PRELIMINARY RESULTS TO 31 DECEMBER 2006
Pendragon PLC, the UK's leading car retailer group, today reports preliminary
results for the twelve months to 31 December 2006.
Highlights:
*Turnover #5.1 billion (2005 #3.3 billion)
*Underlying profits up 15% to #68.1 million (2005 #59.3 million)
*Profit before tax up 51% to #96.4 million (2005 #63.8 million)
*Basic earnings per share up 53% to 10.7p (2005 7.0p)
*Total dividend up 30.7% to 3.45p (2005 2.64p)
*Strong operating cash inflow of #219.4 million (2005 #130.4 million)
*Reg Vardy integration completed
Trevor Finn, Chief Executive, commented:
"Pendragon has delivered another solid financial performance in 2006. The
highlight for the year was the acquisition and integration of Reg Vardy - the
acquisition almost doubled our revenues and makes us clear market leader in what
remains a very fragmented market.
We were able to repay a substantial amount of the money we borrowed to finance
the Vardy acquisition and go into 2007 in good shape and with confidence that we
will achieve our objectives for the year."
Enquiries:
Pendragon PLC Trevor Finn, Chief Executive Tel: 01623 725114
David Forsyth, Finance Director
Finsbury Rollo Head, Gordon Simpson Tel: 0207 2513801
Pendragon, the leading car retailer in the UK, has delivered another solid
financial performance in 2006. We increased revenues by 55% to #5.1 billion from
#3.3 billion in 2005. Profits before tax and exceptionals were up by 15% to
#68.1 million and earnings per share on this basis increased 12.3% to 7.5 pence.
We made exceptional profits and gains on the sale of fixed assets in the year of
#28.3 million. The gains on the sale of fixed assets were mainly in respect of
property sales. Including these exceptionals, profits before tax were up by 51%
to #96.4 million from #63.8 million in 2005 giving basic earnings per share of
10.7 pence.
Our achievements in 2006 have been considerable and have consolidated our
position as the leading car retailer in the UK. We implemented a new divisional
management structure which integrated the Reg Vardy business which was acquired
early in the year. We have made significant inroads to the reduction of
borrowings which we put in place for the Vardy acquisition. The roll out of our
shared services business model is going well along with the implementation of
our in house IT systems.
Financial Performance
#m 2006 2005
Revenue 5,101.0 3,284.5
Underlying operating profit 135.3 98.8
Exceptional operating items and other income 28.3 4.5
Operating profit 163.6 103.3
Finance costs / share of joint venture (67.2) (39.5)
Profit before tax 96.4 63.8
Earnings per share - basic 10.7p 7.0p
Earnings per share - adjusted 7.50p 6.68p
Dividend per share 3.45p 2.64p
Dividend
The final dividend proposed is 2.0 pence per share, which together with the
interim dividend of 1.45 pence gives a full year dividend of 3.45 pence per
share, an increase of 30.7% over last year. We believe that this increase
reflects the strong earnings potential and cash generating ability of the
enlarged Group.
Strategy and shareholder value
Pendragon is the largest independent operator of franchised motor car
dealerships in the UK, operating 390 franchises. We also operate motor car
dealerships from nine locations in California and five in Germany. The UK is the
principal market, which accounts for 95% of the Group's revenues. Pendragon
sells a broad range of makes of motor cars and commercial vehicles, has a
substantial presence in the UK vehicle leasing, wholesale parts and dealer
management software markets.
Last year we successfully pursued our strategy of growing the business in
partnership with a range of vehicle manufacturers and generating our income from
three principal areas; new car sales, used car sales and after sales service and
parts. We have created economies of scale through the deployment of more of our
own IT systems, by further utilisation of our shared services centre and
reducing operational gearing through improved asset utilisation. Having diverse
revenue streams, not simply focused on new car sales, we believe, reduces
exposure to the normal retail economic cycles. One of the benefits that we
highlighted at the time of the Vardy acquisition was that it gave us more
exposure to the used car market which has continued to perform well and will be
a major growth area for us.
Our strategy has delivered, and continues to deliver, outstanding results and in
2006 our after tax return on equity rose to 24.8% compared to 18.8% last year.
We have also seen real growth rates in earnings and dividends. In 2006 adjusted
earnings per share increased by 12.3% and dividends by 30.7%. Over the past five
years our compound adjusted earnings per share growth rate has been 26.4% per
annum and in the same period the compound dividend growth rate has been 22.1%
per annum.
Our markets
We operate in markets which offer excellent growth prospects. The UK vehicle
retailing market is our principal one where changes to franchising rules have
freed up the market for acquisitions and consolidation. Pendragon is the leading
player in this consolidation. The total motor car parc in the UK now stands at
around 30 million with annual sales of new and used motor cars of just under 10
million units. The new car market over the past four years has weakened by 5.25%
and is expected, by industry analysts, to stabilise around the 2006 level for
the next two years. The used car market by contrast has continued to perform
well. The size of the market for after sales has grown in line with the car parc
in the UK and tends to be less affected by economic cycles as motor cars require
regular maintenance and repair for both safety and performance reasons.
We own a large vehicle leasing and contract hire business in the UK. The market
has been stable and importantly used car residual values have held up well
enabling end of contract vehicles to be sold profitably.
The commercial van and truck market in the UK has enjoyed a period of growth in
line with the UK economy and is around 0.4 million new units per annum. The key
area in this market is after sales service which remained strong in 2006.
We have gradually built a presence in the UK market for dealer management
systems. The market for these systems is primarily linked to the number of
franchised dealers and is served by a relatively small number of providers. We
mainly sell into the UK although we see other overseas markets such as
North America and South Africa being additional markets for our products. We see
this as a good growth area for our business.
Operational Review
Our Group is structured operationally to reflect the range of business
activities undertaken and has six distinct trading entities.
Stratstone Under our Stratstone brand we are the UK's leading luxury motor car
retailer with 170 locations. Stratstone holds franchises to sell and service
Aston Martin, BMW, Cadillac, Chrysler Jeep, Corvette, Dodge, Ferrari, Honda,
Jaguar, Land Rover, Lotus, Maserati, Mercedes Benz, MINI, Saab and
Volvo.
New vehicle registrations in this luxury sector declined by 1.2% in 2006 with
marques represented by Stratstone down slightly more, by 2.8%. The used car
market was stable year on year with no noticeable weakening of prices. Income
from sales of finance and insurance products was up year on year. The after
sales market continued to perform well and despite increased cost pressures we
managed to maintain gross margins in this area.
The split of activities within the Stratstone brand is detailed below showing
the respective share of revenue, gross profit and the gross margins achieved.
2006 2005
Revenue Gross profit Gross margin Revenue Gross profit Gross margin
New 47% 36% 10.1% 49% 39% 10.2%
Used 36% 20% 7.3% 35% 18% 6.8%
Aftersales 10% 45% 58.1% 10% 44% 57.6%
Trade cars 7% (1)% (1.2)% 6% (1)% (2.9)%
Total 100% 100% 13.3% 100% 100% 12.9%
The relative proportion of gross profit generated by activity in 2006 was in
line with the previous year. Aftersales continued to contribute just under half
of the total gross profits. Trade sales represents cars sent to auction which
did not fit Stratstone's sales profile. In after sales we have developed new
products priced specifically for vehicles in the 4 to 6 year old market where we
expect to grow our business, whereas historically our focus has been on the 0 to
3 year old car market.
We are including information relating to total units sold and gross profits per
unit for the first time this year. We believe this information will give a
better understanding of the dynamics of the business. Total units sold consists
of both new and used cars. Gross profit per unit is the margin achieved on sales
before overheads and includes income from finance and insurance products.
#m Revenue Gross Gross Underlying Underlying Total units Gross
Profit Margin % operating operating sold profit per
profit margin % '000 unit
#
Existing 1,444.9 192.5 13.3% 36.8 2.6% 52.9 1,752
Acquired 463.3 61.0 13.2% 13.4 2.9% 18.5 1,912
Disposed 19.3 2.1 10.7% (0.7) (3.8)% 0.9 1,448
Total 2006 1,927.5 255.6 13.3% 49.5 2.6% 72.3 1,796
Total 2005 1,344.8 173.9 12.9% 45.6 3.4% 50.0 1,806
The revenue generated by existing businesses is marginally up on last year with
much of the #100.1 million growth being achieved by the acquisitions and
greenfield start ups completed in 2005.
Higher rents of #4.3 million, following the sale of some freehold properties to
our property joint venture in 2005, and a loss of #3.5 million in respect of our
start up Cadillac retail operation resulted in margins in the existing business
reducing by 0.8%. We set up five greenfield sites during 2006 which normally
take two years to establish themselves in their market place. In the year these
greenfield sites made a loss of #0.3 million.
Profits per unit in the existing business were down year on year mainly due to
the weakness in the new car market. Profits per unit and the operating margin in
the acquired businesses were higher than the existing business due a richer mix
of franchises.
We have been actively branding our luxury car dealerships as Stratstone during
the year and this task has now been largely completed. This means that moving
into 2007 we can increase promotion of the brand and firmly establish it as the
leading luxury car retail brand in the UK.
Evans Halshaw Under our Evans Halshaw brand we are the UK's leading volume motor
car retailer with 183 locations. Evans Halshaw holds franchises to sell and
service Chevrolet, Citroen, Fiat, Ford, Hyundai, Kia, Nissan, Peugeot, Renault
and Vauxhall.
New car registrations have declined in the volume motor car sector by 3.8% in
2006. Evans Halshaw does not represent all the makes of volume cars sold in the
UK and, for makes represented, national registrations fell by 5.1% year on year.
In general the used car market was good and demand for nearly new used cars
continued to be strong. The aftersales market was in line with the previous year
although there has been some pressure on costs especially in terms of wage
inflation and utility and fuel prices which led to small declines in margins.
2006 2005
Revenue Gross profit Gross margin Revenue Gross profit Gross margin
New 45% 25% 7.2% 50% 25% 7.0%
Used 27% 34% 16.6% 27% 28% 13.9%
Aftersales 11% 41% 49.0% 13% 47% 49.9%
National fleet 10% - 0.2% - - -
Trade cars 4% - (1.7)% 5% (1)% (1.6)%
Wholesale 3% - 0.7% 5% 1% 1.5%
Total 100% 100% 13.2% 100% 100% 13.9%
The mix of gross profits generated has changed year on year primarily due to an
increase in used car profits where gross margins improved 2.7%. After sales
continued to contribute a significant proportion of profits and margins held up
well despite cost pressures during the year. These cost pressures were absorbed
by increased labour sales and tight control of overhead expenses. Trade sales
represents cars sent to auction which do not fit Evans Halshaw's sales profile.
National fleet is sales to daily rental operators at very low margins which
distorts the overall margin performance. The large proportion of profits from aftersales
helps to mitigate the effect of economic cycles in that motor vehicles are serviced
and repaired at least each year to ensure safety and performance standards are
maintained.
#m Revenue Gross Gross Underlying Underlying Total units Gross
Profit Margin % operating operating sold profit per
profit margin % '000 unit
#
Existing 1,385.3 189.0 13.6% 25.5 1.8% 125.9 648
Acquired 1,206.7 154.0 12.8% 30.0 2.5% 104.2 721
Disposed 32.5 3.0 9.1% (1.9) (5.9)% 2.8 685
Total 2006 2,624.5 346.0 13.2% 53.6 2.0% 232.9 694
Total 2005 1,372.0 190.1 13.9% 25.5 1.9% 124.0 669
In the existing business we increased revenue by #50.0 million, mainly within
our Ford and Vauxhall dealerships where we sold an extra 3,000 units. The
additions we made to our dealership portfolio in 2005 have contributed a further
#61.4 million of revenue which has in part offset the reduction in sales of
#97.9 million from last years disposals. Profits per unit in the existing
business were down year on year mainly due to the weakness in the new car
market. Profits per unit and operating margin in the acquired businesses were
higher than the existing business due a larger proportion of profits in these
dealerships coming from higher margin used car sales.
We have a number of initiatives planned in 2007 to promote the Evans Halshaw
brand and in January this year we used our first television advertising campaign
in the North West. We envisage more television campaigns throughout the year.
Chatfields Under our Chatfields brand we sell and service commercial vans and
trucks in the UK from 21 locations. Chatfields holds franchises to sell and
service Iveco, DAF, LDV and MAN ERF.
The market for new truck sales in 2006 was down by 5.6% overall whereas the van
market was up 1.3%. The market was distorted by regulatory changes last year
relating to engine emissions standards which have led operators to delay
purchases because of manufacturer price increases on these new cleaner engines.
2006 2005
Revenue Gross profit Gross margin Revenue Gross profit Gross margin
New 67% 27% 5.6% 69% 30% 5.9%
Used 5% 4% 13.3% 5% 4% 13.1%
Aftersales 25% 68% 37.6% 24% 65% 36.5%
Trade vehicles 3% 1% 3.1% 2% 1% 5.6%
Total 100% 100% 13.9% 100% 100% 13.6%
Over two thirds of gross profits in this division are derived from the after
sales activity. This tends to be a higher proportion than in the motor car
divisions because of the shorter service intervals required for commercial
vehicles and the use of overnight servicing in many of the locations.
#m Revenue Gross Gross Underlying Underlying Total units Gross
Profit Margin % operating operating sold profit per
profit margin % '000 unit
#
Total 2006 200.4 27.8 13.9% 6.1 3.1% 5.5 1,550
Total 2005 239.7 32.6 13.6% 8.5 3.5% 7.2 1,489
The year in the trucks division has been more difficult with truck sales down
with its knock on effect on operating margins. In common with our other
businesses inflationary cost pressures have been managed well. The 2005 figures
included #1.6 million of operating profits and 937 unit sales contributed by our
Mercedes-Benz franchise prior to its sale in July 2005.
Leasing We operate under three separate brands for vehicle leasing and contract
hire. The brands are Pendragon Contracts, Bramall Contracts and Vardy Contract
Motoring. Each offers a range of leasing and contract hire products mainly to
the small corporate and fleet market and to local authorities. The market in
which we operate is predominantly fleet sizes of up to 1,000 vehicles.
#m Revenue Gross Gross Underlying Underlying Fleet
Profit Margin % operating operating Numbers
profit margin % 000's
Existing 33.9 8.5 25.1% 7.1 21.1% 11.1
Acquired 10.4 2.9 27.4% 2.5 24.0% 7.1
Total 2006 44.3 11.4 25.7% 9.6 22.8% 18.2
Total 2005 48.5 8.9 18.3% 7.5 15.5% 10.8
The existing vehicle fleet remained static during 2006 at eleven thousand units
with an average lease period of 30 months. Profits are mainly generated through
the sale of the vehicles at the end of the rental period. In 2006 we increased
the profit per unit on disposal in the Bramall and Pendragon brands by #285 and
#166 respectively. We acquired Vardy Contract Motoring as part of the Reg Vardy
acquisition in February 2006. The performance of this business was much improved
in the year with disposal profits per unit up considerably.
Quickco The market for parts sales via the independent wholesaler has been
significantly enhanced by changes to the franchising laws in the UK whereby
franchised dealers need no longer source all their parts from the franchisor.
Under our Quickco brand we are the leading independent genuine parts wholesale
business in the UK. Quickco distributes both genuine manufacturer labelled parts
and matching quality parts sourced from the original manufacturers. Currently
75% of revenues come from Ford related business and we are seeking to diversify
by developing other profit streams. For example, we have been awarded franchises
from seven other vehicle manufacturers to distribute their parts. Quickco has a
national business with a fleet of 180 vans making 60,000 deliveries per month on
a next day or same day basis.
#m Revenue Gross Gross Underlying Underlying
Profit Margin % operating operating
profit margin %
Existing 74.0 18.9 25.6% 4.9 6.7%
Acquired 5.2 1.3 26.0% 0.1 2.0%
Total 2006 79.2 20.2 25.6% 5.0 6.4%
Total 2005 74.6 18.1 24.2% 3.6 4.9%
Revenues in 2006 for the existing business were in line with the previous year.
The improvements in the operating profit have been achieved through a
combination of better buying from its main suppliers and through a reduction in
overheads. The overhead reductions were realised mainly by cutting out a number
of inefficient delivery routes. Looking forward, we aim to expand our product
lines and build on our new franchise relationships.
Pinewood Under our Pinewood brand we are the UK's third largest provider of
software solutions to the retail motor industry. The principal product is
Pinnacle which is a web enabled dealer management system designed with
manufacturer interface and modules for vehicle sales and marketing, aftersales
and bookkeeping and accounts generation. The market for technology solutions in
the industry continues to grow especially for software packages which are simple
to deploy and require minimal training. Under the CFC brand other products are
sold which include fleet and workshop management solutions. Currently CFC has
customers in over 20 countries.
#m Revenue Gross Gross Underlying Underlying
Profit Margin % operating operating
profit margin %
Total 2006 25.4 15.2 59.8% 5.3 21.0%
Total 2005 22.2 11.3 51.0% 2.9 13.0%
At the end of 2006 we had over 7,000 Pinnacle user licenses in place in over 400
dealerships in the UK. About 40% of the licenses have been sold to third party
dealers with the balance being used in Group. The Pinnacle product was launched
three years ago and sales are now gathering momentum. We have recently secured
our first overseas contract for Pinnacle in South Africa. We now have a
development team of 40 which is actively working on existing and new products.
California The California business consists of nine locations in Southern
California which operate franchises for Jaguar, Land Rover, Aston Martin and
Saab.
2006 2005
Revenue Gross profit Gross margin Revenue Gross profit Gross margin
New 66% 46% 10.8% 63% 42% 10.4%
Used 15% 7% 7.5% 17% 9% 8.3%
Aftersales 14% 47% 51.5% 15% 49% 51.3%
Trade cars 5% - 0.4% 5% - (0.5)%
Total 100% 100% 15.7% 100% 100% 15.4%
The gross profit splits show a similar pattern to those in the UK for after
sales which contributes just under half of the gross profits. A significant
difference is the lower proportion of used car gross profit due to a traditional
emphasis on new car sales in this market.
#m Revenue Gross Gross Underlying Underlying Total units Gross
Profit Margin % operating operating sold profit per
profit margin % '000 unit
#
Existing 201.8 32.2 16.0% 7.8 3.9% 6.2 2,513
Disposed 13.0 1.4 11.1% (1.3) (9.7)% 0.4 890
Total 2006 214.8 33.6 15.7% 6.5 3.0% 6.6 2,417
Total 2005 217.6 33.6 15.4% 7.0 3.2% 7.4 2,123
Excluding the impact of the change in the dollar sterling exchange rate,
revenues in the USA were marginally ahead of 2005. Sales of Range Rover Sport
were very strong throughout the year which contrasted with sales of Jaguar which
were poor. The same was true in after sales where Land Rover had a good year
whereas Jaguar was down year on year. Overall operating margins are similar to
last year although they should improve going forward as, towards the end of the
year, we sold our Lincoln Mercury dealership and closed our Saab operation in
South Bay. Both businesses were loss making.
We were pleased to open our custom built Jaguar and Land Rover dealership in
Mission Viejo in December and this year we are redeveloping our Land Rover site
in Newport Beach to take Land Rover, Jaguar and Aston Martin franchises. We look
forward to completing that development later this year.
Germany Our German dealerships remain a relatively small part of the Group,
contributing just 1% of revenues. In 2006 their performance improved at
operating profit level by #1.5 million to a small loss of #0.3 million. We
reduced the number of sites during the year which leaves five remaining around
Frankfurt and Munich.
IT roll out and shared services centre
Our scale allows us to invest in information technology solutions and to use a
shared services business model. Over the last year we have implemented 83 new
Pinnacle systems in our own dealership group and it is planned to have all our
locations on the new operating platform by the end of 2007. Our shared services
centre now has a team of 425 providing a range of services to around half of our
Group including call centre and accounting. The financial benefits for the Group
are accounted for in the divisions for which they perform the services.
Acquisitions and Disposals
We acquired the entire share capital of Reg Vardy Plc in February 2006. We paid
#504.2 million and acquired a business with 97 motor car franchises which
enhanced our geographic coverage in the UK. Vardy held franchises which were
complementary to those held by Pendragon and furthered our strategic growth
plans. The process of integrating Vardy with Pendragon was prolonged due to an
investigation by the Office of Fair Trading to determine whether there were any
areas where competition was substantially reduced as a consequence of the
takeover. As a result of the investigation we agreed to sell four dealerships
out of our portfolio. The delay to the integration and consequent disruption of
having to manage the Vardy businesses separately until November is now behind
us. The Vardy and Pendragon businesses have been integrated as part of the
overall restructure of the Group last year.
In March 2006 we purchased the business of Speeds Motor Group which consists of
nine Volvo and three Chrysler Jeep dealerships. The dealerships are
predominantly located in the East Midlands. We also acquired five Peugeot and
one Citroen dealership to add to our Evans Halshaw division.
Property
Our strategy is to ensure the maximum utilisation of property assets by
maximising throughput; that surplus properties are disposed of so as to maximise
proceeds, which may involve a change of use; and to utilise our property joint
venture structure where appropriate in order to release cash to be invested in
higher yielding business assets.
As planned we completed a major sale and leaseback transaction in December 2006
with our property joint venture. We sold 79 properties with a net book value of
#191 million for a total consideration of #250 million. As a consequence of the
interest we have retained in the properties through the joint venture structure,
we are not able to recognise the entire disposal profits in the income
statements in our accounts although all the cash has been received. The profit
we are able to recognise on the transaction in our income statement is #17.7
million. The joint venture structure gives us operational flexibility mainly
through being able to substitute properties.
In addition to the joint venture transaction we disposed of a further eleven
properties which were operationally surplus to requirements. Included was the
property at Solihull Business Park on which we made a profit of #10 million.
Cash flow
Our borrowings as at 31 December 2006 were #369.7 million compared to #177.0
million at the end of 2005. At the time of the Vardy acquisition, in early 2006,
we said our target would be to reduce our borrowings to more normal levels by
the end of 2007. We are well on course to achieve this target with reductions
from a combination of good cash flow from operations and property and business
disposals.
The cash flows of the business may be summarised as follows:
#m 2006 2005
Cash generated from operations 219.4 130.4
Net interest paid (67.2) (43.2)
Tax (24.2) (16.6)
Replacement capital expenditure (43.8) (45.2)
Free cash flow 84.2 25.4
Acquisitions (570.2) (60.8)
Disposals 312.9 119.7
Dividend (17.4) (15.6)
Other (2.2) 1.1
(Increase) / reduction in net debt (192.7) 69.8
Cash flow generated from operations was #219.4 million, which compares with
#130.4 million generated in 2005. This is made up of two key components,
operating profit and working capital movements. The operating profit element
after adding back depreciation, intangible charges and property profits was
#206.2 million, up #61.3 million on the #144.9 million in 2005. In respect of
working capital we made a net reduction of #13.2 million which is after #23.1
million of final salary pension schemes funding. In 2005 we had a net increase
in working capital of #14.5 million.
Net interest paid has increased year on year. This reflects the higher
borrowings during the year following the acquisitions and increased interest
rates in the second half.
Replacement capital expenditure was #43.8 million which includes plant and
machinery, fixtures and fittings and motor vehicles (2005: #45.2 million).
Expenditure on plant and machinery and fixtures and fittings was #11.5 million,
up slightly on the #9.1 million in 2005. The balance of the expenditure of #32.3
million (2005: #36.1 million) is in respect of motor vehicles used either for
our contract hire fleet or for service loan cars for our customers.
Acquisitions consist of businesses purchased during the year and property
developments. In 2006 we have spent #540.9 million which includes the cost of
acquiring Reg Vardy and its associated borrowings, our #15.1 million investment
in the property joint venture plus the acquisition of 18 other dealerships.
Dealership property developments totalled #28.3 million (2005: #19.2 million).
Business disposals raised #23.1 million in 2006 (2005: #16.2 million), which
related to the sale of five dealerships. Property disposals raised #289.8
million (2005: #103.5 million). This includes the disposal of properties in
December to our property joint venture company.
Financing costs
The total net interest charge for the year of #67.6 million includes bank
interest, vehicle stocking charges and finance charges of #38.8 million, #25.5
million and #3.3 million respectively. Cover for bank interest was 2.9 times
compared with 4.5 times in 2005.
Tax
The overall effective tax rate for the year was 30.0 per cent (2005: 32.4 per
cent). The reduction in tax rate in 2006 was due to certain one off tax credits.
Pension Funds
In 1999 we stopped accepting new members into our final salary schemes. During
2006 we took the difficult decision to cease future accruals in all the final
salary schemes that were in operation due to the unpredictable nature of the
cost of operating these arrangements. The final salary schemes' deficit before
tax now stands at #65.1 million, a reduction of #25.2 million. All members of
the final salary schemes are now either deferred or pensioner members.
In the 2005 financial statements the Group applied the corridor method to
recognise actuarial gains and losses and spread them over the expected working
lives of employees in the plans. We have changed this policy to recognise all
actuarial gains and losses arising from defined benefit plans directly in equity
each year. This change in accounting policy was due to the closure of the
schemes to future accruals, and as employees no longer participate in the plan
the service period over which the corridor movements are spread is nil. As a
consequence the directors consider it is no longer appropriate to spread the
gains and losses over the service period and the comparative balance sheet has
been restated in line with the new policy.
Share capital
During the year a five for one share split was implemented, increasing the
number of shares in issue to 656,027,350 including 18,750 shares issued during
the year through the share option scheme. Comparative data in the report and
accounts which is calculated based on the number of shares in issue, such as
earnings per share and dividends per share, have been restated to reflect the
share split.
Outlook
The outlook remains positive for the Group with Pendragon the clear leader in a
highly fragmented market. The Vardy acquisition has given us greater scale and
more of our businesses have adopted the Pinnacle IT platform and shared service
model. The new divisional structure now in place has been designed to enable the
Group to continue to expand and to optimise scale economies.
We have a positive view on the used car market and believe that the Group is
well placed to expand its business in this market in 2007 and grow its like for
like unit sales volumes. Profits from new car sales have become less important
for the Group as we have expanded our used car revenues and continue to derive
a significant proportion of profits from aftersales. As far as after sales is
concerned we see the market continuing to be stable and through some initiatives
we have taken this year will see our revenues grow. Pinewood now has a strong
foothold in the dealer management systems market in the UK and we expect to
increase third party sales this year. We may see some reduction in profits in our
leasing business in 2007 due to fewer cars being returned for disposal and we expect
Quickco, our parts wholesale business, to have a good year in 2007.
We have put new operating structures in place during 2006 which are now settled
and each division has its sights set firmly on achieving its objectives in
2007. We have set a number of objectives at Group level this year which include
reducing the gearing as planned, implementing the Pinnacle system in all our
dealerships and driving forward total shareholder returns. Our strategy has
delivered superior returns for shareholders over the years and we look forward
to continuing that into 2007.
Consolidated Income Statement
Year ended 31 December 2006
2006 2005
Existing Acquisitions Total
#m #m #m #m
--------------------------------------------------------------------------------
Revenue 3,415.9 1,685.1 5,101.0 3,284.5
Cost of sales (2,928.4) (1,465.0) (4,393.4) (2,816.8)
--------------------------------------------------------------------------------
Gross profit 487.5 220.1 707.6 467.7
Operating expenses (390.3) (178.0) (568.3) (371.8)
--------------------------------------------------------------------------------
Operating profit before other
income 97.2 42.1 139.3 95.9
--------------------------------------------------------------------------------
Operating profit before other
income, analysed as:
Before exceptional items 89.2 46.1 135.3 98.8
Goodwill impairment (0.9) - (0.9) (1.1)
Closure and integration costs - (4.0) (4.0) (1.8)
Abortive acquisition costs (1.0) - (1.0) -
Gain on curtailment of defined
benefit pension schemes 9.9 - 9.9 -
--------------------------------------------------------------------------------
Operating profit before other
income 97.2 42.1 139.3 95.9
--------------------------------------------------------------------------------
Other income - gains on the sale
of businesses and property 24.3 7.4
--------------------------------------------------------------------------------
Operating profit 163.6 103.3
Finance costs (85.3) (54.9)
Finance income 17.7 15.3
--------------------------------------------------------------------------------
Net finance costs (67.6) (39.6)
--------------------------------------------------------------------------------
Share of profit before tax from joint venture 0.5 0.1
Share of income tax expense from joint venture (0.1) -
--------------------------------------------------------------------------------
Share of post tax profit from joint venture 0.4 0.1
--------------------------------------------------------------------------------
Profit before taxation 96.4 63.8
Income tax expense (28.9) (20.7)
--------------------------------------------------------------------------------
Profit for the year attributable to equity shareholders 67.5 43.1
--------------------------------------------------------------------------------
Basic earnings per ordinary share * 10.7p 7.0p
Diluted earnings per ordinary share * 10.6p 6.8p
* restated following the subdivision of the ordinary shares of 25p each into five
new ordinary shares of 5p each.
Consolidated Balance Sheet
At 31 December 2006
Restated *
2006 2005
#m #m
--------------------------------------------------------------------------------
Non-current assets
Property, plant and equipment 420.4 394.0
Goodwill 433.8 166.3
Other intangible assets 1.4 1.2
Derivative financial instruments - 6.5
Investment in joint venture 3.0 1.4
--------------------------------------------------------------------------------
Total non-current assets 858.6 569.4
--------------------------------------------------------------------------------
Current assets
Inventories 850.2 641.8
Trade and other receivables 260.9 161.6
Cash and cash equivalents 19.7 82.1
Non current assets classified as held for sale 38.4 18.9
--------------------------------------------------------------------------------
Total current assets 1,169.2 904.4
--------------------------------------------------------------------------------
Total assets 2,027.8 1,473.8
--------------------------------------------------------------------------------
Current liabilities
Bank overdrafts - (4.7)
Interest bearing loans and borrowings (10.4) (4.9)
Trade and other payables (1,171.8) (855.5)
Deferred income (0.9) -
Current tax payable (19.5) (19.1)
Provisions (4.3) (0.7)
--------------------------------------------------------------------------------
Total current liabilities (1,206.9) (884.9)
--------------------------------------------------------------------------------
Non-current liabilities
Interest bearing loans and borrowings (371.0) (256.0)
Derivative financial instruments (8.0) -
Deferred income (21.1) -
Deferred tax liabilities (42.0) (2.0)
Retirement benefit obligations (65.2) (90.4)
Provisions (7.6) (1.2)
--------------------------------------------------------------------------------
Total non-current liabilities (514.9) (349.6)
--------------------------------------------------------------------------------
Total liabilities (1,721.8) (1,234.5)
--------------------------------------------------------------------------------
Net assets 306.0 239.3
--------------------------------------------------------------------------------
Capital and reserves
Called up share capital 32.8 32.8
Share premium account 56.8 56.8
Capital redemption reserve 2.5 2.5
Other reserves 12.6 12.6
Translation reserve (0.3) (0.1)
Retained earnings 201.6 134.7
--------------------------------------------------------------------------------
Total equity 306.0 239.3
--------------------------------------------------------------------------------
* see note 1 below.
Consolidated Cash Flow Statement
Year ended 31 December 2006
2006 2005
#m #m
--------------------------------------------------------------------------------
Cash flow from operating activities
Profit after taxation 67.5 43.1
Adjustment for income from joint venture (0.4) (0.1)
Adjustment for taxation 28.9 20.7
Adjustment for interest 67.6 39.6
--------------------------------------------------------------------------------
Operating profit 163.6 103.3
Depreciation and amortisation 65.1 47.5
Share based payments 0.9 0.4
Profit on sale of businesses and property (24.3) (7.4)
Goodwill impairment 0.9 1.1
Changes in inventories 74.9 (8.4)
Changes in trade and other receivables (31.8) (28.4)
Changes in trade and other payables (9.6) 29.5
Changes in retirement benefit obligations (23.1) (6.9)
Changes in provisions 2.8 (0.3)
--------------------------------------------------------------------------------
Cash generated from operations 219.4 130.4
Taxation paid (24.2) (16.6)
Interest received 0.8 1.3
Interest paid (68.0) (44.5)
--------------------------------------------------------------------------------
Net cash from operating activities 128.0 70.6
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Cash flows from investing activities
Business acquisitions (466.0) (35.1)
Proceeds from sale of businesses 23.1 16.2
Purchase of investments (15.1) (6.5)
Purchase of property, plant and equipment (171.2) (154.4)
Proceeds from sale of property, plant and equipment 388.9 193.5
Receipts from sales of investments 1.7 0.3
--------------------------------------------------------------------------------
Net cash (used in) / from investing activities (238.6) 14.0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Cash flows from financing activities
Payment of capital element of finance lease rentals (5.6) (1.0)
Repayment of unsecured bank loans (413.3) (73.2)
Repayment of loan notes (12.5) (32.7)
Proceeds from the issue of unsecured loans 502.8 -
Dividends paid to shareholders (17.4) (15.6)
--------------------------------------------------------------------------------
Net cash inflow / (outflow) from financing activities 54.0 (122.5)
--------------------------------------------------------------------------------
Effects of exchange rate changes on cash held (1.1) 1.0
--------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (57.7) (36.9)
Cash and cash equivalents at 31 December 2005 77.4 114.3
--------------------------------------------------------------------------------
Cash and cash equivalents at 31 December 2006 19.7 77.4
--------------------------------------------------------------------------------
Consolidated Statement of Recognised Income and Expense
Year ended 31 December 2006
Restated *
2006 2005
#m #m
--------------------------------------------------------------------------------
Foreign currency translation differences for foreign
operations (0.2) 0.2
Defined benefit plan actuarial gains and losses 18.1 (17.1)
Income tax on income and expense recognised directly
in equity (5.4) 5.1
--------------------------------------------------------------------------------
Income and expense recognised directly in equity 12.5 (11.8)
Profit for the period 67.5 43.1
--------------------------------------------------------------------------------
Total recognised income and expense for the period
attributable to equity holders of the company 80.0 31.3
--------------------------------------------------------------------------------
Impact of change in accounting policy on retained
earnings at 1 January (13.3) -
--------------------------------------------------------------------------------
* see note 1 below
Notes to the Financial Statements
1. Change in accounting policy
The group recognises all actuarial gains and losses arising from defined benefit
plans directly in equity. In its financial statements for periods beginning before
1 January 2006 the group applied the corridor method to recognise in the income
statement actuarial gains and losses over the expected working lives of employees in
the plans. This change in accounting policy was due to the closure of the schemes to
future accrual, employees no longer participate in the plan and the service period
over which the corridor movements are spread is nil. As a consequence of this the
directors consider it is no longer appropriate to spread the gains and losses over
the service period and that full recognition of the actuarial gains and losses in the
'Statement of Recognised Income and Expense' gives more reliable and relevant information.
The directors consider this to be more reliable and relevant as the revised policy will
reflect the full pension obligation on the balance sheet.
The change in accounting policy was recognised retrospectively in accordance with
the transitional provisions of the amendment, and comparatives have been restated.
The change in accounting policy had the following impact on these financial
statements:
Income Statement for the year ended 31 December 2005
No impact
Consolidated Statement of Recognised
Income and Expense 2006 2005
#m #m
------------------------------------------------------------------------------------
Increase / (decrease) in net income
recognised directly in equity 12.6 (12.0)
------------------------------------------------------------------------------------
Increase / (decrease) in total recognised
income and expense for the year 12.6 (12.0)
====================================================================================
Balance Sheet 2006 2005
#m #m
------------------------------------------------------------------------------------
Cumulative decrease / (increase) in
retirement benefit obligations 18.0 (19.0)
Cumulative (decrease) /
increase in deferred tax asset (5.4) 5.7
------------------------------------------------------------------------------------
Cumulative increase /
(decrease) in retained earnings 12.6 (13.3)
====================================================================================
The adjustment to retained earnings at 1 January 2005 was a decrease of #1.3
million.
2. Dividends
Subject to final approval at the Annual General Meeting, the final dividend of 2.00p
per share (2005 : 1.32p) will be paid on 2 May 2007 to shareholders appearing on the
register at the close of business on 10 April 2007. An interim dividend of 1.45p per
share (2005 : 1.32p) was paid in October 2006 which makes a total of 3.45p (2005 :
2.64p) for the financial year.
3. Earnings per share
------------------------------------------------------------------------------------
restated * restated *
2006 2006 2005 2005
Earniings per Total Earnings per Total
share share
pence #m pence #m
------------------------------------------------------------------------------------
Basic earnings per share 10.7 67.5 7.0 43.1
Adjusting items:
Profit on business and
property disposals (3.9) (24.3) (1.2) (7.4)
Goodwill impairment 0.1 0.9 0.2 1.1
Abortive acquisition costs 0.2 1.0 - -
Gain on curtailment of
defined benefit pension
schemes (1.6) (9.9) - -
Operating exceptional costs 0.6 4.0 0.3 1.8
Tax effect of adjusting
items 1.4 8.1 0.4 2.8
------------------------------------------------------------------------------------
Adjusted earnings per share 7.5 47.3 6.7 41.4
====================================================================================
Diluted earnings per share 10.6 67.5 6.8 43.1
====================================================================================
The calculation of basic, adjusted and
diluted earnings per share is based on the
following number of shares in issue
(millions) 2006 2005
number number
------------------------------------------------------------------------------------
Weighted average number of ordinary
shares in issue 629.0 619.3
Weighted average number of dilutive
shares under option 10.7 17.0
------------------------------------------------------------------------------------
Weighted average number of shares in
issue taking account of applicable
outstanding share options 639.7 636.3
====================================================================================
The directors consider that the adjusted earnings per share figures provides a
better measure of comparative performance.
* The note has been restated following the subdivision of the ordinary shares of 25p
each into five new ordinary shares of 5p each during the year.
4. 2006 2005
Finance costs #m #m
------------------------------------------------------------------------------------
Interest payable on bank borrowings 30.0 11.1
Interest payable on loan notes 9.5 8.9
Vehicle stocking plan interest 25.5 18.6
Interest payable on finance leases 0.4 0.1
Fair value losses - interest rate swaps 1.0 -
Unwinding of discounts in contract hire
residual values 2.7 2.5
Interest on pension scheme obligation 16.5 13.8
------------------------------------------------------------------------------------
85.6 55.0
Less : interest capitalised (0.3) (0.1)
------------------------------------------------------------------------------------
85.3 54.9
====================================================================================
5. 2006 2005
Finance income #m #m
------------------------------------------------------------------------------------
Fair value gains - interest rate swaps - 0.4
Interest receivable on bank deposits 0.8 0.8
Interest on pension scheme assets 16.9 13.6
Other interest receivable - 0.5
------------------------------------------------------------------------------------
17.7 15.3
====================================================================================
6. 2006 2005
Cash and cash equivalents #m #m
------------------------------------------------------------------------------------
Bank balances and cash equivalents 19.7 82.1
Bank overdrafts - (4.7)
------------------------------------------------------------------------------------
19.7 77.4
====================================================================================
7. 2006 2005
Net debt #m #m
------------------------------------------------------------------------------------
Cash and cash equivalents (see note 6) 19.7 77.4
Short-term borrowings (5.3) (4.0)
Long-term borrowings (364.5) (253.4)
Derivative financial instruments (8.0) 6.5
Obligations under finance leases (11.6) (3.5)
------------------------------------------------------------------------------------
(369.7) (177.0)
====================================================================================
8. Acquisition of Reg Vardy Plc
On 14 February 2006 the group acquired all the shares in Reg Vardy Plc for a total
consideration including costs of #504.2m in cash.
Net Assets at date of acquisition Book value Fair value Fair value
at acquisition adjustments at acquisition
#m #m #m
-----------------------------------------------------------------------------------
Property, plant and equipment 205.6 48.2 253.8
Intangible assets 1.1 2.1 3.2
Non current assets
classified as held for sale 12.2 6.3 18.5
Inventories 306.9 0.1 307.0
Trade and other receivable 67.4 0.1 67.5
Trade and other payables (350.7) (4.9) (355.6)
Cash and cash equivalents 49.1 - 49.1
Retirement benefit obligations (15.0) (0.9) (15.9)
Bank loans (50.0) - (50.0)
Obligations under finance leases (10.8) - (10.8)
Tax liabilities (6.7) 0.5 (6.2)
Provisions (7.2) - (7.2)
Deferred tax liaibilities (5.1) (14.6) (19.7)
------------------------------------------------------------------------------------
196.8 36.9 233.7
Goodwill 270.5
------------------------------------------------------------------------------------
Consideration (including costs) 504.2
====================================================================================
9. Annual Report
The above financial information does not represent the full financial statements of
the company. Full financial statements for the year ended 31 December 2005,
containing an unqualified audit report have been delivered to the registrar of
companies. Full financial statements for the year ended 31 December 2006, which have
been reported on without qualification by the group's auditors, will shortly be
posted to shareholders, and after adoption at the Annual General Meeting on 27 April
2007 will be delivered to the registrar.
Copies of this announcement are available from Pendragon PLC, Loxley House, 2
Oakwood Court, Little Oak Drive, Annesley, Nottinghamshire NG15 0DR.