RNS No 2779c
SAVE GROUP PLC
31st March 1998
RESULTS FOR THE YEAR ENDED 31 DECEMBER 1997
Save Group PLC ("Save") the UKs largest independent petrol
retailer, which operates the Save brand of petrol filling
stations, announces results for the year ended 31 December
1997:
Key points:
* Total road fuel sales for all UK petrol retailers
increased nationally by 2.6% during 1997, as site numbers
decreased by a further 5.4%. Resulting in an average increase
per site nationally of 7.9%.
* Turnover of #420.6m (1996: #429.7m). Overall volumes are
lower but the second half of the year shows the continuing
recovery.
* Profit before tax and exceptionals #9.0m and profit
before tax #7.32m. A strong performance in the face of two
specific factors, relating to licensees and transportation,
which should have a limited impact in 1998.
* Recommended final dividend of 3.9 per share, making an
unchanged total for the year of 7.1p.
* Year ended on an improving trend as the severe price
cutting in the industry draws to a close.
* Saves pump prices now fully competitive.
Commenting on further prospects, James Frost, Chairman said:
"We are now fully competitive for the first time in over two
years and our sales continue to recover as a result. This
could be another false dawn but I believe that due to
pressures upstream it could be the beginning of a sustained
period of growth downstream."
CHAIRMANS STATEMENT
I am pleased to present my Report for 1997. I believe that
these results represent the very best of results which could
have been achieved at a time of great upheaval and continued
losses in the downstream petroleum industry in the UK as a
whole.
1993 1994 1995 1996 1997
#000 #000 #000 #000 #000
Turnover exc VAT 177,166 229,398 451,495 429,692 420,571
Profit before tax
& exceptionals 7,654 10,862 15,114 10,370 9,008
Profit before tax 7,654 10,862 11,114 10,370 7,321
Profit after tax 5,825 8,146 8,502 12,096 9,056
Earnings per share 9.0p 11.0p 10.2p 12.9p 9.7p
Dividend per share 4.7p 5.6p 7.0p 7.1p 7.1p
Whilst our volumes for the year are clearly down, the second
half of the year shows the continuing recovery from the low
point in July 1996. As industry average margins have improved
through the second half, Saves pump prices have become
increasingly competitive and are now fully competitive. The
pre-tax result has, however, been adversely affected by two
specific factors which should have a limited impact in 1998
relating to licensees and transportation. The year ended on an
improving trend as price cutting was drawing to a close as the
falling oil price reduced oil company upstream profitability.
THE UK PETROLEUM MARKET
Downstream
The year has again been dominated by the Esso Price Watch
campaign which started in Scotland and the North East of
England in September 1995. This campaign was a price cutting
war designed to increase Essos market share by 25% from 16%
to 20% overall. The result has been massive monetary losses in
the industry as participants fell over themselves to compete
and thousands of sites closed. In addition, a number of
suppliers have also decided to give up a struggle they could
not see themselves winning and have disappeared from the
market.
The number of sites which are reported to have closed during
the year was 795 representing 5.4% of the total. Since Price
Watch started around 2,700 sites have closed.
Movements in number of sites:
Total Owned by Supermarkets Privately
Suppliers All* owned
1964 38,500 5,435 - 33,065
1985 21,140 6,642 190 14,498
1990 19,465 6,490 357 12,618
1995 16,244 5,870 823 9,551
1996 14,748 5,528 877 8,343
1997(-5.4%) 13,953 (-2.6%) 5,383 (+6.5%) 934 (-8.5%) 7,636
* "All supermarkets" include 842 for the big four: Tesco,
Sainsburys, Asda and Morrisons
The Institute of Petroleum Survey has also found "871 small
sites which have not featured in previous surveys. Typically
these are single pumps attached to small shops in remote
locations." The total volume probably adds up to no more than
20 million litres and therefore I have ignored these sites as
they have been ignored before. I also believe that the above
figures for 1997 are flattered by duplications and some closed
sites.
Notwithstanding the imperfections of the survey, it is clear
that since 1964 the number of Supplier Owned Sites has
declined by just 1% whereas the number of Privately Owned
Sites has collapsed by no less than 77% over the same period.
Movements in suppliers
Since 1995 there has also been a significant contraction in
the number of independent suppliers providing competition in
the market place including:
Mobil - merged with BP
Burmah - acquired by Save
Gulf - acquired by Shell
Power (Charringtons) - acquired by Total
Proteus - acquired by Texaco
Phoenix - acquired by Total
3D - acquired by Total
MOCO and others
Growth in consumption
During the year, road fuel sales increased nationally by 2.6%
and the effect on average volumes per site is significant.
No.of % Total % Average %
Sites decrease Volume change fuel sales increase
(m. tonnes) per site
(litres)
1988 20,016 - 0.9 25.0 +6.5 1.66m +7.4
1989 19,756 - 1.3 26.1 +4.1 1.75m +5.5
1990 19,465 - 1.5 26.7 +2.3 1.82m +3.8
1991 19,247 - 1.1 26.5 -0.6 1,83m +0.6
1992 18,549 - 3.6 26.9 +1.3 1.92m +5.1
1993 17,969 - 3.1 27.0 +0.5 1.99m +3.7
1994 16,971 - 5.5 26.7 -1.1 2.09m +4.7
1995 16,244 - 4.3 26.3 -1.6 2.15m +2.8
1996 14,748 - 9.2 27.3 +4.0 2.46m +14.6
1997 13,953 - 5.4 28.0 +2.6 2.65m +7.9
10 year
movement -31% (37 billion litres) +72%
Fewer sites, fewer suppliers and higher volumes, must
eventually mean higher prices at the pump.
Upstream
Clearly the number of sites, the number of suppliers and the
amount of road fuel sold all affect the profitability of the
market place in the UK. However, there is no reference here to
the raw cost of product - crude oil.
An integrated oil company can be split into upstream and
downstream activities. That is the exploration and
transportation of crude oil - upstream, and the wholesaling
and retailing of refined product - downstream.
There are other activities in between, such as refining, but
these do not materially affect the upstream/downstream split.
In 1997 Brent crude (the benchmark price) averaged $19.32 a
barrel but by March 1998 was some $6.50 lower at under $13 a
barrel. This has a very material impact on the upstream part
of the industry as a whole.
OPEC quotas for 1998 are 27.5 million barrels day so that for
every $ that crude goes down it costs OPEC as a whole $27.5m
each day or $10 billion each year. Therefore a drop of $6.5
average for a whole year will cost OPEC alone some $65
billion.
Shell executives were quoted in the Financial Times on 13
February 1998 as saying that for every $ crude goes down as an
average it hits Shells profits by $400m a year. A $6.5
average drop could therefore reduce Shells profits by $2.6
billion a year.
What applies to OPEC and Shell also applies to all other
producer nations and upstream oil companies alike. Certainly,
the price war in the UK from September 1995 onwards was
sustained by very high profits upstream. In other words, the
integrated oil companies could afford to take the pain
downstream in the UK.
There are four main reasons for this dramatic change of
fortunes:
* OPEC increased its output quotas for 1998 by 10%
* The financial turmoil in the Far East has reduced demand
* A second mild winter in the USA and Europe has also
reduced demand
* An increased quota of oil for Iraq from $2b every six
months to $5.2b every six months compounded by the fact that
as the price goes down Iraq can produce more oil for each
dollar
The negative impact of this situation for upstream players,
can only be reduced by selling more of their product
downstream at higher margins. That way the price is fixed not
by reference to the cost of crude but by the amount the
motorist will pay. After all, margins are still below pre
Price Watch levels.
SAVES POSITION
Your Company Owned network comprises some 411 sites, as good
as most oil company networks, and supplies a further 113
privately owned Dealer sites. Our sales are secure, over 90%
of them coming as they do from our Company Owned Sites (COS)
network rather than from the Privately owned dealer sites.
Those suppliers who rely for their sales on the dealer sites,
which are the ones closing at the fastest rate, are in a
particularly vulnerable position.
Market share by brand as at 31 December 1997
Brand Total % COS % Dealers & %
Sites Supermarkets
Esso 1,874 13.4 905 48.3 969 51.7
Shell inc
Gulf 1,858 13.3 1,033 55.6 825 44.4
BP 1,831 13.2 925 50.5 906 49.5
Texaco 1,147 8.2 448 39.1 699 60.9
Total Group 783 5.6 413 52.7 370 47.3
UK 726 5.2 11 1.5 715 98.5
Jet 670 4.8 221 33.0 449 67.0
Fina Group 614 4.4 203 33.1 411 66.9
Save 524 3.8 411 78.4 113 21.6
Elf 499 3.6 383 76.8 116 23.2
Q8 Group 467 3.3 103 22.1 364 77.9
Murco 401 2.9 117 29.2 284 70.8
Repsol 188 1.3 42 22.3 146 77.7
All
Supermarkets 934 6.7 - - 934 100.0
Others 1,437 10.3 168 11.7 1,269 88.3
Total 13,953 5,383 8,570
The above market shares are by site numbers only. The
supermarkets together account for about 22% in volume terms
and the "Others" about 3%. Esso average sales per site due to
Price Watch will probably be about four times that of the
average site supplied by UK Petroleum. In volume terms I would
expect Esso, Shell and BP together to account for around 55% -
60% and Save for 1997 was some 2%.
We survived the price wars by pricing up to maintain a margin
at the expense of sales. Sales hit their all time low in the
week ended 18 July 1996 from which time they have
progressively recovered, by some 38% currently. Sales on a
unit basis for the last two months are up by approximately 6%
over the comparable months last year so that they now stand at
around 80% of their pre Price Watch levels.
Margins from the refinery gate to the pump, before deducting
suppliers oncost, delivery etc., have gone up from a low of
1.79 pence per litre for week ended 18 July 1996, based on
national average pump prices, to a current level of just over
6ppl. This compares with 8ppl before Price Watch. There is
therefore no reason for petrol prices to fall in line with
crude.
Two areas have, however, prevented these improvements being
fully reflected in the 1997 results. These relate to the
licensees and transport.
Retaining licensees is very important in running a successful
operation, otherwise sales on those sites which are
temporarily company- run slump and of course no licence fees
are received. The group installed a support scheme for
licensees to soften the worst excesses of Price Watch and to
afford them a measure of protection. This scheme, under the
control of the former Managing Director, was mismanaged during
the year leading by November to an unusually large number of
Company Owned sites being temporarily operated direct. The
management of this scheme has now been reorganised and is
working very smoothly although it will by its nature take
another three months to be fully effective. We aim to care for
all our people, whether they be licensees, dealers or staff.
The exceptional item relates to charges under a Transport
Agreement. These charges have been referred to an independent
expert under the terms of the Agreement, whose determination
has varied the charges in the Groups favour for all of the
periods that have been finalised to date, but with six months
of 1997 still to be finalised. The finalisation of the
remaining determinations could result in a credit in 1998. The
Group has served 12 months written notice to terminate the
Agreement.
The Group has obtained a number of quotations for future
possible contracts. The exceptional item referred to above
equates to the difference between those quotations and the sum
charged under the Agreement. This has been written off as an
exceptional item so as to better reflect the ongoing
performance of the Group. This amount may reflect that the
tanker fleet used on the current Save business was that
acquired by the Transporter on the 22 June 1994 for use on
that business in its previous ownership and may not be
comparable with the fleets used by the alternative quoting
companies. Those companies are able to quote on the basis of
their own tanker fleets.
During the year the contract of employment of the Managing
Director was terminated for reasons related to employees and
licensees. This has already been the subject of a letter to
shareholders so I do not propose to comment further. We are
looking for a replacement in due course but are not under any
pressure to do so at this time.
The Groups finances are very robust, operating well within
the facilities available. However, indebtedness at the end of
the year was higher than I would have liked due mainly to
higher stocks and higher debtors. This year, Christmas/New
Year stocking was two days longer than the previous year and
debtors include all the rating appeals which accumulate until
settled usually three or four years after the new assessments
are made. We will be continuing our efforts during the current
year to reduce gearing further.
Group balance sheet
31 12 97 31 12 96
#000 #000
Fixed assets 193,590 190,843
Current assets 21,393 13,785
Trade creditors (43,819) (38,178)
Other liabilities (1,859) (2,046)
Bank - net (57,639) (55,129)
Net assets 111,666 109,275
Tax
It has always been the Companys policy to adopt a
conservative position on tax. In both 1996 and 1997 earnings
benefited substantially by tax credits from the utilisation of
capital allowances. There remains a large pool of unused
capital allowances and some #22m remains for use in future
years.
FUTURE PROSPECTS
Last year I ended my Statement by saying that I was confident
about reporting higher profits, earnings and dividends for
1997 together with improved dividend cover - I was wrong.
I based my view on two main factors:
* That 1996 saw an average crude price of $20.82 and the
forecasts for 1997 were for a range of $15 to $20: clearly
this did not happen, averaging as it did $19.32 resulting in
higher upstream profits to support the continuation of the
price war.
* Stable pump prices continuing on from a good start to the
year. This did not continue because from March 1997 Esso and
Tesco appeared to restart a private fight. Clearly all that
happened was everyone in the market, including ourselves, lost
a lot of money.
This year, it is indisputable that none of the oil companies
have the cushion of a high crude price upstream which will
allow them the luxury of a price war downstream. Furthermore,
most analysts are expecting crude to fall even further with no
bottom in sight particularly given the increasing prospect of
substantial long term supply coming from the former USSR.
Prior to the Yom Kippur War in 1973 crude prices traded at an
average of around $13 per barrel for the previous 70 years
since when we have become even more self-sufficient worldwide.
We are now fully competitive for the first time in over two
years and our sales continue to recover as a result. In
addition, margins are also at their best for over two years.
The ICI supply contract expired on the 31 December 1997 and
this has given us the freedom to negotiate for supplies on
improved terms.
We intend to be cautious in 1998, we do not intend to undercut
our competitors to gain market share, rather to build the
group steadily throughout the year. Further ahead, in 1999, we
see three areas of future development:
* Purchase of new Company Owned sites on a selective basis
* A national marketing or trade link with a non petrol
retailer
* The acquisition of small groups of dealer business
This could be another false dawn but I believe that it could
be the beginning of a sustained period of growth.
R James Frost
Chairman
24 March 1998
SAVE GROUP PLC
Preliminary Unaudited Results
For the Year Ended 31st December 1997
GROUP PROFIT AND LOSS ACCOUNT
1997 1997
Before 1997 After
Exceptional Exceptional Exceptional
Item Item Item 1996
Note #'000 #'000 #'000 #'000
Turnover 420,571 420,571 429,692
Cost of Sales (384,965) (384,965) (392,452)
--------- --------- ------- ---------
Gross Profit 35,606 35,606 37,240
Distribution costs (19,936) (1,687) (21,623) (20,068)
Administrative
expenses (6,612) (6,612) (7,566)
Other operating
Income 4,664 4,664 4,736
---------- ---------- ------- --------
(21,884) (1,687) (23,571) (22,898)
---------- ---------- ------- --------
Operating Profit 13,722 (1,687) 12,035 14,342
--------- --------- -------- -------
Net Interest (4,714) (4,714) (3,972)
---------- --------- -------- -------
Profit on ordinary
activities
before taxation 9,008 (1,687) 7,321 10,370
Tax credit on
profit on
ordinary
activities 4 1,204 531 1,735 1,726
------- ------ ------- ------
Profit for the
financial year 10,212 (1,156) 9,056 12,096
Dividends 5 (6,665) (6,665) (6,665)
--------- ------ ------- -------
Profit retained 3,547 (1,156) 2,391 5,431
--------- ------- ------- -------
Earnings per
share 3 10.9p 9.7p 12.9p
SAVE GROUP PLC
Preliminary Unaudited Results
For the Year Ended 31st December 1997
GROUP BALANCE SHEET
1997 1996
#'000 #'000
Fixed Assets 193,590 190,843
Current Assets
Stocks 11,985 9,319
Debtors 9,408 4,466
Cash at bank
and in hand 901 756
------ ------
22,294 14,541
------ -------
Current Liabilities
Creditors: amounts falling
due within one year 64,359 46,063
------ -------
Net current liabilities (42,065) (31,522)
------ -------
Total assets less current
liabilities 151,525 159,321
Creditors: amounts falling
due after more
than one year 38,000 48,000
Provisions for liabilities
and charges 1,859 2,046
------- -------
111,666 109,275
------- -------
Capital and reserves
Called up share capital 23,467 23,467
Share premium account 66,626 66,626
Revaluation reserve 285 285
Profit and loss account 21,288 18,897
------- -------
Shareholders' funds 111,666 109,275
------- -------
SAVE GROUP PLC
Preliminary Unaudited Results
For the Year Ended 31st December 1997
GROUP CASH FLOW STATEMENT
Cash Flow 1997 1997 1996 1996
Note #'000 #'000 #'000 #'000
Net cash inflow from
operating
activities after
restructuring costs 1 13,188 6,557
Returns on investments
and servicing
of finance
Net interest paid (4,727) (4,493)
-------- -------- ----- --------
Net cash outflow from
returns on
investments and
servicing of finance (4,727) (4,493)
Net UK Corporation
Tax paid (1,315) (1,242)
Capital Expenditure
and financial investment
Expenditure on tangible
fixed assets (3,629) (6,486)
Sale of tangible
fixed assets 638 374
-------- ------- ---- -------
Net outflow from
capital expenditure
and financial investment (2,991) (6,112)
-------- -------- ---- --------
4,155 (5,290)
Equity Dividend Paid (6,665) (6,571)
Financing
(Decrease)/Increase
in bank loans 2 (2,000) 8,500
-------- ------- ----- -------
Net cash (outflow)
/inflow from financing (2,000) 8,500
------- ------- ----- -------
Decrease in cash 3 (4,510) (3,361)
------ ------ ----- --------
SAVE GROUP PLC
Preliminary Unaudited Results
For the Year Ended 31st December 1997
Cashflow
1. Net Cash Inflow from Operating Activities
1997 1996
#'000 #'000
Operating Profit 12,035 14,342
Depreciation and amortisation 901 844
Profit on sale of fixed assets (547) (152)
Movement on redemption fund 36 (165)
(Increase)/Decrease in stocks (2,666) 3,763
(Increase)/Decrease in debtors (2,519) 3,525
Increase/(Decrease) in creditors 6,171 (13,913)
---------- ----------
13,411 8,244
Restructuring costs (223) (1,687)
---------- ----------
Net cash inflow from operating
activities 13,188 6,557
---------- ----------
2.Reconciliation of net cashflow to
movement in net debt
1997 1996
#'000 #'000
Decrease in cash 4,510 3,361
Cash (outflow)/inflow from financing (2,000) 8,500
--------- -----
Movement in net debt in the year 2,510 11,861
Net debt at 1st January 1997 55,129 43,268
--------- -------
Net debt at 31st December 1997 57,639 55,129
--------- -------
3.Analysis of changes in net debt
At 1.1.97 Cashflow At 31.12.97
#'000 #'000 #'000
Cash at bank and in hand 756 145 901
Overdrafts (5,885) (4,655) (10,540)
------- ------- -------
(5,129) (4,510) (9,639)
Debt (50,000) 2,000 (48,000)
------- ------ -------
Net Indebtedness (55,129) (2,510) (57,639)
-------- ------- -------
SAVE GROUP PLC
Preliminary Unaudited Results
For the Year Ended 31st December 1997
Cashflow Notes:
1. The above accounts are not full accounts. The
information relating to the year ended 31st December 1996
is based on full accounts which have been filed with the
Registrar of Companies and upon which the auditors
opinion was unqualified.
2. The exceptional item relates to charges under a Transport
Agreement. These charges have been referred to an
independent expert under the terms of the Agreement,
whose determination has varied the charges in the Group's
favour for all of the periods that have been finalised to
date, but with six months of 1997 still to be finalised.
The finalisation of the remaining determinations could
result in a credit in 1998. The Group has served 12
months' written notice to terminate the Agreement.
The Group has obtained a number of quotations for future
possible contracts. The exceptional item referred to
above equates to the difference between those quotations
and the sum charged under the Agreement. This has been
written off as an exceptional item so as to better
reflect the ongoing performance of the Group. This
amount may reflect that the tanker fleet used on the
current Save business was that acquired by the
Transporter on the 22nd June 1994 for use on that
business in its previous ownership and may not be
comparable with the fleets used by the alternative
quoting companies. Those companies are able to quote on
the basis of their own tanker fleets.
3. Earnings per share: The calculation of earnings per
share is based on the profit on ordinary activities for
the year after taxation of #9,056,000 (1996: #12,096,000)
and on 93,866,758 (1996: 93,866,758) ordinary shares of
25p each, being the weighted average number of ordinary
shares in issue. The calculation of the adjusted
earnings per share of 10.9 pence, is based on the profit
on ordinary activities after taxation for the year and
adding back the charge for exceptional items relating to
the transport contract of #1,687,000 and tax credit
thereon of #531,000 calculated at the standard tax rate
for the year. The adjusted earnings per share has been
presented to better reflect the Group's underlying
performance. Fully diluted earnings per share has not
been disclosed because the dilution is not material.
4. The taxation credit includes a credit of #4.05m (1996:
#4.3m) as a result of timing differences on accelerated
capital allowances on which deferred tax has not been
fully provided. The reduction includes a credit of #1.8m
(1996: #1.8m) being the tax value of capital allowances
disclaimed as at 31st December 1996 of #5.5m, which the
group has claimed in 1997. This credit was achieved as a
result of agreeing the 1995 and 1996 group corporation
tax computations with the Inland Revenue.
As at 31st December 1997 the current total pool for
capital allowances was #22m (1996: #32.5m).
5. The final dividend of 3.9p per share (net) if approved
will be paid on 1st July 1998 to Shareholders on the
Register on 1st June 1998.
Contact: Save Group PLCTel:
R. James Frost, Chairman Tel:01296 436661
John Murgatroyd,
Group Finance Director Tel:01296 395951
Charles Ryland/Tim Anderson
Buchanan Communications Ltd Tel:0171 466 5000
END
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