Preliminary Results 2004
Inchcape PLC
28 February 2005
28 February 2005
Inchcape plc preliminary results
Strong operating performance underpins another set of excellent results
Inchcape plc, the international automotive services group, announces its results
for the full year to 31 December 2004.
Financial highlights:
• Operating profit, before goodwill amortisation and exceptional items,
up by 25.1% at £176.2m
• Headline profit before tax* up 26.7% at £172.0m
• Operating profit up 8.3% at £163.1m
• Profit before tax down £13.0m at £155.3m mainly due to the £37.5m
exceptional VAT recovery in 2003
• Proposed final dividend up 34.6% at 35.0p per share, resulting in a
total dividend of 50.0p per share up 31.6%
• dividend has more than doubled since 2000
• Strong operating cash flow at £177.2m
• Share buy back of £65.0m announced
* Before goodwill amortisation and exceptional items
Operational highlights:
• Encouraging progress made with UK Retail margins, operating profit up
32.0% at £16.9m
• Toyota market leadership maintained in Greece, Hong Kong and Singapore
• Subaru Australia achieves year on year volume growth for ninth
successive year
• Eastern Europe offers further exciting growth prospects
• exclusive Importer and Retailer for Mazda in Estonia
• two BMW dealerships opened in Poland
• further developments to come
Peter Johnson, Group Chief Executive of Inchcape plc, commented:
'The Group has again performed at a very high level in 2004, with continued
profit growth and further strong cash generation.
'Our strategic growth plans remain broadly based and encompass UK Retail as well
as further developments in Eastern Europe. We also have expansion programmes in
place for Greece and Australia, and we will continue our research into emerging
markets such as China.
'As a result of the consistent strong operational performance in recent years,
and the receipt of significant one off cash contributions, the strength of our
balance sheet is such that we have capital surplus to that required to fund our
strategic growth plans. We therefore intend to return £65m to our shareholders
through an on market share buy back programme.
'Even after this we will still have substantial financial capacity, which will
enable us to deliver our strategy in 2005 and beyond.'
Financial summary:
£m 2004 2003
Turnover 4,170.3 3,855.2
Operating profit, before goodwill amortisation and
exceptional items 176.2 140.8
Goodwill amortisation (5.5) (5.5)
Goodwill impairment (9.4) -
VAT exceptional income 1.8 15.3
-------------- --------------
Operating profit 163.1 150.6
Interest** - 17.2
Other exceptional items (7.8) 0.5
-------------- --------------
Profit before tax 155.3 168.3
-------------- --------------
Headline profit before tax* 172.0 135.8
Headline earnings per share* 161.4p 132.4p
Basic earnings per share 139.4p 164.8p
* Before goodwill amortisation and exceptional items
** Includes income of £4.2m in 2004 and £22.2m in 2003 relating to the VAT
exceptional
Planned Board changes:
The Board has announced today that Sir John Egan, Non-executive Chairman,
intends to step down from that role by the AGM in May 2006 and it is planned
that, at that time, Peter Johnson will succeed Sir John as Non-executive
Chairman. A full explanation of these planned Board changes is contained in a
separate statement issued today.
Notes to editors
A copy of the preliminary results, for the full year to 31 December 2004,
follows this release.
High resolution photographs are available for the media to view and download
free of charge at www.vismedia.co.uk
For further information, please contact:
Group Communications, Inchcape plc 020 7546 0022
Hogarth Partnership Limited (John Olsen/Barnaby Fry) 020 7357 9477
Inchcape, an international automotive services group, provides quality
representation for its manufacturer partners, a choice of channels to market and
products for its retail customers and a range of business services for its
corporate customers. Operations are focused on the UK, Greece, Belgium,
Australia, Hong Kong and Singapore. Inchcape's activities include exclusive
Import, Distribution and Retail, Business Services, automotive E-commerce and
Financial Services. 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 2004
Results overview
A strong operating performance from all of our key markets underpins yet another
set of excellent results. Operating profit before goodwill amortisation and
exceptional items (see note 1b) rose 25.1% in the year, and has risen by an
average 23.4% per annum since 2000, our first full year as a purely
international automotive services group.
Operating cash flow in the year was £177.2m representing some 105.2% of
subsidiaries' operating profit before goodwill amortisation and exceptional
items. Cash generation is a key performance indicator for the Group and
operating cash flow has averaged over £150.0m per year in the period 2000 to
2004.
Operationally we have again performed very well retaining market leadership in
Hong Kong, Singapore and Greece with Toyota. In Australia, Subaru achieved year
on year growth in volumes for the ninth consecutive year. In the UK our Retail
business has significantly increased its operating margin in what was a more
difficult market than 2003.
Acquisitions and disposals
In the UK, dealer consolidation is continuing and there are many quality
businesses that would fit well within our portfolio. We continue to balance
strategic fit, price, value and timing in our discussions with vendors. In 2004
we acquired five Mercedes-Benz dealerships in the East Midlands, which adjoin
our existing Mercedes-Benz market area. This combination has created the largest
independent Mercedes-Benz territory in the country. We have also increased our
Toyota and Volkswagen representation in the year.
Outside the UK we are expanding our footprint in the fast growing markets of
Eastern Europe. In Estonia we acquired two Mazda dealerships and as a result we
are now the exclusive Importer and Retailer for Mazda in this 'city state'
market. Over 1,260 Mazda vehicles were sold in Estonia in 2004 and the brand
achieved a market share of 7.7%. We are also investing in new start up
businesses and during the year entered the Polish market, where we set up
BMW/MINI dealerships in Warsaw and Wroclaw.
Total spend on acquisitions was £25.1m of which £20.5m related to UK Retail.
Cash inflow in relation to disposals totalled £23.7m of which £19.3m related to
the sale of two 40.0% associates: MCL Group Limited (MCL) and Automotive Group
Limited (AGL). These associates were not core businesses.
Financial performance
Turnover of £4.2bn was up by 8.2% over 2003. Operating profit before goodwill
amortisation and exceptional items was £176.2m, which is 25.1% higher than 2003.
After adjusting for the VAT recovery, which was £13.5m higher in 2003 than 2004,
and goodwill, including the £9.4m impairment charge relating to Inchcape
Automotive, total operating profit was £163.1m. This is 8.3% ahead of 2003.
Headline profit before tax was up 26.7% on 2003 at £172.0m despite an adverse
currency effect of c. £9.0m. The increase on 2003 would have been 33.3% at
constant exchange rates. Headline earnings per share rose by 21.9% to 161.4p.
Profit before tax of £155.3m was impacted by: the VAT exceptional income of
£6.0m, the £9.4m goodwill impairment charge and other net exceptional losses of
£7.8m. These exceptional losses mainly related to the sale of our MCL and AGL
shareholdings and the exit from the Ferrari/Maserati Distribution businesses in
the UK and Belgium. These were partially offset by the release of litigation
provisions relating to non-motors disposals.
Net cash movement in the year was £74.7m including £37.0m in relation to the VAT
recovery. As a result the year end net cash position improved to £153.8m.
Balance sheet strength
Our businesses have consistently generated high levels of free cash flows
enabling us to continue the investment in our core markets. This has helped
drive the strong earnings growth, which has been delivered in recent years. It
has also enabled increasing returns to be given to shareholders. Dividends have
more than doubled over the last five years and with a £45.0m share buy back
being completed in 2001, over £160.0m has been returned to shareholders since
mid 1999.
A large amount of cash is generated in our international markets. This has
resulted in a mismatch between cash held in those markets and debt in the UK,
due to the difficulty of repatriating the cash in a fiscally efficient manner.
This had an adverse effect on the Group's interest charge due to interest rate
differentials. During late 2004 we permanently repatriated cash of c. £135.0m to
the UK and created the ability to repatriate further amounts over the coming
years. The associated tax cost is not material but the impact on the interest
charge is positive and significant.
The cash position has also been strengthened this year by the sale of two UK
associates and the VAT recovery of some £37.0m. In 2005 our cash flow has also
benefited from the £6.0m VAT claim recognised in 2004.
As a result of all of this, we are extremely well placed to fund our strategic
growth plans. These remain broadly based and encompass further expansion in UK
Retail as we aim to represent between 5.0% to 10.0% of our chosen partners'
national sales volumes.
Eastern Europe is also a major area of focus as we look to take advantage of
fast growth rates in these developing markets. Discussions continue with several
manufacturers regarding further investments in a number of countries in the
region. Our experience in the Balkans illustrates the benefits of establishing
an early footprint in those markets where we can invest in retail in the key
capital cities.
We also have plans for further expansion of our Retail activities in Greece and
Australia and remain committed to keeping a watching brief on markets such as
China.
Given the strength of our cash position, which has benefited from the VAT
recoveries and the disposal of UK associates, we have identified that we have
funds available, which are not required for investment purposes. We therefore
intend to return the approximate value of these one offs, £65.0m, to our
shareholders through a share buy back programme, which may include buying shares
into treasury. The Board has the powers to purchase up to 10.0% of the Company's
capital and we intend to renew that authority at the forthcoming Annual General
Meeting (AGM).
This return of surplus capital will still leave us with substantial financial
capacity, which will enable us to deliver our stated strategy. Any additional
return of capital would only arise if further funds became available, which are
not required for investment purposes.
Dividend
The Board recommends the payment of a final ordinary dividend for the year of
35.0p (2003 - 26.0p). This gives a total dividend for the year of 50.0p, which
is some 31.6% above the 2003 dividend of 38.0p. This substantial increase means
that the dividend has risen by 127.3% since 2000, a clear demonstration of the
Board's progressive dividend policy.
However, our record of significant dividend growth has not resulted in low
levels of dividend cover. This year's cover is 3.2 times Headline earnings per
share (2003 - 3.5 times), a more than comfortable level, which leaves us well
placed to continue our progressive policy.
Subject to approval at the AGM on 12 May 2005, the final dividend will be paid
on 16 June 2005 to shareholders on the register on 20 May 2005.
Board changes
I am delighted to welcome Will Samuel and David Scotland to the Board. Will,
who joined the Board on 26 January 2005, having worked for Schroders for over
twenty years, brings a wealth of city experience with him. David, who is
Excetuive Director and President - World Wines of Allied Domecq PLC, has broad
international experience, which includes managing operations in Eastern Europe.
David joined the Board on 24 February 2005.
Trevor Taylor retired from the Board at the end of 2004. Trevor has made an
enormous contribution to Inchcape since he joined the Group in 1987 as Deputy
Managing Director of Toyota (GB). Simon Robertson will be retiring from the
Board at our AGM in May 2005. Simon has added immense value to the Group since
joining the Board in May 1996. During his time on the Board the Group has
undergone significant change and Simon's wise counsel during that process has
been invaluable.
Both Trevor and Simon will be missed. However I am very pleased that they have
been replaced by people of the quality of Will and David.
We also announced today that I intend to step down from the Inchcape Board by
the AGM in May 2006 and it is planned that Peter Johnson will succeed me as
Non-executive Chairman.
The Board believes that this is the right decision for all our stakeholders and,
indeed as part of our planning process, we consulted with a number of our
largest institutional shareholders and manufacturer partners, and they were all
supportive. The search for Peter's successor has now commenced and we will
announce the appointment at the appropriate time.
Operational review
Operating profit before goodwill amortisation and exceptional items has been
defined as trading profit throughout the Operational review including the
summary below.
£m 2004 2003
Operating Goodwill Trading Operating Goodwill Trading
profit amortisation profit profit amortisation profit
United Kingdom 23.1 4.0 27.1 17.1 3.8 20.9
Greece/Belgium 34.2 0.1 34.3 32.3 0.4 32.7
Australia/
New Zealand 27.1 0.5 27.6 21.2 0.5 21.7
Hong Kong 29.8 - 29.8 22.6 - 22.6
Singapore/Brunei 55.4 0.7 56.1 46.9 0.8 47.7
Other 18.7 0.2 18.9 12.8 - 12.8
Central costs (17.6) - (17.6) (17.6) - (17.6)
________________________________________________________________
Total Group 170.7 5.5 176.2 135.3 5.5 140.8
___________ ___________
Operating
exceptional items (7.6) - 15.3 -
___________ _________________ _______
Operating profit 163.1 176.2 150.6 140.8
___________ _________________ _______
United Kingdom
The new car market ended the year slightly below the record achieved in 2003.
Manufacturer registrations for the franchises represented by our UK Retail
operations fell by 2.4% in the year. However our UK Retail dealerships achieved
a 7.4% increase in new unit sales on a like for like basis. This was due to
strong performances in particular from BMW/MINI, Jaguar and Vauxhall.
UK Retail trading profits and related Financial Services profits (included
within Financial Services), before stock holding interest, rose by 31.2% to
£22.7m. The resultant trading profit margin of 2.1% is significantly higher than
the 1.8% achieved in 2003, and moves us closer to our initial target of 2.5%.
This reflects our success at integrating new dealerships and achieving organic
growth from existing dealerships through improved business processes. On a like
for like basis dealership trading profits increased by 14.6%, mainly due to
strong performances from BMW/MINI, Volkswagen and Toyota/Lexus. The growth was
achieved through improved performances across all areas of the business. New car
sales were up and there was also a 4.7% increase in used units, a 4.0% rise in
service hours sold, increased finance and insurance income per unit, and
improved finance penetration.
The integration of the BMW/MINI dealerships acquired in 2003 is going well and
the benefits of the new larger contiguous territory and improved processes are
being seen. Brooklands, the new pre-delivery inspection centre serving our
dealerships to the south of London, opened in the year and will start to have a
positive impact in 2005. The Mercedes-Benz dealerships acquired in June 2004 are
performing well, in what has proven to be a difficult year for this marque, and
have contributed positively in their first six months.
Inchcape Automotive has experienced a further difficult year. The car rental
companies, which provide a substantial portion of our volumes, have experienced
significant operational volatility causing inefficiencies within our business.
This, allied to £2.1m of one off costs, has produced a disappointing result for
the year. New management, business processes, a broadened customer base and
revised contracts with our major customers augur well for the future
profitability of this business.
At Inchcape Fleet Solutions the number of fleet management vehicles under
contract has grown by over 37.0% during the year. This, coupled with improved
disposal margins from contract hire vehicles, has resulted in a significant
growth in profitability during the year.
On 1 October 2004, the Ferrari/Maserati UK import and distribution business was
transferred to Ferrari Maserati UK Ltd, a Ferrari Maserati Group company. We are
continuing to manage the spare parts and classic parts businesses, and retail
Ferrari/Maserati from our three dealerships in the south east of England.
Increased distribution volumes and reduced expenses resulted in an increase in
trading profits prior to disposal. New and used vehicle sales in our Retail
business increased in 2004 by 44.5%, mainly due to the acquisition of the
St Albans and Sevenoaks dealerships during 2003.
Greece/Belgium
In Greece we achieved a 20.6% increase in trading profit after adjusting for the
£2.5m profit realised on the sale of our Greek Financial Services loan book in
2003. Overall the market grew 13.6% on the prior year stimulated in part by the
Olympics. The supply constraints experienced by our Toyota Distribution business
in the first half of the year were also felt in the second half although they
had eased by year end. As a result market share fell slightly to 9.6%. However
volumes rose 7.1% and we retained overall market leadership. Increased volumes,
a richer sales mix, coupled with a lower marketing cost per unit drove an
increase in trading margins and profits.
We continue to invest in our Athens and Salonica Retail operations and opened
two new Toyota dealerships in Athens during the year.
Our operations in the Balkans continue to progress in the high growth markets in
which they operate. Volumes grew by over 48.5% and trading profits rose by over
£2.0m. In Romania the market increased by 39.1%, whilst we achieved growth of
64.9% in unit sales, with Toyota's market share increasing to 3.5%. In Bulgaria,
where Toyota leads the passenger car market, we achieved a market share of 8.6%
in a market up 44.7%. We continue to invest in these markets, particularly
Romania where we plan to open two additional dealerships in Bucharest within the
next couple of years.
In Belgium trading profits fell slightly in a market which grew by 6.4% on the
prior year, primarily as a result of the biennial Brussels Motor Show. Toyota
supply constraints, which were more severe for diesel products, affected our
market share, which fell to 4.9% from 5.1% last year. Lexus, whilst still an
emerging brand in market share terms, increased unit sales by over 44.0% and the
future product developments are very encouraging.
Australia/New Zealand
Our Subaru business in Australia benefited from the successful launch of the new
Liberty and Outback models in October 2003 and the business established a new
annual sales record of over 33,600 units in 2004. Subaru achieved year on year
growth in volumes for the ninth consecutive year with an increase of 12.7% on
2003. Sales records were achieved for the Forester, Impreza and Outback models
helping the marque to achieve a record full year market share of over 3.5%. This
growth in units coupled with improved margins drove a significant year on year
increase in trading profits.
Our Melbourne Retail business continued to perform well and retailed over 6,000
new and used vehicles, a growth of 23.0% on the prior year. We also opened a new
satellite facility in 2004, which increased our sales and service capacity. The
growth in volumes, associated finance income and increased aftersales
activities, resulted in a 28.6% increase in trading profit, and a trading margin
of almost 4.0%.
Our Sydney Retail business experienced a year of change in 2004. As a result of
the continuing weak national sales volumes for Jaguar, Volvo and Volkswagen we
re-engineered our network strategy and exited two underperforming dealerships.
We also extended our Retail presence with Subaru, investing in two new
dealerships. Whilst Sydney Retail was loss making in 2004, the restructuring
significantly improved performance and in the last quarter it broke even.
Towards the end of the year our Business Services operation, AutoNexus, won a
three year parts warehousing and logistics contract for Volkswagen and Audi.
Hong Kong
Our businesses in Hong Kong reported a 31.9% growth in trading profit, despite a
currency translation loss of £3.4m arising from the weakening Hong Kong dollar.
Excluding this, underlying trading profits increased by 46.9%. Trading profit
margins grew to 12.1%.
Consumer confidence is now returning after the recent weak economic conditions
and the impact of SARS in 2003. The automotive market is starting to recover,
with the luxury segment improving at a faster rate than the total market. The
market, excluding taxis, grew by 23.3% over last year but remains 3.9% down on
2002.
Crown Motors, our Toyota/Lexus business, increased its total market share to
35.5% and once again retained market leadership in a highly competitive market.
The success of the newly launched Alphard model and a strong performance from
Lexus led to a richer mix of sales. This, together with the higher volumes,
increased aftersales activity and lower than expected warranty costs, drove an
improvement in trading margins and profits.
The launch of the new Mazda3 in January 2004 helped our Mazda business to
achieve an encouraging increase in units sold and a 3.6% market share.
Inchroy, our Financial Services joint venture, achieved a 6.5% increase in
trading profit at constant exchange rates, driven by the recovery in the economy
which more than compensated for the effects of a lower interest rate spread.
Singapore/Brunei
Trading profits from our Singapore and Brunei businesses increased by 17.6%.
However, after adjusting for the currency translation loss of £4.5m arising from
the weakening Singapore dollar, underlying trading profits increased by 27.0%.
Once again our Toyota/Lexus business in Singapore drove the increased trading
profits in this region. Unit sales rose by 28.5%, helped by a market which
increased 24.9%. The market continues to benefit from the fiscal incentive
encouraging people to scrap or export their cars before the expiry of the
Certificate of Entitlement, which lasts for ten years.
Market share for Toyota/Lexus increased to 30.9% in 2004. We retained market
leadership for the third consecutive year, and were once again awarded the
Toyota Triple Crown.
Recognising the recent growth in the Toyota vehicle parc we invested in our
aftersales activities, either relocating or renovating our existing facilities
to increase capacity and improve efficiency. Further investments are planned for
2005.
Unit sales, associated finance income and aftersales profits all rose resulting
in an increase in trading profits despite pressure on new vehicle margins. The
trading profit margin increased to 8.2%.
In Brunei, a 10.8% rise in unit sales plus increased income from aftersales
drove a 14.1% increase in trading profits.
Other
The improvement in trading profit was mainly driven by our French and Latin
American operations. Improved management and business processes coupled with the
launch of new diesel product have supported a return to profitability in our
French Retail business, which represents Jaguar, Land Rover, Volkswagen and
Audi.
New vehicle volumes in BMW Chile increased 73.9%, helped by a higher market as a
result of a reduction in the luxury car tax. This led to a significant
improvement in trading margins and profits.
Our operations in Finland continued to perform well, despite a softening in the
market after the strong start to the year. Mazda market share rose to 3.6%.
In Guam we increased trading profits and market share.
Central costs
In 2004 we recovered a net £0.6m relating to the settlement of various
litigation issues. Excluding this recovery the underlying costs of £18.2m are
£1.1m higher than the equivalent underlying figure of £17.1m for 2003. This
increase is due to higher staff, pension and recruitment costs.
Current trading prospects
The UK market is forecast to be slightly lower than 2004 but still a healthy 2.4
million units.
In UK Retail, however, the focus is as much on margin as volumes. Whilst there
was margin pressure in mid to late 2004, due to over supply, UK Retail still
managed to improve margins over 2003. In 2005 we are targeting further
improvements in both margins and volumes. Inchcape Fleet Solutions should
continue to grow its profitability whilst Inchcape Automotive will recover from
its poor year in 2004.
In Greece and Belgium the markets are expected to be similar to last year.
Better product availability and a slightly broader product range should help our
performance in both markets. The Balkans is expected to continue showing strong
growth.
In Australia the car market is expected to be similar in size to 2004, as is
Subaru's market share. Retail operations in Melbourne should see continued
growth and there will be a significant profit recovery in Sydney Retail.
The Hong Kong market is again expected to grow as it recovers from 2003, which
was the worst car market in over twenty years. This should result in improved
profitability.
In Singapore it is expected that the market will be strong again in 2005, albeit
some 10.0% lower than the exceptional 2004. Aftersales revenues and profits will
continue to benefit from the expanding Toyota car parc.
The interest charge will reflect the cash repatriation that took place in 2004
and the fact that more funds should be remitted during 2005. The effect on the
charge will be positive and significant, and will only be partially offset by
the impact of the share buy back programme.
The 2005 results will be reported under International Financial Reporting
Standards. Whilst work is still continuing on some aspects of how the standards
will be interpreted, we currently expect that the effect on earnings will be
broadly neutral provided we achieve hedge effectiveness for our foreign exchange
transactions. If we do not, IAS 39 will introduce some volatility into our
profit and loss account. However the underlying economics of the business and
the cash flows will not change. Net assets, however, will be reduced mainly due
to the inclusion of the net pension deficit on the balance sheet.
The Group has again performed at a very high level in 2004. Our underlying
performance will be strengthened as we invest further by taking advantage of the
significant opportunities available to us. In 2005 we are well placed to
continue with our record of profit growth and strong cash generation.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2004
Before
exceptional Exceptional
items items Total
2004 2004 2004
£m £m £m
Turnover including share of joint
ventures and associates 4,170.3 - 4,170.3
Less:
- share of joint ventures (16.9) - (16.9)
- share of associates (30.7) - (30.7)
Group turnover 4,122.7 - 4,122.7
Cost of sales (3,542.8) - (3,542.8)
Gross profit 579.9 - 579.9
Net operating expenses (417.0) (7.6) (424.6)
Operating profit 162.9 (7.6) 155.3
Share of profits of joint ventures 7.1 - 7.1
Share of profits of associates 0.7 - 0.7
Total operating profit 170.7 (7.6) 163.1
Net profit on sale of properties
and investments - 1.2 1.2
Net loss on sale and termination
of operations - (9.0) (9.0)
Profit on ordinary activities before
interest and taxation 170.7 (15.4) 155.3
Net interest (4.2) 4.2 -
Profit on ordinary
activities before taxation 166.5 (11.2) 155.3
Tax on profit on ordinary activities (42.3) (0.5) (42.8)
Profit on ordinary activities after
taxation 124.2 (11.7) 112.5
Minority interests (3.2) - (3.2)
Profit for the financial year 121.0 (11.7) 109.3
Dividends (39.5) - (39.5)
Retained profit for the financial year 81.5 (11.7) 69.8
Profit before tax (£m) 155.3
Basic earnings per share (pence) 139.4p
Diluted earnings per share (pence) 137.6p
Headline (before goodwill amortisation
£5.5m (2003 - £5.5m) and exceptional
items):
- profit before tax (£m) 172.0
- earnings per share (pence) 161.4p
Before
exceptional Exceptional
items items Total
2003 2003 2003
£m £m £m
Turnover including share of joint
ventures and associates 3,855.2 - 3,855.2
Less:
- share of joint ventures (20.0) - (20.0)
- share of associates (42.0) - (42.0)
Group turnover 3,793.2 - 3,793.2
Cost of sales (3,223.3) - (3,223.3)
Gross profit 569.9 - 569.9
Net operating expenses (445.5) 15.3 (430.2)
Operating profit 124.4 15.3 139.7
Share of profits of joint ventures 10.0 - 10.0
Share of profits of associates 0.9 - 0.9
Total operating profit 135.3 15.3 150.6
Net profit on sale of properties
and investments - 0.9 0.9
Net loss on sale and termination
of operations - (0.4) (0.4)
Profit on ordinary activities before
interest and taxation 135.3 15.8 151.1
Net interest (5.0) 22.2 17.2
Profit on ordinary activities before
taxation 130.3 38.0 168.3
Tax on profit on ordinary activities (31.8) (7.5) (39.3)
Profit on ordinary activities after
taxation 98.5 30.5 129.0
Minority interests (2.0) - (2.0)
Profit for the financial year 96.5 30.5 127.0
Dividends (29.6) - (29.6)
Retained profit for the financial year 66.9 30.5 97.4
Profit before tax (£m) 168.3
Basic earnings per share (pence) 164.8p
Diluted earnings per share (pence) 162.1p
Headline (before goodwill amortisation
£5.5m (2003 - £5.5m) and exceptional
items):
- profit before tax (£m) 135.8
- earnings per share (pence) 132.4p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER 2004
2004 2003
£m £m
Profit for the financial year 109.3 127.0
Effect of foreign exchange rate changes:
- results for the year (0.7) (2.9)
- foreign currency net investments: subsidiaries (12.3) (4.6)
joint ventures and
associates (2.3) (2.9)
Total recognised gains for the financial year 94.0 116.6
NOTE OF HISTORICAL COST PROFITS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER 2004
2004 2003
£m £m
Reported profit on ordinary activities before taxation 155.3 168.3
Difference between the historical cost and the actual
depreciation charge 0.1 0.6
Historical cost profit on ordinary activities before
taxation 155.4 168.9
Historical cost profit after taxation, minority interests
and dividends 69.9 98.0
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2004
2004 2003
restated
£m £m
Fixed assets:
Intangible assets 67.6 60.9
Tangible assets 281.7 272.9
Investments:
- joint ventures: share of gross assets 294.0 257.1
share of gross liabilities (256.2) (216.7)
share of net assets 37.8 40.4
- associates 3.2 26.2
- other investments 1.5 0.8
391.8 401.2
Current assets:
Stocks 643.6 597.8
Debtors:
- amounts due within one year 197.3 235.0
- amounts due after more than one year 18.2 11.3
Investments 13.1 13.8
Cash at bank and in hand 171.2 102.9
1,043.4 960.8
Creditors - amounts falling due within one year:
Borrowings (15.6) (23.2)
Other (739.3) (709.1)
(754.9) (732.3)
Net current assets 288.5 228.5
Total assets less current liabilities 680.3 629.7
Creditors - amounts falling due after more than one
year:
Borrowings (1.8) (0.6)
Other (45.0) (56.5)
(46.8) (57.1)
Provisions for liabilities and charges (82.3) (87.0)
Net assets 551.2 485.6
Capital and reserves:
Called-up share capital 119.5 118.4
Share premium account 110.8 109.1
Revaluation reserve 28.0 29.1
Capital redemption reserve 16.4 16.4
Profit and loss account 268.8 206.0
Equity shareholders' funds 543.5 479.0
Minority interests 7.7 6.6
551.2 485.6
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2004
RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH
FLOWS
2004 2003
restated
£m £m
Operating profit 155.3 139.7
Amortisation 5.5 5.2
Impairment of goodwill 9.4 -
Depreciation 27.3 26.6
(Profit) loss on sale of tangible fixed assets other
than property (0.6) 1.7
Increase in stocks (28.9) (75.2)
Decrease (increase) in trade debtors 10.1 (4.0)
(Decrease) increase in trade creditors (12.7) 78.9
Payments in respect of termination of operations (1.5) (3.1)
Other items* 13.3 (18.1)
Net cash inflow from operating activities 177.2 151.7
CONSOLIDATED CASH FLOW STATEMENT
Net cash inflow from operating activities 177.2 151.7
Dividends from joint ventures 4.6 4.3
Dividends from associates 0.3 1.9
Returns on investments and servicing of finance* 15.5 (1.6)
Taxation (36.9) (28.5)
Capital expenditure and financial investment (34.8) (33.6)
125.9 94.2
Net cash outflow from acquisitions and disposals (1.4) (0.5)
Equity dividends paid (32.2) (25.4)
Net cash inflow before management of liquid resources
and financing 92.3 68.3
Net cash (outflow) inflow from the management of
liquid resources (44.1) 6.7
Net cash outflow from financing (15.4) (64.7)
Increase in net cash 32.8 10.3
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET
FUNDS
Increase in net cash 32.8 10.3
Net cash outflow from decrease in debt and lease
financing 18.3 67.2
Net cash outflow (inflow)from the management of
liquid resources 44.1 (6.7)
Change in net cash resulting from cash flows 95.2 70.8
Effect of foreign exchange rate changes on cash and
debt (13.1) (8.3)
Net loans and finance leases relating to acquisitions (7.4) -
Movement in net funds 74.7 62.5
Opening net funds 79.1 16.6
Closing net funds 153.8 79.1
* Net cash inflows include £37.0m for the VAT receipt (note 3), of which £15.5m
is reported within Other items and £21.5m (2003 - £1.4m) within Returns on
investments and servicing of finance. In addition £(1.8)m (2003 - £(14.3)m) of
non-cash is reported within Other items in respect of the VAT recovery.
NOTES
1 SEGMENTAL ANALYSIS
Group subsidiaries Share of joint ventures
2004 2003 2004 2003
a Turnover £m £m £m £m
(i) By geographical market:
UK 1,331.6 1,244.8 5.2 7.7
Greece/Belgium 879.3 820.5 1.9 2.9
Australia/New Zealand 597.6 529.3 - -
Hong Kong 237.2 224.3 9.8 9.4
Singapore/Brunei 689.0 614.3 - -
Other 388.0 360.0 - -
4,122.7 3,793.2 16.9 20.0
Share of associates Total
2004 2003 2004 2003
a Turnover £m £m £m £m
(i) By geographical market:
UK 28.6 40.0 1,365.4 1,292.5
Greece/Belgium 2.1 2.0 883.3 825.4
Australia/New Zealand - - 597.6 529.3
Hong Kong - - 247.0 233.7
Singapore/Brunei - - 689.0 614.3
Other - - 388.0 360.0
30.7 42.0 4,170.3 3,855.2
Group subsidiaries Share of joint ventures
2004 2003 2004 2003
a Turnover £m £m £m £m
(ii) By activity:
Import, Distribution and
Retail 2,964.3 2,753.5 0.8 1.1
UK Retail 1,104.9 989.5 - -
Financial Services 53.4 50.0 16.1 18.9
E-commerce 0.1 0.2 - -
4,122.7 3,793.2 16.9 20.0
Share of associates Total
2004 2003 2004 2003
a Turnover £m £m £m £m
(ii) By activity:
Import, Distribution and
Retail 26.1 38.0 2,991.2 2,792.6
UK Retail - - 1,104.9 989.5
Financial Services 4.6 4.0 74.1 72.9
E-commerce - - 0.1 0.2
30.7 42.0 4,170.3 3,855.2
Geographical analysis of turnover is by origin and is not significantly
different from turnover by destination. Turnover between segments is not
material.
Group subsidiaries Share of joint ventures
2004 2003 2004 2003
b Total operating profit £m £m £m £m
(i) By geographical market:
UK before exceptional item 21.2 15.5 1.8 1.2
Goodwill impairment (note 3) (9.4) - - -
UK 11.8 15.5 1.8 1.2
Greece/Belgium 32.7 27.6 0.9 4.2
Australia/New Zealand 27.1 21.2 - -
Hong Kong 25.4 18.0 4.4 4.6
Singapore/Brunei 55.4 46.9 - -
Other 18.7 12.8 - -
171.1 142.0 7.1 10.0
Central costs (17.6) (17.6) - -
VAT recovery, Central
(note 3) 1.8 15.3 - -
155.3 139.7 7.1 10.0
Share of associates Total
2004 2003 2004 2003
b Total operating profit £m £m £m £m
(i) By geographical market:
UK before exceptional item 0.1 0.4 23.1 17.1
Goodwill impairment (note 3) - - (9.4) -
UK 0.1 0.4 13.7 17.1
Greece/Belgium 0.6 0.5 34.2 32.3
Australia/New Zealand - - 27.1 21.2
Hong Kong - - 29.8 22.6
Singapore/Brunei - - 55.4 46.9
Other - - 18.7 12.8
0.7 0.9 178.9 152.9
Central costs - - (17.6) (17.6)
VAT recovery, Central
(note 3) - - 1.8 15.3
0.7 0.9 163.1 150.6
Group subsidiaries Share of joint ventures
2004 2003 2004 2003
b Total operating profit £m £m £m £m
(ii) By activity:
Import, Distribution and
Retail before exceptional
item 155.6 125.0 0.1 (0.7)
Goodwill impairment (note 3) (9.4) - - -
Import, Distribution and
Retail 146.2 125.0 0.1 (0.7)
UK Retail 16.9 12.8 - -
Financial Services 7.8 4.9 7.0 10.7
E-commerce 0.2 (0.7) - -
171.1 142.0 7.1 10.0
Central costs (17.6) (17.6) - -
VAT recovery, Central
(note 3) 1.8 15.3 - -
155.3 139.7 7.1 10.0
Share of associates Total
2004 2003 2004 2003
b Total operating profit £m £m £m £m
(ii) By activity:
Import, Distribution
and Retail before exceptional
item (0.8) (0.9) 154.9 123.4
Goodwill impairment (note 3) - - (9.4) -
Import, Distribution and
Retail (0.8) (0.9) 145.5 123.4
UK Retail - - 16.9 12.8
Financial Services 1.5 1.8 16.3 17.4
E-commerce - - 0.2 (0.7)
0.7 0.9 178.9 152.9
Central costs - - (17.6) (17.6)
VAT recovery, Central
(note 3) - - 1.8 15.3
0.7 0.9 163.1 150.6
Group subsidiaries Share of joint ventures
2004 2003 2004 2003
b Total operating profit £m £m £m £m
(iii) Operating profit
before exceptional items
and goodwill amortisation:
Operating profit 155.3 139.7 7.1 10.0
VAT recovery (note 3) (1.8) (15.3) - -
Goodwill impairment(note 3) 9.4 - - -
Goodwill amortisation 5.5 5.2 - 0.3
168.4 129.6 7.1 10.3
Share of associates Total
2004 2003 2004 2003
b Total operating profit £m £m £m £m
(iii) Operating profit
before exceptional
items and goodwill
amortisation:
Operating profit 0.7 0.9 163.1 150.6
VAT recovery (note 3) - - (1.8) (15.3)
Goodwill impairment(note 3) - - 9.4 -
Goodwill amortisation - - 5.5 5.5
0.7 0.9 176.2 140.8
Of the £5.5m (2003 - £5.2m) subsidiaries' goodwill amortisation, £4.0m (2003 -
£3.5m) relates to the UK, £0.1m (2003 - £0.4m) to Greece/Belgium, £0.5m (2003
- £0.5m) to Australia/New Zealand, £0.7m (2003 - £0.8m) to Singapore/Brunei
and £0.2m (2003 - £nil) to Other.
The £nil (2003 - £0.3m) joint ventures' goodwill amortisation is included
within the UK segment.
Goodwill amortisation with the exception of £1.6m (2003 - £1.1m) in UK Retail,
relates entirely to Import, Distribution and Retail.
Note 4 provides a split of the exceptional profit (loss) by geographical
market.
Interest is not split by segment as this would not provide meaningful
information.
Group subsidiaries Share of joint ventures
2004 2003 2004 2003
restated
c Net assets (liabilities) £m £m £m £m
(i) By geographical market:
UK 279.7 241.1 2.2 4.2
Greece/Belgium 4.5 4.8 2.4 2.7
Australia/New Zealand (8.7) (0.7) - -
Hong Kong 27.2 27.6 33.2 33.5
Singapore/Brunei 68.8 58.3 - -
Other 77.1 69.8 - -
448.6 400.9 37.8 40.4
Net cash 153.8 79.1 - -
Other unallocated assets
and liabilities* (92.2) (61.0) - -
510.2 419.0 37.8 40.4
Share of associates Total
2004 2003 2004 2003
restated
c Net assets (liabilities) £m £m £m £m
(i) By geographical market:
UK 0.8 23.9 282.7 269.2
Greece/Belgium 2.4 2.3 9.3 9.8
Australia/New Zealand - - (8.7) (0.7)
Hong Kong - - 60.4 61.1
Singapore/Brunei - - 68.8 58.3
Other - - 77.1 69.8
3.2 26.2 489.6 467.5
Net cash - - 153.8 79.1
Other unallocated assets
and liabilities* - - (92.2) (61.0)
3.2 26.2 551.2 485.6
Group subsidiaries Share of joint ventures
2004 2003 2004 2003
restated
c Net assets (liabilities) £m £m £m £m
(ii) By activity:
Import, Distribution and
Retail 238.3 240.8 0.3 0.3
UK Retail 196.3 149.7 - -
Financial Services 14.1 10.3 37.5 40.1
E-commerce (0.1) 0.1 - -
448.6 400.9 37.8 40.4
Net cash 153.8 79.1 - -
Other unallocated assets
and liabilities* (92.2) (61.0) - -
510.2 419.0 37.8 40.4
Share of associates Total
2004 2003 2004 2003
restated
c Net assets (liabilities) £m £m £m £m
(ii) By activity:
Import, Distribution
and Retail - 18.4 238.6 259.5
UK Retail - - 196.3 149.7
Financial Services 3.2 7.8 54.8 58.2
E-commerce - - (0.1) 0.1
3.2 26.2 489.6 467.5
Net cash - - 153.8 79.1
Other unallocated assets
and liabilities* - - (92.2) (61.0)
3.2 26.2 551.2 485.6
* Other unallocated assets and liabilities include central provisions, VAT
recovery, taxation, dividends and assets not directly related to operating
activities.
2 PRIOR YEAR ADJUSTMENT
The adoption of UITF Abstract 38 Accounting for ESOP Trusts (and the consequent
amendment to UITF Abstract 17 Employee Share Schemes) has resulted in a
reclassification of own shares of £5.5m at 1 January 2003 and £6.4m at 31
December 2003 from investments to equity shareholders' funds. The associated
share scheme creditor of £1.7m at 1 January 2003 and £2.3m at 31 December 2003
has been reclassified from creditors to equity shareholders' funds. This
adjustment has no impact on profit in the current or prior year. The cash
outflow of £0.9m for the year ended 31 December 2003 for the net purchase of own
shares has been reclassified from other items to net cash outflow from
financing.
3 EXCEPTIONAL ITEMS CHARGED BEFORE OPERATING
PROFIT
2004 2003
£m £m
VAT recovery, Central 1.8 15.3
Goodwill impairment, UK (9.4) -
(7.6) 15.3
HM Customs and Excise has agreed a further element of the claims submitted in
mid 2003 for the recovery of overpaid VAT for the period 1973 to 1994. This
resulted in a further recovery of £1.8m (2003 - £15.3m) and £4.2m (2003 -
£22.2m) of associated interest income. A charge for corporation tax of £0.5m
(2003 - £7.5m) has been made in respect of this income.
The goodwill impairment relates to Inchcape Automotive Limited, reflecting the
more difficult trading conditions experienced by that business. In accordance
with FRS 11 Impairment of Fixed Assets and Goodwill, the carrying value of
Inchcape Automotive Limited's fixed assets have been compared to their
estimated recoverable amount, represented by their value in use to the Group.
This has been derived using cash flow projections discounted at a pre-tax rate
of 11.5%.
4 EXCEPTIONAL ITEMS CHARGED AFTER OPERATING
PROFIT
2004 2003
£m £m
Net profit on sale of properties and investments:
- subsidiaries - 0.6
- associates, UK 1.2 0.3
Total net profit on sale of properties and
investments 1.2 0.9
Net loss on sale and termination of operations:
- Ferrari, Belgium
(includes capitalised goodwill written off £1.4m) (2.1) -
- Ferrari, UK (includes goodwill in reserves
written off £5.0m) (8.2) -
- MCL and AGL, UK (includes goodwill in reserves
written off £1.0m) (6.8) -
- UK Retail dealerships (0.9) (4.6)
- Provision releases arising from non-motors
business exits, Central 8.6 4.0
- Other 0.4 0.2
Total net loss on sale and termination of operations (9.0) (0.4)
Total exceptional items charged after operating
profit (7.8) 0.5
The exceptional charge on Ferrari Belgium and Ferrari UK relates to the exit
from the Import and Distribution businesses. This was as a result of the
Ferrari strategy to assume control of their import and distribution throughout
Europe.
MCL Group Limited (MCL) and Automotive Group Limited (AGL), two non-core
businesses, were sold to Itochu Corporation, the 60.0% majority shareholder.
The provision releases arise from litigation provisions relating to non-motors
disposals no longer required.
5 NET INTEREST
2004 2003
£m £m
Interest payable and other charges relating to the
Company and its subsidiaries:
Bank loans and overdrafts falling due within five
years 0.3 5.9
Loan notes falling due within five years 0.1 2.1
Other interest 8.4 4.8
8.8 12.8
Interest receivable relating to the Company and its
subsidiaries:
Bank and other interest (4.5) (7.6)
VAT recovery (note 3) (4.2) (22.2)
(8.7) (29.8)
Net interest relating to the Company and its
subsidiaries 0.1 (17.0)
Share of associates' net interest (0.1) (0.2)
- (17.2)
6 TAXATION
Exceptional
Headline items Total
2004 2004 2004
£m £m £m
Analysis of tax charge for the year
Current tax:
- UK corporation tax at
30.0% (2003 - 30.0%) 7.1 4.9 12.0
- double tax relief (7.7) - (7.7)
(0.6) 4.9 4.3
Overseas tax 46.3 - 46.3
45.7 4.9 50.6
Adjustments to prior year liabilities:
- UK 0.3 - 0.3
- overseas (2.3) - (2.3)
The Company and its subsidiaries' current
tax 43.7 4.9 48.6
Share of joint ventures' current tax 1.8 - 1.8
Share of associates' current tax (0.4) - (0.4)
Total current tax charge 45.1 4.9 50.0
The Company and its subsidiaries'
deferred tax (2.6) (4.4) (7.0)
Share of joint ventures' deferred tax (0.2) - (0.2)
Total deferred tax (2.8) (4.4) (7.2)
Tax on profit on ordinary activities 42.3 0.5 42.8
Exceptional
Headline items Total
2003 2003 2003
£m £m £m
Analysis of tax charge for the year
Current tax:
- UK corporation tax at
30.0% (2003 - 30.0%) 9.5 2.6 12.1
- double tax relief (10.0) - (10.0)
(0.5) 2.6 2.1
Overseas tax 37.5 - 37.5
37.0 2.6 39.6
Adjustments to prior year liabilities:
- UK (3.3) - (3.3)
- overseas (0.7) - (0.7)
The Company and its subsidiaries' current
tax 33.0 2.6 35.6
Share of joint ventures' current tax 2.8 - 2.8
Share of associates' current tax (0.2) - (0.2)
Total current tax charge 35.6 2.6 38.2
The Company and its subsidiaries'
deferred tax (3.3) 4.9 1.6
Share of joint ventures' deferred tax (0.5) - (0.5)
Total deferred tax (3.8) 4.9 1.1
Tax on profit on ordinary activities 31.8 7.5 39.3
Tax on Headline profit (note 7) amounts to £42.3m (2003 - £31.8m). Tax of £0.5m
(2003 - £7.5m) has been provided on the VAT recovery and associated interest.
There is no tax on other exceptional items (2003 - £nil). Of the £7.5m tax
relating to last year's VAT recovery, £4.9m has been transferred from deferred
tax to current tax this year.
Of the Headline deferred tax credit, £2.4m (2003 - £3.5m) has arisen from the
origination and reversal of timing differences. A credit of £0.4m (2003 -
£0.3m) has arisen due to adjustments to the estimated recoverable amount of
deferred tax arising in prior years. All of the deferred tax charge on the VAT
recovery has arisen from the origination of timing differences.
7 EARNINGS PER ORDINARY SHARE
Headline Basic
2004 2003 2004 2003
£m £m £m £m
Headline profit before
tax 172.0 135.8 172.0 135.8
Goodwill amortisation - - (5.5) (5.5)
Goodwill impairment
(note 3) - - (9.4) -
VAT recovery (note 3) - - 6.0 37.5
Other exceptional items
(note 4) - - (7.8) 0.5
Profit before tax 172.0 135.8 155.3 168.3
Taxation (note 6) (42.3) (31.8) (42.8) (39.3)
Minority interests (3.2) (2.0) (3.2) (2.0)
Earnings 126.5 102.0 109.3 127.0
Headline earnings per
share 161.4p 132.4p
Basic earnings per share 139.4p 164.8p
Diluted earnings per share 137.6p 162.1p
2004 2003
number number
Weighted average number of fully paid ordinary
shares in issue during the year 79,241,664 78,101,215
Weighted average number of fully paid ordinary
shares in issue during the year held by the Inchcape
Employee Trust (840,828) (1,051,904)
78,400,836 77,049,311
Dilutive effect of potential ordinary shares 1,019,268 1,276,038
Adjusted weighted average number of fully paid
ordinary shares in issue during the year 79,420,104 78,325,349
Headline profit before tax and earnings are presented to assist the reader in
understanding the underlying performance of the Group.
Headline and basic earnings per share are calculated by dividing the
respective Headline and basic earnings for the year (as outlined above) by the
weighted average number of fully paid ordinary shares in issue during the
year, less those shares held by the Inchcape Employee Trust.
Diluted earnings per share is calculated on the same basis as Headline and
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.
8 DIVIDENDS
2004 2003 2004 2003
pence pence £m £m
Interim - paid 13
September 2004 (2003 -
paid 15 September 2003) 15.0 12.0 11.9 9.3
Final - proposed -
payable 16 June 2005 (2003 -
paid 17 June 2004) 35.0 26.0 27.6 20.3
50.0 38.0 39.5 29.6
If approved at the Annual General Meeting the final ordinary dividend will be
paid to ordinary shareholders registered in the books of the Company at the
close of business on 20 May 2005.
Dividends above exclude £0.4m (2003 - £0.4m) payable on shares held by the
Inchcape Employee Trust.
9 FOREIGN CURRENCY TRANSLATION
The main exchange rates used for translation purposes are as follows:
Average Year end
rates rates
31 December 31 December
2004 2003 2004 2003
Australian dollar 2.48 2.53 2.45 2.38
Euro 1.47 1.45 1.41 1.42
Hong Kong dollar 14.22 12.75 14.92 13.90
Singapore dollar 3.09 2.86 3.13 3.04
10 BASIS OF PREPARATION
The figures contained in this announcement have been prepared in accordance
with the Companies Act 1985 and applicable accounting standards on the
historical cost basis, modified to include the revaluation of certain tangible
fixed assets.
The financial information presented does not constitute the statutory financial
statements of 2004 or 2003. The 2004 figures are extracted from the audited
financial statements for that year which have not yet been approved by the
shareholders and have not yet been delivered to the Registrar. The comparative
figures are extracted from the latest published financial statements that have
been delivered to the Registrar of Companies. These have been restated on
adoption of UITF Abstract 38 Accounting for ESOP Trusts during 2004, per note 2.
The auditors' reports in respect of both years were unqualified and did not
contain a statement under either Section 237 (2) or Section 237 (3) of the
Companies Act 1985.
Financial review
The trading performance of our businesses is explained in the Operational
review. This review gives information on financial matters.
Financial reporting and accounting standards
The Financial statements have been prepared in accordance with UK Generally
Accepted Accounting Principles (UK GAAP). The Group adopted UITF Abstract 38
Accounting for ESOP Trusts with effect from 1 January 2004. This requires that
the value of the shares held by the ESOP Trust and the associated share scheme
creditor are deducted from reserves. As a result a prior period adjustment of
£4.1m has been made to reduce the net assets at 31 December 2003.
As part of the UK's convergence with International Financial Reporting Standards
(IFRS) the Accounting Standards Board issued eight new standards during 2004.
These standards have had no impact on the Group in 2004 and the Group will
instead be transitioning to the equivalent standards under IFRS from 1 January
2005.
Transition to International Financial Reporting Standards
The European Union (EU) requires that all listed companies prepare their
financial statements in accordance with EU approved IFRS for accounting periods
commencing on or after 1 January 2005. The Group's Annual report and accounts
for the year ending 31 December 2005 will therefore be prepared under IFRS, as
will the Interim report for the six month period ending 30 June 2005.
Inchcape has undertaken a major project to assess the impact of these new
standards on its accounts. Whilst there are still some issues to resolve we are
confident that we have identified the areas where significant differences will
arise between UK GAAP and IFRS. These are as follows:
Pensions
Under IAS 19 Employee Benefits, the Group will recognise the net deficit of its
defined benefit retirement schemes on the balance sheet. In addition, we intend
to apply the proposed option whereby actuarial gains or losses can be recognised
in full in the Statement of total recognised gains and losses (or its equivalent
under IFRS). IAS 19 is broadly similar to FRS 17 Retirement Benefits.
Goodwill
Under IFRS, goodwill is tested at least annually for impairment rather
than being subject to annual amortisation. Impaired goodwill is written off to
the profit and loss account.
Goodwill previously written off to reserves is no longer recycled through the
profit and loss account, as part of the profit or loss on disposal.
Property leases
Under IFRS, leasehold land is generally treated as an operating lease. It is
reclassified, at historic cost, from tangible fixed assets to prepayments, with
a reversal of any associated revaluation.
Stock holding interest
Under IAS 2 Inventories, where stock is purchased using supplier financing, the
stock holding cost will be reclassified from operating costs to the interest
charge in the profit and loss account. For 2004 the stockholding cost was
approximately £7.2m.
Contract hire
Under IAS 18 Revenue, profits arising on the sale of vehicles, sourced from
within the Group, for which a Group company retains a buy back commitment, are
recognised over the term of the lease. These vehicles will be included in assets
with the corresponding liability included in creditors.
Share-based payments
Under IFRS 2 Share-based Payment, the fair value of all share-based payments
will be expensed to the profit and loss account over the period to which the
service relates. This will cover all share-based payments, including executive
share options and SAYE schemes.
Financial instruments
Under IAS 39 Financial Instruments: Recognition and Measurement, all derivatives
should be measured at fair value. The Group has reviewed its hedge accounting
practices and will endeavour to designate foreign exchange forward derivatives
as cash flow hedges under IAS 39. From 1 January 2005, IAS 39 will be
implemented by the Group and 2004 comparatives will not be restated on this
basis.
Overall we expect the transition to IFRS to be broadly neutral on profit before
tax and earnings, subject to the achievement of hedge effectiveness under
IAS 39. Furthermore, cash flow and the underlying economics of the business will
not change, although net assets will be reduced, mainly due to the inclusion of
the net pension deficit on the balance sheet. Comparatives for 2004 under IFRS
will be published on 12 May 2005.
Operating results
Turnover increased by 8.2% on 2003 to £4.2bn in 2004. Operating profit before
goodwill amortisation and exceptional items rose by 25.1% from £140.8m in 2003
to £176.2m in 2004, reflecting a very strong trading performance in the year.
The resultant operating margins strengthened from 3.7% in 2003 to 4.2% in 2004.
Once again our Toyota/Lexus business operating in Singapore delivered an
excellent trading performance, stimulated by the sizeable increase in the
vehicle market. Profits in our Hong Kong businesses also improved, boosted by
the gradual recovery in the economy after the effects of SARS in 2003.
Organic growth and acquisitions helped profits from our UK business grow
strongly, whilst a record market in Australia helped this region to achieve
another increase in profitability. The growth in Greece/Belgium is affected by a
one off profit of £2.5m in 2003 and, excluding this, operating profit from the
region increased by 13.6%, despite product supply constraints.
Pensions
The Group continues to account for retirement benefits in accordance with
SSAP 24 Accounting for Pension Costs and provides additional disclosure as
required by FRS 17 Retirement Benefits. The FRS 17 net deficit on the Group's
principal schemes has increased from £44.8m at 31 December 2003 to £57.0m at
31 December 2004. Higher equity prices have increased the value of investments
held. However, this is more than offset by higher pension liabilities as, in the
UK, the assumed long term inflation rate has increased to 2.7% and the discount
rate has marginally reduced to 5.3%.
Exceptional VAT recovery and goodwill impairment
HM Customs and Excise have agreed a further element of the claims we submitted
in mid 2003 for the recovery of overpaid VAT for the period 1973 to 1994. This
resulted in a further net VAT recovery of £1.8m. Consistent with the recovery
made in 2003, this has been treated as an operating exceptional item, with
associated interest of £3.6m included in the net interest charge. An additional
£0.6m of interest was recognised in the year relating to claims settled in early
2004.
A provision of £9.4m has been made against the carrying value of goodwill
relating to Inchcape Automotive, reflecting the more difficult trading
conditions experienced by that business. This has been treated as an operating
exceptional item.
Other exceptional items
The other exceptional charge for the year was a net £7.8m. This principally
comprised a £10.3m charge (including £5.0m of goodwill previously written off to
reserves) relating to the exit from the Ferrari/Maserati import and distribution
businesses, and a £6.8m loss on disposal (including £1.0m of goodwill previously
written off to reserves) of the Group's 40.0% stakes in MCL Group Limited (MCL)
and Automotive Group Limited (AGL) to Itochu Corporation, the 60.0% majority
shareholder. These charges were partially offset by the release of litigation
provisions relating to non-motors disposals.
Net interest
The net interest charge for the year was £nil, due to a £4.2m one off income
relating to the Group's VAT recovery. Excluding this, the underlying interest
charge was £4.2m (2003 - £5.0m). For a substantial part of the year, despite
being in an overall net cash position, we suffered a mismatch between debt in
the UK and cash held overseas in countries with low interest rates. The
resultant adverse interest differential generated the net interest charge. In
November 2004 approximately £135.0m of cash was repatriated to the UK and we
also created the ability to remit more funds in a tax efficient manner over the
next couple of years.
Taxation
The 2004 Headline tax rate is 24.6% compared to a rate of 23.4% in 2003. The tax
rate in 2004 enjoyed a one off benefit of 1.3% due to the favourable settlement
of Greek tax audits and the agreement of UK tax computations. Likewise, 2003
benefited from a one off provision release of 2.9% as a result of a favourable
court ruling in the UK. The underlying rate at 25.9% in 2004 was similar to the
prior year.
We anticipate the tax rate in 2005 will be broadly in line with the Group's
underlying tax rate in 2004.
We are still in ongoing discussions with the Inland Revenue regarding the
corporate tax treatment of the VAT recovery and associated interest. We have
increased the provision from £7.5m to £8.0m in respect of the further recovery
agreed.
Minority interest
Profit attributable to minorities has increased from £2.0m in 2003 to £3.2m in
2004. This is mainly due to increased profits in the Australian and Bulgarian
businesses.
Exchange rates
Had the exchange rates in 2003 continued in 2004 Headline profit before tax
would have been c. £9.0m higher. This effect primarily arose as a result of the
weakening Singapore and Hong Kong dollars. Principal exchange rates are listed
in note 9.
Cash flow
The Group continues to be highly cash generative with cash flow from operating
activities in 2004 of £177.2m, including £15.5m VAT received. This was achieved
despite an increase in working capital of £31.5m. This net increase reflects the
higher levels of trading across the business and the impact of some timing
differences at year end. We continue to focus on tight working capital
management.
Overall the Group's net cash position has increased from £79.1m at 31 December
2003 to £153.8m at 31 December 2004.
Acquisitions and disposals
During the year the Group acquired five Mercedes-Benz dealerships for £24.4m
including £6.7m debt. This acquisition increased the Group's total UK
representation to eight sites, creating the largest independent contiguous
territory for Mercedes-Benz in the UK.
As part of its expansion into Eastern Europe, the Group acquired Estonia's two
independent Mazda retailers for £4.1m including £0.7m debt. We are now the
exclusive Importer and Retailer for Mazda in this market.
In line with Ferrari's strategy to assume control of import and distribution
throughout Europe, the Group has exited its Ferrari/Maserati import and
distribution businesses in the UK and Belgium. However, we will continue to
retail Ferrari and Maserati cars through Maranello Sales Limited. We also
disposed of our stakes in MCL and AGL, two non-core businesses.
Capital expenditure
Capital expenditure less disposal proceeds was £34.8m, some £7.5m in excess of
the depreciation charge. The additional investment principally arose in UK
Retail as we invested in new dealership facilities, particularly those of BMW,
Toyota and Mercedes-Benz. We are also progressively investing in our Toyota
Retail operations in Athens, Greece.
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
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. The Group has available a
£250.0m committed revolving credit facility with a maturity date of July 2007.
This facility was not drawn at the year end.
Loan notes totalling £0.2m were redeemed in three tranches between March and
June 2004. These notes were issued in December 2000/2001 following the
acquisition of Inchcape Automotive Limited (formerly known as Eurofleet Ltd). A
further £2.0m of loan notes were issued in June 2004 in relation to the
acquisition of the Mercedes-Benz dealerships. At the year end loan notes
totalling £2.2m were outstanding. Note maturities range from 30 November 2005 to
30 June 2006.
In addition to the committed facilities the Group has available uncommitted
borrowing lines made available by relationship banks. These facilities are used
for liquidity management purposes. At the year end these facilities were not
utilised.
During November 2004 cash of approximately £135.0m was permanently repatriated
to the UK from our overseas businesses in addition to normal dividend flows. We
have also created the ability to repatriate further funds in 2005 and beyond.
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 significant requirement
for Certificates of Entitlement necessary for new car sales.
Interest rate risk
Our interest rate policy has the objective of minimising net interest expense
and the protection of the Group from material adverse movements in interest
rates. Throughout 2004 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.
Currency risk
The Group faces currency risk on its net assets and earnings, a significant
proportion of which are in currencies other than sterling. On translation into
sterling, currency movements can affect the Group balance sheet and profit and
loss account. Group policy is to minimise balance sheet translation exposures,
where fiscally efficient, 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.
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 principals. For those
businesses that continue to be billed in foreign currency, Group policy is that
committed transactional exposures are 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.
This information is provided by RNS
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