Interim Results

Pendragon PLC 31 August 2000 INTERIM RESULTS TO 30 JUNE 2000 Pendragon PLC, the UK's largest car dealership group today reports interim results for the half year to 30 June 2000. Highlights: * Profit before tax £10.5 million (1999: £12.2 million) * Net cash inflow from operating ctivities £41.1 million (1999: £57.4 million) * Dividend per share up 11% to 4.9 pence * Integration of Lex dealerships successfully completed * Disposal programme well ahead of schedule; £50m raised so far this year * Successful launch of nationally branded Internet capability, tins.co.uk, to sell and distribute new and used motor vehicles on-line * Considering flexible securitisation of freehold properties: release of substantial funds for investment in high yield operating assets Trevor Finn, Chief Executive, commented: 'Performance in the first half has inevitably been impacted by the market downturn associated with discrepancies between UK and European pricing. However, recent developments following the Government's reaction to the Competition Commission report leave us confident that market recovery is within sight. Our enlarged and enriched portfolio of dealerships ensure that we are ideally positioned to benefit from this recovery which, supported by our initiatives to import selected brands and the cost reductions available from our Customer Service Centre, should enable us to make significant progress next year.' Enquiries: Pendragon PLC Trevor Finn, Chief Executive Tel: 01623 725 000 David Forsyth, Finance Director Finsbury Rupert Younger Tel: 020 7251 3801 Charlotte Festing CHIEF EXECUTIVE'S OPERATIONAL REVIEW Introduction The first half saw the successful integration of the Lex dealerships purchased on 31 March 2000 together with progress ahead of schedule on our disposal programme. In May we successfully launched tins.co.uk, our website selling all car makes over the internet, and have received an encouraging amount of traffic through our site to date. We continue to integrate franchise groups into our state of the art Customer Service Centre, enabling us to reduce costs and improve customer service, and we expect this enterprise to make a positive contribution to the group in 2001. As expected trading during the period was muted due principally to continued uncertainty surrounding UK new car pricing. The Competition Commission's report on the issue and subsequent actions proposed by the DTI has seen some car manufacturers announce price reductions and therefore, while it remains too early to forecast a full recovery, developments so far leave us confident that Pendragon and its customers should benefit in the medium term. Results and Dividend Profit before tax for the six months ended 30th June 2000 was £10.5 million compared to £12.2 million for the same period in 1999. This is after charging £0.8 million of exceptional costs and goodwill amortisation of £1.1 million. Included in the results is £3.2 million of profit on business and property disposals. Earnings per ordinary share were 11.2p compared to 13.2p in 1999. The exceptional costs of £0.8 million relate to one-off project costs in respect of relocating certain activities to our Customer Service Centre. The Board has declared an interim dividend of 4.9p per ordinary share, an increase of 11% over the interim dividend of 4.4p in 1999. Trading Trading in the first half has been muted as a result of the turmoil in the market surrounding the disharmony between UK and European car pricing. Margins, particularly on specialist and executive cars, have been affected. The Government has recently reacted to the Competition Commission report on the issue. An Order has been put in place (from 1st September 2000) to ensure that dealers are offered terms broadly the same as fleet purchasers. These terms will be based on volume of outright purchases and this should positively benefit the larger dealers with distribution capability. New vehicles accounted for 37% of total gross profit. Growth in parts and service profits have partially compensated for the reduction in new vehicle profitability. Aftersales contributed 46% of total gross profit. The used car market continued to be strong, however values of used cars were depressed in anticipation of reductions in new car pricing. By maintaining a fast stock turn the impact of this on used car trading was minimised. Used cars contributed 14% of total gross profit. The contribution from contract hire was reduced due to a decline in used car values and accounted for 1% of total gross profit. Our technology companies contributed 2% of total gross profit. Business Development Lex On 31 March 2000 we completed the acquisition of 32 franchised dealerships and 4 bodyshops from Lex Service PLC for an approximate consideration of £82 million including expenses. The integration of these dealerships into our franchise focused groups has now been completed. This acquisition significantly enlarged our number of luxury and specialist car franchises. Disposals of non core businesses, since the half year, have been completed ahead of schedule, the proceeds of which have contributed towards significantly reducing gearing from the level at the time of the Lex acquisition. Bauer Motors Since the half year we have acquired the entire share capital of Bauer Motors for an aggregate cash consideration of approximately $9.4 million. Bauer operates a Jaguar dealership in Santa Ana, California, USA. The acquisition further strengthens our world wide operating relationship with Jaguar. Bauer is the third largest Jaguar dealer in the USA, and the acquisition offers us a unique opportunity to grow our overseas interests. The unaudited operating profit of Bauer for the twelve month period to 30 April 2000 was $2.3 million on turnover of $72.6 million. Ford Joint Venture In October 1999 we sold to Ford Motor Company a 49% stake in our Ford dealerships. The performance of the joint venture in the first half of 2000 has been poor, with new car sales down on last year. Our share of the first half loss, including interest charges, was £0.7 million. Actions have been taken to improve the performance of the business, principally by reducing fixed costs. The DTI's Order aimed at reducing car prices should also improve profitability. Disposals During the first eight months of this year we have made substantial progress with our disposal programme targeted at franchises that were performing poorly or did not fit with Pendragon's or the manufacturer's long term plans. To date we have raised £50 million, putting us well ahead of our internal forecasts for this period. The following franchises have either been disposed of or closed during the first half: 8 Peugeot franchises 3 Toyota franchises 1 Nissan franchise 3 Vauxhall franchises 3 Fiat franchises The businesses listed above contributed turnover of £60 million and an operating loss of £0.4 million in the first half results. A further 14 dealerships, including 4 body centres, have been disposed of in July and August 2000. Customer Service Centre Over the last two years the company has been applying its technological expertise in software and computerised dealer management systems gained with the acquisition of Telecom Services and Pinewood Computers Limited. We have developed a state of the art Customer Service Centre, which has been piloted successfully, and has enabled us to reduce costs and improve customer service. The Customer Service Centre will make a positive contribution to the group in 2001. Our Ford business is currently being integrated into the Centre. This will quickly be followed by our Volvo and Land Rover franchise groups. E-Commerce In May we launched our website, tins.co.uk, offering for sale all car makes on the internet. Sales are transacted principally using the internet, our Customer Service Centre and our dealer infrastructure. It is clear that this model is most likely to survive the inevitable rationalisation of the dot com phenomenon. Startup and launch costs being incurred this year will be approximately £0.8 million. We are currently in confidential discussions with a third party which, if successful, will enable us to leverage our expertise and expand this area of the business. Finance We have a well funded business and have shown again that we can restructure and integrate new dealerships whilst maintaining strong control over cash and delivering working capital efficiencies. Our ability to raise finance for major acquisitions has again been demonstrated with the purchase of the Lex dealerships on 31 March 2000 for £82 million. We have been able to do this by consistently showing that following major acquisitions we can reduce the enlarged group's working capital and dispose of non core assets quickly to reduce debt. Our borrowings at 30 June 2000 were £143 million compared to pro forma borrowings of £184 million at the time of the Lex acquisition on 31 March 2000. This compares to £104 million at the end of last year. Bringing our gearing down since the acquisition to 97% at 30 June 2000 has been achieved by a combination of operating cashflow and selected disposals. Operating cash inflow of £41 million includes a reduction in working capital of £19 million. Asset disposals of £23 million were made in the first half year, of which £8 million was in respect of fixed asset sales and £15 million was from business disposals. A further £27 million of disposals has taken place since 30 June 2000 giving total proceeds at the end of August 2000 of £50 million. A majority of our dealerships operate from freehold premises. Our investment in freehold property has increased with the acquisitions completed and is now in excess of £120 million. We are currently considering ways of reducing our freehold investment through a flexible securitisation structure, which will enable us to take advantage of opportunities to reinvest in high yield operating assets. We expect business and property disposals proceeds to be in the region of £60 million for the whole of 2000 and a minimum £30 million in 2001. Planned disposals in 2001 include a number of properties which are subject to planning permission changes. Current Trading and Prospects We welcome the Order put in place by the DTI to allow dealers to have access to the same purchasing terms as the fleets. Once implemented, this will have a positive effect on Pendragon. The Company also intends to import certain brands of car from the continent where any differentials in pricing make this commercially attractive. However, due to the extended delivery times manufacturers are quoting, this is unlikely to impact on 2000 trading. Trading in July and August has been disappointing with the delay in effective resolution of the pricing issue. However, recent price reductions announced by some manufacturers, including Mercedes, Chrysler, Porsche and Land Rover, lead us to believe positive action is being taken to address this issue. There are some early signs of recovery in the new car market and action is now required by our other key partners to allow us to take full advantage of the September market. The regulatory framework in which we have historically operated is undergoing fundamental change. Scale will lead to efficiency and buying economies. We believe the scene is set for significant consolidation of car dealership networks with as few as three or four dominant companies emerging. We intend to build on our position as the largest dealer chain and be the leading consolidator in the industry. We will use our proven management team to consolidate and reconfigure our portfolio and grow it to the benefit of our shareholders. Our strategy of being bigger with fewer manufacturers means we are well placed for this continuing change and consolidation in the industry. Our initiatives to leverage shareholders funds by securitising our property assets, our intention to import selected brands, cost reductions from our customer service centre, and a full year contribution from the recent Lex acquisition, leaves our enriched portfolio of franchises ideally positioned to make significant progress next year. Consolidated Profit and Loss Account Interim Results for the six months ended 30 June 2000 Unaudited 6 months to 30.6.00 Pre- Unaudited Audited Exceptional Exceptional 6 Months 12 Months items items Total to to 30.6.99 31.12.99 £000 £000 £000 £000 £000 ____________________________________________________________________________ Total turnover - group and share of joint ventures 880,211 - 880,211 997,738 1,797,443 Less: share of joint venture turnover (116,513) - (116,513) - (43,275) ____________________________________________________________________________ Group turnover Existing operations 662,578 - 662,578 997,738 1,754,168 Acquisitions 101,120 - 101,120 - - ____________________________________________________________________________ 763,698 - 763,698 997,738 1,754,168 ____________________________________________________________________________ Group operating profit Existing operations 12,462 (805) 11,657 14,323 13,494 Acquisitions 2,879 - 2,879 - 8,653 ____________________________________________________________________________ 15,341 (805) 14,536 14,323 22,147 ____________________________________________ Share of operating loss in joint venture (244) - (1,119) ____________________________________________________________________________ Total operating profit 14,292 14,323 21,028 Profit on sale of businesses 86 4,466 9,628 Profit on disposal of fixed assets 3,127 - 600 ____________________________________________________________________________ Profit on ordinary activities before interest 17,505 18,789 31,256 Net interest payable (Note 4) Group (6,610) (6,557) (11,849) Joint venture (443) - (248) _______________________________________________ (7,053) (6,557) (12,097) _______________________________________________ Profit on ordinary activities before taxation 10,452 12,232 19,159 Taxation (Note 5) (3,631) (4,197) (6,129) ____________________________________________________________________________ Profit on ordinary activities after taxation 6,821 8,035 13,030 Dividends (Note 6) (2,803) (2,638) (7,929) ____________________________________________________________________________ Retained profit for the period 4,018 5,397 5,101 ____________________________________________________________________________ Earnings per ordinary share (Note 7) 11.2p 13.2p 21.4p Diluted earnings per ordinary share (Note 7) 11.1p 13.1p 21.3p Adjusted earnings per ordinary share (Note 7) 13.0p 15.4p 24.9p All amounts relate to continuing operations Consolidated Balance Sheet Unaudited Unaudited Audited 30.6.00 30.6.99 31.12.99 £000 £000 £000 ____________________________________________________________________________ Fixed assets Intangible assets 19,107 21,186 14,271 Tangible assets 211,738 183,647 168,747 Share of gross assets in joint venture 88,540 - 88,878 Share of gross liabilities in joint venture (77,372) - (77,023) Share of net assets in joint venture 11,168 - 11,855 Investments 2,730 1,500 1,500 _______________________________________________ 244,743 206,333 196,373 _______________________________________________ Current assets Stocks 107,965 150,491 92,951 Consignment vehicles 27,679 88,552 41,600 Vehicles subject to repurchase agreement 64,425 111,607 74,827 Debtors 101,131 135,118 78,770 Cash at bank 17,871 13,007 3,033 ____________________________________________________________________________ 319,071 498,775 291,181 ____________________________________________________________________________ Creditors : amounts falling due within one year Unsecured loans (26,000) (30,000) (10,000) Bank loans and overdrafts (331) (1,268) (634) Consignment vehicle liabilities (27,679) (88,552) (41,600) Repurchase commitments (30,419) (53,323) (34,326) Trade and other creditors (149,586) (200,155) (110,478) Corporation tax (7,440) (14,927) (4,630) Dividends payable (2,831) (2,638) (5,286) Consideration payable to Lex Retail Group Limited (1,741) (12,516) - ____________________________________________________________________________ (246,027) (403,379) (206,954) ____________________________________________________________________________ Net current assets 73,044 95,396 84,227 ____________________________________________________________________________ Total assets less current liabilities 317,787 301,729 280,600 ____________________________________________________________________________ Creditors : amounts falling due after more than one year Bank loans (134,361) (103,187) (95,947) Repurchase commitments (34,006) (58,284) (40,501) Other - - (16) ____________________________________________________________________________ (168,367) (161,471) (136,464) Provisions for liabilities and charges (2,458) (2,773) (1,642) ____________________________________________________________________________ Net assets 146,962 137,485 142,494 ____________________________________________________________________________ Capital and reserves Called up share capital 15,242 15,242 15,242 Share premium 74,697 74,697 74,697 Other reserves 15,222 9,331 14,803 Profit and loss account 41,801 38,215 37,752 ____________________________________________________________________________ Equity shareholders' funds (Note 10) 146,962 137,485 142,494 ____________________________________________________________________________ Consolidated Cash Flow Statement Unaudited Unaudited Audited 6 Months 6 Months 12 Months to to to 30.6.00 30.6.99 31.12.99 £000 £000 £000 ____________________________________________________________________________ Cash flow from operating activities (Note 8) 41,098 57,354 75,141 ____________________________________________________________________________ Net interest paid (6,764) (6,545) (11,640) ____________________________________________________________________________ Returns on investments and servicing of finance (6,764) (6,545) (11,640) ____________________________________________________________________________ Taxation (821) (1,563) (13,689) ____________________________________________________________________________ Payments to acquire tangible fixed assets (8,648) (15,996) (35,861) Payments to acquire investments (1,230) - (1,500) Receipts from sale of tangible fixed assets 8,158 6,761 21,184 ____________________________________________________________________________ Capital expenditure and financial investment (1,720) (9,235) (16,177) ____________________________________________________________________________ Business acquisitions (80,593) (84,135) (84,086) Borrowings of acquired businesses - (26,839) (26,839) Dividend paid to former shareholders of Evans Halshaw Holdings plc post acquisition - (3,700) (3,700) Deferred consideration paid - - (12,710) Business disposals 14,785 11,485 51,065 ____________________________________________________________________________ Acquisitions and disposals (65,808) (103,189) (76,270) ____________________________________________________________________________ Equity dividends paid (5,258) (4,877) (7,520) ____________________________________________________________________________ Net cash flow before financing (39,273) (68,055) (50,155) ____________________________________________________________________________ Financing Unsecured loans 54,414 86,801 54,367 ____________________________________________________________________________ Net cash inflow from financing 54,414 86,801 54,367 ____________________________________________________________________________ Movement in cash and overdrafts 15,141 18,746 4,212 ____________________________________________________________________________ Reconciliation of net cash flow to movement in net debt Movement in cash and overdrafts 15,141 18,746 4,212 Cash inflow from increase in debt financing (54,414) (86,801) (54,367) Loan notes issued on acquisition of Evans Halshaw Holdings Plc - (5,194) (5,194) ____________________________________________________________________________ Movement in net debt in the period (39,273) (73,249) (55,349) Opening net debt (103,548) (48,199) (48,199) ____________________________________________________________________________ Closing net debt (Note 9) (142,821) (121,448) (103,548) ____________________________________________________________________________ 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 1999. Applicable accounting standards have been followed. 2 The comparative results for the year ended 31 December 1999 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 The interim report was approved by the board of directors on 29 August 2000 and is unaudited. 4 Interest payable 6 Months 6 Months 12 Months to to to 30.6.00 30.6.99 31.12.99 £000 £000 £000 ____________________________________________________________________________ Bank loans and overdrafts 4,842 4,494 8,203 Manufacturer stocking loans 1,768 1,724 3,356 Notional interest on deferred - 389 583 consideration on acquisitions Interest capitalised - (50) (137) Other interest receivable - - (156) ____________________________________________________________________________ 6,610 6,557 11,849 ____________________________________________________________________________ 5 The effective tax rate for 2000 of 34.7% (1999 - 34.3%) is an estimate based upon the anticipated charge for the full year on profit on ordinary activities before taxation. 6 A dividend of 4.9p (1999 - 4.4p) net per ordinary share will be paid on 27 October 2000 to shareholders on the register at the close of business on 29 September 2000. 7 Earnings per share are based on profits on ordinary activities after taxation in each period and the weighted average number of ordinary shares in issue for the six months to 30 June 2000 of 60,964,152 (1999 - 60,964,152). Diluted earnings per share are based on a diluted number of shares of 61,294,444 (1999 - 61,121,572). The diluted number of shares is made up as follows: 30.6.00 30.6.99 31.12.99 number number number ____________________________________________________________________________ Weighted average number 60,964,152 60,964,152 60,964,152 of shares in issue Weighted average number of 330,292 157,420 191,542 dilutive shares under option ____________________________________________________________________________ Diluted weighted average number 61,294,444 61,121,572 61,155,694 of shares ____________________________________________________________________________ Adjusted earnings per share are based on profits on ordinary activities after taxation, notional interest on deferred consideration and goodwill and the weighted average number of ordinary shares in issue for the six months to 30 June 2000 of 60,964,152 (1999 60,964,152). Adjustments to basic earnings 30.6.00 30.6.99 31.12.99 £000 £000 £000 ____________________________________________________________________________ Earnings 6,821 8,035 13,030 Goodwill amortisation 1,074 1,082 1,762 National interest on deferred consideration - 389 583 Tax effect of notional interest - (121) (176) ____________________________________________________________________________ Adjusted earnings 7,895 9,385 15,199 ____________________________________________________________________________ 8 Net cash inflow from 6 Months 6 Months 12 Months operating activities to to to 30.6.00 30.6.99 31.12.99 £000 £000 £000 ____________________________________________________________________________ Operating profit 14,292 14,323 21,028 Add share of joint ventures 244 - 1,119 operating loss Loss / (profit) on sale - 218 (55) of fixed assets Depreciation 6,118 5,355 11,732 Goodwill Amortisation 1,074 1,082 1,762 Movement in working capital 19,370 36,376 39,555 ____________________________________________________________________________ 41,098 57,354 75,141 ____________________________________________________________________________ 9 Analysis of net debt 30.6.00 30.6.99 31.12.99 £000 £000 £000 ____________________________________________________________________________ Cash at bank and in hand 17,871 13,007 3,033 Overdrafts and other borrowings (331) (1,268) (634) ____________________________________________________________________________ 17,540 11,739 2,399 Other borrowings due within one year (26,000) (30,000) (10,000) Other borrowings due after one year (134,361) (103,187) (95,947) ____________________________________________________________________________ Total (142,821) (121,448) (103,548) ____________________________________________________________________________ Movement in period ____________________________________________________________________________ Cash at bank and in hand 14,838 11,857 1,883 Overdrafts and other borrowings 303 1,695 2,329 ____________________________________________________________________________ 15,141 13,552 4,212 Other borrowings due within one year (16,000) (20,000) - Other borrowings due after one year (38,414) (66,801) (59,561) ____________________________________________________________________________ Total (39,273) (73,249) (55,349) ____________________________________________________________________________ 10 Reconciliation of movements 30.6.00 30.6.99 31.12.99 in shareholders' funds £000 £000 £000 ____________________________________________________________________________ Opening shareholders'funds 142,494 132,028 132,028 Retained earnings 4,018 5,397 5,101 Unrealised profit on business disposals - - 5,100 Goodwill written back 419 - 499 Exchange adjustment 31 60 (234) ____________________________________________________________________________ Closing shareholders' funds 146,962 137,485 142,494 ____________________________________________________________________________ Shareholder Information Financial calender Ex dividend date for 2000 proposed 25 September 2000 interim dividend Record date for 2000 proposed interim dividend 29 September 2000 Payment date for 2000 proposed interim dividend 27 October 2000 Final results for 2000 announced March 2001 Annual General Meeting April 2001 Final dividend for 2000 payable May 2001 Headquarters and registered office Loxley House Computershare Services PLC 2 Oakwood Court PO Box 82 Little Oak Drive The Pavilions Annesley, Nottinghamshire, NG15 0DR. Bridgwater Road Telephone 01623 725000 Bristol, BS99 7NH Facsimile 01623 725012 Telephone 0870 702 0000 Facsimile 0870 703 6101

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