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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
ANDRE LACROIX, GROUP CHIEF EXECUTIVE, INCHCAPE PLC: Good morning and welcome to you all. I will start the presentation with a highlight of our performance in the first six months of the year, and then Barbara will then take you through a detailed presentation of our results for the key markets. After Barbara's presentation, I'll give you a strategic update on how we see the markets developing moving forward, and how we intend to continue to outperform.
We believe that the delivery of our strategy will continue to strengthen the Group's position as we expect to benefit from a unique, diverse geographic portfolio and our increased scale in a fast-growing emerging market.
Let me start with the Group's financial highlights. The delivery of our strategy continues to drive strong results. Our sales were up by 5.1% in sterling and down by 0.9% in constant currency. Our like-for-like sales performance at constant currency were solid at just 4.2% Our continued focus on all key drivers of the business delivered a strong operating profit performance of GBP151.1m, an increase of 13.4% in sterling year-on-year and 5.2% in constant currency. As a result, we enjoyed very good Retail sales of 4.6%, 20 basis points ahead of last year. Our PBT was up by 8.6% in constant -- in sterling and flat in constant currency. Our EPS was up by 9.5% to 20.7p and we have increased our interim dividend by 4% to 5.46p.
Let's now talk about the operational and strategic highlights. Our unique geographic spread in the industry continues to deliver resilient performance as a stronger than expected performance in Asia helped offset the temporary weak trading in Belgium. We are delivering against our commitment to build scale in emerging markets, as our revenue in the region grew by 54% in the first six months. We are integrating our St Petersburg and Baltic acquisitions very well. And as you know, we've acquired Musa, a scale and quality operator in Moscow. We've continued to outperform the challenging market in the UK and our balance sheet is very strong with substantial committed debt facilities. All in all, we have a very robust business model and the execution of our strategies on track.
Barbara will now take you through the detailed results market by market.
BARBARA RICHMOND, GROUP FINANCE DIRECTOR, INCHCAPE PLC: Thanks, Andre. I'll start off by taking you through the summary of the P&L account and then we can talk about the individual line items and regions.
First of all, sales for the year, for the first half, were up by 5% overall, and operating profits rose by just over 13%. Our interest expense rose to GBP21.9m, mainly as a result of the acquisitions we made in the second half of last year and the first half of this. We expect our second half interest expense to be significantly higher than that in the first half due to the Musa acquisition which completed in early July, together with CapEx that we expect to spend in the second half. As a consequence, the PBT for the first half was up by 8.6% to just over GBP130m, excluding exceptional items.
The tax rate for the first half was 25%, as we prefaced in last year's Annual Report. We do expect the tax rate in 2009 to move up to 26% in line with the change in profit mix, following the Musa acquisition. But for the balance of this year we expect it to remain at 25%.
Pre-exceptional EPS was therefore 20.7p, up by 9.5%. Reported EPS was up by 4%. And we've increased the interim dividend in line with the reported EPS by also 4%. This raises the first-half cover to 3.8 times from 3.6 last year.
Moving on to look at sales. The overall reported sales increase of 5% was obviously influenced by currency, and in constant currency was a 0.9% reduction. Distribution sales reduced by 2.5% and retail increased by 0.3%. The decrease in distribution sales is namely due to reductions in both Singapore and Belgium. In the Retail segment, sales were up by 0.3% in constant currency and, in fact, 3.1% on a like-for-like basis due to strong performances in the UK, Greece and the emerging markets in the first half.
Moving on to trading profit and returns. In the Distribution business, despite the small reduction in sales, trading profits actually rose by over 4% in constant currency. Although this is in part due to mix, it is also the point that in over half our distribution businesses, like-for-like operating margins improved year-on-year. And this can be seen in the 0.8% change in the overall like-for-like return on sales for that segment. In the Retail segment, profits were lower on both a constant-currency and like-for-like basis, primarily due to lower UK retail profits and losses in China, which were partly offset by improved profits in most of Europe, the other emerging markets and Australia. Overall, margin improved by 20 basis points to 4.8%, due to both the improved distribution margin and the increased distribution proportion of our total profits in the half.
Looking at the regional analysis of our trading profits, you can see that with the disposal of a number of businesses, the UK now represents 21% of our trading profits. Europe is now equal with Singapore at 17% of our trading profits and the emerging markets has grown to 11% of our trading profits, up from 9% last year, and it is now the same size as Hong Kong.
To talk about the individual businesses, UK sales were lower in both Retail and Distribution due to disposal of businesses. Like-for-like retail sales were up by 1.5% in a market down 1.6% and with private car sales down by 4.9%. So a strong performance. New vehicle volumes in our business were also up by 1.3% on a like-for-like basis, and used car volumes were also up. F&I continues to be strong and margins on F&I were also up. As a reminder to people, we do only take a commission on F&I. We don't provide the finance ourselves. We're purely an originator.
Profits and margins in the UK are down due to continued pressure on used-car margins as a result of reducing residual values. However, the used-car margin reduction we've experienced in the first half is only single digits due to good mix of products, fast stock turn and the higher F&I margins. As a consequence, our return on sales only reduced by 10 basis points overall and remained strong at 2.3%. We do expect the UK business to be significantly weaker in the second half. In June like-for-like sales were down by almost 5% and we expect the market to be down by between 5% and 8% in the second half, which is more prudent than the SMMT forecast for the second half of 4.2% reduction.
Moving on to Europe, the most difficult matter for us in the European market has been the lack of new Toyota models. This has been compounded in Belgium by the poor Motor Show, which has led to extremely competitive new car pricing by all the OEMs in the Belgian market. As a consequence, in Belgium, our distribution profits are down substantially. This has, however, been partly offset by strong performances from our businesses in Greece and Finland, both up significantly.
Operating margins are up due to performance improvements...
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