Inchcape Annual Report 2005

FY2005 Annual Report · Inchcape
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Annual report and accounts 2005

The international automotive 
retail group
Inchcape is a scale automotive retail
group operating in Australia, Belgium,
Greece, Hong Kong, Singapore and 
the UK. The Group also has operations 
in a number of other global markets.
In addition to growing our core
businesses, we are looking to 
develop scale operations in new 
and emerging regions. 
We represent leading automotive
brands and operate either a retail, 
or a vertically integrated retail model 
(i.e. exclusive distribution and retail),
depending on the market.
Our key manufacturer partners are
Toyota/Lexus, Subaru, BMW, the Premier
Automotive Group of Ford, Mazda,
Mercedes-Benz and Volkswagen.

Financial highlights

Trading proﬁt
(operating proﬁt before 
exceptional items)

Dividend
per ordinary share

Revenue

Headline proﬁt before tax
before exceptional items

Headline earnings per share
before exceptional items

Operating proﬁt

Proﬁt before tax

Earnings per share

Group Chief Executive’s interview
Operating review
Financial review
Corporate social responsibility

Contents
02 Our customers
04 Our people
06 Our brand partners
08 Chairman’s statement
10 Operating and ﬁnancial review
10
14
20
24
28 Board of Directors
30 Directors’ report
32 Corporate governance report
36 Board report on remuneration
40 Notes to the Board report on remuneration
44 Directors’ responsibilities
45 Report of the Auditors
46
46
47
48
49
50
56
98
Five year record
100 Report of the Auditors 
101 Company ﬁnancial statements
101
102
103
109 Company details

Company balance sheet
Accounting policies
Notes to the accounts

Financial statements

Consolidated income statement
Consolidated balance sheet
Consolidated statement of recognised income and expense
Consolidated cash ﬂow statement
Accounting policies
Notes to the accounts

Front cover features Jenny Hui, Mazda sales consultant, Hong Kong

£189.4m
+10.1%
57.0p
+14.0%
£4.5bn
+8.9%
£190.3m
+13.0%
178.5p
+14.6%

£176.4m
+9.2%
£177.3m
+8.6%
161.9p
+9.0%

Inchcape plc
Annual report and accounts 2005

1

Our vision is to be the world’s most
customer centric automotive retail group.
We look to deliver an outstanding customer
experience, everyday, everywhere.
To do this, we must...

    
Inchcape plc
Annual report and accounts 2005

2
Our customers

...exceed our customers’ expectations.
Putting our customers ﬁrst will take Inchcape
to the next level in retail and customer
service. To achieve this...

Inchcape plc
Annual report and accounts 2005

4
Our people

...we must recognise that it is our people
who make a difference.
We have strong management and 
dedicated employees throughout the Group.
Their excellence will ensure we are at the
forefront of...

Inchcape plc
Annual report and accounts 2005

6
Our brand partners

...development opportunities with our
brand partners.
We will go beyond our partners’ standards
in the way we represent their brands, 
and aspire to become the manufacturers’
partner of choice.

Inchcape plc
Annual report and accounts 2005

8
Chairman’s statement

Headline profit
before tax £m

2005

2004

£m

Proﬁt before tax

Exceptional items

Headline proﬁt before tax

190.3

168.4

2005

177.3

13.0

2004

163.2

5.2

190.3

168.4

Highlights
Inchcape has experienced a successful year showing
strong growth in proﬁts with continued cash generation.
Headline proﬁt before tax and exceptional items of
£190.3m was 13.0% higher than 2004, while Headline
earnings per share rose 14.6% to 178.5p. 

Despite challenging market conditions in most of 

our core markets, and the run out of a number of key
models, we increased our trading proﬁts by over 10.0%
in ﬁve of our six core regions. Singapore and Australia
generated record sales performances, whilst our 
UK Retail business achieved strong trading margin
progression in a declining market. 

Overall, 2005 demonstrated an encouraging

operational performance for the Group. 

We continue to invest in our core businesses, whilst
developing additional scale operations in new and
emerging markets.

In the UK, consolidation has, as we forecast, gathered
pace. Inchcape Retail looks to play its part in this consolidation.
We will continue our strategy of growth through the
extension of existing contiguous territories and the
acquisition of new market areas with our brand partners. 
In April 2005, we purchased six Mercedes-Benz retail
centres in the north west. As a result, we are the largest
independent Mercedes-Benz retailer in the country. 
We also continue to invest in our BMW retail centres. 
In Australia, we have recently extended our retail
presence into a third market, Brisbane, with the acquisition
of Keystar Motors Pty Ltd (Keystar) in February 2006.
This business represents Subaru, Hyundai, Kia and
Mitsubishi across two multi-franchise retail centres.
The acquisition complements our existing retail
operations in Melbourne and Sydney, and provides a
platform to build a larger business in the high growth
market of south east Queensland. 

On 6 March 2006 we announced our entry into the
high growth Russian market, a new territory for the Group,
through a joint venture with the Independence Group of
Companies, one of Moscow’s leading independent car
retailers. The partnership is to establish two retail and
service centres in Moscow for Toyota vehicles. Moscow
currently accounts for approximately 50.0% of foreign
brand sales in Russia. The retail centres, which will be
newly constructed, are due to open in the second half 
of 2007 and are expected to become Inchcape’s largest
retail outlets in Europe. Toyota is currently one of the
most successful foreign brands in Russia with sales
of around 60,000 units in 2005, and a market share 
of foreign brand car sales of over 10.0%.

Dividend
The Board is recommending the payment of a ﬁnal
ordinary dividend for the year of 38.0p (2004 – 35.0p). 
This gives a total dividend for 2005 of 57.0p, which 
is 14.0% above the 2004 dividend of 50.0p, and 
covered 3.1 times by Headline earnings per share 
(2004 – 3.1 times). 

Share buy back 
In February 2005, the Company announced a £65.0m
share buy back programme and to date £31.0m has
been returned to shareholders. It is envisaged that the
programme will be concluded in 2006.

Inchcape plc
Annual report and accounts 2005

9

Share split
Given the rise in the Company’s share price over recent
years, the Directors consider that it is now appropriate 
to sub-divide the shares into smaller units. This should
improve their liquidity. 

A proposal will therefore be put forward at the
Company’s Annual General Meeting (AGM), on 11 May
2006, that each ordinary share of 150.0p should be
divided into six ordinary shares of 25.0p each.

If approved, from the effective date, which is
expected to be 12 May 2006, shareholders will hold 
six new ordinary shares of 25.0p nominal value for 
each old ordinary share of 150.0p nominal value.

Board changes
Sir John Egan retired from the Board on 31 December
2005. I would like to thank Sir John for his immensely
valuable contribution and support during his ﬁve years 
as Chairman. 

Simon Robertson retired at the Company’s AGM 
on 12 May 2005. I would like to give him my personal
thanks for the great contribution he made to Inchcape. 
I am delighted to say that upon Simon’s retirement, 
Will Samuel has accepted the roles of Deputy Chairman
and Senior Independent Non-executive Director.

Alan Ferguson resigned on 14 September 2005 to join

BOC Group plc. His contribution to Inchcape’s success
was considerable and we wish him well. 

André Lacroix joined the Board on 1 September 2005,
and became Group Chief Executive on 1 January 2006.
André has an exceptional background in international
management, with strong experience in retail, marketing,
customer service and relationship management across a
broad range of products and geographies. In his interview,
on pages 10 to 13, André discusses his ﬁrst impressions
of the Group and his thoughts on the growth opportunities
available to Inchcape.

Barbara Richmond will join the Board on 3 April 2006 

as Group Finance Director. Barbara joins Inchcape from
Croda International Plc. Her successful track record
augurs well for the continued development of Inchcape.
On 1 January 2006, Karen Guerra, President, Colgate

Palmolive SAS, and General Manager of the French Branch
of CPI LLC, joined the Board as a Non-executive Director.
Karen’s insight and experience in international, consumer
facing businesses will be of great value to the Group.

People
Once again the hard work and dedication of our
colleagues around the world have helped the Group
achieve the excellent results that are published today. 
On behalf of the Board, I would like to thank them all 
for their continued commitment and loyalty. 

Trading prospects
The Australian market is predicted to remain strong 
and Subaru’s market share progression is expected 
to continue. Our retail operations will beneﬁt from the
Keystar acquisition made in February 2006 and further
organic growth delivering margin improvement,
particularly in Sydney.

In Belgium, our Toyota business will beneﬁt from 
the launch of the Aygo, Yaris and RAV4 models, in what 
is expected to be a ﬂat market. This will help offset
margin pressure.

Our distribution business in Greece will beneﬁt 

from the launch of the new Aygo, Yaris and RAV4
models, and our retail operations will recover from 
a difﬁcult year in 2005.

In Hong Kong, the launch of the new Toyota/Lexus

product range will stimulate demand. Despite this, 
we expect margin pressure in a market that will 
remain challenging.

Following the recent Certiﬁcate of Entitlement
announcement in Singapore, we expect the market to
be around 4.0% below the exceptional level of 2005.

In the UK our Retail business will see the beneﬁts 

of the full year impact of recent acquisitions. We will
target a further improvement in revenue and margin
in a market expected to be below the level of 2005. 
Our Fleet Solutions business will continue to do well,
and we should see an improvement in Inchcape
Automotive’s performance.

In our other markets, we expect another successful

year as we leverage the growth opportunities in the
Balkans and Baltics. We should also improve our
performance in Finland.

The net ﬁnance charge will be affected by higher

stock funding charges primarily from acquisitions and 
the cost of the share buy back programme.

Despite overall market conditions remaining

challenging, we are well placed to deliver further growth 
in 2006. This is based on the exciting new products we
are launching and the focus on operational excellence,
which we have in the Group.

Peter Johnson Chairman 
6 March 2006

“We announced our entry into the high growth
Russian market, a new territory for the Group,
through a joint venture with one of Moscow’s
leading independent car retailers.”

Inchcape plc
Annual report and accounts 2005

10
Operating and ﬁnancial review
Group Chief Executive’s interview

When you joined the Inchcape Board in September
last year, you were new to car retailing.What
attracted you to the Company and the role?
Above all, I was attracted by the strengths of Inchcape’s
strategic assets and the growth opportunities for the
Group around the world.

Inchcape is a scale automotive retail group operating

in Asia, Australasia, Europe and South America. 
We represent leading brands and operate either a retail
or a vertically integrated retail (i.e. exclusive distribution
and retail) model, depending on the market.

Inchcape has done extremely well over the past ﬁve
years. It has highly talented management teams, a good
geographical spread of earnings, a healthy balance sheet
and strong global relationships with its brand partners.
That is a fantastic legacy for a new Group Chief
Executive to inherit, but what also attracts me are the
opportunities and the challenges ahead.

There is no doubt in my mind that Inchcape is well

positioned to play an important role in the emerging
global retail consolidation process, but to capitalise fully
we have to stay ahead of the changes in the marketplace.
The car industry is very dynamic. The pace of innovation
is increasing, and customers are more and more
demanding when it comes to the quality of their vehicles
and the service they expect. I have always worked in
consumer facing industries and these challenges will
allow me to apply my skills, ensuring we make the 
most of the opportunities available to the Group.

“I was attracted by the strengths of Inchcape’s
strategic assets and the growth opportunities
for the Group around the world.”

Inchcape plc
Annual report and accounts 2005

11

My vision is for us to become the world’s most
customer centric automotive retail group, exceeding 
the standards set by our brand partners and surpassing
customer expectations. That will be a strong
differentiator for Inchcape and will give us a sustainable
base for organic growth.

Beyond organic growth, there are plenty of
opportunities in our existing markets to expand our 
retail presence. In Australia for example, we have recently
entered the Queensland market. In the UK, consolidation
continues, and in Belgium and Greece, we have a good
existing infrastructure from which to grow.

How are you progressing in your existing 
emerging markets?
In the Balkans, the rapid success we have enjoyed
demonstrates Inchcape’s ability to develop scale
operations through a market focused approach. 
The Balkans are now a sizeable proﬁt contributor 
to the Group.

We have also developed strong market positions 

in the Baltics with Mazda, and in Chile and Peru 
with BMW.

Inchcape is already a very successful business.
Following your appointment, what developments
are there likely to be to the existing strategy?
It is clear from the returns that have been generated 
and from the market positions that we hold, that the
strategy pursued in recent years has been the right one.
The result is a business, and a business model, that is
extremely sound. My task is to develop the next phase
of growth and to build on this success.

Central to our approach are two words, ’strengthen’

and ‘expand’. I am convinced that we can create 
further shareholder value by strengthening our organic
performance, and leveraging our existing assets. 
The second signiﬁcant opportunity is to expand in both
our core markets and in new countries, with existing
and new brand partners.

To achieve this, it is important that we continue 
to invest in the appropriate organisational capability 
to deliver the next phase of growth. Our organisational
and people strategies must be capable of creating the
right platform to execute our future plans.

Is there growth potential in your existing 
core markets?
Very much so. I believe that organic growth will come
from us becoming truly customer centric. This is one 
of my absolute priorities.

When someone buys a new or used car, 

we must provide them with an outstanding customer
experience that gives us a competitive advantage in the
marketplace. The same philosophy applies when we 
take care of our customers’ vehicles in the service and
bodyshop departments.

If you look at our current operations, we have some
tremendous customer service practices, but we do not
deliver them consistently in all our markets.

Moreover, it is important to recognise that we need

to address the individual needs of our customers by
having the right level of insight and information regarding
their expectations. This implies that we need to be the
leading innovator in retail and customer service.

Inchcape plc
Annual report and accounts 2005

12
Operating and ﬁnancial review continued
Group Chief Executive’s interview continued

Will you be entering new markets?
Our growth strategy is directed at existing, emerging
and new markets. An important element of our strategy
will be to continue to expand our business model where
we can build proﬁtable scale operations.

Today we have scale businesses in six markets,
and over the next ﬁve years we expect this to increase
to about ten.

In Russia, we have recently signed a joint venture
with the Independence Group of Companies and we
plan to open two new retail centres in Moscow for
Toyota vehicles in the second half of 2007. Russia is a
hugely exciting market, where the Toyota brand is well
accepted and Moscow itself accounts for approximately
50.0% of foreign brand sales in Russia. We will 
continue to evaluate scale opportunities in Russia.

We are also continuing to develop our plans for
China, a very promising growth opportunity, where 
we can leverage the strengths of our Asian expertise.

In practical terms, how are you going to put
customers at the forefront of Inchcape’s strategy?
Having the right location and the right brand is obviously
important. What really creates a strategic advantage,
however, is the ability to deliver an outstanding customer
experience, everyday, everywhere. The purchase of a 
car is an important investment, as well as an emotional
decision. Putting customers ﬁrst will take Inchcape to 
the next level.

To do that, we intend to formalise transferable 
best practices around the Group, constantly update 
our insights on customer expectations, identify the 
areas for innovation in services and continually improve
our operational processes. This should result in an
outstanding customer experience that can be delivered
consistently across our retail operations. That is why we
plan to upgrade our training and increase our focus on 
people development.

I am convinced that customer centric operational
excellence is the right focus for us to deliver the next
phase of organic growth.

Can you be more speciﬁc with what you mean 
by customer centric innovation?
There are lots of great examples, which already exist
throughout the Inchcape Group.

In Melbourne, we have redeﬁned the rules of
retailing by creating a fully immersive brand experience
at Subaru Docklands. The site is a theatre, where 
our customers can discover the Subaru technology,
experience it on the race track and jungle trail, and 
enjoy a nice, relaxing lunch!

In Singapore, we have launched our innovative
Service Express concept, which guarantees one hour
service time in scheduled service slots. Furthermore, we
have created several Toyota service stations throughout
Singapore to reduce the travel time for our customers.
In Hong Kong, we actually visit our customers in 
their ofﬁces and homes to discuss their needs. We have
created a Lexus Club, and all our Lexus customers are
invited to numerous, exclusive events during the year.

In the UK, we have examined in detail the

fundamental elements of car buying. By listening to our
customers and identifying nine ‘moments of trust’ in 
the buying and servicing experience, we have developed
a systematic sales process that focuses on individual
customer needs.

There are many other examples of retail excellence
and innovation around the Group, which convince me that
we are capable of achieving our goal of becoming the
world’s most customer centric automotive retail group.

Is it your strategy to build with your existing brand
partners or to develop new partnerships?
Both. There are certainly development opportunities with
our existing partners, provided that we continue to exceed
their expectations in how we represent their brands. 
If there are other brands, however, that are relevant for
our customers in a market where we want to invest,
then we will seek to establish partnerships with those
brands. We are very open to such opportunities.

When a manufacturer considers entering a new
market or expanding signiﬁcantly in an existing one,
Inchcape should be seen by them as the natural partner
of choice for their strategy. That is an ambitious goal,
but I genuinely believe that if we get our customer
centricity right we are capable of achieving it.

Inchcape plc
Annual report and accounts 2005

13

There is some large scale consolidation taking 
place in the UK retail market, in which Inchcape
appears to be reluctant to participate.Where does
UK expansion sit on your list of priorities?
Growth in the UK is a key priority for us, and our
business is performing well. Growth in year on year
revenue and proﬁts has been considerable, because 
we are following a clear strategy based on contiguous
territories for the brands in our portfolio.

We have made several acquisitions in the recent 
past and will continue to do so, provided we can identify
the right opportunity in terms of brand and geography
with good returns for our shareholders.

Inchcape has low gearing and signiﬁcant cash 
on its balance sheet.Will all Inchcape’s ﬁnancial
resources be required for investment?
We do have the beneﬁt of a very strong balance sheet,
and the approach we have decided to take is sequential.
Firstly, we will develop our growth strategy to a high
level of detail by country and by brand partner. Secondly,
we will see how much of our resources the required
investments are likely to absorb.

What we do will depend on the investment

opportunities that we identify through our current strategic
planning, and I am not going to pre-judge the scale of
this investment. What I can say, however, is that we 
will improve the efﬁciency of our balance sheet, but not
with overpriced acquisitions. Put another way, we will 
be disciplined about our allocation of funds towards
investments that can deliver a satisfactory return on
invested capital.

In ﬁve years time, what will be noticeably different
about Inchcape?
My ﬁrm intention is that we will have established scale
businesses in about ten global markets and will be
recognised as the most customer centric automotive
retail group in the world, delivering an outstanding customer
experience for the brand partners we represent.

If we achieve this, I am conﬁdent that we will have
delivered the next phase of growth for our shareholders.

What challenges do you face in achieving 
these objectives?
We compete every day against other car retailers,
with other service industries for talent and with other
companies in convincing shareholders to invest in us. 
As I have already said, the industry in which we are
competing is dynamic with a high rate of innovation 
and very demanding customers.

To do what I am talking about will take time and
will require strategic focus. We will have to be highly
responsive. Throughout the organisation, we must
execute our initiatives fully and seamlessly. Moreover,
we will continue to learn by listening to our customers
and employees and will look to lead the market by
increasing retail innovation.

Your overall conclusion?
I have now been at the helm of the Company since
January this year, and I am extremely excited about 
the future of Inchcape. We have a clear vision, to be 
the world’s most customer centric automotive retail
group. To achieve this, we will strengthen our organic
performance and expand with our global brand partners.
What we have to do now is fully develop our new
growth strategy with a speciﬁc country and brand approach,
and disciplined allocation of capital for our future
investments. 

It is a very exciting time for the Group.

André Lacroix Group Chief Executive
6 March 2006

Inchcape plc
Annual report and accounts 2005

14
Operating and ﬁnancial review continued
Operating review

Regional analysis

Operating
proﬁt
£m

Exceptional
items
£m

Australia

Belgium

Greece

Hong Kong

Singapore

United Kingdom

Other

Central costs

Operating proﬁt

31.9

14.0

13.8

28.8

62.1

9.7

28.4

(12.3)

176.4

–

–

–

–

–

19.5

–

(6.5)

13.0

2005

Trading
proﬁt
£m

31.9

14.0

13.8

28.8

62.1

29.2

28.4

(18.8)

189.4

Operating
proﬁt
£m

Exceptional
items
£m

28.7

10.5

17.8

25.6

53.5

6.5

27.0

(8.1)

161.5

(0.6)

2.1

(0.1)

–

–

19.3

(0.3)

(9.8)

10.6

Operating proﬁt by region before Central costs
and exceptional items 
1 Australia
2 Belgium
3 Greece
4 Hong Kong
5 Singapore
6 United Kingdom
7 Other

1

7

1

7

6

2005

2

3

4

6

2004

5

5

2004

Trading
proﬁt
£m

28.1

12.6

17.7

25.6

53.5

25.8

26.7

(17.9)

172.1

3

2

4

Operating proﬁt before exceptional items has been deﬁned 
as ‘trading proﬁt’ throughout the Operating review.

Inchcape, the international automotive retail
group, achieved revenue of £4.5bn in 2005.
Five of our six core markets recorded proﬁt
growth in excess of 10.0%.

Inchcape plc
Annual report and accounts 2005

15

Group
Trading proﬁt 2005
+10.1% to £189.4m (2004: £172.1m)
Number of employees
10,425
This Annual report and accounts is the ﬁrst full year set
of ﬁnancial statements to be prepared in accordance
with International Financial Reporting Standards (IFRS). 
The Group has taken advantage of the transition to 
IFRS to amend its geographical segments.

Overall the Group achieved an increase in revenue
of 8.9% to £4.5bn for the full year to 31 December 2005.
This result was assisted by record sales performances in
Singapore and Australia, and strong growth by UK Retail
despite a softening market.

The operating proﬁt for the Group, of £176.4m,
was 9.2% above 2004. This performance includes a net
exceptional loss of £13.0m. Excluding this, operating
proﬁt before exceptional items (hereafter termed trading
proﬁt) is £189.4m, which is some 10.1% or £17.3m
higher than 2004. Encouragingly, despite challenging
market conditions, trading proﬁts grew by over 10.0% in
ﬁve of our six core markets. A record sales performance
and increased level of aftersales activity underpinned 
a 16.1% growth in Singapore. Australia also beneﬁted
from record sales, and enjoyed a strong retail
performance. Increasing competitiveness in our core
markets, however, put pressure on margins in the
second half of the year.

Headline proﬁt before tax was up 13.0% to £190.3m

and Headline earnings per share increased by 14.6%
from 155.7p to 178.5p in the year.

Australia
Trading proﬁt 2005
+13.5% to £31.9m (2004: £28.1m)
Number of employees
832
Brand partners
Subaru
Kia
The Australian vehicle market enjoyed a ﬁfth consecutive
year of growth, and at c. 988,000 was 3.5% up on 
2004. Subaru signiﬁcantly outperformed this, growing
7.2% compared to 2004, with sales of the Forester
and Impreza achieving their highest ever levels. 
Subaru volumes of c. 36,000 units reached record levels
for the tenth successive year. Furthermore, Subaru set 
yet another record full year market share of 3.6%. 

Hyundai
Mitsubishi

Volkswagen

Our Subaru Distribution business suffered margin

pressure in 2005 due to the competitive market.
Trading proﬁts for Subaru Melbourne were up
over 25.0% for the second successive year. A focus
on customer experience and operational excellence has
delivered growth in volumes, particularly used cars which
were up over 12.0% on the prior year, and increased
aftersales. This business continues to exceed our
expectations and achieved trading margins of 5.0%. 
In 2005 we completed the re-engineering of our 

non-Subaru dealer network in Sydney, exiting from
underperforming non-core dealerships. Our performance
beneﬁted from this and with the contribution from 
two new Subaru retail centres acquired in the second
half of 2004, Sydney Retail returned to proﬁt in 2005. 
Our Business Services operation, AutoNexus, 
had a strong year with proﬁts up 23.9%. We have
invested in a new parts warehouse in Sydney and a
larger vehicle compound in Melbourne, in response 
to increased customer demand.

Overall, the strong progression in our Retail 
business contributed to an increase of 10.3% in 
trading proﬁts compared to 2004 at constant currency.
Margins improved from 5.0% to 5.2%.

The Subaru range is further developing in 2006 
with the introduction of a new entry level Liberty 2.0R
and special editions, together with the addition of a 
ﬁfth model to the line up with the launch of the new 
B9 Tribeca in the last quarter of the year. All this should
result in increased vehicle sales for Subaru.

Trevor Amery Chairman: Australia  
John McConnell Regional Managing Director: Australia

Inchcape plc
Annual report and accounts 2005

16
Operating and ﬁnancial review continued
Operating review continued

Belgium 
Trading proﬁt 2005
+11.1% to £14.0m (2004: £12.6m)
Number of employees
311
Brand partners
Toyota/Lexus
The Belgian vehicle market was ﬂat year on year at
c. 552,700 units. In a market dominated by diesel
products, Toyota Belgium beneﬁted from new diesel
derivatives, particularly the Corolla 1.4 litre. This assisted
Toyota in outperforming the market, improving its market
share from 4.9% in 2004 to 5.0% in 2005 and increasing
volumes by 2.9%. This was an encouraging performance
given that two of Toyota’s core products, the Yaris and
RAV4, were in run out prior to the launch of new models
in early 2006.

The good performance was offset however, 
by certain discontinued niche models and a weaker
model mix resulting in revenue decline of some 2.6%.
Trading proﬁts beneﬁted from the higher parts and

accessories sales, allied to the growth in the Toyota 
car parc, tight control of overheads and the favourable
settlement of claims following the dealer network
reorganisation undertaken in 2002. This drove an 
11.1% increase in trading proﬁts to £14.0m.

The next generation Yaris, RAV4 and Lexus IS
models were showcased at the Brussels Motor Show
in January 2006 and were well received.

Greece 
Trading proﬁt 2005
–22.0% to £13.8m (2004: £17.7m)
Number of employees
422
Brand partners
Toyota/Lexus
Our Toyota/Lexus business in Greece experienced a
challenging year in 2005, facing signiﬁcant year on year
decline in a more competitive market.

The Greek vehicle market enjoyed strong consumer

demand in 2004, stimulated in part by the Olympics.
Demand started to weaken, however, in late 2004
and this trend continued throughout 2005. For the full
year the market of c. 292,800 units was 6.2% down
compared to 2004. Our full year market share in 
2004 was 9.6%. Our full year market share for 2005 
was 8.5% although this showed an improvement
compared to the second half of 2004. 

Like Belgium, Toyota in Greece also suffered 
from the run out of the core Yaris and RAV4 models. 
This, coupled with supply shortages, particularly with 
the Corolla and Hilux models, and the disruption from
the network reorganisation undertaken in late 2004,
had an adverse impact on market share in 2005. 
Overall, the performance from our Athens and

Salonica Retail businesses was disappointing. 
The start up of our new Athens ﬂagship retail centre,
which opened in late 2004 has been slower than
expected. This, combined with operational inefﬁciencies
in Salonica, has resulted in a net trading loss for our 
Retail business in 2005.

All these factors had an adverse impact on margins,

particularly in the second half of 2005, and overall the
region achieved a trading proﬁt of £13.8m for the year,
some 22.0% lower than 2004.

The Toyota model line up was broadened by the 
launch of the new Aygo model in mid 2005, which has
increased market appeal for Toyota. In early 2006 we
launched the next generation Yaris and RAV4 models.

Martin Taylor Regional Managing Director: Belgium and Greece

Inchcape plc
Annual report and accounts 2005

17

Hong Kong
Trading proﬁt 2005
+12.5% to £28.8m (2004: £25.6m)
Number of employees
1,159
Brand partners
Toyota/Lexus
Daihatsu
Mazda
Jaguar
Consumer conﬁdence in the vehicle market in Hong
Kong has been slower to return than we anticipated. 
The 2005 full year vehicle market was approximately 
in line with the c. 31,000 units achieved in 2004. 
Crown Motors, our Toyota/Lexus business,

maintained its strong market leadership in 2005 with a
33.1% market share. This was slightly lower than 2004
due to supply constraints, particularly in the ﬁrst half 
of the year, and increased competitive pressure.
Crown Motors achieved the Toyota Triple Crown Award
for the fourteenth consecutive year, and is the only
distributor ever to have achieved this.

A higher level of one off specialist service work

supported a strong performance in the parts and
aftersales activities. This, together with a favourable
vehicle mix, drove an improvement in overall trading
margins from 10.8% in 2004 to 11.5% in 2005, excluding
a one off property proﬁt of £0.9m. Overall trading proﬁts
improved by 12.5%.

Toyota/Lexus are launching various new models 
in early 2006, including the next generation Camry,
Previa and Lexus models.

Singapore
Trading proﬁt 2005
+16.1% to £62.1m (2004: £53.5m)
Number of employees
773
Brand partners
Toyota/Lexus
Suzuki
In Singapore we once again had an outstanding year,
achieving record unit sales and proﬁtability. This was
mainly due to the strong performance from Borneo
Motors, our Toyota/Lexus business.

In Singapore, a Certiﬁcate of Entitlement (COE),
obtained from the Government, is required to purchase a
new vehicle. Since May 2002 the market has beneﬁted
from a change in ﬁscal policy, which coupled with the
declining price of the COE has encouraged consumers
to scrap their cars before the expiry of the ten year COE
term. This has stimulated a strong market, which has
grown by an average of 12.4% per annum between
2001 and 2005. In 2005 the market reached a record
level of c. 122,100 units. 

Toyota/Lexus retained overall market leadership 
in 2005 for the fourth consecutive year with a market
penetration of 29.7%. This was marginally below the
30.9% reached in 2004 as Borneo Motors suffered 
from supply constraints and the discontinued Liteace
commercial van.

Recognising the recent growth in the Toyota vehicle

parc, we commenced an investment programme in
2004 to increase aftersales capacity. During 2005 we
opened a further satellite aftersales facility.

The higher vehicle sales and aftersales volumes,
together with softening COE prices, helped the region 
to increase trading proﬁts by 13.5% at constant
exchange rates. The strengthening of the Singapore
dollar gave rise to a £1.4m currency translation beneﬁt
and, including this, overall trading proﬁts increased by
16.1%. Trading margins strengthened from 8.2% in 
2004 to 8.6% in 2005.

William Tsui Regional Managing Director: Hong Kong and Singapore

Our ﬁnance and insurance model has changed from 
an exclusive arrangement to a competitive market
placement, which increased proﬁtability.

UK Retail full year trading margins progressed 

from 1.7% in 2004 to 2.0% in 2005.

Inchcape Automotive experienced another difﬁcult
year and reported a loss in 2005. The focus during the 
year has been on resolving production inefﬁciencies,
improving processes and strengthening management.
Inchcape Fleet Solutions continued to beneﬁt from
new contract wins, and the number of vehicles under
ﬂeet management grew by 25.8%. 

Excluding the prior year contribution from the
Ferrari/Maserati import and distribution business, 
which we relinquished in late 2004, UK trading proﬁts
increased by 28.1%.

Inchcape plc
Annual report and accounts 2005

18
Operating and ﬁnancial review continued
Operating review continued

United Kingdom
Trading proﬁt 2005 
+13.2% to £29.2m (2004: £25.8m)
Number of employees
4,736
Brand partners
BMW/MINI
Mercedes-Benz/smart
Toyota/Lexus 
The Premier Automotive Group of Ford
Ford
Volkswagen
Ferrari/Maserati
Renault
Vauxhall

In the UK total trading proﬁts improved signiﬁcantly
compared to 2004, despite the fact that the UK
passenger car market declined by 5.0% to 2.4m units.
Trading proﬁts from our UK Retail operations grew 
by 41.9% to £27.6m. Like for like trading proﬁts increased
by 10.6%, and our like for like used car sales were up
10.0%. Our like for like new retail sales fell, but at a
lesser rate than the market. Like for like aftersales hours
sold rose by 1.6%, and associated proﬁts increased 
by 5.8%. In particular our Mercedes-Benz, Land Rover,
Vauxhall, Ford and Volkswagen franchises performed well
during the year. Overall the impressive performance has
been driven by our focus on process improvements,
operational excellence and customer centric initiatives
such as ’Insight’.

UK Retail trading proﬁts also beneﬁted from the
acquisition of new Mercedes-Benz retail centres in the
East Midlands in 2004, and in the north west in 2005.
These have been successfully integrated into our 
UK Retail operation and in the second half of 2005,
having applied our customer centric processes and
procedures, these businesses ranked ﬁrst and third in
Mercedes-Benz’s national customer satisfaction indices. 

Graeme Potts Regional Managing Director: United Kingdom

Inchcape plc
Annual report and accounts 2005

19

Central costs
2005
£18.8m (2004: £17.9m)
Number of employees
67
In 2004, Central costs included a net one off recovery
relating to the settlement of various litigation issues.
Excluding this, underlying Central costs for 2004 were
£18.5m. Tight control of overheads has meant that
Central costs for 2005 are marginally higher at £18.8m.
This is despite additional share-based payment costs
arising on the transition to IFRS.

Other
Trading proﬁt 2005
+6.4% to £28.4m (2004: £26.7m)
Number of employees
2,125
Brand partners
Toyota/Lexus
BMW/MINI
Mazda
Jaguar
Land Rover
Subaru
Volkswagen/Audi
We achieved another year of market leadership 
for our Toyota businesses in Guam, Saipan, Brunei 
and Ethiopia. Together they delivered trading proﬁts of
£15.3m, which were some 18.6% higher than 2004.

The Balkans have experienced strong market growth,

particularly in Bulgaria and Romania as they prepare 
to join the European Union in 2007. This growth has
underpinned a 43.6% increase in unit sales. In Bulgaria,
Toyota was the passenger car market leader with a
market share of 8.7% and a 35.2% increase in new
vehicle volumes. In Romania, Toyota achieved a market
share of 3.4% and an increase in volumes of almost
66.0%. Our Retail investments are progressing well,
with a new facility planned for Bucharest in 2006. 
Overall trading proﬁts in the Balkans have increased 
by 58.1% to £6.8m in 2005.

The market slowdown in Finland seen in the second

half of 2004 continued into early 2005. This, together
with a softening in market share, contributed to a decline
in trading proﬁts of over 45.0% to £3.9m.

Our Retail operations in Estonia and Latvia, acquired
in December 2004 and April 2005 respectively, sold over
2,780 new and used Mazda, Jaguar and Land Rover
vehicles in 2005. 

The start up of our BMW/MINI operations in Poland
was slower than expected, due to a weak new car market.
Our Retail business in France was impacted by 
the poor national performance of Jaguar, despite the
contribution from the newly acquired Volkswagen/Audi
business in Montpellier.

An 8.3% increase in volumes and improved margins

in our Subaru New Zealand business underpinned a
45.5% increase in trading proﬁts to £1.6m.

In 2005 our BMW/MINI operations in Chile and 
Peru achieved a 68.4% increase in trading proﬁts, due 
in part to the reduction in the luxury vehicle tax in Chile.
New vehicle volumes grew by 34.2%, compared to
2004, and trading proﬁts increased to £3.2m.

Inchcape plc
Annual report and accounts 2005

20
Operating and ﬁnancial review continued
Financial review

Operating profit before exceptional items £m

Ordinary dividend per share pence

189.4

57.0

172.1

50.0

133.7

38.0

108.8

31.0

2002*

2003*

2004

2005

2002

2003

2004

2005

Operating profit before exceptional items is 10.1% higher than in 2004.

This year the dividend has increased by 14.0% to 57.0p.

*Pro forma to adjust UK GAAP for main IFRS differences (stock holding  
interest and pensions).

Cash and debt balances after cross border loans
£m

Cash

Debt

Australian dollar

Euro

Hong Kong dollar

Singapore dollar

Other

Total (other than sterling)

Total sterling

Total

15.8

36.3

7.9

29.1

32.2

121.3

187.7

309.0

–

(3.6)

–

–

(2.4)

(6.0)

(145.0)

(151.0)

115.3

42.7

158.0

Foreign currency translation

Net

15.8

32.7

7.9

29.1

29.8

Australian dollar

Euro

Hong Kong dollar

Singapore dollar

2005

2.38

1.46

14.16

3.02

Average rates
2004

2.48

1.47

14.22

3.09

2005

2.34

1.46

13.31

2.85

Year end rates
2004

2.45

1.41

14.92

3.13

This Annual report and accounts is the ﬁrst
full year set of ﬁnancial statements to be
prepared in accordance with IFRS.

Inchcape plc
Annual report and accounts 2005

21

International Financial Reporting Standards
Until 31 December 2004, the Group prepared its
Financial statements under UK Generally Accepted
Accounting Principles (UK GAAP). European Union
regulations require that the Group’s consolidated
accounts apply International Financial Reporting
Standards (IFRS) from 1 January 2005. This Annual
report and accounts is the ﬁrst full year set of Financial
statements to be prepared in accordance with 
the standards.

Reconciliations between previously reported UK
GAAP numbers, and those under IFRS, are set out in
note 33 to the accounts. There are a number of ﬁrst time
adoption exemptions, which companies are permitted to
use upon transition to IFRS. Those applied by the Group
are set out in the Accounting policies on page 50.

As a result of these ﬁrst time adoption exemptions,

the Group has adopted IAS 32 Financial Instruments:
Disclosure and Presentation and IAS 39 Financial
Instruments: Recognition and Measurement, with 
effect from 1 January 2005, with no restatement of
previous comparative information. This had the effect 
of decreasing shareholders’ equity by £4.5m at 
1 January 2005. Cash balances and bank overdrafts 
are disclosed at the gross level in the balance sheet,
under IAS 32. Although there is the legal ability, there is 
no intention to settle these amounts net. This has had
the effect of grossing up cash and borrowings in the
balance sheet.

In addition the Group has chosen to adopt the

amendment to IAS 19 Employee Beneﬁts early. 
Actuarial gains and losses are recognised in the
Consolidated statement of recognised income 
and expense in full, in the year in which they arise.

Pensions
The net pension schemes deﬁcit has widened from
£58.9m at 31 December 2004 to £69.4m at
31 December 2005. This movement was principally
attributable to a reduction in long term interest rates,
combined with the use of updated mortality assumptions
generating an increase in the gross pension liability. 
It was, however, partially offset by a strengthening 
in equity markets, which increased the value of the
pension plan assets.

Exceptional items
In 2005, the aggregate net exceptional items
amounted to £13.0m. This included £19.5m to fully
impair the carrying value of goodwill relating to Inchcape
Automotive, which reﬂects the continuing difﬁcult trading
conditions experienced by the business. Offsetting this
was £6.5m of exceptional income arising from the
release of litigation provisions on the settlement and
expiry of a number of claims, relating to non-motors
business exits.

Net ﬁnance costs
The 2004 net ﬁnance cost of £6.1m beneﬁted from a
one off interest income of £4.2m, relating to the Group’s
VAT recovery. Excluding this, the 2004 net ﬁnance costs
totalled £10.3m.

The net ﬁnance costs for 2005 are substantially

lower than the 2004 underlying interest charge at £5.3m.
This decrease is mainly a result of the full year beneﬁt
of the c. £135.0m cash repatriation to the UK, effected 
in November 2004. This resolved the mismatch between
debt in the UK and cash held overseas in countries 
with low interest rates. Stock holding interest of 
£8.7m was up from £7.2m in 2004, primarily due to 
the Mercedes-Benz acquisitions in the UK.

Tax
The subsidiaries Headline tax rate before exceptional
items for 2005 is 25.5%, compared to 26.6% in 2004.
In 2005 the rate beneﬁted from a favourable change
in proﬁts mix to lower tax jurisdictions and minimal
losses in the UK, due to improved trading and the 
impact of the c. £135.0m cash repatriation in late 2004.
We anticipate that the subsidiaries Headline tax 
rate in 2006 will be broadly in line with the rate in 2005.
We remain in ongoing discussions with HM Revenue

& Customs regarding the corporate tax treatment of 
the VAT recovery and associated interest. The provision
remains unchanged at £8.0m.

Inchcape plc
Annual report and accounts 2005

22
Operating and ﬁnancial review continued
Financial review continued

Joint ventures and associates
The share of proﬁt after tax of joint ventures and
associates has decreased from £7.8m in 2004 to £6.2m
in 2005. The 2004 results included a £1.2m exceptional
property proﬁt. Excluding this, the reduction in 2005
is largely due to the sale of the 40.0% stakes in MCL
Group Limited and Automotive Group Limited in July
2004 and a reduced contribution year on year from
Inchroy, our Financial Services joint venture in Hong
Kong. This has been partly offset by improved trading 
in the Group’s joint venture in Greece and associate 
in Belgium.

Minority interests
Proﬁt attributable to minority interests has increased
from £3.2m to £3.8m year on year. This has resulted
from continuing growth in the Bulgarian business.

Exchange rates
If the average exchange rates, which prevailed during
2004 had continued into 2005 the Group’s Headline
proﬁt before tax would have been £3.4m lower. 
The strengthening of the Singaporean and Australian 
dollars against sterling, particularly in the second half,
beneﬁted the Group year on year.

Cash ﬂow
The Group has generated strong cash ﬂow from
operations in 2005 and is some 12.8% higher than
the prior year, excluding the VAT receipt of £15.5m 
in 2004 and £1.8m in 2005.

The Group continues to manage working capital

tightly. At 31 December 2005, working capital was
£34.7m higher than the 2004 year end position.
This was partly due to c. £7.4m arising on businesses
acquired. The net increase reﬂects the higher levels of
trading across the Group and the impact of some timing
differences, which included increased stock levels in
Belgium in anticipation of the Brussels Motor Show 
in January 2006.

During the year the Group returned £73.0m to
shareholders with £42.0m through dividend payments
and £31.0m through the share buy back programme. 
In addition, the Group has invested £78.0m in acquisitions
and net capital expenditure during the year.

Overall the Group’s net cash position has increased by
£6.1m from £151.9m at 31 December 2004 to £158.0m
at 31 December 2005.

Acquisitions and disposals
The Group added six Mercedes-Benz retail centres to 
its portfolio, with the acquisition of the Robert Smith
Group Limited and its subsidiaries in the ﬁrst half of
2005. Total consideration was £18.2m, of which £0.9m 
is deferred.

No other signiﬁcant acquisitions or disposals were

made during the year.

Capital expenditure
Capital expenditure less disposal proceeds was £48.1m,
which is £25.3m in excess of the depreciation charge.
This incremental investment primarily took place in our
BMW and Mercedes-Benz retail centres in the UK, as
part of the redevelopment and upgrading of the facilities.

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,
market price 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. In July 2005, the Group took
advantage of the favourable market conditions and
amended and restated its syndicated committed
borrowing facility, originally put in place in 2002. 
The maturity of this facility has been extended for a
further ﬁve years to 2010, with the option for a further
extension to 2012.

The facility was also increased from £250.0m to
£275.0m, with additional focus given to the banking
group by reducing the number of banks from thirteen 
to nine. The facility was not drawn at the year end.
Loan notes totalling £2.2m outstanding at 
31 December 2004 were redeemed during the year. 
At 31 December 2005 there were no further loan 
notes outstanding.

Inchcape plc
Annual report and accounts 2005

23

In addition to the committed facilities, the Group has
access to uncommitted borrowing lines made available
by relationship banks. These facilities are used for
liquidity management purposes. At the year end these
facilities had not been utilised.

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
on page 20.

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 mandatory requirement
for Certiﬁcates of Entitlement for new car sales.

Interest rate risk
The Group’s interest rate policy has the objective of
minimising net interest expense, and protecting the
Group from material adverse movements in interest
rates. Throughout 2005 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.

Market price risk
The Group is exposed to price risk on its available for
sale assets. The Group is not exposed to commodity
price risk.

Currency risk
The Group faces currency risk on its net assets and
earnings. A signiﬁcant proportion of this is in currencies
other than sterling. On translation into sterling, currency
movements can affect the Group balance sheet and
income statement. Group policy is to minimise balance
sheet translation exposures, where ﬁscally efﬁcient. 
This is achieved 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. 
In particular there is an Australian dollar/Japanese yen
exposure arising from the importation of vehicles from
Japan to Australia. 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 brand partners. For those
businesses that continue to be billed in foreign currency,
including Australia, Group policy is that committed
transactional exposures must be 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.

Inchcape plc
Annual report and accounts 2005

24
Operating and ﬁnancial review continued
Corporate social responsibility

Our international operations have resulted 
in a diverse range of people, cultures and
lifestyles, which enrich Inchcape as a whole.

Inchcape plc
Annual report and accounts 2005

25

Inchcape has a Corporate Social Responsibility (CSR)
Committee, which 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.

This section looks at the three areas, which
encompass CSR for the Group. They are as follows.
Our people and values
The environment in which we operate, including health
and safety issues
Inchcape in the community

Our people and values
Inchcape recognises that success depends on
maintaining the quality, motivation and commitment 
of its employees in every market in which it operates. 
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,
brand partners 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. These are our
customers, brand partners, employees and shareholders,
and we work hard to earn their respect.
Results 
We set ourselves challenging targets and endeavour 
to exceed 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 values, and individuals are
asked to provide examples of how they have demonstrated
the values in their work.

Inchcape’s employment philosophy is simple; 

we want to attract, motivate and retain the best people 
for our business. The following examples demonstrate
some of the innovative recruitment, induction and
development practices in place throughout the Group.

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

We continuously look to increase the levels of health
and safety standards in the workplace, and 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, brand partners 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.

Implementation of the Policy is the responsibility of the
management within each of our businesses. 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.

In 2005, a number of initiatives were implemented to
improve and promote EHS standards across the Group.

Inchcape plc
Annual report and accounts 2005

26
Operating and ﬁnancial review continued
Corporate social responsibility continued

Belgium
Toyota Belgium provides all permanent colleagues 
with a comprehensive and exciting training programme,
which may also include an assignment to the Toyota 
stand during the Brussels Motor Show. 

During a period of two weeks they help customers

with their queries and sell cars. This has proved to be 
a fantastic experience for our colleagues, who gain 
ﬁrst hand experience of customer interaction and the
dynamism required for a career in the car industry.

Hong Kong
Many of our young managers at Crown Motors, our
Toyota/Lexus business in Hong Kong, have come up
through the leading edge graduate programme in place
for this business. 

Crown Motors receives more than 2,000 applicants
per annum for the four places on its graduate scheme,
which is a clear measure of how highly regarded it is 
as an employer.

Singapore
In 2005, Borneo Motors launched its Scholarship 
Awards initiative in order to promote itself as a socially
responsible company.

The Awards, designed to develop the community’s

young people, are given to exceptional students
attending the Automotive Engineering course, at the
Institute of Technical Education. The students undertake
work experience at Borneo Motors during their holiday
time and participate in Company events including the
Technician Skills Contest. This allows them to explore 
the world of Borneo Motors, where, if successful, 
they may be offered a position.

Scholarship Awards were presented to ten students

in 2005. They were invited to attend a ceremony with
their families, and the management team at Borneo
Motors, in recognition of their achievement.

United Kingdom
The Inchcape Academy, which we ﬁrst introduced in 
the UK in 2004, achieved signiﬁcant success in 2005. 
More than one hundred managers from the UK

attended various leadership development and management
skills courses, and at the end of 2005 we welcomed our
ﬁrst European attendees. Feedback from our colleagues
on the Academy remains very positive, and we expect
some 300 managers to attend during 2006.

Inchcape plc
Annual report and accounts 2005

27

Inchcape in the community
Our international operations have resulted in a diverse
range of people, cultures and lifestyles, which enrich
Inchcape as a whole. We therefore encourage our
colleagues to become involved in charitable projects 
at a local level, in order to help the communities in 
which we operate.

The tsunami at the end of 2004 however, drew
worldwide attention and in response Inchcape formed 
a partnership in 2005 with the global charity, CARE
International (CARE). 

Working together, Inchcape and CARE have provided

assistance to tsunami victims in Somalia. This was the
worst affected region in Africa and approximately 300
people died, with 7,300 households, in over forty villages,
affected by the disaster.

As part of the project, Inchcape worked with 
CARE to support ﬁshing based livelihood programmes 
in Somalia. We have provided engine powered ﬁshing
boats, and equipment, such as nets and hooks,
for families whose livelihoods were destroyed by 
the tsunami.

Charitable and political donations
In the UK, Inchcape and its subsidiaries have donated
funds throughout the year totalling £0.1m (2004 – £0.1m).
Total charitable donations made by the Group worldwide
during the year were £0.3m (2004 – £0.4m). These ﬁgures
exclude personal contributions from our colleagues.
No political donations were made in 2005 

(2004 – nil).

Australia
Our Subaru business in Australia has formed a long term
partnership with Environmental Recovery Services (ERS)
in a national workshop waste management programme.
The partnership demonstrates Subaru’s commitment

to the environment and involves ERS managing,
collecting and recycling waste resulting from vehicle
maintenance in the Subaru service centres. 

Belgium
In Belgium, we have a dedicated resource working 
on environmental issues relating to the ISO 14001
environmental certiﬁcate. ISO 14001 is an assessment
of the environmental impact a business has when
conducting its daily activities. 

In 2005 our business in Belgium was evaluated 

on energy usage, recycling, use of ofﬁce supplies,
workshop practices and our effect on wildlife and plant
ecosystems. The evaluation resulted in the Inchcape
head ofﬁce and Lexus dealer network in Belgium
achieving the ISO 14001 certiﬁcation, and we are now
looking to achieve the same standard in our other
Belgian operations.

Hong Kong
We place particular emphasis on risk assessments in 
the workplace, with each employee receiving structured
Health and Safety training in this area. An example 
of how we look to reduce the number of work related
incidents can be seen in our Mazda and Jaguar
warehouses. In these operations, we have replaced
traditional storage racks with a new system designed 
to eliminate high level storage. This helps avoid the 
risk of injury through overhead lifting.

Singapore
Our Toyota/Lexus business in Singapore, Borneo Motors,
works closely with Crown Motors, our Toyota/Lexus
operation in Hong Kong, on workplace assessments.
They are particularly focused on the layout of workshops
in respect to the safety of moving vehicles around
employees and customers.

All workshops, in Singapore and Hong Kong, have
now been resurfaced with slip resistant and oil repellent
resin, which, when combined with frequent cleaning,
ensures that vehicle ﬂuids are collected and disposed 
of before they can cause injury or pollution.

Inchcape plc
Annual report and accounts 2005

28
Board of directors

Peter Johnson (c) Chairman 
Age 58. 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 until 31 December 2005 and
Non-executive Chairman on 1 January 2006. 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 was appointed as a Non-executive Director of Bunzl plc on 
1 January 2006. 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.

Will Samuel (a) (b) (c) * Deputy Chairman and 
Senior Independent Non-executive Director 
Age 54. 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
and Ecclesiastical Insurance Group. 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 and Chairman of H.P. Bulmer PLC.

André Lacroix (c) Group Chief Executive 
Age 46. Joined the Group as Group Chief Executive Designate 
on 1 September 2005 before becoming Group Chief Executive 
on 1 January 2006. He was Chairman and Chief Executive Ofﬁcer 
of Euro Disney S.C.A. from mid 2003 to mid 2005 and President 
of Burger King International from mid 2000 to mid 2003.

Raymond Ch’ien Non-executive Director 
Age 54. Joined the Inchcape Board in July 1997. Raymond Ch’ien is
Chairman of CDC Corporation and its subsidiary, China.com Inc. 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 Hongkong and Shanghai Banking
Corporation Limited, Convenience Retail Asia Limited, VTech Holdings
Ltd and The Wharf (Holdings) Limited.

Graeme Potts Managing Director, Inchcape UK,
Europe and South America Retail
Age 48. 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.

Karen Guerra (b)* Non-executive Director 
Age 49. Joined the Inchcape Board on 1 January 2006. Karen Guerra
is President of Colgate Palmolive SAS and General Manager of the
French Branch of CPI LLC. Prior to this, she was Chairman and
Managing Director of Colgate Palmolive UK Limited and a
Non-executive Director of More Group plc.

Inchcape plc
Annual report and accounts 2005

29

Sir John Egan (c)
Age 66. 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. Sir John retired from
the Board and as Chairman on 31 December 2005.

Members of the Audit Committee (a)
Dates of appointment/resignation:
Ken Hanna Chairman
(Member – 27 September 2001)
Chairman – 16 May 2002
Simon Robertson
25 June 1996 to 12 May 2005
Will Samuel
26 January 2005
David Scotland
24 February 2005
Michael Wemms
29 January 2004

Members of the Remuneration Committee (b)
Dates of appointment/resignation:
Michael Wemms Chairman 
(Member – 29 January 2004)
Chairman – 13 May 2004
Karen Guerra
1 January 2006
Ken Hanna
27 September 2001
Simon Robertson
3 August 2000 to 12 May 2005
Will Samuel
26 January 2005
David Scotland
24 February 2005

Members of the Nomination Committee (c) 
Dates of appointment/resignation:
Peter Johnson Chairman
(Member – 1 July 1999) 
Chairman – 1 January 2006
Sir John Egan
Chairman – 15 June 2000 to 31 December 2005
Ken Hanna
26 February 2004
André Lacroix
1 January 2006
Simon Robertson
25 June 1996 to 12 May 2005
Will Samuel
1 April 2005
David Scotland
29 November 2005
Michael Wemms
29 July 2004

*Independent Non-executive Director

Ken Hanna (a) (b) (c) * Non-executive Director 
Age 52. 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.

David Scotland (a) (b) (c) * Non-executive Director
Age 58. Joined the Inchcape Board in February 2005. David Scotland
was an Executive Director of Allied Domecq PLC from 1995 to 2005.
He is also a Non-executive Director of Brixton plc, and was previously
a Non-executive Director of Photo-Me International plc and Thompson
Travel Group plc.

Michael Wemms (a) (b) (c) * Non-executive Director 
Age 66. 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.

Inchcape plc
Annual report and accounts 2005

30
Directors’ report

The Directors present the Annual report and accounts and audited
Financial statements for the year ended 31 December 2005. For the
purposes of this report ‘Company’ means Inchcape plc and ‘Group’
means the Company and its subsidiary and associated undertakings.

Share capital
Details of the changes to the Company’s issued ordinary share capital
are shown in note 24 on pages 84 and 85.

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 8 to 23.

Results and dividends
The Group’s audited Financial statements for the year ended 
31 December 2005 are shown on pages 46 to 98. The Board
recommends a final ordinary dividend of 38.0p per ordinary share. 
If approved at the 2006 Annual General Meeting (AGM), the final
ordinary dividend will be paid on 16 June 2006 to shareholders
registered in the books of the Company at the close of business 
on 19 May 2006. Together with the interim ordinary dividend of
19.0p per ordinary share, paid on 12 September 2005, this makes 
a total ordinary dividend for the year of 57.0p (2004 – 50.0p).

Authority to purchase shares
On 28 February 2005, the Company announced its intention to return
£65.0m to shareholders through a share buy back programme.
Following that announcement, between 15 April 2005 and 12 May
2005, the Company purchased into Treasury 895,901 ordinary 
shares (representing 1.1% of the Company’s issued share capital on
12 May 2005) pursuant to the authority granted at the Company’s
2004 Annual General Meeting held on 13 May 2004, at a cost of
some £16.9m as part of the programme.

At the Company’s 2005 Annual General Meeting on 12 May

2005, the Company was authorised to make market purchases of 
up to 7,970,466 ordinary shares (representing approximately 10.0% 
of its issued share capital). Pursuant to that authority, the Company
purchased into Treasury a further 785,437 ordinary shares
(representing 1.0% of the Company’s issued share capital on 
24 May 2005, the date the shares were purchased), at a cost of
some £14.0m. The nominal value of total shares purchased into
Treasury so far is £2.5m. Following these purchases, the authority
granted in 2005 now covers a total of 7,185,029 ordinary shares
(representing 8.9% of the Company’s issued share capital on 
31 December 2005). All purchases were made through the market.

Substantial shareholdings
As at 5 March 2006, 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: 

Holding

Standard Life Investments 

Toyota Motor Corporation 

Fidelity Investments 

Legal and General Investment Management 

Total %

5.69

5.25

4.52

3.72

Directors
The names of the Directors, plus brief biographical details, including
those Directors offering themselves for election or re-election, are
given on pages 28 and 29. They all held office throughout the year
other than Will Samuel, David Scotland and André Lacroix, who were
appointed to the Board on 26 January 2005, 24 February 2005 and 
1 September 2005 respectively. Simon Robertson retired from 
the Board on 12 May 2005. Following his retirement, Will Samuel
was appointed as Deputy Chairman and Senior Independent 
Non-executive Director on 12 May 2005. Alan Ferguson resigned
from the Board on 14 September 2005 and Sir John Egan retired
from the Board on 31 December 2005. 

With effect from 1 January 2006, the following changes took

place: Peter Johnson was appointed Chairman of the Board, 
having retired as Group Chief Executive on 31 December 2005;
André Lacroix became Group Chief Executive; and Karen Guerra 
was appointed to the Board as a Non-executive Director.

As announced on 7 December 2005, Barbara Richmond will join

the Board on 3 April 2006 as Group Finance Director.

In accordance with the Articles of Association of the Company,
André Lacroix, Karen Guerra and Barbara Richmond, will retire at the
AGM and offer themselves for election. Peter Johnson will retire at
the AGM and offer himself for re-election. Raymond Ch’ien and
Graeme Potts will retire by rotation at the AGM and offer themselves
for re-election in accordance with the Articles of Association.

Inchcape plc
Annual report and accounts 2005

31

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 2005.

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.

Sir John Egan

Peter Johnson

André Lacroix

Graeme Potts

Raymond Ch'ien

Ken Hanna 

Will Samuel

David Scotland 

Michael Wemms 

Ordinary shares of 150.0p each

31 December 2005

1 January 2005*

4,300

54,093

10,000

21,501

20,000

2,000

2,000

842

500

23,500

64,969

Nil

15,847

20,000

2,000

Nil

Nil

500

*(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 (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 2005, the Trust’s shareholding totalled 468,362 ordinary
shares (1 January 2005 – 733,792 ordinary shares).
(b) Karen Guerra was appointed a Director on 1 January 2006. She held no interest in
the ordinary shares of the Company on that date.
(c) No Director had any beneficial interest in the subsidiaries of the Company.

Between 1 January and 5 March 2006 the Trustees of the Inchcape
Employee Trust made the following transfer of ordinary shares to
satisfy the exercise of awards by Peter Johnson under the Inchcape
Deferred Bonus Plan. 

Date

3 January 2006

Ordinary shares of 150.0p each transferred

17,158

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 notes 3 and 4 on pages 41 to 43.

Transactions with Directors
No transaction, arrangement or agreement required to be disclosed 
in terms of the Companies Act 1985 and IAS 24 was outstanding 
at 31 December 2005, or occurred during the year for any Director
and/or connected person (2004 – none).

Creditor payment policy
The Company has no trade creditors (2004 – 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.

Charitable and political donations
The Group’s policy on charitable and political donations, including 
the amounts, is shown on page 27.

Environment
The Group’s policy on environment, health and safety is shown on
page 26.

Events after the balance sheet date
See note 32 on page 92.

Annual General Meeting
The Annual General Meeting will be held at 11.00am on Thursday 
11 May 2006 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.

The business of the meeting will include a proposal to sub-divide into
six the Company’s ordinary shares of 150.0p each, together with
proposals to renew:

existing authorities for Directors to allot securities in the

(i)
Company; and

(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 7,970,466 ordinary shares of 150.0p each, 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
6 March 2006

Inchcape plc
Annual report and accounts 2005

32
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. 

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 36 to 43, explains how the Company has applied the
principles and complied with the provisions set out in the Code.
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.

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) (retired 31 December 2005)

Peter Johnson (appointed Chairman 1 January 2006)

Raymond Ch’ien 

Alan Ferguson (resigned 14 September 2005)

Ken Hanna 

André Lacroix (appointed 1 September 2005)

Graeme Potts 

Simon Robertson (retired 12 May 2005)

Will Samuel (appointed 26 January 2005)

David Scotland (appointed 24 February 2005)

Michael Wemms

Nomination Committee

Number of meetings held 

Sir John Egan (Chairman) (retired 31 December 2005)

Peter Johnson (appointed Chairman 1 January 2006)

Ken Hanna 

Simon Robertson (retired 12 May 2005)

Will Samuel (appointed 1 April 2005)

David Scotland (appointed 29 November 2005)

Michael Wemms 

Scheduled

Ad hoc

8

7

8

7

6

8

2

8

4

8

6

8

3

2

3

1

1

1

1

2

0

2

2

2

Scheduled

Ad hoc

3

3

3

2

1

2

0

3

6

5

6

1

1

5

1

6

Remuneration Committee

Scheduled

Ad hoc

There are clear written Terms of Reference for the responsibilities

Number of meetings held 

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 are held as required in order for the 
Board and the committees to discharge their respective duties
sufficiently. The number of meetings held is shown in the adjacent
table. In addition, the Board held a strategy review.

The names and biographical details of the Chairman, the Deputy
Chairman and Senior Independent Non-executive Director, the Group
Chief Executive, and the Chairmen and members of the principal
committees can be found on pages 28 and 29. 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 is the normal practice for the
Director’s comments on the business of the meeting 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. 

Michael Wemms (Chairman)

Ken Hanna 

Simon Robertson (retired 12 May 2005)

Will Samuel (appointed 26 January 2005)

David Scotland (appointed 24 February 2005)

Audit Committee

Number of meetings held 

Ken Hanna (Chairman) 

Simon Robertson (retired 12 May 2005)

Will Samuel (appointed 26 January 2005)

David Scotland (appointed 24 February 2005)

Michael Wemms 

2

2

1

0

2

2

7

7

3

1

6

3

Scheduled

Ad hoc

5

5

3

4

3

4

0

0

0

0

0

0

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. 

Inchcape plc
Annual report and accounts 2005

33

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 During the year Sir John Egan indicated that he intended 
to retire from the Board by the time of the Company’s 2006 AGM.
The Board had also been aware of Peter Johnson’s intention not 
to continue in a full time role as Group Chief Executive until
retirement age.

In considering the issue of succession to Sir John as 
Non-executive Chairman, the Board recognised the benefit to 
the Company and its shareholders of Peter Johnson’s ongoing
involvement because of his deep and broad experience of the
automotive industry as a whole and the contrasting international
market in which Inchcape operates. They also recognised the pivotal
role which he has played in the development and continuity of
Inchcape’s relationships with its major international manufacturer
partners, which in many cases are founded upon associations built 
up over many years.

Accordingly, the Directors came to the conclusion that the
appointment of Peter Johnson as Chairman was in the best interests
of shareholders as a whole. The Board consulted in advance a
number of its largest institutional shareholders, all of whom gave their
support. The Board was aware of the provisions of the Code in that
an explanation should be given when someone who has previously
been Chief Executive of a company is to be appointed as Chairman 
of the Board. Accordingly Sir John Egan wrote to all shareholders 
on 22 March 2005 explaining the reasons for Peter Johnson’s 
proposed appointment.

The Board also considered the fact that Peter Johnson’s tenure

as Group Chief Executive would prevent him from meeting the
independence criteria of the Code, but the Board is confident that he
will continue to show the strength of character and independent
judgement that he exhibited as Group Chief Executive.

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.
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 five Non-executive Directors 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.

Following the appointment of Will Samuel and David Scotland on

26 January 2005 and 24 February 2005 respectively, half the Board,
excluding the Chairman, comprised Independent Non-executive
Directors, as required by the Code. This position was maintained 
until the appointment of André Lacroix as Group Chief Executive
Designate on 1 September 2005 when the Board fell below the
balance required under the Code but was restored again upon

Alan Ferguson’s resignation on 14 September 2005. The appointment
of Karen Guerra on 1 January 2006 has increased further the balance
of the Board in favour of Independent Non-executive Directors. 

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 34. The processes
described were followed in the search and appointment of André
Lacroix as an Executive Director on 1 September 2005, Karen Guerra
as a Non-executive Director on 1 January 2006 and Barbara
Richmond as an Executive Director with effect from 3 April 2006. 

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

and its Committees 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 the views of those Directors
who are unable to attend to be relayed to the Chairman of the
meeting so that he can communicate their views at 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 all Board and Committee
members where appropriate, including briefings from time to 
time from the Auditors, the Company’s legal advisers, and the
Remuneration advisers. 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 is provided by a
combination of internal and external resources. The Board is given
business presentations from the heads of business units and
Directors make site visits. The Board’s schedule includes at least one
meeting each year at one of the Group’s operational locations where
the Board is given presentations on the Group’s operations and have
the opportunity to meet local management.

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 ensuring
that Board procedures are complied with and for advising the Board
through the Chairman on all other governance matters. All members
of the Board have access to his services and advice. 

The appointment and removal of the Group Company Secretary

is a matter for the Board as a whole.

Performance evaluation The 2005 evaluation was undertaken by all
members of the Board completing a detailed questionnaire which
was designed to test a range of areas which the Code regards as
necessary for good governance. The evaluation of Board performance
is discussed by the Board and by each of the committees in respect
of their own performance and the results of the evaluation of each
Director are communicated to them individually by the Chairman.
The evaluation process includes an annual review by the Board of 
the Matters Reserved for its decision and a review by the Board 
and each of the principal committees of each committee’s Terms 
of Reference. 

Inchcape plc
Annual report and accounts 2005

34
Corporate governance report continued

The 2005 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, with the 2006
evaluation being facilitated by an independent external advisor. 
The Non-executive Directors 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.
When considering the election or re-election of a Director, the

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

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 The membership of the Committee is 
shown on page 29. At all times the majority of members have been
Independent Non-executive Directors. 

No-one, other than the Committee Chairman and the members,

is entitled to be present at meetings of the Committee, although
others including the Group Human Resources Director, attend by
invitation of the Committee.

Role: The Nomination Committee meets at least once a year. 

In 2005 it met nine times, reflecting the changes to the Board 
which have taken place. 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 a panel of Committee
members and other Directors also have the opportunity to meet 
the candidates. 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 undertook its
annual review of development and succession plans. It made
recommendations to the Board regarding the appointments of 
André Lacroix as Group Chief Executive, Karen Guerra’s appointment
as an Independent Non-executive Director and Barbara Richmond’s
appointment as Group Finance Director. It also made
recommendations to the Board regarding Peter Johnson’s
appointment as Chairman of the Board. In addition, the Committee
made recommendations for the election and re-election of Directors
retiring at the 2006 AGM. No Directors participated in the meeting
when recommendations regarding his or her election or re-election
were considered. 

Remuneration Committee The membership of the Committee is
shown on page 29.

At all times during the year, the Committee comprised wholly

Independent Non-executive Directors and continues to do so.

No-one, other than the Committee Chairman and the members, is
entitled to be present at meetings of the Committee, although others,
including the Chairman, the Group Chief Executive and the Group
Human Resources Director, attend by invitation of the Committee.
Role: The Remuneration Committee is responsible for

remuneration issues regarding the Chairman, 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 36 to 43. 

Audit Committee The membership of the Committee is shown on
page 29. At all times during the year, the Committee comprised
wholly Independent Non-executive Directors and continues to do so.
No-one, other than the Committee Chairman and the members, is
entitled to be present at meetings of the Committee, although others,
including the Chairman, the Group Chief Executive, the Group Finance
Director, the Director of Audit and Risk Management and the external
auditors attend by invitation of the Committee.

In light of Ken Hanna’s qualifications as a Chartered Accountant
and his experience with Coopers & Lybrand, Compass Partners and
Cadbury Schweppes, and Will Samuel’s qualifications as a Chartered
Accountant and his experience with Lazard, Edinburgh Investment
Trust and Schroders, the Board has determined that they have 
recent and relevant financial experience.

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
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 to raise concerns confidentially 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 3c(ii) on page 62. Non-audit fees continue to be
higher than usual mainly due to the significant work undertaken on
the introduction of International Financial Reporting Standards.

Inchcape plc
Annual report and accounts 2005

35

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 are
reminded of the availability of the Chairman, the Deputy Chairman
and Senior Independent Non-executive Director, and the rest of 
the Board if they wish 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. 
During the year, the Chairman wrote to the largest fifteen
shareholders emphasising his availability and that of the Deputy
Chairman and 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. Peter Johnson,
Chairman of the Nomination Committee, Ken Hanna, Chairman 
of the Audit Committee, and Michael Wemms, Chairman of
the Remuneration Committee, 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 36 to 43.

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 Internal Audit reports to the Audit Committee 
on its examination and evaluation of the adequacy and effectiveness
of the Group’s systems of internal control. Internal Audit also works
closely with management and the external auditors. 

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 in accordance with the
guidance set out in the Turnbull Report, through the processes set
out above.

Auditors independence
The Company has an established policy on the provision of 
non-audit services by the external auditors. 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 advisory services provided by PwC, and
compliance with the Group policy 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 which has been applied. 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
Due to minor timing issues in the implementation of the Board’s
succession planning, the Board was not in compliance with Code
provision A.3.2 for parts of January and September 2005, when the
proportion of Independent Non-executive Directors on the Board,
excluding the Chairman, was less than half. Otherwise, the Company
was in compliance with the Code throughout the year ended
31 December 2005.

Inchcape plc
Annual report and accounts 2005

36
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 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. It is also responsible for determining the remuneration
of the Chairman.

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 whilst having regard to pay and 
conditions throughout the Group, and 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;

The members of the Committee are shown on page 29.

• there should be a clear link between the level of remuneration

The Committee comprised wholly Independent Non-executive
Directors during the year and continues to do so. The Chairman, the
Group Chief Executive and the Group Human Resources Director
attended meetings by invitation of the Committee.

Throughout 2005 the Company complied with the remuneration
provisions of the Combined Code (the Code) in respect of Directors.
The contents of this report also comply with the Directors’
Remuneration Report Regulations 2002 (contained in Schedule 7A 
to the Companies Act 1985) 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, and development in market best practice,
including the monitoring of award levels and consequent Company
liabilities. In addition, ad hoc meetings are held as required. 
The number of meetings held and details of members’ attendance
are shown in the table on page 32. 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 advisors, as it may require. 
Towers Perrin provided advice to the Committee throughout 
2005. In addition, Towers Perrin provided advice to the Board on 
Non-executive fees and Board performance, and to the Group in
connection with the adoption of International Financial Reporting
Standard 2, Share-based Payments in 2005. Each year, the Chairman
of the Committee reviews the use of advisors and he considers the
continued appointment of Towers Perrin as appropriate.

In addition to Towers Perrin, the Committee has been advised
internally during the year by Peter Johnson, Group Chief Executive,
(André Lacroix from 1 January 2006 following his appointment as
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.

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 48.0% to 52.0% of the Executive Directors’ 
total remuneration and, if the Group achieves outstanding results,
approximately 63.0% to 67.0%. If target performance levels are 
not met, then no pay out is made under the incentive plans. As part
of its annual review of market best practice to ensure that executive
remuneration arrangements remain effective and appropriate to the
Group’s circumstances and prospects, the Committee has made
certain adjustments to Executives’ packages for 2006. These are
highlighted in the relevant section of the report. The Committee
intends to conduct a more comprehensive review during 2006 to
ensure that the remuneration policy is aligned with the Company’s
future strategic goals.

Total remuneration for these purposes comprises base salary,

annual bonus and long term incentives.

The remuneration packages of the Executive Directors are

explained in detail below as they apply to 2005 and, as far as
possible, for subsequent years. Any changes in policy for subsequent
years will be described in future reports on Directors’ remuneration.

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 2005 took into account the relevant median data from
this comparative group, and the individual’s performance. Base salary 
is the only element of remuneration which is pensionable.

Inchcape plc
Annual report and accounts 2005

37

Annual bonus
During 2005 the Executive Directors participated in a bonus plan
based 90.0% on profit before tax (PBT). A further measure, stock
ageing and churn, was introduced to incentivise an improvement in
working capital. This represented 10.0% of the annual bonus
opportunity. In respect of 2005, the bonus plans for Peter Johnson
and André Lacroix, who joined the Company on 1 September 2005,
yield 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. The bonus payment for André
Lacroix has been pro-rated from his date of joining. 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. The bonus
payment for Alan Ferguson has been pro-rated to his date of leaving. 
In 2005, the Company met its PBT performance targets set at the
start of the year for the bonus plan and met 90.0% of the stock 
ageing and churn target. The resultant bonuses for Peter Johnson,
André Lacroix, Graeme Potts and Alan Ferguson are shown in the
remuneration table on page 40.

Adjustments to Executive Directors’ bonus plans have been
made for 2006 to reflect market best practice. Bonus will be based
70.0% on PBT, 20.0% on working capital and 10.0% on achievement
of personal objectives. For André Lacroix, his bonus plan will yield
a bonus of 50.0% of base salary if target performance is achieved
and higher payments for performance above target to a maximum 
of 110.0% of base salary. Graeme Potts’ bonus plan will yield a bonus
of 40.0% of base salary if target performance is achieved and a
maximum of 90.0% of base salary for performance above target.
In the course of revising Graeme Potts’ service contract, it was
agreed that if he remains in employment on 30 June 2006, he will
also receive a cash bonus equivalent to the value on that date of
2,500 fully paid ordinary shares of 150.0p in Inchcape plc and if he
remains in employment on 30 June 2007, he will receive a cash
bonus equivalent to the value on that date of 7,500 fully paid ordinary
shares of 150.0p in Inchcape plc (adjusted appropriately in the event
of a reorganisation of Inchcape’s share capital).

Executive share option plan
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 2005 grant of share options 
covered over 250 participants across the world. Details of share
options granted to Executive Directors in 2005 are shown in note 3
on pages 41 and 42. 

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 or greater. 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, which excludes volatile one off matters
such as exceptional items. 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 has made necessary adjustments to
ensure a consistent basis in respect of 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.
In this regard, the Committee has the flexibility under the Plan rules
to increase the maximum allowable annual grant level to four times
base salary if required.

SAYE share option scheme
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 share options become exercisable for a six month period.

Deferred bonus plan
The Plan is a voluntary plan and is 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 2005 under the 
Plan are shown in note 4 on pages 42 and 43. 

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 attached 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 Executive Share Option
Plan. Subject to that performance condition being met, the Director’s
shares being held in trust for three years and the Director remaining
an employee of the Group, they 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. 

Inchcape plc
Annual report and accounts 2005

38
Board report on remuneration continued

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 100.0% base salary. They have up to
five years from 2004, or date of 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,
Executive Directors share ownership levels are as follows:

Name of Director

Share Ownership
(expressed as percentage
against base salary)

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. 

Peter Johnson 
(retired as Group Chief Executive on 31 December 2005)

André Lacroix (appointed on 1 September 2005)

Graeme Potts 

194%

Historical TSR performance £100.0 holding

37% 

1200

109%

1000

Inchcape plc

FTSE 250 (excluding investment trusts)

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 for members who joined prior to 
31 March 2005. There is a 7.0% contribution and a retirement age 
of sixty-five for new members from that date. 

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, or who are not members 
of the UK management pension scheme, 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 Executive Directors who received such supplements in the 
year are Peter Johnson until his retirement as Group Chief Executive
on 31 December 2005, and Graeme Potts. Details of the amounts
paid are shown in note 1 on page 40. André Lacroix, who joined 
the Company on 1 September 2005, received a cash supplement 
of 40.0% of his base salary in lieu of formal pension provision. 
He is not a member of the UK Management Pension scheme.

With the impending pension’s legislation changes in 2006, the
Committee has agreed to maintain its current pension arrangements.
This means that there will be no increase in company cost/risk and
that executives are not receiving compensation for the changed 
tax situation.

800

600

400

200

0

Dec 00

Dec 01

Dec 02

Dec 03

Dec 04

Dec 05

Growth in the value of a hypothetical £100.0 holding over five years FTSE 250  
excluding investment companies 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. During the year, Graeme Potts’ service contract
was revised by agreement with him and the entitlement to special
compensation if his employment is terminated without proper notice
by the Group within six months of a change of control was removed.
Neither André Lacroix’s nor Barbara Richmond’s service contracts
contain any such entitlement. 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.

Neither Peter Johnson nor Alan Ferguson received severance

payments upon their retirement and resignation respectively.

Inchcape plc
Annual report and accounts 2005

39

Details of the Executive Directors’ service contracts are as follows:

Name

Peter Johnson

Date of contract 

Unexpired term

1 January 1998

André Lacroix

1 September 2005

Alan Ferguson 

1 January 1999 

Retired on 
31 December 2005 

To normal 
retirement age 

Resigned on 
14 September 2005

Graeme Potts 

10 September 2002 
(revised 25 July 2005) 

To normal 
retirement age

Normal retirement age is sixty for Graeme Potts and sixty-five for
André Lacroix. The Group changed its policy during 2005 so that all
new joiners have a normal retirement age of sixty-five. 

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.

AL Incentive Plan
To compensate André Lacroix for loss of existing benefits from 
his former employer, the Remuneration Committee considered it
necessary, in these unusual circumstances, to establish a special 
long term incentive plan (AL Incentive Plan), to facilitate his
recruitment as the Group Chief Executive. André Lacroix is the sole
participant in the AL Incentive Plan. He became eligible to participate
in the AL Incentive Plan on 1 September 2005.

Under the terms of this plan, subject to André Lacroix’s

continuing employment and the percentage growth in the Company’s
earnings per share over the relevant performance period exceeding
the rate of inflation over the same period by at least 3.0% per year,
André Lacroix will be eligible to receive three tranches of 6,500
Inchcape plc shares each, which will vest at the end of 2006, 2007
and 2008 respectively. The maximum grant of Inchcape plc shares
which André Lacroix could receive under this plan is therefore 19,500. 
No amendment shall be made to André Lacroix’s advantage in
respect of: the maximum amount of shares to be granted under the
plan or the basis for determining André Lacroix’s entitlement to or
terms of such shares (or the adjustment thereof) on a capitalisation
issue; rights issue or open offer; sub-division or consolidation of
shares or reduction of capital or any other variation of capital without
prior approval of shareholders in general meeting (except for minor
amendments to benefit the administration of the scheme, to take
account of a change in legislation or to obtain or maintain favourable
tax, exchange control or regulatory treatment for participants in the
scheme or for the Company or for members of its group). 
Benefits under the scheme are not pensionable. 
Full terms of the plan will be available for inspection from 

today’s date until the close of the 2006 AGM at 22a St. James’s
Square, London SW1Y 5LP and at The Royal Automobile Club, 
89-91, Pall Mall, London SW1Y 5HS for at least fifteen minutes 
before and during the 2006 AGM.

BR Incentive Plan
Barbara Richmond has agreed to join the Group as Group Finance
Director on 3 April 2006 and her remuneration package will be in line
with the policy set out in this report. In order to compensate her 
for the loss of existing benefits from her former employer, the
Remuneration Committee considered it necessary, in these unusual
circumstances to establish a special long term incentive plan 
(BR Incentive Plan), to facilitate her recruitment as the Group 
Finance Director, in which she will be eligible to participate after 
she joins. Barbara Richmond will be the sole participant in the 
BR Incentive Plan.

Under the terms of her plan, subject to Barbara Richmond’s
continuing employment and the percentage growth in the Company’s
earnings per share over the relevant performance period exceeding
the rate of inflation over the same period by at least 3.0% per year,
she will be eligible to receive two tranches of 3,666 Inchcape plc
shares each, which would vest at the end of 2006 and 2007
respectively, and a third tranche of shares, which would vest at the
end of 2008. The number of shares under the final tranche is to be
determined according to the share price on 31 March 2006.
Assuming a share price of 2512.0p (the share price prevailing on 
3 March 2006, the last business day before the date of the 
accounts) the maximum number of shares under the final tranche
would not exceed 10,154 and, on this basis, the maximum number 
of Inchcape plc shares which Barbara Richmond could receive under
this plan would be 17,486. 

No amendment shall be made to Barbara Richmond’s advantage

in respect of: the maximum amount of shares to be granted under
the Plan or the basis for determining Barbara Richmond’s entitlement
to or terms of such shares (or the adjustment thereof) on a
capitalisation issue; rights issue or open offer; sub-division or
consolidation of shares or reduction of capital or any other variation 
of capital without prior approval of shareholders in general meeting
(except for minor amendments to benefit the administration of the
scheme, to take account of a change in legislation or to obtain or
maintain favourable tax, exchange control or regulatory treatment 
for participants in the scheme or for the Company or for members 
of its group). 

Benefits under the scheme are not pensionable. 
The proposed terms of the plan will be available for inspection
from today’s date until the close of the 2006 AGM at 22a St. James’s
Square, London SW1Y 5LP and at The Royal Automobile Club, 
89-91, Pall Mall, London SW1Y 5HS for at least fifteen minutes 
before and during the 2006 AGM.

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.

During 2005, Peter Johnson, was a Non-executive Director of

Wates Group Limited, for which he received a fee of £32,000.

Inchcape plc
Annual report and accounts 2005

40
Notes to the Board report on remuneration

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

1

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, share options and deferred bonus plan awards held are shown in notes 2, 3 and 4 on pages 41 to 43.

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

2005
£’000

2004
£’000

2005
£’000

2004
£’000

2005
£’000

2004
£’000

2005
£’000

2004
£’000

2005
£’000

2004
£’000

2005
£’000

2004
£’000

Chairman

Sir John Egan 
(retired 31 December 2005) 187.5

Executive Directors

152.5

–

–

25.3

21.9

212.8

174.4

–

–

212.8

174.4

Peter Johnson (a) (f)

636.3

602.5

255.4

549.0

André Lacroix (c) (f)

206.6

–

81.8

–

Alan Ferguson (resigned
on 14 September 2005)

257.9

342.5

78.4

245.0

Graeme Potts (b) (f)

408.8

355.0

133.6

252.0

33.2

38.9

16.1

33.5

29.3

924.9 1,180.8

265.8

250.6 1,190.7 1,431.4

–

327.3

–

82.7

18.0

352.4

605.5

–

–

–

410.0

–

352.4

605.5

32.7

575.9

639.7

108.4

76.2

684.3

715.9

Non-executive Directors

Simon Robertson (retired 
on 12 May 2005) (d)

Raymond Ch'ien (e)

Ken Hanna (d)

Will Samuel (d)

David Scotland (d)

Michael Wemms (d)

15.8

30.0

48.0

52.4

32.4

48.0

42.0

30.0

45.2

–

–

39.8

–

–

–

–

–

–

–

–

–

–

–

–

–

–

13.8

13.2

–

–

–

–

–

–

–

–

15.8

43.8

48.0

52.4

32.4

48.0

42.0

43.2

45.2

–

–

39.8

–

–

–

–

–

–

–

–

–

–

–

–

15.8

43.8

48.0

52.4

32.4

48.0

42.0

43.2

45.2

–

–

39.8

Total

1,923.7 1,609.5

549.2 1,046.0

160.8

115.1 2,633.7 2,770.6

456.9

326.8 3,090.6 3,097.4

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

The payment of £265,775 (2004 – £250,625) 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 £108,435 (2004 – £76,175) 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.

The payment of £82,666 was paid directly to André Lacroix to allow him to make his own pension arrangements. Such payment
was subject to tax.

The details shown include fees at the rate of £10,000 per annum for Committee Chairmanship and at the rate of £4,000 for
Committee membership.

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% 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 42.

No Directors waived emoluments in respect of the year ended 31 December 2005 (2004 – 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. In the case of new recruitment, taxable benefits include relocation expenses.

Inchcape plc
Annual report and accounts 2005

41

2

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

Accumulated
total of 
accrued
pension at
31.12.04
£’000

Transfer value
(less Director’s
contributions)
Accumulated of the increase
in accrued 
benefit net
of inflation
31.12.05
£’000

total of 
accrued
pension at 
31.12.05
£’000

Transfer
value of
accrued
benefits at
31.12.05
£’000

Transfer
value of
accrued
benefits at
01.01.05 
£’000

Difference in 
transfer value
less any
contributions 
made in 
the year 
£’000

Peter Johnson

Alan Ferguson*

Graeme Potts

4.4 

20.3 

3.8 

3.6 

16.3 

3.6 

33.4 

183.3 

7.6 

37.8 

203.6 

11.4 

69.5 

721.2 

560.8 

212.3 

2,662.7 

2,215.2 

37.1 

117.2 

71.0 

160.4 

447.5 

46.2

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

The transfer values of the accrued benefits represent the value of assets that the pension scheme would need to transfer 
to another pension provider on transferring the scheme's liability in respect of the Director’s pension benefits. The transfer 
values do not represent sums payable or due to the individual Directors and therefore, cannot be added meaningfully to 
annual remuneration.

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

*Alan Ferguson resigned on 14 September 2005. The transfer value of his pension was accrued to his date of leaving.

3

Directors’ share options

Lapsed during 

Granted
Exercised 
the year during the year during the year

Held at 01.01.05 
(or date of
appointment,
if later)

Exercise

price(f)

Exercise period

Peter Johnson (d)

Alan Ferguson (e)

André Lacroix

Graeme Potts

Held at
31.12.05
or date
of leaving

–

61,679 (a)

–

–

–

1,549 (b)

77,608 (a)

59,338 (a)

–

–

–

–

–

–

57,727 (a)

97,014 (a)

42,650 (a)

1,549 (b)

45,801 (a)

35,019 (a)

–

–

–

–

39,370 (a)

1,549 (b)

44,529 (a)

34,046 (a)

–

–

–

–

–

–

63,065 (c)

–

–

–

–

35,000 (a)

33,576 (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

77,608 (a)

1572.0p May 2007 – May 2014

59,338 (a)

–

2056.0p

Mar 2008 – Mar 2015

35,000 (a)

284.0p

Aug 2003 – Aug 2010

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

44,529 (a)

1572.0p May 2007 – May 2014

34,046 (a)

57,727 (a)

–

–

2056.0p

Mar 2008 – Mar 2015

2148.0p

Sept 2008 – Sept 2015

–

–

–

–

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

45,801 (a)

1572.0p May 2007 – May 2014

35,019 (a)

–

2056.0p

Mar 2008 – Mar 2015

(a) 

(b) 

(c) 

(d)

Under the Inchcape 1999 Share Option Plan.

Under the Inchcape SAYE Share Option Scheme.

Peter Johnson exercised his options over 63,065 ordinary shares on 18 March 2005. At the close of business on the date 
of exercise the mid market price of the ordinary shares was 2051.0p. A gain of £860,837.25 was made upon the exercising of 
this option.

Upon Peter Johnson’s retirement as an Executive Director on 31 December 2005, he retained rights to all Options granted to 
him with the number of exercisable Options being determined by the extent to which the performance target, measured over 
the period ended on 31 December 2005 was met. All vested Options must be exercised within twelve months from the date 
of his retirement.

Inchcape plc
Annual report and accounts 2005

42
Notes to the Board report on remuneration continued

(e)

Upon Alan Ferguson’s resignation from the Board on 14 September 2005, he retained rights to exercise all vested Options within 
twelve months from the date of resignation and all unvested Options lapsed on the date of his resignation. Alan Ferguson exercised
his options over 18,000 ordinary shares on 23 June 2005. At the close of business on the day of exercise the mid market price of
the ordinary shares was 2056.0p. On 4 August 2005 he exercised his options over 15,000 and 15,576 ordinary shares. At the close
of business on the day of exercise the mid market price of the ordinary shares was 2149.0p. On 28 November 2005 he exercised
his options over 10,000 ordinary shares. At the close of business on the day of exercise the mid market price of the ordinary shares
was 2397.0p. On 30 November 2005 he exercised his options over 10,000 ordinary shares. At the close of business on the day 
of exercise the mid market price of the ordinary shares was 2352.0p. A total gain of £1,170,782 was made upon the exercise of
these options.

(f)

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

(i) 

(ii) 

(iii) 

(iv) 

(v) 

4

Notes on share options:

All options were granted for nil consideration.

The table shows Directors’ options over ordinary shares of 150.0p at 1 January 2005 or date of appointment and 31 December
2005. The mid market price of the shares at the close of business on 31 December 2005 was 2281.0p. The price range during 2005
was 1759.0p to 2442.0p.

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.

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  Lapsed during

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

Peter Johnson (a)

31.12.05

–

–

–

–

14,677

3,222

Alan Ferguson

Graeme Potts 

17,158

1,692 (a)

10,485

6,243

375

5,243

12,485

750

–

–

–

–

–

–

–

–

–

–

6,684

4,610

7,989

1,125

–

–

6,543 (b)

3,222 (b)

5,553

6,461

8,677

8,861

–

–

–

–

–

–

–

–

–

–

–

–

Awarded
ordinary
shares
01.01.05

14,677

Market
value of
shares
awarded

Exercise period

724.0p

Apr 2005 – Oct 2005

3,222

724.0p

Apr 2005 – Oct 2005

18,850

15,728

–

–

6,543

3,222

5,553

6,461

8,677

748.0p

Apr 2006 – Oct 2006

1647.0p

Jun 2007 – Dec 2007

2058.0p

Jan 2008 – Jun 2008

2058.0p

Jan 2008 – Jun 2008

698.0p Mar 2005 – Sept 2005

724.0p

Apr 2005 – Oct 2005 

750.0p Mar 2006 – Sept 2005

748.0p

Apr 2006 – Oct 2006

1647.0p

Jun 2007 – Dec 2007 

–

–

–

–

18,728

1,125

–

–

–

–

–

8,861

–

2058.0p

Jan 2008 – Jun 2008

–

–

7,989

1,125

6,684

4,610

–

–

748.0p

Apr 2006 – Oct 2006

1647.0p

Jun 2007 – Dec 2007

2058.0p

Jan 2008 – Jun 2008

2058.0p

Jan 2008 – Jun 2008

Inchcape plc
Annual report and accounts 2005

43

(a)

(b)

(c) 

Upon Peter Johnson’s retirement as an Executive Director on 31 December 2005, he retained rights to Awards granted to him 
on a pro-rata basis, with the number of exercisable Awards being determined by the extent to which the performance target, measured
over the period ended on 31 December 2005 is met. All vested Awards must be exercised within six months from the date of his
retirement. He exercised the award granted to him on 10 April 2003, in respect of 17,158 ordinary shares, on 3 January 2006. 
At the close of business on the date of exercise the mid market price of the ordinary shares was 2316.0p. The remaining 
1,692 award shares lapsed.

Upon Alan Ferguson’s resignation from the Board on 14 September 2005, he retained rights to exercise all vested Awards within 
twelve months from the date of resignation. All unvested Awards lapsed on the date of his resignation. He exercised the award
granted to him on 14 March 2002, 6,543 ordinary shares, on 1 April 2005. At the close of business on the date of exercise 
the mid market price of the ordinary shares was 1991.0p. He also exercised the award granted to him on 10 April 2002, 
3,222 ordinary shares, on 4 August 2005. At the close of business on the date of exercise the mid market price of the ordinary
shares was 2149.0p.

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.

AL Incentive Plan
The number of ordinary shares conditionally awarded to André Lacroix under the AL Incentive Plan are:

Awarded
Ordinary 
shares awarded 
ordinary 
during the year  shares 01.01.05 
or at date of 
appointment Market value 
of shares 
awarded

or at date of 
appointment

shares  as a Director of as a Director of 
the Company

the Company

Awarded 
ordinary 

31.12.05

Qualifying
performance
conditions

End of period over which
the qualifying condition
has to be fulfilled

André Lacroix

6,500

6,500

6,500

6,500

6,500

6,500

By order of the Board 

–

–

–

2145.0p EPS exceeding the rate 
of inflation by at least 
3.0% per year

2145.0p EPS exceeding the rate 
of inflation by at least 
3.0% per year

2145.0p EPS exceeding the rate 
of inflation by at least 
3.0% per year

31 Dec 06

31 Dec 07

31 Dec 08

Michael Wemms Chairman of the Remuneration Committee
6 March 2006

Inchcape plc
Annual report and accounts 2005

44
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 that the consolidated Financial statements comply with

IFRS, and the Company Financial statements comply with UK GAAP;

• 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.

45

Basis of audit opinion
We conducted our audit in accordance with International Standards
on Auditing (UK and Ireland) 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. 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 Group’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 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, in
accordance with IFRS as adopted by the European Union, of the
state of the Group’s affairs as at 31 December 2005 and of its profit
and cash flows for the year then ended; and 

• the Financial statements have been properly prepared in
accordance with the Companies Act 1985 and Article 4 of the 
IAS Regulation.

PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
6 March 2006

Inchcape plc
Annual report and accounts 2005

Report of the Auditors

Independent Auditors’ report to the members of Inchcape plc
We have audited the Group Financial statements of Inchcape plc 
for the year ended 31 December 2005 which comprise the
consolidated income statement, the consolidated statement of
recognised income and expense, the consolidated balance sheet, 
the consolidated cash flow statement and the related notes to the
accounts. These Financial statements have been prepared under the
accounting policies set out therein.

We have reported separately on the parent Company Financial
statements of Inchcape plc for the year ended 31 December 2005
and on the information in the Board report on remuneration that is
described as having been audited.

Respective responsibilities of Directors and Auditors
The Directors’ responsibilities for preparing the Annual report and 
the Financial statements in accordance with applicable law and
International Financial Reporting Standards (IFRS) as adopted by 
the European Union are set out in the statement of Directors’
responsibilities.

Our responsibility is to audit the Financial statements in
accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland). 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 have been properly prepared in accordance with the
Companies Act 1985 and Article 4 of the IAS Regulation. We also
report to you if, in our opinion, the Directors’ report is not consistent
with the Financial statements, if we have not received all the
information and explanations we require for our audit, or if information
specified by law regarding Director’s remuneration and other
transactions is not disclosed.

We review whether the Corporate governance report 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 Group’s corporate governance procedures 
or its risk and control procedures.

We read other information contained in the Annual report and

consider whether it is consistent with the audited Financial
statements. The other information comprises the Chairman’s
statement, the Operating and financial review, the Corporate social
responsibility section, the Board of Directors, the Directors’ report,
the Corporate governance report, the Board report on remuneration,
the Directors’ responsibilities, the Five year record and Company
details. We consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies
with the Financial statements. Our responsibilities do not extend to
any other information.

Inchcape plc
Annual report and accounts 2005

46
Consolidated income statement

For the year ended 31 December 2005

Revenue

Cost of sales

Gross profit

Net operating expenses 

Operating profit 

Share of profit after tax of joint ventures 
and associates 

Profit before finance and tax

Finance income 

Finance costs

Profit before tax

Tax 

Profit for the year

Attributable to:

– Equity holders of the parent

– Minority interests

Basic earnings per share (pence)

Diluted earnings per share (pence)

Notes

1, 3

2, 3

13

6

7

8

9

9

Before
exceptional
items
2005
£m

Exceptional
items
2005
£m

Before
exceptional
items
2004
£m

Total
2005
£m

Exceptional
items
2004
£m

4,488.1 

4,119.5 

(3,847.4)

(3,532.9)

–

–

–

(10.6) 

(10.6) 

1.2 

(9.4) 

4.2 

–

(5.2) 

(0.5) 

(5.7) 

586.6 

(414.5)

172.1 

6.6 

178.7 

27.0 

(37.3)

168.4 

(43.1)

125.3 

4,488.1 

(3,847.4)

640.7

(451.3)

189.4 

6.2 

195.6 

44.7 

(50.0)

190.3 

(46.9)

143.4 

–

–

–

(13.0) 

(13.0) 

640.7 

(464.3)

176.4 

–

6.2 

(13.0) 

182.6 

–

–

(13.0) 

–

44.7 

(50.0)

177.3 

(46.9)

(13.0) 

130.4 

126.6 

3.8 

130.4 

161.9p

160.6p

Total
2004
£m

4,119.5 

(3,532.9)

586.6 

(425.1)

161.5 

7.8 

169.3 

31.2 

(37.3)

163.2 

(43.6)

119.6 

116.4 

3.2 

119.6 

148.5p

146.6p

Inchcape plc
Annual report and accounts 2005

Consolidated statement of recognised income and expense 

For the year ended 31 December 2005

Cash flow hedges net of tax

Fair value gains on available for sale financial assets

Effect of foreign exchange rate changes

Actuarial losses on defined benefit pension schemes

Net gains (losses) recognised directly in shareholders’ equity

Profit for the year

Total recognised income and expense for the year

Attributable to:

– Equity holders of the parent

– Minority interests

47

2004
£m

–

–

(15.2)

(10.1)

(25.3)

119.6 

94.3 

91.3 

3.0

94.3

2005
£m

0.6

2.3

30.4

(15.3)

18.0 

130.4 

148.4 

144.2 

4.2

148.4

Adoption of IAS 32 and IAS 39

(4.5)

–

As permitted by IFRS 1 First-time Adoption of International Financial Reporting Standards, the Group has adopted IAS 32 Financial
Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement with effect from 1 January
2005 with no restatement of comparative information. This decreased shareholders’ equity by £4.5m at 1 January 2005.

Inchcape plc
Annual report and accounts 2005

48
Consolidated balance sheet

As at 31 December 2005

Non-current assets

Intangible assets

Property, plant and equipment

Investments in joint ventures and associates

Other investments

Available for sale financial assets

Trade and other receivables

Deferred tax assets

Current assets

Inventories

Trade and other receivables

Other investments

Available for sale financial assets

Derivative financial instruments

Current tax assets

Cash and cash equivalents

Total assets

Current liabilities

Trade and other payables

Derivative financial instruments

Current tax liabilities

Provisions

Borrowings

Non-current liabilities

Trade and other payables

Provisions

Deferred tax liabilities

Borrowings

Retirement benefit liability

Total liabilities

Net assets

Shareholders’ equity

Share capital 

Share premium

Capital redemption reserve

Other reserves

Retained earnings

Equity attributable to equity holders of the parent

Minority interests

Total shareholders’ equity

Notes

2005
£m

2004
£m

11

12

13

14

14

15

16

17

15

14

14

18

19

20

18

21

22

20

21

16

22

5

24, 25

25

25

25

25

25

69.5

346.7

44.7

–

15.0

22.4

23.4

78.0 

295.9 

42.2 

11.9 

–

19.6 

20.8 

521.7

468.4 

615.8

221.1

–

2.4

2.1

1.0

309.0

1,151.4

1,673.1

577.1 

198.3 

2.7 

–

–

0.5 

171.2 

949.8 

1,418.2 

(688.2)

(657.3)

(12.6)

(43.8)

(22.5)

(145.4)

(912.5)

(45.3)

(35.6)

(13.5)

(5.6)

(69.4)

(169.4)

(1,081.9)

591.2 

120.1 

112.5 

16.4

13.1

319.6

581.7 

9.5 

591.2 

–

(44.9)

(24.6)

(15.6)

(742.4)

(31.8)

(51.9)

(14.8)

(3.7)

(58.9)

(161.1)

(903.5)

514.7 

119.5 

110.7 

16.4 

(15.2) 

275.0 

506.4 

8.3 

514.7

The Financial statements on pages 46 to 98 were approved by the Board of Directors on 6 March 2006 and were signed on its behalf by:

Peter Johnson, Director   André Lacroix, Director

Inchcape plc
Annual report and accounts 2005

Consolidated cash flow statement 

For the year ended 31 December 2005

Cash flows from operating activities

Cash generated from operations

Tax paid

Interest received

Interest paid

Net cash generated from operating activities

Cash flows from investing activities

Acquisition of businesses net of cash and overdrafts acquired

Net cash (outflow) inflow from sale of businesses

Purchase of property, plant and equipment

Purchase of intangible assets 

Proceeds from disposal of property, plant and equipment and intangible assets

Net disposal of other investments

Net purchase of available for sale financial assets

Dividends received from joint ventures and associates

Net cash used in investing activities

Cash flows from financing activities 

Proceeds from issue of ordinary shares

Share buy back programme

Net disposal of own shares by ESOP Trust

Net cash outflow from borrowings

Payment of capital element of finance leases

Equity dividends paid

Minority dividends paid

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Effect of foreign exchange rate changes

Cash and cash equivalents at the end of the year

Cash and cash equivalents consist of:

– Cash and cash equivalents

– Bank overdrafts

49

Notes

2005
£m

2004
£m

26a

195.4

(51.4) 

13.9

(16.8)

141.1

(29.9)

(5.5)

(63.5)

(2.2)

17.6

–

(0.5) 

9.7

187.2

(36.9)

25.4 

(15.8)

159.9 

(25.1)

23.7 

(40.3)

(3.3)

5.5 

0.7 

–

4.9 

(74.3) 

(33.9)

2.4

(31.0)

0.1

(2.3)

(0.2)

(42.0)

(3.0)

(76.0)

(9.2)

158.8

16.3

165.9

309.0

(143.1)

165.9

2.8 

–

0.1 

(18.2)

(0.2)

(32.2)

(1.4)

(49.1)

76.9 

95.0 

(13.1)

158.8 

171.2

(12.4)

158.8 

26b

Inchcape plc
Annual report and accounts 2005

50
Accounting policies

The Financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial
Reporting Interpretations Committee (IFRIC) interpretations and with those parts of the Companies Act 1985, applicable to companies
reporting under IFRS.

Adoption of International Financial Reporting Standards

Prior to 2005, the Group prepared its Financial statements under UK Generally Accepted Accounting Principles (UK GAAP). From 1 January
2005, the Group is required to prepare its annual consolidated Financial statements in accordance with IFRS as adopted by the European
Union (EU) and implemented in the UK. As the 2005 Financial statements include comparatives for 2004, the Group’s date of transition to
IFRS is 1 January 2004 and the 2004 comparatives have been restated to IFRS.

First-time adoption

The general principle that should be applied on first-time adoption of IFRS is that standards are applied with full retrospective effect. 
In accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, the Group is entitled to a number of voluntary
and mandatory exemptions from full restatement. The Group has elected:

(i)

(ii)

(iii)

not to restate its business combinations made prior to 1 January 2004 to comply with IFRS 3 Business Combinations;

to retain previous UK GAAP carrying values of property, plant and equipment, treating any historic revaluations as deemed cost at 
1 January 2004;

to recognise all cumulative actuarial gains and losses in respect of defined benefit pension schemes and similar benefits in shareholders’
equity at 1 January 2004;

(iv)

to apply IFRS 2 Share-based Payments only to awards granted after 7 November 2002 and not vested by 1 January 2005;

(v)

to deem cumulative translation differences for all foreign operations to be nil at 1 January 2004; and

(vi) not to present comparative information in accordance with IAS 32 and IAS 39.

The effect of adopting IAS 32 and IAS 39 at 1 January 2005 is shown as a movement in shareholders’ equity for 2005. This decreased
shareholders’ equity by £4.5m at 1 January 2005. In addition, under IAS 32 cash balances and bank overdrafts can only be presented net
where there is both the legal ability and intention to settle net. At 1 January 2005 this has had the effect of grossing up cash and borrowings
by £66.4m.

The disclosures required by IFRS 1 are set out in note 33. This sets out the principal changes as a result of the transition to IFRS.

Changes in accounting standards

The Group has elected to early adopt the Amendment to IAS 19 Employee Benefits, thereby recognising the actuarial gains and losses 
in shareholders’ equity in full in the period in which they arise.

In addition the Group adopted IFRS 4 Insurance Contracts and IFRS 5 Non-current Assets Held for Sale and Discontinued Operations from 
1 January 2005. Neither of these standards has had any material impact on the Group’s results or Financial position. 

At the balance sheet date a number of IFRS and IFRIC interpretations were in issue but not yet effective, including IFRS 7 Financial
Instruments: Disclosures, IFRIC 4 Determining Whether an Arrangement Contains a Lease and the Amendment to IAS 1 Presentation of
Financial Statements Capital Disclosures. The Directors anticipate that the adoption of these standards and interpretations in future periods
will not have a significant impact on the results or the financial position of the Group. 

Accounting convention

The Financial statements have been prepared on the historical cost basis, except for the retention of some freehold properties and leasehold
buildings at previously revalued amounts (which have been treated as deemed cost on transition to IFRS) and the measurement of certain
balances at fair value as disclosed in the accounting policies below.

Inchcape plc
Annual report and accounts 2005

Basis of consolidation

51

The consolidated Financial statements comprise the Financial statements of the parent Company (Inchcape plc) and all of its subsidiary
undertakings (defined as where the Group has control), together with the Group’s share of the results of its joint ventures (defined as where
the Group has joint control) and associates (defined as where the Group has significant influence but not control). The results of subsidiaries,
joint ventures and associates are consolidated as of the same reporting date as the parent company, using consistent accounting policies. 

The results of subsidiaries are consolidated using the purchase method of accounting from the date on which control of the net assets 
and operations of the acquired company are effectively transferred to the Group. Similarly, the results of subsidiaries disposed of cease to be
consolidated from the date on which control of the net assets and operations are transferred out of the Group.

Investments in joint ventures and associates are accounted for using the equity method, whereby the Group’s share of the post-acquisition
profits or losses are recognised in the income statement, and its share of post-acquisition movements in shareholders’ equity are recognised
in shareholders’ equity. If the Group’s share of losses in a joint venture or associate equals or exceeds its investment in the joint venture or
associate, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture 
or associate.

Foreign currency translation

Items included in the results of each of the Group’s entities are measured using the currency of the primary economic environment in which
the entity operates (the functional currency). The consolidated Financial statements are presented in sterling, which is Inchcape plc’s
functional and presentational currency. 

In the individual entities, transactions in foreign currencies are translated into the functional currency at the rates of exchange prevailing 
at the dates of the individual transactions. Monetary assets and liabilities denominated in foreign currencies are subsequently retranslated 
at the rate of exchange ruling at the balance sheet date. All differences are taken to the income statement, except those arising on 
long term foreign currency borrowings used to finance or hedge foreign currency investments which on consolidation are taken directly to
shareholders’ equity. 

The assets and liabilities of foreign operations are translated into sterling at the rate of exchange ruling at the balance sheet date. 
The income statements of foreign operations are translated into sterling at the average for the period of the month end rates of exchange.
Exchange differences arising from 1 January 2004 are recognised as a separate component of shareholders’ equity. On disposal of a 
foreign operation any cumulative exchange differences held in shareholders’ equity are transferred to the consolidated income statement. 

Derivative financial instruments (up to 31 December 2004)

Derivative 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 hedges at the inception of the 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 borrowings. 
Gains and losses on hedging instruments, which are cancelled due to the termination of the underlying exposure, are taken to the income
statement immediately.

Derivative financial instruments (after 31 December 2004)

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

The Group uses derivative financial instruments such as foreign currency contracts to hedge its risks associated with foreign currency
fluctuations. Such derivative financial instruments are measured at fair value. The gains or losses on remeasurement are taken to the income
statement except where the derivative is designated as a cash flow hedge. The fair value of a derivative financial instrument represents the
difference between the value of the outstanding contracts at their contracted rates and a valuation calculated using the forward rates of
exchange prevailing at the balance sheet date.

For cash flow hedges that meet the conditions for hedge accounting, the portion of the gains or losses on the hedging instrument that are
determined to be an effective hedge are recognised directly in shareholders’ equity and the ineffective portion is recognised in the income
statement. When the hedged firm commitment results in the recognition of a non-financial asset or a liability then, at the time the asset or
liability is recognised, the associated gains or losses that had previously been recognised in shareholders’ equity are included in the initial
measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash flow hedges, the gains or losses that
are recognised in shareholders’ equity are transferred to the income statement in the same period in which the hedged firm commitment
affects the income statement.

Hedge accounting is discontinued when the hedging instrument expires, is sold, terminated, exercised or no longer qualifies for hedge
accounting. At that point in time any cumulative gains or losses on the hedging instrument which have been recognised in shareholders’
equity are kept in shareholders’ equity until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the
cumulative gains or losses that have been recognised in shareholders’ equity are transferred to the income statement for the period. 

For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the 
income statement.

Inchcape plc
Annual report and accounts 2005

52
Accounting policies continued

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost comprises the purchase price
and directly attributable costs of the asset. Depreciation is based on cost less estimated residual value and is provided, except for freehold
land which is not depreciated, on a straight line basis over the estimated useful life of the asset. For the following categories, the annual rates
used are: 

Freehold buildings and long leasehold buildings

2.0%

Short leasehold buildings

shorter of lease term or useful life

Plant, machinery and equipment

5.0% – 33.3%

Vehicles subject to residual value commitments

over the lease term

The assets’ residual values and useful lives are reviewed at least at each balance sheet date.

Goodwill

Goodwill represents the excess of the cost of acquisition of a business combination over the Group’s share of the fair value of identifiable net
assets of the business acquired at the date of acquisition.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. At the date of acquisition the goodwill is
allocated to cash generating units for the purpose of impairment testing and is tested at least annually for impairment. 

Gains and losses on disposal of a business include the carrying amount of goodwill relating to the business sold in determining the gain or
loss on disposal, except for goodwill arising on business combinations on or before 31 December 1997, which has been deducted from
shareholders’ equity and remains indefinitely in shareholders’ equity.

Other intangible assets

Intangible assets, when acquired separately from a business (including computer software), are carried at cost less accumulated amortisation
and impairment losses. Amortisation is provided on a straight line basis to allocate the cost of the asset over its estimated useful life, which
in the case of computer software is three to five years. 

Intangible assets acquired as part of a business combination (including back orders and customer contracts) are capitalised separately from
goodwill if the fair value can be measured reliably on initial recognition. These intangible assets are amortised over their estimated useful life. 

Impairment 

Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or circumstances indicate that the
carrying amount may not be recoverable. In addition, goodwill is tested at least annually for impairment. An impairment loss is recognised for
the amount by which the asset’s carrying amount exceeds its recoverable amount, the latter being the higher of the asset’s fair value less
costs to sell and value in use. Value in use calculations are performed using cash flow projections, discounted at a pre-tax rate which reflects
the asset specific risks and the time value of money. 

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises expenditure incurred in bringing inventories to their
present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to
be incurred in marketing, selling and distribution. Used vehicles are carried at the lower of cost or fair value less costs to sell, generally based
on external market data available for used vehicles.

Vehicles held on consignment which are deemed in substance to be assets of the Group are included within inventories with the
corresponding liability included within trade and other payables. 

Stock holding costs are charged to finance costs.

Investments (up to 31 December 2004)

Both non-current and current asset investments are stated at cost, less provision for impairment. 

Investments (after 31 December 2004)

The Group’s investments are classified as available for sale or held to maturity (where management has a positive intention and ability to hold
the asset to maturity). 

Gains and losses on available for sale financial assets are recognised in shareholders’ equity, until the investment is sold or is considered to
be impaired, at which time the cumulative gain or loss previously reported in shareholders’ equity is included in the income statement.

Held to maturity financial assets are carried at amortised cost.

Inchcape plc
Annual report and accounts 2005

53

Pensions and other post-retirement benefits

The Group operates a number of retirement benefit schemes. 

The major schemes are defined benefit pension funds with assets held separately from the Group. The cost of providing benefits under the
plans is determined separately for each plan using the projected unit credit actuarial valuation method.

The current service cost and gains and losses on settlements and curtailments are included in cost of sales or operating expenses in the
consolidated income statement. Past service costs are similarly included where the benefits have vested otherwise they are amortised on a
straight line basis over the vesting period. The expected return on assets of funded defined benefit pension plans and the imputed interest on
pension plan liabilities comprise the post-retirement benefit element of finance costs and finance income in the income statement.

Differences between the actual and expected return on assets, changes in the retirement benefit obligation due to experience and changes
in actuarial assumptions are included in the statement of recognised income and expense in full in the period in which they arise. 

The Group’s contributions to defined contribution plans are charged to the income statement in the period to which the contributions relate.

The Group also has a liability in respect of past employees under post-retirement healthcare schemes which have been closed to new
entrants. These schemes are accounted for on a similar basis to that for defined benefit pension plans in accordance with the advice of
independent qualified actuaries. 

Share-based payments

The Group operates various share-based award schemes. The fair value at the date at which the share-based awards are granted is
recognised in the income statement (together with a corresponding increase in shareholders’ equity) on a straight line basis over the 
vesting period, based on an estimate of the number of shares that will eventually vest. For equity settled share-based awards, the services
received from employees are measured by reference to the fair value of the awards granted. No expense is recognised for awards that do
not ultimately vest, except for awards where vesting is conditional upon a market condition.

Leases

Finance leases, which transfer to the Group substantially all the risks and rewards of ownership of the leased item, are capitalised at the
inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments
are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the
estimated useful life of the asset or the lease term.

Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases.

Operating lease rental payments are recognised as an expense in the income statement on a straight line basis over the lease term.

Revenue and cost of sales

Revenue from the sale of goods and services sold is measured at the fair value of consideration receivable, net of rebates and any discounts.
It excludes sales related taxes and intra-Group transactions.

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably
measured. In practice this means that revenue is recognised when vehicles or parts are invoiced and physically dispatched or when the
service has been undertaken.

Financial services interest and leasing income are included within revenue. Correspondingly, the interest expense in respect of financial
services is treated as a cost of sale.

Profits arising on the sale of vehicles to a leasing company, sourced from within the Group, for which a Group company retains a residual
value commitment to the leasing company, are recognised over the period of the lease. These vehicles are retained on the balance sheet
within property, plant and equipment on the basis that the significant risks and rewards of ownership have not been transferred to the
purchaser. The vehicles are written down to their residual value over the term of the lease with the corresponding deferred income included
in trade and other payables and released to the income statement over the same period.

Dividend income is recognised when the right to receive payment is established. 

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.

Inchcape plc
Annual report and accounts 2005

54
Accounting policies continued

Income tax 

The charge for current income tax is based on the results for the period as adjusted for items which are not taxed or disallowed. It is
calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. 

Deferred income tax is accounted for using the liability method in respect of temporary differences arising from differences between the tax
bases of assets and liabilities and their carrying amounts in the Financial statements. 

In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference is due to goodwill arising on a business combination, or to an asset or liability, the
initial recognition of which does not affect either taxable or accounting income.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, joint ventures and associates,
except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. 
Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to shareholders’
equity, in which case the deferred tax is also dealt with in shareholders’ equity.

Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle 
balances net.

Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short term deposits. 

In the consolidated cash flow statement, cash and cash equivalents comprise cash and cash equivalents, as defined above, net of 
bank overdrafts. 

Offsetting (after 31 December 2004 only)

Balance sheet netting only occurs to the extent that there is the legal ability and intention to settle net. As such, bank overdrafts are
presented in current liabilities to the extent that there is no intention to offset with the cash balance.

Provisions

Provisions are recognised when the Group has a present obligation in respect of a past event, it is more likely than not that an outflow of
resources will be required to settle the obligation and where the amount can be reliably estimated. Provisions are discounted when the time
value of money is considered to be material.

Exceptional items 

Items which are both material and non-recurring are presented as exceptional items within their relevant consolidated income statement
category. The separate reporting of exceptional items helps provide a better indication of the Group’s underlying business performance.
Events which may give rise to the classification of items as exceptional include gains or losses on the disposal of businesses, restructuring 
of businesses, litigation and asset impairments. 

Share capital

Ordinary shares are classified as equity. Where the Group purchases the Group’s equity share capital (treasury shares), the consideration 
paid is deducted from equity attributable to equity holders of the parent until the shares are cancelled, reissued or disposed of. Where such
shares are subsequently sold or reissued, any consideration received is included in equity attributable to equity holders of the parent.

Dividends

Final dividends proposed by the Board of Directors and unpaid at the year end are not recognised in the Financial statements until they have
been approved by the shareholders at the Annual General Meeting. Interim dividends are recognised when they are paid.

Inchcape plc
Annual report and accounts 2005

55

Significant accounting judgements and estimates

Judgements

In the process of applying the Group’s accounting policies, the Directors have made the following judgements, apart from those involving
estimations, which have the most significant effect on the amounts recognised in the Financial statements.

(i)  Revenue recognition on vehicles subject to residual value commitments

Where the Group sells vehicles, sourced from within the Group, and retains a residual value commitment, the sale is not recognised on
the basis that the Group has determined that it retains the significant risks and rewards of ownership of these vehicles. 

(ii)  Consignment stock

Vehicles held on consignment have been included in finished goods inventories on the basis that the Group has determined that it holds
the significant risks and rewards attached to these vehicles. 

Estimates

The key assumptions concerning the future and other sources of estimation uncertainty at the balance sheet date, that have a significant risk
of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

(i)  Product warranty provision

The product warranty provision requires an estimation of the number of expected warranty claims, and the expected cost of labour and
parts necessary to satisfy these warranty claims.

(ii)  Pensions and other post-retirement benefits

The net retirement benefit liability is calculated based on a number of actuarial assumptions as detailed in note 5. A number of these
assumptions involve a considerable degree of estimation, including the rate of inflation and expected mortality rates. 

(iii)  Tax

The Group is subject to income taxes in a number of jurisdictions. Some degree of estimation is required in determining the worldwide
provision for income taxes. There are a number of transactions and calculations for which the ultimate tax determination is uncertain
during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether 
additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, 
such differences will impact the current tax and deferred tax provisions in the period in which such determination is made. 

Inchcape plc
Annual report and accounts 2005

56
Notes to the accounts

1

Segmental analysis

Primary reporting format – geographical segments

The Group’s primary reporting format is by geographical segments. This is in line with the current management structure which
reflects the different risks associated with different territories. The Group is organised into six main geographical segments:
Australia, Belgium, Greece, Hong Kong, Singapore and the United Kingdom.

The Group’s geographical segments are based on the location of the Group’s assets. Revenue earned from sales is disclosed by
origin and is not materially different from revenue by destination. 

Transfer prices between geographical segments are set on an arm’s length basis. 

For the year ended
31 December 2005

Revenue

Total revenue 

Australia
£m

Belgium
£m

Greece
£m

Hong
Kong Singapore
£m

£m

United
Kingdom
£m

Other
£m

Central
£m

Total
£m 

612.7

450.8 

383.1 

242.3

719.6  1,530.3

632.0 

–  4,570.8

Inter-segment revenue 

–

– 

(82.7)

–

– 

– 

– 

– 

(82.7)

Revenue from third parties 

612.7 

450.8 

300.4 

242.3 

719.6  1,530.3 

632.0 

–  4,488.1 

Results

Operating profit before exceptional items  31.9 

14.0 

13.8 

28.8 

62.1 

Exceptional items 

Segment result 

Share of profit after tax of joint ventures 
and associates 

Profit before finance and tax 

Finance income 

Finance costs 

Profit before tax 

Tax 

Profit for the year 

As at 31 December 2005

Segment assets and liabilities

–

–

–

–

–

29.2 

(19.5)

28.4 

(18.8)

189.4 

–

6.5 

(13.0)

31.9 

14.0 

13.8 

28.8 

62.1 

9.7 

28.4 

(12.3)

176.4 

–

31.9 

0.7 

14.7 

1.1 

14.9 

3.0 

31.8 

– 

62.1 

1.2 

10.9 

0.2 

– 

6.2 

28.6 

(12.3)

182.6

44.7 

(50.0)

177.3 

(46.9)

130.4

Australia
£m

Belgium
£m

Greece
£m

Hong
Kong Singapore
£m

£m

United
Kingdom
£m

Other Unallocated
£m

£m

Total 
£m 

Segment assets

130.1 

105.4 

111.6 

58.8 

113.1

583.1

179.9

–  1,282.0 

Investment in joint ventures 
and associates

Cash and cash equivalents

Other unallocated assets*

–

–

–

3.5 

3.7 

32.6 

–

–

–

–

–

–

– 

–

–

4.6

0.3

– 

44.7 

–

–

–

–

309.0

309.0 

37.4

37.4

Total assets 

130.1 

108.9 

115.3 

91.4 

113.1 

587.7 

180.2 

346.4

1,673.1

Segment liabilities 

External borrowings 

Other unallocated liabilities* 

(148.8)

(69.6)

(136.5)

(22.6)

(43.1)

(324.5)

(75.4)

– 

(820.5)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

(151.0)

(151.0)

(110.4)

(110.4)

Total liabilities 

(148.8)

(69.6)

(136.5)

(22.6)

(43.1)

(324.5)

(75.4)

(261.4)

(1,081.9)

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

Inchcape plc
Annual report and accounts 2005

57

1

Segmental analysis continued

For the year ended
31 December 2005

Other segment items

Capital expenditure:

Australia
£m

Belgium
£m

Greece
£m

Hong
Kong Singapore
£m

£m

United 
Kingdom 
£m

Other
£m

Central
£m

Total
£m 

– Property, plant and equipment 

2.0 

0.8 

0.7 

1.4 

2.2 

46.0 

10.0

0.4 

63.5

– Vehicles subject to residual 

value commitments 

– Intangible assets 

Depreciation:

–

–

2.3

0.4 

10.9

0.4 

– 

– 

– 

0.2 

21.3

0.9 

0.9 

0.3

– 

– 

35.4

2.2

– Property, plant and equipment 

2.5

0.7 

1.0 

1.7 

1.6 

10.5 

4.5

0.3 

22.8

– Vehicles subject to residual 

value commitments 

Amortisation of intangible assets 

Impairment of goodwill 

Net provisions charged (released) to the
income statement 

–

0.3 

–

0.1 

0.3 

–

5.2 

0.4

–

– 

– 

–

– 

– 

–

9.6

2.0

19.5 

0.2 

0.2 

– 

– 

– 

– 

15.1

3.2

19.5 

6.8

3.4

1.1

(0.3)

3.0

5.5

2.6

(6.5)

15.6

For the year ended
31 December 2004

Revenue

Total revenue 

Australia
£m

Belgium
£m

Greece
£m

Hong
Kong
£m

Singapore
£m

United 
Kingdom 
£m

Other
£m

Central
£m

Total
£m 

567.3

462.7 

404.2 

237.2

652.5 

1,331.3 

520.5 

–  4,175.7

Inter-segment revenue 

–

–

(56.2)

–

– 

– 

– 

Revenue from third parties 

567.3 

462.7 

348.0 

237.2 

652.5 

1,331.3 

520.5 

– 

– 

(56.2)

4,119.5 

Results 

Operating profit before exceptional items  28.1 

Exceptional items 

Segment result 

Share of profit after tax of joint ventures 
and associates 

Profit before finance and tax 

0.6 

28.7 

– 

28.7 

12.6 

(2.1)

10.5 

0.3 

10.8 

17.7 

0.1 

17.8 

0.5 

18.3 

25.6 

53.5 

–

–

25.6 

53.5 

3.7 

29.3 

– 

53.5 

25.8 

(19.3)

6.5 

3.3 

9.8 

26.7 

0.3 

27.0 

(17.9)

172.1 

9.8 

(8.1)

(10.6)

161.5 

– 

– 

7.8 

27.0 

(8.1)

169.3 

Finance income 

Finance costs 

Profit before tax 

Tax 

Profit for the year 

31.2 

(37.3)

163.2

(43.6)

119.6

Inchcape plc
Annual report and accounts 2005

58
Notes to the accounts continued

1

Segmental analysis continued

As at 31 December 2004

Segment assets and liabilities

Australia
£m

Belgium
£m

Greece
£m

Hong
Kong
£m

Singapore
£m

United
Kingdom
£m

Other Unallocated
£m

£m

Total
£m 

Segment assets

121.2 

103.5 

112.5 

49.0 

106.0 

523.2 

151.3 

–  1,166.7 

Investment in joint ventures 
and associates

Cash and cash equivalents

Other unallocated assets*

– 

–

–

2.5 

2.4 

33.2 

–

–

–

–

–

–

– 

–

–

4.1 

–

–

– 

–

–

– 

42.2 

171.2

38.1

171.2

38.1

Total assets 

121.2 

106.0 

114.9 

82.2 

106.0 

527.3 

151.3 

209.3  1,418.2 

Segment liabilities 

External borrowings 

Other unallocated liabilities* 

(127.7)

(72.1)

(147.2)

(27.3)

(46.3)

(276.9)

(69.2)

– 

(766.7)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

(19.3)

(19.3)

(117.5)

(117.5)

Total liabilities 

(127.7)

(72.1)

(147.2)

(27.3)

(46.3)

(276.9)

(69.2)

(136.8)

(903.5)

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

For the year ended
31 December 2004

Other segment items

Capital expenditure:

– Property, plant and equipment 

– Vehicles subject to residual 

value commitments 

– Intangible assets 

Depreciation:

Australia
£m

Belgium
£m

Greece
£m

Hong
Kong
£m

Singapore
£m

United 
Kingdom 
£m

Other
£m

Central
£m

Total
£m 

2.8

–

0.2 

0.9 

–

0.3 

1.1 

1.6 

1.7 

23.6

9.2 

0.5 

– 

– 

– 

– 

20.2 

2.2

7.5 

1.4 

– 

0.9 

40.1

– 

0.1 

30.8 

3.3

– Property, plant and equipment 

2.9 

0.8

0.9

2.0 

1.1 

9.9

3.3 

0.3 

21.2

– Vehicles subject to residual 

value commitments

Amortisation of intangible assets 

Impairment of goodwill 

Net provisions charged (released) to the 
income statement 

– 

0.7 

0.3 

– 

0.3 

– 

3.5

0.3 

– 

– 

– 

– 

– 

– 

– 

11.9

2.1 

10.1 

0.4 

– 

0.2 

– 

– 

– 

15.8

3.4 

10.6 

5.0

6.0

3.1

(0.2)

3.8

7.7

1.6

(8.7)

18.3

Inchcape plc
Annual report and accounts 2005

59

1

Segmental analysis continued

Secondary reporting format – business segments

The Group is organised into five main operating business segments: vertically integrated import, distribution and retail; import and
distribution; retail; financial services; and other. 

Vertically integrated import, distribution and retail comprises those businesses where the Group acts as the exclusive importer,
distributor and retailer for its brand partners. 

Import and distribution comprises those businesses where the Group acts as the exclusive importer and distributor for its 
brand partners.

Retail comprises those businesses where the Group acts as a retailer for its brand partners. 

Financial services comprises the Group’s leasing businesses and financial services joint ventures and associates, which provide
retail finance to customers. 

Other largely comprises the Group’s business service activities, including logistics and refurbishment.

Vertically 
integrated 
import,
distribution
and retail
£m

Import and
distribution
£m

Retail
£m

Financial
services
£m

Other
£m

Central
£m

Total
£m

For the year ended
31 December 2005

Revenue

Total revenue 

Inter-segment revenue 

–

(297.0)

– 

Revenue from third parties 

1,143.8 

1,152.6 

2,063.4 

1,143.8 

1,449.6

2,063.4 

55.8 

– 

55.8 

73.9 

(1.4)

72.5 

– 

– 

– 

4,786.5

(298.4)

4,488.1

As at 31 December 2005

Segment assets

Segment assets

Investment in joint ventures 
and associates

Cash and cash equivalents

Other unallocated assets*

Vertically
integrated 
import,
distribution
and retail
£m

Import and
distribution
£m

Retail
£m

Financial
services
£m

Other
£m

Unallocated
£m

Total
£m

230.2 

277.2 

623.1

111.5

40.0 

–

–

–

0.3 

–

–

– 

–

–

44.4 

–

–

– 

–

–

– 

– 

309.0 

37.4

1,282.0

44.7 

309.0 

37.4

Total assets 

230.2 

277.5 

623.1

155.9

40.0 

346.4

1,673.1

*Other unallocated assets include assets not directly related to operating activities.

For the year ended
31 December 2005

Other segment items

Capital expenditure:

– Property, plant and equipment 

– Vehicles subject to residual 

value commitments 

– Intangible assets 

Vertically
integrated 
import,
distribution
and retail
£m

Import and
distribution
£m

Retail
£m

Financial
services
£m

Other
£m

Central
£m

Total
£m

8.1 

–

0.2 

3.6 

2.3

0.6 

39.1 

4.6 

5.0

1.1 

28.1

0.1 

7.7

– 

0.2 

0.4 

63.5

– 

– 

35.4

2.2 

Inchcape plc
Annual report and accounts 2005

60
Notes to the accounts continued

1

Segmental analysis continued

For the year ended
31 December 2004

Revenue

Total revenue 

Vertically
integrated 
import, 
distribution
and retail
£m

Import and
distribution
£m

Retail
£m

Financial
services
£m

Other
£m

Central
£m

Total
£m

Inter-segment revenue 

– 

(233.6)

–

Revenue from third parties

1,044.9 

1,229.8

1,711.1 

1,044.9 

1,463.4

1,711.1 

63.8 

–

63.8

114.1 

(44.2)

69.9 

– 

– 

– 

4,397.3

(277.8)

4,119.5 

As at 31 December 2004

Segment assets

Segment assets

Investment in joint ventures 
and associates

Cash and cash equivalents

Other unallocated assets*

Vertically
integrated 
import, 
distribution
and retail
£m

Import and
distribution
£m

Retail
£m

Financial
services
£m

Other
£m

Unallocated
£m

Total
£m

202.1 

280.5

518.3 

106.9

58.9

–

–

–

–

–

–

–

–

–

42.2

–

–

–

–

–

–

–

171.2

38.1

209.3

1,166.7

42.2 

171.2

38.1

1,418.2

Total assets 

202.1 

280.5

518.3 

149.1

58.9

*Other unallocated assets include the VAT recovery and assets not directly related to the operating activities.

For the year ended
31 December 2004

Other segment items

Capital expenditure:

– Property, plant and equipment 

– Vehicles subject to residual 

value commitments 

– Intangible assets 

Vertically
integrated 
import, 
distribution
and retail
£m

Import and
distribution
£m

Retail
£m

Financial
services
£m

Other
£m

Central
£m

Total
£m

6.9 

– 

– 

3.5 

– 

0.9

20.1 

7.5 

3.7 

0.4

27.1 

0.1 

1.2

– 

1.8

0.9 

– 

0.1 

40.1

30.8 

3.3

Inchcape plc
Annual report and accounts 2005

2

Exceptional items

Net profit (loss) on sale and termination of operations:

– Provision release arising from non-motors business exits

– MCL Group Limited and Automotive Group Limited

– Ferrari Belgium and UK

– Other

Total net profit (loss) on sale and termination of operations

Goodwill impairment – Inchcape Automotive Limited

VAT recovery

Total operating exceptional items

Share of exceptional property profit of associate

Exceptional finance income – VAT recovery

Tax on exceptional items

Total exceptional items

61

2004
£m

8.6 

(5.8)

(5.3)

(0.5)

(3.0)

(9.4)

1.8 

2005
£m

6.5

–

–

–

6.5

(19.5)

–

(13.0)

(10.6)

–

–

–

(13.0)

1.2 

4.2 

(0.5)

(5.7)

The goodwill impairment charge in the year relating to Inchcape Automotive Limited, reflects the continuing difficult trading
conditions experienced by that business (note 11). 

The release of provisions in the year arises from the settlement and expiry of a number of legal claims relating to non-motors
business exits.

3

a

Revenue and expenses

Revenue

An analysis of the Group’s revenue for the year is as follows:

Sale of goods 

Rendering of services 

b

Analysis of net operating expenses

2005
£m

2004
£m 

4,133.7

3,806.3

354.4

313.2 

4,488.1

4,119.5

Distribution costs 

Administrative expenses 

Other operating income 

Net operating
expenses
before
exceptional 
items
2005
£m

249.8 

204.6 

(3.1)

451.3

Exceptional Net operating
expenses
2005
£m

items
2005
£m

– 

13.0 

– 

13.0 

249.8 

217.6 

(3.1)

464.3 

Net operating
expenses
before
exceptional 
items
2004
£m

229.2 

190.8 

(5.5)

414.5 

Exceptional Net operating
expenses
2004
£m 

items
2004
£m

–

12.4 

(1.8)

10.6

229.2 

203.2 

(7.3)

425.1 

Inchcape plc
Annual report and accounts 2005

62
Notes to the accounts continued

3

c

(i)

Revenue and expenses continued

Profit before tax is stated after the following charges (credits):

Depreciation of property, plant and equipment:

– Owned assets

– Assets held under finance lease

– Vehicles subject to residual value commitments

Amortisation of intangible assets

Impairment of goodwill

(Profit) loss on sale of property, plant and equipment

Operating lease rentals

(ii)

Auditors’ remuneration

UK statutory audit

Overseas statutory audit

Non-audit fees: tax advice (UK: £0.2m, 2004 – £0.3m)

tax compliance (UK: £nil, 2004 – £nil)

further assurance services (UK: £0.2m, 2004 – £0.3m)*

Total PricewaterhouseCoopers LLP audit and non-audit fees

Audit fees – firms other than PricewaterhouseCoopers LLP

*Further assurance services include £0.3m (2004 – £0.5m) in respect of the Group’s IFRS conversion project.

(iii)

Staff costs

Wages and salaries 

Social security costs 

Other pension costs 

2005
£m

22.3

0.5

15.1

3.2

19.5

(2.1)

32.4

0.8

0.7

0.4

0.1

0.4

2.4

0.1

2004 
£m 

20.9 

0.3 

15.8 

3.4

10.6

0.7

28.3

0.7 

0.7

0.5

0.1 

0.5 

2.5

0.1

2005
£m

242.9

26.5

11.2

2004 
£m 

219.1 

22.6 

11.4

280.6

253.1

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

The average number of employees are as follows:

By geographical segment

Australia

Belgium

Greece

Hong Kong

Singapore

UK

Other

Total operational

Central

2005
Number

2004 
Number 

832

311

422

1,159

773

4,736

2,125

10,358

67

10,425

799

324

458

1,156

669

4,554

1,820

9,780

64

9,844

Inchcape plc
Annual report and accounts 2005

63

3

Revenue and expenses continued

By business segment

Vertically integrated import, distribution and retail

Import and distribution

Retail

Financial services

Other

Total operational

Central

4

Share-based payments

2005
Number

2004 
Number 

2,895

893

5,320

270

980

10,358

67

2,742

895

4,796

288

1,059 

9,780 

64 

10,425

9,844 

The terms and conditions of the Group’s share-based payment plans are detailed in the Board report on remuneration. 

The AL Incentive Plan (referred to in the Board report on remuneration) has been included within the Deferred Bonus Plan for the
purposes of the disclosures below.

The expense arising from share-based payment transactions during the year is £2.9m (2004 – £1.7m), all of which is equity settled.

The following table sets out the movements in the number of share options and awards during the year.

Weighted average exercise price*

Executive Share Option Plan

Save As You Earn Plan

Deferred Bonus Plan

Outstanding at 1 January

2005

£9.76

2004

2005

2004

2005

2004

2005

2004

£5.63

1,813,740

1,869,870

581,267

512,060

187,752

222,371

Granted during the year

£19.78

£14.64

576,636

685,796

151,090

273,430

92,536

63,935

Exercised during the year

Lapsed during the year

£6.51

£13.03

£4.02

(566,035)

(711,838)

(167,276)

(124,757)

(62,257)

(96,729)

£7.45

(222,276)

(30,088)

(91,251)

(79,466)

(30,900)

(1,825)

Outstanding at 31 December 

£13.96

£9.76

1,602,065

1,813,740

473,830

581,267

187,131

187,752

* The weighted average exercise price excludes awards made under the Deferred Bonus Plan as there is no exercise price attached
to these share awards. 

Included in the table above are 174,626 (2004 – 889,422) share options outstanding at 31 December granted before 7 November
2002 which have been excluded from the share-based payments charge in accordance with the IFRS 2 transitional provisions.

The weighted average remaining contractual life for the share options outstanding at 31 December 2005 is 519 days 
(2004 – 543 days). 

The range of exercise prices for options outstanding at the end of the year was £2.84 to £21.48 (2004 – £2.84 to £15.72). See note
24 for further details.

The fair value of equity-settled share options granted is estimated as at the date of grant using a binomial model, taking into account
the terms and conditions upon which the options were granted. The following table lists the main inputs to the model for shares
granted during the years ended 31 December 2005 and 31 December 2004:

Executive Share Option Plan

Save As You Earn Plan

Deferred Bonus Plan

2005

2004

2005

2004

2005

2004

Weighted average share price at grant date 

Weighted average exercise price 

£20.69

£20.69

£15.71

£15.71

£20.41

£16.33

£14.96

£11.97

£19.96

£16.07

n/a

n/a

Vesting period 

Expected volatility

Expected life of option 

Weighted average risk free rate

Expected dividend yield

Weighted average fair value per option 

3.0 years

3.0 years

3.0 years

3.0 years

3.0 years

3.0 years

34.0%

34.0%

34.0%

34.0%

n/a

n/a

4.0 years

4.0 years

3.2 years

3.2 years

3.0 years

3.0 years

4.6%

2.5%

£5.63

4.7%

2.5%

£4.34

4.4%

2.5%

£5.30

4.7%

2.5%

£3.93

4.5%

2.5%

4.7%

2.5%

£19.96

£16.07

The expected life and volatility of the options are based upon historical data.

Inchcape plc
Annual report and accounts 2005

64
Notes to the accounts continued

5

Pensions and other post-retirement benefits

a

(i)

The Group operates a number of pension and post-retirement benefit schemes for its employees in a number of its subsidiaries.

The principal funds are held in the UK and are final salary defined benefit pension schemes. Most of the schemes have assets held
in trust in separately administered funds although there are some minor unfunded arrangements relating to post-retirement health
and medical plans in respect of past employees. There are no material defined contribution schemes in the UK.

The majority of the overseas defined benefit schemes are final salary schemes which provide a lump sum on retirement, some of
which have assets held in trust in separately administered funds and others which are unfunded. The overseas defined contribution
schemes are principally linked to local statutory arrangements.

UK schemes

The UK has four main defined benefit schemes, namely the Inchcape Group (UK) Pension Scheme, the Inchcape Motors Pension
Scheme, the Inchcape Overseas Pension Scheme and the TKM Group Pension Scheme. These schemes are considered below:

Open schemes

Inchcape Group (UK) Pension Scheme

The latest triennial actuarial valuation for this scheme was carried out at 31 March 2003 on a market related basis and determined 
in accordance with the advice of independent professionally qualified actuaries based on the projected unit method. The majority of
the scheme’s liabilities are for pensioners and deferred pensioners, and therefore the investment strategy is to hold c. 45.0% of the
scheme’s assets in equities and c. 55.0% in bonds. 

Inchcape Motors Pension Scheme

The latest triennial actuarial valuation for this scheme was carried out at 5 April 2003 on a market related basis and determined 
in accordance with the advice of independent professionally qualified actuaries based on the projected unit method. Whilst a
majority of the scheme’s members are pensioners and deferred pensioners, a sizeable portion of the membership is still accruing
benefits and the investment strategy reflects this with c. 70.0% of the assets invested in equities. 

Inchcape Overseas Pension Scheme

This scheme is managed from Guernsey and is therefore reported in the UK segment in this note. The latest triennial actuarial
valuation for this scheme was carried out at 1 April 2003 and was determined in accordance with the advice of independent
professionally qualified actuaries based on the projected unit method. A significant majority of the scheme’s members are
pensioners and deferred pensioners and therefore the majority of the assets are invested in bonds.

(ii)

Closed scheme

TKM Group Pension Scheme

Following changes to pension legislation which introduced new powers to seek additional funding from the sponsoring group, the
TKM Group Pension Scheme was included on the Group’s balance sheet as from 31 December 2004. The latest triennial actuarial
valuation for this closed scheme was carried out at 5 April 2004 on a market related basis and determined in accordance with 
the advice of independent professionally qualified actuaries based on the projected unit method. The scheme has a prudent
investment strategy. As at 5 April 2004, the scheme had only 0.9% invested in equities with the remainder invested in bonds.
Approximately half the members are pensioners and half are deferred pensioners and as such no further pension accrual arises.

b

c

Overseas schemes

There are a number of smaller defined benefit schemes overseas, the most significant being the Inchcape Motors Limited
Retirement Scheme in Hong Kong. In general these schemes offer a lump sum on retirement with no further obligation to the
employee. These schemes are typically subject to triennial valuations. 

Defined contribution plans

The total expense recognised in the income statement is £2.4m (2004 – £2.1m). Outstanding contributions to defined contribution
schemes are £nil (2004 – £0.1m).

Inchcape plc
Annual report and accounts 2005

65

5

d

Pensions and other post-retirement benefits continued

Defined benefit plans

As the Group’s principal defined benefit schemes are in the UK, these have been reported separately to the overseas schemes.
For the purposes of reporting, actuarial updates have been obtained for the Group’s material schemes and these updates are
reflected in the amounts reported below. 

The principal weighted average assumptions used by the actuaries were:

Rate of increase in salaries

Rate of increase in pensions

Discount rate

Inflation 

Expected return on plan assets

United Kingdom

2005
%

4.7

2.7

4.8

2.7

5.4

2004
%

4.7

2.7 

5.3 

2.7 

5.6 

2005
%

4.7

1.7

4.4

0.7

6.3

Overseas

2004
%

4.7 

1.6 

3.9 

0.7 

6.5

The rate of increase in healthcare cost is 4.5% (2004 – 4.7%) per annum but with higher increases in the first ten years.

Assumptions regarding future mortality experience are set based on published statistics and experience. For the UK schemes, the
average life expectancy of a pensioner retiring at age 65 is 20.5 years (2004 – 19.9 years) for current pensioners and 22.0 years
(2004 – 20.5 years ) for current non pensioners. Most of the overseas schemes only offer a lump sum on retirement and therefore
mortality assumptions are not applicable. 

The expected return on plan assets is based on the weighted average expected return on each type of asset (principally equities
and bonds). The overall expected return on plan assets is determined based on expected real rates of return on equities and
expected yields on bonds applicable to the period over which the obligation is to be settled. 

The liability recognised in the balance sheet is determined as follows:

Present value of funded obligations

Fair value of plan assets

Deficit in funded obligations

Irrecoverable surplus

Net deficit in funded obligations

Present value of unfunded obligations

United Kingdom

Overseas

2005
£m

2004
£m

(717.4) 

(618.7)

653.9  

(63.5) 

–

(63.5)

(2.5)

(66.0)

592.7 

(26.0)

(24.3)

(50.3)

(3.5)

(53.8)

2005
£m

(27.5)

25.6

(1.9)

(0.3)

(2.2)

(1.2)

(3.4)

2004
£m

(24.2)

20.5 

(3.7)

(0.2)

(3.9)

(1.2)

(5.1)

The amounts recognised in the income statement are as follows:

Current service cost

Past service cost

Interest expense on plan liabilities

Expected return on plan assets 

United Kingdom

Overseas

2005
£m

(6.0)

(0.5)

(32.4)

32.4 

(6.5)

2004
£m

(6.8)

(0.4)

(20.2)

20.4 

(7.0)

2005
£m

(2.3)

–

(1.0)

1.4 

(1.9)

2004
£m

(2.1)

–

(1.0)

1.3 

(1.8)

The actual return on plan assets amounts to £79.9m (2004 – £29.6m). 

2005
£m

(744.9)

679.5

(65.4) 

(0.3)

(65.7)

(3.7)

(69.4)

2005
£m

(8.3)

(0.5)

(33.4)

33.8

(8.4)

Total

2004
£m

(642.9)

613.2 

(29.7)

(24.5)

(54.2)

(4.7)

(58.9)

Total

2004
£m

(8.9)

(0.4)

(21.2)

21.7 

(8.8)

Inchcape plc
Annual report and accounts 2005

66
Notes to the accounts continued

5

Pensions and other post-retirement benefits continued

The totals in the previous table were included in the following income statement lines:

Cost of sales

Distribution costs

Administrative expenses

2005
£m

(0.4)

–

(0.4)

2004
£m

(0.3)

–

(0.3)

2005
£m

(0.8)

–

(0.8)

2004
£m

(0.7)

–

(0.7)

2005
£m

(7.1)

(0.5)

(7.6)

2004
£m

(7.9)

(0.4)

(8.3)

Current service cost

Past service cost

Interest expense on plan liabilities

Expected return on plan assets

The amounts recognised in the statement of recognised income and expense (SORIE) are as follows:

Actuarial gains and losses on liability:

– Experience gains and losses

– Changes in assumptions

Actuarial gains and losses on assets:

– Experience gains and losses

Reversal of irrecoverable surplus

Analysis of the movement in the balance sheet net liability:

United Kingdom

2005
£m

2004
£m

0.3

(87.2)

45.7 

24.3 

(16.9)

(0.2)

(16.6)

6.8 

–

(10.0) 

2005
£m

0.1 

1.1 

0.4 

–

1.6 

Overseas

2004
£m

(0.5)

(0.7)

1.1 

–

2005
£m

(8.3)

(0.5)

(8.8)

(33.4)

33.8

(8.4)

2005
£m

0.4

(86.1)

46.1

24.3

Total

2004
£m

(8.9)

(0.4)

(9.3)

(21.2)

21.7

(8.8)

Total

2004
£m

(0.7)

(17.3)

7.9 

–

(0.1) 

(15.3)

(10.1) 

At 1 January

Amount recognised in income statement

Contributions by employer

Actuarial gains and losses recognised in SORIE

Recognition of TKM Group Pension Scheme

Unwinding of surplus

Other movements

Effect of foreign exchange rate changes

At 31 December

Irrecoverable surplus

United Kingdom

Overseas

2005
£m

2004
£m

(29.5) 

(42.5) 

(6.5) 

11.6  

(16.9) 

–

(24.3)

(0.4)

–

(66.0)

–

(66.0)

(7.0)

6.1 

(10.0)

24.3 

–

(0.4)

–

(29.5) 

(24.3)

(53.8) 

2005
£m

(4.9)

(1.9)

2.1 

1.6 

–

–

–

–

(3.1)

(0.3)

(3.4)

2004
£m

(5.5) 

(1.8)

2.2 

(0.1)

–

–

–

0.3 

(4.9) 

(0.2)

(5.1) 

2005
£m

(34.4)

(8.4)

13.7 

(15.3)

–

(24.3)

(0.4)

–

(69.1)

(0.3)

(69.4)

Total

2004
£m

(48.0)

(8.8)

8.3 

(10.1)

24.3 

–

(0.4)

0.3 

(34.4) 

(24.5)

(58.9) 

Inchcape plc
Annual report and accounts 2005

67

5

Pensions and other post-retirement benefits continued

Changes in the present value of the defined benefit obligation are as follows:

United Kingdom

Overseas

At 1 January

Current service cost

Past service cost

Interest expense on plan liabilities

Actuarial gains and losses:

– Experience gains and losses

– Changes in assumptions

Contributions by employees

Benefits paid 

Recognition of TKM Group Pension Scheme

Other movements

Effect of foreign exchange rate changes

2005
£m

2004
£m

(622.2)

(376.7)

(6.0)

(0.5)

(6.8)

(0.4)

(32.4)

(20.2)

0.3 

(87.2)

(2.0)

30.5 

–

(0.4)

–

(0.2)

(16.6)

(2.2)

16.2 

(214.9)

(0.4)

–

At 31 December

(719.9)

(622.2)

Changes in the fair value of the defined benefit asset are as follows:

2005
£m

(25.4)

(2.3)

–

(1.0)

0.1

1.1 

(0.1)

1.1 

–

–

(2.2)

(28.7)

2004
£m

(22.8)

(2.1)

–

(1.0)

(0.5)

(0.7)

(0.1)

0.5 

–

–

1.3 

At 1 January

Expected return on plan assets

Actuarial gains and losses:

– Experience gains and losses

Contributions by employer

Contributions by employees

Benefits paid

Recognition of TKM Group Pension Scheme

Effect of foreign exchange rate changes

At 31 December

Irrecoverable surplus

Revised value at 31 December

United Kingdom

Overseas

2005
£m

592.7 

32.4 

45.7 

11.6 

2.0 

(30.5)

–

–

653.9 

–

653.9 

2004
£m

334.2 

20.4 

6.8 

6.1 

2.2 

(16.2)

239.2 

–

592.7 

(24.3)

568.4 

2005
£m

20.5

1.4

0.4

2.1

0.1

(1.1)

–

2.2 

25.6 

(0.3)

25.3 

2004
£m

17.3 

1.3 

1.1 

2.2 

0.1 

(0.5)

–

(1.0)

20.5 

(0.2)

20.3 

At the balance sheet date, the percentage of the plan assets by category had been invested as follows:

United Kingdom

Overseas

Equities

Corporate bonds

Government bonds

Other

2005
%

31.7

25.8

36.7

5.8

2004
%

29.2

27.5

39.3

4.0

100.0

100.0

2005
%

63.6

18.4

–

18.0

100.0

2004
%

64.4

21.0

0.5

14.1

2005
£m

Total

2004
£m

(647.6)

(399.5)

(8.3)

(0.5)

(33.4)

0.4 

(86.1)

(2.1)

31.6 

–

(0.4)

(2.2)

(8.9)

(0.4)

(21.2)

(0.7)

(17.3)

(2.3)

16.7 

(214.9)

(0.4)

1.3 

2005
£m

613.2

33.8

46.1

13.7

2.1

(31.6)

–

2.2 

679.5 

(0.3)

679.2 

2005
%

33.0

25.5

35.3

6.2

Total

2004
£m

351.5 

21.7 

7.9 

8.3 

2.3 

(16.7)

239.2 

(1.0)

613.2 

(24.5)

588.7 

Total

2004
%

30.4

27.3

38.0

4.3

(25.4)

(748.6)

(647.6)

100.0

100.0

100.0

Inchcape plc
Annual report and accounts 2005

68
Notes to the accounts continued

5

Pensions and other post-retirement benefits continued

The history of the plans for the current and previous year is as follows:

Present value of defined benefit obligation

Fair value of plan assets

Deficit

Irrecoverable surplus

Revised deficit

Experience adjustments on plan liabilities

Experience adjustments on plan assets

United Kingdom

Overseas

2005
£m

(719.9)

653.9 

(66.0)

–

(66.0)

0.3 

45.7 

2004
£m

(622.2)

592.7 

(29.5)

(24.3)

(53.8)

(0.2)

6.8 

2005
£m

(28.7)

25.6 

(3.1)

(0.3)

(3.4)

0.1 

0.4 

2004
£m

(25.4)

20.5 

(4.9)

(0.2)

(5.1)

(0.5)

1.1 

2005
£m

(748.6)

679.5 

(69.1)

(0.3)

(69.4)

0.4 

46.1 

Total

2004
£m

(647.6)

613.2 

(34.4)

(24.5)

(58.9)

(0.7)

7.9 

The cumulative actuarial gains and losses arising since 1 January 2004 recognised in shareholders’ equity amounted to a £25.4m
loss at 31 December 2005 (2004 – £10.1m loss).

The Group has agreed to pay c. £12.4m to its defined benefit plans in 2006, although funding discussions are ongoing with the
trustees of a number of the Group’s main schemes regarding the level of further contributions.

6

Finance income

Bank interest receivable

Expected return on post-retirement plan assets

Other interest receivable

Finance income before exceptional finance income

Exceptional finance income – VAT recovery

Total finance income

7

Finance costs

Bank interest payable

Stock holding interest

Interest expense on post-retirement plan liabilities

Other interest payable

Total finance costs

2005
£m

6.5

33.8

4.4

44.7

–

44.7

2005
£m

2.8

8.7

33.4

5.1

50.0

2004
£m

4.1 

21.7 

1.2 

27.0 

4.2

31.2

2004
£m

0.3 

7.2 

21.2 

8.6 

37.3

Inchcape plc
Annual report and accounts 2005

8

Tax

Analysis of tax charge for the year

Current tax:

– UK corporation tax

– Double tax relief

Overseas tax

Adjustments to prior year liabilities:

– UK

– Overseas

Current tax

Deferred tax (note 16)

Total tax charge

69

2004
£m

12.4

(7.7)

4.7

44.6

49.3

(0.1)

(0.6)

48.6

(5.0)

43.6 

2005
£m

9.8

(8.7)

1.1 

47.2

48.3

0.2 

(1.0)

47.5 

(0.6)

46.9 

The tax charge for the year includes £nil in respect of exceptional items (2004 – £0.5m). 

The effective tax rate for the year of 26.5% (2004 – 26.7%) is higher than the standard rate of tax as explained below. The standard
rate comprises the average statutory rates across the Group, weighted in proportion to accounting profits.

Profit before tax

Profit before tax multiplied by the standard rate of tax of 23.9% (2004 – 24.1%)

Effects of:

– Untaxed provision releases

– Tax on goodwill

– Losses brought forward utilised in the year

– Unrelieved losses 

– Permanent disallowable items

– Prior year items

– Withholding tax

– Other items

– Tax on share of profit of joint ventures and associates

Total tax charge 

2005
£m

2004
£m

177.3

163.2 

42.4

39.4

(4.3)

5.4 

(0.6)

2.8 

3.1 

(0.8)

0.4 

–

(1.5)

46.9 

(2.8)

3.4

(1.8)

2.4 

5.7 

(0.7)

0.3 

(1.1)

(1.2)

43.6 

The subsidiaries Headline tax rate, defined as tax on profit before exceptional items and excluding the Group’s share of profit after
tax of joint ventures and associates, for the year is 25.5% (2004 – 26.6%).

Inchcape plc
Annual report and accounts 2005

70
Notes to the accounts continued

9

Earnings per share

Profit for the year

Minority interests

Basic earnings

Exceptional items:

– Group

– Joint ventures and associates 

Exceptional finance income

Tax on exceptional items

Headline earnings

Basic earnings per share

Diluted earnings per share

Basic Headline earnings per share

Diluted Headline earnings per share

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

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

– Held by the ESOP Trust

– Repurchased as part of the share buy back programme

2005
£m

130.4

(3.8)

126.6 

13.0 

–

–

–

139.6 

161.9p

160.6p

178.5p

177.1p

2004
£m

119.6 

(3.2)

116.4 

10.6 

(1.2)

(4.2)

0.5 

122.1 

148.5p

146.6p

155.7p

153.7p

2005
Number

2004 
Number 

79,843,416 79,241,664 

(519,301)

(840,828)

(1,114,068)

–

Weighted average number of fully paid ordinary shares for the purposes of basic earnings per share

78,210,047  78,400,836 

Dilutive effect of potential ordinary shares

Adjusted weighted average number of fully paid ordinary shares in issue during the year
for the purposes of diluted earnings per share

604,148 

1,019,268 

78,814,195  79,420,104 

Basic earnings per share is calculated by dividing the basic earnings for the year by the weighted average number of fully paid
ordinary shares in issue during the year, less those shares held by the ESOP Trust and those repurchased as part of the share 
buy back programme.

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

Headline earnings (which excludes exceptional items and any material impact on profits of not achieving hedge effectiveness under
IAS 39) is adopted to assist the reader in understanding the underlying performance of the Group. Headline earnings per share is
calculated by dividing the Headline earnings for the year by the weighted average number of fully paid ordinary shares in issue
during the year, less those shares held by the ESOP Trust and those repurchased as part of the share buy back programme.

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

71

2004
£m

11.8

20.4

32.2

Total
£m

81.4 

0.8 

26.5 

(2.1)

(0.4)

Inchcape plc
Annual report and accounts 2005

10

Dividends

The following dividends were paid by the Group:

Interim dividend for the six months ended 30 June 2005 of 19.0p per share (2004 – 15.0p per share) 

Final dividend for the year ended 31 December 2004 of 35.0p per share (2003 – 26.0p per share ) 

2005
£m

14.8

27.2

42.0

The final proposed dividend for the year ended 31 December 2005 of 38.0p per share has not been included as a liability as at 
31 December 2005. 

Dividends paid above exclude £1.2m (2004 – £0.4m) payable on treasury shares and shares held by the ESOP Trust.

11

Intangible assets

Goodwill
£m

Other intangible 
assets
£m

Cost

At 1 January 2004

Businesses acquired

Additions

Disposals

Effect of foreign exchange rate changes

At 1 January 2005

Businesses acquired

Additions

Effect of foreign exchange rate changes

At 31 December 2005

Amortisation and impairment

At 1 January 2004

Disposals

Amortisation charge for the year

Impairment charge for the year

Effect of foreign exchange rate changes

At 1 January 2005

Amortisation charge for the year

Impairment charge for the year

Effect of foreign exchange rate changes

At 31 December 2005

Net book value at 31 December 2005

Net book value at 31 December 2004

60.9 

–

23.2 

(1.6)

(0.4)

82.1 

–

10.3 

1.2 

93.6 

–

–

– 

(10.6) 

– 

(10.6)

–

(19.5) 

–

(30.1)

63.5 

71.5 

20.5 

0.8 

3.3 

(0.5)

– 

24.1 

106.2 

0.5 

2.2 

0.1 

0.5 

12.5 

1.3 

26.9 

120.5 

(14.3)

0.2 

(3.4)

– 

(0.1)

(17.6)

(3.2)

– 

(0.1)

(20.9)

6.0 

6.5 

(14.3)

0.2 

(3.4)

(10.6)

(0.1)

(28.2)

(3.2)

(19.5)

(0.1)

(51.0)

69.5 

78.0 

Inchcape plc
Annual report and accounts 2005

72
Notes to the accounts continued

11

Intangible assets continued

Goodwill

Goodwill acquired in a business combination is allocated to the cash generating units (CGUs) that are expected to benefit from that
business combination. The carrying amount of goodwill has been allocated as follows:

UK Retail 

Singapore

Inchcape Automotive Limited

Other

2005
£m

43.5

14.2

–

5.8

63.5

2004
£m

34.6 

13.0 

19.5 

4.4 

71.5 

Goodwill additions in 2005 arise mainly from the acquisition of six Mercedes-Benz dealerships in the UK (note 27).

Goodwill is now subject to impairment testing at least annually, or more frequently where there are indications that the goodwill
may be impaired.

The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use
calculations are those regarding the discount rates, growth rates, expected changes to costs and selling prices during the period
and the continuing relationship with key brand partners. Management estimates discount rates using the weighted average cost of
capital of the Group, adjusted for any risks specific to the CGUs. Changes in selling prices and direct costs are based on past
practices and expectations of future changes in the market. 

The Group prepares cash flow forecasts derived from the most recent financial plans approved by management for the next three
years. Cash flows beyond this period are extrapolated based on estimated growth rates that do not exceed the long term growth
rate for the relevant market. 

UK Retail

UK Retail CGUs are defined as contiguous territories by marque. Forecast cash flows for UK Retail, discounted at a pre-tax rate of
11.5%, are based on growth rates generally in excess of 4.5% for the first three years, and thereafter are based on the long term
growth rate of the local economy of 2.6%. 

Singapore

In Singapore, forecast cash flows reflect the anticipated softening of the vehicle market to more normalised levels level driven by
reducing fiscal incentives in the region. The cash flows, discounted at a pre-tax rate of 10.8%, are still however substantially in
excess of the carrying amount of the assets of the business. The long term growth rate applied is based upon the long term growth
rate of the local economy of 2.0%. 

Inchcape Automotive Limited

The forecast cash flows for the business show limited growth due to the continuing challenging market conditions and industry 
over capacity. These cash flows at 31 December 2005, which have been discounted at a pre-tax rate of 11.5%, did not support the
carrying amount of the goodwill held by the Group and the full balance has been written off. The impairment charge of £19.5m is
included within exceptional items in the income statement.

Other intangible assets

Other intangible assets principally comprise computer software. The amortisation charge is largely included within administrative
expenses in the income statement. 

Other intangible assets also include customer contracts and back orders recognised on the acquisition of a business. 
These intangible assets are recognised at the fair value attributable to them on acquisition, and are amortised on a straight line 
basis over their useful life (usually up to one year).

Inchcape plc
Annual report and accounts 2005

73

12

Property, plant and equipment

Cost

At 1 January 2004

Businesses acquired

Businesses sold

Additions

Disposals

Effect of foreign exchange rate changes

At 1 January 2005

Businesses acquired

Businesses sold

Additions

Disposals

Transfer to joint venture

Effect of foreign exchange rate changes

At 31 December 2005

Depreciation

At 1 January 2004

Businesses sold

Depreciation charge for the year

Disposals

Effect of foreign exchange rate changes

At 1 January 2005

Businesses sold

Depreciation charge for the year

Disposals

Transfer to joint venture

Effect of foreign exchange rate changes

At 31 December 2005

Net book value at 31 December 2005

Net book value at 31 December 2004

Freehold land
and freehold 

Plant,
and leasehold  machinery and
equipment
£m

buildings
£m

Vehicles subject
to residual value
commitments
£m

Subtotal
£m

Total
£m

206.3 

130.0 

336.3 

90.1 

426.4 

5.9 

(1.3)

15.2 

(3.6)

(3.1)

1.3 

(2.1)

24.9 

(16.3)

(2.5)

7.2 

(3.4)

40.1 

(19.9)

(5.6)

219.4

135.3

354.7

15.3 

(1.8)

36.7 

(9.0)

–

6.1 

2.3 

(0.4)

26.8 

(15.9)

(0.9)

3.3 

266.7

150.5

17.6 

(2.2)

63.5 

(24.9)

(0.9)

9.4 

417.2

– 

– 

30.8 

(46.7)

0.6 

74.8

0.2 

– 

35.4 

(29.8)

– 

(0.7)

79.9

7.2 

(3.4)

70.9 

(66.6)

(5.0)

429.5

17.8 

(2.2)

98.9 

(54.7)

(0.9)

8.7 

497.1

(24.4)

0.1 

(4.8)

2.3 

0.7

(81.9)

1.5 

(16.4)

11.5

1.6

(106.3)

(27.9)

(134.2)

1.6 

(21.2)

13.8

2.3

– 

(15.8)

20.2 

(0.3)

1.6 

(37.0)

34.0

2.0

(26.1)

(83.7)

(109.8)

(23.8)

(133.6)

0.4 

(6.6)

1.0 

–

(1.2)

(32.5)

234.2

193.3

0.3 

(16.2)

8.4 

0.4 

(2.3)

(93.1)

57.4

51.6

0.7 

(22.8)

9.4 

0.4 

(3.5)

– 

(15.1)

14.1 

– 

– 

0.7 

(37.9)

23.5 

0.4 

(3.5)

(125.6)

(24.8)

(150.4)

291.6

244.9

55.1

51.0

346.7

295.9

Certain subsidiaries have an obligation to repurchase, at a guaranteed residual value, vehicles which have been legally sold for
leasing contracts. These assets are included in vehicles subject to residual value commitments in the table above.

Inchcape plc
Annual report and accounts 2005

74
Notes to the accounts continued

12

Property, plant and equipment continued

Assets held under finance leases have the following net book values:

Leasehold buildings

Plant, machinery and equipment

The book value of land and buildings is analysed between:

Freehold

Leasehold with over fifty years unexpired

Short leasehold

13

Investments in joint ventures and associates

Group’s share of net assets of joint ventures and associates

Non-current assets 

Current assets

Group’s share of gross assets

Current liabilities

Non-current liabilities

Group’s share of gross liabilities

Group’s share of net assets

Group’s share of results of joint ventures 
and associates

Revenue

Expenses

Exceptional items

Net finance income

Profit before tax

Tax

Share of profit after tax of joint ventures and associates 

Joint ventures

Associates

2005
£m

174.0

183.3

357.3

(172.8)

(144.2)

(317.0)

40.3 

20.0 

(13.6)

–

–

6.4 

(1.1)

5.3 

2004
£m

178.6 

115.3 

293.9 

(136.3)

(118.6)

(254.9)

39.0 

18.1

(11.1)

–

–

7.0

(1.6)

5.4

2005
£m

14.8

36.6

51.4

(36.9)

(10.1)

(47.0)

4.4 

3.9

(2.7)

–

–

1.2 

(0.3)

0.9 

2004
£m

9.0 

41.9 

50.9 

(39.2)

(8.5)

(47.7)

3.2 

30.7

(30.0)

1.2 

0.1 

2.0

0.4 

2.4

Guarantees provided in respect of joint ventures and associates borrowings amount to £0.8m (2004 – £0.3m).

2005
£m

4.8

0.6

5.4

2005
£m

186.3

14.6

33.3

234.2

2005
£m

188.8

219.9

408.7

(209.7)

(154.3)

(364.0)

44.7 

23.9

(16.3)

–

–

7.6 

(1.4)

6.2 

2004
£m

1.7

0.4

2.1 

2004
£m

151.1 

12.4 

29.8 

193.3 

Total

2004
£m

187.6 

157.2 

344.8 

(175.5)

(127.1)

(302.6)

42.2 

48.8

(41.1)

1.2 

0.1 

9.0 

(1.2)

7.8 

Inchcape plc
Annual report and accounts 2005

14

Other investments and available for sale financial assets

Cost less provisions at 1 January 2004

Additions

Disposals

Reversal of provision

Cost less provisions at 31 December 2004

Reclassification on adoption of IAS 32 and IAS 39

Revaluation on adoption of IAS 32 and IAS 39

At 1 January 2005

Additions

Disposals 

Net fair value gain transferred to shareholders’ equity

Effect of foreign exchange rate changes

At 31 December 2005

Analysed as:

Non-current

Current

Assets held are analysed as follows:

Bonds

Other

At 31 December 2004

Bonds

Other

At 31 December 2005

75

Total
£m

14.5 

4.5 

(5.1)

0.7 

14.6 

– 

0.8 

15.4 

6.7 

(6.2)

2.3

(0.8)

17.4 

Other
investments
£m

Available for
sale financial
assets
£m

14.5 

4.5 

(5.1)

0.7 

14.6 

(14.6)

–

–

–

–

–

–

–

– 

– 

– 

– 

– 

14.6 

0.8 

15.4 

6.7 

(6.2)

2.3

(0.8)

17.4 

Other investments  Available for sale financial assets

2005
£m

–

–

–

2004
£m

11.9

2.7

14.6

2005
£m

15.0

2.4

17.4

Other
investments
£m

Available for
sale financial
assets
£m

13.1 

1.5

14.6 

–

–

–

– 

– 

– 

13.6 

3.8 

17.4 

2004
£m

–

–

–

Total
£m

13.1 

1.5

14.6 

13.6 

3.8 

17.4 

At 31 December 2005 the bonds attracted a weighted average fixed interest rate of 5.4% and had a face value of £12.6m. 
The bonds are traded on active markets with coupons generally paid on an annual basis.

Other, includes equity securities and debentures that are not subject to interest rates and do not have fixed maturity dates. 
These are valued by reference to traded market values.

In accordance with IAS 32 and IAS 39, from 1 January 2005 available for sale financial assets are carried at fair value.

Inchcape plc
Annual report and accounts 2005

76
Notes to the accounts continued

14

Other investments and available for sale financial assets continued

At 31 December 2005, available for sale financial assets subject to fixed interest rates are aged by maturity date as follows:

Available for sale financial assets

1.3 

1.5 

0.5 

0.6 

0.3 

9.4 

Less than
one year
£m

Between
one and
two years
£m

Between
two and
three years
£m

Between
three and
four years
£m

Between
four and
five years
£m

Greater
than five
years
£m

Total
interest
bearing
£m

13.6

In certain jurisdictions, management holds bonds to offset future vehicle warranty obligations. To meet this requirement,
management purchases and sells bonds regularly and does not usually hold the bonds to maturity. Accordingly, the maturity profile
of the bonds is not necessarily an indication of when management intends to realise the associated future cash flows.

15

Trade and other receivables

Trade receivables

Less: provision for impairment of trade receivables

Net trade receivables

Amounts receivable from related parties

Prepayments and accrued income

Other receivables

2005
£m

133.1

(4.7)

128.4

6.6

50.6 

35.5 

Current

2004
£m

111.2 

(4.2)

107.0 

6.9

34.5 

49.9

221.1 

198.3

Non-current

2004
£m

–

–

–

5.4

0.4 

13.8

19.6 

2005
£m

–

–

–

4.8

0.2

17.4

22.4

Trade receivables are non-interest bearing and are generally on credit terms of thirty to sixty days.

Management considers the carrying amount of trade and other receivables to approximate to their fair value. Long term receivables
have been discounted where the time value of money is considered to be material.

Concentration of credit risk with respect to trade receivables is very limited due to the Group’s broad customer base.

77

Total
£m

20.8 

(0.1)

2.0 

6.8 

(6.3)

0.2 

23.4 

Total
£m

14.8 

1.9 

1.4 

1.5 

(6.3)

0.2 

13.5 

Inchcape plc
Annual report and accounts 2005

16

Deferred tax

Deferred tax assets

At 1 January 2005

Businesses acquired

Credited (charged) to the income statement

Credited to shareholders’ equity 

Reclassification from deferred tax liability

Effect of foreign exchange rate changes

Accelerated tax
depreciation
£m

Cash flow
hedges
£m

Tax losses
£m

Provisions and
other timing 
differences
£m

0.3 

–

2.9 

–

–

–

– 

–

– 

3.6 

–

–

1.7 

–

(0.3)

– 

–

–

18.8 

(0.1)

(0.6)

3.2 

(6.3)

0.2 

15.2 

At 31 December 2005

3.2 

3.6 

1.4 

Deferred tax liabilities

At 1 January 2005

Businesses acquired

Charged (credited) to the income statement

Charged to shareholders’ equity

Reclassification to deferred tax asset

Effect of foreign exchange rate changes

At 31 December 2005

Accelerated tax
depreciation
£m

Cash flow
hedges
£m

Tax losses
£m

Provisions and
other timing 
differences
£m

–

–

4.9 

–

–

–

–

–

– 

1.5 

–

–

4.9 

1.5 

–

–

– 

– 

–

–

– 

14.8 

1.9 

(3.5)

– 

(6.3)

0.2 

7.1 

The deferred tax credited to shareholders’ equity during the year comprised £2.1m in respect of cash flow hedges and £3.2m in
respect of share-based payment transactions. 

The Group has unrecognised deferred tax assets of £25.6m (2004 – £25.0m) 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 £14.0m (2004 – £14.0m) 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 remote. These assets will only become recognisable if the relevant companies which hold them generate sufficient
taxable profits. Of the unrecognised deferred tax assets that relate to tax losses, £6.5m (2004 – £5.5m) relate to restricted tax
losses, the majority of which will not expire until after 2010. 

The Group has unrecognised deferred tax assets of £69.0m (2004 – £69.0m) in relation to capital losses in addition to the
unrecognised deferred tax assets relating to the tax losses noted above. 

There are also losses in Belgium for which an asset of £1.4m (2004 – £1.7m) has been recognised, based on current forecast
profits. A further asset of £nil (2004 – £0.4m) will only become recognisable if the relevant company which holds the losses
generates sufficient taxable profits.

No deferred tax is recognised on the unremitted earnings of overseas subsidiaries and joint ventures. The Group continually
reinvests the earnings, or has plans to remit them and no tax is expected to be payable on them in the foreseeable future. If the
earnings were remitted, tax of £20.3m (2004 – £16.5m) would be payable.

Inchcape plc
Annual report and accounts 2005

78
Notes to the accounts continued

17

Inventories

Raw materials and work in progress

Finished goods and merchandise 

2005
£m

3.0

612.8

615.8

2004
£m

2.0

575.1

577.1

Vehicles held on consignment which are in substance assets of the Group amount to £68.7m (2004 – £49.2m). These have been
included in finished goods and merchandise with the corresponding liability included within trade and other payables. Payment
becomes due when title passes to the Group, which is generally the earlier of six months from delivery or the date of sale. 

An amount of £22.2m (2004 – £22.0m) has been provided against the gross cost of inventory at the year end. The cost of
inventories recognised as an expense in the year is £3,301.0m (2004 – £3,167.0m). 

18

Derivative financial instruments

The Group has elected to apply the exemption available under IFRS 1 not to present comparative information, and to apply IAS 32
and IAS 39 prospectively from 1 January 2005. Accordingly, the 2004 comparatives have been presented in accordance with the UK
GAAP standard FRS 13 Derivatives and Other Financial Instruments: Disclosures (note 23).

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

The Group’s derivative financial instruments comprise the following:

At 31 December 2005

Forward foreign exchange contracts

Assets 
£m 

2.1 

Liabilities 
£m

12.6 

The Group principally uses forward foreign exchange contracts to hedge purchases in a non-functional currency against movements
in exchange rates. The cash flows relating to these contracts are generally expected to occur within twelve months of the balance
sheet date.

The nominal principal amounts of the outstanding forward foreign exchange contracts relating to transactional exposures at 
31 December 2005 are £569.1m.

Net fair value gains and losses recognised in the hedging reserve in shareholders’ equity (note 25) on forward foreign exchange
contracts as at 31 December 2005 are expected to be released to the income statement within twelve months of the balance
sheet date.

Derivative financial instruments are carried at their fair values. The fair value of forward foreign exchange contracts and foreign
exchange swaps 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 2005.

Inchcape plc
Annual report and accounts 2005

19

Cash and cash equivalents

Cash at bank and in hand

Short term bank deposits

79

2004
£m

70.2

101.0

171.2

2005
£m

217.5

91.5

309.0

In 2004 the UK cash balance was reported net of bank overdrafts where the legal right of offset existed. On adoption of IAS 32,
netting can only occur to the extent that there is both the legal ability and intention to settle net. Therefore although the UK cash
balances are managed on a pooled basis and interest is charged or earned on a net basis, as there is no intention to settle net, this
has resulted in a gross up of cash and cash equivalents and borrowings in 2005.

Cash and cash equivalents are generally subject to floating interest rates determined by reference to short term benchmark rates
applicable in the relevant currency or market (primarily LIBOR or the local equivalent). At 31 December 2005 the weighted average
floating rate was 4.0%.

At 31 December 2005, short term bank deposits have a weighted average period to maturity of twenty-seven days.

20

Trade and other payables

Trade payables: payments received on account

other

Other taxation and social security payable

Accruals and deferred income

Amounts payable to related parties

Other payables

2005
£m

38.1

496.7

17.4

125.7

1.9

8.4

Current

2004
£m

34.1 

485.0 

14.6 

113.2 

1.6 

8.8 

2005
£m

0.1

43.0

1.2

0.9

–

0.1

688.2

657.3 

45.3

Non-current

2004
£m

0.1 

30.7 

0.4 

0.5

–

0.1 

31.8 

At 31 December 2005, trade payables – other includes £292.4m of creditors where payment is made on deferred terms and is
subject to a weighted average floating interest rate of 3.7%. This balance is expected to be settled within twelve months of the
balance sheet date. 

Management considers the carrying amount of trade and other payables to approximate to their fair value. Long term payables have
been discounted where the time value of money is considered to be material. 

Inchcape plc
Annual report and accounts 2005

80
Notes to the accounts continued

21

Provisions

At 1 January 2005

Charged to the income statement

Released to the income statement

Effect of unwinding of discount factor

Utilised during the year

Effect of foreign exchange rate changes

At 31 December 2005

Analysed as:

Current

Non-current

Product warranty

Product
warranty
£m

38.8 

18.5 

(5.3)

0.4 

(13.6)

0.5 

39.3 

Motors
business
exits
£m

Non-motors
business
exits
£m

Vacant
leasehold
£m

4.7 

0.5

–

– 

(3.2)

– 

2.0 

16.7 

– 

(6.5)

– 

(7.2)

– 

3.0 

5.0 

0.6 

(0.3)

0.2 

(0.1)

– 

5.4 

Other
£m

11.3 

1.4

(2.8) 

– 

(1.3)

(0.2)

8.4 

2005
£m

22.5

35.6

58.1

Total 
£m

76.5 

21.0

(14.9)

0.6 

(25.4)

0.3 

58.1 

2004
£m

24.6

51.9

76.5

Certain Group companies provide self-insured extended warranties beyond those provided by the manufacturer, as part of the 
sale of the car. 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

This provision relates to business exits that are expected to be largely 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. During the year the Group came to a final settlement of the legal claims made by AON Corporation under an 
indemnity given in connection with the sale of Bain Hogg Limited in 1996.

Any detailed disclosure of the Group’s outstanding claims could seriously prejudice negotiations. Accordingly, no information 
is given in regard to the likely timing or cash impact as normally required under IAS 37 Provisions, Contingent Liabilities and
Contingent Assets.

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. The expected utilisation period of these provisions is generally over the next ten years.

Other

This category includes provision for the cost of implementing new European Block Exemption contracts throughout the dealer
network in Belgium and a number of litigation provisions in respect of the exit of certain motor business dealerships. These are
generally expected to be settled within the next three years.

Inchcape plc
Annual report and accounts 2005

22

Borrowings

Current

Bank overdrafts

Bank loans 

Loan notes

Finance leases 

Non-current

Bank loans 

Finance leases 

£m

143.1 

1.8 

–

0.2 

145.1 

–

2.3 

2.3 

Total borrowings

147.4 

81

2004
Total
£m

12.4 

0.8 

2.2 

0.2 

Total
interest
bearing
£m

On which
no interest
is paid
£m

143.1 

1.8 

– 

0.4 

– 

0.1 

– 

– 

2005
Total
£m

143.1

1.9

–

0.4 

145.3 

0.1 

145.4 

15.6 

–

4.7 

4.7 

0.9 

– 

0.9 

0.9 

4.7 

5.6 

1.4 

2.3 

3.7 

150.0 

1.0 

151.0 

19.3 

Floating rate

Weighted
average
effective
interest
rate
%

5.2

4.8

–

5.1

5.2

–

5.3

5.3

5.2

Fixed rate

Weighted
average
effective
interest
rate
%

– 

– 

– 

9.2

9.2

–

7.0

7.0

7.2

£m

– 

– 

– 

0.2 

0.2 

–

2.4 

2.4 

2.6 

In 2004, the UK bank overdrafts were reported net of cash where the legal right of offset existed. On adoption of IAS 32, netting
can only occur to the extent that there is both the legal ability and intention to settle net. Therefore, although the UK cash balances
are managed on a pooled basis and interest is charged or earned on a net basis, as there is no intention to settle net, this has
resulted in a gross up of cash and cash equivalents and borrowings. 

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 or the local equivalent).

The fair values of the Group’s borrowings are not considered to be materially different from their book value.

As in 2004, the Group’s borrowings are unsecured.

In July 2005, the Group amended its principal committed borrowing facility of £250.0m with a syndicated committed borrowing
facility of £275.0m. The maturity of this facility has been extended for a further five years to 2010, with the option of a further
extension to 2012. As at year end there were no drawings made under this facility. In addition, the relationship banks have made
available uncommitted borrowing facilities, which are used for liquidity management purposes.

The table below sets out the maturity profile at 31 December 2005 of the Group’s borrowings that are exposed to interest 
rate risk.

Fixed rate

Finance leases

Floating rate

Bank overdrafts

Bank loans 

Finance leases 

Less than
one year
£m

Between
one and
two years
£m

Between
two and
three years
£m

Between
three and
four years
£m

Between
four and
five years
£m

Greater
than five
years
£m

Total
interest
bearing
£m

0.2 

0.1

0.1

0.1

0.1

2.0

2.6 

143.1 

1.8 

0.2

–

–

–

–

–

–

–

–

0.2 

0.2 

0.2 

0.2 

–

–

1.5

143.1 

1.8 

2.5

Inchcape plc
Annual report and accounts 2005

82
Notes to the accounts continued

23

Financial instruments (2004 disclosures in accordance with UK GAAP)

Financial instruments are accounted for in accordance with IAS 32 and IAS 39 as from 1 January 2005. The transitional provisions 
of IFRS 1 require the presentation of one year of comparative information, but this information need not comply with IAS 32 and
IAS 39. The information disclosed below is therefore presented under the UK GAAP standard FRS 13, although the underlying
numbers have been adjusted from those previously reported under UK GAAP to comply with all IFRS applicable for 2004.

The main adjustments that would be required to give effect to IAS 32 and IAS 39 would be the recognition of a number of assets
and liabilites (including derivatives) at their fair value on the balance sheet and the removal of the short term receivables and
payables exemption that was permitted under FRS 13.

For the purposes of the disclosures which follow in this note, short term receivables and payables which arise directly from the
Group’s operations have been excluded as permitted under the terms of FRS 13. 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.

Interest rate management

The interest rate profile of the financial liabilities of the Group at 31 December 2004 is set out in the table below:

a

(i)

Currency

Sterling 

Euro 

Other 

Floating rate
£m

Fixed rate
£m

10.5 

0.4 

4.2 

15.1 

2.4

0.1 

– 

2.5

On which
no interest
is paid
£m

14.9

10.3

2.4 

27.6

Weighted
average
interest
rate
%

7.5

7.0 

– 

7.5

Total
£m

27.8

10.8

6.6 

45.2

Fixed rate 

Weighted 
average
period for
which rate
is fixed
Years

80

4

–

77

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 £15.6m of residual buy back commitments which have a
weighted average period to maturity of twenty-two months and £4.7m of vacant leasehold property provisions which have a
weighted average period to maturity of six years.

(ii)

The interest rate profile of the financial assets of the Group at 31 December 2004 is set out in the table below:

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

6.5

1.9 

1.4 

0.8 

9.4 

Weighted
average
interest
rate
%

– 

5.7 

– 

– 

– 

Total
£m

72.5

48.8 

28.3 

8.4 

35.7 

160.6 

13.1 

20.0

193.7

5.7 

Fixed rate 

Weighted 
average
period for
which rate
is fixed
Years

– 

4

– 

– 

– 

4

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 of short term bank deposits and £5.3m of rental income
due on contracts in progress in UK leasing businesses which have a weighted average period to maturity of thirteen months.

Inchcape plc
Annual report and accounts 2005

83

23

Financial instruments (2004 disclosures in accordance with UK GAAP) continued

b

c

Exchange risk management

There were no material unhedged monetary assets or liabilities that are not denominated in the functional currency of the relevant
operating company within the Group.

Fair values

There were no material differences between the book value and fair value of the Group’s assets and liabilities other than the
forward foreign exchange contracts on transactional exposures which had a book value of £nil and a fair value liability of £8.3m, 
and other investments which had a book value of £14.6m and a fair value of £15.4m at 31 December 2004.

The fair value of forward foreign exchange 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 for these contracts, used principally to hedge
future purchases in foreign currency.

The fair value of other investments is based upon their traded market value.

d

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

e

Hedges

Borrowings
and finance
leases
£m

Other
financial
liabilities
£m

15.6 

1.1 

0.8

1.8

19.3

1.9 

13.6

8.2

2.2 

25.9

Total
£m

17.5 

14.7

9.0

4.0

45.2

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 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 

4.4 

4.4 

Losses
£m

(17.9) 

17.9 

(12.7)

(12.7)

(12.7)

Net gains
(losses)
£m

(14.4)

14.4

(8.3)

(8.3)

(8.3)

Inchcape plc
Annual report and accounts 2005

84
Notes to the accounts continued

24

Share capital

a

Authorised

Ordinary share capital (150.0p per share)

b

Allotted, called up and fully paid up

Ordinary shares of 150.0p each

At 1 January

Allotted under share option schemes

At 31 December

Substantial shareholdings

Number of shares

Ordinary share capital

2005
Number

2004
Number

131,000,000 131,000,000

2005
£m

196.5

2004
£m

196.5

Number of shares

Ordinary share capital

2005
Number

2004
Number

2005
£m

2004
£m

79,656,577 78,893,237

379,541

763,340

80,036,118 79,656,577

119.5

0.6

120.1

118.4

1.1

119.5

c

d

Details of substantial interests in the Company’s issued ordinary share capital received by the Company at 5 March 2006 under the
provisions of the Companies Act 1985 have been disclosed in the substantial shareholdings section of the Directors’ report.

Share buy back programme

During the year, the Group acquired 1,681,338 of its own shares through purchases on the London Stock Exchange. The total
consideration paid was £31.0m and this has been deducted from the retained earnings reserve. The shares are held as treasury
shares and may either be cancelled or used to satisfy share options at a later date. 

Inchcape plc
Annual report and accounts 2005

24

Share capital continued

e

Share options

85

At 31 December 2005, 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:

Number of
ordinary shares
at 150.0p each

Exercisable
until

Option
price

Number of
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

124,298

131,104

79,091

77,397

61,940

1 December 2006

610.0p

1 December 2007

1171.0p

1 May 2008

1336.0p

1 December 2008

1645.0p

1 May 2009

1695.0p

119

2,604

2,916

4,477

75,120

2,688

4,874

73,751

14,146

53,801

10,233

9 August 2010

21 March 2011

17 March 2012

15 October 2012

19 March 2013

284.0p

384.0p

685.0p

670.0p

762.0p

7 August 2013

1116.0p

31 August 2013

1231.0p

20 May 2014

1572.0p

29 September 2014

1555.0p

6 March 2015

2056.0p

11 September 2015

2148.0p

– unapproved (Part I – UK)

2,919

92,537

136,612

896

2,436

250,467

7,458

223,324

70,529

17 March 2012

15 October 2012

19 March 2013

685.0p

670.0p

762.0p

7 August 2013

1116.0p

31 August 2013

1231.0p

20 May 2014

1572.0p

29 September 2014

1555.0p

6 March 2015

2056.0p

11 September 2015

2148.0p

– unapproved overseas (Part I – Overseas)

2,577

5,280

29,946

31,251

129,348

1,218

203,477

167,061

7 September 2009

9 August 2010

21 March 2011

17 March 2012

19 March 2013

388.0p

284.0p

384.0p

685.0p

762.0p

31 August 2013

1231.0p

20 May 2014

1572.0p

6 March 2015

2056.0p

Included within the retained earnings reserve are 468,362 (2004 – 791,471) of own ordinary shares held by the ESOP Trust, 
a general discretionary trust whose beneficiaries include current and former employees of the Group and their dependants. 
The book value of these shares at 31 December 2005 was £5.3m (2004 – £5.4m). The market value of these shares at 
31 December 2005 was £10.7m and at 3 March 2006 was £11.8m (31 December 2004 – £15.5m, 28 February 2005 – £16.3m).

Inchcape plc
Annual report and accounts 2005

86
Notes to the accounts continued

25

Reserves

a

Consolidated statement of changes in equity

Share 
capital
£m

118.4 

Share 
premium
£m 

109.1 

Capital
redemption
reserve
£m

16.4

Other 
reserves 
£m 

Equity
attributable to
Retained  equity holders
of the parent
earnings
£m 
£m 

Minority 
interest
£m 

Total
shareholders’
equity
£m 

–

198.9 

442.8 

6.8 

449.6 

At 1 January 2004

Total recognised income and
expense for the year

Share-based payments charge

Net disposal of own shares by 
ESOP Trust

Dividends:

– Equity holders of the parent

– Minority interests

– 

– 

–

– 

– 

– 

– 

– 

– 

– 

Issue of ordinary share capital

At 31 December 2004

1.1 

119.5 

Adoption of IAS 32 and IAS 39

– 

1.6

110.7

– 

At 1 January 2005

119.5 

110.7

Total recognised income and
expense for the year

Share-based payments charge

Net disposal of own shares by 
ESOP Trust

Share buy back programme

Dividends:

– Equity holders of the parent

– Minority interests

–

–

–

–

–

–

Issue of ordinary share capital

0.6 

Tax on transactions with 
equity holders

–

–

–

–

–

–

–

1.8

–

–

–

–

–

–

–

16.4

–

16.4

–

–

–

–

–

–

–

–

(15.2)

106.5 

– 

– 

– 

– 

– 

(15.2)

(5.0)

(20.2)

33.3

– 

– 

–

– 

– 

– 

– 

91.3 

1.7 

0.1 

1.7 

0.1 

(32.2)

(32.2)

– 

– 

275.0 

0.5 

275.5 

110.9

2.9 

0.1

(31.0)

– 

2.7

506.4

(4.5)

501.9

144.2 

2.9 

0.1

(31.0)

(42.0)

(42.0)

–

–

3.2

– 

2.4

3.2

3.0

–

–

–

(1.5)

–

8.3 

– 

8.3 

4.2

– 

– 

– 

– 

(3.0)

– 

– 

94.3

1.7 

0.1 

(32.2)

(1.5)

2.7

514.7

(4.5)

510.2

148.4 

2.9 

0.1

(31.0)

(42.0)

(3.0)

2.4

3.2

At 31 December 2005

120.1 

112.5 

16.4

13.1

319.6 

581.7 

9.5 

591.2 

Cumulative goodwill of £108.1m (2004 – £108.1m) has been written off against the retained earnings reserve. In addition, the
retained earnings reserve includes non-distributable reserves of £1.4m (2004 – £4.0m).

The principal impact of adopting IAS 32 and IAS 39 at 1 January 2005 relates to the accounting for derivative financial instruments.
Under UK GAAP, derivatives taken out to hedge foreign currency exposures generally remained off balance sheet with the associated
liability being booked at the forward contract rate. Under IFRS, the liability is booked at the spot rate and the derivative is initially
recognised at fair value and subsequently remeasured to fair value with any movement being taken to the income statement unless
designated and documented as being a hedge of a highly probable forecast transaction or commitment (cash flow hedge), in which
case the gain or loss is taken to shareholders’ equity until the hedged firm commitment affects the income statement.

The impact of these standards has been to reduce shareholders’ equity by £4.5m at 1 January 2005.

Inchcape plc
Annual report and accounts 2005

25

Reserves continued

b

Other reserves

At 1 January 2004

Effect of foreign exchange rate changes

At 31 December 2004

Adoption of IAS 32 and IAS 39

At 1 January 2005

Cash flow hedges:

– Fair value losses

– Reclassified and reported in inventories

– Tax on cash flow hedges

Fair value gains on available for sale financial assets

Effect of foreign exchange rate changes

At 31 December 2005

Available for sale reserve

87

Available for 
sale reserve
£m

Translation
reserve
£m

Hedging 
reserve
£m

Total other 
reserves
£m

– 

– 

– 

0.5 

0.5 

–

–

–

2.3

–

2.8

– 

(15.2)

(15.2)

– 

(15.2)

–

–

–

–

30.4

15.2

– 

– 

– 

(5.5)

(5.5)

(7.2)

5.7 

2.1

–

–

(4.9)

–

(15.2)

(15.2)

(5.0)

(20.2)

(7.2)

5.7 

2.1

2.3

30.4

13.1

Gains and losses on available for sale financial assets are recognised in the available for sale reserve until the investment is sold or
is considered to be impaired, at which time the cumulative gain or loss is included in the income statement.

Translation reserve

The foreign currency translation reserve is used to record exchange differences relating to the translation of the results of foreign
subsidiaries arising after 1 January 2004. It is also used to record exchange differences arising on long term foreign currency
borrowings used to finance or hedge foreign currency investments.

Hedging reserve

For cash flow hedges that meet the conditions for hedge accounting, the portion of the gains or losses on the hedging instrument
that are determined to be an effective hedge are recognised directly in shareholders’ equity. When the hedged firm commitment
results in the recognition of a non-financial asset or liability then, at the time the asset or liability is recognised, the associated gains
or losses that had previously been recognised in shareholders’ equity are included in the initial measurement of the acquisition cost
or other carrying amount of the asset or liability.

88
Notes to the accounts continued

26

Notes to the cash flow statement

a

Reconciliation of cash generated from operations

Cash flows from operating activities 

Operating profit 

Exceptional items

Amortisation (including non-exceptional impairment of intangible assets)

Depreciation 

(Profit) loss on disposal of property, plant and equipment

Share-based payments charge

Increase in inventories

(Increase) decrease in trade receivables

Increase (decrease) in trade payables

Decrease in vehicles subject to residual value commitments

Payment in respect of termination of operations

Other items*

Cash generated from operations

2005 
£m 

2004 
£m 

176.4

161.5 

13.0

3.2

22.8

(2.1)

2.9 

(15.7)

(17.6)

5.3 

4.5 

(1.3)

4.0 

195.4

10.6 

4.6 

21.2 

0.7 

1.7 

(38.0)

11.0 

(3.5)

4.7 

(1.5)

14.2 

187.2 

*Net cash inflows for the year include £5.4m in respect of the exceptional VAT recovery (notes 2 and 6). Of this total, £1.8m is
reported within Other items (2004 – £15.5m) and £3.6m is reported within Interest received shown on the face of the cash flow
statement (2004 – £21.5m).

There were no cash flows associated with the current year exceptional items.

b

Reconciliation of net cash flow to movement in net funds

Net (decrease) increase in cash and cash equivalents

Net cash outflow from borrowings and finance leases

Change in net cash and debt resulting from cash flows

Effect of foreign exchange rate changes on net cash and debt

Net loans and finance leases relating to acquisitions

Movement in net funds

Opening net funds

Adoption of IAS 32 and IAS 39

Closing net funds

2005 
£m 

(9.2)

2.5 

(6.7)

16.3 

(4.4)

5.2 

151.9 

0.9 

158.0 

2004 
£m 

76.9 

18.4 

95.3 

(13.1)

(7.4)

74.8 

77.1 

–

151.9 

Inchcape plc
Annual report and accounts 2005

89

27

Acquisitions and disposals

Acquisitions

The Group acquired a number of businesses during the year, none of which was individually material. The consideration paid for
these businesses was £23.9m (of which £0.9m is deferred). The provisional fair value of the total net assets acquired was £13.6m,
with goodwill arising on these acquisitions of £10.3m. The consideration paid on acquisition of these businesses reported in the
cash flow statement is net of cash and overdrafts acquired of £5.0m.

In addition, during the year the Group paid £0.7m deferred consideration on prior year acquisitions and £1.2m in respect of
investments in joint ventures and associates. 

Disposals

The Group disposed of a number of businesses during the year, none of which was individually material. The net disposal proceeds
were £0.8m, which equalled the book value of the total net assets disposed of.

In addition, the Group paid a net £6.3m relating to prior year business disposals. The net cash outflow principally reflects payments
made in respect of the non-motor business exits referred to in note 21. 

28

Guarantees and contingencies 

Guarantees, performance bonds and contingent liabilities

2005
£m

6.5

2004
£m 

7.0

The Group also has, in the ordinary course of business, commitments under foreign exchange instruments relating to the hedging
of transactional exposures (note 18).

In September 2000, the European Parliament passed Directive 2000/53/EC which deals with the collection and disposal of vehicles
at the end of their life. The Directive includes a retrospective liability for vehicles put on the road prior to July 2002. Member states
were required to enact legislation by 21 April 2002. Legislation has now been enacted in all the Group’s core markets in the EU,
including the UK. In Belgium, Finland and Greece there are self-funding arrangements in place with independent companies which
will result in a no cost solution for importers. Accordingly, having reviewed this matter and, based on the information currently
available, the Directors consider that the implementation of the Directive will not have a material impact on the financial position of
the Group.

29

Commitments

a

Capital commitments

Contracts placed for future capital expenditure at the balance sheet date but not yet incurred are as follows:

Property, plant and equipment

Vehicles subject to residual value commitments*

Intangible assets

2005
£m

14.9

65.3

0.4

2004
£m

7.5

66.4

0.5

*Residual value commitments comprise the total repurchase liability on all vehicles sold subject to a residual value commitment, of
which £27.4m (2004 – £30.6m) has been included within trade and other payables.

Inchcape plc
Annual report and accounts 2005

90
Notes to the accounts continued

29

Commitments continued

b

(i)

Lease commitments

Operating lease commitments – Group as lessee

The Group has entered into non-cancellable operating leases for various offices, warehouses and dealerships. These leases have
varying terms, escalation clauses and renewal rights. 

Future minimum lease payments under non-cancellable operating leases are as follows:

Within one year

In two to five years

After five years

2005
£m

30.0

67.3

76.4

2004
£m

29.8

53.6 

74.6 

173.7

158.0

(ii)

Operating lease commitments – Group as lessor

The Group has entered into non-cancellable operating leases on a number of its vehicles. These leases have varying terms,
escalation clauses and renewal rights.

Future minimum lease payments receivable under non-cancellable operating leases are as follows:

Within one year

In two to five years

After five years

2005
£m

2.1

2.9

0.9

5.9

(iii)

Finance leases and hire purchase contracts

The Group has finance leases and hire purchase contracts for various items of property, plant and equipment. These leases have
varying terms, escalation clauses and renewal rights. Future minimum lease payments under finance leases and hire purchase
contracts, together with the present value of the net minimum lease payments (included within borrowings) are as follows: 

Minimum lease payments:

– Within one year

– In two to five years

– After five years

Total minimum lease payments

Less: future finance charges

Present value of finance lease liabilities

2005
£m

0.8

2.0

7.7

10.5

(5.4)

5.1

2004
£m

2.2 

2.8 

2.1 

7.1 

2004
£m

0.4 

0.9 

3.6 

4.9 

(2.4)

2.5

Inchcape plc
Annual report and accounts 2005

91

30

Related party disclosures

a

Principal subsidiaries and joint ventures

The consolidated Financial statements include the principal subsidiaries and joint ventures listed below:

Shareholding

Description

Subsidiary

Subaru (Australia) Pty Limited

Toyota Belgium NV/SA

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

Inchcape Motors Finland OY

Toyota Hellas SA

Crown Motors Limited

Country of 
incorporation

Australia

Belgium

Ethiopia

Finland

Greece

Hong Kong

90.0%

100.0%

94.1%

100.0%

100.0%

100.0%

Borneo Motors (Singapore) Pte Ltd

Singapore

100.0%

Inchcape Automotive Limited

Inchcape Finance plc

Inchcape Fleet Solutions Limited

Inchcape International Holdings Limited

Inchcape Retail Limited

The Cooper Group Limited

Joint venture

United Kingdom

United Kingdom

United Kingdom

United Kingdom

United Kingdom

United Kingdom

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

Import and distribution

Import and distribution

Vertically integrated import, distribution
and retail

Import and distribution

Import and distribution

Vertically integrated import, distribution
and retail

Vertically integrated import, distribution
and retail

Vehicle logistics and refurbishments*

Central treasury company**

Financial services

Intermediate holding company**

Retail

Retail

Inchroy Credit Corporation Limited

Hong Kong

50.0%

Financial services

The ultimate parent company of the Group is Inchcape plc, a company incorporated in the UK and listed on the London 
Stock Exchange.

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.

*Included within Other in business segmental analysis.
**Included within Central in business segmental analysis.

b

Trading transactions

Intra-Group transactions have been eliminated on consolidation and are not disclosed in this note. Details of transaction between
the Group and other related parties are disclosed below:

Vehicles purchased from joint ventures and associates

Vehicles sold to joint ventures and associates

Other income paid to joint ventures and associates

Other income received from joint ventures and associates

Transactions

Amounts outstanding

2005

54.1

354.5

2.7

13.8

2004

56.8 

397.2 

2.5 

11.1 

2005

1.0

2.2

0.9

9.2

2004

1.0 

0.1

0.6 

12.7

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

The amounts outstanding are unsecured and will be settled in cash. There have been no guarantees provided or received for any
related party receivables. The Group has not raised any provision for doubtful debts relating to amounts owed by related parties
(2004 – £nil).

Inchcape plc
Annual report and accounts 2005

92
Notes to the accounts continued

30

Related party disclosures continued

c

Compensation of key management personnel

The remuneration of the Directors and other members of key management during the year was as follows:

Short term employment benefits

Post-retirement benefits

Share-based payments

2005 
£m 

4.8

1.4

2.1

8.3

2004 
£m 

5.2

1.0

1.0

7.2

The remuneration of the Directors and other key management is determined by the Remuneration Committee having regard to the
performance of individuals and market trends. Further details of emoluments paid to the Directors are included in the Board report
on remuneration.

31

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

2005

2.38

1.46

14.16

3.02

2004

2.48 

1.47 

14.22 

3.09 

2005

2.34

1.46

13.31

2.85

2004

2.45 

1.41 

14.92 

3.13

32 

Events after the balance sheet date

On 22 February 2006, the Group announced the acquisition of Keystar Motors Pty Ltd to extend the Group’s retail presence in
Australia. The total cash consideration paid for the business was c. £8.8m.

On 6 March 2006, the Group announced its entry into the Russian market through a joint venture with the Independence Group of
Companies for the retail and service of Toyota vehicles.

33

Reconciliations of UK GAAP to IFRS

The principal changes as a result of the transition to IFRS and of adopting the IFRS Group accounting policies are set out in the
following reconciliations and described in the Impact of Transition.

The following tables show the impact of transition from UK GAAP to IFRS, and reconcile the balance sheet position as at the date
of transition to IFRS (1 January 2004), and the income statement and balance sheet at the date of the last annual Financial
statements reported under UK GAAP (31 December 2004). 

Inchcape plc
Annual report and accounts 2005

93

33

Reconciliations of UK GAAP to IFRS continued

Balance sheet reconciliations

As at the date of transition to IFRS (1 January 2004)

Reported
under 
UK GAAP
£m

Other
intangible
assets
£m

Pensions
£m

Contract 
hire
£m

Property
leases
£m

Tax
£m

Dividends
£m

Other
£m

Reported
under 
IFRS
£m

Non-current assets

Goodwill

Other intangible assets

Property, plant and equipment

Investments:

– Joint ventures and associates

– Other

Trade and other receivables

Deferred tax assets

Current assets

Inventories

Trade and other receivables

Investments – other

Cash and cash equivalents

Total assets

Current liabilities

Borrowings

Trade and other payables

Provisions

Non-current liabilities

Borrowings

Trade and other payables

Provisions

Deferred tax liabilities

Retirement benefit liability

Total liabilities

Net assets

Shareholders’ equity

Share capital 

Reserves

Minority interests

60.9

–

272.9

66.6

11.9

8.9

2.4

423.6

597.8

235.0

2.7

102.9

938.4

1,362.0

(23.2)

(709.1)

(20.0)

(752.3)

(0.6)

(56.5)

(67.0)

–

–

(124.1)

(876.4)

485.6

118.4

360.6

479.0

6.6

485.6

–

6.2

(6.2)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

7.3

–

(48.0)

(40.7)

(40.7)

(40.7)

–

(40.7)

(40.7)

–

–

–

–

–

–

–

–

–

–

–

51.2

(26.6)

–

–

14.5

–

–

(0.8)

–

– 14.3

50.4

(12.1) 14.3

(74.9)

–

–

–

–

–

0.3

0.2

–

–

–

–

(74.9)

(24.5)

0.3

0.2

(11.8) 14.5

–

47.9

(0.7)

47.2

–

(23.3)

(1.5)

–

–

(24.8)

22.4

(2.1)

–

(2.1)

(2.1)

–

–

–

–

–

–

–

–

–

(0.2)

–

(0.2)

–

–

–

– (15.1)

–

–

– (15.1)

– (15.3)

(11.8)

(0.8)

–

–

(11.8)

(0.8)

(11.8)

(0.8)

–

–

(40.7)

(2.1)

(11.8)

(0.8)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

60.9

6.2

0.9

292.2

0.2

–

–

–

66.8

11.9

22.6

16.7

1.1

477.3

–

522.9

0.2

235.7

–

–

2.7

102.9

0.2

864.2

1.3 1,341.5

–

(23.2)

20.5

0.2

(640.7)

–

–

(20.7)

20.5

0.2

(684.6)

–

–

–

–

–

–

20.5

20.5

–

20.3

20.3

0.2

20.5

(2.0)

(0.5)

(0.1)

–

–

(2.6)

(80.3)

(61.3)

(15.1)

(48.0)

(2.6)

(207.3)

(2.4)

(891.9)

(1.1)

449.6

–

118.4

(1.1)

324.4

(1.1)

442.8

–

6.8

(1.1)

449.6

Inchcape plc
Annual report and accounts 2005

94
Notes to the accounts continued

33

Reconciliations of UK GAAP to IFRS continued

As at the date reported in the last annual Financial statements prepared under UK GAAP (31 December 2004)

420.4

4.2

(0.6)

44.1

(13.8) 12.0

1.1

1.0

468.4

Reported
under 
UK GAAP
£m

67.6

–

281.7

41.0

11.9

8.9

9.3

Goodwill
£m

4.2

–

–

–

–

–

–

643.6

197.3

2.7

Non-current assets

Goodwill

Other intangible assets

Property, plant and 
equipment

Investments:

– Joint ventures and 
associates

– Other

Trade and other 
receivables

Deferred tax assets

Current assets

Inventories

Trade and other 
receivables

Investments – other

Cash and cash equivalents

171.2

Total assets

Current liabilities

Borrowings

1,014.8

1,435.2

(15.6)

Trade and other payables

(739.3)

Provisions

Non-current liabilities

Borrowings

Trade and other payables

Provisions

Deferred tax liabilities

Retirement benefit 
liability

Total liabilities

Net assets

Shareholders’ equity

Share capital 

Reserves

Minority interests

(24.1)

(779.0)

(1.8)

(45.0)

(58.2)

–

–

(105.0)

(884.0)

551.2

119.5

424.0

543.5

7.7

551.2

Other
intangible
assets
£m

Pensions
£m

Contract 
hire
£m

Property
leases
£m

Tax
£m

Dividends
£m

Other
£m

Reported
under 
IFRS
£m

(0.8)

6.5

(6.3)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

4.2

(0.6)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

4.2

(0.6)

–

(0.6)

(0.6)

–

–

4.2

4.2

–

4.2

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

7.3

–

(58.9)

(51.6)

(51.6)

(51.6)

–

(51.6)

(51.6)

–

0.5

–

–

–

–

–

–

–

–

–

44.7

(25.1)

–

–

(0.6)

–

–

–

11.3

–

11.5

(66.4)

–

–

–

(66.4)

(22.3)

–

8.8

(0.5)

8.3

–

13.3

(1.1)

–

–

12.2

20.5

–

2.6

–

–

2.6

–

–

–

–

–

(11.2) 12.0

–

–

–

–

–

–

–

–

–

–

–

–

–

–

– (14.8)

–

–

– (14.8)

– (14.8)

(1.8)

(11.2)

(2.8)

–

(1.8)

(1.8)

–

–

–

(11.2)

(2.8)

(11.2)

(2.8)

–

–

(0.6)

(51.6)

(1.8)

(11.2)

(2.8)

–

–

–

–

–

71.5

6.5

0.9

295.9

1.1

0.1

–

–

–

–

–

–

42.2

11.9

19.6

20.8

–

(0.1)

577.1

(1.1)

–

–

–

–

–

198.8

2.7

171.2

(1.1)

(0.1)

949.8

–

–

0.9 1,418.2

–

(15.6)

28.2

0.1

(702.2)

–

–

(24.6)

28.2

0.1

(742.4)

–

–

–

–

–

–

28.2

28.2

–

27.6

27.6

0.6

28.2

(1.9)

(0.1)

0.1

–

–

(3.7)

(31.8)

(51.9)

(14.8)

(58.9)

(1.9)

(161.1)

(1.8)

(903.5)

(0.9)

514.7

–

119.5

(0.9)

386.9

(0.9)

506.4

–

8.3

(0.9)

514.7

Inchcape plc
Annual report and accounts 2005

95

33

Reconciliations of UK GAAP to IFRS continued

Income statement reconciliation

As for the year reported in the last annual Financial statements prepared under UK GAAP (31 December 2004)

Reported

under  Share-based

UK GAAP
£m

payments Goodwill
£m

£m

Other
intangible
assets
£m

Pensions
£m

Contract
hire
£m

Property Stock holding
interest
£m

leases
£m

Tax Other 
£m
£m

Reported
under
IFRS
£m

Revenue (excluding 
joint ventures 
and associates)

4,122.7

Operating expenses

(3,959.8)

Exceptional items

Operating profit

(16.6)

146.3

–

(0.1)

–

–

4.2

6.0

–

(0.6)

–

–

(1.3)

–

(3.1)

2.7

–

(0.1)

10.2

(0.6)

(1.3)

(0.4)

Share of profit after tax 
of joint ventures 
and associates

Profit before finance 
and tax

Net finance costs

Profit before tax

Tax

Profit for the year

7.9

–

–

–

–

–

154.2

(0.1)

154.1

(41.6)

112.5

(0.1)

10.2

–

–

(0.1)

10.2

–

–

(0.6)

–

(0.6)

–

(1.3)

0.5

(0.8)

–

(0.1)

10.2

(0.6)

(0.8)

(0.4)

0.8

0.4

–

0.4

–

0.3

–

0.3

–

0.3

–

0.3

–

0.3

–

7.2

–

7.2

–

7.2

(7.2)

–

–

–

–

–

–

–

–

–

–

–

(0.1) 4,119.5

– (3,947.4)

–

(10.6)

(0.1)

161.5

(0.1)

7.8

(0.2)

169.3

(0.1)

(6.1)

(0.3)

163.2

(2.0)

–

(43.6)

(2.0)

(0.3)

119.6

Reconciliation of UK GAAP presentation of joint ventures and associates to IFRS presentation

Share of operating profit of joint ventures

Share of operating profit of associates

Share of exceptional item of associates

Share of net finance income of associates

Share of tax of joint ventures and associates

Share of profit after tax of joint ventures and associates

£m

7.1

0.7

7.8

1.2

0.1

(1.2)

7.9

Inchcape plc
Annual report and accounts 2005

96
Notes to the accounts continued

33

Reconciliations of UK GAAP to IFRS continued

Impact of transition

Share-based payments

Under UK GAAP, a charge was only incurred in respect of the deferred bonus plan. Under IFRS 2 and the transitional exemption
permitted by IFRS 1, the Group has recognised a charge reflecting the fair value of all outstanding equity settled share-based
awards granted to employees after 7 November 2002. The fair value has been calculated using an option pricing model and is
charged to the income statement over the relevant option vesting period. 

The impact of this change has been to increase the charge to operating profit by £0.1m for the year ended 31 December 2004. 
The limited impact of IFRS 2 in 2004 is largely a consequence of the different period over which the deferred bonus plan charge 
is spread under IFRS versus UK GAAP and the fact that only options granted after 7 November 2002 give rise to a charge under
IFRS 2. The 2004 charge is not necessarily representative of the ongoing impact under IFRS 2.

Goodwill

Under UK GAAP, capitalised goodwill was amortised over its useful economic life of up to twenty years and goodwill previously
written off to shareholders’ equity was recycled in the income statement as part of the profit or loss on disposal of a business. 

Under IFRS, capitalised goodwill is not amortised but is instead tested at least annually for impairment. Of the £5.5m amortisation
charge for the year ended 31 December 2004 under UK GAAP, £4.2m has been reversed under IFRS with the balance of £1.3m
being treated as an impairment of goodwill.

A goodwill impairment charge of £9.4m was charged in the year ended 31 December 2004 as an exceptional item under UK GAAP. 
This has been treated in the same way under IFRS.

In addition, goodwill arising on business combinations on or before 31 December 1997 has been deducted from shareholders’
equity. This amounted to £114.4m at 1 January 2004 and will not be recycled through the income statement on disposal. 
As such, goodwill of £6.0m previously recycled to the income statement on disposal has been reversed for the year ended 
31 December 2004.

As permitted by IFRS 1, the Group has chosen to apply IFRS 3 prospectively from 1 January 2004 and has not restated previous
business combinations. Goodwill is therefore stated at 1 January 2004 at its UK GAAP carrying value of £60.9m. 

Other intangible assets

IAS 38 Intangible Assets requires computer software to be shown as an intangible asset rather than as property, plant and
equipment as under UK GAAP. This has had no impact on the measurement of the asset and the same amortisation policy
applies. This has resulted in a reclassification of £6.2m from property, plant and equipment to intangible assets at 1 January 2004 
and £6.3m at 31 December 2004.

IAS 38 and IFRS 3 require intangible assets acquired as part of a business combination to be separately identified from 
goodwill. During 2004, the Group acquired various UK dealerships which gave rise to such intangible assets, and this has 
resulted in a reclassification of £0.8m from goodwill to other intangible assets. Of this balance, £0.6m had been amortised by 
31 December 2004.

Pension and other post-retirement benefits

Under UK GAAP, post-retirement benefit schemes were accounted for in line with SSAP 24 Accounting for Pension Costs which
required defined benefit scheme costs to be included within operating expenses, with variations from the regular cost spread over
the expected remaining service lives of employees.

FRS 17 Retirement Benefits disclosures were provided in the Financial statements for the Group’s major defined benefit schemes,
namely those in the UK and Hong Kong. FRS 17 is broadly similar to IAS 19.

IAS 19 requires separate recognition of the operating and financing costs of defined benefit pension schemes in the income
statement and permits a number of options for the recognition of actuarial gains and losses. The Group has adopted the IFRS 1
transitional exemption and recognised the full actuarial pension deficit in shareholders’ equity at the date of transition.

The Group has recognised actuarial gains and losses immediately in the statement of recognised income and expense following the
amendment made to IAS 19.

The impact of this policy is to recognise an additional pension liability, net of deferred tax, of £40.7m in the Group’s IFRS opening
balance sheet at 1 January 2004 and £51.6m at 31 December 2004.

The impact of the policy on operating profit for the year ended 31 December 2004 is a reduction of £1.3m, with a £0.5m decrease
in net finance costs, giving a net charge of £0.8m in the income statement.

Inchcape plc
Annual report and accounts 2005

97

33

Reconciliations of UK GAAP to IFRS continued

Contract hire

Under UK GAAP, the profit on the initial sale of vehicles to a leasing company where the Group retained a residual value
commitment to the leasing company was recognised immediately. All vehicles (whether they were sourced from within or outside
the Group) where a residual value commitment existed were included in inventories at the guaranteed repurchase price with the
corresponding repurchase liability included in trade and other payables.

Under IAS 18 Revenue, profits arising on the sale of vehicles, sourced from within the Group, for which a Group company retains a
residual value commitment, are recognised over the term of the lease. These vehicles are disclosed as a separate category of asset
within property, plant and equipment in the balance sheet with the corresponding liability included in trade and other payables. 
This has resulted in a decrease in net assets of £1.3m at 1 January 2004 and £1.2m at 31 December 2004, and an increase in
operating profit of £0.1m for the year ended 31 December 2004.

In addition, under UK GAAP, rental income earned from the leasing business which was receivable at the end of the lease was 
not discounted whereas IFRS requires the time value of money to be reflected in the amount recorded. This has given rise to a
reduction in revenue of £0.5m for the year ended 31 December 2004, offset by the unwind of the discount of £0.8m. This has
resulted in a net credit to the income statement of £0.3m for the year ended 31 December 2004. The associated decrease in 
trade and other receivables was £0.8m at 1 January 2004 and £0.6m at 31 December 2004.

Property leases

Under UK GAAP, property leases covering both land and buildings were treated as a single lease. Under IAS 17 Leases, the land and
buildings element of each lease must be separated with the land element generally treated as an operating lease as it is considered
to have an infinite life. Leasehold land has therefore been reclassified, at historic cost, from property, plant and equipment to trade
and other receivables with a reversal of any associated historic revaluation. This has resulted in a decrease in net assets of £11.8m 
at 1 January 2004 and £11.2m at 31 December 2004.

The adjustment has decreased the charge to operating profit by £0.3m for the year ended 31 December 2004, reflecting the
reduced depreciation charge following the reversal of the revalued element of the asset.

Stock holding interest

Under UK GAAP, the cost of supplier related credit is included within operating expenses. Under IAS 2 Inventories, the cost has
been reclassified from operating expenses to finance costs in the income statement. The amount reclassified was £7.2m for the
year ended 31 December 2004.

Tax

The current tax charge in the income statement and current tax assets and liabilities in the balance sheet are unaffected by IFRS, 
as the tax payable was based on the relevant local GAAP. 

The deferred tax charge in the income statement and deferred tax assets and liabilities in the balance sheet are principally affected
by properties that do not qualify for tax allowances, acquired as part of a business combination, and revaluations of property. The
overall impact on the income statement is an increase in the tax charge of £2.0m for the year ended 31 December 2004. The
overall impact on the balance sheet is a decrease in net assets of £0.8m and £2.8m at 1 January 2004 and 31 December 2004
respectively.

Dividends

Under UK GAAP, proposed dividends were recognised as an adjusting post balance sheet event. Under IFRS a dividend is only
recognised when the shareholder’s right to receive the payment is established, which in the case of the final dividend is not until
they have been approved by the shareholders at the Annual General Meeting. Interim dividends are recognised when they are paid.

Therefore under IFRS, the Group will no longer accrue unapproved dividends at period ends. This has resulted in an increase in net
assets of £20.5m at 1 January 2004 and £28.2m at 31 December 2004.

Other

The other column in the reconciliations contains a number of minor adjustments none of which is individually material.

Inchcape plc
Annual report and accounts 2005

98
Notes to the accounts continued

33

Reconciliations of UK GAAP to IFRS continued

Explanation of material adjustments to the cash flow statement

The definition of cash and cash equivalents under IFRS is broader than under UK GAAP, including not only cash at bank and in hand 
and bank overdrafts, but also short term deposits. The latter were treated as liquid resources under UK GAAP.

The application of IFRS has also changed the presentation of the cash flow statement which now classifies cash flows as arising
under only three activities – operating, investing and financing. The following are the most significant consequent reclassifications of
cash flows under IFRS:

– Income taxes paid are classified as operating cash flows under IFRS, but were included in a separate category of tax cash flows
under UK GAAP. 

– Interest paid and interest received are both shown under operating activities, but were included in a separate category of returns
on investments and servicing of finance cash flows under UK GAAP. 

Presentation

The main presentational differences between IFRS and UK GAAP are the following: 

– Under UK GAAP, the share of joint ventures and associates revenue, operating profit, exceptional items, finance costs and tax
were included within the relevant categories of the Group’s income statement. Under IFRS, the results of joint ventures and
associates are presented post-tax as a single line item in the income statement.

– Under UK GAAP, exceptional items that were disclosed as non-operating under the criteria set out in FRS 3 Reporting Financial
Performance were charged after operating profit in the income statement. Under IFRS, these items have been charged before
arriving at operating profit.

– Under IFRS all assets and liabilities on the balance sheet are disclosed as being either current or non-current in nature.

Inchcape plc
Annual report and accounts 2005

Five year record

99

The information presented in the table below is prepared in accordance with IFRS for 2004 and 2005. However 2001, 2002 and
2003 are prepared in accordance with the UK GAAP standards effective as at 31 December 2004, and have not been restated other
than to be consistent with the IFRS format as explained in the Presentation section of note 33. 

The main adjustments which would be required to make the information in 2001, 2002 and 2003 comply with IFRS would be
similar to those noted in the adjustments made on the transition to IFRS as set out in note 33.

Income statement

Revenue

Operating profit before exceptional items

Exceptional items

Operating profit

Share of profit after tax of joint ventures and associates

Profit before finance and tax

Net finance costs before exceptional finance income

Exceptional finance income

Profit before tax

Tax 

Profit for the year

Basic:

– Profit before tax

– Earnings per share (pence)

Headline (before exceptional items and any material impact  
on profits of not achieving hedge effectiveness under IAS 39):

– Profit before tax

– Earnings per share (pence)

Dividends per share – interim paid and final proposed (pence)

Balance sheet

Non-current assets

Other assets less (liabilities) excluding cash (borrowings)

Net funds

Net assets

Equity attributable to equity holders of the parent

Minority interests

Total shareholders’ equity

IFRS
2005
£m

IFRS
2004
£m

UK GAAP
2003
£m

UK GAAP
2002
£m

UK GAAP
2001
£m

4,488.1

4,119.5

3,793.2

3,413.8

3,113.0

189.4

(13.0)

176.4 

6.2 

182.6 

(5.3)

–

177.3 

(46.9)

130.4 

172.1 

(10.6)

161.5 

7.8 

169.3 

(10.3)

4.2 

163.2 

(43.6)

119.6 

124.4 

15.5 

139.9 

9.3

149.2

(5.2)

22.2 

166.2

(37.2)

129.0 

101.9 

2.1 

104.0 

6.8

110.8

(5.3)

– 

105.5

(25.8)

79.7 

87.3 

(36.9)

50.4

8.5

58.9 

(2.5)

– 

56.4 

(24.7)

31.7 

177.3 

161.9p

163.2 

148.5p

168.3 

164.8p

108.6 

100.1p

61.0 

29.3p

190.3

178.5p

57.0p

168.4 

155.7p

50.0p

135.8 

132.4p

38.0p

112.1 

104.5p

31.0p

99.7 

79.7p

27.0p

521.7

(88.5)

433.2

158.0

591.2

581.7

9.5

591.2

468.4 

(105.6)

362.8 

151.9 

514.7 

506.4 

8.3 

514.7

401.2 

5.3 

406.5 

79.1 

485.6 

479.0 

6.6 

415.6 

(37.5)

378.1 

16.6 

394.7 

388.9 

5.8 

485.6 

394.7 

406.4 

(28.1)

378.3 

17.5 

395.8 

349.9 

45.9 

395.8

Inchcape plc
Annual report and accounts 2005

100
Report of the Auditors

Independent Auditors’ report to the members of Inchcape plc

Basis of audit opinion

We conducted our audit in accordance with International Standards
on Auditing (UK and Ireland) issued by the Auditing Practices Board.
An audit includes examination, on a test basis, of evidence relevant 
to the amounts and disclosures in the parent Company Financial
statements and the part of the Board report on remuneration 
to be audited. It also includes an assessment of the significant
estimates and judgements made by the Directors in the preparation
of the parent Company 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 parent Company Financial statements and the part of the
Board report on remuneration to be audited 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 parent Company Financial
statements and the part of the Board report on remuneration to 
be audited.

Opinion

In our opinion:

• the parent Company Financial statements give a true and fair

view, in accordance with United Kingdom Generally Accepted
Accounting Practice, of the state of the Company’s affairs as at 
31 December 2005; and

• the parent Company Financial statements and the part of the

Board report on remuneration to be audited have been properly
prepared in accordance with the Companies Act 1985.

PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
6 March 2006

We have audited the parent Company Financial statements of
Inchcape plc for the year ended 31 December 2005 which 
comprise the balance sheet and the related notes to the accounts.
These parent Company Financial statements have been prepared
under the accounting policies set out therein. We have also audited
the information in the Board report on remuneration that is described
as having been audited.

We have reported separately on the Group Financial statements

of Inchcape plc for the year ended 31 December 2005.

Respective responsibilities of Directors and Auditors

The Directors’ responsibilities for preparing the Annual report, the
Board report on remuneration and the parent Company Financial
statements in accordance with applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted
Accounting Practice) are set out in the statement of Directors’
responsibilities.

Our responsibility is to audit the parent Company Financial
statements and the part of the Board report on remuneration to be
audited in accordance with relevant legal and regulatory requirements
and International Standards on Auditing (UK and Ireland). 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 parent Company
Financial statements give a true and fair view and whether the parent
Company Financial statements and the part of the Board report 
on remuneration to be audited 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 parent
Company 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 other transactions is 
not disclosed.

We read other information contained in the Annual report 
and consider whether it is consistent with the audited Financial
statements. The other information comprises the Chairman’s
statement, the Operating and financial review, the Corporate social
responsibility section, the Board of Directors, the Directors’ report,
the Corporate governance report, the unaudited part of the Board
report on remuneration, the Directors’ responsibilities, the Five year
record and Company details. We consider the implications for our
report if we become aware of any apparent misstatements or
material inconsistencies with the Financial statements. Our
responsibilities do not extend to any other information.

Inchcape plc
Annual report and accounts 2005

Company balance sheet

As at 31 December 2005

Fixed assets

Investment in subsidiaries

Current assets

Debtors:

– Amounts due within one year

– Amounts due after more than one year

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

Provisions for liabilities and charges

Net assets

Capital and reserves

Share capital

Share premium

Capital redemption reserve

Profit and loss account

Total shareholders’ funds

101

Notes

2005

£m

2004
Restated
£m

4

5

5

6

7a

7b

8

10

1,168.1

1,183.2

8.0

128.0

25.5

161.5

–

(1.4)

(1.4)

4.3

155.5

16.4

176.2

(2.2)

(5.5)

(7.7)

160.1

168.5

1,328.2

1,351.7

(655.2)

(639.8)

(2.8)

670.2

(16.5)

695.4

12,14

14

14

14

120.1

112.5

16.4

421.2

670.2

119.5

110.7

16.4

448.8

695.4

The financial statements on pages 101 to 108 were approved by the Board of Directors on 6 March 2006 and were signed on its behalf by:

Peter Johnson, Director

André Lacroix, Director

Inchcape plc
Annual report and accounts 2005

102
Accounting policies

As at 31 December 2005

Basis of preparation

These Financial statements are prepared for Inchcape plc (the Company) for the year ended 31 December 2005. The Company is the
ultimate parent entity of the Inchcape Group (the Group).

Accounting convention

These Financial statements have been prepared on the historical cost basis in accordance with the Companies Act 1985 and applicable 
UK accounting standards. As permitted by Section 230 of the Companies Act 1985, no separate profit and loss account is presented 
for the Company. In addition, the Company is not required to prepare a cash flow statement under the terms of FRS 1 Cash Flow
Statements (revised).

Changes in accounting policies

FRS 20 Share-based Payments and FRS 21 Events After the Balance Sheet Date have been adopted with effect from 1 January 2005 and
prior year comparatives have been restated accordingly.

In addition, the Company has adopted FRS 23 The Effects of Changes in Foreign Exchange Rates, FRS 25 Financial Instruments: Disclosure and
Presentation and FRS 26 Financial Instruments: Measurement, from 1 January 2005. The adoption of these standards by the Company has had
no material impact on its result or financial position and no restatement has been required. Further, the Company is exempt from the disclosure
requirements in FRS 25 as it is included in the consolidated Financial statements of the Group, which include the required disclosures.

Details of the effect of the prior year adjustments are given in note 1.

Foreign currencies

Assets and liabilities in foreign currencies are translated into sterling at closing rates of exchange.

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.

Investments

Fixed asset investments are stated at cost, less provisions for impairment.

Deferred tax

Deferred tax 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 the 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.

Provisions

Provisions are recognised when the Company has a present obligation in respect of a past event, it is more likely than not that an outflow of
resources will be required to settle the obligation and where the amount can be reliably estimated. Provisions are discounted when the time
value of money is considered material.

Share capital

Ordinary shares are classified as equity. Where the Company purchases its own equity share capital (treasury shares), the consideration paid
is deducted from shareholders’ funds until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or
reissued, any consideration received is included in shareholders’ funds.

Dividends

Final dividends proposed by the Board of Directors and unpaid at the year end are not recognised in the Financial statements until they have
been approved by the shareholders at the Annual General Meeting. Interim dividends are recognised when they are paid.

Inchcape plc
Annual report and accounts 2005

Notes to the accounts 

As at 31 December 2005

1

Prior year adjustment and impact of new standards

103

The adoption of FRS 21 has resulted in an increase in shareholders’ funds of £20.3m at 1 January 2004 due to the reversal of 
the final dividend proposed at 31 December 2003. Under the previous standard, SSAP 17 Post Balance Sheet Events, proposed
dividends were recognised as an adjusting post balance sheet event. Under FRS 21 a dividend is only recognised when the
shareholders’ right to receive the payment is established, which in the case of the final dividend is not until they have been approved
by the shareholders at the Annual General Meeting. Interim dividends are recognised when they are paid.

FRS 20 requires that equity settled share-based payment transactions should be recognised at their fair value at the date of grant 
and in the profit and loss account on a straight line basis over the vesting period based on an estimate of the number of shares. 
The corresponding entry is made to shareholders’ funds and the adoption of FRS 20 has resulted in no change in shareholders’ 
funds other than a decrease of £0.3m at 1 January 2004, reflecting the tax impact of the change in accounting policy.

2

Auditors’ remuneration

The Company incurred £0.1m (2004 – £0.1m) in relation to UK statutory audit fees for the year ended 31 December 2005. 

3

Directors’ remuneration

No emoluments are paid directly by the Company, however information on Directors’ emoluments and interests is given in the notes
to the Board report on remuneration (the auditable part) in the Group’s Financial statements for the year ended 31 December 2005.

4

Investment in subsidiaries

At 1 January

Additions

Provisions for impairment in the year 

At 31 December

2005
£m

2004
£m 

1,183.2

1,186.2

–

(15.1)

23.0

(26.0)

1,168.1

1,183.2 

The provision for impairment in the year relates to the Company’s investment in Inchcape Automotive Limited, reflecting the
continuing difficult trading conditions experienced by that business. 

Inchcape plc
Annual report and accounts 2005

104
Notes to the accounts continued

5

Debtors

Amounts due within one year

Other debtors

Corporation tax recoverable

Total amounts due within one year

Amounts due after more than one year

Deferred tax asset (note 9)

Amounts owed by Group undertakings

Total amounts due after more than one year

6

Cash at bank and in hand

Cash at bank and in hand

7

a

Creditors – amounts falling due within one year

Borrowings

Loan notes

b

Other

Amounts owed to Group undertakings

Corporation tax payable

Other taxation and social security payable

Accruals and deferred income

Other creditors – amounts falling due within one year

Total creditors falling due within one year

2005
£m

–

8.0

8.0

2004
£m

0.4 

3.9 

4.3 

3.4

124.6

128.0

–

155.5 

155.5 

2005
£m

25.5

2004
£m

16.4 

2005
£m

–

2005

£m

0.2 

–

1.2 

–

1.4 

1.4 

2004
£m

2.2 

2004
Restated
£m

0.2 

1.9 

3.3 

0.1 

5.5 

7.7 

Inchcape plc
Annual report and accounts 2005

8

Creditors – amounts falling due after more than one year

Deferred tax liability (note 9)

Amounts owed to Group undertakings 

Other taxation and social security payable

Total creditors falling due after more than one year

9

Deferred tax

At 1 January

Charged (credited) to the profit and loss account

Charged to the profit and loss reserve

At 31 December

Deferred tax arises in respect of share-based payments.

10

Provisions for liabilities and charges

At 1 January

Released to the profit and loss account

Utilised during the year

At 31 December

2005

£m

–

654.0

1.2

655.2

2005

£m

(0.5)

0.7

3.2

3.4

105

2004
Restated
£m

0.5 

638.8 

0.5 

639.8 

2004
Restated
£m

(0.3)

(0.2)

–

(0.5)

2005
£m

16.5

(6.5)

(7.2)

2.8 

Provision has been made for warranties, indemnities and other litigation issues in relation to non-motors business exits, based on
expected outcomes. During the year the Company came to a final settlement of the legal claims made by AON Corporation under
the indemnity given in connection with the sale of Bain Hogg Limited in 1996.

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.

Inchcape plc
Annual report and accounts 2005

106
Notes to the accounts continued

11

Guarantees and contingencies

Guarantees of various subsidiaries’ borrowings (against which £nil has been drawn at year end, 2004 – £nil)

275.0

Other guarantees

–

2005
£m

2004
£m

250.0 

0.2 

The Company is party to composite cross guarantees between banks and its subsidiaries. The Company’s contingent liability under
these guarantees at 31 December 2005 was £25.5m (2004 – £16.5m).

12

Share capital

a

Authorised

Ordinary share capital (150.0p per share)

b

Allotted, called up and fully paid up

Ordinary shares of 150.0p each

At 1 January

Allotted under share option schemes

At 31 December

Substantial shareholdings

Number of shares

Ordinary share capital

2005
Number

2004
Number

131,000,000 131,000,000

2005
£m

196.5

2004
£m

196.5

Number of shares

Ordinary share capital

2005
Number

2004
Number

2005
£m

2004
£m

79,656,577 78,893,237

379,541

763,340

80,036,118 79,656,577

119.5

0.6

120.1

118.4

1.1

119.5

c

d

Details of substantial interests in the Company’s issued ordinary share capital received by the Company at 5 March 2006 under 
the provisions of the Companies Act 1985 have been disclosed in the substantial shareholdings section of the Directors’ report. 

Share buy back programme

During the year, the Group acquired 1,681,338 of its own shares through purchases on the London Stock Exchange. The total
consideration paid was £31.0m and this has been deducted from the profit and loss reserve. The shares are held as treasury 
shares and may either be cancelled or used to satisfy share options at a later date. 

Inchcape plc
Annual report and accounts 2005

12

Share capital continued

e

Share options

107

At 31 December 2005, 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:

Number of
ordinary shares
of 150.0p each

Exercisable
until

Option
price

The Inchcape SAYE Share Option Scheme 
– approved

124,298

131,104

79,091

77,397

61,940

1 December 2006

610.0p

1 December 2007

1171.0p

1 May 2008

1336.0p

1 December 2008

1645.0p

1 May 2009

1695.0p

Number of
ordinary shares
at 150.0p each

Exercisable
until

Option
price

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

119

2,604

2,916

4,477

75,120

2,688

4,874

73,751

14,146

53,801

10,233

9 August 2010

21 March 2011

17 March 2012

15 October 2012

19 March 2013

284.0p

384.0p

685.0p

670.0p

762.0p

7 August 2013

1116.0p

31 August 2013

1231.0p

20 May 2014

1572.0p

29 September 2014

1555.0p

6 March 2015

2056.0p

11 September 2015

2148.0p

– unapproved (Part I – UK)

2,919

92,537

136,612

896

2,436

250,467

7,458

223,324

70,529

17 March 2012

15 October 2012

19 March 2013

685.0p

670.0p

762.0p

7 August 2013

1116.0p

31 August 2013

1231.0p

20 May 2014

1572.0p

29 September 2014

1555.0p

6 March 2015

2056.0p

11 September 2015

2148.0p

– unapproved overseas (Part I – Overseas)

2,577

5,280

29,946

31,251

129,348

1,218

203,477

167,061

7 September 2009

9 August 2010

21 March 2011

17 March 2012

19 March 2013

388.0p

284.0p

384.0p

685.0p

762.0p

31 August 2013

1231.0p

20 May 2014

1572.0p

6 March 2015

2056.0p

Included within the profit and loss reserve are 468,362 (2004 – 791,471) of own ordinary shares held by the ESOP Trust, a general
discretionary trust whose beneficiaries include employees and former employees of the Group and their dependants. The book
value of these shares at 31 December 2005 was £5.3m (2004 – £5.4m). The market value of these shares at 31 December 2005
was £10.7m and at 3 March 2006 was £11.8m (31 December 2004 – £15.5m, 28 February 2005 – £16.3m).

Inchcape plc
Annual report and accounts 2005

108
Notes to the accounts continued

13

Dividends

The following dividends were paid by the Company.

Interim dividend for the six months ended 30 June 2005 of 19.0p per share (2004 – 15.0p per share)

Final dividend for the year ended 31 December 2004 of 35.0p per share (2003 – 26.0p per share)

2005
£m

14.8

27.2

42.0

2004
£m

11.8

20.4

32.2 

The final proposed dividend for the year ended 31 December 2005 of 38.0p per share has not been included as a liability as at 
31 December 2005.

14

Reserves

At 31 December 2003 as previously reported

Adoption of FRS 21

Adoption of FRS 20

At 1 January 2004

Profit for the financial year 

Dividends 

Issue of ordinary share capital

Net disposal of own shares by ESOP Trust

Share-based payments charge net of tax

At 1 January 2005

Profit for the financial year

Dividends 

Issue of ordinary share capital

Net disposal of own shares by ESOP Trust

Share-based payments charge net of tax

Share buy back programme

At 31 December 2005

Share capital
£m

118.4

–

–

Share
premium
£m

109.1

–

–

Capital
redemption
reserve
£m

16.4

–

–

118.4

109.1

16.4

–

–

1.1

–

–

–

–

1.6

–

–

–

–

–

–

–

Profit and 
loss account
£m

361.9

20.3

(0.3)

381.9

97.3

(32.2)

–

0.1

1.7

119.5

110.7

16.4

448.8*

–

–

0.6

–

–

–

–

–

1.8

–

–

–

–

–

–

–

–

–

120.1

112.5

16.4

39.2

(42.0)

–

0.1

6.1

(31.0)

421.2

Total
£m

605.8 

20.3

(0.3)

625.8

97.3 

(32.2) 

2.7

0.1

1.7 

695.4

39.2

(42.0)

2.4

0.1

6.1

(31.0)

670.2

*The profit and loss account at 31 December 2004 was originally £421.7m before adjusting for the restatement of £27.6m relating
to the reversal of the final dividend in respect of the year ended 31 December 2004 and the tax adjustment of £0.5m in relation to
the share-based payments charge.

15

Principal subsidiaries at 31 December 2005

The Company is a limited company incorporated in the UK whose shares are publicly traded on the London Stock Exchange. 
The principal subsidiaries in which the Company holds an investment are as follows:

Inchcape Automotive Limited

Inchcape Finance plc

Inchcape International Holdings Limited

United Kingdom

United Kingdom

United Kingdom

100.0%

100.0%

100.0%

Vehicle logistics and refurbishments

Central treasury company

Intermediate holding company

Country

Shareholding

Description

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

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

Solicitors
Slaughter and May

Stockbrokers
UBS

Inchcape PEPS
Individual Savings Accounts (ISAs) replaced Personal Equity Plans
(PEPs) as the vehicle for tax efﬁcient savings. Existing PEPs 
may be retained.

Financial calendar

Annual General Meeting
11 May 2006

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) Limited 
who may be contacted for full details at the Corporate PEP and 
ISA Centre, 1st ﬂoor, Courtwood House, Silver Street Head, 
Shefﬁeld S1 2BH 
Tel: +44 (0) 845 745 6123
Fax: +44 (0) 114 252 8116 

Ex-dividend date for 2005 ﬁnal dividend
17 May 2006

Record date for 2005 ﬁnal dividend
19 May 2006

Final 2005 ordinary dividend payable
16 June 2006

Announcement of 2006 interim results
3 August 2006

Senior executives

Group Chief Executive
André Lacroix
Tel: +44 (0) 20 7546 0022
Fax: +44 (0) 20 7546 0010

Group Finance Director 
Barbara Richmond
Tel: +44 (0) 20 7546 0022
Fax: +44 (0) 20 7546 0010

Managing Director, Inchcape UK, Europe and South America Retail
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
John McConnell
Tel: +61 2 9828 9199
Fax: +61 2 9828 9120

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

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

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
Peter Black
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
Paul Moore

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

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

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