Interim Results - Part 1
Inchcape PLC
6 August 2001
PART 1
6 AUGUST 2001
INCHCAPE ANNOUNCES INTERIM RESULTS
Excellent Trading Performance delivers 75.0% growth in Headline PBT
Inchcape plc, the international automotive services group, announces its
results for the six months to 30 June 2001.
- Continuing operating profits up by 48.3%
- Headline pre-tax profits up 75.0%
- Headline EPS up 113.4%
- Dividend up 20.5% at 8.8p per share
- £154.4 million of cash generated in H1
- £45.0 million returned to shareholders
Peter Johnson, Chief Executive of Inchcape plc, commented:
'These results, particularly the outstanding performances in UK, Australia and
Hong Kong, reflect the success of the Group in focusing on its six core
markets. We continue the transformation of the Company into a broadly based
automotive services group.'
'In the UK our partnerships with BMW, Toyota, Lexus, Audi, Jaguar and Land
Rover are driving outstanding earnings growth through our specialist retail
division. We have added to our portfolio in the first half, and I expect this
expansion to accelerate in the second half.'
'I am particularly encouraged by the significant potential shown by our
Business Services companies in the UK. A number of our current initiatives
should come to fruition in the second half.'
'UK automotive trading conditions are currently encouraging and we are
expecting a strong second half in Australia. The taxi market will continue to
underpin our profits in Hong Kong albeit at a lower level for the remainder of
the year. These factors augur well for our prospects for the rest of the
year.'
2001 INTERIM RESULTS
Financial Summary
(£million) Six months to 30 June 2001 2000
Continuing Turnover 1,721.0 1,530.5
Continuing Operating Profit 53.7 36.2
Headline Profit Before Tax 52.5 30.0
Exceptionals (8.9) (0.1)
Profit Before Tax 43.6 29.9
Headline Earnings Per Share 39.7p 18.6p
Dividend Per Share 8.8p 7.3p
Peter Johnson
Chief Executive, Inchcape plc
Note to editors:
1. A copy of the Interim Report 2001 including the Chairman's Statement
follows.
2. Please call Group Communications for a copy of the accompanying photograph
to this release.
For further information, please contact:
GROUP COMMUNICATIONS
INCHCAPE PLC
020 7546 0022
JOHN OLSEN/ANDREW JAQUES/TOM LEATHERBARROW
HOGARTH PARTNERSHIP LIMITED
020 7357 9477
CHAIRMAN'S STATEMENT
The excellent first half year results are, in the main, a reflection of the
actions that have been taken over the last two years to focus the Group on six
core markets where we have scale and strong market positions. As a result the
Group committed to a significant disposal programme, which is now largely
complete. This has generated an improvement in the quality and quantity of
earnings. In addition the first half has seen a sharp increase in profits from
Hong Kong driven primarily by the strength of the taxi market. Headline profit
before tax in the first six months grew by 75.0% to £52.5m, whilst Headline
earnings per share grew 113.4% from 18.6p to 39.7p.
During the first half we concluded the sale of IRB and Mazda France bringing
the total cash generated from businesses exited, since the beginning of 2000,
to £143.1m. We still have several non-core businesses and we expect to
generate some £25.0m from their disposal over the next two years, with minimal
impact on operating profit.
There has been a significant reduction in working capital of £91.2m. This is
due to seasonal factors, our complete focus on managing stock and debtor
positions, and a £13.8m one-off benefit due to a change in the method of
funding the Greek stock. These factors allied to the disposal programme helped
generate £154.4m of cash during the period. This is after returning £45.0m to
shareholders through the completion of the share buyback programme announced
on 5 March. The result is a net cash position of £85.3m at 30 June 2001.
We intend to use the strength of the balance sheet to build on the
transformation of the Group. This will involve significant investment. As we
have consistently stated, the Board will ensure that any investments meet its
stringent requirements in relation to return on capital employed. If available
funds are not applied for investment purposes the Board will make additional
returns of capital to shareholders. This shareholder value driven approach
balances short-term considerations with long-term investment opportunities.
OPERATING REVIEW
Continuing Businesses
Continuing operating profit before exceptionals increased by 48.3% to £53.7m.
This is analysed below.
United Kingdom
Operating Profit £8.7m 2001, £4.7m 2000
The UK market environment has improved considerably since the second half of
last year and this has been a factor in our 85.1% increase in operating
profit.
Our UK Retail profits have grown by 21.8% to £6.7m driven in part by the
return of the retail car buyer. Private sales have increased 18.8% whilst the
passenger car market is up only 4.3%. In addition operational improvements
continue. During the period we have exited six dealerships which were earning
inadequate returns, whilst at the same time investing with our core retail
partners, BMW, Toyota/Lexus, Audi and the Premier Automotive Group (Jaguar,
Land Rover and Volvo).
In our Leasing business profits have improved slightly in the period. More
encouragingly used car prices have firmed. Our expectations on residuals, on
which we based our provisions, are proving to be accurate.
The performance of our Business Services activities, of which our investment
in Eurofleet is a key component, gives encouragement for the future. Eurofleet
is performing in line with our expectations, the relationship with the
management team is strong and many growth opportunities exist. During the
period we have announced the closure of part of Seaking's operations and the
integration of the remaining business into the Eurofleet network. In addition
Inchcape has awarded business to Eurofleet amounting to some 17,000 units per
annum thus allowing the Group to sell some £1.0m of surplus assets. Our
Remarketing and Fleet Management businesses have significant growth potential
for the future.
Autobytel UK continues to be part of our integrated automotive services
strategy. Online transactions are not growing as rapidly as originally
anticipated but losses have been significantly reduced as we forecast.
The performance of our Ferrari and Maserati business was slightly down on last
year mainly due to stock availability on Ferrari and continued investment in
the Maserati brand which has considerable growth prospects.
Greece/Belgium
Operating profit £5.7m 2001, £8.3m 2000
In Greece our Toyota volumes fell by 10.7% in a declining market. Margins also
remain under pressure given the continuing weakness of the Euro against the
Yen. Our ancillary businesses in Greece continue to perform well with the
exception of our daily rental business which is still incurring losses. The
future of this business is under review. In late 2000 we commenced funding our
Greek stock through supplier credit rather than through debt. In the period
this reduced operating profit by £0.9m, offset by the corresponding saving in
interest.
The market in Belgium was down 8.8% in the period and Toyota's market share
fell to 3.7%. The run out of Corolla, in anticipation of the new model launch
in January 2002, and the strength of the diesel segment have been major
influences on our performance. In the first half of this year the diesel
sector accounted for some 62.6% of passenger cars registered. However, only
34.1% of Toyota sales were diesel due to the current lack of a competitive
diesel offering.
Australasia
Operating Profit £8.8m 2001, £6.8m 2000
We have seen an encouraging first half performance in Australia. This is
despite a currency position that has changed very little from last year when
the Australian Dollar reached a ten year low against the Yen. Subaru's volumes
grew, although market share fell. Our Retail business in Sydney continues to
show improvement.
Plans to start exclusive retailing of Subaru in Melbourne are well advanced
with a launch date of mid 2002. This business will be a substantial one,
annually it should retail some 4,500 new and 1,500 used units, turning over
some £80.0m.
During the period we have exited the Jaguar Import and Distribution business.
This business lost £0.5m in the first half and is included in Discontinued
Businesses. The Peugeot Import and Distribution business, which we are also
exiting this year, is performing well during run out and made £0.8m in the
period.
Hong Kong
Operating Profit £26.5m 2001, £14.3m 2000
Profits rose sharply, driven by the strength of the taxi market and also by a
£2.1m currency translation benefit. As previously announced the Hong Kong taxi
fleet is being changed from diesel to LPG. This process which started in the
second half of last year will continue through 2002 but has the effect of
condensing a six year replacement cycle into three years. This has generated a
particularly high level of profit in this half year. For the rest of the year
and through 2002 profits from taxis will continue but at a reduced level.
The underlying passenger market is down in the period by 6.9%. Despite this
our businesses performed well in the period increasing both market share and
margins. After-sales continues to be a strong performer across all franchises.
The Mazda franchise is suffering from a lack of new product however this
situation will improve in late 2002/early 2003 when the main volume models are
both replaced.
Singapore/Brunei
Operating Profit £8.5m 2001, £9.2m 2000
The market in Singapore is up 28.8% on the first half of last year reflecting
the record levels of Certificates of Entitlement (COEs) issued from May 2000
to May 2001. The market for the rest of the year is likely to decline by over
20.0%.
Despite this very strong market and Toyota increasing its market share by 1.7%
to 20.9% margins have come under pressure mainly as a result of the
significant volatility in COE pricing. In certain months we have had to
subsidise the price of COE's in order to complete the sale. After-sales
continues to perform strongly especially following the investments made late
last year when service capacity was increased by over 15.0%.
We continue to consider with the Board of Inchcape Motors Limited, our 63.3%
owned quoted subsidiary, the most appropriate structure and strategy for this
business.
In Brunei Toyota remains market leader. However the market continues to be
depressed with little sign of short-term improvement.
Other
Operating Profit £1.5m 2001, £2.9m 2000
Operating profits rose in our Toyota businesses in Guam, Saipan and Ethiopia
as well as in Latin America. Mazda Finland has ongoing losses and costs are
being reduced wherever possible. A £2.5m provision was made against our
investment in Autobytel.com as the share price shows no sign of recovery.
Central Costs
£6.0m 2001, £10.0m 2000
The substantial fall in Central Costs is a reflection of the one-off costs
incurred in 2000 and the overhead savings achieved following the restructure
programme initiated last year.
Discontinued Businesses
Profit from Discontinued Businesses of £1.3m arises from those businesses sold
in the period, predominately IRB and Mazda France. The comparative figure for
last year, £4.2m, includes the performance of those businesses as well as
those sold/transferred in 2000, such as Volkswagen Australia and our 49.0%
share in Toyota (GB).
FINANCIAL REVIEW
New accounting standards
The Group has formally adopted FRS18 'Accounting Policies'. The Group's
accounting policies were consistent with this standard and accordingly no
changes in reporting have arisen.
Acquisitions and disposals
During the first half of this year the Group completed the disposal of IRB and
Mazda France, and announced the restructuring of Seaking, its UK pre-delivery
inspection company. Our UK Retail business exited six under performing
non-core dealerships and reinvested £5.2m in acquiring six dealerships with
its core retail partners.
In aggregate the financial results include a net exceptional loss of £8.9m,
which mainly relates to goodwill previously written off to reserves for
Seaking (£5.3m) and a UK Retail dealership (£3.7m), a profit on the sale of
IRB (£3.9m) and £2.1m relating to the write down of our investment in
Autobytel Europe following Autobytel.com's decision to wind down this
business.
The sale of the Mazda UK Import and Distribution business by the MCL Group,
our 40.0% owned associate, to the manufacturer completed on 1 August 2001. MCL
does not anticipate a material profit or loss on this transaction. However
historic goodwill, already written off to reserves in our balance sheet, of
£24.5m will be written off in the second half. We are commencing discussions
with Itochu, the 60.0% shareholder, over the future of our investment in the
MCL Group. The MCL Group still operates a number of businesses including the
Kia Import and Distribution franchise for the UK.
Cash flow, interest and financing
The Group generated £154.4m of cash in the first half of 2001 after returning
£45.0m to shareholders through the buyback programme and as a result the Group
has net cash of £85.3m. Cash flow benefited from the disposals noted above,
£80.9m, and a £91.2m reduction in working capital.
Of the working capital reduction, £77.4m was driven by seasonal factors and
our continuing focus on managing our stock and debtor positions. The remaining
reduction of £13.8m is due to a change in the method of financing the Greek
stock from debt to supplier credit. This is a one-off benefit.
The Group net interest charge of £2.5m can be analysed as subsidiary net
interest of £1.5m (£6.7m in 2000) and associates and joint ventures net
interest of £1.0m (£3.7m in 2000). The lower subsidiary interest charge
resulted from the benefit of the proceeds of the disposal programme, lower
working capital and a £0.9m reduction due to the change in the method of
funding stock in Greece. The decrease in the associates and joint ventures
interest charge is primarily attributed to the sale of Toyota (GB).
Exchange effects
Of the £22.5m increase in Headline profit before tax £2.3m arises from using
average exchange rates for 2001 compared to those for 2000. This effect arose
primarily as a result of the strengthening of the Hong Kong dollar. Principal
exchange rates are listed in Note 3 of the Notes to the Accounts. The Group
continues to operate a policy of hedging transactions, and where appropriate,
pre-transaction exposures.
Tax
The Headline tax rate for the half year was 30.3%, marginally lower than the
2000 full year rate of 31.0%. The 2001 half year rate benefited from
substantial profits being earned in Hong Kong, a low tax jurisdiction,
although this benefit was partially offset by unrelieved tax losses in the UK.
Minority interests
Profit attributable to minorities has increased to £5.0m compared to £3.8m in
the first half of 2000. £1.5m of this increase arose due to the exceptional
profit on the sale of IRB.
Dividend
The Board has declared an interim dividend of 8.8p (2000 - 7.3p) representing
a 20.5% increase over last year. The interim dividend payment will be made to
shareholders on the register as at 17 August 2001 and will be paid on 17
September 2001.
PROSPECTS
In the UK, profits are rebounding as forecast earlier this year and as
supported by our first half performance. Profits in Hong Kong, whilst expected
to be lower than the first half, will be underpinned by the continuing strong
taxi market. In Australia the second half will be better than last year due to
a strong Subaru performance and the continuing development of the Retail
business. Conditions in Singapore, Greece and Belgium do not look as if they
will fundamentally change from the first half.
LOOKING AHEAD
The Group's strong trading performance and balance sheet strength mean that it
is very well positioned to build on the transformation that has been
undertaken over the past two years.
As previously stated the main focus for our strategic development in the short
to medium term is the UK market where we intend to double the size of our
specialist Retail business and further expand our Business Services
operations. In terms of specialist Retail a number of potential acquisition
candidates have been identified, and negotiations are underway which we hope
to bring to a conclusion in the coming months. In Business Services many
initiatives are underway, some involving acquisition and some supporting
organic growth such as partnerships with leading industry players who share
our strategic vision and who bring complementary skills.
The review of the Block Exemption legislative framework is being carried out
by the European Union and we await its results. We are confident that our
strategy of investing in specialist Retail and Business Services is such that
there should be little downside from changes to Block Exemption. However,
under certain scenarios, there is a significant upside for the Group.
Underlying trading is currently good and the strategic initiatives, which have
been worked on for many months are coming to fruition. I look forward with
confidence as we continue to build the Inchcape Group into a broadly based
automotive services company.
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