Preliminary results 2005

Inchcape PLC 06 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 results for 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, which demonstrate the benefits of our balanced international portfolio. We achieved record performances in Australia and Singapore, improved margins in UK Retail, successfully integrated recent acquisitions, and again generated strong cash flow. 'As well as achieving double digit growth in five of our six core markets, we have continued to develop opportunities in emerging and new markets that will be important future engines of growth. Most notably, our new joint venture in Moscow, announced today, establishes a presence for us in the high growth Russian market. 'Despite overall market conditions remaining challenging, we are well placed to deliver further growth in 2006. 'It is clear that the strategy of recent years has been successful. The result is a business, and a business model, which is extremely sound. 'Our future growth will come in two ways: from strengthening Inchcape's current businesses 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 the growth opportunities available to the Group, the quality of our people and our excellent brand partner relationships.' Financial summary £m 2005 2004 Revenue 4,488.1 4,119.5 Operating profit before exceptional items 189.4 172.1 Exceptional items (13.0) (10.6) Operating profit 176.4 161.5 Share of profit after tax of joint ventures and associates* 6.2 7.8 Net finance costs** (5.3) (6.1) Profit before tax 177.3 163.2 Headline profit before tax*** 190.3 168.4 Headline earnings per share*** 178.5p 155.7p Basic 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 plc 020 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 a number of other global markets. In addition to growing our core businesses, we are looking to develop scale operations in new and emerging regions. We represent leading automotive brands and operate either a retail, or a vertically integrated retail model (i.e. exclusive distribution and retail), depending on the market. Our key manufacturer partners are Toyota/Lexus, Subaru, BMW, the Premier 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 with continued 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 run out of a number of key models, we increased our trading profits by over 10.0% in five of our six core regions. Singapore and Australia generated record sales performances, whilst our UK Retail business achieved strong trading margin progression 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 scale operations in new and emerging markets. In the UK, consolidation has, as we forecast, gathered pace. Inchcape Retail looks to play its part in this consolidation. We will continue our strategy of growth 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 the country. 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 February 2006. This business represents Subaru, Hyundai, Kia and Mitsubishi across two multi-franchise retail centres. The acquisition complements our existing retail operations in Melbourne and Sydney, and provides a platform to build a larger business in the high growth market of south east Queensland. On 6 March 2006 we announced our entry into the high growth Russian market, a new territory for the Group, through a joint venture with the Independence Group of Companies, one of Moscow's leading independent car retailers. The partnership is to establish two retail and service centres in Moscow for Toyota vehicles. Moscow currently accounts for approximately 50.0% of foreign brand sales in Russia. The retail centres, which will be newly constructed, are due to open in the second half of 2007 and are expected to become Inchcape's largest retail outlets in Europe. Toyota is currently one of the most successful foreign brands in Russia with sales of around 60,000 units in 2005, and a market share of foreign brand car sales of over 10.0%. Dividend The Board is recommending the payment of a final ordinary dividend for the year of 38.0p (2004 - 35.0p). This gives a total dividend for 2005 of 57.0p, which is 14.0% above the 2004 dividend of 50.0p, and covered 3.1 times by Headline earnings per share (2004 - 3.1 times). Subject to approval at the Company's Annual General Meeting (AGM) on 11 May 2006, the final dividend will be paid on 16 June 2006 to shareholders on the register on 19 May 2006. Share buy back In February 2005, the Company announced a £65.0m share buy back programme and to date £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 Directors consider 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 of 25.0p 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 each old ordinary share of 150.0p nominal value. Board changes Sir John Egan retired from the Board on 31 December 2005. I would like to thank Sir John for his immensely valuable contribution and support during his five years as Chairman. Simon Robertson retired at the Company's AGM on 12 May 2005. I would like to give him my personal thanks for the great contribution he made to Inchcape. I am delighted to say that upon Simon's retirement, Will Samuel has accepted the roles of Deputy Chairman and Senior Independent Non-executive Director. Alan Ferguson resigned on 14 September 2005 to join BOC Group plc. His contribution to Inchcape's success was considerable and we wish him well in his new role. Andre Lacroix joined the Board on 1 September 2005, and became Group Chief Executive on 1 January 2006. Andre has an exceptional background in international 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 record augurs well for the continued development of Inchcape. On 1 January 2006, Karen Guerra, President, Colgate Palmolive SAS, and General Manager of the French Branch of CPI LLC, joined the Board as a Non-executive Director. Karen's insight and experience in international, consumer facing businesses will be of great value to the Group. People Once again the hard work and dedication of our colleagues around the world have helped the Group achieve the excellent results that are published today. On behalf of the Board, I would like to thank them all for their continued commitment and loyalty. Operating review Operating profit before exceptional items has been defined as trading profit throughout the Operating review. 2005 2004 ------------- --------- ----------- ------- --------- ----------- ------- Regional Operating Exceptional Trading Operating Exceptional Trading analysis profit items profit profit items profit £m £m £m £m £m £m ------------- --------- ----------- ------- --------- ----------- ------- Australia 31.9 - 31.9 28.7 (0.6) 28.1 Belgium 14.0 - 14.0 10.5 2.1 12.6 Greece 13.8 - 13.8 17.8 (0.1) 17.7 Hong Kong 28.8 - 28.8 25.6 - 25.6 Singapore 62.1 - 62.1 53.5 - 53.5 United Kingdom 9.7 19.5 29.2 6.5 19.3 25.8 Other 28.4 - 28.4 27.0 (0.3) 26.7 Central costs (12.3) (6.5) (18.8) (8.1) (9.8) (17.9) ------------- --------- ----------- ------- --------- ----------- ------- Operating profit 176.4 13.0 189.4 161.5 10.6 172.1 ------------- --------- ----------- ------- --------- ----------- ------- Group Trading profit 2005: £189.4m (2004: £172.1m) This is the first full year set of financial statements to be prepared in accordance with International Financial Reporting Standards (IFRS). The Group has taken advantage of the transition to IFRS to amend its geographical segments. Overall the Group achieved an increase in revenue of 8.9% to £4.5bn for the full year to 31 December 2005. This result was assisted by record sales performances in Singapore and Australia, and strong growth by UK Retail despite a softening market. The operating profit for the Group, of £176.4m, was 9.2% above 2004. This performance includes a net exceptional loss of £13.0m. Excluding this, operating profit before exceptional items is £189.4m, which is some 10.1% or £17.3m higher than 2004. Encouragingly, despite challenging market conditions, trading profits grew 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, put pressure on margins in the second half of the year. Headline profit before tax was up 13.0% to £190.3m and Headline earnings per share increased by 14.6% from 155.7p to 178.5p in the year. Australia Trading profit 2005: £31.9m (2004: £28.1m) The Australian vehicle market enjoyed a fifth consecutive year of growth, and at c. 988,000 was 3.5% up on 2004. Subaru significantly outperformed this, growing 7.2% compared to 2004, with sales of the Forester and Impreza achieving their highest ever levels. Subaru volumes of c. 36,000 units reached record levels for the tenth successive year. Furthermore, Subaru set yet another record full year market share of 3.6%. Our Subaru Distribution business suffered margin pressure in 2005 due to the competitive market. Trading profits for Subaru Melbourne were up over 25.0% for the second successive year. A focus on customer experience and operational excellence has delivered growth in volumes, particularly used cars which were up over 12.0% on the prior year, and increased aftersales. This business continues to exceed our expectations and achieved trading margins of 5.0%. In 2005 we completed the re-engineering of our non-Subaru dealer network in Sydney, exiting from underperforming non-core dealerships. Our performance benefited from this and with the contribution from two new Subaru retail centres acquired in the second half of 2004, Sydney Retail returned to profit in 2005. Our Business Services operation, AutoNexus, had a strong year with profits up 23.9%. We have invested in a new parts warehouse in Sydney and a larger vehicle compound in Melbourne, in response to increased customer demand. Overall, the strong progression in our Retail business contributed to an increase 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 new entry level Liberty 2.0R and special editions, together with the addition of a fifth model to the line up with the launch of the new B9 Tribeca in the last quarter of the year. All this should result in increased vehicle sales for Subaru. Belgium Trading profit 2005: £14.0m (2004: £12.6m) The Belgian vehicle market was flat year on year at c. 552,700 units. In a market dominated by diesel products, Toyota Belgium benefited from new diesel derivatives, particularly the Corolla 1.4 litre. This assisted Toyota in outperforming 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 models and a weaker model mix resulting in revenue decline of some 2.6%. Trading profits benefited from the higher parts and accessories sales, allied to the growth in the Toyota car parc, tight control of overheads and the favourable settlement of claims following the dealer network reorganisation undertaken in 2002. This drove an 11.1% increase in trading profits to £14.0m. The next generation Yaris, RAV4 and Lexus IS models were showcased at the Brussels Motor Show in January 2006 and were well received. Greece Trading 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 in part by the Olympics. Demand started to weaken, however, in late 2004 and this trend continued throughout 2005. For the full year the market of c. 292,800 units was 6.2% down compared to 2004. Our full year market share in 2004 was 9.6%. Our full year market share for 2005 was 8.5% although this showed an improvement compared to the second half of 2004. Like Belgium, Toyota in Greece also suffered from the run out of the core Yaris and RAV4 models. This, coupled with supply shortages, particularly with the Corolla and Hilux models, and the disruption from the network reorganisation undertaken in late 2004, had an adverse impact on market share in 2005. Overall, the performance from our Athens and Salonica Retail businesses was disappointing. The start up of our new Athens flagship retail centre, which opened in late 2004 has been slower than expected. This, combined with operational inefficiencies in Salonica, has resulted in a net trading loss for our Retail business in 2005. All these factors had an adverse impact on margins, particularly in the second half of 2005, and overall the region achieved a trading profit of £13.8m for the year, some 22.0% lower than 2004. The Toyota model line up was broadened by the launch of the new Aygo model in mid 2005, which has increased market appeal for Toyota. In early 2006 we launched the next generation Yaris and RAV4 models. Hong Kong Trading profit 2005: £28.8m (2004: £25.6m) Consumer confidence in the vehicle market in Hong Kong has been slower to return than we anticipated. The 2005 full year vehicle market was approximately in line with the c. 31,000 units achieved in 2004. Crown Motors, our Toyota/Lexus business, maintained its strong market leadership in 2005 with a 33.1% market share. This was slightly lower than 2004 due to supply constraints, particularly in the first half of the year, and increased competitive pressure. Crown Motors achieved the Toyota Triple Crown Award for the fourteenth consecutive year, and is the only distributor ever to have achieved this. A higher level of one off specialist service work supported a strong performance in the parts and aftersales activities. This, together with a favourable vehicle mix, 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 profits improved by 12.5%. Toyota/Lexus are launching various new models in early 2006, including the next generation Camry, Previa and Lexus models. Singapore Trading profit 2005: £62.1m (2004: £53.5m) In Singapore we once again had an outstanding year, achieving record unit sales and profitability. This was mainly due to the strong performance from Borneo Motors, 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 benefited from a change in fiscal policy, which coupled with the declining price of the COE has encouraged consumers to scrap their cars before the expiry of the ten year 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 fourth consecutive year with a market penetration of 29.7%. This was marginally below the 30.9% reached in 2004 as Borneo Motors suffered from supply constraints and the discontinued Liteace commercial van. Recognising the recent growth in the Toyota vehicle parc, we commenced an investment programme in 2004 to increase aftersales capacity. During 2005 we opened a further satellite aftersales facility. The higher vehicle sales and aftersales volumes, together with softening COE prices, helped the region to increase trading profits by 13.5% at constant exchange rates. The strengthening of the Singapore dollar gave rise to a £1.4m currency translation benefit and, including this, overall trading profits increased by 16.1%. Trading margins strengthened from 8.2% in 2004 to 8.6% in 2005. United Kingdom Trading profit 2005: £29.2m (2004: £25.8m) In the UK total trading profits improved significantly compared to 2004, despite the 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 for like trading profits increased by 10.6%, and our like for like used car sales were up 10.0%. Our like for like new retail sales fell, but at a lesser rate than the market. Like for like aftersales hours sold rose by 1.6%, and associated profits increased by 5.8%. In particular our Mercedes-Benz, Land Rover, Vauxhall, Ford and Volkswagen franchises performed well during the year. Overall the impressive performance has been driven by our focus on process improvements, operational excellence and customer centric initiatives such as 'Insight'. UK Retail trading profits also benefited from the acquisition of new Mercedes-Benz retail centres in the East Midlands in 2004, and in the north west in 2005. These have been successfully integrated into our UK Retail operation and in the second half of 2005, having applied our customer centric processes and procedures, these businesses ranked first and third in Mercedes-Benz's national customer satisfaction indices. Our finance and insurance model has changed from an exclusive arrangement to a competitive market placement, which increased profitability. UK Retail full year trading margins progressed from 1.7% in 2004 to 2.0% in 2005. Inchcape Automotive experienced another difficult year and reported a loss in 2005. 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 the number of vehicles under fleet management grew by 25.8%. Excluding the prior year contribution from the Ferrari/Maserati import and distribution business, which we relinquished in late 2004, UK trading profits increased by 28.1%. Other Trading 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 and Romania as they prepare to join the European Union in 2007. This growth has underpinned a 43.6% increase in unit sales. In Bulgaria, Toyota was the passenger car market leader with a market share of 8.7% and a 35.2% increase in new vehicle volumes. In Romania, Toyota achieved a market share of 3.4% and an increase in volumes of almost 66.0%. Our Retail investments are progressing well, with a new facility planned for Bucharest in 2006. Overall trading profits in 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 into early 2005. This, together with a softening in market share, contributed to a decline in trading profits of over 45.0% to £3.9m. Our Retail operations in Estonia and Latvia, acquired in December 2004 and April 2005 respectively, sold over 2,780 new and used Mazda, Jaguar and Land Rover vehicles in 2005. The start up of our BMW/MINI operations in Poland was slower than expected, due to a weak new car market. Our Retail business in France was impacted by the poor national performance of Jaguar, despite the contribution from the newly acquired Volkswagen/Audi business in Montpellier. An 8.3% increase in volumes and improved margins in our Subaru New Zealand business 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 in trading profits, due in part to the reduction in the luxury vehicle tax in Chile. New vehicle volumes grew by 34.2%, compared to 2004, and trading profits increased to £3.2m. Central costs 2005: £18.8m (2004: £17.9m) In 2004, Central costs included a net one off recovery relating to the settlement of various litigation issues. Excluding this, underlying Central costs for 2004 were £18.5m. Tight control of overheads has meant that Central costs for 2005 are marginally higher at £18.8m. This is despite additional share-based payment costs arising on the transition to IFRS. Trading prospects The Australian market is predicted to remain strong and Subaru's market share progression is expected to continue. Our retail operations will benefit from the Keystar acquisition made in February 2006 and further organic growth delivering margin improvement, particularly in Sydney. In Belgium, our Toyota business will benefit from the launch of the Aygo, Yaris and RAV4 models, in what is expected to be a flat market. This will help offset margin pressure. Our distribution business in Greece will benefit from the launch of the new Aygo, Yaris and RAV4 models, and our retail operations will recover from a difficult year in 2005. In Hong Kong, the launch of the new Toyota/Lexus product range will stimulate demand. Despite this, we expect margin pressure in a market that will remain challenging. Following the recent Certificate of Entitlement announcement in Singapore, we expect 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 of recent acquisitions. We will target a further improvement in revenue and margin in a market expected to be below the level of 2005. Our Fleet Solutions business will continue to do well, and we should see an improvement in Inchcape Automotive's performance. In our other markets, we expect another successful year as we leverage the growth opportunities in the Balkans and Baltics. We should also improve our performance in Finland. The net finance charge will be affected by higher stock funding charges primarily from acquisitions and the cost of the share buy back programme. Despite overall market conditions remaining challenging, we are well placed to deliver 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' with Andre Lacroix, which will feature in our forthcoming Annual report and accounts 2005. 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 and the 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 a retail or a vertically integrated retail (i.e. exclusive distribution and retail) model, depending on the market. Inchcape has done extremely well over the past five years. It has highly talented management teams, a good geographical spread of earnings, a healthy balance sheet and strong global relationships with its brand partners. That is a fantastic legacy for a new Group Chief Executive to inherit, but what also attracts me are the opportunities and the challenges ahead. There is no doubt in my mind that Inchcape is well positioned to play an important role in the emerging global retail consolidation process, but to capitalise fully we have to stay ahead of the changes in the marketplace. The car industry is very dynamic. The pace of innovation is increasing, and customers are more and more demanding when it comes to the quality of their vehicles and the service they expect. I have always worked in consumer facing industries and these challenges will allow me to apply my skills, ensuring we make the most of the opportunities available to the Group. Inchcape is already a very successful business. Following your appointment, what developments are there likely to be to the existing strategy? It is clear from the returns that have been generated and from the market positions that we hold, that the strategy pursued in recent years has been the right one. The result is a business, and a business model, that is extremely sound. My task is to develop the next phase of growth and to build on this success. Central to our approach are two words, 'strengthen' and 'expand'. I am convinced that we can create further shareholder value by strengthening our organic performance, and leveraging our existing assets. The second significant opportunity is to expand in both our core markets and in new countries, with existing and new brand partners. To achieve this, it is important that we continue to invest in the appropriate organisational 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 truly customer centric. This is one of my absolute priorities. When someone buys a new or used car, we must provide them with an outstanding customer experience that gives us a competitive advantage in the market place. The same philosophy applies when we take care of our customers' vehicles in the service and bodyshop departments. If you look at our current operations, we have some tremendous customer service practices, but we do not deliver them consistently in all our markets. Moreover, it is important to recognise that we need to address the individual needs of our customers by having the right level of insight and information regarding their expectations. This implies that we need to be the leading innovator in retail and customer service. My vision is for us to become the world's most customer centric automotive retail group, exceeding the standards set by our brand partners and surpassing customer expectations. That will be a strong differentiator for Inchcape and will give us a sustainable base for organic growth. Beyond organic growth, there are plenty of opportunities in our existing markets to expand our retail presence. In Australia for example, we have recently entered the Queensland market. In the UK, consolidation continues, and in Belgium 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's ability to develop scale operations through a market focused approach. The Balkans are now a sizeable profit contributor to the Group. We have also developed strong market positions in the Baltics with Mazda, and in Chile and Peru with BMW. Will you be entering new markets? Our growth strategy is directed at existing, emerging and new markets. An important element of our strategy will be to continue to expand our business model where we can build profitable scale operations. Today we have scale businesses in six markets, and over the next five years we expect 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 growth opportunity, where we can leverage the strengths of our Asian expertise. In practical terms, how are you going to put customers at the forefront of Inchcape's strategy? Having the right location and the right brand is obviously important. What really creates a strategic advantage, however, is the ability to deliver an outstanding customer experience, every day, everywhere. The purchase of a car is an important investment, as well as an emotional decision. Putting customers first 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 for innovation in services and continually improve our operational processes. This should result in an outstanding customer experience that can be delivered consistently across our retail operations. That is why we plan to upgrade our training and increase our focus on people development. I am convinced that customer centric operational excellence is the right focus for 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 Inchcape Group. In Melbourne, we have redefined the rules of retailing by creating a fully immersive brand experience at Subaru Docklands. The site is a theatre, where our customers can discover the Subaru technology, experience it on the race track and jungle trail, and enjoy a nice, relaxing lunch! In Singapore we have launched our innovative Service Express concept, which guarantees one hour service time in scheduled service slots. Furthermore, we have created several Toyota service stations throughout Singapore to reduce the travel time for our customers. In Hong Kong, we actually visit our customers in their offices and homes to discuss their needs. We have created a Lexus Club, and all our Lexus customers are invited to numerous, exclusive events during the year. In the UK, we have examined in detail the fundamental elements of car buying. By listening to our customers and identifying nine 'moments of trust' in the buying and servicing experience, we have developed a systematic sales process that focuses on individual customer needs. There are many other examples of retail excellence and innovation around the Group, which convince me that we are capable of achieving our goal of becoming the world's most customer centric automotive retail group. Is it your strategy to build with your existing brand partners or to develop new partnerships? Both. There are certainly development opportunities with our existing partners, provided that we continue to exceed their expectations in how we represent their brands. If there are other brands, however, that are relevant for our customers in a market where we want to invest, then we will seek to establish partnerships with those brands. We are very open to such opportunities. When a manufacturer considers entering a new market or expanding significantly in an existing one, Inchcape should be seen by them as the natural partner of choice for their strategy. That is an ambitious goal, but I genuinely believe that 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, in which Inchcape appears to be reluctant to participate. Where does UK expansion sit 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 are following a clear strategy based on contiguous territories for the brands in our portfolio. 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 geography with good returns for our shareholders. Inchcape has low gearing and significant cash on its balance sheet. Will all Inchcape's financial resources be required for investment? We do have the benefit of a very strong balance sheet, and the approach we have decided to take is sequential. Firstly, we will develop our growth strategy to a high 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 through our current strategic planning, and I am not going to pre-judge the scale of this investment. What I can say, however, is that we will improve the efficiency of our balance sheet, but not with overpriced acquisitions. Put another way, we will be disciplined about our allocation of funds towards investments that can deliver 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 ten global markets and will be recognised as the most customer centric automotive retail group in the world, delivering an outstanding customer experience for the brand partners we represent. If we achieve this, I am confident that we will have delivered the next phase of growth for our shareholders. What challenges do you face in achieving these objectives? We compete every day against other car retailers, with other service industries for 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 a high 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 must execute our initiatives fully and seamlessly. Moreover, we will continue to learn by listening to our customers and employees and will look to lead the market by increasing retail innovation. Your overall conclusion? I have now been at the helm of the Company since January this year, and I am extremely 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, we will strengthen our organic performance and expand with our global brand partners. What we have to do now is fully develop our new growth strategy with a specific country and brand approach, and disciplined allocation of capital for our future investments. 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 UK Generally Accepted Accounting Principles (UK GAAP). European Union regulations require that the Group's consolidated accounts apply International Financial Reporting Standards (IFRS) from 1 January 2005. This is the first full year set of financial statements to be prepared in accordance with the standards. Reconciliations between previously reported UK GAAP numbers, and those under IFRS, are available on the Group's website, www.inchcape.com. There are a number of 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 IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement, with effect from 1 January 2005, with no restatement of previous comparative information. This had the effect of decreasing shareholders' equity by £4.5m at 1 January 2005. Cash balances and bank overdrafts are disclosed at the gross level in the balance sheet, under IAS 32. Although there is the legal ability, there is no intention to settle these amounts net. This has had the effect of grossing up cash and borrowings in the balance sheet. In addition the Group has chosen to adopt the amendment to IAS 19 Employee Benefits early. Actuarial gains and losses are recognised in the Consolidated statement of recognised income and expense in full, in the year in which they arise. 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 a reduction in long term interest rates, combined with the use of updated mortality assumptions generating an increase in the gross pension liability. It was, however, partially offset by a strengthening in equity markets, which increased 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 income arising from the release of litigation provisions on the settlement and expiry of 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 net finance costs totalled £10.3m. The net finance costs for 2005 are substantially lower than the 2004 underlying interest charge at £5.3m. This decrease is mainly a result of the full year benefit of the c. £135.0m cash repatriation to the UK, effected in November 2004. This resolved the mismatch between debt in the UK and cash held overseas in countries with low interest rates. Stock holding interest of £8.7m was up from £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 to improved 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 in line with the rate in 2005. We remain in ongoing discussions with HM Revenue & Customs regarding the corporate tax treatment of the VAT recovery and associated interest. The provision remains unchanged at £8.0m. Joint ventures and associates The share of profit after tax of joint ventures and associates has decreased from £7.8m in 2004 to £6.2m in 2005. The 2004 results included a £1.2m exceptional property profit. Excluding this, the reduction in 2005 is largely due to the sale of the 40.0% stakes in MCL Group Limited and Automotive Group Limited in July 2004 and a reduced contribution year on year from Inchroy, our Financial Services joint venture in Hong Kong. This has been partly offset by improved trading in the Group's joint venture in Greece and associate in Belgium. Minority interests Profit attributable to minority interests has increased from £3.2m to £3.8m year on year. This has resulted from continuing growth in the Bulgarian business. Exchange rates If the average exchange rates, which prevailed during 2004 had continued into 2005 the Group's Headline profit before tax would have been £3.4m lower. The strengthening 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 some 12.8% higher than the prior year, excluding the VAT receipt of £15.5m in 2004 and £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 was partly due to c. £7.4m arising on businesses acquired. The net increase reflects the higher levels of trading across the Group and the impact of some timing differences, which included increased stock levels in Belgium in anticipation of the Brussels Motor Show in January 2006. During the year the Group returned £73.0m to shareholders with £42.0m through dividend payments and £31.0m through the share buy back programme. In addition, the Group has invested £78.0m in acquisitions and net capital expenditure during the year. Overall the Group's net cash position has increased by £6.1m from £151.9m at 31 December 2004 to £158.0m at 31 December 2005. Acquisitions and disposals The Group added six Mercedes-Benz retail centres to its portfolio, with the acquisition of the Robert Smith Group Limited and its subsidiaries in the first half 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 excess of the depreciation charge. This incremental investment primarily took place in our BMW and Mercedes-Benz retail centres in the UK, as part of the redevelopment and upgrading of the facilities. Treasury management and policy The centralised treasury department manages the key financial risks of the Group encompassing funding and liquidity risk, interest rate risk, counterparty risk, market price risk and currency risk. The treasury department operates as a service centre under Board approved objectives and policies. Speculative transactions are expressly forbidden. The treasury function is subject to regular internal audit. Funding and liquidity risk Group policy is to ensure that the funding requirements forecast by the Group can be met within available committed facilities. In July 2005, the Group took advantage of the favourable market conditions and amended and restated its syndicated committed borrowing facility, originally put in place in 2002. The maturity 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 focus given to the banking group by reducing the number of banks from thirteen to nine. The facility was not drawn at the year end. Loan notes totalling £2.2m outstanding at 31 December 2004 were redeemed during the year. At 31 December 2005 there were no further loan notes outstanding. In addition to the committed facilities, the Group has access to uncommitted borrowing lines made available by relationship banks. These facilities are used for liquidity management purposes. At the year end these facilities had not been utilised. Cross border Group loans are made to optimise the use of those funds still domiciled locally. The principal overseas cash deposits at the year end were in euros and Singapore dollars. Cash is held locally ahead of payments to trade creditors. In Singapore, cash deposits also support the mandatory requirement for Certificates of Entitlement for new car sales. Interest rate risk The Group's interest rate policy has the objective of minimising net interest expense, and protecting the Group from material adverse movements in interest rates. Throughout 2005 the Group has borrowed at floating rates only. This approach reflects the continuing benign interest rate environment and the low level of gross debt. Should interest rate hedging activities be deemed appropriate in the future, the Board has approved the use of interest rate swaps, forward rate agreements and options. Counterparty risk The amount due from counterparties, arising from cash deposits, and the use of financial instruments creates credit risk. Limits are in place, which reduce credit risk by stipulating the aggregate amount and duration of exposure to any one counterparty, dependent upon the applicable credit rating. Credit ratings and the appropriate limits are reviewed regularly. Market price risk The Group is exposed to price risk on its available for sale assets. The Group is not exposed to commodity price risk. Currency risk The Group faces currency risk on its net assets and earnings. A significant proportion of this is in currencies other than sterling. On translation into sterling, currency movements can affect the Group balance sheet and income statement. Group policy is to minimise balance sheet translation exposures, where fiscally efficient. This is achieved by financing working capital requirements in local currency and maximising the remittances of overseas earnings into sterling. The Group has transactional currency exposures where sales or purchases by an operating unit are in currencies other than in that unit's reporting currency. In particular there is an Australian dollar/Japanese yen exposure arising from the importation of vehicles from Japan to Australia. For a significant proportion of the Group these exposures are removed, as trading is denominated in the relevant local currency. In particular, local billing arrangements are in place for many businesses with our brand partners. For those businesses that continue to be billed in foreign currency, 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 forward foreign exchange contracts, currency options and foreign exchange currency swaps. Foreign exchange currency swaps are also used to hedge transaction exposures arising on cross border Group loans. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 Before exceptional Exceptional items items Total 2005 2005 2005 £m £m £m Revenue 4,488.1 - 4,488.1 Cost of sales (3,847.4) - (3,847.4) Gross profit 640.7 - 640.7 Net operating expenses (451.3) (13.0) (464.3) Operating profit 189.4 (13.0) 176.4 Share of profit after tax of joint ventures and associates 6.2 - 6.2 Profit before finance and tax 195.6 (13.0) 182.6 Finance income 44.7 - 44.7 Finance costs (50.0) - (50.0) Profit before tax 190.3 (13.0) 177.3 Tax (46.9) - (46.9) ----- ----- ----- Profit for the year 143.4 (13.0) 130.4 ===== ===== ===== Attributable to: - Equity holders of the parent 126.6 - Minority interests 3.8 130.4 Basic earnings per share (pence) 161.9p Diluted earnings per share (pence) 160.6p Before Exceptional Exceptional items items Total 2004 2004 2004 £m £m £m Revenue 4,119.5 - 4,119.5 Cost of sales (3,532.9) - (3,532.9) Gross profit 586.6 - 586.6 Net operating expenses (414.5) (10.6) (425.1) Operating profit 172.1 (10.6) 161.5 Share of profit after tax of joint ventures and associates 6.6 1.2 7.8 Profit before finance and tax 178.7 (9.4) 169.3 Finance income 27.0 4.2 31.2 Finance costs (37.3) - (37.3) Profit before tax 168.4 (5.2) 163.2 Tax (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 3.2 119.6 Basic earnings per share (pence) 148.5p Diluted earnings per share (pence) 146.6p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR 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 130.4 119.6 Total 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 SHEET AS AT 31 DECEMBER 2005 2005 2004 £m £m Non-current assets Intangible assets 69.5 78.0 Property, plant and equipment 346.7 295.9 Investments in joint ventures and associates 44.7 42.2 Other investments - 11.9 Available for sale financial assets 15.0 - Trade and other receivables 22.4 19.6 Deferred tax assets 23.4 20.8 521.7 468.4 Current assets Inventories 615.8 577.1 Trade and other receivables 221.1 198.3 Other investments - 2.7 Available for sale financial assets 2.4 - Derivative financial instruments 2.1 - Current tax assets 1.0 0.5 Cash and cash equivalents 309.0 171.2 1,151.4 949.8 Total assets 1,673.1 1,418.2 Current liabilities Trade 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 liabilities Trade 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' equity Share capital 120.1 119.5 Share premium 112.5 110.7 Capital redemption reserve 16.4 16.4 Other reserves 13.1 (15.2) Retained earnings 319.6 275.0 Equity attributable to equity holders of the parent 581.7 506.4 Minority interests 9.5 8.3 ----- ----- Total shareholders' equity 591.2 514.7 ===== ===== CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 £m £m Cash flows from operating activities Cash generated from operations 195.4 187.2 Tax paid (51.4) (36.9) Interest received 13.9 25.4 Interest paid (16.8) (15.8) Net cash generated from operating activities 141.1 159.9 Cash flows from investing activities Acquisition of businesses net of cash and overdrafts acquired (29.9) (25.1) Net cash (outflow) inflow from sale of businesses (5.5) 23.7 Purchase of property, plant and equipment (63.5) (40.3) Purchase of intangible assets (2.2) (3.3) Proceeds from disposal of property, plant and equipment and intangible assets 17.6 5.5 Net disposal of other investments - 0.7 Net purchase of available for sale financial assets (0.5) - Dividends received from joint ventures and associates 9.7 4.9 Net cash used in investing activities (74.3) (33.9) Cash flows from financing activities Proceeds from issue of ordinary shares 2.4 2.8 Share buy back programme (31.0) - Net disposal of own shares by ESOP Trust 0.1 0.1 Net 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) 76.9 Cash and cash equivalents at beginning of the year 158.8 95.0 Effect 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 International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations and those parts of the Companies Act, 1985 applicable to companies reporting under IFRS. Prior to 2005, the Group prepared its financial statements under UK Generally Accepted Accounting Principles (UK GAAP). From 1 January 2005, the Group is required to prepare its annual consolidated financial statements in accordance with IFRS as endorsed by the European Union (EU) and implemented in the UK. As the 2005 financial statements include comparatives for 2004, the Group's date of transition to IFRS is 1 January 2004 and the 2004 comparatives have been restated to IFRS. On 12 May 2005 the Group published an explanatory report entitled 'Preliminary unaudited financial information on the transition to International Financial Reporting Standards' available on the Group's website, www.inchcape.com. This document sets out the key differences between UK GAAP and IFRS for the Group, including the Group's application of the first-time adoption exemptions under IFRS, reconciliations of its income statement for the year ended 31 December 2004 and balance sheet as at 1 January 2004 and 31 December 2004, together with its principal accounting policies under IFRS. The financial information presented does not constitute the statutory financial statements for the years ended 31 December 2005 or 2004 as defined in Section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2005 and the comparative information have been extracted from the audited financial statements for the year ended 31 December 2005 prepared under IFRS, 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 in line with the current management structure which reflects the different risks associated with different territories. The Group is organised into six main geographical segments: Australia, Belgium, Greece, Hong Kong, Singapore and the United Kingdom. The Group's geographical segments are based on the location of the Group's assets. Revenue earned from sales is disclosed by origin and is not materially different from revenue by destination. Transfer prices between geographical segments are set on an arm's length basis. Australia Belgium Greece Hong Kong Singapore 2005 £m £m £m £m £m Revenue Total revenue 612.7 450.8 383.1 242.3 719.6 Inter-segment revenue - - (82.7) - - Revenue from third parties 612.7 450.8 300.4 242.3 719.6 Results Operating profit before exceptional items 31.9 14.0 13.8 28.8 62.1 Exceptional items - - - - - Segment result 31.9 14.0 13.8 28.8 62.1 Share of profit after tax of joint ventures and associates - 0.7 1.1 3.0 - Profit before finance and tax 31.9 14.7 14.9 31.8 62.1 Finance income Finance costs Profit before tax Tax Profit for the year United Kingdom Other Central Total 2005 £m £m £m £m Revenue Total revenue 1,530.3 632.0 - 4,570.8 Inter-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) 189.4 Exceptional items (19.5) - 6.5 (13.0) Segment result 9.7 28.4 (12.3) 176.4 Share of profit after tax of joint ventures and associates 1.2 0.2 - 6.2 Profit before finance and tax 10.9 28.6 (12.3) 182.6 Finance income 44.7 Finance costs (50.0) Profit before tax 177.3 Tax (46.9) Profit for the year 130.4 Australia Belgium Greece Hong Kong Singapore 2005 £m £m £m £m £m Segment assets and liabilities Segment assets 130.1 105.4 111.6 58.8 113.1 Investment in joint ventures and 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 Total 2005 £m £m £m £m Segment assets and liabilities Segment assets 583.1 179.9 - 1,282.0 Investment in joint ventures and associates 4.6 0.3 - 44.7 Cash and cash equivalents - - 309.0 309.0 Other unallocated assets* - - 37.4 37.4 Total 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 Singapore 2004 £m £m £m £m £m Revenue Total revenue 567.3 462.7 404.2 237.2 652.5 Inter-segment revenue - - (56.2) - - Revenue from third parties 567.3 462.7 348.0 237.2 652.5 Results Operating profit before exceptional items 28.1 12.6 17.7 25.6 53.5 Exceptional items 0.6 (2.1) 0.1 - - Segment result 28.7 10.5 17.8 25.6 53.5 Share of profit after tax of joint ventures and associates - 0.3 0.5 3.7 - Profit before finance and tax 28.7 10.8 18.3 29.3 53.5 Finance income Finance costs Profit before tax Tax Profit for the year United Kingdom Other Central Total 2004 £m £m £m £m Revenue Total revenue 1,331.3 520.5 - 4,175.7 Inter-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) 172.1 Exceptional 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 joint ventures and associates 3.3 - - 7.8 Profit before finance and tax 9.8 27.0 (8.1) 169.3 Finance income 31.2 Finance costs (37.3) Profit before tax 163.2 Tax (43.6) Profit for the year 119.6 Australia Belgium Greece Hong Kong Singapore 2004 £m £m £m £m £m Segment assets and liabilities Segment assets 121.2 103.5 112.5 49.0 106.0 Investment in joint ventures and 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 Total 2004 £m £m £m £m Segment assets and liabilities Segment assets 523.2 151.3 - 1,166.7 Investment in joint ventures and associates 4.1 - - 42.2 Cash and cash equivalents - - 171.2 171.2 Other unallocated assets* - - 38.1 38.1 Total 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, VAT recovery, tax, dividends, external borrowings and assets not directly related to 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 - 1.8 Total operating exceptional items (13.0) (10.6) Share of exceptional property profit of associate - 1.2 Exceptional finance income - VAT recovery - 4.2 Tax on exceptional items - (0.5) Total exceptional items (13.0) (5.7) The goodwill impairment charge in the year relating to Inchcape Automotive Limited, reflects the continuing difficult trading conditions experienced by that business. The release of provisions in the year arises from the settlement and expiry of a number of legal claims relating to non-motors business exits. 4 FINANCE INCOME 2005 2004 £m £m Bank interest receivable 6.5 4.1 Expected return on post-retirement plan assets 33.8 21.7 Other interest receivable 4.4 1.2 Finance income before exceptional finance income 44.7 27.0 Exceptional finance income - VAT recovery - 4.2 Total finance income 44.7 31.2 5 FINANCE COSTS 2005 2004 £m £m Bank interest payable 2.8 0.3 Stock holding interest 8.7 7.2 Interest expense on post-retirement plan liabilities 33.4 21.2 Other interest payable 5.1 8.6 Total finance costs 50.0 37.3 6 TAX 2005 2004 £m £m Analysis of tax charge for the year Current tax: - UK corporation tax 9.8 12.4 - double tax relief (8.7) (7.7) 1.1 4.7 Overseas tax 47.2 44.6 48.3 49.3 Adjustments to prior year liabilities: - UK 0.2 (0.1) - overseas (1.0) (0.6) Current tax 47.5 48.6 Deferred 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 130.4 119.6 Minority interests (3.8) (3.2) Basic earnings 126.6 116.4 Exceptional items: - Group 13.0 10.6 - Joint ventures and associates - (1.2) Exceptional finance income - (4.2) Tax on exceptional items - 0.5 Headline earnings 139.6 122.1 Basic earnings per share 161.9p 148.5p Diluted earnings per share 160.6p 146.6p Basic Headline earnings per share 178.5p 155.7p Diluted Headline earnings per share 177.1p 153.7p 2005 2004 number number Weighted average number of fully paid ordinary shares in issue during the period 79,843,416 79,241,664 Weighted average number of fully paid ordinary shares in issue during the period: - Held by the ESOP Trust (519,301) (840,828) - Repurchased as part of the share buy back programme (1,114,068) - Weighted average number of fully paid ordinary shares for the purposes of basic EPS 78,210,047 78,400,836 Dilutive effect of potential ordinary shares 604,148 1,019,268 Adjusted weighted average number of fully paid ordinary shares in issue during the period for the purposes of diluted EPS 78,814,195 79,420,104 Basic earnings per share is calculated by dividing the basic earnings for the year by the weighted average number of fully paid ordinary shares in issue during the year, 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 awards. Headline earnings (which excludes exceptional items and any material impact on profits of not achieving hedge effectiveness under IAS 39) 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 year 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 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 19.0p per share (2004 - 15.0p per share) 14.8 11.8 Final dividend for the year ended 31 December 2004 of 35.0p per share (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 per share 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 - 198.9 Total recognised income for the year - - - (15.2) 106.5 Share-based payments charge - - - - 1.7 Net disposal of own shares by ESOP Trust - - - - 0.1 Dividends: - Equity holders of the parent - - - - (32.2) - Minority interests - - - - - Issue of ordinary share capital 1.1 1.6 - - - At 31 December 2004 119.5 110.7 16.4 (15.2) 275.0 Adoption of IAS 32 and IAS 39 - - - (5.0) 0.5 At 1 January 2005 119.5 110.7 16.4 (20.2) 275.5 Total recognised income for the year - - - 33.3 110.9 Share-based payments charge - - - - 2.9 Net disposal of own shares by ESOP Trust - - - - 0.1 Share buy back programme - - - - (31.0) Dividends: - Equity holders of the parent - - - - (42.0) - Minority interests - - - - - Issue of ordinary share capital 0.6 1.8 - - - Tax on transactions with equity holders - - - - 3.2 Balance 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 6.8 449.6 Total recognised income for the year 91.3 3.0 94.3 Share-based payments charge 1.7 - 1.7 Net disposal of own shares by ESOP Trust 0.1 - 0.1 Dividends: - Equity holders of the parent (32.2) - (32.2) - Minority interests - (1.5) (1.5) Issue of ordinary share capital 2.7 - 2.7 At 31 December 2004 506.4 8.3 514.7 Adoption of IAS 32 and IAS 39 (4.5) - (4.5) At 1 January 2005 501.9 8.3 510.2 Total recognised income for the year 144.2 4.2 148.4 Share-based payments charge 2.9 - 2.9 Net disposal of own shares by ESOP Trust 0.1 - 0.1 Share 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 - 2.4 Tax on transactions with equity holders 3.2 - 3.2 Balance 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 activities Operating profit 176.4 161.5 Exceptional items 13.0 10.6 Amortisation (including non-exceptional impairment of intangible assets) 3.2 4.6 Depreciation 22.8 21.2 (Profit) loss on disposal of property, plant and equipment (2.1) 0.7 Share-based payments charge 2.9 1.7 Increase in inventories (15.7) (38.0) (Increase) decrease in trade receivables (17.6) 11.0 Increase (Decrease) in trade payables 5.3 (3.5) Decrease in vehicles subject to residual value commitments 4.5 4.7 Payment in respect of termination of operations (1.3) (1.5) Other items* 4.0 14.2 Cash generated from operations 195.4 187.2 * Net cash inflows for the year include £5.4m in respect of the exceptional VAT recovery (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 the face 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) 76.9 Net cash outflow from borrowings and finance leases 2.5 18.4 Change in net cash and debt resulting from cash flows (6.7) 95.3 Effect 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 74.8 Opening net funds 151.9 77.1 Adoption 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 2.45 Euro 1.46 1.47 1.46 1.41 Hong Kong dollar 14.16 14.22 13.31 14.92 Singapore 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 Pty Ltd to extend the Group's Retail presence in Australia. The total consideration for the business was c. £8.8m. On 6 March 2006 the Group announced its entry into Russia through a joint venture with the Independence Group of Companies for the retail and service of Toyota vehicles. This information is provided by RNS The company news service from the London Stock Exchange

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