TIDM71CH
RNS Number : 0945N
Motability Operations Group PLC
15 May 2020
15 May 2020
Motability Operations Group plc
Management Statement regarding Covid-19 and Half Year Reporting
update
At this point in our financial year, Motability Operations Group
plc ("Motability Operations") usually opt, voluntarily, to publish
a Half Year Report containing Interim Financial Statements.
However, given that it is currently impossible to put a value on
future sales in the used car market ( there is currently very
little activity in the used car market and consequently no reliable
view of what price vehicles will sell for) , this inhibits our
ability to produce meaningful financial statements. We have
therefore elected instead to issue this Management Statement. This
decision has been taken after careful consideration and we believe
it to be the most responsible approach, rather than attempting to
produce a set of financial statements based on a mark-to-market
which, at this point in time, runs the risk of significantly under
or overstating the value of the fleet.
Financial Overview
Motability Operations is, by design, a financially and
operationally robust business. This provides reassurance that we
are well placed to weather the impacts of the pandemic and continue
to offer our customers access to affordable, worry-free, mobility.
The following financial headlines provide useful context:
-- We entered the Covid-19 crisis with current year
profitability, ahead of plan. This trading performance was
supported by a buoyant used car market and therefore favourable
vehicle disposal results between 1 October 2019 up until to the
imposition of the Government's lock-down measures in late March
2020
-- Our business model has been built to provide long-term
sustainability for the Motability Scheme and customers, so despite
the economic challenges, we remain secure. We confirmed in our
FY2019 Annual Report our commitment to hold capital reserves at a
level consistent with a 99.99% confidence level (one in ten
thousand loss event) plus 15% headroom, equating to GBP2.2bn as at
30 September 2019
-- Fleet volumes are stable. In addition, the Government
recently announced an initial three-month hiatus to scheduled
customer mobility allowance reviews. This has meant a reduction in
the volume of customers we would ordinarily expect to leave the
Scheme during this period, through loss of their qualifying
allowance
-- Rental revenue, assigned by customers, but collected directly
from Government, is not affected by the pandemic and will continue
to be received while customers retain their cars
-- In December the Group settled a GBP300m bond maturity from
cash balances carried through the September 2019 year end; the next
bond maturity (GBP400m) is not due until June 2022. The Group has
GBP1.9 billion of committed bank facilities, including a GBP400m
term loan and GBP1.5 billion Revolving Credit Facility (RCF), with
over three years remaining (September 2023). As at 30 April 2020
the Group had GBP1.45 billion of liquidity headroom (comprising
undrawn Revolving Credit Facility and cash on deposit)
-- In April, the Group's credit rating was reaffirmed by
Standard & Poor's as A, with Moody's maintaining their A1
rating as reflected in their updated Credit Opinion, both reporting
a stable outlook.
Customer Focus, Employees and Operational Response
Our priority has been our customers and the safety and wellbeing
of our employees, and from the earliest stage of the pandemic we
took immediate steps to address this. Once lockdown was announced
in March, we took final measures to enable the vast majority of our
employees to operate through home working arrangements, utilising
the capacity and resilience built into our systems
infrastructure.
Among many decisions taken by the Executive was to retain all
employees. We strongly believe this is the right thing to do,
especially for a financially robust organisation that relies on its
employees' engagement for delivery of excellent customer service.
The Executive have decided not to make use of any Government
support schemes, including the furlough scheme, respecting the fact
that these were not designed to be channelled into financially
resilient businesses.
For customers, our priority has been to maintain mobility, which
has meant keeping the business fully operational, while
transferring rapidly to a home-based model. We have kept our
customer call centre fully functioning throughout, to respond to
customer calls. We have helped customers by offering additional
flexibility and support, including allowing additional drivers to
be added to Scheme insurance, and providing taxis where
appropriate.
An early decision was made to automatically extend each lease,
for six months beyond its end date. This step gave greater clarity
for customers, and avoided having to arrange car handovers early on
in the context of social distancing. Notwithstanding the lease
extensions, we continue to pay customers their good condition bonus
in the usual timescales. This decision will mean that vehicle
resale proceeds will drop significantly in the second half of the
year as leases have been extended, enabling customers to keep their
car until it is appropriate to proceed with their renewals (91% of
customers continue to take a new car at the end of their original
lease term).
Fewer customer journeys, combined with less traffic generally
has led to a reduction in the number of accidents and a decrease in
insurance claims. Following engagement with Motability, it has been
agreed that this cost reduction will be shared with customers.
Through late May and June, we will send a GBP50 insurance refund to
every customer. Where customers are on the road, they continue to
receive support from Scheme partners, who remain operational,
including RAC, RSA and Kwik Fit.
In April, as part of our commitment to helping customers more
broadly, and taking into account Financial Conduct Authority
guidance on supporting customers facing temporary financial need,
we provided customers with the option to reschedule end of contract
payments. Customers in this position can therefore request the
GBP600 good condition bonus early. This provides customers with
increased financial flexibility, but avoids the risk of their
taking on debt.
Outlook
Looking ahead, Motability Operations will undoubtedly face
challenges. These include uncertainty around the used car market,
at a time when customers will likely wish to reactivate their new
vehicle orders. We will therefore remain agile in our approach as
both the new and used car markets recommence activity. It is likely
that we will continue to extend leases for the time being as we
manage our path out of the current lockdown, balancing the needs of
customers, suppliers and other stakeholders, whilst ensuring that
we maintain appropriate liquidity headroom and capital.
However, with the measures already taken and given the
business's sound financial foundations, we believe we are well
placed to meet these challenges as the market rebalances.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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May 15, 2020 09:01 ET (13:01 GMT)
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