Final Results - Year Ended 29 February 2000

European Motor Hldgs PLC 27 April 2000 EUROPEAN MOTOR HOLDINGS plc ('EMH') Preliminary results for the year ended 29 February 2000 Key points: * Profit before taxation excluding profit on disposal of businesses: for the year ended 29 February 2000 £7.7 million for the 12 months ended 31 March 1999 £7.1 million (unaudited) for the 11 months ended 28 February 1999 £5.3 million * Gearing reduced from 23% to 16% * Earnings per share 9.6 pence * Dividend total of 6.1 pence per share * Uncertainty surrounding new car pricing continues Commenting on these results, chief executive Richard Palmer said: 'I believe that the figures for this year demonstrate an excellent achievement. Whilst the results for the second half were not as robust as those for the first, it was nevertheless a very good performance in the difficult conditions that prevailed in the period. We have managed to perform well in these circumstances because of the strength of the brands that your Board has chosen to represent, the excellent relationships between our dealerships and their customers, and strong management. In March 2000, our Motor Retail Division was more profitable than in the same month last year, notwithstanding the uncertainties surrounding new car pricing and the consequential impact on new car volumes and margins. However, since 10 April, when the report of the Competition Commission was published, sales of new cars have slowed down further because customers appear to be convinced that new car prices will be reduced. If manufacturers do reduce prices, I believe that we can anticipate an improved outcome for the year ahead.' Enquiries: Richard Palmer Chief Executive Ann Wilson Finance Director Morning Biddick Associates 020 7377 6677 Afternoon European Motor Holdings plc 020 8961 2525 Press enquiries Biddick Associates 020 7377 6677 EUROPEAN MOTOR HOLDINGS plc ('EMH') Preliminary results for the year ended 29 February 2000 Chief Executive's statement Set out below are the summarised results for the twelve months ended 29 February 2000, the previous eleven month period ended 28 February 1999 which we reported last year following a change of year end from March to February, and the unaudited results for the twelve month period ended 31 March 1999 which provide more meaningful comparable information. 12 months 12 months 11 months ended ended ended 29 February 31 March 28 February 2000 1999 1999 (unaudited) £m £m £m Turnover 421.8 429.5 376.8 Motor Retail Division operating profit 9.5 9.3 7.3 Motor Services Division operating profit 0.5 0.5 0.5 Group profit before tax excluding profit on disposal of businesses 7.7 7.1 5.3 Group profit before taxation 7.7 7.8 6.0 Dividend per share 6.1p 6.1p Your Directors are recommending a final dividend of 3.5 pence per share, making a total for the year of 6.1 pence. Although the Group's profit before taxation has increased over the previous accounting period, that was an eleven month period. With this in mind, and given the current uncertainty that exists throughout the sector in respect of new car pricing, we have decided to maintain the dividend at the same level as for the previous period. This final dividend will be paid on 1 September 2000 to shareholders on the register at 4 August. I believe that these results demonstrate an excellent performance. There has been much publicity regarding the disparity between prices in the UK and Europe on certain vehicles and the Competition Commission's Inquiry into New Cars. As a result, we have experienced both the importing of vehicles from Europe and the deferral by a large number of customers of their new car purchases in anticipation of price reductions. This has had an impact on both new car volumes and margins in the second half of the financial year but, whilst the performance in the second half was not as strong as in the first, it was nevertheless a very good result in the difficult conditions that prevailed in the period. I believe that we have managed to perform well in these circumstances because of the strength of the brands that your Board has chosen to represent, the excellent relationships between our dealerships and their customers, and strong management, particularly of used vehicles. The report of the Competition Commission on the supply of new cars in the UK was published on 10 April. Over recent months, manufacturers have generally improved the level of sales incentives to enable us to compete more effectively with European prices but no manufacturer has yet indicated that it intends to reduce prices following publication of the report. We therefore remain in a period of uncertainty, which we believe will continue to hamper sales until price cuts are announced. However, I believe that the uncertainties which exist will eventually be removed and that when they are demand for new cars will be very strong. Following publication of the report, the Government announced proposed changes in arrangements between dealers and their suppliers. Once these are finalised, they will need careful study before any effect can be quantified. Motor Retail Division During the year, we have continued our divestment programme of non core dealerships with the closure of our loss making Nissan and Citroen businesses in York. These closures, together with the divestments that we have made previously, have enabled us to spend more management time concentrating on our core motor retail businesses. With the exception of one Volkswagen business, none of the motor dealership facilities in the Group will require a high level of capital expenditure in the foreseeable future, as the major investment programme on our existing businesses has now been completed. Our performance with our four major motor manufacturing partners is detailed below. BMW group Last year, the BMW group continued to be our largest partner in turnover terms. Our BMW businesses performed extremely well and benefited from the first full year of the new '3' series model. This, together with the introduction of '3' series coup, and M5, has ensured that we have continued to benefit from the very strong performance of BMW in the UK market. As with our other franchises, we place great emphasis on the results of BMW's customer satisfaction surveys. I am particularly pleased to report that our BMW businesses continue to perform very well in these surveys. The announcement in March that BMW had decided to dispose of its Rover and Land Rover brands has obviously had no effect on the year under review. However, in looking forward, irrespective of the long term future of the Rover and MG brands, I do not foresee a significant negative effect on EMH as a result of this decision. We had already agreed with Rover the closure of two of our dealerships and these closures will go ahead irrespective of the outcome of the current negotiations between the BMW group and the parties seeking to acquire the businesses. Whilst the performance of our Rover businesses has improved significantly over the prior period, the contribution to profit before taxation is relatively small. We made a great deal of progress in our Land Rover business during the year. The various actions that we have taken have resulted in a significant improvement in performance over the previous period. In the future, we will report this franchise within our Premier Automotive group franchises since it has been announced that by the middle of the year it will be owned by Ford Motor Company. Volkswagen group As I reported to you at the interim stage, progress at our Volkswagen businesses had been hampered by the refurbishment and building works associated with the Volkswagen Retail Concept ('VRC') work. I am pleased to be able to report that the VRC work has now been completed at all our Volkswagen sites except Hammersmith, where we do not yet have a satisfactory planning consent for the redevelopment, and we are once again making progress with the Volkswagen franchise. The range of Volkswagen cars available in their relevant sectors is probably the best in the UK. In our Southern dealerships, there appears to be more discussion by customers on European pricing and many Volkswagen customers appear reluctant to commit to a purchase at present. When retail customers are convinced that the various pricing issues are resolved, I am certain that there will be great demand for Volkswagen products. Our Audi businesses suffered a downturn in profitability over the last year that was caused by a number of factors. However, in the first three months of 2000, our performance has improved year on year. Both we and Audi have embarked on a series of new initiatives which we are confident will have a positive effect on the year ahead. Daimler Chrysler group Whilst our Mercedes-Benz vehicle volumes continue to increase, our profitability remains impaired. In the London area, where our car franchises are located, there remains intense competition from non franchised importers who continue to attract customers purely on price. Many customers are not aware that there are different warranty terms on imported cars and that, in some cases, they have a different specification. Our Mercedes-Benz after sales business continues to grow, and the wider ownership experience of Mercedes products that has resulted from the expansion of the range will benefit us greatly when price harmonisation occurs. Our Mercedes- Benz truck business continues to perform well in a very competitive market. Premier Automotive group We have made very significant progress with our Premier Automotive group franchises, Jaguar and Volvo. Substantial improvements in profitability in our Jaguar businesses have been achieved as a result of the first full year's sales of the 'S' type, the increasing maturity of our operations resulting in growth in the customer base and the overall competitiveness of the Jaguar product in the market. Jaguar's future product plans are extremely exciting and I believe that we can be very optimistic about this marque's future and our place within it. The increase in profitability in our Volvo businesses reported at the interim stage has continued in the second half, giving rise to a much improved overall performance compared with the prior period. We work closely with our manufacturing partner to offer very competitive prices in the challenging market which exists in the North East of England. The market area approach is now working very effectively in this region and we continue to benefit from the economies and efficiencies that this brings. Auctions Our auction businesses made a considerable improvement in their contribution in the period. These businesses continue to provide a valuable service to the Group in both their ability to dispose of trade cars and the invaluable intelligence that they give us on used car pricing trends. Internet and e-commerce EMH remains committed to continuing to develop its Websites primarily in conjunction with its manufacturer partners. A reasonable number of Group sales have emanated from enquiries via our Websites and there is, without doubt, a very important new distribution channel developing. Whilst our current research indicates that only a small minority of people will actually purchase over the Internet, we believe that a very significant number of potential purchasers will use the Internet to gather information about prices, specification, availability, financing options and so on, which will enable them to be better informed when they decide to purchase. I believe the current surge in advertising and promoting Internet car retailing is purely opportunistic and has been caused by the disparity of pricing that has prevailed with respect to other EU markets. Even if people do decide to purchase over the Internet, they will still need to utilise the services of a dealer for service and repair and for the disposal of their used car. The type of modern, purpose built facilities that the Group has invested in, together with high quality, customer friendly staff and the services they provide, including 'e-commerce', cannot be replicated by unproven, inexperienced Internet only operators whose only contact will be via a screen. Perodua Our Perodua franchise has continued to make progress. In the year under review, we have sold 958 Nippas in the UK. The establishment of this entry level 'niche' franchise in the UK market is an important building block for the future of the Group. I am delighted to inform you that we will be launching a new car, which fits into the segment just above the Nippa, at the British International Motor Show at the NEC in Birmingham in October. This additional model, called the 'Kenari', will attract new customers, and I am certain that it will prove as reliable and durable as the Nippa and create a further 'niche' in the UK market. Our long term ambitions for Perodua in the UK remain high and, from the plans which we have discussed with the manufacturer in Malaysia, we can be confident of a long and successful partnership with Perodua. Motor Services Division The performance of Wilcomatic, the principal operating company within our Motor Services Division, was much improved over the previous period. Whilst the reported profitability shows a marginal improvement, this masks an actual improvement of over £200,000 which was, unfortunately, counteracted by an exchange loss. We have historically managed our currency exposure by buying forward to cover forecast Italian lire requirements, but the very unusual combination of much lower sales than anticipated and the exceptionally strong pound, has led to the requirement for a balance sheet provision of £203,000. This does, however, provide us with a very competitive exchange rate for the current year. Many of the contracts to supply machines in the UK market are handled on a European tender basis. If the equipment manufacturer loses the tender, as Ceccato did with the BP supply agreement in 1998, our market in the UK is restricted by our inability to supply to that organisation in the period covered by that tender. This has had a continued impact on our sales performance. In order to spread the sales risk away from oil companies and other national accounts whose budgetary constraints can have a large influence on their purchases, we have continued to concentrate on developing our presence in the motor retail sector, which utilises our machines for washing service customers' cars. This market is very immature and we believe that we are capable of continuing to expand into this area in the future. We are continuing to examine different products and ways of doing business with our supermarket customers and I hope to be able to report progress to you during the course of this new year. The management of Wilcomatic has focused on efficiency and the delivery of high quality service. This has undoubtedly had a positive effect on our service business, where we have made a great deal of progress in the last twelve months. We are confident that we can maintain our current service base and continue to become more efficient in our service organisation. Wilcomatic remains at the forefront of the vehicle washing equipment industry and it will continue to progress in the year ahead. Financial review Profit on ordinary activities before tax for the year ended 29 February 2000 was £7.7 million compared to £6.0 million in the previous eleven month accounting period. The results of the two periods are not directly comparable for several reasons. Firstly, the year just ended is our first reporting period since the change in the UK new vehicle registration plate system, and it therefore contained two plate changes in March and September, whereas the previous period contained only one plate change in August. Secondly, we changed our financial year end in 1999 from March to February because of the changes to the registration system and therefore the previous accounting period was one of only eleven months. Finally, the profit for the eleven months ended 28 February 1999 included a profit on disposal of certain businesses of £724,000. The Group's effective tax rate in the year ended 29 February 2000 was 32%, which was slightly higher than the 31% rate for the previous accounting period as most of the Group's tax losses brought forward from previous years were utilised last year. During the year, we restructured our borrowings profile. An overdraft facility of £8 million was repaid, partly by replacing it with two new loan facilities (on similar terms to the overdraft) totalling £4 million, and partly by payment from the Group's cash balances. This is reflected in the Group cash flow statement as a £4 million cash receipt from borrowings in respect of the new loans and, within the overall cash increase, a reduction of £8 million in overdrafts. 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 largely unutilised at the balance sheet date. We invested £3.2 million in capital expenditure (net of disposals) in the year, principally on our facilities improvement programme. Working capital has been reduced by £1.4 million during the year. Payments in respect of taxation, including the first two quarterly payments under the new payment system for corporation tax, and dividends totalled £5.2 million. The net result of these cash flows, together with those of £11.0 million resulting from the year's operating profit (excluding depreciation), is a decrease in the Group's net borrowings from £9.6 million to £7.1 million, giving a gearing ratio at 29 February 2000 of 16% compared with 23% at the previous year end. As a result of both lower average interest rates and lower average borrowings during the year, interest cover excluding new vehicle stocking interest increased from 6.4 times to 11.1 times whilst interest cover including new vehicle stocking interest increased from 4.0 times to 6.1 times. Outlook In March 2000, our Motor Retail Division was more profitable than it was in the same month last year, notwithstanding the uncertainties surrounding new car pricing. The announcement by the Secretary of State for Trade and Industry on 10 April with regard to the Competition Commission's findings in its new car supply Inquiry has not, as yet, prompted any motor manufacturers to reduce their prices. Since this announcement, sales of new cars have slowed down further and our April profitability will suffer as a result of this. If action is taken by the manufacturers to convince the public that UK prices are closely aligned with European prices, I believe that we can anticipate an improved outcome for the year ending 28 February 2001. I should like to take this opportunity to thank our advisers and manufacturer partners for their help and advice during the year, and also all of our staff for their hard work and continued commitment. Richard Palmer Chief Executive EUROPEAN MOTOR HOLDINGS plc STATEMENT OF PRELIMINARY RESULTS CONSOLIDATED PROFIT & LOSS ACCOUNT Year ended 11 months ended 29 February 28 February 2000 1999 Notes £'000 £'000 Turnover 1 421,804 376,805 Cost of sales (363,662) (325,639) --------- --------- Gross profit 58,142 51,166 Distribution costs (28,710) (26,332) Administrative expenses (20,993) (18,399) --------- --------- Operating profit 2 8,439 6,435 Profit on disposal of businesses 3 - 724 Interest receivable 145 69 Interest payable (908) (1,185) --------- --------- Profit on ordinary activities before taxation 7,676 6,043 Tax on profit on ordinary activities (2,494) (1,887) --------- --------- Profit on ordinary activities after taxation 5,182 4,156 Equity minority interests (5) (4) --------- --------- Profit for the financial period 5,177 4,152 Dividends 4 (3,281) (3,281) --------- --------- Retained profit for the financial period 1,896 871 ========= ========= Earnings per share 5 9.6 p 7.7 p ========= ========= Dividend per share 4 6.1 p 6.1 p ========= ========= There are no recognised gains or losses other than the profit for the period as reported above. CONSOLIDATED BALANCE SHEET 29 February 28 February 2000 1999 £'000 £'000 Tangible fixed assets 32,814 31,408 --------- --------- Current assets Stocks 62,597 64,129 Debtors 17,814 16,611 Cash at bank and in hand 6,390 8,220 --------- --------- 86,801 88,960 Creditors: amounts falling due within one year (73,711) (75,550) --------- --------- Net current assets 13,090 13,410 --------- --------- Total assets less current liabilities 45,904 44,818 Creditors: amounts falling due after more than one year (671) (1,113) Provisions for liabilities and charges (698) (722) Deferred income (946) (1,295) --------- --------- 43,589 41,688 ========= ========= Capital and reserves Called up share capital 21,513 21,513 Share premium account 26,476 26,476 Profit and loss account (4,409) (6,305) --------- --------- Equity shareholders' funds 43,580 41,684 Equity minority interests 9 4 --------- --------- 43,589 41,688 ========= ========= Gearing 16 % 23 % ========= ========= CONSOLIDATED CASH FLOW STATEMENT Year ended 11 months ended 29 February 28 February 2000 1999 £'000 £'000 Net cash inflow from operating activities 12,379 12,604 Returns on investments and servicing of finance (763) (1,116) Tax paid (1,907) (3,264) Capital expenditure and financial investment (3,220) (5,967) Acquisitions and disposals - 2,757 Equity dividends paid (3,281) (3,281) --------- --------- Net cash inflow before financing 3,208 1,733 Financing 2,957 (7,793) --------- --------- Increase/(decrease) in cash in the period 6,165 (6,060) ========= ========= Reconciliation of operating profit to net cash flow from operating activities Year ended 11 months ended 29 February 28 February 2000 1999 £'000 £'000 Operating profit 8,439 6,435 Depreciation 2,548 2,613 Profit on sale of tangible fixed assets (12) (12) Decrease/(increase) in stocks 1,532 (7,800) (Increase)/decrease in debtors (1,203) 8,207 Increase in creditors 1,075 3,161 --------- --------- Net cash inflow from operating activities 12,379 12,604 ========= ========= Analysis of changes in net debt At 1 March Cash flow Other non At 29 February 1999 cash changes 2000 £'000 £'000 £'000 £'000 Cash at bank and in hand 8,220 (1,830) - 6,390 Bank overdraft (8,000) 7,995 - (5) ------- ------- ------- ------- 220 6,165 - 6,385 Debt due within one year (5,075) (3,326) (21) (8,422) Debt due after one year (60) - 21 (39) Finance leases (4,709) 369 (722) (5,062) ------- (2,957) ------- ------- ------- ------- Total (9,624) 3,208 (722) (7,138) ======= ======= ======= ======= NOTES TO THE STATEMENT OF PRELIMINARY RESULTS 1 Analysis of turnover: Year ended 11 months ended 29 February 28 February 2000 1999 £'000 £'000 Motor Retail Division 407,056 361,440 Motor Services Division 10,630 11,760 Other Businesses 4,118 3,605 --------- --------- 421,804 376,805 ========= ========= 2 Operating profit comprises: Year ended 11 months ended 29 February 28 February 2000 1999 £'000 £'000 Motor Retail Division 9,543 7,339 Motor Services Division 479 473 Other Businesses 157 5 Central costs (1,740) (1,382) --------- --------- 8,439 6,435 ========= ========= 3 Profit on disposal of businesses in the eleven months ended 28 February 1999 relates to disposal of five businesses in separate transactions during the period. 4 The Directors recommend a final dividend of 3.5p (1999, 3.5p) per share, to be paid on 1 September 2000 to shareholders on the register at 4 August 2000. An interim dividend of 2.6p (1999, 2.6p) per share was paid during the year, making a total for the year of 6.1p (1999, 6.1p). 5 The calculation of earnings per share for the year ended 29 February 2000 is based on the profit for the financial period of £5,177,000 (1999, £4,152,000) and on 53,784,710 (1999, 53,784,710) ordinary shares being the weighted average number of shares in issue during the period. 6 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 period ended 28 February 1999 except for the adoption of FRS 12 (Provisions and Contingencies) and FRS 13 (Derivatives and Other Financial Instruments: Disclosures). 7 This preliminary results statement was approved by the Board of Directors on 27 April 2000. The above results for the year ended 29 February 2000 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. 8 The above results for the period ended 28 February 1999 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. 9 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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