Final Results

European Motor Hldgs PLC 25 April 2001 EUROPEAN MOTOR HOLDINGS plc ('EMH') Preliminary results for the year ended 28 February 2001 Key points: * Industry leading performance in extremely difficult trading environment * Profit before tax up 10.2% to £8.5 million * Earnings per share up 9.4% to 10.5p * Dividends up 6.6% to 6.5 pence per share for year * Net cash as at 28 February 2001 * EMH new car sales in March 2001 considerably higher than in March 2000 Commenting on these results, chief executive Richard Palmer said: 'The 10.2% increase in profit before tax in the last year represents an outstanding achievement in a very challenging environment. We have considerably outperformed our competitors in the sector and, in view of the improved trading environment, believe we can look forward to another year of sustained improvement in efficiency and profitability.' Enquiries: Richard Palmer Chief Executive European Motor Holdings plc Ann Wilson Finance Director European Motor Holdings plc Morning: Biddick Associates 020 7448 1000 Afternoon: European Motor Holdings plc 020 8961 2525 Chief Executive's statement In an incredibly difficult trading environment, our profit before tax has increased by 10.2% from £7.7 million to £8.5 million and earnings per share have risen 9.4% to 10.5 pence. In view of these results and our confidence that our progress will continue this year, we are recommending an increase in our total dividend of 6.6% to 6.5 pence per share for the full year. The final dividend of 3.75 pence per share will be paid on 3 September 2001 to shareholders on the register at 3 August. These excellent results are further proof of the ability and commitment of all the employees of the Group. Trading In our last two trading statements, I have advised you of the difficulties that the retail motor industry has faced over the last two years. In the period under review many of the same problems have continued. The Government's Inquiry into new car pricing had a significant impact, encouraging customers to defer their purchases until many manufacturers reduced prices, and this uncertainty had an adverse impact on our first half performance. However, starting in late August and ending at the beginning of December, all of our core manufacturer partners reduced their prices. Whilst these price decreases did not stimulate immediate demand, we managed to improve our overall margins and efficiency, which has resulted in increased profit before tax for the Group. During the last two months of the year, there was clear evidence that customers were returning to our showrooms and beginning to discuss purchasing new cars. Our new car sales for March 2001 were considerably higher than for the same month last year. It is too early to be able to be certain that this increase in demand is sustainable for the whole of the new financial year but our current performance gives rise to optimism for the year ahead. We have always been committed to trying to give our customers the best possible experience whether they are buying vehicles, service, parts or merely making an enquiry. This commitment to customer care has helped us to overcome the difficulties in the market. There is no doubt that contented customers are prepared to pay a reasonable premium for good service. During the period, good stock management and control have been of paramount importance. The Group owns two car auctions and the intelligence derived from these, together with our used car management, has ensured that we have not had to make any significant write downs on our used car stocks. The Group's policy of not exposing the business to residual value risk, whether through ownership of contract hire operations or Motability buyback contracts, has meant that we have no need for provisions or write offs in respect of vehicle residual values in this year or any future year. Our management has played a key role in the successful outcome for this year. As I reported to you in our interim statement, our senior management team remains unchanged. It is not a coincidence that this stable and focussed management team has been able to face and manage effectively all the challenges that this year has presented. In December last year, DaimlerChrysler took the extraordinary decision to terminate all its dealers in the United Kingdom by giving them one year's notice. We were informed in January that DaimlerChrysler wished to operate all Mercedes-Benz dealerships in the London area itself. It is questionable whether the twelve months' notice of termination is legal and this is a matter of ongoing discussion with the manufacturer, who has recently also issued two year notices of termination. We are extremely fortunate that, within our Mercedes-Benz businesses, we control some key strategic locations including an extremely valuable freehold property in Park Royal and the Board is currently considering a number of options in relation to these sites. We have discussed DaimlerChrysler's decision with regard to ownership of retail operations with our key franchise partners. As a result of these discussions, we do not believe that any of our core manufacturers intend to follow the same course of action. We are currently looking at a number of opportunities for the Group. We have recently purchased our fourth Jaguar business, in Doncaster, and we have been awarded the Volvo territories for Leeds and Harrogate with effect from 1 January 2002. As the UK importer for Perodua, the Malaysian car manufacturer, we launched our new model, the Kenari, at the British International Motor Show in Birmingham last October. The launch was an unqualified success and we have sold every Kenari that we have imported. The Nippa has ended its export run and our current stocks of this model are due to run out in the first half of this year. However, we will be importing Perodua's latest vehicle, the Kelisa, which is an exciting, compact, five door hatchback, and we expect to launch this vehicle in the United Kingdom in January 2002. Motor Services Division Wilcomatic has made a great deal of progress in the last twelve months and its profit before taxation has risen by 46%. A great deal of hard work and management time have been invested in changing the direction and emphasis of the company. We changed our supplier of roll over car washes in the period from Ceccato to Christ, a German producer of high quality car wash equipment. We have started this new association well and anticipate a growing order book for these products. During the course of last year, we continued to pursue stand alone retail car wash opportunities. This initiative moved much closer to fruition when broad agreement was reached with a major United Kingdom supermarket group. I anticipate that we will make progress in retail washing and we expect to open the first of our car wash centres during the next year. Block Exemption Much has been written about Block Exemption in the past few months and the possibility of its removal in 2002. The Block Exemption system allows the motor industry in Europe to be exempt from certain of the European Union's competition laws and, in particular, the existing legislation allows exclusive dealer franchise territories. If Block Exemption were to disappear in the United Kingdom, I do not believe there would be a significant effect on EMH's business. Block Exemption only operates within the European Union; countries like the USA, Japan and Australia do not have Block Exemption, yet they have thriving motor dealers and dealer groups. Good reputation, good customer service, and local representation and knowledge will continue to count and, if new entrants appear in the motor retail market, I believe that the established dealership infrastructure will more than hold its own. Financial Review Profit on ordinary activities before tax for the year ended 28 February 2001 was £8.5 million compared to £7.7 million in the previous year. The Group's effective tax rate in the year ended 28 February 2001 was 33.3%, slightly higher than last year's rate of 32.5%. Earnings per share for the year were 10.5p compared to 9.6p last year. The Board is recommending a final dividend of 3.75p per share, bringing the full year's dividend to 6.5p. This represents a 6.6% increase on last year's total dividend of 6.1p per share. Dividend cover this year is 1.6 times, the same as last year. Turnover has reduced by £22 million. This is as a result of several factors including the impact of non core branches closed during last year, lower transaction prices and a change in the method of dealing with sales to fleet customers by one of our manufacturer partners. As a result of the above factors and the improved trading by our businesses, operating profit has increased to 2.2% of turnover, compared to 2.0% last year. When the reduction in net interest payable is also taken into account, profit before tax has increased to 2.1% of turnover, compared to 1.8% last year. These ratios are among the best in the industry. Interest cover excluding new vehicle stocking interest increased from 11.1 times to 19.4 times for the year as a result of increased profits and reduced borrowings. Interest cover including new vehicle stocking interest increased from 6.1 times to 7.6 times. The Group continues to be in a very strong financial position, as evidenced by the balance sheet, which shows net assets of £45.7 million. During the year, we have invested £1.6 million in capital expenditure, whilst disposal proceeds amounted to £1.0 million. The majority of our dealership redevelopments have now been carried out, and therefore capital expenditure in the near future on our existing portfolio of businesses should be at a lower level than in the last few years. The principal elements of our borrowings are loans from finance houses and leasing obligations in respect of demonstrator vehicles and certain dealership refurbishments. Most utilised borrowings are repayable either on demand or within the current calendar year, although some leases in respect of fixed assets have five or ten year terms. In addition, the Group has substantial banking facilities which were unutilised at the balance sheet date. During the year, £1.5 million of our loans from finance houses were repaid in the light of the Group's net cash position. Further loans totalling £0.9 million have been repaid since the year end. The remaining loans are at advantageous interest rates and no further repayments are currently intended. Management of our working capital has been very good during the year, with particular emphasis on tight control of used vehicle stocks. As a result, working capital has been reduced by £5.0 million during the period. Payments in respect of taxation and dividends amounted to £6.0 million, and £0.1 million was spent on acquiring the minority interest in Perodua UK Limited. The net effect of these cash flows and of the £11.9 million operating profit (excluding depreciation) in the year, is to change the Group's net borrowings of £7.1 million at 29 February 2000 to net cash of £2.5 million at 28 February 2001. This has resulted in the Group being ungeared at the balance sheet date compared with having a gearing ratio of 16% at the previous year end. The Group's net cash/borrowings position at the year end is not necessarily representative of the year as a whole because, immediately prior to a month with a registration plate change, used vehicle stocks and vehicle debtors are lower than at other times of the year and we are in receipt of deposits on cars being prepared for sale in March. However, this does not detract from the Group's excellent cash generation in the year and the improvement over last year end's position. Outlook and summary We have much to look forward to in the coming year. Our March performance in our Motor Retail Division was above our budget expectations and has given the Group an excellent start to the new financial year. There are opportunities for the Group to expand with its core partners which will come to fruition in the coming year. Wilcomatic continues to make progress and we believe that there will be real opportunities for retail washing this year. In spite of the difficulties of the last year, we have moved forward. I remain very confident that we are capable of moving forward once again in this new financial year. My thanks go to our staff, advisers, franchise partners and shareholders for their contribution to the last year's performance. Richard Palmer Chief Executive 25 April 2001 CONSOLIDATED PROFIT AND LOSS ACCOUNT Notes Year ended Year ended 28 February 29 February 2001 2000 £000 £000 Turnover 1 399,678 421,804 Cost of sales (340,820) (363,662) Gross profit 58,858 58,142 Distribution costs (27,814) (28,710) Administrative expenses (22,125) (20,993) Operating profit 2 8,919 8,439 Interest receivable 360 145 Interest payable (820) (908) Profit on ordinary activities before 8,459 7,676 taxation Tax on profit on ordinary activities (2,817) (2,494) Profit on ordinary activities after 5,642 5,182 taxation Equity minority interests (13) (5) Profit for the financial year 5,629 5,177 Dividends 3 (3,496) (3,281) Retained profit for the financial year 2,133 1,896 Earnings per share 4 10.5p 9.6p Dividend per share 3 6.5p 6.1p There are no recognised gains or losses other than the profit for the year as reported above. CONSOLIDATED BALANCE SHEET 28 29 February February 2001 2000 £000 £000 Fixed assets Tangible assets 30,550 32,814 Goodwill 75 - 30,625 32,814 Current assets Stocks 65,690 62,597 Debtors 18,026 17,814 Cash at bank and in hand 13,535 6,390 97,251 86,801 Creditors: amounts falling due within one (80,424) (73,711) year Net current assets 16,827 13,090 Total assets less current liabilities 47,452 45,904 Creditors: amounts falling due after more (421) (671) than one year Provisions for liabilities and charges (720) (698) Deferred income (598) (946) 45,713 43,589 Capital and reserves Called up share capital 21,513 21,513 Share premium account 26,476 26,476 Profit and loss account (2,276) (4,409) Equity shareholders' funds 45,713 43,580 Equity minority interests - 9 45,713 43,589 Gearing -% 16% CONSOLIDATED CASH FLOW STATEMENT Year ended Year ended 28 February 29 February 2001 2000 £000 £000 Net cash inflow from operating 16,873 12,379 activities Returns on investments and (460) (763) servicing of finance Tax paid (2,603) (1,907) Capital expenditure and financial (686) (3,220) investment Acquisitions and disposals (100) - Equity dividends paid (3,362) (3,281) Net cash inflow before financing 9,662 3,208 Financing (2,512) 2,957 Increase in cash in the year 7,150 6,165 Reconciliation of operating profit to net cash flow from operating activities Year ended Year ended 29 28 February February 2000 2001 £000 £000 Operating profit 8,919 8,439 Depreciation and amortisation 2,966 2,548 Profit on sale of tangible fixed (8) (12) assets (Increase)/decrease in stocks (3,093) 1,532 (Increase) in debtors (212) (1,203) Increase in creditors 8,301 1,075 Net cash inflow from operating 16,873 12,379 activities Analysis of changes in net debt At 1 Cash Other At 28 Feb March flow non- 2001 2000 cash changes £000 £000 £000 £000 Cash at bank and in 6,390 7,145 - 13,535 hand Bank overdraft (5) 5 - - 6,385 7,150 13,535 Debt due within one (8,422) 1,522 (22) (6,922) year Debt due after one (39) - 22 (17) year Finance leases (5,062) 990 (5) (4,077) 2,512 Total (7,138) 9,662 (5) 2,519 NOTES TO THE STATEMENT OF PRELIMINARY RESULTS 1. Analysis of turnover Year ended Year ended 28 Feb 29 Feb 2001 2000 £000 £000 Motor Retail Division 384,950 407,056 Motor Services Division 10,475 10,630 Other Businesses 4,253 4,118 399,678 421,804 2. Operating profit comprises: Year ended Year ended 28 Feb 29 Feb 2001 2000 £000 £000 Motor Retail Division 9,982 9,543 Motor Services Division 655 479 Other Businesses 89 157 Central Costs (1,807) (1,740) 8,919 8,439 3. The Directors recommend a final dividend of 3.75p (2000, 3.50p) per share, to be paid on 3 September 2001 to shareholders on the register at 3 August 2001. An interim dividend of 2.75p (2000, 2.6p) per share was paid during the year, making a total for the year of 6.5p (2000, 6.1p). 4. The calculation of earnings per share for the year ended 28 February 2001 is based on the profit for the financial period of £5,629,000 (2000, £5,177,000) and on 53,784,710 (2000, 53,784,710) ordinary shares, being the weighted average number of shares in issue during the year. 5. This preliminary results statement has been prepared on the basis of the same accounting policies as those set out in the financial statements for the year ended 29 February 2000 except for the adoption of FRS 15 (Tangible Fixed Assets) and FRS 16 (Current Tax). 6. This preliminary results statement was approved by the Board of Directors on 25 April 2001. The above results for the year ended 28 February 2001 have been abridged from the full Group accounts for that year, which received an unqualified auditors' report and which will be delivered to the Registrar of Companies shortly. 7. The above results for the year ended 29 February 2000 have been abridged from the full Group accounts for that period, which received an unqualified auditors' report and which have been delivered to the Registrar of Companies. 8. The Annual Report and Financial Statements will be posted to shareholders as soon as practicable. Further copies will be available from the company's registered office at Abbey Road, Park Royal, London NW10 7RY.

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