First Nine Months 2008 Unaudited Consolidated Financial Results

BUCURESTI - 2 decembrie 2008

Comunicat tip General in Auto

According to the consolidated financial results reported today, AAA AUTO Group N.V. returned to profitability on the operating level in the third quarter.

First Nine Months 2008 Unaudited Consolidated Financial Results

Prague / Budapest 28th November 2008 – According to the consolidated financial results reported today, AAA AUTO Group N.V. returned to profitability on the operating level in the third quarter. On a quarterly basis, the Group recorded an EBITDA profit of EUR 1.6 million of which EUR 1.2m was the profit from the first property sale realised by the company. The operating profitability net of the effect of the property sale, measured in terms of the gross profit margin grew to 20.0% in the third quarter of 2008 compared to 17.8% a year ago. This was achieved mainly thanks to the highly profitable financial services. The net loss for the third quarter amounted to EUR 0.24m which represents a reduction of 90% compared to 2Q08 and of 97% compared to 4Q07.
Consolidated financial results for the third quarter of 2008 (3Q08)
• Total revenues of EUR 90.3m (-15.2% quarter-on-quarter)
• Gross profit of EUR 18.0m (-13.3% qoq)
• Despite the quarterly decrease in total revenues and gross profit which reflects the continued weakening demand, profit margins remained strong
• Gross profit margin grew to 20.0% in 3Q08 from 17.8% in 3Q07
• Penetration of financial services grew to 55.4% of all cars sold in 3Q08 from 48.6% in 3Q07
• Contribution of the highly profitable financial services and up-sale products grew to a combined 66.6% of the Group’s gross profit in 3Q08 from 56.4% in 3Q07
• Total operating expenses (OPEX) were reduced by 19.7% in 3Q08 compared to the 2Q08
• The Group achieved an EBITDA profit of EUR 1.6m of which EUR 1.2m was a property sale
• Net loss of EUR 0.24m was reduced on a quarterly basis by 90% from 2Q08 and by 97% from 4Q07

AAA AUTO Group’s total revenues for the first nine months of the year amounted to EUR 312.2m (-10.9% year-on-year). The gross profit on sales was lower by 3.6% compared to the same period last year reaching the amount of EUR 58.9m, while the gross profit margin grew to 18.9% in the first nine months from 17.5% in 9M07.
According to the quarterly results, which is the company’s main focus due to its corrective measures and the changing market conditions, the total revenues amounted to EUR 90.3m in the 3Q08 which represents a decline of 15.2% from 2Q08. This reflects the continued cautious approach of customers towards car purchases in the third quarter as well as shifting demand towards less expensive cars and price pressure on the market (discounts by new car dealers). While some of these trends have been visible on the market throughout the first half of the year, the third quarter brought further change in the market conditions especially towards the end of the quarter when consumer confidence was increasingly undermined in reaction to the global financial crisis. The revenues from financial services declined in the third quarter due to the lower volume of car sales and decreasing average price per car. Similarly revenues from up-sale products declined partially on the back of the shift towards less expensive cars. Despite the decline in the volume of financial services, the customer interest in credit financing per car sold has increased.
As a result, the profitability of the sales, indicated by the gross profit margin, increased to 20.0% in 3Q08. This was thanks to the metal margin (profit margin from cars) being maintained at a strong 7.8% and primarily thanks to the greater contribution of the highly profitable financial services (56.1% of the Group’s gross profit in 3Q08 up from 52.5% in 2Q08). Also the higher penetration of financial services means that in the 3Q a total of 55.4% of cars sold by the Group were financed by a consumer credit or leasing.
After meeting all targets set for 2H08, the company introduced a second round of cost-cutting measures in the third quarter. As part of the program the total operating expenses (OPEX) were cut down by 19.7% in the third quarter compared to the previous second quarter of 2008, of which the personnel costs were reduced by another 16.1%, marketing costs by 33.2% and other operating expenses by 20.8%. The cost savings were achieved in a significant part through a 25% headcount reduction to 2,014 employees as at the end of September from 2,696 at the end of June. (The employee lay-off inflated the personnel costs by severance payments of EUR 0.8m.)
As part of the turnaround strategy introduced earlier this year, the company have aimed to achieve the more efficient Western European business model. The model assumes primarily a strong employee multi-skilling (merging job positions into one), efficient rostering (management of shifts – allocating the best performing salesmen for peak hours) and more efficient stock management. Thanks to the implementation of the model, the number of cars sold per employee grew to 7.3 cars in 3Q08 from 5.6 cars in 1Q08, the personnel cost to gross profit ratio was reduced to 54% from 63% and car stock turnover was reduced to 44 days from 46 days.
The company realised the first three property sales in the third quarter of the year. The net income from the sale of EUR 1.2m was booked under other operating income. The company earmarked over 50% of its property portfolio to be divested within a time span of 6 to 18 months with the priority being to achieve the best possible price rather than an immediate sale. The company plans to realise 5 other property sales in the course of the 1H09, two of which are branches intended to be divested and then rented back from the new owners.
As a result of the combined effect of maintaining the gross profitability at a strong level and of the stringent cost-cutting measures, the company broke even at the operating level in the third quarter. The property sales further helped increase the EBITDA profit to the level of EUR 1.6m. The cumulative EBITDA for the first nine months of 2008 amounted to an operating loss of EUR 3.5m.
The depreciation declined by 20.2% in 3Q08 on the back of the divestment of the above-mentioned three properties. At the level of financial costs, there was a decline in the interest expense in 3Q on the back of the deduction of interests from the principal shareholder’s loan and the reduction of potential forex losses thanks to the debt restructuring which should minimize also future unrealised forex gains/losses. Another contributing factor to the decline in the interest expense was the car stock reduction further to 6,356 cars from 7,220 in the previous quarter.
AAA AUTO Group reported a net loss of EUR 0.24m in the third quarter of 2008 which implies a reduction of 97% compared to 4Q07 when the loss was first realized. On a cumulative basis, the net loss for the first nine months of 2008 amounted to EUR 8.1m.

Outlook 2008
The company released its operational and financial targets for the year-end 2008. The company expects to sell around 60,000 cars by the end of 2008 with a total number of 38 to 39 branches (2 to 3 non-profitable branches are being considered for closure). The car stock is to be lowered to 5,100 cars on the back of the expected low season in the fourth quarter, while the number of employees is planned to be reduced further to 1,300. Also new cap targets for the individual categories of operating expenses have been set to be maintained by the end of the year.
The company will not meet the target, that was set after the first quarter of the year, which was to achieve a break-even point at the level of EBITDA for the whole 2008. The reason is lower-than-expected consumer demand throughout the year and thus the company’s sales and revenue targets for the year end will not be met. Therefore, the company has pursued its program of corrective measures and implemented another round of cost-cutting in the second half of the year. The company has been successfully downsized to the level where it has broken even and achieved an operating profit in the 3Q08.
Outlook 2009
The primary aim of the corrective and cost-cutting measures has been to downsize the company to the level where it would be profitable and achieve a net profit, even at a lower volume of sales. The financial crises arrived in the CE region at a time when the company has already been significantly downsized and made more cost efficient. As the Chief Executive Officer Anthony James Denny commented: “We are better prepared for the financial crises and are in a better position to be profitable even during an economic downturn than we were a year ago.” Denny added: “The market conditions have been tougher than we ever expected and we are at the doorstep of a year which will be very challenging for our sector. However, we’ve been working very hard for the past year on downsizing and streamlining the company and our target is not only to break even but also to achieve a positive net profit in 2009.”

Highlights - Consolidated financial results for the first nine months of 2008

•Total Revenues ... EUR 312.2m (-10.9% yoy; -15.2% qoq)
•Gross Profit on Sales ... EUR 58.9m (-3.6% yoy; -13.3% qoq)
•Gross Profit Margin...18.9% (+1.4pp yoy; +0.4pp qoq)
•Operating Expenses (OPEX) ... EUR 64.7m (+24.4% yoy; -19.7% qoq)
•EBITDA ... EUR -3.5m (n/m)
•EBIT ... EUR -7.3m (n/m)
•Net Profit/Loss ... EUR -8.1m (-90.4% qoq)
• Net Debt / Equity Ratio ... 232% (compared to 276% in 2Q 2007)
•Capital Expenditures (CAPEX) ... EUR 16.2m (-15.7% yoy; -32.8% qoq)
•CAPEX / Revenues Ratio... 5.2% (-0.3pp yoy; -1.5pp qoq)
•Number of Cars sold... 50 040 (-17.0% yoy; -11.5% qoq)
•Number of Car Centers… 41 (+7.9% yoy; 0.0% qoq)
•Number of Employees... 2 014 (-45.0% yoy; -25.3% qoq)

The financial results for the first nine months of 2008 are unaudited, consolidated and prepared according to the International Financial Reporting Standards (IFRS) and fully include all foreign operations of the Group.

(Yoy = percentage change represents a comparison with the same period of last year,
qoq =percentage change represents a comparison with the previous quarter
Gross Profit on Sales = Total Revenues - Costs of Goods Sold
Net Debt / Equity Ratio = (Long and Short-Term Borrowings + Finance Lease - Cash - Financial Assets) / Equity)

Despre AAA Auto

Grupul AAA Auto este operaţional de aproape 16 ani şi s-a extins din Republica Cehă către alte ţari. În prezent, coordonează o reţea de 41 de sucursale în patru ţări: Republica Cehă, Slovacia, Ungaria şi România. Conform rezultatelor auditate Grupul AAA Auto a vândut 79 871 maşini noi si rulate, ajungând la cifra de afaceri de 470 milioane Euro în 2007. În Septembrie 2007, Netherlands controlează Grupul AAA Auto, şi intră la bursa din Praga şi Budapesta. Conform studiilor performante făcute de Ernst & Young Grupul AAA Auto este poziţionat în top 10 al marilor distribuitorilor europeni de maşini în Europa, anul acesta.

Vladan Crha
Group Communications Director
AAA AUTO ● Dopraváků 723 ● 184 00 Prague 8 ● Czech Republic
Tel.:+420 283 068 227