Interim Results

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

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