6th Mar 2006 07:02
Inchcape PLC06 March 2006 6 March 2006 Inchcape plc preliminary results Strong profits growth with continued cash generation and entry into Russia through Moscow joint venture Inchcape plc, the international automotive retail group, announces its resultsfor the full year to 31 December 2005. Financial highlights: • Revenue up 8.9% at £4.5bn • Trading profit* up 10.1% at £189.4m • Headline profit before tax** up 13.0% at £190.3m • Headline earnings per share** up 14.6% at 178.5p • Operating profit up 9.2% at £176.4m • Profit before tax up 8.6% to £177.3m • Basic earnings per share up 9.0% to 161.9p • Proposed final dividend up 8.6% at 38.0p per share, resulting in total dividend of 57.0p per share, up 14.0% • £31.0m returned to shareholders as part of the £65.0m share buy back programme • Proposed six for one share split * Operating profit before exceptional items** Before exceptional items Operational highlights: • Successful year with strong profits growth and continued cash generation • Trading profit growth in excess of 10.0% in five of the six core markets • Year on year margins saw slight improvement, despite some pressure in second half • Another record year of sales for Australia and Singapore • Strong year for UK Retail, which achieved a 41.9% growth in trading profits • Entry into third Australian market through acquisition of Keystar Motors in south east Queensland, Australia • Entry into Russia announced today, through joint venture with Independence Group, for the retail and service of Toyota vehicles Andre Lacroix, Group Chief Executive of Inchcape plc, commented: "Inchcape has once again produced a further set of strong results, whichdemonstrate the benefits of our balanced international portfolio. We achievedrecord performances in Australia and Singapore, improved margins in UK Retail,successfully integrated recent acquisitions, and again generated strong cashflow. "As well as achieving double digit growth in five of our six core markets, wehave continued to develop opportunities in emerging and new markets that will beimportant future engines of growth. Most notably, our new joint venture inMoscow, announced today, establishes a presence for us in the high growthRussian market. "Despite overall market conditions remaining challenging, we are well placed todeliver further growth in 2006. "It is clear that the strategy of recent years has been successful. The resultis a business, and a business model, which is extremely sound. "Our future growth will come in two ways: from strengthening Inchcape's currentbusinesses through a resolute focus on customer centric operational excellence;and from expanding in both our existing and new markets. "It is a very exciting time for Inchcape. I am tremendously energised by thegrowth opportunities available to the Group, the quality of our people and ourexcellent brand partner relationships." Financial summary £m 2005 2004 Revenue 4,488.1 4,119.5 Operating profit before exceptional items 189.4 172.1Exceptional items (13.0) (10.6)Operating profit 176.4 161.5Share of profit after tax of joint ventures andassociates* 6.2 7.8Net finance costs** (5.3) (6.1)Profit before tax 177.3 163.2Headline profit before tax*** 190.3 168.4Headline earnings per share*** 178.5p 155.7pBasic earnings per share 161.9p 148.5p * Includes £1.2m exceptional profit in 2004** Includes £4.2m relating to the VAT exceptional in 2004*** Before exceptional items Notes to editors For further information, please contact: Group Communications, Inchcape plc020 7546 0022 Hogarth Partnership Limited (John Olsen/Barnaby Fry)020 7357 9477 Inchcape is a scale automotive retail group operating in Australia, Belgium,Greece, Hong Kong, Singapore and the UK. The Group also has operations in anumber of other global markets. In addition to growing our core businesses, weare looking to develop scale operations in new and emerging regions. Werepresent leading automotive brands and operate either a retail, or a verticallyintegrated retail model (i.e. exclusive distribution and retail), depending onthe market. 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 Preliminary results for the full year to 31 December 2005 Chairman's statement Highlights Inchcape has experienced a successful year showing strong growth in profits withcontinued cash generation. Headline profit before tax and exceptional items of£190.3m was 13.0% higher than 2004, while Headline earnings per share rose 14.6%to 178.5p. Despite challenging market conditions in most of our core markets, and the runout of a number of key models, we increased our trading profits by over 10.0% infive of our six core regions. Singapore and Australia generated record salesperformances, whilst our UK Retail business achieved strong trading marginprogression in a declining market. Overall, 2005 demonstrated an encouraging operational performance for the Group. We continue to invest in our core businesses, whilst developing additional scaleoperations in new and emerging markets. In the UK, consolidation has, as we forecast, gathered pace. Inchcape Retaillooks to play its part in this consolidation. We will continue our strategy ofgrowth through the extension of existing contiguous territories and the acquisition of new market areas with our brand partners. In April 2005, we purchased six Mercedes-Benz retail centres in the north west.As a result, we are the largest independent Mercedes-Benz retailer in thecountry. We also continue to invest in our BMW retail centres. In Australia, we have recently extended our retail presence into a third market,Brisbane, with the acquisition of Keystar Motors Pty Ltd (Keystar) in February2006. This business represents Subaru, Hyundai, Kia and Mitsubishi across twomulti-franchise retail centres. The acquisition complements our existing retailoperations in Melbourne and Sydney, and provides a platform to build a largerbusiness in the high growth market of south east Queensland. On 6 March 2006 we announced our entry into the high growth Russian market, anew territory for the Group, through a joint venture with the Independence Groupof Companies, one of Moscow's leading independent car retailers. The partnershipis to establish two retail and service centres in Moscow for Toyotavehicles. Moscow currently accounts for approximately 50.0% of foreign brandsales in Russia. The retail centres, which will be newly constructed, are due toopen in the second half of 2007 and are expected to become Inchcape's largestretail outlets in Europe. Toyota is currently one of the most successful foreignbrands in Russia with sales of around 60,000 units in 2005, and a market shareof foreign brand car sales of over 10.0%. Dividend The Board is recommending the payment of a final ordinary dividend for the yearof 38.0p (2004 - 35.0p). This gives a total dividend for 2005 of 57.0p, which is14.0% above the 2004 dividend of 50.0p, and covered 3.1 times by Headlineearnings per share (2004 - 3.1 times). Subject to approval at the Company's Annual General Meeting (AGM) on 11 May2006, the final dividend will be paid on 16 June 2006 to shareholders on theregister on 19 May 2006. Share buy back In February 2005, the Company announced a £65.0m share buy back programme and todate £31.0m has been returned to shareholders. It is envisaged that the programme will be concluded in 2006. Share split Given the rise in the Company's share price over recent years, the Directorsconsider that it is now appropriate to sub-divide the shares into smaller units.This should improve their liquidity. A proposal will therefore be put forward at the Company's AGM, on 11 May 2006,that each ordinary share of 150.0p should be divided into six ordinary shares of25.0p each. If approved, from the effective date, which is expected to be 12 May 2006,shareholders will hold six new ordinary shares of 25.0p nominal value for eachold ordinary share of 150.0p nominal value. Board changes Sir John Egan retired from the Board on 31 December 2005. I would like to thankSir John for his immensely valuable contribution and support during his fiveyears as Chairman. Simon Robertson retired at the Company's AGM on 12 May 2005. I would like togive him my personal thanks for the great contribution he made to Inchcape. I amdelighted to say that upon Simon's retirement, Will Samuel has accepted theroles of Deputy Chairman and Senior Independent Non-executive Director. Alan Ferguson resigned on 14 September 2005 to join BOC Group plc. Hiscontribution to Inchcape's success was considerable and we wish him well in hisnew role. Andre Lacroix joined the Board on 1 September 2005, and became Group ChiefExecutive on 1 January 2006. Andre has an exceptional background ininternational management, with strong experience in retail, marketing, customer service and relationship management across a broad range of products and geographies. In his interview, which follows the Operating review, Andre discusses his first impressions of the Group and his thoughts on the growth opportunities available to Inchcape. Barbara Richmond will join the Board on 3 April 2006 as Group Finance Director.Barbara joins Inchcape from Croda International Plc. Her successful track recordaugurs well for the continued development of Inchcape. On 1 January 2006, Karen Guerra, President, Colgate Palmolive SAS, and GeneralManager of the French Branch of CPI LLC, joined the Board as a Non-executiveDirector. Karen's insight and experience in international, consumer facingbusinesses will be of great value to the Group. People Once again the hard work and dedication of our colleagues around the world havehelped the Group achieve the excellent results that are published today. On behalf of the Board, I would like to thank them all for their continuedcommitment and loyalty. Operating review Operating profit before exceptional items has been defined as trading profitthroughout the Operating review. 2005 2004------------- --------- ----------- ------- --------- ----------- -------Regional Operating Exceptional Trading Operating Exceptional Tradinganalysis profit items profit profit items profit £m £m £m £m £m £m------------- --------- ----------- ------- --------- ----------- -------Australia 31.9 - 31.9 28.7 (0.6) 28.1Belgium 14.0 - 14.0 10.5 2.1 12.6Greece 13.8 - 13.8 17.8 (0.1) 17.7Hong Kong 28.8 - 28.8 25.6 - 25.6Singapore 62.1 - 62.1 53.5 - 53.5United Kingdom 9.7 19.5 29.2 6.5 19.3 25.8Other 28.4 - 28.4 27.0 (0.3) 26.7Central costs (12.3) (6.5) (18.8) (8.1) (9.8) (17.9)------------- --------- ----------- ------- --------- ----------- -------Operatingprofit 176.4 13.0 189.4 161.5 10.6 172.1------------- --------- ----------- ------- --------- ----------- ------- GroupTrading profit 2005: £189.4m (2004: £172.1m) This is the first full year set of financial statements to be prepared inaccordance with International Financial Reporting Standards (IFRS). The Grouphas taken advantage of the transition to IFRS to amend its geographicalsegments. Overall the Group achieved an increase in revenue of 8.9% to £4.5bn for the fullyear to 31 December 2005. This result was assisted by record sales performancesin Singapore and Australia, and strong growth by UK Retail despite a softeningmarket. The operating profit for the Group, of £176.4m, was 9.2% above 2004. Thisperformance includes a net exceptional loss of £13.0m. Excluding this, operatingprofit before exceptional items is £189.4m, which is some 10.1% or £17.3m higherthan 2004. Encouragingly, despite challenging market conditions, trading profitsgrew by over 10.0% in five of our six core markets. A record sales performance and increased level of aftersales activity underpinned a 16.1% growth in Singapore. Australia also benefited from record sales, and enjoyed a strong retail performance. Increasing competitiveness in our core markets, however, putpressure on margins in the second half of the year. Headline profit before tax was up 13.0% to £190.3m and Headline earnings pershare increased by 14.6% from 155.7p to 178.5p in the year. AustraliaTrading profit 2005: £31.9m (2004: £28.1m) The Australian vehicle market enjoyed a fifth consecutive year of growth, and atc. 988,000 was 3.5% up on 2004. Subaru significantly outperformed this, growing7.2% compared to 2004, with sales of the Forester and Impreza achieving theirhighest ever levels. Subaru volumes of c. 36,000 units reached record levels forthe tenth successive year. Furthermore, Subaru set yet another record full yearmarket share of 3.6%. Our Subaru Distribution business suffered margin pressure in 2005 due to thecompetitive market. Trading profits for Subaru Melbourne were up over 25.0% forthe second successive year. A focus on customer experience and operationalexcellence has delivered growth in volumes, particularly used cars which were upover 12.0% on the prior year, and increased aftersales. This business continuesto exceed our expectations and achieved trading margins of 5.0%. In 2005 we completed the re-engineering of our non-Subaru dealer network inSydney, exiting from underperforming non-core dealerships. Our performancebenefited from this and with the contribution from two new Subaru retail centresacquired in the second half of 2004, Sydney Retail returned to profit in 2005. Our Business Services operation, AutoNexus, had a strong year with profits up23.9%. We have invested in a new parts warehouse in Sydney and a larger vehiclecompound in Melbourne, in response to increased customer demand. Overall, the strong progression in our Retail business contributed to anincrease of 10.3% in trading profits compared to 2004 at constant currency.Margins improved from 5.0% to 5.2%. The Subaru range is further developing in 2006 with the introduction of a newentry level Liberty 2.0R and special editions, together with the addition of afifth model to the line up with the launch of the new B9 Tribeca in the lastquarter of the year. All this should result in increased vehicle sales forSubaru. BelgiumTrading profit 2005: £14.0m (2004: £12.6m) The Belgian vehicle market was flat year on year at c. 552,700 units. In amarket dominated by diesel products, Toyota Belgium benefited from new dieselderivatives, particularly the Corolla 1.4 litre. This assisted Toyota inoutperforming the market, improving its market share from 4.9% in 2004 to 5.0%in 2005 and increasing volumes by 2.9%. This was an encouraging performance given that two of Toyota's core products, the Yaris and RAV4, were in run out prior to the launch of new models in early 2006. The good performance was offset however, by certain discontinued niche modelsand a weaker model mix resulting in revenue decline of some 2.6%. Trading profits benefited from the higher parts and accessories sales, allied tothe growth in the Toyota car parc, tight control of overheads and the favourablesettlement of claims following the dealer network reorganisation undertaken in2002. This drove an 11.1% increase in trading profits to £14.0m. The next generation Yaris, RAV4 and Lexus IS models were showcased at theBrussels Motor Show in January 2006 and were well received. GreeceTrading profit 2005: £13.8m (2004: £17.7m) Our Toyota/Lexus business in Greece experienced a challenging year in 2005,facing significant year on year decline in a more competitive market. The Greek vehicle market enjoyed strong consumer demand in 2004, stimulated inpart by the Olympics. Demand started to weaken, however, in late 2004 and thistrend continued throughout 2005. For the full year the market of c. 292,800units was 6.2% down compared to 2004. Our full year market share in 2004 was9.6%. Our full year market share for 2005 was 8.5% although this showed animprovement compared to the second half of 2004. Like Belgium, Toyota in Greece also suffered from the run out of the core Yarisand RAV4 models. This, coupled with supply shortages, particularly with theCorolla and Hilux models, and the disruption from the network reorganisationundertaken in late 2004, had an adverse impact on market share in 2005. Overall, the performance from our Athens and Salonica Retail businesses wasdisappointing. The start up of our new Athens flagship retail centre, whichopened in late 2004 has been slower than expected. This, combined withoperational inefficiencies in Salonica, has resulted in a net trading loss forour Retail business in 2005. All these factors had an adverse impact on margins, particularly in the secondhalf of 2005, and overall the region achieved a trading profit of £13.8m for theyear, some 22.0% lower than 2004. The Toyota model line up was broadened by the launch of the new Aygo model inmid 2005, which has increased market appeal for Toyota. In early 2006 welaunched the next generation Yaris and RAV4 models. Hong KongTrading profit 2005: £28.8m (2004: £25.6m) Consumer confidence in the vehicle market in Hong Kong has been slower to returnthan we anticipated. The 2005 full year vehicle market was approximately in linewith the c. 31,000 units achieved in 2004. Crown Motors, our Toyota/Lexus business, maintained its strong market leadershipin 2005 with a 33.1% market share. This was slightly lower than 2004 due tosupply constraints, particularly in the first half of the year, and increasedcompetitive pressure. Crown Motors achieved the Toyota Triple Crown Award forthe fourteenth consecutive year, and is the only distributor ever to haveachieved this. A higher level of one off specialist service work supported a strong performancein the parts and aftersales activities. This, together with a favourable vehiclemix, drove an improvement in overall trading margins from 10.8% in 2004 to 11.5%in 2005, excluding a one off property profit of £0.9m. Overall trading profitsimproved by 12.5%. Toyota/Lexus are launching various new models in early 2006, including the nextgeneration Camry, Previa and Lexus models. SingaporeTrading profit 2005: £62.1m (2004: £53.5m) In Singapore we once again had an outstanding year, achieving record unit salesand profitability. This was mainly due to the strong performance from BorneoMotors, our Toyota/Lexus business. In Singapore, a Certificate of Entitlement (COE), obtained from the Government,is required to purchase a new vehicle. Since May 2002 the market has benefitedfrom a change in fiscal policy, which coupled with the declining price of theCOE has encouraged consumers to scrap their cars before the expiry of the tenyear COE term. This has stimulated a strong market, which has grown by an average of 12.4% per annum between 2001 and 2005. In 2005 the market reached a record level of c.122,100 units. Toyota/Lexus retained overall market leadership in 2005 for the fourthconsecutive year with a market penetration of 29.7%. This was marginally belowthe 30.9% reached in 2004 as Borneo Motors suffered from supply constraints andthe discontinued Liteace commercial van. Recognising the recent growth in the Toyota vehicle parc, we commenced aninvestment programme in 2004 to increase aftersales capacity. During 2005 weopened a further satellite aftersales facility. The higher vehicle sales and aftersales volumes, together with softening COEprices, helped the region to increase trading profits by 13.5% at constantexchange rates. The strengthening of the Singapore dollar gave rise to a £1.4mcurrency translation benefit and, including this, overall trading profitsincreased by 16.1%. Trading margins strengthened from 8.2% in 2004 to 8.6% in2005. United KingdomTrading profit 2005: £29.2m (2004: £25.8m) In the UK total trading profits improved significantly compared to 2004, despitethe fact that the UK passenger car market declined by 5.0% to 2.4m units. Trading profits from our UK Retail operations grew by 41.9% to £27.6m. Like forlike trading profits increased by 10.6%, and our like for like used car saleswere up 10.0%. Our like for like new retail sales fell, but at a lesser ratethan the market. Like for like aftersales hours sold rose by 1.6%, andassociated profits increased by 5.8%. In particular our Mercedes-Benz, LandRover, Vauxhall, Ford and Volkswagen franchises performed well during the year.Overall the impressive performance has been driven by our focus on processimprovements, operational excellence and customer centric initiatives such as'Insight'. UK Retail trading profits also benefited from the acquisition of newMercedes-Benz retail centres in the East Midlands in 2004, and in the north westin 2005. These have been successfully integrated into our UK Retail operationand in the second half of 2005, having applied our customer centric processesand procedures, these businesses ranked first and third in Mercedes-Benz'snational customer satisfaction indices. Our finance and insurance model has changed from an exclusive arrangement to acompetitive market placement, which increased profitability. UK Retail full year trading margins progressed from 1.7% in 2004 to 2.0% in2005. Inchcape Automotive experienced another difficult year and reported a loss in2005. The focus during the year has been on resolving production inefficiencies,improving processes and strengthening management. Inchcape Fleet Solutions continued to benefit from new contract wins, and thenumber of vehicles under fleet management grew by 25.8%. Excluding the prior year contribution from the Ferrari/Maserati import anddistribution business, which we relinquished in late 2004, UK trading profitsincreased by 28.1%. OtherTrading profit 2005: £28.4m (2004: £26.7m) We achieved another year of market leadership for our Toyota businesses in Guam,Saipan, Brunei and Ethiopia. Together they delivered trading profits of £15.3m,which were some 18.6% higher than 2004. The Balkans have experienced strong market growth, particularly in Bulgaria andRomania as they prepare to join the European Union in 2007. This growth hasunderpinned a 43.6% increase in unit sales. In Bulgaria, Toyota was thepassenger car market leader with a market share of 8.7% and a 35.2% increase innew vehicle volumes. In Romania, Toyota achieved a market share of 3.4% and anincrease in volumes of almost 66.0%. Our Retail investments are progressingwell, with a new facility planned for Bucharest in 2006. Overall trading profitsin the Balkans have increased by 58.1% to £6.8m in 2005. The market slowdown in Finland seen in the second half of 2004 continued intoearly 2005. This, together with a softening in market share, contributed to adecline in trading profits of over 45.0% to £3.9m. Our Retail operations in Estonia and Latvia, acquired in December 2004 and April2005 respectively, sold over 2,780 new and used Mazda, Jaguar and Land Rovervehicles in 2005. The start up of our BMW/MINI operations in Poland was slower than expected, dueto a weak new car market. Our Retail business in France was impacted by the poornational performance of Jaguar, despite the contribution from the newly acquiredVolkswagen/Audi business in Montpellier. An 8.3% increase in volumes and improved margins in our Subaru New Zealandbusiness underpinned a 45.5% increase in trading profits to £1.6m. In 2005 our BMW/MINI operations in Chile and Peru achieved a 68.4% increase intrading profits, due in part to the reduction in the luxury vehicle tax inChile. New vehicle volumes grew by 34.2%, compared to 2004, and trading profitsincreased to £3.2m. Central costs2005: £18.8m (2004: £17.9m) In 2004, Central costs included a net one off recovery relating to thesettlement of various litigation issues. Excluding this, underlying Centralcosts for 2004 were £18.5m. Tight control of overheads has meant that Centralcosts for 2005 are marginally higher at £18.8m. This is despite additionalshare-based payment costs arising on the transition to IFRS. Trading prospects The Australian market is predicted to remain strong and Subaru's market shareprogression is expected to continue. Our retail operations will benefit from theKeystar acquisition made in February 2006 and further organic growth deliveringmargin improvement, particularly in Sydney. In Belgium, our Toyota business will benefit from the launch of the Aygo, Yarisand RAV4 models, in what is expected to be a flat market. This will help offsetmargin pressure. Our distribution business in Greece will benefit from the launch of the newAygo, Yaris and RAV4 models, and our retail operations will recover from adifficult year in 2005. In Hong Kong, the launch of the new Toyota/Lexus product range will stimulatedemand. Despite this, we expect margin pressure in a market that will remainchallenging. Following the recent Certificate of Entitlement announcement in Singapore, weexpect the market to be around 4.0% below the exceptional level of 2005. In the UK our Retail business will see the benefits of the full year impact ofrecent acquisitions. We will target a further improvement in revenue and marginin a market expected to be below the level of 2005. Our Fleet Solutions businesswill continue to do well, and we should see an improvement in InchcapeAutomotive's performance. In our other markets, we expect another successful year as we leverage thegrowth opportunities in the Balkans and Baltics. We should also improve ourperformance in Finland. The net finance charge will be affected by higher stock funding chargesprimarily from acquisitions and the cost of the share buy back programme. Despite overall market conditions remaining challenging, we are well placed todeliver further growth in 2006. This is based on the exciting new products we are launching and the focus on operational excellence, which we have in the Group. Group Chief Executive's interview The following content is taken from the 'Group Chief Executive's interview' withAndre Lacroix, which will feature in our forthcoming Annual report and accounts2005. When you joined the Inchcape Board in September last year, you were new to car retailing. What attracted you to the Company and the role? Above all, I was attracted by the strengths of Inchcape's strategic assets andthe growth opportunities for the Group around the world. Inchcape is a scale automotive retail group operating in Asia, Australasia,Europe and South America. We represent leading brands and operate either aretail or a vertically integrated retail (i.e. exclusive distribution andretail) model, depending on the market. Inchcape has done extremely well over the past five years. It has highlytalented management teams, a good geographical spread of earnings, a healthybalance sheet and strong global relationships with its brand partners. That is a fantastic legacy for a new Group Chief Executive to inherit, but whatalso attracts me are the opportunities and the challenges ahead. There is no doubt in my mind that Inchcape is well positioned to play animportant role in the emerging global retail consolidation process, but tocapitalise fully we have to stay ahead of the changes in the marketplace. Thecar industry is very dynamic. The pace of innovation is increasing, andcustomers are more and more demanding when it comes to the quality of theirvehicles and the service they expect. I have always worked in consumer facingindustries and these challenges will allow me to apply my skills, ensuring wemake the most of the opportunities available to the Group. Inchcape is already a very successful business. Following your appointment, whatdevelopments are there likely to be to the existing strategy? It is clear from the returns that have been generated and from the marketpositions that we hold, that the strategy pursued in recent years has been theright one. The result is a business, and a business model, that is extremelysound. My task is to develop the next phase of growth and to build on thissuccess. Central to our approach are two words, 'strengthen' and 'expand'. I am convincedthat we can create further shareholder value by strengthening our organicperformance, and leveraging our existing assets. The second significantopportunity is to expand in both our core markets and in new countries, withexisting and new brand partners. To achieve this, it is important that we continue to invest in the appropriateorganisational capability to deliver the next phase of growth. Our organisational and people strategies must be capable of creating the right platform to execute our future plans. Is there growth potential in your existing core markets? Very much so. I believe that organic growth will come from us becoming trulycustomer centric. This is one of my absolute priorities. When someone buys a new or used car, we must provide them with an outstandingcustomer experience that gives us a competitive advantage in the market place.The same philosophy applies when we take care of our customers' vehicles in theservice and bodyshop departments. If you look at our current operations, we have some tremendous customer servicepractices, but we do not deliver them consistently in all our markets. Moreover, it is important to recognise that we need to address the individualneeds of our customers by having the right level of insight and informationregarding their expectations. This implies that we need to be the leadinginnovator in retail and customer service. My vision is for us to become the world's most customer centric automotiveretail group, exceeding the standards set by our brand partners and surpassingcustomer expectations. That will be a strong differentiator for Inchcape andwill give us a sustainable base for organic growth. Beyond organic growth, there are plenty of opportunities in our existing marketsto expand our retail presence. In Australia for example, we have recentlyentered the Queensland market. In the UK, consolidation continues, and inBelgium and Greece, we have a good existing infrastructure from which to grow. How are you progressing in your existing emerging markets? In the Balkans, the rapid success we have enjoyed demonstrates Inchcape'sability to develop scale operations through a market focused approach. TheBalkans are now a sizeable profit contributor to the Group. We have also developed strong market positions in the Baltics with Mazda, and inChile and Peru with BMW. Will you be entering new markets? Our growth strategy is directed at existing, emerging and new markets. Animportant element of our strategy will be to continue to expand our businessmodel where we can build profitable scale operations. Today we have scale businesses in six markets, and over the next five years weexpect this to increase to about ten. In Russia, we have recently signed a joint venture with the Independence Group of Companies and we plan to open two new retail centres in Moscow for Toyota vehicles in the second half of 2007. Russia is a hugely exciting market, where the Toyota brand is well accepted and Moscow itself accounts for approximately 50.0% of foreign brand sales in Russia. We will continue to evaluate scale opportunities in Russia. We are also continuing to develop our plans for China, a very promising growthopportunity, where we can leverage the strengths of our Asian expertise. In practical terms, how are you going to put customers at the forefront ofInchcape's strategy? Having the right location and the right brand is obviously important. Whatreally creates a strategic advantage, however, is the ability to deliver anoutstanding customer experience, every day, everywhere. The purchase of a car isan important investment, as well as an emotional decision. Putting customersfirst will take Inchcape to the next level. To do that, we intend to formalise transferable best practices around the Group,constantly update our insights on customer expectations, identify the areas forinnovation in services and continually improve our operational processes. Thisshould result in an outstanding customer experience that can be deliveredconsistently across our retail operations. That is why we plan to upgrade ourtraining and increase our focus on people development. I am convinced that customer centric operational excellence is the right focusfor us to deliver the next phase of organic growth. Can you be more specific with what you mean by customer centric innovation? There are lots of great examples, which already exist throughout the InchcapeGroup. In Melbourne, we have redefined the rules of retailing by creating a fullyimmersive brand experience at Subaru Docklands. The site is a theatre, where ourcustomers can discover the Subaru technology, experience it on the race trackand jungle trail, and enjoy a nice, relaxing lunch! In Singapore we have launched our innovative Service Express concept, whichguarantees one hour service time in scheduled service slots. Furthermore, we have created several Toyota service stations throughout Singapore to reduce thetravel time for our customers. In Hong Kong, we actually visit our customers in their offices and homes todiscuss their needs. We have created a Lexus Club, and all our Lexus customersare invited to numerous, exclusive events during the year. In the UK, we have examined in detail the fundamental elements of car buying. Bylistening to our customers and identifying nine 'moments of trust' in the buyingand servicing experience, we have developed a systematic sales process thatfocuses on individual customer needs. There are many other examples of retail excellence and innovation around theGroup, which convince me that we are capable of achieving our goal of becomingthe world's most customer centric automotive retail group. Is it your strategy to build with your existing brand partners or to develop newpartnerships? Both. There are certainly development opportunities with our existing partners,provided that we continue to exceed their expectations in how we represent theirbrands. If there are other brands, however, that are relevant for our customersin a market where we want to invest, then we will seek to establish partnershipswith those brands. We are very open to such opportunities. When a manufacturer considers entering a new market or expanding significantlyin an existing one, Inchcape should be seen by them as the natural partner ofchoice for their strategy. That is an ambitious goal, but I genuinely believethat if we get our customer centricity right we are capable of achieving it. There is some large scale consolidation taking place in the UK retail market, inwhich Inchcape appears to be reluctant to participate. Where does UK expansionsit on your list of priorities? Growth in the UK is a key priority for us, and our business is performing well.Growth in year on year revenue and profits has been considerable, because we arefollowing a clear strategy based on contiguous territories for the brands in ourportfolio. We have made several acquisitions in the recent past and will continue to do so,provided we can identify the right opportunity in terms of brand and geographywith good returns for our shareholders. Inchcape has low gearing and significant cash on its balance sheet. Will allInchcape's financial resources be required for investment? We do have the benefit of a very strong balance sheet, and the approach we havedecided to take is sequential. Firstly, we will develop our growth strategy to ahigh level of detail by country and by brand partner. Secondly, we will see how much of our resources the required investments are likely to absorb. What we do will depend on the investment opportunities that we identify throughour current strategic planning, and I am not going to pre-judge the scale ofthis investment. What I can say, however, is that we will improve the efficiencyof our balance sheet, but not with overpriced acquisitions. Put another way, wewill be disciplined about our allocation of funds towards investments that candeliver a satisfactory return on invested capital. In five years time, what will be noticeably different about Inchcape? My firm intention is that we will have established scale businesses in about tenglobal markets and will be recognised as the most customer centric automotiveretail group in the world, delivering an outstanding customer experience for thebrand partners we represent. If we achieve this, I am confident that we will have delivered the next phase ofgrowth for our shareholders. What challenges do you face in achieving these objectives? We compete every day against other car retailers, with other service industriesfor talent and with other companies in convincing shareholders to invest in us.As I have already said, the industry in which we are competing is dynamic with ahigh rate of innovation and very demanding customers. To do what I am talking about will take time and will require strategic focus.We will have to be highly responsive. Throughout the organisation, we mustexecute our initiatives fully and seamlessly. Moreover, we will continue tolearn by listening to our customers and employees and will look to lead themarket by increasing retail innovation. Your overall conclusion? I have now been at the helm of the Company since January this year, and I amextremely excited about the future of Inchcape. We have a clear vision, to be the world's most customer centric automotive retail group. To achieve this, wewill strengthen our organic performance and expand with our global brandpartners. What we have to do now is fully develop our new growth strategy with a specificcountry and brand approach, and disciplined allocation of capital for our futureinvestments. It is a very exciting time for the Group. Financial review International Financial Reporting Standards Until 31 December 2004, the Group prepared its financial statements under UKGenerally Accepted Accounting Principles (UK GAAP). European Union regulationsrequire that the Group's consolidated accounts apply International FinancialReporting Standards (IFRS) from 1 January 2005. This is the first full year setof financial statements to be prepared in accordance with the standards. Reconciliations between previously reported UK GAAP numbers, and those underIFRS, are available on the Group's website, www.inchcape.com. There are a numberof first time adoption exemptions, which companies are permitted to use upon transition to IFRS. As a result of these first time adoption exemptions, the Group has adopted IAS32 Financial Instruments: Disclosure and Presentation and IAS 39 FinancialInstruments: Recognition and Measurement, with effect from 1 January 2005, withno restatement of previous comparative information. This had the effect ofdecreasing shareholders' equity by £4.5m at 1 January 2005. Cash balances andbank overdrafts are disclosed at the gross level in the balance sheet, under IAS32. Although there is the legal ability, there is no intention to settle theseamounts net. This has had the effect of grossing up cash and borrowings in thebalance sheet. In addition the Group has chosen to adopt the amendment to IAS 19 EmployeeBenefits early. Actuarial gains and losses are recognised in the Consolidatedstatement of recognised income and expense in full, in the year in which theyarise. Pensions The net pension schemes deficit has widened from £58.9m at 31 December 2004 to£69.4m at 31 December 2005. This movement was principally attributable to areduction in long term interest rates, combined with the use of updatedmortality assumptions generating an increase in the gross pension liability. Itwas, however, partially offset by a strengthening in equity markets, whichincreased the value of the pension plan assets. Exceptional items In 2005, the aggregate net exceptional items amounted to £13.0m. This included £19.5m to fully impair the carrying value of goodwill relating to Inchcape Automotive, which reflects the continuing difficult trading conditions experienced by the business. Offsetting this was £6.5m of exceptional incomearising from the release of litigation provisions on the settlement and expiryof a number of claims, relating to non-motors business exits. Net finance costs The 2004 net finance cost of £6.1m benefited from a one off interest income of£4.2m, relating to the Group's VAT recovery. Excluding this, the 2004 netfinance costs totalled £10.3m. The net finance costs for 2005 are substantially lower than the 2004 underlyinginterest charge at £5.3m. This decrease is mainly a result of the full yearbenefit of the c. £135.0m cash repatriation to the UK, effected in November2004. This resolved the mismatch between debt in the UK and cash held overseasin countries with low interest rates. Stock holding interest of £8.7m was upfrom £7.2m in 2004, primarily due to the Mercedes-Benz acquisitions in the UK. Tax The subsidiaries Headline tax rate before exceptional items for 2005 is 25.5%,compared to 26.6% in 2004. In 2005 the rate benefited from a favourable change in profits mix to lower tax jurisdictions and minimal losses in the UK, due toimproved trading and the impact of the c. £135.0m cash repatriation in late 2004. We anticipate that the subsidiaries Headline tax rate in 2006 will be broadly inline with the rate in 2005. We remain in ongoing discussions with HM Revenue & Customs regarding thecorporate tax treatment of the VAT recovery and associated interest. Theprovision remains unchanged at £8.0m. Joint ventures and associates The share of profit after tax of joint ventures and associates has decreasedfrom £7.8m in 2004 to £6.2m in 2005. The 2004 results included a £1.2mexceptional property profit. Excluding this, the reduction in 2005 is largelydue to the sale of the 40.0% stakes in MCL Group Limited and Automotive GroupLimited in July 2004 and a reduced contribution year on year from Inchroy, ourFinancial Services joint venture in Hong Kong. This has been partly offset byimproved trading in the Group's joint venture in Greece and associate inBelgium. Minority interests Profit attributable to minority interests has increased from £3.2m to £3.8m yearon year. This has resulted from continuing growth in the Bulgarian business. Exchange rates If the average exchange rates, which prevailed during 2004 had continued into2005 the Group's Headline profit before tax would have been £3.4m lower. Thestrengthening of the Singaporean and Australian dollars against sterling,particularly in the second half, benefited the Group year on year. Cash flow The Group has generated strong cash flow from operations in 2005 and is some12.8% higher than the prior year, excluding the VAT receipt of £15.5m in 2004and £1.8m in 2005. The Group continues to manage working capital tightly. At 31 December 2005,working capital was £34.7m higher than the 2004 year end position. This waspartly due to c. £7.4m arising on businesses acquired. The net increase reflectsthe higher levels of trading across the Group and the impact of some timingdifferences, which included increased stock levels in Belgium in anticipation ofthe Brussels Motor Show in January 2006. During the year the Group returned £73.0m to shareholders with £42.0m throughdividend payments and £31.0m through the share buy back programme. In addition,the Group has invested £78.0m in acquisitions and net capital expenditure duringthe year. Overall the Group's net cash position has increased by £6.1m from £151.9m at 31December 2004 to £158.0m at 31 December 2005. Acquisitions and disposals The Group added six Mercedes-Benz retail centres to its portfolio, with theacquisition of the Robert Smith Group Limited and its subsidiaries in the firsthalf of 2005. Total consideration was £18.2m, of which £0.9m is deferred. No other significant acquisitions or disposals were made during the year. Capital expenditure Capital expenditure less disposal proceeds was £48.1m, which is £25.3m in excessof the depreciation charge. This incremental investment primarily took place inour BMW and Mercedes-Benz retail centres in the UK, as part of the redevelopmentand upgrading of the facilities. Treasury management and policy The centralised treasury department manages the key financial risks of the Groupencompassing funding and liquidity risk, interest rate risk, counterparty risk,market price risk and currency risk. The treasury department operates as aservice centre under Board approved objectives and policies. Speculativetransactions are expressly forbidden. The treasury function is subject toregular internal audit. Funding and liquidity risk Group policy is to ensure that the funding requirements forecast by the Groupcan be met within available committed facilities. In July 2005, the Group tookadvantage of the favourable market conditions and amended and restated itssyndicated committed borrowing facility, originally put in place in 2002. Thematurity of this facility has been extended for a further five years to 2010,with the option for a further extension to 2012. The facility was also increased from £250.0m to £275.0m, with additional focusgiven to the banking group by reducing the number of banks from thirteen tonine. The facility was not drawn at the year end. Loan notes totalling £2.2m outstanding at 31 December 2004 were redeemed duringthe year. At 31 December 2005 there were no further loan notes outstanding. In addition to the committed facilities, the Group has access to uncommittedborrowing lines made available by relationship banks. These facilities are usedfor liquidity management purposes. At the year end these facilities had notbeen utilised. Cross border Group loans are made to optimise the use of those funds stilldomiciled locally. The principal overseas cash deposits at the year end were in euros and Singaporedollars. Cash is held locally ahead of payments to trade creditors. InSingapore, cash deposits also support the mandatory requirement for Certificatesof Entitlement for new car sales. Interest rate risk The Group's interest rate policy has the objective of minimising net interestexpense, and protecting the Group from material adverse movements in interestrates. Throughout 2005 the Group has borrowed at floating rates only. Thisapproach reflects the continuing benign interest rate environment and the lowlevel of gross debt. Should interest rate hedging activities be deemed appropriate in the future, theBoard has approved the use of interest rate swaps, forward rate agreements andoptions. Counterparty risk The amount due from counterparties, arising from cash deposits, and the use offinancial instruments creates credit risk. Limits are in place, which reducecredit risk by stipulating the aggregate amount and duration of exposure to anyone counterparty, dependent upon the applicable credit rating. Credit ratingsand the appropriate limits are reviewed regularly. Market price risk The Group is exposed to price risk on its available for sale assets. The Groupis not exposed to commodity price risk. Currency risk The Group faces currency risk on its net assets and earnings. A significantproportion of this is in currencies other than sterling. On translation intosterling, currency movements can affect the Group balance sheet and incomestatement. Group policy is to minimise balance sheet translation exposures,where fiscally efficient. This is achieved by financing working capitalrequirements in local currency and maximising the remittances of overseasearnings into sterling. The Group has transactional currency exposures where sales or purchases by anoperating unit are in currencies other than in that unit's reporting currency.In particular there is an Australian dollar/Japanese yen exposure arising fromthe importation of vehicles from Japan to Australia. For a significantproportion of the Group these exposures are removed, as trading is denominatedin the relevant local currency. In particular, local billing arrangements are in place for many businesses withour brand partners. For those businesses that continue to be billed in foreigncurrency, including Australia, Group policy is that committed transactional exposures must be hedged into the reporting currency of that business. If possible, foreign exchange exposures will be matched internally before being hedged externally. Hedging instruments are approved by the Board and are restricted to forwardforeign exchange contracts, currency options and foreign exchange currencyswaps. Foreign exchange currency swaps are also used to hedge transactionexposures arising on cross border Group loans. CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2005 Before exceptional Exceptional items items Total 2005 2005 2005 £m £m £m Revenue 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 venturesand 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 3.8 130.4Basic earnings per share (pence) 161.9pDiluted earnings per share (pence) 160.6p Before Exceptional Exceptional items items Total 2004 2004 2004 £m £m £m Revenue 4,119.5 - 4,119.5Cost of sales (3,532.9) - (3,532.9)Gross profit 586.6 - 586.6Net operating expenses (414.5) (10.6) (425.1)Operating profit 172.1 (10.6) 161.5Share of profit after tax of joint venturesand associates 6.6 1.2 7.8Profit before finance and tax 178.7 (9.4) 169.3Finance income 27.0 4.2 31.2Finance costs (37.3) - (37.3)Profit before tax 168.4 (5.2) 163.2Tax (43.1) (0.5) (43.6) ----- ----- -----Profit for the year 125.3 (5.7) 119.6 ===== ===== ===== Attributable to:- Equity holders of the parent 116.4- Minority interests 3.2 119.6Basic earnings per share (pence) 148.5pDiluted earnings per share (pence) 146.6p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 £m £m Cash flow hedges net of tax 0.6 -Fair value gains on available for sale financial assets 2.3 -Effect of foreign exchange rate changes 30.4 (15.2)Actuarial losses on defined benefit pension schemes (15.3) (10.1)Net gains (losses) recognised directly in shareholders'equity 18.0 (25.3)Profit for the year 130.4 119.6Total recognised income for the year 148.4 94.3 Attributable to:- Equity holders of the parent 144.2 91.3- Minority interests 4.2 3.0 Adoption of IAS 32 and IAS 39 (4.5) - CONSOLIDATED BALANCE SHEETAS AT 31 DECEMBER 2005 2005 2004 £m £m Non-current assetsIntangible assets 69.5 78.0Property, plant and equipment 346.7 295.9Investments in joint ventures and associates 44.7 42.2Other investments - 11.9Available for sale financial assets 15.0 -Trade and other receivables 22.4 19.6Deferred tax assets 23.4 20.8 521.7 468.4Current assetsInventories 615.8 577.1Trade and other receivables 221.1 198.3Other investments - 2.7Available for sale financial assets 2.4 -Derivative financial instruments 2.1 -Current tax assets 1.0 0.5Cash and cash equivalents 309.0 171.2 1,151.4 949.8Total assets 1,673.1 1,418.2 Current liabilitiesTrade and other payables (688.2) (657.3)Derivative financial instruments (12.6) -Current tax liabilities (43.8) (44.9)Provisions (22.5) (24.6)Borrowings (145.4) (15.6) (912.5) (742.4)Non-current liabilitiesTrade and other payables (45.3) (31.8)Provisions (35.6) (51.9)Deferred tax liabilities (13.5) (14.8)Borrowings (5.6) (3.7)Retirement benefit liability (69.4) (58.9) (169.4) (161.1)Total liabilities (1,081.9) (903.5) ------- -----Net assets 591.2 514.7 ======= =====Shareholders' equityShare capital 120.1 119.5Share premium 112.5 110.7Capital redemption reserve 16.4 16.4Other reserves 13.1 (15.2)Retained earnings 319.6 275.0Equity attributable to equity holders of the parent 581.7 506.4Minority interests 9.5 8.3 ----- -----Total shareholders' equity 591.2 514.7 ===== ===== CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 £m £m Cash flows from operating activitiesCash generated from operations 195.4 187.2Tax paid (51.4) (36.9)Interest received 13.9 25.4Interest paid (16.8) (15.8)Net cash generated from operating activities 141.1 159.9 Cash flows from investing activitiesAcquisition of businesses net of cash and overdraftsacquired (29.9) (25.1)Net cash (outflow) inflow from sale of businesses (5.5) 23.7Purchase of property, plant and equipment (63.5) (40.3)Purchase of intangible assets (2.2) (3.3)Proceeds from disposal of property, plant and equipmentand intangible assets 17.6 5.5Net disposal of other investments - 0.7Net purchase of available for sale financial assets (0.5) -Dividends received from joint ventures and associates 9.7 4.9Net cash used in investing activities (74.3) (33.9) Cash flows from financing activitiesProceeds from issue of ordinary shares 2.4 2.8Share buy back programme (31.0) -Net disposal of own shares by ESOP Trust 0.1 0.1Net cash outflow from borrowings (2.3) (18.2)Payment of capital element of finance leases (0.2) (0.2)Equity dividends paid (42.0) (32.2)Minority dividends paid (3.0) (1.4)Net cash used in financing activities (76.0) (49.1) Net (decrease) increase in cash and cash equivalents (9.2) 76.9Cash and cash equivalents at beginning of the year 158.8 95.0Effect of foreign exchange rate changes 16.3 (13.1)Cash and cash equivalents at end of the year 165.9 158.8 Cash and cash equivalents consist of:- Cash and cash equivalents 309.0 171.2- Bank overdrafts (143.1) (12.4) 165.9 158.8 NOTES 1 BASIS OF PREPARATION The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) and International Financial ReportingInterpretations Committee (IFRIC) interpretations and those parts of theCompanies Act, 1985 applicable to companies reporting under IFRS. Prior to 2005, the Group prepared its financial statements under UK GenerallyAccepted Accounting Principles (UK GAAP). From 1 January 2005, the Group isrequired to prepare its annual consolidated financial statements in accordancewith IFRS as endorsed by the European Union (EU) and implemented in the UK. Asthe 2005 financial statements include comparatives for 2004, the Group's dateof transition to IFRS is 1 January 2004 and the 2004 comparatives have beenrestated 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,including the Group's application of the first-time adoption exemptions underIFRS, reconciliations of its income statement for the year ended 31 December2004 and balance sheet as at 1 January 2004 and 31 December 2004, together withits principal accounting policies under IFRS. The financial information presented does not constitute the statutory financialstatements for the years ended 31 December 2005 or 2004 as defined in Section240 of the Companies Act 1985. The financial information for the year ended 31December 2005 and the comparative information have been extracted from theaudited financial statements for the year ended 31 December 2005 prepared underIFRS, which have not yet been approved by shareholders and have not yet been delivered to the Registrar. 2 SEGMENTAL ANALYSIS Primary reporting format - geographical segments The Group's primary reporting format is by geographical segments. This is inline with the current management structure which reflects the different risksassociated with different territories. The Group is organised into six maingeographical segments: Australia, Belgium, Greece, Hong Kong, Singapore and theUnited Kingdom. 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. Australia Belgium Greece Hong Kong Singapore2005 £m £m £m £m £m Revenue Total revenue 612.7 450.8 383.1 242.3 719.6Inter-segment revenue - - (82.7) - -Revenue from third parties 612.7 450.8 300.4 242.3 719.6 Results Operating profit beforeexceptional items 31.9 14.0 13.8 28.8 62.1Exceptional items - - - - -Segment result 31.9 14.0 13.8 28.8 62.1 Share of profit after tax ofjoint ventures and associates - 0.7 1.1 3.0 -Profit before finance and tax 31.9 14.7 14.9 31.8 62.1Finance incomeFinance costsProfit before taxTaxProfit for the year United Kingdom Other Central Total2005 £m £m £m £m Revenue Total revenue 1,530.3 632.0 - 4,570.8Inter-segment revenue - - - (82.7)Revenue from third parties 1,530.3 632.0 - 4,488.1 Results Operating profit before exceptional items 29.2 28.4 (18.8) 189.4Exceptional items (19.5) - 6.5 (13.0)Segment result 9.7 28.4 (12.3) 176.4 Share of profit after tax of jointventures and associates 1.2 0.2 - 6.2Profit before finance and tax 10.9 28.6 (12.3) 182.6Finance income 44.7Finance costs (50.0)Profit before tax 177.3Tax (46.9)Profit for the year 130.4 Australia Belgium Greece Hong Kong Singapore2005 £m £m £m £m £m Segment assets and liabilities Segment assets 130.1 105.4 111.6 58.8 113.1Investment in joint venturesand associates - 3.5 3.7 32.6 -Cash and cash equivalents - - - - -Other unallocated assets* - - - - -Total assets 130.1 108.9 115.3 91.4 113.1 Segment liabilities (148.8) (69.6) (136.5) (22.6) (43.1)External borrowings - - - - -Other unallocated liabilities* - - - - -Total liabilities (148.8) (69.6) (136.5) (22.6) (43.1) United Kingdom Other Unallocated Total2005 £m £m £m £m Segment assets and liabilities Segment assets 583.1 179.9 - 1,282.0Investment in joint ventures andassociates 4.6 0.3 - 44.7Cash and cash equivalents - - 309.0 309.0Other unallocated assets* - - 37.4 37.4Total assets 587.7 180.2 346.4 1,673.1 Segment liabilities (324.5) (75.4) - (820.5)External borrowings - - (151.0) (151.0)Other unallocated liabilities* - - (110.4) (110.4)Total liabilities (324.5) (75.4) (261.4) (1,081.9) Australia Belgium Greece Hong Kong Singapore2004 £m £m £m £m £m Revenue Total revenue 567.3 462.7 404.2 237.2 652.5Inter-segment revenue - - (56.2) - -Revenue from third parties 567.3 462.7 348.0 237.2 652.5 Results Operating profit beforeexceptional items 28.1 12.6 17.7 25.6 53.5Exceptional items 0.6 (2.1) 0.1 - -Segment result 28.7 10.5 17.8 25.6 53.5 Share of profit after tax ofjoint ventures and associates - 0.3 0.5 3.7 -Profit before finance and tax 28.7 10.8 18.3 29.3 53.5Finance incomeFinance costsProfit before taxTaxProfit for the year United Kingdom Other Central Total2004 £m £m £m £m Revenue Total revenue 1,331.3 520.5 - 4,175.7Inter-segment revenue - - - (56.2)Revenue from third parties 1,331.3 520.5 - 4,119.5 Results Operating profit before exceptional items 25.8 26.7 (17.9) 172.1Exceptional items (19.3) 0.3 9.8 (10.6)Segment result 6.5 27.0 (8.1) 161.5 Share of profit after tax of jointventures and associates 3.3 - - 7.8Profit before finance and tax 9.8 27.0 (8.1) 169.3Finance income 31.2Finance costs (37.3)Profit before tax 163.2Tax (43.6)Profit for the year 119.6 Australia Belgium Greece Hong Kong Singapore2004 £m £m £m £m £m Segment assets and liabilities Segment assets 121.2 103.5 112.5 49.0 106.0Investment in joint venturesand associates - 2.5 2.4 33.2 -Cash and cash equivalents - - - - -Other unallocated assets* - - - - -Total assets 121.2 106.0 114.9 82.2 106.0 Segment liabilities (127.7) (72.1) (147.2) (27.3) (46.3)External borrowings - - - - -Other unallocated liabilities* - - - - -Total liabilities (127.7) (72.1) (147.2) (27.3) (46.3) United Kingdom Other Unallocated Total2004 £m £m £m £m Segment assets and liabilities Segment assets 523.2 151.3 - 1,166.7Investment in joint ventures andassociates 4.1 - - 42.2Cash and cash equivalents - - 171.2 171.2Other unallocated assets* - - 38.1 38.1Total assets 527.3 151.3 209.3 1,418.2 Segment liabilities (276.9) (69.2) - (766.7)External borrowings - - (19.3) (19.3)Other unallocated liabilities* - - (117.5) (117.5)Total liabilities (276.9) (69.2) (136.8) (903.5) * Other unallocated assets and liabilities include central provisions, VATrecovery, tax, dividends, external borrowings and assets not directly relatedto operating activities. 3 EXCEPTIONAL ITEMS 2005 2004 £m £m Net profit (loss) on sale and termination of operations:- Provision release arising from non-motors business exits 6.5 8.6- MCL Group Limited and Automotive Group Limited - (5.8)- Ferrari Belgium and UK - (5.3)- Other - (0.5) Total net profit (loss) on sale and termination of operations 6.5 (3.0)Goodwill impairment - Inchcape Automotive Limited (19.5) (9.4)VAT recovery - 1.8Total operating exceptional items (13.0) (10.6)Share of exceptional property profit of associate - 1.2Exceptional finance income - VAT recovery - 4.2Tax on exceptional items - (0.5)Total exceptional items (13.0) (5.7) The goodwill impairment charge in the year relating to Inchcape AutomotiveLimited, reflects the continuing difficult trading conditions experienced bythat business. The release of provisions in the year arises from the settlement and expiry ofa number of legal claims relating to non-motors business exits. 4 FINANCE INCOME 2005 2004 £m £m Bank interest receivable 6.5 4.1Expected return on post-retirement plan assets 33.8 21.7Other interest receivable 4.4 1.2Finance income before exceptional finance income 44.7 27.0Exceptional finance income - VAT recovery - 4.2Total finance income 44.7 31.2 5 FINANCE COSTS 2005 2004 £m £m Bank interest payable 2.8 0.3Stock holding interest 8.7 7.2Interest expense on post-retirement plan liabilities 33.4 21.2Other interest payable 5.1 8.6Total finance costs 50.0 37.3 6 TAX 2005 2004 £m £m Analysis of tax charge for the yearCurrent tax:- UK corporation tax 9.8 12.4- double tax relief (8.7) (7.7) 1.1 4.7Overseas tax 47.2 44.6 48.3 49.3Adjustments to prior year liabilities:- UK 0.2 (0.1)- overseas (1.0) (0.6)Current tax 47.5 48.6Deferred tax (0.6) (5.0)Total tax charge 46.9 43.6 The tax charge for the year includes £nil in respect of exceptional items(2004 - £0.5m). 7 EARNINGS PER SHARE 2005 2004 £m £m Profit for the year 130.4 119.6Minority interests (3.8) (3.2)Basic earnings 126.6 116.4Exceptional items:- Group 13.0 10.6- Joint ventures and associates - (1.2)Exceptional finance income - (4.2)Tax on exceptional items - 0.5Headline earnings 139.6 122.1Basic earnings per share 161.9p 148.5pDiluted earnings per share 160.6p 146.6pBasic Headline earnings per share 178.5p 155.7pDiluted Headline earnings per share 177.1p 153.7p 2005 2004 number number Weighted average number of fully paid ordinaryshares in issue during the period 79,843,416 79,241,664Weighted average number of fully paid ordinaryshares in issue during the period:- Held by the ESOP Trust (519,301) (840,828)- Repurchased as part of the share buy backprogramme (1,114,068) -Weighted average number of fully paid ordinaryshares for the purposes of basic EPS 78,210,047 78,400,836Dilutive effect of potential ordinary shares 604,148 1,019,268Adjusted weighted average number of fully paidordinary shares in issue during the period for thepurposes of diluted EPS 78,814,195 79,420,104 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 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 options anddeferred bonus awards. Headline earnings (which excludes exceptional items and any material impact onprofits of not achieving hedge effectiveness under IAS 39) is adopted to assistthe reader in understanding the underlying performance of the Group. Headlineearnings per share is calculated by dividing the Headline earnings for theyear 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 Headline earnings per share is calculated on the same basis as thebasic Headline earnings per share with a further adjustment to the weightedaverage number of fully paid ordinary shares to reflect the effect of alldilutive potential ordinary shares. Dilutive potential ordinary shares compriseshare options and deferred bonus awards. 8 DIVIDENDS The following dividends were paid by the Group. 2005 2004 £m £m Interim dividend for the six months ended 30 June 2005 of 19.0pper share (2004 - 15.0p per share) 14.8 11.8Final dividend for the year ended 31 December 2004 of 35.0p pershare (2003 - 26.0p per share) 27.2 20.4 42.0 32.2 The final proposed dividend for the year ended 31 December 2005 of 38.0p pershare has not been included as a liability as at 31 December 2005. 9 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Capital Share Share Redemption Other Retained Capital Premium Reserve Reserves earnings £m £m £m £m £m At 1 January 2004 118.4 109.1 16.4 - 198.9Total recognised incomefor the year - - - (15.2) 106.5Share-based paymentscharge - - - - 1.7Net disposal of ownshares by ESOP Trust - - - - 0.1Dividends:- Equity holders of theparent - - - - (32.2)- Minority interests - - - - -Issue of ordinary sharecapital 1.1 1.6 - - -At 31 December 2004 119.5 110.7 16.4 (15.2) 275.0Adoption of IAS 32 andIAS 39 - - - (5.0) 0.5At 1 January 2005 119.5 110.7 16.4 (20.2) 275.5Total recognised incomefor the year - - - 33.3 110.9Share-based paymentscharge - - - - 2.9Net disposal of own sharesby ESOP Trust - - - - 0.1Share buy back programme - - - - (31.0)Dividends:- Equity holders of theparent - - - - (42.0)- Minority interests - - - - -Issue of ordinary sharecapital 0.6 1.8 - - -Tax on transactions withequity holders - - - - 3.2Balance at 31 December 2005 120.1 112.5 16.4 13.1 319.6 Equity attributable Total to equity Share- holders of Minority holders' the parent interest equity £m £m £m At 1 January 2004 442.8 6.8 449.6Total recognised income for the year 91.3 3.0 94.3Share-based payments charge 1.7 - 1.7Net disposal of own shares by ESOP Trust 0.1 - 0.1Dividends:- Equity holders of the parent (32.2) - (32.2)- Minority interests - (1.5) (1.5)Issue of ordinary share capital 2.7 - 2.7At 31 December 2004 506.4 8.3 514.7Adoption of IAS 32 and IAS 39 (4.5) - (4.5)At 1 January 2005 501.9 8.3 510.2Total recognised income for the year 144.2 4.2 148.4Share-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 - 2.4Tax on transactions with equity holders 3.2 - 3.2Balance at 31 December 2005 581.7 9.5 591.2 10 NOTES TO THE CASH FLOW STATEMENT a RECONCILIATION OF CASH GENERATED FROM OPERATIONS 2005 2004 £m £m Cash flows from operating activitiesOperating profit 176.4 161.5Exceptional items 13.0 10.6Amortisation (including non-exceptional impairment ofintangible assets) 3.2 4.6Depreciation 22.8 21.2(Profit) loss on disposal of property, plant and equipment (2.1) 0.7Share-based payments charge 2.9 1.7Increase in inventories (15.7) (38.0)(Increase) decrease in trade receivables (17.6) 11.0Increase (Decrease) in trade payables 5.3 (3.5)Decrease in vehicles subject to residual valuecommitments 4.5 4.7Payment in respect of termination of operations (1.3) (1.5)Other items* 4.0 14.2Cash generated from operations 195.4 187.2 * Net cash inflows for the year include £5.4m in respect of the exceptional VATrecovery (notes 3 and 4). Of this total, £1.8m is reported within Other items(2004 - £15.5m) and £3.6m is reported within Interest received shown on theface of the cash flow statement (2004 - £21.5m). b RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2005 2004 £m £m Net (decrease) increase in cash and cash equivalents (9.2) 76.9Net cash outflow from borrowings and finance leases 2.5 18.4Change in net cash and debt resulting from cash flows (6.7) 95.3Effect of foreign exchange rate changes on net cash and debt 16.3 (13.1)Net loans and finance leases relating to acquisitions (4.4) (7.4)Movement in net funds 5.2 74.8Opening net funds 151.9 77.1Adoption of IAS 32 and IAS 39 0.9 -Closing net funds 158.0 151.9 11 FOREIGN CURRENCY TRANSLATION The main exchange rates used for translation purposes are as follows: Average rates Year end rates 31 December 31 December 2005 2004 2005 2004 Australian dollar 2.38 2.48 2.34 2.45Euro 1.46 1.47 1.46 1.41Hong Kong dollar 14.16 14.22 13.31 14.92Singapore dollar 3.02 3.09 2.85 3.13 12 EVENTS AFTER THE BALANCE SHEET DATE On 22 February 2006, the Group announced the acquisition of Keystar Motors PtyLtd to extend the Group's Retail presence in Australia. The total considerationfor the business was c. £8.8m. On 6 March 2006 the Group announced its entry into Russia through a jointventure with the Independence Group of Companies for the retail and service ofToyota vehicles. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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