15th Feb 2007 07:02
Pendragon PLC15 February 2007 FOR IMMEDIATE RELEASE 15 February 2007 PRELIMINARY RESULTS TO 31 DECEMBER 2006 Pendragon PLC, the UK's leading car retailer group, today reports preliminaryresults for the twelve months to 31 December 2006. Highlights: •Turnover £5.1 billion (2005 £3.3 billion)•Underlying profits up 15% to £68.1 million (2005 £59.3 million)•Profit before tax up 51% to £96.4 million (2005 £63.8 million)•Basic earnings per share up 53% to 10.7p (2005 7.0p)•Total dividend up 30.7% to 3.45p (2005 2.64p)•Strong operating cash inflow of £219.4 million (2005 £130.4 million)•Reg Vardy integration completed Trevor Finn, Chief Executive, commented: "Pendragon has delivered another solid financial performance in 2006. Thehighlight for the year was the acquisition and integration of Reg Vardy - theacquisition almost doubled our revenues and makes us clear market leader in whatremains a very fragmented market. We were able to repay a substantial amount of the money we borrowed to financethe Vardy acquisition and go into 2007 in good shape and with confidence that wewill achieve our objectives for the year." Enquiries: Pendragon PLC Trevor Finn, Chief Executive Tel: 01623 725114 David Forsyth, Finance Director Finsbury Rollo Head, Gordon Simpson Tel: 0207 2513801 Pendragon, the leading car retailer in the UK, has delivered another solidfinancial performance in 2006. We increased revenues by 55% to £5.1 billion from£3.3 billion in 2005. Profits before tax and exceptionals were up by 15% to£68.1 million and earnings per share on this basis increased 12.3% to 7.5 pence.We made exceptional profits and gains on the sale of fixed assets in the year of£28.3 million. The gains on the sale of fixed assets were mainly in respect ofproperty sales. Including these exceptionals, profits before tax were up by 51%to £96.4 million from £63.8 million in 2005 giving basic earnings per share of10.7 pence. Our achievements in 2006 have been considerable and have consolidated ourposition as the leading car retailer in the UK. We implemented a new divisionalmanagement structure which integrated the Reg Vardy business which was acquiredearly in the year. We have made significant inroads to the reduction ofborrowings which we put in place for the Vardy acquisition. The roll out of ourshared services business model is going well along with the implementation ofour in house IT systems. Financial Performance £m 2006 2005Revenue 5,101.0 3,284.5Underlying operating profit 135.3 98.8Exceptional operating items and other income 28.3 4.5Operating profit 163.6 103.3Finance costs / share of joint venture (67.2) (39.5)Profit before tax 96.4 63.8Earnings per share - basic 10.7p 7.0pEarnings per share - adjusted 7.50p 6.68pDividend per share 3.45p 2.64p DividendThe final dividend proposed is 2.0 pence per share, which together with theinterim dividend of 1.45 pence gives a full year dividend of 3.45 pence pershare, an increase of 30.7% over last year. We believe that this increasereflects the strong earnings potential and cash generating ability of theenlarged Group. Strategy and shareholder valuePendragon is the largest independent operator of franchised motor cardealerships in the UK, operating 390 franchises. We also operate motor cardealerships from nine locations in California and five in Germany. The UK is theprincipal market, which accounts for 95% of the Group's revenues. Pendragonsells a broad range of makes of motor cars and commercial vehicles, has asubstantial presence in the UK vehicle leasing, wholesale parts and dealermanagement software markets. Last year we successfully pursued our strategy of growing the business inpartnership with a range of vehicle manufacturers and generating our income fromthree principal areas; new car sales, used car sales and after sales service andparts. We have created economies of scale through the deployment of more of ourown IT systems, by further utilisation of our shared services centre andreducing operational gearing through improved asset utilisation. Having diverserevenue streams, not simply focused on new car sales, we believe, reducesexposure to the normal retail economic cycles. One of the benefits that wehighlighted at the time of the Vardy acquisition was that it gave us moreexposure to the used car market which has continued to perform well and will bea major growth area for us. Our strategy has delivered, and continues to deliver, outstanding results and in2006 our after tax return on equity rose to 24.8% compared to 18.8% last year.We have also seen real growth rates in earnings and dividends. In 2006 adjustedearnings per share increased by 12.3% and dividends by 30.7%. Over the past fiveyears our compound adjusted earnings per share growth rate has been 26.4% perannum and in the same period the compound dividend growth rate has been 22.1%per annum. Our marketsWe operate in markets which offer excellent growth prospects. The UK vehicleretailing market is our principal one where changes to franchising rules havefreed up the market for acquisitions and consolidation. Pendragon is the leadingplayer in this consolidation. The total motor car parc in the UK now stands ataround 30 million with annual sales of new and used motor cars of just under 10million units. The new car market over the past four years has weakened by 5.25%and is expected, by industry analysts, to stabilise around the 2006 level forthe next two years. The used car market by contrast has continued to performwell. The size of the market for after sales has grown in line with the car parcin the UK and tends to be less affected by economic cycles as motor cars requireregular maintenance and repair for both safety and performance reasons. We own a large vehicle leasing and contract hire business in the UK. The markethas been stable and importantly used car residual values have held up wellenabling end of contract vehicles to be sold profitably. The commercial van and truck market in the UK has enjoyed a period of growth inline with the UK economy and is around 0.4 million new units per annum. The keyarea in this market is after sales service which remained strong in 2006. We have gradually built a presence in the UK market for dealer managementsystems. The market for these systems is primarily linked to the number offranchised dealers and is served by a relatively small number of providers. Wemainly sell into the UK although we see other overseas markets such asNorth America and South Africa being additional markets for our products. We seethis as a good growth area for our business. Operational ReviewOur Group is structured operationally to reflect the range of businessactivities undertaken and has six distinct trading entities. Stratstone Under our Stratstone brand we are the UK's leading luxury motor carretailer with 170 locations. Stratstone holds franchises to sell and serviceAston Martin, BMW, Cadillac, Chrysler Jeep, Corvette, Dodge, Ferrari, Honda,Jaguar, Land Rover, Lotus, Maserati, Mercedes Benz, MINI, Saab andVolvo. New vehicle registrations in this luxury sector declined by 1.2% in 2006 withmarques represented by Stratstone down slightly more, by 2.8%. The used carmarket was stable year on year with no noticeable weakening of prices. Incomefrom sales of finance and insurance products was up year on year. The aftersales market continued to perform well and despite increased cost pressures wemanaged to maintain gross margins in this area. The split of activities within the Stratstone brand is detailed below showingthe respective share of revenue, gross profit and the gross margins achieved. 2006 2005 Revenue Gross profit Gross margin Revenue Gross profit Gross marginNew 47% 36% 10.1% 49% 39% 10.2%Used 36% 20% 7.3% 35% 18% 6.8%Aftersales 10% 45% 58.1% 10% 44% 57.6%Trade cars 7% (1)% (1.2)% 6% (1)% (2.9)%Total 100% 100% 13.3% 100% 100% 12.9% The relative proportion of gross profit generated by activity in 2006 was inline with the previous year. Aftersales continued to contribute just under halfof the total gross profits. Trade sales represents cars sent to auction whichdid not fit Stratstone's sales profile. In after sales we have developed newproducts priced specifically for vehicles in the 4 to 6 year old market where weexpect to grow our business, whereas historically our focus has been on the 0 to3 year old car market. We are including information relating to total units sold and gross profits perunit for the first time this year. We believe this information will give abetter understanding of the dynamics of the business. Total units sold consistsof both new and used cars. Gross profit per unit is the margin achieved on salesbefore overheads and includes income from finance and insurance products. £m Revenue Gross Gross Underlying Underlying Total units Gross Profit Margin % operating operating sold profit per profit margin % '000 unit £Existing 1,444.9 192.5 13.3% 36.8 2.6% 52.9 1,752Acquired 463.3 61.0 13.2% 13.4 2.9% 18.5 1,912Disposed 19.3 2.1 10.7% (0.7) (3.8)% 0.9 1,448Total 2006 1,927.5 255.6 13.3% 49.5 2.6% 72.3 1,796Total 2005 1,344.8 173.9 12.9% 45.6 3.4% 50.0 1,806 The revenue generated by existing businesses is marginally up on last year withmuch of the £100.1 million growth being achieved by the acquisitions andgreenfield start ups completed in 2005. Higher rents of £4.3 million, following the sale of some freehold properties toour property joint venture in 2005, and a loss of £3.5 million in respect of ourstart up Cadillac retail operation resulted in margins in the existing businessreducing by 0.8%. We set up five greenfield sites during 2006 which normallytake two years to establish themselves in their market place. In the year thesegreenfield sites made a loss of £0.3 million. Profits per unit in the existing business were down year on year mainly due tothe weakness in the new car market. Profits per unit and the operating margin inthe acquired businesses were higher than the existing business due a richer mixof franchises. We have been actively branding our luxury car dealerships as Stratstone duringthe year and this task has now been largely completed. This means that movinginto 2007 we can increase promotion of the brand and firmly establish it as theleading luxury car retail brand in the UK. Evans Halshaw Under our Evans Halshaw brand we are the UK's leading volume motorcar retailer with 183 locations. Evans Halshaw holds franchises to sell andservice Chevrolet, Citroen, Fiat, Ford, Hyundai, Kia, Nissan, Peugeot, Renaultand Vauxhall. New car registrations have declined in the volume motor car sector by 3.8% in2006. Evans Halshaw does not represent all the makes of volume cars sold in theUK and, for makes represented, national registrations fell by 5.1% year on year.In general the used car market was good and demand for nearly new used carscontinued to be strong. The aftersales market was in line with the previous yearalthough there has been some pressure on costs especially in terms of wageinflation and utility and fuel prices which led to small declines in margins. 2006 2005 Revenue Gross profit Gross margin Revenue Gross profit Gross marginNew 45% 25% 7.2% 50% 25% 7.0%Used 27% 34% 16.6% 27% 28% 13.9%Aftersales 11% 41% 49.0% 13% 47% 49.9%National fleet 10% - 0.2% - - -Trade cars 4% - (1.7)% 5% (1)% (1.6)%Wholesale 3% - 0.7% 5% 1% 1.5%Total 100% 100% 13.2% 100% 100% 13.9% The mix of gross profits generated has changed year on year primarily due to anincrease in used car profits where gross margins improved 2.7%. After salescontinued to contribute a significant proportion of profits and margins held upwell despite cost pressures during the year. These cost pressures were absorbedby increased labour sales and tight control of overhead expenses. Trade salesrepresents cars sent to auction which do not fit Evans Halshaw's sales profile.National fleet is sales to daily rental operators at very low margins whichdistorts the overall margin performance. The large proportion of profits from aftersales helps to mitigate the effect of economic cycles in that motor vehicles are servicedand repaired at least each year to ensure safety and performance standards aremaintained. £m Revenue Gross Gross Underlying Underlying Total units Gross Profit Margin % operating operating sold profit per profit margin % '000 unit £ Existing 1,385.3 189.0 13.6% 25.5 1.8% 125.9 648Acquired 1,206.7 154.0 12.8% 30.0 2.5% 104.2 721Disposed 32.5 3.0 9.1% (1.9) (5.9)% 2.8 685Total 2006 2,624.5 346.0 13.2% 53.6 2.0% 232.9 694Total 2005 1,372.0 190.1 13.9% 25.5 1.9% 124.0 669 In the existing business we increased revenue by £50.0 million, mainly withinour Ford and Vauxhall dealerships where we sold an extra 3,000 units. Theadditions we made to our dealership portfolio in 2005 have contributed a further£61.4 million of revenue which has in part offset the reduction in sales of£97.9 million from last years disposals. Profits per unit in the existingbusiness were down year on year mainly due to the weakness in the new carmarket. Profits per unit and operating margin in the acquired businesses werehigher than the existing business due a larger proportion of profits in thesedealerships coming from higher margin used car sales. We have a number of initiatives planned in 2007 to promote the Evans Halshawbrand and in January this year we used our first television advertising campaignin the North West. We envisage more television campaigns throughout the year. Chatfields Under our Chatfields brand we sell and service commercial vans andtrucks in the UK from 21 locations. Chatfields holds franchises to sell andservice Iveco, DAF, LDV and MAN ERF. The market for new truck sales in 2006 was down by 5.6% overall whereas the vanmarket was up 1.3%. The market was distorted by regulatory changes last yearrelating to engine emissions standards which have led operators to delaypurchases because of manufacturer price increases on these new cleaner engines. 2006 2005 Revenue Gross profit Gross margin Revenue Gross profit Gross marginNew 67% 27% 5.6% 69% 30% 5.9%Used 5% 4% 13.3% 5% 4% 13.1%Aftersales 25% 68% 37.6% 24% 65% 36.5%Trade vehicles 3% 1% 3.1% 2% 1% 5.6%Total 100% 100% 13.9% 100% 100% 13.6% Over two thirds of gross profits in this division are derived from the aftersales activity. This tends to be a higher proportion than in the motor cardivisions because of the shorter service intervals required for commercialvehicles and the use of overnight servicing in many of the locations. £m Revenue Gross Gross Underlying Underlying Total units Gross Profit Margin % operating operating sold profit per profit margin % '000 unit £Total 2006 200.4 27.8 13.9% 6.1 3.1% 5.5 1,550Total 2005 239.7 32.6 13.6% 8.5 3.5% 7.2 1,489 The year in the trucks division has been more difficult with truck sales downwith its knock on effect on operating margins. In common with our otherbusinesses inflationary cost pressures have been managed well. The 2005 figuresincluded £1.6 million of operating profits and 937 unit sales contributed by ourMercedes-Benz franchise prior to its sale in July 2005. Leasing We operate under three separate brands for vehicle leasing and contracthire. The brands are Pendragon Contracts, Bramall Contracts and Vardy ContractMotoring. Each offers a range of leasing and contract hire products mainly tothe small corporate and fleet market and to local authorities. The market inwhich we operate is predominantly fleet sizes of up to 1,000 vehicles. £m Revenue Gross Gross Underlying Underlying Fleet Profit Margin % operating operating Numbers profit margin % 000's Existing 33.9 8.5 25.1% 7.1 21.1% 11.1Acquired 10.4 2.9 27.4% 2.5 24.0% 7.1Total 2006 44.3 11.4 25.7% 9.6 22.8% 18.2Total 2005 48.5 8.9 18.3% 7.5 15.5% 10.8 The existing vehicle fleet remained static during 2006 at eleven thousand unitswith an average lease period of 30 months. Profits are mainly generated throughthe sale of the vehicles at the end of the rental period. In 2006 we increasedthe profit per unit on disposal in the Bramall and Pendragon brands by £285 and£166 respectively. We acquired Vardy Contract Motoring as part of the Reg Vardyacquisition in February 2006. The performance of this business was much improvedin the year with disposal profits per unit up considerably. Quickco The market for parts sales via the independent wholesaler has beensignificantly enhanced by changes to the franchising laws in the UK wherebyfranchised dealers need no longer source all their parts from the franchisor.Under our Quickco brand we are the leading independent genuine parts wholesalebusiness in the UK. Quickco distributes both genuine manufacturer labelled partsand matching quality parts sourced from the original manufacturers. Currently75% of revenues come from Ford related business and we are seeking to diversifyby developing other profit streams. For example, we have been awarded franchisesfrom seven other vehicle manufacturers to distribute their parts. Quickco has anational business with a fleet of 180 vans making 60,000 deliveries per month ona next day or same day basis. £m Revenue Gross Gross Underlying Underlying Profit Margin % operating operating profit margin % Existing 74.0 18.9 25.6% 4.9 6.7%Acquired 5.2 1.3 26.0% 0.1 2.0%Total 2006 79.2 20.2 25.6% 5.0 6.4%Total 2005 74.6 18.1 24.2% 3.6 4.9% Revenues in 2006 for the existing business were in line with the previous year.The improvements in the operating profit have been achieved through acombination of better buying from its main suppliers and through a reduction inoverheads. The overhead reductions were realised mainly by cutting out a numberof inefficient delivery routes. Looking forward, we aim to expand our productlines and build on our new franchise relationships. Pinewood Under our Pinewood brand we are the UK's third largest provider ofsoftware solutions to the retail motor industry. The principal product isPinnacle which is a web enabled dealer management system designed withmanufacturer interface and modules for vehicle sales and marketing, aftersalesand bookkeeping and accounts generation. The market for technology solutions inthe industry continues to grow especially for software packages which are simpleto deploy and require minimal training. Under the CFC brand other products aresold which include fleet and workshop management solutions. Currently CFC hascustomers in over 20 countries. £m Revenue Gross Gross Underlying Underlying Profit Margin % operating operating profit margin % Total 2006 25.4 15.2 59.8% 5.3 21.0%Total 2005 22.2 11.3 51.0% 2.9 13.0% At the end of 2006 we had over 7,000 Pinnacle user licenses in place in over 400dealerships in the UK. About 40% of the licenses have been sold to third partydealers with the balance being used in Group. The Pinnacle product was launchedthree years ago and sales are now gathering momentum. We have recently securedour first overseas contract for Pinnacle in South Africa. We now have adevelopment team of 40 which is actively working on existing and new products. California The California business consists of nine locations in SouthernCalifornia which operate franchises for Jaguar, Land Rover, Aston Martin andSaab. 2006 2005 Revenue Gross profit Gross margin Revenue Gross profit Gross marginNew 66% 46% 10.8% 63% 42% 10.4%Used 15% 7% 7.5% 17% 9% 8.3%Aftersales 14% 47% 51.5% 15% 49% 51.3%Trade cars 5% - 0.4% 5% - (0.5)%Total 100% 100% 15.7% 100% 100% 15.4% The gross profit splits show a similar pattern to those in the UK for aftersales which contributes just under half of the gross profits. A significantdifference is the lower proportion of used car gross profit due to a traditionalemphasis on new car sales in this market. £m Revenue Gross Gross Underlying Underlying Total units Gross Profit Margin % operating operating sold profit per profit margin % '000 unit £ Existing 201.8 32.2 16.0% 7.8 3.9% 6.2 2,513Disposed 13.0 1.4 11.1% (1.3) (9.7)% 0.4 890Total 2006 214.8 33.6 15.7% 6.5 3.0% 6.6 2,417 Total 2005 217.6 33.6 15.4% 7.0 3.2% 7.4 2,123 Excluding the impact of the change in the dollar sterling exchange rate,revenues in the USA were marginally ahead of 2005. Sales of Range Rover Sportwere very strong throughout the year which contrasted with sales of Jaguar whichwere poor. The same was true in after sales where Land Rover had a good yearwhereas Jaguar was down year on year. Overall operating margins are similar tolast year although they should improve going forward as, towards the end of theyear, we sold our Lincoln Mercury dealership and closed our Saab operation inSouth Bay. Both businesses were loss making. We were pleased to open our custom built Jaguar and Land Rover dealership inMission Viejo in December and this year we are redeveloping our Land Rover sitein Newport Beach to take Land Rover, Jaguar and Aston Martin franchises. We lookforward to completing that development later this year. Germany Our German dealerships remain a relatively small part of the Group,contributing just 1% of revenues. In 2006 their performance improved atoperating profit level by £1.5 million to a small loss of £0.3 million. Wereduced the number of sites during the year which leaves five remaining aroundFrankfurt and Munich. IT roll out and shared services centreOur scale allows us to invest in information technology solutions and to use ashared services business model. Over the last year we have implemented 83 newPinnacle systems in our own dealership group and it is planned to have all ourlocations on the new operating platform by the end of 2007. Our shared servicescentre now has a team of 425 providing a range of services to around half of ourGroup including call centre and accounting. The financial benefits for the Groupare accounted for in the divisions for which they perform the services. Acquisitions and DisposalsWe acquired the entire share capital of Reg Vardy Plc in February 2006. We paid£504.2 million and acquired a business with 97 motor car franchises whichenhanced our geographic coverage in the UK. Vardy held franchises which werecomplementary to those held by Pendragon and furthered our strategic growthplans. The process of integrating Vardy with Pendragon was prolonged due to aninvestigation by the Office of Fair Trading to determine whether there were anyareas where competition was substantially reduced as a consequence of thetakeover. As a result of the investigation we agreed to sell four dealershipsout of our portfolio. The delay to the integration and consequent disruption ofhaving to manage the Vardy businesses separately until November is now behindus. The Vardy and Pendragon businesses have been integrated as part of theoverall restructure of the Group last year. In March 2006 we purchased the business of Speeds Motor Group which consists ofnine Volvo and three Chrysler Jeep dealerships. The dealerships arepredominantly located in the East Midlands. We also acquired five Peugeot andone Citroen dealership to add to our Evans Halshaw division. PropertyOur strategy is to ensure the maximum utilisation of property assets bymaximising throughput; that surplus properties are disposed of so as to maximiseproceeds, which may involve a change of use; and to utilise our property jointventure structure where appropriate in order to release cash to be invested inhigher yielding business assets. As planned we completed a major sale and leaseback transaction in December 2006with our property joint venture. We sold 79 properties with a net book value of£191 million for a total consideration of £250 million. As a consequence of theinterest we have retained in the properties through the joint venture structure,we are not able to recognise the entire disposal profits in the incomestatements in our accounts although all the cash has been received. The profitwe are able to recognise on the transaction in our income statement is £17.7million. The joint venture structure gives us operational flexibility mainlythrough being able to substitute properties. In addition to the joint venture transaction we disposed of a further elevenproperties which were operationally surplus to requirements. Included was theproperty at Solihull Business Park on which we made a profit of £10 million. Cash flow Our borrowings as at 31 December 2006 were £369.7 million compared to £177.0million at the end of 2005. At the time of the Vardy acquisition, in early 2006,we said our target would be to reduce our borrowings to more normal levels bythe end of 2007. We are well on course to achieve this target with reductionsfrom a combination of good cash flow from operations and property and businessdisposals. The cash flows of the business may be summarised as follows: £m 2006 2005Cash generated from operations 219.4 130.4Net interest paid (67.2) (43.2)Tax (24.2) (16.6)Replacement capital expenditure (43.8) (45.2)Free cash flow 84.2 25.4Acquisitions (570.2) (60.8)Disposals 312.9 119.7Dividend (17.4) (15.6)Other (2.2) 1.1(Increase) / reduction in net debt (192.7) 69.8 Cash flow generated from operations was £219.4 million, which compares with£130.4 million generated in 2005. This is made up of two key components,operating profit and working capital movements. The operating profit elementafter adding back depreciation, intangible charges and property profits was£206.2 million, up £61.3 million on the £144.9 million in 2005. In respect ofworking capital we made a net reduction of £13.2 million which is after £23.1million of final salary pension schemes funding. In 2005 we had a net increasein working capital of £14.5 million. Net interest paid has increased year on year. This reflects the higherborrowings during the year following the acquisitions and increased interestrates in the second half. Replacement capital expenditure was £43.8 million which includes plant andmachinery, fixtures and fittings and motor vehicles (2005: £45.2 million).Expenditure on plant and machinery and fixtures and fittings was £11.5 million,up slightly on the £9.1 million in 2005. The balance of the expenditure of £32.3million (2005: £36.1 million) is in respect of motor vehicles used either forour contract hire fleet or for service loan cars for our customers. Acquisitions consist of businesses purchased during the year and propertydevelopments. In 2006 we have spent £540.9 million which includes the cost ofacquiring Reg Vardy and its associated borrowings, our £15.1 million investmentin the property joint venture plus the acquisition of 18 other dealerships.Dealership property developments totalled £28.3 million (2005: £19.2 million). Business disposals raised £23.1 million in 2006 (2005: £16.2 million), whichrelated to the sale of five dealerships. Property disposals raised £289.8million (2005: £103.5 million). This includes the disposal of properties inDecember to our property joint venture company. Financing costsThe total net interest charge for the year of £67.6 million includes bankinterest, vehicle stocking charges and finance charges of £38.8 million, £25.5million and £3.3 million respectively. Cover for bank interest was 2.9 timescompared with 4.5 times in 2005. TaxThe overall effective tax rate for the year was 30.0 per cent (2005: 32.4 percent). The reduction in tax rate in 2006 was due to certain one off tax credits. Pension FundsIn 1999 we stopped accepting new members into our final salary schemes. During2006 we took the difficult decision to cease future accruals in all the finalsalary schemes that were in operation due to the unpredictable nature of thecost of operating these arrangements. The final salary schemes' deficit beforetax now stands at £65.1 million, a reduction of £25.2 million. All members ofthe final salary schemes are now either deferred or pensioner members. In the 2005 financial statements the Group applied the corridor method torecognise actuarial gains and losses and spread them over the expected workinglives of employees in the plans. We have changed this policy to recognise allactuarial gains and losses arising from defined benefit plans directly in equityeach year. This change in accounting policy was due to the closure of theschemes to future accruals, and as employees no longer participate in the planthe service period over which the corridor movements are spread is nil. As aconsequence the directors consider it is no longer appropriate to spread thegains and losses over the service period and the comparative balance sheet hasbeen restated in line with the new policy. Share capitalDuring the year a five for one share split was implemented, increasing thenumber of shares in issue to 656,027,350 including 18,750 shares issued duringthe year through the share option scheme. Comparative data in the report andaccounts which is calculated based on the number of shares in issue, such asearnings per share and dividends per share, have been restated to reflect theshare split. OutlookThe outlook remains positive for the Group with Pendragon the clear leader in ahighly fragmented market. The Vardy acquisition has given us greater scale andmore of our businesses have adopted the Pinnacle IT platform and shared servicemodel. The new divisional structure now in place has been designed to enable theGroup to continue to expand and to optimise scale economies. We have a positive view on the used car market and believe that the Group iswell placed to expand its business in this market in 2007 and grow its like forlike unit sales volumes. Profits from new car sales have become less important for the Group as we have expanded our used car revenues and continue to derive a significant proportion of profits from aftersales. As far as after sales is concerned we see the market continuing to be stable and through some initiatives we have taken this year will see our revenues grow. Pinewood now has a strong foothold in the dealer management systems market in the UK and we expect to increase third party sales this year. We may see some reduction in profits in our leasing business in 2007 due to fewer cars being returned for disposal and we expect Quickco, our parts wholesale business, to have a good year in 2007. We have put new operating structures in place during 2006 which are now settledand each division has its sights set firmly on achieving its objectives in2007. We have set a number of objectives at Group level this year which includereducing the gearing as planned, implementing the Pinnacle system in all ourdealerships and driving forward total shareholder returns. Our strategy hasdelivered superior returns for shareholders over the years and we look forwardto continuing that into 2007. Consolidated Income Statement Year ended 31 December 2006 2006 2005 Existing Acquisitions Total £m £m £m £m--------------------------------------------------------------------------------Revenue 3,415.9 1,685.1 5,101.0 3,284.5 Cost of sales (2,928.4) (1,465.0) (4,393.4) (2,816.8)-------------------------------------------------------------------------------- Gross profit 487.5 220.1 707.6 467.7Operating expenses (390.3) (178.0) (568.3) (371.8)--------------------------------------------------------------------------------Operating profit before otherincome 97.2 42.1 139.3 95.9--------------------------------------------------------------------------------Operating profit before otherincome, analysed as:Before exceptional items 89.2 46.1 135.3 98.8Goodwill impairment (0.9) - (0.9) (1.1)Closure and integration costs - (4.0) (4.0) (1.8)Abortive acquisition costs (1.0) - (1.0) -Gain on curtailment of definedbenefit pension schemes 9.9 - 9.9 ---------------------------------------------------------------------------------Operating profit before otherincome 97.2 42.1 139.3 95.9--------------------------------------------------------------------------------Other income - gains on the sale of businesses and property 24.3 7.4--------------------------------------------------------------------------------Operating profit 163.6 103.3 Finance costs (85.3) (54.9)Finance income 17.7 15.3--------------------------------------------------------------------------------Net finance costs (67.6) (39.6)-------------------------------------------------------------------------------- Share of profit before tax from joint venture 0.5 0.1Share of income tax expense from joint venture (0.1) ---------------------------------------------------------------------------------Share of post tax profit from joint venture 0.4 0.1-------------------------------------------------------------------------------- Profit before taxation 96.4 63.8Income tax expense (28.9) (20.7)--------------------------------------------------------------------------------Profit for the year attributable to equity shareholders 67.5 43.1-------------------------------------------------------------------------------- Basic earnings per ordinary share * 10.7p 7.0pDiluted earnings per ordinary share * 10.6p 6.8p * restated following the subdivision of the ordinary shares of 25p each into five new ordinary shares of 5p each. Consolidated Balance Sheet At 31 December 2006 Restated * 2006 2005 £m £m--------------------------------------------------------------------------------Non-current assetsProperty, plant and equipment 420.4 394.0Goodwill 433.8 166.3Other intangible assets 1.4 1.2Derivative financial instruments - 6.5Investment in joint venture 3.0 1.4--------------------------------------------------------------------------------Total non-current assets 858.6 569.4-------------------------------------------------------------------------------- Current assetsInventories 850.2 641.8Trade and other receivables 260.9 161.6Cash and cash equivalents 19.7 82.1Non current assets classified as held for sale 38.4 18.9--------------------------------------------------------------------------------Total current assets 1,169.2 904.4--------------------------------------------------------------------------------Total assets 2,027.8 1,473.8-------------------------------------------------------------------------------- Current liabilitiesBank overdrafts - (4.7)Interest bearing loans and borrowings (10.4) (4.9)Trade and other payables (1,171.8) (855.5)Deferred income (0.9) -Current tax payable (19.5) (19.1)Provisions (4.3) (0.7)--------------------------------------------------------------------------------Total current liabilities (1,206.9) (884.9)-------------------------------------------------------------------------------- Non-current liabilitiesInterest bearing loans and borrowings (371.0) (256.0)Derivative financial instruments (8.0) -Deferred income (21.1) -Deferred tax liabilities (42.0) (2.0)Retirement benefit obligations (65.2) (90.4)Provisions (7.6) (1.2)--------------------------------------------------------------------------------Total non-current liabilities (514.9) (349.6)--------------------------------------------------------------------------------Total liabilities (1,721.8) (1,234.5)--------------------------------------------------------------------------------Net assets 306.0 239.3-------------------------------------------------------------------------------- Capital and reservesCalled up share capital 32.8 32.8Share premium account 56.8 56.8Capital redemption reserve 2.5 2.5Other reserves 12.6 12.6Translation reserve (0.3) (0.1)Retained earnings 201.6 134.7--------------------------------------------------------------------------------Total equity 306.0 239.3-------------------------------------------------------------------------------- * see note 1 below. Consolidated Cash Flow Statement Year ended 31 December 2006 2006 2005 £m £m--------------------------------------------------------------------------------Cash flow from operating activitiesProfit after taxation 67.5 43.1Adjustment for income from joint venture (0.4) (0.1)Adjustment for taxation 28.9 20.7Adjustment for interest 67.6 39.6--------------------------------------------------------------------------------Operating profit 163.6 103.3 Depreciation and amortisation 65.1 47.5Share based payments 0.9 0.4Profit on sale of businesses and property (24.3) (7.4)Goodwill impairment 0.9 1.1Changes in inventories 74.9 (8.4)Changes in trade and other receivables (31.8) (28.4)Changes in trade and other payables (9.6) 29.5Changes in retirement benefit obligations (23.1) (6.9)Changes in provisions 2.8 (0.3)--------------------------------------------------------------------------------Cash generated from operations 219.4 130.4 Taxation paid (24.2) (16.6)Interest received 0.8 1.3Interest paid (68.0) (44.5)--------------------------------------------------------------------------------Net cash from operating activities 128.0 70.6----------------------------------------------------------------------------------------------------------------------------------------------------------------Cash flows from investing activitiesBusiness acquisitions (466.0) (35.1)Proceeds from sale of businesses 23.1 16.2Purchase of investments (15.1) (6.5)Purchase of property, plant and equipment (171.2) (154.4)Proceeds from sale of property, plant and equipment 388.9 193.5Receipts from sales of investments 1.7 0.3--------------------------------------------------------------------------------Net cash (used in) / from investing activities (238.6) 14.0----------------------------------------------------------------------------------------------------------------------------------------------------------------Cash flows from financing activitiesPayment of capital element of finance lease rentals (5.6) (1.0)Repayment of unsecured bank loans (413.3) (73.2)Repayment of loan notes (12.5) (32.7)Proceeds from the issue of unsecured loans 502.8 -Dividends paid to shareholders (17.4) (15.6)--------------------------------------------------------------------------------Net cash inflow / (outflow) from financing activities 54.0 (122.5)--------------------------------------------------------------------------------Effects of exchange rate changes on cash held (1.1) 1.0-------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (57.7) (36.9)Cash and cash equivalents at 31 December 2005 77.4 114.3--------------------------------------------------------------------------------Cash and cash equivalents at 31 December 2006 19.7 77.4-------------------------------------------------------------------------------- Consolidated Statement of Recognised Income and Expense Year ended 31 December 2006 Restated * 2006 2005 £m £m--------------------------------------------------------------------------------Foreign currency translation differences for foreign operations (0.2) 0.2Defined benefit plan actuarial gains and losses 18.1 (17.1)Income tax on income and expense recognised directly in equity (5.4) 5.1--------------------------------------------------------------------------------Income and expense recognised directly in equity 12.5 (11.8) Profit for the period 67.5 43.1--------------------------------------------------------------------------------Total recognised income and expense for the periodattributable to equity holders of the company 80.0 31.3--------------------------------------------------------------------------------Impact of change in accounting policy on retained earnings at 1 January (13.3) - -------------------------------------------------------------------------------- * see note 1 below Notes to the Financial Statements 1. Change in accounting policy The group recognises all actuarial gains and losses arising from defined benefit plans directly in equity. In its financial statements for periods beginning before 1 January 2006 the group applied the corridor method to recognise in the income statement actuarial gains and losses over the expected working lives of employees in the plans. This change in accounting policy was due to the closure of the schemes to future accrual, employees no longer participate in the plan and the service period over which the corridor movements are spread is nil. As a consequence of this the directors consider it is no longer appropriate to spread the gains and losses over the service period and that full recognition of the actuarial gains and losses in the 'Statement of Recognised Income and Expense' gives more reliable and relevant information. The directors consider this to be more reliable and relevant as the revised policy will reflect the full pension obligation on the balance sheet. The change in accounting policy was recognised retrospectively in accordance with the transitional provisions of the amendment, and comparatives have been restated. The change in accounting policy had the following impact on these financial statements: Income Statement for the year ended 31 December 2005 No impact Consolidated Statement of Recognised Income and Expense 2006 2005 £m £m ------------------------------------------------------------------------------------ Increase / (decrease) in net income recognised directly in equity 12.6 (12.0) ------------------------------------------------------------------------------------ Increase / (decrease) in total recognised income and expense for the year 12.6 (12.0) ==================================================================================== Balance Sheet 2006 2005 £m £m ------------------------------------------------------------------------------------ Cumulative decrease / (increase) in retirement benefit obligations 18.0 (19.0) Cumulative (decrease) / increase in deferred tax asset (5.4) 5.7 ------------------------------------------------------------------------------------ Cumulative increase / (decrease) in retained earnings 12.6 (13.3) ==================================================================================== The adjustment to retained earnings at 1 January 2005 was a decrease of £1.3 million. 2. Dividends Subject to final approval at the Annual General Meeting, the final dividend of 2.00p per share (2005 : 1.32p) will be paid on 2 May 2007 to shareholders appearing on the register at the close of business on 10 April 2007. An interim dividend of 1.45p per share (2005 : 1.32p) was paid in October 2006 which makes a total of 3.45p (2005 : 2.64p) for the financial year. 3. Earnings per share ------------------------------------------------------------------------------------ restated * restated * 2006 2006 2005 2005 Earniings per Total Earnings per Total share share pence £m pence £m ------------------------------------------------------------------------------------ Basic earnings per share 10.7 67.5 7.0 43.1 Adjusting items: Profit on business and property disposals (3.9) (24.3) (1.2) (7.4) Goodwill impairment 0.1 0.9 0.2 1.1 Abortive acquisition costs 0.2 1.0 - - Gain on curtailment of defined benefit pension schemes (1.6) (9.9) - - Operating exceptional costs 0.6 4.0 0.3 1.8 Tax effect of adjusting items 1.4 8.1 0.4 2.8 ------------------------------------------------------------------------------------ Adjusted earnings per share 7.5 47.3 6.7 41.4 ==================================================================================== Diluted earnings per share 10.6 67.5 6.8 43.1 ==================================================================================== The calculation of basic, adjusted and diluted earnings per share is based on the following number of shares in issue (millions) 2006 2005 number number ------------------------------------------------------------------------------------ Weighted average number of ordinary shares in issue 629.0 619.3 Weighted average number of dilutive shares under option 10.7 17.0 ------------------------------------------------------------------------------------ Weighted average number of shares in issue taking account of applicable outstanding share options 639.7 636.3 ==================================================================================== The directors consider that the adjusted earnings per share figures provides a better measure of comparative performance. * The note has been restated following the subdivision of the ordinary shares of 25p each into five new ordinary shares of 5p each during the year. 4. 2006 2005 Finance costs £m £m ------------------------------------------------------------------------------------ Interest payable on bank borrowings 30.0 11.1 Interest payable on loan notes 9.5 8.9 Vehicle stocking plan interest 25.5 18.6 Interest payable on finance leases 0.4 0.1 Fair value losses - interest rate swaps 1.0 - Unwinding of discounts in contract hire residual values 2.7 2.5 Interest on pension scheme obligation 16.5 13.8 ------------------------------------------------------------------------------------ 85.6 55.0 Less : interest capitalised (0.3) (0.1) ------------------------------------------------------------------------------------ 85.3 54.9 ==================================================================================== 5. 2006 2005 Finance income £m £m ------------------------------------------------------------------------------------ Fair value gains - interest rate swaps - 0.4 Interest receivable on bank deposits 0.8 0.8 Interest on pension scheme assets 16.9 13.6 Other interest receivable - 0.5 ------------------------------------------------------------------------------------ 17.7 15.3 ==================================================================================== 6. 2006 2005 Cash and cash equivalents £m £m ------------------------------------------------------------------------------------ Bank balances and cash equivalents 19.7 82.1 Bank overdrafts - (4.7) ------------------------------------------------------------------------------------ 19.7 77.4 ==================================================================================== 7. 2006 2005 Net debt £m £m ------------------------------------------------------------------------------------ Cash and cash equivalents (see note 6) 19.7 77.4 Short-term borrowings (5.3) (4.0) Long-term borrowings (364.5) (253.4) Derivative financial instruments (8.0) 6.5 Obligations under finance leases (11.6) (3.5) ------------------------------------------------------------------------------------ (369.7) (177.0) ==================================================================================== 8. Acquisition of Reg Vardy Plc On 14 February 2006 the group acquired all the shares in Reg Vardy Plc for a total consideration including costs of £504.2m in cash. Net Assets at date of acquisition Book value Fair value Fair value at acquisition adjustments at acquisition £m £m £m ----------------------------------------------------------------------------------- Property, plant and equipment 205.6 48.2 253.8 Intangible assets 1.1 2.1 3.2 Non current assets classified as held for sale 12.2 6.3 18.5 Inventories 306.9 0.1 307.0 Trade and other receivable 67.4 0.1 67.5 Trade and other payables (350.7) (4.9) (355.6) Cash and cash equivalents 49.1 - 49.1 Retirement benefit obligations (15.0) (0.9) (15.9) Bank loans (50.0) - (50.0) Obligations under finance leases (10.8) - (10.8) Tax liabilities (6.7) 0.5 (6.2) Provisions (7.2) - (7.2) Deferred tax liaibilities (5.1) (14.6) (19.7) ------------------------------------------------------------------------------------ 196.8 36.9 233.7 Goodwill 270.5 ------------------------------------------------------------------------------------ Consideration (including costs) 504.2 ==================================================================================== 9. Annual Report The above financial information does not represent the full financial statements of the company. Full financial statements for the year ended 31 December 2005, containing an unqualified audit report have been delivered to the registrar of companies. Full financial statements for the year ended 31 December 2006, which have been reported on without qualification by the group's auditors, will shortly be posted to shareholders, and after adoption at the Annual General Meeting on 27 April 2007 will be delivered to the registrar. Copies of this announcement are available from Pendragon PLC, Loxley House, 2 Oakwood Court, Little Oak Drive, Annesley, Nottinghamshire NG15 0DR. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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