RNS Number:2144R
Hitachi Capital (UK) PLC
23 October 2003
HITACHI CAPITAL (UK) PLC
INTERIM RESULTS
FOR THE HALF YEAR TO 30 SEPTEMBER 2003
Highlights
1st half 1st half % Change
2003/4 2002/3
Turnover* #80.8m #76.0m Up 6%
Gross profit* #23.6m #21.1m Up 12%
Profit before tax (before
exceptional disposal of fixed
assets)* #6.3m #5.0m Up 26%
Earnings per share (before
exceptional disposal of fixed
assets) 10.4p 8.7p Up 20%
Dividend per share 2.8p 2.6p Up 8%
*Includes securitised operations
* Strong performances from the Group's three principal divisions
* Vehicle Solutions - pre-tax profit up by 33% to #3m, reflecting 27%
growth in the fleet
* Consumer Finance - pre-tax profit up by 18% to #2m with quality of book
continuing to improve
* Business Finance - turnaround progressing well with increased pre-tax
profits
* Excellent contribution from Insurance Services with pre-tax profits up by
23% to #1.1m.
* Group name change from 'Hitachi Credit' to 'Hitachi Capital' and
re-branding of the business units in July
* Outlook remains very encouraging
Commenting on the results and prospects, Chairman, Yoshitaka Aritoshi said,
"As ever, the market environment is challenging. I am pleased with our strong
results, which are starting to show the benefit of the many changes in our
infrastructure and market focus in recent years. I anticipate further progress
in the second half and remain confident about long-term prospects."
For further information, please contact:
Hitachi Capital (UK) PLC David Anthony, Chief Executive Tel: 020 7448 1000 today
Barbara Iversen, Finance Director Thereafter: 020 8607 6602
Biddicks Katie Tzouliadis Tel: 020 7448 1000
Kathryn van der Kroft
Chairman's Statement and Operating Review
I am pleased to report a strong improvement in the Group's trading performance,
with gross profit up by 12% to #23.6m (2002/3: #21.1m) and operating profit up
by 26% to #6.3m (2002/3: #5.0m) on turnover up by 6% to #80.8m (2002/3: #76.0m).
We are encouraged by the progress of our three principal business units -
Consumer Finance, Business Finance and Vehicle Solutions. Pre-tax profits at
Consumer Finance and Vehicle Solutions continued to move ahead strongly, up by
18% and 33% respectively. Business Finance continues to make progress with its
re-engineering programme and has moved back into profit.
Figures are stated after charging #0.5m costs associated with the re-branding of
our business as Hitachi Capital in July.
Asset quality continued to improve and the bad debt charge was reduced by 12% to
#3.0m from #3.4m.
Earnings per share, before exceptional disposal of fixed assets, increased by
20% to 10.4p from 8.7p and I am delighted to announce an increase in the interim
dividend from 2.6p to 2.8p per share. This will be paid on 5 December 2003 to
all shareholders on the register at 7 November 2003.
Consumer Finance
The UK retail instalment credit market has been contracting in recent years.
However, this trend reversed during the period and the three months to August
showed growth of 13%. This largely reflects the counter-cyclical nature of the
instalment credit market, with retailers tending to use more promotional credit
to support sales when consumer spending softens.
I am pleased to report that despite competitive market conditions, we improved
margins and the quality of our book remains high, with balances in arrears at
1.2% of total customer balances compared with an industry average of 2.3%.
Profit before tax increased by 18% to #2.0m, with the bad debt charge reduced by
43% from #1.8m to #1.1m. New business volumes increased by 1% over last year and
overheads were unchanged, excluding the costs of re-branding.
Business development remains a priority for the foreseeable future, and we are
in the process of strengthening our senior management team with some key
appointments to bring additional skills to the business.
Business Finance
In previous statements I reported that the Business Finance division had
embarked upon a fundamental restructuring programme. There has been solid
progress over the period.
We reversed the declining trend in new business volume, with a 3% increase over
last year, and increased profitability. Profit before tax rose by 56% to #0.3m.
This reflects an improvement in margins and also a #0.1m reduction in the bad
debt charge to #1.3m.
The quality of our book has continued to improve. Balances in arrears reduced
from 1% of total customer balances at September 2002 to 0.3% at September 2003.
We are continuing to move the focus of our business away from hire purchase to
leasing and from 'direct' business to 'vendor' business. This will enable us to
form relationships with end-user customers more efficiently and in greater
numbers and allow us to build syndication and asset management income streams.
This shift of focus will also have the effect of reducing the average ticket
size of our transactions and benefit our management of credit risk.
Although there is still much to do to complete this phase of our change
programme, we are entering the second half of the year in a much stronger
position than before and are confident that both business volumes and
profitability will continue to improve.
Vehicle Solutions
New car registrations were up by 0.5% in the first nine months of 2003 and the
commercial vehicle market has remained buoyant with registrations up 14% year to
date. Corporate car fleet registrations were down by 2.3% and retail new car
registrations were up by 1.4% reflecting the changing market environment.
According to CAP and Glass's Guide, the used car market has remained steady over
the year to date with used car prices virtually unchanged since January. Our own
experience accords with this assessment.
Hire purchase sales in the retail division and the leasing of commercial
vehicles both continued to grow strongly. The total fleet at 30 September grew
by 27% to 34,200 vehicles, up from 27,000 a year earlier reflecting the
significant growth in new vehicle additions in the last few years. This total
includes 12,000 vehicles (2002/3: 8,600) under fleet management or hire purchase
contracts where the Group has no residual value risk.
Gross profit increased by 32% over last year reflecting the increase in the
fleet and an improvement in margins, and profit before tax increased by 33% to
#3.0m after taking into account re-branding costs.
We have set our residual value provisions cautiously, taking into account both
current market conditions and our view of prospects for used car prices. We are
satisfied that our total residual value provision of #2.6m at 30 September is
adequate.
As a result of a detailed review of our end-of-contract disposal activities, we
sold Fleetlease Direct, our used car retail business earlier this month. This is
expected to have a minimal impact on profit but will reduce overheads by #1m per
annum.
I anticipate continued satisfactory performance for the remainder of the year.
Insurance Services
Gross profit increased by 20% to #1.8m and profit before tax increased by 23% to
#1.1m.
Gross premiums written over the period reduced by #0.8m to #4.3m, largely
relating to the transfer of the long-term indemnity insurance to a self-insured
arrangement in Japan.
Going forward, we plan to increase the market share of our direct insurance
products. We have been successful recently in securing new payment protection
insurance customers through exploiting cross-selling opportunities and we plan
to continue this approach. We are developing other niche insurance products to
add to our existing range.
Hitachi Capital Reinsurance Ltd continues to work closely with Japanese insurers
to develop added value products for Japanese consumers and to seek reinsurance
opportunities.
Credit Management
In the first half of the year the number of new instructions increased by 8%
over last year. However, we have been investing in strengthening both management
and the sales operation, and this is reflected in the reduction in pre-tax
profits, which fell from #57,000 to #3,000.
We believe that there are attractive opportunities for this division and
appointed a new managing director in July this year. He is leading a strategic
review which is expected to be completed shortly.
Prospects
As ever, the market environment is challenging. I am pleased with our strong
results, which are starting to show the benefit of the many changes in our
infrastructure and market focus in recent years. I anticipate further progress
in the second half and remain confident about long-term prospects.
Yoshitaka Aritoshi
Chairman
23 October 2003
CONSOLIDATED PROFIT & LOSS ACCOUNT
For the half year ended 30 September 2003: unaudited
Note 1st half 1st half Full year
2003/4 2002/3 2002/3
#'000 #'000 #'000
(unaudited)
Turnover 2 80,837 75,955 157,085
Cost of sales (57,255) (54,882) (112,801)
--------- -------- --------
Gross profit 23,582 21,073 44,284
Bad debts including bad (2,956) (3,365) (6,709)
debt insurance
Administrative expenses (14,278) (12,660) (26,274)
--------- -------- --------
Operating profit (includes
#1.1m from securitised
operations (2002/3: #0.8m)) 2,3 6,348 5,048 11,301
Profit on disposal of fixed - 1,527 1,527
assets --------- -------- --------
Profit on ordinary 2 6,348 6,575 12,828
activities before tax
Tax on ordinary (1,950) (1,748) (3,652)
activities --------- -------- --------
Profit on ordinary 4,398 4,827 9,176
activities after tax
Dividend - paid - - (1,100)
Dividend - proposed (1,158) (1,096) (2,487)
--------- -------- --------
Total dividends (1,158) (1,096) (3.587)
--------- -------- --------
Retained profit for the 3,240 3,731 5,589
period --------- -------- --------
Earnings per share:
Basic and diluted 7 10.4 11.4 21.7
On profit before
exceptional disposal of
fixed assets 7 10.4 8.7 19.0
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
The Group had no recognised gains and losses during the period other than those
already included in the profit and loss account.
CONSOLIDATED BALANCE SHEET
as at 30 September 2003: unaudited
Note 30 September 30 September 31 March
2003 2002 2003
#'000 #'000 #'000
(audited)
Fixed assets
Intangible assets 2,241 2,536 2,390
Tangible assets 244,872 223,922 244,465
---------- ---------- ---------
247,113 226,458 246,855
Debtors:
Securitised balances 3 224,791 218,076 225,149
Non recourse finance 3 (199,370) (192,774) (199,283)
---------- ---------- ---------
25,421 25,302 25,866
Non-securitised 335,201 344,147 343,298
balances ---------- ---------- ---------
360,622 369,449 369,164
---------- ---------- ---------
Amounts falling due 179,405 123,831 177,290
within one year ---------- ---------- ---------
Amounts falling due
after more than one
year 181,217 245,618 191,874
---------- ---------- ---------
360,622 369,449 369,164
---------- ---------- ---------
Cash at bank and in 2,764 6,829 18,558
hand ---------- ---------- ---------
363,386 376,278 387,722
Creditors: amounts
falling due within one
year (273,397) (393,730) (319,191)
---------- ---------- ---------
Net current assets/ 89,989 (17,452) 68,531
(liabilities) ---------- ---------- ---------
Total assets less 337,102 209,006 315,386
current liabilities
Creditors: amounts
falling due after more
than one year (274,059) (153,246) (255,589)
Provisions for (5,717) (3,538) (5,717)
liabilities and ---------- ---------- ---------
charges
NET ASSETS 2 57,326 52,222 54,080
---------- ---------- ---------
CAPITAL AND RESERVES
Called up share 10,613 10,613 10,613
capital
Share premium account 15,235 15,235 15,235
Profit and loss 31,472 26,374 28,232
account
Other reserves 4 6 - -
---------- ---------- ---------
EQUITY SHAREHOLDERS' 57,326 52,222 54,080
FUNDS ========== ========== =========
CONSOLIDATED CASH FLOW STATEMENT
For the half year ended 30 September 2003: unaudited
Note 1st half 1st half Full year
2003/4 2002/3 2002/3
#'000 #'000 #'000
(audited)
Net cash inflow from operating 5 48,417 232,468 269,744
activities
Taxation paid (2,567) (1,537) (1,847)
Capital expenditure
Purchase of fixed assets (53,964) (65,453) (132,242)
-------- --------- ---------
Proceeds from sale of operating
lease and other fixed assets 16,601 18,841 33,924
-------- --------- ---------
Net cash outflow from capital
expenditure (37,363) (46,612) (98,318)
-------- --------- ---------
Equity dividends paid (2,486) (2,281) (3,381)
-------- --------- ---------
Cash inflow before financing 6,001 182,038 166,198
Issue of Euro medium term 133,088 - 162,998
notes
Redemption of Euro medium term (137,077) (62,731) (184,901)
notes
Decrease in commercial paper (12,562) (100,039) (114,349)
outstanding
Decrease in loans and (5,244) (20,575) (19,524)
acceptances -------- --------- ---------
Net cash outflow from (21,795) (183,345) (155,776)
financing -------- --------- ---------
(Decrease)/increase in cash in 6 (15,794) (1,307) 10,442
the period -------- --------- ---------
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
For the half year ended 30 September 2003: unaudited
Note 1st half 1st half Full year
2003/4 2002/3 2002/3
#'000 #'000 #'000
(audited)
Opening equity shareholders' 54,080 48,491 48,491
funds
Total recognised gains and 4,398 4,827 9,176
losses
Dividends (1,158) (1,096) (3,587)
Fair value of share options 4 6 - -
granted ---------- ---------- --------
Closing equity shareholders' 57,326 52,222 54,080
funds ---------- ---------- --------
NOTES TO THE INTERIM STATEMENT
1. Basis of Reporting
(a) The unaudited financial statements for the six months ended 30
September 2003 have been prepared on the basis of the accounting
policies set out in the Group's 31 March 2003 Report and Financial
Statements. Following the introduction of an Executive Share Option
Plan and an assessment of recent accounting pronouncements, an
accounting policy consistent with UITF17 has been adopted. The
additional accounting policy for share-based payments is as follows:
'Share-based payments
The fair value of share options granted during the period is expensed
over the vesting period of that award, based on the units of service
received from the relevant employees and directors during the
financial period. On exercise of the options, the difference between
the amounts received from the option holders and the market value of
shares at that date is charged through 'other reserves'.'
The adoption of this accounting policy does not have any impact on
prior years and does not affect the shares purchased through the
Savings Related Share Option Scheme, which are accounted for at cost
less any provision for impairment.
(b) The interim results set out do not comprise full financial statements
within the meaning of the Companies Act 1985. The comparative figures
for the financial year ended 31 March 2003 are an extract from 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 section 237 (2) or (3) of the
Companies Act 1985.
2. Segmental Analysis
Note 1st half 1st half Full year
2003/4 2002/3 2002/3
#'000 #'000 #'000
(audited)
Turnover
Consumer finance 13,283 14,271 28,613
Business finance 11,132 12,987 27,749
Vehicle solutions 50,364 43,479 89,954
Insurance services 5,773 4,939 10,123
Credit management 285 279 646
---------- ---------- --------
80,837 75,955 157,085
---------- ---------- --------
Profit before tax
Consumer finance 2,021 1,713 4,865
Business finance 280 179 (189)
Vehicle solutions 2,959 2,218 4,679
Insurance services 1,085 881 1,821
Credit management 3 57 125
---------- ---------- --------
Operating profit 6,348 5,048 11,301
Profit on sale of - 1,527 1,527
fixed assets ---------- ---------- --------
6,348 6,575 12,828
---------- ---------- --------
2. Segmental analysis continued
30 September 30 September 31 March
2003 2002 2003
#'000 #'000 #'000
(audited)
Net assets
Consumer finance 19,506 17,168 18,561
Business finance 16,022 16,082 16,002
Vehicle solutions 14,385 12,808 12,797
Insurance services 6,995 5,762 6,304
Credit management 418 402 416
---------- ---------- --------
57,326 52,222 54,080
---------- ---------- --------
Turnover for Consumer Finance for the period has been reduced by #1,000,000
following a review of accounting methodologies for recognising insurance
commissions across the Group.
3. Securitisation
At 30 September 2003, the Group had a gross amount of #242,201,000 of
its consumer finance loan portfolio securitised with Securitisation
of Financial Assets Limited ("SOFA") in return for non-recourse
finance of #200,000,000. If the receipts exceed interest and
principal loan liabilities due to SOFA, the surplus is due to the
Group. Should there be a shortfall, the providers of finance have
agreed in writing not to seek recourse and the Group is not obliged
to and does not intend to support any losses. The Group has the
option to replace the securitised loans as they are repaid. SOFA is
consolidated and included in the Group financial statements as a
quasi-subsidiary. The share capital of SOFA has been issued to share
trustee companies owned by a charitable trust. The net profit of SOFA
for the period to 30 September 2003 is included within the
consolidated profit and loss account. In accordance with the
requirements of FRS 5, this transaction has been reflected using
linked presentation on the face of the balance sheet.
The net consolidated operating profit recognised in the period
relating to securitised operations, which includes the results of
SOFA, is as follows:
1st half 1st half Full year
2003/4 2002/3 2002/3
#'000 #'000 #'000
(audited)
Net operating profit
from securitised
operations:
Turnover 9,895 7,176 17,939
Cost of sales (4,679) (3,603) (8,744)
---------- ---------- --------
Gross profit 5,216 3,573 9,195
Bad and doubtful (1,166) (908) (1,624)
debts
Administrative (2,963) (1,874) (5,431)
expenses ---------- ---------- --------
1,087 791 2,140
---------- ---------- --------
4. Executive Share Option Plan
On 1 August 2003 the Company granted 359,106 options in total to
seven Directors and employees at senior management level under the
terms of the Hitachi Capital (UK) PLC Executive Share Option Plan.
None of the options were forfeited or exercisable at 30 September
2003. The exercise price of the options was fixed at grant date at
170.5 pence per share. The options vest three years after the grant
date and have a contractual life of ten years. The extent of vesting
depends on the earnings per share growth for the Group over the
three-year period through to 31 March 2006. Vesting is proportionate
on a straight-line basis to compound earnings per share growth of 3%
- 8% over RPI.
The fair value of the options was measured at grant date using the
Black-Scholes model. The model inputs were: the share price at grant
date of 170.5 pence; exercise price of 170.5; annualised historical
volatility of 54% (based on the historical volatility over the 24
months to August 2003); expected dividend yield of 4.7% (based on
three year historical data); expected life of five years; and a
risk-free interest rate of 4.5%. The risk-free interest rate is equal
to the yield on UK government bonds available at grant date with a
remaining term of five years. An adjustment factor of .53 was applied
to take account of any outcome of the performance criteria of less
than 100% and any lapse of options over the performance period. This
was based on a study of earnings per share targets for FTSE 350
companies, which indicated that there is a 53% chance of achieving a
compound EPS growth of 5% per annum.
The resulting fair value of one option is 32 pence. The total fair
value of options granted during the period is #115,767. This amount
is to be spread evenly over the three years from 1 August 2003 to
August 2006, being the performance period. The charge to the profit
and loss account (and corresponding credit to "other reserves") for
the half year end is #6,431.
5. Reconciliation of operating profit to net cash inflow from operating
activities
1st half 1st half Full year
2003/4 2002/3 2002/3
#'000 #'000 #'000
(audited)
Operating profit 6,348 5,048 11,301
Depreciation 36,809 28,011 56,837
Amortisation of 149 148 295
goodwill
Fair value of share 6 - -
options granted
Loss on disposal of
operating lease and
other fixed assets 146 94 2,430
Decrease in debtors 9,551 191,265 191,549
(Decrease)/increase (4,592) 7,902 7,332
in creditors ---------- ---------- --------
Net cash inflow from 48,417 232,468 269,744
operating ---------- ---------- --------
activities
6. Reconciliation of net cash flow to movement in net debt
1st half 1st half Full year
2003/4 2002/3 2002/3
#'000 #'000 #'000
(audited)
(Decrease)/increase (15,794) (1,307) 10,422
in cash in the
period
Cash outflow from 21,795 183,345 155,776
reduction in debt ---------- ---------- --------
Movement in net debt 6,001 182,038 166,198
for the period
Net debt at beginning (510,225) (676,423) (676,423)
of the period ---------- ---------- --------
Net debt at end of (504,224) (494,385) (510,225)
the period ---------- ---------- --------
7. Earnings per share
Basic and diluted earnings per share have been calculated using
profit attributable to shareholders of #4,398,000 (2002/3:
#4,827,000) and the basic and diluted weighted average number of
shares set out below.
The calculation of basic earnings per share before profit on
exceptional disposal of fixed assets, is based on profit attributable
to shareholders of #4,398,000 (2002/3: #3,672,000) and the basic
weighted average number of shares. This has been used within the
Interim Results as it provides a better understanding of the
underlying trading performance of the Group.
1st half 1st half Full year
2003/4 2002/3 2002/3
(audited)
Basic weighted average number 42,150,315 42,287,635 42,195,129
of shares:
Dilutive potential ordinary
shares:
Employee share save scheme 188,250 27,627 169,391
options
Executive share options 59,851 - -
---------- --------- ---------
Diluted weighted average 42,398,416 42,315,262 42,364,520
number of shares ---------- --------- ---------
INDEPENDENT REVIEW REPORT TO HITACHI CAPITAL (UK) PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2003 which comprises the profit and loss
account, the balance sheets, the cash flow statement and related notes 1 to 7.
We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
polices and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2003.
Deloitte & Touche LLP
Chartered Accountants
London
23 October 2003
This information is provided by RNS
The company news service from the London Stock Exchange
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