Interim Results
European Motor Hldgs PLC
17 October 2002
EUROPEAN MOTOR HOLDINGS plc
Interim results for the six months ended 31 August 2002
Key points:
• Profit before taxation up 17% to £6.4 million
• Earnings per share up 20% to 8.4p
• Interim dividend increased by 7% to 3.2 pence per share
• Net assets per share up by 12% to 102.2 pence
• 1,365,000 shares repurchased and cancelled during the period
• Net cash £18.0 million
• All Mercedes-Benz businesses successfully sold in the period, generating
£6.4 million cash and an increase in net assets of £4.1 million
Commenting on these results, Chief Executive Richard Palmer said:
"European Motor Holdings continues to move forward. We have improved our
profitability, balance sheet and franchise portfolio and are extremely well
placed to benefit from the impact of changes in Block Exemption regulations. The
second half of the year has started well and we look forward to another
successful year."
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 01491 413399
Chief Executive's statement
European Motor Holdings ("EMH") continues to move forward and we have again
improved our profitability and strengthened our balance sheet. EMH remains the
leading performer in the quoted UK motor retail sector.
In the six month period from 1 March to 31 August 2002, our profit before
taxation has risen by 17% to £6.4 million. This includes a net exceptional
profit on disposal of businesses of £0.3 million, comprising a profit of £4.0
million offset by goodwill previously written off to reserves of £3.7 million.
The profit on disposals contributed to a significant increase in net assets of
£4.9 million. Disposals also generated proceeds of £7.1 million, contributing to
a rise in our net cash position to £18.0 million.
Our earnings per share have risen by 20% to 8.4 pence and we have decided to
increase our interim dividend to 3.2 pence per share, payable on 5 December to
shareholders on the register at 8 November.
Trading
Trading conditions have remained buoyant in the motor retail sector, stimulated
by low interest rates, new models and changes in company car taxation. During
the period under review, like for like registrations for our key franchises
increased by 15%, including an exceptional performance from Mini, compared with
a national increase in registrations for all makes of 6%. Our strategy of
representing manufacturers with premium products has led us to outperform the
sector again and we believe that increasing numbers of customers will choose to
buy cars from the brands we represent.
Operating profit in the Motor Retail Division increased by 14%, with our
continuing businesses increasing by 24% offsetting a reduced contribution from
businesses sold.
Our excellent sales performance was derived both from a significant volume
increase and also from an improvement in margin. Like for like, our aftersales
contribution has also grown, reflecting an increase in business activity and a
growing customer base. We have continued to concentrate on customer care and
have made good progress in this area. We believe that this investment will serve
the Group well in the future.
Our auction businesses continue to generate excellent returns as well as
providing valuable market information and have assisted us in maintaining very
well controlled used vehicle stocks.
Whilst our car importation business, Perodua, operates in a very competitive
sector of the market place, the performance of this business remains good and we
have continued to expand the dealer network.
In our Motor Services Division, our core activities performed well, but the
overall Division's results were adversely affected by start up costs in the new
retail washing operations. These operations are not expected to achieve maturity
for two years but their performance continues to show gradual improvement.
Business development
Changes in Block Exemption regulations are due to take place, following a
transitional period, on 1 October 2003. This will mean that all of our franchise
agreements will need to be replaced on or before that date. Our view is that the
changes will not have an adverse impact on the trading environment for the
brands we represent.
Many of our manufacturers have taken the opportunity of the introduction of new
regulations to review the composition of their dealer networks and move forward
with fewer partners. We are delighted to confirm that our key manufacturers have
indicated that overall they wish us to expand our representation with them. This
will result in our disposing of and acquiring a number of businesses over the
next two years in order to concentrate on certain geographic areas, but with a
net increase in businesses overall. We regard the proposals that manufacturers
have made to be very positive for the Group and our cash position makes us
extremely well placed to expand. We expect to add to the number of dealerships
we hold with the BMW group, the Premier Automotive Group and the Volkswagen
group in the forthcoming months.
We have already expanded our Volkswagen operations within South West London by
relocating our service facilities in Chiswick and opening a new Volkswagen
dealership in Twickenham and we have also opened a new Volvo dealership in
Harrogate to extend our representation with this franchise in Yorkshire.
Financial review
As stated above, profit on ordinary activities before tax for the six months
ended 31 August 2002 was £6.4 million compared to £5.5 million in the
corresponding period last year. This year's result includes exceptional profits
of £0.3 million relating to the disposal of a number of dealerships, principally
those operating Mercedes-Benz franchises. This figure comprises profits on
disposal of dealerships of £4.0 million (the main element of which was the
Territory Release Payment received in respect of the termination of our
Mercedes-Benz passenger car franchises), less goodwill of £3.7 million
originally written off to reserves on the acquisition of the dealerships now
sold. The goodwill write off is matched by a release from reserves, so there is
no effect on shareholders' funds in the period as a result of this transfer and
the disposals have therefore made a significant contribution to our £4.9 million
increase in net assets. The underlying trading profit for the period before
exceptional items is £6.1 million, compared to £5.5 million for the same period
last year.
The tax charge for the period under review is based on the estimated effective
tax rate for the full financial year. This results in a tax rate for the six
months of 31.3%. However, this is distorted by the tax treatment of the
exceptional items in the period and when these are excluded, the tax rate for
the period is 32.8%, only slightly higher than 32.0% last year.
Earnings per share for the period were 8.4p compared to 7.0p last year.
Excluding the exceptional items, the figure for this year is 7.8p. The Board has
declared an interim dividend of 3.2p per share. Dividend cover excluding
exceptional items for the period is 2.4 times, compared to 2.3 times last year.
The net effect of branches opened and sold since last year is a reduction in
turnover of £10 million. However, within our continuing businesses, increases in
new and used car volumes, together with an increase in the average price of used
cars sold, have more than offset this reduction and overall Group turnover has
actually increased by £10 million compared to the first half of last financial
year.
Operating profit has increased to 2.6% of turnover, compared to 2.5% last year,
which makes the Group one of the most profitable in the industry.
Higher profits and net cash balances offset by lower interest rates have
resulted in an increase in net interest receivable (excluding new vehicle
stocking interest) for the period of £0.1 million. Interest cover, including new
vehicle stocking interest, has remained constant at 19 times.
The balance sheet demonstrates that the Group continues to be in a very strong
financial position. During the period, we have invested a net £4.0 million in
capital expenditure, representing investment in the retail washing sites for
Asda, new sites for two of our Volkswagen and Volvo franchises, and the
relocation of the Group's head office following the disposal of the
Mercedes-Benz dealerships. The proceeds of the disposal of businesses amounted
to £7.1 million.
We have continued to manage our working capital effectively and have achieved a
reduction of £2.4 million during the period.
During the period, the Company purchased 1,365,000 of its own shares in the
market for cancellation, whilst 390,000 shares were issued in respect of the
exercise of options. The net cash outflow from these transactions amounted to
£1.6 million. In addition, we have paid £1.5 million in respect of taxation
during the period.
The net effect of these cash flows, and of the £7.3 million operating profit
(after adding back depreciation) in the period, is to increase the Group's net
cash from £8.2 million at 28 February 2002 to £18.0 million at 31 August 2002.
The Group's net cash level at 31 August is not representative of the year as a
whole because, immediately prior to the registration plate change in September,
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.
Additionally, the timing of dividend payments is such that all dividends are
paid in the second half of the financial year. Nevertheless, the average net
cash balance for the period was significantly higher than the corresponding
period last year.
Outlook
The second half has started broadly in line with our expectations and we remain
ahead of our budget and last year. We remain confident about the prospects for
the year as a whole, assuming that there is no significant deterioration in
trading conditions.
Our financial position is very strong and we are well placed to take maximum
advantage of the opportunities which we believe will be available to us in the
second half of the year. In addition, it is our intention to continue to buy
back shares when conditions are appropriate in order to enhance shareholder
value and return surplus cash to shareholders.
Richard Palmer
Chief Executive
17 October 2002
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Notes Six months Six months Year
ended ended ended
31 August 31 August 28 February
2002 2001 2002
£'000 £'000 £'000
Turnover 1 231,357 221,199 441,081
Cost of sales (198,220) (189,405) (376,745)
Gross profit 33,137 31,794 64,336
Distribution costs (15,422) (14,601) (29,362)
Administrative expenses (11,724) (11,690) (24,541)
Operating profit 2 5,991 5,503 10,433
Profit on disposal of businesses 3 304 - (36)
Interest receivable 320 255 467
Interest payable (187) (244) (496)
Profit on ordinary activities before taxation 6,428 5,514 10,368
Tax on profit on ordinary activities 4 (2,009) (1,764) (3,320)
Profit on ordinary activities after taxation 4,419 3,750 7,048
Dividends 5 (1,690) (1,614) (3,745)
Retained profit for the financial period 2,729 2,136 3,303
Earnings per share (basic) 6 8.4p 7.0p 13.1p
Earnings per share (diluted) 6 8.3p 6.9p 13.1p
Dividend per share 5 3.2p 3.0p 7.0p
There are no recognised gains or losses other than the profit for the period as
reported above.
CONSOLIDATED BALANCE SHEET
31 August 31 August 28 February
2002 2001 2002
£'000 £'000 £'000
Fixed assets
Tangible assets 31,474 29,632 29,701
Goodwill 130 73 140
31,604 29,705 29,841
Current assets
Stocks 71,947 68,188 68,408
Debtors 16,681 15,975 15,774
Cash at bank and in hand 25,905 21,448 17,261
114,533 105,611 101,443
Creditors: amounts falling due within one year (91,473) (85,750) (81,336)
Net current assets 23,060 19,861 20,107
Total assets less current liabilities 54,664 49,566 49,948
Creditors: amounts falling due after more than one year (271) (544) (338)
Provisions for liabilities and charges (768) (731) (774)
Deferred income (140) (442) (294)
53,485 47,849 48,542
Capital and reserves
Called up share capital 20,924 21,513 21,313
Share premium account 26,743 26,476 26,476
Capital redemption reserve 746 - 200
Profit and loss account 5,072 (140) 553
Equity shareholders' funds
53,485 47,849 48,542
Net cash 18,045 10,358 8,219
Net assets per share 102.2p 89.0p 91.1p
CONSOLIDATED CASH FLOW STATEMENT
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2002 2001 2002
£'000 £'000 £'000
Net cash inflow from operating activities 8,589 10,411 16,483
Returns on investments and servicing of finance
133 11 (29)
Tax paid (1,489) (1,187) (3,352)
Capital expenditure and financial investment (4,042) (379) (2,088)
Acquisitions and disposals 7,087 - 460
Equity dividends paid - - (3,631)
Net cash inflow before financing 10,278 8,856 7,843
Financing (1,634) (943) (4,117)
Increase in cash in the period 8,644 7,913 3,726
Reconciliation of operating profit to net cash flow from operating activities
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2002 2001 2002
£'000 £'000 £'000
Operating profit 5,991 5,503 10,433
Depreciation and amortisation 1,378 1,307 2,731
(Profit) on sale of tangible fixed assets (41) (8) (51)
(Increase) in stocks (5,657) (2,498) (2,900)
(Increase)/decrease in debtors (907) 2,051 2,252
Increase in creditors 8,937 3,039 2,471
Net movement in demonstrator funding (1,112) 1,017 1,547
Net cash inflow from operating activities 8,589 10,411 16,483
Analysis of changes in net cash
At 1 March Cash flow Other non At 31 August
2002 cash changes 2002
£'000 £'000 £'000 £'000
Cash at bank and in hand 17,261 8,644 - 25,905
Bank overdraft - - - -
17,261 8,644 - 25,905
Debt due within one year (3,480) (59) - (3,539)
Finance leases (demonstrators) (5,094) 8,240 (7,128) (3,982)
Finance leases (other) (468) 131 (2) (339)
8,312
Total 8,219 16,956 (7,130) 18,045
NOTES TO THE STATEMENT OF PRELIMINARY RESULTS
1. Analysis of turnover
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2002 2001 2002
£'000 £'000 £'000
Motor Retail Division 222,911 213,387 424,107
Motor Services Division 6,550 5,704 12,872
Other Businesses 1,896 2,108 4,102
231,357 221,199 441,081
2 Analysis of operating profit
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2002 2001 2002
£'000 £'000 £'000
Motor Retail Division 6,742 5,912 11,332
Motor Services Division 189 362 836
Other Businesses 15 127 130
Central costs (955) (898) (1,865)
5,991 5,503 10,433
3 During the period, the Group disposed of its Mercedes-Benz car and
truck dealerships and its Vauxhall dealership in Dartford.
4 The charge for taxation is based on the estimated effective rate for
the financial year.
5 An interim dividend of 3.2p (2001, 3.0p) per share will be paid on 5
December 2002 to shareholders on the register at 8 November 2002.
6 The calculation of earnings per share for the six months ended 31
August 2002 is based on the profit for the financial period of £4,419,000
(2001, £3,750,000) and on 52,451,938 (2001, 53,784,710) ordinary shares,
being the weighted average number of shares in issue during the period. The
number of dilutive potential ordinary shares arising from share options, as
calculated in accordance with FRS 14: Earnings per Share, is 998,254 (2001,
239,726). Therefore, the calculation of diluted earnings per share is based
on the profit for the financial period of £4,419,000 (2001, £3,750,000) and
on 53,450,192 (2001, 54,024,436) ordinary shares.
7. This interim statement has been prepared on the basis of the same accounting
policies as those set out in the financial statements for the year ended 28
February 2002.
8 This interim statement was approved by the Board of Directors on 17
October 2002. The foregoing financial information does not represent full
accounts within the meaning of Section 240 of the Companies Act 1985 and has
been neither reviewed nor audited by the auditors nor delivered to the
Registrar of Companies. The above results for the year ended 28 February
2002 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.
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