18th Oct 2006 07:00
European Motor Hldgs PLC18 October 2006 EUROPEAN MOTOR HOLDINGS plc Interim results for the six months ended 31 August 2006 and announcement of strategic review Key points: • Profit before tax £10.2 million, up 42% (2005, £7.2 million) • Earnings per share 12.9 pence, up 24% excluding exceptional items • Interim dividend increased by 15% to 4.6 pence per share • Net assets up to 174.3 pence per share compared to 168.5 pence per share at 28 February 2006 • Return on sales in Motor Retail Division up to 3.1% from 2.9% • The Group's franchise partners continue to outperform the UK car market Commenting on these results, Chief Executive Richard Palmer said: "Even in a difficult market, we have continued to make excellent progress. Thefirst half contribution of the recently acquired SKF businesses was ahead of ourexpectations and we look forward to a satisfactory full year outcome." Enquiries: Richard Palmer Chief Executive European Motor Holdings plcAnn Wilson Finance Director European Motor Holdings plcMorning: Biddick Associates 020 7448 1000Afternoon: European Motor Holdings plc 01491 413 399 EUROPEAN MOTOR HOLDINGS plc Interim results for the six months ended 31 August 2006 Chief Executive's statement We are pleased to announce another excellent first half performance which issummarised below. 2006 2005 £'000 £'000 Profit before taxation and exceptional items and excludingSmith Knight Fay ("SKF") which was acquired on 1 July 2005 8,718 8,512 Profit/(loss) before taxation of SKF in period 2,265 (166) Additional Group interest on SKF consideration (798) (239) -------- ------- 10,185 8,107 Exceptional items - (952) -------- -------Profit before taxation 10,185 7,155 -------- ------- Earnings per share including exceptional items 12.9p 9.2p -------- ------- Earnings per share excluding exceptional items 12.9p 10.4p -------- ------- Dividend per share 4.6p 4.0p -------- ------- Turnover has increased by 27% to £428 million and profit before tax hasincreased by 42% over the comparative period last year. Excluding last year'sexceptional losses, profit before tax increased by 26% to £10.2 million andearnings per share by 24% to 12.9 pence. Our gearing ratio at 31 August 2006stood at 12% compared to 44% the previous year. Net assets per share have risenfrom 168.5 pence to 174.3 pence since 28 February 2006. Background The Group acquired SKF on 1 July 2005 and it contributed a small loss in thefirst half of last year in a post acquisition period which excluded the keyMarch trading month. In the period under review it contributed £2.3 million atthe profit before tax level and £1.5 million after deducting the cash fundingcosts of acquiring the business. This acquisition has been a great success andhas been integrated into the Group ahead of schedule. Excluding SKF, the Group performed marginally better than last year, reflectinga good performance generally, offset by reductions in contribution from ourBentley businesses and Wilcomatic, both of which are expected to make a far moresignificant contribution to the second half. New car registrations in the UK for the first nine months of 2006 were 3.5%lower than last year. However, the franchises which we have chosen to representhave marginally increased their national registrations, following the trend setover the last few years. These registration statistics continue to confirm thelogic of the Group's 'premium' franchise strategy. Margins within Motor Retail have remained under pressure for the period underreview as a result of general oversupply, but we have nevertheless improved ourprofitability during this difficult time. When certain of our key manufacturerpartners achieve a better balance of supply and demand we will be in anexcellent position to capitalise on the opportunities presented. Within our Motor Retail Division we acquired a Land Rover business in St Helens,Lancashire in June 2006. This business, which will be relocated to Liverpool,complements our other Land Rover businesses in Preston and Chester. Thesebusinesses, together with our planned new Land Rover dealership in Warringtonwhich we hope to complete in 2007, will form an important market area. Trading Motor Retail Division Profit before interest and tax within the Motor Retail Division rose 38% to£13.1 million against the comparative period last year. The Division's return onsales before interest and tax was 3.1% and given the decline in margins weexperienced on certain vehicle sales, this return on sales is all the morecreditable. Our aftersales operations continued to move forward and generate over 50% of theDivision's trading profit. Our BMW and Mini businesses performed at a very high level and remain amongstthe most profitable in the UK BMW dealer body, even though the return on salesof the businesses has reduced from 5.2% to 4.7%. This diminution in our returnon sales is mainly a result of new vehicle margin reduction followingdiscounting to achieve challenging volume targets. The issue of supply is beingaddressed by BMW and it is also introducing more 'niche' products next year. BMW has introduced the Z4 coupe, M roadster and M coupe in the period andlaunched the new generation of the 3 series coupe in September. With theimminent arrival of the M6 convertible and the new generation Mini range duebefore the end of the calendar year, we can expect high levels of interestwithin our BMW group businesses. The unqualified success of Mini has left uswith virtually no new Mini product for sale until the introduction of the newrange in November. Our Premier Automotive Group franchises continue to perform well. The return onsales from our Land Rover businesses improved to 3.0% and we are delighted tohave been selected to expand our market area in the North West of England. Thelaunch of the new Freelander (built in Halewood within our newly acquiredterritory) later this year will have a significant effect on the prospects forLand Rover in the second half. Range Rover, Range Rover Sport and Discoveryremain the class leading vehicles in the 4x4 sector. Our Jaguar businesses continue to prosper and, although our return on sales hasfallen marginally to 2.5%, these returns are considerably above nationalaverages. The introduction of the new XK has been a complete success and thiswill be followed by the XKR introduction in November. Sales of the luxury XJrange have continued to grow and we have continued to achieve sales success withthese advanced luxury vehicles. Our Volvo businesses continue to achieve satisfactory returns although ourreturn on sales has fallen as a result of discounting by the dealer body intothe fleet market. However, the S80 has been launched in September and the newsmall, retail orientated C30 sports coupe will be introduced by the end of thefinancial year. This car re-introduces Volvo into a sector where it has not beenrepresented for many years and gives us optimism for the second half. Our Volkswagen group businesses have, in general, had an extremely promisingfirst six months with our Audi businesses achieving returns of 2.7% comparedwith 2.3% in the comparative period. This performance was without the benefit ofthe new Q7 sport utility vehicle in any volume which was introduced just beforethe end of the period. The new TT coupe was launched in September and we believethat these two cars will have a significant positive effect on our second halfperformance. The Audi brand continues to make impressive progress and we aredelighted to be a major partner with Audi UK. Our Bentley businesses had a difficult period as the Continental Flying Spur didnot achieve the sales level we had anticipated. We are, however, confident of astrong second half performance as the GT convertible has been launched inSeptember, which is earlier than we had expected. We have a considerable orderbank for this car and, provided supply is received at expected levels, it willhave a very positive effect on our Bentley performance in the second half. We believe that the Volkswagen brand and dealer network have entered a period ofexpansion and improved profitability in the UK market. This is particularlyrelevant to us since we are Volkswagen's largest dealer partner in the UK. Our returns have significantly improved from 1.1% a year ago to 2.4% in thefirst half of this financial year. Volkswagen has maintained its 'premium'volume position with registrations for the calendar year to the end of Septemberup by nearly 7% against an overall market which was down by 3.5%. Excellentproducts, strong residual values and increasing numbers of niche vehicles haveensured Volkswagen has outperformed its volume competitors. In the period, theintroduction of the Fox city car and the Eos convertible/coupe have furtherexpanded the brand's appeal. We have high expectations for the brand for therest of the year and beyond. We acquired an extremely successful Volkswagen Light Commercial Vehicle businessin Manchester as part of the SKF deal. This business has prospered in the periodand we are looking to expand this operation in the second half of the financialyear. Imports We signed an exclusive distribution agreement with Piaggio in April, giving usthe rights to the importation of all Piaggio light commercial vehicles into theUK. These vehicles, manufactured under licences granted by Daihatsu, areproduced in Italy and are now the only vehicles available in the ultra lightsector of the LCV market. We currently have an electrically powered van on trialwith a major potential user and are excited about the opportunities this vehiclecould give us in the public sector. In September we introduced the new Perodua Myvi, a supermini sector car withtotally up to date styling, ride and performance, priced from £6,799 on theroad. We expect that this car will have a significant effect on the performanceof Perodua in the future as it will become the main car of the franchise. Motor Auctions The performance of our auction businesses continues to impress. These businesseshave increased profits by 33% in the period and they also continue to handleimproved volumes of cars efficiently and in a timely, customer focussed manner. Motor Services Division Wilcomatic had a very difficult first half of the financial year. Orders that wehad expected to receive during the period were not forthcoming and various watercompanies' drought orders and hosepipe bans also had a negative effect on thesales side of the business. Our service business did, however, maintain itsperformance at previous levels and continues to be recognised for its efficiencyand innovation. I am delighted to report that in September we received a majormachine sales order that we had anticipated earlier in the year and that,together with significant orders gained for service contracts and waterreclamation equipment, will result in a far better performance in the secondhalf. Financial review As stated above, the Group's profit before tax for the six months ended 31August 2006 was £10.2 million compared to £7.2 million in the correspondingperiod last year. Last year's results include exceptional losses of just under£1 million made in our former MG Rover dealerships, representing the tradinglosses and closure costs incurred since the date of our decision to close thedealerships. The tax charge for the period under review is based on the estimated effectivetax rate for the full financial year of 31%, similar to the estimated rate forthe first half of last financial year. The actual effective rate for lastfinancial year as a whole was 27% which was distorted by the availability ofcapital losses in respect of exceptional gains arising in the second half of thefinancial year. Earnings per share for the period were 12.9 pence compared to 9.2 pence lastyear. Excluding last year's exceptional items, the comparative figure is 10.4pence, thereby giving an increase of 24%. The Board has declared an interimdividend of 4.6 pence per share, representing an increase of 15% on last year. Group revenue has increased by £90 million compared to the first half of lastfinancial year. The main effect on revenue arises from dealerships acquired,opened, sold and closed since last year, which gives rise to a net increase of£94 million, offset by sales volume reductions within the Motor ServicesDivision and our import business, Perodua. Within our continuing Motor Retailbusinesses, reduced sales of new vehicles were matched by increased revenue fromused vehicles and aftersales activities. Profit from operations excluding exceptional items was 2.6% of revenue, the sameas last year. The respective ratio for the SKF businesses, which were acquiredon 1 July 2005, was 2.2%, which is a significant improvement on last year'smargin of 0.5%, although this latter figure covered a difficult trading periodand excluded the very important month of March. The remainder of the Groupincludes the comparatively more profitable BMW businesses and the "old Group"continued to achieve an operating margin of 2.9%. The Group continues to be oneof the most profitable in the industry. The acquisition of SKF in July last year and the subsequent disposal of itsToyota, Lexus and Mazda businesses in January have had a significant effect onthe Group's gearing position. The combined effect of the purchase considerationand the acquired net borrowings increased Group borrowings by £68 million, andthe disposal resulted in a reduction of £14 million. The Group has also workedto reduce its net borrowings through cash generation as discussed below.Nevertheless, the interest charge for the period under review includes a fullsix months of the cost of servicing these additional borrowings compared to twomonths last year. Consequently, the net interest charge for the period is £1.2million compared to £0.7 million. As evidenced by the balance sheet, the Group continues to be in a very strongfinancial position. Shareholders' equity has increased by £3.7 million sincelast financial year end to £95.4 million at 31 August 2006. During the period wehave invested £2.5 million in capital expenditure and there was a net cashoutflow in respect of an acquisition of a business of £0.6 million. During the period the Company issued 275,000 shares in respect of the exerciseof options, which resulted in a cash inflow of £0.3 million. We have continued to manage our working capital efficiently and achieved areduction of £4.0 million in the period. Tax paid in the period amounted to £0.7million and there has been a net outflow of £7.3 million in respect of loans,finance leases and letters of credit. The net effect of these cash flows and ofthe £14.0 million profit from operations (after adding back depreciation andother non cash items) and the net interest paid in the period of £1.4 million isa net cash inflow of £5.8 million. The Group had net borrowings of £11.0 millionat 31 August 2006, giving a gearing ratio of 12% at that date, compared to 44%at 31 August 2005 and 26% at 28 February 2006. The Group's net borrowings position at 31 August is not representative of theyear as a whole because, immediately prior to a month with a registration platechange, used vehicle stocks and vehicle debtors are lower than at other times ofthe year and we are in receipt of deposits on cars being prepared for sale.Additionally, the timing of dividend payments is such that all dividends arepaid in the second half of the financial year. The lowest net borrowings levelduring the period of £9.7 million occurred in late August, whilst the highestnet borrowings level of £36.5 million occurred at the end of March. At 31 August 2006 our net assets per share were 174.3 pence compared to 168.5pence at 28 February 2006. Outlook National vehicle registrations for the month of September were only marginallydown on last year and new vehicle sales in September for our key franchisesreduced by a similar amount. Trading has been challenging in certain areas andmargins remain under pressure. We have significant new products being introducedin our second half from Audi, Bentley, BMW, Mini, Jaguar, Land Rover and Volvoand a major order for Wilcomatic to be completed in the period. We remainconfident of a satisfactory full year outcome. In keeping with the Board's policy of reviewing the external environment we haveappointed Goldman Sachs International to review the strategic options for theCompany and a further announcement regarding the outcome of this review will bemade in due course. Richard PalmerChief Executive18 October 2006 CONSOLIDATED INCOME STATEMENT Notes 6 months 6 months Year ended ended ended 31 August 31 August 28 February 2006 2005 2006 £'000 £'000 £'000 Revenue 2 428,406 338,275 754,914Cost of sales (369,897) (291,910) (646,147) --------- --------- --------- Gross profit 58,509 46,365 108,767Distribution costs (28,667) (22,676) (52,041)Administrative expenses (18,500) (15,821) (37,178) --------- --------- --------- Profit from operations beforeother income 11,342 7,868 19,548--------------------------- ----- --------- --------- ---------Profit from operations before other income analysed as:Before exceptional items 11,342 8,768 20,598Exceptional costs re MG Rover - (900) (1,050) --------- --------- --------- 11,342 7,868 19,548--------------------------- ----- --------- --------- --------- Profit on disposal of businesses - - 1,545 --------- --------- --------- Profit from operations 3 11,342 7,868 21,093Investment income 326 470 525Finance costs (1,483) (1,183) (3,165) --------- --------- --------- Profit before tax 10,185 7,155 18,453--------------------------- ----- --------- --------- ---------Profit before tax analysed as:Before exceptional items 10,185 8,107 18,010Exceptional costs re MG Rover - (952) (1,102)Profit on disposal ofbusinesses and properties - - 1,545 --------- --------- --------- 10,185 7,155 18,453--------------------------- ----- --------- --------- --------- Tax 4 (3,119) (2,223) (5,053) --------- --------- --------- Profit for the period 7,066 4,932 13,400 --------- --------- --------- Earnings per share (basic) 7 12.9p 9.2p 24.8p --------- --------- --------- Earnings per share (diluted) 7 12.7p 9.0p 24.3p --------- --------- --------- Dividend per share 5 4.6p 4.0p 10.75p --------- --------- --------- CONSOLIDATED BALANCE SHEET 31 August 31 August 28 February 2006 2005 2006 £'000 £'000 £'000 Non-current assetsGoodwill 25,920 28,196 25,501Property, plant and equipment 57,728 63,237 59,730Trade and other receivables 2,431 1,741 2,448 ---------- --------- --------- 86,079 93,174 87,679 ---------- --------- ---------Current assetsInventories 136,202 142,621 140,930Trade and other receivables 23,568 27,190 21,743Cash at bank and in hand 7,890 2,769 2,558 ---------- --------- --------- 167,660 172,580 165,231 ---------- --------- --------- Total assets 253,739 265,754 252,910 ---------- --------- --------- Current liabilitiesTrade and other payables (146,871) (163,975) (151,543)Tax liabilities (2,553) (1,087) (163) ---------- --------- --------- (149,424) (165,062) (151,706) ---------- --------- --------- Non-current liabilitiesTrade and other payables (4,951) (11,634) (5,402)Retirement benefit obligation (1,380) (4,591) (1,576)Deferred tax liabilities (2,521) (1,774) (2,357)Long-term provisions (71) (138) (133) ---------- --------- --------- (8,923) (18,137) (9,468) ---------- --------- --------- Total liabilities (158,347) (183,199) (161,174) ---------- --------- --------- Net assets 95,392 82,555 91,736 ---------- --------- --------- Share capital 21,889 21,719 21,779 Share premium account 29,074 28,836 28,889Capital redemption reserve 926 926 926Retained earnings 43,503 31,074 40,142 ---------- --------- --------- Total shareholders' equity 95,392 82,555 91,736 ---------- --------- --------- Net borrowings 10,989 36,201 23,587 ---------- --------- --------- Gearing 11.5% 43.9% 25.7% ---------- --------- --------- Net assets per share 174.3p 152.0p 168.5p ---------- --------- --------- CONSOLIDATED CASH FLOW STATEMENT 6 months 6 months Year ended ended ended 31 August 31 August 28 February 2006 2005 2006 £'000 £'000 £'000Operating activitiesProfit from operations 11,342 7,868 21,093Adjustments for: Depreciation of property, plant and equipment 2,468 1,628 4,167 Share option expense 112 54 122 Difference between pension charge and cash contributions 66 33 89 Profit on disposal of property, plant and equipment (8) (19) (15) Profit on disposal of businesses - - (1,545) --------- --------- --------- Operating cash flows before movements inworking capital 13,980 9,564 23,911Decrease/(increase) in inventories 5,111 (6,585) (7,903)(Increase)/decrease in receivables (1,808) 4,779 9,598Increase)/(decrease) in payables 659 2,971 (134)(Decrease)/increase in demonstrator funding (5,757) (1,468) 1,637 --------- --------- ---------Cash generated by operations 12,185 9,261 27,109Income taxes paid (688) (4,867) (8,033)Interest paid (1,483) (1,183) (3,165) --------- --------- ---------Net cash from operating activities 10,014 3,211 15,911 --------- --------- --------- Investing activitiesInterest received 64 392 334Disposal of businesses - - 13,285Proceeds on disposal of property, plantand equipment 35 230 329Purchases of property, plant andequipment (2,531) (4,621) (10,907)Acquisition of businesses (564) (47,836) (47,855) --------- --------- --------- Net cash (used in) investing activities (2,996) (51,835) (44,814) --------- --------- --------- Financing activitiesDividends paid - - (5,321)Repayments of borrowings (1,184) (426) (7,527)Repayments of obligations under financeleases (314) (100) (608)Proceeds on issue of share capital 295 344 457 --------- --------- --------- Net cash (used in) financing activities (1,203) (182) (12,999) --------- --------- --------- Net increase/(decrease) in cash and cashequivalents 5,815 (48,806) (41,902) Cash and cash equivalents at beginningof period 2,075 43,977 43,977 --------- --------- --------- Cash and cash equivalents at end ofperiod 7,890 (4,829) 2,075 --------- --------- --------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 6 months 6 months Year ended ended ended 31 August 31 August 28 February 2006 2005 2006 £'000 £'000 £'000 Actuarial (loss)/gain ondefined benefit pensionscheme - (1,897) 1,061Tax on items recogniseddirectly in equity (123) 656 402Profit for the period 7,066 4,932 13,400 -------- --------- --------Total recognised income andexpense for the period 6,943 3,691 14,863 -------- --------- -------- NOTES TO THE INTERIM STATEMENT 1. Basis of preparation This interim financial information has been prepared using the accountingpolicies and presentation that were applied in the preparation of the Group'spublished consolidated financial statements for the year ended 28 February 2006. 2. Analysis of revenue 6 months 6 months Year ended ended ended 31 August 31 August 28 February 2006 2005 2006 £'000 £'000 £'000 Motor Retail Division 421,467 328,189 734,989Motor Services Division 5,243 8,112 16,044Other Businesses 1,696 1,974 3,881 ---------- --------- -------- 428,406 338,275 754,914 ---------- --------- -------- 3. Analysis of profit from operations 6 months 6 months Year ended ended ended 31 August 31 August 28 February 2006 2005 2006 £'000 £'000 £'000 Motor Retail Division 13,136 9,533 22,797Motor Services Division 215 797 1,549Other Businesses 25 90 7Unallocated corporate expenses (2,034) (1,652) (3,755)Exceptional MG Rover losses and costs - (900) (1,050)Profit from disposal of businesses - - 1,545 ---------- --------- --------- 11,342 7,868 21,093 ---------- --------- --------- 4. The charge for taxation is based on the estimated effective rate for thefinancial year. 5. An interim dividend of 4.6p (2005, 4.0p) per share will be paid on 6December 2006 to shareholders on the register at 3 November 2006. 6. Analysis of net debt 6 months 6 months Year ended ended ended 31 August 31 August 28 February 2006 2005 2006 £'000 £'000 £'000 Cash at bank and in hand 7,890 2,769 2,558Bank overdrafts - (7,598) (483) ---------- --------- ---------Cash and cash equivalents 7,890 (4,829) 2,075Debt due within one year (4,889) (6,858) (5,713)Debt due after more than one year (4,662) (10,978) (5,022)Finance leases (9,328) (13,536) (14,927) ---------- --------- --------- (10,989) (36,201) (23,587) ---------- --------- --------- 7. The calculation of earnings per share for the six months ended 31 August2006 is based on the profit for the financial period of £7,066,000 (2005,£4,932,000) and on 54,617,740 (2005, 53,627,973) ordinary shares, being theweighted average number of shares in issue during the period. The number ofdilutive potential ordinary shares arising from share options, as calculated inaccordance with IAS 33: Earnings per Share, is 1,068,532 (2005, 1,252,706).Therefore, the calculation of diluted earnings per share is based on the profitfor the financial period as above and on 55,686,272 (2005, 54,880,679) ordinaryshares. Earnings per share before exceptional items has been calculated onprofits for the year of £7,066,000 (2005, £5,598,000) as detailed below: 6 months 6 months ended ended 31 August 31 August 2006 2005 £'000 £'000 Profit after taxation 7,066 4,932Exceptional MG Rover losses (net of tax) - 666 ---------- --------- 7,066 5,598 ========== ========= 8. This interim statement was approved by the Board of Directors on 18October 2006. The foregoing financial information does not represent fullaccounts within the meaning of Section 240 of the Companies Act 1985 and hasbeen neither reviewed nor audited by the auditors nor delivered to the Registrarof Companies. The statutory accounts for the year ended 28 February 2006, whichreceived an unqualified auditors' report, have been delivered to the Registrarof Companies. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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