bdo motor 150 2012 report

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

WELCOME TOTHE MOTOR 150 REPORTprepared by BDO LLP

Motor retail is the shop floor of the UK automotive industry. It hasbecome an established and interdependent network of businesses thatcontributes £10bn added value to the national economy and employsmore than 700,000 in associated motor retail businesses of supply andservicing.*

In this light, the Motor 150 report – revealing the aggregatedperformance of a study group comprising the top 150 companies in theUK motor retail sector – is an important business barometer.

Our aim in producing this report is to provide a considered insight intorecent economic events and sector activity, the current and futuredynamics of motor retailing, and to offer our professional views andadvice for the future.

As such, this report, which covers performance in the latest auditedaccounts and looks forward into the current and future accountingperiods, does not specify or comment upon the individual performanceof companies, except where it is relevant to explain a variance from themarket 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

BDO Motor 150 Report

*Source: SMMT

KEY PERFORMANCEINDICATORS

2011 2010 2009 2008

Turnover £40.7bn £39.9bn £34.6bn £36.1bn

Change in turnover 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%)

It is important that dealerships focus less on“getting back to normal” and more on adapting tothe current economy

MALCOLM THIXTON, HEAD OF MOTOR RETAIL, BDO

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

In last year’s report we askedwho was up for the long run and,drawing on the nations focus onthe forthcoming Olympics, askedwho was fit enough to completethe marathon.I was struck by Mervyn King’s words in June 2012 about how longthe current economic climate might last, saying he didn’t think theUK was even “halfway through” the economic crisis and suggestedthat we may not see recovery for five years. By November the UKeconomy had emerged from a double-dip recession with theeconomy growing by 1%, but King warned that this was driven byone-off factors and predicted the UK could drop into a triple-diprecession if the economy was to contract again.

Trading conditions certainly remain difficult in the motor retailmarket against a background of general uncertainty in the UKeconomy. The UK new car market reduced by 4% to 1.9m in 2011and total registrations were at their lowest since 1994. However,recent figures released for 2012 show that the market is back ontrack and the UK is set to be the second largest new car marketin Europe.

The long-term issue for dealerships is that whilst costs have been cut,balance sheets strengthened and profits stabilised, it is questionablehow much further this process can usefully go. The next round of costcutting is going to be harder, will most likely impact profits and couldprove difficult to implement at a time when manufacturers are againincreasing their demands on standards and facilities required tooperate their franchises.

In addition, there is evidence of a gap opening up between thosebusinesses who can adapt to the new market conditions and thosethat risk being stuck in a chase to the bottom as they fight overstatic demand and falling margins. The bigger companies in theMotor 150 (the ‘Group’) are making more profit – this report showsthe top ten contributed 52% of operating profit compared to 43% inthe prior year.

Given this outlook it is important that dealerships focus less on“getting back to normal” and more on adapting to the currenteconomy – they need to accept that any material bounce back isunlikely 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-termUK strategies

n Building their own brand alongside that of the manufacturers

n Developing their e-commerce approach to be highly effective inattracting, converting and retaining customers

n Attracting, rewarding and retaining the best people.

OPERATIONAL AND FINANCIAL REVIEW

PROFIT AND LOSS

Overall, turnover for the Motor 150 was up by2%, increasing by £802m to £40.7bn, butreductions in gross margins resulted in a fall inoperating profit of £94m to £549m. Over twothirds of the Group (107 companies) producedlower profits than last year, with 25 making aloss compared to only 11 last year.

Profits were under pressure as manufacturerincentives were curtailed, used cars did not seethe price increases we saw in the previous yearand aftersales were impacted by a number offactors, including fewer miles driven on ourroads and longer servicing intervals.

Looking through the detail of the accountsa number of companies have attributedimprovements they have made to specificfactors. Pendragon, for example, refer to theirinternet presence as an importantdifferentiator – their profits improved despiteredundancies. Arnold Clark talk aboutimproving finance sales and JCT600, increasedinvestment in staff training and IT systems.

Interestingly, our comparison of turnover gainswithin the Motor 150 (see Figure 1) alsoreveals that the larger groups had similarincreases (average of 2.3% for the top 45), butthe 30 companies with the lowest turnoverexperienced a fall of approximately 2%.

The highest profit made was £52m, by ArnoldClark, which was an increase of £1m in theprevious year. The biggest loss was £13m, madeby the Peugeot-owned Robins and Day, wholost a similar amount in the year before.

Aftersales continued to see challenging tradingconditions. Although the total number of carson UK roads increased in 2011, there has beena 20% reduction in vehicle parc over last fiveyears, reducing the number of cars available forservicing. In addition, the average car is now7.44 years old, two months older than a yearago, suggesting either that motorists arekeeping their cars longer or that new cars aremore efficient and need less servicing. There arealso fewer miles being driven andmanufacturers are introducing longer servicingintervals or “free servicing” provided atwarranty labour rates. There is also increasingpressure from independents, including Halfordsand customers are delaying servicing beyondmanufacturer recommendations.

However, we see a number of groups who arestill able to grow this area of their business andare making the most of opportunities including;introducing service plans for vehicles over threeyears old, which acts as a retention tool,improving customer databases and contactpoints via call centres, text messaging,Facebook and Twitter. Many are setting andachieving targets for conversion of red andamber alerts from Vehicle Health Checks.Regular training of service advisors is alsoessential to maximise profitability.

Staff costs rose by 3.7% to £2,953m, largely asa result of a 2% increase in the average numberof employees to 100,302. Total directors’remuneration fell for the second year, by 11%to £92m, and the average emolument of thehighest paid fell by 9% to £286k, although thenumber of directors increased by 38 to 667.

Dividends reduced from £143m to £80m,although the number of companies that paiddividends went up slightly from 58 to 61(despite the fact that 107 companies out of the150 produced worse results!).

BDO Motor 150 Report 3

2011 turnover 2010 turnover 2009 turnover Increase/ % change£ £ £ decrease in year

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%

FIGURE 1: TURNOVER BY POSITION (GROUPED)

BALANCE SHEET

Overall, the balance sheet of the Groupimproved, in particular gearing, as companiesretained profits and paid down borrowingrather than incurring large amounts of capitalexpenditure or investment by way ofacquisition.

That said, intangible assets rose slightly by anet £4m to £706m, as 27 companies added atotal of £49m to their goodwill and intangibles,including Jardine Motor Group who spent£21.5m on the acquisition of the WaysideGroup and Addison Motors who spent £8m onacquiring Colebrook & Burgess.

The total costs of £139m were incurred by justover half of the companies in the Group, onadding or improving their freehold properties.This trend looks to continue as there appears tobe increasing pressure from manufacturers ondealers to improve their facilities at a timewhen margins are declining.

Stock and corresponding loans increased by£500m, although this was spread across thegroup with no obvious reason why this hashappened, but this could be the result ofpressure from manufacturers.

Gearing (excluding stocking finance) wasmarginally up at 31%, but still significantlydown from the 45% we saw in 2009 ascompanies very sensibly retain profits and paydown borrowing.

NORTH-SOUTH DIVIDE?

We are often asked for regional data andindeed whether there is a ’north-south’ dividein the financial performance for the dealerswithin the Group. Unfortunately, it is verydifficult to analyse the statutory accounts on aregional basis, so we are limited to looking atnew car registrations statistics published by theSMMT. The table below shows that both thenorth and south saw reductions in registrations,with the north 8.7% down compared to 4.6%in the south. Interestingly, registrations in theMidlands were up.

VOLUME V PRESTIGE

The prestige brands are certainly in demand –volumes are increasing and as a result profitsare too. Looking further at the detail of new carregistrations shows that whilst overall they fellby just under 90,000 (4%), prestige brandsbucked the trend with sales increasing by justover 35,000 (5%) to 652,117. This reflectstrends we see in the general retail market andthe popularity of “entry level” models – volumebrands are under pressure as the prestigemanufacturers stretch downwards, for examplethe BMW 1 series and the new MercedesA Class, and new entrants such as Kia andHyundai challenge on value for money witheven their basic models including more andmore features.

LOOKING FORWARD

The results to 31 December 2012 appearto be looking better, in particular the listedcompanies’ results. Anecdotally, dealers havebeen talking about better trading conditionsover the past 12 months. This is supported byhigher car registrations – up 5.3% for 2012.*

4 BDO Motor 150 Report

2011 2010 Increase/ % changedecrease in year

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)

NEW CAR REGISTRATIONS

Source: SMMT

*Source: SMMT Prestige brands are bucking the trend, increasing 5%

THE FRANCHISE MODEL – IS IT BROKEN?

As profits come under pressure, manufacturers continue to look athow they go to market, with a number either operating or takingstrategic interests in retailing. As the internet plays an increasing rolein the way consumers source and buy new and used cars, here toomanufacturers are taking a greater interest in how dealers representtheir franchises.

The imminent changes in block exemption, which we discuss later,are also widely anticipated to move the balance of power largelyback to the manufacturers. As a result of these developments it isbecoming much more critical that retail groups work very closelywith their manufacturers to understand their strategies and ensurethat their business is “right-sized” and financed to secure their longterm future.

Renault and Peugeot have both recently begun to consolidate thenumber of dealerships they have in their networks. In addition, BMWand Mercedes are both stretching their model ranges which willrequire appropriate market approaches to consumers. The recentannouncement that US car brand Chevrolet will be the shirt sponsorfor Manchester United from the 2014-5 season is an interestingdevelopment by General Motors in the UK. Chevrolet is also thefootball club's car sponsor and recently signed a similar car deal withPremier League rivals Liverpool.

Manufacturer demands are changing, indeed generally increasing,including showroom requirements in terms of size, location anddesign. Location and tenure of property are particularly important inthe balance of power equation.


2011 Market share 2010 Market share Increase/registrations (%) registrations (%) (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)

Economy 143,040 7.37 148,941 7.33 (3.96)

Other 2,087 0.11 2,303 0.11 (9.38)

1,942,035 100 2,030,751 100 (4.37)

VOLUME V PRESTIGE

CONTINUED SURVIVALOF THE FITTEST

In last year’s report we predictedthere would be tears of bothjoy and sadness. Looking backover the past 12 months thishas certainly been the case.There have been a number ofadministrations in the periodwhilst at the same time we haveseen a number of successfulacquisitions.A number of potentially large new entrants into the market such asTesco have not been as successful as they would have liked and thedealer 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 theindustry. Some manufacturers have fared better than others, but theyall have continuing aspirations to grow and take market share fromtheir competitors.

Profits have remained but dealers have had to work harder to achievethese and to maintain their margins. They have also had to investtime and effort in improving the customer experience beyond that ofa transactional event.

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

We have identified below the following factors as key to dealersuccess:

n Good relationships with the manufacturers

n Manufacturers developing and bringing out new cars at regularintervals

n Improving the overall customer experience

n Good controls and processes.

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

MARKET ACTIVITY, STRATEGIC MOVES ANDINDUSTRY INSIGHTS

Companies have continuedto review their cost baseand we believe that thesemeasures are, in a lot ofcases, taking the cost basesback to 2008 levels.


ON THE ACQUISITION TRAIL

Although the economic outlook has remainedchallenging for the dealer network, those withstrong balances sheets have taken theopportunity to invest further to strengthentheir position in the market, with the majorityof deals being completed by the top 20dealerships.

The year saw deals worth in excess of £89mrepresenting 21 individual transactions in theperiod. This is half the number of dealscompleted in the previous period, but some ofthe transactions were significant, indicatingthere is still cash available for the largestgroups to invest when the opportunity is right.This is supported by cheap bank rates that arecurrently still available.

The largest acquisition was Jardine MotorGroup’s share acquisition of the Wayside Groupfor a consideration of £30m, with underlyinggoodwill totalling £21.5m. This is the largestacquisition seen for four years andcomplements the current market offering withthe acquisition of a top 30 dealer group withturnover in the region of £300m.

Also, at the start of 2012, Sytner Groupcompleted a share acquisition of Irish Top 25dealer Isaac Agnew Group. Both dealsdemonstrate the willingness of the largestgroups to expand if the right strategic purchasepresents itself.

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

WHAT’S IT WORTH?

Levels of up to four times operating profit havebeen paid. The best example of this is theprestige marques which have continued tohold up sales in the challenging market place,as they continue to diversify their rangesuccessfully. This is evident by Audi,Volkswagen and BMW all breaking into the topfive manufacturers and holding over 5% shareof the new car market.

Other brands attracting attention are thosewhich prospered from scrappage a number ofyears ago and have continued to be popularwith consumers, namely Kia and Hyundai.

Many transactions have been predominantlytrade and asset deals, reflecting the cautiousapproach adopted by most dealer groups andin some cases have included the acquisition offreehold property, which is still considered agood long-term investment.

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 year saw deals worthin excess of £89mrepresenting 21 individualtransactions in the period.

WHAT FOR THEFUTURE?

We forecast 2013 to be a yearof continued opportunity forthose dealers who continueto take on the challenge andkeep their eyes open to newopportunities which presentthemselves to their business.For growth to be sustained,dealers need to continue toadapt and remain open tochange.Registrations look set to increase further and we believe there is stillsome pent up demand in the market. However, it still requires theindustry 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 affectthe industry going forward:

BLOCK EXEMPTION

As reported in the prior year, the changes to Block ExemptionRegulation (BER) are moving closer – they will come into effect on1 June 2013.

The rules in the current BER that specifically benefit the motorretailer will disappear – they are not part of the new legislation whichwill come into force on in June.

We have identified four clauses which we believe could potentiallyhave the most impact on the sector:

1. The non-compete clause Current legislation encourages multi-franchising, allowing consumersto view rival brands in the same showroom, whereas under the newlegislation manufacturers will, in theory at least, be allowed torestrict multi-franchising or even insist on standalone sites. However,this is thought to be unlikely to be enforced by manufacturers, as thebusiness model of the dealership would be affected.

THE CHANGING NATURE OF THE MOTOR SECTOR

2. The termination clause Rules regarding the length of terminationperiod and requiring manufacturers to providereasons for termination will cease with the newlegislation. However, most manufacturers arenegotiating new contract terms withcorrespondence from the dealers, which is likelyto result in more regulated and agreeableperiods.

ACEA’s short code of conduct suggests bestpractice is a notice period for both parties of noless than six months for a fixed contract andtwo years on a rolling contract. Not allmanufacturers have subscribed to the code, butour view is that complying with standards isbeneficial to manufacturers in the long-term.We are of the opinion that underperformingdealerships will come under more pressure toreach targets and comply with standards, andmay be in a weaker position if themanufacturer believes they have no future inthe network.

3. The veto clause Under the current legislation, if you represent abrand in one area you are free to acquireanother dealer representing the same brandanywhere in Europe. However, this can berefused under the new ruling.

Whilst this may on the face of it appear adramatic change, the reality is that hostiledeals in this sector are non–existent, and theact of buying and selling has historically beendone with the approval of the relevantmanufacturers. Nevertheless, some acquisitionscould be seen as more desirable in the view ofthe manufacturers than others, possiblyinfluencing acquisition prices as franchises arenot sold to the highest bidder.

4. The location clause The new location clause removes the ability toopen an unauthorised dealership in anylocation. Again this is unlikely to have muchimpact, as there have been few cases wheredealers took advantage of this under thecurrent legislation.

In addition, manufacturers will no longer beable to make the warranty conditional onhaving the oil changed, or other car servicescarried out, in authorised garages only.However, they may request that repairscovered by the warranty, and paid for by themanufacturer, are carried out within itsauthorised network. The European Commissionsaid this was an important issue as it estimatedrepair bills account for an around 40 per cent ofthe total cost of owning a car.

As a result of this new law change, certainmanufacturers have been issued a new dealeragreement which they have used as a way toreduce or rationalise the dealer network. At thesame time some operators have used it as anopportunity to dispose of their businesswhilst they were still able to decide who theywanted to sell to. However, in practice themanufacturers have still had a large say in whoit should be disposed to.

Our thoughts on the changes are that althoughsome power is being passed back to themanufacturer under the new legislation, it canbe argued that although legally they did notpreviously have this power it was oftenexercised anyway.


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

Certain manufacturershave been issued a newdealer agreement whichthey have used as a way toreduce or rationalise thedealer network.

THE APPLICATION OF BER

FAQs Whilst consumers won’t notice muchchange, dealers and franchiseesundoubtedly will. On 27 August 2012, theEuropean Commission published guidance,in the form of a set of frequently askedquestions (FAQs), on the application of EUcompetition rules in the motor vehiclesector. The FAQs deal in depth with thefollowing six topics:

1. Warranties – Manufacturers can onlyrequire customers to use authorisedrepairers or own branded parts for warrantywork, free services or product recalls. Non-warranty repairs and maintenance can becarried out by other service centers withoutimpacting on manufacturer warranty.

2. Leasing – As long as there is no certaintythat the lessee will retain the car at the endof the term then the leasing company caninsist that servicing is carried out at anauthorized repairer.

3. Spare parts – The Commissionacknowledges that in most cases bonus andrebate schemes are a legitimate means ofmotivating a repairer to sell more parts fortheir manufacturer. However, makingbonuses or rebates on parts conditional onthe repairer having to buy competitiveparts of the vehicle supplier's brand couldimply that the vehicle supplier is leveraginga dominant position in the market. Inaddition captive and competitive parts canboth be stored close to workshop bays(albeit separately).

4. Electronic tools – Manufacturers will beable to insist that authorised repairers usespecific electronic tools, even if availableelsewhere.

5. Technical information –Vehiclemanufacturers are in principle required torelease technical information, for whichthey are the only source, to independentoperators. Only in exceptionalcircumstances will a failure to provide suchinformation be justified for safety orsecurity reasons.

6. Authorised networks – These mustgenerally be open to all that meet relevantquality criteria.

THE DIGITAL CONSUMER

The digital age is changing the way consumerslook at and buy cars – in the UK there are over30 million active users on Facebook, 4 millionregistered users on LinkedIn and 10 million onTwitter. The majority of the top 150 dealers arecurrently using social media, with many usingTwitter and Facebook as a means to enticecustomers into their showrooms, both actualand virtual.

With people increasingly looking to these socialnetworks for opinion and information, cardealers are well advised to ensure that theymaximise their presence and use social mediato engage with existing and potentialcustomers. General consensus in the marketplace is that social media is more effective formotor dealers as a way of promoting theirbusiness as opposed to selling cars – 70% ofLinkedIn members now follow companies aswell as individuals. However, it isn’t just enoughto have followers on your Facebook page –dealers need to think about how they cantranslate social media activity into salesrevenue or customer loyalty.

In Western Europe, 90% of mobile phone usershave an internet enabled phone making mobilephones increasingly important – 28% ofconsumer research is now done online viamobile phones. This means consumers are farmore informed about the product they arelooking to buy and the price that they arewilling to pay for it. In December 2011, HendyGroup launched the Hendy App for iPhone andiPad. The app allows users to search for a usedvehicle by make, model, price and dealershiplocation. The vehicle’s details and images canthen be selected so users can see the vehicleand find out all of its relevant information.Hendy Group Managing Director Paul Hendysays, “It’s another great way for us to interactwith our customers in a professional andsuccinct manner.”

The end of the road for showrooms?It seems that the traditional dealership modelis now out of step with modern consumerbehaviour. A survey conducted in the UShighlighted the growing importance of socialmedia for car dealers. The 2012 Automotivedealership social media and online reputationstudy survey carried out by Digital Air Strikefound that the majority of car buyers (69%)use social media in their dealership selectionprocess. Speaking at the 2012 SMMT

International Automotive Summit Google’sHead of Automotive, Hugh Dickerson, said thatdeals are no longer done in the showroom andthat a dealer visit is only affirmation of onlineresearch. Google statistics show that desktopsearches of cars on Google have increased byfour times the amount in five years, 18 sourcesof information are used and 51% of buyersdon’t buy their original choice of car. At thesame summit Joe Doyle from HR Owen plc saidcustomers are more informed than ever anddealers need to work hard to retain their‘expert’ status.

Reputation, reputation, reputationSocial media can also be used as a reputationmanagement tool and to help boost customersatisfaction. The Digital Air Strike survey founddealers need to increase engagement with carshoppers on social networks and review sitesduring the car buying process. The study,measuring usage trends on Facebook, Twitterand Google+, surveyed 275 car buyers whopurchased a vehicle in the last six months.

HIGHLIGHTS INCLUDE

n 69% of consumers said social media siteshelped their vehicle purchase decision

n 68% of car shoppers said that dealershipreviews impacted which dealership theyvisited when shopping for a vehicle

n 50% of consumers said that readingreviews affirmed their original choice ofdealership

n 18% of consumers said they eitherselected a dealership based on thereviews they read or changed theirchoice of dealership after readingreviews on multiple dealerships

“This study highlights the importance of socialnetworks and review sites in the car buyingprocess,” said Alexi Venneri, co-founder ofDigital Air Strike.

According to recent research by socialcommerce provider Reevoo, 66% of car buyersread owner reviews prior to making theirpurchase decision before visiting a dealership.Consumers are also more likely to buy from asite that offers customer reviews, with 60%reporting being ‘much more’ or ‘more’ likely tomake a purchase if the retailer’s web presenceincludes customer reviews.*


*Source: AM Online

A warningWhilst there is a real opportunity for cardealers to leverage and benefit from the wealthof customer opinion available to them onlinethey also need to monitor blogs and forums fornegative customer feedback so it can be actedupon quickly before it has chance to do somedamage to the business. There have even beeninstances where an individual has posted anegative comment on a social media site whichhas been picked up by a rival dealer who hasthen entered into dialogue with this customerand has directed them to their dealership.

All of this makes it more surprising that arecent online poll conducted by AutomotiveManagement (AM) found that anoverwhelming 85.2% of respondents receiveno guidance or inspiration from manufacturersregarding social media. They instead have totake the lead and adopt a proactive approach informing their own digital strategies. Many ofthe dealers commented that the industry isbehind many other areas of the serviceindustry when it comes to social media andonline sales.

Buying onlineThe online marketplace continues to present achallenge to those that are prepared to makethe considerable investment required to havean effective online presence. eBay Motors, thepioneer of online car auctions, is probably themost successful in terms of sales, although itsfocus on lower value vehicles has led to apreoccupation with the sale of cheaper, usedvehicles. Others who have had less success

include Autoquake, who went intoadministration in early 2011, despite theirclaim to being the UK’s biggest online used carretailer, and more recently Tesco Cars, whoafter purchasing the carsite.co.uk name in early2011, also folded in 2012. AutoeBid seem to behaving more success by operating in a differentway to traditional auction sites – their ‘reverseauction’ site asks purchasers to set a maximumprice for the vehicle they wish to purchase andthen sellers in AutoeBid’s network bid downfrom this figure competing against each otherto try to secure the sale.

As consumers get increasingly used toperforming more complex purchases and tasksonline it seems inevitable we will see furthergrowth in the online car buying market.

HP OR PCP?

To further stimulate current sales,manufacturers and dealers have started to offerpersonal contract purchase (PCP) schemes toease the burden of buying a vehicle.

According to the FLA (Finance and LeasingAssociation), 62.9% of all new cars bought in2011 by consumers used dealer finance, andapproximately 20-25% of used cars also reliedon dealer finance. Of those cars financedthrough dealerships, the total percentage ofconsumer car finance for new cars providedthrough PCP contracts grew in 2011 to 61.1%,compared with 58.7% in 2010. By contrast,hire-purchase (HP) fell from 34% of the marketin 2010 to 30% in 2011.


Customers are moreinformed than ever anddealers need to work hardto retain their ‘expert’status

JOE DOYLE, CEO, HR OWEN PLC

THE GREEN AGENDA

Since the recession started, environmental concerns have pretty wellslipped off the agenda of the average motorist. However, a number ofdealers over the last 18 months have continued to use the greenagenda to their advantage. Companies such as Blackshaws andJCT600 have invested in solar panels in some of their dealerships.JCT600 have invested £400,000 in the installation of 600 solar panelswhich are predicted to save around £60,000 a year. This project ispart of a wider company initiative looking at improving the energyusage and efficiency across all of JCT600’s dealerships. This is a resultof increasing fuel costs and highlights that innovative dealers areworking to reduce their cost base of their businesses.

FOCUS PREDICTIONS FOR 2013

In our latest ‘BDO Retail Forecasts2013’ report, we make tenpredictions. Below are the onesthat we think will have the mostimpact on the motor sector.

BETTER GROWTH PROSPECTS?

Trading conditions will remain far from easy with sales growth ofaround 2–3%.

COMPETITION FOR THE BEST LOCATIONS

With limited supply of new space becoming available, competitionfor the best locations will increase, which should be good for thosewith surplus but not so good where rent reviews are due.

4G

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

SUNDAY TRADING

Although opinions regarding extending Sunday opening hours aremixed, expect to see a broad consensus emerging favouring longerhours.

CORPORATE OPPORTUNITIES

We should see increased levels of M&A activity as confidenceincreases with further sales to overseas buyers and distressedopportunities. However, activity is likely to remain subdued byhistorical standards.

To download the full reportplease visit www.bdo.co.uk

MOTOR RETAIL OUTLOOK –BDO OPINIONS AND ADVICE

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

n Embrace technology – Use all avenues available to the businessto reach out to your customers and potential customers. Themore times you can enter dialogue with them, the more you willbe at the front of their mind when they require a service, want tochange their car or want to visit a dealership.

n Processes and controls – As margins are so tight, a dealer’scontrols and processes are key to ensure every opportunity ismaximised and costs controlled.

n Plan for today and tomorrow – It is very difficult to accuratelyreflect what will happen in the future and therefore difficult toprepare a well rounded strategy.

COMPILATIONOF THE REPORT

SOURCES OF INFORMATIONThe 150 companies included in this reportwere selected from the "Top 200 FranchisedDealership Survey" published in Motor Tradermagazine and copies of most recent financialstatements were obtained from CompaniesHouse filings. The published accounts (seebelow for year ends), obtained from CompaniesHouse filings, were used to provide thefinancial information included in this report.

YEAR ENDSThe year ends included in the ‘current period’financial information in this report range from30 April 2011 to 31 March 2012 being themost recent accounts filed at CompaniesHouse at the time of the compilation of thisreport. For companies with December yearends (116 in the population) the ‘currentperiod’ will be the year ended 31 December2011. For January to March year ends (13) thecurrent period is that ending in 2012. For Aprilto November year-end companies (21), due tothe restrictions of the filing deadlines atCompanies House and the timescale ofcompilation of this report the current periodsare predominantly those ending in 2011.

AGGREGATIONThe published accounts of the 150 companiesidentified by the above processes have beencombined by a simple aggregation to producethe financial information in this report. Noconsolidation adjustments have been madeand in particular no adjustments have beenmade to reflect the non-coterminous year-endsof the companies.

IFRS AND UK GAAPOf the 150 companies, seven have preparedtheir accounts under IFRS and the remainderunder UK GAAP. However, as those companiesrepresent 19% of total revenue and as theimplementation of IFRS will increase in futurewe have decided to present the financialinformation in a format more consistent withIFRS than UK GAAP. We have made no attemptto adjust UK GAAP numbers to comply withIFRS, we have merely represented the UK GAAPnumbers in a format similar to IFRS.

Consequently a number of allocationjudgements were required that may impact thecomparability of the financial information.

DISCONTINUEDOPERATIONS/NON OPERATINGITEMSNo distinction has been made betweencontinuing and discontinued operations due tothe variety of judgements and presentationalapproaches taken by relevant companies.Where it has been possible to identify suchitems, all ‘exceptional’ or similar items reflectedoutside operating profit have been aggregated,although we have produced a brief analysis ofthe main items in the notes to the accounts.

CASH FLOW STATEMENTWhilst some of the individual line items on thecash flow statement have been obtained fromthe aggregation of cash flows, the cash flowstatement has been largely derived from thesimplistic approach of reconciling themovements between the balance sheets. Thiswas to ensure that the changes in cash andcash equivalents in the cash flow statementreconciled with the balance sheets which theydo not in the aggregation due to thedifferences in starting points, definitions ofcash and cash equivalents and the treatment ofdebt in all the companies.

DISCLAIMERThe financial information in this report hasbeen compiled exclusively from publiclyavailable information under the keyassumptions and limitations outlined above.It has been designed solely for illustrativepurposes to highlight trends in the financialperformance of a representative sample ofcompanies in the sector. BDO has made anumber of judgments in aggregating theinformation into a consistent format BDO doesnot, and cannot, warrant the completeness oraccuracy of such adjustments. Furthermore inadjusting the presentation adopted inpublished accounts to meet the specificrequirements of this report, BDO is not makingany judgement nor giving any opinion on thepresentation adopted in those publishedaccounts. BDO has not carried out anyverification work on the financial informationin this report and gives no opinion on thefinancial information. The financial informationwas not compiled with the intention that itshould be used for any purpose save for thatdescribed above. We do not acceptresponsibility for the financial information toany person or for any purpose other than thatfor which it was prepared.


MOTOR UK LIMITEDREVIEW OF TOP 150ACCOUNTS


Note 2011 2010 2009 2008£'m £'m £'m £'m

Turnover 40,672 39,869 34,581 36,099Cost of sales (35,945) (35,084) (30,027) (31,675)Gross profit 4,727 4,785 4,554 4,424Gross profit % 11.62% 12.00% 13.17% 12.26%Operating expenses (4,295) (4,267) (4,129) (4,350)Other operating income 117 126 111 114 Income from investments – 1 1 – Share of associate and JV profit – – 1 (4)Operating profit 1 549 645 538 184

Exceptional items 2 16 5 11 (125)

Interest paid 5 (213) (202) (222) (336)Interest received 47 35 33 79 Profit / (loss) before tax 399 483 360 (198)

Taxation 6 (81) (135) (107) 22 Profit / (loss) after tax 318 348 253 (176)

Minority interest (1) – (1) – Net profit / (loss) 317 348 252 (176)

Consolidated Statement of Total RecognisedGains and Losses

Profit / (loss) for the financial year 317 348 252 (176)

Unrealised surplus on revaluation 10 (3) (5) (13)Actuarial gains and losses on pension scheme (59) 39 (72) (60)Taxation in respect of gain/(loss) onpension scheme 6 (5) 18 15 Other comprehensive income 9 2 (20) 1

283 381 173 (233)

Exchange differences – (1) (1) –

Total recognised gains and losses 283 380 172 (233)

CONSOLIDATED PROFIT AND LOSS ACCOUNT


Note 2011 2010 2009 2008£'m £'m £'m £'m

Fixed assetsIntangible 8 706 702 701 710 Tangible 9 3,755 3,676 3,460 3,432 Investments 213 201 182 198

4,674 4,579 4,343 4,340

Current assetsStock 5,864 5,360 4,754 5,420 Debtors 10 2,156 2,154 2,258 2,195 Deferred tax asset 24 26 38 30 Cash 831 1,042 719 449 Other 110 49 46 69

8,985 8,631 7,816 8,163

Debtors due after more than one year 39 19 18 19

Total assets 13,698 13,229 12,176 12,522

Current liabilitiesLoans and bank overdrafts 11 2,369 2,213 2,290 2,420 Trade and other payables 12 5,774 5,634 4,905 5,263 Current tax liabilities 99 135 129 86

8,242 7,981 7,324 7,769

Non-current liabilitiesLoans and bank overdrafts 13 1,150 1,268 1,209 1,411 Trade and other payables 14 397 374 339 339 Pension liabilities 140 178 246 190 Provisions 15 67 73 93 115 Deferred tax 74 74 68 77 Derivatives 1 1 3 3

1,829 1,969 1,957 2,135

Total net assets 3,627 3,279 2,895 2,618

Capital and reservesShare capital 727 663 611 565 Share premium 287 286 303 214 Profit and loss account 2,298 2,076 1,719 1,574 Other reserves 73 63 53 52 Capital redemption reserve 40 38 39 38 Revaluation reserve 155 140 159 164

3,580 3,266 2,883 2,607

Minority interest 47 13 12 11

Total equity 3,627 3,279 2,895 2,618

CONSOLIDATED BALANCE SHEET


2011 2010 2009 2008£'m £'m £'m £'m

1. Operating profitDepreciation of tangible fixed assets 363 353 328 336 Amortisation of intangible fixed assets 29 21 31 29 Audit fees 8 8 8 7 Non audit fees 4 4 6 5 Operating leases - land & buildings 262 236 208 210 Operating leases - other 13 13 15 14

2. Exceptional itemsWaiver of intercompany debt (32) (4) (10) 5 Loss/(profit) on sale of fixed assets 4 (11) (7) (20)VAT refund – (2) (6) (10)(Profit)/loss on sale of operations – – 3 21 Refinance costs 1 3 7 – Impairment of goodwill – – 2 68 Impairment of fixed assets and other assets 7 6 6 41 Gain on early surrender of property lease – – (7) – Restructure and closure costs 2 2 3 12 Other 2 1 (1) 8

(16) (5) (11) 125

3. Staff costsWages and salaries 2,629 2,524 2,452 2,527 Social security costs 266 252 246 255 Share based payments 11 2 1 1 Pension costs 47 64 57 55

2,953 2,842 2,756 2,838

Total number of employees 100,302 98,082 98,368 105,624

Average pay per employee (£000) 29 29 28 27

4. Directors emolumentsSalaries and fees 86 95 105 82 Bonuses 1 2 3 – Compensation for loss of office – 1 1 – Pension contributions 5 5 5 4

92 103 114 86

Number of executive directors 634 597 666 646 Number of non-executive directors 33 32 23 24

667 629 689 670

Average emoluments per highest paid director (£000) 237 311 383 282

5. Interest payableBank loans and overdrafts 65 79 86 124 Other interest payable 152 121 130 210 Other finance expense (4) 2 6 2

213 202 222 336

NOTES TO THE ACCOUNTS


2011 2010 2009 2008£'m £'m £'m £'m

6. TaxationCorporation tax and income tax on overseas operations 95 134 107 32 Prior year (11) (16) (2) (16)

84 118 105 16 Deferred tax current year (4) 13 1 (38)Prior year 1 4 1 –

81 135 107 (22)

7. DividendsDividends paid in the period 80 143 35 69

8. Intangible fixed assetsCost b/fwd 979 964 966 916 Additions 49 25 15 23 Reclassifications (11) 6 6 – Acquisitions 3 – – 20 Adjustments – – – 5 Transfers – – 5 5 Disposals (3) (4) (6) (3)

Cost c/fwd 1,017 991 986 966

Amortisation b/fwd 280 259 256 160 Charge 31 21 31 29 Transfer – – – – Impairments 1 9 2 68 Disposals (1) – (4) (1)

Amortisation c/fwd 311 289 285 256

Net book value at year-end 706 702 701 710

NOTES TO THE ACCOUNTS CONTINUED


Freehold Leasehold Motor Plant and Totalproperty property vehicles fixtures

9. Tangible fixed assetsCost b/fwd 2,491 386 1,068 1,087 5,032 Additions 139 37 650 138 964 Disposals (63) (31) (576) (86) (756)Acquisitions 20 8 (1) 11 38 Revaluations 4 – – – 4 Transfers – 1 – (7) (6) Reclassifications 8 – – – 8 Exchange movements (3) – – – (3)

Cost c/fwd 2,596 401 1,141 1,143 5,281

Depreciation b/fwd 238 83 319 747 1,387 Charge 37 16 204 106 363 Disposals (10) (8) (189) (62) (269)Acquisitions – 1 – 5 6 Revaluations (2) (1) – – (3)Impairments 9 – – 1 10 Transfers – – – – – Reclassifications – – – – – Exchange movements – – 32 – 32

Depreciation c/fwd 272 91 366 797 1,526

Net book value at year-end 2,324 310 775 346 3,755


2011 2010 2009 2008£'m £'m £'m £'m

10. Debtors - currentTrade debtors 912 983 883 854 Group and related party loans 682 638 875 871 Directors' current accounts 2 2 1 1 Corporation tax 7 10 3 11 Other debtors 242 243 225 213 Other tax and social security 31 17 39 11 Prepayments 280 262 232 234

2,156 2,154 2,258 2,195

11. Loans and overdrafts - currentBank loans and overdrafts 485 437 579 772 Stocking loans 1,274 736 659 684 Pension fund loans 1 1 1 1 Directors' loans 19 29 22 23 Group loans 579 1,000 1,022 940 Shares classified as debt 2 1 1 – Derivative financial instruments 9 9 6 –

2,369 2,213 2,290 2,420

12. Trade and other payables - currentPayments received on account 41 66 46 29

Trade creditors 3,236 3,153 2,778 2,796 Obligations under vehicle repurchase 185 163 152 190 Other taxation and social security 157 182 159 159 Finance leases 328 297 284 274 Consignment creditor 716 690 524 905 Other creditors 325 289 247 260 Dividends payable 1 1 2 – Accruals 785 793 713 650

5,774 5,634 4,905 5,263

13. Loans and bank overdrafts - non currentBank loans 574 666 626 814 Other loans 212 253 219 237 Shares classified as debt 5 3 4 4 Directors' loans 4 5 14 12 Group loans 355 341 347 344

1,150 1,268 1,209 1,411



2011 2010 2009 2008£'m £'m £'m £'m

14. Trade and other payables - non currentAccruals 25 24 23 22 Other creditors 25 12 6 14 Finance leases 347 338 306 299 Rentals in advance – – 4 4

397 374 339 339

15. ProvisionsWarranty service 34 38 47 55 VAT assessment 1 5 11 27 Property and restructure costs 20 21 25 23 Finance commission 6 7 7 8 Other 6 2 3 2

67 73 93 115

16. Net debt and gearingNet debt comprises:Loans and bank overdrafts due within one year (485) (437) (579) (772)Loans and bank overdrafts due after more than one year (574) (666) (626) (814)Stocking loans (1,274) (736) (659) (684)Finance leases (675) (635) (590) (573)Other loans (212) (253) (219) (237)

(3,220) (2,727) (2,673) (3,080)Cash and cash equivalents 831 1,042 719 449

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%



THE 150 GROUPCOMPANIES

Addison Motors Limited

Allen Ford (UK) Limited

Aprite (GB) Limited

Arnold Clark Automobiles Limited

Barretts of Canterbury Limited

Baylis (Gloucester) Limited

Beadles Group Limited

Bedfordia Automotive Limited

Bestodeck Limited

Blade Motor Group Limited

Blue Bell Wimslow Limited

Bugle Inn Motor Company (Holdings) Limited

Burrows Motor Company Limited

C.E.M Day Limited

Caffyns plc

Cambria Automobiles plc

Cathedral Motor Company Limited

Central Garage (Uppingham) Limited

Citroen UK Limited

City Motor Holdings Limited

City West Country Limited

Citygate Automotive Limited

Clare James Automotive Limited

Colborne Garages Limited

Colebrook & Burgess Limited

Collier Motor Group Limited

Colt Cars Mid-West Limited

Co-operative Group Motors Limited

Cotswold Motor Group Limited

Currie Motors Limited

D J Cox Limited

Decidebloom Limited

Dick Lovett Companies Limited

Donnelly Bros Garages (Dungannon) Limited

Drift Bridge Garage Limited

Drive Motor Retail Limited

Eastern Holdings Limited

Essex Auto Group Limited

Fish Brothers Limited

Foray Motor Group Limited

Ford Retail Limited

Furrows Holdings Limited

G K Group Limited

Gates Group Limited

Gilder Group Limited

Glyn Hopkin Limited

Gordon Lamb Holdings Limited

Gordons (Bolton) Limited

Greenhous Group (Holdings) Limited

Greenoaks (Maidenhead) Limited

Grevan Cars Limited

Group 1 Automotive UK Limited

Guildford Portfolios Limited

Halliwell Jones Group

Hanif Automotive Limited

Hartwell plc

Harwoods Limited

Helston Garages Group Limited

Hendy Group Limited

Heritage Automotive Limited

Hodgson Automotive Limited

Howard Garages (Weston) Limited

HR Owen plc

Hughes of Beaconsfield Limited

Hylton Group Limited

Inchcape Retail Limited

Isaac Agnew (Holdings) Limited

Jacksons Bournemouth Limited

Jardine Motors Group UK Limited

JCT600 Limited

John Clark (Holdings) Limited

John Grose Group Limited

John Martin Group Limited

John R Weir Limited

Johnsons Cars Limited

L & L Inc Limited

Laindon Holdings Limited

Lifestyle Europe Holdings Limited

Lindsay Cars Limited

Listers Group Limited

Lloyd Motors Limited

Loders Motor Group Limited

Lomond Motors Limited

Lookers plc

Macrae & Dick Limited

Magna Motor Company Limited

Marriott Motor Group Limited

Marsh Wall Limited

Marshall Motor Group Limited

Marubeni Auto Investment (UK) Limited

Mclean & Appleton (Holdings) Limited

Mercedes-Benz Retail Group UK Limited

Meridian Motor Group Limited

Meteor Group plc

Mill Garages North East Limited

Mon Motors Limited

Motorline Holdings Limited

Park's of Hamilton (Holdings) Limited

Parkway Derby Limited

Pendragon plc

Pentagon Motor Holdings Limited

Peoples Limited

Perrys Group Limited

Peter Vardy Holdings Limited

Porsche Retail Group Limited

R. Robinson & Co. (Motor Services) Limited

Renault Retail Group UK Limited

Renrod Holdings Limited

Ridgeway Group Limited

Robins & Day Limited

Rybrook Holdings Limited

S G Petch Limited

S G Smith Motors Insurance & ManagementServices Limited

S Jennings Limited

Saftdwin Limited

Sandicliffe Motor Holdings Limited

Silver Street Motors Limited

Sinclair Motor Holdings Limited

Snows Motor Group Limited

Specialist Cars Holdings Limited

Spire Automotive Limited

Springfield Cars Limited

Stephen James Group Trading LLP

Sutton Park Motor Company Limited

Swansway Garages Limited

Sytner Group Limited

T C Harrison Group Limited

T G Holdcroft (Holdings) Limited

Tanner Automotive Limited

The Harratts Group Limited

The Phoenix Car Company Limited

The Verve Limited

Thompson Motor Company (Preston) Limited

Thurlow Nunn (Holdings) Limited

Toyota Tsusho Automobile North London Limited

Underwoods Garage (Tiptree) Limited

Vertu Motors plc

Vindis Group Limited

Vospers Motor House Limited

W J King (Garages) Limited

W R Davies (Motors) Limited

W. Brindley (Garages) Limited

Walter E Sturgess & Sons Limited

Wessex Garages Holdings Limited

Westover Group Limited

WH Bowker Limited

Williams Motor Co. (Holdings) Limited

Wilson & Co (Motor Sales) Limited

Wood Group Limited

Yeomans Limited


THIS REPORTHAS BEENPRODUCED BYMEMBERS OFTHE BDOMOTOR RETAILTEAM

MALCOLM THIXTONHead of Motor [email protected] 8088 1895

STEVE LE BASDirector of Motor [email protected] 8088 1906

WESLEY BIRDBusiness [email protected] 8088 1933

JAMES WEBBBusiness [email protected] 8088 1708

EMMA WAREHAMMarketing [email protected] 8088 1753


HOW CAN WE HELP?To discuss how we can help your business, please contacta member of the BDO Motor Retail team:

Malcolm ThixtonHead of Motor [email protected] 8088 1895

Steve Le BasDirector of Motor [email protected] 8088 1906

Steve [email protected] 352 6392

Steve [email protected] 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 youshould 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 yourparticular 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 onthe 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 theinternational 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 bythe Financial Services Authority to conduct investment business.

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