Interim Results
Inchcape PLC
02 August 2007
2007 Interim results
Record financial performance
Growth strategy delivering results
Inchcape plc, the leading independent, international automotive retailer,
announces its interim results for the half year ended 30 June 2007.
Operational & strategic highlights:
• Record profit for the Group and in Australia, Greece, Belgium, UK and
Emerging Markets
• Emerging Markets sales doubled and profits tripled
• Existing businesses strengthened: share gain in 16 markets and like
for like profit up 5.9%
• Successful portfolio rebalancing: 44% profit growth outside Asia
Financial highlights:
• Sales up 28.5% at £3.1bn; 31% in constant currency (2006: £2.4bn)
• Headline PBT* up 7.1% to £120.0m, 12.2% in constant currency (2006:112.0m)
• Reported PBT up 11.4% to £124.8m (2006: £112.0m)
• Headline EPS* up 2.2% to 18.9p, 6.5% in constant currency (2006: 18.5p)
• Reported EPS down 1.5% to 19.9p (2006: 20.2p)
• Proposed interim dividend up 5.0% at 5.25p per share (2006: 5.0p)
* Before exceptional items
Peter Johnson, Chairman of Inchcape plc, said:
'The Group has again delivered record results in the first half of the year,
reflecting the progress we are making in executing our strategy and the benefits
of a broad geographical spread of businesses. Australia, Greece, Belgium, UK and
Emerging Markets all achieved record profits in the first six months.
'In the second half we expect to benefit from the continued improvement in
customer service, our focus on the value drivers of the business and from the
recent acquisitions in the UK and Emerging Markets. We remain confident in our
prospects for 2007.'
For further information, please contact:
Group Communications, Inchcape plc
+44 (0) 20 7546 0022
Investor Relations, Inchcape plc
+44 (0) 20 7546 8432
Financial Dynamics (Jonathon Brill/Billy Clegg)
+44 (0) 20 7831 3113
Notes to editors
Inchcape plc is the leading independent, international automotive retailer, with
scale operations in Australia, Belgium, Greece, Hong Kong, Singapore and the
UK. The Group also has operations in a number of other markets, including
Eastern Europe, the Baltics, Russia and South America. In addition to growing
its core businesses, Inchcape is looking to develop scale operations in new and
emerging regions. It represents leading automotive brands and operates either a
retail, or a vertically integrated retail model (i.e. exclusive distribution and
retail), depending on the market. Inchcape's core brand partners are Audi, BMW,
Honda, Mazda, Mercedes-Benz, PAG, Subaru, Toyota/Lexus and Volkswagen.
Ex Dividend Date 8 August 2007
Record Date 10 August 2007
Payment Date 10 September 2007
For further information, visit us at www.inchcape.com
Chairman's Statement
Results Overview
The Group has again delivered record results in the first half of the year,
reflecting the progress we are making in executing our strategy and the benefits
of a broad geographical spread of businesses. Australia, Greece, Belgium, UK and
Emerging Markets all achieved record profits in the first six months.
Overall, sales rose 28.5% to £3.1bn and profit before tax and exceptional items
increased 7.1% to a record £120m (£124.8m after exceptional items of £4.8m
relating to the disposal of businesses). As a consequence of the abnormally low
tax rate last year, earnings per share (EPS) before exceptional items rose by
2.2%. Basic EPS, which includes exceptional items, declined by 1.5%. As a result
of our continued strong performance in earnings quality, the Board has declared
an interim dividend of 5.25 pence per share, an increase of 5.0% on 2006, in
line with our commitment to a progressive dividend policy.
The Retail segment achieved trading profit growth of £20.5m (81%) in constant
currency terms and £20.1m (80%) at actual exchange rates. In particular, our
Retail businesses in the UK, Europe and the Emerging Markets had a strong first
half.
The Distribution segment achieved trading profit growth of £8.7m (9.2%) in
constant currency terms in the first half (3.8% at actual rates). As expected,
our business in Singapore suffered a fall in profits due to a reduction in the
new car market of 7.1%, together with continued competition from parallel
imports and the absence of taxi sales by ourselves in the country following the
change in regulations in October 2006. However, this was more than offset by
record performances in most of our other distribution businesses.
Total sales were up £760m (31%) in constant currency and like for like sales
were up 3.1% in constant currency. Retail sales rose 67% in total and 6.4% on a
like for like basis. Distribution sales were in line with last year in constant
currency terms and at actual exchange rates were down 3.7%.
Strategy update
As we have previously stated, our strategy is to strengthen our existing
businesses and to expand in developed and emerging markets.
The ongoing improvement in most of our existing businesses is reflected in these
trading results.
In the UK we acquired European Motor Holdings plc (EMH) at the beginning of
February 2007, and announced the restructuring of our UK business to focus on a
limited number of premium brands. As a consequence we have subsequently
announced a number of disposals in the UK, including the EMH Bentley retail
centres, the two EMH auction businesses, and the EMH Head Office building
together with Inchcape Automotive, the vehicle refurbishment business, for a
total consideration of £28m.
In addition, we have continued to execute our overseas expansion strategy with
the opening of our first retail centre in China at Shaoxing, near to Shanghai,
in January 2007. We also announced the acquisition of 100% of Baltic Motors
Corporation and SIA BM Auto in Latvia, a retail group comprising five retail
centres primarily in Riga, giving us exclusive representation for Ford and Land
Rover as well as 70% of BMW in the country. The new car market in Latvia grew by
55% in the first half of 2007 to 17,320 vehicles. As a result of this
acquisition, Inchcape will have a market leading position with distribution and
retail of Ford, Land Rover, Jaguar and Mazda, and retail of BMW, giving Inchcape
over 10.0% market share.
We also announced the acquisition of 67% of UAB Vitvela in Lithuania giving us
exclusive representation for Ford and Mazda in that country and a leading share
of Mitsubishi and Hyundai retail. Inchcape now has an integrated distribution
and retail business for Mazda, Ford and Mitsubishi and a leading share of
Hyundai retail in Lithuania, giving Inchcape close to 20% share of the total
market which grew by 46% in the first half of 2007 to 9,844.
We also sold our shares in the non-core Hong Kong joint venture finance company,
Inchroy, in January 2007 for £46m, realising a profit of £12.0m.
We expect to invest our ongoing cash generation and proceeds of disposals
predominantly in emerging markets where growth levels are high and market
opportunities continue to develop.
Operational review
Inchcape reports its results in the Financial statements on a statutory basis
using actual rates of exchange. To enhance comparability, the Operational review
reports results in a form that isolates the impact of currency movements from
period to period by applying the June 2006 exchange rates to both period's
results (constant currency). It also adjusts for the impact of exceptional
items. Where exceptional items and central costs are excluded from operating
profit the results are referred to as trading profit. Unless otherwise stated
all sales and trading profit figures in the Operational review are provided in
constant currency.
Like for like sales and trading profit excludes the impact of acquisitions from
the date of acquisition until the thirteenth month of ownership, and businesses
that are sold or closed. It further removes the impact of retail centres that
are relocated. This is from the date of opening until the thirteenth month of
trading in the new location.
Australia
2007 2006 % change % change
£m £m constant currency
Sales 326.9 335.3 -2.5 -0.5
Trading profit 20.5 18.8 +9.0 +11.7
The Australian vehicle market grew strongly by 8.5% in the first half to 524,736
vehicles. Market conditions, however, remained competitive with consumers
sensitive particularly to fuel consumption.
The Distribution business achieved sales volumes up 2.5% giving a market share
of 3.7% (2006: 3.9%), although the impact of mix change resulted in sales being
slightly down. The slight erosion in market share is due to the absence of new
Subaru models, awaiting the launch of the new Impreza in September 2007 and the
Forester in the first quarter of 2008. Margins did, however, improve due to
sales of special editions during the period and focus on cost controls. The
logistics business, AutoNexus also had another successful first half winning
several new contracts.
The Retail business saw lower trading profits on higher sales due to competitive
market conditions, particularly on used cars, for the brands we represent, with
the exception of Volkswagen.
Europe
2007 2006 % change % change
£m £m constant currency
Sales 662.2 657.5 +0.7 +2.8
Trading profit 24.3 19.8 +22.7 +25.3
Our European Distribution businesses continue to strengthen across the region
due to recent model introductions in most countries and focus on operational
excellence. Distribution trading profits increased by 16.8% to £23.9m on sales
9.0% higher.
Our European Retail businesses performed particularly well following the sale of
a number of loss making retail centres and successful turnaround actions and
operational improvements in a number of countries. As a consequence we returned
trading profits of £0.8m compared to losses last year of £0.7m on sales which
were £20.3m lower.
In Belgium the new car market was down 3.1%. This was expected following the
record year for registrations in 2006 as a result of the biennial motor show. In
the Distribution business our market share increased 0.1 percentage points to
5.3%. Like for like sales were up 7.4% which, with good overhead control, led to
an improvement in like for like trading profit of 18.7%.
The Retail business also performed well with like for like sales up 1.9% and
trading profits up 4.3% as we benefit from the expansion we undertook in 2005
and early 2006.
In Greece the market continues to perform strongly with registrations up 14.1%
on 2006. Our Distribution business continues to lead the market, with 10.9%
share achieved in the first half compared to 9.9% the previous year. With this
improvement, like for like sales were up 12.9% year on year. With continued good
control of overheads, trading profit was up 27% on a like for like basis.
The Retail turnaround we started last year in Greece is proving very successful.
Like for like sales are up 16.5% and losses have been reduced by 48%. The
restructuring of the business and the implementation of our Inchcape Advantage
initiatives continue to drive this business towards profitability.
In Finland the market has fallen 10.3% in the first half to 77,416 vehicles.
However our combined market share has grown from 3.7% to 4.1% with strong
performances across all three brands. As a consequence, in our Distribution
business like for like sales rose 8.9% and trading profits by 28% in the first
half.
Our Retail business has reduced its losses by 76% as a consequence of the
turnaround programme we put in place at the beginning of the year and the sale
of two loss making retail centres located outside of Helsinki in June 2007.
Our Retail business in France made a small trading profit in the first half
compared to a loss last year.
Hong Kong
2007 2006 % change % change
£m £m constant currency
Sales 110.3 106.0 +4.1 +16.0
Trading profit 13.2 10.1 +30.7 +45.5
The Hong Kong vehicle market grew 5.4% in the first half. Following the
relocation of our Lexus showroom and the launch of two new Lexus models at the
end of 2006 our sales in this market grew by 16.0%. We also benefited from the
introduction in April 2007 of a tax incentive by the Hong Kong Government on low
emission vehicles which increased our sales of Toyota and Lexus hybrid cars. On
a like for like basis sales were 12.8% up. As a consequence of this strong
performance our market share rose from 36.1% in the first half of 2006 to 37.4%
in 2007. In June 2007 we launched the Lexus LS600h which should facilitate
momentum in the second half.
Trading profits in Hong Kong increased by 45.5%. In addition to the positive
trading performance, this increase includes a £2.9m profit on the sale of a
freehold property.
Singapore
2007 2006 % change % change
£m £m constant currency
Sales 269.1 358.2 -24.9 -20.9
Trading profit 25.6 33.8 -24.3 -20.2
Due to the young age of the car parc we expected the Singapore new vehicle
market to reduce this year and in the first half it has fallen 7.1%. In
addition, sales of parallel imports of vehicles continue to grow. Also in 2007
we will have no taxi sales following the change in regulations relating to taxis
in October 2006. As a consequence of these factors our sales in Singapore were
20.9% lower in the first half than the prior year and our market share six
percentage points lower. As a result of good cost control and improved mix, the
decline in trading profit was in line with the fall in sales, and margins were
maintained. We expect the market situation in the first half in Singapore to
continue for the remainder of the year. We are however undertaking a number of
initiatives to increase our aftersales business.
United Kingdom
2007 2006 % change % change
£m £m constant currency
Sales 1,440.8 783.0 +84.0 +84.0
Trading profit 35.8 23.2 +54.3 +54.3
The UK vehicle market rose 2.0% in the first half of 2007, following several
years of decline.
Total sales of our UK Retail business rose 92% with 33% due to the Lind
acquisition in July 2006 and 54% due to the acquisition of EMH in February 2007.
Like for like sales in our Retail business rose by 5.1%, over twice the growth
in the market. Like for like new car volumes were up 3.5%. However, due to
pressure on used car volumes and margins, the trading margin on our base
business declined slightly from 2.8% to 2.7%. The overall margin in UK Retail,
including the effect of the Lind and EMH acquisitions, was 2.4%. Total trading
profits however were up 65% due to the contribution from the two acquisitions.
Our UK Distribution segment comprising Inchcape Fleet Solutions, and Inchcape
Automotive until the date of disposal, saw trading profits decline £0.7m due to
investment in new contract hire business, the benefits of which will be seen in
future years.
Emerging Markets
2007 2006 % change % change
£m £m constant currency
Sales 209.0 90.6 +130.7 +137.2
Trading profit 12.4 4.1 +202.4 +210.6
Growth in the Emerging Markets continues to be very strong. The Romanian market
grew 24%, the Bulgarian market 29%, the Baltics by 43%, and Russia by 70% in the
first half.
Our sales in these markets were up by 137% in total and 54% on a like for like
basis. Trading profits were up 211% in total and 84% on a like for like basis.
Our Balkans Distribution business grew market share to 4.0% from 3.2% a year
earlier assisted by the strong Toyota product line up.
We entered the Russian retail market in December 2006 with the acquisition of
three retail centres in St Petersburg. These centres have performed extremely
well, contributing £75.6m to sales and £5.2m of trading profit in the first
half.
We opened our first retail centre in Shaoxing, China in January 2007. As
expected we are incurring small losses in China as this business is in the start
up phase.
Our Polish retail business, which has made a small trading profit in the first
half of 2007 compared to a small loss in 2006, has been reclassified to Emerging
Markets because of the growth in the Polish car market in 2007. The 2006
comparatives have also been reclassified.
Rest of the World
2007 2006 % change % change
£m £m constant currency
Sales 118.2 110.0 +7.5 +17.4
Trading profit 12.3 10.6 +16.0 +28.3
Our businesses in Guam, Saipan and Brunei have had another successful half year
with like for like profits up 22%.
Our business in Ethiopia also continues to perform well with two new service
centres being planned in the second half of the current year.
The business in South America has also achieved profit progression of 37% and we
acquired a further retail centre in Santiago, Chile in the second quarter of
2007 at a cost of £1.2m.
Central Costs
Central costs are up 4.6% on last year following the investment made during the
first half of 2007 on new management, systems and processes to facilitate the
growth of the Group.
Financial Review
The Group generated £141.7m of cash from operating activities for the first
half.
Funding for capital expenditure amounted to £22.4m and for net acquisitions was
£191.2m.
The 2006 final dividend of £46.6m (2006: £29.6m) was paid in June. The 2007
interim dividend will be paid on 10 September 2007 to shareholders on the
register at 10 August 2007.
In April 2007 the Group increased and extended its syndicated revolving credit
facility. This facility now amounts to £500m and expires in 2012.
In addition US$550m was raised in May in a Private Placement. Of the total
US$475m was swapped into sterling. The remainder is denominated in US dollars as
a hedge against our US dollar related net assets. Of the total, US$350m is
repayable in ten years and US$200m is repayable in twelve years.
Of the total swapped into sterling, £200m was used to repay the bridging finance
on the EMH acquisition.
Pensions
During the first half, in line with the funding programme agreed with the
Trustees, the Group made additional cash contributions to the UK defined benefit
schemes amounting to £9.5m. These payments, together with an increase in long
term interest rates since year end have resulted in the net pension deficit of
£22.7m at 31 December 2006 moving to a surplus of £19.9m at 30 June 2007.
Tax
The subsidiaries headline tax rate for the first half of 2007 is 25.0% compared
to 21.7% in 2006. The 2006 tax rate was abnormally low due to a number of one
off items.
Exceptional items
The exceptional items represent the net profits on the sale of a number of
non-core businesses, primarily our joint venture finance company, Inchroy
(£12.0m profit) and Inchcape Automotive (£6.9m loss).
Exchange rates
The first half pre-tax profit (excluding exceptional items) was £120.0m. At
constant 2006 currency the pre-tax profit (excluding exceptional items) would
have been £125.7m. The £5.7m difference arose due to the impact of the weakening
of the Hong Kong, Singapore and Australian dollars relative to sterling.
People
The success of Inchcape is above all else due to the commitment, passion and
dedication of our people. My sincere thanks go to all our employees. I hope
that, like me, they feel proud of what we have been able to achieve together.
Outlook
In the second half we expect to benefit from the continued improvement in
customer service, our focus on the value drivers of the business and from the
recent acquisitions in the UK and Emerging Markets. We remain confident in our
prospects for 2007.
Peter Johnson
Chairman
1 August 2007
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE SIX MONTHS ENDED 30 JUNE 2007
Six months Six months Year to
To 30.6.07 To 30.6.06 31.12.06
£m £m £m
Revenue (note 2) 3,136.5 2,440.6 4,842.1
Cost of sales (2,696.5) (2,086.2) (4,132.3)
Gross profit 440.0 354.4 709.8
Net operating expenses before
exceptional items (306.8) (244.4) (495.9)
Exceptional items (note 3) 4.8 - -
Total net operating expenses (302.0) (244.4) (495.9)
Operating profit (note 2) 138.0 110.0 213.9
Share of profit after tax of joint
ventures and associates 1.7 2.6 5.9
Profit before finance and tax 139.7 112.6 219.8
Finance income (note 4) 26.7 25.3 49.0
Finance costs (note 5) (41.6) (25.9) (54.9)
Profit before tax 124.8 112.0 213.9
Tax before exceptional tax
- UK (note 6) (1.1) 1.1 5.5
- Overseas (note 6) (28.4) (24.8) (50.6)
Exceptional tax - UK (notes 3 & 6) - 8.0 8.0
Total tax (29.5) (15.7) (37.1)
Profit for the period 95.3 96.3 176.8
Attributable to:
- Equity holders of the parent 92.3 94.4 173.9
- Minority interests 3.0 1.9 2.9
95.3 96.3 176.8
Basic earnings per share (pence)
(note 7) 19.9p 20.2p 37.5p
Diluted earnings per share (pence)
(note 7) 19.8p 20.1p 37.1p
Proposed dividend per share (pence)
(note 8) 5.25p 5.0p 10.0p
Paid dividend per share (pence)
(note 8) 10.0p 6.3p 11.3p
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED)
FOR THE SIX MONTHS ENDED 30 JUNE 2007
Six months Six months Year to
to 30.6.07 to 30.6.06 31.12.06
£m £m £m
Cash flow hedges (19.6) 7.3 (21.8)
Net investment hedge 0.5 - -
Fair value losses on available for sale
financial assets (0.3) (1.4) (1.9)
Effect of foreign exchange rate changes (6.3) (20.8) (34.2)
Actuarial gains on defined benefit
pension schemes 31.2 23.4 5.3
Tax recognised directly in shareholders'
equity (7.0) 7.4 18.7
Net (losses) gains recognised directly in
shareholders' equity (1.5) 15.9 (33.9)
Profit for the period 95.3 96.3 176.8
Total recognised income and expense for
the period 93.8 112.2 142.9
Attributable to:
- Equity holders of the parent 90.8 110.6 140.5
- Minority interests 3.0 1.6 2.4
93.8 112.2 142.9
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS AT 30 JUNE 2007
As at As at As at
30.6.07 30.6.06 31.12.06
£m £m £m
Non-current assets
Intangible assets 324.5 74.2 147.9
Property, plant and equipment 444.7 354.4 427.0
Investments in joint ventures and
associates 14.1 44.4 15.1
Available for sale financial assets 14.1 12.5 12.2
Trade and other receivables 22.7 21.5 23.2
Deferred tax assets 17.8 35.4 40.6
Retirement benefit asset 51.6 - -
889.5 542.4 666.0
Current assets
Inventories 663.2 536.1 704.6
Trade and other receivables 264.9 222.0 211.4
Available for sale financial assets 1.1 2.8 52.8
Derivative financial instruments - - 0.6
Current tax assets 1.3 3.2 2.2
Cash and cash equivalents 367.7 348.7 335.2
1,298.2 1,112.8 1,306.8
Assets held for sale and disposal group 203.6 - 30.8
1,501.8 1,112.8 1,337.6
Total Assets 2,391.3 1,655.2 2,003.6
Current liabilities
Trade and other payables (841.3) (696.0) (791.5)
Derivative financial instruments (70.5) (2.3) (40.2)
Current tax liabilities (43.6) (39.0) (33.7)
Provisions (24.0) (22.3) (20.7)
Borrowings (205.2) (152.9) (183.5)
(1,184.6) (912.5) (1,069.6)
Non-current liabilities
Trade and other payables (36.6) (38.6) (39.4)
Derivative financial instruments (13.4) - -
Provisions (36.8) (35.1) (35.5)
Deferred tax liabilities (2.8) (13.4) (14.7)
Borrowings (279.0) (6.6) (170.7)
Retirement benefit liability (31.7) (11.0) (22.7)
(400.3) (104.7) (283.0)
Liabilities directly associated with the
disposal group (97.4) - -
Total liabilities (1,682.3) (1,017.2) (1,352.6)
Net assets 709.0 638.0 651.0
Shareholders' equity
Share capital 121.2 120.3 120.6
Share premium 121.6 113.4 115.9
Capital redemption reserve 16.4 16.4 16.4
Other reserves (54.7) (3.8) (37.7)
Retained earnings 493.2 385.1 428.6
Equity attributable to equity holders of
the parent 697.7 631.4 643.8
Minority interests 11.3 6.6 7.2
Total shareholders' equity 709.0 638.0 651.0
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
FOR THE SIX MONTHS ENDED 30 JUNE 2007
Six months Six months Year to
to 30.6.07 to 30.6.06 31.12.06
£m £m £m
Cash generated from operating activities
Cash generated from operations (note 9a) 176.7 169.8 236.8
Tax paid (22.2) (26.5) (50.2)
Interest received 5.9 6.2 10.7
Interest paid (18.8) (7.2) (18.2)
Net cash generated from operating
activities 141.6 142.3 179.1
Cash flows from investing activities
Acquisition of businesses, net of
cash and overdrafts required (256.6) (17.7) (147.9)
Net cash inflow from sale
of businesses 70.6 0.2 5.4
Purchase of property, plant and
equipment (33.1) (18.6) (50.7)
Purchase of intangible assets (0.6) (0.7) (3.1)
Proceeds from disposal of property,
plant and equipment 11.3 3.0 11.4
Net disposal (purchase) of available
for sale financial assets - 1.1 (49.9)
Dividends received from joint
ventures and associates 1.5 0.8 0.4
Net cash used in investing activities (206.9) (31.9) (234.4)
Cash flows from financing activities
Proceeds from issue of ordinary
shares 6.3 1.1 3.9
Share buy back programme - (34.0) (34.0)
Net purchase of own shares by ESOP Trust (2.1) (0.5) (0.2)
Cash inflow from Private Placement 277.1 - -
Net cash (outflow) inflow from borrowings
other than Private Placement (174.5) (2.2) 158.7
Payment of capital element of finance
leases (0.1) (0.2) (0.3)
Settlement of derivatives 1.0 (6.0) (6.8)
Equity dividends paid (46.6) (29.6) (52.6)
Minority dividends paid (1.6) (3.7) (3.9)
Net cash from (used in) financing activities 59.5 (75.1) 64.8
Net (decrease)increase in cash and
cash equivalents (note 9b) (5.8) 35.3 9.5
Cash and cash equivalents at
beginning of the period 166.2 165.9 165.9
Effect of foreign exchange rate
changes 2.1 (4.5) (9.2)
Cash and cash equivalents at end of
the period 162.5 196.7 166.2
Cash and cash equivalents consist of:
- Cash and cash equivalents 270.8 215.7 262.8
- Short term bank deposits 96.9 133.0 72.4
- Bank overdrafts (205.2) (152.0) (169.0)
162.5 196.7 166.2
NOTES TO THE ACCOUNTS (UNAUDITED)
1 BASIS OF PREPARATION
The results for the periods to 30 June have been prepared on the basis of the
accounting policies set out in the Annual report and accounts 2006, which were
prepared in accordance with International Financial Reporting Standards (IFRS)
and IFRIC Interpretations as adopted by the European Union and implemented in
the UK, the Listing Rules of the Financial Services Authority and with the
parts of the Companies Act 1985 applicable to companies reporting under IFRS.
The Group has adopted IFRS 7 Financial Instruments: Disclosures with effect
from 1 January 2007. This standard has no effect on the results or financial
position of the Group but will have some impact on the disclosures made in the
Group's Financial Statements for the year ending 31 December 2007. In addition
IFRIC interpretations 7 to 10 are effective, but have not had a material impact
on the results of the Group. IFRIC's 11 to 13 are in issue but not yet
effective and are not anticipated to have a material impact for the Group.
These interim financial statements are unaudited but have been reviewed by the
external auditors. They do not constitute statutory accounts within the meaning
of Section 240 of the Companies Act 1985. The Group's published financial
statements for the year ended 31 December 2006 have been reported on by the
Group's auditors and filed with the Registrar of Companies. The report of the
auditors was unqualified and did not contain a statement under Section 237 (2)
or (3) of the Companies Act 1985.
The principal exchange rates used for translation purposes are as follows:
Average rates Period end rates
30.6.07 30.6.06 31.12.06 30.6.07 30.6.06 31.12.06
Australian
dollar 2.45 2.40 2.44 2.36 2.49 2.48
Euro 1.48 1.45 1.46 1.49 1.45 1.48
Hong Kong
dollar 15.43 13.84 14.28 15.69 14.37 15.22
Singapore
dollar 3.02 2.87 2.92 3.07 2.92 3.00
2 SEGMENTAL ANALYSIS
Primary reporting format - geographical segments
The Group amended its segments disclosed in its Financial statements for the
year ended 31 December 2006 to further align them with the risks and returns
faced in its markets. During 2007, growth in total new vehicle volume sales by
international brands in Poland have exceeded 10.0% and it has therefore been
reclassified from Europe to Emerging Markets. Comparative information has been
restated accordingly.
2007 Australia Europe Hong Kong
Six months to 30.6.07 £m £m £m
Revenue
Revenue from third parties 326.9 662.2 110.3
Results
Operating profit before exceptional items 20.5 24.3 13.2
Exceptional items - - 12.0
Segment result 20.5 24.3 25.2
Share of profit after tax of joint ventures
and associates - 0.8 0.2
Profit before finance and tax 20.5 25.1 25.4
United Emerging
2007 Singapore Kingdom Markets
Six months to 30.6.07 £m £m £m
Revenue
Revenue from third parties 269.1 1,440.8 209.0
Results
Operating profit before exceptional items 25.6 35.8 12.4
Exceptional items - (7.2) -
Segment result 25.6 28.6 12.4
Share of profit after tax of joint ventures
and associates - 0.6 -
Profit before finance and tax 25.6 29.2 12.4
Rest of Total
2007 World pre Central Central Total
Six months to 30.6.07 £m £m £m £m
Revenue
Revenue from third parties 118.2 3,136.5 - 3,136.5
Results
Operating profit before exceptional
items 12.3 144.1 (10.9) 133.2
Exceptional items - 4.8 - 4.8
Segment result 12.3 148.9 (10.9) 138.0
Share of profit after tax of joint
ventures and associates 0.1 1.7 - 1.7
Profit before finance and tax 12.4 150.6 (10.9) 139.7
2006 Australia Europe Hong Kong
Six months to 30.6.06 £m £m £m
Revenue
Revenue from third parties 335.3 657.6 106.0
Results
Operating profit before exceptional items 18.8 19.8 10.1
Exceptional items - - -
Segment result 18.8 19.8 10.1
Share of profit after tax of joint ventures
and associates - 0.8 1.3
Profit before finance and tax 18.8 20.6 11.4
United Emerging
2006 Singapore Kingdom Markets
Six months to 30.6.06 £m £m £m
Revenue
Revenue from third parties 358.2 783.0 90.5
Results
Operating profit before exceptional items 33.8 23.2 4.1
Exceptional items - - -
Segment result 33.8 23.2 4.1
Share of profit after tax of joint ventures
and associates - 0.4 -
Profit before finance and tax 33.8 23.6 4.1
Rest of Total
2006 World pre Central Central Total
Six months to 30.6.06 £m £m £m £m
Revenue
Revenue from third parties 110.0 2,440.6 - 2,440.6
Results
Operating profit before exceptional
items 10.6 120.4 (10.4) 110.0
Exceptional items - - - -
Segment result 10.6 120.4 (10.4) 110.0
Share of profit after tax of joint
ventures and associates 0.1 2.6 - 2.6
Profit before finance and tax 10.7 123.0 (10.4) 112.6
2006 Australia Europe Hong Kong
Year to 31.12.06 £m £m £m
Revenue
Revenue from third parties 616.6 1,191.2 224.8
Results
Operating profit before exceptional items 38.5 39.3 24.0
Exceptional items - - -
Segment result 38.5 39.3 24.0
Share of profit after tax of joint ventures
and associates - 1.8 2.8
Profit before finance and tax 38.5 41.1 26.8
2006 United Emerging
Year to 31.12.06 Singapore Kingdom Markets
£m £m £m
Revenue
Revenue from third parties 659.5 1,711.9 212.7
Results
Operating profit before exceptional items 58.6 45.9 11.1
Exceptional items - - -
Segment result 58.6 45.9 11.1
Share of profit after tax of joint ventures
and associates - 0.9 -
Profit before finance and tax 58.6 46.8 11.1
2006 Rest of Total
Year to 31.12.06 World pre Central Central Total
£m £m £m £m
Revenue
Revenue from third parties 225.4 4,842.1 - 4,842.1
Results
Operating profit before exceptional
items 21.4 238.8 (24.9) 213.9
Exceptional items - - - -
Segment result 21.4 238.8 (24.9) 213.9
Share of profit after tax of joint
ventures and associates 0.4 5.9 - 5.9
Profit before finance and tax 21.8 244.7 (24.9) 219.8
Secondary reporting format - business segments
Distribution
2007 Australia Europe Hong Kong Singapore
Six months to 30.6.07 £m £m £m £m
Revenue from third parties 206.8 458.7 110.3 269.1
Results
Operating profit before
exceptional items 17.0 23.5 13.2 25.6
Exceptional items - - 12.0 -
Segment result 17.0 23.5 25.2 25.6
Share of profit after tax of
joint ventures and associates - 0.8 0.2 -
Profit before finance and tax 17.0 24.3 25.4 25.6
Distribution United Emerging Rest of Total
2007 Kingdom Markets World Distribution
Six months to 30.6.07 £m £m £m £m
Revenue from third parties 43.0 58.5 116.9 1,263.3
Results
Operating profit before
exceptional items 1.8 5.5 12.3 98.9
Exceptional items (6.9) - - 5.1
Segment result (5.1) 5.5 12.3 104.0
Share of profit after tax of joint
ventures and associates 0.5 - 0.1 1.6
Profit before finance and tax (4.6) 5.5 12.4 105.6
Distribution
2006 Australia Europe Hong Kong Singapore
Six months to 30.6.06 £m £m £m £m
Revenue from third parties 219.5 429.4 106.0 358.2
Results
Operating profit 14.4 20.5 10.1 33.8
Exceptional items - - - -
Segment result 14.4 20.5 10.1 33.8
Share of profit after tax of
joint ventures and associates - 0.8 1.3 -
Profit before finance and tax 14.4 21.3 11.4 33.8
Distribution United Emerging Rest of Total
2006 Kingdom Markets World Distribution
Six months to 30.6.06 £m £m £m £m
Revenue from third parties 53.6 35.8 110.0 1,312.5
Results
Operating profit 2.6 3.3 10.6 95.3
Exceptional items - - - -
Segment result 2.6 3.3 10.6 95.3
Share of profit after tax of joint
ventures and associates 0.4 - 0.1 2.6
Profit before finance and tax 3.0 3.3 10.7 97.9
Distribution
2006 Australia Europe Hong Kong Singapore
Year to 31.12.06 £m £m £m £m
Revenue from third parties 399.7 778.3 224.8 659.5
Results
Operating profit 28.2 41.1 24.0 58.6
Exceptional items - - - -
Segment result 28.2 41.1 24.0 58.6
Share of profit after tax of
joint ventures and associates - 1.8 2.8 -
Profit before finance and tax 28.2 42.9 26.8 58.6
Distribution United Emerging Rest of Total
2006 Kingdom Markets World Distribution
Year to 31.12.06 £m £m £m £m
Revenue from third parties 97.8 85.0 225.4 2,470.5
Results
Operating profit before
exceptional items 3.8 8.5 21.4 185.6
Exceptional items - - - -
Segment result 3.8 8.5 21.4 185.6
Share of profit after tax of joint
ventures and associates 0.9 - 0.4 5.9
Profit before finance and tax 4.7 8.5 21.8 191.5
Retail United
2007 Australia Europe Kingdom
Six months to 30.6.07 £m £m £m
Revenue from third parties 120.1 203.5 1,397.8
Results
Operating profit before exceptional
items 3.5 0.8 34.0
Exceptional items - - (0.3)
Segment result 3.5 0.8 33.7
Share of profit after tax of joint
ventures and associates - - 0.1
Profit before finance and tax 3.5 0.8 33.8
Retail Emerging Rest of Total
2007 Markets World Retail
Six months to 30.6.07 £m £m £m
Revenue from third parties 150.5 1.3 1,873.2
Results
Operating profit before exceptional
items 6.9 - 45.2
Exceptional items - - (0.3)
Segment result 6.9 - 44.9
Share of profit after tax of joint
ventures and associates - - 0.1
Profit before finance and tax 6.9 - 45.0
Total pre
2007 Central Central Total
Six months to 30.6.07 £m £m £m
Revenue from third parties 3,136.5 - 3,136.5
Results
Operating profit before exceptional
items 144.1 (10.9) 133.2
Exceptional items 4.8 - 4.8
Segment result 148.9 (10.9) 138.0
Share of profit after tax of joint
ventures and associates 1.7 - 1.7
Profit before finance and tax 150.6 (10.9) 139.7
Retail United
2006 Australia Europe Kingdom
Six months to 30.6.06 £m £m £m
Revenue from third parties 115.8 228.1 729.4
Results
Operating profit 4.4 (0.7) 20.6
Exceptional items - - -
Segment result 4.4 (0.7) 20.6
Share of profit after tax of joint
ventures and associates - - -
Profit before finance and tax 4.4 (0.7) 20.6
Retail Emerging Rest of Total
2006 Markets World Retail
Six months to 30.6.06 £m £m £m
Revenue from third parties 54.8 - 1,128.1
Results
Operating profit 0.8 - 25.1
Exceptional items - - -
Segment result 0.8 - 25.1
Share of profit after tax of joint
ventures and associates - - -
Profit before finance and tax 0.8 - 25.1
Total pre
2006 Central Central Total
Six months to 30.6.06 £m £m £m
Revenue from third parties 2,440.6 - 2,440.6
Results
Operating profit before exceptional
items 120.4 (10.4) 110.0
Exceptional items - - -
Segment result 120.4 (10.4) 110.0
Share of profit after tax of joint
ventures and associates 2.6 - 2.6
Profit before finance and tax 123.0 (10.4) 112.6
Retail United
2006 Australia Europe Kingdom
Year to 31.12.06 £m £m £m
Revenue from third parties 216.9 412.8 1,614.1
Results
Operating profit 10.3 (1.8) 42.1
Exceptional items - - -
Segment result 10.3 (1.8) 42.1
Share of profit after tax of joint - - -
ventures and associates
Profit before finance and tax 10.3 (1.8) 42.1
Retail Emerging Rest of Total
2006 Markets World Retail
Year to 31.12.06 £m £m £m
Revenue from third parties 127.8 - 2,371.6
Results
Operating profit before exceptional
items 2.6 - 53.2
Exceptional items - - -
Segment result 2.6 - 53.2
Share of profit after tax of joint
ventures and associates - - -
Profit before finance and tax 2.6 - 53.2
Total pre
2006 Central Central Total
Year to 31.12.06 £m £m £m
Revenue from third parties 4,842.1 - 4,842.1
Results
Operating profit before exceptional
items 238.8 (24.9) 213.9
Exceptional items - - -
Segment result 238.8 (24.9) 213.9
Share of profit after tax of joint
ventures and associates 5.9 - 5.9
Profit before finance and tax 244.7 (24.9) 219.8
3 EXCEPTIONAL ITEMS
Six months Six months Year to
to 30.6.07 to 30.6.06 31.12.06
£m £m £m
Profit on disposal of Inchroy joint
venture 12.0 - -
Loss on disposal of Inchcape Automotive
Limited (6.9) - -
Loss on disposal of other UK businesses (0.3) - -
Operating exceptional items 4.8 - -
Exceptional tax - 8.0 8.0
Total exceptional items 4.8 8.0 8.0
Exceptional tax in the prior year relates to the release of tax provided
against the VAT recoveries in 2003 and 2004 following the favourable settlement
of the corporation tax treatment.
4 FINANCE INCOME
Six months Six months Year to
to 30.6.07 to 30.6.06 31.12.06
£m £m £m
Bank and loan interest receivable 5.2 4.9 8.8
Expected return on post-retirement
plan assets 20.6 19.0 37.7
Other interest receivable 0.9 1.4 2.5
Total finance income 26.7 25.3 49.0
5 FINANCE COSTS
Six months Six months Year to
to 30.6.07 to 30.6.06 31.12.06
£m £m £m
Bank and loan interest payable 12.7 1.9 3.8
Fair value gains on cross currency
interest rate swaps 13.4 - -
Fair value adjustment on Private
Placement (13.1) - -
Stock holding interest 8.1 4.8 11.2
Interest expense on post-retirement plan
liabilities 18.7 17.8 35.3
Other interest payable 1.8 1.4 4.6
Total finance costs 41.6 25.9 54.9
6 TAX
Six months Six months Year to
to 30.6.07 to 30.6.06 31.12.06
£m £m £m
Current tax - UK 0.6 6.1 5.5
- Overseas 28.3 24.9 47.6
28.9 31.0 53.1
Deferred tax - UK 0.5 (7.2) (11.0)
- Overseas 0.1 (0.1) 3.0
Tax before exceptional tax 29.5 23.7 45.1
Exceptional tax - (8.0) (8.0)
Total tax 29.5 15.7 37.1
7 EARNINGS PER SHARE
Six months Six months Year to
to 30.6.07 to 30.6.06 31.12.06
£m £m £m
Profit for the period 95.3 96.3 176.8
Minority interests (3.0) (1.9) (2.9)
Basic earnings 92.3 94.4 173.9
Exceptional items (including tax
exceptional) (4.8) (8.0) (8.0)
Headline earnings 87.5 86.4 165.9
Basic earnings per share 19.9p 20.2p 37.5p
Diluted earnings per share 19.8p 20.1p 37.1p
Basic Headline earnings per share 18.9p 18.5p 35.7p
Diluted Headline earnings per share 18.8p 18.4p 35.4p
Six months Six months Year to
to 30.6.07 to 30.6.06 31.12.06
number number number
Weighted average number of fully
paid ordinary shares in issue
during the period 483,371,751 480,326,644 481,212,798
Weighted average number of fully
paid ordinary shares in issue
during the period:
- Held by the ESOP Trust (1,734,109) (2,631,921) (2,127,884)
- Repurchased as part of the share
buy back programme (17,880,606) (11,102,862) (15,031,175)
Weighted average number of fully
paid ordinary shares for the
purposes of basic EPS 463,757,036 466,591,861 464,053,739
Dilutive effect of potential
ordinary shares 2,689,766 4,001,925 4,076,256
Adjusted weighted average number
of fully paid ordinary shares in
issue during the period for the
purposes of diluted EPS 466,446,882 470,593,786 468,129,995
Basic earnings per share is calculated by dividing the basic earnings for the
period by the weighted average number of fully paid ordinary shares in issue
during the period, less those shares held by the ESOP Trust and those
repurchased as part of the share buy back programme.
Diluted earnings per share is calculated on the same basis as the basic
earnings per share with a further adjustment to the weighted average number of
fully paid ordinary shares to reflect the effect of all dilutive potential
ordinary shares. Dilutive potential ordinary shares comprise share options and
deferred bonus plan awards.
Headline earnings (which excludes exceptional items) is adopted to assist the
reader in understanding the underlying performance of the Group. Headline
earnings per share is calculated by dividing the Headline earnings for the
period by the weighted average number of fully paid ordinary shares in issue
during the period, less those shares held by the ESOP Trust and those
repurchased as part of the share buy back programme.
Diluted Headline earnings per share is calculated on the same basis as the
basic Headline earnings per share with a further adjustment to the weighted
average number of fully paid ordinary shares to reflect the effect of all
dilutive potential ordinary shares. Dilutive potential ordinary shares comprise
share options and deferred bonus plan awards.
The share buy back programme completed in 2006, and no further shares were
bought back into Treasury during the period.
8 SHAREHOLDERS' EQUITY
Issue of ordinary shares
Six months Six months Year to
to 30.6.07 to 30.6.06 31.12.06
£m £m £m
Share capital 0.6 0.2 0.5
Share premium 5.7 0.9 3.4
6.3 1.1 3.9
The increase in shareholders' equity during the period relates to share options
exercised.
Dividends
The following dividends were paid by the Group:
Six months Six months Year to
to 30.6.07 to 30.6.06 31.12.06
£m £m £m
Interim dividend for the six months ended
30 June 2006 of 5.0p per share - - 23.0
Final dividend for the year ended 31
December 2006 of 10.0p per share (2005 -
6.3p per share) 46.6 29.6 29.6
46.6 29.6 52.6
The interim dividend for the six months ended 30 June 2007 of 5.25p per share
(£24.4m) was approved by the Board on 25 July 2007 and has not been included as
a liability as at 30 June 2007.
9 NOTES TO THE CASH FLOW STATEMENT
a Reconciliation of cash generated from operations
Six months Six months Year to
to 30.6.07 to 30.6.06 31.12.06
£m £m £m
Cash flows from operating activities
Operating profit 138.0 110.0 213.9
Exceptional items (4.8) - -
Amortisation 3.0 1.5 4.0
Depreciation 14.7 11.0 23.3
(Profit)loss on disposal of property,
plant and equipment (3.2) 0.1 (0.6)
Share-based payments charge 2.1 1.7 4.5
Decrease (increase) in inventories 66.5 79.0 (58.9)
(Increase) decrease in trade and other
receivables (46.8) (1.6) 29.4
Increase (decrease) in trade and other
payables 18.0 (0.5) 56.1
Increase (decrease) in provisions 4.2 0.2 (0.6)
Decrease in post-retirement defined
benefits (10.4) (33.7) (38.8)
Movement in vehicles subject to residual
value commitments (2.8) 2.9 5.3
Other items (1.8) (0.8) (0.8)
Cash generated from operations 176.7 169.8 236.8
b Reconciliation of net cash flow to movement in net (debt) funds
Six months Six months Year to
to 30.6.07 to 30.6.06 31.12.06
£m £m £m
Net (decrease) increase in cash and cash
equivalents (5.8) 35.3 9.5
Net cash (outflow) inflow from borrowings
and lease financing (102.5) 2.4 (158.4)
Change in net cash and debt resulting
from cash flows (108.3) 37.7 (148.9)
Effect of foreign exchange rate changes
on net cash and debt 2.6 (4.5) (8.8)
Loans raised on acquisition (4.5) - -
Net loans and finance leases relating to
acquisitions (0.7) (2.0) (19.3)
Movement in net (debt) funds (110.9) 31.2 (177.0)
Opening net (debt) funds (19.0) 158.0 158.0
Closing net (debt) funds (129.9) 189.2 (19.0)
Net (debt) funds incorporate the Group's cash and cash equivalents, external
borrowings and the interest rate and cross currency swaps that hedge those
borrowings.
10 ACQUISITIONS AND DISPOSALS
Acquisitions
On 15 December 2006 the Group acquired 18.55% of the share capital of European
Motor Holdings for a cash consideration of £49.2m. The Group acquired the
remaining share capital of the company during January 2007. This acquisition
extended the Group's retail presence in the UK. The total consideration paid
(including net debt acquired of £9.6m) was £289.3m for 100% of the share
capital. The provisional fair value of the net assets acquired was £99.9m
(after fair value adjustments of c. £30.0m relating primarily to an uplift of
the property values), with goodwill arising on the acquisition of £179.8m.
In addition to the acquisitions noted above, the Group acquired a number of
other businesses during the year, none of which were individually material. The
consideration for these businesses was £20.9m (including net debt acquired of
£7.1m). The fair value of the net assets acquired was £9.5m, with goodwill
arising on these acquisitions of £10.8m.
Disposals
The Group disposed of a number of businesses during the period, with net
disposal proceeds of £70.6m, and a profit on disposal of businesses of £4.8m,
which has been disclosed as an exceptional item. These disposals include the
disposal of the Group's 50% share in Inchroy Credit Corporation Limited for
£45.8m for a profit on disposal of £12.0m (after £3.0m adjustment for
historical foreign currency differences recycled to the Income statement on
disposal), and the disposal of Inchcape Automotive UK for £18.6m (loss on
disposal £6.9m).
Following the Group's announcement on 6 March 2007 of it's intention to dispose
of certain non-core franchises, it is actively marketing these with a view to
sale. The assets and liabilities of these businesses have therefore been
disclosed on the balance sheet as a disposal group.
11 POST BALANCE SHEET EVENTS
On 11 June 2007, the Group announced its intention to acquire 100% of the
issued share capital of Baltic Motors Corporation and SIA BM Auto (Baltic
Motors)from MVC Capital Incorporated for a total cash consideration of £62.0m
(including goodwill, property and related assets). Baltic Motors represent
Ford, BMW and Land Rover in Latvia, the Baltic's largest and fastest growing
market. This acquisition was completed on 24 July 2007.
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