7th Aug 2006 07:01
Pendragon PLC07 August 2006 FOR IMMEDIATE RELEASE 7 August 2006 INTERIM RESULTS TO 30 JUNE 2006 Pendragon PLC, the UK's largest motor car retailer, today reports interimresults for the six months to 30 June 2006. Highlights: • Revenue of £2,646 million (2005: £1,751 million)• Profit before tax & exceptionals £42.3 million (2005: £36.8 million)• Profit before tax £50.8 million (2005: £35.3 million)• Underlying operating margin 2.8% (2005: 3.2%)• Adjusted earnings per share up 14% to 23.6 pence (2005: 20.7 pence)• Interim dividend up 10% to 7.25 pence (2005: 6.60 pence)• Strong operating cash inflow of £157.7 million (2005: £80.9 million) Trevor Finn, Chief Executive, commented: "The first half of 2006 has been a very exciting time for Pendragon. In Februarywe acquired Reg Vardy plc for £500 million. The acquisition has made asignificant contribution to the group's first half results and its integrationcontinues to progress well. The underlying performance of the group has beensolid despite a falling UK car market. While we expect the UK car market to remain tough for the remainder of 2006, weare confident of further progress within the group as we continue to grow thebusiness and integrate Reg Vardy." Enquiries:Pendragon PLC Trevor Finn, Chief Executive Tel: 01623 725 114 David Forsyth, Finance Director Finsbury Rupert Younger Tel: 0207 251 3801 Gordon Simpson CHIEF EXECUTIVE'S OPERATIONAL REVIEW Introduction Trading performance across the Group has been good in the first six months ofthe year against the backdrop of a weaker UK new car market. We are reportinggrowth of 14 per cent in adjusted earnings per share and an increase in theinterim dividend of ten per cent. We bought Reg Vardy in February this yearwhich has contributed £19.9 million of operating profits in the four and a halfmonths of our ownership. The focus in the first half has been on the Pendragon/Vardy integration andputting in place a new UK operational structure whilst maintainingprofitability. We have also rolled out our new in house dealer management systemto a further 47 locations so far this year. Our drive to increase efficiencythrough further centralisation of certain dealership functions into our customerservices centre in Nottingham has continued. Group revenues have increased by £894.3 million to £2,645.5 million. The impactof acquisitions and disposals we made in 2005 and 2006 have added £856.3 millionto revenues. The core businesses on a like for like basis grew revenues by £13.3 million which was achieved despite a fall of 4.2% in new car registrations in the UK market with a further £24.5 million contributed from recent greenfieldstart ups. Operating profits, before one off exceptional items, were £73.3 million comparedto £56.7 million last year. The underlying operating profit margin was 2.8 percent against 3.2 per cent for the same period in 2005. The acquisitions madethis year and in the second half last year have had a dilutive effect on themargin. The property sale and leaseback joint venture completed at the end of2005, whilst having little impact on profit before tax, has reduced operatingmargins which now include the additional rents. Excluding the impact of theacquisitions and property joint venture, operating margins achieved this periodwere in line with last year at 3.1 per cent. The interim dividend is 7.25 pence per share compared to 6.60 pence last year,an increase of ten per cent. Results and Dividend The results for the six months to 30 June 2006 are summarised as follows: £m 2006 2005----------------------------------------------------------------------------Revenue 2,645.5 1,751.2----------------------------------------------------------------------------Underlying operating profit 73.3 56.7----------------------------------------------------------------------------Exceptional operating costs (3.4) (2.9)----------------------------------------------------------------------------Operating profit before other income 69.9 53.8----------------------------------------------------------------------------Other income - gain on sale of fixed assets 11.9 1.4----------------------------------------------------------------------------Operating profit 81.8 55.2----------------------------------------------------------------------------Finance costs / share of joint venture (31.0) (19.9)----------------------------------------------------------------------------Profit before tax 50.8 35.3----------------------------------------------------------------------------Earnings per share - basic 28.1p 19.7p----------------------------------------------------------------------------Earnings per share - adjusted 23.6p 20.7p----------------------------------------------------------------------------Dividend per share 7.25p 6.60p---------------------------------------------------------------------------- Revenue has increased to £2,645.5 million from £1,751.2 million. Reg Vardy wasacquired on 14 February 2006 and contributed four and a half months trading tothis year's numbers which accounts for 90 per cent of the increase in revenues.Sales of new cars account for just over half of the revenue of the group andused cars a third. Aftersales activities account for the balance of revenues andcontributed 40.0 per cent of gross profits. Operating profit, excluding exceptional costs and disposal profits, increased by£16.6 million to £73.3 million from £56.7 million in 2005. Acquisitionscontributed underlying operating profits of £20.3 million. Operating profitsfrom the existing businesses have reduced by £3.7 million, principally due tothe increase in rental costs as a result of the sale and leaseback we did at theend of last year. Exceptional operating costs of £3.4 million relate to integration andreorganisation costs arising following the acquisition of Reg Vardy plus theprofessional fees incurred in respect of the unsuccessful bid we made to acquireLookers Plc. The Reg Vardy integration costs consist of redundancy payments madeto the former directors plus a write down of redundant assets and provision foronerous contracts. We expect integration costs relating to Reg Vardy to bearound £5.0 million for the full year which would be in line with previous majoracquisitions we have made. Other income includes business and property disposal profits. We completed thedisposal of three surplus properties which generated profit of £11.9 million. Ofthis, £10.0 million was in respect of the Solihull site that we sold foralternative retail use. In the period we also sold five Volkswagon dealershipsthat were acquired as part of the Vardy acquisition. The profit on the disposalof these dealerships, £6.3 million, has been credited against the goodwillarising on the acquisition and is not taken to profit in the income statement. Financing costs increased by £11.1 million to £31.0 million. The main componentof the increase in interest costs is on borrowings associated with theacquisition of Reg Vardy which, in the first half, were approximately £12.0million. Underlying operating profit of £73.3 million (2005: £56.7 million) less interestcost of £31.0 million (2005: £19.9 million) resulted in an adjusted profitbefore tax and exceptionals of £42.3 million (2005: £36.8 million). Adjustedearnings per share increased by 14.0 per cent to 23.6p from 20.7p last year.Basic earnings increased by 42.6 per cent which includes the impact of thehigher property disposal profits. Acquisition of Reg Vardy and Group operational structure We increased our borrowings substantially in February this year to acquire theentire share capital of Reg Vardy plc for a consideration of £500.1 million. RegVardy, one of the UK's largest motor vehicle retailers with 98 outlets mainly inScotland and the Northeast of England, represents a broad range of manufacturersincluding BMW, Citroen, Ford, Jaguar, Land Rover, Mercedes-Benz, Nissan, Renaultand Vauxhall. The acquisition is in line with our ongoing strategy to grow thebusiness in order to generate further economies of scale and cost efficiencies.The acquisition of Reg Vardy increases the revenues of the group by around 50per cent. In terms of integration, the main achievements in the first few monthshave been to eliminate the duplicate costs of Reg Vardy as a separate listedcompany and to put in place a new UK operational structure. Since the beginning of the year we have been in the process of rebranding thegroup's dealerships in the UK as Stratstone, for premium brands, and EvansHalshaw, for volume brands. We have divided Stratstone into two divisions eachorganised on a national basis by franchise. Evans Halshaw has been structuredinto three divisions which reflect the different dynamics of volume dealershipbusinesses. The divisions, North, East and West each cover all volumefranchises. Under this new structure both the premium and volume brands continueto enjoy franchise focus whilst the volume brands will benefit in specific areassuch as advertising and used car sales. Motor Retail Business Our franchised motor retail activities are principally in the UK with a smallbut growing business in the USA. We currently operate 406 franchised salepoints, of which 22 are overseas. We continue to represent a broad portfolio ofbrands each with sufficient scale to enable efficient operations within eachfranchise group or geographic region. We also operate a number of franchisedcommercial truck businesses. UK In the UK, national new car registrations reduced by 4.2 per cent this yearcompared to the first six months of 2005. This continues the trend seen over thelast two years with a falling number of registrations, first mainly in the moreprofitable private retail market but now also within the fleet and businesssectors. The latest industry forecast for 2006 is for an annual new car marketat 2.33 million, down 4.5 per cent on 2005. A decline of around five per centcontinues to be our view. The commercial vehicle market is up 0.6 per cent this year. This may not berepresentative of the true market as changes in legal requirements have resultedin customers buying before the changes to avoid increases in prices. Similarlythe second half market may also be distorted by the introduction of new emissionregulations from October. In the UK we operate 384 franchised points of which 174 are premium, 189 arevolume and 21 are trucks. The results of the UK business can be summarised asfollows: £m Revenue Gross profit Gross margin Underlying Underlying % operating operating profit margin %---------------------------------------------------------------------------------Existing 1,647.5 218.9 13.3 40.1 2.4---------------------------------------------------------------------------------Acquired 816.6 108.0 13.2 19.3 2.4---------------------------------------------------------------------------------Total 2006 2,464.1 326.9 13.3 59.4 2.4---------------------------------------------------------------------------------Total 2005 1,585.8 215.8 13.6 49.4 3.1--------------------------------------------------------------------------------- Revenues are up by £878.3 million, of which £816.6 million arises withacquisitions, principally being Reg Vardy. The balance of the increase inrevenue of £61.7 million is a combination of the impact of acquisitions,disposals and greenfields completed last year and includes £6.4 million organicgrowth in the existing business. Gross margins in aftersales have been maintained whilst most of our carfranchises have seen a weakening in new car margins in light of the moredifficult trading conditions. Our gross margins have fallen to 13.3 per centwhich has had the effect of reducing underlying operating profit by £4.9 millionin the existing businesses. The gross margin achieved by the acquired businessesis slightly lower at 13.2 per cent. Operating margins in the existing dealerships have reduced from from 3.1 percent to 2.4 per cent. The reduction in gross margin accounts for approximatelyhalf of the reduction in operating margin with the balance arising with theincrease in rents of £3.4 million and an increase in employment costs,principally in respect of funding pension liabilities. The reduction in marginis compensated in part by an improvement in the profits of our customer servicecentre, the results of which are shown within our Support Services segment.Included in the results of the UK business is a loss of £1.6 million in respectof our start up Cadillac retail operation. We now operate 12 sites as soledistributor in the UK. The acquired businesses operating margin is in line withour existing dealerships. As part of the Reg Vardy acquisition we acquired five Volkswagon dealershipswhich were sold at the end of February shortly after completion. Given therelatively short period of ownership the results of these dealerships areinsignificant to the group. USA The market for new cars in the USA in the first half of 2006 was down by 2.4% to8.4 million registrations. We continue to represent only a few brands inCalifornia being Jaguar, Land Rover, Lincoln Mercury, Aston Martin and SAAB.Nationally Land Rover continues to grow in the USA mainly due to the success ofthe Range Rover Sport. Lincoln also showed growth in national sales. Jaguarvolumes were helped by the new XK model but overall are down principally due tomuch lower X type sales. The results for the first half of 2006 are summarisedas follows: £m Revenue Gross profit Gross margin Underlying Underlying % operating operating profit margin %--------------------------------------------------------------------------------Total 2006 108.1 17.6 16.2 3.2 3.0--------------------------------------------------------------------------------Total 2005 100.5 15.3 15.2 2.5 2.5-------------------------------------------------------------------------------- Revenues increased on last year with higher unit sales of Land Rover and AstonMartin product being the main reason plus a full six months trading from the twoSAAB dealerships that we acquired at the beginning of February 2005. Last year'sresults included a number of large low margin fleet deals for Lincoln Mercurywhich we have not repeated this year. The affect of this plus improvedperformance in all areas of the business has increased the gross margin by 1.0per cent and the operating margin by 0.5 per cent. Germany Our German operation remains a relatively small part of the group with acontribution to revenue of £20.4 million. The level of our investment in Germanyis £7.3 million. We represent Jaguar, Land Rover and Aston Martin in Frankfurtand Munich. Operating losses for the six months have been significantly reducedto £0.2 million from £0.9 million last year. This was achieved through acombination of higher sales with new models, AMV8, Jaguar XK and Range RoverSport, improved margin retention and a lower cost base. Support Services We provide a broad range of support services to both the Pendragon group and toexternal customers. The services are provided by a number of specialistbusinesses which consist of contract hire and leasing, computer softwaresolutions, wholesale parts distribution and our customer services centre. Theresults for the first half of 2006 are summarised as follows: £m Revenue Gross profit Gross margin Underlying Underlying % operating operating profit margin %---------------------------------------------------------------------------------Existing 73.3 24.2 33.0 9.9 13.5---------------------------------------------------------------------------------Acquired 8.7 2.2 25.6 1.0 11.7---------------------------------------------------------------------------------Total 2006 82.0 26.4 32.3 10.9 13.3---------------------------------------------------------------------------------Total 2005 76.1 20.9 27.5 5.7 7.5--------------------------------------------------------------------------------- We are pleased with the contribution made by our Support Services businesses.Revenues have fallen slightly within the existing businesses, principally due tolower disposals of contract hire vehicles, and yet the underlying operatingprofit has improved by £4.2 million. Each business has contributed to theimprovement in both gross and operating margins. The Contract hire businesses have achieved improved margins on the disposal ofvehicles that have been defleeted and overheads have been reduced, thecombination of which, has increased operating profit by almost £1.0 million. Wecurrently have a fleet of 18,400 compared to 11,000 at the beginning of theyear. The fleet now includes 7,600 operated by Vardy Contract Motoring. Pinewood Technologies, our computer software company, has seen increased demandfor its products from external customers as well as rolling out the new in housedealer management system to our own sites. Operating profits have been improvedby £0.7 million. We have progressed well with the implementation of our newdealer management system, Pinnacle, within the group. So far we have installedsystems at 47 sites this year and plan a further 55 by this year end. We expectthat the roll out will continue to accelerate across the enlarged group and withit the benefits that this technology brings in terms of operational efficiency. Wholesale parts distribution has managed to grow its revenues in a tough marketand also at the same time increased the retail element. This has helpedstrengthen margins and improved the returns from this business. Our customerservices centre, which covers call centre, data processing and warrantymanagement, continues to expand and cover more of the group. Its revenues havegrown almost £2.0 million, most of which has been retained as additional profitwith minimal increase in cost base due to the efficiencies and cost savings wehave achieved within this operation. Finance The level of borrowings at 30 June 2006 was £581.7 up by £404.7 million sincethe beginning of the year. The acquisitions increased borrowings by £507.9million which has been offset in part by strong operating cash inflows. Thebalance sheet gearing at 30 June 2006 was 208 per cent compared to 70 per centat 31 December 2005. We expect the level of borrowings to reduce in line withthe plan we put in place when acquiring Reg Vardy which was to reduce borrowingsto more normal levels by the end of 2007. Operating cash inflow for the first six months was £157.7 million, whichcompares with £80.9 million generated in 2005. The operating cash inflowincludes a reduction in working capital investment of £52.7 million. Net investment in property, plant and equipment for the six months was £8.1million (2005: £24.2 million). This includes investment in new properties andrefurbishments plus a net increase in the contract hire fleet and service loancars. Proceeds from property disposals were £32.4 million (2005: £5.9 million).In addition to this £22.2 million was raised from business disposals (2005:£14.0 million). Current Trading and Prospects The new car market continues to suffer from retail consumer weakness whereasaftersales and used cars have been relatively unaffected. The integration of theReg Vardy business is continuing successfully and the new operational structurefor the UK is now in place. Current trading remains in line with expectations.Looking ahead to the remainder of the year we do not expect trading conditionsto change significantly. We are confident that our performance expectations forthe year will be met and that our borrowings will continue to reduce in linewith our plan. TREVOR FINN Chief Executive 7 August 2006 Consolidated Income Statement Interim Results for the six months ended 30 June 2006 6 Months to 30.06.06 6 Months 12 Months Existing Acquisitions Total to 30.06.05 to 31.12.05 £m £m £m £m £m----------------------------------------------------------------------------------------------------Revenue 1,820.2 825.3 2,645.5 1,751.2 3,284.5 Cost of sales (1,561.3) (715.0) (2,276.3) (1,499.8) (2,816.8)---------------------------------------------------------------------------------------------------- Gross profit 258.9 110.3 369.2 251.4 467.7 Operating expenses (206.8) (92.5) (299.3) (197.6) (371.8)----------------------------------------------------------------------------------------------------Operating profit before other income 52.1 17.8 69.9 53.8 95.9 ----------------------------------------------------------------------------------------------------Operating profit before other income, analysed as:Before exceptional items 53.0 20.3 73.3 56.7 98.8Goodwill impairment - - - (1.1) (1.1)Abortive acquisition costs (0.9) - (0.9) - -Integration and closure costs - (2.5) (2.5) (1.8) (1.8)---------------------------------------------------------------------------------------------------- Operating profit before other income 52.1 17.8 69.9 53.8 95.9----------------------------------------------------------------------------------------------------Other income - gain on sale of 11.9 - 11.9 1.4 7.4businesses and property----------------------------------------------------------------------------------------------------Operating profit 64.0 17.8 81.8 55.2 103.3----------------------------------------------------------------------------------------------------Finance costs (note 5) (39.3) (27.5) (54.9)Finance income (note 6) 8.0 7.6 15.3----------------------------------------------------------------------------------------------------Net finance costs (31.3) (19.9) (39.6)Share of post tax profit from joint venture 0.3 - 0.1---------------------------------------------------------------------------------------------------- Profit before taxation 50.8 35.3 63.8 Income tax expense (note 7) (15.7) (11.0) (20.7)----------------------------------------------------------------------------------------------------Profit attributable to equity shareholders 35.1 24.3 43.1---------------------------------------------------------------------------------------------------- Earnings per ordinary share (note 9) 28.1p 19.7p 34.8pDiluted earnings per ordinary share (note 9) 27.4p 19.1p 33.9p Dividend per share - interim (note 8) 7.25p 6.6p 6.6pDividend per share - final 6.6p All amounts are unaudited Consolidated Balance Sheet 30.06.06 30.06.05 31.12.05 £m £m £m----------------------------------------------------------------------------------------Non-current assetsProperty, plant and equipment 581.1 474.0 394.0Goodwill 471.4 164.6 166.3Other intangible assets 2.3 1.4 1.2Derivative financial instruments - 5.7 6.5Investment in joint venture 2.2 - 1.4---------------------------------------------------------------------------------------- Total non-current assets 1,057.0 645.7 569.4---------------------------------------------------------------------------------------- Current assetsInventories 859.7 639.9 641.8Trade and other receivables 310.3 191.8 161.6Cash and cash equivalents 36.2 92.9 82.1Non-current assets classified as held for sale 22.5 - 18.9---------------------------------------------------------------------------------------- Total current assets 1,228.7 924.6 904.4---------------------------------------------------------------------------------------- Total assets 2,285.7 1,570.3 1,473.8---------------------------------------------------------------------------------------- Current liabilitiesBank overdrafts - (22.3) (4.7)Interest bearing loans and borrowings (210.0) (54.4) (4.9)Trade and other payables (1,264.1) (902.3) (855.5)Current tax payable (24.6) (21.2) (19.1)Provisions (0.8) - (0.7)---------------------------------------------------------------------------------------- Total current liabilities (1,499.5) (1,000.2) (884.9)----------------------------------------------------------------------------------------Non-current liabilitiesInterest bearing loans and borrowings (403.1) (248.2) (256.0)Deferred tax (14.4) (5.5) (7.7)Derivative financial instruments (4.8) - -Retirement benefit obligation (82.5) (76.2) (71.4)Long term provisions (1.2) (2.1) (1.2)---------------------------------------------------------------------------------------- Total non-current liabilities (506.0) (332.0) (336.3)---------------------------------------------------------------------------------------- Total liabilities (2,005.5) (1,332.2) (1,221.2)---------------------------------------------------------------------------------------- Net assets 280.2 238.1 252.6---------------------------------------------------------------------------------------- Capital and reservesCalled up share capital 32.8 32.8 32.8Share premium account 56.8 56.8 56.8Capital redemption reserve 2.5 2.5 2.5Other reserves 12.6 12.6 12.6Translation reserve (0.2) (0.1) (0.1)Retained earnings 175.7 133.5 148.0---------------------------------------------------------------------------------------- Total equity 280.2 238.1 252.6---------------------------------------------------------------------------------------- All amounts are unaudited Consolidated Cash Flow Statement 6 Months to 6 Months to 12 Months to 30.06.06 30.06.05 31.12.05 £m £m £m-------------------------------------------------------------------------------------- Cash flows from operating activitiesOperating profit 81.8 55.2 103.3Profit on sale of businesses and property (11.9) (1.4) (7.4)Depreciation and amortisation 34.8 23.0 47.5Share based payments 0.3 0.2 0.4Goodwill impairment - 1.1 1.1Decrease / (increase) in working capital 52.7 2.8 (14.5)--------------------------------------------------------------------------------------Cash generated from operations 157.7 80.9 130.4Net interest paid (29.7) (20.1) (43.2)Taxation paid (15.6) (10.2) (16.6)-------------------------------------------------------------------------------------- Net cash from operating activities 112.4 50.6 70.6-------------------------------------------------------------------------------------- Cash flows from investing activitiesBusiness acquisitions (net of cash acquired) (458.8) (13.0) (35.1)Proceeds from sale of businesses 22.2 14.0 16.2Investment in joint venture (1.3) - (6.5)Purchase of property, plant and equipment (85.4) (69.0) (154.4)Proceeds from sale of property, plant and 77.3 44.8 193.5equipmentReceipts from sales of own shares 0.5 - 0.3-------------------------------------------------------------------------------------- Net cash (used in) / from investing activities (445.5) (23.2) 14.0-------------------------------------------------------------------------------------- Cash flows from financing activitiesPayment of capital element of finance lease rentals (2.6) (0.5) (1.0)Repayment of unsecured bank loans (52.2) (0.3) (73.2)Repayment of loan notes (114.5) (62.8) (32.7)Proceeds from issue of unsecured loans 470.0 - -Dividends paid to shareholders (8.2) (7.4) (15.6)-------------------------------------------------------------------------------------- Net cash from / (used in) financing activities 292.5 (71.0) (122.5)-------------------------------------------------------------------------------------- Effects of exchange rate changes on cash held (0.6) (0.1) 1.0--------------------------------------------------------------------------------------Net decrease in cash and cash equivalents (41.2) (43.7) (36.9)Opening cash and cash equivalents 77.4 114.3 114.3--------------------------------------------------------------------------------------Closing cash and cash equivalents (note 10) 36.2 70.6 77.4-------------------------------------------------------------------------------------- Consolidated Statement of Changes in Equity Share Share Other Translation Accumulated Total Capital Premium Reserves Differences Profit £m £m £m £m £m £m--------------------------------------------------------------------------------------------------Balance at 1 January 2005 32.8 56.8 15.1 (0.3) 116.4 220.8 Currency translation differences - - - 0.2 - 0.2--------------------------------------------------------------------------------------------------Net expense recognised directly in equity - - - 0.2 - 0.2Profit attributable to equity shareholders - - - - 43.1 43.1-------------------------------------------------------------------------------------------------- Total recognised income and expense for 2005 - - - 0.2 43.1 43.3--------------------------------------------------------------------------------------------------Dividends - - - - (15.6) (15.6)Share based payments - - - - 3.8 3.8Disposal of own shares in share trusts - - - - 0.3 0.3-------------------------------------------------------------------------------------------------- - - - - (11.5) (11.5)-------------------------------------------------------------------------------------------------- Balance at 31 December 2005 32.8 56.8 15.1 (0.1) 148.0 252.6-------------------------------------------------------------------------------------------------- Balance at 1 January 2006 32.8 56.8 15.1 (0.1) 148.0 252.6 Currency translation differences - - - (0.1) - (0.1)--------------------------------------------------------------------------------------------------Net expense recognised directly in equity - - - (0.1) - (0.1)Profit attributable to equity shareholders - - - - 35.1 35.1-------------------------------------------------------------------------------------------------- Total recognised income and expense for 2006 - - - (0.1) 35.1 35.0--------------------------------------------------------------------------------------------------Dividends - - - - (8.2) (8.2)Share based payments - - - - 0.3 0.3Disposal of own shares in share trusts - - - - 0.5 0.5 -------------------------------------------------------------------------------------------------- - - - - (7.4) (7.4)-------------------------------------------------------------------------------------------------- Balance at 30 June 2006 32.8 56.8 15.1 (0.2) 175.7 280.2-------------------------------------------------------------------------------------------------- Notes 1. This interim financial information has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 December 2005, except for the following changes. As required by the Listing Rules of the Financial Services Authority, as a result of the endorsement by the EU of new or changed IFRSs that are applicable or available for early adoption in the preparation of the company's next consolidated financial statements for the year ending 31 December 2006, the directors have changed their accounting policies in respect of the amendment to IAS 39. Where Pendragon PLC, the company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group, the company considers these to be insurance arrangements, and accounts for them as such. In this respect, the company treats the guarantee contract as a contingent liability until such time as it becomes probable that the company will be required to make a payment under the guarantee. The company does not expect the amendments to have any impact on the financial statements for the period commencing 1 January 2006. 2. The comparative figures for the financial year ended 31 December 2005 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 3. The interim report was approved by the board of directors on 7 August 2006 and is unaudited. 4. Exceptional items Exceptional items incurred during the first half of 2006 total £3.4 million. £2.5 million is in respect of integration costs arising on the acquisition of Reg Vardy plc and £0.9 million is in respect of the abortive acquisition costs incurred in the unsuccessful bid for Lookers PLC. Exceptional costs incurred during the first half of 2005 of £2.9 million was in respect of our Rover Franchise Group, and consists of £1.1 million impairment of goodwill and £1.8 million for redundancy costs and non payment of manufacturer bonus and warranty debtors. 5. Finance costs 6 Months 6 Months 12 Months to 30.06.06 to 30.06.05 to 31.12.05 £m £m £m ------------------------------------------------------------------------------- Interest payable on bank borrowings 14.5 5.9 11.1 Interest payable on loan notes 3.8 5.0 8.9 Vehicle stocking plan interest 11.5 8.3 18.6 Interest payable on finance leases 0.1 0.1 0.1 Fair value loss - interest rate swaps 1.0 - - Unwinding of discounts in contract hire 1.2 1.3 2.5 residual values Interest on pension scheme obligations 7.2 6.9 13.8 ------------------------------------------------------------------------------- 39.3 27.5 55.0 Less interest capitalised - - (0.1) ------------------------------------------------------------------------------- Total finance costs 39.3 27.5 54.9 ------------------------------------------------------------------------------- 6. Finance income 6 Months 6 Months 12 Months to 30.06.06 to 30.06.05 to 31.12.05 £m £m £m ------------------------------------------------------------------------------- Fair value gains - interest rate swaps - 0.2 0.4 Interest receivable on bank deposits 0.4 0.2 0.8 Interest on pension scheme assets 7.4 6.7 13.6 Other interest receivable 0.2 0.5 0.5 ------------------------------------------------------------------------------- Total finance income 8.0 7.6 15.3 ------------------------------------------------------------------------------- 7. The effective tax rate for 2006 of 30.9% (2005 : 31.2%) is an estimate based upon the anticipated charge for the full year on profit on ordinary activities before taxation. 8. A dividend of 7.25p (2005 : 6.6p) net per ordinary share will be paid on 3 October 2006 to shareholders appearing on the register at the close of business on 15 September 2006. 9. Earnings per share 30.06.06 30.06.05 31.12.05 pence pence pence ------------------------------------------------------------------------------- Basic earnings per share 28.1 19.7 34.8 Effect of adjusting items (4.5) 1.0 (1.4) ------------------------------------------------------------------------------- Adjusted earnings per share 23.6 20.7 33.4 ------------------------------------------------------------------------------- Diluted earnings per ordinary share 27.4 19.1 33.9 ------------------------------------------------------------------------------- The calculation of basic, diluted and adjusted earnings per share is based on: ------------------------------------------------------------------------------- Number of shares (millions) 30.06.06 30.06.05 31.12.05 number number number ------------------------------------------------------------------------------- Weighted average number of shares used in 124.8 123.5 123.9 basic and adjusted earnings per share calculation Weighted average number of dilutive shares 3.3 3.8 3.4 under option ------------------------------------------------------------------------------- Diluted weighted average number of shares 128.1 127.3 127.3 used in diluted earnings per share calculation ------------------------------------------------------------------------------- Earnings 30.06.06 30.06.05 31.12.05 £m £m £m ------------------------------------------------------------------------------- Earnings for basic and diluted earnings per 35.1 24.3 43.1 share calculation Adjusting items: Profit on business and property (11.9) (1.4) (7.4) disposals Goodwill impairment - 1.1 1.1 Abortive acquisition costs 0.9 - - Operating exceptional costs 2.5 1.8 1.8 Tax effect of adjusting items 2.8 (0.2) 2.8 ------------------------------------------------------------------------------- Earnings for adjusted earnings per share 29.4 25.6 41.4 calculation ------------------------------------------------------------------------------- The directors consider that the adjusted earnings per share figures provide a better measure of comparative performance. 10. Cash and cash equivalents 30.06.06 30.06.05 31.12.05 £m £m £m ------------------------------------------------------------------------------- Bank balances and cash equivalents 36.2 92.9 82.1 Bank overdrafts - (22.3) (4.7) ------------------------------------------------------------------------------- 36.2 70.6 77.4 ------------------------------------------------------------------------------- 11. Net borrowings 30.06.06 30.06.05 31.12.05 £m £m £m ------------------------------------------------------------------------------- Cash and cash equivalents (see note 10) 36.2 70.6 77.4 Current interest bearing loans and (210.0) (54.4) (4.9) borrowings Non-current interest bearing loans and (403.1) (248.2) (256.0) borrowings Derivative financial instruments (4.8) 5.7 6.5 ------------------------------------------------------------------------------- (581.7) (226.3) (177.0) ------------------------------------------------------------------------------- 12. Acquisition of Reg Vardy plc On 14 February 2006 the group acquired the entire share capital of Reg Vardy plc for a total consideration, including costs, of £500 million. In accounting for this acquisition we are required to review the book value of assets acquired and make adjustments as appropriate to align accounting policies and restate assets and liabilities to their fair value. This review under International Accounting Standards has to be completed within 12 months of acquisition. Fair value adjustments made during the first half of the year have increased the value of assets acquired by £3.2 million giving total goodwill on acquisition of £304.2 million, which represents the excess of consideration over the fair value of both tangible and intangible assets that are able to be quantified. We have not as yet finalised our review of all the assets and liabilities and further adjustments will be required in the second half of 2006. This review will include the valuation of the acquired property portfolio which is anticipated to result in a further increase to the value of assets acquired. We will conclude the review prior to the preparation of the 2006 financial statements. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
PDG.L