26th Oct 2005 07:00
European Motor Hldgs PLC26 October 2005 EUROPEAN MOTOR HOLDINGS plc Interim results for the six months ended 31 August 2005 Key points: • Profit before exceptional items and tax £8.1 million• Profit before exceptional items, tax and the effect of the acquisition of SKF up by 5.4% to £8.5 million• Earnings per share before exceptional items 10.4 pence, up 2.0%• Interim dividend increased by 8% to 4.0 pence per share• Net assets up to 152.0 pence per share compared to 150.3 pence per share at 28 February 2005• Significant expansion through acquisition with the Group's chosen key manufacturer partners adding 20 franchised dealerships to the Group in the period• Recent acquisitions performing in line with expectations and integration progressing well• Second half started well Commenting on these results, Chief Executive Richard Palmer said: "Our results represent an excellent performance in challenging conditions. Thereare significant benefits to come from our acquisition of SKF and our franchiseportfolio continues to outperform the market. Our September performance has beenvery strong with record profits for any month in the history of EMH. We lookforward to a satisfactory conclusion to the financial year." 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 413399 Interim results for the six months ended 31 August 2005 Chief Executive's statement We are pleased to announce an excellent first half performance which issummarised below. 2005 2004 £'000 £'000 Profit before taxation, exceptional items and the effect ofSmith Knight Fay ("SKF") 8,512 8,073 Loss before taxation of SKF since acquisition (166) - Additional Group interest on SKF consideration (239) - -------- ------- 8,107 8,073 Exceptional items (952) 13,428 -------- -------Profit before taxation 7,155 21,501 -------- ------- The above results represent an excellent performance in challenging conditions.The result from SKF is in line with expectations for the last two months of theperiod, a traditionally weak trading period for motor retail, in which sales aregenerally deferred pending the new registration plate month of September. The exceptional charge in the period of £952,000 relates to the closure costsand losses from the two MG Rover franchises that we held at the time of themanufacturer's collapse earlier this year. In the prior period there wereexceptional profits of £13.4 million, relating mainly to a VAT refund andassociated interest. Earnings per share before exceptional items rose to 10.4 pence from 10.2 pencelast year. As a result of our first half performance and the strong start to the secondhalf, we have decided to increase the interim dividend to 4.0 pence per sharefrom 3.7 pence in the corresponding period last year. We have adopted International Financial Reporting Standards ("IFRS") and haverestated the comparative figures to reflect the changes made to our accountingpolicies. The impact of this change is dealt with more fully in the notes tothis interim statement. Background In the first eight months of this calendar year registrations of new cars in theUK were 6% lower than the previous year. However, registrations for thefranchises which we have held throughout the period under review increasedmarginally, thereby significantly outperforming the market, and once againvindicating our declared policy of concentrating on a small number of premiumfranchises. These figures demonstrate, as we have stated in the past, that asignificant feature of the UK market in recent years has been the migration from'volume' cars to the premium sector. The performance of our businesses has been and will continue to be protected ina difficult market because of the consequent growth in aftersales and increasedused vehicle opportunities resulting from the growing parc which our brands haveexperienced in recent years. Acquisitions On 1 July 2005 we acquired the SKF group in the North West of England for aconsideration of £30.5 million. The SKF group comprises eighteen dealerships,two bodyshops and a pre delivery inspection centre. We have gained eight moreVolkswagen passenger car businesses as a result of the acquisition and now holdevery Volkswagen passenger car franchise for the Greater Manchester area plusthe Volkswagen light commercial vehicle franchise for Manchester. We also gained Audi franchises in Bolton, Macclesfield and Stockport as a resultof the acquisition and the Chester Audi business which we sold to SKF lastOctober also rejoined the Group. SKF operates three Toyota franchises in Stockport, Denton and Macclesfield andthe Lexus franchise in Stockport. In our circular to shareholders dated 15 June2005 concerning the proposed acquisition of SKF we stated that procedures hadcommenced to assess the Group's candidacy for these franchises and that approvalhad been given for SKF to continue to operate its existing businesses in theintervening period. We are continuing to review and discuss the ongoing positionwith Toyota and Lexus. The SKF acquisition also brought the Mazda franchise forthe Stockport area to the Group. The SKF acquisition fulfilled one of the Board's strategic objectives in bothgeographical and franchise terms and has considerably re-shaped the Group. Wenow operate 56 franchised businesses of which 48 are based in the North ofEngland. In the past the majority of our businesses have been based in Yorkshireand the North East of England. The SKF acquisition has effectively balanced ourbusinesses in the North with 25 now operating in the North West, 23 operating inYorkshire and the North East and a further 8 operating predominantly in theSouth. On 1 March 2005 we acquired two additional Bentley businesses in Leicester andNorwich. It has been a primary objective of EMH to achieve critical mass in theNorth of England but, as the Bentley acquisition confirms, for the rightfranchise opportunity we are willing to look at opportunities outside of thatarea. Having completed these acquisitions we are now implementing our integrationplans for the newly acquired businesses. MG Rover The demise of MG Rover was costly to us. The exceptional charge in the periodwas almost £1 million and we believe it would have been much more had we nottaken early action prior to the MG Rover administration to reduce our exposureto the manufacturer. We also closed both of these MG Rover businesses quickly inorder to keep our losses to a minimum. Wherever possible staff were redeployedwithin the Group. Trading Motor Retail Division Our Motor Retail Division's profit before interest and tax for the period underreview rose from £9.2 million to £9.5 million including a £0.2 millioncontribution from the newly acquired SKF businesses in the traditionallydifficult months of July and August. Revenue in the period for the Motor RetailDivision rose by 21%. Our BMW and Mini dealerships have had another outstanding trading period. Weopened our fifth BMW and Mini operation in Durham in June and whilst thisgreenfield operation made a small loss in the period, this was in line withexpectations and we are very encouraged by its performance to date. We have completed the separation of our BMW and Mini businesses in Stocktonduring the period and are in the planning stage of separation at both our Maltonand Sunderland dealerships in line with the requirements of BMW. Within the BMW/Mini businesses our BMW registrations for the half year grew by14% and our Mini registrations grew by 5%. The return on sales of thesebusinesses, whilst still significantly ahead of the national average, reduced to5.2% from 5.6% mainly as a result of the high level of investment we made in newfacilities in the period. At the end of September the M6 Coupe was launched andthe M6 Convertible is expected to become available in 2006. The 3 SeriesTouring, which was also launched in September, will become more widely availableduring the coming months and other derivatives of the new 3 Series will be addedduring 2006. With the future expansion of the ranges of vehicles for bothfranchises we are confident of continued growth in sales and profitability. The first half of the year for our Premier Automotive Group dealerships was atesting period but we performed well in spite of the market conditions for thesebrands. Our Jaguar businesses faced intense competition and, as a result, theirreturn on sales reduced to 2.7% from 3.6%. The performance of our Jaguarbusinesses remains significantly ahead of the national average and we lookforward to the stimulus that new models will bring to the brand next year whenthe XK Coupe and Convertible are launched. Our Land Rover businesses performed very well in the period with profitabilityat a similar level to the comparative period last year. The launch of the newRange Rover Sport was extremely beneficial to our businesses and when the newFreelander is launched next year we will have the most extensive and up to daterange of 4x4 vehicles available to retail in the UK market. Our Volvo businesses performed well during a period of consolidation for thebrand. The credible result that we achieved in the North East was a testament tothe management and the systems that we have developed in our market area. Volvowill launch a new model offensive in 2006 which I am sure will refresh the brandwith products which will expand its market opportunities. Within the Volkswagen group, our existing Bentley business in Newcastleperformed extremely well and following the acquisition of the Michael PowlesBentley businesses in Leicester and Norwich we now represent 14% of Bentleysales in the UK. The stunning Continental Flying Spur was launched in the periodbut due to the later than expected availability of the cars the main benefit ofsales of this vehicle will not be seen until the second half of the financialyear and beyond. Notwithstanding the supply delays, our return on sales movedforward to 2.1%. Our existing Audi centres in Swindon and Tetbury both performed well in theperiod and were joined by our four newly acquired SKF Audi centres in the NorthWest. The Audi brand has shown impressive growth in recent years and standssecond only to BMW in vehicle registrations in the premium market place for thecalendar year to date. The return on sales for our existing businesses wasmarginally down at 3.1% year on year from 3.3%, due mainly to intensediscounting in a challenging market. We are confident that the growth of thismarque will continue in the future and will be particularly helped in 2006 withthe launch of the Q7, a luxury seven seater 4x4 car, and the introduction of thenew TT range of sports cars. The return on sales on our existing Volkswagen businesses reduced slightly from1.5% to 1.4%. The performance was hampered during the period by the lack ofavailability at launch of the new Polo and new Passat. High volumes of the 'old'Polo were sold prior to the vital retail selling month of March and restrictedsupply of the new Polo at its launch meant that it was not possible tocapitalise fully on the market opportunity. I am pleased to say that the newPolo is now fully available and generating the sales it unquestionablyjustifies. The launch of the new Passat was a huge success with almost universalpraise for the new car. We are already beginning to see demand for the newPassat that was not evident from the outgoing model. We can expect furtherstimulus to our Volkswagen operations when the Fox, Passat Estate, Jetta and Eosare launched in the coming months, particularly as both the Fox and Eos arecomplementary products which will take Volkswagen into new market sectors. Inthe last two years Volkswagen has launched or announced plans to launch atotally new range of cars. Its products, which are positioned at the premium endof the volume market, stand out as outstanding cars with low cost of ownershipwhen compared to their pure volume competitors. We are in a unique position tocapitalise on this new Volkswagen model line up with the size and location ofour businesses. The sheer size of our Volkswagen businesses also generates otherincome opportunities for the Group by giving us bulk buying opportunities withour ancillary suppliers. The other new franchises which joined the Group as part of the SKF acquisition (Toyota, Lexus and Mazda) performed in line with expectations in the two monthperiod to 31 August. Our motor auctions in Telford and Queensferry once again improved theirperformance with profit before tax increasing by 12%. The intelligence that thisbusiness gives us is particularly useful when valuing competitors' productswhich come into the business as part exchanges. We are currently proceeding withthe development of another auction operation in an area which has a goodgeographical fit with our existing operations. Motor Services Division Wilcomatic, the principal operating subsidiary of our Motor Services Division,had an excellent first half year with profit before tax rising by 39% to £0.8million. Once again our service contract numbers grew and now stand at 1,939, anincrease of 6% over the prior period. A major contributor to the profit increasewas the award of a major new supply contract which has not only added to ourprofit in the short term but will provide additional service opportunities inthe future. Wilcomatic continues to develop new ideas and systems fulfilling theneeds of its customer base. We remain confident that its progress will continuefor the remainder of this year. Financial review As stated above, the Group's profit before tax for the six months ended 31August 2005 was £7.2 million compared to £21.5 million in the correspondingperiod last year. This 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 on 22 April. Last year's result includes a number of exceptionalitems, totalling a net £13.4 million, mainly relating to a VAT refund andassociated interest of £12.3 million. Excluding the exceptional items referred to above, the profit before taxationfor the period was just over £8.1 million, including a £0.2 million loss fromSKF, compared to just under £8.1 million for the same period last year, anincrease of 0.4%. The tax charge for the period under review is based on the estimated effectivetax rate for the full financial year of 31%. Last year's tax charge wasdistorted by the exceptional items referred to above; after adjusting for these,the effective rate was 32.3%. The reduction is largely due to the tax reliefavailable to the Group in relation to share options exercised by directors andemployees in the period. Earnings per share for the period were 9.2 pence compared to 28.0 pence lastyear. Excluding exceptional items, the figure for this year is 10.4 pencecompared to 10.2 pence last year, an increase of 2%. The Board has declared aninterim dividend of 4.0 pence per share, representing an increase of 8% on lastyear. Dividend cover excluding exceptional items for the period is 2.6 times,compared to 2.8 times last year. The net effect on revenue of dealerships acquired, opened, sold and closed sincelast year is an increase of £39 million. Within our continuing Motor Retailbusinesses, higher vehicle sales volumes and higher average prices of newvehicles sold have increased revenue by a further £16 million. There have alsobeen increases in the revenue of Motor Retail aftersales and Motor Services. Asa result of all these factors, there has been a net increase of £57 million inoverall Group revenue compared to the first half of last financial year. Profit from operations excluding exceptional items was 2.6% of revenue comparedto 3.0% last year. This year's ratio is distorted by the acquisition of SKF asthe Group's ownership of those businesses only covered the difficult tradingmonths of July and August and excluded the very important month of March withits peak level of sales and profitability. If the results of SKF are excluded,the ratio is 2.9%, showing that the Group continues to be one of the mostprofitable in the industry. The acquisition of SKF has had a significant effect on the Group's gearingposition. In addition to the purchase consideration paid of £30.5 million, theGroup inherited SKF's net borrowings of £37.5 million as at the completion dateof 1 July. Those net borrowings had been reduced to £30.2 million at 31 August.The net interest charge of the SKF businesses during the Group's period ofownership amounted to £0.4 million and EMH incurred interest costs of a further£0.2 million on the purchase consideration. Excluding the effects of the SKFacquisition and the exceptional interest received last year, the underlyinginterest charge, including vehicle stocking interest, is £0.1 million, comparedto £0.3 million last year. As evidenced by the balance sheet, the Group continues to be in a very strongfinancial position. Shareholders' equity has increased by £2.4 million in theperiod to £82.6 million at 31 August 2005. During the period we have invested£4.6 million in capital expenditure and received £0.2 million in respect of thedisposal of fixed assets. The total net cash outflow in the period in respect ofthe acquisition of SKF and the Michael Powles Bentley businesses, including thenet overdrafts acquired, amounted to £49.3 million. During the period the Company issued 395,000 shares in respect of the exerciseof options and a further 603,378 shares subscribed for by the vendor of SKF,which resulted in a cash inflow of £1.8 million. We have continued to manage our working capital efficiently and achieved areduction of £1.2 million in the period. Tax paid in the period amounted to £4.9million and there has been a net outflow of £2.0 million in respect of loans,finance leases and letters of credit. The net effect of these cash flows and ofthe £9.6 million profit from operations (after adding back depreciation andother non cash items) and the total interest paid in the period of £0.8 millionis a net cash outflow of £48.8 million. The Group had net borrowings of £36.2million at 31 August 2005, giving a gearing ratio of 44% at that date. 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 peak net funds level duringthe period of £29.6 million occurred at the beginning of the financial year,whilst the highest net borrowings level of £59.2 million occurred just after theacquisition of SKF. At 31 August 2005 our net assets per share were 152.0 pence compared to 150.3pence at 28 February 2005. Outlook UK vehicle registrations for the month of September 2005 were 3% lower than lastyear. However, registrations for the franchises we represent grew by 5%. Therising market share for our brands and the contribution from our newly acquiredbusinesses ensured a record profit for any month in the history of EMH. We expect that our performance in the second half will show continued growth andlook forward to another satisfactory full year performance. Richard PalmerChief Executive26 October 2005 CONSOLIDATED INCOME STATEMENT Notes 6 months 6 months Year ended ended ended 31 31 28 August August February 2005 2004 2005 £'000 £'000 £'000 Revenue 2 338,275 281,164 528,838 --------- --------- ---------ExceptionalVAT claim - 6,194 6,272Exceptional MG Rover writedowns - - (588)Other cost ofsales (291,910) (241,457) (452,328) --------- --------- --------- Cost of sales (291,910) (235,263) (446,644) --------- --------- --------- Gross profit 46,365 45,901 82,194Distributioncosts (22,676) (18,484) (35,553)Administrativeexpenses (15,821) (12,830) (25,186) --------- --------- --------- Profit from operationsbefore other income 7,868 14,587 21,455--------------------------- ----- --------- --------- ---------Profit from operations before other income analysed as:Before exceptional items 8,768 8,393 15,771Exceptional costs re MG Rover (900) - (588)Exceptional VAT refund - 6,194 6,272 --------- --------- --------- 7,868 14,587 21,455--------------------------- ----- --------- --------- --------- Profit on disposal of businesses - 852 2,580Profit on disposal of properties - 277 277 --------- --------- --------- Profit from operations 3 7,868 15,716 24,312Investment income 470 407 1,242Finance costs (1,183) (727) (1,353)Exceptional interest on VAT claim - 6,105 6,279 --------- --------- --------- Profit before tax 7,155 21,501 30,480--------------------------- ----- --------- --------- ---------Profit before tax analysed as:Before exceptional items 8,107 8,073 15,660Exceptional costs re MG R (952) - (588)Exceptional VAT refund and interest - 12,299 12,551Profit on disposal ofbusinesses and properties - 1,129 2,857 --------- --------- --------- 7,155 21,501 30,480--------------------------- ----- --------- --------- --------- Tax 4 (2,223) (6,508) (9,320) --------- --------- --------- Profit for the period 4,932 14,993 21,160 --------- --------- --------- Earnings per share (basic) 6 9.2p 28.0p 39.6p --------- --------- --------- Earnings per share (diluted) 6 9.0p 27.4p 38.8p --------- --------- --------- Dividend per share 5 4.0p 3.7p 9.5p --------- --------- --------- CONSOLIDATED BALANCE SHEET 31 August 31 August 28 February 2005 2004 2005 £'000 £'000 £'000 Non-current assetsGoodwill 28,196 4,588 4,662Property, plant andequipment 63,237 34,084 31,914Trade and otherreceivables 1,741 1,311 1,300 ---------- --------- --------- 93,174 39,983 37,876 ---------- --------- ---------Current assetsInventories 142,621 85,275 88,893Trade and otherreceivables 27,190 18,618 15,545Cash and cashequivalents 2,769 36,608 43,977 ---------- --------- --------- 172,580 140,501 148,415 ---------- --------- ---------Total assets 265,754 180,484 186,291 ---------- --------- --------- Current liabilitiesTrade and otherpayables (163,975) (92,917) (96,137)Tax liabilities (1,087) (6,304) (4,289) ---------- --------- --------- (165,062) (99,221) (100,426) ---------- --------- --------- Non-current liabilitiesTrade and otherpayables (11,634) (389) (309)Retirement benefitobligation (4,591) (2,709) (2,739)Deferred taxliabilities (1,774) (2,468) (2,605)Long-termprovisions (138) (158) (97) ---------- --------- --------- (18,137) (5,724) (5,750) ---------- --------- ---------Total liabilities (183,199) (104,945) (106,176) ---------- --------- --------- Net assets 82,555 75,539 80,115 ---------- --------- --------- Share capital 21,719 21,261 21,319Share premiumaccount 28,836 27,325 27,392Capital redemptionreserve 926 926 926Retained earnings 31,074 26,027 30,478 ---------- --------- --------- Total shareholders'equity 82,555 75,539 80,115 ---------- --------- --------- Net (debt)/funds (36,201) 26,348 36,573 ---------- --------- --------- Net assets per share 152.0p 142.1p 150.3p ---------- --------- --------- CONSOLIDATED CASH FLOW STATEMENT 6 months 6 months Year ended ended ended 31 31 28 August August February 2005 2004 2005 £'000 £'000 £'000Operating activitiesProfit from operations 7,868 15,716 24,312Adjustments for:Depreciation of property,plant and equipment 1,628 1,426 3,350Share option expense 54 41 94Expense for definedbenefit retirementobligation 66 93 148Payments made for definedbenefit retirementobligations (33) - (55)Gain on disposal ofproperty, plant andequipment (19) (5) (23)Profit on disposal ofbusinesses - (852) (2,580)Profit on disposal ofproperties - (277) (277) --------- --------- --------- Operating cash flows beforemovements in 9,564 16,142 24,969(Increase)/decrease ininventories (6,585) 4,309 (1,517)Decrease inreceivables 4,779 444 2,992Increase/(decrease) inpayables 2,971 (9,373) 123(Decrease)/increase indemonstrator funding (1,468) 303 (2,781) --------- --------- ---------Cash generatedby operations 9,261 11,825 23,786Income taxes paid (4,867) (2,362) (6,669)Interest paid (1,183) (657) (1,353) --------- --------- ---------Net cash fromoperating activities 3,211 8,806 15,764 --------- --------- --------- Investing activitiesInterest received 392 407 1,162Exceptional interestreceived - 5,655 6,279Disposal ofbusinesses - 2,672 7,985Proceeds on disposal ofproperty,plant andequipment 230 383 430Purchases of property,plant and equipment (4,621) (361) (2,487)Acquisition ofbusinesses (49,336) (1,414) (1,380) --------- --------- --------- Net cash (used in)/frominvesting activities (53,335) 7,342 11,989 --------- --------- --------- Financing activitiesDividends paid - - (4,705)Repayments ofborrowings (426) (487) (643)Repayments ofobligationsunder finance leases (100) (758) (259)Proceeds on issue of share capital 1,844 29 155Purchase ofown shares 0 (877) (877) --------- --------- --------- Net cash from/(used in)financing activities 1,318 (2,093) (6,329) --------- --------- --------- Net(decrease)/increase in cashand cash equivalents (48,806) 14,055 21,424 Cash and cash equivalents atbeginning of period 43,977 22,553 22,553 --------- --------- --------- Cash and cash equivalents atend of period (4,829) 36,608 43,977 --------- --------- --------- Analysis of changes in net (debt)/ funds At 1 March Cash flow Other non At 31 August 2005 cash changes 2005 £'000 £'000 £'000 £'000 Cash at bank and in hand 43,977 (41,208) - 2,769Bank overdrafts - (7,598) - (7,598) -------- -------- --------- --------- 43,977 (48,806) - (4,829) Debt duewithin oneyear (3,030) - (3,828) (6,858)Debt due aftermore than oneyear (57) 426 (11,347) (10,978)Finance leases(demonstrato (3,938) 15,470 (23,719) (12,187)Finance leases(other) (379) 100 (1,070) (1,349) -------- 15,996 -------- -------- --------- --------- Total 36,573 (32,810) (39,964) (36,201) -------- -------- --------- --------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 6 months 6 months Year ended ended ended 31 31 28 August August February 2005 2004 2005 £'000 £'000 £'000 Actuarial losson definedbenefitpension scheme (1,897) - (180)Tax on itemsrecogniseddirectly inequity 656 72 455Profit for theperiod 4,932 14,993 21,160 -------- --------- -------- -------- --------- --------Totalrecognisedincome andexpense forthe period 3,691 15,065 21,435 -------- --------- -------- NOTES TO THE INTERIM STATEMENT 1. Basis of preparation Prior to 2005 the Group has reported its results under UK Generally AcceptedAccounting Practice ("UK GAAP"). All listed companies in the European Union nowhave to report their consolidated financial statements under InternationalFinancial Reporting Standards ("IFRS") for accounting periods commencing on orafter 1 January 2005. This interim report has been prepared on a basisconsistent with anticipated IFRS accounting policies based on those IFRS whichare or are expected to be endorsed by the European Commission by the time theGroup prepares its first set of consolidated financial statements at 28 February2006. There is a requirement to include at least one year of comparativeinformation in the financial statements for the year ended 28 February 2006 andtherefore the transition date to IFRS for the Group is 1 March 2004. The resultsfor the six months ended 31 August 2004 and for the year ended 28 February 2005in this interim statement have been restated in accordance with IFRS. On 18 October 2005 the Group published a report explaining the impact of IFRSand this is available on the company's website at www.emhplc.com/IFRS.pdf. Thisdocument details the key differences between UK GAAP and IFRS that impact theGroup. The document also includes reconciliations of the balance sheet as at 1March 2004, 31 August 2004 and 28 February 2005, and of the income statement forthe six months ended 31 August 2004 and the year ended 28 February 2005. Theimpact on the Group's results for the year ended 28 February 2005 and its netassets at that date is broadly neutral. The report referred to above sets outthe Group's principal accounting policies as they have been modified to complywith IFRS. The principal differences which impact the Group are summarisedbelow: i Goodwill - amortisation of goodwill is no longer permitted, it is insteadtested at least annually for impairment. Goodwill previously written off toreserves is no longer required to be adjusted through the income statement ondisposal of a business. ii Share options - the fair value of share options granted is charged to theincome statement over the vesting period of the options. iii Pensions - the deficit in the pension scheme is incorporated in the balancesheet, operating and financing costs are charged to the income statement andactuarial gains and losses are taken directly to equity. iv Deferred tax - deferred tax is recognised on revaluations of property, ongains on assets rolled over, and on employee share options where tax relief isavailable on exercise. v Leases - leased land and buildings are considered as separate assets for thepurpose of classification. Where capitalised long leasehold land is consideredto be an operating lease under IFRS, the premium paid is treated as a long termprepayment and amortised over the period of the lease. vi Dividends - the recognition of dividends is on a declared rather than aproposed basis. The application of IFRS also changes the terminology and presentation of thefinancial statements as reflected in this interim statement. This interim statement has been prepared on the basis of the accounting policieswhich the Group expects to adopt in its financial statements for the year ending28 February 2006. IFRS comprise a significant amount of accounting and financial reportingregulation, much of which has been originated or revised very recently.Interpretation of this regulation is expected to be refined throughout thefinancial community, both in the UK and the rest of the European Union, as IFRSare implemented for the first time by many listed companies. 2. Analysis of revenue 6 months 6 months Year ended ended ended 31 31 28 August August February 2005 2004 2005 £'000 £'000 £'000 Motor RetailDivision 328,189 271,527 510,041Motor ServicesDivision 8,112 7,566 14,765OtherBusinesses 1,974 2,071 4,032 ---------- --------- -------- 338,275 281,164 528,838 ---------- --------- -------- 3. Analysis of profit from operations 6 months 6 months Year ended ended ended 31 31 28 August August February 2005 2004 2005 £'000 £'000 £'000 Motor RetailDivision 9,533 9,228 17,941Motor ServicesDivision 797 504 1,085OtherBusinesses 90 41 65Central costs (1,652) (1,380) (3,320)ExceptionalVAT claim - 6,194 6,272Exceptional MGRover lossesand costs (900) - (588)Profit fromdisposal ofbusinesses - 852 2,580Profit fromdisposal ofproperties - 277 277 ---------- --------- --------- 7,868 15,716 24,312 ---------- --------- --------- 4. The charge for taxation is based on the estimated effective rate for thefinancial year. 5. An interim dividend of 4.0p (2004, 3.7p) per share will be paid on 6December 2005 to shareholders on the register at 4 November 2005. 6. The calculation of earnings per share for the six months ended 31 August2005 is based on the profit for the financial period of £4,932,000 (2004,£14,993,000) and on 53,627,973 (2004, 53,525,150) 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 1,252,706 (2004, 1,120,736).Therefore, the calculation of diluted earnings per share is based on the profitfor the financial period of £4,932,000 (2004, £14,993,000) and on 54,880,679(2004, 54,645,886) ordinary shares. Earnings per share before exceptional itemshas been calculated on profits for the year of £5,598,000 (2004, £5,464,000) asdetailed below: 6 months 6 months ended ended 31 31 August August 2005 2004 £'000 £'000 Profit after taxation 4,932 14,993Exceptional MG Rover losses 952 -(Profit) on disposal of businesses - (852)(Profit) on disposal of properties - (277)Exceptional VAT refund andassociated interest - (12,299)Tax on above exceptional items (286) 3,899 --------- --------- 5,598 5,464 ========= ========= 7. This interim statement was approved by the Board of Directors on 26October 2005. 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 2005, whichreceived an unqualified auditors' report, have been delivered to the Registrarof Companies. 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