Interim Results
Pendragon PLC
14 August 2003
FOR IMMEDIATE RELEASE 14 August 2003
INTERIM RESULTS TO 30 JUNE 2003
Pendragon PLC, the UK's largest car dealership group, today reports interim
results for the six months to 30 June 2003.
Financial Highlights:
• Turnover of £948.1 million (2002: £997.8 million)
• Underlying operating margin 3.2% (2002: 2.4%)
• Profit before tax, goodwill & exceptionals up 41% to £24.2 million
(2002: £17.2 million)
• Profit before tax up 53% to £23.7 million (2002: £15.5 million)
• Basic earnings per share up 72% to 12.7p (2002: restated 7.4p)
• Dividend up 10.5% to 3.80 pence per share
• Strong operating cash flow of £48.4 million (2002: £32.9 million)
Trevor Finn, Chief Executive, commented:
'We are delighted with Pendragon's very strong performance in the first half of
this year - a testament to the strategy that was adopted during tough times and
which is now delivering benefits as retailers gain greater commercial
independence in anticipation of the new European Block Exemption Rules.
As we enter the second half, trading has continued to be stronger than
anticipated. Consequently, we are confident of delivering trading results ahead
of current market expectations for the full year.'
Enquiries:
Pendragon PLC Trevor Finn, Chief Executive Tel: 01623 725 114
David Forsyth, Finance Director
Finsbury Charlotte Hepburne-Scott Tel: 0207 251 3801
Gordon Simpson
CHIEF EXECUTIVE'S OPERATIONAL REVIEW
Introduction
The Group's results for the first six months of 2003 have been excellent.
Profit before tax of £23.7 million is up by 53%, the underlying operating margin
is up to 3.2% from 2.4% and the interim dividend is up by over 10%. Our UK
business has performed particularly well, our German dealerships' results have
improved and we have expanded our platform in the USA.
Results and Dividend
The results for the half year to 30 June 2003 are summarised as follows:
2003 2002
£m £m
Turnover 948.1 997.8
Underlying operating profit 30.5 24.1
Goodwill amortisation (1.3) (1.9)
Operating profit 29.2 22.2
Business disposals (0.7) (0.3)
Property disposals 0.4 0.5
Profit on ordinary activities before interest 28.9 22.4
Income from investment in Ryland Group 1.0 -
Interest (6.2) (6.9)
Profit on ordinary activities before tax 23.7 15.5
Earnings per share (2002 restated) 12.7p 7.4p
Dividend per share (2002 restated) 3.80p 2.28p
Like for like turnover increased marginally, whilst overall, turnover reduced by
£49.7 million due to the net effect of acquisitions and disposals. We continued
to grow operating profits which, excluding exceptionals and goodwill
amortisation, increased by £6.4 million to £30.5 million from £24.1 million in
2002. Our underlying operating margin, before goodwill amortisation, increased
by a third to 3.2% due to improvements we have made in our Ford business, strong
trading conditions in the UK, increased efficiencies from our customer service
centre and the disposal or closure of poorly performing businesses.
Adjusted earnings per share increased by 51% to 13.0p from 8.6p last year. Both
the current year and last year's figures have been calculated based on the
increased number of shares following the bonus issue of shares on 16 July 2003.
Dividend
An interim dividend of 3.80 pence per share will be paid which compares to 2.28
pence last year. The comparative figure has been adjusted to reflect the bonus
issue of shares on 16 July 2003.
We announced in July that the phasing of the dividend payment would change such
that the interim payment would be approximately half of the dividend for the
full year. This change has been made to reflect the shift of profit generation
to the first half of the year. If last year's dividend had been phased on the
new basis, then the increase in dividend would be 10.5%.
Motor Retail Business
Our motor retail activities continue to focus on specialist and luxury cars in
the UK, California and Germany.
The implementation of new franchise agreements under the new European Block
Exemption Rules will come into place on 1 October 2003. We believe that this
fundamental change is creating greater commercial independence from
manufacturers for franchised dealers, such as ourselves, and is providing a
catalyst for restructuring in the industry.
UK
The 2002 UK market for both new and used cars was sustained by strong consumer
demand aided by the relatively low cost of finance. The new car market reached
record levels last year with registrations of over 2.5 million. The favourable
trading environment has continued into 2003 and for the first six months
national new car registrations were in line with last year. The July new car
registrations were slightly up on last year and the latest industry forecasts
for 2003 are for an annual new car market around the 2002 level.
The results of the UK business can be summarised as follows:
Turnover Gross Profit Gross Margin % Underlying Underlying
£m Operating Profit Operating Margin%
Existing 807.6 112.8 14.0 30.6 3.8
Disposed 27.3 3.5 13.0 1.2 4.6
Total 2003 834.9 116.3 13.9 31.8 3.8
Total 2002 881.7 115.8 13.1 25.0 2.8
On a like for like basis turnover increased by £22.2 million, up 2.9% on last
year, and businesses acquired in 2002 contributed an additional £23.9 million.
In total turnover in the first six months was down by £46.8 million due to the
effect of disposals in 2002.
Operating margins have improved from 2.8% to 3.8%. The majority of our
franchises have been able to improve their margins year on year and in
particular our Ford dealerships are now achieving the near term target which we
set ourselves of 1%. The turnover of our Ford business was £147.0 million.
Margins also improved through the disposal or closure last year of poorly
performing businesses.
Businesses acquired in 2002 were Mercedes-Benz dealerships in Huddersfield and
Bradford. These were added to our existing sites in Leeds and Wakefield to form
the West Yorkshire Market Area from which we have started to see some of the
benefits of a market area approach. We plan to relocate three of the
dealerships to new premises over the next 18 months.
We have disposed of three dealerships so far in 2003, which in the first six
months contributed £27.3 million of turnover and an operating profit of £1.2
million. The profit on disposal was £1.5 million. The disposals included two
Mercedes-Benz dealerships, in Manchester and Glasgow, which form part of the
manufacturer's planned reorganisation of their national network. A further
three Mercedes-Benz dealerships are due to be disposed of, two at the end of
September 2003 and one in June 2004.
Changes in accounting rules since we first acquired the Mercedes-Benz
dealerships, disposed of this year, means that the goodwill relating to these
businesses previously written off through reserves has to be reinstated and then
written off through the current year's profit and loss account. This reduces
the profit on disposal of £1.5 million to a loss of £0.7 million. The net
effect of the disposals is to increase shareholders' funds by £1.5 million. The
total cash proceeds were £2.6 million.
USA
The results of the USA business for the first half of 2003 are summarised as
follows:
Turnover Gross Profit Gross Margin % Underlying Underlying
£m Operating Profit Operating Margin %
Existing 67.6 11.9 17.6 1.4 2.0
Acquired 11.8 2.0 17.1 0.4 3.8
Total 2003 79.4 13.9 17.5 1.8 2.3
Total 2002 82.5 12.3 14.9 2.8 3.3
The trading conditions in the USA have been challenging in the first six months
of 2003. There has been a slow down in demand for new cars and national sales
are down 2.5% in the six month period. For the manufacturers we represent,
national sales of Land Rover were down 4.4% and Jaguar were down 24.5%. The
reduction in Jaguar units is primarily due to tailing off in demand for the
X-type model following its successful introduction in late 2001. The lower new
car sales have led to a fall in turnover and a reduction in operating margins.
Gross margins have strengthened as the relative mix of sales has changed with a
greater proportion arising from after sales activities.
The results of the existing business includes a greenfield startup that
commenced trading in March 2003 selling Lincoln and Mercury models in Irvine,
California. This business has contributed turnover of £4.9 million and
generated an operating loss of £0.2 million. Excluding Lincoln Mercury our
existing businesses achieved a 2.5% operating margin. This margin is after
absorbing additional overheads we have put in place as a prerequisite to further
growth.
Acquired businesses consist of two Land Rover dealerships which we purchased at
the end of February 2003. These are located in prosperous territories in
Mission Viejo and Newport Beach, Southern California. The cost of acquisition
was £8.3 million. In total we now operate seven dealerships covering ten
franchises.
We expect sales of the newly launched Jaguar XJ saloon to increase Jaguar
volumes in the second half. We are pleased with the critical mass of businesses
that we have achieved in a relatively short period of time and we will continue
to look for opportunities for further investment in the USA.
Germany
The German economy has shown little sign of recovery. We have reduced the
operating cost base of our businesses which has contributed to improvements in
profitability. The results of the German business for the first half of 2003 are
summarised as follows:
Turnover Gross Profit Gross Margin % Underlying Underlying
£m Operating Loss Operating Margin %
Total 2003 22.6 3.1 13.5 (0.3) (1.2)
Total 2002 19.4 2.7 13.7 (0.5) (2.6)
Turnover has increased by £3.2 million, principally achieved through increased
sales of used cars and higher after sales activity. At the same time we were
able to increase the operating margins for most activities. We will continue to
explore options to further increase our return although in overall terms Germany
remains a relatively small part of the group.
Technology and support services
This group of businesses continues to provide a broad range of technology based
services to both the Pendragon group and to outside customers, the principal
activities being contract hire and software products. The underlying operating
profit generated by these businesses was £2.3 million, an increase of £0.3
million on 2002.
The central services centre at Loxley House is now well established and provides
a range of services to the group. Efficiencies achieved have helped to reduce
the overall operating costs of the group.
Finance
Cash flow generated from operations for the first six months was £48.4 million,
which compares with £32.9 million generated in 2002. The increase arises from
the improved profitability of the group plus a reduction in working capital
since the beginning of the year of £13.0 million.
Our borrowings at 30 June 2003 were £111.8 million, a reduction of £2.3 million
since the beginning of the year. Gearing has reduced from 83% at 30 June 2002
to 75% at 30 June 2003.
Capital expenditure and financial investment resulted in a cash outflow of £13.8
million (2002: £5.4 million). Net payments for tangible assets in this total
were £9.6 million. This includes the capital expenditure for two Porsche
dealerships in Nottingham and Sutton Coldfield which have been relocated to
brand new purpose built premises, and an investment of £2.5 million in land for
future development. Included within this category are £1.3 million of proceeds
from the disposal of surplus property.
We have continued with our policy to acquire and cancel shares with profits
generated from the sale of surplus properties. During the first six months we
purchased and cancelled 8.3 million shares at a cost of £10.3 million.
Current Trading and Prospects
Trading conditions in the UK have remained buoyant in the first half of this
year. We have achieved our near term objective to improve the performance of
our UK Ford business, we have expanded our business in the USA and have seen
improvements in the results of our German business.
Earlier this year we issued a statement saying that trading results were likely
to be ahead of market expectations. Trading has continued to be stronger than
anticipated and consequently results are likely to be ahead of current market
expectations for the full year. The current economic and trading conditions
look set to continue until at least the end of the year. Consequently, we
expect to report full year profit before tax, goodwill amortisation and
exceptionals ahead of the current market consensus of £33.8 million.
TREVOR FINN
Chief Executive
14 August 2003
Consolidated Profit and Loss Account
Interim Results
for the six months ended 30 June 2003
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
30.06.03 30.06.02 31.12.02
£000 £000 £000
Turnover
Existing operations 936,307 997,788 1,875,494
Acquisitions 11,778 - -
948,085 997,788 1,875,494
Gross profit 137,279 135,670 258,616
Net operating expenses (108,043) (113,442) (219,161)
Operating profit 29,236 22,228 39,455
Operating profit before goodwill amortisation
Existing operations 30,062 24,119 43,298
Acquisitions 447 - -
30,509 24,119 43,298
Goodwill amortisation (1,273) (1,891) (3,843)
Operating profit 29,236 22,228 39,455
Loss on disposal of businesses (656) (341) (230)
Profit on disposal of fixed assets 396 558 9,733
Profit on ordinary activities before investment income, interest and 28,976 22,445 48,958
taxation
Income from investments 1,040 - -
Net interest payable (note 5) (6,270) (6,899) (13,123)
Profit on ordinary activities before taxation 23,746 15,546 35,835
Taxation (note 6) (7,686) (5,231) (11,859)
Profit on ordinary activities after taxation 16,060 10,315 23,976
Dividends (note 7) (4,747) (3,136) (9,171)
Retained profit for the period 11,313 7,179 14,805
restated restated
Earnings per ordinary share (note 8) 12.7p 7.4p 17.5p
Diluted earnings per ordinary share (note 8) 12.5p 7.1p 16.9p
Adjusted earnings per ordinary share (note 8) 13.0p 8.6p 14.3p
All amounts relate to continuing operations
Consolidated Balance Sheet
Unaudited Unaudited Audited
30.06.03 30.06.02 31.12.02
£000 £000 £000
Fixed assets
Intangible assets 31,568 26,458 25,673
Tangible assets 171,786 173,474 166,589
Investments 20,505 5,079 16,302
223,859 205,011 208,564
Current assets
Stocks 229,074 193,579 201,634
Consignment vehicles 30,079 48,255 38,292
Vehicles subject to repurchase agreements 22,624 27,784 25,199
Debtors 98,691 110,897 72,143
Cash at bank 28,717 - 9,544
409,185 380,515 346,812
Creditors: amounts falling due within one year
Unsecured loans (4,000) (4,000) (4,000)
Unsecured bank loans and overdrafts (32,000) (2,766) (32,000)
Unsecured loan notes (613) (4,336) (15,731)
Consignment vehicle liabilities (30,079) (48,255) (38,292)
Repurchase commitments (9,794) (12,080) (10,830)
Trade and other creditors (273,412) (229,165) (207,209)
Corporation tax (10,054) (8,730) (6,654)
Dividends payable (4,677) (3,140) (6,032)
(364,629) (312,472) (320,748)
Net current assets 44,556 68,043 26,064
Total assets less current liabilities 268,415 273,054 234,628
Creditors: amounts falling due after more than one year
Unsecured bank loans (71,212) (77,026) (39,187)
Unsecured loan notes (32,670) (32,670) (32,670)
Repurchase commitments (12,830) (16,404) (14,369)
(116,712) (126,100) (86,226)
Provisions for liabilities and charges (3,187) (964) (3,003)
Net assets 148,516 145,990 145,399
Capital and reserves
Called up share capital 13,027 14,544 13,858
Share premium 76,042 76,030 76,039
Other reserves 15,003 11,257 11,944
Profit and loss account 44,444 44,159 43,558
Equity shareholders' funds (note 11) 148,516 145,990 145,399
Consolidated Cash Flow Statement
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
30.06.03 30.06.02 31.12.02
£000 £000 £000
Cash flow from operating activities (note 9) 48,443 32,936 62,868
Net interest paid (7,073) (7,672) (13,233)
Dividends received 1,040 - -
Returns on investments and servicing of finance (6,033) (7,672) (13,233)
Taxation (4,274) (1,943) (7,517)
Payments to acquire tangible fixed assets (23,952) (20,697) (44,587)
Payments to acquire investments (5,382) - (79)
Receipts from sales of tangible fixed assets 14,394 15,248 50,344
Receipts from sales of investments 1,179 12 424
Capital expenditure and financial investment (13,761) (5,437) 6,102
Business acquisitions (8,330) (1,644) (5,396)
Business disposals 2,629 1,504 4,641
Acquisitions and disposals (5,701) (140) (755)
Equity dividends paid (6,102) (5,930) (9,073)
Net cash flow before financing 12,572 11,814 38,392
Financing
Issue of ordinary share capital 3 1,534 1,544
Redemption of issued ordinary share capital (10,291) (6,648) (14,858)
Repayment of unsecured bank loans (96) (44,974) (50,813)
Repayment of loan notes (15,118) - (161)
Unsecured loans 32,121 22,000 22,000
Net cash inflow / (outflow) from financing 6,619 (28,088) (42,288)
Movement in cash and overdrafts 19,191 (16,274) (3,896)
Reconciliation of net cash flow to movement in net debt
Movement in cash and overdrafts 19,191 (16,274) (3,896)
Exchange differences (18) (16) (84)
Issue of loan notes on purchase of investment in Ryland Group - - (11,556)
plc
Cash (inflow) / outflow from increase / (decrease) in debt (16,907) 22,974 28,974
financing
Movement in net debt in the period 2,266 6,684 13,438
Opening net debt (114,044) (127,482) (127,482)
Closing net debt (note 10) (111,778) (120,798) (114,044)
Group Statement of Total Recognised Gains and Losses
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
30.06.03 30.06.02 31.12.02
£000 £000 £000
Profit for the financial period 16,060 10,315 23,976
Currency translation adjustments relating to net investments in (136) 276 259
foreign enterprises
Total recognised gains and losses relating to the period 15,924 10,591 24,235
Notes
1. This interim report has been prepared on a basis consistent with the accounting policies stated in the financial
statements for the year ended 31 December 2002. Applicable accounting standards have been followed.
2. The comparative results for the year ended 31 December 2002 are not the company's statutory accounts for that
financial year. Those accounts have been reported on by the company's auditors and delivered to the registrar of
companies. The report of the auditors was unqualified and did not contain a statement under s237 (2) or (3) of
the Companies Act 1985.
3. Following the bonus issue of shares on 16 July 2003 in which 3 new fully paid ordinary shares were issued to the
holders of every 2 ordinary shares, the earnings per share and dividend per share have been calculated on the
revised number of shares now in issue. Previous periods have been adjusted to fully reflect the impact of this
change.
4. The interim report has been approved by the board of directors and is unaudited.
5. Interest payable 6 Months 6 Months 12 Months
to 30.06.03 to 30.06.02 to 31.12.02
£000 £000 £000
Bank loans and overdrafts 2,289 2,416 4,828
Loan notes 968 962 2,149
Manufacturer stocking loans 3,085 3,521 6,799
Interest capitalised - - (165)
Other interest receivable (72) - (488)
6,270 6,899 13,123
6. The effective tax rate for 2003 of 32.4% (2002 : 33.6%) is an estimate based upon the anticipated charge for the
full year on profit on ordinary activities before taxation.
7. A dividend of 3.80p (2002 : 2.28p as adjusted for the effect of the bonus issue) net per ordinary share will be
paid on 17 October 2003 to shareholders appearing on the register at the close of business on 12 September 2003.
8. Earnings per share restated restated
30.06.03 30.06.02 31.12.02
pence pence pence
Basic earnings per share 12.7 7.4 17.5
Effect of non trading items 0.3 1.2 (3.2)
Adjusted earnings per share 13.0 8.6 14.3
Diluted earnings per ordinary share 12.5 7.1 16.9
The calculation of basic, diluted and adjusted earnings per share is based on:
Number of shares restated restated
30.06.03 30.06.02 31.12.02
number number number
Weighted average number of shares used in basic and adjusted 126,374,325 139,484,273 137,131,075
earnings per share calculation
Weighted average number of dilutive shares under option 2,193,220 5,017,745 4,340,675
Diluted weighted average number of shares used in diluted
earnings per share calculation 128,567,545 144,502,018 141,471,750
Earnings 30.06.03 30.06.02 31.12.02
£000 £000 £000
Earnings for basic and diluted earnings per share calculation 16,060 10,315 23,976
Non trading items:
Loss on disposal of businesses 656 341 230
Profit on disposal of fixed assets (396) (558) (9,733)
Goodwill amortisation 1,273 1,891 3,843
Income from investments (1,040) - -
Tax effect of non trading items (72) 65 1,291
Earnings for adjusted earnings per share calculation 16,481 12,054 19,607
The directors consider that the adjusted earnings per share figures provide a better measure of comparative
performance.
9. Net cash inflow from operating activities 6 Months to 6 Months to 12 Months to
30.06.03 30.06.02 31.12.02
£000 £000 £000
Operating profit 29,236 22,228 39,455
Loss on sale of fixed assets - - 140
Depreciation 4,942 5,917 10,480
Goodwill amortisation 1,273 1,891 3,843
Movement in working capital 12,992 2,900 8,950
48,443 32,936 62,868
10. Analysis of net debt 30.06.03 30.06.02 31.12.02
£000 £000 £000
Cash at bank and in hand 28,717 - 9,544
Overdrafts and other borrowings - (2,766) -
28,717 (2,766) 9,544
Other borrowings due within one year (36,613) (8,336) (51,731)
Other borrowings due after one year (103,882) (109,696) (71,857)
Total (111,778) (120,798) (114,044)
Movement in period
Cash at bank and in hand 19,191 (14,707) (5,163)
Overdrafts and other borrowings - (1,567) 1,267
Exchange differences (18) (16) (84)
19,173 (16,290) (3,980)
Other borrowings due within one year 15,118 5,664 (37,731)
Other borrowings due after one year (32,025) 17,310 55,149
Total 2,266 6,684 13,438
11. Reconciliation of movements in shareholders' funds 30.06.03 30.06.02 31.12.02
£000 £000 £000
Opening shareholders' funds 145,399 143,649 143,649
Retained earnings 11,313 7,179 14,805
Issue of ordinary share capital 3 1,534 1,544
Redemption of issued ordinary share capital (10,291) (6,648) (14,858)
Goodwill written back 2,228 - -
Exchange adjustment (136) 276 259
Closing shareholders' funds 148,516 145,990 145,399
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