Preliminary Results - 2003

Inchcape PLC 01 March 2004 1 March 2004 Inchcape plc preliminary results An excellent year of financial and operational performance Inchcape plc, the international automotive services group, announces its results for the full year to 31 December 2003. Financial highlights: - Operating profit of Â£150.6m up 34.9% - Profit before tax (PBT) up 55.0% at Â£168.3m - Basic earnings per share (EPS) up 64.6% at 164.8p - VAT recovery confirmed at Â£37.5m - Operating profit before goodwill amortisation and exceptional items up 20.1% at Â£140.8m - Headline PBT* up 21.1% at Â£135.8m - Headline EPS* up 26.7% at 132.4p - Proposed final dividend up 23.8% at 26.0p per share, resulting in total dividend of 38.0p per share, up 22.6% - Strong operating cash flow of Â£150.8m - Balance sheet ungeared *Before goodwill amortisation and exceptional items Operational highlights: - An exceptional performance from Singapore - Strong trading performances from Greece and Belgium - Eighth consecutive year of sales growth for Subaru Australia - Much improved performance in the UK - Hong Kong delivers operating profits of Â£22.6m and operating margins of 9.7% despite very difficult market conditions Peter Johnson, Group Chief Executive of Inchcape plc, commented: 'We have once again produced a very strong set of results demonstrating the benefits of our international spread across six core markets. 'In our overseas businesses we have consistently shown the merits of growing with selected manufacturers in contiguous territories. 'The new Block Exemption legislation has now provided us with the opportunity to apply this strategy to our UK Retail business. The ability of large dealer groups, such as Inchcape, to invest with selected manufacturers in locations they find attractive will change the retail landscape in the UK over the coming years. Inchcape will continue to play a part in that. 'This excellent set of results has maintained our recent record of reporting profit growth and strong cash generation, and we are well placed to continue this in 2004 despite the current weakness of the US dollar. We will also be investing further in our core markets to take advantage of the significant growth opportunities available to the Group.' Financial summary Â£m 2003 2002 Turnover 3,855.2 3,517.0 Operating profit before goodwill amortisation and exceptional items 140.8 117.2 VAT exceptional 15.3 - Goodwill amortisation (5.5) (5.6) Operating profit 150.6 111.6 Interest** 17.2 (5.1) Exceptional items charged after operating profit 0.5 2.1 PBT 168.3 108.6 Headline PBT* Â£135.8m Â£112.1m Headline EPS* 132.4p 104.5p Basic EPS 164.8p 100.1p *Before goodwill amortisation and exceptional items **Includes Â£22.2m interest income in relation to the VAT exceptional in 2003 Notes to editors For further information, including photographs, please contact: Group Communications, Inchcape plc 020 7546 0022 Hogarth Partnership Limited (John Olsen/Tom Leatherbarrow) 020 7357 9477 Inchcape, an international automotive services group, provides quality representation for its selected manufacturer partners, a choice of channels to market and products for its retail customers and a range of business services for its corporate customers. Operations are focused on the UK, Greece, Belgium, Australia, Hong Kong and Singapore. Inchcape's activities include exclusive Import, Distribution and Retail, Business Services, automotive E-commerce and Financial Services. Operating in a number of our markets, our key manufacturer partners are Toyota/Lexus, Subaru, Ferrari/Maserati, BMW, the Premier Automotive Group of Ford, Mazda and Volkswagen. For further information, visit us at www.inchcape.com Inchcape plc Preliminary results for the full year ending 31 December 2003 Introduction Inchcape has once more produced a very strong set of results. The benefits of our international spread, across six core markets, are clearly demonstrated by a 20.1% growth in operating profit before goodwill amortisation and exceptional items (see note 1b). This performance is the result of outstanding profit growth in Singapore, solid performances in Greece, Belgium and Australia, and an improved performance from our UK business. Hong Kong suffered a decline in profits as a result of exceptionally difficult conditions, which significantly affected the new car market. Headline profit before tax, goodwill amortisation and exceptional items was up 21.1% with Headline earnings per share of 132.4p rising 26.7% (see note 6). Operating cash flow in the year was Â£150.8m, representing some 116.0% of subsidiaries operating profit before goodwill amortisation and exceptional items. This excellent financial result is especially pleasing as it is accompanied by an impressive operational performance in our core markets. We remain market leader and increased market share for Toyota in Hong Kong, Singapore and Greece. For the eighth consecutive year, Subaru in Australia recorded year on year growth in sales. In the UK the new Block Exemption legislation is now in force. There are already signs that this has resulted in large UK dealer groups having much more control over the size, shape and security of their dealership networks. Acquisitions and disposals Our primary focus during 2003 was the restructuring of our UK Retail network in the run up to the new Block Exemption legislation, which came into effect on 1 October 2003. The most significant transactions related to the BMW franchise, where we purchased six dealerships, building the largest contiguous territory in the country stretching from Tunbridge Wells in the east through to Thames Ditton in the west. As part of this restructuring we disposed of four BMW outlets. In addition we acquired, or opened, seven dealerships in the year with other manufacturer partners. UK Retail now has a strong base from which it will continue the development of scale relationships with selected manufacturers, as part of our strategy to build large contiguous territories. Total spend on acquisitions in the period was Â£22.1m, of which Â£21.0m related to UK Retail. Cash inflow from disposals totalled Â£21.6m, of which Â£15.7m related to UK Retail. Financial performance Turnover of Â£3.9bn was up by 9.6% over 2002. Operating profit in the year was Â£150.6m. This includes a VAT refund of Â£15.3m, which was treated as an exceptional item. Excluding this and the goodwill amortisation charge of Â£5.5m, underlying operating profit rose by 20.1% to Â£140.8m. Headline profit before tax was up 21.1% on last year at Â£135.8m. Headline earnings per share rose by 26.7% to 132.4p although this benefited from a one off tax credit, which positively impacted Headline earnings per share by 5.2p. The VAT refund also included Â£22.2m of interest income and this is shown in the interest line. Profit before tax, including Â£37.5m in relation to the VAT refund, was Â£168.3m. Net cash inflow in the year was Â£62.5m. As a result the year end net cash position improved to Â£79.1m. Balance sheet strength The ability of our businesses to generate high levels of free cash flow has provided the Group with a very strong platform for the future. This, coupled with disposal proceeds, has enabled us to return c. Â£130.0m to shareholders since mid 1999 through dividends and a share buy back programme. This is after significant investment on acquisitions, and organic growth in areas such as Subaru Retail in Melbourne, Toyota Retail in Greece, and the Balkans. Our strategic development plans remain on track and encompass further expansion of our Retail activities in Greece and Australia. We continue to examine the Chinese market, where the retailing sector will undergo significant change as the market expands. Our initial entry requirement for this market is to secure the right partnership with a local company. In the UK the new Block Exemption legislation is encouraging consolidation and we intend to expand our Retail dealership network by enhancing, or establishing, contiguous territories with selected manufacturers. There are many opportunities available to us and we will pursue those, which we believe will add most value to the Group. In Business Services we will be concentrating our management efforts on improving the margins in our UK business before expanding into Continental Europe. Given this, a further return of capital to shareholders is not considered appropriate at this stage. However, if available funds are not required for investment purposes we will make additional returns of capital to shareholders. Dividend Since becoming a pure automotive services group in mid 1999 the Board's progressive dividend policy has resulted in an increase each year. Therefore the Board recommends the payment of a final ordinary dividend for the year of 26.0p (2002 - 21. 0p). This gives a total dividend for the year of 38.0p (2002 - 31.0p), which is an increase of 22.6%. The dividend is covered 3.5 times (2002 - 3.4 times) by Headline earnings per share. Subject to approval at the Annual General Meeting (AGM) on 13 May 2004, the final dividend will be paid on 17 June 2004 to shareholders on the register on 21 May 2004. Board changes Hugh Norton will retire from the Board at our AGM in May 2004, having completed nine years as a Non-executive Director. Operational review This section provides a summary of the performance in our core markets. Group operating profit, before goodwill amortisation of Â£5.5m and exceptional items of Â£15.3m, rose by Â£23.6m to Â£140.8m. Profits increased in the UK, Greece, Belgium, Australia and Singapore. For the full year ending 31 December 2003 2002 Â£m Â£m Operating profit Â£150.6m Â£111.6m Goodwill amortisation Â£5.5m Â£5.6m VAT exceptional income (Â£15.3m) - Operating profit before goodwill amortisation and exceptional Â£140.8m Â£117.2m items United Kingdom For the full year ending 31 December 2003 2002 Â£m Â£m Operating profit 17.1 14.3 Goodwill amortisation 3.8 4.3 Operating profit before goodwill amortisation 20.9 18.6 The new car market has continued to benefit from strong corporate and private demand. It increased by 0.6% over 2002 to almost 2.6m units, and was the fourth successive year of record sales. Our registrations grew by 15.7% in the year, on a like for like basis, for our core partners Toyota/Lexus, BMW, the Premier Automotive Group of Ford, Volkswagen and Mercedes-Benz. UK Retail has a new management structure and is implementing improved business processes. These factors have already resulted in stronger new car sales, used car sales, finance penetration and aftersales earnings. UK Retail profits and related Financial Services' profits (included within Financial Services), before goodwill amortisation, rose from Â£14.0m in 2002 to Â£15.3m in 2003. This is despite a Â£1.0m charge for management restructuring in 2003. After adjusting for this one off charge, the resulting operating profit margin has strengthened to 1.6% in 2003. This improved trading performance was driven by strong organic growth from our Toyota and Volkswagen businesses, whilst our new Mercedes-Benz market area performed well. However this encouraging growth was partly offset by higher overheads in the areas of national insurance, pension costs and insurance. BMW also suffered margin erosion partly due to model run outs and the disturbance associated with the network restructuring in and around London. Our Ferrari Distribution business had a reasonable year whilst Maserati Distribution suffered from margin and volume pressure. Our associated Retail business, Maranello Sales, also had a challenging year partly due to a major fire at our Egham workshop in the second half. Inchcape Automotive, our Business Services operation, suffered from a weak daily rental market, which impacted on volumes, margins and profitability. However, our broader product offering is starting to increase business from a wider customer base. The acquisition of the remaining 50.0% of shares in AutoCascade, our electronic remarketing operation, in December 2003 allows us to fully integrate this business with Inchcape Automotive. Inchcape Fleet Solutions enjoyed a strong 2003, benefiting in part from the economies of scale arising from the amalgamation of our contract hire and fleet management businesses in late 2002. Margins in our contract hire operations have improved and the business won sizeable new fleet management contracts in late 2003, which augurs well for 2004. Greece/Belgium For the full year ending 31 December 2003 2002 Â£m Â£m Operating profit 32.3 19.5 Goodwill amortisation 0.4 0.3 Operating profit before goodwill amortisation 32.7 19.8 In Belgium the market reduced by 1.3%, partly due to the lack of a Brussels Motor Show in 2003. However, we maintained our Toyota market share at 5.1%. Encouragingly, in a car market dominated by diesel products (at c. 68.0%), we sold more Toyota diesel cars (at c. 57.0% of our total sales) than petrol for the first time in 2003. This is a significant achievement considering diesel sales accounted for only c. 35.0% of our total Toyota sales two years ago. Underlying profit increased by 13.4% in spite of the reduction in volumes. This was after adjusting for the effect of last year's provision to cover Block Exemption changes. A richer mix of sales, primarily with Landcruiser and RAV4, and better margins drove this improvement. In Greece our Toyota volumes rose in the year despite a decline in the market of 4.1%. Consequently market share increased from 9.7% to 10.2%. Our Toyota/Lexus business was awarded the Toyota Triple Crown Award once again for achieving overall market leadership, and leadership in the passenger and light commercial vehicle segments. Both volumes and profitability in our Balkans businesses have grown at an improved level. Our volumes exceeded 3,400 units in the year and were up over 56.0% on last year. These successes provide the platform for further investments in these markets. As a result, the increase in underlying profits, in Greece and the Balkans, on 2002 was an excellent 22.3%. This excludes a Â£2.5m one off profit realised through the sale of our Greek Financial Services loan book. Australia/New Zealand For the full year ending 31 December 2003 2002 Â£m Â£m Operating profit 21.2 17.4 Goodwill amortisation 0.5 0.5 Operating profit before goodwill amortisation 21.7 17.9 Australia experienced yet another year of profit growth driven by our Subaru Distribution business, which set a new sales record of 29,829 vehicles. This is the eighth consecutive year of sales growth, and arose from strong performances across the model range. The Forester set new records and Impreza had its strongest year since 1999, just eight units short of an all time record. The new Liberty and Outback models launched in October have also been well received. Market share was 3.3%, in a record market of just over 900,000 units. This sales growth supported by higher margins resulted in improved profitability. Our Subaru Melbourne Retail business, which only started trading in May 2002, met all its targets. Total vehicle sales were c. 5,000 units, operating margins were close to 3.0% and the return on investment was over 20.0%. We continue to expand this business with additional satellite facilities opening in 2004, which will help drive improved used car and aftersales penetration. Sydney Retail had a disappointing year essentially due to poor performances from our Jaguar and Volvo dealerships. In a market up over 10.0%, Jaguar and Volvo national sales' volumes declined. We will restructure these businesses in 2004. AutoNexus, our developing Business Services operation, made pleasing progress in the year generating an operating margin of over 16.0%. Operating margins in total increased from 3.9% to 4.1% reflecting in part the increasing integration of the Subaru Distribution business with Retail. Hong Kong For the full year ending 31 December 2003 2002 Â£m Â£m Operating profit 22.6 31.3 Goodwill amortisation - - Operating profit before goodwill amortisation 22.6 31.3 Despite very difficult market conditions, our Hong Kong business delivered profits of Â£22.6m and operating margins of 9.7% demonstrating the exceptional qualities of this business. The Hong Kong market, excluding taxis, finished the year at c. 25,000 units, or 22.0%, down on last year. This is the lowest level for over twenty years and is some 23.0% below the average for the last five years. However, the market has shown signs of recovery with quarter four of 2003 being just 8.1% down on the same period in 2002. The taxi market fell to just over 1,000 units and this is not expected to change significantly until around 2006. In this difficult market, Toyota/Lexus increased its share from 28.4% to c. 31.0% and Crown Motors was awarded the Toyota Triple Crown for the twelfth consecutive year. They are the only Toyota distributor to achieve this. Mazda had a difficult year awaiting the introduction of the new Mazda3, which was launched in January 2004. Jaguar performed in line with the market. We exited the Peugeot franchise at the end of the year. At Inchroy, our financial services joint venture, profits fell to Â£4.6m due to interest rate margins being squeezed and a depressed car market. Singapore/Brunei For the full year ending 31 December 2003 2002 Â£m Â£m Operating profit 46.9 32.5 Goodwill amortisation 0.8 0.5 Operating profit before goodwill amortisation 47.7 33.0 The driver behind a profit increase of Â£14.7m, or 44.5%, was an excellent performance from our Toyota/Lexus business in Singapore, which also received the Toyota Triple Crown Award in 2003. Toyota/Lexus increased market share from 26.7% to 30.1%. This allied to a market that rose by 28.0% resulted in sales of over 26,000 units, a 44.3% increase on 2002. The market increased as the Government issued more Certificates of Entitlement in the year. This was partly due to the higher number of cars scrapped in the year but also attributable to a partial rebalancing by the Government between taxing car usage, as opposed to taxing initial car registrations. Growth in aftersales has been facilitated by recent investments, which have increased capacity, and the larger Toyota/Lexus car parc, which has increased by 45.0% since the end of 1999. In Brunei, market share increased to 25.8% and profits grew marginally. In total operating margins grew from 6.8% to 7.8%, showing the benefits of an integrated import and retail business model in a city state environment. Other For the full year ending 31 December 2003 2002 Â£m Â£m Operating profit 12.8 10.5 Goodwill amortisation - - Operating profit before goodwill amortisation 12.8 10.5 Finland had a very good year, building on its strong second half in 2002. The market was up 26.0% in 2003, driven in part by car tax changes introduced at the start of the year. Mazda increased market share from 1.7% to 3.1%, aided by the success of the Mazda6. The brand also performed well in the Baltics, especially in Estonia where it achieved a market share of 9.3%. These volume increases drove profitability up strongly. In Guam sales increased as customers replaced cars damaged in the typhoons in late 2002, although operating profits fell to more normal levels in the second half of the year. In Ethiopia the market was depressed by poor economic conditions and tax changes. As a result profits fell. Central costs For the full year ending 31 December 2003 2002 Â£m Â£m (17.6) (13.9) Central costs benefited from one off income of Â£2.4m relating to the liquidation of a closed overseas pension scheme. However, this was more than offset by one off costs, of Â£2.9m, relating to the exit of the lease on a property. We are taking action to recover losses associated with this exit. Underlying costs have risen due to pension, national insurance and project development costs. VAT exceptional income For the full year ending 31 December 2003 2002 Â£m Â£m 15.3 - Following an announcement by HM Customs and Excise, we submitted claims for overpaid VAT, from 1973 to 1994, in mid 2003. HM Customs and Excise paid some small claims in 2003, and in early 2004 agreed the vast majority of the remaining claims. Net VAT recovered totalled Â£15.3m, after fees, and has been treated as exceptional operating income in 2003. Current trading and prospects The UK market is expected to remain strong although marginally down on 2003, which was a record year. In UK Retail the dealership network and management changes implemented in 2003 should start to drive profits and margins forward. In Business Services we expect to see a recovery based on actions taken in 2003 and the broader customer offering we now have, which are already bringing in new business. Inchcape Fleet Solutions should continue to grow as a result of recently awarded fleet management contracts. Overall the UK is expected to raise profits in the year continuing the trend started in 2001. In Greece and Belgium the markets should show a slight improvement due to the Olympic Games in Athens, and the Brussels Motor Show. Australia is benefiting from the successful launch in October 2003 of the new Liberty and Outback models. The Hong Kong market is showing signs of recovery and we expect this to continue. This should result in improved profitability. In Singapore it is currently forecast that the Government will issue fewer Certificates of Entitlement this year and so the market could be up to 10.0% lower. This excellent set of results has maintained our recent record of reporting profit growth and strong cash generation, and we are well placed to continue this in 2004 despite the current weakness of the US dollar. We will also be investing further in our core markets to take advantage of the significant growth opportunities available to the Group. CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2003 Before VAT VAT exceptional exceptional Total 2003 2003 2003 2002 Â£m Â£m Â£m Â£m Turnover including share of joint ventures and associates 3,855.2 - 3,855.2 3,517.0 Less: - share of joint ventures (20.0) - (20.0) (30.4) - share of associates (42.0) - (42.0) (72.8) Group turnover 3,793.2 - 3,793.2 3,413.8 Cost of sales (3,223.3) - (3,223.3) (2,901.7) Gross profit 569.9 - 569.9 512.1 Net operating expenses (445.5) 15.3 (430.2) (410.2) Operating profit 124.4 15.3 139.7 101.9 Share of profits of joint ventures 10.0 - 10.0 9.1 Share of profits of associates 0.9 - 0.9 0.6 Total operating profit 135.3 15.3 150.6 111.6 Net profit on sale of properties and investments 0.9 - 0.9 0.9 Net (loss) profit including provisions on sale and termination of operations (0.4) - (0.4) 1.2 Profit on ordinary activities before interest 135.8 15.3 151.1 113.7 Net interest (5.0) 22.2 17.2 (5.1) Profit on ordinary activities before taxation 130.8 37.5 168.3 108.6 Tax on profit on ordinary activities (31.8) (7.5) (39.3) (28.9) Profit on ordinary activities after taxation 99.0 30.0 129.0 79.7 Minority interests (2.0) - (2.0) (3.4) Profit for the financial year 97.0 30.0 127.0 76.3 Dividends (29.6) - (29.6) (23.6) Retained profit for the financial year 67.4 30.0 97.4 52.7 Profit before tax (Â£m) 168.3 108.6 Basic earnings per share (pence) 164.8p 100.1p Diluted earnings per share (pence) 162.1p 97.9p Headline (before goodwill amortisation Â£5.5m (2002 - Â£5.6m) and exceptional items): - profit before tax (Â£m) 135.8 112.1 - earnings per share (pence) 132.4p 104.5p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 DECEMBER 2003 2003 2002 Â£m Â£m Profit for the financial year 127.0 76.3 Effect of foreign exchange rate changes: - results for the year (2.9) (3.4) - foreign currency net investments: subsidiaries (4.6) (7.3) joint ventures and associates (2.9) (3.2) Total recognised gains relating to the year 116.6 62.4 Prior period adjustment: - subsidiaries - (2.5) - joint ventures - (1.7) Total recognised gains since last annual report 116.6 58.2 Note of historical cost profits and losses for the year ended 31 December 2003 2003 2002 Â£m Â£m Reported profit on ordinary activities before taxation 168.3 108.6 Realisation of property revaluation surpluses - 0.2 Difference between the historical cost and the actual depreciation charge 0.6 0.7 Historical cost profit on ordinary activities before 168.9 109.5 taxation Historical cost profit after taxation, minority interests and dividends 98.0 53.6 CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2003 2003 2002 Â£m Â£m Fixed assets: Intangible assets 60.9 82.9 Tangible assets 272.9 258.1 Investments: - joint ventures: share of gross assets 257.1 319.2 share of gross liabilities (216.7) (271.6) share of net assets 40.4 47.6 - associates 26.2 26.2 - other investments 7.2 6.3 407.6 421.1 Current assets: Stocks 597.8 501.8 Debtors: - amounts due within one year 235.0 190.4 - amounts due after more than one year 11.3 14.5 Investments 13.8 11.4 Cash at bank and in hand 102.9 103.2 960.8 821.3 Creditors - amounts falling due within one year: Borrowings (23.2) (44.6) Other (709.4) (596.5) (732.6) (641.1) Net current assets 228.2 180.2 Total assets less current liabilities 635.8 601.3 Creditors - amounts falling due after more than one year: Borrowings (0.6) (42.0) Other (58.5) (66.3) (59.1) (108.3) Provisions for liabilities and charges (87.0) (94.5) Net assets 489.7 398.5 Capital and reserves: Called-up share capital 118.4 116.6 Share premium account 109.1 107.5 Revaluation reserve 29.1 30.4 Capital redemption reserve 16.4 16.4 Profit and loss account 210.1 121.8 Equity shareholders' funds 483.1 392.7 Minority interests 6.6 5.8 489.7 398.5 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS 2003 2002 Â£m Â£m Operating profit 139.7 101.9 Amortisation 5.2 5.0 Depreciation 26.6 27.8 Loss on sale of tangible fixed assets other than property 1.7 1.6 (Increase) decrease in stocks (75.2) 25.9 (Increase) decrease in trade debtors (4.0) 2.5 Increase in trade creditors 78.9 3.6 Payments in respect of termination of operations (3.1) (2.4) Other items* (19.0) (2.0) Net cash inflow from operating activities 150.8 163.9 CONSOLIDATED CASH FLOW STATEMENT Net cash inflow from operating activities 150.8 163.9 Dividends from joint ventures 4.3 5.5 Dividends from associates 1.9 3.4 Returns on investments and servicing of finance (1.6) (6.7) Taxation (28.5) (26.2) Capital expenditure and financial investment (33.6) (23.6) 93.3 116.3 Acquisitions and disposals (0.5) (89.7) Equity dividends paid (25.4) (21.4) Net cash inflow before use of liquid resources and financing 67.4 5.2 Net cash inflow from the management of liquid resources 6.7 1.6 Net cash outflow from financing (63.8) (15.6) Net increase (decrease) in cash 10.3 (8.8) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET CASH Net increase (decrease) in cash 10.3 (8.8) Net cash outflow from decrease in debt and lease financing 67.2 16.5 Net cash inflow from the management of liquid resources (6.7) (1.6) Change in net cash resulting from cash flows 70.8 6.1 Effect of foreign exchange rate changes on cash and debt (8.3) (7.0) Movement in net cash 62.5 (0.9) Net cash at 1 January 16.6 17.5 Net cash at 31 December 79.1 16.6 * 2003 includes Â£14.3m of the VAT exceptional (note 2) NOTES 1 SEGMENTAL ANALYSIS a Turnover Group subsidiaries Share of joint ventures 2003 2002 2003 2002 (i) By geographical market: Â£m Â£m Â£m Â£m UK 1,244.8 1,201.9 7.7 6.3 Greece/Belgium 820.5 697.2 2.9 5.1 Australia/New Zealand 529.3 455.3 - 6.5 Hong Kong 224.3 289.7 9.4 12.5 Singapore/Brunei 614.3 486.1 - - Other 360.0 283.6 - - 3,793.2 3,413.8 20.0 30.4 a Turnover Share of associates Total 2003 2002 2003 2002 (i) By geographical market: Â£m Â£m Â£m Â£m UK 40.0 70.9 1,292.5 1,279.1 Greece/Belgium 2.0 1.9 825.4 704.2 Australia/New Zealand - - 529.3 461.8 Hong Kong - - 233.7 302.2 Singapore/Brunei - - 614.3 486.1 Other - - 360.0 283.6 42.0 72.8 3,855.2 3,517.0 a Turnover Group subsidiaries Share of joint ventures 2003 2002 2003 2002 (ii) By activity: Â£m Â£m Â£m Â£m Import, Distribution and Retail 2,753.5 2,421.1 1.1 2.1 UK Retail 989.5 929.3 - - Financial Services 50.0 62.2 18.9 28.3 E-commerce 0.2 1.2 - - 3,793.2 3,413.8 20.0 30.4 a Turnover Share of associates Total 2003 2002 2003 2002 (ii) By activity: Â£m Â£m Â£m Â£m Import, Distribution and Retail 38.0 68.7 2,792.6 2,491.9 UK Retail - - 989.5 929.3 Financial Services 4.0 4.1 72.9 94.6 E-commerce - - 0.2 1.2 42.0 72.8 3,855.2 3,517.0 Geographical analysis of turnover is by origin and is not significantly different from turnover by destination. Turnover between segments is not material. b Total operating profit Group subsidiaries Share of joint ventures 2003 2002 2003 2002 (i) By geographical market: Â£m Â£m Â£m Â£m UK 15.5 14.5 1.2 (0.4) Greece/Belgium 27.6 16.4 4.2 2.7 Australia/New Zealand 21.2 16.8 - 0.6 Hong Kong 18.0 25.1 4.6 6.2 Singapore/Brunei 46.9 32.5 - - Other 12.8 10.5 - - 142.0 115.8 10.0 9.1 Central costs (17.6) (13.9) - - VAT exceptional (note 2) 15.3 - - - 139.7 101.9 10.0 9.1 b Total operating profit Share of associates Total 2003 2002 2003 2002 (i) By geographical market: Â£m Â£m Â£m Â£m UK 0.4 0.2 17.1 14.3 Greece/Belgium 0.5 0.4 32.3 19.5 Australia/New Zealand - - 21.2 17.4 Hong Kong - - 22.6 31.3 Singapore/Brunei - - 46.9 32.5 Other - - 12.8 10.5 0.9 0.6 152.9 125.5 Central costs - - (17.6) (13.9) VAT exceptional (note 2) - - 15.3 - 0.9 0.6 150.6 111.6 b Total operating profit Group subsidiaries Share of joint ventures 2003 2002 2003 2002 (ii) By activity: Â£m Â£m Â£m Â£m Import, Distribution and Retail 125.0 106.1 (0.7) (0.8) UK Retail 12.8 12.5 - - Financial Services 4.9 (1.8) 10.7 9.9 E-commerce (0.7) (1.0) - - 142.0 115.8 10.0 9.1 Central costs (17.6) (13.9) - - VAT exceptional (note 2) 15.3 - - - 139.7 101.9 10.0 9.1 b Total operating profit Share of associates Total 2003 2002 2003 2002 (ii) By activity: Â£m Â£m Â£m Â£m Import, Distribution and Retail (0.9) (0.8) 123.4 104.5 UK Retail - - 12.8 12.5 Financial Services 1.8 1.4 17.4 9.5 E-commerce - - (0.7) (1.0) 0.9 0.6 152.9 125.5 Central costs - - (17.6) (13.9) VAT exceptional (note 2) - - 15.3 - 0.9 0.6 150.6 111.6 b Total operating profit Group subsidiaries Share of joint ventures 2003 2002 2003 2002 (iii) Operating profit before Â£m Â£m Â£m Â£m VAT exceptional and goodwill amortisation: Operating profit 139.7 101.9 10.0 9.1 VAT exceptional (note 2) (15.3) - - - Goodwill amortisation 5.2 5.0 0.3 0.3 129.6 106.9 10.3 9.4 b Total operating profit Share of associates Total 2003 2002 2003 2002 (iii) Operating profit before Â£m Â£m Â£m Â£m VAT exceptional and goodwill amortisation: Operating profit 0.9 0.6 150.6 111.6 VAT exceptional (note 2) - - (15.3) - Goodwill amortisation - 0.3 5.5 5.6 0.9 0.9 140.8 117.2 Of the Â£5.2m subsidiaries' goodwill amortisation, Â£3.5m (2002 - Â£3.7m) relates to the UK, Â£0.4m (2002 - Â£0.3m) to Greece/Belgium, Â£0.5m (2002 - Â£0.5m) to Australia/New Zealand and Â£0.8m (2002 - Â£0.5m) to Singapore/Brunei. The Â£0.3m (2002 - Â£0.3m) joint ventures' and Â£nil (2002 - Â£0.3m) associates' goodwill amortisation fall under the UK segment. Goodwill amortisation with the exception of Â£1.1m (2002 - Â£0.9m) in UK Retail, relates entirely to Import, Distribution and Retail. Note 3 provides a split of the exceptional profit (loss) by country. c Net assets (liabilities) Group subsidiaries Share of joint ventures 2003 2002 2003 2002 (i) By geographical market: Â£m Â£m Â£m Â£m UK 241.1 238.2 4.2 4.6 Greece/Belgium 4.8 20.1 2.7 7.0 Australia/New Zealand (0.7) 1.5 - - Hong Kong 27.6 28.9 33.5 36.0 Singapore/Brunei 58.3 57.9 - - Other 69.8 56.7 - - 400.9 403.3 40.4 47.6 Net cash 79.1 16.6 - - Other unallocated assets and liabilities* (56.9) (95.2) - - 423.1 324.7 40.4 47.6 c Net assets (liabilities) Share of associates Total 2003 2002 2003 2002 (i) By geographical market: Â£m Â£m Â£m Â£m UK 23.9 24.2 269.2 267.0 Greece/Belgium 2.3 2.0 9.8 29.1 Australia/New Zealand - - (0.7) 1.5 Hong Kong - - 61.1 64.9 Singapore/Brunei - - 58.3 57.9 Other - - 69.8 56.7 26.2 26.2 467.5 477.1 Net cash - - 79.1 16.6 Other unallocated assets and liabilities* - - (56.9) (95.2) 26.2 26.2 489.7 398.5 c Net assets (liabilities) Group subsidiaries Share of joint ventures 2003 2002 2003 2002 (ii) By activity: Â£m Â£m Â£m Â£m Import, Distribution and Retail 240.8 252.9 0.3 1.2 UK Retail 149.7 141.5 - - Financial Services 10.3 9.4 40.1 46.4 E-commerce 0.1 (0.5) - - 400.9 403.3 40.4 47.6 Net cash 79.1 16.6 - - Other unallocated assets and liabilities* (56.9) (95.2) - - 423.1 324.7 40.4 47.6 c Net assets (liabilities) Share of associates Total 2003 2002 2003 2002 (ii) By activity: Â£m Â£m Â£m Â£m Import, Distribution and Retail 18.4 19.2 259.5 273.3 UK Retail - - 149.7 141.5 Financial Services 7.8 7.0 58.2 62.8 E-commerce - - 0.1 (0.5) 26.2 26.2 467.5 477.1 Net cash - - 79.1 16.6 Other unallocated assets and liabilities* - - (56.9) (95.2) 26.2 26.2 489.7 398.5 * Other unallocated assets and liabilities include central provisions, VAT exceptional, taxation, dividends and assets not directly related to operating activities. 2 VAT EXCEPTIONAL Following an announcement by HM Customs and Excise, we submitted claims for overpaid VAT relating to the period 1973 to 1994. HM Customs and Excise paid some small claims in 2003 and in February 2004 agreed the vast majority of the remaining claims. Net VAT recovered of Â£15.3m, after fees, has been treated as operating exceptional income in 2003. This has been reported as VAT exceptional for segmental purposes (note 1b). The Â£22.2m in associated interest is included as exceptional interest income. We have received legal advice indicating that there are good grounds for some or all of the VAT recovery and associated interest not to be subject to corporation tax. However, we understand that the Inland Revenue will challenge this treatment. A provision of Â£7.5m has been made in this respect. 3 EXCEPTIONAL ITEMS CHARGED AFTER OPERATING PROFIT 2003 2002 Â£m Â£m Net profit on sale of properties and investments 0.9 0.9 Net (loss) profit including provisions on sale and termination of operations: - UK Retail dealerships (4.6) (1.4) - IFS Australia - 0.8 - Provision release arising from central warranties/indemnities 4.0 3.0 - Other (2002 includes goodwill written off Â£0.3m) 0.2 (1.2) Total net (loss) profit including provisions on sale and (0.4) 1.2 termination of operations Total exceptional items charged after operating profit 0.5 2.1 Goodwill written off included above of Â£nil (2002 - Â£0.3m) had been charged against reserves in previous years. 4 NET INTEREST 2003 2002 Â£m Â£m Interest payable and other charges relating to the Company and its subsidiaries: Bank loans and overdrafts falling due within five years 5.9 6.6 Loan notes falling due within five years 2.1 2.7 Other interest 4.8 2.2 12.8 11.5 Interest receivable relating to the Company and its subsidiaries: Bank and other interest (7.6) (6.2) VAT exceptional (note 2) (22.2) - (29.8) (6.2) Net interest relating to the Company and its subsidiaries (17.0) 5.3 Share of associates' net interest (0.2) (0.2) (17.2) 5.1 5 TAXATION VAT exceptional Headline Total 2003 2003 2003 2002 Â£m Â£m Â£m Â£m Analysis of tax charge for the year Current tax: - UK corporation tax at 30.0% (2002 - 30.0%) 9.5 2.6 12.1 5.5 - double tax relief (10.0) - (10.0) (5.8) (0.5) 2.6 2.1 (0.3) Overseas tax 37.5 - 37.5 30.9 37.0 2.6 39.6 30.6 Adjustments to prior year liabilities: - UK (3.3) - (3.3) (1.5) - overseas (0.7) - (0.7) 0.6 The Company and its subsidiaries' current tax 33.0 2.6 35.6 29.7 Share of joint ventures' current tax 2.8 - 2.8 3.2 Share of associates' current tax (0.2) - (0.2) 0.6 Total current tax charge 35.6 2.6 38.2 33.5 The Company and its subsidiaries' deferred tax (3.3) 4.9 1.6 (3.9) Share of joint ventures' deferred tax (0.5) - (0.5) (0.7) Total deferred tax (3.8) 4.9 1.1 (4.6) Tax on profit on ordinary activities 31.8 7.5 39.3 28.9 Tax on Headline profit amounts to Â£31.8m (2002 - Â£29.1m) which is before tax relief of Â£nil (2002 - Â£0.2m) on goodwill amortisation (note 6). There is tax on the VAT exceptional income and associated interest of Â£7.5m (2002 - Â£nil). There is no tax on other exceptional items (2002 - Â£nil). Of the headline deferred tax credit Â£3.5m (2002 - Â£4.6m) has arisen from the origination and reversal of timing differences. A credit of Â£0.3m (2002 - Â£nil) has arisen due to adjustments to the estimated recoverable amount of deferred tax arising in prior years. All of the deferred tax charge on the VAT exceptional has arisen from the origination of timing differences. 6 EARNINGS PER ORDINARY SHARE Headline Basic 2003 2002 2003 2002 Â£m Â£m Â£m Â£m Headline profit before tax 135.8 112.1 135.8 112.1 Goodwill amortisation - - (5.5) (5.6) VAT exceptional (note 2) - - 37.5 - Exceptional items (note 3) - - 0.5 2.1 Profit before tax 135.8 112.1 168.3 108.6 Taxation (note 5) (31.8) (29.1) (39.3) (28.9) Minority interests (2.0) (3.4) (2.0) (3.4) Earnings 102.0 79.6 127.0 76.3 Headline earnings per share 132.4p 104.5p Basic earnings per share 164.8p 100.1p Diluted earnings per share 162.1p 97.9p 2003 2002 number number Weighted average number of fully paid ordinary shares in issue during the year, less those held by the Inchcape Employee Trust 77,049,311 76,195,345 Dilutive effect of potential ordinary shares 1,276,038 1,754,558 Adjusted weighted average number of fully paid ordinary shares in issue during the year 78,325,349 77,949,903 Headline profit before tax and earnings (before goodwill amortisation and exceptional items) are adopted in that they assist the reader in understanding the underlying performance. Headline and basic earnings per share are calculated by dividing the respective Headline and basic earnings (as outlined above) for the year by the weighted average number of fully paid ordinary shares in issue during the year, less those shares held by the Inchcape Employee Trust. Diluted earnings per share is calculated as per Headline and basic earnings per share with a further adjustment to the weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise share options and deferred bonus awards. 7 DIVIDENDS 2003 2002 2003 2002 pence pence Â£m Â£m Interim - paid 15 September 2003 (2002 paid - 16 September 2002) 12.0 10.0 9.3 7.5 Final - proposed - payable 17 June 2004 (2002 paid - 16 June 2003) 26.0 21.0 20.3 16.1 38.0 31.0 29.6 23.6 If approved at the Annual General Meeting the final ordinary dividend will be paid to ordinary shareholders registered in the books of the Company at the close of business on 21 May 2004. Dividends above exclude Â£0.4m (2002 - Â£0.4m) payable on shares held by the Inchcape Employee Trust. The 2003 interim dividend charge of Â£9.3m is Â£0.1m higher than was accrued in the 2003 Interim Report. This is due to the issue of new shares between the date of the Interim Report and the record date. 8 FOREIGN CURRENCY TRANSLATION The main exchange rates used for translation purposes are as follows: Average rates Year end rates 31 December 31 December 2003 2002 2003 2002 Australian dollar 2.53 2.77 2.38 2.86 Euro 1.45 1.59 1.42 1.53 Hong Kong dollar 12.75 11.71 13.90 12.55 Singapore dollar 2.86 2.69 3.04 2.79 9 BASIS OF PRESENTATION The figures contained in this announcement have been prepared in accordance with Companies Act 1985 and applicable accounting standards on the historical cost basis, modified to include the revaluation of certain tangible fixed assets. The financial information presented does not constitute the statutory financial statements of 2003 or 2002. The 2003 figures are extracted from the audited financial statements for that year which have not yet been approved by the shareholders and have not yet been delivered to the Registrar. The comparative figures are extracted from the latest published financial statements that have been delivered to the Registrar of Companies. The auditors' reports in respect of both years were unqualified and did not contain a statement under either Section 237 (2) or Section 237 (3) of the Companies Act 1985. Financial review The trading performance of the businesses is explained in the Operational review. This review gives information on financial matters. Financial reporting and accounting standards No new Financial Reporting Standards were issued during the year. The codification of the best practice rules for revenue recognition, amending FRS 5 Reporting the Substance of the Transactions issued in November 2003, had no impact on the Group's turnover. The Group has set up a steering committee and is well underway in assessing the impact of reporting under International Financial Reporting Standards. The first Report and accounts this will apply to is for the year ending 31 December 2005. Results Turnover increased by 9.6% to Â£3,855.2m, for 2003. However operating profit before goodwill amortisation and exceptional items rose strongly, by 20.1% in the year, from Â£117.2m in 2002 to Â£140.8m in 2003. The resultant operating margins strengthened from 3.3% in 2002 to 3.7% in 2003. Our operation in Singapore delivered an excellent trading performance in the year aided by a larger vehicle market and higher market penetration. This allied to improved results in the UK, Greece, Australia and also Belgium, which benefited from the non recurrence of the Â£4.4m dealer network reorganisation provision made in 2002, more than compensated for a decline in Hong Kong profits. Pensions The Group continues to account for retirement benefits in accordance with SSAP 24 Accounting for Pension Costs and provides additional disclosure as required by FRS 17 Retirement Benefits. During the year triennial valuations were completed for the Group's major pension funds. As for most companies weak equity market conditions and changes in demographic assumptions have eroded the surplus of our UK pension funds since the last valuations in 2000. As at April 2003, these funds had net deficits totalling Â£16.5m. Since then an improvement in equity markets has reduced these deficits. This, together with increasing contributions, is forecast to address the funding of these deficits in the medium term. As expected, at the beginning of 2003, the SSAP 24 pension charge has increased by Â£2.0m to Â£9.3m in 2003. Exceptional VAT item In line with others in our industry peer group, in mid 2003 we submitted claims for the recovery of overpaid VAT for the period 1973 to 1994. HM Customs and Excise paid some small claims in 2003 and in early 2004 they agreed the vast majority of the remaining claims. The Â£15.3m net VAT recovery, after fees, has been treated as exceptional operating income in 2003, whilst the Â£22.2m associated interest is included within net interest income. Other exceptional items The aggregate net exceptional profit for the period was Â£0.5m. The reorganisation of our UK Retail dealership network, following the new Block Exemption legislation, resulted in a Â£4.6m loss. In total twelve dealerships were sold, closed or exchanged for other facilities. This loss was more than offset by the release of litigation provisions relating to non-motors disposals. Net interest The net interest income for the year of Â£17.2m benefited from Â£22.2m of one off interest income relating to the Group's VAT reclaim. Excluding this, the underlying interest charge from operations was Â£5.0m (2002 - Â£5.1m). The Group continues to be impacted by significant cash balances in countries with low interest rates whilst the core Group debt is in the UK, which has a higher interest rate. Taxation The 2003 Headline tax rate before goodwill amortisation and exceptionals (see note 5) is only 23.4%, compared to 26.0% in 2002. This was positively impacted by 2.9%, as a favourable court ruling in the UK allowed us to release a provision made in the 1990's relating to a tax efficient financing structure. The underlying rate therefore was 26.3%. We anticipate the tax rate in 2004 will be slightly above the Group's underlying tax rate in 2003. We have received advice indicating that there are good grounds for some or all of the VAT recovery, and associated interest, not to be subject to corporation tax. However, we understand that the Inland Revenue will challenge this. A provision of Â£7.5m has been made in this respect. Minority interest Profit attributable to minorities has decreased to Â£2.0m in 2003 from Â£3.4m in 2002. This is due to the acquisition of the minority shares in Inchcape Motors Limited (IML) in Singapore in May 2002, prior to this IML contributed Â£1.5m to the minority interest charge. Exchange rates Had the exchange rates in 2002 continued in 2003 the Headline profit before tax would have been Â£0.7m higher. This effect primarily arose as a result of the weakening of the Singapore dollar and Hong Kong dollar, partially offset by a strengthening of the Euro and Australian dollar. Principal exchange rates are listed in note 8. Cash flow The Group's working capital is Â£35.6m, which is similar to last year, due to tight management control, and is despite a 9.6% increase in turnover in 2003. The Group continues to be extremely cash generative with cash from operating activities in 2003 of Â£150.8m, which is some 116.0% of subsidiaries operating profit before goodwill amortisation and exceptional items. This resulted in the Group's net cash position of Â£16.6m at 31 December 2002 increasing to Â£79.1m at 31 December 2003. It should be noted that only Â£2.9m of the VAT refund, including interest, was received in 2003. Acquisitions and disposals Certain manufacturers in the UK have used Block Exemption to restructure their network and form larger scale relationships with key retail partners. With BMW, we were awarded the largest BMW territory in the country to the west and south of London. To secure this we purchased two dealerships from William Jacks PLC and acquired L&C Holdings Limited, which owns four BMW dealerships to the south of London. In gaining this territory, we also sold four BMW dealerships in Essex and south London. These BMW acquisitions and disposals have, in aggregate, resulted in a cash outflow in 2003 of Â£7.5m. The Group has exited from the Audi marque in its UK Retail operations generating Â£2.7m in net cash. Capital expenditure Capital expenditure less disposal proceeds was Â£33.6m, Â£7.0m greater than the depreciation charge. This incremental investment was primarily in UK Retail for the development of new dealership premises. Treasury management and policy The centralised treasury department manages the key financial risks of the Group encompassing funding and liquidity risk, interest rate risk, counterparty risk and currency risk. Group Treasury operates as a service centre under Board approved objectives and policies. Speculative transactions are expressly forbidden. The treasury function is subject to regular internal audit. Funding and liquidity risk Group policy is to ensure that the funding requirements forecast by the Group can be met within available committed facilities. The Group's principal committed facility is a five year Â£250.0m revolving credit facility put in place in July 2002 with a syndicate of quality banks. Liabilities in respect of loan notes totalling Â£20.1m were discharged between April and October 2003. These notes were issued in December 2000/2001 following the acquisition of Eurofleet Ltd, now known as Inchcape Automotive. At the year end notes totalling Â£0.4m were outstanding. In addition to the committed facilities the Group has available uncommitted borrowing lines made available by relationship banks. These facilities are used for liquidity management purposes. At the year end Â£11.3m of these facilities were utilised. Cross border Group loans are made to maximise use of funds and to minimise the Group's net interest expense. The principal cash deposits at the year end were in euros and Singapore dollars. Cash is held locally ahead of payments to trade creditors. In Singapore, cash deposits also support the significant requirement for Certificates of Entitlement required for new car sales. Interest rate risk Interest rate policy has the objective of minimising net interest expense and the protection of the Group from material adverse movements in interest rates. Throughout 2003 the Group borrowed at floating rates only. This approach reflects the continuing benign interest rate environment and the low level of gross debt. Should interest rate hedging activities be deemed appropriate in the future the Board has approved the use of interest rate swaps, forward rate agreements and options. Counterparty risk The amount due from counterparties arising from cash deposits and the use of financial instruments creates credit risk. Limits are in place, which reduce credit risk by stipulating the aggregate amount and duration of exposure to any one counterparty dependent upon the applicable credit rating. Credit ratings and the appropriate limits are reviewed regularly. Currency risk The Group faces currency risk on its net assets and earnings, a significant proportion of which are in currencies other than sterling. On translation into sterling currency, movements can affect the Group balance sheet and profit and loss account. Group policy is to minimise balance sheet translation exposures, where fiscally efficient, by financing working capital requirements in local currency and maximising the remittances of overseas earnings into sterling. The Group has transactional currency exposures where sales or purchases by an operating unit are in currencies other than in that unit's reporting currency. For a significant proportion of the Group these exposures are removed, as trading is denominated in the relevant local currency. In particular, local billing arrangements are in place for many businesses with our principals. For those businesses that continue to be billed in foreign currency Group policy is that committed transactional exposures are hedged into the business's reporting currency. If possible foreign exchange exposures will be matched internally before hedging externally. Hedging instruments are approved by the Board and are restricted to forward foreign exchange contracts, currency options and foreign exchange currency swaps. Foreign exchange currency swaps are also used to hedge transaction exposures arising on cross border Group loans. This information is provided by RNS The company news service from the London Stock Exchange

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