7th Aug 2007 07:01
Pendragon PLC07 August 2007 INTERIM RESULTS TO 30 JUNE 2007 Pendragon PLC, the UK's leading motor car retailer, today reports interimresults for the six months to 30 June 2007. Summary: • Revenue of £2,702 million (2006: £2,625 million)• Profit before tax & exceptionals £32.7 million (2006: £43.0 million)• Profit before tax £33.5 million (2006: £51.5 million)• Underlying operating margin 2.3% (2006: 2.8%)• Adjusted earnings per share 3.5 pence (2006: 4.7 pence)• Gearing 86% (December 2006: 121%)• Strong operating cash inflow of £128.7 million (2006: £157.7 million)• Dividend up 38% to 2.00p (2006: 1.45p) Trevor Finn, Chief Executive, commented: "The UK motor retail sector has faced a challenging time this year, and as previously announced this has affected our results for the six months. Throughout the period we have remained focused on scale efficiencies and cash management as we reduce our debt levels following the acquisition of Reg Vardy last year. These conditions offer a market leader like Pendragon many attractive growth opportunities, such as the acquisition of the 19 dealerships announced last week. We expect to identify further opportunities as smaller competitors seek to exit the market." Enquiries:Pendragon PLC Trevor Finn, Chief Executive Tel: 01623 725 114 David Forsyth, Finance Director Finsbury Rollo Head Tel: 0207 251 3801 Gordon Simpson CHIEF EXECUTIVE'S OPERATIONAL REVIEW Introduction Trading performance in the first six months of the year has been affected by aslowdown in consumer demand, as we highlighted in our June trading update. Thishas led to an oversupply of new cars, forced into the market by manufacturerincentives and pre registrations by dealers and, as a consequence, used carmargins have declined. Pendragon's aftersales business has performed well and wehave had good results in our support businesses such as Pinewood Technologiesand our leasing companies. The group has continued to generate significantamounts of cash which have been used to reduce borrowings and further strengthenour balance sheet. We are reporting adjusted earnings per share of 3.5 pence for the periodcompared to 4.7 pence in 2006 and an interim dividend of 2.0 pence per sharecompared to an interim dividend of 1.45 pence in 2006. The increase in dividendis in line with indications given in our AGM statement and represents anincrease of 38%. Operating cash inflow of £128.7 million has enabled us tocontinue to reduce borrowings and bring gearing down to 86%. We have generated exceptional property profits of £7.6 million on the sale ofnine surplus properties. We also incurred £2.8 million of costs related to closure of dealerships which we have treated as an ordinary trading item in the accounts. This is the first part of the £12.0 million of costs, excluding goodwill impairment, which we highlighted in our AGM statement, that would be incurred to cease operating and close 26 new car franchises. The impairment of goodwill relating to these 26 franchises is £6.8 million and is treated as an exceptional operating item. Our dealerships in Germany were sold at the end of June which brought to an endmany years of operating in that market. Latterly the dealerships had become arelatively small part of the group and were no longer deemed to be a coreactivity. The results of the German operations are shown separately as a lossfrom discontinued operations of £1.5 million. Results The results for the six months to 30 June 2007 are summarised as follows: £m 2007 2006--------------------------------------------------------------------------------Revenue 2,702.4 2,625.1--------------------------------------------------------------------------------Underlying operating profit 61.3 73.5--------------------------------------------------------------------------------Exceptional operating costs (6.8) (3.4)--------------------------------------------------------------------------------Operating profit before other income 54.5 70.1--------------------------------------------------------------------------------Other income - gain on sale of property 7.6 11.9--------------------------------------------------------------------------------Operating profit 62.1 82.0--------------------------------------------------------------------------------Finance costs (28.8) (30.8)--------------------------------------------------------------------------------Share of joint venture profit 0.2 0.3--------------------------------------------------------------------------------Profit before tax 33.5 51.5--------------------------------------------------------------------------------Tax (4.2) (15.7)--------------------------------------------------------------------------------Discontinued operation (1.5) (0.7)--------------------------------------------------------------------------------Profit after tax 27.8 35.1--------------------------------------------------------------------------------Earnings per share - basic 4.4p 5.6p--------------------------------------------------------------------------------Earnings per share - adjusted 3.5p 4.7p--------------------------------------------------------------------------------Dividend per share 2.00p 1.45p-------------------------------------------------------------------------------- Revenue The net effect of acquisitions and disposals of dealerships over thepast eighteen months has been to increase revenues year on year by £77.3 millionto £2,702.4 million. On a like for like basis revenue is down 3.0% which isprincipally due to reduction in the number of vehicle sales. This has been dueto the difficult market for used car sales in the UK over the past six monthsand has meant that the number of used cars we have sold in the first half hasbeen behind our planned volumes. Margins have been lower which are the mainfactors leading to profits being behind where we expected them to be for thefirst half. Underlying operating profit was £61.3 million compared to £73.5 million lastyear. The underlying operating profit margin was 2.3% against 2.8 % for the sameperiod in 2006. A number of factors have contributed to the movement inoperating profits in addition to the reduction in margins on car sales. Theother items relate to increased rents and dealership closure costs. Althoughhaving little impact on profit before tax, operating profits are reduced year onyear by increased property rents of £8 million after our successful propertyjoint venture sale and lease back at the end of 2006. We have also included inoperating costs £2.8 million by way of one off dealership closure costs. We arepleased with the performance of our support businesses which have continued toperform well and have increased profits this year by £2.0 million. In the firsthalf we have also had the benefit of savings relating to Vardy head officeactivities which were £2.0 million more than in the first six months last year. Exceptional operating costs of £6.8 million relate to the goodwill impaired onall the dealerships which are to be sold or closed as part of our acceleratedclosure of selected underperforming dealerships. Following the acquisition ofReg Vardy we reviewed the franchise portfolio and identified a number ofdealership properties that had greater value for alternative use or where thelevel of dealership profitability was insufficient to justify continued tradingand further investment. We announced the closure and disposal programme in ourAGM statement against which we have incurred £2.8 million of costs in the firsthalf. We have treated this as an ordinary trading item in the accounts. We aimto complete this closure programme by this time next year releasing an estimated£22 million of cash. Other income is the profit on the disposal of surplus property assets resultingfrom our ongoing active management of our property portfolio. The total proceedsof these sales were £25.5 million of which £7.6 million was profit. Profits fromthe sale of surplus properties have been a regular feature over the past yearsand we expect that a further £20 million of profits on property sales will begenerated over the next 15 months. Financing costs have reduced by £2.0 million to £28.8 million. Our borrowingsreduced at the end of 2006 following a property joint venture transaction. Thebenefit of this to our interest costs has in part been offset by the increase ininterest rates since the first half of 2006. The increase in interest rates isequivalent to £4.0 million of additional cost. We have also financed the Vardyacquisition for the full six months this year whereas in 2006 it was for fourmonths. Adjusted profit before tax of £32.7 million (2006:£43.0 million) is underlyingoperating profit of £61.3 million (2006: £73.5 million) less finance costs andshare of joint venture profit of £28.6 million (2006: £30.5 million). A summary of revenues and operating profits by division is summarised below: £m 2007 2006 ----------------------- ----------------------- Revenue Operating Revenue Operating profit profitStratstone 1,103.0 23.6 1,097.2 31.5--------------------------------------------------------------------------------Evans Halshaw 1,450.3 22.8 1,366.9 28.7--------------------------------------------------------------------------------USA 94.8 2.8 108.1 3.2--------------------------------------------------------------------------------Support businesses 91.0 12.1 82.0 10.1-------------------------------------------------------------------------------- Motor Retail Business Our franchised motor retail activities are principally in the UK with a wellestablished small business in the USA. We currently operate 359 franchisepoints, of which nine are in the USA. We also operate a number of franchisedcommercial truck businesses. UK Overall national new car registrations increased by 2.0% in the first sixmonths of this year compared to the first six months of 2006. The manufacturerswe represent achieved only 0.7% growth. However, registrations do notnecessarily reflect consumer demand in the short term and we have seen aslowdown in consumers willing to commit to buying new cars. In order to keepregistrations up in this type of environment we are seeing more manufacturerincentives and pre registrations by dealers which have led to an adverse impactmainly on used car margins. In the UK we operate 350 franchised points of which 165 are prestige, branded asStratstone, 164 are Evans Halshaw volume dealerships and 21 are truckdealerships trading under the Chatfields brand. The results are summarised inthe tables below. Chatfields is included in the results of Stratstone. Stratstone is the UK's leading prestige motor car retailer and its results forthe first six months of this year are as follows: Revenue Gross Gross Underlying Underlying Total units Gross profit profit margin % operating operating sold profit per£m profit margin % '000 unit £---------------------------------------------------------------------------------------------------------Existing 1,094.8 140.2 12.8 24.1 2.2---------------------------------------------------------------------------------------------------------Disposed 8.2 1.3 16.1 (0.5) (6.3)---------------------------------------------------------------------------------------------------------Total 2007 1,103.0 141.5 12.8 23.6 2.1 38.6 1,868---------------------------------------------------------------------------------------------------------Total 2006 1,097.2 145.0 13.2 31.5 2.9 38.9 2,018--------------------------------------------------------------------------------------------------------- Revenue and units sold within our Stratstone franchises are in line with lastyear and on a like for like basis they were down 4%. Whilst in volume terms thisis a creditable performance in a difficult market, we were disappointed not tohave achieved our expectations to increase revenue by around £40 million whichwould have meant like for like volumes would have been in line with last year. Gross margin has been lower in the period due to more difficult tradingconditions for most of our franchises. Last year we had the benefit of newproducts such as Range Rover Sport which contributed strongly. Operating profitreduced by £7.9 million to £23.6 million. Whilst around a third of this arisesfrom a reduction in gross profit, the remainder is split between the increase inrent and an increase in other property costs such as heat, light, power andrates. Since rebranding our prestige dealerships as Stratstone we have invested in anumber of promotional events and are pleased with the way the recognition of thebrand is gaining momentum. Evans Halshaw is the leading volume car retailer in the UK and its results forthe first six months of this year are as follows: Revenue Gross Gross Underlying Underlying Total units Gross profit profit margin % operating operating sold profit per£m profit margin % '000 unit £---------------------------------------------------------------------------------------------------------Existing 1,436.7 175.4 12.2 25.1 1.8---------------------------------------------------------------------------------------------------------Disposed 13.6 1.2 8.9 (2.3) (17.1)---------------------------------------------------------------------------------------------------------Total 2007 1,450.3 176.6 12.2 22.8 1.6 137.0 756---------------------------------------------------------------------------------------------------------Total 2006 1,366.9 182.0 13.3 28.7 2.1 131.4 819--------------------------------------------------------------------------------------------------------- Revenue increased by £83.4 million with units sold up 4.3%. This increase ismainly due to having a full six month contribution from Vardy dealers acquiredin February last year. This is a very creditable performance under difficultmarket conditions. We had, however, planned revenue to be approximately £30.0million higher which we have not achieved due to like for like vehicleunits being down 2.0%. Gross profit in most franchises has suffered in the market downturn, with profitper unit down £63, which has led to operating profits being down by £5.9million. We have continued to achieve cost savings within the enlarged group.The cost savings have reduced the impact of the fall in gross profit andincrease in rents. We were pleased to announce the acquisition of 19 dealerships from Dixon Motorslast week for £17.0 million. These have been rebranded as Evans Halshaw and weexpect them to make a positive contribution to group profits in 2008. USA The market for new cars in the USA in the first half of 2007 was down by1.5% to 8.2 million registrations. We represent a small number of brands inCalifornia: Jaguar, Land Rover, Aston Martin and SAAB. Nationally, Land Roversales were in line with last year with sales of the new Freelander offsettingthe reduction in other model sales. Jaguar volumes fell 26%, with all modelsdown with the exception of XK. Aston Martin and SAAB sales were marginally down.We do not see any near term improvement in the sales performance of Jaguar untilthe new S Type is launched. The results for the first half of 2007 are summarised as follows: Revenue Gross Gross Underlying Underlying Total units Gross profit profit margin % operating operating sold profit per£m profit margin % '000 unit £---------------------------------------------------------------------------------------------------------Total 2007 94.8 15.9 16.8 2.8 3.0 3.0 2,957---------------------------------------------------------------------------------------------------------Total 2006 108.1 17.6 16.2 3.2 3.0 3.2 2,837--------------------------------------------------------------------------------------------------------- Revenue is down due to two principal factors; at the end of 2006 we disposed oftwo loss making dealerships which in the first half of 2006 contributed sales of£8.5 million; and adverse exchange rate movements. Gross margins havestrengthened reflecting the richer mix of businesses whilst overall operatingmargins have remained strong at 3%. Germany We completed the disposal of our remaining four German dealerships atthe end of June 2007. The net proceeds of the sale were £6.3 million. In theperiod prior to disposal the dealerships made a loss before tax of £1.2 million(2006 £0.7 million) with a further loss of £0.3 million arising on the disposal.The German business has been classified as a discontinued operation in theincome statement and its results are therefore excluded from the continuingbusiness. The comparatives have been shown on a similar basis. Support Services We provide a broad range of support services both to thePendragon group and to external customers. The services are provided by a numberof specialist businesses which consist of contract hire and leasing, dealershipmanagement software systems and wholesale parts distribution. The results for the first half of 2007 are summarised as follows: Revenue Gross Gross Underlying Underlying profit margin % operating operating £m profit margin % --------------------------------------------------------------------------------Total 2007 91.0 30.1 33.1 12.1 13.3--------------------------------------------------------------------------------Total 2006 82.0 26.4 32.2 10.1 12.4-------------------------------------------------------------------------------- This is a strong performance from this division and reflects the investments inpeople and systems we have made over the past few years. Margins have beenimproved and operating profit has increased by £2.0 million. Our contract hireand leasing business operates a fleet of almost 18,000 units. We have been morecautious than many of our competitors on setting residual values over the pasttwelve months hence our fleet size has reduced slightly. We believe this to bethe correct approach to residual value setting in an uncertain market. Pinewood Technologies, our computer software company, has seen increased demandfor its products from external customers as well as rolling out the new Pinnacledealer management system to our own sites. In total we now have over 10,000 userlicences in place, an increase of 30% from the beginning of the year. To date wehave implemented Pinnacle at 299 of our sites and are installing the 300thsystem in the group today at our Ford dealership in Glasgow. This then leaves 56sites to complete by year end. Our wholesale parts business, Quickco, has had a good first half with revenuesmaintained and profits up from last year. This has been achieved by extendingthe product range to include higher margin parts and by containing overheadcosts. Finance We have a strong balance sheet with freehold property of £245.2 million whichincludes surplus property earmarked for disposal. Borrowings at 30 June 2007were £289.6 million, down £80.1 million since the beginning of the year. At 86%we are pleased to have achieved the target level of gearing six months ahead ofthe plan that we set ourselves when we acquired Reg Vardy in February 2006. Operating cash inflow for the first six months was £128.7 million, whichcompares with £157.7 million generated in 2006. The operating cash inflowincludes a reduction in working capital investment of £37.2 million (2006: £52.7 million). Net investment in property, plant and equipment for the six months was £20.8million (2006: £8.1 million). This includes investment in two new propertiesacquired for future development, refurbishments plus the net increase in plantand machinery, the contract hire fleet and service loan cars. Proceeds fromproperty disposals were £25.5 million (2006: £32.4 million). In addition to this£17.9 million was raised from business disposals (2006: £22.2 million). Current Trading and Prospects Our current trading performance is in line with our recent trading update. Weexpect the used car market to remain subdued for the remainder of the year dueto the uncertain interest rate environment and manufacturer incentives on newcars. Our aftersales business and support businesses continue to perform welland have been relatively unaffected by the recent consumer slowdown and weanticipate that they will continue to perform well. Our programme of surplusproperty disposals and selected dealership closures is proceeding well and willcontribute to improving profits over the next twelve months. We have seen a large amount of consolidation in the motor retail sector in theUK over recent years. In these difficult trading conditions within the sector acquisition opportunities like the one we announced last week will present themselves to us as smaller players seek an exit. Pendragon has a strong balance sheet and management strength in depth to enable us to continue to grow and build value for long term shareholders. We will remain at the forefront of consolidation in the sector and ahead of the competition in realising scale benefits. TREVOR FINNChief Executive7 August 2007 Consolidated Income Statement Interim Resultsfor the six months ended 30 June 2007 6 Months to 6 Months to 12 Months-------------------------------------------------------------------------------- 30.06.07 30.06.06 to 31.12.06 £m £m £m--------------------------------------------------------------------------------Continuing operationsRevenue 2,702.4 2,625.1 5,058.5 Cost of sales (2,347.2) (2,259.1) (4,357.2)-------------------------------------------------------------------------------- Gross profit 355.2 366.0 701.3Operating expenses (300.7) (295.9) (561.6)--------------------------------------------------------------------------------Operating profit before other income 54.5 70.1 139.7 --------------------------------------------------------------------------------Operating profit before other income,analysed as:Before exceptional items 61.3 73.5 135.7Goodwill impairment (6.8) - (0.9)Abortive acquisition costs - (0.9) (1.0)Integration and closure costs - (2.5) (4.0)Gain on curtailment of defined benefitpension schemes - - 9.9-------------------------------------------------------------------------------- Operating profit before other income 54.5 70.1 139.7-------------------------------------------------------------------------------- Other income - gain on sale ofbusinesses and property 7.6 11.9 24.3--------------------------------------------------------------------------------Operating profit 62.1 82.0 164.0-------------------------------------------------------------------------------- Finance costs (note 7) (40.3) (38.8) (84.4)Finance income (note 8) 11.5 8.0 17.7--------------------------------------------------------------------------------Net finance costs (28.8) (30.8) (66.7)--------------------------------------------------------------------------------Share of profit before tax from jointventure 0.3 0.3 0.5Share of income tax expense from jointventure (0.1) - (0.1)--------------------------------------------------------------------------------Share of post tax profit from jointventure 0.2 0.3 0.4-------------------------------------------------------------------------------- Profit before taxation 33.5 51.5 97.7 Income tax expense (note 9) (4.2) (15.7) (28.9)--------------------------------------------------------------------------------Profit from continuing operations 29.3 35.8 68.8 Discontinued operationLoss from discontinued operation (net of income tax) (note 6) (1.5) (0.7) (1.3)-------------------------------------------------------------------------------- Profit attributable to equity shareholders 27.8 35.1 67.5================================================================================ Earnings per shareBasic earnings per ordinary share (note 11) 4.4p 5.6p 10.7pDiluted earnings per ordinary share (note 11) 4.3p 5.5p 10.6p Continuing operationsBasic earnings per ordinary share (note 11) 4.6p 5.7p 10.9pDiluted earnings per ordinary share (note 11) 4.5p 5.6p 10.8p DividendsDividend per share - interim (note 10) 2.00p 1.45p 1.45pDividend per share - final 2.00p All amounts are unaudited Consolidated Balance Sheet -------------------------------------------------------------------------------- 30.06.07 Restated * 31.12.06 £m 30.06.06 £m £m--------------------------------------------------------------------------------Non-current assetsProperty, plant and equipment 394.3 581.1 420.4Goodwill 425.9 471.4 433.8Other intangible assets 1.2 2.3 1.4Investment in joint venture 3.4 2.2 3.0-------------------------------------------------------------------------------- Total non-current assets 824.8 1,057.0 858.6--------------------------------------------------------------------------------Current assetsInventories 812.2 859.7 850.2Trade and other receivables 274.7 310.3 260.9Cash and cash equivalents 76.0 36.2 19.7Non-current assets classified as heldfor sale 53.1 22.5 38.4-------------------------------------------------------------------------------- Total current assets 1,216.0 1,228.7 1,169.2-------------------------------------------------------------------------------- Total assets 2,040.8 2,285.7 2,027.8--------------------------------------------------------------------------------Current liabilitiesInterest bearing loans and borrowings (8.4) (210.0) (10.4)Trade and other payables (1,207.2) (1,264.1) (1,171.8)Deferred income (0.9) - (0.9)Current tax payable (29.2) (24.6) (19.5)Provisions (3.5) (0.8) (4.3)-------------------------------------------------------------------------------- Total current liabilities (1,249.2) (1,499.5) (1,206.9)--------------------------------------------------------------------------------Non-current liabilitiesInterest bearing loans and borrowings (345.9) (403.1) (371.0)Derivative financial instruments (11.3) (4.8) (8.0)Deferred income (20.7) - (21.1)Deferred tax liabilities (39.8) (17.1) (42.0)Retirement benefit obligations (31.2) (73.5) (65.2)Provisions (5.4) (1.2) (7.6)-------------------------------------------------------------------------------- Total non-current liabilities (454.3) (499.7) (514.9)-------------------------------------------------------------------------------- Total liabilities (1,703.5) (1,999.2) (1,721.8)-------------------------------------------------------------------------------- Net assets 337.3 286.5 306.0================================================================================ 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 (0.3) (0.2) (0.3)Retained earnings 232.9 182.0 201.6-------------------------------------------------------------------------------- Total equity 337.3 286.5 306.0================================================================================ All amounts are unaudited * Restated following change of accounting policy in 2006 in respect of recognition of actuarial gains and losses arising on defined benefit pension plans. Full details of the change in policy are presented in the financial statements for the year ended 31 December 2006. Consolidated Cash Flow Statement -------------------------------------------------------------------------------- 6 Months to 6 Months to 12 Months to 30.06.07 30.06.06 31.12.06 £m £m £m-------------------------------------------------------------------------------- Cash flows from operating activitiesProfit after taxation 27.8 35.1 67.5Adjustment for income from joint venture (0.2) (0.3) (0.4)Adjustment for interest 29.4 31.3 67.6Adjustment for taxation 4.2 15.7 28.9--------------------------------------------------------------------------------Operating profit 61.2 81.8 163.6Profit on sale of businesses and property (7.3) (11.9) (24.3)Depreciation and amortisation 30.1 34.8 65.1Share based payments 0.7 0.3 0.9Goodwill impairment 6.8 - 0.9Decrease in working capital 37.2 52.7 13.2--------------------------------------------------------------------------------Cash generated from operations 128.7 157.7 219.4Net interest paid (27.2) (29.7) (67.2)Taxation paid (3.6) (15.6) (24.2)-------------------------------------------------------------------------------- Net cash from operating activities 97.9 112.4 128.0-------------------------------------------------------------------------------- Cash flows from investing activitiesBusiness acquisitions (net of cash acquired) - (458.8) (466.0)Proceeds from sale of businesses 17.9 22.2 23.1Investment in joint venture (0.1) (1.3) (15.1)Purchase of property, plant and equipment (98.2) (85.4) (171.2)Proceeds from sale of property,plant and equipment 77.4 77.3 388.9(Payments) / receipts from salesof own shares (0.4) 0.5 1.7-------------------------------------------------------------------------------- Net cash used in investing activities (3.4) (445.5) (238.6)-------------------------------------------------------------------------------- Cash flows from financing activitiesPayment of capital element offinance lease rentals (2.4) (2.6) (5.6)Repayment of unsecured bank loans (21.5) (52.2) (413.3)Repayment of loan notes (1.3) (114.5) (12.5)Proceeds from issue of unsecuredloans - 470.0 502.8Dividends paid to shareholders (12.7) (8.2) (17.4)-------------------------------------------------------------------------------- Net cash (used in) / fromfinancing activities (37.9) 292.5 54.0-------------------------------------------------------------------------------- Effects of exchange rate changeson cash held (0.3) (0.6) (1.1)--------------------------------------------------------------------------------Net increase / (decrease) incash and cash equivalents 56.3 (41.2) (57.7)Opening cash and cash equivalents 19.7 77.4 77.4-------------------------------------------------------------------------------- Closing cash and cash equivalents (note 12) 76.0 36.2 19.7================================================================================ Consolidated Statement of Recognised Income and Expense -------------------------------------------------------------------------------- 6 Months to 6 Months to 12 Months to 30.06.07 30.06.06 31.12.06 £m £m £m--------------------------------------------------------------------------------Foreign currency translation differences for foreign operations - (0.1) (0.2)Defined benefit plan actuarial gains and losses 22.7 9.0 18.1Income tax on income and expense recognised directly in equity (6.8) (2.7) (5.4)--------------------------------------------------------------------------------Income and expense recognised directly in equity 15.9 6.2 12.5Profit for the period 27.8 35.1 67.5--------------------------------------------------------------------------------Total recognised income and expense for the period attributable to equity holders of the company 43.7 41.3 80.0================================================================================ 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 2006. 2. The comparative figures for the financial year ended 31 December 2006 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 2007 and is unaudited. 4. Exceptional items Exceptional items of £6.8 million were incurred during the first half of 2007 in respect of impairment of goodwill on businesses scheduled for closure. Exceptional items incurred during the first half of 2006 totalled £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. 5. Segmental Analysis 6 Months 6 Months 12 Months to 30.06.07 to 30.06.06 to 31.12.06 £m £m £m --------------------------------------------------------------------------- Revenue Stratstone 1,098.3 1,097.9 2,143.8 Evans Halshaw 1,450.3 1,366.9 2,623.6 Chatfields 99.4 107.4 200.4 Support 54.4 52.9 90.7 --------------------------------------------------------------------------- Revenue from external customers 2,702.4 2,625.1 5,058.5 =========================================================================== Result Stratstone 22.1 31.5 56.1 Evans Halshaw 17.8 28.6 52.7 Chatfields 2.5 3.3 6.1 Support 12.1 10.1 19.9 Central 7.6 8.5 29.2 --------------------------------------------------------------------------- Result by segment 62.1 82.0 164.0 Finance costs (28.8) (30.8) (66.7) Share of profit of joint venture 0.2 0.3 0.4 Income tax expense (4.2) (15.7) (28.9) --------------------------------------------------------------------------- Profit for period 29.3 35.8 68.8 =========================================================================== 6. Discontinued operation On 30 June 2007 the group sold the trading assets of all its German based motor vehicle dealerships. The German division was not a discontinued operation or classified as held for sale as at 31 December 2006 and therefore the comparative income statement has been re-presented to show the discontinued operation separately from continuing operations. Results of discontinued operation 6 Months 6 Months 12 Months to 30.06.07 to 30.06.06 to 31.12.06 £m £m £m --------------------------------------------------------------------------- Revenue 20.3 20.4 42.5 Expenses (21.5) (21.1) (43.8) --------------------------------------------------------------------------- Results from operating activities (1.2) (0.7) (1.3) Income tax expense - - - --------------------------------------------------------------------------- Results from operating activities net of income tax (1.2) (0.7) (1.3) Loss on sale of discontinued operation (0.3) - - --------------------------------------------------------------------------- Loss for the period (1.5) (0.7) (1.3) =========================================================================== 7. Finance costs 6 Months 6 Months 12 Months to 30.06.07 to 30.06.06 to 31.12.06 £m £m £m --------------------------------------------------------------------------- Interest payable on bank borrowings 10.0 14.1 29.3 Interest payable on loan notes 4.5 3.8 9.5 Vehicle stocking plan interest 15.8 11.4 25.3 Interest payable on finance leases - 0.1 0.4 Fair value loss - interest rate swaps - 1.0 1.0 Unwinding of discounts in contract hire residual values 1.0 1.2 2.7 Interest on pension scheme obligations 9.0 7.2 16.5 --------------------------------------------------------------------------- 40.3 38.8 84.7 Less interest capitalised - - (0.3) --------------------------------------------------------------------------- Total finance costs 40.3 38.8 84.4 =========================================================================== 8. Finance income 6 Months 6 Months 12 Months to 30.06.07 to 30.06.06 to 31.12.06 £m £m £m --------------------------------------------------------------------------- Interest received on bank deposits 0.5 0.4 0.8 Interest on pension scheme assets 11.0 7.4 16.9 Other interest receivable - 0.2 - --------------------------------------------------------------------------- Total finance income 11.5 8.0 17.7 =========================================================================== 9. Based upon the anticipated profit on ordinary activities before taxation for the full year, the effective tax rate for 2007 is estimated at 30.5% (2006 : 30.9%), excluding the impact of the Finance Act 2007. The impact of the Finance Act 2007 on the deferred tax liability are a one-off reduction in 2007 due to the removal of balancing adjustments on the disposal of industrial buildings and a reduction in the tax rate from April 2008 onwards from 30% to 28%. The amount of this reduction is £5.9m and due to its one-off nature is deemed exceptional. 10. A dividend of 2.00p (2006 : 1.45p) net per ordinary share will be paid on 3 October 2007 to shareholders appearing on the register at the close of business on 7 September 2006. Comparative numbers have been restated following the subdivision of the ordinary shares of 25p each into 5 new ordinary shares of 5p each. 11. Earnings per share 6 Months 6 Months 12 Months to 30.06.07 to 30.06.06 to 31.12.06 pence pence pence --------------------------------------------------------------------------- Basic earnings per share - continuing operations 4.6 5.7 10.9 Basic earnings per share - discontinued operation (0.2) (0.1) (0.2) --------------------------------------------------------------------------- Basic earnings per share 4.4 5.6 10.7 Effect of non trading items (0.9) (0.9) (3.2) --------------------------------------------------------------------------- Adjusted earnings per share 3.5 4.7 7.5 --------------------------------------------------------------------------- Diluted earnings per ordinary share - continuing operations 4.5 5.6 10.8 Diluted earnings per ordinary share - total 4.3 5.5 10.6 --------------------------------------------------------------------------- The calculation of basic, diluted and adjusted earnings per share is based on: Number of shares (millions) 30.06.07 30.06.06 31.12.06 number number number --------------------------------------------------------------------------- Weighted average number of shares used in basic and adjusted earnings per share calculation 634.9 624.0 629.0 Weighted average number of dilutive shares under option 9.8 16.5 10.7 --------------------------------------------------------------------------- Diluted weighted average number of shares used in diluted earnings per share calculation 644.7 640.5 639.7 =========================================================================== =========================================================================== --------------------------------------------------------------------------- Earnings 6 Months 6 Months 12 Months to 30.06.07 to 30.06.06 to 31.12.06 £m £m £m --------------------------------------------------------------------------- Continuing operations 29.3 35.8 68.8 Discontinued operation (1.5) (0.7) (1.3) --------------------------------------------------------------------------- Earnings for basic and diluted earnings per share calculation 27.8 35.1 67.5 Adjusting items: Profit on business and property disposals (7.3) (11.9) (24.3) Goodwill impairment 6.8 - 0.9 Abortive acquisition costs - 0.9 1.0 Gain on curtailment of defined benefit pension scheme - - (9.9) Operating exceptional costs - 2.5 4.0 Exceptional deferred tax credit (see note 9) (5.9) - - Tax effect of adjusting items 0.6 2.8 8.1 --------------------------------------------------------------------------- Earnings for adjusted earnings per share calculation 22.0 29.4 47.3 =========================================================================== The directors consider that the adjusted earnings per share figures provide a better measure of comparative performance. Comparative numbers have been restated following the subdivision of the ordinary shares of 25p each into 5 new ordinary shares of 5p each. 12. Cash and cash equivalents 30.06.07 30.06.06 31.12.06 £m £m £m --------------------------------------------------------------------------- Bank balances and cash equivalents 76.0 36.2 19.7 =========================================================================== 13. Net borrowings 30.06.07 30.06.06 31.12.06 £m £m £m --------------------------------------------------------------------------- Cash and cash equivalents (See note 12) 76.0 36.2 19.7 Current interest bearing loans and borrowings (8.4) (210.0) (10.4) Non-current interest bearing loans and borrowings (345.9) (403.1) (371.0) Derivative financial instruments (11.3) (4.8) (8.0) --------------------------------------------------------------------------- (289.6) (581.7) (369.7) =========================================================================== 14. Reserves Share Share Other Translation Accumulated Total capital premium reserves differences profit £m £m £m £m £m £m ----------------------------------------------------------------------------------------------------------- Balance at 1 January 2006 32.8 56.8 15.1 (0.1) 134.7 239.3 Total recognised income and expense for 2006 - - - (0.2) 80.2 80.0 Dividends - - - - (17.4) (17.4) Share based payments - - - - 2.4 2.4 Disposal of own shares in share trusts - - - - 1.7 1.7 ----------------------------------------------------------------------------------------------------------- Balance at 31 December 2006 32.8 56.8 15.1 (0.3) 201.6 306.0 ----------------------------------------------------------------------------------------------------------- Balance at 1 January 2007 32.8 56.8 15.1 (0.3) 201.6 306.0 Total recognised income and expense for 6 months to 30 June 2007 - - - - 43.7 43.7 Dividends - - - - (12.7) (12.7) Share based payments - - - - 0.7 0.7 Increase of own shares in share trusts - - - - (0.4) (0.4) ------------------------------------------------------------------------------------------------------------ Balance at 30 June 2007 32.8 56.8 15.1 (0.3) 232.9 337.3 ------------------------------------------------------------------------------------------------------------ 15. Pension Scheme Obligations The net liability for defined benefit obligations has decreased from £65.2 million at 31 December 2006 to £31.2 million at 30 June 2007. The decrease of £34.0 million comprises contributions of £9.3 million, a credit to the income statement of £2.0 million and a net actuarial gain of £22.7 million. The net actuarial gain has arisen in part to changes in the principal assumptions used in the valuation of the scheme's assets and liabilities over those used at 31 December 2006. The assumptions subject to change are the discount rate 5.7% (2006: 5.2%), Inflation rate 3.1% (2006: 2.9%), and rate of increase in pensions in payment 3.0 - 3.1% (2006: 2.9%). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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