6th Mar 2007 07:04
Inchcape PLC06 March 2007 2006 Preliminary results New strategy delivers record performance Strong platform for growth established Inchcape plc, the leading independent, international automotive retailer,announces its preliminary results for the year ended 31 December 2006. Financial highlights: • Sales up by £300m to £4.8bn; up 7.9%, 7.8% in constant currency (2005:£4.5bn)• Operating profit* up 12.9% at £213.9m, 12.6% in constant currency (2005:£189.4m)• Reported operating profit up 21.3% to £213.9m (2005:£176.4m)• Headline PBT* up 12.4% to £213.9m, 12.0% in constant currency (2005:£190.3m)• Reported PBT up 20.6% to £213.9m (2005:£177.3m)• Headline EPS* up 19.8% to 35.7p, 19.3% in constant currency (2005:29.8p)• Reported EPS up 38.9% to 37.5p (2005:27.0p)• Proposed final dividend up 59% at 10p per share (2005:6.3p) giving 15p for the full year * Before exceptional items Operational & strategic highlights: • Record year with good organic and acquisition led profit growth - Market share improvements in most markets - 34% operating profit* growth outside Asia• Successful start of the new growth strategy: - Existing businesses strengthened: like for like sales up 2.1% - Acceleration of international expansion o Acquisition of Keystar Motors Pty Limited in Australia o Increase of investment in emerging markets, including Russia JV - Transformational consolidation in the UK o Acquisition of Lind Automotive Group and European Motor Holdings plc o Refocus on premium segment• Group margin improvement to 4.4% (2005:4.2%)• Significant further debt capacity and strong cash generation: cash inflow of £274.4m * Before exceptional items Andre Lacroix, Group Chief Executive of Inchcape plc, commented: "Inchcape has delivered another year of record results driven by our strategy ofoperational improvements and expansion in developed and emerging markets. "In 2006, we set out our plan to grow the business over the next five yearsusing our strong balance sheet, excellent operating cash flows and longestablished relationships with our core brand partners. "In the last twelve months we have made significant progress. We have put anumber of new processes in place and invested in management to strengthen ourexisting businesses. We have accelerated our growth with a record performanceoutside of Asia. We have made strategic investments in the UK market and haveincreased the focus on our international expansion, principally in the highgrowth emerging markets. "The foundations of our Group are strong and our strategic direction is clear.Our focus on improving the customer experience and driving operationalexcellence makes us well placed to deliver continued organic growth this year.This, together with the benefit of the acquisition of EMH from 29 January 2007,the full year effect of the Lind acquisition, and our entry into the high growthmarkets of Russia and China, mean that we look forward to 2007 with confidence." For further information, please contact: Group Communications, Inchcape plc+44 (0) 20 7546 0022Investor Relations, Inchcape plc+44 (0) 20 7546 8432Financial Dynamics (Jonathon Brill/Billy Clegg)+44 (0) 20 7831 3113 Notes to editors Inchcape plc is the leading independent, international automotive retailer, withscale operations in Australia, Belgium, Greece, Hong Kong, Singapore and theUK. The Group also has operations in a number of other markets, includingEastern Europe, the Baltics, Russia and South America. In addition to growingits core businesses, Inchcape is looking to develop scale operations in new andemerging regions. It represents leading automotive brands and operates either aretail, or a vertically integrated retail model (i.e. exclusive distribution andretail), depending on the market. Inchcape's core brand partners areAudi, BMW, Honda, Mazda, Mercedes-Benz, PAG, Subaru, Toyota/Lexus and Volkswagen. For further information, visit us at www.inchcape.com Chairman's statement Headline profit before tax £m 2006 2005 Profit before tax 213.9 177.3 Exceptional items - 13.0 Headline profit before tax 213.9 190.3 Highlights 2006 has been another successful year for the Inchcape Group, delivering strongfinancial, operational and strategic progress. Group sales have increased by7.9% to £4.8bn for the full year 2006 benefiting from a combination of organicgrowth and significant acquisition activity. Like for like sales increased by2.2%. Headline profit before tax and exceptional items of £213.9m was 12.4%higher than 2005 and Headline earnings per share rose 19.8% to 35.7p. To reflectthis success and our continued confidence for future performance we have raisedthe full year dividend by 58% to 15.0p per share. We have experienced solid performances from both our Distribution and Retailsegments. In Distribution we achieved record sales in Europe where we recoveredour market leading position in Greece, and in Australia we achieved yet anotherrecord market share. In the Retail segment sales were up 15.3% with like forlike sales up 3.1% boosted by our focus on improving our customer serviceprocesses and practices. Our broad geographic spread and diversity of earningsmitigated the softer performances by our Asian businesses and helped us achieveanother year of record sales and profit as an automotive group. As well as a continued focus on our core business, we have made a number ofimportant acquisitions in 2006. In February we expanded our Australian presencewith the acquisition of Keystar Motors Pty Ltd (Keystar), establishing a retailpresence in the fast growing Brisbane market. In March we announced our first entry into the exciting, high growth Russian market through a joint venture withthe Independence Group of Companies, one of Moscow's leading independent carretailers. We will open two retail and service centres in Moscow for Toyota, oneof the most successful foreign brands in Russia, early in 2008. We announced oursecond move into the Russian market in August 2006 with the acquisition of amajority stake in an already successful and established Toyota and Lexusbusiness in St Petersburg, Russia's second largest market. China is also an exciting market for Inchcape representing substantial growthopportunities. In December 2006 we completed the construction of our firstToyota greenfield site in Shaoxing. We have also been awarded Lexus franchisesin Shaoxing and Shanghai which we anticipate will begin trading towards the endof 2007, early 2008. In the UK consolidation of the automotive retail market has also continuedthroughout 2006, as we predicted. In July 2006 we acquired the scale LindAutomotive Group Holdings Limited (Lind) business and in December 2006 weannounced the public offer for the acquisition of European Motor Holdings plc(EMH). This completed in January 2007. Both these acquisitions allow us to takea major step forward in our strategy and create a unique force in the UK automotive retail market. They significantly expand our presence in the south, east and north of Englandand in the premium brand sector, which is the most profitable and fastestgrowing part of the UK market. Looking forward, this creates a platform fromwhich to deliver growth and improved returns, based on fewer, larger scale andstronger relationships with our core brand partners. We are confident that theend result will give us the ability to deliver superior performance both for ourbrand partners and our customers. Dividend The Board is recommending the payment of a final ordinary dividend for the yearof 10.0p (2005 - 6.3p). This gives a total dividend for 2006 of 15.0p, which is58% above the 2005 dividend of 9.5p. This growth reflects our continuing confidence in the business and its future and is consistent with our stated aimof maintaining a progressive dividend policy to shareholders. The full year dividend is covered 2.4 times by Headline earnings per share (2005 - 3.1 times). Subject to approval at the Company's Annual General Meeting (AGM) on 10 May2007, the final dividend will be paid on 15 June 2007 to shareholders on theregister on 18 May 2007. Share buy back and share split In May 2006 we carried out a six for one share split. Our equity was trading atmore than £29.00 per share, which was comparatively high for shares traded onthe London Stock Exchange. We felt that many shareholders would prefer to dealat a lower price per share and therefore sub-divided each existing ordinaryshare into six new ordinary shares. This further increased liquidity in thestock. The Group has successfully concluded its £65.0m share buy back programme (2006 - £34m) through the purchase of 17.9m shares, now held in treasury, at anaverage price of £3.64 per share. Board changes On 17 September 2006, Graeme Potts stepped down from the Inchcape plc Board,leaving the Group after four years. During this time he significantly improvedthe performance of our UK businesses and he left us with an excellent managementteam in place. We wish Graeme the very best in the next stage of his career. People Our goal of being the world's most customer-centric automotive retailer isenergising everyone within Inchcape. As ever, on behalf of the Board, I wouldlike to thank all of our colleagues for their hard work, pride and commitment indelivering the 2006 performance. Trading prospects The foundations of our Group are strong and our strategic direction is clear. Our focus on improving the customer experience and driving operationalexcellence makes us well placed to deliver continued organic growth this year.This, together with the benefit of the acquisition of EMH from 29 January 2007, the full year effect of the Lind acquisition, and our entry into the high growthmarkets of Russia and China, mean we look forward to 2007 with confidence. Peter JohnsonChairman5 March 2007 Chief Executive's review A strong legacy Inchcape has achieved a remarkable strategic turnaround since our move to focuspurely on the automotive sector in 1999. Since then, we have enjoyed significantearnings growth and stock value creation for our shareholders and ourcolleagues. This has generated a high level of pride and energy in the businessand I am proud to have inherited such a strong legacy. We have made further progress in 2006, strengthening our core business asdemonstrated by the like for like sales growth of 2.1% and like for like operating profit (before exceptional items) growth of 10.3%, at constant currency. At the same time we have played a leading role in the consolidation ofthe automotive industry. We have expanded our reach in Australia and, via the transformational acquisition of EMH announced in December and that of Lind in May, have taken a major strategic step forward in the UK. We have also entered the fast growing markets of Russia and China. I am very excited at the wealth ofexpertise and knowledge we have acquired and welcome our new colleagues to the Inchcape family. Strategy and vision In October 2006 we outlined our strategic plan to our investors: how we willcontinue to build on our success and further leverage our unique business modelto drive the next stage of growth and value creation for our shareholders. Our vision for the Company is simple. It is to become the world's most customer-centric automotive retail group, exceeding the expectations of our brand partners and our customers, every day and everywhere. I am convinced that in the future a key differentiator for automotive customerswill be the service that they receive from their retailer. An outstanding customer experience, delivered consistently, will generate higherreturns from our existing assets, based on higher conversion and loyalty rates.Our research has identified key opportunities to make sure our customers 'feelspecial' and to create a world-class retail experience. When combined with our global scale and local operational excellence, deliveringexceptional customer service will make us the brand partner of choice andincrease our access to attractive expansion opportunities. This customer-centric vision is not limited to our Retail vision for Inchcape;it also applies to our Distribution operations. As a distributor, our aim is todeliver an outstanding customer experience for the brands we represent throughboth Inchcape-owned and third-party retail outlets. I am convinced that the onlyway to be successful as a distributor is to truly think and act as a retailer. Strategic priorities In order to deliver our next stage of growth we have identified two strategicpriorities: to strengthen our existing core business through customer-centricoperational excellence, and to expand in developed and emerging markets. Strengthen In strengthening the business our goal is to increase the profitability of everysingle operation in every single country. Thus we are seeing an increased focuson the customer to drive like for like sales growth and on operationalexcellence to drive like for like profit growth. The former is being driven by our long term, Group-wide programme, InchcapeAdvantage designed to codify the way we deliver an outstanding customerexperience every day, every time, everywhere and at each stage of the customerjourney. We are introducing a new suite of customer focused standards, findingways to share best practice across the Group and trialling new and innovativeways to deliver a special customer experience. We want to give an advantage toour brand partners by being the best distributor or retailer of their brand. In our push for like for like trading profit growth, we are increasing our focuson achieving operational excellence from our value-drivers: vehicles, serviceand parts. Expand I am equally excited by our expansion agenda. We plan to invest significantlywith our core brand partners in developed and emerging markets. We willaccelerate our Retail expansion, develop new Distribution opportunities andcreate four additional scale markets taking our core markets from six to tenover the next five years. In developed markets we will continue to play a leading role in the industryconsolidation to increase our share of the national volume with our core brandpartners. The management of fewer, bigger, better retail sites is leading, asexpected, to improved retail standards for the customer and creates scalevehicle and aftersales operations for us, enabling investment in strongmanagement and infrastructure to generate higher returns. As our brand partners pursue their expansion plans in the high growth emergingmarkets, they are immediately developing first class retail networks, learningfrom and leapfrogging the developed countries experience to build fewer, biggerand better retail sites with world-class retail standards. They therefore needstrong and professional retail partners with significant financial capacity todevelop their retail network in these markets. We are well placed to takeadvantage of these opportunities and it is our intention to increase our retailpresence in Romania, Bulgaria, Latvia, Estonia and Lithuania. In terms of new markets, we are now creating scale operations in both Russia andChina. Russia's car market is the largest in Central and Eastern Europe and isexperiencing rapid growth. In recent years foreign brands' share of overallsales in Russia have been increasing strongly with a 65% increase in sales in2006 to over one million units. In January 2007, we completed our acquisition of a 75.1% shareholding in theToyota/Lexus retail and service business of Axel Car in St Petersburg, the firststep in our expansion strategy for this high growth market. We have also announced plans to enter the Moscow market, through a joint venturewith the Independence Group of Companies, one of Moscow's leading independentcar retailers, to establish two Toyota retail and service centres in Moscow.These retail centres are expected to open in 2008. China is another market where I see substantial growth for the Group. The marketis growing fast and has overtaken Japan as the second largest in the world, upby 35% in 2006. The construction of our first Toyota dealership in Shaoxing (4.3 millioninhabitants) from a greenfield site was completed in December 2006. We have alsobeen awarded the Lexus franchise for Shaoxing which will open in the fourthquarter of 2007 as well as the Lexus franchise for Shanghai, due to open inearly 2008. Our people I have a strong belief that it is our people who make the difference. We have anenergising Human Resources agenda in place around recruitment, motivation,remuneration and training. We employ a decentralised but co-ordinatedorganisational model. Our local businesses are empowered and resourced to makefast decisions while the Group enjoys good synergies based on global bestpractice and consistent standards. The next stage of growth I believe that Inchcape has tremendous growth opportunities; I expect ourstrategy to deliver a healthy balance between like for like profit growth andacquisition expansion. Our formula for delivering exceptional shareholder returns is very compelling.Our business platform is exceptionally strong. Our model is unique in theautomotive industry with a balanced geographic spread between developed andemerging markets. We enjoy market leadership positions in key markets with best-in-class margins.And we have enduring relationships with winning brand partners supported by astrong and professional management team. Added to this, our performance track record is outstanding. Our existingportfolio is highly cash generative and every market has contributed to the lastfive years' profit growth. With our clear strategic focus we will seize major growth opportunities bothorganically and through acquisition. We have good financial flexibility and asolid track record of both successfully integrating acquisitions and driving thebusiness forward organically. This is why we are leading the industry as an independent, internationalautomotive retailer and we are excited about the growth opportunities ahead forour shareholders, brand partners and our people. Andre LacroixGroup Chief Executive5 March 2007 Operating and financial review Regional Analysis 2006 2006 2006 2005 2005 2005 Operating Exceptional Operating Operating Exceptional Operating profit items profit* profit items profit* £m £m £m £m £m £mAustralia 38.5 - 38.5 31.9 - 31.9Europe 38.3 - 38.3 29.2 - 29.2Hong Kong 24.0 - 24.0 28.8 - 28.8Singapore 58.6 - 58.6 62.1 - 62.1United Kingdom 45.9 - 45.9 9.7 19.5 29.2Emerging Markets 12.1 - 12.1 7.0 - 7.0Rest of the World 21.4 - 21.4 20.0 - 20.0Central costs (24.9) - (24.9) (12.3) (6.5) (18.8)Operating profit 213.9 - 213.9 176.4 13.0 189.4 *Before exceptional items Key Performance Indicators The Inchcape plc Board of Directors and the executive management monitor theGroup's progress against its strategic objectives and the financial performanceof the Group's operations on a regular basis. Performance is assessed againstthe strategy, budgets and forecast using financial and non-financial measures.The key performance indicators which are monitored on a Group wide basis are: - Vehicle market size- Vehicle market share- Revenue (hereafter termed sales)- Like for like sales growth- Trading profit- Like for like trading profit growth- Trading margins Trading profit is defined as operating profit excluding the impact ofexceptional items and central costs. Like for like sales and trading profit growth excludes the impact ofacquisitions from the date of acquisition until the thirteenth month ofownership, and businesses that are sold or closed. It further removes the impact of retail centres that are relocated. This is fromthe date of opening until the thirteenth month of trading in the new location. To enhance comparability, we review the results in a form that isolates theimpact of currency movements from period to period by applying the December 2005exchange rates to both periods' results (constant currency). Unless otherwisestated all sales and trading profit figures in the Operating Review are providedin constant currency. Group 2006 has been a good year for Inchcape with operating profit before exceptionalsup 12.9% to £213.9m on sales up 7.9% to £4.8bn at actual exchange rates. All ofInchcape's core businesses contributed to this growth, with the exception of Hong Kong and Singapore, which experienced challenging market conditions. This once again demonstrates the strategic strength of our broad geographic spread. The operating profit for the Group, of £213.9m was 21.3% above 2005 including exceptional items. Excluding exceptional items Headline profit before tax was up12.4% to £213.9m at actual exchange rates and Headline earnings per share increased by 19.8% from 29.8p to 35.7p. To enable a better understanding of the Group's results we have, for the firsttime, provied an analysis of the two segments of our business. Distribution andRetail, by geographic region. We are also reporting Emerging Market's resultsseparately so that shareholders obtain specific information on this growing partof our business. We define Emerging Markets as those markets in which we operateand where the total new vehicle volume sales by international brands are growingby 10% or more per annum. This additional information is provided in note 1. Our focus on improving customer service and operational excellence in our Retailbusinesses, the benefit of new competitive Toyota/Lexus vehicles, particularlyin the European Distribution operations, and the growth of our Eastern Europeanoperations, has underpinned like for like sales up 2.1% and trading profit up10.3% year on year. Distribution posted a solid performance in 2006. Like for like sales increasedby 1.1% with trading profit up 4.4%. The European and Emerging Markets Toyota/Lexus Distribution businesses all benefited from new models stimulating consumerdemand. In Europe an all time high vehicle market in Belgium and strong partsand accessories growth, supported Belgium Distribution achieving record salesand trading profits in 2006. The Greek Toyota/Lexus Distribution businessrecovered well after a challenging 2005, generating record trading profits in2006 with Toyota regaining market leadership. The Emerging Markets Toyota/Lexusbusinesses continued to grow at a rapid pace with like for like sales up 39%compared to 2005. Australia Distribution achieved another year of record salesand market share, despite a slightly declining market, as it focused on a numberof Subaru limited edition vehicle campaigns. Both Hong Kong and Singapore suffered continued competitiveness in theirmarkets. In Hong Kong we retained our dominant market share by improvingpenetration in the passenger car segment which offset lower public bus salesyear on year. However, a lower overall market impacted vehicle volumes. This,together with the non recurrence of warranty service work, impactedprofitability. In Singapore the increase in parallel imports stimulated marketgrowth in 2006. The discontinuance of certain niche models, and taxis fromOctober, together with the competitive pressure from parallel importers impactedperformance. The Retail businesses sales were up 15.5%, benefiting from both acquisitions andunderlying organic growth. In the early part of 2006 the Group acquired KeystarMotors Pty Ltd (Keystar) in Australia, extending our retail presence into theBrisbane market. In July we acquired Lind Automotive Group Holdings Ltd (Lind)in the UK, increasing our scale of operations and our geographic presence in thesouth and east of England. Integration of these businesses is progressing well. We also opened eighteen new greenfield or refurbished retail centres during theyear, primarily in the UK, Bucharest and Belgium. All these acquisitions, greenfield and newly refurbished operations contributed significantly to theRetail division's growth in 2006. Excluding acquisitions, like for like retail sales were up 3.4% for the yearended 31 December 2006. This organic growth is due to our focus on becomingtruly customer-centric and improving our customer service processes and practices throughout our Retail businesses. This is despite retail in virtually all our territories becoming more competitive during the year. These higher sales together with tight cost control have improved operatingmargins from 1.5% in 2005 to 2.2% in 2006. Australia % change % on 2005 2006 2005 change (constant £m £m on 2005 currency)Sales 616.6 612.7 +0.6 +3.2Trading profit 38.5 31.9 +20.7 +23.8 The vehicle market remained fundamentally strong at 962,666 units, althoughbelow the all time high of 2005. Market conditions continued to be competitive,becoming more price and engine size sensitive during 2006. Subaru achieved an eleventh consecutive year of unit sales growth retailing 37,520 vehicles. Increased sales across all core models, assisted by limited special edition campaigns and higher fleet sales generated sales volumes up 4.1% compared to a market that was down 2.6% in the year. Subaru's full year market share of 3.9% was 0.3 percentage points (ppts) ahead of 2005. This was yet another record level. The Distribution business achieved like for like sales up 1.1% in 2006constrained by a competitive market and a change in mix towards smallervehicles. Distribution margins recovered after the pressure suffered in 2005,mainly due to the appreciation of the Australian Dollar/Japanese Yen foreign exchange rate. The Business Services operation, AutoNexus, had another strong year. It hasbenefited from the investment in a new parts warehouse in Sydney and fromseveral new fitment contracts. The Retail division, benefited from our clear and consistent strategy to focuson excellent customer service departments. We transferred outstanding processesand procedures in the vehicles, parts and service from our Melbourne operationthroughout the division. This contributed to a rise in like for like sales of2.0% in the year despite the declining market. This allied with tight costcontrol assisted like for like trading profit up by 33%. This organic growth,together with the benefit from the exit in 2005 from underperforming non coreSydney retail centres, and the acquisition of Keystar, led to sales up 7.2% inthe year. Trading profits were up over 64% compared to 2005. Overall a strong progression in our Distribution and Retail division contributedto total sales up 3.2% whilst trading profits improved 23.8% in 2006. Marginsexpanded from 5.2% to 6.2%.In 2007 Subaru will continue to benefit from the newTribeca launched in November 2006, expanding the Subaru model range. In thesecond half of 2007 Subaru will launch the next generation Impreza which whenallied with special editions across ageing model ranges should stimulate brandmomentum. The Retail division will benefit from the opening of the new greenfield retail centre in Fountaingate in Melbourne and a continuous focus onimproving customer service and operational experience throughout the division. Europe % change % on 2005 2006 2005 change (constant £m £m on 2005 currency)Sales 1,202.7 1,034.6 +16.2 +16.2Trading profit 38.3 29.2 +31.2 +31.2 The Toyota/Lexus businesses in Europe benefited from new competitive models,including the RAV4, Yaris, Aygo, Lexus IS diesel and RX hybrid models supportingorganic progression. In Belgium improvement in general consumer confidence stimulated vehicle demandin 2006. The market achieved an all time high at 595,598 units in 2006, up 7.8%compared to 2005. Despite the run out of the Corolla, it achieved all timerecord sales supported by special editions. This together with the newcompetitive product assisted Toyota/Lexus' share of the market to increase from5.0% in 2005 to 5.4% in 2006. Distribution like for like sales were up 12.2%, supported by stronger vehiclesales and by higher parts and accessories sales. This increased performance,together with focused marketing spend, improved like for like trading profit by7.1%. The Retail division progressed well in the year benefiting from organicexpansion, the opening of the new greenfield Lexus Waterloo centre and theacquisition of Horemans in late 2005. In aggregate retail sales were up 40%.This, allied with continued tight overhead control led to Retail's tradingprofit increasing by 67% year on year. Overall good progression in both the Distribution and Retail divisions resultedin total sales up 17.4% to £529.5m. Belgium achieved record trading profits of£15.9m. On a like for like basis and excluding the effect of a non-recurringone-off benefit arising in 2005, trading profit was up 20% in 2006. Some stabilisation is expected in the Belgium market in 2007. However the launchof the new Toyota Auris to replace the Corolla Hatchback model, the nextgeneration Corolla sedan and the focus on the hybrid Lexus models should bebeneficial to sales in 2007. The Greek performance recovered in 2006 after a disappointing year in 2005. Having suffered significant weakening in consumer demand in 2005 after theOlympics, the Greek vehicle market stabilised at 291,419 units in 2006. Similarto Belgium, Toyota benefited from new competitive models, particularly the RAV4and the Aygo. This, allied with the benefits of an investment programme by the dealer network upgrading operational facilities, significantly strengthened momentum for the Toyota brand. Toyota regained market leadership for the full year in 2006, increasing its market share to 9.8%, 1.3ppts ahead of 2005. Despite a flat market, Distribution's like for like sales increased by 16.0%.This was underpinned by growth in both vehicle volumes and parts' sales. Tightoverhead control generated trading margins up from 6.5% to 7.2% for 2006.Overall this generated a 28% increase in Distribution's like for like tradingprofit year on year. The new Toyota competitive product, improved customer service and retailoperational processes stimulated Retail like for like sales up 18.8%. Thesehigher sales helped the Retail business exit 2006 at a reduced loss. Overall significant progression in both the Greek Distribution and Retaildivisions resulted in sales up 16.4% to £349.7m, whilst trading profits improved43% to £19.8m. This is a record performance. Strengthening in consumer demand is anticipated to restore growth in the Greekvehicle market in 2007. Similar to Belgium, Toyota in Greece will launch a newToyota Auris model and a Corolla sedan. The enhanced Hilux pick-up commercialvehicle will benefit from an improved engine and load capabilities which shouldstimulate Toyota sales in the commercial segment of the market. In 2006 the vehicle market in Finland contracted, down 1.7% on 2005. After achallenging 2005, the Distribution business recovered well. Tactical marketingcampaigns improved Mazda's market share by 0.3ppts in the year to 3.7%. Overall our Finland business generated a trading profit of £4.7m up 22%. In France we undertook a restructuring programme to focus our operations on thesouth west region in the market areas of Bordeaux, Toulouse and Montpellier. Weexpect to see the benefits of this restructuring in 2007. Our business in Poland has had a challenging year resulting in a trading loss,though this was £0.4m lower than 2005. Hong Kong % change % on 2005 2006 2005 change (constant £m £m on 2005 currency)Sales 224.8 242.3 -7.2 -6.4Trading profit 24.0 28.8 -16.7 -15.6 The Hong Kong vehicle market was 30,099 units in 2006. This was 646 units, 2.1%,below 2005. However 2005 benefited from a Government fiscal incentivisation toconvert Coaster public buses to liquid petroleum gas (LPG). Excluding thiseffect the underlying vehicle market was slightly up year on year. This wasparticularly prevalent in the passenger car market where consumer demand startedto improve during the second quarter of 2006, primarily towards the luxury endof the market. Overall the passenger car market was up 2.8% versus 2005. Crown Motors, our Toyota/Lexus business, leveraged its dominant market positionin 2006 to drive consumer demand in the competitive environment. At thebeginning of the year demand was affected by the run out of several core modelswhilst competitors launched new products. However, this improved in the secondhalf, as we benefited from new competitive product, including the Camry, Previaand various Lexus models. This allied to marketing campaigns celebrating the fortieth anniversary of CrownMotors' selling Toyota vehicles in Hong Kong, led to Crown Motor's market shareincreasing to 35.1% for the second half of 2006. This compensated for the weakerfirst half and lower public bus sales year on year. Overall, Crown achieved amarket share of 33.7% in 2006, flat with 2005. Despite a flat market share, vehicle sales reduced year on year due to thedecline in the market. This together with a weaker vehicle mix and thenon-recurrence of one-off warranty work experienced in 2005, impacted sales.Overall sales in Hong Kong were 6.4% lower than 2005. Although trading margincame under pressure in the competitive market, at 10.7% it still remains one of the highest in the Group. Trading profit was 15.6% below 2005. We continue to focus on aftersales to broaden the sales base. Like for like aftersales revenuewas up 5.9% year on year. Demand in the Hong Kong vehicle market is expected to increase in 2007 driven byGovernment fiscal incentives associated with the purchase of vehicles with lowemissions and high fuel efficiency. Incentivisation will also be offered tostimulate replacement of ageing pre-Euro and Euro 1 diesel commercial vehicleswith Euro IV compliant models. Following the sale in January 2007 of Inchcape's50% stake in Inchroy Credit Corporation Ltd, a financial services joint venture,we are now implementing a market forces finance and insurance model similar tothat successfully used in the UK. Singapore % change % on 2005 2006 2005 change (constant £m £m on 2005 currency)Sales 659.5 719.6 -8.4 -11.4Trading profit 58.6 62.1 -5.6 -8.7 Our Toyota/Lexus business in Singapore experienced a challenging year in 2006facing a year on year decline in a market stimulated by parallel imports. Thiswas partially compensated for, however, by a very strong performance by theSuzuki franchise which benefited from new competitive models particularly in thesmaller passenger car segment. Parallel imports of vehicles into Singapore, primarily from Japan, haveincreased 113.8% in 2006 to 20,860 units. This is due to the earlier launch andbroader model offering of new competitive Toyota models in Japan, allied with aweakening in the Japanese Yen benefiting Singapore consumers. This has supporteda record market of 136,109 units in Singapore in 2006, up 3.2% on 2005. In the face of competitive market conditions, particularly from parallelimporters. Borneo Motors, the franchise Toyota/Lexus retailer in Singapore,maintained a dominant market leadership in the period at 27.1%. This was 2.6 ppts down on the full year 2005. Demand was stimulated by thelaunch of the new Camry model in the second half of 2006. However, this was morethan offset by the discontinuation of the popular Lexus ES300, Liteacecommercial vehicle, lower taxi sales, and the slow down in ageing key modelsales, particularly the Corolla Altis and Picnic models. Lower vehicle sales volumes together with continued margin pressure,particularly around finance and insurance affected Borneo's profitability.Similar to Hong Kong, the business continues to focus on aftersales to broadenthe sales base. Like for like aftersales growth was up 15.2% year on year. The Suzuki franchise generated an excellent performance in 2006. It benefitedfrom strong consumer demand for the new Swift and APV models. Like for likesales were up 32% and trading profits were up over 110% in the year to £5.5m. Overall, Borneo's softer performance was mitigated in part by a strong Suzukiprogression. This resulted in sales down 11.4% and trading profit down 8.7% on 2005. Suzuki's performance assisted margin progression from 8.6% in 2005 to 8.9%. The Singapore vehicle market is expected to decline in 2007. In addition, newemission regulations will result in the absence of Singapore taxi sales which isexpected to impact profitability by around £3.0m year on year. United Kingdom % change % on 2005 2006 2005 change (constant £m £m on 2005 currency)Sales 1,711.9 1,530.3 +11.9 +11.9Trading profit 45.9 29.2 +57.2 +57.2 The UK vehicle market continued to decline in 2006 to 2.34m units, 3.9% below2005. UK Retail's like for like new vehicle sales outperformed the market in2006. Despite a tactical withdrawal from low margin fleet sales (like for likesales decreased by 13.1%) Inchcape's like for like new vehicle sales were only1.0% back on 2005. The strategic expansion of UK Retail, particularly the fullyear effect of the acquisition of new Mercedes-Benz dealerships in the northwestin mid 2005 and Lind from July 2006, supported total new vehicle volumes up11.4% year on year. Continued focus on process improvements, operational excellence and customerinitiatives assisted the growth in the core business. In competitive marketconditions like for like used car sales were up 2.5% and like for like service hours improved by 6.2% compared to 2005. This mitigated the softening experienced in like for like new vehicle sales. Overall like for like sales were0.6% lower than last year. Tight overhead cost control and higher manufacturer bonuses assisted like for like margins to improve from 2.0% in 2005 to 2.6% in 2006. This generated like for like trading profit of £36.2m in 2006, 28.6% up on 2005. This strong organic performance together with the full year impact of acquisitions generated sales up 14.0% year on year. Trading profit increased by46.1% to £42.1m. The integration of Lind is well underway and we are generating synergies from the combined businesses. Our Fleet Solutions business had a good year with trading profit up 19.7%; thiswas assisted by increased rental and fleet income and a reduction in overheads. Inchcape Automotive continued to benefit from the actions taken in 2005 toimprove production efficiency, reducing the full year loss by £2.8m compared to2005. Overall our UK businesses achieved a growth in sales of 11.9% to £1.7bn in 2006.Furthermore, strong trading margin progression led by an impressive UK Retailperformance and the improvement in our Inchcape Automotive business, has delivered UK trading profit improvements of 57% to £45.9m in 2006. This is a record level. We have now finalised the planned review of the UK business following theacquisition of EMH, completed in January 2007. As a result of our strategy tofocus on the premium segment of the market with those franchises with whom wecan achieve scale, we will be disposing of non core franchises. We intend todispose of up to forty seven UK sites, comprising Bentley, Ferrari, Ford, Kia,Maserati, PAG (Jaguar, Land Rover and Volvo), Renault and Vauxhall. We arefocused on improving the operating margins, streamlining our overheads andincreasing the productivity of our resultant UK business. We also intend todispose of our Inchcape Automotive UK operation. Emerging Markets % change % on 2005 2006 2005 change (constant £m £m on 2005 currency)Sales 201.2 134.6 +49.5 +49.5Trading profit 12.1 7.0 +72.9 +72.9 The Bulgarian and Romanian markets grew at a fast rate, up 34%. The businessesachieved a market share of 5.2%. In this dynamic environment, our businessescontinue to develop, generating like for like record sales up 37%. A newgreenfield flagship 3S retail facility in Bucharest opened in June supportingoverall sales up by 43%. Overall trading profit increased in the Balkans by 57%to £10.6m, a record level. The Baltic markets of Estonia, Latvia and Lithuania continued to enjoy anotheryear of rapid growth, up 38% in 2006. Our businesses have outperformed themarket, improving market share from 5.3% in 2005 to 5.6% this year. The focus onoperational excellence across vehicle, service and parts underpinned like forlike trading profit up by 300% in the period to £1.0m. Rest of the World % change % on 2005 2006 2005 change (constant £m £m on 2005 currency)Sales 225.4 214.0 +5.3 +6.1Trading profit 21.4 20.0 +7.0 +7.0 We retained a dominant market leadership position in Guam, Saipan and Brunei.The businesses experienced a good year with like for like trading profits up2.6%. Our Ethiopian business continues to perform extremely well and 2006 has been anexcellent year. Like for like sales increased by 29%, and trading profitincreased by 35% to £8.4m, primarily due to increased vehicle, service andrecord parts' sales. Our Subaru business in New Zealand had a challenging year in competitiveconditions. In South America trading profit was marginally behind the record performance in2005. Central costs Central costs for the full year are £24.9m, £6.1m higher than last year. This isas a result of our continued investment in new management, systems and processesto facilitate the next phase of growth of the Group, and costs relating toexecutive management changes. Financial Review Joint venture and associates The share of profit after tax of joint ventures has decreased to £5.9m in 2006from £6.2m in 2005. This is mainly due to a reduced contribution from ourfinancial services joint venture in the UK following the implementation of amarket forces model by our UK Retail business. In December 2006 we announced the disposal of Inchcape's 50% stake in InchroyCredit Corporation Ltd, a financial services joint venture. This disposal wascompleted in January 2007 at a profit to the Group of c.£15.0m, and we are nowimplementing a market forces finance and insurance model similar to thatsuccessfully used in the UK. Exceptional Items The exceptional tax credit of £8.0m reflects the favourable settlements in 2006of corporation tax treatment of the VAT recovery and associated net interestincome received by the Group in 2003 and 2004. Net finance costs The net finance charge of £5.9m for 2006 was £0.6m higher than 2005. The financecharge benefited by £2.4m from an improvement in notional pension interestincome partly due to a lower discount rate in 2006 but also due to the £37.6mone-off contributions made to the pension funds. This was offset by higherfinancing costs primarily due to the Lind acquisition undertaken in July 2006. Tax The subsidiaries Headline tax rate before exceptional items for 2006 is 21.7%,reduced from 25.5% in 2005. Following the resolution of certain prior year issues, including tax treatmentof capital expenditure together with improved performance in our UK businesses,the Group has been able to re-assess its deferred tax position on therecognition of losses and available allowances. As a result a deferred tax assethas been recognised which, together with the successful resolution of overseastax audits, has contributed to the lower rate of 21.7%. For 2007, it is expected that the rate will increase towards the blended rate ofapproximately 25%. Minority interests Profits attributable to minority interests decreased from £3.8m in 2005 to £2.9min 2006. This is due to the acquisition of the minority shares of TM Auto Ltd inBulgaria in March 2006. Cash flow The Group's working capital is £84.5m. This is c.£42.0m better than last yeardue to tight management control and is despite a 7.9% increase in sales in 2006. The Group continues to be strongly cash generative with cash flow fromoperations of £236.8m, which is 111% of operating profit. During the year theGroup returned £86.6m to shareholders with £52.6m through dividend payments and£34.0m through the share buy back programme. In addition the Group invested£190.3m in acquisitions and net capital expenditure in 2006 and acquired 18.55%of the shares in EMH for £49.2m. Overall the Group had a net debt position of£19.0m at 31 December 2006 compared to net cash of £158.0m at 31 December 2005. Pensions During the year, the Trustees Boards of two of the Group's UK defined benefitpension schemes carried out their triennial valuation of the pension funds. InMarch 2006, in advance of these valuations the Group agreed a funding programmeto address the deficits in these schemes. This programme included making one-offcontributions totalling £37.6m to the schemes during 2006. This, together withimproved return on assets during the year has reduced the pension deficit from£69.4m at 31 December 2005 to £22.7m at 31 December 2006. It is anticipated thatadditional contributions of c.£49.0m will be made to two of the Group's UKdefined benefit pension schemes over the following five years to address theirfunding deficit. Acquisitions and disposals The Group announced significant expansion during the year, investing £147.9m inacquisitions. Of this, £94.3m of this related to the acquisition of Lind in July2006. Including net debt acquired the total acquisition cost was £107.9m. Thissizeable acquisition enhanced the geographic coverage of our Retail operationsin the south and east of England. In December 2006 Inchcape entered the St Petersburg market in Russia with theacquisition of 75.1% of the scale Toyota/Lexus operations formerly owned byOlimp Group for a consideration of £34.5m. Also in December the Group announcedits offer for the acquisition of the shares of EMH. As part of this, in midDecember it acquired an 18.55% stake for £49.2m. The £262.9m acquisition wascompleted on 29 January 2007 from which date the results of EMH will beconsolidated into the Group figures. Capital expenditure The Group maintained its policy of investing to improve the quality andoperating standards of its retail centres and to develop new greenfield retailcentres. Net capital expenditure of £42.4m was made in the period, principallyin UK Retail, Belgium and Romania. Barbara RichmondGroup Finance Director5 March 2007 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Before exceptional Exceptional items items Total 2006 2006 2006 £m £m £mRevenue 4,842.1 - 4,842.1Cost of sales (4,132.3) - (4,132.3)Gross profit 709.8 - 709.8Net operating expenses (495.9) - (495.9)Operating profit 213.9 - 213.9Share of profit after tax of joint ventures and associates 5.9 - 5.9Profit before finance and tax 219.8 - 219.8Finance income 49.0 - 49.0Finance costs (54.9) - (54.9)Profit before tax 213.9 - 213.9Tax (45.1) 8.0 (37.1)Profit for the year 168.8 8.0 176.8 Attributable to:- Equity holders of the parent 173.9- Minority interests 2.9 176.8 Basic earnings per share (pence) 37.5pDiluted earnings per share (pence) 37.1p Before exceptional Exceptional items items Total 2005 2005 2005 £m £m £mRevenue 4,488.1 - 4,488.1Cost of sales (3,847.4) - (3,847.4)Gross profit 640.7 - 640.7Net operating expenses (451.3) (13.0) (464.3)Operating profit 189.4 (13.0) 176.4Share of profit after tax of joint ventures and associates 6.2 - 6.2Profit before finance and tax 195.6 (13.0) 182.6Finance income 44.7 - 44.7Finance costs (50.0) - (50.0)Profit before tax 190.3 (13.0) 177.3Tax (46.9) - (46.9)Profit for the year 143.4 (13.0) 130.4 Attributable to:- Equity holders of the parent 126.6- Minority interests 3.8 130.4 Basic earnings per share (pence) 27.0pDiluted earnings per share (pence) 26.8p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 £m £m Cash flow hedges (21.8) (1.5)Movement on available for sale financial assets (1.9) 2.3Effect of foreign exchange rate changes (34.2) 30.4Actuarial gains (losses) on defined benefit pension schemes 5.3 (15.3)Tax recognised directly in shareholders' equity 18.7 5.3Net (losses) gains recognised directly in shareholders'equity (33.9) 21.2Profit for the year 176.8 130.4Total recognised income and expense for the year 142.9 151.6 Attributable to:- Equity holders of the parent 140.5 147.4- Minority interests 2.4 4.2 142.9 151.6 CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2006 2006 2005 £m £mNon-current assetsIntangible assets 147.9 69.5Property, plant and equipment 427.0 346.7Investments in joint ventures and associates 15.1 44.7Available for sale financial assets 12.2 15.0Trade and other receivables 23.2 22.4Deferred tax assets 40.6 23.4 666.0 521.7 Current assetsInventories 704.6 615.8Trade and other receivables 211.4 221.1Available for sale financial assets 52.8 2.4Derivative financial instruments 0.6 2.1Current tax assets 2.2 1.0Cash and cash equivalents 335.2 309.0 1,306.8 1,151.4Assets held for sale 30.8 - 1,337.6 1,151.4Total assets 2,003.6 1,673.1 Current liabilitiesTrade and other payables (791.5) (688.2)Derivative financial instruments (40.2) (12.6)Current tax liabilities (33.7) (43.8)Provisions (20.7) (22.5)Borrowings (183.5) (145.4) (1,069.6) (912.5)Non-current liabilitiesTrade and other payables (39.4) (45.3)Provisions (35.5) (35.6)Deferred tax liabilities (14.7) (13.5)Borrowings (170.7) (5.6)Retirement benefit liability (22.7) (69.4) (283.0) (169.4) Total liabilities (1,352.6) (1,081.9) Net assets 651.0 591.2 Shareholders' equityShare capital 120.6 120.1Share premium 115.9 112.5Capital redemption reserve 16.4 16.4Other reserves (37.7) 13.1Retained earnings 428.6 319.6Equity attributable to equity holders of the parent 643.8 581.7Minority interests 7.2 9.5 Total shareholders' equity 651.0 591.2 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 £m £mCash flows from operating activitiesCash generated from operations 236.8 195.4Tax paid (50.2) (51.4)Interest received 10.7 13.9Interest paid (18.2) (16.8)Net cash generated from operating activities 179.1 141.1 Cash flows from investing activitiesAcquisition of businesses, net of cash and overdraftsacquired (147.9) (29.9)Net cash inflow (outflow) from sale of businesses 5.4 (5.5)Purchase of property, plant and equipment (50.7) (63.5)Purchase of intangible assets (3.1) (2.2)Proceeds from disposal of property, plant and equipment 11.4 17.6Net purchase of available for sale financial assets (49.9) (0.5)Dividends received from joint ventures and associates 0.4 9.7Net cash used in investing activities (234.4) (74.3) Cash flows from financing activitiesProceeds from issue of ordinary shares 3.9 2.4Share buy back programme (34.0) (31.0)Net (purchase) disposal of own shares by ESOP Trust (0.2) 0.1Net cash inflow (outflow) from borrowings 158.7 (2.3)Payment of capital element of finance leases (0.3) (0.2)Settlement of derivatives (6.8) 9.4Equity dividends paid (52.6) (42.0)Minority dividends paid (3.9) (3.0)Net cash from (used in) financing activities 64.8 (66.6) Net increase in cash and cash equivalents 9.5 0.2Cash and cash equivalents at the beginning of the year 165.9 158.8Effect of foreign exchange rate changes (9.2) 6.9Cash and cash equivalents at the end of the year 166.2 165.9 Cash and cash equivalents consist of:- Cash at bank and in hand 262.8 217.5- Short term bank deposits 72.4 91.5- Bank overdrafts (169.0) (143.1) 166.2 165.9 NOTES TO THE ACCOUNTS 1 BASIS OF PREPARATION The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as endorsed by the European Union and withthose parts of the Companies Act 1985 applicable to companies reporting underIFRS. The financial information presented does not constitute statutory financialstatements for the years ended 31 December 2006 or 2005 as defined in Section240 of the Companies Act 1985. The financial information for the year ended31 December 2006 and the comparative information have been extracted from theaudited financial statements for the year ended 31 December 2006 prepared underIFRS, which have not yet been approved by shareholders and have not yet beendelivered to the Registrar. 2 SEGMENTAL ANALYSIS Primary reporting format - geographical segments The Group's primary reporting format is by geographical segments. The geographical segments disclosed have been amended to further align themwith the risks and returns associated with different territories. The principalchange has been to disaggregate those territories regarded as Emerging Markets,which is defined as those markets where the total new vehicle volume sales byinternational brands are growing by 10% or more per annum (comprising Russia,the Balkans and the Baltics). These are distinguished from more mature marketsin Europe (comprising Greece, Belgium, Finland, Poland and France) and the Restof the World. Comparative information has been restated accordingly. The Group's geographical segments are based on the location of the Group'sassets. Revenue earned from sales is disclosed by origin and is not materiallydifferent from revenue by destination. Transfer prices between geographical segments are set on an arm's length basis. Hong UnitedFor the year ended Australia Europe Kong Singapore Kingdom31 December 2006 £m £m £m £m £m Revenue Total revenue 616.6 1,347.3 224.8 659.5 1,711.9Inter-segment revenue - (144.6) - - -Revenue from third parties 616.6 1,202.7 224.8 659.5 1,711.9 ResultsOperating profit beforeexceptional items 38.5 38.3 24.0 58.6 45.9Exceptional items - - - - -Segment result 38.5 38.3 24.0 58.6 45.9Share of profit after tax ofjoint ventures and associates - 1.8 2.8 - 0.9Profit before finance and tax 38.5 40.1 26.8 58.6 46.8Finance incomeFinance costsProfit before taxTaxProfit for the year Emerging Rest of Total preFor the year ended Markets World Central Central Total31 December 2006 £m £m £m £m £m Revenue Total revenue 201.2 225.4 4,986.7 - 4,986.7Inter-segment revenue - - (144.6) - (144.6)Revenue from third parties 201.2 225.4 4,842.1 - 4,842.1 ResultsOperating profit beforeexceptional items 12.1 21.4 238.8 (24.9) 213.9Exceptional items - - - - -Segment result 12.1 21.4 238.8 (24.9) 213.9Share of profit after tax ofjoint ventures and associates - 0.4 5.9 - 5.9Profit before finance and tax 12.1 21.8 244.7 (24.9) 219.8Finance income 49.0Finance costs (54.9)Profit before tax 213.9Tax (37.1)Profit for the year 176.8 Hong UnitedAs at Australia Europe Kong Singapore Kingdom31 December 2006 £m £m £m £m £m Segment assets and liabilities Segment assets 154.3 341.3 55.4 104.5 719.5Investment in joint venturesand associates - 8.6 - - 5.5Assets held for sale - - 30.8 - -Cash and cash equivalents - - - - -Other unallocated assets* - - - - -Total assets 154.3 349.9 86.2 104.5 725.0 Segment liabilities (196.7) (282.3) (18.6) (47.2) (303.8)External borrowings - - - - -Other unallocated liabilities* - - - - -Total liabilities (196.7) (282.3) (18.6) (47.2) (303.8) Total pre Emerging Rest of unallo- Unallo-As at Markets World cated cated Total31 December 2006 £m £m £m £m £m Segment assets and liabilities Segment assets 80.4 62.8 1,518.2 - 1,518.2Investment in joint venturesand associates 0.6 0.4 15.1 - 15.1Assets held for sale - - 30.8 - 30.8Cash and cash equivalents - - - 335.2 335.2Other unallocated assets* - - - 104.3 104.3Total assets 81.0 63.2 1,564.1 439.5 2,003.6 Segment liabilities (17.8) (32.0) (898.4) - (898.4)External borrowings - - - (354.2) (354.2)Other unallocatedliabilities* - - - (100.0) (100.0)Total liabilities (17.8) (32.0) (898.4) (454.2) (1,352.6) * Other unallocated assets and liabilities include central provisions, tax,dividends and assets and liabilities not directly related to operatingactivities. Hong UnitedFor the year ended Australia Europe Kong Singapore Kingdom31 December 2005 £m £m £m £m £m Revenue Total revenue 612.7 1,138.7 242.3 719.6 1,530.3Inter-segment revenue - (104.1) - - -Revenue from third parties 612.7 1,034.6 242.3 719.6 1,530.3 ResultsOperating profit beforeexceptional items 31.9 29.2 28.8 62.1 29.2Exceptional items - - - - (19.5)Segment result 31.9 29.2 28.8 62.1 9.7Share of profit after tax ofjoint ventures and associates - 1.8 3.0 - 1.2Profit before finance and tax 31.9 31.0 31.8 62.1 10.9Finance incomeFinance costsProfit before taxTaxProfit for the year Emerging Rest of Total preFor the year ended Markets World Central Central Total31 December 2005 £m £m £m £m £m Revenue Total revenue 134.6 214.0 4,592.2 - 4,592.2Inter-segment revenue - - (104.1) - (104.1)Revenue from third parties 134.6 214.0 4,488.1 - 4,488.1 ResultsOperating profit beforeexceptional items 7.0 20.0 208.2 (18.8) 189.4Exceptional items - - (19.5) 6.5 (13.0)Segment result 7.0 20.0 188.7 (12.3) 176.4Share of profit after tax ofjoint ventures and associates - 0.2 6.2 - 6.2Profit before finance and tax 7.0 20.2 194.9 (12.3) 182.6Finance income 44.7Finance costs (50.0)Profit before tax 177.3Tax (46.9)Profit for the year 130.4 Hong UnitedAs at Australia Europe Kong Singapore Kingdom31 December 2005 £m £m £m £m £m Segment assets and liabilities Segment assets 130.1 302.6 58.8 113.1 583.1Investment in joint venturesand associates - 7.2 32.6 - 4.6Assets held for sale - - - - -Cash and cash equivalents - - - - -Other unallocated assets* - - - - -Total assets 130.1 309.8 91.4 113.1 587.7 Segment liabilities (148.8) (237.3) (22.6) (43.1) (324.5)External borrowings - - - - -Other unallocated liabilities* - - - - -Total liabilities (148.8) (237.3) (22.6) (43.1) (324.5) Total pre Emerging Rest of unallo- Unallo-As at Markets World cated cated Total31 December 2006 £m £m £m £m £m Segment assets and liabilities Segment assets 31.8 62.5 1,282.0 - 1,282.0Investment in joint venturesand associates - 0.3 44.7 - 44.7Assets held for sale - - - - -Cash and cash equivalents - - - 309.0 309.0Other unallocated assets* - - - 37.4 37.4Total assets 31.8 62.8 1,326.7 346.4 1,673.1 Segment liabilities (12.7) (31.5) (820.5) - (820.5)External borrowings - - - (151.0) (151.0)Other unallocatedliabilities* - - - (110.4) (110.4)Total liabilities (12.7) (31.5) (820.5) (261.4) (1,081.9) * Other unallocated assets and liabilities include central provisions, tax,dividends and assets and liabilities not directly related to operatingactivities. Secondary reporting format - business segments The Group's secondary reporting format is by business segments. The business segments disclosed have been amended to further align them with therisks and returns associated with different businesses and related reporting structure of the Group. The disclosures have been simplified to comprise two key business segments - Distribution and Retail. Distribution now comprises boththose businesses previously reported as Vertically integrated import, distribution and retail as well as Import and distribution. In addition, Distribution includes those businesses previously reported under Financial Services and Other. Comparative information has been restated accordingly. The secondary disclosures below have been enhanced to further analyseDistribution and Retail by geographical region. Additional disclosure has alsobeen provided on the segmentation of profitability and operating liabilities. Comparative information has been restated accordingly. Transfer prices between business segments are set on an arm's length basis. Hong UnitedFor the year ended Australia Europe Kong Singapore Kingdom31 December 2006 £m £m £m £m £m Revenue Total revenue 511.2 944.1 224.8 659.5 100.3Inter-segment revenue (111.5) (165.7) - - (2.5)Revenue from third parties 399.7 778.4 224.8 659.5 97.8 ResultsOperating profit beforeexceptional items 28.2 41.1 24.0 58.6 3.8Exceptional items - - - - -Segment result 28.2 41.1 24.0 58.6 3.8Share of profit after tax ofjoint ventures and associates - 1.8 2.8 - 0.9Profit before finance and tax 28.2 42.9 26.8 58.6 4.7Finance incomeFinance costsProfit before taxTaxProfit for the year Total Emerging Rest of Distri-For the year ended Markets World bution31 December 2006 £m £m £m Revenue Total revenue 130.3 225.4 2,795.6Inter-segment revenue (52.4) - (332.1)Revenue from third parties 77.9 225.4 2,463.5 ResultsOperating profit beforeexceptional items 8.4 21.4 185.5Exceptional items - - -Segment result 8.4 21.4 185.5Share of profit after tax ofjoint ventures and associates - 0.4 5.9Profit before finance and tax 8.4 21.8 191.4Finance incomeFinance costsProfit before taxTaxProfit for the year United Emerging TotalFor the year ended Australia Europe Kingdom Markets Retail31 December 2006 £m £m £m £m £m Revenue Total revenue 216.9 424.3 1,614.1 123.3 2,378.6Inter-segment revenue - - - - -Revenue from third parties 216.9 424.3 1,614.1 123.3 2,378.6 Results Operating profit beforeexceptional items 10.3 (2.8) 42.1 3.7 53.3Exceptional items - - - - -Segment result 10.3 (2.8) 42.1 3.7 53.3Share of profit after tax ofjoint ventures and associates - - - - -Profit before finance and tax 10.3 (2.8) 42.1 3.7 53.3Finance incomeFinance costsProfit before taxTax Profit for the year Total preFor the year ended Central Central Total31 December 2006 £m £m £m Revenue Total revenue 5,174.2 - 5,174.2Inter-segment revenue (332.1) - (332.1)Revenue from third parties 4,842.1 - 4,842.1 Results Operating profit before exceptionalitems 238.8 (24.9) 213.9Exceptional items - - -Segment result 238.8 (24.9) 213.9Share of profit after tax of jointventures and associates 5.9 - 5.9Profit before finance and tax 244.7 (24.9) 219.8Finance income 49.0Finance costs (54.9)Profit before tax 213.9Tax (37.1)Profit for the year 176.8 Hong UnitedAs at Australia Europe Kong Singapore Kingdom31 December 2006 £m £m £m £m £m Segment assets and liabilities Segment assets 90.7 255.3 55.4 104.5 85.7Investment in joint venturesand associates - 8.6 - - 5.5Assets held for sale - - 30.8 - -Cash and cash equivalents - - - - -Other unallocated assets* - - - - -Total assets 90.7 263.9 86.2 104.5 91.2 Segment liabilities (173.0) (252.8) (18.6) (47.2) (44.5)External borrowings - - - - -Other unallocated liabilities* - - - - -Total liabilities (173.0) (252.8) (18.6) (47.2) (44.5) Total Emerging Rest of Distri-As at Markets World bution31 December 2006 £m £m £m Segment assets and liabilities Segment assets 16.3 62.8 670.7Investment in joint venturesand associates - 0.4 14.5Assets held for sale - - 30.8Cash and cash equivalents - - -Other unallocated assets* - - -Total assets 16.3 63.2 716.0 Segment liabilities (10.1) (32.0) (578.2)External borrowings - - -Other unallocated liabilities* - - -Total liabilities (10.1) (32.0) (578.2) * Other unallocated assets and liabilities include central provisions, tax,dividends and assets and liabilities not directly related to operatingactivities. United Emerging TotalAs at Australia Europe Kingdom Markets Retail31 December 2006 £m £m £m £m £m Segment assets and liabilities Segment assets 63.6 86.0 633.8 64.1 847.5Investment in joint ventures andassociates - - - 0.6 0.6Assets held for sale - - - - -Cash and cash equivalents - - - - -Other unallocated assets* - - - - -Total assets 63.6 86.0 633.8 64.7 848.1 Segment liabilities Segment liabilities (23.7) (29.5) (259.3) (7.7) (320.2)External borrowings - - - - -Other unallocated liabilities* - - - - -Total liabilities (23.7) (29.5) (259.3) (7.7) (320.2) Total pre unallo- Unallo-As at cated cated Total31 December 2006 £m £m £m Segment assets Segment assets 1,518.2 - 1,518.2Investment in joint ventures andassociates 15.1 - 15.1Assets held for sale 30.8 - 30.8Cash and cash equivalents - 335.2 335.2Other unallocated assets* - 104.3 104.3Total assets 1,564.1 439.5 2,003.6 Segment liabilities Segment liabilities (898.4) - (898.4)External borrowings - (354.2) (354.2)Other unallocated liabilities* - (100.0) (100.0)Total liabilities (898.4) (454.2)(1,352.6) * Other unallocated assets and liabilities include central provisions, tax,dividends and assets and liabilities not directly related to operatingactivities. Hong UnitedFor the year ended Australia Europe Kong Singapore Kingdom31 December 2005 £m £m £m £m £m Revenue Total revenue 518.3 816.7 242.3 719.6 116.0Inter-segment revenue (113.0) (144.3) - - (1.1)Revenue from third parties 405.3 672.4 242.3 719.6 114.9 ResultsOperating profit beforeexceptional items 25.8 33.8 28.8 62.1 0.4Exceptional items - - - - (19.5)Segment result 25.8 33.8 28.8 62.1 (19.1)Share of profit after tax ofjoint ventures and associates - 1.8 3.0 - 1.2Profit before finance and tax 25.8 35.6 31.8 62.1 (17.9)Finance incomeFinance costsProfit before taxTaxProfit for the year Total Emerging Rest of Distri-For the year ended Markets World bution31 December 2005 £m £m £m Revenue Total revenue 95.9 214.0 2,722.8Inter-segment revenue (39.7) - (298.1)Revenue from third parties 56.2 214.0 2,424.7 ResultsOperating profit before exceptional items 5.4 20.0 176.3Exceptional items - - (19.5)Segment result 5.4 20.0 156.8Share of profit after tax of joint ventures andassociates - 0.2 6.2Profit before finance and tax 5.4 20.2 163.0Finance incomeFinance costsProfit before taxTaxProfit for the year United Emerging TotalFor the year ended Australia Europe Kingdom Markets Retail31 December 2005 £m £m £m £m £m Revenue Total revenue 207.4 362.2 1,415.4 78.4 2,063.4Inter-segment revenue - - - - -Revenue from third parties 207.4 362.2 1,415.4 78.4 2,063.4 Results Operating profit beforeexceptional items 6.1 (4.6) 28.8 1.6 31.9Exceptional items - - - - -Segment result 6.1 (4.6) 28.8 1.6 31.9Share of profit after tax ofjoint ventures and associates - - - - -Profit before finance and tax 6.1 (4.6) 28.8 1.6 31.9Finance incomeFinance costsProfit before taxTaxProfit for the year Total preFor the year ended Central Central Total31 December 2005 £m £m £m Revenue Total revenue 4,786.2 - 4,786.2Inter-segment revenue (298.1) - (298.1)Revenue from third parties 4,488.1 - 4,488.1 Results Operating profit before exceptionalitems 208.2 (18.8) 189.4Exceptional items (19.5) 6.5 (13.0)Segment result 188.7 (12.3) 176.4Share of profit after tax of jointventures and associates 6.2 - 6.2Profit before finance and tax 194.9 (12.3) 182.6Finance income 44.7Finance costs (50.0)Profit before tax 177.3Tax (46.9)Profit for the year 130.4 Hong UnitedAs at Australia Europe Kong Singapore Kingdom31 December 2005 £m £m £m £m £m Segment assets and liabilies Segment assets 75.2 227.1 58.8 113.1 110.6Investment in joint venturesand associates - 7.2 32.6 - 4.6Cash and cash equivalents - - - - -Other unallocated assets* - - - - -Total assets 75.2 234.3 91.4 113.1 115.2 Segment liabilities (131.5) (209.4) (22.6) (43.1) (56.1)External borrowings - - - - -Other unallocated liabilities* - - - - -Total liabilities (131.5) (209.4) (22.6) (43.1) (56.1) Total Emerging Rest of Distri-As at Markets World bution31 December 2005 £m £m £m Segment assets and liabilities Segment assets 11.6 62.5 658.9Investment in joint ventures and associates - 0.3 44.7Cash and cash equivalents - - -Other unallocated assets* - - -Total assets 11.6 62.8 703.6 Segment liabilities (6.8) (31.5) (501.0)External borrowings - - -Other unallocated liabilities* - - -Total liabilities (6.8) (31.5) (501.0) * Other unallocated assets and liabilities include central provisions, tax,dividends and assets and liabilities not directly related to operatingactivities. United Emerging TotalAs at Australia Europe Kingdom Markets Retail31 December 2005 £m £m £m £m £m Segment assets and liabilities Segment assets 54.9 75.5 472.5 20.2 623.1Investment in joint venturesand associates - - - - -Cash and cash equivalents - - - - -Other unallocated assets* - - - - -Total assets 54.9 75.5 472.5 20.2 623.1 Segment liabilities Segment liabilities (17.3) (27.9) (268.4) (5.9) (319.5)External borrowings - - - - -Other unallocated liabilities* - - - - -Total liabilities (17.3) (27.9) (268.4) (5.9) (319.5) Total pre Unallo- Unallo-As at cated cated Total31 December 2005 £m £m £m Segment assets and liabilities Segment assets 1,282.0 - 1,282.0Investment in joint ventures andassociates 44.7 - 44.7Cash and cash equivalents - 309.0 309.0Other unallocated assets* - 37.4 37.4Total assets 1,326.7 346.4 1,673.1 Segment liabilities Segment liabilities (820.5) - (820.5)External borrowings - (151.0) (151.0)Other unallocated liabilities* - (110.4) (110.4)Total liabilities (820.5) (261.4) (1,081.9) * Other unallocated assets and liabilities include central provisions, tax,dividends and assets and liabilities not directly related to operatingactivities. 3 EXCEPTIONAL ITEMS 2006 2005 £m £m Provision release arising from non-motors business exits - 6.5Goodwill impairment - (19.5)Operating exceptional items - (13.0)Exceptional tax 8.0 -Total exceptional items 8.0 (13.0) Exceptional tax relates to the release of tax provided against the VATrecoveries in 2003 and 2004 following the favourable settlement of thecorporation tax treatment. 4 FINANCE INCOME 2006 2005 £m £m Bank interest receivable 8.8 6.5Expected return on post-retirement plan assets 37.7 33.8Other interest receivable 2.5 4.4Total finance income 49.0 44.7 5 FINANCE COSTS 2006 2005 £m £m Bank interest payable 3.8 2.8Stock holding interest 11.2 8.7Interest expense on post-retirement plan liabilities 35.3 33.4Other interest payable 4.6 5.1Total finance costs 54.9 50.0 6 TAX 2006 2005 £m £m Current tax:- UK corporation tax 18.1 9.8- Double tax relief (11.2) (8.7) 6.9 1.1Overseas tax 49.4 47.2 56.3 48.3Adjustments to prior year liabilities:- UK (1.4) 0.2- Overseas (1.8) (1.0)Current tax 53.1 47.5Deferred tax (8.0) (0.6)Tax before exceptional tax 45.1 46.9Exceptional tax (note 3) (8.0) -Total tax charge 37.1 46.9 7 EARNINGS PER SHARE 2006 2005 £m £m Profit for the year 176.8 130.4Minority interests (2.9) (3.8)Basic earnings 173.9 126.6Exceptional items (including tax exceptional) (8.0) 13.0Headline earnings 165.9 139.6Basic earnings per share 37.5p 27.0pDiluted earnings per share 37.1p 26.8pBasic Headline earnings per share 35.7p 29.8pDiluted Headline earnings per share 35.4p 29.5p 2006 2005 number number Weighted average number of fully paid ordinaryshares in issue during the year 481,212,798 479,060,496Weighted average number of fully paid ordinaryshares in issue during the year:- Held by the ESOP Trust (2,127,884) (3,115,806)- Repurchased as part of the share buy backprogramme (15,031,175) (6,684,408)Weighted average number of fully paid ordinaryshares for the purposes of basic EPS 464,053,739 469,260,282Dilutive effect of potential ordinary shares 4,076,256 3,624,888Adjusted weighted average number of fully paidordinary shares in issue during the year for thepurposes of diluted EPS 468,129,995 472,885,170 Following the six for one share split on 15 May 2006, the comparative number ofshares have been restated and the earnings per share restated accordingly. Basic earnings per share is calculated by dividing the basic earnings for theyear by the weighted average number of fully paid ordinary shares in issueduring the year, less those shares held by the ESOP Trust and those repurchasedas part of the share buy back programme. Diluted earnings per share is calculated on the same basis as the basic earningsper share with a further adjustment to the weighted average number of fully paidordinary shares to reflect the effect of all dilutive potential ordinary shares.Dilutive potential ordinary shares comprise share options and deferred bonusplan awards. Headline earnings (which excludes exceptional items) is adopted to assist thereader in understanding the underlying performance of the Group. Headlineearnings per share is calculated by dividing the Headline earnings for the yearby the weighted average number of fully paid ordinary shares in issue during theyear, less those shares held by the ESOP Trust and those repurchased as part ofthe share buy back programme. Diluted Headline earnings per share is calculated on the same basis as the basicHeadline earnings per share with a further adjustment to the weighted averagenumber of fully paid ordinary shares to reflect the effect of all dilutivepotential ordinary shares. Dilutive potential ordinary shares comprise shareoptions and deferred bonus plan awards. 8 DIVIDENDS The following dividends were paid by the Group: 2006 2005 £m £m Interim dividend for the six months ended 30 June 2006 of5.0p per share (2005 - 3.2p per share) 23.0 14.8Final dividend for the year ended 31 December 2005 of 6.3pper share (2004 - 5.8p per share) 29.6 27.2 52.6 42.0 The final proposed dividend for the year ended 31 December 2006 of 10.0p pershare (£46.2m) is subject to approval by shareholders at the Annual GeneralMeeting and has not been included as a liability as at 31 December 2006. 9 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Capital Share Share redem'n Other Retained capital premium resrves reserves earnings £m £m £m £m £m At 1 January 2005 119.5 110.7 16.4 (20.2) 275.5Total recognised income and expensefor the year* - - - 33.3 114.1Share-based payments charge - - - - 2.9Net disposal of own shares by ESOPTrust - - - - 0.1Share buy back programme - - - - (31.0)Dividends:- Equity holders of the parent - - - - (42.0)- Minority interests - - - - -Issue of ordinary share capital 0.6 1.8 - - -At 1 January 2006 120.1 112.5 16.4 13.1 319.6 Total recognised income and expensefor the year* - - - (50.8) 191.3Share-based payments charge - - - - 4.5Net purchase of own shares by ESOPTrust - - - - (0.2)Share buy back programme - - - - (34.0)Dividends:- Equity holders of the parent - - - - (52.6)- Minority interests - - - - -Issue of ordinary share capital 0.5 3.4 - - -Acquisition of minority interest - - - - -At 31 December 2006 120.6 115.9 16.4 (37.7) 428.6 Equity attributable to Total equity holders Minority s'holders' of the parent interest equity £m £m £m At 1 January 2005 501.9 8.3 510.2Total recognised income and expense for the year* 147.4 4.2 151.6Share-based payments charge 2.9 - 2.9Net disposal of own shares by ESOP Trust 0.1 - 0.1Share buy back programme (31.0) - (31.0)Dividends:- Equity holders of the parent (42.0) - (42.0)- Minority interests - (3.0) (3.0)Issue of ordinary share capital 2.4 - 2.4At 1 January 2006 581.7 9.5 591.2Total recognised income and expense for the year* 140.5 2.4 142.9Share-based payments charge 4.5 - 4.5Net disposal of own shares by ESOP Trust (0.2) - (0.2)Share buy back programme (34.0) - (34.0)Dividends:- Equity holders of the parent (52.6) - (52.6)- Minority interests - (3.9) (3.9)Issue of ordinary share capital 3.9 - 3.9Acquisition of minority interest - (0.8) (0.8)At 31 December 2006 643.8 7.2 651.0 * The tax on share-based payments (previously reported in Tax on transactionswith the equity holders) has been reclassified to be included with Totalrecognised income and expense for the year. Comparative information has beenrestated accordingly. 10 NOTES TO THE CASH FLOW STATEMENT a Reconciliation of cash generated from operations 2006 2005 £m £m Cash flows from operating activities Operating profit 213.9 176.4Exceptional items - 13.0Amortisation 4.0 3.2Depreciation 23.3 22.8Profit on disposal of property, plant and equipment (0.6) (2.1)Share-based payments charge 4.5 2.9Increase in inventories (58.9) (15.7)Decrease(increase) in trade and other receivables 29.4 (15.2)Increase in trade and other payables 56.1 13.6Decrease in provisions (0.6) (3.8)Decrease in post retirement defined benefits* (38.8) (4.8)Movement in vehicles subject to residual value commitments 5.3 4.5Other items (0.8) 0.6Cash generated from operations 236.8 195.4 * The decrease in post retirement defined benefits in 2006 includes additionalpayments of £37.6m. A number of minor amendments have been made to the presentation of cash flowsfrom operating activities, the principal changes being the separate disclosureof movements in provisions and post retirement defined benefits. Comparativeinformation has been restated accordingly. There were no Cash flows associated with the current year exceptional items. b Reconciliation of net cash flow to movement in net (debt) funds 2006 2005 £m £m Net increase in cash and cash equivalents 9.5 0.2Net cash (inflow) outflow from borrowings and finance leases (158.4) 2.5Change in net cash and debt resulting from cash flows (148.9) 2.7Effect of foreign exchange rate changes on net cash anddebt* (8.8) 6.9Net loans and finance leases relating to acquisitions (19.3) (4.4)Movement in net (debt) funds (177.0) 5.2Opening net funds 158.0 152.8Closing net (debt) funds (19.0) 158.0 * Effect of foreign exchange rate changes on net cash and debt is stated afterthe reclassification of realised gains or losses on the settlement ofderivatives to Cash flows from financing activities. Comparative informationhas been restated accordingly. 11 FOREIGN CURRENCY TRANSLATION The main exchange rates used for translation purposes are as follows: Average rates Year end rates 2006 2005 2006 2005 Australian dollar 2.44 2.38 2.48 2.34Euro 1.46 1.46 1.48 1.46Hong Kong dollar 14.28 14.16 15.22 13.31Singapore dollar 2.92 3.02 3.00 2.85 12 POST BALANCE SHEET EVENTS On 15 December 2006, the Group announced its intention to acquire European MotorHoldings (EMH) to extend the Group's retail presence in the UK. As at 31December, the Group had acquired 18.55% of the share capital for a cashconsideration of £49.2m. On 29 January 2007, the Group announced that the offerfor EMH had been declared unconditional in all respects and, aside from standardregulatory clearances, the acquisition had been completed. The total cashconsideration expected to be paid for 100.0% of the share capital is £262.9m,with net assets acquired of c. £95.0m (based upon the January 2007 managementaccounts of EMH). Following the completion of the acquisition of EMH, the Group has strategicallyreviewed its UK businesses and as a result intends to dispose of up to forty-seven UK sites. In addition, the Group intends to dispose of its InchcapeAutomotive UK operation. On 1 February 2007, the Group disposed of its 50.0% share in Inchroy CreditCorporation Limited for c. £46.0m, giving rise to a profit on disposal ofc. £15.0m. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Inchcape