Final Results
European Motor Hldgs PLC
24 April 2002
EUROPEAN MOTOR HOLDINGS plc ("EMH")
Preliminary results for the year ended 28 February 2002
Key points:
• Profit before tax up 23% to £10.4 million
• Earnings per share up 25% to 13.1p
• Dividends up 7.7% to 7.0 pence per share for year
• Net cash of £8.2 million as at 28 February 2002
• New financial year started very well
Commenting on these results, chief executive Richard Palmer said:
"We have produced record results this year. Registrations for our key franchises
increased by 27% on a like for like basis compared with an increase in national
registrations for these franchises of 22% and 12% for all franchises. We believe
that this performance demonstrates that our strategy of concentrating on strong
relationships with manufacturers of premium products continues to be the right
one."
Enquiries:
Richard Palmer Chief Executive
European Motor Holdings plc
Ann Wilson Finance Director
European Motor Holdings plc
Morning: Biddick Associates 020 7448 1000
Afternoon: European Motor Holdings plc 020 8961 2525
Chief Executive's statement
Highlights
• Another year of industry leading performance.
• Profit before tax up 23% to £10.4 million.
• Earnings per share up 25% to 13.1 pence per share.
• Dividend up 7.7% to 7.0 pence per share.
• Net cash of £8.2 million at year end.
• New financial year started very well.
We have continued to make excellent progress during the last year. Our profit
before tax has risen 23% to £10.4 million, earnings per share have risen 25% to
13.1 pence per share, net assets per share have risen to 91 pence and net cash
at the year end has increased to £8.2 million.
Our record over the last three years has been outstanding. In the last year the
motor industry has enjoyed a record breaking level of sales but prior to that
period retailing had been very difficult. The Group has maintained its industry
leading performance throughout this three year period, with substantial profit
before tax increases in each of these years.
In view of the excellent results and our confidence for the future, we are
recommending a final dividend of 4.0 pence per share, to be paid on 5 September
to shareholders on the register at 9 August. The total dividend for the year of
7.0 pence represents an increase of 7.7% over the previous year.
Trading
Profit before tax within the Motor Retail Division rose by 22% with all of our
key franchises delivering significant increases. In the 2001 calendar year, the
motor industry in the United Kingdom had its best year ever in terms of new
vehicle registrations. During our financial year, registrations for our key
franchises increased by 27% on a like for like basis compared with an increase
in national registrations for these franchises of 22% and 12% for all
franchises. We believe that this performance demonstrates that our strategy of
concentrating on strong relationships with manufacturers of premium products
continues to be the right one for the Group. The key manufacturers with whom we
have an ongoing and developing relationship are BMW, the Premier Automotive
Group and the Volkswagen group.
Our BMW businesses showed significant growth compared with the preceding period
and the introduction of Mini and relocation of the Sunderland BMW dealership to
a larger site contributed to improvements in both profitability and volume. With
a full year of Mini and the continued success of BMW in the UK market, we can
look forward to further progress in the current period.
We represent the Premier Automotive Group with Jaguar, Land Rover and Volvo and
each of these businesses performed very well during the period. With the
acquisition of the Doncaster Jaguar franchise in March 2001, we now operate four
Jaguar businesses in Yorkshire. The introduction of the X-type last year has
contributed to a 101% like for like increase in our Jaguar registrations and a
substantial increase in profitability. We currently operate one Land Rover
franchise in Chester which improved in the period and is now the fourth largest
Land Rover dealer in the country in terms of new vehicle sales. The launch of
the new Range Rover and forthcoming new Discovery launch give us great
confidence for the coming year. The opening of operations in Leeds and Harrogate
resulted in our north eastern representation of the Volvo franchise expanding
from six to eight locations. A strong corporate performance contributed to a
like for like increase in Volvo registrations of 27% compared with the national
average increase of 7% and this resulted in a significant improvement in the
profitability of our Volvo dealerships.
We now represent Audi in three locations and the very strong national sales
performance of the franchise helped us achieve an excellent result in these
businesses. The new A4 has been extremely well received, as has Audi's range of
low emission diesel products.
With the acquisition last October of the Volkswagen business at Heathrow, we now
have seven Volkswagen operations. These businesses delivered an increase in
profitability and higher volumes during the year. We look forward to the impact
of the new Polo in 2002 and to the introduction of the Phaeton, a brand new
executive vehicle to be introduced to the Volkswagen range in early 2003.
Within our Motor Retail Division, the auction business and the Perodua import
franchise deserve special mention for excellent performances during the period.
Wilcomatic, the principal operating company in our Motor Services Division, made
very substantial progress during the year with profit before tax up 23%. The
core business performed well and car wash machine sales increased by 62%. We
have also launched a trial with Asda for serviced conveyor cloth car washes at
four of its sites. Whilst it is too early to draw any final conclusions, we are
encouraged by the results and the knowledge we have gained to date.
Business development
As stated at the announcement of our interim results in October, we are
delighted that we have been awarded a very significant Volkswagen strategic
territory in the London area. In the period under review we purchased a
Volkswagen dealership at Heathrow and we are about to open a new dealership in
Twickenham. In June we will be relocating the aftersales business of our
Hammersmith operation to superior premises. When the development of the whole
strategic territory is complete, we will have enormous potential for sales,
aftersales and profitability. We are continuing to discuss other opportunities
with Volkswagen and expect to play an even greater role in its exciting future.
As I have previously mentioned, BMW launched its Mini range during the period.
This product has not only boosted our earnings, but has also introduced a new
profile of potential owners to our BMW dealerships. We would like to expand the
number of BMW dealerships that we own during the year and are extremely well
placed to do so.
As indicated above, we have added one Jaguar and two Volvo franchises to the
Group during the period. We will continue to examine other Premier Automotive
Group opportunities in the months ahead as we seek to expand our representation.
The Group is in a strong position financially to expand with its major core
partners and has their approval to do so. I believe that we will capitalise on
this situation in the coming months.
As I explained in last year's report and accounts, DaimlerChrysler has taken the
decision to terminate its London dealers and to represent itself in this area.
After agreement was reached between the UK Mercedes-Benz passenger car dealers
and DaimlerChrysler with regard to compensation for outgoing dealers, we
confirmed that we would cease representing Mercedes-Benz in London on 30 June
2002. The agreement provides that our staff will be transferred to
DaimlerChrysler, which will also buy our parts stock and certain specialised non
property assets and pay us a territory release payment. The final amount of this
payment, which is to be calculated in accordance with the agreement, is still
under negotiation with DaimlerChrysler but is estimated to be approximately £4
million. DaimlerChrysler does not have the right to acquire our premises and we
continue to examine the options available to us for the disposal of our sites.
We are confident that the majority of the leasehold sites will be disposed of or
utilised within a short period after 30 June. Our substantial freehold site in
Park Royal has attracted much interest and we are currently evaluating the best
option for realising the inherent value of the site.
Last year was a period of transition for our import business with the cessation
of supply of the first car we imported and, some months later, the successful
launch in January 2002 of the new Kelisa. This 1000cc mini car has already
gained the accolade of being number one on the CAP Monitor value for money list
and press comment has been very positive. We are very optimistic about the
Kelisa's future in the UK market and hope to increase significantly the number
of Perodua cars sold in the UK this year. We remain committed to the longer term
expansion of this franchise.
Within Wilcomatic, when we have fully analysed the results of the trials of the
conveyor car washes that we have developed on Asda sites, we will decide upon
the size and timing of the expansion of this new opportunity. We remain
convinced that vehicle washing patterns will change in the UK with major
expansion of many "soft" conveyor car wash sites. Wilcomatic is at the forefront
of this new initiative and our knowledge has already been greatly improved by
the trials. The potential for the future is significant and we continue to look
for ways of capitalising on this potential.
Customer care
Over many years we have developed processes and trained our staff to try to
provide the highest levels of customer care. Not only is this becoming more
important in financial terms with our key partners now rewarding good
performance, but also it remains our number one priority as customer retention
is vital to our future prosperity. This emphasis on customer satisfaction
becoming part of our Group culture at every level within the business has given
rise to some excellent progress in this area.
Block Exemption and pricing issues
Much has been written about the changes to Block Exemption due to take place in
the latter part of the year. On the basis of the draft proposals, we believe
that the changes will be largely beneficial to the Group as they should allow us
to be more flexible in the way in which we market and service vehicles in the
future.
I believe that pre tax prices in Europe will continue to converge and current
evidence suggests that this will be achieved by manufacturers increasing prices
by more in Europe than in the UK. I do not believe that we will see a material
change in transaction prices in the UK this year and believe that low interest
rates will continue to drive a buoyant market.
Financial review
Profit on ordinary activities before tax for the year ended 28 February 2002 was
£10.4 million compared to £8.5 million in the previous year. The Group's
effective tax rate in the year ended 28 February 2002 was 32%, slightly lower
than last year's rate of 33%.
Earnings per share for the year were 13.1p compared to 10.5p last year. The
Board is recommending a final dividend of 4.0p per share, bringing the full
year's dividend to 7.0p. This represents a 7.7% increase on last year's total
dividend of 6.5p per share. Dividend cover this year is 1.9 times, compared to
1.6 times last year.
Turnover has increased by £41 million, principally as a result of increased
sales of new cars.
As a result of the improved trading by our businesses, operating profit has
increased to 2.4% of turnover, compared to 2.2% last year. When the reduction in
net interest payable is also taken into account, profit before tax has increased
to 2.4% of turnover, compared to 2.1% last year. These ratios continue to be
among the best in the industry.
Increased profits, reduced borrowings and lower interest rates have resulted in
net interest payable (excluding new vehicle stocking interest) being reduced
from £0.5 million to almost nil. Interest cover, including new vehicle stocking
interest, increased from 7.6 times to 14.3 times.
The Group continues to be in a very strong financial position, as evidenced by
the balance sheet. We have invested £3.8 million in capital expenditure,
representing investment in the retail washing sites for Asda, new sites for
additional franchises and the relocation of certain dealerships. These
relocations also gave rise to the disposal of a surplus freehold site,
contributing to disposal proceeds of £1.6 million.
The Group's funding structure includes loans from some of the finance houses
which offer retail finance to our customers. During the year, £3.9 million of
these loans were repaid in the light of the Group's net cash position. The
remaining loan is at an advantageous interest rate and no further repayment is
currently planned.
Management of our working capital has again been excellent during the year, with
continued emphasis on tight control of used vehicle stocks. As a result, working
capital has been reduced by £1.8 million during the period. Payments in respect
of taxation and dividends amounted to £7.0 million, and £0.2 million was spent
on acquiring our new Jaguar and Volkswagen dealerships in Doncaster and
Heathrow. Against this, we received £0.7 million from the disposal of our Toyota
dealership in Warminster. The net effect of these cash flows, and of the £13.1
million operating profit (excluding depreciation) in the year, is to increase
the Group's net cash from £2.5 million at 28 February 2001 to £8.2 million at 28
February 2002.
Immediately prior to the registration plate change in March, used vehicle stocks
and vehicle debtors are lower than at other times of the year and we are in
receipt of deposits on cars being prepared for sale. The cash level at the end
of February is not therefore representative of the year as a whole. However,
throughout the year, the Group has continued to achieve an excellent performance
in generating cash, improving net cash by £5.7 million over the previous year.
The principal elements of our borrowings are a loan from a finance house and
leasing obligations in respect of demonstrator vehicles and certain dealership
refurbishments. Most utilised borrowings are repayable either on demand or
within the current calendar year, although some leases in respect of fixed
assets have five or ten year terms. In addition to existing borrowings, the
Group has substantial banking facilities which were unutilised at the balance
sheet date.
Outlook and summary
Our cash position is excellent and will further improve following our exit from
the Mercedes-Benz franchise. We are continuing to expand our core franchises to
replace the Mercedes-Benz earnings.
During the last financial year we repurchased 500,000 of the Company's ordinary
shares. In view of our increasingly strong cash position, it is our intention to
pursue more actively a share buyback programme in the current year in order to
enhance shareholder value and return cash to shareholders.
I am delighted to report that the new financial year has started very well for
us with our March 2002 performance showing an improvement over the same month
last year. April has also started well and I can see no reason why the success
we have achieved in the past will not continue.
Richard Palmer
Chief Executive
24 April 2002
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Notes Year ended Year ended
28 February 28 February
2002 2001
£'000 £'000
Turnover 1 441,081 399,678
Cost of sales (376,745) (340,820)
Gross profit 64,336 58,858
Distribution costs (29,362) (27,814)
Administrative expenses (24,541) (22,125)
Operating profit 2 10,433 8,919
Loss on disposal of businesses 3 (36) -
Interest receivable 467 360
Interest payable (496) (820)
Profit on ordinary activities before taxation 10,368 8,459
Tax on profit on ordinary activities (3,320) (2,817)
Profit on ordinary activities after taxation 7,048 5,642
Equity minority interests - (13)
Profit for the financial year 7,048 5,629
Dividends 4 (3,745) (3,496)
Retained profit for the financial year 3,303 2,133
Earnings per share (basic and diluted) 5 13.1p 10.5p
Dividend per share 4 7.0p 6.5p
There are no recognised gains or losses other than the profit for the financial
year as reported above.
CONSOLIDATED BALANCE SHEET
28 February 28 February
2002 2001
£'000 £'000
Fixed assets
Tangible assets 29,701 30,550
Goodwill 140 75
29,841 30,625
Current assets
Stocks 68,408 65,690
Debtors 15,774 18,026
Cash at bank and in hand 17,261 13,535
101,443 97,251
Creditors: amounts falling due within one year (81,336) (80,424)
Net current assets 20,107 16,827
Total assets less current liabilities 49,948 47,452
Creditors: amounts falling due after more than one year (338) (421)
Provisions for liabilities and charges (774) (720)
Deferred income (294) (598)
48,542 45,713
Capital and reserves
Called up share capital 21,313 21,513
Share premium account 26,476 26,476
Capital redemption reserve 200 -
Profit and loss account 553 (2,276)
Equity shareholders' funds
48,542 45,713
Net cash 8,219 2,519
CONSOLIDATED CASH FLOW STATEMENT
Year ended Year ended
28 February 28 February
2002 2001
£'000 £'000
Restated
Net cash inflow from operating activities 16,483 16,028
Returns on investments and servicing of finance (29) (460)
Tax paid (3,352) (2,603)
Capital expenditure and financial investment (2,088) (686)
Acquisitions and disposals 460 (100)
Equity dividends paid (3,631) (3,362)
Net cash inflow before financing 7,843 8,817
Financing (4,117) (1,667)
Increase in cash in the year 3,726 7,150
Reconciliation of operating profit to net cash flow from operating activities
Year ended Year ended 28
28 February 2002 February 2001
£'000 £'000
Restated
Operating profit 10,433 8,919
Depreciation and amortisation 2,731 2,966
Profit on sale of tangible fixed assets (51) (8)
(Increase) in stocks (2,900) (3,093)
Decrease/(increase) in debtors 2,252 (212)
Increase in creditors 2,471 8,301
Net movement in demonstrator funding 1,547 (845)
Net cash inflow from operating activities 16,483 16,028
Analysis of changes in net cash
At 1 March Cash flow Other non- At 28 Feb
2001 cash changes 2002
£'000 £'000 £'000 £'000
Cash at bank and in hand 13,535 3,726 - 17,261
Bank overdraft - - - -
13,535 3,726 17,261
Debt due within one year (6,922) 3,442 - (3,480)
Debt due after one year (17) 17 - -
Finance leases (demonstrators) (3,547) 12,723 (14,270) (5,094)
Finance leases (other) (530) 168 (106) (468)
16,350
Total 2,519 20,076 (14,376) 8,219
NOTES TO THE STATEMENT OF PRELIMINARY RESULTS
1. Analysis of turnover
Year ended Year ended
28 February 28 February
2002 2001
£'000 £'000
Motor Retail Division 424,107 384,950
Motor Services Division 12,872 10,475
Other Businesses 4,102 4,253
441,081 399,678
2 Analysis of operating profit
Year ended Year ended
28 February 28 February
2002 2001
£'000 £'000
Motor Retail Division 11,332 9,982
Motor Services Division 836 655
Other Businesses 130 89
Central Costs (1,865) (1,807)
10,433 8,919
3 During the year, the Group disposed of its Toyota dealership in
Warminster.
4 The Directors recommend a final dividend of 4.00p (2001, 3.75p) per
share, to be paid on 5 September 2002 to shareholders on the register at 9
August 2002. An interim dividend of 3.00p (2001, 2.75p) per share was paid
during the year, making a total for the year of 7.00p (2001, 6.5p).
5 The calculation of earnings per share for the year ended 28 February
2002 is based on the profit for the financial year of £7,048,000 (2001,
£5,629,000) and on 53,621,696 (2001, 53,784,710) ordinary shares, being the
weighted average number of shares in issue during the year.
6. This preliminary results statement has been prepared on the basis of the same
accounting policies as those set out in the financial statements for the
year ended 28 February 2001, except for the adoption of FRS 18: Accounting
Policies and FRS 19: Deferred Tax. No restatement of prior years' profits
has been required by the adoption of FRS 18 or FRS 19.
7 This preliminary results statement was approved by the Board of
Directors on 24 April 2002. The above results for the year ended 28 February
2002 have been abridged from the full Group accounts for that year, which
received an unqualified auditors' report and which will be delivered to the
Registrar of Companies shortly.
8. The above results for the year ended 28 February 2001 have been abridged from
the full Group accounts for that year, which received an unqualified
auditors' report and which have been delivered to the Registrar of
Companies.
9. The Annual Report and Financial Statements will be posted to shareholders as
soon as practicable. Further copies will be available from the company's
registered office at Abbey Road, Park Royal, London NW10 7RY.
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