TIDMINCH
RNS Number : 5364U
Inchcape PLC
30 July 2020
Inchcape plc Interim Report 2020
Interim Results 2020
Inchcape plc ("Inchcape" or the "Group"), the global automotive
distributor, announces its half year results for the six months
ended 30 June 2020.
Resilience in adverse markets - positioning business to come out
stronger
FIRST-HALF HIGHLIGHTS:
-- Group revenue GBP3.0bn, down 36% reported, and down 29% on an
organic basis. Outperformance against the market1
-- Pre-exceptional PBT of GBP9m (2019: GBP156m). Reported loss before
tax of GBP188m, reflecting GBP198m of exceptional charges (largely
impairments of Retail goodwill and sites globally)
-- Duncan Tait joined the Group on 1 June, assuming full responsibilities
as Group CEO on 1 July
-- Net cash position of GBP89m at Jun-20 (Dec-19: GBP103m), with
1H20 Free Cash Flow of GBP(5)m; CCFF fully repaid (GBP100m) in
July
-- Cost restructuring programme targeting >GBP90m of annual savings
is well-underway; anticipated completion by 1Q21
-- Further portfolio progress: awarded the distribution contract
for JLR in Poland, bolstering our brand presence in Europe
Actual Constant Organic
KEY FINANCIALS Currency Currency Growth
(UNAUDITED) 1H 20 1H 19 YoY YoY(2) YoY(3)
====================== ================== ================== ================== =============== =============
Key Financials
Revenue GBP3,019m GBP4,725m (36)% (35)% (29)%
Operating profit (pre
exceptionals)
(2) GBP28m GBP180m (84)% (84)%
Profit before tax (pre
exceptionals)
(2) GBP9m GBP156m (94)% (94)%
Basic EPS (pre
exceptionals)
(2) (0.6)p 28.6p (102)%
Dividend per share - 8.9p (100)%
Statutory Financials
Operating (loss) / GBP(169)m GBP177m
profit
(Loss) / Profit before GBP(188)m GBP154m
tax
Basic EPS (48.2)p 27.8p
1. Total industry volumes for new cars in Inchcape markets
2. These measures are Alternative Performance Measures, see note
15.
3. Organic growth is defined as sales growth in operations that
have been open for at least a year at constant foreign exchange
rates
DUNCAN TAIT, GROUP CEO OF INCHCAPE PLC, COMMENTED:
"Having joined the Group in June, I have been extremely
impressed by what I have seen of the team, and the high-energy
levels across all areas of the business. It is evident how much
work has gone into helping steer the Group through this challenging
environment, and this is evident in our topline outperformance
versus the market. I would like to thank Inchcape colleagues around
the world for their response and spirit during this unprecedented
period, and to all of those who have contributed time, resource and
capability to the needs of our communities impacted by the
pandemic.
Unsurprisingly, the effect of Covid-19 has materially impacted
the Group's performance in the first half, with either partial or
complete shutdowns affecting a substantial proportion of our
operations. In those markets that have reopened, we have
implemented strict physical distancing and hygiene measures to
protect the health and safety of our customers and colleagues.
The Covid-19 situation remains very dynamic, and it is unclear
how the world will change once the virus has been contained.
Nevertheless, the number one priority for the Group is to execute
on the plans we have in place for the months ahead, with a
particular focus on making our organisation leaner, and to get back
to doing what we do, safely. I am confident that the strong
momentum we were seeing prior to the pandemic will return and that
our long-term strategy will continue to create value for all our
stakeholders.
The Ignite strategy has created a solid foundation from which we
will continue to grow. The focus on distribution, an expanding
portfolio of high potential markets and a strong set of leading OEM
partnerships remains fundamental to our future success.
I am delighted to have joined Inchcape at such an interesting
time for the automotive industry. I am particularly excited about
our ability to leverage the strong OEM partnerships, diverse
geographical presence and robust balance sheet to grow our
business. Early as this is in my tenure, I believe there are
opportunities for us to accelerate our development in certain
areas, and look forward to sharing our plans in due course."
OPERATIONAL REVIEW
Key Performance Indicators - results
Constant Organic
1H 20 1H 19 Reported Currency Growth
GBPm GBPm YoY % YoY % YoY
---------------------------------------- ----- ----- -------- --------- -------
Revenue 3,019 4,725 (36)% (35)% (29)%
Operating profit (pre exceptionals)(1) 28 180 (84)% (84)%
Operating margin (pre exceptionals)(1) 0.9% 3.8% (2.9)ppt (2.9)ppt
Profit before tax (pre exceptionals)(1) 9 156 (94)% (94)%
Free Cash Flow(1) (5) 25 (120)%
Return on capital employed(2) 14% 19%
---------------------------------------- ----- ----- -------- --------- -------
1. See note 15 for definition of Key Performance Indicators and
other Alternative Performance Measures.
2. ROCE is calculated on a trailing 12-month basis
Performance review
Our performance in the first half of 2020 was materially
impacted by Covid-19. The spread of the virus resulted in the
closure of our operations in many markets - peaking in April. As of
today, we are open in 30 markets (including Singapore and UK), and
remain closed in three markets (Chile, Costa Rica and Panama).
Group revenue of GBP3.0bn was down 36% year-on-year reported and
35% in constant currency. While our performance to the end of
February was ahead of internal expectations, in March, the onset of
the virus started a wave of closures across all of our regions, and
peaked in April. Since then, we have seen most of our markets start
to gradually reopen, enabling us to serve our customers. Following
the April low, we have seen sales performance sequentially improve
in both May and June, as trading resumed across more markets. It
remains too early to call out a trend based on what we have
observed thus far, not least because of the distortion effect of
pent-up demand as we reopen markets.
The Group delivered an operating profit before exceptional items
of GBP28m, down 84% year-on-year in actual and constant currency.
This reflects the drop-through from lost revenues resulting from
the forced closure of our operations in many markets. In response
to the disruption caused by Covid-19, the Group took prompt action
to reduce discretionary costs (e.g. marketing, office, travel), we
accessed government support schemes in some markets, and the Board/
senior management took a 20% reduction in fees/ salary in the
second quarter. These cost-mitigation measures have helped support
profitability during the second quarter, and in June enabled us to
generate positive operating profit across all regions (bar
Americas, where our largest market, Chile, remained closed). With
the effects of Covid-19 likely to result in a prolonged economic
impact, the Group has started to implement a comprehensive
cost-restructuring programme (details below).
Profit before tax and exceptional items (PBT) of GBP9m is down
94% year-on-year in actual and constant currency. The absolute
level of PBT decline is slightly lower than that observed at the
operating profit level, owing to a lower (GBP5m) interest charge
versus the prior year. Reported loss before tax fell to GBP(188)m,
compared to a profit of GBP154m in the prior year.
In the first half of 2020, we booked exceptional charges of
GBP198m, primarily due to the impact of Covid-19. The majority
(GBP185m) of this relates to goodwill and site impairments, of
which cGBP160m is attributable to Retail businesses. Our impairment
review included all sites globally, and as part of that we have
also impaired the value of some of our Distribution sites. As a
result, the reported loss before tax was GBP188m, compared to a
profit before tax of GBP154m in the comparable period.
In the first six months of the year, Free Cash Flow (FCF) saw a
small outflow of GBP5m, against a GBP25m inflow in the comparable
period. The significantly lower operating profit during the period
was mitigated by a number of measures resulting in a meaningful
improvement in the Group's working capital position, a near halving
of net capex, and a lower outflow for tax and interest
payments.
Other notable elements of the Group cash flow bridge include:
net acquisitions, which amounted to GBP9m (relates to the
acquisition of Daimler Colombia, and disposals of a few Retail
sites), and share buybacks, GBP31m of GBP150m completed prior to
termination.
At the end of June, the Group had total liquidity in excess of
GBP1bn, comprising available cash of GBP480m (excludes cash where
prior approval is required to transfer funds abroad) and GBP530m of
headroom in our RCF. This position was further strengthened during
the period with the confirmation of our eligibility to the UK CCFF
scheme (zero drawn as of today). We closed the reporting period in
a net cash position of GBP89m (excluding lease liabilities) - this
compares to GBP103m at the end of December 2019. On an IFRS 16
basis, we ended the period with net debt of GBP262m (GBP250m at end
of December).
Our ROCE over the period was 14%. This compares to 19% for the
equivalent period last year, with the decline driven by the steep
reduction in our profits.
COST RESTRUCTURING
As a direct response to the Covid-19 crisis, the Group is
undertaking a major cost-restructuring programme that will ensure
it emerges stronger, with a leaner platform, fit for focused
growth. Once completed, the programme is expected to deliver a
cost-benefit of >GBP90m (or c.11% of overheads), of which c50%
will be retained when revenue recovers.
The savings will be achieved across three areas:
1) a reduction of our global workforce (a combination of
sales-personnel and support staff),
2) negotiation of third-party expenditure, and
3) a further rationalisation of our footprint.
The anticipated restructuring costs will be cGBP70m (majority in
2020), with a cash cost of cGBP50m.
In addition to the annualised savings, the Group is consciously
negotiating on everything we spend and continues to look for
further cost-efficiencies by leveraging its global scale and
conducting regular reviews of its portfolio.
Strategy update
The headline financial performance during the period masks the
benefit the business continues to get from the successful Ignite
strategy. Every aspect of Ignite contributed to the Group
navigating the challenges posed by Covid-19, and will be the
underpinning of a stronger business as our operations return to
normal.
-- Customer experience: we continue to leverage our digital
investment, using tools (e.g. Salesforce) that enable a proactive
approach to customer engagement. During the period, the Group's
online platforms saw record traffic and we will continue to
leverage this.
-- Partner of choice: our strong relations with OEMs facilitated
collaborative discussions and good progress on inventory management
across markets. This crisis has given our partners greater insight
into the robustness of our global Distribution capabilities.
-- Revenue streams: the greater emphasis on more defensive, and
profitable, streams (i.e. aftersales and used vehicles), and the
ongoing F&I [1] opportunity, will provide an underpin to
performance given the uncertainty surrounding new vehicle
demand.
-- Global scale: the extension of procurement initiatives across
our markets has enabled further improvement of cost control. Our
global purchasing system provides real-time visibility of spend
commitments, which helped us reduce costs in the first half of
2020.
-- Invest for growth: we completed the Daimler Colombia
distribution deal in March, and in July, were awarded the
JLR-distribution contract for Poland, bolstering our presence in
Europe. The pipeline for consolidation opportunities remains
healthy.
While the financial performance in 2020 will be weighed down by
the impact of Covid-19, we will continue on our path to allocate
capital towards the more attractive Distribution business - the
segment of the Group that is faster growing, generates higher
margins, has greater flexibility of costs, is less
capital-intensive and has stronger cash generation
characteristics.
People
Covid-19 has had an unprecedented impact on people and economies
worldwide. The dedication shown by our colleagues throughout this
period is a real testament to the Inchcape spirit which is evident
throughout the organisation. The strong ethos of operational
discipline and an unrelenting focus on delivering outstanding
customer service, has helped us navigate the challenges we faced
during this extraordinary time. The Board and Management would like
to express their sincere gratitude to colleagues around the world
for their commitment and spirit in delivering these results in such
a challenging environment.
Capital allocation
Over the past five years the Group has paid cGBP450m in
dividends, invested cGBP590m in acquisitions, and distributed
cGBP330m of excess cash through share buybacks. This is in line
with our disciplined capital allocation policy targeting optimal
allocation of funds to enable both the continued development of the
business (including both organic investments and value-creating
acquisitions) and shareholder returns.
In light of the disruption caused by Covid-19, the Board decided
to preserve cash by cancelling the payment of the final dividend
(GBP70m) and suspending the share buyback programme (GBP31m
completed of the GBP150m). Given the low level of earnings in the
first half and limited visibility, we have decided not to declare
an interim dividend.
Inchcape is a highly cash-generative business with a strong
balance sheet. The Group is conscious of the importance of returns
to shareholders and in the absence of any further material
disruptions to our operations, the Group expects to be in a
position to resume making shareholder distributions in accordance
with the performance of our business.
SECTOR RECLASSIFICATION
Given the shift of the business away from retail towards
distribution, the London Stock Exchange reconsidered the
appropriateness of Inchcape's sector classification, and concluded
that 'Business Support Services' is more appropriate (previously
'Speciality Retail'). The change became effective as of 19(th) June
2020.
Outlook
The Board announced on 20 March 2020 that it put on hold any
forward guidance until such time that the overall impact of
Covid-19 on the Group became clearer. While the majority of our
markets have now reopened, given the lack of visibility of
underlying demand, coupled with the ongoing uncertainty regarding a
potential second wave of the virus, it is still too early to
provide a forward-looking view of the Group's performance.
As highlighted by our performance in the first half, we have
continued to outgrow the market, shown effective cash-flow
management and maintained a robust balance sheet. We expect this
resilience will continue, and are focused on making the business
leaner and stronger, ready to capitalise on the exciting growth
opportunities that lie ahead.
OPERATING AND FINANCIAL REVIEW
Our results are stated at actual rates of exchange. However, to
enhance comparability we also present year-on-year changes in sales
and operating profit in constant currency, thereby isolating the
impact of translational exchange rate effects. Unless otherwise
stated, changes in revenue and operating profit in the operating
review are at constant currency. All figures are stated before
exceptional items.
Following an internal reorganisation of management structure we
have redefined our regions. This has resulted in a reclassification
of our retail business in Russia from 'Emerging Markets' to within
'UK & Europe', and 'Emerging Markets' has been redefined as
'Americas & Africa'. We have also consolidated our Asia and
Australasia businesses to form a new region; 'APAC'. Given
Australasia's contribution to the overall Group we have decided to
continue to disclose its results. We had historically disclosed
Central costs separately, which we now fully allocate to each
segment.
Segmental detail can also be found in the condensed consolidated
interim financial statements.
Distribution
The Distribution segment saw revenues down 27% year-on-year,
with performance in the second quarter significantly impacted by
market closures related to Covid-19. As a result, operating profit
declined from GBP160m in the prior year to GBP46m. Distribution
operating profit margin fell 4ppt to 2.7%, with margins contracting
across all regions.
Constant Organic
1H 20 1H 19 Reported Currency Growth
GBPm GBPm YoY % YoY % YoY %
------------------------ ------- ------- -------- --------- -------
Revenue
Asia 450.5 784.1 (43)% (43)% (43)%
Australasia 421.5 517.2 (19)% (14)% (14)%
APAC 872.0 1,301.3 (33)% (32)% (32)%
Europe 527.5 660.5 (20)% (20)% (22)%
Americas & Africa 330.9 459.3 (28)% (22)% (30)%
Total Distribution 1,730.4 2,421.1 (29)% (27)% (29)%
Operating profit
Asia 28.6 86.1 (67)% (67)%
Australasia 4.2 30.4 (86)% (85)%
APAC 32.8 116.5 (72)% (72)%
Europe 9.1 19.8 (54)% (54)%
Americas & Africa 4.2 23.5 (82)% (81)%
Total Distribution 46.1 159.8 (71)% (71)%
Operating profit margin
Asia 6.3% 11.0% (4.7)ppt (4.6)ppt
Australasia 1.0% 5.9% (4.9)ppt (4.9)ppt
APAC 3.8% 9.0% (5.2)ppt (5.3)ppt
Europe 1.7% 3.0% (1.3)ppt (1.3)ppt
Americas & Africa 1.3% 5.1% (3.8)ppt (3.9)ppt
Total Distribution 2.7% 6.6% (3.9)ppt (4.0)ppt
------------------------ ------- ------- -------- --------- -------
(1: Operating profit stated pre-exceptionals)
-- Asia revenues contracted 43%, and operating profit was down
67%. While the majority of our markets remained open throughout the
first half, the spread of the virus weighed significantly on our
performance across the region. Our Singapore business endured a
prolonged closure (from early April to mid-June), contributing to
additional pressure in a market that we had expected would contract
c25% in 2020 (pre-Covid-19). Since reopening, the government has
said that the Certificate of Entitlement quota (that was missed
following the suspension of bidding) will be phased over the next
12 months. As a result, we now expect total industry volumes for
2020 will be c40% below the prior year level. While our operations
in Hong Kong remained open, demand was clearly subdued, and our
performance softened further when the protests escalated in May.
More recently, a spike in Covid-19 cases has led to the enforcement
of greater restrictions in the market.
-- Australasia revenues contracted 14%, and operating profit was
down 85%. Our operations in Australia remained open throughout the
first half, while our business in New Zealand closed for a
seven-week period. Despite remaining open, profitability in
Australia was severely impacted in the second quarter as gross
margins came under pressure owing to lower volumes and competitive
pressures, but also unfavourable currency effects. The
transactional currency (AUD:JPY) headwind in the period was around
GBP10m.
-- Europe revenues contracted 20%, and operating profit was down
54%. Prior to Covid-19 enforced closures, our performance had been
solid. Shutdowns started to weigh on the region's performance in
mid-March, reaching a peak in April. By the second week of May, all
impacted markets had reopened, and we have seen business activity
ahead of our expectations, particularly in aftersales. While the
environment continues to be challenging, we are encouraged by our
performance relative to the market in the second quarter.
-- Americas & Africa revenues contracted 22%, and operating
profit was down 81%. Performance in the first quarter until
lockdowns was above the prior year level. However, Americas was
hardest hit in terms of number of markets forced to close to help
control the spread of the virus. While the majority of markets have
now reopened, a few markets (namely Chile, Costa Rica and Panama)
remain shut. The geographic diversification within the region meant
that there were some pockets of good performance that has helped
offset losses elsewhere. Performance in Ethiopia was good against a
weak comparative in 2019 as it was affected by limited currency
availability. Despite the setback caused by Covid-19, given the low
penetration of vehicles, we are optimistic about the growth
prospects of the Americas & Africa region over the medium
term.
Retail
The Retail segment saw revenues down 43% year-on-year, or down
30% on an organic basis (adjusting for the Retail disposals made
over the course of the last 12 months), with performance in the
second quarter significantly impacted by market closures - both UK
and Russia remained shut throughout April and May. As a result, the
Retail segment fell into an operating loss of GBP(18)m (1H19: an
operating profit of GBP20m), and the operating profit margin fell
2.3ppt to (1.4)%.
Constant Organic
1H 20 1H 19 Reported Currency Growth
GBPm GBPm YoY % YoY % YoY %
------------------------ ------- ------- -------- --------- -------
Revenue
Asia - 81.7 (100)% (100)% n/a
Australasia 9.4 168.4 (94)% (94)% n/a
APAC 9.4 250.1 (96)% (96)% n/a
UK & Europe 1,279.3 2,053.9 (38)% (37)% (30)%
Total Retail 1,288.7 2,304.0 (44)% (43)% (30)%
Operating profit
Asia - 4.1 (100)% (100)%
Australasia 0.4 0.4 - -
APAC 0.4 4.5 (91)% (91)%
UK & Europe (18.0) 15.5 (216)% (219)%
Total Retail (17.6) 20.0 (188)% (190)%
Operating profit margin
Asia - 5.0% n/a n/a
Australasia 4.3% 0.2% 4.1ppt 4.2ppt
APAC 4.3% 1.8% 2.5ppt 2.5ppt
UK & Europe (1.4)% 0.8% (2.2)ppt (2.1)ppt
Total Retail (1.4)% 0.9% (2.3)ppt (2.3)ppt
------------------------ ------- ------- -------- --------- -------
(1: Operating profit stated pre-exceptionals)
-- UK and Europe is home to all of the Group's remaining Retail
operations in the UK, Russia and Poland. Revenues for the region
were down 37% year-on-year (down 30% on an organic basis), as
closures from late-March weighed on the performance of both the UK
and Russia businesses. Prior to the shutdowns, sales in Russia and
Poland had been strong, while the UK had traded in line with our
expectations. However, the sudden nature of the closures in both
markets had a material impact on profitability. During the
six-month period, the region generated operating losses of GBP18m
(vs a profit of GBP16m in the prior period, which included profits
from businesses disposed in December 2019, including IFS). Since
our operations restarted in June, both the UK and Russia have
traded well, recording a profit in the month of June.
-- Asia: the China Retail business (disposed in December 2019)
was reclassified from Distribution-Asia to Retail-Asia, and did not
provide any contribution to the region's performance in 2020.
-- Australasia: the majority of the Retail business in Australia
was sold during 2019. Two additional sites were sold in 2020, and
their contribution until the date of disposal has been included.
The comparative includes these two sites, and the rest of the
Australian Retail business that was sold in 2019. Following the
disposals, there will be no further contribution to this
segment.
VALUE DRIVERS
We provide disclosure on the value drivers behind our gross
profit (pre-exceptional). This includes:
-- Gross profit attributable to Vehicles - New Vehicles, Used
Vehicles and the associated F&I (Finance & Insurance)
income; and
-- Gross profit attributable to Aftersales - Service and Parts.
Gross profit GBPm Reported YoY % Constant Currency YoY %
------ --------------------------- -------------- -----------------------
1H 20 1H 19
------------------- -------------- ----------- -------------- -----------------------
Group Vehicles 205.5 398.3 (48)% (47)%
------
Aftersales 168.5 242.9 (31)% (29)%
Total 374.0 641.2 (42)% (41)%
------------------ -------------- ----------- -------------- -----------------------
Weighed down by the effects of market closures caused by the
spread of Covid-19, over the reporting period we saw a 47% decrease
in Vehicles gross profit, while Aftersales gross profit was more
resilient, decreasing 29%.
We operate across the automotive value chain and over the first
half of 2020, we generated 45% of gross profit through Aftersales,
compared to 38% in the prior year.
Other financial items
Central costs
The Group has historically reported the performance of its
reporting segments before unallocated central costs. These
represent costs of Group functions and, previously, these costs
were reported separately from the results of the Group's reportable
segments. The Group now fully allocates these costs in arriving at
the results reported for each segment.
Government support schemes
In the first half of the year, the Group has recognised an
amount of GBP27.2m as a credit against employee costs and GBP3.3m
as a credit against other operating expenses. These have been
presented net within operating costs before exceptional items and
the majority (GBP22.7m) was received by the UK Retail business. In
some cases salaries were paid in excess of the amount received
under the government support schemes, and these schemes were
utilised instead of other cost reduction measures that would have
adversely impacted employees (e.g. redundancies). The Group has
also benefitted from payment deferrals in relation to taxes where
these have been made available by the appropriate tax
authorities.
Operating exceptional items
In the first half of the year, we have incurred GBP197.8m of
exceptional charges. Due to the impact of Covid-19, the charge in
2020 is comprised of goodwill and other asset impairments of
GBP184.6m, costs of GBP9.8m relating to the write down of inventory
and other provisions and restructuring costs of GBP9.1m. In
addition, a net cost of GBP2.7m relating to acquisitions and
disposals, and a gain of GBP8.4m primarily relating to the
recycling of foreign exchange gains previously recognised in other
comprehensive income, following the liquidation of a subsidiary. In
the first half of 2019, the Group recorded exceptional operating
costs of GBP2.6m. These costs were incurred in relation to
acquisition and integration of the BMW business in Lithuania and
the disposal of retail operations in the UK and Australia. Further
details can be found in note 3 to the interim financial
statements.
Net financing costs
Net finance costs were GBP19.0m (H1 19: GBP23.5m). The decrease
is largely due to a reduction in the cost of financing inventory
following the retail disposals in Australia, the UK and China in
2019 and the first quarter of 2020. The interest charge is stated
on an IFRS 16 basis, and excluding interest relating to leases, our
net finance charge was GBP11.7m compared to GBP13.9m in the same
period last year.
Tax
The Group's effective tax rate for the period is 113.7% before
exceptional items (H1 19: 22.5%). This high effective tax rate is a
consequence of the performance impact of Covid-19 and the separate
calculation of tax in each market. Although tax continues to be
charged in profitable markets, it is no longer possible to
recognise the tax credit associated with losses in certain markets.
Therefore, the first half effective tax rate represents the
aggregate tax charge on local taxable profits that are in excess of
the overall net Group profit before tax. For these reasons the
effective tax rate is not comparable to prior years. The effective
rate after exceptional items is (0.5)% (23.2% for the same period
last year).
Non-controlling interests
Profits attributable to our non-controlling interests were
GBP1.2m in the first half of 2020 (H1 19: GBP3.0m). The Group's
non-controlling interests principally comprise a 33% minority
holding in UAB Vitvela in Lithuania, a 30% share in NBT Brunei, a
10% share of Subaru Australia and 6% of the Motor Engineering
Company of Ethiopia.
Foreign currency
The Group incurred a loss of GBP0.4m (H1 19: a gain of GBP3.2m)
from the translation of its overseas profits before tax into
sterling at the average exchange rate over the first half when
compared with the average exchange rates used over the comparable
period for translation in 2019.
Dividend
The Directors do not propose the payment of an interim
dividend.
Cash flow and net debt
The Group delivered a Free Cash Outflow of GBP4.9m (H1 19: an
inflow of GBP25.0m). After the acquisition of businesses in the
year as well as disposal proceeds relating to the Retail disposals,
and GBP32.1m of share buybacks, the Group had net debt of GBP262.2m
(GBP507.7m as at 30 June 2019; GBP249.9m as at 31 December 2019).
Net funds excluding lease liabilities was GBP89.2m (net debt of
GBP77.0m as at 30 June 2019; net funds of GBP102.9m as at 31
December 2019).
Capital expenditure
Net capital expenditure in the first half of 2020 was GBP16.4m
(H1 19: GBP30.8m) reflecting the prompt action taken to reduce all
expenditure.
Financing
During the reporting period, the Group was confirmed as an
eligible issuer under the UK Government's Covid Corporate Financing
Facility (CCFF). GBP100m was issued under this facility in May 2020
and repaid on 17 July 2020. As at 30 June 2020, the committed
funding facilities of the Group comprised a syndicated revolving
credit facility of GBP700m (31 December 2019 - GBP700m) and
sterling Private Placement loan notes totalling GBP210m (31
December 2019 - GBP210m). As at 30 June 2020, GBP170m of the
GBP700m syndicated revolving credit facility was drawn (31 December
2019 - GBP60m).
Pensions
At 30 June 2020, the IAS 19 net post-retirement surplus was
GBP4.5m (30 June 2019 - GBP63.5m; 31 December 2019 - GBP9.5m). In
the first half of the year, and in-line with the funding programme
agreed with the Trustees, the Group made additional cash
contributions to the UK pension schemes amounting to GBP1.6m (H1
19: GBP1.6m).
Acquisitions and disposals
During the first six months of 2020, the Group acquired the
Mercedes-Benz passenger car and private vans distribution
operations in Colombia from Daimler Colombia S.A., for a total cash
consideration of GBP27.1m. The business was acquired to strengthen
the Group's partnership with Daimler-Mercedes-Benz in South America
and follows the acquisition in December 2019 of Autolider.
During the reporting period, the Group has continued to optimise
its retail portfolio and has disposed of four retail sites in the
UK and two retail sites in Australia generating disposal proceeds
of GBP14.2m. The Group has also received GBP3.7m of deferred
consideration relating to the disposal of retail operations in
China in 2019.
In the first half of 2019, the Group acquired Krasta Auto in
Lithuania, an authorised dealer of BMW Group, for a total cash
consideration of GBP16.0m (net of cash acquired) and disposed of
Honda and Mitsubishi retail operations in Australia, generating
disposal proceeds of GBP10.4m.
CLARIFYING OUR FINANCIAL METRICS
The following table shows the key profit measures that we use
throughout this report to most accurately describe underlying
operating performance and how they relate to statutory
measures.
Metric GBPm Use of Metric
---------------------------------- ------- -------------------------------
Gross Profit 364.5 Direct profit contribution from
Value Drivers (e.g. Vehicles
and Aftersales)
Add back: Exceptional items
charged to gross profit 9.5
---------------------------------- ------- -------------------------------
Gross Profit (pre-exceptional
items) 374.0
Less: Segment operating expenses (345.5)
---------------------------------- ------- -------------------------------
Operating Profit (pre-exceptional 28.5 Underlying profit generated
Items) by the Group
---------------------------------- ------- -------------------------------
Less: Exceptional Items (197.8)
---------------------------------- ------- -------------------------------
Operating Loss (169.3) Statutory measure of Operating
Profit
---------------------------------- ------- -------------------------------
Less: Net Finance Costs and
JV profit (19.0)
---------------------------------- ------- -------------------------------
Loss before Tax (188.3) Statutory measure of profit
after the costs of financing
the Group
---------------------------------- ------- -------------------------------
Add back: Exceptional Items 197.8
Profit Before Tax & Exceptional 9.5 One of the Group's KPIs
Items
---------------------------------- ------- -------------------------------
Reconciliation of free cash flow
1H 20 1H 20 1H 19 1H 19
GBPm GBPm GBPm GBPm
---------------------------------------------- ------ ------ ------ ------
Net cash generated from operating activities 32.5 89.4
Add back: Payments in respect of exceptional
items 8.9 2.5
---------------------------------------------- ------ ------ ------ ------
Net cash generated from operating activities,
before exceptional items 41.4 91.9
Purchase of property, plant and equipment (10.5) (29.1)
Purchase of intangible assets (7.2) (8.8)
Proceeds from disposal of property, plant
and equipment 1.3 7.1
---------------------------------------------- ------ ------ ------ ------
Net capital expenditure (16.4) (30.8)
---------------------------------------------- ------ ------ ------ ------
Net payment in relation to leases (27.4) (30.9)
---------------------------------------------- ------ ------ ------ ------
Dividends paid to non-controlling interests (2.5) (5.2)
---------------------------------------------- ------ ------ ------ ------
Free Cash Flow (4.9) 25.0
---------------------------------------------- ------ ------ ------ ------
Included within Free Cash Flow are movements in cash balances
where prior approval is required to transfer funds abroad, as
described in note 9
Return on capital employed
1H 20 1H 19
GBPm GBPm
------------------------------------------------- ------- -------
Operating profit (before exceptional items) 28.5 179.8
------------------------------------------------- ------- -------
Operating profit (before exceptional items) for
the previous 6 month period 193.3 198.0
------------------------------------------------- ------- -------
Operating profit (before exceptional items) on a
12 month basis 221.8 377.8
------------------------------------------------- ------- -------
Net assets 1,122.8 1,364.5
Add net debt 262.2 507.7
------------------------------------------------- ------- -------
Capital employed 1,385.0 1,872.2
------------------------------------------------- ------- -------
Effect of averaging 243.6 108.0
------------------------------------------------- ------- -------
Average capital employed 1,628.6 1,980.2
------------------------------------------------- ------- -------
ROCE 13.6% 19.1%
------------------------------------------------- ------- -------
Risks
Principal business risks
The Board set out in the Annual Report and Accounts 2019 a
number of principal business risks which could impact the
performance of the Group. These included:
-- Increased digitisation of the customer relationship threatens
our position in the value chain as new entrants, OEMs and/or
existing competitors provide alternative, digitally based, routes
to market;
-- Failure to achieve sufficient return on investment through
our acquisition strategy leads to reduced returns on investment,
higher leverage, reduced EPS and / or deterioration of our
relationships with our brand partners;
-- Loss of one or more Distribution contracts which individually
or together, account for a material part of the Group's revenue or
profits;
-- Major loss or misappropriation of confidential or sensitive
data results in financial penalty and/or reputational damage;
-- Material damage to OEM brand or product reputation, or major
interruption to OEM operations or product supply negatively impacts
vehicle sales;
-- Political and Social instability leads to economic
uncertainty, market interruption and/or threat to safety;
-- Changes in legislation or the way that legislation is applied
directly affects customer demand for certain vehicle types or our
ability to generate income from aftersales; and
-- Major cyber incident leads to loss of confidential or
sensitive data, fraud or business interruption;
During the first half of the year, the Group's operations and
performance have been materially impacted by the Covid-19 pandemic.
The Group has actively responded to the challenges presented by
Covid-19 with particular focus upon the health and safety of our
people and the ongoing sustainability of our business. The Group
has also specifically considered the further risks that may arise
as a result of Covid-19 and the mitigating actions that are
available to the Group to address those.
The Group Inchcape Peace of Mind (iPOM) Committee has delegated
authority from the Executive Committee to manage Inchcape's Risk
Management process. The iPOM committee's aim is to ensure that Risk
Management is core to all decision-making and has a broad remit and
responsibility to:
-- Ensure systematic risks are effectively managed through the
development of coherent policies, process, control framework and
effective assurance monitoring processes;
-- Ensure dynamic and emerging risks are identified at a market
level and for the Group as a whole, mitigation actions are
identified and implemented, and cross-market best practice is
shared.
Regional and Market iPOM committees are embedded in each region
and market. They operate according to Standard Terms of Reference
and report to the Group iPOM committee. Consistent risk management
tools are developed centrally and utilised Group-wide.
Brexit
The UK has now left the European Union and is in a transition
period which is due to end on 31 December 2020. There are still
significant uncertainties surrounding the terms of the UK/ EU
relationship after that date, which is now dependent on the outcome
of the trading negotiations between the UK government and the EU.
In the absence of agreement, trading between the two parties will
be based on WTO rules from 1 January 2021.
Our exposure to this risk is principally in our UK Retail
business where we are the Retailer for the major German brands
including BMW, Mercedes-Benz, Volkswagen, Audi and Porsche. We also
import certain Toyota models which are manufactured in the UK into
Greece, Belgium and the Balkans, and JLR and Mini into our Northern
Europe operation.
Considering the content of the withdrawal agreement and
political declaration and given that the UK and EU have a remaining
transition period of five months to negotiate and conclude the
future relationship all scenarios remain plausible and therefore
our assessment of the potential impacts of the risks remains
unchanged. In the absence of agreement, we would anticipate three
broad impacts:
-- Loss of freedom of movement in goods, services, capital and people;
-- Divergence of regulation between the EU and the UK; and
-- Macroeconomic instability, principally in the UK.
The Board has considered these in detail and, given the nature
of our business and the actions that we and our partners have
already taken, does not foresee significant impacts related to the
loss of freedom of movement in services, capital or people, or
caused by the divergence of regulation (except in so far as this
might have an effect on the product mix offered by our OEM partners
in the UK).
Some uncertainty however remains around the impact of tariffs
and non-tariff barriers, in particular related to the impact on the
supply chain for new vehicles and parts. Given the nature of our
business, much depends upon the actions taken by our OEM partners
in response to those impacts and we continue to work closely with
those partners in order to make the necessary preparations to
mitigate the potential impact.
The medium-term macroeconomic impact on the UK economy also
remains uncertain. This is naturally very difficult to forecast and
has been exacerbated by the Covid-19 pandemic. It will no doubt
change as trading negotiations progress, but we stand ready to act
should circumstances so dictate. The Board and Group Executive
Committee continue to actively monitor the situation and, as the
outcomes of the trading negotiations become clearer, we will
continue to take appropriate action as and when necessary.
Further details of the Group's principal risks and risk
management process can be found on pages 39 - 51 of the Annual
Report and Accounts 2019.
Contact details
Inchcape plc:
Investor Relations (Raghav Gupta-Chaudhary), +44 (0) 7933 395
158
Group Communications, +44 (0) 20 7546 0022
Instinctif Partners:
Mark Garraway +44 (0)7771 860 938
Inchcape@instinctif.com
American Depository Receipts
Inchcape American Depositary Receipts are traded in the US on
the OTC Pink market: (OTC Pink: INCPY)
http://www.otcmarkets.com/stock/INCPY/quote
Consolidated Income Statement
For the six months ended 30 June 2020
Six months to 30 Jun Six months to 30 Jun
2020 2019
------------------------------------- -------------------------------------
Exceptional Exceptional
Before items Before items
exceptional (notes exceptional (notes
items 3,6) Total items 3,6) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Revenue 2 3,019.1 - 3,019.1 4,725.1 - 4,725.1
Cost of sales (2,645.1) (9.5) (2,654.6) (4,083.9) - (4,083.9)
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Gross profit 374.0 (9.5) 364.5 641.2 - 641.2
Net operating expenses (345.5) (188.3) (533.8) (461.4) (2.6) (464.0)
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Operating profit / (loss) 2 28.5 (197.8) (169.3) 179.8 (2.6) 177.2
Finance income 4 8.1 - 8.1 11.0 - 11.0
Finance costs 5 (27.1) - (27.1) (34.5) - (34.5)
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Profit / (loss) before tax 9.5 (197.8) (188.3) 156.3 (2.6) 153.7
Tax 6 (10.8) 9.9 (0.9) (35.1) (0.5) (35.6)
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Profit / (loss) for the period (1.3) (187.9) (189.2) 121.2 (3.1) 118.1
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Profit / (loss) attributable
to:
* Owners of the parent (190.4) 115.1
* Non-controlling interests 1.2 3.0
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
(189.2) 118.1
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Basic (loss) / earnings per
share (pence) 7 (48.2) 27.8
Diluted (loss) / earnings
per share (pence) 7 (48.2) 27.7
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
The notes on pages 14 to 25 are an integral part of these
condensed consolidated interim financial statements.
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2020
Six months Six months
to to
30 Jun 30 Jun
2020 2019
GBPm GBPm
---------------------------------------------------------- ---------- -----------
(Loss) / profit for the period (189.2) 118.1
Other comprehensive income / (loss):
Items that will not be reclassified to the consolidated
income statement
Defined benefit pension scheme remeasurements (1.7) (19.7)
Deferred tax recognised in consolidated statement
of comprehensive income (0.2) 3.1
---------------------------------------------------------- ---------- -----------
(1.9) (16.6)
Items that may be reclassified subsequently to the
consolidated income statement
Cash flow hedges 10.9 (12.9)
Exchange differences on translation of foreign operations 39.3 32.0
Deferred tax recognised in consolidated statement
of comprehensive income (3.1) 2.5
---------------------------------------------------------- ---------- -----------
47.1 21.6
---------------------------------------------------------- ---------- -----------
Other comprehensive income for the period, net of
tax 45.2 5.0
---------------------------------------------------------- ---------- -----------
Total comprehensive (loss) / income for the period (144.0) 123.1
---------------------------------------------------------- ---------- -----------
Total comprehensive income attributable to:
* Owners of the parent (146.8) 120.9
* Non-controlling interests 2.8 2.2
---------------------------------------------------------- ---------- -----------
(144.0) 123.1
---------------------------------------------------------- ---------- -----------
The notes on pages 14 to 25 are an integral part of these
condensed consolidated interim financial statements.
Consolidated Statement of Financial Position
As at 30 June 2020
As at As at
30 Jun 31 Dec
2020 2019
Notes GBPm GBPm
-------------------------------------------------- ----- --------- ---------
Non-current assets
Intangible assets 501.9 577.9
Property, plant and equipment 632.1 695.1
Right-of-use assets 276.3 313.3
Investments in joint ventures and associates 4.4 4.3
Financial assets at fair value through other
comprehensive income 11d 6.5 6.9
Trade and other receivables 43.3 38.7
Deferred tax assets 53.2 58.3
Retirement benefit asset 90.6 78.7
-------------------------------------------------- ----- --------- ---------
1,608.3 1,773.2
Current assets
Inventories 1,527.6 1,566.9
Trade and other receivables 397.6 512.3
Financial assets at fair value through other
comprehensive income 11d 0.2 0.2
Derivative financial instruments 11d 39.6 16.2
Current tax assets 32.9 21.6
Cash and cash equivalents 9b 591.4 423.0
-------------------------------------------------- ----- --------- ---------
2,589.3 2,540.2
Assets held for sale and disposal group 12 44.8 149.4
-------------------------------------------------- ----- --------- ---------
2,634.1 2,689.6
-------------------------------------------------- ----- --------- ---------
Total assets 4,242.4 4,462.8
-------------------------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables (1,854.8) (1,996.4)
Derivative financial instruments 11d (41.5) (27.4)
Current tax liabilities (86.4) (82.4)
Provisions (30.5) (23.0)
Lease liabilities 9b (58.9) (56.8)
Borrowings 9b (122.9) (50.1)
-------------------------------------------------- ----- --------- ---------
(2,195.0) (2,236.1)
Liabilities directly associated with the disposal
group 12 (7.1) (106.1)
-------------------------------------------------- ----- --------- ---------
(2,202.1) (2,342.2)
-------------------------------------------------- ----- --------- ---------
Non-current liabilities
Trade and other payables (67.4) (77.2)
Provisions (14.3) (12.9)
Deferred tax liabilities (77.9) (96.7)
Lease liabilities 9b (292.5) (296.0)
Borrowings 9b (379.3) (270.0)
Retirement benefit liability (86.1) (69.2)
-------------------------------------------------- ----- --------- ---------
(917.5) (822.0)
Total liabilities (3,119.6) (3,164.2)
-------------------------------------------------- ----- --------- ---------
Net assets 1,122.8 1,298.6
-------------------------------------------------- ----- --------- ---------
Equity
Share capital 8 39.4 40.0
Share premium 146.7 146.7
Capital redemption reserve 8 141.2 140.6
Other reserves (144.9) (190.4)
Retained earnings 919.8 1,141.4
-------------------------------------------------- ----- --------- ---------
Equity attributable to owners of the parent 1,102.2 1,278.3
Non-controlling interests 20.6 20.3
-------------------------------------------------- ----- --------- ---------
Total equity 1,122.8 1,298.6
-------------------------------------------------- ----- --------- ---------
The notes on pages 14 to 25 are an integral part of these
condensed consolidated interim financial statements.
Consolidated Statement of Changes in Equity
For the six months ended 30 June 2020
Equity
attributable
to equity
Capital owners Non- Total
Share Share redemption Other Retained of the controlling shareholders'
capital premium reserve reserves earnings parent interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
At 1 January 2019 41.6 146.7 139.0 (75.9) 1,087.0 1,338.4 23.3 1,361.7
Adjustment for IFRIC
23 - - - - 6.1 6.1 - 6.1
Profit for the period
ended 30 June 2019 - - - - 115.1 115.1 3.0 118.1
Other comprehensive income
for the period - - - 22.4 (16.6) 5.8 (0.8) 5.0
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
Total comprehensive income
for the period - - - 22.4 98.5 120.9 2.2 123.1
Share-based payments,
net of tax - - - - 3.4 3.4 - 3.4
Share buyback programme (0.3) - 0.3 - (39.2) (39.2) - (39.2)
Net purchase of own shares
by the Inchcape Employee
Trust - - - - (5.1) (5.1) - (5.1)
Dividends:
* Owners of the parent 8b - - - - (74.2) (74.2) - (74.2)
* Non-controlling interests - - - - - - (5.2) (5.2)
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
At 30 June 2019 41.3 146.7 139.3 (53.5) 1,076.5 1,350.3 20.3 1,370.6
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
Profit for the period - - - - 207.8 207.8 2.8 210.6
Other comprehensive loss
for the period - - - (136.9) (45.0) (181.9) (2.2) (184.1)
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
Total comprehensive income
for the period - - - (136.9) 162.8 25.9 0.6 26.5
Share-based payments,
net of tax - - - - 3.4 3.4 - 3.4
Share buyback programme (1.3) - 1.3 - (60.8) (60.8) - (60.8)
Net purchase of own shares
by the Inchcape Employee
Trust - - - - (4.2) (4.2) - (4.2)
Dividends:
* Owners of the parent 8b - - - - (36.3) (36.3) - (36.3)
* Non-controlling interests - - - - - - (0.6) (0.6)
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
At 1 January 2020 40.0 146.7 140.6 (190.4) 1,141.4 1,278.3 20.3 1,298.6
(Loss) / profit for the
period - - - - (190.4) (190.4) 1.2 (189.2)
Other comprehensive income
/ (loss) for the period - - - 45.5 (1.9) 43.6 1.6 45.2
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
Total comprehensive (loss)
/ income for the period - - - 45.5 (192.3) (146.8) 2.8 (144.0)
Share-based payments,
net of tax - - - - 2.1 2.1 - 2.1
Share buyback programme 8a (0.6) - 0.6 - (31.4) (31.4) - (31.4)
Net purchase of own shares
by the Inchcape Employee
Trust - - - - - - - -
Dividends:
* Owners of the parent 8b - - - - - - - -
* Non-controlling interests - - - - - - (2.5) (2.5)
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
At 30 June 2020 39.4 146.7 141.2 (144.9) 919.8 1,102.2 20.6 1,122.8
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
The notes on pages 14 to 25 are an integral part of these
condensed consolidated interim financial statements.
Share-based payments include a deferred tax charge of GBP0.8m
(30 June 2019 - deferred tax charge of GBP0.2m; 31 December 2019 -
deferred tax credit of GBP0.7m)
Consolidated Statement of Cash Flows
For the six months ended 30 June 2020
Six months Six months
to to
30 Jun 30 Jun
2020 2019
Notes GBPm GBPm
------------------------------------------------ ----- ----------- -----------
Cash generated from operating activities
Cash generated from operations 9a 78.7 159.4
Tax paid (28.4) (47.0)
Interest received 7.9 10.3
Interest paid (25.7) (33.3)
------------------------------------------------ ----- ----------- -----------
Net cash generated from operating activities 32.5 89.4
------------------------------------------------ ----- ----------- -----------
Cash flows from investing activities
Acquisition of businesses, net of cash and
overdrafts acquired 10 (27.1) (16.0)
Net cash inflow from sale of businesses 10 17.9 10.4
Purchase of property, plant and equipment (10.5) (29.1)
Purchase of intangible assets (7.2) (8.8)
Proceeds from disposal of property, plant
and equipment 1.3 7.1
Receipt from sub-lease receivables 0.4 0.2
------------------------------------------------ ----- ----------- -----------
Net cash used in investing activities (25.2) (36.2)
------------------------------------------------ ----- ----------- -----------
Cash flows from financing activities
Share buyback programme (32.1) (18.8)
Net purchase of own shares by the Inchcape
Employee Trust - (5.1)
Cash inflow from Covid Corporate Financing
Facility 9b 99.6 -
Repayment of Private Placement loan notes 9b - (75.4)
Net cash inflow from other borrowings 9b 105.1 51.9
Payment of capital element of lease liabilities 9b (27.8) (31.1)
Equity dividends paid 8b - (74.2)
Dividends paid to non-controlling interests (2.5) (5.2)
------------------------------------------------ ----- ----------- -----------
Net cash generated from / (used in) financing
activities 142.3 (157.9)
------------------------------------------------ ----- ----------- -----------
Net increase / (decrease) in cash and cash
equivalents 9b 149.6 (104.7)
Cash and cash equivalents at beginning of
the period 379.2 463.4
Effect of foreign exchange rate changes 41.2 (2.8)
------------------------------------------------ ----- ----------- -----------
Cash and cash equivalents at end of the period 570.0 355.9
------------------------------------------------ ----- ----------- -----------
Cash and cash equivalents consist of:
* Cash at bank and cash equivalents 311.5 354.2
* Short-term deposits 279.9 105.0
* Bank overdrafts (21.4) (103.3)
------------------------------------------------ ----- ----------- -----------
570.0 355.9
------------------------------------------------ ----- ----------- -----------
The notes on pages 14 to 25 are an integral part of these
condensed consolidated interim financial statements.
Notes (unaudited)
1 Basis of preparation and accounting policies
Basis of preparation
The condensed consolidated interim financial statements for the
period ended 30 June 2020 have been prepared on a going concern
basis in accordance with International Accounting Standard 34
'Interim Financial Reporting' as adopted by the European Union and
the Disclosure and Transparency Rules of the Financial Conduct
Authority. These condensed consolidated interim financial
statements should be read in conjunction with the Annual Report and
Accounts 2019, which have been prepared in accordance with IFRSs as
adopted by the European Union and International Financial Reporting
Interpretation Committee (IFRIC) interpretations and with those
parts of the Companies Act 2006 applicable to companies reporting
under IFRS.
These condensed consolidated interim financial statements are
unaudited but have been reviewed by the external auditors. The
condensed consolidated interim financial statements in the Interim
Report do not constitute statutory accounts within the meaning of
Section 434 of the Companies Act 2006. The Group's published
consolidated financial statements for the year ended 31 December
2019 were approved by the Board of Directors on 26 February 2020
and delivered to the Registrar of Companies.
The report of the auditors on those accounts was unqualified and
did not contain an emphasis of matter paragraph or a statement
under section 498 of the Companies Act 2006. The condensed
consolidated interim financial statements on pages 10 to 25 were
approved by the Board of Directors on 29 July 2020.
Going concern
Based on the Group's cash flow forecasts and projections, the
Board is satisfied that the Group will be able to operate within
the level of its committed facilities for the foreseeable future.
For this reason, the Board continues to adopt the going concern
basis in preparing its financial statements. In assessing whether
the Group is a going concern, the implications of Covid-19 have
been considered and the measures taken to mitigate its impact on
the Group. In making this assessment the Group has considered
available liquidity in relation to net debt and committed
facilities, the Group's latest forecasts for 2020 and 2021 cash
flows together with Covid-19 adjusted scenarios. The forecasts used
reflected the likely economic downturn triggered by Covid-19, with
a key emphasis on the Group's forecast revenue and gross profit in
2021 relative to the original Board approved plan for 2020.
Given the global political and economic uncertainty resulting
from the Covid-19 pandemic, we expect to see volatility and
business disruption in the markets in which the Group operates
reducing our expected performance in 2020 and 2021. In the first
half of the year, we have already felt the impact of the government
action to the control the Covid-19 pandemic with a number of the
Group's businesses being closed to a greater or lesser extent.
During the period, actions have been taken to further strengthen
the Group's liquidity position in light of the current environment.
These have included:
-- Cost saving initiatives, such as reducing advertising and
promotional expenditure, reducing executive pay, freezing other pay
and recruitment and reductions in operating expenditure;
-- utilisation of government cost support measures such as the
UK job retention scheme combined with UK business rates suspension
and international government support measures where available;
-- collaborating closely with OEMs to manage inventory
levels;
-- negotiating extended terms for vehicle funding arrangements
in key markets;
-- suspending the share buyback programme; and
-- cancelling the final dividend for 2019.
In addition, the Group was successful in its application for the
UK Government's Covid Corporate Financing Facility (CCFF) scheme.
However, for the purposes of the going concern assessment, the CCFF
is not considered to be a committed facility other than in respect
of the GBP100m issued as at 30 June 2020 and repaid on 17 July
2020.
Committed bank facilities and Private Placement borrowings
totalling GBP910m, of which GBP380m was drawn at 30 June 2020, are
subject to the same interest cover covenant based on an adjusted
EBITA measure to interest on consolidated borrowings measured on a
trailing 12 month basis at June and December. The Group's latest
forecasts for 2020 and 2021 indicate that the Group is expected to
be compliant with this covenant throughout the forecast period.
A range of sensitivities have been applied to the forecasts to
assess the Group's compliance with its covenant requirements over
the 18 month period to 31 December 2021. These sensitivities
included a reduction in gross profit achieved, as a result of
further periods of restrictions across the Group's markets, an
appreciation in sterling against the Group's main trading companies
and a "no deal" Brexit scenario, together with working capital
sensitivities. The Group tested the possibility of the debt
covenant being breached in December 2020, June 2021 and December
2021. June 2021 is the most sensitive period, mainly as a result of
the assumed reduction in trade, due to the impact of restrictions,
included in the forecasts. However, the sensitised forecasts
indicate that the Group is expected to be compliant with this
covenant throughout the forecast period and have sufficient funds
to meet cash flow requirements.
In addition, reverse stress test scenario analysis has been
applied to the sensitised forecasts to assess particular scenarios
in which the Group would breach its covenant or have insufficient
funds to meet cash flow requirements. As a result, the Board
concluded that the Group will be able to operate within the level
of its committed facilities for the foreseeable future and the
Directors consider it appropriate to adopt the going concern basis
of accounting in preparing the condensed consolidated interim
financial statements.
Newly adopted accounting policies
The accounting policies adopted in the preparation of the
condensed consolidated interim financial statements are consistent
with those of the Group's Annual Report and Accounts 2019 with the
exception of standards, amendments and interpretations, which have
been newly adopted from 1 January 2020:
-- Amendments to IAS 1 and IAS 8 - Definition of Material;
-- Amendment to IFRS 3, Business combinations; and
-- Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate
benchmark reform
The adoption of the standards and interpretations listed above
has not led to any changes to the Group's accounting policies or
had any other material impact on the financial position or
performance of the Group
The Group has not early adopted other standards, amendments to
standards or interpretations that have been issued but are not yet
effective.
Standards not yet effective
The following standards were in issue but were not yet effective
at the balance sheet date. These standards have not yet been early
adopted by the Group, and will be applied for the Group's financial
years commencing on or after 1 January 2021:
-- IFRS 17 - Insurance contracts;
-- Amendments to IAS 1 - Classification of liabilities; and
-- Amendment to IFRS 16 in relation to Coivid-19 Related rent
concessions
Management are currently reviewing the new standards to assess
the impact that they may have on the Group's reported position and
performance.
Management do not expect that the adoption of the standards
listed above will have a material impact on the financial
statements of the Group.
Critical accounting judgements and sources of estimation
uncertainty
The preparation of these condensed consolidated interim
financial statements in accordance with generally accepted
accounting principles requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Although these
estimates are based on management's best knowledge, actual results
may ultimately differ from those estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis.
The Directors have made a number of estimates and assumptions
regarding the future and made some significant judgements in
applying the Group's accounting policies. The critical accounting
judgements and key sources of estimation uncertainty remain
consistent with those presented in the accounting policies note
within the Group's 2019 Annual Report and Accounts. Those that are
significant to the preparation of the interim financial statements
are presented below.
Sources of estimation uncertainty
Impairment of goodwill, other indefinite life intangible assets
and other non-financial assets
The key source of estimation uncertainty for the Group, involves
the estimation of future cash flows included within value in use
calculations. This has remained a key source of estimation
uncertainty during the period, especially given the significant
uncertainty around the duration of site closures and the impact of
consumer confidence on the Group's products, arising from the
Covid-19 pandemic.
Deferred tax
The recognition of deferred tax assets is dependent upon an
estimation of future taxable profits that will be available against
which deductible temporary differences can be utilised (see note
6). In the event that actual taxable profits are different, such
differences may impact the carrying value of such deferred tax
assets in future periods or extend the period over which the
deferred tax assets are utilised.
Other key areas of critical accounting judgement and estimation
uncertainty that have the most significant effect on the
consolidated financial statements are further disclosed in the
accounting policies within the Annual Report and Accounts for the
year ended 31 December 2019.
Significant accounting policies
Impairment of goodwill and other indefinite life intangible
assets
The carrying amount of goodwill, prior to any impairment
charges, has been allocated to CGU groups within the following
reporting segments:
2020 2019
Reporting segment CGU group GBPm GBPm
------------------------------- ------------------------------- ----- -----
UK and Europe Retail UK Retail 80.2 80.2
------------------------------- ------------------------------- ----- -----
UK and Europe Distribution Baltics 6.2 5.8
------------------------------- ------------------------------- ----- -----
Americas & Africa Distribution South America - Daimler 5.3 3.8
-------------------------------
South America - Other 44.7 45.7
Central America 48.1 44.8
Kenya 1.3 1.2
--------------------------------------------------------------- ----- -----
APAC Distribution Singapore 23.5 22.8
-------------------------------
Australia Retail 9.4 9.6
Peugeot Citroën Australia 1.7 1.8
--------------------------------------------------------------- ----- -----
220.4 215.7
--------------------------------------------------------------- ----- -----
In accordance with the Group's accounting policy, goodwill and
other indefinite life intangible assets are tested at least
annually for impairment and whenever events or circumstances
indicate that the carrying amount may not be recoverable. The
ongoing impact of the Covid-19 pandemic and its effect on the
Group's markets represents an indicator of impairment in accordance
with IAS 36. As a result, all goodwill and other indefinite life
intangible assets have been tested for impairment for the six
months ended 30 June 2020. The recoverable amounts of all CGU
groups are determined based on the higher of the fair value less
costs to sell and value in use calculations. The recoverable amount
is determined firstly through value in use calculations. Where this
is insufficient to cover the carrying value of the relevant asset
being tested, fair value less costs to sell is also determined.
The value in use calculations use cash flow projections based on
five-year financial forecasts prepared by management. The key
assumptions for these forecasts are those relating to volumes,
revenue, gross margins, overheads, the level of working capital
required to support trading and capital expenditure.
The assumptions used in the value in use calculations are based
on past experience, recent trading and expectations of future
changes in the operation of the business and changes in the
relevant markets including the anticipated impact of Covid-19. They
also reflect expectations about continuing relationships with key
brand partners. The forecast cash flows do not include uncommitted
restructuring or improvements and enhancements to existing
assets.
For CGU groups in less developed markets, cash flows after the
five-year period are extrapolated for a further five years using
declining growth rates which reduces the year five growth rate down
to the appropriate long-term growth rate, to better reflect the
medium-term growth expectations for those markets. A terminal value
calculation is used to estimate the cash flows after year ten using
these long-term growth rates. For all other markets, a terminal
value calculation is used to estimate the cash flows after year
five.
The Group has adopted a probability weighted scenario approach,
based on externally available data, for the discounted cashflows
used in the impairment assessment. A range of expected outcomes
were modelled including a base case, which reflected management's
best estimate of future performance, an optimistic case scenario
incorporating a better than expected recovery from Covid-19 and a
pessimistic scenario incorporating an extended closure period /
lower recovery from Covid-19.
Cash flows are discounted back to present value using a discount
rate specific to each CGU. The discount rates used are calculated
based on a weighted average cost of capital adjusted for a risk
premium attributable to the relevant country. The Group uses
several inputs to calculate a range for the weighted average cost
of capital from which an absolute measure of the weighted average
cost of capital is determined. Each CGU's weighted average cost of
capital is then adjusted to reflect the impact of tax in order to
calculate an equivalent pre-tax discount rate.
Key assumptions used - Goodwill
Pre-tax discount rates, compound annual growth rates (CAGR) for
revenue and long-term discount rates used in the value in use
calculations for each of the Group's CGUs are shown below:
South South Peugeot
America - America - Central Australia Citroën
UK Retail Baltics Daimler Other America Kenya Singapore Retail Australia
------------ --------- ------- ----------- ----------- ------------ ----- --------- ------------ ------------
Pre-tax
discount
rate (%) 7.8 6.3 12.0 9.9 11.4 12.1 7.4 10.3 10.3
Revenue CAGR
(%) 0.2 2.0 8.0 3.1 4.4 14.3 (4.9) 1.9 (4.4)
Long term
growth rate
(%) 2.0 2.2 3.4 2.7 2.8 5.0 1.5 2.0 2.0
------------ --------- ------- ----------- ----------- ------------ ----- --------- ------------ ------------
Goodwill - UK Retail
In 2019, the UK New car market declined by a further 2.4%
(source: SMMT) broadly in line with previous forecasts and the UK
Retail business made meaningful progress in reshaping its retail
footprint through the selective sale of less productive UK Retail
sites. In light of the reduction in the UK Retail footprint, the
Board revisited its short and medium-term forecast for the UK
Retail CGU group and updated the value in use calculations. The
results of the impairment review indicated that the value in use
calculation exceeded the carrying value of the assets attributable
to the UK Retail CGU group by cGBP70m as at 31 December 2019.
In the period to 30 June 20, the UK Retail business has been
materially impacted by the Covid-19 pandemic with sites closed
since late March and only reopening again in June. The Group has
continued to reshape its retail footprint through further disposals
of less productive UK Retail sites and, against a backdrop of an
uncertain outlook, forecasts for the business have been updated for
the goodwill impairment assessment. The cash flows used for
impairment testing are based on the latest short-term forecasts for
the business, covering a two-year period, and take into account
historical performance and knowledge of the current market,
including the expected volume and gross margin impact from
Covid-19. Cash flows beyond the forecast initial period are
extrapolated using externally sourced volume projections. Margin
assumptions are largely aligned to the prior year impairment
exercise and our expectation of future performance, again supported
by historical performance and current market data available.
Cash flows were discounted back to present value using a pre-tax
risk discount rate of 7.8% (2019 - 8.8%). The results of the
impairment review carried out indicate that the estimated
recoverable value was now less than the carrying value of the
assets attributable to the UK Retail CGU group and an impairment
charge of GBP80.2m should be recognised, fully impairing the
remaining goodwill attributable to the UK Retail CGU group.
Goodwill - Australia Retail and Peugeot Citroën Australia
The impact of Covid-19 on the Australian economy has been severe
and the country entered its first recession in 29 years in the
period. The Retail business, having undertaken significant
restructuring through the disposal of selective Retail operations
that completed in February 2020, had expected to see an improvement
in performance in 2020 and a return to previously achieved gross
margins. The Peugeot Citroën Distribution business was initially
expected to deliver an improvement in performance in 2020 in light
of recent changes to operations within the country. However, the
impact of Covid-19 has materially affected both businesses, with a
material decline in performance expected over the forecast period,
due to a reduction in new car sales leading to a decline in the car
parc which, in turn, impacts higher margin aftersales.
The recoverable value of the two CGUs was determined based on
value-in-use calculations, consistent with the approach used as at
31 December 2019. Cash flows were discounted back to present value
using a pre-tax discount rate of 10.3% (2019 - 10.2%) and resulted
in the full impairment of the goodwill balance of GBP11.1m
attributable to these two CGUs.
Goodwill - Other CGUs
The Group's value in use calculations for the remaining CGU
groups are sensitive to a change in the key assumptions used.
However, except for cash generating units represented by Central
America, the Baltics and the Daimler businesses in South America, a
reasonably possible change in a key assumption will not cause a
material impairment of goodwill in any of the CGU groups.
Due to the impact of Covid-19, the level of headroom for the
groups of cash generating units represented by Central America, the
Baltics and the Daimler businesses in South America has
substantially decreased when compared to the impairment assessment
carried out in 2019. Each of these models now indicate a low amount
of headroom. As such, management has performed sensitivity analysis
on the key assumptions in the models using reasonably possible
changes in key assumptions to determine what change is required
that would cause the carrying amount to exceed the recoverable
amount calculated in the model.
The table below shows the sensitivity of the value in use
calculations to a reasonably possible change in the key
assumptions, while holding all other assumptions constant, which
would cause the carrying amount for each CGU group to exceed the
recoverable amount determined in the value in use model.
Decrease Decrease
in Forecast in Gross
Annual Margin
CGU group Revenue %
----------------------- ------------ ---------
Baltics -2.8% -20bps
South America - Daimler -3.0% -40bps
Central America -7.2% -150bps
----------------------- ------------ ---------
Other indefinite life intangible assets
Other indefinite-life intangible assets represent Distribution
agreements acquired in a business combination. At 30 June 2020, the
Group held specific indefinite life intangible assets with a
carrying value of GBP281.6m allocated to the following reporting
segments:
2020 2019
Reporting segment CGU group GBPm GBPm
------------------------------- ----------------------- ----- -----
UK and Europe Distribution BMW Baltics 29.3 27.4
------------------------------- ----------------------- ----- -----
Americas & Africa Distribution Hino South America 45.0 46.0
Subaru South America 86.8 88.6
Daimler South America 29.1 13.8
Suzuki Central America 91.4 85.3
281.6 261.1
------------------------------------------------------- ----- -----
Key assumptions used - Other indefinite life intangible
assets
Pre-tax discount rates, compound annual growth rates (CAGR) for
revenue and long-term discount rates used in the value in use
calculations for each of the Group's CGUs are shown below:
Daimler South Suzuki Central
BMW Baltics Hino South America Subaru South America America America
-------------------- ----------- ------------------ -------------------- -------------------- -------------------
Pre-tax discount
rate (%) 6.3 10.4 9.8 12.0 11.4
Revenue CAGR (%) 2.4 3.3 3.7 8.0 4.0
Long-term growth
rate (%) 2.2 3.0 2.7 3.4 2.8
-------------------- ----------- ------------------ -------------------- -------------------- -------------------
The level of headroom in the models used to test the
distribution agreements for Suzuki in Central America and Daimler
and Hino in South America all indicate a limited amount of
headroom. The value in use calculations prepared for these brands
are sensitive to a change in the key assumptions used. As such,
management has performed sensitivity analysis on the key
assumptions in the models using reasonably possible changes in key
assumptions to determine what change is required that would cause
the carrying amount to exceed the recoverable amount calculated in
the model.
The table below shows the sensitivity of the value in use
calculations for these Distribution agreements to a reasonably
possible change in the key assumptions, while holding all other
assumptions constant, which would cause the carrying amount to
exceed the recoverable amount determined in the value in use
model.
Decrease Decrease
in Forecast in Gross
Annual Margin
CGU group Revenue %
---------------------- ------------ ---------
Hino South America -3.9% -70bps
Daimler South America -3.5% -40bps
Suzuki Central America -7.2% -160bps
---------------------- ------------ ---------
Impairment of property, plant and equipment, intangible assets
and right-of-use assets
Property, plant and equipment, intangible assets and
right-of-use assets are reviewed for impairment if events or
circumstances indicate that the carrying value may not be
recoverable. When an impairment review is carried out, the
recoverable value is determined based on the higher of value in use
calculations, which require estimates to be made of future cash
flows, or fair value less costs of disposal.
In light of the ongoing Covid-19 pandemic, impairment triggers
were identified in a number of markets and impairment reviews were
performed where appropriate. The approach to test property, plant
and equipment, intangible assets and right-of-use assets for
impairment was consistent with the approach used to test goodwill
and other indefinite life intangible assets.
The results of the testing indicated that impairment charges
totalling GBP93.3m were required against site and other assets,
principally in relation to Retail businesses in the UK, Australia
and Russia.
GBPm
---------------------------- ----
Intangible assets 8.8
Property, plant & equipment 51.5
Right-of-use assets 33.0
---------------------------- ----
93.3
---------------------------- ----
Inventories
The Group reviewed the level of provisions required against
inventory and receivables. Where the recognition of specific
provisions was deemed to be as a direct consequence of the impact
of Covid-19, these have also been reported as exceptional costs.
The Group has identified inventory and recourse loan provisions
totalling GBP9.8m as being directly related to Covid-19. Across the
remainder of the Group's markets, while additional net realisable
value provisions have been recognised, these are predominantly in
relation to business as usual activities such as clearance of
inventory prior to the launch of a new model and used car quality
and pricing and the associated write-downs have been included
within pre-exceptional results.
An inventory provision is recognised in situations where net
realisable value is likely to be less than cost (such as
obsolescence, deterioration, fall in selling price). When
calculating the provision, management considers the nature and
condition of the inventory, as well as applying assumptions around
anticipated saleability, determined on conditions that exist at the
end of the reporting period. With the exception of parts, generally
net realisable value adjustments are applied on an item-by-item
basis.
Government grants and assistance
In the first half of the year, the Group has recognised an
amount of GBP27.2m as a credit against employee costs and GBP2.8m
as a credit against occupancy costs, these have been presented net
in operating costs before exceptional items. The majority
(GBP22.7m) was recognised by the UK Retail business. In some cases,
salaries were paid in excess of the amount received under the
government support schemes and these schemes were utilised instead
of other cost reduction measures that would have adversely impacted
employees (e.g. redundancies). Grants received from governments are
recognised when there is reasonable assurance that the conditions
associated with the grants have been complied with and the grants
will be received. Grants for the reimbursement of operating
expenditure are deducted from the related category of costs in the
income statement. Once a government grant is recognised, any
related deferred income is treated in accordance with IAS 20
'Accounting for Government Grants and Disclosure of Government
Assistance'.
Restructuring provisions
In the period, the Group has recognised restructuring costs and
associated provisions in relation to a Board approved plan to
rationalise and restructure operations due to the impact of
Covid-19. The Group recognises a restructuring provision when a
detailed formal plan for the restructuring has been developed and a
valid expectation has been raised in those affected that it will
carry out the restructuring by starting to implement the plan or
announcing its main features to those affected by it. The
measurement of a restructuring provision includes only the direct
expenditures arising from the restructuring which are those amounts
that are both necessarily entailed by the restructuring and not
associated with ongoing activities of the Group.
Exceptional items
In the period, the Group has reported aggregate pre-tax
exceptional losses of GBP197.8m (see note 3). Exceptional items are
those items that, in the judgement of the Group, need to be
disclosed separately by virtue of their nature, size or incidence.
The separate reporting of exceptional items helps provide
additional useful information regarding the Group's underlying
business performance and is used by management to facilitate
internal performance analysis. Items that may be considered
exceptional in nature include gains or losses on the disposal of
businesses, restructuring of businesses, acquisition costs, asset
impairments and the tax effects of these items. Any reversal of an
amount previously recognised as an exceptional item would also be
recognised as an exceptional item in a subsequent period.
Disposal group and assets held for sale
The Group continues to recognise assets as held for sale,
primarily in relation to sites in the UK. Where the Group is
committed to a plan to sell and is actively marketing a business
and disposal is expected within one year of the date of
classification as held for sale, the assets and liabilities of the
associated businesses are separately disclosed in the consolidated
statement of financial position as a disposal group. Assets and
liabilities are classified as assets held for sale if their
carrying amount is to be recovered principally through a sale
transaction rather than through continuing use. Both disposal
groups and assets and liabilities held for sale are stated at the
lower of their carrying amount and fair value less costs to
sell.
Foreign currency translation
The principal exchange rates used for translation purposes are
as follows:
Average Period
rates end rates
-------- ------- -------- -------- ------- -----------
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2020 2019 2019 2020 2019 2019
------------------ -------- ------- -------- -------- ------- -----------
Australian dollar 1.93 1.83 1.84 1.80 1.81 1.89
Chilean peso 1,037.86 878.25 908.04 1,018.39 860.19 996.59
Ethiopian birr 42.01 37.31 37.39 43.63 36.86 42.42
Euro 1.15 1.15 1.14 1.10 1.12 1.18
Hong Kong dollar 9.86 10.17 10.01 9.61 9.92 10.34
Russian rouble 88.86 85.00 82.96 88.25 80.24 82.13
Singapore dollar 1.77 1.76 1.74 1.73 1.72 1.78
US dollar 1.27 1.30 1.28 1.24 1.27 1.33
------------------ -------- ------- -------- -------- ------- -----------
2 Segmental analysis
The Group has five reportable segments which have been
identified based on the operating segments of the Group that are
regularly reviewed by the chief operating decision-maker, which has
been determined to be the Executive Committee, in order to assess
performance and allocate resources. Operating segments are then
aggregated into reporting segments to combine those with similar
economic characteristics
Following the disposal of the Group's business in China and the
retail disposals in Australia in 2019, the management and reporting
of the previous Asia and Australasia regions has changed to
encompass the combination of these to form an Asia Pacific (APAC)
region. The retail businesses in the APAC region which were
disposed of in 2019 and 2020 have been maintained as a separate
reportable segment. This segment solely represents the disposed of
businesses in both Australia and China, as the Group previously
aggregated its small retail business in China with its larger
distribution activities in the Asia region.
In addition, reflecting the OEM partners represented and the
management of the European region, the retail operations in Russia,
previously representing its own separate Retail segment, are now
combined within the UK and Europe Retail segment. The new region
encompasses retail operations in the UK, Poland and Russia.
The Group has historically reported the performance of its
reporting segments before unallocated central costs. These
represent costs of Group functions and, previously, these costs
were reported separately from the results of the Group's reportable
segments. The Group now fully allocates these costs in arriving at
the results reported for each segment.
Comparatives for the prior period have been restated to reflect
the above changes.
The following summary describes the operations of each of the
Group's reportable segments:
Distribution APAC Exclusive distribution and sale of New vehicles
and parts in Asia-Pacific markets, together with
associated Aftersales activities of service and
bodyshop repairs.
Sale of New and Used vehicles in Australia where
the Group is also the Distributor of those vehicles,
together with associated Aftersales activities
of service, bodyshop repairs and parts sales.
------------- --------------------------------------------------------
UK and Europe Distribution of New vehicles and parts, together
with associated marketing activities, in mature
European markets. Sale of New and Used vehicles
in Europe where the Group is also the Distributor
of those vehicles, together with associated Aftersales
activities of service, bodyshop repairs and parts
sales.
------------- --------------------------------------------------------
Americas and Distribution of New vehicles and parts in growing
Africa markets, together with associated Aftersales activities
of service and bodyshop repairs.
------------ ------------- --------------------------------------------------------
Retail APAC Sale of New and Used vehicles in Australia and
China together with associated Aftersales activities
of service, bodyshop repairs and parts sales.
------------- --------------------------------------------------------
UK and Europe Sale of primarily New and Used premium vehicles
in mature markets, together with associated Aftersales
activities of service, bodyshop repairs and parts
sales.
------------ ------------- --------------------------------------------------------
Distribution Retail
-------------------------------------------- ------------------------ -------
UK and Americas Total UK and Total
APAC Europe and Africa Distribution APAC Europe Retail Total
Six months to 30 June 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ ------- ------------ ------------- ------ ------- ------- -------
Revenue from third parties 872.0 527.5 330.9 1,730.4 9.4 1,279.3 1,288.7 3,019.1
--------------------------------- ------ ------- ------------ ------------- ------ ------- ------- -------
Results
Operating profit / (loss)
before exceptional items 32.8 9.1 4.2 46.1 0.4 (18.0) (17.6) 28.5
Operating exceptional items (197.8)
--------------------------------- -------
Operating loss after exceptional
items (169.3)
--------------------------------- -------
Net finance costs of GBP19.0m are not allocated to individual
segments.
Distribution Retail
----------------------------------------------- ------------------------ -------
UK and Americas Total UK and Total
Six months to 30 June 2019 APAC Europe and Africa Distribution APAC Europe Retail Total
(Restated) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- -------- ------- ------------ -------------- ------ ------- ------- -------
Revenue from third parties 1,301.3 660.5 459.3 2,421.1 250.1 2,053.9 2,304.0 4,725.1
---------------------------------- -------- ------- ------------ -------------- ------ ------- ------- -------
Results
Operating profit before
exceptional items 116.5 19.8 23.5 159.8 4.5 15.5 20.0 179.8
Operating exceptional items (2.6)
---------------------------------- -------
Operating profit after exceptional
items 177.2
---------------------------------- -------
Net finance costs of GBP23.5m are not allocated to individual
segments.
3 Exceptional items
Six months Six months
to to
30 Jun 30 Jun
2020 2019
GBPm GBPm
------------------------------------------------ ---------- ----------
Goodwill impairment (note 1) (91.3) -
Other asset write-offs and impairments (note 1) (93.3) -
Inventory and other provisions (9.8) -
Disposal of businesses (note 10) 0.9 0.6
Restructuring costs (9.1) (2.3)
Acquisition of businesses (3.6) (0.9)
Other operating exceptional items 8.4 -
Total exceptional items before tax (197.8) (2.6)
Exceptional tax 9.9 (0.5)
------------------------------------------------ ---------- ----------
Total exceptional items (187.9) (3.1)
------------------------------------------------ ---------- ----------
Due to Covid-19 and the subsequent temporary closure of
operations across the Group's many markets, impairment assessments
were carried out using cash flow forecasts updated for latest
available market data and estimates of fair value less costs of
disposal. As a result of these reviews, the Group has recognised
goodwill impairment charges of GBP80.2m and GBP11.1m in the UK and
Australia respectively. Exceptional items also include asset
impairments of GBP93.3m following an impairment review of certain
site-based assets across the Group.
The Group sells new and used vehicles which are subject to
changing consumer demands. As a direct result of the restrictions
imposed in various markets to the Covid-19 pandemic and the
subsequent lifting of those restrictions, where relevant, our
ability to sell certain vehicles has been significantly impacted.
Accordingly, management has reviewed the level and quality of
inventory and applied assumptions in relation to estimated selling
prices, together with costs to be incurred in marketing and selling
those vehicles. As a result, additional inventory provisions to
write-down inventory to net realisable value have been required. In
certain instances, management have determined that inventory
provisions have been required that are directly attributable to the
Covid-19 pandemic, principally in relation to inventory in the
Peugeot Citroën Distribution business in Australia and bus chassis
in Ecuador. The impact of Covid-19 on the Australian economy has
been severe and, as disclosed in relation to goodwill and other
non-financial assets, there has been a material decline in the
forecast performance of the Peugeot Citroën Distribution business.
Estimated selling prices have been revised downwards which has
required a provision to be recognised to write-down inventory to
net realisable value. In Ecuador, the Covid-19 pandemic has
impacted the economy and had a significant impact on the market for
buses with operators delaying purchasing decisions and a build-up
of inventory by competitors resulting in falling prices. Management
have therefore revised estimated selling prices downwards and
recognised a provision to write-down bus chassis inventory to
estimated net realisable value. Management have concluded that the
provisions recognised in these markets are directly attributable to
the Covid-19 pandemic and have therefore been disclosed as an
exceptional charge.
In addition, in Guam and Saipan, the Group sells vehicles which
are financed through loans offered by banks. Under certain
circumstances, the Group is required to compensate the banks for
the losses incurred. Due to the impact of Covid-19 on the tourism
industry in those markets, management have concluded that a
provision for losses is required under the arrangements with those
banks and, as these contract losses are directly attributable to
the Covid-19 pandemic, they should be disclosed as an exceptional
charge.
The Group has continued to optimise its retail market portfolio
and an exceptional operating profit of GBP0.9m has been recognised,
related to the disposal of six retail sites in the UK and
Australia.
Due to the expected medium-term impact of Covid-19 on the
Group's operations a proposal was presented to the Board to
rationalise and restructure operations. This proposal was approved
by the Board and will lead to significant restructuring activity
being undertaken by the Group, the costs incurred being recognised
as exceptional costs in line with the Group's policy. Restructuring
costs have only been recognised once formal plans are in place and
their implementation has commenced or announced to those affected.
Furthermore, additional restructuring costs have been recognised,
mainly in relation to Group-wide transformation projects impacting
both Finance and Human Resources, encompassing a review of
organisational structures and costs and the potential for sharing
back-office services. Execution of the group-wide restructuring
commenced in the first half of 2020 and will mostly be completed by
the year-end; however, the back-office plans will take longer.
During the period exceptional operating costs of GBP3.6m have
been incurred in connection with the acquisition and integration of
businesses. These primarily relate to the Daimler businesses
acquired in South America.
Other operating items of GBP8.4m includes the recycling of a
cumulative gain previously recorded in other comprehensive income
(OCI) which arises due to the reorganisation of the ownership
structure for some of the Group's operations in the APAC
region.
In 2019, as a direct result of the Group's optimisation of its
retail market portfolio, GBP2.3m of restructuring costs were
incurred, principally related to the closure and disposal of
several retail sites in the UK and Australia. The costs incurred
comprised headcount reduction and costs associated with exiting the
affected properties. An exceptional operating profit of GBP0.6m was
also recognised, largely related to the disposal of Honda and
Mitsubishi retail sites in Australia. During the period exceptional
operating costs of GBP0.9m were incurred in connection with the
acquisition and integration of businesses, primarily the Krasta
Auto business in Lithuania.
4 Finance income
Six months Six months
to to
30 Jun 30 Jun
2020 2019
GBPm GBPm
--------------------------------------------------- ---------- -----------
Bank and other interest receivable 6.1 7.4
Net interest income on post-retirement plan assets
and liabilities 0.2 1.3
Lease finance income 0.3 0.3
Other finance income 1.5 2.0
--------------------------------------------------- ---------- -----------
Total finance income 8.1 11.0
--------------------------------------------------- ---------- -----------
5 Finance costs
Six months Six months
to to
30 Jun 30 Jun
2020 2019
GBPm GBPm
------------------------------------------------ ----------- -----------
Interest payable on bank borrowings 3.9 5.6
Interest payable on Private Placement 3.3 3.7
Fair value adjustment on Private Placement - (0.5)
Fair value loss on cross-currency interest rate
swaps - 0.6
Lease finance costs 7.6 9.9
Stock holding interest 9.9 13.5
Other finance costs 2.4 1.7
------------------------------------------------ ----------- -----------
Total finance costs 27.1 34.5
------------------------------------------------ ----------- -----------
6 TAX
Six months Six months
to to
30 Jun 30 Jun
2020 2019
GBPm GBPm
----------------------------------------------------- --------------------------- ----------- -----------
* UK corporation tax
Current tax - -
* Overseas tax 20.7 43.3
Adjustments to prior
year liabilities * UK - -
* Overseas (2.0) (3.7)
--------------------------- ----------- -----------
Current tax 18.7 39.6
Deferred tax (17.8) (4.0)
---------------------------------------------------------------------------------- ----------- -----------
Total tax charge 0.9 35.6
---------------------------------------------------------------------------------- ----------- -----------
* Tax charge on profit before exceptional items 10.8 35.1
* Tax (credit)/charge on exceptional items (9.9) 0.5
---------------------------------------------------------------------------------- ----------- -----------
Total tax charge 0.9 35.6
------------------------------------------------------ -------------------------- ----------- -----------
The effective tax rate for the half year, before exceptional
items, is 113.7% compared to 22.5% for the same period last year.
The effective rate for the half year, after exceptional items, is
(0.5)% (23.2% for the same period last year).
The effective tax rate is not comparable to the same period in
the prior year due to the performance impact of Covid-19 and the
separate calculation of tax in each market. Although tax continues
to be charged in profitable markets, it is no longer possible to
recognise the tax credit associated with losses and other items in
certain markets (principally the UK).
EU Commission State Aid Investigation
On 25 April 2019, the European Commission published its full
decision in relation to its investigation into the "group financing
exemption" ('GFE') in the UK's controlled foreign company rules and
whether the GFE constituted unlawful State Aid. The Commission
concluded that the legislation up until December 2018 does
partially represent State Aid. On 12 June 2019 the UK Government
brought an action against the Commission to have the judgment
annulled. Subsequently a number of UK multi-national groups,
including Inchcape, applied on their own behalf to have the
decision annulled. In February 2020, HM Revenue and Customs (HMRC)
commenced recovery action as required under EU Law. This action is
ongoing and no change to the previously recognised provision has
been made.
7 Earnings per share
Six months Six months
to to
30 Jun 30 Jun
2020 2019
GBPm GBPm
--------------------------------------------- ----------- -----------
(Loss) / profit for the period (189.2) 118.1
Non-controlling interests (1.2) (3.0)
--------------------------------------------- ----------- -----------
Basic (loss) / earnings (190.4) 115.1
Exceptional items 187.9 3.1
--------------------------------------------- ----------- -----------
Adjusted (loss) / earnings (2.5) 118.2
--------------------------------------------- ----------- -----------
Basic (loss) / earnings per share (48.2p) 27.8p
Diluted (loss) / earnings per share (48.2p) 27.7p
Basic Adjusted (loss) / earnings per share (0.6p) 28.6p
Diluted Adjusted (loss) / earnings per share (0.6p) 28.4p
--------------------------------------------- ----------- -----------
Six months Six months
to to
30 Jun 30 Jun
2020 2019
number number
-------------------------------------------------------- ----------- -----------
Weighted average number of fully paid ordinary shares
in issue during the period 395,636,479 414,872,477
Weighted average number of fully paid ordinary shares
in issue during the period:
* Held by the Inchcape Employee Trust (725,133) (873,178)
-------------------------------------------------------- ----------- -----------
Weighted average number of fully paid ordinary shares
for the purposes of basic EPS 394,911,346 413,999,299
Dilutive effect of potential ordinary shares - 2,227,029
-------------------------------------------------------- ----------- -----------
Adjusted weighted average number of fully paid ordinary
shares in issue during the
period for the purposes of diluted EPS 394,911,346 416,226,328
-------------------------------------------------------- ----------- -----------
Basic earnings per share is calculated by dividing the Basic
earnings for the period by the weighted average number of fully
paid ordinary shares in issue during the period, less those shares
held by the Inchcape Employee Trust and repurchased as part of the
share buyback 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 other
share-based awards.
Basic Adjusted earnings (which excludes exceptional items) is
adopted to assist the reader in understanding the underlying
performance of the Group. Adjusted earnings per share is calculated
by dividing the Adjusted earnings for the period by the weighted
average number of fully paid ordinary shares in issue during the
period, less those shares held by the Inchcape Employee Trust and
repurchased as part of the share buyback programme.
Diluted Adjusted earnings per share is calculated on the same
basis as the Basic Adjusted 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 other share-based awards.
Information presented for diluted and diluted adjusted earnings
per ordinary share uses the weighted average number of shares as
adjusted for potentially dilutive ordinary shares as the
denominator, unless it has the effect of increasing the profit or
decreasing the loss attributable to each share.
8 Shareholders' equity
A. Issue of ordinary shares
During the period, the Group issued GBPnil (June 2019 - GBPnil,
Dec 2019 - GBPnil) of ordinary shares exercised under the Group's
share option schemes.
Share buyback programme
During the six months ended 30 June 2020, the Company
repurchased 5,858,343 of its own shares (June 2019 - 3,090,497, Dec
2019 - 16,070,070) through purchases on the London Stock Exchange,
at a cost of GBP29.8m (June 2019 - GBP18.8m, Dec 2019 - GBP98.5m).
The shares repurchased during the period were cancelled, with none
held as treasury shares at the end of the reporting period. An
amount of GBP0.6m (June 2019 - GBP0.3m, Dec 2019 - GBP1.6m),
equivalent to the nominal value of the cancelled shares, has been
transferred to the capital redemption reserve. Costs of GBP1.6m
(June 2019 - GBPnil, Dec 2019 - GBP1.5m) associated with the
transfer to the Group of the repurchased shares and their
subsequent cancellation were charged to the profit and loss
reserve.
During the period. the Group had a contract in place with a
broker to purchase its own shares for cash in connection with the
GBP150m buyback announced on 27 February 2020. On 20 March 2020,
given the uncertainty around the Covid-19 pandemic, the Group
served notice to its brokers to terminate the buyback effective 24
March 2020.
B. Dividends
The following dividends were paid by the Group:
Six months Six months
to to Year to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBPm GBPm GBPm
---------------------------------------------- ---------- ----------- --------
Final dividend for the year ended 31 December
2019 of 0.0p per share
(2018 - 17.9p per share) - 74.2 74.2
Interim dividend for the six months ended 30
June 2019 of 8.9p per share
(2018 - 8.9p per share) - - 36.3
---------------------------------------------- ---------- ----------- --------
- 74.2 110.5
---------------------------------------------- ---------- ----------- --------
The Board previously recommended a final ordinary dividend for
the year ended 31 December 2019 of 17.9p per ordinary share (2018:
17.9p). The dividend was due to be paid on 19 June 2020. As
announced on 7 April 2020, given the impact of Covid-19, the Group
decided to preserve cash and no longer recommend the payment of the
previously announced final ordinary dividend.
The Directors have not proposed an interim dividend for
2020.
9 Notes to the statement of cash flows
A. Reconciliation of cash generated from operations
Six months Six months
to to
30 Jun 30 Jun
2020 2019
GBPm GBPm
----------------------------------------------------- ----------- -----------
Cash flows from operating activities
Operating (loss) / profit (169.3) 177.2
Exceptional items 197.8 2.6
Amortisation including non-exceptional impairment
of intangible assets 10.0 8.1
Depreciation of property, plant and equipment 19.5 22.6
Depreciation of right-of-use assets 27.8 32.7
Profit on disposal of property, plant and equipment (0.1) (1.5)
Gain on disposal of right-of-use assets (0.6) (0.5)
Share-based payments charge 2.9 3.6
Decrease in inventories 113.1 29.4
Decrease / (increase) in trade and other receivables 118.5 (88.4)
Decrease in trade and other payables (245.0) (24.5)
Increase in provisions 2.0 0.4
Pension contributions less the pension charge for
the period(1) 2.3 (0.7)
Decrease in interest in leased vehicles 8.0 2.0
Payments in respect of operating exceptional items (8.9) (2.5)
Other non-cash items 0.7 (1.1)
----------------------------------------------------- ----------- -----------
Cash generated from operations 78.7 159.4
----------------------------------------------------- ----------- -----------
B. Net debt reconciliation
Liabilities from financing activities Assets
----------------------------------------- ---------------------- ---------
Total
Borrowings Leases Sub-total Cash / bank overdrafts net debt
GBPm GBPm GBPm GBPm GBPm
---------------------------------------- --------------- ---------- ------------ ---------------------- ---------
Net debt at 1 January 2019 (448.9) (460.4) (909.3) 463.4 (445.9)
---------------------------------------- --------------- ---------- ------------ ---------------------- ---------
Cash flows 23.5 31.1 54.6 (99.1) (44.5)
Acquisitions (7.0) (11.1) (18.1) (16.0) (34.1)
Disposals - - - 10.4 10.4
New lease liabilities - (8.4) (8.4) - (8.4)
Transferred to liabilities held for sale - 22.1 22.1 - 22.1
Foreign exchange adjustments (0.4) (4.0) (4.4) (2.8) (7.2)
Net movement in fair value (0.1) - (0.1) - (0.1)
Net debt at 30 June 2019 (432.9) (430.7) (863.6) 355.9 (507.7)
---------------------------------------- --------------- ---------- ------------ ---------------------- ---------
Cash flows 173.9 34.6 208.5 (114.9) 93.6
Acquisitions (15.9) (1.4) (17.3) (25.2) (42.5)
Disposals - 41.8 41.8 220.0 261.8
New lease liabilities - (21.8) (21.8) - (21.8)
Transferred to liabilities held for sale - 8.0 8.0 - 8.0
Foreign exchange adjustments (1.4) 16.7 15.3 (56.6) (41.3)
Net debt at 1 January 2020 (276.3) (352.8) (629.1) 379.2 (249.9)
---------------------------------------- --------------- ---------- ------------ ---------------------- ---------
Cash flows (204.7) 27.8 (176.9) 158.8 (18.1)
Acquisitions - (0.6) (0.6) (27.1) (27.7)
Disposals - - - 17.9 17.9
New lease liabilities - (15.2) (15.2) - (15.2)
Foreign exchange adjustments 0.2 (10.6) (10.4) 41.2 30.8
---------------------------------------- --------------- ---------- ------------ ---------------------- ---------
Net debt at 30 June 2020 (480.8) (351.4) (832.2) 570.0 (262.2)
---------------------------------------- --------------- ---------- ------------ ---------------------- ---------
Net debt is analysed as follows:
As at As at As at
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBPm GBPm GBPm
-------------------------------------------------- -------- -------- -------
Cash and cash equivalents as per the balance
sheet 591.4 459.2 423.0
Borrowings - disclosed as current liabilities (122.9) (152.0) (50.1)
Add back: amounts treated as debt financing
(see below) 101.5 48.7 6.3
-------------------------------------------------- -------- -------- -------
Cash and cash equivalents as per the statement
of cash flows 570.0 355.9 379.2
Debt financing
Borrowings - disclosed as current liabilities
and treated as debt financing (see above) (101.5) (48.7) (6.3)
Borrowings - disclosed as non-current liabilities (379.3) (384.2) (270.0)
Lease liabilities (351.4) (430.7) (352.8)
-------------------------------------------------- -------- -------- -------
Debt financing (832.2) (863.6) (629.1)
-------------------------------------------------- -------- -------- -------
Net debt (262.2) (507.7) (249.9)
-------------------------------------------------- -------- -------- -------
Borrowings disclosed as current liabilities include bank
overdrafts held in cash pooling arrangements which have not been
offset in the consolidated statement of financial position. These
are included within cash and cash equivalents in the consolidated
statement of cash flows.
As at As at As at
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBPm GBPm GBPm
---------------------------------- ------- -------- -------
Cash at bank and cash equivalents 311.5 354.2 321.5
Short-term deposits 279.9 105.0 101.5
---------------------------------- ------- -------- -------
591.4 459.2 423.0
---------------------------------- ------- -------- -------
GBP91.1m (30 June 2019 - GBP88.4m; 31 December 2019 - GBP88.0m)
of cash and cash equivalents is held in Ethiopia where prior
approval is required to transfer funds abroad, and currency may not
be available locally to effect such transfers.
10 Acquisitions and disposals
On 24 March 2020, the Group acquired the Mercedes-Benz passenger
car and private vans distribution operations in Colombia from
Daimler Colombia S.A., for a total cash consideration of GBP27.1m.
A distribution agreement with a provisional fair value of GBP14.3m
has been recognised at the date of acquisition. The business was
acquired to strengthen the Group's partnership with
Daimler-Mercedes-Benz in South America and follows on from the
acquisition on 2 December 2019 of Autolider, the distributor of
certain Daimler brands such as Mercedes-Benz passenger and
commercial vehicles, Freightliner and Fuso in Uruguay and
Mercedes-Benz passenger and commercial vehicles in Ecuador. The
provisional goodwill arising on the acquisition represents
intangible assets that do not qualify for separate recognition and
the premium paid to strategically transform Inchcape's partnership
with Daimler to include distribution contracts after a 30-year
retail-only partnership. None of the goodwill is expected to be
deductible for tax purposes.
The acquired business contributed GBP8.5m revenue and GBP0.1m
operating loss before exceptional items to the Group's reported
figures between the date of acquisition and 30 June 2020.
During the period, the Group has continued to optimise its UK
retail portfolio and has disposed of four sites, generating
disposal proceeds of GBP8.1m. In Australia, two further sites in
our retail business were disposed of in February 2020, generating
disposal proceeds of GBP6.1m. The Group has also received GBP3.7m
of deferred consideration relating to the disposal of retail
operations in China in 2019.
In 2019 the Group acquired the full share capital of Krasta Auto
in Lithuania, an authorised dealer of BMW Group, from Modus Group
for a total cash consideration of GBP16.0m (net of cash acquired).
The business was acquired to strengthen the Group's partnership
with BMW in Northern Europe. A Distribution agreement with a fair
value of GBP19.0m was recognised at the date of acquisition. The
goodwill arising on the acquisition represents intangible assets
that do not qualify for separate recognition and the premium paid
to complete the Group's consolidation of BMW's representation
across the Baltic region. None of the goodwill is deductible for
tax purposes. During the period to June 2019, the Group made
progress optimising its retail portfolio and disposed of its Honda
and Mitsubishi retail operations in Australia generating disposal
proceeds of GBP10.4m.
11 Financial risk management
A. Financial risk factors
Exposure to financial risks comprising market risks (currency
risk and interest rate risk), funding and liquidity risk and
counterparty risk arises in the normal course of the Group's
business.
During the six months to 30 June 2020, the Group has continued
to apply the financial risk management process and policies as
detailed in the Group's principal risks and risk management process
included in the Annual Report and Accounts 2019. The condensed
consolidated interim financial statements do not include all
financial risk management information and disclosures required in
the annual financial statements and further details can be found in
the Annual Report and Accounts 2019.
B. Liquidity risk
As at 30 June 2020, the committed funding facilities of the
Group comprised a syndicated revolving credit facility of GBP700m
(31 December 2019 - GBP700m) and sterling Private Placement loan
notes totalling GBP210m (31 December 2019 - GBP210m). As at 30 June
2020, GBP170m of the GBP700m syndicated revolving credit facility
was drawn (31 December 2019 - GBP60m).
The committed bank facilities and Private Placement borrowings
are subject to the same interest cover covenant based on an
adjusted EBITA measure to interest on consolidated borrowings
measured on a trailing 12 month basis at June and December. The
Group is required to maintain a ratio of not less than three to one
and was compliant with this covenant as at 30 June 2020.
The Group applied for the Bank of England's Covid Corporate
Financing Facility ('CCFF') which was confirmed as successful on 23
April 2020. As at 30 June 2020, the Group had issued GBP100m under
this facility with an original repayment date of 31 December 2020.
The GBP100m issued under the CCFF as at 30 June 2020 was repaid on
17 July 2020.
C. Vehicle funding arrangements
The Group finances the purchase of new vehicles for sale and a
portion of used vehicle inventories using vehicle funding
facilities provided by various lenders including the captive
finance companies associated with brand partners. Such arrangements
generally have a maturity of 180 days or less and the Group is
normally required to repay amounts outstanding on the earlier of
the sale of the vehicles that have been funded under the facilities
or the stated maturity date. Amounts due under these vehicle
funding arrangements are included within trade and other payables
in the consolidated statement of financial position. Related cash
flows are reported within cash flows from operating activities in
the consolidated statement of cash flows. As at 30 June 2020, the
total amount outstanding under such arrangements was GBP1,269m (31
December 2019 - GBP1,368m).
Vehicle funding facilities are subject to LIBOR-based (or
similar) interest rates. The interest incurred under these
arrangements is included within finance costs in the consolidated
income statement and reported as stock holding interest (see note
5). Related cash flows are reported as interest paid in the
consolidated statement of cash flows.
D. Fair value measurements
In accordance with IFRS 13, disclosure is required for financial
instruments that are measured in the consolidated statement of
financial position at fair value. This requires disclosure of fair
value measurements by level for the following fair value
measurement hierarchy:
-- quoted prices in active markets (level 1);
-- inputs other than quoted prices that are observable for the
asset or liability, either directly or indirectly (level 2); or
-- inputs for the asset or liability that are not based on
observable market data (level 3).
The following table presents the Group's assets and liabilities
that are measured at fair value:
As at 30 June As at 31 December
2020 2019
--------------------- ---------------------
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ----- ------ ----- ------ ----- ------ ----- ------
Assets
Derivatives used for hedging - 39.6 - 39.6 - 16.2 - 16.2
Financial assets at fair value
through other comprehensive
income 0.5 - 6.2 6.7 0.5 - 6.6 7.1
------------------------------- ----- ------ ----- ------ ----- ------ ----- ------
0.5 39.6 6.2 46.3 0.5 16.2 6.6 23.3
------------------------------- ----- ------ ----- ------ ----- ------ ----- ------
Liabilities
Derivatives used for hedging - (41.5) - (41.5) - (27.4) - (27.4)
------------------------------- ----- ------ ----- ------ ----- ------ ----- ------
Level 1 represents the fair value of financial instruments that
are traded in active markets and is based on quoted market prices
at the end of the reporting period.
The fair value of financial instruments that are not traded in
an active market (level 2) is determined by using valuation
techniques which include the present value of estimated future cash
flows. These valuation techniques maximise the use of observable
market data where it is available and rely as little as possible on
entity specific estimates.
Level 3 assets primarily relate to a 15% equity interest in Hino
Motors Manufacturing Company SAS in Colombia.
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 and
prevailing forward interest rates at 30 June 2019.
The Group's derivative financial instruments comprise the
following:
Assets Liabilities
------------- ------------- ------------ -------------
As at As at As at As at
30 Jun 2020 31 Dec 2019 30 Jun 2020 31 Dec 2019
GBPm GBPm GBPm GBPm
------------------------- ------------- ------------- ------------ -------------
Forward foreign exchange
contracts 39.6 16.2 (41.5) (27.4)
------------------------- ------------- ------------- ------------ -------------
12 Assets AND LIABILITIES held for sale and disposal group
As at
31 Dec
As at 2019
30 Jun
2020 (restated)(1)
GBPm GBPm
--------------------------------------------------- --------- ---------------
Assets held for sale 10.1 10.4
Assets directly associated with the disposal group 34.7 139.0
--------------------------------------------------- --------- ---------------
Assets classified as held for sale and disposal
group 44.8 149.4
--------------------------------------------------- --------- ---------------
Liabilities directly associated with assets held
for sale (7.1) (106.1)
--------------------------------------------------- --------- ---------------
(1) Classification has been re-assessed to conform to the
current presentation
Assets held for sale relate to surplus properties within the UK,
Russia and Colombia which are actively marketed with a view to
sale.
At 30 June 2020, the disposal groups relate to the assets and
liabilities attributable to three retail centres in the UK and are
stated net of an impairment charge of GBP2.8m which was reported as
an exceptional charge in the income statement in 2019. These sites
are expected to be disposed of during the next 12 months.
13 other disclosures
A. Related parties
There have been no material changes to the principal
subsidiaries and joint ventures as listed in the Annual Report and
Accounts for the year ended 31 December 2019.
All related party transactions arise during the ordinary course
of business and are on an arm's length basis.
There were no material transactions or balances between the
Group and its key management personnel during the six months to 30
June 2020.
B. Contingencies
Franked Investment Income Group Litigation Order
Inchcape is a participant in an action in the United Kingdom
against HM Revenue and Customs (HMRC) in the Franked Investment
Income Group Litigation Order (FII GLO). There are 25 corporate
groups in the FII GLO. The action concerns the treatment for UK
corporate tax purposes of profits earned overseas and distributed
to the UK.
HMRC was previously granted leave to appeal a number of items at
the Supreme Court. The first of these hearings was in February 2020
and the judgment has not yet been handed down. The second hearing
is expected to occur in December 2020. Therefore, resolution of the
test case in the FII GLO remains incomplete. As at 30 June 2020, no
further receipts have been recognised in relation to the balance of
Inchcape's claim in the FII GLO due to the uncertainty of the
eventual outcome given the test case has not yet completed.
Takata airbag inflator recall
We note that a class action has been brought against our
subsidiary, Subaru (Australia) Pty Limited, in connection with the
global Takata airbag inflator recall. Subaru (Australia) Pty
Limited is one of a number of named defendants and is, along with
others, taking steps to defend the action. This does not represent
a contingent liability as any potential cash outflow cannot be
reliably measured and is also considered remote.
14 Events after the reporting period
In July 2020, JLR notified the Group of its decision to appoint
Inchcape as distributor for JLR in Poland, bolstering its brand
presence in Europe.
15 Alternative Performance Measures
The Group assesses its performance using a variety of
alternative performance measures which are not defined under
International Financial Reporting Standards. These provide insight
into how the Board and Executive Committee monitor the Group's
strategic and financial performance, and provide useful information
on the underlying trends, performance and position of the
Group.
Adjusted measures
The Group's income statement and segmental analysis identify
separately adjusted measures and exceptional items. These adjusted
measures reflect adjustments to IFRS measures. The directors
consider these 'adjusted' measures to be an informative additional
measure of the ongoing trading performance of the Group. Adjusted
results are stated before exceptional items.
Exceptional items can include gains or losses on the disposal of
businesses, restructuring of businesses, acquisition costs, asset
impairments and the tax effects of these items. Exceptional items
excluded from adjusted results can evolve from one financial period
to the next depending on the nature of exceptional items or one-off
type activities.
Constant currency
Some comparative performance measures are translated at constant
exchange rates, called 'constant currency' measures. This restates
the prior period results at a common exchange rate to the current
period and therefore excludes the impact of changes in exchange
rates used for translation.
Performance Definition Why we measure it
Measure
------------------- -------------------------------------- -----------------------------------
Operating profit Operating profit before A key metric of the Group's
before exceptional exceptional items. Refer underlying business performance.
items to the consolidated income
statement.
Operating margin Operating profit (before A key metric of operational
exceptional items) divided efficiency, ensuring that
by revenue. we are leveraging global scale
to translate sales growth
to profit.
Profit before Represents the profit made A key driver of delivering
tax & after operating and interest sustainable and growing earnings
exceptional expense excluding the impact to shareholders.
Items of exceptional items and
before tax is charged. Refer
to consolidation income
statement.
Exceptional Items that are charged or The separate reporting of
items credited in the consolidated exceptional items helps provide
income statement which are additional useful information
material and non-recurring regarding the Group's underlying
in nature. Refer to note business performance and is
3. consistent with the way that
financial performance is measured
by the Board and the Executive
Committee.
Free cash flow Net cash flows from operating A key driver of the Group's
activities, before exceptional ability to 'Invest to Accelerate
cash flows, less normalised Growth' and to make distributions
net capital expenditure to shareholders.
and dividends paid to non-controlling
interests. Refer to page
7.
Return on capital Operating profit (before A key measure of Ignite (Invest
employed (ROCE) exceptional items) divided to Accelerate Growth), ROCE
by the average of opening is a measure of the Group's
and closing capital employed, ability to drive better returns
where capital employed is for investors on the capital
defined as net assets less we invest.
net funds. Refer to page
7.
------------------- -------------------------------------- -----------------------------------
Net funds / Cash and cash equivalents A measure of the Group's net
(debt) less borrowings and lease indebtedness that provides
liabilities adjusted for an indicator of the overall
the fair value of derivatives balance sheet strength.
that hedge interest rate
or currency risk on borrowings.
Refer to page 22.
------------------- -------------------------------------- -----------------------------------
Net cash Cash and cash equivalents A measure of the Group's net
less borrowings adjusted indebtedness that provides
for the fair value of derivatives an indicator of the overall
that hedge interest rate balance sheet strength and
or currency risk on borrowings is widely used by external
and before the incremental parties.
impact of IFRS16 lease liabilities.
Refer to page 22.
------------------- -------------------------------------- -----------------------------------
Net capital Cash outflows from the purchase A measure of the net amount
expenditure of property, plant, equipment invested in operational facilities
and intangible assets less in the period.
the proceeds from the disposal
of property, plant, equipment
and intangible assets. Refer
to page 7.
------------------- -------------------------------------- -----------------------------------
Constant currency Presentation of reported A measure of underlying business
% change results compared to prior performance which excludes
period translated using the impact of changes in exchange
constant rates of exchange. rates used for translation.
------------------- -------------------------------------- -----------------------------------
Organic growth Organic growth is defined A measure of underlying business
as sales growth in operations performance which excludes
that have been open for the impact of acquisition
at least a year at constant and disposals in the period.
foreign exchange rate.
------------------- -------------------------------------- -----------------------------------
Independent Review Report to Inchcape plc
We have been engaged by Inchcape plc ("the company") to review
the condensed consolidated interim financial statements for the six
months ended 30 June 2020 which comprise the consolidated income
statement, the consolidated statement of comprehensive income, the
consolidated statement of financial position, the consolidated
statement of changes in equity, the consolidated statement of cash
flows and related notes 1 to 15. We have read the other information
contained in the interim financial report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed interim financial
statements.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the directors. The directors are responsible for
preparing the interim financial report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed consolidated interim financial
statements included in this interim financial report has been
prepared in accordance with International Accounting Standard 34
"Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed consolidated interim financial statements in the
interim financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated financial
statements in the interim financial report for the six months ended
30 June 2020 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
USE OF OUR REPORT
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, England
29 July 2020
Statement of Directors' Responsibilities
Introduction
The Directors confirm that the condensed consolidated interim
financial statements in the Interim Report have been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting' as adopted by the European Union and that the
Interim Report includes a fair review of the information required
by Disclosure and Transparency Rules 4.2.7R and 4.2.8R, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed consolidated
interim financial statements;
-- a description of the principal risks and uncertainties for
the remaining six months of the financial year; and
-- material related party transactions in the first six months
and any material changes in the related party transactions
described in the last Annual Report.
The Directors and positions held during the period were as
published in the Annual Report and Accounts 2019. A list of current
Directors is maintained on the Inchcape plc website
(www.inchcape.com).
On behalf of the Board
Duncan Tait
29 July 2020
Group Chief Executive
[1] Finance & Insurance
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR PPUWPMUPUGBB
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Inchcape (LSE:INCH)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024
