| Mon 3 Mar 2003, 12:20 | | Mccarthy Limited - Interim Report For The Half Yea |
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McCarthy Limited - Interim Report for the half year ended 31 December 2002
McCarthy Limited
(Registration number 1991/003245/06)
(Incorporated in the Republic of South Africa)
("McCarthy" or "the group")
Ordinary shares: JSE code: MCC ISIN: ZAE000034823
Preference shares: JSE code: MCCP ISIN: ZAE000034831
Debentures: JSE code: MCCD ISIN: ZAE000034849
INTERIM REPORT for the half year ended 31 December 2002
HIGHLIGHTS
* Fully diluted headline EPS up 55.6%
* Gearing reduced to 25%
* Interest cover improved to 2.7 times
* New half year profit record for MMH
* Operating margin improves to 3.2%
* Motor franchises income before tax up 62.9%
* Financial services income before tax up 19.4%
Consolidated Income Statement
Unaudited Audited
Half year ended Year ended
Dec 2002 Dec 2001 Change June 2002
R000s R000s % R000s
Revenue 6 227 671 5 395 140 15.4 11 231 145
Cost of sales 5 314 012 4 618 900 9 580 174
Gross profit 913 659 776 240 17.7 1 650 971
Operating expenses 725 338 658 147 1 390 609
Operating income before interest 188 321 118 093 59.5 260 362
Net operating interest paid 66 729 44 109 90 663
Preference share financing cost 1 057 1 468 2 935
Convertible debenture interest 2 518 4 634 9 268
Income before taxation
and non-trading items 118 017 67 882 73.9 157 496
Non-trading items - net surplus 14 959 126 264
Taxation 36 778 14 917 55 101
Income after taxation 96 198 53 091 102 659
Share of net income of
associate companies 802 767 1 183
Income attributable to outside
shareholders of subsidiaries 3 462 3 479 7 384
Net income attributable to
ordinary shareholders 93 538 50 379 85.7 96 458
Determination of headline earnings:
Net income attributable to
ordinary shareholders 93 538 50 379 96 458
Convertible debenture interest 2 518 4 634 9 268
Tax saving from convertible
debenture interest (4 731) (4 808) (9 463)
Preference share financing cost 1 057 1 468 2 935
Diluted earnings 92 382 51 673 99 198
Net non-trading items after
taxation - net surplus 11 844 170 220
Profit on sale of dealerships
and investments 16 182 126 1 596
Impairment of goodwill (1 223) - -
Impairment of properties - - (1 332)
Non-trading items before taxation 14 959 126 264
Taxation (1 023) - -
Attributable to outside
shareholders (2 092) 44 (44)
Fully diluted headline earnings 80 538 51 503 56.4 98 978
Restatement of previously reported
fully diluted headline earnings in
terms of SAICA circular 7/2002:
Fully diluted headline earnings as
previously reported 54 503 154 351
Adjustments required in terms
of circular 7/2002 (3 000) (55 373)
Losses incurred on restructure (3 000) (3 000)
Impairment of financial instrument - (45 594)
Provision for future net rental
expenditure on onerous contracts - (6 779)
Restated fully diluted headline earnings 51 503 98 978
Consolidated Balance Sheet
Unaudited Unaudited Audited
Dec 2002 Dec 2001 June 2002
R000s R000s R000s
ASSETS
Non-current assets 479 245 614 140 558 962
Property, plant and equipment 187 617 159 216 157 599
Intangibles 9 500 - -
Deferred taxation 118 124 175 328 144 263
Investments - listed 41 189 162 846 142 311
- unlisted 49 571 47 548 48 723
Bank balances held by insurance companies 43 926 46 269 38 401
Insurance company`s technical assets 29 318 22 933 27 665
Current assets 1 976 413 1 756 337 1 887 362
TOTAL ASSETS 2 455 658 2 370 477 2 446 324
EQUITY AND LIABILITIES
Capital and reserves 612 569 495 634 531 348
Ordinary shareholders` funds 404 619 284 661 321 189
Equity portion of convertible debentures 22 184 22 184 22 184
Equity portion of convertible preference
shares 133 693 133 693 133 693
Outside shareholders` interest 52 073 55 096 54 282
Liability portion of convertible debentures 13 253 37 642 26 506
Liability portion of convertible preference
shares 9 049 14 025 11 742
Life assurance funds 5 137 5 952 6 325
Borrowings 219 460 296 677 149 974
Long-term 30 072 2 999 3 000
Short-term 189 388 293 678 146 974
Current liabilities 1 596 190 1 520 547 1 720 429
TOTAL EQUITY AND LIABILITIES 2 455 658 2 370 477 2 446 324
Salient Features
Unaudited Unaudited Audited
Dec 2002 Dec 2001 June 2002
Income Statement
Earnings per share (cents)
Undiluted 4.7 2.5 4.8
Diluted 3.2 1.8 3.5
Headline - diluted 2.8 1.8 3.4
Ordinary shares in issue (000s)
Undiluted 2 003 921 2 003 921 2 003 921
Weighted average 2 003 921 2 003 921 2 003 921
Diluted 2 876 262 2 868 681 2 873 742
Dividends per share (cents) - - -
Convertible debentures in issue (000s) 25 644 25 644 25 644
Interest per convertible debenture (cents) 61.5 62.5 123.0
Preference shares in issue (000s) 833 333 833 333 833 333
Preference dividend per share (cents) 0.45 0.45 0.90
Interest cover (times)
Including convertible debenture interest
and preference share financing cost 2.7 2.4 2.5
Excluding convertible debenture interest and
preference share financing cost 2.8 2.7 2.9
Operating margin (%)
Inclusive of wholesale turnover 3.0 2.2 2.3
Exclusive of wholesale turnover 3.2 2.3 2.4
Depreciation and amortisation of
leasehold properties 12 406 9 837 29 737
Balance Sheet
Interest-bearing debt less
cash/permanent capital
Including the impact of AC125 (%) 25.0 41.0 14.2
Excluding the impact of AC125 (%) 24.2 37.2 13.3
Net asset value per share (cents)
Undiluted 28.0 14.2 23.8
Fully diluted 20.4 17.4 18.4
Market value of listed investments (R000s) 41 071 288 826 142 311
Directors` valuation of unlisted
investments (R000s) 49 571 47 318 48 723
Contingent liabilities (R000s) 107 696 3 230 5 113
Capital expenditure during the period (R000s) 67 271 17 544 36 184
Future capital commitments (R000s) 22 073 1 820 29 775
Summarised Consolidated
Cash Flow Statement
Unaudited Unaudited Audited
Dec 2002 Dec 2001 June 2002
R000s R000s R000s
Cash generated from operations 204 360 184 109 377 662
Increase in working capital (309 397) (105 700) (81 185)
Cash (utilised by)/generated from
operating activities (105 037) 78 409 296 477
Financing costs (82 500) (63 871) (122 695)
Taxation paid (6 926) (1 732) (7 415)
Dividends paid (4 488) (284) (8 056)
Net cash (outflow)/inflow from
operating activities (198 951) 12 522 158 311
Cash generated from/(utilised by)
investing activities 121 122 4 574 (13 423)
Net cash (outflow)/inflow before
financing activities (77 829) 17 096 144 888
Net increase/(decrease) in financing
activities 69 486 (9 112) (155 815)
Net (decrease)/increase in cash resources (8 343) 7 984 (10 927)
Consolidated Statement of Changes in ordinary shareholders` funds
Non- (Accumu-
Distri- lated
Stated butable deficit)/
capital reserves reserves Total
R000s R000s R000s R000s
Balance at 30 June 2001 1 030 312 89 113 (908 268) 211 157
Share issue expenses
written off (2 681) - - (2 681)
Redemption of convertible
Debentures - (4 499) - (4 499)
Foreign currency translation gain - 20 754 - 20 754
Transfer from distributable
Reserves - 24 734 (24 734) -
Net income attributable to
ordinary shareholders - - 96 458 96 458
Balance at 30 June 2002 1 027 631 130 102 (836 544) 321 189
Foreign currency translation
Loss - (10 108) - (10 108)
Transfer from distributable
reserves - 13 038 (13 038) -
Net income attributable to
ordinary shareholders - - 93 538 93 538
Balance at 31 Dec 2002 1 027 631 133 032 (756 044) 404 619
Segmental Analysis
McCarthy Motor Holdings ("MMH")
Other Motor
Motor Franchises Operations Yamaha
Dec Dec Dec Dec Dec Dec Dec
(R000s) 2002 2001 % 2002 2001 2002 2001
Revenue 5 656 103 4 891 937 15.6 335 471 293 115 198 037 176 929
Operating income/(loss)
before interest 139 176 87 684 58.7 20 172 11 335 24 431 18 077
Interest paid/(received)
(including CD interest
and preference share
financing cost) 16 102 12 109 14 720 8 086 (151) 516
Income/(loss) before tax
and non-trading items 123 074 75 575 62.9 5 452 3 249 24 582 17 561
Total assets 1 722 065 1 533 248 12.3 279 539 274 992 171 419 111 808
Total liabilities 1 208 356 1 209 797 (0.1) 198 598 189 526 117 762 75 408
McCarthy
Total Motor Financial Services
Dec Dec Dec Dec
(R000s) 2002 2001 % 2002 2001 %
Revenue 6 189 611 5 361 981 15.4 31 130 25 154 23.8
Operating income/(loss)
before 183 779 117 096 56.9 20 172 17 999 12.1
Interest paid/(received)
(including CD interest and
preference share financing cost) 30 671 20 711 (3 482) (1 812)92.2
Income/(loss) before tax
and non-trading items 153 108 96 385 58.9 23 654 19 811 19.4
Total assets 2 173 023 1 920 048 13.2 148 640 121 215 22.6
Total liabilities 1 524 716 1 474 731 3.4 76 301 58 901 29.5
Corporate
McCarthy Services
On-lineTotal and Interest Total
Dec Dec Dec Dec Dec Dec
(R000s) 2002 2001 2002 2001 2002 2001 %
Revenue 6 930 8 005 - - 6 227 671 5 395 140 15.4
Operating income/
(loss) before
interest 281 350 (15 911) (17 352) 188 321 118 093 59.5
Interest paid/
(received)
(including CD
interest and
preference share
financing cost) (233) (81) 43 348 31 393 70 304 50 211 (40.0)
Income/(loss)
before tax and
non-trading items 514 431 (59 259) (48 745) 118 017 67 882 73.9
Total assets 5 498 6 009 128 497 323 205 2 455 658 2 370 477 3.6
Total liabilities 812 2 415 218 958 287 129 1 820 787 1 823 176 (0.1)
Review of the results
Introduction
The Board is pleased to announce another set of excellent results, with all
business divisions within the group reporting a strong trading performance.
Fully diluted headline earnings increased by 56,4% from R51,5 million in the
comparative period last year, to R80,5 million for the six months under review.
This performance resulted in fully diluted headline earnings per share of 2,8
cents compared to 1,8 cents reported in the prior period.
Operating performance
The following are the highlights of the group`s trading performance for the
six months ended 31 December 2002:
* Revenue increased by 15,4% from R5,4 billion to R6,2 billion, compared to
the six-month period ended 31 December 2001.
* Operating income before interest increased by 59,5% to R188,3 million. This
translates into an improvement in operating margin to 3,2% for the six months to
31 December 2002 compared to 2,3% for the same period last year. The attainment
of a 3% operating margin represents a milestone in the history of the group.
* Income before taxation and non-trading items of R118,0 million was 73,9%
above the
R67,9 million of the prior period.
* The motor franchise operations produced excellent results with income
before taxation increasing by 62,9% from R75,6 million to R123,1 million. This
was achieved despite the fact that during the reporting period, the group had to
dispose of seven DaimlerChrysler dealerships and two BMW dealerships as a
consequence of changes in manufacturer representation strategies. As part of the
DaimlerChrysler SA restructure, McCarthy was awarded the DaimlerChrysler
dealership at Hatfield and the Mitsubishi Centurion dealership in Pretoria,
effective 1 November 2002.
* The balance of the motor operations, comprising Budget Rent-A-Car ("BRAC"),
McCarthy Fleet Services and Burchmore`s Car Auctions, reported a 14,5% increase
in revenue and a 67,8% improvement in income before taxation from R3,2 million
to R5,5 million, largely due to BRAC`s continued turnaround. It should be noted
that BRAC`s franchisor in the UK is in the process of being acquired by Avis
Europe plc. While it is believed that this should not affect the existing
licensee arrangement, the group in any event will remain a major player in the
car rental industry.
* Yamaha Distributors again produced a highly satisfactory performance,
increasing revenue by 11,9%, and income before taxation by 40,0% from R17,6
million to R24,6 million. This product range was further extended by the
acquisition on 1 December 2002 of Balanced Audio, the exclusive distributors of
Yamaha audio and home theatre products in South Africa.
* McCarthy Financial Services, comprising financial and insurance activities,
increased income before taxation from R19,8 million to R23,7 million. The
insurance operations pre-taxation income improved 44,6% from R10,1 million to
R14,6 million, while the group`s share of McCarthy Finance`s income reduced
slightly from R9,7 million to R9,1 million.
Net operating interest paid increased from R44,1 million to R66,7 million as a
result of the following:
* an increase during the period in working capital due to the higher value of
vehicle inventories;
* a 3,25% increase in the cost of funds borrowed in the six months to
December 2002, which was linked to the general increase in the prime overdraft
lending rate, and
* the group no longer receiving interest from the Retail Apparel Group
Limited ("RAG") convertible debentures. This interest receipt had amounted to R5
million every six months.
Interest cover, however, improved to 2,7 times compared to 2,4 times for the
comparable six-month period, despite the increase in the overall rand value of
net interest paid.
The net R15,0 million non-trading surplus arose mainly from the profit made
on the disposal of one of the UK motor dealerships, McCarthy Toyota Maidstone,
and the local sale of Forsdicks Westgate.
Taxation of R36,8 million largely comprised a deferred tax charge of R26,3
million, which resulted from the utilisation of the accumulated assessed loss.
Attributable income to shareholders increased 85,7% from R50,4 million to R93,5
million for the six months ended 31 December 2002.
Financial position and cash flow
The overall level of consolidated group borrowings decreased by R77,2 million
compared to December 2001. Gearing also improved, with the ratio of interest-
bearing debt less cash to permanent capital reducing from 41,0% at 31 December
2001 to 25,0% at 31 December 2002.
R204,4 million cash was generated from operations for the six months ended 31
December 2002, offset by the working capital level increasing by R309,4 million.
This is explained as follows:
* The overall level of working capital is normally seasonally high in
December due to the closure of vehicle manufacturing plants over the Christmas
period and the level of new vehicle inventory held by dealerships being
increased to accommodate this. However, new vehicle inventories were
significantly lower at December 2001 due to restricted supply from some of the
major manufacturers at that time.
* The average price of used vehicles increased some 33% from December 2001,
thereby materially increasing the value of the group`s used vehicle stock
holding.
R121,1 million cash was generated from investment activities, derived largely
from the RAG interim liquidation receipt, and from the net proceeds received
from the disposals and acquisitions of dealerships and property, plant and
equipment.
The carrying value of listed investments decreased to R41,2 million, mainly
as a result of receiving the advance R105,8 million liquidation distribution
from Retail Apparel (Pty) Limited ("RAP") which is elaborated upon below. The
increase in long-term borrowings arose from the funding of new property
acquisitions by McCarthy Motor Holdings (UK).
Investment in RAG
As advised to shareholders last year, RAG`s wholly owned subsidiary RAP, the
operating company, was placed into liquidation in May 2002 and RAG`s listing was
consequently suspended on the JSE Securities Exchange South Africa.
McCarthy received an interim liquidation distribution of R105,8 million on 31
December 2002 against the issuing of a bank guarantee, conditional on the
guarantee being able to be called up by the RAP liquidators should the group`s
secured claim be found to be invalid. To date, the liquidators have not legally
challenged the security held by McCarthy, and the group`s legal advisors have
confirmed that this security is valid and enforceable.
Accounting policies
During the period, the group complied with SAICA circular 7/2002 relating to
the calculation of headline earnings and has consequently restated the
comparative period results. This had the effect of changing headline earnings
for the six month period ended 31 December 2001 from R54,5 million to R51,5
million and the full year ended 30 June 2002 from R154,4 million to R98,9
million.
Except for the above, the accounting policies used in the preparation of the
half year results are consistent with those applied in the annual financial
statements dated 30 June 2002 and comply with South African Statements of
Generally Accepted Accounting Practice.
Independent review
The financial information set out in this report has been reviewed, but not
audited, by the group`s auditors, Deloitte & Touche. Their unqualified review
report is available at the registered office of the company.
Prospects
As a result of substantial increases in vehicle selling prices over the past
fifteen months as well as four consecutive interest rate increases, vehicle
affordability is currently under pressure. A softening in demand is evident, and
a tough trading environment is anticipated for the remainder of the financial
year.
Effective 1 April, the group will have to dispose of its DaimlerChrysler
operations in KwaZulu-Natal, in line with the requirements of the new
DaimlerChrysler dealer network strategy, while the full effect of the
DaimlerChrysler and BMW dealerships disposed of during the previous half year
will impact profitability.
On the positive side, our remaining DaimlerChrysler outlets, as well as our
BMW, Toyota, Peugeot and Yamaha operations, are performing ahead of
expectations. Used vehicle volumes and margins remain healthy and earnings from
our car rental and insurance divisions are on an upward trend.
With the second half earnings expected to be below the level of last year,
headline earnings for the full year are unlikely to exceed the R154,4 million
reported last year.
On behalf of the Board
Noel Phillips (Chairman) Durban
Brand Pretorius (CEO) 3 March 2003
Directors:
N Phillips (Chairman); SG Pretorius* (Chief Executive Officer);
HL Bosman; GD Damp*; PM Goss; PJC Horne; Dr MT Lategan; SC McCarthy;
WR Parkhurst*; EG Roden*; AG Williamson *Executive
Registered Office:
McCarthy Centre,
203 North Ridge Road,
Durban 4001
Transfer Secretaries:
Computershare Investor Services Limited,
PO Box 1053,
Johannesburg 2000
Date: 03/03/2003 11:00:07 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
