Final Results

Inchcape PLC 26 February 2008 2007 Preliminary Results Investments in Emerging Markets and a robust business model deliver record results in 2007 Inchcape plc, the world's leading car retailer, announces its preliminary results for the year ended 31 December 2007. Operational & strategic highlights: â€¢ Strategy delivery on track achieving record profits for the Group o Like for like sales* +3.4%; like for like operating profit* +6.6% o Sales* from new investments: Â£1.2bn; operating profit* from new investments: Â£47.9m â€¢ Emerging Markets: continuing progress with acquisitions in Russia and the Baltics, expansion in the Balkans and successful entry into China â€¢ UK: successful integration of recent acquisitions contribute to UK trading profit* of Â£69.6m (+52%) â€¢ International operations: sales* of Â£3.4bn and trading profit* growth of 16%. Represents 76% of Group trading profit* â€¢ Group well placed to deliver further growth in 2008 and beyond * At constant currency, before exceptional items Financial highlights: â€¢ Sales up 25% at Â£6.1bn; 26% in constant currency (2006: Â£4.8bn) â€¢ Headline PBT** up 9.9% to Â£235.1m, 12.9% in constant currency (2006: Â£213.9m) â€¢ Reported PBT up 12.2% to Â£240.0m (2006: Â£213.9m) â€¢ Headline EPS** up 3.6% to 37.0p â€¢ Reported EPS up 1.3% to 38.0p (2006: 37.5p) â€¢ Proposed final dividend up 5.0% at 10.5p per share (2006: 10.0p) giving 15.75p for the full year (2006: 15.0p) ** Before exceptional items Andre Lacroix, Group Chief Executive of Inchcape plc, commented: 'In 2006 we laid out a clear strategic plan to build on the past successes of the Group. Our twin-track growth strategy is about strengthening our existing business and expanding in Emerging Markets. We have made significant progress in executing our strategy and have delivered record results in 2007 for the sixth consecutive year. This has been driven by investment in the high growth Emerging Markets and a robust business model providing the Group with a unique diversity of geography, brand, channel to market and value driver. This excellent portfolio diversification gives us the flexibility to react quickly to changing market conditions and maintain our focus on the most productive sources of value relevant to each market. The fundamentals of our Group are strong and our strategic direction is clear. Our focus on superior Customer service and our track record of operational excellence makes us well placed to deliver continued organic growth this year. Further, the launch of a number of new models in 2008 and the associated investment will enable us to build momentum as the year progresses. Additionally, we expect to benefit from our increased investment in the high growth Emerging Markets. We therefore look forward to 2008 with confidence.' For further information, please contact: Group Communications, Inchcape plc +44 (0) 20 7546 0022 Investor Relations, Inchcape plc +44 (0) 20 7546 8432 Financial Dynamics (Jonathon Brill/Billy Clegg) +44 (0) 20 7831 3113 Notes to editors About Inchcape Inchcape plc is the leading independent, international automotive retailer, with scale operations in Australia, Belgium, Greece, Hong Kong, Singapore and the UK. The Group also has operations in a number of other markets, including Eastern Europe, the Baltics, China, Russia and South America. In addition to growing its core businesses, Inchcape is looking to develop scale operations in new and emerging regions. It represents leading automotive brands and operates either a retail, or a vertically integrated retail model (i.e. exclusive distribution and retail), depending on the market. Inchcape's current key manufacturer partners are Toyota/Lexus, Subaru, BMW, Mazda, Mercedes-Benz, Volkswagen, Audi and Honda. For further information, visit us at www.inchcape.com Chairman's statement Â£m 2007 2006 Profit before tax 240.0 213.9 Exceptional items (4.9) - Headline profit before tax 235.1 213.9 Inchcape has delivered record results for the sixth consecutive year, reflecting the progress we are making against our growth strategy and the benefits of an excellent portfolio diversification. Performance Group sales have increased by 25% to Â£6.1bn for the full year to 31 December 2007, benefiting from both strategic and focused acquisitions, and from encouraging organic growth in sales in most of our markets. On a like for like basis, sales grew by 2.5% (3.4% on a constant currency basis). Headline profit before tax and exceptional items of Â£235.1m was 9.9% higher than 2006 and headline earnings per share rose 3.6% to 37.0p. On a statutory basis, which includes exceptional items, profit before tax of Â£240.0m was 12.2% above 2006 and earnings per share rose 1.3% to 38.0p. When reviewing the performance of our business units, trading profit is a key measure and is defined as operating profit excluding the impact of exceptional items and central costs. In our Distribution businesses we have delivered record results in Europe, strengthening our market leadership in Greece and delivering good growth in Belgium and Finland. In Australia, the launch of the new Subaru Impreza model helped grow operating margins and delivered a 24.1% growth in trading profits. The markets in Asia were very competitive but we performed well in Hong Kong with trading profits up 17.9% in a market which grew by 16.5%. In Singapore, the market declined by 9.6% while parallel imports increased their share. In that context our Singapore trading profits fell 21.5% but we maintained our market leadership position and strong margin of 9.6%. Sales from our Retail businesses grew by 53%, benefiting from both acquisitions and organic growth. In the UK, we outperformed a very challenging market and delivered like for like sales growth of 5.2%. Across Europe, our focus on the Customer showed solid results with growth in like for like sales of 4.8%. In the Emerging Markets, growth was outstanding, with like for like sales up 57% and overall sales up 247%. Acquisition and disposal summary We acquired European Motor Holdings plc (EMH) in the UK at the beginning of February 2007. At the same time we announced the restructuring of our UK business to focus on a limited number of premium brands. As a consequence we have disposed of a number of non-core businesses, including Bentley, Ferrari and Maserati, together with the EMH auction businesses, Wilcomatic and the Inchcape Automotive vehicle refurbishment business, for a total consideration of Â£38m, realising a loss of Â£7.1m. We also announced the sale of the non-core Vauxhall businesses. In January 2007, we sold our shares in the non-core Hong Kong joint venture finance company, Inchroy, for Â£46m, realising a profit of Â£12m. We have invested, and will continue to invest, the proceeds from these disposals, as well as our ongoing cash generation, in the Emerging Markets where growth rates are good and market opportunities continue to develop. We have made good progress in executing our Emerging Markets expansion strategy. In January 2007 we opened our first retail centre in China, retailing Toyota in Shaoxing, near Shanghai. This has performed ahead of our expectations. In January 2008 we also opened a Lexus centre in Shaoxing and plan to open a second Lexus retail centre in Shanghai in the third quarter of 2008. In July we completed a major acquisition in Latvia. As a result Inchcape has a market leading position with Distribution and Retail of Ford, Land Rover, Jaguar and Mazda, as well as Retail of BMW, giving Inchcape over 10% market share. We also acquired 67% of UAB Vitvela in Lithuania in July, giving us scale representation of Ford and Mazda in that country and a leading share of Mitsubishi and Hyundai Retail. This gives Inchcape close to 20% share of a market which grew by 68% in 2007. In December we strengthened our position in the high growth Russia market with the acquisition of Audi and Peugeot retail centres in St Petersburg, bringing our total number of retail centres operating in the second largest market in Russia to five. Dividend The Board is recommending the payment of a final ordinary dividend for the year of 10.5p (2006 - 10.0p). This gives a total dividend for 2007 of 15.75p, which is 5% above the 2006 dividend of 15.0p. The increase reflects our continuing confidence in the business and is consistent with our stated aim of maintaining a progressive dividend policy to our shareholders. The full year dividend is covered 2.3 times by headline earnings per share (2006 - 2.4 times). Share buy back The Group successfully purchased Â£18.5m of its shares in 2007, through the purchase of 4.5m shares, now held as Treasury shares, at an average price of Â£4.07 per share. Approach to governance and management Good governance and management remains high on our agenda. We focus on compliance with the Combined Code and other relevant guidance for listed companies in all of our global operations. In 2007 we increased our focus on our Corporate Social Responsibility (CSR) programme, engaging an external consultancy to help us redefine, benchmark and progress implementation, ensuring that it provides benefits to both our employees and to our shareholders. People We are making very good progress towards the goal of becoming the world's most Customer centric automotive retailer, a goal which continues to motivate and energise everyone in the Group. I would like, on behalf of the Board, to express our thanks to our colleagues across the Group for their commitment and pride in the delivery of outstanding results for 2007. Outlook The fundamentals of our Group are strong and our strategic direction is clear. Our focus on superior Customer service and our track record of operational excellence makes us well placed to deliver continued organic growth this year. Further, the launch of a number of new models in 2008 and the associated investment will enable us to build momentum as the year progresses. Additionally, we expect to benefit from our increased investment in the high growth Emerging Markets. We therefore look forward to 2008 with confidence. Peter Johnson Chairman 26 February 2008 Chief executives review In 2006 we laid out a clear strategic plan to build on the past successes of the Group. Our twin-track growth strategy is about strengthening our existing business and expanding in Emerging Markets. We have made significant progress in executing our strategy and have delivered record results in 2007 for the sixth consecutive year. We are successfully rebalancing our portfolio, growing significantly outside of Asia, thanks to strong performances in the UK, Europe, Australia and Emerging Markets. We operated in favourable market conditions, all major markets achieving growth in 2007, excluding Singapore. The average market growth in 2007 for all countries in which we operate was 4.2% and the expected weighted average GDP growth for all of our markets is 2.9% in 2008. The implementation of our transformational strategy in the UK is well underway. The successful integration of acquisitions and focus on the premium sector has helped us to yet again outperform the market. In Europe, our Distribution businesses have performed ahead of our expectations and the turnaround in Retail is delivering excellent results. In Australia we have seen a significant improvement in our performance. We are also building scale in the high growth, higher margin Emerging Markets. By doubling sales and tripling profits we have established powerful platforms for further growth. We believe we have a successful formula for profitable growth; one that has produced another year of record results in 2007 and gives us confidence for the coming years. It is a focused growth strategy applied to a robust business model. Our business model is quite unlike any of our competitors: we operate both Distribution and Retail businesses, with multiple revenue streams (including sales of new and used vehicles, parts, service, finance and insurance), for multiple, successful brands in twenty six countries around the world. We have developed a highly effective management structure - co-ordinated globally but locally delivered - to enable consistent quality and control and a fast, flexible response to specific market conditions. We share a Vision across every level of the organisation: to be the world's most Customer-centric automotive retail group deploying world class retail standards. And we are delivering our Vision through a strategy of strengthening our core business in parallel with significant expansion within existing and Emerging Markets. It is a strategy that works - in 2007 our core business achieved growth of 2.5% in like for like sales and 4.8% in like for like trading profits. Total sales have grown by 25% and total trading profits by 22%. To reinforce the emphasis we put on achieving our vision and on creating shareholder value, management at every level is incentivised on economic profit and Customer service levels. Economic profit is defined as trading profit less tax less a notional charge for capital. During 2007 we have also worked hard starting to put in place the policies and practices that will help us meet our CSR obligations. Our people create and deliver the Ultimate Customer Experience for our Brand Partners, supported by a clear People strategy that focuses on engaged employees in winning teams. To assist our people in the delivery of our Customer focused Vision we are making significant investment in technology with a Group-wide implementation of SAP and in several training initiatives. With our people's support within our resilient business model, we aim to continue to attract Customers by offering the most appealing brands in each market and delivering them via leading service levels. I am certain that the Inchcape formula for profitable growth will drive our performance further in 2008 and beyond as the world's leading car retailer. A clear strategy for growth Our Vision Fulfilling our Vision, to be the world's most Customer-centric automotive retail group, demands a commitment across the business to achieving outstanding service levels at every point of our relationship with our Customers for all of our brand partners. An important element of our Customer journey is therefore a long term programme of behavioural change, which will help us differentiate Inchcape from our competitors through measurably better service quality. Our Core Purpose - Creating the Ultimate Customer Experience for our Brand Partners - and our Values: Respect for Each Other, Winning Together, Treating Every Â£ as Our Own, Integrity Without Compromise, Pioneering New Ideas, Passionate about Customers and Caring for our Environment, were newly launched this year. These beliefs are at the very heart of our business and guide our behaviour and our strategy. They are inextricably linked with our two strategic priorities - to strengthen our existing business and expand in existing and Emerging Markets. Strengthening our business The ability to manage our information better and focus more closely on achieving value is central to creating a stronger business. From January 2007 we introduced a global management accounts system reporting monthly statistics on all value drivers (vehicle sales, parts, service and finance and insurance (F&I)). In every operation, in every market, we aim to drive margin performance by focusing on these key factors that drive the greatest value for our business. We believe 'you are what you measure': taking this approach will enable us to improve in our strongest markets as well as those operations where performance is not yet Gold Standard. We have also made progress with the roll-out of our Inchcape Advantage programme, unique in our industry thanks to the use of cutting edge retail metrics that enable us to measure and enhance our service levels to ultimately increase sales. It uses global research to ensure that we are doing both the simple things in the way that Customers appreciate, and applying the emotional intelligence that ensures we treat every Customer as a valued individual. We measure hard Customer data such as traffic, sales leads, and the number of test drives, conversion and retention rates to ensure we have the best available sales information at all times. Moreover, we believe that we can increase the productivity of our organisation by maximising the focus on value added activities. That is why we have announced a global partnership with SAP and have started the implementation of a global IT infrastructure upgrade. This is a five year plan and means Inchcape will operate under a unified worldwide IT delivery model, reducing complexity and enabling greater local market flexibility through automated and streamlined sales processes, freeing up our people's time to enable delivery of our Customer focused Vision. Equally important is our engagement programme, designed to ensure we have committed people working together in winning teams to deliver the Ultimate Customer Experience. It is based on a simple premise - that by initially selecting and attracting the right people, then providing the right learning and rewards, aspiring to a common Core Purpose and set of Values, we will create the right culture. Expanding our scope and scale It has been the results of our expansion that have contributed most to making 2007 a record year for Inchcape. In the UK, recent acquisitions are integrating well and, despite experiencing some pressure on used car margins, we continue to outperform the market. We are strengthening our focus on the growing premium sector, reducing our number of franchise relationships and disposing of non-core sites and businesses. Growth in Emerging Markets has been significant and represents exciting further expansion for the Group. Our operations are performing well in these markets, due both to strong local management and our regional brand strategy that focuses on the most appropriate marques in each market. We have a long track record of successfully operating in multiple markets and are confident that we can apply the Inchcape model to achieve sustainable margins as these car markets mature. In 2007 we have committed Â£423m of expansion investment and we have significant resources remaining. This, together with a strong pipeline of opportunities, will enable us to deliver our expansion strategy. Looking ahead to 2008 and through to 2010, Emerging Markets remain a major expansion opportunity. Expansion will be underpinned by a disciplined allocation of capital to ensure we identify those markets that will deliver the greatest return. We ensure the right strategic features of sector, location, scale opportunity and brand partner. We then look in detail at elements including Internal Rate of Return (IRR) and economic profit generated to guide our decisions. Such activities have underpinned our excellent performance in 2007 and will continue to support our profitable growth in the future. A robust business model based on excellent portfolio diversification Inchcape operates a four dimensional business model giving the Group excellent portfolio diversification. This diversity gives us the flexibility to react quickly to changing market conditions and maintain our focus on the most productive sources of value relevant to each market. It has enabled us to post another set of record results in 2007 and gives us confidence that this high performance formula for success will continue through 2008 and beyond. Geographic diversity Inchcape has a diverse geographic portfolio made up of seventeen mature and nine emerging markets. We enjoy strong scale positions in all of our mature markets: a strong base from which to expand into the high growth Emerging Markets. This portfolio approach has proven resilient during 2007, overcoming anticipated weakness in Singapore to achieve record results at Group level. Multiple brand relationships We have strong, long established global relationships with over twenty brand partners. Our brand strategy is market specific, enabling us to fit the right brand with the right market, Creating the Ultimate Customer Experience for our Brand Partners whilst aiming to maximise market share. Multi-channels - Distribution Distribution is the historic core of Inchcape. It currently represents 41% of Group sales and 70% of Group trading profits. As a distributor we manage every aspect of our partners' brands in a particular market from importing vehicles and parts and appointing the dealer network to setting sales and pricing strategies, national marketing and dealership delivery. We employ limited capital within the Distribution segment and generate high returns, 8.2% in total for the Group. Although we have been successful in acquiring Distribution contracts this year in the Baltics, there are limited opportunities to grow this segment through further acquisitions. We will therefore be predominantly using the strong cash flows generated by the Distribution businesses to invest in the Retail segment in the high margin, high growth Emerging Markets. In large markets where we distribute, we aim to own and manage up to 30% of the Retail network. However, in smaller markets, we are able to vertically integrate the two channels and have both exclusive Distribution and exclusive Retail. We call this Vertically Integrated Retail (VIR). Where we operate VIR, we are able to deliver important operational efficiencies generating a good margin for our shareholders. Following acquisitions this year we now operate VIR in the Baltics, Hong Kong and Singapore, as well as other smaller Asian markets. This is included as Distribution within the accounts. Multi- channels - Retail Retail is a growing segment within the Group. It currently represents 59% of Group sales and 30% of trading profits and is the main area of expansion for the Group. Where we retail, we aim to build scale, both within a region and with our brand partners. We build scale regionally in our markets by channelling investment into specific geographic areas to provide economic and operational advantage. We build scale with our core brand partners to provide marketing efficiencies and we operate a dedicated brand management structure to ensure a better understanding of our partners' brand values. Our approach to retailing is totally Customer-centric. By building on our brand partners' Customer programmes, we aim to Create the Ultimate Customer Experience and deliver a real competitive advantage. Growth and defensive revenue streams We benefit from multiple revenue streams enabling us to perform well in both growing and more challenging markets. In a growth market, vehicles and F&I drive performance. However, when vehicle sales and therefore F&I are slower, our more defensive value drivers are the sale of parts and service, which are also higher margin segments. In Distribution, our value drivers are the sales of vehicles and parts. We have four main priorities in maximising our returns from them, comprising improved quality of revenues, operational excellence with positive sales to trading profit flow through, excellent working capital management and a continuous focus on the quality of our network, including our Customer service standards. Our Retail value drivers are vehicles, parts, service and F&I. For each one, we have a specific set of continuous improvement targets which are driving performance in the three key areas of revenue quality, sales flow and working capital. Performance measurement This business model has proven a robust formula for success in 2007 and gives us confidence in continued strong performance in 2008 and beyond. Details of our key performance indicators are shown within the Operating Review, along with sales and trading profit results for each region. 2008 and beyond From six to ten core markets In 2005 we said we would increase our six core markets to ten over the next five years. In 2007 we named Russia and China as two additional core markets for the Group. We are committed to integrating these markets into the Group and are taking a measured approach to new market entry. At the same time we continue to evaluate additional markets with a view to selecting two further core markets. A new market is selected for both its scale and its potential. The strong relationships we have developed with our brand partners globally, and our significant financial capacity, are key enablers of this strategy. We have a proven track record of successfully entering new markets and are, as a result, very excited by this growth opportunity. Significant future growth The unique business model we follow allows for significant future growth. Inchcape's growth strategy takes advantage of the strong cash flow generated from our robust base of existing businesses to expand in exciting new markets whilst also continually strengthening the base. Strengthening the base In mature markets the continuous focus on process improvements and operational excellence has helped the Group to post record results in 2007. In 2008 we will aim to drive like for like growth ahead of the market in order to gain market share, taking advantage of new model launches in our markets and employing effective marketing strategies to drive traffic. We will continue to improve the Customer experience through our Inchcape Advantage programme and will extend our focus to accelerate growth in the highly profitable aftersales segment. We will also aim for margin improvements in growth markets whilst protecting margins in more challenging markets through tight mix and cost management. The Group-wide SAP implementation will also provide key operational support. It will strengthen our existing businesses around the world through greater productivity, freeing up our people to spend more time with Customers. It will also be a platform for the fast and efficient integration of new businesses as we execute our expansion strategy in developed and Emerging Markets around the world. Expansion strategy The expansion of our business into Emerging Markets is the major growth opportunity for the Group. By our definition, these markets are those where the total new vehicle volume sales by international brands are growing at, or above, 10% a year. For us, these are Russia, China, the Balkans, the Baltics and Poland. In 2007 our growth strategy saw us gain market leadership through acquisition in the Baltics, continue the process of building scale in Russia and enter the vast Chinese market for the first time. We are expanding our presence with our multi-brand Retail or Vertically Integrated Retail (VIR) strategy as appropriate in each market. In 2008 we will continue our expansion in these markets, focusing on building scale operations with several brands in Russia and China and maximising economies of scale with our multi-country operations in the Baltics and Balkans. We are confident that our Emerging Markets model gives us a sound strategic base for expansion. This is based on four core factors - rapid market growth, the ability to sustain a strong retail margin, a capital-efficient footprint enabling us to reach the greatest number of Customers through the most effective investment selection, and attractive unit economics that drive higher revenues per square metre. Car penetration in these markets was sixteen times lower than developed markets in 2006, with car sales expected to grow at a compound annual growth rate (CAGR) of 15% to 2011. We have identified the markets we believe have the strongest growth potential over the coming years. Under our market entry strategy we have a different approach between the largest countries, such as China and Russia, and smaller nations like Latvia and Lithuania. For larger markets, we aim to retail 30,000 to 50,000 units within five years of entry, building scale in targeted regions through acquisition or greenfield development. In smaller nations, we target a market leading position through Distribution and Retail. In Emerging Markets, as each market matures, the development of higher margin value drivers, such as used car sales, service, parts, and F&I, enables a sustainability of margins. With this focused twin-track growth strategy, allied to our robust business model, we are confident that we have a winning formula for success. We are therefore committed to growing Inchcape's scale and profitability throughout 2008 and beyond. Operational and financial review Regional Analysis 2007 2007 2007 2006 2006 2006 Operating Exceptional Trading Operating Exceptional Trading profit Â£m items Â£m profit profit Â£m items Â£m profit Â£m Â£m Australia 43.8 - 43.8 38.5 - 38.5 Europe 50.1 - 50.1 39.3 - 39.3 Hong Kong 40.3 (12.0) 28.3 24.0 - 24.0 Singapore 46.0 - 46.0 58.6 - 58.6 United 62.5 7.1 69.6 45.9 - 45.9 Kingdom Emerging 29.6 - 29.6 10.6 - 10.6 Markets Rest of 25.1 - 25.1 21.9 - 21.9 World Central (27.5) - - (24.9) - - Costs Operating 269.9 - - 213.9 - - profit Key Performance Indicators (KPIs) The Inchcape plc Board of Directors and the Executive Management monitor the Group's progress against its strategic objectives and the financial performance of the Group's operations on a regular basis. Performance is assessed against the strategy, budgets and forecasts. To enhance comparability, we review the results in a form that isolates the impact of currency movements from period to period by applying a constant currency. Unless otherwise stated, all sales and trading profit figures quoted in the Operating Review are provided in constant currency. We also measure the quality of revenues through the mix of revenue streams, and the flow through of value from sales revenue to trading profit. Financial KPIs Vehicle market size Defined as total new vehicle registrations by international brands. Vehicle market share Derived from Inchcape's registrations as a percentage of the overall market size. Sales The consideration receivable from the sale of goods and services. It is stated net of rebates and any discounts and excludes sales related taxes. Trading profit Defined as operating profit excluding the impact of exceptional items and central costs. Trading margins (return on sales) Calculated by dividing trading profit by sales. Like for like sales and like for like trading profit growth Excludes the impact of acquisitions from the date of acquisition until the thirteenth month of ownership and businesses that are sold or closed. It further removes the impact of retail centres that are relocated. This is from the date of opening until the thirteenth month of trading in the new location. Profit before tax The profit made after operating and interest expense but before tax is paid. Working capital Defined as inventory, debtors, creditors, and supplier related credit. Economic profit Defined as trading profit less tax less a notional charge for capital. Non-financial KPIs We are establishing several non-financial KPIs, particularly relating to Customer service. For example, net promoter score is a measure being used to measure Customer satisfaction across the Group, in line with the Company's Vision to be the most Customer-centric automotive retailer. Group 2007 has been an outstanding year for Inchcape, delivering a record performance, with operating profit before exceptional items up 27% to Â£270.7m, from sales which grew by 26% to Â£6.1bn. All of Inchcape's core businesses contributed to this growth, with the exception of Singapore. We saw significant growth in the European Emerging Markets, Hong Kong was boosted by strong market growth from changes in the tax regime around engine emissions, and our European Retail and Distribution businesses continued to post strong growth. Our continued focus on improving Customer service and operational excellence has underpinned like for like sales growth of 3.4% and like for like trading profit growth of 7.0%. The strength of performance in 2007 once again demonstrates the strategic strength of our broad geographical base. We continue to reflect our management structure in our reporting by separately providing an analysis of the two segments of our business, Retail and Distribution, by geographical region. We have also clearly articulated our expansion into Emerging Markets and so report results in Emerging Markets separately to give shareholders specific information on our growth in these markets. We define Emerging Markets as those in which we operate and where the total new vehicle volume sales by international brands are growing by 10% or more per annum. For the first time we are including Poland as an Emerging Market. Emerging Markets We continue to enjoy outstanding growth in the Emerging Markets in both Retail and Distribution. The car market in the Baltics grew by 34%, the Romanian market by 25%, Bulgaria by 12.1%, Russia by 65% and China by 24%. Growth in the Polish market reached 18.5% in 2007. Our sales in these markets grew by 145% in total and 49% on a like for like basis. Trading profits were up 181% in total and 77% on a like for like basis. The performance of our first full year of trading at our Russia business in St Petersburg has been excellent, contributing Â£149m to sales and generating Â£9.8m of trading profit from trading margins of 6.6%. This performance will be further enhanced in 2008 following the purchase of the Audi and Peugeot retail centres in December 2007. We have expanded further in China, opening a second retail centre in Shaoxing in January 2008, and our business in the Baltics continues to grow with the acquisition of Baltic Motors Corporation and SIA BM Auto in Latvia and UAB Vitvela in Lithuania in July 2007. Retail business The performance in our Retail businesses was very strong with sales up 53% in total, primarily benefiting from eleven months of trading from European Motor Holdings plc (EMH) in the UK, but also from the relentless drive on implementation of our Customer-centric operational excellence programmes. In the UK we delivered total sales growth of 64%. Our like for like sales growth of 5.2% delivered like for like trading margins which declined by 0.3 ppts to 2.5% but outperformed the market. Across Europe our Retail turnaround strategy is delivering results with like for like sales growth of 4.8% delivering a like for like trading profit of Â£0.8m versus a loss of Â£0.8m in 2006. Distribution business Overall our Distribution businesses posted a solid performance. Like for like sales were in line with last year but, with gross margins and good cost management, like for like trading profit grew by 8.4% to Â£200.4m. The markets in Asia continued to be very competitive with the market in Hong Kong growing 16.5%, boosted by new Government tax incentives for low emission vehicles. In Singapore market conditions were challenging, as expected, with significant growth of the parallel imports segment in an overall market which declined by 9.6%. This resulted in some market share erosion although we retained our market leadership and improved our trading margin to 9.6% from 8.9%. Across Europe, we delivered good results in competitive markets. The Greek Toyota/Lexus business strengthened its market leadership position to deliver trading profit growth of 26%. The Belgian market grew just 1.3% in the absence of the biennial motor show. Despite this, we grew like for like sales by 4.2% and delivered trading profit growth of 17.0%. In Finland we saw a significant change in the market with the announcement of new tax rules around engine emissions timed for January 2008, which caused a slowdown of the market from November. Despite this, we were able to grow trading profit by 6.6%. Australia 2007 Â£m 2006 Â£m % change on % change on 2006 2006 (constant currency) Sales 657.5 616.6 +6.6 +4.4 Trading 43.8 38.5 +13.8 +11.3 profit Strategy In our Subaru Distribution business we aim to be Australia's premium Japanese automotive brand and to leverage that position in our Retail business to become Australia's most Customer-centric automotive retail group. We focus on building scale both with our brand partners and geographically in major markets along the East coast. Market The Australian vehicle market grew by 9.1% in 2007, reaching an all time record volume for the industry. Market conditions were however very competitive, fuelled by record levels of sales support and marketing expenditure with consumers particularly sensitive to fuel consumption. Performance Our Distribution business achieved sales growth of 2.1%, delivering a market share of 3.7%. During the first half of the year we saw the run out of the old Impreza model, with the launch of the new model in the third quarter. We also saw the run out of the current Forester model in the second half of the year, ready for a new launch in 2008. As a result, our share was slightly below 2006 but our trading margin grew to 8.4% (2006 - 7.1%). Our Retail business saw lower trading profits (down 16.9%) on higher sales due to competitive market conditions, particularly on used cars. As we were in a run out year for the Impreza and Forester, we also experienced lower margins on Subaru new cars. We did, however, continue to build scale through the acquisition of a new Subaru site. Our AutoNexus business had another successful year, winning several new contracts. Outlook We expect the competitive nature of the market to continue into 2008. However, with the marketing investment behind the new Impreza model in the first quarter of the year and the launch of the new Forester model and Tribeca facelift in the first half, we will be well placed to compete strongly. Europe 2007 Â£m 2006 Â£m % change on % change on 2006 2006 (constant currency) Sales 1,203.9 1,191.1 +1.1 +1.1 Trading 50.1 39.3 +27.5 +27.5 profit Strategy In Europe, we aim to drive organic growth in our Distribution business and to pursue our turnaround plan for Retail. In Distribution, growth will continue to be driven by new model launches and a focus on operational excellence, supported by tight overhead cost control. In Retail, the turnaround plan continues to focus on operational excellence and improvements in capture rate (the proportion of Customer traffic converted to orders), through our Inchcape Advantage programme, and the disposal of loss-making sites where required. Market In Greece, the market continues to perform well, growing by 4.2% in 2007 with the 4x4 segment growing at the expense of small and medium sized cars. In Belgium, the overall new car market was up 1.3%. This exceeded our expectations following the record year for registrations in 2006 resulting from the biennial motor show. In November, the Finnish government announced changes in the tax system relating to engine emissions, effectively reducing new car tax from January 2008. The market faced a significant slowdown in the fourth quarter as consumers waited for better pricing. As a result, the full year Finnish market was down by 13.8%. Performance Our Distribution business delivered record results in 2007, with trading profits up Â£8.2m (20%) on sales which were 5.9% up, to Â£824m. The Retail business performed well, delivering trading profit of Â£0.8m compared to losses last year of Â£1.8m. In Greece, our Distribution business continues to lead the market with a 0.9 percentage point increase in share to 10.7%. Like for like sales grew by 10.4% and with tight control on overheads, like for like trading profits were up by 26%. In the Retail business, our focus on implementation of Inchcape Advantage and restructuring of the business, as outlined in the turnaround plan, is delivering results. Like for like sales grew by 20% compared to 2006 and like for like losses have been reduced by 1.8% year on year. In Belgium, our Distribution business maintained our share in a market which was 1.3% up. Like for like sales grew by 4.2% compared to 2006 and with good overhead control trading profits were improved 17.0%. The Retail business was impacted by the flat market with like for like sales down 2.9%, however a 1.0% growth in gross margins and good overhead controls resulted in trading profits growing by 18.5%. In Finland, despite the impact of car tax changes announced in the fourth quarter, trading profits in our Distribution business grew by 6.6%. The tax changes affected the Retail business significantly in the fourth quarter, resulting in like for like sales being down for the full year by 7.7%. However, as a result of good overhead controls, the launch of the Mazda6 and the sale of two loss-making sites outside Helsinki, trading losses were only 3.8% down on 2006. Outlook We expect a good year from our Distribution and Retail businesses in 2008. In Greece, the market is expected to continue to grow and, with Toyota's market leadership position, we expect growth in trading profits from Distribution and to continue to drive sales and reduce losses from Retail. In Belgium, the biennial motor show is expected to stimulate growth in the market and in Finland the car tax changes will provide a good boost to the new car segment throughout the year. Given our model range in both markets we are well placed to benefit from the market growth. Hong Kong 2007 Â£m 2006 Â£m % change on % change on 2006 2006 (constant currency) Sales 241.5 224.8 +7.4 +17.6 Trading 28.3 24.0 +17.9 +29.2 profit Strategy We continue to progress in Hong Kong with a particular focus on the luxury segment through our Lexus range. We will also look to expand in the growing multi-passenger vehicle (MPV) segment with the launch of new models in 2008. Aftersales will be a key element of growth and we will target operational efficiencies in this area. Market As a result of the new car tax system the Hong Kong vehicle market grew strongly, by 16.5%, in 2007. The MPV segment was the largest contributor to growth, increasing by 22% compared to 2006, and now represents the largest segment of the passenger car market with 28% share. Performance We saw an excellent recovery in Hong Kong with like for like sales up by 18.9%. We benefited from the new government tax regime which incentivised sales of low emission vehicles and, as a result, sales of Toyota and Lexus hybrid cars grew significantly. The launch of the Lexus LS600h, in June 2007, was well received and we further benefited from the launch of the new Corolla in the fourth quarter. Trading profits were up 29% which included a one off profit of Â£2.9m related to property. Outlook We expect positive market momentum to continue based on the strength of the Hong Kong economy and on the tax incentives for low emission vehicles. We do not expect significant taxi volume until 2009, the beginning of the replacement cycle. The opportunity for hybrid engine cars will continue to grow and we will exploit this with the Toyota/Lexus range. Singapore 2007 Â£m 2006 Â£m % change on % change on 2006 2006 (constant currency) Sales 480.3 659.5 -27.2 -24.7 Trading 46.0 58.6 -21.5 -18.6 profit Strategy The strategy focuses on retaining market leadership with healthy margins in an overall declining and highly competitive market. Revenue generation is focused on stabilising new vehicle sales by new model launches where possible and developing special editions of existing models to drive differentiation and margin. We continue to further develop other revenue streams, specifically in aftersales and finance penetration, and will support these initiatives through cost and organisational structure reorganisation. Market The pace of deregistrations continued to slow as expected and led to an overall market decline of 9.6% compared to 2006. Competition from parallel imports increased significantly in 2007, driven by importers selling new models from Japan and the aggressive pricing from local distributors buying in Yen. Performance Sales in Singapore were down by 25% but this was partly mitigated by better trading margins, which grew by 0.7ppts, resulting in trading profits down by 18.6%. A number of factors contributed to the results. A very competitive environment, together with a significant increase in parallel imports, led to a decline in our market share of 6.3ppts to 18.2%, in a market which overall declined by 9.6% compared to 2006. Our share of the taxi market was also significantly impacted by changes in the government requirements for Euro IV engines. We achieved strong growth in commercial vehicles with sales up 45%, in part due to the lack of new models from our competitors. Suzuki sales were up 19.3% with a strong performance in Suzuki service and body shop with an increase in sales of 35%. Overhead and working capital were also tightly managed, which led to a return on sales growth of 0.7ppts compared to 2006. Outlook We expect the market to continue to decline in 2008 driven overall by lower Certificate of Entitlement (COE) quotas and, with the Yen / S$ rate unlikely to improve significantly, parallel imports will continue to be a major competitor. We will benefit from two significant launches in the passenger car segment and we are actively working with Toyota in the development of a new taxi model. UK 2007 Â£m 2006 Â£m % change on % change on 2006 2006 (constant currency) Sales 2,713.5 1,711.9 +58.5 +58.5 Trading 69.6 45.9 +51.6 +51.6 profit Strategy The strategy in the UK will continue to focus efforts on the premium car segment with a smaller number of key brand partners. We will improve Customer service through Inchcape Advantage and will drive growth in aftersales and finance penetration. Market We saw some recovery in the UK market which grew by 2.5% in 2007. The new car premium segment grew much faster with Inchcape's premium brands increasing 5.5% year on year. There has also been significant growth in Diesel engines as fuel prices and car tax increase. Market pricing was more competitive and, in particular, used car margins declined overall. Performance Inchcape delivered total sales growth in the Retail business of 64% in 2007 and on a like for like basis outperformed the market with growth of 5.2%. However, due to pressure on used car volumes and margins, the like for like margin declined from 2.8% to 2.5%. Total trading profits were up 54%, driven by the integration of the Lind and EMH businesses, which is progressing well. In total our return on sales declined from 2.6% to 2.4% in 2007 as the benefits of the acquisitions of Lind and EMH helped offset the margin pressure on used cars. Our UK Distribution segment, comprising Inchcape Fleet Solutions, saw like for like trading profits decline Â£0.8m due to investment in new contract hire business, the benefit of which will be seen in future years. Outlook The overall market is expected to decline by 2.5% based on the official Society of Motor Manufacturers and Traders (SMMT) data, but we expect the premium sector to outperform the market based on the strong pipeline of new products. We expect the pressure on margins to continue into 2008 as there will be a need to stimulate demand with strong promotional activity based on decreasing consumer confidence. Emerging Markets 2007 Â£m 2006 Â£m % change on % change on 2006 2006 (constant currency) Sales 518.6 212.8 +143.7 +144.5 Trading 29.6 10.6 +179.2 +180.8 profit Strategy In Russia, the key objectives are to build scale Retail operations in St Petersburg and Moscow and to exploit regional opportunities. In China, we will build scale within the three biggest regional markets, Shanghai (which includes Shaoxing), Beijing and Guangzhou, and exploit greenfield and acquisition opportunities. In the Balkans, we will accelerate growth and increase share in Romania and increase our Retail presence in Bulgaria. In the Baltics, we will build scale with Retail and VIR and capitalise on our market leading position with our multi-brand model. Market We continue to see outstanding growth in the Emerging Markets. The car market in the Baltics grew by 34% versus last year, whilst in the Balkans, Romania grew by 25% and Bulgaria by 12.1%. In Russia, the market grew by 65% and in China grew by 24%. Performance In China, the performance of our first Toyota site in Shaoxing has exceeded expectations and we are continuing the momentum with the opening of a Lexus site, also in Shaoxing, in January 2008. Trading in Russia in the first full year has delivered a return on sales of 6.6%, the highest in the Group for Retail, which contributed Â£9.8m of trading profit on sales of Â£149m. In the Baltics, performance was in line with expectations, with our new acquisitions in Lithuania and Latvia performing well. Our businesses in the Balkans delivered sales growth of 57% with trading margins which have grown by 0.1ppts compared to 2006. Outlook We continue to see the Emerging Markets as a key source of growth for the Group and expect them to represent an increasing proportion of the Group's earnings. In 2008 we will also have a full year contribution from the recently acquired Audi and Peugeot retail centres in Russia and the two acquisitions made in the Baltics. In China, growth will continue in our current sites and will be added to with new site openings. In the Balkans we will leverage our market leadership position and we expect to see continued growth in Romania and Bulgaria with three sites under construction. Rest of World 2007 Â£m 2006 Â£m % change on % change on 2006 2006 (constant currency) Sales 241.5 225.4 +7.1 +14.2 Trading 25.1 21.9 +14.6 +24.8 profit Strategy We will continue to focus on operational excellence and will drive organisational efficiencies through tight cost controls. We will develop differentiation in our brand portfolio and will seek to develop scale through acquisition where opportunities arise. Market We saw good market growth across most markets in which we trade. In South America, the market in Chile was up 13.3% and in Peru was up by 49%. In Brunei, Guam and New Zealand, markets recorded more modest growth, up 1.5%, 6.4% and 0.8% respectively. The only exception was Saipan, where the market contracted by 37%, due to a slowdown in the economy. Performance We continue to maintain a market leadership position in Guam, Saipan and Brunei and in 2007 these markets delivered like for like trading profit growth of 15.7%. Our business in Ethiopia delivered record results in 2007, with trading profit growth of 36% on sales which grew by 43%. We delivered a strong performance in South America, which was boosted by growth in the market and better than expected returns from the acquisition of our new Honda retail site. Trading profits were up 46% compared to 2006 in total and 43% on a like for like basis. In New Zealand, pressure on used car margins and a reduction in the used car market contributed to a decline in trading profits. Outlook We remain confident of a good performance from these markets in 2008. The markets in Chile and Peru are expected to continue to grow, but at a slower pace and will be led by the luxury car segment. We will look to develop the scale of the business there through additional acquisitions. The business in Ethiopia is expected to continue to perform ahead of the market and will benefit from capital investment projects undertaken in 2007. Financial review Inchcape has produced another year of record results. This has been achieved within a robust structure. The following Financial Review details the financial implications of our operational activity and the risks which we monitor and take steps to mitigate. Central costs Central costs for the full year are Â£27.5m, Â£2.6m (10.4%) higher than 2006. This increase is a reflection of the continued investment in new management, processes and systems to support our growth. Joint ventures and associates The share of profit after tax of joint ventures has decreased by Â£2.4m to Â£3.5m in 2007. This is mainly as a result of the sale of our 50% stake in Inchroy Credit Corporation Ltd in January 2007. Exceptional items The exceptional items represent the net profits on the sale of a number of non-core businesses. Included within this is the sale of Inchroy (Â£12.0m profit), Inchcape Automotive and non-core retail centres in the UK (Â£7.1m loss). Net financing costs The net finance charge of Â£33.4m was Â£27.5m higher than in 2006 and is a reflection of our expansion strategy in 2007. The majority of the cost relates to the financing of the EMH acquisition, but also includes the acquisition of Porsche in the UK, Audi and Peugeot in Russia and our acquisitions in the Baltics. Tax The subsidiaries headline tax rate for the year is 25%, as expected at the half year compared to 21.7% in 2006. This increase arises due to the fact that the 2006 tax rate was low following the resolution of prior year issues and following the recognition of deferred tax on certain accumulated allowances. The rate is expected to continue at this level into 2008. Following the 2007 Finance Bill, changes to the treatment of industrial buildings allowances and the reduction in the UK standard rate of corporation tax from 30% to 28%, both of which are effective in 2008, we have had to re-assess our deferred tax position on our property portfolio. As a result, we expect to recognise a Â£6m exceptional tax charge in 2008. There has been recent court progress regarding VAT and interest claims affecting the motor retail sector. There remains insufficient certainty about the outcome of these cases to recognise the amounts we have filed claims for, so we continue to not recognise these. Minority Interests Profits attributable to minority interests increased to Â£5.7m in 2007 from Â£2.9m in 2006 and were the result of the 25% minority shareholding by the Olimp Group in the Toyota/Lexus operation in St Petersburg, acquired in December 2006, and the 33% minority holding by UAB Vitvela resulting from the July acquisition in Lithuania. Cash Flow The Group continues to be strongly cash generative with cash flow from operating activities of Â£293m, representing 111% of operating profit before exceptional items. Once again, the tight management of working capital has been a key success factor in the delivery of this result. During the year, the Group returned nearly Â£90m to shareholders with Â£71.1m through dividend payments and Â£18.5m through a programme of buying shares in the market. In addition, the Group invested Â£408m in acquisitions and net capital expenditure, funded by additional borrowing facilities, and realised Â£86m from the disposal of businesses. Overall, the Group had net debt of Â£221.5m at 31 December 2007 compared to Â£19.0m at 31 December 2006. Pensions During the year, and in line with the funding programme agreed with the Trustees in 2006, the Group made additional cash contributions to the UK defined benefit scheme amounting to Â£13.2m. These payments, together with changes in the long term interest rates since the end of 2006, have resulted in a net pension surplus at 31 December 2007 of Â£28.5m, compared to a net deficit at the end of 2006 of Â£22.7m. Acquisitions and disposals The Group announced and completed significant expansion in 2007 and invested a total of Â£329.6m in acquisitions, offset by total proceeds from disposals of Â£86m. The completion of the acquisition of EMH in February 2007 for Â£234m has been followed up through the year with disposals of non-core EMH and base businesses plus the Inchcape Automotive business, for a total consideration of Â£38m. In January we completed the acquisition of a Honda dealership in the fast growing Chilean markets for a total consideration of Â£1.3m. In the Baltics we acquired Baltic Motors Corporation and SIA BM Auto in Latvia, a retail group including five retail centres primarily in Riga, giving us representation for Ford and Land Rover as well as 70% of BMW in the country for a consideration of Â£48m. In Lithuania we acquired 67% of UAB Vitvela giving us representation of Ford and Mazda and a leading share of Mitsubishi and Hyundai Retail for a consideration of Â£14.9m. We further developed our business in Russia with the completion in December of the acquisition of an Audi retail centre and a Peugeot retail centre from the Olimp Group for Â£19.1m. Capital expenditure The Group maintained its policy of investing to improve operating standards of its retail centres and to develop new greenfield retail centres. We also announced the long term implementation plan for a global SAP operational system platform, and agreed terms with SAP at the beginning of quarter four 2007. Capital expenditure related to this in 2007 was Â£6.4m. Total capital expenditure of Â£80.1m was made in 2007, principally in the UK and the Emerging Markets. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total 2007 2007 2007 2006 2006 2006 Â£m Â£m Â£m Â£m Â£m Â£m Revenue 6,056.8 - 6,056.8 4,842.1 - 4,842.1 Cost of sales (5,174.3) - (5,174.3) (4,132.3) - (4,132.3) Gross profit 882.5 - 882.5 709.8 - 709.8 Net operating (617.5) 4.9 (612.6) (495.9) - (495.9) expenses Operating profit 265.0 4.9 269.9 213.9 - 213.9 Share of profit after tax of joint ventures and associates 3.5 - 3.5 5.9 - 5.9 Profit before 268.5 4.9 273.4 219.8 - 219.8 finance and tax Finance income 57.3 - 57.3 49.0 - 49.0 Finance costs (90.7) - (90.7) (54.9) - (54.9) Profit before tax 235.1 4.9 240.0 213.9 - 213.9 Tax (57.9) - (57.9) (45.1) 8.0 (37.1) Profit for the 177.2 4.9 182.1 168.8 8.0 176.8 year Attributable to: - Equity holders 176.4 173.9 of the parent - Minority 5.7 2.9 interests 182.1 176.8 Basic earnings per share (pence) 38.0p 37.5p Diluted earnings per share (pence) 37.8p 37.1p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE YEAR ENDED 31 DECEMBER 2007 2007 2006 Â£m Â£m Cash flow hedges 33.0 (21.8) Fair value losses on available for sale financial assets (0.2) (1.9) Effect of foreign exchange rate changes 30.3 (34.2) Actuarial gains on defined benefit pension schemes 32.1 5.3 Tax recognised directly in shareholders' equity (22.2) 18.7 Net gains (losses) recognised directly in shareholders' 73.0 (33.9) equity Profit for the year 182.1 176.8 Total recognised income and expense for the year 255.1 142.9 Attributable to: - Equity holders of the parent 248.4 140.5 - Minority interests 6.7 2.4 255.1 142.9 CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2007 2007 2006 Â£m Â£m Non-current assets Intangible assets 400.5 147.9 Property, plant and equipment 519.3 427.0 Investments in joint ventures and associates 15.3 15.1 Available for sale financial assets 15.6 12.2 Trade and other receivables 24.2 23.2 Deferred tax assets 10.2 40.6 Retirement benefit asset 51.9 - 1,037.0 666.0 Current assets Inventories 797.5 704.6 Trade and other receivables 262.6 211.4 Available for sale financial assets 1.1 52.8 Derivative financial instruments 12.9 0.6 Current tax assets 2.9 2.2 Cash and cash equivalents 343.4 335.2 1,420.4 1,306.8 Assets held for sale and disposal group 168.6 30.8 1,589.0 1,337.6 Total assets 2,626.0 2,003.6 Current liabilities Trade and other payables (940.2) (791.5) Derivative financial instruments (8.3) (40.2) Current tax liabilities (42.2) (33.7) Provisions (31.3) (20.7) Borrowings (155.3) (183.5) (1,177.3) (1,069.6) Non-current liabilities Trade and other payables (41.4) (39.4) Provisions (39.4) (35.5) Deferred tax liabilities (18.5) (14.7) Borrowings (409.6) (170.7) Retirement benefit liability (23.4) (22.7) (532.3) (283.0) Liabilities directly associated with the disposal (78.6) - group Total liabilities (1,788.2) (1,352.6) Net assets 837.8 651.0 Shareholders' equity Share capital 121.6 120.6 Share premium 123.4 115.9 Capital redemption reserve 16.4 16.4 Other reserves 12.7 (37.7) Retained earnings 539.5 428.6 Equity attributable to equity holders of the parent 813.6 643.8 Minority interests 24.2 7.2 Total shareholders' equity 837.8 651.0 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 2007 2006 Â£m Â£m Cash flows from operating activities Cash generated from operations 293.0 236.8 Tax paid (49.8) (50.2) Interest received 12.4 10.7 Interest paid (49.5) (18.2) Net cash generated from operating activities 206.1 179.1 Cash flows from investing activities Acquisition of businesses, net of cash and overdrafts (329.6) (147.9) required Net cash inflow from sale of businesses 85.5 5.4 Purchase of property, plant and equipment (72.0) (50.7) Purchase of intangible assets (8.1) (3.1) Proceeds from disposal of property, plant and equipment 47.3 11.4 Net purchase of available for sale financial assets - (49.9) Dividends received from joint ventures and associates 2.6 0.4 Net cash used in investing activities (274.3) (234.4) Cash flows from financing activities Proceeds from issue of ordinary shares 8.5 3.9 Share buy back programme (18.5) (34.0) Net purchase of own shares by ESOP Trust (2.0) (0.2) Cash inflow from Private Placement 277.1 - Net cash (outflow) inflow from borrowings other than (95.5) 158.7 Private Placement Payment of capital element of finance leases (0.6) (0.3) Settlements of derivatives (4.3) (6.8) Equity dividends paid (71.1) (52.6) Minority dividends paid (1.8) (3.9) Net cash from financing activities 91.8 64.8 Net increase in cash and cash equivalents 23.6 9.5 Cash and cash equivalents at beginning of the year 166.2 165.9 Effect of foreign exchange rate changes 8.8 (9.2) Cash and cash equivalents at end of the year 198.6 166.2 Cash and cash equivalents consist of: - Cash at bank and in hand 273.0 262.8 - Short term bank deposits 70.4 72.4 - Bank overdrafts (144.8) (169.0) 198.6 166.2 NOTES TO THE ACCOUNTS BASIS OF PREPARATION The financial statements have been prepared on the basis of the accounting policies set out in the Annual report and accounts 2006, which were prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC Interpretations as adopted by the European Union and implemented in the UK, and the Listing Rules of the Financial Services Authority. The Group has adopted IFRS 7 Financial Instruments: Disclosures with effect from 1 January 2007. This standard has no effect on the results or financial position of the Group The financial statements presented for the years ended 31 December 2006 and 2007 do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The Group's published financial statements for the year ended 31 December 2006 have been reported on by the Group's auditors and filed with the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. The financial information for the year ended 31 December 2007 and the comparative information have been extracted from the audited financial statements for the year ended 31 December 2007 prepared under IFRS, which have not yet been approved by shareholders and have not yet been delivered to the Registrar. 1 SEGMENTAL ANALYSIS Primary reporting format - geographical segments The Group's primary reporting format is by geographical segments. The geographical segments disclosed align them with the risks and returns associated with different territories. Emerging Markets, which is defined as those markets where the total new vehicle volume sales by international brands are growing by 10.0% or more per annum has been changed to include the results from Poland. The segment now comprises Russia, the Balkans, the Baltics, China and Poland. Comparative information has been reclassified accordingly. 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. Hong United Australia Europe Kong Singapore Kingdom 2007 Â£m Â£m Â£m Â£m Â£m Revenue Total revenue 657.5 1,436.5 241.5 480.3 2,713.5 Inter-segment revenue - (232.6) - - - Revenue from third parties 657.5 1,203.9 241.5 480.3 2,713.5 Results Operating profit before 43.8 50.1 28.3 46.0 69.6 exceptional items Exceptional items - - 12.0 - (7.1) Segment result 43.8 50.1 40.3 46.0 62.5 Share of profit after tax of - 1.8 0.2 - 0.9 joint ventures and associates Profit before finance and tax 43.8 51.9 40.5 46.0 63.4 Finance income Finance costs Profit before tax Tax Profit for the year Emerging Rest of Total pre Markets World Central Central Total 2007 Â£m Â£m Â£m Â£m Â£m Revenue Total revenue 518.6 241.5 6,289.4 - 6,289.4 Inter-segment revenue - (232.6) - (232.6) Revenue from third parties 518.6 241.5 6,056.8 - 6,056.8 Results Operating profit before 29.6 25.1 292.5 (27.5) 265.0 exceptional items Exceptional items - - 4.9 - 4.9 Segment result 29.6 25.1 297.4 (27.5) 269.9 Share of profit after tax of - 0.6 3.5 - 3.5 joint ventures and associates Profit before finance and tax 29.6 25.7 300.9 (27.5) 273.4 Finance income 57.3 Finance costs (90.7) Profit before tax 240.0 Tax (57.9) Profit for the year 182.1 Hong United Australia Europe Kong Singapore Kingdom Â£m Â£m Â£m Â£m Â£m Segment assets and liabilities Segment assets 189.1 361.6 61.2 80.9 948.3 Investment in joint ventures and - 7.6 - - 4.0 associates Assets held for sale 1.1 4.0 - - 163.5 Cash and equivalents - - - - - Other unallocated assets * - - - - - Total assets 190.2 373.2 61.2 80.9 1,115.8 Segment liabilities (178.2) (310.4) (18.4) (25.8) (334.7) External borrowings - - - - - Liabilities directly associated with the Disposal group - - - - (78.6) Other unallocated liabilities* - - - - - Total liabilities (178.2) (310.4) (18.4) (25.8) (413.3) Emerging Rest of Total pre Markets World unallocated Unallocated Total 2007 Â£m Â£m Â£m Â£m Â£m Segment assets and liabilities Segment assets 311.8 70.8 2,023.7 - 2,023.7 Investment in joint ventures 3.0 0.7 15.3 - 15.3 and associates Assets held for sale - - 168.6 - 168.6 Cash and cash equivalents - - - 343.4 343.4 Other unallocated assets* - - - 75.0 75.0 Total assets 314.8 71.5 2,207.6 418.4 2,626.0 Segment liabilities (64.8) (32.9) (965.2) - (965.2) External borrowings - - - (564.9) (564.9) Liabilities directly associated with the Disposal group - - (78.6) - (78.6) Other unallocated liabilities* - - - (179.5) (179.5) Total liabilities (64.8) (32.9) (1,043.8) (744.4) (1,788.2) * Other unallocated assets and liabilities include central provisions, tax, dividends and assets and liabilities not directly related to operating activities. Primary reporting format - geographical segments Hong United Australia Europe Kong Singapore Kingdom 2006 (Reclassified) Â£m Â£m Â£m Â£m Â£m Revenue Total revenue 616.6 1,335.7 224.8 659.5 1,711.9 Inter-segment revenue - (144.6) - - - Revenue from third parties 616.6 1,191.1 224.8 659.5 1,711.9 Results Operating profit before 38.5 39.3 24.0 58.6 45.9 exceptional items Exceptional items - - - - - Segment result 38.5 39.3 24.0 58.6 45.9 Share of profit after tax of - 1.8 2.8 - 0.9 joint ventures and associates Profit before finance and tax 38.5 41.1 26.8 58.6 46.8 Finance income Finance costs Profit before tax Tax Profit for the year Emerging Rest of Total pre Markets World Central Central Total 2006 (Reclassfied) Â£m Â£m Â£m Â£m Â£m Revenue Total revenue 212.8 225.4 4,986.7 - 4,986.7 Inter-segment revenue - - (144.6) - (144.6) Revenue from third parties 212.8 225.4 4,842.1 - 4,842.1 Results Operating profit before 10.6 21.9 238.8 (24.9) 213.9 exceptional items Exceptional items - - - - - Segment result 10.6 21.9 238.8 (24.9) 213.9 Share of profit after tax of - 0.4 5.9 - 5.9 joint ventures and associates Profit before finance and tax 10.6 22.3 244.7 (24.9) 219.8 Finance income 49.0 Finance costs (54.9) Profit before tax 213.9 Tax (37.1) Profit for the year 176.8 Hong United Australia Europe Kong Singapore Kingdom 2006 (Reclassified) Â£m Â£m Â£m Â£m Â£m Segment assets and liabilities Segment assets 154.3 335.8 55.4 104.5 719.5 Investment in joint ventures and - 8.6 - - 5.5 associates Assets held for sale - - 30.8 - - Cash and cash equivalents - - - - - Other unallocated assets* - - - - - Total assets 154.3 344.4 86.2 104.5 725.0 Segment liabilities (196.7) (281.3) (18.6) (47.2) (303.7) External borrowings - - - - - Other unallocated liabilities* - - - - - Total liabilities (196.7) (281.3) (18.6) (47.2) (303.7) Emerging Rest of Total pre Markets World Unallocated Unallocated Total 2006 (Reclassified) Â£m Â£m Â£m Â£m Â£m Segment assets and liabilities Segment assets 88.4 60.3 1,518.2 - 1,518.2 Investment in joint ventures 0.6 0.4 15.1 - 15.1 and associates Assets held for sale - - 30.8 - 30.8 Cash and cash equivalents - - - 335.2 335.2 Other unallocated assets* - - - 104.3 104.3 Total assets 89.0 60.7 1,564.1 439.5 2,003.6 Segment liabilities (19.2) (31.7) (898.4) - (898.4) External borrowings - - - (354.2) (354.2) Other unallocated liabilities* - - - (100.0) (100.0) Total liabilities (19.2) (31.7) (898.4) (454.2) (1,352.6) * Other unallocated assets and liabilities include central provisions, tax, dividends and assets and liabilities not directly related to operating activities. 1 Segmental analysis (continued) Secondary reporting format - business segments The Group's secondary reporting format is by business segments. The disclosures comprise two key business segments - Distribution and Retail. Distribution comprises Vertically integrated import, distribution and retail as well as Import and distribution. In addition, Distribution includes Financial Services and Other businesses. The secondary disclosures below analyse Distribution and Retail by geographical region. Additional disclosure has also been provided on the segmentation of profitability and operating assets and liabilities. Transfer prices between business segments are set on an arm's length basis. Hong United Australia Europe Kong Singapore KIngdom 2007 Â£m Â£m Â£m Â£m Â£m Revenue Total revenue 538.7 1,018.8 241.5 480.3 67.5 Inter-segment revenue (122.1) (194.7) Revenue from third parties 416.6 824.1 241.5 480.3 67.5 Results 35.0 49.3 28.3 46.0 4.9 Operating profit before 12.0 (8.8) exceptional items Exceptional items Segment result 35.0 49.3 40.3 46.0 (3.9) Share of profit after tax of 1.8 0.2 0.9 joint ventures and associates Profit before finance and tax 35.0 51.1 40.5 46.0 (3.0) Finance income Finance costs Profit before tax Tax Profit for the year Emerging Rest of Total Markets World Distribution 2007 Â£m Â£m Â£m Revenue Total revenue 319.3 237.5 2,903.6 Inter-segment revenue (77.3) (394.1) Revenue from third parties 242.0 237.5 2,509.5 Results Operating profit before 16.4 25.0 204.9 exceptional items Exceptional items 3.2 Segment result 16.4 25.0 208.1 Share of profit after tax of 0.6 3.5 joint ventures and associates Profit before finance and tax 16.4 25.6 211.6 Finance income Finance costs Profit before tax Tax Profit for the year United Emerging Rest of Australia Europe Kingdom Markets World 2007 Â£m Â£m Â£m Â£m Â£m Revenue Total revenue 240.9 379.8 2,646.0 276.6 4.0 Inter-segment revenue - - - - - Revenue from third parties 240.9 379.8 2,646.0 276.6 4.0 Results Operating profit before 8.8 0.8 64.7 13.2 0.1 exceptional items Exceptional items - - 1.7 - - Segment result 8.8 0.8 66.4 13.2 0.1 Share of profit after tax of - - - - - joint ventures and associates Profit before finance and tax 8.8 0.8 66.4 13.2 0.1 Finance income Finance costs Profit before tax Tax Profit for the year Total Total pre Retail Central Central Total 2007 Â£m Â£m Â£m Â£m Revenue Total revenue 3,547.3 6,450.9 - 6,450.9 Inter-segment revenue - (394.1) - (394.1) Revenue from third parties 3,547.3 6,056.8 - 6,056.8 Results Operating profit before 87.6 292.5 (27.5) 265.0 exceptional items Exceptional items 1.7 4.9 - 4.9 Segment result 89.3 297.4 (27.5) 269.9 Share of profit after tax of - 3.5 - 3.5 joint ventures and associates Profit before finance and tax 89.3 300.9 (27.5) 273.4 Finance income 57.3 Finance costs (90.7) Profit before tax 240.0 Tax (57.9) Profit for the year 182.1 Hong United Australia Europe Kong Singapore Kingdom 2007 Â£m Â£m Â£m Â£m Â£m Segment assets and liabilities Segment assets 102.5 272.7 61.2 80.9 67.7 Investment in joint ventures and - 7.6 - - 1.9 associates Assets held for sale 1.1 4.0 - - - Cash and cash equivalents - - - - - Other unallocated assets* - - - - - Total assets 103.6 284.3 61.2 80.9 69.6 Segment liabilities (146.8) (276.2) (18.4) (25.8) (49.0) External borrowings - - - - - Other unallocated liabilities* - - - - - Total liabilities (146.8) (276.2) (18.4) (25.8) (49.0) Emerging Rest of Total Markets World Distribution 2007 Â£m Â£m Â£m Segment assets and liabilities Segment assets 180.4 68.6 834.0 Investment in joint ventures - 0.7 10.2 and associates Assets held for sale - - 5.1 Cash and cash equivalents - - - Other unallocated assets* - - - Total assets 180.4 69.3 849.3 Segment liabilities (48.5) (32.5) (597.2) External borrowings - - - Other unallocated liabilities* - - - Total liabilities (48.5) (32.5) (597.2) Hong United Australia Europe Kong Singapore Kingdom 2007 Â£m Â£m Â£m Â£m Â£m Segment assets and liabilities Segment assets 86.6 88.9 880.6 131.4 2.2 Investment in joint ventures and - - 2.1 3.0 - associates Assets held for sale - - 163.5 - - Cash and cash equivalents - - - - - Other unallocated assets* - - - - - Total assets 86.6 88.9 1,046.2 134.4 2.2 Segment liabilities Segment liabilities (31.4) (34.2) (285.7) (16.3) (0.4) External borrowings - - - - - Liabilities associated with the - - (78.6) - - Disposal group Other unallocated liabilities* - - - - - Total liabilities (31.4) (34.2) (364.3) (16.3) (0.4) Total Total pre Retail Unallocated Unallocated Total 2007 Â£m Â£m Â£m Â£m Segment assets and liabilities Segment assets 1,189.7 2,023.7 - 2,023.7 Investment in joint ventures and 5.1 15.3 - 15.3 associates Assets held for sale 163.5 168.6 - 168.6 Cash and cash equivalents - - 343.4 343.4 Other unallocated assets* - - 75.0 75.0 Total assets 1,358.3 2,207.6 418.4 2,626.0 Segment liabilities (368.0) (965.2) - (965.2) External borrowings - (564.9) (564.9) (78.6) (78.6) - (78.6) Other unallocated liabilities* - - (179.5) (179.5) Total liabilities (446.6) (1,043.8) (744.4) (1,788.2) United Australia Europe Hong Kong Singapore Kingdom 2006 (Reclassified) Â£m Â£m Â£m Â£m Â£m Revenue Total revenue 511.2 944.0 224.8 659.5 100.3 Inter-segment revenue (111.5) (165.7) - - (2.5) Revenue from third parties 399.7 778.3 224.8 659.5 97.8 Results Operating profit before 28.2 41.1 24.0 58.6 3.8 exceptional items Exceptional items - - - - - Segment result 28.2 41.1 24.0 58.6 3.8 Share of profit after tax of - 1.8 2.8 - 0.9 joint ventures and associates Profit before finance and tax 28.2 42.9 26.8 58.6 4.7 Finance income Finance costs Profit before tax Tax Profit for the year Emerging Rest of Total Markets World Distribution 2006 (Reclassified) Â£m Â£m Â£m Revenue Total revenue 185.4 225.4 2,850.6 Inter-segment revenue (52.4) - (332.1) Revenue from third parties 133.0 225.4 2,518.5 Results Operating profit before 9.5 21.9 187.1 exceptional items Exceptional items - - - Segment result 9.5 21.9 187.1 Share of profit after tax of - 0.4 5.9 joint ventures and associates Profit before finance and tax 9.5 22.3 193.0 Finance income Finance costs Profit before tax Tax Profit for the year United Emerging Rest of Australia Europe Kingdom Markets World 2006 (Reclassified) Â£m Â£m Â£m Â£m Â£m Revenue Total revenue 216.9 412.8 1,614.1 79.8 - Inter-segment revenue - - - - - Revenue from third parties 216.9 412.8 1,614.1 79.8 - Results Operating profit before 10.3 (1.8) 42.1 1.1 - exceptional items Exceptional items - - - - - Segment result 10.3 (1.8) 42.1 1.1 - Share of profit after tax - - - - - of joint ventures and associates Profit before finance and 10.3 (1.8) 42.1 1.1 - tax Finance income - Finance costs - Profit before tax Tax Profit for the year Total Total pre Retail Central Central Total 2006 (Reclassified) Â£m Â£m Â£m Â£m Revenue Total revenue 2,323.6 5,174.2 - 5,174.2 Inter-segment revenue - (332.1) - (332.1) Revenue from third parties 2,323.6 4,842.1 - 4,842.1 Results Operating profit before 51.7 238.8 (24.9) 213.9 exceptional items Exceptional items - - - - Segment result 51.7 238.8 (24.9) 213.9 Share of profit after tax of 5.9 - 5.9 joint ventures and associates Profit before finance and tax 51.7 244.7 (24.9) 219.8 Finance income 49.0 Finance costs (54.9) Profit before tax 213.9 Tax (37.1) Profit for the year 176.8 United Australia Europe Hong Kong Singapore Kingdom 2006 (Reclassified) Â£m Â£m Â£m Â£m Â£m Segment assets and liabilities Segment assets 90.7 255.3 55.4 104.5 85.7 Investment in joint ventures and - 8.6 - - 5.5 associates Assets held for sale - - 30.8 - - Cash and cash equivalents - - - - - Other unallocated assets* - - - - - Total assets 90.7 263.9 86.2 104.5 91.2 Segment liabilities (173.0) (252.9) (18.6) (47.2) (44.5) External borrowings - - - - - Other unallocated liabilities* - - - - - Total liabilities (173.0) (252.9) (18.6) (47.2) (44.5) Emerging Rest of Total Markets World Distribution 2006 (Reclassified) Â£m Â£m Â£m Segment assets and liabilities Segment assets 28.2 60.3 680.1 Investment in joint ventures - 0.4 14.5 and associates Assets held for sale - - 30.8 Cash and cash equivalents - - - Other unallocated assets* - - - Total assets 28.2 60.7 725.4 Segment liabilities (11.3) (31.7) (579.2) External borrowings - - - Other unallocated liabilities* - - - Total liabilities (11.3) (31.7) (579.2) United Emerging Rest of Australia Europe Kingdom Markets World Â£m Â£m Â£m Â£m Â£m Segment assets Segment assets 63.6 80.5 633.8 60.2 - Investment in joint ventures and - - - 0.6 - associates Assets held for sale - - - - - Cash and cash equivalents - - - - - Other unallocated assets* - - - - - Total assets 63.6 80.5 633.8 60.8 - Segment liabilities Segment liabilities (23.7) (28.4) (259.2) (7.9) - External borrowings - - - - - Other unallocated liabilities* - - - - - Total liabilities (23.7) (28.4) (259.2) (7.9) - Total Total pre- Retail Unallocated Unallocated Total Segment assets Â£m Â£m Â£m Â£m Segment assets 838.1 1,518.2 - 1,518.2 Investment in joint ventures 0.6 15.1 - 15.1 and associates Assets held for sale - 30.8 - 30.8 Cash and cash equivalents - - 335.2 335.2 Other unallocated assets* - - 104.3 104.3 Total assets 838.7 1,564.1 439.5 2,003.6 Segment liabilities Segment liabilities (319.2) (898.4) - (898.4) External borrowings - - (354.2) (354.2) Other unallocated liabilities* - - (100.0) (100.0) Total liabilities (319.2) (898.4) (454.2) (1,352.6) * Other unallocated assets and liabilities include central provisions, tax, dividends and assets and liabilities not directly related to operating activities. 2 EXCEPTIONAL ITEMS 2007 2006 Â£m Â£m Profit on disposal of Inchroy joint venture 12.0 - Loss on disposal of Inchcape Automotive Limited (5.8) - Loss on disposal of other UK businesses (1.3) - Operating exceptional items 4.9 - Exceptional tax - 8.0 Total exceptional items 4.9 8.0 Exceptional tax in the prior year relates to the release of tax provided against the VAT recoveries in 2003 and 2004 following the favourable settlement of the corporation tax treatment in 2006. 3 FINANCE INCOME 2007 2006 Â£m Â£m Bank interest receivable 11.6 8.8 Expected return on post-retirement plan assets 43.8 37.7 Other interest receivable 1.9 2.5 Total finance income 57.3 49.0 4 FINANCE COSTS 2007 2006 Â£m Â£m Bank interest payable 8.9 3.8 Private Placement interest payable 11.3 - Fair value loss on cross currency interest rate swaps (8.0) - Fair value adjustment on Private Placement 8.3 - Stock holding interest 18.2 11.2 Interest expense on post-retirement plan liabilities 39.1 35.3 Other interest payable 12.9 4.6 Total finance costs 90.7 54.9 5 TAX 2007 2006 Â£m Â£m Current tax: - UK corporation tax 36.9 18.1 - Double tax relief (30.1) (11.2) 6.8 6.9 Overseas tax 54.6 49.4 61.4 56.3 Adjustments to prior year liabilities: - UK 2.1 (1.4) - Overseas (0.9) (1.8) Current tax 62.6 53.1 Deferred tax (4.7) (8.0) Tax before exceptional tax 57.9 45.1 Exceptional tax (note 2) - (8.0) Total tax charge 57.9 37.1 6 EARNINGS PER SHARE 2007 2006 Â£m Â£m Profit for the year 182.1 176.8 Minority interests (5.7) (2.9) Basic earnings 176.4 173.9 Exceptional items (4.9) (8.0) Headline earnings 171.5 165.9 Basic earnings per share 38.0p 37.5p Diluted earnings per share 37.8p 37.1p Basic Headline earnings per share 37.0p 35.7p Diluted Headline earnings per share 36.8p 35.4p 2007 2006 number number Weighted average number of fully paid ordinary shares in 484,498,889 481,212,798 issue during the year Weighted average number of fully paid ordinary shares in issue during the year: - Held by the ESOP Trust (1,760,001) (2,127,884) - Repurchased as part of the share buy back programme (18,625,305) (15,031,175) Weighted average number of fully paid ordinary shares for the purposes of basic earnings per share 464,113,583 464,053,739 Dilutive effect of potential ordinary shares 2,285,346 4,076,256 Adjusted weighted average number of fully paid ordinary 466,398,929 468,129,995 shares in issue during the year for the purposes of diluted earnings per share 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 Diluted earnings per share is calculated on the same basis as the basic earnings per share with a further adjustment to the weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise share options and deferred bonus plan awards. Diluted earnings per share is calculated on the same basis as the basic earnings per share with a further adjustment to the weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise share options and deferred bonus plan awards. Headline earnings (which excludes exceptional items) is adopted to assist the reader in understanding the underlying performance of the Group. Headline earnings per share is calculated by dividing the Headline earnings for the 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 Headline earnings per share is calculated on the same basis as the basic Headline earnings per share with a further adjustment to the weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise share options and deferred bonus plan awards. 7 DIVIDENDS The following dividends were paid by the Group: 2007 2006 Â£m Â£m Interim dividend for the six months ended 30 June 2007 of 5.25p per share (2006 - 5.0p per share) 24.5 23.0 Final dividend for the year ended 31 December 2006 of 10.0p per share (2005 - 6.3p per share) 46.6 29.6 71.1 52.6 The final proposed dividend for the year ended 31 December 2007 of 10.5p per share (Â£48.5m) is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2007. The record date for the final dividend is 23 May 2008, and the payment date 17 June 2008. 8 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Capital Share Share redemption Other Retained capital premium reserves reserves earnings Â£m Â£m Â£m Â£m Â£m At 1 January 2006 120.1 112.5 16.4 13.1 319.6 Total recognised income - - (50.8) 191.3 and expense for the year - Share-based payments - - - - 4.5 charge Net disposal of own - - - (0.2) shares by ESOP Trust - Share buy back programme - - - - (34.0) Dividends: - Equity holders of the - - - - (52.6) parent - Minority interests - - - - - Issue of ordinary share 0.5 3.4 - - - capital Acquisition of minority - - - - - interest At 1 January 2007 120.6 115.9 16.4 (37.7) 428.6 Total recognised income - - 50.4 198.0 and expense for the year - Share-based payments - - - - 4.5 charge Net disposal of own - - - (2.0) shares by ESOP Trust - Share buy back programme - - - - (18.5) Dividends: - Equity holders of the - - - - (71.1) parent - Minority interests - - - - - Issue of ordinary share 1.0 7.5 - - - capital Acquisition of business - - - - - At 31 December 2007 121.6 123.4 16.4 12.7 539.5 Equity attributable to equity holders Capital total of the Minority shareholders' parent interest equity Â£m Â£m Â£m At 1 January 2006 581.7 9.5 591.2 Total recognised income 140.5 2.4 and expense for the year 142.9 Share-based payments 4.5 - 4.5 charge Net disposal of own (0.2) - (0.2) shares by ESOP Trust Share buy back programme (34.0) - (34.0) Dividends: - Equity holders of the (52.6) - (52.6) parent - Minority interests - (3.9) (3.9) Issue of ordinary share 3.9 - 3.9 capital Acquisition of minority - (0.8) (0.8) interest At 1 January 2007 643.8 7.2 651.0 Total recognised income 248.4 6.7 255.1 and expense for the year Share-based payments 4.5 - 4.5 charge Net disposal of own (2.0) - shares by ESOP Trust (2.0) Share buy back programme (18.5) - (18.5) Dividends: - Equity holders of the (71.1) - (71.1) parent - Minority interests - (1.8) (1.8) Issue of ordinary share 8.5 - 8.5 capital Acquisition of business - 12.1 12.1 At 31 December 2007 813.6 24.2 837.8 9 NOTES TO THE CASH FLOW STATEMENT a Reconciliation of cash generated from operations 2007 2006 Â£m Â£m Cash flows from operating activities Operating profit 269.9 213.9 Exceptional items (4.9) - Amortisation 6.5 4.0 Depreciation 27.2 23.3 Profit on disposal of property, plant and (9.0) (0.6) equipment Share-based payments charge 4.5 4.5 Increase in inventories (13.9) (58.9) (Increase) decrease in trade and other (2.3) 29.4 receivables Increase in trade and other payables 30.8 56.1 Increase (decrease) in provisions 8.1 (0.6) Decrease in post retirement defined benefits* (15.4) (38.8) Movement in vehicles subject to residual value (7.0) 5.3 commitments Other items (1.5) (0.8) Cash generated from operations 293.0 236.8 * The decrease in post retirement defined benefits includes additional payments of Â£14.7m (2006 - Â£37.6m). b Reconciliation of net cash flow to movement in net debt 2007 2006 Â£m Â£m Net increase in cash and cash equivalents 23.6 9.5 Net cash inflow from borrowings and finance (181.0) (158.4) leases Change in net cash and debt resulting from cash (157.4) (148.9) flows Effect of foreign exchange rate changes on net 8.0 (8.8) cash and debt Loan notes issued on acquisition (4.5) - Movement in fair value (7.5) - Net loans and finance leases relating to (41.1) (19.3) acquisitions Movement in net debt (202.5) (177.0) Opening net (debt) funds (19.0) 158.0 Closing net debt (221.5) (19.0) 10 FOREIGN CURRENCY TRANSLATION The main exchange rates used for translation purposes are as follows: Average rates Year end rates 2007 2006 2007 2006 Australian dollar 2.39 2.44 2.27 2.48 Euro 1.46 1.46 1.36 1.48 Hong Kong dollar 15.63 14.28 15.52 15.22 Singapore dollar 3.02 2.92 2.87 3.00 11 EVENTS AFTER THE BALANCE SHEET DATE On 10 January 2008 the Group announced that in line with it's stated strategy to dispose of certain non-core UK assets, it had sold all of its UK Vauxhall retail outlets to Eden (GM) Limited for a total consideration of Â£14.3m. This information is provided by RNS The company news service from the London Stock Exchange

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