Interim Results
European Motor Hldgs PLC
19 October 2004
EUROPEAN MOTOR HOLDINGS plc
Interim results for the six months ended 31 August 2004
Key points:
• Profit before exceptional items, goodwill amortisation and tax up 23%
to £8.2 million
• Earnings per share before exceptional items and goodwill amortisation
up 24% to 10.4 pence
• Profit before tax increased from £6.7 million to £21.4 million
• Interim dividend increased by 9% to 3.7 pence per share
• Net assets per share up by 20% since 29 February 2004 to 145.9 pence
• Net funds of £26.3 million
• Second half started well
Commenting on these results, Chief Executive Richard Palmer said:
"EMH has had its best ever first half year performance; our franchise portfolio
has once again outperformed the market and demand for our products remains
strong."
Enquiries:
Richard Palmer Chief Executive
European Motor Holdings plc
Ann Wilson Finance Director
European Motor Holdings plc
Morning: Investec 020 7597 5000
Afternoon: European Motor Holdings plc 01491 413 399
Biddick Associates 020 7448 1000
EUROPEAN MOTOR HOLDINGS plc
Interim results for the six months ended 31 August 2004
Chief Executive's statement
We are pleased to announce another record first half performance with the
Group's profit before tax and exceptional items for the six months ended 31
August 2004 increasing by 23% to £8.1 million from £6.6 million last year. In
addition, we have made exceptional profits of £13.3 million in the current
period relating to our previously announced VAT refund and associated interest,
and profits on disposal of businesses and property. In the prior period
exceptional profits were £0.1 million. In total, therefore, our profit before
tax for the period was £21.4 million compared with £6.7 million last year.
Our trading performance has been excellent, with operating profits rising from
£6.5 million last year to £7.9 million, an increase of 21%.
Earnings per share before exceptional items and goodwill amortisation rose by
24% to 10.4 pence per share, an increase of 24%, and overall earnings per share
including exceptional items grew to 28.1 pence per share. We have increased the
interim dividend by 9% to 3.7 pence per share.
At 31 August 2004 our net assets per share were 145.9 pence and our net cash was
£26.3 million.
These results confirm our position as the leading performer in the UK quoted
motor retail sector and, we believe, demonstrate that we have made the correct
choice of brand partners and geographic areas in which to operate.
Background
Our strategy over many years has been to concentrate on a relatively small
number of manufacturers in the premium sector of the market and, following a
period of controlled, profitable disposals of non core businesses, thirty four
of our thirty six franchises are now held with the BMW group, the Premier Auto
motive Group and the Volkswagen group. We remain totally committed to this
strategy, which has resulted in performance improvements year on year since its
inception. In the first eight months of the calendar year all of our chosen
partners have registered more vehicles than in the equivalent period of the
preceding year and, overall, registrations in this period for our key franchises
have increased by 6% nationally compared with an increase of 1% for all marques.
This again re-affirms the fact that customers are continuing to migrate from
'volume' cars to premium and specialist cars mainly, we believe, because their
cost of ownership is less than that of volume competitors. Brand has become one
of the most important factors in our customers' vehicle buying decisions and the
brands that we represent continue to capitalise on their very positive perceived
values.
The impact of the rise in market share of the premium brands that we represent
is two-fold. Our new vehicle sales have continued to increase year on year and
there has been a consequential increase in sales of own brand used vehicles, on
which we concentrate, and aftersales. We expect this pattern to continue with
the growth in parc of our franchises.
Much has been said about the possible impact of rising interest rates on the
retail sector. Whilst increases in interest rates have in the past had some
relevance to our trading patterns, we believe that because, in real terms,
vehicle prices and interest rates are still at relatively low levels, our sales
have not been significantly affected by interest rates. Our new vehicle sales
for our key partners have increased by 14% overall in the period under review
and by 11% on a like for like basis. Additionally, many of our customers are
opting to pay for the usage of their vehicles rather than an outright purchase.
These finance options can guarantee the future residual value of the vehicle and
offer fixed interest rates to the customer without exposing the Group, as the
risks associated with this form of financing are borne by external lenders.
Finally, we are seeing evidence that the interest rates applicable to motor
retail finance have begun to decrease and this month two of the Group's major
retail finance providers have reduced the rates they offer for our customers.
Customer satisfaction continues to be a vital element in customer retention and
we are committed to a programme of continuous improvement in this area.
Trading
Operating profit within our Motor Retail Division has increased by 22% from £7.1
million to £8.7 million and turnover for the Division grew 17% to £272 million
as a result of new branches and increased sales of new and used vehicles. Our
return on sales rose to 3.2%, which we believe is an industry leading figure for
a group of our size.
Looking specifically at the performance within our brand portfolio, our BMW and
Mini dealerships had an outstanding first half. They achieved substantial growth
in the period with excellent progress being made particularly in our aftersales
departments. These businesses are now delivering exceptional return on sales
with the two larger of the four businesses achieving returns above 5%.
We have continued to make excellent progress with these franchises at the start
of the second half, which will include for the first time sales of the new '1'
series following its recent successful launch. We are continuing to invest in
both BMW and Mini with the ongoing development of our new Durham dealerships and
the separation of Mini from BMW at all locations.
Our Premier Automotive Group businesses also moved forward during the period.
Within our Jaguar businesses we achieved substantial improvements in
profitability during the period, particularly in aftersales, and our dealerships
continue to be amongst the most profitable in the Jaguar dealer network. Our
Jaguar registrations increased by 90% in total and 58% on a like for like basis
during the period, compared with an increase nationally of 21%. Much of this
growth was fuelled by the success of the 'X' Type diesel which was joined in the
period by a diesel version of the 'S' Type. These vehicles are generating more
sales in the important corporate sector of the market where, in the past, Jaguar
has not had a significant share because of the absence of diesel derivatives. We
can also look forward to the introduction of the 'XJ' diesel which will give us
a full range of cars that are fully competitive in the corporate sector.
Our two Land Rover businesses have performed well with increases in
profitability and in unit sales. Our Chester business is currently the second
largest Land Rover business in the UK in terms of new units sold and Preston is
the fourteenth largest. We await with optimism the launch of the new Discovery
in November and believe that this will further help to ensure another very
satisfactory year for these businesses.
Our Volvo businesses performed well during a difficult period for the brand with
the changeover of the old S40 and V40 models to the new S40 and V50. Following
the run-out of the old model, we were without the entry level new S40 for some
months and this has had a negative effect on the first half. However, we look
forward to the second half when we will have a full range of S40 and V50
products to retail and good volumes of XC90, Volvo's 4 x 4 vehicle, which is
still experiencing strong demand.
In 2002 both Audi and Volkswagen decided to restructure their dealer networks
into market areas and this gave rise to a requirement for us to acquire and
dispose of a number of businesses within a two year period. We have had to
manage a great deal of change in the current period in order to achieve this.
We have moved from a position of having three Audi businesses in Sunderland,
Chester and Tetbury to being awarded a market area in the West of England based
around our existing operation in Tetbury. This business has become one of the
most successful dealerships of any brand in the Group and its performance has
improved in both profitability and unit sales in comparison with last year.
As previously announced, we took the first step in the establishment of our
market area by acquiring Swindon Audi for £1.7 million in August. We are
optimistic about the prospects for this area and the Audi brand as it continues
to move forward. Audi has an exciting new model programme in future years,
including the introduction of the face lifted A4 in January 2005.
Audi continues to increase its market share and we are delighted to be one of
its continuing long term partners.
We sold our Sunderland Audi business in August generating an exceptional profit
of £0.5 million and sold our Chester business in September achieving an
exceptional profit of £1.5 million. These businesses, which were sold to Audi
partners with market areas in the respective regions, contributed an operating
profit of £0.6 million in the first half of the year.
Our Volkswagen representation now comprises market areas in the North West of
England, with dealerships in Chester, Wrexham and the Wirral, and South West
London where we have dealerships in Chiswick, Heathrow and Twickenham. We have
retained two further stand alone businesses in Cirencester and Sunderland.
Whilst these two businesses do not form part of larger market areas, they are a
good geographical fit with other Group businesses. It is likely that we will
dispose of our remaining Volkswagen business in Darlington in the near future.
We have made considerable progress within our continuing Volkswagen businesses
with improvements in sales volumes and profitability. The new Golf Mark V has
been a success and we have purchased from Volkswagen a number of advantageously
priced vehicles. Our businesses, particularly in South West London, are still in
the process of development and will not achieve optimum performance in the short
term, but we are confident that we will continue to improve our returns and
achieve real growth within these businesses going forward.
Our first Bentley dealership was opened in Newcastle in March 2004 and has had a
very successful and profitable first six months. We are extremely pleased with
our progress and are delighted to be representing this most prestigious of
brands in the North East of England. We look forward to the introduction of the
new Bentley four door saloon which will complement the very successful
Continental GT when it is launched next year.
Our auction businesses continue to provide a valuable service to the Group and
an important income stream and our import franchise's contribution continues at
expected levels. Within the Perodua franchise we are planning a significant new
model introduction within the next eighteen months which, we believe, will
provide an exciting opportunity for the Group.
Our Motor Services Division had another satisfactory start to the year with
operating profit for the period of £0.5 million. We look forward to further
progress in the second half and have an order book which is substantially higher
than last year. The Division's service department has continued its success by
increasing its number of contracts by 16% to 1,824. Our retail washing business
was set up as an experiment but was not as successful as we had hoped and we
therefore disposed of it in October at a small profit. The business contributed
a small loss during the period under review.
We believe that we have once again differentiated ourselves from the rest of the
motor retail industry by concentrating on the areas of the market where we can
continue to achieve sustainable growth and where we have demonstrated improving
returns over many years. These achievements are reflected in the Group's profit
before tax and exceptional items for the six months ended 31 August 2004 which
was greater than that achieved in the whole of the year ended 28 February 2000.
Since that latter date our net funds have increased by over £33 million and net
assets have increased by 80% to 145.9 pence per share.
Financial review
As stated above, profit on ordinary activities before tax for the six months
ended 31 August 2004 was £21.4 million compared to £6.7 million in the
corresponding period last year. This year's result includes a number of
exceptional profits. The major exceptional item was the Group's retrospective
VAT claim in respect of changes in VAT law concerning the VAT treatment of
demonstrator vehicles. The VAT refund, which was received in the period under
review, amounted to £6.2 million and there was an associated exceptional
interest credit of £6.1 million, which has also now been received in full. In
addition, exceptional profits of £0.7 million have arisen on the disposal of the
Group's Audi dealership in Sunderland and its DAF/LDV dealership in Taunton and
a further £0.3 million on the disposal of a surplus freehold property in
Heswall. The exceptional profits included in the comparative period amounted to
£0.1 million on the surrender of a leasehold property.
Excluding the exceptional items referred to above and goodwill amortisation, the
profit for the period was £8.2 million, compared to £6.7 million for the same
period last year, an increase of 23%.
The tax charge for the period under review is based on the estimated effective
tax rate for the full financial year in respect of profit before exceptional
items. This rate of 33% is similar to last year. Provision has also been made
for corporation tax at the rate of 30% on the exceptional VAT claim and the
associated interest credit, although it may be possible to reduce this charge in
due course. The exceptional profits arising on disposal of businesses and
properties are to be relieved by rollover of the relevant chargeable gains and,
therefore, no tax has been provided in respect of them in the current period.
Earnings per share for the period were 28.1p compared to 8.5p last year.
Excluding goodwill amortisation and exceptional items, the figure for this year
is 10.4p, an increase of 24%. The Board has declared an interim dividend of 3.7p
per share, representing a 9% increase on last year. Dividend cover, excluding
exceptional items, for the period is 2.8 times, compared to 2.4 times last year.
The net effect of branches opened, acquired and sold since last year is an
increase in turnover of £12 million. Within our continuing Motor Retail
businesses, higher vehicle sales volumes and average prices of vehicles sold
have increased turnover by a further £27 million. There has also been an
increase in Motor Retail aftersales turnover, which has compensated for the
slight reduction in Motor Services turnover. As a result of all these factors,
there has been a net increase of £39 million in overall Group turnover compared
to the first half of last financial year.
Operating profit has increased to 2.8% of turnover, compared to 2.7% last year
and the Group continues to be one of the most profitable in the industry at this
level.
Average net cash balances were higher than in the comparative period due to the
net cash inflow in both the second half of last financial year and the first
half of this financial year. This has resulted in net interest receivable
(excluding new vehicle stocking interest) for the period of £0.2 million,
compared to £0.1 million last year.
As evidenced by the balance sheet, the Group continues to be in a very strong
financial position. Shareholders' funds have increased in the period by £12.4
million to £77.6 million at 31 August 2004. During the period, we have invested
£0.4 million in capital expenditure, less receipts of £0.4 million in respect of
disposals of fixed assets and also invested £1.4 million in the acquisition of
new businesses. The proceeds of disposal of the two businesses sold in the
period amounted to £2.7 million.
During the period, the Company issued 35,000 shares in respect of the exercise
of options and purchased for cancellation 450,000 of its shares resulting in a
net cash outflow of £0.8 million.
We have invested £4.6 million in working capital during the period and paid £2.4
million in respect of tax. There has also been a net payment in respect of
finance leases and letters of credit of £0.9 million. The net effect of these
cash flows and of the £9.4 million operating profit (after adding back
depreciation and amortisation) and the exceptional VAT and interest received in
the period of £11.8 million, is a net cash inflow of £14.0 million. The Group
has a net funds balance of £26.3 million at 31 August 2004.
The Group's net funds position 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. The peak net funds level during
the period of £27.2 million occurred towards the end of the period, but this
level has since fallen to a low of £8.6 million in early October following the
high sales month of September and the payment of last year's final dividend.
Nevertheless, the Group remains extremely well placed to expand whilst retaining
low borrowing levels.
Outlook
The first six months of the year were very successful for us. We have started
the second half strongly, ahead of last year's record levels. We have much to
look forward to in the remainder of the year particularly as our manufacturing
partners continue to produce outstanding new cars for us to retail which, in
many cases, expand their existing ranges and which will, we are sure, continue
to stimulate our sector of the market.
Our strategy continues to focus on expansion with our existing partners and
opportunities exist to make complementary acquisitions in the second half,
funded from our significant cash resources.
We are confident about the outcome for the full year and look forward to the
remainder of the period with optimism.
Richard Palmer
Chief Executive
19 October 2004
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Notes Six months Six months Year
ended ended ended
31 August 31 August 29 February
2004 2003 2004
£'000 £'000 £'000
Turnover 1 281,164 242,100 489,525
Cost of sales (241,932) (207,070) (417,592)
--------- --------- ---------
Gross profit 39,232 35,030 71,933
Distribution
costs (18,484) (16,639) (33,932)
--------------------------------------------------------------------------------
Goodwill
amortisation (128) (89) (208)
Other
administrative
expenses (12,748) (11,773) (24,218)
--------------------------------------------------------------------------------
Administrative
expenses (12,876) (11,862) (24,426)
--------- --------- ---------
Operating
profit 2 7,872 6,529 13,575
Profit on
disposal of
businesses 3 702 - 117
Profit on
disposal of
properties 3 277 115 2,929
Exceptional
VAT claim 6,194 - -
Interest
receivable 407 163 377
Interest
payable (182) (97) (221)
Exceptional
interest on
VAT claim 6,105 - -
--------- --------- ---------
Profit on
ordinary
activities
before
taxation 21,375 6,710 16,777
Tax on profit
on ordinary
activities 4 (6,322) (2,185) (4,444)
--------- --------- ---------
Profit on
ordinary
activities
after taxation 15,053 4,525 12,333
Dividends 5 (1,968) (1,825) (4,563)
--------- --------- ---------
Retained
profit for the
financial
period 13,085 2,700 7,770
========= ========= =========
Earnings per
share (basic) 6 28.1p 8.5p 23.2p
========= ========= =========
Earnings per
share
(diluted) 6 27.6p 8.4p 22.7p
========= ========= =========
Dividend per
share 5 3.7p 3.4p 8.5p
========= ========= =========
There are no recognised gains or losses other than the profit for the period as
reported above.
CONSOLIDATED BALANCE SHEET
31 August 31 August 29 February
2004 2003 2004
£'000 £'000 £'000
Fixed assets
Tangible assets 35,184 34,998 36,317
Goodwill 4,460 2,283 2,854
---------- --------- ---------
39,644 37,281 39,171
---------- --------- ---------
Current assets
Stocks 86,431 73,702 88,096
Debtors 18,836 18,443 18,381
Cash at bank and in hand 36,608 20,294 22,553
---------- --------- ---------
141,875 112,439 129,030
Creditors: amounts falling
due within one year (102,596) (88,602) (101,727)
---------- --------- ---------
Net current assets 39,279 23,837 27,303
---------- --------- ---------
Total assets less current
liabilities 78,923 61,118 66,474
Creditors: amounts falling
due after more than one year (389) (236) (260)
Provisions for liabilities
and charges (975) (1,052) (1,042)
---------- --------- ---------
77,559 59,830 65,172
========== ========= =========
Capital and reserves
Called up share capital 21,261 21,295 21,427
Share premium account 27,325 27,169 27,309
Capital redemption reserve 926 746 746
Profit and loss account 28,047 10,620 15,690
---------- --------- ---------
Equity shareholders' funds 77,559 59,830 65,172
========== ========= =========
Net funds 26,348 10,378 12,978
========== ========= =========
Net assets per share 145.9p 112.4p 121.7p
========== ========= =========
CONSOLIDATED CASH FLOW STATEMENT
Six months Six months Year
ended ended ended
31 August 31 August 29 February
2004 2003 2004
£'000 £'000 £'000
Net cash
inflow from
operating
activities 17,005 9,685 18,967
Returns on
investments
and servicing
of finance 225 66 156
Tax paid (2,362) (1,759) (3,868)
Capital
expenditure
and financial
investment 22 (1,091) 2,359
Acquisitions
and disposals 1,258 (496) (4,818)
Equity
dividends paid - - (4,105)
---------- --------- ---------
Net cash
inflow before
financing 16,148 6,405 8,691
Financing (2,093) 346 319
---------- --------- ---------
Increase in
cash in the
period 14,055 6,751 9,010
========== ========= =========
Reconciliation of operating profit to net cash flow from operating activities
Six months Six months Year
ended ended ended
31 August 31 August 29 February
2004 2003 2004
£'000 £'000 £'000
Operating
profit 7,872 6,529 13,575
Depreciation 1,426 1,466 2,999
Amortisation
of goodwill 128 89 208
(Profit) on
sale of
tangible fixed
assets (5) (9) (25)
Exceptional
VAT and
interest
received 11,849 - -
Decrease/(increase)
in stocks 3,153 5,136 (8,211)
Decrease/(increase)
in debtors 440 (786) (735)
(Decrease)/increase
in creditors (8,161) (4,577) 9,461
Net movement
in demonstrator
funding 303 1,837 1,695
---------- --------- ---------
Net cash
inflow from
operating
activities 17,005 9,685 18,967
========== ========= =========
Analysis of changes in net funds
At 1 March Cash flow Other non At 31 August
2004 cash changes 2004
£'000 £'000 £'000 £'000
Cash at bank
and in hand 22,553 14,055 - 36,608
Debt due
within one year (3,128) (13) (29) (3,170)
Debt due after
more than one year - 500 (573) (73)
Finance leases
(demonstrators) (6,049) 8,872 (9,175) (6,352)
Finance leases
(other) (398) 607 (874) (665)
9,966
-------- -------- --------- ---------
Total 12,978 24,021 (10,651) 26,348
======== ======== ========= =========
NOTES TO THE STATEMENT OF PRELIMINARY RESULTS
1. Analysis of turnover
Six months Six months Year
ended ended ended
31 August 31 August 29 February
2004 2003 2004
£'000 £'000 £'000
Motor Retail
Division 271,527 231,193 468,390
Motor Services
Division 7,566 8,990 17,248
Other
Businesses 2,071 1,917 3,887
---------- --------- --------
281,164 242,100 489,525
========== ========= ========
2 Analysis of operating profit
Six months Six months Year
ended ended ended
31 August 31 August 29 February
2004 2003 2004
£'000 £'000 £'000
Motor Retail
Division 8,675 7,116 14,855
Motor Services
Division 504 548 1,209
Other
Businesses 41 (35) (37)
Central costs (1,348) (1,100) (2,452)
---------- --------- ---------
7,872 6,529 13,575
========== ========= =========
3 During the period, the Group disposed of its Audi dealership in Sunderland and
its DAF/LDV dealership in Taunton. The Group also disposed of its interest in
a vacant property in Heswall.
4 The charge for taxation is based on the estimated effective rate for the
financial year and includes a provision at the rate of 30% on the exceptional
VAT claim and associated interest. It may be possible to reduce this latter
charge in due course.
5 An interim dividend of 3.7p (2003, 3.4p) per share will be paid on 6 December
2004 to shareholders on the register at 5 November 2004.
6 The calculation of earnings per share for the six months ended 31 August 2004
is based on the profit for the financial period of £15,053,000 (2003,
£4,525,000) and on 53,525,150 (2003, 53,041,319) 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 1,120,736 (2003, 748,927).
Therefore, the calculation of diluted earnings per share is based on the
profit for the financial period of £15,053,000 (2003, £4,525,000) and on
54,645,886 (2003, 53,790,246) 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 29 February 2004.
8 This interim statement was approved by the Board of Directors on 19 October
2004. 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 29 February 2004 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
Latest directors dealings
- 1 hour ago Kenmare Resources (CDI)
- 2 hours ago Earnz
- 2 hours ago Wetherspoon (J.D.)
- 2 hours ago Informa
- 3 hours ago Dowlais Group