Half Yearly Report

RNS Number : 2786M

Cambria Automobiles Plc

21 May 2010

 

Cambria Automobiles plc

 

Interim results for the six months ended 28 February 2010

 

21 May 2010

 

Financial Highlights

 

Cambria Automobiles plc ("Cambria", the "Company" or together with its subsidiaries "the Group") announces its first set of interim results for the six months ended 28 February 2010 since its introduction to AIM on 1 April 2010. Cambria was incorporated in 2006 and has since created a franchised motor retail group through a buy and build strategy encompassing 7 corporate acquisitions to date, such that it has now grown to represent 13 separate manufacturers at 25 locations with a total of 37 new car and motorcycle franchises. The Group focuses on acquiring and improving underperforming businesses where it believes the best shareholder returns can be achieved.

 

Summary Financials

		Six months ended 28 February 2010 £m	Six months ended 28 February 2009 £m
Revenue		175.9	109.6
Adjusted EBITDA*		3.3	1.6
Adjusted operating profit*		2.7	1.0
Adjusted profit before tax*		2.5	0.1
Adjusted net profit margin*		1.45%	0.00%
EBITDA		3.2	1.6
Operating profit		2.6	1.0
Profit before tax		2.5	0.1
Transaction costs expensed in the period		0.07	0.0
Net profit margin		1.41%	0.00%
Adjusted earnings per share		1.85p	0.01p
Earnings per share		1.78p	0.01p
Net Assets		15.9	12.5

*Adjustments relate to the expensing of £0.07m of transaction costs incurred in the period

 

Financial headlines

·; Profit before tax of £2.5m for the six months ended 28 February 2010 was ahead of the Board's expectations, the primary driver being the new vehicle department performance

·; Total revenue for the 6 months increased 60% year on year (like for like sales increased 58%) to £175.9m from £109.6m in 2009

·; Gross profit increased 36% year on year

·; Adjusted EBITDA increased 106% to £3.3m from £1.6m

·; Adjusted profit before tax increased to £2.5m from £0.1m in the previous year

·; Adjusted earnings per share increased to 1.85p from 0.01p in the previous year

·; Group net assets at £15.9m under-pinned by £22m of freehold and long leasehold property

·; Robust balance sheet position with only £0.3m of goodwill

·; Net debt of £9.6m comprising gross debt of £14m and cash at bank of £4.4m

 

Operating performance highlights

·; New vehicle unit sales increased 59% year on year to 4290 from 2697 in 2009

·; 1297 scrappage units delivered in the 6 month period representing 30% of new car volume, and 15% of new car gross profit

·; Used vehicle unit sales increased 35% year on year to 6139 from 4531 in 2009

·; Used car profit per unit increased 9.4%

·; 3 corporate acquisitions completed in the period

·; 10 new car and motorcycle franchises operating from 7 separate locations added since 31 August 2009

·; Mazda, Honda & Triumph motorcycle franchises added to the Group brand partner portfolio

·; 2 further freehold properties acquired

 

Mark Lavery, Chief Executive Officer, said:

 

"We are delighted to announce our first interim results as a public company and we are very encouraged by the first half of our financial year as the Group is trading ahead of the Board's expectations and previous year performance. It is worth noting however that the previous year was materially impacted by the dire state of the global automotive industry and this influenced the financial performance of the majority of motor dealers in the UK.

 

In operating terms, the new vehicle department showed year on year growth of 11% (in unit volume sales) excluding all scrappage new car sales, and similarly the used vehicle department saw unit growth of 35% year on year. Aftersales revenues and gross profit increased 20% year on year demonstrating that our strategy for improving aftersales contribution continues to have a positive impact.

 

The UK motor industry, along with the UK economy continues to face significant economic challenges. The Group has demonstrated in difficult economic times it has the ability to successfully expand and generate attractive returns for its shareholders.

 

The second half of the financial year has started well, and the Board remains optimistic about the full year financial performance."

For further information please contact:

 

Cambria Automobiles plc

Mark Lavery, CEO 01707 280851

James Mullins, FD 01707 280851

 

Fairfax IS PLC

Ewan Leggat / Katy Birkin 0207 598 5368

 

 

Directors Review of the Period

 

Introduction

The Board is pleased to present the first interim results since its admission to AIM on 1 April 2010. The Directors are satisfied with the Group's operating and financial performance for the first half of the financial year to 28 February 2010 which is ahead of the Board's expectations with a profit before tax for the half year of £2.5m compared with £0.1m in the same period in 2009.

 

In comparing the performance of the Group against the prior year it should be noted that the comparative numbers include the last four months of the calendar year 2008 which saw an unprecedented decline in both new vehicle registrations and the market value of used vehicle inventory. In the corresponding period this year, the UK market saw new vehicle registrations increase by 27% year on year in part reflecting the impact of the governments' scrappage scheme which may have accounted for a significant proportion of UK registrations in February 2010.

 

The Group has continued to pursue its buy and build strategy, and in the period it acquired 10 further new car and motorcycle franchises adding 7 further locations and 3 new franchises representing Mazda, Honda and Triumph motorcycles.

 

The Board is of the opinion that 2010 will continue to be a difficult trading environment for the new vehicle market. The closure of the Government scrappage scheme in March 2010 almost coincided with the introduction of the new vehicle excise duty (showroom tax) both of which occurred shortly after the reversion of VAT to 17.5% on 1 January 2010. Recognising the challenges of the new car market, the Group has continued its focus on developing both its aftersales and its used car operations. During the 6 month period to February 2010 aftersales accounted for 44% of the Group's gross profit and used cars accounted for 32%.

 

Financial Review

 

Total revenues in the period increased 60% to £175.9m from £109.6m in the prior year. The new acquisitions accounted for £2.9m of the increased revenue meaning like for like the Group achieved an increase in revenue of 58% which was shared across all areas of the business.

 

Gross profit increased by 36% in the period reflecting a significant increase in revenue from each of the major departments. However, the gross profit margin across the Group for the period declined (from 15% in the previous six months to 12.7%) reflecting a change in revenue mix as a result of the increase in new car sales at lower margins due to the scrappage scheme.

 

Adjusted EBITDA in the period rose to £3.3m from £1.6m in the comparative 6 months clearly demonstrating the Group's improved performance in the period. Adjusted operating profit (excluding transaction costs on business combinations of £0.07m) was £2.7m compared to £1m in the previous period, resulting in operating margins of 1.5% (0.9% in the previous year). Operating expenses rose less than the rise in turnover, rising 28% to £19.8m.

 

Net finance expenses for the period fell to £0.1m from £0.9m in the previous year. This fall was the result of two key factors; firstly, mortgage interest charges were reduced to £0.1m in comparison with £0.4m in the previous year (as a consequence of the fall in the Bank of England's base rate and LIBOR) secondly, the Group received a consignment stock credit of £0.3m as a result of much stronger new vehicle market in this first half of the year.

 

The Group's profit before tax increased to £2.5m compared with £0.1m in the prior year.

 

The Group has a robust balance sheet with a net asset position of £15.9m under-pinned by £22m of freehold and long leasehold property. Reflecting the Group's prudent approach to financial management, the Group has only £0.3m of goodwill within the balance sheet. Mortgages amounting to £14m are secured against the freehold and long leasehold properties.

 

The net debt of the Group as at 28 February 2010 was £9.6m, reflecting the Group's cash position of £4.4m.

 

During this period the Group generated an operating cash inflow of £1.6m, after allowing for a £1.6m increase in working capital, the majority of which was used to support the incremental stock requirements of the additional sites acquired and the increased sales volume of used vehicles. During the period, the Group made 3 acquisitions for a total consideration of £5.5m, which included the purchase of £3.6m of freehold property and £1.6m of inventories.

 

Operating Review

 

Group Strategy

Since its incorporation in March 2006, the Group has followed its focused buy and build strategy of acquiring under-performing motor dealership assets. Following an acquisition the Cambria management team implement new financial and operational controls and processes in order to rationalise, restructure and develop each individual dealership. This tailored approach ensures the changes made to each dealership are sustainable and create shareholder value through achieving an appropriate contribution for the level of investment. The Group has completed 7 separate transactions since its incorporation, 3 of which were in the period under review.

 

The 3 corporate acquisitions in the period have added a further 4 Mazda, 2 Honda, 3 Triumph motorcycle and 1 Fiat dealerships to the Group's portfolio, the new dealerships operate from 7 different locations. Pursuant to one of these acquisitions the Group acquired two further freehold properties meaning that the Group now owns 11 freehold or long leasehold properties.

 

We are pleased to report that the trading performance of the Group is ahead of both the Board's expectation and prior year, when comparing like for like businesses and the new acquisitions. The government scrappage scheme has had a positive impact on the Group performance, representing 30% of the new car sales in the current period, and 15% of the new vehicle department gross profit.

 

Trading Performance

 

New vehicles - new vehicle revenue was up 63% from £45.8m to £74.7m. Acquisitions accounted for only £1.1m of the increase, so like for like the Group achieved a 61% increase in revenue from a 55% increase in new units. The performance of the Group was against a 27% year on year increase in new vehicle registrations in the UK for the period 1 September 2009 to 28 February 2010 which included the impact of the scrappage scheme. (Source: SMMT). The new vehicle department gross profit margin was 7.5%.

 

Used vehicles - we have seen a strong performance in our used vehicle departments, with revenue increasing 73%. Acquisitions accounted for £1.2m of the increase, so like for like the Group achieved a 70% increase in revenue, from a 32% increase in the number of units sold. The average retail price per unit increased reflecting the resurrection of the luxury car market. The used vehicle department gross profit margin was 8.7%.

 

Aftersales - aftersales revenue increased 20% year on year from £19.3m to £23.2m. Acquisitions accounted for £0.6m of the increase, so like for like the Group achieved a 17% increase in revenue. Aftersales gross profit also increased 20% year on year retaining 41.8% gross profit margin. The aftersales department represents 43% of the Group's total gross profit.

 

Business Development

 

The Group now represents 13 separate manufacturers with 37 new car motorcycle franchises operating from 25 locations across the UK. The 3 acquisitions in the period added Mazda, Honda and Triumph motorcycle franchises to the Group.

 

New Franchise	Number of Outlets	Trading as
Aston Martin	3	Grange
Citroen	1	Motorparks
Fiat	5	Motorparks
Ford	5	Dees or Invicta
Honda	2	Invicta
Jaguar	5	Grange
Lotus	1	Grange
Mazda	4	Invicta or Motorparks
Nissan	1	Motorparks
Renault	1	Motorparks
Seat	1	Motorparks
Triumph motorcycle	3	Pure Triumph
Volvo	5	Doves

 

When making acquisitions, the Board understands that the integration and maturing of the dealerships takes time and management investment. Where the Group acquire businesses that from distressed sales, the integration process typically takes longer.

 

The Group continues to promote the philosophy of stand alone autonomous business units where a local management team are empowered to run a local business. The Group does not trade under the "Cambria" name but prefers to focus on local branding. The Groups dealerships trade as "Grange", "Doves", "Dees", "Invicta Motors", "Pure Triumph" or "Motorparks" depending on the franchise and the name in the local area. When acquiring a business, the Board consider the geographical location, the franchise and the strength of the name in the local community and chooses to either adopt the name or replace it with one of the existing trading names.

 

Current Trading and Outlook

 

The Group has had a successful start to the second half of the year, and continues to perform ahead of the Board's expectation. The new and used car performance in March 2010 was in line with the Board's expectations which is important given that March is the biggest new car sales month of the year (corresponding with the bi-annual plate change). The aftersales department has started the second half of the year ahead of the Board's expectations due in part to an increased management focus on this area. The scrappage scheme which ended in March 2010 had a positive impact on trading, there is evidence that the manufacturers are substituting the government backed scrappage scheme with alternative marketing campaigns in order to support new car volumes, we await the results of these initiatives.

 

The financial results for the second half of the year will be affected by £1.5m of exceptional costs relating to the payment of professional fees and other costs associated with admission to AIM including one off management bonuses paid as a result of the successful admission.

 

Despite the positive start to the second half of the year, we are very conscious that the UK economy has some way to recover, and currently there is economic instability across Europe and we are uncertain as to what actions the new government will need to take to address the fiscal deficit. The introduction of the vehicle excise duty, the reversion of VAT to 17.5%, and the significant increase in fuel costs have all increased the costs of vehicle ownership for the consumer which will continue to have an adverse impact on the automotive industry. The Board believe that notwithstanding the economic pressures, the Group is well positioned to continue its organic development, as well as take advantage of acquisition opportunities as they arise in locations and with brands that the Group wishes to develop.

 

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 28 February 2010

	Notes	6 months to 28 February 2010	6 months to 28 February 2009	12 months to 31 August 2009
		£000	£000	£000
Revenue
Continuing operations		173,005	109,613	255,466
Acquisitions		2,942	-	-
		175,947	109,613	255,466
Cost of Sales
Continuing Operations		(151,115)	(93,129)	(212,675)
Acquisitions		(2,429)	-	-
		(153,544)	(93,129)	(212,675)
Gross Profit
Continuing Operations		21,890	16,484	42,791
Acquisitions		513	-	-
		22,403	16,484	42,791
Other operating income		-	-	3
Operating expenses
Continuing operations		(19,005)	(15,486)	(39,423)
Acquisitions		(799)	-	-
Operating profit - continuing operations		2,885	998	3,371
Operating loss - acquisitions		(216)	-	-
Transaction costs on business combinations		(70)	-	-
Results from operating activities		2,599	998	3,371
Finance income		269	22	41
Finance expenses		(394)	(926)	(1,370)
Net finance expenses		(125)	(904)	(1,329)
Profit before tax		2,474	94	2,042
Taxation	6	(693)	(26)	(432)
Total comprehensive income for the period		1,781	68	1,610
Basic and diluted earnings per share	4	1.78p	0.007p	1.61p
All comprehensive income is attributable to owners of the parent company.

 

Condensed Consolidated Statement of Changes in Equity

as at 28 February 2010

	Share Capital	Share premium	Retained earnings	Total Equity
	£000s	£000s	£000s	£000s
For the 6 months ended 28 February 2009
Balance at 31 August 2008	318	10,481	1,676	12,475
Profit for the period	-	-	68	68
Balance at 28 February 2009	318	10,481	1,744	12,543
For the 12 months ended 31 August 2009
Balance at 31 August 2008	318	10,481	1,676	12,475
Profit for the period	-	-	1,610	1,610
Balance at 31 August 2009	318	10,481	3,286	14,085
For the 6 months ended 28 February 2010
Balance at 31 August 2009	318	10,481	3,286	14,085
Profit for the period	-	-	1,781	1,781
Balance at 28 February 2010	318	10,481	5,067	15,866

 

Condensed Consolidated Statement of Financial Position

as at 28 February 2010

 

	As at 28 February 2010	As at 28 February 2009	As at 31 August 2009
	£000	£000	£000
Non-current assets
Property, plant & equipment	24,927	21,666	21,466
Intangible assets	461	356	478
	25,388	22,022	21,944
Current assets
Inventories	58,035	40,485	43,523
Trade and other receivables	11,130	7,836	7,200
Cash & cash equivalents	4,419	3,096	5,777
	73,584	51,417	56,500
Total assets	98,972	73,439	78,444
Current liabilities
Other interest bearing loans and borrowings	(666)	(167)	(294)
Trade and other payables	(67,778)	(48,627)	(52,239)
Taxation	(693)	-	-
Provisions	(452)	(145)	(452)
	(69,589)	(48,939)	(52,985)
Non-current liabilities
Other interest bearing loans and borrowings	(13,301)	(11,289)	(11,138)
Provisions	(216)	(668)	(236)
	(13,517)	(11,957)	(11,374)
Total liabilities	(83,106)	(60,896)	(64,359)
Net assets	15,866	12,543	14,085
Equity attributable to equity holders of the parent
Share capital	318	318	318
Share premium	10,481	10,481	10,481
Retained earnings	5,067	1,744	3,286
	15,866	12,543	14,085

These consolidated interim financial statements were approved by the Board of Directors on 20 May 2010. .

 

Condensed Consolidated Cash flow statement 

as at 28 February 2010

 

	As at 28 February 2010	As at 28 February 2009	As at 31 August 2009
	£000	£000	£000
Cash flows from operating activities
Profit for the period	1,781	68	1,610
Adjustments for:
Depreciation, amortisation and impairment	613	607	1,192
Finance income	(269)	(22)	(41)
Finance expense	394	926	1,370
Gain on sale of property, plant and equipment	-	-	(3)
Taxation	693	26	432
	3,212	1,605	4,560
(Increase)/decrease in trade and other receivables	(3,960)	499	1,102
(Increase)/decrease in inventories	(13,209)	1,011	(1,657)
(Decrease)/increase in trade and other payables	15,624	(807)	2,542
(Decrease)/increase in provisions	(20)	(259)	(910)
	1,647	2,049	5,637
Interest paid	(258)	(564)	(821)
Interest received Tax received	259 -	- -	- 33
	1,648	1,485	4,849
Cash flows from investing activities
Proceeds from sale of property, plant and equipment	-	-	7
Interest received	10	22	41
Acquisition of subsidiary, net of cash acquired	(5,082)	-	-
Acquisition of property, plant and equipment	(334)	(492)	(872)
Acquisition of other intangible assets	-	-	(134)
	(5,406)	(470)	(958)
Cash flows from financing activities
Proceeds from new loan	2,678	-	-
Interest paid	(135)	(362)	(533)
Repayment of borrowings	(143)	-	(24)
Net cash (outflow)/inflow from financing activities	2,400	(362)	(557)
Net increase/(decrease) in cash and cash equivalents	(1,358)	653	3,334
Cash and cash equivalents at start of period	5,777	2,443	2,443
Cash and cash equivalents at end of period	4,419	3,096	5,777

 

Notes

1 General information

Cambria Automobiles plc is a company which is admitted to trading on the AIM Market and is incorporated in England and domiciled in the United Kingdom. The address of the registered office is Dorcan Way, Swindon, SN3 3RA. The registered number of the company is 05754547.

These interim financial statements as at and for the six months ended 28 February 2010 comprise the results for the Company and its subsidiaries (together referred to as the "Group") and have been prepared in applying the recognition and measurement requirements of IFRSs as adopted by the EU but not in compliance with IAS 34 as adopted by the EU. Compliance with IAS 34 as adopted by the EU is not required under the AIM Rules. 

The financial statements for the period ended 28 February 2009 have neither been audited nor reviewed by the auditors. The financial statements for the year ended 31 August 2009 were reported previously in financial statements prepared in accordance with UK GAAP. 

In accordance with the AIM Rules, all AIM quoted companies must prepare and present their consolidated financial statements in accordance with Adopted IFRS. Following admission to AIM on 1 April 2010, the first set of financial statements that the Group will need to prepare under Adopted IFRS will be for the year ended 31 August 2010. These interim statements for the period ended 28 February 2010 are also required to be prepared under Adopted IFRS.

Comparative numbers and an opening balance as at 1 September 2008, the Group's transition date to Adopted IFRS, are also required. In preparing its opening Adopted IFRS balance sheet, the Group has adjusted amounts reported previously under UK GAAP. An explanation of how the transition (from UK GAAP to Adopted IFRS) has affected the Group's financial position, financial performance and cash flows is set out in note 7.

2 Accounting policies

The Group's principal activity is the sale and servicing of motor cars and the provision of ancillary services.

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the financial statements.

Judgements made by the directors in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed at the end of this note.

Basis of preparation

The financial statements are prepared under the historical cost convention.

The Group financial statements have been prepared on a going concern basis as, in the opinion of the Directors, at the time of approving the financial statements there is a reasonable expectation that the Group will continue in operational existence for the foreseeable future.

The Group is preparing its financial statements in accordance with Adopted IFRS for the first time and consequently has applied IFRS 1. An explanation of how the transition to Adopted IFRSs has affected the reported financial position, financial performance and cash flows of the Group is provided in note 7.

IFRS 1 grants certain exemptions from the full requirements of Adopted IFRSs in the transition period. None of these exemptions have been taken.

The Group has adopted the following amended IFRS:

IAS 1 (revised) 'Presentation of Financial Statements' introduces the term total comprehensive income, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. The new statement of comprehensive income may be presented as either a single statement of comprehensive income, which combines the requirements of the existing income statement and statement of recognised income and expense, or in an income statement and separate statement of comprehensive income. As a result the Group presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been presented so that it also is in conformity with the revised standard. The revised standard only impacts presentational aspects.

Revised IFRS 3 'Business Combinations' incorporates certain changes that amend the Group's current accounting policies in respect of business combinations, the standard continues to apply the purchase method to all business combinations, but with some changes, the main change being that transaction costs, other than share and debt issue costs, are expensed as incurred. Revised IFRS 3 becomes mandatory for the Group's 2010 financial statements but has been early adopted by the Group and applied to all business combinations as permitted by IFRS 1.

IFRS 8 'Operating Segments' introduces the 'management approach' to segment reporting. This requires the disclosure of segmental information based on the internal reports regularly reviewed by the board in order to assess each segment's performance and allocate resources to them.

The following standards and amendments to existing standards have been published and are mandatory for the Group's 2010 accounting period but the Group has not early adopted them:

Amendments to IFRS 1 and IAS 27 'Cost of an Investment in a Subsidiary, Jointly-Controlled Entity or Associate' becomes mandatory for the Group's 2010 accounting period. IAS 27 is applicable to the Company financial statements only so has no effect on the Group's historical financial statements.

IAS 38 (amendment), "Intangible Assets". The amendment is part of the IASB annual improvements project published in April 2009. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and permits the grouping of intangible assets as a single asset if each asset has a similar useful economic life. The amendment will not result in a material impact on the Group's financial statements. 

Basis of consolidation

The financial statements consolidate the financial statements of the Company together with its trading subsidiary companies.

Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial information of subsidiaries is included from the date that control commences until the date that control ceases.

All business combinations are accounted for by applying the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at the acquisition date irrespective of the extent of any minority interest.

The excess of the cost of an acquisition over the fair values of the Group's share of identifiable assets and liabilities acquired is recognised as goodwill. If the fair value of identifiable assets and liabilities acquired (i.e. discount on acquisition) exceeds the cost of the business combination, the difference is recognised directly in the consolidated statement of comprehensive income. 

Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated on consolidation.

Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Group's board of directors. All revenue from transactions with other operating segments of the same entity has been eliminated.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and VAT.

Sales of motor vehicles, parts and accessories are recognised when the significant risks and rewards of ownership have been transferred to the buyer. In general this occurs when vehicles or parts are delivered to the customer and title has passed. Servicing and bodyshop sales are recognised on completion of the agreed work.

Deposits received from customers

Deposits received from customers prior to the completion of a sale (delivery of vehicle) are included in the accounts as creditors falling due within one year.

Expenses

Financing income and expenses

Financing expenses comprise interest payable, finance charges on shares classified as liabilities, stocking interest charge on consignment and used vehicles and finance leases. Financing income comprises interest receivable on funds invested, interest receivable and credits relating to vehicle stocking.

Borrowing costs are recognised in the period in which they are incurred.

Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Dividend income is recognised in income on the date the entity's right to receive payments is established.

Operating profit

Operating profit relates to profit before finance income, finance expense and income tax expense.

Intangible assets

Goodwill

Goodwill represents the excess between the cost of an acquisition of a subsidiary compared to the net fair value of the identifiable assets, liabilities and contingent liabilities, and recognition of identifiable intangibles at the date of acquisition. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units of the acquiree which represent the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill is not amortised but is tested annually for impairment. Any impairment is recognised immediately in the statement of comprehensive income and is not subsequently reversed.

Negative goodwill arising on an acquisition is recognised immediately in the consolidated statement of comprehensive income.

Other intangible assets

Expenditure on internally generated goodwill and brands is recognised as an expense as incurred.

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.

Amortisation

Amortisation is charged on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each year. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:

Computer software 3 - 5 years

Order book 6 months following date of acquisition

Customer list 3 years following date of acquisition

The fair value of customer lists on acquisition have been calculated using discounted cash flows. The fair value of the order book on acquisition has been calculated based on post acquisition margins associated with deposits for future sales held at the date of acquisition.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Depreciation is charged on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows:

·; freehold buildings 50 years

·; plant and machinery 5 to 10 years

·; fixtures and fittings 5 to 10 years

·; computer equipment 3 to 5 years

Depreciation methods, useful lives, residual values and possible impairments have been reviewed at the year end. As a result of this review, no impairment charge has been deemed necessary for the period.

Impairment excluding inventories and deferred tax assets

The carrying amounts of the Group's assets, are reviewed at each year end to determine whether there is any indication of impairment; an asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. If any such indication exists, the asset's recoverable amount is estimated.

For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each year end.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in income.

Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

The recoverable amount of other assets is the greater of their fair values less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Reversals of impairment

An impairment loss in respect of trade and other receivables carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.

An impairment loss in respect of goodwill is not reversed.

In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Inventories

Inventories are stated at the lower of cost and net realisable value. In determining the cost of motor vehicles, the actual amount paid to date for each vehicle is used, for spare parts and service items cost is based on the first-in first-out principle. An appropriate provision is made for obsolete or slow moving items.

New vehicles on consignment from manufacturers are included in the Statement of Financial Position with a corresponding liability in creditors due within one year. This stock is considered to be under the control of the Group as it is considered that the Group bears all the risks and rewards or ownership, even though legal title has not yet passed.

Consignment stock is held for a maximum period (which varies between manufacturers) before becoming due for payment. Part of the consignment period is interest free and the remaining periods are interest bearing (periods and charges vary between manufacturers but interest is generally linked to finance house base rate).

Used motor vehicles are stated at the lower of cost or net realisable value, by reference to Glasses Guide or CAP data.

Financial Instruments

Classification of financial instruments issued by the Group

Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:

they include no contractual obligations upon the group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the group; and

where the instrument will or may be settled in the company's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the company's own equity instruments or is a derivative that will be settled by the company's exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the company's own shares, the amounts presented in the historical financial information for called up share capital and share premium account exclude amounts in relation to those shares. 

Non-derivative financial instruments

Non-derivative financial instruments comprise, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Trade and other receivables

Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses.

Trade and other payables

Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose only of the cash flow statement.

Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method.

Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised except to the extent that it relates to items recognised in other comprehensive income, in which case it is recognised in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.

Employee benefits

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which the company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense as incurred.

Leasing

Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Where land and buildings are held under leases the accounting treatment of the land is considered separately from that of the buildings. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and less accumulated impairment losses. Lease payments are accounted for as described below.

Operating lease payments

Payments made under operating leases are recognised in the statement of comprehensive income on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense.

Finance lease payments

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Provisions

A provision is recognised in the Statement of Financial Position when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.

Critical accounting judgements in applying the Group's accounting policies

Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. 

Certain critical accounting judgements in applying the Group's accounting policies are described below:

Goodwill impairment

The carrying value of goodwill is tested annually for impairment by using cash flow projections for each cash generating unit. 

Intangible assets

A third party valuation has been carried out on the intangible assets that are pertinent to the motor business. This included consideration of franchise rights, brand, and other intangible assets. The review concluded that for acquisitions undertaken since 17 July 2006 no intangible assets or rights had been acquired with the exception of the value attaining to the order book and customer lists existing at the point of acquisition on the Swindon acquisition. The value of the goodwill arising on the acquisition of Thoranmart Limited was not considered material so intangibles were not separately reviewed.

Consignment inventories

 

Consignment vehicles are regarded as being effectively under the control of the Group and are included within inventories in the Statement of Financial Position as the Group has the significant risks and rewards of ownership even though legal title has not yet passed. The corresponding liability is included in trade and other payables.

 

Deferred tax

 

Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular judgement is used when assessing the extent to which deferred tax assets should be recognised with consideration given to the timing and level of future taxable income.

 

3 Operating Segments

 

The Group has adopted IFRS 8 'Operating Segments' which determines and presents operating segments based on information presented to the Groups Chief Operating Decision ("CODM"), the Board of Directors. The Group is operated and managed on a dealership by dealership basis. The dealerships are similar in characteristic, and offer similar generic products and services. Given the number of dealerships, the CODM receives information on an aggregated basis so the Group forms one reportable segment. The Board however, considers that the revenue streams and gross profit derived from those revenue streams within each dealership are fundamentally different to each other and therefore considers that the new vehicle, used vehicle and aftersales businesses are separate operating segments for the purposes of the segmental analysis.

 

	2010 Revenue	2010 Revenue mix	2010 Gross Profit	2010 Gross Margin		2009 Revenue	2009 Revenue mix	2009 Gross Profit	2009 Gross  Margin
	£m	%	£m	%		£m	%	£m	%
New Car	74.7	43	5.6	7.5		45.8	42	3.6	7.8
Used Car	81.7	46	7.1	8.7		47.1	43	4.8	10.2
Aftersales	23.2	13	9.7	41.8		19.3	17	8.1	42.0
Internal sales	(3.7)	(2)	-	-		(2.6)	(2)	-	-
Gross Profit	175.9	100	22.4	12.7		109.6	100	16.5	15.0

 

The Board reviews the performance of the business in terms of both net profit before tax and EBITDA, as such the Board has included a reconciliation of EBITDA to the Profit before tax.

 

	2010 £000's		2009 £000's
Profit Before Tax	2,474		94
Net finance expense	125		904
Depreciation	613		607
EBITDA	3,212		1,605
Transaction costs on business combinations	70		-
Adjusted EBITDA	3,282		1,605

 

4 Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to equity shareholders by the number of ordinary shares in issue in the period. Prior to admission to AIM on 1 April 2010, the Company's shareholder structure consisted of 5 different share classes with varying rights attributing to each. This share structure was reorganised immediately on admission to AIM resulting in the conversion of the various classes of share into one class of ordinary share with 100,000,000 ordinary shares in issue. The analysis of earnings per share has been prepared on the basis of the revised ordinary share structure, not on the basis of the shares in issue at the balance sheet date.

There are no dilutive share options in issue.

 

	6 months to 28 February 2010	6 months to 28 February 2009	Year ended 31August 2010
	£'000	£'000	£'000
Profit attributable to shareholders	1,781	68	1,610
Expense of transaction costs	70	-	-
Adjusted profit attributable to equity shareholders	1,851	68	1,610
Adjusted number of share in issue ('000s)	100,000	100,000	100,000
Basic earnings per share	1.78p	0.007p	1.61p
Adjusted earnings per share	1.85p	0.007p	1.61p

5 Acquisitions

On 31 October 2009, the Group acquired the trade and assets of certain dealerships from the Administrators of Autohaus Limited for total cash consideration of £369,000. Transactions fees of £30,000 have been expensed through operating expenses in the period. No goodwill arose on this transaction.

On 4 January 2010, the Group began trading as a Fiat and Mazda dealer in Bolton following the acquisition of certain assets from the Administrator of Lythgoe Motors Limited for £22,500 on 23 December 2009.

On 25 February 2010, the Group acquired all of the ordinary shares of D&F Trading Limited and two freehold properties from Drake and Fletcher Limited. Immediately post acquisition D&F Trading Limited was renamed Invicta Motors (Maidstone) Limited. The acquisition had the following effect on the Group's asset and liabilities:

 

		Recognised values on acquisition
		£000's
Acquiree's Net Assets at the acquisition date
Freehold property		3,550
Plant and equipment		150
Inventories		1,303
Trade and other payables		(109)
		4,894
Goodwill on acquisition		-
Consideration Paid (transaction costs of £39,500 have been written off to operating expenses), satisfied in cash		4,894
Property purchase costs		188
Net cash outflow		5,082

6 Taxation

The tax charge for the six months ended 28 February 2010 has been provided at the effective rate of 28% (six months ended 28 February 2009: 28%).

7 Explanation of transition to Adopted IFRS

As stated in note 2, these are the Group's first consolidated financial results prepared in accordance with Adopted IFRSs.

The accounting policies set out in note 2 have been applied in preparing the financial results for the six months ended 28 February 2010, the comparative information presented in these financial statements for the six months ended 28 February 2009 and the year ended 31 August 2009 and in the preparation of an opening IFRS balance sheet at 1 September 2008 (the Group's date of transition).

In preparing its opening IFRS balance sheet, the Group has adjusted amounts reported previously in financial statements prepared in accordance with its old basis of accounting (UK GAAP). An explanation of how the transition from UK GAAP to Adopted IFRSs has affected the Group's financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.

Reconciliation of equity

		1 September 2008
		UK GAAP	Effect of transition to Adopted IFRSs	Adopted IFRSs
	Note	£000	£000	£000
Non-current assets
Property, plant and equipment		21,773	(13)	21,760
Goodwill	a	(53)	399	346
Other intangibles	a	-	28	28
		21,720	414	22,134
Current assets
Inventories		41,866	-	41,866
Trade and other receivables		8,335	-	8,335
Cash and cash equivalents		2,443	-	2,443
		52,644	-	52,644
Total assets		74,364	414	74,778
Current liabilities
Other interest-bearing loans and borrowings		(26)	-	(26)
Trade and other payables		(49,247)	-	(49,247)
Provisions	b	-	(1,598)	(1,598)
		(49,273)	(1,598)	(50,871)
Non-current liabilities
Other interest-bearing loans and borrowings		(11,432)	-	(11,432)
Provisions	b	(1,598)	1,598	-
		(13,030)	1,598	(11,432)
Total liabilities		(62,303)	-	(62,303)
Net assets		12,061	414	12,475
Equity attributable to equity holders of the parent
Share capital		318	-	318
Share premium		10,481	-	10,481
Retained earnings		1,262	414	1,676
Total equity		12,061	414	12,475

 

			31 August 2009
		UK GAAP	Effect of transition to Adopted IFRSs	Adopted IFRSs
	Note	£000	£000	£000
Non-current assets
Property, plant and equipment		21,598	(132)	21,466
Goodwill	a	221	125	346
Other intangibles	a	-	132	132
		21,819	125	21,944
Current assets
Inventories		43,523	-	43,523
Trade and other receivables	c	7,845	(645)	7,200
Cash and cash equivalents		5,777	-	5,777
		57,145	(645)	56,500
Total assets		78,964	(520)	78,444
Current liabilities
Other interest-bearing loans and borrowings		(294)	-	(294)
Trade and other payables	c	(52,884)	645	(52,239)
Provisions	b	-	(452)	(452)
		(53,178)	193	(52,985)
Non-current liabilities
Other interest-bearing loans and borrowings		(11,138)	-	(11,138)
Provisions	b	(688)	452	(236)
		(11,826)	452	(11,374)
Total liabilities		(65,004)	645	(64,359)
Net assets		13,960	125	14,085
Equity attributable to equity holders of the parent
Share capital		318	-	318
Share premium		10,481	-	10,481
Retained earnings		3,161	125	3,286
Total equity		13,960	125	14,085

 

Notes to the reconciliation of equity

a) Goodwill and intangibles

			2009	2008
			£'000	£'000
Goodwill
UK GAAP			221	(53)
Reverse amortisation on positive goodwill	i		571	316
Reverse amortisation on negative goodwill	i		(881)	(352)
Transaction costs written off under IFRS 3 (2008)	ii		(1,652)	(1,652)
Reclassified as intangibles	iii		(176)	(176)
Negative goodwill written back to retained earnings	iv)		2,263	2,263
Adopted IFRS			346	346
Other intangible assets
UK GAAP			-	-
Reclassify software from property, plant, & equipment	v		132	13
Goodwill reclassified as intangible	iii		176	176
Amortisation	iii		(176)	(161)
			132	28

i) Under adopted IFRS goodwill is not amortised but is tested annually for impairment. 

ii) On first time adoption IFRS 1 allows the group to apply IFRS 3 (2008) to all previous acquisitions. The impact of this is to write off all transaction costs arising on business combinations.

iii) IAS 38 and IFRS 3 require intangible assets acquired as part of an acquisition to be separately identified on the balance sheet. Intangibles reclassified represent the fair value of orders existing at the date of acquisition and customer lists. Amortisation has been charged on these assets.

iv) Under adopted IFRS, if the cost of acquisition is less than the fair value of the identifiable assets and liabilities acquired, the difference is recognised directly in the income statement.

v) Under IAS 38 software is classified as an intangible fixed asset.

b) Under adopted IFRS provisions are classified as current and non-current provisions.

c) Under UK GAAP a deferred tax asset was recognised in the year ended 31 August 2009 in respect of a contingent consideration on a business combination in the prior year in relation to payment for tax losses to the vendor. Under IFRS 3 (2008) if additional deferred tax assets of the acquiree and contingent considerations that were not recognised at the date of acquisition are realised subsequently, then the adjustment is recognised in profit or loss in the year the payment is made. As no payment was made in the year ended 31 August 2009 the deferred tax asset and corresponding liability to the vendor have been reversed under IFRS.

Reconciliation of profit/loss for the year ended 31 August 2009

			2009
	Note	UK GAAP	Effect of  transition to  Adopted IFRSs	Adopted IFRSs
		£000	£000	£000
Revenue		255,466	-	255,466
Cost of sales		(212,675)	-	(212,675)
Gross profit		42,791	-	42,791
Other operating income		-	3	3
Operating expenses	e	(39,134)	289	(39,423)
Operating profit before net financing costs		3,657	(286)	3,371
Profit on sale of fixed assets		3	(3)	-
Financial income		41	-	41
Financial expenses		(1,370)	-	(1,370)
Net financing expense		(1,326)	-	(1,329)
Profit before tax		2,331	(289)	2,042
Taxation		(432)	-	(432)
Profit for the year		1,899	(289)	1,610

Notes to the reconciliation of profit/loss

e) Operating expenses

		2009
		£'000
Operating expenses
UK GAAP		39,134
Reverse amortisation on positive goodwill	*	(255)
Reverse amortisation on negative goodwill	*	529
Amortisation of intangibles	**	15
Adopted IFRS		39,423

* Under adopted IFRS goodwill is not amortised but is tested annually for impairment. 

**IAS 38 and IFRS 3 require intangible assets acquired as part of an acquisition to be separately identified on the balance sheet. Intangibles reclassified represent the fair value of orders existing at the date of acquisition and customer lists. Amortisation has been charged on these assets.

 

Explanation of material adjustments to the cash flow statement

There are no material differences between the cash flows under Adopted IFRSs and UK GAAP, although certain presentational changes have been made to the cash flow statement to comply with Adopted IFRS.

 

This information is provided by RNS

The company news service from the London Stock Exchange