited

Caffyns plc

Hylton Group Limited

S Jennings Limited

Cambria Automobiles plc

Inchcape Retail Limited

Saftdwin Limited

Cathedral Motor Company Limited

Isaac Agnew (Holdings) Limited

Sandicliffe Motor Holdings Limited

Central Garage (Uppingham) Limited

Jacksons Bournemouth Limited

Silver Street Motors Limited

Citroen UK Limited

Jardine Motors Group UK Limited

Sinclair Motor Holdings Limited

City Motor Holdings Limited

JCT600 Limited

Snows Motor Group Limited

City West Country Limited

John Clark (Holdings) Limited

Specialist Cars Holdings Limited

Citygate Automotive Limited

John Grose Group Limited

Spire Automotive Limited

Clare James Automotive Limited

John Martin Group Limited

Springfield Cars Limited

Colborne Garages Limited

John R Weir Limited

Stephen James Group Trading LLP

Colebrook & Burgess Limited

Johnsons Cars Limited

Sutton Park Motor Company Limited

Collier Motor Group Limited

L & L Inc Limited

Swansway Garages Limited

Colt Cars Mid-West Limited

Laindon Holdings Limited

Sytner Group Limited

Co-operative Group Motors Limited

Lifestyle Europe Holdings Limited

T C Harrison Group Limited

Cotswold Motor Group Limited

Lindsay Cars Limited

T G Holdcroft (Holdings) Limited

Currie Motors Limited

Listers Group Limited

Tanner Automotive Limited

D J Cox Limited

Lloyd Motors Limited

The Harratts Group Limited

Decidebloom Limited

Loders Motor Group Limited

The Phoenix Car Company Limited

Dick Lovett Companies Limited

Lomond Motors Limited

The Verve Limited

Donnelly Bros Garages (Dungannon) Limited

Lookers plc

Thompson Motor Company (Preston) Limited

Drift Bridge Garage Limited

Macrae & Dick Limited

Thurlow Nunn (Holdings) Limited

Drive Motor Retail Limited

Magna Motor Company Limited

Toyota Tsusho Automobile North London Limited

Eastern Holdings Limited

Marriott Motor Group Limited

Underwoods Garage (Tiptree) Limited

Essex Auto Group Limited

Marsh Wall Limited

Vertu Motors plc

Fish Brothers Limited

Marshall Motor Group Limited

Vindis Group Limited

Foray Motor Group Limited

Marubeni Auto Investment (UK) Limited

Vospers Motor House Limited

Ford Retail Limited

Mclean & Appleton (Holdings) Limited

W J King (Garages) Limited

Furrows Holdings Limited

Mercedes-Benz Retail Group UK Limited

W R Davies (Motors) Limited

G K Group Limited

Meridian Motor Group Limited

W. Brindley (Garages) Limited

Gates Group Limited

Meteor Group plc

Walter E Sturgess & Sons Limited

Gilder Group Limited

Mill Garages North East Limited

Wessex Garages Holdings Limited

Glyn Hopkin Limited

Mon Motors Limited

Westover Group Limited

Gordon Lamb Holdings Limited

Motorline Holdings Limited

WH Bowker Limited

Gordons (Bolton) Limited

Park's of Hamilton (Holdings) Limited

Williams Motor Co. (Holdings) Limited

Greenhous Group (Holdings) Limited

Parkway Derby Limited

Wilson & Co (Motor Sales) Limited

Greenoaks (Maidenhead) Limited

Pendragon plc

Wood Group Limited Yeomans Limited


24 BDO Motor 150 Report

THIS REPORT HAS BEEN PRODUCED BY MEMBERS OF THE BDO MOTOR RETAIL TEAM

MALCOLM THIXTON Head of Motor Retail malcolm.thixton@bdo.co.uk 023 8088 1895

STEVE LE BAS Director of Motor Retail steve.lebas@bdo.co.uk 023 8088 1906

WESLEY BIRD Business Assurance wesley.bird@bdo.co.uk 023 8088 1933

JAMES WEBB Business Assurance james.webb@bdo.co.uk 023 8088 1708

EMMA WAREHAM Marketing Communications emma.wareham@bdo.co.uk 023 8088 1753


HOW CAN WE HELP? To discuss how we can help your business, please contact a member of the BDO Motor Retail team: Malcolm Thixton Head of Motor Retail malcolm.thixton@bdo.co.uk 023 8088 1895 Steve Le Bas Director of Motor Retail steve.lebas@bdo.co.uk 023 8088 1906 Steve Ward Partner steve.ward@bdo.co.uk 0121 352 6392 Steve Cutts Director steve.cutts@bdo.co.uk 0113 204 1281

www.bdo.co.uk

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members’ names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Services Authority to conduct investment business. BDO is the brand name of the BDO network and for each of the BDO Member Firms. BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms. Copyright Š2013 BDO LLP. All rights reserved. This document is printed on 9lives 80, a paper containing 80 per cent recycled fibre and 20 per cent virgin Totally Chlorine Free (TCF) fibre sourced from sustainable forests. 9lives 80 is produced by an ISO 14001 accredited supplier.

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