Interim Results

Inchcape PLC 01 August 2005 1 August 2005 Inchcape plc interim results Further year on year growth with profit before tax up 21.6% Inchcape plc, the international automotive services group, announces its interim results for the half year to 30 June 2005. Financial highlights: - Operating profit before exceptional items up by 12.5% at Â£100.1m - Headline profit before tax* up 14.7% at Â£100.8m - Headline earnings per share* up 15.5% to 93.9p - Operating profit up 20.9% at Â£104.1m - Profit before tax up 21.6% at Â£104.8m - Basic earnings per share up 25.0% at 99.0p - Dividend up 26.7% at 19.0p per share - Strong operating cash flow of Â£85.0m - Â£31.0m returned to shareholders in ongoing share buy back * Before exceptional items Operational highlights: - Profits up in all our core markets, except for Greece - Increase of 21.8% in Singaporean operating profits - Subaru Australia exceeds last year's record unit sales, and achieves highest ever first half market share - UK Retail: - Encouraging like for like profit growth in a declining market - Successful Mercedes-Benz acquisition in April 2005 - Ongoing expansion and development in both core and new markets Peter Johnson, Group Chief Executive, commented: 'We are delighted to report a further set of outstanding results, showing year on year growth with profit before tax up 21.6%. This continues the trend of reporting an increase in profit at every set of interims since we became a pure automotive services group. Critical to our success is our geographic spread, which remains an important factor in the quality and consistency of our earnings. 'We have increased the dividend and continue to return excess cash to shareholders through the share buy back programme, whilst further investing in our businesses. Our cash generative qualities and strong cash position leave us with the financial capacity to take advantage of further investment opportunities. 'Against this positive background, we are confident that 2005 will represent a further year of progress.' Financial summary: For the six months ended 30 June Â£m 2005 2004 Revenue 2,257.0 2,158.5 Operating profit before exceptional items 100.1 89.0 Exceptional items 4.0 (2.9) ----------- ----------- Operating profit 104.1 86.1 Profits from joint ventures/associates after tax** 3.1 4.9 Net finance costs (2.4) (4.8) ----------- ----------- Profit before tax 104.8 86.2 ----------- ----------- Headline profit before tax* 100.8 87.9 Headline earnings per share* 93.9p 81.3p Basic earnings per share 99.0p 79.2p * Before exceptional items ** 2004 includes Â£1.2m exceptional profit Notes to editors A copy of the interim results, for the half year to 30 June 2005, follows this release. For further information, please contact: Group Communications, Inchcape plc 020 7546 0022 Hogarth Partnership Limited (John Olsen/Barnaby Fry) 020 7357 9477 Inchcape, an international automotive services group, provides quality representation for its manufacturer partners, a choice of channels to market and products for its retail customers and a range of business services for its corporate customers. Operations are focused on Australia, Belgium, Greece, Hong Kong, Singapore and the UK. Inchcape's activities include exclusive Import, Distribution and Retail, Business Services, automotive E-commerce and Financial Services. Our key manufacturer partners are Toyota/Lexus, Subaru, BMW, the Premier Automotive Group of Ford, Mazda, Mercedes-Benz and Volkswagen. For further information, visit us at www.inchcape.com Inchcape plc Interim results for the half year ending 30 June 2005 Results overview Inchcape has delivered a further set of outstanding results, which again show year on year growth with profit before tax up 21.6%. This continues the trend of reporting an increase in profit at every set of interims since we became a pure automotive services group in July 1999. Profits are up in all our core markets, except for Greece. Singapore again has shown the strongest growth. Especially pleasing is the underlying year on year growth in our UK Retail business, which continues to deliver improved financial and operational results. The Group's strong financial performance is all the more impressive given that market conditions in the UK and Continental Europe are difficult in comparison to last year, and we are awaiting a number of significant new model launches, which will commence in early 2006. The Â£65.0m share buy back programme announced on 28 February 2005 has commenced, and to date Â£31.0m has been returned to shareholders through the purchase of c.1.7m shares at an average price of 1846p per share. Whilst this has had a significant effect on the cash flow in the period, the full impact on earnings will be seen over the next eighteen months. These results are the first produced under International Financial Reporting Standards (IFRS), with the 2004 comparatives as published on 12 May 2005. As well as highlighting the statutory numbers in this statement we also report Headline numbers, which exclude exceptional items and any material impact on profits of not achieving hedge effectiveness under IAS 39. In the period we exclude only the exceptional profit of Â£4.0m, as the impact of IAS 39, whilst negative, is not material. Headline profit before tax was up 14.7% to Â£100.8m in the first six months of 2005. Headline earnings per share increased from 81.3p to 93.9p in the period, a growth of 15.5%. Strategy update Our strategic growth plans are centred on expansion with selected manufacturer partners in, or adjacent to, markets where we already have a scale business. On entering new markets we look to invest in either vertically integrated import and retail businesses or scale retail opportunities, preferably in contiguous territories. Within Inchcape these business models are well proven and we have significant expertise in running them. This lowers the risks associated with entering new markets. Expansion in our core markets is mainly focused on the UK, Australia and Greece. In the UK we continue the strategy of growing with our selected partners in contiguous territories. In the first half of the year we purchased a Mercedes-Benz market area centred around Liverpool. We are now the largest independent Mercedes-Benz retailer in the country, representing c.8.0% of their national sales volumes. We continue to develop our contiguous territory for BMW to the south of London. We are building new facilities in Croydon and Tunbridge Wells, and redeveloping Cobham. In addition we have recently introduced common systems for all the BMW dealerships, which allow management to run the territory as a single business. The benefits arising from Brooklands, our pre-delivery centre which serves BMW and our other franchises in the area, are starting to be seen, for example by increasing the Retail aftersales hours we sell. In Australia and Greece we continue our push into retail with Subaru and Toyota respectively. Additionally in Australia, now that we have proven retail expertise, we are examining the possibility of building a broader based multi-franchise retail business along the East Coast. Outside our core markets, attention is focused mainly on Eastern Europe. In Latvia, following the acquisition of a Mazda dealer, we have now become the country's sole Retailer for Mazda and Jaguar. As we are the Importer for these brands, we have now created a vertically integrated Import and Retail business similar to that recently achieved in Estonia. In the Balkans we continue to invest in our Retail outlets with significant expansion planned for Romania. We are also looking at many other opportunities in the region mainly with our key manufacturer partners. This includes the possibility of entering the Russian market, most likely as a scale retailer in Moscow. We are re-examining the Chinese market, which is now looking more attractive given the increasing focus of our key manufacturer partners on developing a quality retail network for their brands. Operational review This section analyses the performance of the Group's subsidiaries. Operating profit before exceptional items has been defined as trading profit throughout the Operational review. For the six months ended 30 June 2005 2004 Increase Â£m Â£m % Operating profit 104.1 86.1 20.9 Exceptional items (4.0) 2.9 n/a --------------------- ---------- ---------- ---------- Trading profit 100.1 89.0 12.5 --------------------- ---------- ---------- ---------- Australia Trading profit 2005: Â£16.1m (2004: Â£14.2m) The 13.4% growth in trading profit was assisted by a record market, up 5.4% on last year. Subaru outperformed the market, underpinned by strong Liberty and Impreza sales and achieved its highest ever first half market share of 3.8%. Our Melbourne Retail business continues to perform well with increased new and used unit sales. This, coupled with higher aftersales income, partly as a result of the investments made in aftersales facilities in 2004, has improved trading profits. The Sydney Retail business underwent a significant restructuring in mid 2004. The benefits from this, together with the contribution from the two new Subaru dealerships, have resulted in an increase in profitability. Trading profits in AutoNexus, our Business Services operation, have grown and we are continuing to invest in this business. Belgium Trading profit 2005: Â£8.3m (2004: Â£8.0m) In Belgium the market fell by 0.7% in the first half of the year. Our Toyota/Lexus market share however increased from 4.8% in 2004 to 5.0% in 2005, despite Toyota having a number of core models in run out; namely the RAV4, Yaris and Hilux. This strong performance was helped by the introduction of new diesel derivatives and the easing of the supply constraints experienced in 2004. Greece Trading profit 2005: Â£7.8m (2004: Â£8.3m) The market softened in the first half of 2005, after a strong performance last year stimulated in part by the Olympics. Toyota, in Greece, has also been adversely impacted by the run out of core models, but has not benefited from new diesel variants. This, allied to business disruption suffered as a result of the network re-organisation in Athens late in 2004, has caused Toyota's market share to reduce to 8.5%. These tough trading conditions have adversely impacted our Retail businesses in Athens and Salonica. Our new Athens dealership, which opened in late 2004, has also experienced a slower start up than anticipated, resulting in a net trading loss for our Retail business in the first half of 2005. Despite these issues, costs have been tightly controlled and margins have risen although 2004 was impacted by low margin taxi sales made prior to the Olympics. Hong Kong Trading profit 2005: Â£13.0m (2004: Â£11.8m) The market experienced a slow start to the year but began to gradually recover in the second quarter as consumer confidence strengthened. Crown Motors, our Toyota/Lexus business, achieved a market share of 34.4%, which is slightly lower than the full year in 2004. This is partly due to supply constraints, which particularly affected the Corolla, the facelift Alphard and new Hiace models. Trading profits in the first half of 2005 were 10.2% stronger than last year. This year however, there was a Â£0.9m benefit from a one off property profit. After adjusting for this trading margins of 10.6% were achieved, up from 9.9% last year. Singapore Trading profit 2005: Â£34.6m (2004: Â£28.4m) The market continues to benefit from higher levels of Certificates of Entitlement (COEs), and was up 18.2% on 2004. Toyota/Lexus has sold over 19,000 units in the first half of 2005, up over 2,000 units on the first half of last year, assisted by the launch of the new Lexus GS 300 and higher taxi sales. The resultant market share is 29.9%. We continue to invest in our aftersales facilities and have opened two new satellite centres, increasing capacity by over 5.0%. This will help us meet the service requirements of the enlarged Toyota parc. The increase in sales volumes and softening in COE prices, together with increased aftersales activity, has resulted in an increase of 21.8% in trading profit and trading margins of 9.4%. United Kingdom Trading profit 2005: Â£15.0m (2004: Â£13.9m) Overall the region has achieved a growth of 7.9% in trading profit, despite the loss of the Ferrari/Maserati import and distribution business in late 2004. Encouragingly, in a more difficult market, UK Retail has shown like for like growth in trading profit. The business continues to benefit from improved processes. These have helped increase used car sales, which are up by 6.8%, finance and insurance income and service profitability. This more than compensates for the weaker new unit sales, which have declined, but at a slower rate than the market. There has also been a growth in trading profit due to acquisitions, in particular the Mercedes-Benz dealerships in the Midlands acquired in June 2004, and, to a lesser extent, those purchased in the North West of England in April 2005. In total UK Retail generated a trading profit of Â£13.8m, up from Â£11.3m last year. The trading margin in the first half of 2004, under IFRS, was 1.9%. In this more difficult year margins have progressed to 2.0%. At Inchcape Automotive, during the first half of 2005, the business encountered some disruption due to workshop refurbishment, and production efficiency issues, which impacted results negatively. The logistics problems experienced in 2004 however, have been resolved and we continue to focus on strengthening management and improving processes. Inchcape Fleet Solutions performed well. It continued to develop its Fleet Management operations and benefited from lower overheads. As a result trading profits are up 13.0%. Other Trading profit 2005: Â£14.3m (2004: Â£15.1m) In Finland the softening in the market experienced towards the end of 2004 continued into 2005. In addition, Mazda6, the core model of the range, suffered from the introduction of new competitor models. As a result profitability fell in the period. The Mazda6 facelift was launched at the end of June 2005. Our newly established operations in the Baltics, which include Import, Distribution and Retail for Mazda, Jaguar and Land Rover have made a promising start to the year. Our Toyota operations in the Balkans achieved encouraging growth in trading profit which was up 43.8% on last year. This was aided by an increase in volumes to over 3,400 units. The markets, particularly Romania, still exhibit high growth rates and we continue to invest in our Retail outlets. Toyota in Guam, Subaru in New Zealand and BMW in Chile all increased sales and trading profits in the period. In Brunei and France however trading profits are flat. In France a strong performance from Volkswagen/Audi was offset by a weak performance from the Premier Automotive Group of Ford. In Poland however the market was down, which put pressure on the performance of our new BMW dealerships. Central costs 2005: Â£(9.0)m (2004: Â£(10.7)m) In 2004, Central costs included Â£2.2m of one off charges. Excluding these, underlying Central costs are slightly higher than last year due to additional share-based payment costs arising on the transition to IFRS. Financial review International Financial Reporting Standards These interim results are the first set of financial statements produced by the Group under IFRS. Prior to 2005 the Group prepared its financial statements in accordance with UK Generally Accepted Accounting Principles (UK GAAP). From 1 January 2005 the Group is required to prepare its financial statements in accordance with IFRS, endorsed by the European Union and implemented in the UK, including comparative information for 2004. It is possible that there will be further changes to IFRS and interpretations before the end of 2005. These might require further adjustments to the financial information contained in these interim results before being included in the 2005 Annual report. The main differences between UK GAAP and IFRS are highlighted in note 1 and are set out in further detail in an explanatory report entitled 'Preliminary unaudited financial information on the transition to International Financial Reporting Standards', published by the Group on 12 May 2005 and available on the Group's website, www.inchcape.com. This sets out reconciliations between UK GAAP and IFRS of the Group's income statements and balance sheets for 2004, together with its principal accounting policies under IFRS. The principal areas of difference include share-based payments, goodwill, pensions, dividends and derivative financial instruments. These are essentially generic changes that are common to most companies transitioning to IFRS. There are also a number of differences that are more specific to the Group. Accounting for property leases requires the reclassification of the land element of leaseholds from property, plant and equipment to trade and other receivables, reversing any previous revaluation. Stock holding interest is reclassified from operating expenses to finance costs in the income statement. Where contract hire vehicles are sold, for which a Group company retains a residual value commitment, the vehicle is retained on the balance sheet and the profits are spread over the duration of the lease. Overall, the application of IFRS has had a broadly neutral impact on profit before tax and earnings subject to the achievement of hedge effectiveness under IAS 39. Furthermore, cash flow and the underlying economics of the business have not changed although net assets have been reduced mainly due to the inclusion of the net pension deficit. Acquisitions and disposals In April 2005 the Group acquired Robert Smith Group Limited and its subsidiaries, which owned six Mercedes-Benz dealerships in the North West of England. The estimated consideration is c.Â£17.9m of which Â£0.9m is deferred. These new dealerships create a further scale Mercedes-Benz market area for Inchcape and complement our existing Mercedes-Benz operations in the Midlands. No other acquisitions or disposals of significance were made in the period. Cash flow and financing The Group continues to focus on tight working capital management and this, together with strong operating profits, generated net cash from operating activities of Â£85.0m for the first half of 2005. This represents 84.9% of operating profits before exceptional items and demonstrates yet again the Group's cash generative capabilities. During the period the Group returned Â£58.2m to shareholders, Â£31.0m by way of the share buy back programme and Â£27.2m in respect of the final 2004 dividend. The Group also invested Â£63.6m in acquisitions and net capital expenditure in the period, with Â£49.7m of this relating to UK Retail. An outflow of c.Â£6.8m also arose on the settlement of non-motors business claims. As a result of all these factors, net cash decreased from Â£151.9m at 31 December 2004 to Â£119.8m at 30 June 2005. The net finance costs for the period were Â£2.4m lower than the first half of 2004. This year has benefited from the Â£135.0m of cash permanently repatriated to the UK in late 2004, which minimised the mismatch between debt in the UK and cash held overseas in countries with low interest rates. This has been partially offset by the financing cost of the Â£31.0m share buy back, UK Retail acquisitions and higher stock holding interest costs. In July 2005, the Group replaced its principal committed borrowing facility of Â£250.0m with a syndicated five year revolving credit facility of Â£275.0m. Joint ventures and associates The share of joint ventures and associates profit after tax has decreased from Â£4.9m in the first half of 2004 to Â£3.1m during the first half of 2005. This is mainly due to the sale of the Group's 40.0% stake in MCL Group Limited and Automotive Group Limited in July 2004 and the fact that 2004 included a Â£1.2m exceptional profit. Exceptional items The release of litigation provisions arising from the settlement and expiry of a number of claims relating to non-motors exits generated the Â£4.0m exceptional income for the six months ended 30 June 2005. Exchange rates The first half 2005 Headline profit before tax of Â£100.8m would not differ significantly had the June 2004 exchange rates continued in 2005. The impact of the stronger euro and Australian dollar was effectively offset by the weaker Hong Kong dollar. Tax The subsidiaries Headline tax rate for the first half of 2005 is 25.5% compared to 26.6% for the full year 2004. This year has benefited from no losses in the UK, due to improved trading and the impact of the Â£135.0m cash repatriation in late 2004. In addition, the rate is lower by 0.5% due to a one off recovery in Greece. Minority interests Profits attributable to minority interests of Â£2.1m are slightly higher than the first half of 2004 reflecting the improved trading performance of our Australian and Bulgarian businesses. Board update On 1 June 2005 we announced that Andre Lacroix is to join the Group on 1 September 2005 as Group Chief Executive Designate. He will assume the full responsibilities of Group Chief Executive on 1 January 2006 when Peter Johnson will replace me as Non-executive Chairman. I will be retiring from the Inchcape Board at the end of this year. In May 2005, we announced that Alan Ferguson, our Group Finance Director, will leave Inchcape in September 2005 to assume that role at a FTSE 100 company. The search for his successor is well under way and we will make an announcement in due course. Dividend The Board has declared an interim dividend of 19.0p (2004 - 15.0p), an increase of 26.7% on last year. The Board's policy at the interim stage is to plan for a dividend split, which is one third at the interim and two thirds at the final. The interim dividend payment will be paid on 12 September 2005 to shareholders on the register at 12 August 2005. Prospects The market in Australia is expected to remain strong for the remainder of the year. Subaru's model line up will be strengthened by the introduction of the new Impreza and Forester ranges and so the outlook remains positive. In Belgium market conditions are expected to be little changed from the first half. In Greece we expect that the market will continue to be lower than last year and remain extremely competitive. In Hong Kong profitability is anticipated to be in line with our expectations at the start of the year. In Singapore trading conditions are strong, supported by the fact that the number of Certificates of Entitlement issued in 2005 will be higher than in 2004. In the UK the full year market is forecast to fall between 4.0% and 5.0%, however the positive start to the year by UK Retail is expected to continue. Within Other it is anticipated that the full year will be better than last year. Overall the first half results and our expectations for the second half leave us confident that 2005 will be another year of good progress for Inchcape. Looking ahead The financial capacity of the Group, after the share buy back programme is completed, remains substantial, as are the opportunities for investment. Many of these opportunities will be in retail. This re-emphasises the need for Inchcape to develop world class management and processes, which have a particular focus on customer experience and operational excellence, supported by a more standardised approach to dealer management systems. We already have examples of world class Retail performance in a number of our markets, however we are recruiting more people internationally with retail skills to further support our expansion plans. We are also undertaking long term initiatives, such as our Retail Academy in the UK developed in conjunction with Loughborough University, which will improve the retail skills of our managers across franchises and countries. All this gives the Board confidence that Inchcape remains well placed to deliver on its strategic growth plans. Sir John Egan Chairman 1 August 2005 CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2005 Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Â£m Â£m Â£m Revenue (note 2) 2,257.0 2,158.5 4,119.5 Cost of sales (1,937.4) (1,848.5) (3,532.9) Gross profit 319.6 310.0 586.6 Operating expenses before exceptional items (219.5) (221.0) (414.5) Exceptional items (note 3) 4.0 (2.9) (10.6) Total operating expenses (215.5) (223.9) (425.1) Operating profit (note 2) 104.1 86.1 161.5 Share of profit after tax of joint ventures and associates 3.1 4.9 7.8 Profit before finance and tax 107.2 91.0 169.3 Finance income before exceptional finance income 4.9 3.2 5.8 Exceptional finance income - - 4.2 Finance income (note 4) 4.9 3.2 10.0 Finance costs (note 5) (7.3) (8.0) (16.1) Profit before tax 104.8 86.2 163.2 Tax (note 6) (24.9) (22.5) (43.6) Profit for the period 79.9 63.7 119.6 Attributable to: - Equity holders of the parent 77.8 61.9 116.4 - Minority interests 2.1 1.8 3.2 79.9 63.7 119.6 Basic earnings per share (pence) (note 7) 99.0p 79.2p 148.5p Diluted earnings per share (pence) (note 7) 97.9p 78.4p 146.6p CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2005 As at As at As at 30.6.05 30.6.04 31.12.04 Â£m Â£m Â£m Non-current assets Goodwill 82.2 77.4 71.5 Other intangible assets 6.2 6.7 6.5 Property, plant and equipment 337.0 292.0 295.9 Trade and other receivables 22.8 22.2 19.6 Investments in joint ventures and associates 47.6 67.8 42.2 Other investments - 10.1 11.9 Available for sale financial assets 11.9 - - Deferred tax assets 21.4 20.1 20.8 529.1 496.3 468.4 Current assets Inventories 541.5 443.3 577.1 Trade and other receivables 226.3 210.7 198.3 Other investments - 2.8 2.7 Available for sale financial assets 2.3 - - Current tax assets 1.6 0.8 0.5 Cash and cash equivalents 194.5 175.5 171.2 966.2 833.1 949.8 Total assets 1,495.3 1,329.4 1,418.2 Current liabilities Borrowings (69.3) (10.2) (15.6) Trade and other payables (645.4) (618.8) (657.3) Derivative financial instruments (12.7) - - Current tax liabilities (41.9) (41.9) (44.9) Provisions (27.2) (29.5) (24.6) (796.5) (700.4) (742.4) Non-current liabilities Borrowings (5.4) (2.7) (3.7) Trade and other payables (36.2) (37.2) (31.8) Provisions (33.7) (54.9) (51.9) Deferred tax liabilities (17.2) (14.6) (14.8) Retirement benefit liability (60.6) (50.9) (58.9) (153.1) (160.3) (161.1) Total liabilities (949.6) (860.7) (903.5) Net assets 545.7 468.7 514.7 Shareholders' equity Called up share capital 119.8 118.9 119.5 Share premium account 111.6 109.9 110.7 Other reserves 13.8 (2.8) 4.4 Retained earnings 291.4 235.6 271.8 Equity attributable to equity holders of the parent 536.6 461.6 506.4 Minority interests 9.1 7.1 8.3 Total shareholders' equity 545.7 468.7 514.7 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2005 Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Â£m Â£m Â£m Effect of foreign exchange rate changes 13.6 (21.5) (15.2) Movement in cash flow hedges 0.8 - - Movement in available for sale financial assets 0.5 - - Actuarial losses on defined benefit pension schemes (3.6) (3.5) (10.1) Net gains (losses) recognised directly in equity 11.3 (25.0) (25.3) Profit for the period 79.9 63.7 119.6 Total recognised income for the period* 91.2 38.7 94.3 Share-based payments charge 1.9 0.5 1.7 Net disposal of own shares by ESOP Trust 1.0 - 0.1 Dividends: - Equity holders of the parent (27.2) (20.4) (32.2) - Minority interests (1.6) (1.2) (1.6) Issue of ordinary share capital 1.2 1.5 2.8 Share buy back programme (31.0) - - 35.5 19.1 65.1 Balance at 1 January 514.7 449.6 449.6 Adoption of IAS 32 and IAS 39 (4.5) - - Balance at period end 545.7 468.7 514.7 * Of the total recognised income for the period Â£89.0m is attributable to equity holders of the parent (Â£37.3m for the six months ended 30 June 2004; Â£91.3m for the year ended 31 December 2004) and Â£2.2m is attributable to minority interests (Â£1.4m for the six months ended 30 June 2004; Â£3.0m for the year ended 31 December 2004). CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2005 Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Â£m Â£m Â£m Cash flows from operating activities Operating profit 104.1 86.1 161.5 Exceptional items (4.0) 2.9 10.6 Amortisation and impairment of intangible assets 1.6 2.4 4.6 Depreciation 11.7 10.3 21.2 (Profit) loss on disposal of property, plant and equipment (1.1) (0.2) 0.7 Share-based payments charge 1.9 0.5 1.7 (Increase)decrease in working capital (5.2) 48.0 (30.5) Decrease (increase) in vehicles subject to residual value commitments 4.3 (1.4) 4.7 Payment in respect of termination of operations (1.0) (0.2) (1.5) Other items* 2.5 17.6 14.2 Cash generated from operations 114.8 166.0 187.2 Tax paid (30.9) (17.6) (36.9) Net interest received* 1.1 15.7 9.6 Net cash generated from operating activities 85.0 164.1 159.9 Cash flows from investing activities Acquisition of businesses, net of cash and overdrafts acquired (28.5) (18.0) (25.1) Net cash (outflow) inflow from sale of businesses (5.5) 4.3 23.7 Purchase of property, plant and equipment (39.3) (20.2) (40.3) Purchase of intangible assets (0.8) (1.6) (3.3) Proceeds from disposal of property, plant and equipment 5.0 1.7 5.5 Net disposal of other investments - 1.0 0.7 Net disposal of available for sale financial assets 0.9 - - Dividends received from joint ventures and associates 1.2 2.8 4.9 Net cash used in investing activities (67.0) (30.0) (33.9) Cash flows from financing activities Proceeds from issue of ordinary shares 1.2 1.5 2.8 Share buy back programme (31.0) - - Net disposal of own shares by ESOP Trust 1.0 - 0.1 Net cash outflow from borrowings (2.7) (18.0) (18.2) Payment of capital element of finance leases (0.2) (0.1) (0.2) Equity dividends paid (27.2) (20.4) (32.2) Minority dividends paid (1.8) (1.2) (1.4) Net cash used in financing activities (60.7) (38.2) (49.1) Net (decrease) increase in cash and cash equivalents (note 12) (42.7) 95.9 76.9 Cash and cash equivalents at beginning of the period 158.8 95.0 95.0 Net foreign exchange difference 10.8 (22.0) (13.1) Cash and cash equivalents at end of the period 126.9 168.9 158.8 Cash and cash equivalents consist of: - Cash and cash equivalents 194.5 175.5 171.2 - Overdrafts (67.6) (6.6) (12.4) 126.9 168.9 158.8 * Net cash inflows for the six months ended 30 June 2005 include Â£5.4m in respect of the VAT receipt (notes 3 and 4). Of this total Â£1.8m is reported within Other items (Â£15.4m for the six months ended 30 June 2004; Â£15.5m for the year ended 31 December 2004) and Â£3.6m is reported within Net interest received (Â£21.3m for the six months ended 30 June 2004; Â£21.5m for the year ended 31 December 2004). NOTES 1 BASIS OF PREPARATION These interim financial statements are neither audited nor reviewed by the external auditors and do not constitute statutory accounts. The results for the periods to 30 June have been prepared using the discrete period approach (i.e. considering them as accounting periods in isolation). The tax charge is based on the effective tax rates estimated for the full year in the Group's countries of operation being applied to the actual profits for the first half. The Group's published financial statements for the year ended 31 December 2004 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 main exchange rates used for translation purposes are as follows: Average rates Period end rates 30.6.05 30.6.04 31.12.04 30.6.05 30.6.04 31.12.04 Australian dollar 2.42 2.46 2.48 2.35 2.61 2.45 Euro 1.45 1.48 1.47 1.48 1.50 1.41 Hong Kong dollar 14.62 14.15 14.22 13.93 14.20 14.92 Singapore dollar 3.09 3.09 3.09 3.02 3.11 3.13 International Financial Reporting Standards Prior to 2005, the Group prepared its audited annual financial statements and unaudited interim financial statements under UK Generally Accepted Accounting Principles (UK GAAP). From 1 January 2005, the Group is required to prepare annual consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and implemented in the UK. As the 2005 annual financial statements will include comparatives for 2004, the Group's date of transition to IFRS is 1 January 2004 and the 2004 comparatives have been restated to IFRS. On 12 May 2005 the Group published an explanatory report entitled 'Preliminary unaudited financial information on the transition to International Financial Reporting Standards' available on the Group's website, www.inchcape.com. This document sets out the key differences between UK GAAP and IFRS for the Group, reconciliations of its income statements for the six months ended 30 June 2004 and the year ended 31 December 2004 and its balance sheets as at 1 January 2004, 30 June 2004 and 31 December 2004, together with its principal accounting policies under IFRS. Accounting policies The Group's results for the six months ended 30 June 2005 have been prepared on a basis consistent with the Group's IFRS accounting policies as set out in the explanatory report referred to above. These IFRS accounting policies have been prepared on a basis consistent with IFRS and interpretations expected to be in effect for the year ending 31 December 2005. It is possible that there will be changes to these standards and interpretations before the end of 2005, which might require further adjustments to this information before it is included in the 2005 annual financial statements. In addition, the Group has early adopted the amendment to IAS 19 Employee Benefits on the basis that this is expected to be formally adopted by the EU before the end of 2005. First-time adoption The general principle that should be applied on first-time adoption of IFRS is that standards are applied with full retrospective effect. In accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, the Group is entitled to a number of voluntary and mandatory exemptions from full restatement. The Group has elected: (i) not to restate its business combinations made prior to 1 January 2004 to comply with IFRS 3 Business Combinations; (ii) to retain previous UK GAAP carrying values of property, plant and equipment, treating any historic revaluations as deemed cost at 1 January 2004; (iii) to recognise all cumulative actuarial gains and losses in respect of defined benefit pension schemes and similar benefits in shareholders' equity at 1 January 2004; (iv) to apply IFRS 2 Share-based Payments only to awards granted after 7 November 2002 and not vested by 1 January 2005; (v) to deem cumulative translation differences for all foreign operations to be nil at 1 January 2004; and (vi) not to present comparative information in accordance with IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement. The effect of adopting IAS 32 and IAS 39 at 1 January 2005 is shown as a movement in shareholders' equity for 2005. This decreased shareholders' equity by Â£4.5m at 1 January 2005. In addition, under IAS 32 cash balances and bank overdrafts can only be presented net where there is both the legal ability and intention to settle net. From 1 January 2005 this has had the effect of grossing up cash and borrowings in the balance sheet. Impact of transition The application of IFRS has a broadly neutral impact on profit before tax and earnings, and results in a decrease in net assets, mainly due to the recognition of the pension deficit. The principal differences for the Group between reporting on the basis of UK GAAP and IFRS are as follows: (i) recognising an expense for the fair value of employee share-based awards rather than the intrinsic value; (ii) ceasing to amortise goodwill and testing for impairment at least annually; (iii) recognising the full pension deficit on the balance sheet, taking operating and financing costs to the income statement and actuarial gains and losses to shareholders' equity; (iv) derecognising the sale of vehicles sold subject to a residual value commitment, retaining the vehicle on the balance sheet and spreading the profit over the duration of the lease; (v) reclassifying the land element of leaseholds from property, plant and equipment to prepayments, reversing any previous revaluation; (vi) reclassifying stock holding interest from operating expenses to finance costs in the income statement; (vii) recognising deferred tax on revaluations of property and on non- qualifying properties acquired as part of a business combination; and (viii) no longer recognising dividends proposed but not declared as a liability at the balance sheet date. The application of IFRS has also changed the presentation of the cash flow statement which now shows cash flows from three activities - operating, investing and financing. In addition, under IFRS the cash flow statement includes all cash flows in respect of cash and cash equivalents which is broader in scope than cash as defined under UK GAAP. 2 SEGMENTAL ANALYSIS The Group's primary reporting format is on a geographical basis. The Group is organised into six main geographical segments: Australia, Belgium, Greece, Hong Kong, Singapore and the UK. Revenue Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Â£m Â£m Â£m Australia 312.4 302.1 567.3 Belgium 257.5 257.9 462.7 Greece 156.8 197.4 348.0 Hong Kong 114.4 118.9 237.2 Singapore 366.3 338.2 652.5 UK 744.1 683.5 1,331.3 Other 305.5 260.5 520.5 2,257.0 2,158.5 4,119.5 Operating profit Exceptional items before exceptional items Six Six Six Six months to months to Year to months to months to Year to 30.6.05 30.6.04 31.12.04 30.6.05 30.6.04 31.12.04 Â£m Â£m Â£m Â£m Â£m Â£m Australia 16.1 14.2 28.1 - 0.5 0.6 Belgium 8.3 8.0 12.6 - (1.3) (2.1) Greece 7.8 8.3 17.7 - - 0.1 Hong Kong 13.0 11.8 25.6 - - - Singapore 34.6 28.4 53.5 - - - UK 15.0 13.9 25.8 - (5.6) (19.3) Other 14.3 15.1 26.7 - 0.1 0.3 109.1 99.7 190.0 - (6.3) (20.4) Central costs (9.0) (10.7) (17.9) 4.0 3.4 9.8 100.1 89.0 172.1 4.0 (2.9) (10.6) Operating profit after exceptional items Six Six months to months to Year to 30.6.05 30.6.04 31.12.04 Â£m Â£m Â£m Australia 16.1 14.7 28.7 Belgium 8.3 6.7 10.5 Greece 7.8 8.3 17.8 Hong Kong 13.0 11.8 25.6 Singapore 34.6 28.4 53.5 UK 15.0 8.3 6.5 Other 14.3 15.2 27.0 109.1 93.4 169.6 Central costs (5.0) (7.3) (8.1) 104.1 86.1 161.5 Share of results of joint ventures and associates The Group's share of the profit after tax of joint ventures and associates of Â£3.1m for the six months ended 30 June 2005 (Â£4.9m for the six months ended 30 June 2004; Â£7.8m for the year ended 31 December 2004) arises in Hong Kong (Â£1.7m), the UK (Â£0.6m), Greece (Â£0.5m) and Belgium (Â£0.3m). 3 EXCEPTIONAL ITEMS Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Â£m Â£m Â£m Net profit (loss) on sale and termination of operations: - Provision release arising from non-motors business exits 4.0 3.6 8.6 - MCL Group Limited and Automotive Group Limited - (5.6) (5.8) - Ferrari Belgium and UK - - (5.3) - Other - (0.9) (0.5) Total net profit (loss) on sale and termination of operations 4.0 (2.9) (3.0) Goodwill impairment - - (9.4) VAT recovery - - 1.8 Total exceptional items 4.0 (2.9) (10.6) The release of provisions in the six months ended 30 June 2005 arises from the settlement and expiry of a number of legal claims relating to non-motors business exits. A further Â£4.2m of exceptional finance income in respect of the VAT recovery is included in finance income for the year ended 31 December 2004 (note 4). In addition, an exceptional profit of Â£1.2m arising on the sale of properties is included in the share of profit after tax of joint ventures and associates in the income statement for the six months ended 30 June 2004 and the year ended 31 December 2004. 4 FINANCE INCOME Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Â£m Â£m Â£m Bank interest receivable 2.8 2.1 4.1 Post retirement benefits - 0.3 0.5 Other interest receivable 2.1 0.8 1.2 Finance income before exceptional finance income 4.9 3.2 5.8 Exceptional finance income - VAT recovery - - 4.2 Total finance income 4.9 3.2 10.0 5 FINANCE COSTS Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Â£m Â£m Â£m Bank interest payable 0.8 0.3 0.3 Stock holding interest 4.4 3.4 7.2 Post retirement benefits 0.1 - - Other interest payable 2.0 4.3 8.6 Total finance costs 7.3 8.0 16.1 6 TAX Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Â£m Â£m Â£m Current tax: - UK corporation tax 0.9 4.9 4.6 - Overseas taxes 24.6 22.5 44.0 25.5 27.4 48.6 Deferred tax (0.6) (4.9) (5.0) Total tax charge 24.9 22.5 43.6 The tax charge above includes Â£nil for the six months ended 30 June 2005 (Â£nil for the six months ended 30 June 2004; Â£0.5m for the year ended 31 December 2004) arising in respect of exceptional items. 7 EARNINGS PER ORDINARY SHARE Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Â£m Â£m Â£m Headline profit before tax 100.8 87.9 168.4 Tax on Headline profit (24.9) (22.5) (43.1) Minority interests (2.1) (1.8) (3.2) Headline earnings 73.8 63.6 122.1 Exceptional items: - Group 4.0 (2.9) (10.6) - Joint ventures and associates - 1.2 1.2 Exceptional finance income - - 4.2 Tax on exceptional items - - (0.5) Basic earnings 77.8 61.9 116.4 Headline earnings per share 93.9p 81.3p 155.7p Basic earnings per share 99.0p 79.2p 148.5p Diluted earnings per share 97.9p 78.4p 146.6p Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 number number number Weighted average number of fully paid ordinary shares in issue during the period 79,725,947 79,067,128 79,241,664 Weighted average number of fully paid ordinary shares in issue during the period: - Held by the ESOP Trust (626,561) (866,230) (840,828) - Repurchased as part of the share buy back programme (537,393) - - 78,561,993 78,200,898 78,400,836 Dilutive effect of potential ordinary shares 932,782 784,404 1,019,268 Adjusted weighted average number of fully paid ordinary shares in issue during the period 79,494,775 78,985,302 79,420,104 Headline profit before tax and Headline earnings (which exclude exceptional items and any material impact on profits of not achieving hedge effectiveness under IAS 39) are adopted to assist the reader in understanding the underlying performance of the Group. Headline earnings per share is calculated by dividing the Headline earnings for the period by the weighted average number of fully paid ordinary shares in issue during the period, less those shares held by the ESOP Trust and those repurchased as part of the share buy back programme. Basic earnings per share is calculated by dividing the basic earnings for the period by the weighted average number of fully paid ordinary shares in issue during the period, less those shares held by the ESOP Trust and those repurchased as part of the share buy back programme. Diluted earnings per share is calculated on the same basis as the basic earnings per share with a further adjustment to the weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise share options and deferred bonus awards. 8 ACQUISITIONS The Group acquired a number of businesses during the period, none of which was individually material. The estimated consideration payable for these businesses is c. Â£23.4m, of which Â£22.5m has been paid in this half year. The provisional fair value of the total net assets acquired was Â£13.1m, with goodwill arising on these acquisitions of Â£10.3m. 9 POST RETIREMENT BENEFITS The Group provides employee benefits under various arrangements, including through defined benefit and defined contribution pension plans, the details of which are disclosed in the 2004 annual financial statements. At the interim balance sheet date, the assets and liabilities of the principal defined benefit plans have been updated from the latest actuarial valuations. 10 SHAREHOLDERS' EQUITY Share buy back programme The Group repurchased Â£31.0m of shares during the six months ended 30 June 2005 in relation to its share buy back programme. These shares are being held as treasury shares within shareholders' equity. Issue of ordinary shares Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Â£m Â£m Â£m Share capital 0.3 0.6 1.1 Share premium 0.9 0.9 1.7 1.2 1.5 2.8 Dividends The following dividends were paid by the Group. Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Â£m Â£m Â£m Interim dividend for the six months ended 30 June 2004 of 15.0p per share - - 11.8 Final dividend for the year ended 31 December 2004 of 35.0p per share (2003 - 26.0p per share) 27.2 20.4 20.4 27.2 20.4 32.2 The interim dividend for the six months ended 30 June 2005 of 19.0p per share was approved by the Board on 1 August 2005 and has not been included as a liability as at 30 June 2005. 11 CONTINGENCIES In the six months ended 30 June 2005 the Group has come to a final settlement of the legal claims made by Aon Corporation under an indemnity given in connection with the sale of Bain Hogg Limited in 1996. In September 2000, the European Parliament passed Directive 2000/53/EC which deals with the collection and disposal of vehicles at the end of their life. The Directive includes a retrospective liability for vehicles put on the road prior to July 2002. Member states were required to enact legislation by 21 April 2002. Legislation has now been enacted in all the Group's core markets in the EU, including the UK, where the legislative framework has now come into effect. In Belgium, Greece and now Finland, there are self-funding arrangements in place with independent companies which will result in a no cost solution for importers. The Directors view these latest developments as favourable to the Group. Accordingly, having reviewed this matter and, based on the information currently available, the Directors still consider that implementation of the Directive will not have a material impact on the financial position of the Group. 12 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS Six months Six months Year to to 30.6.05 to 30.6.04 31.12.04 Â£m Â£m Â£m Net (decrease) increase in cash and cash equivalents (42.7) 95.9 76.9 Net cash outflow from borrowings and lease financing 2.9 18.1 18.4 Change in net cash and debt resulting from cash flows (39.8) 114.0 95.3 Effect of foreign exchange rate changes on net cash and debt 10.8 (21.8) (13.1) Net loans and finance leases relating to acquistions (4.0) (6.7) (7.4) Movement in net funds (33.0) 85.5 74.8 Opening net funds 151.9 77.1 77.1 Adoption of IAS 32 and IAS 39 0.9 - - Closing net funds 119.8 162.6 151.9 13 POST BALANCE SHEET EVENTS In July 2005, the Group replaced its principal committed borrowing facility of Â£250.0m with a syndicated five year revolving credit facility of Â£275.0m. This information is provided by RNS The company news service from the London Stock Exchange

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