TIDMINCH
RNS Number : 3331H
Inchcape PLC
27 July 2023
Inchcape plc, the leading global automotive distributor,
announces its interim results for the six months to 30 June
2023
A strong performance, driving further positive momentum
A robust set of results in H1 2023, with excellent revenue and profit
-- growth:
Revenue up 45% to GBP5.6bn, supported by contribution from Derco
o and 13% organic revenue growth (1)
Adjusted PBT (2) up 35% to GBP249m, with a strong operating profit
performance more than offsetting higher interest costs during the
o period. Statutory PBT of GBP204m, reflecting adjusting items
Excellent performance in Distribution, with organic revenue growth
o (1) of 17%
-- Continued strategic progress, driving further scale and diversification:
11 distribution deals & acquisitions signed during H1 2023, including
o global strategic agreement with Great Wall Motors
Significant traction in APAC, with acquisitions and contract wins
o in the Philippines, Indonesia, New Zealand, and Thailand
Outstanding commercial momentum in the Americas, with several new
distribution deals signed, including Subaru in Bolivia and Ecuador,
Mercedes-Benz in Honduras, Geely in Guatemala and El Salvador and
o XCMG (4) in Colombia
-- Derco being successfully integrated:
o Operating margins on track
On track to deliver majority of annualised cost synergies of at
o least GBP40m by the end of FY 2024, with 30% in FY 2023
Substantial progress achieved in normalising Derco's working capital
o position
-- Inchcape remains extremely well positioned for growth:
Supported by our market leadership, resilient business model, diversified
o geographic footprint and digital-led approach
Based on prevailing market conditions, full year results expected
to be towards the top end of the range of published market consensus
o (5)
Duncan Tait, Group CEO, commented:
"Inchcape has produced another excellent performance during the
first half of 2023, driven by growth from acquisitions and by
consistently strong organic growth. In particular, the acqusition
of Derco has transformed our market position in the Americas and is
already having a positive impact on the Group. This first half
performance highlights Inchcape's continued commercial momentum,
supported by our global scale and long-standing OEM relationships,
underpinned by a highly differentiated technology platform. Our
business in the Americas is performing well, while we are producing
strong momentum across the APAC region. In Europe, our business
also performed well, despite challenges in certain markets.
Inchcape continues to build its position as the global leader in
automotive distribution thanks to the combination of our people,
who bring industry-leading expertise, our diversified geographic
footprint and our digital and data capabilities. We are uniquely
placed to deliver outstanding performance for our OEM partners and
drive consolidation in a highly fragmented market, supporting
sustainable growth and value for our stakeholders. As a result, we
remain confident in our medium-term outlook."
H1 2023 H1 2022 % change % change % change
reported constant organic(1)
FX(2)
=================================== ========= ========= ========= ========= ===========
Key financials (continuing
operations)
Revenue GBP5,628m GBP3,890m +45% +42% +13%
Adjusted Operating Profit(2) GBP327m GBP204m +61% +56%
Adjusted Operating Margin(2) 5.8% 5.2% +60bps +50bps
Adjusted Profit Before Tax(2) GBP249m GBP184m +35% +32%
Adjusted Basic EPS(2) 42.2p 35.0p +21%
Dividend Per Share 9.6p 7.5p +28%
Free Cash Flow GBP202m GBP224m (10)%
Statutory financials
Operating Profit (continuing
operations) GBP306m GBP207m +48%
Profit Before Tax (continuing
operations) GBP204m GBP188m +9%
Total profit / (loss) for the
period(3) GBP139m GBP(100)m
Basic EPS (continuing operations) 32.1p 36.2p (11)%
=================================== ========= ========= ========= ========= ===========
1. Organic growth is defined as revenue growth in operations
that have been open for at least a year at constant foreign
exchange rates
2. These measures are Alternative Performance Measures, see 'Our
financial metrics'
3. Including discontinued operations
4. XCMG: Xuzhou Construction Machinery Co. - one of China's
largest heavy machinery manufacturing companies and the third
largest in the world
5. The current range of 2023 Adjusted PBT analysts' consensus
estimates is between GBP470m and GBP506m, as at 12 May 2023
Market abuse regulation statement
This announcement contains inside information.
Results presentation today
A presentation for analysts and investors will be held today,
Thursday 27(th) July 2023, at 08:30 (UK time). The presentation
will be held at the London Stock Exchange, 10 Paternoster Square,
London EC4M 7LS.
To register for the webcast of the event please follow this link
, or to register for conference call access please follow this link
.
A replay of the presentation will be available via the Company's
website, www.inchcape.com later today.
Financial calendar
Ex-dividend date for 2023 interim
dividend 3(rd) August 2023
Record date 4(th) August 2023
Last date election 10(th) August 2023
Payment date 1(st) September 2023
Q3 trading update 26(th) October 2023
Contacts
Inchcape plc (investor
enquiries):
+44 (0)7825 189
Rob Gurner 088 investors@inchcape.com
Krishma Arora
Brunswick Group (media
enquiries):
Kate Holgate / Helen +44 (0)20 7404
Smith 5959 inchcape@brunswickgroup.com
About Inchcape
Inchcape is the leading global automotive distributor, with
operations across six continents.
By combining our in-market expertise with our unique technology
and advanced data analytics, we create innovative customer
experiences that deliver outstanding performance for our partners -
building stronger automotive brands and creating sustainable
growth.
Our distribution platform connects the products of mobility
companies with customers, and our responsibilities span product
planning and pricing, import and logistics, brand and marketing to
operating digital sales, managing physical sales and aftermarket
service channels.
Delivering for our partners, our customers and our people - so
they can realise their ambitions in the new world of mobility.
The Group is headquartered in London and employs over 20,000
people globally.
www.inchcape.com
Our results are stated at actual exchange rates. However, to
enhance comparability we also present year-on-year changes in sales
and adjusted operating profit in constant currency, thereby
isolating the impact of translational exchange rate effects. Unless
otherwise stated, changes are expressed in constant currency and
figures are stated before adjusting items. Following the disposal
of our remaining Retail-only business in Russia (Moscow), all
figures quoted in the 'Operational' and 'Operating and financial'
reviews are on a 'continuing operations' basis and therefore
exclude any contribution from Russia in 2022.
Operational review
Key performance indicators
% change
% change constant % change
H1 2023 H1 2022 reported FX(1) organic(2)
Revenue GBP5.6bn GBP3.9bn +45% +42% +13%
Adjusted Operating Profit(1) GBP327m GBP204m +61% +56%
Adjusted Operating Margin(1) 5.8% 5.2% +60bps +50bps
Adjusted Profit Before Tax(1) GBP249m GBP184m +35%
Free Cash Flow(1) GBP202m GBP224m (10)%
Return on Capital Employed(1) 30% 35% (480)bps
1. See note 16 for definition of Key Performance Indicators and
other Alternative Performance Measures.
2. Organic growth is defined as revenue growth in operations
that have been open for at least a year at constant foreign
exchange rates
H1 2023 results - performance review
The Group delivered an excellent operational performance in H1
2023, driven by organic revenue growth, and growth from
acquisitions, with strong margins well ahead of historic levels, as
the profile of the business continues to shift towards
Distribution. This performance was supported by volume growth, as
well as pricing, in new and used vehicles in each region of our
Distribution business, and a robust performance from our Retail
business. Our performance was supported by an easing supply
environment.
Group revenue of GBP5.6bn rose 45% year-on-year reported and 42%
in constant currency, supported by organic growth and the
acquisition of Derco. On an organic basis, excluding currency
effects and net M&A, revenue increased by 13%, with strong
performances across our diversified geographic footprint.
The Group delivered an adjusted operating profit of GBP327m, up
61% year-on-year reported and 56% in constant currency, reflecting
organic topline growth, the contribution of Derco and enhanced
margins.
Adjusted profit before tax (PBT) of GBP249m (1H22: GBP184m) as a
result of the improvement in revenue and operating profit.
This profit performance more than offsets an increase in adjus
ted net interest expense to GBP79m (1H22: GBP20m). This increase is
due to the shift in the Group's capital structure from Net Cash to
a Net Debt profile over the last 12 months, following the
transformational acquisition of Derco. The increase in adjusted net
interest expense was driven by this change in Net Debt profile,
increasing interest rate environment and inflated further in H1
2023 from transitional costs and acquired debt in Derco. As the
Group's capital structure continues to transition, with reduced
exposure to floating interest rates following the successful issue
of a 5 year GBP350m bond, at a 6.5% fixed interest rate coupon
during the period, we expect adjusted net interest expense to
moderate in H2 2023.
During the period pre-tax adjusting items amounted to an expense
of GBP45m (1H22: GBP3m credit). As expected, this was primarily
driven by acquisition and integration costs (GBP21m), the finance
component of the deferred dividend payment (GBP10m) and non-cash,
non-operational losses arising from the adoption of hyperinflation
accounting relating to Ethiopia (GBP14m).
The highly cash-generative nature of our business model drove
strong free cash flow generation of GBP202m (1H22: GBP224m),
representing a conversion of adjusted operating profit of 62%
(1H22: 110%). Net interest payments in the period increased to
GBP62m (1H22: GBP12m), excluding payment for leases and currency in
both periods, for the reasons outlined above. There was a net
working capital inflow of GBP35m (1H22: inflow GBP80m) driven by an
alignment of supplier trading terms (in particular around inventory
financing) and a c.20% reduction in excess inventory at Derco,
offset by a normalising of working capital elsewhere across the
Group, as previously highlighted. Outside of free cash flow, there
was a payment of a pre-completion dividend to the Del Rio family
and the settlement of a liability to acquire the interests of
minority shareholders of GBP212m. Ordinary dividend payments were
GBP88m.
The Group closed the period with adjusted net debt of GBP564m
(excluding lease liabilities), compared to adjusted net debt of
GBP378m at the end of December 2022. On an IFRS 16 basis (including
lease liabilities), the Group ended the period with net debt of
GBP1,044m (December 2022: net debt of GBP877m). Group leverage on a
proforma basis was approximately 0.8x at 30 June 2023. By the end
of FY 2023, Group leverage is expected to reduce, benefiting from a
strong profit and cash flow performance during H2 2023, partially
offset by acquisitions and dividend cash outflows.
In June 2023, the Group successfully issued a GBP350m public
bond, with 6.5% coupon and a five-year maturity. The proceeds from
the bond were used to re-finance the bridge facility put in place
to fund the acquisition of Derco, the initial term for which was
due to expire at the end of FY 2023.
Return on capital employed over the period was 30%, compared to
35% for the equivalent period last year.
Q2 2023
Group revenue for the second quarter was GBP2.9bn, up 40%
reported, reflecting the contribution of Derco and organic growth
of 13%, in line with Q1 2023. In Distribution, revenue increased
18% organically, compared to +15% in Q1. The sequential step-up in
organic growth was driven strong performances in each region. In
Retail, revenue increased 1% organically, compared to +8% in Q1
2023, as a result of the growing impact of the agency model.
Update on Derco - strong progress made during H1 2023
Our business in the Americas region remains resilient and we are
confident about the medium to long-term outlook for our business in
the region, despite a challenging environment in certain markets.
Our confidence is supported by the high quality of the Derco
business, with its leading market positions and exciting growth
prospects in a region with high GDP growth and low motorisation
rates.
Derco is a transformational acquisition for Inchcape - it has
significantly in creased our market leadership position in the
Americas and is already helping to develop our OEM relationships in
the region, as well as driving major strategic benefits globally,
for example helping to deliver the global strategic agreement with
Great Wall Motors. With this in mind, we expect Derco to accelerate
the Group's growth profile and to drive margin accretion over the
medium and long term.
During H1 2023, Derco's revenue and profit contribution was in
line with our expectations, with successful delivery of operating
margin at the top end of the 5% -7% range of a typical distribution
business, pre-synergies, as anticipated. We made excellent progress
in integrating the business, maintaining all OEM relationships,
retaining key personnel,and successfully initiating the integration
of Inchcape's tools and systems across the Derco business.
Our integration progress included the initial alignment of
Derco's inventory management practices and supplier terms with
those employed across the Group. We achieved substantial traction
in normalising Derco's working capital position during the period,
driven by the alignment of trading terms with certain OEM's. We
also made good headway in reducing Derco's excess inventory, by
around 20%, during the period. In addition, adjustments to the
quantity of inventory in the supply chain were made to ensure we
achieve a normalised level of inventory by the end of FY 2023, with
most of the benefit expected to impact H2 2023.
As a result of the progress made in each of these areas, we
continue to expect to deliver a GBP200m working capital inflow in
Derco by the end of 2023, which will be partially offset by a
working capital outflow across the rest of the Group, as previously
outlined.
We remain on track to deliver the majority of the annualised
cost synergies of at least GBP40m by the end of FY 2024, with
around 30% of these cost synergies to be delivered during FY 2023.
As previously stated, one-time costs of GBP60m will be invested in
driving these synergies. We also expect to deliver substantial
revenue synergies from the integration of Derco, through mutually
developing our OEM relationships, driving improvements in
aftersales processes at Derco and through implementing a
market-leading approach to finance and insurance products for
customers.
In line with our previous guidance, we expect Derco to be 15+%
accretive to Inchcape's earnings per share (excluding
implementation costs) in FY 2023 and 20+% accretive in FY 2024.
From the announcement of our FY 2023 results, Derco's
performance will be reported within our disclosure for the Americas
region.
Strategic priorities
Our Accelerate strategy is focused on two growth opportunities:
Distribution Excellence and Vehicle Lifecycle Services, supported
by our Responsible Business plan: 'Driving What Matters'.
Developing our approach to Responsible Business is central to
our future plans. It will bring Inchcape closer to our customers,
ensure we further strengthen our position as a trusted partner to
OEMs and help us recruit, engage and retain the best talent. All of
these elements are fundamental to the successful delivery of our
Accelerate strategy and to ensuring Inchcape's sustainability for
the long-term. Driving What Matters has four key focus areas:
Planet, People, Places and Practices. We made good progress in each
of these areas in H1 2023:
Planet : following our progress in reducing our Scope 1 and Scope
2 emissions in FY 2022, we have continued to identify ways to reduce
our controllable emissions in H1 2023, with an increasing number of
our markets moving onto renewable energy tariffs and further on-site
-- renewable energy projects being executed and commissioned;
People : the first phase of our Inclusive Leadership Programme was
rolled out to 600 leaders across the business. In addition, a further
45 women completed the Women into Leadership Programme. We also developed
-- a Global Health & Wellbeing approach and framework during the period;
Places : we delivered 11 programmes across each of our regions to
improve road and driver safety, including seven "Mobility for Everyone,
Everywhere" programmes to improve mobility for people with disabilities;
-- and
Practices : Inchcape's Code of Conduct and Whistleblowing SpeakUp
service was launched to more than 4,000 new Derco colleagues. In addition,
our new Business Continuity Planning policy was approved, with an
-- extensive roll-out planned for H2 2023.
(1) Distribution Excellence: extending our leadership in
automotive distribution (new vehicles and original parts)
In the Group's core operations, we create the vital link between
the OEM and the end-customer, with our full-spectrum distribution
capability. This includes deciding which vehicle models and parts
to order, developing the pricing structure in a market, arranging
the importation of new vehicles and parts, building the brand
including marketing and the provision of finance and insurance
products, the creation and management of the digital and physical
network, in-market distribution of new vehicles and parts for the
aftermarket, and finally, when we choose to operate dealerships
ourselves, we perform retail and aftersales services.
During H1 2023, we have made further progress in this area:
-- Digital, Data & Analytics : we have continued to invest
in
our digital capabilities, to further differentiate
Inchcape
from our peers and to drive a cutting edge capability for
our
OEM partners. We have developed and enhanced DXP, our
customer
experience platform, with improved functionality,
launching
it in a number of key markets in APAC, where we are
already
seeing enhanced customer engagement results. DAP, our
data analytics
platform, now operates 150 machine-learning models, from
a standing
start in FY 2021.
-- Consolidating a fragmented global market: in line with
our
focus on markets with high growth potential, we further
expanded
our distribution footprint by acquiring several
independent
distribution businesses, across APAC in particular:
-- CATS, expanding our APAC footprint with entry into the
Philippines
with seven brands
Mercedes-Benz distribution business in Indonesia, further
building
-- our presence in that market
-- Great Lake Motor Distributors, which distributes SAIC's
Maxus
brand in New Zealand
-- New contract wins: another growth lever for us is being
awarded
a contract by an OEM, giving us exclusive responsibility
for
its brand (driving new vehicle market share and parts
revenue)
in a market. We won several such contracts during H1
2023, including
a global strategic contract with Great Wall Motors, which
included
a new market for our partnership in Indonesia, and XCMG,
one
of China's largest heavy machinery manufacturing
companies,
in Colombia.
-- Expanding OEM relationships: one of the key barriers to
entry
in automotive distribution is relationships with OEMs -
Inchcape
takes pride in its long track-record of distribution
contract
retention. In H1 2023, we signed distribution agreements
with
a number of existing partners, including Mercedes-Benz in
Honduras,
a new market for Inchcape, Geely in Guatemala and El
Salvador
and Subaru in Bolivia and Ecuador. Our increased scale
and market
leadership, supported by the acquisition of Derco, is set
to
drive further deal flow in the future.
(2) Vehicle Lifecycle Services: capturing more lifetime value -
of customers and vehicles
We see significant opportunity for the Group to unlock value in
the subsequent phases of the vehicle's lifecycle, through new and
complementary products and services. Over the past 18 months we
have made solid progress in Vehicle Lifecycle Services:
-- bravoauto: our digital-first, multi-brand, B2C used car platform,
has been further rolled out across our business and is now live
in 12 markets across Europe, APAC and the Americas. While the
business is still developing, the initial results are encouraging.
We remain on track with our ambition to double our used vehicle
volumes by 2026.
-- Digital Parts Platform: the pilot of our digital parts platform
in Australia, aimed at modernising the aftermarket-parts industry,
has seen some initial success and we plan to roll it out in
other markets in APAC over the next 18 months.
Capital allocation
Supported by a strong balance sheet, our capital allocation
policy remains unchanged: 1) to invest in the business to strongly
position it for the future; 2) to make dividend payments; 3) to
conduct value-accretive M&A; and, in the absence of inorganic
opportunities, 4) consider share buybacks.
Our dividend policy targets a 40% annual payout ratio of basic
adjusted EPS, and as such based on the 2022 dividend of 28.8p, the
Board has declared an interim dividend of 9.6p (1H22: 7.5p).
Investment proposition
Inchcape is the leading global automotive distributor. Combining
our exposure to higher growth markets and diversified revenue
streams, with our market leadership positions and our history of
market outperformance, we expect to deliver strong organic growth.
By leveraging our scale, operational improvements and focus on
higher margin activities, we can drive margin expansion. The highly
fragmented nature of distribution, and our strong financial
position, also provides significant consolidation
opportunities.
In addition to the attractive growth prospects, the business is
asset-light with excellent financial characteristics: high returns
and cash conversion. Combined with a disciplined approach to
capital allocation we believe these should enable the Group to
maintain its long track record of delivering significant value
through organic growth, consolidation and attractive shareholder
returns .
Outlook
Inchcape remains extremely well positioned for growth, supported
by the Group's global scale and market leadership, resilient
business model, our digital-led approach and the excellent progress
already made on the integration of Derco.
Across our diversified geographic footprint, our business in the
Americas is performing well, remains resilient and has been further
strengthened by the acquisition of Derco, while we are producing
strong commercial and operational momentum across the APAC region.
Our business in Europe also performed well in H1 2023, but consumer
demand remains weak in a number of markets across the region.
Against this backdrop, and based on prevailing market
conditions, we expect full year results for FY 2023 to be towards
the top end of the range of published market consensus(1) .
1. The current range of 2023 Adjusted PBT analysts' consensus
estimates is between GBP470m and GBP506m, as at 12 May 2023
Operating and financial review
Distribution
The Distribution segment reported revenue of GBP4.4bn,
increasing 62% year-on-year on a reported basis, reflecting the
contribution of Derco as well as organic growth, which was up 17%.
The combination of an excellent topline performance and higher
margins drove adjusted operating profit(1) of GBP302m (1H22:
GBP174m). Adjusted operating margin(1) rose 50bps to 6.8%.
H1 2023 H1 2022
---------- ---------- ---------
% change % change
% change constant organic
GBPm GBPm reported FX (2)
-------- ------------- ---------- ---------- ---------
Revenue
APAC 1,255.2 1,074.1 +17% +14% +15%
Europe & Africa 1,258.8 1,011.6 +24% +20% +20%
Americas 1,910.5 653.5 +192% +186% +16%
Total Distribution 4,424.5 2,739.2 +62% +57% +17%
Adjusted operating profit(1)
APAC 89.6 71.6 +25% +22%
Europe & Africa 69.8 47.2 +48% +54%
Americas 143.0 54.9 +160% +138%
Total Distribution 302.4 173.7 +74% +69%
Adjusted operating margin(1)
APAC 7.1% 6.7% +40bps +40bps
Europe & Africa 5.5% 4.7% +80bps +120bps
Americas 7.5% 8.4% (90)bps (150)bps
Total Distribution 6.8% 6.3% +50bps +50bps
------------------------------ -------- ------------- ---------- ---------- ---------
APAC revenue was up 17% year-on-year with adjusted operating
profit(1) rising 25%. Adjusted operating margin was stable at 7.1%,
with market mix tailwinds expected to be partially offset by
strategic investments in the short term. During the period, there
were particularly strong performances from Brunei, Thailand and
Indonesia. Hong Kong is showing some early signs of market
recovery, highlighted by a growing order bank and improving demand
for premium passenger vehicles. In Singapore, the market remains
impacted by a low level of vehicle licence availability, down
significantly from peak levels, with licence availability expected
to improve in 2024. In Australasia, performance has been strong for
new vehicles, with market share gains achieved, supported by an
improving supply situation and resilient demand. We signed deals to
acquire three businesses across APAC, all of which are expected to
complete during H2 2023. These acquisitions, which are expected to
contribute a combined annualised revenue of around GBP400m, are
Mercedes-Benz's distribution operations in Indonesia, CATS, a
leading distributor of luxury vehicles in the Philippines and Great
Lake Motor Distributors, which distributes SAIC's Maxus brand in
New Zealand.
Europe & Africa revenue was up 24% year-on-year with
adjusted operating profit(1) rising 48%, with elevated levels of
adjusted operating margin at 5.5%. In Europe, accelerated supply
helped to drive this top line growth and margin performance, while
new consumer demand was weak in a number of markets. Our relatively
high order bank is expected to moderate, with margins expected to
normalise. Africa continues to be an exciting long term growth
prospect for the Group and has performed in line with the market,
particularly in the aftermarket.
Americas revenue grew 192% year-on-year, as a result of the
contribution from Derco and a strong organic growth performance of
16%. Adjusted operating profit(1) grew 160%, with adjusted
operating margin of 7.5%, ahead of the more normal levels of 6.7%
delivered in H2 2022. The region's future margin performance will
be underpinned by the delivery of cost synergies at Derco and from
a highly diversified geographic footprint across the region, we
benefited from growth in 10 of the 12 markets where we have a
presence. Our businesses in Peru, Bolivia, Uruguay, Ecuador, across
Central America and in the Caribbean performed particularly well,
with market share gains in a number of these markets. Industry
volumes in Chile and Colombia were down on the prior year but our
businesses in those markets remain resilient, with our market share
growing in Chile and remaining stable in Colombia. We remain
confident about our position in the Americas over the medium to
long term, given the relatively high GDP growth and low
motorisation rates being exhibited in the region.
Retail
Our Retail segment includes the results of our UK and Poland
franchise dealerships and our bravoauto business in these
markets.
From the start of 2023, in the UK, certain manufacturers changed
the way they sell new vehicles (choosing to sell directly to
consumers via dealer groups), and as such the Group recognises a
handling-fee (not the selling price of the vehicle). This
transition to an "agency model" has adversely impacted reported
revenue growth but supported margins.
H1 2023 H1 2022
---------- ---------- ---------
% change
% change constant % change
GBPm GBPm reported FX organic
-------- -------- ---------- ---------- ---------
Revenue
Total Retail 1,203.0 1,151.2 +5% +4% +4%
Adjusted operating profit(1)
Total Retail 24.3 30.3 (20)% (20)%
Adjusted operating margin(1)
Total Retail 2.0% 2.6% (60)bps (60)bps
------------------------------ -------- -------- ---------- ---------- ---------
Retail delivered organic revenue growth of 4% and adjusted
operating profit(1) declined (20)%, resulting in an adjusted
operating margin of 2.0%. Excluding the impact of the "agency
model", organic revenue growth is estimated to have been 17% and
adjusted operating margin is estimated to have been 0.2% lower. The
reduction in operating profit reflects margin normalisation as we
lap the peak of vehicle pricing in the prior year driven by supply
shortages, as well as on-going investment in the development of
bravoauto, which continued to support growth in our used car
business. Volume growth in new vehicles was supported by improving
vehicle supply.
1: Operating profit and operating margin stated before adjusting
items
2. Organic growth is defined as revenue growth in operations
that have been open for at least a year at constant foreign
exchange rates
Value drivers
We provide disclosure on the value drivers behind our gross
profit. This includes:
-- Gross profit attributable to Vehicles: New Vehicles, Used Vehicles
and the associated income from finance and insurance products;
and
-- Gross profit attributable to Aftersales: Service and Parts
H1 2023 H1 2022
------------------ ---------------------
GBPm GBPm % change reported % change constant FX
-------- ------------- ------------------ ---------------------
Gross Profit
Vehicles 662.3 412.5 61% 56%
Aftersales 303.0 202.8 49% 44%
Total 965.3 615.3 57% 52%
-------------- -------- ------------- ------------------ ---------------------
We operate across the automotive value chain, and during the
year we generated 31% of gross profit through Aftersales (1H22:
33%). This reflects greater gross profit contribution from vehicles
as volumes improved and higher vehicle gross margins.
Other financial items
Adjusting items: In the first half of the year, we have reported
a pre-tax charge of GBP45m (1H22: GBP3m credit) in respect of
adjusting items. This was primarily driven by one-off costs related
to acquisition and integration costs (GBP21m), non-cash,
non-operational losses arising from the adoption of hyperinflation
accounting relating to Ethiopia (GBP14m), and a component of the
deferred dividend payment for the Derco acquisition recognised as a
financing cost (GBP10m). Further details can be found in note 3 of
the interim financial statements.
Net financing costs: Reported net finance costs were GBP103m
(1H22: GBP20m). This includes approximately GBP24m of adjusting
items relating to hyperinflationary accounting in Ethiopia and
interest on a component of the deferred dividend payment for the
Derco acquisition recognised as a financing cost. Adjusted net
finance costs increased to GBP79m (1H22: GBP20m) which was driven
by higher interest rates, a phased reduction in acquired local debt
and transitional costs relating to the Derco acquisition.
Tax: The effective tax rate on adjusted profit is 27.2% (1H22:
26.1%), within the Group's guidance range of between 27% and 28%,
and on a statutory basis is 31.7% (1H22: 25.0%). The increase in
the effective tax rate on adjusted profit includes the impact of
unrecognised deferred tax on losses across the group, principally
in the UK and Americas. The effective tax rate on a statutory basis
for the period is not comparable to the same period in FY22 since
the current period includes the impact of IAS 29 Financial
Reporting for Hyperinflationary Economies in relation to the
financial position of Ethiopia.
Non-controlling interests: Profits attributable to our
non-controlling interests increased to GBP7m (1H22: GBP4m). The
Group's non-controlling interests comprise a 40% holding in PT JLM
Auto Indonesia, a 33% share in UAB Vitvela in Lithuania, a 30%
share in NBT Brunei, a 30% share in Inchcape JLR Europe, a 30%
share in Ditec in Chile, a 10% share of Subaru Australia and 6% of
the Motor Engineering Company of Ethiopia.
Dividend: The Board has declared an interim dividend of 9.6p per
ordinary share which will be paid on 1 September 2023 to
shareholders on the register at close of business on 4 August 2023.
The Dividend Reinvestment Plan is available to ordinary
shareholders and the final date for receipt of elections to
participate is 10 August 2023.
Capital expenditure: During the first half of 2023, the Group
incurred net capital expenditure of GBP35m (1H22: GBP18m),
consisting of GBP36m of capital expenditure (1H22: GBP26m) and
GBP1m of proceeds from the sale of property (1H22: GBP8m). In 2023,
we continue to expect net capital expenditure of less than 1% of
Group sales.
Financing: As at 30 June 2023, the funding structure of the
Group is comprised of a committed syndicated revolving credit
facility of GBP700m (1H22: GBP700m), sterling Private Placement
Loan Notes totalling GBP210m (2022: GBP210m), a 5 year bond of
GBP350m, at a fixed coupon of 6.5%, replacing the bridge facility
of GBP350m (2022: GBP350m), a term facility of GBP250m (2022:
GBP250m) and Derco debt on acquisition GBP52m (2022: GBP617m). As
at 30 June 2023 the syndicated revolving credit facility was drawn
GBP120m (2022: undrawn). For our corporate debt, excluding our
Revolving Credit Facility, around 70% is at fixed rates and over
50% has a maturity of at least 3 years. The Group remains well
within its debt covenants.
Pensions: As at 30 June 2023, the IAS 19 net post-retirement
surplus was GBP77m (2022: GBP93m), with the decrease driven largely
by lower than expected returns on scheme assets partially offset by
movements in corporate bond yields affecting the discount rate
assumption used to determine the value of scheme liabilities. In
line with the funding programme agreed with the Trustees, the Group
did not make any additional cash contributions to the UK pension
schemes (2022: GBP2m).
Acquisitions: In H1 2023 the Group continued to further expand
its distribution footprint, signing 3 acquisitions during the
period. These deals are expected to complete during H2 2023.
Six months Six months
to 30 to 30
APM - Adjusted profit before tax (from Jun 2023 Jun 2022
continuing operations) GBPm GBPm
============================================== ========== ========== ========== ==========
Gross Profit 965.3 615.3
Less: Segment operating expenses (638.6) (411.3)
============================================== ========== ========== ========== ==========
Adjusted Operating Profit 326.7 204.0
(Less)/add: Adjusting items in operating
expenses (21.2) 3.3
============================================== ========== ========== ========== ==========
Operating Profit 305.5 207.3
Less: Net Finance Costs and JV losses (101.6) (19.8)
============================================== ========== ========== ========== ==========
Profit Before Tax 203.9 187.5
Add/(less): Total adjusting items 45.0 (3.3)
============================================== ========== ========== ========== ==========
Adjusted profit before tax 248.9 184.2
============================================== ========== ========== ========== ==========
Six months Six months Six months Six months
to 30 to 30 to 30 to 30
APM - Free cash flow (from continuing Jun 2023 Jun 2023 Jun 2022 Jun 2022
operations) GBPm GBPm GBPm GBPm
============================================== ========== ========== ========== ==========
Net cash generated from operating activities 265.2 287.1
Add back: Payments in respect of adjusting
items 20.6 4.7
============================================== ========== ========== ========== ==========
Net cash generated from operating activities,
before adjusting items 285.8 291.8
Purchase of property, plant and equipment (32.5) (24.3)
Purchase of intangible assets (3.2) (1.2)
Proceeds from disposal of property, plant
and equipment 1.2 7.5
============================================== ========== ========== ========== ==========
Net capital expenditure (34.5) (18.0)
============================================== ========== ========== ========== ==========
Net payment in relation to leases (45.3) (29.8)
Dividends paid to non-controlling interests (4.4) (2.9)
============================================== ========== ========== ========== ==========
Free cash flow 201.6 241.1
============================================== ========== ========== ========== ==========
Less: Free cash flow from discontinued
operations - (17.4)
============================================== ========== ========== ========== ==========
Free cash flow from continuing operations 201.6 223.7
============================================== ========== ========== ========== ==========
As at As at
30 Jun 30 Jun
APM - Return on capital employed (from 2023 2022
continuing operations) GBPm GBPm
============================================== ========== ========== ========== ==========
Adjusted operating profit 326.7 204.0
Adjusted operating profit for the previous
6 month period 206.8 144.8
============================================== ========== ========== ========== ==========
Adjusted operating profit on a 12 month
basis 533.5 348.8
============================================== ========== ========== ========== ==========
Net assets 1,512.7 1,137.4
Add net debt/ less (net funds) 1,044.0 (97.6)
============================================== ========== ========== ========== ==========
Capital employed 2,556.7 1,039.8
Effect of averaging (758.4) (28.7)
============================================== ========== ========== ========== ==========
Average capital employed 1,798.3 1,011.1
============================================== ========== ========== ========== ==========
Return on capital employed 29.7% 34.5%
============================================== ========== ========== ========== ==========
As at As at
30 Jun 31 Dec
2023 2022
APM - Adjusted (net debt) GBPm GBPm
============================================= ========== ==========
Net debt from continuing operations (1,044.0) (877.1)
Add back: lease liabilities 480.0 499.4
=============================================== ========== ==========
Adjusted net debt from continuing operations (564.0) (377.7)
=============================================== ========== ==========
Six months Six months
to 30 to 30
APM - Adjusted earnings per share (from Jun 2023 Jun 2022
continuing operations) GBPm GBPm
============================================= ========== ==========
Operating profit 305.5 207.3
Adjusting items within net operating
expenses 21.2 (3.3)
=============================================== ========== ==========
Adjusted operating profit 326.7 204.0
Share of profit/(loss) after tax of joint
ventures and associates 1.0 (0.3)
=============================================== ========== ==========
Adjusted profit before finance and tax 327.7 203.7
Net finance costs (102.6) (19.5)
Adjusting items within net finance costs 23.8 -
============================================= ========== ==========
Adjusted profit before tax 248.9 184.2
Tax on adjusted profit (67.8) (48.0)
=============================================== ========== ==========
Adjusted profit after tax 181.1 136.2
Less: minority interest (7.2) (3.5)
=============================================== ========== ==========
Adjusted earnings 173.9 132.7
=============================================== ========== ==========
Weighted average number of shares (m) 411.9 379.0
Dilutive effect 6.2 5.6
=============================================== ========== ==========
Basic adjusted earnings per share 42.2p 35.0p
Diluted adjusted earnings per share 41.6p 34.5p
=============================================== ========== ==========
PRINCIPAL BUSINESS RISKS
The Board has reassessed the principal business risks which
could impact the performance of the Group. These include:
Strategic risks, including:
-- People: engagement, retention;
-- Margin pressure (changing route to market, incentives);
-- OEM: loss of distribution contract;
-- Change delivery (benefits on time, to budget);
-- People: future skills;
-- New entrants: new business models or tech;
-- EV transition risks; and
-- Acquisition ROI.
Material operational risks, including:
-- Cyber security incident;
-- Supply chain disruption;
-- Covid-19;
-- Political risks/social unrest;
-- HSE: Health, safety or environmental incident;
-- Financial reporting, fraud;
-- IT systems outage (non-cyber);
-- Legal/regulatory compliance;
-- Foreign exchange volatility; and
-- Macro-economic conditions (cost inflation, economic slowdown).
The materialisation of these risks could have an adverse effect
on the Group's results or financial condition. If more than one of
these risks occur, the combined overall effect of such events may
be compounded. The Group faces many other risks which, although
important and subject to regular review, have been assessed as less
significant and are not listed here. These include, for example,
natural catastrophe and business interruption risks and certain
financial risks.
The Group has defined and implemented systems of risk management
and internal control designed to address these risks. These systems
can offer reasonable, but not absolute assurance, regarding the
management of these risks to an acceptable level. In particular,
the effectiveness of these systems may change over time, for
example with acquisitions or disposals or as the business
implements major change programmes. The effectiveness of these
systems are reviewed annually by the Audit Committee and
improvements are made as required.
DISTRIBUTION
Americas
Country Brands
=========== ===================================================
Argentina Subaru, Suzuki
=========== ===================================================
Barbados(1) Chrysler, Daimler Trucks, Dodge, Freightliner,
FUSO, Isuzu, JCB, Jeep, John Deere, Mercedes-Benz,
Mitsubishi, Subaru, Suzuki, Western Star
=========== ===================================================
Bolivia Changan, Chevrolet, JAC Motors, Joylong, Renault
Mazda, Subaru, Suzuki
=========== ===================================================
Chile BMW, BMW Motorrad, DFSK, Changan, Geely, Great
Wall, Haval, Hino, JAC Motors, Jaguar, Land
Rover, Mazda, MINI, Porsche, Renault, Rolls
Royce, Subaru, Suzuki, Volvo
=========== ===================================================
Colombia Citroen, DFSK, Dieci, Doosan, DS Automobiles,
Hino, Jaguar, Land Rover, Mack, Mercedes-Benz,
Subaru, Suzuki, XCMG
=========== ===================================================
Costa Rica Changan, JAC, Suzuki
=========== ===================================================
Ecuador Freightliner, Geely, Mercedes-Benz, Subaru,
Western Star
=========== ===================================================
El Salvador Freightliner, Geely, Mercedes-Benz, Western
Star
=========== ===================================================
Guatemala Freightliner, Geely, Mercedes-Benz, Western
Star
=========== ===================================================
Honduras Mercedes-Benz
=========== ===================================================
Panama Suzuki
=========== ===================================================
Peru BMW, BMW Motorrad, Changan, Citroen, DFSK,
Great Wall, Haval, Hino, Mazda, MINI, Renault,
Subaru, Suzuki
=========== ===================================================
Uruguay Freightliner, Fuso, Mercedes-Benz
=========== ===================================================
1. Distribution agreements for these brands across a range of
Caribbean islands, centred on Barbados
APAC
Country Brands
=========== ===================================================
Brunei Lexus, Toyota
=========== ===================================================
Guam(2) BMW, Chevrolet, Freightliner, Hyundai Construction,
Kohler, Lexus, New Holland, Toyota, Western
Star
=========== ===================================================
Daihatsu, Ford, Hino, Jaguar, Land Rover, Lexus,
Hong Kong Maxus, ORA, Toyota
=========== ===================================================
Indonesia Great Wall, Jaguar, Land Rover
=========== ===================================================
Daihatsu, Ford, Hino, Jaguar, Land Rover, Lexus,
Macau ORA, Toyota
=========== ===================================================
Saipan Toyota
=========== ===================================================
Singapore Hino, Lexus, Suzuki, Toyota
=========== ===================================================
Thailand Jaguar, Land Rover, Tata Motors
=========== ===================================================
Australia Citroen, Peugeot, Subaru
=========== ===================================================
New Zealand Subaru
=========== ===================================================
2. Distribution agreements for these brands across a range of
Pacific islands, centred on Guam
Europe & Africa
Country Brands
=============== ===============================================
Belgium BYD, Lexus, Toyota
=============== ===============================================
Bulgaria Lexus, Toyota
=============== ===============================================
BMW, BMW Motorrad, Ford, Jaguar, Land Rover,
Estonia Mazda, MINI
=============== ===============================================
Finland Jaguar, Land Rover, Mazda
=============== ===============================================
Greece Lexus, Toyota
=============== ===============================================
BMW, BMW Motorrad, Ford, Jaguar, Land Rover,
Latvia Mazda, MINI
=============== ===============================================
BMW, BMW Motorrad, Ford, Jaguar, Land Rover,
Lithuania Mazda, MINI, Rolls Royce
=============== ===============================================
Luxembourg BYD, Lexus, Toyota
=============== ===============================================
North Macedonia Lexus, Toyota
=============== ===============================================
Poland Jaguar, Land Rover
=============== ===============================================
Romania Lexus, Toyota
=============== ===============================================
Djibouti BMW, Komatsu, Toyota
=============== ===============================================
Ethiopia BMW, Hino, Komatsu, New Holland, Suzuki, Toyota
=============== ===============================================
Kenya BMW, BMW Motorrad, Jaguar, Land Rover
=============== ===============================================
RETAIL
Country Brands
============ ====================================================
Australia(3) Isuzu Ute, Jeep, Kia, Mitsubishi, Volkswagen
============ ====================================================
Poland BMW, BMW Motorrad, MINI
============ ====================================================
UK Audi, BMW, Jaguar, Land Rover, Lexus, Mercedes-Benz,
MINI, Porsche, Smart,
Toyota, Volkswagen
============ ====================================================
3. Following scale disposal of retail businesses in Australia,
retail is no longer reported as a separate segment in APAC.
Six months Six months
to 30 Jun to 30 Jun
2023 2022
====================================================== ===== ========== ==========
Continuing operations Notes GBPm GBPm
====================================================== ===== ========== ==========
Revenue 2 5,627.5 3,890.4
Cost of sales (4,662.2) (3,275.1)
====================================================== ===== ========== ==========
Gross profit 965.3 615.3
Net operating expenses (659.8) (408.0)
====================================================== ===== ========== ==========
Operating profit 2 305.5 207.3
Share of profit/(losses) after tax of joint
ventures and associates 1.0 (0.3)
====================================================== ===== ========== ==========
Profit before finance and tax 306.5 207.0
Finance income 4 24.8 7.9
Finance costs 5 (127.4) (27.4)
====================================================== ===== ========== ==========
Profit before tax from continuing operations 203.9 187.5
Tax 6 (64.6) (46.8)
====================================================== ===== ========== ==========
Profit for the period from continuing operations 139.3 140.7
Loss from discontinued operations - (240.2)
====================================================== ===== ========== ==========
Total profit/(loss) for the period 139.3 (99.5)
====================================================== ===== ========== ==========
Profit/(loss) attributable to:
- Owners of the parent 132.1 (103.0)
- Non-controlling interests 7.2 3.5
====================================================== ===== ========== ==========
139.3 (99.5)
====================================================== ===== ========== ==========
Earnings per share from continuing operations attributable
to the owners of the parent
============================================================= ========== ==========
Basic earnings per share (pence) 7 32.1p 36.2p
Diluted earnings per share (pence) 7 31.6p 35.7p
====================================================== ===== ========== ==========
Earnings/(loss) per share attributable to the
owners of the parent
====================================================== ===== ========== ==========
Basic earnings/(loss) per share (pence) 7 32.1p (27.2)p
Diluted earnings/(loss) per share (pence) 7 31.6p (27.2)p
====================================================== ===== ========== ==========
Alternative performance measures
Operating profit from continuing operations 305.5 207.3
Adjusting items within net operating expenses: 3 21.2 (3.3)
====================================================== ===== ========== ==========
Acquisition and integration costs 21.2 6.8
Accelerated amortisation and other asset write-offs
and impairments - 9.6
Gain on pension indexation - (19.7)
====================================================== ===== ========== ==========
Adjusted operating profit from continuing
operations 326.7 204.0
Share of profit/(loss) after tax of joint ventures
and associates 1.0 (0.3)
====================================================== ===== ========== ==========
Adjusted profit before finance and tax from
continuing operations 327.7 203.7
Net finance costs (102.6) (19.5)
Adjusting items within net finance costs: 3 23.8 -
====================================================== ===== ========== ==========
Net monetary loss on hyperinflation 14.2 -
Interest on deferred dividend payment 9.6 -
====================================================== ===== ========== ==========
Adjusted profit before tax from continuing
operations 248.9 184.2
Tax on adjusted profit (67.8) (48.0)
====================================================== ===== ========== ==========
Adjusted profit after tax from continuing
operations 181.1 136.2
====================================================== ===== ========== ==========
Adjusted earnings per share from continuing
operations
====================================================== ===== ========== ==========
Basic adjusted earnings per share 7 42.2p 35.0p
Diluted adjusted earnings per share 7 41.6p 34.5p
====================================================== ===== ========== ==========
See note 16 on page 37 for further details of alternative
performance measures.
The notes on pages 20 to 39 are an integral part of these
condensed consolidated interim financial statements.
Six months
Six months to
to 30 Jun 30 Jun
2023 2022
GBPm GBPm
========================================================== ========== ==========
Profit/(loss) for the period 139.3 (99.5)
Other comprehensive income/(expense):
Items that will not be reclassified to the consolidated
income statement
Retirement benefit schemes
- net actuarial (losses)/gains (18.1) 48.3
========================================================== ========== ==========
(18.1) 48.3
Items that may be or have been reclassified subsequently
to the consolidated income statement
Cash flow hedges
- net fair value losses (62.0) (45.2)
- tax on cash flow hedges 15.9 16.4
Investments held at fair value
- net fair value gains 0.2 -
Deferred tax on taxation losses 0.5 -
Foreign currency translation
Exchange differences on translation of foreign operations (48.0) 105.0
Exchange differences on translation of discontinued
operations - 18.7
Recycling of foreign currency reserve (0.4) 99.0
Adjustments for hyperinflation 20.8 -
Taxation on hyperinflation adjustments (1.8) -
========================================================== ========== ==========
(74.8) 193.9
========================================================== ========== ==========
Other comprehensive (expense)/income for the period (92.9) 242.2
========================================================== ========== ==========
Total comprehensive income for the period 46.4 142.7
========================================================== ========== ==========
Total comprehensive income attributable to:
- Owners of the parent 42.2 142.0
- Non-controlling interests 4.2 0.7
========================================================== ========== ==========
46.4 142.7
========================================================== ========== ==========
Total comprehensive income/(expense) attributable
to owners of Inchcape plc arising from
- Continuing operations 46.4 264.5
- Discontinued operations - (122.5)
========================================================== ========== ==========
The notes on pages 20 to 39 are an integral part of these
condensed consolidated interim financial statements.
As at As at
30 Jun 31 Dec
2023 2022
Notes GBPm GBPm
============================================= ===== ========= =========
Non-current assets
Intangible assets 1,185.8 1,174.0
Property, plant and equipment 774.3 736.8
Right-of-use assets 406.2 419.2
Investments in joint ventures and associates 20.6 22.2
Financial assets at fair value through other
comprehensive income 11g 3.7 3.3
Derivative financial instruments 11g - 17.3
Trade and other receivables 56.3 53.4
Deferred tax assets 95.0 80.0
Retirement benefit asset 88.0 103.8
============================================= ===== ========= =========
2,629.9 2,610.0
Current assets
Inventories 2,537.1 2,375.8
Trade and other receivables 837.9 816.8
Financial assets at fair value through other
comprehensive income 11g 0.2 0.2
Derivative financial instruments 11g 23.6 36.9
Current tax assets 33.8 40.8
Cash and cash equivalents 9b 571.4 1,064.2
Assets held for sale and disposal group 12 18.0 19.0
============================================= ===== ========= =========
4,022.0 4,353.7
============================================= ===== ========= =========
Total assets 6,651.9 6,963.7
============================================= ===== ========= =========
Current liabilities
Trade and other payables (2,898.5) (2,898.0)
Derivative financial instruments 11g (111.6) (38.1)
Current tax liabilities (71.0) (88.2)
Provisions (55.4) (56.6)
Lease liabilities 9b (85.8) (83.4)
Borrowings 9b (251.1) (546.3)
============================================= ===== ========= =========
(3,473.4) (3,710.6)
Non-current liabilities
Trade and other payables (70.7) (60.4)
Provisions (53.9) (46.7)
Derivative financial instruments 11g (10.8) (1.4)
Deferred tax liabilities (241.0) (255.3)
Lease liabilities 9b (394.2) (416.0)
Borrowings 9b (884.3) (895.6)
Retirement benefit liability (10.9) (10.7)
============================================= ===== ========= =========
(1,665.8) (1,686.1)
============================================= ===== ========= =========
Total liabilities (5,139.2) (5,396.7)
============================================= ===== ========= =========
Net assets 1,512.7 1,567.0
============================================= ===== ========= =========
Equity
Share capital 8 41.5 37.6
Share premium 146.7 146.7
Capital redemption reserve 8 143.0 143.0
Merger reserve 8 311.9 315.8
Other reserves (5.2) 69.3
Retained earnings 840.8 820.4
============================================= ===== ========= =========
Equity attributable to owners of the parent 1,478.7 1,532.8
Non-controlling interests 34.0 34.2
============================================= ===== ========= =========
Total equity 1,512.7 1,567.0
============================================= ===== ========= =========
The notes on pages 20 to 39 are an integral part of these
condensed consolidated interim financial statements.
E quity
attributable
Capital to owners Total
Share Share redemptio Merger Other Retained of the Non-controlling shareholders'
capital Premium n reserve reserve reserves earnings parent interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ===== ======= ======= ========= ======= ======== ======== ============ =============== =============
At 1 January
2022 38.5 146.7 142.1 - (227.1) 1,008.7 1,108.9 21.6 1,130.5
(Loss)/profit
for the period - - - - - (103.0) (103.0) 3.5 (99.5)
Other
comprehensive
income/(expense)
for
the period - - - - 196.7 48.3 245.0 (2.8) 242.2
===== ======= ======= ========= ======= ======== ======== ============ =============== =============
Total
comprehensive
income/(expense)
for
the period - - - - 196.7 (54.7) 142.0 0.7 142.7
Hedging gains
and losses
transferred
to inventory - - - - 2.9 - 2.9 - 2.9
Written put
option - - - - - (10.2) (10.2) - (10.2)
Non-controlling
interests on
acquisition of
subsidiaries - - - - - - - 4.9 4.9
Share-based
payments,
net of tax - - - - - 3.5 3.5 - 3.5
Share buyback
programme 8b (0.8) - 0.8 - - (69.5) (69.5) - (69. 5)
Purchase of own
shares by the
Inchcape
Employee
Trust - - - - - (3.8) (3.8) - (3.8)
Dividends:
- Owners of the
parent 8b - - - - - (60.7) (60.7) - (60.7)
- Non-controlling
interests - - - - - - - (2.9) (2.9)
================= ===== ======= ======= ========= ======= ======== ======== ============ =============== =============
At 30 June 2022 37.7 146.7 142.9 - (27.5) 813.3 1,113.1 24.3 1,137.4
================= ===== ======= ======= ========= ======= ======== ======== ============ =============== =============
Profit for the
period - - - - - 91.8 91.8 1.5 93.3
Other
comprehensive
income/(expense)
for
the period - - - - 96.9 (60.0) 36.9 8.9 45.8
===== ======= ======= ========= ======= ======== ======== ============ =============== =============
Total
comprehensive
income for the
period - - - - 96.9 31.8 128.7 10.4 139.1
Hedging gains
and losses
transferred
to inventory - - - - (0.1) - (0.1) - (0.1)
Written put
option - - - - - (3.4) (3.4) - (3.4)
Shares to be
issued 8a - - - 315.8 - - 315.8 - 315.8
Non-controlling
interests on
acquisition of
subsidiaries - - - - - - - 0.4 0.4
Share-based
payments,
net of tax - - - - - 6.7 6.7 - 6.7
Share buyback
programme (0.1) - 0.1 - - - - - -
Dividends:
- Owners of the
parent 8b - - - - - (28.0) (28.0) - (28.0)
- Non-controlling
interests - - - - - - - (0.9) (0.9)
================= ===== ======= ======= ========= ======= ======== ======== ============ =============== =============
At 31 December
2022 37.6 146.7 143.0 315.8 69.3 820.4 1,532.8 34.2 1,567.0
================= ===== ======= ======= ========= ======= ======== ======== ============ =============== =============
E quity
attributable
Capital to owners Total
Share Share redemption Merger Other Retained of the Non-controlling shareholders'
capital Premium reserve reserve reserves earnings parent interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ===== ======= ======= ========== ======= ======== ======== ============ =============== =============
At 1 January
2023 37.6 146.7 143.0 315.8 69.3 820.4 1,532.8 34.2 1,567.0
Profit for the
period - - - - - 132.1 132.1 7.2 139.3
Other
comprehensive
(expense)/income
for the period - - - - (71.8) (18.1) (89.9) (3.0) (92.9)
======= ======= ========== ======= ======== ======== ============ =============== =============
Total
comprehensive
income/(expense)
for the period - - - - (71.8) 114.0 42.2 4.2 46.4
======= ======= ========== ======= ======== ======== ============ =============== =============
Hedging gains
and losses
transferred
to inventory - - - - (2.7) - (2.7) - (2.7)
Written put
option - - - - - (0.7) (0.7) - (0.7)
Shares issued 8a 3.9 - - (3.9) - - - - -
Share-based
payments,
net of tax - - - - - 6.8 6.8 - 6.8
Purchase of own
shares by the
Inchcape
Employee
Trust - - - - - (11.8) (11.8) - (11.8)
Dividends:
- Owners of the
parent 8b - - - - - (87.9) (87.9) - (87.9)
- Non-controlling
interests - - - - - - - (4.4) (4.4)
================= ===== ======= ======= ========== ======= ======== ======== ============ =============== =============
At 30 June 2023 41.5 146.7 143.0 311.9 (5.2) 840.8 1,478.7 34.0 1,512.7
================= ===== ======= ======= ========== ======= ======== ======== ============ =============== =============
The notes on pages 20 to 39 are an integral part of these
condensed consolidated interim financial statements.
Share-based payments include a deferred tax charge of GBPnil (30
June 2022: deferred tax charge of GBP1.8m; 31 December 2022: net
tax credit of GBPnil).
Six months
Six months to
to 30 Jun 30 Jun
2023 2022
Notes GBPm GBPm
================================================== ===== ========== ==========
Cash generated from operating activities
Cash generated from operations 9a 423.6 355.0
Tax paid (88.8) (51.7)
Interest received 22.3 6.1
Interest paid (91.9) (22.3)
================================================== ===== ========== ==========
Net cash generated from operating activities 265.2 287.1
================================================== ===== ========== ==========
Cash flows from investing activities
Acquisition of businesses, net of cash and
overdrafts acquired 10a (4.3) (77.7)
Net cash inflow/(outflow) from sale of businesses 2.3 (32.3)
Purchase of investments in joint ventures
and associates (1.1) (2.8)
Purchase of property, plant and equipment (32.5) (24.3)
Purchase of intangible assets (3.2) (1.2)
Proceeds from disposal of property, plant
and equipment 1.2 7.5
Proceeds from disposal of intangible assets - 0.1
Receipt from finance sub-lease receivables 0.8 0.9
Other lease payments (0.1) -
================================================== ===== ========== ==========
Net cash used in investing activities (36.9) (129.8)
================================================== ===== ========== ==========
Cash flows from financing activities
Share buyback programme 8a - (58.5)
Purchase of own shares by the Inchcape Employee
Trust (11.8) (3.8)
Cash outflow from other borrowings 9b (550.3) (2.0)
Cash inflow from bond issuance 9b 348.3 -
Cash inflow from revolving credit facility 9b 120.0 -
Repayment of acquisition financing bridge
facility 9b (350.0) -
Payments to former shareholders of Derco
group (211.5) -
Payment of capital element of lease liabilities 9b (46.0) (30.7)
Equity dividends paid 8b (87.9) (60.7)
Dividends paid to non-controlling interests (4.4) (2.9)
================================================== ===== ========== ==========
Net cash used in financing activities (793.6) (158.6)
================================================== ===== ========== ==========
Net decrease in cash and cash equivalents 9b (565.3) (1.3)
Cash and cash equivalents at beginning of
the period 1,050.1 588.8
Effect of foreign exchange rate changes (34.6) 63.3
================================================== ===== ========== ==========
Cash and cash equivalents at end of the
period 450.2 650.8
================================================== ===== ========== ==========
Cash and cash equivalents consist of:
Cash at bank and cash equivalents 496.1 555.3
Short-term deposits 75.3 99.3
Bank overdrafts (121.2) (3.8)
================================================== ===== ========== ==========
450.2 650.8
================================================== ===== ========== ==========
The notes on pages 20 to 39 are an integral part of these
condensed consolidated interim financial statements.
1 BASIS OF PREPARATION AND ACCOUNTING POLICIES
Basis of preparation
The condensed consolidated interim financial statements for the
period ended 30 June 2023 have been prepared on a going concern
basis in accordance with UK-adopted International Accounting
Standard 34 'Interim Financial Reporting' 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 2022, which have
been prepared in accordance with UK-adopted International Financial
Reporting Standards (IFRS) and 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
2022 were approved by the Board of Directors on 22 March 2023 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 14 to 41 were
approved by the Board of Directors on 26 July 2023.
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 making this
assessment the Group has considered available liquidity in relation
to net debt and committed facilities, the Group's latest forecasts
for 2023 and 2024 cash flows together with appropriate
sensitivities.
Given the global political and economic uncertainty resulting
from the conflict in the Ukraine and inflationary pressures, we
expect to see continued volatility, some business disruption and
the impact of tightening fiscal policy in the markets in which the
Group operates during the remainder of 2023 and into 2024.
Committed bank facilities and Private Placement borrowings
amounting to GBP1,160m, of which GBP580m was drawn at 30 June 2023,
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. In
addition, in June 2023, the Group issued a GBP350m bond offering
with a coupon of 6.5%, due to mature in June 2028. Private
Placement Loan Notes of GBP70m mature in May 2024 and the GBP250m
Term Loan matures in December 2024.
The latest Group forecasts for 2023 and 2024 indicate that the
Group is expected to be compliant with this covenant throughout the
forecast period and to have sufficient liquidity to continue
operating throughout that period.
A range of sensitivities has been applied to the forecasts to
assess the Group's compliance with its covenant requirements over
the forecast period. These sensitivities included:
a reduction in New and Used vehicle revenue and margins in 2024
resulting from a decreasing consumer demand in response to fiscal
tightening and resulting economic downturns;
a general liquidity reduction impacting working capital from
2024; with no mitigating actions applied in relation to the
sensitivities described above.
In scenarios where all of the above sensitivities occur at the
same time, the Group has modelled the possibility of the interest
cover covenant being breached in 2023 and 2024. With the interest
cover covenant measured on a trailing 12-month basis, the
sensitised forecasts indicate that the Group is not expected to
breach any covenants and would be compliant with the interest cover
requirements at December 2023 and throughout the forecast period.
Additionally, under these circumstances, the Group expects to have
sufficient funds to meet cash flow requirements.
A reverse stress test scenario analysis, concluded that a set of
circumstances in which the Group would breach its covenant or have
insufficient funds to meet cash flow requirements are considered to
be remote, relative to the sensitivities referred to above.
The Board therefore 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.
1 BASIS OF PREPARATION AND ACCOUNTING POLICIES CONTINUED
Accounting policies
The condensed set of consolidated financial information has been
prepared using accounting policies consistent with those in the
Group's Annual Report and Accounts 2022 with the exception of the
following standards, amendments and interpretations which have been
newly adopted from 1 January 2023:
Newly adopted accounting standards
From 1 January 2023, the following standards became effective
for the Group's consolidated financial statements:
IFRS 17 Insurance Contracts;
Amendments to IFRS 17 Insurance Contracts: Initial Application
of IFRS 17 and IFRS 9 Comparative Information;
Amendments to IAS 12 relating to Deferred tax related to assets
and liabilities arising from a single transaction;
Amendments to IFRS 4 when apply ing IFRS 9 Financial
Instruments;
Amendments to IAS 1 Presentation of Financial Instruments,
classification of liabilities as current or non-current; and
Amendments to IAS 8 Accounting policies, Changes in Accounting
Estimates and Errors: Definition of Acc ounting Estimates.
The adoption of the standards and interpretations listed above
has not led to any 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 2024:
Amendments to IAS 1 - Non-current liabilities with covenants
Amendments to IFRS 16 - Leases on sale and leaseback
Amendm ents to IAS 7 and IFRS 7 - Supplier finance
Amendments due to Finance (No. 2) Act 2023 for Pillar Two income
inclusion (IIR)
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.
Designation of Ethiopia as a hyperinflationary economy
The Group financial statements include adjustments for
hyperinflation, following the application of IAS 29 Financial
Reporting in Hyperinflationary Economies in relation to the Group's
operations with a functional currency of Ethiopian Birr.
The Group's consolidated financial statements include the
results and financial position of its Ethiopian operations restated
to the purchasing power or inflationary measuring unit current at
the end of the period, leading to a hyperinflationary loss in
respect of monetary items being reported in finance costs, and
treated as an adjusting item. The results of the Group's Ethiopian
operations have been translated at the closing exchange rate, as
required by IAS 21 The Effects of Change in Foreign Exchange Rates
for hyperinflationary foreign operations.
Whilst IAS 29 Financial Reporting in Hyperinflationary Economies
is applied in individual financial statements as though the
relevant economy was always hyperinflationary, comparative amounts
are not restated in consolidated amounts already presented in a
stable currency. The resulting difference in the opening Ethiopian
net assets has been presented as a translation adjustment in other
comprehensive income.
The inflationary factors used by the Group are the official
price indices published by the Central Statistical Agency of
Ethiopia. Hyperinflationary adjustments have been calculated using
the price index prevailing at 30 June 2023, which was a CPI index
of 379.0 (31 December 2022: CPI index 328.9). The adjusted results
and financial position of Ethiopia were translated at the
period-end closing rate before being included in the Group's
consolidated financial statements.
1 BASIS OF PREPARATION AND ACCOUNTING POLICIES CONTINUED
Critical accounting judgements and key 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 2022 Annual Report and Accounts. Those that are
new or significant to the preparation of the interim financial
statements are presented below.
Impairment of goodwill and other indefinite life intangible
assets
The carrying amount of goodwill and other indefinite life
intangible assets is shown below:
As at 30 Jun 2023 As at 31 Dec 2022
=========================== ==================================== ===================================
Indefinite- Indefinite-
life intangible life intangible
Goodwill assets Total Goodwill assets Total
GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ======== ================ ======== ======== ================ -------
At 1 January 270.3 857.7 1,128.0 116.3 239.0 355.3
Businesses acquired 3.9 - 3.9 139.9 592.9 732.8
Acquisition accounting
adjustments 11.1 - 11.1 - - -
Effect of foreign exchange
rates (2.9) 1.8 (1.1) 14.1 25.8 39.9
=========================== ======== ================ ======== ======== ================ =======
At 30 June/31 December 282.4 859.5 1,141.9 270.3 857.7 1,128.0
=========================== ======== ================ ======== ======== ================ =======
Goodwill acquired in a business combination is allocated to the
cash generating units (CGUs) or group of CGUs (hereafter
collectively referred to as 'CGU groups') that are expected to
benefit from the synergies associated with that business
combination. Indefinite-life intangible assets, principally
distribution agreements acquired in a business combination,
are also allocated to the CGUs or CGU groups that are expected
to benefit from the cash flows associated with the
relevant agreements.
Indicators of impairment in goodwill and other indefinite-life
intangible assets
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.
In the first half of 2023, the Group carried out an assessment
as to whether any impairment testing is required to be performed
for the six months ending 30 June 2023. As set out in IAS 36
Impairment of Assets, the assessment involved the Group reviewing
potential indicators of impairment to determine if any of the
Group's assets should be tested.
The review included examining data trends on asset valuations,
reviewing latest macro-economic data including global economic
forecasts, reviewing latest industry data including industry
volumes and comparing the Group's results against cash flows used
in previously prepared impairment models and latest forecasts. The
conclusion reached from the review performed was that there was no
requirement to test any assets or cash generating units for
impairment for the six-month period to 30 June 2023.
At 31 December 2022, the Group's value in use calculations
prepared for the cash generating units represented by Central
America - Suzuki business in the Americas were sensitive to a
change in the key assumptions used. The recoverable amount
calculated for the Central America CGU was GBP155.8m. Cash flows
were discounted back to present value using a pre-tax discount rate
of 14.1%.
1 BASIS OF PREPARATION AND ACCOUNTING POLICIES CONTINUED
The cash flows used within the impairment model were based on
assumptions which are sources of estimation uncertainty and small
movements in these assumptions could lead to a further impairment.
Management performed sensitivity analysis on the key assumptions in
the indefinite-life intangible asset impairment model for Central
America - Suzuki using reasonably possible changes in these key
assumptions. The sensitivities were selected based on the inherent
business volatility and the metrics that closely align to the
consequences of climate change risks and opportunities detailed on
pages 44 to 54 of the 2022 Annual Report and Accounts.
Increase/ Impairment Impairment
(decrease) charge credit
in assumption GBPm GBPm
========================== =============== ========== ==========
Revenue CAGR (%) (1.0%)/1.0% (16.2) 18.2
Average gross margin (%) (0.5%)/0.5% (9.6) 9.6
Pre-tax discount rate (%) 1.0%/(1.0%) (17.7) 22.8
Long-term growth rate (%) (0.5%)/0.5% (5.0) 5.6
========================== =============== ========== ==========
Other CGUs
The Group's value in use calculations are sensitive to a change
in the key assumptions used. However, with the exception
of the Group's business in the Baltics, a reasonably possible
change in a key assumption would not cause a material impairment of
goodwill or indefinite-life intangible assets in any of the other
CGU groups. The value in use calculations for the distribution
agreement in the Baltics exceeded the carrying value by 25% as at
31 December 2022 and a 1.1% increase in the discount rate or a 2.0%
reduction in the long-term growth rate, while holding all other
assumptions constant, would eliminate this headroom.
Adjusting items
The Directors believe that adjusted profit and earnings per
share measures provide additional useful information to
shareholders on the performance of the business. These measures are
consistent with how business performance is measured internally by
the Board and Executive Committee. The operating profit before
adjusting items and profit before tax and adjusting items measures
are not recognised profit measures under IFRS and may not be
directly comparable with such profit measures used by other
companies. The classification of adjusting items requires
significant management judgement after considering the nature and
intentions of a transaction. The Group's definitions of adjusting
items are outlined within the Group accounting policies and note 3
provides further details on current year adjusting items and their
adherence to Group policy.
In the period, the Group has reported an aggregate pre-tax
adjusting items loss of GBP45.0m (see note 3). The separate
reporting of adjusting 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 as adjusting items 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 adjusting item would also be recognised as an
adjusting item in a subsequent period.
Classification of vehicle funding arrangements
The Group finances the purchase of vehicles using vehicle
funding facilities provided by various lenders including the
captive finance companies associated with brand partners. In
assessing whether the liabilities arising under these arrangements
should be classified within trade and other payables rather than as
an additional component of the Group's net debt within borrowings,
the Group considers a number of factors including whether the
arrangement is a requirement of the relationship with the OEM, in
relation to specific, separately identifiable vehicles held as
inventory and the duration of the finance. Each agreement entered
into has its own terms and conditions and determining whether a new
or renewed arrangement should be classified within trade and other
payables requires significant management judgement (see note
11f).
Alternative performance measures (APMs)
In the prior year, the consolidated income statement included
presentation of certain alternative performance measures in
addition to IFRS measures. In the current period, the consolidated
income statement presents only IFRS measures which is in line with
the basis of preparation disclosed in this note. The alternative
performance measures used by the Group are included in note 16.
This includes further information on the definitions, purpose and
reconciliation to IFRS measures.
2 SEGMENTAL ANALYSIS
The Group has four 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 acquisition of the Derco Group based in the
Americas region, the distribution business based in Africa is now
reported and reviewed alongside existing distribution businesses in
Europe, forming a combined segment of Europe & Africa.
The Group reports the performance of its reporting segments
after the allocation of central costs. These represent costs of
Group functions.
The following summary describes the operations of each of the
Group's reportable segments:
Distribution APAC Exclusive distribution, sales and marketing
Europe & Africa activities of New Vehicles and Parts.
Americas Sale of New and Used vehicles together with
logistics services where the Group may also
be the exclusive distributor, alongside
associated Aftersales activities of service,
bodyshop repairs and parts sales.
============ ================ =============================================
Retail Sale of New and Used Vehicles, together
with associated Aftersales activities of
service, bodyshop repairs and parts sales.
============ ================ =============================================
Distribution
================================== =========================================== ======= =======
Europe Total
APAC & Africa Americas Distribution Retail Total
Six months to 30 June 2023 GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======= ========= ======== ============= ======= =======
Revenue
Total revenue 1,255.2 1,258.8 1,910.5 4,424.5 1,203.0 5,627.5
================================== ======= ========= ======== ============= ======= =======
Results
Adjusted operating profit from
continuing operations 89.6 69.8 143.0 302.4 24.3 326.7
Operating adjusting items (21.2)
================================== ======= ========= ======== ============= ======= =======
Operating profit from continuing
operations 305.5
Share of profits after tax
of joint ventures and associates 1.0
================================== =======
Profit before finance and tax 306.5
Finance income 24.8
Finance costs (127.4)
================================== =======
Profit before tax from continuing
operations 203.9
Tax (64.6)
================================== =======
Profit for the period from
continuing operations 139.3
================================== =======
The Group's reported segments are based on the location of the
Group's assets. Revenue earned from sales is disclosed by origin
and is not materially different from revenue by destination.
Revenue is further analysed as follows:
Six months to 30 June 2023 GBPm
=========================== =======
UK 1,064.9
Chile 896.8
Australia 661.8
Rest of the world 3,004.0
=========================== =======
Group 5,627.5
=========================== =======
Distribution
================================== ========================================= ======= =======
Europe
& Total
APAC Africa Americas Distribution Retail Total
Six months to 30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======= ======= ======== ============= ======= =======
Total revenue 1,074.1 1,011.6 653.5 2,739.2 1,151.2 3,890.4
================================== ======= ======= ======== ============= ======= =======
Results
Adjusted operating profit from
continuing operations 71.6 47.2 54.9 173.7 30.3 204.0
Operating adjusting items 3.3
================================== ======= ======= ======== ============= ======= =======
Operating profit from continuing
operations 207.3
Share of losses after tax of
joint ventures and associates (0.3)
================================== =======
Profit before finance and tax 207.0
Finance income 7.9
Finance costs (27.4)
================================== =======
Profit before tax from continuing
operations 187.5
Tax (46.8)
================================== =======
Profit for the period from
continuing operations 140.7
================================== =======
The Group's reported segments are based on the location of the
Group's assets. Revenue earned from sales is disclosed by origin
and is not materially different from revenue by destination.
Revenue is further analysed as follows:
Six months to 30 June 2022 GBPm
============================= =======
UK 1,042.0
Chile 263.3
Australia 512.9
Rest of the world 2,072.2
============================= =======
Group 3,890.4
============================= =======
3 ADJUSTING ITEMS
Six months
Six months to 30 Jun
to 30 Jun 2022
From continuing operations 2023 GBPm GBPm
============================================ ========== ==========
Other asset write-offs and impairments - 0.5
Acquisition and integration costs (21.2) (6.8)
Accelerated amortisation (SaaS) - (10.1)
Gain on pension indexation - 19.7
============================================ ========== ==========
Total adjusting items in operating profit (21.2) 3.3
Adjusting items in finance costs:
Net monetary loss on hyperinflation (14.2) -
Interest costs on deferred dividend payment (9.6) -
============================================ ========== ==========
Total adjusting items before tax (45.0) 3.3
Tax on adjusting items (note 6) 3.2 1.2
============================================ ========== ==========
Total adjusting items (41.8) 4.5
============================================ ========== ==========
During the period, operating costs of GBP21.2m have been
incurred in connection with the acquisition and integration of
businesses. These costs have been reported as adjusting items to
better reflect the underlying performance of the business. These
primarily relate to the acquisition and integration of the Derco
group. For more details on acquisitions, please refer to note
10.
At 31 December 2022, a liability was acquired, as part of the
Derco acquisition, for the payments of a pre-completion dividend to
former shareholders. The payment of this dividend was agreed to be
made in four tranches, throughout 2023, with interest accruing on
the outstanding amounts. At 30 June 2023, three of the tranches
have been paid and interest of GBP9.6m has been recognised, which
is expected to rise to approximately GBP11.0m by the end of the
year. This interest expense has been recognised within finance
costs and reported as an adjusting item.
During 2022, Ethiopia was designated as a hyperinflationary
economy as its three-year cumulative inflation rate exceeded 100%.
The Group financial statements include adjustments for
hyperinflation, following the application of IAS 29 Financial
Reporting in Hyperinflationary Economies in relation to the
Group's operations with a functional currency of Ethiopian Birr.
The results and financial position of Ethiopia for the six months
ended 30 June 2023 have been restated to include the effect of
indexation and the resulting GBP14.2m net monetary loss on
hyperinflation has been recognised within net finance costs and
reported as an adjusting item.
In the period to 30 June 2022, the Group:
-- incurred adjusting operating costs of GBP6.8m in connection
with the acquisition and integration of businesses. These primarily
related to the ITC/Simpson Motors business acquired in the Caribbean
and the Ditec acquisition in Chile;
-- with effect from 1 April 2022, the Trustee of the Inchcape Motors
Pension Scheme now uses the Consumer Prices Index (CPI) instead
of Retail Prices Index (RPI) for those elements of pensions
from the Group, Motors and Normand sections that are increased
in line with RPI. Management concluded that the change in indexation
represents a plan amendment and the impact of the change in
benefits payable of GBP19.7m should be recognised in the income
statement as a past service cost. Considering the magnitude
and nature of the item, the impact on the income statement was
reported as an adjusting item; and
-- in 2021, the Group started to migrate the Group's existing ERP
applications to a cloud-based solution. This was a strategic
decision to consolidate and upgrade the systems, improve speed
and performance and facilitate centralised support following
the transformation of the Information Technology organisational
structure. The new solution was determined to be Software as
a Service and therefore the existing software assets no longer
fall to be treated as an asset under IAS 38 once the migration
to the new solution has occurred. Consequently, the useful life
of the existing assets was reassessed and the impact accounted
for prospectively as a change in an estimate. This change resulted
in a significant increase in the amortisation recognised for
software costs. Accordingly, in 2022, the incremental amortisation
of GBP10.1m was disclosed as an adjusting item.
4 FINANCE INCOME
Six months Six months
to to
30 Jun 30 Jun
2023 2022
From continuing operations GBPm GBPm
=================================================== ========== ==========
Bank and other interest receivable 21.0 5.9
Net interest income on post-retirement plan assets
and liabilities 2.3 1.5
Lease finance income 0.3 0.3
Other finance income 1.2 0.2
=================================================== ========== ==========
Total finance income 24.8 7.9
=================================================== ========== ==========
5 FINANCE COSTS
Six months Six months
to to
30 Jun 30 Jun
2023 2022
From continuing operations GBPm GBPm
============================================= ========== ==========
Interest payable on bank borrowings 54.3 5.0
Interest payable on Private Placement 3.2 3.2
Interest payable on other borrowings 1.3 -
Lease finance costs 10.0 4.6
Stock holding interest 21.2 8.3
Net monetary loss on hyperinflation (note 3) 14.2 -
Interest on deferred dividend payment 9.6 -
Other finance costs 13.6 6.3
============================================= ========== ==========
Total finance costs 127.4 27.4
============================================= ========== ==========
Total finance costs are analysed as follows:
Six months Six months
to to
30 Jun 30 Jun
2023 2022
From continuing operations GBPm GBPm
================================================ ========== ==========
Finance costs excluding adjusting finance costs 103.6 27.4
Finance costs reported as adjusting items 23.8 -
Total finance costs 127.4 27.4
================================================ ========== ==========
6 TAX
Six months
to
30 Jun Six months
2023 to 30 Jun
From continuing operations GBPm 2022 GBPm
=========================== ========================== ========== ==========
Current tax - UK corporation tax - -
- Overseas tax 83.8 51.7
Adjustments to prior year
liabilities - UK - -
- Overseas (3.1) 2.0
====================================================== ========== ==========
Current tax 80.7 53.7
Deferred tax (16.1) (6.9)
======================================================= ========== ==========
Total tax charge 64.6 46.8
======================================================= ========== ==========
- Tax charge on profit
before adjusting items 67.8 48.0
- Tax credit on adjusting
items (3.2) (1.2)
====================================================== ========== ==========
Total tax charge 64.6 46.8
======================================================= ========== ==========
The tax charge for the 6 months ended 30 June 2023 has been
calculated by applying the estimated average annual effective
income tax rate for each jurisdiction in which Inchcape operates to
the interim period pre-tax income of each jurisdiction as required
by IAS 34 'Interim Financial Reporting'. Tax credited on adjusting
items has been separately calculated and is disclosed above.
Details of the adjusting items for the period can be found in note
3.
The effective tax rate for the period to 30 June is 31.7%
compared to 25.0% for the same period last year. The effective tax
rate on adjusted profit for the period is 27.2% compared to 26.1%
for the same period last year.
The total tax charge in the period includes the impact of IAS 29
Financial Reporting for Hyperinflationary Economies in relation to
the financial position of Ethiopia (see note 3).
Factors affecting current and future tax charges
The Group's future tax charge, and effective tax rate, could be
affected by several factors including; the resolution of audits and
disputes, changes in tax laws or tax rates, repatriation of cash
from overseas markets to the UK, the ability to utilise brought
forward losses and business acquisitions and disposals. In
addition, a change in profit mix between low and high taxed
jurisdictions will impact the Group's future tax charge.
The utilisation of brought forward tax losses or the recognition
of deferred tax assets associated with such losses may also give
rise to tax charges or credits. The recognition of deferred tax
assets, particularly in respect of tax losses, is based upon an
assessment of whether it is probable that there will be sufficient
and suitable taxable profits in the relevant legal entity or tax
group against which to utilise the assets in the future. Judgement
is required when determining probable future taxable profits. In
the event that actual taxable profits are different to those
forecast, the Group's future tax expense and effective tax rate
could be affected.
In addition, Finance (No.2) Act 2023 was substantively enacted
on 20 June 2023. The Act includes the legislation to implement the
Organisation for Economic Co-operation and Development (OECD) Base
Erosion and Profit Shifting (BEPS) Pillar Two income inclusion rule
(IIR) in the United Kingdom. The legislation will be relevant for
the Group from January 2024.
The Group has published its approach to tax on www.inchcape.com
covering its tax strategy and governance framework.
7 EARNINGS PER SHARE
Six months
Six months to 30 Jun
to 30 Jun 2022
2023 GBPm GBPm
======================================================= ========== ==========
Profit/(loss) for the period 139.3 (99.5)
Non-controlling interests (7.2) (3.5)
======================================================= ========== ==========
Basic earnings/(loss) 132.1 (103.0)
Loss for the period from discontinued operations - 240.2
======================================================= ========== ==========
Basic earnings from continuing operations attributable
to owners of the parent 132.1 137.2
Adjusting items 41.8 (4.5)
======================================================= ========== ==========
Adjusted earnings from continuing operations 173.9 132.7
======================================================= ========== ==========
Basic earnings per share
Basic earnings per share from continuing operations 32.1p 36.2p
Basic loss per share from discontinued operations - (63.4)p
======================================================= ========== ==========
Total basic earnings/(loss) per share 32.1p (27.2)p
Diluted earnings per share
Diluted earnings per share from continuing operations 31.6p 35.7p
Diluted loss per share from discontinued operations(1) - (63.4)p
======================================================= ========== ==========
Total diluted earnings/(loss) per share1 31.6p (27.2)p
Adjusted earnings per share from continuing operations
Basic Adjusted earnings per share from continuing
operations 42.2p 35.0p
Diluted Adjusted earnings per share from continuing
operations 41.6p 34.5p
======================================================= ========== ==========
1. Due to the impact of dilutive ordinary shares having the
effect of decreasing both the loss attributable to discontinued
operations and the loss attributable to total operations, the basic
earnings per share calculated has been shown.
Six months Six months
to 30 Jun to 30 Jun
2023 number 2022 number
======================================================== ============ ============
Weighted average number of fully paid ordinary shares
in issue during the period 412,365,247 379,788,540
Weighted average number of fully paid ordinary shares
in issue during the period:
- Held by the Inchcape Employee Trust (487,899) (783,582)
======================================================== ============ ============
Weighted average number of fully paid ordinary shares
for the purposes of basic EPS 411,877,348 379,004,958
Dilutive effect of potential ordinary shares 6,152,343 5,553,858
======================================================== ============ ============
Adjusted weighted average number of fully paid ordinary
shares in issue during the period for the purposes
of diluted EPS 418,029,691 384,558,816
======================================================== ============ ============
Basic earnings/(loss) per share is calculated by dividing the
Basic earnings/(loss) 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/(loss) per share is calculated on the same
basis as the Basic earnings/(loss) 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 adjusting 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
On 4 January 2023, 38,513,102 ordinary shares of 10p each in the
capital of the Company were issued in connection with the
acquisition of the Derco group. As at 31 December 2022, the
acquisition had completed and, as at that date, the shares that
were issued on 4 January 2023 represented a liability to issue a
fixed number of shares in exchange for fixed financial assets and
were. accounted for as an equity instrument. As at 30 June 2023,
issued share capital of the Group amounted to a total of
413,007,132 shares.
During the period, the Group issued GBPnil (June 2022 - GBPnil,
December 2022 - GBPnil) of ordinary shares exercised under the
Group's share option schemes.
Share buyback programme
During the six months ended 30 June 2023, the Company
repurchased none of its own shares (June 2022: 7,913,076, December
2022: 9,357,908) through purchases on the London Stock Exchange, at
a cost of GBPnil (June 2022: GBP57.8m, December 2022: GBP69.5m).
The shares repurchased during the prior period were cancelled, with
none held as treasury shares at the end of the prior reporting
period. An amount of GBPnil (June 2022: GBP0.8m, December 2022:
GBP0.9m), equivalent to the nominal value of the cancelled shares,
has been transferred to the capital redemption reserve. Costs of
GBPnil (June 2022: GBP0.7m, December 2022: GBP0.8m) associated with
the transfer to the Group of the repurchased shares and their
subsequent cancellation were charged to the profit and loss
reserve.
B. Dividends
The following dividends were paid by the Group:
Six months Year to
Six months to 31 Dec
to 30 Jun 30 Jun 2022 2022
2023 GBPm GBPm GBPm
============================================== ========== ============ =======
Final dividend for the year ended 31 December
2022 of 21.3p per share
(2021: 16.1p per share) 87.9 60.7 60.7
Interim dividend for the six months ended
30 June 2022 of 7.5p per share
(2021: 6.4 per share) - - 28.0
============================================== ========== ============ =======
87.9 60.7 88.7
============================================== ========== ============ =======
An interim dividend of 9.6p per share for the period ending 30
June 2023 was approved by the Board on 26 July 2023 and will be
paid on 1 September 2023 to shareholders who are on the register at
close of business on 4 August 2023. The Dividend Reinvestment Plan
(DRIP) is available to ordinary shareholders and the final date for
receipt of elections to participate in the DRIP is 10 August
2023.
9 NOTES TO THE STATEMENT OF CASH FLOWS
A. Reconciliation of cash generated from operations
Six months
Six months to 30 Jun
to 30 Jun 2022
2023 GBPm GBPm
======================================================== ========== ==========
Cash flows from operating activities
Operating profit - continuing operations 305.5 207.3
Operating profit - discontinued operations - 20.5
Adjusting items 21.2 (3.3)
Amortisation including non-adjusting impairment charges 5.7 6.4
Depreciation of property, plant and equipment including
non-adjusting impairment charges 23.7 14.3
Depreciation of right-of-use assets 40.3 26.9
Profit on disposal of property, plant and equipment
and intangible assets (0.3) (1.4)
Gain on disposal of right-of-use assets (0.1) (0.8)
Share-based payments charge 6.8 5.3
Increase in inventories (195.7) (102.8)
Increase in trade and other receivables (43.0) (134.5)
Increase in trade and other payables 273.9 316.8
Increase in provisions 6.6 7.0
Pension contributions more than pension charge for
the period(1) (0.3) (2.1)
Increase in interest in leased vehicles (0.8) (0.4)
Payments in respect of operating adjusting items (20.6) (4.7)
Other non-cash items 0.7 0.5
======================================================== ========== ==========
Cash generated from operations 423.6 355.0
======================================================== ========== ==========
1. Includes additional payments of GBPnil (30 June 2022: -
GBP2.1m).
B. Net debt reconciliation
Liabilities from financing
activities Assets
============================== ============================== ===========
Cash/bank Total
Borrowings Leases Sub-total overdrafts net debt
GBPm GBPm GBPm GBPm GBPm
============================== ========== ======= ========= =========== =========
Net (debt)/funds at 1 January
2022 (210.0) (324.1) (534.1) 588.8 54.7
============================== ========== ======= ========= =========== =========
Cash flows 2.0 30.7 32.7 108.7 141.4
Acquisitions (4.5) (32.9) (37.4) (77.7) (115.1)
Disposals - 13.1 13.1 (32.3) (19.2)
New lease liabilities - (13.3) (13.3) - (13.3)
Transferred from liabilities
held for sale - - - - -
Foreign exchange adjustments 0.5 (14.7) (14.2) 63.3 49.1
============================== ========== ======= ========= =========== =========
Net (debt)/funds at 30 June
2022 (212.0) (341.2) (553.2) 650.8 97.6
============================== ========== ======= ========= =========== =========
Cash flows (598.3) 33.3 (565.0) 688.1 123.1
Acquisitions (617.1) (140.8) (757.9) (317.5) (1,075.4)
Disposals - - - 15.3 15.3
New lease liabilities - (45.1) (45.1) - (45.1)
Foreign exchange adjustments (0.4) (5.6) (6.0) 13.4 7.4
============================== ========== ======= ========= =========== =========
Net (debt)/funds at 1 January
2023 (1,427.8) (499.4) (1,927.2) 1,050.1 (877.1)
============================== ========== ======= ========= =========== =========
Cash flows 432.0 46.0 478.0 (561.0) (83.0)
Acquisitions (7.4) - (7.4) (4.3) (11.7)
New lease liabilities - (33.5) (33.5) - (33.5)
Other non-cash movements (3.1) (2.0) (5.1) - (5.1)
Foreign exchange adjustments (7.9) 8.9 1.0 (34.6) (33.6)
============================== ========== ======= ========= =========== =========
Net (debt)/funds at 30 June
2023 (1,014.2) (480.0) (1,494.2) 450.2 (1,044.0)
============================== ========== ======= ========= =========== =========
9 NOTES TO THE STATEMENT OF CASH FLOWS CONTINUED
Net debt is analysed as follows:
As at As at As at
30 Jun 31 Dec 30 Jun
2023 2022 2022
GBPm GBPm GBPm
================================================== ========= ========= =======
Cash and cash equivalents as per the balance
sheet 571.4 1,064.2 654.6
Borrowings - disclosed as current liabilities (251.1) (546.3) (5.8)
Add back: amounts treated as debt financing
(see below) 129.9 532.2 2.0
================================================== ========= ========= =======
Cash and cash equivalents as per the statement
of cash flows 450.2 1,050.1 650.8
Debt financing
Borrowings - disclosed as current liabilities
and treated as debt financing (see above) (129.9) (532.2) (2.0)
Borrowings - disclosed as non-current liabilities (884.3) (895.6) (210.0)
Lease liabilities (480.0) (499.4) (341.2)
================================================== ========= ========= =======
Debt financing (1,494.2) (1,927.2) (553.2)
================================================== ========= ========= =======
Net (debt)/funds (1,044.0) (877.1) 97.6
Add back: lease liabilities 480.0 499.4 341.2
================================================== ========= ========= =======
Adjusted net (debt)/cash (564.0) (377.7) 438.8
================================================== ========= ========= =======
Borrowings disclosed as current liabilities include the current
portion of the Private Placement Loan Notes and 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 31 Dec 30 Jun
2023 2022 2022
GBPm GBPm GBPm
================================== ======= ======= =======
Cash at bank and cash equivalents 496.1 640.7 555.3
Short-term deposits 75.3 423.5 99.3
Bank overdrafts (121.2) (14.1) (3.8)
================================== ======= ======= =======
450.2 1,050.1 650.8
================================== ======= ======= =======
GBP91.5m (31 December 2022: GBP91.4m; 30 June 2022: GBP77.0m) 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 DISP OSALS
A. Acquisitions
The Group, to expand its aftersales capacity in Singapore,
acquired certain assets and liabilities, and the ongoing
operations, from Auto Insure Ptd. Ltd. for cash consideration of
GBP3.9m. Provisional goodwill of GBP3.9m arose on the
acquisition.
B. 2022 Acquisitions
Acquisition of the Derco Group
On 31 December 2022, the Group acquired 100% of the share
capital of Dercorp CL and merged a subsidiary company with Dercorp
Ex (together with Dercorp CL "Derco") for consideration of
GBP723.1m, satisfied by the issue of 38.5m new shares in the
Inchcape group and by GBP407.3m in cash.
Adjustments to the acquisition balance sheet, which remains
provisional at June 2023, recognised in the period have resulted in
an increase to the provisional goodwill of GBP11.1m.
Other acquisitions
The acquisition accounting in respect of the acquisition of 70%
of Comercializadora Ditec Automoviles S.A., and the entire share
capital of ITC Group, was finalised in the period, with no further
measurement period adjustments made.
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 2023, 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 2022.
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 2022.
B. Foreign currency risk
The Group publishes its consolidated interim financial
statements in sterling and faces currency risk on the translation
of its earnings and net assets, a significant proportion of which
are in currencies other than sterling.
Transaction exposure hedging
The Group has transactional currency exposures, where sales or
purchases by an operating unit are in currencies other than in that
unit's reporting currency. For a significant proportion of the
Group these exposures are removed as trading is denominated in the
relevant local currency. In particular, local billing arrangements
are in place for many of our businesses with our brand partners.
The principal exception is for our business in Australia which
purchases vehicles in Japanese yen and our South and Central
American businesses which purchase vehicles in Japanese yen and US
dollars.
In this instance, the Group seeks to hedge forecast
transactional foreign exchange rate risk using forward foreign
currency exchange contracts. The effective portion of the gain or
loss on the hedge is initially recognised in the consolidated
statement of comprehensive income to the extent it is effective.
When the hedged forecast transaction results in the recognition of
a non-financial asset or liability then, at the time the asset or
liability is recognised, the associated gains or losses that had
previously been recognised in other comprehensive income are
included in the initial measurement of the acquisition cost or
other carrying amount of the asset or liability.
For all other cash flow hedges, the gains or losses that are
recognised in other comprehensive income are transferred to the
consolidated income statement in the same period in which the
hedged forecast transaction affects the consolidated income
statement. Under IFRS 9 Financial Instruments, hedges are
documented and tested for the hedge effectiveness on
an ongoing basis.
C. Interest rate risk
The Group's interest rate policy has the objective of minimising
net interest expense and protecting the Group from material adverse
movements in interest rates. The Group's exposure to the risk of
changes in market interest rates arises primarily from the floating
rate interest payable on the Group's bank borrowings,
supplier-related finance and the returns available on surplus cash.
For the Group's corporate debt, excluding the Revolving Credit
Facility, around 70% is at fixed rates and over 50% has a maturity
of at least 3 years.
D. Credit risk
Credit risk represents the risk that a counterparty will not
meet its obligations leading to a financial loss for the Group.
Credit risk arises from cash and cash equivalents, trade
receivables and other financial assets. The Group monitors its
credit exposure to its counterparties via their credit ratings
(where applicable) and through its policy of limiting its exposure
to any one party to ensure that they are within Board approved
limits and that there are no significant concentrations of credit
risk. Group policy is to deposit cash and use financial instruments
with counterparties with a long-term credit rating of A or better,
where available. The concentration of credit risk with respect to
trade receivables is very limited due to the Group's broad customer
base across a number of geographic regions and the historically low
default loss percentage incurred by the Group.
E. Liquidity risk
As at 30 June 2023, the committed funding facilities of the
Group comprised a syndicated revolving credit facility of GBP700m
(31 December 2022: GBP700m), sterling Private Placement Loan Notes
totalling GBP210m (31 December 2022: GBP210m) and a term loan
facility of GBP250m (31 December 2022: GBP250m). As at 30 June
2023, GBP120m of the GBP700m syndicated revolving credit facility
was drawn (31 December 2022: GBPnil).
The Group entered into the syndicated revolving credit facility
of GBP700m in February 2019, with an initial expiry date of
February 2024 and options, at lender discretion, to extend until
2026. Lenders approved the first extension option in February 2020
resulting in the GBP700m commitment extending to 2025. Lenders with
total commitments of GBP620m approved the second extension option
in February 2021, resulting in GBP620m of commitments being further
extended to 2026.
11 FINANCIAL RISK MANAGEMENT CONTINUED
Private Placement Loan Notes of GBP70m mature in May 2024, and
the GBP250m term loan facility matures in December 2024. 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 2023.
In June 2023, the Group issued GBP350m Guaranteed Notes ("the
Notes") due 2028 with a coupon rate of 6.5%. The proceeds from the
issue of the Notes were used to repay the GBP350m Bridge Facility
entered into as part of the acquisition of the Derco group in
2022.
F. 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 are uncommitted facilities and have a maturity of 180
days or less. 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 2023, the total amount
outstanding under such arrangements was GBP1,695.7m (31 December
2022: GBP1,422.5m).
Vehicle funding facilities are subject to SONIA (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.
G. 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 2023 As at 31 December 2022
===================== ============================== ============================
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 - 23.6 - 23.6 - 54.2 - 54.2
Financial assets at
fair value through
other comprehensive
income 1.0 - 2.9 3.9 0.9 - 2.6 3.5
===================== ===== ======= ===== ======= ===== ====== ===== ======
1.0 23.6 2.9 27.5 0.9 54.2 2.6 57.7
===================== ===== ======= ===== ======= ===== ====== ===== ======
Liabilities
Derivatives used for
hedging - (122.4) - (122.4) - (39.5) - (39.5)
===================== ===== ======= ===== ======= ===== ====== ===== ======
- (122.4) - (122.4) - (39.5) - (39.5)
===================== ===== ======= ===== ======= ===== ====== ===== ======
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 primarily represents the Group's equity interest in Hino
Motors Manufacturing Company SAS. Fair value is based on discounted
free cash flows, using the projection of annual income and expenses
mainly based on historical financial figures.
11 FINANCIAL RISK MANAGEMENT CONTINUED
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 2023.
The Group's derivative financial instruments comprise the
following:
Assets Liabilities
===================== ================
As at As at As at
As at 31 Dec 30 Jun 31 Dec
30 Jun 2023 2022 2023 2022
============ ======= ======= =======
GBPm GBPm GBPm GBPm
=================================== ============ ======= ======= =======
Cross currency interest rate
swaps - 4.4 - -
Forward foreign exchange contracts 23.6 49.8 (122.4) (39.5)
=================================== ============ ======= ======= =======
23.6 54.2 (122.4) (39.5)
=================================== ============ ======= ======= =======
12 ASSETS HELD FOR SALE
As at As at
30 Jun 31 Dec
2023 2022
GBPm GBPm
===================== ======= =======
Assets held for sale 18.0 19.0
===================== ======= =======
Assets held for sale relate to surplus properties in the United
Kingdom and Australia, which are actively marketed with a view to
sale.
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 2022.
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 2023.
B. Contingencies
Franked Investment Income Group Litigation Order
Inchcape is a participant in an action in the United Kingdom
against HMRC in the Franked Investment Income Group Litigation
Order ("FII GLO"). As at 30 June 2023, there were 17 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. As previously reported, the Supreme Court has returned
the test case to the High Court to establish when the claimant in
the test case could have reasonably discovered its mistake about
the UK tax treatment of such profits. The case has now been listed
to be heard by the High Court in November 2023.
As at 30 June 2023, 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 that the test case
has not yet been completed nor has Inchcape's specific claim been
heard by the Courts.
14 FOREIGN CURRENCY TRANSLATION
The principal exchange rates used for translation purposes are
as follows:
Average rates Period end rates
================== ============================ ============================
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2023 2022 2022 2023 2022 2022
================== ======== ======== ======== ======== ======== ========
Australian dollar 1.84 1.81 1.78 1.91 1.76 1.77
Chilean peso 1,000.41 1,070.80 1,073.09 1,016.96 1,118.04 1,028.42
Ethiopian birr(1) 69.60 66.35 64.72 69.60 63.50 64.72
Euro 1.14 1.19 1.17 1.16 1.16 1.13
Hong Kong dollar 9.68 10.18 9.70 9.95 9.56 9.44
Russian rouble(2) N/A 106.85 106.85 N/A 78.92 78.92
Singapore dollar 1.65 1.77 1.71 1.72 1.69 1.62
US dollar 1.23 1.30 1.24 1.27 1.22 1.21
================== ======== ======== ======== ======== ======== ========
1. The results for Ethiopia are translated at the closing rate,
rather than the average rate, as required by IAS 21 The Effects of
Changes for Foreign Exchange Rates for hyperinflationary foreign
operations.
2. Average rates for the Russian rouble represent the average
rates for the 5-month period ending 31 May 2022 an d the closing
rates for the Russian rouble are as at the date of disposal of the
Russian operations in 2022.
15 EVENTS AFTER THE REPORTING PERIOD
Stuart Rowley was appointed as a Non-Executive Director with
effect from 17 July 2023.
16 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.
The Group's income statement and segmental analysis identify
separately adjusted 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 adjusting items.
Adjusting 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. Adjusting items
excluded from adjusted results can evolve from one financial period
to the next depending on the nature of adjusting 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
Measure Definition Why we measure it
================== ===================================== ==================================
Adjusted gross Gross profit before adjusting A key metric of the direct
profit items. profit contribution from
the Group's revenue streams
(e.g. Vehicles and Aftersales)
================== ===================================== ==================================
Adjusted operating Operating profit before adjusting A key metric of the Group's
profit items. underlying business performance.
================== ===================================== ==================================
Operating Operating profit (before adjusting A key metric of operational
margin items) divided by revenue. efficiency, ensuring that
we are leveraging global
scale to translate sales
growth to profit.
================== ===================================== ==================================
Adjusted profit Represents the profit made A key driver of delivering
before tax after operating and interest sustainable and growing
expense excluding the impact earnings to shareholders.
of adjusting items and before
tax is charged.
================== ===================================== ==================================
Adjusting Items that are charged or credited The separate reporting of
items in the consolidated income adjusting items helps provide
statement which are material additional useful information
and non-recurring in nature. regarding the Group's underlying
Refer to note 3. business performance and
is consistent with the way
that financial performance
is measured by the Board
and the Executive Committee.
================== ===================================== ==================================
Adjusted earnings Represents earnings per share A measure useful to shareholders
per share excluding the impact of adjusting and investors to understand
items. the earnings attributable
to shareholders excluding
the impact of adjusting
items.
================== ===================================== ==================================
Net capital Cash outflows from the purchase A measure of the net amount
expenditure of property, plant, equipment invested in operational
and intangible assets less facilities in the period.
the proceeds from the disposal
of property, plant, equipment
and intangible assets. Refer
to page 38.
================== ===================================== ==================================
Free cash Net cash flows from operating A key driver of the Group's
flow activities, before adjusting ability to 'Invest to Accelerate
cash flows, less normalised Growth' and to make distributions
net capital expenditure and to shareholders.
dividends paid to non-controlling
interests. Refer to page 38.
================== ===================================== ==================================
Return on Operating profit (before adjusting ROCE is a measure of the
capital employed items) divided by the average Group's ability to drive
(ROCE) of opening and closing capital better returns for investors
employed, where capital employed on the capital we invest.
is defined as net assets add
net debt/ less net funds. Refer
to page 39.
================== ===================================== ==================================
Net (debt)/funds Cash and cash equivalents less A measure of the Group's
borrowings and lease liabilities net indebtedness that provides
adjusted for the fair value an indicator of the overall
of derivatives that hedge interest balance sheet strength.
rate or currency risk on borrowings.
Refer to note 9b.
================== ===================================== ==================================
Adjusted (net Cash and cash equivalents less A measure of the Group's
debt)/net cash borrowings adjusted for the net indebtedness that provides
fair value of derivatives that an indicator of the overall
hedge interest rate or currency balance sheet strength and
risk on borrowings and before is widely used by external
the incremental impact of IFRS16 parties.
lease liabilities. Refer to
note 9b.
================= ==================================== ===================================
Constant currency Presentation of reported results A measure of underlying
percentage compared to prior period translated business performance which
change using constant rates of exchange. excludes the impact of changes
in exchange rates used for
translation.
================= ==================================== ===================================
Organic growth Organic growth is defined as A measure of underlying
sales growth in operations business performance which
that have been open for at excludes the impact of acquisition
least a year at constant foreign and disposals in the period.
exchange rate.
================= ==================================== ===================================
APMs: Reconciliation of income statement measures
Six months Six months
to 30 Jun to 30 Jun
2023 2022
Continuing operations GBPm GBPm
====================================================== ========== ==========
Gross Profit 965.3 615.3
Add back: Adjusting items charged to gross profit - -
====================================================== ========== ==========
Adjusted Gross Profit from continuing operations 965.3 615.3
Less: Segment operating expenses (638.6) (411.3)
====================================================== ========== ==========
Adjusted Operating Profit from continuing operations 326.7 204.0
(Less)/add: Adjusting items in operating expenses (21.2) 3.3
====================================================== ========== ==========
Operating Profit 305.5 207.3
Less: Net Finance Costs and JV profits/losses (101.6) (19.8)
====================================================== ========== ==========
Profit Before Tax 203.9 187.5
Add/(less): Total adjusting Items 45.0 (3.3)
====================================================== ========== ==========
Adjusted profit before tax from continuing operations 248.9 184.2
====================================================== ========== ==========
APMs: Reconciliation of cash flow measures
Six months Six months Six months Six months
to 30 Jun to 30 Jun to 30 Jun to 30 Jun
2023 2023 2022 2022
GBPm GBPm GBPm GBPm
=========================================== ========== ========== ========== ==========
Net cash generated from total operating
activities 265.2 287.1
Add back: Payments in respect of adjusting
items 20.6 4.7
=========================================== ========== ========== ========== ==========
Net cash generated from operating
activities, before adjusting items 285.8 291.8
Purchase of property, plant and equipment (32.5) (24.3)
Purchase of intangible assets (3.2) (1.2)
Proceeds from disposal of property,
plant and equipment 1.2 7.5
=========================================== ========== ========== ========== ==========
Net capital expenditure (34.5) (18.0)
=========================================== ========== ========== ========== ==========
Net payment in relation to leases (45.3) (29.8)
Dividends paid to non-controlling
interests (4.4) (2.9)
=========================================== ========== ========== ========== ==========
Free cash flow 201.6 241.1
Less: Free cash flow from discontinued
operations - (17.4)
=========================================== ========== ========== ========== ==========
Free cash flow from continuing operations 201.6 223.7
=========================================== ========== ========== ========== ==========
APMs: Reconciliation of balance sheet measures
As at As at
30 Jun 30 Jun
2023 2022
GBPm GBPm
===================================================== ======= =======
Adjusted operating profit from continuing operations 326.7 204.0
Adjusted operating profit for the previous 6 month
period from continuing operations 206.8 144.8
===================================================== ======= =======
Adjusted operating profit from continuing operations
on a 12 month basis 533.5 348.8
===================================================== ======= =======
Net assets from continuing operations 1,512.7 1,137.4
Add net debt/less (net funds) 1,044.0 (97.6)
===================================================== ======= =======
Capital employed - continuing operations 2,556.7 1,039.8
Effect of averaging (758.4) (28.7)
===================================================== ======= =======
Average capital employed 1,798.3 1,011.1
===================================================== ======= =======
Return on capital employed 29.7% 34.5%
===================================================== ======= =======
As at As at
30 Jun 31 Dec
2023 2022
GBPm GBPm
============================================= ========= =======
Net debt from continuing operations (1,044.0) (877.1)
Add back: lease liabilities 480.0 499.4
============================================= ========= =======
Adjusted net debt from continuing operations (564.0) (377.7)
============================================= ========= =======
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2023 which comprises the income statement,
the balance sheet, the statement of changes in equity, the cash
flow statement and related notes 1 to 16.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2023 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 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 (ISRE (UK) 2410). 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.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410; however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the company a conclusion on the
condensed set of financial statements in the half-yearly financial
report. Our Conclusion, including our Conclusion Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
ISRE (UK) 2410. 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
26 July 2023
The Directors confirm that the condensed consolidated interim
financial statements in the Interim Report have been prepared in
accordance with UK adopted International Accounting Standard 34,
'Interim Financial Reporting' 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 2022. A list of current
Directors is maintained on the Inchcape plc website
(www.inchcape.com).
On behalf of the Board
Duncan Tait
GROUP CHIEF EXECUTIVE
26 July 2023
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END
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