Final Results
Inchcape PLC
06 March 2007
2006 Preliminary results
New strategy delivers record performance
Strong platform for growth established
Inchcape plc, the leading independent, international automotive retailer,
announces its preliminary results for the year ended 31 December 2006.
Financial highlights:
• Sales up by £300m to £4.8bn; up 7.9%, 7.8% in constant currency (2005:£4.5bn)
• Operating profit* up 12.9% at £213.9m, 12.6% in constant currency
(2005:£189.4m)
• Reported operating profit up 21.3% to £213.9m (2005:£176.4m)
• Headline PBT* up 12.4% to £213.9m, 12.0% in constant currency (2005:£190.3m)
• Reported PBT up 20.6% to £213.9m (2005:£177.3m)
• Headline EPS* up 19.8% to 35.7p, 19.3% in constant currency (2005:29.8p)
• Reported EPS up 38.9% to 37.5p (2005:27.0p)
• Proposed final dividend up 59% at 10p per share (2005:6.3p)
giving 15p for the full year
* Before exceptional items
Operational & strategic highlights:
• Record year with good organic and acquisition led profit growth
- Market share improvements in most markets
- 34% operating profit* growth outside Asia
• Successful start of the new growth strategy:
- Existing businesses strengthened: like for like sales up 2.1%
- Acceleration of international expansion
o Acquisition of Keystar Motors Pty Limited in Australia
o Increase of investment in emerging markets, including Russia JV
- Transformational consolidation in the UK
o Acquisition of Lind Automotive Group and European Motor Holdings plc
o Refocus on premium segment
• Group margin improvement to 4.4% (2005:4.2%)
• Significant further debt capacity and strong cash generation:
cash inflow of £274.4m
* Before exceptional items
Andre Lacroix, Group Chief Executive of Inchcape plc, commented:
'Inchcape has delivered another year of record results driven by our strategy of
operational improvements and expansion in developed and emerging markets.
'In 2006, we set out our plan to grow the business over the next five years
using our strong balance sheet, excellent operating cash flows and long
established relationships with our core brand partners.
'In the last twelve months we have made significant progress. We have put a
number of new processes in place and invested in management to strengthen our
existing businesses. We have accelerated our growth with a record performance
outside of Asia. We have made strategic investments in the UK market and have
increased the focus on our international expansion, principally in the high
growth emerging markets.
'The foundations of our Group are strong and our strategic direction is clear.
Our focus on improving the customer experience and driving operational
excellence makes us well placed to deliver continued organic growth this year.
This, together with the benefit of the acquisition of EMH from 29 January 2007,
the full year effect of the Lind acquisition, and our entry into the high growth
markets of Russia and China, mean that we look forward to 2007 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
Inchcape plc is the leading independent, international automotive retailer, with
scale operations in Australia, Belgium, Greece, Hong Kong, Singapore and the
UK. The Group also has operations in a number of other markets, including
Eastern Europe, the Baltics, Russia and South America. In addition to growing
its core businesses, Inchcape is looking to develop scale operations in new and
emerging regions. It represents leading automotive brands and operates either a
retail, or a vertically integrated retail model (i.e. exclusive distribution and
retail), depending on the market. Inchcape's core brand partners are
Audi, BMW, Honda, Mazda, Mercedes-Benz, PAG, Subaru, Toyota/Lexus and
Volkswagen.
For further information, visit us at www.inchcape.com
Chairman's statement
Headline profit before tax
£m 2006 2005
Profit before tax 213.9 177.3
Exceptional items - 13.0
Headline profit before tax 213.9 190.3
Highlights
2006 has been another successful year for the Inchcape Group, delivering strong
financial, operational and strategic progress. Group sales have increased by
7.9% to £4.8bn for the full year 2006 benefiting from a combination of organic
growth and significant acquisition activity. Like for like sales increased by
2.2%. Headline profit before tax and exceptional items of £213.9m was 12.4%
higher than 2005 and Headline earnings per share rose 19.8% to 35.7p. To reflect
this success and our continued confidence for future performance we have raised
the full year dividend by 58% to 15.0p per share.
We have experienced solid performances from both our Distribution and Retail
segments. In Distribution we achieved record sales in Europe where we recovered
our market leading position in Greece, and in Australia we achieved yet another
record market share. In the Retail segment sales were up 15.3% with like for
like sales up 3.1% boosted by our focus on improving our customer service
processes and practices. Our broad geographic spread and diversity of earnings
mitigated the softer performances by our Asian businesses and helped us achieve
another year of record sales and profit as an automotive group.
As well as a continued focus on our core business, we have made a number of
important acquisitions in 2006. In February we expanded our Australian presence
with the acquisition of Keystar Motors Pty Ltd (Keystar), establishing a retail
presence in the fast growing Brisbane market. In March we announced our first
entry into the exciting, high growth Russian market through a joint venture with
the Independence Group of Companies, one of Moscow's leading independent car
retailers. We will open two retail and service centres in Moscow for Toyota, one
of the most successful foreign brands in Russia, early in 2008. We announced our
second move into the Russian market in August 2006 with the acquisition of a
majority stake in an already successful and established Toyota and Lexus
business in St Petersburg, Russia's second largest market.
China is also an exciting market for Inchcape representing substantial growth
opportunities. In December 2006 we completed the construction of our first
Toyota greenfield site in Shaoxing. We have also been awarded Lexus franchises
in Shaoxing and Shanghai which we anticipate will begin trading towards the end
of 2007, early 2008.
In the UK consolidation of the automotive retail market has also continued
throughout 2006, as we predicted. In July 2006 we acquired the scale Lind
Automotive Group Holdings Limited (Lind) business and in December 2006 we
announced the public offer for the acquisition of European Motor Holdings plc
(EMH). This completed in January 2007. Both these acquisitions allow us to take
a major step forward in our strategy and create a unique force in the UK
automotive retail market.
They significantly expand our presence in the south, east and north of England
and in the premium brand sector, which is the most profitable and fastest
growing part of the UK market. Looking forward, this creates a platform from
which to deliver growth and improved returns, based on fewer, larger scale and
stronger relationships with our core brand partners. We are confident that the
end result will give us the ability to deliver superior performance both for our
brand partners and our customers.
Dividend
The Board is recommending the payment of a final ordinary dividend for the year
of 10.0p (2005 - 6.3p). This gives a total dividend for 2006 of 15.0p, which is
58% above the 2005 dividend of 9.5p. This growth reflects our continuing
confidence in the business and its future and is consistent with our stated aim
of maintaining a progressive dividend policy to shareholders. The full year
dividend is covered 2.4 times by Headline earnings per share (2005 - 3.1 times).
Subject to approval at the Company's Annual General Meeting (AGM) on 10 May
2007, the final dividend will be paid on 15 June 2007 to shareholders on the
register on 18 May 2007.
Share buy back and share split
In May 2006 we carried out a six for one share split. Our equity was trading at
more than £29.00 per share, which was comparatively high for shares traded on
the London Stock Exchange. We felt that many shareholders would prefer to deal
at a lower price per share and therefore sub-divided each existing ordinary
share into six new ordinary shares. This further increased liquidity in the
stock.
The Group has successfully concluded its £65.0m share buy back programme
(2006 - £34m) through the purchase of 17.9m shares, now held in treasury, at an
average price of £3.64 per share.
Board changes
On 17 September 2006, Graeme Potts stepped down from the Inchcape plc Board,
leaving the Group after four years. During this time he significantly improved
the performance of our UK businesses and he left us with an excellent management
team in place. We wish Graeme the very best in the next stage of his career.
People
Our goal of being the world's most customer-centric automotive retailer is
energising everyone within Inchcape. As ever, on behalf of the Board, I would
like to thank all of our colleagues for their hard work, pride and commitment in
delivering the 2006 performance.
Trading prospects
The foundations of our Group are strong and our strategic direction is clear.
Our focus on improving the customer experience and driving operational
excellence makes us well placed to deliver continued organic growth this year.
This, together with the benefit of the acquisition of EMH from 29 January 2007,
the full year effect of the Lind acquisition, and our entry into the high growth
markets of Russia and China, mean we look forward to 2007 with confidence.
Peter Johnson
Chairman
5 March 2007
Chief Executive's review
A strong legacy
Inchcape has achieved a remarkable strategic turnaround since our move to focus
purely on the automotive sector in 1999. Since then, we have enjoyed significant
earnings growth and stock value creation for our shareholders and our
colleagues. This has generated a high level of pride and energy in the business
and I am proud to have inherited such a strong legacy.
We have made further progress in 2006, strengthening our core business as
demonstrated by the like for like sales growth of 2.1% and like for like
operating profit (before exceptional items) growth of 10.3%, at constant
currency. At the same time we have played a leading role in the consolidation of
the automotive industry. We have expanded our reach in Australia and, via the
transformational acquisition of EMH announced in December and that of Lind in
May, have taken a major strategic step forward in the UK. We have also entered
the fast growing markets of Russia and China. I am very excited at the wealth of
expertise and knowledge we have acquired and welcome our new colleagues to the
Inchcape family.
Strategy and vision
In October 2006 we outlined our strategic plan to our investors: how we will
continue to build on our success and further leverage our unique business model
to drive the next stage of growth and value creation for our shareholders.
Our vision for the Company is simple. It is to become the world's most
customer-centric automotive retail group, exceeding the expectations of our
brand partners and our customers, every day and everywhere.
I am convinced that in the future a key differentiator for automotive customers
will be the service that they receive from their retailer.
An outstanding customer experience, delivered consistently, will generate higher
returns from our existing assets, based on higher conversion and loyalty rates.
Our research has identified key opportunities to make sure our customers 'feel
special' and to create a world-class retail experience.
When combined with our global scale and local operational excellence, delivering
exceptional customer service will make us the brand partner of choice and
increase our access to attractive expansion opportunities.
This customer-centric vision is not limited to our Retail vision for Inchcape;
it also applies to our Distribution operations. As a distributor, our aim is to
deliver an outstanding customer experience for the brands we represent through
both Inchcape-owned and third-party retail outlets. I am convinced that the only
way to be successful as a distributor is to truly think and act as a retailer.
Strategic priorities
In order to deliver our next stage of growth we have identified two strategic
priorities: to strengthen our existing core business through customer-centric
operational excellence, and to expand in developed and emerging markets.
Strengthen
In strengthening the business our goal is to increase the profitability of every
single operation in every single country. Thus we are seeing an increased focus
on the customer to drive like for like sales growth and on operational
excellence to drive like for like profit growth.
The former is being driven by our long term, Group-wide programme, Inchcape
Advantage designed to codify the way we deliver an outstanding customer
experience every day, every time, everywhere and at each stage of the customer
journey. We are introducing a new suite of customer focused standards, finding
ways to share best practice across the Group and trialling new and innovative
ways to deliver a special customer experience. We want to give an advantage to
our brand partners by being the best distributor or retailer of their brand.
In our push for like for like trading profit growth, we are increasing our focus
on achieving operational excellence from our value-drivers: vehicles, service
and parts.
Expand
I am equally excited by our expansion agenda. We plan to invest significantly
with our core brand partners in developed and emerging markets. We will
accelerate our Retail expansion, develop new Distribution opportunities and
create four additional scale markets taking our core markets from six to ten
over the next five years.
In developed markets we will continue to play a leading role in the industry
consolidation to increase our share of the national volume with our core brand
partners. The management of fewer, bigger, better retail sites is leading, as
expected, to improved retail standards for the customer and creates scale
vehicle and aftersales operations for us, enabling investment in strong
management and infrastructure to generate higher returns.
As our brand partners pursue their expansion plans in the high growth emerging
markets, they are immediately developing first class retail networks, learning
from and leapfrogging the developed countries experience to build fewer, bigger
and better retail sites with world-class retail standards. They therefore need
strong and professional retail partners with significant financial capacity to
develop their retail network in these markets. We are well placed to take
advantage of these opportunities and it is our intention to increase our retail
presence in Romania, Bulgaria, Latvia, Estonia and Lithuania.
In terms of new markets, we are now creating scale operations in both Russia and
China.
Russia's car market is the largest in Central and Eastern Europe and is
experiencing rapid growth. In recent years foreign brands' share of overall
sales in Russia have been increasing strongly with a 65% increase in sales in
2006 to over one million units.
In January 2007, we completed our acquisition of a 75.1% shareholding in the
Toyota/Lexus retail and service business of Axel Car in St Petersburg, the first
step in our expansion strategy for this high growth market.
We have also announced plans to enter the Moscow market, through a joint venture
with the Independence Group of Companies, one of Moscow's leading independent
car retailers, to establish two Toyota retail and service centres in Moscow.
These retail centres are expected to open in 2008.
China is another market where I see substantial growth for the Group. The market
is growing fast and has overtaken Japan as the second largest in the world, up
by 35% in 2006.
The construction of our first Toyota dealership in Shaoxing (4.3 million
inhabitants) from a greenfield site was completed in December 2006. We have also
been awarded the Lexus franchise for Shaoxing which will open in the fourth
quarter of 2007 as well as the Lexus franchise for Shanghai, due to open in
early 2008.
Our people
I have a strong belief that it is our people who make the difference. We have an
energising Human Resources agenda in place around recruitment, motivation,
remuneration and training. We employ a decentralised but co-ordinated
organisational model. Our local businesses are empowered and resourced to make
fast decisions while the Group enjoys good synergies based on global best
practice and consistent standards.
The next stage of growth
I believe that Inchcape has tremendous growth opportunities; I expect our
strategy to deliver a healthy balance between like for like profit growth and
acquisition expansion.
Our formula for delivering exceptional shareholder returns is very compelling.
Our business platform is exceptionally strong. Our model is unique in the
automotive industry with a balanced geographic spread between developed and
emerging markets.
We enjoy market leadership positions in key markets with best-in-class margins.
And we have enduring relationships with winning brand partners supported by a
strong and professional management team.
Added to this, our performance track record is outstanding. Our existing
portfolio is highly cash generative and every market has contributed to the last
five years' profit growth.
With our clear strategic focus we will seize major growth opportunities both
organically and through acquisition. We have good financial flexibility and a
solid track record of both successfully integrating acquisitions and driving the
business forward organically.
This is why we are leading the industry as an independent, international
automotive retailer and we are excited about the growth opportunities ahead for
our shareholders, brand partners and our people.
Andre Lacroix
Group Chief Executive
5 March 2007
Operating and financial review
Regional Analysis
2006 2006 2006 2005 2005 2005
Operating Exceptional Operating Operating Exceptional Operating
profit items profit* profit items profit*
£m £m £m £m £m £m
Australia 38.5 - 38.5 31.9 - 31.9
Europe 38.3 - 38.3 29.2 - 29.2
Hong Kong 24.0 - 24.0 28.8 - 28.8
Singapore 58.6 - 58.6 62.1 - 62.1
United Kingdom 45.9 - 45.9 9.7 19.5 29.2
Emerging Markets 12.1 - 12.1 7.0 - 7.0
Rest of the World 21.4 - 21.4 20.0 - 20.0
Central costs (24.9) - (24.9) (12.3) (6.5) (18.8)
Operating profit 213.9 - 213.9 176.4 13.0 189.4
*Before exceptional items
Key Performance Indicators
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 forecast using financial and non-financial measures.
The key performance indicators which are monitored on a Group wide basis are:
- Vehicle market size
- Vehicle market share
- Revenue (hereafter termed sales)
- Like for like sales growth
- Trading profit
- Like for like trading profit growth
- Trading margins
Trading profit is defined as operating profit excluding the impact of
exceptional items and central costs.
Like for like sales and 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.
To enhance comparability, we review the results in a form that isolates the
impact of currency movements from period to period by applying the December 2005
exchange rates to both periods' results (constant currency). Unless otherwise
stated all sales and trading profit figures in the Operating Review are provided
in constant currency.
Group
2006 has been a good year for Inchcape with operating profit before exceptionals
up 12.9% to £213.9m on sales up 7.9% to £4.8bn at actual exchange rates. All of
Inchcape's core businesses contributed to this growth, with the exception of
Hong Kong and Singapore, which experienced challenging market conditions. This
once again demonstrates the strategic strength of our broad geographic spread.
The operating profit for the Group, of £213.9m was 21.3% above 2005 including
exceptional items. Excluding exceptional items Headline profit before tax was up
12.4% to £213.9m at actual exchange rates and Headline earnings per share
increased by 19.8% from 29.8p to 35.7p.
To enable a better understanding of the Group's results we have, for the first
time, provied an analysis of the two segments of our business. Distribution and
Retail, by geographic region. We are also reporting Emerging Market's results
separately so that shareholders obtain specific information on this growing part
of our business. We define Emerging Markets as those markets in which we operate
and where the total new vehicle volume sales by international brands are growing
by 10% or more per annum. This additional information is provided in note 1.
Our focus on improving customer service and operational excellence in our Retail
businesses, the benefit of new competitive Toyota/Lexus vehicles, particularly
in the European Distribution operations, and the growth of our Eastern European
operations, has underpinned like for like sales up 2.1% and trading profit up
10.3% year on year.
Distribution posted a solid performance in 2006. Like for like sales increased
by 1.1% with trading profit up 4.4%. The European and Emerging Markets Toyota/
Lexus Distribution businesses all benefited from new models stimulating consumer
demand. In Europe an all time high vehicle market in Belgium and strong parts
and accessories growth, supported Belgium Distribution achieving record sales
and trading profits in 2006. The Greek Toyota/Lexus Distribution business
recovered well after a challenging 2005, generating record trading profits in
2006 with Toyota regaining market leadership. The Emerging Markets Toyota/Lexus
businesses continued to grow at a rapid pace with like for like sales up 39%
compared to 2005. Australia Distribution achieved another year of record sales
and market share, despite a slightly declining market, as it focused on a number
of Subaru limited edition vehicle campaigns.
Both Hong Kong and Singapore suffered continued competitiveness in their
markets. In Hong Kong we retained our dominant market share by improving
penetration in the passenger car segment which offset lower public bus sales
year on year. However, a lower overall market impacted vehicle volumes. This,
together with the non recurrence of warranty service work, impacted
profitability. In Singapore the increase in parallel imports stimulated market
growth in 2006. The discontinuance of certain niche models, and taxis from
October, together with the competitive pressure from parallel importers impacted
performance.
The Retail businesses sales were up 15.5%, benefiting from both acquisitions and
underlying organic growth. In the early part of 2006 the Group acquired Keystar
Motors Pty Ltd (Keystar) in Australia, extending our retail presence into the
Brisbane market. In July we acquired Lind Automotive Group Holdings Ltd (Lind)
in the UK, increasing our scale of operations and our geographic presence in the
south and east of England. Integration of these businesses is progressing well.
We also opened eighteen new greenfield or refurbished retail centres during the
year, primarily in the UK, Bucharest and Belgium. All these acquisitions,
greenfield and newly refurbished operations contributed significantly to the
Retail division's growth in 2006.
Excluding acquisitions, like for like retail sales were up 3.4% for the year
ended 31 December 2006. This organic growth is due to our focus on becoming
truly customer-centric and improving our customer service processes and
practices throughout our Retail businesses. This is despite retail in virtually
all our territories becoming more competitive during the year.
These higher sales together with tight cost control have improved operating
margins from 1.5% in 2005 to 2.2% in 2006.
Australia
% change
% on 2005
2006 2005 change (constant
£m £m on 2005 currency)
Sales 616.6 612.7 +0.6 +3.2
Trading profit 38.5 31.9 +20.7 +23.8
The vehicle market remained fundamentally strong at 962,666 units, although
below the all time high of 2005. Market conditions continued to be competitive,
becoming more price and engine size sensitive during 2006. Subaru achieved an
eleventh consecutive year of unit sales growth retailing 37,520 vehicles.
Increased sales across all core models, assisted by limited special edition
campaigns and higher fleet sales generated sales volumes up 4.1% compared to a
market that was down 2.6% in the year. Subaru's full year market share of 3.9%
was 0.3 percentage points (ppts) ahead of 2005. This was yet another record
level.
The Distribution business achieved like for like sales up 1.1% in 2006
constrained by a competitive market and a change in mix towards smaller
vehicles. Distribution margins recovered after the pressure suffered in 2005,
mainly due to the appreciation of the Australian Dollar/Japanese Yen foreign
exchange rate.
The Business Services operation, AutoNexus, had another strong year. It has
benefited from the investment in a new parts warehouse in Sydney and from
several new fitment contracts.
The Retail division, benefited from our clear and consistent strategy to focus
on excellent customer service departments. We transferred outstanding processes
and procedures in the vehicles, parts and service from our Melbourne operation
throughout the division. This contributed to a rise in like for like sales of
2.0% in the year despite the declining market. This allied with tight cost
control assisted like for like trading profit up by 33%. This organic growth,
together with the benefit from the exit in 2005 from underperforming non core
Sydney retail centres, and the acquisition of Keystar, led to sales up 7.2% in
the year. Trading profits were up over 64% compared to 2005.
Overall a strong progression in our Distribution and Retail division contributed
to total sales up 3.2% whilst trading profits improved 23.8% in 2006. Margins
expanded from 5.2% to 6.2%.In 2007 Subaru will continue to benefit from the new
Tribeca launched in November 2006, expanding the Subaru model range. In the
second half of 2007 Subaru will launch the next generation Impreza which when
allied with special editions across ageing model ranges should stimulate brand
momentum. The Retail division will benefit from the opening of the new
greenfield retail centre in Fountaingate in Melbourne and a continuous focus on
improving customer service and operational experience throughout the division.
Europe
% change
% on 2005
2006 2005 change (constant
£m £m on 2005 currency)
Sales 1,202.7 1,034.6 +16.2 +16.2
Trading profit 38.3 29.2 +31.2 +31.2
The Toyota/Lexus businesses in Europe benefited from new competitive models,
including the RAV4, Yaris, Aygo, Lexus IS diesel and RX hybrid models supporting
organic progression.
In Belgium improvement in general consumer confidence stimulated vehicle demand
in 2006. The market achieved an all time high at 595,598 units in 2006, up 7.8%
compared to 2005. Despite the run out of the Corolla, it achieved all time
record sales supported by special editions. This together with the new
competitive product assisted Toyota/Lexus' share of the market to increase from
5.0% in 2005 to 5.4% in 2006.
Distribution like for like sales were up 12.2%, supported by stronger vehicle
sales and by higher parts and accessories sales. This increased performance,
together with focused marketing spend, improved like for like trading profit by
7.1%.
The Retail division progressed well in the year benefiting from organic
expansion, the opening of the new greenfield Lexus Waterloo centre and the
acquisition of Horemans in late 2005. In aggregate retail sales were up 40%.
This, allied with continued tight overhead control led to Retail's trading
profit increasing by 67% year on year.
Overall good progression in both the Distribution and Retail divisions resulted
in total sales up 17.4% to £529.5m. Belgium achieved record trading profits of
£15.9m. On a like for like basis and excluding the effect of a non-recurring
one-off benefit arising in 2005, trading profit was up 20% in 2006.
Some stabilisation is expected in the Belgium market in 2007. However the launch
of the new Toyota Auris to replace the Corolla Hatchback model, the next
generation Corolla sedan and the focus on the hybrid Lexus models should be
beneficial to sales in 2007.
The Greek performance recovered in 2006 after a disappointing year in 2005.
Having suffered significant weakening in consumer demand in 2005 after the
Olympics, the Greek vehicle market stabilised at 291,419 units in 2006. Similar
to Belgium, Toyota benefited from new competitive models, particularly the RAV4
and the Aygo. This, allied with the benefits of an investment programme by the
dealer network upgrading operational facilities, significantly strengthened
momentum for the Toyota brand. Toyota regained market leadership for the full
year in 2006, increasing its market share to 9.8%, 1.3ppts ahead of 2005.
Despite a flat market, Distribution's like for like sales increased by 16.0%.
This was underpinned by growth in both vehicle volumes and parts' sales. Tight
overhead control generated trading margins up from 6.5% to 7.2% for 2006.
Overall this generated a 28% increase in Distribution's like for like trading
profit year on year.
The new Toyota competitive product, improved customer service and retail
operational processes stimulated Retail like for like sales up 18.8%. These
higher sales helped the Retail business exit 2006 at a reduced loss.
Overall significant progression in both the Greek Distribution and Retail
divisions resulted in sales up 16.4% to £349.7m, whilst trading profits improved
43% to £19.8m. This is a record performance.
Strengthening in consumer demand is anticipated to restore growth in the Greek
vehicle market in 2007. Similar to Belgium, Toyota in Greece will launch a new
Toyota Auris model and a Corolla sedan. The enhanced Hilux pick-up commercial
vehicle will benefit from an improved engine and load capabilities which should
stimulate Toyota sales in the commercial segment of the market.
In 2006 the vehicle market in Finland contracted, down 1.7% on 2005. After a
challenging 2005, the Distribution business recovered well. Tactical marketing
campaigns improved Mazda's market share by 0.3ppts in the year to 3.7%. Overall
our Finland business generated a trading profit of £4.7m up 22%.
In France we undertook a restructuring programme to focus our operations on the
south west region in the market areas of Bordeaux, Toulouse and Montpellier. We
expect to see the benefits of this restructuring in 2007.
Our business in Poland has had a challenging year resulting in a trading loss,
though this was £0.4m lower than 2005.
Hong Kong
% change
% on 2005
2006 2005 change (constant
£m £m on 2005 currency)
Sales 224.8 242.3 -7.2 -6.4
Trading profit 24.0 28.8 -16.7 -15.6
The Hong Kong vehicle market was 30,099 units in 2006. This was 646 units, 2.1%,
below 2005. However 2005 benefited from a Government fiscal incentivisation to
convert Coaster public buses to liquid petroleum gas (LPG). Excluding this
effect the underlying vehicle market was slightly up year on year. This was
particularly prevalent in the passenger car market where consumer demand started
to improve during the second quarter of 2006, primarily towards the luxury end
of the market. Overall the passenger car market was up 2.8% versus 2005.
Crown Motors, our Toyota/Lexus business, leveraged its dominant market position
in 2006 to drive consumer demand in the competitive environment. At the
beginning of the year demand was affected by the run out of several core models
whilst competitors launched new products. However, this improved in the second
half, as we benefited from new competitive product, including the Camry, Previa
and various Lexus models.
This allied to marketing campaigns celebrating the fortieth anniversary of Crown
Motors' selling Toyota vehicles in Hong Kong, led to Crown Motor's market share
increasing to 35.1% for the second half of 2006. This compensated for the weaker
first half and lower public bus sales year on year. Overall, Crown achieved a
market share of 33.7% in 2006, flat with 2005.
Despite a flat market share, vehicle sales reduced year on year due to the
decline in the market. This together with a weaker vehicle mix and the
non-recurrence of one-off warranty work experienced in 2005, impacted sales.
Overall sales in Hong Kong were 6.4% lower than 2005. Although trading margin
came under pressure in the competitive market, at 10.7% it still remains one of
the highest in the Group. Trading profit was 15.6% below 2005. We continue to
focus on aftersales to broaden the sales base. Like for like aftersales revenue
was up 5.9% year on year.
Demand in the Hong Kong vehicle market is expected to increase in 2007 driven by
Government fiscal incentives associated with the purchase of vehicles with low
emissions and high fuel efficiency. Incentivisation will also be offered to
stimulate replacement of ageing pre-Euro and Euro 1 diesel commercial vehicles
with Euro IV compliant models. Following the sale in January 2007 of Inchcape's
50% stake in Inchroy Credit Corporation Ltd, a financial services joint venture,
we are now implementing a market forces finance and insurance model similar to
that successfully used in the UK.
Singapore
% change
% on 2005
2006 2005 change (constant
£m £m on 2005 currency)
Sales 659.5 719.6 -8.4 -11.4
Trading profit 58.6 62.1 -5.6 -8.7
Our Toyota/Lexus business in Singapore experienced a challenging year in 2006
facing a year on year decline in a market stimulated by parallel imports. This
was partially compensated for, however, by a very strong performance by the
Suzuki franchise which benefited from new competitive models particularly in the
smaller passenger car segment.
Parallel imports of vehicles into Singapore, primarily from Japan, have
increased 113.8% in 2006 to 20,860 units. This is due to the earlier launch and
broader model offering of new competitive Toyota models in Japan, allied with a
weakening in the Japanese Yen benefiting Singapore consumers. This has supported
a record market of 136,109 units in Singapore in 2006, up 3.2% on 2005.
In the face of competitive market conditions, particularly from parallel
importers. Borneo Motors, the franchise Toyota/Lexus retailer in Singapore,
maintained a dominant market leadership in the period at 27.1%.
This was 2.6 ppts down on the full year 2005. Demand was stimulated by the
launch of the new Camry model in the second half of 2006. However, this was more
than offset by the discontinuation of the popular Lexus ES300, Liteace
commercial vehicle, lower taxi sales, and the slow down in ageing key model
sales, particularly the Corolla Altis and Picnic models.
Lower vehicle sales volumes together with continued margin pressure,
particularly around finance and insurance affected Borneo's profitability.
Similar to Hong Kong, the business continues to focus on aftersales to broaden
the sales base. Like for like aftersales growth was up 15.2% year on year.
The Suzuki franchise generated an excellent performance in 2006. It benefited
from strong consumer demand for the new Swift and APV models. Like for like
sales were up 32% and trading profits were up over 110% in the year to £5.5m.
Overall, Borneo's softer performance was mitigated in part by a strong Suzuki
progression. This resulted in sales down 11.4% and trading profit down 8.7% on
2005. Suzuki's performance assisted margin progression from 8.6% in 2005 to
8.9%.
The Singapore vehicle market is expected to decline in 2007. In addition, new
emission regulations will result in the absence of Singapore taxi sales which is
expected to impact profitability by around £3.0m year on year.
United Kingdom
% change
% on 2005
2006 2005 change (constant
£m £m on 2005 currency)
Sales 1,711.9 1,530.3 +11.9 +11.9
Trading profit 45.9 29.2 +57.2 +57.2
The UK vehicle market continued to decline in 2006 to 2.34m units, 3.9% below
2005. UK Retail's like for like new vehicle sales outperformed the market in
2006. Despite a tactical withdrawal from low margin fleet sales (like for like
sales decreased by 13.1%) Inchcape's like for like new vehicle sales were only
1.0% back on 2005. The strategic expansion of UK Retail, particularly the full
year effect of the acquisition of new Mercedes-Benz dealerships in the northwest
in mid 2005 and Lind from July 2006, supported total new vehicle volumes up
11.4% year on year.
Continued focus on process improvements, operational excellence and customer
initiatives assisted the growth in the core business. In competitive market
conditions like for like used car sales were up 2.5% and like for like service
hours improved by 6.2% compared to 2005. This mitigated the softening
experienced in like for like new vehicle sales. Overall like for like sales were
0.6% lower than last year. Tight overhead cost control and higher manufacturer
bonuses assisted like for like margins to improve from 2.0% in 2005 to 2.6% in
2006. This generated like for like trading profit of £36.2m in 2006, 28.6% up on
2005. This strong organic performance together with the full year impact of
acquisitions generated sales up 14.0% year on year. Trading profit increased by
46.1% to £42.1m. The integration of Lind is well underway and we are generating
synergies from the combined businesses.
Our Fleet Solutions business had a good year with trading profit up 19.7%; this
was assisted by increased rental and fleet income and a reduction in overheads.
Inchcape Automotive continued to benefit from the actions taken in 2005 to
improve production efficiency, reducing the full year loss by £2.8m compared to
2005.
Overall our UK businesses achieved a growth in sales of 11.9% to £1.7bn in 2006.
Furthermore, strong trading margin progression led by an impressive UK Retail
performance and the improvement in our Inchcape Automotive business, has
delivered UK trading profit improvements of 57% to £45.9m in 2006. This is a
record level.
We have now finalised the planned review of the UK business following the
acquisition of EMH, completed in January 2007. As a result of our strategy to
focus on the premium segment of the market with those franchises with whom we
can achieve scale, we will be disposing of non core franchises. We intend to
dispose of up to forty seven UK sites, comprising Bentley, Ferrari, Ford, Kia,
Maserati, PAG (Jaguar, Land Rover and Volvo), Renault and Vauxhall. We are
focused on improving the operating margins, streamlining our overheads and
increasing the productivity of our resultant UK business. We also intend to
dispose of our Inchcape Automotive UK operation.
Emerging Markets
% change
% on 2005
2006 2005 change (constant
£m £m on 2005 currency)
Sales 201.2 134.6 +49.5 +49.5
Trading profit 12.1 7.0 +72.9 +72.9
The Bulgarian and Romanian markets grew at a fast rate, up 34%. The businesses
achieved a market share of 5.2%. In this dynamic environment, our businesses
continue to develop, generating like for like record sales up 37%. A new
greenfield flagship 3S retail facility in Bucharest opened in June supporting
overall sales up by 43%. Overall trading profit increased in the Balkans by 57%
to £10.6m, a record level.
The Baltic markets of Estonia, Latvia and Lithuania continued to enjoy another
year of rapid growth, up 38% in 2006. Our businesses have outperformed the
market, improving market share from 5.3% in 2005 to 5.6% this year. The focus on
operational excellence across vehicle, service and parts underpinned like for
like trading profit up by 300% in the period to £1.0m.
Rest of the World
% change
% on 2005
2006 2005 change (constant
£m £m on 2005 currency)
Sales 225.4 214.0 +5.3 +6.1
Trading profit 21.4 20.0 +7.0 +7.0
We retained a dominant market leadership position in Guam, Saipan and Brunei.
The businesses experienced a good year with like for like trading profits up
2.6%.
Our Ethiopian business continues to perform extremely well and 2006 has been an
excellent year. Like for like sales increased by 29%, and trading profit
increased by 35% to £8.4m, primarily due to increased vehicle, service and
record parts' sales.
Our Subaru business in New Zealand had a challenging year in competitive
conditions.
In South America trading profit was marginally behind the record performance in
2005.
Central costs
Central costs for the full year are £24.9m, £6.1m higher than last year. This is
as a result of our continued investment in new management, systems and processes
to facilitate the next phase of growth of the Group, and costs relating to
executive management changes.
Financial Review
Joint venture and associates
The share of profit after tax of joint ventures has decreased to £5.9m in 2006
from £6.2m in 2005. This is mainly due to a reduced contribution from our
financial services joint venture in the UK following the implementation of a
market forces model by our UK Retail business.
In December 2006 we announced the disposal of Inchcape's 50% stake in Inchroy
Credit Corporation Ltd, a financial services joint venture. This disposal was
completed in January 2007 at a profit to the Group of c.£15.0m, and we are now
implementing a market forces finance and insurance model similar to that
successfully used in the UK.
Exceptional Items
The exceptional tax credit of £8.0m reflects the favourable settlements in 2006
of corporation tax treatment of the VAT recovery and associated net interest
income received by the Group in 2003 and 2004.
Net finance costs
The net finance charge of £5.9m for 2006 was £0.6m higher than 2005. The finance
charge benefited by £2.4m from an improvement in notional pension interest
income partly due to a lower discount rate in 2006 but also due to the £37.6m
one-off contributions made to the pension funds. This was offset by higher
financing costs primarily due to the Lind acquisition undertaken in July 2006.
Tax
The subsidiaries Headline tax rate before exceptional items for 2006 is 21.7%,
reduced from 25.5% in 2005.
Following the resolution of certain prior year issues, including tax treatment
of capital expenditure together with improved performance in our UK businesses,
the Group has been able to re-assess its deferred tax position on the
recognition of losses and available allowances. As a result a deferred tax asset
has been recognised which, together with the successful resolution of overseas
tax audits, has contributed to the lower rate of 21.7%.
For 2007, it is expected that the rate will increase towards the blended rate of
approximately 25%.
Minority interests
Profits attributable to minority interests decreased from £3.8m in 2005 to £2.9m
in 2006. This is due to the acquisition of the minority shares of TM Auto Ltd in
Bulgaria in March 2006.
Cash flow
The Group's working capital is £84.5m. This is c.£42.0m better than last year
due to tight management control and is despite a 7.9% increase in sales in 2006.
The Group continues to be strongly cash generative with cash flow from
operations of £236.8m, which is 111% of operating profit. During the year the
Group returned £86.6m to shareholders with £52.6m through dividend payments and
£34.0m through the share buy back programme. In addition the Group invested
£190.3m in acquisitions and net capital expenditure in 2006 and acquired 18.55%
of the shares in EMH for £49.2m. Overall the Group had a net debt position of
£19.0m at 31 December 2006 compared to net cash of £158.0m at 31 December 2005.
Pensions
During the year, the Trustees Boards of two of the Group's UK defined benefit
pension schemes carried out their triennial valuation of the pension funds. In
March 2006, in advance of these valuations the Group agreed a funding programme
to address the deficits in these schemes. This programme included making one-off
contributions totalling £37.6m to the schemes during 2006. This, together with
improved return on assets during the year has reduced the pension deficit from
£69.4m at 31 December 2005 to £22.7m at 31 December 2006. It is anticipated that
additional contributions of c.£49.0m will be made to two of the Group's UK
defined benefit pension schemes over the following five years to address their
funding deficit.
Acquisitions and disposals
The Group announced significant expansion during the year, investing £147.9m in
acquisitions. Of this, £94.3m of this related to the acquisition of Lind in July
2006. Including net debt acquired the total acquisition cost was £107.9m. This
sizeable acquisition enhanced the geographic coverage of our Retail operations
in the south and east of England.
In December 2006 Inchcape entered the St Petersburg market in Russia with the
acquisition of 75.1% of the scale Toyota/Lexus operations formerly owned by
Olimp Group for a consideration of £34.5m. Also in December the Group announced
its offer for the acquisition of the shares of EMH. As part of this, in mid
December it acquired an 18.55% stake for £49.2m. The £262.9m acquisition was
completed on 29 January 2007 from which date the results of EMH will be
consolidated into the Group figures.
Capital expenditure
The Group maintained its policy of investing to improve the quality and
operating standards of its retail centres and to develop new greenfield retail
centres. Net capital expenditure of £42.4m was made in the period, principally
in UK Retail, Belgium and Romania.
Barbara Richmond
Group Finance Director
5 March 2007
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2006
Before
exceptional Exceptional
items items Total
2006 2006 2006
£m £m £m
Revenue 4,842.1 - 4,842.1
Cost of sales (4,132.3) - (4,132.3)
Gross profit 709.8 - 709.8
Net operating expenses (495.9) - (495.9)
Operating profit 213.9 - 213.9
Share of profit after tax of joint
ventures and associates 5.9 - 5.9
Profit before finance and tax 219.8 - 219.8
Finance income 49.0 - 49.0
Finance costs (54.9) - (54.9)
Profit before tax 213.9 - 213.9
Tax (45.1) 8.0 (37.1)
Profit for the year 168.8 8.0 176.8
Attributable to:
- Equity holders of the parent 173.9
- Minority interests 2.9
176.8
Basic earnings per share (pence) 37.5p
Diluted earnings per share (pence) 37.1p
Before
exceptional Exceptional
items items Total
2005 2005 2005
£m £m £m
Revenue 4,488.1 - 4,488.1
Cost of sales (3,847.4) - (3,847.4)
Gross profit 640.7 - 640.7
Net operating expenses (451.3) (13.0) (464.3)
Operating profit 189.4 (13.0) 176.4
Share of profit after tax of joint
ventures and associates 6.2 - 6.2
Profit before finance and tax 195.6 (13.0) 182.6
Finance income 44.7 - 44.7
Finance costs (50.0) - (50.0)
Profit before tax 190.3 (13.0) 177.3
Tax (46.9) - (46.9)
Profit for the year 143.4 (13.0) 130.4
Attributable to:
- Equity holders of the parent 126.6
- Minority interests 3.8
130.4
Basic earnings per share (pence) 27.0p
Diluted earnings per share (pence) 26.8p
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED 31 DECEMBER 2006
2006 2005
£m £m
Cash flow hedges (21.8) (1.5)
Movement on available for sale financial assets (1.9) 2.3
Effect of foreign exchange rate changes (34.2) 30.4
Actuarial gains (losses) on defined benefit pension schemes 5.3 (15.3)
Tax recognised directly in shareholders' equity 18.7 5.3
Net (losses) gains recognised directly in shareholders'
equity (33.9) 21.2
Profit for the year 176.8 130.4
Total recognised income and expense for the year 142.9 151.6
Attributable to:
- Equity holders of the parent 140.5 147.4
- Minority interests 2.4 4.2
142.9 151.6
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2006
2006 2005
£m £m
Non-current assets
Intangible assets 147.9 69.5
Property, plant and equipment 427.0 346.7
Investments in joint ventures and associates 15.1 44.7
Available for sale financial assets 12.2 15.0
Trade and other receivables 23.2 22.4
Deferred tax assets 40.6 23.4
666.0 521.7
Current assets
Inventories 704.6 615.8
Trade and other receivables 211.4 221.1
Available for sale financial assets 52.8 2.4
Derivative financial instruments 0.6 2.1
Current tax assets 2.2 1.0
Cash and cash equivalents 335.2 309.0
1,306.8 1,151.4
Assets held for sale 30.8 -
1,337.6 1,151.4
Total assets 2,003.6 1,673.1
Current liabilities
Trade and other payables (791.5) (688.2)
Derivative financial instruments (40.2) (12.6)
Current tax liabilities (33.7) (43.8)
Provisions (20.7) (22.5)
Borrowings (183.5) (145.4)
(1,069.6) (912.5)
Non-current liabilities
Trade and other payables (39.4) (45.3)
Provisions (35.5) (35.6)
Deferred tax liabilities (14.7) (13.5)
Borrowings (170.7) (5.6)
Retirement benefit liability (22.7) (69.4)
(283.0) (169.4)
Total liabilities (1,352.6) (1,081.9)
Net assets 651.0 591.2
Shareholders' equity
Share capital 120.6 120.1
Share premium 115.9 112.5
Capital redemption reserve 16.4 16.4
Other reserves (37.7) 13.1
Retained earnings 428.6 319.6
Equity attributable to equity holders of the parent 643.8 581.7
Minority interests 7.2 9.5
Total shareholders' equity 651.0 591.2
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2006
2006 2005
£m £m
Cash flows from operating activities
Cash generated from operations 236.8 195.4
Tax paid (50.2) (51.4)
Interest received 10.7 13.9
Interest paid (18.2) (16.8)
Net cash generated from operating activities 179.1 141.1
Cash flows from investing activities
Acquisition of businesses, net of cash and overdrafts
acquired (147.9) (29.9)
Net cash inflow (outflow) from sale of businesses 5.4 (5.5)
Purchase of property, plant and equipment (50.7) (63.5)
Purchase of intangible assets (3.1) (2.2)
Proceeds from disposal of property, plant and equipment 11.4 17.6
Net purchase of available for sale financial assets (49.9) (0.5)
Dividends received from joint ventures and associates 0.4 9.7
Net cash used in investing activities (234.4) (74.3)
Cash flows from financing activities
Proceeds from issue of ordinary shares 3.9 2.4
Share buy back programme (34.0) (31.0)
Net (purchase) disposal of own shares by ESOP Trust (0.2) 0.1
Net cash inflow (outflow) from borrowings 158.7 (2.3)
Payment of capital element of finance leases (0.3) (0.2)
Settlement of derivatives (6.8) 9.4
Equity dividends paid (52.6) (42.0)
Minority dividends paid (3.9) (3.0)
Net cash from (used in) financing activities 64.8 (66.6)
Net increase in cash and cash equivalents 9.5 0.2
Cash and cash equivalents at the beginning of the year 165.9 158.8
Effect of foreign exchange rate changes (9.2) 6.9
Cash and cash equivalents at the end of the year 166.2 165.9
Cash and cash equivalents consist of:
- Cash at bank and in hand 262.8 217.5
- Short term bank deposits 72.4 91.5
- Bank overdrafts (169.0) (143.1)
166.2 165.9
NOTES TO THE ACCOUNTS
1 BASIS OF PREPARATION
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) as endorsed by the European Union and with
those parts of the Companies Act 1985 applicable to companies reporting under
IFRS.
The financial information presented does not constitute statutory financial
statements for the years ended 31 December 2006 or 2005 as defined in Section
240 of the Companies Act 1985. The financial information for the year ended
31 December 2006 and the comparative information have been extracted from the
audited financial statements for the year ended 31 December 2006 prepared under
IFRS, which have not yet been approved by shareholders and have not yet been
delivered to the Registrar.
2 SEGMENTAL ANALYSIS
Primary reporting format - geographical segments
The Group's primary reporting format is by geographical segments.
The geographical segments disclosed have been amended to further align them
with the risks and returns associated with different territories. The principal
change has been to disaggregate those territories regarded as Emerging Markets,
which is defined as those markets where the total new vehicle volume sales by
international brands are growing by 10% or more per annum (comprising Russia,
the Balkans and the Baltics). These are distinguished from more mature markets
in Europe (comprising Greece, Belgium, Finland, Poland and France) and the Rest
of the World. Comparative information has been restated 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
For the year ended Australia Europe Kong Singapore Kingdom
31 December 2006 £m £m £m £m £m
Revenue
Total revenue 616.6 1,347.3 224.8 659.5 1,711.9
Inter-segment revenue - (144.6) - - -
Revenue from third parties 616.6 1,202.7 224.8 659.5 1,711.9
Results
Operating profit before
exceptional items 38.5 38.3 24.0 58.6 45.9
Exceptional items - - - - -
Segment result 38.5 38.3 24.0 58.6 45.9
Share of profit after tax of
joint ventures and associates - 1.8 2.8 - 0.9
Profit before finance and tax 38.5 40.1 26.8 58.6 46.8
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Emerging Rest of Total pre
For the year ended Markets World Central Central Total
31 December 2006 £m £m £m £m £m
Revenue
Total revenue 201.2 225.4 4,986.7 - 4,986.7
Inter-segment revenue - - (144.6) - (144.6)
Revenue from third parties 201.2 225.4 4,842.1 - 4,842.1
Results
Operating profit before
exceptional items 12.1 21.4 238.8 (24.9) 213.9
Exceptional items - - - - -
Segment result 12.1 21.4 238.8 (24.9) 213.9
Share of profit after tax of
joint ventures and associates - 0.4 5.9 - 5.9
Profit before finance and tax 12.1 21.8 244.7 (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
As at Australia Europe Kong Singapore Kingdom
31 December 2006 £m £m £m £m £m
Segment assets and liabilities
Segment assets 154.3 341.3 55.4 104.5 719.5
Investment in joint ventures
and associates - 8.6 - - 5.5
Assets held for sale - - 30.8 - -
Cash and cash equivalents - - - - -
Other unallocated assets* - - - - -
Total assets 154.3 349.9 86.2 104.5 725.0
Segment liabilities (196.7) (282.3) (18.6) (47.2) (303.8)
External borrowings - - - - -
Other unallocated liabilities* - - - - -
Total liabilities (196.7) (282.3) (18.6) (47.2) (303.8)
Total pre
Emerging Rest of unallo- Unallo-
As at Markets World cated cated Total
31 December 2006 £m £m £m £m £m
Segment assets and liabilities
Segment assets 80.4 62.8 1,518.2 - 1,518.2
Investment in joint ventures
and associates 0.6 0.4 15.1 - 15.1
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 81.0 63.2 1,564.1 439.5 2,003.6
Segment liabilities (17.8) (32.0) (898.4) - (898.4)
External borrowings - - - (354.2) (354.2)
Other unallocated
liabilities* - - - (100.0) (100.0)
Total liabilities (17.8) (32.0) (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.
Hong United
For the year ended Australia Europe Kong Singapore Kingdom
31 December 2005 £m £m £m £m £m
Revenue
Total revenue 612.7 1,138.7 242.3 719.6 1,530.3
Inter-segment revenue - (104.1) - - -
Revenue from third parties 612.7 1,034.6 242.3 719.6 1,530.3
Results
Operating profit before
exceptional items 31.9 29.2 28.8 62.1 29.2
Exceptional items - - - - (19.5)
Segment result 31.9 29.2 28.8 62.1 9.7
Share of profit after tax of
joint ventures and associates - 1.8 3.0 - 1.2
Profit before finance and tax 31.9 31.0 31.8 62.1 10.9
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Emerging Rest of Total pre
For the year ended Markets World Central Central Total
31 December 2005 £m £m £m £m £m
Revenue
Total revenue 134.6 214.0 4,592.2 - 4,592.2
Inter-segment revenue - - (104.1) - (104.1)
Revenue from third parties 134.6 214.0 4,488.1 - 4,488.1
Results
Operating profit before
exceptional items 7.0 20.0 208.2 (18.8) 189.4
Exceptional items - - (19.5) 6.5 (13.0)
Segment result 7.0 20.0 188.7 (12.3) 176.4
Share of profit after tax of
joint ventures and associates - 0.2 6.2 - 6.2
Profit before finance and tax 7.0 20.2 194.9 (12.3) 182.6
Finance income 44.7
Finance costs (50.0)
Profit before tax 177.3
Tax (46.9)
Profit for the year 130.4
Hong United
As at Australia Europe Kong Singapore Kingdom
31 December 2005 £m £m £m £m £m
Segment assets and liabilities
Segment assets 130.1 302.6 58.8 113.1 583.1
Investment in joint ventures
and associates - 7.2 32.6 - 4.6
Assets held for sale - - - - -
Cash and cash equivalents - - - - -
Other unallocated assets* - - - - -
Total assets 130.1 309.8 91.4 113.1 587.7
Segment liabilities (148.8) (237.3) (22.6) (43.1) (324.5)
External borrowings - - - - -
Other unallocated liabilities* - - - - -
Total liabilities (148.8) (237.3) (22.6) (43.1) (324.5)
Total pre
Emerging Rest of unallo- Unallo-
As at Markets World cated cated Total
31 December 2006 £m £m £m £m £m
Segment assets and liabilities
Segment assets 31.8 62.5 1,282.0 - 1,282.0
Investment in joint ventures
and associates - 0.3 44.7 - 44.7
Assets held for sale - - - - -
Cash and cash equivalents - - - 309.0 309.0
Other unallocated assets* - - - 37.4 37.4
Total assets 31.8 62.8 1,326.7 346.4 1,673.1
Segment liabilities (12.7) (31.5) (820.5) - (820.5)
External borrowings - - - (151.0) (151.0)
Other unallocated
liabilities* - - - (110.4) (110.4)
Total liabilities (12.7) (31.5) (820.5) (261.4) (1,081.9)
* Other unallocated assets and liabilities include central provisions, tax,
dividends and assets and liabilities not directly related to operating
activities.
Secondary reporting format - business segments
The Group's secondary reporting format is by business segments.
The business segments disclosed have been amended to further align them with the
risks and returns associated with different businesses and related reporting
structure of the Group. The disclosures have been simplified to comprise two
key business segments - Distribution and Retail. Distribution now comprises both
those businesses previously reported as Vertically integrated import,
distribution and retail as well as Import and distribution. In addition,
Distribution includes those businesses previously reported under Financial
Services and Other. Comparative information has been restated accordingly.
The secondary disclosures below have been enhanced to further analyse
Distribution and Retail by geographical region. Additional disclosure has also
been provided on the segmentation of profitability and operating liabilities.
Comparative information has been restated accordingly.
Transfer prices between business segments are set on an arm's length basis.
Hong United
For the year ended Australia Europe Kong Singapore Kingdom
31 December 2006 £m £m £m £m £m
Revenue
Total revenue 511.2 944.1 224.8 659.5 100.3
Inter-segment revenue (111.5) (165.7) - - (2.5)
Revenue from third parties 399.7 778.4 224.8 659.5 97.8
Results
Operating profit before
exceptional items 28.2 41.1 24.0 58.6 3.8
Exceptional items - - - - -
Segment result 28.2 41.1 24.0 58.6 3.8
Share of profit after tax of
joint ventures and associates - 1.8 2.8 - 0.9
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
Total
Emerging Rest of Distri-
For the year ended Markets World bution
31 December 2006 £m £m £m
Revenue
Total revenue 130.3 225.4 2,795.6
Inter-segment revenue (52.4) - (332.1)
Revenue from third parties 77.9 225.4 2,463.5
Results
Operating profit before
exceptional items 8.4 21.4 185.5
Exceptional items - - -
Segment result 8.4 21.4 185.5
Share of profit after tax of
joint ventures and associates - 0.4 5.9
Profit before finance and tax 8.4 21.8 191.4
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
United Emerging Total
For the year ended Australia Europe Kingdom Markets Retail
31 December 2006 £m £m £m £m £m
Revenue
Total revenue 216.9 424.3 1,614.1 123.3 2,378.6
Inter-segment revenue - - - - -
Revenue from third parties 216.9 424.3 1,614.1 123.3 2,378.6
Results
Operating profit before
exceptional items 10.3 (2.8) 42.1 3.7 53.3
Exceptional items - - - - -
Segment result 10.3 (2.8) 42.1 3.7 53.3
Share of profit after tax of
joint ventures and associates - - - - -
Profit before finance and tax 10.3 (2.8) 42.1 3.7 53.3
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Total pre
For the year ended Central Central Total
31 December 2006 £m £m £m
Revenue
Total revenue 5,174.2 - 5,174.2
Inter-segment revenue (332.1) - (332.1)
Revenue from third parties 4,842.1 - 4,842.1
Results
Operating profit before exceptional
items 238.8 (24.9) 213.9
Exceptional items - - -
Segment result 238.8 (24.9) 213.9
Share of profit after tax of joint
ventures and associates 5.9 - 5.9
Profit before finance and tax 244.7 (24.9) 219.8
Finance income 49.0
Finance costs (54.9)
Profit before tax 213.9
Tax (37.1)
Profit for the year 176.8
Hong United
As at Australia Europe Kong Singapore Kingdom
31 December 2006 £m £m £m £m £m
Segment assets and liabilities
Segment assets 90.7 255.3 55.4 104.5 85.7
Investment in joint ventures
and associates - 8.6 - - 5.5
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) (252.8) (18.6) (47.2) (44.5)
External borrowings - - - - -
Other unallocated liabilities* - - - - -
Total liabilities (173.0) (252.8) (18.6) (47.2) (44.5)
Total
Emerging Rest of Distri-
As at Markets World bution
31 December 2006 £m £m £m
Segment assets and liabilities
Segment assets 16.3 62.8 670.7
Investment in joint ventures
and associates - 0.4 14.5
Assets held for sale - - 30.8
Cash and cash equivalents - - -
Other unallocated assets* - - -
Total assets 16.3 63.2 716.0
Segment liabilities (10.1) (32.0) (578.2)
External borrowings - - -
Other unallocated liabilities* - - -
Total liabilities (10.1) (32.0) (578.2)
* Other unallocated assets and liabilities include central provisions, tax,
dividends and assets and liabilities not directly related to operating
activities.
United Emerging Total
As at Australia Europe Kingdom Markets Retail
31 December 2006 £m £m £m £m £m
Segment assets and liabilities
Segment assets 63.6 86.0 633.8 64.1 847.5
Investment in joint ventures and
associates - - - 0.6 0.6
Assets held for sale - - - - -
Cash and cash equivalents - - - - -
Other unallocated assets* - - - - -
Total assets 63.6 86.0 633.8 64.7 848.1
Segment liabilities
Segment liabilities (23.7) (29.5) (259.3) (7.7) (320.2)
External borrowings - - - - -
Other unallocated liabilities* - - - - -
Total liabilities (23.7) (29.5) (259.3) (7.7) (320.2)
Total pre
unallo- Unallo-
As at cated cated Total
31 December 2006 £m £m £m
Segment assets
Segment assets 1,518.2 - 1,518.2
Investment in joint ventures and
associates 15.1 - 15.1
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 1,564.1 439.5 2,003.6
Segment liabilities
Segment liabilities (898.4) - (898.4)
External borrowings - (354.2) (354.2)
Other unallocated liabilities* - (100.0) (100.0)
Total liabilities (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.
Hong United
For the year ended Australia Europe Kong Singapore Kingdom
31 December 2005 £m £m £m £m £m
Revenue
Total revenue 518.3 816.7 242.3 719.6 116.0
Inter-segment revenue (113.0) (144.3) - - (1.1)
Revenue from third parties 405.3 672.4 242.3 719.6 114.9
Results
Operating profit before
exceptional items 25.8 33.8 28.8 62.1 0.4
Exceptional items - - - - (19.5)
Segment result 25.8 33.8 28.8 62.1 (19.1)
Share of profit after tax of
joint ventures and associates - 1.8 3.0 - 1.2
Profit before finance and tax 25.8 35.6 31.8 62.1 (17.9)
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Total
Emerging Rest of Distri-
For the year ended Markets World bution
31 December 2005 £m £m £m
Revenue
Total revenue 95.9 214.0 2,722.8
Inter-segment revenue (39.7) - (298.1)
Revenue from third parties 56.2 214.0 2,424.7
Results
Operating profit before exceptional items 5.4 20.0 176.3
Exceptional items - - (19.5)
Segment result 5.4 20.0 156.8
Share of profit after tax of joint ventures and
associates - 0.2 6.2
Profit before finance and tax 5.4 20.2 163.0
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
United Emerging Total
For the year ended Australia Europe Kingdom Markets Retail
31 December 2005 £m £m £m £m £m
Revenue
Total revenue 207.4 362.2 1,415.4 78.4 2,063.4
Inter-segment revenue - - - - -
Revenue from third parties 207.4 362.2 1,415.4 78.4 2,063.4
Results
Operating profit before
exceptional items 6.1 (4.6) 28.8 1.6 31.9
Exceptional items - - - - -
Segment result 6.1 (4.6) 28.8 1.6 31.9
Share of profit after tax of
joint ventures and associates - - - - -
Profit before finance and tax 6.1 (4.6) 28.8 1.6 31.9
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Total pre
For the year ended Central Central Total
31 December 2005 £m £m £m
Revenue
Total revenue 4,786.2 - 4,786.2
Inter-segment revenue (298.1) - (298.1)
Revenue from third parties 4,488.1 - 4,488.1
Results
Operating profit before exceptional
items 208.2 (18.8) 189.4
Exceptional items (19.5) 6.5 (13.0)
Segment result 188.7 (12.3) 176.4
Share of profit after tax of joint
ventures and associates 6.2 - 6.2
Profit before finance and tax 194.9 (12.3) 182.6
Finance income 44.7
Finance costs (50.0)
Profit before tax 177.3
Tax (46.9)
Profit for the year 130.4
Hong United
As at Australia Europe Kong Singapore Kingdom
31 December 2005 £m £m £m £m £m
Segment assets and liabilies
Segment assets 75.2 227.1 58.8 113.1 110.6
Investment in joint ventures
and associates - 7.2 32.6 - 4.6
Cash and cash equivalents - - - - -
Other unallocated assets* - - - - -
Total assets 75.2 234.3 91.4 113.1 115.2
Segment liabilities (131.5) (209.4) (22.6) (43.1) (56.1)
External borrowings - - - - -
Other unallocated liabilities* - - - - -
Total liabilities (131.5) (209.4) (22.6) (43.1) (56.1)
Total
Emerging Rest of Distri-
As at Markets World bution
31 December 2005 £m £m £m
Segment assets and liabilities
Segment assets 11.6 62.5 658.9
Investment in joint ventures and associates - 0.3 44.7
Cash and cash equivalents - - -
Other unallocated assets* - - -
Total assets 11.6 62.8 703.6
Segment liabilities (6.8) (31.5) (501.0)
External borrowings - - -
Other unallocated liabilities* - - -
Total liabilities (6.8) (31.5) (501.0)
* Other unallocated assets and liabilities include central provisions, tax,
dividends and assets and liabilities not directly related to operating
activities.
United Emerging Total
As at Australia Europe Kingdom Markets Retail
31 December 2005 £m £m £m £m £m
Segment assets and liabilities
Segment assets 54.9 75.5 472.5 20.2 623.1
Investment in joint ventures
and associates - - - - -
Cash and cash equivalents - - - - -
Other unallocated assets* - - - - -
Total assets 54.9 75.5 472.5 20.2 623.1
Segment liabilities
Segment liabilities (17.3) (27.9) (268.4) (5.9) (319.5)
External borrowings - - - - -
Other unallocated liabilities* - - - - -
Total liabilities (17.3) (27.9) (268.4) (5.9) (319.5)
Total pre
Unallo- Unallo-
As at cated cated Total
31 December 2005 £m £m £m
Segment assets and liabilities
Segment assets 1,282.0 - 1,282.0
Investment in joint ventures and
associates 44.7 - 44.7
Cash and cash equivalents - 309.0 309.0
Other unallocated assets* - 37.4 37.4
Total assets 1,326.7 346.4 1,673.1
Segment liabilities
Segment liabilities (820.5) - (820.5)
External borrowings - (151.0) (151.0)
Other unallocated liabilities* - (110.4) (110.4)
Total liabilities (820.5) (261.4) (1,081.9)
* Other unallocated assets and liabilities include central provisions, tax,
dividends and assets and liabilities not directly related to operating
activities.
3 EXCEPTIONAL ITEMS
2006 2005
£m £m
Provision release arising from non-motors business exits - 6.5
Goodwill impairment - (19.5)
Operating exceptional items - (13.0)
Exceptional tax 8.0 -
Total exceptional items 8.0 (13.0)
Exceptional tax relates to the release of tax provided against the VAT
recoveries in 2003 and 2004 following the favourable settlement of the
corporation tax treatment.
4 FINANCE INCOME
2006 2005
£m £m
Bank interest receivable 8.8 6.5
Expected return on post-retirement plan assets 37.7 33.8
Other interest receivable 2.5 4.4
Total finance income 49.0 44.7
5 FINANCE COSTS
2006 2005
£m £m
Bank interest payable 3.8 2.8
Stock holding interest 11.2 8.7
Interest expense on post-retirement plan liabilities 35.3 33.4
Other interest payable 4.6 5.1
Total finance costs 54.9 50.0
6 TAX
2006 2005
£m £m
Current tax:
- UK corporation tax 18.1 9.8
- Double tax relief (11.2) (8.7)
6.9 1.1
Overseas tax 49.4 47.2
56.3 48.3
Adjustments to prior year liabilities:
- UK (1.4) 0.2
- Overseas (1.8) (1.0)
Current tax 53.1 47.5
Deferred tax (8.0) (0.6)
Tax before exceptional tax 45.1 46.9
Exceptional tax (note 3) (8.0) -
Total tax charge 37.1 46.9
7 EARNINGS PER SHARE
2006 2005
£m £m
Profit for the year 176.8 130.4
Minority interests (2.9) (3.8)
Basic earnings 173.9 126.6
Exceptional items (including tax exceptional) (8.0) 13.0
Headline earnings 165.9 139.6
Basic earnings per share 37.5p 27.0p
Diluted earnings per share 37.1p 26.8p
Basic Headline earnings per share 35.7p 29.8p
Diluted Headline earnings per share 35.4p 29.5p
2006 2005
number number
Weighted average number of fully paid ordinary
shares in issue during the year 481,212,798 479,060,496
Weighted average number of fully paid ordinary
shares in issue during the year:
- Held by the ESOP Trust (2,127,884) (3,115,806)
- Repurchased as part of the share buy back
programme (15,031,175) (6,684,408)
Weighted average number of fully paid ordinary
shares for the purposes of basic EPS 464,053,739 469,260,282
Dilutive effect of potential ordinary shares 4,076,256 3,624,888
Adjusted weighted average number of fully paid
ordinary shares in issue during the year for the
purposes of diluted EPS 468,129,995 472,885,170
Following the six for one share split on 15 May 2006, the comparative number of
shares have been restated and the earnings per share restated accordingly.
Basic earnings per share is calculated by dividing the basic earnings for the
year by the weighted average number of fully paid ordinary shares in issue
during the year, less those shares held by the ESOP Trust and those repurchased
as part of the share buy back programme.
Diluted earnings per share is calculated on the same basis as the basic earnings
per share with a further adjustment to the weighted average number of fully paid
ordinary shares to reflect the effect of all dilutive potential ordinary shares.
Dilutive potential ordinary shares comprise share options and deferred bonus
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.
8 DIVIDENDS
The following dividends were paid by the Group:
2006 2005
£m £m
Interim dividend for the six months ended 30 June 2006 of
5.0p per share (2005 - 3.2p per share) 23.0 14.8
Final dividend for the year ended 31 December 2005 of 6.3p
per share (2004 - 5.8p per share) 29.6 27.2
52.6 42.0
The final proposed dividend for the year ended 31 December 2006 of 10.0p per
share (£46.2m) is subject to approval by shareholders at the Annual General
Meeting and has not been included as a liability as at 31 December 2006.
9 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Capital
Share Share redem'n Other Retained
capital premium resrves reserves earnings
£m £m £m £m £m
At 1 January 2005 119.5 110.7 16.4 (20.2) 275.5
Total recognised income and expense
for the year* - - - 33.3 114.1
Share-based payments charge - - - - 2.9
Net disposal of own shares by ESOP
Trust - - - - 0.1
Share buy back programme - - - - (31.0)
Dividends:
- Equity holders of the parent - - - - (42.0)
- Minority interests - - - - -
Issue of ordinary share capital 0.6 1.8 - - -
At 1 January 2006 120.1 112.5 16.4 13.1 319.6
Total recognised income and expense
for the year* - - - (50.8) 191.3
Share-based payments charge - - - - 4.5
Net purchase of own shares by ESOP
Trust - - - - (0.2)
Share buy back programme - - - - (34.0)
Dividends:
- Equity holders of the parent - - - - (52.6)
- Minority interests - - - - -
Issue of ordinary share capital 0.5 3.4 - - -
Acquisition of minority interest - - - - -
At 31 December 2006 120.6 115.9 16.4 (37.7) 428.6
Equity
attributable to Total
equity holders Minority s'holders'
of the parent interest equity
£m £m £m
At 1 January 2005 501.9 8.3 510.2
Total recognised income and expense for the year* 147.4 4.2 151.6
Share-based payments charge 2.9 - 2.9
Net disposal of own shares by ESOP Trust 0.1 - 0.1
Share buy back programme (31.0) - (31.0)
Dividends:
- Equity holders of the parent (42.0) - (42.0)
- Minority interests - (3.0) (3.0)
Issue of ordinary share capital 2.4 - 2.4
At 1 January 2006 581.7 9.5 591.2
Total recognised income and expense for the year* 140.5 2.4 142.9
Share-based payments charge 4.5 - 4.5
Net disposal of own shares by ESOP Trust (0.2) - (0.2)
Share buy back programme (34.0) - (34.0)
Dividends:
- Equity holders of the parent (52.6) - (52.6)
- Minority interests - (3.9) (3.9)
Issue of ordinary share capital 3.9 - 3.9
Acquisition of minority interest - (0.8) (0.8)
At 31 December 2006 643.8 7.2 651.0
* The tax on share-based payments (previously reported in Tax on transactions
with the equity holders) has been reclassified to be included with Total
recognised income and expense for the year. Comparative information has been
restated accordingly.
10 NOTES TO THE CASH FLOW STATEMENT
a Reconciliation of cash generated from operations
2006 2005
£m £m
Cash flows from operating activities
Operating profit 213.9 176.4
Exceptional items - 13.0
Amortisation 4.0 3.2
Depreciation 23.3 22.8
Profit on disposal of property, plant and equipment (0.6) (2.1)
Share-based payments charge 4.5 2.9
Increase in inventories (58.9) (15.7)
Decrease(increase) in trade and other receivables 29.4 (15.2)
Increase in trade and other payables 56.1 13.6
Decrease in provisions (0.6) (3.8)
Decrease in post retirement defined benefits* (38.8) (4.8)
Movement in vehicles subject to residual value commitments 5.3 4.5
Other items (0.8) 0.6
Cash generated from operations 236.8 195.4
* The decrease in post retirement defined benefits in 2006 includes additional
payments of £37.6m.
A number of minor amendments have been made to the presentation of cash flows
from operating activities, the principal changes being the separate disclosure
of movements in provisions and post retirement defined benefits. Comparative
information has been restated accordingly.
There were no Cash flows associated with the current year exceptional items.
b Reconciliation of net cash flow to movement in net (debt) funds
2006 2005
£m £m
Net increase in cash and cash equivalents 9.5 0.2
Net cash (inflow) outflow from borrowings and finance leases (158.4) 2.5
Change in net cash and debt resulting from cash flows (148.9) 2.7
Effect of foreign exchange rate changes on net cash and
debt* (8.8) 6.9
Net loans and finance leases relating to acquisitions (19.3) (4.4)
Movement in net (debt) funds (177.0) 5.2
Opening net funds 158.0 152.8
Closing net (debt) funds (19.0) 158.0
* Effect of foreign exchange rate changes on net cash and debt is stated after
the reclassification of realised gains or losses on the settlement of
derivatives to Cash flows from financing activities. Comparative information
has been restated accordingly.
11 FOREIGN CURRENCY TRANSLATION
The main exchange rates used for translation purposes are as follows:
Average rates Year end rates
2006 2005 2006 2005
Australian dollar 2.44 2.38 2.48 2.34
Euro 1.46 1.46 1.48 1.46
Hong Kong dollar 14.28 14.16 15.22 13.31
Singapore dollar 2.92 3.02 3.00 2.85
12 POST BALANCE SHEET EVENTS
On 15 December 2006, the Group announced its intention to acquire European Motor
Holdings (EMH) to extend the Group's retail presence in the UK. As at 31
December, the Group had acquired 18.55% of the share capital for a cash
consideration of £49.2m. On 29 January 2007, the Group announced that the offer
for EMH had been declared unconditional in all respects and, aside from standard
regulatory clearances, the acquisition had been completed. The total cash
consideration expected to be paid for 100.0% of the share capital is £262.9m,
with net assets acquired of c. £95.0m (based upon the January 2007 management
accounts of EMH).
Following the completion of the acquisition of EMH, the Group has strategically
reviewed its UK businesses and as a result intends to dispose of up to forty-
seven UK sites. In addition, the Group intends to dispose of its Inchcape
Automotive UK operation.
On 1 February 2007, the Group disposed of its 50.0% share in Inchroy Credit
Corporation Limited for c. £46.0m, giving rise to a profit on disposal of
c. £15.0m.
This information is provided by RNS
The company news service from the London Stock Exchange
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