MOTOR 150 REPORT Consolidated Accounts of the Top 150 Companies in the UK Motor Retail Sector CONTENTS

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

INTRODUCTION ...... 01 A SPEEDY RECOVERY...... 02 …BUT IS THE BUBBLE SET TO BURST?...... 04 WARNING LIGHTS ON THE DASHBOARD ...... 05 LOW ON POWER ...... 06 M&A ACTIVITY: ARE DEALERS ‘SEXY’ AGAIN? ...... 07 TAXMAN LOOKS TO TARGET MOTOR RETAIL ...... 08 LOOKING AFTER YOUR STAFF...... 09 MOTOR UK LIMITED REVIEW OF TOP 150 ACCOUNTS ...... 10 MOTOR 150 COMPANY NAMES ...... 15 COMPILATION OF THE REPORT ...... 16 THE BDO MOTOR RETAIL TEAM ...... 17

Motor retail is the shop ﬂoor of the UK automotive industry. This established and interdependent network of businesses has become a symbol of the continuing economic recovery by contributing over £15 billion in value to the UK economy, investing over £2 billion in net capital, and spending almost £2.5 billion on research and development in 2014.*

In this light, the BDO 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, annual business barometer. As such, it covers performance in the latest audited accounts and looks forward into the current and future accounting periods. It 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. Our aim in producing the Motor 150 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.

*Source: SMMT BDO Motor 150 Report 01

INTRODUCTION THE PEDAL’S TO THE METAL BUT BE PREPARED TO BRAKE

Last year we reported that the sector was accelerating at full throttle with results reaching an all-time high in the five years of preparing this report. The current year has only increased that acceleration and the sector has been flying round the track like a Formula 1 car.

Turnover levels have beaten the previous year and now total The manufacturers are fully aware of dealer profitability and are £55.2bn. Profits before tax are also at an all-time high of £825m, continuing to strive for increased registrations and market share. an increase of 27% compared to the previous year which itself was Combined with the capital expenditure requirements to fulfil dealer a record. The overall profitability of the Motor 150 group has more standards and revised bonus schemes, the general environment for than doubled since 2011. dealers continues to be challenging. However, despite these impressive numbers we must remember The race for market share and increased production of cars by the that this only equates to a return on sales of 1.5% (an increase manufacturers has resulted in a 17% increase in stock holding by of 0.1% compared to 2013). The overall margin remains tight and the Motor 150 group at year end to £8.4bn. Whilst the market any downturn in trade, registrations or bad publicity would have a is buoyant and prices are holding up this should not be an issue. marked impact on the overall profitability of the Motor 150. However with pre-registration becoming increasingly common place and the potential significant numbers of vehicles sold coming back The group balance sheet continues to strengthen with the larger under the PCP schemes this could present a further challenge to groups having significant cash balances. This is helping drive dealers. acquisitions and disposals in the sector and we have seen a significant increase in the number of transactions in the year and To meet this increasing market and turnover, dealers have had to into 2015. employ additional people and not surprisingly staff costs rose by 9%. This reflected both pay rises in the year (as highlighted in the There is no doubt that motor retail is attractive again for lenders and annual BDO salary report) and the greater staff numbers which this, together with low interest rates, is helping to fuel the sector. increased by 6% to a record high of 113,458 employees. This Continued profitability and cash generation is helping dealers to represents the creation of over 15,000 jobs in the Motor 150 since pay down debt and despite the acquisitions and significant 2009. capital expenditure, the gearing ratio continued to fall to Our view is that profitability will have remained at a similar level 64% at the end of the period. into 2015, however, the group will have worked harder than ever to maintain this. The dealers with the better controls and processes will continue to outperform the average and cope best with the challenges ahead.

Our aim in producing the Motor £648m 150 is to provide a considered insight 2013 PROFITS “

into recent economic events and

£825m sector activity, the current and future 2014 PROFITS dynamics of motor retailing,“ and to offer our professional views and advice £55.2bn for the future. 2014 TURNOVER 02 BDO Motor 150 Report

A SPEEDY RECOVERY...

CASHING IN Net profit after tax increased by £132m (26.4%) to £632m as although operating expenses increased by 10.6% this was a lower 2014 saw yet more growth in turnover for the Motor 150 with a rate than the increase in turnover and gross margin. The importance 15.7% increase from £47.7bn to £55.2bn. This increase was higher of cost control remains a key focus for the Motor 150 when you than the previous few years and continues to be fuelled by the consider the low percentage return on sales which increased seemingly never-ending run of new vehicle registration rises, with marginally to 1.49% (a new Motor 150 high!). an increase of 9.3% setting a new 10-year high. 2013 saw the first double-digit growth in gross profit and this was matched by 2014 RECORD PROFITS with a £12.2% increase from £5.5bn to £6.2bn. However, worryingly the gross margin percentage dropped for the fifth year in a row As in previous years, Arnold Clark Automobiles and Peugeot Citroen to its lowest point (11.17%) since the start of this report. This is Retail UK took their customary places at either end of the profit/ partly driven by the change in mix of sales but also better informed loss spectrum. Arnold Clark Automobiles surpassed the £100m mark customers driving margins down. making the highest profit before tax (for the fourth year running) of £107m, with Peugeot Citroen Retail UK making the largest loss (for Increases in turnover were made across the board (see figure 1) the sixth year in a row) of £9m. though the larger companies certainly took the lead with the highest percentage growth being seen by the top three categories who all Total staff costs were up with a 9.4% increase. Much of this was posted rises of over 15%. The second position grouping (16-30) due to the additional 6,597 people employed by the Motor 150 (an posted the highest increase seen for a number of years with growth increase of 6.2%) with the remaining 3.2% increase in line with the of over 20%. Things are also looking up for the smaller companies wider UK economy. Directors’ remuneration also rose from £100m in the group who posted double digit growth for the first time in a to £108m with the average emoluments for the highest paid director number of years. increasing from £246k to £285k, further underlining the increasing profitability for the Motor 150.

FIGURE 1: ANALYSIS OF TURNOVER (£)

2014 turnover 2013 turnover 2012 turnover 2011 turnover Change 2013-2014 % Change

Positions 1-15 27,924,838,163 24,149,372,421 21,486,258,364 20,005,500,872 3,775,465,742 15.6%

Positions 16-30 7,556,534,098 6,271,098,538 5,565,113,713 5,358,403,509 1,285,435,560 20.5%

Positions 31-45 5,202,345,202 4,353,731,761 3,892,484,383 3,504,006,170 848,613,441 19.5%

Positions 46-60 3,617,131,253 3,268,436,293 2,799,935,089 2,719,336,657 348,694,960 10.7%

Positions 61-75 2,822,213,873 2,500,854,360 2,220,656,769 2,325,469,128 321,359,513 12.8%

Positions 76-90 2,378,308,298 2,093,878,313 1,822,089,512 1,878,051,486 284,429,985 13.6%

Positions 91-105 1,923,468,102 1,683,379,897 1,560,624,004 1,580,204,812 240,088,205 14.3%

Positions 106-120 1,547,696,922 1,386,035,396 1,316,931,835 1,345,125,430 161,661,526 11.7%

Positions 121-135 1,283,154,781 1,133,124,352 1,050,536,388 1,095,095,440 150,030,429 13.2%

Positions 136-150 982,978,753 885,389,167 853,338,019 860,620,527 97,589,586 11.0%

55,238,669,445 47,725,300,498 42,567,968,076 40,671,814,031 7,513,368,947 15.7% BDO Motor 150 Report 03

UK new car registrations returned

to pre-recession levels in 2014, as pent- “ “ up demand combined with confidence in the economy saw consumer demand grow consistently and strongly.

MIKE HAWES, SMMT CHIEF EXECUTIVE

A STRENGTHENING BALANCE SHEET increases although both Honda and Peugeot saw small falls in the number of vehicles registered. Double-digit growth was achieved The Motor 150 consolidated balance sheet increased by £491m to by many, with Volkswagen ironically achieving an impressive 10.7% £4.7bn. This was predominantly driven by the profits made in the increase to surpass 200,000 registrations, becoming only the third year with few significant changes in the make-up of the balance manufacturer to do so after Ford and Vauxhall. sheet. With gearing decreasing to 64% compared to 69% in the prior year due to profits outstripping the increase in net debt, the The other high performers amongst the manufacturers were Renault, main balance sheet areas all increased. who increased their market share by an impressive 31%, and Volvo, who continued their resurgence with an increase of 15% market Stocking levels in particular increased to over £8bn having risen share. by 14.3% on the prior year. With the level of pre-registrations happening up and down the country this is hardly a surprise. This The make-up of the registrations saw little overall change with the seems to have been financed principally by cash reserves with no splits between diesel/petrol and private/fleet/business remaining increase in stocking loans, though further funding may be included in consistent. If anything 2014 was the year of the AFV (alternatively- the trade payables balance. fuelled vehicle) with a market share increase of 50% from 1.4% to 2.1% of all new registrations. This is a trend we expect to continue as Spending on fixed assets remained consistent with the prior year manufacturers provide more models in the future. with continuing investment in dealer standards leading to additions in the year of £1.36bn. The highest performing models continue to be hatchbacks with 8 of the 10 highest registered models. Only the Nissan Qashquai and RECORD-BREAKING REGISTRATIONS Juke made it onto the list with their smaller siblings. As mentioned before, 2014 saw a 10-year high for new vehicle Within the UK the total number of cars on our roads increased from registrations. Overall there was a 9.3% increase, slightly lower 31.5m in 2013 to £32.6m in 2014. However, it is interesting to note than the 10.8% increase seen in 2013. The majority of the large that from the SMMT data that the ‘average’ car in the UK is a silver manufacturers (those with over 10,000 registrations) made hatchback that is 7.8 years old (2013: 7.7 years). 04 BDO Motor 150 Report

…BUT IS THE BUBBLE SET TO BURST?

The latest SMMT forecasts, though, do present a changing landscape. At the time of writing this report last year the forecast for 2014 and 2015 was 2.45m and 2.47m registrations respectively.

2014 actual registrations were higher at 2.48m and forecasts FIGURE 2: NEW CAR REGISTRATIONS for 2015 are now at 2.60m. However SMMT are clear with their prediction for the future: this bubble is set to burst. Their forecast for 2002 2016 is for a fall in the number of registrations (see figure 2). From here it is expected that the market will stabilise on a more ‘normal’ 2003 long term growth path. 2004

It perhaps is not difficult to see why this is expected to be the 2005 case. Surely there is only so long that dealers can continue pre- 2006 registering vehicles to keep up with ‘optimistic’ targets. With a number of used vehicles expected to flood the market at the end of 2007 the first significant round of PCP deals a few years ago, used values 2008 are expected to fall and become a more attractive proposition 2009 to compound the vicious pre-registration cycle. More and more dealers are taking the step of not even trying to achieve their target, 2010 instead focussing on margins and breaking out of the catch 22 the 2011 manufacturers have created into the potential unknown. 2012 MAKE THE MOST OF IT WHILE IT LASTS 2013 We would expect 2015 to be another bumper year as dealers cash 2014 in on the ongoing new vehicle registration increases. Margins are 2015 expected to continue being squeezed as dealers chase targets and are continually forced to find new ways to incentivise customers. 2016 SMMT and other industry commentators believe this may be the last 1.50 1.75 2.00 2.25 2.50 2.75 year of significant growth before the sector cools and takes stock of ESTIMATE M ACTUAL M what has been a rapid comeback from the economic downturn. BDO Motor 150 Report 05

WARNING LIGHTS ON THE DASHBOARD

The sector continues to motor ahead of the general economy. The significant increase in turnover has been underpinned by the continued growth in new vehicle registrations which at the time of going to press had increased for 43 months in a row until October’s reality check.

However, the level of pre-registrations being carried out has become Funders’ appetite for the sector continues to grow and all the main motor retail’s elephant in the room. There is increasing speculation UK banks continue to “like” the sector and look for opportunities as to the level of pre-registrations with some commentators to lend. The rates may be increasing slightly however, compared to suggesting up to 30% at some period ends. This is obviously not historical averages, the cost of debt remains low. sustainable and indeed a dangerous game to play as once in the pre- registration cycle it can be very difficult to escape. The manufacturers own financing arms continue to provide competitive levels of finance and debt facilities and to provide healthy competition to the existing high street banks and other QUALITY V QUANTITY financiers. It was interesting to note, in light of the recent VW scandal, the head of VW Europe state that the manufacturer must focus on quality INCREASED REGULATION not quantity. A number of the “prestige” brands have increased their market share significantly by entering the middle ground of the Outside of dealer control is increased regulation, such as the advent market through offering very competitive leasing deals on some of of the new FCA and consumer credit rules. This may help consumer their vehicles. confidence but will have a significant impact on how dealers operate. The watchdog is now spending more time with dealers and Has there been too much of a focus on shifting the metal and reviewing dealers systems and controls. More and more often we increasing market share to the detriment of the product quality and hear about fines being levied on dealers once these audits have been customer satisfaction? carried out. As such, adherence to these rules and regulations are of upmost importance and an area that should not be ignored. The increase in units has not automatically translated to increased profitability but resulted in a squeeze in gross margin. FIGURE 3: BANK OF ENGLAND BASE RATE (2000-2016) IMPACT OF PCP DEALS AND INTEREST RATES 7.00 In recent years the majority of manufacturers, with the benefit of low interest rates, have put together some phenomenal deals for customers. Whilst interest rates remain low this is great news for 6.00 the customer. Increases have been threatened previously and the latest pronouncements from the Bank of England indicate potential interest rate rises in 2017. As the cost of finance eventually increases 5.00 these deals may not remain so attractive. A significant amount of new cars have been previously sold on three 4.00 year PCP deals and these cars will begin returning to the dealerships at agreed valuations. Used vehicle prices have held up over the 3.00 past three years so the initial buy-back value should not be a problem. However, this could become a problem with the potential oversupply as these vehicles return which may lead to used car 2.00 INTERESTRATE % values falling in 2016.

APPETITE FOR THE SECTOR 1.00 There is no doubt that the UK motor retail sector is and continues to be flavour of the month. It remains the best performing market in Europe, as demonstrated by a flurry of overseas entrants in the SEP12 SEP16 SEP14 SEP10 JAN12 SEP02 JAN16 SEP06 JAN14 JAN10 SEP04 SEP08 SEP00 JAN02 JAN06 JAN04 JAN08 JAN00 MAY11 MAY15 MAY13 MAY01 MAY07 MAY05 MAY03 sector over the past 18 months with a number of South African, US MAY09 and European groups actively looking for opportunities to expand in ACTUAL FORECAST the UK.

06 BDO Motor 150 Report LOW ON POWER 65% of people“ who bought a car did not“ contact the dealer before arriving on the forecourt.

HUGH DICKERSON, SENIOR INDUSTRY HEAD OF AUTOMOTIVE, GOOGLE

POWER OF THE MANUFACTURER upgrades to align with new corporate standards and identity and evidenced by the £1bn capital expenditure noted in the Motor 150 Whether dealers like it or not they must remember that ultimately group results. they are a franchisee. The manufacturers can ultimately dictate the levels of dealer profitability and in many cases the dealers’ profit for At the same time, dealers are being encouraged to continue a year is determined by the levels of bonus. enhancing their digital focus. Although we fully understand the need for a customer to look, touch and feel a car before purchasing, With the improved market conditions the manufacturers are is there really a need for very expensive, spacious showrooms that continuing to increase dealer targets (sometimes to unachievable some groups are being asked to develop? Will this investment levels). Some dealers are intentionally not pursuing their targets increase unit sales and profitability of the dealership or will it turn as this they feel will have a long-term detrimental effect on the customers off? business. It will be interesting to see how the JLR network realigns itself THE CHANGING CUSTOMER in 2016 and beyond once it has fully adopted the dual franchise Whether dealers like it or not the customer is changing. Previously model. There will undoubtedly be winners and losers through this the car that people drove was an important status symbol, now this reorganisation. is not so much the case. The world we live in is a digital world; the During the summer CDK were pleased to announce that they had consumers of today (and tomorrow) are the Generation Y (those signed an agreement with VW to provide their DMS system to all born between 1982 and 2000) and live their lives through digital VW dealers. Pilot sites will run the new CDK system to mid-2016 means. The ownership of a car is less likely to be important to them before it is rolled out to Volkswagen Group’s 700 UK dealerships. and it is more about the emotional ride you can take them on. This is the first time that such an arrangement has been brokered These customers are more informed than ever but have less time. between a DMS provider and a manufacturer and it will be They arrive in your showroom armed with more knowledge than interesting to see how this develops over the next few years. ever about the price and the product. Five years ago on average All the time the manufacturers are obtaining more information consumers visited five dealerships, today that has reduced to on about the customer whether through CSI scores and feedback, average just over one dealer visit. Dealers should constantly review marketing tools or extracting data through diagnostic testing. At their marketing and advertising spend to meet these changing some point the manufacturers will have so much data about all the requirements. dealers’ customers would they be able to run the franchise model The focus now needs to be on creating a digital dealership and themselves? engaging the customer at every point on the digital road to It is an interesting question to pose, however our view is that the purchase. Dealers need to build trust and value through the entire current model is one that works (for the majority of the time) to process. This is against a background where 92% of people do not the benefit of both sides. It will no doubt continue to evolve but we trust car salesmen, and 65% of Generation Y consumers would don’t expect any fundamental changes. prefer to purchase a car without negotiating with a salesman at all! The internet brings transparency and power to the consumer, As we have reported in previous years, manufacturers continue to resulting in lower margins for the dealer. Therefore dealers have to place extra demands on dealers with a number requesting showroom work harder on building both trust and value.

FIGURE 4: DEALERS MARKETING MIX HAS SHIFTED

50% 50%

40% 40%

30% 30%

20% 20%

10% 10%

0% 0% INTERNET NEWSPAPER TV DIRECT MAIL RADIO OTHER INTERNET NEWSPAPER TV DIRECT MAIL OTHER 2002 2012 SOURCE LEADING TO DEALER SPEND

*Source: ‘Leading to Dealer’ Versus Spend BDO Motor 150 Report 07

M&A ACTIVITY: ARE DEALERS ‘SEXY’ AGAIN?

2014 saw a number of owners decide that the time had come to sell. On the back of stronger profits and resurgent consumer confidence, the M&A market showed consistent activity with nearly a deal per month over the year. And, with both UK listed and overseas buyers in the market, it was tempting to think that dealers had, once again, become attractive targets.

A YEAR OF ‘FIRSTS’ HAVE CASH, WILL SPEND In 2014, large dealers took the opportunity to expand their networks Nearly two thirds of the M&A activity in 2014 has been driven both through development of geographical footprint and also by stock market listed acquirers. These large, well-funded groups marque coverage, with a number of notable first acquisitions: usually have cash (or debt) resources available and there is no doubt that banks view the sector more favourably with greater debt • Vertu Motors...... First Jaguar dealership appetite than in previous years - further fuelling the M&A market. In • Cambria Automobiles..... First Land Rover dealership addition, whilst share prices in the motor retail market were broadly flat in 2014, we have seen a 30% increase in plc shares in the 10 • Marshall Motor Group.... First BMW / Mini dealership months to October 2015. Investor appetite for the sector was also • VT Holdings...... First venture outside Mitsubishi in the UK confirmed by the IPO of Marshal Motor Holdings plc in April 2015. However, the interest in UK dealers is not just confined in the UK THE EXPANSION OF NATURAL MARKET AREAS listed companies. Houston based Group One’s continuing expansion In addition to the marque expansion, one key motivation for was demonstrated by its acquisition of Bedfordia’s three BMW/Mini M&A has been in areas where there are natural market synergies dealerships. Japanese listed VT Holdings – best known in the UK as which often enable buyers to enjoy cost savings and higher profits. the owner of CCR – Colt Car Rental – acquired Griffin Mill and with it Examples have included Lookers plc acquiring Colborne Garages to representation for Fiat, KIA, Nissan and Peugeot. Further acquisitions expand the group’s representation of the VW Group and Jaguar Land by these and other overseas buyers are expected. Rover brands in the South East. Likewise, Vertu acquired Hillendale Group, in part for the Group’s representation of Land Rover in a TOP 5 DEALS IN 2014… territory neighbouring the Vertu business in Yorkshire. Lookers plc (share capital of Colborne Garages Limited) Group 1 Automotive Limited (share capital of Bedfordia Automotive Limited) Marshall Motor Holdings plc (share capital of CMG 2007 Limited) Vertu Motors plc (certain trade and assets from Gordons of Bolton Limited) Cambria Automobiles plc (certain trade and assets from Lookers plc) nearly …AND NOTE-WORTHY DEALS IN 2015 Lookers plc (share capital of Addison Motors Limited) two Perrys Group Limited (share capital of G K Group Limited) 2014 thirds A GOOD TIME TO SELL? At a time when the market has: of M&A • large UK groups consolidating the market • overseas buyer interest activity • bank and stock market support for the sector • good valuations based on the traditional net assets plus goodwill premium (dependent on marque); and • willing buyers for high and low performing dealers has been driven by there have certainly been many years in the last decade when it would have been a worse time to sell. stock market Whilst no-one is ignoring the challenges of increasing dealer standards or the potential fallout from the VW scandal, 2015 is listed acquirers already proving to be a bumper year for M&A and there is every reason to believe this will continue into 2016. 08 BDO Motor 150 Report

TAXMAN LOOKS TO TARGET MOTOR RETAIL

It will come as no surprise to many retailers that HMRC now has the automotive sector very much in its sights.

This follows a number of legislative changes over the last 12 months At present, the AIA is to remain at this level for the life of the new that appear to be bad news for the industry. Some commentators parliament but given the need to support the fragile upturn in the believe this is because HMRC continues to hold the view that the economy and encourage large construction projects this may well be sector has an “Arthur Daley” approach to its compliance processes revisited in the future. The ability to claim tax relief on large capital and is now going to get “tough” with the industry. However, we costs should not be overlooked. Retailers should consider engaging believe that for far too long businesses have tried to ‘just get by’ advisers such as BDO who have experienced, in-house capital with their compliance systems and now the time has come to really allowance specialists to review both new and existing build costs to invest in pro-active advice that delivers both short term benefits and maximise the relief. Many businesses forget that Land Remediation longer term business protection. Relief is also a point to consider on such capital spends. A major blow for the sector came in the summer Budget. THE NET WIDENS Historically, motor retail businesses have been purchased on an We can see HMRC’s approach as they look to enforce a new tax asset rather than share basis as retailers looked to take advantage landscape on the UK for larger businesses. Focussed on behavioural of the tax relief opportunities that goodwill amortisation produced. change, its aim is to tackle avoidance and evasion in order to deliver For acquisitions after 7 July 2015 this is no longer the case. The rules £3.1bn additional revenue over the next five years. HMRC want have been tightened and we now have a very confusing picture as to encourage transparency and so have suggested that each large to when and how relief can be claimed. We expect this to result in a business publishes its own tax strategy, as well as adhering to a shift in the makeup of transactions and a move either to more share voluntary code of conduct in the way in which they deal with their based sales (as vendors look to claim the 10% Entrepreneurs Relief) own internal tax systems and filings. The definition of who will be or attempts to review where the consideration in a transaction caught is unclear but it is expected that it will not just be those should sit (such as in property, fixtures and fittings or plant & within the SAO regime (broadly those businesses with a turnover machinery). of over £200m). Given that motor retailers can very quickly find One of the most valuable tax reliefs at the present time is that of themselves within the SAO regime due to the level of turnover the Research & Development tax credits. For SME’s this can result that a small group of dealerships can generate, it will now be more in a 230% uplift in the cost of qualifying R&D costs. Many motor important than ever to ensure that the finance function within a retailers overlook this relief believing they aren’t eligible. However, dealership is fully resourced. it is incredibly wide ranging and covers any costs in making a technological breakthrough. For example, how many retailers have had to redesign their computer system in order to produce the reports or live data that management require? If you have had to incur costs in either programming or software development then this could be qualifying R&D expenditure and should therefore be reviewed. If you are unsure if you might qualify here then please get in touch with your local BDO contact. One piece of good news is that the new government has continued its election pledge to make the UK one of the lowest tax regimes in the world with the current corporation tax rate being a uniformed 20% and the expectation that this will reduce over the coming years to reach a rate of 18%. Finally, the taxation treatment of VAT refunds is still in question. GETTING THE RIGHT RELIEF Whilst during the year there have been a number of tribunal As interest rates remain low and with pressure from manufacturers, cases, none of these have really reached a conclusion. Similarly, retailers will undoubtedly consider whether the time is right the compound interest debate continues to rumble on. Many to renew the corporate image of their facilities either as a commentators believe that HMRC is trying to defer making a refurbishment or the acquisition of a new site. It should be decision in the hope that the industry will just ignore this as remembered that the 100% relief under the Annual Investment an opportunity. However, given the constant pressure from Allowance (AIA) of £500,000 only continues until 31 December manufacturers for volume with thinner and thinner margins, retailers 2015 at which point it reverts back to £200,000. will be looking to this area to bring a little relief in their attempts to trade more profitably, albeit only on a windfall basis.

Source ‘Leading to Dealer’ Versus Spend BDO Motor 150 Report 09

LOOKING AFTER YOUR STAFF

Recognition and reward for employees needs to be in the forefront of every dealers mind. The provision of benefits or other incentives will encourage high calibre workers to the business, while improving loyalty and morale for existing employees.

Here are some benefits and incentives options to consider: Implemented correctly, this provides a low cost means of owning a vehicle that might otherwise be out of financial reach. Normally, the PENSION CONTRIBUTIONS – SMART PENSIONS vehicle is legally transferred to the employee by way of a loan, thus eliminating any taxable benefit. Typically, the vehicle is retained for SMART pensions are a way to reduce employment costs, while 6-12 months before being re-purchased by the dealership. simultaneously maintaining, and possibly even enhancing, employees’ pension benefits. Savings are dependent on a number of factors, Tax compliance is a key factor to any ECOS and any dealership in particular the number of participating employees, the average entering into such a scheme should ensure that HMRC clearance is earnings level and the amount of employee pension contributions. gained to approve the arrangement. If any scheme is found to be ineffective by HMRC at a later date, the business could face significant With SMART pensions, by using a salary exchange (also known as liabilities for tax and NICs as well as interest and penalties. salary sacrifice) arrangement, employees’ contributions are replaced by enhanced employer contributions. The arrangement gives rise to SALARY EXCHANGE BENEFITS savings from the reduction in both employer and employee NICs. Using a Salary Exchange arrangement, an employee agrees to give up Consideration might also be given to implementing a Bonus Waiver a proportion of their annual salary in return for a non-cash benefit. Scheme. Similar to salary exchange, an employee might waive a cash bonus in lieu of a matching contribution into the pension scheme; This results in a saving of income tax and/or National Insurance effectively an Additional Voluntary Contribution. Contributions (NICs) for both employee and employer, since the actual salary being paid is lower. Salary exchange agreements are CAR AVERAGING generally made for a minimum of 12 months, although exceptions can be made in certain circumstances. Many dealerships take advantage of HMRC’s car averaging arrangements. This is of particular interest where employees have Typical benefits offered are pensions (see above), childcare vouchers*, numerous vehicle changes in any tax year. bicycles, life insurance, medical insurance, mobile phones and buying additional holiday. A myriad of other benefits are available to The vehicles available for use are identified in the January prior to the employers. new tax year. Vehicles are grouped by list price into bands set by HMRC. The benefit in kind for each group is calculated from the average list *Employers should be aware that the existing childcare voucher scheme was due to close to new joiners in September 2015. The government recently announced that price and CO2 from vehicles in a group. Employees are then allocated this scheme will now remain open to new joiners for a further two years. to a group determined by the vehicles to which they have access. Through careful planning of the vehicles made available, car averaging can sometimes produce a lower benefit than reporting actual vehicles WHAT’S NEW FOR EMPLOYERS… used by an employee. Introducing low emission or electric models into the arrangement can significantly reduce the averaged list price/CO2. There have been a number of announcements in recent months, which will have an impact on all employers. The Government is Some dealerships fail to properly record and retain records to support continually looking at ways to ‘simplify’ the tax system and two these arrangements. If scrutinised by HMRC, such businesses are likely of the main points are: to face challenge and may encounter exposure to tax and NICs. Fully documenting and reviewing arrangements is key to ensuring ongoing NATIONAL LIVING WAGE APPRENTICES compliance. A premium on top of the A zero NIC rate of employers In the summer 2015 budget the government announced that it would National Minimum Wage Class 1 NIC currently applies be investing an additional £300 million to tackle non-compliance. (NMW) is to be introduced to apprentices under 21. From Employers should therefore ensure that they have robust systems in from April 2016 for all workers April 2016, this exemption place to ensure they are meeting their obligations as an employer. over the age of 25. The initial is extended to apprentices starting rate will be £7.20 per under the age of 25. EMPLOYEE CAR OWNERSHIP SCHEMES (ECOS) hour rising to £9 per hour Increasingly, manufacturers are offering dealerships the opportunity to during the lifetime of this partake in ECOS. Schemes are usually targeted at specific grades and parliament. offer a specific range of vehicles at significant discounts.

Source ‘Leading to Dealer’ Versus Spend 10 BDO Motor 150 Report

MOTOR UK LIMITED REVIEW OF TOP 150 ACCOUNTS

CONSOLIDATED PROFIT AND LOSS ACCOUNT

Note 2014 2013 2012 2011 2010 2009 £'m £'m £'m £'m £'m £'m Turnover 55,238 47,725 42,568 40,672 39,869 34,581 Cost of sales (49,070) (42,229) (37,629) (35,945) (35,084) (30,027) Gross profit 6,168 5,496 4,939 4,727 4,785 4,554 Gross profit % 11.17% 11.52% 11.60% 11.62% 12.00% 13.17% Operating expenses (5,362) (4,848) (4,464) (4,295) (4,267) (4,129) Other operating income 192 154 133 117 127 113 Operating profit 1 998 802 608 549 645 538 Exceptional items 5 12 (8) 16 5 11 Interest paid 4 (187) (182) (193) (213) (202) (222) Interest received 9 16 50 47 35 34 Profit / (loss) before tax 825 648 457 399 483 360 Taxation 5 (188) (146) (123) (81) (135) (107) Profit / (loss) after tax 637 502 334 318 348 253 Minority interest (5) (2) (3) (1) – (1) Net profit / (loss) 632 500 331 317 348 252

CONSOLIDATED BALANCE SHEET

Note 2014 2013 2012 2011 2010 2009 £'m £'m £'m £'m £'m £'m Fixed assets Intangible 7 839 802 754 706 702 701 Tangible 8 4,840 4,313 3,909 3,755 3,676 3,460 Investments 268 253 238 213 201 182 5,947 5,368 4,901 4,674 4,579 4,343

Current assets Stock 8,420 7,191 6,352 5,864 5,360 4,754 Debtors 9 2,839 2,708 2,595 2,156 2,154 2,258 Deferred tax asset 17 18 23 24 26 38 Cash 524 486 364 831 1,042 719 Other 136 117 113 110 49 46 11,936 10,520 9,447 8,985 8,631 7,816

Debtors due after more than one year 33 42 23 39 19 18 Total assets 17,916 15,930 14,371 13,698 13,229 12,176 BDO Motor 150 Report 11

CONSOLIDATED BALANCE SHEET cont.

Note 2014 2013 2012 2011 2010 2009 £'m £'m £'m £'m £'m £'m Current liabilities Loans and bank overdrafts 10 2,988 2,438 2,534 2,369 2,213 2,290 Trade and other payables 11 8,116 7,101 6,000 5,774 5,634 4,905 Current tax liabilities 158 140 104 99 135 129 11,262 9,679 8,638 8,242 7,981 7,324

Non-current liabilities Loans and bank overdrafts 12 1,024 1,238 1,163 1,150 1,268 1,209 Trade and other payables 13 604 518 488 397 374 339 Pension liabilities 199 176 181 140 178 246 Provisions 69 55 62 67 73 93 Deferred tax 74 71 78 75 75 71 1,970 2,058 1,972 1,829 1,969 1,957 Total net assets 4,684 4,193 3,761 3,627 3,279 2,895

Capital and reserves Share capital 751 772 759 727 663 611 Share premium 367 351 293 287 286 303 Profit and loss account 3,220 2,761 2,380 2,298 2,076 1,719 Revaluation reserve 164 152 153 155 140 159 Other reserves 158 140 127 113 101 92 4,660 4,176 3,712 3,580 3,266 2,883

Minority interest 24 17 49 47 13 12 Total equity 4,684 4,193 3,761 3,627 3,279 2,895

NOTES TO THE ACCOUNTS

2014 2013 2012 2011 2010 2009 £'m £'m £'m £'m £'m £'m 1. Operating profit Depreciation of tangible fixed assets 450 407 368 363 353 328 Amortisation of intangible fixed assets 42 32 34 31 21 31 Audit fees 7 8 8 8 8 8 Non audit fees 2 3 3 4 4 6 Operating leases - land & buildings 195 197 221 262 236 208 Operating leases - other 17 9 11 13 13 15

2. Staff costs Wages and salaries 3,166 2,887 2,667 2,629 2,524 2,452 Social security costs 320 294 269 266 252 246 Share based payments 5 4 2 11 2 1 Pension costs 66 66 60 47 64 57 3,557 3,251 2,998 2,953 2,842 2,756 Total number of employees 113,458 106,861 102,582 100,302 98,082 98,368 Average pay per employee (£000) 31 30 29 29 29 28 12 BDO Motor 150 Report

MOTOR UK LIMITED REVIEW OF TOP 150 ACCOUNTS

NOTES TO THE ACCOUNTS cont.

2014 2013 2012 2011 2010 2009 £'m £'m £'m £'m £'m £'m 3. Directors emoluments Salaries and fees 99 94 82 86 95 105 Bonuses 3 2 2 1 2 3 Compensation for loss of office 1 – – – 1 1 Pension contributions 5 4 4 5 5 5 108 100 89 92 103 114

Average emoluments per highest paid director (£000) 285 246 227 237 311 383

4. Interest payable Bank loans and overdrafts 36 48 57 65 79 86 Other interest payable 115 133 137 152 121 130 Other finance expense 36 1 – (4) 2 6 187 182 193 213 202 222

5. Taxation Corporation tax and income tax on overseas operations 176 148 105 95 134 107 Prior year 1 1 1 (11) (16) (2) 177 149 106 84 118 105

Deferred tax current year 12 (2) 19 (4) 13 1 Prior year (1) (1) (2) 1 4 1 188 146 123 81 135 107

6. Dividends Dividends paid in the period 290 165 82 80 143 35

2014 2013 2012 2011 2010 2009 £'m £'m £'m £'m £'m £'m 7. Intangible fixed assets Cost b/fwd 1,148 1,101 1,078 979 964 966 Additions 74 53 55 49 25 15 Acquisitions 9 16 31 3 – – Disposals (2) (7) (4) (3) (4) (6) Other – (1) – (11) 6 11 Cost c/fwd 1,229 1,162 1,160 1,017 991 986

Amortisation b/fwd 347 327 372 280 259 256 Charge 42 32 34 31 21 31 Transfer – – – – – – Impairments 1 4 1 1 9 2 Disposals – (3) (1) (1) – (4) Amortisation c/fwd 390 360 406 311 289 285

Net book value at year-end 839 802 754 706 702 701 BDO Motor 150 Report 13

Freehold property Leasehold property Motor vehicles Plant and fixtures Total £’m £’m £’m £’m £’m 8. Tangible fixed assets Cost b/fwd 2,747 841 1,189 1,411 6,188 Additions 212 85 808 255 1,360 Disposals (47) (39) (718) (112) (916) Acquisitions 60 21 (1) 10 90 Revaluations 14 (1) – – 13 Other 44 (8) (51) (48) (63) Cost c/fwd 3,030 899 1,227 1,516 6,672

Depreciation b/fwd 263 178 364 901 1,706

Charge 38 34 224 154 450 Disposals (6) (17) (202) (86) (311) Other (2) – (1) (10) (13) Depreciation c/fwd 293 195 385 959 1,832

Net book value at year-end 2,737 704 842 557 4,840

2014 2013 2012 2011 2010 2009 £'m £'m £'m £'m £'m £'m 9. Debtors - current Trade debtors 1,210 1,070 912 912 983 883 Group and related party loans 859 799 1,050 682 638 875 Corporation tax 4 6 10 7 10 3 Other debtors 423 481 308 275 262 265 Prepayments 343 352 315 280 262 232 2,839 2,708 2,595 2,156 2,154 2,258

2014 2013 2012 2011 2010 2009 £'m £'m £'m £'m £'m £'m 10. Loans and overdrafts - current Bank loans and overdrafts 512 383 503 485 437 579 Stocking loans 1,200 1,286 1,065 1,274 736 659 Group loans 1,245 744 934 579 1,000 1,022 Other loans 31 25 32 31 40 30 2,988 2,438 2,534 2,369 2,213 2,290 14 BDO Motor 150 Report

MOTOR UK LIMITED REVIEW OF TOP 150 ACCOUNTS

NOTES TO THE ACCOUNTS cont.

2014 2013 2012 2011 2010 2009 £'m £'m £'m £'m £'m £'m 11. Trade and other payables - current Trade creditors 4,530 4,053 3,304 3,236 3,153 2,778 Obligations under vehicle repurchase 358 329 306 185 163 152 Other taxation and social security 193 160 154 157 182 159 Finance leases 583 397 336 328 297 284 Consignment creditor 893 732 754 716 690 524 Other creditors 580 483 408 367 356 295 Accruals 979 947 739 785 793 713 8,116 7,101 6,000 5,774 5,634 4,905

2014 2013 2012 2011 2010 2009 £'m £'m £'m £'m £'m £'m 12. Loans and bank overdrafts - non current Bank loans 640 633 628 574 666 626 Group loans 54 357 397 355 341 347 Other loans 330 248 138 221 261 237 1,024 1,238 1,163 1,150 1,268 1,209

2014 2013 2012 2011 2010 2009 £'m £'m £'m £'m £'m £'m 13. Trade and other payables - non current Accruals 67 19 9 25 24 23 Finance leases 274 414 383 347 338 306 Other creditors 263 85 96 25 12 10 604 518 488 397 374 339

2014 2013 2012 2011 2010 2009 £'m £'m £'m £'m £'m £'m 14. Net debt and gearing Net debt comprises: • Loans and bank overdrafts due within one year (512) (383) (503) (485) (437) (579) • Loans and bank overdrafts due after more than one year (640) (633) (628) (574) (666) (626) • Stocking loans (1,200) (1,286) (1,065) (1,274) (736) (659) • Finance leases (857) (811) (719) (675) (635) (590) • Other loans (330) (248) (138) (221) (261) (237) (3,539) (3,361) (3,053) (3,229) (2,735) (2,691) Cash and cash equivalents 524 486 364 831 1,042 719 Net debt (3,015) (2,875) (2,689) (2,398) (1,693) (1,972) Total equity 4,684 4,193 3,761 3,627 3,279 2,895 Debt/equity 64% 69% 71% 66% 52% 68% BDO Motor 150 Report 15

MOTOR 150 COMPANY NAMES

• Addison Motors Limited • Fish Brothers (Holdings) • Marriott Motor Group • Sinclair Motor Holdings • Allen Ford (UK) Limited Limited Limited Limited • Ancaster Group Limited • Foray Holdings Limited • Marsh Wall Limited • Snows Business Holdings • Aprite (GB) Limited • Ford Retail Limited • Marshall Motor Holdings Limited • Arnold Clark Automobiles • Furrows Holdings Limited Limited • South Hereford Garages Limited • G K Group Limited • Marubeni Auto Investment Limited • Barretts of Canterbury • Gates Group Limited (UK) Limited • Specialist Cars Holdings Limited • George Thurlow and Sons • McLean & Appleton Limited • Baylis (Gloucester) Limited (Holdings) Limited (Holdings) Limited • Spire Automotive Limited • Beadles Group Limited • Glyn Hopkin Limited • Mercedes-Benz Retail Group • Stephen James Group Trading • Bestodeck Limited • Go Motor Retailing Limited UK Limited LLP • Blade Motor Group Limited • Gordon Lamb Holdings • Meridian Motor Group • Steven Eagell Limited • Bolton Car Centre Limited Limited Limited • Sutton Park Motor Company • Bugle Inn Motor Company • Gordons (Bolton) Limited • Mill Garages North East Limited (Holdings) Limited • Greenhous Group Limited Limited • Swansway Group Limited • Burrows Motor Company • Greenoaks (Maidenhead) • MJT Securities Limited • Sytner Group Limited Limited Limited • Mon Motors Limited • T C Harrison Group Limited • C.E.M. Day Limited • Group 1 Automotive UK • Motorline Holdings Limited • T. G. Holdcroft (Holdings) • Caffyns plc Limited • Now Motor Retailing Limited Limited • Cambria Automobiles plc • Guildford Portfolios Limited • Ocean Automotive Limited • Tanner Automotive Limited • Cathedral Motor Company • H. R. Owen plc • Parks of Hamilton (Holdings) • The Harratts Group Limited Limited • Halliwell Jones Holdings Limited • The Phoenix Car Company • Central Garage (Uppingham) Limited • Parkway Derby Limited Limited Limited • Hanif Automotive Limited • Pendragon plc • Thompson Motor Company • Chapel House Holdings • Hartwell plc • Pentagon Motor Holdings (Preston) Limited Limited • Harwoods Limited Limited • Toyota Tsusho Automobile • Citroen UK Limited • Hawco & Sons Limited • Peoples Limited London Holdings Limited • Citygate Automotive Limited • Helston Garages Group • Perrys Group Limited • Underwoods Garage (Tiptree) • Clare James Automotive Limited • Peter Cooper Motor Group Limited Limited • Hendy Investments Limited Limited • Vertu Motors plc • Collier Motor Group Limited • Heritage Automotive Limited • Peter Vardy Holdings Limited • Vindis Group Limited • Cotswold Motor Group • Howard Garages (Weston) • Peugeot Citroen Retail UK • Vitiris Limited Limited Limited Limited • Vospers of Plymouth Limited • Currie Motors Limited • Hughes of Beaconsfield • Porsche Retail Group Limited • W Brindley Garages Limited • CWC (UK Holdings) Limited (Holdings) Limited • R. Robinson & Co. (Motor • W R Davies (Motors) Limited • D J Cox Limited • Inchcape Retail Limited Services) Limited • W. J. King (Garages) Limited • D. M. Keith Limited • Jardine Motors Group UK • Renault Retail Group UK • Walter E Sturgess & Sons • De Van Automotive Limited Limited Limited Limited • Decidebloom Limited • JCB Medway Limited • Renrod Holdings Limited • Warwick Holdings Limited • Desira Group plc • JCT600 Limited • Ridgeway Garages (Newbury) • Wessex Garages Holdings • Dick Lovett Companies • John Clark (Holdings) Limited Limited Limited Limited • John Grose Group Limited • Rybrook Holdings Limited • Westover Holdings Limited • Donnelly Bros. Garages • John Martin Holdings Limited • S G Petch Limited • WH Bowker Limited (Dungannon) Limited • Johnsons Cars Limited • S Jennings Group Limited • Williams Motor Co. • Drift Bridge Garage Limited • Knights North West Limited • S. G. Smith Automotive (Holdings) Limited • Drive Motor Retail Limited • L & L Inc Limited Limited • Wilson & Co. (Motor Sales) • Eastern Holdings Limited • Lifestyle Europe Holdings • Saftdwin Limited Limited • Eden (GM) Limited Limited • Sandicliffe Motor Holdings • Worcester Carsales • Endeavour Automotive • Listers Group Limited Limited (Holdings) Limited Limited • Lloyd Motors Limited • Sandown Motors Limited • Yeomans Limited • Essex Auto Group Limited • Lookers plc • Sherwoods (Darlington) • F G Barnes and Sons Limited • Macrae & Dick Limited Limited 16 BDO Motor 150 Report

COMPILATION OF THE REPORT

SOURCES OF INFORMATION DISCONTINUED OPERATIONS / NON OPERATING ITEMS The 150 companies included in this report were selected from the No distinction has been made between continuing and discontinued “Top 200 Franchised Dealer Survey” published in Motor Trader operations due to the variety of judgements and presentational magazine and copies of most recent financial statements were approaches taken by relevant companies. Where it has been possible obtained from Companies House filings. The published accounts (see to identify such items, all ‘exceptional’ or similar items reflected below for year ends), obtained from Companies House filings, were outside operating profit have been aggregated, although we have used to provide the financial information included in this report. produced a brief analysis of the main items in the notes to the accounts. YEAR ENDS DISCLAIMER The year ends included in the ‘current period’ financial information in this report range from 31 March 2014 to 31 March 2015 being The financial information in this report has been compiled the most recent accounts filed at Companies House at the time of exclusively from publicly available information under the key the compilation of this report. For companies with December year assumptions and limitations outlined above. It has been designed ends (123 in the population) the ‘current period’ will be the year solely for illustrative purposes to highlight trends in the financial ended 31 December 2014. For January to March year ends (11) the performance of a representative sample of companies in the current period is that ending in 2015. For April to November year- sector. BDO has made a number of judgments in aggregating the end companies (16), due to the restrictions of the filing deadlines at information into a consistent format. BDO does not, and cannot, Companies House and the timescale of compilation of this report warrant the completeness or accuracy of such adjustments. the current periods are predominantly those ending in 2014. Furthermore in adjusting the presentation adopted in published accounts to meet the specific requirements of this report, BDO AGGREGATION is not making any judgement nor giving any opinion on the presentation adopted in those published accounts. BDO has not The published accounts of the 150 companies identified by the carried out any verification work on the financial information in above processes have been combined by a simple aggregation to this report and gives no opinion on the financial information. The produce the financial information in this report. No consolidation financial information was not compiled with the intention that it adjustments have been made and in particular no adjustments should be used for any purpose save for that described above. We do have been made to reflect the non-coterminous year-ends of the not accept responsibility for the financial information to any person companies. or for any purpose other than that for which it was prepared. IFRS AND UK GAAP Of the 150 companies, six 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. BDO Motor 150 Report 17

THE BDO MOTOR RETAIL TEAM

This report has been produced by members of the BDO motor retail team:

SECTOR SPECIALISTS IN MOTOR RETAIL MALCOLM THIXTON PARTNER AND HEAD OF MOTOR RETAIL We understand the complex mechanics of automotive retailing. Our clients include franchised dealerships and used [email protected] car operations and range from single to multi franchised groups. +44 (0)23 8088 1895 This means we can pinpoint where you can enhance efﬁciency and protect proﬁt. As sector specialists and with our broader role in the industry we have run seminars and workshops with the Retail Motor Industry Federation and The Institute of Motor STEVE LE BAS Industry. We attend motor conferences in the UK and the NADA PARTNER, MOTOR RETAIL conference in the USA and from this we can keep you informed of changes, challenges and opportunities as they arise through [email protected] having a close working relationship with you. +44 (0)23 8088 1906 This combination of breadth and depth and commitment to exceptional client service has made us one of the top advisors to motor dealerships in the UK. CHRIS BOND PARTNER, TAX

[email protected] +44 (0)115 962 9276

ROGER BUCKLEY PARTNER, CORPORATE FINANCE

[email protected] +44 (0)121 352 6213

JAMES EVANS MANAGER, BUSINESS ASSURANCE

[email protected] +44 (0)23 8088 1710 FOR MORE INFORMATION: 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 STEVE LE BAS partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from [email protected] any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. +44 (0)23 8088 1906 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 Conduct Authority to conduct investment business.

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