1st Aug 2005 07:00
Inchcape PLC01 August 2005 1 August 2005 Inchcape plc interim results Further year on year growth with profit before tax up 21.6% Inchcape plc, the international automotive services group, announces its interimresults for the half year to 30 June 2005. Financial highlights: - Operating profit before exceptional items up by 12.5% at £100.1m - Headline profit before tax* up 14.7% at £100.8m - Headline earnings per share* up 15.5% to 93.9p - Operating profit up 20.9% at £104.1m - Profit before tax up 21.6% at £104.8m - Basic earnings per share up 25.0% at 99.0p - Dividend up 26.7% at 19.0p per share - Strong operating cash flow of £85.0m - £31.0m returned to shareholders in ongoing share buy back * Before exceptional items Operational highlights: - Profits up in all our core markets, except for Greece - Increase of 21.8% in Singaporean operating profits - Subaru Australia exceeds last year's record unit sales, and achieves highest ever first half market share - UK Retail: - Encouraging like for like profit growth in a declining market - Successful Mercedes-Benz acquisition in April 2005 - Ongoing expansion and development in both core and new markets Peter Johnson, Group Chief Executive, commented: "We are delighted to report a further set of outstanding results, showing yearon year growth with profit before tax up 21.6%. This continues the trend of reporting an increase in profit at every set of interims since we became a pure automotive services group. Critical to our success is our geographic spread, which remains an important factor in the quality and consistency of our earnings. "We have increased the dividend and continue to return excess cash toshareholders through the share buy back programme, whilst further investing inour businesses. Our cash generative qualities and strong cash position leave uswith the financial capacity to take advantage of further investmentopportunities. "Against this positive background, we are confident that 2005 will represent afurther year of progress." Financial summary: For the six months ended 30 June £m 2005 2004 Revenue 2,257.0 2,158.5 Operating profit before exceptional items 100.1 89.0Exceptional items 4.0 (2.9) ----------- -----------Operating profit 104.1 86.1Profits from joint ventures/associates after tax** 3.1 4.9Net finance costs (2.4) (4.8) ----------- -----------Profit before tax 104.8 86.2 ----------- ----------- Headline profit before tax* 100.8 87.9 Headline earnings per share* 93.9p 81.3pBasic earnings per share 99.0p 79.2p * Before exceptional items** 2004 includes £1.2m exceptional profit Notes to editors A copy of the interim results, for the half year to 30 June 2005, follows thisrelease. For further information, please contact: Group Communications, Inchcape plc020 7546 0022 Hogarth Partnership Limited (John Olsen/Barnaby Fry)020 7357 9477 Inchcape, an international automotive services group, provides qualityrepresentation for its manufacturer partners, a choice of channels to market andproducts for its retail customers and a range of business services for itscorporate customers. Operations are focused on Australia, Belgium, Greece, HongKong, Singapore and the UK. Inchcape's activities include exclusive Import,Distribution and Retail, Business Services, automotive E-commerce and FinancialServices. Our key manufacturer partners are Toyota/Lexus, Subaru, BMW, thePremier Automotive Group of Ford, Mazda, Mercedes-Benz and Volkswagen. For further information, visit us at www.inchcape.com Inchcape plc Interim results for the half year ending 30 June 2005 Results overview Inchcape has delivered a further set of outstanding results, which again showyear on year growth with profit before tax up 21.6%. This continues the trend ofreporting an increase in profit at every set of interims since we became a pureautomotive services group in July 1999. Profits are up in all our core markets,except for Greece. Singapore again has shown the strongest growth. Especiallypleasing is the underlying year on year growth in our UK Retail business, whichcontinues to deliver improved financial and operational results. The Group'sstrong financial performance is all the more impressive given that marketconditions in the UK and Continental Europe are difficult in comparison to lastyear, and we are awaiting a number of significant new model launches, which willcommence in early 2006. The £65.0m share buy back programme announced on 28 February 2005 has commenced,and to date £31.0m has been returned to shareholders through the purchase ofc.1.7m shares at an average price of 1846p per share. Whilst this has had asignificant effect on the cash flow in the period, the full impact on earningswill be seen over the next eighteen months. These results are the first produced under International Financial ReportingStandards (IFRS), with the 2004 comparatives as published on 12 May 2005. Aswell as highlighting the statutory numbers in this statement we also reportHeadline numbers, which exclude exceptional items and any material impact onprofits of not achieving hedge effectiveness under IAS 39. In the period weexclude only the exceptional profit of £4.0m, as the impact of IAS 39, whilstnegative, is not material. Headline profit before tax was up 14.7% to £100.8m in the first six months of2005. Headline earnings per share increased from 81.3p to 93.9p in the period, agrowth of 15.5%. Strategy update Our strategic growth plans are centred on expansion with selected manufacturerpartners in, or adjacent to, markets where we already have a scale business. Onentering new markets we look to invest in either vertically integrated importand retail businesses or scale retail opportunities, preferably in contiguousterritories. Within Inchcape these business models are well proven and we havesignificant expertise in running them. This lowers the risks associated withentering new markets. Expansion in our core markets is mainly focused on the UK, Australia and Greece.In the UK we continue the strategy of growing with our selected partners incontiguous territories. In the first half of the year we purchased aMercedes-Benz market area centred around Liverpool. We are now the largestindependent Mercedes-Benz retailer in the country, representing c.8.0% oftheir national sales volumes. We continue to develop our contiguous territory for BMW to the south of London.We are building new facilities in Croydon and Tunbridge Wells, and redevelopingCobham. In addition we have recently introduced common systems for all the BMWdealerships, which allow management to run the territory as a single business. The benefits arising from Brooklands, our pre-delivery centre which serves BMWand our other franchises in the area, are starting to be seen, for example byincreasing the Retail aftersales hours we sell. In Australia and Greece we continue our push into retail with Subaru and Toyotarespectively. Additionally in Australia, now that we have proven retailexpertise, we are examining the possibility of building a broader basedmulti-franchise retail business along the East Coast. Outside our core markets, attention is focused mainly on Eastern Europe. InLatvia, following the acquisition of a Mazda dealer, we have now become thecountry's sole Retailer for Mazda and Jaguar. As we are the Importer for thesebrands, we have now created a vertically integrated Import and Retail businesssimilar to that recently achieved in Estonia. In the Balkans we continue toinvest in our Retail outlets with significant expansion planned for Romania. Weare also looking at many other opportunities in the region mainly with our keymanufacturer partners. This includes the possibility of entering the Russianmarket, most likely as a scale retailer in Moscow. We are re-examining the Chinese market, which is now looking more attractivegiven the increasing focus of our key manufacturer partners on developing aquality retail network for their brands. Operational review This section analyses the performance of the Group's subsidiaries. Operating profit before exceptional items has been defined as trading profitthroughout the Operational review. For the six months ended 30 June 2005 2004 Increase £m £m % Operating profit 104.1 86.1 20.9Exceptional items (4.0) 2.9 n/a--------------------- ---------- ---------- ----------Trading profit 100.1 89.0 12.5--------------------- ---------- ---------- ---------- AustraliaTrading profit 2005: £16.1m (2004: £14.2m) The 13.4% growth in trading profit was assisted by a record market, up 5.4% onlast year. Subaru outperformed the market, underpinned by strong Liberty andImpreza sales and achieved its highest ever first half market share of 3.8%. Our Melbourne Retail business continues to perform well with increased new andused unit sales. This, coupled with higher aftersales income, partly as a resultof the investments made in aftersales facilities in 2004, has improved tradingprofits. The Sydney Retail business underwent a significant restructuring in mid 2004.The benefits from this, together with the contribution from the two new Subarudealerships, have resulted in an increase in profitability. Trading profits in AutoNexus, our Business Services operation, have grown and weare continuing to invest in this business. BelgiumTrading profit 2005: £8.3m (2004: £8.0m) In Belgium the market fell by 0.7% in the first half of the year. Our Toyota/Lexus market share however increased from 4.8% in 2004 to 5.0% in 2005, despite Toyota having a number of core models in run out; namely the RAV4, Yarisand Hilux. This strong performance was helped by the introduction of new dieselderivatives and the easing of the supply constraints experienced in 2004. GreeceTrading profit 2005: £7.8m (2004: £8.3m) The market softened in the first half of 2005, after a strong performance lastyear stimulated in part by the Olympics. Toyota, in Greece, has also beenadversely impacted by the run out of core models, but has not benefited from newdiesel variants. This, allied to business disruption suffered as a result of thenetwork re-organisation in Athens late in 2004, has caused Toyota's market shareto reduce to 8.5%. These tough trading conditions have adversely impacted our Retail businesses inAthens and Salonica. Our new Athens dealership, which opened in late 2004, hasalso experienced a slower start up than anticipated, resulting in a net tradingloss for our Retail business in the first half of 2005. Despite these issues, costs have been tightly controlled and margins have risen although 2004 was impacted by low margin taxi sales made prior to theOlympics. Hong KongTrading profit 2005: £13.0m (2004: £11.8m) The market experienced a slow start to the year but began to gradually recoverin the second quarter as consumer confidence strengthened. Crown Motors, ourToyota/Lexus business, achieved a market share of 34.4%, which is slightly lowerthan the full year in 2004. This is partly due to supply constraints, whichparticularly affected the Corolla, the facelift Alphard and new Hiace models. Trading profits in the first half of 2005 were 10.2% stronger than last year.This year however, there was a £0.9m benefit from a one off property profit.After adjusting for this trading margins of 10.6% were achieved, up from 9.9% last year. SingaporeTrading profit 2005: £34.6m (2004: £28.4m) The market continues to benefit from higher levels of Certificates ofEntitlement (COEs), and was up 18.2% on 2004. Toyota/Lexus has sold over 19,000units in the first half of 2005, up over 2,000 units on the first half of lastyear, assisted by the launch of the new Lexus GS 300 and higher taxi sales. Theresultant market share is 29.9%. We continue to invest in our aftersales facilities and have opened two newsatellite centres, increasing capacity by over 5.0%. This will help us meet theservice requirements of the enlarged Toyota parc. The increase in sales volumes and softening in COE prices, together withincreased aftersales activity, has resulted in an increase of 21.8% in tradingprofit and trading margins of 9.4%. United KingdomTrading profit 2005: £15.0m (2004: £13.9m) Overall the region has achieved a growth of 7.9% in trading profit, despite theloss of the Ferrari/Maserati import and distribution business in late 2004. Encouragingly, in a more difficult market, UK Retail has shown like for likegrowth in trading profit. The business continues to benefit from improvedprocesses. These have helped increase used car sales, which are up by 6.8%,finance and insurance income and service profitability. This more thancompensates for the weaker new unit sales, which have declined, but at a slowerrate than the market. There has also been a growth in trading profit due to acquisitions, inparticular the Mercedes-Benz dealerships in the Midlands acquired in June 2004,and, to a lesser extent, those purchased in the North West of England in April2005. In total UK Retail generated a trading profit of £13.8m, up from £11.3m lastyear. The trading margin in the first half of 2004, under IFRS, was 1.9%. Inthis more difficult year margins have progressed to 2.0%. At Inchcape Automotive, during the first half of 2005, the business encounteredsome disruption due to workshop refurbishment, and production efficiency issues,which impacted results negatively. The logistics problems experienced in 2004however, have been resolved and we continue to focus on strengthening managementand improving processes. Inchcape Fleet Solutions performed well. It continued to develop its FleetManagement operations and benefited from lower overheads. As a result tradingprofits are up 13.0%. OtherTrading profit 2005: £14.3m (2004: £15.1m) In Finland the softening in the market experienced towards the end of 2004continued into 2005. In addition, Mazda6, the core model of the range, sufferedfrom the introduction of new competitor models. As a result profitability fellin the period. The Mazda6 facelift was launched at the end of June 2005. Our newly established operations in the Baltics, which include Import,Distribution and Retail for Mazda, Jaguar and Land Rover have made a promisingstart to the year. Our Toyota operations in the Balkans achieved encouraging growth in tradingprofit which was up 43.8% on last year. This was aided by an increase in volumesto over 3,400 units. The markets, particularly Romania, still exhibit highgrowth rates and we continue to invest in our Retail outlets. Toyota in Guam, Subaru in New Zealand and BMW in Chile all increased sales andtrading profits in the period. In Brunei and France however trading profits areflat. In France a strong performance from Volkswagen/Audi was offset by a weakperformance from the Premier Automotive Group of Ford. In Poland however the market was down, which put pressure on the performance of our new BMW dealerships. Central costs2005: £(9.0)m (2004: £(10.7)m) In 2004, Central costs included £2.2m of one off charges. Excluding these,underlying Central costs are slightly higher than last year due to additionalshare-based payment costs arising on the transition to IFRS. Financial review International Financial Reporting Standards These interim results are the first set of financial statements produced by theGroup under IFRS. Prior to 2005 the Group prepared its financial statements in accordance with UKGenerally Accepted Accounting Principles (UK GAAP). From 1 January 2005 theGroup is required to prepare its financial statements in accordance with IFRS,endorsed by the European Union and implemented in the UK, including comparativeinformation for 2004. It is possible that there will be further changes to IFRS and interpretationsbefore the end of 2005. These might require further adjustments to the financialinformation contained in these interim results before being included in the 2005Annual report. The main differences between UK GAAP and IFRS are highlighted in note 1 and are set out in further detail in an explanatory report entitled 'Preliminary unaudited financial information on the transition to International Financial Reporting Standards', published by the Group on 12 May 2005 and available on theGroup's website, www.inchcape.com. This sets out reconciliations between UK GAAPand IFRS of the Group's income statements and balance sheets for 2004, together with its principal accounting policies under IFRS. The principal areas of difference include share-based payments, goodwill,pensions, dividends and derivative financial instruments. These are essentiallygeneric changes that are common to most companies transitioning to IFRS. There are also a number of differences that are more specific to the Group.Accounting for property leases requires the reclassification of the land elementof leaseholds from property, plant and equipment to trade and other receivables,reversing any previous revaluation. Stock holding interest is reclassified fromoperating expenses to finance costs in the income statement. Where contract hirevehicles are sold, for which a Group company retains a residual valuecommitment, the vehicle is retained on the balance sheet and the profits arespread over the duration of the lease. Overall, the application of IFRS has had a broadly neutral impact on profitbefore tax and earnings subject to the achievement of hedge effectiveness underIAS 39. Furthermore, cash flow and the underlying economics of the business havenot changed although net assets have been reduced mainly due to the inclusion ofthe net pension deficit. Acquisitions and disposals In April 2005 the Group acquired Robert Smith Group Limited and its subsidiaries, which owned six Mercedes-Benz dealerships in the North West ofEngland. The estimated consideration is c.£17.9m of which £0.9m is deferred.These new dealerships create a further scale Mercedes-Benz market area forInchcape and complement our existing Mercedes-Benz operations in the Midlands. No other acquisitions or disposals of significance were made in the period. Cash flow and financing The Group continues to focus on tight working capital management and this,together with strong operating profits, generated net cash from operatingactivities of £85.0m for the first half of 2005. This represents 84.9% ofoperating profits before exceptional items and demonstrates yet again theGroup's cash generative capabilities. During the period the Group returned £58.2m to shareholders, £31.0m by way ofthe share buy back programme and £27.2m in respect of the final 2004 dividend.The Group also invested £63.6m in acquisitions and net capital expenditure inthe period, with £49.7m of this relating to UK Retail. An outflow of c.£6.8malso arose on the settlement of non-motors business claims. As a result of allthese factors, net cash decreased from £151.9m at 31 December 2004 to £119.8m at30 June 2005. The net finance costs for the period were £2.4m lower than the first half of2004. This year has benefited from the £135.0m of cash permanently repatriatedto the UK in late 2004, which minimised the mismatch between debt in the UK andcash held overseas in countries with low interest rates. This has been partiallyoffset by the financing cost of the £31.0m share buy back, UK Retailacquisitions and higher stock holding interest costs. In July 2005, the Group replaced its principal committed borrowing facility of£250.0m with a syndicated five year revolving credit facility of £275.0m. Joint ventures and associates The share of joint ventures and associates profit after tax has decreased from£4.9m in the first half of 2004 to £3.1m during the first half of 2005. This ismainly due to the sale of the Group's 40.0% stake in MCL Group Limited andAutomotive Group Limited in July 2004 and the fact that 2004 included a £1.2mexceptional profit. Exceptional items The release of litigation provisions arising from the settlement and expiry of anumber of claims relating to non-motors exits generated the £4.0m exceptionalincome for the six months ended 30 June 2005. Exchange rates The first half 2005 Headline profit before tax of £100.8m would not differsignificantly had the June 2004 exchange rates continued in 2005. Theimpact of the stronger euro and Australian dollar was effectively offset by theweaker Hong Kong dollar. Tax The subsidiaries Headline tax rate for the first half of 2005 is 25.5% comparedto 26.6% for the full year 2004. This year has benefited from no losses in theUK, due to improved trading and the impact of the £135.0m cash repatriation inlate 2004. In addition, the rate is lower by 0.5% due to a one off recovery inGreece. Minority interests Profits attributable to minority interests of £2.1m are slightly higher than thefirst half of 2004 reflecting the improved trading performance of our Australianand Bulgarian businesses. Board update On 1 June 2005 we announced that Andre Lacroix is to join the Group on 1 September 2005 as Group Chief Executive Designate. He will assume the fullresponsibilities of Group Chief Executive on 1 January 2006 when Peter Johnsonwill replace me as Non-executive Chairman. I will be retiring from the InchcapeBoard at the end of this year. In May 2005, we announced that Alan Ferguson, our Group Finance Director, willleave Inchcape in September 2005 to assume that role at a FTSE 100 company. Thesearch for his successor is well under way and we will make an announcement indue course. Dividend The Board has declared an interim dividend of 19.0p (2004 - 15.0p), an increase of 26.7% on last year. The Board's policy at the interim stage is to plan for a dividend split, whichis one third at the interim and two thirds at the final. The interim dividend payment will be paid on 12 September 2005 to shareholderson the register at 12 August 2005. Prospects The market in Australia is expected to remain strong for the remainder of theyear. Subaru's model line up will be strengthened by the introduction of the newImpreza and Forester ranges and so the outlook remains positive. In Belgium market conditions are expected to be little changed from the firsthalf. In Greece we expect that the market will continue to be lower than last year andremain extremely competitive. In Hong Kong profitability is anticipated to be in line with our expectations atthe start of the year. In Singapore trading conditions are strong, supported by the fact that thenumber of Certificates of Entitlement issued in 2005 will be higher than in2004. In the UK the full year market is forecast to fall between 4.0% and 5.0%, however the positive start to the year by UK Retail is expected to continue. Within Other it is anticipated that the full year will be better than last year. Overall the first half results and our expectations for the second half leave usconfident that 2005 will be another year of good progress for Inchcape. Looking ahead The financial capacity of the Group, after the share buy back programme iscompleted, remains substantial, as are the opportunities for investment. Many of these opportunities will be in retail. This re-emphasises the need forInchcape to develop world class management and processes, which have aparticular focus on customer experience and operational excellence, supported bya more standardised approach to dealer management systems. We already have examples of world class Retail performance in a number of ourmarkets, however we are recruiting more people internationally with retailskills to further support our expansion plans. We are also undertaking long terminitiatives, such as our Retail Academy in the UK developed in conjunction withLoughborough University, which will improve the retail skills of our managersacross franchises and countries. All this gives the Board confidence that Inchcape remains well placed to deliveron its strategic growth plans. Sir John EganChairman1 August 2005 CONSOLIDATED INCOME STATEMENTFOR THE SIX MONTHS ENDED 30 JUNE 2005 Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £mRevenue (note 2) 2,257.0 2,158.5 4,119.5Cost of sales (1,937.4) (1,848.5) (3,532.9)Gross profit 319.6 310.0 586.6Operating expenses before exceptionalitems (219.5) (221.0) (414.5)Exceptional items (note 3) 4.0 (2.9) (10.6)Total operating expenses (215.5) (223.9) (425.1)Operating profit (note 2) 104.1 86.1 161.5Share of profit after tax of jointventures and associates 3.1 4.9 7.8Profit before finance and tax 107.2 91.0 169.3Finance income before exceptional financeincome 4.9 3.2 5.8Exceptional finance income - - 4.2Finance income (note 4) 4.9 3.2 10.0Finance costs (note 5) (7.3) (8.0) (16.1)Profit before tax 104.8 86.2 163.2Tax (note 6) (24.9) (22.5) (43.6)Profit for the period 79.9 63.7 119.6Attributable to:- Equity holders of the parent 77.8 61.9 116.4- Minority interests 2.1 1.8 3.2 79.9 63.7 119.6Basic earnings per share (pence) (note 7) 99.0p 79.2p 148.5pDiluted earnings per share (pence) (note 7) 97.9p 78.4p 146.6p CONSOLIDATED BALANCE SHEETAS AT 30 JUNE 2005 As at As at As at 30.6.05 30.6.04 31.12.04 £m £m £mNon-current assetsGoodwill 82.2 77.4 71.5Other intangible assets 6.2 6.7 6.5Property, plant and equipment 337.0 292.0 295.9Trade and other receivables 22.8 22.2 19.6Investments in joint ventures and associates 47.6 67.8 42.2Other investments - 10.1 11.9Available for sale financial assets 11.9 - -Deferred tax assets 21.4 20.1 20.8 529.1 496.3 468.4Current assetsInventories 541.5 443.3 577.1Trade and other receivables 226.3 210.7 198.3Other investments - 2.8 2.7Available for sale financial assets 2.3 - -Current tax assets 1.6 0.8 0.5Cash and cash equivalents 194.5 175.5 171.2 966.2 833.1 949.8Total assets 1,495.3 1,329.4 1,418.2 Current liabilitiesBorrowings (69.3) (10.2) (15.6)Trade and other payables (645.4) (618.8) (657.3)Derivative financial instruments (12.7) - -Current tax liabilities (41.9) (41.9) (44.9)Provisions (27.2) (29.5) (24.6) (796.5) (700.4) (742.4) Non-current liabilitiesBorrowings (5.4) (2.7) (3.7)Trade and other payables (36.2) (37.2) (31.8)Provisions (33.7) (54.9) (51.9)Deferred tax liabilities (17.2) (14.6) (14.8)Retirement benefit liability (60.6) (50.9) (58.9) (153.1) (160.3) (161.1) Total liabilities (949.6) (860.7) (903.5) Net assets 545.7 468.7 514.7 Shareholders' equityCalled up share capital 119.8 118.9 119.5Share premium account 111.6 109.9 110.7Other reserves 13.8 (2.8) 4.4Retained earnings 291.4 235.6 271.8Equity attributable to equity holders ofthe parent 536.6 461.6 506.4Minority interests 9.1 7.1 8.3Total shareholders' equity 545.7 468.7 514.7 CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE SIX MONTHS ENDED 30 JUNE 2005 Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £mEffect of foreign exchange rate changes 13.6 (21.5) (15.2)Movement in cash flow hedges 0.8 - -Movement in available for sale financialassets 0.5 - -Actuarial losses on defined benefit pensionschemes (3.6) (3.5) (10.1)Net gains (losses) recognised directly inequity 11.3 (25.0) (25.3)Profit for the period 79.9 63.7 119.6Total recognised income for the period* 91.2 38.7 94.3 Share-based payments charge 1.9 0.5 1.7Net disposal of own shares by ESOP Trust 1.0 - 0.1Dividends:- Equity holders of the parent (27.2) (20.4) (32.2)- Minority interests (1.6) (1.2) (1.6)Issue of ordinary share capital 1.2 1.5 2.8Share buy back programme (31.0) - - 35.5 19.1 65.1Balance at 1 January 514.7 449.6 449.6Adoption of IAS 32 and IAS 39 (4.5) - -Balance at period end 545.7 468.7 514.7 * Of the total recognised income for the period £89.0m is attributable toequity holders of the parent (£37.3m for the six months ended 30 June 2004;£91.3m for the year ended 31 December 2004) and £2.2m is attributable tominority interests (£1.4m for the six months ended 30 June 2004; £3.0m for theyear ended 31 December 2004). CONSOLIDATED CASH FLOW STATEMENTFOR THE SIX MONTHS ENDED 30 JUNE 2005 Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £mCash flows from operating activitiesOperating profit 104.1 86.1 161.5Exceptional items (4.0) 2.9 10.6Amortisation and impairment of intangibleassets 1.6 2.4 4.6Depreciation 11.7 10.3 21.2(Profit) loss on disposal of property, plant and equipment (1.1) (0.2) 0.7Share-based payments charge 1.9 0.5 1.7(Increase)decrease in working capital (5.2) 48.0 (30.5)Decrease (increase) in vehicles subject toresidual value commitments 4.3 (1.4) 4.7Payment in respect of termination ofoperations (1.0) (0.2) (1.5)Other items* 2.5 17.6 14.2Cash generated from operations 114.8 166.0 187.2Tax paid (30.9) (17.6) (36.9)Net interest received* 1.1 15.7 9.6Net cash generated from operating activities 85.0 164.1 159.9 Cash flows from investing activitiesAcquisition of businesses, net of cash andoverdrafts acquired (28.5) (18.0) (25.1)Net cash (outflow) inflow from sale ofbusinesses (5.5) 4.3 23.7Purchase of property, plant andequipment (39.3) (20.2) (40.3)Purchase of intangible assets (0.8) (1.6) (3.3)Proceeds from disposal of property, plant and equipment 5.0 1.7 5.5Net disposal of other investments - 1.0 0.7Net disposal of available for sale financialassets 0.9 - -Dividends received from joint ventures and associates 1.2 2.8 4.9Net cash used in investing activities (67.0) (30.0) (33.9) Cash flows from financing activitiesProceeds from issue of ordinary shares 1.2 1.5 2.8Share buy back programme (31.0) - -Net disposal of own shares by ESOP Trust 1.0 - 0.1Net cash outflow from borrowings (2.7) (18.0) (18.2)Payment of capital element of financeleases (0.2) (0.1) (0.2)Equity dividends paid (27.2) (20.4) (32.2)Minority dividends paid (1.8) (1.2) (1.4)Net cash used in financing activities (60.7) (38.2) (49.1) Net (decrease) increase in cash and cashequivalents (note 12) (42.7) 95.9 76.9Cash and cash equivalents at beginning of the period 158.8 95.0 95.0Net foreign exchange difference 10.8 (22.0) (13.1)Cash and cash equivalents at end of the period 126.9 168.9 158.8 Cash and cash equivalents consist of:- Cash and cash equivalents 194.5 175.5 171.2- Overdrafts (67.6) (6.6) (12.4) 126.9 168.9 158.8 * Net cash inflows for the six months ended 30 June 2005 include £5.4m inrespect of the VAT receipt (notes 3 and 4). Of this total £1.8m is reportedwithin Other items (£15.4m for the six months ended 30 June 2004; £15.5m forthe year ended 31 December 2004) and £3.6m is reported within Net interestreceived (£21.3m for the six months ended 30 June 2004; £21.5m for the yearended 31 December 2004). NOTES 1 BASIS OF PREPARATION These interim financial statements are neither audited nor reviewed by theexternal auditors and do not constitute statutory accounts. The results for the periods to 30 June have been prepared using the discreteperiod approach (i.e. considering them as accounting periods in isolation).The tax charge is based on the effective tax rates estimated for the full yearin the Group's countries of operation being applied to the actual profits forthe first half. The Group's published financial statements for the year ended 31 December 2004have been reported on by the Group's auditors and filed with the Registrar ofCompanies. The report of the auditors was unqualified and did not contain astatement under Section 237 (2) or (3) of the Companies Act 1985. The main exchange rates used for translation purposes are as follows: Average rates Period end rates 30.6.05 30.6.04 31.12.04 30.6.05 30.6.04 31.12.04Australian dollar 2.42 2.46 2.48 2.35 2.61 2.45Euro 1.45 1.48 1.47 1.48 1.50 1.41Hong Kong dollar 14.62 14.15 14.22 13.93 14.20 14.92Singapore dollar 3.09 3.09 3.09 3.02 3.11 3.13 International Financial Reporting Standards Prior to 2005, the Group prepared its audited annual financial statements andunaudited interim financial statements under UK Generally Accepted AccountingPrinciples (UK GAAP). From 1 January 2005, the Group is required to prepareannual consolidated financial statements in accordance with InternationalFinancial Reporting Standards (IFRS) as adopted by the European Union (EU) andimplemented in the UK. As the 2005 annual financial statements will includecomparatives for 2004, the Group's date of transition to IFRS is 1 January 2004and the 2004 comparatives have been restated to IFRS. On 12 May 2005 the Group published an explanatory report entitled 'Preliminaryunaudited financial information on the transition to International FinancialReporting Standards' available on the Group's website, www.inchcape.com. Thisdocument sets out the key differences between UK GAAP and IFRS for the Group,reconciliations of its income statements for the six months ended 30 June 2004and the year ended 31 December 2004 and its balance sheets as at 1 January2004, 30 June 2004 and 31 December 2004, together with its principal accountingpolicies under IFRS. Accounting policies The Group's results for the six months ended 30 June 2005 have been preparedon a basis consistent with the Group's IFRS accounting policies as set out inthe explanatory report referred to above. These IFRS accounting policies havebeen prepared on a basis consistent with IFRS and interpretations expected tobe in effect for the year ending 31 December 2005. It is possible that therewill be changes to these standards and interpretations before the end of 2005,which might require further adjustments to this information before it isincluded in the 2005 annual financial statements. In addition, the Group has early adopted the amendment to IAS 19 Employee Benefits on the basis that this is expected to be formally adopted by the EU before the end of 2005. First-time adoption The general principle that should be applied on first-time adoption of IFRS isthat standards are applied with full retrospective effect. In accordance withIFRS 1 First-time Adoption of International Financial Reporting Standards, theGroup is entitled to a number of voluntary and mandatory exemptions from fullrestatement. The Group has elected: (i) not to restate its business combinations made prior to 1 January 2004 tocomply with IFRS 3 Business Combinations; (ii) to retain previous UK GAAP carrying values of property, plant andequipment, treating any historic revaluations as deemed cost at 1 January 2004; (iii) to recognise all cumulative actuarial gains and losses in respect ofdefined benefit pension schemes and similar benefits in shareholders' equityat 1 January 2004; (iv) to apply IFRS 2 Share-based Payments only to awards granted after 7November 2002 and not vested by 1 January 2005; (v) to deem cumulative translation differences for all foreign operations tobe nil at 1 January 2004; and (vi) not to present comparative information in accordance with IAS 32 FinancialInstruments: Disclosure and Presentation and IAS 39 Financial Instruments:Recognition and Measurement. The effect of adopting IAS 32 and IAS 39 at 1 January 2005 is shown as amovement in shareholders' equity for 2005. This decreased shareholders' equityby £4.5m at 1 January 2005. In addition, under IAS 32 cash balances and bankoverdrafts can only be presented net where there is both the legal ability andintention to settle net. From 1 January 2005 this has had the effect ofgrossing up cash and borrowings in the balance sheet. Impact of transition The application of IFRS has a broadly neutral impact on profit before tax andearnings, and results in a decrease in net assets, mainly due to therecognition of the pension deficit. The principal differences for the Groupbetween reporting on the basis of UK GAAP and IFRS are as follows: (i) recognising an expense for the fair value of employee share-based awardsrather than the intrinsic value; (ii) ceasing to amortise goodwill and testing for impairment at least annually; (iii) recognising the full pension deficit on the balance sheet, takingoperating and financing costs to the income statement and actuarial gains andlosses to shareholders' equity; (iv) derecognising the sale of vehicles sold subject to a residual valuecommitment, retaining the vehicle on the balance sheet and spreading the profitover the duration of the lease; (v) reclassifying the land element of leaseholds from property, plant andequipment to prepayments, reversing any previous revaluation; (vi) reclassifying stock holding interest from operating expenses to financecosts in the income statement; (vii) recognising deferred tax on revaluations of property and on non-qualifying properties acquired as part of a business combination; and (viii) no longer recognising dividends proposed but not declared as a liabilityat the balance sheet date. The application of IFRS has also changed the presentation of the cash flowstatement which now shows cash flows from three activities - operating,investing and financing. In addition, under IFRS the cash flow statementincludes all cash flows in respect of cash and cash equivalents which is broader in scope than cash as defined under UK GAAP. 2 SEGMENTAL ANALYSIS The Group's primary reporting format is on a geographical basis. The Group is organised into six main geographical segments: Australia, Belgium,Greece, Hong Kong, Singapore and the UK. Revenue Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £mAustralia 312.4 302.1 567.3Belgium 257.5 257.9 462.7Greece 156.8 197.4 348.0Hong Kong 114.4 118.9 237.2Singapore 366.3 338.2 652.5UK 744.1 683.5 1,331.3Other 305.5 260.5 520.5 2,257.0 2,158.5 4,119.5 Operating profit Exceptional items before exceptional items Six Six Six Six months to months to Year to months to months to Year to 30.6.05 30.6.04 31.12.04 30.6.05 30.6.04 31.12.04 £m £m £m £m £m £mAustralia 16.1 14.2 28.1 - 0.5 0.6Belgium 8.3 8.0 12.6 - (1.3) (2.1)Greece 7.8 8.3 17.7 - - 0.1Hong Kong 13.0 11.8 25.6 - - -Singapore 34.6 28.4 53.5 - - -UK 15.0 13.9 25.8 - (5.6) (19.3)Other 14.3 15.1 26.7 - 0.1 0.3 109.1 99.7 190.0 - (6.3) (20.4)Central costs (9.0) (10.7) (17.9) 4.0 3.4 9.8 100.1 89.0 172.1 4.0 (2.9) (10.6) Operating profit after exceptional items Six Six months to months to Year to 30.6.05 30.6.04 31.12.04 £m £m £mAustralia 16.1 14.7 28.7Belgium 8.3 6.7 10.5Greece 7.8 8.3 17.8Hong Kong 13.0 11.8 25.6Singapore 34.6 28.4 53.5UK 15.0 8.3 6.5Other 14.3 15.2 27.0 109.1 93.4 169.6Central costs (5.0) (7.3) (8.1) 104.1 86.1 161.5 Share of results of joint ventures and associates The Group's share of the profit after tax of joint ventures and associates of £3.1m for the six months ended 30 June 2005 (£4.9m for the six months ended 30 June 2004; £7.8m for the year ended 31 December 2004) arises in Hong Kong (£1.7m), the UK (£0.6m), Greece (£0.5m) and Belgium (£0.3m). 3 EXCEPTIONAL ITEMS Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £mNet profit (loss) on sale and terminationof operations:- Provision release arising from non-motorsbusiness exits 4.0 3.6 8.6- MCL Group Limited and Automotive Group Limited - (5.6) (5.8)- Ferrari Belgium and UK - - (5.3)- Other - (0.9) (0.5)Total net profit (loss) on sale andtermination of operations 4.0 (2.9) (3.0)Goodwill impairment - - (9.4)VAT recovery - - 1.8Total exceptional items 4.0 (2.9) (10.6) The release of provisions in the six months ended 30 June 2005 arises from thesettlement and expiry of a number of legal claims relating to non-motorsbusiness exits. A further £4.2m of exceptional finance income in respect of the VAT recoveryis included in finance income for the year ended 31 December 2004 (note 4). In addition, an exceptional profit of £1.2m arising on the sale of propertiesis included in the share of profit after tax of joint ventures and associatesin the income statement for the six months ended 30 June 2004 and the yearended 31 December 2004. 4 FINANCE INCOME Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £mBank interest receivable 2.8 2.1 4.1Post retirement benefits - 0.3 0.5Other interest receivable 2.1 0.8 1.2Finance income before exceptional financeincome 4.9 3.2 5.8Exceptional finance income - VAT recovery - - 4.2Total finance income 4.9 3.2 10.0 5 FINANCE COSTS Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £mBank interest payable 0.8 0.3 0.3Stock holding interest 4.4 3.4 7.2Post retirement benefits 0.1 - -Other interest payable 2.0 4.3 8.6Total finance costs 7.3 8.0 16.1 6 TAX Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £mCurrent tax:- UK corporation tax 0.9 4.9 4.6- Overseas taxes 24.6 22.5 44.0 25.5 27.4 48.6Deferred tax (0.6) (4.9) (5.0)Total tax charge 24.9 22.5 43.6 The tax charge above includes £nil for the six months ended 30 June 2005 (£nilfor the six months ended 30 June 2004; £0.5m for the year ended 31 December2004) arising in respect of exceptional items. 7 EARNINGS PER ORDINARY SHARE Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £mHeadline profit before tax 100.8 87.9 168.4Tax on Headline profit (24.9) (22.5) (43.1)Minority interests (2.1) (1.8) (3.2)Headline earnings 73.8 63.6 122.1Exceptional items:- Group 4.0 (2.9) (10.6)- Joint ventures and associates - 1.2 1.2Exceptional finance income - - 4.2Tax on exceptional items - - (0.5)Basic earnings 77.8 61.9 116.4Headline earnings per share 93.9p 81.3p 155.7pBasic earnings per share 99.0p 79.2p 148.5pDiluted earnings per share 97.9p 78.4p 146.6p Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 number number numberWeighted average number of fully paidordinary shares in issue during theperiod 79,725,947 79,067,128 79,241,664Weighted average number of fully paidordinary shares in issue during theperiod:- Held by the ESOP Trust (626,561) (866,230) (840,828)- Repurchased as part of the share buyback programme (537,393) - - 78,561,993 78,200,898 78,400,836 Dilutive effect of potential ordinaryshares 932,782 784,404 1,019,268Adjusted weighted average number offully paid ordinary shares in issueduring the period 79,494,775 78,985,302 79,420,104 Headline profit before tax and Headline earnings (which exclude exceptionalitems and any material impact on profits of not achieving hedge effectivenessunder IAS 39) are adopted to assist the reader in understanding the underlyingperformance of the Group. Headline earnings per share is calculated bydividing the Headline earnings for the period by the weighted average numberof fully paid ordinary shares in issue during the period, less those sharesheld by the ESOP Trust and those repurchased as part of the share buy backprogramme. Basic earnings per share is calculated by dividing the basic earnings for theperiod by the weighted average number of fully paid ordinary shares in issueduring the period, less those shares held by the ESOP Trust and thoserepurchased as part of the share buy back programme. Diluted earnings per share is calculated on the same basis as the basicearnings per share with a further adjustment to the weighted average number offully paid ordinary shares to reflect the effect of all dilutive potentialordinary shares. Dilutive potential ordinary shares comprise share optionsand deferred bonus awards. 8 ACQUISITIONS The Group acquired a number of businesses during the period, none of which wasindividually material. The estimated consideration payable for thesebusinesses is c. £23.4m, of which £22.5m has been paid in this half year. Theprovisional fair value of the total net assets acquired was £13.1m, withgoodwill arising on these acquisitions of £10.3m. 9 POST RETIREMENT BENEFITS The Group provides employee benefits under various arrangements, includingthrough defined benefit and defined contribution pension plans, the details ofwhich are disclosed in the 2004 annual financial statements. At the interimbalance sheet date, the assets and liabilities of the principal defined benefitplans have been updated from the latest actuarial valuations. 10 SHAREHOLDERS' EQUITY Share buy back programme The Group repurchased £31.0m of shares during the six months ended 30 June2005 in relation to its share buy back programme. These shares are being heldas treasury shares within shareholders' equity. Issue of ordinary shares Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £mShare capital 0.3 0.6 1.1Share premium 0.9 0.9 1.7 1.2 1.5 2.8DividendsThe following dividends were paid by the Group. Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £mInterim dividend for the six monthsended 30 June 2004 of 15.0p per share - - 11.8Final dividend for the year ended 31 December 2004 of 35.0p per share (2003- 26.0p per share) 27.2 20.4 20.4 27.2 20.4 32.2 The interim dividend for the six months ended 30 June 2005 of 19.0p per sharewas approved by the Board on 1 August 2005 and has not been included as aliability as at 30 June 2005. 11 CONTINGENCIES In the six months ended 30 June 2005 the Group has come to a final settlementof the legal claims made by Aon Corporation under an indemnity given inconnection with the sale of Bain Hogg Limited in 1996. In September 2000, the European Parliament passed Directive 2000/53/EC whichdeals with the collection and disposal of vehicles at the end of their life.The Directive includes a retrospective liability for vehicles put on the roadprior to July 2002. Member states were required to enact legislation by 21April 2002. Legislation has now been enacted in all the Group's core marketsin the EU, including the UK, where the legislative framework has now come intoeffect. In Belgium, Greece and now Finland, there are self-fundingarrangements in place with independent companies which will result in a no costsolution for importers. The Directors view these latest developments asfavourable to the Group. Accordingly, having reviewed this matter and, basedon the information currently available, the Directors still consider thatimplementation of the Directive will not have a material impact on thefinancial position of the Group. 12 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £mNet (decrease) increase in cash and cashequivalents (42.7) 95.9 76.9Net cash outflow from borrowings andlease financing 2.9 18.1 18.4Change in net cash and debt resultingfrom cash flows (39.8) 114.0 95.3Effect of foreign exchange rate changeson net cash and debt 10.8 (21.8) (13.1)Net loans and finance leases relating toacquistions (4.0) (6.7) (7.4)Movement in net funds (33.0) 85.5 74.8Opening net funds 151.9 77.1 77.1Adoption of IAS 32 and IAS 39 0.9 - -Closing net funds 119.8 162.6 151.9 13 POST BALANCE SHEET EVENTS In July 2005, the Group replaced its principal committed borrowing facility of£250.0m with a syndicated five year revolving credit facility of £275.0m. 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