Interim Results

European Motor Hldgs PLC 16 October 2003 EUROPEAN MOTOR HOLDINGS plc Interim results for the six months ended 31 August 2003 Key points: •Profit before exceptional items, goodwill amortisation and tax up 9.0% to £6.7 million •Interim dividend increased by 6.3% to 3.4 pence per share •Net assets per share up by 4.7% since 28 February 2003 to 112.4 pence •Net cash £10.4 million •Good start to second half with record September performance •New Jaguar and Land Rover businesses acquired on 1 October •Bentley franchise secured for the North East of England Commenting on these results, Chief Executive Richard Palmer said: "Our profitability has improved further, we have captured new franchise territories, have strengthened our balance sheet and had a record start to the second half. We are therefore confident of the outcome for the year." 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 01491 413399 Chief Executive's statement The Group's profit before tax for the six months ended 31 August 2003 was £6.7 million on turnover of £242 million and we continued to show progress within our Motor Retail and Motor Services Divisions, with both improving on the prior period's results. The Group has consolidated its position as the leading performer in the quoted motor retail sector. Earnings per share before exceptional items and goodwill amortisation have risen from 7.9p to 8.4p, an increase of 6%, whilst overall earnings per share have increased to 8.5p for the first half. In line with our progressive dividend policy, we are increasing our interim dividend payment from 3.2p per share to 3.4p per share. Net assets have continued to rise during the period, totalling £59.8 million at 31 August, including net cash of £10.4 million. Trading Performance within our Motor Retail Division has been good, with operating profits before amortisation of goodwill increasing from £6.8 million to £7.2 million in the period under review, an increase of 7%. National registrations of new vehicles were 2% ahead of the previous period with our own like for like registrations increase exceeding this, as has been the pattern in recent years because of our strong brand profile. For our key franchises, total Group registrations including new businesses were 23% above the same period last year. Whilst some of our brands have suffered margin pressure, growth within others has more than compensated for this and, overall, our return on sales has improved compared to last year. During the period our profits and margins have improved with Audi, Jaguar and Volvo and profits at our Land Rover and Mini businesses have increased as the businesses continue to grow albeit with slightly lower margins. With BMW, like for like profits growth was hampered by some margin pressure in the first half of the year but, overall, profits from this franchise have improved significantly as a result of the purchase of our Stockton dealership in February this year. Our Volkswagen businesses' margins and profits have suffered during the period due to two factors. Firstly, in the South East where we are at the early stages of developing a market area in South West London and have very immature businesses, the economic environment has been more difficult than in other parts of the country and, secondly, the current Volkswagen Golf is reaching the end of its product cycle and discounting on this retail oriented car has become prevalent. The new Golf is expected in early 2004 and will, we believe, help greatly to reverse this situation. Within the Motor Retail Division we have replaced earnings from the established businesses that we sold in the comparative period last year with earnings from less mature or start-up businesses. We are, therefore, very satisfied with our increased profits in the period and believe that we have considerable scope to continue to improve the new businesses. Our auction businesses have had an excellent start to the year, with higher volumes and profits, and our import business, even though in a very competitive sector of the market, continues to perform well. Our Motor Services Division, which comprises Wilcomatic and related companies, performed particularly well, with operating profit up from £189,000 to £548,000. The Division sold more equipment and took on increased volumes of service work during the period, and these factors, together with an improved performance from our retail washing operations, resulted in an excellent performance overall. Business development Changes to the EU Block Exemption regulations took effect on 1 October 2003 and these changes will have a number of effects upon the motor retailing industry. Further consolidation within the industry is now likely as acquirors have greater freedom, and the new franchise contracts give us greater security, making investment decisions easier. The introduction of new manufacturer standards by the brands we represent will ensure that potential customers will continue to enjoy a high level of facilities and services, and this, we believe, will help to ensure their loyalty. We intend to continue to expand our portfolio with our core partners. Our position with Audi is still to be resolved but, following discussions, we remain confident that we will secure a territory to represent Audi beyond August next year when our current franchises expire. On 1 October 2003 we acquired the business and certain assets of the Jaguar and Land Rover operations in Preston for a net consideration of £4.93 million, of which £3.35 million represented freehold and very long leasehold properties at two sites and £0.65 million represented goodwill. The payment for goodwill represented less than one year's profits for the businesses, based on management accounts for the year ended 31 December 2002. These businesses complement our existing successful operations within these franchises and represent an outstanding opportunity to develop with these brands. It gives me great pleasure to inform you that, subject only to completion of facilities within agreed timescales, we will represent Bentley exclusively in the North East of England, opening in the first quarter of next year. We will be joining the Bentley brand at a very exciting time, with the imminent launch of the widely acclaimed Continental GT. We believe this will prove to be a very important and profitable addition for the Group. It also further extends our relationship with the Volkswagen group. Financial review As stated above, profit on ordinary activities before tax for the six months ended 31 August 2003 was £6.7 million compared to £6.4 million in the corresponding period last year. This year's result includes exceptional profits of £0.1 million relating to the surrender of a leasehold property in Nantwich, whilst the comparative figure included exceptional profits of £0.3 million on the disposal of a number of businesses. Excluding these exceptional items, the profit for the period was £6.6 million, compared to £6.1 million for the same period last year, an increase of 8%. These results demonstrate that the acquisitions we made in February and March this year and the continuing growth within our established businesses have more than compensated for the loss of the earnings of the businesses disposed of last year. When the impact of goodwill amortisation charges relating to businesses acquired recently is removed, underlying profits, excluding exceptional items, increased from £6.1 million to £6.7 million, an increase of 9%. The tax charge for the period under review is based on the estimated effective tax rate for the full financial year. This results in a tax rate for the six months of approximately 33%, the same as last year. Earnings per share for the period were 8.5p compared to 8.4p last year. Excluding the exceptional items, the figure for this year is 8.3p compared to 7.8p last year. The Board has declared an interim dividend of 3.4p per share, representing a 6% increase on last year. Dividend cover excluding exceptional items for the period is 2.4 times, the same as last year. The net effect of branches opened and sold since last year is a reduction in turnover of £7 million. However, within our continuing Motor Retail businesses, increases in vehicle sales volumes and increases in the average prices of vehicles sold have more than offset this reduction. There has also been an increase in turnover at Wilcomatic, due primarily to a significant increase in equipment sales. As a result of all these factors, there has been a net increase of £11 million in overall Group turnover compared to the first half of last financial year. Operating profit has increased to 2.7% of turnover, compared to 2.6% last year and the Group continues to be one of the most profitable in the industry. Notwithstanding the cash generated during the period, average net cash balances were lower than in the comparative period due to the net cash outflow in the second half of last financial year on acquisitions, dividends and investment in working capital. This has resulted in a small decrease in net interest receivable (excluding new vehicle stocking interest) for the period. As evidenced by the balance sheet, the Group continues to be in a very strong financial position. During the period, we have invested £1.3 million in capital expenditure, less receipts of £0.2 million in respect of disposals and also invested £0.5 million in the acquisition of a Volkswagen business in Walton on Thames. During the period, the Company issued 360,000 shares in respect of the exercise of options, resulting in a cash inflow of £0.3 million. We have invested £0.2 million in working capital during the period, and paid £1.8 million in respect of taxation, against which there has been a net receipt from finance leases and letters of credit of £2.0 million. The net effect of these cash flows, together with the £8.1 million operating profit (after adding back depreciation and amortisation) in the period, is a net cash inflow of £6.8 million. The Group has a net cash balance of £10.4 million at 31 August 2003. The Group's net cash level at 31 August is not representative of the year as a whole because, immediately prior to a month with a registration plate change, 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. Additionally, the timing of dividend payments is such that all dividends are paid in the second half of the financial year. As we announced in August, we have been negotiating with HM Customs & Excise in respect of issues arising from recent changes in VAT case law. Confirmation has been received from HM Customs & Excise that the Group's retrospective claims in respect of these changes have been agreed in principle, although the quantum of recovery is yet to be confirmed. We hope to receive this confirmation before the end of this financial year and the amounts receivable are expected to be significant, but are not, as yet, accurately predictable. Outlook We have just had a record performance for September in our Motor Retail Division, giving us a very positive start to the second half of the financial year. We have a number of key new model introductions in the second half including, from BMW, the '5' series which was launched in September, the '6' series and facelifted X5 to be launched early next year; from Jaguar, the 'X' type diesel which was launched in September, and, from Volkswagen, the important new Golf, which is expected early next year. Based on this, I believe that we can look forward to a period of enhanced sales activity in our second half year. Businesses acquired at the end of our last financial year and our recently acquired Jaguar and Land Rover businesses will make an additional contribution in the period and we are confident of the outcome for the year. Current trading and prospects enable us to look forward to a very satisfactory result for the year for our Motor Services Division. Our goal is to continue to expand the Motor Retail business with our core manufacturer partners and we have significant resources available to do this. Richard Palmer Chief Executive 16 October 2003 CONSOLIDATED PROFIT AND LOSS ACCOUNT Notes Six months Six months Year ended ended ended 31 August 31 August 28 February 2003 2002 2003 £'000 £'000 £'000 Turnover 1 242,100 231,357 430,005 Cost of sales (207,070) (198,220) (365,934) --------- --------- --------- Gross profit 35,030 33,137 64,071 Distribution costs (16,639) (15,422) (29,315) ---------------------------------------------------------------------------- Goodwill amortisation (89) (10) (28) Other administrative expenses (11,773) (11,714) (23,829) ---------------------------------------------------------------------------- Administrative expenses (11,862) (11,724) (23,857) --------- --------- --------- Operating profit 2 6,529 5,991 10,899 Profit on disposal of businesses - 304 298 Profit on disposal of properties 3 115 - 1,746 Interest receivable 163 320 516 Interest payable (97) (187) (228) --------- --------- --------- Profit on ordinary activities before taxation 6,710 6,428 13,231 Tax on profit on ordinary activities 4 (2,185) (2,009) (3,689) --------- --------- --------- Profit on ordinary activities after taxation 4,525 4,419 9,542 Dividends 5 (1,825) (1,690) (3,965) --------- --------- --------- Retained profit for the financial period 2,700 2,729 5,577 ========= ========= ========= Earnings per share (basic) 6 8.5p 8.4p 18.2p ========= ========= ========= Earnings per share (diluted) 6 8.4p 8.3p 17.9p ========= ========= ========= Dividend per share 5 3.4p 3.2p 7.5p ========= ========= ========= There are no recognised gains or losses other than the profit for the period as reported above. CONSOLIDATED BALANCE SHEET 31 August 31 August 28 February 2003 2002 2003 £'000 £'000 £'000 Fixed assets Tangible assets 34,998 31,474 35,178 Goodwill 2,283 130 2,332 ---------- --------- --------- 37,281 31,604 37,510 ---------- --------- --------- Current assets Stocks 73,702 71,947 78,379 Debtors 18,443 16,681 17,657 Cash at bank and in hand 20,294 25,905 13,543 ---------- --------- --------- 112,439 114,533 109,579 Creditors: amounts falling due within one year (88,602) (91,473) (89,029) ---------- --------- --------- Net current assets 23,837 23,060 20,550 ---------- --------- --------- Total assets less current liabilities 61,118 54,664 58,060 Creditors: amounts falling due after more than one year (236) (271) (273) Provisions for liabilities and charges (1,052) (768) (969) Deferred income - (140) - ---------- --------- --------- 59,830 53,485 56,818 ========== ========= ========= Capital and reserves Called up share capital 21,295 20,924 21,151 Share premium account 27,169 26,743 27,001 Capital redemption reserve 746 746 746 Profit and loss account 10,620 5,072 7,920 ---------- --------- --------- Equity shareholders' funds 59,830 53,485 56,818 ========== ========= ========= Net cash 10,378 18,045 5,562 ========== ========= ========= Net assets per share 112.4p 102.2p 107.4p ========== ========= ========= CONSOLIDATED CASH FLOW STATEMENT Six months Six months Year ended ended ended 31 August 31 August 28 February 2003 2002 2003 £'000 £'000 £'000 Net cash inflow from operating activities 9,685 8,589 9,967 Returns on investments and servicing of finance 66 133 288 Tax paid (1,759) (1,489) (3,717) Capital expenditure and financial investment (1,091) (4,042) (4,008) Acquisitions and disposals (496) 7,087 (1,003) Equity dividends paid - - (3,767) ---------- --------- --------- Net cash inflow/(outflo w) before financing 6,405 10,278 (2,240) Financing 346 (1,634) (1,478) ---------- --------- --------- Increase/(decr ease) in cash in the period 6,751 8,644 (3,718) ========== ========= ========= Reconciliation of operating profit to net cash flow from operating activities Six months Six months Year ended ended ended 31 August 31 August 28 February 2003 2002 2003 £'000 £'000 £'000 Operating profit 6,529 5,991 10,899 Depreciation and amortisation 1,555 1,378 2,802 (Profit) on sale of tangible fixed assets (9) (41) (63) Decrease/(incr ease) in stocks 5,136 (5,657) (9,698) (Increase) in debtors (786) (907) (1,908) (Decrease)/inc rease in creditors (4,577) 8,937 8,675 Net movement in demonstrator funding 1,837 (1,112) (740) ---------- --------- --------- Net cash inflow from operating activities 9,685 8,589 9,967 ========== ========= ========= Analysis of changes in net cash At Cash Other non At 1 March flow cash 31 August 2003 changes 2003 £'000 £'000 £'000 £'000 Cash at bank and in 13,543 6,751 - 20,294 hand -------- Debt due within one year (3,205) (115) - (3,320) Finance leases (demonstrators) (4,354) 8,405 (10,242) (6,191) Finance leases (other) (422) 81 (64) (405) -------- 8,371 -------- -------- --------- --------- Total 5,562 15,122 (10,306) 10,378 ======== ======== ========= ========= NOTES TO THE STATEMENT OF PRELIMINARY RESULTS 1. Analysis of turnover Six months Six months Year ended ended ended 31 August 31 August 28 February 2003 2002 2003 £'000 £'000 £'000 Motor Retail Division 231,193 222,911 410,566 Motor Services Division 8,990 6,550 15,494 Other Businesses 1,917 1,896 3,945 ---------- --------- -------- 242,100 231,357 430,005 ========== ========= ======== 2 Analysis of operating profit Six months Six months Year ended ended ended 31 August 31 August 28 February 2003 2002 2003 £'000 £'000 £'000 Motor Retail Division 7,116 6,742 11,879 Motor Services Division 548 189 1,034 Other Businesses (35) 15 90 Central costs (1,100) (955) (2,104) ---------- --------- --------- 6,529 5,991 10,899 ========== ========= ========= 3 During the period, the Group surrendered its interest in a vacant leasehold site in Nantwich. 4 The charge for taxation is based on the estimated effective rate for the financial year. 5 An interim dividend of 3.4p (2002, 3.2p) per share will be paid on 4 December 2003 to shareholders on the register at 7 November 2003. 6 The calculation of earnings per share for the six months ended 31 August 2003 is based on the profit for the financial period of £4,525,000 (2002, £4,419,000) and on 53,041,319 (2002, 52,451,938) ordinary shares, being the weighted average number of shares in issue during the period. The number of dilutive potential ordinary shares arising from share options, as calculated in accordance with FRS 14: Earnings per Share, is 748,927 (2002, 998,254). Therefore, the calculation of diluted earnings per share is based on the profit for the financial period of £4,525,000 (2002, £4,419,000) and on 53,790,246 (2002, 53,450,192) ordinary shares. 7 This interim 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 2003. 8 This interim statement was approved by the Board of Directors on 16 October 2003. The foregoing financial information does not represent full accounts within the meaning of Section 240 of the Companies Act 1985 and has been neither reviewed nor audited by the auditors nor delivered to the Registrar of Companies. The above results for the year ended 28 February 2003 have been abridged from the full Group accounts for that period, which received an unqualified auditors' report and which have been delivered to the Registrar of Companies. This information is provided by RNS The company news service from the London Stock Exchange

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