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Universal Salvage (UVS)

  Print      Mail a friend       Annual reports

Tuesday 25 June, 2002

Universal Salvage

Final Results


UK's largest vehicle salvage &  services group


*    Further improvement in gross margin for the year to 23.9% (2001:

*    Underlying pre-tax profit increased by 8.6% to £7.1 million (2001:
     £6.6 million)

*    Profit before tax reduced slightly to £6.5 million (2001: £6.6
     million) after non-recurring charges of £0.7 million

*    Earnings per share decreased by 4% to 16.2p (2001: 16.9p per share)

*    Net assets increased by 23% to £24.3 million (2001: £19.7 million)

*    Continued strong cash generation from operating activities

*    Proposed final dividend of 3.8p per share, giving a total dividend
     of 5.0p per share (2001: 4.2 pence per share), an overall increase of 19%

Commenting, Chairman, Alexander Foster, said,

"Despite a disappointing final quarter, the Group's trading results for
the year show an improvement on last year, with underlying pre-tax
profits rising by 8.6% to £7.1 million and gross margins improving.

More significantly, in the final quarter, we were unexpectedly given
notice by our largest motor insurance customer of its intention to
terminate its contract with the company.  We are obviously disappointed
by this development and instructions of vehicles will cease at the end
of June.  Although this sets us back in the short term, we remain very
confident of replacing the lost business and then increasing the volume
of vehicles we handle.

The levels of service and ethical and environmental compliance we offer
invariably mean that insurance companies can currently take lower cost
alternatives.  Such options will be significantly reduced with the
implementation of the hazardous waste legislation.  Our offering, which
clearly differentiates us from our competitors, gives national coverage
through a single integrated system with a unified set of service
standards across a network of branches.

We see our marketplace widening outside total loss insurance vehicles.
The considerable investment we have made in systems and infrastructure
over the last few years means that Universal is now well-placed to
handle efficiently and ethically problem vehicles including low value
undamaged cars to end of life vehicles.

The management team is focused on rebuilding shareholder value and I
expect to report encouraging progress at the half year.

For further information:
Universal Salvage plc         Martin Hynes, chief executive T: 020 7448 1000
Biddick                       Katie Tzouliadis              T: 020 7448 1000



The Group's trading results for the year to 27 April 2002 show an
improvement on last year, with underlying pre-tax profits rising by 8.6%
to £7.1 million against £6.6 million last year. However, we generated a
profit of £0.1 million on the disposal of an unlisted investment in the
first half and incurred non-recurring charges totalling £0.7 million in
the second half.  After taking these into account, profit before tax
shows a reduction of 0.7% to £6.5 million.

Turnover was broadly similar at £84.5 million (2001: £84.2 million),
reflecting a similar number of vehicles handled.  The gross margin for
the year improved from 22.6% to 23.9%.  Basic earnings per share
decreased by 4% to 16.2p (2001: 16.9p per share). Net assets increased
by 23% to £24.3 million (2001: £19.7 million).  Fixed assets were
boosted by a net surplus of £0.6 million on the revaluation of
properties, which has increased the revaluation reserve to £4.8 million.


We are pleased to propose a 22.6% increase in our final dividend per
share to 3.8p (2001: 3.1p) to be paid on 12 September 2002 to
shareholders on the register at 16 August 2002. This will bring the
total dividend for the year to 5.0p per share (2001: 4.2p per share), an
increase of 19%.

The payment of an enhanced dividend signals our belief in the underlying
strength and future prospects of the Group.

Business Developments

The improvement in the Group's underlying pre-tax profit performance in
the year fell below management expectations. As we reported in our
trading update on 23 April 2002, after a good first half, trading in the
second half of the year and particularly in the final quarter of the
year was disappointing.  Historically, gross margins have firmed during
this period, but in March and April our profit per unit remained
constant.  This gave rise to the shortfall in profit against
expectations.  Since the year end, however, I am pleased to report that
profit per unit has improved.

We also reported in April that unexpectedly we had been given notice by
Direct Line, our largest motor insurance customer, of its intention to
terminate its contract with the Group.   We are obviously disappointed
by this development and instructions of Direct Line's vehicles will
cease on 28 June, with the contract in run-off over the remainder of the
financial year. During and after the run-off period of the Direct Line
contract, the volume of vehicles we handle will be reduced.  We have,
therefore, taken steps to reduce our cost base until volumes return to
higher levels.

We have already gained a number of new, small insurance contracts and
remain confident of replacing the Direct Line business.  In addition, we
are continuing to make very encouraging progress in the programme we
initiated last year to exploit opportunities based around our vehicle
handling and processing capabilities and so develop new income streams
outside our traditional motor insurance marketplace.

The European Union End of Life Vehicle (ELV) legislation, which has yet
to be enacted in the UK, and associated hazardous waste legislation,
will benefit the Group in due course. The measures we have already taken
to ensure we are fully compliant with the new legislation support our
current expansion into new niche areas.  Meanwhile, we continue to
advocate regulatory changes to the UK salvage market that raise business
standards and ethics.

Review of Operations


Our core business continues to be handling the disposal of total loss
vehicles on behalf of insurance companies.  Vehicles are collected,
stored, categorised and then either sold to third parties (motor
dismantlers, repairers and resellers) via our weekly auctions or
processed (ie de-polluted, recycled and densified).

The marketplace for total loss insurance vehicles amounted to 427,000
vehicles for the year to 31 July 2001 according to ABI statistics. The
wider marketplace for all end of life vehicles (vehicles which have,
naturally rather than prematurely reached the end of their economic
life) amounts to approximately 2 million vehicles.

Currently, our marketplace is almost exclusively total loss insurance
vehicles though we are now exploring opportunities to extend our
activities into the non-insurance related end of life marketplace (eg.
abandoned vehicles) and also into the low value undamaged vehicle arena.

Service Offering

During the year, we continued to focus on improving our service
offering.  Our aim is to add value and reduce costs for our insurance
customers in handling total loss claims.  An integral part of this is
our Engineering Services initiative, whereby our own engineers inspect
and categorise vehicles on behalf of the insurer.  This removes
duplicate inspection costs. Over the period, we have further developed
the service and a number of insurers have now adopted it fully.  The
upgrading of our on-line salvage management systems,, is
ongoing and it continues to provide insurers with significant benefits
and transparency of the pipeline process.

In order to position the Group so that it is fully compliant with
hazardous waste legislation and forthcoming EU End of Life Vehicle (ELV)
legislation, we have continued to install specialist de-pollution
processing equipment. These processing units enable us to de-pollute
scrap and unrepairable 'breaker' vehicles. We have recently also taken
delivery of a mobile baling unit that will move between sites densifying
the de-polluted scrap vehicles into metal cubes and selling the
resulting metal in bulk to the fragmentors.  The  baler is currently
installed at our Sandwich site.  A processing unit was added at Sandwich
and we completed a similar facility at the Chester branch just after the
year end.  We have also gained Environment Agency approval for a
facility to be installed at the Sandy and Westbury  branches.  These
should be completed in the new financial year.  These new processing
facilities supplement those at our Sandtoft and Corby branches.  The
siting of a processing unit at the remaining auction branch in Scotland
will depend upon site acquisition negotiations in that area.

Investment in these processing units is already enabling us to migrate
our existing services into new niche marketplaces, outside our
traditional motor insurance marketplace.   We are currently running de-
pollution trials for a large multinational vehicle manufacturer.  The
trials involve us handling the disposal of their ELV's with associated
audit trail.  Also in the ELV arena, we are in discussions with a number
of local authorities to manage the collection, storage and disposal of
abandoned vehicles.  This has become a significant problem in the UK,
with approximately 350,000 vehicles dumped on the streets each year.

We are also running an interesting pilot with two motor dealerships,
auctioning their low value trade-in and part-exchange vehicles. The
pilot has been very successful in achieving significantly improved
returns for the vendors as a result of the vehicles being made available
to the right audience, our bidder base, who are familiar with low value
(albeit damaged) vehicles.  We expect to roll out these auctions across
all our branches over the next few months.  An important part of the
success of this initiative is our ability to dispose of vehicles that
are un-saleable in our de-pollution treatment centres.  This reduces
handling costs for the dealerships and ensures that they will be
complying with the forthcoming ELV legislation requirements.

Infrastructure Investment

We have added additional capacity to a number of our key sites.  At
Chester, a further 10 acres became operational in the second half of the
year, almost doubling our capacity at this site. At Sandy, since the
year end we have completed the development of an additional three acres
to the vehicle storage area of the branch and have just completed the
purchase of another four acres adjacent to the site.  This area is being
developed to include a disaster recovery facility as backup for our call
centre and IT servers based at the Head Office site.  Following the loss
of the Direct Line contract, we are currently proposing to close our
Corby branch and have initiated the consultation process with staff.
This proposed measure will help to reduce our cost base until volumes
return to higher levels.  We have also already made a number of
redundancies since the year end at Head Office and across the branches.

Last year, we completed our programme of investment to modernise our
truck fleet.  This year, we have replaced all the tractors and upgraded
the vehicle lifting mechanisms attached to tractors, to ensure that all
vehicles are moved more effectively within the sites.

IT Systems

During the last twelve months, while the main focus of our IT programme
has been on improving customer-related systems, we have also completed
the upgrading of certain departmental systems.  This will help to
enhance operational efficiency.  The project, integrating all the
business systems, is due to be completed during the new financial year.

During the period under review, we completed the launch of full internet
proxy bidding across all our auctions.  This follows a successful trial
of proxy bidding at our Sandwich site earlier in the year. Our auction
customers, who comprise vehicle resellers, motor repairers and
specialist dismantlers, are now able to bid for both salvage and non-
repairable, 'breaker' vehicles via our website, www.universal-  In addition, the website now offers other enhanced


Over the last two years, the business has moved ahead significantly.
Our considerable investment in systems and infrastructure has made the
Group operationally more effective, enabling us to improve our service
offering within our core motor insurance marketplace. Furthermore our
investment in processing units, enables us to extend the business into
new markets.  As a result, Universal is now well-placed to handle
efficiently and ethically problem vehicles ranging from low value whole
cars to insurance total losses and end of life vehicles.  Pilot schemes
for auctioning low value undamaged vehicles on behalf of motor
dealerships are generating significantly enhanced returns for them.

The loss of the Direct Line contract will have an adverse short-term
impact upon the company, but we  remain confident of replacing that
business and then increasing the volume of vehicles handled.  The levels
of service and ethical and environmental compliance that we offer
invariably mean that insurance companies can currently take lower cost
alternatives.  Such options will be significantly reduced with the
implementation of the hazardous waste legislation.  Our offering, which
clearly differentiates us from our competitors, gives national coverage
through a single integrated system with a unified set of service
standards across a network of branches with an unparalleled capacity
that can absorb any size of contract.  We believe that considerable
barriers both to entry and to growth - in the form of site acquisition
costs, management information systems and logistics expenditure
continue to be a characteristic of our marketplace and that spare
capacity is not readily available to absorb major contracts.
The management team is focused on rebuilding shareholder value and is
running the business with vigour and determination.  It is necessary to
look beyond the short term and, with a combination of vision and
execution, I expect to report encouraging progress at the half year.

Alexander Foster
25 June 2002

for the year ended 27 April 2002

Note                                2002        2001
                                   £'000       £'000
Turnover                          84,537           
Cost of sales                    (64,343)    (65,211)
Gross profit                      20,194           
Administrative expenses          (13,970)    (12,661)
Other operating income               444           
Operating profit              2    6,668           
Profit on disposal of                100           
unlisted investment                               
Interest receivable                   12           
Interest payable                    (272)       (248)
Profit on ordinary                 6,508       6,556
activities before taxation
Tax on profit on ordinary     3   (2,049)     (2,000)
Profit on ordinary                 4,459      4,556
activities after tax
Dividends                     4   (1,415)    (1,131)
Retained profit                    3,044      3,425
                                   Pence      Pence
Earnings per ordinary share   5    16.2p      16.9p
-  basic                      5    15.9p      16.3p
-  diluted
Dividends per ordinary share  4     5.0p       4.2p
   All operations of the Group continued throughout
       both periods and no material operations were
                          acquired or discontinued.

for the year ended 27 April 2002
Note                                2002       2001
                                   £'000      £'000
Profit on ordinary activities                      
after taxation for year            4,459      4,556
Surplus on revaluation of      6     608         
Prior year adjustment          7       -       (593)
Total recognised gains and                         
losses since the last annual       5,067      3,963

at 27 April 2002
                                    2002       2001
                                   £'000      £'000
Fixed assets                                       
Intangible assets                      -         
Tangible assets                   30,483     25,717
Investments - own shares             332        332
                                  30,815     26,049
Current assets                                     
Stocks                             3,915      3,973
Debtors                            4,352      3,975
Cash at bank and in hand           1,054          8
                                   9,321      7,956
Creditors: amounts falling due    (9,395)    (9,624)
within one year
Net current liabilities              (74)    (1,668)
Total assets less current         30,741     24,381
Creditors: amounts falling due                      
after more than one year          (5,310)    (3,870)
Provisions for liabilities and    (1,128)      (824)
                                  24,303     19,687
Capital and reserves                               
Called up share capital            2,807      2,709
Share premium account              1,129        263
Capital redemption reserve            30         30
Revaluation reserve                4,840      4,232
Profit and loss account           15,497     12,453
Equity shareholders' funds        24,303     19,687

for the year ended 27 April 2002

                                     2002       2001
                                     £'00      £'000
Net cash inflow from operating       8,37      7,005
activities                              4
Returns on investment and                           
servicing of finance
Interest received                      12         24
Interest paid                        (221)      (249)
Interest element of finance            (3)        (5)
lease rentals
Net cash outflow from returns on                    
investment and servicing of          (212)      (230)
Corporation tax paid                 (2,104)  (1,629)
Capital expenditure and                             
financial investment
Payments to acquire tangible         (7,222)  (5,089)
Receipt of grants towards land        621         
Receipts from sales of tangible         8         22
fixed assets
Receipt from sale of unlisted         100         
Purchase of own shares                  -       (332)
                                     (6,493)  (5,399)
Equity dividends paid                (1,185)    (967)
Net cash outflow before              (1,620)  (1,220)
Issue of share capital                964        200
Capital element of finance lease     (16)        (14)
rental payments
Bank and other loans drawndown       1,320     1,519
Net cash inflow from financing       2,268     1,705
Increase in cash in the year           648       485


1.   The accounting policies adopted are consistent with those in the
most recently published set of financial statements dated 28 April 2001.
However, two new accounting policies have been adopted:

a)   During the year  the Group received a grant of £621,000 from a
government agency towards land development costs which has been offset
against the cost of fixed assets. This is not in accordance with
Schedule 4 to the Act, which requires fixed assets to be shown at their
purchase price or production cost and hence grants and contributions
would be presented as deferred income.  This departure from the
requirement of the Act is, in the opinion of the directors, necessary
for the accounts to give a true and fair view as no provision is made
for depreciation and any grants and contributions relating to such
assets would not be taken to the profit and loss account.

b)   The Group entered into an interest rate swap fixing at 5.59%
against LIBOR (6.5% including Royal Bank of Scotland margin) on £4
million until November 2006 as a hedge against adverse interest rate
movements during that period. The Group uses derivative financial
instruments to reduce exposure to interest rate movements.  The Group
does not hold or issue derivative financial instruments for speculative

For an interest rate swap to be treated as a hedge the instrument must
be related to actual assets or liabilities or a probable commitment and
must change the nature of the interest rate by converting a fixed rate
to a variable rate or vice versa.  Interest differentials under these
swaps are recognised by adjusting net interest payable over the periods
of the contracts.

If an instrument ceases to be accounted for as a hedge, for example
because the underlying hedged position is eliminated, the instrument is
marked to market and any resulting profit or loss recognised at that

The financial information set out above does not comprise the company's
statutory financial statements. Statutory financial statements for the
previous financial year ended 28 April 2001 have been delivered to the
Registrar of Companies. The auditors' report on those financial
statements was unqualified and did not contain any statement under
section 237 (2) and (3) of the Companies Act 1985.

The auditors have given an unqualified opinion on the financial
statements for the year ended 27 April 2002 which will be delivered to
the Registrar of Companies following the annual general meeting to be
held on 4 September 2002.

2.   Operating profit

Operating profit is stated after charging two non-recurring charges
totalling £711,000.  The one-off items, charged within administrative
expenses, arise from costs of reorganising continuing operations and
from costs relating to an abortive site acquisition in Scotland.

3.   Taxation

The tax charge represents an effective rate of 31.5% (2001: 30.5%).  The
higher effective rate of tax has arisen from the non tax allowable
abortive site acquisition cost.

4.   Dividend

A final dividend of 3.8 pence per Ordinary share (2001: 3.1 pence per
Ordinary share), making a total for the year of 5.0 pence per Ordinary
share (2001: 4.2 pence per Ordinary share), is proposed to be paid,
subject to shareholder approval, on 12 September 2002 to shareholders on
the register on 16 August 2002.  The proposed final dividend amounts to
£1,067,000 (2001: £837,000).

5.   Earnings per share

Earnings per share has been calculated on the profit on Ordinary
activities after taxation for the year of £4,459,000 (2001: £4,556,000)
divided by the weighted average number of Ordinary shares of 27,575,181
(2001: 26,922,000).

The diluted earnings per share has been calculated on the profit on
ordinary activities after taxation for the year of £4,459,000 (2001:
£4,556,000) divided by the weighted average number of Ordinary shares
taking into account all dilutive potential Ordinary shares.

6.   Surplus on revaluation of properties

All of the freehold and leasehold land and buildings were valued by
Healey & Baker, Chartered Surveyors, at 27 April 2002, on the basis of
current usage open market value in accordance with the Appraisal and
Valuation Manual of the Royal Institution of Chartered Surveyors.

7.   Prior year adjustment

The Group adopted FRS 19 'Deferred Tax' in the financial statements for
the year ended 28 April 2001. Previously deferred tax was only provided
to the extent that timing differences were expected to reverse in the
future without being replaced. Deferred tax is now provided in respect
of all timing differences that have originated but not reversed at the
balance sheet date where transactions or events that result in an
obligation to pay more tax in the future or a right to pay less tax in
the future have occurred at the balance sheet date.

This resulted in a prior year adjustment to the financial statements for
the year ended 28 April 2001 to increase the deferred tax provision and
decrease brought forward reserves by £593,000. In addition there was an
increase in the provision and overall tax charge of £239,000 in that
year as a result of implementing FRS 19. Without implementation of FRS
19 the effect of deferred tax on the tax charge in that year would have
been to reduce it by £29,000 in the year. The actual net deferred tax
charge is therefore £210,000. The total provision for deferred tax at 28
April 2001 is £824,000.

8.   Report and Accounts

The Report and Accounts were approved by the Board of Directors on 24
June 2002. The Report and Accounts will be posted to shareholders on 9
August 2002. Further copies can be obtained from the Company's
registered office at Acrey Fields, Woburn Road, Wootton, Bedfordshire,
MK43 9EJ.

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