Interim Results

SAVE GROUP PLC 2 September 1999 Contact: Save Group PLC R. James Frost, Chairman Tel: 01296 436661 John Murgatroyd, Group Finance Director Tel: 01296 395951 Tim Anderson/ Jennie Roberts Buchanan Communications Ltd Tel: 0171 466 5000 Interim Results for the 26 weeks ended 24 June 1999 Save Group PLC ('Save') the UKs largest independent petrol retailer, which operates the Save brand of petrol filling stations, announces interim results for the 26 weeks ended 24 June 1999. Chairmans Statement I report on the results for the 26 weeks ended 24 June 1999, which are in line with expectations amid a period of unprecedented change in the oil industry world wide. Financial results for the 26 weeksJune 1999 June 1998 change ended 24 June 1999 £000 £000 % Turnover inc. VAT 236,746 244,959 -3.4 Turnover exc. VAT 201,486 208,476 Profit before exceptional 1,118 4,103 -72.7 Exceptional 148 582 Profit before tax 970 3,521 -72.4 EPS after exceptional 1p 3.4p -70.6 Dividend per share Nil 3.3p Net Assets 117,029 111,784 +4.7 Members will recall that the price cutting campaign, with Esso matching the supermarket prices, has brought about the accelerated closure of many more petrol stations than would otherwise have been the case, as well as the departure from the UK downstream activities of many suppliers. The slump in crude oil prices has had an even more dramatic effect on the industry world wide and one which will dictate future events. Crude oil prices for 1996 averaged $20.61 a barrel, for 1997 $19.26 and on the 22 December 1998 had fallen as low as $9.45. As a result of producer countries agreeing together to cut back production, crude has climbed back to $20.50 - but not before the major oil companies had implemented plans to restructure on a massive scale after their poor results in 1998. The impact of crude, escalating by such a marked degree in such a short period of time, and the effect of oil companies merging, has caused margins downstream to fall to their lowest level since the worst excesses of the Price Watch campaign. The 1998 average margin for a litre of unleaded petrol was 5.97p from the refinery gate, excluding all costs and overheads. This compared with 4.94p to August 1999, representing a fall of 1.03p per litre and a cost in the half year to Save of some £3.6m. The reason for the dramatic decline over 1998 is for two, non recurring reasons, namely: 1 The input price - caused by the cartels production cuts pushing crude artificially high - has gone up faster than pump prices. 2 When a company is a target for being taken over it seems very common for them to try and increase market share by putting up prices later than other competitors. The effect of this is to undercut the market and hold prices down. So far during 1999 we have seen Fina and Asda both taken over as well as bids for Elf by Total and Total by Elf. As reported at the AGM in June 1999, Saves response to input price increases has been to put prices up as early as possible and as a result take a small reduction in sales as compared with 1998. The reduction in sales of around 5% over 1998 which I suggested previously, has turned into an actual fall of 4.7%. For the period since 24 June 1999 the figure remains at 4.7% despite the Esso 2p per litre voucher campaign. Sales are, however, still above those for 1997 and will continue to recover when a consistently competitive position can be resumed. Saves sales must also be looked at in the context of industry sales nationally, which for 1999 are down by some 2%. One might say only 2% considering the nearly 20% increase in pump prices. The Groups balance sheet remains strong with stated net assets of some £117m up 4.7% and equal to 119p per share. The higher indebtedness is simply a result of holding higher stocks due to the transitional arrangements with the new transport contractor we took on in April 1999, and lower creditors. Despite the exceptional conditions mentioned above we will be concentrating on reducing debt by the year end. The Groups June 1999 June 1998 balance sheet £000 £000 Fixed assets 196,259 194,722 Stocks 10,479 8,547 Debtors 13,809 13,392 Creditors 42,264 47,062 Provisions 1,837 1,859 Bank - net 59,417 55,956 Net assets 117,029 111,784 Dividend On the basis of trading so far this year, the changes that have taken place in the industry since the year end and those yet to take place this year, the directors have decided that any decision on a dividend should prudently wait until the final results. Current trading and prospects Petrol filling stations continue to close and with each merger more sites will be shut down. At 31 December 1998 there were 13,157 petrol filling stations, excluding rural one pump locations. By the end of this year, I believe, the figure could be as low as 12,250 compared with the 38,500 in 1964. Once again the closures will come mainly from the privately owned sector of the market. Among the major suppliers - that is those that have access to a UK refinery, the picture is even more interesting. Those with a branded market share of around 1% or less have been ignored, but since 1995 when Price Watch started and if there were to be a further merger involving either Shell/Texaco/Conoco the prospective position will change as follows: 1995 2000 With UK refineries: Esso Esso Shell Shell BP BP Mobil Total 1French company Elf 1 American company Fina Texaco Conoco Gulf Burmah/ICI Actual position 11 Prospective position 5 It has to be remembered that Shell and Texaco were in merger talks in 1998 and Chevron and Texaco in merger talks in 1999. The most important point to look at relates to refineries. There remains a massive over production of refined motor fuel in the UK which these mergers have not addressed, as the acquiring company has also acquired the refinery of the company taken over. On the Total/Fina bid for Elf or the Elf bid for Total/Fina, the only thing we can be reasonably certain of is that there will be just one French company with UK refineries from each of the three companies. On the global scene, Repsol of Spain has taken over the Argentinean national oil company, while Statoil of Norway has just put forward plans to merge all of the Norwegian oil interests. So far as Europe is concerned, the UK continues to have the lowest price for petrol when all taxes have been stripped out, yet the highest pump prices. The scope for higher margins in the future must be self evident. Unleaded UK 15.2p per litre France 15.6p Germany 17.0p Spain 17.8p Italy 18.1p Luxembourg 18.4p Belgium 18.8p Denmark 19.6p Netherlands 20.0p Source: OPAL Supermarkets are a further feature of the market and Asda has been taken over by Wal-Mart on a return on investment of around 5% at a time when the OFT is saying that supermarket prices may be too high. There is therefore no scope for supermarkets to cut petrol prices further if they want to make more money for their shareholders. Gross margins for the supermarkets are also more than 1p per litre lower than in 1998 and the next rating revaluation in April 2000 could increase supermarket costs by an extra 1p per litre. Whilst the trading results for the first half year have been in line with market expectations, they have nevertheless been disappointing. However, we should now be looking forward at the bigger picture: * The first half year has been severely affected by the corporate activity surrounding Asda, Fina and Elf * The whole of 1999, so far, has been affected by rapidly escalating input prices where the pump price has just not kept up and therefore margins have fallen * The last three months of the year are traditionally the highest volume and the highest margin months * Higher European margins should eventually come to the UK with fewer oil company suppliers selling more motor fuel through a reduced number of sites The oil price surge plus the global mergers and take-overs in 1999 means that the restructuring is almost complete. It must be better, for the industry, for this to happen all at once, rather than to spread the process over a longer period of time. Save continues to make progress operationally: fewer staff, lower expenses, a national deal on post boxes, a national deal on advertising posters, a national deal on electricity, the first company in the country to sell Lead Replacement Petrol and we still continue to look at new opportunities such as the sale of Autogas. I believe that Save is better placed than anyone to take advantage of the upturn. R James Frost Chairman 16 August 1999 GROUP PROFIT AND LOSS ACCOUNT for the 26 weeks ended 24 June 1999 Unaudited and unreviewed 26 weeks 26 weeks 52 weeks ended ended ended 24.6.99 24.12.98 25.6.98 Notes £000 £000 £000 Turnover 2 201,486 208,476 422,841 Cost of sales (187,424) (191,952) (388,932) ------------------------------ Gross profit 14,062 16,524 33,909 Distribution costs - other (9,183) (9,138) (21,702) - exceptional 4 (148) (582) (883) ------------------------------ (9,331) (9,720) (22,585) Administrative expenses (3,883) (3,519) (6,899) Other operating income 2,315 2,701 5,205 ------------------------------ (10,899) (10,538) (24,279) ------------------------------ Operating profit 3,163 5,986 9,630 ------------------------------ Net interest (2,193) (2,465) (5,010) ------------------------------ Profit on ordinary 2 970 3,521 4,620 activities before taxation Tax (charge)/credit on 3 - (305) 136 profit on ordinary activities ------------------------------ Profit on ordinary activities 970 3,216 4,756 after taxation Dividends 5 - (3,098) (3,229) ------------------------------ Profit retained 970 118 1,527 Earnings per share 6 1.0p 3.4p 5.0p Adjusted earnings per 6 1.1p 3.9p 5.9p share Dividend per share 5 0.0p 3.3p 3.3p There were no recognised gains and losses other than the profit for the period. GROUP BALANCE SHEET as at 24 June 1999 Unaudited and unreviewed At At 24.6.99 24.12.98 £000 £000 Fixed assets Tangible 196,259 196,040 ---------------------- Current Stocks 10,479 9,731 assets Debtors 13,809 11,924 Cash at bank 982 988 and in hand ---------------------- 25,270 22,643 ---------------------- Current Creditors: amounts liabilities falling due within one year: Bank loans and 60,399 26,945 overdrafts Other creditors 42,264 45,767 ---------------------- 102,663 72,712 ---------------------- Net current (77,393) (50,069) (liabilities) Total assets less current liabilities 118,866 145,971 Creditors: amounts falling due after more than one year: Bank loans - 28,000 Provisions for liabilities and charges 1,837 1,912 ----------------------- 117,029 116,059 ----------------------- Capital and Called up share 24,462 24,462 reserves capital Share premium account 68,497 68,497 Revaluation reserve 285 285 Profit and loss account 23,785 22,815 ----------------------- Shareholders funds 117,029 116,059 ----------------------- SUMMARISED GROUP CASH FLOW STATEMENT for the 26 weeks ended 24 June 1999 Unaudited and unreviewed 26 weeks 26 weeks 52 weeks ended ended ended 24.6.99 25.6.98 24.12.98 £000 £000 £000 Net cash inflow from operating activities after restructuring costs (note 7) 1,787 9,528 16,247 Returns on investments and servicing of finance Net interest paid (3,461) (2,798) (4,525) Net Corporation taxation paid - (555) (1,274) Capital expenditure and financial investment Purchase of tangible fixed assets (749) (1,488) (3,060) Sale of tangible fixed assets 192 - 93 ------------------------------- Net outflow from capital expenditure and financial investment (557) (1,488) (2,967) ------------------------------- Equity dividend paid (3,229) (3,004) (6,665) Financing Share options exercised - - 2,866 Decrease in bank loans - (5,000) (9,000) ------------------------------- Net cash outflow from financing - (5,000) (6,134) ------------------------------- Decrease in cash (note 8) (5,460) (3,317) (5,318) ------------------------------- Notes to the Interim Results for the 26 weeks ended 24 June 1999 Unaudited and unreviewed 1 Basis of Accounting The comparative figures for the 52 weeks ended 24 December 1998 have been extracted from the Groups latest published accounts which contain an unqualified audit report and which have been filed with the Registrar of Companies. The interim results have been prepared under the historical cost convention modified to include the revaluation of certain freehold and investment properties and adopting the accounting policies set out in the statutory accounts for the Group for the 52 weeks ended 24 December 1998. 2 Segmental analysis Turnover Profit before tax 26 weeks 52 weeks 26 weeks 52 weeks ended ended ended ended 24.6.99 24.12.98 24.6.99 24.12.98 £000 £000 £000 £000 Retailing of petroleum products 194,748 393,784 2,672 7,723 Wholesaling of petroleum products 6,465 28,047 (36) (48) Sales promotion schemes 1,418 3,543 370 1,158 Property services 225 900 157 797 Less: Inter-company turnover (1,370) (3,433) - - ------------------------------------- 201,486 422,841 3,163 9,630 Net interest payable (2,193) (5,010) ------------------ Profit on ordinary activities before taxation 970 4,620 ------------------ Net expenses of the parent undertaking have been allocated to the divisions in arriving at the profit before tax shown above. 3 Taxation The taxation (charge)/credit is based on the profit for the period and is made up as follows:- 26 weeks 52 weeks ended ended 24.6.99 24.12.98 £000 £000 Corporation tax at 30.5% (1998: 31%) - 136 ----------------------- The Group has trading tax losses available for set off against future trading profits of £2.3m (24 December 1998 £1.24m). The taxation result includes a credit of £0.6m (52 week period ended 24 December 1998: £1.9m) as a result of timing differences on accelerated capital allowances on which deferred tax has not been provided. At 24 June 1999 the Group had a pool of capital allowances of approximately £16.5m (24 December 1998: £18.4m). At 24 June 1999 the company had approximately £1m (1998: £1m) realised capital losses available for carry forward. 4 Exceptional item The exceptional item relates to charges under a Transport Agreement. These charges have been referred to an independent expert under the terms of the Agreement, whose determination has varied the charges in the Groups favour for all of the periods that have been finalised to date, but with the last twelve months of the contract still to be finalised. The finalisation of the remaining determinations could result in a credit in 1999 or later. The Group served 12 months written notice to terminate the Agreement which expired on 1 April 1999. The Group obtained a number of quotations for possible contracts. The exceptional item referred to above equates to the difference between those quotations and the sum charged under the Agreement. This has been written off as an exceptional item so as to better reflect the ongoing performance of the Group. This amount may reflect that the tanker fleet used on the current Save business was that acquired by the Transporter on 22 June 1994 for use on that business in its previous ownership and may not be comparable with the fleets used by the alternative quoting companies. Those companies are able to quote on the basis of their own tanker fleets. A new transport agreement has been signed with P&O Trans European Ltd which commenced on 2 April 1999. 5 Dividend The 1998 interim dividend was paid on 6 April 1999 to shareholders on the register at the close of business on 4 December 1998. 6 Earnings per share and adjusted earnings per share The calculation of earnings per share for the 26 weeks ended 24 June 1999 and the 26 weeks ended 25 June 1998 is based on the profit on ordinary activities after taxation of £970,000 and £3,216,000 respectively and on 97,849,245 and 93,866,758 ordinary shares of 25p each, being the weighted average number of ordinary shares in issue. The earnings per share for the 52 weeks ended 24 December 1998 is as shown in the 1998 Annual Report and is based on the profit on ordinary activities after taxation of £4,756,000 and 94,881,474 ordinary shares of 25p each, being the weighted average number of shares in issue during that period. The calculation of the adjusted earnings per share is based on the profit on ordinary activities after taxation for the period and adding back the charge for exceptional items relating to the Transport Contract of £148,000 (25.6.98: £582,000; 24.12.98: £883,000) and tax credit thereon of £nil (25.6.98 £180,000, 24.12.98 £nil) calculated at 30.5%, 31% and 31% respectively. The adjusted earnings per share has been presented to better reflect the Groups underlying performance. There was no difference between earnings per share and diluted earnings per share. 7 Net cash inflow from operating activities 26 weeks 26 weeks 52 weeks ended ended ended 24.6.99 25.6.98 24.12.98 £000 £000 £000 Operating profit after 3,163 5,986 9,630 exceptional item Depreciation and amortisation 274 386 567 Loss/(profit) on sale of fixed 64 - (50) assets Movement on redemption fund (75) 4 57 (Increase)/decrease in stocks (748) 3,438 2,254 (Increase) in debtors (1,883) (3,352) (1,110) Increase in creditors 992 3,066 4,899 --------------------------- Net cash inflow from operating activities 1,787 9,528 16,247 --------------------------- 8 Analysis of changes in net debt At At 25.12.98 Cashflow 24.6.99 £000 £000 £000 Cash at bank and in hand 988 (6) 982 Overdrafts (15,945) (5,454) (21,399) ----------------------------- Decrease in cash (14,957) (5,460) (20,417) Debt (39,000) - (39,000) ------------------------------ Net indebtedness (53,957) (5,460) (59,417) ----------------------------- 9 Year 2000 Compliance Many computer systems which express dates using only the last two digits of the year may malfunction due to the date change to the Year 2000. This risk to the business relates not only to the Groups computer systems, but also to some degree on those of our suppliers. The company has reviewed its computer systems for the impact of the Year 2000 date change. An impact analysis has been prepared to identify the major risks, and action plans have been developed to address these in advance of critical dates. The plans give priority to the systems which could have a significant financial or legal impact if they were to fail. The main system affected is the accounting and management information system which as far as we are aware is now Year 2000 compliant. The Group has requested from major suppliers, confirmation that their relevant systems are Year 2000 compliant. The issue is complex, and no business can guarantee that there will be no Year 2000 problems. However, the Board believes that its plans and the resources allocated are appropriate and adequate to address the issue. A copy of the Interim Report will be sent to shareholders on 3 September 1999. Further copies are available from the Company Secretary, Save Group PLC, Walton Lodge, Walton Street, Aylesbury, Buckinghamshire HP21 7QY.

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