Inchcape Annual Report 2004

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FY2004 Annual Report · Inchcape

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Annual report and accounts 2004

International
Automotive
Services

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International

Automotive

Services

Inchcape plc Annual report 2004
Inchcape plc Annual report 2004

Chairman’s statement
An overview of our achievements
in 2004

Chief Executive’s review
An update on the Group strategy

08 Operational review

A detailed look at our operating
performance by core market

Financial review
An overview of the key accounting
and financial matters impacting
the Group

Corporate social responsibility
Inchcape in the community
Environment, health and safety

20
20
22
24 Working for Inchcape

26 Corporate governance
26 Board of Directors
28 Directors’ report
30
34
40 Directors’ responsibilities

Corporate governance report
Board report on remuneration

41 Report of the Auditors

Five year record

Company details

42
42

Financial statements
Consolidated profit and
loss account
Statement of total recognised
gains and losses

43 Note of historical cost profits

and losses

44 Consolidated and company

balance sheets
Consolidated cash flow statement
Accounting policies

45
46
48 Notes to the accounts

Inchcape’s core businesses are in the UK, Greece, Belgium,
Australia, Hong Kong and Singapore. The Group also has
operations in a number of other countries including Finland
and Guam. In addition to expanding within our core markets
we are looking to develop scale businesses in adjacent
territories such as the Balkans and the Baltics.

Inchcape’s activities include exclusive Import, Distribution
and Retail, UK Retail, Financial Services, Business Services
and automotive E-commerce. Our key manufacturer
partners are Toyota/Lexus, Subaru, BMW, the Premier
Automotive Group of Ford, Mazda, Mercedes-Benz
and Volkswagen.

Inchcape offers a range of automotive services. We provide
quality representation for our manufacturer partners, a choice
of channels to market and products for our retail customers,
and a range of business services for our corporate customers.

Inchcape plc Annual report 2004

Chairman’s statement

“A strong operating performance
from all of our key markets underpins
yet another set of excellent results.”
Sir John Egan Chairman

A strong operating performance from all of our key markets
underpins yet another set of excellent results. Operating profit
before goodwill amortisation and exceptional items (see note 1b)
rose 25.1% in the year, and has risen by an average 23.4% per
annum since 2000, our first full year as a purely international
automotive services group.

Operating cash flow in the year was £177.2m representing

some 105.2% of subsidiaries’ operating profit before goodwill
amortisation and exceptional items. Cash generation is a key
performance indicator for the Group and operating cash flow
has averaged over £150.0m per year in the period 2000 to 2004.

Operationally we have again performed very well retaining
market leadership in Hong Kong, Singapore and Greece with Toyota.
In Australia, Subaru achieved year on year growth in volumes for
the ninth consecutive year. In the UK our Retail business has
significantly increased its operating margin in what was a more
difficult market than 2003.

Acquisitions and disposals
In the UK, dealer consolidation is continuing and there are many
quality businesses that would fit well within our portfolio. We continue
to balance strategic fit, price, value and timing in our discussions
with vendors. In 2004 we acquired five Mercedes-Benz dealerships
in the East Midlands, which adjoin our existing Mercedes-Benz
market area. This combination has created the largest independent
Mercedes-Benz territory in the country. We have also increased our
Toyota and Volkswagen representation in the year.

Outside the UK we are expanding our footprint in the fast

growing markets of Eastern Europe. In Estonia we acquired
two Mazda dealerships and as a result we are now the exclusive
Importer and Retailer for Mazda in this ‘city state’ market. Over 1,260
Mazda vehicles were sold in Estonia in 2004 and the brand achieved
a market share of 7.7%. We are also investing in new start up
businesses and during the year entered the Polish market, where
we set up BMW/MINI dealerships in Warsaw and Wroclaw.

Total spend on acquisitions was £25.1m of which £20.5m
related to UK Retail. Cash inflow in relation to disposals totalled
£23.7m of which £19.3m related to the sale of two 40.0%
associates: MCL Group Limited (MCL) and Automotive Group
Limited (AGL). These associates were not core businesses.

Financial performance
Turnover of £4.2bn was up by 8.2% over 2003. Operating profit
before goodwill amortisation and exceptional items was £176.2m,
which is 25.1% higher than 2003. After adjusting for the VAT
recovery, which was £13.5m higher in 2003 than 2004, and
goodwill, including the £9.4m impairment charge relating to
Inchcape Automotive, total operating profit was £163.1m.
This is 8.3% ahead of 2003.

Headline profit before tax was up 26.7% on 2003 at £172.0m

despite an adverse currency effect of c. £9.0m. The increase
on 2003 would have been 33.3% at constant exchange rates.
Headline earnings per share rose by 21.9% to 161.4p.

Inchcape plc Annual report 2004

Headline profit before tax £m

2004

2003

£172.0m

£m

Profit before tax
VAT exceptional income
Goodwill impairment
Other exceptional items
Goodwill amortisation
Headline profit before tax

172.0

135.8

2004

2003

155.3
(6.0)
9.4
7.8
5.5
172.0

168.3
(37.5)
–
(0.5)
5.5
135.8

Profit before tax of £155.3m was impacted by: the VAT exceptional
income of £6.0m, the £9.4m goodwill impairment charge and other
net exceptional losses of £7.8m. These exceptional losses mainly
related to the sale of our MCL and AGL shareholdings and the exit
from the Ferrari/Maserati distribution businesses in the UK and
Belgium. These were partially offset by the release of litigation
provisions relating to non-motors disposals.

Net cash movement in the year was £74.7m including £37.0m

in relation to the VAT recovery. As a result the year end net cash
position improved to £153.8m.

Balance sheet strength
Our businesses have consistently generated high levels of free cash
flows enabling us to continue the investment in our core markets.
This has helped drive the strong earnings growth, which has been
delivered in recent years. It has also enabled increasing returns
to be given to shareholders. Dividends have more than doubled
over the last five years and with a £45.0m share buy back being
completed in 2001, over £160.0m has been returned to shareholders
since mid 1999.

A large amount of cash is generated in our international markets.
This has resulted in a mismatch between cash held in those markets
and debt in the UK, due to the difficulty of repatriating the cash in
a fiscally efficient manner. This had an adverse effect on the Group’s
interest charge due to interest rate differentials. During late 2004
we permanently repatriated cash of c. £135.0m to the UK and
created the ability to repatriate further amounts over the coming
years. The associated tax cost is not material but the impact on
the interest charge is positive and significant.

The cash position has also been strengthened this year by the
sale of two UK associates and the VAT recovery of some £37.0m.
In 2005 our cash flow has also benefited from the £6.0m VAT claim
recognised in 2004.

As a result of all of this, we are extremely well placed to fund our

strategic growth plans. These remain broadly based and encompass
further expansion in UK Retail as we aim to represent between 5.0%
to 10.0% of our chosen partners’ national sales volumes.

Eastern Europe is also a major area of focus as we look to take

advantage of fast growth rates in these developing markets.
Discussions continue with several manufacturers regarding further
investments in a number of countries in the region. Our experience
in the Balkans illustrates the benefits of establishing an early footprint
in those markets where we can invest in retail in the key capital cities.
We also have plans for further expansion of our Retail activities
in Greece and Australia and remain committed to keeping a watching
brief on markets such as China.

Given the strength of our cash position, which has benefited
from the VAT recoveries and the disposal of UK associates, we have
identified that we have funds available, which are not required for
investment purposes. We therefore intend to return the approximate
value of these one offs, £65.0m, to our shareholders through a
share buy back programme, which may include buying shares into
treasury. The Board has the powers to purchase up to 10.0% of the
Company’s capital and we intend to renew that authority at the
forthcoming Annual General Meeting (AGM).

This return of surplus capital will still leave us with substantial

financial capacity, which will enable us to deliver our stated strategy.
Any additional return of capital would only arise if further funds
became available, which are not required for investment purposes.

Dividend
The Board recommends the payment of a final ordinary dividend
for the year of 35.0p (2003 – 26.0p). This gives a total dividend for
the year of 50.0p, which is some 31.6% above the 2003 dividend
of 38.0p. This substantial increase means that the dividend has
risen by 127.3% since 2000, a clear demonstration of the Board’s
progressive dividend policy.

However, our record of significant dividend growth has not
resulted in low levels of dividend cover. This year’s cover is 3.2
times Headline earnings per share (2003 – 3.5 times), a more
than comfortable level, which leaves us well placed to continue
our progressive policy.

Inchcape management and employees
The continued success of the Group, whether measured by
financial or operational criteria, is testament to the quality and efforts
of all our colleagues around the world. Their hard work, dedication
and commitment to delivering excellent customer satisfaction are
critical to the success of the Group. On behalf of the Board I thank
them for their contribution.

Board changes
I am delighted to welcome Will Samuel and David Scotland to the
Board. Will, who joined the Board on 26 January 2005, having worked
for Schroders for over twenty years, brings a wealth of city experience
with him. David, who is Executive Director and President – World Wines
of Allied Domecq PLC, has broad international experience, which
includes managing operations in Eastern Europe. David joined the
Board on 24 February 2005.

Trevor Taylor retired from the Board at the end of 2004.
Trevor has made an enormous contribution to Inchcape since he
joined the Group in 1987 as Deputy Managing Director of Toyota
(GB). Simon Robertson will be retiring from the Board at our AGM
in May 2005. Simon has added immense value to the Group since
joining the Board in May 1996. During his time on the Board the
Group has undergone significant change and Simon’s wise counsel
during that process has been invaluable.

Both Trevor and Simon will be missed. However I am very pleased that
they have been replaced by people of the quality of Will and David.
We also announced today that I intend to step down from
the Inchcape Board by the AGM in May 2006 and it is planned that
Peter Johnson will succeed me as Non-executive Chairman.

The Board believes that this is the right decision for all our
stakeholders and, indeed as part of our planning process, we consulted
with a number of our largest institutional shareholders and
manufacturer partners, and they were all supportive. The search for
Peter’s successor has now commenced and we will announce the
appointment at the appropriate time.

Current trading prospects
The UK market is forecast to be slightly lower than 2004 but still
a healthy 2.4 million units.

In UK Retail, however, the focus is as much on margin as
volumes. Whilst there was margin pressure in mid to late 2004,
due to over supply, UK Retail still managed to improve margins
over 2003. In 2005 we are targeting further improvements in both
margins and volumes. Inchcape Fleet Solutions should continue to
grow its profitability whilst Inchcape Automotive will recover from
its poor year in 2004.

In Greece and Belgium the markets are expected to be similar
to last year. Better product availability and a slightly broader product
range should help our performance in both markets. The Balkans is
expected to continue showing strong growth.

In Australia the car market is expected to be similar in size to
2004, as is Subaru’s market share. Retail operations in Melbourne
should see continued growth and there will be a significant profit
recovery in Sydney Retail.

The Hong Kong market is again expected to grow as it recovers

from 2003, which was the worst car market in over twenty years.
This should result in improved profitability.

In Singapore it is expected that the market will be strong
again in 2005, albeit some 10.0% lower than the exceptional 2004.
Aftersales revenues and profits will continue to benefit from the
expanding Toyota car parc.

The interest charge will reflect the cash repatriation that
took place in 2004 and the fact that more funds should be remitted
during 2005. The effect on the charge will be positive and
significant, and will only be partially offset by the impact of the
share buy back programme.

The 2005 results will be reported under International Financial

Reporting Standards. Whilst work is still continuing on some
aspects of how the standards will be interpreted, we currently
expect that the effect on earnings will be broadly neutral provided
we achieve hedge effectiveness for our foreign exchange
transactions. If we do not, IAS 39 will introduce some volatility into
our profit and loss account. However the underlying economics of
the business and the cash flows will not change. Net assets,
however, will be reduced mainly due to the inclusion of the net
pension deficit on the balance sheet.

The Group has again performed at a very high level in 2004.

Our underlying performance will be strengthened as we invest
further by taking advantage of the significant opportunities available
to us. In 2005 we are well placed to continue with our record of
profit growth and strong cash generation.

Sir John Egan Chairman
28 February 2005

Inchcape plc Annual report 2004

“During 2004 we have continued
with our established strategy of
creating scale, highly integrated
businesses, covering elements
of distribution, retail and aftersales.”
Peter Johnson Group Chief Executive

Chief Executive’s review

During 2004 we have continued with our established strategy of
creating scale, highly integrated businesses, covering elements of
distribution, retail and aftersales. This has resulted in above average
returns and market leading positions for our manufacturer partners.
We have proven expertise in emerging markets, where our
integrated management and access to capital is an advantage
over local operators, allowing us to act quickly by establishing
outstanding facilities in the core markets within the territory.
We are confident that this strategy will continue to serve us well as
we move into new emerging markets, develop our existing markets
and possibly add to our core manufacturer partners.

In Hong Kong and Singapore our investments in aftersales

facilities produced excellent returns from a growing vehicle parc.
We continue to assess scale retail opportunities in mainland China,
based on our strategic and investment criteria, whilst also looking
at the potential of the indigenous Chinese manufacturers to whom
we can provide proven distribution and retail skills.

In Australia, Subaru Melbourne continues to exceed our
sales and financial expectations. We have restructured our Retail
business in Sydney by rationalising our facilities and developing two
of the five Subaru retail market areas in the city. Opportunities for
further retail expansion in New South Wales are being explored.
AutoNexus, our Business Services operation, was awarded a parts
warehousing and logistics contract for Volkswagen and Audi and has
moved into a modern state of the art facility.

In Greece the Athens region accounts for c. 50.0% of national
sales volume. Our Retail development in the city is underway with
a new sales and service facility at Stavros and a new showroom
at Heraklion. These complement our existing operation at Syngrou.
We will centralise our used car sales operations in Stavros and
establish a new body and paint shop in a low cost location.

In Belgium we are looking to reconfigure the existing Toyota
representation in Brussels expanding our own Retail presence.
We are also encouraged by the renewed investment by Toyota in the
Lexus brand where we are the exclusive Distributor and Retailer in
Luxembourg and Greece, and the Distributor and dominant Retailer
in Belgium.

Inchcape plc Annual report 2004

In the Balkans our Toyota sales for 2004 exceeded 5,000 units as
we continue to benefit from double digit market growth and Toyota’s
increasing market share. Toyota is now market leader in Bulgaria for
passenger cars, and is growing rapidly in Romania. We are in the
process of building a flagship retail site for Toyota in Bucharest.

Growth opportunities are considerable in Eastern Europe,
where the car ownership population is 221 per thousand compared
to 602 per thousand in Western Europe. We are confident that our
investments in the Balkans and our two new Retail developments
with BMW/MINI in Poland, in Warsaw and Wroclaw, position us
well to take advantage of further growth. We are actively pursuing
other opportunities in Eastern Europe where our strategy of
investing in scale, contiguous territories for distribution and retail
can be implemented.

Our businesses in Finland and the Baltics continue to prosper

and we were awarded the Land Rover distribution contract for
these markets during 2004. This will enable us to consolidate back
office distribution activities across Mazda, Jaguar and Land Rover.
As part of this strategy we have acquired Estonia’s two independent
Mazda retailers, and will be investing in Land Rover and Jaguar retail
facilities in this market.

In the UK we remain committed to growing our Retail business

with our core partners, through the extension of existing territories
and the acquisition of new ones. In 2004 we acquired our second
Mercedes-Benz market area covering Mansfield, Nottingham,
Derby, Leicester and Loughborough. This, combined with our
existing businesses, now accounts for c. 5.0% of Mercedes-Benz
passenger car sales in the UK. We continue to expand with BMW
and Toyota and are considering further growth plans with our other
core partners Lexus, Jaguar, Land Rover and Volkswagen.

The Group remains well placed to pursue its growth strategy

across new and existing markets with its core partners.

Peter Johnson Group Chief Executive
28 February 2005

Expansion into
Eastern Europe
In late 2004, Inchcape further expanded
its footprint in Eastern Europe when it
opened two BMW/MINI dealerships
in Poland. The first showroom is in the
capital city of Warsaw whilst the second
is in Wroclaw, which is situated in the
west of the country. These developments
represent a total initial investment of
c. £3.0m with sales of some 700 new and
used cars expected by the end of 2005.

Inchcape is well positioned to expand

this initial investment and is looking to
further grow its relationship with BMW in
order to create a scale business in Poland.

Continued success
in the Baltics
Inchcape has been awarded the Import
and Distribution business for Land Rover
in Finland, Estonia, Latvia and Lithuania.
Trading commenced in these operations
in late 2004 and this development
complements our existing Mazda and
Jaguar businesses in these markets.
In December 2004, Inchcape

announced further progress in the Baltics
with the acquisition of Estonia’s two
independent Mazda retailers and, as a
result of this development, Inchcape is
now the exclusive Importer and Retailer
for Mazda in this ‘city state’ market.
The total investment in this business
was £4.1m.

From 1 March 2005 Inchcape will also

become the sole Retailer for Jaguar and
Land Rover in Estonia, further strengthening
the vertically integrated business model
in this market.

Inchcape plc Annual report 2004

We have created long term
partnerships with industry
leading manufacturers,
establishing strong market
positions right across the globe.

Operational review

2004

Operating
profit before
goodwill
amortisation
and exceptional
items
£m

Operating
profit
£m

Goodwill
amortisation
£m

Operating
profit
£m

Goodwill
amortisation
£m

23.1

34.2

27.1

29.8

55.4

18.7

(17.6)

170.7

(7.6)

163.1

4.0

0.1

0.5

–

0.7

0.2

–

5.5

27.1

34.3

27.6

29.8

56.1

18.9

(17.6)

176.2

–

176.2

17.1

32.3

21.2

22.6

46.9

12.8

(17.6)

135.3

15.3

150.6

3.8

0.4

0.5

–

0.8

–

5.5

2003

Operating
profit before
goodwill
amortisation
and exceptional
items
£m

20.9

32.7

21.7

22.6

47.7

12.8

(17.6)

140.8

–

140.8

United Kingdom

Greece/Belgium

Australia/New Zealand

Hong Kong

Singapore/Brunei

Other

Central costs

Total Group

Operating exceptional items

Operating profit

Operating profit by region before central costs,
goodwill amortisation and exceptional items

1 United Kingdom
2 Greece/Belgium
3 Australia/New Zealand
4 Hong Kong
5 Singapore/Brunei
6 Other

2004

2003

Operating profit before goodwill amortisation and exceptional items has been defined
as trading profit throughout the Operational review including the summary below.

Trading profit in 2004 was as follows:

Group
+25.1% to £176.2m

United Kingdom
+29.7% to £27.1m

Greece/Belgium
+4.9% to £34.3m

Australia/NewZealand
+27.2% to £27.6m

Inchcape plc Annual report 2004

Hong Kong
+31.9% to £29.8m

Singapore/Brunei
+17.6% to £56.1m

Other
+47.7% to £18.9m

“ UK Retail trading profits
and related Financial Services
profits, before stock holding
interest, rose by 31.2% to
£22.7m.The resultant trading
profit margin of 2.1% is
significantly higher than the
1.8% achieved in 2003, and
moves us closer to our initial
target of 2.5%.”
Graeme Potts
Regional Managing Director

‘Insight’ customer experience
programme launched
Throughout 2004, our UK Retail business
piloted a new customer centric initiative
called ‘Insight’. This programme examined
the fundamental elements of car
buying, the overall objective being to
improve the experience for the customer.
A dedicated team was created for

the ongoing project and nine ‘moments
of trust’ were identified as being the
key steps in the buying and servicing
process. These ‘moments’ included first
impressions when entering a showroom
or car service area, and the service
handover when time should be taken to
explain to the customer all the work that
has been undertaken.

By consistently delivering and
improving these moments of trust,
UK Retail aims to provide an outstanding
customer experience. This programme
will be implemented throughout our UK
dealership network in 2005.

United Kingdom
The new car market ended the year slightly below the record
achieved in 2003. Manufacturer registrations for the franchises
represented by our UK Retail operations fell by 2.4% in the year.
However our UK Retail dealerships achieved a 7.4% increase in
new unit sales on a like for like basis. This was due to strong
performances in particular from BMW/MINI, Jaguar and Vauxhall.
UK Retail trading profits and related Financial Services profits
(included within Financial Services), before stock holding interest,
rose by 31.2% to £22.7m. The resultant trading profit margin of
2.1% is significantly higher than the 1.8% achieved in 2003, and
moves us closer to our initial target of 2.5%. This reflects our success
at integrating new dealerships and achieving organic growth from
existing dealerships through improved business processes. On a
like for like basis dealership trading profits increased by 14.6%,
mainly due to strong performances from BMW/MINI, Volkswagen
and Toyota/Lexus. The growth was achieved through improved
performances across all areas of the business. New car sales were
up and there was also a 4.7% increase in used units, a 4.0% rise in
service hours sold, increased finance and insurance income per
unit, and improved finance penetration.

The integration of the BMW/MINI dealerships acquired in 2003
is going well and the benefits of the new larger contiguous territory
and improved processes are being seen. Brooklands, the new
pre-delivery inspection centre serving our dealerships to the south
of London, opened in the year and will start to have a positive impact
in 2005. The Mercedes-Benz dealerships acquired in June 2004
are performing well, in what has proven to be a difficult year for
this marque, and have contributed positively in their first six months.
Inchcape Automotive has experienced a further difficult year.
The car rental companies, which provide a substantial portion of
our volumes, have experienced significant operational volatility
causing inefficiencies within our business. This, allied to £2.1m
of one off costs, has produced a disappointing result for the year.
New management, business processes, a broadened customer
base and revised contracts with our major customers augur well
for the future profitability of this business.

At Inchcape Fleet Solutions the number of fleet management
vehicles under contract has grown by over 37.0% during the year.
This, coupled with improved disposal margins from contract hire
vehicles, has resulted in a significant growth in profitability during
the year.

On 1 October 2004, the Ferrari/Maserati UK import and
distribution business was transferred to Ferrari Maserati UK Ltd,
a Ferrari Maserati Group company. We are continuing to manage the
spare parts and classic parts businesses, and retail Ferrari/Maserati
from our three dealerships in the south east of England. Increased
distribution volumes and reduced expenses resulted in an increase
in trading profits prior to disposal. New and used vehicle sales in
our Retail business increased in 2004 by 44.5%, mainly due to the
acquisition of the St Albans and Sevenoaks dealerships during 2003.

Inchcape plc Annual report 2004

Operational review continued

Greece/Belgium
In Greece we achieved a 20.6% increase in trading profit after
adjusting for the £2.5m profit realised on the sale of our Greek
Financial Services loan book in 2003. Overall the market grew
13.6% on the prior year stimulated in part by the Olympics.
The supply constraints experienced by our Toyota Distribution
business in the first half of the year were also felt in the second
half although they had eased by year end. As a result market share
fell slightly to 9.6%. However volumes rose 7.1% and we retained
overall market leadership. Increased volumes, a richer sales mix,
coupled with a lower marketing cost per unit drove an increase
in trading margins and profits.

We continue to invest in our Athens and Salonica Retail
operations and opened two new Toyota dealerships in Athens
during the year.

Our operations in the Balkans continue to progress in the
high growth markets in which they operate. Volumes grew by over
48.5% and trading profits rose by over £2.0m. In Romania the
market increased by 39.1%, whilst we achieved growth of 64.9%
in unit sales, with Toyota’s market share increasing to 3.5%.
In Bulgaria, where Toyota leads the passenger car market,
we achieved a market share of 8.6% in a market up 44.7%.
We continue to invest in these markets, particularly Romania
where we plan to open two additional dealerships in Bucharest
within the next couple of years.

In Belgium trading profits fell slightly in a market which grew by

6.4% on the prior year, primarily as a result of the biennial Brussels
Motor Show. Toyota supply constraints, which were more severe for
diesel products, affected our market share, which fell to 4.9% from
5.1% last year. Lexus, whilst still an emerging brand in market share
terms, increased unit sales by over 44.0% and the future product
developments are very encouraging.

Inchcape plc Annual report 2004

“Our operations in the
Balkans continue to progress
in the high growth markets
in which they operate.
Volumes grew by over 48.5%
and trading profits rose by
over £2.0m.”
Martin Taylor
Regional Managing Director

New flagship site in Athens
In October 2004 our business in Greece
opened a new flagship Toyota dealership
in the north east of the capital city.
Athens alone represents c. 50.0% of
the Greek passenger car market and,
following a network reorganisation,
Inchcape will become one of the major
retailers in the city.

The new facility, which covers four

floors, is expected to sell 1,500 new
vehicles annually and houses the largest
Toyota showroom in the city.

The site development will include

nineteen service bays and a dealer
training centre.

This is part of our strategy to increase
our Retail presence significantly in Greece
with Toyota, and in 2005 we expect to
retail almost 20.0% of Toyota’s national
sales volumes.

Subaru expansion in Sydney
As part of our strategy to grow our Retail
portfolio in Sydney and build on Subaru’s
image as a premium brand, Inchcape
acquired two Subaru dealerships.

The first transaction involved purchasing

the ongoing business of an independent
Subaru dealer and we immediately
relocated the dealership to premises in the
prestigious Rushcutters Bay area of Sydney.

The second business, which is
located in the Parramatta district of
Sydney, will be relocated and refurbished
during the first quarter of 2005 to bring
the dealership in line with Subaru’s
national brand development programme.
Inchcape now owns three Subaru
dealerships in greater Sydney and these
combined with Subaru Melbourne,
where we are the exclusive Retailer for
this major city, will account for over 20.0%
of Subaru’s national sales throughput.

Australia/New Zealand
Our Subaru business in Australia benefited from the successful
launch of the new Liberty and Outback models in October 2003
and the business established a new annual sales record of over
33,600 units in 2004. Subaru achieved year on year growth in
volumes for the ninth consecutive year with an increase
of 12.7% on 2003. Sales records were achieved for the Forester,
Impreza and Outback models helping the marque to achieve a
record full year market share of over 3.5%. This growth in units
coupled with improved margins drove a significant year on year
increase in trading profits.

Our Melbourne Retail business continued to perform well
and retailed over 6,000 new and used vehicles, a growth of 23.0%
on the prior year. We also opened a new satellite facility in 2004,
which increased our sales and service capacity. The growth in
volumes, associated finance income and increased aftersales
activities, resulted in a 28.6% increase in trading profit,
and a trading margin of almost 4.0%.

Our Sydney Retail business experienced a year of change in
2004. As a result of the continuing weak national sales volumes
for Jaguar, Volvo and Volkswagen we re-engineered our network
strategy and exited two underperforming dealerships. We also
extended our Retail presence with Subaru, investing in two new
dealerships. Whilst Sydney Retail was loss making in 2004, the
restructuring significantly improved performance and in the last
quarter it broke even.

Towards the end of the year our Business Services operation,

AutoNexus, won a three year parts warehousing and logistics
contract for Volkswagen and Audi.

“Our Melbourne Retail
business continued to
perform well and retailed
over 6,000 new and used
vehicles, a growth of 23.0%
on the prior year.”
Trevor Amery
Regional Managing Director

Inchcape plc Annual report 2004

Crown Motors break
records with their thirteenth
Triple Crown Award
Our Toyota/Lexus business in Hong Kong,
Crown Motors, has won the Toyota Triple
Crown Award for a record breaking
thirteenth consecutive year and is
the only distributor ever to achieve this.
The award is presented annually to
distributors who achieve leadership in the
three key sectors of passenger vehicles,
light commercial vehicles and overall
market leadership in the countries where
Toyota has operations.

In 2004, Crown Motors had a market
share of 35.5%, which is up from 34.6%
in 2003, thus further strengthening its
market leading position in Hong Kong.

Operational review continued

Hong Kong
Our businesses in Hong Kong reported a 31.9% growth in trading
profit, despite a currency translation loss of £3.4m arising from
the weakening Hong Kong dollar. Excluding this, underlying trading
profits increased by 46.9%. Trading profit margins grew to 12.1%.
Consumer confidence is now returning after the recent weak
economic conditions and the impact of SARS in 2003. The automotive
market is starting to recover, with the luxury segment improving
at a faster rate than the total market. The market, excluding taxis,
grew by 23.3% over last year but remains 3.9% down on 2002.

Crown Motors, our Toyota/Lexus business, increased its total
market share to 35.5% and once again retained market leadership
in a highly competitive market. The success of the newly launched
Alphard model and a strong performance from Lexus led to
a richer mix of sales. This, together with the higher volumes,
increased aftersales activity and lower than expected warranty
costs, drove an improvement in trading margins and profits.

The launch of the new Mazda3 in January 2004 helped our
Mazda business to achieve an encouraging increase in units sold
and a 3.6% market share.

Inchroy, our Financial Services joint venture, achieved a 6.5%

increase in trading profit at constant exchange rates, driven by
the recovery in the economy which more than compensated for
the effects of a lower interest rate spread.
Singapore/Brunei
Trading profits from our Singapore and Brunei businesses increased
by 17.6%. However, after adjusting for the currency translation loss
of £4.5m arising from the weakening Singapore dollar, underlying
trading profits increased by 27.0%.

Once again our Toyota/Lexus business in Singapore drove the

increased trading profits in this region. Unit sales rose by 28.5%,
helped by a market which increased 24.9%. The market continues
to benefit from the fiscal incentive encouraging people to scrap or
export their cars before the expiry of the Certificate of Entitlement,
which lasts for ten years.

Market share for Toyota/Lexus increased to 30.9% in 2004.

We retained market leadership for the third consecutive year,
and were once again awarded the Toyota Triple Crown.

Recognising the recent growth in the Toyota vehicle parc we
invested in our aftersales activities, either relocating or renovating
our existing facilities to increase capacity and improve efficiency.
Further investments are planned for 2005.

Unit sales, associated finance income and aftersales profits all
rose resulting in an increase in trading profits despite pressure on
new vehicle margins. The trading profit margin increased to 8.2%.
In Brunei, a 10.8% rise in unit sales plus increased income

from aftersales drove a 14.1% increase in trading profits.

Inchcape plc Annual report 2004

“In Singapore, market share
for Toyota/Lexus increased
to 30.9% in 2004. We retained
market leadership for the
third consecutive year, and
were once again awarded
the Toyota Triple Crown.”
William Tsui
Regional Managing Director

Other
The improvement in trading profit was mainly driven by our French
and Latin American operations. Improved management and business
processes coupled with the launch of new diesel product have
supported a return to profitability in our French Retail business,
which represents Jaguar, Land Rover, Volkswagen and Audi.
New vehicle volumes in BMW Chile increased 73.9%,
helped by a higher market as a result of a reduction in the luxury
car tax. This led to a significant improvement in trading margins
and profits.

Our operations in Finland continued to perform well, despite a

softening in the market after the strong start to the year. Mazda market
share rose to 3.6%.

In Guam we increased trading profits and market share.

Central costs
In 2004 we recovered a net £0.6m relating to the settlement of
various litigation issues. Excluding this recovery the underlying costs
of £18.2m are £1.1m higher than the equivalent underlying figure
of £17.1m for 2003. This increase is due to higher staff, pension and
recruitment costs.

Inchcape plc Annual report 2004

Finland achieve highest
market share since 1995
In 2004 our Mazda Import and Distribution
business in Finland recorded sales of
some 5,000 units, of which almost 2,000
were achieved by our own Retail operation.
This strong level of sales resulted in

an increased market share of 3.6%, up
from 3.1% in 2003. This is the highest
market share achieved since 1995 and
compares to the European average for
Mazda of 1.8%.

Financial review

The trading performance of our businesses is explained in the
Operational review. This review gives information on financial matters.

Financial reporting and accounting standards
The Financial statements have been prepared in accordance with
UK Generally Accepted Accounting Principles (UK GAAP), and the
principal accounting policies applied by the Group are shown on
pages 46 to 47. The Group adopted UITF Abstract 38 Accounting for
ESOP Trusts with effect from 1 January 2004. This requires that the
value of the shares held by the ESOP Trust and the associated share
scheme creditor are deducted from reserves. As a result a prior
period adjustment of £4.1m has been made to reduce the net
assets at 31 December 2003.

As part of the UK’s convergence with International Financial
Reporting Standards (IFRS) the Accounting Standards Board issued
eight new standards during 2004. These standards have had no
impact on the Group in 2004 and the Group will instead be transitioning
to the equivalent standards under IFRS from 1 January 2005.

Transition to International Financial Reporting Standards
The European Union (EU) requires that all listed companies
prepare their financial statements in accordance with EU approved
IFRS for accounting periods commencing on or after 1 January
2005. The Group’s Annual report and accounts for the year ending
31 December 2005 will therefore be prepared under IFRS, as will
the Interim report for the six month period ending 30 June 2005.

Inchcape has undertaken a major project to assess the impact
of these new standards on its accounts. Whilst there are still some
issues to resolve we are confident that we have identified the areas
where significant differences will arise between UK GAAP and IFRS.
These are as follows:

Pensions Under IAS 19 Employee Benefits, the Group will
recognise the net deficit of its defined benefit retirement schemes
on the balance sheet. In addition, we intend to apply the proposed
option whereby actuarial gains or losses can be recognised in full in
the Statement of total recognised gains and losses (or its equivalent
under IFRS).

IAS 19 is broadly similar to FRS 17 Retirement Benefits, for

which the disclosures for the year ended 31 December 2004 are
set out in note 5 to the Financial statements.

Goodwill Under IFRS, goodwill is tested at least annually for
impairment rather than being subject to annual amortisation.
Impaired goodwill is written off to the profit and loss account.

Goodwill previously written off to reserves is no longer recycled

through the profit and loss account, as part of the profit or loss
on disposal.

Property leases Under IFRS, leasehold land is generally treated
as an operating lease. It is reclassified, at historic cost, from
tangible fixed assets to prepayments, with a reversal of any
associated revaluation.

Inchcape plc Annual report 2004

Operating profit margins before goodwill
amortisation and exceptional items %

4.2

3.1

3.3

3.7

2.4

2001

2000

2002
Margins have increased from 2.4% in 2000, our first full year
as a purely automotive services group, to 4.2% in 2004.

2004

2003

Ordinary dividend per share pence

50.0

38.0

27.0

22.0

31.0

2001

2000

2004
This year the dividend has increased by 31.6% to 50.0p.
Since 2000 the ordinary dividend has risen by 127.3%
from 22.0p per share to 50.0p.

2002

2003

Cash generation: Net (debt)/cash £m

17.5

16.6

79.1

153.8

(69.1)

(149.0)

1999

2000

2001

2002

2003

2004

Since 1999 we have moved from a net debt position of
£149.0m to a net cash position of £153.8m. This is after
returning over £160.0m to shareholders.

Group Headline tax rate %

33.2

29.4

26.0

23.4

24.6

2001

2000

2002

2004
There has been a slight increase in the Group’s Headline
tax rate before goodwill amortisation and exceptional items.
The years 2004 and 2003 benefited from some favourable
one offs. The underlying rate is similar for both years at
around 26.0%.

2003

Stock holding interest Under IAS 2 Inventories, where stock is
purchased using supplier financing, the stock holding cost will
be reclassified from operating costs to the interest charge in
the profit and loss account. For 2004 the stock holding cost was
approximately £7.2m.

Contract hire Under IAS 18 Revenue, profits arising on the sale
of vehicles, sourced from within the Group, for which a Group
company retains a buy back commitment, are recognised over the
term of the lease. These vehicles will be included in assets with the
corresponding liability included in creditors.

Share-based payments Under IFRS 2 Share-based Payment, the fair
value of all share-based payments will be expensed to the profit and
loss account over the period to which the service relates. This will
cover all share-based payments, including executive share options and
SAYE schemes.

Financial instruments Under IAS 39 Financial Instruments:
Recognition and Measurement, all derivatives should be measured
at fair value. The Group has reviewed its hedge accounting practices
and will endeavour to designate foreign exchange forward
derivatives as cash flow hedges under IAS 39. From 1 January 2005,
IAS 39 will be implemented by the Group and 2004 comparatives will
not be restated on this basis.

Overall we expect the transition to IFRS to be broadly neutral on
profit before tax and earnings, subject to the achievement of hedge
effectiveness under IAS 39. Furthermore, cash flow and the
underlying economics of the business will not change, although
net assets will be reduced, mainly due to the inclusion of the net
pension deficit on the balance sheet. Comparatives for 2004 under
IFRS will be published on 12 May 2005.

Operating results
Turnover increased by 8.2% on 2003 to £4.2bn in 2004. Operating
profit before goodwill amortisation and exceptional items rose by
25.1% from £140.8m in 2003 to £176.2m in 2004, reflecting a very
strong trading performance in the year. The resultant operating
margins strengthened from 3.7% in 2003 to 4.2% in 2004.

Once again our Toyota/Lexus business operating in Singapore

delivered an excellent trading performance, stimulated by the
sizeable increase in the vehicle market. Profits in our Hong Kong
businesses also improved, boosted by the gradual recovery in the
economy after the effects of SARS in 2003.

Organic growth and acquisitions helped profits from our UK

business grow strongly, whilst a record market in Australia helped
this region to achieve another increase in profitability. The growth in
Greece/Belgium is affected by a one off profit of £2.5m in 2003 and,
excluding this, operating profit from the region increased by 13.6%,
despite product supply constraints.

Pensions
The Group continues to account for retirement benefits in
accordance with SSAP 24 Accounting for Pension Costs and
provides additional disclosure as required by FRS 17 Retirement
Benefits. The FRS 17 net deficit on the Group’s principal schemes
has increased from £44.8m at 31 December 2003 to £57.0m at
31 December 2004. Higher equity prices have increased the value
of investments held. However, this is more than offset by higher
pension liabilities as, in the UK, the assumed long term inflation rate
has increased to 2.7% and the discount rate has marginally reduced
to 5.3%.

Exceptional VAT recovery and goodwill impairment
HM Customs and Excise have agreed a further element of the
claims we submitted in mid 2003 for the recovery of overpaid
VAT for the period 1973 to 1994. This resulted in a further net VAT
recovery of £1.8m. Consistent with the recovery made in 2003,
this has been treated as an operating exceptional item, with
associated interest of £3.6m included in the net interest charge.
An additional £0.6m of interest was recognised in the year relating
to claims settled in early 2004.

A provision of £9.4m has been made against the carrying
value of goodwill relating to Inchcape Automotive, reflecting the
more difficult trading conditions experienced by that business.
This has been treated as an operating exceptional item.

Other exceptional items
The other exceptional charge for the year was a net £7.8m. This
principally comprised a £10.3m charge (including £5.0m of goodwill
previously written off to reserves) relating to the exit from the
Ferrari/Maserati import and distribution businesses, and a £6.8m
loss on disposal (including £1.0m of goodwill previously written off to
reserves) of the Group’s 40.0% stakes in MCL Group Limited (MCL)
and Automotive Group Limited (AGL) to Itochu Corporation, the
60.0% majority shareholder. These charges were partially offset by
the release of litigation provisions relating to non-motors disposals.

Net interest
The net interest charge for the year was £nil, due to a £4.2m
one off income relating to the Group’s VAT recovery. Excluding this,
the underlying interest charge was £4.2m (2003 – £5.0m). For a
substantial part of the year, despite being in an overall net cash
position, we suffered a mismatch between debt in the UK and
cash held overseas in countries with low interest rates. The resultant
adverse interest differential generated the net interest charge.
In November 2004 approximately £135.0m of cash was repatriated
to the UK and we also created the ability to remit more funds in a
tax efficient manner over the next couple of years.

“Overall we expect the transition to
IFRS to be broadly neutral on profit
before tax and earnings, subject to
the achievement of hedge effectiveness
under IAS 39.”
Alan Ferguson Group Finance Director

Inchcape plc Annual report 2004

Financial review continued

Taxation
The 2004 Headline tax rate is 24.6% compared to a rate of
23.4% in 2003. The tax rate in 2004 enjoyed a one off benefit of
1.3% due to the favourable settlement of Greek tax audits and the
agreement of UK tax computations. Likewise, 2003 benefited from
a one off provision release of 2.9% as a result of a favourable court
ruling in the UK. The underlying rate at 25.9% in 2004 was similar
to the prior year.

We anticipate the tax rate in 2005 will be broadly in line with

the Group’s underlying tax rate in 2004.

We are still in ongoing discussions with the Inland Revenue

regarding the corporate tax treatment of the VAT recovery and
associated interest. We have increased the provision from £7.5m
to £8.0m in respect of the further recovery agreed.

Minority interest
Profit attributable to minorities has increased from £2.0m in 2003
to £3.2m in 2004. This is mainly due to increased profits in the
Australian and Bulgarian businesses.

Exchange rates
Had the exchange rates in 2003 continued in 2004 Headline profit
before tax would have been c. £9.0m higher. This effect primarily
arose as a result of the weakening Singapore and Hong Kong
dollars. Principal exchange rates are listed in the table opposite.

Cash flow
The Group continues to be highly cash generative with cash flow
from operating activities in 2004 of £177.2m, including £15.5m
VAT received. This was achieved despite an increase in working
capital of £31.5m. This net increase reflects the higher levels
of trading across the business and the impact of some timing
differences at year end. We continue to focus on tight working
capital management.

Overall the Group’s net cash position has increased from
£79.1m at 31 December 2003 to £153.8m at 31 December 2004.

Acquisitions and disposals
During the year the Group acquired five Mercedes-Benz dealerships
for £24.4m including £6.7m debt. This acquisition increased the
Group’s total UK representation to eight sites, creating the largest
independent contiguous territory for Mercedes-Benz in the UK.

As part of its expansion into Eastern Europe, the Group acquired

Estonia’s two independent Mazda retailers for £4.1m including
£0.7m debt. We are now the exclusive Importer and Retailer for
Mazda in this market.

In line with Ferrari’s strategy to assume control of import

and distribution throughout Europe, the Group has exited its
Ferrari/Maserati import and distribution businesses in the UK and
Belgium. However, we will continue to retail Ferrari and Maserati
cars through Maranello Sales Limited. We also disposed of our
stakes in MCL and AGL, two non-core businesses.

Capital expenditure
Capital expenditure less disposal proceeds was £34.8m, some £7.5m
in excess of the depreciation charge. The additional investment
principally arose in UK Retail as we invested in new dealership
facilities, particularly those of BMW, Toyota and Mercedes-Benz.
We are also progressively investing in our Toyota Retail operations
in Athens, Greece.

Treasury management and policy
The centralised treasury department manages the key financial
risks of the Group encompassing funding and liquidity risk, interest
rate risk, counterparty risk and currency risk. The treasury
department operates as a service centre under Board approved
objectives and policies. Speculative transactions are expressly
forbidden. The treasury function is subject to regular internal audit.

Funding and liquidity risk
Group policy is to ensure that the funding requirements forecast
by the Group can be met within available committed facilities.
The Group has available a £250.0m committed revolving credit
facility with a maturity date of July 2007. This facility was not drawn
at the year end.

Loan notes totalling £0.2m were redeemed in three tranches

between March and June 2004. These notes were issued in
December 2000/2001 following the acquisition of Inchcape
Automotive Limited (formerly known as Eurofleet Ltd). A further
£2.0m of loan notes were issued in June 2004 in relation to the
acquisition of the Mercedes-Benz dealerships. At the year end loan
notes totalling £2.2m were outstanding. Note maturities range from
30 November 2005 to 30 June 2006.

In addition to the committed facilities the Group has available

uncommitted borrowing lines made available by relationship banks.
These facilities are used for liquidity management purposes.
At the year end these facilities were not utilised.

During November 2004 cash of approximately £135.0m was
permanently repatriated to the UK from our overseas businesses
in addition to normal dividend flows. We have also created the
ability to repatriate further funds in 2005 and beyond.

Cross border Group loans are made to optimise the use of
those funds still domiciled locally. Cash and debt balances after
cross border loans are set out in the table opposite.

The principal overseas cash deposits at the year end were in
euros and Singapore dollars. Cash is held locally ahead of payments
to trade creditors. In Singapore cash deposits also support the
significant requirement for Certificates of Entitlement necessary
for new car sales.

Inchcape plc Annual report 2004

“During November 2004 cash
of approximately £135.0m was
permanently repatriated to the UK
from our overseas businesses in
addition to normal dividend flows.
We have also created the ability
to repatriate further funds in 2005
and beyond.”
Alan Ferguson Group Finance Director

Interest rate risk
Our interest rate policy has the objective of minimising net interest
expense and the protection of the Group from material adverse
movements in interest rates. Throughout 2004 the Group has
borrowed at floating rates only. This approach reflects the continuing
benign interest rate environment and the low level of gross debt.
Should interest rate hedging activities be deemed appropriate

in the future, the Board has approved the use of interest rate
swaps, forward rate agreements, and options.

Counterparty risk
The amount due from counterparties arising from cash deposits
and the use of financial instruments creates credit risk. Limits are in
place which reduce credit risk by stipulating the aggregate amount
and duration of exposure to any one counterparty dependent upon
the applicable credit rating. Credit ratings and the appropriate limits
are reviewed regularly.

Currency risk
The Group faces currency risk on its net assets and earnings,
a significant proportion of which are in currencies other than
sterling. On translation into sterling, currency movements can affect
the Group balance sheet and profit and loss account. Group policy
is to minimise balance sheet translation exposures, where fiscally
efficient, by financing working capital requirements in local currency
and maximising the remittances of overseas earnings into sterling.
The Group has transactional currency exposures where sales

or purchases by an operating unit are in currencies other than in
that unit’s reporting currency. For a significant proportion of the
Group these exposures are removed as trading is denominated in
the relevant local currency. In particular, local billing arrangements
are in place for many businesses with our principals. For those
businesses that continue to be billed in foreign currency, Group
policy is that committed transactional exposures are hedged into
the reporting currency of that business. If possible, foreign
exchange exposures will be matched internally before being hedged
externally. Hedging instruments are approved by the Board and
are restricted to forward foreign exchange contracts, currency
options and foreign exchange currency swaps. Foreign exchange
currency swaps are also used to hedge transaction exposures
arising on cross border Group loans.

Alan Ferguson Group Finance Director
28 February 2005

Cash and debt balances after
cross border loans

£m
Euro
Hong Kong dollar
Singapore dollar
Australian dollar
Other
Total (other than sterling)
Total sterling
Total

Debt
(0.5)
(3.8)
–
–
(2.0)
(6.3)
(11.1)
(17.4)

Cash
35.2
7.6
28.2
5.7
28.5
105.2
66.0
171.2

Net
34.7
3.8
28.2
5.7
26.5
98.9
54.9
153.8

Foreign currency translation

Euro
Hong Kong dollar
Singapore dollar
Australian dollar

Average rates
2003
1.45
12.75
2.86
2.53

2004
1.47
14.22
3.09
2.48

Year end rates
2003
1.42
13.90
3.04
2.38

2004
1.41
14.92
3.13
2.45

Inchcape plc Annual report 2004

We aim to ensure our impact on
communities, the environment,
health and safety and our
employees is positive.

Corporate social responsibility

Inchcape in the community

Corporate social responsibility:
Inchcape established a Corporate Social Responsibility (CSR)
Committee in 2002. This Committee is chaired by the Group Chief
Executive, who has responsibility for CSR at Board level, and
includes the Group Finance Director, the Group Company Secretary,
the Director of Audit and Risk Management, the Group Human
Resources Director and the Investor Relations Manager.

The Company remains focused on looking at further ways

to take its CSR programme forward.

This section outlines our commitment to the environment
in which we operate, health and safety issues, our employees,
and values.

Inchcape in the community:
Inchcape’s global spread means we encompass a broad range
of people, cultures and lifestyles.

We actively encourage and assist our colleagues in supporting

local fundraising projects in the markets in which they work.
This section offers just a few examples, from around the world,
where Inchcape and its colleagues have tried to make a difference.

United Kingdom Our Head Office annually selects and sponsors
a charity for twelve months, and in 2004 our colleagues chose the
Lymphoma Association. This is a charity that provides emotional
support and information to people with lymphatic cancer and their
families, carers and friends. The total raised amounted to over
£2,400 and was achieved through a variety of fund raising activities
including weekly dress down days, Easter and Christmas raffles
and subsidised social events held throughout the year.

With the Olympic Games taking place in Greece, where we

Import, Distribute and Retail for Toyota/Lexus, Inchcape was proud
to donate £5,000 to the British Olympic Association. This sponsorship
not only contributed financial support to the Olympic movement in
Greece but also aided other services provided by the Association
such as technical support and staff development.

Inchcape Fleet Solutions (IFS), our fleet management and
leasing business, has made a real contribution to its local community
in Portsmouth through a newly created Charitable Trust Fund,
which was established in 2004. IFS has chosen to support the
Waterside School, which works with children who have suffered
emotional and behavioural problems. Through consistent
fundraising initiatives, our colleagues have already managed
to raise some £3,000.

“Many members of our staff
throughout the Group have already
contributed to the numerous Tsunami
appeals, both personally and via their
individual business unit, and are still
actively raising funds.”

Inchcape plc Annual report 2004

Over Christmas 2004, staff at IFS elected to send electronic
Christmas cards to customers and suppliers instead of printed
ones. This saved the business c. £750, which was then donated
to the New Born Baby Unit at St Mary’s Hospital in Portsmouth.
As part of an ongoing commitment to this cause, IFS is currently
investigating how it can help with the cost of transporting babies,
which need dedicated care, to local specialist units.

Elsewhere in the UK; one of our dealerships, Inchcape Ford
Guildford, staged a Thunderbird’s inspired event, which coincided
with the film’s release in the UK. The extravaganza attracted film
fans, families and the local television station. Our colleagues and
customers were able to view Lady Penelope’s iconic six wheeled
pink Thunderbird and, in total, raised over £1,300 for the
Breakthrough Breast Cancer charity.

Colleagues working at our Business Services operation,
Inchcape Automotive, donated over £5,000 to a variety of causes in
2004. Fundraising activities included a rather painful experience for
some of our male colleagues who had to choose between having
their legs waxed or shaving their heads for Children in Need.
It proved worthwhile though as they raised c. £1,000 through
this event alone.

Greece The main community focus in 2004 for Toyota Hellas,
was understandably the Olympics. The year saw an exceptional
amount of fundraising activity and sponsorship due to the impact
the Games had on our colleagues, customers and environment.
Toyota Hellas jointly sponsored a unique exhibition, which

sought to celebrate the birth of the Olympic Games in Greece.
The presentation, entitled ‘Tales of the Olympic Games’, was staged
at the Foundation of the Hellenic World in Athens and used modern
technology to communicate the prestige and allure of the Games.
As well as providing half the sponsorship funds for the event,
Toyota Hellas also organised non-profit activities, such as guided
tours of the exhibition, raising over £35,000 for the Games.

In line with its philosophy of supporting the cultural needs

of the local community, our business in Greece also became
involved in the extensive restoration programme in Athens.
The programme involved supporting the Municipality of Athens
in its aim to improve the backdrop of the city, in the run up
to the Olympic Games, and Toyota Hellas contributed a further
c. £110,000 to this project.

Belgium Toyota Belgium has enjoyed a long standing relationship
with the United Fund for Belgium, a local charity that aims to
improve the quality of life for handicapped people and underprivileged
children. It has supported the cause for the last three years and,
in 2004, donated c. £2,000 to the charity.

Toyota Belgium also helped a variety of other local causes in
2004, including the National Burns Unit. Over £2,000 was raised
for the unit, through a charity golf event, and this money helped the
hospital organise a 2004 Summer camp for severely burnt children.

Inchcape stirs up support for
the Wooden Spoon Society
The Wooden Spoon Society, a national
UK based charity, was set up over twenty
years ago with the aim of assisting and
benefiting children and young people with
physical, mental and social disadvantages.
In order to raise funds the Society,
which has its roots based in sport and in
particular rugby, hosts a variety of events
each year and charges for membership.
Inchcape UK has been a supporter
of the Society since 2003, contributing
some £10,000 per annum.

Inchcape colleagues play
Father Christmas!
Over Christmas 2004 colleagues at our
Toyota/Lexus dealership in Nottingham,
UK, donated presents to seriously ill
children being treated at the local Queen’s
Medical Centre.

Through the combined efforts of staff
and the business, they were able to raise
some £600 for a variety of gifts. These were
then given to those children who were
staying on the leukaemia ward at the
Centre throughout the holiday period.

Athens restoration
programme
A restoration programme took place prior
to the Olympic Games, to improve the
back drop of Athens. A series of sculptures
were designed and erected including one
(pictured to the right), which was funded
by our business Toyota Hellas.

Aid for victims of the Tsunami
On 26 December 2004 an earthquake
caused a terrible Tsunami to strike. In its
aftermath there has been great devastation
and loss of life not only for the people of
South East Asia and Africa, but throughout
the world.

The final death toll is expected to be
well over 100,000 people but many more
are still missing and millions have been
displaced. Hundreds of thousands have
lost their livelihoods in countries including
Sri Lanka, Indonesia, Thailand, India,
Maldives, Malaysia, Burma and Somalia.

This catastrophe prompted a
staggering amount of people around
the world to respond on a huge scale.
Many members of our staff throughout
the Group have already contributed to
the numerous Tsunami appeals, both
personally and via their individual business
unit, and are still actively raising funds.
Further financial donations made
by the Company will aim to provide
long term support, such as reconstruction
programmes, to help affected communities
rebuild their lives. Inchcape is therefore
currently exploring a number of projects
with reputable charity organisations.

India

Burma

Thailand

Somalia

Sri Lanka

Maldives

Malaysia

Indonesia

Australia Inchcape Motors Australia (IMA) has provided ongoing
support for the Starlight Children’s Foundation since 2000.
This charity strives to improve the lives of seriously ill children
and their families in Australia, and the highlight event in the
fundraising calendar is the annual IMA Subaru golf day, which is
attended by customers and staff.

At the 2004 golf day, IMA set an all time record by attracting

some 130 visitors who raised c. £11,500. IMA was also able to
bring a smile to the faces of many of the children by arranging for
Petter Solberg, Subaru World Rally Team driver, to take some time
out from the World Rally Championship and meet with them at
the Randwick Children’s Hospital in Sydney.

Hong Kong Crown Motors, in Hong Kong, has been a long standing
supporter of the Toyota Classics concerts, which are biannual and
feature orchestras from around the world. In 2004 some 2,000
people attended the concerts and through ticket sales alone,
Crown Motors raised a staggering c. £36,000 for its nominated
charity; the Special Unit for the Hong Kong Girl Guides Association.
This organisation aims to provide a supportive and inspiring learning
environment for young women with physical disabilities.

Crown Motors also organised the annual charity Lexus Club

golf event, which provides much needed aid for the China Literacy
Foundation. The Foundation supports the creation of educational
facilities and opportunities for children in very poor areas of rural
China. Some £4,000 was donated to the Foundation from the
golf day and this money has helped to complete the construction
of a school in rural Guizhou, the second poorest region in China.
The school can now accommodate 100 pupils from local villages
within the area and aims to provide comprehensive education
to children that, otherwise, would not have such an opportunity.

Singapore Like our colleagues in Hong Kong, Borneo Motors
also supports the Toyota Classics concerts and raised c. £32,000
for its chosen charity, the Children’s Cancer Foundation, in 2004.
This organisation works to improve the quality of life for children
with cancer by enhancing their emotional, psychological
and social well being.

Borneo Motors also organised a series of charity golf days

throughout 2004 and raised money from registration fees, which
were then donated to a different charity each time. One of the most
successful days was the Lexus Club event, which raised c. £16,000
for the Society for the Physically Disabled.

Charitable and political donations
In the UK, Inchcape and its subsidiaries have donated funds
throughout the year totalling £0.1m (2003 – £0.1m). Total charitable
donations made by the Group worldwide during the year were
£0.4m (2003 – £0.2m). These figures exclude personal contributions
from our colleagues.

No political donations were made in 2004 (2003 – nil).

Inchcape plc Annual report 2004

Corporate social responsibility continued

Environment, health and safety

Inchcape is committed to pursuing sound environment, health and
safety (EHS) management policies and practices throughout our
businesses worldwide.

We recognise that by providing customers with access to
leading products and services, we can support the drive to improve
our environment. We are also continuously looking to increase the
levels of health and safety standards in the workplace.

It is therefore Inchcape’s policy to:

consider EHS issues within existing and future business activities,
through the implementation of appropriate policies and procedures;

monitor and manage the EHS impacts, risks and opportunities
for our businesses in order to benefit our colleagues, customers,
principals and the local communities in which we operate;

promote the awareness of the Environment, Health and Safety
Policy (the Policy) across our businesses in order to assess its
performance, and set practical targets for improvement; and

report, as appropriate, on the status of the EHS performance
within each of our businesses.

“Inchcape is committed to pursuing
sound environment, health and safety
management policies and practices
throughout our businesses worldwide.”

Inchcape plc Annual report 2004

Inchcape Fleet
Solutions innovation
Our fleet management and leasing
business in the UK, Inchcape Fleet
Solutions (IFS), has developed a new
online tool that allows employers to check
whether their employees are safe to be
driving on company business. The Driver
Licence Verification Service (DLVS) is
designed to improve efficiency and remove
the administrative burden of carrying out
the recommended driver licence checks.
Under current Health and Safety
legislation, employers have a duty towards
employees, who need to drive for company
business, regardless of whether or not
they are using a company car.

IFS has therefore developed the

innovative DLVS, which operates alongside
existing systems and enables IFS
customers to have around the clock web
access to their data and any associated
reports. The simplicity of the process
ensures that checks can be made easily
and regularly with the results updated
automatically for client reporting.

The system is so advanced it can even

identify those drivers who, for example,
may benefit from driver training. This in
turn can lead to reduced associated costs
for the company and, importantly, a lower
accident rate.

Environmental education
in Greece
Throughout 2004, Toyota Hellas, continued
its sponsorship of an educational
programme that originally began in 2003.
The programme aims to educate young
people about environmental matters whilst
encouraging them to get involved with
issues, such as pollution, affecting the
larger cities in Greece including Athens,
Thessalonki and Patras.

The scheme was split into two stages

and the first, beginning in September
2004, was aimed at providing information
to stimulate students’ interest. At this point
teams of five students were selected
from each of the forty participating schools.
At the second stage a competition
was launched and students were given
three months to find a solution to a specific
environmental problem. The winners of
this competition will be rewarded with a
trip to the UK in 2005.

In total Toyota Hellas has contributed

over £45,000 to the programme, which
reaches completion in June 2005 when
the students’ projects are finally assessed.

Implementation of the Policy is the responsibility of the management
within each Group business and is supported and monitored by
the Group Board. Common standards are applied to a wide range
of EHS matters and compliance with local statutory requirements
is the minimum standard we will accept. Where local standards
are below international good practice, it is our policy to follow UK
good practice.

A key element of our approach is the operation of Environment,
Health and Safety Focus Groups at business unit level. These Groups
are responsible for improving the EHS performance through the
development of local standards and staff training. They are also
responsible for monitoring EHS performance.

Our businesses carry out detailed half yearly inspections.
Copies of these inspection reports, and related action plans,
are forwarded to the Group Risk Manager who reports significant
issues to the Group’s Risk Committee.

In addition, the Group Risk Manager visited over half our
sites in 2004 carrying out EHS awareness training, meeting with
the Focus Groups and performing site inspections. Each visit
is concluded with a meeting with the Chief Executive of that
business, and action plans are then agreed and reported upon.

Initiatives and investments
In 2004 we made investments in a number of our businesses,
across our core markets, to improve and promote EHS initiatives.

Reduce, reuse and recycle Our businesses in Greece and Belgium
are working as part of a broader initiative of the Toyota Motor
Corporation to reduce, reuse and recycle waste in facilities where,
inter alia, Toyota cars are distributed and serviced.

Starting in 2004, our Greek business, Toyota Hellas, offers all
its authorised repairers in the Athens area the cost free collection
of used oils and lubricants, tyres, batteries, and plastic packaging.
This service will be expanded in the coming years to cover the
whole of Greece. In addition, a non-profit company, AMVH,
in which Toyota Hellas supports by providing funding for c. 10.0%
of its operating costs, will be appointing an authorised network of
End of Life Vehicle (ELV) treatment centres. They will be fully
compliant with European Union regulations and all car owners will
be able to deliver their ELVs to them cost free. The first two centres
have now been certified and have started offering their services.
In Belgium, we have signed a preferred partner agreement
with a waste removal and treatment company. We will be working
with this business to provide a comprehensive service to the Toyota
dealer network, helping them comply with relevant legislation and
encouraging them with discounted costs. Toyota Belgium has also
entered into a ten year agreement for the zero cost collection and
treatment of ELVs with Belgium Car Recycling, thus providing
points to which ELVs can be taken. In 2005, we will be undertaking
environmental audits of the dealer network.

Connected to a safer working environment Many of our businesses
have introduced programmes to create safer working environments.

For example:

United Kingdom Retail has developed a personalised health
and safety training programme, which will be rolled out in 2005,
commencing with EHS co-ordinators and new starters, with all
staff being given appropriate training by the end of the year;

Greece An external consultant has performed an EHS risk analysis
audit for all our sites. Based on the findings, an EHS training
programme was developed. Training, tailored to the risk profiles
of individual roles, will be given to all staff;

Belgium An external training provider is developing an interactive
one day EHS course tailored to the specific needs of our business
and our employees, whether they be based in a dealership, a body
shop or office. This training programme will be offered to all our
staff and will take place in 2005;

Asia Pacific We have a programme, which provides all employees
with EHS training. This commenced in 2004. Phase I, awareness
training, has been completed in five of our businesses, including
Crown Motors; the remainder will be completed in 2005;

In addition, 2004 also saw the creation of a safety management
sub-committee in Hong Kong. This committee, which consists of
frontline staff from our aftersales sites, is responsible for enhancing
EHS management;

Australia Our business in Australia saw the initiation of its national
Occupational, Health and Safety training programme. This included
training on a diverse range of issues, such as forklift and chemical
safety, and bomb threat/suspect package handling, as well as risk
management training for managers and supervisors.

Inchcape plc Annual report 2004

Corporate social responsibility continued

Working for Inchcape

We want all our colleagues at Inchcape to be proud of who they
work for and to take pride in their contribution to the Group. We have
therefore built a clear set of statements, which outline our values,
highlight learning and development opportunities and define our
employment policy.

Learning and development
We are dedicated to facilitating the advancement of our colleagues
in every market we operate in, and consequently we have a number
of development schemes, for all levels of staff, in operation
throughout the Group.

Our values
Inchcape recognises that success depends on maintaining the
quality, motivation and commitment of its employees in every
market it operates in. The Group’s employment policies and
practices are designed to support and achieve this goal.

Underpinning this commitment are the Inchcape values.
These values are central to the way we work and are fundamental
to our relationship with customers, principals and employees.
They are as follows:

Service We constantly seek to enhance our service standards
for our customers and for the companies we represent.

Teamwork We work as a team within our individual businesses,
across the Group as a whole and with our principals and partners.

Innovation We strive to remain at the forefront of our industry
by anticipating market changes and developing new products
and services.

Respect We respect all our stakeholders; our customers, principals,
partners, colleagues, shareholders and we work hard to earn
their respect.

Results We set ourselves challenging targets and endeavour to
pass them.

Our values are explained to all our new colleagues when they
join Inchcape and are regularly reinforced through all employee
communications. Appraisals are largely based on the five principles
and individuals are asked to provide examples of how they have
demonstrated the values in their work.

In 2004 our colleagues participated in c. 24,000 training days.

The variety of courses attended ranged from leadership development
to customer service training and technician skills.

Atkins Kroll, our Toyota business in Guam, sources its customer

service training programme through the University of Guam.
All customer facing staff are required to attend the course and this
has contributed to our very high levels of customer satisfaction.

In the UK we have entered into an agreement with

Loughborough University’s Automotive Business School to create
the Inchcape Retail Academy. The Academy will develop and
train our workforce endorsing leading automotive retail skills.
Initially, this will cover the UK and our developing Retail markets
in Europe but we will extend the scheme in late 2005 to our other
international business units.

Communication
Inchcape is always looking for ways in which it can improve
communication with employees across the Group, regarding the
business and the issues affecting them.

We currently have a number of formal and informal channels
to do this but one of the most effective methods is our worldwide
intranet system, the Pulse. The latest version of the intranet was
launched in February 2004, and features a number of improved
services for staff. Dedicated areas for employees to access details
of benefits and advantages available to them have proved to
be particularly popular. In addition the share price data is useful
for those members of staff who hold shares in the Company.

Colleague Opinion Survey in the UK 2004 In February 2004
we surveyed our colleagues in our UK businesses, asking them
for feedback on their jobs and how they felt about working for
Inchcape. We have put a number of action plans in place and
will review progress through a follow up survey in early 2005.
This will now be an annual activity. A survey was also completed
in our Belgian business in late 2004, where 70.0% of our colleagues
completed the survey, and the results will be followed through
in 2005.

“We are dedicated to facilitating the
advancement of our colleagues in every
market we operate in, and consequently
we have a number of development
schemes, for all levels of staff,
in operation throughout the Group.”

Inchcape plc Annual report 2004

Employment policy
Inchcape’s employment philosophy is simple; we want to attract,
motivate and retain the best people for our business.

Our remuneration and benefits policies have been designed
to do this and the framework for these are overseen by the Board
Remuneration Committee. The Committee regularly reviews
our policies in the context of market best practice and consults,
where appropriate, with our major shareholders on remuneration
for the senior executive team.

We offer a range of attractive share based incentive schemes

and, at 31 December 2004, c. 1,320 of our colleagues were
shareholders in the Company, an increase of 20.0% over 2003.
Inchcape carefully observes best practices in employment
policy and legislation and is committed to providing a workplace free
of discrimination that gives equal opportunities to all our employees.
In all our operating countries, we observe local employment law as
a minimum standard, and Inchcape ensures that Group standards
are met with regard to equal opportunities and non-discrimination.
We have in place a Business Ethics Policy, and in 2004 we
introduced a Group Whistle Blowing Policy, as well as an Employee
Assistance Programme which provides a confidential no cost
advisory service twenty four hours a day to UK employees.

Vacancies are first made available to internal candidates, via the
intranet, so as to encourage career opportunities and advancement
for our colleagues.

Colleague numbers at 31 December 2004

Market
UK
Greece/Belgium
Australia/New Zealand
Hong Kong
Singapore/Brunei
Other
Total

Overall split by gender

Market
UK
Greece/Belgium
Australia/New Zealand
Hong Kong
Singapore/Brunei

Managers

Market
UK
Greece/Belgium
Australia/New Zealand
Hong Kong
Singapore/Brunei

Numbers
5,001
983
783
1,159
1,111
1,383
10,420

Male

% Numbers
1,166
291
228
213
284

76.7
70.4
70.9
81.6
74.4

Male

% Numbers
82
38
12
11
18

82.6
80.6
91.8
84.9
79.8

%
48.0
9.4
7.5
11.1
10.7
13.3
100.0

Female
%
23.3
29.6
29.1
18.4
25.6

Female
%
17.4
19.4
8.2
15.1
20.2

Numbers
3,835
692
555
946
827

Numbers
390
158
134
62
71

UK reward and
recognition scheme
In early 2004 we introduced a reward
and recognition scheme for staff in the
UK. The objective behind this was to
encourage our employees to recognise
each other for ‘exceptional’ work and
nominate their colleagues for an award.
This scheme was designed in line with
the UK’s overall strategy to ‘be the best’
and nominations ranged from levels of
customer service to overall team work.

Three levels of awards were designed;
gold, silver and bronze. Gold award winners
are invited to enjoy a celebratory event with
the UK senior management team, as well
as receiving a personal reward presented
to them by Graeme Potts, Managing
Director, Inchcape UK and Europe
(pictured here on the left).

Over 400 employees in the UK
received awards in 2004, demonstrating
the excellent levels of commitment and
professionalism of our staff.

High standards
at Crown Motors
Crown Motors, our business in Hong
Kong, is dedicated to maintaining and
developing high levels of skill and service
in its people, and so, in 2004, organised
the first ever Inchcape Asia Pacific
‘Regional Technicians’ Skills Contest’.

Twenty five highly skilled contenders

entered the competition from our
businesses in Singapore, Guam, Brunei,
Saipan, Hong Kong and Macau. Their goal
was to complete mechanical service and
body paint tasks in a specified time with
the minimum amount of errors.

The winner, top technician Mr Che

Chin Wa, was then chosen to represent
Crown Motors at the annual Toyota ‘Asian
Technicians’ Skills Grand Prix’, which was
held in the Philippines.

Competing against nine other top
Toyota technicians from around the region,
Mr Che excelled in the written and practical
tests, which covered every aspect of
Toyota technical service. Proving his own
expertise and reflecting the high standards
of skill delivered by our Crown Motors
colleagues, Mr Che won the Silver Award.

The Kaizen philosophy
The Toyota Motor Corporation has long
advocated the use of the Kaizen philosophy
in its business practices around the world.
‘Kaizen’, which translates as ‘continuous
improvement’, comes from the Japanese
words ‘Kai’, meaning school, and ‘Zen’,
meaning wisdom. This philosophy has been
fundamental to the Japanese way of thinking
for many decades and has also provided
the foundation to numerous successful
business ideas for Inchcape, particularly
throughout our Asia Pacific businesses.
On 1 June 2004, a six month Kaizen
programme was developed for our parts
specialists at Borneo Motors in Singapore.
The programme focused on improving job
efficiency as well as the overall working
environment. The objective was to equip
our specialists with advanced inventory
and warehousing knowledge.

Inchcape plc Annual report 2004

Corporate governance

Board of Directors

Inchcape plc Annual report 2004

(a) Members of the Audit Committee
Dates of Appointment/Resignation:

Ken Hanna (Chairman)
(Member – 27 September 2001)
Chairman – 16 May 2002

Sir John Egan
15 June 2000/29 January 2004

Hugh Norton
24 January 1995/13 May 2004

Simon Robertson
25 June 1996

Michael Wemms
29 January 2004

Will Samuel
26 January 2005

David Scotland
24 February 2005

(b) Members of the
Remuneration Committee
Dates of Appointment/Resignation:

Michael Wemms (Chairman)
(Member – 29 January 2004)
Chairman – 13 May 2004

Hugh Norton
(Member – 24 January 1995/13 May 2004)
Chairman – 8 August 1998/13 May 2004

Sir John Egan
15 June 2000/29 January 2004

Ken Hanna
27 September 2001

Simon Robertson
3 August 2000

Will Samuel
26 January 2005

David Scotland
24 February 2005

Sir John Egan (Chairman)
Chairman – 15 June 2000

Ken Hanna
26 February 2004

Peter Johnson
1 July 1999

Hugh Norton
1 July 1999/13 May 2004

Simon Robertson
25 June 1996

Michael Wemms
29 July 2004

*Independent under the Combined Code

01 Sir John Egan (a) (b) (c) Chairman
Age 65. Appointed Non-executive Chairman in June 2000.
Sir John became Chairman of Severn Trent Plc on 1 January 2005,
having been appointed as a Non-executive Director on 1 October
2004. He is also Chairman of Harrison Lovegrove & Co. Limited.
He was President of the Confederation of British Industry from
May 2002 to July 2004. He was Chairman of MEPC from
1 August 1998 to 3 August 2000 and of QinetiQ Group plc from
December 2000 to May 2002. He was Chief Executive of BAA
from 1990 to 1999, and was Chairman and Chief Executive of
Jaguar plc prior to joining BAA.

02 Peter Johnson (c) Group Chief Executive
Age 57. Joined the Group in 1995 as Chief Executive of Inchcape
Motors Retail and became Chief Executive of Inchcape Motors
International in 1996. He joined the Inchcape Board in January
1998 before becoming Group Chief Executive on 1 July 1999.
He was appointed as a Non-executive Director of Wates Group
Limited in September 2002 and Director and Chairman of
Automotive Skills Limited in October 2003. He is a Vice President
of the Institute of the Motor Industry and was previously Sales
and Marketing Director of the Rover Group, and Chief Executive
of the Marshall Group.

03 Alan Ferguson Group Finance Director
Age 47. Joined the Group in 1983 having qualified as a Chartered
Accountant with KPMG in 1982. He occupied several positions
with various Group businesses before being appointed Finance
Director of Inchcape Motors International in 1995. He was
appointed to the Board as an Executive Director in January
1999 and became Group Finance Director on 9 March 1999.

04 Graeme Potts Managing Director, Inchcape UK and Europe
Age 47. Joined the Inchcape Board in September 2002. He was
Group Managing Director of RAC Motoring Services and a Director
of Lex Service PLC (now RAC plc) from 1999 to 2002. He was
Chief Executive of Reg Vardy plc from 1996 to 1999.

05 Trevor Taylor Non-executive Deputy Chairman and
Non-executive Director
Age 67. Joined the Group in 1987 as Deputy Managing Director of
Toyota (GB), becoming Chief Executive in 1993 and Chief Executive
of Inchcape Toyota Division in 1995. He joined the Inchcape Board
in January 1998 and resigned his executive role with Toyota (GB)
to become a Non-executive Director. He was appointed Executive
Deputy Chairman in July 1999 and became a Non-executive
Director and Non-executive Deputy Chairman on 1 February 2001,
having relinquished his executive responsibilities. Previously he
has held positions with Ford Motor Company and the Rover Group.
Trevor Taylor retired from the Board on 31 December 2004.

06 Simon Robertson (a) (b) (c) *
Senior Independent Non-executive Director
Age 63. Joined the Inchcape Board in May 1996. He became
Non-executive Chairman of Rolls-Royce Group plc on 1 January
2005, having been appointed as a Non-executive Director in
November 2004. He was formerly Chairman of Kleinwort Benson
Group plc and a Non-executive Director of Invensys plc until January
2005. He is currently President of Goldman Sachs Europe Limited
and Managing Director of Goldman Sachs International. He is also
a Non-executive Director of Berry Bros. & Rudd Limited.

07 Raymond Ch’ien Non-executive Director
Age 53. Joined the Inchcape Board in July 1997. Raymond Ch’ien
is Executive Chairman of chinadotcom corporation as well
as Chairman of its subsidiary, hongkong.com Corporation.
He is Non-executive Chairman of MTR Corporation Limited,
Non-executive Chairman of HSBC Private Equity (Asia) Limited,
a Non-executive Director of HSBC Holdings plc, the Hong Kong
and Shanghai Banking Corporation Limited, Convenience Retail
Asia Limited, VTech Holdings Ltd and The Wharf (Holdings) Limited.

08 Ken Hanna (a) (b) (c) * Non-executive Director
Age 51. Joined the Inchcape Board in September 2001. Ken Hanna
is a Chartered Accountant. He is an Executive Director and Chief
Financial Officer of Cadbury Schweppes plc. Prior to this he was
a Partner of Compass Partners International and Group Finance
Director and Chief Executive of Dalgety (now Sygen Group plc)
from 1997 to 1999. He has previous experience with Guinness plc
(now Diageo plc), Avis Europe and Black & Decker.

09 Michael Wemms (a) (b) (c) * Non-executive Director
Age 65. Joined the Inchcape Board in January 2004.
Michael Wemms was appointed as Chairman of the British Retail
Consortium in August 2004. He was an Executive Director of
Tesco plc between 1989 and 2000. During that time he held the
positions of Personnel Director and, from 1992, Retail Operations
Director where he was responsible for all store operations.
He is Chairman of House of Fraser plc and a Non-executive
Director of Coles Myer Limited.

10 Will Samuel (a) (b) * Non-executive Director
Age 53. Joined the Inchcape Board in January 2005. Will Samuel is
a Chartered Accountant. He is Vice Chairman of Lazard & Co. Ltd
and a Non-executive Director of the Edinburgh Investment Trust plc.
Prior to this he was a Director of Schroders plc, Co-Chief
Executive Officer at Schroder Salomon Smith Barney (a division
of Citigroup Inc.) and Vice Chairman, European Investment Bank
of Citigroup Inc.

11 David Scotland (a) (b) * Non-executive Director
Age 57. Joined the Board of Inchcape in February 2005.
David Scotland was appointed as a Director of Allied Domecq PLC
in 1995 and President of Allied Domecq World Wines in 2002.
He is also a Non-executive Director of Photo-Me International plc
and Brixton plc.

Inchcape plc Annual report 2004

Directors’ report

The Directors present the Annual report and accounts and audited
financial statements for the year ended 31 December 2004. For the
purposes of this report ‘Company’ means Inchcape plc and ‘Group’
means the Company and its subsidiary and associated undertakings.

Business activities
A review of the business activities of the Group and likely future
developments and important events occurring since the end of
the year is given on pages 2 to 17.

Results and dividends
The Group’s audited financial statements for the year ended
31 December 2004 are shown on pages 42 to 79. The Board
recommends a final ordinary dividend of 35.0p per ordinary share.
If approved at the Annual General Meeting (AGM), the final ordinary
dividend will be paid on 16 June 2005 to shareholders registered
in the books of the Company at the close of business on 20 May
2005. Together with the interim ordinary dividend of 15.0p per
ordinary share, paid on 13 September 2004, this makes a total
ordinary dividend for the year of 50.0p (2003 – 38.0p).

Share capital
Details of the changes to the Company’s issued ordinary share
capital are shown in note 24 on pages 70 and 71.

Directors
The names of the Directors, plus brief biographical details, including
those Directors offering themselves for election or re-election,
are given on page 27. They all held office throughout the year
other than Michael Wemms, who was appointed to the Board on
29 January 2004 as a Non-executive Director. Trevor Taylor retired
from the Board on 31 December 2004.

On 26 January 2005 and 24 February 2005 respectively,
Will Samuel and David Scotland were appointed to the Board
as Non-executive Directors. In accordance with the Articles of
Association of the Company, they will retire at the 2005 AGM
and offer themselves for election. Alan Ferguson and Ken Hanna
will retire by rotation at the 2005 AGM and offer themselves for
re-election in accordance with the Articles of Association.

Simon Robertson will retire from the Board at the conclusion of
the 2005 AGM. Accordingly, he does not offer himself for re-election.

Directors’ interests
The table below shows the beneficial interests, other than share
options, including family interests, on the dates indicated, in the
ordinary shares of the Company of the persons who were Directors
at 31 December 2004.

Ordinary shares of 150.0p each

31 December 2004

1 January 2004*

Substantial shareholdings
As at 28 February 2005, the following notifications of substantial
interests in the Company’s issued ordinary share capital had been
received pursuant to the provisions of the Companies Act 1985:

Sir John Egan

Peter Johnson (a)

Alan Ferguson (a)

Holding

Fidelity Investments

Toyota Motor Corporation

Standard Life Investments

Barclays PLC

Legal and General Investment Management

Total %

Graeme Potts (a)

9.05

5.27

4.89

4.38

3.29

Trevor Taylor

Simon Robertson

Raymond Ch’ien

Ken Hanna

Michael Wemms

23,500

64,969

41,168

15,847

3,000

1,000

20,000

2,000

500

23,500

64,894

40,952

9,982

3,000

1,000

20,000

2,000

Nil

*(or date of appointment, if later)

Notes:
(a) The Executive Directors of the Company, together with other employees of the
Group, are potential beneficiaries of the Inchcape Employee Trust and, as such, are
deemed by the Companies Act 1985 to be interested in any ordinary shares held by
the Trust. At 31 December 2004, the Trust’s shareholding totalled 733,793 ordinary
shares (1 January 2004 – 893,811 ordinary shares).
(b) Will Samuel was appointed a Director on 26 January 2005, he held no interest in
the ordinary shares of the Company on that date.
(c) David Scotland was appointed a Director on 24 February 2005, he held no interest
in the ordinary shares of the Company on that date.
(d) No Director had any beneficial interest in the subsidiaries of the Company.

Inchcape plc Annual report 2004

Between 1 January 2005 and 27 February 2005 the Trustees of the
Inchcape Employee Trust (Trust) made the following transfers of
ordinary shares to option holders to satisfy exercises of share
options under the Inchcape 1999 Share Option Plan and awards
under the Inchcape Deferred Bonus Plan. None of the transfers by
the Trust related to exercises of share options or awards by
Executive Directors.

Charitable and political donations
The Group’s policy on charitable and political donations, including the
amounts, is shown on pages 20 and 21.

Environment
The Group’s policy on environment, health and safety is shown on
pages 22 and 23.

Date

7 January 2005

18 January 2005

26 January 2005

28 January 2005

31 January 2005

8 February 2005

Ordinary Shares of150.0p each transferred

523

6,022

2,230

1,385

24,949

23,285

Post balance sheet events
There have been no post balance sheet events.

Annual General Meeting
The Annual General Meeting will be held at 11.00am on Thursday
12 May 2005 at The Royal Automobile Club, 89-91 Pall Mall, London
SW1Y 5HS. The notice convening the meeting and the resolutions
to be put to the meeting, together with the explanatory notes, are
given in the Circular to all shareholders which accompanies the
Annual report and accounts.

Details of share options held by Directors, including under the
Inchcape 1999 Share Option Plan and the Inchcape SAYE Share
Option Scheme, together with details of awards under the Inchcape
Deferred Bonus Plan, are shown in note 3 on pages 38 and 39.

The business of the meeting will include proposals to renew:

(i) Existing authorities for Directors to allot securities in the
Company; and

Transactions with Directors
No transaction, arrangement or agreement required to be
disclosed in terms of the Companies Act 1985 was outstanding
at 31 December 2004, or occurred during the year for any
Director and/or connected person (2003 – none).

Creditor payment policy
The Company has no trade creditors (2003 – nil). The Group is
responsible for agreeing the terms and conditions including terms
of payment under which business transactions with the Group’s
suppliers are conducted. Whilst the Group does not follow any
single external code or standard, in line with Inchcape Group policy,
payments to suppliers are made in accordance with agreed terms
and conditions.

Going concern
After making enquiries, the Directors have a reasonable expectation
that the Company, and the Group as a whole, have adequate
resources to continue in operational existence for the foreseeable
future. For this reason they continue to adopt the going concern
basis in preparing the accounts.

(ii) The Company’s authority to purchase up to 10.0% of its own
ordinary shares (the Company currently has authority to purchase
up to 7,895,227 ordinary shares, approximately 9.9% of its current
issued ordinary share capital). This authority will include the
purchase of ordinary shares into treasury.

The auditors, PricewaterhouseCoopers LLP, have indicated their
willingness to continue in office. A resolution to reappoint them
as auditors will be proposed at the Annual General Meeting.

By order of the Board

Roy Williams Group Company Secretary
28 February 2005

Inchcape plc Annual report 2004

Corporate governance report

The Board is committed to ensuring that high standards of
corporate governance are maintained by the Company. The Board
supports the main and supporting principles and the provisions of
the Combined Code on Corporate Governance of the Financial
Reporting Council (the Code) which came into effect for financial
years beginning on or after 1 November 2003.

The Listing Rules of the Financial Services Authority require
listed companies to disclose, in relation to Section 1 of the Code,
how they have applied its principles and whether they have
complied with its provisions throughout the accounting period.
This statement, together with the report on Directors’ remuneration
on pages 34 to 39, explains how the Company has applied the
principles and complied with the provisions set out in the Code.

Following the publication of the Code in July 2003, the Board
commenced a review of its corporate governance practices, policies
and procedures in light of its provisions. This review was completed
early in 2004, culminating in a number of changes which were
implemented by the Board on 29 January 2004, its first meeting in
the year. These included a revised schedule of matters specifically
reserved for the Board’s decision and new membership and terms
of reference of the Board’s three principal committees, the Audit
Committee, the Nomination Committee and the Remuneration
Committee. During the year the Board continued to keep corporate
governance matters under review, monitoring policies and
guidelines issued by the main institutional bodies, such as the
Association of British Insurers and the National Association of
Pension Funds, and adopting appropriate recommendations of
relevant bodies such as the Institute of Chartered Secretaries and
Administrators and the Institute of Chartered Accountants of
England and Wales. This process is ongoing.

Directors
The Board The Board recognises its collective responsibility
for leading and controlling the Group. It is responsible for setting
the Group’s strategic aims, ensuring that sufficient resources
are available for the Group to meet its objectives and monitoring
executive management. It is also responsible for setting the
Company’s values and standards in corporate governance matters.
The Directors act in the best interests of the Company, cognisant
of their duties to shareholders and also with consideration for
other stakeholders.

The Board has a formal schedule of matters required to be
brought to it for its decision. Such matters include: strategy and
management; major investments, acquisitions and disposals;
corporate and capital structure; financial budgeting, reporting and
controls; monitoring internal controls; approval of major contracts;
external corporate communications; Board membership and
appointments; corporate governance; and Group policy in
important areas.

There are clear written Terms of Reference for the

responsibilities delegated to the principal committees. Through the
Nomination Committee, the Board fulfils its role in nominating new
Directors and succession planning. The Remuneration Committee
determines appropriate levels of remuneration of the Chairman,
the Executive Directors and senior executives. Through its Audit
Committee, the Board discharges its responsibilities in respect of
the integrity of financial information, on the financial, operational and
compliance controls and on the systems of risk management.
Below Board and principal committee level, there are clear limits on
the authority that management committees and individuals have to
make financial commitments.

The Board and its principal committees meet regularly
during the year. In setting the timetable the Chairman and, in the
case of the committees, the committee chairmen, with the support
of the Group Company Secretary, ensure that sufficient regular
meetings are scheduled and other meetings held as required
in order for the Board and the committees to discharge their
respective duties sufficiently. In 2004 the Board had eight regular
meetings and one ad hoc meeting. In addition, the Board held a
strategy review.

Inchcape plc Annual report 2004

The names and biographical details of the Chairman, the Deputy
Chairman, the Group Chief Executive, the Senior Independent
Non-executive Director and the chairmen and members of the
principal committees can be found on pages 26 and 27. In the few
instances where a Director has not been able to attend a Board or
committee meeting, this has been due to a prior commitment or
for reason of illness. In such circumstances it has been the normal
practice for his comments on the papers to be relayed to the
chairman of the meeting in advance of the meeting, and for the
chairman to communicate the Director’s views at the meeting.
Information regarding meetings of the Board, and the principal
committees during the year, and Directors’ attendance
is given below.

Board

Number of meetings held

Sir John Egan (Chairman)

Ken Hanna

Simon Robertson

Michael Wemms

Hugh Norton (retired 13 May 2004)

Trevor Taylor (retired 31 December 2004)

Raymond Ch’ien

Peter Johnson

Alan Ferguson

Graeme Potts

Nomination Committee

Number of meetings held

Sir John Egan (Chairman)

Hugh Norton (retired 13 May 2004)

Simon Robertson

Peter Johnson

Ken Hanna (appointed 26 February 2004)

Michael Wemms (appointed 29 July 2004)

Remuneration Committee

Number of meetings held

Michael Wemms (appointed Chairman 13 May 2004)

Hugh Norton (Chairman) (retired 13 May 2004)

Simon Robertson

Ken Hanna

Audit Committee

Number of meetings held

Ken Hanna (Chairman)

Hugh Norton (retired 13 May 2004)

Simon Robertson

Michael Wemms

Scheduled

Ad-hoc

–

Scheduled

Ad hoc

Scheduled

Ad hoc

Scheduled

Ad hoc

–

The Chairman meets with the Non-executive Directors without the
Executive Directors present as necessary. One meeting was held
during the year. The Senior Independent Non-executive Director also
meets the other Non-executive Directors without the Chairman
present, as needed, including an annual appraisal of the Chairman’s
performance. One meeting was held during the year.

If any Director were to have any concerns regarding the running

of the Company or a proposed action, these would be recorded in
the Board minutes. If a Director were to resign over an unresolved
issue, the Chairman would bring the issue to the attention of the
Board. No such concerns or issues arose during the year.

For some years the Company has purchased insurance to cover its
Directors against legal action taken against them in that capacity.

Chairman and Group Chief Executive The role of the Chairman is
separate from that of the Group Chief Executive. Their respective
roles and responsibilities have been set out in writing and agreed by
the Board. The Chairman is responsible for creating the conditions to
achieve overall Board and individual Directors’ effectiveness, whereas
the Group Chief Executive is responsible for the operational
implementation of the strategy and policies agreed by the Board.
Matters are referred to the Board as a whole and no one individual or
small group of individuals has unfettered powers of decision.

Board balance and independence All Directors bring an independent
judgement to bear on issues of strategy, performance, resources,
including key appointments, and standards of conduct. In addition to
the Chairman, the Board currently has six Non-executive Directors
who bring to the Group a wide diversity of experience and
expertise. Trevor Taylor, who retired from the Board on 31 December
2004, was not regarded as independent because he was formerly
an Executive Director. Raymond Ch’ien is not regarded as
independent because he previously had a service contract with
Crown Motors Limited, a subsidiary of the Company incorporated in
Hong Kong. The other Non-executive Directors, including the
Chairman, are considered by the Board to be independent in
accordance with the Code as being independent in character and
judgement and having no relationships which are likely to affect, or
could appear to affect, the Directors’ judgement. However, since the
Code does not treat the Chairman as being independent after
appointment, the Board has decided that it should no longer count
the Chairman as an independent Non-executive Director when
considering compliance with the Code. Consequently the Chairman
is no longer a member of the Audit Committee or the Remuneration
Committee, although he does continue to attend these meetings
by invitation. He continues to chair the Nomination Committee.
Simon Robertson is the Senior Independent Non-executive Director
and he is available to shareholders if they have concerns.

No-one, other than the committee chairman and members,
is entitled to be present at meetings of any of the three principal
committees, although others, including the Chairman, do attend by
invitation of the relevant committee.

During the year less than half the Board, excluding the
Chairman, comprised Independent Non-executive Directors.
However, since 1 January 2005, following the retirement of Trevor
Taylor, the Board has complied with the Code in this respect.The
Board believes that the quality of individuals is more important than
absolute numbers. Having regard to its succession planning, its
priority is to recruit individuals of high calibre and with the right
balance of skills, knowledge and experience required. It was,
however, recognised that Board balance under the Code was an
issue. With the retirement of Trevor Taylor and Simon Robertson in
mind, the Board commenced the search for two new Independent
Non-executive Directors. This process resulted in the Board being
further strengthened by the appointment of Will Samuel and David
Scotland.

Appointments to the Board The Code requires that there be a
formal, rigorous and transparent procedure for the appointment
of new Directors to the Board, which should be made on merit
and against objective criteria. The main responsibility for Board
appointments is delegated to the Nomination Committee.
The processes and work of the Committee is set out in more
detail on page 32. The processes described were followed in the
recent search and appointment of Will Samuel and David Scotland
as Non-executive Directors on 26 January 2005 and 24 February
2005 respectively.

Information and professional development Board and committee
papers are generally distributed six days in advance of the meeting
and the Board and its principal committees consider that this timing
and the information which has been supplied is sufficient to enable
them to discharge their respective duties.

In the case of urgent matters the policy adopted by the Board is to
hold a telephone or video conference meeting in which as many
Directors as possible can participate. Papers for such meetings are
sent to all Directors as far as possible in advance of the meeting
to enable them to communicate their views to the Chairman,
another participating Director, or the Group Company Secretary
before the meeting.

Newly appointed Directors who have not previously held listed
company board appointments, receive appropriate external training.
An induction process, which includes site visits, has been
developed for newly appointed Directors to ensure that they are
aware of their responsibilities and are properly apprised of the
Group’s activities and strategic direction. In addition, the Company
has an induction and ongoing training programme, which covers
generic induction for new Board members and arrangements for
individual coaching and annual best practice updates for the whole
of the Board where appropriate. These arrangements are designed
to ensure that Directors’ skills, knowledge and familiarity with the
Company are kept up to date to enable them to fulfil their role both
on the Board and on its committees. Ongoing training will continue
to be provided by a combination of internal and external resources.
Business presentations from the heads of business units have been
incorporated into the Board’s schedule and the schedule now
includes at least one meeting each year at one of the Group’s
operational locations.

There is a procedure for Directors to take independent
professional advice at the Company’s expense where relevant to
the execution of their duties, although no Director felt it necessary
during the year. The Group Company Secretary is responsible
for advising the Board through the Chairman on all governance
matters and all members of the Board have access to his services
and advice.

Performance evaluation During the year, the Chairman put in
place a process for evaluating the Board using Towers Perrin, an
independent external adviser. All members of the Board were
interviewed by Towers Perrin using a detailed questionnaire which
was designed to test a range of areas which the Code regards as
necessary for good governance. Other key individuals who attend
Board or committee meetings or support the Board or the
committees in other ways were also interviewed. The results of
the evaluation of individual Directors were communicated to them
by the Chairman. The evaluation of Board performance was
discussed by the Board and by each of the committees in respect of
their own performance. The evaluation found that the Board
and its committees were generally performing effectively but there
were ways in which performance could be improved. Actions were
agreed and are being implemented to address the issues which
were raised. The Board has agreed that it will carry out evaluations
annually. The process will be repeated in 2005 using internal
resources and the process for succeeding years will be considered
once the next evaluation has been completed and the results
are known. The Non-executive Directors, led by the Senior
Independent Non-executive Director, are responsible for
performance evaluation of the Chairman, taking into account
the views of the Executive Directors.

Election and re-election Non-executive Directors are appointed for
an initial period of three years, which may be extended by
agreement with the Board. All Directors currently on the Board have
submitted themselves for election or re-election (as applicable)
within the last three years, as required by the Company’s Articles of
Association. Their terms of appointment are available for inspection
at the Company’s registered office during normal business hours
and at the Annual General Meeting for fifteen minutes prior to the
meeting and during the meeting.

When considering the election or re-election of a Director,

the entire Nomination Committee takes into account the review
of his performance. This is particularly rigorous in the case of a
Non-executive Director for any term beyond six years. A similar
process is applied in considering the appointment or reappointment
of a Director to the principal committees.

Inchcape plc Annual report 2004

Corporate governance report continued

Board committees
The Board has three principal committees, all with written terms
of reference which are available on the Company’s website
(www.inchcape.com). The Group Company Secretary serves as
secretary to all three committees.

Nomination Committee Membership during 2004: Sir John Egan
(Chairman), Peter Johnson, Simon Robertson, Ken Hanna and
Michael Wemms. Ken Hanna was appointed on 26 February 2004
and Michael Wemms was appointed on 29 July 2004. The other
members served throughout the year. Hugh Norton served until
his retirement on 13 May 2004 at the 2004 AGM. At all times
the majority of members have been Independent
Non-executive Directors.

Role: The Nomination Committee meets at least once a year.
In 2004 it met six times. It is responsible for leading the process
for Board appointments and making recommendations to the
Board. Before the Board makes an appointment, the Committee
evaluates the balance of skills, knowledge and experience of the
Board and in light of this evaluation prepares a description of the
role and capabilities required for a particular appointment in
consultation with an external search consultant who is appointed to
work with the Committee. The consultant prepares a list of potential
candidates which is discussed by the Committee and reduced to a
shortlist. The shortlist candidates then meet with the Chairman,
who is also Chairman of the Committee, and the final candidates
meet the other Directors. Following this, and in the light of
feedback received, the Committee meets to finalise a
recommendation to the Board. A Director may be consulted by
the Committee in the course of the process to appoint his
successor but it is the policy of the Board that he does not
participate in the decision on the appointment.

During the course of the year the Committee met to consider

the structure, size and composition of the Board, including the
skills, knowledge and experience available. It also considered
development and succession plans and these will be considered
annually. It made recommendations to the Board regarding the
appointment of Michael Wemms as a new Independent
Non-executive Director and for his election and for the re-election of
Sir John Egan and Peter Johnson at the 2004 AGM. Sir John Egan
did not chair the Committee, and neither he nor Peter Johnson
participated in the meeting when the recommendations regarding
their respective re-election were considered. Having regard to the
forthcoming retirement of Trevor Taylor at the end of 2004 and
Simon Robertson at the AGM in 2005, it initiated a recruitment
process for two Independent Non-executive Directors which
resulted in the appointments of Will Samuel and David Scotland.

Remuneration Committee Membership during 2004: Michael
Wemms (Chairman), Simon Robertson and Ken Hanna. Hugh
Norton served until his retirement at the AGM on 13 May 2004.
All the members, other than Hugh Norton who retired during the
year, and Michael Wemms, who was appointed on 29 January
2004, served throughout the year. The participation of Sir John
Egan on the Committee was reviewed in the year in light of the
provisions of the Code. While Sir John Egan continues to attend
meetings, he ceased to be a member of the Committee with
effect from 29 January 2004. Will Samuel and David Scotland
were appointed to the Committee on 26 January 2005 and
24 February 2005 respectively. With the exception of Sir John
Egan (member until 29 January 2004), whom the Code does not
treat as Independent, the members of the Committee comprised
wholly Independent Non-executive Directors during the year and
continues to do so.

Role: The Remuneration Committee is responsible for
remuneration issues regarding Executive Directors and certain
senior executives within the framework recommended by the
Committee and approved by the Board. More details are given in
the Board report on remuneration on pages 34 to 39.

Audit Committee Membership during 2004: Ken Hanna (Chairman),
Simon Robertson and Michael Wemms. Hugh Norton served until
his retirement at the AGM on 13 May 2004. All the members, other

Inchcape plc Annual report 2004

than Hugh Norton who retired during the year, and Michael Wemms,
who was appointed on 29 January 2004, served throughout the year.
The participation of Sir John Egan on the Committee was reviewed in
the year in light of the provisions of the Code. While Sir John Egan
continues to attend meetings, he ceased to be a member of the
Committee with effect from 29 January 2004. Will Samuel and David
Scotland were appointed to the Committee on 26 January 2005 and
24 February 2005 respectively. With the exception of Sir John Egan
(member until 29 January 2004), whom the Code does not treat
as independent, the Committee comprised wholly Independent
Non-executive Directors during the year and continues to do so.

In light of Ken Hanna’s qualifications as a Chartered Accountant
and his experience with Coopers & Lybrand, Compass Partners and
Cadbury Schweppes, the Board has determined that he has recent
and relevant financial experience.

Sir John Egan, the Chairman, Peter Johnson, the Group Chief
Executive, Alan Ferguson, the Group Finance Director, Tim Trounce,
the Director of Audit and Risk Management and the external
auditors also attend meetings of the Committee. Attendance of
non-members is at the discretion and by invitation of the Committee
Chairman.The Non-executive Directors on the Committee have
the opportunity at each meeting to review any issues with the
external auditors and with the Director of Audit and Risk
Management without any other members of the executive
management being present.

Role: The Committee meets at least three times a year. It is

responsible for monitoring the integrity of the financial statements
of the Company and any formal announcement relating to its
financial performance, reviewing internal financial controls and
internal control and risk management systems, monitoring and
reviewing the effectiveness of the internal audit function, making
recommendations to the Board in relation to the appointment and
removal of the external auditor, reviewing the external auditor’s
independence and objectivity and the effectiveness of the audit
process, and for policy on the engagement of the external auditor
to supply non-audit services. It is also responsible for reviewing the
Company’s arrangements for employees confidentially to raise
concerns about possible improprieties in relation to financial
reporting or other matters. In order to fulfil its duties, the Audit
Committee receives and challenges presentations or reports from
the Group’s senior management, consulting as necessary with the
external auditors.

Part of the Committee’s responsibility in relation to external

auditors is to keep their independence and objectivity and the
nature and extent of the non-audit services they provide under
regular review. The Committee has established policies and
procedures in relation to the provision of non-audit services by the
external auditors pursuant to which external auditors’ services are
not permitted on areas such as internal audit, appraisal or valuation
services and financial information systems design/implementation.
Financial limits are imposed on permitted areas of non-audit work,
such as tax advice.

A full statement of the fees paid for audit and non-audit
services is provided in note 4b on page 51. Non-audit fees were
higher than usual mainly due to the significant work undertaken on
the introduction of International Financial Reporting Standards.

Communication with shareholders
The Company encourages two way communication with its
institutional and private investors and responds promptly to all
queries received verbally or in writing. The preliminary and interim
results are presented publicly to analysts and other meetings with
shareholders are arranged as appropriate.

The Company has an established Investor Relations

programme in the course of which the Group Chief Executive and
the Group Finance Director have regular meetings with major
shareholders to update them on the Company’s progress and to
discuss any issues that investors may have. During these meetings,
shareholders were reminded of the availability of the Chairman,
the Senior Independent Non-executive Director and the rest of the
Board if they wished to meet them. Any issues arising at such

meetings are reported and considered by the Board. In addition,
the Company’s stockbrokers, UBS, obtain shareholder feedback on
a confidential basis from major investors following the meetings and
this is reported in summary and considered at Board meetings.
The Chairman has written to the largest fifteen shareholders
emphasising his availability and that of the Senior Independent
Non-executive Director and the rest of the Board, including new
Non-executive Directors, should they wish to meet.

The Company makes constructive use of the AGM in
accordance with the Code. Private investors are encouraged to
participate in the meeting at which the Chairman comments on the
performance and outlook for the Company and the Group Chief
Executive makes a presentation on operational and strategic issues.
In addition to Sir John Egan, who is Chairman of the Nomination
Committee, the chairmen of the Audit and Remuneration
Committees will be available to answer shareholder questions.

Remuneration report
The Company’s policy on executive remuneration with details of the
Executive Directors’ salaries, annual bonuses, long term incentives
and pensions, and fees for the Non-executive Directors appears in
the Board report on remuneration on pages 34 to 39.

Internal control
The Board of Directors has overall responsibility for establishing key
procedures designed to achieve a sound system of internal control
and for reviewing its effectiveness. Such a system can provide
only reasonable and not absolute assurance against any material
misstatement or loss and cannot eliminate business risk. It is the
responsibility of the Audit Committee to monitor and review internal
controls, with its Chairman reporting the results of such reviews
to the Board. In addition, the Board has entrusted executive
management with responsibility for implementing internal
control procedures.

The Group operates a Risk Committee, which is chaired by the

Group Chief Executive and includes, inter alia, the Group Finance
Director, Group Company Secretary, Treasury Director, Director of
Audit and Risk Management and the Group Risk Manager. The Risk
Committee meets quarterly to consider what changes to risk
management and control processes should be recommended.
Its review covers matters such as responses to significant risks that
have been identified, output from monitoring processes, including
internal audit reports, and changes to be made to the internal
control system. It also follows up on areas that require improvement
and reports back to the Audit Committee every six months, or more
frequently if required.

The Group Chief Executive also reports to the Board, on behalf

of executive management, significant changes in the Group’s
business and the external environment in which it operates.
In addition, the Group Finance Director provides the Board with
monthly financial information, which includes key performance and
risk indicators.

The Group’s key internal control and monitoring procedures

include the following:

Financial reporting There is a comprehensive budgeting system with
an annual budget approved by the Directors. Monthly actual results
are reviewed and reported against the budget and, where
appropriate, revised forecasts at each of the Board’s scheduled
meetings.

Monitoring systems The internal audit group reports to the Audit
Committee on its examination and evaluation of the adequacy and
effectiveness of the Group’s systems of internal control. The internal
audit group also works closely with management and the external
auditors, and significant issues are reported to the Audit Committee.

Operating unit controls The overall control framework for the Group
is detailed in the Group Finance and Information Systems manuals
and is supplemented by risk management policies. Compliance with
Group policies and the effectiveness of internal controls are regularly
assessed through the audit process and through a process of self
certification, which requires business unit management to assess
annually the quality of internal controls in their businesses.

Risk management The Group’s management operates a risk
management process, which identifies the key risks facing each
business unit twice a year. A risk register, which identifies the key
risks, the impact should they occur and actions being taken to
manage those risks to the desired level, is produced for each
business unit. In addition, actions to be taken in the event that such
risks crystallise and proposed improvements to the way they are
managed are also included. This information is passed up the
organisation on a filter basis, culminating in the production of a
Group Risk Register, which is approved by the Risk Committee and
provided to and discussed with the Audit Committee. In addition,
internal audit continuously reviews financial, commercial and
systems developments in the Group’s business units to ensure
appropriate audit focus in the major risk areas.

Investment appraisal The Group has clearly defined policies for
capital expenditure. These include annual budgets and detailed
appraisal and review procedures.

The Board has reviewed the effectiveness of internal control
systems in operation during the financial year through the processes
set out above.

Auditor’s independence
The Company has an established policy on the provision of
non-audit services by the external auditors as shown on page 32
of the report. Through its Audit Committee, the Company has
reviewed a report from its auditors, PricewaterhouseCoopers LLP
(PwC), confirming, in their professional judgement, their
independence. The review included the audit, audit related, tax
and consulting services provided by PwC, and compliance with
the Group policy introduced in 2003 which prescribes the types
of engagements for which external auditors may be used.
The Committee also noted that the audit partner is subject to a
five year fixed term rotation. Having regard to the policy on the
engagement of external auditors for non-audit services, and the
report from the auditors, the Company concluded that there are
sufficient controls and processes in place to ensure the continued
level of independence.

Statement of compliance with the Combined Code
The Company was in compliance throughout the year ended
31 December 2004 with the Code except, as explained above, the
proportion of Independent Non-executive Directors on the Board,
excluding the Chairman, was less than half. There were certain other
exceptions, which are shown below. These were all addressed by
the Board on 29 January 2004, its first meeting of the year, after it
had concluded its review of its corporate governance practices,
policies and procedures in light of the Code.

A.4.1 – The Terms of Reference of the Nomination Committee

were revised by the Board and were made available on the
Company’s website immediately thereafter.

B.2.1 – Sir John Egan ceased to be a member of the

Remuneration Committee.

The membership and the Terms of Reference of the
Remuneration Committee were revised by the Board and were
made available on the Company’s website immediately thereafter.
C.3.1 – Sir John Egan ceased to be a member of the Audit

Committee.

The membership and the Terms of Reference of the Audit
Committee were revised by the Board and were made available on
the Company’s website immediately thereafter.

Inchcape plc Annual report 2004

Board report on remuneration

Remuneration Committee
The Board has delegated responsibility to the Remuneration
Committee for determining and agreeing with the Board the
Company’s policy and framework for executive remuneration. It is
also responsible for setting remuneration packages and terms of
employment, including pension rights, for the Chairman, Executive
Directors and certain senior executives. This includes agreeing
performance incentive arrangements and approving allocations
under any long term incentive arrangements, including executive
share options.

The members of the Committee during 2004 were

Michael Wemms (Chairman), Simon Robertson and Ken Hanna.
Hugh Norton served until his retirement on 13 May 2004.
All the members, other than Hugh Norton, who retired during
the year, and Michael Wemms, who was appointed on 29 January
2004, served throughout the year. The participation of Sir John Egan
on the Committee was reviewed in the year in light of the
provisions of the Code. While Sir John continues to attend
meetings, he ceased to be a member of the Committee on
29 January 2004. Will Samuel and David Scotland were appointed
to the Committee on 26 January 2005 and 24 February 2005
respectively. With the exception of Sir John Egan (member until
29 January 2004), whom the Code does not treat as independent,
the Committee comprised wholly Independent Non-executive
Directors during the year and continues to do so.

Throughout 2004 the Company complied with the
remuneration provisions of the Code in respect of Directors.
The contents of this report also comply with the Directors’
Remuneration Report Regulations 2002 and the relevant
requirements of the UKLA Listing Rules.

Committee operation
The Committee holds at least two meetings a year. It has an annual
meeting to review the compensation arrangements for each
Executive Director and certain senior executives, in advance of the
annual salary review on 1 April. It also holds a further meeting to
consider policy issues. In addition, ad hoc meetings are held as
required. During the year the Committee held eight meetings and
details of members’ attendance are shown in the table on page 30.
Neither the Chairman, nor any executive, is involved in deciding
their own remuneration.

The Committee has authority from the Board to obtain the

services of external independent advisers, as it may require.
Towers Perrin provided advice to the Committee throughout 2004,
having been appointed by the Committee as advisers in December
2002. In addition, Towers Perrin provided advice to the Board on
Non-executive fees and Board performance and to the Group in
connection with the introduction of IFRS 2 in 2005. Each year the
chairman of the Committee reviews the use of advisers and he
considers the continued appointment of Towers Perrin as
appropriate.

In addition to Towers Perrin, the Committee is advised internally

by Peter Johnson, Group Chief Executive, Roy Williams, Group
Company Secretary and Nick Smith, Group Human Resources
Director. These external and internal sources of advice and data
available to the Committee, together with consideration of the
levels of pay increases for other employees and the remuneration
policy outlined below, provide a framework for the decision
making process.

Remuneration policy
In establishing its remuneration policy and practice, the Committee
had regard to the need to continue to support the Company’s
business strategy, to allow the Company to motivate and retain
its executive management and, where necessary, recruit
executives of high quality. The Committee was also guided by
the following principles:

• the package should be competitive (i.e. at or around median)

when compared with those in organisations of similar size,
complexity and type;

• there should be a clear link between the level of

remuneration and the performance of the Group and the individual,
to the extent that performance related elements should form a
significant part of executives’ total remuneration package;

• the interests of the shareholders should be safeguarded by

aligning the remuneration package of the executives with
shareholders’ interests;

• the package as a whole should be easy to understand and

motivating for the individual; and

• the composition of the package should reflect best practice

among comparable companies.

The remuneration packages for the Executive Directors are made up
of both fixed and variable elements as described below. In broad
terms, if the Group meets its target levels of performance,
the expected value of the variable elements will account for
approximately 45.0% to 50.0% of the Executive Directors’ total
remuneration and, if the Group achieves outstanding results,
approximately 60.0% to 65.0%. If target performance levels are not
met, then no pay out would be made under the incentive plans.
Total remuneration for these purposes comprises base salary,
annual bonus and long term incentives.

The remuneration packages of the Executive Directors are

made up of the following elements:

Base salary
Base salaries are set by the Committee, taking into account the
individual’s level of responsibility, experience, and performance,
along with salary levels in comparable companies. The comparator
group is made up of twenty five general industry companies,
almost all being companies in the FTSE mid 250 index.
Those companies were chosen because they are of a similar
size and complexity (measured in terms of revenues, market
capitalisation, employee numbers and international scope) as the
Company. Executive Directors’ salary increases in 2004 took into
account the relevant median data from this comparative group, and
the individual’s performance, as well as the continuing excellent
performance of the Company. Base salary is the only element of
remuneration which is pensionable.

Inchcape plc Annual report 2004

Annual bonus
During 2004 the Executive Directors participated in a bonus plan
based solely on profit before tax (PBT). Peter Johnson’s bonus plan
yields a bonus of 40.0% of base salary if target performance is
achieved and higher payments for performance above target
to a maximum of 90.0% of base salary. Graeme Potts and
Alan Ferguson’s bonus plans yield a bonus of 30.0% of base
salary if target performance is achieved and higher payments for
performance above target to a maximum of 70.0% of base salary.
In 2004, the Company’s PBT significantly exceeded performance
targets set at the start of the year for the bonus plan. This has
resulted in Peter Johnson receiving a bonus of 90.0% of his salary,
and Graeme Potts and Alan Ferguson receiving bonuses of 70.0%
of their salaries, as set out in the remuneration table on page 37.
For 2005, an additional performance measure has been
introduced, covering stock ageing and churn, as the Committee
feels this is an appropriate measure to monitor the quality of
earnings as well as absolute profit before tax. This will represent
10.0% of annual bonus payment.

Deferred bonus plan
Changes to the Inchcape Deferred Bonus Plan were approved
by shareholders in 2004. The Plan is a voluntary one available
to Executive Directors and certain other senior executives.
The purpose of the Plan is to give participants a share linked reward
that is related to the participant’s commitment to maintaining a
shareholding in the Company. Details of awards made to Executive
Directors in 2004 under the Plan are shown in note 3 on page 39.

From 2004, participants may invest a minimum of 10.0% and a

maximum of 75.0% of any net of tax bonus award to acquire
ordinary shares in the Company. These shares will then be matched
with a one for one matching share at the end of a three year period.
In addition, to comply with current best practice and to align
Executive Directors’ rewards under the Plan to shareholders’
interests, there is a performance condition attaching to the vesting
of their matching shares. That test is EPS growth of RPI +3.0%
per annum, with no retesting. EPS has been chosen because the
Committee believes the key to the Company delivering value to
shareholders is through continued strong earnings growth over the
long term. EPS will be measured in the same manner as for the
Share Option Plan. Subject to that performance condition being
met, a Director’s shares being held in trust for three years and the
Director remaining an employee of the Group, he or she will
become entitled to be awarded shares to an amount equal to the
gross amount of the bonus used to acquire ordinary shares in
the Company.

In previous years, Executive Directors could invest a minimum
of 10.0% and a maximum of 50.0% of any bonus award to acquire
ordinary shares in the Company, with no performance conditions
attached to the vesting of matching shares.

Executive share option plan
Changes to the Inchcape 1999 Share Option Plan were approved by
shareholders in 2004. Under the Plan, share options are granted to
Executive Directors and certain other senior executives throughout
the Group. The option price is calculated by rounding up the
arithmetic average of the market quotations of a share for the three
dealing days immediately preceding the date of grant. The 2004
grant of share options covered 258 participants across the world.
Details of share options granted to Executive Directors in 2004 are
shown in note 3 on pages 38 and 39.

Options granted following the 2004 AGM vest according to a

sliding scale: 25.0% of the award will vest if earnings per share
(EPS) growth of RPI +3.0% per annum is achieved over the initial
three year period, with all of the award vesting if EPS growth is
RPI +8.0% per annum. Options will vest on a straight line basis
between these two points. No options will vest if EPS growth is
less than RPI +3.0% per annum. There will be no retesting.

The Committee has retained EPS as the performance measure

to ensure that Executive Directors only receive rewards if there is
significant and sustained improvement in the underlying financial
performance of the Company. EPS will continue to be the Headline
earnings per ordinary share as shown in the Company’s reported
accounts as this provides an independently verifiable measure,
which excludes volatile one off matters such as exceptional items
and goodwill amortisation. In exceptional circumstances, the
Committee has the right to adjust the published EPS, as it considers
appropriate. If this were to be the case, any adjustment would be
disclosed in this report. In light of changes to accounting standards,
the Remuneration Committee will make necessary adjustments to
ensure a consistent basis in respect to the EPS measure used to
evaluate performance.

During the year, the Committee made annual grants of two

times base salary taking into account the Executive Directors’ and
the Company’s performance. This grant level is necessary to keep
the Company’s long term incentive provision in line with the market.
Grants in excess of the two times limit may be required in the
future in the event of new hires or developments in market practice.
Therefore the Committee has the flexibility to increase the
maximum allowable annual grant level in the Plan rules to four
times base salary if required.

SAYE share option scheme
The Inchcape SAYE share option scheme was renewed for another
ten years with approval from shareholders in 2004. It is open to
employees in the UK with at least three months service.
Participants make monthly savings for a three year period.
At the end of the savings period share options become
exercisable within a six month period.

Executive share ownership
To emphasise the importance the Committee places on executive
share ownership, Executive Directors are expected to hold a fixed
number of shares equivalent to one times base salary. They have up
to five years from 2004, or date of first appointment as an Executive
Director (if later), to reach this shareholding target.

At the end of the year, by reference to the share price at that

date, the Group Chief Executive and the Group Finance Director
held shares equating to 210.0% and 230.0% of their basic salaries
respectively. The Managing Director, Inchcape UK and Europe, who
joined the Company in September 2002, holds shares to a value of
86.0% of his base salary.

Inchcape plc Annual report 2004

Board report on remuneration continued

Retirement benefits
The Inchcape Group (UK) Pension Scheme provides benefits for
Executive Directors and certain other senior executives at the
normal retirement age of sixty, equal to a maximum of two thirds
of final base salary, subject to completion of twenty years’ service.
The Scheme is non-contributory.

Pensions in payment are guaranteed to increase in line with the

lesser of 5.0% and the increase in the RPI. A lump sum benefit of
four times base salary is provided, on death in service, along with
a spouse’s pension of two thirds of the member’s pension.
Children’s pensions may also be payable, up to one third of the
member’s pension. In the case of Executive Directors and certain
other senior executives appointed after 1 June 1989 the benefits
under the Inchcape Group (UK) Pension Scheme are in respect of
capped base salary. For those Executive Directors and certain other
senior executives whose base salary is capped, a separate life
assurance exists to supplement the approved life cover to a total
lump sum benefit of four times base salary on death in service.
Executives whose base salary is capped are paid a monthly cash
supplement to enable them to make their own pension
arrangements. The two Executive Directors who received such
supplements in the year are Peter Johnson and Graeme Potts.
Details of the amounts paid are shown in note 1 on page 37.

Taxable and other benefits
These include such items as company car and medical and life
assurance premiums. They are in line with the remuneration policy
framework outlined above. These benefits are non-pensionable.

Performance graph
The following graph illustrates the Group’s Total Shareholder Return
(TSR) over a five year period, relative to the performance of the total
return index of the FTSE mid 250 group of companies. TSR is
essentially share price growth plus reinvested dividends. The FTSE
mid 250 has been chosen as the most suitable comparator as it is
the general market index in which Inchcape plc appears.

Historical TSR performance £100 holding

900
900

750
750

600
600

450
450

300
300

150
150

0
0

Inchcape plc

FTSE 250 (excluding investment trusts)

Dec 99

Dec 00

Dec 01

Dec 02

Dec 03

Dec 04

Growth in the value of a hypothetical £100 holding over five years
FTSE 250 excluding investment trusts comparison based on
thirty trading day average values

Chairman’s remuneration
During the year the Chairman’s remuneration was determined by
the Committee, taking advice from Towers Perrin on best practice
and competitive levels, taking into account responsibilities and
time commitment.

The Chairman is not eligible for pension scheme membership

or participation in any of the Company’s bonus, share option or
other incentive schemes.

Non-executive Directors’ remuneration
The remuneration of Non-executive Directors consists of fees for
their services in connection with Board and Committee meetings.
Non-executive Directors fees are determined by the Board,
within the restrictions contained in the Articles of Association.
Fees are reviewed annually, with the Board taking advice from
Towers Perrin on best practice and competitive levels, taking into
account the individual’s responsibilities and time commitment.
The Non-executive Directors are not involved in deciding their fees.
Non-executive Directors are not eligible for pension scheme

membership or participation in any of the Company’s bonus, share
option or other incentive schemes.

Service contracts
The Executive Directors have service contracts with a notice period
of one year. In the event of termination, the Company will seek
fair mitigation of contractual rights. Within legal constraints, the
Remuneration Committee tailors its approach, in cases of early
termination, to the circumstances of each individual case.

Details of the Executive Directors’ service contracts are

as follows:

Name

Date of contract

Unexpired term

Peter Johnson

1 January 1998

Alan Ferguson

1 January 1999

Graeme Potts

10 September 2002

To normal
retirement age

Normal retirement age is sixty. Their contracts include entitlements
to compensation if their employment is terminated without proper
notice by the Company within six months of a change of control.
In those circumstances, the compensation payable would not
exceed the value of twelve months’ remuneration being salary,
bonus, pension and company car benefit.

Sir John Egan’s appointment which was due to expire on
31 May 2004, was extended by agreement with him for a further
two years.

As explained in the Corporate Governance Report,
Non-executive Directors are appointed for an initial period
of three years, which may be extended by agreement with the
Board. None of them are engaged on a service contract
with the Company.

Policy on external appointments
Inchcape recognises that its Executive Directors may well be
invited to become Non-executive Directors of other companies
and that this additional experience is likely to benefit the Company.
Executive Directors are, therefore, allowed to accept one
Non-executive appointment (two in the case of the Group Chief
Executive) as long as these are not likely to lead to conflicts of
interest or undue time commitments. The policy in respect of the
Executive Directors’ other commitments is kept under review by
the Nomination Committee. Any fees received for these duties may
be retained by the Executive Director.

The Group Chief Executive currently holds only one external

directorship. He is a Non-executive Director of Wates Group
Limited, for which he receives a fee of £32,000.

Inchcape plc Annual report 2004

Notes to the Board report on remuneration

The following are auditable disclosures in accordance with Schedule 7A Part III of the Companies Act 1985.

Individual emoluments for the year
The table below shows a breakdown of remuneration, including taxable and other benefits of each Director. Details of pension
entitlements and share options held are shown in notes 2 and 3 on pages 38 and 39.

Base salary/fees

Bonus (f)

Taxable and
other benefits (h)

Total remuneration
excluding Company
contributions
paid in year in
respect of pension
arrangements

Company
contributions
paid in year in
respect of pension
arrangements

Total
remuneration

2004
£’000

2003
£’000

Sir John Egan

152.5

140.0

2004
£’000

–

2003
£’000

–

Peter Johnson (a) (f)

602.5

522.5

549.0

348.0

Alan Ferguson (f)

342.5

315.0

245.0

192.0

Graeme Potts (b) (f)

355.0

334.1

252.0

102.0

Trevor Taylor (retired
31 December 2004)

Hugh Norton (c) (d)
(retired 13 May 2004)

Simon Robertson

Raymond Ch’ien (e)

Ken Hanna (d)

Michael Wemms (d)

30.0

29.0

17.4

54.6

42.0

30.0

45.2

39.8

39.0

29.0

42.1

–

2004
£’000

21.9

29.3

18.0

32.7

–

2003
£’000

2004
£’000

2003
£’000

18.7

174.4

158.7

2004
£’000

–

2003
£’000

2004
£’000

2003
£’000

–

174.4

158.7

26.4 1,180.8

896.9

250.6

214.4 1,431.4 1,111.3

17.2

605.5

524.2

–

605.5

524.2

23.5

639.7

459.6

76.2

71.3

715.9

530.9

–

30.0

29.0

17.4

54.6

42.0

43.2

45.2

39.8

39.0

43.3

42.1

–

30.0

29.0

17.4

54.6

42.0

43.2

45.2

39.8

39.0

43.3

42.1

–

13.2

14.3

–

Total

1,656.9 1,505.3 1,046.0

642.0

115.1

100.1 2,818.0 2,247.4

326.8

285.7 3,144.8 2,533.1

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

The payment of £250,625 (2003 – £214,405) was paid directly to Peter Johnson to allow him to make his own pension
arrangements outside the Company’s plan. Such payment was subject to tax.

The payment of £76,175 (2003 – £71,310) was paid directly to Graeme Potts to allow him to make his own pension
arrangements outside the Company’s plan. Such payment was subject to tax.

In the year the Inchcape Group (UK) Pension Scheme paid the sum of £3,000 to Hugh Norton as the fee for chairing the
Scheme’s Trustee Board.

The details shown include fees of £2,083 to Hugh Norton and £5,417 to Michael Wemms for chairing the Remuneration
Committee and £7,500 to Ken Hanna for chairing the Audit Committee.

The emoluments shown for Raymond Ch’ien include those in respect of services provided in Asia.

Executive Directors may elect to invest up to 75.0% (2003 and prior – 50.0%) of their annual bonus in the Deferred Bonus Plan.
The invested monies are grossed up by the Company to remove the effect of tax on that portion of the executive’s bonus
and the grossed up amount is used by the Company to purchase ordinary shares (Awarded shares), which are held in trust for
the executive. Provided certain conditions are met, the Awarded shares will vest and the executive may exercise his rights under
the Plan at any time during the six month exercise period. Details of Awarded shares are set out in the Deferred bonus plan table
on page 39.

No Directors waived emoluments in respect of the year ended 31 December 2004 (2003 – none).

Taxable and other benefits comprise items such as company car, medical care, life assurance premiums and petrol allowance.
All Executive Directors are entitled to such benefits.

Inchcape plc Annual report 2004

Notes to the Board report on remuneration continued

Directors’ pension entitlements
Accrued annual pension under defined benefit schemes

Increase in
accrued
Increase in
accrued
pension
pension during the year
during the year net of inflation
£’000

£’000

Transfer value
Accumulated of the increase
in accrued
benefit net
of inflation
31.12.04
£’000

total of
accrued
pension at
31.12.04
£’000

4.4

23.5

3.5

31.4

3.4

17.9

3.4

24.7

33.4

183.3

7.6

224.3

56.6

216.3

31.3

304.2

Transfer
value of
accrued
benefits at
31.12.04 (a)
£’000

Transfer
value of
accrued
benefits at
01.01.04 (b)
£’000

560.8

449.6

2,215.2

1,877.2

71.0

36.6

2,847.0

2,363.4

Difference
in transfer
value
(a) – (b)
£’000

111.2

338.0

34.4

483.6

Peter Johnson

Alan Ferguson

Graeme Potts

Total

The transfer value has been calculated in accordance with Retirement Benefits Schemes Transfer Values (GN 11), 6 April 2002.

No Directors made any contribution to their pension in respect of the above during the year.

Directors’ share options

Held at
Exercised
Granted
31.12.04 during the year during the year

Held at 01.01.04
(or date of
appointment,
if later)

Exercise
price (d)

Exercise period

Peter Johnson
(highest paid Director)

–

– 104,166 (c) 104,166 (a)

384.0p

Mar 2004 – Mar 2011

Alan Ferguson

Graeme Potts

63,065 (a)

61,679 (a)

1,549 (b)

–

77,608 (a)

35,000 (a)

–

33,576 (a)

39,370 (a)

1,549 (b)

–

44,529 (a)

97,014 (a)

42,650 (a)

1,549 (b)

–

45,801 (a)

–

63,065 (a)

685.0p

Mar 2005 – Mar 2012

61,679 (a)

762.0p

Mar 2006 – Mar 2013

1,549 (b)

610.0p

Jun 2006 – Dec 2006

–

1572.0p May 2007 – May 2014

35,000 (a)

284.0p

Aug 2003 – Aug 2010

52,083 (c)

52,083 (a)

384.0p

Mar 2004 – Mar 2011

–

33,576 (a)

685.0p

Mar 2005 – Mar 2012

39,370 (a)

762.0p

Mar 2006 – Mar 2013

1,549 (b)

610.0p

Jun 2006 – Dec 2006

–

1572.0p May 2007 – May 2014

97,014 (a)

670.0p

Oct 2005 – Oct 2012

42,650 (a)

762.0p

Mar 2006 – Mar 2013

1,549 (b)

610.0p

Jun 2006 – Dec 2006

–

1572.0p May 2007 – May 2014

(a)

(b)

(c)

Under the Inchcape 1999 Share Option Plan.

Under the Inchcape SAYE Share Option Scheme.

Peter Johnson and Alan Ferguson exercised their options over 104,166 and 52,083 ordinary shares, respectively, on
21 December 2004. At the close of business on the date of exercise the mid market price of the ordinary shares was
1813.0p. Gains of £1,501,032 and £750,516 respectively were made upon the exercising of these options.

(d)

Exercise prices are determined in accordance with the rules of the relevant share option scheme.

Inchcape plc Annual report 2004

Notes on share options:

(i)

(ii)

(iii)

(iv)

All options were granted for nil consideration.

The table shows Directors’ options over ordinary shares of 150.0p at 1 January 2004 and 31 December 2004. The mid market
price of the shares at the close of business on 31 December 2004 was 1955.0p. The price range during 2004 was 1287.0p
to 1955.0p.

Options under the Inchcape 1999 Share Option Plan are granted on a discretionary basis to certain full time senior executives
based within and outside the UK including the Executive Directors of the Company. Such options are normally exercisable
between three and ten years of grant.

Options may normally only be exercised if the performance target has been met. For all options granted between 1999 and 2003
under the Inchcape 1999 Share Option Plan, growth in the Company’s earnings per share over a three year period must exceed
the increase on the UK Retail Price Index over the same period by 3.0% per annum. Options granted after the 2004 AGM vest
according to a sliding scale: 25.0% of the option will vest if EPS growth of RPI +3.0% per annum is achieved over the initial
three year period, with all of the option vesting if EPS growth is RPI +8.0% per annum. Options will vest on a straight line basis
between these points and there is no opportunity to retest.

(v)

The Inchcape SAYE Share Option Scheme is open to employees in the UK with at least three months service. Participants make
monthly savings for a three year period. At the end of the savings period options become exercisable within a six month period.

Deferred bonus plan
The number of ordinary shares awarded to Executive Directors under the Inchcape Deferred Bonus Plan are:

Awarded
ordinary
shares

Ordinary
Ordinary
shares
shares
exercised
awarded
31.12.04 during the year during the year

Peter Johnson

Alan Ferguson

Graeme Potts

–

14,677

3,222

18,850

15,728

–

6,543

3,222

5,553

6,461

8,677

6,684

4,610

–

15,728

–

8,677

–

4,610

Awarded
ordinary
shares
01.01.04

30,769

14,677

3,222

18,850

Market
value of
shares
awarded

Exercise period

390.0p

Apr 2004 – Oct 2004

724.0p

Apr 2005 – Oct 2005

724.0p

Apr 2005 – Oct 2005

748.0p

Apr 2006 – Oct 2006

–

1647.0p

Jun 2007 – Dec 2007

30,769 (b)

–

15,384 (a)

15,384

390.0p

Apr 2004 – Oct 2004

–

6,543

3,222

5,553

6,461

698.0p Mar 2005 – Sep 2005

724.0p

Apr 2005 – Oct 2005

750.0p Mar 2006 – Sep 2006

748.0p

Apr 2006 – Oct 2006

–

1647.0p

Jun 2007 – Dec 2007

6,684

748.0p

Apr 2006 – Oct 2006

–

1647.0p

Jun 2007 – Dec 2007

(a)

(b)

(c)

Alan Ferguson exercised the award granted to him on 12 April 2001, 15,384 ordinary shares, on 4 October 2004. At the close of
business on the date of exercise the mid market price of the ordinary shares was 1590.0p.

Peter Johnson exercised the award granted to him on 12 April 2001, 30,769 ordinary shares, on 6 October 2004. At the close of
business on the date of exercise the mid market price of the ordinary shares was 1602.0p.

Directors will become entitled to the Awarded shares if they remain employed by the Inchcape Group for three years and retain
the shares purchased with their bonus throughout that period. The awards made will normally vest within three years of award.
Special rules apply on termination of employment and on a change of control. For awards made after the 2004 AGM to vest,
growth in the Company’s earnings per share over a three year period must exceed the increase on the UK Retail Price Index over
the same period by 3.0% per annum, with no opportunity to retest.

By order of the Board

Michael Wemms Chairman of the Remuneration Committee
28 February 2005

Inchcape plc Annual report 2004

Directors’ responsibilities

Company law requires the Directors to prepare financial statements
for each financial year, which give a true and fair view of the state of
affairs of the Company and the Group and the profit or loss of the
Group for that period. In preparing those financial statements, the
Directors are required to:

• select suitable accounting policies and then apply

them consistently;

• make judgements and estimates that are reasonable

and prudent;

• state whether applicable accounting standards have been

followed, subject to any material departures disclosed, and
explained in the financial statements; and

• prepare the financial statements on the going concern basis,

unless it is inappropriate to presume that the Company and the
Group will continue in business.

The Directors are responsible for keeping accounting records, which
disclose with reasonable accuracy at any time the financial position
of the Company and the Group and enable them to ensure that the
financial statements comply with the Companies Act 1985. They are
responsible for safeguarding the assets of the Company and the
Group, and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities. The Directors are
responsible for the maintenance and integrity of the Company’s
website. The work carried out by the auditors does not involve
consideration of these matters, and accordingly the auditors accept
no responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the
website. Information published on the internet is accessible in many
countries with different legal requirements. Legislation in the UK
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.

Inchcape plc Annual report 2004

Report of the Auditors

Independent Auditors’ report to the members of Inchcape plc
We have audited the financial statements which comprise the
consolidated profit and loss account, the consolidated and
company balance sheets, the consolidated cash flow statement,
the statement of total recognised gains and losses, the note of
historical cost profits and losses, and the related notes and the
accounting policies. We have also audited the disclosures required
by Part III of Schedule 7A to the Companies Act 1985 contained in
the Board report on remuneration (the auditable part).

Respective responsibilities of Directors and Auditors
The Directors’ responsibilities for preparing the annual report and
the financial statements in accordance with applicable United
Kingdom law and accounting standards are set out in the
statement of Directors’ responsibilities. The Directors are also
responsible for preparing the Board report on remuneration.

Our responsibility is to audit the financial statements and the
auditable part of the Board report on remuneration in accordance
with relevant legal and regulatory requirements and United
Kingdom Auditing Standards issued by the Auditing Practices
Board. This report, including the opinion, has been prepared for and
only for the Company’s members as a body in accordance with
Section 235 of the Companies Act 1985 and for no other purpose.
We do not, in giving this opinion, accept or assume responsibility
for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.

We report to you our opinion as to whether the financial

statements give a true and fair view and whether the financial
statements and the auditable part of the Board report on
remuneration have been properly prepared in accordance with the
Companies Act 1985. We also report to you if, in our opinion, the
Directors’ report is not consistent with the financial statements, if
the Company has not kept proper accounting records, if we have
not received all the information and explanations we require for
our audit, or if information specified by law regarding Directors’
remuneration and transactions is not disclosed.

We read the other information contained in the Annual report
and consider the implications for our report if we become aware
of any apparent misstatements or material inconsistencies with
the financial statements. The other information comprises only
the Contents, the Introduction, the Chairman’s statement, the
Chief Executive’s review, the Operational review, the Financial
review, the Corporate social responsibility report, Inchcape in
the community, Environment, health and safety, Working for
Inchcape, the Corporate governance report, Board of Directors,
the Directors’ report, the unaudited part of the Board report on
remuneration, Directors’ responsibilities, the Five year record
and Company details.

We review whether the corporate governance statement reflects
the Company’s compliance with the nine provisions of the 2003
FRC Combined Code specified for our review by the Listing Rules
of the Financial Services Authority, and we report if it does not.
We are not required to consider whether the Board’s statements
on internal control cover all risks and controls, or form an opinion
on the effectiveness of the Company’s corporate governance
procedures or its risk and control procedures.

Basis of audit opinion
We conducted our audit in accordance with auditing standards
issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts
and disclosures in the financial statements and the auditable part
of the Board report on remuneration. It also includes an
assessment of the significant estimates and judgements made by
the Directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the Company’s
circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable
assurance that the financial statements and the auditable part
of the Board report on remuneration are free from material
misstatement, whether caused by fraud or other irregularity or
error. In forming our opinion we also evaluated the overall adequacy
of the presentation of information in the financial statements.

Opinion
In our opinion:

• the financial statements give a true and fair view of the state
of affairs of the Company and the Group at 31 December 2004 and
of the profit and cash flows of the Group for the year then ended;

• the financial statements have been properly prepared in

accordance with the Companies Act 1985; and

• those parts of the Board report on remuneration required by

Part III of Schedule 7A to the Companies Act 1985 have been
properly prepared in accordance with the Companies Act 1985.

PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
28 February 2005

Inchcape plc Annual report 2004

42 Consolidated profit and loss account

For the year ended 31 December 2004

Notes

Turnover including share of joint ventures
and associates

Less:

– share of joint ventures

– share of associates

Group turnover

Cost of sales

Gross profit

3, 4a

Net operating expenses

Operating profit

Share of profits of joint ventures

Share of profits of associates

Total operating profit

Net profit on sale of properties and investments

Net loss on sale and termination of operations

Profit on ordinary activities before interest
and taxation

Net interest

4b, 10 Profit on ordinary activities before taxation

Tax on profit on ordinary activities

Profit on ordinary activities after taxation

Minority interests

Profit for the financial year

Dividends

Retained profit for the financial year

Profit before tax (£m)

Basic earnings per share (pence)

Diluted earnings per share (pence)

Headline (before goodwill amortisation £5.5m
(2003 – £5.5m) and exceptional items):

25a

Before
exceptional
items
2004
£m

Exceptional
items
2004
£m

Before
exceptional
items
2003
£m

Exceptional
items
2003
£m

Total
2004
£m

4,170.3

(16.9)

(30.7)

4,122.7

(3,542.8)

579.9

(417.0)

162.9

7.1

0.7

170.7

–

170.7

(4.2)

166.5

(42.3)

124.2

(3.2)

121.0

(39.5)

81.5

–

(7.6)

–

(7.6)

1.2

(9.0)

(15.4)

4.2

(11.2)

(0.5)

(11.7)

–

(11.7)

–

(11.7)

Total
2003
£m

3,855.2

(20.0)

(42.0)

3,793.2

(3,223.3)

569.9

(430.2)

139.7

10.0

0.9

150.6

0.9

(0.4)

151.1

17.2

168.3

(39.3)

129.0

(2.0)

127.0

(29.6)

97.4

168.3

164.8p

162.1p

–

15.3

–

15.3

0.9

(0.4)

15.8

22.2

38.0

(7.5)

30.5

–

30.5

–

30.5

4,170.3

3,855.2

(16.9)

(30.7)

(20.0)

(42.0)

4,122.7

3,793.2

(3,542.8)

(3,223.3)

579.9

(424.6)

155.3

7.1

0.7

569.9

(445.5)

124.4

10.0

0.9

163.1

135.3

1.2

(9.0)

155.3

–

155.3

(42.8)

112.5

(3.2)

109.3

(39.5)

69.8

155.3

139.4p

137.6p

–

135.3

(5.0)

130.3

(31.8)

98.5

(2.0)

96.5

(29.6)

66.9

135.8

132.4p

– profit before tax (£m)

– earnings per share (pence)

172.0

161.4p

Inchcape plc Annual report 2004

Statement of total recognised gains and losses

For the year ended 31 December 2004

Notes

25a

Profit for the financial year

Effect of foreign exchange rate changes:

– results for the year

– foreign currency net investments: subsidiaries

Total recognised gains for the financial year

joint ventures and associates

Note of historical cost profits and losses

For the year ended 31 December 2004

Reported profit on ordinary activities before taxation

Difference between the historical cost and the actual depreciation charge

Historical cost profit on ordinary activities before taxation

Historical cost profit after taxation, minority interests and dividends

2004
£m

109.3

(0.7)

(12.3)

(2.3)

94.0

2004
£m

155.3

0.1

155.4

69.9

2003
£m

127.0

(2.9)

(4.6)

(2.9)

116.6

2003
£m

168.3

0.6

168.9

98.0

Inchcape plc Annual report 2004

44 Consolidated and company balance sheets

As at 31 December 2004

Notes

Fixed assets:

Intangible assets

Tangible assets

Investments:

– subsidiaries

– joint ventures: share of gross assets

share of gross liabilities

share of net assets

– associates

– other investments

Current assets:

Stocks

Debtors:

26b

18a

18b

– amounts due within one year

– amounts due after more than one year

Investments

Cash at bank and in hand

Creditors – amounts falling due within one year:

Borrowings

Other

Net current assets

Total assets less current liabilities

Creditors – amounts falling due after more than one year:

19a

19b

Borrowings

Other

Provisions for liabilities and charges

Net assets

Capital and reserves:

24a, 25 Called-up share capital

Share premium account

Revaluation reserve

Capital redemption reserve

Profit and loss account

Equity shareholders’ funds

Minority interests

2004

£m

67.6

281.7

–

294.0

(256.2)

37.8

3.2

1.5

Group

2003
restated
£m

60.9

272.9

2004

£m

–

Company

2003
restated
£m

–

1,183.2

1,186.2

257.1

(216.7)

40.4

26.2

0.8

–

391.8

401.2

1,183.2

1,186.2

643.6

597.8

–

197.3

18.2

13.1

171.2

1,043.4

(15.6)

(739.3)

(754.9)

288.5

680.3

(1.8)

(45.0)

(46.8)

(82.3)

235.0

11.3

13.8

102.9

960.8

(23.2)

(709.1)

(732.3)

228.5

629.7

(0.6)

(56.5)

(57.1)

(87.0)

551.2

485.6

119.5

110.8

28.0

16.4

268.8

543.5

7.7

551.2

118.4

109.1

29.1

16.4

206.0

479.0

6.6

4.3

155.5

–

16.4

176.2

(2.2)

(33.1)

(35.3)

2.0

202.6

–

21.7

226.3

(0.4)

(25.7)

(26.1)

140.9

200.2

1,324.1

1,386.4

–

(639.2)

(16.5)

668.4

119.5

110.8

–

16.4

421.7

668.4

–

(755.5)

(25.1)

605.8

118.4

109.1

–

16.4

361.9

605.8

–

485.6

668.4

605.8

The financial statements on pages 42 to 79 were approved by the Board of Directors on 28 February 2005 and were signed on
its behalf by:

Directors
Peter Johnson
Alan Ferguson

Inchcape plc Annual report 2004

Consolidated cash flow statement

For the year ended 31 December 2004

Reconciliation of operating profit to operating cash flows

Notes

Operating profit

4b(i), 12 Amortisation

3, 12

Impairment of goodwill

4b(i), 13 Depreciation

4b(i)

(Profit) loss on sale of tangible fixed assets other than property

Increase in stocks

Decrease (increase) in trade debtors

(Decrease) increase in trade creditors

Payments in respect of termination of operations

Other items*

Net cash inflow from operating activities

Consolidated cash flow statement

Net cash inflow from operating activities

Dividends from joint ventures

Dividends from associates

27a

Returns on investments and servicing of finance*

Taxation

27b

Capital expenditure and financial investment

27c

Net cash outflow from acquisitions and disposals

Equity dividends paid

Net cash inflow before management of liquid resources and financing

Net cash (outflow) inflow from the management of liquid resources

Net cash outflow from financing

Increase in net cash

Reconciliation of net cash flow to movement in net funds

Increase in net cash

Net cash outflow from decrease in debt and lease financing

Net cash outflow (inflow) from the management of liquid resources

Change in net cash resulting from cash flows

Effect of foreign exchange rate changes on cash and debt

Net loans and finance leases relating to acquisitions

27e

26a

27d

Movement in net funds

Opening net funds

26a

Closing net funds

2004

£m

155.3

5.5

9.4

27.3

(0.6)

(28.9)

10.1

(12.7)

(1.5)

13.3

177.2

2003
restated
£m

139.7

5.2

–

26.6

1.7

(75.2)

(4.0)

78.9

(3.1)

(18.1)

151.7

177.2

151.7

4.6

0.3

15.5

(36.9)

(34.8)

125.9

(1.4)

(32.2)

92.3

(44.1)

(15.4)

32.8

18.3

44.1

95.2

(13.1)

(7.4)

74.7

79.1

153.8

4.3

1.9

(1.6)

(28.5)

(33.6)

94.2

(0.5)

(25.4)

68.3

6.7

(64.7)

10.3

67.2

(6.7)

70.8

(8.3)

–

62.5

16.6

79.1

*Net cash inflows include £37.0m for the VAT receipt (note 3), of which £15.5m is reported within Other items and £21.5m
(2003 – £1.4m) within Returns on investments and servicing of finance. In addition, £(1.8)m (2003 – £(14.3)m) of non-cash is
reported within Other items in respect of the VAT recovery.

Inchcape plc Annual report 2004

Accounting policies

a Accounting convention

The financial statements have been prepared on the historical cost basis, modified to include the revaluation of certain tangible
fixed assets, in accordance with the Companies Act 1985 and applicable UK accounting standards which have been applied on a
consistent basis for all Group operations. UITF Abstract 38 Accounting for ESOP Trusts has been adopted in full with effect from
1 January 2004 and prior year comparatives have been restated accordingly.

b Basis of consolidation

The results of businesses acquired or sold are included in the profit and loss account from, or up to, the date control passes.
All undertakings over which the Group exercises control or has a dominant influence are consolidated as subsidiary
undertakings (subsidiaries).

Associates are accounted for by the equity method and joint ventures by the gross equity method.

As permitted by Section 230 of the Companies Act 1985, no separate profit and loss account is presented for the Company.

c Turnover and cost of sales

Turnover is the total amount receivable for goods sold and services provided and is recognised when legal title to the vehicle passes
to the customer. In practice this means that revenue is recognised when the vehicles are invoiced and physically dispatched or when
the service has been undertaken.

Financial services interest and leasing income are included within turnover. Correspondingly, interest expense in respect of financial
services is treated as cost of sales.

Turnover is net of any discounts provided for goods and services sold and excludes sales related taxes and intra Group transactions.

Cost of sales includes the expense relating to the estimated cost of self-insured warranties offered to customers. These warranties
form part of the package of goods and services provided to the customer when purchasing a vehicle and are not a separable product.

Trade finance provided by manufacturers, suppliers or related finance houses is treated as a creditor and the cost of such credit is
included in cost of sales.

d Foreign currencies

The results and cash flows of overseas operations are translated into sterling at the average for the year of the month end rates of
exchange, except when results are adjusted for any impact of hyperinflation by using an alternative functional currency. Assets and
liabilities in foreign currencies are translated into sterling at closing rates of exchange except where rates are fixed by contract.

The difference between the profit and loss account translated at average and at closing rates of exchange is included as a reserve
movement in the statement of total recognised gains and losses. Exchange differences arising from the retranslation to closing rates
of exchange of intra Group dividends, opening net assets, long term foreign currency borrowings used to finance foreign currency
investments, and foreign currency borrowings and instruments that provide a hedge against net assets are also reflected as a
reserve movement. All other exchange differences are dealt with in the profit and loss account.

e Financial instruments

Financial instruments are used to manage the Group’s exposure to fluctuations in foreign currency exchange rates. Instruments
accounted for as hedges are designated as a hedge at the inception of contracts. Gains and losses on foreign currency hedges
are recognised on maturity of the underlying transaction. Currency swap agreements are retranslated at the rates ruling in the
agreements, with resulting gains and losses being offset against foreign exchange gains and losses on the related borrowing.
Gains and losses arising on hedging instruments which are cancelled due to the termination of underlying exposure are taken to
the profit and loss account immediately.

f Goodwill

Goodwill is calculated as the surplus of cost over fair value attributed to the separately identifiable net assets (excluding goodwill) of
subsidiary, joint venture or associated undertakings acquired.

Goodwill arising on acquisitions made after the adoption of FRS 10 Goodwill and Intangible Assets in 1998 is capitalised and is
amortised on a straight line basis over its separately evaluated useful life of up to twenty years. The carrying value of goodwill is
reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

Historical goodwill arising on acquisitions made before 1998 has been charged to the profit and loss account reserve. On disposal,
or in the event of identification of total and permanent impairment, a charge is taken to the profit and loss account.

Inchcape plc Annual report 2004

g Tangible fixed assets

Tangible fixed assets are stated at cost or valuation less depreciation, which is provided, except for freehold land, on a straight line
basis over their estimated useful lives, mainly at the following annual rates:

Freehold buildings and long leasehold land and buildings
Short leasehold land and buildings
Plant, machinery and equipment
Major computer software applications

2.0%
term of lease
5.0% – 33.3%
20.0% – 33.3%

The carrying values of tangible fixed assets are reviewed for impairment when events or changes in circumstances indicate the
carrying value may not be recoverable.

Land and buildings were last revalued in 1996 on an open market existing use basis by local firms of professionally qualified surveyors
in accordance with the Group’s prior policy of triennial valuation. Following the implementation of FRS 15 Tangible Fixed Assets the
Group has adopted a policy of not revaluing fixed assets. The carrying amounts of tangible fixed assets previously revalued have been
retained at their book amounts in accordance with the transitional arrangements, and are subject to impairment tests when
necessary. Diminution in value of individual properties below cost is charged to the profit and loss account.

h Investments

Both fixed and current asset investments are stated at cost, less provisions for impairment.

i Vacant leasehold property

Vacant leasehold property is provided to the extent of the value of the estimated future net cost.

j Stocks and work in progress

Stocks and work in progress are valued at the lower of cost and net realisable value. Cost comprises expenditure incurred in bringing
stocks and work in progress to their present location and condition.

k Leases

As lessee – assets held within finance leases are treated as if they had been purchased at the present value of the minimum lease
payments. This cost is included within tangible fixed assets and depreciation is provided over the shorter of the lease term and the
estimated useful life. The corresponding obligations under these leases are included within borrowings. The finance charge element
of rentals payable is charged to the profit and loss account to produce a constant rate of interest. Rental payments arising from
operating leases are charged on a straight line basis.

As lessor – the net investment in finance leases and hire purchase contracts is included under debtors and represents the total
amount outstanding under lease agreements and hire purchase contracts less unearned income. Finance lease and hire purchase
income is allocated to accounting periods to give a constant periodic rate of return on the net cash investment. Rentals receivable
from operating leases are credited to the profit and loss account on a straight line basis.

l Deferred taxation

Deferred taxation is provided in full (without discounting) based on current tax rates and law, on timing differences that result in an
obligation at the balance sheet date to pay more tax, or a right to pay less tax in future except as otherwise required by FRS 19
Deferred Tax. Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no binding
commitment to sell the asset.

m Post-retirement benefits

Liabilities under defined contribution pension schemes are charged when they become payable. The Group has a number of defined
benefit pension schemes for which contributions are based on triennial actuarial valuations. Pension charges in the profit and loss
account are calculated at a substantially level percentage of current and expected future pensionable payroll, with variations from
regular cost spread over the expected remaining service lives of employees. Other post-retirement benefits are accounted for on a
similar basis to defined benefit pension schemes.

Inchcape plc Annual report 2004

48 Notes to the accounts

Segmental analysis

(i)

Turnover

2004
£m

2003
£m

2004
£m

2003
£m

2004
£m

2003
£m

2004
£m

Group subsidiaries

Share of joint ventures

Share of associates

Total

2003
£m

By geographical market:

1,331.6

1,244.8

Greece/Belgium

Australia/New Zealand

Hong Kong

Singapore/Brunei

Other

879.3

597.6

237.2

689.0

388.0

820.5

529.3

224.3

614.3

360.0

5.2

1.9

–

9.8

–

7.7

2.9

–

9.4

–

28.6

2.1

–

40.0

1,365.4

1,292.5

2.0

–

883.3

597.6

247.0

689.0

388.0

825.4

529.3

233.7

614.3

360.0

4,122.7

3,793.2

16.9

20.0

30.7

42.0

4,170.3

3,855.2

(ii)

By activity:

Import, Distribution and
Retail

UK Retail

Financial Services

E-commerce

2,964.3

2,753.5

1,104.9

989.5

53.4

0.1

50.0

0.2

4,122.7

3,793.2

0.8

–

16.1

–

16.9

1.1

–

18.9

–

20.0

26.1

38.0

2,991.2

2,792.6

–

4.6

–

4.0

–

1,104.9

989.5

74.1

0.1

72.9

0.2

30.7

42.0

4,170.3

3,855.2

Geographical analysis of turnover is by origin and is not significantly different from turnover by destination. Turnover between
segments is not material.

Inchcape plc Annual report 2004

Total operating profit

2004
£m

2003
£m

2004
£m

2003
£m

2004
£m

2003
£m

2004
£m

Group subsidiaries

Share of joint ventures

Share of associates

Segmental analysis continued

(i)

By geographical market:

UK before exceptional item

21.2

Goodwill impairment (note 3)

(9.4)

Greece/Belgium

Australia/New Zealand

Hong Kong

Singapore/Brunei

Other

Central costs

11.8

32.7

27.1

25.4

55.4

18.7

171.1

(17.6)

VAT recovery, Central (note 3)

1.8

15.5

–

15.5

27.6

21.2

18.0

46.9

12.8

142.0

(17.6)

15.3

155.3

139.7

(ii)

By activity:

Import, Distribution and
Retail before exceptional item 155.6

Goodwill impairment (note 3)

(9.4)

Import, Distribution
and Retail

UK Retail

Financial Services

E-commerce

Central costs

146.2

16.9

7.8

0.2

171.1

(17.6)

VAT recovery, Central (note 3)

1.8

125.0

–

125.0

12.8

4.9

(0.7)

142.0

(17.6)

15.3

155.3

139.7

Total

2003
£m

17.1

–

17.1

32.3

21.2

22.6

46.9

12.8

1.8

–

1.8

0.9

–

4.4

–

7.1

–

7.1

0.1

–

0.1

–

7.0

–

7.1

–

7.1

1.2

–

1.2

4.2

–

4.6

–

10.0

–

10.0

(0.7)

–

(0.7)

–

10.7

–

10.0

–

10.0

0.1

–

0.1

0.6

–

0.7

–

0.7

0.4

–

0.4

0.5

–

23.1

(9.4)

13.7

34.2

27.1

29.8

55.4

18.7

0.9

178.9

152.9

–

(17.6)

1.8

(17.6)

15.3

0.9

163.1

150.6

(0.8)

–

(0.9)

–

154.9

(9.4)

123.4

–

(0.8)

(0.9)

145.5

123.4

–

1.5

–

0.7

–

0.7

–

1.8

–

0.9

–

16.9

16.3

0.2

12.8

17.4

(0.7)

178.9

152.9

(17.6)

1.8

(17.6)

15.3

0.9

163.1

150.6

(iii)

Operating profit before
exceptional items and
goodwill amortisation:

Operating profit

VAT recovery (note 3)

Goodwill impairment
(note 3)

Goodwill amortisation
(note 4)

155.3

(1.8)

9.4

5.5

168.4

139.7

(15.3)

–

5.2

129.6

7.1

10.0

0.7

0.9

163.1

–

7.1

–

0.3

10.3

–

(1.8)

9.4

5.5

0.7

0.9

176.2

150.6

(15.3)

–

5.5

140.8

Of the £5.5m (2003 – £5.2m) subsidiaries’ goodwill amortisation, £4.0m (2003 – £3.5m) relates to the UK, £0.1m (2003 – £0.4m)
to Greece/Belgium, £0.5m (2003 – £0.5m) to Australia/New Zealand, £0.7m (2003 – £0.8m) to Singapore/Brunei and £0.2m
(2003 – £nil) to Other.

The £nil (2003 – £0.3m) joint ventures’ goodwill amortisation is included within the UK segment.

Goodwill amortisation with the exception of £1.6m (2003 – £1.1m) in UK Retail, relates entirely to Import, Distribution and Retail.

Note 6 provides a split of the exceptional profit (loss) by geographical market.

Interest is not split by segment as this would not provide meaningful information.

Inchcape plc Annual report 2004

50 Notes to the accounts continued

Segmental analysis continued

Group subsidiaries

Share of joint ventures

Share of associates

(i)

Net assets (liabilities)

By geographical market:

2004

£m

2003
restated
£m

2004

£m

2003

£m

2004

£m

279.7

241.1

Greece/Belgium

Australia/New Zealand

Hong Kong

Singapore/Brunei

Other

Net cash

Other unallocated assets and
liabilities*

(ii)

By activity:

Import, Distribution and
Retail

UK Retail

Financial Services

E-commerce

Net cash

Other unallocated assets
and liabilities *

4.5

(8.7)

27.2

68.8

77.1

448.6

153.8

(92.2)

510.2

238.3

196.3

14.1

(0.1)

448.6

153.8

(92.2)

510.2

4.8

(0.7)

27.6

58.3

69.8

400.9

79.1

(61.0)

419.0

240.8

149.7

10.3

0.1

400.9

79.1

(61.0)

419.0

2004

£m

Total

2003
restated
£m

282.7

269.2

2003

£m

23.9

2.3

–

2.2

2.4

–

4.2

2.7

–

33.2

33.5

–

0.8

2.4

–

37.8

40.4

3.2

26.2

–

37.8

40.4

3.2

26.2

0.3

–

37.5

–

37.8

–

0.3

–

40.1

–

40.4

–

3.2

–

3.2

–

18.4

–

7.8

–

26.2

–

37.8

40.4

3.2

26.2

9.3

(8.7)

60.4

68.8

77.1

489.6

153.8

(92.2)

551.2

238.6

196.3

54.8

(0.1)

489.6

153.8

(92.2)

551.2

9.8

(0.7)

61.1

58.3

69.8

467.5

79.1

(61.0)

485.6

259.5

149.7

58.2

0.1

467.5

79.1

(61.0)

485.6

Total

2003

6,616

2,986

405

*Other unallocated assets and liabilities include central provisions, VAT recovery, taxation, dividends and assets not directly
related to operating activities.

Average number
of employees

Import, Distribution and
Retail

UK Retail

Financial Services

E-commerce

Total operational

Corporate

Prior year adjustment

Group subsidiaries

Joint ventures

Associates

2004

2003

2004

2003

2004

2003

2004

6,267

3,246

255

9,780

9,844

6,023

2,986

230

9,254

9,314

–

131

–

163

–

163

–

158

–

198

–

198

277

–

293

–

293

553

–

6,576

3,246

402

570

10,236

10,022

–

570

10,300

10,082

The adoption of UITF Abstract 38 Accounting for ESOP Trusts (and the consequent amendment to UITF Abstract 17 Employee
Share Schemes) has resulted in a reclassification of own shares of £5.5m at 1 January 2003 and £6.4m at 31 December 2003
from investments to equity shareholders’ funds. The associated share scheme creditor of £1.7m at 1 January 2003 and £2.3m
at 31 December 2003 has been reclassified from creditors to equity shareholders’ funds. This adjustment has no impact on
profit in the current or prior year. The cash outflow of £0.9m for the year ended 31 December 2003 for the net purchase of
own shares has been reclassified from other items to net cash outflow from financing.

Inchcape plc Annual report 2004

Exceptional items charged before operating profit

VAT recovery, Central

Goodwill impairment, UK

2004
£m

1.8

(9.4)

(7.6)

2003
£m

15.3

–

15.3

(i)

HM Customs and Excise has agreed a further element of the claims submitted in mid 2003 for the recovery of overpaid VAT for
the period 1973 to 1994. This resulted in a further recovery of £1.8m (2003 – £15.3m) and £4.2m (2003 – £22.2m) of associated
interest income. A charge for corporation tax of £0.5m (2003 – £7.5m) has been made in respect of this income.

The goodwill impairment relates to Inchcape Automotive Limited, reflecting the more difficult trading conditions experienced by
that business. In accordance with FRS 11 Impairment of Fixed Assets and Goodwill, the carrying value of Inchcape Automotive
Limited’s fixed assets have been compared to their estimated recoverable amount, represented by their value in use to the
Group. This has been derived using cash flow projections discounted at a pre-tax rate of 11.5%.

Operating profit

Analysis of net operating expenses

Distribution costs

Administrative expenses (includes goodwill amortisation £5.5m (2003 – £5.5m)
and impairment £9.4m (2003 – £nil))

Other operating income (includes VAT recovery £1.8m (2003 – £15.3m))

Utilisation of termination provisions

Net operating expenses

Profit on ordinary activities before taxation is stated after the following charges (credits):

2004
£m

226.6

205.3

(7.3)

–

2003
£m

241.6

207.9

(18.7)

(0.6)

424.6

430.2

Amortisation of goodwill – subsidiaries

Amortisation of goodwill – joint ventures and associates

Depreciation of tangible fixed assets

(Profit) loss on sale of tangible fixed assets other than property

Hire of plant, machinery and equipment

Other operating lease rentals payable

Auditors’ remuneration:

– UK statutory audit (Company: £0.1m; 2003 – £0.1m)

– Overseas statutory audit

– Non-audit fees: tax advice (UK: £0.3m; 2003 – £0.2m)

due diligence and other audit related work* (UK: £0.3m; 2003 – £nil)

Total PricewaterhouseCoopers LLP audit and non-audit fees

Audit fees and expenses – firms other than PricewaterhouseCoopers LLP

5.5

–

27.3

(0.6)

1.8

26.7

0.7

0.6

0.5

2.5

0.1

*Due diligence and other audit related work in 2004 solely comprises fees of £0.5m in respect of the Group’s International
Financial Reporting Standards conversion project.

(ii)

Staff costs

Wages and salaries

Social security costs

Other pension costs

Total employment costs of the Company and its subsidiaries

2004
£m

219.1

22.6

10.2

251.9

Information on Directors’ emoluments and interests, which forms part of these audited financial statements, is given in the
notes to the Board report on remuneration (the auditable part).

5.2

0.3

26.6

1.7

1.6

22.5

0.7

0.6

0.2

2.1

0.1

2003
£m

200.9

22.2

9.3

232.4

Inchcape plc Annual report 2004

52 Notes to the accounts continued

Pensions and other post-retirement benefits

The Group operates pension schemes for its employees in a number of subsidiaries. In the UK and Hong Kong, schemes
are mainly of the defined benefit type with assets held under trust in separately administered accounts. Some overseas
employees are covered by defined contribution schemes which are principally linked to local statutory arrangements and there
are also a number of other minor overseas defined benefit schemes. The Group also has some unfunded arrangements in the
UK, the costs of which are included in the pension cost figures below. The Group has no health and medical plans providing
post-retirement benefits for current employees but does have a liability in respect of past employees under schemes which
have been closed to new entrants.

Pensions – UK schemes

The UK consists of three main defined benefit schemes. All three schemes’ pension costs were determined in accordance with
the advice of independent professionally qualified actuaries based on the projected unit method.

These are considered below.

Open schemes

Inchcape Group (UK) Pension Scheme

The latest actuarial valuation for this scheme was carried out at 31 March 2003 on a market related basis.

The main assumptions are weighted average investment return of 6.1%, salary increase of 4.5% and pension increase of 2.5%.
The market related value of the assets covered 101.4% of the benefits that had accrued to members after allowing for expected
future salary increases. The market value of the assets at the date of the valuation was £120.9m, and the surplus was £1.9m.
The Trustees’ triennial valuation of the Inchcape Group (UK) Pension Scheme applies a more conservative discount rate than that
used by the Group for SSAP 24 purposes. The Group’s valuation is based on the best estimate of the long term return achievable
on each of the scheme’s investments, in accordance with advice from an independent actuary. This does not directly impact the
future cash contributions to the scheme.

Inchcape Motors Pension Scheme

The latest actuarial valuation for this scheme was carried out at 5 April 2003 on a market related basis.

The main assumptions are weighted average investment return of 6.8%, salary increase of 4.5% and pension increase of 2.5%.
The market value of the assets covered 90.7% of the benefits that had accrued to members after allowing for expected future
salary increases. The market value of the assets at the date of the valuation was £89.1m, and the deficit was £9.6m. The level of
contributions has been increased to address this deficit.

Closed scheme

TKM Group Pension Scheme

The latest actuarial valuation for this closed scheme was carried out at 5 April 2004 on a market related basis.

The main assumptions are weighted average investment return of 5.4% and pension increase of 3.2%. The market value of the
assets covered 102.3% of the benefits that had accrued to members. The market value of the assets at the date of the valuation
was £232.8m, and the surplus was £5.3m. The scheme has a prudent investment strategy and at 5 April 2004, the scheme had
only 0.9% invested in equities.

Inchcape plc Annual report 2004

Pensions and other post-retirement benefits continued

Pensions – Overseas schemes

The assets of all overseas schemes had a market value of £98.4m based on the latest actuarial valuations. This included
£80.8m of assets held in the Inchcape Group Overseas Scheme managed from Guernsey. In note 5b, in line with FRS 17, this
scheme is included in the UK segment. The actuarial assumptions used for overseas schemes were consistent with local
practice. The actuarial valuations of the total assets covered 94.3% of the benefits that had accrued to members. The net deficit
at the time of the valuations totalled £6.0m.

Pension cost

The pension cost charged for 2004 was £10.2m (2003 – £9.3m) of which £8.1m (2003 – £7.5m) relates to schemes of a
defined benefit nature and £2.1m (2003 – £1.8m) represents the amount attributable to defined contribution schemes.
Provisions of £4.4m (2003 – £4.5m) in relation to defined benefit pension schemes and £2.9m (2003 – £2.8m) in
relation to post-retirement health and medical benefits are included in provisions for liabilities and charges. Outstanding
contributions to defined contribution schemes are £0.1m (2003 – £0.2m).

Disclosures under FRS 17 for the year ended 31 December 2004

The Group continues to report pension costs in accordance with SSAP 24. However, the Group is following the extended
transitional arrangements under which additional disclosure on retirement benefits is required in the notes to the financial
statements under FRS 17 Retirement Benefits. These disclosures are set out below.

The principal retirement and defined benefit schemes operated by the Group are in the UK and Hong Kong. The most recent
actuarial valuations of these schemes have been updated by an independent qualified actuary to take account of the
requirements of FRS 17 in order to assess the liabilities of the schemes at 31 December 2004. Scheme assets are stated at
their market value at 31 December 2004. In addition the Group operates a number of other minor defined benefit pension
schemes overseas which due to their immaterial nature are excluded from the FRS 17 disclosures set out below.

With the pending abolition of the Minimum Funding Requirement and amendments to pension legislation in 2004 introducing
new powers to seek additional funding from the sponsoring group, the TKM pension scheme has been included in the UK
segment for the purposes of the FRS 17 disclosures as at 31 December 2004. This has resulted in an increase in the market
value of assets and present value of pension liabilities at 31 December 2004 of £239.2m and £214.9m respectively. Given the
closed nature of the scheme, the Group has treated the resultant £24.3m surplus as irrecoverable to the Group.

(i)

Weighted average assumptions used by the actuaries:

Rate of increase in salaries

Rate of increase in pensions

Discount rate

Inflation assumption

UK
2004
%

4.7

2.7

5.3

2.7

Hong Kong
2004
%

5.0

–

3.5

2.0

UK
2003
%

4.5

2.5

5.4

2.5

Hong Kong
2003
%

5.0

–

4.9

2.0

UK
2002
%

4.5

2.5

5.5

2.5

Hong Kong
2002
%

5.0

–

5.5

–

The rate of increase in healthcare cost is 4.7% per annum but with higher increases in the first ten years.

Inchcape plc Annual report 2004

54 Notes to the accounts continued

(ii)

Pensions and other post-retirement benefits continued

Disclosures under FRS 17 for the year ended 31 December 2004 continued

The values of assets in the schemes and the expected long term rate of return were:

Equities

Bonds

Other

Total

Present value of pension liabilities

Deficit in pensions

Irrecoverable surplus

Net pension liability

Hong Kong

Equities

Bonds

Other

Total

Present value of pension liabilities

Deficit in pensions

Related deferred tax asset

Net pension liability

Total

Equities

Bonds

Other

Total

Present value of pension liabilities

Deficit in pensions

Irrecoverable surplus

Related deferred tax asset

Net pension liability

2004
%

7.5

4.8

4.2

5.6

2004
%

7.5

4.0

2.5

6.5

2004
£m

173.2

396.0

23.6

592.8

(622.3)

(29.5)

(24.3)

(53.8)

2004
£m

10.8

2.7

1.1

14.6

(17.8)

(3.2)

–

(3.2)

2004
£m

184.0

398.7

24.7

607.4

(640.1)

(32.7)

(24.3)

–

(57.0)

2003
%

7.5

4.8

4.6

6.1

2003
%

7.5

4.0

2.5

6.6

2003
£m

162.2

155.9

16.1

334.2

(376.7)

(42.5)

–

(42.5)

2003
£m

10.2

3.0

0.3

13.5

(15.8)

(2.3)

–

(2.3)

2003
£m

172.4

158.9

16.4

347.7

(392.5)

(44.8)

–

(44.8)

2002
%

7.5

4.6

4.0

6.0

2002
%

7.5

–

2.5

6.2

2002
£m

143.9

140.4

15.6

299.9

(346.9)

(47.0)

–

(47.0)

2002
£m

9.2

–

3.2

12.4

(19.8)

(7.4)

1.2

(6.2)

2002
£m

153.1

140.4

18.8

312.3

(366.7)

(54.4)

–

1.2

(53.2)

Inchcape plc Annual report 2004

Total
2003
£m

8.1

0.6

8.7

Total
2003
£m

18.4

(19.9)

(1.5)

Total
2003
£m

25.0

3.9

(iii)

Pensions and other post-retirement benefits continued

Disclosures under FRS 17 for the year ended 31 December 2004 continued

Analysis of the amount that would have been charged to operating profit

Current year service cost

Past service cost

Total operating charge

UK
2004
£m

6.8

0.4

7.2

Hong Kong
2004
£m

1.2

–

1.2

(iv)

Analysis of amounts that would have been included in net interest

Expected return on pension assets

Interest expense on pension liabilities

Net interest income (expense) in respect of pensions

UK
2004
£m

20.4

(20.2)

0.2

Hong Kong
2004
£m

0.9

(0.8)

0.1

Total
2004
£m

8.0

0.4

8.4

Total
2004
£m

21.3

(21.0)

0.3

UK
2003
£m

6.5

0.6

7.1

Hong Kong
2003
£m

1.6

–

1.6

UK
2003
£m

17.7

(18.9)

(1.2)

Hong Kong
2003
£m

0.7

(1.0)

(0.3)

(v)

Analysis of amounts that would have been recognised in the statement of total recognised gains and losses

Actual return less expected return on pension assets

Experience (losses) gains arising on pension liabilities

Changes in assumptions underlying the present value
of pension liabilities

Actuarial (loss) gain recognised in the statement of
total recognised gains and losses

(vi)

Movement in deficit in the year

Deficit in pensions at 1 January

Effect of foreign exchange rate changes

Current year service cost

Contributions

Other finance income

Other expenses

Past service costs

Net interest income (expense) in respect of pensions

Actuarial (loss) gain recognised in the statement of
total recognised gains and losses

Deficit in pensions at 31 December

UK
2004
£m

6.8

(0.2)

Hong Kong
2004
£m

0.6

0.2

Total
2004
£m

7.4

–

UK
2003
£m

21.9

1.6

Hong Kong
2003
£m

3.1

2.3

(16.6)

(2.0)

(18.6)

(17.1)

–

(17.1)

(10.0)

(1.2)

(11.2)

6.4

5.4

11.8

UK
2004
£m

(42.5)

–

(6.8)

6.1

0.3

(0.7)

(0.4)

0.2

(10.0)

(53.8)

Hong Kong
2004
£m

(2.3)

0.2

(1.2)

1.2

–

0.1

(1.2)

(3.2)

Total
2004
£m

(44.8)

0.2

(8.0)

7.3

0.3

(0.7)

(0.4)

0.3

(11.2)

(57.0)

UK
2003
£m

(47.0)

–

(6.5)

7.0

0.1

(0.7)

(0.6)

(1.2)

6.4

(42.5)

Hong Kong
2003
£m

(7.4)

0.2

(1.6)

1.4

–

(0.3)

5.4

(2.3)

Total
2003
£m

(54.4)

0.2

(8.1)

8.4

0.1

(0.7)

(0.6)

(1.5)

11.8

(44.8)

Inchcape plc Annual report 2004

56 Notes to the accounts continued

Pensions and other post-retirement benefits continued

Disclosures under FRS 17 for the year ended 31 December 2004 continued

(vii)

Details of experience gains and losses

UK Hong Kong
2004
£m

2004
£m

Total
2004
£m

UK Hong Kong
2003
£m

2003
£m

Total
2003
£m

UK Hong Kong
2002
£m

2002
£m

Total
2002
£m

Actual return less expected return
on pension assets

6.8

0.6

7.4

21.9

3.1

25.0

(39.3)

Total market value of pension assets

353.6

14.6

368.2

334.2

13.5

347.7

299.9

(3.9)

12.4

(43.2)

312.3

Percentage of pension assets

1.9%

4.1%

2.0%

6.6%

23.0%

7.2%

(13.1)% (31.5)% (13.8)%

UK Hong Kong
2004
£m

2004
£m

Total
2004
£m

UK Hong Kong
2003
£m

2003
£m

Total
2003
£m

UK Hong Kong
2002
£m

2002
£m

Total
2002
£m

Experience (losses) gains arising
on pension liabilities

(0.2)

Present value of pension liabilities

407.4

0.2

17.8

–

1.6

2.3

3.9

(1.2)

1.1

(0.1)

425.2

376.7

15.8

392.5

346.9

19.8

366.7

Percentage of present value of
pension liabilities

–

1.1%

–

0.4%

14.6%

1.0%

(0.3)% 5.6%

–

UK Hong Kong
2004
£m

2004
£m

Total
2004
£m

UK Hong Kong
2003
£m

2003
£m

Total
2003
£m

UK Hong Kong
2002
£m

2002
£m

Total
2002
£m

Actuarial (loss) gain recognised
in the statement of total
recognised gains and losses

Present value of pension liabilities

Percentage of present value of
pension liabilities

(10.0)

407.4

(1.2)

17.8

(11.2)

6.4

5.4

11.8

(54.5)

(3.3)

(57.8)

425.2

376.7

15.8

392.5

346.9

19.8

366.7

(2.5)% (6.7)% (2.6)%

1.7%

34.2%

3.0%

(15.7)% (16.7)% (15.8)%

As the TKM pension scheme has only been included within the UK segment as at 31 December 2004, it is excluded from the
above table.

(viii)

If the above amounts had been recognised in the financial statements, the Group’s balance sheet at 31 December 2004
would have been as follows:

Net assets

SSAP 24 pension provision (excluding defined contribution provision)

Net assets excluding SSAP 24 pension provision

Pension liability

Net assets including pension liability

Reserves

Profit and loss account

SSAP 24 pension provision (excluding defined contribution provision)

Profit and loss account excluding SSAP 24 pension provision

Pension liability

Profit and loss account

2004

£m

551.2

7.3

558.5

(57.0)

501.5

2003
restated
£m

485.6

7.3

492.9

(44.8)

448.1

268.8

206.0

7.3

276.1

(57.0)

219.1

7.3

213.3

(44.8)

168.5

Inchcape plc Annual report 2004

Exceptional items charged after operating profit

Net profit on sale of properties and investments:

– subsidiaries

– associates, UK

Total net profit on sale of properties and investments

Net loss on sale and termination of operations:

– Ferrari, Belgium (includes capitalised goodwill written off £1.4m, note 12)

– Ferrari, UK (includes goodwill in reserves written off £5.0m, note 25a)

– MCL and AGL, UK (includes goodwill in reserves written off £1.0m, note 25a)

– UK Retail dealerships

– Provision releases arising from non-motors business exits, Central (note 21)

– Other

Total net loss on sale and termination of operations

Total exceptional items charged after operating profit

2003
£m

0.6

0.3

0.9

–

(4.6)

4.0

0.2

(0.4)

0.5

2004
£m

–

1.2

(2.1)

(8.2)

(6.8)

(0.9)

8.6

0.4

(9.0)

(7.8)

The exceptional charge on Ferrari Belgium and Ferrari UK relates to the exit from the Import and Distribution businesses.
This was as a result of the Ferrari strategy to assume control of their import and distribution throughout Europe.

MCL Group Limited (MCL) and Automotive Group Limited (AGL), two non-core businesses, were sold to Itochu Corporation,
the 60.0% majority shareholder.

The provision releases arise from litigation provisions relating to non-motors disposals no longer required.

Net interest

Interest payable and other charges relating to the Company and its subsidiaries:

Bank loans and overdrafts falling due within five years

Loan notes falling due within five years

Other interest

Interest receivable relating to the Company and its subsidiaries:

Bank and other interest

VAT recovery (note 3)

Net interest relating to the Company and its subsidiaries

Share of associates’ net interest

2004
£m

0.3

0.1

8.4

8.8

(4.5)

(4.2)

(8.7)

0.1

(0.1)

–

2003
£m

5.9

2.1

4.8

12.8

(7.6)

(22.2)

(29.8)

(17.0)

(0.2)

(17.2)

Inchcape plc Annual report 2004

58 Notes to the accounts continued

Taxation

Analysis of tax charge for the year

Current tax:

– UK corporation tax at 30.0% (2003 – 30.0%)

– double tax relief

Overseas tax

Adjustments to prior year liabilities:

– UK

– overseas

The Company and its subsidiaries’ current tax

Share of joint ventures’ current tax

Share of associates’ current tax

Total current tax charge

The Company and its subsidiaries’ deferred tax

Share of joint ventures’ deferred tax

Total deferred tax

Tax on profit on ordinary activities

Headline
2004
£m

Exceptional
items
2004
£m

7.1

(7.7)

(0.6)

46.3

45.7

0.3

(2.3)

43.7

1.8

(0.4)

45.1

(2.6)

(0.2)

(2.8)

42.3

4.9

–

4.9

–

4.9

–

4.9

–

4.9

(4.4)

–

(4.4)

0.5

Total
2004
£m

12.0

(7.7)

4.3

46.3

50.6

0.3

(2.3)

48.6

1.8

(0.4)

50.0

(7.0)

(0.2)

(7.2)

42.8

Headline
2003
£m

Exceptional
items
2003
£m

9.5

(10.0)

(0.5)

37.5

37.0

(3.3)

(0.7)

33.0

2.8

(0.2)

35.6

(3.3)

(0.5)

(3.8)

31.8

2.6

–

2.6

–

2.6

–

2.6

–

2.6

4.9

–

4.9

7.5

Total
2003
£m

12.1

(10.0)

2.1

37.5

39.6

(3.3)

(0.7)

35.6

2.8

(0.2)

38.2

1.6

(0.5)

1.1

39.3

Tax on Headline profit (note 10) amounts to £42.3m (2003 – £31.8m). Tax of £0.5m (2003 – £7.5m) has been provided on the VAT
recovery and associated interest. There is no tax on other exceptional items (2003 – £nil). Of the £7.5m tax relating to last year’s
VAT recovery, £4.9m has been transferred from deferred tax to current tax this year.

Of the Headline deferred tax credit, £2.4m (2003 – £3.5m) has arisen from the origination and reversal of timing differences.
A credit of £0.4m (2003 – £0.3m) has arisen due to adjustments to the estimated recoverable amount of deferred tax arising
in prior years. All of the deferred tax charge on the VAT recovery has arisen from the origination of timing differences.

Factors affecting the tax charge for the year

The effective tax rate for the year of 32.2% (2003 – 22.7%) is higher than the standard rate of tax. The standard rate comprises
the average rates of tax payable across the Group, weighted in proportion to accounting profits.

Profit on ordinary activities before taxation

Profit on ordinary activities multiplied by standard rate of tax 23.6% (2003 – 26.2%)

Effects of:

– untaxed FRS 3 provision releases

– non-deductible goodwill

– untaxed profits

– losses brought forward utilised in year

– unrelieved losses

– permanent disallowable items

– prior year items

– short term timing differences

– accelerated capital allowances

– other items

Total current tax charge

Inchcape plc Annual report 2004

2004
£m

155.3

36.7

(2.5)

6.8

(0.3)

(1.8)

2.4

5.3

(2.7)

8.5

(2.4)

–

50.0

2003
£m

168.3

44.1

(1.2)

1.4

(0.5)

(4.4)

2.3

5.5

(4.0)

(3.9)

(1.0)

(0.1)

38.2

Taxation continued

Factors that may affect future tax charges

The Group has unrecognised deferred tax assets of c. £25.0m (2003 – c. £21.0m) that may improve the tax rate in future years.
The majority of these relate to losses, mainly arising in the UK, with the balance relating to accelerated capital allowances
and other short term timing differences. These assets are not recognised because they arise in statutory entities that are
currently not forecast to make taxable profits. There are further potential deferred tax assets, relating to losses, of c. £14.0m
(2003 – c. £17.0m) that are not recognised and are not considered to have any impact on the future tax charge because the
possibility of accessing them is considered so remote. These assets will only become recognisable if the relevant companies
which hold them generate sufficient taxable profits.

There are also losses in Belgium for which an asset of £1.7m (2003 – £1.6m) has been recognised, based on current forecast
profits. A further asset of £0.4m (2003 – £1.1m) will only become recognisable if the relevant company which holds them
generates sufficient taxable profits.

No deferred tax has been recognised for gains arising on revaluing properties to market value. The total unrecognised amount is
£1.4m (2003 – £1.4m). Such tax would become payable only if the properties were sold without it being possible to claim rollover
relief. At present, it is not envisaged that any such tax will become payable in the foreseeable future.

Minority interests

Paid or payable as dividends

Net retained profit for the year

Earnings per ordinary share

Headline profit before tax

Goodwill amortisation (note 4)

Goodwill impairment (note 3)

VAT recovery (note 3)

Other exceptional items (note 6)

Profit before tax

Taxation (note 8)

Minority interests (note 9)

Earnings

Headline earnings per share

Basic earnings per share

Diluted earnings per share

2004
£m

2.1

1.1

3.2

2004
£m

2003
£m

1.1

0.9

2.0

Basic

2003
£m

Headline

2003
£m

135.8

172.0

135.8

–

135.8

(31.8)

(2.0)

102.0

132.4p

(5.5)

(9.4)

6.0

(7.8)

155.3

(42.8)

(3.2)

109.3

(5.5)

–

37.5

0.5

168.3

(39.3)

(2.0)

127.0

139.4p

137.6p

164.8p

162.1p

2004
number

2003
number

2004
£m

172.0

–

172.0

(42.3)

(3.2)

126.5

161.4p

Weighted average number of fully paid ordinary shares in issue during the year

79,241,664 78,101,215

Weighted average number of fully paid ordinary shares in issue during the year
held by the Inchcape Employee Trust

Dilutive effect of potential ordinary shares

(840,828) (1,051,904)

78,400,836 77,049,311

1,019,268

1,276,038

Adjusted weighted average number of fully paid ordinary shares in issue during the year

79,420,104 78,325,349

Inchcape plc Annual report 2004

60 Notes to the accounts continued

Earnings per ordinary share continued

Headline profit before tax and earnings are presented to assist the reader in understanding the underlying performance of
the Group.

Headline and basic earnings per share are calculated by dividing the respective Headline and basic earnings for the year
by the weighted average number of fully paid ordinary shares in issue during the year, less those shares held by the
Inchcape Employee Trust (note 25a).

Diluted earnings per share is calculated on the same basis as Headline and basic earnings per share with a further adjustment
to the weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares.
Dilutive potential ordinary shares comprise share options and deferred bonus awards.

Dividends

Interim – paid 13 September 2004 (2003 – paid 15 September 2003)

Final – proposed – payable 16 June 2005 (2003 – paid 17 June 2004)

2004
pence

15.0

35.0

50.0

2003
pence

12.0

26.0

38.0

2004
£m

11.9

27.6

39.5

2003
£m

9.3

20.3

29.6

If approved at the Annual General Meeting the final ordinary dividend will be paid to ordinary shareholders registered in the
books of the Company at the close of business on 20 May 2005.

Dividends above exclude £0.4m (2003 – £0.4m) payable on shares held by the Inchcape Employee Trust (note 25a).

Fixed assets – intangible assets

Cost at 1 January 2004

Effect of foreign exchange rate changes

Additions

Disposals

Cost at 31 December 2004

Amortisation at 1 January 2004

Effect of foreign exchange rate changes

Disposals

Provided in the year

Impairment charge for the year

Amortisation at 31 December 2004

Book value at 31 December 2004

Book value at 31 December 2003

Goodwill
£m

73.7

(0.7)

23.6

(3.4)

93.2

(12.8)

0.1

2.0

(5.5)

(9.4)

(25.6)

67.6

60.9

Goodwill relating to Australia Retail and some of the UK Retail dealerships is being amortised over periods ranging from two to
ten years. All other goodwill is being amortised over twenty years.

Goodwill disposals relate to the sale of the Ferrari Belgium Import and Distribution business and the additions arise mainly from
the acquisition of five Mercedes-Benz dealerships in the UK, as set out in note 28.

The impairment charge for the year relates to Inchcape Automotive Limited, as set out in note 3.

Inchcape plc Annual report 2004

Fixed assets – tangible assets

Cost or valuation at 1 January 2004

Effect of foreign exchange rate changes

Businesses acquired

Businesses sold

Additions

Disposals

Cost or valuation at 31 December 2004

Analysed:

– valuation 1996

– cost

Depreciation at 1 January 2004

Effect of foreign exchange rate changes

Businesses sold

Provided in the year

Disposals

Depreciation at 31 December 2004

Book value at 31 December 2004

Book value at 31 December 2003

Book value of land and buildings analysed between:

– freehold

– leasehold with over fifty years unexpired

– short leasehold

Historical cost value of land and buildings analysed between:

– cost

– less depreciation

Freehold and

Plant,
leasehold land machinery and
equipment
and buildings
£m
£m

Total
£m

235.2

164.4

399.6

(4.4)

5.9

(1.3)

15.3

(3.6)

247.1

92.9

154.2

247.1

(2.5)

1.3

(2.1)

38.1

(32.3)

166.9

–

166.9

(6.9)

7.2

(3.4)

53.4

(35.9)

414.0

92.9

321.1

414.0

(27.5)

(99.2)

(126.7)

0.8

0.1

(5.3)

2.3

1.7

1.5

(22.0)

15.3

2.5

1.6

(27.3)

17.6

(29.6)

(102.7)

(132.3)

217.5

207.7

64.2

65.2

281.7

272.9

2004
£m

2003
£m

152.4

23.5

41.6

217.5

233.4

(33.2)

200.2

141.8

24.1

41.8

207.7

218.2

(29.7)

188.5

The book value of tangible fixed assets includes £0.8m (2003 – £0.9m) in respect of assets held under finance leases.

Inchcape plc Annual report 2004

62 Notes to the accounts continued

Fixed assets – investments

Movement in book value

(i)

Group

Cost less provisions at 1 January 2004 as previously reported

Restatement (note 2)

Restated balance at 1 January 2004

Effect of foreign exchange rate changes

Disposals (including £1.0m goodwill previously written off to reserves)

Provision reversal

Balance at 31 December 2004

Share of post acquisition reserves:

Balance at 1 January 2004

Effect of foreign exchange rate changes

Disposals

Retained profit for the financial year

Balance at 31 December 2004

Adjustment to cost in respect of goodwill, previously
written off to reserves:

Balance at 1 January 2004

Effect of foreign exchange rate changes

Eliminated on disposal

Balance at 31 December 2004

Book value at 31 December 2004

Book value at 31 December 2003

Shares in
joint ventures
and associates

£m

24.7

–

24.7

(0.3)

(15.4)

–

9.0

45.9

(2.3)

(10.7)

1.8

34.7

(4.0)

0.3

1.0

(2.7)

41.0

66.6

Own shares
restated
£m

6.4

(6.4)

–

Other
investments

£m

0.8

–

0.8

–

0.7

1.5

–

1.5

0.8

Total
restated
£m

31.9

(6.4)

25.5

(0.3)

(15.4)

0.7

10.5

45.9

(2.3)

(10.7)

1.8

34.7

(4.0)

0.3

1.0

(2.7)

42.5

67.4

Inchcape plc Annual report 2004

Fixed assets – investments continued

Movement in book value continued

(ii)

Company

Balance at 1 January 2004 as previously reported

Restatement (note 2)

Restated balance at 1 January 2004

Additions

Provisions for impairment in the year

Balance at 31 December 2004

Own shares
restated
£m

Shares in
subsidiaries

£m

Total
restated
£m

6.4

(6.4)

–

1,186.2

1,192.6

–

(6.4)

1,186.2

23.0

(26.0)

23.0

(26.0)

1,183.2

The provisions for impairment in the year principally relate to the Company’s investment in Inchcape Automotive Limited, as set
out in note 3.

Listed fixed asset investments

Book value

Market value

Group share of net assets of joint ventures and associates

Fixed assets

Current assets

Group share of gross assets

Liabilities due within one year

Liabilities due after more than one year

Group share of gross liabilities

Group share of net assets

Joint ventures

Associates

2004
£m

5.2

288.8

294.0

(140.4)

(115.8)

(256.2)

37.8

2003
£m

4.6

252.5

257.1

(128.2)

(88.5)

(216.7)

40.4

2004
£m

–

50.9

(39.2)

(8.5)

(47.7)

3.2

2003
£m

15.9

59.7

75.6

(38.7)

(10.7)

(49.4)

26.2

Group transactions and amounts outstanding with joint ventures and associates

Other fixed asset investments

2004

£m

1.2

2004
£m

5.2

339.7

344.9

(179.6)

(124.3)

(303.9)

41.0

2003
restated
£m

0.5

1.9

Total

2003
£m

20.5

312.2

332.7

(166.9)

(99.2)

(266.1)

66.6

Vehicles purchased from joint ventures and associates

Vehicles sold to joint ventures and associates

Other income paid

Other income received

Transactions

Amounts outstanding

2004
£m

56.8

397.2

2.5

11.1

2003
£m

49.8

377.9

1.4

13.4

2004
£m

1.0

0.1

0.6

12.7

2003
£m

1.7

0.3

15.6

All the above transactions arise in the ordinary course of business and are therefore on an arm’s length basis.

Inchcape plc Annual report 2004

64 Notes to the accounts continued

Stocks

Raw materials and work in progress

Finished goods and merchandise

2004
£m

2.0

641.6

643.6

2003
£m

1.8

596.0

597.8

Certain subsidiaries have an obligation to repurchase, at a guaranteed residual value, vehicles which have been legally sold
for leasing contracts. In accordance with FRS 5 Reporting the Substance of Transactions, these assets are included in stock at
the guaranteed repurchase price less appropriate provisions where the anticipated realisable value is lower. The corresponding
cross guaranteed repurchase liability is included within trade creditors. Stocks include £66.4m (2003 – £74.9m) of such vehicles.

Vehicles held on consignment which are in substance assets of the Group amount to £49.2m (2003 – £35.0m). These have
been included in finished goods stock with the corresponding liability included within trade creditors. Payment becomes due
when title passes to the Group, which is generally the earlier of six months from delivery or date of sale. Associated stock
holding interest of £3.1m (2003 – £2.4m) is charged before arriving at gross profit.

Debtors

Total debtors

Amounts due within one year

Trade debtors subject to limited recourse financing

Less non-returnable amounts received

Other trade debtors

Amounts owed by: – Group undertakings

– joint ventures and associates

Other debtors

Advance corporation tax recoverable

Corporation tax recoverable

Prepayments and accrued income

Amounts due after more than one year

Trade debtors subject to limited recourse financing

Less non-returnable amounts received

Amounts owed by: – Group undertakings

– joint ventures and associates

Other debtors

Deferred tax asset

Prepayments and accrued income

Total debtors

Inchcape plc Annual report 2004

2004
£m

1.0

(0.9)

0.1

Group

2003
£m

0.8

(0.7)

0.1

107.0

119.3

–

6.9

48.3

0.2

0.3

34.5

197.3

9.3

(7.9)

1.4

–

5.9

1.2

9.3

0.4

–

9.5

78.8

0.2

0.3

26.8

235.0

6.8

(6.1)

0.7

–

6.4

1.7

2.4

0.1

Company

2003
£m

2004
£m

–

0.2

3.9

–

4.3

–

1.7

–

0.2

0.1

–

2.0

–

155.5

202.6

–

18.2

11.3

155.5

202.6

215.5

246.3

159.8

204.6

Debtors continued

Trade debtors subject to limited recourse financing represent hire purchase debtors discounted with banks that carry interest at
variable rates. The majority of cash received by the Group on discounting is not returnable. The returnable element of the
proceeds is recorded as bank loans and overdrafts due within and after one year as appropriate. It has been agreed with the
banks that the Group is not required to make good any losses over and above the agreed recourse limit.

Advance corporation tax (ACT) written off to date amounts to £9.7m (2003 – £9.7m) and is available for offset against future
UK corporation tax liabilities subject to the restrictions of the shadow ACT regulations.

Deferred taxation asset

Excess unutilised capital allowances

Other timing differences

Balance at 1 January 2004

Effect of foreign exchange rate changes

Credited to profit and loss account

Balance at 31 December 2004

2004
£m

1.1

8.2

9.3

2003
£m

1.6

0.8

2.4

2004
£m

2.4

(0.1)

7.0

9.3

No account has been taken of taxation which would be payable if profits of overseas operations were distributed, as there is
currently no legally binding intention to remit such profits.

Current asset investments

Book value

Market value

2004
£m

13.1

13.9

2003
£m

13.8

14.5

Inchcape plc Annual report 2004

66 Notes to the accounts continued

Creditors – amounts falling due within one year

Borrowings

Bank loans

Loan notes

Debt due within one year

Finance leases

Bank overdrafts

Borrowings – amounts falling due within one year

Other

Trade creditors:

– payments received on account

– other

Amounts owed to: – Group undertakings

– joint ventures and associates

Corporate taxation

Other taxation and social security payable

Other creditors

Accruals and deferred income

Deferred consideration

Dividends payable: – proposed final

– to minorities

Other creditors – amounts falling due within one year

Total creditors falling due within one year

2004
£m

0.8

2.2

3.0

0.2

12.4

15.6

2004

£m

34.1

493.5

–

1.6

44.9

14.6

7.7

Group

2003
£m

14.7

0.4

15.1

0.2

7.9

23.2

Group

2003
restated
£m

37.3

483.5

–

2.0

32.5

12.0

113.7

109.3

0.7

27.6

0.9

–

20.3

0.2

739.3

709.1

754.9

732.3

Company

2003
£m

–

0.4

–

0.4

Company

2003
restated
£m

–

3.4

2.0

–

20.3

–

25.7

26.1

2004
£m

–

2.2

–

2.2

2004

£m

–

0.2

–

1.9

3.3

–

0.1

–

27.6

–

33.1

35.3

Inchcape plc Annual report 2004

Creditors – amounts falling due after more than one year

a (i)

Borrowings

Bank loans

Finance leases

Borrowings – amounts falling due after more than one year

(ii)

Maturity of borrowings

Repayable over one year and up to two years:

– Bank loans

– Finance leases

Repayable over two years and up to five years:

– Bank loans

– Finance leases

Borrowings – amounts falling due after more than one year

Other

Trade creditors

Other taxation and social security payable

Other creditors

Accruals and deferred income

Amounts owed to Group undertakings

Other creditors – amounts falling due after more than one year

Total creditors falling due after more than one year

Facilities and borrowings

Facilities

Company

2003
£m

2004
£m

–

Company

2003
restated
£m

–

0.8

–

2004

£m

–

0.4

–

638.8

639.2

754.7

755.5

Group

2003
£m

0.5

0.1

0.6

0.1

0.2

0.4

–

0.4

0.6

Group

2003
restated
£m

55.3

0.8

–

0.4

–

56.5

57.1

639.2

755.5

2004
£m

1.4

0.4

1.8

0.9

0.2

1.1

0.5

0.2

0.7

1.8

2004

£m

44.0

0.4

0.1

0.5

–

45.0

46.8

The Group’s principal committed facility is a syndicated five year £250.0m revolving credit facility put in place in July 2002,
expiring July 2007. In addition, the relationship banks have made available uncommitted borrowing facilities, which are used for
liquidity management purposes.

Borrowings

At 31 December 2004, £2.2m (2003 – £0.4m) of loan notes, at various rates of interest linked to LIBOR, remained outstanding.

Net obligations under finance leases are at various local prevailing rates of interest.

As in 2003, the borrowings of the Group and the Company are unsecured.

Inchcape plc Annual report 2004

68 Notes to the accounts continued

Provisions for liabilities and charges

Group

Balance at 1 January 2004

Effect of foreign exchange rate changes

Charged to profit and loss account

Unused amounts reversed to
profit and loss account

Effect of unwinding of discount factor

Utilised during the year

Reclassification

Balance at 31 December 2004

Pensions
and other
post-retirement
benefits
£m

Product
warranty
£m

Motors
business
exits
£m

Non-motors
business
exits
£m

Vacant
leasehold
£m

7.5

–

10.2

(0.3)

–

(10.0)

–

7.4

40.6

(0.6)

18.5

(5.4)

–

(14.3)

–

38.8

3.0

–

5.8

(0.1)

–

(4.0)

–

4.7

25.6

–

(8.6)

–

(0.3)

–

16.7

5.3

–

1.0

(1.1)

0.2

(0.3)

–

5.1

Company

Balance at 1 January 2004

Unused amounts reversed to profit and loss account

Balance at 31 December 2004

Other
£m

5.0

0.2

1.7

(1.5)

–

(0.9)

5.1

9.6

Total
£m

87.0

(0.4)

37.2

(17.0)

0.2

(29.8)

5.1

82.3

Non-motors
business exits
£m

25.1

(8.6)

16.5

Product warranty
Certain Group companies provide self-insured extended warranties beyond those provided by the manufacturer, as part of the
sale of the vehicle. These are not separable products. The warranty periods covered are up to six years and/or specific mileage
limits. Provision is made for the expected cost of labour and parts based on historical claims experience and expected future
trends. These assumptions are reviewed regularly.

Motors business exits
During 2004, the Group became committed to business exits and terminations which resulted in the charge of £5.8m
(2003 – £3.0m) to the profit and loss account. These included the Ferrari exits, as set out in note 6. These business exits will
largely be completed over the next two years.

Non-motors business exits
Provision has been made for warranties, indemnities and other litigation issues in relation to these exits, based on expected
outcomes. These provisions arise from the exits of businesses prior to the transformation of the Group to a purely automotive
services group. The exits were all completed by late 1999.

Any detailed disclosure of these outstanding claims could seriously prejudice negotiations. Accordingly, no information is given
in regard to the likely timing or cash impact as normally required under FRS 12 Provisions, Contingent Liabilities and Contingent
Assets. They are however referred to in note 22.

Vacant leasehold
The Group is committed to certain leasehold premises for which it no longer has a commercial use. These are principally located
in the UK. Provision has been made to the extent of the estimated future net cost. This includes taking into account existing
subtenant arrangements. In determining the provision, the cash flows have been discounted on a pre-tax basis using appropriate
government bond rates. The charge for the unwinding of the discount of £0.2m (2003 – £0.2m) has been included in the interest
charge in the profit and loss account.

Other
The provision includes the cost of implementing new European Block Exemption contracts throughout the dealer network in
Belgium and a number of litigation provisions that have been reclassified from creditors. These are expected to be settled within
the next four years.

Inchcape plc Annual report 2004

Guarantees and contingent liabilities

Guarantees of joint ventures’ and associates’ borrowings

Guarantees of various subsidiaries’ borrowings (against which £nil
has been drawn, 2003 – £nil)

Other guarantees, performance bonds and contingent liabilities

2004
£m

0.4

–

7.0

Group

2003
£m

0.4

–

5.2

Company

2003
£m

–

2004
£m

–

250.0

0.2

Joint ventures and associates that form part of Financial Services are financed by borrowings without recourse to any other
Group company, except as above.

The Company is party to composite cross guarantees between banks and its subsidiaries. The Company’s contingent liability
under these guarantees at 31 December 2004 was £16.5m (2003 – £21.7m).

Commitments for capital expenditure entered into and not provided for in these accounts amount to £8.0m (2003 – £0.3m).

The Group also has, in the ordinary course of business, commitments under foreign exchange instruments relating to the
hedging of transactional exposures (note 29e).

Aon Corporation (Aon) has made certain claims under an indemnity given in connection with the sale of Bain Hogg Limited in
1996 relating to liabilities in respect of advice given on the sale of pensions and related products, opt outs and transfers by Bain
Hogg Financial Services Limited and Gardner Mountain Financial Services Limited. Aon may seek to make further claims in
respect of such advice and related costs. On the information currently available to the Company, it is not possible to assess fully
the merits or value of claims under this indemnity. The Directors have taken legal advice and are pursuing all options open to
them to defend or minimise the claims. At 31 December 2004, there were other contingent liabilities arising in the ordinary
course of business, including those in respect of disposed businesses. The Directors have reviewed the above matters and have
made certain provisions. Having done so, the Directors consider, based on the information currently available, that they will not
have a material impact on the financial position of the Group.

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. Belgium, Finland and Greece have enacted legislation.
In Belgium and Greece there are self-funding arrangements in place with independent companies which will result in a no cost
solution for importers. The same is expected to be the case in Finland. The other member states where the Group operates are
expected to pass or are in the course of passing legislation in the near future which may or may not give rise to a liability for the
Group. The Directors have reviewed this matter and, based on the information currently available, consider that implementation
of the Directive will not have a material impact on the financial position of the Group.

Operating lease commitments

Operating lease rentals payable in the next year in respect of
commitments expiring:

– within one year

– in two to five years

– after five years

Property leases

Other operating leases

2004
£m

2003
£m

2004
£m

2003
£m

3.2

13.0

10.8

27.0

3.4

9.3

8.9

21.6

1.1

1.3

0.4

2.8

1.2

1.7

0.5

3.4

Inchcape plc Annual report 2004

70 Notes to the accounts continued

Share capital

Summary

Ordinary shares – authorised 131,000,000 ordinary shares of 150.0p each
(2003 – 131,000,000 ordinary shares of 150.0p each) and allotted,
called-up and fully paid 79,656,577 ordinary shares of 150.0p each
(2003 – 78,893,237 ordinary shares of 150.0p each)

Substantial shareholdings

Authorised Allotted, called-up and fully paid

2004
£m

2003
£m

2004
£m

2003
£m

196.5

119.5

118.4

Details of substantial interests in the Company’s issued ordinary share capital received by the Company at 28 February 2005
under the provisions of the Companies Act 1985 have been disclosed in the substantial shareholdings section of the
Directors’ report.

Share options

At 31 December 2004, options to acquire ordinary shares of 150.0p each in the Company up to the following numbers under the
schemes below were outstanding as follows:

Ordinary shares
of 150.0p each

Exercisable
until

Option
price

Ordinary shares
of 150.0p each

Exercisable
until

Option
price

The Inchcape 1999 Share Option Plan
– approved (Part II – UK)

The Inchcape SAYE Share Option Scheme
– approved

9 August 2010

284.0p

159,042

21 March 2011

384.0p

162,737

1 December 2005

1 December 2006

554.0p

610.0p

17 March 2012

685.0p

163,344

1 December 2007

1171.0p

15 October 2012

670.0p

96,144

1 May 2008

1336.0p

2,815

7,812

51,043

4,477

111,991

2,688

4,874

92,585

16,075

– unapproved (Part I – UK)

42,042

13,020

208,805

92,537

200,487

896

2,436

341,612

8,101

2,577

21,124

61,194

161,798

141,843

1,218

219,690

Inchcape plc Annual report 2004

19 March 2013

7 August 2013

31 August 2013

20 May 2014

29 September 2014

9 August 2010

21 March 2011

17 March 2012

15 October 2012

19 March 2013

7 August 2013

31 August 2013

20 May 2014

29 September 2014

7 September 2009

9 August 2010

21 March 2011

17 March 2012

19 March 2013

762.0p

1116.0p

1231.0p

1572.0p

1555.0p

284.0p

384.0p

685.0p

670.0p

762.0p

1116.0p

1231.0p

1572.0p

1555.0p

388.0p

284.0p

384.0p

685.0p

762.0p

31 August 2013

1231.0p

20 May 2014

1572.0p

– unapproved overseas (Part I – Overseas)

Share capital continued

Share options continued

During the year, 763,340 (2003 – 1,167,107) ordinary shares were issued under or in connection with the various share
option schemes.

The Group has taken advantage of the exemption in UITF Abstract 17 (revised 2003) Employee Share Schemes not to apply the
Abstract to the Inchcape SAYE Share Option Scheme.

Reserves

Movements in shareholders’ funds

Share capital
2004

Share
premium
account
2004

Revaluation
reserve
2004

Capital
redemption
reserve
2004

Profit and
loss account
2004

Group

£m

Profit for the financial year

Dividends (note 11)

Retained profit for the financial year

Effect of foreign exchange rate changes

Shares issued during the year
under share option schemes

Consideration paid for the purchase of
own shares held in ESOP Trust

Consideration received for the sale of
own shares held in ESOP Trust

Movement in respect of employee
share schemes

Goodwill on disposals previously written off

Transfer from profit and loss account
to revaluation reserve

–

1.1

1.7

–

Net change in shareholders’ funds

1.1

1.7

Balance at 1 January (2003 – originally
£392.7m before deducting restatement
of £3.8m, note 2)

Balance at 31 December

118.4

119.5

109.1

110.8

–

(1.8)

–

0.7

(1.1)

29.1

28.0

Total
2004

£m

109.3

(39.5)

69.8

(15.3)

Total
2003
restated
£m

127.0

(29.6)

97.4

(10.4)

£m

109.3

(39.5)

69.8

(13.5)

–

2.8

3.4

(1.0)

(3.6)

1.1

6.0

(0.7)

62.8

1.1

6.0

–

64.5

2.7

0.6

–

90.1

–

16.4

206.0*

268.8

479.0

543.5

388.9

479.0

*The profit and loss account reserve at 1 January 2004 was originally £210.1m before deducting the restatement of £4.1m
(1 January 2003 – £3.8m) relating to own shares, net of the associated share scheme creditor (note 2).

Own ordinary shares at cost are held by the Inchcape Employee Trust, a general discretionary trust whose beneficiaries
include employees and former employees of the Group and their dependants. The total number of ordinary shares held by
the Inchcape Employee Trust at 31 December 2004 was 791,471 (2003 – 893,811). Their book value at 31 December 2004
was £6.3m (2003 – £6.4m). Their market value at 31 December 2004 was £15.5m and at 25 February 2005 was £16.3m
(31 December 2003 – £11.6m, 27 February 2004 – £13.6m).

Goodwill of £108.1m (2003 – £114.4m) is contained within the profit and loss account reserve.

Revaluation reserve includes other non-distributable reserves of £4.9m (2003 – £4.2m). Net foreign exchange gains on
borrowings reported in reserves amount to £0.2m in 2004 (2003 – £nil).

Inchcape plc Annual report 2004

72 Notes to the accounts continued

Reserves continued

Movements in shareholders’ funds continued

Share capital
2004

Share
premium
account
2004

Capital
redemption
reserve
2004

Profit and
loss account
2004

Company

£m

Profit for the financial year

Dividends (note 11)

Retained profit for the financial year

Shares issued during the year
under share option schemes

Consideration paid for the purchase of
own shares held in ESOP Trust

Consideration received for the sale of
own shares held in ESOP Trust

Movement in respect of employee
share schemes

–

1.1

1.7

–

Net change in shareholders’ funds

1.1

1.7

–

Balance at 1 January (2003 – originally £447.8m
before deducting restatement of £3.8m, note 2)

Balance at 31 December

118.4

119.5

109.1

110.8

16.4

Total
2004

£m

98.1

(39.5)

58.6

Total
2003
restated
£m

188.3

(29.6)

158.7

£m

98.1

(39.5)

58.6

–

2.8

3.4

(1.0)

(3.6)

1.1

2.7

1.1

59.8

361.9*

421.7

1.1

62.6

605.8

668.4

0.6

161.8

444.0

605.8

*The profit and loss account reserve at 1 January 2004 was originally £366.0m before deducting the restatement of £4.1m
(1 January 2003 – £3.8m) relating to own shares, net of the associated share scheme creditor (note 2).

Analysis of changes in net funds

Analysis of net funds

Cash in hand, at bank

Overdrafts

Debt due within one year

Debt due after more than one year

Finance leases

Liquid resources

Net funds

At
1 January
2004
£m

Acquisitions
and disposals
(excluding cash
Cash flow and overdrafts)
£m

£m

At
Exchange 31 December
2004
£m

movement
£m

44.6

(7.9)

(15.1)

(0.5)

(0.3)

58.3

79.1

37.7

(4.9)

32.8

18.5

(0.3)

0.1

18.3

44.1

95.2

–

(6.5)

(0.7)

(0.2)

–

(7.4)

(12.0)

0.4

0.1

(0.2)

70.3

(12.4)

(3.0)

(1.4)

(0.6)

(1.5)

(13.1)

100.9

153.8

Liquid resources are principally term deposits at bank which are not available for immediate withdrawal without penalty.

Cash at bank and in hand

Cash in hand, at bank

Liquid resources

Cash at bank and in hand

Inchcape plc Annual report 2004

Group

2003
£m

44.6

58.3

102.9

Company

2003
£m

21.7

–

21.7

2004
£m

16.4

–

16.4

2004
£m

70.3

100.9

171.2

Analysis of cash flow disclosures in the consolidated cash flow statement

Returns on investments and servicing of finance

Interest received (including £21.5m of VAT recovery (2003 – £1.4m), note 3)

Interest paid

Dividends paid to minority interests

Capital expenditure and financial investment

Expenditure on tangible fixed assets and investments

Sale of tangible fixed assets and investments

Sale of current asset properties

Net cash outflow from acquisitions and disposals

Acquisitions:

Cash paid for businesses acquired (note 28)

Cash less bank overdrafts of businesses acquired (note 28)

Net outflow of cash in respect of the acquisition of businesses

Cash paid for prior year acquisitions

Cash paid for joint ventures and associates

Disposals:

Cash received for businesses sold (note 28)

Cash received for joint ventures and associates sold

Cash received from prior year disposals

Cash paid for prior year disposals

Net cash outflow

Net funds from acquisitions and disposals

Net cash (outflow) inflow from acquisitions and disposals

Net loans and finance leases relating to acquisitions

Net cash outflow from financing

Issue of ordinary share capital (note 25a)

Net sale (purchase) of own shares

Decrease in debt (note 26a)

Capital element of finance lease rental payments (note 26a)

Acquisitions
2004

Disposals
2004

£m

(25.1)

(7.4)

(32.5)

£m

23.7

–

23.7

2003
£m

10.8

(11.3)

(1.1)

(1.6)

(55.1)

20.0

1.5

(33.6)

(22.0)

0.1

(21.9)

(0.1)

2004
£m

25.6

(8.7)

(1.4)

15.5

(53.7)

18.9

–

(34.8)

(26.4)

1.6

(24.8)

(0.3)

–

(25.1)

(22.1)

4.4

19.3

2.5

(2.5)

23.7

(1.4)

Total
2004

£m

(1.4)

(7.4)

(8.8)

2.8

0.1

(18.2)

(0.1)

(15.4)

16.1

7.1

–

(1.6)

21.6

(0.5)

Total
2003
restated
£m

(0.5)

–

(0.5)

3.4

(0.9)

(66.5)

(0.7)

(64.7)

Inchcape plc Annual report 2004

74 Notes to the accounts continued

Acquisitions and disposals

The Group acquired and disposed of a number of businesses during the year, none of which were individually material.
Details of the provisional fair values of the total net assets acquired by the Group during 2004 and the total net assets
disposed of are set out below.

Net assets acquired (disposed of) on acquisition (disposal) of businesses

Acquisitions
2004
£m

Disposals
2004
£m

Acquisitions
2003
£m

Disposals
2003
£m

Fixed assets

Stocks

Trade debtors

Cash less bank overdrafts (note 27c)

Trade creditors

Other creditors

External borrowings

Minority shareholders' interests

Goodwill

Net loss on disposal

Net consideration payable (receivable)

Satisfied by

Cash paid (received) (note 27c)

Accrued costs

Deferred consideration payable (receivable)

Loan notes payable

UITF 31 swap of assets

7.2

23.6

4.2

1.6

(22.5)

(2.9)

(5.4)

–

23.3

–

29.1

26.4

–

0.7

2.0

–

(1.8)

(2.6)

–

0.5

–

(1.4)

1.5

(3.8)

(4.4)

0.6

–

12.2

6.8

2.7

0.1

(9.2)

(0.6)

–

0.1

10.1

–

22.2

22.0

–

0.2

–

29.1

(3.8)

22.2

(6.5)

(4.3)

–

1.0

–

(14.4)

3.2

(21.0)

(16.1)

0.8

(3.4)

–

(2.3)

(21.0)

The acquisition and disposal of businesses during the year had no material impact on the Group's turnover, operating profit,
net assets, operating cash flows, returns on investment and servicing of finance, taxation or capital expenditure.

There were no material fair value adjustments arising on the assets acquired.

Inchcape plc Annual report 2004

Financial instruments

An outline of the objectives, policies and strategies pursued by the Group in relation to financial instruments is set out in the
Treasury management and policy section of the Financial review.

For the purpose of the disclosures which follow in this note (except for exchange risk management disclosures in note 29b),
short term debtors and creditors which arise directly from the Group’s operations have been excluded as permitted under FRS 13
Derivatives and Other Financial Instruments: Disclosures. The disclosures therefore focus on those financial instruments which
play a significant medium to long term role in the financial risk profile of the Group. An analysis of the carrying value of these
financial assets and liabilities is given in the fair value table in note 29c.

(i)

Interest rate management

The interest rate profile of the financial liabilities of the Group is set out in the table below:

At 31 December 2004

Currency

Sterling

Euro

Other

At 31 December 2003

Currency

Sterling

Euro

Other

Floating rate
£m

Fixed rate
£m

10.5

0.4

4.2

15.1

0.5

0.1

–

0.6

Floating rate

Fixed rate

£m

19.3

2.8

0.6

22.7

£m

0.3

–

0.3

On which
no interest
is paid
£m

37.9

15.7

2.4

56.0

On which
no interest
is paid
restated
£m

53.7

9.8

1.3

64.8

Total
£m

48.9

16.2

6.6

71.7

Total
restated
£m

73.3

12.6

1.9

87.8

Fixed rate

Weighted
average
period for
which rate
is fixed
months

–

Fixed rate

Weighted
average
period for
which rate
is fixed

months

–

Weighted
average
interest
rate
%

9.6

7.0

–

9.3

Weighted
average
interest
rate

8.0

–

8.0

Interest payments on floating rate financial liabilities are determined by reference to short term benchmark rates applicable in the
relevant currency or market (primarily LIBOR and the euro).

The financial liabilities on which no interest is paid mainly comprise £44.0m (2003 – £55.2m) of residual buy back commitments
which have a weighted average period to maturity of twenty two months (2003 – eighteen months) and £4.7m (2003 – £4.7m)
of vacant leasehold property provisions which have a weighted average period to maturity of six years (2003 – six years) (note 21).

Inchcape plc Annual report 2004

76 Notes to the accounts continued

Financial instruments continued

(ii)

Interest rate management continued

The interest rate profile of the financial assets of the Group is set out in the table below:

At 31 December 2004

Currency

Sterling

Euro

Singapore dollar

Hong Kong dollar

Other

At 31 December 2003

Currency

Sterling

Euro

Singapore dollar

Hong Kong dollar

Other

Floating rate
£m

Fixed rate
£m

66.0

33.8

26.9

7.6

26.3

–

13.1

–

On which
no interest
is paid
£m

7.1

1.9

1.4

0.8

9.4

Weighted
average
interest
rate
%

–

5.7

–

Total
£m

73.1

48.8

28.3

8.4

35.7

160.6

13.1

20.6

194.3

5.7

Floating rate
£m

Fixed rate
£m

11.1

36.1

19.6

2.1

27.6

96.5

–

13.8

–

13.8

On which
no interest
is paid
£m

7.1

1.5

1.2

4.7

16.0

Weighted
average
interest
rate
%

–

5.8

–

Total
£m

18.2

51.4

21.1

3.3

32.3

126.3

5.8

Fixed rate

Weighted
average
period for
which rate
is fixed
months

–

Fixed rate

Weighted
average
period for
which rate
is fixed
months

–

Interest receipts on floating rate financial assets are determined by reference to short term benchmark rates applicable in the
relevant currency or market (primarily LIBOR and the euro and Singapore equivalents).

The financial assets on which no interest is paid mainly comprise £10.6m (2003 – £6.5m) of short term bank deposits and £5.9m
(2003 – £6.4m) of rental income due on contracts in progress in UK leasing businesses which have a weighted average period to
maturity of thirteen months (2003 – thirteen months).

Inchcape plc Annual report 2004

Financial instruments continued

Exchange risk management

The table below shows the Group’s currency exposures at 31 December 2004 on transactions that give rise to the net currency
gains and losses recognised in the profit and loss account. Such exposures comprise the monetary assets and liabilities of the
Group that are not denominated in the functional currency of the operating company involved.

Functional currency of the operating company

Sterling

Peruvian sol

Chilean peso

Other

Net foreign currency monetary
assets (liabilities)

US dollar
2004
£m

–

0.1

(1.2)

0.2

(0.9)

Other
2004
£m

0.1

–

(0.1)

1.1

Total
2004
£m

0.1

(1.3)

1.3

0.2

US dollar
2003
£m

0.2

(0.3)

(0.6)

–

(0.7)

Other
2003
£m

–

(0.4)

Total
2003
£m

0.2

(0.3)

(0.6)

(0.4)

(1.1)

The amounts shown in the table above are after taking account of any forward contracts entered into to manage these
currency exposures.

The US dollar exposures in aggregate of £0.9m in 2004 (2003 – £0.7m) principally relate to US dollar trade receivables
(payables) within the businesses in Peru and Chile, where the majority of sales and purchases are in US dollars.

Other exposures are principally minor unhedged transactions which are settled within a short time period. This minimises
exchange rate risk and the need to hedge the exposure.

Fair values

Assets (liabilities)

Financial instruments held or issued to finance the Group’s operations

Fixed asset investments

Cash deposits

Current asset investments

Other financial assets

Short term borrowings and current portion of long term borrowings

Long term borrowings

Long term trade and other creditors

Other financial liabilities

Book value
2004

Fair value
2004

£m

Book value
2003
restated
£m

Fair value
2003
restated
£m

1.5

171.2

13.1

8.5

194.3

(15.6)

(1.8)

(45.0)

(9.3)

(71.7)

1.5

171.2

13.9

8.5

195.1

(15.6)

(1.8)

(40.8)

(9.3)

(67.5)

0.8

102.9

13.8

8.8

126.3

(23.2)

(0.6)

(56.5)

(7.5)

(87.8)

2.2

102.9

14.5

8.8

128.4

(23.2)

(0.6)

(51.0)

(7.5)

(82.3)

Derivative financial instruments held to manage currency exposure

Forward foreign exchange contracts – liability

–

(8.3)

–

(14.4)

Fixed asset and current asset investments

The fair value is based on year end quoted prices for listed investments and estimated likely sales proceeds for
other investments.

Inchcape plc Annual report 2004

78 Notes to the accounts continued

Financial instruments continued

Fair values continued

Long term trade and other creditors

Long term trade and other creditors book value of £45.0m (2003 – £56.5m) principally relates to vehicle buy back commitments
of £44.0m (2003 – £55.2m) whose average period to maturity is twenty two months (2003 – eighteen months). Their fair value
has been calculated by discounting the expected cash flows at prevailing interest rates. In substance the vehicles remain the
assets of the Group and have been included in stock at the guaranteed repurchase price less appropriate provisions where
realisable value is lower, with the corresponding cross guaranteed repurchase liability within trade creditors. The asset side of
this transaction is not recorded in the previous table because it does not qualify as a financial asset as defined by FRS 13.

Forward foreign exchange contracts

The fair value of contracts of £8.3m represents the difference between the value of the outstanding contracts at their
contracted rates and a valuation calculated using the spot rates of exchange prevailing at 31 December 2004.

At 31 December 2004 the Group had nominal amounts outstanding of £419.6m (2003 – £417.1m) for these contracts,
used principally to hedge future purchases in foreign currency.

Maturity of financial liabilities

Repayable within one year

Repayable over one year and up to two years

Repayable over two years and up to five years

Repayable beyond five years

Total financial liabilities

Hedges

Borrowings
and finance
leases
2004

Other
financial
liabilities
2004

£m

15.6

1.1

0.7

–

17.4

£m

1.9

27.8

22.4

2.2

54.3

Borrowings
and finance
leases
2003

£m

23.2

0.2

0.4

–

23.8

Total
2004

£m

17.5

28.9

23.1

2.2

71.7

Other
financial
liabilities
2003
restated
£m

0.5

29.9

31.1

2.5

64.0

Total
2003
restated
£m

23.7

30.1

31.5

2.5

87.8

Gains and losses on instruments used for hedging are not recognised until the exposure that is being hedged is itself
recognised. Unrecognised gains and losses on instruments used for hedging, and the movements therein, are as follows:

Unrecognised gains and losses on hedges

Gains and losses on hedges at 1 January 2004

Gains and losses arising before 1 January 2004 that were recognised in 2004

Gains and losses arising before 1 January 2004 that were not recognised in 2004

Gains and losses arising in 2004 that were not recognised in that year

Gains and losses on hedges at 31 December 2004

Gains and losses expected to be recognised in 2005

Gains
£m

3.5

(3.5)

–

4.4

Losses
£m

(17.9)

17.9

–

(12.7)

Net gains
(losses)
£m

(14.4)

14.4

–

(8.3)

In certain countries the Group purchases motor vehicles in a different currency from that of the country itself. Forward purchase
commitments are hedged leading to unrecognised gains and losses. These amounts are not indicative of future profitability since
the rate achieved through these contracts is only one of the factors which will drive our Import, Distribution and Retail gross
profits in these countries.

Inchcape plc Annual report 2004

Principal subsidiaries, joint ventures and associates at 31 December 2004

Principal subsidiaries

Company

Subaru (Aust) Pty Limited

Toyota Belgium NV/SA

Country

Shareholding

Description

Australia

Belgium

90.0%

Import and Distribution

100.0%

Import and Distribution

The Motor & Engineering Company of Ethiopia Ltd S.C. Ethiopia

94.1%

Import, Distribution and Retail

Inchcape Motors Finland OY

Toyota Hellas SA

Crown Motors Limited

Finland

Greece

100.0%

Import and Distribution

100.0%

Import and Distribution

Hong Kong

100.0%

Import, Distribution and Retail

Borneo Motors (Singapore) Pte Ltd

Singapore

100.0%

Import, Distribution and Retail

Inchcape Automotive Limited*

United Kingdom 100.0%

Vehicle logistics and refurbishments **

Inchcape Finance plc*

United Kingdom 100.0%

Central treasury company

Inchcape Fleet Solutions Limited

United Kingdom 100.0%

Financial Services

Inchcape International Holdings Limited*

United Kingdom 100.0%

Intermediate holding company

Inchcape Retail Limited

The Cooper Group Limited

United Kingdom 100.0%

UK Retail

United Kingdom 100.0%

UK Retail

Principal joint ventures and associates

Company

Country

Shareholding

Description

Inchroy Credit Corporation Limited

Hong Kong

50.0%

Financial Services

Only those companies that principally affect the Group’s profit or assets are included. All shareholdings represent the ultimate
interest of the Group in the respective company’s ordinary shares, except for Inchroy Credit Corporation Limited, where the
Group holds 50.0% of the company’s non-voting deferred shares.

Owned by Inchcape plc directly

Included within Import, Distribution and Retail for segmental analysis

Foreign currency translation

The main exchange rates used for translation purposes are as follows:

Australian dollar

Euro

Hong Kong dollar

Singapore dollar

Average rates

Year end rates

2003

2.53

1.45

12.75

2.86

31 December
2004

31 December
2003

2.45

1.41

14.92

3.13

2.38

1.42

13.90

3.04

2004

2.48

1.47

14.22

3.09

Inchcape plc Annual report 2004

80 Five year record

Profit and loss account

Turnover

Group subsidiaries

2004
£m

2003
£m

2002
£m

2001
£m

2000
£m

4,122.7

3,793.2

3,413.8

3,113.0

3,086.1

Share of joint ventures and associates

47.6

62.0

103.2

206.5

631.3

Group including share of joint ventures and associates

4,170.3

3,855.2

3,517.0

3,319.5

3,717.4

170.7

135.3

–

170.7

135.3

(7.6)

1.2

(9.0)

155.3

(4.2)

4.2

155.3

(42.3)

(0.5)

112.5

(3.2)

109.3

(39.5)

69.8

15.3

0.9

(0.4)

151.1

(5.0)

22.2

168.3

(31.8)

(7.5)

129.0

(2.0)

127.0

(29.6)

97.4

155.3

139.4p

168.3

164.8p

172.0

161.4p

50.0p

135.8

132.4p

38.0p

2003
restated
£m

401.2

5.3

406.5

79.1

485.6

479.0

6.6

2004

£m

391.8

5.6

397.4

153.8

551.2

543.5

7.7

551.2

111.6

–

111.6

–

0.9

1.2

113.7

(5.1)

–

108.6

(28.9)

–

79.7

(3.4)

76.3

(23.6)

52.7

108.6

100.1p

112.1

104.5p

31.0p

2002
restated
£m

415.6

(37.5)

378.1

16.6

394.7

388.9

5.8

485.6

394.7

98.3

3.5

101.8

–

(0.6)

(36.3)

64.9

(3.9)

–

61.0

(29.3)

–

31.7

(8.3)

23.4

(19.5)

3.9

61.0

29.3p

99.7

79.7p

27.0p

81.3

8.8

90.1

–

(0.4)

(0.3)

89.4

(16.0)

–

73.4

(19.9)

–

53.5

(7.6)

45.9

(19.2)

26.7

73.4

52.3p

75.0

48.4p

22.0p

2001
restated
£m

2000
restated
£m

406.4

(28.1)

378.3

17.5

395.8

349.9

45.9

395.8

356.3

118.5

474.8

(69.1)

405.7

358.4

47.3

405.7

Total operating profit before exceptional items:

– continuing operations

– discontinued operations

Net operating exceptional (note 3)

Net profit (loss) on sale of properties and investments

Net (loss) profit on sale and termination of operations

Profit on ordinary activities before interest and taxation

Net interest

Interest on VAT recovery (note 3)

Profit on ordinary activities before taxation

Tax on profit on ordinary activities

Tax on VAT recovery (note 3)

Profit on ordinary activities after taxation

Minority interests

Profit for the financial year

Dividends

Retained profit for the financial year

Basic:

– profit before tax (£m)

– earnings per share (pence)

Headline (before goodwill amortisation and exceptional items):

– profit before tax (£m)

– earnings per share (pence)

Dividends per ordinary share

Balance sheet

Fixed assets

Other assets less (liabilities) other than cash (borrowings)

Net cash (borrowings)

Net assets

Equity shareholders’ funds

Minority interests

Inchcape plc Annual report 2004

Company details

Registered office

Inchcape plc
22a St James’s Square
London SW1Y 5LP.
Tel: +44 (0) 20 7546 0022
Fax: +44 (0) 20 7546 0010

Advisors

Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors

Inchcape PEPS

Individual Savings Accounts (ISAs) replaced Personal Equity Plans
(PEPs) in April 1999 as the vehicle for tax efficient savings. Existing
PEPs can be retained.

Inchcape PEPs are managed by The Share Centre Ltd, who can be
contacted at PO Box 2000, Oxford House, Oxford Road,
Aylesbury, Buckinghamshire HP21 8ZB.
Tel: +44 (0) 1296 414144

Inchcape ISA

Inchcape has established a Corporate Individual Savings Account
(ISA). This is managed by HSBC Trust Company (UK) Ltd who may
be contacted for full details at the Corporate PEP and ISA Centre,
5th Floor, City Plaza, 2 Pinfold Street, Sheffield S1 2QZ.
Tel: +44 (0) 845 745 6123
Fax: +44 (0) 1926 834 313

Senior executives

Group Chief Executive
Peter Johnson
Tel: +44 (0) 20 7546 0022
Fax: +44 (0) 20 7546 0010

Group Finance Director
Alan Ferguson
Tel: +44 (0) 20 7546 0022
Fax: +44 (0) 20 7546 0010

Managing Director, Inchcape UK and Europe
Graeme Potts
Tel: +44 (0) 20 7546 0022
Fax: +44 (0) 20 7546 0010

The following executives are responsible for our key market areas:

Australia/New Zealand
Trevor Amery
Tel: +61 2 9828 9199
Fax: +61 2 9828 9120

Greece/Belgium
Martin Taylor
Tel: +32 2 386 72 11
Fax: +32 2 386 75 40

Hong Kong/Singapore/Brunei
William Tsui
Tel: +852 2562 2226
Fax: +852 2811 1060

Share Registrars
Computershare Investor Services PLC
Registrar’s Department, PO Box No 82
The Pavilions, Bridgwater Road
Bristol BS99 7NH.
Tel: +44 (0) 870 702 0000

Solicitors
Slaughter and May

Stockbrokers
UBS

Financial calendar

Annual General Meeting
12 May 2005

Ex-dividend date for 2004 final dividend
18 May 2005

Record date for 2004 final dividend
20 May 2005

Final 2004 ordinary dividend payable
16 June 2005

The following executives are responsible for our
key businesses in the UK:

Inchcape Retail
Spencer Lock
Tel: +44 (0) 1923 221144
Fax: +44 (0) 1923 800622

Inchcape Automotive
Graeme Potts
Tel: +44 (0) 1832 735999
Fax: +44 (0) 1832 737127

Inchcape Fleet Solutions
Terry Bartlett
Tel: +44 (0) 2392 310844
Fax: +44 (0) 8701 914455

The following executives have functional responsibilities at
Group level:

Audit and Risk Management
Tim Trounce

Business Development
Dale Butcher

Company Secretariat
Roy Williams

Financial Control and Taxation
Amanda Brooks

Human Resources
Nick Smith

Information Systems
Peter Wilson

Investor Relations and External Communications
Emma Woollaston

Treasury
Chris Parker

Designed and produced by Radley Yeldar (London)

Inchcape plc Annual report 2004
Inchcape plc Annual report 2004
Inchcape plc Annual report 2004

Notes to the accounts continued

Inchcape plc
22a St James’s Square
London SW1Y 5LP

Tel: +44 (0) 20 7546 0022
Fax: +44 (0) 20 7546 0010

Registered number 609782

Website: www.inchcape.com

Inchcape plc Annual report 2004